Robert Torrens and the evolution of classical economics

Citation preview

-330.1 K53r_ Rnhlving, L Eobert Torrens and the evolution of classical economics.

330.1 R53r FORM 3431 8-57

766917/

ROBERT TORRENS AND THE EVOLUTION OF CLASSICAL ECONOMICS

ROBERT TORRENS AND THE EVOLUTION OF CLASSICAL ECONOMICS

BY

LIONEL ROBBINS PROFESSOR OF ECONOMICS IN THE UNIVERSITY OF LONDON

LONDON MACMILLAN 'n jst edition, chapter iii ; in 3rd edition, chapter ii. s Ibid. (3rd edition), p. 51. 98

THE THEORY OF MONEY AND BANKING

tion will involve a loss of metal and eventual danger to the con¬ vertibility of the note issue. Two points about this conception deserve immediate notice. In the first place, it takes full account of local differences of demand for money — or — what comes to the same thing — local differences in velocity. In equilibrium the local circulation will be greater in an area where payments are infrequent and where there is a strong disposition to hoard against possible contingencies than in an area where payments are frequent and the disposition to hoard is less. In his explanation of the causes determining the distribution of the precious metals, Torrens shows himself fully aware of this circumstance ; his particular illustration runs in terms of the diminution of demand for metal which arises with the growth of what he calls ‘arrangements for economizing money’, i.e. banks. ‘ There is not in the whole range of economical science he said, ‘a proposition more surely established in theory, or more generally admitted in practice, than that the efficacy of the circulation is not identical with its money amount. There is not a trader in London,’ he continued with typical Torrensian rhetoric, — ‘ there is not a trader in the world — who is ignorant of the fact that the efficacy of money is determined by two separate causes — numerical amount and rapidity of circulation.’1 Secondly, it involves a conception of redundancy which is strictly relative. In his anti-Bullionist days, Torrens would have been inclined to argue that redundancy of currency — or excess issue — could only be proved if it could be shown that issues had positively increased or that the prices of ‘coarse goods’ had risen.2 But, as a follower of Ricardo in this respect and an exponent of the outlook of the Currency School, his position was entirely different.3 The conception of excess 1 Principles (3rd edition), p. 115. 2 See above, pp. 81-2. 3 Ricardo got himself into much trouble in this connection — both in his own day and in ours. But his intention is very clearly stated in an early letter to Malthus. ‘It is probable that the word “redundancy” has not been happily chosen by me to express the impression made on my mind of the cause of an unfavourable balance of trade, but on looking over the article in the Review I find that you use it precisely in the sense in which I wish to convey my meaning; for you admit that a relatively redundant currency may be and frequently is, a cause of an unfavourable balance of trade but you contend that it is not the only cause. Now I so understanding the word, contend that it is the invariable cause. This relative redundancy may be produced as well by a diminution H

99

ROBERT TORRENS

related to an equilibrium which itself could change in either direction. A currency could therefore become excessive, either because it itself had increased or because the ideal level by which it was to be judged had diminished while it had remained constant or had not diminished so much. Nothing could be more explicit than his summing up on this point. ‘The banknote circulation becomes redundant, when its amount exceeds the amount of the coin which would remain in circulation were there no banknotes in existence. Contractions and expansions of the banknote circulation supply no test of deficiency or excess : in as much as the same amount of notes which would be deficient under one set of circumstances may, upon an alteration of these circumstances, become redundant.’ So much for foundations. What distinguished the Currency School, however, was perhaps not so much their thorough¬ going acceptance and exploitation of this tradition, as the further corollary which they added to it. The Bullionists had recognized that excess issue in the Ricardian sense was a danger to the equilibrium of the balance of payments. But, in general, they had been content to assume that the require¬ ment of convertibility of the note issue would be a sufficient safeguard against this danger — and this, too, was the attitude of the Banking School, the antagonists of Overstone and Torrens. It was the characteristic contribution of the Currency School to contend that this safeguard was not sufficient — that the requirement of convertibility was not enough to prevent occasional redundancy of a mixed currency and the accompanying danger to the convertibility of the note issue ; and that the only safeguards against such dangers were laws or regulations which brought it about that the fluctuations of the note issue were exactly such as would have happened had the circulation been wholly metallic. In this respect, therefore, it should be noted that they were more interventionist than their predecessors. Not only the convertibility of note issues was to be enforced but also the principle on which their volume was to be regulated. of goods as by an actual increase of money, (or which is the same thing by an increased economy in the use of it) in one country; or by an increased quantity of goods or by a diminished amount of money in another’ (Works (ed. Sraffa), vol. vi, pp. 25-6). That is to say the relative redundancy is the ‘invariable cause’ of an unfavourable balance. But it itself may be caused (‘produced’) equally by influences operating on the side of goods as on the side of money. In the end, therefore, it is all a question of how the word ‘cause’ is to be used. IOO

THE THEORY OF MONEY AND BANKING

(2)

The Practical Prescriptions of the Currency School

How was this principle to be realized in practice ? In a system which was being planned from the beginning, from the point of view of the Currency School, the most obvious solution would have been a State Bank of issue with one hundred per cent, cover. Ricardo’s Plan for a National Bank had invoked the principle of the separation of the business of issue from the business of banking.1 The constitution of the Bank of Hamburgh, whose notes were all certificates for metal received, provided a concrete example of the ideal. It was cited as such by both Torrens and Overstone.2 But the banking system with which they were concerned was not being planned from the beginning. It was a going concern, with interests both of the Bank of England and of the country banks very firmly established. To launch a frontal attack on this system would have been heroic. But it would not have been the best way to achieve practical results. Samson Ricardo, it is true, resuscitated his brother’s plan;3 and Torrens and Overstone made it quite plain that they would have supported such a system if necessary. But the proposals which they actually put forward and which were the basis of the Act of 1844,4 while safeguarding completely the main principle, contained a substantial element of compromise, both as regards the issue and as regards the position of institutions. As Torrens urged, ‘the establishment of a single bank of issue, however desirable, had we to legislate upon the subject de novo, 1 Works (ed. Sraffa), vol. iv, pp. 270-300. Substantially the same proposals had been put forward by Joplin and Drummond, see Joplin, Outlines of .. . Political Economy (1823), pp. 258-77 ; and Drummond, Elementary Propositions on the Currency, pp. 47-8 (3rd edition), 1826. Joplin’s claim that he had been plagiarized by Ricardo, Analysis of the Currency Question (1832), p. 128 seq., is, of course, most unplausible. 2 See Torrens, Principles (3rd edition), p. 275 ; Overstone, Evidence before Committee on Banks of Issue, 1840, Q.. 2766. Tracts (ed. McCulloch), p. 384. 3 See his pamphlet, A National Bank the Remedy for the Evils attendant upon our Present System of Paper Currency, 1838. 4 There is no reason to suppose that they were directly concerned with the framing of the Act. Overstone specifically stated, Evidence before the 1857 Com¬ mittee, p. 378, that he never met Peel or spoke to him about it, and I know nothing which would suggest that Torrens was more deeply implicated. But there can be no doubt that it was their system of thought (which of course was shared by G. W. Norman, himself a director) which indirectly shaped the plans which the Bank and the Government put forward. IOI

ROBERT TORRENS

would be inexpedient and unpracticable, now that there have grown up under legal sanction, numerous banks of issue, the extinction of which would involve an inconvenient and even calamitous change in the established usages and course of business throughout the country. The only measure of Banking Reform which can, under existing circumstances, be brought forward with a probability of success is, to place the banks of issue under such regulations as may secure the constant and uniform application of the cardinal principle, of making the paper currency expand and contract as an exclusively metallic currency would expand or contract, under similar circumstances.’1 As regards the note issue, from the point of view of the Currency Principle, the essential requirement was not that every note in circulation should be backed by metal but that every fluctuation in the circulation should have its metallic counterpart. From this point of view, provided that the total amount of notes issued against securities was fixed at a point safely below the point to which total issues were ever likely to fall, there was no harm in fiduciary issues. Provided that every note issued above this limit had an exact metallic counter¬ part, the circulation as a whole would fluctuate as it would have done had it been wholly metallic. It is true that, other things being equal, the total amount of metallic money in the country would be that much less. But against that there would be a saving of interest and a continuity with the status quo. Accordingly, an absolute upper limit was fixed to the issues of the country banks — the average of their recent operations — and the Bank of England was allowed a fidu¬ ciary issue of £14,000,000 2 — which might in the future be raised by the loss of issue rights of the country banks — but, beyond that point it was compelled to back every note issued, with an equivalent amount of bullion. It is perhaps worth noting at this point that, at the outset, Torrens did not see eye to eye in this connection with the other members of the School. Where the Bank of England was concerned, there was complete unanimity concerning the necessity for the strictest control of its issues — this was, of 1 Supplement, pp. 8-9. 2 On the basis of calculation an account is given by Torrens, Principles (3rd edition), pp. 57-60. The authenticity of this receives some confirmation from the fact that it is quoted by Hankey, a Governor of the Bank from 1851 to 1852. (See his Principles of Banking, 4th edition, pp. 4-8.) 102

THE THEORY OF MONEY AND BANKING

course, the central practical proposal of the School as a whole ; and from his speech in the House of Commons on the renewal of the charter onwards, this was the central point on which Torrens insisted. But where the country banks were concerned, at first he was more lenient. In the Letter to Lord Melbourne he went out of his way to urge that in this sphere control was unnecessary; ‘if the issues of the Bank of England’, he argued, ‘were regulated by the foreign exchanges, it would be im¬ possible for the provincial banks to keep an excess of paper in circulation’.1 The ‘necessary result of such excessive issue would be, that the currency of the provinces would be rendered redundant, in relation to the currency of the metropolis. Prices would rise in the country markets without a corre¬ sponding rise in the London markets; a greater quantity of goods would be sent from London to the provinces, and a less quantity from the provinces to London; the balance of pay¬ ments would be turned in favour of London, and against the provinces; and the merchants and dealers of the provinces, who had remittances to effect, would return the excess of paper upon the banks which had issued it, and demand bills upon London in exchange ; and hence, to whatever extent the undue expansion of the provincial currency might have been carried, this certain and speedy process of contraction would restore it to par with the currency of London.’2 Whether, in fact, the prospect thus diagnosed was a sufficient safeguard against over-issue in the provinces, it is obvious that the assumption that it was, was out of tune with the general attitude of the School. For it was their main con¬ tention in regard to the central bank that the mere prospect of adverse reaction was an insufficient safeguard against the danger of over-issue ; it was for that reason that they wished to add positive regulation to the mere obligation to maintain convertibility. It is not surprising, therefore, to find that, on this point, Torrens was called to book by Overstone, who showed that there was no guarantee of automatic response by the country banks to changes in the policy of the Bank of England and summed up the nature of the difference between them in a trenchant contrast: “‘When the Bank of England”, says Colonel Torrens, “decrees contraction, the country banks of issue, instead of resisting, obey and suffer”. It would have been more consonant, as we conceive, to the real course of 1 Letter to Lord Melbourne, p. 48.

103

2 Ibid. p. 50.

ROBERT TORRENS

events, had he said, the country banks of issue first resist, then suffer, and, in the end, submit.’1 By the time he came to publish his Inquiry, Torrens had come into line. ‘A careful examination of this important branch of the subject’, he wrote, ‘will furnish us with abundant evidence that no management on the part of the directors of the Bank of England can by possibility maintain the currency in this sound and healthy state, so long as the numerous banks of issue throughout the provinces shall continue to act upon their avowed principle, of uttering their paper without reference to the action of the foreign exchanges, and without regard to the principle of keeping the securities at a uniform amount.’2 So much for the principles of issue. But all regulations to this effect would have been unsatisfactory, if at the same time provision were not made for preventing the metal which was used as backing to the issue from being used for any other purpose. If it were possible for such metal to be drawn out immediately, via the deposits, without a corresponding cancel¬ lation of notes in circulation, then plainly the requirement of exact correspondence between fluctuation of notes and metal would be evaded. It was this possibility which, rightly or wrongly, the members of the Currency School regarded as the fatal defect of the famous Palmer rule, on which the policy of the Bank of England had been supposed to be based in the thirties. It was, therefore, a central requirement that it should not exist under the system which they proposed. This then was the rationale of the celebrated division between departments, whose genesis we have already noted in Overstone’s talk at the Political Economy Club and Torrens’ Letter to Lord Melbourne. The Bank of England was to be divided into two main departments, the Issue Department and the Banking Department. The Issue Department was to hold the gold against which notes were issued. The fiduciary issue being assumed to be already in circulation, no issue could take place unless gold was brought in ; no gold could be with¬ drawn unless notes were presented and cancelled. The Banking Department which was to carry on ‘the normal business of banking’ was entirely separate. It had to keep its own reserve of notes. If a depositor wished to withdraw gold, 1 Remarks on the Management of the Circulation, etc. pp. i oo-1. 2 Op. cit. p. 39.

104

Tracts (ed. McCulloch),

THE THEORY OF MONEY AND BANKING

he had to turn his deposit into notes in the Banking Depart¬ ment and then take the notes across to the Issue Department to present them in exchange for gold. In this way it was made impossible for the gold resources of the bank to be depleted without a contraction of the circulation. To all intents and purposes, therefore, although they lived in the same building and bore the same name, the business of issue and the business of banking were to be conducted by different institutions.

(3)

The Role of Bank Credit in the Currency Theory

Up to this point everything has been comparatively plain sailing. On the assumption that the means of payment are composed exclusively of notes and coin, then, if it is desired to ensure the convertibility of the notes and to maintain a con¬ tinual tendency to equilibrium with the outside world, the measures proposed by the Currency School were, surely, consistent and sensible. Needless to say, the objective may not be accepted : considerations of internal stability may be held to have priority over the maintenance of external equilibrium — in which case there would be much to be said about the programme, as Torrens himself would have urged in his antiBullionist phase. But, given the objective, and given the assumption that notes and coins are the sole means of payment, there is nothing inappropriate about the means proposed or the claims made for them. But is the assumption itself appropriate ? Can it be assumed that coins and notes are the only means of payment ? Certainly it would be quite wrong to attribute so simpliste an assumption as this to Torrens, or even to his associates who knew perfectly well that, in the world of their day, a great many payments were made in other ways. But, if there are other means of payment, what happens to the Currency Principle ? If large numbers of payments are made by credit instruments of one kind and another, is regulation of the note issue alone sufficient to preserve external equilibrium? Are there not, in the sphere of the ‘auxiliary media’, as Torrens called them, possibilities of variation which, equally with variations in the note issue, may disturb the tendency to an equilibrium distribution of the precious metals ? What, indeed, is the justification for treating notes, which have the 105

ROBERT TORRENS

amount of the metallic money which they represent printed upon them, as being something entirely different from cheques on which the amount is written by the owner of a deposit. Objections of this sort were strongly urged by the critics of the Currency School, especially by Tooke and his associates, the exponents of the so-called Banking Principle, and they certainly need an answer. The first answer — an answer which would have been supported by all members of the Currency School was to deny outright the alleged identity of significance of notes and other credit instruments.1 Legal tender notes, argued Torrens, possess, equally with metallic money, the power of definitely closing transactions between payer and payee.2 This power is not possessed by cheques (which are not effective until they are honoured) or by bills of exchange or by any other kind of credit instrument. ‘A holds a bill of exchange upon B for £1,000. B holds a bill of exchange upon A for -£1,200, and an adjustment takes place by A’s paying to B £200 in bank notes. If bills of exchange were money equally with bank notes, the final adjustment and liquidation might have been effected by A’s giving to B a bill of exchange for £200.’ Notes are therefore money, the rest only substitutes for money — ‘ auxiliary media’.3 Now from the point of view of business practice there is much to be said for this attitude. It is true that the banker who regards deposits in another bank as equivalent to notes in his till is not necessarily justified. It is true that the merchant who regards bills as so equivalent is running very 1 Tooke had gone so far as to charge the Currency School with confusion in treating convertible and inconvertible notes as being on the same footing as regards the performance of the money function, himself treating convertible notes as equivalent to cheques and inconvertible notes as equivalent to coin. (Inquiry into the Currency Principle (1844).) It is easy to see what he meant : in a system of convertible notes, the notes were part of the credit structure and in principle could always be turned into their metallic equivalent, while in a system of in¬ convertibility they were the ultimate means of payment. But it was easy, too, for Torrens to score a fair debating point. ‘According to this doctrine, con¬ vertibility demonetizes, while inconvertibility monetizes paper currencies. Previ¬ ous to the suspension of cash payments, the notes of the Bank of England were not money, because they were convertible into coin ; after the suspension they became money, because they were not convertible into coin ; and on the resump¬ tion of cash payments, the power of converting them into coin again divested them of the character of money’ (Principles, 3rd edition, pp. 4-5). 2 Principles (3rd edition), pp. 3-9. 3 Inquiry, p. 9. 106

THE THEORY OF MONEY AND BANKING

grave risks.1 To regard the demand for liquidity as equally satisfied by all forms of purchasing power is to simplify away the main problems of the short-term money market. Furthermore, if it was true, as Torrens and his friends thought, that the financial crises of the twenties and thirties had been crises of confidence in the convertibility of notes, then it was true that this danger was completely banished by the principles of the Act. If the law of issue stipulates that above a certain limit, so low as never to be reached in practice, there must be an exact correspondence between notes issued and bullion held against them, it is tediously obvious that convertibility in this sense is guaranteed. And, of course, as Torrens and Overstone never ceased to emphasize,2 nothing that happened after the passage of the Act could be held to invalidate that claim. However low the reserve of notes in the Banking Department, however desperate the general credit situation, it was always true that the Issue Department had ample gold to cash any notes which might be presented for payment. It was true, therefore, that the movements of the circulation of coin and notes corresponded with what, other things being the same, would have been the movements of a circulation which was wholly metallic. Nevertheless, from the point of view of the theory of ex¬ ternal exchange, all this still left many questions unanswered. Agreed that, under the provisions of the Act, the movements of the mixed circulation (■i.e. coins plus notes) corresponded with what would have been the movements of a purely metallic circulation, what of movements outside the circulation but within the sphere of general power to purchase ? Was it true that the movements of the totality of the means of payment (i.e. coin plus notes — the ‘circulation’ — plus ‘auxiliary media’ — bank deposits and so on) also showed a similar correspondence ? And if not, what of the claim that the mere regulation of the circulation was an effective guarantee of external equilibrium. 1 Torrens was especially persuasive on the distinction between bills and money. ‘When an additional amount of bills of exchange is brought into the discount market, the demand for money capital is increased ; and when an addi¬ tional amount of bank notes is brought into the discount market, the supply of money capital is increased. In the former case the rate of interest is raised, in the latter it is lowered’ (Principles, 3rd edition, p. 16). 2 See, e.g., their joint comments, The Petition of the Merchants, Bankers and Traders of London against the Bank Charter Act, reprinted in Lord Overstone’s Tracts (ed. McCulloch), pp. 285-308.

ROBERT TORRENS

Now for Overstone and Norman and probably most other members of the School this question does not seem to have been very important. Needless to say, it would be quite wrong to suggest that they were not aware that the existence of banks, clearing arrangements and the like affected the volume of metal to which, according to Ricardian theory, an area was entitled. On this point Overstone’s statement in 1840 to the Committee on Banks of Issue is typical. ‘Deposit business is a mode of economizing the use of the circulation ; by means of resorting to that process, a greater amount of obligations or of transactions can be adjusted with a smaller amount of circulating medium than could otherwise take place. The amount of deposits which the Bank of England, or any other bank, holds, is worked by that concern with a certain reserve of bank notes, which reserve is measured in its extent by what that concern considers to be the average quantity of demand that will be made upon it. By that means, that reserve is enabled to perform an amount of business which, without the process of banking deposit business, it would have required an amount of circulation equal to the whole deposits to have performed. By that means, undoubtedly, an economic use of the circulation is effected, but an economic use of the circula¬ tion is not itself circulation.’1 That is to say, they regarded the operation of banks as affecting the demand for money or its velocity of circulation; and as we have already seen, the velocity of circulation was one of the elements taken for granted in their fundamental theoretical position. But, beyond this, they were not very inquisitive. It is extraordinarily difficult to know to what extent they realized the power of the banking system, not merely to provide clearing arrangements which diminished the demand for money, but further positively to create instruments which enlarged the money supply. Samson Ricardo definitely denied it.2 Norman 1 Tracts, etc. (ed. McCulloch), p. 461. 2 He did this in a definite criticism of Torrens’ demonstration to the contrary. ‘It is to be regretted’, he wrote, criticizing Torrens, ‘that the value of this other¬ wise very able Treatise’ (i.e. The Letter to Lord Melbourne) ‘is diminished by the theory Colonel Torrens advances with regard to the Bank deposits. Colonel Torrens assumes that there is £10,000,000 of currency engaged in deposits at bankers ; that this is available to the depositor and also employed by the bankers, to whom, when thus employed it is returned in the shape of new deposits, and in this manner may be multiplied to ninety millions or more ; the bankers would be very grateful to Colonel Torrens if he could establish this theory, but it would be difficult to do so. . . .’ (Observations on the Pressure in the Money Market (1837), pp. 19-20.)

I08

THE THEORY OF MONEY AND

BANKING

sometimes denied it, sometimes admitted it.1 Overstone used language which circumnavigated the problem. But it is very clear that, having covered the whole business by broad general¬ ization about the economical use of circulation, they felt exempt from the obligation to pursue the matter any further. Of course, there would be ups and downs of ‘credit’ under commercial banking as there would be even if the means of payment were metallic coins and nothing else. But this was just part of the natural setting, so to speak. The controllable element, the element which could be regulated, was the circulation. For Torrens, however, all this was not so easy. For, so far from regarding the business of deposit banking as being merely the transfer of purchasing power and the provision of means for diminishing the demand for money, he was himself one of the first to draw attention to the more positive role of such operations in creating new spending-power or, as he called it, ‘auxiliary money’. The Letter to Lord Melbourne is notable in the history of monetary theory, not only for its proposal for a separation of the departments, but also for its systematic exposition of the credit-creating power of deposit banking — ‘a subject’, according to its author, ‘of the greatest practical importance . . . which appears to have been over¬ looked by every writer upon the science of money, with the single exception of Mr. Pennington’.2 The section in which this occurs has the caption in italics ‘ Bank Deposits perform the Function of Money’. At an early stage in the argument it is stated to be evident ‘that all the deposits in all the solvent banks throughout the country perform the function of money, form a part of the medium of exchange, and act upon prices, and upon the foreign exchanges, exactly in the same way and to the same extent (my italics), in which the same amount in coin and bank notes would act upon prices and upon the foreign exchanges’.3 There follows an exposition, of the kind made familiar in our own day by Chester Phillips and Crick, of the way in which loans made out of sums lodged with banks do not merely transfer purchasing power but rather increase it by the creation of new deposits in a ratio determined by the pro¬ portion of cash deemed necessary to be kept as a reserve. ‘ I 1 For a revealing account of his inconsistencies in this respect, see Lloyd Mints, A History of Banking Theory, pp. 77-81.

2

Op. cit. p. 12.

3 Ibid. p. 7.

109

ROBERT TORRENS

should not be arguing on an extreme case’, said Torrens, ‘were I to assume that the cash originally deposited by those who keep their accounts with bankers, will be successively re¬ issued upon securities, by the banks, and successively returned to them, in the form of new deposits, until the proportion between the amount of the deposits, and the amount of the cash, is as ten to one.’1 A similar exposition is to be found in the Inquiry of 1844 and in the Edinburgh Review article of 1858. In these later works he would not have used the caption ‘Bank Deposits perform the Function of Money \ as he did in the Letter to Lord Melbourne, without making it quite clear that this referred solely to the function of purchasing, not the function of making final payment. But, in spite of some incautious passages, when he is trying to make clear the distinction between these two functions, there is no reason whatever to suppose that he ever wavered in his fundamental analysis. But having thus perceived the existence in a system of deposit banking of sources of possible manufacture of exchange media additional to the manufacture of note issue, Torrens was surely obliged to furnish additional elucidations. If in a system of mixed currency and deposit banking, the note issue only was to be regulated, what was the guarantee that the behaviour of the total of exchange media would be such as to maintain external equilibrium and a supply of metallic money adequate to support the credit structure ? There is no doubt that Torrens perceived this obligation. Whatever may have been the position of the other supporters of the Currency Principle, he understood very well that the more the banking system manufactures purchasing power in the shape of loan-created deposits — secondary deposits, he called them 2 — the more there was a tendency for the metallic part of the total of exchange media to be displaced. There is an entire section of the Inquiry, written, it should be remembered, in 1844 before the passage of the Act and before the dis¬ appointments and disillusionments of subsequent financial crises, especially devoted to explaining how this can happen. The title is Effects of Deposits, Cash Credits and Checks, under a Metallic Currency, and it is specifically stated that were ‘the currency purely metallic, and were there no bank notes in existence, the overtrading of banks might occasion an undue extension of credit, extravagant speculation, and subsequent 1 Op. cit. pp. 18-19.

2 Op. cit. pp. 9-22. IIO

THE THEORY OF MONEY AND BANKING

reaction, terminating in commercial embarrassment, panic, and insolvency’.1 Nevertheless, it is clear that at this stage of his thought he believed that, were the note issue properly regulated, occurrences of this sort would be improbable. His optimism in this respect was based upon belief in a more or less fixed ratio between reserves and deposits. The fact that the bank note was the normal reserve against liabilities, imposed upon bankers, if they were to remain solvent, the necessity of preserving a certain ratio between these two magnitudes. Control of the note issue, therefore, on the lines of the currency principle, involved via customary reserve ratios, an indirect control of ‘auxiliary media’. This is set out at some length in the Inquiry. Explicit appeal is made to the ‘ proportion between the bank¬ dealing and the non-bank-dealing portion of the public’,2 and the necessity, recognized by all prudent bankers, to ‘maintain a safe proportion between the amount of their cash reserves, and the amount of their advances in discounts and credits’. And the conclusion is drawn that were the ‘currency made to expand as a favourable foreign exchange caused gold to be sent to the bank of issue to be exchanged for coin or bank notes, the cash reserves in the coffers of the banks would be increased, and the bankers would feel themselves safe in re-establishing the ordinary proportion between their advances and their reserves, by increasing the amount of their discounts and credits. On the other hand, if the currency were made to contract, as an unfavourable balance of foreign payments caused paper to be returned upon the bank of issue in exchange for gold, the several banks of deposit would have the amounts of their available cash diminished, and would immediately perceive the necessity of limiting the amount of their discounts and credits in a like proportion. Thus, if the currency were regulated upon the metallic principle, the auxiliary media of exchange which are based upon it would partake, with considerable velocity and exactness, in its expansions and contractions.’3 But all this, be it noted, depended upon the currency being ‘regulated upon the metallic principle’. If the banks possessed a right of note issue which permitted an increase, or even a failure to contract, when the tide of metal was flowing 3

Ibid. p. 29.

1 Ibid. pp. 9-10. 2 Ibid. p. 14. Much the same point is made in the Reply of the same year. 111

ROBERT TORRENS

the other way, then the consequences would be disastrous. ‘ The general rate of interest cannot be materially raised while the amount of the circulation remains undiminished. Its amount is not in the first instance diminished by the rise in the rate of interest. Private bankers and bill-brokers hold the same amount of disposable cash as before; and rather than allow it to remain unproductive in their coffers, employ it in discounts at the same rate of interest as before. No immediate contraction, either of the currency, or of the auxiliary medium of exchange resting upon it, takes place; gold continues to flow out, and the bank directors, in order to protect their establishment from insolvency, are compelled to resort to a sudden and violent contraction of their issues. A panic in the money-market now commences, a general fall in prices, and in the value of securities, arrests the drain, and the convertibility of the bank note is secured through a calamitous commercial revulsion.’1 Only if the Currency Principle was enforced were events of this sort unlikely. Later on Torrens seems to have become less sanguine. The troubles of 1847 in his view were to be attributed to an imprudent conduct of the business of the Banking Department of the Bank of England. And when such troubles were repeated in the mid-fifties, any strong confidence in the good sense and restraint of bankers as a whole seems to have been rudely shaken. At any rate when, in 1858, he reviewed Lord Overstone’s works in the Edinburgh Review his emphasis on the dangers of deposit banking is very much stronger. He now stressed the fact that an excess of credit creation may upset the whole system: ‘when bankers depart from the rules of legitimate banking’, he argued, ‘when . . . they cause the aggregate amount of currency, and of auxiliary money repre¬ sented by book credits, to exceed the amount at which the law of equilibrium would maintain the circulation were banks of discount non-existing, — when bankers thus abandon their duty to themselves and to the public, they inflict upon the country the most serious injury, render more sudden and severe that contraction of the circulation and of credit incident upon a protracted drain of bullion, intensify pressure into panic, and note the severity of the comment — ‘ excite a temporary doubt whether the advantages of discount banking, even when conducted under a metallic currency, balances the evils it 1 Op. cit. pp. 37-8. 112

THE THEORY OF MONEY AND

BANKING

inflicts’.1 And again, ‘It cannot be too often repeated that the aggregate amount of the portion of the circulation in the hands of the public, of reserves, and of book credits, cannot permanently exceed the amount at which the circulation would stand were discount banking non-existent; and that every extension of auxiliary money under the form of book credits must sooner or later be accompanied by a corresponding diminution in the amount of the circulation out of the walls of the issuing body, whether it consist of coin or of convertible paper. In whatever proportion the extension of discount banking increases the efficacy of the circulation, in the same proportion it diminishes its numerical amount, reduces reserves, drives out the bullion, and perils the stability of our monetary system by causing it to rest upon a narrower metallic base.’ 2 It would be wrong to suggest that this attitude is quite new. As we have seen, from the beginning of his thought in this connection, Torrens recognized the existence of such dangers. But the emphasis has certainly changed. Then it was rather an exercise undertaken to show that the Currency Principle was not a cure-all and that the possibilities pointed out by Tooke and his associates had not escaped notice. Now it is the recognition of a menace, a menace which becomes greater and greater, the wider the extension of deposit banking. It is true that Torrens continues to claim that the separation of the departments and the other provisions of the Act have eliminated severe evils. He protests that it is a mistake ‘to assume that it has failed to fulfil the purpose for which it was intended because it has failed to avert commercial disaster, which whether the circulation consist of coin or of paper, excess in discount banking necessarily inflicts. . . . The Act has done what it was intended to do : and it is a manifest and glaring absurdity to charge it with failure for not having done what it was intended not to do.’3 But all this is a long way removed from the glad confident morning of the preface to the Inquiry of 1844 when he could claim that the adoption of the ‘proposed measures’ would ‘effectually prevent the re¬ currence of those commercial revulsions — those cycles of excitement and depression, which, as Mr. Loyd has so felici¬ tously explained, result from the alternate expansion and contraction of an ill-regulated circulation’.4 Doubtless, if 1 Op. cit. pp. 269-70. 3 Ibid. p. 276.

2 Ibid. pp. 271-2. 4 Op. cit. p. iv. 113

ROBERT TORRENS

Torrens were reading this critique, he would draw attention to the limitations in his vocabulary of the word ‘circulation’.1 But he would fail to convince us that his expectations had not suffered some degree of diminution. There was a further question to which, perhaps, some answer might have been expected. Given a monetary system in which bank media bore some sort of fixed relation to reserves and reserves were governed by the Currency Principle, was it to be expected that, other things being equal, the move¬ ments of the total circulation plus bank media would correspond to the movements which could be expected under a purely metallic system ? Or did the assumption of a fixed pro¬ portion between reserves and bank media introduce certain complications ? Now there is an ambiguity here which needs dragging out into the light of day. When we speak of the movements of a system of purely metallic currency we may mean one of two quite distinct things. Either we may mean the movements of a system in which all the means of payment are purely metallic, auxiliary media in Torrens’ sense not having developed. Or we may mean a fully developed system with auxiliary media provided by deposit banks in which, however, the currency is wholly metallic. These conceptions are not identical and, if they are not kept distinctly apart, confusion is likely to arise. On a broad view of his writings, there can be little question that when Torrens claimed that observance of the Currency Principle would ensure that the movements of the circulation would be such as they would have been under a purely metallic system, he had the latter conception in mind. As we have seen, he was obsessed with the fear that under a mixed currency system the fluctuations of the note issue might be such as to drive out metal and so endanger convertibility : and, whatever the other effects, he was surely quite right in claiming that enforcement of one hundred per cent, cover for all issues over the small amount of the permitted fiduciary issue, would completely obviate this danger. But to say that under such conditions the fluctuations of the note issue and coins would be such as they would be if the currency as a whole were wholly metallic, is not the same as saying that the fluctuations of the aggregate exchange media 1 ‘ Circulation it will be recalled, meant coin plus notes.

THE THEORY OF MONEY AND BANKING

(currency plus auxiliary money) must also be of the same kind. And indeed this latter assertion would not be true. It is true that, other things being equal, the aggregate of exchange media cannot rise or fall above a certain optimal figure with¬ out putting the balance of payments into disequilibrium and either losing or attracting gold. It is also true that, in long-run equilibrium, changes in any one item in this aggregate must involve equivalent counterbalancing fluctuations in some other item, such that, for instance, an increase in auxiliary media of X millions would involve a diminution of X millions in currency. But it is not true that, from moment to moment, a fluctuation in any one item is exactly on all fours with a fluctuation in any other so that a loss of gold of X million involves only a contraction of the total of exchange media by the same amount. For that is precluded by the assumption of a fixed ratio between reserves and deposits. If that holds good, then the loss of X millions of gold must be associated with a contraction of deposits by a multiple of X. Only under a system of one hundred per cent, cover for deposits as well as notes would there be complete equivalence. There can be no doubt that Torrens well understood this implication of the fractional reserve system. Thus, in the Letter to Lord Melbourne, criticizing the conduct of the Bank of England, he argued that the reduction of bullion by a certain amount necessitated the reduction of credit currency by a multiple figure. Assuming an outflow of gold of £1,447,000 and a reserve ratio of 5 to 1, he stated in so many words that the credit currency should be reduced by £7,235,000.1 But, quite plainly, a fluctuation of this sort brought about under a fractional system is not of the same order as the fluctuation which would be involved by the loss of the same amount of gold in a system where deposits equally with notes had 100 per cent, cover. For in that case the impact con¬ traction would be limited to the original loss of gold ; whereas in this it is multiplied fivefold. To speak of either indifferently as if it corresponded with what would take place were the currency backing entirely metallic can perhaps be justified on the assumption of an implicit, other things not being equal. But it is liable to be somewhat misleading. Of course, this is not the end of the story. For what 1 Op. cit. p. 32. I

115

ROBERT TORRENS

ultimately matters as regards the requirements of equilibrium is a certain movement in the aggregate of exchange media. And if under a fractional reserve system an initial loss (or gain) of gold causes this to be overdone, a reaction will set in which will tend to establish the appropriate final adjustment. Or, alternatively, the initial movement of gold itself may be arrested before it has gone so far as it otherwise would have to go. It may be suspected that Torrens had this sort of consideration in mind when, in the Letter to Lord Melbourne, answering the suppositious charge that the degree of multiple contraction required by his principle was too great to be borne, he replied that were the action taken sufficiently soon it would never need to go thus far.1 And again in his first pamphlet on the 1847 crisis, in the section which deals with these matters, an insertion of the adverb ‘permanently’ in a critical proposition relating to final equilibrium positions suggests a similar awareness.2 The contention is that the ag¬ gregate amount of the media of exchange cannot in the long run differ from ‘the amount required to maintain the scale of prices at which commerce resolves into barter’, and the exact phrase used is ‘ cannot be permanently raised above, or reduced below the amount’, etc. (my italics) —which certainly allows the possibility of a short-period oscillation induced by a frac¬ tional reserve system. But the degree of explicitness is certainly not all that might have been wished.3 1 Op. cit. pp. 36-7. 2 Operation, p. 11. 3 It is the ambiguity in Torrens’ phraseology in this connection which makes his criticism, in the Letter to Lord Melbourne, of the Palmer Rule so very difficult to follow. The Palmer Rule, it will be remembered, was a resolution of the Court of the Bank of England that, after a certain point, the securities held against note issue should be constant so that the internal circulation should remain constant too, unless acted upon by external gold movements. This rule was, of course, subject to the grave criticism that it allowed gold movements to take place via withdrawals of deposits, thus bringing it about that the reserve against notes dwindled to the point of pressure and sometimes panic ; and the march of events proved that such a criticism was all too well justified. But Torrens criticized it on the ground that it caused a fluctuation of the total of the media of exchange different from what would have taken place under a regime of purely metallic currency — which may be true enough in one of the senses distinguished above, but not at all in the other — which at first seems more germane. But if notes and deposits are on all fours, as regards the influence of spending, then the case against the Palmer Rule cannot be based directly upon the Ricardian theory of the distribution of the precious metals : for, other things being equal, the cancella¬ tion of deposits against the export of gold has exactly the same effect in this respect on the total volume of exchange media as the cancellation of the same amount of notes. The true case must rest upon the non-substitutability of credit and cash as regards the demand for liquidity.

THE THEORY OF MONEY AND BANKING

(4) Automatism versus Discretion There is a further characteristic of the Currency Theory, which although, up to a point, implied in what has been said already, is yet sufficiently important to deserve separate treat¬ ment : the preference for automatism rather than discretion in the working of monetary institutions. The various members of the School were at one in preferring arrangements which worked according to law laid down by Parliament rather than arrangements which depended upon the judgment of any set of administrators. In the great debate of ‘rules versus author¬ ities in monetary policy’, to use Henry Simons’ useful phrase,1 they were definitely on the side of rules. It should be clear enough that automatism was one of the central features of the Bank Act. The fiduciary issue was fixed : it was only to be raised if other banks forfeited their rights. Hence fluctuations in the notes issued depended strictly upon fluctuation in the bullion paid into or out of the Issue Department — if there had existed an electric machine capable of issuing notes or gold against gold or notes in appropriate numbers the entire business could have been run without human intervention. And this, of course, was exactly what the Currency School intended. According to their conceptions, what had been wrong in the past was the fact that the issue of notes had not fluctuated exactly according to the inflow or outflow of bullion into the bank; that for that reason the total circulation of coins and notes had not fluctuated as it would have done had the currency consisted solely of metal; and that hence there had been a tendency for bullion to be driven out and for the con¬ vertibility of the notes to be endangered. It was just because they did not trust the authorities of the Bank to exercise their discretion so as to make the fluctuations of the currency always conform to the requirements of equilibrium that they wished it to be replaced by the prescriptions of a rigid rule. It was the essence of their position that the business of issue was a business in which the exercise of discretion was inappropriate; what was needed was automatic conformity to the requirements of a scientific formula. 1 It is the title of one of his best-known essays, reprinted in Economic Policy for a Free Society, edited by Aaron Director, p. 160 seq.

ROBERT TORRENS

Now this view was not to be overthrown by any mere appeal to the alleged needs of trade. It was one of the central positions of the Currency School that it was excessive regard for the alleged needs of trade, in the shape of‘real bills’ coming up for discount, which had been at the bottom of the troubles of the thirties. As for the genuine needs of trade, it was their belief that the mechanism suggested would automatically cater for these requirements. If more cash were needed for circula¬ tion, then there would be a tendency for the value of money to rise relatively to what it was elsewhere ; gold would flow in and the need would be met. This point was set out at some length by Torrens in his examination of the contention of the Lords’ Committee of 1848 that the Act of 1844 did not make sufficient provision for dealing with domestic drains. A domestic drain, he said, might arise inter alia ‘from a sudden increase of employment and a corresponding increase in the demand for coin to pay increased wages to an increased number of hands’. ‘It will be apparent’, he went on, ‘. . . that a domestic drain thus caused could not contract the circulation. The employers of labour in the districts in which increased employment had sprung up, would apply to the provincial banks for additional supplies of coin; the provincial banks would demand the increased supply from their London correspondents, who would pay in bank-notes to the issue department of the Bank of England, and draw out gold to be remitted to the provinces. By this process the metropolitan circulation would be diminished by the amount of the notes paid in, while that of the provinces would be increased by the amount of the coin drawn out; but as these amounts would be equal, the aggregate amount of the circula¬ tion would in the first instance be neither increased nor diminished. A further process, however, would speedily ensue. While the increase of employment and production enabled the provinces to command a larger share of the circulation of the country than before, the demand of the metropolitan district for circulation would be the same as before; and the diminution in the metropolitan supply (the exchange being previously at par) would increase the value of the metropolitan currency in relation to foreign currencies, and induce an influx of gold, and a corresponding increase in note circulation. The final result would be, that the aggregate amount of the circulation, metropolitan and provincial, would 118

THE THEORY OF MONEY AND

BANKING

be increased by the proportion in which the increase of employ¬ ment and the production of commodities had been increased.’1 But what about the needs which arise in times of extreme financial crisis? What about the position in which, credit being shaken, the central bank is besieged with demands for accommodation and the panic can only be allayed by an expansive response? Was not the possibility of situations of this kind a strong argument for the provision in the rules for a certain relaxing power? Arguments of this sort were very prevalent at the time of the controversy regarding the Bank Act; and it is obvious that there is nothing in the theory of the Currency Principle which affords an immediate answer. Now neither Torrens nor Overstone, the chief writers concerned in this connection, were disposed to deny the possibility of such emergencies. Nor, when there had actually occurred a crisis of this degree of severity, which happened in the autumn of 1847, were they disposed to criticize the action of the government of the day in promising an indemnity to infringements of the Bank Act. Each of them expressed the view that what had happened was both necessary and sensible.2-3 Nevertheless, they were inflexibly opposed to the creation of any statutory provision for such relaxations. In his Thoughts on the Separation of the Departments (1844) Overstone, in a passage quoted with great approval by Torrens, had invoked the authority of Huskisson in this connection to the effect that ‘ The possible cases . . . which may call for such an intervention of power are not capable of being foreseen or defined by law’. Should the necessity arise ‘ the application of the remedy must be left to those who 1 Principles (3rd edition), pp. 157-8. 2 See Overstone, Tracts (ed. McCulloch), pp. 563-4 ; Torrens, Principles (3rd edition), pp. 108-12. 3 Torrens was certainly not opposed to very drastic action in emergencies. In 1852, confronted by a crisis caused by the discovery of gold elsewhere, the authorities of S. Australia carried out what was in effect a temporary devaluation of local money. Torrens, who was interested in these events, both on account of the part he had played earlier on in founding the colony (see below. Chapter V) and because his son was colonial treasurer, gave a complete justification of the action taken. ‘If it must be admitted that the Bullion had depreciated the local currency and violated all existing contracts, on what conceivable grounds could it have been justifiable ? The answer is, on the very conceivable and obvious grounds of imperative necessity. The colony was being deprived of a circulating medium ; and the only alternative was, should it have a note circulation five per cent, below the legal standard, or no circulation at all ’ (Principles, 3rd edition, p. 421).

ROBERT TORRENS

may then be at the head of affairs, subject to their own responsibility and to the judgment of Parliament’ (Overstone’s italics).1 A relaxing provision, Torrens argued, would be ‘not only un¬ necessary but mischievous. It is one thing for the ministers of the Crown to suspend the operation of a law in virtue of a special authority derived from Parliament; and it is another, and quite a different thing, for a minister to violate the law upon his own responsibility, subject to the judgment of Parlia¬ ment. The former course might be adopted in the absence of any very stringent necessity, under a moderate pressure from without; the latter course could not be resorted to in a consti¬ tutional country, except in cases of real emergency, in which the public safety required a prompt interposition on the part of the executive authority. Unless we could be assured that the integrity of our monetary system will be ever defended against the assaults of popular delusion by Courage standing on the rock of Science, the engrafting of a suspensive provision on the Act of 1844 might lead to the most injurious tampering with the currency.’2 The reason for this attitude was twofold. First, it was feared that the power would be abused. As Torrens urged in the passage already quoted, it might be exercised ‘ in the absence of any very stringent necessity, under a moderate pressure from without’. And, in such cases, it would positively frustrate the restoration of equilibrium. ‘The immediate and inevitable effect of . . . increased issues would be to stop the influx of bullion into the issue department.’3 Secondly, and even more serious, the knowledge that the relaxing power was available would itself be dangerous. It ‘would create in the directors and managers of the banks’, said Torrens, ‘an unfounded and pernicious confidence, leading them to overlook and disregard the inevitable consequences of permitting an adverse exchange to effect an undue diminution of their banking reserves. As these reserves were drawn out, they would fail to perceive any immediate necessity for re¬ plenishing them by a contraction of their advances on securities. There would be no diminution in the amount of the active circulation in the hands of the public, nor of that confidence by a diminution of which the efficiency of the circulation may be 1 Overstone, Works (ed. McCulloch), p. 283. 2 Principles (3rd edition), p. 112. 3 Principles (3rd edition), pp. 149-50. 120

THE THEORY OF

MONEY AND BANKING

reduced, without an actual decrease in its amount. There would be no rise in the rate of interest, no fall in the prices of commodities and securities; and the drain of gold for exporta¬ tion would proceed without abatement until, as was the case during the crisis of 1839, the treasure in the coffers of the banks should verge upon exhaustion.’1 All this had considerable cogency — given the general assumptions on which it proceeded. But, in so far as it tended to encourage the view, which was undoubtedly held by some members of the Currency School, that given the automatic regulation of the note issue, a due regard to considerations of its own security would be all that ought to be expected of a bank in the position of the Bank of England, it is arguable that it fostered a delusive sense of security. As Bagehot was to argue another twenty years later, the complications of a credit system depending on one lender of last resort, called for some¬ thing quite different. But no perception of this sort seems ever to have been vouchsafed to the members of the School, not even to Torrens, who in other respects was so far ahead of the field in grasping the main implications of the evolution of deposit banking.

(5)

Torrens and the Banking Theory : Mechanisms

It would be a great mistake to regard the content of Torrens’ thought in this connection as being exhausted by his positive contributions. From some points of view his critical analysis of the position of his opponents is at least as im¬ portant ; and it is certainly in this respect that his expository and argumentative powers are most fully deployed. Moreover, it is difficult to put the Currency Theory as a whole into its proper perspective in the history of economic thought unless it is exhibited in actual conflict with the point of view which it attempted to controvert. For all these reasons it is useful to dwell a little on Torrens’ critical strictures on what he called ‘the New Principles of Currency and Banking as propounded by Mr. Tooke and advocated by Mr. Fullarton and Mr. James Wilson’ — the famous Banking Theory. 1 Principles (3rd edition), p. 147. P- 285.

The same passage is reproduced in Review,

12 I

ROBERT TORRENS

Let us begin by reminding ourselves of the fundamental tenets of the Banking School.1 At the outset it is as well to remember the area of belief which they shared with their opponents. In common with the Currency School and in opposition to the Birmingham School and indeed to all supporters of purely paper systems, they believed that the proper basis of a monetary system was a reserve of precious metal into which any notes which were issued should be immediately convertible. It is perhaps arguable that in this they were maintaining a position which was in fact inconsistent with their other conceptions of the requirements of policy — that the logical implication of the analysis on which much of their position rested was a denial of the desirability of convertibility and a fixed relationship of the local money to the moneys of the world at large. There will be more to say about this later. But of the explicitness of their assumption in this respect there can be no question what¬ ever. ‘In treating this subject throughout’, wrote Wilson, ‘we will assume a perfect agreement as to the necessity of paper issues being at all times and immediately convertible into the coin they represent and we will therefore not feel it a duty to go out of our way to prove the necessity of this principle being steadfastly adhered to as the only security for a safe currency. . . .’2 3 ‘Let it not be supposed, for a moment,’ protested Fullarton, ‘that I am indifferent to the expediency and importance of maintaining intact the metallic basis of our circulation, and providing by the most judicious means of security that can be devised, for the perfect and uninterrupted convertibility of our bank paper.’3 Quotations could be multiplied indefinitely. Rightly or wrongly, the dispute with the Currency School took place within the common assumption of the desirability of metallic convertibility. The grand point of difference concerned the means of securing such convertibility. Whereas, as we have seen, it was the contention of the Currency School that a strict regulation of the volume of note issue was necessary, it was the leading contention of the Banking School that, provided the obligation of convertibility was maintained, no further regulation was required. 1 For an illuminating survey of the relevant material see Sir Theodore Gi egory s Introduction to Tooke and NewmarcK s History of Prices. 2 Capital, Currency and Banking, p. 3. 3 On the Regulation of Currencies (1844), p. 20. 122

THE THEORY OF MONEY AND BANKING

‘It was held by most writers of any authority on the subject of the Currency, till within the last few years,’ wrote Tooke, ‘that the purposes of a mixed circulation of coin and paper were sufficiently answered, as long as the coin was perfect, and the paper constantly convertible into coin. . . . This, in point of fact, is what is understood in general terms as the banking principle. . . d1 Now there was nothing in this prescription as such which distinguished it in any way from the general position of the Bullionists: and, as the quotation from Tooke shows, the members of the Banking School were not slow to claim for themselves the authority of traditional wisdom. What was good enough for ‘most writers of authority’ in the past, should be good enough for us, they tended to argue. It was the Currency School, they suggested, who by their insistence on limitation of the note issue were introducing a new (and alien) element. But while it was true that, as regards policy, the position of Tooke and his associates was that of the Bullionists, the same could not be said of the arguments whereby this policy was supported. Here their position was much closer to that of the anti-Bullionists — at any rate of the more sophisticated sort — Bosanquet, for example, or that gallant officer of the Marines, Major Torrens who wrote the Essay on Money and Paper Currency. It is true that, in contrast to the anti-Bullionists, they empha¬ sized the necessity of convertibility. But whereas in arguing the insufficiency of this prescription, their opponents of the Currency School supported their case by arguments which were almost entirely Bullionist in character, the Banking School opposed them by arguments which it is safe to say most Bullionists would have emphatically repudiated — the depend¬ ence of the quantity of circulating media on prices rather than of prices on the quantity of circulating media, the impossibility of over-issue, the separation of ‘ hoards ’ from ‘ circulation ’ and the independence of the latter from fluctuations in the former. Whether they were right or wrong, path-breaking innovators or resuscitators of ancient fallacies, it is certainly true that it was the Banking School rather than the Currency School whose general theoretical position involved a departure from the spirit of the Classical analysis. All this becomes much clearer if we examine one by one the 1 An Inquiry into the Currency Principle, p. i. 123

ROBERT TORRENS

main propositions they put forward in this connection and Torrens’ criticisms thereof. To such an examination, there¬ fore, we may now proceed. (a)

The Quantity of Money and the Price Level

The first, and in some respects the most startling, of the Tookean propositions was that relating to the connection between prices and the volume of the circulating media. To eliminate any possibility of misrepresentation it is best to state it in Tooke’s own words: ‘the prices of commodities do not depend upon the quantity of money indicated by the amount of bank notes, nor upon the amount of the whole of the circulating medium : but that, on the contrary, the amount of the circulating medium is the consequence of prices’.1 Now there is certainly a sense in which a meaning which is not unacceptable can be read into this proposition. If it is taken to mean only that, in a mixed system of cash and credit, fluctuations of aggregate spending which involve fluctuations of prices also involve fluctuations in the demand for notes for wage payments or for cash transactions, there can be no doubt that it is true; and there is some reason to believe that it was this aspect of the problem which, at times at any rate, was in Tooke’s mind.2 But, of course, this is not all that the proposition says; indeed, it is not the most obvious interpreta¬ tion, which is that fluctuations originating in the volume of bank notes and circulating media have no effect on prices. And that is a very disputable proposition. It was in that sense that Torrens chose to take it; he was not disposed at that moment to give his adversary the benefit of any doubt whatever. And in that sense, of course, it was exposed to the scathing comment that ‘the logical accuracy of this extraordinary dictum — a dictum at direct variance with the principles demonstrated by Adam Smith and Ricardo — may be tested by affirming the analogous proposition, that the prices of commodities in Europe, after the discovery of the 1 Op. cit. pp. 123-4. 2 See, e.g., Conclusion 13 : ‘That it is the quantity of money, constituting the revenues of the different orders of the State, under the heads of rents, profits, salaries, and wages, destined for current expenditure, that alone forms the limiting principle of the aggregate of money prices. ... As the cost of production is the limiting principle of supply, so the aggregate of money incomes devoted to ex¬ penditure for consumption is the determining and limiting principle of demand ’ (ibid. p. 124). 124

THE THEORY OF MONEY AND BANKING

mines of South America, did not depend upon the quantity of money indicated by the amount of coin ; nor by the amount of the whole supply of gold and silver; but that, on the contrary, the amount of silver and gold obtained from the mines of South America was the consequence of the subsequent advance in prices.’1 At this stage therefore, from the controversial point of view, Torrens is able to have a very good time at Tooke’s expense, working variations on this refutation. He quotes Ricardo on the analogy between the discovery of a mine in any country and the establishment of a bank, ‘such as the Bank of England with the power to issue its notes as a circulating medium’. And he goes on, ‘It will be unnecessary to refer to further authorities for the refutation of Mr. Tooke, inasmuch as Mr. Tooke has been completely successful in refuting him¬ self. He has written volumes on the influence of quantity on price, and has shown, by the most elaborate details, that on all the remarkable occasions on which an advance or decline of prices has occurred, the advance or decline was occasioned by a decrease or increase in the quantities of the commodities respecting which the variations occurred. Gold is a com¬ modity governed, as all other commodities are governed, by the law of supply and demand. If the value of all other com¬ modities, in relation to gold, rises and falls as their quantities diminish or increase, the value of gold in relation to com¬ modities must rise and fall as its quantity is diminished or increased. But gold is the standard of our money. An increase in the quantity and fall in the value of gold, in relation to commodities, is the same thing as an increase in the quantity, and fall in the value of the currency in relation to commodities, — is the same thing as a rise of prices. Mr. Tooke’s History of Prices is a magazine of historical facts demonstrative of the fallacy of the principle, that ‘variations in the quantity of the circulating medium do not affect prices’.2 In fact, however, it is doubtful whether Tooke or Fullarton would have been prepared to affirm the proposition Torrens was refuting. In his Regulation of Currencies Fullarton went out of his way to make it clear that he did not deny the broad effects on prices of changes in the supply of the precious metals.3 Both were at pains to emphasize their view that fluctuations 1 Principles (3rd edition), p. 190. 3 Op. cit. p. 57. 125

2 Ibid. pp. 191-2.

ROBERT TORRENS

in the volume of inconvertible notes would affect the value of money.1 Although Tooke’s proposition quoted above seems to take the whole realm of money for its scope, in fact, it was supposed only to apply to convertible bank notes. And in this connection, as Fullarton emphasized, it depended essentially on the doctrine of the impossibility of over-issue. ‘What Mr. Tooke, and those who hold similar opinions, contend for is, that, by the very constitution of a convertible currency, it can never be issued in larger quantities than are required for use, and therefore can never be redundant.’2 (b)

The Impossibility of Over-issue

This brings us to the second Tookean proposition — that banks do not possess the power of over-issue of convertible notes. This is the very core of the analysis of the Banking School; it is also the occasion for some of Torrens’ most elaborate arguments. Let us be quite clear at the outset that, in this connection at least, there is no ambiguity about words. When Tooke and Fullarton said that banks do not possess the power of over-issuing convertible notes, they meant just what they said. Tooke headed chapter xi of his Inquiry into the Currency Principle ‘ The Bank of England has not the Power to add to the Circula¬ tion’. In the passage already quoted from Fullarton’s Regula¬ tion of Currencies, it is said that ‘by the very constitution of a convertible currency it can never be issued in larger quantities than are required for use’. Fullarton indeed was so supremely confident of the truth of this proposition that he thought that the willingness of the Bank of England to buy gold at a fixed price would prevent ‘any action on prices . . . from the increased productiveness of the mines’.3 The arguments by which this position was supported varied in degree of elaboration. Both Tooke and Fullarton take as their starting point the view current among the country bankers of the day that — to quote Tooke — ‘they have not the power by loans or discounts beyond the ordinary transactions of the neighbourhood to extend or contract the local circulation or to influence prices’.+ Fullarton quotes Hudson Gurney on this point, who had told the Commons Committee of 1819 that ‘ If a Banker improvidently issued upon loan, or in any other 1 See Tooke, Inquiry, pp. 69-70. Fullarton, op. cit. p. 57. 2 Ibid. p. 58. 3 Fullarton, op. cit. p. 77. 4 Tooke, op. cit. p. 38. 126

THE THEORY OF MONEY AND BANKING

way, notes which are not wanted for the transactions of im¬ mediate transfer in his neighbourhood, they come directly to him or to his banker in London to be paid.’ ‘And he then proceeds to express the doubt’, adds Fullarton, ‘whether, in the event of his bank at Norwich issuing £100,000 in their own notes tomorrow, to any one desiring to borrow them, the bank would have, by tomorrow week, an additional note in circulation.’1 On this Torrens observes that Gurney had not stated that the Norwich bankers had not the power of over-issue. He had merely shown that if they exercised the power they might get into trouble, and he adds that that was exactly what the advocates of the Act asserted of the pre-Act position of the Bank of England.2 But that was what the Banking School denied. In his chapter whose title has already been quoted, Tooke went so far as to argue that even the issue of £5,000,000 of sovereigns by the Bank would not increase the circulation or depreciate the currency — his argument being that since they were not wanted for ‘ purposes of income, including wages, and expendi¬ ture they would come back to the Bank as deposits and the deposits so accumulated, by the operation of a greatly reduced rate of interest, gradually find employment as capital at home or abroad ’3 — a scarcely compelling ground for believing that the circulation would be unaffected and the tendencies of the rate of exchange left unchanged. Needless to say, this particular type of argument gave Torrens great scope for destructive criticism. ‘The fact that the Bank may issue in excess', he said, animadverting on a some¬ what similar passage in Tooke’s History of Prices, ‘is adduced . . . as a proof that the Bank has not the power to issue in excess. Neither Mr. Ricardo not Lord Overstone ever contended that the power of issuing convertible paper can give to the currency a permanent expansion greater than that which it would possess were it purely metallic. What they contend for is, that when the Bank, meaning of course the issue department, fails to keep its issues upon securities at a uniform amount, it produces a temporary excess in the circulation, requiring that bullion should be withdrawn from its coffers for exportation.’ 4 And, 1 Fullarton, op. cit. p. 85 fn. 2 Torrens, Principles (3rd edition), p. 219. 2 Tooke, op. cit. pp. 63-4. 4 Torrens, op. cit. pp. 211-12. 127

ROBERT TORRENS

on the passage about the sovereigns, he added as a final com¬ ment, ‘Throughout the whole of his reasoning in support of his position . . . Mr. Tooke appears unable to perceive that the effect of convertibility is, not to prevent the occurrence of excess and depreciation, but, on the contrary to limit and to check excess and depreciation after they have occurred’.1 And on a similar argument by Fullarton — ‘This affirmation is a contradiction in terms. It is tantamount to affirming that the overflowing of . . . waters is a proof that the waters cannot be made to overflow.’2 The main position of the Banking School, the theoretical basis on which all these particular applications rested, was the belief that issues made as loans ran no danger of excess. This appears with especial clarity in Fullarton’s criticisms of Clay. The latter writer, commenting upon Tooke’s distinction between the influence on the circulation of inconvertible and convertible paper, had professed himself unable to discover ‘why notes employed to defray the salaries of Government Clerks, or the pay of soldiers and sailors, (Tooke’s examples of the expenditure of inconvertible paper) should be more dis¬ posed to permeate all the channels of circulation, than if used to pay clerks in merchants’ counting houses or workmen in a factory’.3 On which Fullarton observes, with triumphant emphasis, that it is surprising ‘that Sir William Clay should not only have read but should quote and profess to criticize Mr. Tooke’s very plain proposition, and yet should pass wholly unnoticed the single and only point of distinction on which Mr. Tooke’s argument turns, namely, that the Government paper is “paid away” and is “not returnable to the issuer” whereas the bank notes are only lent and are returnable to the issuers’.4 Now this point was not new. Indeed the argument that so long as issues were made upon loan and not as direct pay¬ ments, there was no danger of excess had been one of the main contentions of the opponents of the Bullion Report (e.g. Bosanquet and Torrens himself in his anti-Bullionist phase) at the time of the suspension of cash payments. And it was a statement of this sort on the part of Bosanquet5 which evoked 1 Torrens, op. cit. p. 214. 2 Ibid. p. 225. 3 Sir William Clay, Remarks on the Expediency of Restricting the Issue of Pro¬ missory Notes (1844), pp. 38 and 39. 4 Fullarton, op. cit. p. 66.

5

Practical Observation on the Report of the Bullion Committee (1810), pp. 51-3.

128

THE THEORY OF MONEY AND BANKING

Ricardo’s tremendous reply, amplifying his example of the gold mine and examining the effects of the establishment of a bank in a country where hitherto the circulation had been wholly metallic.1 Nevertheless, it was this argument which was resuscitated by Tooke and Fullarton and given a somewhat technical edge by emphasis upon the equality of reflux and issue. ‘ Bank notes said Fullarton, ‘are never issued but on loan, and an equal amount of notes must be returned into the bank whenever the loan becomes due. Bank notes never, therefore, can clog the market by their redundance, nor afford a motive to any one to pay them away at a reduced value in order to get rid of them. The banker has only to take care that they are lent on sufficient security, and the reflux and the issue will, in the long run, always balance each other. . . . Perfect converti¬ bility is no doubt one essential condition of every sound and efficient system of currency. . . . But it is not so much by convertibility into gold, as by the regularity of the reflux, that any redundance of the bank-note issues is rendered impossible.’2 To this argument, which must have sounded strangely reminiscent of his meditations at Anholt and the friendship of the Rev. Alexander Crombie, Torrens made two replies. In the first place he pointed out that in order that the ‘vaunted principle of reflux’ should have ‘any weight or validity, it is necessary that the loans should be repaid on the instant that they are granted. Allow any interval to elapse between the loan and the repayment and no regularity of reflux can prevent redundancy from being increased to any conceivable extent. Let us assume that a bank of issue commences business by discounting, to the extent of £1,000 a day, first class bills having 60 days to run. In this case the issues will have increased to £60,000 before the reflux sets in. After the reflux should have set in, the note circulation could 1 ‘Such a Bank would discount bills and make advances to government as our Bank does ; and if the principle now contended for by Mr. Bosanquet be correct, their notes would necessarily return on them as soon as issued ; because the metallic currency being before sufficient for the commerce of the country, no additional quantity could be employed. — But this is contrary both to theory and experience. The issues of the Bank would, as they now do, not only depreciate the currency, but the value of bullion at the same time, as I have endeavoured to explain ; this, again, would be the temptation to exportation and the diminution of the currency would make it regain its value’ (Ricardo, Reply to Bosanquet: Works (ed. Sraffa), vol. iii, p. 218). 2 Fullarton, op. cit. pp. 64 and 67. 129

ROBERT TORRENS

not exceed £60,000, provided the Bank continued to limit its advances to £1,000 per day on bills not having more than 60 days to run. But the Bank might increase its accommodation to the public and discount bills having 60 days to run to the extent of £10,000. In this case the note circulation would have increased to £600,000 before the reflux at the increased rate of £10,000 per day could prevent a further expansion.’1 In another place, arguing the same point with Mill, he develops a second and much more comprehensive argument which challenges the whole assumption that the banks are passive in relation to demand for loans : he invokes the effects of changes in the rate of interest. Mill, seeking a middle path, had suggested that the Tookean doctrine held at least for ‘quiescent states of the market’. To which Torrens replied: ‘ Mr. Mill, in limiting the doctrine to states of the market when there is no immediate demand for increased advances from the banks, excludes from his consideration the important fact, that banks possess in themselves the power of increasing and diminishing the demand for banking accommodation. When they raise the rate of discount, the demand for accommodation contracts, and when they lower the rate it expands; and Mr. Mill expressly and truly informs us “that it is by extending their loans that bankers increase their issue”; and unless he is prepared to disprove the fact that banks can lower the rate of discount, he cannot consistently maintain that their power of increasing their issue is limited [in] quiescent states of the market.’2 And he follows this up by extensive quotation from Tooke’s History, citing episodes when a reduction in the rate of interest had resulted in an increase in the circulation. Thus, on this most critical issue, Torrens had now changed his position by one hundred and eighty degrees; and the one¬ time anti-Bullionist had become the leading exponent of the theories of money and interest as expounded by Thornton and Ricardo. It is worth noting, further, that at this point his critique of the Banking Theory is in its fundamental assump¬ tions and implications exactly the same as that of Wicksell and Von Mises.3 1 Torrens, Principles (3rd edition), pp. 215-16. 2 Ibid. pp. 315-16. In the text ‘to’ takes the place of the bracketed ‘in’. But this is so obviously in contradiction to what is being argued that it must be a slip of the pen or a printer’s error. 3 Compare, e.g., Wicksell, Interest and Prices, pp. 81-7. Mises, The Theory of Money and Credit (1st English edition), pp. 305-7. 130

THE THEORY OF MONEY AND BANKING

(c)

The Balance of Payments and the Function of the ‘Hoards'

It was not only in regard to the possibility of over-issue that the Banking School adopted the arguments of the antiBullionists ; they also adopted much the same type of argument in regard to external equilibrium in general. The state of the foreign exchange market had nothing to do with the internal value of money; the mechanism of equilibration operated through channels quite other than the internal circulation. The balance of payments determined the foreign exchanges; the rectification of disequilibria took place through the transfer of ‘hoards’. It is true that the anti-Bullionists were talking about the exchange markets in a regime of inconvertible paper and that the Banking School repudiated their position in regard to this particular regime.1 Nevertheless, in each case the fundamental argument was the same —- a denial of the relationship between the internal and the external value of money. It is no accident, therefore, that the response of the Currency School tended to take the form of a reaffirmation of the principles of Bullionism — or, perhaps better said in this particular instance, of the pure milk of the Ricardian analysis. This head-on collision is well exemplified in Torrens’ critique of Fullarton. Fullarton’s first position, as implied above, is a denial of any connection between the exchange market and the internal value of money and a blunt statement that the governing force in this sphere was the state of the balance of payments. He says, ‘we find writers daily referring the phenomena of the efflux and influx of bullion to the “depreciation” and “appreciation” of the currency, as if the inducements to export and import specie had any reference to the value of the circulation, instead of being governed, as they exclusively are by the state of the balance of foreign payments’.2 Against this Torrens deploys an essentially Ricardian analysis. ‘Here Mr. Fullarton inverts the sequence of ante¬ cedent and consequent. It has been satisfactorily shown by Mr. Ricardo that the exportation of coin is caused by its cheapness, and is therefore not the effect but the cause of what is called an unfavourable balance of payments. An un¬ favourable balance of foreign payments means, that of all commodities, exclusive of the precious metals, a country has 1 See, e.g., Fullarton, op. cit. pp. 115-17. 2 Fullarton, op. cit. p. 115. K

131

ROBERT TORRENS

bought1 from other countries more than it has sold to them; that a debt therefore is owing by that country which she must pay in the cheapest way she can, and that an export of specie is that cheapest way of discharging the debt. But why is the export of specie a cheaper way of discharging the debt than the export of any other commodity ? Because the prices of all other commodities are high, i.e. in other words because the value of specie, as compared with other commodities, is low. Therefore it is the low value of the bullion which causes it to be exported. But the low value of bullion is the same thing as low value or depreciation of the currency. . . .’2 In interpreting this criticism it is important to bear in mind what was said at an earlier stage concerning the notion of redundancy of circulation and the causes thereof.3 For, at first sight, to attribute all movements of bullion to relative cheapness or depreciation might appear to attribute all such movements to influences arising in the sphere of money supply to the neglect of movements in the sphere of goods : and for Torrens of all people, a leading exponent of new theories concerning the causes of change in the real terms of trade, that would be a signal inconsistency. But this would be a mis¬ apprehension. In the Torrensian system, as it had now crystallized out, a currency could be depreciated — i.e. could be in excess — either because of over-issue relative to a situation unchanged in the goods sphere, or because of unfavourable changes in the volume of domestic goods or foreign demand for them which rendered an unchanged issue excessive. The statement, therefore, that an adverse balance was the con¬ sequence of depreciation did not beg the question whether the depreciation was due to redundancy originating in changes in the supply of money or to a redundancy due to failure to adapt the supply of money to influences arising elsewhere. If this is understood, then, on this plane at least, Torrens’ formulation is not open to objection. But what of his summary dismissal of all influence of the balance of payments? Here, to understand exactly what is involved, it is necessary to distinguish very carefully between different meanings and different intentions. Let us first dispose of an element of what Americans call shadow boxing. If by the term £ state of the balance of pay1 The original has ‘brought’, an obvious misprint. 2 Torrens, Principles (3rd edition), pp. 237-8. 3 See above, pp. 99-100. 132

THE THEORY OF MONEY AND BANKING

merits’ we mean the difference, positive or negative, between payments due and payments owing, which has to be settled in specie, then clearly the explanation of ‘ the influx or efflux of bullion’ is not explained by appealing to this circumstance. As Torrens said, it is to commit ‘the absurdity of saying that the export and import of specie are exclusively governed by the export and import of specie’.1 This, however, is not the necessary or only interpretation of the phrase in question. By ‘the state of the balance of payments ’ we may well mean the general conditions of demand and supply which bring it about that the differences alluded to above are what they are and not something else. To explain balances of payments, in the narrow sense of the differences to be settled in specie, by reference to ‘the state of the balance of payments ’ in this wider sense, is not committing an absurdity. It is indeed the correct way to begin the analysis of the exchange market. When, therefore, Torrens attempts to dispose of the whole question by interpreting his opponent in the sense of the narrower meaning, we may well feel that he is making his argument too easily. But of course this is not the heart of the matter — neither from the point of view of Fullarton nor from the point of view of Torrens. For what Fullarton was really arguing was that ‘ the state of the balance of payments ’ was something which was quite independent of the state of the internal circulation. And what Torrens was really arguing was that on the contrary it was not so independent and that, if the balance of payments in the narrower sense was unfavourable, that was because the internal circulation was inappropriate. Now, interpreted in this way, there can be little doubt that Torrens was right and that Fullarton was wrong. It may be quite true that the phrase ‘state of the balance of payments’ can be interpreted in a sense in which it is not circular to invoke it as an explanation of specie flows. But it is not true that the state of the balance of payments, interpreted in this sense, is not affected by the relation between the purchasing power of money at home and abroad. It is not true, therefore, that it is independent of the state of the internal circulation. A theory of convertible exchanges which invokes the ‘state of the balance of payments’ as an apparatus with which to classify all the influences operating in the market is doubtless 1 Ibid. p. 239.

r33

ROBERT TORRENS

superior, for many purposes, to the short cut which subsumes all detailed explanations in terms of the appropriateness or in¬ appropriateness of the internal circulation. But a theory which exhibits this concept as something rival to any explanation invoking the internal circulation is not merely inferior, rather it is positively misleading; and the long dreary history of exchange crises in which the authorities concerned, under the influence of theories of this type, have looked everywhere save in the right direction for the causes and cures of their diffi¬ culties, shows how disastrous can be its influence in practice. But Fullarton went further than this. Not only did he deny the influence of internal circulation on the phenomena of the exchange market under conditions of convertibility, he also put forward an alternative theory to explain the process of equilibration — the famous theory of the ‘hoards’. This theory was not entirely his own : it is foreshadowed in the opening chapters of Tooke’s Inquiry. But for its elaboration and for the statement through which it became celebrated we must look to the Regulation of Currencies. The main outlines of the theory are very simple. The Ricardian theory which had been adopted by the Currency School depicted the achievement of equilibrium in inter¬ national trade — equilibrium, that is to say, in the state of the balance of payments — as taking place via movements of the precious metals and hence, if these movements were not offset by a perverse banking system, via movements in the internal circulation. Bullion would flow from centres in which its purchasing power was low to centres in which its purchasing power was high, thus causing a tendency to a rise in the former centres and a tendency to a fall in the latter: and this process would go on until there was no more advantage in it. Changes in the conditions of equilibrium — changes in relative demand for goods or money would work themselves out in a similar manner. It was the essence of the position of the Currency School that a mixed circulation should be subject to regulations which should force it to behave in this manner. This conception Fullarton rejected entirely. Drains of bullion, he said, universally operate, not on the currency in circulation, but on the currency in reserve, — on the hoards. And this biings me to the main issue between the partisans of the currency doctrine and myself, — the question, as to what plan for the administration of the Bank issues, when under the *34

THE THEORY OF MONEY AND BANKING

action of a drain, is most in conformity with the laws which govern the fluctuations of a purely metallic currency. Mr. Jones Loyd (Lord Overstone) and his school require, that, under such circumstances, the note circulation should be made to fluctuate as a metallic circulation would have fluctuated ; but do not seem to have taken the trouble of asking themselves, or at all events do not inform us, how a metallic circulation would have fluctuated. . . . One might imagine, from the manner in which these gentlemen treat the question, that they supposed the gold which is drained off for exportation from a country using a currency exclusively metallic, to be collected by driblets at the fairs and markets, or from the tills of the grocers and mercers. They never even allude to the existence of such a thing as a great hoard of the metals, though upon the actions of the hoards depends the whole economy of inter¬ national payments between specie-circulating communities. . . . Let us think, then, how the money market of a country transacting all its exchanges through the medium of the precious metals only, would be likely to be affected by the necessity of making a foreign payment of several millions. Of course the necessity could only be satisfied by a transmission of capital; and would not the competition for the possession of capital for transmission which the occasion would call forth, necessarily raise the market-rate of interest ? . . . And would not all this inevitably act upon the hoards, and draw forth into activity a portion of the gold and silver which the money dealers had been accumulating, and some of them with the express view of watching such opportunities for turning their treasures to advantage ?’1 To these contentions Torrens had two answers. In the first place he denied the distinction between hoards and circulation. ‘Mr. Fullarton is unable to perceive’, he said, ‘that in countries not possessing banking facilities, the whole of the medium of exchange, with the exception of the small sums carried about in the pockets of the inhabitants, must be hoarded in private desks until wanted for immediate payments. If the cash locked up in private desks until required for use, be not in circulation, there can be no circulation save that which consists of the pieces carried about in the pockets of the people. According to the theory of Mr. Fullarton, the proper definition of circulation is “money in pocket”. The 1 Fullarton, op. cit. pp. 131-4. 135

ROBERT TORRENS

theory, however, even when expressed in the new nomenclature must be regarded as incomplete, until Mr. Fullarton shall have explained the process through which, when money in desk is abstracted by an adverse exchange, money in pocket can be replenished with the same facility as before.’1 And at a later stage, arguing with Wilson, who had con¬ tended that banking reserves are not a part of the effective circulation, he urges that, ‘banking reserves, so far from lying quiescent, are the most effective portion of the currency, and exercise a far greater influence upon the transactions of the market than the coin and notes in the hands of the public. . . . A bank reserve is the centre of a monetary system, to appearance motionless and inert, while controlling the movements of all within its sphere.’2 Secondly, Torrens proceeded to carry the war, so to speak, into the enemy’s camp, and to argue that Fullarton’s own account of the working of the hoards involved a mechanism affecting the local value of money. This is one of the most ingenious of all Torrens’ arguments in this connection and deserves quoting at some length, not only for its relevance in this particular context but also as a particularly interesting example of a classical explanation of the modus operandi of changes in local interest rates. ‘If we take for our datum’, says Torrens, ‘the assumption that in a specie-paying country the increased rate of interest calls out from the hoards the specie required to effect her foreign payments, we shall at once perceive that the necessary conclusion is that her currency must be appreciated, and her prices lowered. A rise in the rate of interest is the same thing as a fall in the value of securities, of fixed capital, and of all property yielding income. A fall in a most extensive range of prices is the evidence which Mr. Fullarton brings forward to prove, that under the circumstances there can be no fall of prices.’ ‘Again—’ he continues, in a passage which anticipates some of the most penetrating formulations of Bohm-Bawerk and F. A. Fetter, ‘a rise in the rate of interest is the same thing as a fall in the value of that portion of the capital of a country which is not immediately available for purchases and pay¬ ments, in relation to that portion which is so available. The capital of a banker, bill broker, or cambist, consists of money; that of a farmer, manufacturer, or merchant, of commodities 1 Torrens, op. cit. p. 247.

2 Ibid. pp. 251 and 255. 136

THE THEORY OF MONEY AND BANKING

and bills of exchange obtained by the sale of commodities on credit. A farmer and a manufacturer require money for the payment of wages, and the purchase of stocks and materials. If in consequence of an increased demand for money capital, the price at which their bills can be converted into money rises from 4 to 6 per cent., it is clear that the value of their commodity capital, in relation to money capital, must fall 2 per cent., even although they should be able to sell their goods in the market at the same ready money prices as before. But that rise in the rate of interest would lower the ready money prices of their goods. A manufacturer having a stock of goods in his warehouse beyond the immediate demand of the market, and first class bills in his desk, requires ioool. for the payment of wages; and the question, whether he shall obtain this money by offering his goods for sale, or by discounting his bills, will be determined by the current rate of interest. If he cannot realize ioool. by bringing his goods prematurely to market without sacrificing ordinary profits to the extent of 12I. 1 os., he will prefer discounting bills having three months to run provided the rate of interest be 4 per cent. . . . But were the rate of interest to rise from 4 to 6 per cent., he would sell his goods at a sacrifice of 12I. 10s. rather than discount the bills at a sacrifice of 15I. ‘A rise in the rate of interest’, he therefore concludes, ‘lowers the price of all securities, reduces the value of all capital not immediately available, in relation to immediately available capital; raises the value of money in hand in relation to money to be paid at a future day; and causes goods to be brought to market prematurely at a sacrifice of profit. Mr. Fullarton bears witness against himself. It is demonstrable upon his own showing that in specie-paying countries, the hoards cannot be drawn out for the purpose of effecting foreign payments without an appreciation of the currency and a reduction of prices.’1

(6)

Torrens and the Banking Theory :

Objectives

The arguments which we have examined so far all relate to differences of opinion regarding the working of economic mechanisms — whether convertible paper can be over-issued, 1 Ibid. pp. 244-6. 137

ROBERT TORRENS

what determines the state of the market for foreign exchange, how differences in the foreign balance are settled. But the ultimate differences between the Banking School and the Currency School went deeper than this. They related, not merely to mechanisms, but also to objectives — not merely to the question how the system actually worked, but also to the question how it was desirable that it should work. This difference stands out very clearly in Tooke’s con¬ demnation of the state of affairs which would exist under a purely metallic currency, if such a currency were to work in the way which the exponents of the Currency Theory expected. The ‘oscillating process of a rise and fall of prices with every influx or efflux of the precious metals, independently of cir¬ cumstances connected with the cost of production of com¬ modities, and the ordinary rate of consumption, would be perplexing enough, and anything but convenient to the com¬ mercial, or the manufacturing or the agricultural community. ... I firmly believe, however, that if every import and export of the precious metals were attended with the effects attributed to them by this theory, the inconvenience would be felt to be intolerable. . . .’1 The same aversion to an internal circula¬ tion fluctuating with fluctuations of international supply and demand is expressed by Fullarton. ‘There is at least one object’, he said, ‘. . . which would be effectually accomplished by acting on this system. It would be perfectly calculated, I think, to ensure that no derangement of the exchanges, or none at least subsisting in coincidence with anything like pressure on the money market, should ever be permitted to pass off, without one of those crises hitherto fortunately of rare occurrence, but of which the results, when they have occurred, have been so extensive and deplorable.’2 Now there is a sense in which some of these protests are to be explained in terms of a perfectly understandable revulsion from contemplation of the effects on the volume of credit in general of the mechanisms proposed by the Currency School. If it were really true as Torrens had argued that the conditions of international equilibrium required that a loss of £1,447,000 of gold required the reduction of credit currency to the extent of no less than £7,235,000,3 it is easy to understand that some alternative system seemed to be called for. It is worth noting 1 Tooke, Inquiry into the Currency Principle, p. 7. Fullarton, op. cit. p. 130. 3 See above, p. 115. 138

THE THEORY OF MONEY AND BANKING

that, in the protest from Fullarton quoted above, it is pressure on ‘accommodations’ that he depicts as disastrous. Nevertheless, it is difficult to believe that this was the limit of the Banking School’s protestations — that some mitigation of the impact of gold flows on the total volume of credit in a proportional reserve system was the full extent of their plea. For, in the first place, the passage quoted from Tooke above, with its complaint of the influence on internal prices of a mechanism functioning according to the requirements of the Currency Theory, was based upon the assumption not of a credit system on a proportionate reserve basis with the impli¬ cation of multiple contractions and expansions of credit, but on the contrary, and quite explicitly, on the assumption of a purely metallic system, under which no such multiple expan¬ sions or contractions were implied. Furthermore, it must be remembered that it was the main burden of the objections of the Banking School to the provisions of the Bank Act of 1844, that it precluded note-issues offsetting losses of gold. This, surely, goes much further than a protest against the possible effects on credit of multi-proportional reduction. It is rather a positive plea for the retention of an apparatus which could definitely prevent the movements of the internal circulation from being influenced by fluctuations in the size of the reserve. It is a protest against an automatic connection between in¬ ternal and external earnings and spendings. It is a plea for a policy of internal insulation. It is at this point that the difference with the Currency School becomes sharpest. For, from the point of view of the members of that School, such a policy spelt disaster — a per¬ petual danger of balance of payments crises and a consequent peril to convertibility. The point is vividly put by Torrens in the first of his replies to Tooke’s pamphlet. ‘ The currency, we assume, is in excess in relation to foreign currencies; the high range of our prices is causing imports to exceed exports; an unfavourable foreign balance is accruing, and gold is flowing out of the coffers of the bank in liquidation of the debt. Under the circumstances, the bank, adopting the theory of currency propounded by Mr. Tooke, disregards the state of the foreign exchanges, and keeps its circulation even by increasing its securities. This arrests the process through which, were the currency allowed to contract as, under the circumstances, a purely metallic currency would i39

ROBERT TORRENS

do, the foreign debt would be gradually liquidated and the exchanges restored to par. The amount of cash in the hands of bankers and bill brokers not being diminished by a due contraction of the circulation, they would not now be warned to limit their credits and discounts ; there would be no pressure upon the money market; no advance in the rate of interest, inviting the return of foreign investments ; no fall in prices checking imports and increasing exports. All the causes of an adverse exchange would be kept in operation, and gold would flow out in an undiminished stream. The vital question, — how can insolvency be averted ? would force itself upon the consideration of the bank directors.’1 The difference becomes even plainer when methods of maintaining convertibility, other than operating on the circu¬ lation, come under consideration. Tooke and the Banking School generally were in favour of a higher reserve. Provided that the reserve were reasonably large, they thought, all arguments for operating on the circulation would fall to the ground. But Torrens and his friends thought the opposite. They conceded that purely transitory drains might be met this way; payments on account of a deficient harvest would be a case in point. But, said Torrens : ‘Very different would be the result should an adverse exchange be created by a currency redundant in relation to foreign currencies. In this case, no conceivable amount of treasure held by the bank would be sufficient of itself to adjust the international accounts ; because, if the efflux of the metals should not be accompanied by a contraction of the circulation, the currency would continue to be of less value than foreign currencies, imports would exceed exports, and new foreign debts would be contracted as old ones were extinguished.’2 ‘When the currency is in excess in relation to foreign currencies,’ he continues, ‘the only possible means by which we can avert a suspension of cash payments is to restore the currency to par with foreign currencies, and the only practical questions for consideration are — shall we apply the remedy at an early or at a late period ? Shall we at one time keep the circulation in excess, while the treasure in the coffers of the bank is sinking from a safe maximum to a dangerous minimum, and at another time keep the circulation deficient, 1 Inquiry, pp. 32-3. 140

2 Ibid. p. 34.

THE THEORY OF MONEY AND BANKING

while the reserve of treasure is reascending from the level of danger to the level of safety ? Or shall we at all times adhere to the principle of allowing the circulation to contract or expand as the metals ebb or flow, and thus rectify, upon the instant, the first incipient deviations of the currency from the par of the commercial world ? ’1 It is just here, it may be contended, that the permanently important element in the analysis of the Currency School will be found to exist. They were certainly over-optimistic in supposing that, in a fully developed credit system the regula¬ tions they proposed, a mere limitation on note issue would be an effective safeguard against movements of the aggregate of exchange media incompatible with external equilibrium. Given the fact of different central banks in different inter¬ national centres, only an extension of the Currency principle from notes to deposits — i.e. what has come to be called ioo per cent, banking but which in fact is the extinction of banking as we know it — would secure interlocal fluctuations of spending similar to what would take place under a system which was purely metallic.2 Whether a limitation of the note issue on the lines they suggested was or was not intrinsically desirable, it certainly was not always capable of producing the result they hoped. Nevertheless, the systems to which they were opposed were even less capable of so doing. And it is perhaps the main contribution of Torrens and his friends that they pointed out the reason why. In this, it is true, they were not wholly original; the essence of their critique of insulating systems was already to be found in the writings of the Bullionists. The fundamental proposition that to maintain equilibrium the internal and external value of money must be kept in step by operations on the internal circulation is clearly Ricardian. But the practical proposals of the Bullionists were limited to the requirement of convertibility; and that clearly was not enough. It was a real achievement on the part of the Currency School to have demonstrated this and to have rubbed in the moral that to sustain convertibility it was necessary that the movements of the internal circulation should be appropriate. 1 Ibid. p. 34. 2 It should be noted that the same result could be secured by the much less drastic method of instituting an international Central Bank with one international money.

ROBERT TORRENS

Now whether the maintenance of convertibility at fixed rates is, or is not, desirable is not settled by this argument. The great issue of national versus international money, which is still undecided in our own day, is not settled by a demonstra¬ tion of the technical necessities of the latter type of arrange¬ ments. Much more weighty considerations are involved; and it is a bewildering and tantalizing circumstance that Torrens, who in his earlier phase had argued so powerfully for the advantages of national money, should have told us nothing of the reasons which led him to change sides and devote all his eloquence and ingenuity to the support of arrangements designed to maintain international money. How much would subsequent argument have been clarified, if, at that stage, there had been given a clear statement of the questions involved in this larger issue from the point of view of one who had so fully understood the advantages of national money yet had come to believe that they were less than the dis¬ advantages of not being part of an international system.1 Nevertheless, we must not ask too much. The evolution of thought does not proceed according to strict logical require¬ ments. And, in confronting for ourselves the wider choice between national and international money, we must surely acknowledge indebtedness to Torrens and his associates for having made it quite clear that such a choice is indeed neces¬ sary, and that the position of the Banking School, who hoped at all times to get the best of both worlds, is not logically tenable. And this, it is submitted, in the final analysis is the lasting significance of this historic controversy. Ostensibly, it was simply a matter of dispute concerning the means to maintain convertibility. As we saw at the beginning of this chapter, the Banking School, equally with the Currency School, rendered lip service to this objective. But an fond it was a dispute between policies designed to preserve the seamless robe of international payments and policies tending in exactly the 1 The one explicit reference to this problem occurs in the very late tract on Political Economy and Representative Government in Australia. Here, after expatiating on the inconveniences caused by the wide fluctuations in colonial bills on England due to the absence of a local mint for converting gold into coin, Torrens says ‘ when we take a comprehensive view of the evils inflicted by a fluctuating of the benefits secured by a uniform currency, it becomes a matter of . . . surprise’ that the setting up of a mint should have been so long delayed (op. cit. p. 31). But this, of course, is not a very comprehensive view. 142

THE THEORY OF MONEY AND BANKING

reverse direction. This, at least, Torrens saw and stated very vividly. ‘After a careful examination of Mr. Tooke’s recent publication, I cannot discover any very essential or practical difference between his principles and those of the Birmingham economists. Once deviate from the golden rule of causing the fluctuations of our mixed circulation to conform to what would be the fluctuations of a purely metallic currency and the flood¬ gates are opened and the landmarks removed. Between the abandonment of a metallic standard as recommended by the Birmingham economists, and the adoption of arrangements hazarding the maintenance of a metallic standard recom¬ mended by Mr. Tooke, the difference in the practicable result might ultimately be nothing.’1 Without necessarily accepting the pejorative significance of the references to the opening of flood-gates and the removal of landmarks, we may at least agree that there is something to be said for the classification. 1 Inquiry, pp. 53-4.

143

CHAPTER VI

THE THEORY OF COLONIZATION (i) Introduction W e now come to a field of thought in which, in the course of half a century, the attitude of Classical Political Economy underwent a very marked transformation — the theory of colonization. At the beginning of the period, this attitude, as typified by Bentham’s appeal to the French Convention, Emancipate your Colonies, or by James Mill’s article on Colonies in the supplement to the Encyclopaedia Britannica, was highly sceptical: the monopoly of the colonial trade was a selffrustrating objective which brought little or no gain yet pro¬ vided the occasion for wars and oppression ; colonial dominion was a net expense which enlightened states would do well to discard. By the end of the period, the attitude, as represented by John Stuart Mill’s Political Economy, had completely shifted, not backward, indeed, to an approbation of old monopolistic privileges and ascendancies but forward to support of a new and positive conception. ‘There needs be no hesitation’, said Mill, ‘in affirming that colonization, in the present state of the world, is the best affair of business in which the capital of an old and wealthy country can engage.’1 In the intellectual ferment which led to this transformation, Torrens played an important, indeed an outstanding, part. It is true that, both in the world of thought and in the world of action, he must take second place to Gibbon Wakefield, the founder of two great colonial settlements and the true author of modern conceptions of the British Commonwealth of Nations — as we trace the evolution of Torrens’ own attitude we shall have to take much account of the ubiquitous influence of this wayward but authentic genius. But Torrens’ activities in this field antedate Gibbon Wakefield’s ; he gave the Wake¬ field system his own particular interpretation; and in the end 1 Principles of Political Economy (Ashley’s edition), p. 971. 144

THE THEORY OF

COLONIZATION

their paths diverged. There is good purpose, therefore, in tracing the evolution of the Classical theory of colonization as it appears in his various works.

(2)

Personal Background and

Early Thought

In considering the background of Torrens’ thought in this connection there are two personal factors which it is desirable to take into account. In the first place, Torrens was Irish. A deep concern for the condition of Ireland shows itself persistently throughout his work. At first this takes the form of vigorous support for Catholic Emancipation, a topic which was the subject of an early political pamphlet.1 But it is not long before the con¬ dition of the people becomes the main preoccupation in this connection : how is the degradation of the Irish peasantry to be ended ? how can it be prevented from infecting the con¬ dition of the English labourer and eventually dragging that too down to the subsistence level of a potato economy?2 The idea that the only cure lay in migration appears in the first of Torrens’ excursions into this field.3 It is the main theme of his first speech in Parliament on the same subject.4 It recurs again and again during his intense colonization period,5 and it was the inspiration of his last exercise in this field, a vast scheme for averting the worst consequences of the Irish potato famine by the mass migration of a million people.6 Secondly, there can be little doubt that the adventure of the colonization movement was highly congenial to Torrens’ temperament. At quite an early stage after his retirement from active service, it appears that he actually contemplated seeking public employment in Australia.7 In the mid-twenties 1 Thoughts on the Catholic Question (1st edition, 1808). 2 See, e.g., the Speech on Emigration of February 15, 1827, or Letter V of The Budget. 3 A Paper on the Means of Reducing the Poors Rates (1817). 4 Substance of a Speech by Colonel Torrens . . . 15th February 1827 . . . for the Re-Appointment of a Select Committee on Emigration. 5 E.g. A Letter to Lord John Russell on . . . Poor Laws in Ireland (1837). Letters IV and V of The Budget. 6 Self-Supporting Colonization : Ireland Saved without Cost to the Imperial Treasury (i847). , . r , 7 See a letter from James Mill to Macvey Napier. Selections from the Correspond¬ ence of the late Macvey Napier, Esq., edited by his son (1877, pp. 17-18). According to Mill, Torrens ‘had been at pains to collect information respecting Botany Bay, having projects of being sent out to be its Governor’.

145

ROBERT TORRENS

he was one of a group of memorialists who petitioned Huskisson for exclusive rights to promote trade with New Zealand.1 In reading what Torrens had to say on the theory of colonization, it is always necessary to remember that, in his middle period, he was actively engaged in promoting a practical colonization pro¬ ject, that at one time he hoped to be appointed governor of the new colony,2 and that later he actually enjoyed the paid posi¬ tion of Chairman of the Commissioners for South Australia. Most of Torrens’ writing was controversial: although he loved abstract speculation, most of his propositions were de¬ veloped in the course of debates having some bearing on contemporary policy. But in regard to colonization there is not only a controversial, there is sometimes even a propa¬ gandist, element in what he has to say. There is no evidence which would lead us to suppose that he trimmed his views to suit his interest. But there can be little doubt that his views and his disposition and his interest all tended in the same direction. Hence, more than once, arguments which sound much more as if they came from the chair of a shareholders’ meeting than from the armchair of the theoretical economist of popular imagination. There is a world of difference between the judicial tone of Herman Merivale’s great Lectures on Colonies and the vehement advocacy of Torrens’ Colonization of South Australia. But that does not mean that the latter is not worth studying with respect. An interesting background to Torrens’ active speculation in this field is provided by the comparatively academic dis¬ cussion of the colonial trade which is to be found in his first publication, The Economists Refuted, written, it will be remem¬ bered, before he had left active service or formed any connec¬ tion with the political and intellectual circles in which he was later to move.3 In the course of this discussion Torrens makes three points which are of great significance for the development of his thought later on. Two of these points, which relate to the security of colonial trade and the possibility of so managing it as to procure accretions of wealth to the metropolitan centre, are particularly significant in regard to the development of his views on com1 See a memorial in the Huskisson Papers at the British Museum, Add. MSS

38763/99.

2 See Hodder, The Founding of South Australia, pp. 122-31. 3 The entire chapter, with a few explanatory additions, was reproduced under the same heading in The Production of Wealth (1821). 146

THE THEORY OF COLONIZATION

mercial policy and are best dealt with later on in that context.1 They are significant here only in so far as they evince a posi¬ tive appreciation of the advantages of trade with colonies as distinct from trade with foreign countries and a frame of mind very different from that exhibited in Bentham’s Emancipate your Colonies. The third point, however, bears immediately on the subject matter of this chapter. Torrens argues that colonies offer the one hope for breaking the vicious circle which arises from over-population. A sentence of more than usual com¬ plexity sets out this view. ‘From the relative proportions according to which population and capital have, in all old countries, been hitherto found to increase’, he says, ‘the supply of labour has such a tendency to exceed the demand for it that the labouring classes, even when there is no extraordinary stagnation or revulsion in the channels of industry, are commonly reduced to a degree of distress and temptation, for which, in the actual state of knowledge and morals, there is no conceivable remedy except in a system of colonization suffi¬ ciently extensive to relieve the mother country from superfluous numbers.’ He goes on to say that this question ‘will fall more properly under our consideration when we come to examine the several circumstances which regulate wages ’ -—■ an inquiry which, however, typically enough is not to be found in this particular text 2 — but it ‘ is alluded to in this place merely for the purpose of exhibiting, in a strong light, the futility of the objections which have sometimes been urged against the extension of the colonial system’.3

(3)

Pauperism and

Emigration

With the vast growth in unemployment and pauperism which accompanied the depression following the end of the Napoleonic Wars, emigration as a cure for distress began to become a matter of public discussion. In the 1803 edition of his Essay on Population — the first of the enlarged and modified 1 See below, Chapter VII. 2 The same phrase is to be found in the corresponding chapter in The Pro¬ duction of Wealth — and the same absence of any treatment in that book of the promised subject! s Op. cit. pp. 35-6, as reprinted in the Appendix to the 2nd and 3rd editions of The Principles and Practical Operation of Sir Robert Peel's Bank Act. L

147

ROBERT TORRENS

versions, better perhaps styled the Second Essay, etc., Malthus had devoted some attention to the subject: but his conclusions had been largely negative. He acknowledged the apparent strength of the argument that with many parts of the earth still uncultivated and thinly peopled, the natural cure for over-population was emigration. But he urged that ex¬ perience showed that it was ‘a very weak palliative’ 1 rather than an adequate remedy. The difficulties of colonization were very great. But even if they were not, the power of population to multiply must soon wipe out every transitory advantage. ‘ If this remedy were indeed really effectual, and had power so far to relieve the disorders of vice and misery in old states, as to place them in the condition of the most prosperous new colonies, we should soon see the phial ex¬ hausted, and when the disorders returned with increased virulence, every hope from that quarter would be forever closed.’2 He conceded, however, that as a partial and temporary expedient, and with a view to the more general cultivation of the earth and the wider spread of civilization, it seemed ‘to be both useful and proper’; and he urged that it was unjust and ‘in the highest degree impolitick’ in govern¬ ments to prevent it. By 1817, however, when, in the fourth edition, he submitted his work to extensive review and addition, he had come to take a less Laodicean view. There were certain circumstances of disequilibrium in the labour market when emigration has a very positive function. ‘If, for instance, from a combination of external and internal causes, a very great stimulus should be given to the population of a country for ten or twelve years together, and it should then comparatively cease, it is clear that labour will continue flowing into the market, with almost undiminished rapidity, while the means of employing and paying it have been essentially contracted. It is precisely under these circumstances that emigration is most useful as a temporary relief; and it is in these circumstances that Great Britain finds herself placed at present. Though no emigration should take place, the population will by degrees conform itself to the state of demand for labour : but the interval will be marked by the most severe distress. . . . The only real relief in such a case is emigration, and the subject at the present moment is well worthy the attention 1 Op. cit. p. 387.

2 Ibid. p. 394. 148

THE THEORY OF COLONIZATION

of the government, both as a matter of humanity and policy.’1 It was in the same year that Torrens first appeared before the public with a special plea for organized emigration. As we have seen already, unlike Malthus, he had no earlier luke¬ warmness to qualify;2 and the prospects of substantial amelioration which he depicted were without important reservation. The title, A Paper on the Means of Reducing the Poors [sic] Rates and of Affording Effectual and Permanent Relief to the Labouring Classes,3 * gives an exact idea of its main contents. It begins by laying it down that it is impossible ‘for human wisdom to devise any plan of relief which can . . . bestow any permanent comfort and independence on a people whose numbers are not limited by the demand for labour ’J It attempts to drive this home by supposing schemes of relief which consist in the redistribution of rent and profit: the sole consequence of which, in the absence of control of numbers, would be the destruction of ‘intellectual culture’ and the con fining of ‘ each and all to the business of providing for merely animal wants’. Owen’s scheme is analysed and shown either to ignore the law of diminishing returns or to reduce itself to ‘nothing more than a Spencean project in disguise’.5 ‘If Mr. Owen seems to afford general relief by regulating population, his new system, with all its complicated and enormously expensive apparatus, is unnecessary and superfluous ; and if he does not . . . then the vaunted system would create a population so redundant, that the whole of the net revenue of 1 Additions to the Fourth and Former Editions of an Essay on the Principle of Population, by T. R. Malthus, 1817, pp. 54-5. As is well known, Malthus maintained this view in his evidence before the Select Committee on Emigration of 1827. See especially Q.. 331. 2 Torrens was never a very thoroughgoing Malthusian. The Economists Refuted contains a note which, comparing conditions in England and Ireland, denies an inevitable tendency for population to increase ‘in proportion to the increase which may be induced in the comforts and necessaries of life’ {op. cit. p. 84). This, of course, was not implied by Malthus’ modified position : and the doctrinal difference may be exaggerated. But there can be little doubt that Torrens was more sanguine than Malthus of improved conditions bringing with them improved habits of multiplication. See, e.g., the Speech on Emigration (2nd edition), p. 48, where the improvement in England since the days of the Heptarchy is said to be ‘totally inconsistent with the supposition that population has a tendency to increase faster than capital’. 3 This paper is said to have been ‘presented to the Chairman of the Com¬ mittee on the Poor Laws’ (Sturgess Bourne). It was printed in No. XX of the Pamphleteer, 1817. It was reprinted with the additional title Self-supporting Emigra¬ tion as an appendix to the 2nd edition of the Colonization of South Australia. * Op. cit. p. 511. 5 Ibid. pp. 515-16.

149

ROBERT TORRENS

the country would be required to supply the merely animal wants of the people : that arts, literature and science, would be abandoned ; and a more than Gothic ignorance prevail.’1 It follows from all this, Torrens goes on to argue, that the only remedy for distress is to restrict population. Now there are only two ways of doing this, ‘ prudential or moral restraint for preventing the birth of superfluous numbers ; and a well regulated system of colonization for removing such numbers should they be born’. But although much is eventually to be expected of the first — ‘when we contemplate the probable effects of the Schools of Bell and Lancaster, as well as of our numerous banks for the accumulation of small savings, we may anticipate an almost incalculable improvement in the con¬ dition of the labouring classes’2 — yet the benefit ‘though certain, is remote’. Therefore, to afford a breathing space and an immediate relief—recourse to ‘a more extended system of colonization’ is necessary. ‘Happily, the vast regions of Canada, the Cape of Good Hope and New Holland, furnish us with an almost unlimited vent for our redundant population; and enable us, without difficulty, and without expence, to provide for every able-bodied pauper in the United Kingdom.’ 3 How is this to be done? According to Torrens, labour in the colonies is so productive that within a very short period paupers who were transplanted thither would be able to repay the expense of transportation. ‘All, therefore, that is necessary, in order to reduce the Poors [jtc] Rates and to relieve the prevailing distress, is to offer the persons capable of labour, who are chargeable upon their parishes, grants of colonial land, upon the condition that they shall, on arriving at their destination, give in return such a portion of their labour, or of the wages of their labour, as may be sufficient to replace the expences incurred in sending them out.’4 This general state¬ ment of the advantages of the plan is reinforced by a plea for resort to emigration for the resettlement of demobilized soldiers and sailors and by reference to its probable utility in relieving distress in Ireland should the inefficient methods of cultivation then prevalent be superseded by the consolidation of holdings. 1 Op. cit p. 517. The critique of Owen, greatly expanded, was the subject of a SPeC!u B'u'6 by | °rr,eT ln 2 Ibid- P- 518.

1116

EdtnburSh Review two years later (October 2,8 “d mV 3 Ibid. p. 519. 150

1810)

» englisH 4 Ibid. p. 521.

THE THEORY OF COLONIZATION

Ten years later, as a member of the House of Commons, Torrens returned to the charge. The movement for emigration had now achieved considerable proportions. Thanks largely to the efforts of the indefatigable Wilmot Horton, there had been set up a select committee to investigate the whole business; and the occasion for Torrens’ speech was a motion that the committee be reappointed. The problem of Ireland now occupies a much more prominent place in the argument. The earlier paper had alluded to the displacement of labour by agricultural improve¬ ment as a possible development in the future. The speech refers to it, however, as an immediately urgent problem. To remove the present suffering improved methods of farming are necessary. But improved methods involve a shift to less intensive cultivation. ‘Ireland, exchanging her raw produce for the wrought goods of England, may extensively adopt the improved system of farming, long before her native manu¬ factures become so flourishing as to give employment to the hands no longer required upon the soil. In this case, unless timely and energetic measures of precaution be adopted, Ireland, in advancing towards wealth and prosperity, must necessarily pass through a period of the most aggravated and intolerable distress.’ Nor can such a state of affairs be a matter of indifference to the inhabitants of England. In two such contiguous countries ‘one of two events must necessarily occur: — either the Irish people must be raised to the level of the English, or the English degraded to the level of the Irish. . . . The condition of the working classes in England and Scotland cannot be preserved from rapid deterioration, unless we divert towards the colonies the stream of Irish labour which now annually inundates the British market.’1 Having thus stated the urgency of the Irish problem, Torrens then went on to argue that the necessity for organized emigration from England was almost as great. His reason on this occasion was an argument of which he was to make much in a systematic way later on,2 namely that, because of diminish¬ ing returns in agriculture, the country had arrived at a state at which further progress was retarded, not by the difficulty of accumulating capital but by the difficulty of employing it beneficially. Emigration would remedy this. ‘Throughout 1 Substance of a Speech Delivered by Colonel Torrens ... on Emigration, pp. 39-42. 2 See below, pp. 179-81.

ROBERT TORRENS

the British Dominions, the sources of wealth are abundant, but poverty and misery prevail, because the due proportion be¬ tween them has not been preserved. In Ireland, labour is re¬ dundant in relation to capital: in England, both labour and capital are redundant, as compared with land ; while in the vast regions of North America, Southern Africa and Australia, land is redundant with respect to capital and labour. Now what is it that a well regulated system of colonization would effect ? Simply this : it would apply the redundant labour and capital of the United Kingdom to the redundant land of the colonies; it would restore the proportions on which prosperity and happiness depend. . . .’1 The speech then goes on to reiterate the main argument of the earlier paper that there is no need to anticipate that the relief given by emigration would be swallowed up by increased multiplication. The ‘principle of population’ has been mis¬ interpreted. ‘When medical science bestows sight upon those who have been born blind, in their early wonder and delight they are for some time unable to ascertain the distance, and the magnitude of the objects opening around them. When genius first reveals to us departments of knowledge hitherto obscure, we cannot, under the first novelty of our impressions, pause to measure the precise bearings, or to calculate the relative importance of the acquisitions which are made. . . . I feel assured, that Mr. Malthus would be one of the first to dissent from the harsh and repulsive conclusions which have sometimes been deduced from the principle . . . which he has illustrated with such distinguished ability. When the true practical operation of this principle is properly under¬ stood, it affords no ground whatever for the objection, that the vacuum created by well-regulated Emigration would be again filled up. . . . When we consider the astonishing extent to which every species of useful information is spreading amongst the people, we cannot but entertain a confident and wellgrounded expectation that, were the causes which have mainly contributed to create a redundant supply of labour once removed, by a well-regulated plan of Emigration, a knowledge of the principles which determine the rate of wages would effectually prevent that redundancy from being reproduced.’2 Was this last sentiment mere rhetorical optimism, which 1

Substance of a Speech Delivered by Colonel Torrens ... on Emigration, pp. 44-5. 2 Ibid. pp. 47-9.

!52

THE THEORY OF COLONIZATION

Malthus, with his views on the probability of effective moral restraint, would not have uttered ? Or may we venture to read into it, on the strength of the author’s acquaintance with the Mills and, still more, with Francis Place, an expectation of more effective methods of family limitation ? The speech concludes by a consideration of the expense of emigration. Any expenditure, it is argued, would be justified which would cure the appalling distress in Ireland and England. In fact, however, no ultimate expense need be incurred. This is explained, partly in terms of the argument of the earlier paper that the productivity of labour in the new countries would be able in a very short period to replace, with a surplus, the capital advanced’ for transportation. Partly, however, it is explained in terms of an argument which was to play a great part in the speaker’s fully developed theory later on, namely, the increase in the value of properly settled land. ‘ Land capable of yielding a quantity of produce greater than the quantity expended in cultivating it, acquires exchangeable value even while in an unreclaimed and forest state, as soon as population and capital approach. While Government advanced capital to the redundant population emigrating to the colonies, it would at the same time be able to sell, at constantly-advancing prices, land adjacent to the locations and townships it established. Under proper management, the sale of crown lands in the colonies might be made a considerable source of revenue.’1

(4)

The Wakefield System

Up to this date, the emphasis of thought in this connection had been laid upon the relief to be afforded by emigration rather than upon the technique of colonization. Admitted that, in the speech quoted above, Torrens lays some stress upon the positive gain of shifting capital and labour into parts where their proportionate relationship to land is more favour¬ able to productivity. Admitted further that he speaks of a ‘well-regulated system’ of emigration; and, to his own way of thinking, this, together with his hope of financing the enterprise out of the capital appreciation of state lands, may have provided some justification for believing that his work 1 Ibid. p. 52. 153

ROBERT TORRENS

in this field was entitled to be regarded as anticipating the systematic colonization movement of the thirties. But, be this as it may, in the main Charles Buller’s description of the emigration agitation of the twenties and earlier as a series of schemes for ‘shovelling out . . . paupers’1 was not unjustified. We now have to take into account the influence of the thought of Edward Gibbon Wakefield, whose arrival on the scene may be compared to the descent of some gorgeous tropical bird among the sober denizens of a respectable farm¬ yard. There is no need here to dwell upon the details of the career of this extraordinary individual: his irresponsible youth and young manhood, his imprisonment for an ultramelodramatic and utterly inexcusable abduction, his prolonged studies of the colonial question, his leap into anonymous fame through the publication of letters purporting to come from a settler in New South Wales but in fact written from Newgate Gaol — the famous Letter from Sydney, — his activities as the moving spirit behind the scene in the colonization of South Australia and New Zealand, and his position as the eminence grise of Lord Durham and Charles Buller in the preparation of the famous report which introduced the principle of selfgovernment into the theory of the British Commonwealth; these things have been well told elsewhere.2 But if we are not to get the theory of colonization into a totally false perspective we must at least give some attention to his system of thought. The history of the theory of colonization without Gibbon Wakefield would indeed be Hamlet without the Prince of Denmark.3 ‘It is a remarkable instance of the slowness with which political knowledge advances’, said Senior at 1 Speech of Charles Buller, Esq., on Systematic Colonization, reprinted as appendix to The Art of Colonization, by E. G. Wakefield, pp. 457-500. 2 The best account of all this is still to be found in Richard Garnett’s Edward Gibbon Wakefield (1898). A more detailed account of the famous abduction case is given in Mr. Harrop’s The Amazing Career of Edward Gibbon Wakefield (1928). For an excellent history of Wakefield’s activities in regard to Australia and his general system of thought see R. C. Mills, The Colonization of Australia, 1829-42. 3 This judgment is a complete reversal of a view which I expressed some thirty years ago when, in the course of controversy about some Marxian theorems, I reproached my opponent, Mr. Maurice Dobb, with paying too much attention to Wakefield’s propositions. On the main subject under discussion, I am no more in agreement with Mr. Dobb today than I was then. But I am very ashamed indeed of having made this point, which rested on a total failure to understand the essence of Wakefield’s position — due, I must conjecture at this distance of time, to a willingness to argue on the basis of a most superficial acquaintance with the history of the subject, the Nemesis of the hubristic debater. 154

THE THEORY OF COLONIZATION

Oxford in 1850-1, ‘that though colonization has been vigorously carried on for above 3,000 years by the nations which during that long period have from time to time been the most civilized, the mode of effecting it in the manner most beneficial both to the mother country and to the colony was discovered only about twenty-five years ago. The discoverer was Mr. Edward Gibbon Wakefield.’1 The starting-point of Wakefield’s thought in this con¬ nection was what he conceived to be the poor record of colonization in the past. Save where there was a basis of slavery or convict labour, the history of colonies up to date, as he conceived it, had been a history of hardship, misery and frustrated expectations.2 His favourite example was the disastrous history of the Swan River settlement, where, on his version of what had happened, a ‘colony which was founded with a general hope in this country, amongst very intelligent persons of all descriptions, that it would be a most prosperous colony’, had ‘all but perished’ — ‘not quite perished, but the population’ had become ‘a great deal less than the number of emigrants; a. diminishing population since its founda¬ tion’.3 But this was only the leading species of a large genus. The early days of settlement in Virginia, the position in the Gape, the experience of New South Wales, despite the presence of convict labour, all went to show a failure to create the basis of civilized communities. The Letter from Sydney, with all its incidental colour, is fundamentally a series of variations on a theme of frustration and disappointment. Stripped of all accidental circumstances, on this view the fundamental feature of such records was a failure to achieve 1 The quotation is from a transcription of the unpublished lectures in the compilation of Senior’s writings edited by S. Leon Levy and entitled Industrial Efficiency and Social Economy, pp. 351-2. It is a very handsome tribute. For Senior himself, with James Stephen, had written in 1831 and circulated privately Remarks on Emigration with a Draft of a Bill, which definitely relied on the Hortonian principles which Wakefield attacked. (The attribution of authorship may occasion some surprise, for the pamphlet is anonymous. But a copy in the pos¬ session of the present writer is inscribed to T. Spring Rice by ‘the authors’ and labelled ‘by Js. Stephen and N. W. Senior’ in Senior’s own handwriting. There appears also to be a copy in the University of Chicago Library. See the review by Professor Viner of Dr. Bowley’s work on Senior in the Economic Journal, 1935, pp. 283-5.) 2 It was one of the weak points in Wakefield’s theory that he had to explain the prosperity of the northern part of the U.S. in terms of the slavery of the South. 3 Report from the Select Committee on the Disposal of Lands in the British Colonies, 1836. Minutes of Evidence, p. 53, Q,. 591.

*55

ROBERT TORRENS

an adequate division of labour — Wakefield himself would have called it combination of labour. The immigrants into the new countries tended to disperse. They lived in virtual isolation from one another; and in consequence the productivity, and hence the high wages and profits which could have been achieved on new and fertile lands, did not emerge. The concentration of population which is necessary to justify the apparatus of a civilized society, roads, public buildings, markets, specialized professions, etc., did not exist. ‘ The principle of the combination of labour’, wrote Wakefield, ‘. . . seems in old countries like a natural property of labour. But in colonies the case is totally different. There, the difficulty of inducing a number of people to combine their labour for any purpose, meets the capitalist in every step of his endeavours, and in every line of industry.’1 The cause of this failure Wakefield found to reside in the abundance of free land. This diagnosis was the main original feature in his system, the point at which he most markedly diverged from his predecessors in this field. Thus Adam Smith had regarded the abundance of free land as the main cause of the prosperity of new countries. ‘In other countries’, he had said in an oft-quoted passage, ‘rent and profit eat up wages, and the two superior orders of people oppress the inferior ones; but in new colonies, the interest of the two superior orders obliges them to treat the inferior one with more generosity and humanity, at least where that inferior one is not in a state of slavery. Waste lands, of the greatest fertility, are to be had for a trifle. The increase of revenue which the proprietor who is always the undertaker, expects from the improvement, constitutes his profit, which in these circumstances, is commonly very great: but this great profit cannot be made without employing the labour of other people in clearing and cultivating the land ; and the disproportion between the great extent of the land and the small number of the people which commonly takes place in new colonies makes it difficult for him to get this labour. He does not, therefore, dispute about wages, but is willing to employ labour at any price. The high wages of labour en¬ courage population. The cheapness and plenty of good land encourage improvement, and enable the proprietor to pay those high wages. In those wages consists almost the whole 1 The Art of Colonization (ist edition), pp. 168-g. 156

THE THEORY OF COLONIZATION

price of the land ; and though they are high, considered as the wages of labour, they are low, considered as the price of what is so very valuable. What encourages the progress of popula¬ tion and improvement, encourages that of real wealth and greatness.’1 Wakefield’s view called all this in question. He denied that new countries had been prosperous — save on a basis of slavery. He argued that unlimited access to free land destroyed the basis for combination of labour. ‘ When each member of a society employs no more capital than his own hands will use,’ he wrote, ‘ the labour of the whole society is necessarily cut up into separate fractions as numerous as the families; each family, necessarily, in order to live, cultivates the ground, and does scarcely anything else. As each family is occupied in the same mode of production, there is no motive for exchange between the different families ; and as, in such society, there is no co-operation, so there can be no division of employments. Without co-operation and division of employments, capital and labour are so weak, so unproductive, that surplus produce, either for foreign exchange or for accumulation at home, cannot be raised. This is the primitive or barbarous state of things, under which famine is the necessary consequence of one bad season. . . .’ He goes on to depict the ‘process by which a colony goes to utter ruin . . .’ ‘The colonists proceeding from a civilized country possessing capital . . . reach their destination. . . . Every one obtains land of his own. From that moment no one can employ more capital than his own hands will use. The greater part, therefore, of the capital which has been taken out necessarily wastes away. ... In a few months nothing in the shape of capital remains beyond such small stocks as one isolated person can manage. But those of the society who have not been used to labour cannot, with their own hands, manage even that small stock, so as to increase or even preserve it; while those who have been accustomed to nothing but labour, and to labour in combination with others, finding themselves each one alone in a vast wilderness, are unable to use with advantage such small stocks as they begin with and thus both classes (or rather the whole body, for now there are no classes) soon fall into a state of want. Despair follows of course, with mutual reproaches, and then rage, hatred, plunder and fighting; and in the end, 1 Wealth of Nations (Cannan’s edition), vol. ii, pp. 67-8.

J57

ROBERT TORRENS

unless aid come from without, all the people die of hunger. 1 Such a state of affairs, he argued, was inevitable so long as land was to be had for the taking : the desire to become an independent landowner is so strongly implanted in the human breast that such dispersion will always take place. ‘The more important cause ... of the ruin of the Swan River, was, not the dispersion of the settlers over a great space, but the separa¬ tion of their labour into fractions, by means of there being no hired labour. Labour never has been combined, except by one of two means : either by means of slavery, or by means of hire. One cannot conceive any other means by which labour should be combined. The moment labour in the Swan River colony was no longer hireable, all labour was cut up into the weakest possible fractions; and, to put the case, extremely I know, but still in a way which, I think, will illustrate this point, I believe that if one man should have two minds, and that man should be able to cut himself into halves, each having a separate will, then the great facility of obtaining land would induce each half of a man to separate itself from the other half; and thus, in colonies where there was no restriction upon land, 1 Letter from E. G. Wakefield, Esq., to the Colonization Commissioners, June 2, 1835. Printed in the Appendix to the Report of the Select Committee on South Australia, Parliamentary Papers, 1841, iv, p. 333. In his evidence before the Select Committee on the Disposal of Lands, 1836, Answer to Q_. 591, Wakefield gave a vivid account of what he believed to have been the happenings in the Swan River settlement which had so greatly influenced his thought. ‘The many disasters which befel this colony (for some people did actually die of hunger) . . . appear to me to be accounted for at once by the manner in which land was granted. The first grant consisted of 500,000 acres to an individual, Mr. Peel. That grant was marked out upon the map in England — 500,000 acres were taken round about the port or landing-place. It was quite impossible for Mr. Peel to cultivate 500,000 acres, or a hundredth part of the grant ; but others were of course necessitated to go beyond his grant, in order to take their land. So that the first operation in that colony was to creat a great desart, to make out a large tract of land, and to say, “this is a desart — no man shall come here ; no man shall cultivate this land ”, So far dispersion was produced, because upon the terms on which Mr. Peel obtained his land, land was given to the others. The Governor took another 100,000 acres, another person took 80,000 acres ; and the dispersion was so great that, at last, the settlers did not know where they were ; that is, each settler knew that he was where he was, but he could not tell where any one else was ; and, therefore, he did not know his own position. That was why some people died of hunger ; for though there was an ample supply of food at the governor’s house, the settlers did not know where the governor was, and the governor did not know w[h]ere the settlers were. Then, besides the evils resulting from dispersion, there occurred what I consider almost a greater one ; which is, the separation of the people and the want of combinable labour. The labourers, on finding out that land could be obtained with the greatest facility, the labourers taken out under contracts, under engagements which assured them of very high wages if they would labour during a certain

158

THE THEORY OF COLONIZATION

we should see the people divided into fractions, so weak as to have but one hand each. Nature produces some combinable labour. Nature makes two hands together; but more com¬ bination than that never occurs, without slavery, where land is extremely cheap. The great cheapness, therefore, of the land at Swan River seems to have led the settlers to divide themselves into isolated fractions, and so to reduce the power of production to the minimum.’ 1 In the past, as the above passage suggests, Wakefield believed that the problem had been solved by slavery or by the use of convict labour. It was slavery that had saved the situation in the early days of Virginia.2 It was access to convict labour which facilitated the economic development of New South Wales — deficient as that development was.3 In connection with slavery in particular, Wakefield develops an elaborate apparatus of partial justification in terms which, in many respects, anticipate the outlook of more recent historicism. There was also a spot of theology : ‘ As the good¬ ness of God and the progressive nature of man are unquestion¬ time for wages, immediately laughed at their masters. Mr. Peel carried out altogether about 300 persons, men, women and children. Of those 300 persons, about 60 were able labouring men. In six months after his arrival he had nobody, even to make his bed for him or to fetch him water from the river. He was obliged to make his own bed and to fetch water for himself, and to light his own fire. All the labourers had left him. The capital, therefore, which he took out, viz. implements of husbandry, seeds and stock, especially stock, immediately perished ; without shepherds to take care of the sheep, the sheep wandered and were lost ; eaten by native dogs, killed by the natives and by some of the other colonists, very likely by his own workmen ; but they were destroyed ; his seeds perished on the beach ; his houses were of no use ; his wooden houses were there in frame, in pieces, but could not be put together, and were therefore quite useless and rotted on the beach. This was the case with the capitalists generally. The labourers, obtaining land very readily, and running about to fix upon locations for themselves, and to establish themselves independently, very soon separated themselves into isolated families, into what may be termed cottiers, with a very large extent of land, something like the Irish cottiers, but having, instead of a very small piece of land, a large extent of land. Every one was separated, and very soon fell into the greatest distress. Falling into the greatest distress, they returned to their masters, and insisted upon the fulfilment of the agreements upon which they had gone out ; but then Mr. Peel said, “All my capital is gone ; you have ruined me by deserting me, by breaking your engage¬ ments ; and you now insist upon my observing the engagements when you yourselves have deprived me of the means of doing so ”. They wanted to hang him, and he ran away to a distance, where he secreted himself for a time till they were carried off to Van Diemen’s Land, where they obtained food, and where, by the way, land was not obtainable by any means with so great facility as at the Swan River.’ 1 Select Committee on the Disposal of Lands, Q_. 969, p. no. 2 England and America, vol. ii, pp. 8-15. 3 Evidence (cited above), Q.. 589, p. 53.

159

ROBERT TORRENS

able, and as God has permitted every nation to undergo the state of slavery, so we may be sure that slavery has not been an evil unmixed with good’.1 In the general context of Wakefield’s slightly excited prose, these sentiments do not appear so hypocritical as they do when quoted in cold isolation. ‘Slavery’, he wrote, ‘appears to have been the step by which nations have emerged from poverty and barbarism and moved onwards towards wealth and civilization. While in any country land was so abundant in proportion to people, that everyone could and did obtain a piece for himself, free labour presented no way of escape from that primitive and barbarous condition under which poverty is the lot of all; but along with slavery came combination of labour, division of employments, surplus produce of different sorts, the power of exchanging, a great increase of capital, all the means in short, to that better state of things in which slavery becomes an unmixed evil, and when, accordingly, it has generally been abolished. When land is superabundant, and therefore extremely cheap, slavery seems to have been advantageous, by leading, through the greater productiveness of industry, to sup¬ port for a greater number of people, and thence to such an in¬ crease of people in proportion to land, that it became easy to substitute the labour of hired workmen for that of slaves.’ 2 Nevertheless, Wakefield did not recommend the intro¬ duction of slavery as a stage in the building of modern colonial communities. That hideous solution, he thought, could be entirely dispensed with if proper restrictions were placed upon the disposal of waste lands. It is here that we come to what he certainly regarded as his great political invention. The right policy in regard to waste lands, he urged, was to dispose of them only by sale at a price which was high enough to prevent immigrant labourers from becoming proprietors ‘too soon’. This was the famous policy of the ‘sufficient price’ which he urged in season and out of season, in the Letter from Sydney, in England and America, in the Art of Colonization, in anonymous pamphlets and articles and in submissions to ministers and parliamentary committees. And although, as we shall see, in the actual course of history the Wakefield system stands for much more than that, in particular for the use of funds derived from the sale of lands to finance immigration, yet Wakefield himself never tired of insisting that the idea of the sufficient 1 Letter to the Colonization Commissioners, quoted above. 160

2 Ibid. p. 333.

THE THEORY OF COLONIZATION

price was independent of all that. ‘If the United States were compelled to throw their land fund into the sea,’ he urged, ‘ they would still do well to impose a price upon waste land . . . a price for new land is highly beneficial to them, on grounds which differ altogether from the question of emigration.’1 All this was pretty strong stuff. The recommendation that what, in the circumstances, was a free good should be made artificially scarce, was something which, to minds accustomed to regard free goods as good things, was (and is) intrinsically difficult to swallow. And having regard to the wide, sweeping historical generalizations by which it was accompanied, with the qualified defence of slavery and the unqualified assertion that it was a matter of slavery, hired labour or chaos, it was bound to be misunderstood — and mis¬ represented. No less a person than Karl Marx makes it, so to speak, the coping stone of the immense dialectical structure of the only volume of Das Kapital that he himself saw through to publication. The last chapter of Volume I is a veritable paean of triumph at the spectacular letting-the-cat-out-of-thebag which he fancied he discerned in the Wakefield system — a scheme, on his view, which in ‘the interests of the so-called national wealth . . . seeks for artificial means to ensure the poverty of the people . . . the manufacture of wage workers in the Colonies’.2 According to Marx, Wakefield regarded slavery as ‘the sole natural basis of colonial wealth’, and ‘systematic colonization as a mere pis alter, since he un¬ fortunately has to do with free men, not with slaves’.3 The ‘sufficient price for the land is nothing but a euphemistic circumlocution for the ransom which the labourer pays to the capitalist for leave to retire from the wage-labour market to the land. First, he must create for the capitalist “capital”, with which the latter may be able to exploit more labourers ; then he must place, at his own expense, a locum tenens on the labour market, whom the government forwards across the sea for the benefit of his old master, the capitalist.’4 ‘We are not concerned here with the condition of the colonies,’ is the final paragraph, not only of this particular chapter, but of the whole terrific vatic tome, ‘the only thing that interests us is the secret discovered in the new world by the political economy 1 Select Committee on the Disposal of Lands, Q_. 858, p. 89. 2 Capital (Kerr edition), vol. i, p. 839. 3 Ibid. p. 841. 4 Ibid. p. 847.

l6l

ROBERT TORRENS

of the old world and proclaimed on the house-tops : that the capitalist mode of production and accumulation, and there¬ fore capitalist private property, have for their fundamental condition the annihilation of self-earned private property: in other words, the expropriation of the labourer.’1 Now at this time of day there is no particular reason to believe that Wakefield’s diagnosis was universally true or that his recommendations were universally applicable. Even in his own day, the very fair and cautious criticisms of Herman Merivale 2 and James Spedding 3 had disclosed serious lacunae in the argument; and, looking back after more than a hundred years, it is easy to see that in many respects Wakefield and some of his followers had pitched their claims much too high. The explanation of North American prosperity is far too facile, the underestimate of the possibilities of family farming a mistake of judgment. As we shall see from Torrens’ critique later on, the whole theory of the sufficient price has an appear¬ ance of precision which is deceptive. Nevertheless, it is not difficult to show that Marx’s account of it all involved serious misrepresentation. There is not the slightest implication in the whole system of the ‘annihilation of self-earned property’ — it is a pure travesty to suggest that, once the labourers had become proprietors through their selfearned savings, their property was to be taken away. In spite of the ‘justification’ of slavery, it is entirely untrue to say that, for Wakefield, it was the only natural system and that ‘the sufficient price’ — whether it was a good thing or a bad thing — was for him just a pis aller because he had to deal with free men. A charitable interpretation would perhaps assume that Marx’s messianic indignation was of such a highpower, non-stop character that he just did not see the dozens of passages which invalidated such a gloss : but the fact must go on record that, as it stands, the statement is untrue. Similarly, it is quite impossible to regard as anything but 1 Capital (Kerr edition), vol. i, p. 848. The student of this chapter, who is not one of the devout, cannot forbear a certain mild amusement at the prominent obiter dictum that in the United States ‘Capitalistic production advances there with giant strides, even though the lowering of wages and the dependence of the wage worker are yet [my italics] far from being brought down to the normal European level’ (p. 847). 2 Merivale, Lectures on Colonization, vol. i, pp. 243-67. 3 Spedding, Reviews and Discussions (1879), pp. 153-213. For a most useful account of Spedding as a colonial administrator and a scholar, see the article by Sir Arnold Plant in Progress, vol. 43, No. 242, Spring 1954. 162

THE THEORY OF COLONIZATION

an untruth the statement that ‘the trick’ was to put on virgin soil ‘a price that compels the immigrant to work a long time [my italics] for wages before he can earn enough money to buy land’. In this connection, it is worth while quoting Wakefield’s own words in his Letter to the South Australian Commissioners, ‘let it be clearly understood, that the object in putting a price on public land is not to prevent labourers for hire from ever becoming landowners. On the contrary, every one wishes that all the labourers taken out should be able to obtain land and servants of their own, after, and by means of, a few years of labour for hire. ... In my own calculations . . . I have supposed that three years would be long enough for the capitalist and short enough for the labourer.’1 And again, in his evidence before the Select Committee on the Disposal of Lands, ‘Having got at a price which is sufficient for combinable labour, you have reached that price by means of some calcula¬ tion as to the time during which it would be desirable that labourers should work for hire. If you raised the price above that sum, above what I have always called a sufficient price, then you would condemn the whole class of labourers to a longer term of service. They must work longer, and save more, before they could become landowners. It appears to me then, that a burthen would be cast upon them in particular, and a very grievous one; that of being kept for a longer term than was necessary in the state of servants.’ If regard is had to the fate of millions of Kulaks who, in the alleged interest of the selfsame goal, the achievement of the advantages of a sufficient combination of labour on land, have been torn from the soil and their homes and condemned to the grinding misery of communist labour camps, it is a little difficult seriously to regard Wakefield’s ‘pis aller’ of some three years’ hire after a free passage as touching the nadir of human degradation. The fact is, of course, that, whether he was right or wrong, there is no reason to doubt that Wakefield’s plan was con¬ ceived in the interest, not merely of the capitalist, but also, and indeed more conspicuously, of the labourer himself. The root motive was the relief of distress at home and the building of civilized and prosperous communities abroad. The intellectual eye must be deeply suffused with the deadly drops of class hatred to miss that. And the method proposed was one which, 1 Op. cit. p. 334. M

163

ROBERT TORRENS

so far from seeking to depress the standard of the labouring classes, sought to make it higher than it otherwise would be. For it was the essence of Wakefield’s theory that combined labour was more productive than uncombined, and that unless there were some limitation on dispersion the amount to be distributed would be so much less that, whatever their pro¬ portionate share, the absolute real incomes of the main body of the people would be lower than they would be under conditions of concentration. It is not at all obvious that the theory was universally applicable. But it is clear enough that it was philanthropic. The scapegrace son of a Quaker stock, although in a somewhat excitable and slightly parvenu manner, was in fact conforming to type. Nevertheless, the doctrine was revolutionary; the contrast with Adam Smith shows that. But it was revolutionary, not, as Marx thought, in demonstrating an inner necessity of capitalist exploitation but rather, as J. S. Mill saw, in suggesting a possible flaw in the general mechanics of self-interest, as those mechanics had hitherto been conceived. For, if it was correct, it revealed a class of actions which, although, in the absence of general restraint, might be in the interest of each, were not in the interest of all. Wakefield himself was quite explicit on this point: it comes out very definitely in his answers to Horton and Torrens, which we shall have to consider below.1 But perhaps it is best stated by J. S. Mill, who can hardly be suspected of any initial bias against liberty, in his discussion of the limits of the province of government. ‘This salutary provision’, he wrote, ‘has been objected to, in the name and on the authority of what was represented as the great principle of political economy, that individuals are 1 Pp- 29-39.

See also his evidence before the Select Committee on the Disposal ‘The common use of the word restriction upon this occasion, seems to suppose that the price is suggested with a view to preventing men from following some inclination of their own, which is not advantageous to them. Now I wish to draw this distinction. It is really, without some restriction upon all, for the advantage of the labourer to get land of his own, just as without some restriction upon all, it would be for my interest, or the interest of any other person, to take anything good that he could find as he walked along the street ; to go into a shop and take all the watches, or all the other articles of value ; but the restriction applies not to any one in particular as against him, but in his favour against all other individuals. It may not be for the interest of ten to com¬ bine out of a hundred, if ninety separate. Therefore the very inclination of which I am speaking of the man to obtain land, arises perhaps from the want of some restriction which should apply to all. If the restriction applied to all, the inclina¬ tion would exist in none.’ of Lands, Q. 957.

164

THE THEORY OF

COLONIZATION

the best judges of their own interest. It was said’ — here we may suppose Mill to be alluding to objections which will be discussed further in the next section — ‘ that when things are left to themselves, land is appropriated and occupied by the spontaneous choice of individuals, in the quantities and at the times most advantageous to each person, and therefore to the community generally; and that to interpose artificial obstacles to their obtaining land is to prevent them from adopting the course which in their own judgment is most beneficial to them, from a self-conceited notion of the legislator, that he knows what is most for their interest better than they do themselves. Now this is a complete misunderstanding, either of the system itself, or of the principle with which it is alleged to conflict. . . . However beneficial it might be to the colony in the aggregate, and to each individual composing it, that no one should occupy more land than he can properly cultivate, nor become a proprietor until there are other labourers ready to take his place in working for hire : it can never be the interest of an individual to exercise this forbearance, unless he is assured that others will do so too. Surrounded by settlers who have each their thousand acres, how is he benefited by restricting himself to fifty? or what does the labourer gain by deferring the acquisition altogether for a few years, if all other labourers rush to convert their first earnings into estates in the wilderness, several miles apart from each other ... to what end . . . should he place himself in what will appear to him and others a position of inferiority, by remaining a hired labourer, when all around him are proprietors? It is the interest of each to do what is good for all, but only if others will do likewise.’1 Without conceding that this is the last word to be said on the subject, either from the analytical or from the historical point of view, it may be agreed that a position which deserves serious consideration has been established.

(5)

Torrens and Wakefield

It was not to be expected that a theory of this kind, which called in question so drastically so much which had been commonly accepted, should establish itself without a struggle. 1 Principles of Political Economy (Ashley’s edition), pp. 965-6. 165

ROBERT TORRENS

And in fact this did not happen. The propositions contained in the Letter from Sydney and translated into cut and dried proposals for action in the appendix thereof, were at once recognized as a challenge to prevalent thought on the subject; and unfavourable comments were made on an extensive scale. The opposition was led by Wilmot Horton, the leading ex¬ ponent of the type of emigration policy which, as we have seen, Charles Buller had described as ‘shovelling out paupers’. He succeeded in getting adverse expressions of opinion from such leading figures as Malthus, James Mill and Torrens. These he circulated industriously.1 What is more, in con¬ junction with Torrens, having joined the newly formed Colonization Society which had been founded by Wakefield and Robert Gouger, he proceeded to oppose the new principles so vigorously that the society was forced to dissolve.2 Nevertheless, the opposition was fighting a losing battle. Wakefield’s intense activities behind the scenes, his extra¬ ordinary facility in conversation and in controversial writing, gradually won round most of those who might have been his most effective opponents. Jeremy Bentham, who for much of his life had been the enemy of all forms of colonization, affixed a postscript to his Emancipate your Colonies in which he showed himself friendly to the proposed schemes for colonizing Aus¬ tralia ; and Professor Mills has discovered, among the Bentham manuscripts at University College, papers written in the summer of 1831 in which he expresses his unqualified approbation of the Wakefield theory, expatiating at length on what, charac¬ teristically enough, he calls the ‘vicinity-maximization or dispersion-preventing principle’.3 In a footnote to p. 104, Volume II of England and America, Wakefield declares that its form was suggested by Bentham. By the beginning of the thirties, the Wakefield system was supported by a number of 1 The pamphlet in which they were collected seems to have disappeared. Whether it was even published is not certain. Torrens’ references (Select Com¬ mittee on Disposal of Lands, Q. 1182) almost suggest that it was. But Wakefield refers to it as ‘not printed but industriously circulated’ (England and America, vol. ii, p. 148). The fourth part of Horton’s Inquiry into Pauperism piomises a fifth part on Practical Colonization with remarks on the Sale of National Lands, which suggests the symposium in question. But no such pamphlet is in the British Museum, the Goldsmiths’ Library, or the Library of the Colonial Office, and I have not succeeded in tracing it elsewhere. 2 For the early history of the movement for systematic colonization, see Wakefield’s Art of Colonization, pp. 38-60. See also Hodder, The Founding of South Australia (vol. i, pp. 19-33). 3 Mills, op. cit. pp. 152-3. 166

THE THEORY OF

'

COLONIZATION

distinguished Benthamites, Grote and J. S. Mill being the most outstanding.1 Among the eventual accessions to the ranks of its sup¬ porters was the central figure in this study, Robert Torrens, whose activities for the next ten years were to be largely, though not wholly, devoted to the colonization movement in general, and to the colonization of South Australia in par¬ ticular. This is not the place to trace in any detail his practical work in this sphere, his part in promoting the South Australia Act, his subsequent activities as chairman of the South Aus¬ tralia Commissioners and his eventual resignation and quarrel with Lord John Russell. Still less is it the place to relate the vicissitudes of that experiment, its success in promoting emigration and the financial difficulties in which for one reason or another it became involved.2 But the story of his conversion is very germane to our study of his thought on the subject. The relevant literature has fortunately survived in con¬ nection with a tract, purporting to be written by Charles Tennant, Esq., M.P., in the form of a Letter to the Right Hon. Sir George Murray ... on Systematic Colonization, but in fact inspired by Wakefield himself. There, in the Appendix, is reproduced ‘the Written Controversy between the Right Hon. Robert Wilmot Horton and Colonel Torrens and the Other Members of the Colonization Society ’. No. ii of the documents here reproduced is a paper submitted by Torrens which objects to the principle of the sufficient price on the ground that it would compel resort to inferior lands while superior lands were still in existence. This objection is developed at some length by the aid of arithmetical examples which, according to the author’s characteristic phrase, are supposed ‘ to afford proof equivalent to mathematical demonstration that the sale of colonial land . would be the least eligible source from which an emigration fund might be obtained’. 1 It is not known what happened to James Mill. But, to judge from a letter to Brougham published by Bain (James Mill : a Biography, pp. 358-9), he main¬ tained an attitude of considerable scepticism. McCulloch, certainly, remained hostile to the end. See Note XXIII on Colonial Policy to his 1835 edition of the Wealth of Nations and the contemptuous note on England and America in the Literature of Political Economy, p. 94. 2 On all this, see Meenai (Economica, Feb. 1956), R. C. Mills, The Colonization of Australia, Hodder, The Founding of South Australia, and the Appendices to the Report of the Select Committee on South Australia, Parliamentary Papers, 1841, vol. iv. 167

ROBERT TORRENS

To all this Wakefield (through Tennant) makes an extra¬ ordinarily respectful reply. It is suggested that the difference arises because ‘Colonel Torrens in speaking of the qualities of land, attaches the first importance to questions of soil only, whilst we attach the greatest importance to circumstances independent of soil, namely nearness to markets and combina¬ tion of labour’. And the argument, which at one stage has recourse to the first diagrams used in this country to illustrate the doctrine of rent by concentric circles,1 goes on to admit that, if there are no markets and centres of activity, soil fertility will be the main circumstance determining rent, but to urge that, if the system proposed is adopted, this will not necessarily be so. The object of this system, it is urged, is not to create a monopoly of land nor to force capital from a more to a less profitable employment ‘ but to enforce ... a compact having for object the greatest concentration, the greatest combination and division of labour’. These arguments proved convincing to Torrens. In his evidence before the Select Committee on the Disposal of Lands in 1836 he gave a vivid account of the whole controversy, which, since it contains the only fragment of Malthus’ contribution which appears to have survived, is worth quoting at some length: ‘Question 1182. (Mr. Hutt.) Are you aware that Mr. Malthus and Sir Robert Wilmot Horton objected to the plan of colonization which has been developed to the Committee, and that their objections were grounded on the received principles of political economy ? ‘[Colonel Torrens] I am aware of that. This system of colonization which has been developed to the Committee was first opened to the public in a pamphlet that was published by the Colonization Society. . . . The Colonization Society, in this pamphlet of theirs, probably used in an incautious manner the term concentration”. They used the term in an unusual sense, without defining the new meaning which they attached to it; and, giving the ordinary and natural interpretation to the phraseology in which their principles were then conveyed, Sir Robert Wilmot Horton, Mr. Malthus, Mr. James Mill’ and also myself, understood the plan to involve the necessity of cultivating inferior soils. 1 The diagrams are very similar to those used by von Thiinen in Part I of his Der isolierte Staat (1826). I know no reason to suppose that Wakefield was acquainted with this.

THE THEORY OF COLONIZATION

‘Now nothing can be conceived more objectionable on principle than the disposal of waste lands in such a way as to force prematurely the cultivation of inferior soils; and Sir Robert Wilmot Horton, who was very much opposed to the Colonization Society, got Mr. Mill and Mr. Malthus, myself, and, I believe, some others, to write papers in opposition to the views of that society as then understood. Mr. Malthus and myself did so, under the idea that the new system of colonization involved such a degree of congestion on particular spots, as would compel the application of labour and capital to inferior lands, and would therefore lower profits and wages, and cause an artificial creation of rent. In Mr. Malthus’ paper, which Sir Robert Wilmot Horton printed with the others and circulated, I find the following words : “Anything like a per¬ severing attempt to concentrate round a single town would soon lower wages, and destroy the true principle of colonization. In colonizing a large country, many centres of concentration are necessary, and villages in various stages must be established, which must grow up into towns, and form new markets for produce. Many of those will naturally be fixed at a consider¬ able distance from the metropolis, determined by fertility of soil, vicinity to rivers and other circumstances.” It is quite clear, therefore, that Mr. Malthus understood the term “concentra¬ tion” as meaning concentration round a particular centre. ‘In this same pamphlet there is also a little paper of my own, urging a similar objection to the plan of the Colonization Society. I do not know what were the opinions on the subject subsequently held by Mr. Malthus; but I very soon, in discussing the question with the gentlemen of the Colonization Society, found that they defined their terms or modified their principle, so as to obviate the objection urged by Mr. Malthus and myself. As soon as I found the system so explained or modified as to permit population and capital freely to spread over the most fertile and best situated lands, my objection was instantly removed, and my opposition ceased. I believe that Sir Robert Wilmot Horton still continued opposed to the system of the Colonization Society, but I became its decided advocate; and the more I consider it, the more entirely I approve. I have a strong and a growing conviction that at no distant period the country will have to acknowledge a large debt of gratitude to the author of this plan.’1 1 I have broken up into paragraphs the solid run of the official record. 169

ROBERT TORRENS

Henceforward to the end of his life, Torrens was a convinced upholder of ‘systematic colonization’, though, as we shall see, his views on the subject did not in every respect coincide with Wakefield’s. In 1834, the plans for the foundation of the projected colony of South Australia being far advanced, the Westminster Review, at that time the organ of the opinions of the acri¬ monious Perronet Thompson, launched a frontal attack on these plans and the whole system of thought underlying them. As Torrens by this time was committed in a large way to the practical conduct of the project, having been just nominated chairman of the Commissioners, it was only to be expected that he should attempt some reply. He did so and the result was the lengthy volume entitled Colonization of South Australia, which is to be regarded as the leading repository of his main thought on the whole theory of colonization. The broad outlines of the argument, in so far as it concerned the technique of building colonial communities, were not dis¬ similar to those of Wakefield. In spite of many frictions, Torrens was always willing to acknowledge Wakefield’s influence and his originality. Even when, after the financial crisis of 1841, Wakefield had publicly repudiated any responsi¬ bility for the form taken by the South Australian experiment and had denounced the title ‘self-supporting colonization’ as ‘a sort of puff’,1 Torrens was careful to qualify his re¬ proaches and his strictures by a generous tribute to Wakefield’s general standing. Nevertheless there were differences, and differences which were not without importance. We may neglect the differences of style and exposition: it was only to be expected that Torrens’ arguments, despite their propagandist intent — he was defending a practical concern of which he was, so to speak, managing director — should have more of an analytical flavour than Wakefield’s. As life went on Torrens became more and more of a Ricardian; and the impulse to discuss the prospects of a wool-exporting economy in terms of compara¬ tive advantages and the cost of obtaining money must have been irresistible.2 1 Select Committee on South Australia (1841), Q.. 2584. 2 See also the very characteristic discussion of the probability of a higher proportionate concentration in towns with pastoral than with arable farming, op. cit. pp. 137-48.

THE THEORY OF COLONIZATION

It was natural too that, whereas Wakefield should attack outright the relevance of the Ricardian propositions regarding proportionate distribution, Torrens, as we have seen already,1 should devote some time to vindicating them in their proper context, before proceeding to show that they had no bearing on the contention that in properly developed colonies absolute wages and profits could both be high. But the differences went beyond the mere forms of presentation. There were real differences of substance. As we have seen, while Wakefield had done much to popularize the idea of using the proceeds of land sales for financing emigration, he never ceased to emphasize that this was an irrelevant circumstance so far as his main conception, the idea of the sufficient price, was concerned. With Torrens the emphasis is reversed. He does indeed lay it down that the price charged for public lands should be such as ‘to prevent the labourers, who received a free passage to the colony, from becoming landed proprietors, until after they had remained, as hired labourers, for such time as might be requisite to allow other labourers to be brought out to supply their place’.2 But the main burden of his argument in this connection is concerned with the importance of fixing the price at such a level as ‘to convey to the colony the number of agricultural labourers requisite to cultivate all the land purchased and . . . the number of artisans requisite to allow a division of employment’; and when he argues the justification for putting a price on an otherwise free good, it is also with reference to the cost of transporting labour: ‘ the reason why the settler is charged, in the price of his land, with the cost of taking out the labour necessary to clear and cultivate it, is simply this. If one settler should incur the expense of taking out labour, and another should not, then when both arrived in the colony, the settler who had not incurred the expense, would be able to afford higher wages, than the settler who had; and would thus attract to himself the labour taken out at the expense of the other’.3 In the context in which it appears, the difference of emphasis is not outstanding; and perhaps, if Wakefield had not continued to insist upon the logical separateness of the two ideas of the emigration fund and the sufficient price, it might pass altogether unnoticed. But having regard to the I Above, pp. 53-4.

2 Ibid. p. 68.

3 Ibid. p. 55.

ROBERT TORRENS

earlier phases of his own thought, it was natural that Torrens should stress the importance of the provision of an emigration fund ; and having regard to the extreme ambiguity latent in the idea of the sufficient price, it was not unnatural that he should have sheered away from the task of making it very explicit. In the end, perhaps as a result of experience, perhaps as a result of mortification at Wakefield’s public repudiation of the South Australian experiment, he evinced considerable scepti¬ cism of the prospect of establishing a sufficient price which would satisfy at all precisely the Wakefield requirements. In his Minute on the Evidence given by Mr. Wakefield before the Com¬ mittee on the Affairs of South Australia 1 he contends that no one has yet succeeded in solving this problem. Wakefield himself had abstained from stating what the price should be ‘under any actual or even under any given circumstance’. But this omission was of small importance since the rule itself was altogether impracticable except in circumstances in which emigration could be increased in a geometrical progression. ‘Let Mr. Wakefield’s rule be brought into practical operation and let the price of land and the amount of wages be so adjusted that emigrants of the working class, by working as hired labourers for three years, accumulate sufficient capital to become masters or cultivators on their own account: and then it will become necessary, in order to keep the rule in operation, that the emigration should increase in a geometrical ratio — the period of doubling being three years.’ In all this scepticism there was probably much substance. The verdict of history seems to be that the Wakefield system as a working rule of restricting dispersion and financing emi¬ gration played a significant part in the development of the southern colonies; and much as Wakefield in his theoretical idiosyncrasy may have striven to dissociate himself from this formulation, much of the credit for it must rightly remain with him. But the attempt to claim, for the idea of the sufficient price, unambiguous meaning and a universal application has not fared so well. At least, as a formulation which begs fewer 1 This tract is not signed. But it is quite obviously by Torrens. The style is unmistakable and, if this were not enough, the reprinting of his 1828 Speech on Emigration as a vindication of the claim that the idea of self-supporting emigration had been propounded before Wakefield would be quite conclusive. The tract is extremely scarce. It is not noticed by Mills or any of the other writers on this topic, and the only copy known to me is in the Colonial Office Library. 172

THE THEORY OF COLONIZATION

intellectual questions, Torrens’ version of the system does not compare badly with that of its greater author. There is another difference, however, in respect to which the verdict of common sense lies more with Wakefield. In Torrens’ conception the idea of self-supporting colonization included, not merely emigration which was financed out of the proceeds of land sales, but also general development which was eventually to be financed in the same way. This was a promise to which Wakefield had never committed himself. In this he was plainly wise. Doubtless there is something in the general idea that the appreciation of the value of public lands in developing territories may eventually surpass the value of the sums expended at early stages of development. But as one reads Torrens’ glowing promises in this connection, it is difficult to resist the conviction that this was a case in which the over-sanguine, enterprise-promoting element in his make¬ up had got the better of the calculating economist; and that in promising complete independence of financial support for the proposed experiments, he was allowing far too little for the miscalculations and unforeseen contingencies that almost in¬ variably beset the beginnings of undertakings of this nature. And although no blame seems to attach to Torrens for the misfortunes which actually occurred to the enterprise with which he was associated, and although he was able to put up a very plausible case for the view that the misfortunes were quite unnecessary,1 yet it is not unjust or unsympathetic to regard this episode as an illustration of the dangers of this part of his theory.

(6)

The Rationale of Colonization and the Theory of Gluts

The theories which we have been discussing in the last two sections have all been concerned with what happens in the country to be colonized. They assume that colonization is a good thing for the country from which it takes place. But this is not an assumption which can be taken for granted without further investigation. Nor was it so taken for granted by Torrens or his contemporaries. On the contrary, it was the 1 See The Budget, Letter VIII, To the Friends of Extended Colonization on the Causes of the Failure of the Financial Branch of the South Australian Experiment.

03

ROBERT TORRENS

subject of extensive discussion. The second part of the Colonization of South Australia, ‘On the Influence of Extensive and Systematic Colonization upon the Wealth and Prosperity of the Mother Country’, is entirely devoted to this question, and Letters IV, V and VII, and the second part of Letter IX, of The Budget (which consist very largely of reproduc¬ tions of sections of the earlier book) have the same object in view. In this treatment of what may be called the general rationale of colonization, as in his treatment of the technique of settlement, there can be no doubt that Torrens was much influenced by Wakefield. As Torrens himself acknowledged, the general point of view is the same ; and frequently the form of particular arguments is similar. The argument, for instance, that the purpose of colonization is to bring about a position for the United Kingdom similar to what would exist if a large strip of vacant territory were discovered in the immediate neighbourhood,1 goes back to the Letter from SydneyA The frequent contrast between the position of the United Kingdom and the position of the United States in respect of access to land, runs on lines parallel to those of England and America A Nevertheless, there was an important difference. The author of England and America could by no stretch of language be described as a Ricardian. Although he made some quite interesting comments on the Ricardian propositions, he was in no sense a disciple; the comments were quite definitely from the outside. In presenting his argument, therefore, he could develop it ab initio ; there was no need to couch it in terms of any particular language; there was no inner need to reconcile it with other parts of a larger system of thought. With Torrens it was different. Although he was not a strict Ricardian in the sense in which McCulloch and James Mill may be said to have been strict Ricardians, at least he had lived and moved in the Ricardian circle and had been strongly influenced by many elements in the Ricardian doctrine. Any discussion, therefore, which touched on this See, e.g., The Budget, Letter IX, p. 284 seq., where the consequences are investigated of the Isle of Wight extending ‘into the ocean until it embraces an additional territory of 180,000 square miles, . . . capable of yielding provisions, cotton, wool, flax, hemp, silk, tallow, hides and timber’. 2 Op. cit. Everyman edition, pp. 82-6. 3 But in this case it should be noted that the contrast had also been made by Torrens himself in the Speech on Emigration.

U4

THE THEORY OF COLONIZATION

territory was bound for him to demand treatment, if not according to Ricardian doctrines, at least within what might be called Ricardian categories. And this necessity was bound to make itself felt particularly urgently when, as in this instance, the discussion involved recourse to the general theory of gluts. In the event, as we shall see, Torrens invoked, as part of the rationale of colonization, a construction which may well be regarded as an early form of the stagnation theory. It is not uninteresting to trace how he managed to put it in more or less Ricardian terminology. At the time at which Wakefield and Torrens were writing, any proposal for extensive colonization was likely to encounter the objection that so far from increasing the well-being of the colonizing country, it tended to exhaust its resources. The argument behind this view may be set forth as Torrens stated it. ‘The power and the wealth of every country’, he imagined his opponents as saying, ‘ is in proportion to the number of its people, and to the amount of the capital which affords them employment. ... If, in the establishment of new colonies, we subtract labour and capital in equal proportions, the labourers who remain in the mother country will receive exactly the same wages as before. And if, as is most probable, the first establishment of a new colony should cause capital to be withdrawn, in a greater proportion than labour, then, in the mother country, wages would not even remain stationary, but would actually be reduced.’1 This type of analysis could be backed by considerable authority. It was latent in the ‘too much neglected truth’ laid down by Bentham in Emancipate your Colonies that ‘Trade is the Child of Capital’.2 It is to be found explicitly in a letter from James Mill to Brougham a propos of emigration plans. By emigration, he says, ‘you get rid of a breeding pair. True ! but you also get rid of the capital which maintains them, and by that means do not alter in the least the ratio of your population to your capital either for the present moment or for the future.’3 Now, for a Classical Economist the obvious answer to this kind of argument would have been to invoke the law of diminishing returns. If the emigrants were transferred from a margin of low to a margin of high productivity, then 1 Colonization of South Australia, pp. 229-30. 2 Op. cit. Works (edited Bowing), vol. iv, p. 411. 3 Bain, James Mill — a Biography, pp. 358-9.

175

ROBERT TORRENS

certainly someone would gain at both ends; and if, as would seem to follow from the Classical theory of Value and Distribu¬ tion, the immediate gain was to the capitalists, then it was arguable that further accumulation would take place and the funds destined for the maintenance of labour at each end of the transfer would be greater than they otherwise would have been. This is the kind of argument that would have appealed to James Mill and Bentham, since, as regards temporary relief from population pressure, they were willing to concede a possible value to migration. But, in fact, although this kind of argument is immanent in much of Torrens’ analysis, his overt reply to the case set out above takes other, and more ambitious, lines. He begins with an appeal to experience. ‘In the progress of colonization, labour and capital, to an immense extent, have been transferred from England to North America. Have the consequences been a proportionate decline in the power and wealth of England, and a diminution in the demand for labour, equal to, or exceeding the diminution in supply ? . . . the consequences have been directly the reverse . . . What would be the effect of recalling the United States, and of re¬ planting their labour and their capital in England ? . . . Millions would be starved to death, capital would perish, or be transferred to other countries ; and the power and the wealth of England, would be contracted to the narrow limits within which they were confined, before the discovery and colonization of America opened an expanding field to her industry.’1 But this was only the beginning. Having suggested the unplausibility on the plane of experience of the proposition he was attacking, Torrens went on to challenge, on the analytical level, what he described as ‘the assumed principle that the increase of capital is, in itself, sufficient to increase the field of employment, and the demand for labour’.2 To get into proper proportions the historical significance of the arguments he deployed in this connection, it is necessary to go back a little and examine his earlier views. The first occasion on which we find Torrens discussing the possibilities of over-production occurs in his article on Mr. Owen’s Plans for Relieving the National Distress in the Edinburgh Review for October 1819. Here, to meet the contention of Owen and Sismondi that competition and the use of machinery 1 Colonization of South Australia, pp. 230-1. 176

2 Ibid. p. 231.

THE THEORY OF COLONIZATION

may create an excess of all commodities, he develops the argument that ‘ the supply of one set of commodities constitutes the demand for another’ and that therefore there can be no general over-production; ‘ gluts and stagnation ’ being the by¬ product of disproportionate production. His analysis, which invokes specifically J.-B. Say and James Mill, was approved in principle by Ricardo and betrayed no awareness of any further problems to be explained.1 In the last section of the Production of Wealth, however, he returned to the subject. According to the preface this is to be regarded as ‘the most original and, in the present state of economical science, the most important division of [the] work’, its avowed intention being to complete the doctrines of Mill and Say by showing ‘what is that specific relation or pro¬ portion between commodities, which occasions the exchange of one half of them against the other half, to replace, with a surplus, the cost of producing both’.2 But despite these high claims, this part of the argument does not carry us very much further. ‘Effectual demand’ is exhibited as consisting in ‘the power and the inclination to give for a commodity either by direct or circuitous exchange, a quantity of the other com¬ modities required in their production, somewhat greater than their production actually costs : 3 and this idea is illustrated almost ad nauseam by copious arithmetical illustrations. But the general conclusion is that it is disproportionate production which is responsible for gluts and that there can be no limit to ‘effectual demand’ in an increase of production which is rightly proportioned — which was, roughly speaking, what had been said before.4.5 Much more interesting are his supplementary observations on the movements of prices and interest rates in time of de¬ pression. Here, without making any further claim for origin¬ ality, he certainly begins to break new ground. When a depression has been generalized by the repercussions of dis¬ proportionate production, prices, he observes, may easily fall 1 It is worth noting, however, that in The Economists Refuted, when considering the effects of interruption to foreign trade, he was not indifferent to the ‘ indirect distress ’ which might be caused by contraction of incomes and hoarding. Indeed he went out of his way to recommend temporary government intervention to offset fluctuations of this nature and even went so far as to praise the operation of the Poor Law for its influence in this connection. Op. cit. pp. 57-61. 2 Op. cit. p. ix. 3 Ibid. p. 342. 4 Ibid. pp. 385-9. 5 It is perhaps worth noting that the suggestions of Malthus are dismissed as ‘vague, fallacious and inconsistent throughout’. 177

ROBERT TORRENS

far more than the original disproportionality would seem to justify. Why is this ? Because on such occasions, owing to the peculiar nature of money, ‘the desire of turning goods into money is rendered more intense than the desire of turning money into goods’.1 Nor is this all. ‘In all ordinary states of the market, the rate of interest rises or falls with the rise or fall in the rate of profit.’ But in times of glut and stagnation ‘the rate of interest of money may rise while the profits of stock sink to nothing’.2 Such a state of affairs, however, could not last. ‘ Should a glut terminate in a continued depression of industry and fall of profits, it is impossible that the interest of money should remain high because, in this case, it would be im¬ possible for the borrower to pay an extravagant premium for the use of that which brought him inconsiderable returns . . . when the pressure upon industry is continuous, the impossi¬ bility of paying large premiums out of small returns restores the proportion between interest and profit, and renders each a tolerably accurate index of the other.’3 In this way, by introducing financial complications, Torrens gave to his disproportionality theory a plausibility which, in its purely ‘real’ form, was still seriously lacking, despite the elaboration with which it was presented. It is to be noted, however, that as yet he had made no concession to the view that there was a point at which the attempt to accumulate itself might produce a tendency to depression. That view, indeed, he had vigorously contested : ‘ Lowering profit is essentially different from narrowing effectual demand. . . . Should the increase of capital beyond the proportional increase of population so elevate wages that profit altogether disappeared, then, indeed, there would be no effectual demand. . . . But it is self-evident that this want of effectual demand, or profitable vend would be occasioned, not by an excess, but by the deficiency of products.’4 The deficiency of effective demand arises, not because of the continuing dis¬ position to accumulate, but rather because the disposition to accumulate is extinguished. He had not yet advanced any proposition which could afford any justification for classifying him among the exponents of over-saving theories of depression. That step, however, he was in fact to take. In the Coloniza¬ tion of South Australia, confronted with the argument that the 1

Op. cit. p. 421.

2 Ibid. p. 422. 4 Ibid. pp. 390-1. 178

3 Ibid. p, 425.

THE THEORY OF COLONIZATION

increase of capital at home must always carry with it an increase in the field of employment, he turned on the general outlook from which it sprang — albeit without recalling his own former association with it — and denounced it with great vigour; ‘there is a school of political economists’, he said, ‘who assume, that capital possesses some occult quality, or influence, by which it creates for itself the field on which it is employed, and renders demand co-extensive with sup¬ ply. Economists of this school contend, that though there may be partial, there cannot be general over-trading; and that when over-trading occurs, a certain remedy for the evil may be found, in transferring capital from those employments in which it is in excess, to those in which it is deficient. With the economists who take the “high priori road”, and anticipate the results of science by assuming the facts from which their principles are deduced, I presume not to contend. But to those who regard political economy as an inductive science, the principles of which are nothing more than general facts established by experience, I confidently submit the follow¬ ing considerations, as showing that capital cannot create for itself the field of profitable employment. . . .’1 This new position he supported by two arguments. The first was quite general and related to the ultimate categories of pure analysis. If in any community ‘ not importing raw produce’, the volume of accumulation has reached a point at which further investment at the agricultural margin no longer reproduces itself, then, he argued, even the ‘supersti¬ tious worshippers of capital cannot but admit, that, . . . there may be a general redundancy and glut of capital. . . .’ For under these circumstances ‘ a country has arrived at the stationary state . . . and, though landed proprietors and others, may continue to save from their incomes, yet every new accumulation must be either hoarded, or exported, for it cannot be productively employed’.2 The change in attitude is obvious. In the chapter on Supply and Demand in the Production of Wealth the view taken was that, when the rate of profit had reached its minimum, accumulation would cease. But now it is thought to continue and to involve a ‘general redundancy and glut of capital’. The explanation is not completely watertight; at first sight the allusion to hoarding tempts one to assume a complete anticipation of the Keynesian 1 Op. cit. pp. 239-40. 2 Ibid. pp. 240-1. N

179

ROBERT TORRENS

day of judgment at a point at which the incentive to invest is not strong enough to overcome the desire for liquidity. But this would be stretching sympathetic explanation too far: Torrens’ hoarding is not well defined and its juxtaposition to export as an alternative does not suggest a completely monetary phenomenon. Still, the general tendency of his thought is clear enough : when the rate of profit has dropped far enough, further accumulation leads to stagnation. But this argument relates to a closed community or at any rate to a community ‘not importing raw produce’. The further question, therefore, arises — and it is in this connection that Torrens’ second argument is involved — whether the situation may not be saved by export. This question he answers in the negative. Or rather, he argues, that even in a community procuring its raw produce from overseas by way of change, a point may come when there is ‘such a plethora of capital as to occasion stagnation, want of employment and a general fall of prices, of profits, and of wages, throughout all the branches of the national industry, which supply the foreign market’.1 And he attempts to demonstrate this by invoking what, in the last analysis, proves to be the possibility of an adverse turn in the factorial terms of trade. But, of course, this is not the language he employs. The language he employs derives from the analysis of his earlier theory. If in the cotton industry the capital employed increases faster than the capital employed abroad in producing the raw materials (and food) ‘by the expenditure of which cotton fabrics are produced ’, then there is over-production and ‘profits, or wages or both, must come down’. Now, causes similar to those which produce these effects in the cotton trade may, at the same time, be producing similar effects in the silk trade, in the linen trade, in the woollen trade, and in all the other branches of industry in which goods are made for foreign markets. That is to say, ‘manufacturing capital may increase faster than the foreign capital which raises the materials of manufacture: and thus, in all the departments of industry supplying goods to the foreign market, there may be a contemporaneous over-trading . . . occasioning a general fall of prices, of profits, and of wages, want of employment, and distress’.2 Now, he argues, this state of affairs cannot be cured by the 1 Op. cit. p. 241.

2 Ibid. p. 243. 180

THE THEORY OF COLONIZATION

mere shifting of capital within the area concerned. By hypo¬ thesis, over-trading is general in the industries manufacturing for export. Since capital would not be employed in these indus¬ tries if the rate of profit were higher in extending food produc¬ tion at home, there is no hope in ‘home colonization’; indeed, this might well be an inferior alternative. The only remedy, according to Torrens, is systematic colonization. This, by providing an outlet for capital abroad, at once relieves the downward pressure of excessive accumulation at home and creates new effective demand for the products of manufacturing industry. ‘When, in the progress of a manufacturing country importing raw materials, the period arrives at which labour and capital becomes redundant; then, transferring the re¬ dundancy to new colonies, leads to an actual increase in the wealth and population of the parent state. This transference not only prevents the overcrowding of a limited field of employ¬ ment, but renders the field itself unlimited, and capable of receiving indefinite additions of capital and labour.’1 The discovery of the ‘true principles of colonization’ affords the appropriate remedy for all the evils of over-trading which have lately become ‘so excessive and intolerable’. ‘This discovery gives us the same unlimited power, with respect to the production of raw materials, which the inventions of Watt, and Arkwright, and Crompton, gave us with respect to the production of wrought goods. It enables us to re-adjust the balance between the different branches of industry ; and thus opens to British capital and labour, an expanding field of beneficial employment, the limits of which cannot be reached until all the fertile wastes of all the colonies of England have been appropriated and reclaimed.’2 Thus the rationale of colonization, on this view, becomes the relief of stagnation induced by continual accumulation and a falling rate of profit. But this was not Torrens’ only reason for wanting to create colonies; there were other reasons, springing from more gen¬ eral considerations of commercial policy and less dependent on a special view of the causes of distress. These, however, can best be considered when we have dealt with the theory of commercial policy which is the subject of the next chapter. 1 Ibid. pp. 262-3.

2 Ibid. pp. 269-70.

18 r

CHAPTER VII

THE THEORY OF COMMERCIAL POLICY (i)

Introduction

We now approach a field of thought where Torrens’ major contributions are perhaps rather better known than his contri¬ butions elsewhere — the theory of commercial policy. A student of the Free Trade Movement of the early part of the nineteenth century, who wished to study the original literature, would hardly fail to consult his Essay on the External Corn Trade ; and, thanks largely to the work of Professor Viner, at the present day the majority of students of the history of economic thought are aware that Torrens was among the first to make clear the possibility that a tariff might turn the terms of trade in favour of the country imposing the tariff and to base thereon a philosophy of reciprocity in commercial policy in general.1 Nevertheless, it is arguable that there is still scope for a systematic survey. The real Took’ of the early Classical arguments about the corn trade is still relatively unfamiliar; it was certainly very different from that of the popular Cobdenite arguments with which it is often confused. As for tariffs and the terms of trade, while the main burden of Torrens’ contention has been fairly extensively discussed, there is still a good deal to say about its development and its pro¬ mulgation ; we shall find that the famous letters in The Budget are based to a large extent upon another series of letters published almost ten years earlier. There is also something to say about Torrens’ consistency in this connection : we shall discover that some of the contrasts between the Essay on the External Corn Trade and the reciprocity letters in The Budget are more apparent than real and that there is much more 1 But not all. There seems to be a minority view which proceeds upon the assumption that it was all first discovered during World War II — even Edge¬ worth’s illustrative diagram of 1894 (Papers Relating to Political Economy, vol. ii P- 39)182

THE THEORY OF COMMERCIAL POLICY

continuity in the evolution of Torrens’ views on commercial policy in general than might at first sight appear. Accordingly, this chapter will fall into five main sections. In the first, we shall discuss Torrens in his role of free trader, especially in relation to the Corn Laws. Then, in the second, we shall trace the genesis of his doctrines regarding reciprocity and the terms of trade, and their promulgation in the Letters on Commercial Policy of 1833. The next two sections will be devoted to his elaboration of these ideas in The Budget and the discussion provoked by this, especially the debate with Senior. Finally, there will be attempted some appraisal of these doctrines in relation to the main corpus of Torrens’ views on colonial and commercial policy.

(2) Torrens as Free Trader If we are to get an adequate grasp of Torrens’ views on commercial policy, it is important not to forget the back¬ ground of thought which appears in the first work he wrote on economic questions, The Economists Refuted (1808). The purpose of this work, as we have seen,1 was the refutation of a certain point of view, Spence’s contention, deriving from Physiocratic influences, that only agriculture was productive and that trade, particularly international trade, was unimportant. But to do this, the development of an alternative analysis was necessary; and, both for its invention of the phrase ‘territorial division of labour’ and for its lumin¬ ous analysis of the general nature of the gain from trade, The Economists Refuted deserves a permanent place in the literature of the theory of commercial policy. It is important to re¬ member that this analysis was never repudiated by Torrens : he republished it some fifty years later when he had long severed all connection with the unilateral free traders; and there is no reason to suppose that he ever lost sight of the chief result of its analysis — the great potential gain to all concerned of the territorial division of labour. It was natural that, with this conception in mind, Torrens should approach the problems of trade policy with a certain bias against restriction. But there are comparatively few prescriptions in The Economists Refuted; in a way it is the most 1 See above, Chaptei' II. 183

ROBERT TORRENS

academic work its author ever wrote. For prescriptions and recommendations we have to wait for the Essay on the External Corn Trade (1815). The main argument of this celebrated essay rests on two foundations. The first is, in effect, an application of the law of large numbers. It is argued that a policy of free imports of corn would lead to a greater steadiness of supply. This is an extension of Adam Smith’s famous vindication of freedom in internal markets. Torrens argues that the wider the sources of supply the less are likely to be the fluctuations in the aggre¬ gate carry-forward : bad harvests in one area will tend to be offset by good harvests elsewhere ; the operations of commercial speculation will lead to the establishment of reserve stocks more adequate than any which would be likely to be held in public granaries. £By equalizing subsistence throughout all the countries which engage, actively or passively, in commerce ; by distributing the supply, in regular proportion, through all the periods of the year; by carrying forward the superfluities of abundant seasons, to meet the wants of deficient ones ; by occasioning the establishment of stores and granaries; by giving security to agriculture, and consequently, a new impulse to production, it seems that an unfettered foreign trade in corn, might render famine impossible, and make even dearth an extremely improbable occurrence.’1 The second foundation is a combination of the law of Diminishing Returns and the theory of Comparative Costs. The restriction of imports compels resort to inferior soils or less productive intensive cultivation ; the product of labour, there¬ fore, is less than it might be if instead it were employed in producing goods which could procure corn by way of exchange from abroad.2 The policy of free import would be justified even if the corn which was imported was produced with more labour than the corn which might otherwise have been pro¬ duced at home ; provided always that the labour devoted to producing goods for export ultimately procured more corn than it would have procured by way of direct production.3 Beyond these there were a number of subsidiary arguments, some considerably more impressive than others. There was the argument of reduced accumulation: the necessity of resorting to inferior soils meant a lesser production of wealth than would otherwise be the case, hence a brake upon accumu1 Op. cit. p. 34.

2 Ibid. pp. 73-4.

I84

3 Ibid. p. 264.

THE THEORY OF COMMERCIAL POLICY

lation and economic progress.1 There was the argument of damage to landlords; because of diminished accumulation the increase in rents due to restriction would prove short¬ lived and in any case would be less than what would eventually have occurred under natural conditions of import and accumu¬ lation.2 There was the argument of reduced power in foreign competition. The rise in money wages due to the rise in the price of corn would lead to a rise of prices generally and thus to difficulties in foreign markets.3 All these arguments are in the first edition ; later on under the influence of Ricardo there is added an argument regarding the influence of higher wages on profits; and the argument about difficulties in foreign markets tends to take another form.4*5 All this, it should be noted, related to the importation of corn. The Essay on the External Corn Trade was not a plea for free trade in general; it was an attack on the Corn Laws and a plan for their abolition : and the arguments it used, extended to cover raw produce in general, continued to be used by its author long after he had ceased to be a believer in unilateral free trade elsewhere. Shortly after its first appearance its arguments were repeated in its author’s Letter to the Earl of Liverpool (1816). The Essay itself continued to be republished in successive revisions until 1829. We find pleas of a similar nature for the abolition of the Corn Laws in the Letters on Commercial Policy of 1833, in the Wages and Combination of 1834, and in the Letters to Lord Chandos of 1839. Even in The Budget of 1844, the alleged locus classicus of the theory of reciprocity, although the support for unilateral reduction has now dis¬ appeared, the opinion is still expressed that the governments 1 . restrictions for the purpose of forcing inferior lands into cultivation would diminish wealth, and prevent that accumulation of stock, without which the improvement and extension of tillage cannot be effected’ {ibid. p. 207). 2 ‘The country which gives a forced and artificial encouragement to agri¬ culture, will have less wealth, less capital, less population, a less demand for corn, and consequently a less extended and perfect cultivation than the country which, leaving things to their natural course, and permitting industry to take its most profitable direction, receives subsistence from whatever quarter it can be obtained at the cheapest rate, . . (ibid. p. 53). 3 ‘While restriction upon the importation of corn would thus in every branch of industry lower the productive powers of our labour and capital, they would further in the present circumstances of these countries, tend to exclude our com¬ modities from every foreign market’ (ibid. p. 236). * Op. cit. (2nd edition), pp. 407-8. 5 See Chapter II, section 6 for an account of the vicissitudes of Torrens’ thought in this connection. 185

ROBERT TORRENS

of the past ‘in pertinaciously resisting all attempts to effect a gradual mitigation, and ultimate abolition of the Corn Laws, were acting in direct and dangerous opposition to the best established principles of economical science. . . .5l It is important to distinguish Torrens’ views on the Corn Laws from his views on commercial policy in general.1 2 In the Essay on the Production of Wealth, however, which he published in 1821, there is no doubt about the generality of his prescriptions. It is true that he devotes some pages to elaborating a curious exception to the general prescription in favour of free trade which he thought could not arise for centuries to come — the case of ‘ a country approaching the ultimate limits of her agricultural resources, and at the same time exporting raw produce in exchange for wrought goods. . . .’3 It is true too that he touches upon certain more practical exceptions which we shall have to examine in greater detail later on. But in the main his attitude is that of a thorough¬ going free trader. The argument of The Economists Refuted regarding the nature of the gains from trade is repeated and reiterated : and the benefits of unilateral freedom of trade are specifically asserted: ‘supposing that France should become so blind to her own interest as to employ one of her capitals of subsistence ... in manufacturing one hundred bales of cotton instead of devoting it to fabricating the silks with which she could purchase one hundred and fifty bales of cotton from England, this mistaken policy on the part of France could furnish no conceivable reason why England should imitate the absurd example. The refusal of France to take our cheaper cottons, would not render it less our interest to receive her cheaper silks. If one hundred and fifty bales of French silks continue to be imported, something must be exported to pay for them, and in preparing this something, the capital dis1 Op. cit. p. 373. 2 It is perhaps worth noting that at one stage in Torrens’ thought about the Corn Laws, his advocacy of their removal was conjoined with proposals for changing the direction of internal taxation by the substitution of a moderate property tax for taxes pressing on the ‘ productive classes This position is developed at some length in The Crisis and the Remedies (1830), and was embodied in the intended Financial Resolutions of 1832 ; that it continued to be held by Torrens for long after that is proved by the reprinting of that tract as Letter VI of The Budget. There are further developments of the same position in No. 1 of the Tracts on Finance and Trade, 1852, where a national rate on property, real and personal, is urged as the equitable means of providing for Irish relief. See the Bibliographical Appendix, Items 26, 29 and 81. s Op. cit. p. 281. 186

THE THEORY OF

COMMERCIAL POLICY

engaged from the manufacturing of silk at home, will find a more beneficial occupation than before. ... It never could become necessary for the protection of domestic industry, that we should retaliate upon any foreign country the restrictive system which it may ignorantly enforce against us.’1 This is the standard argument for unilateral free trade.

(3)

Tariffs and the

Terms

of

Trade

Up to this point, therefore, in spite of certain exceptions, which we shall have to examine presently, there is no reason to regard Torrens as anything but a free trader — and a free trader who carried his views to the point at which he was prepared explicitly to recommend the virtues of unilateralism. We now have to trace the steps by which he abandoned this position and eventually became the leading intellectual op¬ ponent of unilateral free trade and supporter of the policy of reciprocity. The central thread of this history is his discovery of the possible effects of tariffs on the terms of trade. Having per¬ ceived that a favourable effect of this sort was possible, he proceeded to persuade himself that it was likely: and from this he drew the conclusions — which, of course, were neither inevitable nor indissolubly connected — first that the local difficulties of the thirties and forties were due in part to the unilateral dismantlement of the tariff, and, secondly, that the appropriate policy for the future was not unilateral free trade but reciprocity — and a British Zollverein. It is the main business of this chapter to exhibit this evolution. Late in life, when from the point of view of the main radical tradition he had become a complete heretic, it was always Torrens’ contention that the theoretical basis of his central argument was essentially Ricardian. For this there was a twofold justification. It was justified, firstly, in that the Ricardian insistence that relative values in international trade were not determined by absolute labour costs of production, 1 Op. cit. pp. 274-5. See also the review, ‘Mr. Owen’s Plans for Relieving the National Distress’, Edinburgh Review, October 1819, p. 475. ‘The more we admit the production of other countries, the more extensive becomes their demand for our commodities.’ The same type of argument reappears in the article on Malthus’ Principles of Political Economy, which appeared in The Traveller for April 26, 1820. See the Bibliographical Appendix below, Item 21, pp. 282-3. 187

ROBERT TORRENS

left the ratio of exchange between the comparative cost limits to be settled by the play of demand — and the play of demand was obviously susceptible of influence by trade restrictions. It was, doubtless, chiefly in this sense that Torrens claimed Ricardian authority.1 But it was also to be justified by appeal to more specific propositions. In the chapter on foreign trade in Ricardo’s Principles it is specifically stated that duties and bounties affect the distribution of the precious metals; and in the chapter on colonial trade there is a discussion of possible gains to be secured in this way which contains in essence much of what has been said upon this subject since that time. By invoking his general propositions with regard to the distribution of the precious metals and the idea of monopolistic manipulation of demand, Ricardo showed, con¬ clusively, as against Adam Smith, that ‘the trade with a colony may be so regulated, that it shall at the same time be less beneficial to the colony, and more beneficial to the mother country than a perfectly free trade’.2 It is very improbable, however, that Torrens would have wished it to be thought that all his ideas in this connection were entirely derived from Ricardo. For that would have been to sacrifice a claim to priority to which he would have been perfectly entitled — a most unlikely thing for him to do. In the chapter on colonial trade in The Economists Refuted (1808) there are to be found the germs of much of his sub¬ sequent thought and a general treatment which might well be claimed in some respects to anticipate Ricardo. This chapter falls into two parts. In the first, the question is discussed whether there is a substantial difference between the conditions of trade with colonies and trade with independent sovereign states; and the answer, which we shall have to note in more detail at a later stage, is affirmative. In the second, Torrens addresses himself to the more practical question ‘can any accession of wealth be derived from those restrictions which, in modern times, parent states have almost uniformly imposed upon the commerce of their colonies?’3 To this again an affirmative answer is given. The compulsion to use the mother country as an entrepot involves the payment by the colonies of commissions which would otherwise not be necessary. Furthermore — and much more significant from 1 E.g. The Budget, p. 332. 2 Works (ed. Sraffa), vol. i, p. 343. 3 Op. cit. (2nd edition), p. 36. 188

THE THEORY OF COMMERCIAL POLICY'

our point of view — the creation of a protected market for the produce of the mother country ‘enables the mother country to purchase her colonial produce with a less sacrifice of labour and capital than she otherwise could do’.1 In exactly the same way, restrictions which give colonial products an exclusive privilege in the home market, enrich the colonies at the expense of the mother country. ‘When England imposes an unequal duty upon the sugars of the East Indies, in order to encourage the trade with the West India Islands, she renders herself tributary to her own colonies, and makes a voluntary sacrifice of wealth to the amount of the difference between the quantity of the products which she gives for her supply of West India sugars, and the quantity for which she might obtain an equal supply of sugars from the East.’2 Needless to say, these broad generalizations leave very much unsaid. They do not in themselves explain the effect on the distribution of the precious metals of duties of this sort. Nor do they directly tackle the question whether tariffs can favourably affect the terms on which a country does trade with the rest of the world. But once the possibility of discriminatory gains and losses is conceded, the question of the effect of non-discriminatory restrictions, or their repeal, cannot long be evaded. The argument of The Economists Refuted is repeated in more or less the same terms 3 in the Essay on the Production of Wealth (1821) where, however, it lies cheek by jowl with the arguments against the alleged need for reciprocity, without any apparent awareness on the part of their author of their incompatibility. The next step in Torrens’ progress towards the position he eventually adopted is to be found in the fourth edition of the Essay on the External Corn Trade (1827). Here in a new section explaining ‘the effects of free trade on the value of money’ he unfolds a lengthy analysis of the effects of tariffs on the internal level of prices and incomes.4 1 Ibid. p. 41. 2 Ibid. pp. 41-2. 3 Additional paragraphs (pp. 243-4) make clearer the nature of the gain. 4 In the preface, alluding to this section, he says that his treatment has received ‘much assistance from a very curious and elaborate critique by Mr. Pennington, upon some doctrines connected with this subject which had been advanced by Mr. Ricardo and Mr. Mill’. The reference, presumably, is to James Mill’s error regarding the division of the gains from trade, which, according to John Stuart Mill (.Autobiography, 18th edition, pp. 121-2), was detected by himself and George Graham. As Sraffa and Viner have shown, Ricardo was not guilty of this error. See P. Sraffa, ‘An Alleged Correction of Ricardo’, Quarterly Journal of Economics, xliv, 1929, p. 44. 189

ROBERT TORRENS

The effect of this analysis, Torrens contends, is to establish the principle that ‘High protecting and prohibitory duties, on the importation of foreign commodities, have the effect of increasing the supply, and of lowering the value, of the precious metals ; and the adoption of a more liberal system of com¬ mercial policy must have the contrary effect, of diminishing their quantity and of raising their value’.1 It is argued, further, that the ‘subtraction of the precious metals’ arising from a unilateral pursuit of a more liberal policy ‘might be prevented by retaliating the prohibitory system, and diminished by imposing duties on the importation of foreign commodities coming from countries refusing to act on the principles of reciprocity’.2 These principles are backed up by a very elaborate series of arithmetical illustrations, which, while resting on very special assumptions as regards elasticities, make it quite clear that Torrens had grasped the essential conception of the redistribution of the supplies of precious metals in response to changes in the conditions of international demand.3 Nevertheless, in spite of the words quoted, he refrains from drawing what later on he would have thought to be the obvious moral. He argues that the deflation brought about by sudden changes to more liberal commercial policies, would be inconvenient and damaging because of the effect on the burden of internal debt. But he does not argue that the real cost of imports in terms of exports might be made higher in consequence; his practical recommendation is, not that tariffs should be retained save where reciprocal advantages are conceded, but that they should be lowered with ‘the utmost caution and circumspection, and by slow and almost im¬ perceptible gradations’; and the section concludes with a renewed plea for free trade in corn on the lines explained in section 2 above. At some time in the next five years, however, there seems to have taken place a certain change of mind which, marrying, as it were, the point of view of the real analysis of the chapters on colonial trade in The Economists Refuted and the Essay on the Production of Wealth and the monetary analysis of the new 1 Op. cit. (4th edition), p. 423.

2 Ibid. p. 424.

3 A copy of this edition of the Essay, which is in the possession of the present author, has copious, and, for the most part, very intelligent, marginal annotations by Goulbourne who at one time was Chancellor of the Exchequer. At the end of this argument, however, occurs the annotation, ‘I think the whole of this section very ridiculous’. 190

THE THEORY OF COMMERCIAL POLICY

section in the fourth edition of the Essay on the External Corn Trade, produced a point of view from which the reduction of tariffs seemed a positive disadvantage — save where imports of wage goods and raw materials were concerned — and reciprocity, rather than unilateral free trade, the more desirable principle of policy. The first hint of such a change occurs in the text of certain ‘financial resolutions’ which Torrens intended to submit to the House of Commons on Thursday, March 29, 1832. Resolution 5 states ‘that in the alterations which have been from time to time effected in our financial, colonial, and commercial policy, the important principles which regulate the distribution of the precious metals throughout the com¬ mercial world, appear to have been overlooked; and that the consequences of our erroneous legislation have been, that we have commanded a less quantity of the precious metals than that which was due to the superior efficacy of our labour’; and ‘that our power of outbidding rival countries in the purchase of foreign raw produce and material has been impaired ’; and Resolution 7 goes on to urge that ‘it is expedient wholly to abolish the duties upon the importation of all raw materials used in our manufactures, and to substitute in their stead, as far as may be practicable, increased duties upon foreign fabrics and foreign luxuries; discriminating between those countries, the intercourse with which has a tendency to alter the distribution of the metals in our favour, and those other countries, the intercourse with which tends to alter the distribution of these metals to our disadvantage’. This is obviously no longer the attitude of an advocate of unilateral free trade. It is clear that these resolutions had an important place in Torrens’ own conception of his intellectual evolution. Indeed by the time he came to have his famous controversy with Senior he was writing as if they had actually been moved in Parlia¬ ment.1 But this was not so. They were printed in the Bolton Chronicle for Saturday, March 31, 1832, as ‘'Resolutions intended to be moved by Colonel Torrens' and there is a pamphlet of that title, presumably with identical contents, in the now 1 See Letter X to Senior (The Budget, p. 370). ‘In 1832, I moved in the House of Commons a series of resolutions affirming the principles of the reciprocal theory. Previous to my submitting these resolutions to Parliament, I placed them in your hands, and, if my recollection serves me right, you did not then dissent from the principles announced.’

ROBERT TORRENS

inaccessible Hollander Collection at Baltimore.1 But on the afternoon of the 29th March, when Torrens intended to move them, there were not forty members present, and the House adjourned without any business taking place.2 It was not long, however, before Torrens did speak on these matters in the House of Commons. On the 3rd July 1832 there was a debate on some resolutions brought forward by Alderman Waithman on the state of trade and Torrens seized the opportunity for a statement of his own theories. After a very perfunctory reference to the Alderman’s conten¬ tions, Torrens plunged into the exposition of his new point of view. The fall of prices since the return of cash payments had been due in part to influences operating throughout the whole commercial world — the increased demand for the precious metals, the diminished supply, and the increased facilities for the production of other commodities. But there were other causes peculiar to this country, which had contributed to reduce the price of British goods. ‘Whatever might be the advantages of free trade and of reducing the duties of customs on the importation of foreign goods, these advantages were in some degree counterbalanced by an enhancement in the value of money, and a general fall in the prices not merely of the goods imported, but also of British goods. . . . Gold and silver were admitted . . . duty free ; therefore, in proportion as they reduced the import duties on other commodities, the more they changed that relation between gold and silver and other commodities ... by so much might the standard of the currency be said to rise. . . . This important fact . . . had been wholly overlooked by the advocates of free trade principles.’ This, of course, was the doctrine of the new section of the fourth edition of the Essay on the External Corn Trade. But it was now used in the interests of a definite attack on the position of orthodox free traders. Moreover ‘there were other errors’, Torrens is reported as going on to say, ‘which he would take an early opportunity of exposing with respect to free trade principles. He need not say that he was an advocate of free trade, but he denied that its official promulgators had seen, or even now saw, the whole of the question.’ Thus, for instance, the free traders said ‘it mattered nothing whether 1

The Economic Library ofj. H. Hollander, p. 195 (Item 2447).

1

The Mirror of Parliament, 1832, vol. ii, p. 1523. 192

THE THEORY OF COMMERCIAL POLICY

another country took from us our commodities for theirs or our money, because, say they, we must send our commodities somewhere else in order to procure that money’. And this error ‘sprang from that of another of still more universal acceptation; namely, . . . that as the value of a commodity in the home market depended on the cost of the labour of pro¬ duction, so must it be in a foreign market’. ‘But,’ he would maintain that though this principle was true of domestic policy (economy?), ‘yet it was not it that regulated the exchangeable value in a foreign market. What we received in return for our goods in foreign markets did not depend on the cost of producing those foreign articles but on the demand that existed in the foreign market. ... To the extent of that demand every country supplied itself, but it could not be increased but on one condition, which involved the whole question of our advantage; namely, that we gave them our goods at a diminished price.’ Here, plainly, is the conception of a change in the terms of trade. In the next breath, Torrens proceeds to apply it to the analysis of trade policy. ‘ If they applied this principle to the case of our trading, say with France,’ he is reported as saying, ‘they would see that all the advantages which the advocates of free trade had predicted could not be realized but on terms of perfect reciprocity. If France required our money instead of our goods for her commodity, we could only obtain that money by giving our goods to — say the South Americans at a reduced price — for otherwise, on the principle of supply and demand which he was contending for, South America could not take a greater quantity of British goods unless they were offered at a reduced price. Suppose that France takes from us 1,000 bales of muslin in exchange for wine, while [S.] America takes 1,000 bales in exchange for gold, then we should get our supply of wine and gold for 2,000 bales. But should France . . . refuse to take our muslin and require gold, then we must send 2,000 bales to [S.] America instead of 1,000. This would necessarily reduce the price of the British manu¬ facture in the [S.] American market, and 2,000 bales would no longer procure us the same supply of wine and gold as before. On these principles, he contended that it was an error in our commercial policy to encourage the import of wine from France, which would not take our goods in return, and to discourage the wine trade with Portugal, which opened her i93

ROBERT TORRENS

market to British fabrics. Much of our financial and com¬ mercial policy required not merely to be reformed, but to be reversed.’ Thus, in the short compass of a speech in the House of Commons, we have all the essentials of the point of view under¬ lying the argument for reciprocity to the promulgation of which Torrens was to devote so much time in the future. It was not long before he placed his views before the public in a more extended form. The Letters on Commercial Policy, first published in the Bolton Chronicle — Torrens being at that time member for Bolton — and subsequently issued in collected form in 1833, contain an ordered exposition of a more or less coherent intellectual system regarding commercial policy. The main features of this system fall into three groups, theoretical analysis, application to past history and prescription for future policy. The theoretical analysis presents in greater detail the main position already outlined in the speech on Waithman’s resolu¬ tions. The question whether it is a matter of indifference whether we buy from countries which admit our goods freely or from countries which limit their imports is discussed on the lines adopted on that occasion and illustrated by an example very similar to that which was then developed. There follows an elaborate discussion of the way in which differences in the relative efficiency of labour and differences in the conditions of demand determine the distribution of the precious metals between different areas. This leads in turn to an examination of the influence of those differences in the conditions of demand which are due to the existence of import duties. Import duties on finished products, it is argued, enable a country to maintain a higher comparative scale of prices than would otherwise be the case. This means that money incomes, and therefore the power to purchase foreign commodities, will be higher. Either real profits or real wages will therefore benefit. Torrens makes it quite clear that in his conception these generalizations apply only to the results of duties on finished goods. Duties on food and raw materials would increase the cost of production and so have results which would be the reverse of beneficial. Having thus established to his satisfaction a scheme of theoretical possibilities, Torrens then proceeds to apply this scheme to the interpretation of contemporary history. Letter x94

THE THEORY OF COMMERCIAL POLICY

V attempts to establish that ‘ the whole of the distress which has visited the country, that the whole of the fall which has taken place in the profits of trade, and in the wages of labour, have been occasioned by the ignorance and mismanagement of those who have had the direction of public affairs’.1 Partly this has shown itself in high taxation, but partly also in er¬ roneous commercial policy. Duties have been increased on the importation of the produce of countries admitting British goods on the most favourable terms, while they have been lowered in favour of the produce of those countries which prohibit the products of British industry: food and raw materials have been prohibited or made objects of taxation, while finished articles fit for immediate consumption have been freely admitted. The argument is emphatic. No pure free trader, arguing that the country was being ruined by protec¬ tion, could have urged his case with greater vigour than Torrens arguing that it was being ruined by the injudicious application of the principles of unilateral free trade. The moral for practical policy followed inexorably. The correct principle of commercial policy was not unilateral free trade but reciprocity. ‘ To lower the duties of customs upon the importation of goods produced in countries which consent to receive British goods upon terms equally favourable; and to prohibit, or lay heavy duties upon, the importation of all goods, not consisting of first necessaries, produced in countries which prohibit, or lay heavy duties upon, British goods ’ 2 — these were the principles upon which a proper commercial policy should be based. All this, it should be noted, was said in 1833. The date is important since, whatever the merits of the argument, it redeems its author from any charge of interest or bias. The Budget letters, which have chiefly been associated with the development of this point of view, were written ten years later, after Torrens’ great quarrel with Lord John Russell about the conduct of the South Australian Commissioners; and a certain amount of personal animus is evident. But, in 1833, no such event had taken place and, whether his contentions were right or wrong, there is no reason to suppose that they were put forward in any but a disinterested frame of mind. As a matter of fact they aroused very little interest. It might have been thought that the spectacle of a leading free trader, the author of the Essay on the External Corn Trade and a 1 Op. cit. p. 35. O

2 Ibid. p. 6.

195

ROBERT TORRENS

friend of Ricardo, turning upon the doctrine of unilateral free trade and invoking the central doctrines of the Ricardian system to justify other principles would have been something of a sensation. But it was not so. It is true that Perronet Thompson, who was then editing the Westminster Review, made a slashing attack on the first Letters which appeared in the Bolton Chronicle — there will be more to be said about this later. But apart from this, very little seems to have happened ; and as Torrens himself became more and more absorbed in his South Australian enterprise, for the next seven years he seems to have given very little attention to the subject. As we have noted already,1 there are traces of the theoretical analysis in a section of Wages and Combination, where it is argued that it is possible that in certain circumstances a national combination to raise wages might succeed in turning the terms of trade in favour of the country in which it operated. But in his only direct contribution made during these years to the discussion of commercial policy, the Letter to the Marquis of Chandos on the Effects of the Corn Laws, Torrens was content to make what he described as his contribution to the repeal of the Corn Laws, in the shape of the republication from earlier works of select extracts dealing with the effects of duties on the import of food and raw produce. It was not until September 1841, with the publication of the famous Letter II of The Budget, that he returned once more to the main contention of the Letters on Commercial Policy. A note in Francis Place’s copy of the Letters on Commercial Policy in the Goldsmiths’ Collection states : ‘N.B. the Argument is founded on a Gross Fallacy, which having been exposed, the whole of the Edition was sent to Bolton and none were sold in London’. Apart from the extreme rarity of the volume, there seems little to support this note. Perronet Thompson’s attack came before the letters were published in book form — in time enough, indeed, for Torrens to deal with it in Letter VII — and there is no evidence at all in his reply that he conceded any of the points made. It is clear from his private diary that Place knew of Torrens’ latent protectionism and distrusted it.2 But it is perhaps doubtful whether, in spite of the excellence of his understanding of parts of the Classical system, he was qualified to appreciate the nature of this particular argument. 1 Above, pp. 50-1.

1

Life of Francis Place, Graham Wallas, p. 179. 196

THE THEORY OF COMMERCIAL POLICY

(4)

The Budget and the Effects of

Import Duties

Although, as we have just seen, the main outlines of Torrens’ views on tariffs and the terms of trade had all been firmly drawn some eight years before the publication of The Budget series, it was not until he restated them in this connection that they attracted much attention. It was Letters II and III, addressed to Lord John Russell and Sir Robert Peel respect¬ ively, which caused the furore; and it was in reply to attacks on the propositions laid down in these letters that he developed his arguments later on, first in the postscript to Letter IX to Sir Robert Peel, and later in the Letter X to Nassau Senior. Accordingly, it is to this phase of his work that we must give special attention in this connection. In this section we shall examine the broad structure of Torrens’ arguments : in the next, the exchanges which took place between him and his critics. Before doing that, however, it is perhaps desirable to say a word about the general nature of The Budget, the collection in which all this appears. The various items of which it is composed were originally published separately, from 1841 onwards, as a series of letters addressed, as was the fashion of the day, to prominent statesmen or men of affairs, Lord John Russell, Sir Robert Peel, Lord Stanley, etc. etc. At first sight, when all these are bound together in their collected form, it would seem as if nothing could be less coherent: a preface which, for the most part, is concerned with pure theory and methodology: formal letters ‘ On the proposed alteration in the import duties upon corn and sugar. . . . On Colonization, considered as a means of removing the causes of Irish Misery. . . . On the distinctive Effects of Taxes upon realized Property. . . . On perfect or reciprocal Freedom of Trade’, and so on and so forth; informal letters to various incidental critics ; reproduction of extracts from other journals. It is as though the various numbers of a journal, published at irregular intervals and concerned with comment on any issue of the day that happened to catch the proprietor’s fancy, had been bound up together with a certain amount of private editorial matter. And from one point of view, that is almost what it is. In spite of their somewhat eccentric pagination, it is clear that i97

ROBERT TORRENS

the letters, as they were published separately, were intended eventually to be incorporated in a single volume. But it is very doubtful whether they were planned in advance ;1 and certainly the end-product, with its sheaf of controversies with critics of the earlier numbers, cannot have been envisaged at the outset. Nevertheless, it would be a mistake to deny any coherence of approach. The main title is The Budget. But the sub-title is On Commercial and Colonial Policy. This does, in fact, cover the majority of the topics dealt with; and, as we proceed, we shall see how Torrens’ views on tariffs and the terms of trade fitted into and reinforced the views on coloniza¬ tion which we have already examined. The Budget is indeed a miscellany. But it is a miscellany with a certain unity of purpose. It was Letter II which caused the sensation. There had been hints of coming trouble in Letter I, which was a general attack on the Whig Budget of 1841 and which contained, inter alia, a condemnation of the reduction of the preferential margin in favour of colonial sugar ; and the close of the letter contained a suggestion to Lord John Russell, to whom it was addressed, that ‘Mr. Ricardo’s chapter on foreign trade and on the distribution of the precious metals, might be worth Your Lordship’s perusal’. But it was Letter II, also addressed to this nobleman, whose sub-title announced a disquisition ‘ On the Manner in which the Adoption of the Whig Budget would have Altered the Value of Money, Increased the Pressure of Taxation, and Aggravated the Distress of the People’, which contained the flat challenge to the policy of unilateral tariff reduction and the systematic exposition of the analysis upon which this challenge was based. In setting forth this argument, Torrens was careful to underline, what the majority of commentators have neverthe¬ less failed to notice, the continuity of his views with his earlier contentions. ‘The language which I now hold’, he wrote, ‘is the language which at other times, and in other places, I have held. My principles are unchanged. The measures I now advocate, I advocated always.’ The always was, as we have seen, a rhetorical exaggeration. ‘ Peculiar circumstances’, he went on, with fairly obvious allusion to his resignation from the South Australian Commission, which he thought Lord 1 The contents of the letters sometimes fail to correspond with the announce¬ ment at the end of preceding numbers. 198

THE THEORY OF COMMERCIAL POLICY

'

John Russell had unnecessarily accepted1 — ‘Peculiar circum¬ stances have afforded me leisure to resume enquiries which had been for a time suspended, and to investigate the value of your Lordship’s Budget. The result of that investigation, carefully, and I trust impartially conducted, is a full con¬ viction, that had the Whig ministers been permitted to carry the measures which they proposed, the results would have been, a continued abstraction of bullion, the insolvency of the bank, and a ruinous commercial revulsion, terminating in a permanent contraction of the currency and fall of prices, which would have rendered it difficult, if not impossible, to collect a sufficient revenue to pay the public creditor.’2 In developing the grounds for this very serious indictment, Torrens lays down two principles:3 first, that ‘superior efficacy in the labour which produces exportable articles, gives to the country possessing it a higher scale of general prices than that possessed by her neighbours’ and hence a superior power of purchase abroad; second, that ‘ import duties . . . have also an important influence in regulating the distribution of the precious metals, and in determining the comparative scale of prices which any country is able to main¬ tain’. If these principles are correct, Torrens argues, a ‘ minister who should venture upon any extensive change in our commercial system, without having previously acquired a competent knowledge of their working, would be entitled to that unenviable reputation which might be awarded to the practitioner who should undertake to amputate a limb, ignorant of the vessels through which the life blood flows’.4 These principles are then made the basis for the following propositions. ‘First, — When commercial countries receive the pro¬ ductions of each other duty free, then (the efficacy of labour being 1 Torrens had resigned on a technicality. It had been discovered that in retaining a small financial interest in the enterprise he had inadvertently infringed a provision of the South Australia Act. He thereupon submitted his resignation which apparently somewhat to his surprise was accepted. This episode remained a source of mystification for many years and probably also of pecuniary embarrass¬ ment. See Report of the Select Committee on South Australia Appendix, Parliamentary Papers, 1841, vol. iv, p. 269; see also Torrens’ letters to Lord John Russell on this specific question (Bibliographical Appendix below. Items 64 and 69). There is a letter in the Record Office, probably written in 1848, from Overstone to Russell, praising Torrens’ general services to monetary and banking theory and urging sympathetic consideration for his plea of hardship due to loss of former appointments. I owe this reference to Mr. Collison Black. 2 Op. cit. p. 27. 3 Ibid. pp. 24-6. 4 Ibid. p. 27. 199

ROBERT TORRENS

the same in each)1 the precious metals will be distributed amongst them in equal proportions, and the general scale of prices will be the same in each. ‘ Second, — When any particular country imposes import duties upon the productions of other countries, while those other countries continue to receive her products duty free, then such particular country draws to herself a larger proportion of the precious metals, maintains a higher range of general prices than her neighbours, and obtains in exchange for the produce of a given quantity of her labour, the produce of a greater quantity of foreign labour. ‘ Third, — When any country is deprived of that command [over]1 2 the precious metals which is due to the efficacy of her labour in producing articles for the foreign market, by the hostile tariffs of other countries, she may recover her due command over the metals, by imposing retaliatory and equivalent duties upon the importation of the productions of the countries by which the hostile tariffs are maintained. ‘Fourth, (this, of course, was the reference to contemporary politics) — When, from foreign rivalry and hostile tariffs, a country begins to lose a portion of her former command over the precious metals, and to experience a contraction of the currency, a fall in prices, in profits, and in wages, and a falling off in the revenue, then, the lowering of import duties upon the productions of countries retaining their hostile tariffs, instead of affording relief, would aggravate the general distress, by occasioning a more rapid abstraction of the metals, and a deeper decline in prices, in profits, in wages, and in the revenue, accompanied not by a diminution, but by an increase in the real extent of taxation.’3 These propositions are then illustrated by the famous example of trade in sugar and cloth between a hypothetical Cuba (explicitly stated to represent the rest of the world)4 and England. As this was the subject of much of the more informed criticism which followed the publication of this letter, it is necessary to reproduce it at some length. 1 And, presumably, also all that complex of habits and institutions determining the velocity of circulation. Torrens does not mention these here. But he had certainly dealt with them at length in other writings (see above, p. 99). 2 In the text ‘ever’. But this is obviously a misprint. 3 Op. cit. pp. 28-9. 4 This is important. See the controversy between Merivale and Torrens described below. 200

THE THEORY OF COMMERCIAL POLICY

The example begins by assuming a world consisting of England and Cuba and in these two countries complete equality of cost conditions, save in respect of cloth and sugar, England having the superiority in the former and Cuba in the latter commodity. In these circumstances trade consists in a barter of cloth for sugar — for purposes of illustration, 1,500,000 bales of cloth worth 30s. per bale against 1,500,000 cwt. of sugar worth 30s. per cwt. Cuba now is assumed to impose an ad valorem duty of 100 per cent, on the import of cloth. The first effect of this is to raise the price of British cloth to Cuban consumers from 30s. to 60s. per bale. The next effect is a diminution of consumption of cloth. At this point Torrens adopts as the most probable assumption a disposition in Cuba to constant outlay on cloth — i.e. in terms that he would not have recognized, an elasticity of de¬ mand equal to unity. On such an assumption, consumption diminishes from 1,500,000 to 750,000 bales. This, in turn, involves a disturbance of the balance of trade. Although the Cuban consumers would still be spending the same amount on cloth — £2,250,000, yet half of this would now be going to the Cuban Government, so that the proceeds of sale remaining in the hands of British merchants and hence eventually available to buy Cuban sugar, would be reduced by half—i.e. from £2,250,000 to £1,125,000. Another £1,125,000, therefore, will have to be sent to finance the purchase and this will have to come out of the English circulation. But this is only the impact effect, so to speak. Since the circulation of Cuba is thus increased and the circulation of England diminished, ‘it is evident that there must be in the two countries an alteration in the money prices of commodities, corresponding with the altered distribution of the precious metals’.1 Prices will rise in Cuba and will fall in England. But, of course, the increased price of Cuban sugar will also prevail in the English market, just as the lowered price of English cloth will prevail in the Cuban market to importers who buy before tax is paid : it will be the prices of home products which will diverge in the two areas. These price movements will affect consumption. In Cuba consumption of British goods will increase, partly because 1 Ibid. p. 31. 201

ROBERT TORRENS

of the fall in their price, partly because of ‘the increased quantity of money applicable to their purchase’, i.e. higher money incomes. In England a reverse process will take place, for symmetrical reasons. These movements in turn will affect the balance of payments and, as trade continues, with each round the difference needing to be settled by specie flows will grow less and less, until eventually it vanishes altogether. This point will be reached, according to Torrens, when the circulation of England is reduced from 30,000,000 to 20,000,000 and that of Cuba increased from 30,000,000 to 40,000,000, and in consequence the price of British cloth has fallen from 30s. to 20s. per bale and the price of Cuban sugar has risen from 30s. to 40s. ‘For when the circulation and the prices of the two countries should be thus adjusted, the ex¬ portation from England of 1,500,000 bales worth 20s. per bale would discharge the debt incurred to Cuba by the purchase of 750,000 cwt. of sugar at 40s. and therefore no further trans¬ mission of the metals from England to Cuba would be re¬ quired.’ Clearly this very precise conclusion rests upon very precise assumptions. On examination it appears that Torrens is not only assuming constant outlay at different prices out of a constant circulation but also a constant proportionate expendi¬ ture out of changing circulation : both Cubans and English spend of the circulation on cloth and sugar respectively whatever the circulation may be.1 Thus the end-product of the change is a position in which money incomes in England are reduced by 10,000,000 and money incomes in Cuba increased by a similar amount; and while domestic prices and incomes in the two countries will move in harmony so as to leave the real income position in this respect (i.e. as regards home products) the same as before, the English power to buy ‘sugar’ (the products of foreign industry) will be reduced and the Cuban power to buy ‘ cloth ’ increased. ‘In consequence of the imposition of the duty, England sends out, as before, 1,500,000 bales of goods, but obtains in return only 750,000 cwt. of sugar. Thus, one half of the value of her exports — one half of the commodities which she formerly received in return for the produce of her industry, is taken from England, and paid as a tribute into the Treasury of Cuba. . . . The ultimate incidence of the import 1 Presumably, on Torrens’ assumption, incomes change proportionately with circulation. 202

THE THEORY OF COMMERCIAL POLICY

duty imposed upon British goods would be upon the British producers.’1 But, Torrens is careful to add, this loss is probably ‘the least portion of the evil inflicted upon England’ by such a change. ‘Under the circumstances assumed, the abstraction of the precious metals, the contraction of the circulation, the fall in the money price of all domestic products, the increase in the value of all fixed salaries and charges, and the aug¬ mented pressure of the debt, would concur in creating a crisis more calamitous than any that has actually been experienced. National bankruptcy and revolution would be the probable results.’2 As the assumption is that the national money income will have contracted by one-third it is not difficult to under¬ stand the vigour of this language. It is unnecessary to follow further the laborious and highly restricted detail of this argument. Torrens next proceeds to argue that, on the same assumptions, the appropriate policy for England would be retaliation by way of the imposition of an ad valorem import duty of like dimensions. This would relieve the country ‘from the payment of a foreign tribute of equal amount — would bring back the metals which had been abstracted, restore the circulation to its former amount, raise the price of all domestic products, lighten all fixed charges upon land and industry, and mitigate the pressure of the debt’.3 While the process was taking place ‘ England would experience that animation in trade, and increase of production, which accompany an increase of the circulation, and a rise of price’.4 The mode of demonstration employed is similar to that which has been already exhibited in detail. Finally, Torrens allows himself a release of the soul in the shape of political fantasy. When Cuba suffers the reverse occasioned by the imposition of the English retaliatory duty, he imagines that her fortunes are in the hands of a Whig ministry under the leadership of a ‘character without stain’ with the cranial characteristics of Lord John Russell — one who would ‘rather be trepanned than convinced’. In order to arrest the growing misery of his country, ‘he resolves on repealing the duties upon the import of British goods, without waiting to stipulate with England for a corresponding reduction of her tariff’. Alas, ‘The wave did not subside under the lash 1 Op. cit. p. 36. 3 Ibid. p. 37.

2 Ibid. pp. 36, 37. 4 Ibid. p. 39. 203

ROBERT TORRENS

of Xerxes; the tide was not stayed at the command of Canute , the laws which regulate the distribution of the precious metals were not suspended in obedience to the strong will of the phrenological minister of Cuba. Gold flowed out in a stream more rapid than before. .. I1 Utter and complete calamity follows. ‘But the picture is not yet complete. The gifted minister of Cuba addresses the enlightened electors of Havannah. With impenetrable self-complacency he claims their approval and their confidence for having adopted, as the result of the latest improvements in economical science, a course of com¬ mercial policy which would have transferred to other shores the emporium of the world. The exhibition would be ridiculous were it not melancholy — Who would not laugh if such a man there be — Who would not weep if Atticus were he’. It is not necessary at this point to recapitulate the argument of Letter III. For this pamphlet, which was addressed to Sir Robert Peel and which bore the sub-title On Commercial Reform, consists largely of a reproduction, chiefly in the same words, of the argument of the first five letters of the Letters on Commercial Policy of 1833. It is very characteristic of Torrens’ methods that no mention should be made of this circumstance. But it is easy to understand how, after the theoretical acro¬ batics of the Letter to Lord John Russell, he deemed it neces¬ sary to present his case in a rather more detached setting : and that happened to be done by the argument of the earlier letters. The benefits of reciprocal free trade are emphasized, the disadvantages of one-sided concessions exhibited in much more general terms than those used in the Letter to Lord John Russell, and the possible gains for a country in England’s position from colonial development and a rigid adherence to the principles of reciprocity are depicted in glowing terms. Much more important, at this stage in our narrative, is the Postscript to Letter IX. This essay, which in effect is an independent and separate letter and which in fact was pub¬ lished some months after the letter to which it is supposed to be appended, is in some respects the most fully articulated of all Torrens’ pronouncements on the theory of tariffs and contains important constructions not developed elsewhere. By 1 Op. cit. pp. 40, 41. 204

THE THEORY OF COMMERCIAL POLICY

the time he came to write this Postscript, more than eighteen months later than the Letter to Lord John Russell, Torrens had had a good deal of criticism; he was, therefore, much more aware of the points on which his argument needed to be strengthened or defended. We see this at once in the opening paragraphs of the intro¬ duction where an explanation is offered of the assumption in the earlier argument of a disposition, on the part of the con¬ sumers concerned, to constant outlay on foreign trade com¬ modities. Torrens admits that this is an artificial hypothesis. He mentions circumstances when it would not hold : in a new country, for instance, ‘abounding in unappropriated land, foreign tariffs might have the effect of diverting labour and capital from foreign trade to domestic agriculture, and of thus diminishing the quantity of productions offered to foreign markets’. But, he argues that it would be impracticable to take into account all the possibilities of variation: therefore defers until ‘some future occasion the further consideration of the limitations to which the principles enunciated in the following pages, may under varying circumstances be liable’.1 It must be admitted that the argument here is not very satisfactory. Not being seized of the conception of demand as a function of price, Torrens lumps variations of demand at a price in with variations of demand because of variations of price, and appears to regard analysis as being equally in¬ capable of dealing with either in the first approximation. Still, the fact that he recognizes the assumption of constant outlay as an assumption made for purposes of simplification and not, as he was disposed to argue earlier,2 as on the whole the most probable state of affairs, is a distinct step forward. More significant, however, is a change in the mode of presentation of the central proposition. In the Letters on Commercial Policy and in Letter II to Lord John Russell, the process whereby a hostile tariff might be conceived to turn the terms of trade against a country had always been presented in terms of specie flows and the effect on local prices and incomes of changes in the distribution of the precious metals. In the Postscript, however, it is different. Probably as a result of a 1 In fact in the body of the argument some further account is taken of the possibilities of non-proportionate variations of outlay. See pp. 343-5. 2 See especially Letter II, pp. 30, 31. 205

ROBERT TORRENS

criticism by Merivale, Torrens now presents the main argument in barter terms : the demand of the Cubans for English goods is depicted as so many hogsheads of raw produce, of the English for Cuban goods as so many bales. It is only after examples of this sort have been developed at some length — Torrens pushes his analysis to an investigation of the economics of preference, with a ‘Jamaica’ as well as a ‘Cuba’ doing trade with England — that money and the precious metals make their appearance. The argument is still limited by the as¬ sumption of constant outlay. But the influence on demand of the imposition of duties is thus made to appear in its most fundamental aspect. It is worth noting that, by the time he came to write this Postscript, Torrens had become so impressed with the relevance to the contemporary situation of his apprehensions regarding the unilateral repeal of import duties, that his attitude to the Corn Laws had changed from general support for the policy of repeal to an attitude of warning of the dangers of immediate abolition. ‘Should it be found, that the principles which I have laboured to explain through the preceding pages can be established by demonstrative evidence, then it will be mathe¬ matically certain, that an immediate and total repeal of the duties upon foreign agricultural produce’ — note the cir¬ cumlocution — ‘ unaccompanied by a mitigation of foreign tariffs, would so alter the distribution of the precious metals to the disadvantage of this country, and so enhance the value of our currency as to occasion a further decline in money prices, and in money wages, and to increase, to a serious extent, the real amount of the debt, and the actual pressure of the taxes.’1 Torrens was to become much more explicit than this. In the Letter to Nassau Senior, he depicts the prospect of repeal as one of the leading menaces to prosperity and even political stability,2 and in No. II of the Tracts on Finance and Trade, written nearly ten years later (1852), he speaks of Peel em¬ bracing ‘the Gobden creed with the headlong zeal of a recent pervert’.3 But the early days of The Budget controversy mark the watershed. It would be wrong to say that the author of the Essay on the External Corn Trade had become a vulgar protectionist. But he had certainly become opposed to the unilateral repeal of the Corn Laws. 1 Op. cit. pp. 355-6. 2 Op. cit. pp. 382-3. 3 Op. cit. p. 43. 206

THE THEORY OF

COMMERCIAL

POLICY

(5) Torrens and his Critics Thus far we have been concerned with the positive state¬ ment of Torrens’ analysis. To understand its full significance, as he conceived it, it is desirable to examine his defence against hostile criticism. Torrens was always at his most ingenious in controversy; and his replies to the various critics who called in question his propositions about commercial policy are rich in illuminating amplifications of his funda¬ mental position. (a) Perronet Thompson We may begin with a brief glance at an early contro¬ versial exchange. As we have noticed already, the publication of the first letters to the electors of Bolton on commercial policy was the subject of severe attack in the Westminster Review by Perronet Thompson, the author of the True Theory of Rent and the widely read Catechism on the Corn Laws.1 Thompson’s objection in the end resolves itself into a protest against any suggestion that allowing merchants freely to buy (i.e. un¬ impeded by import duty) can possibly involve a smaller gain than any kind of restriction. His criticism throughout rests upon the implicit assumption that the pursuit of private advantage in trade must necessarily involve the maximum of national advantage; whereas, of course, it is the essence of Torrens’ position that it is at least conceivable that a nation, conceived as a trading monopoly, may find advantage in some restriction of demand below the level it would have attained under unimpeded competition. Much of Thompson’s argument consists of more or less dogmatic rhetoric — ‘Trade therefore is to be stopped and the loss of its substantial profits incurred, lest an insensible fluctua¬ tion, which in the aggregate amounts to nothing, should take place in the value of such pre-arranged bargains as are arranged in gold’. But he does also make an attempt to prove Torrens guilty of an error of logic. To prove the possibility of an adverse influence on the terms of trade of any given country of import restrictions imposed by other nations, Torrens had argued that ‘purchasing French wine with gold’ (because France restricted imports 1 Westminster Review, January 1833, vol. xviii, pp. 168-76. 207

ROBERT TORRENS

from England) ‘ instead of Portuguese wine with British fabrics ’ (Portugal admitted imports from England fairly freely) ‘would cause the produce of a given quantity of British labour to command, in the foreign market, a less quantity of gold’. To demonstrate this he had assumed an extreme case in which, commerce with Portugal being suspended, and France refusing to permit further imports from Britain, the cloth whose sales had paid for wine in the Portuguese market, now has to be sent to South America to raise the resources to pay France in gold; and his argument is that the cloth will probably fetch less as an additional export to the South American markets than it did as an export to Portugal. If ‘it shall appear that, when the cloth is sent to South America to purchase additional supplies of the precious metals, it ceases to be worth the million sterling which it was worth when sent to Portugal to pay for wine, then it will become self-evident that the ultra doctrine of the free traders is erroneous, and that the principles of commercial policy which I have propounded are correct’.1 To this Thompson makes the somewhat surprising objection that, if the cloth can be sold to better advantage in Portugal, it will not be to the interest of the merchants to send it to South America. ‘ The possibility of the answer being favourable to the querist’, he writes, ‘depends entirely on the supposition that the merchants will voluntarily send the cloth to South America instead of Portugal when less is finally to be had by sending it to South America. Upon the assumption of this, is founded the whole possibility of the interference of the govern¬ ment being of any use.’ The whole weight of his analytical argument against Torrens consists in denying the supposition. As might be expected Torrens had no difficulty in dealing with this objection. In Letter VII, which is devoted to the subject, he points out that his critic has completely failed to see that the initial assumption of the whole argument was that commerce between England and Portugal was suspended so that cloth could not obtain a sale in that market. ‘Wine is the staple article of export in Portugal. . . . Were we, by lowering the duties upon French wine, ... to suspend the importation of Portuguese wine, we must, as a necessary con¬ sequence, suspend the exportation of the British fabrics, which were formerly exchanged for the wine, but for which Portugal can now give no return. Yet the Reviewer gravely contends 1 Op. cit. Letter II, p. g. 208

THE THEORY OF COMMERCIAL POLICY

that, under these altered circumstances, the merchants will nevertheless send their cloth to Portugal, in order to get a higher return for it than can be obtained in South America.’1 It is evident that, if the ‘gross fallacy’ to which Francis Place referred in the note already quoted, was the argument which Perronet Thompson attempted to refute, the epithet was misplaced. It was Thompson, not Torrens, who had fallen into gross fallacy. (b) Herman Merivale

■

All this, however, related to the arguments of the Letters on Commercial Policy which, as we have noted already, failed almost completely to make any impact on opinion. Much more important, from the point of view of the history of thought, were the attacks on The Budget series nearly ten years later by Merivale and Senior. Both these writers had an intellectual standing which from Torrens’ point of view was much more considerable than that of Perronet Thompson. Both spoke as sometime occupants of the Drummond Chair of Political Economy at Oxford. Both spoke with the credit of solid and important contributions behind them to the dis¬ cussion of Commerce and Colonization. Merivale’s criticisms take the form of an extended note to Lecture VIII of his Lectures on Colonization and Colonies. Lecture VIII, which deals with colonial trade and the colonial system, appears in Volume I, published in 1841 ; the Note appears at the end of Volume II, published in 1842. The opening sentence announces that, since the Lecture was delivered, Colonel Torrens has attempted to put the subject in a new light. It was, therefore, inserted at the last moment, as an after-thought provoked by Letter II of The Budget. Merivale’s argument falls into two parts. First, he argues that Torrens’ analysis in terms of specie flows and the redistribution of the precious metals is an un¬ necessary complication. Precisely the same results can be obtained if the analysis is conducted throughout on the 1 Op. cit. p. 60. In a subsequent number of the Westminster Review, April 1833, vol. xviii, pp. 421-7, Thompson returned to the charge and argued that he had been misrepresented and that he had not meant that cloth would continue to be sent to Portugal when the Portuguese power to purchase had been exhausted. But there is no need to continue the recapitulation. It is patent that either he had not been misrepresented or that he had failed to see the consequences of his own assumption. 209

ROBERT TORRENS

assumption of barter. The Cuban illustration of the second Letter to Lord John Russell is re-worked in these terms.1 Having done this, however, and having thereby demon¬ strated how, on the assumption that the demand for Cuban sugar in England continues as before, the Torrens proposition may be logically sustained, Merivale then proceeds to consider what he obviously regards as a much more realistic example. Sugar is obtainable, not only from Cuba but also from a third country, Brazil, although in this latter country the value is five per cent, higher. Under such circumstances, ‘the point is very soon reached at which Brazilian sugar comes into com¬ petition with Cuba sugar in the English market. And if the Cuba tariff is persisted in, the effect must very soon be, that Cuba sugar is entirely driven out of the field, and Brazil sugar takes its place. England loses to the amount of 5 per cent at the utmost on the exchangeable value of her cloth, by its exclusion from the ports of the cheapest sugar growing country, but the foreign commerce of Cuba is absolutely ruined.’2 The inference is that Torrens’ example is a special and im¬ probable case and that the example which Merivale has substituted is typical of the normal instance. Torrens’ response to these criticisms is to be found, im¬ plicitly, in the Postscript and, explicitly, in a long note annexed to the Postscript. He makes no direct reply to the criticism that the demon¬ stration of his argument in terms of specie flows introduces a superfluous and extraneous element. But, as we have noted already, the whole argument of the Postscript is stated in such a way as to leave such criticisms entirely in the air. The argu¬ ment is first stated in barter terms ; only after this has been done is money introduced to show how the same result is reached on more realistic assumptions. 1 There is a real puzzle in Merivale’s exposition in this connection. In retailing Torrens’ position, after quoting his four propositions, he roughly reproduces the Cuban illustration, saying, however, that he is giving it ‘in the language of Colonel Torrens; having merely changed his imaginary parties from England and France to England and Cuba’ {op. cit. p. 307). This must be a by-product of the speed at which this last-minute insertion was probably written. As we have seen, and as all the interested world knew, Torrens’ main illustration was in terms of England and Cuba. There is a brief reference to the commercial relations of England and France in the introductory observations. But the main argument, and the argument which is annexed to the propositions of Letter II which Merivale quotes verbatim, is entirely concerned with an imaginary England and an imaginary Cuba. 2 Op. cit. p. 309. 210

THE THEORY OF COMMERCIAL POLICY

But as regards the relevance of the Cuban example, Torrens has a very definite answer : Merivale has mistaken the intention of his argument. The ‘Cuba’ in his (Torrens’) example represents all countries with which England trades, whereas the ‘Cuba’ in Merivale’s example trading side by side with Brazil does not represent such an exclusive aggregate. Merivale, says Torrens, ‘argues upon the assumption that all foreign countries, with the exception of Cuba, admit British goods duty free, and that it is only upon British goods that Cuba imposes import duties. Now if this assumption bore any resemblance to actual circumstances, the Cuba tariff could have a very slender effect in altering the terms of international exchange to the disadvantage of England, because, in this case, England could, as Mr. Merivale contends, evade, in a great part, the Cuba duties, by exchanging her goods for the pro¬ ductions of other countries; and by purchasing with the productions of these other countries the productions of Cuba. But how could England evade the Cuba duties by this circuitous trade, upon the supposition, unfortunately in strict conformity with actual circumstances, that all other countries, no less than Cuba, enforce the import duty upon British goods ? ’1 (c) Nassau Senior By far the most extensive attack on the doctrines of The Budget was the article by Nassau Senior on ‘Free Trade and Retaliation’ which appeared in the July number of the Edinburgh Review for 1843. As was customary in the nineteenthcentury reviews, the article was anonymous. But the author¬ ship was well known; and Letter X of The Budget related the circumstances of its origin. Apparently there was some dis¬ cussion of commercial policy at the Political Economy Club and Senior announced to the assembled company that it was his intention to reply in the Edinburgh Review to the general contentions of The Budget.2 The situation was piquant. Next to Ricardo, Senior had been perhaps the chief expositor of that theory regarding the distribution of the precious metals upon which Torrens had 1 Op. cit. pp. 357-8. Torrens also develops certain technical objections to Merivale’s contention that, under the circumstances he has assumed, the trade of Cuba would be entirely ruined (ibid. pp. 361-3). But these are of very subordin¬ ate importance : moreover, it is not certain that he is doing justice to what were probably Merivale’s implicit assumptions in this connection.

2

The Budget, Letter X, p. 331. P

21 I

ROBERT TORRENS

placed such emphasis in the development of his particular heresy. The famous Lectures on the Cost of Obtaining Money were the locus classicus of the proposition that national prices and incomes depend upon the efficiency of labour in the export industries : and Torrens had more than once invoked their authority. If now Senior was to attack Torrens for his development of the argument, for his stress on the supplement¬ ary role played by the influence of duties and bounties — a development which had already found expression in the pages of Ricardo — what line would he adopt ? The movement for unilateral freedom of trade was now at its peak of ideological intensity. The policy of the Whig leaders, to whom Senior was confidential adviser, was called in question by Torrens’ argument. But what stratagem could be developed by a champion who, on the analytical plane at least, had already conceded so much of the ground which the challenger chose to occupy ? One approaches the examination of the article in a mood of intense curiosity. Jobbing backwards, with the additional knowledge of more than a hundred years’ discussion of these matters, it would seem that the most appropriate procedure would have been some sort of development of Merivale’s scepticism concerning the suitability of the assumptions. The possibility that in certain circumstances the imposition of duties might turn the terms of trade substantially in favour of a country should have been freely and openly conceded; but the probability of the frequent occurrence of conditions of demand very favourable to such an outcome could have been questioned. The assumptions of Torrens’ example were highly vulnerable. If it could be assumed that the English con¬ sumers were always prepared to make a constant outlay on Cuban produce, why should the Cuban Government be content with a hundred per cent, duty? Why not a figure which would reduce the price of English produce almost to zero ? Moreover, if Cuba represented the entire outside world, was an illustration with trade restricted to two commodities only, really at all representative of the conditions which in fact were likely to prevail? And even if it were plausible in the short run, while the ‘set’ of domestic production in the two areas had more or less to be taken for granted, would it remain plausible in the long run, when all sorts of alternatives were conceivable ? Or again, up to what point was a turn in the terms of trade 212

THE THEORY OF COMMERCIAL POLICY

desirable, if it was to be obtained at the cost of an inferior division of labour at home or a sacrifice of consumption of goods otherwise unobtainable? It was, surely, on lines of this sort that a critique of Torrens’ analysis should have been developed. Then, at a further stage of approximation to practical conditions, all the major arguments against what may be called catch-as-catch-can reciprocity could have been brought into action. Now attacks on some of these lines do indeed from time to time make their appearance. There is much talk of the unreality of Torrens’ examples. The practical examples adduced involve conditions of demand much less favourable to the hypothesis of any marked influence on the terms of trade from the imposition of a tariff. It could perhaps be argued that many of the desiderata outlined above are indeed to be found in the article. But to exhibit them in this sort of form or order would be cutting away, as it were, most of its more conspicuous features. In the main, the impression conveyed is of something much more radical. Doubts seem to be being cast on the whole basis of Torrens’ analysis. There is an underlying suggestion that the whole Ricardian theory is in error in this connection. Doubtless, if we peer into the interstices, even here it is possible to detect some¬ thing subtler — occasional reservations and concessions which, cumulatively, might permit a more sophisticated interpreta¬ tion. But to the casual reader of that number of the Edinburgh Review, it must have seemed as if Senior was denying that Torrens had anything to say whatever; and, if that casual reader had had any acquaintance with the Lectures on the Cost of Obtaining Money, he must have been very puzzled indeed. All this, however, will appear more clearly as the main arguments of Senior’s polemic are summarized.1 Senior begins by accusing Torrens of a relapse into mer¬ cantilism. It is deplorable, he says, how in the Moral Sciences, doctrines which have been supposed to be refuted have a tendency to reappear. The cause of toleration, which seemed 1 For a more sympathetic account of the contents of Senior’s article, Dr. Bowley’s distinguished work, Nassau Senior and Classical Economics, should be consulted, pp. 225-34. The difference between Dr. Bowley’s view and mine springs not so much from any disagreement regarding the positive points which she makes about Torrens’ general position, as from a greater reluctance on my part to condone what seem to be irrelevancies and misunderstandings in his opponent’s position.

213

ROBERT TORRENS

triumphant, is once more in danger. The abuses which the Poor Law of 1834 were designed to banish are once more established in public favour. And now, at a moment when the expediency of free trade is admitted by the leaders of all the great political parties, ‘Colonel Torrens comes forward to reproduce, not in words, but in effect, the Mercantile Theory’.1 The four propositions of the second Letter to Lord John Russell are then quoted, accompanied by a concise resume of the ‘Cuban’ illustration. This illustration is said to rest upon two (presumably erroneous) assumptions; first ‘that a country can exclude foreign commodities without diminishing the efficiency of its own labour’, and secondly, ‘that the value of the precious metals in any country depends solely on their quantity there — rises precisely in the proportion in which the quantity is increased and sinks precisely in the proportion in which it is augmented’. On the first of these assumptions Senior has many inter¬ esting and forcible things to say. While, as Torrens was to protest, it is wrong to suggest that he has in any way denied the fundamental case for territorial division of labour,2 it is true that the Cuban example takes no account of the damaging effect on internal efficiency which may accrue from retreat into greater self-sufficiency. If Senior’s criticism had all been of this order, it might well be claimed that a valuable corrective was being applied to rash inferences from Torrens’ special cases. It is much more difficult, however, to see the point of his accusations regarding Torrens’ monetary assumptions. This is one of the truly bewildering parts of the argument. At first it almost seems as if Senior is trying to say that, with an increasing money supply throughout the world, an adverse turn in the terms of trade for one country need not involve an absolute diminution in local money supply : that all that need happen is a change in relative rates of increase. This point, which is not always very clearly recognized even in our own day, would be important and legitimate. It would certainly take the edge off Torrens’ more apocalyptic visions of local deflation; and when we find Senior stating that Torrens does not admit that either of his two imaginary 1 Op. cit. pp. 1-9. 2 It is interesting to observe that Senior pays tribute to Torrens’ invention of the use of this expression. 214

THE THEORY OF COMMERCIAL POLICY

countries could increase its stock of money except by taking from that of the other’,1 he seems to be on the point of saying just this. But, if he does intend this point, he certainly follows it up in a most peculiar manner. For the very next sentence charges Torrens with not admitting that the value of the currency of either country is connected with its cost of pro¬ duction ; and the next paragraph suggests that Ricardo himself in his chapter on foreign trade — ‘ a chapter con¬ taining the germ of most of the errors which have expanded themselves so vigorously in the writings of Colonel Torrens ’ — has favoured such a view. There then follow several pages explaining, with great skill and beauty of exposition,2 the way in which, in a closed community, the value of metallic money will tend to depend upon its real cost of production. We wait eagerly for the revelation of how all this is to show Ricardo and Torrens in error concerning the way in which the precious metals are distributed once they are produced. At last we are told that for countries possessing no mines the ‘rest of the commercial world is the silver mine, or the auriferous sand, to which each of them resorts in order to supply her annual con¬ sumption ; and her gatherers of the precious metals are those who export her commodities’.3 But we are not told, although this is what we have been awaiting throughout, in what sense this excellent mode of putting things in any way conflicts with the Ricardian propositions regarding the distribution of the precious metals. The sense of bewilderment thus engendered is increased as we read on. A few pages further on — the interval having been devoted to further irrelevancies regarding actual specie movements — we find it admitted that Torrens is right when he says ‘ that the main cause which renders the value of money, in relation to labour, different in different countries, will be found to be the different degrees of “efficacy with which in different countries,labour is applied” ’;4 and then, surprisingly, in the very next sentence, he is denounced for assuming ‘ that the value of money depends on its quantity, and may be lowered by increasing that quantity, and raised by diminishing it’. 1 2

Ibid. p. 16. As Dr. Bowley has pointed out, op. cit. p. 225, pp. 15-20, 20-2 and 22-3 of the article are practically the same, word for word, as pp. 11-18, 21-6 and 30-1, respectively, of the Lectures on the Value of Money. 3 Ibid. p. 23. 4 Ibid. p. 27. 215

ROBERT TORRENS

What does this mean ? There is no doubt that Senior’s motives in writing the article were political in the wider sense of the word : he wanted to repair any damage that Torrens might have done to the general policy of free trade. But that does not mean that he deliberately confused the issue; there is nothing in Senior’s record which would justify that suggestion. We are forced to the conclusion that the intensity of his desire to make points against Torrens’ main contention involved him, for the time being, in a complete muddle about the com¬ patibility of statements about short and long periods and about relative and absolute prices. The statement that, other things being equal, from moment to moment the value of money depends upon its quantity, is not in the least incompatible with the statement that in the long run it will depend upon the cost of production. The statement that the value of metallic money depends on its cost of production does not in the least exclude the proposition that the distribution of money between areas, and hence the local level of prices and incomes, depends, other things being equal, upon the relative efficiency of local labour. It is probable that Senior had a certain predisposition to this sort of thing: elsewhere he had charged Ricardo with other ‘errors’ which were not errors at all. But this is certainly the most flagrant example of the habit; and it is difficult not to see in it a classic example of the vice of trying to prove too much. In the last analysis Senior’s antagonism to Torrens’ position seems to spring, not so much from these forced and extraneous theoretical meanderings, as from an unwillingness to admit that, in the majority of cases, the imposition of a duty is likely to cause the local quantity of money to be greater : an increase in the local efficiency of labour — yes; an increase in the tariff—no; that seems to be the fundamental position. He protests that Torrens’ example omits ‘essential conditions’. He urges that ‘by not considering the influence of commerce on the efficiency of labour, and by confining his attention to two, or at most three countries, and not considering the manner and the degree in which the changes in their mutual intercourse would affect their relations with other nations — he has been able to extract from his assumed premises conse¬ quences which we believe to be not merely unlike those which would be the real results, but absolutely opposed to them’.1 This seems to be the significance of the lengthy 1 Op. cit. p. 29. 2l6

THE THEORY OF COMMERCIAL POLICY

■

examination of the probable effects of ‘a change in the French commercial code which should suddenly diminish by one half our exports to France’; and this, surely, is a weighty and important argument. But was ever a core of good sense embodied and enveloped in such a dense mass of irrelevant and misleading analytical wrapping ? At this point, apparently, the original review was to cease. But then there appeared the Postscript, with its recasting of the argument, and Senior was tempted to further animadversions. He begins by drawing attention to the new development. ‘In his previous publications, Torrens had defended . . . [retaliation] on the ground that the nation which imposed the lower duties would lose her command over the precious metals. We have shown that this ground fails. He now leaves the precious metals out of the question.’ The new formulation of the Cuban example is indicated ; and it is admitted that, on the assumptions on which it is founded, it is true. But Senior goes on to say ‘we believe it to be one of those barren truths from which no practical inferences can be drawn. It is true only on the supposition that each country possesses against the other a strict monopoly; — a monopoly unaffected by the existence of any third market or of any third commodity, capable of serving as a medium of exchange. Each is supposed to be willing to receive only one commodity, and to be incapable of obtaining it from any source except the one other country to which its commerce is confined. The prices of the two commodities in question would be governed, not by the general and permanent regulator of price, cost of production, but by the occasional and disturbing causes, demand and supply.’ On these assumptions, Torrens’ argument can be sustained. But ‘when he seriously urges us to act as if his hypothesis represented the actual state of things, we utterly dissent from, and repudiate his doctrine’.1 To show the grounds for this dissent, Senior then plunges into a general disquisition on the principles of international trade, the purport of which is to show that cost of production ‘is the real governor, not only of domestic, but of international, commerce ’ — and hence presumably that ‘the occasional and disturbing forces, demand and supply’ exercise no permanent influence. There will be a good deal more to be said about this argument later, when we come to discuss Torrens’ reply to it. 1 Ibid. pp. 35-7. 217

ROBERT TORRENS

For the present, we may pass to Senior’s next point which consists in a comparison between the position of individuals and nations in international trade. First, the similarities are underlined. If France refuses to take more than half the yarns she previously imported from England the inconvenience is the same in kind as that created when a butcher, who has been sick, recovers and has no further use for the services of the apothecary. In each case money rather than goods must be sent to make good the deficiency of receipts on account of export. In each case the amount of inconvenience depends upon the proportion which the loss bears to the whole income involved and upon the facility with which the capital and labour concerned can be adapted to the service of other customers. Secondly, however, a significant difference is emphasized. ‘An individual seldom produces more than one or two kinds of commodities —■ a nation can produce all the different raw products which are not denied to her by her soil or climate, and all the manufactured commodities of which she can import the materials. An individual, if the demand for his peculiar product is diminished, can seldom indemnify himself by directing his capital, his industry, and his skill, towards a different branch of production.’ But a ‘nation can turn her capital, industry, or skill, towards an almost indefinite variety of employments. If one market, or one sort of exports, become less profitable, she can resort, probably not without immediate loss, but still she can resort to another. . . .5l Hence, pre¬ sumably, the misleading character of disquisitions on inter¬ national exchange which assume single commodity trade. Furthermore, within nations there can be very varying degrees of division of labour. A nation which excludes ‘totally, or even partially, the products of a neighbour, diminishes her own productive power’ and becomes a ‘less formidable rival’ in third markets ‘to the nation whose products she excludes’. Thus if France were to become less protectionist, it is probable that England would benefit from the direct effects on the demand for British products. But we should suffer from her improved power to compete in other markets; ‘we cannot believe that our gain would be clear’. Again the moral of the argument is to insinuate a doubt of the relevance of the two-commodity, two-country examples. 1 Op. cit. pp. 40-1. 218

THE THEORY OF COMMERCIAL POLICY

The article concludes with reflections on the general problem of retaliation. Senior quotes with approval Adam Smith’s contention that this may be justified if there is a prospect of securing a repeal of foreign tariffs but that ‘ When there is no probability that any such repeal can be procured, it seems a bad method of compensating the injury done to certain classes of our people, to do another injury ourselves, not only to those classes, but to almost all the other classes’. And the opinion is expressed that Torrens has misconceived the commercial relations between Great Britain and France if he holds that the French are the chief sinners in the matter of restrictions. Now whatever the merits of this article — and it is to be hoped that the above account of its contents will have shown that some at least of its points were not without force — it should be clear that it included enough irrelevancies and mis¬ understandings to make it easy game for so skilled a contro¬ versialist as Torrens. One can almost hear the old Colonel of Marines snort with pleasure as he perused its contents, per¬ ceived its weaknesses, reached for that formidable pen, and began Letter X of The Budget, the famous Letter to Nassau Senior.1 The result is a debating triumph of the first order. What¬ ever our ultimate judgment on the analytical and practical issues involved, it is impossible to deny victory to Torrens on the ground on which he elects to fight. With unerring skill, he picks out the weak points in his adversary’s arguments, shows that they rest upon misunderstanding or faulty logic, quotes his own writings against him, urbanely suggests the probability of retractation after further deliberation, and generally contrives to leave on the mind of the reader the impression that there is nothing at all to be said for his oppon¬ ent’s position. This is perhaps to be regretted. If Senior had not been so unwise as to think he could defeat Torrens on the plane of purely analytical argument, he had points to make on which it would have been most interesting to hear some rejoinder. As it was, it was quite easy to leave them un¬ answered ; and from Torrens’ point of view, it is not difficult to see how they must have failed even to seem to necessitate an answer. When, therefore, in the last sentence, he thanks his ‘dear Senior ... in all sincerity for the species of reply which you have given to The Budget’, there is no reason to 1 Op. cit. pp. 331-93. 219

ROBERT TORRENS

suspect that he was insincere. Seldom has a controversial writer been presented with more splendid opportunities. Let us trace in broad outline his replies to Senior’s main arguments. It will be convenient to do this in the order in which they are set forth in Senior’s article rather than follow the very effective but less consecutive arrangement of the Letter. To the accusation of mercantilism he returns a flat negative. Nowhere has he said that ‘foreign trade enriches or impover¬ ishes a country by causing a balance in the precious metals to be received or paid’. The principles of The Budget are the principles of Ricardo and the exact reverse of the principles of Joshua Gee with whom Senior has tried to classify him. The purport of The Budget, far from advocating protectionism and self-sufficiency, is ‘to show that wealth can only be increased by increasing the efficacy of labour; that the surest way by which that efficacy can be increased, is to give free scope to the international divisions of employment; and that restrictions upon . . . importation . . . diminish riches ... in all cases except those in which they may so operate as to restore to domestic labour that proportionate power of commanding foreign productions which may be due to its superior efficacy, and of which, from accidental circumstances, it may have been deprived’.1 Moreover, what flagrant inconsistency it is that: ‘After affirming that “The Budget” is a reproduction of the mercantile system . . . you proceed to say, [that] . . . the plausibility, such as it is, of the errors contained in his postscript depends ... on the exclusion of the use of money’.2 What ‘self-complacent seriousness’ is this which asserts that a theory of international exchange which excludes the precious metals — ‘is a reproduction of a theory built upon the assump¬ tion that wealth consists of the precious metals’ ? To the accusation that he ignores the injurious effect of tariffs on the internal division of labour, Torrens protests with equal vigour that he has been misrepresented. He quotes himself to the effect that ‘It is self-evident that silk goods would be more abundant in England, and that cotton goods would be more abundant in France, if protecting duties were mutually abandoned. . . . Nor is this all. The protecting duties by which the silk trade is forced in England, and the cotton trade in France, are as injurious to the producers as to 1 Op. cit. p. 333.

2 Ibid. p. 334. 220

THE THEORY OF COMMERCIAL POLICY

the consumers of the two countries. A trade that cannot with¬ stand foreign competition, must be confined to the supplying of the home market. ... A protected trade is necessarily a precarious trade . . .’1 and a good deal more to this effect. Nevertheless, the reply to Senior here is not so convincing as elsewhere. The question implicit in Senior’s criticism at this point is the question whether the diminution of internal efficiency due to the imposition of retaliatory tariffs may not be a disadvantage offsetting, and more than offsetting, any favourable effect on the terms of trade which may be ascribed to such measures ; and this question is not dealt with any¬ where in Torrens’ analysis. It is improbable, however, that this omission would be noticed by many readers ; and, against the suggestion that he had gone back on his early views regarding the advantages of the territorial division of labour, Torrens’ quotations were quite decisive. Up to this point, the replies have been defensive. When he comes to deal with the accusation that his case depends on the theory which, according to Senior, was erroneously maintained by himself, Ricardo and Mill, that the value of the precious metals depends upon the comparative amount of them in each country, Torrens begins to carry the war into the enemy’s territory. The theory in question, he assures Senior, was never held by any of the persons alluded to. ‘The simple matter of fact’, he says, ‘is that neither Mr. Ricardo, nor Mr. Mill, nor myself, ever maintained upon any occasion the doctrine that the total value of the precious metals depends upon the comparative amount of them in each country.’ All that they maintained was ‘that the precious metals have a constant tendency so to distribute themselves throughout the commercial world as to bring the currencies of different countries to par’.2 That theory, of course, involved that an influx of bullion, other things being equal, would tend to raise prices and an efflux to lower them. But that was a very different thing from saying that the local value of the precious metals depended upon the comparative amount of them in each country — just like that. What is more, he went on to argue, the theory maintained by Ricardo, Mill and himself, was to all intents and purposes the theory which Senior himself had propounded in his Lectures on the Cost of Obtaining Money. ‘ In the novel of Woodstock;,’ he 1 Ibid. p. 368. 2 Ibid. p. 335. 221

ROBERT TORRENS

writes, ‘one of Cromwell’s officers, under the hallucination that he was fighting the battle of Armageddon, beat the air for an hour. I may be permitted to look on, a passive, though not unamused spectator, while you discharge your heavy statistics against “airy nothings”, combat with phantoms, encounter Ricardo in effigy, and deal some telling blows against your¬ self.’1 And again in the recapitulation, ‘Your . . . piece was intended for representation on the fifth of November. You dress your Guy in party colours, send him round on the shoulders of Joshua Gee, put incongruous speeches in his mouth, and pelt the wicked image for the imputed nonsense. The humour of the piece consists in this : — the Peltee turns out to be no less a person than an Ex-Oxford professor of Catallactics.’2 The part of Senior’s attack which Torrens took most seriously was his contention that international trade, equally with domestic trade, is governed by cost of production and that demand and supply are only ‘occasional and distributing forces’. Torrens admits that if this were true it would be fatal to his position. ‘I maintain, that the terms of inter¬ national exchange are regulated, not by cost of production, but by demand and supply. ... If I cannot fairly overthrow your position, I shall acknowledge myself vanquished.’3 Torrens develops two main lines of argument against this position. The first consists of an underlining of the significance of the assumption of immobility of capital and labour across national frontiers. Senior had made the usual exception to the standard cost of production theory of value in general: ‘ so far as the price of a commodity is not affected by any natural or artificial monopoly. . . .’ ‘This’, says Torrens, ‘is tanta¬ mount to affirming, that cost of production does not determine the value in relation to each other of commodities produced in different countries . . . commodities produced in different countries, are, so far as regards their relation to each other, in the same predicament as domestic commodities when pro¬ duced under the influence of monopoly.’4 When ‘their prices exceed their productive costs in different proportion rival producers’ cannot ‘crowd in and undersell one another’.5 In 1 Op. cit. p. 342. 2 I.e. Senior himself. Ibid. p. 392. 3 Ibid. p. 342. 4 Ibid. p. 346. 5 In the text the cannot is in single inverted commas. This is obviously a misprint. 7 222

THE THEORY OF COMMERCIAL POLICY

admitting the monopoly exception, Senior has ‘adopted, to all intents and purposes, the Ricardo principle of international exchange’.1 The second line of argument is an even more direct attack on his opponent’s logic. Senior had attempted to sustain his case by the argument that prices of the same commodity at home and abroad are determined by the same influences. ‘The English spinner sells his yarn to the French importer at exactly the same price which he charges to his English customer. The French weaver sells his silks to the English importer at exactly the same price which he charges to his French customer. In many cases, neither the one nor the other knows for what market he is producing, or to whom he is selling.’ On this Torrens comments that it only proves that Senior has misconceived the Ricardian theory. ‘The question to be decided is not, as you erroneously suppose, whether an English spinner sells his yarn at the same price in the markets of France as in those of England ; or whether the French weaver sells his silks at the same price in England as in France. The question is, will the English yarn produced by a given quantity of labour, sell in the markets both of England and of France, at the same price at which the French silks, produced by the same quantity of labour, sell in the markets both of France and England?’ But in assuming, as he has elsewhere, that the produce of the labour of 200 Englishmen sells in the markets both of England and France for the same price as the produce of the labour of 300 Frenchmen, Senior has answered the question in the negative. The demonstration is so crushing that one instinctively seeks to discover some way out for his opponent. Is it plausible to assume that Senior really meant in this connection to call in question the whole basis of the theory of comparative costs and his own Lectures on the Cost of Obtaining Money ? There is no doubt of the words which Torrens quotes against him ; but is it not possible that nevertheless he was fumbling after some less obviously wrong construction ? It is tempting to suppose that when he stressed the influence of cost of production as against that of demand and supply, he was trying to make the same point as that made in our own day by Frank Graham, namely, that when there are more than two goods involved in trade and one of the goods is produced in both countries, then 1 Ibid. p. 347. 223

ROBERT TORRENS

cost conditions rather than demand are paramount.1 It is not at all certain that this was in Senior’s mind : but, if it were, it would make his position a little more intelligible. Even so, however, it could not ultimately vindicate it. For in the last analysis, as Professor Viner has shown, Graham’s theorem is not valid.2 It may be perfectly true that where there are many commodities entering into international trade, changes in the conditions of demand for any one of them may not perceptibly affect the general terms of trade, however defined. It may be true also that, where many commodities and many countries are involved, there is a presumption of considerable elasticity in the long-run conditions of demand for the commodities of any one country. But for the general terms of trade to be determined only by costs, elasticities of demand would have to be infinite. Moreover costs themselves are obviously dependent on the local price of labour and other resources which are internationally immobile: and these depend in part at least on the demand for the products which they are capable of making. Now Torrens, of course, had a very firm grasp of this ; and he succeeded in showing in a rough way that Senior’s own assumptions of different rates of reward for labour in different areas contradicted his assertion that that was also the regulator of international values. England and Cuba are once more invoked, this time, however, in a world of many other countries and each producing not cloth and sugar, but bales of manu¬ factured goods and casks of tropical produce respectively — the first time that this kind of representative concept makes its appearance in the literature. If the ‘labour and abstinence of 200’ in England produce 300 bales of manufactured goods which exchange in the markets of the world for 300 ounces of gold, while ‘the labour and abstinence of 300’ in Cuba will produce 300 casks of tropical produce which will also exchange in the markets of the world for 300 ounces of gold, then it is clear that it is not cost of production which determines the rate of exchange. There are great difficulties in the idea of ‘the labour and abstinence of 200’ (or 300). But the broad moral of the argument is surely not to be denied. 1 ‘The Theory of International Values Re-examined’, Quarterly Journal of Economics, vol. xxviii (November 1923), pp. 54-86 (printed in Readings in the Theory of International Trade, ed. by Ellis and Metzler, pp. 301-20). See also Graham, The Theory of International Values, Princeton, 19485 especially chapters i-ix. 1 See Viner, Studies in the Theory of International Trade, pp. 549-55. 224

THE THEORY OF COMMERCIAL POLICY

Where Torrens’ analysis is defective is in the assumption that the conditions of demand are typically such that the tariffs and subsidies are generally likely to have substantial long-run influence. Having shown by the aid of illustrations involving very special assumptions about elasticities of demand, that the thing can happen, he proceeds to assume that in the general run of cases it is likely to happen, which, whether it is true or not, certainly does not follow. This is a point which Senior made but which he spoilt by overlaying it with extra¬ neous analysis which was either wrong or irrelevant. It was therefore left to John Stuart Mill1 and to Alfred Marshall2 to develop the theory under more general assumptions regarding the conditions of demand and (where Marshall is concerned) with the all-important distinction between short and long run elasticities. Nevertheless, the credit for having demonstrated in principle the possibility of an influence of tariffs on the terms of trade belongs to Torrens : and although Senior’s fears of the use to which it might be put have proved not altogether unjustified, that should not be held to detract from the very considerable analytical achievement.3

(6)

Commercial and Colonial Policy

If we are to get all this into a perspective appropriate to a history of Torrens’ thought, it is very important to realize that there was a practical purpose in view. The discussion of the 1 In the famous Essay ‘ Of the Laws of Interchange between Nations ’ in the Essays on Some Unsettled. Questions of Political Economy. This was written some time in 1829 and 1830 — therefore before Torrens’ Letters on Commercial Policy — but it was not published until 1844 ‘under the impression that the controversies excited by Colonel Torrens’ Budget have again called the attention of political economists to the discussions of the abstract science’ (p. v). Mill admits that ‘opinions identical in principle with those promulgated by Colonel Torrens have been held by the writer for more than fifteen years ’ — though, he interpolates, ‘ there would probably be considerable difference as to the extent of their practical application. It is interesting to observe that Senior, writing that year to Macvey Napier, says of Mill, ‘I own I do not quite trust his good sense. He has been bitten by Carlyle and Torrens.’ Correspondence of the late Macvey Napier (1877), p. 466. 2 See particularly the Memorandum on Fiscal Policy of International Trade (1903), reprinted in Marshall, Official Papers, pp. 365-420. 3 By far the most effective contemporary critique of Torrens’ position on reciprocity and commercial policy was one that never reached the public. Shortly after the appearance of The Budget letters, George Warde Norman, his friend and associate in the Currency School propaganda, drew up a lengthy pamphlet, running to nearly eighty pages, in which the doctrines of The Budget were subjected 225

ROBERT TORRENS

effects of tariffs on the terms of trade was not an exercise in abstract analysis: it was all part and parcel of the explanation and apologia of a particular form of commercial policy. That policy, as we have seen already, was the policy of reciprocity. Torrens was not concerned with any proposal that, starting from a free trade position, we should endeavour by widespread resort to import duties to turn the terms of trade in our favour.1 He was interested rather in the way in which we endeavoured to get to a free trade position, the benefits of which he never ceased to emphasize ; and, rightly or wrongly, to searching analysis. This pamphlet was never published — according to Norman because of disinclination to controversy. But in i860 it was printed privately ‘in the belief that circumstances may occur to render . . . publication, perhaps in an altered shape, expedient hereafter ’. The title-page is as follows : Remarks on the Incidence of Import Duties with special Reference to the England and Cuba Case contained in ‘The Budget'. By George Warde Norman. Not Published. Printed by T. & W. Boone, 29 New Bond Street, i860. ‘The circumstances’ which might render its publication expedient seem never to have arrived; and the only copy known to me came on the market this year (1956) and is now in the possession of Mr. Sraffa, through whose kindness I have been enabled to con¬ sult it. The argument throughout is couched in the most respectful possible terms : ‘Everybody who has read the productions of Colonel Torrens, and those still more who, like the writer, enjoy in addition the pleasure of his personal acquaint¬ ance, must be aware, that among living economists he merits to be placed in the very first rank for intimate acquaintance with the science’. Nevertheless the rejection of the general position of The Budget is quite categorical. The England and Cuba case is admitted as a possibility; but it is contended — somewhat on the lines suggested by Merivale but with much greater elaboration of argument — that it is most improbable in practice -—- ‘ a false picture of facts ... its point of failure, if it be regarded as a practical guide, consists in the assumption that all other countries combine against one’. But Norman goes much further than Torrens’ other critics in examining applications. He discusses the composition of British imports, showing that a most substantial proportion falls, as raw materials or semi-manufactures, outside Torrens’ own recommendations. He inquires concerning the scope for retaliation and proves it to be very limited — ‘ as respects those Powers, from the effects of whose Tariffs we suffer most, we have really no means of retaliating’. He examines the contention that the country is in danger of being ruined by the changes in commercial policy which have taken place and argues that it is without foundation : despite periodic depressions of trade all the evidence shows substantial secular progress. And he concludes ‘that in imposing or taking off duties, the legislator may safely reject all notions of reciprocity excepting merely as they may aid his diplomatic arrangements’. An Appendix takes note of Mill’s position in the Essays on Some Unsettled Questions. It is a great pity that Norman’s diffidence prevented all this from seeing the light. It is far better than Merivale or Senior; and though it may be argued that it missed the ultimate purpose of The Budget argument — the creation of the Imperial Zollverein — its publication would have placed the controversy on a plane on which the elements of truth and error on both sides would have more quickly come to light. 1 Even at an early stage, however, he would not have been averse to an export duty on coal. See a speech in the House of Commons, Parliamentary Reports, 1826, vol. xvi, pp. 294-5. 226

THE THEORY OF COMMERCIAL POLICY

he thought that the path of unilateral tariff reduction was the wrong way to go. He thought it was wrong because he feared that it turned the terms of trade against us. He thought it was wrong because he believed that it threw away the possibility of clearing markets for our own goods by negotiation. He felt so strongly on both these points that he was prepared to advo¬ cate the raising of tariffs on finished goods against countries who refused to make reciprocal agreements with us. But there is no suggestion at any point that this was anything but a pis aller. The inventor of the phrase ‘ territorial division of labour ’ never went back on his original contention that the wider the area of such co-operation, the better for all concerned. But as life went on he attached less and less trust to the method of uni¬ lateral reduction; and in the end he thought that method to be little short of catastrophic. All this acquires added significance if it is brought into relation with his thought on colonial policy. From the very outset of his thought he seems to have been impressed with the fragility of commercial arrangements which were dependent on the decisions of independent governments —just as he was to become impressed with the fragility of the arrangements for currency supply which depended on the decision of independent banks of issue. In The Economists Refuted there is a striking passage in which he urges that ‘when we exchange our com¬ modities with an independent state, the beneficial divisions of employment to which this traffic gives occasion, are liable to be suspended by a declaration of hostilities or the enacting of those restrictions and prohibitions which commercial rivalry is perpetually suggesting. But when a mother country and her colonies, particularly if they possess a commanding marine, interchange their surplus products, nothing short of a dis¬ memberment of the empire can suspend their intercourse, or interrupt those divisions of employment by which they are enabled to make the most of the natural peculiarities of their soil and of their acquired advantages in the application of labour.’1 The same passage is reproduced thirteen years later in the Essay on the Production of Wealth.2 By the time he came to write The Budget pamphlets, there¬ fore, this fear of the general inconvenience caused by foreign tariffs had been enhanced by a more precise — though prob¬ ably considerably exaggerated — conception of the exact way 1 Op. cit. p. 35. Q.

2 Op. cit. pp. 231-2. 227

ROBERT TORRENS

in which the damage would manifest itself. It was, therefore, entirely to be expected that he should have found it very congenial to conduct his propaganda against unilateral free trade and in favour of reciprocity and colonization in the same series. Reciprocity, by providing mutual benefits, would pre¬ vent the foreigner from arbitrary action in commercial policy and open the field to freer trade with all willing parties. But colonization would be a vastly superior expedient: since it would create and enlarge new markets in areas whose com¬ mercial policy would be governed by the same central authority as our own. Colonization was, therefore, to be pursued, not only for the reasons explained in the preceding chapter, the relief of population pressure and the provision of outlets for investment, but also for the reason that it created markets where the terms of trade could not be turned against us by the manipulations of alien governments. ‘The prosperity of the country cannot be arrested by the hostile tariffs of foreign rivals’, he wrote at the end of Letter IV, ‘if England will establish throughout her wide-spread empire a British com¬ mercial league — a colonial Zollverein.’1 Here Torrens reckoned without the difficulties of transport. Had the aeroplane been invented a hundred years earlier so that representatives of the outlying parts of the empire could have freely participated in the deliberations of some federal authority at the centre, who knows if this undeniably splendid vision might not have been realized ? As it was, however, the centrifugal forces were greater: and the first manifestation of the new developments in the empire was the assumption by the leading colonial areas of the power to devise their own tariffs. In old age, Torrens returned to the charge. The leading feature of the Tracts on Finance and Trade of 1852 is a restate¬ ment of the double thesis of The Budget— the dangers of uni¬ lateral free trade, the desirability of reciprocity and the imperial Zollverein. There is no new analysis here. But the emphasis is more emphatic. The contrast between the United States and the British Empire is depicted by the author with a pen made bitter by the realization that the world is not going his way. ‘Throughout the several States comprising the American Union’, writes Torrens, ‘there is one uniform tariff: — through1 Op. cit. p. 102. 228

THE THEORY OF COMMERCIAL POLICY

out the several provinces composing the British empire there are as many separate tariffs as there are separate local legis¬ latures. In the United States, the whole of the duties imposed upon goods produced in, and imported from, foreign countries, are remitted with respect to similar goods produced within the Union and imported from one State into another: — in the United Kingdom, the whole of the import duties imposed on articles produced in foreign countries are, with few excep¬ tions, imposed on similar articles produced in the British colonies. Throughout the ever-expanding dominions of the Great Confederation, the legislatures of the several States, while freely elected by the local populations, and while exer¬ cising independent sovereignty in all that relates to their internal affairs, have no power to levy import duties upon articles produced in any portion of the territory comprised within the Union : throughout the vast dominions of the British crown, the colonial governments, while more or less the mere nominees of Downing-street, and while controlled and fettered even in the exercise of their purely local functions, are invested with the imperial prerogative of imposing import duties, not only upon articles of inter-colonial traffic, but upon British goods. The vast and unrestricted coasting trade of the United States extends around the American continent from the Northern Atlantic to the Northern Pacific — from Maine to New Orleans — from New Orleans to California and to Oregon : the British coasting trade is confined to the convey¬ ance of goods between the ports of the United Kingdom. The commerce between the numerous States of the Republic is conducted on the principle of a home-trade : the commerce between England and her numerous colonies is conducted on the principle of a foreign trade. ‘The contrast between the economical theories prevalent in the two countries is not less remarkable than that presented by their commercial enactments. The economists of the United States would deem it a gross and palpable violation of the principle of free-trade to impose upon the productions of their most outlying settlements the same duties which they impose upon the productions of foreign countries : the econo¬ mists of England stigmatise as restriction and monopoly, as an ignorant departure from scientific principles, and as a remnant of the exploded doctrines of a barbarous age, the imposition upon foreign productions of any amount of duty beyond that 229

ROBERT TORRENS

which is charged upon the productions of the British colonies. With the unenlightened protectionists of the United States, it would be regarded as an intolerable limitation of the freedom of trade, to impose upon the sugar and coffee produced in the Southern States, and imported into the Northern States, the same duties which are levied upon the sugar and coffee pro¬ duced in foreign countries : with the enlightened Liberals of England, it would be regarded as an unendurable limitation of free exchange, to exempt the production of our southern settlements from the imposts and restrictions imposed upon the tropical products of foreign countries. As soon as the United States acquire additional territory by purchase, by treaty, or by conquest, they exempt its productions from the tariff duties imposed on foreign goods, and thus extend the area of free exchange: when England acquires additional territory by the extension of her colonial system, she subjects her new provinces to nearly the same tariff which she enforces against foreign states, and thus contracts the area of free ex¬ change. When California was admitted as a member of the Federal Union, it became a part of the compact that the general government should impose no duties on the importation of its productions into the Atlantic States, and that the local govern¬ ment of the new State should not have the power of taxing the productions of the other States of the Confederation: when England granted to her Australian colonies an imperfect control over their local affairs, she not only retained the power of taxing their products in the British ports, but conferred upon the local legislatures the power of levying import duties upon the produce and manufactures of the United Kingdom.’1 The peroration has a dying fall and a regret which is beyond Economics : ‘In the United States the rewards of industry are more than commensurate with its efficacy: the attraction of higher profits and higher wages turns upon their shores from all the other quarters of the globe a never ebbing tide of capital and labour; their progress is the most rapid that the world ever saw ; their pride in that progress is intense ; a Roman nation¬ ality pervades the union, overrides all local jealousies and interests, and binds the multiplying and widely separated states in one indissoluble chain, vibrating in vital unity to its remotest links ; an ardent desire for national aggrandisement 1 Tracts on Finance and Trade, No. II, pp. 1-4. 230

THE THEORY OF COMMERCIAL POLICY

animates all ranks ; Oregon, and Texas and California, cannot satisfy the national craving; Cuba is coveted ; and it is hoped and believed that, at no distant day, Jamaica and Canada will be numbered among the States of the Union. ‘The United Kingdom presents a different picture. Here the rewards of industry are not commensurate with its efficacy. The tide of capital and labour recedes from the British shores. The spirit of the people sinks with the retardation of progress. The country is undergoing a process of denationalisation. The power and the glory of England find no place in the entries of the ledger. The cosmopolites of the Manchester school would not blush to see the western stars triumphantly floating over St. George’s Channel. They would give Jamaica for a hogshead of sugar. They would sell Canada for a bale of cotton. For an additional million of exports they would yield up the trident without a struggle; and transfer from the hand of Victoria the sceptre of the Anglo-Saxon empire.’1 Well, it has not been quite like that. Indeed, the degree of difference is a salutary reminder how difficult it is even for the subtlest analysis to compass all the possibilities in its survey. But one can see his point of view. 1

Ibid. pp. 48-9.

231

CHAPTER VIII

RECAPITULATION :

TORRENS’ PLACE IN THE

HISTORY OF ECONOMIC THOUGHT (i) Introduction The foregoing chapters present a fairly detailed analysis of

Torrens’ contributions in each of the fields with which they deal. The Bibliographical Appendix re-traverses the same ground in the form of a series of summaries of his various books, pamphlets and articles, arranged in order of publication. Before concluding, it is perhaps worth while attempting some general survey and recapitulation in which the salient features of his thought are brought into closer relation with each other and with the development of Classical Political Economy as a whole. In doing this, however, it is desirable to emphasize once more that no attempt is being made to present his impact on later thought as being other than the comparative neglect of his work would actually suggest it to have been. There can be no re¬ writing the verdict that any direct influence that Torrens may have had, ceased almost altogether with his death; even in regard to the theory of tariffs and the terms of trade, in some respects his most important theoretical construction, the main influence came from Mill rather than Torrens. All that is attempted here is some appraisal of the significance of his thought in comparison both with the thought of others of his age and with developments which have come later. Not Torrens’ influence, but rather his intellectual achievement is the subject of this assessment. We may divide this investigation into two main parts, dealing respectively with his contributions to pure theory and his contributions to the theory of policy.

(2) Pure Theory :

Production, Distribution and Value

As a pure theorist Torrens is to be judged as a member of the generation of Malthus and Ricardo. But if we are to understand correctly the preoccupation and achievements of 232

RECAPITULATION

that generation, we have to adjust our sights so as to get it into proper alignment in the wider sweep of Classical Economics from its beginnings. (a) General Background of Classical Thought Now it can never be sufficiently emphasized that Classical thought, whether on matters of theory or on matters of policy, begins, not with Malthus and Ricardo, but with Hume and Adam Smith. In particular it is a fatal mistake to regard the Ricardian system as something coming into the world de novo with no background of common assumptions which it shared with its predecessors and no spur to speculation save the native intellectual force of its inventor. There is a vast extent of analysis and prescription which the generation of Malthus and Ricardo more or less take for granted, the essential work having been done by Hume and Smith; and a great deal of what they do themselves is to be regarded, not as a series of proposi¬ tions thought out in a void, but rather as an attempt to correct or improve propositions and explanations which are already to be found in the Wealth of Nations. It is no accident that when, towards the end of what may be called the Classical period, J. S. Mill came to attempt a resynthesis of the Principles of Political Economy as a whole, according to the ‘superior lights’ of a generation which had known Ricardo and his successors, it was the scope of the Wealth of Nations which he avowedly took as his model. Anything less would have failed to reproduce the essential basis of the Classical outlook. There is no part of the subject where it is more important to keep this in mind than that which relates to what is some¬ times rather misleadingly called the theory of value and dis¬ tribution. There is no doubt that it was the set of problems associated with this theory that was the main focus of attention of Ricardo’s principles and of much of the discussion which was aroused by that epoch-making work. But it is a great mistake to regard the theory of value and distribution as exist¬ ing, so to speak, in isolation and as constituting all that Ricardo and his friends thought worth saying on a general plane about the economic aspects of society. This was not so at all; and the correct view needs only to be stated for its truth to be generally recognized. ‘The writer, in combating received opinions,’ wrote Ricardo, in the preface to the first edition of the Principles, ‘has found it necessary to advert more particularly 233

ROBERT TORRENS

to those passages in the writings of Adam Smith from which he sees reason to differ: but he hopes it will not, on that account, be suspected that he does not, in common with all those who acknowledge the importance of the science of Political Economy, participate in the admiration which the profound work of this celebrated author so justly excites.’1 If we ask ourselves what, in the last analysis, was the main contribution of Classical Political Economy to the understand¬ ing of social relationships, there can surely be only one answer : the theory of the division of labour and the market. Familiar¬ ity breeds contempt; and this theory is now so well known that we are apt to forget what a stupendous clarification it involved. That all societies of any complexity involved division of labour, that the division of labour was in a very ultimate sense perhaps the major ingredient of the social bond — these were truths that had been recognized in greater or less degree since Plato and Aristotle. But the understanding of the dependence of the division upon the extent of the market and of the way in which, given law and order, strong spontaneous forces working through the market were ceaselessly in operation tending to adapt the organization of production to the influence of pecuniary demand — this was an insight which is due chiefly to the Classical writers. Antecedents can be found for most things in the history of thought; and doubtless there were writers (conspicuously Cantillon) who perceived the general interconnectedness of things before this period. But its general recognition is unquestionably due to the work of the Classical economists : and it is safe to say that when most of their more detailed analysis has been discarded, it will still remain the essential basis of knowledge over a wide field of social and economic study. To say otherwise, to give greater prominence in the history of thought to this or that special theorem, is to give as false a sense of proportion as would be given if the in¬ vention, let us say, of the clock, were to be given precedence over the fundamental discovery of the wheel. Now the working out of this theory is pre-eminently the achievement of Adam Smith. The general account of the role of the division of labour and the market which is to be found in Part I of his great book is probably still as good a statement of this part of economic and social knowledge as is to be found anywhere : this is surely demonstrated by the fact that, to this 1 Works (ed. Sraffa), vol. i. p. 6. 234

RECAPITULATION

day, when it is desired to give vividness and force to the exposi¬ tion of such matters, it is customary to give actual passages from the Wealth of Nations. All this was taken over and assumed as common doctrine by the later Classical writers. To suggest, as has often been suggested by writers who should have known better, that the special theories of value of the Ricardians were in opposition to the general propositions of the Smithian theory of the market, is completely to misrepresent the whole atmo¬ sphere of implicit assumptions in which these later writers lived and moved and had their being. It is, therefore, against this background of generally ac¬ cepted theory that we must interpret the special theories of value and distribution which occupy so large a proportion of the work of Ricardo and his immediate contemporaries. They were at once an attempt to give greater precision to a part of the theory of the market and a criticism of certain special pro¬ positions of Adam Smith with regard to the influences deter¬ mining particular forms of income. In order to explain the influences on the long-term equilibrium of supply and demand in particular markets and to provide explanations of certain broad social trends, Adam Smith had propounded specific theories of wages, rents and profits and their relationship to price, which Ricardo and other later writers found unaccept¬ able ; and they hoped with the aid of the idea of diminishing returns in agriculture and a refurbishing of a labour theory of value, which was already to be found in an earlier part of Smith’s exposition, to give sharper edge to this part of the analysis, especially in its applications to the pure theory of taxation. (b) Smith and Ricardo Let us make a brief comparison of the main features of the Smithian and Ricardian systems in this particular connection. It will then be easier to assess the significance of Torrens’ specific contributions. On the general theory of wages there were no very radical formal differences. Broadly speaking, both Smith and Ricardo held some form of wage-fund theory as an explanation of the level of wages as fixed from day to day in the market. In the long run they both agreed that the tendency of labour supply was the governing factor. Adam Smith perhaps presented the more pessimistic view in that he seemed to assume that, 235

ROBERT TORRENS

although increasing accumulation might defer the event for a very long time, in the long run the multiplication of labourers must bring wages down to physical subsistence level; whereas Ricardo made it perfectly clear that the equilibrium supply price of labour was psychologically determined and allowed himself to entertain the hope that, with education and a con¬ tinuation for a time of a rate of accumulation made possible by profits above the long-term minimum, the rate of wages in the eventual stationary state might be high. It was on rent and profits that, so far as distribution theory was concerned, the divergences were extensive. Adam Smith had exhibited rent as one of the ‘component parts of price’ and fluctuations in rent therefore as affecting prices in the same way as fluctuations in wages or profits. The sharp eye of David Hume had at once detected difficulty here. ‘If you were here at my Fireside,’ he wrote, ‘I shoud [.sic] dis¬ pute some of your Principles. I cannot think, that the Rent of Farms makes any part of the Price of the Product, but that the Price is determined altogether by the quantity and the De¬ mand.’1 And, as every student of the Principles of Economics knows, Ricardo elevated the proposition that rent does not enter into cost of production into one of the pivotal principles of his analysis. The divergence was equally wide on profits. Adam Smith, in a vague way, explained fluctuations in the rate of profits as contingent, other things being equal, on fluctuations in the rate of accumulation, the whole analysis being simply a general¬ ization of the elementary phenomena of the market for free funds. Ricardo, starting from the conception of profit as the leavings of wages, asked why as a percentage it should ever diminish if it were not for some influence causing wages to increase without any proportionate increase of the product to be divided. He was thus led to his well-known view that profit as a percentage of total product minus rent was governed by the cost of producing wage-goods at the margin of agri¬ cultural cultivation — with its corollary, based on the law of Diminishing Returns, that save for the accidental effect of inventions, there was an inevitable tendency to a declining rate of profit as population tended to increase. It, however, is in connection with the theory of value that the differences tend to become most conspicuous. 1 Letters of David Hume (ed. Greig), vol. ii, p. 31 j. 236

RECAPITULATION

On the question of the best measure of value there was complete opposition. Adam Smith, although mentioning the possibility of measurement in terms of quantity of labour, tended for all practical purposes to use the value of labour as his unit. Ricardo, pointing out that the value of labour obviously varies with variations in the size of the working population, refused to consider any measure other than quantity of labour. On the question of the cause of value, the difference was no less pronounced. As we have noted already in Chapter II, for the explanation of relative values in conditions where labour was the only scarce factor, Adam Smith had himself developed a theory which ran in terms of relative quantities of labour. But for conditions in which scarcity of capital and scarcity of land were also governing influences, he abandoned this and fell back on an explanation in terms of relative costs of production — the prices of the component factor services. For Ricardo this was all too superficial. Explanation of the value of the product in terms of the value of the factor services did not go deep enough; he wanted to explain value in terms of something other than value and the broad simplicity of the labour theory had a strong appeal to him. Accordingly, he proceeded to attempt to vindicate some such theory even for conditions where scarcity of land and the scarcity of capital prevailed. Land he eliminated by focusing attention on what happened at the rentless margin — a construction only plausible on the gigantic simplification of one use for the land factor. The complications introduced by the use of capital he admitted, but on the whole tended to regard them as secondary complica¬ tions which could be disregarded in the first approximation without depriving the results of significance. (c) Torrens We are now in a position very rapidly to appraise Torrens’ position in regard to these developments. It is very clear that Torrens was a willing inheritor of the general theory of division of labour and the market, which has been indicated above as the essential background of all second generation Classical thought upon detailed problems. This perhaps is easier to demonstrate for him than for some others, since his writings embrace a wider field. Both The Economists Refuted, and still more, the Production of Wealth, are imbued throughout with the Smithian analysis of productive 237

ROBERT TORRENS

organization ; and even the argument for the freeing of the external corn trade rests, in part, as we have seen, upon Smith’s general exposition of the self-righting character of an internal corn trade which is free. The obiter dictum of the preface to the Essay on the Production of Wealth that Ricardo had done more for the science of Political Economy than any other writer, with the single exception perhaps of Adam Smith’,1 is overt evidence of the perspective which has been suggested. Coming now to the detail of the theory of value and distri¬ bution, it should be clear from what was set forth in Chapter III that, on the main propositions relating to distribution, Torrens, although doing much thinking for himself, may justly be classified as Ricardian. On the theory of wages there was complete harmony. Indeed, as we have seen, it was Torrens’ analysis of the neces¬ sary supply price of labour as a psychological variable which is quoted by Ricardo in his own exposition of the subject. On rent there was a gloss on Ricardo’s mode of presenta¬ tion. But as Torrens himself recognized in his last allusion to the subject, this was only a gloss and no more. In essence Torrens and Ricardo had the same view on what they would have described as the peculiar nature of rent.2 Finally on profit, although there was some divergence in point of formulation on the doctrine of the relation between proportionate profits and wages, the essential Ricardian idea of profits depending upon the productivity of agricultural production was completely accepted by Torrens. Indeed he carried the notion of an inevitably declining rate of profit to lengths which probably Ricardo would have distrusted and gave it application which probably he would have repudiated. On the theory of value, however, there were marked differences between Torrens’ thought and Ricardo’s. On the question of measurement, he was neither of the school of Smith nor of Ricardo, holding, with Lauderdale and Bailey, that the search for an absolute measure was based upon delusion and that both value of labour and quantity of labour had fatal deficiencies. On the question of causation, the position is more com1 Op. cit. p. iv. 2 It is arguable that in his disquisition on the effects of freeing the import of corn, particularly in the latter part of the Colonization of South Australia, Torrens went Considerably beyond Ricardo in a recognition of the complications which may arise when rent is paid for more than one form of agricultural production.

238

RECAPITULATION

plicated. In his last writing on the subject, the preface to The Budget, he was inclined to represent his views as being merely a gloss on Ricardo’s. But, as Ricardo had recognized, this was not so. To say that relative values were determined by relative quantity of capital outlay was not at all the same as saying that they were determined by relative quantity of labour directly or indirectly expended on production: and the position was not in the least altered by the somewhat questionable device of regarding the concept of capital outlay as being equivalent to the concept of accumulated labour. A value dimension was involved in the reduction of the various kinds of accumu¬ lated labour to a common denominator ; and this was just what Ricardo was endeavouring to avoid. The truth is that Torrens had himself pointed to an irrecon¬ cilable difference between his view and Ricardo’s when he protested that varying investment periods were the rule not the exception, and that a theory which proceeded on the reverse assumption failed to do justice to the problem. It was recog¬ nition of this difficulty which was pretty obviously at the root of Ricardo’s continuing unease in this connection. If the variation of the investment period were of secondary import¬ ance, then the labour theory would do pretty well as a broad generalization; if not, then the theory had to be rewritten in terms of two physically incommensurable determinants. And that was an enterprise which was intellectually repugnant. In point of fact, Torrens’ quantity of capital outlay theory, far from merely correcting Ricardo on a minor detail, repre¬ sented in some respects at least something of a reversion to the cost of production theory of Smith. There were important differences in presentation : Torrens’ exclusion of profit from the conception of cost and his account of the implicit discount process involved in the planning of outlay, made the look of his explanation radically different from that of Smith. But at bottom the two were similar — both in their merits and their deficiencies : they were correct enough on the plane of the explanation of entrepreneurial decisions : they left much to be explained in regard to the prices of factor services on which the outlays they contemplated were expended and in regard to the determination of the discount factor. At first, in the Edinburgh Magazine article, the similarity of outlook with Smith is explicitly avowed. Later on, in the Production of Wealth, the treatment suggests something more novel. Still later, in the 239

ROBERT TORRENS

introduction to The Budget, it takes the guise of a minor correc¬ tion of Ricardo. But in fact it was neither novel nor merely a minor correction of Ricardo, but rather a substantial im¬ provement of that Smithian presentation which Ricardo had attempted to supersede. (d) International Values It would be generally admitted today by all save the most devout Marxians, that the labour theory of value and the general equilibrium system of which it was a part, rested upon assumptions which were much too restricted to make it very helpful as a general explanatory principle. Assuming the existence of only one transferable scarce factor of production — unskilled labour — one specific use for land, and investment periods of equal duration for all types of commodities, the theory is a convenient shorthand for describing relationships in a logically coherent system. But remove any of these assump¬ tions and difficulties at once begin to appear: if there is more than one kind of labour, any averaging process is either arbi¬ trary or begs the question ; if land has more than one use, then the costs of alternatives do ‘enter into cost of production’ ; if the investment periods are of different length, the products of equal outlays on land use and labour services have a different present value. Or, to put it in more general terms, as soon as the productive processes involve the use of more than one kind of productive service, explanation of relative values in terms of the quantity of any one type of factor service involved breaks down, save in the fluke case where each productive process involves the same proportionate factor combination and the same investment period. A touch of genius enabled Ricardo to use this unreliable first approximation for the examination of certain problems of comparative statics, notably the effects of certain kinds of taxes and bounties ; and to this day his results have interest and significance. But, as a general description of economic equilibrium, his theory is quite inadequate. But the Ricardian analysis was not exhausted by this model. It was recognized that, where labour and investment funds are not completely mobile, exchange relationships develop which, even on the most restrictive assumptions, are not to be ex¬ plained in terms of the relationship of absolute labour costs of production. It was to explain the rationale of such trade and the limits within which, in normal cases, ratios of exchange 240

RECAPITULATION

might be expected to settle, that the theory of Comparative Costs was developed. As we have seen, credit for the independ¬ ent discovery of this principle must be awarded both to Torrens and to Ricardo, though the main credit for its propagation must go to the latter. Now doubtless to Ricardo and his immediate associates this particular proposition related to what was to be regarded as a peripheral exception, the labour theory occupying the centre of the system. But in the course of time the roles have become reversed. We no longer regard the labour theory, and the equilibrium system that was built upon it, as being anything but a very special case, owing its plausibility solely to a simplification of assumption which leaves out essential com¬ plications, whereas the idea of Comparative Costs has proved to have stronger vitality. It was originally developed in regard to labour. But the formal idea involved, the comparison of opportunities, has proved capable of wider application. Taken by itself the so-called opportunity cost principle, which is its lineal descendant, is admittedly by no means an adequate principle for explaining the determination of relative values or the equilibrium of resource allocation. But, used with proper precautions, it is a useful and important instrument of explana¬ tion in regard to all sorts of problems where the labour theory is either helpless or misleading. It is, therefore, not at all fanciful to regard it as one of the main links between Classical and more recent analysis. But the theory of Comparative Costs was not the only Classical contribution to the evolution of a wider form of analysis. There was a further development, also in the sphere of international values, which, from this point of view, may be regarded as even more important — the theory relating to demand and the terms of trade; and here Torrens’ contribu¬ tion was outstanding. Whatever may be said in favour of the labour theory of value and the equilibrium theory built around it, it cannot be said that it threw any light on the more far-reaching influence which is exerted by demand. Needless to say, it assumed the existence of demand and the ‘utility’ upon which demand depends ; there may have been over-statements about the creation of value by labour — Marx, of course, is the chief offender — but it would be a travesty of the writers concerned to say that the influence of demand was left out altogether. Nevertheless, 241

ROBERT TORRENS

its role was very subordinate. Given the demand, the shifting of resources, and hence of supply, brought it about that values were determined by costs. It is true that the emphasis on rentless costs involved an implicit reliance on demand ; and the theory of rent itself, which, from one point of view, can be looked upon as a mirror image of a marginal productivity theory, invokes demand all along the line. But even in the theory of rent the influence of demand must necessarily be over-simplified, so long as it is implicitly assumed that land has only one use — the production of the composite commodity ‘corn’. It is only when there is more than one use that atten¬ tion has to be paid to the full complex of demand influences in this connection; and, of course, once there is more than one use, the doctrine that rent does not enter into costs requires a very special interpretation indeed if it is not to make utter nonsense. These considerations obviously did not occur to Ricardo and his immediate followers. In the sphere of international values, however, their own constructions were such as to make inevitable some appeal to the influence of demand even in the determination of long-run equilibrium. The theory of Comparative Costs shows limits within which mutually advantageous exchange may be con¬ ceived to take place, even though there is a complete absence of mobility of labour and capital. But it does not show at all at what point within these limits the ratio of exchange will be determined.1 It was to resolve this difficulty that recourse was had to the notion of Reciprocal Demand. And here a great deal of the credit for discovery, if not for influence, must go to Torrens. The germs of the theory are to be found in Ricardo. But it is in Torrens, in his Letters on Commercial Policy and in The Budget series, that it begins to be worked out in any detail.2 As we have seen, in doing this, Torrens was enormously hampered by the absence of the idea of a demand schedule and the continual assumption of constant outlay conditions; in this respect John Stuart Mill’s constructions, invented at about the same time but published later, are greatly superior. Never¬ theless, given these limitations, the idea was developed with 1 Nor, of course, if there are more than two commodities involved, does it show which commodities will be imported and what exported. 1 There are independent developments, which, however, do not seem to have attracted any very great attention in Longfield’s Three Lectures on Commerce and One on Absenteeism (1835) and in Pennington’s Letter to Kirkman Findlay (1840). Torrens refers to this latter in The Budget, p. 427. 242

RECAPITULATION

great power and given extensive practical application. Indeed, if criticism is to be made of Torrens, it would be not that he did not work out sufficiently his new discovery, but rather that, because of his unduly restrictive assumptions, he was disposed to exaggerate its importance in the practical context to which he chose to apply it. Now, jobbing backwards, this introduction of the demand factor in this particular connection can be seen to have had much wider theoretical significance than the sphere of inter¬ national values strictly so-called. For, in the first place, as Gairnes was to emphasize, the whole Classical theory was only a special case of a much wider theory — the theory of Non¬ competing Groups: anywhere where there was absence of long-run mobility of factors, a theory of this sort was necessary. Moreover, in the last analysis, the significance is even wider than that. The core of the theory of Reciprocal Demand and the terms of trade relates not so much to the prices of individual goods as to the prices of the fundamental services of the local factors of production — not to the commodity, but to the factorial terms of trade. If, therefore, we are willing to regard the factors within different non-competing groups as different factors even though apart from geographical position there be physical similarity, the theory of Non-competing Groups itself may be regarded as a special case of the general theory of distribution or of the pricing of the factors of production which, as every student knows, depends fundamentally quite as much upon assumptions regarding the general conditions of demand as upon assumptions regarding the conditions of supply.1 It is not for a moment suggested that this was perceived by Torrens or even by J. S. Mill or Cairnes. But from our point of view, this indeed was part of the ultimate significance of this particu¬ lar theoretical innovation.

(3)

Pure Theory

(continued'):

Aggregate Demand

As will have been shown by the contents of earlier chapters, Torrens’ contributions to pure theory were not limited to the range of topics covered by the headings production and 1 So far as I know, it was Edgeworth, Papers Relating to Political Economy, vol. ii, pp. 5-6, who first drew attention to the relation between the theory of international trade and the theory of distribution. R

243

ROBERT TORRENS

distribution; he also participated extensively in discussions of what nowadays we should call the theory of aggregate demand — the theory of money and credit and the theory of accumulation. (a) The Theory of Money and Credit We may begin with the theory of money and credit. It would be very difficult to claim for Torrens any distinct¬ ive originality regarding the elementary theory of the value of money. It would indeed be difficult to claim much origin¬ ality here for the Classical School as a whole. The great truism that, other things being equal, changes in the value of money are caused by changes in its quantity, or in the velocity with which it circulates, had been enunciated long before the emer¬ gence of the Classical system; and even the further develop¬ ment that, in the long run, the supply of metallic money will depend upon its cost of production was an idea with a lengthy past — when Senior alleged that this latter circumstance had been ignored by the Ricardians, Torrens did not think it necessary to do more than assure his opponent that he was completely mistaken. What distinguished the Classical out¬ look in this connection was, not the novelty of their analysis of the broad influences determining the value of money, but rather the tenacity with which they applied this idea to the interpretation of events and in recommendations for policy. The determination with which Torrens pursued the various deviations of Tooke and Fullarton is an apt illustration of this. There was, however, one application of this theory where the Classical contribution can truly be said to be both original and path-breaking — what is known as the Ricardian theory regarding the distribution of the precious metals. The proposi¬ tion that under a pure metallic system the supplies of the precious metals tend to be distributed between different areas in such a way that there is a tendency for payments in and out to be equal, rests upon a very obvious application of the quantity theory: if payments are unequal, then there is a tendency to a diminution of expenditure and hence of prices or employment in the country from which metal flows, and a reverse movement in the receiving country. But the use made of it by Hume and Ricardo and the part that, rightly or wrongly, it was made to play in the critique of monetary policy in systems which were not wholly metallic, constituted a genuine 244

RECAPITULATION

innovation of thought and deserves to be designated as such. Now it cannot be said that Torrens played any part in the origins of this theory. At the time at which Ricardo was re¬ viving it and giving it new shape, Torrens was an extreme antiBullionist and his mentor in monetary theory, the Reverend Alexander Crombie, will go down to history, if he survives at all, as the man who provided what is perhaps the grossest mis¬ understanding of Ricardo’s position in this respect.1 But having left this camp and become a Ricardian in respect of monetary policy, he certainly became the foremost expositor of its impli¬ cations. If it is desired to see what was the significance of this famous proposition, what it meant to the followers of Ricardo, what its place was in their general analytical outlook, there are no sources to compare with the later writings of Torrens. There is a further development of the general theory of money in which the contribution by Torrens is much more original — the theory of the nature of bank credit. It had long been recognized that the existence of banks introduced complications in the working of monetary systems and thus necessitated explicit reference in any extended state¬ ment of the influences determining the value of money. But in the main all that had been done was to take account of note issue as an influence on the supply side and of the role of clearing in economizing the need for reserves. The role of banking in creating additional means of payment via the general granting of credit facilities, whether or not these were utilized in the form of notes, had been neglected. Indeed, the majority of writers on the subject would have denied it. The business of banking, they would have said, was not the creation, but the distribution of means of payment. To this attitude Torrens entered an objection involving an important extension of the theory of money supply. As we have seen, the Letter to Lord Melbourne clearly sets forth the way in which the granting of bank loans may increase deposits and the increase of reserves of cash may permit an increase of several times that amount in the means of payment. It is not altogether clear how far Torrens appreciated the complete significance of the complications thus disclosed — particularly as regards the short-period oscillations of practical reserve systems. And it is not certain how far in its beginnings his thought had been influenced by Pennington — that Mycroft 1 See above, p. 74, footnote.

245

ROBERT TORRENS

Holmes of the later generation of Classical writers. But when all this has been taken into account much credit still remains due to him as one of the first writers explicitly to deal with this most fundamental aspect of the theory of banking. Finally, under this heading, some note should be taken of Torrens’ position in regard to the relation between money rates of interest and the general volume of expenditure. In this connection there can be no claim for any fundamental origin¬ ality of outlook. The theory of the connection between the rate of borrowing, money rates of interest and rates of profit had been set forth much earlier with incomparable force and skill by the never-to-be-forgotten Henry Thornton, both in his Paper Credit and, even better, in his Speeches on the Bullion Report. Later on much the same analysis had been elaborated by Joplin in numerous writings.1 Nevertheless the passages, quoted in an earlier chapter, in which Torrens invokes the influence of interest to refute the theories of Tooke and Fullarton are certainly of a quality to deserve separate notice and make a real contribution to our knowledge of the modus operandi of bank rate. It would be difficult to find anywhere a more forceful explanation of the way in which a change in the relative value of money and real capital affects the disposition to borrow and to invest. (b)

The Theory of Accumulation and the Declining Rate of Profit

In most of the contributions to the theory of aggregates which we have surveyed so far, there is a strong flavour of Ricardian orthodoxy. It is not certain what Ricardo would have said of the Torrensian conception of bank credit — his brother thought it erroneous; and the theory of the modus operandi of bank rate traversed a field which Ricardo tended to avoid. But, speaking broadly, there can be no doubt that in his role as a leading theorist of the Currency School Torrens was through and through Ricardian. The exertions of James Mill and the master had borne a full, if belated, fruit. There is one respect, however, in which his view of the behaviour of aggregates divagates very considerably from that of Ricardo : his explanation, which he shared with Wakefield, of economic depression in terms of the declining rate of profit. We have traced in some detail the evolution of this theory in See especially his Analysis and History of the Currency Question, p. ioi sea, and Views on the Currency, p. 145 seq. 246

RECAPITULATION

relation to Torrens’ general view of the beneficial effects of colonization. It remains to bring out certain points of contrast and significance. At first sight it may seem that the contrast may be exag¬ gerated. The idea of a declining rate of profit is certainly pure Ricardo ; and the idea of a possible adverse turn in the factorial terms of trade through the excessive forcing out of exports, although not to be found in Ricardo, is certainly not alien to the Ricardian approach. Why then the air of defiance with which both Wakefield and Torrens laid down their proposition that the opening up of new investment opportunities in colonial territories would alleviate a general downward pressure in the metropolitan area ? This view was in fact taken by John Stuart Mill. In his Principles of Political Economy, commenting on this aspect of the Wakefield system, he goes out of his way to suggest that the conflict is much more apparent than real. ‘Mr. Wakefield’s explanation of the fall of profits’, he says, ‘is briefly this. Pro¬ duction is limited not solely by the quantity of capital and of labour, but also by the extent of the “field of employment”. The field of employment for capital is twofold ; the land of the country, and the capacity of foreign markets to take its manu¬ factured commodities. On a limited extent of land, only a limited quantity of capital can find employment at a profit. As the quantity of capital approaches this limit, profit falls; when the limit is attained, profit is annihilated ; and can only be restored through an extension of the field of employment, either by the acquisition of fertile land, or by opening new markets in foreign countries, from which food and materials can be purchased with the products of domestic capital. These propositions are, in my opinion, substantially true; and, even to the phraseology in which they are expressed, considered as adapted to popular and practical rather than scientific uses, I have nothing to object. The error which seems to me im¬ putable to Mr. Wakefield is that of supposing his doctrines to be in contradiction to the principles of the best school of pre¬ ceding political economists, instead of being, as they really are, corollaries from those principles; though corollaries which, perhaps, would not always have been admitted by those politi¬ cal economists themselves.’1 But this surely is to miss the main point. It is perfectly 1 Op. cit. (Ashley’s edition), pp. 727-8. 247

ROBERT TORRENS

true that there is nothing in the idea of a declining rate of profit whether due to diminishing returns in agriculture or to diminishing yield of export which is fundamentally incom¬ patible with the Ricardian outlook. It is true, too, that the earlier Classical writers feared the advent of the stationary state when profits had reached their minimum. But it is not true that this fear was based upon a fear of saving continuing and running to waste in depression and unemployment; Ricardo and his associates feared the station¬ ary state because they thought that accumulation would cease before the labouring classes had learnt the habits which would lift the equilibrium rate of wages above the bare subsistence level. Wakefield and Torrens feared it because they thought that, in stationary conditions, although there was no longer any profitable outlet for investment, the disposition to accumu¬ late would continue and so lead to a general slackness in the economic system. The Ricardians feared the declining rate of profit because they thought it would stop accumulation; Torrens and Wakefield feared it because they thought that nevertheless accumulation would be attempted but would find no realization in investment. Is this attitude to be regarded as Malthusian ? The answer seems to be in the negative. It is true, of course, that Malthus had explained depressions in terms of excessive accumulation : and this at first would seem to point to a family resemblance between his position and that of Torrens and Wakefield. But unfortunately Malthus had insisted that savings were always invested; he spurned the suggestion that they were often hoarded. The similarity that has often been claimed between his position and the position of the modern Keynesian has been greatly exaggerated. Or at least it does not go beyond the insistence on a deficiency of aggregate demand ; his denial of the idea that savings were not invested precludes any further degree of assimilation. But with Torrens and Wakefield it was different. Although it would certainly be difficult to find in their works any very explicit explanation of depression in terms of savings running to waste, the language they employ is not such as to exclude such an explanation; and their general position, much more than Malthus s, seems to point directly to it. For good or for bad, this position appears to be in many respects an anticipa¬ tion of modern stagnation theory. 248

RECAPITULATION

(4)

The Theory of Economic Policy

We may now turn to Torrens’ chief contributions to the theory of economic policy. In this connection the first point to note is his complete solidarity with the main tradition of Classical Political Economy as regards the fundamental objective. Viewed as a system of prescriptions, the chief aim of Classical thought in this respect was the improvement of the condition of the people, especially what they would have called the labouring classes. It would scarcely be an exaggeration to say that for them the ultimate criterion of policy was whether in the long run it tended to a rise in the equilibrium level of wages. So far as Torrens is concerned, this principle could hardly be stated more explicitly. In the opening paragraph of the appendix to the ‘New’ (5th) edition (1829) of the Essay on the External Corn Trade, which was also reproduced separately in a tract entitled Colonel Torrens on Wages and on the Means of Improving the Condition of the Labouring Classes, 1832, he makes his position perfectly clear. ‘The labouring classes compose the great bulk of every community: and a country is happy or miserable, as they are well or ill supplied with the neces¬ saries, comforts, and enjoyments of life. The study of Political Economy, if it did not teach the way in which labour may obtain an adequate reward, might serve to gratify a merely speculative curiosity, but could scarcely conduce to any pur¬ poses of practical utility. It claims the peculiar attention of the benevolent and the good, mainly because it explains the causes, which depress and elevate wages, and thereby points out the means, by which we may mitigate the distress and improve the condition of the great majority of mankind. Political Economy is not as has been erroneously stated, the appropriate science of the statesman and the legislator : it is peculiarly and emphatically, the science of the peopled Torrens obviously attached great importance to this formu¬ lation ; for it was repeated intact as the first paragraph of his book On Wages and Combination, and in his Letter to Lord Russell on Poor Laws in Ireland, and his Letter to Lord Ashley on the Principles which Regulate Wages.

249

ROBERT TORRENS

(a) Colonization and the Condition of the People As regards policy aiming directly at this target, the ameliora¬ tion of the condition of the people, the theory of colonization must be regarded as Torrens’ chief contribution. That he was a supporter of other measures coming under this heading, conspicuously factory legislation 1 and popular education,2 not to mention his proposal for a fund to assist the mobility of labourers displaced by machinery,3 is evident from incidental remarks in various writings. But the main focus of his atten¬ tion in this respect and the main vehicle of his reforming energy was the theory of colonization whose detail we have traced in Chapter VI. It would be an error of perspective in this connection to claim for Torrens merely that he was representative of the Classical tradition. For, where colonization is concerned, what must be regarded as the eventual Classical tradition was largely due to Torrens himself. For as we have seen, although in respect of inspiration and influence in the colonization move¬ ment in general pride of place must be awarded to Wakefield, it was Torrens who from an early stage had preached emigra¬ tion as a relief from population pressure and who, once he had been converted by Wakefield, had become the foremost exponent among economists of the virtues of the so-called systematic colonization. Nevertheless the matrix of his thought was the analysis which he shared with the other Classical economists. The idea of population pressure was essentially Malthusian. The idea that, given a breathing space of some kind or other — whether 1 2

Letters on Commercial Policy, p. 73. A Paper on the Means of Reducing the Poors Rates, p. 518.

3 This suggestion, thrown out in the course of a discussion of the effects of machinery on wages in chapter ii of Wages and Combination, is so remarkable that the passage in which it occurs deserves quotation in full. ‘ It . . . appears, that the general good which results from the employment of new and improved machinery is accompanied by partial evil. While the public acquires additional wealth, the individuals who are supplanted in their accustomed occupations are reduced to poverty. Humanity and justice demand, that those who thus suffer for the public good should be relieved at the public expense. Whenever a new application of mechanical power throws a particular class of operatives out of employment, a national fund should be provided, to aid them in betaking them¬ selves to other occupations. It is a disgrace to the Legislature and to the country, that the numerous body of hand-loom weavers should have been left so long in misery and destitution, and toiling to the death in hopeless competition with the power loom. A comprehensive plan for their relief should be one of the earliest measures of the reformed Parliament’ (op. cit. p. 44). 250

RECAPITULATION

it come from domestic accumulation, inventions or emigra¬ tion — education and other civilizing influences would create such an attitude of mind among the labouring classes that in future they would restrict their numbers, was a hope shared by all Ricardo’s generation and its successors—J. S. Mill’s ‘banner and . . . point of union among us’. Even Malthus had admitted that in certain emergencies there was much to be said for colonization. What Wakefield and Torrens did was to create an impression of continuous emergency and to suggest special methods for dealing with it and for bringing good out of evil by the creation of new and thriving communities. (b)

The Theory of Monetary Policy

When we turn to the other fields of policy with which Torrens was mainly concerned — the fields of monetary and commercial policy — more complex problems of assessment present themselves. Enough has probably been said in earlier chapters to establish the relationship between the position of Ricardo and the Bullionists and the position of Torrens and the Currency School. Both invoked the same fundamental analysis of the equilibrium relationship of the distribution of the precious metals. Both agreed that the issue of paper money would dis¬ turb this relationship unless it were confined within certain limits. But whereas the Bullionists took the view that the requirement of convertibility was a sufficient curb in this connection, the exponents of the Currency Principle held that definite regulation was necessary; and they vigorously attacked the exponents of the Banking Theory, according to whom, so long as convertibility was enforced, over-issue was impossible. It would be inappropriate in a recapitulatory survey of this sort to attempt to appraise this theory on the grounds of its correctness. This essay is not an exercise in modern theory. Moreover, it would be a task of great difficulty, since some at least of the questions with which the members of the Currency School were concerned must still be regarded as unsettled. It is easy enough to point out that, with the growing importance of bank credit, mere limitation of note issue did not prevent the movements of the total means of payments deviating con¬ siderably from what they would have been had the circulation been wholly metallic — though, of course, this is not at all to 251

ROBERT TORRENS

say that the limitation did not have any influence in this direc¬ tion. That perhaps is agreed: only ioo per cent, money on a metallic basis would correspond to the ultimate requirements of the Currency Principle.1 But what agreement could be secured on the questions whether such an absence of local elasticity is a good thing, whether some elasticity can be com¬ bined with adherence to an international standard and whether in the last resort adherence to an international standard is desirable ? Nevertheless, it is perhaps expedient to probe a little further the nature of the aims inspiring the recommendations of Torrens and his associates : for, unless this is clearly recognized, it is not possible to give them appropriate historical classifica¬ tion. Why did they recommend a system of regulation of issue which they thought would enforce conformity of the move¬ ments of the supply of money as a whole to what would have been the movements of a purely metallic circulation ? At first sight it is tempting to describe them as monetary internationalists. The prescription of conformity to the be¬ haviour of a purely metallic currency can be regarded as a prescription designed to make the movements of local moneys conform to what would be the movement of a single world money. In the last analysis the Ricardian theory of the dis¬ tribution of the precious metals may be regarded as describing just that — the local ebbs and flows of a single world money consisting entirely of gold or silver. And certainly it is true that if their prescription had been sufficiently comprehensive — that is to say, if it had not been possible to get round it by variations in the issue of bank money — and if it had been adopted all round — that is to say, if all the nations of the world had similar systems of regulation — then international monetary phenomena would have been to all intents and 1 It is perhaps tempting to see in the Currency School the forerunners of the talented advocates in our own day of ioo per cent, money. But the likeness does not go very far. It is true that there is a formal similarity between the attitude of the schools of thought in the demand for ioo per cent, cover. But the aims were very different. The Currency School were concerned to preserve converti¬ bility by maintaining external equilibrium. The advocates of ioo per cent, money are hardly concerned with external equilibrium at all. Their main object is to prevent the annihilation or creation of internal purchasing power by internal banking operations. In so far as they have interested themselves in considerations of external balance they have tended to recommend equilibration by means of a floating rate — which may be sensible or otherwise, but is a very long way from the position of the Currency School. 252

RECAPITULATION

purposes the movements of a single world money. The historic gold standard is sometimes described in these terms : but this, of course, is a mistake — there was much more local elasticity. But in fact such an attribution of motive, and such a classifi¬ cation of intention, would be wrong. It would be projecting back to an earlier age a preoccupation with problems which did not begin to emerge until much later. The norms and prescriptions of the Currency School are of absorbing interest to anyone who speculates on the problems of the preservation of international monetary unity. They opted for an inter¬ national rather than a national money and indicated a tech¬ nique for maintaining it. But their motives were definitely on a nationalistic basis. We can see this clearly enough if we follow the main steps in the argument. If we were to have asked Torrens or Overstone point blank why they wished to limit the note issue, they would have replied in the first instance that they wished to avoid a drain of gold not called for by the requirements of international equilibrium. And if we had proceeded to ask the further simple-minded question why they wished to prevent such a drain of gold, they would have said — indeed, they often said it — because they wished to preserve the convertibility of the currency. And if they were pressed still further why should the convertibility of the currency be preserved, they would almost certainly have said, because experience shows that where the currency is not convertible, there, sooner or later, it tends to depreciate. It is true that we cannot be absolutely sure about the answer to this last question, because, speaking broadly, the members both of the Currency School and of the Banking School did not trouble to argue very much with the advocates of incon¬ vertible money, speaking of them always merely as if they were lunatics or enemies of society. But we know that Torrens, at least, was perfectly aware of all the arguments which could be put forward on that side. Had he not stated them himself with great lucidity and force in his early Essay on Money and Paper Currency, and had he not at one time maintained, even against Ricardo, the advantages of a system which was respon¬ sive to the needs of internal trade rather than of external equilibrium. We do not know either the influences or the precise chain of reasoning which led him to change his mind. But we do know that his mind did change; and we are 253

ROBERT TORRENS

therefore obliged to infer that at some point in the evolution of his thought he quite consciously came to the conclusion that, either because of the danger of depreciation or because of the other inconveniences associated with fluctuating exchanges, a money based upon metal was to be preferred. Thus, in the last analysis, although Torrens and his friends recommended a system which, had it been locally effective and generally adopted, would have conformed to the move¬ ments of an international money, yet their mode of approach was not international but national and the intention was not focused upon the avoidance of international monetary dis¬ unity, but rather upon the linking of the national money to a metallic unit which was thought likely to be more stable in value than inconvertible paper standards. And if we ask our¬ selves what is it which remains of most permanent value in this part of their analysis, it is not any indirect foreshadowing of the requirements of a perfect international money but rather a continuous insistence on the way in which, in an economy maintaining fixed rates of exchange from abroad, deviations of the internal circulation from a certain norm may cause to develop disequilibrium in the balance of payments. (c) Commercial Policy It is in the sphere of Commercial Policy that the national basis of Torrens’ objectives most clearly manifests itself. It is true that all the English Classical Economists, save perhaps Bentham and the Mills, were national rather than international in outlook: that is to say, their prescriptions were designed to raise the wealth of their own nation and they would probably have refrained from making recommendations whose effect would have been any diminution of wealth at home even if else¬ where the consequential increase had been considerable. But it so happened that their system of thought suggested in the main a much greater harmony between the interests of differ¬ ent nations than it had been customary to assume before ; and the result was that their theory of policy seemed much more cosmopolitan in character.1 With Torrens, however, it was different. His analysis suggested to him important instances where the interests of different nations might conflict. He thought that the policy 1

On the Classical theory of commercial policy in general see my Economist in

the Twentieth Century, chapters vi and vii.

254

RECAPITULATION

of unilateral lowering of obstacles to trade might be detri¬ mental to the interest of his own nation, and therefore he did not hesitate to denounce it and to call for a policy which only lowered tariffs in response to reciprocal concessions. Now we have seen already how the analysis on which this attitude was based was strictly Classical in nature. So far as general conceptual implications are concerned, there can be no quarrelling with Torrens’ analysis of demand and the terms of trade. It is quite possible to argue — as Marshall argued with very great force — that the probability of substan¬ tial influence on the terms of trade by the variation of tariffs was normally not great, and in any case was much more important in the short period than in the long. It is almost certain that, owing to certain technical limitations in his assump¬ tions and to the general atmosphere of political rhetoric in which he developed his ideas, Torrens immensely exaggerated the practical importance of his analysis. But that he had uncovered a possibility of divergence of interest and that he had done this by using constructions which were central to the Classical analysis of international trade, was undeniable. But the moral he proceeded to draw was certainly not in the Classical tradition. From Adam Smith onwards the Classical tradition in regard to retaliation had been quite definitely that it was seldom worth the candle; and while the matter had not been talked out at length, the general tone of the literature certainly favoured a unilateral progress to free trade — this appears unmistakably in Torrens’ own earlier work. And it was this tradition that Torrens called in question. To the end of his life he continued to call himself a free trader in the sense that he proclaimed the great benefits of inter¬ national division of labour. What divided him from his fellow economists was that, while they thought that it was worth while proceeding singly towards this goal, he urged that this course was beset with peril and that the only true free trade was free trade based upon reciprocity. Nevertheless, it is possible to exaggerate the differences. J. S. Mill, who quite independently reached the same analytical conclusions, also argued that considerations of reciprocity, al¬ though ‘quite inessential when the matter in debate is a pro¬ tecting duty’, were ‘of material importance’ when the repeal of other duties was concerned. ‘A country’, he argued, ‘can¬ not be expected to renounce the power of taxing foreigners, 255

ROBERT TORRENS

unless foreigners will in return practise towards itself the same forbearance. The only mode in which a country can save itself from being a loser by the revenue duties imposed by other countries on its commodities, is to impose corresponding revenue duties on theirs.’1 And although the Classical and neo¬ classical tradition continued in the main to recommend the policy of unilateral tariff reductions, it would be right to say that where this attitude rested on reason rather than on un¬ questioning repetition of dogma, it depended upon a practical judgment (which may have been right or wrong) that the terms of trade argument was not important, rather than upon any belief that analytically the reverse state of affairs was im¬ possible. As regards Torrens’ more ambitious ‘heresy’, the recom¬ mendation of a Zollverein, the position is even more compli¬ cated. There is some reason to suppose that Adam Smith himself would not have frowned upon such a solution. The famous ‘project of empire’ in the peroration of the Wealth of Nations was elaborated chiefly in order to show by contrast how far the actual state of affairs fell short of it and how im¬ probable it was of achievement. It had another aspect, how¬ ever — if we were really reasonable (which it is perhaps im¬ possible to expect) this is what we should do. It is difficult to believe that its author would have been entirely unsympa¬ thetic to Torrens’ desire to create another free trade union more extensive in area and as varied in resources as the United States itself. But the main Classical tradition was confused. The Ben¬ thamite influence was on the whole negative; and although, as we have seen, under the influence of Wakefield, Bentham himself and the younger philosophical radicals became en¬ thusiastic colonizers, yet as regards commercial policy their attitude was probably hostile to the perpetuation of any form of preferential treatment. The hope seems to have been that, under the general influence of liberal ideas, the colonial terri¬ tories would be as open to trade as the metropolitan area. This hope has not been fulfilled — to put it very mildly — and in the light of what has actually happened, though we may doubt the practicability at the time of Torrens’ recom1 Essay on Some Unsettled Questions of Political Economy (ist edition), p. 29. Reproduced in Book V, chapter iv, 6, of the Principles of Political Economy (Ashley’s edition), p. 856. 256

RECAPITULATION

mendations, yet at least we must surely concede that his recognition, enunciated so clearly even in his first work on Political Economy, that where there is completely independent sovereignty, there there is always the probability of monopo¬ listic restriction of the territorial division of labour, had a good deal more in it than a hundred years of liberal orthodoxy has often been willing to realize.

(5) Torrens’ Place in History

’

What manner of man was this Torrens, whose work we have been analysing at such length ? In the present state of knowledge it is not possible to say very much. We are not even sure what he looked like. Mr. Sraffa has discovered a faded photograph of a shortish elderly man in a frock coat, with a build slightly reminiscent of Edgeworth, obviously lively and forthcoming, but without sufficient definition of feature to convey very much else — and even this is only surmised to be Torrens. We know that he was a brave man and that Ricardo thought he was ‘a very gentle¬ manly man’, and that J. L. Mallet said that he was more courteous in discussion than many of the other members of the Political Economy Club. We also know that Francis Place did not think much of him and that Lord John Russell found him a bit of a nuisance. But on the whole the first-hand evidence is slender. Com¬ paratively few of his letters have yet been discovered and, Mallet’s diaries apart, there is not much allusion in contempo¬ rary records. From his books it is possible to infer certain fairly clear impressions. He was obviously eloquent; a little inclined to be pompous; at his best in debate; strongly attracted by the formal properties of propositions — as witness his delight very late in life in showing, from the history of Australian gold mining, how ‘the value of a manufactured article could be raised by a fall in the value of the material of which it is composed ’ — and superb in the use of the reductio ad adsurdum; firm in his grasp of general principle but lacking perhaps the intensity of vision to push through to the elabora¬ tion of a complete system — his best books, even the Principles and Practice of Sir Robert Peel's Act, are all written for the occasion; extremely agile at handling facts for controversial

257

ROBERT TORRENS

purposes; not without a sense of reality in action but apt to rely on speculation for his general views and a little deficient in that capacity for continuous observation of miscellaneous eco¬ nomic events which alone can give immunity from errors in proportionate emphasis ; warm-hearted and generous in his admiration of others but touchy about his own claims — this is the Torrens we see in his books and pamphlets. It is clear that as an economist he was not in the first rank. He had neither the soaring speculative power of Ricardo nor the strong intuitions of Malthus. Nor had he the exalted moral passion or the wide powers of synthesis of J. S. Mill. But among the men of the next grade his standing was not negli¬ gible. He had obviously much greater analytical breadth than James Mill or McCulloch, though he lacked the concentration of the former and the wide factual knowledge of the latter. The comparison with Senior is more difficult. Senior perhaps had more culture and probably better practical judgment; Torrens more originality and deeper analytical insight, less capacity for concise exposition, more for the moment of vision and the communication of elan. This he was and thus he played his part; and although, in the picture of the varied and spacious society in which he lived, he is not one of the figures in the foreground, at least he deserves a position in the middle distance which helps to give vividness and proportion to the whole. It has been the purpose of this essay to give some indication of what that position should be.

258

BIBLIOGRAPHICAL APPENDIX following appendix lists and briefly summarizes the contents of Torrens’ books, pamphlets and articles, which are identifiable by publication under the author’s name, by contemporary external attribution or by unmistakable internal evidence; it does not cover correspondence, either in the form of private letters or casual, as distinct from systematic letters to the press. It also indicates duplication. Torrens was much addicted to using old material in new contexts; and an attempt has been made to point out the main passages where this occurs. No claim for exhaustiveness is made in this connection; exact collation of all the texts would involve many months of full-time labour. It is hoped, however, that such cases of duplication as establish significant continuity of thought have been adequately identified. In making each summary some regard has been had to the treatment of the work in question in the main body of the essay. Where the argument of a particular pamphlet or book is sufficiently fully and consecutively presented in the appropriate chapter, there the summary has been kept deliberately short and reference made to the earlier analysis. Where, however, it is only incidentally alluded to, or where the main elements of the argument are only dispersedly presented, there fuller treatment has been adopted. Fuller summaries have also been given of works which are particu¬ larly inaccessible (e.g. the letters on National Currency to Lauderdale in The Sun, below, pp. 274-7). Every effort has been made to avoid overlapping. But, in the nature of things, this has not always been possible. The general principle of arrangement is chronological. But where a book or pamphlet has appeared in more than one edition, the entire series is listed immediately after the first publication. Thus all four later editions of the Essay on the External Corn Trade, published in 1820, 1826, 1827 and 1829 respectively, are recorded immediately after the entry of the first edition in 1815. Where, owing to the lack of a general description of a draft or a collection of articles, the title given is not by Torrens or his original editor, square brackets are used to indicate the factitious element. Save where specifically indicated, the copies examined in the compilation of this bibliography are in one or other of the three great London collections, the British Museum, the Goldsmiths’ Library and the Library of the London School of Economics. The

s

259

ROBERT TORRENS

Every effort has been made to make the list as complete as possible within its terms of reference. The reader should, however, be warned that it is most improbable that this aim has been achieved. Throughout the quite considerable time which has been devoted to this enterprise, new material has kept on turning up. Only in the last few months a hitherto unknown pamphlet — the reprint of the appendix to the New Edition of the Essay on the External Corn Trade (see below, p. 273) — has made its appearance in the British Museum catalogue; and quite recently an investigation of the contents of the Edinburgh University Library revealed two known items with quite new title-pages. It is unlikely, therefore, that the present list is complete. The author ventures to hope that its publication may provide some incentive to librarians and others to let him know of any omissions which come to their notice. It is perhaps improbable that the present work will go into a second edition. But there should be ways and means of making public additional bibliographical information. 1. The Economists Refuted; or, an Inquiry into the Nature and Extent of the Advantages derived from Trade: with Observations on the Expedi¬ ency of making Peace with France. And an Appendix, discussing the Policy of Prohibiting Corn in the Distilleries. By R. Torrens, Esq. London : Published by S. A. and H. Oddy, Oxford Street; and C. La Grange, Nassau Street, Dublin. 1808. Pp. 108. There is no copy of this very rare tract in any of the three great London repositories of economic literature, the British Museum, the Goldsmiths’ Library and the London School of Economics. There is one, however, in the Pryme Collection at Cambridge. Nearly fifty years after its first appearance it was republished by its author as an appendix to the Second and Third Editions of The Principles and Practical Operation of Sir Robert Peel's Act of 1844. (See below, pp. 336 and 339.) The re-publication is not identical with the First Edition : the final chapter on making peace with France is omitted and there are differences of a minor order in what remains. But the main text is the same. This work, the first product of Torrens’ thought as an economist, is ostensibly a reply to Spence’s Britain Independent of Commerce, in which it had been argued that the cutting off of trade with the continent was no disaster because only agriculture was productive of wealth and trade was a dissipa¬ tion of energies. In fact it is less polemical than most of Torrens’ work. He tends to agree with Spence that the cutting off of trade will not be ruinous. But he disagrees with the grounds on which this position is argued. ‘However I may differ with Mr. Spence and Mr. Cobbett on sub¬ jects of Political Economy, yet I honour them for being the foremost to controvert the degrading opinion that England’s greatness depends on anything which foreigners can grant or take away’ (p. 56). The book begins by a refutation of the argument that only agriculture is productive. The advantages of division of labour, especially territorial divisions, are

260

BIBLIOGRAPHICAL APPENDIX

then described; and it is argued that while ‘ The act of exchanging does not, indeed, bring wealth into existence . . . the expectation of exchanging gives rise to divisions of labour, which multiply, to an immense extent, the articles that supply our wants’ (p. 17). There follow chapters on home trade, colonial trade and foreign trade, the last devoted to further discussion of Spence, refuting his theoretical position by appeal to the advantages of territorial division, but agreeing that in comparison with the volume of home production these may be over-stressed. This discussion leads on to an account of the way in which an interruption of trade may cause ‘ indirect distress ’ through hoarding induced by loss of income and concludes with a plea for government intervention to obviate such distress, which includes a somewhat surprising apologia for the poor law in this connection. A final chapter discusses the expediency of making peace with France. There is an appendix ‘on the policy of prohibiting corn in the distilleries’.

2. Thoughts on the Catholic Question. ‘O Nomen Duke Libertatis’, Cic. By a Protestant of Ireland. Chatham. Printed by C. & W. Townson, Kentish Courier Office. 1808. Pp. 32. The only copy of this tract which has been discovered is in the National Library of Ireland. The authorship is established by reference to the Second Edition (see below, p. 262), which is signed. Paley’s definition of Civil Liberty as ‘freedom from all restraint except that which reduces its partial inconvenience by a balance of public benefit ’ is quoted and illustrated. The resulting principles are then applied to the question whether the restraints in force against Roman Catholics should be continued or repealed: It is argued that at the time of the enactment of these restraints they were justified — ‘a family, hostile alike to civil and religious liberty, laid claim to the throne, and had its claim allowed by the whole body of the Catholics . . . under these circumstances the Test Laws were necessary and just’ (p. 6). But now, the argument proceeds, things are different. ‘A candid and tolerant spirit visits the remotest corners of Europe . . . the fires of persecution are extinguished to be lit no more ’ (p. 8). ‘A Catholic League is not now numbered among our dangers. . . . Thousands of foreign Catholics have entered into his Majesty’s service.’ ‘Thus we see that every circumstance has passed away which formerly justified . . . exclusion’ (pp. 8-9). The question is then investigated whether a concession to the Catholics would endanger the Establishment. This is said to be improbable. The Catholics are a minority of the population ; they could not hope to acquire a majority in the House of Commons. Furthermore, if a few Catholics are elected to the House, it is to be expected that ‘their understandings will expand and the prejudices of their education wear away’ (p. 14). The effect will therefore be beneficial. But suppose some man of uncommon talent among them definitely sets himself to ‘wrest from the Protestant clergy the revenues which are appro¬ priated to them by the constitution of the realm’. Even so he could not do this until he had obtained a majority in Parliament — which is highly unlikely. The influence of Genius in propagating error is more limited 261

ROBERT TORRENS

than her influence in propagating truth. This is obvious as regards the sciences which deal with material facts : but ‘ the science of mind has also its facts, its principles deduced from the uniform experience of mankind ... in the present advanced state of intellectual science, nothing short of the miraculous interposition of the Deity could enable the doctrine of transubstantiation to gain ground among mankind’ (pp. 15-16). ‘Thus every view of this subject concurs to prove that the utility of religious disabilities is gone’ (p. 17). The pamphlet then proceeds to argue that great benefit would follow from Catholic emancipation. The unemployed peasantry would flock more largely to the standard of their country — an event devoutly to be wished in the shadow of Napoleon. ‘When the Catholic soldier, headed by the Catholic officer, is sanctioned by the law in marching to a Catholic house of worship, then, and not till then, will the Catholic priest cease to be an anti-recruiting sergeant’ (p. 21). How anomalous that we should seek recruits far and wide, in Germany and the islands of the Mediterranean, and yet neglect ‘ that part of the United Kingdom which might be rendered an inexhaustible nursery for the army’ (pp. 24-5). Moreover, there would be a great release of talent which now, deprived of the legitimate objects of ambition, tends to be frittered away in indolence and despair. In conclusion, an appeal is made to the Catholics of Ireland to exercise restraint — ‘ He who pants most eagerly for the abolition of unnecessary restraints, ought to be most solicitous to preserve tranquillity’.

3. Thoughts on the Catholic Question, by R. Torrens, Esq., Major in the Royal Marines. Second Edition, London. Printed for Gale, Curtis & Fenner, Paternoster Row, 1813. W. Flint, Printer, Old Bailey, London. Pp. 102. The argument is broadly the same as in the First Edition. But while much remains much has been re-written and expanded. The chief additions relate to the contention that it is necessary that the Catholics should con¬ cede to the Crown a veto on the nomination of bishops. It is argued that the fears which have been expressed perhaps have weight if it be assumed that Catholics would not be bound by oaths by which they abjure any in¬ tention of overturning the present establishment. But the present position of Catholics is due to their reluctance not to take oaths which they would be tempted to break. The alleged danger of foreign interference through such channels is said to be illusory. There is also greater emphasis on the theme of over-population. Ireland is over-populated. The lower orders suffer great poverty and distress which already produces discontent, rioting, cattle-maiming and such-like manifestations. In such circumstances, if the educated classes are shut out of public life they may be ‘driven to make common cause with a distressed population, and to foment and to combine all elements of turbulence . . . the Irish Catholic cannot be a law giver : is it, therefore, surprising that he should resist the law. . . . How is it, then, that the persons who would guard us so carefully from the distant and contingent danger of foreign influence in the nomination of Catholic bishops, cannot bestow a thought on the evils that may arise from continuing to disgust the Catholic population’ (pp. 86-91). 262

BIBLIOGRAPHICAL APPENDIX

4. Coelibia choosing a Husband: A Modern Novel in two volumes, by R. Torrens, Esq., London. Printed by D. N. Shury, Berwick Street, Soho. For J. F. Hughes, 28, Berners Street, 1809. Two volumes. Pp. 202 + 198. The parallelism of title with Hannah More’s Coelibs in Search of a Wife (1808) deserves notice. Coelibia is the only child of a widower, Mr. Sandford, whose special interest is the ‘ study of human nature, and . . . tracing out that beautiful chain, which in the moral no less than in the material world, links the cause to the effect’ (Vol. I, p. 2). She has been brought up on the most en¬ lightened principles ‘and scenery wildly beautiful’, not even interdicted ‘ from prosecuting the science of botany, nor from contemplating the con¬ trivances of Infinite Wisdom for keeping up the succession of his animal creation’ (Vol. I, p. 25). Especially it has been impressed upon her that ‘precipitancy in forming attachments ... is, more than any other cause efficacious in destroying that harmony between the decisions of duty and the feelings of the heart, which Nature evidently intended. . . .’ When, therefore, in her seventeenth year, she accompanied her father to a residence in the neighbourhood of the metropolis, ‘ a clear and vivid conception of the mischiefs of a hasty choice controlled, completely, that heedless solicitude for engagements of the heart which, in girls of her age, is too frequently the ruling passion’. This attitude is greatly reinforced by acquaintance with the sad history of one Mary, discovered dying by the wayside by Mr. Sandford shortly after their arrival, whose misfortunes owed their origin only too obviously to an imagination debauched from early childhood by novel-reading. The history of the successive stages of the downfall of this unfortunate occupies a substantial fraction of Volume I. ‘Endowed with every external and mental grace’, from the outset of her advent into London society, Coelibia had many admirers. But for a time her heart remained untouched. ‘Each successive suitor was weighed in the balance of ideal excellence, and found wanting’ (Vol. I, p. 156). Eventually, however, there appears a Mr. Neville, in whose conversation Coelibia discovers ‘peculiar charms’. He writes poetry at which she trembles and weeps. Nevertheless, she is not yet in love. She has ‘learned from her father, that the highest powers of imagination are sometimes connected with indiscretions deadly to happiness, and that a feeling heart, though the ground-work of every moral excellence, may, in this imperfect state, associate with many pernicious propensities’ (Vol. I, p. 162). This caution proves to be not unwarranted. Neville has contracted a serious debt. Coelibia spurs him to the effort necessary to earn the wherewithal to redeem it by a literary engagement which he has hitherto rejected as mercenary and ignoble. Unfortunately, on returning from the publisher amply remunerated for his six weeks’ industry, he is moved to an ill-con¬ sidered act of charity. Passing in the street a scene where a father, whose son has been persuaded to take the King’s bounty, is giving vent before a large crowd to lamentations and reproaches, and regardless of the fact that the money it contains is not his own, he hands his purse to the old man, saying, ‘Purchase your boy’s discharge’ (Vol. I, p. 200). When Coelibia hears of this, she bursts into tears and retires to her apartment, where she decides that ‘his ideas and emotions’ being too much under the control of 263

ROBERT TORRENS

the impressions present to his senses, ‘ he could not in absence resist the smiles of the beautiful, or fortify his heart against the counterfeited sufferings of the artful — “Neville, I can never be yours’” (Vol. II, p. 4). It is not long before Coelibia becomes the object of the attentions of a very different person. Sir Charles Loftus * trod upon the earth as if he were her master. . . . His fine exterior was a faithful indication of his mind. He had a general knowledge of the whole circle of the sciences, and he dwelt with enthusiasm on the relicks of those ancient days, when the human soul, more recent from the maker’s hand, displayed a loftiness and strength which the lapse of ages seems to have impaired’ (Vol. II, pp. 36-7). Never¬ theless, while the ‘ noble qualities of Sir Charles, operating on the inclina¬ tions of nature’, attracted her strongly, ‘something, she knew not what, repelled her : he seemed deficient in that “soft green of the soul” on which affection’s eye dwells with unwearied, with encreasing delight’ (Vol. II, p. 56). An indisposition of Mr. Sandford’s elicits an invitation to Sir Charles’ country seat. Here Coelibia’s hesitations are reinforced. She notices that the tenants ‘pursue upon different soils, a uniform system of cultivation’ and Sir Charles admits that this is due to his having ‘in order to overcome the prejudices which obstruct improvement, bound down [the] tenants to a positive mode of cultivation’ (Vol. II, pp. 68-9). They then pay a visit to a school which Sir Charles has founded for the education of the tenants’ children. The children are ‘clad in a kind of uniform, and distributed into classes with so much regularity and precision, that the whole gave her the idea of a juvenile camp, rather than a place of education’ (Vol. II, p. 73). She muses deeply on this, and when asked by Sir Charles how she likes his institution, replies, ‘If I thought my children were to be subject to such multiplied and perpetual restraints, I would never consent to be a mother. . . .’ (Vol. II, p. 75). Thenceforward disillusion sets in with accelerated rapidity. Sir Charles reveals a belief in the superiority of the male, and when asked whether he would be satisfied to live with his wife on the footing of equality, he confesses that he could not. Coelibia rejoins that ‘rather than live on any other’ she ‘would continue ever single’ (Vol. II, P- 95)Henceforward, Sir Charles discontinues his addresses and shortly afterwards Coelibia and her father decide to return home. The incident, however, has not been without influence on Sir Charles, for on the eve of their departure he confesses to Mr. Sandford that he has come to doubt the expediency of some of the more authoritarian arrangements on his estate. Shortly after her return to London, Coelibia exhibits two pictures at the British Institution. ‘ In one, a rural landscape, she displayed her taste for the beautiful, for order and utility ; in the other, a sketch from Nature’s ruder aspects, she evinced a fancy conversant with the vast, the awful, and the sublime. The pictures, placed, for the sake of contrast, in juxtaposition, excited considerable attention.’ They did more than this. They excited the admiration of a gentleman of the name of Harley ‘whose person and manners’ blended ‘the sweetness of Neville with the majesty of Sir Charles Loftus’ (Vol. II, p. 135), and an introduction being arranged by Mr. Sandford, Coelibia begins to feel that he is the man most calculated to make her happy. Any lingering doubts on this matter are dispelled by Harley’s understanding treatment of a small child who had been entrusted to her 264

BIBLIOGRAPHICAL APPENDIX

care and whose behaviour she had found slightly intractable. ‘As Harley spoke a consciousness of her error flashed upon her mind. . . . His conduct passing in rapid review before her mental vision, she saw that what gave his offices of kindness a peculiar gratefulness, was the happy time he selected for their performance. . . . Her soul went forth and coalesced with Harley’s’ (Vol. II, pp. 159-60). These feelings are not abated when, on an interchange of confidences, it appears that Harley had been associated in an intimate manner with the misfortunes of the luckless Mary, whose story occupies so large a part of Volume I. Coelibia readily understands ‘ how a noble mind may return, after a temporary deviation, into the paths of rectitude, and become more enamoured of virtue than if it had never erred’. ‘Harley,’ she declares, ‘you have not lost my confidence ; it seems rather that the disclosure of your intercourse with Mary has added to my esteem’ (Vol. II, pp. 188-9). After this events move swiftly to a predestined conclusion. Mr. Sandford, observing the impatience of the lovers, acquiesces in their immediate union. ‘Calmly the day retired, slowly the shades of twilight rose and rested on the scene; the idle business of the world was hushed and stars, propitious to delight, shed their celestial influence. A special licence had been procured . . .’ (Vol. II, p. 194).

5. An Essay on Money and Paper Currency. By R. Torrens, Esq., Major Commandant of the Royal Marine Battalion at Anholt. London: Printed for J. Johnson and Co., St. Paul’s Church Yard, 1812. Pp. xvii, 301. This is the first of Torrens’ lengthier works and although a contribution to the Bullion Controversy (on the anti-Bullionist side) is, in some ways, more of a systematic treatise than most of his other writings. The preface explains that its execution had been interrupted by the author’s military duties : ‘ assuming the command of the Marine Battalion garrisoning Anholt, he found that the requisite attention to the detail of military duty was peculiarly hostile to those habits of patient investigation, which, on less active service, he had delighted to indulge. The execution of his work was, therefore, necessarily suspended, until the winter setting in with severity, threw round the shores of Anholt an impregnable barrier of ice . . .’ (p. vii). And again, ‘It was written with great rapidity, and under the influence of unusual ardour and emotion. It was meditated during midnight walks, and distant journeys, indited at inns, and on ship¬ board, and completed in the Irish Channel on board the Dorset Yacht’ (p. ix). Nevertheless the first part at least is an abstract treatise on the principles of money. The preface also contains a most elaborate tribute to Castlereagh, whose Speech on the Report of the Bullion Committee is described as ‘one of the most admirable specimens of spontaneous political reasoning that [the author] ever read’. The compiler of the present bibliography had the good fortune to come into possession of Lord Castlereagh’s copy of the Essay, inscribed ‘ from the author ’ — alas, with so many pages uncut as to suggest an absence of any corresponding enthusiasm. The contents of Part I are analysed systematically in Chapter IV, Section 2, above. 265

ROBERT TORRENS

Part II contains an application of the foregoing principles to local conditions and to the issues raised in the Bullion Report. The depreciation of the exchange is held to be due exclusively to foreign expenditure. Huskisson’s views are denounced as illogical and unsound. A warning is given against the destruction of the paper system which would have the effect of producing mass unemployment and universal bankruptcy; in the circum¬ stances of the day a resumption of cash payments would tend to have that effect. Lord King’s notice to his tenantry is deplored : if the depreciation had been due to excess issues it would have been justified, but since it is to be attributed to adverse influences on the exchange it can involve nothing but injustice and commercial disaster. Lord Stanhope’s bill, however, is held to be unwise and the suggestion that bank paper should be made legal tender is condemned. The true remedy for depreciation due to unusual foreign expenditure is to be found in retaliation against the Napoleonic blockade by refusing to import from the continent. ‘If we exercised our sea dominion with a high hand, France would not only be cut off from all commercial relations with other countries, but one part of the empire could have no maritime intercourse with another’ (p. 297). In such circumstances a peace might be arranged on the basis that France should ‘retain her continental acquirements’ and ‘England keep her colonial conquests’ (p. 300).

6. The Victim of Intolerance: or the Hermit of Killarney. A Catholic Tale. By Robert Torrens, Major in the Royal Marines. London. Printed for Gale, Curtis, & Fenner, Paternoster Row. 1814. Three volumes, pp. 181 +238 + 221. The novel purports to be the text of a manuscript relating the history of the Hermit of Mucruss, a saintly recluse, who up to shortly before the time of writing, had inhabited the ruined abbey by the lakes of Killarney where it was discovered by the narrator. The intention of the novel, as its title implies, was to illustrate the theme of the Thoughts on the Catholic Question — the injustices and frustrations to which Irish Catholics were subject. The title-page bears a quotation (unidentified) which runs as follows: ‘He was for ever beating himself against the bars of his cage : and such is the power of passion over reason, that neither the exercise of his penetrating and vigorous understanding, nor the experience of constant failures, were sufficient to prevent him from wasting his strength in an idle endeavour to pass the magic circle which law and custom had drawn around him’. The story opens with the resolution of the hero, O’Connor, to leave Ireland. ‘I had struggled ardently to distinguish myself in the world ; but the remnant ol the penal code, which was still in force, had blasted all my hopes, and left a sense of injustice rankling at my heart’ (Vol. I, pp. 40-1). Arrived in Dublin, however, he is detained by a sense of obligation to restore to the rightful heirs an estate of which he had become possessed owing to the law providing that the will of a relapsed papist shall be void. Here at the house of a friend he meets and falls in love with one, Julia Russel, a young woman of surpassing beauty and accomplishment. At first it appears that the passion is reciprocated ; but inexplicable and dis¬ tressing reluctances develop and he suffers great anguish until it is ex¬ plained to him by a friend that, for tragic family reasons, Julia is unable to 266

BIBLIOGRAPHICAL APPENDIX

marry any man of whom her father does not completely approve. It appears that Mr. Russel, whose own somewhat chequered history is related at great length, is resolved that whoever marries Julia must possess the qualities of success in public life which he had missed himself and which, through the untimely death of his son, he had lost the opportunity of realizing in his offspring. O’Connor’s problem, therefore, becomes one of commending himself to Mr. Russel. In this he has considerable initial success. In a debate at a private party concerning productive and unproductive labour (related in some detail in Chapter II, Section 2 above), he distinguishes himself in Mr. Russel’s eyes; and in a later colloquy on metaphysics he develops so effectively the proposition that the existence of a Deity comes ‘within the sphere of experimental reasoning’ that Julia throws ‘her beauteous arms around his neck’, and Mr. Russel exclaims ‘O’Connor, I wish I could call myself your father’. As he spoke thus, the author of the manuscript con¬ fesses, ‘I started from my chair with agitation that chained my tongue, and almost suspended respiration. ... I shook in every limb. Unable to control the mingled feelings that rushed upon my soul, I retired from the company abruptly, that the turbulence of anticipated happiness might sub¬ side in solitude’ (Vol. II, p. 238). All this, however, is doomed to frustration. The company assembles to hear — for the space of Volume III — the reading of a manuscript which relates the earlier events of O’Connor’s life, his frustrations at school, in the army and in public life on account of his Catholic origins. The narrative touches great heights of pathos and nobility and the company is profoundly moved. But the revelation that O’Connor is a Catholic is the death knell of his hopes. An extremely upsetting scene ensues. ‘For some moments Mr. Russel attempted in vain to speak.’ At length he utters the fateful words, ‘When I desired to have O’Connor for my Julia’s husband I knew not that he was a Catholic . . . O’Connor, the present, is, perhaps, the most pain¬ ful moment of my life. From the first evening of our meeting I have cherished for you a partial friendship, which almost amounted to paternal love. As I contemplated your uncommon merit, I fancied that you re¬ sembled him whom I had lost; and it seemed that, in you, my buried boy survived. To marry you to Julia was my darling object. You became identified with all my schemes, and all the ambitious hopes which I had cherished for my son, were to you transferred. I predicted that you would ensure the political aggrandizement of my family, and that a son of mine should yet prevail in the senate and influence the councils of the country. But to the fulfilment of all these hopes, your religion, I now find, is an insuperable bar. I am not a bigot — I am not intolerant, — I do not deny you my daughter, because you are a Catholic; but because, as such, you are excluded from political influence, and from all the situations which a son of mine should fill . . . my daughter never can be yours.’ O’Connor’s sight ‘grew dim’, his head ‘grew light’. He staggers back¬ wards and is received within a friend’s ‘sustaining arms’ (Vol. Ill, pp. 215-21).

7. An Essay on the External Corn Trade; containing an inquiry into the General Principles of that Important Branch of Traffic; an examination 267

ROBERT TORRENS

of the exceptions to which these principles are liable; and a comparative statement of the Effects which Restrictions on Importation and Free Inter¬ course, are calculated to produce upon Subsistence, Agriculture, Commerce, and Revenue. By R. Torrens, Esq., Author of ‘An Essay on Money and Paper Currency’ and of‘The Economists Refuted’. London, printed for J. Hatchard, 1815. Pp. xix+348. This long essay, whose main arguments Ricardo considered as ‘un¬ answered and unanswerable’, is Torrens’ contribution to the controversy about the Corn Laws which raged after the conclusion of the Napoleonic Wars ; he tells us, in the preface to the Second Edition, that it was finished hastily in the hope that it might be of some practical advantage. The book is divided into three parts. In the first, Adam Smith’s arguments regarding the general advantages of freedom in the internal corn trade are applied to the external trade: namely, that it equalizes supplies throughout space and time and tends, therefore, to steadiness of price and the avoidance of famine. The advantages of territorial division of labour are emphasized and it is argued that the greater cheapness of corn which prevails under freedom will be conducive to a greater rate of accumulation, and hence general progress, than under the restrictive system. In this connection there are developed the conceptions central to the Classical theory of value and distribution, of a natural price of labour which is dependent on the habits of the population and of a diminution of the productiveness of agriculture as the margin of cultivation is extended. In the second part there are discussed the exceptions to which the general principles thus established are liable. It is argued that no exception is called for if there are infringements of the liberty of commerce in articles other than corn, nor if taxation in general is heavier than elsewhere, but that if there are special burdens on one article, then there is a case for the imposition of countervailing duties on the import of such articles. But it is argued further that it would be peculiarly difficult to establish the correct height of such duties where agriculture is concerned, and that repeal of the obnoxious imposts is the preferable alternative. Finally, it is contended that the existence of high protective duties is no argument against their removal but that such removal should be gradual. In the third part, the principles already established are applied to the circumstance of the United Kingdom. The contention of Parnell that high duties would eventually lead to lower prices is refuted by appeal to the idea of natural price and diminishing returns. The advantages of cheap food are emphasized and it is explained that there is a gain from free import even though corn could be produced here with less absolute outlay of re¬ sources than in the country from which it is imported, provided that the local productivity in manufacture is even greater. The importance of commerce as a basis for the indispensable naval supremacy of the United Kingdom is underlined. Proposals for a gradual approach to free trade are outlined, including a criterion of the rate of change based upon the yield of taxation. ‘If . . . the amount of ad valorem duties should, other things remaining the same, sustain a diminution, we should be warned that the value of money was raised faster than the quantity of commodities paying 268

BIBLIOGRAPHICAL APPENDIX

such duties, was augmented; and, consequently, that the approach to free trade was with too much haste . . (p. 347). 8. An Essay on the External Corn Trade upon the Production and Distri¬

bution of Wealth; containing an Inquiry into the General Principles of that important Branch of Traffic: an Examination of the Exceptions to which these Principles are liable; and a Comparative Statement of the Effects which Restrictions on Importation and Free Intercourse, are respect¬ ively calculated to Produce upon Subsistence, Agriculture, Commerce, and Revenue. By R. Torrens, Esq., F.R.S. Second Edition, with con¬ siderable additions. London : Printed for J. Hatchard & Son, Piccadilly ; Constable & Co., Edinburgh ; and Hurst, Robinson, & Co., Cheapside. 1820. Pp. xxvi + 442.

1

This edition reprints unchanged the text of the First Edition but it adds thereto a fourth book dealing with ‘ the influence of the external corn trade in the Distribution of Wealth’. The preface explains that while the author feels satisfied with the First Edition as regards production, he feels less satisfied with its success ‘in tracing the effects of this commerce upon the distribution of wealth’. In that edition, before reading Malthus’ Inquiry or Ricardo’s Essay on Profits, he had indeed indicated the nature of rent, and in The Economists Refuted he had pointed out the influence of low or high wages in raising or lowering the rate of profit. ‘But those principles had incidentally occurred to him . . . they were not followed out through their important consequences ’ (p. xvii). Hence the additions to this edition. The supplementary matter of Book IV is much more concerned with the general theory of value and distribution than with the external corn trade. Chapter I contests Adam Smith’s assumption of the invariability of the value of corn — diminishing returns make this absurd — and likens it to the erroneous doctrine of the French Economists that only agricultural labour is productive. Chapters II and III are devoted to the examination of Malthus’ doctrine that an increase in the value of the articles constituting wages is advantageous for the labourer. This is not true in any case for the average labourer who is married — the ‘ high exchangeable value of the necessaries of life can be advantageous only to those who have a surplus quantum to dispose of’ (p. 382). Moreover since high wages due to resort to inferior soil diminish profit, they are adverse to accumulation and hence eventually to the interest of the labourer himself. Thus, restrictions on importation have an adverse effect. The last chapter argues that in the end this is even true of rent. In the short run restrictions increase rents. But in the long run they limit the increase.

9. An Essay on the External Corn Trade. By R. Torrens, Esq., F.R.S. Third Edition. London : Printed for Longman, Rees, Orme, Brown, and Green, Paternoster Row. 1826. Pp. xxiv + 416. This edition contains substantial changes. Part IV of the Second Edition is now incorporated in Part I with sundry changes in the text, and there are further revisions and additions elsewhere. 269

ROBERT TORRENS

The preface announces the revision. It lays claim to the credit for the proposition that special domestic taxes necessitate equal duties on import and also for the general theory of Comparative Costs, both of which were adopted by Ricardo. Praise is given to Bailey and Tooke, and the defence of the labour theory of value by McCulloch and Mill is criticized. The first four chapters of Part I reproduce virtually word for word the argument of Chapters I and II of Part I of the Second Edition. Chapter V begins with sections on value which are mainly new. They reproduce in little the main arguments of Chapter I of the Essay on the Production of Wealth, which had been published in 1821. A few paragraphs on monopoly reproduce the argument of pp. 369-73 of the Second Edition. Section 5 of this chapter picks up the argument of Chapter I, Part IV, of the Second Edition relating to Adam Smith’s view of the value of corn. This, with some abridgment on pp. 68-9, is reproduced in its original form. Section 6 on the errors of the French economists and Section 7 on the influence of free trade on the relative value of raw produce and wrought goods are also lifted from the same chapter. Chapter VI begins with two new paragraphs defining wages. The rest is Chapter II, Part IV, of the Second Edition. Chapter II, Part I, of the Second Edition disappears. Chapter VII, Sections 1 and 2, reproduce with insubstantial changes Chapter III, Part IV, of the Second Edition, pp. 384-92. Section 3, how¬ ever, develops at some length the doctrine that ‘after the divisions of em¬ ployment have been established the particular profits of each individual capitalist will be regulated by a different principle from that which deter¬ mines the aggregate profit of the community’. In such circumstances, it is argued, ‘value has so important an influence in determining individual profit, that a correct theory of value is essentially necessary in order to enable us to ascertain and to explain the causes by which profits are elevated or depressed’. Sections 4, 5 and 6 then resume the text of the earlier edition from pp. 398-416 with only minor alterations in paragraphing. Chapter VIII, Section 1, follows Chapter IV, Part IV, of the Second Edition from p. 417 to p. 425. Section 2 on the errors of Ricardo and his followers is new. ‘ Neither the gradations of soil, nor the successive applica¬ tion of capital to land, with decreasing returns, are in any way essential either to the appearance or to the rise of rents . . . resorting to inferior soils, and applying additional capital to land with a decreasing return . . . are the limiting circumstances which prevent rent rising so high as it other¬ wise would rise’ (pp. 138-9). Situation rent is explained and illustrated. Section 3, on the ‘Errors of Malthus’, and Section 4, ‘On the Effects of free Imports on the Interests of Landed Proprietors’, reproduce pp. 427442 of the Second Edition, with the insertion of a few paragraphs dealing with the advantage to the landed interest of prosperity of manufactures and proximity to manufacturing towns. In Part II, Chapter I reproduces, with no important change, Chapter I of Part II of the Second Edition. Up to page 210 Chapter II corresponds to Chapter III of Part II of the Second Edition : thenceforward there is some re-writing but no great alteration of sense. Chapter III corresponds broadly to Chapter II of Part II of the Second Edition : there is some inci¬ dental re-writing.

270

BIBLIOGRAPHICAL APPENDIX

Part III differs more substantially from the earlier version. Chapter I reproduces, with extensive supplementation from Tooke’s Thoughts and Details, the argument (and often the words) of the Letter to Lord Liverpool that the depression in agriculture was not to be explained in terms of the influence of changes in the value of money but rather to the cessation of war and the effects of the Corn Law of 1815. Chapter II examines proposed remedies for sudden fluctuations. The fallacies of the agrarian arguments are examined, particularly the conten¬ tion that restriction of imports would lower prices and render them steadier. A permanent system of restriction might eventually so diminish home de¬ mand as to make us once more an exporting country, but only at the cost of general decline and depopulation. Chapter III argues that the restrictions had ‘contributed to bring on the present commercial crisis’ (1826). ‘By . . . commercial policy . . . we restricted the importation of foreign agricultural produce, and thereby lowered the rates of profit and of interest, until capital, excluded from the channels of beneficial investment and reproduction, existed in a state of redundancy . . .’ (pp. 323-4). The argument then reproduces a critique of Lauderdale from Chapter I, Part III, of the Second Edition, pp. 227-34. Chapter IV, Section 1, ‘On the Importation of Agricultural Produce’, follows Chapter II, Part III, of the Second Edition, pp. 262-6 : and Section 2, ‘Popular Objections against the Adoption of Free Trade Answered’, follows pp. 274-94 of that chapter with considerable re-writing. Section 3, ‘Comparative Effects of Free and of Restricted Trade’, takes over Chapter III, Part III, of the Second Edition, pp. 314-35, with some expansions and omissions. Section 4, ‘On the Specific Measures which, in revising the Corn Laws, the Legislature should adopt’, begins with a paragraph from the same chapter, p. 340, but for the most part it is new. Gradual change is recommended — duties at first too high rather than too low — a bounty upon exportation to counterbalance certain unequal burdens. At the same time recommendations are made for mitigating ‘the existing distress’ : the repeal of the usury laws, measures to place the country banks of circula¬ tion upon a basis of perfect security. The chapter concludes with an appeal to the public to support the Government in the introduction of the liberal system of commercial policy upon which the general prosperity depends.

10.

An Essay on the External Corn Trade. By R. Torrens, Esq., M.P., F.R.S. Fourth Edition. London: Printed for Longman, Rees, Orme, Brown, & Green, Paternoster Row. 1827.

‘This edition’, to use the words of the author, ‘differs from the Third in nothing except the addition of a new Section, explaining the Effects of Free Trade upon the Value of Money.’ This addition, however, is import¬ ant since it contains quite clearly stated the ‘heresy’ which was to underlie the argument of the Letters on Commercial Policy and the notorious Letter II of The Budget. The general thesis is announced as follows in the advertisement: ‘ Mr. Tooke has shown, in the most satisfactory manner, that when the quantity of money remains the same, taxation cannot raise general prices. It follows,

ROBERT TORRENS

as a necessary consequence, that that advance in general prices which experience proves to be a consequence of taxation, must be accompanied by an increase in the quantity of money.’ Tribute is paid to assistance received ‘from a very curious and elaborate Critique by Mr. Pennington, upon some doctrines connected with this subject which had been advanced by Mr. Ricardo and Mr. Mill’. The new section (Section 4, Chapter IV, Part III) begins with a dis¬ cussion of the effects of taxation ‘when the material from which money is manufactured is a native production’ (p. 394). In these circumstances taxation ‘when it does not attach to the capital invested in the mines, has a necessary tendency to increase the supply, and to reduce the value, of money ’ (P- 397)The problem of what happens ‘when the precious metals are foreign products ’ is next investigated. The effect of taxation is said to be ‘ perfectly analogous. While gold and silver are imported duty free, and while, at the same time all other foreign commodities are either prohibited, or subjected to considerable duties on importation, the amount of money will be greater, and, by consequence, its value will be lower, than if an unrestricted and equal trade were established with other commercial countries’ (pp. 397-8). This is illustrated by the exchange of U.K. manufactures for gold and cochineal from South America. Thus ‘ Ceteris Paribus, the country which, while it allows the precious metals to come in without charge, imposes high protecting or prohibitory duties upon the introduction of all other commodities, will retain in circulation a more plentiful supply of gold and silver, and will have a currency greater in amount, and lower in value, than the country which adopts a more liberal system of commercial policy. Against the advantages of free trade, are to be placed, particularly in a country burdened with debt, the disadvantages of a currency somewhat contracted in amount, and increased in power’ (p. 400). Then follows a discussion of ‘the circumstances determining the ex¬ changeable value of foreign commodities ’ — the difference between the comparative cost of producing commodities in one country and the com¬ parative cost of producing them in others — the rate of profit, the expense of carriage and the proportion which exists between the demand for foreign commodities in the home market, and the demand for domestic commodi¬ ties in foreign markets. There is an excellent discussion of the irrelevance of absolute cost differences so long as they are equal, followed by a long series of arithmetical illustrations of the effects of raising and lowering duties in the trade between a hypothetical England and Poland. The practical conclusion is that the ‘subtraction of the precious metals described . . . above . . . and the consequent fall in general prices* might be prevented by retaliating the prohibitory system, and diminished by imposing duties on the importation of foreign commodities coming from countries refusing to act on the principle of reciprocity ’ (p. 424). Moreover the introduction of free trade should be gradual; a sudden removal of obstacles might cause ‘a commercial crisis . . . more terrific than any which has hitherto occurred ; the pressure of taxation would become in¬ tolerable, and the national creditor could not be paid’ (p. 426). But manufacturing superiority can only be preserved by a move in the direction of free importation of corn and other agricultural products. 272

BIBLIOGRAPHICAL APPENDIX

11. An Essay on the External Corn Trade. By R. Torrens, Esq., F.R.S. A New Edition. With an Appendix on the Means of Improving the Condition of the Labouring Classes. London : Printed for Longman, Rees, Orme, Brown, & Green, Pater¬ noster Row. 1829. Pp. xxvi+477.

1

This edition reproduces unaltered the 450 pages of the Fourth Edition and adds an appendix ‘On the Means of Improving the Condition of the Labouring Classes’. This appendix is important. It reappears with only minor omissions in no less than four other publications. Colonel Torrens on the Wages of Labour (1832), Wages and Combinations (1834), A Letter to Lord John Russell on . . . Poor Laws in Ireland (1837) and the Letter to Lord Ashley on the Principles which regulate Wages (1844). The argument is concerned with the general principles which regulate wages . . . ‘the most interesting and the most important division of Political Economy’. Labour is defined as ‘exertion employed in order to procure the object of desire’ (p. 452) and the inclusion of the idea of sub¬ sistence (James Mill) is deprecated, as is the use of the terms ‘accumulated labour’or‘hoarded labour’. Wages are defined as the ‘articles . . . which the labourer receives, in exchange for his labour’ (p. 454). The use of the term as equivalent to proportions is said to be a perversion of language, and its use to cover all advances as well as advances to the labourer is said to lead to confusion. The maximum of wages is ‘the whole produce . . . which remains after the replacement of the capitalist’s other advances’ (p. 457). But a ‘moral maximum’ is set lower than this by the minimum rate of profit necessary to induce the capitalist to carry on his business. The maximum is raised either by the cultivation of land of a better quality or by improvements in the effective powers of industry. The minimum of wages is set by the quantity of necessaries and conveniences sufficient to preserve the labourer in working condition, and to induce him to keep up the race of labourers. This varies from place to place and from time to time. Actual wages are determined by the proportion between the number of labourers and the quantity of capital devoted to the purchase of labour. But this formula must not be applied without taking note of other relevant circumstances. It is argued that the labouring classes have it in their own hands to regulate numbers in relation to the extent and fertility of the soil and in relation to the component parts of capital employed to ‘ cause actual wages to ascend to their ultimate maximum’. It is argued further that there is no necessary tendency for population to increase faster than capital.

12. Colonel Torrens on the Wages of Labour and on the Means of Improving the Condition of the Labouring Classes. A New Edition, Corrected. London: Longman & Co., Paternoster Row, 1832. Price Twopence. Pp. 16. This is a reproduction with minor revisions of the appendix to the 1829 ‘New’ edition of An Essay on the External Corn Trade.

13. A Letter to the Right Honorable the Earl of Liverpool, on the State of the Agriculture of the United Kingdom, and on the Means of Relieving the Present Distress of the Farmer, and of Securing him against the 273

ROBERT TORRENS

Recurrence of similar Embarrassment. Hatchard. 1816. Pp. 34.

London.

Printed for J.

This tract is a diagnosis of the causes of the agricultural distress of the period immediately following the cessation of the Napoleonic Wars and an attempt to prescribe for their cure on the principles of An Essay on the External Corn Trade. It begins with an attempt to refute the suggestion that distress was to be attributed to monetary causes : the fall in the price of produce had not been accompanied by a commensurate fall in other prices; moreover, the price of corn in bullion showed a fall of nearly 50 per cent. The cause of the distress rather was to be found in the mistaken measures adopted to sustain the price of corn when the natural protection afforded by the war had ceased. It is argued that there is some tendency for so steep a plunge of prices to correct itself by rendering unprofitable marginal land, but that restricted markets, together with the nature of the demand for agricultural produce, will give rise to oscillations which will lead to recurrent distress. Various suggested remedies are then discussed : protective duties, the abolition of tithe, etc., the repeal of the income tax. These are found either pernicious or comparatively ineffective; and the conclusion is reached that only the establishment of a free trade in corn can really put matters right. This part of the argument involves a discussion of the progress of rent and the effect on profits of a high price of produce. The necessity of a gradual approach to freedom is stressed in order to avoid an undue disturbance of the national finances ; and, lest an abnormally large harvest should disturb markets still further, in the immediate future a temporary bounty on ex¬ portation is suggested as a possible expedient, the author taking care to declare, however, that as a permanent arrangement it would be ‘the most pernicious economical measure which could possibly be adopted. It is as the active poison which, in desperate cases, the skilful practitioner may, in nicely graduated proportions, sometimes exhibit with advantage; but which, in the rash empiric’s hand, is instantaneous death’ (p. 34).

14. National Currency. Major Torrens to the Earl of Lauderdale. [A series of letters published at intervals in The Sun from April 16 to April 30, 1816.] Letter I, April 18, 1816, states the intention of submitting ‘some observa¬ tions on the theory of money, and on the expediency of continuing the restriction of cash payments, and of rendering silver the standard of our currency’. The author then proceeds ‘ to illustrate those variations in the value of money and of currency, which the fluctuations of foreign trade and the balance of foreign payment occasionally produce’. When there is an adverse balance, due, say, to a bad harvest at home, ‘ those particular articles . . . which can be conveyed at the cheapest rate, and which are least liable to glut the foreign market, will always form the basis of that extraordinary exportation which is resorted to. . . .’ Supposing that the article habitually exported in exchange for corn were cotton, an extra¬ ordinary increase in export would cause a disparity in cotton prices at home and abroad. Yet even if cotton were dearer at home, it might be exported at a loss if the profit on importing the corn obtained in exchange were greater. 274

BIBLIOGRAPHICAL

APPENDIX

Having thus ‘shown that a commodity may continue to be exported, though its value in the home should exceed its value in the foreign market’, the author proceeds ‘to apply this principle to the bullion market, and to the expounding of the theory of money and exchange’. In the event of an unfavourable exchange, bullion goes first, and only when it has risen in value at home and fallen abroad so much as to offset the gain of export, do other commodities begin to move. ... ‘In every instance, and in every stage of the progress, the degree of loss sustained upon exporting the last article with which the merchant may most cheaply balance those foreign debts which the ordinary operations of commerce cannot liquidate, will regulate the degree in which the value of bullion may rise in the home, above its value in the foreign market.’ This principle is said to involve an unequal rise in the value of the bullion of different metals in the event of an unfavourable balance of payments. Letter II, April ig, proceeds to apply this principle to explain changes in the relative value of bullion and coin. An unfavourable balance tends to cause such changes in three ways. ‘In the first place, it gives metallic bars and masses an advantage over small metallic pieces; in the second place, it elevates the metal which can be sworn off for exportation, above that which cannot be legally sent out of the country; and in the third place, it alters, by the amount of the difference in the expense of carriage, the customary and level value of the metals from which the coinage is composed.’ This leads to the conception of depreciation. ‘ It is only when the money of a country has lost a portion of its exchangeable value, that it can justly be said to be depreciated.’ When coin is clipped or if it is redundant owing to some economy in its use, it will fall relative to bullion and depreciation may be justly diagnosed. But if there is an unfavourable balance, then it is wrong to talk of depreciation. ‘ When the metals are exported, to balance an unfavourable account, bullion, as we have seen, will rise in a higher ratio than coin, but then, as soon as the rise in the value of the metals exceeds the premium necessary to cover the risk and expense of exporting the coin, the coin will also be sent out of the country, its supply diminished, and its value raised. Now when coin, or the money of a country, is raised in value, it is a confounding of terms, nay, an absolute contradiction, to say that it is depreciated.’ This leads to the distinction between real and apparent depreciation taken over from the Essay on Money and Paper Currency. Letter III, April 20, applies these principles to differences in the value of bullion and paper currency. A rise in bullion in terms of paper currency when the balance of payments is adverse is an apparent not a real deprecia¬ tion. To the objection that there is no criterion whereby we may distinguish the effects of an unfavourable balance from other influences and that ‘if we admit the principle that Bank paper may depart from the actual value of the coin which it purports to represent, we shall no longer have a check upon its issue, or an assignable limit to its fluctuations . . .’ the author replies that, on the principles he has laid down, the prices of the coarser commodities which are not likely to be exported in the event of an T

275

ROBERT TORRENS

unfavourable balance may be taken as a criterion. While paper retains its customary relation to these no real depreciation has taken place. The author admits that on his principles an unfavourable balance may justify a restriction of cash payments. But he argues that the ‘means of apportion¬ ing the paper currency, so as to cause it to conform to the customary value of the coin, consists, as I have elsewhere explained, in restricting the issues of the Bank to the discounting of bills at short date, and in thus providing that each advance of currency should be returned into the coffers of the Bank, after having supplied the temporary demand which called it forth’. Letter IV, April 22, explains the ‘recent history of our currency’ in these terms. A considerable array of figures is deployed; ‘while the price of bullion and the amount of currency thus fluctuated in inverse ratios, the value of the Bank note . . . remained fixed and uniform, with respect to those domestic articles, such as coals, tin, and copper, which, in consequence of their bulk, are rarely employed in balancing foreign accounts ’. This leads to a criticism of the Bullion Committee for ignoring these distinctions. Letter V, April 23, proceeds to inquire whether the restriction of cash pay¬ ments should continue. It is argued that, in discussions of prosperity and decline, too little attention has been given to the state of confidence. An increase or decrease of confidence will occasion an increase or diminution in production. ‘For example, if in consequence of a general increase in confidence, commodities in general were increased by a fourth, then the shoemaker would have more shoes to dispose of; but as the hatter and clothier would have more hats and clothes to exchange against them, the demand for shoes would be increased in an equal proportion with the supply ... an increase of confidence always produces that enlargement of the market which it anticipates.’ Hence governments should avoid ‘those abrupt transitions and those sudden fluctuations from which confidence may receive a check ’. The recent depression of agriculture is said to have afforded an illustra¬ tion of these principles. ‘The prices of agricultural products have fallen with the opening of the ports; farmers are unable to purchase the same quantity of goods as formerly . . . other classes find an important market for their productions narrowed; and ... the consequent loss of confi¬ dence has hitherto prevented our manufacturers and commerce from ex¬ periencing the encouragement which the cheapness of provisions and of raw materials is naturally calculated to confer.’ This might have been avoided. A gradual and cautious return to free trade would have been a good thing. But the Corn Bill was too late to be of temporary utility and as a permanent measure ‘ it was in violation of all the principles of economi¬ cal science’. It is all the more necessary, therefore, that shocks to confidence due to sudden changes in the currency should be avoided. ‘This object, always desirable . . . can as we have shown in the foregoing pages, be best attained by regulating the paper currency, not by the actual, but by the ordinary and level value of the coin which it represents.’ The advantages of a paper currency in the terms of the argument of the Essay on Money and Paper Currency are briefly set forth ; and it is argued that 276

BIBLIOGRAPHICAL APPENDIX

a return to cash payments would not only impair the elasticity which in the then crisis was so essential and thus injure confidence, but would also compel an actual contraction of issue until the value of the paper currency conformed to that of the gold coin which would immediately raise the value of the currency 5 per cent., thus causing inequitable changes of disbribution and a further shock to confidence and production. Letter VI, April 30, continues the argument. The ultimate effects of a re¬ sumption of cash payments on agriculture are examined. The process of scaling down fixed debt now going on would be counteracted by a further fall of prices. We must guard against the ‘frightful stagnation that this would involve by continuing, for two or three years longer, the suspension of cash payments’. Continuation for a year would not be enough. The claims of silver to be regarded as standard money are then pro¬ pounded. Silver is said to be liable to less fluctuation than gold. The series concludes with a plea against sudden change. ‘Whether with respect to physical, or to political health, a too sudden transition even from a bad to a good system, is attended with pain and danger. When deviations from the established course of things becomes necessary, Slow should the change arrive, and stage by stage, Slow as the shadow o’er the dial moves, Slow as the stealing progress of the year.’

15. A Paper on the Means of Reducing the Poors [sic] Rates and of Affording Effectual and Permanent Relief to the Labouring Classes. Presented to the Chairman of the Committee on the Poor Laws by Major Torrens (Original) London, The Pamphleteer, Vol. X. 1817. Pp. 509-28. The main argument of this pamphlet is designed to recommend emigra¬ tion as a means of reducing the pressure of population and to suggest that within a very short time paupers sent to the colonies would be able to repay the expenses of transporting them. (A detailed summary of the contents is given in Chapter VI, Section 3, above.)

16. Strictures on Mr. Ricardo's Doctrine respecting Exchangeable Value. Edinburgh Magazine. October 1818. Pp. 335-8. The article, which is in the form of a letter, is signed ‘R’. We know, however, that it was by Torrens, for it is referred to by him in a letter to Place of September 30, 1817 (British Museum, Add. MS. 7949, fols. 70-1), and again in a ‘short scrawl’ quoted by Mill in a letter to Ricardo of October 26, 1818 (Ricardo, Works, ed. Sraffa, Vol. VII, pp. 515-16). It begins by citing Adam Smith’s parable of the beaver and the deer. Smith limited the theory based upon this parable to primitive conditions and provided other explanations for the determination of value in an ad¬ vanced society. But Ricardo attempts to apply it all round. The aim of the letter is said to be to state the reasons for preferring the doctrine of the former. The argument is based upon the acknowledged rule that, in the absence of monopoly or other limiting conditions, profits in different occupations 277

ROBERT TORRENS

tend to equality. Thus it follows that it is the products obtained by the employment of equal capitals which must be equal in value and not, save in exceptional cases, products on which equal quantities of labour have been expended. This is demonstrated by arithmetical examples. Ricardo’s admission that ‘when equal capitals are of different degrees of durability the products of equal quantities of labour will not be of equal value ’ is quoted but it is urged that since ‘ equal capitals seldom possess equal degrees of durability, this, instead of limiting what he calls the general principle, subverts it altogether’. Indeed ‘after the division of the industrious members of a community into a class of capitalists and a class of labourers, there is only one case, and that of extremely rare occurrence, in which the value of commodities will be in proportion to the quantities of labour employed in their production. This is when equal capitals happen to give employ¬ ment to equal quantities of labour. . . . But . . . this is no more than a merely accidental coincidence.’

17. A Letter to the Independent Freemen of the City of Rochester on the Petition against Lord Binning's Return being declared Frivolous and Vexatious and on the Right of the Eldest Son of a Scotch Peer to Repre¬ sent an English County, City, or Borough, without Possessing a Landed Qualification in England. By R. Torrens, Esq., F.R.S. London : Printed for Charles Hunter, Law Bookseller, 26, Bell Yard, Lincolns Inn. 1819. Pp. 33. A vigorous defence of the petition against the election of Lord Binning, one of the candidates who defeated Torrens in the Rochester Election of 1818. The petition was only drafted after responsible legal opinion had been taken. A correct interpretation of the law would have been adverse to Lord Binning. The author has no regrets and would do what he did, again.

18. A Letter to the Independent Freemen of the City of Rochester on the Petition against Lord Binning's Return being declared Frivolous and Vexations and on the Right of the Eldest Son of a Scotch Peer to Repre¬ sent an English County, City, or Borough, without Possessing a Landed Qualification in England. By R. Torrens, Esq., F.R.S. Second Edition. London, 1819. Vol. XIV Pamphleteer, No. XXVII. Pp. 209-224. A reprint of No. 17.

19. Mr. Owen's Plans for Relieving the National Distress, [being Article XI of the Edinburgh Review for October 1819.] Vol. 32, pp. 453-77The attribution is based upon Ricardo’s letters to McCulloch and Trower of February 28 and March 13, 1820, respectively (see Ricardo, Works, ed. Sraffa, Vol. VIII, pp. 159 and 164), and upon the fact that a speech by Torrens, delivered at a meeting at the London Tavern on July 26, 1819, reported in the Scotsman August 21, 18ig, and favourably 278

BIBLIOGRAPHICAL APPENDIX

mentioned by McCulloch in a letter to Ricardo of September 25, 1819 (Sraffa, Vol. VIII, p. 82), is reproduced almost verbatim in this article. The works reviewed are : 1. A New View of Society; or, Essays on the Formation of Human Character, preparatory to the Development of a Plan for ameliorating the Condition of Mankind. 2. Observations on the Effects of the Manufacturing System. 3. Two Memorials on Behalf of the Working Classes, presented to the Govern¬ ments of America and Europe. 4. Three Tracts; and an Account of Public Proceedings relative to the Employment of the Poor, by Robert Owen, of New Lanark. After an assurance of esteem for Owen as a man, the review begins by setting out the circumstances determining the rate of profit, ‘ the quality of the soil under cultivation, — the degree of skill with which labour is applied, — and the proportion of the produce absorbed as wages’ (p. 458). In¬ creasing population may for a time induce a more extensive division of labour, and hence a tendency to a rise in the rate of profit. But ‘such a process could not continue for long’, and under ‘any given degree of skill and economy in the application of labour, the return upon capital will be determined by the quality of land in cultivation; and as inferior soils are resorted to, the rate of profit will constantly diminish, until that stationary state is attained, in which no additional capital can be employed, and all tendency to increasing population must be checked by famine’ (p. 459). In fact a stationary state may be reached in one area long before ‘the next quality of land to be taken in becomes so inferior that it will not replace the expenses of cultivation, with the lowest rate of profit for the sake of which the capitalist will engage in production’ (p. 459); the migration of capital to other areas where a better rate of profit can be obtained can produce a similar effect. Furthermore, the coming of this ‘melancholy state’ can be ‘prodigiously accelerated’ by unwise commercial regulations or by the pressure of taxation. All these causes are said to be operating in Great Britain. Tillage has been extended over lands of a quality so inferior that, ‘upon any given expenditure, they yield a much less proportional return than the lands under cultivation in any other country in the world’ (p. 462). Restriction upon commerce limits trade and ‘the Tax-gatherer appropriates so large a portion of the surplus produce of industry . . . that in many instances the farmer and manufacturer are left scarcely sufficient to replace their advances’ (p. 462). It is asked, what conceivable relevance to all this have the remedies which Mr. Owen proposes. ‘ His schemes do not touch, nay, they have not the most distant bearing upon, the causes of distress’ (p. 463). Certainly they will not increase the powers of the soil: and the proposal to return to spade husbandry is likely to diminish the net produce, the only fund to which we can look for employing a growing population. Nor can they improve the yield of manufacture : if the inhabitants of his parallelograms sell their goods abroad, they will still be liable to the vicissitudes of trade : if they aim at self-sufficiency they forgo the advantages of the division of labour, which, as Smith has shown, depends essentially upon the extent of the market.

279

ROBERT TORRENS

The author then proceeds to examine the validity of Owen’s contention that ‘the employment of machinery occasions the production of a greater quantity of commodities than the existing arrangements of society permit to be consumed’ (p. 469). This is identified with the position adopted by ‘ the celebrated M. de Sismondi ’ in his Nouveaux Principes d’economic politique, and the ‘important and fundamental principle, that increased demand is created by increased supply’ attributed to Say and Mill, is expounded in order to refute it. The ‘ late glut of British goods in the markets of Europe and America, to which M. de Sismondi refers as a practical proof of his paradox, that poverty may be occasioned by the super-abundance of wealth’ (p. 474), is shown to be attributable to special circumstances and in no way to support his contention. The review concludes with an exhortation to ministers to improve their policies. ‘Give freedom to Commerce, and lighten the pressure of Taxa¬ tion, and we shall have no complaining in our streets. . . . There is nothing appalling in our situation, except the want of wisdom in our Rulers’ (pp.

475-6). 20. A Comparative Estimate of the Effects which a Continuance and a Removal of the Restriction upon Cash Payments are respectively calcu¬ lated to Produce: with Strictures on Mr. Ricardo's Proposal for Obtaining a Secure and Economical Currency. By R. Torrens, Esq., F.R.S. Author of‘An Essay on Money and Paper Currency’; and‘An Essay on the External Corn Trade’. London: printed for R. Hunter, Successor to Mr. Johnson, No. 72, St. Paul’s Churchyard; and Ridgways, Piccadilly. 1819. Pp. 80. This pamphlet, as its title implies, is a contribution to the discussion of the expediency of resuming cash payments. The general tenor of its argu¬ ment, though less extreme than that of the Essay on Money and Paper Currency, is still by no means bullionist; and although it makes some attempt to hold the scales even between the two schools of thought, its assumptions and its conclusions are still much nearer those of the opponents of the Ricardian attitude. The argument begins with an almost exact reproduction of the substance and even the wording of the earlier letters to Lauderdale. There is the same demonstration of the incentive to liquidate an unfavourable balance by export of the commodity yielding the greatest profit. There is the same distinction drawn between real depreciation which occurs when the domestic value of coin is lowered because of debasement, etc., and apparent deprecia¬ tion when the value of bullion is raised because of adverse influences on the exchange. These considerations are said to throw light on the dispute between bullionists and anti-bullionists. The bullionists are right in regarding the precious metals as the only final standard. But they fail to realize that paper may depreciate in gold either because of a fall in its customary value or because of an increase in the value of gold. The loose connection with gold may even render the value of the circulating medium more steady by permitting deviations from the customary standard. Moreover, the measures proposed by the bullion280

BIBLIOGRAPHICAL APPENDIX

ists for correcting the irregularities of the currency would have the effect of increasing the fluctuations to which it is exposed. Thus ‘the repeal of the laws against melting and exporting coin would be clearly pernicious’ (p. 35). So would Ricardo’s ingot scheme. ‘If . . . the paper currency were rendered convertible into bullion, instead of into coin, its exchangeable power would be subject to deeper vibrations than at present’ (p. 38). There would be a saving of expense but this ‘would be purchased at a price much too dear, and by aggravating the calamities incident to unproductive seasons and the revulsions of trade’ (p. 40). The so-called practical men, however, who oppose the bullionists ‘are themselves the advocates of one of the most refined and subtle theories, which has ever been advanced in political economy, namely, that of an abstract currency, or ideal standard of value’ (p. 41). But this is unattain¬ able. The case against the bullionists in this connection was that they pushed their arguments too far and did not admit exceptions. But the antibullionists erred in denying ‘that the standard must be found in some commodity possessing an intrinsic value’ (pp. 46-7). Nevertheless, it is contended, the anti-bullionists had a clearer view of the facts which suggest that most of the trouble was due to harvest variations or variations in foreign expenditure — although it is not contended that there was no over-issue due to advances on Government security. (At this point there is some repetition of the statistical arguments of Number V of the Letters to Lauderdale.) If some evil was incurred by the currency sinking in value, much evil was avoided by its being prevented from rising to the extraordinary elevation in value which gold attained. The question of resumption is represented as a choice of evils. If re¬ striction continues there is danger of depreciation, if cash payments are resumed then the currency will be liable to extraordinary elevations of value due to foreign expenditure, deficient harvests, etc. Depreciation lowers real wages. But this is only temporary. And even while it lasts the stimulus to trade and employment of increased circulation probably counterbalances it. Moreover, it changes distribution in favour of the productive classes. It is true that the purchasing power of salaries and annuities is lowered, but this is a gain to the community at large, and the reduction of the burden of the debt is wholly welcome. Appreciation has the contrary effects which are beyond all comparison more injurious. Both kinds of change affect some incomes adversely. But in the one case, ‘the violations of private property would be accompanied by an increase of confidence, of production, and of trade’. In the other they would be ‘aggravated by a universal stagnation, and revulsion, and, perhaps in this overtaxed country, by a national bankruptcy’. Therefore even if the continuation of restriction were to be accompanied by depreciation it would be preferable to exposure to deflationary influences. But this depreciation is not necessary : it should be easy for the Bank to distinguish between conditions of over-issue and an external strain on the exchange. If, however, ‘ we are to have nothing but pure theory ’, then we should look round for devices for mitigating ‘ the effects of those occasional eleva¬ tions above their level value, to which the metals are exposed’ (pp. 74-5). To this end it would be wise to revert to a silver standard. 281

ROBERT TORRENS The argument concludes rather abruptly by quoting (without reference back) the peroration, including the poetry, of the sixth letter to Lauderdale on the undesirability of sudden change.

21. [Reviews of Mai thus' Principles of Political Economy, being Three Articles appearing in The Traveller for April 21, 26, and May 1, 1820.] These articles, which respectively bear the titles Notice of Mr. Malthus’s New Work, Mr. Malthus’s New Work on the Principles of Political Economy with Observations on Free Trade and On Mr. Malthus’s Work on the Principles of Political Economy, are to be identified from a reference in a letter from Ricardo to Malthus of May 4, 1820. (Works, ed. Sraffa, Vol. VIII, pp. 185-6.) The first article is very brief. It remarks that despite the announcement in the preface of an endeavour to avoid a controversial air, ‘the leading object seems to be to controvert the opinions of Mr. Ricardo’. It then goes on to call in question Malthus’ definition of wealth on the ground of undue breadth. ‘He defines it to be those material objects which are necessary, useful or agreeable to mankind. . . . To us it has always appeared that wealth, considered as the object of economical science, consists of those articles only which are necessary or useful to man, and which it requires some portion of human exertion or labour to produce.’ The second article is concerned with Malthus’ theory of profit. His definition in the terms of the difference between the value of advances and the value of commodities when they are eventually produced is criticized on the ground that profit is a surplus which would exist ‘ quite independently of value’. It ‘has its origin, not in the interchange of commodities, but in the power of human industry to produce a greater quantity of the neces¬ saries of life than is sufficient to support the labourers by whom it is carried on’. Malthus’ view that the rate of profit is affected by ‘ the difficulty or facility of production upon the land and by the real rate of wages’ is said to be correct, as is his doctrine of the effects of improvements. But in this he is not original. The assertions are ‘implied’ in Ricardo’s Principles and they are certainly stated in an article on Mr. Owen’s Plan which appeared in the Edinburgh Review and in the second edition of Colonel Torrens’ Essay on the External Corn Trade. It is said to be difficult to understand by what process of reasoning Malthus has persuaded himself that he has refuted Ricardo in this respect. ‘The fact ... is that Mr. Ricardo, though he may have erred in estimating wages, not by the quantity of necessaries which the labourer receives, but by the quantity of labour necessary to produce them, makes allowances for the influence of agricultural improvements upon profits. . . .’ Malthus’ practical conclusions are said to be ‘not only unsatisfactory but pernicious . . . they would go far to banish manufactures and com¬ merce from the land’. He has omitted to consider the ‘important principles that commerce is an exchange of equivalents, and that, in proportion as we refuse to import, we must cease to export . . . foreign demand would necessarily extend as we permitted foreigners to make larger payments to us in the form of the articles in the production of which they possess peculiar 282

BIBLIOGRAPHICAL APPENDIX facilities . . . the glut, and the reduction in the price of our goods, and the fall in the rate of profit, which Mr. Malthus affirms would be the conse¬ quence of a free trade, could not by probability take place’. The third article is concerned with Malthus’ opinions on rent. He is taken to task for using a definition which involves value, whereas in fact, it is said, rent, like profit, is a surplus which would arise even in conditions where there were no markets. Exception is also taken to his appearing to think that his assertion that improvements in agriculture might lead to a rise in rents if accompanied by an increasing population, was a refutation of Ricardo, who was making no such supplementary assumptions. ‘Upon Mr. Malthus’s own principles improvements in agriculture might take place while the prevalence of moral restraint rendered population stationary’. It may be true, as Malthus suggests, that a country having more fertile soil is better off than a country similarly placed in other respects having inferior soil. But this is no justification for agrarian protectionism on the part of the second country. For that would imply only that ‘instead of raising the rate of profit on her own capital she would still further depress it ’. The article concludes with a promise to endeavour to show the manner in which free trade may ‘tend to encrease [he] the rent of land’. No further article appeared.

22. An Essay on the Production of Wealth with an Appendix in which the Principles of Political Economy are Applied to the Actual Circum¬ stances of this Country. By R. Torrens, Esq., F.R.S. London : printed for Longman, Hurst, Rees, Orme, and Brown, Pater¬ noster Row. 1821. Pp. xvi + 430. This is the one ostensibly general work on Political Economy published by Torrens; all the others are written with specific reference to particular problems. It is limited to production, the author’s ‘disquisitions’ on dis¬ tribution, according to the preface to this work, having been laid before the public in Part IV of the second edition of the Essay on the External Corn Trade. But within this limit it purports to provide ‘ a general treatise upon Political Economy, combining with the principles of Adam Smith, so much of the more recent doctrines as may be conformable to truth and embodying the whole into one consentaneous system’. The success of this attempt is, however, dubious. The various chapters, although apparently ‘a consen¬ taneous system ’, are in fact chiefly interesting in relation to special contro¬ versies which were attracting the author’s attention. As will be seen from the account given below, much of the text reproduces either word for word or in substance the argument of the author’s earlier writings. The work opens with a long chapter on the nature of wealth and the causes and measure of value. Wealth is defined as ‘articles which possess utility, and which are procured by some portion of voluntary effort’ (p. 15); it is, therefore, not limited to articles of exchangeable value. The determination of value is then discussed and the author develops at length his view that whereas in primitive conditions articles tend to exchange for one another according to the relation of the quantity of labour embodied in them, in advanced society it is the relation between the quantity of capital expended or accumulation of labour which determines this ratio — 283

ROBERT TORRENS

exception always being made for cases of monopoly. This is an expanded version of the critique of Ricardo in the Edinburgh Magazine (see above, pp. 277-8). Value and price are distinguished and the relativity of all con¬ ceptions of value is emphasized. ‘As every marketable commodity which exists, or which can be supposed to exist, is perpetually varying in its power of effecting purchases, it is as impossible to discover a measure or standard of exchangeable value, as it would be to obtain a measure of length, or of weight, if everything in nature were undergoing incessant changes in its dimensions and specific gravity’ (p. 65). The proposed arrangement of the rest of the book is then set out in the second chapter. After a brief discussion of the instruments of production, following an order adopted in Chapter I of The Economists Refuted, industry is divided into four groups : appropriative, manufacturing, agricultural and mercantile, and the intention is announced of following this classifica¬ tion as the basis of further exposition. In the next two chapters, the juxtaposition of appropriative and manu¬ facturing industry and their discussion before agriculture is revealed as a device for refuting the physiocratic restriction of the term productive to agricultural labour. (These are the arguments which have already appeared in The Economists Refuted.) Appropriation and manufacture are exhibited as in some sense conceivably anterior to agriculture and the contention that manufacturing industry adds nothing to the value of raw product, but the value of the subsistence consumed during work is the subject of lengthy refutation. The chapter on Agricultural Industry which follows begins in the same vein. But it soon turns to the examination of the tendency to diminishing returns in agriculture which is contrasted with the tendency to increasing returns in manufacture — the result of the improved division of labour. The effects of ‘improvements’ are discussed, and an attempt is made to show that not only improvements in agriculture but that also improvements in manufacture have the effect of removing ‘to a greater distance the ulti¬ mate limits of agricultural prosperity’ (p. 133). Nevertheless, it is urged that there is a clear tendency for the value of manufactured goods to diminish relatively to raw produce. All this takes us to page 146. The rest of the book is taken up by the chapter on Mercantile Industry. This, however, is divided into sections, each of which has at least the length and substance of any one of the earlier chapters. Sections I to IV incorporate much material from The Economists Refuted. Section I sets forth the origins and effects of barter or trade. It is argued that trade not only produces direct utility by moving objects from place to place: it also promotes production by making possible the division of labour. In Section II on the home trade this discussion is continued and the benefits flowing from an unrestricted home trade are made the ground for an attack on overmuch regulation of spontaneous activities. ‘ On the self¬ same principle that we should open roads, and construct bridges, and canals, we should blot out from the statute book every enactment which prevents or retards the operations of internal trade’ (p. 209). The effects of monopolies are set forth and deplored; and in a discussion of the eco284

BIBLIOGRAPHICAL APPENDIX nomics of transport, an attempt is made to show that state promotion of canals is either unnecessary or pernicious. In Section III the advantages of colonial trade are set forth in much the same terms as the advantages of the home trade. The question is then asked whether these advantages could not be reaped equally in trade with independent states. This is denied chiefly on the grounds which were to figure so largely in Torrens’ thought later on, that ‘when we exchange our commodities with an independent state, the beneficial divisions of employ¬ ment to which this traffic gives occasion, are liable to be suspended by a declaration of hostilities, or by the enacting of those restrictions and pro¬ hibitions which commercial rivalry is perpetually suggesting’ (p. 231), and that outlets for emigration are desirable. Restrictions on the colonial trade are analysed and the effects found to be bad, either for the colonies or the metropolitan area, or both. Section IV on foreign trade is devoted to setting forth the advantages of this branch of commerce. The argument is strongly urged that by pro¬ curing raw produce and foods from more fertile soils the limits of English prosperity would be almost indefinitely extended; and, in strong contrast to the author’s later views, the benefits of unilateral free trade are empha¬ sized and arguments against retaliation repudiated. The argument attributed to Malthus that as the advantages of foreign trade may eventually narrow, they should be forgone while they are available, is spurned. ‘On the same principle we ought not to live because hereafter we must die’ (p. 289). Section V is devoted to money and paper currency. The origins of money and credit are explained. Substantial extracts from the Essay on Money and Paper Currency are included (without notice). Thus pp. 295-303 follow pp. 4-13 of the Essay almost exactly. The advantages of paper credit are stated to be a saving of resources which otherwise would be devoted to the transport and manufacture of metallic money, and ‘ an elastic principle which multiplies the transactions of mercantile industry, and improves the productive powers of all the labour and capital employed throughout the country’ (p. 315). Again, pp. 307-23 follow pp. 67-95 °f the Essay with a few omissions and additions. The effects of depreciation and appreciation of the value of money are set forth (pp. 324-39) with strong emphasis on the undesirability of the latter. Here the argument reproduces the text of the Comparative Estimate (pp. 53-69) with changes appropriate to the changed circumstances. ‘The violation of private property in the former case, would be accompanied by an increase of confidence, of production, and of trade ; in the latter, would be aggravated by a universal stagnation, and revulsion, and, perhaps, in an over-taxed country, by a national bankruptcy’ (p. 339). Section VI, ‘On the Principles of Demand and Supply’, in the opinion of its author was the most original part of the book. It consists, not, as might be thought from the title, of an analysis of market price, but of an attempt to define effective demand so as to throw light on the contemporary discussions of the possibility of a general glut. Thus ‘effectual demand and supply are in the relation of equality when the ingredients of capital offered in exchange for commodities exceed, by the customary rate of profit, the ingredients of capital expended in producing them’ (pp. 360-1) — 285

ROBERT TORRENS ‘effectual demand is created by and is commensurate with production, rightly proportioned’. Gluts are, therefore, due to erroneous calculations or fluctuation of the seasons. ‘A glut of a particular commodity may occasion a general stagnation, and lead to a suspension of production, not merely of the commodity which first exists in excess, but of all the other commodities brought to market’ (p. 414). ‘On every occasion of a glut or general stagnation, the desire of turning goods into money is rendered more intense than the desire of turning money into goods, and the propor¬ tion in which prices will fall, will be much greater than that in which the relation between the quantity of commodities and the amount of currency will be altered’ (pp. 421-2). In such times, further, ‘the rate of interest may rise while the profits of stock fall to nothing’ (p. 422). The remedy for all this is to keep the supply and the price of corn uniform and steady on the lines suggested in the Essay on the External Corn Trade (i.e. free trade in corn), to preserve the currency at a uniform value (i.e. ‘ Policy and justice alike require, not that the currency should be raised to the level of the ancient standard, but that the standard should be lowered to the actual level of the currency’ (p. 428)), to leave interest to find its natural level (i.e. repeal the usury laws). Above all, ‘avoid all sudden transitions’. The appendix, announced with such a fanfare on the title-page, does not appear. But a copy in the possession of the present writer contains a publisher’s slip which runs as follows : ‘ Advertisement. The Appendix, containing the application of the Principles of Political Economy to the actual cir¬ cumstances of this country, will be printed in a separate volume, and published in the beginning of the ensuing season.’ So far as I know, this promise was not fulfilled.

23. The Economist.

[Articles in The Champion, 1821.]

In a letter from Ricardo to Malthus of November 27, 1821 (Works, Vol. IX, p. 112) there occurs the following passage : ‘Torrens has some con¬ cern in the Champion in which there is a weekly paper on Polit. Economy. I think these essays are well done but you probably would not agree with me in that opinion.’ The ai tides referred to were presumably the articles which appeared under the heading The Economist in a series beginning September 29, 1821, and ending December 22, 1821. The first three of these articles, which deal with the effects of the Corn Laws, were signed S. E. The remainder, which consist mainly of a more systematic exposition of economic principles are usually signed F. ’ There *s every ground for eliminating the F articles as possible contribu¬ tions from Torrens; the style is quite different and the thought is not obviously his ; it is very improbable, for instance, that he would have given the high praise to Mill’s Elements which is contained in the last article of the series. But there is some ground for believing that the three S. E. articles may have come from his pen. The subjects, On the Price of Corn and on the Prospects of the Farmers, On the Manner in which the Corn Laws injure Manu286

BIBLIOGRAPHICAL APPENDIX facturers and Trade and On the Manner in which the Corn Laws lower the Rent of Land, are typical Torrens subjects ; and both the style, — the use of highsounding confident phrases — ‘ a strictly mathematical demonstration ’ and the like — the use of lengthy arithmetical examples — and the substance of the argument certainly suggest his authorship. The content of the articles is perhaps sufficiently described by the open¬ ing paragraph of the third. ‘ Having shewn in the two former Numbers of The Economist that the Corn Laws injure the farmer by occasioning excessive fluctuations in the price of raw produce, and injure the manufacturer by narrowing the foreign demand for his fabrics, we shall proceed in the present number to demonstrate, that these laws injure the land proprietor, by reducing the relative value of raw produce, and thus rendering rents lower than they otherwise would be.’

24. [Three Editorial Notes on Value, contributed to The Traveller in December 1822.] These notes, which are Torrens’ part in a controversy on value with the youthful J. S. Mill, are identifiable from a passage in Mill’s autobio¬ graphy which runs as follows : ‘The first writings of mine which got into print were two letters published towards the end of 1822, in the Traveller evening newspaper. The Traveller (which afterwards grew into the “Globe and Traveller”, by the purchase and incorporation of the Globe) was then the property of the well-known political economist, Colonel Torrens, and under the editorship of an able man, Mr. Walter Coulson (who, after being an amanuensis of Mr. Bentham, became a reporter, then an editor, next a barrister and conveyancer, and died counsel to the Home Office), it had become one of the most important newspaper organs of Liberal politics. Colonel Torrens himself wrote much of the political economy of his paper ; and had at this time made an attack upon some opinion of Ricardo and my father, to which, at my father’s instigation, I attempted an answer, and Coulson, out of consideration for my father and goodwill to me, in¬ serted it. There was a reply by Torrens, to which I again rejoined.’ The notes, together with Mill’s letters, were reprinted by Hollander under the title Two Letters on the Measure of Value by John Stuart Mill. A Reprint of Economic Tracts. Johns Hopkins Press, Baltimore, 1936. The substance of the controversy is outlined in Chapter III, Section 7 (c) above. The first note which appears in the issue of The Traveller for December 2, 1822, under the title Political Economy Club, sets forth the grounds of Torrens’ disagreement with a passage in James Mill’s Elements. The second, which appears in the issue of December 7 under the title Exchangeable Value, is a rejoinder to critical strictures on the original article submitted by J. S. Mill in the issue of December 6. The third, which is appended to a further letter from J. S. Mill appear¬ ing in the issue of December 13 under the heading Exchangeable Value, contains Torrens’ final rejoinder. Mill has admitted that under certain circumstances wine produced by 100 days’ hoarded labour possesses the same value as a commodity produced by 120 days’ immediate labour. Hence the case for a pure labour theory of value collapses. 287

ROBERT TORRENS

25. Substance of a Speech Delivered by Colonel Torrens, in the House of Commons; iyth February 1827, on the Motion of the Right Hon. Robert Wilmot Horton, for the Re-Appointment of a Select Committee on Emigration from the United Kingdom. London: Longmans, Rees, Orme, Brown, & Green, Paternoster Row, MDCCCXXVIII.

Pp. 1-86.

The speaker first replies to objections to the motion he is supporting. The fact that Irish labourers coming to England have difficulty in finding work is itself an argument for locating this redundant population in the colonies. It is difficult to conceive a method of relief more immediate and practical than this. Catholic Emancipation, though deserving support, is no substitute for Emigration. It would remove discontent but it could not afford employment. The population of Ireland is denser than that of England. It is, more¬ over, agricultural rather than industrial. Agricultural effort in Ireland yields a less return per head than elsewhere. If improved methods were adopted one third of the present population could raise a greater product. But where is the superfluous population to go ? If improved methods are adopted before native manufacture develops, ‘a period of the most aggra¬ vated and intolerable distress’ must follow. To ‘consolidate small holdings into farms of adequate extent would be inhuman, would be dangerous, would be impracticable, and would lead to an infuriate servile war, unless adequate provision should be made for the outgoing tenantry’ (p. 7). Hence the need for systematic emigration. This is an English as much as it is an Irish problem. Unless something is done the immigration of Irish labour will drag English wages down to the Irish level. But apart from this there is a redundancy of population and capital in England itself. ‘Capital is positively redundant . . . when an additional quantity of it applied to the soil cannot raise an additional produce equal to the additional expenditure; and capital is relatively redundant when, in any particular country, the rate of profit is so much lower than the rates obtained in other countries, that foreign investments and foreign specula¬ tions are preferred to domestic ones’ (pp. 12-13). The question whether capital is redundant in England is practical rather than theoretical. ‘ Eng¬ land has arrived at that state at which her further progress in wealth and population is retarded, not by the difficulty of accumulating capital, but by the difficulty of employing it beneficially’ (p. 15). Protection is no remedy for this. And the poor laws make it worse. ‘ Should these laws, as at present administered, continue in force, an ultraSpencean System, destructive of all the rights of private property, and pressing down all the ranks of society to the pauper level, will be found to be the true euthanasia of the British Constitution’ (p. 22). Yet ‘what Government would venture to encounter the conflict which must follow the attempt to take from the unemployed population, without a full equivalent, the means of subsistence to which they are by law entitled’ (p. 28). Emigration provides the appropriate remedy for all this. ‘It would apply the redundant labour and capital of the United Kingdom to the 288

BIBLIOGRAPHICAL APPENDIX redundant land of the colonies : it would restore the proportions on which prosperity and happiness depend . . (p. 30). The argument that emigration would be rendered ineffective by the tendencies of population growth is not plausible. In Ireland a main cause of excessive population is excessive subdivision. It is absurd to suppose that, could the subdivision be remedied, the persons concerned would pro¬ ceed to undo the remedy. ‘The objection, that the vacuum occasioned by Emigration would be speedily supplied . . . arises . . . from vague and exaggerated ideas respecting the principle of population’ (pp. 37-8). (This applies to the followers rather than to Ricardo and Malthus them¬ selves.) ‘The fact, that the condition of the labouring classes has improved with the progress of wealth and civilization, demonstrates that population has not a tendency to increase faster than capital ’ (p. 40). With the spread of ‘every species of useful information’, there need be no fear that if the redundancy of labour were removed, it would recur. ‘The immediate difficulty is, how to get rid of our bounties upon excessive population —- the subdivision of land in Ireland — and the tax for maintaining unemployed able-bodied labourers in England’ (p. 47). If this is true ‘it is incomprehensible how there should exist, in any quarter, a doubt or difficulty with regard to the appropriation of any portion of the national resources which may be requisite for carrying such a plan of emigration into effect’ (p. 49). But in fact a well-regulated system of emigration would be an economy; ‘an emigrant family, moderately industrious, and occupying moderately fertile land, would be able, in a very short period, to replace, with a surplus, the capital advanced to establish them in their location’ (p. 58). Moreover, the sale of land might be made to yield a revenue. All this is demonstrated by what has happened in the U.S.A. Canada and New Holland are equally suitable. In giving effect to such schemes ‘ we are multiplying the British nation; we are rocking the cradles of giant empires . . .’ (p. 70). An appendix gives statements from settlers at Perth, Upper Canada.

26. The Crisis and the Remedies.

1830.

According to Torrens, this was written and published early in 1830. No copy of this edition has been found. This precis is based upon the republication in Letter VI of The Budget, to which the page indications refer. The distress is extensive and might occasion despair were it not for the presence at the head of affairs of state of the Duke of Wellington. The causes of distress may be considered under two headings, primary and predisposing; proximate and exciting. Of the proximate causes the deficient harvest of 1828 is the principal. (It is a mistake to suppose that the exports thus necessitated to pay for the supply of foreign corn created a new demand for our goods.) ‘ The unfavourable season destroyed a part of national wealth; it de¬ prived the agricultural classes of a considerable portion of their means of purchasing, and by a necessary consequence, narrowed the demand of the home market to the manufacturing and trading classes’ (pp. 146-7). It also caused an outflow of specie and a fall in prices. 289

ROBERT TORRENS A fall in prices is injurious to industry. It benefits the dormant at the expense of the active members of society. It reduces profits and where business is commenced upon borrowed capital it produces difficulty and ruin. Moreover, it suspends speculative demand. Such a fall has taken place partly owing to the increased demand for gold and silver involved by the restoration of metallic standards, partly owing to the diminution of supply due to the civil wars and revolutions of Spanish America. ‘Mr. Tooke, in his masterly details respecting the in¬ creased production of the principal articles of commerce since the peace, has pointed out another and very powerful cause, which would itself have occasioned a rise in the value of the currency’ (p. 151), even if these other causes had not been operating. On top of this, by increasing the real amount of debt and taxation, the fall of prices has ‘ operated as a primary and predisposing cause of national decline’ (p. 152). Taxation is the ‘great predisposing . . . cause which renders the industry of this country liable to periodical depression. . . . Excessive taxation renders ordinary profits low; and when ordinary profits are low, any slight decline of prices may be sufficient to change profit into loss’ (P- 152). How can this evil be removed ? Retrenchment is not enough. It ‘is necessary not only that taxation should be diminished, but that its direction should be altered’ (p. 157). Now taxes on dormant capital do not discourage production. They transfer wealth but they do not operate so as to diminish the annual produce. It is not unjust to tax vested property without taxing incomes derived from capital actively employed since in the long run such a policy actually benefits the dormant’ incomes too. ‘The dormant capitalist is dependent for the amount of his income upon the degree of success with which the active capitalist carries on the business of production’ (p. 162). Thus, when excessive taxation on the productive classes has so lowered the profits of industry, as to endanger the coming on of the declining state, it becomes the interest of proprietors and dormant money capitalists that a property tax should be substituted for the taxes pressing most severely on production’ (p. 164). It follows that ‘A national debt, whatever may be its amount, has no injurious influence, either on the prosperity or on the financial resources of a country, provided the interest upon it be paid out of the taxes imposed, not upon the productive classes, but upon dormant capital’ (p. 166). It is not proposed, however, that this principle shall be carried to extremes — only that a permanent moderate property tax, say 5 per cent, should be imposed. If this were done and public expenditure were diminished there would speedily be imparted ‘to the oppressed and palsied industry of the country renovated and undecaying vigour’ (p. 169).

27. A Letter to the Right Hon. Sir George Murray, etc., etc., etc., on Systematic Colonization, by Charles Tennant, Esq., M.P. London :

James Ridgway, Piccadilly, 1830. 290

2/-.

Pp. 53.

BIBLIOGRAPHICAL APPENDIX

Appendix containing the Written Controversy between the Right Hon. Robert Wilmot Horton and Colonel Torrens, and the other Members of the Committee of the National Colonization Society. No. ii. Objections submitted to the Committee by Colonel Torrens. An account of this controversy is given in Chapter VI, Section 5 above. In opposition to the Wakefield proposals, Torrens submits that an illustra¬ tive case ‘affords proof equivalent to mathematical demonstration, that the sale of colonial land would be the least eligible source from which an efficient emigration fund could be obtained’ (p. 34). The substance of the objection is that charging a price might compel resort to inferior lands, while superior lands were still in existence. The illustration is as follows. There are two districts, A and B, each with grades of land I, II and III, yielding 150, 140 and 130 quarters for every 100 quarters expended. At first there is concentration on A I. Then, if demand expands, cultivation would go to B I. But charging a sufficient price might force the cultivation of A II or A III. But this would reduce the rate of profit from 50 to 30 per cent. It might be objected that this effect might be counteracted by the principle of concentration. ‘To this objection the reply is obvious and conclusive; concentration heightens the productive powers of industry only inasmuch as it gives occa¬ sion to division of employment. Now concentration, as it affects the division of employment, is actually greater when we cultivate remote districts, from which the expenditure of 100 quarters brings 150 to the manufacturing and commercial towns, than when we cultivate a near district, from which the same expenditure brings to these towns only 140 or 130 quarters. That distribution of agricultural capital which supplies the manufacturing and commercial population with the largest quantity of food and material, is also that which best promotes concentration in the only intelligible sense in which that term can be employed by the political economist. I conceive that it is strictly demonstrable, that the affixing of a price upon new grants of colonial lands would be the very worst source from which a colonization fund would be derived.’

28. Address to the Farmers of the United Kingdom on the Low Rates of Profit in Agriculture and in Trade. By R. Torrens, Esq., M.P. London: Longman & Co., Paternoster Row. 1831. Pp. 16. This address undertakes ‘ to show by proof amounting to demonstration, that a free importation of the products of foreign agriculture, without re¬ striction and without duty, would render the rate of profit, in all the branches of British industry, agriculture included, permanently high’ (p. 3). The usual classical argument is stated that resort to inferior soils at constant real wage costs diminishes profits. Hence restrictions on importa¬ tion diminish profit. But this is felt by some to have an appearance of undue simplicity. Hence a more complicated demonstration is attempted involving ‘ considerations respecting the value of farm produce and of manu¬ factured articles, in relation to each other and to currency’ (p. 5). It is u

291

ROBERT TORRENS ‘the necessary fall in manufacturing profits’ (as the price of food rises) which prevents a farmer from obtaining more than a temporary benefit from a permanent rise in the value of corn ; and which, by the principle of competition, converts into rent all the produce of the land which exceeds what is necessary in order to give the cultivator the same rate of profit obtained by other capitalists’ (p. n). A warning is given, however, that reversing the process is not unattended by short-period inconveniences : ‘it is not until all the lands yielding less than twenty bushels per acre have been reduced to a merely nominal con¬ sideration, that the opening of the ports . . . can have the effect of raising the rate of (agricultural) profit . . .’ (p. 15). Therefore, the return to a free trade should be made step by step. It is perhaps worth recording that this tract evoked a critical comment from the Rev. Alexander Crombie: A Letter to Lieut.-Col. Torrens, M.P. in answer to his Address to the Farmers of the United Kingdom, London, 1832.

29. Financial Resolutions Intended to be Moved by Colonel Torrens on Thursday, 2gth March, 1832. Bolton Chronicle, March 31, 1832. The resolutions, eleven in number, embody the views, subsequently to be developed in the speech on Waithman’s resolution and the Letters on Commercial Policy, that recent distress was to be attributed to alterations in ‘financial, colonial and commercial policy which ignored’ the important principles which regulate the distribution of the precious metals throughout the world, that for duties on food and raw materials there should be substi¬ tuted discriminatory duties on foreign manufactures, and that taxes on consumption or capital should be replaced by a percentage levy on fixed or realized property. (This last embodies contentions developed at greater length in The Crisis and the Remedies. See above, p. 290.)

30. Financial Resolutions Intended to be Moved by Colonel Torrens on Thursday, 2gth March, 1832. 1832. P. 2. This item is listed as above in The Economic Library of Jacob H. Hollander, Ph.D., compiled by Elsie A. G. March, Baltimore, 1937. Extensive search has failed to reveal another copy : and the Hollander Library is inaccessible. But it seems probable that the resolutions are the same as in Item 29 above.

31. Colonel Torrens on Commercial and Financial Policy. (A series of Letters to the Bolton Chronicle between October 6th, 1832 and January 19th, 1833. The letters of which this collection is composed were first published in the Bolton Chronicle, their author at that time being a member for Bolton in the House of Commons. Letter I (October 6th, 1832) lays down the principles of commercial policy which it is to be the object of his argument to vindicate: ‘ To lower the duties of customs upon the importation of goods produced in countries which consent to receive British goods upon terms equally favourable, and to prohibit, or lay heavy duties upon, the importation of all goods, not consisting of first necessaries, produced in countries which prohibit, or lay heavy duties upon, British goods' (p. 6). It also 292

BIBLIOGRAPHICAL APPENDIX asserts that departure from these principles has been responsible ‘in no inconsiderable degree’ for the current depression of wages and profits. Letter II (October 13th) discusses the fundamental question whether it is a matter of indifference whether we buy goods from countries which admit our goods freely or from countries which limit their imports. The author argues that there is an obvious advantage in buying from Portugal rather than France since in one case we can pay in goods, in the other we have to pay in gold. ‘ “No ! ” say the extreme advocates of free trade, “ the foreign demand for British goods is increased by the consumption of French wines, full as much as by the consumption of those of Portugal; because, as France will not give us her wines for nothing, when we import a greater quantity of them, we must export a greater quantity of our fabrics, in order to purchase the greater quantity of gold required by France in payment.’” ‘On the correctness or incorrectness of this doctrine’, it is argued, ‘. . . the whole question of reciprocating turns.’ An example is discussed in which the switching of demand from Portugal to France obliges Great Britain to export more fabrics to obtain the means of payment, the assumption being that at existing prices the quantity of fabrics bought would not extend. The usual arguments by which extreme free traders seek to refute this assertion are shown to beg the question, in that they involve the assumption of just such relative changes in national price levels as they seek to deny. This preliminary skirmish is followed by an elaborate discussion of the way in which differences in the relative efficiency of labour and demand determine the distribution of the precious metals between different areas. These principles having been established, Letter III (October 20th) discusses the manner in which duties upon importation influence this distri¬ bution. It is argued that duties enable a country to maintain a higher comparative scale of prices than would otherwise be the case. But this is expressly limited to duties upon finished goods. Duties on food and raw materials increase the cost of production, thereby having a reverse effect. This is said to be especially true of duties on foreign corn. The argument now proceeds (Letter IV, October 27th) to practical applications. British policy has been completely at variance with the prin¬ ciples laid down. Some duties have been increased on the importation of the produce of countries admitting British goods on the most favourable terms, while others have been lowered in favour of the produce of those countries which prohibit the products of British industry; food and raw materials have been prohibited or made objects of taxation, while finished articles fit for immediate consumption, have been freely admitted ‘. . . while hundreds of millions have been squandered in preserving the balance of power, no thought has been bestowed upon adjusting the balance of trade . . .’ (p. 27). The argument is false which says that the legislature should avoid interfering with the distribution of the precious metals. The legislature cannot help doing so. The only question is whether it does it by chance or by plan. Moreover, it is also false that the scale of prices does not matter. Even the general falls matter so far as the debt burden is concerned ; and partial falls affecting one country rather than others matter much. It matters even if imports do not consist of necessities. It matters much more if they do: ‘ when the elements of capital are imported . . . and when any

293

ROBERT TORRENS one country can purchase, with the produce of a given quantity of labour, a greater quantity of the precious metals than her neighbours; then the whole of the excess in the command over metals, will go, in some proportion or other, to raise the rate of profit, or to increase the real wages of labour, in the country to which the excess belongs’. Letter V (November 3rd) attempts to establish that ‘the whole of the distress which has visited the country, and the whole of the fall which has taken place in the profits of trade, and in the wages of labour, have been occasioned by the ignorance and mismanagement of those who have had the direction of public affairs The natural advantages of the country are mani¬ fold — coal, iron, the juxtaposition of the two, her geographical situation and potential markets capable of absorbing her manufactured products, and to these have been added machinery and great skill of labour. The only reasons why they have not brought more prosperity are — erroneous com¬ mercial policy; and taxation swallowing up from producers, the fruits of their labours. It used to be argued that distress was due to population pressure. But in the appendix to the last edition of the Essay on the External Corn Trade it was proved that there was no tendency for population to increase faster than capital — a view subsequently taken in a correspond¬ ence between Mr. Malthus and Mr. Senior. There is a break in the series at this point. On November 10th there is a letter from Torrens saying that he will deliver an address when he arrives in Bolton. On November 17th there is a report of his arrival, his speech, and republication of a letter which long before Ricardo had written in his support to the electors of Rochester. (This letter has been republished by Mr. Bernard Corry, Economica, February 1957.) Letter VI (January 5th, 1833) recommends specific measures, the removal of the duty on importation of cotton-wool imposed in the last session and the restoration to their former relative proportions of duties on Portuguese and French wines. Much space is devoted to showing why the hope of free trade with France is chimerical: moreover, such trade would be a disaster for France since there is no disposable land and the substitution of agriculture for manufacture would involve a reduction of population. It is not to France but to Russia, America, the Colonies, India and China, that we must look for extending markets. Letter VII (January 12th) is devoted to exhibiting the errors of the Westminster Reviewer who had commented adversely on the preceding arguments. (It is clear that Torrens suspected Perronet Thompson of plagiarizing, in his True Theory of Rent and the Catechism on the Corn Laws, the emendation of the Ricardian Theory of Rent of the third edition of the Essay on the External Corn Trade. See above, pp. 44.-5.) Letter VIII (January 19th) develops the argument that the chief advan¬ tages of trade lie in exchanges of manufactured and agricultural products. The evil effects of the Corn Laws are explained and action is urged. This argument is strengthened by humanitarian considerations; ‘after the evi¬ dence given before the Committee upon Mr. Sadler’s Factory Bill, it has become imperative on Parliament to interpose, to shorten the hours of labour, and to save the infant labourer from the cruel oppression of excessive toil. But this will have grave dangers unless the value of food and raw produce is kept down. Parliament can do this by a commercial policy

294

BIBLIOGRAPHICAL APPENDIX which opens a free trade on a reciprocal basis with Russia and the United States. ‘The immediate abolition of Tithes, and the gradual abolition of the Corn Laws, are the great measures of national relief, which the Parliament should adopt. . . .’

32. Letters on Commercial Policy. By R. Torrens, Esq., M.P., F.R.S. London: Longman & Co., Paternoster Row, 1833. Pp. 80. This is the collected edition of the letters analysed above (No. 31). The text is not absolutely identical; but the revisions are of secondary importance. In Letter I a section denunciatory of Cobbett is omitted. In Letters II and III the arithmetical illustrations are more elaborate and the conclusions more carefully formulated. Elsewhere the paragraph breaks are sometimes altered, and here and there a supplementary sentence is added. But the main argument and text may be regarded as unchanged. (A reprint in the London School of Economics Series of Reprints of Scarce Works on Political Economy, with a Preface by the present author, is in the Press.)

33. On Wages and Combination. By R. Torrens, Esq., M.P., F.R.S. London : Longman, Rees, Orme, Brown, Green & Longman, Paternoster Row. 1834. Pp. xii + 133. In the dedicatory epistle ‘to the Electors and Inhabitants of Bolton’ this book is said to be part of an extensive work upon the financial and commercial resources of the country. (Was it the missing appendix to the Production of Wealth ?) It is published separately because the chapters of which it is composed ‘appear peculiarly applicable at the present crisis’. Chapter I consists of the Appendix to the 1829 (New) Edition of the Essay on the External Corn Trade. (There is no indication whatever that this is so.) Chapter II investigates the effects of machinery upon wages. These are said to be usually favourable because of increased saving out of increased profits. Ricardo’s special case is said never to occur in practice. The only case in which the employment of machinery can in practice diminish the funds for the maintenance of labour is when the machinery is worked, not by mechanical, but by animal power. A fund for assisting displaced labourers to change their occupation is proposed. Chapters III and IV investigate the possible effects of combinations. Combinations for reducing wages are not thought likely to be effective; if they are attempted in one industry they will eventually be frustrated by labour mobility. General combinations have even less chance; the em¬ ployers must hoard their profits, the combination must be formed by all the monied classes and the influx of foreign capital must be prevented. Moreover, the effects on population would eventually frustrate it and in the end ‘recoil upon the insane conspirators, lowering, instead of raising, the rate of profit, and elevating,, instead of depressing, wages’ (p. 56). The effect of combinations for raising wages is investigated at greater length. ‘ In the whole compass of economical science, the most important practical question is this, namely, can combinations, amongst the labouring classes, effect a permanent increase of wages?’ (p. 57).

295

ROBERT TORRENS

It is argued that ‘In a country not depending upon foreign markets, Combinations may raise Wages to their maximum, provided the supply of labour do not increase’, but that ‘In a country depending upon foreign markets, Combinations for raising Wages beyond the limit determined by foreign competition, ultimately occasion, not an advance, but a reduction of Wages’. The argument here is devoted chiefly to an explanation of the reasons why the Ricardian thesis is not valid, that variations in wages have no effect upon foreign trade. This explanation invokes short-period con¬ siderations : ‘ It is self-evident . . . that, amid the ebbings and flowings of the market, and the alternate contractions and expansions of demand, occasions will constantly recur, in which the manufacturer may employ additional floating capital, without employing additional fixed capital. ... If additional quantities of raw material can be worked up without in¬ curring an additional expense for buildings and machinery, the manufac¬ turers of the country in which the rate of profit is comparatively high, will have an interest in lowering their prices in the foreign market, so as to beat out the fabrics of the country in which the rate of profit is comparatively low . . . those who, in their proneness for general reasoning, forget that science is analysis, fall into the error of conceiving, that because capital, consisting of money, may pass from employment to employment, in order to obtain the customary rate of profit, capital, consisting of buildings and machinery, may be equally locomotive’ (pp. 64-7). The international mobility of capital is also invoked. ‘We may lay it down as a principle established by a complete induction from experience, that manufacturing industry will establish, and extend itself, in these countries in which manu¬ facturing capital obtains a high comparative reward : and will partly be driven, and partly retire of its own accord, from those districts in which manufacturing profits are comparatively low’ (pp. 71-2). Notwithstanding all this, however, ‘In a country possessing superiority in manufacturing for the foreign markets. Wages may be raised within the limits of such superiority’ . . . ‘the price of manufactured goods would rise in the foreign market, and it would be the foreign consumer, not the home capitalist, who would pay the advance in wages. . . .’ But ‘this higher scale . . . cannot be maintained, if the operatives increase their numbers beyond the demand for labour’ (pp. 73-9). England is in fact in a position to reap great advantage from her superiority in manufacturing for the foreign market. But ‘the Corn Laws deprive the operatives ... of the high comparative wages ’ due to this superiority. ‘ Were food as cheap in England as it is in other manufacturing countries, it would be practicable to secure to the operative classes, in England, a higher rate of real wages within the limit of the superiority, which more efficacious labour, cheaper fuel and carriage, and better machinery, all contribute to confer upon England, in producing goods for the foreign market. But while the value of food in England is artificially raised above its value in those other manu¬ facturing countries which are our competitors in the foreign market, such an improvement in the rate of real wages is morally impossible’ (pp. 88-9). Fielden’s scheme for limiting the hours of labour is next discussed (Chapter V). ‘All Mr. Fielden’s arguments . . . turn upon the assump¬ tion, that prices will rise in the proportion in which production is diminished ; but he has brought forward neither fact nor argument, to prove that foreign 296

BIBLIOGRAPHICAL APPENDIX consumers would consent to purchase British manufactures, were five-andtwenty per cent, added to their present price’ (p. 95). ‘No plan for im¬ proving the condition of the people can by possibility be effectual, unless it increases the quantity of work which can be executed in a day or year, or the comparative cheapness of machinery, fuel and carriage, or diminishes the comparative dearness of food. . . ‘ The first step towards improvement must he the abolition of the Corn Laws’ (p. 99). Fielden’s copy of Wages and Combination is in the possession of the present author. It was presented by Torrens. All the pages, save those of this chapter, were uncut until it came into its present ownership. This leads (Chapter VI) to the question ‘would the profits of the farmer be reduced by such a reduction in the value of food as would admit of an increase of real wages?’ It is argued that when ‘rents are adjusted to the price of produce, a fall in the value of food and raw material, is as beneficial to the farmer, as to all other capitalists. . . . Had the cultivators of the soil leases for ever, at unalterable rents’, things would be different. ‘But this is impossible. . . . Never was delusion more gross, than that which the proprietors of the soil practise upon their tenants, when they advise them to clamour for increased protection for the landed interest. When such advice is truly interpreted, it amounts just to this — “Aid us in enforcing arrange¬ ments which shall have the effect of raising our rents and of decreasing your profits, and of rendering it impossible to increase the real wages of labour without letting in foreign competition, and throwing millions out of work” ’ (pp. 100-19). Chapter VI, ‘On the question would a free trade in Corn diminish employment, and reduce wages, by contracting the home market in a greater proportion than it extended the foreign market’, is a reproduction of pp. 69-78 of the Letters on Commercial Policy, with the omission of the allusion to Sadler’s Factory Bill, and the insertion of a further gibe at the landlords. Only the last paragraph, urging the abolition of the Corn Laws, is different. The question asked in the title is answered in the negative and the desirability of reciprocal trade with Russia and the United States is strongly urged.

34. On Wages, Combinations, and the Effect of the Corn Laws. By Robert Torrens, Esq., M.P., F.R.S. Second Edition. Longman, Rees, Orme, Brown, Green & Longman. 1834. Pp. xii + 133. Save for the change of title, this edition, a copy of which is in the Johns Hopkins University Library, has exactly the same contents as the First Edition, including the preface to the electors of Bolton.

35. On Wages and Combination. By R. Torrens, Esq., F.R.S. Second Edition. London : Longman, Orme, Brown, Green & Longman, Paternoster Row, 1838. Pp. (xi) +133. (The number of intro¬ ductory Roman-figured pages is in fact less than this, owing to the omission mentioned below.) Save for the omission of the dedicatory epistle to the Electors and In¬ habitants of Bolton and the substitution of a dedication ‘To the Cotton Spinners of Glasgow, with an ardent desire that they may be enabled,

297

ROBERT TORRENS through the power of knowledge, permanently to establish a high rate of wages’, this edition reproduces unaltered (and with the same correction slip) the edition of 1834.

36. Colonization of South Australia. By R. Torrens, Esq., F.R.S. Chairman of the Colonization Commission for South Australia. London : Longman, Rees, Orme, Brown, Green, & Longman, Paternoster Row. 1835. Pp. xvi+303+xxii. This somewhat lengthy book, whose title and general appearance would suggest something written purely ad hoc for the purpose of forwarding the policies of the Colonization Commission for South Australia, must in fact rank as one of its author’s major contributions to general economics. Its occasion indeed was the desirability of defending at length the projects of the Commissioners. But in the course of the apologia there occur important expositions of the Ricardian theory of distribution, the theory of Compara¬ tive Costs, the general theory of colonization and a form of over-production theory in some respects anticipating modern stagnation theories. There are two parts: the first (which was written in the form of a letter to John Crawfurd) comments on an article in the Westminster Review which criticized the project and the Commissioners, and discusses these projects from the point of view of the colony; the second discusses ‘ the influence of extensive and systematic colonization upon the wealth and prosperity of the mother country’. Part I begins by stating ‘the object which the supporters of the New Colony seek to accomplish’. Wakefield’s England and America is invoked for a contrast between the hopeful prospects and present prosperity of the United States and the depression and apprehension current in England. ‘The supporters of the New Colony believe, that ample means exist for rendering the condition of the people of England equal to that of the people of the United States’ (p. 5). In America there is abundance of un¬ occupied land. There is plenty of unoccupied land in British possession — the trouble is that it lies beyond the sea. The supporters of the new colony have a system for surmounting this difficulty. The Westminster Reviewer appears to be incapable of understanding such an object. The principles of colonization are then explained. Land is to be dis¬ posed of at a fixed minimum price and the proceeds used as an emigration fund. The Reviewer is shown to be mistaken in his contention that this interferes with the freedom either of capital or of labour. His suggestion that there cannot be an abundant supply of labour unless it be cheap is said to rest upon a misreading of Ricardo. This leads to a lengthy digression in which the Ricardian theory of distribution is set forth with great force and clarity. The theory relates to proportions which are measured in an ideal money. If these conceptions be adopted, it is true that there can be no rise of profits without a fall of wages ; and no fall of profits without a rise of wages. But generalizations made in this context do not apply to quantities ; and if wages and profits be used in the ordinary sense of the word, it is easy to think of cases where the productive powers of industry being increased, both profits and wages increase simultaneously. The question is, will the proposed arrangements for selling land have this effect? The 298

BIBLIOGRAPHICAL APPENDIX author argues strongly that they will: effective division of labour is the secret of increased production. Want of this is at the root of the troubles of Ireland and the proposed arrangement will bring it about that, from the outset, there is this kind of co-operation in the new colony. The capitalist will be able to offer higher wages than elsewhere because of higher productivity, and he will be compelled to do so for fear of losing his labour. The rationale of charging the cost of emigration through the price of land is then set forth. ‘ If one settler should incur the expense of taking out labour, and another should not, then, when both arrived in the colony, the settler who had not incurred the expense, would be able to afford higher wages than the settler who had; and would thus attract to himself the labour taken out at the expense of the other. Nothing could prevent this result. . . . No fact is more thoroughly established by experience, than this, that in a new colony, indentured servants cannot be held to their engagements’ (p. 55). The price of 12s. per acre is defended and reasons advanced why it should later on be increased. Whether this is correct or not, it is argued, the general principle is plain. ‘The price should be suffi¬ cient to convey to the colony the number of agricultural labourers requisite to cultivate all the land purchased, in such a manner as to raise the greatest quantity of produce, in proportion to the number of hands employed; it should be sufficient to convey to the colony the number of artisans requisite to allow a division of employment, and to permit the agricultural class to apply combined labour exclusively to the soil; and it should be sufficient to prevent the labourers, who received a free passage to the colony, from becoming landed proprietors, until after they had remained, as hired labourers, for such time as might be requisite to allow other labourers to be brought out to supply their place’ (pp. 67-8). In these circumstances, it is thought, analysis suggests and experience elsewhere bears out the view that land in the new colony will rapidly advance in value. There is much dispute with the Reviewer’s arithmetic and his alleged misrepresentation of the financial arrangements proposed. The author attempts to show that the borrowing powers allowed the commis¬ sioners will permit a satisfactory conduct of affairs without taxation for the first four years and that after that taxation need only be very light. A lengthy section is devoted to discussion of the agricultural potentialities of the new province. This involves discussion of the ways in which changing levels of return produce changing specialization, set out in much greater detail than had been attempted elsewhere : ‘ while the state of trade enables the occupiers of land to realize high profits, by growing wool for exportation, no corn will be grown in Australia, except upon soils of high fertility ’. . . . ‘It will only be when the price of wool declines, and when the profits of pastoral husbandry fall, that labour and capital will be employed in grow¬ ing corn upon land, not of sufficient fertility to yield to the cultivator suffi¬ ciently high returns, at the ordinary prices determined by importation’ (pp. 134-6). It is argued that towns are likely to be larger in relation to the population in a wool-growing than in a corn-growing country and that experience tends to bear this out. A survey of the commercial prospects of South Australia then leads to important applications of the theory of the distribution of the precious

299

ROBERT TORRENS metals. Australia is likely to be prosperous because ‘in the production of fine wool, and of whale oil, the peculiar advantages possessed by Australia are superior to those possessed by any other portion of the globe’ (p. 153). (This in contrast to the position of Canada in respect of timber and corn.) The necessary consequences of this superiority must be that the produce of a given quantity of Australian labour will purchase, in the foreign market, a larger supply of goods and will bear, in the home market, a higher price than the produce of the same quantity of Canadian labour can purchase abroad, or can command at home. . . . ’ ‘ The timber of Canada is enabled to hold its ground in the English market only by the aid of the prohibitory duties which the English Government imposes on the superior timber of the Baltic : the wool of Australia commands the English market, in conse¬ quence of its own intrinsic superiority’ (p. 153). It is pointed out that ‘when any particular country is enabled to command, in exchange for the produce of a given quantity of labour, a larger supply of the precious metals than her neighbours, the higher scale of prices which she will be thereby enabled to maintain, will be confined to the products of her domestic industry, and will not extend to imported commodities’ (p. 162). The high comparative range of prices is partial not general. It is no objec¬ tion to this to argue that the high price of many products will prevent their export and so curtail their production. This will only be true while the commodities which are successfully exported enjoy special advantages and is a by-product of those circumstances. ‘When the Australian employs a given quantity of labour, in growing wool for the foreign market, he obtains a quantity of foreign commodities, greater by 50 per cent, than if he employed the same quantity of labour in growing corn for the foreign market. To him it would be disadvantageous to grow corn for the foreign market, only because, by so doing, he would deprive himself of that larger command over foreign commodities which he obtains by growing wool’ (p. 168). If the demand for wool increased corn might not be grown even for the home market. If it fell, then corn-growing would be extended. On all this the reader is referred to Senior’s Lectures on ‘ The Cost of procuring the Precious Metals’ (sic). There follow extensive discussions of the trade prospects of commodities other than wool. Part I then concludes by a comparative analysis of imports and exports. Part II considers the future from the point of view of the Mother Country. The argument is directed to the refutation of the view that ‘ colonization, instead of being a source of opulence and power, tends to exhaust the resources of the parent state’. Appeal is made to fact: has the transfer of labour and capital from England to North America been disadvantageous ? But the main attack is on the ‘ assumed principle, that the increase of capital is, in itself, sufficient to increase the field of employment, and the demand for labour’ (p. 231). This is said to be false. Even in a manufacturing country the increase of capital must be accompanied by an increase of foreign markets. Economists who take the ‘high priori road’ and contend that though there may be partial there cannot be general over-trading, are flying in the face of experience of over-trading in exports generally. In a ‘country depending upon foreign commerce and importing raw produce.

3°°

BIBLIOGRAPHICAL APPENDIX there may be a redundancy, a general glut of capital, occasioning over¬ trading, and a consequent fall of profits and wages throughout all the branches of industry engaged in supplying the foreign market’ (p. 242). Therefore if outlets for capital can be found, so far from producing im¬ poverishment, they actually relieve the situation. Now home colonization will not do this if the supply of superior soils is exhausted: ‘ no sane person, who is acquainted with the general character of the waste lands of the United Kingdom, and with the quantities and the qualities of the various raw materials which we import from foreign countries, can, by any possibility, believe that these materials could be supplied by withdrawing labour and capital from foreign trade to the culti¬ vation of waste land’ (p. 257). It is only colonization abroad where fertile land is abundant which will afford relief. The discovery of ‘ the true principles of colonization . . . gives us the same unlimited power, with respect to the production of raw materials, which the inventions of Watt, and Arkwright, and Crompton, gave us with respect to the production of wrought goods. It enables us to re-adjust the balance between the different branches of industry; and thus opens to British capital and labour, an expanding field of beneficial employment, the limits of which cannot be reached until all the fertile wastes of all the colonies of England have been appropriated and reclaimed’ (pp. 269-70). Finally, the benefits of colonization to labourers and employers having thus been demonstrated, an attempt is made to exhibit in favourable terms the effects of colonization on the position of landed proprietors at home. It is argued that greater prosperity will raise the value of land for cattle¬ raising, market gardening and such-like occupations. In a country ‘in which there is a considerable demand for perishable and bulky produce, not necessaries of life, and in which corn is the stable article of food, a fall in the value of corn has the effect of causing profits to be realized, and rents to be obtained, from lands which could not otherwise be cultivated’ (p. 275). Colonization, moreover, is the only way of preventing disastrous consequences from an over-populated Ireland. The Appendix includes (I) the ‘Act to empower His Majesty to erect South Australia into a British Province or Provinces and to provide for the colonization and Government thereof’ (August 15, 1834), and (II) ‘Two Letters to the Editor of the Morning Chronicle signed Kangaroo and A-B respectively, urging that the initial price of land be higher than 12s. per acre’.

37. Colonization of South Australia. Second Edition. By R. Torrens, Esq., F.R.S. Chairman of the Colonization Commission for South Australia. London: Longman, Rees, Orme, Brown, Green, & Longman, Paternoster Row. 1836. Pp. xvi+303 + xcvii. The text is the same as that of the First Edition. But the Appendix includes further material: a Paper circulated by the Colonization Com¬ missioners for South Australia (signed by Rowland Hill, the Secretary) ; a report of the speeches delivered at a Dinner given to Captain John Hindmarsh, R.N., on his appointment as Governor of South Australia

3°!

ROBERT TORRENS (Torrens being in the Chair) ; an Answer to an article in Number XLV of the Westminster Review of July 1835 by C. Mann, Esq. ; and a reprint oi Torrens’ Paper on the Means of Reducing the Poors (sic) Rates of 1817.

38. A Letter to the Right Honourable Lord Viscount Melbourne on the Causes of the recent Derangement in the Money Market and on Bank Reform. By R. Torrens, Esq., F.R.S. London: Longman, Rees, Orme, Brown, & Green, Paternoster Row, 1837. Pp. 66. This pamphlet is historically important as being the first written pro¬ posal for the division of the Bank of England into an issue and a banking department. It is also important in the history of Torrens’ publications in that it is here in contrast to his earlier pamphlets on finance, that he emerges in print, as he had done earlier in speech in the House of Com¬ mons, as an uncompromising defender of the Currency Principle namely, that the circulation should be so managed as to behave in exactly the same way as a purely metallic currency. The opening pages are devoted to a demonstration of the proposition that ‘Bank deposits, which may be drawn against at sight, perform the functions of money, and are component parts of the general medium of exchange’. It is further shown that ‘a given amount of circulating money becomes the basis of a much larger amount of bank deposits, or credit money’ (p. 62), a subject which, according to the author, had hitherto been overlooked ‘by every writer upon the science of money, with the single exception of Mr. Pennington’ (p. 12). The influence of gold movements on the volume of deposits is exhibited. These abstract propositions established, the Directors of the Bank of England are charged with having * departed from the sound principle of leaving the Currency to expand and contract under the influence of the Foreign Exchanges' (p. 21). It is unquestionable that this is a sound principle; and that, were it acted upon, the currency would always be maintained in the same state, with respect both to amount and to value, in which it would exist were the circulation composed exclusively of the precious metals’ (pp. 21-2). Figures are quoted of cases in which the circulation expanded when the bullion contracted. It is no defence against this indictment, argues the author, to say that the Bank has obeyed the rule of keeping securities constant and allowing the whole liabilities to expand and contract under the influence of the foreign exchanges : for a diminution of cash has a different effect on the total volume of money from a diminution of deposits. ‘Had they allowed the adverse exchange’ (between December 1833 and March 1834) to con¬ tract their paper circulation, to the same extent to which it would have contracted a metallic circulation, the circulating currency would have been reduced by the actual amount of £t ,447,000; while the credit currency would have been reduced by the probable amount of £7,235,000. But, disregarding this legitimate rule and allowing the adverse exchange to act upon their deposits instead of upon their circulation, the Bank Directors increased the circulating currency to the actual amount of £1,075,000; and the credit currency by the probable amount of £5,375,000. 302

BIBLIOGRAPHICAL APPENDIX The various arguments put forward in defence of the Bank’s policy are then examined. It is argued in defence of the Bank that the contraction involved by the Currency Rule would have been insupportable. To which it is replied that if action had been taken in time it need not have been nearly so great. It is argued further that it is the duty of the Bank to provide emergency issues against domestic panic. While denying that this covers many causes of depression, this is conceded when the crisis is of the type of 1826. But it is argued that this only happens if there has been an antecedent over¬ issue ; and it is asked, ‘ does the necessity under which the Bank directors are occasionally placed, of resorting to extraordinary measures for the purpose of mitigating a pressing mischief, afford a justification of the previous deviations from principle by which that mischief was created ? ’

'

(P- 43)Again, attempts are made to put the blame on the country banks. But if the circulating money of London were wholly metallic, the country banks would not have much scope, ‘ the overissues of the provincial banks would be almost immediately returned upon them’ (p. 53). The simplicity of this conclusion is said to be blurred by the complications introduced by the existence of branches of the Bank of England in the provinces. But that is not a defence of laxity at the centre. Finally, the question is examined whether the fact that the Bank is the government’s bank affords any excuse for departure from what is regarded as sound policy. The answer is decidedly negative. If the Bank had no rights of issue, it would deal with public deposits in the same way in which private deposits are dealt with; and a separate bank of issue could proceed on pure Currency Principle lines. This inevitably leads to the question why should not the same effect be produced by a division of the business of the Bank so as to separate the functions of deposit and of issue. The hope is expressed that the Bank will itself carry out such a division. But if it does not, then it is urged that legislation should be introduced to place the management in the hands ‘of competent functionaries, appointed, not by the holders of Bank Stock, but by Government; responsible, not to their co-proprietors, but to Parlia¬ ment ; and having for their first object and primary duty the protection, not of their own corporate property, but of the general interest of the nation’ (p. 64).

39. A Letter to the Right Honourable Lord Viscount Melbourne on the Causes of the recent Derangement in the Money Market and on Bank Reform. By R. Torrens, Esq., F.R.S. Second Edition with Additions. London : Longman, Rees, Orme, Brown, & Green, Paternoster Row, 1837. Pp. 82. The substance of the main letter is unchanged save for a quotation on p. 65 from Clay’s ‘recent publication upon Joint Stock Banks’. But an appendix reproduces two papers by Pennington, one reprinted from Tooke’s first letter to Lord Grenville, one a communication to Torrens printed for the first time.

303

ROBERT TORRENS

40. Supplement to a Letter Addressed to the Right Honourable Lord Viscount Melbourne, on the Derangement in the Money Market, and on Bank Reform. By R. Torrens, Esq., F.R.S. London. Longman, Rees, Orme, Brown, & Green, Paternoster Row, 1837. Pp. 42 +8. This supplement contains the outlines of a plan designed to fulfil the objectives set forth in the main letter. The best way of doing this, it is urged, would be to have an independent issuing authority which, after issuing a prescribed amount of paper, would then only vary its issues against purchases and sales of gold. But the existence of many banks of issue make this practically impossible. Therefore an alternative is desirable. The plan is as follows : ‘I. All bank paper, including that of the Bank of England, whether the issuers compound for stamp duty or not, shall bear a licensing stamp. II. Every bank of issue, including the Bank of England, shall be entitled to receive, at the Stamp Office, licensing stamps, for an amount of notes equal to the average amount of its circulation during the pre¬ ceding twelve months, provided it shall have deposited at the Mint onefourth of that amount in gold. III. All banks of issue may obtain licensing stamps to any amount, upon depositing gold for all the excess of notes, over and above the three-fourths of their average circulation for the preceding year, which they may wish to issue. IV. Banks desirous of issuing a less amount of notes than the average amount of the previous year’s circulation, may obtain licensing stamps for such less amount, upon making a deposit in gold, not to the extent of one-fourth of the average circulation of the preceding year, but only to the extent of one-fourth of the less amount of notes intended to be issued. V. Banks of issue may at all times withdraw any portion of the gold they may have deposited, by returning their notes to the Stamp Office to be cancelled. VI. The Mint to receive the deposits of gold upon which stamps are to be granted, and to give to the depositors bullion receipts, to be ex¬ changed at the Stamp Office for stamped paper; every receipt for an ounce of standard gold, entitling the holder, at his option, to receive licensing stamps for bank paper to the amount of £3 17s. io^d., or to withdraw an ounce of gold from the Mint. VII. All banks of issue to be required, not only to pay their notes upon demand, but to purchase, at the Mint price, all standard gold which may be offered to them for sale’ (pp. 9-11). In the main, it is argued, a plan of this kind would cause the movements of the circulation to be the same as they would be under a purely metallic currency. But the fact that the issues against securities are a proportion of the average circulation during the preceding twelve months would allow certain disharmonies consequent upon shifts in this fiduciary issue (the term is not used) due to favourable and unfavourable conditions. It is thought, however, that derangements proceeding from this cause would be neither frequent nor considerable. But they could be completely eliminated by offsetting sales and purchases by the Mint.

304

BIBLIOGRAPHICAL APPENDIX The effect of these regulations would be to compel the Bank to keep its business as a bank of issue entirely distinct from its business as a bank of deposit and discount. An appendix reproduces the speech delivered by the author in the House of Commons on June 28, 1833, on the renewal of the Bank Charter. (See Chapter III, Section 5 above.)

41. A Letter to the Right Honourable Lord John Russell, on the Ministerial Measure for Establishing Poor Laws in Ireland, and on the Auxiliary Means which it will be necessary to employ in Carrying that Measure into Effect. By R. Torrens, Esq., F.R.S. London: Longman, Rees, Orme, Brown, & Green, Paternoster Row. 1837. Pp. viii + 149-4. (The Letter begins on page 5.) The advertisement states that this work endeavours to accomplish the following objects: ‘ 1 st.—To ascertain, by a reference to the laws which regulate the production and distribution of wealth, the causes of the destitution of the labouring classes in Ireland. 2nd.—To measure the magnitude of the difficulty which the Legisla¬ ture, in removing these causes, will have to encounter, and to overcome. 3rd.—To show, that no practicable extension of the Workhouse System, unless accompanied by auxiliary measures of a decided character, can have a perceptible effect in removing the mass of misery with which Ireland is overspread. 4th.—To demonstrate, that an extensive scheme of Emigration is the only auxiliary measure which can, in the actual circumstances of Ireland, be resorted to with a rational prospect of success. 5th.—To point out the means by which a system of Emigration, sufficiently extensive to prepare the way for the introduction, upon sound principles, of Poor Laws into Ireland, may be so conducted as to defray its own expenses.’ The Letter begins by drawing attention to the striking fact that the ‘wages of an agricultural labourer in England are four times as high as the wages of an agricultural labourer in Ireland, because the value of the produce raised by one labourer in England is greater than the value of the produce raised by four labourers in Ireland’ (pp. 6-7). This suggests an investigation of the circumstances which determine the maximum beyond which the real wages of labour cannot be increased, since until ‘the operation of these circumstances shall have been accurately ascertained, all legislative enactments, for improving the condition of the labouring classes in Ireland, will be steps taken in the dark’ (p. 8). This investigation consists of the section entitled the ‘Maximum of Wages’ from the Appendix to the New Edition of the Essay on the External Corn Trade which already had been reproduced as Chapter I of Wages and Combination (1834); having introduced his theme that way, the author proceeds to print most of that Appendix, omitting only the last section on population. Thus, the first part of this tract is in effect, to use the terminology of Wages and Combination, a disquisition on the general principles which regulate wages.

3°5 )

ROBERT TORRENS The next section begins by quoting Mr. Revans to the effect that ‘the capitalist can generally lower wages in any part of Europe to a mere sub¬ sistence’ (p. 28). This is countered by the reproduction of Chapter III of Wages and Combination, ‘On the Effect of Combinations for Reducing Wages’. A new paragraph concludes this section, ‘ It is not by the endeavours of capital¬ ists, but by the operation of the Corn Laws, of taxes upon industry, and of the worst regulated currency in the civilized world, that wages in England have been kept down’. But until ‘our commercial and financial policy shall be reformed, no material or permanent rise can take place . . .’ (p. 42). The author then states and explains the proposition that high rents are not the cause but the effects of low wages. ‘After all that has been written on the subject of rent by Malthus, West and Ricardo, it might have been expected that it would be unnecessary, in discussing the question of Poor Laws for Ireland, to recur to the proof of the elementary truth, that the amount of wages and profit is determined by the produce of that quality of land for which no rent is paid.’ The ideas of Mr. Revans, in his article, ‘Poor Laws for Ireland’ (British and Foreign Review, No. VII, p. 9), are stated and dismissed : ‘ if the landlords were to relinquish the whole of their rents, and to assign them to the peasants who cultivate the soil, no permanent relief from destitution and starvation could be thereby conferred’ (p. 45). The population would increase still further : ‘ every year of deficient har¬ vest would be a year, not of partial, but of general famine. When things had arrived at this point — when the earnings of incessant toil, aided by each individual’s portion of rent, were no more than sufficient to supply animal want, it is evident that there could be neither leisure for intellectual pursuit, nor demand for the productions of art’ (p. 47). The fundamental difficulty is the low effective power of agricultural industry due to excessive subdivision of property. But to remedy this it would be necessary to add to the existing destitution by throwing more labourers out of work. Torrens estimates that it would be necessary alto¬ gether to make provision for some five million persons. To deal with this problem the proposed measure of a Poor Law would be unsuitable and inadequate. The Commissioners, who included men of such high quality as Whately, reported against it, and it is a pity that their advice was not followed. The expense would be overwhelming and the effects would not be a cure of the evil. The alleged errors of Mr. Revans are analysed in some detail: and it is argued that the cost of setting up an adequate system and maintaining it would be an immediate expenditure of £43>876,ooo and an annual expenditure of £19,556,160. The system actually proposed by the government is palpably inadequate to the situa¬ tion. Only if the redundant population had been drained off by emigration could it be hoped to produce satisfactory results. After this, there follows a section, pp. 84-1x4, headed Emigration, the appropriate remedy for the social evils of Ireland, which with a few minor omissions and insertions, is the Substance of a Speech delivered on February 15, 1827, analysed above. The Letter concludes, pp. 114-49, with two sections entitled Home Colonization, as a means of increasing employment, and preventing the decline of profits and of wages and Economical Objection to extended Colonization stated and Answered, which are stated in a footnote to be reprints from The

3°6

BIBLIOGRAPHICAL APPENDIX

Colonization of Australia (sic). This proves to be so. The first section comes from Colonization of South Australia, pp. 249-62, the second from the same, pp. 229-49.

42. Second Edition. By R. Torrens, Esq., F.R.S. London : Long¬ man, Orme, Brown, & Green, Paternoster Row. 1838. Pp. 97. Identical with the First Edition.

43. Plan of an Association in Aid of the Irish Poor Law. By R. Torrens, Esq., F.R.S. London: Longman, Orme, Brown, and Green, Paternoster Row. 1838. Pp. 36. The advertisement to the Letter to Lord John Russell on .. . Poor Laws in Ireland announces that it is the author’s intention to avail himself ‘in a supplementary publication, of the recent improvements which have been made in the art of colonization, for the purpose of explaining, more com¬ pletely than I have had an opportunity of doing upon the present occasion, the arrangements by which a system of self-supporting Emigration may be conducted, and the advantages which such a system is calculated to confer upon the mother country, and upon the colonies’. This tract is the fulfil¬ ment of this promise. It opens by quoting with minor changes and omissions paragraphs and extracts from pp. 5-8, 50-5, 85-6, 81-8, 84, 108-9, IIO> 113) °f the Letter in which its advent was promised. These state the Irish problem, indicate the nature of the disease, argue that consolidation of farms would intensify the distress and that the setting up of workhouses would be inadequate to cope with it, and urge that an extensive scheme of emigration is the solution. The proposal is then made to form ‘an Association consisting of noble¬ men and gentlemen, connected with Ireland by birth, property, or office, for the purpose of recommending and aiding the adoption of an extensive scheme of self-supporting emigration from Ireland to South Australia, to be carried into effect through the instrumentality of a Joint-Stock Company, to which the members of the auxiliary association may or may not become subscribers’ (p. 15). The rest of the tract is devoted to stating the rules of the Company, setting forth its objects (‘First — To remove, to the fertile and unoccupied lands of South Australia, such a portion of the cottier tenantry of Ireland as may render it practicable to introduce into that country the improved modes of husbandry prevalent in Great Britain. Secondly, — To open to the capitalist a field of investment, combining unquestionable security with a higher rate of return than that which the safe employment of money in this country ordinarily affords’) (p. 16), and explaining how these would be achieved.

44. Three Letters to the Marquis of Chandos on the Effects of the Corn Laws. By R. Torrens, Esq., F.R.S. London: Longman & Go., Paternoster Row, 1839. Price 2s. Pp. 46. The advertisement tells us that ‘the disquisitions comprised in the following Letters are selections from separate and larger works, now out of print, by the same author. He now presents them in an arranged connected

x

307

ROBERT TORRENS form, in the hope of contributing something toward the success of the national struggle for the Abolition of the Corn Laws. The separate and larger works in question are the Letters on Commercial Policy, Wages and Combination and the Colonization of South Australia. Letters I and II, ‘On the manner in which the Corn Laws lower the Real Wages of the Working Classes’ and ‘On the manner in which the Corn Laws lower the Rate of Profit in Agriculture and in Trade , are to all intents and purposes pp. 81-133 of Wages and Combination, and, as has been pointed out already, part of these (pp. 69-78) are reproductions of Letters on Commercial Policy. Letter III, ‘On the manner in which the Corn Laws keep down the Value of Land and reduce the Rental of the Country’, reproduces pp. 271-85 of the Colonization of South Australia.

45. A Letter to Thomas Tooke, Esq., in Reply to the Separation of the Business of the Bank into and a Department of Deposit and Discount: Reform. By R. Torrens, Esq., F.R.S. Hurst, Orme & Brown, 1840. Pp. 48.

his Objections Against a Department of Issue, with a Plan of Bank London, Longman,

This is the opening shot in Torrens’ lengthy dispute with Tooke on the theory of banking and the Principles of the Bank Act of 1844. It is a reply to the strictures by Tooke in Volume III of the History of Prices on the sug¬ gestion for the separation of departments which had been put forward by Torrens, Loyd, Norman and Samson Ricardo. Postulating that the proposed separation would have the effect claimed by its supporters of making the circulation behave as a purely metallic currency would behave, Torrens argues that Tooke’s opposition must imply a preference for a currency ‘not under a strictly metallic variation’ (p. 6), and asks what possible reason there can be for this attitude. The case, imagined by Tooke, of the exhaustion of the Banking Reserve while the Issue Reserve remained high, so far from illustrating the possible pernicious effects of the change, is said in fact to show these effects to be positively beneficial. Given a continuance of the policy which led to this situation, without the separation the effect would be that not one depart¬ ment but the Bank as a whole would have to suspend payments. The contention that the separation would have been no safeguard against the mistakes of 1835-6 is denied. And the alternative plan favoured by Tooke of maintaining a larger reserve is deprecated on the ground that it would not give rise to the move¬ ments of the circulation which are necessary if external equilibrium is to be preserved. ‘To allow the metals to flow in and to flow out, unchecked by a simultaneous expansion and contraction of the circulation, is to resign the power of setting limits to the range of the alternate swell and subsidence of the stream’ (p. 17). ‘When the currency is in excess, in relation to foreign currencies, the only possible means by which we can avert a suspension of cash payments is, to restore the currency to a par with foreign currencies; and the only practical questions for consideration are, shall we apply the remedy at an early, or at a late period?’ (p. 18).

308

BIBLIOGRAPHICAL APPENDIX There follows a plan for maintaining the paper currency of the kingdom in the same state in which it would exist were it exclusively metallic. This is, with minor omissions, the plan already printed in the Supplement to the letter to Lord Melbourne. There is further appended a reprint of the speech already reproduced in that Supplement.

46. Minute on the Evidence given by Mr. Wakefield before the Committee on the Affairs of South Australia. London. Printed by T. Brettel, Rupert Street, Haymarket, 1841. Pp. 33. This pamphlet, of which the only copy known to me is in the Colonial Office Library, is anonymous. But the style, the subject matter and the allusion to and reproduction of Torrens’ speech of 1827 make its authorship unmistakable. The Minute argues that, in his evidence before the Committee on the affairs of South Australia, Mr. Wakefield ‘abandons and repudiates those peculiar principles of colonization which it has become customary to call the Wakefield system’. These principles were : 1. Self-supporting emigration. 2. A hired-labour price for land. 3. Self-supporting colonization. The first of these principles, however, is not peculiarly Wakefield’s, it having been propounded in Parliament, and in print, previously, as it would appear, to his having turned his attention to the principle of coloniza¬ tion. (The reproduction as an appendix of an extract from Torrens’ speech of 1827 leaves no doubt who the propounder was.) The hired-labour price for land has for its object ‘ to give to new colonies the peculiar advantages, unaccompanied by the peculiar disadvantages, which are found to exist in old countries. . . .’ The problem, therefore, which requires to be solved is to render labour so abundant in rela¬ tion to land, as to give occasion to those divisions of employment by which the quantity of wealth produced by a given number of hands is in¬ creased : and at the same time, to keep land so abundant in relation to labour as to prevent any considerable portion of the produce from appear¬ ing under the form of rent. ‘No one has hitherto succeeded in solving this problem.’ Wakefield abstains from stating the sufficient price ‘under any actual, or even under any given circumstances’. But this omission is of small importance because the rule itself is altogether impracticable, except in colonies in which emigration can be increased in a geometrical ratio. ‘Let Mr. Wakefield’s rule be brought into practical operation and let the price of land and the amount of wages be so adjusted that emigrants of the labouring class, by working as hired labourers for three years accumulate sufficient capital to become masters or cultivators on their own account: and then it will become necessary, in order to keep the rule in operation that the emigration of labourers should increase in a geometrical ratio — the period of doubling being three years.’ The principle is ‘original and ingenious’ and ‘it would be too much to say that it is incapable of being practically applied’. But Mr. Wakefield has not completed his theory by showing how it can be carried out, least of all in his own practice in New Zealand. 309

ROBERT TORRENS

Self-supporting colonization is an essential principle following as a corollary from self-supporting emigration. Mr. Wakefield now repudiates it and calls it a kind of puff. But it was embodied in an Act of Parliament expressly stating that the expense of founding South Australia shall be de¬ frayed not by the mother country, but by a loan to be secured without even the guarantee of the home government, upon the future revenue and public lands of the colony itself. The Act, however, was defective in failing to give necessary powers to carry this out. Colonel Torrens, in his evidence to the Committee on South Australia, suggested an arrangement whereby these deficiencies might be overcome. The Minute then proceeds to a discussion of Wakefield’s comments on the failure of the Commissioner to obtain a loan. The conclusion is drawn that the Wakefield system as exhibited in the Wakefield evidence is reduced as regards the cardinal principles of coloniza¬ tion to a single unit. Taking Mr. Wakefield as a competent authority on the subject, his system consists of the hired-labour price of land principle and of nothing more. The principle of self-supporting colonization of which he has hitherto been supposed to be the author, he disclaims and repudiates. The principle of self-supporting emigration properly belongs to Lord Howick. By the regulation established in 1831 his Lordship gave to that principle a local habitation and should now, therefore, give it a name. An appendix reprints an extract from Torrens’ speech of 1827.

The Budget. A Series of Letters on Financial, Commercial and Colonial Policy. By a Member of the Political Economy Club. London : Smith Elder & Co., Cornhill. The cataloguing of this series presents some difficulties. It would appear that each letter was issued separately ; and the descriptions of Letters I-IV and VII-X below are based upon examination of existing examples. But it has not been possible to trace separate copies of Letters V and VI, although the fact that a second edition of Letter V was issued in 1849 suggests that it at least must have had an independent existence at its first appearance. In 1841 the first four letters were issued bound up together (a copy exists in the Goldsmiths’ Library), and in 1844 the entire series reappeared in a collected edition. The summaries of Letters V and VI which appear below are based upon this text. The separate copies which have been examined have two title-pages : the first with the general title of the series given above ; the second the designation of the particular letter. Most letters contain a note at the end advertising an immediate successor — which, however, does not always eventually appear in this form.

47. General Title as above. No. I. A Letter to the Lord John Russell on the Proposed Alteration in the Import Duties upon Corn and Sugar, pp. 1-20. Signed ‘A member of the Political Economy Club’. No date with the signature. The back of the pamphlet announces that ‘No. 11 will contain a second Letter to Lord John Russell on the Alteration in the Sugar Duties, proposed in the Whig Budget’. 310

BIBLIOGRAPHICAL APPENDIX This letter is in the nature of a frontal attack on the two main proposals of the Whig Budget of 1841, the substitution of a fixed import duty on corn for the sliding scale duties then in force and the reduction of the colonial preference on sugar. The fixed import duty on corn is attacked on the grounds that it would render ‘ dear years dearer and cheap years fewer that it would do no more than the sliding scale to diminish violent fluctuations, that it would increase the bread tax, and that ‘instead of being a step in advance towards the sound principles of free trade in corn, would be a retrograde movement towards the exploded doctrine of restriction and monopoly’ (pp. 10-11). The reduction of the preference on sugar is attacked on the grounds first that it would suddenly destroy the value of Jamaican property and thus ignores the ‘one maxim to which it is imperative upon a statesman to conform . . . —avoid sudden change’ (p. 15), and, secondly, that it appears to ignore the possibility of an increase in the Brazilian tariff against English goods which would have the effect of altering the distribution of the precious metals to the disadvantage of this country, leaving us with a currency contracted in volume and increased in value, with reduced prices and with an increased pressure from the debt. The letter concludes with a recommendation that ‘ Mr. Ricardo’s chap¬ ter on foreign trade, and on the distribution of the precious metals, might be worth your Lordship’s perusal’ (p. 19) and with a promise to return to the subject again.

48. Same General Title. JVo. II. A Letter to the Lord John Russell on the Manner in which the Adoption of the Whig Budget would have Altered the Value of Money, Increased the Pressure of Taxation, and Aggravated the Distress of the People, pp. 23-42. (There are no pages 21 and 22.) Signed, A Member of the Political Economy Club. London, September 13, 1841. The back of the pamphlet announces that ‘The Budget, No. Ill, will contain a letter to Sir Robert Peel on Commercial Reform’. This is the famous letter which was responsible for the various attacks on its author on the ground of fiscal heresy. It is analysed at length in Chapter VII, Section 4, above.

49. Same General Title. JVo. III. A Letter to the Right Hon. Sir R. Peel, Bart., M.P., on Commercial Reform, pp. 45-78. (There are no pages 43 and 44.) Signed A Member of the Political Economy Club. Oct. 27, 1841. The back of the pamphlet announces that ‘The Budget, No. IV, will contain a letter to Sir Robert Peel upon the Corn Laws’. This letter consists, with substantial omissions and a few unimportant additions, of the substance of Letters I-V of the Letters on Commercial Policy (pp. 1-48), henceforward cited as L.C.P. The opening paragraphs on pp. 45-6 reproduce with some modification the statement of intentions of Letter I of L.C.P. There follows (pp. 46 and 47) a reproduction of the summary of the main contentions of the two pre¬ ceding Budget letters to Lord John Russell.

ROBERT TORRENS

Then (pp. 48-9) comes a general declaration of the benefits of general free trade; the only argument for continuing protection is ‘ that the capital and labour . . . cannot be transferred without occasioning loss and destitu¬ tion. . . . The operation has become necessary . . . but it can be safely performed, only by a cautious and a skilful hand.’ The main argument then begins (p. 50). To lower duties on imports of countries which grant similar privileges is beneficial but unilateral re¬ ductions in favour of countries still imposing high or prohibitory duties has the reverse effect. This contention is developed (pp. 50-3) in the words of the argument of Letter II of L.C.P. (pp. 7-11), with the substitution of the Cape Colony for Portugal in the illustration and an alteration in the illustrative figures. Pp. 11-27 of L.C.P. are then omitted and pp. 54-8 of the present letter consist of pp. 28-33 of that work. These extracts purport to show the movements of the precious metals produced by unilateral changes and their effects (a) in discouraging trade during the period of change, (b) in increasing the burden of debt in the deflationary country, (c) in reducing the gain from trade. The author then quotes (pp. 59-61) the high authority of James Hume, late secretary to the Board of Trade, as an example of the opposing view in favour of unilateral reduction and opposed to retaliation. He comments adversely on this view but (pp. 62-3) lays it down that the free entry of ‘materials employed in reproduction’ and raw materials should be [ad¬ mitted] duty free. Pp. 64-8 are then devoted to a more general plea for freedom of inter-imperial trade — * the peculiar advantage which the colonial trade possesses over the foreign trade consists in its greater security. A colonial trade may, at all times, be made a free trade ’ — and for the adoption of a policy of retaliation and reciprocity elsewhere. Pp. 68-74 reproduce pp. 37-42 L.C.P. These dwell on the special geo¬ logical and geographical position of England (quoting McCulloch) and the great opportunities arising therefrom for a policy of the kind already discussed. There is appended, pp. 75-8, a letter to the Editor of the Examiner who had attacked Letters I and II of The Budget suggesting inter alia that the signature ‘a Member of the Political Economy Club’ was a fraud, ‘too transparent to deceive anybody who has enjoyed the advantage of attending the discussions carried on at the Economy Club . . . the writer is little likely to obtain admission into the respectable society whose name he has so unscrupulously borrowed’. To which Torrens replies : ‘The Political Economy Club was founded by Mr. Ricardo, Mr. Mill, Mr. Holland, Mr. Tooke, and — myself’.

50. Same General Title. No. IV. A Letter to the Right Hon. Lord Stanley, on Colonization considered as a Means of Removing the Causes of National Distress, pp. 81-102. (There are no pages 79-80.) Signed A Member of the Political Economy Club, January 6, 1842. The next number is not advertised. After a short introduction (pp. 81, 83) in which it is stated that emigra¬ tion would be made more necessary rather than less by the free imports of food, from pp. 83-98 this letter consists of pp. 229-49 °f the Colonization of 312

BIBLIOGRAPHICAL APPENDIX South Australia, afterwards reproduced as pp. 128-49 of the Letter to Lord John Russell ... on Poor Laws in Ireland. The substance of this argument (summarized in greater detail above, pp. 305-7) is to the effect that increase of capital cannot automatically be expected to provide a field for employ¬ ment and profit and that colonization is the remedy for a condition where accumulation has reached a point of saturation. The concluding sections (pp. 98-102) reproduce with slight omissions and additions pp. 262-70 of the same work, the Colonization of South Aus¬ tralia. This develops the theme that when labour and capital have become redundant, ‘transferring the redundancy to new colonies may lead to an actual increase in the wealth and population of the parent state’. It con¬ cludes with an additional sentence. ‘ The prosperity of the country cannot be arrested by the hostile tariff of foreign rivals, if England will establish throughout her wide-spread empire a British Commercial League — a colonial Zollverein.’

51. A Letter to the Right Hon. Lord Stanley on Colonization considered as a Means of Removing the Causes of National Distress. London : Trelawney, Saunders, 6, Charing Cross. MDCCCXIX. Price One Shilling. N.B. The proceeds of the sale of this Tract are applied in aid of the funds of the Colonization Society. Pp. (ii) +227 to 319. A second edition of Letter IV : an ‘ advertizement ’ states the origin of the letter in 1842 and its eventual incorporation in the volume of 1844. It is now republished in a cheap and separate form, in the hope that its more general circulation may contribute something in aid of the extended plans of colonization which so many distinguished and influential individuals have undertaken to promote.

52. [Second Impression of Letters /-/T.] In 1841 an edition of Letters I-IV was issued by Messrs. Smith, Elder. There are no changes in pagination or text.

53. Same General Title. No. V. A Letter to the Right Hon. Lord Elliot on Colonization, considered as a Means of Removing the Causes of Irish Misery; and of Preventing the Wages of Labour in England from being Permanently Forced Down, by Irish Immigration, to the Starvation Level, pp. 105-138. (There are no pages 103 and 104.) Signed A Member of the Political Economy Club. February 10, 1842. As indicated above, no separate copy of this letter has been found. This letter is a conflation with some simplification and re-writing of passages from the Letter to Lord John Russell ... on Poor Laws in Ireland (henceforward cited as L.P.I.). After an introductory paragraph pp. 105-10 reproduce L.P.I. pp. 7-11, which in part goes back through Chapter I of Wages and Combination to the Appendix 10 the New (1829) Edition of the Essay on the External Corn Trade. The deplorable condition of Ireland as reported by commissioners gives rise to a statement of the circumstances determining the maximum of wages.

3*3

ROBERT TORRENS Pp. 110-15 reproduce pp. 48-55 L.P.I. These exhibit the cause of destitution in Ireland and the magnitude of the difficulty to be overcome. Pp. 115-21 reproduce pp. 67-75 L.P.I. and argue that the workhouse system is not the appropriate remedy for the social evils existing in Ireland. Then pp. 121-38 reproduce pp. 84-8 and 94-114 L.P.I. which with a few minor changes is the Substance of a Speech delivered on February 15, 1827. This argues that emigration is the appropriate remedy for the social evils of Ireland.

54. Letter to the Right Hon. Lord Elliot on Colonization: Considered as a Means of Removing the Causes of Irish Misery and of Preventing the Wages of Labour in England from being Permanently Forced Down, by Irish Immigration, to the Starvation Level. Second Edition. London : Trelawney Saunders, 6, Charing Cross. MDCCCXLIX. Price Sixpence. N.B. The proceeds of the sale of this tract are applied in aid of the funds of the Colonization Society. A second edition of Letter V: an ‘ advertizement ’ — includes a reference to the title identical with that which prefaces the Second Edition of the Letter to Lord Stanley — indicates the earlier history of the tract.

55. Same General Title. No. VI. A Letter to the Right Hon. Sir R. Peel, Bart., M.P., on the Destructive Effects of Taxes upon Realized Property and of Taxes upon Industry, pp. 141-170. (There are no pages 139 and 140.) Signed A Member of the Political Economy Club. No date. As indicated above, no separate copy of this letter has been found. This letter is an overt reproduction (presumably without alteration) of the 1830 pamphlet entitled The Crisis and the Remedies. This is summarized above (pp. 289-90). The central contention is a plea for a tax on ‘dormant’ as distinct from ‘ active ’ capital.

56. Same General Title. No. VII. A Letter to the Right Hon. Sir R. Peel, Bart., M.P., etc., etc., etc., on the Expediency of Establishing Differential Duties in Favour of the British Colonies; and on the Effects which the Importation of Corn and Cattle from Foreign Parts is Calculated to Produce, upon the Well-Being of the Working Classes, upon the Progress of Agriculture, and upon the Value of Landed Property in the United Kingdom. Pp. 173~188. (There are no pages 171 and 172.) Signed A Member of the Political Economy Club, April 1842. This letter resumes the reproduction of extracts from the Colonization of South Australia. The letter opens by a short consideration of the problem why ‘ the condition of the working classes in the United Kingdom [is] inferior to the condition of the same classes in the United States of North America’, the answer being that in ‘America, when accumulating capital and increasing population press beyond the limits of employment, and begin to depress

3M

BIBLIOGRAPHICAL APPENDIX wages and profits in the old states, labour and capital pour themselves out upon the unoccupied lands of the Western Territory: while, in England, when labour and capital increase, a proportional increase of fertile land, from which to obtain subsistence, cannot be obtained; employment be¬ comes scarce in relation to the numbers seeking to be employed, and profits and wages are consequently reduced’. Therefore ‘it will be necessary to place the trade between the colonies and the mother country upon the footing of a Home Trade’ (pp. 175-6). What follows, pp. 176-88, reproduces pp. 270-85 of the Colonization of South Australia which discuss the effects of extended colonization upon the agriculture of the United Kingdom.

57. Same General Title. No. VIII. A Letter to the Friends of Extended Colonization on the Causes of the Failure of the Financial Branch of the South Australian Experiment, pp. 191-226. (There are no pages 188 and 190.) Signed A Member of the Political Economy Club. July 1, 1842. The letter attempts to assess the distribution of blame between the Government, the South Australia Commissioners and Colonel Gawler, the Governor. The Government of the day is said to be to blame for the predisposing causes of failure, the refusal to sanction the establishment of the experi¬ mental province either as a chartered colony or as an ordinary crown colony, and to set up a system of administration relieving the Government of pecuniary responsibility. But the Colonization Commissioners are blamed for their handling of the finances of the experiment, and although Colonel Gawler fell into an error of judgment in disregarding the principle of selfsupport which he was appointed to carry out, the responsibility of the Commissioners is said to be heavier. But ‘The high minded soldier, who led the storming party at Baddajos [sic], and who commanded the flank company which charged the Imperial Guard at Waterloo, has been dis¬ missed from his government — the Commissioners who disobeyed the Act of Parliament, have been retained in office . . . Colonel Gawler had no friend at court. He had no political connection, no family ties with the members of a Whig Cabinet. No Lady Fanny Gawler was betrothed to a Secretary of State in charge of the Colonial Department. There is a mark on the forehead of Lord John Russell which can never be effaced’ (p. 214).

58. No. IX. A Letter to the Right Hon. Sir R. Peel, Bart., M.P., etc., etc., etc., on the Condition of England and on the Means of Removing the Causes of Distress, pp. 227-328. Signed R. Torrens. No date. (A Date in the Appendix suggests completion after November 4th, 1842.) This letter falls into two parts : I, On the Condition of England; II, On the Means of Removing the Causes of Distress. The section which deals with the condition of England paints a very gloomy picture: ‘ the condition of the country is not only afflicting, but pregnant with danger’. England at one time possessed such superior advantages that money wages were considerably higher than on the

ROBERT TORRENS continent of Europe. The inventions of Watt and Arkwright provided the means by which we saved Europe from Napoleon. But with the coming of peace knowledge of the new techniques spread and the restrictive system was turned against us. The duty ‘which devolves upon the statesman of the present day is to save the industrious millions from the effects of a transition partly resulting from the progress of knowledge, and of improve¬ ment in other countries, and partly created by the tariff war, waged univer¬ sally against British Commerce’ (p. 234). It cannot be expected that we should permanently maintain our industrial lead. This leads to a discussion of ‘ the manner in which an increase of Capital and Labour when not accompanied by a corresponding augmentation in the field of Employment, depresses Wages’. Pp. 238-41 reproduce passages from Letter IV, pp. 86 and 91-3, which come from the Colonization of Aus¬ tralia, pp. 233 and 239-43, and the Letter to Lord John Russell ... on Poor Laws in Ireland, pp. 132-3 and 139-43. These passages explain the theory of the stationary state and in what follows it is assumed to be a fact that the stationary state has actually arrived in England. ‘Our powers of pro¬ duction have outgrown the field of employment’ (p. 241). The effect on wages of import duties imposed by foreign states on British goods is next discussed. The author surveys the current scene and sees little hope. ‘ Powers of production outgrowing the field of employment, foreign competition, and hostile tariffs, have already degraded, and if re¬ medial measures be not speedily applied, must continue still farther to degrade the condition of the industrious masses, dependent upon foreign trade for the means of subsistence. . . . The fall will be severe. It will be a descent, not from superiority to equality, but from superiority to in¬ feriority. The condition of the industrious classes in England will sink below that of the same classes throughout the Continent of Europe. In what spirit will the calamitous vicissitude be borne?’ (pp. 250-2). One effect, he argues, will be to force a repeal of the Corn Laws. This will be advantageous to the manufacturing population. But employment would be limited and wages depressed in the agricultural districts; any improvements introduced by landlords to improve productivity would only aggravate this. Furthermore, rents would fall — as Ricardo has shown incontrovertibly. Another effect will be an increase in the burden of debt and much insolvency due to the comparative increase in the value of money. Those who hope for salvation from peace with China are said to be deceived. China does not export raw produce. The least beneficial trade is that which is carried on between densely populated countries which are in this position. It is argued (with illustrations) that ‘it is utterly impossible that finished goods, not consisting of necessary clothing, should in any way directly contribute to create an effectual demand for each other’ (p. 271). Moreover, the effects on China if she attempted to export raw produce for our manufactures would be utterly disastrous. The second part, on the means of removing the causes of distress, is a prolonged argument for emigration on the lines recommended by the author. The argument opens with consideration of the results of the extension of the Isle of Wight into a new area twice as great as the British Isles. This would solve our problems. ‘We have only to look at the state of the

3l6

BIBLIOGRAPHICAL APPENDIX industrious classes in the United States ... to comprehend the character of the change.’ The U.S. gains so much from the accessibility of unde¬ veloped land that even the two great charlataneries of the world — Trading without capital, and currency without specie’ (p. 286) —do not ruin her. The benefits in the shape of higher profits and wages, immunity from foreign competition, higher rents (in the long run !) and improved public finances are set forth in glowing language. Now, it is argued, England possesses vacant lands more extensive than this, why should the obstacles of transport and the other disadvantages of distance prove insurmountable ? The navy could be used to move people. Proper surveying could facilitate the business of settlement. A proper commercial policy could guarantee markets. The means of defraying the cost are explained at great length. ‘Systematic colonization not only re¬ places but creates.’ Moreover, it does not subtract resources from the mother country when the powers of production there have outgrown the field of employment. ‘It retains the accumulating wealth which would otherwise flow off; it invests in secure production, the capital which would otherwise be lost. . . . While unappropriated wastes remain at the disposal of the crown, no limits to this progress can be assigned’ (p. 316), etc. etc. An appendix gives particulars of the movement of wages paid in textile manufacturing establishments.

59. Postscript to a Letter to the Right Honourable Sir Robert Peel, Bart., M.P., etc., etc. on the Condition of England and on the Means of Removing the Causes of Distress. London : Smith, Elder & Co., 65, Cornhill, 1843. By R. Torrens, Esq., Signed April 22, 1843, pp. 1-28. The body of the tract opens with a reference to the author’s earlier opinions as expressed in the Essay on the External Corn Trade, the Letters on Commercial Policy, and resolutions moved in 1833 in the House of Commons. Appeal is also made to the authority of Ricardo, Senior and Pennington. The analysis of the effects of import duties is then developed, first on the assumption of barter between England and Cuba, representing a twocountry world, of ‘bales of finished goods’ and ‘hogsheads’ of produce. It is demonstrated (on the assumptions set out above) that ‘the terms of international exchange’ are altered ‘in favour of the country imposing the adverse duty, and to the disadvantage of the country upon whose produc¬ tions the adverse duty is levied’ (p. 3). A third country (Jamaica) is intro¬ duced and the analysis assumes the form of a discussion of the economics of preference. Some account is taken of the possibility of elasticities of de¬ mand greater or less than unity ; but the emphasis is light. The demonstrations are then repeated in terms of money economies and the distribution of the precious metals. Appeal is made to ‘the valu¬ able lectures ’ of Senior upon the cost of obtaining money. Finally, the moral is drawn that reciprocity rather than unilateral free trade is the watchword for commercial policy. The conclusion is also reached ‘that an immediate and total repeal of the duties upon foreign agricultural produce, unaccompanied by a mitigation of foreign tariffs, would so alter the distribution of the precious metals to the disadvantage of

ROBERT TORRENS this country, and so enhance the value of our currency as to occasion a further decline in money prices, and in money wages, and to increase, to a serious extent, the real amount of the debt, and the actual pressure of the taxes .

60. The General Budget Title. Postscript to a Letter to the Right Honourable Sir Robert Peel, Bart., M.P., etc., etc. on the Condition of England and on the Means of Removing the Causes of Distress. London: Smith, Elder & Co., 65, Cornhill, 1843. By R. Torrens, Esq.

Pp. 329-378.

This edition contains an introduction which makes clear the author’s intention to set forth his views on tariffs and the terms of trade with greater analytical vigour than on earlier occasions. He defers to some future occasion considerations of qualifications and limitations. ‘ My present object has been to demonstrate the effects of import duties upon the terms of international exchange, under the hypothesis that the quantities of domestic products which consumers offer for foreign products are definite, unvarying, quantities.’ The body of the text is the same as in No. 59. There is appended a note replying to Merivale’s objections developed in an annex to his Lectures on Colonization, Volume II. Merivale has miscon¬ ceived the illustration. ‘ My case is, that all foreign countries impose duties upon British goods, and that Cuba represents them all. Mr. Merivale’s case is, that all foreign countries do not impose duties upon British goods, and that Cuba does not represent them all.’ Torrens admits that if Meri¬ vale’s assumption ‘ bore any resemblance to actual circumstances, the Cuba tariff could have a very slender effect in altering the terms of international exchange to the disadvantage of England, because, in this case, England could as Mr. Merivale contends, evade, in great part, the Cuban duties, by exchanging her goods for the productions of other countries. . . . But . . . when all countries impose import duties, the principles regarding the effect of such duties which are true in reference to one country, are also true in reference to all’ (p. 358). A further note quotes press opinion on reciprocity.

61. Same General Title. No. X. A Letter to Nassau William Senior, Esq., in Reply to the Article *Free Trade and Retaliation’ in The Edinburgh Review, No. CLVII. By R. Torrens, Esq., F.R.S. At this point the pagination goes back to 337 and the letter extends to p. 393. Signed R. Torrens, Nov. 17, 1843. Issued with the same letter in continuous pagination (pp. 394-427) are a Letter to the Independent Electors of Sheffield (described as Letter XI in the contents of this volume but bearing no such heading in the text) and other letters to Cobden, Morse and Welford. These are all signed R. Torrens and bear dates anterior to that of the main letter to Senior. After relating the satisfaction with which he had heard Senior’s an¬ nouncement at a meeting of the Political Economy Club that he proposed to reply to The Budget, the author begins with a repudiation of the suggestion 318

BIBLIOGRAPHICAL APPENDIX that his doctrines are those of the mercantilists who conceived ‘ that wealth consists in the precious metals’. (‘My conclusions are . . . derived . . . from Ricardo . . . international exchange resolves into a trade of barter ’) (P- 333)- He reproaches Senior for the inconsistency between this accusa¬ tion and the argument that the ‘plausibility ... of the errors contained in his postscript depends ... on his exclusion of the use of money’ (p. 334). He next points out that all Senior’s elaborate demonstration that the local value of money is determined by factors of which the local quantity of money is only one is based on a misapprehension ; neither he nor Ricardo and Mill ever thought the contrary. The doctrine maintained in the Budget regarding the distribution of the precious metals is similar to that of Senior’s own Lectures on the Cost of Obtaining Money. ‘In the novel of Woodstock, one of Cromwell’s officers, under the hallucination that he was fighting the Battle of Armageddon beat the air for an hour. I may be per¬ mitted to look on, a passive, though not an unamused spectator, while you discharge your heavy statistics against “airy nothings”, combat with phan¬ toms, encounter Ricardo in effigy, and deal some telling blows against yourself’ (p. 342). Senior’s assertion that ‘cost of production is the real governor, not only of domestic but of international commerce’, comes next under examination. The author thinks that Senior’s admission that price coincides with cost so far as it ‘ is not affected by any natural monopoly ’, is an admission that cost does not rule international values — since there is not complete inter¬ national mobility. As for the contention that producers are indifferent to their markets, this is signally irrelevant. ‘The question to be decided is not, as you erroneously suppose, whether an English spinner sells his yarn at the same price in the markets of France as in those of England; or, whether the French weaver sells his silks at the same price in England as in France. The question is, will the English yarn produced by a given quantity of labour, sell in the markets, both of England and of France, at the same price at which the French silks, produced by the same quantity of labour sell in the markets both of France and of England ?’ (p. 347). But Senior has already admitted that the yarn produced by the labour of 200 men in England will buy the same amount of silver as the silk produced by the labour of 300 men in France. He agrees with the author's two-commodity two-country case. Why does he deny it when commerce is extended to many countries and many commodities ? The passage from The Budget, Letter II, about Cape Colony and Britain (which, as has been shown above, is a paraphrase of a passage about France and Britain in the Letters on Commercial Policy) is now quoted to prove that Senior’s contention is wrong that he builds everything on a twoor at most three-country model. After this the author takes up certain subsidiary matters. The doctrine of reciprocity, although in conflict with Adam Smith’s remarks on retalia¬ tion, is not in conflict with his labour theory of wealth: buying in the market ‘in which the produce of a given quantity of domestic labour will purchase the greatest quantity of foreign labour’ (p. 359), is buying in the cheapest market. Furthermore, Senior has erred in attributing to the author the desire to impose duties on the materials of reproduction. His passage in which the ill effects of such measures are set forth is claimed as

3J9

ROBERT TORRENS the author’s ‘own proper thunder’ and an appropriate passage from the Budget letter is cited. He has erred too in attributing to the author any denial of the advantages of territorial division of labour. The letter then becomes political and ventures to suggest that Senior is more concerned with vindicating the measures of Lord John Russell and the Whigs than in establishing the truth. Whereas from its commencement to its close the author has been in commercial, financial and economical opposition to the measures of the Whig government, Senior appears now to dissent from doctrines he himself formerly preached and to which, when they were shown to him in the form of the resolutions ‘ moved ’ by the author in the House in 1832, he made no objection. What is more disquieting, it is obvious from the measures of Lord Sydenham that his desire to pursue a policy of reciprocity with Germany was frustrated by the Whig support of the Corn Laws. Such resistance has had its reaction in the shape of the Anti-Corn Law League, whose recommendations, if adopted precipitately, might bring disaster. The letter concludes with the expression of the belief that Senior will see the error of his ways. ‘Though in your recent article . . . you do not appear “in your original brightness” yet you will pass the “dim eclipse” “And with gladness pursue The path which conducts you to splendour again”.’ The appended letters are very much ad hoc. The Letter to the Electors of Sheffield cites the speech of 15th August 1833 in the House of Commons on the Prussian Tariff and urges that ‘No portion of the United Kingdom is so deeply interested as Sheffield in effecting a liberal commercial treaty with the United States of North America . . . and . . . this . . . would be rendered altogether hopeless by the adoption of that onesided freedom of trade which has become the monomania of the day . . .’ (p. 407). The letters to Cobden, Morse and Welford present a similar attitude.

62. A Letter to Nassau William Senior, Esq. in Reply to the Article ‘Free Trade and Retaliation' in The Edinburgh Review, No. CLVII. By R. Torrens, Esq., F.R.S. London: Smith, Elder, & Co., 65, Cornhill. 1843. Price two shillings. Pp. 100. Another impression of No. 61 with separate pagination. unchanged.

Otherwise

63. The Budget. On Commercial & Colonial Policy. With an Intro¬ duction in which the Deductive Method as presented in Mr. Mill’s System of Logic is applied to the solution of some con¬ troverted questions in Political Economy. By R. Torrens, Esq., F.R.S. London : Smith, Elder & Co., No. 65, Cornhill,’ 1844’. Pp. lxxii+ apparently 427 but the pagination is irregular: PP- 331-7S are repeated twice and a few numbers are omitted. (This is obviously due to the circumstances of origin indicated above.) This is the collected edition of the tracts already summarized. In addition, as the title indicates, it includes a long introduction which is of 320

BIBLIOGRAPHICAL APPENDIX great interest as showing Torrens’ mature view on certain disputed prob¬ lems in the pure theory of value and distribution. The Introduction begins by claiming that the series rests upon ‘the Principles of International Exchange established by Mr. Ricardo, in his celebrated chapter upon Foreign Trade’,—principles also clearly stated by Senior in his Lectures on the Cost of Obtaining Money and recognized by Merivale in his Lectures on Colonization. It is the essence of this doctrine ‘that the same circumstances which determine the terms of domestic ex¬ change do not determine the terms of international exchange’ (p. vii). The ‘difficulty in transferring labour and capital from one country to another, which renders the terms of international exchange different from those of domestic exchange, causes an important difference between the incidence of duties imposed upon foreign commodities, and duties imposed upon domestic commodities. Duties upon domestic commodities are paid by the domestic consumer ; duties imposed upon foreign commodities may, when uncounteracted, be paid by the foreign producer’ (p. ix). The argument then broadens, urges that most errors in Political Eco¬ nomy ‘will be found to originate in that proneness to hasty generalization, which leads us to infer that similar causes will produce similar effects under dissimilar circumstances’ (p. x). If labour and capital are not mobile, then it is wrong to assume that the same influences will have the same effects as if they were not. Mill’s Logic is quoted on the hypothetical character of the propositions of Political Economy. It is quoted, too, on the universality of the method of application. This leads to a discussion of Ricardo, who often failed to indicate ‘the necessary corrections for the difference between the hypothetical circum¬ stances and the circumstances which actually exist’ (p. xiii). But though he sometimes fell into this error, ‘yet the succeeding economists who have controverted his leading doctrines, have fallen into the greater, and, as regards the progress of the science, the much more pernicious fallacy of seizing upon some modifying circumstance, and applying it to disprove the abstract proposition’ (p. xiv). This is exemplified by Malthus’ strictures on the Ricardian doctrine concerning the effects of improvements on rent. Jones’ Distribution of Wealth is based on similar misconceptions. And the author admits that his own strictures on Ricardo in the third edition of the Essay on the External Corn Trade mistook an extension for a refutation of Ricardo’s propositions. ‘I am free to confess, that while controverting Ricardo’s theory of rent, I did nothing more than give an obvious extension to the principles borrowed from my great master’ (p. xxi). There follows an account of the Ricardian theory of proportionate dis¬ tribution. It is failure to understand this which is said to underlie most of the errors of anti-Ricardian criticism. The first part of this is a reproduc¬ tion of pp. 24-30 of the Colonization of South Australia. The elucidations there set forth are then elaborated by the invocation of a suggestion of Longfield’s for the reduction of ‘previous’ and ‘proximate’ labour to a common denominator which according to Torrens permits all difficulties in the extension of the original Ricardian propositions to be eliminated. The solution thus advanced is said to vitiate certain strictures which the author himself had passed at an earlier date upon the Ricardian Theory 321

ROBERT TORRENS of Profit. The critiques of Malthus and Senior are also said to miss the point. A more detailed account of this difficult argument is given above, Chapter III, Sections 5 and 7. Eventually the argument comes back to the difference between domestic and international values — ‘ the only questions regarding which any very essential difference of opinion continues to exist among the class of thinkers who have directed their attention to the science of Political Economy’ (p. xli). The author claims that his critics, Senior and Merivale, have failed to show any flaw in his argument regarding the incidence of duties where the goods exchanged are not elements of reproduction and that, instead of citing empirical grounds for believing this argument to be inadequate to the complexity of the circumstances to which it refers, they have cited only the conclusions which he himself had established in regard to incidence where the goods exchanged include elements of reproduction. Reply is then made to correspondents who have called in question the deductive and demonstrative methods used in these arguments. Mill’s Logic and his essay on The Nature and Methods of Political Economy are cited and quoted at some length. The limitations of the inductive approach are emphasized and contrasted with the much greater generality of the deductive method, the argument being illustrated by discussion of the alternative methods of ascertaining the probable effect of a tax on French wines. The Introduction concludes with an expression of belief that at ‘no distant period’ the process of elaborating ‘hypotheses embracing all the various combinations of circumstances which can influence production, distribution and interchange’ (p. 1) and deducing conclusions from them may be so advanced as to render Political Economy perfect as an abstract science. Bailey is said to have ‘ finally set at rest the long agitated question, whether value should be regarded as an absolute or positive quality inhering in commodities, or a relation existing between them’ (p. li). Longfield ‘has succeeded in removing the main objection to the reception of Ricardo’s theory of profit’ and Mill’s Logic ‘has achieved for the deductive moral sciences, including Political Economy, that which Bacon’s “Novum Organum” achieved for the inductive physical science’ (p. lii). A postscript criticizes Lawson’s strictures on the reply to Senior and reproduces in full the note in which they occur. There are then reproduced as they were printed, Letters I to X of The Budget Series including the fuller (2nd) edition of the Postscript to Letter IX. The table of contents makes changes in some of the titles.

64. A Letter and a Memorial Addressed to the Right Honourable Lord John Russell. By Lieutenant-Colonel Torrens. London : Longman, Brown, & Co., Paternoster Row, 1842. Pp. xiv + 31. This is an energetic and indignant protest at the removal of the author from the Board of Commissioners for South Australia. The letter protests that the Minister has not considered the evidence laid before him and has been guilty of unjust accusations. The memorial traces the history of the experiment and defends the actions of the author in regard to the financial crisis of 1840. 322

BIBLIOGRAPHICAL APPENDIX

65. A Letter to Lord Ashley, on the Principles which Regulate Wages and on the Manner and Degree in which Wages would be Reduced, by the Passing of a Ten Hours Bill. By R. Torrens, Esq., F.R.S. London: Smith, Elder & Co., Cornhill. 1844. Pp. iv+80. Up to page 12 this letter reproduces material from the Appendix to the New (1829) Edition of the Essay on the External Corn Trade which, as has been indicated, became in whole or in part Chapter I of Wages and Combination, the opening sections of the Letter to Lord Russell on Poor Laws in Ireland and a section of Letter V of The Budget. This is followed on pp. 13-21 by Chapter II, On the Effect of Machinery on Wages, from Wages and Combination. The next sections, ‘ On the Manner in which the relative Efficiency of British and of Foreign Labour limits the Amount of Money Wages in this Country’ and ‘On the Manner in which the Import Duties imposed by Foreign States on British Goods lower the Value of British Labour’, pp. 22-38, come from Letter IX of The Budget, pp. 229-37 and pp. 242-52. The next sections, on the power of combinations to reduce or to raise wages, pp. 39-64, are Chapters III and IV to p. 80 of Wages and Combination. The rest of the tract (pp. 64-80) is new and deals with ‘the manner in which limiting the time of Labour to Ten Hours would reduce Wages’. The author disclaims any intention of denouncing the Bill on grounds of its infringement of the maxim Laissez Faire which he repudiates. He argues that ‘the expediency of a Ten Hours Bill must be determined by the self¬ same rules, which we have applied in determining the expediency of combinations for raising wages. ... If, in the actual state of manufacturing industry in this country, wages are below the maximum, and profits above the minimum, then the same wages might be given for ten hours’ labour which are now given for twelve hours, without suspending industry and throwing the operative out of employment: while if wages be already at their maximum and profits at their minimum, a diminution in the hours of labour must inevitably lead to a corresponding diminution in the amount of wages’ (p. 65). The author then proceeds to argue that ‘Foreign competition and foreign tariffs are progressively depriving the British manufacturer of the superiority which he has hitherto possessed over the foreign manufacturer. ... Is there a foreign market in the world to which our fabrics could be exported with a profit, were the cost of their production to be increased by the payment for the labour of ten hours, of the same amount of wages which is now paid for twelve ? ’ This is illustrated by a discussion of the market in the United States. ‘Enact your Ten Hours Bill and one of two events must inevitably ensue : — the manufactures of England will be transferred to foreign lands, or else the operatives must submit to a reduction of wages to the extent of 25 per cent’ (p. 71). ‘England’s commercial rivals would rejoice and glory in the success of Your Lordship’s measure for limiting the hours of work in her factories. The commercial greatness of our country has been created by the power which the British operative has hitherto possessed, of executing in a given time ... a greater quantity of work than that which could be executed in the same time by the foreign operative. Remove the cause and the Y

323

ROBERT TORRENS effect will cease. . . ‘Your Lordship’s Bill for limiting the hours of labour ought to be entitled, — ‘A Bill for reducing the Wages of the Opera¬ tive Classes throughout the United Kingdom. . . . You advocate a legisla¬ tive limitation of the hours of labour upon moral grounds alone, and avowedly discard all considerations of the commercial branch of this momentous question. . . . But . . . the moral and commercial branches of this important subject are incapable of separation’ (pp. 75-7)* The author appeals to Lord Ashley to reconsider his attitude. ‘Laissez Faire is obsolete . . . unless appropriate and effectual means must be adopted to mitigate the existing, the increasing pressure upon the labouring population, days of tribulation are at hand. But appropriate and effectual means . . . are placed at our command abundantly. . . . Though on this occasion Your Lordship has overlooked these means. . . .’ 66. An Inquiry into the Practical Working of the Proposed Arrangements

for the Renewal of the Charter of the Bank of England and the Regula¬ tion of the Currency with a Refutation of the Fallacies Advanced by Mr. Tooke. By R. Torrens, Esq., F.R.S. London: Smith, Elder, & Co. Cornhill, 1844. Pp. iv+66. This pamphlet is in effect a reply to Tooke’s Inquiry into the Currency Principle. Tooke having been ‘one of the earliest advocates of the en¬ lightened views regarding currency and banking, which were developed by Ricardo, Huskisson and Horner; which are embodied in the celebrated Report of the Bullion Committee; and which were carried into practical effect by the Act of 1819, for the resumption of cash payments’, it is said to be ‘desirable that the errors which pervade his recent publication on the Currency Principle should be made manifest to the public . . .’ (pp. 1-2). The first section is devoted to an analysis of the working of a purely metallic currency. If there were no seignorage, ‘there could exist no difference in value between coin of standard weight and standard bullion’ (p. 3). But it is not true to argue, as Tooke does, that this means that the circulation would expand and contract with every import and export of bullion; ‘ tens of millions might be imported and re-exported for the adjusting of foreign accounts, and the purchase of foreign securities, without producing any effect upon the amount of the circulation — without causing an additional bank note to be issued or returned’ (pp. 6-7). Under such a system bills of exchange would perform the same function as they do under a mixed system. It is a fallacy to regard them as money: they are not accepted universally as the final equivalent of a bill of exchange. Similarly, there would be deposits, cash credits and cheques and they would perform the same services as under a mixed system in economizing money. It would be possible for banks providing these services to over-trade. (An example is provided of an undue extension of credit: and there is a some¬ what elaborate discussion of the limits to over-trading under single and multiple banking systems respectively.) But the metallic principle would be a powerful discipline; and banks of deposit would be constrained to regulate credit transactions with reference to the foreign exchanges, by seeing the inevitable danger which would be incurred by a failure to limit their advances and their credits as gold should be withdrawn from their coffers. 324

BIBLIOGRAPHICAL APPENDIX The next section deals with the working of a paper currency regulated upon the metallic principle. This might be run on the lines of the Bank of Hamburg, with the Mint giving receipts entitling their bearers to coin. Such a system, however, would be expensive. The same results might be obtained by the issue on securities of a fixed amount of paper, the rest being issued against coin; alternatively, the separation of departments recently proposed by Loyd, Norman, and the writer would have the same effect. The working of the mechanism is illustrated by describing the effects of inflows and outflows of bullion. These need not affect the circula¬ tion. But eventually they might and in this case the main influence would probably be via the security markets, changes in the rate of interest, specula¬ tion in commodities and then the wholesale and retail markets. It is further argued that movements of the auxiliary media, deposits, etc., ‘would par¬ take, with considerable velocity and exactness’ (p. 29), in these expansions and contractions. Tooke is quite wrong in thinking that all this is the same as ‘ conformity of the amount of bank notes to the amount of bullion ’ (P- 31)Tooke’s own plan is next examined and judged to be deficient on the ground that it involves no pressure with the development of an unfavour¬ able exchange. This might not be harmful if the occasion of the unfavour¬ able movement were some transitory factor such as a deficient harvest. But if there were a redundant currency caused by previous over-trading it would be very dangerous. The argument here is the same, and uses some of the same words, as the Letter to Thomas Tooke. Tooke’s ‘grand instrument of rectification ’, discount rate variation, is likely to be inutile : ‘ The general rate of interest cannot be materially raised while the amount of the circula¬ tion remains undiminished’ (p. 37). Having dealt with the Tookean principle, the argument then proceeds to discuss the working of a system of many banks of issue unrestrained by the principle of keeping securities at a uniform amount. Here (in contrast to the position adopted in the Letter to Lord Melbourne) it is held that ‘no management on the part of the directors of the Bank of England can by possibility maintain the currency in this sound and healthy state, so long as the numerous banks of issue throughout the provinces shall continue to act upon their avowed principle, of uttering their paper without reference to the action of the foreign exchanges and without regard to the principle of keeping the securities at a uniform amount’ (p. 39). It is argued that the belief that provincial banks of issue have a beneficial operation in the agricultural districts is a delusion. Finally, the author turns to the ‘grand Tookean Fallacies’ (p. 43). First, the contention that the circulation is the effect of prices and not vice versa. ‘Mr. Tooke . . . rests the deserved reputation, which even he himself cannot destroy, upon having traced, by an extensive induction from existing and from historical facts, that the value of everything declines as its quantity is increased in relation to the demand; and he turns his back upon himself by affirming that the value of money does not decline, as its quantity is increased in relation to the demand’ (p. 44). He ‘admits, that the value of inconvertible paper currency is lowered by an increase in its quantity; but he denies that a convertible currency can be lowered by

325

ROBERT TORRENS an increase of its quantity’ (p. 45). But the effects of increase are the same. The difference is that with a convertible currency there are limits. ‘Mr. Tooke falls into the misconception of imagining that the limitation to a further decline of value which convertibility imposes, prevents the pre¬ vious existence of the decline which it subsequently arrests’ (p. 45). The reasons which he gives for his contrast are invalid. It is ‘a fallacy that con¬ vertible paper is issued to those only who being entitled to demand gold desire to have notes in preference’. (The text here is corrupt, p. 47, ‘con¬ vertible’ being replaced by ‘inconvertible’.) A second fallacy of Tooke’s is that banks cannot over-issue convertible paper. His argument that the issue of 5,000,000 sovereigns on mortgage would not increase the circulation is shown to be inconsistent. Finally, Tooke is taken to task for believing that the papers by Penning¬ ton appended to the Inquiry support his point of view. It is true that Pen¬ nington does not support the separation of departments. But he is ‘a dis¬ tinct and decided supporter of the principle of keeping the issues of the Bank upon securities at a uniform amount, and of allowing the issues upon bullion to expand and contract under the action of the exchanges. ... If Tooke agrees with Pennington, he disagrees with Tooke’ (p. 55). There follows a reprint of the Letter to Thomas Tooke of 1840, and the propositions appended to that letter (but not the plan) which first appeared in the Supplement to the Letter to Lord Melbourne.

67. An Inquiry into the Practical Working of the Proposed Arrangements for the Renewal of the Charter of the Bank of England and the Regulation of the Currency with a Refutation of the Fallacies advanced by Mr. Tooke. Second Edition by R. Torrens, Esq. London : Smith, Elder & Co., Cornhill, 1844. Pp. iv + 104. This is exactly the same as the First Edition so far as the Inquiry proper is concerned. But there is added to it a reprint of the Reply to the Objections of the Westminster Review (No. 68 below) also completely unaltered.

68. Reply to the Objections of the Westminster Review to the Government Plan for the Regulation of the Currency. By R. Torrens, Esq., F.R.S. London: Smith, Elder & Co., Cornhill. 1844. Pp. 40. This is a reply to the article on ‘The Currency Question’ which ap¬ peared in the June number of the Westminster Review, 1844. As was known to the author (see, e.g., the reference to the foremost logician of the age on p. 23) and as has been confirmed for our own age by the publication of Mill’s own list of his publications (Bibliography of the Writings of John Stuart Mill, Ney MacMimm, J. R. Hainds and James McNabb McCrimmon, Illinois, 1945, p. 57), this article was written by J. S. Mill and was his first contribution to the cause of the Banking Theory. The pamphlet falls into three parts, each examining a separate proposi¬ tion said to be advanced by the Reviewer. The fust examines the question ‘Have Banks of Issue the power of in¬ creasing the notes in circulation ?’ (p. 4). 326

BIBLIOGRAPHICAL APPENDIX The Reviewer had quoted the well-known evidence of Gurney and others to the effect that country bankers had no power to extend their circulation. Nobody will dispute, says Torrens, that there are certain states of the market when bankers cannot extend their circulation. But the question is, can they never do it ? Can they not sometimes ‘ so increase their issues as to give to the circulation a greater degree of expansion than that which it would receive, under a similar state of trade, were the currency purely metallic ?’ (p. 5). But on this the evidence of the bankers is affirmative for they declare that their issues depend on the state of agriculture and not on the foreign exchanges. The Reviewer quotes Tooke on the effects of loans on securities. Torrens accepts Tooke’s description of the possibilities, but urges that this proves his case — since the return of the notes postulated for bullion for export proves that they have been issued in excess. ‘No advocate of the metallic principle ever contended that the power of issuing convertible paper can give to the currency a permanent expansion greater than that which it would possess were it purely metallic. What they contend for is ... a temporary excess’ (p. 7). The fact that the Reviewer and Tooke object to leaving the Banking Department under the proposed system to bear the brunt of with¬ drawals is itself a tacit admission that under the old system departures from the metallic criterion were possible. The second part examines the question — can an increase in the circu¬ lation cause an increase in the power of purchasing which determines prices ? The Reviewer had contended that the power of purchasing of individuals consisted of three parts — money in his pocket, money at the bankers and whatever credit he happens to possess. Now ‘admitting bank notes to be money . . . what does the person do who issues them, but take so much from the third element of purchasing power . . . and add to it the first element, money in hand — making no addition to the total amount ’ (p. 1 o). Torrens entirely dissents from this proposition, ‘an increased issue of bank notes not only increases the element of purchasing power which con¬ sists of money in hand, but also increases, it may be in a much greater proportion, the element which consists of credit ’ (p. 11). This he attempts to prove by a variety of numerical illustrations involving multiple increase or contraction of loans against increases or contractions of note. If it is objected that additional credit might have been accorded without additional notes, he replies that this would be an answer to his objections ‘provided it were a fact, that banks of issue could secure the safety of their establishments without maintaining a due proportion between reserves and liabilities’ (p. 15). This is clearly not so. Therefore ‘ the only question at issue ... is, whether the power of creating notes convertible on demand enables banks of issue to keep up, for some limited period, a larger reserve than that which, were the circulation exclusively metallic, banks of discount and deposit’ (p. 18) were able to maintain. This section concludes with a very clear statement of the ‘essential difference which exists between bank notes and the forms of credit which are represented by checks and bills of exchange. Bank notes are, by law or by custom, the immediate substitutes for coin : though they are not money in the strictly scientific sense, yet, practically considered, they perform the functions of money, inasmuch as they are the instruments by which balances

327

ROBERT TORRENS are adjusted, and transactions finally closed. They are, as Sir William Clay has happily expressed it . . . the feet upon which checks and bills of exchange are enabled to travel’ (p. 21). The third part investigates the question, ‘Is a total separation of the business of issue from that of banking calculated to produce greater and more abrupt fluctuations in the rate of interest and the state of commercial credit than the present system of union of departments?’ The contention of the Reviewer that this is likely to happen involves, according to Torrens, ‘ two very startling propositions, namely, that a purely metallic currency is more liable to abrupt fluctuation than a convertible paper currency; and that under the proposed separation of functions, the deposit department of the Bank of England will be less secure than the private banks of the metropolis hitherto have been’ (pp. 22-3). This argument is followed by an attempt to demonstrate directly the greater probability of fluctuations if drains are allowed to proceed far with¬ out contraction. ‘ When the currency is redundant and when in consequence the rate of interest is low and the scale of prices high in the home market a more than ordinary inducement is held out to speculation in foreign commodities. . . .’ The author concludes by denying that the plan is intended to cure all ‘commercial revulsions’. The object of the proposed measure is rather to prevent ‘those revulsions only which have had their origin in a currency fluctuating alternately above and below the level to which a purely metallic currency would conform’. A postscript investigates the possibility of large withdrawals by foreign governments and the proposal that the bill include a power for extending the issue on special occasions.

69. [A Further Letter to Lord John Russell, 1845 ?> PP- 108.] The Library of Edinburgh University contains, bound in with several other Torrens items, the page proofs of a lengthy letter to Lord John Russell, disputing yet once more the grounds of the author’s dismissal from the Colonial Land and Emigration Board. The letter is not dated but refer¬ ences in the text (e.g. p. 93) suggest 1845 as the year in which it was drafted. No indication is provided of the provenance of the proofs nor is it known whether the letter, which was marked private in Roman capitals, was ever published. The letter traverses at great length and with much protestation, the whole range of questions at issue between Torrens and Lord John Russell.

70. Self-Supporting Colonization. Ireland Saved without Cost to the Imperial Treasury. By R. Torrens, Esq., F.R.S. Chairman of the Commission which planted the Experimental Colony of South Australia. London: James Ridgway, No. 169, Picca¬ dilly; and Smith, Elder, & Co., Cornhill. 1847. Pp. 56. The author argues that ‘ a bold and comprehensive scheme of emigration is the appropriate remedy for the destitution of Ireland’, extols the principle ‘involved in the regulations for the disposal of colonial lands applied by Earl Grey to the Australian Settlements ’, argues that experience shows that the 328

BIBLIOGRAPHICAL APPENDIX cost of Emigration may be defrayed out of the value which it creates and pro¬ poses the creation in Canada, New Zealand, Western Australia or Eastern Africa, of a British Province equal in area to Great Britain, under the title of New Erin. The main body of the tract is devoted to showing how the principles of colonization should be applied in this case and to arguing that the experience of South Australia, where difficult conditions and bad finan¬ cial blunders were severely adverse factors, is a guarantee of the success of such an experiment. An appendix reproduces, with certain omissions and insertions, the Substance of a Speech . . . on Emigration, of 1827. (See above, No. 25.) This is described as the ‘Second Edition’.

71. Systematic Colonization. Ireland Saved without Cost to the Imperial Treasury. By R. Torrens, Esq., F.R.S. Chairman of the Commission which planted the Experimental Colony of South Australia. London: Trelawney Saunders, 6, Charing Cross. 1849. Pp- xxviii+59. (31). The Arabic pagination begins on p. 32. This is the second edition of No. 70. It has prefixed An Introductory Letter to Lord Grey on the Results of the Emigration Branch of the South Australian Experiment in which the success of that experiment is set forth and the financial setback of the early forties explained. The speech on Emigration of 1827 which was printed as an appendix to the first edition is not reproduced.

72. On the Operation of the mercial Credit. By R. Ridgway, No. 169, McGlashan, Dublin.

Bank Charter Act of 1844, as it Affects Com¬ Torrens, Esq., F.R.S. London: James Piccadilly. Smith & Elder, Cornhill: 1847. Pp. 40.

This pamphlet was written after the spring phase of the 1847 crisis and is chiefly devoted to an attempt to show that the Act of 1844 had no re¬ sponsibility for this episode. It begins, however, with a lengthy discussion of the mechanism of inter¬ national monetary equilibrium. This is prefaced by a series of definitions designed to show that while ‘auxiliary money’ (deposits, etc.) is to be re¬ garded as part of the media of exchange, they are not money as are coin and bank notes. The variations of the value of one currency in terms of another are due immediately to variations in the balance of payments. But these in turn are caused by movements in ‘the comparative scale of prices, which determines the proportions in which different countries de¬ mand the productions of each other’ (p. 7). There are limits, however, to such variations of value. These are constituted by the cost of transmitting the precious metals. Equilibrium is restored by relative adjustments in prices at home and abroad due to the movement of the metals. So long as countries are on a metallic standard the whole aggregate sum of the different media of exchange which it is possible to maintain can neither rise nor fall below the amount which may be necessary to establish that scale of prices at which commerce is brought to a state of barter. . . . This prin¬ ciple furnishes a criterion of judgment of monetary policy. This is illustrated 329

ROBERT TORRENS by the hypothetical case of an increase in efficiency and the alleged effects of the failure of the potato crop. A discussion of the allegation that the currency had not been redundant leads to an investigation of this concept which indicates that the author has now moved to a completely Ricardian position — ‘redundancy’ may be caused by an increase in circulation or by a diminution of the quantity of commodities. The operation of the Act is then discussed : ‘ it does not, and cannot, effect any permanent limitation or contraction in the amount of the circula¬ tion ’, which ‘ is determined by causes over which neither acts of parliament nor banking regulations can exercise any permanent controul’ (pp. 21-2). Nor does it interfere with the banking department. But it prevents tempo¬ rary over-issue which may cause a tendency for the exchanges to become or continue to be adverse and compels a conformity of the issue to what would be the behaviour of a purely metallic currency. The separation of departments makes the Bank hold two reserves instead of one, and whatever the policy pursued by the Banking Department may do to the banking reserve, it cannot any longer limit the reserve against notes. The prevalent misconceptions ‘originate in a failure to see that the Bank is in effect two distinct establishments’. The working of the Act can best be understood if it is supposed that in fact the establishments are under different manage¬ ment. ‘When this absolute and total separation is kept steadily in view, the objection, that the bank, while commanding a capital of thirty millions, must be liable to have its reserve exhausted by expected drafts upon its deposits, unless permitted to resort for aid to the bullion appropriated to maintain the convertibility of the circulation, is seen to be a pure absurdity ’ (P- 35)A warning is given that conditions may deteriorate again. The proposal to increase the size of the fiduciary issue to f16,000,000 would be abortive. The proposal to repeal the Act and allow the issue of one-pound notes would be disastrous.

73. On the Operation of the Bank Charters Act of 1844, as it Affects Commercial Credit. By R. Torrens, Esq., F.R.S. Second Edition. London: James Ridgway, No. 169, Piccadilly; Smith, Elder & Co., Cornhill: McGlashan, Dublin. 1847. Price 2s. Pp. 40. Identical with the First Edition.

74. The Currency Question Made Easy and the Operations of the Act of 1844 Explained. By R. Torrens, Esq., F.R.S. London: James Ridgway, No. 169 Piccadilly; Smith, Elder & Co., Cornhill; McGlashan, Dublin. 1847. Pp. 40 ? This appears to be a reproduction of the text of the pamphlet entitled On the Operation of the Bank Charter Act as it affects Commercial Credit. But the only copy which has been discovered is that which is in Edinburgh University Library and this lacks what it is surmised is the last page. Up to page 35, the print appears to be identical. After that, there is slight re-setting and re-wording at the bottom of p. 36 and the top of p. 37, and this interrupts from then on the identity of pagination.

330

BIBLIOGRAPHICAL APPENDIX

75. The Petition of the Merchants, Bankers and Traders of London Against the Bank Charter Act; with Comments on Each Clause. London: Pelham Richardson, Cornhill. MDCCCXLVII. Pp. 1-24. This tract, according to McCulloch, was ‘the joint production of Lord Overstone and Colonel Torrens’, the respective contributions being ‘so blended together as to make their separation impossible’. (Introduction to Overstone’s Tracts, p. iv.) It is reprinted in his edition of Overstone’s Tracts. The contents consists of a clause by clause commentary on the petition against the Bank Charter Act presented by certain merchants, bankers and traders of London in the summer of 1847. The verdict is very adverse. The pressure on the market has not been as severe as in 1825. It would have been worse under the conditions prevailing before 1844. Having regard to the railway speculations, the suggestion that there had been no over-trading is absurd. So is the suggestion that the former power of the Bank to continue facilities in the face of an external drain was a favourable circumstance. It is untrue that the advocates of the Act ever argued that an instantaneous correction of the balance of payments could take place. But an extension of issues at a time of external drain would arrest the only method whereby such a correction can be brought about. The Act does not circumscribe the banking operations of the Bank. It was not the law but their own reckless disregard of the rules of legitimate banking which brought the directors into the predicament in which they found themselves in the recent crisis. Any fall of prices which was produced by the stringency of credit was favourable to export and this seems to be proved by the march of events. The alleged insufficiency of discount has its roots in the diversion of capital to other purposes, aggravated during the crisis no doubt by want of confidence. Complaints of a refusal on the part of the Bank to buy silver are beside the point: silver is a commodity and can be sold through the usual channels. The fact that during the crisis the Bank had more than nine millions of bullion in store is a vindication of the Act, whose purpose was to secure convertibility. A relaxing power would endanger convertibility. It would create a delusive confidence and obviate the necessity of early measures of restraint and restriction. So would the extension of the Bank’s power to issue against silver. The Birmingham philosophers are logical compared to the authors of the present petition, who ‘ while demanding the existence of a double metallic standard, are unable to perceive that an extension of paper money through the exercise (under a protracted drain of bullion) of the relaxing power for which they pray, would render im¬ practicable the maintenance of any metallic standard’.

76. The Principles and Practical Operation of Sir Robert Peel’s Bill of 1844 Explained, and Defended Against the Objections of Tooke, Fullarton, and Wilson. By R. Torrens, Esq., F.R.S. London : Longman, Brown, Green, and Longmans, Paternoster Row, 1848. Pp. iv + 177. In this work, written to defend the Act of 1844 against the attacks impending after the crises of 1847, Torrens gathers together and formalizes the various propositions advanced in his earlier, less systematic, contribu¬ tions to the debate.

331

ROBERT TORRENS It opens with an account of the origin, object and operation of the Act. The origin is traced to disquiet at the results of the freedom left to the Bank directors by the Act of 1819. The object of the Act was to secure the con¬ vertibility of the bank note and its provisions were based on the principles : ‘1st. That the amount of a strictly convertible currency, which it is practicable to maintain, is determined, not by legislative enactments or by banking regulations, but by the natural law of equilibrium by which the precious metals are distributed throughout the countries of the world : 2nd. That when from any temporary causes the amount of a mixed currency of coin and convertible notes exceeds the amount determined by the law of equilibrium, the level is restored by the return of a portion of the note circulation upon the issuers in exchange for specie : 3rd. That when from any temporary causes the amount of a mixed currency of coin and convertible paper falls short of the amount determined by the law of equilibrium, the ordinary level is restored by an influx of the precious metals. From these principles it follows, as a necessary corollary, that when that portion of the note circulation which may be issued upon securi¬ ties, is fixed below the amount to which, under the law of equilibrium, the currency must conform, that portion of the bank note circulation will not be returned upon the issuers in exchange for treasure; and that, except in cases of drain from domestic panic, there will always be retained in the coffers of rhe issuing body, a reserve of gold equal to the difference between the fixed amount of the circulation unrepresented by bullion and the actual amount determined by the law of equilibrium’ (pp. 7-8). It is claimed that the operation of the Act has been ‘the imparting to the circulation [of] a degree of steadiness greater than that it before pos¬ sessed . . . under . . . the former law’ (p. 11), that ‘the circulation has expanded as it would have expanded and contracted as it would have con¬ tracted had it been purely metallic’. The Act is therefore claimed to have fulfilled its objects and the clamour against it to be as unjustified as Fullarton had represented to be the clamour against the Act of 1819. The author next proceeds to an analysis of the conduct of the Banking Department of the Bank of England since the passage of the Act of 1844. He finds this to have been most unwise. The Act of 1844 had placed this department on ‘the footing of an ordinary bank of deposit and discount’ (p. 25). Nothing in its special position as a bank of reserve and banker to the Government exempts it from the primary rule of legitimate banking to maintain a due proportion between liabilities and reserve. In July 1846 the situation was satisfactory. But the failure of the potato crop and other influences were signs of danger and the reduction of the rate of discount was ‘at least questionable’. In October the drain set in. Although belatedly, the rate of discount was raised in January; but the Bank continued to extend its advances with the natural effect that the reserve was depleted. Suddenly in April this policy was reversed and severe monetary pressure created. It is not true, however, that this was caused by a contraction of the circulation. The trouble was due to a real diminution of floating wealth and to the failure of the Bank to take pre¬ cautions sooner. This is proved by the rapidity with which confidence recovered once the pressure was at an end. In July 1847 signs of danger reappeared.

332

This time the Bank directors

BIBLIOGRAPHICAL APPENDIX acted wisely and began to reinforce their position from the outset. But internal developments, the ‘ rapid conversion of floating to fixed capital, the destruction of a large proportion of the national subsistence, the enormous outlay in the purchase of foreign provisions, and the unprecedented exten¬ sion of credit transactions, had induced such a complication of industrial derangement, that the remedies essential to permanent restoration could not be brought into operation without exciting a temporary paroxysm of intenser suffering’ (p. 41). Failures took place on a large scale. ‘In October, as in April, there was panic. But . . . that in April was pro¬ duced by the publication of an account exhibiting a dangerous diminution of the Bank Reserve ; that in October by the disclosure that establishments of the highest standing . . . had been . . . overtrading’ (p. 43). The public, however, in defiance of figures, attributed the difficulties to a con¬ traction of the currency. In these circumstances a suspension of the Act was justified. ‘Under no state of the law, and under no system of banking, can banks whether of deposit or of issue, pay the whole of their liabilities on demand’ (p. 46). But this is not to say that the absence of the Act at an earlier stage would have helped. On the contrary, had the Bank not been compelled to take precautions in April and had it been able to issue notes on securities, the bullion would have disappeared, the position would have been worse than it actually was. That suspension came later was due to circumstances which the Act was not intended to deal with. It had been made clear by Overstone that to ‘guard against commercial convulsions is not the direct object or real purpose of the bill’ (p. 50). Nor is it correct to argue that suspension should have come earlier. This ‘would have prevented the correctives which brought the exchanges into a safe state in October’ (pp.

53-4)The argument now broadens into a general discussion of principle. ‘The principles of currency and banking as established by Adam Smith, Mr. Ricardo, Mr. Loyd and Mr. Norman’ are set forth in the form of a general description of the influences governing the distribution of the precious metals between countries using these metals as money. The existence of mines within a country is shown to cause a lowering of the value of the local currency. The existence of arrangements for economizing money has a strictly analogous effect. The advantage, though real, must not be exaggerated: it ‘consists in nothing more than the liberation for reproductive employment of that portion of capital which would otherwise be locked up in private drawers, for the purpose of providing occasional payments’ (p. 70). ‘So long as the precious metals continue to gravitate to a common level throughout the commercial world, so long will it con¬ tinue to be impossible to retain in circulation an amount of convertible paper greater than that of the coin which it displaced’ (p. 74). These considerations show the absurdity of the position that convertible paper cannot be issued to excess. The fact is that it can be so issued but that the excess causes an exportation of coin which brings things back to the equili¬ brium level. The idea that no excess arises if the issue is ‘limited to the de¬ mand’ is also absurd; for ‘the demand for currency is insatiable’ (p. 75). But convertible paper may become redundant because (i) of a deficient harvest; (ii) a decrease in efficiency; (iii) more effectual arrangements

333

ROBERT TORRENS

for economizing money ; (iv) a high state of commercial confidence. Thus ‘Contractions and expansions of the bank-note circulation supply no test of deficiency or excess ’. . the withdrawal of bullion from the banks of issue is the only certain test . . (p. 78). Having thus stated what he holds to be the correct theory, the author now turns to a critical examination of the new principles \ . . as pro¬ pounded by Mr. Tooke, Mr. Fullarton, and Mr. Wilson’. The first topic to be examined is the nature of bank notes — are they money or are they simply credit instruments on the same footing as cheques, etc. The opinion, expressed in earlier writings, is reiterated, that the dis¬ tinction must turn upon the fact that bank notes are final settlements in the sense in which cheques and bills of exchange are not — cheques not being regarded as paid until they have been credited to an account as a claim on notes or coin, and bills of exchange remaining a claim until further payment is made. The principle is then examined, that the value of the currency and prices do not depend upon the amount of the circulating medium. This is refuted very largely in the exact language used already in the Inquiry dealing with the first of the Tookean fallacies, though the strictures on the History of Prices are increased in severity. (‘Throughout interminable pages of in¬ consistent affirmation, he reiterates the inference, that the value of com¬ modities has fluctuated in relation to money and that, therefore, the value of money has not fluctuated in relation to commodities.’) Fullarton’s con¬ tentions are also examined and dismissed. (He seems altogether oblivious of the principle, long ago established by Ricardo, that an excess in the quantity and a fall in the value of the currency may result from two several causes, namely, from an increase in the amount of the circulation, the quantity of commodities remaining the same, and from a diminution in the quantity of commodities, the amount of the circulation remaining the same.) The next principle to be reviewed is the contention that banks do not possess the power of over-issue. Here the contentions of Bosanquet are recalled and their refutation by Ricardo — ‘ If the principles advanced by the Bank Directors be correct, not a bank-note could have been perma¬ nently kept in circulation, nor would the discovery of the mines of South America have added one guinea to the circulation of England’ (p. 100). Tooke’s resuscitation of the doctrine thus refuted is examined and dismissed as a ‘psychological curiosity’ which ‘reaffirms, in terms the most distinct, the identical proposition which it is advanced to disprove’ (p. 103). Here again recourse is had to the argument and language of the Inquiry. Fullar¬ ton’s ‘Proofs of the Impossibility of Over-Issue’ are then examined. The doctrine of reflux is said to be ‘ innocently unconscious of the fact that, in order to give it any weight or validity, it is necessary that the loans should be repaid on the instant they are granted. Allow any interval to elapse between the loan and the repayment and no regularity of reflux can prevent redundancy from being increased to any conceivable extent’ (p. 107). The statements of Gurney adduced by Fullarton are shown to depend on the conditions assumed by the advocates of the Act of 1844. Similarly, the invocation of the spread of joint stock banking is shown to recoil on its user. The facts are indeed ‘ verifications of the principle, that the circulation may be rendered redundant by an increase of banking facilities, no less

334

BIBLIOGRAPHICAL APPENDIX

than by an increase in the quantity of coin and convertible notes’ (p. 116). And the fact that there is no gold in Scotland is yet another proof of the same thing. . . . Fullarton is quoted as arguing that there is no case of redundancy having caused efflux and that if there were redundancy there could not fail to be ‘such an exportation of bullion as would infallibly relieve the market’ (p. 119). Finally, Wilson’s appeal to Ricardo and the bullionists to support the view that convertible notes cannot be issued to excess is refuted by quotation from these authors. The principle that ‘the abstraction of Bullion from the Banks for exportage is not occasioned by a depreciation of the Currency in relation to Foreign Currencies’ (p. 125) now comes under review. Fullarton’s argu¬ ment that the movement of bullion is caused by movement of the balance of payments is said to mistake the causal sequence ; the movements of the balance of payments are due to the relationship of prices at home and abroad. ‘There can be no exportation of gold unless the value of gold in the home market, as measured by commodities, should have previously fallen below the value of gold in the foreign market, measured in the same commodities.’ This contention, that drains operate on the hoards and not on the circulation, ls then discussed. If bullion is hoarded in Fullarton’s sense it certainly does not enter into the circulation in the sense of Over¬ stone and his school. But if Fullarton asserts that bullion is tempted out of the hoards by a rise in the rate of interest, what is this but a fall in the value of securities, fixed capital and property-yielding income? ‘A rise in the rate of interest is the same thing as a fall in the value of that portion of the capital of a country which is not immediately available for purchase and payments, in relation to that portion which is so available’ (p. 132). Moreover, Fullarton does not see that in countries not possessing banking facilities in a sense all money is hoarded. ‘According to the theory of Mr. Fullarton, the proper definition of circulation Ls “money in pocket”. The theory, however, even when expressed in the new nomenclature, must be regarded as incomplete, until Mr. Fullarton shall have explained the process through which when money in desk is abstracted by an adverse exchange, money in pocket can be replenished with the same facility as before’ (p. 134). Wilson’s proposition that Banking Reserves are not a part of the effective circulation is next examined. In what respect, it is asked, does the money in bankers’ tills differ from the money in private drawers before banking arose? But if it does not, is Wilson prepared to maintain that there was no circulation in those days ? In fact, of course, the efficacy of reserves is ‘ three or four times greater than the portion of the circulation which is in the hands of the public. ... A bank reserve is the centre of a monetary system, to appearance motionless and inert, while controlling the movements of all within its sphere’ (p. 141). Wilson’s other contentions that the circulation is increased by a deficient harvest and that a fall in prices from an un¬ favourable balance checks exports are also examined and dismissed. Finally, certain practical objections to the Act are answered. The argument of the Quarterly Review that the bullion and the notes have not fluctuated together is shown to rest upon an unjustifiable exclusion of the notes in the reserve of the Banking Department from the circulation. This mistake is also committed by Danson, who also seems to think that an

335

ROBERT TORRENS

increase of speculative activity without an increase in the circulation is contrary to the theory held by the advocates of the Act — which is not true; under ‘ currencies purely metallic, the most extensive speculations have been supported without any increase of the circulating medium’ (p. 157). The Quarterly reviewer is shown to be at fault when he concludes that it is an implication of the currency theory that with larger banking facilities there should be a larger circulation; exactly the contrary is true. He further falls into absurdity when he argues that the conduct of the Banking Department is hampered by the inaccessibility of the bullion in the Issue Department — would he say this of any private bank ? Such a complaint is contrasted with Fullarton’s contention that since bank credit is not con¬ trolled it is futile to control bank notes; the opponents of the Act try to have it both ways. But Fullarton’s argument is beside the point; it would be equally applicable to a purely metallic circulation. In any case regula¬ tion of pure banking was not an object of the Act. Its opponents never propose the application of the test of convertibility to the auxiliary media. ‘In all the arrangements which they propose for the better regulation of the currency, they limit the test of convertibility to the bank-note and they object to the Act because it limits that test as they themselves would limit it’ (p. 177).

77. The Principles and Practical Operation of Sir Robert Peel's Act of 184.4. Explained and Defended: Second Edition, with Additional Chapters on Money, the Gold Discoveries, and International Exchange; and a Critical Examination of the Chapter ‘on the Regulation of a Convertible Paper Currency ’ in Mr. J. S. Mill's Principles of Political Economy. By R. Torrens, Esq., F.R.S. London: Longman, Brown, Green, Longmans & Roberts, 1857. Pp. xvi + 216 +84. This edition carries over from the first, Chapters I and II, which now appear as Chapter II, ‘The Principles and Practical Operation of Sir Robert Peel’s Act of 1844 explained and defended’. Chapters III, IV and V of the first edition are dropped. A new Chapter I is devoted to the question whether bank notes are money or credit, and the main doctrinal analysis now consists of Chapter III which is a critical examina¬ tion of the chapter on the regulation of a convertible paper currency in Mill’s Principles. There is also added the paper on the effect of the gold discoveries upon the currency of the Australian colonies which had appeared in 1855 in Political Economy and Representative Government in Australia (see below, No. 82) which appears as Chapter IV, and there is appended with separate pagination a reprint of The Economists Refuted of 1808, shorn of the last chapter on making peace with France. The preface notes the additions — but not the subtractions. The main focus of attention is Mill whose authority in this connection, it is urged, cannot be higher than that of Tooke, whose system he adopts, and Tooke in arguing that a rise of prices is not preceded but followed by a rise in the amount of the circulation ‘has committed a palpable blunder’. ‘How . . . can we comprehend the melancholy fact, that the author of “Unsettled Questions in Political Economy’” (the choice of this work rather than the Principles is significant) ‘should have descended to the rank of those

336

BIBLIOGRAPHICAL APPENDIX

who receive as an established truth a pretended discovery which cannot be explained or defended, except upon the absurd assumption that currency creates itself?’ (p. ix). An explanation is furnished for the reprinting of The Economists Refuted. The new Chapter I ‘On the Preliminary Question, What is Money’ is devoted to maintaining the author’s contention that the essential quality of money is the power of effecting final settlements, and that on this defini¬ tion bank notes are and cheques and bills of exchange are not money — although they are media of exchange. Tooke had argued that inconvertible notes were money but that con¬ vertible notes were simply credit instruments. Torrens accepts the former but denies the latter classification : convertible equally with inconvertible notes effect final settlements. This property, however, is not possessed by cheques — which * perform no function save that of ordering a payment ’ (p. 9). ‘The series of purchases which may be effected by a cheque are not final purchases. Until the cheque is honoured, the whole of the trans¬ actions of which it was the medium remain unsettled; and should it be dishonoured, each successive vendor would have a claim upon his pur¬ chaser for its amount’ (p. 10). The same criterion debars bills of exchange from being regarded as money although doubtless they move more goods than any other means of payment. Moreover, they are variable in value according to the rate of discount: and their effects on the discount market are different from those of notes. When an additional amount of bills of exchange is brought into the discount market, the demand for money capital is increased : and when an additional amount of bank notes is brought into the discount'market, the supply of money capital is increased. A lengthy section is devoted to the special consideration of the views of Chevalier and Mill on this subject. The distinction is illustrated by reference to the position of two merchants at a time of commercial pressure, one possessing one thousand pounds in Bank of England notes, the other ' one thousand pounds in bills of exchange. After all, ‘ what is it that gives existence to the discount market ? Nothing on earth save the broad line of demarcation between bank notes and bills of exchange.’ ‘Bank notes constitute the loan ; the bill of exchange constitutes the security on which the loan is lent’ (p. 22). The chapter on Mill (III) is in the form of a paragraph by paragraph critique. Mill is first taken to task for suggesting that the advocates of the theory of the Act attribute all troubles to initial over-issue by banks. That is not what is alleged, which is a disharmony between the level of paper issues and the level at which a metallic currency would stand — which will more frequently arise from some extra-monetary disturbance, leaving existing monetary issues too great. Overstone and Norman are quoted to the effect that most disturbances arise this way. ‘The theory which regards the currency as the prime agent in the fluctuation of prices may have had its advocates . . .’ (p. 100) : Joseph Hume, J. B. Smith, Tooke himself . . . but not the advocates of the Act. The examination then passes to the doctrine that denies to convertible notes any power whatever of raising prices and to banks any power of in¬ creasing their circulation. This is shown to be refuted by Tooke’s own statistics. It is further refuted by the statements of the country bankers on

337

ROBERT TORRENS which Mill relies. Mill’s limitation of the Tookean doctrine to ‘quiescent states of the market’ is noted. But, it is argued that this ignores the fact that banks have themselves ‘the power of increasing or diminishing the demand for banking accommodation. When they raise the rate of discount, the demand for accommodation contracts, and when they lower the rate it expands . . .’ (p. 109). This has been insisted on again and again by Tooke himself who ‘possesses in perfection the faculty of self-refutation’. In the passage in which Mill refers to non-quiescent states of the market, light ‘at first appears to break through the Cimmerian darkness’. But, alas, ‘ the light was but a glimmer — the objects on which it flecked were not seen under their true proportions and relations — the blind guides were again blindly followed’. And the assertion of Tooke and Fullarton is endorsed that the increase in the circulation follows rather than precedes the increase in activity. But, it is asked, how does Mill reconcile this with what he himself had stated about the quantity theory ? The suggestion that bank notes have nothing to do with a speculative rise, the payments being made by cheque, is said to be fundamentally erroneous. Mill’s ad¬ mission that once speculative activity reaches the producers the issue of notes may prolong the period before collapses, is hailed as a step in the right direction. But in arguing that it was the main object of the Act ‘ to prevent this retardation of the recoil ’ rather than secure convertibility, he fails to sustain this improvement. When Mill passes to the Act itself, he is said to err in not sufficiently emphasizing the significance of the division of the departments: and he falls into grave error when he admits the view that a limitation of note issue can be offset completely by running down deposits. ‘ Banks can make advances to a far greater extent when they make them with their own notes than when they make them from their deposits’ (p. 126). Mill is said to see this at one point in a striking passage which seems to concede most of what the advocates of the Act would contend. But ‘to one view constant never ’, he relapses when he agrees with Tooke and Fullarton that the advantages can only be offset by disadvantages in that under its pro¬ visions it may be impossible to satisfy a demand for notes due to a lack of confidence. Here Mill is said to forget that the dangers to confidence were worse before the Act: and he confuses a monetary crisis ‘originating in deficiency of currency’ with ‘a derangement originating in a relatively redundant currency . . .’ (p. 138). Mill’s endorsement of Fullarton’s doctrine of the hoards is next ex¬ amined. It is noted that the ‘ theory of the Act of 1844 requires that under our system of banking, our mixed circulation of coin and notes should vary in amount and in value as it would vary were it wholly metallic. But the theory of the Act does not require that the circulation should vary in accord¬ ance with the variations to which a purely metallic circulation may be liable in those countries in which banks of deposit and discount are either not established at all, or established to a very limited extent’ (p. 145). Mill is said totally to misunderstand the working of the Act in urging that all withdrawals must fall on the reserve of the bank. This is not so : if they come out of hoard they do not do so. The Act simply guarantees that in so far as the reserve in the Issuing Department is touched, there shall be a corresponding variation of notes. Moreover, his account of the crisis of

338

BIBLIOGRAPHICAL APPENDIX

1847 is said to be based on misunderstanding. ‘The failure of the potato crop, the deficiencies in the crops of corn and of cotton, and the consequent drain of bullion, the diminution of loanable capital, the advance in the rate of interest, and the aggravated difficulty of the time, would all have been averted, had the Bank of England possessed in 1847, that power of unlimited issue, the exercise of which, in 1839, landed it on the very brink of insolvency !’ (p. 166). In fact, the Act was the one brake on imprudent conduct. Had it not existed the total exhaustion of gold and a universal collapse of credit would have been inevitable. 78. The Principles and Practical Operation of Sir Robert Peel’s Act of 1844, Explained and Defended. Third Edition, Revised and Enlarged: Comprising Critical Examinations of the Report of the Lords'1 Committee of 1848, upon National Distress; of the Novel Principles of Currency Propounded by Mr. Tooke and Mr. Wilson; and of the Chapter on the Regulation of Currency in Mr. J. S. Mill’s Principles of Political Economy. By R. Torrens, Esq., F.R.S. London : Longmans, Paternoster Row : Ridgway, Piccadilly, 1858. This edition adds to the Second Edition all the elements of the First Edition which that edition omitted. Chapter II, ‘ On the Distribution and Equilibrium of the Precious Metals’, is Chapter III of the First Edition — ‘ On the Principles of Currency and Banking as established by Adam Smith, Mr. Ricardo, Mr. Loyd and Mr. Norman’. Chapter V, ‘Critical Examination of the New Principles of Currency and Banking as propounded by Mr. Tooke and advocated by Mr. Fullarton and Mr. James Wilson ’, consists of Chapters IV and V of the First Edition, ‘ Critical Examination of the New Principles of Currency and Banking as propounded by Mr. Tooke, Mr. Fullarton and Mr. Wilson’ and ‘Practical Objections Answered — The Quarterly Review, Mr. Fullarton, Mr. Tooke, Mr. 1 Danson’. Chapter IV, ‘Critical Examination of the Report of the Lords’ Committee of 1848 on Commercial Distress’, is new. The Economists Refuted is again reprinted at the end, shorn of its last chapter as before. The new chapter on the Report of the Lords’ Committee consists of animadversions on the following objections to the Act of 1844 : 1st. ‘Efficacy of the circulation not identical with its money amount.’ 2nd. ‘Inapplicability of the same rule to periods of favourable and of adverse foreign exchange.’ 3rd. ‘The Act of 1844 applies the same rule in the cases of an adverse and a favourable foreign exchange.’ 4th. ‘The Act has occasioned unexampled fluctuations in the rate of discount.’ To the first of these objections, Torrens returns a charge of utter irrele¬ vance. The circumstance that the same volume of money can have different effectiveness according to its velocity of circulation is known to ‘every trader in London’. Overstone is quoted at length to show that the framers of the Act had it clearly in mind. The Act requires that the movements of the volume of a mixed currency of coin and notes shall be identical with the movements of a metallic circulation. This has nothing whatever to do with the principle that the efficacy of a mixed circulation shall be identical with its amount.

z

339

ROBERT TORRENS The second and third objections are discussed together. A good deal of play is made with the verbal point that the Act does not require the same movement in the face of favourable and adverse exchanges but rather re¬ quires expansion in the one case and contraction in the other. Eventually, however, Torrens comes to what is clearly the point in the minds of the com¬ mittee that the Act applies the same rule to the circumstances of internal and external drains. This he admits freely enough. Under the provisions of the Act the Bank has not to distinguish between the different possible origins of a demand on the issue department for gold or notes. But against this, he emphasizes that the effects of such uniform application are different in different cases. When notes are exchanged for gold for export, then the internal circulation is contracted — and rightly so. When they are ex¬ changed for gold for internal use, no contraction of the circulation ensues. It is urged that the Act of 1844 is ‘a very decided improvement upon the previous law, by depriving the Bank of the power of endangering con¬ vertibility through increasing its issues, during an adverse exchange, and of creating panic through contracting the circulation during a favourable exchange’ (p. 144). Nevertheless, it is admitted that there may be occasions when, the foreign exchanges being favourable, an internal drain caused by a collapse of credit may involve a net diminution of the ‘efficacy’ of the note circula¬ tion, i.e. an increased disposition to hoard, and the question is discussed whether this would warrant an introduction of a discretionary power of relaxation. Such an introduction, Torrens argues, would be highly undesirable. Before a crisis set in it would encourage loose banking habits and ‘an un¬ founded and pernicious confidence’ and thus would create the conditions which rendered crisis probable. And after the crisis had begun its effects would also be likely to be unfavourable. If the exchanges were unfavour¬ able, then by common consent the effect of additional issue would be to aggravate the situation; while if they were favourable then the issue of notes additional to those warranted by the inflow of gold would tend to offset the movement. Thus, in either case, convertibility would be en¬ dangered. The problem of internal drains is then more minutely examined. Drains due to apprehended exhaustion of the treasure in the issue department of the Bank are excluded by the Act. Drains due to the substitution of coin for notes in business practice do not in themselves diminish the circulation. Drains due to increases of employment tend to cure themselves by invoking an inflow of gold. Drains due to shocks to confidence due to the failure of banks of issue are limited by the Act to those caused by shocks originating in Scotland and Ireland. As for cases where the efficacy of the circulation is diminished by internal distrust and alarm and a consequent hoarding of coin and notes, it is argued that because convertibility is assured the Act gives the banks greater freedom for prudent operations. ‘Relieved from all anxiety regarding the convertibility of the circulation, and seeing that the notes out of the issue departments were increasing’ (because of favour¬ able exchanges), ‘the directors would feel assured that they might, without departing from the legitimate rules of banking, allay alarm and discredit by advancing a more than ordinary proportion of their deposits upon discount,

340

BIBLIOGRAPHICAL APPENDIX

and retaining a less proportion as reserve’ (p. 164). The opinions of Huskisson, the Bullion Committee and Henry Thornton are quoted on the panics of the past in order to suggest that the circumstances under which these panics arose have been rendered improbable by the Act of 1844. Finally, the question is examined whether the Act has given rise to damaging fluctuations in the rate of interest. It is admitted that before the passage of the Act the Bank Authorities used to keep the Bank Rate above market rate when the exchanges were favourable and below when they were unfavourable. But it is argued that this was wrong. Discount is the price paid for temporary loans and like the price of all other things should be governed by the relation of demand to supply. To keep rates artificially high means depriving the economy of capital which is available. To keep them artificially low is to encourage the miscalculations which lead to crisis. ‘The more closely we consider the subject, the more clearly we discern that for a commercial derangement, resulting from a relative deficiency of money capital, the appropriate — the one and only effectual remedy is an early and decided advance in the rate of discount’ (p. 186). ‘On the prin¬ ciple of counteracting the free operation of the law of supply and demand in relation to the money market . . . we ought to re-enact the usury laws, the corn laws, the sumptuary laws, the laws against regrating and forestalling, and go back to all the absurdities which disgraced the Statutebook and obstructed progress during the darker ages’ (p. 188).

79. Critical Examination of the Report of the Lords' Committee of 1844 upon National Distress. By Robert Torrens, Esq., F.R.S. Lon¬ don : Longman, Brown, Green, Longmans, & Roberts; James Ridgway, 169 Piccadilly, 1857. Price Two Shillings. Pp. ii + 75+iv. This is a separate’edition of Chapter IV of the Third Edition of The Principles and Practical Operation of Sir Robert Peel's Act of 1844. It was pub¬ lished ‘in its present separate form for the convenience of those who may have purchased the earlier impression of the larger work’. The advertise¬ ment is dated May 1857. The only copy of this tract that has been discovered is in the Library of Edinburgh University.

80. Tracts on Finance and Trade Submitted to the Consideration of the Electors of the United Kingdom. By R. Torrens, Esq., F.R.S. No. I. (1) On the equalization of taxation between land and trade. (2) On the maintenance of a differential duty in favour of Colonial Sugar, considered as an act of justice to the Planters, and as a means of suppressing slave cultivation. London: Chapman & Hall, 193, Piccadilly, 1852. (May 20th). Pp. 40. The first section of this tract argues at length that the burdens on land and other forms of property are unequally distributed. Before the repeal of the Corn Laws the inequality of burden might be held to be compensated by the protection against foreign imports. But now the denial of reform

341

ROBERT TORRENS

would be a denial of justice. Especial attention is paid to the inequity of raising relief for the Irish potato famine via local rates. ‘Economical science and political justice alike demanded that the awful visitation of the Irish famine should have been met, not by local rates levied exclusively upon Irish property, but by a national rate equally levied upon the property, real and personal, of the United Kingdom’ (p. 32). The second section deals with the position of the West Indies. When slavery was abolished, it argues, the Government incurred three distinct obligations : to prevent the destruction of the portion of the national capital which had been invested in slaves from being destroyed; not to make the West India planters atone alone for the sins of the entire nation; and to effect the change so that the abolition of slavery in the British Dominions did not operate as a bounty to its extension elsewhere. These obligations have not been fulfilled. The compensation may have been lavish ; but it was not only insufficient but utterly abortive considered as a means of enabling the planters to continue the profitable cultivation of their estates. ‘All that the imperial government had to do was, to pro¬ mote African emigration to the sugar colonies, until the population should be so increased as to render free labour for hire a cheaper instrument of production than slave labour; and to abstain from abolishing the differ¬ ential duty in favour of the produce of free labour until the fall of wages in the tropical colonies should admit of its being brought to the British market at lower prices than the produce of slave labour’ (p. 36). But this was not done. Migration from Africa was opposed on sentimental grounds and the differential duty was lowered in obedience ‘to the half-instructed economists of the Manchester school, who regarded free trade with the colonies as restriction and monopoly’ (p. 38). The section concludes with the question, ‘ Is it possible, that the planters of Jamaica, Trinidad, and Guiana should fail to contrast the commercial policy of England with that of the United States? . . . Will not these im¬ portant colonies prefer a federal connection with the United States, accom¬ panied by an exemption of their productions from the duties imposed by the American tariff upon the similar productions of foreign countries, to a dependent connection with England, accompanied by no exemption of their productions from the duties imposed by the British tariff? . . . Let us not close our eyes against inevitable results. If, in our commercial dealings with our colonies, we treat them as foreign countries, foreign countries they will speedily become’ (pp. 39-40).

81. Tracts for Electors on Finance and Trade Submitted to the Considera¬ tion of the Constituencies of the United Kingdom, No. II. On the question should the Income Tax be continued, and import duties diminished; or should the income tax be abolished, and the import duties on non-necessaries be increased ? By R. Torrens, Esq., F.R.S. London, Chapman & Hall, iqg, Piccadilly, 1852. Pp. 49. The tract begins with a contrast between the financial policy of Eng¬ land and of the United States ; in the one case reliance on the income tax, in the other duties on the import of foreign commodities. The further con-

342

BIBLIOGRAPHICAL APPENDIX

trast is emphasized that ‘ the commerce between the numerous states of the Republic is conducted on the principle of a home trade’, whereas ‘the commerce between England and her numerous colonies is conducted on the principle of a foreign trade’ (pp. 2-3). These contrasts of policy are paralleled by a contrast of theory. The economists of the United States regard it as a violation of the principle of free trade to impose duties on the production of their most outlying settlements, the economists of England stigmatize as restriction and monopoly — the imposition upon foreign productions of any amount of duty beyond that which is charged upon the productions of the British colonies. Moreover, the President of the United States apparently believes that import duties are in part paid by the foreign producer, whereas the British Government has based its commercial policy on the opposite principle that import duties are paid exclusively by the home consumer. There follow statistical comparisons of the progress of the population, agriculture and manufactures of the United Kingdom and United States respectively which are said to constitute a presumption against the views that the policies of Sir Robert Peel have increased the prosperity of the former country or the policy of the U.S. Government diminished that of the latter. The writer, however, admits that it is ‘not impossible’ that the substitution of indirect for direct taxation may have been merely an ‘auxiliary cause in the production of the industrial miracles’ (p. 17) which have been described. He therefore proceeds to examine the validity of the theories on which the different policies are based. There follows an exposition of the principles established by ‘Mr. Ricardo’ and ‘Mr. Senior’. Given the difference in efficiency between British labour and foreign labour postulated by Senior, under free trade conditions the British producer would be very well off. Our great strength during the Napoleonic Wars was due to our industrial superiority which enabled us to ‘ subsidize all Europe ’, and ‘ achieve a miraculous deliverance ’ (p. 28). In achieving this deliverance, however, England resigned some portion of her exclusive advantages. The narrowing of the gap between her industrial efficiency and that of other nations was due to the facility of international communications extending to other countries that knowledge which had been confined to England. But an erroneous commercial policy aggravated the position. First, instead of seeking to establish reciprocal free trade, we resorted to ‘a delusive system of protection’. Now we have abandoned protection but without reciprocal response. ‘The world wages an unremitting tariff war against British manufactures’ (p. 29). The effects of import duties on the terms of trade are then analysed, J. S. Mill’s ‘ masterly essays ’ being invoked. There follow by way of illustra¬ tion imaginary histories of England and France. In the first of these Huskisson and Durham are supposed to have organized the Empire on the lines of Torrens’ own recommendations. In the second, ‘Mons. Cobden’ is supposed to ruin France (and other countries) by the introduction of uni¬ lateral free trade. It is argued that in actual history ‘Sir Robert Peel did for England, in a mitigated degree, that which Mons. Cobden is represented, in our illustrative fiction, to have done for France’ (p. 43). The tract then proceeds to an investigation of the causes of the disparity between wages and profits in the United States and United Kingdom.

343

ROBERT TORRENS

‘ The answer to these unpleasant questions is — America imposes heavy duties upon the products of British industry, while England imposes no countervailing duties upon the great staples of American industry’ (p. 45). A jeremiad, quoted in the text above (pp. 230-1), on the contrasting prospects of the two countries concludes the argument.

82. Political Economy and Representative Government in Australia. R. Torrens, Esq., F.R.S. London: James Ridgway, Piccadilly, 1855.

By 169

Pp. 112.

Part I, Political Economy in Australia, is devoted to a discussion of the effects of the gold discoveries in Australia operating in a milieu in which there was no local mint. ‘That a rise in the value of currencies consisting of gold coin, and of banknotes convertible into it, should have been caused by an increase in the supply, and a fall in the value of gold, would have appeared ... as incredible as the existence of a miracle appeared to David Hume.’ Yet this happened and is to be attributed to the absence of a mint in Australia : ‘ had there been a free Mint in Australia, as in England, the only permanent effect which the new supplies of gold could have produced upon the exchange . . . would have been that of keeping colonial bills drawn upon England at a premium equivalent to the cost, including bankers’ commission, of transmitting specie ’ (p. 11). But in the absence of a mint while ‘the value of gold, in bullion, fell from increased supply, the value of gold, in coin, rose from increased demand’ (p. 7). ‘The difference between the value of coined and uncoined gold occasioned the establishment of a cross, or counter trade in gold, between England and the Australian colonies . . . (p. 6); ‘. . . nuggets and dust were exported from the colonies to England, and sovereigns were exported from England to Australia’ (p. 8). The remedy clearly is a local mint: it is short-sighted to argue, as Lord Grey argues in a recent despatch, that after an interval the exceptional differences in the value of coin and bullion must vanish: why should local capital be tied up in the useless operation of exporting gold and re-importing it as coin ? ; moreover any changes in local demand for money would cause differences to emerge again, with corresponding em¬ barrassment to trade until they had been evened out. Imagine the devasta¬ tion which would be caused in England if the Government were to shut the Mint for six months. As for the cost, ‘ the question is not . . . whether the cost of the Mint will be greater or less than the cost of exporting gold to be coined in England and re-imported, but whether the cost of the colonial Mint will outweigh the manifold advantages of maintaining the currency of Australia at its intrinsic or bullion value’ (p. 31). Having thus established the case for a local mint, the tract then proceeds to examine the special effects of the gold discoveries on South Australia and the extraordinary measures which were adopted to deal with them. (R. R. Torrens, the economist’s son, was Colonial Treasurer in that colony and was deeply involved in the controversy concerning these measures.) The immediate effect had been to cause a migration to New South Wales and Port Philip on so great a scale that it was with difficulty that the harvest was got in. Property of all kinds depreciated. All this led to a monetary crisis which threatened to bring everything to a stand¬ still. To meet the emergency an Act was passed to provide for the assaying

344

BIBLIOGRAPHICAL APPENDIX

of uncoined gold and to make bank notes issued against standard ingots legal tender — the rate of conversion being £3 : 1 is. per ounce. The conduct of the local government in thus averting crisis is highly praised by Torrens. The immediate effect was to afford a premium on importation of gold from Melbourne, where the price was under £3 per ounce : and an enormous amount of gold came in, with results highly beneficial to the state of trade in South Australia. But he admits that it involved a depreciation of local money in relation to standard coin and enters into arguments of considerable technicality to prove this against sundry writers who (in opposition to R. R. Torrens) had argued that this was not so. He admits too that it involved a violation of contracts, but justifies it on the ‘very obvious grounds of imperative necessity. The colony was being deprived of a circulating medium ; and the only alternative was, should it have a note circulation five per cent, below the legal standard, or no circulation at all . . (p. 48). A postscript, which notes the consolidation of minting arrangements at Sydney, advocates the establishment of another mint at Adelaide. There are appended reprints of a pamphlet by R. R. Torrens on the South Australia Bullion Act and of controversial discussion about the con¬ tents of this pamphlet between its author and his critics. Part II, Representative Government in Australia, is a very short paper arguing for nominated rather than elected second chambers in Australia. With an elected upper chamber ‘the harmonious working of the legisla¬ ture is in continuous danger of interruption’. Moreover, ‘the great, the insuperable objection to an elective Upper Chamber, returned by a separate constituency composed of the more wealthy class, is, that it places property and population in hostile array against each other’ (p. 98). Two speeches by R. R. Torrens and Sir Wm. Denison on this subject are appended.

83. Lord Overstone on Metallic and Paper Currency, being Art. IX of No. CCXVII of the Edinburgh Review, January 1858, ‘A Review of Tracts and Other Publications on Metallic and Paper Cur¬ rency by the Right Honourable Lord Overstone’. Collected by J. R. McCulloch, Esq.

Pp. 248-293.

The article is unsigned. But, according to Professor Fetter to whom I owe its identification, the records of Messrs. Longmans show it to have been by Torrens and the internal evidence is very strong. The central paragraph on p. 275, for instance, is identical with part of the paragraph on p. 147 of the third edition of the Principles and Practical Operation of Sir Robert Peel’s Bank Act and the style throughout is unmistakable. The contents suggests that the article was written after the third edition of the work on the Peel Act. If so, it is the latest article from Torrens’ pen of which we have knowledge. The article begins with a eulogy of Overstone’s contributions to ‘the science of Currency and Banking’. The history of thought in this connec¬ tion from Adam Smith to the time of writing is briefly set forth, and the services rendered by Overstone in distinguishing between advances made with notes issued de novo by the banks and advances made with notes drawn

345

ROBERT TORRENS

from deposits are underlined. A tribute is paid to the sagacity of Peel in translating principle into practical action and securing the substance of the requirements of the Currency Theory without sweeping interference with established expectations. After an affirmation of belief that the Act of 1844 has been completely successful in securing its object — ‘ the convertibility of the paper currency ’ — (p. 262), the article then proceeds to a discussion of the causes operating in the ‘recent convulsion’, the monetary crisis of 1856—7. This involves an extensive disquisition on the nature of deposit banking. The point is emphasized that by creating new means of payment through advances the banks have ‘the same influence upon the markets as an increase in the numerical amount of the circulation’. The advantages of deposit banking in economizing capital are recognized. But the possible disadvantages in the dependence of the stability of trade upon the characters of bankers are emphasized, and it is argued that when bankers abuse their position the damage done may be so considerable as to excite a doubt whether ‘the advantages of discount banking, even when conducted under a metallic currency, balance the evils it inflicts’ (p. 270). A severe condemnation is passed upon the conduct of bankers in the period leading up to the most recent crisis. ‘Are the scales of justice held even’, it is asked, ‘when a petty thief, or the forger of a five-pound note, is treated as a felon, and when the speculating banker . . . obtains from the Court of Bankruptcy a full liquidation of his debts, and receives from sympathising friends and halfruined creditors the means of recommencing his disreputable and mis¬ chievous career?’ An account is given of the way in which additional advances ‘from deposits produce effects upon prices, upon commercial credit and upon the exchanges, results analogous to those produced by additional issues of bank notes’, and the moral is emphasized that ‘even under a currency exclusively metallic, overbanking and the insolvency of discount-houses may occasion disasters as formidable as those which can result from an unrestricted issue of bank notes and a suspension of cash payments’. The difference is that in ‘the former case deposits are en¬ dangered, in the latter convertibility. . . .’ Nevertheless, it is argued, the provisions of the Bank Act have made it easier to deal with the evils arising from the undue extension of banking facilities. An elaborate account is given of the way in which commercial pressure may be engendered by loose discount facilities. ‘Were there no overbanking, there could not be (except for brief periods) overtrading and excessive speculation.’ Now that the departments are separated, appre¬ hension of the exhaustion of bullion is excluded and the publication of separate returns enables it to be seen ‘whether the advances from deposits are so adjusted as to secure us against panic from an exhaustion of the reserve’ (p. 277). There follows a long discussion of the means of preventing panics. It is not denied that emergencies may occur when extraordinary action must be taken. But, it is argued, these cannot be brought under general rules. The province of legislation is prevention. Here it is hinted that the privi¬ leges of Scottish banks require further review; and a plea is made for compulsory publicity of bank accounts. But the main argument is directed against proposals for change which would have the effect of making things

346

BIBLIOGRAPHICAL APPENDIX

worse — particularly the proposed discretionary relaxing power. The arguments of the chapter on the Report of the Lords’ Committee in the third edition of the Principles and Practical Operation of Sir Robert Peel’s Act are reproduced. Pages 283-5 in particular frequently use the actual words, although not the order of argument, of pp. 145-72 of that volume. The knowledge that a relaxing power existed would encourage imprudence, ‘In utter disregard of experience . . . the opponents of the Act of 1844 would mitigate the effect of runs upon deposits by superadding to them runs for gold. . . .’ Appeal is made to the evidence of recent American experience. ‘In America the results of entrusting the regulation of the circulation to the discretion of the Banks have been the suspension of metallic payments, the insolvency of all the central banks, the extinction of the circulating medium, and a return to a state of barter. . . .’ (p. 289). The article then quotes a passage from a speech of Daniel Webster on the American panic of 1837 and Overstone’s favourable comment thereon, and concludes with an expression of confidence that the decision of the Cabinet concerning future policy will sustain the principles of the Act of 1844.

TRANSLATION 84. Saggio Sulla Produzione Della Ricchezza. In Biblioteca dell’ Economista, Prima Serie. Trattati Complessivi. Vol. XI. R. Torrens, S. Bailey, Whately, Ricardo, G. Rae. Turin, Stamperia Dell’ Unione Tipografico-Editrice, 1856. This is a translation of the Essay on the Production of Wealth, No. 22 above, , which appeared in the famous Italian collection published under the editor¬ ship of Francesco Ferrara. It is interesting to observe that, as in the English edition, the title-page refers to ‘un’ appendice in cui I Principii dell’ Economia Politica sono applicati alle attuali condizioni della GranBretagna’. The long preface to the volume in which it appears, by Fran¬ cesco Ferrara, is occupied chiefly by a discussion of Ricardo. The refer¬ ences to Torrens are unilluminating.1 1 The Catalogue of the British Museum lists under ‘Torrens, Robert’ a Letter to the Right Honble. R. Vernon Smith . . . relating to Revenue Administration in India (London, 1855). This indeed is described as ‘By Robert Torrens’, but attention to the qualification, ‘Retired Bengal Civil Service’, to say nothing of the contents of the tract, where, on the first page, the writer claims to have held various civil appointments in Bengal ‘for more than twenty four years’, should have made it plain that the author was not the Robert Torrens who had been a Colonel of Marines, etc., and the author of the works listed above.

347

INDEX OF CITATIONS OF THE WORKS OF TORRENS In the following Index the heavy leaded Arabic numerals refer to the numbering of the book or pamphlet in question in the Bibliographical Appendix. The page references in brackets following refer to the position of the summary in the Biblio¬ graphical Appendix Address to the Farmers of the United Kingdom on the Low Rates of Profit in Agriculture and in Trade, 28 (pp. 291-2) Budget, The, 47-63 (pp. 310-21): 2, 5, 34 fn., 39, 45, 47, 54, 55 fn., 72, 145 fn., 173 &•> r74> 182, 183, 185, 186 fn., 188 fn., 191 fn., 195, 196, 197, 198, 206, 208, 209, 211, 219, 220, 225 fn., 226 fn., 227, 228, 239, 240, 242 Coelibia choosing a Husband: A Modern Novel in two volumes, 4 (pp. 263-5) Colonel Torrens on the Wages of Labour and on the Means of Improving the Condition of the Labouring Classes, 12 (p. 273) Colonel Torrens on Commercial and Financial Policy, 31 (pp. 292-5): 194. (See Letters on Commercial Policy) Colonization of South Australia, First Edition, 36 (pp. 298-301): 2 fn., 5, 27, 28 fn., 29 fn., 30 fn., 33, 46, 47 fn., 53, 54 fn., 146, 149 fn., 170, 171 fn., 174, 175 fn., 176 fn., 178, 179 fn., 180 fn., 181 fn., 238 fn. Colonization of South Australia, Second Edition, 37 (pp. 301-2) Commercial and Colonial Policy, On, 63 (pp. 320-2), 5. (See The Budget) Comparative Estimate of the Effects which a Continuance and a Removal of the Restriction upon Cash Payments are respectively calculated to Produce: with Strictures on Mr. Ricardo’s Proposal for obtaining a Secure and Economical Currency, 20 (pp. 280-2): 4, 83, 84 fn., 85 fn., 86, 87, 88, 89 fn., 90 Crisis, The . . . and the Remedies, 26 (pp. 289-90): 186 fn. Critical Examination of the Report of the Lords’ Committee of 1844 upon National Distress,

79 (P- 340 Currency Question Made Easy and the Operations of the Act of 1844 Explained, The, 74 (P- 330) Economist, The, 23 (pp. 286-7) Economists Refuted, The, 1 (p. 260): 2, 3, 7, 9, 12, 13 fn., 14 fn., 17 fn., 19, 20, 22 fn., 31, 34, 36, 52, 75 fn., 146, 149 fn., 177 fn., 183, 186, 188, 189, 190, 227, 237 Essay on the External Corn Trade, An (First Edition), 7 (pp. 267-9): 3, 4, 10, 19 fn., 23, 32, 36, 39. 40, 42, 48, 58, 59, 85, 182, 184, 185, 195, 206 Essay on the External Corn Trade, An, Second Edition, 8 (p. 269): 46, 52 Essay on the External Corn Trade, An, Third Edition, 9 (pp. 269-71): 31, 42, 43, 52, 53 fa., 54, 71 Essay on the External Corn Trade, An, Fourth Edition, 10 (pp. 271-2): 24 fn., 26, 27 fn., 33, 189, 190 fn., 191, 192 Essay on the External Corn Trade, An, A New Edition, 11 (p. 273): 49, 249 Essay on Money and Paper Currency, 5 (pp. 265-6): 3, 74, 76 fn., 77 fn., 78 fn., 81, 89, 123, 253

349

ROBERT TORRENS

Essay on the Production of Wealth, 22 (pp. 283-6): 4, 10, 14, 19, 20 fn., 41, 64, 65 fn., 66 fn., 67 fn., 68 fn., 69 fn., 85, 146 fn., 147 fn., 177, 178 fn., 179, 186, 187 fn., 189, 190, 227, 237, 238, 239 Financial Resolutions Intended to be Moved by Colonel Torrens on Thursday, 29th March, 1832. Bolton Chronicle, 29 (p. 292): 186 fn., 191-2 Financial Resolutions Intended to be Moved by Colonel Torrens on Thursday, 29th March, 1832, 30 (p. 292): 191-2 Inquiry into the Practical Working of the Proposed Arrangements for the Renewal of the Charter of the Bank of England and the Regulation of the Currency with a Refutation of the Fallacies Advanced by Mr. Tooke, First Edition, 66 (pp. 324-6): 94, 104, 106 fn., no, hi, ii2fn., 113, 140 fn., 141 fn., 143 fn. Inquiry into the Practical Working of the Proposed Arrangements for the Renewal of the Charter of the Bank of England and the Regulation of the Currency with a Refutation of the Fallacies Advanced by Air. Tooke, Second Edition, 67 (p. 326)

Letter to Lord Ashley on the Principles which Regulate Wages and on the Manner and Degree in which Wages would be Reduced, by the Passing of a Ten Hours Bill, 65 (pp. 323-4): 249 Letter to the Right Hon. Lord Elliot on Colonization, considered as a Means of Removing the Causes of Irish Misery; and of Preventing the Wages of Labour in England from being Permanently Forced Down by Irish Immigration, to the Starvation Level (The Budget, No. V), First Edition, 53 (pp. 313, 314) Letter to the Right Hon. Lord Elliott on Colonization, considered as a Aleans of Removing the Causes of Irish Alisery and of Preventing the Wages of Labour in England from being Permanently Forced Down, by Irish Immigration, to the Starvation Level, Second Edition, 54 (p. 314) Letter to the Friends of Extended Colonization on the Causes of the Failure of the Financial Branch of the South Australian Experiment (The Budget, No. VIII), 57 (p. 315): 173 fa. Letter to the Independent Freemen of the City of Rochester on the Petition against Lord Binning’s Return being declared Frivolous and Vexatious and on the Right of the Eldest Son of a Scotch Peer to Represent an English County, City, or Borough, without Possessing a Landed Qualification in England, First Edition, 17 (p. 278) Letter to the Independent Freemen of the City of Rochester on the Petition against Lord Binning's Return being declared Frivolous and Vexatious and on the Right of the Eldest Son of a Scotch Peer to Represent an English County, City, or Borough, without Possess¬ ing a Landed Qualification in England, Second Edition, 18 (p. 278) Letter to the Rt. Hon. the Earl of Liverpool on the State of the Agriculture of the United Kingdom, and on the Aleans of Relieving the Present Distress of the Farmer, and of Securing him against the Recurrence of similar Embarrassments, 13 (pp. 273-4): 185 Letter to the Right Honourable Viscount Melbourne on the Causes of the recent Derangement in the Money Market and on Bank Reform, First Edition, 38 (pp. 302-3): 6, 92, 93, 94, I03> I09> II0> 115, Il6> 245 Letter to the Right Honourable Viscount Alelbourne on the Causes of the recent Derangement in the Money Alarket and on Bank Reform, Second Edition with Additions, 39 P- 303) Letter to the Right Hon. Sir George Murray, etc., etc., etc., on Systematic Colonization, by Charles Tennant, Esq., M.P. Appendix containing the Written Controversy between the Right Hon. Robert Wilmot Horton and Colonel Torrens, and the other Members of the Committee of the National Colonization Society. No. ii. Objections submitted to the Committee by Colonel Torrens, 27 (pp. 290 and 291)

350

INDEX OF

CITATIONS

OF THE WORKS OF TORRENS

Letter to the Right Hon. Sir R. Peel, Bart., M.P., on Commercial Reform (The Budget, No. Ill), 49 (pp. 311, 312): 197,204 Letter to the Right Hon. Sir R. Peel, Bart., M.P., on the Destructive Effects of Taxes upon Realized Property and of Taxes upon Industry (The Budget, No. VI), 55 (p. 314) Letter to the Right Hon. Sir R. Peel, Bart., M.P., etc., etc., etc., on the Expediency of Establishing Differential Duties in Favour of the British Colonies; and on the Effects which the Importation of Corn and Cattle from Foreign Parts is Calculated to Produce, upon the Well-Being of the Working Classes, upon the Progress of Agriculture, and upon the Value of Landed Property in the United Kingdom (The Budget, No. VII), 56 (pp. 314, 315): 47, i74> 208 Letter to the Right Hon. Sir R. Peel, Bart., M.P., etc., etc., etc., on the Condition of England and on the Means of Removing the Causes of Distress (The Budget, No. IX), 58 (pp. 315-17): i74> 197 Letter to the Lord John Russell on the Proposed Alteration in the Import Duties upon Corn and Sugar (The Budget, No. I), 47 (pp. 310, 311): 198 Letter to the Lord John Russell on the Manner in which the Adoption of the Whig Budget would have Altered the Value of Money, Increased the Pressure of Taxation, and Aggravated the Distress of the People (The Budget, No. II), 48 (p. 311): 196, 197, 198, 199 fn., 200 fn., 201 fn., 203 fn., 204 fn., 205, 209, 210, 214 Letter to the Right Honourable Lord John Russell, on the Ministerial Measure for Estab¬ lishing Poor Laws in Ireland, and on the Auxiliary Means which it will be necessary to employ in Carrying that Measure into Effect, First Edition, 41 (pp. 305-7) 145 fn., 249 Letter to the Right Honourable Lord John Russell, on the Ministerial Measure for Estab¬ lishing Poor Laws in Ireland, and on the Auxiliary Means which it will be necessary to employ in Carrying that Measure into Effect, Second Edition, 42 (p. 307) Letter and a Memorial Addressed to the Right Honourable Lord John Russell, 64 (p. 322): 199 fn. Letter to Lord John Russell, A Further, 69 (p. 328): 199 fn. Letter to Nassau William Senior, Esq., in Reply to the Article ''Free Trade and Retaliation’ in The Edinburgh Review, No. CLVII (The Budget, No. X), 61 (pp. 318-20): 186 fn., 191 fn., 197, 206, 211, 219, 220, 221 fn., 222 fn., 223 fn. Letter to Nassau William Senior, Esq., in Reply to the Article ‘Free Trade and Retaliation’ in The Edinburgh Review, No. CLVII. Another Impression of No. 61 (The Budget), 62 (p. 320) Letter to the Right Hon. Lord Stanley, on Colonization considered as a Means of Removing the Causes of National Distress (The Budget, No. IV), First Edition, 50 (pp. 312, 313): 145 fn., 174, 228 Letter to the Right Hon. Lord Stanley on Colonization considered as a Means of Removing the Causes of National Distress, Second Edition, 51 (p. 313): 145 fn., 174 Letter to Thomas Tooke, 45 (pp. 308-9): 94 Letters on Commercial Policy, 32 (p. 295): 4, 5, 44, 183, 185, 194, 196, 205, 209, 225 fn., 242, 250 fn. Letters to Lord Lauderdale on Currency, 14 (pp. 274-7): 88 fn., 91 Lord Overstone on Metallic and Paper Currency, being Art. IX of No. CCXVII of The Edinburgh Review, January 1858, 83 (pp. 345-7): 95, iio, 112, 113 fn. Minute on the Evidence given by Mr. Wakefield before the Committee on the Affairs of South Australia, 46 (pp. 309, 310): 172 Mr. Owen’s Plans for Relieving the National Distress, 19 (pp. 278-80): 176 On the Operation of the Bank Charter Act of 1844, as it Affects Commercial Credit, First Edition, 72 (pp. 329, 330): 95, 116 fn. On the Operation of the Bank Charter Act of 1844, as it Affects Commercial Credit, Second Edition, 73 (p. 330)

351

ROBERT TORRENS

Paper on the Means of Reducing the Poors Rates and of Affording Effectual and Permanent Relief to the Labouring Classes, 15 (p. 277): !45 fn-> i49j 15° fnPetition of the Merchants, Bankers and Traders of London Against the Bank Charter Act, with Comments on Each Clause, 75 (p. 331): 107 fn. Plan of an Association in Aid of the Irish Poor Law, 43 (p. 307) Political Economy and Representative Government in Australia, 82 (pp. 344, 345) : 142 fn. Postscript to a Letter to the Right Honourable Sir Robert Peel, Bart., M.P., etc., etc., on the Condition of England and on the Means of Removing the Causes of Distress, 59 (PP- 3r7> 3*8): 204, 205, 206, 210, 217 Postscript to a Letter to the Right Honourable Sir Robert Peel, Bart., M.P., etc., etc., on the Condition of England and on the Means of Removing the Causes of Distress. Another edition (The Budget, No. IX), 60 (p. 318) Principles and Practical Operation of Sir Robert Peel’s Bill of 1844 Explained and De¬ fended Against the Objections of Tooke, Fullarton and Wilson (First Edition), 76 (pp. 331-6): 6, 95, 257 Principles and Practical Operation of Sir Robert Peel’s Act of 1844 Explained and De¬ fended: Second Edition, with Additional Chapters on Money, the Gold Discoveries, and International Exchange; and a Critical Examination of the Chapter ‘on the Regulation of a Convertible Paper Currency ’ in Air. J. S. Mill’s Principles of Political Economy, 77 (pp. 336-9): 13 fn., 31, 93 fn., 147 fn. Principles and Practical Operation of Sir Robert Peel’s Act of 1844, Explained and De¬ fended. Third Edition, Revised and Enlarged: Comprising Critical Examinations of the Report of the Lords’ Committee of 1848, upon National Distress; of the Novel Principles of Currency Propounded by Mr. Tooke and Mr. Wilson; and of the Chapter on the Regulation of Currency in Mr. J. S. Mill’s Principles of Political Economy, 78 (PP- 339-41): 101 fn-> 102 fn., 106 fn., 107 fn., 119 fn., 120 fn., 121 fn., 125 fn., 127 fn., 128 fn., 130 fn., 132 fn., 133 fn., 136 fn., 137 fn., 147 fn. Principles and Practical Operation of Sir Robert Peel’s Act of 1844 ■— separate edition of chapter iv of the Third Edition under the title Critical Examination of the Report of the Lords’ Committee of 1844 upon National Distress, 79 (p. 341) Reply to the Objections of the Westminster Review to the Government Plan for the Regulation of the Currency, 68 (pp. 326-8): 95 Reviews of Malthus’ Principles of Political Economy, being Three Articles appearing in The Traveller lor April 21, 26 and May 1, 1820, 21 (pp. 282-3) Saggio Sulla Produzione Della Ricchezza, 84 (p. 347) Self-Supporting Colonization. Ireland Saved without Cost to the Imperial Treasury, 70 (pp. 328-9): 145 fn. Strictures on Mr. Ricardo’s Doctrine respecting Exchangeable Value. Edinburgh Alagazine, October 1818, 16 (pp. 277-8) Substance of a Speech Delivered by Colonel Torrens in the House of Commons; 15th Feb¬ ruary 1837, on the Motion of the Right Hon. Robert Wilmot Horton, for the ReAppointment of a Select Committee on Emigration from the United Kingdom, 25 (pp. 288-9): 149 fn., 151 fn., 152 fn., 153 fn., 174 fn. Supplement to a Letter Addressed to the Right Honourable Lord Viscount Alelbourne on the Derangement in the Money Market, and on Bank Reform, 40 (pp. 304, 303) ■ 94, 102 Systematic Colonization. Ireland Saved without Cost to the Imperial Treasury, Second Edition, 71 (p. 329) Thoughts on the Catholic Question, First Edition, 2 (pp. 261-2): 145 fn. Thoughts on the Catholic Question, Second Edition, 3 (p. 262) Three Editorial Notes on Value, contributed to The Traveller in December 1822 24 (p. 287): 4, 70. See also Traveller, The

352

INDEX OF

CITATIONS

OF

THE WORKS

OF TORRENS

Three Letters to the Marquis of Chandos on the Effects of the Corn Laws, 44 (pp. 307-8): 47. 185, 196 Tracts on Finance and Trade Submitted to the Consideration of the Electors of the United Kingdom, No. I, 80 (pp. 341-2): 6, 7, 186 fn., 228 Tracts for Electors on Finance and Trade Submitted to the Consideration of the Constituencies of the United Kingdom, No. II, 81 (pp. 342-4): 6, 7, 206, 228, 230 fn., 231 fn. Traveller, The, 24 (p. 287): 4, 70. See also Three Editorial Notes on Value Victim of Intolerance, The, 6 (p. 266): 14, 15 fn. Wages and Combination, On (First Edition), 33 (pp. 295-7): 4, 39, 49, 50 fn., 51 fn., 60, 185, 196, 249, 250 fn. Wages, Combinations and the Effect of the Corn Laws, On, Second Edition, 34 (p. 297) Wages and Combination, On, Second Edition, 35 (pp. 297-8)

353

SELECT INDEX OF NAMES Speaker on Attwood’s motion of April 22, 1833, p. 86 Effects of his invention, p. 181 Attwood, Thomas. His motion of April 22, 1833, for a committee to inquire into the general distress and the debate thereon, pp. 86-90 Althorp.

Arkwright.

His views on the measure of value praised by Torrens, pp. 57, 71 and 72 ; Torrens’ affiliation with, p. 238 Bain. His life of James Mill cited, p. 67 Bell. Torrens’ optimistic anticipations of the effects of his schools and those of Lancaster, p. 150 Bentham. His early scepticism concerning colonies, p. 144 ; frame of mind of his Emancipate your Colonies contrasted with that of Torrens’ Economists Refuted, p. 147 ; shows himself friendly to Wakefield’s schemes ; the ‘vicinitymaximization or dispersion-preventing principle ’, p. 166; his ‘ too-much neglected truth ’ that1 trade is the child of capital ’, p. 175 ; together with the Mills, is perhaps exempt from the description of the Classical outlook as national rather than international, p. 254 ; together with younger philo¬ sophical radicals probably hostile to the perpetuation of any form of com¬ mercial preference, p. 256 Berkeley, Bishop. His imaginary wall of brass invoked by Spence, pp. 12 and 13 Binning, Lord. Petition against his election, p. 278 Black, Mr. Collison. His assistance acknowledged, p. 199 fn. Bohm-Bawerk. His formulation of the theory of interest in part anticipated by Torrens, p. 136 Bosanquet. Similarity of his arguments to those of Tooke and Newmarch, p. 123 Brougham. Recipient of letter from James Mill showing scepticism on coloniza¬ tion policy, p. 167 fn. Buller, Charles. His association with Gibbon Wakefield, p. 154 ; his descrip¬ tion of earlier emigration schemes as ‘ shovelling out paupers ’, pp. 154 and 166 Bailey, Samuel.

Did not perceive wider implications of theory of non-competing groups, p. 243 Cannan. Most of Torrens’ more interesting work outside the scope of his book, p. ix; on origin of the doctrine of the advantages of territorial division of labour, p. 20 ; cited on background of Classical theory of value and distribu¬ tion, p. 36 ; on style of the Essay on the Production of Wealth, p. 41 Cantillon. Conspicuous among the precursors of Adam Smith who perceived the general interconnectedness of economic phenomena, p. 234 Castlereagh. Torrens’ tribute to his speech on the Report of the Bullion Committee, p. 265 Chalmers. Mentioned by Torrens in the preface to the Colonization of South Australia among the authorities whom the author has followed, p. 55 fn. Clay, Sir William. Fullarton’s strictures upon, p. 128 Cobbett. His popularization of Spence, p. 12 ; speaker on Attwood’s motion of April 22, 1833, P- 86 Cobden, ‘ Mons.’ Ruins France by unilateral free trade, p. 343 Cairnes.

354

SELECT INDEX OF

NAMES

R. Is addressed by Torrens in a letter supplementary to Letter X of The Budget, pp. 318 and 320 Coelibia. Heroine of Torrens’ first novel, pp. 263-5 Corry, Mr. B. His assistance to the author, and his discovery of a letter from Ricardo, pp. x and 294 Crick, Mr. W. F. Cited on the creation of deposits, p. 109 Crombie, Rev. Alexander. His influence on Torrens and his misconception of Ricardo, pp. 74 and 245 ; degree of Torrens’ eventual alienation from, pp. 91, 129; his critical comment on Torrens’ Address to the Farmers cited, p. 292 Crompton. Effects of his invention cited by Torrens, p. 181

Cobden,

His edition of Henry Simons’ Essays cited, p.117 Retraction of an illegitimate criticism by the author,

Director, Professor Aaron. Dobb,

Mr.

Maurice.

p. 154 fn. H.

Drummond,

Durham, Lord.

His anticipation of the Currency Principle, p. 101 fn. His association with Gibbon Wakefield, p. 154

F. Y. The first to draw attention to the relation between the theory of international trade and the theory of distribution, p. 243 fn. His diagram illustrating the ‘optimal tariff’ cited, p. 182 fn. Einaudi, Professor. On Ricardo and the gain from Trade, p. 35 Edgeworth,

F. A. His formulation of the theory of interest in part anticipated by Torrens, p. 136 Fetter, Professor F. W. His help to the author, p. x; his identification of an important article by Lord Overstone, pp. 95 fn., 345 Fielden. His scheme for limiting the hours of labour discussed, pp. 296-7 Findlay, Kirkman. Addressee of letter from Pennington embodying notion of Reciprocal Demand in international trade, p. 242 fn. Fullarton. His position as exponent of the banking theory surpassed by Torrens in his earlier phase, pp. 74-8; enters the lists of the Banking and Currency controversy, 1844, p. 93 ; on the importance of convertibility, p. 122 ; did not deny broad effects on prices of changes in the supply of the precious metals, p. 125; on the impossibility of over-issue, pp. 126-30; on the balance of payments and the function of the hoards, pp. 131-7; his aversion to an internal circulation fluctuating with fluctuations of inter¬ national supply and demand, p. 138; Torrens’ critique of this position,

Fetter,

PP- 334-6 Garnett, Richard. Gouger, Robert.

His life of Gibbon Wakefield cited, p. 154 fn. Joint founder with Wakefield of the Colonization Society,

p. 166 His marginal annotations to the fourth edition of the Essay on the External Corn Trade, p. 190 fn. Graham, Frank. His views regarding cost conditions in international trade tentatively compared to Senior’s, pp. 223, 224 Graham, George. Detector with John Stuart Mill of James Mill’s error in the theory of the division of the gains from trade, p. 189 fn. Gregory, Sir Theodore. The author’s debt to his various writings, pp. ix, x; his introduction to British Banking Statutes and Reports cited, p. 86 fn.; his intro¬ duction to Tooke and Newmarch cited, p. 122 fn. Grote, Mrs. Invasion of her breakfast table by discussion of the measure of value, p. 67 Gurney, Hudson. His evidence to a Commons Committee of 1819 quoted by Fullarton, pp. 126, 127 Goulbourne.

2A

355

ROBERT TORRENS

Cites Torrens’ account of the basis of computation of the fiduciary issue allowed by the Bank Act, 1844, p. 102 fn. Harrop. His account of the Wakefield abduction case cited, p. 154 Hecksher, E. P. 11 fn. Hill. Misquoted for Mill (James) by Longfield in his critique of the Ricardian theory of profit, p. 55 fn. Hodder. His Founding of South Australia cited, pp. 146 fn., 166 fn. Hollander. His denial of Seligman’s claims on behalf of Torrens, p. 32 Horton, Wilmot. The instigator of a select committee to investigate the emigration movement, p. 151 ; his opposition to Wakefield, p. 166 Hume, David. Together with Adam Smith the founder of Classical thought, pp. 9, 233 ; his Essay on the Balance of Trade, pp. 97, 98; his reservations regarding the Smithian theory of rent, p. 236; significance of his theory of the self-righting mechanism in international trade for the critique of monetary policy, p. 244 Huskisson. Petition by Torrens and a group of memorialists for exclusive rights to promote trade with New Zealand, p. 146 ; his views on the Bullion Report denounced by Torrens, p. 266 Hankey.

Charged by Torrens with having committed errors in regard to rent analogous to his own, p. 45; misconceptions in his Distribution of Wealth, p. 321 Joplin, T. His anticipation of the Currency Principle, p. 101 fn.; his analysis of the connection between the rate of borrowing, the rate of interest and the rate of profit cited, p. 246 Jones, Richard.

King, Lord.

His notice to his tenantry deprecated by Torrens, p. 266

Torrens’ optimistic anticipations of the effects of his schools and those of Bell, p. 150 Lauderdale. His scepticism concerning the measure of value, pp. 67-9; Torrens’ affiliation with, p. 238 Levy, S. Leon. His edition of Senior’s unpublished lectures cited, p. 155 fn. Longfield. His gloss on the Ricardian theory of profit adopted by Torrens, PP- 55-7 ! his Lectures on Commerce cited as embodying independent develop¬ ment of theory of Reciprocal Demand in international trade, p. 242 fn. Lancaster.

J. L. His account of McCulloch’s attitude at a meeting of the London Political Economy Club, p. 34; his account of the discussion at the London Political Economy Club on Ricardo’s contribution to political economy, p. 44; his diaries cited on Torrens’ arguments in 1830 for the benefit of rising prices, p. 86 fn.; testifies to Torrens’ courtesy in discussion, p. 257 Malthus. A leader of Classical Thought, pp. 1, 3, 7 and 9 ; a moderate pro¬ tectionist, pp. 37-8 ; his corn law pamphlet published in the same month as Essay on the External Corn Trade, p. 40; his statement of the theory of rent favourably compared to Torrens’ first tentatives in this direction, p. 42 ; charged by Torrens with having committed errors in regard to rent analogous to his own, p. 45 ; influence on Torrens’ theory of wages of his change of view in the second edition of the Essay on Population, pp. 48-9 j Torrens acknowledges a debt in relation to the theory of profit, p. 52 ; recipient of letters from Ricardo on Torrens’ views on wages and prices, p. 59; on the measure of value, p. 67 ; recipient of letter from Ricardo describing first meeting with Torrens, p. 81 , recipient of letters from Ricardo on Torrens’ currency heresies, pp. 82, 83; his attitude on emigration, pp. 147-9; Torrens’ Laodicean attitude to hfalthusian population theory, p. 149 fn.; Torrens’ view of the bearing of the principle of population on emigration policy, p. 152; at Mallet,

356

SELECT INDEX OF NAMES Wilmot Horton’s instance expresses opinion adverse to Wakefield’s plans, p. 166 ; Torrens’ account of this, pp. 168, 169 ; his suggestions regarding the possibility of over-production dismissed by Torrens, p. 177 fn.; tends to take for granted the essential analysis of Hume and Adam Smith, p. 233; together with Ricardo and J. S. Mill in the first rank of nineteenth-century Classical economists, p. 258 ; his Principles of Political Economy reviewed, pp. 282-3 ; correspondence with Senior cited by Torrens, p. 294 ; his strictures on the Ricardian doctrine concerning the effects of improvements on rent, p. 321 March, Miss Elsie A. G. Her Economic Library of Jacob Hollander cited, p. 292 Marshall. His development of the theory relating to tariffs and the terms of trade, p. 225; his argument that influence of tariffs on the terms of trade not normally great, p. 255 Marx, Karl. His references to the Wakefield system, pp. 161-4; a chief offender with over-statements about the creation of value by labour, p. 241 McCulloch, J. R. Dies the same year as Torrens, p. 6 ; probably the ultimate target of Torrens’ reference to the Ricardo School in his parliamentary speech of July 1832, p. 34 ; his views on the effects on foreign trade of changes in the national level of wages criticized by Torrens, pp. 50-1 ; his ‘candour’ regarding the Ricardian theory of profit praised by Torrens, p. 53 ; re¬ cipient of Ricardo’s famous letter on the determinants of value, p. 61 fn.; his reply to Torrens’ strictures on Ricardo, pp. 62 and 63 ; his strictures on Torrens’ Comparative Estimate, p. 85 ; hostile to the end to the Wakefield system, p. 167 fn.; inferior in analytical breadth to Torrens though superior in factual knowledge, p. 258 Meek, Dr. R. L. His article on ‘Physiocracy and Classicism’ cited, p. 12 fn. Meenal, Dr. S. A. The author’s considerable debt to his unpublished dissertation, p. x; his account of the events of Torrens’ life cited, p. 3 fn.; on Torrens’ quarrel with Lord John Russell, p. 167 fn. Merivale, Herman. The judicial tone of his Lectures on Colonies contrasted with the vehemence of Torrens’ Colonization of South Australia, p. 146 ; his criticisms of the Wakefield system cited, p. 162 ; his criticism of Torrens probably re¬ sponsible for the Postscript to Letter IX of The Budget, pp. 205, 206 ; his intel¬ lectual standing as a critic of Torrens, p. 209 ; the substance of his criticisms of Torrens and Torrens’ defence, pp. 209-11, 318 Mill, James. A founder of the London Political Economy Club, p. 4 ; his Commerce Defended, a publication contemporaneous with Torrens’ The Economists Refuted, p. 9 ; recipient of letter from Ricardo on Torrens’ complaints regard¬ ing priorities, pp. 11, 59 ; his Commerce Defended the first statement in English of Say’s law, p. 12 ; his formulation of the theory of profit controverted by Torrens, pp. 53, 55 and 56 ; his responsibility for the writing of Ricardo’s Principles, p. 60 ; recipient of letter containing revealing account of Ricardo’s position regarding Smithian theory of value, p. 63 ; his attack on the capital theory of value and Torrens’ strictures thereon, pp. 70 and 71 ; combines with Ricardo in endeavour to persuade Torrens of the error of his views on currency, pp. 83 and 84 ; his scepticism concerning colonies, p. 144 ; his letter to Macvey Napier on Torrens’ early ambitions regarding employment in Australia, p. 145 fn.; at Wilmot Horton’s instance expresses opinion adverse to Wakefield’s plans, p. 166 ; his letter to Brougham cited as evidence of continued scepticism concerning colonization, pp. 167 fn., 175 ; invoked by Torrens on the theory of general glut, p. 177 ; his error regarding the division of the gains from trade, p. 189 fn. ; eventual fruit of his exertions and Ricardo’s to eliminate Torrens’ monetary heresies, p. 246 ; inferior in analytical breadth to Torrens though superior in concentration, p. 258 ; his inclusion of the idea of subsistence in the concept of labour deprecated, p. 273 ; his ‘important principle’ quoted against Sismondi, p. 280; im¬ probability that Torrens would have praised his Elements, p. 286

357

ROBERT TORRENS Controversial opponent of Torrens, p. 6; junior to Torrens as Classical economist, p. io ; his acknowledgment of Torrens’ claims for The Economists Refuted, p. 31 ; the significance of his deputizing for Torrens at the London Political Economy Club on December 5, 1844, p. 33 fn.; ac¬ corded high position by Torrens in introduction to The Budget papers, p. 57; his controversy with Torrens concerning the labour theory of value, pp. 7172 ; enters the lists of Banking and Currency controversy in 1844, p. 93 ; on the Tookean doctrine of the impossibility of over-issue, p. 130; his appro¬ bation of colonization, p. 144; his statement of the Wakefield principle as revealing a possible flaw in the mechanics of self-interest, pp. 164-5 > his dis¬ covery of his father’s error regarding the division of gains from trade, p. 189 fn.; the conclusions of his Essay on the Laws of Interchange between Nations parallel to Torrens’ but more general, p. 225 fn.; alleged by Senior to have been bitten by Carlyle and Torrens, p. 225 fn.; the main influence rather than Torrens on the development of international trade theory, p. 232 ; his re-synthesis of the principles of Political Economy takes the scope of the Wealth of Nations as its model, p. 233; his conception of reciprocal demand in international trade superior to that of Torrens, p. 242 ; did not perceive wider implications of theory of non-competing groups, p. 243 ; discusses Wakefield’s theory of the declining rate of profit, p. 247; comparison and contrast of his attitude to reciprocity question with that of Torrens, pp. 255-6; together with Malthus and Ricardo in the first rank of nineteenthcentury Classical economists, p. 258 ; the documents of his controversy with Torrens on value, p. 287 ; his Logic and his Essay on the Nature and Method of Political Economy cited on method, pp. 321, 322 ; Torrens’ reply to his article on the currency question, pp. 326-8; his chapter on convertible paper cur¬ rency analysed, pp. 336-8; his ‘masterly’ essays invoked by Torrens, p. 343 Mills, R. C. His Colonization of Australia recommended, p. 154 fn. Mints, Lloyd. His account of the real bills doctrine cited, p. 79 fn.; his analysis of Norman’s inconsistencies regarding bank deposits cited, p. 109 fn. Mises, Professor L. von. His critique of the Banking Theory fundamentally similar to that of Torrens, p. 130 Mill, John Stuart.

Recipient of letter from James Mill on Torrens’ early am¬ bitions regarding employment in Australia, p. 145 fn. ; recipient of letter from Senior critical of J. S. Mill, p. 225 fn. Napoleon. His Continental System, p. 11 Norman, George Warde. Exponent of the Currency Principle, p. 6; leader with Torrens of the Currency School, p. 73; his Remarks on Some Prevalent Errors a gloss on Torrens and Overstone, p. 93 ; named together with Over¬ stone by Torrens as elaborator of the Currency Theory, p. 98 ; ambiguity of his attitude to the question whether banks could create credit, pp. 108, 109; his unpublished pamphlet critical of Torrens’ position on reciprocity and commercial policy, pp. 225-6 fn. Napier, Macvey.

Hero of Torrens’ novel The Victim of Intolerance, his masterly refuta¬ tion of Physiocratic fallacies, pp. 14-15, 266, 267 Overstone, Lord. Exponent of the Currency Principle, p. 6; leader with Torrens of the Currency School, p. 73 ; Torrens’ acknowledgment of obliga¬ tion to, pp. 93, 104 ; his style and that of Torrens compared, p. 94; named together with Norman by Torrens as elaborator of the Currency Theory, p. 98 ; his specific repudiation of contact with Peel in relation to the Bank Act of 1844, P- 101 fn. ; his strictures on Torrens’ views of the operations of country banks, pp. 103, 104; on the status of bank deposits, pp. 108, 109; Torrens’ review of his works in 1858, pp. 112, 345-7 ; his attitude to financial policy in a state of emergency, pp. 119, 120; his letter to Russell praising O’Connor.

358

SELECT INDEX OF NAMES Torrens’ general services to monetary and banking theory cited, p. 199 fn.; not necessarily to be regarded as a monetary internationalist, pp. 253-4 j his joint production with Torrens of a reply to the Petition . . . against the Bank Charter Act, p. 331 Owen, Robert. His plans for relieving national distress criticized by Torrens, pp. 41 fn., 150, 278-9; Torrens’ criticisms praised by McCulloch, p. 85; Torrens’ strictures on his plans as set forth in the paper On the Means of Re¬ ducing the Poors Rates, p. 149; his plan for relieving distress the occasion of Torrens’ first discussion of the possibilities of over-production, p. 176 J. Horsley. His pamphlet On the Pressure upon the Money Market provokes replies by Overstone and Torrens, p. 93 Parnell, Sir Henry. His views on the corn law attacked by Torrens, p. 40 Peel. Speaker on Attwood’s motion of April 22, 1833, p. 86 ; recipient of a letter from Torrens on his services in regard to the Bank Act of 1844, p. 88 fn. ; his challenge concerning the Act of 1819, pp. 88, 89 ; Torrens’ doubt whether his measures increased prosperity, p. 343 Pennington. Mentioned by Torrens in the preface to the Colonization of South Australia among the authorities which the author has followed, p. 55 fn.; cited by Torrens on the credit-creating power of deposit banking, p. 109; his critique of Ricardo and Mill on the division of the gains from trade acknowledged by Torrens, pp. 189 fn., 272 ; his Letter to Kirkman Findlay cited as an independent development of the notion of Reciprocal Demand and international trade, p. 242 fn.; the Mycroft Holmes of the later generation of classical writers, — his possible influence on Torrens regarding the nature of bank credit, pp. 245-6; cited by Torrens on deposits, p. 302 ; his two papers on banking cited, p. 303 Phillips, Chester. Cited on the creation of deposits, p. 109 Place, Francis. Possibility of connection between his views and those of Torrens on future of family limitation, p. 153; his note on the Letters on Commercial Policy and his distrust of Torrens’ latent protectionism, p. 196; the ‘gross fallacy’ which he professes to detect in Torrens no fallacy at all, p. 209 ; his poor opinion of Torrens, p. 257 Plant, Sir Arnold. His account of Spedding as a colonial administrator and a scholar cited, p. 162 fn. Prevost, J. L. His diary quoted, p. 33 fn. Palmer,

His views on poor laws for Ireland discussed, p. 306 A leader of Classical thought, pp. 1, 3, 7, 9; founder of the London Political Economy Club, p. 4; his account of Torrens’ complaint regard¬ ing priorities, p. 1 o ; the priority of his theory of the distribution of precious metals, p. 26; his priority disputed by Torrens in regard to certain aspects of international trade theory, pp. 31-5; guiltless of James Mill’s error regarding the advantages of foreign trade, p. 35 fn.; his role in the Corn Law controversy, pp. 38-9; his Essay on Profits published simultaneously with the Essay on the External Corn Trade, p. 40; his statement of the theory of rent favourably compared to Torrens’ first tentatives in this direction, p. 42 ; his probable attitude to Torrens’ strictures on his theory of rent, p. 43 ; his views on the effect on rents of economic progress contrasted with those of Torrens, pp. 46 and 47; cites Torrens on wages, p. 49; successive criticisms of his theory of profit by Torrens, pp. 51-7; his strictures on Torrens’ original view of the relations between wages and prices, pp. 58 and 59; his labour theory of value and Torrens’ criticisms thereof, pp. 60-72, 277-8 ; on the measure of value, pp. 67-9 ; the probability that his pains in the re-writing of Chapter I of his Principles were due to Torrens’ strictures, p. 73 ; his Plan for the Establishment of a National Bank, the antecedent of the practical

Revans.

Ricardo.

359

ROBERT TORRENS proposals of the Currency Schools, pp. 74, 101 ; his meeting with Torrens, p. 81 ; his comments on Torrens’ currency heresies and his attempts with James Mill to convert him, pp. 81-4; receives letter from McCulloch criti¬ cizing Torrens’ Comparative Estimate, p. 85; his bullion plan and his plan for a national bank adopted by Torrens in the debate of April 1833, p. 90; his theory of the distribution of precious metals and the currency theory, p. 98; his conception of redundancy of currency, pp. 99 and 100; his principles cited against Tooke on the price level, p. 124 ; his analogy between the discovery of a mine and the establishment of a bank cited by Torrens, p. 125; his discussion of the effects of duties and bounties on the distribution of the precious metals, p. 188; tends to take for granted the essential work done by Hume and Adam Smith, p. 233 ; his work to be conceived essentially as an attempt to re-formulate and to give greater precision to certain pro¬ positions of Adam Smith, p. 235; broad comparison between his position and Adam Smith’s on the main propositions of the theory of value and distri¬ bution, p. 235 ; conspectus of differences between his position and Torrens’ on the main propositions relating to value and distribution, pp. 238-40; develops the theory of comparative costs as a supplement to the labour theory of value, p. 241 ; his part in the germination of the concept of recipro¬ cal demand in international trade, p. 242 ; the significance for the critique of monetary policy of his theory regarding the distribution of the precious metals, pp. 244-5 ! together with Malthus and J. S. Mill in the first rank of nineteenth-century Classical economists, p. 258; charged with faulty methodological procedure by Torrens, p. 321 Ricardo, Samson. Suggests Horsley Palmer’s pamphlet a reply to Torrens, p. 93 ; his denial of the power of banks to create money, p. 108 Russel, Mr. Father of the heroine of Torrens’ second novel, his ineffectual arguments against Physiocracy, pp. 14 and 15; his inhibitions regarding a Catholic as a son-in-law, p. 267 Russell, Lord John. Torrens’ quarrel with him in the matter of the South Aus¬ tralia Commission, pp. 5, 167, 198-9; the personal animus in Torrens’ critique of his policy, p. 195 ; substance of Torrens’ attack on his financial policy, pp. 198-204; Torrens’ gibe concerning his cranial characteristics, p. 203 ; finds Torrens a bit of a nuisance, p. 257 Ryan, Dr. L. His assistance to the author, p. x Evidence given to the committee on his Factory Bill cited by Torrens, p. 294 J. B. His failure to recognize the classical reference to the intensive margin, pp. 41 and 42; invoked by Torrens on the theory of general glut, p. 177; his ‘important principle’ quoted against Sismondi, p. 280 Sayers, Professor R. S. His assistance to the author, p. x Scrope. Mentioned by Torrens in the preface to the Colonization of South Aus¬ tralia as among the authorities which the author has followed, pp. 55 fn. Seligman. His protests on behalf of Torrens, pp. 1, 32 Senior, Nassau. Dies the same year as Torrens, p. 6; junior to Torrens as Classical economist, p. g ; his Lectures on the Cost of Obtaining Money the classi¬ cal exposition of Ricardian theory, p. 26 ; lacunae in this exposition, p. 26; his lectures invoked by Torrens in his Colonization of South Australia, pp. 30, 300; his attack on Torrens on retaliation makes the latter more conscious of being a Ricardian, p. 45; mentioned by Torrens in the preface to the Colonization of South Australia as among the authorities which the author has followed, p. 55 fn. ; his co-authorship with James Stephen of Remarks on Emigration with the Draft of an Appeal, p. 155 fn.; his intellectual standing as a critic of Torrens, p. 209 ; substance of his attack on Torrens and Torrens’ reply, pp. 211-25 ; piquancy of this controversy, pp. 211, 212; accuses Torrens of mercantilist fallacy, pp. 213, 214; peculiarity of his attack on Sadler. Say,

360

SELECT INDEX OF NAMES Torrens’ monetary assumptions, pp. 214, 215; Torrens’ crushing reply to his accusation of mercantilism, pp. 220-2 ; his peculiar view on the role of costs of production in international trade attacked by Torrens, pp. 222-3 j the question posed of the similarity of his theory to that of Frank Graham, pp. 223-4 j his status compared to that of Torrens, p. 258 ; his correspond¬ ence with Mai thus cited by Torrens, p. 294; Torrens’ reply to his Edinburgh Review article analysed at length, pp. 318-20 Simons, Henry. His contrast between rules and authorities in monetary policy cited, p.117 Sismondi. His doctrine of over-production, p. 280 Smart. Cited on the historical background to Classical theory of value and distribution, p. 36 fn. Smith, Adam. The spiritual ancestor of nineteenth-century Classical political economy, pp. 7, 9, 233 ; his misleading representation of the advantages of international trade, p. 20; his exceptions to the presumption in favour of free trade, p. 37 ; Torrens confesses failure to correct certain erroneous doctrines of his respecting the rate of profit, p. 52 ; his labour theory of value, pp. 60-1 ; on the measure of value, pp. 67, 237 ; his contribution to the basis of the currency theory, p. 98; his principles cited against Tooke on the price level, p. 124; his views on the effects of abundance of free land in new countries criticized by Wakefield, pp. 156-67; his vindication of freedom in internal markets applied by Torrens to the policy of free imports of corn, pp. 184, 268 ; his most conspicuous achievement—the theory of the division of labour and the market, pp. 234, 235 ; broad comparison between his position and Ricardo’s on the main propositions of the theory of value and distribution, p. 235; Torrens’ indebtedness in the matter of general background, p. 237 ; Torrens’ capital theory of value to some extent a reversion to the cost of production theory of the Wealth of Nations, pp. 239, 240 ; and the Classical tradition in regard to retaliation, p. 255 ; his ‘project of empire’ cited, p. 256; his assumption of the invariability of the value of corn questioned by Torrens, p. 269 Spedding, James. His criticisms of the Wakefield system cited, p. 162 Spence. His pamphlet provokes Torrens’ first exercise in political economy, pp. 3, 183; his significance in the history of economic thought, p. 12; his Physiocratic views regarding agriculture, pp. 16-18; his contention that commerce was unproductive, pp. 18-21 ; the critique of his Britain Inde¬ pendent of Commerce in The Economists Refuted summarized, p. 260 Sraffa, Mr. P. His assistance to the author, pp. ix and x ; his correction of Pro¬ fessor Einaudi, pp. 35 fn., 189 fn.; his interpretation of the Ricardian theory of value, p. 61 fn.; his discovery of fragments of an interchange between Ricardo and Torrens on the theory of value, p. 64 fn.; the possessor of Norman’s un¬ published pamphlet on Torrens, p. 226 fn.; owner of a possible photograph of Torrens, p. 257 Stanhope, Lord. His bill held to be unwise, p. 266 Stephen, James. His co-authorship with Senior of the Remarks on Emigration with the Draft of an Appeal, p. 155 fn. His statement of the theory of comparative costs cited, p. 24; one of the few to notice Torrens’ Wages and Combination, p. 49 Tennant, Charles. His Letter on Systematic Colonization inspired by Wakefield, p. 167 Thompson, Perronet. The frontal attack of his Westminster Review on the South Australian plan provokes Torrens’ Colonization of South Australia, p. 170; attack on the Letters on Commercial Policy and Torrens’ reply, pp. 196, 207-9 ; his attack on the Ricardian theory of rent and Torrens’ attitude thereto, pp. 43, 44, 294 Taussig.

361

ROBERT TORRENS Thornton.

P. 130;

his statement of the connection between the rate of borrow¬

ing, the rate of interest and the rate of profit, p. 246

A controversial opponent of Torrens, p. 6; perhaps responsible for some under-estimate of influence of monetary inflation on agricultural prices during the Napoleonic Wars, p. 36 fn.; his position as exponent of the Banking Theory anticipated by Torrens in his earlier phase, pp. 74 and 78 ; enters the lists of the Banking and Currency controversy in 1840, p. 93 ; his denial of the difference between notes and cheques, pp. 105-7 > on ^e quantity of money and the price level, pp. 125-6; on the impossibility of over-issue, pp. 126-30; Fullarton’s theory of the ‘hoards’ foreshadowed in the opening chapter of his Inquiry, p. 134 ; his condemnation of the state of affairs which would exist under a purely metallic currency, p. 138; his arguments for a higher reserve as a means of maintaining convertibility, and Torrens’ stric¬ tures thereon, pp. 140 and 141 ; Torrens’ comparison between his principles and those of the Birmingham economists, p. 143 ; cited in advertisement to the fourth edition of the Essay on the External Corn Trade on the effects of taxa¬ tion, p. 271 ; his strictures in the History of Prices on the proposed separation of departments analysed, pp. 308, 309 ; Torrens’ reply to his Inquiry into the Currency Principle, pp. 324-6; Torrens’ discussion of the grand ‘Tookean fallacies’, pp. 334-6 Torrens, Robert. His position during his life and his subsequent obscurity, pp. 1 and 2 ; his style, p. 2 ; scarcity of his publications, p. 2 ; brief sketch of his life, pp. 3-6 ; classification of his interests, pp. 6-8 ; a central member of the nineteenth-century school of Classical economists, p. 9 ; his touchi¬ ness with regard to priorities, p. 10 ; on productive and unproductive labour pp. 11-18; on the territorial division of labour, pp. 18-21 ; his critique of Spence, pp. 12-21 ; his statements of the theory of comparative costs, pp. 21-4; on prices and wages and international trade, pp. 25-30; his claims to priority in certain theories relating to international trade examined, PP- 31-5 5 his part in the Corn Law controversy, pp. 36-9 ; his statement of the Law of Diminishing Returns, pp. 39-41 ; on the theory of rent, pp. 41-7 ; on the theory of wages, pp. 48-51 ; on the influence of combinations, pp. 4g51 ; on the theory of profits, pp. 51-8 ; his critique of James Mill on profits, PP- 53> 55 ancl 56; accepts Longfield’s gloss on his critique of Mill, pp. 56, 57 ; on the relation between wages and prices, pp. 58-60; on the theory of value, pp. 60-72 ; his critique of Ricardo on value, pp. 61-6 ; aligns himself with Lauderdale and Bailey on the measure of value, pp. 67-72 ; his contro¬ versy with the Mills on value, pp. 70-2 ; the importance of his position as a monetary theorist, pp. 73, 74 ; begins as an anti-bullionist, pp. 74-80 ; moves to an anti-deflationist middle position in his publications of 1816 and 1819, pp. 81-6; opposed to Ricardo’s bullion plan, p. 83; changes his attitude, pp. 86-90; recommends Ricardo’s bullion plan, p. 90 ; attacks the Bank of England and suggests separation of the departments, pp. 90-3 ; short view of his subsequent publications on money, pp. 93-6; broad view of the Currency Principle as he propounded it, pp. 97-100; practical implications of this view, pp. 101-5 ; vicissitudes of his views on country banks, pp. 102-4 > his denial of the identity of notes and other credit instruments, pp. 106, 107 ; one of the first to explain the credit-creating power of deposit banking, pp. 109-10; implications of his view regarding bank credit for his general conception of the significance of the Currency Principle, pp. 110-16; his opposition to statutory sanctions for suspension of convertibility, pp. 117-21 ; his justification of a temporary devaluation in South Australia, p. 119 fn.; his critique of the Banking Theory in regard (a) to the quantity of money and the price level, pp. 124-6, (A) to the impossibility of over-issue, pp. 126-30 and (c) to the balance of payments and the function of the hoards, pp. 131-7 ; his theory of the effect of changes in the rate of interest, pp. 130, Tooke.

362

SELECT INDEX OF NAMES i36~7 j his critique of the objectives of the Banking School, pp. 137-43; compares Tooke’s position with that of the Birmingham economists, p. 14.3 ; his place in the history of the theory of colonization, pp. 144-5; personal factors influencing his attitude to colonization, pp. 145, 146; the treatment of the colonial trade in his The Economists Refuted, pp. 146, 147 ; his early interest in pauperism and emigration, pp. 147-50 ; his speech of 1827 on emigration, PP- I5I_3 i his relations with Wakefield, pp. 165-73; his connection with Wilmot Horton, pp. 166 and 168-9; nominated Chairman of the Commis¬ sioners for South Australia, p. 170; his reply to the Westminster Review, pp. 170-3 ; his critique of Wakefield’s doctrine of the sufficient price, pp. 171-2 ; his rationale of colonization, pp. 173-81 ; vicissitudes of his views on over-production, pp. 176-81 ; indicates possibility of divergence in times of stagnation of rate of interest of money and profits of stock, p. 178 ; general significance of his contribution to the theory of commercial policy, pp. 182-3 ; his position as a free trader, pp. 183-7; genesis and development of his views on tariffs and the terms of trade, pp. 187-96; significance of Letters on Commercial Policy, pp. 194-6; states at length his views on tariffs and the terms of trade in Letters II and III of The Budget, pp. 197-204; re-states his views in the Postscript to Letter IX, pp. 204-6 ; his reply to Thompson, pp. 207-9 ; his reply to Merivale, pp. 210-11 ; his reply to Senior, pp. 219-25 ; practical purpose of his theory regarding tariffs and the terms of trade, pp. 225-8; his gloomy contrast between the position of the United States and the position of the United Kingdom, pp. 228-31 ; his relation to Smith and Ricardo on the main propositions of the pure theories of production, distri¬ bution and value, pp. 237-40 ; general perspective of his contributions to the theory of internal values, pp. 240-3 ; his major contribution to the general theory of money, pp. 245-6 ; significance of his theory of accumulation and the declining rate of profit, pp. 246-8 ; his strong feeling for social betterment and his support for humanitarian legislation, pp. 249 and 250; significance of his theory of colonization in this connection, pp. 250-1 ; significance of his theory of monetary policy, pp. 251-4 ; significance of his theory of com¬ mercial policy, pp. 254-6 ; ignorance of his personal characteristics, p. 257 ; impression conveyed by his books, pp. 257-8 ; not in the same rank as Ricardo, Malthus or John Stuart Mill, p. 258 ; his position in relation to James Mill, McCulloch and Senior, p. 258 See also the entries in the Bibliographical Appendix and the Index of Citations of his Works. Torrens, R. R. His policy as Treasurer in South Australia, pp. 344 and 345 Professor Jacob. The author’s indebtedness to, p. ix; does justice to Torrens’ contribution to international trade theory, p. 1 ; his review of the problem of Torrens’ claims for priority in regard to the theory of comparative cost, pp. 32-4; p. 74; his Studies in the Theory of International Trade cited in relation to the banking and currency controversy, p. 86 fn.; his review of Dr. Bowley’s work on Senior cited, p. 155 fn.; p. 182 ; on Frank Graham, p. 224

Viner,

Alderman. The debate on his resolutions of the 3rd July 1832, on the state of trade, p. 192 Wakefield, Gibbon. Torrens’ association with, p. 5; mentioned by Torrens in the preface to the Colonization of South Australia among the authorities which the author has followed, p. 55 fn.; his pre-eminence in the field of coloniza¬ tion theory and his importance in the history of the British Commonwealth, p. 144; his theory of colonization, pp. 153-65 ; Senior’s generous tribute to his views on colonization, pp. 154-5 j his relations with Torrens, pp. 165-73 ; similarity of his diagrams to those used by von Thunen, p. 168 ; his doctrine of the sufficient price criticized by Torrens, pp. 172-3; his influence on Waithman,

363

ROBERT TORRENS Torrens’ stagnation theory, pp. 174-5 ; his theory of the declining rate of profit discussed by J. S. Mill, p. 247 ; his theory of the declining rate of profit not Malthusian, p. 248 ; ultimate significance in the history of economic thought of his theory of colonization, p. 251; his evidence before the Committee on the Affairs of South Australia criticized by Torrens, p. 309 Wallace. His Essay on Banks and Credit cited, p. 77 fn. Wallas, Graham. His Life of Francis Place cited, p. 196 fn. Watt. Effects of his invention cited by Torrens, p. 181 Webster, Daniel. Cited on the American panic of 1837, p. 347 Wellington, Duke of. Torrens saved from despair by his presence at the helm of State, p. 289 West, Edward. His role in the Com Law controversy, pp. 38-9 ; his corn law pamphlet published in the same month as the Essay on the External Corn Trade, p. 40; his precision in formulating the Law of Diminishing Returns favour¬ ably compared to Torrens’, p. 40 ; his statement of the theory of rent favour¬ ably compared to Torrens’, p. 42 Whately. His name cited by Torrens as evidence of the high quality of Com¬ mission on Irish Poor Law, p. 306 Wicksell. His critique of the Banking Theory fundamentally similar to that of Torrens, p. 130 Wilson. His famous articles on the Banking and Currency controversy, p. 93 ; on the necessity of convertibility, p. 122

364

SELECjT INDEX OF SUBJECTS Anti-Bullionism, 74-80, 99, 123, 128-9, 245. 265-6, 274-7, 281 Australia, effect of gold discoveries in, 119 fn., 142 fn., 344, 345 Automatism in note issue regulation, 117-21, 340 Auxiliary Media, 105, 111, 329, 337

Commercial Policy, 7, 11-30, 182-231, 254-7, 292-5, 310-22 Concentric Circles, use of, to illustrate doctrine of rent, 168 Condition of the People, 149-50, 249, 289-90, 292-4, 297, 308, 315-17 Confidence, fluctuations in, 82, 177-8, 286 Convertibility, 78, 100, 106 fn., 122-3, 126-30, 139-43, 252-4, 276-7, 280-2, 308, 324-6, 331, 332-41, 346 Corn, Adam Smith’s assumption of in¬ variability of value disputed, 269 Corn Laws, 37-9, 58-9, 184-6, 196, 267-73, 286, 287, 291, 294, 297, 307, 308, 310, 311, 316-18 Costs, Comparative, 21-35, 184, 240-3, 272, 299-300 Costs of Production, their role in inter¬ national trade, 217, 222-4, 3X9 ‘Cuban’ Trade, 201-6, 210-11, 212, 214, 217, 224, 311, 317 Currency, paper, advantages and dis¬ advantages of, 76-80, 285 Currency School, including Currency Theory and Currency Principle, 6, 78, 89, 90, 94, 97-123, 126, 131, 134, 138-43, 251-3, 324-8, 333-41, 345-7

Balance of Payments, 79, 97-100, 131-7, 2 74) 275, 329, 335, 340 Bank Accounts, compulsory publicity recommended, 346 Bank Act 1819, 324, 332 Bank Act 1844, 90-6, 98, 101, 102, 107, 117-21, 324-8, 329, 330, 332, 333> 336-9. 346 Bank Credit, 105-16, 245, 302, 324-5, 327. 329, 332-6, 346 Bank of England, conduct of, 90-6, 115, 302-5, 332-3. (See also Departments, separation of) Banking, American, 347 Banking, 100 per cent, cover, 115, 252 Banking School, including Banking Theory and Banking Principle, 78, 121-43, 251-3, 308, 324-8, 333-40 Bimetallism, 94 fn. Bullion Plan, Ricardo’s, 83, 90 Bullionism, 100, 251, 266, 276, 281

Declining Rate of Profit, 41, 173-81, Capital, dormant, taxes on, 290, 314 Capital Theory of Value, 60-72, 238240, 277-8, 284 Capitalistic Production in the United States, 162 Cash Payments, resumption of, 80, 82, 87, 266, 276, 280-2 Catholic Question, 145, 261, 262, 266, 267 Classical Theory, general background of, 233-5 Colonial Trade, 46, 147, 188-90, 261, 285 Colonization, 4-5, 144-81, 227-31, 250, 251, 298-302, 313, 314, 315, 328, 329 Combination of Labour, 156 Combinations, effects of, 49-51, 295-7

246-7 Deductive Method, in political eco¬ nomy, 320-2 Deflation, 76. (See also Falling Prices, evils of) Deity, existence of, alleged to be within the sphere of experimental reasoning, 267 Demand in International Trade, 30, 242-3. (See also Elasticity of Demand) Departments, separation of, 92-3, 101-7, 302-5, 308-9, 325, 328, 330, 338, 340,

346 Deposit Banking, 105-16, 245, 302, 325, 327, 346. (See also Bank Credit) Depreciation, 79-82, 266, 275, 280, 281, 285

365

ROBERT TORRENS Depression, agricultural, 37, 271, 274,

Gain from Trade, 21-5, 35 fn., 260-1,

276, 277, 289-90 Devaluation, 119 Diminishing Returns, 39-41, 176, 184 Discount Rate, the policy of variation, 325, 341. (See also Interest, rate of) Discretion in Note Issue Regulation, 117-21. (See also Relaxing Power)

284-5 Gluts, general, 173-81, 285, 286, 300301

Distilleries, 261 Distribution, theory of, and theory of international trade, 243 Distribution of Precious Metals, theory of, 25-30, 74, 98-100, 132, 134, 188, 198-203, 211, 215, 244, 252, 293, 299-300, 319, 329, 333 Division of Labour and the market, .234-5, 237 Division of Labour, territorial, 18-21, 214, 220, 221 Drain, External, 134-7, '4°, 253, 340,

Higher Reserves, plea of the Banking School, 140, 141,308, 325 Hoarding, 177-8, 179, 261 Hoards, doctrine of, 131-7, 335, 338,

339 Hours of Labour, 296-7, 323-4 Immobility of Capital and Labour, significance of, 222-3, 321 Import Duties, effects of, 188-225, 255-6, 268, 310-22 Income Tax, 342-3 Inflation, evils of, 75-6, 281 Interest, rate of, 130, 136, 137, 177-8, 246, 286, 335, 341

346 Drain, Internal, 112, 118-21, 303, 332, 340, 346 Durability of Investments, its influence on value, 61-7, 239, 277-8

Education, 48, 150, 152 Elasticity of Currency, desirability of, 76-7 Elasticity of Demand in theory of inter¬ national trade, assumptions concern¬ ing, 201, 202, 205, 206, 225 Emigration, 4-5, 147-81, 277, 288, 289, 3°6, 3°7, 312-14, 316-17, 328-9 Employment, field of, and the demand for labour, 176-81 Exchange, fluctuating, 142 Export of Capital, 173-81, 300-1

International Trade, theory of, and theory of distribution, 243, 299-300, 310-22 International Values, theory of, 25-30, J92-3> 197-225, 240-3 Ireland, over-population of, 145, 151-3, 262, 288, 301, 305-6, 313-14, 328-9 Kulaks, their fate compared with that of emigrants under Wakefield system, 163 Labour, productive and unproductive, 11-18, 260-1, 267, 284 Labour Theory of Value, 60-72, 237-9, 277-8, 283-4 Laissez-Faire, repudiated, 323 Landowners, their interest in agri¬ cultural protection, 46-7, 301 Law of Large Numbers, and import of corn, 184

Factory Bill, Sadler’s, 294; Ashley’s,

323-4

Local Rates, inequity of, as a measure for raising Irish relief, 342

Falling Prices, evils of, 76, 85, 86, 277, 281, 285, 290 Fiduciary Issue, 102, 304, 325, 332 Fractional Reserve Systems, implica¬ tions of, 109, 115, 116

Mercantilism, 213-14, 220, 318-19 Metallic Currency, working of a pure, 97-100, 114, 115, 138-9, 308, 324-5.

Free Land, as alleged cause of pro¬ sperity, 156-7; as alleged impedi¬ ment to division of labour, 157-64 Free Trade, its effect in enhancing the value of money, 189-92 ; unilateral, i85‘7> I9L i95» 200, 206, 227, 255, 285, 292-5, 310-22, 341-4 Fund to relieve displaced labourers proposed, 250 fn., 295

(See also Currency School, etc.) Mining Discovery, and the price level, 124-5

Mint, desirability of, in Australia, 344 National Debt, 203, 290 National versus International Money, 142, 252-4

Non-competing Groups, theory of, 243

366

SELECT INDEX OF SUBJECTS Over-issue, alleged impossibility of, 126-30, 326, 327, 334, 337-8 Over-production. (See Gluts, general) Palmer Rule, 91, 116, 302 Panics. (See Internal Drains) Parallelograms, Robert Owen’s, 149-50, 279 Pauperism, and emigration, 147-53, 277; 305-7, 312-14. (See also Emigra¬ tion) Peace with France, 266 Philosopher’s Stone, search for, 69-70 Physiocratic System, 12-18, 267 Poor Law, 149, 261, 288 Poor Law, Irish, 305-7, 314 Population, concentration of, dispute concerning meaning of phrase, 169, 291 Population Problem, 148-9, 250-1, 277, 279, 288-9, 294. (See also Emigra¬ tion) Precious Metals. (See Distribution of Precious Metals) Price Level, and quantity of money, 124-6,325-6,334 Prices, agricultural, during the Na¬ poleonic Wars and after, 36-7, 274, 290 Prices and Wages, in domestic values, 58-60; in international trade, 25-30, 295-7 Profits, 51-7, 173-81, 236, 238, 279, ' 282, 298, 321 Property, excessive subdivision in Ire¬ land, 306 Quantity of Money, and the price level, 124-6, 325-6, 334 Quantity Theory, 244 ‘Real Bills’ Doctrine, 78-9, 128 Reciprocity, 182-231, 292-5, 311, 312, 317-18, 343 Redundancy of Currency, 99-100, 333-4 Reflux, doctrine of the, 79, 129-30, 334 Relaxing Power, 117-21, 331, 340, 347 Rent, 41-8, 236, 238, 269, 270, 283, 306 Retaliation, 203, 219-20, 255, 318-20 Rochester, election at, 278

Say’s Law, 12, 177, 280 Second Chambers, 345 Self-Interest, a possible flaw in mechanics of, 164-5 Silver, desirability of, as standard, 85, 88, 274, 281, 331 Slavery, and division of labour, 155-61 South Australia, commercial prospects of, 299-300; history of Commission, 5, 146, 170, 198-9, 315, 322, 328 Stagnation Theory, 41, 175-81, 248 Standard of Life and Wages, 48-9 Stationary State, 316 Sufficient Price, doctrine of, 160-72, 29U 299, 309 Sugar Duties, 310, 311, 342 Tariffs and the Terms of Trade, 18723U 255-7, 272, 292-4, 310-22, 343 Taxation, 290, 341-4 Terms of Trade, 180, 187-225, 241-3, 312, 318-20, 343 Trade, Colonial, 146-7, 188-90, 261, 285 Trade, Foreign, 261, 285 Trade, Home, 261, 285 Transubstantiation, limited prospects of doctrine of, 262 Unilateral Tariff Reductions. (See Free Trade, unilateral) United Kingdom, economic progress of, 343 United States, economic progress of, 343 Value, causes of. (See Capital Theory of Value and Labour Theory of Value) Value, measure of, 67-9, 237, 238 Values, international. (See Inter¬ national Values, theory of) Velocity of Circulation, 99, 244 ‘Vicinity Maximization’ Principle, 166 Wages, 25-30, 49-51, 54-60, 235-6, 238, 269, 273, 282, 295-8, 305, 306, 323-4 Wealth, definition of, 283 West Indies, economic position of, 342 Zollverein, a colonial, 187, 228, 256, 3J3

THE END

PRINTED

BY R. & R.

CLARK,

LTD., EDINBURGH