comprehending the new classes of facts. Of course it was manifestly necessary that the new theory should absorb all the facts accounted for by the old one, and explain them equally well. When this has happened, when it has been proved that the new theory accounts for all the observed facts, the old theory has been invariably superseded, and the new one adopted.

Precisely the same process of reasoning holds good in Economics. Just as it is a universally acknowledged principle in experimental science that that law only is the true one, which explains all the cases in the subject, we lay this down as an unquestionable truth in Economics

That if two or more forms of expression will explain or account for any phenomena regarding price, or the change of price, that form of expression only is to be adopted as the true one, which explains all the phenomena in the science, and not the individual case only.

Thus we affirm by virtue of the Principle of Continuity of Science, and arguing from the analogy of every other physical science, that however varied and complicated the different phenomena of Value may appear to be, there can by no possibility be more than one grand General Theory of Value, whatever it may be. To suppose that the phenomena of the science could be based upon divers conflicting Theories would be at once to destroy the GENERALITY of the science.

34. Lord Lauderdale in a work quoted by Ricardo, and which contains little else of any worth, says,' that of two Quantities which may each vary, if we suppose the variation to take place in one of them first, the other remaining the same, its Value would be influenced by four causes:

It would Increase in Value

1. From a Diminution in Quantity.

2. From an Increase of Demand.

It would Diminish in Value

1. From an Increase of Quantity.

2. From a Diminution of Demand.

Now as the variations of the other Quantity will be influenced by the same four causes: it is quite clear that the variations of both Quantities will be influenced by eight independent causes, An Inquiry into the Nature and Causes of Public Wealth, p. 12.

and if these be connected in the form of an Algebraical Equation, it will manifestly be the true General Equation of Economics.

This General Equation must manifestly comprehend the whole science; and as it contains no less than EIGHT Independent Variables, it at once shews the extremely complicated nature of the science.

Now Ricardo admits this Law to be true for all monopolized commodities, and for all others during a limited period. But his want of training in Inductive Science prevented him from seeing that if it be true in any one case, it must be true in all. The fact is that the Law of Supply and Demand, of which the above extract from Lord Lauderdale is the full expression, is admitted by all Economists to be true when the price of things is very low; and it is also admitted to be true when the price is very high. No other Law whatever but that of Supply and Demand operates at the extremes of prices: and therefore it is manifest by the Law of Continuity, that all intermediate prices must be governed solely by the same Law of Supply and Demand.

It is quite manifest that the above is the true General Equation of Economics; and the whole science must be constructed taking that Equation as the basis.

In obtaining this general expression we have followed the method usual in all physical science. We have obtained the Independent Variables, and they are connected by a General Law, or Formula. This insures certainty to the science. But it is in the last point that the real difficulty arises, namely in giving precision, or numerical amounts to the Coefficients. It is difficult, probably impossible, to say what numerical variations in supply and demand produce certain numerical variations in price. This has been attempted in some cases, as that of corn, but it is manifestly impossible to obtain exact numerical data.

It is this difficulty, or rather let us say the entire impossibility of giving exact numerical values to the Coefficients, that makes many writers suppose it impossible to make Economics an exact science. It is sometimes supposed that for a science to be an "exact" one, it is necessary that its Laws be capable of precise quantitative statement. This however is an error which has been specially noticed by Comte, who well points out' the dif

1 Introduction.

ference between certainty and precision in science. To constitute an exact science it is not necessary that its laws can be ascertained with numerical precision, but only that the reasoning be exact, or certain. He says that a dangerous prejudice has sprung up that because the precision of different sciences is very unequal, that therefore their certainty is so too. This tends much to discourage the study of the most difficult, Precision and certainty are perfectly distinct. An absurd proposition may be very precise, as for instance that the angles of a triangle are equal to three right angles. On the other hand a certain proposition may not be precise, as that a man will die. Hence although the different sciences may vary in precision, that does not affect their certainty. This observation applies very forcibly to Economics. Many persons are apt to despise it, and think there is nothing in it because it does not bring out its results with the same numerical precision as those of Mathematics. This however is a grievous mistake. In Economics the causes of phenomena can be ascertained with positive certainty, and if we want to produce any given effect, the proper method of producing it can be pointed out with absolute certainty. This is all that is necessary to constitute it an exact science; because the method of producing the result being pointed out with certainty, it may be followed until the required result be produced.

35. In considering this general Equation of Economics we see the application of Bacon's aphorism' "That which in Theory is the CAUSE in Practice is the RULE." No other Quantities but Demand and Supply appear on the face of the Equation. We therefore learn that no other causes influence Value, or changes of Value, but Intensity of Demand and Limitation of Supply. We learn that neither Labour, nor Cost of Production, nor anything else, can have any direct influence on Value; and that if they have any indirectly, it can only be by, and through, the means of altering the Demand or the Supply: so that no change of Labour, or Cost of Production, can have any influence on Value, unless they are accompanied by a change in Demand or Supply.

The great practical importance of these considerations will appear hereafter.

1 Nov. Org., Bk. i., Aph. 3.

36. But although there can be only one General Theory which governs all cases, yet there may be many phenomena, and many classes of phenomena, in which other causes may modify, vary, and even overpower and reverse the General Law. Thus it is a General Law that bodies will fall to the earth: but in the special case of a balloon inflated with gas lighter than air it will ascend from the earth. Now, no one doubts that the Law of Gravity acts on the balloon to draw it towards the earth: but yet in this special case, the force of the lighter gas overpowers the force of gravity, and makes the balloon ascend through the denser medium.

On the Fundamental Objection to the RICARDO-MILL
SYSTEM of ECONOMICS.

37. We now come to the fundamental philosophical objection to the Ricardo-Mill system of Political Economy, or Economics, and to the application of the remarks we made on the Formation of General Axioms', and in the General Statement of the Argument in favour of the Third School of Economists."

While the Italian Economists, the Physiocrates, and Condillac, all held that the Law of Demand and Supply is the great dominating Law of Economics, they felt that some further explanation was wanted to give this law a more definite expression in figures.

Among several writers who have given an analysis of price, Le Trosne shews that among the causes which determine Value, there is a certain amount which is indispensable for all products, namely, the necessary cost of producing them. This he calls the "fundamental price" of products. As the system of the Physiocrates only embraced the material products of the earth, their analysis was of course extremely defective as a general Theory of Value.

Smith began by following very much in the footsteps of the Physiocrates, by leading his readers to think that he considered wealth to be the " annual produce of land and labour," and what the Physiocrates called the "fundamental price" of products, 2 Chap. iii., § 52.

1 Chap. ii., § 18, 19.

3 De l'interét social, chap. i., § 7.

1

Smith calls their "natural price." He says that there is in every neighbourhood, or society, a natural rate of rent, a natural rate of wages, and a natural rate of profit, and-" When the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of labour, and the profits of the stock employed in raising, preparing, and bringing it to market, according to their natural rates, the commodity is then sold for what may be called its natural price."

In this and several other passages, Smith makes rent a necessary part of the price of agricultural products. The obvious inference of this doctrine is, that if the landlords were to agree to forego their rents, corn would be so much the cheaper. But in another passage Smith says that price is the cause of rent. The importance of the subject and the self-contradictions of Smith, gave rise to great discussions, of which we have given an account in the chapter on Rent, and therefore they need not be further noticed here.

Ricardo then followed: he divides commodities into two classes

First. Those in which the supply is absolutely limited, and cannot be increased by human labour, and therefore their value cannot be lowered by an increased supply 2_" Some rare statues, and pictures, scarce books and coins, wines of a peculiar quality, which can only be made from grapes grown on a particular soil, of which there is a very limited quantity, are all of this description. Their value is wholly independent of the quantity of labour, originally necessary to produce them, and varies with the varying wealth and inclinations of those who are desirous to possess them."

Ricardo says that the value of such commodities is exclusively governed by the Law of Demand and Supply; and among this class of commodities he and Mr. Mill place Labour.

Second. Those commodities which can be increased at will by human labour without assignable limit; and the purport of his work is to investigate the values of this class of commodities solely; though this express limitation of his inquiry is quite overlooked by some of his ardent disciples.

Ricardo says that commodities which can be increased without limit by human industry are divided into two classes: :Principles, chap. i., § 1.

1 Book i., ch. 7.