In the opinion of a number of economists, as you are probably aware, it was quite impossible for the World War to last as long as it actually did last. From their knowledge of economic relationships, these economists declared that the economic life, as existing at the time, would not permit such an extensive war to last more than a few months. Yet, as you know, the facts of life refuted this idea. If people thought objectively, this in itself would convince them of the need to revise their science of Economics. For if you took the trouble at this moment to follow up the reasons which some economists, at any rate, adduced for their assertion, you would by no means be able to conclude that they were mere fools. Quite the contrary. You would see that their arguments were not at all bad and carried some conviction. Nevertheless, the reality of life refuted them. The War went on far longer than was theoretically possible. Obviously, therefore, Economic Science did not embrace the reality; the reality turned out quite differently from what Economic Science had supposed.

We can only understand such a thing as this if we see clearly the nature of the evolution of economic life upon the Earth. It consists of a series of successive stages, but one in which the earlier stages continue to exist side by side with the later. Similarly we may say that the lowest organic forms now living are somewhat like the earliest living creatures of Earth-evolution. Thus in a sense the most primitive creatures are still here, existing side by side with the highest creatures which have yet evolved. There is a difference, but there is also a marked resemblance in the forms. So it is in the economic life. The phenomena of primitive phases of economic life are still here today, side by side with those which have attained a higher stage. But in the economic life there is another peculiarity. While in the animal kingdom, for example, the more primitive forms can live literally side by side in space with the more highly evolved, in the economic life the more primitive processes are constantly penetrating into the more highly evolved ones. We might very well compare it with those cases where bacteria penetrate inside higher organisms. Only, in the economic life it is infinitely more complicated. Nevertheless, we can detect certain underlying structures, and from these we can take useful examples which will help us to bring our line of thought to its conclusion.

The more primitive forms of “political economy” must be conceived as private agricultural economies on a large scale. Their magnitude is relative, of course; but we must understand that if the private agricultural economy is self-contained, it includes within it the other members of the social organism. It has its own administration, possibly even its own defence force, its own police, and moreover its own spiritual life. Such a private economy — grown to gigantic proportions, it is true, but still preserving in all essentials the character of a primitive agricultural concern, a gigantic farm — was the so-called kingdom of the Merovingians. It was a “kingdom” in a quite external sense, but it was certainly no State. It was in fact no more that an immense farming estate, comprehending a huge area. The entire social structure of the Merovingian kingdom was really no different from this: — the economic life underlay everything. On it was built an administrative system which accorded with the prevailing ideas of right and justice; and into this was placed a spiritual life — an extraordinarily free one for that time. For, ladies and gentlemen, it is only in more modern times and notably under the influence of “Liberalism” that we have seen the rise of the maximum of unfreedom in the spiritual life. Not until “Liberalism” came did the spiritual life begin to grow more and more unfree; and it reaches the zenith of unfreedom in that embodiment of all political bliss, the Soviet Republic of Russia. Only books approved by the Soviet Government can be sold at all. The Pope does at least content himself with proscribing books; but under the Soviet Government proscription is automatic, inasmuch as no books are printed and published save those which the Government permits.

Now if we trace the further course of evolution, we see how private economies gradually passed over into national economies,* which again at a certain time — at the beginning of the modern period — tended to become State-economies.† The way it happens is characteristic. Private economy — initiative in private business — gradually passes over into the hands of government departments, and thus the fiscal administration grows increasingly into industrial organisation. We see the economic passing over into the life of the State; and we see the spiritual life absorbed by the life of the State at the same time. So then we witness the rise of the modern economic and spiritual organism of the State. The State, as such, has grown increasingly powerful. We, as you know, are aware that it will have to be, so to speak, articulated once more in distinct members [wiederum eine gewisse Gliederung erfahren musz] if economic life is to progress.

At the moment, however, we are not concerned with “three-folding.” We observe, as I said, how private economies were gradually joined together. It generally happened on a pretty large scale. Private economies grew into something which could be called economy on a larger scale — national economy; and in this way a new social structure was created. Yet, within the new, the element of private economy was still preserved. The more primitive phase of evolution was still there as an insertion in the new. What is it that arises at this stage in the true sense of national economy? It is a mutual exchange between the several private economies. The exchange is regulated in many different ways. The regulation hovers like a kind of cloud over it all. The exchange, the trade or commerce between so many private economies, is the essential thing that arises with this welding of private economies into a national economy. What is the outcome? We saw yesterday that in the process of economic exchange each of the parties has an advantage, or can have an advantage. The result is, therefore, that the single economies which join together for the sake of mutual exchange (the essential thing in all economic life) profit by so doing. Once more, then, the single economies, the single businesses, gain an advantage by joining together. They profit by it simply because they can now exchange one with another. We can draw up a statement. We can calculate how much the one private economy or business will gain by means of the other private economies with which it is now connected. Each party gains an advantage, and the gain of each and all becomes significant for the entire national economy.

Now at the time when the modern science of Political Economy was founded that particular stage had been reached. National economies had taken shape out of the private economies. This must be borne in mind if we wish to understand the economic ideas of Ricardo or Adam Smith. Only on this foundation can we understand the thoughts which they evolved about “Political Economy,” as they called it. It was this working together of private economies which they actually saw and upon which they based their views. In Adam Smith you can see it again and again — how he thinks from the point of view of private economy or private business and thence draws his conclusions. At the same time he has before him the picture of their joining together into a national economy. Yet even in their ideas about this latter process the older economists retained to a large extent a way of thinking based on private business. Such were the views at which they commonly arrived: they treated national economy on the analogy of private economy. Thus the fertility, the prosperity of a national economy, as they conceived it, lay in this — one national economy would exchange with another, would come into mutual intercourse with another, and would thus derive profit and advantage. The “Mercantilist” school, for example, was based on the advantages arising from such exchange between national economies.

Now already at this early stage, where the single private economies or businesses come together into a large national economy, there is sure to arise a kind of leadership. In effect, the most powerful of the private economies which have merged into a larger complex will naturally assume the leadership; and this would undoubtedly have happened at the transition from the stage of private economy into that of national economy. But it was masked and hidden; it did not come fully to expression, inasmuch as the State undertook the leadership. If this had not happened, one private economy — namely, the most powerful of them all — would naturally have been the leader. So in effect it happened that the single private economies passed imperceptibly into the form, not of national, but of State-economy.

But it was different at the next stage, when in the further course of modern history the mutual exchange between national economies — world-trade, in other words — became more and more comprehensive. Then, indeed, such a leadership emerged quite evidently. It happened, as an absolute matter of course, in the further progress of economic life, that England's national economy became the dominating one. From another point of view I have already drawn your attention to the fact that England evolved directly from trade into industrialism. Let us think what happened while England was acquiring her colonies. She set the standard for currencies. Her colonies, in the manner of private economies, joined together into a larger complex. In the first place this gave rise to those internal advantages which are always the result of mutual exchange. But, not only so: it also gave rise to that powerful economic hegemony which, with the further evolution of world-trade, subsequently exerted a dominant influence on the economic life of the world. While she was gaining her colonies, England set the standard for currencies, because it was precisely through England that gold was forced on those countries which adopted it throughout the world. For, as you may easily compute, in economic intercourse with a rich country having a gold currency, any country which did not possess it would be at a disadvantage. In a word, we may say that under the influence of world-trade England became the leading economic power.

Moreover, while this was going on, it was still possible to develop concepts of national economy in a straight line — with whatever modifications and improvements — from Hume, Adam Smith and Ricardo, and, we may add, Karl Marx — for fundamentally, though he turned their ideas pretty well upside down, Karl Marx only continued along the same lines. The ideas of these economists are only to be understood if we have before us the picture of that economic life, which arose under the dominating influence of England's economic power.

Now with the last third of the nineteenth century, there was a transition from world-trade to world-economy. It is a very remarkable process — this passage from world-trade into world-economy. Definitions are of course inexact, for these transitions tend to take place in successive stages; but if we want a definition we must say: At the stage of world-trade the economic life of the world is characterised by single national economies exchanging with one another. This traffic quickens the whole process of exchange and thus essentially alters prices — alters the whole structure of economic life. But for the rest — in all other respects — the economic life is carried on within the several territories. As against this it may be called “world-economy” when the single economic units not only exchange their products one with another, but when they actually work together industrially: when, for example, half-manufactured products are sent from one country to another, for their manufacture to be continued there. That is a radical example of what I mean by their working together industrially. So long as it is merely a question of raw products, the account will continue to show a condition of pure trade. This cannot yet be described as an actual working-together in the industrial life. But when all factors in human life (in so far as they are affected by economics), that is to say, when all production, all distribution, all consumption — not merely production alone or consumption alone — are fed from the entire world; when all things are intricately interwoven and fed from the entire world — then we have world-economy. And through the rise of this world-economy, certain advantages which existed formerly for the national economies are lost.

Let us look back once more. When private economies join into a national economy, ladies and gentlemen, they gain on the whole; they derive advantages. Every single one derives advantages. But, apart from this, what is it that impels them? It is of course not always conscious insight which impels them thus to join together. Their joining together is, as a rule, not brought about by conscious economic insight, for in most cases the feeling for liberty is too great; the private business man is not as concerned as all that with the piling up of the profits which arise in this way. Economically, these profits certainly arise; but the process is more complicated than that. The fact is that the single private economies or businesses have the same characteristic as every living organism. Namely, their life tends in the course of time to become weaker and weaker. It is a universal law and it applies equally to economic life. An economic life which is not being constantly improved always deteriorates. Thus, as a rule, the merging into larger “wholes” did not take place with the object of making private businesses profitable beyond their original level, but with the object of protecting them from imminent decline.

When once they join together, they gain the corresponding advantage, though of course it varies from one case to another. And we may say that whatever the single economies have lost in course of time is amply made up for by their joining into national economies. Indeed, as a rule, it is more than compensated. Moreover, whatever the national economies have lost in course of time is amply made up for by world-trade and the transition into world-economy. But when world-economy is once achieved, what then? With whom can it exchange? This, in effect, is what has happened. We have seen the economic life of the entire Earth gradually merging into world-economy. And at this point the possibility of reaping further advantages by merger is at an end.

You see how there play into the economic domain circumstances which are quite clearly perceptible, but which cannot in the nature of things be easily taken hold of with figures and statistics. And this will show you, ladies and gentlemen, that it is quite impossible to prolong in a straight line the old economic ideas. We are obliged to admit that a science of Economics is now needed which will express the realities of the immediate present. The economic categories formed about a century ago no longer hold good to-day. What we need is an Economic Science capable of thinking in the spirit of world-economy. Herein you see one of our greatest historical problems.

Observe the leading statesmen of to-day coming together at Versailles, Genoa or the Hague. Science has only provided them with a way of thinking in terms of national economy. Whatever results they arrive at, unless and until they are permeated with world-economic thinking, must lead down-hill. Can they deny that they are tearing the economic life still more to pieces, erecting fresh artificial barriers and thus hindering the transition into a pure world-economy? We see this tendency in the immediate past — the tendency to break the world asunder as far as possible even in the economic life, and at the same time to conceal the tendency under the cloak of political and national pleas. Yet we shall have to pass into a real world-economy and a corresponding Economic Science, or we shall create an economically impossible state of affairs over the Earth. Such a condition of affairs can only continue in being for a time through one part of the Earth stealing advantages at the expense of another by means of differences in currency or the rates of exchange. This is precisely what is happening in economic life at the present moment.

To conceive what world-economics really means, we must see clearly, to begin with, that at the frontiers of the domain of world-economy (if we may use the expression) the conditions will be quite different from those of economic domains bordering on one another. Relatively speaking, world-economy exists today; and therefore, relatively speaking, a Science of World-Economy will have to follow. The domain of world-economy borders on nothing else, and this makes it necessary for us to observe still more precisely those economic processes which emerge within a closed economic domain, independently of its external frontiers. The cardinal problem for modern Economics to solve is the problem of the closed economic domain — a self-contained domain of one giant economy. For today the very smallest question — even the price of breakfast coffee — is influenced by the economic life of the entire Earth. If it is not so, it only means that progress is partial. This state of affairs is actually on the way and our thinking will have to follow suit.

To understand the economic conditions in a closed economic domain, we must see clearly that within the economic domain — in the mutual interplay of production, consumption and commerce (that is, in effect, circulation) — we have on the one hand consumable commodities, some of them relatively lasting, no doubt; while on the other hand we have the thing we call “money.” Now as regards the form of economy to which these things are subject, it makes an essential difference whether we envisage the class of foodstuffs for example (short-lived products) or of clothing (more long-lived) or, let us say, of furniture or houses (more long-lived still). With respect to their use and consumption we have these important differences of duration as between different kinds of economic products. As an instance of a really lasting economic product, we might point once more to the diamond in the Crown of England, or any other crown. Or, again, we might think of the Sistine Madonna. Such things may be to some extent regarded as a kind of product that will keep; we find them especially among works of art. Now in a social organism subject to division of Labour, having therefore an extensive process of circulation, there must be some equivalent of every product. There must be the money-value, representing the price. But a very little observation of the economic realm will convince you that this equivalent between the commodity-value and the money-value is fluctuating. A product is worth so much at one place and so much at another. A product can be worth more if it is worked up in one way, or less if it is worked up in another. Be that as it may, however, in the total economic life you will perceive that, apart from a few exceptional goods of very long duration, we always have to do with goods which pass away in time. They lose their value, and after a certain lapse of time are no longer there.

The one exception, strange to say, in our whole economic life is money. Although it occupies a position of perfect equivalence to the other elements of economic life, money does not wear out. You can get to the root of the matter in this way: If I have £20 worth of potatoes, I must see to it that I get rid of them. I must do something to get rid of them. After a time they are no longer there; they are used up, they are gone. Now if it were in a true relation of equivalence to the goods that are produced, money, too, would have to wear out, like other goods. That is to say, if the body economic contains money which is incapable of being used up — money which does not wear out — we may well be giving money the advantage over goods, which do wear out. This is a most important point and it becomes all the more so when we take the following into account. Think of all that I must do, if — let us say — through my activity and Labour I want to thrive so well that as a result of having a certain amount of potatoes today I shall have double the amount in 15 years' time. And think, on the other hand, how little an individual person has to do if he possesses £20 in money today and wishes to possess double the amount in 15 years' time. He need do nothing at all; he can withdraw his entire labour-power from the social organism and let other people work. All he need do is to lend his money and let other people do the work. Unless he himself in the meantime sees to it that the money is spent, the money need not be used up.

This is the very thing which brings into the body social so much of what is afterwards felt — shall we say — as a social anomaly, as an injustice. Indeed, gigantic changes are brought about in the body social, even economically speaking, by this reshuffling — I will not say of the relationships of property (I will not speak of these) but of the relationships of work and activity. And we may ask: How are these changes related to another factor, by which it is perhaps more easy to apprehend them? For there is still something rather vague about it if I merely describe empirically, as I did just now, this existing discrepancy as between money and the real objects in the economic organism. How can we get a picture-thought of some particular instance?

But there is also another thing which is of fundamental significance; and that is the land as such. Though this was badly misunderstood by the Physiocrats, for example, nevertheless the land is of fundamental significance, in spite of the fact, which has emerged from these lectures, that it must be constantly devalued. Indeed, it is just because of its fundamental significance that it must again and again be devalued. The Physiocrats made the following mistake. They lived in a time when land (as is of course still the case) had capital value. They conceived their ideas under the influence of this fact. They traced the economic relationships, indeed, in a very clear and graphic way. Of all the economists, they were the most rational. And from their standpoint they came to the conclusion that the intrinsic worth of an economic realm lies in the cultivation of the land, i.e., in the production of those goods which actually serve for the nourishment of man. So long as we remain within this field, we must in fact regard the land as the more or less fixed and given foundation of that which constitutes the intrinsic worth of an economic realm. You need only reflect how the workers who work upon the land, who unite with their Labour the Nature-products which subsequently serve for human nourishment, do in effect — so far as food is concerned — feed all the others along with themselves. All others are dependent on them; all others must be nourished by them. The others, it is true, can somehow get the means to pay for it, and pay more or less dearly. But we may think it out in simple terms in order to grasp the essential point. Let us suppose that there is a certain number, A, of eaters. This number A will include all the farm-workers, all the industrial workers, all the investors, all the traders, all the spiritual workers, right up to the freest spiritual life. All these require feeding. There will be another number, B, of those who have nourishment to offer. That is to say, B is the number of those who by their work really provide whatever passes over directly into human nourishment — into that part of the sum-total of economic consumption which represents the food consumed. Now if A is increased to A¹, while B remains constant, B's product will have to be further divided; and unless B can also be increased in its value somehow, people will have to be brought into the country and the yield of the land increased.

In other words, you cannot arbitrarily increase the number of spiritual workers, for example, within a given economic domain, without increasing on the other side the number of those who are responsible for the production of foodstuffs. Alternatively you can increase the fertility of the soil. The latter may, of course, be the achievement of spiritual workers, but in that case it follows that the spiritual workers of a period when the fertility is higher must be wiser; they must have higher faculties than those who went before them. Thus the increased yield of farm-Labour is in a certain sense equivalent to the enhancement of the insight with which we elaborate the products we receive from Nature. This may be done in many different ways. A man may enhance the forestry of a whole country by improving the bird-life of the country. It may be done in countless ways; we are only concerned with the principle.

So long as we are only thinking in terms of national economy, it is clear enough that such things can happen. Into a country endowed with a lesser degree of insight cleverer people may immigrate from another country, and they may then improve the cultivation of the land. Or, on the other hand, if more people move up into the classes which are not actually producing food, fresh workers may be called into the country. All these things actually happen within and across the frontiers of national economies which border upon other national economies.

All that we can think upon this matter may now be expressed in the question: What is to be done if on the side of A consumption is in excess of what B can produce? Whatever we may think at this point in terms of purely national economy, it ceases to be thinkable when world-economy arises, and when the conditions of the world are already in a certain sense disposed as for world-economy. What we have to do, ladies and gentlemen, is to form an idea of the changes entailed by the existence of a self-contained economic domain.

We can study it empirically by observing some small economy wherein exports and imports can be more or less disregarded. After all, there have been such economies. Empirically, we can study the condition within a self-contained economic realm. And we find it true: The foundation is the land. What the land yields is subjected to Labour — elaborated — and thus receives an economic value. Thereafter Labour itself is organised. We come to the class of men who are no longer actual producers of food, who are consumers but not producers so far as food is concerned. Above all, when we come to the spiritual workers, we have consumers and not producers, so far as foodstuffs are concerned. In a self-contained economic realm we must therefore distinguish, with respect to food, a certain number of producers who indeed — if I may say so — are very much aware of the fact that they are the producers; and over against them the consumers.

These things, of course, are relative; the transition is gradual. But if we consider the whole of human life within a self-contained economic realm of this kind, we must bring about what I explained a few days ago: The Capital must not be allowed to become congested. Hence at the place where the spiritual life is most highly evolved in the forming of Capital (this “place” is of course spread out throughout the entire economic realm) the excess of Capital which has been acquired must not be allowed to flow into the land, where it would become dammed up. Provision must be made for the elimination of the excess Capital. The Capital must not be allowed to become congested in the land. That is to say, at an earlier stage in the process, the congestion must be prevented by the free gift, to spiritual institutions, of the excess which has been acquired. Only what I described as a kind of “seed” must be allowed to pass on. It is here that the concept of “free gift” confronts us inevitably; there must be free gifts.

From the simple case where Charles the Bald, out of what he had to give away, maintained his Court Philosopher (which some may regard as a rather superfluous article of furniture!) — Scotus Erigena — to Peter's Pence whereby the Roman Catholics of all the world give their free gifts to the Church in tiny doses, such gifts are always there. Wheresoever an economic life, no matter how gigantic it may become, represents an economic domain more or less self-contained, you have the transformation of accumulated Capital into gift-Capital for the maintenance of spiritual institutions.

For a truly modern Economic Science, we must seek an answer to this question: How (in the sense of economics) must we buy and sell, so that the values, primarily created as food-values within the purely material realm, may vanish within the spiritual domain? That is the great question. I will formulate it once more: What form of payment must we strive for in our economic intercourse, so that that which is created by the elaboration of Nature, where the productive process primarily works for the nutrition of mankind, eventually vanishes in spiritual institutions? This is the great economic question, to the answering of which we shall proceed in the next lecture.