of occupations."

And similarly he contended 2 that the pay.. ment of interest upon the public debt was a burden upon industry even though the securities were all owned at home and no money left the country as a result of the operation.

A generation later Jean Baptiste Say, a disciple of Smith, developed the argument in greater detail: 3

If I have made myself understood in the commencement of this third book, my readers will have no difficulty in comprehending, that public consumption or that which takes place for the general utility of the whole community, is precisely analogous to that consumption, which goes to satisfy the wants of individuals or families. In either case, there is a destruction of values, and a loss of wealth; although, perhaps, not a shilling of specie goes out of the country.

The government exacts from a taxpayer the payment of a given tax in the shape of money. To meet this demand, the taxpayer exchanges part of the products at his disposal for coin, which he pays to the taxgatherer: a second set of government agents is busied in buying with that coin cloth and other necessaries for the soldiery. Up to this point, there is no value lost or consumed; there has only been a gratuitous transfer of value, and a subsequent act of barter; but the value contributed by the subject still exists in the shape of stores and supplies in the military depot. In the end, however, this value is consumed; and then the portion of wealth which passes from the hands of the taxpayer into those of the taxgatherer, is destroyed and annihilated.

Yet it is not the sum of money that is destroyed: that has

1 With England's experience after the Seven Years' War it is interesting to compare that of the United States after the Civil War. Mr. J. F. Rhodes says: "It is well worth repeating that in the six months from May to November, 1865, 800,000 men had changed from soldiers to citizens; and this change in condition was made as if it were the most natural transformation in the world. These soldiers were merged into the peaceful life of their communities without interruption to industry, without disturbance of social and moral order." History of the United States, V. 185-186. 2 Bk. V. ch. 3; Cannan's edition, II. 412.

3 Traité d'économie politique, Bk. III. ch. 6.

only passed from one hand to another, either without any return, as when it passed from the taxpayer to the taxgatherer; or in exchange for an equivalent, as when it passed from the government agent to the contractor for clothing and supplies. The value of the money survives the whole operation, and goes through three, four, or a dozen hands, without any sensible alteration; it is the value of the clothing and necessaries that disappears, with precisely the same effect as if the taxpayer had, with the same money, purchased clothing and necessaries for his own private consumption. The sole difference is, that the individual in the one case, and the state in the other, enjoys the satisfaction resulting from that consumption.

The same reasoning may be easily applied to all other kinds of public consumption. When the money of a taxpayer goes to pay the salary of a public officer, that officer sells his time, his talents, and his exertions, to the public, all of which are consumed for public purposes. On the other hand, that officer consumes, instead of the taxpayer, the value he receives in lieu of his services; in the same manner as any clerk or person in the private employ of the taxpayer would do.

There has been long a prevalent notion that the values, paid by the community for the public service, return to it again in some shape or other; in the vulgar phrase, that what government and its agents receive is refunded again by their expenditure. This is a gross fallacy; but one that has been productive of infinite mischief, inasmuch as it has been the pretext for a great deal of shameless waste and dilapidation. The value paid to government by the taxpayer is given without equivalent or return it is expended by the government in the purchase of personal service, of objects of consumption; in one word, of products of equivalent value, which are actually transferred. Purchase or exchange is a very different thing from restitution.

If, then, public and private expenditure affect social wealth in the same manner, the principles of economy, by which they should be regulated, must be the same in both cases. There are not two kinds of economy, any more than two kinds of honesty or morality. If a government consume in such a way as to

give birth to a product larger than that consumed, a successful effort of productive industry will be made. If no product result from the act of consumption, there is a loss of value, whether to the state or to the individual; yet, probably, that loss of value may have been productive of all the good anticipated. Military stores and supplies, and the time and labor of civil and military functionaries engaged in the effectual defense of the state, are well bestowed, though consumed and annihilated; it is the same with them as with the commodities and personal service that have been consumed in a private establishment. The sole benefit resulting in the latter case is the satisfaction of a want; if the want had no existence, the expense or consumption is a positive mischief, incurred without an object. So likewise with the public consumption; consumption for the mere purpose of consumption, systematic profusion, the creation of an office for the sole purpose of giving a salary, the destruction of an article for the mere pleasure of paying for it, are acts of extravagance either in a government or an individual, in a small state or a large one, a republic or a monarchy. Nay, there is more criminality in public than in private extravagance and profusion; inasmuch as the individual squanders only what belongs to him; but the government has nothing of its own to squander, being, in fact, a mere trustee of the public treasure.

Madame de Maintenon mentions, in a letter to the Cardinal de Noailles, that, when she one day urged Louis XIV to be more liberal in charitable donations, he replied, that royalty dispenses charity by its profuse expenditure; a truly alarming dogma, and one that shows the ruin of France to have been reduced to principle. False principles are more fatal than even intentional misconduct, because they are followed up with erroneous notions of self-interest, and are long persevered in without remorse or reserve. If Louis XIV had believed his extravagant ostentation to have been a mere gratification of his personal vanity, and his conquests the satisfaction of personal ambition alone, his good sense and proper feeling would probably, in a short time, have made it a matter of conscience to desist, or at any rate, he would have stopped short for his own sake; but he was firmly persuaded that his prodigality was for the public

good as well as his own; so that nothing could stop him but misfortune and humiliation.1

So little were the true principles of political economy understood, even by men of the greatest science, so late as the eighteenth century, that Frederick II of Prussia, with all his anxiety in search of truth, his sagacity, and his merit, writes thus to D'Alembert, in justification of his wars: "My numerous armies promote the circulation of money, and disburse impartially among the provinces the taxes paid by the people to the state." Again I repeat, this is not the fact; the taxes paid to the government by the subject are not refunded by its expenditure. Whether paid in money or in kind, they are converted into provisions and supplies, and in that shape consumed and destroyed by persons that can never replace the value, because they produce no value whatever. It was well for Prussia that Frederick II did not square his conduct to his principles. The good he did to his people, by the economy of his internal administration, more than compensated the mischief of his wars.

7. Dietzel's Theory of Public Expenditures. In 1855 Karl Dietzel published a book in which he sought to controvert the views of Smith and Say concerning the effect of public expendi

1 "When Voltaire tells us, speaking of the superb edifices of Louis XIV., that they were by no means burdensome to the nation, but served to circulate money in the community, he gives a decisive proof of the utter ignorance of the most celebrated French writers of his day upon these matters. He looked no further than the money employed on the occasion; and, when the view is limited to that alone, the extreme of prodigality exhibits no appearance of loss; for money is, in fact, an item, neither of revenue, nor of annual consumption. But a little closer attention will convince us of the fallacy of this position, which would lead us to the absurd inference, that no consumption whatever has occurred within the year, whenever the amount of specie at the end of it is found to be nowise diminished. The vigilance of the historian should have traced the 900 millions of francs expended on the chateau of Versailles alone, from the original production by the laborious efforts of the productive classes of the nation, to the first exchange into money, wherewith to pay the taxes, through the second exchange into building materials, painting, gilding, &c. to the ultimate consumption in that shape, for the personal gratification of the vanity of the monarch. The money acted as a mere means of facilitating the transfers of value in the course of the transaction; and the winding up of the account will show a destruction of value to the amount of 900 millions of francs, balanced by the production of a palace, in need of constant repair, and of the splendid promenade of the gardens."

tures. His theories have exercised no small influence upon later German writers. Dietzel said, in part:1

Even if we should confine our attention to the production and consumption of material goods, as well as personal services, and were willing to exclude altogether immaterial goods, it would still be easy to show that the consumption of goods by a government is a thoroughly productive form of consumption. Besides other favorable conditions, productive industry needs, for its undisturbed and successful prosecution, protection against external forces which would otherwise disturb, delay, deteriorate, or annihilate the process of production. These disturbing factors may be either natural or human forces. The protection of industry against such disturbances is, therefore, a necessary condition of production; and the expenditures made for such a purpose must be considered productive.

With institutions designed to protect industry against natural forces this is beyond question, and is denied by no one. Factories, shops, and storehouses are, therefore, generally considered productive investments; for the product could not be obtained or its value would be reduced if industry, were not protected against the possible destructive effects of rain, wind, or sun.

But it has not generally been perceived that the same is true of institutions designed to afford protection against human agencies. Human force, to be sure, is usually directed toward seizing upon the products of industry; but it often has the result of merely decreasing the value of the products, and decreases the labor force through drawing away the workmen to protect the land against attack. It often has the more lasting result of reducing labor power on account of injuries received in service, or of destroying it altogether.

Everything which is threatened with destruction, but finally saved, is virtually newly produced; in such a case we possess a thing which, without the protective institutions, we should not possess. These protective institutions, therefore, and the expenditure by which they are maintained, must be considered productive. This is true of protection of the products of labor and of the laborers themselves. Every expenditure by which a productive laborer is maintained is productive.

1 Das System der Staatsanleihen, 11-15.