DOCTRINE OF ADAM SMITH CONCERNING THE RENT OF LAND.
"Such parts only of the produce of land," says Adam Smith, "can commonly
be brought to market, of which the ordinary price is sufficient to
replace the stock which must be employed in bringing them thither,
together with its ordinary profits. If the ordinary price is more than
this, the surplus part of it will naturally go to the rent of land. _If
it is not more, though the commodity can be brought to market, it can
afford no rent to the landlord._ Whether the price is, or is not more,
depends upon the demand."
This passage would naturally lead the reader to conclude that its author
could not have mistaken the nature of rent, and that he must have seen
that the quality of land which the exigencies of society might require
to be taken into cultivation would depend on "_the ordinary price of its
produce," whether it were "sufficient to replace the stock, which must
be employed in cultivating it, together with its ordinary profits_."
But he had adopted the notion that "there were some parts of the produce
of land for which the demand must always be such as to afford a greater
price than what is sufficient to bring them to market;" and he
considered food as one of those parts.
He says, that "land, in almost any situation, produces a greater
quantity of food than what is sufficient to maintain all the labour
necessary for bringing it to market, in the most liberal way in which
that labour is ever maintained. The surplus too is always more than
sufficient to replace the stock which employed that labour, together
with its profits. Something, therefore, always remains for a rent to the
landlord."
But what proof does he give of this?--no other than the assertion that
"the most desert moors in Norway and Scotland produce some sort of
pasture for cattle, of which the milk and the increase are always more
than sufficient, not only to maintain all the labour necessary for
tending them, and to pay the ordinary profit to the farmer, or owner of
the herd or flock, but to afford some small rent to the landlord." Now
of this I may be permitted to entertain a doubt. I believe that as yet
in every country, from the rudest to the most refined, there is land of
such a quality that it cannot yield a produce more than sufficiently
valuable to replace the stock employed upon it, together with the
profits ordinary and usual in that country. In America we all know that
this is the case, and yet no one maintains that the principles which
regulate rent are different in that country and in Europe. But if it
were true that England had so far advanced in cultivation, that at this
time there were no lands remaining which did not afford a rent, it would
be equally true that there formerly must have been such lands; and that
whether there be or not is of no importance to this question, for it is
the same thing if there be any capital employed in Great Britain on
land which yields only the return of stock with its ordinary profits,
whether it be employed on old or on new land. If a farmer agrees for
land on a lease of seven or fourteen years, he may propose to employ on
it a capital of 10,000_l._, knowing that at the existing price of grain
and raw produce, he can replace that part of his stock which he is
obliged to expend, pay his rent, and obtain the general rate of profit.
He will not employ 11,000_l._, unless the last 1,000_l._ can be employed
so productively as to afford him the usual profits of stock. In his
calculation, whether he shall employ it or not, he considers only
whether the price of raw produce is sufficient to replace his expenses
and profits, for he knows that he shall have no additional rent to pay.
Even at the expiration of his lease his rent will not be raised; for if
his landlord should require rent, because this additional 1000_l._ was
employed, he would withdraw it; since by employing it he gets, by the
supposition, only the ordinary and usual profits which he may obtain by
any other employment of stock; and therefore he cannot afford to pay
rent for it, unless the price of raw produce should further rise, or,
which is the same thing, unless the usual and general rate of profits
should fall.
If the comprehensive mind of Adam Smith had been directed to this fact,
he would not have maintained that rent forms one of the component parts
of the price of raw produce; for price is everywhere regulated by the
return obtained by this last portion of capital, for which no rent
whatever is paid. If he had adverted to this principle, he would have
made no distinction between the law which regulates the rent of mines
and the rent of land.
"Whether a coal mine, for example," he says, "can afford any rent,
depends partly upon its fertility, and partly upon its situation. A mine
of any kind may be said to be either fertile or barren, according as the
quantity of mineral which can brought from it by a certain quantity of
labour, is greater or less than what can be brought by an equal quantity
from the greater part of other mines of the same kind. Some coal mines,
advantageously situated, cannot be wrought on account of their
barrenness. The produce does not pay the expense. They can afford
neither profit nor rent. There are some, of which the produce is barely
sufficient to pay the labour, and replace, together with its ordinary
profits, the stock employed in working them. They afford some profit to
the undertaker of the work, but no rent to the landlord. They can be
wrought advantageously by nobody but the landlord, who being himself the
undertaker of the work, gets the ordinary profit of the capital which he
employs in it. Many coal mines in Scotland are wrought in this manner,
and can be wrought in no other. The landlord will allow nobody else to
work them without paying some rent, and nobody can afford to pay any.
"Other coal mines in the same country, sufficiently fertile, cannot be
wrought on account of their situation. A quantity of mineral sufficient
to defray the expense of working, could be brought from the mine by the
ordinary, or even less than the ordinary quantity of labour; but in an
inland country, thinly inhabited, and without either good roads or
water-carriage, this quantity could not be sold." The whole principle of
rent is here admirably and perspicuously explained, but every word is
as applicable to land as it is to mines; yet he affirms that "it is
otherwise in estates above ground. The proportion, both of their produce
and of their rent, is in proportion to their absolute, and not to their
relative fertility." But suppose that there were no land which did not
afford a rent; then, the amount of rent on the worst land would be in
proportion to the excess of the value of the produce above the
expenditure of capital and the ordinary profits of stock: the same
principle would govern the rent of land of a somewhat better quality, or
more favourably situated, and therefore the rent of this land would
exceed the rent of that inferior to it, by the superior advantages which
it possessed; the same might be said of that of the third quality, and
so on to the very best. Is it not then as certain that it is the
relative fertility of the land which determines the portion of the
produce which shall be paid for the rent of land, as it is that the
relative fertility of mines determines the portion of their produce,
which shall be paid for the rent of mines?
After Adam Smith has declared that there are some mines which can only
be worked by the owners, as they will afford only sufficient to defray
the expense of working, together with the ordinary profits of the
capital employed, we should expect that he would admit that it was these
particular mines which regulated the price of the produce. If the old
mines are insufficient to supply the quantity of coal required, the
price of coal will rise, and will continue rising till the owner of a
new and inferior mine finds that he can obtain the usual profits of
stock by working his mine. If his mine be tolerably fertile, the rise
will not be great before it becomes his interest so to employ his
capital; but if it be less productive, it is evident that the price must
continue to rise till it will afford him the means of paying his
expenses, and obtaining the ordinary profits of stock. It appears, then,
that it is always the least fertile mine which regulates the price of
coal. Adam Smith, however, is of a different opinion: he observes, that
"the most fertile coal mine too regulates the price of coals at all the
other mines in its neighbourhood. Both the proprietor and the undertaker
of the work find, the one that he can get a greater rent, the other,
that he can get a greater profit, by somewhat underselling all their
neighbours. Their neighbours are soon obliged to sell at the same price,
though they cannot so well afford it, and though it always diminishes,
and sometimes takes away altogether, both their rent and their profit.
Some works are abandoned altogether; others can afford no rent, and can
be wrought only by the proprietor." If the demand for coal should be
diminished, or if by new processes the quantity should be increased, the
price would fall, and some mines would be abandoned; but in every case,
the price must be sufficient to pay the expenses and profit of that mine
which is worked without being charged with rent. It is therefore the
least fertile mine which regulates price. Indeed it is so stated in
another place by Adam Smith himself, for he says, "The lowest price at
which coals can be sold for any considerable time, is like that of all
other commodities, the price which is barely sufficient to replace,
together with its ordinary profits, the stock which must be employed in
bringing them to market. At a coal mine for which the landlord can get
no rent, but which he must either work himself, or let it alone all
together, the price of coals must generally be nearly about this price."
But the same circumstance, namely, the abundance and consequent
cheapness of coals, from whatever cause it may arise, which would make
it necessary to abandon those mines on which there was no rent, or a
very moderate one, would, if there were the same abundance, and
consequent cheapness of raw produce, render it necessary to abandon the
cultivation of those lands for which either no rent was paid, or a very
moderate one. If, for example, potatoes should become the general and
common food of the people, as rice is in some countries, one fourth, or
one half of the land now in cultivation, would probably be immediately
abandoned; for if, as Adam Smith says, "an acre of potatoes will produce
six thousand weight of solid nourishment, three times the quantity
produced by the acre of wheat," there could not be for a considerable
time such a multiplication of people, as to consume the quantity that
might be raised on the land before employed for the cultivation of
wheat; much land would consequently be abandoned, and rent would fall;
and it would not be till the population had been doubled or trebled,
that the same quantity of land could be in cultivation, and the rent
paid for it as high as before.
Neither would any greater proportion of the gross produce be paid to the
landlord, whether it consisted of potatoes, which would feed three
hundred people, or of wheat, which would feed only one hundred; because,
though the expenses of production would be very much diminished if the
labourer's wages were chiefly regulated by the price of potatoes and not
by the price of wheat, and though therefore the proportion of the whole
gross produce, after paying the labourers, would be greatly increased,
yet no part of that additional proportion would go to rent, but the
whole invariably to profits,--profits being at all times raised as wages
fall, and lowered as wages rise. Whether wheat or potatoes were
cultivated, rent would be governed by the same principle--it would be
always equal to the difference between the quantities of produce
obtained with equal capitals, either on the same land or on land of
different qualities; and therefore, while lands of the same quality
were cultivated, and there was no alteration in their relative fertility
or advantages, rent would always bear the same proportion to the gross
produce.
Adam Smith, however, maintains that the proportion which falls to the
landlord would be increased by a diminished cost of production, and
therefore, that he would receive a larger share as well as a larger
quantity, from an abundant than from a scanty produce. "A rice field,"
he says, "produces a much greater quantity of food than the most fertile
corn field. Two crops in the year, from thirty to sixty bushels each,
are said to be the ordinary produce of an acre. Though its cultivation
therefore requires more labour, a much greater surplus remains after
maintaining all that labour. In those rice countries therefore, where
rice is the common and favourite vegetable food of the people, and where
the cultivators are chiefly maintained with it, _a greater share of this
greater surplus should belong to the landlord than in corn countries_."
Mr. Buchanan also remarks, that "it is quite clear, that if any other
produce which the land yielded more abundantly than corn, were to become
the common food of the people, the rent of the landlord would be
improved in proportion to its greater abundance."
If potatoes were to become the common food of the people, there would be
a long interval during which the landlords would suffer an enormous
deduction of rent. They would not probably receive nearly so much of the
sustenance of man as they now receive, while that sustenance would fall
to a third of its present value. But all manufactured commodities, on
which a part of the landlord's rent is expended, would suffer no other
fall than that which proceeded from the fall in the raw material of
which they were made, and which would arise only from the greater
fertility of the land, which might then be devoted to its production.
When from the progress of population, land of the same quality as before
should be taken into cultivation, to produce the food required, and the
same number of men should be employed in producing it, the landlord
would have not only the same proportion of the produce as before, but
that proportion would also be of the same value as before. Rent then
would be the same as before; profits, however, would be much higher,
because the price of food, and consequently of wages, would be much
lower. High profits are favourable to the accumulation of capital. The
demand for labour would further increase, and landlords would be
permanently benefited by the increased demand for land.
The interest of the landlord is always opposed to that of the consumer
and manufacturer. Corn can be permanently at an advanced price, only
because additional labour is necessary to produce it; because its cost
of production is increased. The same cause invariably raises rent, it is
therefore for the interest of the landlord that the cost attending the
production of corn should be increased. This, however, is not the
interest of the consumer; to him it is desirable that corn should be low
relatively to money and commodities, for it is always with commodities
or money that corn is purchased. Neither is it the interest of the
manufacturer that corn should be at a high price, for the high price of
corn will occasion high wages, but will not raise the price of his
commodity. Not only then must more of his commodity, or, which comes to
the same thing, the value of more of his commodity, be given in exchange
for the corn which he himself consumes, but more must be given, or the
value of more, for wages to his workmen, for which he will receive no
remuneration. All classes therefore, except the landlords, will be
injured by the increase in the price of corn. The dealings between the
landlord and the public are not like dealings in trade, whereby both the
seller and buyer may equally be said to gain, but the loss is wholly on
one side, and the gain wholly on the other; and if corn could by
importation be procured cheaper, the loss in consequence of not
importing is far greater on one side, than the gain is on the other.
Adam Smith never makes any distinction between a low value of money, and
a high value of corn, and therefore infers, that the interest of the
landlord is not opposed to that of the rest of the community. In the
first case, money is low relatively to all commodities; in the other,
corn is high relatively to all. In the first, corn and commodities
continue at the same relative values, in the second, corn is higher
relatively to commodities as well as money.
The following observation of Adam Smith is applicable to a low value of
money, but it is totally inapplicable to a high value of corn. "If
importation (of corn) was at all times free, our farmers and country
gentlemen would probably one year with another, get less money for their
corn than they do at present, when importation is at most times in
effect prohibited; but the money which they got would be of more value,
_would buy more goods of all other kinds_, and would employ more labour.
Their real wealth, their real revenue, therefore, would be the same as
at present, though it might be expressed by a smaller quantity of
silver; and they would neither be disabled nor discouraged from
cultivating corn as much as they do at present. On the contrary, as the
rise in the real value of silver, in consequence of lowering the money
price of corn, lowers somewhat the money price of all other commodities,
it gives the industry of the country where it takes place, some
advantage in all foreign markets, and thereby tends to encourage and
increase that industry. But the extent of the home market for corn, must
be in proportion to the general industry of the country where it grows,
or to the number of those who produce something else, to give in
exchange for corn. But in every country the home market, as it is the
nearest and most convenient, so is it likewise the greatest and most
important market for corn. That rise in the real value of silver,
therefore, which is the effect of lowering the average money price of
corn, tends to enlarge the greatest and most important market for corn,
and thereby to encourage, instead of discouraging its growth."
A high or low money price of corn, arising from the abundance and
cheapness of gold and silver, is of no importance to the landlord, as
every sort of produce would be equally affected, just as Adam Smith
describes; but a relatively high price of corn is at all times greatly
beneficial to the landlord, as with the same quantity of corn it not
only gives him a command over a greater quantity of money, but over a
greater quantity of every commodity which money can purchase.