§ 1. Commodities which are susceptible of indefinite Multiplication, but
not without increase of Cost. Law of their Value, Cost of Production in
the most unfavorable existing circumstances.
We have investigated the laws which determine the value of two classes of
commodities—the small class which, being limited to a definite quantity,
have their value entirely determined by demand and supply, save that their
cost of production (if they have any) constitutes a minimum below which
they can not permanently fall; and the large class, which can be
multiplied _ad libitum_ by labor and capital, and of which the cost of
production fixes the maximum as well as the minimum at which they can
permanently exchange [if there be free competition]. But there is still a
third kind of commodities to be considered—those which have, not one, but
several costs of production; which can always be increased in quantity by
labor and capital, but not by the same amount of labor and capital; of
which so much may be produced at a given cost, but a further quantity not
without a greater cost. These commodities form an intermediate class,
partaking of the character of both the others. The principal of them is
agricultural produce. We have already made abundant reference to the
fundamental truth that in agriculture, the state of the art being given,
doubling the labor does not double the produce; that, if an increased
quantity of produce is required, the additional supply is obtained at a
greater cost than the first. Where a hundred quarters of corn are all that
is at present required from the lands of a given village, if the growth of
population made it necessary to raise a hundred more, either by breaking
up worse land now uncultivated, or by a more elaborate cultivation of the
land already under the plow, the additional hundred, or some part of them,
at least, might cost double or treble as much per quarter as the former
supply.
If the first hundred quarters were all raised at the same expense (only
the best land being cultivated), and if that expense would be remunerated
with the ordinary profit by a price of 20_s._ the quarter, the natural
price of wheat, so long as no more than that quantity was required, would
be 20_s._; and it could only rise above or fall below that price from
vicissitudes of seasons, or other casual variations in supply. But if the
population of the district advanced, a time would arrive when more than a
hundred quarters would be necessary to feed it. We must suppose that there
is no access to any foreign supply. By the hypothesis, no more than a
hundred quarters can be produced in the district, unless by either
bringing worse land into cultivation, or altering the system of culture to
a more expensive one. Neither of these things will be done without a rise
in price. This rise of price will gradually be brought about by the
increasing demand. So long as the price has risen, but not risen enough to
repay with the ordinary profit the cost of producing an additional
quantity, the increased value of the limited supply partakes of the nature
of a scarcity value. Suppose that it will not answer to cultivate the
second best land, or land of the second degree of remoteness, for a less
return than 25_s._ the quarter; and that this price is also necessary to
remunerate the expensive operations by which an increased produce might be
raised from land of the first quality. If so, the price will rise, through
the increased demand, until it reaches 25_s._ That will now be the natural
price; being the price without which the quantity, for which society has a
demand at that price, will not be produced. At that price, however,
society can go on for some time longer; could go on perhaps forever, if
population did not increase. The price, having attained that point, will
not again permanently recede (though it may fall temporarily from
accidental abundance); nor will it advance further, so long as society can
obtain the supply it requires without a second increase of the cost of
production.
In the case supposed, different portions of the supply of corn have
different costs of production. Though the twenty, or fifty, or one hundred
and fifty quarters additional have been produced at a cost proportional to
25_s._, the original hundred quarters per annum are still produced at a
cost only proportional to 20_s._ This is self-evident, if the original and
the additional supply are produced on different qualities of land. It is
equally true if they are produced on the same land. Suppose that land of
the best quality, which produced one hundred quarters at 20_s._, has been
made to produce one hundred and fifty by an expensive process, which it
would not answer to undertake without a price of 25_s._ The cost which
requires 25_s._ is incurred for the sake of fifty quarters alone: the
first hundred might have continued forever to be produced at the original
cost, and with the benefit, on that quantity, of the whole rise of price
caused by the increased demand: no one, therefore, will incur the
additional expense for the sake of the additional fifty, unless they alone
will pay for the whole of it. The fifty, therefore, will be produced at
their natural price, proportioned to the cost of their production; while
the other hundred will now bring in 5_s._ a quarter more than their
natural price—than the price corresponding to, and sufficing to
remunerate, their lower cost of production.
If the production of any, even the smallest, portion of the supply
requires as a necessary condition a certain price, that price will be
obtained for all the rest. We are not able to buy one loaf cheaper than
another because the corn from which it was made, being grown on a richer
soil, has cost less to the grower. The value, therefore, of an article
(meaning its natural, which is the same with its average value) is
determined by the cost of that portion of the supply which is produced and
brought to market at the greatest expense. This is the Law of Value of the
third of the three classes into which all commodities are divided.
§ 2. Such commodities, when Produced in circumstances more favorable,
yield a Rent equal to the difference of Cost.
If the portion of produce raised in the most unfavorable circumstances
obtains a value proportioned to its cost of production; all the portions
raised in more favorable circumstances, selling as they must do at the
same value, obtain a value more than proportioned to their cost of
production.
The owners, however, of those portions of the produce enjoy a privilege;
they obtain a value which yields them more than the ordinary profit. The
advantage depends on the possession of a natural agent of peculiar
quality, as, for instance, of more fertile land than that which determines
the general value of the commodity; and when this natural agent is not
owned by themselves, the person who does own it is able to exact from
them, in the form of rent, the whole extra gain derived from its use. We
are thus brought by another road to the Law of Rent, investigated in the
concluding chapter of the Second Book. Rent, we again see, is the
difference between the unequal returns to different parts of the capital
employed on the soil. Whatever surplus any portion of agricultural capital
produces, beyond what is produced by the same amount of capital on the
worst soil, or under the most expensive mode of cultivation, which the
existing demands of society compel a recourse to, that surplus will
naturally be paid as rent from that capital, to the owner of the land on
which it is employed.
The discussion of rent is here followed wholly from the point of
view of value, while before (Book II, Chap. VI) the law of rent
was reached through a limitation of the quantity of land due to
the influence of population. In the former case the rent and
produce were stated in bushels. By introducing price now (as the
convenient symbol of value), instead of the separate increased
demands of population in our illustration than used (p. 240), it
will be seen how the same operation, looking at it solely in
respect to value, brings us to the same law:
Price A B C D
per
Bushel.
24 18 12 6
bushels bushels bushels bushels
Total Rent. Total Rent. Total Rent. Total
value of value of value of value of
product. product. product. product.
$1.00 $24.00 $0.00 .... .... .... .... ....
$1.33 $32.00 $8.00 $24.00 $0.00 .... .... ....
$2.00 $48.00 $24.00 $36.00 $12.00 $24.00 $0.00 ....
$4.00 $96.00 $72.00 $72.00 $48.00 $48.00 $24.00 $24.00
It was long thought by political economists, among the rest even by Adam
Smith, that the produce of land is always at a monopoly value, because
(they said), in addition to the ordinary rate of profit, it always yields
something further for rent. This we now see to be erroneous. A thing can
not be at a monopoly value when its supply can be increased to an
indefinite extent if we are only willing to incur the cost. As long as
there is any land fit for cultivation, which at the existing price can not
be profitably cultivated at all, there must be some land a little better,
which will yield the ordinary profit, but allow nothing for rent: and that
land, if within the boundary of a farm, will be cultivated by the farmer;
if not so, probably by the proprietor, or by some other person on
sufferance. Some such land at least, under cultivation, there can scarcely
fail to be.
Rent, therefore, forms no part of the cost of production which determines
the value of agricultural produce. The land or the capital most
unfavorably circumstanced among those actually employed, pays no rent, and
that land or capital determines the cost of production which regulates the
value of the whole produce. Thus rent is, as we have already seen, no
cause of value, but the price of the privilege which the inequality of the
returns to different portions of agricultural produce confers on all
except the least favored portion.
Rent, in short, merely equalizes the profits of different farming
capitals, by enabling the landlord to appropriate all extra gains
occasioned by superiority of natural advantages. If all landlords were
unanimously to forego their rent, they would but transfer it to the
farmers, without benefiting the consumer; for the existing price of corn
would still be an indispensable condition of the production of part of the
existing supply, and if a part obtained that price the whole would obtain
it. Rent, therefore, unless artificially increased by restrictive laws, is
no burden on the consumer: it does not raise the price of corn, and is no
otherwise a detriment to the public than inasmuch as if the state had
retained it, or imposed an equivalent in the shape of a land-tax, it would
then have been a fund applicable to general instead of private advantage.
The nationalization of the land, consequently, would not benefit
the laboring-classes a whit through lowering the price to them, or
any consumer, of food or agricultural produce.
§ 3. Rent of Mines and Fisheries and ground-rent of Buildings, and cases
of gain analogous to Rent.
Agricultural productions are not the only commodities which have several
different costs of production at once, and which, in consequence of that
difference, and in proportion to it, afford a rent. Mines are also an
instance. Almost all kinds of raw material extracted from the interior of
the earth—metals, coals, precious stones, etc.—are obtained from mines
differing considerably in fertility—that is, yielding very different
quantities of the product to the same quantity of labor and capital. There
are, perhaps, cases in which it is impossible to extract from a particular
vein, in a given time, more than a certain quantity of ore, because there
is only a limited surface of the vein exposed, on which more than a
certain number of laborers can not be simultaneously employed. But this is
not true of all mines. In collieries, for example, some other cause of
limitation must be sought for. In some instances the owners limit the
quantity raised, in order not too rapidly to exhaust the mine; in others
there are said to be combinations of owners, to keep up a monopoly price
by limiting the production. Whatever be the causes, it is a fact that
mines of different degrees of richness are in operation, and since the
value of the produce must be proportional to the cost of production at the
worst mine (fertility and situation taken together), it is more than
proportional to that of the best. All mines superior in produce to the
worst actually worked will yield, therefore, a rent equal to the excess.
They may yield more; and the worst mine may itself yield a rent. Mines
being comparatively few, their qualities do not graduate gently into one
another, as the qualities of land do; and the demand may be such as to
keep the value of the produce considerably above the cost of production at
the worst mine now worked, without being sufficient to bring into
operation a still worse. During the interval, the produce is really at a
scarcity value.
Fisheries are another example. Fisheries in the open sea are not
appropriated, but fisheries in lakes or rivers almost always are so, and
likewise oyster-beds or other particular fishing-grounds on coasts. We may
take salmon-fisheries as an example of the whole class. Some rivers are
far more productive in salmon than others. None, however, without being
exhausted, can supply more than a very limited demand. All others,
therefore, will, if appropriated, afford a rent equal to the value of
their superiority.
Both in the case of mines and of fisheries, the natural order of events is
liable to be interrupted by the opening of a new mine, or a new fishery,
of superior quality to some of those already in use. In this case, when
things have permanently adjusted themselves, the result will be that the
scale of qualities which supply the market will have been cut short at the
lower end, while a new insertion will have been made in the scale at some
point higher up; and the worst mine or fishery in use—the one which
regulates the rents of the superior qualities and the value of the
commodity—will be a mine or fishery of better quality than that by which
they were previously regulated.
The ground-rent of a building, and the rent of a garden or park attached
to it, will not be less than the rent which the same land would afford in
agriculture, but may be greater than this to an indefinite amount; the
surplus being either in consideration of beauty or of convenience, the
convenience often consisting in superior facilities for pecuniary gain.
Sites of remarkable beauty are generally limited in supply, and therefore,
if in great demand, are at a scarcity value. Sites superior only in
convenience are governed as to their value by the ordinary principles of
rent. The ground-rent of a house in a small village is but little higher
than the rent of a similar patch of ground in the open fields.
Suppose the various kinds of land to be represented by the
alphabet; that those below O pay no agricultural rent, and that
all lands increase in fertility and situation as we approach the
beginning of the alphabet, but which, as far up as K, are used in
agriculture; that higher than K all are more profitably used for
building purposes, viz.:
A, B, C, ... | K, L, M, N, O, | ... X, Y, Z.
Now it will happen that land is chosen for building purposes
irrespective of its fertility for agricultural purposes. It will
not be true, as some may think, that no land will be used for
building until it will pay a ground-rent greater than the greatest
agricultural rent paid by any piece of land. It is not true, for
example, if N be selected for a building-lot, that it must pay a
ground-rent as high as the agricultural rent of K, the most
fertile land cultivated in agriculture. It must pay a ground-rent
higher only than it itself would pay, if cultivated. It is only
necessary that it pay more than the same (not better) land would
pay as rent if used only in agriculture.
The rents of wharfage, dock, and harbor room, water-power, and many other
privileges, may be analyzed on similar principles. Take the case, for
example, of a patent or exclusive privilege for the use of a process by
which the cost of production is lessened. If the value of the product
continues to be regulated by what it costs to those who are obliged to
persist in the old process, the patentee will make an extra profit equal
to the advantage which his process possesses over theirs. This extra
profit is essentially similar to rent, and sometimes even assumes the form
of it, the patentee allowing to other producers the use of his privilege
in consideration of an annual payment.
The extra gains which any producer or dealer obtains through superior
talents for business, or superior business arrangements, are very much of
a similar kind. If all his competitors had the same advantages, and used
them, the benefit would be transferred to their customers through the
diminished value of the article; he only retains it for himself because he
is able to bring his commodity to market at a lower cost, while its value
is determined by a higher.(219)
§ 4. _Résumé_ of the laws of value of each of the three classes of
commodities.
A general _résumé_ of the laws of value, where a free movement of labor
and capital exists, may now be briefly made in the following form:
Exchange value has three conditions, viz.:
1. Utility, or ability to satisfy a desire (U).
2. Difficulty of attainment (D), according to which there are three
classes of commodities.
3. Transferableness.
Of the second condition, there are three classes:
1. Those limited in supply—e.g., ancient pictures or monopolized
articles.
2. Those whose supply is capable of indefinite increase by the use of
labor and capital.
3. Those whose supply is gained at a gradually increasing cost, under the
law of diminishing returns.
Of those limited in supply, their value is regulated by Demand and Supply.
The only limit is U.
Of those whose supply is capable of indefinite increase, their normal and
permanent value is regulated by Cost of Production, and their temporary or
market value is regulated by Demand and Supply, oscillating around Cost of
Production (which consists of the amount of labor and abstinence
required).
Of those whose supply is gained at a gradually increasing cost, their
normal value is regulated by the Cost of Production of that portion of the
whole amount of the whole amount needed, which is brought to market at the
greatest expense, and their market value is regulated by Demand and Supply
(as in class 2).
If there be no free competition between industries, then the value of
those commodities which has been said, in the above classification, to
depend on cost of production, will be governed by the law of Reciprocal
Demand.