Three Nineteenth Century New Zealand Contributions to Economic Thought

 

Keith Rankin

University of Auckland, New Zealand

 

 

Paper Presented to the seventh conference of the

History of Economic Thought Society of Australia

University of Wollongong, New South Wales

13-15 July, 1993

 

 

Introduction

In this paper I introduce the work of three New Zealand personalities, who, in the last three decades of the nineteenth century, thought and wrote about economics on a level significantly beyond advocating a position on a politically contentious issue.

From the 1870s to the 1890s, the industrialised world went through a period known in subsequent decades as the "Great Depression". Despite the label, most economies continued to grow in these years. The crisis was one of falling prices and structural change. In the regions of settlement - Canada, Argentina, Australia, New Zealand - the crisis was particularly severe, although the experience of each was quite different. Price falls were particularly pronounced,[1] and periods of falling real incomes per capita were pervasive at a regional level and frequent at a national level. These colonies were seen by many settlers as the basis of permanently prosperous societies which could demonstrate to the world that widespread poverty was not a necessary part of the world order. During the Long Depression there was a very real fear that New Zealand might fail as a model society, and share in all of the evils that settlers had travelled half‑way across the world to escape from.

The three writers that I introduce in this paper all saw New Zealand as a particularly favoured society. For John Carruthers, New Zealand in the optimistic 1870s was the living proof; his inspiration that modern society could become both prosperous and classless. (New Zealand of course was only relatively classless.) However the spectre of the iron laws of classical economics threatened. Carruthers' mission was to expose logical fallacies he perceived to be at the heart of the mature classical paradigm - as represented by John Stuart Mill's Principles of Political Economy, a ubiquitous commodity in colonial New Zealand.

William Newsham Blair, writing in the more pessimistic 1880s, saw New Zealand as being on the threshold of a new phase of economic development - of industrial "take‑off" - which could eventually make New Zealand a modern industrial society, a regional if not global leader comparable to the United Kingdom. Under the principles of moderation, Blair sought to adapt British economics to New Zealand circumstances, much as any good engineer would adapt an imported machine to its new environment.

Frederick Joseph Moss published his book just as the New Zealand economy was moving out of the extended depression. As a politician, he had played a large role in the debates of the 1880s. He saw his "colonial socialism" as being something of a paradigm shift being realised in policy through the Liberal‑Labour government that he had nearly been a part of. His book was an attempt to sell the "new economics" of the colonies to a sceptical British audience. A political economist of the historical school, his ideas of countervailing power are visible in the twentieth century institutionalist views of J.K. Galbraith.

The common thread is one that decentralised egalitarian prosperity is possible and exportable. As such the dominant British economic orthodoxy must be adapted if not overthrown to reflect a new set of institutional and class relationships. If a society clearly can be prosperous enough to provide all its members with an adequate standard of living, yet the laws of political economy suggest otherwise, then it should be the old theories rather than the egalitarian new societies that are undermined.

 

John Carruthers 1836-1914, Market Communist

The requisites of production are the same under present social arrangements as they would be in a commune; they are labourers, implements, and the wish to produce. If capital is, as it is stated to be, a requisite of production, it must be one or more of these.

(Carruthers 1878, p.16)

Commercialism has actually discovered a system of organisation by which results more or less satisfactory are obtained by the attention of each man to his own business. All we have to do, therefore, is to modify this machinery so as to adapt it to its new use, and the modification required is not great; the forms indeed of Socialism would be scarcely distinguishable from those of commercialism, however different might be the spirit.

(Carruthers 1884, p.470)

Introduction

[William Morris] used to say that Carruthers was like a Norseman ... roaming through unknown lands, camping and making bridges ... 'he roamed at night watching the stars and thinking'.

(May Morris, 1966, p.181)

John Carruthers was a Scottish civil engineer who, at the age of 36, was hired as Engineer in Chief by Julius Vogel to oversee New Zealand's first and biggest ever (in proportion to the size of the national economy) public works project, the construction of railways in the 1870s. With the exception of a few senior judges, he was New Zealand's most highly paid public servant (AJHR 1878). He resigned in April 1878,[2] when his job became disestablished, and served much of his twelve months notice writing his critique of classical economics, and about his vision of a market economy with full communal ownership of the means of production. While remaining a consulting engineer to the New Zealand Government, he returned to Great Britain in 1879.

 

The son of an eminent literary Inverness newspaper editor, he avoided a Cambridge education by travelling to Canada, where he became attracted to the career of engineer as a means to experience the world. He worked on a variety of exotic engineering projects before coming to New Zealand. Later, as a self‑employed consulting engineer, made major contributions to railway construction in South America, to the water supply of outback Western Australia, and to the preservation of ancient monuments in Britain.[3] His most noteworthy engineering achievement in New Zealand was the construction of the Rimutaka Incline, north of Wellington, and his innovative adoption of the Fell system of high gradient traction (Cameron, 1992).

While Carruthers had always been impassioned by egalitarian ideals, it was only while he was in Wellington, and in his early 40s, that be began to write about political economy, presenting two papers to the Wellington Philosophical Society in 1878.[4] His immediate aim was to challenge John Stuart Mill's theorems on capital. He believed that - in implicitly justifing the prevailing factor distribution of income and denying that economic growth could improve the long‑run well‑being of workers - the Ricardians had distorted the analysis and vision of Adam Smith. He focussed his critique on Mill, the most authoritative and well‑known expositor of the Ricardian school.

Writing at the time of the marginal revolution, but quite unaware of it and fully committed to the classical agenda, Carruthers sought to take the study of political economy into a direction that Steedman calls "market socialism" but which Carruthers would have preferred to call "market communism" on account of his strong faith in decentralised administration. His was a compellingly different vision to that of Marx, whom Carruthers' early writings show no awareness of, and whom Carruthers developed a great distaste for, despite his association with Marxists in London socialist circles in the 1880s (Carruthers 1915, p.xi).[5]

In 1883, Carruthers published in London his major work, Communal and Commercial Economy, which was the culmination of the project be began in Wellington. The book sold over 400 copies (Carruthers 1915, p.x), and it brought him into English socialist circles. The book is now very scarce; it is the only piece of Carruthers' writing that I have not had access to. Fortunately, Professor Ian Steedman of Manchester University has written a paper summarising this work.[6] Carruthers' 1884 paper constitutes his own summary of the argument of his book. This paper was noted by Wicksteed in 1885 for a particularly lucid exposition of a point Wicksteed was making.

Carruthers became a close confidant of William Morris, the utopian socialist who formed the Hammersmith Socialist League. This association provided Carruthers with the opportunity he needed to publicise his work. The two were personally and philosophically compatible, but Carruthers was not at one with many of Morris's associates who advocated state socialism. Carruthers never contributed to the League's weekly mouthpiece, the Common Weal. Indeed, it seems as though the League took advantage of Carruthers financial generosity and idealism. Carruthers, a gregarious person but an intellectual loner, fell out with his former socialist colleagues after Morris's death.

Continuing his working life as a consulting engineer, he returned to New Zealand for a visit in 1907. His incomplete final writings, Economic Studies, were very much rooted in his early New Zealand work, published privately by his family. The frontispiece of this book refers to him as "Late Chief Engineer to the Government of New Zealand". His death in 1914 went unacknowledged by the socialist community; he was remembered only by his engineering colleagues.

Carruthers was a philosophical rather than a practical economist, who largely abstained from commenting about economic policy in New Zealand. However, in 1878, he criticised protectionism as a subsidy to the capitalist class. Many years later (1894), he made a strong critique of Fabian "radicalism",[7] citing the allegedly failed policies of the Liberal‑Labour Government in New Zealand, on the grounds that selective nationalisation and regulation socialised capitalists' losses but not their gains, thereby rescuing, the capitalists who were responsible for the long depression. The workers who now owned more of the implements of production were not profiting from that ownership.

Carruthers used use Mill's Principles as a launching pad for an alternative classical paradigm. His New Zealand writings contain all of the key elements of his eventual analysis of the existing commercial system, and his preferred communal economy. Carruthers was very much an advocate of the market, which he saw as having been captured by the interests of a minority and dwindling capitalist class (Carruthers 1878, p.27). He saw Ricardian "plutology" (Carruthers 1883, p.4) as being supportive of the private interests of capitalists, not out of any conspiracy but out of a tendency to ambiguity of exposition; a convenient fudging of meanings that led to conclusions which were riddled with contradictions.

 

Critique of John Stuart Mill

Political Economy has been very unfortunate in its nomenclature, which has been drawn from the vocabulary of the mercantile world, every word of which, besides its direct notation, connotes more or less distinctly some economic doctrine. In spite of definitions, the secondary meanings of the several words have influenced the thoughts and teachings of political economists. ... I hope to be able to suggest others which will not be so liable as those given by Mill to confuse the thoughts by suggesting a secondary meaning not included in the definition itself. Should I not succeed my labour will not be thrown away, as it is always useful to look at scientific problems from more than one point of view.

(Carruthers 1878, p.3)

There is in the world a certain store of commodities, part of which is suitable to the wants of the rich, and part to those of the poor.

(Carruthers 1877, p.28)

Carruthers' New Zealand writings are presented as a critique of Mill's use of language and his propositions with respect to wealth and capital. The particular "error" that Carruthers addresses in his first venture (1877) into economic discourse is Mill's use of the terms "wealth" and "capital". Carruthers attacks Mill's definitions of wealth and capital because the two concepts are insufficiently distinct, and because Mill's concept of wealth is too limiting. For Mill (Carruthers 1877, p.24), wealth is "all useful or agreeable things which possess exchangeable value" (1965, p.10) and capital is "a stock previously accumulated of the products of former labour" (1965, p.55). Carruthers defines wealth to emphasise use value rather than exchange value, and includes services:[8] "everything in the world which is useful or agreeable to man". "The sun's warmth and light, air, rain, land, and all other useful agents are wealth" (Carruthers 1877, p.25). Capital is redefined in terms of property rights as "the ownership of that wealth" (1877, p.24).

To  Mill, a capitalist's capital is his outputs, which are exchangeable for the outputs of other capitalists. Future wealth is made possible by the savings or accumulation of these outputs by placing them into a wages fund which is what employs labour. What Mill calls "capital" Carruthers calls "commodities" (1877, p.25). To Carruthers, wealth is simply a global fund of natural resources, commodities, services and qualities (such as labour power or human capital). A capitalist's capital is a property right over a share of that fund.

Armed with his alternative definitions of wealth and capital, Carruthers launches into Mill's fourth proposition on capital "What supports and employs productive labour is the capital expended in setting it to work, and not the demand of purchasers for the produce of the labour, when completed". Mill's uses his proposition to advocate charity or private works[9] as a viable means of improving the immediate well‑being of the working classes. Carruthers suggests that (in the short run, which is Mill's period of focus) the abstinence of any capitalist in favour of the poor, transfers wealth to other capitalists rather than to the poor. The existing stock of wage goods determines the living standards of workers, which can only be improved when capitalists employ workers to produce more wage goods.

Carruthers' analysis of Mill's fourth proposition uses these redefinitions. He focuses his analysis on two alternative expenditures by a landlord (very much a capitalist by Carruthers definition), in accordance with Mill's own example. The landlord may either pay alms (or wages for services) to a group of workers, or he may spend the same sum on velvet, a luxury good. He concludes that workers are no better off by the former while such charitable spending is of a spasmodic nature (such as famine relief in India). Mill's view is that the landlord has a separate fund - over and above the capitalists' wages fund - for the employment of additional (but unproductive) labour. Carruthers points out that it is only when wealth is redirected from capitalists to workers that workers become better off. Abstinence by any capitalist in favour of otherwise unemployed workers only benefits some workers at the expense of others, and the benevolent capitalist allows other capitalists to consume what he does not. When the composition of output changes in favour of "wage goods" (commodities consumed by workers) then workers become better off. It is a change in the composition of capitalists' demand, in favour of wage goods which enlarge the future wages fund, which determines the employment of labour. Figure 1 depicts the differences between the views of Mill and Carruthers with respect to the disbursement of wealth. Mill's single sector model is one of exchangeable wealth controlled by seperate capitalists' and landlords' funds, that can be consumed or advanced to productive and unproductive labour. Carruthers' two sector two class model gives capitalists discretion only over future employment, not present employment.

In 1878 Carruthers further expounded his critique of Mill's use of language. Expressions of Mill's that are regarded as inappropriate or ambiguous include his distinctions between fixed and circulating capital, productive and unproductive labour, cost of production, and interest. Of particular importance was the idea that definitions should apply equally to all forms of economic organisation. Mill says "The distinction between capital and Not‑capital [lies] in the mind of the capitalist - in his will to employ them for one purpose rather than another; and all property, however ill‑adapted in itself for the use of labourers, is a part of capital, so soon as it, or the value to be received from it, is set apart for productive reinvestment. The sum of all the values so destined by their respective possessors, compose the capital of the country" (1965, p.57; Carruthers 1878, p.15).[10] Carruthers replies: "These definitions would be unmeaning if there were not two classes in the community".

 

Carruthers on "Proper Cost" and Money

All writers on political economy call money wealth. ... By my definitions it would be called a commodity ... of which the actual cost is great and the proper cost is nothing.

(Carruthers 1877, p.27)

Carruthers distinguishes the "actual cost" from the "proper cost" of commodities (1877, p.26). The difference is a form of opportunity cost. A chemist can make water, but it is cheaper to gather it from a stream. The actual cost of water made by a chemist is in excess of its proper cost. A society which chooses to use commodities (such as artificial water) with an excessive cost is seen as being foolhardy, incurring an opportunity cost in other commodities foregone. Carruthers uses this analysis to advocate centrally controlled paper currencies of the form we take for granted today.[11] Money, as an institution, is an implement in the process of exchange, and should be produced with as little labour cost as possible. He identifies the gold‑mining industry as a squandering of the world's wealth. The successful gold‑miner levies a tax on the rest of the world (1877, p.27); his capital increases (ie his share) while the total wealth (and hence the total capital) only increases by the proper cost of any additional money created.

 

Carruthers' Paradigm of Commercial Economy Summarised

English plutologists look upon rent and profit as things not only economically, but also ethically different, for the latter is regarded as the just reward of privations undergone by the recipient, while the former is no more than an evil legacy of the feudal system. There is, however, no real difference, ethical or economical, between rent and profit, for they are both shares of the product of labour.

(Carruthers 1883, p.154)

Society is made up of two classes, labourers and capitalists. Direct wealth is the fund of consumables that is replenished by the work of labourers, using implements (fixed capital, including land and human capital) to enhance their productivity. Total wealth is the fund of final goods and services plus the stock of implements. Carruthers always argued in vertically integrated terms, so materials - his equivalent of circulating capital - are simply unfinished goods and services.[12] Direct wealth is divided into wage goods and capitalists' luxury goods.[13] The rate of interest is the proportion of the direct wealth that capitalists themselves consume. The total wealth is owned by the capitalist class. It is their claim on that wealth that is their capital; thus capitalists, by virtue of their capital, control all production.

In true classical fashion, capitalists are owner/managers of the community's wealth rather than risk‑taking entrepreneurs.[14] For Mill, their main decision of consequence is how much of their wealth they should advance to labourers; their secondary decision is how much of that fund should be devoted to the production of implements. For Carruthers, the wages fund is already determined by the composition of present output. The key decision is that over the division of future output between wage goods and luxuries.

To Carruthers, capitalists don't save or accumulate commodities; they don't abstain by consuming less of the present product. And, when they raise their expenditure of existing wage goods to increase the stock of implements, it is at the immediate expense of wage goods' production. Eventually the stock of wage goods will be restored as a result of higher labour productivity. But the process is one of forced savings by workers, not one of frugality by capitalists. From the point of view of society, savings was defined as an addition to the stock of implements; ie net fixed capital formation (Carruthers 1878, p.12).[15]

What capitalists do not want to consume they ensure is produced in the form of wage goods. They have to keep recycling their capital in order to maintain their own fund of consumables - their interest. However, capitalists do have an incentive to abstain from excessive immediate consumption, because they are in competition with other capitalists. Individual capitalists who draw higher proportions of wage goods from the fund of direct wealth, get a bigger share of that fund in the future. This is seen to favour concentration of capital,[16] as small capitalists can less afford to invest (in wage goods) a high share of their capital.

Wage goods are simply products consumed by labourers. Thus they include simple implements - tools, cottages, indeed primary schools - and services as well as the basics of food and clothing. Carruthers claims that high hourly wages and short daily hours yield higher returns than daily wages based on 12 or more hours a day (1878, p.26); that is the more generous the hourly allocation of wage goods per worker, the more generous will be the hourly interest paid by the worker to the capitalist.

Carruthers believed that this system is efficient at what we might call the micro level, in that materials and implements are allocated correctly according to the composition of capitalists' demand (remembering that it is capitalists who demand wage goods in the aggregate, but workers' preferences which determine the composition of wage goods). But it is inequitable, and it is inefficient at a macro level, because workers will be much more motivated to maximise their product if they themselves are able to consume the surplus.

 

Free-Trade vs. Protection

In new countries like New Zealand, the interests of the labourers and employers of labour are often in conflict. If a man can manufacture cloth for a little less than he can import it from England, it is his interest in erecting buildings and machinery for the purpose. He gets thereby a small increase in his income. The labouring classes suffer for several years an annual loss equal to the entire cost of these implements, and derive only a small final benefit. ... We, in New Zealand, are in so happy a position that we need not undergo the privation necessary to procure expensive machinery.

(Carruthers 1878, p.8)

Carruthers' description of commercial economy is of a closed global economy. While he uses New Zealand anecdotes to illustrate some of his points, the essentially open nature of the New Zealand and, indeed, British economies does not tempt him to consider economic questions from a national perspective. Carruthers was an international citizen to whom national boundaries and national interests were unimportant.

His economic writing made little impact in New Zealand, probably seeming too removed from the more immediate interests of his audience.[17] While clearly being inspired by the possibilities New Zealand offered, it did not address specifically New Zealand problems. While it would not be true to call Carruthers a free‑trader in the usual sense,[18] he was certainly anti‑protectionist. His argument followed his general view that investment in fixed capital was undertaken at the expense (forced savings) of workers, and that protectionism encouraged a group of capitalists to profit from unwarranted investment. Capitalists did not abstain from consumption when they diverted labourers into the production of implements rather than wage goods. While Carruthers is a strong advocate of technical progress - and recognises that it is embodied in improved implements - he is much less an advocate of fixed capital accumulation per se. Inappropriate accumulation of fixed capital constitutes a net social loss, but a class gain for capitalists.

Carruthers sees protection as a device to foster wasteful fixed capital accumulation in industries which have only a slight local cost advantage. He appreciated neither the nature of comparative advantage nor the implications for a country's cost structure - a fall in the real exchange rate raising the cost of imported manufactures - arising from a balance of payments deficit. If there is any local cost advantage, then there is a local comparative advantage at the margin which takes account of the fixed costs that concerned him. The cost of the additional exports required to pay for imported cloth would be greater than the cost of manufacturing it locally. Increased fixed capital investment in one industry does not imply an increased level of such investment in the aggregate.

Carruthers has to be classed as one of the few thinkers in New Zealand who was not only opposed to protection of local industry, but opposed to local industry itself. He was certainly not an advocate of creating employment where the actual cost exceeded the proper cost. He believed in high labour productivity, with the necessary work being equally shared, and equally rewarded.[19] As such, he believed that a low population was better than a high one. But he was no Malthusian (Carruthers 1878, p.25; 1883, chapter 12); he believed that an educated well‑paid population would choose to limit its numbers to ensure that wages remained high. Indeed he believed that New Zealand workers who advocated protection alongside their employers would, if educated in political economy, realise that their interests were opposed to those of their bosses.

Carruthers' objections to the inducement of local industry do not hold for a communal economy. The benefits to capitalists would be reaped instead by workers.

 

On the origins of the capitalist class

There is one immaterial requisite which must, however, be considered, namely, the effective wish that wealth be produced, that is, a wish strong enough to overcome man's natural repugnance to work. In a rude stage of society this wish is so weak that man will only labour under the immediate spur of hunger; his repugnance to making other people work is not so strong, and he makes his wife and slaves work even where the return from their labour is somewhat distant; the rude beginnings of agriculture are always the result of woman's labour.

(Carruthers, 1878, p.16)

Carruthers makes less use of history than many nineteenth century political economists. But be makes one historical assertion that will endear himself to many women today. He identifies men as the original capitalist class, and women as the first labourers. Owing to the distaste people have for work, people with sufficient power to do so therefore attempt to get others to work for them. The outcome of the initial female labouring class was the development of agriculture. He recognised that many labourers were innovative and the intellectual superiors of their masters.

He noted that the need for a work ethic might be a problem in a commune, where one group of people cannot oblige another group to do a disproportionate share of the work. Indeed, this class inequality, the driving force of economic growth in a commercial economy, would have to be replaced. "In a commune, the punishment for idleness would be quite as certain but more distant. As long as the past year's harvest lasted they would be equally well fed whether they worked or not; the results of their idleness or industry would not show themselves until after the following year's harvest, when it would be too late to make good any past errors" (Carruthers 1878, p.16). Communal discipline and enlightenment through education would provide the necessary motivation. More importantly, he sees work in the future as being, for the most part enjoyable, as technological improvements would have abolished most of the drudgery (Carruthers 1883, pp.342,346,348; Steedman).

 

Carruthers' Vision of a Communal Economy

The main ends of Socialistic organisation would be: Firstly, that labour should be efficient; whatever commodities are actually being produced should be obtained with the minimum of toil: secondly, that the commodities produced should be of the right kinds, or, since the consumer is the best judge of what he wants, they should be such as the consumer prefers: Thirdly the goods produced should be justly distributed.

(Carruthers 1884, p.470)

It may be argued that the cheques used in paying accounts between manufacturers and between them and the dealers are mere counters, and that no one would care whether they were large or small; that all banking transactions indeed would be like playing bluff or loo for coffee beans. To some extent this is true; the whole banking organization is designed for the purpose of showing men what they ought to do ... not for the purpose of punishing men for doing wrong, or rewarding them for doing right.

(Carruthers 1884, p.486)

Carruthers' communal economy is in reality a universal and decentralised application of the State Owned Enterprise model implemented by the 1984‑90 Labour Government in New Zealand, but with one key difference. Wages would be paid out of the "common wealth" and not from the funds of individual enterprises. Thus the wage cost to an enterprise would be zero. While profit‑maximising managers would prefer to hire the most productive labourers, the marginal cost of labour would be zero.[20] Workers would be hired so long as their marginal product was not negative.

All enterprises would in fact be communally owned enterprises. The commercial price mechanism would remain intact, although, from the point of view of firms, there is no firm‑specific reward from profit maximisation other than the honour of performing well.[21] Capitalist proprietors would become employee managers acting in the interests of their shareholders rather than themselves. While profits would only be "nominal" with respect to the managers, they would still act to maximise surpluses, which would contribute to the replenishment and growth of the aggregate wealth.

Claims on that wealth - the capital of the country - would be allocated through equal wages paid into personal cheque accounts. There would also be a proportionate allocation invested with "promoters" with the aim of funding new ventures; a neat example of the funder‑provider split. Promoters - venture capital agents made accountable through a guild structure - would compete for funds which would be allocated as a tithe on wages.

While management would be decentralised, one key macroeconomic decisions would be made through the central parliament and transmitted as instructions to the central monetary authority: the aggregate level of fixed capital investment. "Overdrafts" would be granted to all firms on a per employee basis for the purpose of expanding fixed capital investment. They would only be subject to repayment if the State Parliament decided that capital formation was excessive and should be slowed down. Thus depressions would always become periods of capital formation.

In addition to these special non‑repayable loans, ordinary loans, with or without interest could be made between citizens, but repayment would not be legally enforceable (1883, p.350). Nobody would be able to live on interest.

The requirement of equal wages, while philosophically important, is not absolute. "The disagreeable trades would have shorter hours and longer holidays than the others, or, if necessary, would be better paid" (1883, p.338). Carruthers is allowing upwards wage flexibility on the basis of erstwhile labour scarcity in certain occupations, implying a slightly diminished real wage (share) for the majority. Higher wages cannot be allowed, however, for individual differences in labour productivity, because, in practice all production is seen as a complex team effort, within firms and between firms. For the model to work, the common wealth from which wages are drawn would have to be a truly global fund. Otherwise, communities or nations specialising in the production of materials for export would have a diminshed common wealth.

Carruthers was a technological optimist. He believed that capitalists had little incentive to invest in labour‑saving machinery ‑ the key source of high labour productivity and high wages - so long as they could maximise profits by paying low wages. "The principal loss [to workers was] due to the misdirection of labour inseparable from the commercial system. Capitalists do not even endeavour to dispose labour wisely [but aim for] the highest rate of profit" (1883, p.310). In a communal economy, labourers' incomes could be increased tenfold as a result of both technological change and not having to give "two‑thirds" of their produce to capitalists.

How was Carruthers' communism to come about? Carruthers was pessimistic. While there would be no need for suffering for anyone and inconvenience to the majority "if the matter is left in [capitalists'] hands, the transition will be a breaking up of the fabric of society, in which thousands will perish by sword and famine" (Carruthers 1883, p.354). The vested interest of those who benefit from any system in existence provides a powerful barrier to change.

 

Conclude

John Carruthers wanted economics to provide us with theories of production, innovation and equitable distribution. He felt that the study of political economy had lost its way, and was being used to buttress the blatant inequalities of the industrialising economies. He believed that "lunch" could be very cheap if not free. And not just for a few.

Technological progress has been one of the most potent forces in history in that it has provided society with what economists call a 'free lunch', that is, an increase in output that is not commensurate with the increase in effort and cost necessary to bring it about. This view of technological change is inconsistent with one of the most pervasive half‑truths that economists teach their students, the hackneyed aphorism that there is no such thing as a free lunch. ... Economic history is full of examples of free lunches.

(Mokyr 1990, p.3)

While Carruthers believed that political economists should trying to make a recipe for a free desert if not a free lunch, plutologists were excusing needlessly expensive lunches.

Was Carruthers a utopian dreamer, as William Morris and many preceding socialists undoubtedly were, offering a simple yet perfect system of economic organisation? I think not entirely. His was an attempt at a hard‑headed analysis of capitalism as it actually was, and, he approved of much of what he saw. His paradigm was a reorientation of classical economics rather than an alternative to it. While no sudden revolution took place, the trend in the most developed economies in the twentieth century was largely consistent with his ideals, in favour of technologically‑driven growth benefiting most people, regulation and redistribution of wealth, class convergence, and democratic accountability over capital.

______

 

William Newsham Blair, 1840-1891: Golden Mean Empiricist

Instead of occupying his time in the study of abstruse theories which may well be left to the master minds of the old world, I think the labours of our scientific men of all kinds should be confined to recording the observed facts in pure science, and the fuller investigation of such subjects as have a direct bearing on the practical work of colonisation. ... The development of manufactures is one of the most important, intricate and uncertain of the many subjects with which a new country has to deal; so much is it dependent on Free Trade and the other considerations of political economy.

(Blair 1878, p.563)

It is contended that any encouragement given to [manufactures] must be at the expense of the farmer and grazier. Theoretically this may be in accordance with "sound economics", what would be called in Scotland the "fundamentals", but practically the effect is as often the other way about. ... If we confine our colonising operations to growing wool and corn, as we are frequently advised to do by political economists of the Old Country, our progress will speedily come to an end. Agriculture cannot live without railways, and railways cannot live on agriculture.

(Blair 1887, pp.76‑77)

 

Introduction

William Newsham Blair, like John Carruthers was a Scottish born engineer.[22] He was based in Dunedin from the time of his arrival in New Zealand. Indeed, Carruthers had been his boss in the 1870s, while Blair held the position of Engineer in Charge of the South Island. Blair became joint Engineer in Chief on Carruthers' departure, and, in 1890‑91, was briefly both Engineer‑in‑Chief and Under‑Secretary for Public Works. Blair and Carruthers were both very competent engineers, and both were office bearers in their local Philosophical Societies. While Carruthers was an idealist with a global perspective, Blair was a well‑read advocate of industrialisation who regarded classical doctrine as generally inappropriate in a New Zealand context.

 

Blair first laid out his views on the development of industry in New Zealand in a letter to the Otago Daily Times in 1866. In February 1879, as President of the Otago Philosophical Society, he gave an address in which he called for science in New Zealand to take a very practical route, to facilitate the development of New Zealand's resources. He wanted this approach to apply to both the physical and social sciences, and, in effect, called for a New Zealand economics profession that  concerned itself primarily with the economic development of newly settled countries.

As such he was neither a free‑trader nor a protectionist. He was a pragmatist who believed in just enough but never too much intervention to get development processes moving. He had a very clear vision of New Zealand as the Britain of the South, a major world economic power. His vision was not far‑fetched. California, a fledgling society that had much in common with New Zealand did develop in accord with his vision of New Zealand.

His concerns with Mill's development of Ricardian classical economics was not dissimilar to Carruthers', and he was equally laudatory towards Adam Smith. Whereas Carruthers did not criticise Ricardian trade theory, and believed that manufacturing and protection had no role in New Zealand, Blair emphasised these issues.

 

Stages of Economic Progress

Blair based his analysis of New Zealand's development potential on an appreciation of New Zealand's history, and the histories of comparable settler economies. His five stages take place in a highly compressed time frame, reflecting the fact that settlers had already made the cultural transitions from the traditional societies of Rostow's "stages of growth" model.

The five stages are (1887, p.8):

(i)          "skirmishes in colonisation" (whaling)

(ii) opening up the land (pastoralism)

(iii) influx of population (gold)

(iv) intensive settlement of the land (arable agriculture)

(v)         final stage "age of manufactures"

 

The sequence of these periods in the settlement of New Zealand and other countries is very remarkable ... the gold‑seeker could scarcely penetrate the wilds of an extensive country unless the squatter had preceded him; the progress of settlement by agriculture alone would be slow had it not received an impetus from gold‑digging: and finally, without agriculture the establishment of manufactures would be impossible. Thus the various branches of settlement and trade create and produce others; they act and react on each other, nourishing and fostering each his neighbour in the general march of progress. ... I am not prepared to say that gold-mining has in itself been a profitable investment for the colony. ... But the benefits derived from the industry in the impetus it gave every other branch of settlement are incalculable. It is the [golden] lever that starts the engine.

(Blair, 1887, pp.8,16)

This is more than a stages model, it is a variant of staple theory, in which the leading sectors evolve from export depletables to import substitutes. It is a model in which each staple has a unique complementing role. Staple theory is a Canadian innovation dating from the work of Innis in the 1920s (Schedvin 1990), and is based on the stimulus that an export commodity in high demand in the most advanced industrial countries creates an impulse to both imports and population growth. The combined impact of population growth and consumption linkages is sufficient to foster import substitution.

In a Rostovian sense, Blair's first four staple phases would represent the preconditions for industrial take‑off, the fifth stage represents take‑off, and following this New Zealand and similar societies would be fully comparable with the industrialised European parent economies. The United States of America was seen as a country that had already made the transition.

Blair is nicely ambivalent about the role of gold. He recognised that, in relieving balance of payments pressures, it destroyed much of the nascent manufacturing industry that was emerging, and that it actually had a markedly negative impact on the country's trade balance (1887, p.32). But those imbalances were seen as necessary to bring about a transition to a truly modern form of industrialisation. The golden lever was a vital catalyst,[23] in general and with respect to the production of machinery. By the 1880s, little gold‑mining machinery was imported. Quartz reef mining was a capital intensive industry.

 

Political Arithmetic

A small diagram [not published] which I have prepared shows clearly the results produced by the gold discoveries, I have ruled on the exports an equalising line which may be called the "gradient of settlement", the rate at which our power of production is increasing.

(Blair, 1887, p.16)

Blair pioneered the use of counterfactual analysis. In estimating the impact of the gold rushes, he projected current growth rates to calculate that New Zealand's trade - the usual proxy for GDP - would be in 1887 just 60% of what it in fact was, were it not for the impact of gold. This he regards as an upper bound, as the growth rate was very slow between 1841 and 1860. As is true of staple theory in general, it is the changing size of the economy rather than per capita income growth that is taken as the critical indicator of economic development.

Another interesting arithmetic exercise was Blair's use of a novel method to compare per capita incomes in different countries. Appreciating the inadequacies of using export volumes to measure domestic incomes, he adopted the suggestion by "some high French authorities" that levels of meat intake could serve as a proxy measurement (1887, p.80) of prosperity. This idea is in line with the modern practice of economic historians to use the heights of army conscripts as such a proxy. The data given by Blair, did give a picture of 1870s' per capita incomes for Britain, France, Portugal and the United States which compare favourably with modern estimates, which show the USA as being only just ahead of Britain, and with Australia and New Zealand well ahead of both.

In 1883, Blair did all the statistical research for Griffen (1884), the American consular representative in Auckland who wrote a book for the purpose of informing Americans about New Zealand, and investment prospects therein. Appended to Blair's 1884 pamphlet is a large table which charts in some detail the development of New Zealand manufacturing from 1853.

Blair was very much an optimist, writing in response to the state of depression in New Zealand which was seen as being worse than in comparable economies; a view that recent statistical work in a number of countries is tending to confirm. He showed that, in export volume terms, the capacity of the New Zealand economy to produce was expanding in line with population growth. The real pressure was on imports, on account of mainly falling export prices. As a result of such pressure, New Zealand had to develop consumption linkages from imports to import substitution, backward linkages into the further production of machinery, and forward linkages into increased machine‑based processing of export staples. Saw‑milling, for example, was highly capital intensive. He believed that just enough protection should be applied so as to initiate and maintain steady development along these lines.

Blair demonstrated the practical difficulties of politicians picking winners and tailoring protection to fit those potential winners. In practice, some of the manufacturing industries that had grown the most had been those without any tariff protection; industries such as agricultural machinery which provided inputs into more favoured activities.

Instead of trying to pick winners at the industry level, Blair went through an exercise of classifying manufactures into four groups, and calculating the total imports for each group (1887, p.61). The groups consisted of (i) industries already in existence in New Zealand, (ii) industries for which price and resources conditions were favourable, which could be established, (iii) industries that could eventually be established, and (iv) industries that could never be economically viable in New Zealand. Half of the total import bill comprised industries in the first two categories. So Blair concluded that a significant and viable industrialisation could be encouraged by government, with the second group of industries being targeted.

 

Natural Resources

Although they cannot well be included in the schedule to a Loan Bill, fine scenery and blue skies are valuable collateral security ... Grand mountains, rivers and lakes, are tangible assets in a nation's balance sheet. ... The protective policy of the Victorians may keep our oats and potatoes out of their market, but it cannot keep the money in their own country when the commodities to be bought are the health‑giving pleasures of the Hot Springs and the mountains. It is impossible to estimate the possibilities of the tourists traffic of New Zealand. We are really only breaking ground in the matter. Although the Colony has suffered incalculable loss in the Terraces, there are still innumerable attractions to be unfolded.

(Blair, 1887, p.37)

In recognising that the rent accruing to resources in their natural state can be as or more valuable than those used as industrial materials, despite their being difficult to measure. Like Carruthers, he recognised that items that cannot be exchanged are nevertheless forms of wealth. Blair also recognised the role that service industries might play in correcting New Zealand's balance of payments problems.

Blair favoured an active conservation policy. He recognised that first generation export staples simply depleted the land's natural wealth; development was of little use except as a stop‑gap unless it was based on sustainable practice. He noted that the New Zealand wheat industry, the staple of the 1870s, was in deep trouble from foreign competition which was really a blessing in disguise. Blair noted the impact of the insensitive farming practices favoured by extreme free traders (1887, pp.74‑75):

The Western farmer, so much patronised by the Cobden Club, is not a desirable settler. Like his countryman, the Colorado beetle, he sweeps across the country a veritable plague, eating up every green blade ... extracting all the substance from the land. This is not the only way in which new countries are living on their capital - killing the goose that lays the golden egg. The wholesale destruction of our forests is a case in point. Instead of carefully conserving them - a store of industrial wealth - they are ruthlessly cut down as a "pioneer expedient" to raise the wind, or to make room for less valuable crops. Kauri gum is another indigenous export that will ultimately pay better to keep for our use or to manufacture for export, rather than export in the raw state.

 

With respect to the use of forest products, Blair noted that distance from other countries did not constitute natural protection for New Zealand supplies. Wood would be imported from Australia because of the high cost of domestic transport in New Zealand (1887, p.44). Improved "communication" and education would prove to be a more potent form of protection than tariffs (1887, p.65):

The whole Public Works policy of New Zealand is a gigantic system of protection to develop the resources of the colony, and stimulate her various industries. So also is the education system.

 

"The Great Controversy" - Freetrade versus Protection

We must not accept the statements, conclusions or predictions of either side as gospel ... Comte, the great French philosopher, defines science as "the power of prediction" ... The Dismal Science gives no certainty in predicting effect from cause. According to all rule the industries of America should have come to grief long ago, but they are today more vigorous than ever ... we have American locomotives running on our railways, because they are cheaper and better suited to our requirements, and can be got in less time than from England.

(Blair, 1887, pp.61‑62)

There is no such thing in practise as freetrade or protection, and to the theorists on both sides ... the golden mean is the only safe position ... keep the middle track.

(Blair, 1887, p.69)

Blair noted that protection takes many forms, and so he found the debate about tariffs rather tiresome from both sides. He recognised that it wasn't enough to shelter industries. Effective protection was about establishing internationally competitive industries. For a society with small markets and little faith in its own ability to manufacture, that meant industry had to be capital intensive with a competitive advantage based on quality rather than cheapness (1887, p.93).

Blair noted that manufacturers tended to seek high rates of effective protection for their industries in particular, often at the expense of other industries. Zero tariffs on inputs favoured industries with high imported content in their products.

The evils of isolated protection and the anomalies arising therefrom are well exemplified in the evidence taken by the Colonial Industries Commission in 1880. One set of manufacturers wanted the duties taken off certain articles, and another set wanted more put on. ... One Dunedin firm, in the furniture trade, advocated protection on a large scale; the representative of another waxed eloquently over the beauties of freetrade ... one manufactures the whole of the furniture from colonial woods, the other imports it ready to put together.

(Blair 1887, p.69)

In a society in which the tariff was the main source of tax revenue, a commodity imported duty free was protection for its user, and a penalty imposed on local producers of that product. Blair was particularly concerned about the lack of duties on machinery (1887, p.68), a form of product in which New Zealand did appear to have a competitive advantage, as machinery production required high skills and small production runs.

Blair favoured broad‑based but minimal protection. "It may be set down as an axiom that assistance not required is injurious" (1887, p.68). He found the British opposition to protection in the colonies to be disingenuous, as Britain had been highly protectionist towards its manufactures during the eighteenth and early nineteenth centuries, only repealing the Navigation Laws which protected British shipping in 1854 (1887, p.72). Freetrade propaganda was one means by which Britain used to discourage the development of competition.

One effective form of protection was to remove sources of hindrance. Blair identified the attitude of banks to manufacturing industries which start without assets that make good collateral. Mill is quoted "Industry cannot be multiplied to any greater extent than their is capital to invest.[24] The opponents of manufacturing in a new country construe this into meaning that industries are not to be started on borrowed capital" (1887, p.90). Blair saw this as an irrational prejudice on the part of potential creditors, as British experience suggests that manufactures have provided an excellent return to investors.

 

Capital versus Labour

One of the greatest rocks ahead in our industrial development is the conflict of labour and capital. This has been a crying evil in the Old World, and it is intensified in the New. ... Union is strength and combinations for mutual assistance ... are common among all classes, and in many cases they do much good. ... Colonial employers are, I have no doubt, as ready as English ones to "extort the uttermost farthing" from their employées, but there is a much more equitable division of profits between masters and men in the New World ... This question of capital versus labour has a very important bearing on the future of our industries ... It is surely possible to settle disputes without resorting to expedients that bring certain loss to both parties.

(Blair 1887, pp.89‑90)

While sympathetic to workers, Blair suggested that they should be moderate in their dealings with employers and freedom of employers to pay workers according to individual productivity (1887, p.89). He was concerned that class divisiveness might inhibit industrialisation for no useful purpose. While his views in this area certainly differed from those of Carruthers, Blair saw no advantages in cheap labour:

One of the English companies that offered to establish a tea plantation in the North Island stipulated for a certain proportion of Maori labour at a given rate. It was of course impossible to comply ... Cheap labour ... is of much less importance in manufactures, where most of the work is done by machinery. ... As in the case of better food, higher wages produce more work ... the extra price of labour in New Zealand will not prejudice the establishment of manufactures, a conclusion that is borne out by the experience in America.

(Blair 1887, pp.87‑88)

Blair recognised that any changes to tariff policy in favour of protection might lead to the introduction of alternative forms of taxation, but was not willing to say much about this question, probably in the full knowledge that his audience of manufacturers would not be in favour of a graduated income tax:

 Two of the manufactures most likely to succeed in New Zealand are the cultivation of tobacco and the distillation of spirits. The duties on these articles in 1885 amounted to nearly £600,000 - about two‑fifths of the customs revenue. If large concessions are necessary to make them colonial industries, and if the benefits to be derived therefrom are to be worth such concessions, it is clear that the revenue must be made up in some way. To use the popular expression "the incidence of taxation must be altered".

(Blair 1887, p.91)

Conclusion

William Newsham Blair was a New Zealand nationalist with a very wide base of empirical knowledge, apparent in his professional reports as well as his economic writing. He was a moderate in that he not only saw both sides to any matter of controversy, but he saw ways to break free from the confines of petty controversy. His was a brave optimism during a period of deepening gloom and uncertainty. He had a strong sense of historical sequence that would eventually see New Zealand becoming one of the world's leading industrial nations. He believed that New Zealanders should not be impatient, retaining their nation's resources as stores of wealth until they could be developed most profitably and sustainably. Human beings are such resources who will leave the colony in a  "semi‑manufactured state", inhibiting its growth, if they are developed in skills that cannot be utilised immediately at home:

In England much stress is laid on the want of the technical schools so common on the Continent. We will require these aids to industry by and by, but in the meantime the cry for them is premature. The industries must come first, otherwise their effect will simply be to drive more of the rising generation out of the Colony.

(Blair 1887, p.94)

_______

 

Frederick Joseph Moss 1829-1904:

Colonial Nationalist & Socialist

Is the State to sit quiescent and see this struggle to acquire wealth going on - to see the misery and wretchedness that are everywhere created in order that a few men may acquire great wealth? That lies at the bottom of Free‑trade - the laissez‑faire system that if you leave the wealthy few to follow their own course everything will come right in the end; that if you leave them to follow their own interests their interests will be found to be those of the community at large. I believe in the right of the Government to regulate the trade of the country for the common good, and to interfere wherever they see that a benefit can be obtained or a wrong prevented.

(NZPD, 3rd Reading, Customs Duties Bill; July 5, 1888, p.549)

Neither the increase of Capital nor of the national wealth of which it forms part, is the subject of difficulty in these days. The increase is sure. The problem is to make it sound and permanent by a reasonable partition of the annual product among the whole people. Anyone honestly answering this question must be impressed with its complexity and with the momentous issues involved. ... Every step will require to be deliberately weighed and taken with great care. There must be many grave differences, as to methods and means especially, before public opinion can be fairly settled and public acceptance of change secured. Political reforms have so far cleared the way that the field in every English‑speaking country is open for the most full and free discussion of social and economical problems. In that direction these notes are offered as a humble contribution from one who ventures to hope that much reading and a varied experience of man in different stages of civilisation may have enabled him to give them a title to consideration.

(F.J. Moss, 1897, pp.vi,xi,xii)

Introduction

Frederick Joseph Moss was born in St. Helena. He served in various colonies before settling in Dunedin in 1859. He served in the provincial parliament, supporting the Dunedin exhibition of 1865. He moved to Auckland in the 1873 after a period in Fiji, and was elected MHR (Member of the House of Representatives) for the Auckland suburb of Parnell in 1877.

Always a staunch advocate of working men, he "converted" to protectionism as a result of the wave of unemployment in 1879. He was strongly opposed to Vogel's borrowing programme, which he regarded as an imprudent debt burden which would be funded by workers' taxes. In Parliament he was regarded as somewhat idiosyncratic, because he favoured only tariffs that would draw no revenue. He saw tariffs per se as a regressive tax. The opportunities for higher wages and full, steady employment offered by a protectionist tariff significantly outweighed the costs associated with higher prices, which would be spread more evenly across the population.

Moss came to be associated very much with the Liberal‑Labour faction in Parliament, but was not an active supporter of the Stout‑Vogel "Liberal" Ministry of 1884‑87. He would have been the logical candidate for the position of Finance Minister in the post‑1890 Liberal Government. But early in 1890 he was offered the position of British Resident in the Cook Islands (Scott 1991), overseeing the transition from missionary control to secular self‑administration. Having a particular empathy for the islands, and having written a major book about the islands[25] he accepted the job and resigned his seat in Parliament. He was older than most of his Liberal colleagues, approaching normal retirement age.

Unfortunately for Moss, his resignation was misunderstood by some of his political colleagues - Richard Seddon in particular,[26] who fell out with Moss over the matter. Moss was able to put his philosophy to good effect in the Cook Islands, creating much opposition from petty capitalist profiteers. Seddon, in the vanguard of New Zealand imperialism, had the ear of Moss's opponents. Moss was removed from his position in 1898, and many of the democratic reforms that he guided were reversed.

 

Nevertheless, in his spare time in Rarotonga he wrote and anonymously published his only major work in economics. The work was an attempt to sell the enlightened economic ideas that were germinating in British colonies such as New Zealand to a possibly sceptical British readership. As such the views expressed are, while very much his own, a genuine portrayal of "colonial radicalism"; of the views that underpinned the economic consensus that was largely achieved during the 1880's "long depression" with the emergence of the Liberal‑Labour Party as the only strong political movement. Moss's views reflected those of the British historical school; writers such as Toynbee, Leslie, Foxwell and Cunningham; and they strongly ante‑date the views of modern institutionalists such as Galbraith.

Although a nationalist and a moderate, Moss's economic philosophy was not dissimilar to that of Carruthers. The "baddies" were essentially the same. Carruthers' "plutology" was Moss's "the old economics".

The aids to be obtained from science and invention were quietly ignored [by classical economics], while they who had acquired personal wealth were freed from responsibility for the misery around them. No wonder that the creed became popular amongst the rich and powerful, and that the comforting science of political economy evoked their admiration and received generous support.

(Moss, 1897, p.7).

As it is with Mill, capital is a subset of wealth. Moss uses the term credit in much the way that Carruthers defines capital, and comes to very similar conclusions about the power of credit to control the distribution of wealth.

 

Opposition to both Individualism and "State Socialism"

The Problem of the Age is to produce this vast mass of commodities without the terrible poverty at one end in contrast with the sickening superfluity at the other. Can this be done without changing the basis - the acquisitive instincts of man - on which material progress has hitherto rested? We believe that it can ... the State Socialist thinks otherwise. He proposes to reconstruct on a basis of altruism, and would make Governments the sole controllers of Capital and with it of the industry of nations. Can we hope, in the present stage of human development, to ... create an altruistic government?

(Moss, 1897, p.ix)

The altered conditions of existence in a new land silently work changes of a far‑reaching kind. These communities began their career with ideas and needs which could only be satisfied by joint action. Very quickly they learnt to use the State's credit and the State's financial resources for the common good to provide roads, railways, telegraphs ... schools and colleges ... [knowing] that this employment of State action is not without drawbacks... Abuses rise, but colonists regard the mischief as merely passing, while the good achieved is permanent.

(Moss, 1897, pp.39-41)

Moss sought a decentralised socialism, administered by a disinterested public service comprising people with no special degree of saintliness or wizardry. Moss contrasts his colonial nationalism with the individualism of the parent society. He does not claim that his views are universally held by colonists; rather they are the views of nationalists, not accepted by those in the import‑export business.

Historian Tony Simpson (1984) has pointed out the key political differences between groups of settlers: one group - the nationalists - migrates to find a home, to put down roots; the other group - the internationalists - comes (and goes) primarily to make money. Understanding this distinction as the basis for class division in New Zealand is necessary before the passion of the debates about, for example, the fine points of tariff policy, can be appreciated. While there can be no doubt on which side Moss's political sympathies lie, nevertheless Moss's writings have an international perspective. His ambition was to help bring about a world of international harmony that was predicated on the prosperity of democratic national communities which each attended to their domestic economic problems through the development of their domestic economies. The competitive maximisation of exports was not an appropriate national goal in an international community.

The main forces opposed to democratic control were those of "credit" - especially financial credit (1897, pp.127‑128) - and joint stock companies. They have significant power over governments, through indebtedness, "rivalry" (1897, p.144)[27] and monopoly. Individualism is identified with the steam engine, literally a driving force for corporate capitalism on account of its optimal scale of operation. The next accelerator - electricity - would operate simultaneously on a smaller and a larger scale.

Let us hope that the day is at hand when a new motive power will restore much of the old domestic production which steam destroyed. Electricity promises to be that power, and to be capable of being made the great equaliser in production, reconstructing industrial methods and quietly rearranging industrial society. Is electricity, like steam, to fall under individual control, or is it to be held by the nation ... Electricity, with its unimaginable possibilities, ought not to be allowed to gorge the few ... every single member of the nation, however small his wants may be, should command this new aid to industry as freely and as cheaply as the richest of his fellow countrymen. The difference between administration in that spirit by the State, and administration in the spirit of personal gain by joint stock companies, needs no demonstration.

(Moss, 1897, p.142)

Private sector corporations are not all bad, however.

Undoubtedly the principle of co‑operation on which they are based has done good in many cases, and is capable of more. The bane is in their legal incorporation, the secrecy of their management, the powers they are allowed to wield, and their freedom from the full consequences of their own actions.

(Moss, 1897, p.147)

Moss is in favour of the artisan mode of production, in a modern form, based on electric power. Medium scale enterprise should be run by combinations of what we might today call "stakeholders". Large infrastructural assets would be under the full control of all of the people through a democratically accountable national government.

 

Capital and Savings

How vain is the panacea of universal thrift so loudly urged as the saviour of nations. In the sense of not wasting any of the gifts of God, thrift is a duty incumbent on all. As a means of gaining a march on others, thrift is useful to the individual. But personal hoarding practised by a whole people could only lead to a hardening the hearts of the poor and to their inflicting cruel wrong on those dependent upon them. ... The field of employment would be limited by a reduced consumption of commodities, and the capitalist would secure a still larger proportion of the annual product of the nation.

(Moss, 1897, pp.57-58)

Capital is that portion of a nation's wealth devoted, or capable of being devoted, to the renewal and increase of production. ... Individuals may acquire Capital by abstinence from consumption, but if the saving be from the product of a man's own labour the amount cannot be large. To the powers of production conferred by inventions in machinery and by the applications of Science, we owe the great accumulations of Capital in modern nations. ... For every million human workers of all ages and kinds there are [now in Britain] thirteen millions of full‑grown iron slaves.

(Moss, 1897, pp.112-113, 120)

Like Carruthers, Moss was highly critical of the idea that thrift was the driving force of economic progress. Economic growth essentially came from the improvements in the capital stock, enabling huge increases in labour productivity; not simply in the multiplication of capital goods vis‑a‑vis consumer goods. To Moss it was absurd that the high levels of productivity made possible by industrial technology could not redress the chronic problems of poverty and inequality, and that any science of economy that claimed otherwise was no more than a tool in the service of privileged vested interests.

 

Industrialisation, Customs Duties & Fiscal Policy

He is firmly convinced that without a variety in industries no single industry can thrive, and that without a local ready market for a variety of agricultural products the proper rural settlement of his new country is impossible. These are the considerations which make nearly every British colonist, who is not a trader in imported commodities, strongly protectionist in policy.

(Moss, 1897, pp.43-44)

The burning issue of protectionism lost its heat in 1888 when, in the worst year of the long depression, an essentially anti‑protectionist government pushed through a protectionist tariff. Tariff levels were moderate - in the order of 25% ad valorem - but were at levels that had earlier been opposed vehemently by free‑trade supporters. In the nationalist climate fostered in the early years of the Liberal Government, a consensus of the form described by Moss did develop.

Moss's comments on colonial political economy were foreshadowed in the words of Marshall's predecessor at Cambridge:

Many of those who profess strong adherence to these principles [of free trade] hold them by so slender a thread that when they settle in the colonies ... they become in numerous instances ardent protectionists.

(Fawcett, 1885, p.xii)

Colonial protectionism is not mercantilism:

The foreign trade consists of imports and exports, and in every progressive young country or wealthy old country the imports must exceed the exports. The surplus of imports beyond exports may become excessive, in which case there is ground for careful investigation. ... On the whole, when the imports - in a new country especially - exceed the exports in a moderate and steady proportion, the excess may be regarded as indicating prosperity. On the other hand, wherever in a country old or new, the exports persistently exceed the imports, the case calls for prompt and searching enquiry.

(Moss, 1897, pp.196-198)

Nor is it autarky:

Foreign commerce is a splendid addition to the home trade, but a most unsafe reliance. If in order to obtain foreign commerce low wages and a low standard of life are necessary, if it is necessary to offer in sacrifice any class or section of our own people, the commerce is being too dearly bought and can only become destructive to the nation.

(Moss, 1897, p.192)

Moss was strongly opposed to revenue tariffs, as he regarded the customs duties - which were the main source of inland revenue - as a tax which impacted most heavily on workmen and their families. To both Carruthers and Moss, such items as sugar, tea, tobacco and beer were wage goods. To Carruthers, that bundle of goods and services which motivated workmen to work were wage goods, whether or not they were physiological necessities. Moss simply recognised that a taxation system based on revenue tariffs would have to target those items consumed widely and with a low price elasticity of demand. His ambivalence about tariffs lay in his concern that fiscal reform in favour of progressive taxation could be forestalled ad infinitum via the expedient of raising customs tariffs.

Taxation takes a certain percentage from the necessities of one and the same percentage from the superfluities of another. The old economists call this equality. The new economists give it a very different name.

(Moss, 1897, pp.138)

Moss wanted genuine fiscal reform; not retrenchment or increased customs revenue. And he believed in balanced budgets. The national debt conferred an unacceptable degree political control of the creditor class, damaging the democratic basis of nationalism.

[A nation's] wealth is of course subject to liabilities. There are the national and corporation debts and private debts of various descriptions to be met. When these liabilities are due to persons belonging to the country and residing in it, the total of the national wealth is not disturbed, though the partition of the annual product is materially affected. In Colonies, claims of this kind are generally held by persons who are non‑resident. The wealth of the community is then proportionately diminished, and the payment of principal and interest can only be met by exportable products. In Colonies it becomes therefore of great importance to refrain from using borrowed capital except where it can be made to increase, adequately and directly, the sum of the annual production.

(Moss, 1897, pp.74-75)

Ironically, he accepted that national indebtedness had been a stimulus to industrialisation in New Zealand.

We were exporting debentures, and importing not money, but goods, making the fortunes of great companies, sending up shares of every kind, and altogether altering the condition of the country. ... When we come to face the result, we find that, in order to meet the exigencies so created, high duties had to be imposed, and under their operation certain industries were founded. ... So those honourable gentlemen who are now making a great fuss about Free‑trade have, by the aid given in heaping debt on this country, so changed its whole commercial, social, industrial and political relations that Protection was inevitable.

(NZPD, 3rd Reading, Customs Duties Bill; July 5, 1888, p.550)

Moss was not in favour of all industries that gave employment. While, marginally viable industries could be run by the state on a non‑profit basis:

Industries unable to pay a living wage are public injuries. If it be found that any particular industry cannot be undertaken or cannot be continued on these terms, the burden should be removed from the shoulders of the capitalist and the industry assumed, if practicable, by the State. If that not be practicable, far better abandon it altogether.

(Moss, 1897, pp.179‑180)

 

Welfare Radicalism - Countervailing Power

Every man from whom the nation claims allegiance [should] be saved as of right, from risk of the degrading pauperism which he is now too often helpless to avert. Freedom of contract in the labour world will then become a reality, and a great step have been gained. Proper provision would also be made for that great mass of unemployed which the variation of the seasons and other unavoidable causes render indispensable as an industrial reserve.

(Moss, 1897, p.xi)

Moss did not see full employment as being the total answer to the problem of distribution. He recognised that unemployment had both acute and structural causes, and that some form of welfare provision was required. Neither form of unemployment was caused by the lack of a national economy's ability to produce goods, so no‑one should have to be subjected to degrading poverty. The "old economists" believed that indigence was caused by indolence. On the other hand, enlightened "Economists venture to think that vice and crime are infinitely less the cause than the effect of poverty" (1987, p.204).

Moss didn't commit himself to any specific form of welfare state:

Due provision should be made for the maintenance, in times of involuntary idleness, of that reserve of the industrial army which we too often hear of as the unemployed. How far machinery should be made, and could be made, to contribute to this elementary need in good government can only be settled by full inquiry. ... The State has limits which confine its operations, but within those limits it must not fear to act where the public welfare calls for action. ... To render life tolerable to any who are left unemployed is at the heart of the question. Whether this be sought in wider land occupancy, in subsidies to societies acting as local agents for the State, or in some other measures yet to be suggested, the solution becomes more pressing daily.

(Moss, 1897, pp.138‑139,103)

Moss's political economy has echoes of Galbraith's philosophy of countervailing power. Freedom of contract is a function less of individuality than of equal bargaining strength.

We must first see established the solidarity of labour - mental as well as manual - in order that the solidarity of selfish personal interests may be overcome. Then we may have a real freedom of contract, and State Socialism as a remedy for existing evils be set entirely aside as unnecessary.

(Moss, 1897, pp.199‑200)

Moss's first commitment was consistently for high wages; wages commensurate with the increased productivity made possible by machinery. Moss interprets Malthus in the light of evidence that birth rates do not always rise with relative affluence:

In no case should the standard be lower than that which is necessary to satisfy man not only as an animal but an intellectual being. This is the true living wage. The tendency is ever to fall below that point. The main function of trades and other unions is to counteract this tendency. ... Human labour power is not itself a commodity ... price does not in the same way regulate supply and demand nor reduce them to an equilibrium ... population will increase with great rapidity even when the wages of labour scarcely permit human existence. Ireland in the potato era, and the rice‑eating countries of the east in the present day are cases in point.

(Moss, 1897, pp.175,174)

Moss emphatically rejected the notion of a wages fund as an iron law of capital which sets a limit on the total wage payable. He strongly applauded Mill for recanting the doctrine, thereby undermining the foundations of classical economics.[28] Carruthers, on the other hand, did not show any awareness of Mill's change of mind, and a variant of the wages fund concept was central to his analysis. Carruthers use of the wage fund ensures inequality because workers can never own any of the surplus.

Colonial socialism is a justification for the continuation of high wages in countries where wage earners initially had a high degree of bargaining power by virtue of their own scarcity. But it is not a selfish philosophy. It is a view that minimum wages should be set within each society in accordance with that society's average labour productivity, and that international exchange should only be conducted where it doesn't act to lower wages. So long as the competitive dictates of international trade acted to reduce wages to levels lower than would exist in the absence of trade, then international society would inevitably be characterised by poverty in the midst of plenty.

 

Summary.

Let us hope that the future, with its wonderful and increasing facilities for education, for discussion and for combination, will have a new and happier tale to tell.

(Moss, 1897, p.62)

The extreme radical programme is the half loaf which some of the workmen have, with half earnestness, asked for. ... Under the present system, however it may be patched and mended, there is no hope of economic well‑being for the working classes. We have in New Zealand a clear example to show us how little the most extreme Radicalism can do.

(Carruthers 1894, p.5)

Moss, in 1897, writes with high hopes of New Zealand's future as a result of the realisation of many of the political reforms he fought for. Moss's Parliamentary speeches in the 1880s tended to be laments about retrenchment and taxation. On the other hand, Carruthers an optimist in 1870s' New Zealand, writing three years earlier in London and without first‑hand knowledge, had become quite pessimistic about New Zealand's prospects. Although not a revolutionary firebrand by nature, Carruthers was concerned that gradual moves in the direction of socialism were preserving rather than transforming the rights of capitalists to allocate resources. Moss addressed such concerns with his belief that a technological development such as electricity would render the industrial capitalist's power base - the medium‑sized factory - obsolete.

Blair was concerned that a lack of industry in New Zealand would inhibit the population growth necessary to bring about a powerful industrial economy. Development did however occur in the manner if not the scale that he anticipated,.

Of particular interest is the reconciliation of conservation and development, the emphasis on nature as a form of public wealth, of value in its own right, and not to be depreciated or prematurely utilised. The opposition of the exploitation of natural wealth for private gain comes through from all three, part of a New Zealand perspective - although hardly unique - that remains with us. Thoroughly democratic institutions provide the golden mean between private and public interests, free trade and intervention, exploitation and inertia.

Fresh air and fresh water, the light and heat from the sun, the right to fish in seas and rivers, the delights of beautiful scenery, the surface and subterranean products of the earth, are of inestimable value to man. None of them can have a price till assigned for exclusive use in such a form as to make assignment transferable. Then they become commodities.

(Frederick Joseph Moss, 1897, pp.166‑167)

_______________________________

 

References

Appendices to the Journal of the House of Representatives (AJHR)

Blair, W.N. (1878), "Address by the President of the Otago Institute", Transactions and Proceedings of the New Zealand Institute, v.11, pp.561-566, February 2, 1879.

Blair, W.N. (1884), "The Industries of New Zealand", address delivered to the New Zealand Manufacturers' Association at Dunedin, 12 February, 1884; Dunedin, Evening Star.

Blair, W.N. (1887), "The Industries of New Zealand", address delivered to the Industrial Association of Canterbury, 24 February, 1887; Christchurch Press.

Cameron, W.N. (1992), Rimutaka Railway, NZ Railway and Locomotive Society Inc., Wellington.

Carruthers, John (1877), "On Mill's Fourth Fundamental Theorem respecting Capital", Transactions of the New Zealand Institute, pp. 24-34. (Paper read before the Wellington Philosophical Society, 12 January, 1878.)

Carruthers, John (1878), "On Some of the Terms used in Political Economy", Transactions of the New Zealand Institute, pp.3-31. (Paper read before the Wellington Philosophical Society, 13 July, 1878.)

Carruthers, John (1883), Communal and Commercial Economy: Some Elementary Theorems of the Political Economy of Communal and Commercial Societies; Together with An Examination of the Correlated Theorems of the Pseudo‑Science of Wealth as Taught by Ricardo and Mill, Edward Stanford, London.

Carruthers, John (1884), "The Industrial Mechanism of a Socialist Society", To-Day, November 1884, pp.468‑89.

Carruthers, John (1885?), "Political Economy of Socialism", pamphlet of a lecture to the Hammersmith Branch of the Socialist League, London.

Carruthers, John (1894), "Socialism and Radicalism", Hammersmith Socialist Society, London.

Carruthers, John (1915), Economic Studies, Chiswick Press, London.

Ekelund, R. & Hebert, R. (1990), A History of Economic Theory and Method, 3rd edn., McGraw Hill, New York

Fawcett, H. (1885), Free Trade and Protection, Macmillan & Co., London, 6th edn. (first published 1878)

Foxwell (1888), "The Economic Movement in England", Quarterly Journal of Economics.

Furkert, F.W. (1953), Early New Zealand Engineers, A. H. & A. W. Reed, Wellington.

Galbraith, J.K. (1975), Economics and the Public Purpose, Penguin, Harmondsworth, England.

Gershuny, J. (1978) After Industrial Society; the Emerging Self‑Service Economy, Macmillan, Basingstoke, UK.

Griffen, G.W. (1884) New Zealand, her Commerce and Resources, Didsbury, Wellington.

Mill, J.S. (1965), Principles of Political Economy (Books 1-II), first published 1848. (Collected Works of John Stuart Mill, volume II) University of Toronto Press.

Mokyr, J. (1990), The Lever of Riches; Technological Creativity and Economic Progress,  Oxford University Press, New York.

Morris, M. (1966), William Morris; Artist, Writer, Socialist, volume the second "Morris as a Socialist", Russell & Russell, New York (1st publ. 1936)

Moss, F.J. (1887), "Protection: a Farmer's Question", letters New Zealand Herald, July 1.

Moss, F. J. (1897), Notes on Political Economy from a Colonial Point of View, by a New Zealand Colonist; published anonymously in London by Macmillan & Co.

New Zealand Parliamentary Debates (NZPD), 1877-1890

Noonan, R. (1975), By design : a brief history of the Public Works Department Ministry of Works 1870-1970, Ministry of Works and Development, Wellington.

Rankin, K. (1991), "Protection vs. Free Trade; the New Zealand Debates in the 1870s and 1880s", Working Paper in Economics no. 92, University of Auckland.

Rankin, K. (1992), "New Zealand's Gross National Product: 1859‑1939", Review of Income and Wealth, 38(1): 49‑69

Rostow, W.W. (1960), The Stages of Economic Growth.

Roth, H.. (1959), "The Man who Built our Railways", Public Service Journal (April 1959, p.3)

Schedvin, C.B. (1990), "Staples and Regions of Pax Britannica", Economic History Review, 2nd ser., 43(4): 533‑559

Scholefield, G.H. (1940) Dictionary of New Zealand Biography, Dept. of Internal Affairs, Wellington

Scott, Dick (1991), Years of the Pooh‑Bah, Cook Islands Trading Corporation, Rarotonga.

Senior, N. (1848) "J.S. Mill on Political Economy", Edinburgh Review CLXXVIII: 293-339 (October)

Simpson, Tony (1984), A Vision Betrayed, Hodder & Stoughton, Auckland

Steedman, I. (1993), "John Carruthers; a Victorian Market Socialist", European Journal of the History of Economic Thought, vol.1, September 1993.

van Parjis, P. & van der Veen (1986), "A Capitalist Road to Communism", Theory and Society 15.

Wicksteed, P.H. (1933), The Common Sense of Political Economy, vol.II, Routledge & Kegan Paul, London.

Young, J. (1877), "On Paper Currency, being a Reply to a Paper by John Carruthers, M.Inst. C.E.", Transactions of the New Zealand Institute, pp.536-538.

 

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[1]       The New Zealand price level dropped 40% in 25 years (Rankin, 1992). Whereas the depression was acutely severe at particular times in the other settler societies, depression in New Zealand was chronic and protracted. It has been dubbed the "Long Depression".

[2]       The circumstances of his resignation require some research. There appears to have been much political tension over the government railway's pre‑emptive right to reclaimed land in central Dunedin which was coveted by a speculative private railway company. This venture involved both Ministers for Public Works in 1878, as well as the second subject of this paper, William Newsham Blair.

[3]       ref. "A Note on the Author", in posthumously published Economic Studies (Carruthers, 1915).

[4]       Roth (1959) thinks that his papers must have startled "the business and professional men who made up the bulk of the membership". But he was an office bearer in the Society, and appears to have been a well respected member. He presented other papers on "Weights and Measures" and "Volcanic Action".

[5]       The work, "a Capitalist Road to Communism" should be noted here as a contemporary version of Carruthers' ideal. Full communism is represented by a 100% tax and an equal share of the proceeds (after deduction of necessary Government expenditure) as transfer payments. The proposals were received with due hostility by the socialist community in Europe, in an extended debate to which that volume of the journal was devoted.

[6]       Forthcoming 1993, I have a pre‑publication draft. An early version of the paper was presented at the Durham History of Thought Conference, 2‑4 September 1991.

[7]       The Fabian Society, founded by Sidney & Beatrice Webb, and with prominent members including George Bernard Shaw and William Pember Reeves, was associated with the birth of the British Labour Party. It's philosophy was one of improvement through gradual economic and social reforms, embedded in the work ethic.

[8]       While Carruthers doesn't go so far as to say that all final wealth is made up of services, he has foreshadowed the trend of a few modern writers to see consumer goods as a labour‑saving source of services (eg J. Gershuny, 1978). Consumer goods are wealth by virtue of what they do, rather than what they are.

[9]       Charity can here be interpreted as social welfare transfer payments, and private works (construction on landlords properties) have a direct analogy with the public works expenditure associated with Keynes. To Mill, Government was an institution whose income and expenditure patterns were fully analogous to those of private landlords. Indeed, the Government was the biggest landlord of all.

[10]      Mill is arguing in nationalistic terms, taking the view that if the composition of goods produced in one country is not appropriate for the consumption of labourers, then the matter will be resolved by international trade. Carruthers takes a global view.

[11]      Specie would be replaced by legal tender paper money, the supply of which would be regulated by a single monetary authority so as to grow in proportion to expected increases in commerce. In his communal economy (1884, pp.473-474), each monetary unit would be explicitly understood to represent a share of the common wealth, so the quantity of money would be a function of the number of people in the workforce; one "part" would be paid to each worker each day (and, presumably, each legitimate non‑worker such as women caregivers and retired people), representing the average contribution of workers to that day's output.

[12]      Mill distinguishes materials from "instruments" by virtue of the former being fully consumed as they are used. But he notes in following editions of Principles that Nassau Senior (anonymous reviewer) takes a different view, materials are incorporated into the final product (see Mill, 1965, p.37). By the latter definition, fuels are implements rather than materials. Carruthers' independently takes Senior's line, but notes that he had heard his criticism of Mill was made by Mill's reviewer (1878, p.31). One constraint of being an economist in New Zealand was the lack of good library facilities.

[13]      Carruthers' is a two‑sector model. Mill's is a one‑sector model, essentially Ricardo's corn model.

[14]      While at times hinting of developing a distinction between entrepreneurial capitalists (who borrow capital) and rentier capitalists (who lend capital) (eg 1877, p.32), the distinction is never made.

[15]      While this could bring about some economic growth, the major source of growth was the technical improvements in the fixed capital stock as the existing stock was replaced. Thus Carruthers favoured the American system of less durable fixed capital, which would see new inventions incorporated into actual production much more quickly (1878, p.13)

[16]      This process of concentration will cease when they are few enough to form a cartel (1878, p.27), a state allegedly realised in the last stages of the Roman Empire. The ideal commercial society from a workers' viewpoint would be when the number of capitalists was small but not too small, and the distribution of wealth within the capitalist class was comparatively equal.

[17]      His New Zealand papers were not, explicitly, as radical as his later writing. His advocacy of a fiat paper currency seems to have been regarded as his greatest heresy. J. Young was critical in a paper written in response. Blair's comments (1878) about pure science could have been directed at Carruthers. None of the pamphlet literature in Sir Robert Stout's collection makes mention of Carruthers (see Rankin, 1991).

[18]      Characterised by the extreme plutology of the Manchester School (Carruthers 1883, p.154).

[19]      His ideal was of people working short hours in service activities such as education.

[20]      Ignoring the fixed capital costs and transaction costs of employment.

[21]      This is the case today wherever shareholders (capitalists) have minimal input over managerial decisions. In the modern State Owned Enterprise, the profits being maximised are barely distinguishable from taxes.

[22]      Both were elected Members of the Institute of Civil Engineers.

[23]      Backward and consumption linkages from gold‑mining.

[24]      MIll, 1965, p.63. In fact Mill says "employed" rather than "multiplied".

[25]      Through atolls and islands in the great South Sea

[26]      Prime Minister, 1893-1906.

[27]      In contradistinction to market competition; resources are used to damage competitors in the quest for higher market shares. "They are simply money‑making machines, free from feelings and sympathies". "Sympathy" was the key quality that complemented Adam Smith's self‑interest; the subject of his Theory of Moral Sentiments. Note the Galbraithian touch (p.145): "Their own shareholders practically delegate unchecked power to the directors by the manner of voting and by the certainty that if any of them ventured to find fault the rest of the shareholders would resent his action as depreciating the price of their shares in the market".

[28]      The recantation took place in Mill's review of Thornton, Fortnightly, May 1869. Mill concurred that Trade Unions could obtain higher wages without necessarily creating unemployment. See Ekelund & Hebert.