act, not a productive, but an unproductive labourer. But what shall we
say of the workman who made the musical instrument? He, most persons
would say, is a productive labourer; and with reason; because the
musical instrument is a permanent source of enjoyment, which does not
begin and end with the enjoying, and therefore admits of being
accumulated.
But the _skill_ of the musician is a permanent source of enjoyment, as
well as the instrument which he plays upon: and although skill is not a
material object, but a quality of an object, viz., of the hands and mind
of the performer; nevertheless skill possesses exchangeable value, is
acquired by labour and capital, and is capable of being stored and
accumulated. Skill, therefore, must be considered as wealth; and the
labour and funds employed in acquiring skill in anything tending to the
advantage or pleasure of mankind, must be considered to be productively
employed and expended.
The skill of a productive labourer is analogous to the machinery he
works with: neither of them is enjoyment, nor conduces directly to it,
but both conduce indirectly to it, and both in the same way. If a
spinning-jenny be wealth, the spinner's skill is also wealth. If the
mechanic who made the spinning-jenny laboured productively, the spinner
also laboured productively when he was learning his trade: and what they
both consumed was consumed productively, that is to say, its consumption
did not tend to diminish, but to increase the sum of the permanent
sources of enjoyment in the country, by effecting a new creation of
those sources, more than equal to the amount of the consumption.
The skill of a tailor, and the implements he employs, contribute in the
same way to the convenience of him who wears the coat, namely, a remote
way: it is the coat itself which contributes immediately. The skill of
Madame Pasta, and the building and decorations which aid the effect of
her performance, contribute in the same way to the enjoyment of the
audience, namely, an immediate way, without any intermediate
instrumentality. The building and decorations are consumed
unproductively, and Madame Pasta labours and consumes unproductively;
for the building is used and worn out, and Madame Pasta performs,
immediately for the spectators' enjoyment, and without leaving, as a
consequence of the performance, any permanent result possessing
exchangeable value: consequently the epithet unproductive must be
equally applied to the gradual wearing out of the bricks and mortar, the
nightly consumption of the more perishable "properties" of the theatre,
the labour of Madame Pasta in acting, and of the orchestra in playing.
But notwithstanding this, the architect who built the theatre was a
productive labourer; so were the producers of the perishable articles;
so were those who constructed the musical instruments; and so, we must
be permitted to add, were those who instructed the musicians, and all
persons who, by the instructions which they may have given to Madame
Pasta, contributed to the formation of her talent. All these persons
contributed to the enjoyment of the audience in the same way, and that
a remote way, viz., by the production of a _permanent source of
enjoyment_.
The difference between this case, and the case of the cotton spinner
already adverted to, is this. The spinning-jenny, and the skill of the
cotton spinner, are not only the result of productive labour, but are
themselves productively consumed. The musical instrument and the skill
of the musician are equally the result of productive labour, but are
themselves unproductively consumed.
Let us now consider what kinds of labour, and of consumption or
expenditure, will be classed as productive, and what as unproductive,
according to this rule.
The following are always productive:
Labour and expenditure, of which the direct object or effect is the
creation of some material product useful or agreeable to mankind.
Labour and expenditure, of which the direct effect and object are, to
endow human or other animated beings with faculties or qualities useful
or agreeable to mankind, and possessing exchangeable value.
Labour and expenditure, which without having for their direct object the
creation of any useful material product or bodily or mental faculty or
quality, yet tend indirectly to promote one or other of those ends, and
are exerted or incurred solely for that purpose.
The following are partly productive and partly unproductive, and cannot
with propriety be ranged decidedly with either class:
Labour or expenditure which does indeed create, or promote the creation
of, some useful material product or bodily or mental faculty or quality,
but which is not incurred or exerted for that sole end; having also for
another, and perhaps its principal end, enjoyment, or the promotion of
enjoyment.
Such are the labour of the judge, the legislator, the police-officer,
the soldier; and the expenditure incurred for their support. These
functionaries protect and secure mankind in the exclusive possession of
such material products or acquired faculties as belong to them; and by
the security which they so confer, they indirectly increase production
in a degree far more than equivalent to the expense which is necessary
for their maintenance. But this is not the only purpose for which they
exist; they protect mankind, not merely in the possession of their
permanent resources, but also in their actual enjoyments; and so far,
although highly useful, they cannot, conformably to the distinction
which we have attempted to lay down, be considered productive labourers.
Such, also, are the labour and the wages of domestic servants. Such
persons are entertained mainly as subservient to mere enjoyment; but
most of them occasionally, and some habitually, render services which
must be considered as of a productive nature; such as that of cookery,
the last stage in the manufacture of food; or gardening, a branch of
agriculture.
The following are wholly unproductive:
Labour exerted, and expenditure incurred, directly and exclusively for
the purpose of enjoyment, and not calling into existence anything,
whether substance or quality, but such as begins and perishes in the
enjoyment.
Labour exerted and expenditure incurred uselessly, or in pure waste, and
yielding neither direct enjoyment nor permanent sources of enjoyment.
It may be objected, that expenditure incurred even for pure enjoyment
promotes production indirectly, by inciting to exertion. Thus the view
of the splendour of a rich establishment is supposed by some writers to
produce upon the mind of an indigent spectator an earnest desire of
enjoying the same luxuries, and a consequent purpose of working with
vigour and diligence, and saving from his earnings, thus increasing the
productive capital of the country.
It is true that mankind are, for the most part, excited to productive
industry solely by the desire of subsequently consuming the result of
their labour and accumulation. The consumption called unproductive,
viz., that of which the direct result is enjoyment, is in reality the
end, to which production is only the means; and a desire for the end,
is what alone impels any one to have recourse to the means.
But, notwithstanding this, it is of the greatest importance to mark the
distinction between the labour and the consumption which have enjoyment
for their immediate end, and the labour and the consumption of which the
immediate end is reproduction. Though the sight of the former may still
further stimulate that desire for the enjoyments afforded by wealth,
which the mere knowledge, without the immediate view, would suffice to
excite (and without dwelling on the consideration that if the example
of a large expenditure excites one individual to accumulation, it
encourages two to prodigal expense); still, if we look only to the
effects which are intended, or to those which immediately follow from
the consumption, and whose connexion with it can be distinctly traced,
it evidently renders a country poorer in the permanent sources of
enjoyment; while reproductive consumption leaves the country richer in
these same sources. Besides, if what is spent for mere pleasure promotes
indirectly the increase of wealth, it can only be by inducing others
_not_ to expend on mere pleasure.
Before quitting the subject, one more observation should be added. It
must not be supposed that what is expended upon unproductive labourers
is necessarily, the whole of it, unproductively consumed. The
unproductive labourers may save part of their wages, and invest them in
a productive employment.
It is not unusual to speak of what is paid in wages to a labourer as
being thereby _consumed_, as if all profit and loss to the nation were
to be seen in the capitalist's account-book. What is paid for productive
labour is said to be productively consumed; what is paid for
unproductive labour is said to be consumed unproductively. It would be
proper to say, not that it is productively or unproductively _consumed_,
but productively or unproductively _expended_; otherwise, we shall be
obliged to say that it is consumed twice over; the first time
unproductively, perhaps, and the second, it may be, productively.
To pronounce in which way the wages of the labourer are consumed, we
must follow them into the labourer's own hands. As much as is necessary
to keep the productive labourer in perfect health and fitness for his
employment, may be said to be consumed productively. To this should be
added what he expends in rearing children to the age at which they
become capable of productive industry. If the state of the market for
labour be such as to afford him more, this he may either save, or, as
the common expression is, he may spend it. If he saves any portion, this
(unless it be merely hoarded) he intends to employ productively, and it
will be productively consumed. If he spends it, the consumption is for
enjoyment immediately, and is therefore unproductive.
This suggests another correction in the established language. Political
economists generally define the "net produce" to be that portion of the
gross annual produce of a country which remains after replacing the
capital annually consumed. This, as they proceed to explain, consists of
profits and rent; wages being included in the other portion of the gross
produce, that which goes to replace capital. After this definition, they
usually proceed to tell us that the net produce, and that alone,
constitutes the fund from which a nation can accumulate, and add to its
capital, as also that which it can, without retrograding in wealth,
expend unproductively, or for enjoyment. Now, it is impossible that both
the above propositions can be true. If the net produce is that which
remains after replacing capital, then net produce is not the only fund
out of which accumulation may be made: for accumulation may be made from
wages; this is in all countries one of the great sources, and in countries
like America perhaps the greatest source of accumulation. If, on the other
hand, it is desirable to reserve the name of net produce to denote the
fund available for accumulation or for unproductive consumption, we must
define net produce differently. The definition which appears the best
adapted to render the ordinary doctrines relating to net produce true,
would be this:
The net produce of a country is whatever is annually produced beyond
what is necessary for maintaining the stock of materials and implements
unimpaired, for keeping all productive labourers alive and in condition
for work, and for just keeping up their numbers without increase. What
is required for these purposes, or, in other words, for keeping up the
productive resources of the country, cannot be diverted from its
destination without rendering the nation as a whole poorer. But all
which is produced beyond this, whether it be in the hands of the
labourer, of the capitalist, or of any of the numerous varieties of
rent-owners, may be taken for immediate enjoyment, without prejudice to
the productive resources of the community; and whatever part of it is
not so taken, constitutes a clear addition to the national capital, or
to the permanent sources of enjoyment.
ESSAY IV.
ON PROFITS, AND INTEREST.
The profits of stock are the surplus which remains to the capitalist
after replacing his capital: and the ratio which that surplus bears to
the capital itself, is the _rate_ of profit.
This being the definition of profits, it might seem natural to adopt, as
a sufficient theory in regard to the rate of profit, that it depends
upon the productive power of capital. Some countries are favoured beyond
others, either by nature or art, in the means of production. If the
powers of the soil, or of machinery, enable capital to produce what is
necessary for replacing itself, and twenty per cent more, profits will
be twenty per cent; and so on.
This, accordingly, is a popular mode of speaking on the subject of
profits; but it has only the semblance, not the reality, of an
explanation. The "productive power of capital," though a common, and,
for some purposes, a convenient expression, is a delusive one. Capital,
strictly speaking, has no productive power. The only productive power is
that of labour; assisted, no doubt, by tools, and acting upon materials.
That portion of capital which consists of tools and materials, may be
said, perhaps, without any great impropriety, to have a productive
power, because they contribute, along with labour, to the accomplishment
of production. But that portion of capital which consists of wages, has
no productive power of its own. Wages have no productive power; they are
the price of a productive power. Wages do not contribute, along with
labour, to the production of commodities, no more than the price of
tools contributes along with the tools themselves. If labour could be
had without purchase, wages might be dispensed with. That portion of
capital which is expended in the wages of labour, is only the means by
which the capitalist procures to himself, in the way of purchase, the
use of that labour in which the power of production really resides.
The proper view of capital is, that anything whatever, which a person
possesses, constitutes his capital, provided he is able, and intends,
to employ it, not in consumption for the purpose of enjoyment, but in
possessing himself of the means of production, with the intention of
employing those means productively. Now the means of production are
labour, implements, and materials. The only productive power which
anywhere exists, is the productive power of labour, implements, and
materials.
We need not, on this account, altogether proscribe the expression,
"productive power of capital;" but we should carefully note, that it can
only mean the quantity of real productive power which the capitalist,
by means of his capital, can command. This may change, though the
productive power of labour remains the same. Wages, for example, may
rise; and then, although all the circumstances of production remain
exactly as they were before, the same capital will yield a less return,
because it will set in motion a less quantity of productive labour.
We may, therefore, consider the capital of a producer as measured by the
means which he has of possessing himself of the different essentials of
production: namely, labour, and the various articles which labour
requires as materials, or of which it avails itself as aids.
The ratio between the price which he has to pay for these means of
production, and the produce which they enable him to raise, is the
_rate_ of his _profit_. If he must give for labour and tools four-fifths
of what they will produce, the remaining fifth will constitute his
profit, and will give him a rate of one in four, or twenty-five per
cent, on his outlay.
It is necessary here to remark, what cannot indeed by any possibility be
misunderstood, but might possibly be overlooked in cases where attention
to it is indispensable, viz., that we are speaking now of the _rate_ of
profit, not the gross profit. If the capital of the country is very
great, a profit of only five per cent upon it may be much more ample,
may support a much larger number of capitalists and their families in
much greater affluence, than a profit of twenty-five per cent on the
comparatively small capital of a poor country. The _gross_ profit of a
country is the actual amount of necessaries, conveniences, and luxuries,
which are divided among its capitalists: but whether this be large or
small, the rate of profit may be just the same. The rate of profit is
the proportion which the profit bears to the capital; which the surplus
produce after replacing the outlay, bears to the outlay. In short, if we
compare the _price paid_ for labour and tools with what that labour and
those tools will _produce_, from this ratio we may calculate the rate of
profit.
As the gross profit may be very different though the rate of profit be
the same; so also may the absolute price paid for labour and tools be
very different, and yet the proportion between the price paid and the
produce obtained may be just the same. For greater clearness, let us
omit, for the present, the consideration of tools, materials, &c, and
conceive production as the result solely of labour. In a certain
country, let us suppose, the wages of each labourer are one quarter of
wheat per year, and 100 men can produce, in one year, 120 quarters. Here
the price paid for labour is to the produce of that labour as 100 to
120, and profits are 20 per cent. Suppose now that, in another country,
wages are just double what they are in the country before supposed;
namely, two quarters of wheat per year, for each labourer. But suppose,
likewise, that the productive power of labour is double what it is in
the first country; that by the greater fertility of the soil, 100 men
can produce 240 quarters, instead of 120 as before. Here it is obvious,
that the real price paid for labour is twice as great in the one country
as in the other; but the produce being also twice as great, the ratio
between the price of labour and the produce of labour is still exactly
the same: an outlay of 200 quarters gives a return of 240 quarters, and
profits, as before, are 20 per cent.
Profits, then (meaning not gross profits, but the rate of profit),
depend (not upon the price of labour, tools, and materials--but) upon
the ratio between the price of labour, tools, and materials, and the
produce of them: upon the proportionate share of the produce of industry
which it is necessary to offer, in order to purchase that industry and
the means of setting it in motion.
* * * * *
We have hitherto spoken of tools, buildings, and materials, as
essentials of production, co-ordinate with labour, and equally
indispensable with it. This is true; but it is also true that tools,
buildings, and materials, are themselves the produce of labour; and that
the only cause (cases of monopoly excepted) of their having any value,
is the labour which is required for their production.
If tools, buildings, and materials were the spontaneous gifts of nature,
requiring no labour either in order to produce or to appropriate them;
and if they were thus bestowed upon mankind in indefinite quantity, and
without the possibility of being monopolized; they would still be as
useful, as indispensable as they now are; but since they could, like air
and the light of the sun, be obtained without cost or sacrifice, they
would form no part of the expenses of production, and no portion of the
produce would be required to be set aside in order to replace the outlay
made for these purposes. The whole produce, therefore, after replacing
the wages of labour, would be clear profit to the capitalist.
Labour alone is the primary means of production; "the original
purchase-money which has been paid for everything." Tools and materials,
like other things, have originally cost nothing but labour; and have a
value in the market only because wages have been paid for them. The
labour employed in making the tools and materials being added to the
labour afterwards employed in working up the materials by aid of the
tools, the sum total gives the whole of the labour employed in the
production of the completed commodity. In the ultimate analysis,
therefore, labour appears to be the only essential of production. To
replace capital, is to replace nothing but the wages of the labour
employed. Consequently, the whole of the surplus, after replacing wages,
is profits. From this it seems to follow, that the ratio between the
wages of labour and the produce of that labour gives the rate of profit.
And thus we arrive at Mr. Ricardo's principle, that profits depend upon
wages; rising as wages fall, and falling as wages rise.
To protect this proposition (the most perfect form in which the law of
profits seems to have been yet exhibited) against misapprehension, one
or two explanatory remarks are required.
If by wages, be meant what constitutes the real affluence of the
labourer, the _quantity_ of produce which he receives in exchange for
his labour; the proposition that profits vary inversely as wages, will
be obviously false. The rate of profit (as has been already observed and
exemplified) does not depend upon the price of labour, but upon the
proportion between the price of labour and the produce of it. If the
produce of labour is large, the price of labour may also be large
without any diminution of the rate of profit: and, in fact, the rate of
profit is highest in those countries (as, for instance, North America)
where the labourer is most largely remunerated. For the wages of labour,
though so large, bear a less proportion to the abundant _produce_ of
labour, there than elsewhere.
But this does not affect the truth of Mr. Ricardo's principle as he
himself understood it; because an increase of the labourer's real
comforts was not considered by him as a rise of wages. In his language
wages were only said to rise, when they rose not in mere quantity but in
_value_. To the labourer himself (he would have said) the _quantity_ of
his remuneration is the important circumstance: but its _value_ is the
only thing of importance to the person who purchases his labour.
The rate of profits depends not upon absolute or real wages, but upon
the _value_ of wages.
If, however, by value, Mr. Ricardo had meant _exchangeable_ value, his
proposition would still have been remote from the truth. Profits depend
no more upon the exchangeable value of the labourer's remuneration, than
upon its quantity. The truth is, that by the exchangeable value is meant
the quantity of commodities which the labourer can purchase with his
wages; so that when we say the exchangeable value of wages, we say their
quantity, under another name.
Mr. Ricardo, however, did not use the word value in the sense of
exchangeable value.
Occasionally, in his writings, he could not avoid using the word as
other people use it, to denote value in exchange. But he more frequently
employed it in a sense peculiar to himself, to denote cost of
production; in other words, the _quantity of labour_ required to produce
the article; that being his criterion of cost of production. Thus, if a
hat could be made with ten days' labour in France and with five days'
labour in England, he said that the value of a hat was double in France
of what it was in England. If a quarter of corn could be produced a
century ago with half as much labour as is necessary at present, Mr.
Ricardo said that the value of a quarter of corn had doubled.