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ON
THE PRINCIPLES
OF
POLITICAL ECONOMY,
AND
TAXATION.
BY DAVID RICARDO, Esq.
LONDON:
JOHN MURRAY, ALBEMARLE-STREET
1817.
J. M^{c}CREERY. Printer,
Black Horse Court, London.
PREFACE.
The produce of the earth--all that is derived from its surface by the
united application of labour, machinery, and capital, is divided among
three classes of the community; namely, the proprietor of the land, the
owner of the stock or capital necessary for its cultivation, and the
labourers by whose industry it is cultivated.
But in different stages of society, the proportions of the whole produce
of the earth which will be allotted to each of these classes, under the
names of rent, profit, and wages, will be essentially different;
depending mainly on the actual fertility of the soil, on the
accumulation of capital and population, and on the skill, ingenuity, and
instruments employed in agriculture.
To determine the laws which regulate this distribution, is the principal
problem in Political Economy: much as the science has been improved by
the writings of Turgot, Stuart, Smith, Say, Sismondi, and others, they
afford very little satisfactory information respecting the natural
course of rent, profit, and wages.
In 1815, Mr. Malthus in his "Inquiry into the Nature and Progress of
Rent," and a Fellow of University College, Oxford, in his "Essay on the
Application of Capital to Land," presented to the world, nearly at the
same moment, the true doctrine of rent; without a knowledge of which it
is impossible to understand the effect of the progress of wealth on
profits and wages, or to trace satisfactorily the influence of taxation
on different classes of the community, particularly when the commodities
taxed are the productions immediately derived from the surface of the
earth. Adam Smith, and the other able writers to whom I have alluded,
not having viewed correctly the principles of rent, have, it appears to
me, overlooked many important truths, which can only be discovered after
the subject of rent is thoroughly understood.
To supply this deficiency, abilities are required of a far superior cast
to any possessed by the writer of the following pages; yet after having
given to this subject his best consideration--after the aid which he has
derived from the works of the above-mentioned eminent writers--and after
the valuable experience which a few late years, abounding in facts, have
yielded to the present generation--it will not, he trusts, be deemed
presumptuous in him to state his opinions on the laws of profits and
wages, and on the operation of taxes. If the principles which he deems
correct should be found to be so, it will be for others more able than
himself to trace them to all their important consequences.
The writer, in combating received opinions, has found it necessary to
advert more particularly to those passages in the writings of Adam Smith
from which he sees reason to differ; but he hopes it will not on that
account be suspected that he does not, in common with all those who
acknowledge the importance of the science of Political Economy,
participate in the admiration which the profound work of this
celebrated author so justly excites.
The same remark may be applied to the excellent works of M. Say, who not
only was the first, or among the first, of continental writers, who
justly appreciated and applied the principles of Smith, and who has done
more than all other continental writers taken together, to recommend the
principles of that enlightened and beneficial system to the nations of
Europe; but who has succeeded in placing the science in a more logical,
and more instructive order; and has enriched it by several discussions,
original, accurate, and profound.[1] The respect, however, which the
author entertains for the writings of this gentleman, has not prevented
him from commenting with that freedom which he thinks the interests of
science require, on such passages of the "Economie Politique," as
appeared at variance with his own ideas.
CONTENTS.
CHAP. Page
I. _On Value_ 1
II. _On Rent_ 49
III. _On the Rent of Mines_ 77
IV. _On Natural and Market Price_ 82
V. _On Wages_ 90
V*. _On Profits_ 116
VI. _On Foreign Trade_ 146
VII. _On Taxes_ 186
VIII. _Taxes on Raw Produce_ 194
VIII*. _Taxes on Rent_ 221
IX. _Tithes_ 225
X. _Land-Tax_ 232
XI. _Taxes on Gold_ 247
XII. _Taxes on Houses_ 262
XIII. _Taxes on Profits_ 269
XIV. _Taxes on Wages_ 285
XV. _Taxes on other Commodities than Raw Produce_ 330
XVI. _Poor Rates_ 354
XVII. _On Sudden Changes in the Channels of Trade_ 363
XVIII. _Value and Riches, their Distinctive Properties_ 377
XIX. _Effects of Accumulation on Profits and Interest_ 398
XX. _Bounties on Exportation, and Prohibitions
of Importation_ 417
XXI. _On Bounties on Production_ 449
XXII. _Doctrine of Adam Smith concerning the Rent of Land_ 458
XXIII. _On Colonial Trade_ 476
XXIV. _On Gross and Net Revenue_ 491
XXV. _On Currency and Banks_ 499
XXVI. _On the comparative Value of Gold, Corn, and Labour,
in Rich and in Poor Countries_ 527
XXVII. _Taxes paid by the Producer_ 538
XXVIII. _On the Influence of Demand and Supply on Prices_ 542
XXIX. _Mr. Malthus's Opinions on Rent_ 549
CHAPTER I.
ON VALUE.
It has been observed by Adam Smith, that "the word Value has two
different meanings, and sometimes expresses the utility of some
particular object, and sometimes the power of purchasing other goods
which the possession of that object conveys. The one may be called
_value in use_; the other, _value in exchange_. The things," he
continues, "which have the greatest value in use, have frequently little
or no value in exchange; and, on the contrary, those which have the
greatest value in exchange, have little or no value in use." Water and
air are abundantly useful; they are indeed indispensable to existence,
yet, under ordinary circumstances, nothing can be obtained in exchange
for them. Gold, on the contrary, though of little use compared with air
or water, will exchange for a great quantity of other goods.
Utility then is not the measure of exchangeable value, although it is
absolutely essential to it. If a commodity were in no way useful,--in
other words, if it could in no way contribute to our gratification,--it
would be destitute of exchangeable value, however scarce it might be, or
whatever quantity of labour might be necessary to procure it.
Possessing utility, commodities derive their exchangeable value from two
sources: from their scarcity, and from the quantity of labour required
to obtain them.
There are some commodities, the value of which is determined by their
scarcity alone. No labour can increase the quantity of such goods, and
therefore their value cannot be lowered by an increased supply. Some
rare statues and pictures, scarce books and coins, wines of a peculiar
quality, which can be made only from grapes grown on a particular soil,
of which there is a very limited quantity, are all of this description.
Their value is wholly independent of the quantity of labour originally
necessary to produce them, and varies with the varying wealth and
inclinations of those who are desirous to possess them.
These commodities, however, form a very small part of the mass of
commodities daily exchanged in the market. By far the greatest part of
those goods which are the objects of desire, are procured by labour; and
they may be multiplied, not in one country alone, but in many, almost
without any assignable limit, if we are disposed to bestow the labour
necessary to obtain them.
In speaking then of commodities, of their exchangeable value, and of the
laws which regulate their relative prices, we mean always such
commodities only as can be increased in quantity by the exertion of
human industry, and on the production of which competition operates
without restraint.
In the early stages of society, the exchangeable value of these
commodities, or the rule which determines how much of one shall be
given in exchange for another, depends solely on the comparative
quantity of labour expended on each.
"The real price of every thing," says Adam Smith, "what every thing
really costs to the man who wants to acquire it, is the toil and trouble
of acquiring it. What every thing is really worth to the man who has
acquired it, and who wants to dispose of it, or exchange it for
something else, is the toil and trouble which it can save to himself,
and which it can impose upon other people." "Labour was the first
price--the original purchase-money that was paid for all things." Again,
"in that early and rude state of society, which precedes both the
accumulation of stock and the appropriation of land, the proportion
between the quantities of labour necessary for acquiring different
objects, seems to be the only circumstance which can afford any rule for
exchanging them for one another. If among a nation of hunters, for
example, it usually cost twice the labour to kill a beaver which it does
to kill a deer, one beaver should naturally exchange for, or be worth
two deer. It is natural that what is usually the produce of two days',
or two hours' labour, should be worth double of what is usually the
produce of one day's, or one hour's labour."[2]
That this is really the foundation of the exchangeable value of all
things, excepting those which cannot be increased by human industry, is
a doctrine of the utmost importance in political economy; for from no
source do so many errors, and so much difference of opinion in that
science proceed, as from the vague ideas, which are attached to the word
value.
If the quantity of labour realized in commodities, regulate their
exchangeable value, every increase of the quantity of labour must
augment the value of that commodity on which it is exercised, as every
diminution must lower it.
Adam Smith, who so accurately defined the original source of
exchangeable value, and who was bound in consistency to maintain, that
all things became more or less valuable in proportion as more or less
labour was bestowed on their production, has himself erected another
standard measure of value, and speaks of things being more or less
valuable, in proportion as they will exchange for more or less of this
standard measure. Sometimes he speaks of corn, at other times of labour,
as a standard measure; not the quantity of labour bestowed on the
production of any object, but the quantity which it can command in the
market: as if these were two equivalent expressions, and as if because a
man's labour had become doubly efficient, and he could therefore produce
twice the quantity of a commodity, he would necessarily receive twice
the former quantity in exchange for it.
If this indeed were true, if the reward of the labourer were always in
proportion to what he produced, the quantity of labour bestowed on a
commodity, and the quantity of labour which that commodity would
purchase, would be equal, and either might accurately measure the
variations of other things: but they are not equal; the first is under
many circumstances an invariable standard, indicating correctly the
variations of other things; the latter is subject to as many
fluctuations as the commodities compared with it. Adam Smith, after most
ably shewing the insufficiency of a variable medium, such as gold and
silver, for the purpose of determining the varying value of other
things, has himself, by fixing on corn or labour, chosen a medium no
less variable.
Gold and silver are no doubt subject to fluctuations, from the discovery
of new and more abundant mines; but such discoveries are rare, and their
effects, though powerful, are limited to periods of comparatively short
duration. They are subject also to fluctuation, from improvements in the
skill and machinery with which the mines may be worked; as in
consequence of such improvements, a greater quantity may be obtained
with the same labour. They are further subject to fluctuation from the
decreasing produce of the mines, after they have yielded a supply to the
world, for a succession of ages. But from which of these sources of
fluctuation is corn exempted? Does not that also vary, on one hand, from
improvements in agriculture, from improved machinery and implements
used in husbandry, as well as from the discovery of new tracts of
fertile land, which in other countries may be taken into cultivation,
and which will affect the value of corn in every market where
importation is free? Is it not on the other hand subject to be enhanced
in value from prohibitions of importation, from increasing population
and wealth, and the greater difficulty of obtaining the increased
supplies, on account of the additional quantity of labour which the
cultivation of inferior lands requires? Is not the value of labour
equally variable; being not only affected, as all other things are, by
the proportion between the supply and demand, which uniformly varies
with every change in the condition of the community, but also by the
varying price of food and other necessaries, on which the wages of
labour are expended?
In the same country double the quantity of labour may be required to
produce a given quantity of food and necessaries at one time, that may
be necessary at another, and a distant time; yet the labourer's reward
may possibly be very little diminished. If the labourer's wages at the
former period, were a certain quantity of food and necessaries, he
probably could not have subsisted if that quantity had been reduced.
Food and necessaries in this case will have risen 100 per cent. if
estimated by the _quantity_ of labour necessary to their production,
while they will scarcely have increased in value, if measured by the
quantity of labour for which they will _exchange_.
The same remark may be made respecting two or more countries. In America
and Poland, a year's labour will produce much more corn than in England.
Now, supposing all other necessaries to be equally cheap in those three
countries, would it not be a great mistake to conclude, that the
quantity of corn awarded to the labourer, would in each country be in
proportion to the facility of production?
If the shoes and clothing of the labourer, could, by improvements in
machinery, be produced by one fourth of the labour now necessary to
their production, they would probably fall 75 per cent.; but so far is
it from being true, that the labourer would thereby be enabled
permanently to consume four coats, or four pair of shoes, instead of
one, that his wages would in no long time be adjusted by the effects of
competition, and the stimulus to population, to the new value of the
necessaries on which they were expended. If these improvements extended
to all the objects of the labourer's consumption, we should find him
probably at the end of a very few years, in possession of only a small,
if any, addition to his enjoyments, although the exchangeable value of
those commodities, compared with any other commodity, in the manufacture
of which no such improvement were made, had sustained a very
considerable reduction; and though they were the produce of a very
considerably diminished quantity of labour.
It cannot then be correct, to say with Adam Smith, "that as labour may
sometimes _purchase_ a greater, and sometimes a smaller quantity of
goods, it is their value which varies, not that of the labour which
purchases them;" and therefore, "that labour _alone never varying in
its own value_, is alone the ultimate and real standard by which the
value of all commodities can at all times and places be estimated and
compared;"--but it is correct to say, as Adam Smith had previously said,
"that the proportion between the quantities of labour necessary for
acquiring different objects, seems to be the only circumstance which can
afford any rule for exchanging them for one another;" or in other words,
that it is the comparative quantity of commodities which labour will
produce, that determines their present or past relative value, and not
the comparative quantities of commodities, which are given to the
labourer in exchange for his labour.
If any one commodity could be found, which now and at all times required
precisely the same quantity of labour to produce it, that commodity
would be of an unvarying value, and would be eminently useful as a
standard by which the variations of other things might be measured. Of
such a commodity we have no knowledge, and consequently are unable to
fix on any standard of value. It is, however, of considerable use
towards attaining a correct theory, to ascertain what the essential
qualities of a standard are, that we may know the causes of the
variation in the relative value of commodities, and that we may be
enabled to calculate the degree in which they are likely to operate.
* * * * *
In speaking however of labour, as being the foundation of all value, and
the relative quantity of labour as determining the relative value of
commodities, I must not be supposed to be inattentive to the different
qualities of labour, and the difficulty of comparing an hour's, or a
day's labour, in one employment, with the same duration of labour in
another. The estimation in which different qualities of labour are held,
comes soon to be adjusted in the market with sufficient precision for
all practical purposes, and depends much on the comparative skill of the
labourer, and intensity of the labour performed. The scale, when once
formed, is liable to little variation. If a day's labour of a working
jeweller be more valuable than a day's labour of a common labourer, it
has long ago been adjusted, and placed in its proper position in the
scale of value.[3]
In comparing therefore the value of the same commodity, at different
periods of time, the consideration of the comparative skill and
intensity of labour, required for that particular commodity, needs
scarcely to be attended to, as it operates equally at both periods. One
description of labour at one time is compared with the same description
of labour at another; if a tenth, a fifth, or a fourth, has been added
or taken away, an effect proportioned to the cause will be produced on
the relative value of the commodity.
If a piece of cloth be now of the value of two pieces of linen, and if,
in ten years hence, the ordinary value of a piece of cloth should be
four pieces of linen, we may safely conclude, that either more labour is
required to make the cloth, or less to make the linen, or that both
causes have operated.
As the inquiry to which I wish to draw the reader's attention, relates
to the effect of the variations in the relative value of commodities,
and not in their absolute value, it will be of little importance to
examine into the comparative degree of estimation in which the different
kinds of human labour are held. We may fairly conclude, that whatever
inequality there might originally have been in them, whatever the
ingenuity, skill, or time necessary for the acquirement of one species
of manual dexterity more than another, it continues nearly the same
from one generation to another; or at least, that the variation is very
inconsiderable from year to year, and therefore, can have little effect
for short periods on the relative value of commodities.
"The proportion between the different rates both of wages and profit in
the different employments of labour and stock, seems not to be much
affected, as has already been observed, by the riches or poverty, the
advancing, stationary, or declining state of the society. Such
revolutions in the public welfare, though they affect the general rates
both of wages and profit, must in the end affect them equally in all
different employments. The proportion between them therefore must remain
the same, and cannot well be altered, at least for any considerable
time, by any such revolutions."[4]
It will be seen by the extract which I have made in page 4, from the
"Wealth of Nations," that though Adam Smith fully recognized the
principle, that the proportion between the quantities of labour
necessary for acquiring different objects, is the only circumstance
which can afford any rule for our exchanging them for one another, yet
he limits its application to "that early and rude state of society,
which precedes both the accumulation of stock and the appropriation of
land;" as if, when profits and rent were to be paid, they would have
some influence on the relative value of commodities, independent of the
mere quantity of labour that was necessary to their production.
Adam Smith, however, has no where analyzed the effects of the
accumulation of capital, and the appropriation of land, on relative
value. It is of importance, therefore, to determine how far the effects
which are avowedly produced on the exchangeable value of commodities, by
the comparative quantity of labour bestowed on their production, are
modified or altered by the accumulation of capital and the payment of
rent.
First, as to the accumulation of capital. Even in that early state to
which Adam Smith refers, some capital, though possibly made and
accumulated by the hunter himself would be necessary to enable him to
kill his game. Without some weapon, neither the beaver nor the deer
could be destroyed, and therefore the value of these animals would be
regulated, not solely by the time and labour necessary to their
destruction, but also by the time and labour necessary for providing the
hunter's capital, the weapon, by the aid of which their destruction was
effected.
Suppose the weapon necessary to kill the beaver, were constructed with
much more labour than that necessary to kill the deer, on account of the
greater difficulty of approaching near to the former animal, and the
consequent necessity of its being more true to its mark; one beaver
would naturally be of more value than two deer, and precisely for this
reason, that more labour would on the whole be necessary to its
destruction.
All the implements necessary to kill the beaver and deer might belong to
one class of men, and the labour employed in their destruction might be
furnished by another class; still, their comparative prices would be in
proportion to the actual labour bestowed, both on the formation of the
capital, and on the destruction of the animals. Under different
circumstances of plenty or scarcity of capital, as compared with labour,
under different circumstances of plenty or scarcity of the food and
necessaries essential to the support of men, those who furnished an
equal value of capital for either one employment or for the other, might
have a half, a fourth, or an eighth of the produce obtained, the
remainder being paid as wages to those who furnished the labour; yet
this division could not affect the relative value of these commodities,
since whether the profits of capital were greater or less, whether they
were 50, 20, or 10 per cent., or whether the wages of labour were high
or low, they would operate equally on both employments.
If we suppose the occupations of the society extended, that some provide
canoes and tackle necessary for fishing, others the seed and rude
machinery first used in agriculture, still the same principle would hold
true, that the exchangeable value of the commodities produced would be
in proportion to the labour bestowed on their production; not on their
immediate production only, but on all those implements or machines
required to give effect to the particular labour to which they were
applied.
If we look to a state of society in which greater improvements have been
made, and in which arts and commerce flourish, we shall still find that
commodities vary in value conformably with this principle: in estimating
the exchangeable value of stockings, for example, we shall find that
their value, comparatively with other things, depends on the total
quantity of labour necessary to manufacture them, and bring them to
market. First, there is the labour necessary to cultivate the land on
which the raw cotton is grown; secondly, the labour of conveying the
cotton to the country where the stockings are to be manufactured, which
includes a portion of the labour bestowed in building the ship in which
it is conveyed, and which is charged in the freight of the goods;
thirdly, the labour of the spinner and weaver; fourthly, a portion of
the labour of the engineer, smith, and carpenter, who erected the
buildings and machinery, by the help of which they are made; fifthly,
the labour of the retail dealer, and of many others, whom it is
unnecessary further to particularize. The aggregate sum of these various
kinds of labour, determines the quantity of other things for which these
stockings will exchange, while the same consideration of the various
quantities of labour which have been bestowed on those other things,
will equally govern the portion of them which will be given for the
stockings.
To convince ourselves that this is the real foundation of exchangeable
value, let us suppose any improvement to be made in the means of
abridging labour in any one of the various processes through which the
raw cotton must pass, before the manufactured stockings come to the
market, to be exchanged for other things; and observe the effects which
will follow. If fewer men were required to cultivate the raw cotton, or
if fewer sailors were employed in navigating, or shipwrights in
constructing the ship, in which it was conveyed to us; if fewer hands
were employed in raising the buildings and machinery, or if these when
raised, were rendered more efficient, the stockings would inevitably
fall in value, and consequently command less of other things. They
would fall, because a less quantity of labour was necessary to their
production, and would therefore exchange for a smaller quantity of those
things in which no such abridgment of labour had been made.
Economy in the use of labour never fails to reduce the relative value of
a commodity, whether the saving be in the labour necessary to the
manufacture of the commodity itself, or in that necessary to the
formation of the capital, by the aid of which it is produced. In either
case the price of stockings would fall, whether there were fewer men
employed as bleachers, spinners, and weavers, persons immediately
necessary to their manufacture; or as sailors, carriers, engineers, and
smiths, persons more indirectly concerned. In the one case, the whole
saving of labour would fall on the stockings, because that portion of
labour was wholly confined to the stockings; in the other, a portion
only would fall on the stockings, the remainder being applied to all
those other commodities, to the production of which the buildings,
machinery, and carriage, were subservient.
In every society the capital which is employed in production, is
necessarily of limited durability. The food and clothing consumed by the
labourer, the buildings in which he works, the implements with which his
labour is assisted, are all of a perishable nature. There is however a
vast difference in the time for which these different capitals will
endure: a steam-engine will last longer than a ship, a ship than the
clothing of the labourer, and the clothing of the labourer longer than
the food which he consumes.
According as capital is rapidly perishable, and requires to be
frequently reproduced, or is of slow consumption, it is classed under
the heads of circulating, or of fixed capital. A brewer, whose buildings
and machinery are valuable and durable, is said to employ a large
portion of fixed capital: on the contrary, a shoemaker, whose capital
is chiefly employed in the payment of wages, which are expended on food
and clothing, commodities more perishable than buildings and machinery,
is said to employ a large proportion of his capital as circulating
capital.
Two trades then may employ the same amount of capital; but it may be
very differently divided with respect to the portion which is fixed, and
that which is circulating.
Again two manufacturers may employ the same amount of fixed, and the
same amount of circulating capital; but the durability of their fixed
capitals may be very unequal. One may have steam engines of the value of
10,000_l._ the other, ships of the same value.
Besides the alteration in the relative value of commodities, occasioned
by more or less labour being required to produce them, they are also
subject to fluctuations from a rise of wages, and consequent fall of
profits, if the fixed capitals employed be either of unequal value, or
of unequal duration.
Suppose that in the early stages of society, the bows and arrows of the
hunter were of equal value, and of equal durability, with the canoe and
implements of the fisherman, both being the produce of the same quantity
of labour. Under such circumstances the value of the deer, the produce
of the hunter's day's labour, would be exactly equal to the value of
the fish, the produce of the fisherman's day's labour. The comparative
value of the fish and the game, would be entirely regulated by the
quantity of labour realised in each; whatever might be the quantity of
production, or however high or low general wages or profits might be. If
for example the canoes and implements of the fisherman were of the value
of 100_l._ and were calculated to last for ten years, and he employed
ten men, whose annual labour cost 100_l._ and who in one day obtained by
their labour twenty salmon: If the weapons employed by the hunter were
also of 100_l._ value and calculated to last ten years, and if he also
employed ten men, whose annual labour cost 100_l._ and who in one day
procured him ten deer; then the natural price of a deer would be two
salmon, whether the proportion of the whole produce bestowed on the men
who obtained it, were large or small. The proportion which might be paid
for wages, is of the utmost importance in the question of profits; for
it must at once be seen, that profits would be high or low, exactly in
proportion as wages were low or high; but it could not in the least
affect the relative value of fish and game, as wages would be high or
low at the same time in both occupations. If the hunter urged the plea
of his paying a large proportion, or the value of a large proportion of
his game for wages, as an inducement to the fisherman to give him more
fish in exchange for his game, the latter would state that he was
equally affected by the same cause; and therefore under all variations
of wages and profits, under all the effects of accumulation of capital,
as long as they continued by a day's labour to obtain respectively the
same quantity of fish, and the same quantity of game, the natural rate
of exchange would be, one deer for two salmon.
If with the same quantity of labour a less quantity of fish, or a
greater quantity of game were obtained, the value of fish would rise in
comparison with that of game. If, on the contrary, with the same
quantity of labour a less quantity of game, or a greater quantity of
fish was obtained, game would rise in comparison with fish.
If there were any other commodity which was invariable in its value,
requiring at all times, and under all circumstances, precisely the same
quantity of labour to obtain it, we should be able to ascertain, by
comparing the value of fish and game with this commodity, how much of
the variation was to be attributed to a cause which affected the value
of fish, and how much to a cause which affected the value of game.
Suppose money to be that commodity. If a salmon were worth 1_l._ and a
deer 2_l._ one deer would be worth two salmon. But a deer might become
of the value of three salmon, for more labour might be required to
obtain the deer, or less to get the salmon, or both these causes might
operate at the same time. If we had this invariable standard, we might
easily ascertain in what degree either of these causes operated. If
salmon continued to sell for 1_l._ whilst deer rose to 3_l._ we might
conclude that more labour was required to obtain the deer. If deer
continued at the same price of 2_l._ and salmon sold for 13_s._ 4_d._ we
might then be sure that less labour was required to obtain the salmon;
and if deer rose to 2_l._ 10_s._ and salmon fell to 16_s._ 8_d._ we
should be convinced that both causes had operated in producing the
alteration of the relative value of these commodities.
No alteration in the wages of labour could produce any alteration in the
relative value of these commodities; for if profits were 10 per cent.,
then to replace the 100_l._ circulating capital with 10 per cent.
profit, there must be a return of 110_l._: to replace the equal portion
of fixed capital, when profits are at the rate of 10 per cent. there
should be annually received 16.27_l._; for, the present value of an
annuity of 16.27_l._ for ten years, when money is at 10 per cent., is
100_l._; consequently all the game of the hunter should annually sell
for 126.27_l._ But the capital of the fisherman being the same in
quantity, and divided in the same proportion into fixed and circulating
capital, and being also of the same durability, he, to obtain the same
profits, must sell his goods for the same value. If wages rose 10 per
cent. and consequently 10 per cent. more circulating capital were
required in each trade, it would equally affect both employments. In
both, 210_l._ instead of 200_l._ would be required in order to produce
the former quantity of commodities; and these would sell precisely for
the same money, namely 126.27_l._: they would therefore be at the same
relative value, and profits would be equally reduced in both trades.
The prices of the commodities would not rise, because the money in which
they are valued is by the supposition of an invariable value, always
requiring the same quantity of labour to produce it.
If the gold mine from which money was obtained were in the same country,
in that case, after the rise of wages, 210_l._ might be necessary to be
employed, as capital, to obtain the same quantity of metal that 200_l._
obtained before: for the same reason that the hunter and fisherman
required 10_l._ in addition to their capitals, the miner would require
an equal addition to his. No greater quantity of labour would be
required in any of these occupations, but it would be paid for at a
higher price, and the same reasons which should make the hunter and
fisherman endeavour to raise the value of their game and fish, would
cause the owner of the mine to raise the value of his gold. This
inducement acting with the same force on all these three occupations,
and the relative situation of those engaged in them being the same
before and after the rise of wages, the relative value of game, fish,
and gold, would continue unaltered. Wages might rise twenty per cent.,
and profits consequently fall in a greater or less proportion, without
occasioning the least alteration in the relative value of these
commodities.
Now suppose, that with the same labour and fixed capital, more fish
could be produced, but no more gold or game, the relative value of fish
would fall in comparison with gold or game. If, instead of twenty
salmon, twenty-five were the produce of one day's labour, the price of a
salmon would be sixteen shillings instead of a pound, and two salmon and
a half, instead of two salmon, would be given in exchange for one deer,
but the price of deer would continue at 2_l._ as before. In the same
manner, if fewer fish could be obtained with the same capital and
labour, fish would rise in comparative value. Fish then would rise or
fall in exchangeable value, only because more or less labour was
required to obtain a given quantity; and it never could rise or fall
beyond the proportion of the increased or diminished quantity of labour
required.
If we had then an invariable standard, by which we could measure the
variation in other commodities, we should find that the utmost limit to
which they could permanently rise, was proportioned to the additional
quantity of labour required for their production; and that unless more
labour were required for their production, they could not rise in any
degree whatever. A rise of wages would not raise them in money value,
nor relatively to any other commodities, the production of which
required no additional quantity of labour, which employed the same
proportion of fixed and circulating capital, and fixed capital of the
same durability. If more or less labour were required in the production
of the other commodity, we have already stated that this will
immediately occasion an alteration in its relative value, but such
alteration is owing to the altered quantity of requisite labour, and not
to the rise of wages.
If the fixed and circulating capitals were in different proportions, or
if the fixed capital were of different durability, then the relative
value of the commodities produced, would be altered in consequence of a
rise of wages.
First, when the fixed and circulating capitals were in different
proportions, suppose that instead of 100_l._ fixed capital and 100_l._
circulating capital, the hunter should employ 150_l._ fixed capital and
50_l._ circulating capital, and that the fisherman should on the
contrary employ only 50_l._ fixed capital and 150_l._ circulating
capital.
If profits be 10 per cent., the hunter must
sell his goods for 79_l._ 8_s._ For,
To replace his circulating capital
of 50_l._ with a profit of 10 per
cent. would require a value of 55_l._
To replace his fixed capital with
10 per cent. profit, the present
value of an annuity for ten years
of 24.4_l._ at 10 per cent. being
150_l._ 24.4_l._
------
79.4_l._
If profits be 10 per cent., the fisherman
must sell his goods for 173_l._ 2_s._ 7_d._
To replace his circulating capital
of 150_l._ with 10 per cent. profit 165_l._
To replace his fixed capital with
10 per cent. profit, one-third of
the hunter's 8.13
------
173.13_l._
Now if wages rise, although neither of these commodities should require
more labour for their production, yet their relative value will be
altered. Suppose wages to rise 6 per cent., the hunter would not require
more than an increase of 3_l._ to his capital, to employ the same number
of men, and obtain the same quantity of game; the fisherman would
require three times that sum, or 9_l._ The profits of stock would fall
to 4 per cent., the hunter would be obliged to sell his game for 73_l._
12_s._ 2_d._
To replace his circulating capital
of 53_l._ with a profit of 4 per
cent. 55.12_l._
To replace fixed capital, annually
wasted, the present value of an
annuity of 18.49_l._ for ten years,
when money is at 4 per cent.,
being 150_l._ 18.49
-----
L73.61
The fisherman would sell his fish
for 171_l._ 11_s._ 5_d._ viz.
To replace his circulating capital
of 159_l._ with a profit of 4 per
cent. L165.360
To replace fixed capital annually
wasted, the present value of an
annuity of 6.163_l._, for ten years
at 4 per cent., being 50_l._ 6.163
--------
L171.523
Game was to fish before as 100 to 218.
It would now be as 100 to 233.
Thus we see, that with every rise of wages, in proportion as the capital
employed in any occupation consists of circulating capital, its produce
will be of greater relative value than the goods produced in another
occupation, where a less proportion of circulating, and a greater
proportion of fixed capital are employed.
Secondly, suppose the proportions of fixed capital to be the same; but
of different degrees of durability. In proportion as fixed capital is
less durable, it approaches to the nature of circulating capital. It
will be consumed in a shorter time, and its value reproduced in order to
preserve the capital of the manufacturer. We have just seen, that in
proportion as circulating capital preponderates in a manufacture, when
wages rise, the value of commodities produced in that manufacture, is
relatively higher than that of commodities produced in manufactures
where fixed capital preponderates. In proportion to the less durability
of fixed capital, and its approach to the nature of circulating capital,
the same effect will be produced by the same cause.
Suppose that an engine is made, which will last for a hundred years, and
that its value is 20,000_l._. Suppose too, that this machine, without
any labour whatever, could produce a certain quantity of commodities
annually, and that profits were 10 per cent.: the whole value of the
goods produced would be annually 2,000_l._ 2_s._ 11_d._; for the profit
of 20,000_l._
at 10 per cent. per annum, is L2,000
And an annuity of 2_s._ 11_d._
for 100 years, at 10 per cent.
will, at the end of that
period, replace a capital of
20,000_l._ 2 11
----------
Consequently the goods must
sell for L2000 2 11
----------
If the same amount of capital, viz. 20,000_l._, be employed in
supporting productive labour, and be annually consumed and reproduced,
as it is when employed in paying wages, then to give an equal profit of
10 per cent. on 20,000_l._ the commodities produced must sell for
22,000_l._ Now suppose labour so to rise, that instead of 20,000_l._
being sufficient to pay the wages of those employed in producing the
latter commodities, 20,952_l._ is required; then profits will fall to 5
per cent.: for as these commodities would sell for no more than before,
viz. L22,000 and to
produce them L20,952 would be
requisite, there would remain -------
no more than L1,048 on a capital
of 20,952_l._ If labour so rose, that 21,153_l._ were required, profits
would fall to 4 per cent. and if it rose, so that 21,359_l._ was
employed, profits would fall to 3 per cent.
But, as no wages would be paid by the owner of the machine, which would
last 100 years, when profits fell to 5 per cent. the price of his goods
must fall to 1007_l._ 13_s._ 8_d._ viz. 1000_l._ to pay his profits, and
7_l._ 13_s._ 8_d._ to accumulate for 100 years at 5 per cent. to replace
his capital of 20,000_l._ When profits fell to 4 per cent. his goods
must sell for 816_l._ 3_s._ 2_d._, and when at 3 per cent. for 632_l._
16_s._ 7_d._ By a rise in the price of labour then, under 7 per cent.,
which has no effect on the prices of commodities wholly produced by
labour, a fall of no less than 68 per cent. is effected on those
commodities wholly produced by machinery. If the proprietor of the
machine sold his goods for more than 632_l._ 16_s._ 7_d._, he would get
more than 3 per cent., the general profit of stock; and as others could
furnish themselves with machines at the same price of 20,000_l._ they
would be so multiplied, that he would be inevitably obliged to sink the
price of his goods, till they afforded only the usual and general
profits of stock.
In proportion as this machine were less durable, prices would be less
affected by the fall of profit, and the rise of wages. If, for example,
the machine would last only ten years, when profits were at 10 per cent.
the goods should sell for L3254
when at 5 per cent. 2590
4 per cent. 2465
3 per cent. 2344
for such are the sums requisite to place his profits on a par with
others, and to replace his capital at the end of ten years; or, which is
the same thing, such are the annuities which 20,000_l._ would purchase
for ten years at those rates. If the machine would last only three
years, when profits were 10 per cent.
the price of the goods would be L8042
at 5 per cent. 7344
4 per cent. 7206
3 per cent. 7070
If it would last only one year, when profits
were 10 per cent.
the goods would sell for L22,000
at 5 per cent. 21,000
4 per cent. 20,800
3 per cent. 20,600:
therefore when profits fell from 10 to 3 per cent. the goods, which
were produced with equal capitals, would fall
68 per cent. if the machine would last 100 years.
28 per cent. if the machine would last 10 years.
13 per cent. if it would last 3 years.
And little more than 6 per cent. if it}
would last only } 1 year.
These results are of such importance to the science of political
economy, yet accord so little with some of its received doctrines, which
maintain that every rise in wages is necessarily transferred to the
price of commodities, that it may not be superfluous to elucidate the
subject still further.
A manufacturer of hats employs a hundred men at an annual expense of
50_l._ each, who produce him commodities of the value of 8000_l._ A
machine calculated to last precisely a year, and to do equally well the
same work as the 100 men, is offered to him for 5000_l._, the sum,
exactly, that he is expending on wages. It will be a matter of
indifference to the manufacturer, whether he purchase the machine, or
continue to employ the men. Now if the wages of labour rise 10 per cent.
and an additional capital of 500_l._ be consequently required to enable
him to employ the same labour, whilst his commodities continue to sell
for 8000_l._, he will no longer hesitate, but will at once purchase the
machine, and will do the same annually, while wages continue above the
original 5000_l._ But will he be able now to purchase the machine at the
former price? will not its value be increased, in consequence of the
rise of labour? It would be increased, if there were no stock employed
in its construction, and no profits to be paid to the maker of it. If,
for example, the machine were produced by 100 men working one year upon
it with wages of 50_l._ each, and its price were 5000_l._, should those
wages rise to 55_l._ its price would be 5500_l._: but this cannot be the
case; less than 100 men are employed, or it could not be sold for
5000_l._; for out of the 5000_l._ must be paid the profits of the stock
which employed the men. Suppose then that only eighty-five men were
employed at an expense of 4250_l._ per annum, and that the 750_l._,
which the sale of the machine would produce over and above the wages
advanced to the men, constituted the profits of the engineer's stock.
When wages rose 10 per cent., he would be obliged to employ an
additional capital of 425_l._, and would therefore employ 4675_l._,
instead of 4250_l._, on which capital he would only get a profit of
325_l._ if he continued to sell his machine for 5000_l._; but this is
precisely the case of all manufacturers and capitalists; the rise of
wages affects them all. If therefore the maker of the machine should
raise the price of his machine in consequence of a rise of wages, an
unusual quantity of capital would be employed in the construction of
such machines, till their price afforded only the usual profits. The
manufacturer of hats, by the employment of the machine, if he sells his
hats for 8000_l._, is precisely in the same situation as before; he
employs no more capital, and obtains the same profits. The competition
of trade would not long allow this; for as capital would flow to the
most profitable employment, he would be obliged to lower the price of
hats, till his profits had sunk to the general level. Thus then is the
public benefited by machinery: these mute agents are always the produce
of much less labour than that which they displace, even when they are
of the same money value. Through their influence, an increase in the
price of provisions which raises wages, will affect fewer persons: it
will reach, as in the above instance, eighty-five men instead of a
hundred; and the saving which is the consequence, shews itself in the
reduced price of the commodity manufactured. Neither machines nor any
other commodities are raised in price, but all commodities which are
made by machines fall, and fall in proportion to their durability.
It appears, then, that in proportion to the quantity and the durability
of the fixed capital employed in any kind of production, the relative
prices of those commodities on which such capital is employed, will vary
inversely as wages; they will fall as wages rise. It appears too that no
commodities whatever are raised in absolute price, merely because wages
rise; that they never rise unless additional labour be bestowed on them;
but that all commodities in the production of which fixed capital
enters, not only do not rise with a rise of wages, but absolutely fall;
fall too as much as 68 per cent., with a rise of seven per cent. in
wages, if fixed capital be exclusively employed, and be of the duration
of 100 years.
The above statement, which asserts the compatibility of a rise of wages,
with a fall of prices, has, I know, the disadvantage of novelty, and
must trust to its own merits for advocates; whilst it has for its
opponents, writers of distinguished and deserved reputation. It should
however be carefully remembered, that in this whole argument I am
supposing money to be of an invariable value; in other words, to be
always the produce of the same quantity of unassisted labour. Money,
however, is a variable commodity; and the rise of wages as well as of
commodities, is frequently occasioned by a fall in the value of money. A
rise of wages from this cause will indeed be invariably accompanied by a
rise in the price of commodities: but in such cases, it will be found
that labour and all commodities have not varied in regard to each other,
and that the variation has been confined to money.
Money, from its being a commodity obtained from a foreign country, from
its being the general medium of exchange between all civilized
countries, and from its being also distributed among those countries in
proportions which are ever changing with every improvement in commerce
and machinery, and with every increasing difficulty of obtaining food
and necessaries for an increasing population, is subject to incessant
variations. In stating the principles which regulate exchangeable value
and price, we should carefully distinguish between those variations
which belong to the commodity itself, and those which are occasioned by
a variation in the medium in which value is estimated, or price
expressed.
A rise in wages, from an alteration in the value of money, produces a
general effect on price, and for that reason it produces no real effect
whatever on profits. On the contrary, a rise of wages, from the
circumstance of the labourer being more liberally rewarded, or from a
difficulty of procuring the necessaries on which wages are expended,
does not produce the effect of raising price, but has a great effect in
lowering profits. In the one case, no greater proportion of the annual
labour of the country is devoted to the support of the labourers, in the
other case, a larger portion is so devoted.
It is according to the division of the whole produce of the land and
labour of the country, between the three classes of landlords,
capitalists, and labourers, that we are to judge of rent, profit, and
wages, and not according to the value at which that produce may be
estimated in a medium which is confessedly variable.
It is not by the absolute quantity of produce obtained by either class,
that we can correctly judge of the rate of profit, rent, and wages, but
by the quantity of labour required to obtain that produce. By
improvements in machinery and agriculture, the whole produce may be
doubled; but if wages, rent, and profit, be also doubled, these three
will bear the same proportions to one another, and neither could be said
to have relatively varied. But if wages partook not of the whole of this
increase; if they, instead of being doubled, were only increased one
half, if rent, instead of being doubled, were only increased
three-fourths, and the remaining increase went to profit, it would, I
apprehend, be correct for me to say, that rent and wages had fallen,
while profits had risen; for if we had an invariable standard, by which
to measure the value of this produce, we should find that a less value
had fallen to the class of labourers and landlords, and a greater to the
class of capitalists, than had been given before. We might find for
example, that though the absolute quantity of commodities had been
doubled, they were the produce of precisely the former quantity of
labour. Of every hundred hats, coats, and quarters of corn produced,
if the labourers had 25
The landlords 25
And the capitalists 50
---
100
And if, after these commodities were doubled in quantity, of every 100
The labourers had only 22
The landlords 22
And the capitalists 56
---
100
In that case I should say, that wages and rent had fallen, and profits
risen; though in consequence of the abundance of commodities, the
quantity paid to the labourer and landlord would have increased in the
proportion of 25 to 44. Wages are to be estimated by their real value,
viz. by the quantity of labour and capital employed in producing them,
and not by their nominal value either in coats, hats, money, or corn.
Under the circumstances I have just supposed, commodities would have
fallen to half their former value; and, if money had not varied, to half
their former price also. If then in this medium, which had not varied in
value, the wages of the labourer should be found to have fallen, it will
not the less be a real fall, because they might furnish him with a
greater quantity of cheap commodities, than his former wages.
The variation in the value of money, however great, makes no difference
in the _rate_ of profits; for suppose the goods of the manufacturer to
rise from 1000_l._ to 2000_l._, or 100 per cent., if his capital, on
which the variations of money have as much effect as on the value of
produce, if his machinery, buildings, and stock in trade rise more than
100 per cent., his rate of profits has fallen, and he has a
proportionably less quantity of the produce of the labour of the country
at his command.
If, with capital of a given value, he double the quantity of produce,
its value falls one half, and then it will bear the same proportion to
the capital which produced it, as it did before.
If at the same time that he doubles the quantity of produce by the
employment of the same capital, the value of money is by any accident
lowered one half, the produce will sell for twice the money value that
it did before; but the capital employed to produce it, will also be of
twice its former money value; and therefore in this case too, the value
of the produce will bear the same proportion to the value of the capital
as it did before; and although the produce be doubled, rent, wages, and
profits will only vary as the proportions vary, in which this double
produce may be divided among the three classes that share it.
It appears then that the accumulation of capital, by occasioning
different proportions of fixed and circulating capital to be employed
in different trades, and by giving different degrees of durability to
such fixed capital, introduces a considerable modification to the rule,
which is of universal application in the early states of society.
Commodities, though they continue to rise and fall, in proportion as
more or less labour is necessary to their production, are also affected
in their relative value by a rise or fall of profits, since equal
profits may be derived from goods which sell for 2,000_l._ and from
those which sell for 10,000_l._; and consequently the variations of
those profits, independently of any increased or diminished quantity of
labour required for the goods in question, must affect their prices in
different proportions.
It appears too, that commodities may be lowered in value in consequence
of a real rise of wages, but they never can be raised from that cause.
On the other hand, they may rise from a fall of wages, as they then lose
the peculiar advantages of production, which high wages afforded them.
CHAPTER II.
ON RENT.
It remains however to be considered, whether the appropriation of land,
and the consequent creation of rent, will occasion any variation in the
relative value of commodities, independently of the quantity of labour
necessary to production. In order to understand this part of the
subject, we must inquire into the nature of rent, and the laws by which
its rise or fall is regulated. Rent is that portion of the produce of
the earth, which is paid to the landlord for the use of the original and
indestructible powers of the soil. It is often however confounded with
the interest and profit of capital, and in popular language the term is
applied to whatever is annually paid by a farmer to his landlord. If,
of two adjoining farms of the same extent, and of the same natural
fertility, one had all the conveniences of farming buildings, were,
besides, properly drained and manured, and advantageously divided by
hedges, fences, and walls, while the other had none of these advantages,
more remuneration would naturally be paid for the use of one, than for
the use of the other; yet in both cases this remuneration would be
called rent. But it is evident, that a portion only of the money
annually to be paid for the improved farm, would be given for the
original and indestructible powers of the soil; the other portion would
be paid for the use of the capital which had been employed in
ameliorating the quality of the land, and in erecting such buildings as
were necessary to secure and preserve the produce. Adam Smith sometimes
speaks of rent, in the strict sense to which I am desirous of confining
it, but more often in the popular sense, in which the term is usually
employed. He tells us, that the demand for timber, and its consequent
high price, in the more southern countries of Europe, caused a rent to
be paid for forests in Norway, which could before afford no rent. Is it
not however evident, that the person who paid, what he thus calls rent,
paid it in consideration of the valuable commodity which was then
standing on the land, and that he actually repaid himself with a profit,
by the sale of the timber? If, indeed, after the timber was removed, any
compensation were paid to the landlord for the use of the land, for the
purpose of growing timber or any other produce, with a view to future
demand, such compensation might justly be called rent, because it would
be paid for the productive powers of the land; but in the case stated by
Adam Smith, the compensation was paid for the liberty of removing and
selling the timber, and not for the liberty of growing it. He speaks
also of the rent of coal mines, and of stone quarries, to which the same
observation applies--that the compensation given for the mine or quarry,
is paid for the value of the coal or stone which can be removed from
them, and has no connexion with the original and indestructible powers
of the land. This is a distinction of great importance, in an inquiry
concerning rent and profits; for it is found, that the laws which
regulate the progress of rent, are widely different from those which
regulate the progress of profits, and seldom operate in the same
direction. In all improved countries, that which is annually paid to the
landlord, partaking of both characters, rent and profit, is sometimes
kept stationary by the effects of opposing causes, at other times
advances or recedes, as one or other of these causes preponderates. In
the future pages of this work, then, whenever I speak of the rent of
land, I wish to be understood as speaking of that compensation, which is
paid to the owner of land for the use of its original and indestructible
powers.
On the first settling of a country, in which there is an abundance of
rich and fertile land, a very small proportion of which is required to
be cultivated for the support of the actual population, or indeed can be
cultivated with the capital which the population can command, there will
be no rent; for no one would pay for the use of land, when there was an
abundant quantity not yet appropriated, and therefore at the disposal of
whosoever might choose to cultivate it.
On the common principles of supply and demand, no rent could be paid for
such land, for the reason stated, why nothing is given for the use of
air and water, or for any other of the gifts of nature which exist in
boundless quantity. With a given quantity of materials, and with the
assistance of the pressure of the atmosphere, and the elasticity of
steam, engines may perform work, and abridge human labour to a very
great extent; but no charge is made for the use of these natural aids,
because they are inexhaustible, and at every man's disposal. In the same
manner the brewer, the distiller, the dyer, make incessant use of the
air and water for the production of their commodities; but as the supply
is boundless, it bears no price.[5] If all land had the same
properties, if it were boundless in quantity, and uniform in quality, no
charge could be made for its use, unless where it possessed peculiar
advantages of situation. It is only then because land is of different
qualities with respect to its productive powers, and because in the
progress of population, land of an inferior quality, or less
advantageously situated, is called into cultivation, that rent is ever
paid for the use of it. When, in the progress of society, land of the
second degree of fertility is taken into cultivation, rent immediately
commences on that of the first quality, and the amount of that rent will
depend on the difference in the quality of these two portions of land.
When land of the third quality is taken into cultivation, rent
immediately commences on the second, and it is regulated as before, by
the difference in their productive powers. At the same time, the rent of
the first quality will rise, for that must always be above the rent of
the second, by the difference between the produce which they yield with
a given quantity of capital and labour. With every step in the progress
of population, which shall oblige a country to have recourse to land of
a worse quality, to enable it to raise its supply of food, rent, on all
the more fertile land, will rise.
Thus suppose land--No. 1, 2, 3,--to yield, with an equal employment of
capital and labour, a net produce of 100, 90, and 80 quarters of corn.
In a new country, where there is an abundance of fertile land compared
with the population, and where therefore it is only necessary to
cultivate No. 1, the whole net produce will belong to the cultivator,
and will be the profits of the stock which he advances. As soon as
population had so far increased as to make it necessary to cultivate No.
2, from which ninety quarters only can be obtained after supporting the
labourers, rent would commence on No. 1; for either there must be two
rates of profit on agricultural capital, or ten quarters, or the value
of ten quarters must be withdrawn from the produce of No. 1, for some
other purpose. Whether the proprietor of the land, or any other person,
cultivated No. 1, these ten quarters would equally constitute rent; for
the cultivator of No. 2 would get the same result with his capital,
whether he cultivated No. 1, paying ten quarters for rent, or continued
to cultivate No. 2, paying no rent. In the same manner it might be shewn
that when No. 3 is brought into cultivation, the rent of No. 2 must be
ten quarters, or the value of ten quarters, whilst the rent of No. 1
would rise to twenty quarters; for the cultivator of No. 3 would have
the same profits whether he paid twenty quarters for the rent of No. 1,
ten quarters for the rent of No. 2, or cultivated No. 3 free of all
rent.
It often, and indeed commonly happens that before No. 2, 3, 4, or 5, or
the inferior lands are cultivated, capital can be employed more
productively on those lands which are already in cultivation. It may
perhaps be found, that by doubling the original capital employed on No.
1, though the produce will not be doubled, will not be increased by 100
quarters, it may be increased by eighty-five quarters, and that this
quantity exceeds what could be obtained by employing the same capital on
land, No. 3.
In such case, capital will be preferably employed on the old land, and
will equally create a rent; for rent is always the difference between
the produce obtained by the employment of two equal quantities of
capital and labour. If with a capital of 1000_l._ a tenant obtain 100
quarters of wheat from his land, and by the employment of a second
capital of 1000_l._, he obtain a further return of eighty-five, his
landlord would have the power at the expiration of his lease, of
obliging him to pay fifteen quarters, or an equivalent value, for
additional rent; for there cannot be two rates of profit. If he is
satisfied with a diminution of fifteen quarters in the return for his
second 1000_l._, it is because no employment more profitable can be
found for it. The common rate of profit would be in that proportion, and
if the original tenant refused, some other person would be found willing
to give all which exceeded that rate of profit to the owner of the land
from which he derived it.
In this case, as well as in the other, the capital last employed pays no
rent. For the greater productive powers of the first 1000_l._, fifteen
quarters is paid for rent, for the employment of the second 1000_l._ no
rent whatever is paid. If a third 1000_l._ be employed on the same land,
with a return of seventy-five quarters, rent will then be paid for the
second 1000_l._ and will be equal to the difference between the produce
of these two, or ten quarters; and at the same time the rent of the
first 1000_l._ will rise from fifteen to twenty-five quarters; while the
last 1000_l._ will pay no rent whatever.
If then good land existed in a quantity much more abundant than the
production of food for an increasing population required, or if capital
could be indefinitely employed without a diminished return on the old
land, there could be no rise of rent; for rent invariably proceeds from
the employment of an additional quantity of labour with a proportionally
less return.
The most fertile, and most favourably situated land will be first
cultivated, and the exchangeable value of its produce will be adjusted
in the same manner as the exchangeable value of all other commodities,
by the total quantity of labour necessary in various forms, from first
to last, to produce it, and bring it to market. When land of an inferior
quality is taken into cultivation, the exchangeable value of raw produce
will rise, because more labour is required to produce it.
The exchangeable value of all commodities, whether they be manufactured,
or the produce of the mines, or the produce of land, is always
regulated, not by the less quantity of labour that will suffice for
their production under circumstances highly favourable, and exclusively
enjoyed by those who have peculiar facilities of production; but by the
greater quantity of labour necessarily bestowed on their production by
those who have no such facilities; by those who continue to produce them
under the most unfavourable circumstances; meaning--by the most
unfavourable circumstances, the most unfavourable under which the
quantity of produce required renders it necessary to carry on the
production.
Thus, in a charitable institution, where the poor are set to work with
the funds of benefactors, the general prices of the commodities, which
are the produce of such work, will not be governed by the peculiar
facilities afforded to these workmen, but by the common, usual, and
natural difficulties, which every other manufacturer will have to
encounter. The manufacturer enjoying none of these facilities might
indeed be driven altogether from the market, if the supply afforded by
these favoured workmen were equal to all the wants of the community; but
if he continued the trade, it would be only on condition that he should
derive from it the usual and general rate of profits on stock; and that
could only happen when his commodity sold for a price proportioned to
the quantity of labour bestowed on its production.[6]
It is true, that on the best land, the same produce would still be
obtained with the same labour as before, but its value would be enhanced
in consequence of the diminished returns obtained by those who employed
fresh labour and stock on the less fertile land. Notwithstanding then,
that the advantages of fertile over inferior lands are in no case lost,
but only transferred from the cultivator, or consumer, to the landlord,
yet since more labour is required on the inferior lands, and since it is
from such land only that we are enabled to furnish ourselves with the
additional supply of raw produce, the comparative value of that produce
will continue permanently above its former level, and make it exchange
for more hats, cloth, shoes, &c. &c. in the production of which no such
additional quantity of labour is required.
The reason then, why raw produce rises in comparative value, is because
more labour is employed in the production of the last portion obtained,
and not because a rent is paid to the landlord. The value of corn is
regulated by the quantity of labour bestowed on its production on that
quality of land, or with that portion of capital, which pays no rent.
Corn is not high because a rent is paid, but a rent is paid because corn
is high; and it has been justly observed, that no reduction would take
place in the price of corn, although landlords should forego the whole
of their rent. Such a measure would only enable some farmers to live
like gentlemen, but would not diminish the quantity of labour necessary
to raise raw produce on the least productive land in cultivation.
Nothing is more common than to hear of the advantages which the land
possesses over every other source of useful produce, on account of the
surplus which it yields in the form of rent. Yet when land is most
abundant, when most productive, and most fertile, it yields no rent; and
it is only when its powers decay, and less is yielded in return for
labour, that a share of the original produce of the more fertile
portions is set apart for rent. It is singular that this quality in the
land, which should have been noticed as an imperfection, compared with
the natural agents by which manufacturers are assisted, should have been
pointed out as constituting its peculiar pre-eminence. If air, water,
the elasticity of steam, and the pressure of the atmosphere, were of
various qualities; if they could be appropriated, and each quality
existed only in moderate abundance, they as well as the land would
afford a rent, as the successive qualities were brought into use. With
every worse quality employed, the value of the commodities in the
manufacture of which they were used would rise, because equal quantities
of labour would be less productive. Man would do more by the sweat of
his brow, and nature perform less; and the land would be no longer
pre-eminent for its limited powers.
If the surplus produce which land affords in the form of rent be an
advantage, it is desirable that, every year, the machinery newly
constructed should be less efficient than the old, as that would
undoubtedly give a greater exchangeable value to the goods manufactured,
not only by that machinery, but by all the other machinery in the
kingdom; and a rent would be paid to all those who possessed the most
productive machinery.[7]
The rise of rent is always the effect of the increasing wealth of the
country, and of the difficulty of providing food for its augmented
population. It is a symptom, but it is never a cause of wealth; for
wealth often increases most rapidly while rent is either stationary, or
even falling. Rent increases most rapidly, as the disposable land
decreases in its productive powers. Wealth increases most rapidly in
those countries where the disposable land is most fertile, where
importation is least restricted, and where through agricultural
improvements, productions can be multiplied without any increase in the
proportional quantity of labour, and where consequently the progress of
rent is slow.
If the high price of corn were the effect, and not the cause of rent,
price would be proportionally influenced as rents were high or low, and
rent would be a component part of price. But that corn which is produced
with the greatest quantity of labour is the regulator of the price of
corn, and rent does not and cannot enter in the least degree as a
component part of its price. Adam Smith, therefore, cannot be correct in
supposing that the original rule which regulated the exchangeable value
of commodities, namely the comparative quantity of labour by which they
were produced, can be at all altered by the appropriation of land and
the payment of rent. Raw material enters into the composition of most
commodities, but the value of that raw material as well as corn, is
regulated by the productiveness of the portion of capital last employed
on the land, and paying no rent; and therefore rent is not a component
part of the price of commodities.
We have been hitherto considering the effects of the natural progress of
wealth and population on rent, in a country in which the land is of
variously productive powers; and we have seen, that with every portion
of additional capital which it becomes necessary to employ on the land
with a less productive return, rent would rise. It follows from the same
principles, that any circumstances in the society which should make it
unnecessary to employ the same amount of capital on the land, and which
should therefore make the portion last employed more productive, would
lower rent. Any great reduction in the capital of a country, which
should materially diminish the funds destined for the maintenance of
labour, would naturally have this effect. Population regulates itself by
the funds which are to employ it, and therefore always increases or
diminishes with the increase or diminution of capital. Every reduction
of capital is therefore necessarily followed by a less effective demand
for corn, by a fall of price, and by diminished cultivation. In the
reverse order to that in which the accumulation of capital raises rent,
will the diminution of it lower rent. Land of a less unproductive
quality will be in succession relinquished, the exchangeable value of
produce will fall, and land of a superior quality will be the land last
cultivated, and that which will then pay no rent.
The same effects may however be produced when the wealth and population
of a country are increased, if that increase is accompanied by such
marked improvements in agriculture, as shall have the same effect of
diminishing the necessity of cultivating the poorer lands, or of
expending the same amount of capital on the cultivation of the more
fertile portions.
If a million of quarters of corn be necessary for the support of a given
population, and it be raised on land of the qualities of No. 1, 2, 3;
and if an improvement be afterwards discovered by which it can be raised
on No. 1 and 2, without employing No. 3, it is evident that the
immediate effect must be a fall of rent; for No. 2, instead of No. 3,
will then be cultivated without paying any rent; and the rent of No. 1,
instead of being the difference between the produce of No. 3 and No. 1,
will be the difference only between No. 2 and 1. With the same
population, and no more, there can be no demand for any additional
quantity of corn; the capital and labour employed on No. 3, will be
devoted to the production of other commodities desirable to the
community, and can have no effect in raising rent unless the raw
material from which they are made cannot be obtained without employing
capital less advantageously on the land, in which case No. 3 must again
be cultivated.
It is undoubtedly true, that the fall in the relative price of raw
produce, in consequence of the improvement in agriculture, or rather in
consequence of less labour being bestowed on its production, would
naturally lead to increased accumulation; for the profits of stock would
be greatly augmented. This accumulation would lead to an increased
demand for labour, to higher wages, to an increased population, to a
further demand for raw produce, and to an increased cultivation. It is
only, however, after the increase in the population, that rent would be
as high as before; that is to say, after No. 3 was taken into
cultivation. A considerable period would have elapsed, attended with a
positive diminution of rent.
But improvements in agriculture are of two kinds: those which increase
the productive powers of the land, and those which enable us to obtain
its produce with less labour. They both lead to a fall in the price of
raw produce; they both affect rent, but they do not affect it equally.
If they did not occasion a fall in the price of raw produce, they would
not be improvements; for it is the essential quality of an improvement
to diminish the quantity of labour before required to produce a
commodity; and this diminution cannot take place without a fall of its
price or relative value.
The improvements which increase the productive powers of the land, are
such as the more skilful rotation of crops, or the better choice of
manure. These improvements absolutely enable us to obtain the same
produce from a smaller quantity of land. If, by the introduction of a
course of turnips, I can feed my sheep besides raising my corn, the land
on which the sheep were fed becomes unnecessary, and the same quantity
of raw produce is raised by the employment of a less quantity of land.
If I discover a manure which will enable me to make a piece of land
produce 20 per cent. more corn, I may withdraw at least a portion of my
capital from the most unproductive part of my farm. But, as I have
before observed, it is not necessary that land should be thrown out of
cultivation, in order to reduce rent: to produce this effect, it is
sufficient that successive portions of capital are employed on the same
land with different results, and that the portion which gives the least
result should be withdrawn. If, by the introduction of the turnip
husbandry, or by the use of a more invigorating manure, I can obtain the
same produce with less capital, and without disturbing the difference
between the productive powers of the successive portions of capital, I
shall lower rent; for a different and more productive portion will be
that which will form the standard from which every other will be
reckoned. If, for example, the successive portions of capital yielded
100, 90, 80, 70; whilst I employed these four portions, my rent would be
60, or the difference between
70 and 100 = 30 } { 100
70 and 90 = 20 } { 90
70 and 80 = 10 } whilst the produce { 80
-- } would be 340 { 70
60 } { ---
{ 340
and while I employed these portions, the rent would remain the same,
although the produce of each should have an equal augmentation. If,
instead of 100, 90, 80, 70, the produce should be increased to 125, 115,
105, 95, the rent would still be 60, or the difference between
95 and 125 = 30 } { 125
95 and 115 = 20 } whilst the produce { 115
95 and 105 = 10 } would be increased { 105
-- } to 440 { 95
60 } { ---
{ 440
But with such an increase of produce, without an increase of demand,
there could be no motive for employing so much capital on the land; one
portion would be withdrawn, and consequently the last portion of capital
would yield 105 instead of 95, and rent would fall to 30, or the
difference between
105 and 125 = 20 } whilst the produce would be still { 125
105 and 115 = 10 } adequate to the wants of the { 115
-- } population, for it would be 345 { 105
30 } quarters, or { ---
{ 345
the demand being only for 340 quarters.--But there are improvements
which may lower the relative value of produce without lowering the corn
rent, though they will lower the money rent of land. Such improvements
do not increase the productive powers of the land, but they enable us to
obtain its produce with less labour. They are rather directed to the
formation of the capital applied to the land, than to the cultivation of
the land itself. Improvements in agricultural implements, such as the
plough and the threshing machine, economy in the use of horses employed
in husbandry, and a better knowledge of the veterinary art, are of this
nature. Less capital, which is the same thing as less labour, will be
employed on the land; but to obtain the same produce, less land cannot
be cultivated. Whether improvements of this kind, however, affect corn
rent, must depend on the question, whether the difference between the
produce obtained by the employment of different portions of capital be
increased, stationary, or diminished. If four portions of capital, 50,
60, 70, 80, be employed on the land, giving each the same results, and
any improvement in the formation of such capital should enable me to
withdraw 5 from each, so that they should be 45, 55, 65, and 75, no
alteration would take place in the corn rent; but if the improvements
were such as to enable me to make the whole saving on the largest
portion of capital, that portion which is least productively employed,
corn rent would immediately fall, because the difference between the
capital most productive and the capital least productive would be
diminished; and it is this difference which constitutes rent.
Without multiplying instances, I hope enough has been said to shew, that
whatever diminishes the inequality in the produce obtained from
successive portions of capital employed on the same or on new land,
tends to lower rent; and that whatever increases that inequality,
necessarily produces an opposite effect, and tends to raise it.
In speaking of the rent of the landlord, we have rather considered it as
the proportion of the whole produce, without any reference to its
exchangeable value; but since the same cause, the difficulty of
production, raises the exchangeable value of raw produce, and raises
also the proportion of raw produce paid to the landlord for rent, it is
obvious that the landlord is doubly benefited by difficulty of
production. First he obtains a greater share, and secondly the commodity
in which he is paid is of greater value.[8]
CHAPTER III.
ON THE RENT OF MINES.
The metals, like other things, are obtained by labour. Nature, indeed,
produces them; but it is the labour of man which extracts them from the
bowels of the earth, and prepares them for our service.
Mines, as well as land, generally pay a rent to their owner; and this
rent, as well as the rent of land, is the effect, and never the cause of
the high value of their produce.
If there were abundance of equally fertile mines, which any one might
appropriate, they could yield no rent; the value of their produce would
depend on the quantity of labour necessary to extract the metal from the
mine and bring it to market.
But there are mines of various qualities, affording very different
results, with equal quantities of labour. The metal produced from the
poorest mine that is worked, must at least have an exchangeable value,
not only sufficient to procure all the clothes, food, and other
necessaries consumed by those employed in working it, and bringing the
produce to market, but also to afford the common and ordinary profits to
him who advances the stock necessary to carry on the undertaking. The
return for capital from the poorest mine paying no rent, would regulate
the rent of all the other more productive mines. This mine is supposed
to yield the usual profits of stock. All that the other mines produce
more than this, will necessarily be paid to the owners for rent. Since
this principle is precisely the same as that which we have already laid
down respecting land, it will not be necessary further to enlarge on it.
It will be sufficient to remark, that the same general rule which
regulates the value of raw produce and manufactured commodities, is
applicable also to the metals; their value depending not on the rate of
profits, nor on the rate of wages, nor on the rent paid for mines, but
on the total quantity of labour necessary to obtain the metal, and to
bring it to market.
Like every other commodity, the value of the metals is subject to
variation. Improvements may be made in the implements and machinery used
in mining, which may considerably abridge labour; new and more
productive mines may be discovered, in which, with the same labour, more
metal may be obtained; or the facilities of bringing it to market may be
increased. In either of these cases the metals would fall in value, and
would therefore exchange for a less quantity of other things. On the
other hand, from the increasing difficulty of obtaining the metal,
occasioned by the greater depth at which the mine must be worked, and
the accumulation of water, or any other contingency, its value, compared
with that of other things, might be considerably increased.
It has therefore been justly observed, that however honestly the coin of
a country may conform to its standard, money made of gold and silver is
still liable to fluctuations in value, not only to accidental and
temporary, but to permanent and natural variations, in the same manner
as other commodities.
By the discovery of America and the rich mines in which it abounds, a
very great effect was produced on the natural price of the precious
metals. This effect is by many supposed not yet to have terminated. It
is probable however that all the effects on the value of the metals,
resulting from the discovery of America have long ceased, and if any
fall has of late years taken place in their value, it is to be
attributed to improvements in the mode of working the mines.
From whatever cause it may have proceeded, the effect has been so slow
and gradual, that little practical inconvenience has been felt from gold
and silver being the general medium in which the value of all other
things is estimated. Though undoubtedly a variable measure of value,
there is probably no commodity subject to fewer variations. This and the
other advantages which these metals possess, such as their hardness,
their malleability, their divisibility, and many more, have justly
secured the preference every where given to them, as a standard for the
money of civilized countries.
Having acknowledged the imperfections to which money made of gold and
silver is liable as a measure of value, from the greater or less
quantity of labour which may, under varying circumstances, be necessary
for the production of those metals, we may be permitted to make the
supposition that all these imperfections were removed, and that equal
quantities of labour could at all times obtain, from that mine which
paid no rent, equal quantities of gold. Gold would then be an invariable
measure of value. The quantity indeed would enlarge with the demand, but
its value would be invariable, and it would be eminently well calculated
to measure the varying value of all other things. I have already in a
former part of this work considered gold as endowed with this
uniformity, and in the following chapter I shall continue the
supposition. In speaking therefore of varying price, the variation will
be always considered as being in the commodity, and never in the medium
in which it is estimated.
CHAPTER IV.
ON NATURAL AND MARKET PRICE.
In making labour the foundation of the value of commodities, and the
comparative quantity of labour which is necessary to their production,
the rule which determines the respective quantities of goods which shall
be given in exchange for each other, we must not be supposed to deny the
accidental and temporary deviations of the actual or market price of
commodities from this, their primary and natural price.
In the ordinary course of events, there is no commodity which continues
for any length of time to be supplied precisely in that decree of
abundance, which the wants and wishes of mankind require, and therefore
there is none which is not subject to accidental and temporary
variations of price.
It is only in consequence of such variations, that capital is
apportioned precisely, in the requisite abundance and no more, to the
production of the different commodities which happen to be in demand.
With the rise or fall of price, profits are elevated above, or depressed
below their general level, and capital is either encouraged to enter
into, or is warned to depart from the particular employment in which the
variation has taken place.
Whilst every man is free to employ his capital where he pleases, he will
naturally seek for it that employment which is most advantageous; he
will naturally be dissatisfied with a profit of 10 per cent., if by
removing his capital he can obtain a profit of 15 per cent. This
restless desire on the part of all the employers of stock, to quit a
less profitable for a more advantageous business, has a strong tendency
to equalize the rate of profits of all, or to fix them in such
proportions, as may in the estimation of the parties, compensate for
any advantage which one may have, or may appear to have over the other.
It is perhaps very difficult to trace the steps by which this change is
effected: it is probably effected, by a manufacturer not absolutely
changing his employment, but only lessening the quantity of capital he
has in that employment. In all rich countries, there is a number of men
forming what is called the monied class; these men are engaged in no
trade, but live on the interest of their money, which is employed in
discounting bills, or in loans to the more industrious part of the
community. The bankers too employ a large capital on the same objects.
The capital so employed forms a circulating capital of a large amount,
and is employed, in larger or smaller proportions, by all the different
trades of a country. There is perhaps no manufacturer, however rich, who
limits his business to the extent that his own funds alone will allow:
he has always some portion of this floating capital, increasing or
diminishing according to the activity of the demand for his commodities.
When the demand for silks increases, and that for cloth diminishes, the
clothier does not remove with his capital to the silk trade, but he
dismisses some of his workmen, he discontinues his demand for the loan
from bankers and monied men; while the case of the silk manufacturer is
the reverse: he wishes to employ more workmen, and thus his motive for
borrowing is increased: he borrows more, and thus capital is transferred
from one employment to another, without the necessity of a manufacturer
discontinuing his usual occupation. When we look to the markets of a
large town, and observe how regularly they are supplied both with home
and foreign commodities, in the quantity in which they are required,
under all the circumstances of varying demand, arising from the caprice
of taste, or a change in the amount of population, without often
producing either the effects of a glut from a too abundant supply, or an
enormously high price from the supply being unequal to the demand, we
must confess that the principle which apportions capital to each trade
in the precise amount that it is required, is more active than is
generally supposed.
A capitalist, in seeking profitable employment for his funds, will
naturally take into consideration all the advantages which one
occupation possesses over another. He may therefore be willing to forego
a part of his money profit, in consideration of the security,
cleanliness, ease, or any other real or fancied advantage which one
employment may possess over another.
If from a consideration of these circumstances, the profits of stock
should be so adjusted that in one trade they were 20, in another 25, and
in another 30 per cent., they would probably continue permanently with
that relative difference, and with that difference only; for if any
cause should elevate the profits of one of these trades 10 per cent.
either these profits would be temporary, and would soon again fall back
to their usual station, or the profits of the others would be elevated
in the same proportion.
Let us suppose that all commodities are at their natural price, and
consequently that the profits of capital in all employments are exactly
at the same rate, or differ only so much as, in the estimation of the
parties, is equivalent to any real or fancied advantage which they
possess or forego. Suppose now, that a change of fashion should
increase the demand for silks, and lessen that for woollens; their
natural price, the quantity of labour necessary to their production,
would continue unaltered, but the market price of silks would rise, and
that of woollens would fall; and consequently the profits of the silk
manufacturer would be above, whilst those of the woollen manufacturer
would be below, the general and adjusted rate of profits. Not only the
profits, but the wages of the workmen would be affected in these
employments. This increased demand for silks would however soon be
supplied, by the transference of capital and labour from the woollen to
the silk manufacture; when the market prices of silks and woollens would
again approach their natural prices, and then the usual profits would be
obtained by the respective manufacturers of those commodities.
It is then the desire, which every capitalist has, of diverting his
funds from a less to a more profitable employment, that prevents the
market price of commodities from continuing for any length of time
either much above, or much below their natural price. It is this
competition which so adjusts the exchangeable value of commodities, that
after paying the wages for the labour necessary to their production, and
all other expenses required to put the capital employed in its original
state of efficiency, the remaining value or overplus will in each trade
be in proportion to the value of the capital employed.
In the 7th chap. of the Wealth of Nations, all that concerns this
question is most ably treated. Having fully acknowledged the temporary
effects which, in particular employments of capital, may be produced on
the prices of commodities, as well as on the wages of labour, and the
profits of stock, by accidental causes, without influencing the general
price of commodities, wages, or profits, since these effects are equally
operative in all stages of society, we may be permitted to leave them
entirely out of our consideration, whilst we are treating of the laws
which regulate natural prices, natural wages, and natural profits,
effects totally independent of these accidental causes. In speaking
then of the exchangeable value of commodities, or the power of
purchasing possessed by any one commodity, I mean always that power
which it would possess, if not disturbed by any temporary or accidental
cause, and which is its natural price.
CHAPTER V.
ON WAGES
Labour, like all other things which are purchased and sold, and which
may be increased or diminished in quantity, has its natural and its
market price. The natural price of labour is that price which is
necessary to enable the labourers, one with another, to subsist and to
perpetuate their race, without either increase or diminution.
The power of the labourer to support himself, and the family which may
be necessary to keep up the number of labourers, does not depend on the
quantity of money, which he may receive for wages; but on the quantity
of food, necessaries, and conveniences become essential to him from
habit, which that money will purchase. The natural price of labour,
therefore, depends on the price of the food, necessaries, and
conveniences required for the support of the labourer and his family.
With a rise in the price of food and necessaries, the natural price of
labour will rise; with the fall in their price, the natural price of
labour will fall.
With the progress of society, the natural price of labour has always a
tendency to rise, because one of the principal commodities by which its
natural price is regulated, has a tendency to become dearer, from the
greater difficulty of producing it. As, however, the improvements in
agriculture, the discovery of new markets, whence provisions may be
imported, may for a time counteract the tendency to a rise in the price
of necessaries, and may even occasion their natural price to fall, so
will the same causes produce the correspondent effects on the natural
price of labour.
The natural price of all commodities excepting raw produce and labour
has a tendency to fall, in the progress of wealth and population; for
though, on one hand, they are enhanced in real value, from the rise in
the natural price of the raw material of which they are made, this is
more than counterbalanced by the improvements in machinery, by the
better division and distribution of labour, and by the increasing skill,
both in science and art, of the producers.
The market price of labour is the price which is really paid for it,
from the natural operation of the proportion of the supply to the
demand; labour is dear when it is scarce, and cheap when it is
plentiful. However much the market price of labour may deviate from its
natural price, it has, like commodities, a tendency to conform to it.
It is when the market price of labour exceeds its natural price, that
the condition of the labourer is flourishing and happy, that he has it
in his power to command a greater proportion of the necessaries and
enjoyments of life, and therefore to rear a healthy and numerous family.
When however, by the encouragement which high wages give to the increase
of population, the number of labourers is increased, wages again fall to
their natural price, and indeed from a re-action sometimes fall below
it.
When the market price of labour is below its natural price, the
condition of the labourers is most wretched: then poverty deprives them
of those comforts which custom renders absolute necessaries. It is only
after their privations have reduced their number, or the demand for
labour has increased, that the market price of labour will rise to its
natural price, and that the labourer will have the moderate comforts,
which the natural price of wages will afford.
Notwithstanding the tendency of wages to conform to their natural rate,
their market rate may, in an improving society, for an indefinite
period, be constantly above it; for no sooner may the impulse, which an
increased capital gives to a new demand for labour be obeyed, than
another increase of capital may produce the same effect; and thus if the
increase of capital be gradual and constant, the demand for labour may
give a continued stimulus to an increase of people.
Capital is that part of the wealth of a country, which is employed in
production, and consists of food, clothing, tools, raw material,
machinery, &c. necessary to give effect to labour.
Capital may increase in quantity at the same time that its value rises.
An addition may be made to the food and clothing of a country, at the
same time that more labour may be required to produce the additional
quantity than before; in that case not only the quantity, but the value
of capital will rise.
Or capital may increase without its value increasing, and even while its
value is actually diminishing; not only may an addition be made to the
food and clothing of a country, but the addition may be made by the aid
of machinery, without any increase, and even with an absolute diminution
in the proportional quantity of labour required to produce them. The
quantity of capital may increase, while neither the whole together, nor
any part of it singly, will have a greater value than before.
In the first case, the natural price of wages, which always depends on
the price of food, clothing, and other necessaries, will rise; in the
second, it will remain stationary, or fall; but in both cases the market
rate of wages will rise, for in proportion to the increase of capital
will be the increase in the demand for labour; in proportion to the work
to be done will be the demand for those who are to do it.
In both cases too the market price of labour will rise above its natural
price; and in both cases it will have a tendency to conform to its
natural price, but in the first case this agreement will be most
speedily effected. The situation of the labourer will be improved, but
not much improved; for the increased price of food and necessaries will
absorb a large portion of his increased wages; consequently a small
supply of labour, or a trifling increase in the population, will soon
reduce the market price to the then increased natural price of labour.
In the second case, the condition of the labourer will be very greatly
improved; he will receive increased money wages, without having to pay
any increased price, and perhaps, even a diminished price for the
commodities which he and his family consume; and it will not be till
after a great addition has been made to the population, that the market
price of wages will again sink to their then low and reduced natural
price.
Thus, then, with every improvement of society, with every increase in
its capital, the market wages of labour will rise; but the permanence of
their rise will depend on the question, whether the natural price of
wages has also risen; and this again will depend on the rise in the
natural price of those necessaries, on which the wages of labour are
expended.
It is not to be understood that the natural price of wages, estimated
even in food and necessaries, is absolutely fixed and constant. It
varies at different times in the same country, and very materially
differs in different countries. It essentially depends on the habits and
customs of the people. An English labourer would consider his wages
under their natural rate, and too scanty to support a family, if they
enabled him to purchase no other food than potatoes, and to live in no
better habitation than a mud cabin; yet these moderate demands of nature
are often deemed sufficient in countries where "man's life is cheap,"
and his wants easily satisfied. Many of the conveniences now enjoyed in
an English cottage, would have been thought luxuries at an early period
of our history.
From manufactured commodities always falling, and raw produce always
rising, with the progress of society, such a disproportion in their
relative value is at length created, that in rich countries a labourer,
by the sacrifice of a very small quantity only of his food, is able to
provide liberally for all his other wants.
Independently of the variations in the value of money, which necessarily
affect wages, but which we have here supposed to have no operation, as
we have considered money to be uniformly of the same value, wages are
subject to a rise or fall from two causes:
1st. The supply and demand of labourers.
2dly. The price of the commodities on which the wages of
labour are expended.
In different stages of society, the accumulation of capital, or of the
means of employing labour, is more or less rapid, and must in all cases
depend on the productive powers of labour. The productive powers of
labour are generally greatest when there is an abundance of fertile
land: at such periods accumulation is often so rapid, that labourers
cannot be supplied with the same rapidity as capital.
It has been calculated, that under favourable circumstances population
may be doubled in twenty-five years; but under the same favourable
circumstances, the whole capital of a country might possibly be doubled
in a shorter period. In that case, wages during the whole period would
have a tendency to rise, because the demand for labour would increase
still faster than the supply.
In new settlements, where the arts and knowledge of countries far
advanced in refinement are introduced, it is probable that capital has a
tendency to increase faster than mankind: and if the deficiency of
labourers were not supplied by more populous countries, this tendency
would very much raise the price of labour. In proportion as these
countries become populous, and land of a worse quality is taken into
cultivation, the tendency to an increase of capital diminishes; for the
surplus produce remaining, after satisfying the wants of the existing
population, must necessarily be in proportion to the facility of
production, viz. to the smaller number of persons employed in
production. Although, then, it is probable, that under the most
favourable circumstances, the power of production is still greater than
that of population, it will not long continue so; for the land being
limited in quantity, and differing in quality; with every increased
portion of capital employed on it, there will be a decreased rate of
production, whilst the power of population continues always the same.
In those countries where there is abundance of fertile land, but where,
from the ignorance, indolence, and barbarism of the inhabitants, they
are exposed to all the evils of want and famine, and where it has been
said that population presses against the means of subsistence, a very
different remedy should be applied from that which is necessary in long
settled countries, where, from the diminishing rate of the supply of raw
produce, all the evils of a crowded population are experienced. In the
one case, the misery proceeds from the inactivity of the people. To be
made happier, they need only to be stimulated to exertion; with such
exertion, no increase in the population can be too great, as the powers
of production are still greater. In the other case, the population
increases faster than the funds required for its support. Every exertion
of industry, unless accompanied by a diminished rate of increase in the
population, will add to the evil, for production cannot keep pace with
it.
In some countries of Europe, and many of Asia, as well as in the islands
in the South Seas, the people are miserable, either from a vicious
government or from habits of indolence, which make them prefer present
ease and inactivity, though without security against want, to a moderate
degree of exertion, with plenty of food and necessaries. By diminishing
their population, no relief would be afforded, for productions would
diminish in as great, or even in a greater, proportion. The remedy for
the evils under which Poland and Ireland suffer, which are similar to
those experienced in the South Seas, is to stimulate exertion, to create
new wants, and to implant new tastes; for those countries must
accumulate a much larger amount of capital, before the diminished rate
of production will render the progress of capital necessarily less rapid
than the progress of population. The facility with which the wants of
the Irish are supplied, permits that people to pass a great part of
their time in idleness: if the population were diminished, this evil
would increase, because wages would rise, and therefore the labourer
would be enabled, in exchange for a still less portion of his labour, to
obtain all that his moderate wants require.
Give to the Irish labourer a taste for the comforts and enjoyments which
habit has made essential to the English labourer, and he would be then
content to devote a further portion of his time to industry, that he
might be enabled to obtain them. Not only would all the food now
produced be obtained, but a vast additional value in those other
commodities, to the production of which the now unemployed labour of the
country might be directed. In those countries, where the labouring
classes have the fewest wants, and are contented with the cheapest food,
the people are exposed to the greatest vicissitudes and miseries. They
have no place of refuge from calamity; they cannot seek safety in a
lower station; they are already so low, that they can fall no lower. On
any deficiency of the chief article of their subsistence, there are few
substitutes of which they can avail themselves, and dearth to them is
attended with almost all the evils of famine.
In the natural advance of society, the wages of labour will have a
tendency to fall, as far as they are regulated by supply and demand; for
the supply of labourers will continue to increase at the same rate,
whilst the demand for them will increase at a slower rate. If, for
instance, wages were regulated by a yearly increase of capital, at the
rate of 2 per cent., they would fall when it accumulated only at the
rate of 1-1/2 per cent. They would fall still lower when it increased
only at the rate of 1, or 1/2 per cent., and would continue to do so
until the capital became stationary, when wages also would become
stationary, and be only sufficient to keep up the numbers of the actual
population. I say that, under these circumstances, wages would fall, if
they were regulated only by the supply and demand of labourers; but we
must not forget, that wages are also regulated by the prices of the
commodities on which they are expended.
As population increases, these necessaries will be constantly rising in
price, because more labour will be necessary to produce them. If, then,
the money wages of labour should fall, whilst every commodity on which
the wages of labour were expended rose, the labourer would be doubly
affected, and would be soon totally deprived of subsistence. Instead,
therefore, of the money wages of labour falling, they would rise; but
they would not rise sufficiently to enable the labourer to purchase as
many comforts and necessaries as he did before the rise in the price of
those commodities. If his annual wages were before 24_l._, or six
quarters of corn when the price was 4_l._ per quarter, he would probably
receive only the value of five quarters when corn rose to 5_l._ per
quarter. But five quarters would cost 25_l._; he would therefore receive
an addition in his money wages, though with that addition he would be
unable to furnish himself with the same quantity of corn and other
commodities, which he had before consumed in his family.
Notwithstanding, then, that the labourer would be really worse paid, yet
this increase in his wages would necessarily diminish the profits of the
manufacturer; for his goods would sell at no higher price, and yet the
expense of producing them would be increased. This, however, will be
considered in our examination into the principles which regulate
profits.
It appears, then, that the same cause which raises rent, namely, the
increasing difficulty of providing an additional quantity of food with
the same proportional quantity of labour, will also raise wages; and
therefore if money be of an unvarying value, both rent and wages will
have a tendency to rise with the progress of wealth and population.
But there is this essential difference between the rise of rent and the
rise of wages. The rise in the money value of rent is accompanied by an
increased share of the produce; not only is the landlord's money rent
greater, but his corn rent also; he will have more corn, and each
defined measure of that corn will exchange for a greater quantity of all
other goods which have not been raised in value. The fate of the
labourer will be less happy: he will receive more money wages, it is
true, but his corn wages will be reduced; and not only his command of
corn, but his general condition will be deteriorated, by his finding it
more difficult to maintain the market rate of wages above their natural
rate. While the price of corn rises 10 per cent., wages will always rise
less than 10 per cent., but rent will always rise more; the condition of
the labourer will generally decline, and that of the landlord will
always be improved.
When wheat was at 4_l._ per quarter, suppose the labourer's wages to be
24_l._ per annum, or the value of six quarters of wheat, and suppose
half his wages to be expended on wheat, and the other half, or 12_l._,
on other things. He would receive
L24.14. } { L4.4.8. } { 5.83 qrs.
25.10. } when wheat { 4.10. } or the { 5.66 qrs.
26.8. } was at { 4.16. } value of { 5.50 qrs.
27.8.6 } { 5.2.10 } { 5.33 qrs.
He would receive these wages to enable him to live just as well, and no
better, than before; for when corn was at 4_l._ per quarter, he would
expend for three quarters of corn,
at 4_l._ per qr. L12
and on other things 12
--
24
When wheat was 4_l._ 4_s._ 8_d._, three quarters,
which he and his family consumed, would
cost him L12.14
other things not altered in price 12
-----
24.14
When at 4_l._ 10_s._, three quarters of wheat
would cost L13.10
and other things 12
-----
25.10
When at 4_l._ 16_s._, three qrs. of wheat L14.8
Other things 12
----
26.8
When at 5.2.10_l._ three quarters of wheat
would cost L15.8.6.
Other things 12
------
27.8.6
In proportion as corn became dear, he would receive less corn wages, but
his money wages would always increase, whilst his enjoyments on the
above supposition, would be precisely the same. But as other commodities
would be raised in price in proportion as raw produce entered into their
composition, he would have more to pay for some of them. Although his
tea, sugar, soap, candles, and house rent, would probably be no dearer,
he would pay more for his bacon, cheese, butter, linen, shoes, and
cloth; and therefore, even with the above increase of wages, his
situation would be comparatively worse. But it may be said that I have
been considering the effect of wages on price, on the supposition that
gold, or the metal from which money is made, is the produce of the
country in which wages varied; and that the consequences which I have
deduced agree little with the actual state of things, because gold is a
metal of foreign production. The circumstance however, of gold being a
foreign production, will not invalidate the truth of the argument,
because it may be shewn, that whether it were found at home, or were
imported from abroad, the effects ultimately and indeed immediately
would be the same.
When wages rise, it is generally because the increase of wealth and
capital have occasioned a new demand for labour, which will infallibly
be attended with an increased production of commodities. To circulate
these additional commodities, even at the same prices as before, more
money is required, more of this foreign commodity from which money is
made, and which can only be obtained by importation. Whenever a
commodity is required in greater abundance than before, its relative
value rises comparatively with those commodities with which its purchase
is made. If more hats were wanted, their price would rise, and more gold
would be given for them. If more gold were required, gold would rise,
and hats would fall in price, as a greater quantity of hats and of all
other things would then be necessary to purchase the same quantity of
gold. But in the case supposed, to say that commodities will rise,
because wages rise, is to affirm a positive contradiction; for we first
say that gold will rise in relative value in consequence of demand, and
secondly, that it will fall in relative value because prices will rise,
two effects which are totally incompatible with each other. To say that
commodities are raised in price, is the same thing as to say that money
is lowered in relative value; for it is by commodities that the relative
value of gold is estimated. If then all commodities rose in price, gold
could not come from abroad to purchase those dear commodities, but it
would go from home to be employed with advantage in purchasing the
comparatively cheaper foreign commodities. It appears then, that the
rise of wages will not raise the prices of commodities, whether the
metal from which money is made be produced at home or in a foreign
country. All commodities cannot rise at the same time without an
addition to the quantity of money. This addition could not be obtained
at home, as we have already shewn; nor could it be imported from abroad.
To purchase any additional quantity of gold from abroad, commodities at
home must be cheap, not dear. The importation of gold, and a rise in the
price of all home-made commodities with which gold is purchased or paid
for, are effects absolutely incompatible. The extensive use of paper
money does not alter this question, for paper money conforms, or ought
to conform to the value of gold, and therefore its value is influenced
by such causes only as influence the value of that metal.
These then are the laws by which wages are regulated, and by which the
happiness of far the greatest part of every community is governed. Like
all other contracts, wages should be left to the fair and free
competition of the market, and should never be controlled by the
interference of the legislature.
The clear and direct tendency of the poor laws, is in direct opposition
to these obvious principles: it is not, as the legislature benevolently
intended, to amend the condition of the poor, but to deteriorate the
condition of both poor and rich; instead of making the poor rich, they
are calculated to make the rich poor; and whilst the present laws are in
force, it is quite in the natural order of things that the fund for the
maintenance of the poor should progressively increase, till it has
absorbed all the neat revenue of the country, or at least so much of it
as the state shall leave to us, after satisfying its own never failing
demands for the public expenditure.[9]
This pernicious tendency of these laws is no longer a mystery, since it
has been fully developed by the able hand of Mr. Malthus; and every
friend to the poor must ardently wish for their abolition. Unfortunately
however they have been so long established, and the habits of the poor
have been so formed upon their operation, that to eradicate them with
safety from our political system requires the most cautious and skilful
management. It is agreed by all who are most friendly to a repeal of
these laws, that if it be desirable to prevent the most overwhelming
distress to those for whose benefit they were erroneously enacted, their
abolition should be effected by the most gradual steps.
It is a truth which admits not a doubt, that the comforts and well being
of the poor cannot be permanently secured without some regard on their
part, or some effort on the part of the legislature, to regulate the
increase of their numbers, and to render less frequent among them early
and improvident marriages. The operation of the system of poor laws has
been directly contrary to this. They have rendered restraint
superfluous, and have invited imprudence by offering it a portion of the
wages of prudence and industry.
The nature of the evil points out the remedy. By gradually contracting
the sphere of the poor laws; by impressing on the poor the value of
independence, by teaching them that they must look not to systematic or
casual charity, but to their own exertions for support, that prudence
and forethought are neither unnecessary nor unprofitable virtues, we
shall by degrees approach a sounder and more healthful state.
No scheme for the amendment of the poor laws merits the least attention,
which has not their abolition for its ultimate object; and he is the
best friend to the poor, and to the cause of humanity, who can point out
how this end can be attained with the most security, and at the same
time with the least violence. It is not by raising in any manner
different from the present, the fund from which the poor are supported,
that the evil can be mitigated. It would not only be no improvement, but
it would be an aggravation of the distress which we wish to see removed,
if the fund were increased in amount, or were levied according to some
late proposals, as a general fund from the country at large. The present
mode of its collection and application has served to mitigate its
pernicious effects. Each parish raises a separate fund for the support
of its own poor. Hence it becomes an object of more interest and more
practicability to keep the rates low, than if one general fund were
raised for the relief of the poor of the whole kingdom. A parish is much
more interested in an economical collection of the rate, and a sparing
distribution of relief, when the whole saving will be for its own
benefit, than if hundreds of other parishes were to partake of it.
It is to this cause, that we must ascribe the fact of the poor laws not
having yet absorbed all the net revenue of the country; it is to the
rigour with which they are applied, that we are indebted for their not
having become overwhelmingly oppressive. If by law every human being
wanting support could be sure to obtain it, and obtain it in such a
degree as to make life tolerably comfortable, theory would lead us to
expect that all other taxes together would be light compared with the
single one of poor rates. The principle of gravitation is not more
certain than the tendency of such laws to change wealth and power into
misery and weakness; to call away the exertions of labour from every
object, except that of providing mere subsistence; to confound all
intellectual distinction; to busy the mind continually in supplying the
body's wants; until at last all classes should be infected with the
plague of universal poverty. Happily these laws have been in operation
during a period of progressive prosperity, when the funds for the
maintenance of labour have regularly increased, and when an increase of
population would be naturally called for. But if our progress should
become more slow; if we should attain the stationary state, from which I
trust we are yet far distant, then will the pernicious nature of these
laws become more manifest and alarming; and then too will their removal
be obstructed by many additional difficulties.
CHAPTER V*.
ON PROFITS.
The profits of stock in different employments, having been shewn to bear
a proportion to each other, and to have a tendency to vary all in the
same degree and in the same direction, it remains for us to consider
what is the cause of the permanent variations in the rate of profit, and
the consequent permanent alterations in the rate of interest.
We have seen that the price[10] of corn is regulated by the quantity of
labour necessary to produce it, with that portion of capital which pays
no rent. We have seen too that all manufactured commodities rise and
fall in price, in proportion as more or less labour becomes necessary
to their production. Neither the farmer who cultivates that quality of
land, which regulates price, nor the manufacturer, who manufactures
goods, sacrifice any portion of the produce for rent. The whole value of
their commodities is divided into two portions only: one constitutes the
profits of stock, the other the wages of labour.
Supposing corn and manufactured goods always to sell at the same price,
profits would be high or low in proportion as wages were low or high.
But suppose corn to rise in price because more labour is necessary to
produce it; that cause will not raise the price of manufactured goods in
the production of which no additional quantity of labour is required. If
then wages continued the same, profits would remain the same; but if, as
is absolutely certain, wages should rise with the rise of corn, then
profits would necessarily fall.
If a manufacturer always sold his goods for the same money, for 1000_l._
for example, his profits would depend on the price of the labour
necessary to manufacture those goods. His profits would be less when
wages amounted to 800_l._ than when he paid only 600_l._ In proportion
then as wages rose, would profits fall. But if the price of raw produce
would increase, it may be asked, whether the farmer at least would not
have the same rate of profits, although he should pay an additional
price for wages? Certainly not: for he will not only have to pay, in
common with the manufacturer, an increase of wages to each labourer he
employs, but he will be obliged either to pay rent, or to employ an
additional number of labourers to obtain the same produce; and the rise
in the price of raw produce will be proportioned only to that rent, or
that additional number, and will not compensate him for the rise of
wages.
If both the manufacturer and farmer employed ten men, on wages rising
from 24_l._ to 25_l._ per annum. per man, the whole sum paid by each
would be 250_l._ instead of 240_l._ This is, however, the whole addition
that would be paid by the manufacturer to obtain the same quantity of
commodities; but the farmer on new land would probably be obliged to
employ an additional man, and therefore to pay an additional sum of
25_l._ for wages; and the farmer on the old land would be obliged to pay
precisely the same additional sum of 25_l._ for rent; without which
additional labour, corn would not have risen. One will therefore have to
pay 275_l._ for wages alone, the other, for wages and rent together;
each 25_l._ more than the manufacturer: for this latter 25_l._ they are
compensated by the addition to the price of raw produce, and therefore
their profits still conform to the profits of the manufacturer. As this
proposition is important, I will endeavour still further to elucidate
it.
We have shewn that in early stages of society, both the landlord's and
the labourer's share of the _value_ of the produce of the earth, would
be but small; and that it would increase in proportion to the progress
of wealth, and the difficulty of procuring food. We have shewn too, that
although the value of the labourer's portion will be increased by the
high value of food, his real share will be diminished; whilst that of
the landlord will not only be raised in value, but will also be
increased in quantity.
The remaining quantity of the produce of the land, after the landlord
and labourer are paid, necessarily belongs to the farmer, and
constitutes the profits of his stock. But it may be alleged, that though
as society advances, his proportion of the whole produce will be
diminished, yet as it will rise in value, he, as well as the landlord
and labourer, may, notwithstanding, receive a greater value.
It may be said for example, that when corn rose from 4_l._ to 10_l._,
the 180 quarters obtained from the best land would sell for 1800_l._
instead of 720_l._; and therefore, though the landlord and labourer be
proved to have a greater value for rent and wages, still the value of
the farmer's profit might also be augmented. This however is impossible,
as I shall now endeavour to shew.
In the first place, the price of corn would rise only in proportion to
the increased difficulty of growing it on land of a worse quality.
It has been already remarked, that if the labour of ten men will, on
land of a certain quality, obtain 180 quarters of wheat, and its value
be 4_l._ per quarter, or 720_l._; and if the labour of ten additional
men, will on the same or any other land, produce only 170 quarters in
addition, wheat would rise from 4_l._ to 4_l._ 4_s._ 8_d._; for 170:
180:: 4_l._: 4_l._ 4_s._ 8_d._ In other words, as for the production of
170 quarters, the labour of ten men is necessary, in the one case, and
only that of 9.44 in the other, the rise would be as 9.44 to 10, or as
4_l._ to 4_l._ 4_s._ 8_d._ In the same manner it might be shewn, that if
the labour of ten additional men would only produce 160 quarters, the
price would further rise to 4_l._ 10_s._; if 150, to 4_l._ 16_s._, &c.
&c.
But when 180 quarters were produced
on the land paying no rent, and its
price was 4_l._ per quarter, it sold for L720
And when 170 quarters were produced
on the land paying no rent, and the
price rose to 4_l._ 4_s._ 8_d._ it still sold for 720
So, 160 quarters at 4_l._ 10_s._ produce 720
And 150 quarters at 4_l._ 16_s._ produce the
same sum of 720
Now it is evident, that if out of these equal values, the farmer is at
one time obliged to pay wages regulated by the price of wheat at 4_l._,
and at other times at higher prices, the rate of his profits will
diminish in proportion to the rise in the price of corn.
In this case, therefore, I think it is clearly demonstrated that a rise
in the price of corn, which increases the money wages of the labourer,
diminishes the money value of the farmer's profits.
But the case of the farmer of the old and better land will be in no way
different; he also will have increased wages to pay, and will never
retain more of the value of the produce, however high may be its price,
than 720_l._ to be divided between himself and his always equal number
of labourers; in proportion therefore as they get more, he must retain
less.
When the price of corn was at 4_l._, the whole 180 quarters belonged to
the cultivator, and he sold it for 720_l._ When corn rose to 4_l._ 4_s._
8_d._ he was obliged to pay the value of ten quarters out of his 180 for
rent, consequently the remaining 170 yielded him no more than 720_l._:
when it rose further to 4_l._ 10_s._ he paid twenty quarters, or their
value, for rent, and consequently only retained 160 quarters, which
yielded the same sum of 720_l._
It will be seen then, that whatever rise may take place in the price of
corn, in consequence of the necessity of employing more labour and
capital to obtain a given additional quantity of produce, such rise will
always be equalled in value by the additional rent, or additional labour
employed; so that whether corn sells for 4_l._, 4_l._ 10_s._, or 5_l._
2_s._ 10_d._, the farmer will obtain for that which remains to him,
after paying rent, the same real value. Thus we see, that whether the
produce belonging to the farmer be 180, 170, 160, or 150 quarters, he
always obtains the same sum of 720_l._ for it; the price increasing in
an inverse proportion to the quantity.
Rent then, it appears, always falls on the consumer, and never on the
farmer; for if the produce of his farm should uniformly be 180
quarters, with the rise of price, he would retain the value of a less
quantity for himself, and give the value of a larger quantity to his
landlord; but the deduction would be such as to leave him always the
same sum of 720_l._
It will be seen too that, in all cases, the same sum of 720_l._ must be
divided between wages and profits. If the value of the raw produce from
the land exceed this value, it belongs to rent, whatever may be its
amount. If there be no excess, there will be no rent. Whether wages or
profits rise or fall, it is this sum of 720_l._ from which they must
both be provided. On the one hand, profits can never rise so high as to
absorb so much of this 720_l._, that enough will not be left to furnish
the labourers with absolute necessaries; on the other hand, wages can
never rise so high as to leave no portion of this sum for profits.
Thus in every case, agricultural, as well as manufacturing profits are
lowered by a rise in the price of raw produce, if it be accompanied by
a rise of wages.[11] If the farmer gets no additional value for the corn
which remains to him after paying rent, if the manufacturer gets no
additional value for the goods which he manufactures, and if both are
obliged to pay a greater value in wages, can any point be more clearly
established than that profits must fall, with a rise of wages?
The farmer then, although he pays no part of his landlord's rent, that
being always regulated by the price of produce, and invariably falling
on the consumers, has however a very decided interest in keeping rent
low, or rather in keeping the natural price of produce low. As a
consumer of raw produce, and of those things into which raw produce
enters as a component part, he will in common with all other consumers,
be interested in keeping the price low. But he is most materially
concerned with the high price of corn as it affects wages. With every
rise in the price of corn, he will have to pay out of an equal and
unvarying sum of 720_l._, an additional sum for wages to the ten men whom
he is supposed constantly to employ. We have seen in treating on wages,
that they invariably rise with the rise in the price of raw produce. On
a basis assumed for the purpose of calculation, page 106, it will be
seen that if when wheat is at 4_l._ per quarter, wages should be 24_l._
per annum.
L _s._ _d._ L _s._ _d._
{ 4 4 8 } { 24 14 0
When Wheat { 4 10 0 } wages would be { 25 10 0
is at { 4 16 0 } { 26 8 0
{ 5 2 10 } { 27 8 6
Now, of the unvarying fund of 720_l._ to be distributed between
labourers and farmers,
L _s._ _d._ _s._ _d._ L _s._ _d._
When the { 4 0 0 } the { 240 0 } the { 480 0 0
price of { 4 4 8 } labourer { 247 0 } farmer { 473 0 0
Wheat is { 4 10 0 } will { 255 0 } will { 465 0 0
at { 4 16 0 } receive { 264 0 } receive { 456 0 0
{ 5 2 10 } { 274 5 } { 445 15 [12]
And supposing that the original capital of the farmer was 3000_l._, the
profits of his stock being in the first instance 480_l._, would be at
the rate of 16 per cent. When his profits fell to 473_l._, they would be
at the rate of 15.7 per cent.
465_l._ 15.5
456_l._ 15.2
445_l._ 14.8
But the _rate_ of profits will fall still more, because the capital of
the farmer, it must be recollected, consists in a great measure of raw
produce, such as his corn and hay-ricks, his unthreshed wheat and
barley, his horses and cows, which would all rise in price in
consequence of the rise of produce. His absolute profits would fall from
480_l._ to 445_l._ 15_s._; but if from the cause which I have just
stated, his capital should rise from 3000_l._ to 3200_l._ the rate of
his profits would, when corn was at 5_l._ 2_s._ 10_d._, be under 14 per
cent.
If a manufacturer had also employed 3000_l._ in his business, he would
be obliged in consequence of the rise of wages, to increase his capital,
in order to be enabled to carry on the same business. If his commodities
sold before for 720_l._, they would continue to sell at the same price;
but the wages of labour, which were before 240_l._, would rise when corn
was at 5_l._ 2_s._ 10_d._ to 274_l._ 5_s._ In the first case he would
have a balance of 480_l._ as profit on 3000_l._, in the second he would
have a profit only of 445_l._ 15_s._, on an increased capital, and
therefore his profits would conform to the altered rate of those of the
farmer.
There are few commodities which are not more or less affected in their
price by the rise of raw produce, because some raw material from the
land enters into the composition of most commodities. Cotton goods,
linen, and cloth, will all rise in price with the rise of wheat; but
they rise on account of the greater quantity of labour expended on the
raw material from which they are made, and not because more was paid by
the manufacturer to the labourers whom he employed on those commodities.
In all cases, commodities rise because more labour is expended on them,
and not because the labour which is expended on them is at a higher
value. Articles of jewellery, of iron, of plate, and of copper, would
not rise, because none of the raw produce from the surface of the earth
enters into their composition.
It may be said that I have taken it for granted, that money wages would
rise with a rise in the price of raw produce, but that this is by no
means a necessary consequence, as the labourer may be contented with
fewer enjoyments. It is true that the wages of labour may previously
have been at a high level, and that they may bear some reduction. If
so, the fall of profits will be checked; but it is impossible to
conceive that the money price of wages should fall, or remain stationary
with a gradually increasing price of necessaries; and therefore it may
be taken for granted that, under ordinary circumstances, no permanent
rise takes place in the price of necessaries, without occasioning, or
having been preceded by a rise in wages.
The effects produced on profits, would have been the same, or nearly the
same, if there had been any rise in the price of those other
necessaries, besides food, on which the wages of labour are expended.
The necessity which the labourer would be under of paying an increased
price for such necessaries, would oblige him to demand more wages; and
whatever increases wages, necessarily reduces profits. But suppose the
price of silks, velvets, furniture, and any other commodities, not
required by the labourer, to rise in consequence of more labour being
expended on them, would not that affect profits? certainly not: for
nothing can affect profits but a rise in wages; silks and velvets are
not consumed by the labourer, and therefore cannot raise wages.
It is to be understood that I am speaking of profits generally. I have
already remarked that the market price of a commodity may exceed its
natural or necessary price, as it may be produced in less abundance than
the new demand for it requires. This however is but a temporary effect.
The high profits on capital employed in producing that commodity will
naturally attract capital to that trade; and as soon as the requisite
funds are supplied, and the quantity of the commodity is duly increased,
its price will fall, and the profits of the trade will conform to the
general level. A fall in the general rate of profits is by no means
incompatible with a partial rise of profits in particular employments.
It is through the inequality of profits, that capital is moved from one
employment to another. Whilst then general profits are falling, and
gradually settling at a lower level in consequence of the rise of wages,
and the increasing difficulty of supplying the increasing population
with necessaries, the profits of the farmer, may, for an interval of
some little duration, be above the former level. An extraordinary
stimulus may be also given for a certain time, to a particular branch of
foreign and colonial trade; but the admission of this fact by no means
invalidates the theory, that profits depend on high or low wages, wages
on the price of necessaries, and the price of necessaries chiefly on the
price of food, because all other requisites may be increased almost
without limit.
It should be recollected that prices always vary in the market, and in
the first instance, through the comparative state of demand and supply.
Although cloth could be furnished at 40_s._ per yard, and give the usual
profits of stock, it may rise to 60 or 80_s._ from a general change of
fashion, or from any other cause which should suddenly and unexpectedly
increase the demand, or diminish the supply of it. The makers of cloth
will for a time have unusual profits, but capital will naturally flow to
that manufacture, till the supply and demand are again at their fair
level, when the price of cloth will again sink to 40_s._, its natural or
necessary price. In the same manner, with every increased demand for
corn, it may rise so high as to afford more than the general profits to
the farmer. If there be plenty of fertile land, the price of corn will
again fall to its former standard, after the requisite quantity of
capital has been employed in producing it, and profits will be as
before; but if there be not plenty of fertile land, if, to produce this
additional quantity, more than the usual quantity of capital and labour
be required, corn will not fall to its former level. Its natural price
will be raised, and the farmer, instead of obtaining permanently larger
profits, will find himself obliged to be satisfied with the diminished
rate which is the inevitable consequence of the rise of wages, produced
by the rise of necessaries.
The natural tendency of profits then is to fall; for, in the progress of
society and wealth, the additional quantity of food required is obtained
by the sacrifice of more and more labour. This tendency, this
gravitation as it were of profits, is happily checked at repeated
intervals by the improvements in machinery, connected with the
production of necessaries, as well as by discoveries in the science of
agriculture which enable us to relinquish a portion of labour before
required, and therefore to lower the price of the prime necessary of the
labourer. The rise in the price of necessaries and in the wages of
labour is however limited; for as soon as wages should be equal (as in
the case formerly stated) to 720_l._, the whole receipts of the farmer,
there must be an end of accumulation; for no capital can then yield any
profit whatever, and no additional labour can be demanded, and
consequently population will have reached its highest point. Long indeed
before this period, the very low rate of profits will have arrested all
accumulation, and almost the whole produce of the country, after paying
the labourers, will be the property of the owners of land and the
receivers of tithes and taxes.
Thus, taking the former very imperfect basis as the grounds of my
calculation, it would appear that when corn was at 20_l._ per quarter,
the whole net income of the country would belong to the landlords, for
then the same quantity of labour that was originally necessary to
produce 180 quarters, would be necessary to produce 36; since 20_l._ :
4_l._ :: 180 : 36. The farmer then, who originally produced 180
quarters, (if any such there were, for the old and new capital employed
on the land would be so blended, that it could in no way be
distinguished,) would sell the
180 qrs. at 20_l._ per qr. or L3600
the value of 144 qrs. {to landlord for rent, being the }
--- {difference between 36 and 180 qrs.} 2880
36 qrs. 720
the value of 36 qrs. to labourers ten in number 720
---
leaving nothing whatever for profit.
At this price of 20_l._ the labourers would continue to consume
three quarters each per annum or L60
And on other commodities they would expend 12
--
72 for each labourer.
--
And therefore ten labourers would cost 720_l._ per annum.
In all these calculations I have been desirous only to elucidate the
principle, and it is scarcely necessary to observe, that my whole basis
is assumed at random, and merely for the purpose of exemplification. The
results though different in degree, would have been the same in
principle, however accurately I might have set out in stating the
difference in the number of labourers necessary to obtain the successive
quantities of corn required by an increasing population, the quantity
consumed by the labourer's family, &c. &c. My object has been to
simplify the subject, and I have therefore made no allowance for the
increasing price of the other necessaries, besides food, of the
labourer; an increase which would be the consequence of the increased
value of the raw material from which they are made, and which would of
course further increase wages, and lower profits.
I have already said, that long before this state of prices was become
permanent, there would be no motive for accumulation; for no one
accumulates but with a view to make his accumulation productive, and it
is only when so employed that it operates on profits. Without a motive
there could be no accumulation, and consequently such a state of prices
never could take place. The farmer and manufacturer can no more live
without profit, than the labourer without wages. Their motive for
accumulation will diminish with every diminution of profit, and will
cease altogether when their profits are so low as not to afford them an
adequate compensation for their trouble, and the risk which they must
necessarily encounter in employing their capital productively.
I must again observe, that the rate of profits would fall much more
rapidly than I have estimated in my calculation: for the value of the
produce being what I have stated it under the circumstances supposed,
the value of the farmer's stock would be greatly increased from its
necessarily consisting of many of the commodities which had risen in
value. Before corn could rise from 4_l._ to 12_l._ his capital would
probably be doubled in exchangeable value, and be worth 6000_l._ instead
of 3000_l._ If then his profit were 180_l._, or 6 per cent. on his
original capital, profits would not at that time be really at a higher
_rate_ than 3 per cent.; for 6000_l._ at 3 per cent. gives 180_l._; and
on those terms only could a new farmer with 6000_l._ money in his pocket
enter into the farming business.
Many trades would derive some advantage, more or less, from the same
source. The brewer, the distiller, the clothier, the linen manufacturer,
would be partly compensated for the diminution of their profits, by the
rise in the value of their stock of raw and finished materials; but a
manufacturer of hardware, of jewellery, and of many other commodities,
as well as those whose capitals uniformly consisted of money, would be
subject to the whole fall in the rate of profits, without any
compensation whatever.
We should also expect that, however the rate of the profits of stock
might diminish in consequence of the accumulation of capital on the
land, and the rise of wages, yet the aggregate amount of profits would
increase. Thus supposing that, with repeated accumulations of
100,000_l._, the rate of profit should fall from 20 to 19, to 18, to 17
per cent., a constantly diminishing rate, we should expect that the
whole amount of profits received by those successive owners of capital
would be always progressive; that it would be greater when the capital
was 200,000_l._, than when 100,000_l._; still greater when 300,000_l._;
and so on, increasing, though at a diminishing rate, with every increase
of capital. This progression however is only true for a certain time:
thus 19 per cent. on 200,000_l._ is more than 20 on 100,000_l._; again
18 per cent. on 300,000_l._ is more than 19 per cent. on 200,000_l._;
but after capital has accumulated to a large amount, and profits have
fallen, the further accumulation diminishes the aggregate of profits.
Thus suppose the accumulation should be 1,000,000_l._, and the profits 7
per cent. the whole amount of profits will be 70,000_l._; now if an
addition of 100,000_l._ capital be made to the million, and profits
should fall to 6 per cent., 66,000_l._ or a diminution of 4000_l._ will
be received by the owners of stock, although the whole amount of stock
will be increased from 1,000,000_l._ to 1,100,000_l._
There can, however, be no accumulation of capital, so long as stock
yields any profit at all, without its yielding not only an increase of
produce, but an increase of value. By employing 100,000_l._ additional
capital, no part of the former capital will be rendered less productive.
The produce of the land and labour of the country must increase, and its
value will be raised, not only by the value of the addition which is
made to the former quantity of productions, but by the new value which
is given to the whole produce of the land, by the increased difficulty
of producing the last portion of it, which new value always goes to
rent. When the accumulation of capital, however, becomes very great,
notwithstanding this increased value, it will be so distributed that a
less value than before will be appropriated to profits, while that which
is devoted to rent and wages will be increased. Thus with successive
additions of 100,000_l._ to capital, with a fall in the rate of profits,
from 20 to 19, to 18, to 17 per cent. &c. the productions annually
obtained will increase in quantity, and be of more than the whole
additional value, which the additional capital is calculated to produce.
From 20,000_l._ it will rise to more than 39,000_l._ and then to more
than 57,000_l._, and when the capital employed is a million, as we
before supposed, if 100,000_l._ more be added to it, and the aggregate
of profits is actually lower than before, more than 6000_l._ will
nevertheless be added to the revenue of the country, but it will be to
the revenue of the landlords; they will obtain more than the additional
produce, and will from their situation be enabled to encroach even on
the former gains of the capitalist. Thus, suppose the price of corn to
be 4_l._ per quarter, and that therefore, as we before calculated, of
every 720_l._ remaining to the farmer after payment of his rent, 480_l._
were retained by him, and 240_l._ were paid to his labourers; when the
price rose to 6_l._ per quarter, he would be obliged to pay his
labourers 300_l._ and retain only 420_l._ for profits. Now if the
capital employed were so large as to yield a hundred thousand times
720_l._ or 72,000,000_l._ the aggregate of profits would be
48,000,000_l._ when wheat was at 4_l._ per quarter; and if by employing
a larger capital, 105,000 times 720_l._ were obtained when wheat was at
6_l._, or 75,600,000_l._, profits would actually fall from
48,000,000_l._ to 44,100,000_l._ or 105,000 times 420_l._, and wages
would rise from 24,000,000_l._ to 31,500,000_l._ Wages would rise
because more labourers would be employed, in proportion to capital; and
each labourer would receive more money wages; but the condition of the
labourer, as we have already shewn, would be worse, inasmuch as he would
be able to command a less quantity of the produce of the country. The
only real gainers would be the landlords; they would receive higher
rents, first, because produce would be of a higher value, and secondly,
because they would have a greatly increased proportion.
Although a greater value is produced, a greater proportion of what
remains of that value, after paying rent, is consumed by the producers,
and it is this, and this alone, which regulates profits. Whilst the land
yields abundantly, wages may temporarily rise, and the producers may
consume more than their accustomed proportion; but the stimulus which
will thus be given to population, will speedily reduce the labourers to
their usual consumption. But when poor lands are taken into cultivation,
or when more capital and labour are expended on the old land, with a
less return of produce, the effect must be permanent. A greater
proportion of that part of the produce which remains to be divided,
after paying rent, between the owners of stock and the labourers, will
be apportioned to the latter. Each man may, and probably will, have a
less absolute quantity; but as more labourers are employed in proportion
to the whole produce retained by the farmer, the value of a greater
proportion of the whole produce will be absorbed by wages, and
consequently the value of a smaller proportion will be devoted to
profits. This will necessarily be rendered permanent by the laws of
nature, which have limited the productive powers of the land.
Thus we again arrive at the same conclusion which we have before
attempted to establish:--that in all countries, and at all times,
profits depend on the quantity of labour requisite to provide
necessaries for the labourers, on that land or with that capital which
yields no rent. The effects then of accumulation will be different in
different countries, and will depend chiefly on the fertility of the
land. However extensive a country may be where the land is of a poor
quality, and where the importation of food is prohibited, the most
moderate accumulations of capital will be attended with great reductions
in the rate of profit, and a rapid rise in rent; and on the contrary a
small but fertile country, particularly if it freely permits the
importation of food, may accumulate a large stock of capital without any
great diminution in the rate of profits, or any great increase in the
rent of land. In the Chapter on Wages, we have endeavoured to shew that
the money price of commodities would not be raised by a rise of wages,
either on the supposition that gold, the standard of money, was the
produce of this country, or that it was imported from abroad. But if it
were otherwise, if the prices of commodities were permanently raised by
high wages, the proposition would not be less true, which asserts that
high wages invariably affect the employers of labour, by depriving them
of a portion of their real profits. Supposing the hatter, the hosier,
and the shoemaker, each paid 10_l._ more wages in the manufacture of a
particular quantity of their commodities, and that the price of hats,
stockings, and shoes, rose by a sum sufficient to repay the manufacturer
the 10_l._; their situation would be no better than if no such rise took
place. If the hosier sold his stockings for 110_l._ instead of 100_l._,
his profits would be precisely the same money amount as before; but as
he would obtain in exchange for this equal sum, one tenth less of hats,
shoes, and every other commodity, and as he could with his former amount
of savings employ fewer labourers at the increased wages, and purchase
fewer raw materials at the increased prices, he would be in no better
situation than if his money profits had been really diminished in
amount, and every thing had remained at its former price. Thus then I
have endeavoured to shew, first, that a rise of wages would not raise
the price of commodities, but would invariably lower profits; and
secondly, that if the prices of commodities could be raised, still the
effect on profits would be the same; and that in fact the value of the
medium only in which prices and profits are estimated would be lowered.
CHAPTER VI.
ON FOREIGN TRADE.
No extension of foreign trade will immediately increase the amount of
value in a country, although it will very powerfully contribute to
increase the mass of commodities, and therefore the sum of enjoyments.
As the value of all foreign goods is measured by the quantity of the
produce of our land and labour, which is given in exchange for them, we
should have no greater value, if by the discovery of new markets, we
obtained double the quantity of foreign goods in exchange for a given
quantity of ours. If by the purchase of English goods to the amount of
1000_l._ a merchant can obtain a quantity of foreign goods, which he can
sell in the English market for 1,200_l._, he will obtain 20 per cent.
profit by such an employment of his capital; but neither his gains, nor
the value of the commodities imported, will be increased or diminished
by the greater or smaller quantity of foreign goods obtained. Whether,
for example, he imports twenty-five or fifty pipes of wine, his interest
can be no way affected, if at one time the twenty-five pipes, and at
another the fifty pipes, equally sell for 1,200_l._ In either case his
profit will be limited to 200_l._, or 20 per cent. on his capital; and
in either case the same value will be imported into England. If the
fifty pipes sold for more than 1,200_l._, the profits of this individual
merchant would exceed the general rate of profits, and capital would
naturally flow into this advantageous trade, till the fall of the price
of wine had brought every thing to the former level.
It has indeed been contended, that the great profits which are sometimes
made by particular merchants in foreign trade, will elevate the general
rate of profits in the country, and that the abstraction of capital from
other employments, to partake of the new and beneficial foreign
commerce, will raise prices generally, and thereby increase profits. It
has been said, by high authority, that less capital being necessarily
devoted to the growth of corn, to the manufacture of cloth, hats, shoes,
&c. while the demand continues the same, the price of these commodities
will be so increased, that the farmer, hatter, clothier, and shoemaker,
will have an increase of profits, as well as the foreign merchant.[13]
They who hold this argument agree with me, that the profits of different
employments have a tendency to conform to one another; to advance and
recede together. Our variance consists in this: They contend, that the
equality of profits will be brought about by the general rise of
profits; and I am of opinion, that the profits of the favoured trade
will speedily subside to the general level.
For, first, I deny that less capital will necessarily be devoted to the
growth of corn, to the manufacture of cloth, hats, shoes, &c., unless
the demand for these commodities be diminished; and if so, their price
will not rise. In the purchase of foreign commodities, either the same,
a larger, or a less portion of the produce of the land and labour of
England will be employed. If the same portion be so employed, then will
the same demand exist for cloth, shoes, corn, and hats, as before, and
the same portion of capital will be devoted to their production. If, in
consequence of the price of foreign commodities being cheaper, a less
portion of the annual produce of the land and labour of England is
employed in the purchase of foreign commodities, more will remain for
the purchase of other things. If there be a greater demand for hats,
shoes, corn, &c. than before, which there may be, the consumers of
foreign commodities having an additional portion of their revenue
disposable, the capital is also disposable with which the greater value
of foreign commodities was before purchased; so that with the increased
demand for corn, shoes, &c. there exists also the means of procuring an
increased supply, and therefore neither prices nor profits can
permanently rise. If more of the produce of the land and labour of
England be employed in the purchase of foreign commodities, less can be
employed in the purchase of other things, and therefore fewer hats,
shoes, &c. will be required. At the same time that capital is liberated
from the production of shoes, hats, &c. more must be employed in
manufacturing those commodities with which foreign commodities are
purchased; and consequently in all cases the demand for foreign and home
commodities together, as far as regards value, is limited by the revenue
and capital of the country. If one increases, the other must diminish.
If the importation of wine, given in exchange for the same quantity of
English commodities be doubled, the people of England can either consume
double the quantity of wine that they did before, or the same quantity
of wine and a greater quantity of English commodities. If my revenue had
been 1000_l._, with which I purchased annually one pipe of wine for
100_l._ and a certain quantity of English commodities for 900_l._; when
wine fell to 50_l._ per pipe, I might lay out the 50_l._ saved, either
in the purchase of an additional pipe of wine, or in the purchase of
more English commodities. If I bought more wine, and every wine-drinker
did the same, the foreign trade would not be in the least disturbed;
the same quantity of English commodities would be exported in exchange
for wine, and we should receive double the quantity, though not double
the value of wine. But if I, and others contented ourselves with the
same quantity of wine as before, fewer English commodities would be
exported, and the wine-drinkers might either consume the commodities
which were before exported, or any others for which they had an
inclination. The capital required for their production would be supplied
by the capital liberated from the foreign trade.
There are two ways in which capital may be accumulated: it may be saved
either in consequence of increased revenue, or of diminished
consumption. If my profits are raised from 1000_l._ to 1200_l._ while my
expenditure continues the same, I accumulate annually 200_l._ more than
I did before. If I save 200_l._ out of my expenditure while my profits
continue the same, the same effect will be produced; 200_l._ per annum
will be added to my capital. The merchant who imported wine after
profits had been raised from 20 per cent. to 40 per cent., instead of
purchasing his English goods for 1000_l._, must purchase them for
857_l._ 2_s._ 10_d._, still selling the wine which he imports in return
for those goods for 1200_l._; or, if he continued to purchase his
English goods for 1000_l._, must raise the price of his wine to
1400_l._; he would thus obtain 40 instead of 20 per cent. profit on his
capital; but if, in consequence of the cheapness of all the commodities
on which his revenue was expended, he and all other consumers could save
the value of 200_l._ out of every 1000_l._ they before expended, they
would more effectually add to the real wealth of the country; in one
case, the savings would be made in consequence of an increase of
revenue, in the other in consequence of diminished expenditure.
If, by the introduction of machinery, the generality of the commodities
on which revenue was expended fell 20 per cent. in value, I should be
enabled to save as effectually as if my revenue had been raised 20 per
cent.; but in one case the rate of profits is stationary, in the other
it is raised 20 per cent.--If, by the introduction of cheap foreign
goods, I can save 20 per cent. from my expenditure, the effect will be
precisely the same as if machinery had lowered the expense of their
production, but profits would not be raised.
It is not, therefore, in consequence of the extension of the market that
the rate of profits is raised, although such extension may be equally
efficacious in increasing the mass of commodities, and may thereby
enable us to augment the funds destined for the maintenance of labour,
and the materials on which labour may be employed. It is quite as
important to the happiness of mankind, that our enjoyments should be
increased by the better distribution of labour, by each country
producing those commodities for which by its situation, its climate, and
its other natural or artificial advantages it is adapted, and by their
exchanging them for the commodities of other countries, as that they
should be augmented by a rise in the rate of profits.
It has been my endeavour to shew throughout this work, that the rate of
profits can never be increased but by a fall in wages, and that there
can be no permanent fall of wages but in consequence of a fall of the
necessaries on which wages are expended. If, therefore, by the extension
of foreign trade, or by improvements in machinery, the food and
necessaries of the labourer can be brought to market at a reduced price,
profits will rise. If, instead of growing our own corn, or manufacturing
the clothing and other necessaries of the labourer, we discover a new
market from which we can supply ourselves with these commodities at a
cheaper price, wages will fall and profits rise; but if the commodities
obtained at a cheaper rate, by the extension of foreign commerce, or by
the improvement of machinery, be exclusively the commodities consumed by
the rich, no alteration will take place in the rate of profits. The rate
of wages would not be affected, although wine, velvets, silks, and other
expensive commodities, should fall 50 per cent., and consequently
profits would continue unaltered.
Foreign trade, then, though highly beneficial to a country, as it
increases the amount and variety of the objects on which revenue may be
expended, and affords, by the abundance and cheapness of commodities,
incentives to saving, and to the accumulation of capital, has no
tendency to raise the profits of stock, unless the commodities imported
be of that description on which the wages of labour are expended.
The remarks which have been made respecting foreign trade, apply equally
to home trade. The rate of profits is never increased by a better
distribution of labour, by the invention of machinery, by the
establishment of roads and canals, or by any means of abridging labour
either in the manufacture or in the conveyance of goods. These are
causes which operate on price, and never fail to be highly beneficial to
consumers; since they enable them with the same labour, or with the
value of the produce of the same labour, to obtain in exchange a greater
quantity of the commodity to which the improvement is applied; but they
have no effect whatever on profit. On the other hand, every diminution
in the wages of labour raises profits, but produces no effect on the
price of commodities. One is advantageous to all classes, for all
classes are consumers; the other is beneficial only to producers; they
gain more, but every thing remains at its former price. In the first
case, they get the same as before; but every thing on which their gains
are expended, is diminished in exchangeable value.
The same rule which regulates the relative value of commodities in one
country, does not regulate the relative value of the commodities
exchanged between two or more countries.
Under a system of perfectly free commerce, each country naturally
devotes its capital and labour to such employments as are most
beneficial to each. This pursuit of individual advantage is admirably
connected with the universal good of the whole. By stimulating industry,
by rewarding ingenuity, and by using most efficaciously the peculiar
powers bestowed by nature, it distributes labour most effectively and
most economically: while, by increasing the general mass of productions,
it diffuses general benefit, and binds together by one common tie of
interest and intercourse, the universal society of nations throughout
the civilized world. It is this principle which determines that wine
shall be made in France and Portugal, that corn shall be grown in
America and Poland, and that hardware and other goods shall be
manufactured in England.
In one and the same country, profits are, generally speaking, always on
the same level; or differ only as the employment of capital may be more
or less secure and agreeable. It is not so between different countries.
If the profits of capital employed in Yorkshire, should exceed those of
capital employed in London, capital would speedily move from London to
Yorkshire, and an equality of profits would be effected; but if in
consequence of the diminished rate of production in the lands of
England, from the increase of capital and population, wages should rise,
and profits fall, it would not follow that capital and population would
necessarily move from England to Holland, or Spain, or Russia, where
profits might be higher.
If Portugal had no commercial connexion with other countries, instead of
employing a great part of her capital and industry in the production of
wines, with which she purchases for her own use the cloth and hardware
of other countries, she would be obliged to devote a part of that
capital to the manufacture of those commodities, which she would thus
obtain probably inferior in quality as well as quantity.
The quantity of wine which she shall give in exchange for the cloth of
England, is not determined by the respective quantities of labour
devoted to the production of each, as it would be, if both commodities
were manufactured in England, or both in Portugal.
England may be so circumstanced, that to produce the cloth may require
the labour of 100 men for one year; and if she attempted to make the
wine, it might require the labour of 120 men for the same time. England
would therefore find it her interest to import wine, and to purchase it
by the exportation of cloth.
To produce the wine in Portugal, might require only the labour of eighty
men for one year, and to produce the cloth in the same country, might
require the labour of ninety men for the same time. It would therefore
be advantageous for her to export wine in exchange for cloth. This
exchange might even take place, notwithstanding that the commodity
imported by Portugal could be produced there with less labour than in
England. Though she could make the cloth with the labour of ninety men,
she would import it from a country where it required the labour of 100
men to produce it, because it would be advantageous to her rather to
employ her capital in the production of wine, for which she would obtain
more cloth from England, than she could produce by diverting a portion
of her capital from the cultivation of vines to the manufacture of
cloth.
Thus, England would give the produce of the labour of 100 men for the
produce of the labour of 80. Such an exchange could not take place
between the individuals of the same country. The labour of 100
Englishmen cannot be given for that of 80 Englishmen, but the produce of
the labour of 100 Englishmen may be given for the produce of the labour
of 80 Portuguese, 60 Russians, or 120 East Indians. The difference in
this respect, between a single country and many, is easily accounted
for, by considering the difficulty with which capital moves from one
country to another, to seek a more profitable employment, and the
activity with which it invariably passes from one province to another in
the same country.[14]
It would undoubtedly be advantageous to the capitalists of England, and
to the consumers in both countries, that under such circumstances, the
wine and the cloth should both be made in Portugal, and therefore that
the capital and labour of England employed in making cloth, should be
removed to Portugal for that purpose. In that case, the relative value
of these commodities would be regulated by the same principle, as if one
were the produce of Yorkshire, and the other of London; and in every
other case, if capital freely flowed towards those countries where it
could be most profitably employed, there could be no difference in the
rate of profit, and no other difference in the real or labour price of
commodities, than the additional quantity of labour required to convey
them to the various markets where they were to be sold.
Experience however shews, that the fancied or real insecurity of
capital, when not under the immediate control of its owner, together
with the natural disinclination which every man has to quit the country
of his birth and connexions, and intrust himself with all his habits
fixed, to a strange government and new laws, check the emigration of
capital. These feelings, which I should be sorry to see weakened, induce
most men of property to be satisfied with a low rate of profits in
their own country, rather than seek a more advantageous employment for
their wealth in foreign nations.
Gold and silver having been chosen for the general medium of
circulation, they are, by the competition of commerce, distributed in
such proportions amongst the different countries of the world, as to
accommodate themselves to the natural traffic which would take place if
no such metals existed, and the trade between countries were purely a
trade of barter.
Thus, cloth cannot be imported into Portugal, unless it sell there for
more gold than it cost in the country from which it was imported; and
wine cannot be imported into England, unless it will sell for more there
than it cost in Portugal. If the trade were purely a trade of barter, it
could only continue whilst England could make cloth so cheap as to
obtain a greater quantity of wine with a given quantity of labour, by
manufacturing cloth than by growing vines; and also whilst the industry
of Portugal were attended by the reverse effects. Now suppose England
to discover a process for making wine, so that it should become her
interest rather to grow it than import it: she would naturally divert a
portion of her capital from the foreign trade to the home trade; she
would cease to manufacture cloth for exportation, and would grow wine
for herself. The money price of these commodities would be regulated
accordingly; wine would fall here while cloth continued at its former
price, and in Portugal no alteration would take place in the price of
either commodity. Cloth would continue for some time to be exported from
this country, because its price would continue to be higher in Portugal
than here; but money instead of wine would be given in exchange for it,
till the accumulation of money here, and its diminution abroad, should
so operate on the relative value of cloth in the two countries, that it
would cease to be profitable to export it. If the improvement in making
wine were of a very important description, it might become profitable
for the two countries to exchange employments; for England to make all
the wine, and Portugal all the cloth, consumed by them: but this could
be effected only by a new distribution of the precious metals, which
should raise the price of cloth in England, and lower it in Portugal.
The relative price of wine would fall in England in consequence of the
real advantage from the improvement of its manufacture; that is to say,
its natural price would fall: the relative price of cloth would rise
there from the accumulation of money.
Thus, suppose before the improvement in making wine in England, the
price of wine here were 50_l._ per pipe, and the price of a certain
quantity of cloth were 45_l._, whilst in Portugal the price of the same
quantity of wine was 45_l._, and that of the same quantity of cloth
50_l._; wine would be exported from Portugal with a profit of 5_l._, and
cloth from England with a profit of the same amount.
Suppose that, after the improvement, wine falls to 45_l._ in England,
the cloth continuing at the same price. Every transaction in commerce is
an independent transaction. Whilst a merchant can buy cloth in England
for 45_l._, and sell it with the usual profit in Portugal, he will
continue to export it from England. His business is simply to purchase
English cloth, and to pay for it by a bill of exchange, which he
purchases with Portuguese money. It is to him of no importance what
becomes of this money; he has discharged his debt by the remittance of
the bill. His transaction is undoubtedly regulated by the terms on which
he can obtain this bill, but they are known to him at the time; and the
causes which may influence the market price of bills, or the rate of
exchange, is no consideration of his.
If the markets be favourable for the exportation of wine from Portugal
to England, the exporter of the wine will be a seller of a bill, which
will be purchased either by the importer of the cloth, or by the person
who sold him his bill; and thus without the necessity of money passing
from either country, the exporters in each country will be paid for
their goods. Without having any direct transaction with each other, the
money paid in Portugal by the importer of cloth will be paid to the
Portuguese exporter of wine; and in England by the negociation of the
same bill, the exporter of the cloth will be authorized to receive its
value from the importer of wine.
But if the prices of wine were such that no wine could be exported to
England, the importer of cloth would equally purchase a bill; but the
price of that bill would be higher, from the knowledge which the seller
of it would possess, that there was no counter bill in the market by
which he could ultimately settle the transactions between the two
countries: he might know that the gold or silver money which he received
in exchange for his bill, must be actually exported to his correspondent
in England, to enable him to pay the demand which he had authorized to
be made upon him, and he might therefore charge in the price of his bill
all the expenses to be incurred, together with his fair and usual
profit.
If then this premium for a bill on England should be equal to the profit
on importing cloth, the importation would of course cease; but if the
premium on the bill were only 2 per cent., if to be enabled to pay a
debt in England of 100_l._, 102_l._ should be paid in Portugal, whilst
cloth which cost 45_l._ would sell for 50_l._, cloth would be imported,
bills would be bought, and money would be exported, till the diminution
of money in Portugal, and its accumulation in England, had produced such
a state of prices, as would make it no longer profitable to continue
these transactions.
But the diminution of money in one country, and its increase in another,
do not operate on the price of one commodity only, but on the prices of
all, and therefore the price of wine and cloth will be both raised in
England, and both lowered in Portugal. The price of cloth from being
45_l._ in one country, and 50_l._ in the other, would probably fall to
49_l._ or 48_l._ in Portugal, and rise to 46_l._ or 47_l._ in England,
and not afford a sufficient profit after paying a premium for a bill, to
induce any merchant to import that commodity.
It is thus that the money of each country is apportioned to it in such
quantities only as may be necessary to regulate a profitable trade of
barter. England exported cloth in exchange for wine, because by so
doing, her industry was rendered more productive to her; she had more
cloth and wine than if she had manufactured both for herself; and
Portugal imported cloth, and exported wine, because the industry of
Portugal could be more beneficially employed for both countries in
producing wine. Let there be more difficulty in England in producing
cloth, or in Portugal in producing wine, or let there be more facility
in England in producing wine, or in Portugal in producing cloth, and the
trade must immediately cease.
No change whatever takes place in the circumstances of Portugal; but
England finds that she can employ her labour more productively in the
manufacture of wine, and instantly the trade of barter between the two
countries changes. Not only is the exportation of wine from Portugal
stopped, but a new distribution of the precious metals takes place, and
her importation of cloth is also prevented.
Both countries would probably find it their interest to make their own
wine and their own cloth; but this singular result would take place: in
England, though wine would be cheaper, cloth would be elevated in price,
more would be paid for it by the consumer; while in Portugal the
consumers, both of cloth and of wine, would be able to purchase those
commodities cheaper. In the country where the improvement was made,
prices would be enhanced; in that where no change had taken place, but
where they had been deprived of a profitable branch of foreign trade,
prices would fall.
This, however, is only a seeming advantage to Portugal, for the quantity
of cloth and wine together produced in that country would be diminished,
while the quantity produced in England would be increased. Money would
in some degree have changed its value in the two countries--it would be
lowered in England, and raised in Portugal. Estimated in money, the
whole revenue of Portugal would be diminished; estimated in the same
medium, the whole revenue of England would be increased.
Thus then it appears, that the improvement of a manufacture in any
country tends to alter the distribution of the precious metals amongst
the nations of the world: it tends to increase the quantity of
commodities, at the same time that it raises general prices in the
country where the improvement takes place.
To simplify the question, I have been supposing the trade between two
countries to be confined to two commodities, to wine and cloth, but it
is well known that many and various articles enter into the list of
exports and imports. By the abstraction of money from one country, and
the accumulation of it in another, all commodities are affected in
price, and consequently encouragement is given to the exportation of
many more commodities besides money, which will therefore prevent so
great an effect from taking place on the value of money in the two
countries, as might otherwise be expected.
Beside the improvements in arts and machinery, there are various other
causes which are constantly operating on the natural course of trade,
and which interfere with the equilibrium, and the relative value of
money. Bounties on exportation or importation, new taxes on
commodities, sometimes by their direct, and at other times by their
indirect operation, disturb the natural trade of barter, and produce a
consequent necessity of importing or exporting money, in order that
prices may be accommodated to the natural course of commerce; and this
effect is produced not only in the country where the disturbing cause
takes place, but, in a greater or less degree, in every country of the
commercial world.
This will in some measure account for the different value of money in
different countries; it will explain to us why the prices of home
commodities, and those of great bulk, are, independently of other
causes, higher in those countries where manufactures flourish. Of two
countries having precisely the same population, and the same quantity of
land of equal fertility in cultivation, with the same knowledge too of
agriculture, the prices of raw produce will be highest in that where the
greater skill, and the better machinery is used in the manufacture of
exportable commodities. The rate of profits will probably differ but
little; for wages, or the real reward of the labourer, may be the same
in both; but those wages, as well as raw produce, will be rated higher
in money in that country, into which, from the advantages attending
their skill and machinery, an abundance of money is imported in exchange
for their goods.
Of these two countries, if one had the advantage in the manufacture of
goods of one quality, and the other in the manufacture of goods of
another quality, there would be no decided influx of the precious metals
into either; but if the advantage very heavily preponderated in favour
of either, that effect would be inevitable.
In the former part of this work, we have assumed for the purpose of
argument, that money always continued of the same value; we are now
endeavouring to shew that besides the ordinary variations in the value
of money, and those which are common to the whole commercial world,
there are also partial variations to which money is subject in
particular countries; and in fact, that the value of money is never the
same in any two countries, depending as it does on relative taxation,
on manufacturing skill, on the advantages of climate, natural
productions, and many other causes.
Although, however, money is subject to such perpetual variations, and
consequently the prices of the commodities which are common to most
countries, are also subject to considerable difference, yet no effect
will be produced on the rate of profits, either from the influx or
efflux of money. Capital will not be increased, because the circulating
medium is augmented. If the rent paid by the farmer to his landlord, and
the wages to his labourers, be 20 per cent. higher in one country than
another, and if at the same time the nominal value of the farmer's
capital be 20 per cent. more, he will receive precisely the same rate of
profits, although he should sell his raw produce 20 per cent. higher.
Profits, it cannot be too often repeated, depend on wages; not on
nominal, but real wages; not on the number of pounds that may be
annually paid to the labourer, but on the number of days' work necessary
to obtain those pounds. Wages may therefore be precisely the same in
two countries: they may bear too the same proportion to rent, and to the
whole produce obtained from the land, although in one of those countries
the labourer should receive ten shillings per week, and in the other
twelve.
In the early states of society, when manufactures have made little
progress, and the produce of all countries is nearly similar, consisting
of the bulky and most useful commodities, the value of money in
different countries will be chiefly regulated by their distance from the
mines which supply the precious metals; but as the arts and improvements
of society advance, and different nations excel in particular
manufactures, although distance will still enter into the calculation,
the value of the precious metals will be chiefly regulated by the
superiority of those manufactures.
Suppose all nations to produce corn, cattle, and coarse clothing only,
and that it was by the exportation of such commodities that gold could
be obtained from the countries which produced them, or from those who
held them in subjection; gold would naturally be of greater exchangeable
value in Poland than in England, on account of the greater expense of
sending such a bulky commodity as corn the more distant voyage, and also
the greater expense attending the conveying of gold to Poland.
This difference in the value of gold, or which is the same thing, this
difference in the price of corn in the two countries, would exist
although the facilities of producing corn in England should far exceed
those of Poland, from the greater fertility of the land, and the
superiority in the skill and implements of the labourer.
If however Poland should be the first to improve her manufactures, if
she should succeed in making a commodity which was generally desirable,
including great value in little bulk, or if she should be exclusively
blessed with some natural production, generally desirable, and not
possessed by other countries, she would obtain an additional quantity of
gold in exchange for this commodity, which would operate on the price
of her corn, cattle, and coarse clothing. The disadvantage of distance
would probably be more than compensated by the advantage of having an
exportable commodity of great value, and money would be permanently of
lower value in Poland than in England. If on the contrary, the advantage
of skill and machinery were possessed by England, another reason would
be added to that which before existed, why gold should be less valuable
in England than in Poland, and why corn, cattle, and clothing, should be
at a higher price in the former country.
These I believe to be the only two causes which regulate the comparative
value of money in the different countries of the world; for although
taxation occasions a disturbance of the equilibrium of money, it does so
by depriving the country in which it is imposed of some of the
advantages attending skill, industry, and climate.
It has been my endeavour carefully to distinguish between a low value of
money, and a high value of corn, or any other commodity with which
money may be compared. These have been generally considered as meaning
the same thing; but it is evident, that when corn rises from five to ten
shillings a bushel, it may be owing either to a fall in the value of
money, or to a rise in the value of corn. Thus we have seen, that from
the necessity of having recourse successively to land of a worse and
worse quality, in order to feed an increasing population, corn must rise
in relative value to other things. If therefore money continue
permanently of the same value, corn will exchange for more of such
money, that is to say, it will rise in price. The same rise in the price
of corn will be produced by such improvement of machinery in
manufactures, as shall enable us to manufacture commodities with
peculiar advantages: for the influx of money will be the consequence; it
will fall in value, and therefore exchange for less corn. But the
effects resulting from a high price of corn when produced by the rise in
the value of corn, and when caused by a fall in the value of money, are
totally different. In both cases the money price of wages will rise, but
if it be in consequence of the fall in the value of money, not only
wages and corn, but all other commodities will rise. If the manufacturer
has more to pay for wages, he will receive more for his manufactured
goods, and the rate of profits will remain unaffected. But when the rise
in the price of corn is the effect of the difficulty of production,
profits will fall; for the manufacturer will be obliged to pay more
wages, and will not be enabled to remunerate himself by raising the
price of his manufactured commodity.
Any improvement in the facility of working the mines, by which the
precious metals may be produced with a less quantity of labour, will
sink the value of money generally. It will then exchange for fewer
commodities in all countries; but when any particular country excels in
manufactures, so as to occasion an influx of money towards it, the value
of money will be lower, and the prices of corn and labour will be
relatively higher in that country, than in any other.
This higher value of money will not be indicated by the exchange; bills
may continue to be negotiated at par, although the prices of corn and
labour should be 10, 20, or 30 per cent. higher in one country than
another. Under the circumstances supposed, such a difference of prices
is the natural order of things, and the exchange can only be at par when
a sufficient quantity of money is introduced into the country excelling
in manufactures, so as to raise the price of its corn and labour. If
foreign countries should prohibit the exportation of money, and could
successfully enforce obedience to such a law, they might indeed prevent
the rise in the prices of the corn and labour of the manufacturing
country; for such rise can only take place after the influx of the
precious metals, supposing paper money not to be used; but they could
not prevent the exchange from being very unfavourable to them. If
England were the manufacturing country, and it were possible to prevent
the importation of money, the exchange with France, Holland, and Spain,
might be 5, 10, or 20 per cent. against those countries.
Whenever the current of money is forcibly stopped, and when money is
prevented from settling at its just level, there are no limits to the
possible variations of the exchange. The effects are similar to those
which follow, when a paper money, not exchangeable for specie at the
will of the holder, is forced into circulation. Such a currency is
necessarily confined to the country where it is issued: it cannot, when
too abundant, diffuse itself generally amongst other countries. The
level of circulation is destroyed, and the exchange will inevitably be
unfavourable to the country where it is excessive in quantity: just so
would be the effects of a metallic circulation, if by forcible means, by
laws which could not be evaded, money should be detained in a country,
when the stream of trade gave it an impetus towards other countries.
When each country has precisely the quantity of money which it ought to
have, money will not indeed be of the same value in each, for with
respect to many commodities it may differ 5, 10, or even 20 per cent.,
but the exchange will be at par. One hundred pounds in England, or the
silver which is in 100_l._, will purchase a bill of 100_l._, or an
equal quantity of silver in France, Spain, or Holland.
In speaking of the exchange and the comparative value of money in
different countries, we must not in the least refer to the value of
money estimated in commodities, in either country. The exchange is never
ascertained by estimating the comparative value of money in corn, cloth,
or any commodity whatever, but by estimating the value of the currency
of one country, in the currency of another.
It may also be ascertained by comparing it with some standard common to
both countries. If a bill on England for 100_l._ will purchase the same
quantity of goods in France or Spain, that a bill on Hamburgh for the
same sum will do, the exchange between Hamburgh and England is at par;
but if a bill on England for 130_l._, will purchase no more than a bill
on Hamburgh for 100_l._, the exchange is 30 per cent. against England.
In England 100_l._ may purchase a bill, or the right of receiving
101_l._ in Holland, 102_l._ in France, and 105_l._ in Spain. The
exchange with England is, in that case, said to be 1 per cent. against
Holland, 2 per cent. against France, and 5 per cent. against Spain. It
indicates that the level of currency is higher than it should be in
those countries, and the comparative value of their currencies, and that
of England, would be immediately restored to par, by abstracting from
theirs, or by adding to that of England.
Those who maintained that our currency was depreciated during the last
ten years, when the exchange varied from 20 to 30 per cent. against this
country, have never contended, as they have been accused of doing, that
money could not be more valuable in one country than another, as
compared with various commodities; but they did contend, that 130_l._
could not be detained in England, when it was of no more value,
estimated in the money of Hamburgh, or of Holland, than 100_l._
By sending 130_l._ good English pounds sterling to Hamburgh, even at an
expense of 5_l._, I should be possessed there of 125_l._; what then
could make me consent to give 130_l._ for a bill which would give me
100_l._ in Hamburgh, but that my pounds were not good pounds
sterling?--they were deteriorated, were degraded in intrinsic value
below the pounds sterling of Hamburgh, and if actually sent there, at an
expense of 5_l._, would sell only for 100_l._ With metallic pounds
sterling, it is not denied that my 130_l._ would procure me 125_l._ in
Hamburgh, but with paper pounds sterling I can only obtain 100_l._; and
yet it is maintained that 130_l._ in paper, is of equal value with
130_l._ in silver or gold.
Some indeed more reasonably maintained, that 130_l._ in paper was not of
equal value with 130_l._ in metallic money; but they said that it was
the metallic money which had changed its value, and not the paper money.
They wished to confine the meaning of the word depreciation to an actual
fall of value, and not to a comparative difference between the value of
money, and the standard by which by law it is regulated. One hundred
pounds of English money was formerly of equal value with, and could
purchase 100_l._ of Hamburgh money: in any other country a bill of
100_l._ on England, or on Hamburgh, could purchase precisely the same
quantity of commodities. To obtain the same things, I was lately obliged
to give 130_l._ English money, when Hamburgh could obtain them for
100_l._ Hamburgh money. If English money was of the same value then as
before, Hamburgh money must have risen in value. But where is the proof
of this? How is it to be ascertained whether English money has fallen,
or Hamburgh money has risen? there is no standard by which this can be
determined. It is a plea which admits of no proof, and can neither be
positively affirmed, nor positively contradicted. The nations of the
world must have been early convinced, that there was no standard of
value in nature, to which we might unerringly refer, and therefore chose
a medium, which, on the whole appeared to them less variable than any
other commodity.
To this standard we must conform till the law is changed, and till some
other commodity is discovered, by the use of which we shall obtain a
more perfect standard, than that which we have established. While gold
is exclusively the standard in this country, money will be depreciated,
when a pound sterling is not of equal value with 5 dwts. and 3 grs. of
standard gold, and that, whether gold rises or falls in general value.
CHAPTER VII.
ON TAXES.
Taxes are a portion of the produce of the land and labour of a country,
placed at the disposal of the government; and are always ultimately
paid, either from the capital, or from the revenue of the country.
We have already shewn how the capital of a country is either fixed or
circulating, according as it is of a more or of a less durable nature.
It is difficult to define strictly, where the distinction between
circulating and fixed capital begins; for there are almost infinite
degrees in the durability of capital. The food of a country is consumed
and reproduced, at least once in every year; the clothing of the
labourer is probably not consumed and reproduced in less than two
years; whilst his house and furniture are calculated to endure for a
period of ten or twenty years.
When the annual productions of a country exceed its annual consumption,
it is said to increase its capital; when its annual consumption at least
is not replaced by its annual production, it is said to diminish its
capital. Capital may therefore be increased by an increased production,
or by a diminished consumption.
If the consumption of the government, when increased by the levy of
additional taxes, be met either by an increased production, or by a
diminished consumption on the part of the people, the taxes will fall
upon revenue, and the national capital will remain unimpaired; but if
there be no increased production or diminished consumption on the part
of the people, the taxes will necessarily fall on capital.
In proportion as the capital of a country is diminished, its productions
will be necessarily diminished; and therefore, if the same expenditure
on the part of the people and of the government continue, with a
constantly diminishing annual reproduction, the resources of the people
and the state will fall away with increasing rapidity, and distress and
ruin will follow.
Notwithstanding the immense expenditure of the English government during
the last twenty years, there can be little doubt but that the increased
production on the part of the people has more than compensated for it.
The national capital has not merely been unimpaired, it has been greatly
increased, and the annual revenue of the people, even after the payment
of their taxes, is probably greater at the present time than at any
former period of our history.
For the proof of this we might refer to the increase of population--to
the extension of agriculture--to the increase of shipping and
manufactures--to the building of docks--to the opening of numerous
canals, as well as to many other expensive undertakings; all denoting an
increase both of capital and of annual production.
There are no taxes which have not a tendency to impede accumulation,
because there are none which may not be considered as checking
production, and as causing the same effects as a bad soil or climate, a
diminution of skill or industry, a worse distribution of labour, or the
loss of some useful machinery; and although some taxes will produce
these effects in a much greater degree than others, it must be confessed
that the great evil of taxation is to be found, not so much in any
selection of its objects, as in the general amount of its effects taken
collectively.
Taxes are not necessarily taxes on capital, because they are laid on
capital; nor on income, because they are laid on income. If from my
income of 1000_l._ per annum, I am required to pay 100_l._, it will
really be a tax on my income, should I be content with the expenditure
of the remaining 900_l._; but it will be a tax on capital, if I continue
to spend 1000_l._
The capital from which my income of 1000_l._ is derived may be of the
value of 10,000_l._; a tax of one per cent. on such capital would be
100_l._; but my capital would be unaffected, if after paying this tax, I
in like manner contented myself with the expenditure of 900_l._
The desire which every man has to keep his station in life, and to
maintain his wealth at the height which it has once attained, occasions
most taxes, whether laid on capital or on income, to be paid from
income; and therefore as taxation proceeds, or as government increases
its expenditure, the annual expenditure of the people must be
diminished, unless they are enabled proportionally to increase their
capitals and income. It should be the policy of governments to encourage
a disposition to do this in the people, and never to lay such taxes as
will inevitably fall on capital; since by so doing, they impair the
funds for the maintenance of labour, and thereby diminish the future
production of the country.
In England this policy has been neglected, in taxing the probates of
wills, in the legacy duty, and in all taxes affecting the transference
of property from the dead to the living. If a legacy of 1000_l._ be
subject to a tax of 100_l._, the legatee considers his legacy as only
900_l._, and feels no particular motive to save the 100_l._ duty from
his expenditure, and thus the capital of the country is diminished; but
if he had really received 1000_l._ and had been required to pay 100_l._
as a tax on income, on wine, on horses, or on servants, he would
probably have diminished, or rather not increased his expenditure by
that sum, and the capital of the country would have been unimpaired.
"Taxes upon the transference of property from the dead to the living,"
says Adam Smith, "fall finally, as well as immediately, upon the persons
to whom the property is transferred. Taxes on the sale of land fall
altogether upon the seller. The seller is almost always under the
necessity of selling, and must therefore take such a price as he can
get. The buyer is scarce ever under the necessity of buying, and will
therefore only give such a price as he likes. He considers what the land
will cost him in tax and price together. The more he is obliged to pay
in the way of tax, the less he will be disposed to give in the way of
price. Such taxes, therefore, fall almost always upon a necessitous
person, and must therefore be very cruel and oppressive." "Stamp duties,
and duties upon the registration of bonds and contracts for borrowed
money, fall altogether upon the borrower, and in fact are always paid by
him. Duties of the same kind upon law proceedings fall upon the suitors.
They reduce to both the capital value of the subject in dispute. The
more it costs to acquire any property, the less must be the neat value
of it when acquired. All taxes upon the transference of property of
every kind, so far as they diminish the capital value of that property,
tend to diminish the funds destined for the maintenance of labour. They
are all more or less unthrifty taxes, that increase the revenue of the
sovereign, which seldom maintains any but unproductive labourers, at the
expense of the capital of the people, which maintains none but
productive."
But this is not the only objection to taxes on the transference of
property; they prevent the national capital from being distributed in
the way most beneficial to the community. For the general prosperity,
there cannot be too much facility given to the conveyance and exchange
of all kinds of property, as it is by such means that capital of every
species is likely to find its way into the hands of those who will best
employ it in increasing the productions of the country. "Why," asks M.
Say, "does an individual wish to sell his land? it is because he has
another employment in view in which his funds will be more productive.
Why does another wish to purchase this same land? it is to employ a
capital which brings him in too little, which was unemployed, or the use
of which he thinks susceptible of improvement. This exchange will
increase the general income, since it increases the income of these
parties. But if the charges are so exorbitant as to prevent the
exchange, they are an obstacle to this increase of the general income."
Those taxes however are easily collected; and this by many may be
thought to afford some compensation for their injurious effects.
CHAPTER VIII.
TAXES ON RAW PRODUCE.
Having in a former part of this work established, I hope satisfactorily,
the principle, that the price of corn is regulated by the cost of its
production on that land exclusively, or rather with that capital
exclusively, which pays no rent, it will follow that whatever may
increase the cost of production will increase the price; whatever may
reduce it, will lower the price. The necessity of cultivating poorer
land, or of obtaining a less return with a given additional capital on
land already in cultivation, will inevitably raise the exchangeable
value of raw produce. The discovery of machinery, which will enable the
cultivator to obtain his corn at a less cost of production, will
necessarily lower its exchangeable value. Any tax which may be imposed
on the cultivator, whether in the shape of land-tax, tithes, or a tax on
the produce when obtained, will increase the cost of production, and
will therefore raise the price of raw produce.
If the price of raw produce did not rise so as to compensate the
cultivator for the tax, he would naturally quit a trade where his
profits were reduced below the general level of profits: this would
occasion a diminution of supply, until the unabated demand should have
produced such a rise in the price of raw produce, as to make the
cultivation of it equally profitable with the investment of capital in
any other trade.
A rise of price is the only means by which he could pay the tax, and
continue to derive the usual and general profits from this employment of
his capital. He could not deduct the tax from his rent, and oblige his
landlord to pay it, for he pays no rent. He would not deduct it from his
profits, for there is no reason why he should continue in an employment
which yields small profits, when all other employments are yielding
greater. There can then be no question, but that he will have the power
of raising the price of raw produce by a sum equal to the tax.
A tax on raw produce would not be paid by the landlord; it would not be
paid by the farmer; but it would be paid, in an increased price, by the
consumer.
Rent, it should be remembered, is the difference between the produce
obtained by equal portions of labour and capital employed on land of the
same or different qualities. It should be remembered too, that the money
rent of land, and the corn rent of land, do not vary in the same
proportion.
In the case of a tax on raw produce, of a land tax, or tithes, the corn
rent of land will vary, while the money rent will remain as before.
If, as we have before supposed, the land in cultivation were of three
qualities, and that with an equal amount of capital,
180 qrs. of corn were obtained from land No. 1.
170 " " " from " 2.
160 " " " from " 3.
the rent of No. 1 would be 20 quarters, the difference between that of
No. 3 and No. 1; and of No. 2, 10 quarters, the difference between that
of No. 3 and No. 2; while No. 3 would pay no rent whatever.
Now if the price of corn were 4_l._ per quarter, the money rent of No. 1
would be 80_l._, and that of No. 2, 40_l._
Suppose a tax of 8_s._ per quarter to be imposed on corn; then the price
would rise to 4_l._ 8_s._; and if the landlords obtained the same corn
rent as before, the rent of No. 1 would be 88_l._, and that of No. 2,
44_l._ But they would not obtain the same corn rent; the tax would fall
heavier on No. 1 than on No. 2, and on No. 2 than on No. 3, because it
would be levied on a greater quantity of corn. It is the difficulty of
production on No. 3 which regulates price; and corn rises to 4_l._
8_s._, that the profits of the capital employed on No. 3 may be on a
level with the general profits of stock.
The produce and tax on the three qualities of land will be as follows:
No. 1, yielding 180 qrs. at 4_l._ 8_s._ per qr. L792
Deduct the value of 16.3 or 8_s._ per qr. on 180 qrs. 72
----- ----
Net corn produce 163.7 Net money produce L720
----- ----
No. 2, yielding 170 qrs. at 4_l._ 8_s._ per qr. L748
Deduct the value of 15.4 {qrs. at 4_l._ 8_s._ or 8_s._ per}
{ qr. on 170 qrs. } 68
----- ----
Net corn produce 154.6 Net money produce of L680
----- ----
No. 3, 160 qrs. at 4_l._ 8_s._ L704
Deduct the value of 14.5 {qrs. at 4_l._ 8_s._ or 8_s._ per}
{ qr. on 160 } 64
----- ----
Net corn produce 145.5 Net money produce L640
----- ----
The money rent of No. 1 would continue to be 80_l._, or the difference
between 640 and 720_l._; and that of No. 2, 40_l._, or the difference
between 640_l._ and 680_l._, precisely the same as before; but the corn
rent will be reduced from 20 quarters on No. 1 to 18.2 quarters, and
that on No. 2 from 10 to 9.1 quarters.
A tax on corn, then, would fall on the consumers of corn, and would
raise its value as compared with all other commodities, in a degree
proportioned to the tax. In proportion as raw produce entered into the
composition of other commodities, would their value also be raised,
unless the tax were countervailed by other causes. They would in fact be
indirectly taxed, and their value would rise in proportion to the tax.
A tax, however, on raw produce, and on the necessaries of the labourer,
would have another effect--it would raise wages. From the effect of the
principle of population on the increase of mankind, wages of the lowest
kind never continue much above that rate which nature and habit demand
for the support of the labourers. This class is never able to bear any
considerable portion of taxation; and, consequently, if they had to pay
8_s._ per quarter in addition for wheat, and in some smaller proportion
for other necessaries, they would not be able to subsist on the same
wages as before, and to keep up the race of labourers. Wages would
inevitably and necessarily rise; and in proportion as they rose, profits
would fall. Government would receive a tax of 8_s._ per quarter on all
the corn consumed in the country, a part of which would be paid directly
by the consumers of corn; the other part would be paid indirectly by
those who employed labour, and would affect profits in the same manner
as if wages had been raised from the increased demand for labour
compared with the supply, or from an increasing difficulty of obtaining
the food and necessaries required by the labourer.
In as far as the tax might affect consumers, it would be an equal tax,
but in as far as it would affect profits, it would be a partial tax; for
it would neither operate on the landlord nor on the stockholder, since
they would continue to receive, the one the same money rent, the other
the same money dividends as before. A tax on the produce of the land
then would operate as follows:
1st. It would raise the price of raw produce by a sum
equal to the tax, and would therefore fall on each
consumer in proportion to his consumption.
2dly. It would raise the wages of labour, and lower
profits.
It may then be objected against such a tax,
1st. That by raising the wages of labour, and lowering profits,
it is an unequal tax, as it affects the income of the farmer,
trader, and manufacturer, and leaves untaxed the income of the
landlord, stockholder, and others enjoying fixed incomes.
2dly. That there would be a considerable interval between
the rise in the price of corn and the rise of wages,
during which much distress would be experienced by the
labourer.
3rdly. That raising wages and lowering profits is a
discouragement to accumulation, and acts in the same way
as a natural poverty of soil.
4thly. That by raising the price of raw produce, the
prices of all commodities into which raw produce enters,
would be raised, and that therefore we should not meet
the foreign manufacture on equal terms in the general
market.
With respect to the first objection, that by raising the wages of labour
and lowering profits it acts unequally, as it affects the income of the
farmer, trader, and manufacturer, and leaves untaxed the income of the
landlord, stockholder, and others enjoying fixed incomes,--it may be
answered, that if the operation of the tax be unequal, it is for the
legislature to make it equal, by taxing directly the rent of land, and
the dividends from stock. By so doing, all the objects of an income tax
would be obtained, without the inconvenience of having recourse to the
obnoxious measure of prying into every man's concerns, and arming
commissioners with powers repugnant to the habits and feelings of a free
country.
With respect to the second objection, that there would be a considerable
interval between the rise of the price of corn and the rise of wages,
during which much distress would be experienced by the lower classes,--I
answer, that under different circumstances, wages follow the price of
raw produce with very different degrees of celerity; that in some cases
no effect whatever is produced on wages by a rise of corn; in others,
the rise of wages precedes the rise in the price of corn; again, in some
the effect is slow, and in others the interval must be very short.
Those who maintain that it is the price of necessaries which regulates
the price of labour, always allowing for the particular state of
progression in which the society, may be seem to have conceded too
readily, that a rise or fall in the price of necessaries will be very
slowly succeeded by a rise or fall of wages. A high price of provisions
may arise from very different causes, and may accordingly produce very
different effects. It may arise from
1st. A deficient supply.
2nd. From a gradually increasing demand, which may be
ultimately attended with an increased cost of production.
3dly. From a fall in the value of money.
4thly. From taxes on necessaries.
These four causes have not been sufficiently distinguished and separated
by those who have inquired into the influence of a high price of
necessaries on wages. We will examine them severally.
A bad harvest will produce a high price of provisions, and the high
price is the only means by which the consumption is compelled to conform
to the state of the supply. If all the purchasers of corn were rich,
the price might rise to any degree, but the result would remain
unaltered; the price would at last be so high, that the least rich would
be obliged to forego the use of a part of the quantity which they
usually consumed, as by diminished consumption alone, the demand could
be brought down to the limits of the supply. Under such circumstances no
policy can be more absurd, than that of forcibly regulating money wages
by the price of food, as is frequently done, by misapplication of the
poor laws. Such a measure affords no real relief to the labourer,
because its effect is to raise still higher the price of corn, and at
last he must be obliged to limit his consumption in proportion to the
limited supply. In the natural course of affairs a deficient supply from
bad seasons, without any pernicious and unwise interference, would not
be followed by a rise of wages. The raising of wages is merely nominal
to those who receive them; it increases the competition in the corn
market, and its ultimate effect is to raise the profits of the growers
and dealers in corn. The wages of labour are really regulated by the
proportion between the supply and demand of necessaries, and the supply
and demand of labour; and money is merely the medium, or measure, in
which wages are expressed. In this case then the distress of the
labourer is unavoidable, and no legislation can afford a remedy, except
by the importation of additional food.
When a high price of corn is the effect of an increasing demand, it is
always preceded by an increase of wages, for demand cannot increase,
without an increase of means in the people to pay for that which they
desire. An accumulation of capital naturally produces an increased
competition among the employers of labour, and a consequent rise in its
price. The increased wages are not immediately expended on food, but are
first made to contribute to the other enjoyments of the labourer. His
improved condition however induces, and enables him to marry, and then
the demand for food for the support of his family naturally supersedes
that of those other enjoyments on which his wages were temporarily
expended. Corn rises then because the demand for it increases, because
there are those in the society who have improved means of paying for
it; and the profits of the farmer will be raised above the general level
of profits, till the requisite quantity of capital has been employed on
its production. Whether, after this has taken place, corn shall again
fall to its former price, or shall continue permanently higher, will
depend on the quality of the land from which the increased quantity of
corn has been supplied. If it be obtained from land of the same
fertility, as that which was last in cultivation, and with no greater
cost of labour, the price will fall to its former state; if from poorer
land, it will continue permanently higher. The high wages in the first
instance proceeded from an increase in the demand for labour: inasmuch
as it encouraged marriage, and supported children, it produced the
effect of increasing the supply of labour. But when the supply is
obtained, wages will again fall to their former price, if corn has
fallen to its former price: to a higher than the former price, if the
increased supply of corn has been produced from land of an inferior
quality. A high price is by no means incompatible with an abundant
supply: the price is permanently high, not because the quantity is
deficient, but because there has been an increased cost in producing it.
It generally happens indeed, that when a stimulus has been given to
population, an effect is produced beyond what the case requires; the
population may be, and generally is so much increased as,
notwithstanding the increased demand for labour, to bear a greater
proportion to the funds for maintaining labourers than before the
increase of capital. In this case a re-action will take place, wages
will be below their natural level, and will continue so, till the usual
proportion between the supply and demand has been restored. In this case
then, the rise in the price of corn is preceded by a rise of wages, and
therefore entails no distress on the labourer.
A fall in the value of money, in consequence of an influx of the
precious metals from the mines, or from the abuse of the privileges of
banking, is another cause for the rise of the price of food; but it will
make no alteration in the quantity produced. It leaves undisturbed too
the number of labourers, as well as the demand for them; for there will
be neither an increase nor a diminution of capital. The quantity of
necessaries to be allotted to the labourer, depends on the comparative
demand and supply of necessaries, with the comparative demand and supply
of labour; money being only the medium in which the quantity is
expressed; and as neither of these is altered, the real reward of the
labourer will not alter. Money wages will rise, but they will only
enable him to furnish himself with the same quantity of necessaries as
before. Those who dispute this principle, are bound to shew why an
increase of money should not have the same effect in raising the price
of labour, the quantity of which has not been increased, as they
acknowledge it would have on the price of shoes, of hats, and of corn,
if the quantity of those commodities were not increased. The relative
market value of hats and shoes is regulated by the demand and supply of
hats, compared with the demand and supply of shoes, and money is but the
medium in which their value is expressed. If shoes be doubled in price,
hats will also be doubled in price, and they will retain the same
comparative value. So if corn and all the necessaries of the labourer be
doubled in price, labour will be doubled in price also, and while there
is no interruption to the usual demand and supply of necessaries and of
labour, there can be no reason why they should not preserve their
relative value.
Neither a fall in the value of money, nor a tax on raw produce, though
each will raise the price, will _necessarily_ interfere with the
quantity of raw produce; or with the number of people, who are both able
to purchase, and willing to consume it. It is very easy to perceive why,
when the capital of a country increases irregularly, wages should rise,
whilst the price of corn remains stationary, or rises in a less
proportion; and why, when the capital of a country diminishes, wages
should fall whilst corn remains stationary, or falls in a much less
proportion, and this too for a considerable time; the reason is, because
labour is a commodity which cannot be increased and diminished at
pleasure. If there are too few hats in the market for the demand, the
price will rise, but only for a short time; for in the course of one
year, by employing more capital in that trade, any reasonable addition
may be made to the quantity of hats, and therefore their market price
cannot long very much exceed their natural price; but it is not so with
men; you cannot increase their number in one or two years when there is
an increase of capital, nor can you rapidly diminish their number when
capital is in a retrograde state; and therefore, the number of hands
increasing or diminishing slowly, whilst the funds for the maintenance
of labour increase or diminish rapidly, there must be a considerable
interval before the price of labour is exactly regulated by the price of
corn and necessaries; but in the case of a fall in the value of money,
or of a tax on corn, there is not necessarily any excess in the supply
of labour, nor any abatement of demand, and therefore there can be no
reason why the labourer should sustain a real diminution of wages.
A tax on corn does not necessarily diminish the quantity of corn, it
only raises its money price; it does not necessarily diminish the demand
compared with the supply of labour; why then should it diminish the
portion paid to the labourer? Suppose it true that it did diminish the
quantity given to the labourer, in other words, that it did not raise
his money wages in the same proportion as the tax raised the price of
the corn which he consumed; would not the supply of corn exceed the
demand?--would it not fall in price? and would not the labourer thus
obtain his usual portion? In such case indeed capital would be withdrawn
from agriculture; for if the price were not increased by the whole
amount of the tax, agricultural profits would be lower than the general
level of profits, and capital would seek more advantageous employment.
In regard then to a tax on raw produce, which is the point under
discussion, it appears to me that no interval which could bear
oppressively on the labourer, would elapse between the rise in the price
of raw produce, and the rise in the wages of the labourer; and that
therefore no other inconvenience would be suffered by this class, than
that which they would suffer from any other mode of taxation, namely,
the risk that the tax might infringe on the funds destined for the
maintenance of labour, and might therefore check or abate the demand for
it.
With respect to the third objection against taxes on raw produce,
namely, that the raising wages, and lowering profits, is a
discouragement to accumulation, and acts in the same way as a natural
poverty of soil; I have endeavoured to shew in another part of this work
that savings may be as effectually made from expenditure as from
production; from a reduction in the value of commodities, as from a rise
in the rate of profits. By increasing my profits from 1000_l._ to
1200_l._, whilst prices continue the same, my power of increasing my
capital by savings is increased but it is not increased so much as it
would be if my profits continued as before, whilst commodities were so
lowered in price, that 800_l._ would procure me as much as 1000_l._
purchased before.
Taxation under every form presents but a choice of evils; if it does not
act on profit, it must act on expenditure; and provided the burden be
equally borne, and do not repress reproduction, it is indifferent on
which it is laid. Taxes on production, or on the profits of stock,
whether applied immediately to profits, or indirectly, by taxing the
land or its produce, have this advantage over other taxes; no class of
the community can escape them, and each contributes according to his
means.
From taxes on expenditure a miser may escape; he may have an income of
10,000 per annum, and expend only 300_l._; but from taxes on profits,
whether direct or indirect, he cannot escape; he will contribute to them
either by giving up a part or the value of a part of his produce; or by
the advanced prices of the necessaries essential to production, he will
be unable to continue to accumulate at the same rate. He may indeed have
an income of the same value, but he will not have the same command of
labour, nor of an equal quantity of materials on which such labour can
be exercised.
If a country is insulated from all others, having no commerce with any
of its neighbours, it can in no way shift any portion of its taxes from
itself. A portion of the produce of its land and labour will be devoted
to the service of the state; and I cannot but think that, unless it
presses unequally on that class which accumulates and saves, it will be
of little importance whether the taxes be levied on profits, on
agricultural, or on manufactured commodities. If my revenue be 1000_l._
per annum, and I must pay taxes to the amount of 100_l._, it is of
little importance whether I pay it from my revenue, leaving myself only
900_l._, or pay 100_l._ in addition for my agricultural commodities, or
for my manufactured goods. If 100_l._ is my fair proportion of the
expenses of the country, the virtue of taxation consists in making sure
that I shall pay that 100_l._, neither more nor less; and that cannot be
effected in any manner so securely as by taxes on wages, profits, or raw
produce.
The fourth and last objection which remains to be noticed is: That by
raising the price of raw produce, the prices of all commodities into
which raw produce enters, will be raised, and that therefore we shall
not meet the foreign manufacturer on equal terms in the general market.
In the first place, corn and _all_ home commodities could not be
materially raised in price without an influx of the precious metals; for
the same quantity of money could not circulate the same quantity of
commodities, at high as at low prices, and the precious metals never
could be purchased with dear commodities. When more gold is required, it
must be obtained by giving more, and not fewer commodities in exchange
for it. Neither could the want of money be supplied by paper, for it is
not paper that regulates the value of gold as a commodity, but gold that
regulates the value of paper. Unless then the value of gold could be
lowered, no paper could be added to the circulation without being
depreciated. And that the value of gold could not be lowered appears
clear, when we consider that the value of gold as a commodity must be
regulated by the quantity of goods which must be given to foreigners in
exchange for it. When gold is cheap, commodities are dear; and when gold
is dear, commodities are cheap, and fall in price. Now as no cause is
shewn why foreigners should sell their gold cheaper than usual, it does
not appear probable that there would be any influx of gold. Without such
an influx there can be no increase of quantity, no fall in its value, no
rise in the general price of goods.
The probable effect of a tax on raw produce would be to raise the price
of all commodities in which raw produce entered, but not in any degree
proportioned to the tax; while other commodities in which no raw produce
entered, such as articles made of the metals and the earths, would fall
in price: so that the same quantity of money as before would be adequate
to the whole circulation.
A tax which should have the effect of raising the price of all home
productions, would not discourage exportation, except during a very
limited time. If they were raised in price at home, they could not
indeed immediately be profitably exported, because they would be subject
to a burthen here from which abroad they were free. The tax would
produce the same effect as an alteration in the value of money, which
was not general and common to all countries, but confined to a single
one. If England were that country, she might not be able to sell, but
she would be able to buy, because importable commodities would not be
raised in price. Under these circumstances nothing but money could be
exported in return for foreign commodities, but this is a trade which
could not long continue; a nation cannot be exhausted of its money, for
after a certain quantity has left it, the value of the remainder will
rise, and such a price of commodities will be the consequence, that they
will again be capable of being profitably exported. When money had
risen, therefore, we should no longer export it in return for goods
imported, but we should export those manufactures which had first been
raised in price, by the rise in the price of the raw produce from which
they were made, and then again lowered by the exportation of money.
But it may be objected, that when money so rose in value, it would rise
with respect to foreign as well as home commodities, and therefore that
all encouragement to import foreign goods would cease. Thus, suppose we
imported goods which cost 100_l._ abroad, and which sold for 120_l._
here, we should cease to import them, when the value of money had so
risen in England, that they would only sell for 100_l._ here: this
however could never happen. The motive which determines us to import a
commodity, is the discovery of its relative cheapness abroad: it is the
comparison of its natural price abroad, with its natural price at home.
If a country exports hats, and imports cloth, it does so because it can
obtain more cloth by making hats, and exchanging them for cloth, than if
it made the cloth itself. If the rise of raw produce occasions any
increased cost of production in making hats, it would occasion also an
increased cost in making cloth. If therefore both commodities were made
at home, they would both rise. One, however, being a commodity which we
import, would not rise, neither would it fall, when the value of money
rose; for by not falling, it would regain its natural relation to the
exported commodity. The rise of raw produce makes a hat rise from 30 to
33 shillings, or 10 per cent.: the same cause if we manufactured cloth,
would make it rise from 20_s._ to 22_s._ per yard. This rise does not
destroy the relation between cloth and hats; a hat was, and continues to
be, worth one yard and a half of cloth. But if we import cloth, its
price will continue uniformly at 20_s._ per yard, unaffected first by
the fall, and then by the rise in the value of money; whilst hats, which
had risen from 30_s._ to 33_s._, will again fall from 33_s._ to 30_s._,
at which point the relation between cloth and hats will be restored.
To simplify the consideration of this subject, I have been supposing
that a rise in the value of raw materials would affect, in an equal
proportion, all home commodities; that if the effect on one were to
raise it 10 per cent., it would raise all 10 per cent.; but as the value
of commodities is very differently made up of raw material and labour;
as some commodities, for instance all those made from the metals, would
be unaffected by the rise of raw produce from the surface of the earth,
it is evident that there would be the greatest variety in the effects
produced on the value of commodities, by a tax on raw produce. As far as
this effect was produced, it would stimulate or retard the exportation
of particular commodities, and would undoubtedly be attended with the
same inconvenience that attends the taxing of commodities; it would
destroy the natural relation between the value of each. Thus, the
natural price of a hat, instead of being the same as a yard and a half
of cloth, might only be of the value of a yard and a quarter, or it
might be of the value of a yard and three quarters, and therefore rather
a different direction might be given to foreign trade. All these
inconveniences would not interfere with the value of the exports and
imports; they would only prevent the very best distribution of the
capital of the whole world, which is never so well regulated, as when
every commodity is freely allowed to settle at its natural price.
Although then the rise in the price of most of our own commodities,
would for a time check exportation generally, and might permanently
prevent the exportation of a few commodities, it could not materially
interfere with foreign trade, and would not place us under any
comparative disadvantage as far as regarded competition in foreign
markets.
CHAPTER VIII.*
TAXES ON RENT.
A tax on rent would affect rent only; it would fall wholly on landlords,
and could not be shifted to any class of consumers. The landlord could
not raise his rent, because he would leave unaltered the difference
between the produce obtained from the least productive land in
cultivation, and that obtained from land of every other quality. Three
sorts of land, No. 1, 2, and 3, are in cultivation, and yield
respectively with the same labour 180, 170, and 160 quarters of wheat;
but No. 3 pays no rent, and is therefore untaxed: the rent then of No. 2
cannot be made to exceed the value of ten, nor No. 1, of twenty
quarters. Such a tax could not raise the price of raw produce, because
as the cultivator of No. 3 pays neither rent nor tax, he would in no way
be enabled to raise the price of the commodity produced. A tax on rent
would not discourage the cultivation of fresh land, for such land pays
no rent, and would be untaxed. If No. 4 were taken into cultivation,
and yielded 150 quarters, no tax would be paid for such land; but it
would create a rent of ten quarters on No. 3, which would then commence
paying the tax.
A tax on rent, as rent is constituted, would discourage cultivation,
because it would be a tax on the profits of the landlord. The term rent
of land, as I have elsewhere observed, is applied to the whole amount of
the value paid by the farmer to his landlord, a part only of which is
strictly rent. The buildings and fixtures, and other expenses paid for
by the landlord, form strictly a part of the stock of the farm, and must
have been furnished by the tenant, if not provided by the landlord. Rent
is the sum paid to the landlord for the use of the land, and for the use
of the land only. The further sum that is paid to him under the name of
rent, is for the use of the buildings, &c., and is really the profits of
the landlord's stock. In taxing rent, as no distinction would be made
between that part paid for the use of the land, and that paid for the
use of the landlord's stock, a portion of the tax would fall on the
landlord's profits, and would therefore discourage cultivation, unless
the price of raw produce rose. On that land, for the use of which no
rent was paid, a compensation under that name might be given to the
landlord for the use of his buildings. These buildings would not be
erected, nor would raw produce be grown on such land, till the price at
which it sold would not only pay for all the usual outgoings, but also
for this additional one of the tax. This part of the tax does not fall
on the landlord, nor on the farmer, but on the consumer of raw produce.
There can be little doubt, but that if a tax were laid on rent,
landlords would soon find a way to discriminate between that which was
paid to them for the use of the land, and that which was paid for the
use of the buildings, and the improvements which were made by the
landlord's stock. The latter would either be called the rent of house
and buildings, or in all new land taken into cultivation such buildings
and improvements would be made by the tenant, and not by the landlord.
The landlord's capital might indeed be really employed for that purpose;
it might be nominally expended by the tenant, the landlord furnishing
him with the means, either in the shape of a loan, or in the purchase of
an annuity for the duration of the lease. Whether distinguished or not,
there is a real difference between the nature of the compensations which
the landlord receives for these different objects; and it is quite
certain, that a tax on the real rent of land falls wholly on the
landlord, but that a tax on that remuneration which the landlord
receives for the use of his stock expended on the farm, falls on the
consumer of raw produce. If a tax were laid on rent, and no means of
separating the remuneration now paid by the tenant to the landlord under
the name of rent were adopted, the tax, as far as it regarded the rent
on the buildings and other fixtures, would never fall for any length of
time on the landlord, but on the consumer. The capital expended on these
buildings, &c., must afford the usual profits of stock; but it would
cease to afford this profit on the land last cultivated, if the expenses
of those buildings, &c. did not fall on the tenant; and if they did, the
tenant would then cease to make his usual profits of stock, unless he
could charge them on the consumer.