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diff --git a/33310-8.txt b/33310-8.txt new file mode 100644 index 0000000..2ac1284 --- /dev/null +++ b/33310-8.txt @@ -0,0 +1,12166 @@ +The Project Gutenberg EBook of On The Principles of Political Economy, and +Taxation, by David Ricardo + +This eBook is for the use of anyone anywhere at no cost and with +almost no restrictions whatsoever. You may copy it, give it away or +re-use it under the terms of the Project Gutenberg License included +with this eBook or online at www.gutenberg.org + + +Title: On The Principles of Political Economy, and Taxation + +Author: David Ricardo + +Release Date: July 31, 2010 [EBook #33310] +[This file last updated January 20, 2011] + +Language: English + +Character set encoding: ISO-8859-1 + +*** START OF THIS PROJECT GUTENBERG EBOOK PRINCIPLES OF POLITICAL ECONOMY *** + + + + +Produced by Fritz Ohrenschall, Turgut Dincer and the Online +Distributed Proofreading Team at https://www.pgdp.net (This +file was produced from images generously made available +by the Posner Memorial Collection +(http://posner.library.cmu.edu/Posner/)) + + + + + + + +---------------------------------------------------+ + | Transcriber's note: | + | Corrections in the ERRATA section have been made | + | and duplicate Chapter numbers are marked by | + | asterisks as shown in the original text. | + +---------------------------------------------------+ + + + + + 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 + ----- + £73.61 + + 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. £165.360 + + 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 + -------- + £171.523 + + 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 £2,000 + + 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 £2000 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. £22,000 and to + produce them £20,952 would be + requisite, there would remain ------- + no more than £1,048 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 £3254 + 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 £8042 + 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 £22,000 + 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 + + £24.14. } { £4.4.8. } { 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. £12 + 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 £12.14 + other things not altered in price 12 + ----- + 24.14 + + When at 4_l._ 10_s._, three quarters of wheat + would cost £13.10 + and other things 12 + ----- + 25.10 + + When at 4_l._ 16_s._, three qrs. of wheat £14.8 + Other things 12 + ---- + 26.8 + + When at 5.2.10_l._ three quarters of wheat + would cost £15.8.6. + 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 £720 + + 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. + + £ _s._ _d._ £ _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, + + £ _s._ _d._ _s._ _d._ £ _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 £3600 + 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 £60 + + 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. £792 + Deduct the value of 16.3 or 8_s._ per qr. on 180 qrs. 72 + ----- ---- + Net corn produce 163.7 Net money produce £720 + ----- ---- + + No. 2, yielding 170 qrs. at 4_l._ 8_s._ per qr. £748 + 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 £680 + ----- ---- + + No. 3, 160 qrs. at 4_l._ 8_s._ £704 + 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 £640 + ----- ---- + +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. + + + + +CHAPTER IX. + +TITHES. + + +Tithes are a tax on the gross produce of the land, and, like taxes on +raw produce, fall wholly on the consumer. They differ from a tax on +rent, inasmuch as they affect land which such a tax would not reach; and +raise the price of raw produce, which that tax e of raw produce, which +that tax would not alter. Lands of the worst quality, as well as of the +best, pay tithes, and exactly in proportion to the quantity of produce +obtained from them; tithes are therefore an equal tax. + +If land of the last quality, or that which pays no rent, and which +regulates the price of corn, yield a sufficient quantity to give the +farmer the usual profits of stock, when the price of wheat is 4_l._ per +quarter, the price must rise to 4_l._ 8_s._ before the same profits can +be obtained after the tithes are imposed, because for every quarter of +wheat the cultivator must pay eight shillings to the church. + +The only difference between tithes and taxes on raw produce, is, that +one is a variable money tax, the other a fixed money tax. In a +stationary state of society, where there is neither increased nor +diminished facility of producing corn, they will be precisely the same +in their effects; for in such a state corn will be at an invariable +price, and the tax will therefore be also invariable. In either a +retrograde state, or in a state in which great improvements are made in +agriculture, and where consequently raw produce will fall in value +comparatively with other things, tithes will be a lighter tax than a +permanent money tax; for if the price of corn should fall from 4_l._ to +3_l._, the tax would fall from eight to six shillings. In a progressive +state of society, yet without any marked improvements in agriculture, +the price of corn would rise, and tithes would be a heavier tax than a +permanent money tax. If corn rose from 4_l._ to 5_l._, the tithes on +the same land would advance from eight to ten shillings. + +Neither tithes nor a money tax will affect the money rent of landlords, +but both will materially affect corn rents. We have already observed how +a money tax operates on corn rents, and it is equally evident that a +similar effect would be produced by tithes. If the lands, No. 1, 2, 3, +respectively produced 180, 170, and 160 quarters, the rents might be on +No. 1, twenty quarters, and on No. 2, ten quarters; but they would no +longer preserve that proportion after the payment of tithes: for if a +tenth be taken from each, the remaining produce will be 162, 153, 144, +and consequently the corn rent of No. 1 will be reduced to eighteen, and +that of No. 2 to nine quarters. But the price of corn would rise from +4_l._ to 4_l._ 8_s._ 10-2/3_d._; for nine quarters are to 4_l._ as ten +quarters to 4_l._ 8_s._ 10-2/3_d._, and consequently the money rent +would continue unaltered; for on No. 1 it would be 80_l._, and on No. 2, +40_l._ + +The chief objection against tithes is, that they are not a permanent and +fixed tax, but increase in value, in proportion as the difficulty of +producing corn increases. If those difficulties should make the price of +corn 4_l._ the tax is 8_s._, if they should increase it to 5_l._, the +tax is 10_s._, and at 6_l._, it is 12_s._ They not only rise in value, +but they increase in amount: thus, when No. 1 was cultivated, the tax +was only levied on 180 quarters; when No. 2 was cultivated, it was +levied on 180 + 170, or 350 quarters; and when No. 3 was cultivated, on +180 + 170 + 160 = 510 quarters. Not only is the amount of the tax +increased from 100,000 quarters, to 200,000 quarters, when the produce +is increased from one to two millions of quarters; but, owing to the +increased labour necessary to produce the second million, the relative +value of raw produce is so advanced, that the 200,000 quarters may be, +though only twice in quantity, yet in value three times that of the +100,000 quarters which were paid before. + +If an equal value were raised for the church by any other means, +increasing in the same manner as tithes increase, proportionably with +the difficulty of cultivation, the effect would be the same. The church +would be constantly obtaining an increased portion of the net produce +of the land and labour of the country. In an improving state of society, +the net produce of land is always diminishing in proportion to its gross +produce; but it is from the net income of a country that all taxes are +ultimately paid, either in a progressive or in a stationary country. A +tax increasing with the gross income, and falling on the net income, +must necessarily be a very burdensome, and a very intolerable tax. +Tithes are a tenth of the gross, and not of the net produce of the land, +and therefore as society improves in wealth, they must, though the same +proportion of the gross produce, become a larger and larger portion of +the net produce. + +Tithes however may be considered as injurious to landlords, inasmuch as +they act as a bounty on importation, by taxing the growth of home corn, +while the importation of foreign corn remains unfettered. And if in +order to relieve the landlords from the effects of the diminished demand +for land, which such a bounty must encourage, imported corn were also +taxed one tenth, and the produce paid to the state, no measure could be +more fair and equitable; since whatever were paid to the state by this +tax, would go to diminish the other taxes which the expenses of +government make necessary: but if such a tax were devoted only to +increase the fund paid to the church, it might indeed on the whole +increase the general mass of production, but it would diminish the +portion of that mass allotted to the productive classes. + +If the trade of cloth were left perfectly free, our manufacturers might +be able to sell cloth cheaper than we could import it. If a tax were +laid on the home manufacturer, and not on the importer of cloth, capital +might be injuriously driven from the manufacture of cloth to the +manufacture of some other commodity, as it might then be imported +cheaper than it could be made at home. If imported cloth should also be +taxed, cloth would again be manufactured at home. The consumer first +bought cloth at home, because it was cheaper than foreign cloth; he then +bought foreign cloth, because it was cheaper untaxed than home cloth +taxed: he lastly bought it again at home, because it was cheaper when +both home and foreign cloth were taxed. It is in the last case that he +pays the greatest price for his cloth, but all his additional payment is +gained by the state. In the second case, he pays more than in the first, +but all he pays in addition is not received by the state, it is an +increased price caused by difficulty of production, which is incurred, +because the easiest means of production are taken away from us, by being +fettered with a tax. + + + + +CHAPTER X. + +LAND-TAX. + + +A land-tax, levied in proportion to the rent of land, and varying with +every variation of rent, is in effect a tax on rent; and as such a tax +will not apply to that land which yields no rent, nor to the produce of +that capital which is employed on the land with a view to profit merely, +and which never pays rent, it will not in any way affect the price of +raw produce, but will fall wholly on the landlords. In no respect would +such a tax differ from a tax on rent. But if a land-tax be imposed on +all cultivated land, however moderate that tax may be, it will be a tax +on produce, and will therefore raise the price of produce. If No. 3 be +the land last cultivated, although it should pay no rent, it cannot, +after the tax, be cultivated, and afford the general rate of profit, +unless the price of produce rise to meet the tax. Either capital will be +withheld from that employment until the price of corn shall have risen, +in consequence of demand, sufficiently to afford the usual profit; or if +already employed on such land, it will quit it, to seek a more +advantageous employment. The tax cannot be removed to the landlord, for +by the supposition he receives no rent. Such a tax may be proportioned +to the quality of the land and the abundance of its produce, and then it +differs in no respect from tithes; or it may be a fixed tax per acre on +all land cultivated, whatever its quality may be. + +A land-tax of this latter description would be a very unequal tax, and +would be contrary to one of the four maxims with regard to taxes in +general, to which, according to Adam Smith, all taxes should conform. +The four maxims are as follow: + + 1. "The subjects of every state ought to contribute + towards the support of the Government, as nearly as + possible in proportion to their respective abilities. + + 2. "The tax which each individual is bound to pay ought + to be certain and not arbitrary. + + 3. "Every tax ought to be levied at the time, or in the + manner in which it is most likely to be convenient for + the contributor to pay it. + + 4. "Every tax ought to be so contrived as both to take + out and to keep out of the pockets of the people as + little as possible, over and above what it brings into + the public treasury of the state." + +An equal land-tax, imposed indiscriminately and without any regard to +the distinction of its quality, on all land cultivated, will raise the +price of corn in proportion to the tax paid by the cultivator of the +land of the worst quality. Lands of different quality, with the +employment of the same capital, will yield very different quantities of +raw produce. If on the land which yields a thousand quarters of corn +with a given capital, a tax of 100_l._ be laid, corn will rise 2_s._ per +quarter to compensate the farmer for the tax. But with the same capital +on land of a better quality, 2,000 quarters may be produced, which at +2_s._ a quarter advance, would give 200_l._; the tax, however, bearing +equally on both lands will be 100_l._ on the better as well as on the +inferior, and consequently the consumer of corn will be taxed, not only +to pay the exigencies of the state, but also to give to the cultivator +of the better land, 100_l._ per annum. during the period of his lease, +and afterwards to raise the rent of the landlord to that amount. A tax +of this description then would be contrary to the fourth maxim of Adam +Smith, it would take out and keep out of the pockets of the people, more +than what it brought into the treasury of the state. The taille in +France before the Revolution, was a tax of this description; those lands +only were taxed, which were held by an ignoble tenure, the price of raw +produce rose in proportion to the tax, and therefore they whose lands +were not taxed, were benefited by the increase of their rent. Taxes on +raw produce as well as tithes are free from this objection: they raise +the price of raw produce, but they take from each quality of land a +contribution in proportion to its actual produce, and not in proportion +to the produce of that which is the least productive. + +From the peculiar view which Adam Smith took of rent, from his not +having observed that much capital is expended in every country, on the +land for which no rent is paid, he concluded that all taxes on the land, +whether they were laid on the land itself in the form of land-tax or +tithes, or on the produce of the land, or were taken from the profits of +the farmer, were all invariably paid by the landlord, and that he was in +all cases the real contributor, although the tax was in general, +nominally advanced by the tenant. "Taxes upon the produce of the land," +he says, "are in reality taxes upon the rent; and though they may be +originally advanced by the farmer, are finally paid by the landlord. +When a certain portion of the produce is to be paid away for a tax, the +farmer computes as well as he can, what the value of this portion is, +one year with another, likely to amount to, and he makes a +proportionable abatement in the rent which he agrees to pay to the +landlord. There is no farmer who does not compute before hand what the +church tithe, which is a land-tax of this kind, is, one year with +another, likely to amount to." It is undoubtedly true, that the farmer +does calculate his probable outgoings of all descriptions, when +agreeing with his landlord concerning the rent of his farm; and if for +the tithe paid to the church, or for the tax on the produce of the land, +he were not compensated by a rise in the relative value of the produce +of his farm, he would naturally deduct them from his rent. But this is +precisely the question in dispute: whether he will eventually deduct +them from his rent, or be compensated by a higher price of produce. For +the reasons which have been already given, I cannot have the least doubt +but that they would raise the price of produce, and consequently that +Adam Smith has taken an incorrect view of this important question. + +Dr. Smith's view of this subject is probably the reason why he has +described "the tithe, and every other land-tax of this kind, under the +appearance of perfect equality, as very unequal taxes; a certain portion +of the produce being in different situations, equivalent to a very +different portion of the rent." I have endeavoured to shew that such +taxes do not fall with unequal weight on the different classes of +farmers or landlords, as they are both compensated by the rise of raw +produce, and only contribute to the tax in proportion as they are +consumers of raw produce. Inasmuch indeed as wages, and through wages, +the rate of profits are affected, landlords, instead of contributing +their full share to such a tax, are the class peculiarly exempted. It is +the profits of stock, from which that portion of the tax is derived +which falls on those labourers, who from the insufficiency of their +funds, are incapable of paying taxes; this portion is exclusively borne +by all those whose income is derived from the employment of stock, and +therefore it in no degree affects landlords. + +It is not to be inferred from this view of tithes, and taxes on the land +and its produce, that they do not discourage cultivation. Every thing +which raises the exchangeable value of commodities of any kind, which +are in very general demand, tends to discourage both cultivation and +production; but this is an evil inseparable from all taxation, and is +not confined to the particular taxes of which we are now speaking. + +This may be considered indeed as the unavoidable disadvantage attending +all taxes received and expended by the state. Every new tax becomes a +new charge on production, and raises natural price. A portion of the +labour of the country which was before at the disposal of the +contributor to the tax, is placed at the disposal of the state. This +portion may become so large, that sufficient surplus produce may not be +left to stimulate the exertions of those who usually augment by their +savings the capital of the state. Taxation has happily never yet in any +free country been carried so far as constantly from year to year to +diminish its capital. Such a state of taxation could not be long +endured; or if endured, it would be constantly absorbing so much of the +annual produce of the country as to occasion the most extensive scene of +misery, famine, and depopulation. + +"A land-tax," says Adam Smith, "which like that of Great Britain, is +assessed upon each district according to a certain invariable canon, +though it should be equal at the time of its first establishment, +necessarily becomes unequal in process of time, according to the unequal +degrees of improvement or neglect in the cultivation of the different +parts of the country. In England the valuation according to which the +different counties and parishes were assessed to the land-tax by the +4th. William and Mary, was very unequal, even at its first +establishment. This tax, therefore, so far offends against the first of +the four maxims above mentioned. It is perfectly agreeable to the other +three. It is perfectly certain. The time of payment for the tax being +the same as that for the rent, is as convenient as it can be to the +contributor. Though the landlord is in all cases the real contributor, +the tax is commonly advanced by the tenant, to whom the landlord is +obliged to allow it in the payment of the rent." + +If the tax be shifted by the tenant not on the landlord but on the +consumer, then if it be not unequal at first, it can never become so; +for the price of produce has been at once raised in proportion to the +tax, and will afterwards vary no more on that account. It may offend if +unequal, as I have attempted to shew that it will, against the fourth +maxim above mentioned, but it will not offend against the first. It may +take more out of the pockets of the people than it brings into the +public treasury of the state, but it will not fall unequally on any +particular class of contributors. M. Say appears to me to have mistaken +the nature and effects of the English land-tax, when he says, "Many +persons attribute to this fixed valuation, the great prosperity of +English agriculture. That it has very much contributed to it there can +be no doubt. But what should we say to a Government, which, addressing +itself to a small trader, should hold this language: 'With a small +capital you are carrying on a limited trade, and your direct +contribution is in consequence very small. Borrow, and accumulate +capital; extend your trade, so that it may procure you immense profits; +yet you shall never pay a greater contribution. Moreover, when your +successors shall inherit your profits, and shall have further increased +them, they shall not be valued higher to them than they are to you; and +your successors shall not bear a greater portion of the public burdens.' + +"Without doubt this would be a great encouragement given to manufactures +and trade; but would it be just? Could not their advancement be +obtained at any other price? In England itself, has not manufacturing +and commercial industry made even greater progress, since the same +period, without being distinguished with so much partiality? A landlord +by his assiduity, economy, and skill, increases his annual revenue by +5000 francs. If the state claim of him the fifth part of his augmented +income, will there not remain 4000 francs of increase to stimulate his +further exertions?" + +If Mr. Say's suggestion were followed, and the state were to claim the +fifth part of the augmented income of the farmer, it would be a partial +tax, acting on the farmer's profits, and not affecting the profits of +other employments. The tax would be paid by all lands, by those which +yielded scantily as well as by those which yielded abundantly; and on +some lands there could be no compensation for it by deduction from rent, +for no rent is paid. A partial tax on profits never falls on the trade +on which it is laid, for the trader will either quit his employment, or +remunerate himself for the tax. Now those who pay no rent could be +recompensed only by a rise in the price of produce, and thus would M. +Say's proposed tax fall on the consumer, and not either on the landlord +or farmer. + +If the proposed tax were increased in proportion to the increased +quantity, or value, of the gross produce obtained from the land, it +would differ in nothing from tithes, and would equally be transferred to +the consumer. Whether then it fell on the gross or on the net produce of +land, it would be equally a tax on consumption, and would only affect +the landlord and farmer in the same way as other taxes on raw produce. + +If no tax whatever had been laid on the land, and the same sum had been +raised by any other means, agriculture would have flourished at least as +well as it has done; for it is impossible that any tax on land can be an +encouragement to agriculture; a moderate tax may not, and probably does +not, greatly prevent, but it cannot encourage production. The English +Government has held no such language as M. Say has supposed. It did not +promise to exempt the agricultural class and their successors from all +future taxation, and to raise the further supplies which the state +might require, from the other classes of society; it said only, "in this +mode we will no further burthen the land; but we retain to ourselves the +most perfect liberty of making you pay, under some other form, your full +quota to the future exigencies of the state." + +Speaking of taxes in kind, or a tax of a certain proportion of the +produce, which is precisely the same as tithes, M. Say says, "This mode +of taxation appears to be the most equitable; there is however none +which is less so: it totally leaves out of consideration the advances +made by the producer; it is proportioned to the gross, and not to the +net revenue. Two agriculturists cultivate different kinds of raw +produce: one cultivates corn on middling land, his expenses amounting +annually on an average to 8000 francs; the raw produce from his lands +sells for 12,000 francs; he has then a net revenue of 4000 francs. + +"His neighbour has pasture or wood land, which brings in every year a +like sum of 12,000 francs, but his expenses amount only to 2000 francs. +He has therefore on an average a net revenue of 10,000 francs. + +"A law ordains that a twelfth of the produce of all the fruits of the +earth be levied in kind, whatever they may be. From the first is taken +in consequence of this law, corn of the value of 1000 francs; and from +the second, hay, cattle, or wood, of the same value of 1000 francs. What +has happened? From the one, a quarter of his net income, 4000 francs, +has been taken; from the other, whose income was 10,000 francs, a tenth +only has been taken. Income is the net profit which remains after +replacing the capital exactly in its former state. Has a merchant an +income equal to all the sales which he makes in the course of a year? +certainly not; his income only amounts to the excess of his sales above +his advances, and it is on this excess only that taxes on income should +fall." + +M. Say's error in the above passage lies in supposing that because the +value of the produce of one of these two farms, after re-instating the +capital, is greater than the value of the produce of the other, on that +account the net income of the cultivators will differ by the same +amount. M. Say has wholly omitted the consideration of the different +amount of rent, which these cultivators would have to pay. There cannot +be two rates of profit in the same employment, and therefore when +produce is in different proportions to capital, it is the rent which +will differ, and not the profit. Upon what pretence would one man with a +capital of 2000 francs, be allowed to obtain a net profit of 10,000 +francs from its employment, whilst another with a capital of 8000 francs +would only obtain 4000 francs? Let M. Say make a due allowance for rent; +let him further allow for the effect which such a tax would have on the +prices of these different kinds of raw produce, and he will then +perceive that it is not an unequal tax, and further that the producers +themselves will not otherwise contribute to it, than any other class of +consumers. + + + + +CHAPTER XI. + +TAXES ON GOLD. + + +The rise in the price of commodities, in consequence of taxation or of +difficulty of production, will in all cases ultimately ensue; but the +duration of the interval, before the market price of commodities +conforms to their natural price, must depend on the nature of the +commodity, and on the facility with which it can be reduced in quantity. +If the quantity of the commodity taxed could not be diminished, if the +capital of the farmer or of the hatter for instance, could not be +withdrawn to other employments, it would be of no consequence that their +profits were reduced below the general level by means of a tax; unless +the demand for their commodities should increase, they would never be +able to elevate the market price of corn and hats up to the increased +natural price. Their threats to leave their employments, and remove +their capitals to more favoured trades, would be treated as an idle +menace which could not be carried into effect; and consequently the +price would not be raised by diminished production. Commodities however +of all descriptions can be reduced in quantity, and capital can be +removed from trades which are less profitable to those which are more +so, but with different degrees of rapidity. In proportion as the supply +of a particular commodity can be more easily reduced, the price of it +will more quickly rise after the difficulty of its production has been +increased by taxation, or by any other means. Corn being a commodity +indispensably necessary to every one, little effect will be produced on +the demand for it in consequence of a tax, and therefore the supply +could not be long excessive, even if the producers had great difficulty +in removing their capitals from the land; the price of corn therefore, +will speedily be raised by taxation, and the farmer will be enabled to +transfer the tax from himself to the consumer. + +If the mines which supply us with gold were in this country, and if +gold were taxed, it could not rise in relative value to other things +till its quantity were reduced. This would be more particularly the +case, if gold were exclusively used for money. It is true that the least +productive mines, those which paid no rent, could no longer be worked, +as they could not afford the general rate of profits till the relative +value of gold rose, by a sum equal to the tax. The quantity of gold, and +therefore the quantity of money would be slowly reduced; it would be a +little diminished in one year, a little more in another, and finally its +value would be raised in proportion to the tax; but in the interval, the +proprietors or holders, as they would pay the tax, would be the +sufferers, and not those who used money. If out of every 1000 quarters +of wheat in the country, and every 1000 produced in future, government +should exact 100 quarters as a tax, the remaining 900 quarters would +exchange for the same quantity of other commodities that 1000 did +before; but if the same thing took place with respect to gold, if of +every 1000_l._ money now in the country, or in future to be brought into +it, government could exact 100_l._ as a tax, the remaining 900_l._ +would purchase very little more than 900_l._ purchased before. The tax +would fall upon him, whose property consisted of money, and would +continue to do so till its quantity were reduced in proportion to the +increased cost of its production caused by the tax. + +This perhaps would be more particularly the case with respect to a metal +used for money, than any other commodity, because the demand for money +is not for a definite quantity, as is the demand for clothes, or for +food. The demand for money is regulated entirely by its value, and its +value by its quantity. If gold were of double the value, half the +quantity would perform the same functions in circulation, and if it were +of half the value, double the quantity would be required. If the market +value of corn be increased one tenth by taxation, or by difficulty of +production, it is doubtful, whether any effect whatever would be +produced on the quantity consumed, because every man's want is for a +definite quantity, and, therefore, if he has the means of purchasing, he +will continue to consume as before; but for money, the demand is +exactly proportioned to its value. No man could consume twice the +quantity of corn, which is usually necessary for his support, but every +man purchasing and selling only the same quantity of goods, may be +obliged to employ twice, thrice, or any number of times the same +quantity of money. + +The argument which I have just been using, applies only to those states +of society in which the precious metals are used for money, and where +paper credit is not established. The metal gold like all other +commodities has its value in the market ultimately regulated by the +comparative facility or difficulty of producing it; and although from +its durable nature, and from the difficulty of reducing its quantity, it +does not readily bend to variations in its market value, yet that +difficulty is much increased from the circumstance of its being used as +money. If the quantity of gold in the market for the purpose of commerce +only, were 10,000 ounces, and the consumption in our manufactures were +2000 ounces annually, it might be raised one fourth, or 25 per cent. in +its value, in one year, by withholding the annual supply; but if in +consequence of its being used as money, the quantity employed were +100,000 ounces, it would not be raised one fourth in value in less than +ten years. As money made of paper may be readily reduced in quantity, +its value, though its standard were gold, would be increased as rapidly +as that of the metal itself would be increased if it had no connexion +whatever with money. + +If gold were the produce of one country only, and it were used +universally for money, a very considerable tax might be imposed on it, +which would not fall on any country, except in proportion as they used +it in manufactures, and for utensils; upon that portion which was used +for money, though a large tax might be received, nobody would pay it. +This is a quality peculiar to money. All other commodities of which +there exists a limited quantity, and which cannot be increased by +competition, are dependant for their value, on the tastes, the caprice, +and the power of purchasers; but money is a commodity which no country +has any wish or necessity to increase: no more advantage results from +using twenty millions, than from using ten millions of currency. A +country might have a monopoly of silk, or of wine, and yet the prices of +silks and wine might fall, because from caprice or fashion, or taste, +cloth and brandy might be preferred, and substituted; the same effect +might in a degree take place with gold, as far as its use is confined to +manufactures: but while money is the general medium of exchange, the +demand for it is never a matter of choice, but always of necessity; you +must take it in exchange for your goods, and therefore there are no +limits to the quantity which may be forced on you by foreign trade, if +it fall in value; and no reduction to which you must not submit, if it +rise. You may indeed substitute paper money, but by this you do not, and +cannot lessen the quantity of money; it is only by the rise of the price +of commodities, that you can prevent them from being exported from a +country where they are purchased with little money, to a country where +they can be sold for more, and this rise can only be effected by an +importation of metallic money from abroad, or by the creation or +addition of paper money at home. If then the King of Spain, supposing +him to be in exclusive possession of the mines, and gold alone to be +used for money, were to lay a considerable tax on gold, he would very +much raise its natural value; and as its market value in Europe is +ultimately regulated by its natural value in Spanish America, more +commodities would be given by Europe for a given quantity of gold. But +the same quantity of gold would not be produced in America, as its value +would only be increased in proportion to the diminution of quantity +consequent on its increased cost of production. No more goods then would +be obtained in America, in exchange for all their gold exported, than +before; and it may be asked, where then would be the benefit to Spain +and her colonies? The benefit would be this, that if less gold were +produced, less capital would be employed in producing it; the same value +of goods from Europe would be imported by the employment of the smaller +capital, that was before obtained by the employment of the larger; and +therefore all the productions obtained by the employment of the capital +withdrawn from the mines, would be a benefit which Spain would derive +from the imposition of the tax, and which she could not obtain in such +abundance, or with such certainty, by possessing the monopoly of any +other commodity whatever. From such a tax, as far as money was +concerned, the nations of Europe would suffer no injury whatever; they +would have the same quantity of goods, and consequently the same means +of enjoyment as before, but these goods would be circulated with a less +quantity of money. + +If in consequence of the tax, only one tenth of the present quantity of +gold were obtained from the mines, that tenth would be of equal value +with the ten tenths now produced. But the King of Spain is not +exclusively in possession of the mines of the precious metals; and if he +were, his advantage from their possession, and the power of taxation, +would be very much reduced by the limitation of demand and consumption +in Europe, in consequence of the universal substitution, in a greater or +less degree, of paper money. The agreement of the market and natural +prices of all commodities, depends at all times on the facility with +which the supply can be increased or diminished. In the case of gold, +houses, and labour, as well as many other things, this effect cannot, +under some circumstances, be speedily produced. But it is different with +those commodities which are consumed and reproduced from year to year, +such as hats, shoes, corn, and cloth; they may be reduced if necessary, +and the interval cannot be long before the supply is contracted in +proportion to the increased charge of producing them. + +A tax on raw produce from the surface of the earth, will, as we have +seen, fall on the consumer, and will in no way affect rent; unless, by +diminishing the funds for the maintenance of labour, it lowers wages, +reduces the population, and diminishes the demand for corn. But a tax on +the produce of gold mines must, by enhancing the value of that metal, +necessarily reduce the demand for it, and must therefore necessarily +displace capital from the employment to which it was applied. +Notwithstanding then, that Spain would derive all the benefits which I +have stated from a tax on gold, the proprietors of mines from which +capital was withdrawn would lose all their rent. This would be a loss +to individuals, but not a national loss; rent being not a creation, but +merely a transfer of wealth: the King of Spain, and the proprietors of +the mines which continued to be worked, would together receive not only +all that the liberated capital produced, but all that the other +proprietors lost. + +Suppose the mines of the 1st, 2nd, and 3rd quality to be worked, and to +produce respectively 100, 80, and 70 pounds weight of gold, and +therefore the rent of No. 1 to be thirty pounds, and that of No. 2 ten +pounds. Suppose now the tax to be seventy pounds of gold per annum on +each mine worked; and consequently that No. 1 alone could be profitably +worked; it is evident that all rent would immediately disappear. Before +the imposition of the tax, out of the 100 pounds produced on No. 1, a +rent was paid of thirty pounds, and the worker of the mine retained +seventy, a sum equal to the produce of the least productive mine. The +value then of what remains to the capitalist of the mine No. 1 must be +the same as before, or he would not obtain the common profits of stock; +and consequently, after paying seventy out of his 100 pounds for tax, +the value of the remaining thirty must be as great as seventy were +before, and therefore the value of the whole hundred as great as 233 +pounds before. Its value might be higher, but it could not be lower, or +even this mine would cease to be worked. Being a monopolised commodity, +it could exceed its natural value, and then it would pay a rent equal to +that excess; but no funds would be employed in the mine, if it were +below this value. In return for one-third of the labour and capital +employed in the mines, Spain would obtain as much gold as would exchange +for the same, or very nearly the same, quantity of commodities as +before. She would be richer by the produce of the two thirds liberated +from the mines. If the value of the 100 pounds of gold should be equal +to that of the 250 pounds extracted before; the king of Spain's portion, +his seventy pounds, would be equal to 175 at the former value: a small +part of the king's tax only would fall on his own subjects, the greater +part being obtained by the better distribution of capital. + +The account of Spain would stand thus: + + _Formerly produced_: + + Gold 250 pounds, of the value of (suppose) 10,000 yards of + cloth. + _Now produced_: + + By the two capitalists who quitted the mines,} 5,600 yards of + the value of 140 pounds of gold, or } cloth. + By the capitalist who works the mine, No. 1, } + thirty pounds of gold increased in value, } 3,000 yards of + as 1 to 2-1/2, and therefore now of the } cloth. + value of } + Tax to the king seventy pounds, now of the } 7,000 yards of + value of } cloth. + ------ + 15,600 + ------ + +Of the 7000 received by the king, the people of Spain would contribute +only 1400, and 5600 would be pure gain, effected by the liberated +capital. + +If the tax, instead of being a fixed sum per mine worked, were a certain +portion of its produce, the quantity would not be reduced in +consequence. If a half, a fourth, or a third of each mine were taken for +the tax, it would nevertheless be the interest of the proprietors to +make their mines yield as abundantly as before; but if the quantity were +not reduced, but only a part of it transferred from the proprietor to +the king, its value would not rise; the tax would fall on the people of +the colonies, and no advantage would be gained. A tax of this kind would +have the effect that Adam Smith supposes taxes on raw produce would have +on the rent of land--it would fall entirely on the rent of the mine. If +pushed a little further, the tax would not only absorb the whole rent, +but would deprive the worker of the mine of the common profits of stock, +and he would consequently withdraw his capital from the production of +gold. If still further extended, the rent of still better mines would be +absorbed, and capital would be further withdrawn; and thus the quantity +would be continually reduced, and its value raised, and the same effects +would take place as we have already pointed out; a part of the tax would +be paid by the people of the Spanish colonies, and the other part would +be a new creation of produce, by increasing the power of the instrument +used as a medium of exchange. Taxes on gold are of two kinds, one on the +actual quantity of gold in circulation, the other on the quantity that +is annually produced from the mines. Both have a tendency to reduce the +quantity, and to raise the value of gold; but by neither will its value +be raised till the quantity is reduced, and therefore such taxes will +fall for a time, until the supply is diminished, on the proprietors of +money, but ultimately they will be paid by the owner of the mine in the +reduction of rent, and by the purchasers of that portion of gold, which +is used as a commodity contributing to the enjoyments of mankind, and +not set apart exclusively for a circulating medium. + + + + +CHAPTER XII. + +TAXES ON HOUSES. + + +There are also other commodities besides gold which cannot be speedily +reduced in quantity; any tax on which will therefore fall on the +proprietor, if the increase of price should lessen the demand. + +Taxes on houses are of this description; though laid on the occupier, +they will frequently fall by a diminution of rent on the landlord. The +produce of the land is consumed and reproduced from year to year, and so +are many other commodities; as they may therefore be speedily brought to +a level with the demand, they cannot long exceed their natural price. +But as a tax on houses may be considered in the light of an additional +rent paid by the tenant, its tendency will be to diminish the demand +for houses of the same annual rent, without diminishing their supply. +Rent will therefore fall, and a part of the tax will be paid indirectly +by the landlord. + +"The rent of a house," says Adam Smith, "may be distinguished into two +parts, of which the one may very properly be called the building rent, +the other is commonly called the ground rent. The building rent is the +interest or profit of the capital expended in building the house. In +order to put the trade of a builder upon a level with other trades, it +is necessary that this rent should be sufficient first to pay the same +interest which he would have got for his capital, if he had lent it upon +good security; and secondly, to keep the house in constant repair, or +what comes to the same thing, to replace within a certain term of years +the capital which had been employed in building it." "If in proportion +to the interest of money, the trade of the builder affords at any time a +much greater profit than this, it will soon draw so much capital from +other trades, as will reduce the profit to its proper level. If it +affords at any time much less than this, other trades will soon draw so +much capital from it as will again raise that profit. Whatever part of +the whole rent of a house is over and above what is sufficient for +affording this reasonable profit, naturally goes to the ground rent; and +where the owner of the ground, and the owner of the building are two +different persons, it is in most cases completely paid to the former. In +country houses, at a distance from any great town, where there is a +plentiful choice of ground, the ground rent is scarcely any thing, or no +more than what the space upon which the house stands, would pay if +employed in agriculture. In country villas, in the neighbourhood of some +great town, it is sometimes a good deal higher, and the peculiar +conveniency, or beauty of situation, is there frequently very highly +paid for. Ground rents are generally highest in the capital, and in +those particular parts of it, where there happens to be the greatest +demand for houses, whatever be the reason for that demand, whether for +trade and business, for pleasure and society, or for mere vanity and +fashion." A tax on the rent of houses may either fall on the occupier, +on the ground landlord, or on the building landlord. In ordinary cases +it may be presumed, that the whole tax would be paid both immediately +and finally by the occupier. + +If the tax be moderate, and the circumstances of the country such, that +it is either stationary or advancing, there would be little motive for +the occupier of a house to content himself with one of a worse +description. But if the tax be high, or any other circumstances should +diminish the demand for houses, the landlord's income would fall, for +the occupier would be partly compensated for the tax by a diminution of +rent. It is, however, difficult to say, in what proportions that part of +the tax, which was saved by the occupier by a fall of rent, would fall +on the building rent and the ground rent. It is probable, that in the +first instance, both would be affected; but as houses are, though +slowly, yet certainly perishable, and as no more would be built, till +the profits of the builder were restored to the general level, building +rent, would, after an interval, be restored to its natural price. As the +builder receives rent only whilst the building endures, he could pay no +part of the tax, under the most disastrous circumstances, for any longer +period. + +The payment of this tax, then, would ultimately fall on the occupier and +ground landlord, but "in what proportion, this final payment would be +divided between them," says Adam Smith, "it is not perhaps very easy to +ascertain. The division would probably be very different in different +circumstances, and a tax of this kind might, according to those +different circumstances, affect very unequally both the inhabitant of +the house, and the owner of the ground."[15] + +Adam Smith considers ground rents as peculiarly fit subjects for +taxation. "Both ground rents, and the ordinary rent of land," he says, +"are a species of revenue, which the owner in many cases enjoys, without +any care or attention of his own. Though a part of this revenue should +be taken from him, in order to defray the expenses of the state, no +discouragement will thereby be given to any sort of industry. The annual +produce of the land and labour of the society, the real wealth and +revenue of the great body of the people, might be the same after such a +tax as before. Ground rents, and the ordinary rent of land, are, +therefore, perhaps the species of revenue, which can best bear to have a +peculiar tax imposed upon them." It must be admitted that the effects of +these taxes would be such as Adam Smith has described; but it would +surely be very unjust, to tax exclusively the revenue of any particular +class of a community. The burdens of the state should be borne by all in +proportion to their means: this is one of the four maxims mentioned by +Adam Smith, which should govern all taxation. Rent often belongs to +those who after many years of toil, have realised their gains, and +expended their fortunes in the purchase of land; and it certainly would +be an infringement of that principle which should ever be held sacred, +the security of property, to subject it to unequal taxation. It is to be +lamented, that the duty by stamps, with which the transfer of landed +property is loaded, materially impedes the conveyance of it into those +hands, where it would probably be made most productive. And if it be +considered, that land, regarded as a fit subject for exclusive +taxation, would not only be reduced in price, to compensate for the risk +of that taxation, but in proportion to the indefinite nature and +uncertain value of the risk, would become a fit subject for +speculations, partaking more of the nature of gambling, than of sober +trade, it will appear probable, that the hands into which land would in +that case be most apt to fall, would be the hands of those, who possess +more of the qualities of the gambler, than of the qualities of the +sober-minded proprietor, who is likely to employ his land to the +greatest advantage. + + + + +CHAPTER XIII. + +TAXES ON PROFITS. + + +Taxes on those commodities, which are generally denominated luxuries, +fall on those only who make use of them. A tax on wine is paid by the +consumer of wine. A tax on pleasure horses, or on coaches, is paid by +those who provide for themselves such enjoyments, and in exact +proportion as they provide them. But taxes on necessaries do not affect +the consumers of necessaries, in proportion to the quantity that may be +consumed by them, but often in a much higher proportion. A tax on corn, +we have observed, not only affects a manufacturer in the proportion that +he and his family may consume corn, but it alters the rate of profits of +stock, and therefore also affects his income. Whatever raises the wages +of labour, lowers the profits of stock; therefore every tax on any +commodity consumed by the labourer, has a tendency to lower the rate of +profits. + +A tax on hats will raise the price of hats; a tax on shoes, the price of +shoes; if this were not the case, the tax would be finally paid by the +manufacturer; his profits would be reduced below the general level, and +he would quit his trade. A partial tax on profits will raise the price +of the commodity on which it falls: a tax, for example, on the profits +of the hatter, would raise the price of hats; for if his profits were +taxed, and not those of any other trade, his profits, unless he raised +the price of his hats, would be below the general rate of profits, and +he would quit his employment for another. + +In the same manner a tax on the profits of the farmer would raise the +price of corn; a tax on the profits of the clothier, the price of cloth; +and if a tax in proportion to profits were laid on all trades, every +commodity would be raised in price. But if the mine, which supplied us +with the standard of our money, were in this country, and the profits of +the miner were also taxed, the price of no commodity would rise, each +man would give an equal proportion of his income, and every thing would +be as before. + +If money be not taxed, and therefore be permitted to preserve its value, +whilst every thing else is taxed, and is raised in value, the hatter, +the farmer, and clothier, each employing the same capitals, and +obtaining the same profits, will pay the same amount of tax. If the tax +be 100_l._, the hats, the cloth, and the corn, will each be increased in +value 100_l._ If the hatter gain by his hats 1100_l._, instead of +1000_l._, he will pay 100_l._ to Government for the tax; and therefore +will still have 1000_l._ to lay out on goods for his own consumption. +But as the cloth, corn, and all other commodities, will be raised in +price from the same cause, he will not obtain more for his 1000_l._ than +he before obtained for 910_l._, and thus will he contribute by his +diminished expenditure to the exigencies of the state; he will, by the +payment of the tax, have placed a portion of the produce of the land and +labour of the country at the disposal of Government, instead of using +that portion himself. If instead of expending his 1000_l._, he adds it +to his capital, he will find in the rise of wages, and in the increased +cost of the raw material and machinery, that his saving of 1000_l._ does +not amount to more than a saving of 910_l._ amounted to before. + +If money be taxed, or if by any other cause its value be altered, and +all commodities remain precisely at the same price as before, the +profits of the manufacturer and farmer will also be the same as before, +they will continue to be 1000_l._; and as they will each have to pay +100_l._ to Government, they will retain only 900_l._, which will give +them a less command over the produce of the land and labour of the +country, whether they expend it in productive or unproductive labour. +Precisely what they lose, Government will gain. In the first case the +contributor to the tax would, for 1000_l._, have as great a quantity of +goods as he before had for 910_l._; in the second, he would have only as +much as he before had for 900_l._ This proceeds from the difference in +the amount of the tax; in the first case it is only an eleventh of his +income, in the second it is a tenth; money in the two cases being of a +different value. + +But although, if money be not taxed, and do not alter in value, all +commodities will rise in price, they will not rise in the same +proportion; they will not after the tax bear the same relative value to +each other which they did before the tax. In a former part of this work, +we discussed the effects of the division of capital into fixed and +circulating, or rather into durable and perishable capital, on the +prices of commodities. We shewed that two manufacturers might employ +precisely the same amount of capital, and might derive from it precisely +the same amount of profits, but that they would sell their commodities +for very different sums of money, according as the capitals they +employed were rapidly, or slowly, consumed and reproduced. The one might +sell his goods for 4000_l._, the other for 10,000_l._, and they might +both employ 10,000_l._ of capital, and obtain 20 per cent. profit, or +2000_l._ The capital of one might consist for example of 2000_l._ +circulating capital, to be reproduced, and 8000_l._ fixed, in buildings +and machinery; the capital of the other on the contrary might consist of +8000_l._ of circulating, and of only 2000_l._ fixed capital in machinery +and buildings. Now if each of these persons were to be taxed 10 per +cent. on his income, or 200_l._, the one, to make his business yield him +the general rate of profit, must raise his goods from 10,000_l._ to +10,200_l._; the other would also be obliged to raise the price of his +goods from 4000_l._ to 4200_l._ Before the tax, the goods sold by one of +these manufacturers were 2-1/2 times more valuable than the goods of the +other; after the tax they will be 2.42 times more valuable: the one kind +will have risen 2 per cent.; the other 5 per cent.: consequently a tax +upon income, whilst money continued unaltered in value, would alter the +relative prices and value of commodities. This is true, if the tax +instead of being laid on the profits were laid on the commodities +themselves: provided they were taxed in proportion to the value of the +capital employed on their production, they would rise equally, whatever +might be their value, and therefore they would not preserve the same +proportion as before. A commodity, which rose from ten to eleven +thousand pounds, would not bear the same relation as before, to another +which rose from 2 to 3000_l._ If under these circumstances money rose in +value, from whatever cause it might proceed, it would not affect the +prices of commodities in the same proportion. The same cause which would +lower the price of one from 10,200_l._ to 10,000_l._ or less than 2 per +cent., would lower the price of the other from 4200_l._ to 4000_l._ or +4-3/4 per cent. If they fell in any different proportion, profits would +not be equal; for to make them equal, when the price of the first +commodity was 10,000_l._, the price of the second should be 4000_l._; +and when the price of the first was 10,200_l._, the price of the other +should be 4200_l._ + +The consideration of this fact will lead to the understanding of a very +important principle, which I believe has never been adverted to. It is +this; that in a country where no taxation subsists, the alteration in +the value of money arising from scarcity or abundance will operate in an +equal proportion on the prices of all commodities; that if a commodity +of 1000_l._ value rise to 1200_l._, or fall to 800_l._, a commodity of +10,000_l._ value will rise to 12,000_l._ or fall to 8000_l._; but in a +country where prices are artificially raised by taxation, the abundance +of money from an influx, or the exportation and consequent scarcity of +it from foreign demand, will not operate in the same proportion on the +prices of all commodities; some it will raise or lower 5, 6, or 12 per +cent., others 3, 4, or 7 per cent. If a country were not taxed, and +money should fall in value, its abundance in every market would produce +similar effects in each. If meat rose 20 per cent., bread, beer, shoes, +labour, and every commodity, would also rise 20 per cent.; it is +necessary they should do so, to secure to each trade the same rate of +profits. But this is no longer true when any of these commodities is +taxed; if in that case they should all rise in proportion to the fall in +the value of money, profits would be rendered unequal; in the case of +the commodities taxed profits would be raised above the general level, +and capital would be removed from one employment to another, till an +equilibrium of profits was restored, which could only be, after the +relative prices were altered. + +Will not this principle account for the different effects, which it was +remarked were produced on the prices of commodities, from the altered +value of money during the Bank-restriction? It was objected to those who +contended that the currency was at that period depreciated, from the too +great abundance of the paper circulation, that, if that were the fact, +all commodities ought to have risen in the same proportion; but it was +found that many had varied considerably more than others, and thence it +was inferred that the rise of prices was owing to something affecting +the value of commodities, and not to any alteration in the value of the +currency. It appears however, as we have just seen, that in a country +where commodities are taxed, they will not all vary in price in the same +proportion, either in consequence of a rise or of a fall in the value of +currency. + +If the profits of all trades were taxed, excepting the profits of the +farmer, all goods would rise in money value, excepting raw produce. The +farmer would have the same corn income as before, and would sell his +corn also for the same money price; but as he would be obliged to pay an +additional price for all the commodities, except corn, which he +consumed, it would be to him a tax on expenditure. Nor would he be +relieved from this tax by an alteration in the value of money, for an +alteration in the value of money might sink all the taxed commodities to +their former price, but the untaxed one would sink below its former +level; and therefore, though the farmer would purchase his commodities +at the same price as before, he would have less money with which to +purchase them. + +The landlord too would be precisely in the same situation, he would have +the same corn, and the same money rent as before, if all commodities +rose in price, and money remained at the same value; and he would have +the same corn, but a less money rent, if all commodities remained at the +same price: so that in either case, though his income were not directly +taxed, he would indirectly contribute towards the money raised. + +But suppose the profits of the farmer to be also taxed, he then would be +in the same situation as other traders; his raw produce would rise, so +that he would have the same money revenue, after paying the tax, but he +would pay an additional price for all the commodities he consumed, raw +produce included. + +His landlord however would be differently situated, he would be +benefited by the tax on his tenant's profits, as he would be compensated +for the additional price at which he would purchase his manufactured +commodities, if they rose in price; and he would have the same money +revenue, if in consequence of a rise in the value of money, commodities +sold at their former price. A tax on the profits of the farmer, is not a +tax proportioned to the gross produce of the land, but to its net +produce, after the payment of rent, wages, and all other charges. As the +cultivators of the different kinds of land, No. 1, 2, and 3, employ +precisely the same capitals, they will get precisely the same profits, +whatever may be the quantity of gross produce, which one may obtain more +than the other; and consequently they will be all taxed alike. Suppose +the gross produce of the land of the quality No. 1, to be 180 qrs., that +of No. 2, 170 qrs., and of No 3, 160, and each to be taxed 10 quarters, +the difference between the produce of No. 1, No. 2, and No. 3, after +paying the tax, will be the same as before; for if No. 1 be reduced to +170, No. 2 to 160, and No. 3 to 150 qrs.; the difference between 3 and 1 +will be as before, 20 qrs.; and of No. 3 and No. 2, 10 qrs. If after the +tax the prices of corn and of every other commodity should remain the +same as before, money rent as well as corn rent, would continue +unaltered; but if the price of corn, and every other commodity should +rise in consequence of the tax, money rent will also rise in the same +proportion. If the price of corn were 4_l._ per quarter, the rent of No. +1 would have been 80_l._, and that of No. 2, 40_l._; but if corn rose +ten per cent., or to 4_l._ 8_s._, rent would also rise ten per cent., +for twenty quarters of corn would then be worth 88_l._, and ten quarters +44_l._; so that in every case the landlord will be unaffected by such a +tax. A tax on the profits of stock always leaves corn rent unaltered, +and therefore money rent varies with the price of corn; but a tax on raw +produce, or tithes, never leaves corn rent unaltered, but generally +leaves money rent the same as before. In another part of this work I +have observed, that if a land-tax of the same money amount, were laid on +every kind of land in cultivation, without any allowance for difference +of fertility, it would be very unequal in its operation, as it would be +a profit to the landlord of the more fertile lands. It would raise the +price of corn in proportion to the burden borne by the farmer of the +worst land; but this additional price being obtained for the greater +quantity of produce yielded by the better land, farmers of such land +would be benefited during their leases, and afterwards, the advantage +would go to the landlord in the form of an increase of rent. The effect +of an equal tax on the profits of the farmer is precisely the same; it +raises the money rent of the landlords, if money retains the same value; +but as the profits of all other trades are taxed, as well as those of +the farmer, and consequently the prices of all goods, as well as corn, +are raised, the landlord loses as much by the increased money price of +the goods and corn on which his rent is expended, as he gains by the +rise of his rent. If money should rise in value, and all things should, +after a tax on the profits of stock, fall to their former prices, rent +also would be the same as before. The landlord would receive the same +money rent, and would obtain all the commodities on which it was +expended at their former price; so that under all circumstances he would +continue untaxed. + +A tax on the profits of stock would also affect the stockholder, if all +commodities were to rise in proportion to the tax; but if from the +alteration in the value of money, all commodities were to sink to their +former price, the stockholder would pay nothing towards the tax; he +would purchase all his commodities at the same price, but would still +receive the same money dividend. + +If it be agreed, that by taxing the profits of one manufacturer only, +the price of his goods would rise, to put him on an equality with all +other manufacturers; and that by taxing the profits of two +manufacturers, the prices of two descriptions of goods must rise, I do +not see how it can be disputed, that by taxing the profits of all +manufacturers, the prices of all goods would rise, provided the mine +which supplied us with money, were in the country taxed. But as money, +or the standard of money, is a commodity imported from abroad, the +prices of all goods could not rise; for such an effect could not take +place without an additional quantity of money, which could not be +obtained in exchange for dear goods, as was shewn in page 108. If +however, such a rise could take place, it could not be permanent, for it +would have a powerful influence on foreign trade. In return for +commodities imported, those dear goods could not be exported, and +therefore we should for a time continue to buy, although we ceased to +sell; and should export money, or bullion, till the relative prices of +commodities were nearly the same as before. It appears to me absolutely +certain, that a well regulated tax on profits, would ultimately restore +commodities both of home and foreign manufacture, to the same money +price which they bore before the tax was imposed. + +As taxes on raw produce, tithes, taxes on wages, and on the necessaries +of the labourer, will, by raising wages, lower profits, they will all, +though not in an equal degree, be attended with the same effects. + +The discovery of machinery, which materially improves home manufactures, +always tends to raise the relative value of money, and therefore to +encourage its importation. All taxation, all increased impediments, +either to the manufacturer, or the grower of commodities, tend on the +contrary to lower the relative value of money, and therefore to +encourage its exportation. + + + + +CHAPTER XIV. + +TAXES ON WAGES. + + +Taxes on wages will raise wages, and therefore will diminish the rate of +the profits of stock. We have already seen that a tax on necessaries +will raise their prices, and will be followed by a rise of wages. The +only difference between a tax on necessaries, and a tax on wages is, +that the former will necessarily be accompanied by a rise in the price +of necessaries, but the latter will not; towards a tax on wages, +consequently, neither the stockholder, the landlord, nor any other +class but the employers of labour will contribute. A tax on wages is +wholly a tax on profits, a tax on necessaries is partly a tax on +profits, and partly a tax on rich consumers. The ultimate effects which +will result from such taxes then are precisely the same as those which +result from a direct tax on profits. + +"The wages of the inferior classes of workmen," says Adam Smith, "I have +endeavoured to shew in the first book, are every where necessarily +regulated by two different circumstances; the demand for labour, and the +ordinary or average price of provisions. The demand for labour, +according as it happens to be either increasing, stationary, or +declining, or to require an increasing, stationary, or declining +population, regulates the subsistence of the labourer, and determines in +what degree it shall be either liberal, moderate, or scanty. The +_ordinary or average_ price of provisions determines the quantity of +money which must be paid to the workman, in order to enable him one year +with another to purchase this liberal, moderate, or scanty subsistence. +While the demand for labour, and the price of provisions, therefore +remain the same, a direct tax upon the wages of labour can have no other +effect than to raise them somewhat higher than the tax." + +To the proposition, as it is here advanced by Dr. Smith, Mr. Buchanan +offers two objections. First, he denies that the money wages of labour +are regulated by the price of provisions; and secondly, he denies that a +tax on the wages of labour would raise the price of labour. On the first +point, Mr. Buchanan's argument is as follows, page 59: "The wages of +labour, it has already been remarked, consist not in money, but in what +money purchases, namely, provisions and other necessaries; and the +allowance of the labourer out of the common stock, will always be in +proportion to the supply. Where provisions are _cheap and abundant_, his +share will be the larger; and where they are _scarce and dear_, it will +be the less. His wages will always give him his just share, and they +cannot give him more. It is an opinion indeed, adopted by Dr. Smith and +most other writers, that the money price of labour is regulated by the +money price of provisions, and that when provisions rise in price, wages +rise in proportion. But it is clear that the price of labour has no +necessary connexion with the price of food, since it depends entirely on +the supply of labourers compared with the demand. Besides, it is to be +observed, that the high price of provisions is a certain indication of a +deficient supply, and arises in the natural course of things, for the +purpose of retarding the consumption. A smaller supply of food, shared +among the same number of consumers, will evidently leave a smaller +portion to each, and the labourer must bear his share of the common +want. To distribute this burden equally, and to prevent the labourer +from consuming subsistence so freely as before, the price rises. But +wages it seems must rise along with it, that he may still use the same +quantity of a scarcer commodity; and thus nature is represented as +counteracting her own purposes: first, raising the price of food, to +diminish the consumption, and afterwards, raising wages to give the +labourer the same supply as before." + +In this argument of Mr. Buchanan, there appears to me, to be a great +mixture of truth and error. Because a high price of provisions is +sometimes occasioned by a deficient supply, Mr. Buchanan assumes it as a +certain indication of a deficient supply. He attributes to one cause +exclusively, that which may arise from many. It is undoubtedly true, +that in the case of a deficient supply, a smaller quantity will be +shared among the same number of consumers, and a smaller portion will +fall to each. To distribute this privation equally, and to prevent the +labourer from consuming subsistence so freely as before, the price +rises. It must therefore be conceded to Mr. Buchanan, that any rise in +the price of provisions, occasioned by a deficient supply, will not +necessarily raise the money wages of labour; as the consumption must be +retarded; which can only be effected by diminishing the power of the +consumers to purchase. But, because the price of provisions is raised by +a deficient supply, we are by no means warranted in concluding, as Mr. +Buchanan appears to do, that there may not be an abundant supply, with a +high price; not a high price with regard to money only, but with regard +to all other things. + +The natural price of commodities, which always ultimately governs their +market price, depends on the facility of production; but the quantity +produced is not in proportion to that facility. Although the lands, +which are now taken into cultivation, are much inferior to the lands in +cultivation three centuries ago, and therefore the difficulty of +production is increased, who can entertain any doubt, but that the +quantity produced now, very far exceeds the quantity then produced? Not +only is a high price compatible with an increased supply, but it rarely +fails to accompany it. If, then, in consequence of taxation, or of +difficulty of production, the price of provisions be raised, and the +quantity be not diminished, the money wages of labour will rise; for as +Mr. Buchanan has justly observed, "The wages of labour consist not in +money, but in what money purchases, namely, provisions and other +necessaries; and the allowance of the labourer out of the common stock, +will always be in proportion to the supply." + +With respect to the second point, whether a tax on the wages of labour +would raise the price of labour, Mr. Buchanan says, "After the labourer +has received the fair recompense of his labour, how can he have recourse +on his employer, for what he is afterwards compelled to pay away in +taxes? There is no law or principle in human affairs to warrant such a +conclusion. After the labourer has received his wages, they are in his +own keeping, and he must, as far as he is able, bear the burthen of +whatever exactions he may ever afterwards be exposed to: for he has +clearly no way of compelling those to reimburse him, who have already +paid him the fair price of his work." Mr. Buchanan has quoted with great +approbation, the following able passage from Mr. Malthus's work on +population, which appears to me completely to answer his objection. "The +price of labour, when left to find its natural level, is a most +important political barometer, expressing the relation between the +supply of provisions, and the demand for them, between the quantity to +be consumed, and the number of consumers; and, taken on the average, +independently of accidental circumstances, it further expresses, +clearly, the wants of the society respecting population, that is, +whatever may be the number of children to a marriage necessary to +maintain exactly the present population, the price of labour will be +just sufficient to support this number, or be above it, or below it, +according to the state of the real funds, for the maintenance of labour, +whether stationary, progressive, or retrograde. Instead, however, of +considering it in this light, we consider it as something which we may +raise or depress at pleasure, something which depends principally on his +majesty's justices of the peace. When an advance in the price of +provisions already expresses that the demand is too great for the +supply, in order to put the labourer in the same condition as before, we +raise the price of labour, that is, we increase the demand, and are then +much surprised, that the price of provisions continues rising. In this, +we act much in the same manner, as if, when the quicksilver in the +common weather glass, stood at _stormy_, we were to raise it by some +forcible pressure to settled fair, and then be greatly astonished that +it continued raining." + +"The price of labour will express, clearly, the wants of the society +respecting population;" it will be just sufficient to support the +population, which at that time the state of the funds for the +maintenance of labourers, requires. If the labourer's wages were before +only adequate to supply the requisite population, they will, after the +tax, be inadequate to that supply, for he will not have the same funds +to expend on his family. Labour will therefore rise, because the demand +continues, and it is only by raising the price, that the supply is not +checked. + +Nothing is more common, than to see hats or malt rise when taxed; they +rise because the requisite supply would not be afforded if they did not +rise: so with labour, when wages are taxed, its price rises, because, if +it did not, the requisite population would not be kept up. Does not Mr. +Buchanan allow all that is contended for, when he says, that "were he +(the labourer) indeed reduced to a bare allowance of necessaries, he +would then suffer no further abatement of his wages, as he could not on +such conditions continue his race?" Suppose the circumstances of the +country to be such, that the lowest labourers are not only called upon +to continue their race, but to increase it; their wages would have been +regulated accordingly. Can they multiply, if a tax takes from them a +part of their wages, and reduces them to bare necessaries? + +It is undoubtedly true, that a taxed commodity will not rise in +proportion to the tax, if the demand for it will diminish, and if the +quantity cannot be reduced. If metallic money were in general use, its +value would not for a considerable time be increased by a tax, in +proportion to the amount of the tax, because at a higher price, the +demand would be diminished, and the quantity would not be diminished; +and unquestionably the same cause frequently influences the wages of +labour, the number of labourers cannot be rapidly increased or +diminished in proportion to the increase or diminution of the fund, +which is to employ them; but in the case supposed, there is no necessary +diminution of demand for labour, and if diminished, the demand does not +abate in proportion to the tax. Mr. Buchanan forgets that the fund +raised by the tax is employed by Government in maintaining labourers, +unproductive indeed, but still labourers. If labour were not to rise +when wages are taxed, there would be a great increase in the competition +for labour, because the owners of capital, who would have nothing to pay +towards such a tax, would have the same funds for imploying labour; +whilst the Government who received the tax would have an additional +fund for the same purpose. Government and the people thus become +competitors, and the consequence of their competition is a rise in the +price of labour. The same number of men only will be employed, but they +will be employed at additional wages. + +If the tax had been laid at once on the people, their fund for the +maintenance of labour would have been diminished in the very same degree +that the fund of Government for that purpose had been increased; and +therefore there would have been no rise in wages; for though there would +be the same demand, there would not be the same competition. If when the +tax were levied, Government at once exported the produce of it as a +subsidy to a foreign state, and if therefore these funds were devoted to +the maintenance of foreign, and not of English labourers, such as +soldiers, sailors, &c. &c.; then, indeed, there would be a diminished +demand for labour, and wages might not increase although they were +taxed; but the same thing would happen if the tax had been laid on +consumable commodities, on the profits of stock, or if in any other +manner the same sum had been raised to supply this subsidy: less labour +could be employed at home. In one case wages are prevented from rising, +in the other they must absolutely fall. But suppose the amount of a tax +on wages were, after being raised on the labourers, paid gratuitously to +their employers, it would increase their money fund for the maintenance +of labour, but it would not increase either commodities or labour. It +would consequently increase the competition amongst the employers of +labour, and the tax would be ultimately attended with no loss either to +master or labourer. The master would pay an increased price for labour; +the addition which the labourer received would be paid as a tax to +Government, and would be again returned to the masters. It must however +not be forgotten that the produce of taxes is often wastefully expended, +and that by diminishing capital they tend to diminish the real fund +destined for the maintenance of labour; and therefore to diminish the +real demand for it. Taxes then, generally, as far as they impair the +real capital of the country, diminish the demand for labour, and +therefore it is a probable, but not a necessary, nor a peculiar +consequence of a tax on wages, that though wages would rise, they would +not rise by a sum precisely equal to the tax. + +Adam Smith, as we have seen, has fully allowed that the effect of a tax +on wages would be to raise wages by a sum at least equal to the tax, and +would be finally, if not immediately, paid by the employer of labour. +Thus far we fully agree; but we essentially differ in our views of the +subsequent operation of such a tax. + +"A direct tax upon the wages of labour, therefore," says Adam Smith, +"though the labourer might perhaps pay it out of his hand, could not +properly be said to be even advanced by him; at least if the demand for +labour and the average price of provisions remained the same after the +tax as before it. In all such cases, not only the tax, but something +more than the tax, would in reality be advanced by the person who +immediately employed him. The final payment would in different cases +fall upon different persons. The rise which such a tax might occasion +in the wages of manufacturing labour, would be advanced by the master +manufacturer, _who would be entitled and obliged to charge it with a +profit, upon the price of his goods_. The rise which such a tax might +occasion in country labour would be advanced by the farmer, who, in +order to maintain the same number of labourers as before, would be +obliged to employ a greater capital. In order to get back this greater +capital, _together with the ordinary profits of stock_, it would be +necessary that he should retain a larger portion, or what comes to the +same thing, the price of a larger portion of the produce of the land, +and consequently that he should pay less rent to the landlord. The final +payment of this rise of wages, therefore, would in this case fall upon +the landlord, _together with the additional profits of the farmer who +had advanced it_. In all cases a direct tax upon the wages of labour +must, in the long run, occasion both a greater reduction in the rent of +land, and a greater rise in the price of manufactured goods, than would +have followed, from the proper assessment of a sum equal to the produce +of the tax, partly upon the rent of land, and partly upon consumable +commodities." Vol. iii. p. 337. In this passage it is asserted that the +additional wages paid by farmers will ultimately fall on the landlords, +who will receive a diminished rent; but that the additional wages paid +by manufacturers will occasion a rise in the price of manufactured +goods, and will therefore fall on the consumers of those commodities. + +Now suppose a society to consist of landlords, manufacturers, farmers, +and labourers. The labourers, it is agreed, would be recompensed for the +tax;--but by whom?--who would pay that portion which did not fall on the +landlords?--the manufacturers could pay no part of it; for if the price +of their commodities should rise in proportion to the additional wages +they paid, they would be in a better situation after than before the +tax. If the clothier, the hatter, the shoemaker, &c., should be each +able to raise the price of their goods 10 per cent.,--supposing 10 per +cent. to recompense them completely for the additional wages they +paid,--if, as Adam Smith says, "they would be entitled and obliged to +charge the additional wages _with a profit_ upon the price of their +goods," they could each consume as much as before of each other's +goods, and therefore they would pay nothing towards the tax. If the +clothier paid more for his hats and shoes, he would receive more for his +cloth, and if the hatter paid more for his cloth and shoes, he would +receive more for his hats. All manufactured commodities then would be +bought by them with as much advantage as before, and inasmuch as corn +would not be raised in price whilst they had an additional sum to lay +out upon its purchase, they would be benefited, and not injured by such +a tax. + +If then neither the labourers nor the manufacturers would contribute +towards such a tax; if the farmers would be also recompensed by a fall +of rent, landlords alone must not only bear its whole weight, but they +must also contribute to the increased gains of the manufacturers. To do +this, however, they should consume all the manufactured commodities in +the country, for the additional price charged on the whole mass is +little more than the tax originally imposed on the labourers in +manufactures. + +Now it will not be disputed that the clothier, the hatter, and all other +manufacturers, are consumers of each other's goods; it will not be +disputed that labourers of all descriptions consume soap, cloth, shoes, +candles, and various other commodities: it is therefore impossible that +the whole weight of these taxes should fall on landlords only. + +But if the labourers pay no part of the tax, and yet manufactured +commodities rise in price, wages must rise, not only to compensate them +for the tax, but for the increased price of manufactured necessaries, +which, as far as it affects agricultural labour, will be a new cause for +the fall of rent; and, as far as it affects manufacturing labour, for a +further rise in the price of goods. This rise in the price of goods will +again operate on wages, and the action and re-action, first of wages on +goods, and then of goods on wages, will be extended without any +assignable limits. The arguments by which this theory is supported, lead +to such absurd conclusions that it may at once be seen that the +principle is wholly indefensible. + +All the effects which are produced on the profits of stock and the wages +of labour, by a rise of rent and a rise of necessaries, in the natural +progress of society, and increasing difficulty of production, will be +produced by a rise of wages in consequence of taxation; and therefore +the enjoyments of the labourer, as well as those of his employers, will +be curtailed by the tax; and not by this tax particularly, but by any +other which should raise an equal amount. + +The error of Adam Smith proceeds in the first place from supposing, that +all taxes paid by the farmer must necessarily fall on the landlord, in +the shape of a deduction from rent. On this subject I have explained +myself most fully, and I trust that it has been shewn, to the +satisfaction of the reader, that since much capital is employed on the +land which pays no rent, and since it is the result obtained by this +capital which regulates the price of raw produce, no deduction can be +made from rent; and consequently either no remuneration will be made to +the farmer for a tax on wages, or if made, it must be made by an +addition to the price of raw produce. + +If taxes press unequally on the farmer, he will be enabled to raise the +price of raw produce, to place himself on a level with those who carry +on other trades; but a tax on wages, which would not affect him more +than it would affect any other trade, could not be removed or +compensated by a high price of raw produce; for, the same reason which +should induce him to raise the price of corn, namely, to remunerate +himself for the tax, would induce the clothier to raise the price of +cloth, the shoemaker, hatter, and upholsterer, to raise the price of +shoes, hats, and furniture. + +If they could all raise the price of their goods, so as to remunerate +themselves, with a profit, for the tax; as they are all consumers of +each other's commodities, it is obvious that the tax could never be +paid; for who would be the contributors if all were compensated? + +I hope then that I have succeeded in shewing, that any tax which shall +have the effect of raising wages, will be paid by a diminution of +profits, and therefore that a tax on wages is in fact a tax on profits. + +This principle of the division of the produce of labour and capital +between wages and profits, which I have attempted to establish, appears +to me so certain, that excepting in the immediate effects, I should +think it of little importance whether the profits of stock, or the wages +of labour, were taxed. By taxing the profits of stock, you would +probably alter the rate at which the funds for the maintenance of labour +increase, and wages would be disproportioned to the state of that fund, +by being too high. By taxing wages, the reward paid to the labourer +would also be disproportioned to the state of that fund, by being too +low. In the one case by a fall, and in the other by a rise in money +wages, the natural equilibrium between profits and wages would be +restored. A tax on wages then does not fall on the landlord, but it +falls on the profits of stock: it does not "entitle and oblige the +master manufacturer to charge it with a profit on the prices of his +goods," for he will be unable to increase their price, and therefore he +must himself wholly and without compensation pay such a tax.[16] + +If the effect of taxes on wages be such as I have described, they do not +merit the censure cast upon them by Dr. Smith. He observes of such +taxes, "These, and some other taxes of the same kind, by raising the +price of labour, are said to have ruined the greater part of the +manufactures of Holland. Similar taxes, though not quite so heavy, take +place in the Milanese, in the states of Genoa, in the duchy of Modena, +in the duchies of Parma, Placentia, and Guastalla, and in the +ecclesiastical states. A French author of some note, has proposed to +reform the finances of his country, by substituting in the room of other +taxes, this most ruinous of all taxes. 'There is nothing so absurd,' +says Cicero, 'which has not sometimes been asserted by some +philosophers.'" And in another place he says: "taxes upon necessaries, +by raising the wages of labour, necessarily tend to raise the price of +all manufactures, and consequently to diminish the extent of their sale +and consumption." They would not merit this censure; even if Dr. Smith's +principle were correct that such taxes would enhance the prices of +manufactured commodities; for such an effect could be only temporary, +and would subject us to no disadvantage in our foreign trade. If any +cause should raise the price of a few manufactured commodities, it would +prevent or check their exportation; but if the same cause operated +generally on all, the effect would be merely nominal, and would neither +interfere with their relative value, nor in any degree diminish the +stimulus to a trade of barter; which all commerce, both foreign and +domestic, really is. + +I have already attempted to shew, that when any cause raises the prices +of all commodities in general, the effects are nearly similar to a fall +in the value of money. If money falls in value, all commodities rise in +price; and if the effect is confined to one country, it will affect its +foreign commerce in the same way as a high price of commodities caused +by general taxation; and therefore in examining the effects of a low +value of money confined to one country, we are also examining the +effects of a high price of commodities confined to one country. Indeed +Adam Smith was fully aware of the resemblance between these two cases, +and consistently maintained that the low value of money, or, as he calls +it, of silver in Spain, in consequence of the prohibition against its +exportation, was very highly prejudicial to the manufactures and foreign +commerce of Spain. "But that degradation in the value of silver, which +being the effect either of the peculiar situation, or of the political +institutions of a particular country, takes place only in that country, +is a matter of very great consequence, which, far from tending to make +any body really richer, tends to make every body really poorer. The rise +in the money price of all commodities, which is in this case peculiar to +that county, tends to discourage more or less every sort of industry +which is carried on within it, and to enable foreign nations, by +furnishing almost all sorts of goods for a smaller quantity of silver +than its own workmen can afford to do, to undersell them not only in +the foreign, but even in the home market." Vol. ii. page 278. + +One, and I think the only one of the disadvantages of a low value of +silver in a country, proceeding from a forced abundance, has been ably +explained by Dr. Smith. If the trade in gold and silver were free, "the +gold and silver which would go abroad, would not go abroad for nothing, +but would bring back an equal value of goods of some kind or another. +Those goods too would not be all matters of mere luxury and expense, to +be consumed by idle people, who produce nothing in return for their +consumption. As the real wealth and revenue of idle people would not be +augmented by this extraordinary exportation of gold and silver, so would +neither their consumption be augmented by it. Those goods would, +probably the greater part of them, and certainly some part of them, +consist in materials, tools, and provisions, for the employment and +maintenance of industrious people, who would reproduce with a profit, +the full value of their consumption. A part of the dead stock of the +society would thus be turned into active stock, and would put into +motion a greater quantity of industry than had been employed before." + +By not allowing a free trade in the precious metals when the prices of +commodities are raised, either by taxation, or by the influx of the +precious metals, you prevent a part of the dead stock of the society +from being turned into active stock--you prevent a greater quantity of +industry from being employed. But this is the whole amount of the evil; +an evil never felt by those countries where the exportation of silver is +either allowed or connived at. + +The exchanges between countries are at par only, whilst they have +precisely that quantity of currency which in the actual situation of +things they should have to carry on the circulation of their +commodities. If the trade in the precious metals were perfectly free, +and money could be exported without any expense whatever, the exchanges +could be no otherwise in every country than at par. If the trade in the +precious metals were perfectly free, if they were generally used in +circulation, even with the expenses of transporting them, the exchange +could never in any of them deviate more from par, than by these +expenses. These principles I believe are now no where disputed. If a +country used paper money not exchangeable for specie, and therefore not +regulated by any fixed standard, the exchanges in that country might +deviate as much from par, as its money might be multiplied beyond that +quantity which would have been allotted to it by general commerce, if +the trade in money had been free, and the precious metals had been used, +either for money, or for the standard of money. + +If by the general operations of commerce, 10 millions of pounds +sterling, of a known weight and fineness of bullion, should be the +portion of England, and 10 millions of paper pounds were substituted, no +effect would be produced on the exchange; but if by the abuse of the +power of issuing paper money, 11 millions of pounds should be employed +in the circulation, the exchange would be 9 per cent. against England; +if 12 millions were employed, the exchange would be 16 per cent.; and if +20 millions, the exchange would be 50 per cent. against England. To +produce this effect it is not however necessary that paper money should +be employed: any cause which retains in circulation a greater quantity +of pounds than would have circulated, if commerce had been free, and the +precious metals of a known weight and fineness had been used, either for +money, or for the standard of money, would exactly produce the same +effects. Suppose that by clipping the money, each pound did not contain +the quantity of gold or silver which by law it should contain, a greater +number of such pounds might be employed in the circulation, than if they +were not clipped. If from each pound one tenth were taken away, 11 +millions of such pounds might be used instead of 10; if two tenths were +taken away, 12 millions might be employed; and if one half were taken +away, 20 millions might not be found superfluous. If the latter sum were +used instead of 10 millions, every commodity in England would be raised +to double its former price, and the exchange would be 50 per cent. +against England, but this would occasion no disturbance in foreign +commerce, nor discourage the manufacture of any one commodity. If for +example, cloth rose in England from 20_l._ to 40_l._ per piece, we +should just as freely export it after as before the rise, for a +compensation of 50 per cent. would be made to the foreign purchaser in +the exchange; so that with 20_l._ of his money, he could purchase a bill +which would enable him to pay a debt of 40_l._ in England. In the same +manner if he exported a commodity which cost 20_l._ at home, and which +sold in England for 40_l._ he would only receive 20_l._, for 40_l._ in +England would only purchase a bill for 20_l._ on a foreign country. The +same effects would follow from whatever cause 20 millions could be +forced to perform the business of circulation in England, if 10 millions +only were necessary. If so absurd a law, as the prohibition of the +exportation of the precious metals, could be enforced, and the +consequence of such prohibition were to force 11 millions instead of 10 +into circulation, the exchange would be 9 per cent. against England; if +12 millions, 16 per cent.; and if 20 millions, 50 per cent. against +England. But no discouragement would be given to the manufactures of +England; if home commodities sold at a high price in England, so would +foreign commodities; and whether they were high or low would be of +little importance to the foreign exporter and importer, whilst he would, +on the one hand, be obliged to allow a compensation in the exchange when +his commodities sold at a dear rate, and would receive the same +compensation, when he was obliged to purchase English commodities at a +high price. The sole disadvantage then which could happen to a country +from retaining by prohibitory laws a greater quantity of gold and silver +in circulation than would otherwise remain there, would be the loss +which it would sustain from employing a portion of its capital +unproductively, instead of employing it productively. In the form of +money this capital is productive of no profit; in the form of materials, +machinery, and food, for which it might be exchanged, it would be +productive of revenue, and would add to the wealth and the resources of +the state. Thus then I hope I have satisfactorily proved, that a +comparatively low price of the precious metals, in consequence of +taxation, or in other words, a generally high price of commodities, +would be of no disadvantage to a state, as a part of the metals would be +exported, which, by raising their value, would again lower the prices +of commodities. And further, that if they were not exported, if by +prohibitory laws they could be retained in a country, the effect on the +exchange would counterbalance the effect of high prices. If then taxes +on necessaries and on wages would not raise the prices of all +commodities on which labour was expended, they cannot be condemned on +such grounds; and moreover, even if the opinion that they would have +such an effect were well founded, they would be in no degree injurious +on that account. + +It is undoubtedly true, that "taxes upon luxuries have no tendency to +raise the price of any other commodities, except that of the commodities +taxed;" but it is not true, that "taxes upon necessaries, by raising the +wages of labour, necessarily tend to raise the price of all +manufactures." It is true, that "taxes upon luxuries are finally paid by +the consumers of the commodities taxed, without any retribution. They +fall indifferently upon every species of revenue, the wages of labour, +the profits of stock, and the rent of land;" but it is not true, "that +taxes upon necessaries _so far as they affect the labouring poor_, are +finally paid partly by landlords in the diminished rent of their lands, +and partly by rich consumers, whether landlords or others, in the +advanced price of manufactured goods;" for _so far as these taxes affect +the labouring poor_, they will be almost wholly paid by the diminished +profits of stock, a small part only being paid by the labourers +themselves in the diminished demand for labour, which taxation of every +kind has a tendency to produce. + +It is from Dr. Smith's erroneous view of the effect of those taxes, that +he has been led to the conclusion, that "the middling and superior ranks +of people, if they understood their own interest, ought always to oppose +all taxes upon the necessaries of life, as well as all direct taxes upon +the wages of labour." This conclusion follows from his reasoning, "that +the final payment of both one and the other falls altogether upon +themselves, and always with a considerable overcharge. They fall +heaviest upon the landlords, who always pay in a double capacity; in +that of landlords, by the reduction of their rent, and in that of rich +consumers, by the increase of their expense. The observation of Sir +Matthew Decker, that certain taxes are in the price of certain goods, +sometimes repeated and accumulated four or five times, is perfectly just +with regard to taxes upon the necessaries of life. In the price of +leather, for example, you must pay, not only for the tax upon the +leather of your own shoes, but for a part of that upon those of the +shoemaker and the tanner. You must pay too for the tax upon the salt, +upon the soap, and upon the candles, which those workmen consume while +employed in your service, and for the tax upon the leather, which the +salt-maker, the soap-maker, and the candle-maker consume, while employed +in their service." + +Now as Dr. Smith does not contend that the tanner, the salt-maker, the +soap-maker, and the candle-maker, will either of them be benefited by +the tax on leather, salt, soap, and candles; and as it is certain, that +government will receive no more than the tax imposed, it is impossible +to conceive, that more can be paid by the public upon whomsoever the tax +may fall. The rich consumers may, and indeed will, pay for the poor +consumer, but they will pay no more than the whole amount of the tax; +and it is not in the nature of things, that "the tax should be repeated +and accumulated four or five times." + +A system of taxation may be defective; more may be raised from the +people, than what finds its way into the coffers of the state, as a +part, in consequence of its effect on prices, may possibly be received +by those, who are benefited by the peculiar mode in which taxes are +laid. Such taxes are pernicious, and should not be encouraged; for it +may be laid down as a principle, that when taxes operate justly, they +conform to the first of Dr. Smith's maxims, and raise from the people as +little as possible beyond what enters into the public treasury of the +state. M. Say says, "others offer plans of finance, and propose means +for filling the coffers of the sovereign, without any charge to his +subjects. But unless a plan of finance is of the nature of a commercial +undertaking, it cannot give government more than it takes away, either +from individuals, or from government itself, under some other form. +Something cannot be made out of nothing, by the stroke of a wand. In +whatever way an operation may be disguised, whatever forms we may +constrain a value to take, whatever metamorphosis we may make it +undergo, we can only have a value by creating it, or by taking it from +others. The very best of all plans of finance is to spend little, and +the best of all taxes is, that which is the least in amount." + +Dr. Smith uniformly, and I think justly, contends, that the labouring +classes cannot materially contribute to the burdens of the state. A tax +on necessaries, or on wages, will therefore be shifted from the poor to +the rich: if then, the meaning of Dr. Smith is, "that certain taxes are +in the price of certain goods sometimes repeated, and accumulated four +or five times," for the purpose only of accomplishing this end, namely, +the transference of the tax from the poor to the rich, they cannot be +liable to censure on that account. + +Suppose the just share of the taxes of a rich consumer to be 100_l._, +and that he would pay it directly, if the tax were laid on income, on +wine, or on any other luxury, he would suffer no injury if by the +taxation of necessaries, he should be only called upon for the payment +of 25_l._, as far as his own consumption of necessaries, and that of his +family was concerned, but should be required to repeat this tax three +times, by paying an additional price for other commodities to remunerate +the labourers, or their employers, for the tax which they have been +called upon to advance. Even in that case the reasoning is inconclusive: +for if there be no more paid than what is required by Government; of +what importance can it be to the rich consumer, whether he pay the tax +directly, by paying an increased price for an object of luxury, or +indirectly, by paying an increased price for the necessaries and other +commodities he consumes? If more be not paid by the people, than what is +received by Government, the rich consumer will only pay his equitable +share; if more is paid, Adam Smith should have stated by whom it is +received. + +M. Say does not appear to me to have consistently adhered to the obvious +principle, which I have quoted from his able work; for in the next page, +speaking of taxation, he says, "When it is pushed too far, it produces +this lamentable effect, it deprives the contributor of a portion of his +riches, without enriching the state. This is what we may comprehend, if +we consider that every man's power of consuming, whether productively or +not, is limited by his income. He cannot then be deprived of a part of +his income, without being obliged proportionally to reduce his +consumption. Hence arises a diminution of demand for those goods, which +he no longer consumes, and particularly for those on which the tax is +imposed. From this diminution of demand, there results a diminution of +production, and consequently of taxable commodities. The contributor +then will lose a portion of his enjoyments; the producer, a portion of +his profits; and the treasury, a portion of its receipts." + +M. Say instances the tax on salt in France, previous to the revolution; +which, he says, diminished the production of salt by one half. If, +however, less salt was consumed, less capital was employed in producing +it; and therefore, though the producer would obtain less profits on the +production of salt, he would obtain more on the production of other +things. If a tax, however burdensome it may be, falls on revenue, and +not on capital, it does not diminish demand, it only alters the nature +of it. It enables Government to consume as much of the produce of the +land and labour of the country, as was before consumed by the +individuals who contribute to the tax. If my income is 1000_l._ per +annum, and I am called upon for 100_l._ per annum for a tax, I shall +only be able to demand nine tenths of the quantity of goods, which I +before consumed, but I enable Government to demand the other tenth. If +the commodity taxed be corn, it is not necessary that my demand for corn +should diminish, as I may prefer to pay 100_l._ per annum more for my +corn, and to the same amount abate in my demand for wine, furniture, or +any other luxury.[17] Less capital will consequently be employed in the +wine or upholstery trade, but more will be employed in manufacturing +those commodities, on which the taxes levied by Government will be +expended. + +M. Say says that M. Turgot, by reducing the market dues on fish (_les +droits d'entrée et de halle sur la marée_) in Paris one half, did not +diminish the amount of their produce, and that consequently, the +consumption of fish must have doubled. He infers from this, that the +profits of the fisherman and those engaged in the trade, must also have +doubled, and that the income of the country must have increased, by the +whole amount of these increased profits; and by giving a stimulus to +accumulation, must have increased the resources of the state.[18] + +Without calling in question the policy, which dictated this alteration +of the tax, I may be permitted to doubt whether it gave any great +stimulus to accumulation. If the profits of the fisherman and others +engaged in the trade, were doubled in consequence of more fish being +consumed, capital and labour must have been withdrawn from other +occupations to engage them in this particular trade. But in those +occupations capital and labour were productive of profits, which must +have been given up when they were withdrawn. The ability of the country +to accumulate was only increased by the difference between the profits +obtained in the business in which the capital was newly engaged, and +those obtained in that from which it was withdrawn. + +Whether taxes be taken from revenue or capital, they diminish the +taxable commodities of the state. If I cease to expend 100_l._ on wine, +because by paying a tax of that amount I have enabled Government to +expend 100_l._ instead of expending it myself, one hundred pounds worth +of goods are necessarily withdrawn from the list of taxable +commodities. If the revenue of the individuals of a country be 10 +millions, they will have at least 10 millions worth of taxable +commodities. If by taxing some, one million be transferred to the +disposal of Government, their revenue will still be nominally 10 +millions, but they will remain with only nine millions worth of taxable +commodities. There are no circumstances under which taxation does not +abridge the enjoyments of those on whom the taxes ultimately fall, and +no means by which those enjoyments can again be extended, but the +accumulation of new revenue. + +Taxation can never be so equally applied, as to operate in the same +proportion on the value of all commodities, and still to preserve them +at the same relative value. It frequently operates very differently from +the intention of the legislature, by its indirect effects. We have +already seen, that the effect of a direct tax on corn and raw produce, +is, if money be also produced in the country, to raise the price of all +commodities, in proportion as raw produce enters into their composition, +and thereby to destroy the natural relation which previously existed +between them. Another indirect effect is, that it raises wages, and +lowers the rate of profits; and we have also seen, in another part of +this work, that the effect of a rise of wages, and a fall of profits, is +to lower the money prices of those commodities which are produced in a +greater degree by the employment of fixed capital. + +That a commodity when taxed can no longer be so profitably exported, is +so well understood, that a drawback is frequently allowed on its +exportation, and a duty laid on its importation. If these drawbacks and +duties be accurately laid, not only on the commodities themselves, but +on all which they may indirectly affect, then indeed there will be no +disturbance in the value of the precious metals. Since we could as +readily export a commodity after being taxed as before, and since no +peculiar facility would be given to importation, the precious metals +would not, more than before, enter into the list of exportable +commodities. + +Of all commodities, none are perhaps so proper for taxation, as those +which either by the aid of nature or art, are produced with peculiar +facility. With respect to foreign countries, such commodities may be +classed under the head of those which are not regulated in their price +by the quantity of labour bestowed, but rather by the caprice, the +tastes, and the power of the purchasers. If England had more productive +tin mines than other countries, or if from superior machinery or fuel +she had peculiar facilities in manufacturing cotton goods, the prices of +tin, and of cotton goods would still in England be regulated by the +comparative quantity of labour and capital required to produce them, and +the competition of our merchants would make them very little dearer to +the foreign consumer. Our advantage in the production of these +commodities might be so decided, that probably they could bear a very +great additional price in the foreign market, without very materially +diminishing their consumption. This price they never could attain, +whilst competition was free at home, by any other means but by a tax on +their exportation. This tax would fall wholly on foreign consumers, and +part of the expenses of the Government of England would be defrayed, by +a tax on the land and labour of other countries. The tax on tea, which +at present is paid by the people of England, and goes to aid the +expenses of the Government of England, might, if laid in China, on the +exportation of the tea, be diverted to the payment of the expenses of +the Government of China. + +Taxes on luxuries have some advantage over taxes on necessaries. They +are generally paid from income, and therefore do not diminish the +productive capital of the country. If wine were much raised in price in +consequence of taxation, it is probable that a man would rather forego +the enjoyments of wine, than make any important encroachments on his +capital, to be enabled to purchase it. They are so identified with +price, that the contributor is hardly aware that he is paying a tax. But +they have also their disadvantages. First, they never reach capital, and +on some extraordinary occasions it may be expedient that even capital +should contribute towards the public exigencies; and secondly, there is +no certainty as to the amount of the tax, for it may not reach even +income. A man intent on saving will exempt himself from a tax on wine, +by giving up the use of it. The income of the country may be +undiminished, and yet the state may be unable to raise a shilling by the +tax. + +Whatever habit has rendered delightful, will be relinquished with +reluctance, and will continue to be consumed notwithstanding a very +heavy tax; but this reluctance has its limits, and experience every day +demonstrates that an increase in the nominal amount of taxation, often +diminishes the produce. One man will continue to drink the same quantity +of wine, though the price of every bottle should be raised three +shillings, who would yet relinquish the use of wine rather than pay +four. Another will be content to pay four, yet refuse to pay five +shillings. The same may be said of other taxes on luxuries: many would +pay a tax of 5_l._ for the enjoyment which a horse affords, who would +not pay 10_l._ or 20_l._ It is not because they cannot pay more, that +they give up the use of wine and of horses, but because they will not +pay more. Every man has some standard in his own mind by which he +estimates the value of his enjoyments, but that standard is as various +as the human character. A country whose financial situation has become +extremely artificial, by the mischievous policy of accumulating a large +national debt, and a consequently enormous taxation, is particularly +exposed to the inconvenience attendant on this mode of raising taxes. +After visiting with a tax the whole round of luxuries; after laying +horses, carriages, wine, servants, and all the other enjoyments of the +rich, under contribution; a minister is disposed to conclude that the +country is arrived at the maximum of taxation, because by increasing the +rate, he cannot increase the amount of any one of these taxes. But in +this conclusion he will not be always correct, for it is very possible +that such a country could bear a very great addition to its burdens +without infringing on the integrity of its capital. + + + + +CHAPTER XV. + +TAXES ON OTHER COMMODITIES THAN RAW PRODUCE. + + +On the same principle that a tax on corn would raise the price of corn, +a tax on any other commodity would raise the price of that commodity. If +the commodity did not rise by a sum equal to the tax, it would not give +the same profit to the producer which he had before, and he would remove +his capital to some other employment. + +The taxing of all commodities, whether they be necessaries or luxuries, +will, while money remains at an unaltered value, raise their prices by a +sum at least equal to the tax.[19] A tax on the manufactured necessaries +of the labourer would have the same effect on wages as a tax on corn, +which differs from other necessaries only by being the first and most +important on the list; and it would produce precisely the same effects +on the profits of stock and foreign trade. But a tax on luxuries would +have no other effect than to raise their price. It would fall wholly on +the consumer, and could neither increase wages, nor lower profits. + +Taxes which are levied on a country for the purpose of supporting war, +or for the ordinary expenses of the state, and which are chiefly devoted +to the support of unproductive labourers, are taken from the productive +industry of the country; and every saving which can be made from such +expenses will be generally added to the income, if not to the capital of +the contributors. When for the expenses of a year's war, twenty millions +are raised by means of a loan, it is the twenty millions which are +withdrawn from the productive capital of the nation. The million per +annum which is raised by taxes to pay the interest of this loan, is +merely transferred from those who pay it to those who receive it, from +the contributor to the tax to the national creditor. The real expense is +the twenty millions, and not the interest which must be paid for it.[20] +Whether the interest be or be not paid, the country will neither be +richer nor poorer. Government might at once have required the twenty +millions in the shape of taxes; in which case it would not have been +necessary to raise annual taxes to the amount of a million. This however +would not have changed the nature of the transaction. An individual +instead of being called upon to pay 100_l._ per annum, might have been +obliged to pay 2000_l._ once for all. It might also have suited his +convenience rather to borrow this 2000_l._, and to pay 100_l._ per annum +for interest to the lender, than to spare the larger sum from his own +funds. In one case it is a private transaction between A and B, in the +other Government guarantees to B the payment of the interest to be +equally paid by A. If the transaction had been of a private nature, no +public record would be kept of it, and it would be a matter of +comparative indifference to the country whether A faithfully performed +his contract to B, or unjustly retained, the 100_l._ per annum in his +own possession. The country would have a general interest in the +faithful performance of a contract, but with respect to the national +wealth, it would have no other interest than whether A or B would make +this 100_l._ most productive, but on this question it would neither have +the right nor the ability to decide. It might be possible, that if A +retained it for his own use, he might squander it unprofitably, and if +it were paid to B, he might add it to his capital, and employ it +productively. And the converse would also be possible, B might squander +it, and A might employ it productively. With a view to wealth only, it +might be equally or more desirable that A should or should not pay it; +but the claims of justice and good faith, a greater utility, are not to +be compelled to yield to those of a less; and accordingly, if the state +were called upon to interfere, the courts of justice would oblige A to +perform his contract. A debt guaranteed by the nation, differs in no +respect from the above transaction. Justice and good faith demand that +the interest of the national debt should continue to be paid, and that +those who have advanced their capitals for the general benefit, should +not be required to forego their equitable claims, on the plea of +expediency. + +But independently of this consideration, it is by no means certain, that +political utility would gain any thing by the sacrifice of political +integrity; it does by no means follow, that the party exonerated from +the payment of the interest of the national debt would employ it more +productively than those to whom indisputably it is due. By cancelling +the national debt, one man's income might be raised from 1000_l._ to +1500_l._, but another man's would be lowered from 1500_l._ to 1000_l._ +These two men's income now amount to 2500_l._, they would amount to no +more then. If it be the object of Government to raise taxes, there would +be precisely the same taxable capital and income in one case, as in the +other. It is not then by the payment of the interest on the national +debt that a country is distressed, nor is it by the exoneration from +payment that it can be relieved. It is only by saving from income, and +retrenching in expenditure, that the national capital can be increased; +and neither the income would be increased, nor the expenditure +diminished by the annihilation of the national debt. It is by the +profuse expenditure of Government, and of individuals, and by loans, +that a country is impoverished; every measure therefore which is +calculated to promote public and private oeconomy will relieve the +public distress; but it is error and delusion, to suppose that a real +national difficulty can be removed, by shifting it from the shoulders of +one class of the community, who justly ought to bear it, to the +shoulders of another class, who upon every principle of equity ought to +bear no more than their share. From what I have said, it must not be +inferred that I consider the system of borrowing as the best calculated +to defray the extraordinary expenses of the state. It is a system which +tends to make us less thrifty--to blind us to our real situation. If the +expenses of a war be 40 millions per annum, and the share which a man +would have to contribute towards that annual expense were 100_l._, he +would endeavour, on being at once called upon for his portion, to save +speedily the 100_l._ from his income. By the system of loans he is +called upon to pay only the interest of this 100_l._, or 5_l._ per +annum, and considers that he does enough by saving this 5_l._ from his +expenditure, and then deludes himself with the belief that he is as rich +as before. The whole nation, by reasoning and acting in this manner, +save only the interest of 40 millions, or two millions; and thus, not +only lose all the interest or profit which 40 millions of capital, +employed productively, would afford, but also 38 millions, the +difference between their savings and expenditure. If, as I before +observed, each man had to make his own loan, and contribute his full +proportion to the exigencies of the state, as soon as the war ceased, +taxation would cease, and we should immediately fall into a natural +state of prices. Out of his private funds, A might have to pay to B +interest for the money he borrowed of him during the war, to enable him +to pay his quota of the expense; but with this the nation would have no +concern. A country which has accumulated a large debt is placed in a +most artificial situation; and although the amount of taxes, and the +increased price of labour, may not, and I believe does not, place it +under any other disadvantage with respect to foreign countries, except +the unavoidable one of paying those taxes, yet it becomes the interest +of every contributor to withdraw his shoulder from the burthen, and to +shift this payment from himself to another; and the temptation to remove +himself and his capital to another country, where he will be exempted +from such burthens, becomes at last irresistible, and overcomes the +natural reluctance which every man feels to quit the place of his birth, +and the scene of his early associations. A country which has involved +itself in the difficulties attending this artificial system, would act +wisely by ransoming itself from them, at the sacrifice of any portion of +its property which might be necessary to redeem its debt. That which is +wise in an individual, is wise also in a nation. A man who has +10,000_l._, paying him an income of 500_l._, out of which he has to pay +100_l._ per annum towards the interest of the debt, is really worth only +8000_l._, and would be equally rich, whether he continued to pay 100_l._ +per annum, or at once, and for only once, sacrificed 2000_l._ But where, +it is asked, would be the purchaser of the property which he must sell +to obtain this 2000_l._? The answer is plain: the national creditor, who +is to receive this 2000_l._, will want an investment for his money, and +will be disposed either to lend it to the landholder, or manufacturer, +or to purchase from them a part of the property of which they have to +dispose. To such an effect the stockholders themselves would largely +contribute. Such a scheme has been often recommended, but we have, I +fear, neither wisdom enough, nor virtue enough, to adopt it. It must +however be admitted, that during peace, our unceasing efforts should be +directed towards paying off that part of the debt which has been +contracted during war; and that no temptation of relief, no desire of +escape from present, and I hope temporary distresses, should induce us +to relax in our attention to that great object. No sinking fund can be +efficient for the purpose of diminishing the debt, if it be not derived +from the excess of the public revenue over the public expenditure. It is +to be regretted, that the sinking fund in this country is only such in +name; for there is no excess of revenue above expenditure. It ought by +economy, to be made what it is professed to be, a really efficient fund +for the payment of the debt. If on the breaking out of any future war, +we shall not have very considerably reduced our debt, one of two things +must happen, either the whole expenses of that war must be defrayed by +taxes raised from year to year, or we must, at the end of that war, if +not before, submit to a national bankruptcy; not that we shall be unable +to bear any large additions to the debt; it would be difficult to set +limits to the powers of a great nation; but assuredly there are limits +to the price, which in the form of perpetual taxation, individuals will +submit to pay for the privilege merely of living in their native +country. + +When a commodity is at a monopoly price, it is at the very highest price +at which the consumers are willing to purchase it. Commodities are only +at a monopoly price, when by no possible device their quantity can be +augmented; and when therefore, the competition is wholly on one +side--amongst the buyers. The monopoly price of one period may be much +lower or higher than the monopoly price of another, because the +competition amongst the purchasers must depend on their wealth, and +their tastes and caprices. Those peculiar wines, which are produced in +very limited quantity, and those works of art, which from their +excellence or rarity, have acquired a fanciful value, will be exchanged +for a very different quantity of the produce of ordinary labour, +according as the society is rich or poor, as it possesses an abundance +or scarcity of such produce, or as it may be in a rude or polished +state. The exchangeable value therefore of a commodity which is at a +monopoly price, is no where regulated by the cost of production. + +Raw produce is not at a monopoly price, because the market price of +barley and wheat is as much regulated by their cost of production, as +the market price of cloth and linen. The only difference is this, that +one portion of the capital employed in agriculture regulates the price +of corn, namely, that portion which pays no rent; whereas, in the +production of manufactured commodities, every portion of capital is +employed with the same results; and as no portion pays rent, every +portion is equally a regulator of price: corn, and other raw produce, +can be augmented too in quantity, by the employment of more capital on +the land, and therefore they are not at a monopoly price. There is +competition among the sellers, as well as amongst the buyers. This is +not the case in the production of those rare wines, and those valuable +specimens of art, of which we have been speaking; their quantity cannot +be increased, and their price is limited only by the extent of the power +and will of the purchasers. The rent of these vineyards may be raised +beyond any moderately assignable limits, because no other land being +able to produce such wines, none can be brought into competition with +them. + +The corn and raw produce of a country, may indeed for a time sell at a +monopoly price; but they can do so permanently only when no more +capital can be profitably employed on the lands, and when, therefore, +their produce cannot be increased. At such time, every portion of land +in cultivation, and every portion of capital employed on the land will +yield a rent, differing indeed in proportion to the difference in the +return. At such a time too, any tax which may be imposed on the farmer, +will fall on rent, and not on the consumer. He cannot raise the price of +his corn, because, by the supposition, it is already at the highest +price at which the purchasers will or can buy it. He will not be +satisfied with a lower rate of profits, than that obtained by other +capitalists, and, therefore, his only alternative will be to obtain a +reduction of rent, or to quit his employment. + +Mr. Buchanan considers corn and raw produce as at a monopoly price, +because they yield a rent: all commodities which yield a rent, he +supposes must be at a monopoly price; and thence he infers, that all +taxes on raw produce would fall on the landlord, and not on the +consumer. "The price of corn," he says, "which always affords a rent, +being in no respect influenced by the expenses of its production, those +expenses must be paid out of the rent; and when they rise or fall, +therefore, the consequence is not a higher or a lower price, but a +higher or a lower rent. In this view, all taxes on farm servants, +horses, or the implements of agriculture, are in reality land-taxes; the +burden falling on the farmer during the currency of his lease, and on +the landlord, when the lease comes to be renewed. In like manner all +those improved implements of husbandry which save expense to the farmer, +such as machines for threshing and reaping, whatever gives him easier +access to the market, such as good roads, canals, and bridges, though +they lessen the original cost of corn, do not lessen its market price. +Whatever is saved by those improvements, therefore, belongs to the +landlord as part of his rent." + +It is evident that if we yield to Mr. Buchanan the basis on which his +argument is built, namely, that the price of corn always yields a rent, +all the consequences which he contends for would follow of course. Taxes +on the farmer would then fall not on the consumer but on rent; and all +improvements in husbandry would increase rent: but I hope I have made it +sufficiently clear, that until a country is cultivated in every part, +and up to the highest degree, there is always a portion of capital +employed on the land which yields no rent, and that it is this portion +of capital, the result of which, as in manufactures, is divided between +profits and wages, that regulates the price of corn. The price of corn +then, which does not afford a rent, being influenced by the expenses of +its production, those expenses cannot be paid out of rent. The +consequence therefore of those expenses increasing, is a higher price, +and not a lower rent.[21] + +It is remarkable that both Adam Smith and Mr. Buchanan, who entirely +agree that taxes on raw produce, a land-tax, and tithes, all fall on +the rent of land, and not on the consumers of raw produce, should +nevertheless admit that taxes on malt would fall on the consumer of +beer, and not on the rent of the landlord. Adam Smith's argument is so +able a statement of the view which I take of the subject of the tax on +malt, and every other tax on raw produce, that I cannot refrain from +offering it to the attention of the reader. + +"The rent and profits of barley land must always be nearly equal to +those of other equally fertile, and equally well cultivated land. If +they were less, some part of the barley land would soon be turned to +some other purpose; and if they were greater, more land would soon be +turned to the raising of barley. When the ordinary price of any +particular produce of land is at what may be called a monopoly price, a +tax upon it necessarily reduces the rent and profit[22] of the land +which grows it. A tax upon the produce of those precious vineyards, of +which the wine falls so much short of the effectual demand, that its +price is always above the natural proportion to that of other equally +fertile, and equally well cultivated land, would necessarily reduce the +rent and profit[22] of those vineyards. The price of the wines being +already the highest that could be got for the quantity commonly sent to +market, it could not be raised higher without diminishing that quantity; +and the quantity could not be diminished without still greater loss, +because the lands could not be turned to any other equally valuable +produce. The whole weight of the tax, therefore, would fall upon the +rent and profit;[23] properly upon the _rent_ of the vineyard." "But the +ordinary price of barley has never been a monopoly price; and the rent +and profit of barley land have never been above their natural proportion +to those of other equally fertile and equally well cultivated land. The +different taxes which have been imposed upon malt, beer, and ale, _have +never lowered the price of barley_; have never reduced the rent and +profit[24] of barley land. The price of malt to the brewer has +constantly risen in proportion to the taxes imposed upon it; and those +taxes, together with the different duties upon beer and ale, have +constantly either raised the price, or, what comes to the same thing, +reduced the quality of those commodities to the consumer. The final +payment of those taxes has fallen constantly upon the consumer, and not +upon the producer." On this passage Mr. Buchanan remarks, "A duty on +malt never could reduce the price of barley, because, unless as much +could be made of barley by malting it as by selling it unmalted, the +quantity required would not be brought to market. It is clear, +therefore, that the price of malt must rise in proportion to the tax +imposed on it, as the demand could not otherwise be supplied. The price +of barley, however, is just as much a monopoly price as that of sugar; +they both yield a rent, and the market price of both has equally lost +all connexion with the original cost." + +It appears then to be the opinion of Mr. Buchanan, that a tax on malt +would raise the price of malt, but that a tax on the barley from which +malt is made, would not raise the price of barley; and therefore, if +malt is taxed, the tax will be paid by the consumer; if barley is taxed, +it will be paid by the landlord, as he will receive a diminished rent. +According to Mr. Buchanan then, barley is at a monopoly price, at the +highest price which the purchasers are willing to give for it; but malt +made of barley is not at a monopoly price, and consequently it can be +raised in proportion to the taxes that may be imposed upon it. This +opinion of Mr. Buchanan of the effects of a tax on malt appears to me to +be in direct contradiction to the opinion he has given of a similar tax, +a tax on bread. "A tax on bread will be ultimately paid, not by a rise +of price, but by a reduction of rent."[25] If a tax on malt would raise +the price of beer, a tax on bread must raise the price of bread. + +The following argument of M. Say is founded on the same views as Mr. +Buchanan's: "The quantity of wine or corn which a piece of land will +produce, will remain nearly the same, whatever may be the tax with which +it is charged. The tax may take away a half, or even three-fourths of +its net produce, or of its rent if you please, yet the land would +nevertheless be cultivated for the half or the quarter not absorbed by +the tax. The rent, that is to say the landlord's share, would merely be +somewhat lower. The reason of this will be perceived, if we consider, +that in the case supposed, the quantity of produce obtained from the +land, and sent to market, will remain nevertheless the same. On the +other hand the motives on which the demand for the produce is founded +continue also the same. + +"Now, if the quantity of produce supplied, and the quantity demanded, +necessarily continue the same, notwithstanding the establishment or the +increase of the tax, the price of that produce will not vary; and if the +price do not vary, the consumer will not pay the smallest portion of +this tax. + +"Will it be said that the farmer, he who furnishes labour and capital, +will, jointly with the landlord, bear the burden of this tax? certainly +not; because the circumstance or the tax has not diminished the number +of farms to be let, nor increased the number of farmers. Since in this +instance also the supply and demand remain the same, the rent of farms +must also remain the same. The example of the manufacturer of salt, who +can only make the consumers pay a portion of the tax, and that of the +landlord who cannot reimburse himself in the smallest degree, prove the +error of those who maintain, in opposition to the economists, that all +taxes fall ultimately on the consumer."--Vol. ii. p. 338. + +If the tax "took away half, or even three-fourths of the net produce of +the land," and the price of produce did not rise, how could those +farmers obtain the usual profits of stock who paid very moderate rents, +having that quality of land which required a much larger proportion of +labour to obtain a given result, than land of a more fertile quality? If +the whole rent were remitted, they would still obtain lower profits +than those in other trades, and would therefore not continue to +cultivate their land, unless they could raise the price of its produce. +If the tax fell on the farmers, there would be fewer farmers disposed to +hire farms; if it fell on the landlord, many farms would not be let at +all, for they would afford no rent. But from what fund would those pay +the tax who produce corn without paying any rent? It is quite clear that +the tax must fall on the consumer. How would such land, as M. Say +describes in the following passage, pay a tax of one-half or +three-fourths of its produce? + +"We see in Scotland poor lands thus cultivated by the proprietor, and +which could be cultivated by no other person. Thus too we see in the +interior provinces of the United States vast and fertile lands, the +revenue of which alone would not be sufficient for the maintenance of +the proprietor. These lands are cultivated nevertheless, but it must be +by the proprietor himself, or, in other words, he must add to the rent, +which is little or nothing, the profits of his capital and industry, to +enable him to live in competence. It is well known that land, though +cultivated, yields no revenue to the landlord when no farmer will be +willing to pay a rent for it: which is a proof that such land will give +only the profits of the capital and of the industry necessary for its +cultivation."--_Say_, Vol. ii. p. 127. + + + + +CHAPTER XVI. + +POOR RATES. + + +We have seen that taxes on raw produce, and on the profits of the +farmer, will fall on the consumer of raw produce; since unless he had +the power of remunerating himself by an increase of price, the tax would +reduce his profits below the general level of profits, and would urge +him to remove his capital to some other trade. We have seen too that he +could not, by deducting it from his rent, transfer the tax to his +landlord; because that farmer who paid no rent, would, equally with the +cultivator of better land, be subject to the tax, whether it were laid +on raw produce, or on the profits of the farmer. I have also attempted +to shew, that if a tax were general, and affected equally all profits, +whether manufacturing or agricultural, it would not operate either on +the price of goods or raw produce, but would be immediately, as well as +ultimately, paid by the producers. A tax on rent, it has been observed, +would fall on the landlord only, and could not by any means be made to +devolve on the tenant. + +The poor rate is a tax which partakes of the nature of all these taxes, +and under different circumstances falls on the consumer of raw produce +and goods, on the profits of stock, and on the rent of land. It is a tax +which falls with peculiar weight on the profits of the farmer, and +therefore may be considered as affecting the price of raw produce. +According to the degree in which it bears on manufacturing and +agricultural profits equally, it will be a general tax on the profits of +stock, and will occasion no alteration in the price of raw produce and +manufactures. In proportion to the farmer's inability to remunerate +himself, by raising the price of raw produce, for that portion of the +tax which peculiarly affects him, it will be a tax on rent, and will be +paid by the landlord. To know then the operation of the poor rate at any +particular time, we must ascertain whether at that time it affects in +an equal or unequal degree the profits of the farmer and manufacturer; +and also whether the circumstances be such as to afford to the farmer +the power of raising the price of raw produce. + +The poor rates are professed to be levied on the farmer in proportion to +his rent; and accordingly, the farmer who paid a very small rent, or no +rent at all, should pay little or no tax. If this were true, poor rates, +as far as they are paid by the agricultural class, would entirely fall +on the landlord, and could not be shifted to the consumer of raw +produce. But I believe that is not true; the poor rate is not levied +according to the rent which a farmer actually pays to his landlord; it +is proportioned to the annual value of his land, whether that annual +value be given to it by the capital of the landlord or of the tenant. + +If two farmers rented land of two different qualities in the same +parish, the one paying a rent of 100_l._ per annum for 50 acres of the +most fertile land, and the other the same sum of 100_l._ for 1000 acres +of the least fertile land, they would pay the same amount of poor +rates, if neither of them attempted to improve the land; but if the +farmer of the poor land, presuming on a very long lease, should be +induced at a great expense to improve the productive powers of his land, +by manuring, draining, fencing, &c., he would contribute to the poor +rates, not in proportion to the actual rent paid to the landlord, but to +the actual annual value of the land. The rate might equal or exceed the +rent; but whether it did or not, no part of this rate would be paid by +the landlord. It would have been previously calculated upon by the +tenant; and if the price of produce were not sufficient to compensate +him for all his expenses, together with this additional charge for poor +rates, his improvements would not have been undertaken. It is evident +then that the tax in this case is paid by the consumer; for if there had +been no rate, the same improvements would have been undertaken, and the +usual and general rate of profits would have been obtained on the stock +employed, with a lower price of corn. + +Nor would it make the slightest difference in this question, if the +landlord had made these improvements himself, and had in consequence +raised his rent from 100_l._ to 500_l._; the rate would be equally +charged to the consumer; for whether he should expend a large sum of +money on his land, would depend on the rent, or what is called rent, +which he would receive as a remuneration for it; and this again would +depend on the price of corn, or other raw produce, being sufficiently +high not only to cover this additional rent, but also the rate to which +the land would be subject. But if at the same time all manufacturing +capital contributed to the poor rates, in the same proportion as the +capital expended by the farmer or landlord in improving the land, then +it would no longer be a partial tax on the profits of the farmer's or +landlord's capital, but a tax on the capital of all producers; and +therefore it could no longer be shifted either on the consumer of raw +produce or on the landlord. The farmer's profits would feel the effect +of the rate no more than those of the manufacturer; and the former could +not, any more than the latter, plead it as a reason for an advance in +the price of his commodity. It is not the absolute, but the relative +fall of profits, which prevents capital from being employed in any +particular trade: it is the difference of profit which sends capital +from one employment to another. + +It must be acknowledged however, that in the actual state of the poor +rates, a much larger amount falls on the farmer than on the +manufacturer, in proportion to their respective profits; the farmer +being rated according to the actual productions which he obtains, the +manufacturer only according to the value of the buildings in which he +works, without any regard to the value of the machinery, labour, or +stock, which he may employ. From this circumstance it follows, that the +farmer will be enabled to raise the price of his produce by this whole +difference. For since the tax falls unequally, and peculiarly on his +profits, he would have less motive to devote his capital to the land, +than to employ it in some other trade, unless the price of raw produce +were raised. If on the contrary, the rate had fallen with greater weight +on the manufacturer than on the farmer, he would have been enabled to +raise the price of his goods by the amount of the difference, for the +same reason that the farmer, under similar circumstances, could raise +the price of raw produce. In a society therefore, which is extending its +agriculture, when poor rates fall with peculiar weight on the land, they +will be paid partly by the employers of capital in a diminution of the +profits of stock, and partly by the consumer of raw produce in its +increased price. In such a state of things, the tax may, under some +circumstances, be even advantageous rather than injurious to landlords; +for if the tax paid by the cultivator of the worst land, be higher in +proportion to the quantity of produce obtained, than that paid by the +farmers of the more fertile lands, the rise in the price of corn, which +will extend to all corn, will more than compensate the latter for the +tax. This advantage will remain with them during the continuance of +their leases, but it will afterwards be transferred to their landlords. +This then would be the effect of poor rates in an advancing society; but +in a stationary, or in a retrograde country, so far as capital could not +be withdrawn from the land, if a further rate were levied for the +support of the poor, that part of it which fell on agriculture would be +paid, during the current leases, by the farmers, but at the expiration +of those leases it would almost wholly fall on the landlords. The +farmer, who during his former lease, had expended his capital in +improving his land, if it were still in his own hands, would be rated +for this new tax according to the new value which the land had acquired +by its improvement, and this amount he would be obliged to pay during +his lease, although his profits might thereby be reduced below the +general rate of profits; for the capital which he has expended may be so +incorporated with the land, that it cannot be removed from it. If indeed +he, or his landlord, (should it have been expended by him) were able to +remove this capital, and thereby reduce the annual value of the land, +the rate would proportionably fall, and as the produce would at the same +time be diminished, its price would rise; he would be compensated for +the tax, by charging it to the consumer, and no part would fall on rent; +but this is impossible, at least with respect to some proportion of the +capital, and consequently in that proportion the tax will be paid by the +farmers during their leases, and by landlords at their expiration. This +additional tax, as far as it fell unequally on manufacturers, would +under such circumstances be added to the price of their goods; for there +can be no reason why their profits should be reduced below the general +rate of profits, when their capitals might be easily removed to +agriculture.[26] + + + + +CHAPTER XVII. + +ON SUDDEN CHANGES IN THE CHANNELS OF TRADE. + + +A great manufacturing country is peculiarly exposed to temporary +reverses and contingencies, produced by the removal of capital from one +employment to another. The demands for the produce of agriculture are +uniform, they are not under the influence of fashion, prejudice, or +caprice. To sustain life, food is necessary, and the demand for food +must continue in all ages, and in all countries. It is different with +manufactures; the demand for any particular manufactured commodity, is +subject not only to the wants, but to the tastes and caprice of the +purchasers. A new tax too may destroy the comparative advantage which a +country before possessed in the manufacture of a particular commodity; +or the effects of war may so raise the freight and insurance on its +conveyance, that it can no longer enter into competition with the home +manufacture of the country to which it was before exported. In all such +cases, considerable distress, and no doubt some loss, will be +experienced by those who are engaged in the manufacture of such +commodities; and it will be felt not only at the time of the change, but +through the whole interval during which they are removing their +capitals, and the labour which they can command, from one employment to +another. + +Nor will distress be experienced in that country alone where such +difficulties originate, but in the countries to which its commodities +were before exported. No country can long import unless it also exports, +or can long export unless it also imports. If then any circumstance +should occur, which should permanently prevent a country from importing +the usual amount of foreign commodities, it will necessarily diminish +the manufacture of some of those commodities which were usually +exported; and although the total value of the productions of the country +will probably be but little altered, since the same capital will be +employed, yet they will not be equally abundant and cheap; and +considerable distress will be experienced through the change of +employments. If by the employment of 10,000_l._ in the manufacture of +cotton goods for exportation, we imported annually 3000 pair of silk +stockings of the value of 2000_l._, and by the interruption of foreign +trade we should be obliged to withdraw this capital from the manufacture +of cotton, and employ it ourselves in the manufacture of stockings, we +should still obtain stockings of the value of 2000_l._ provided no part +of the capital were destroyed; but instead of having 3000 pair, we might +only have 2,500. In the removal of the capital from the cotton to the +stocking trade, much distress might be experienced, but it would not +considerably impair the value of the national property, although it +might lessen the quantity of our annual productions. + +The commencement of war after a long peace, or of peace after a long +war, generally produces considerable distress in trade. It changes in a +great degree the nature of the employments to which the respective +capitals of countries were before devoted; and during the interval while +they are settling in the situations which new circumstances have made +the most beneficial, much fixed capital is unemployed, perhaps wholly +lost, and labourers are without full employment. The duration of this +distress will be longer or shorter according to the strength of that +disinclination, which most men feel to abandon that employment of their +capital to which they have long been accustomed. It is often protracted +too by the restrictions and prohibitions, to which the absurd jealousies +which prevail between the different states of the commercial +commonwealth give rise. + +The distress which proceeds from a revulsion of trade, is often mistaken +for that which accompanies a diminution of the national capital, and a +retrograde state of society; and it would perhaps be difficult to point +out any marks by which they may be accurately distinguished. + +When, however, such distress immediately accompanies a change from war +to peace, our knowledge of the existence of such a cause will make it +reasonable to believe, that the funds for the maintenance of labour have +rather been diverted from their usual channel than materially impaired, +and that after temporary suffering, the nation will again advance in +prosperity. It must be remembered too that the retrograde condition is +always an unnatural state of society. Man from youth grows to manhood, +then decays, and dies; but this is not the progress of nations. When +arrived to a state of the greatest vigour, their further advance may +indeed be arrested, but their natural tendency is to continue for ages, +to sustain undiminished their wealth, and their population. + +In rich and powerful countries where large capitals are invested in +machinery, more distress will be experienced from a revulsion in trade, +than in poorer countries where there is proportionally a much smaller +amount of fixed, and a much larger amount of circulating capital, and +where consequently more work is done by the labour of men. It is not so +difficult to withdraw a circulating as a fixed capital, from any +employment in which it may be engaged. It is often impossible to divert +the machinery which may have been erected for one manufacture, to the +purposes of another; but the clothing, the food, and the lodging of the +labourer in one employment may be devoted to the support of the labourer +in another, or the same labourer may receive the same food, clothing, +and lodging, whilst his employment is changed. This, however, is an evil +to which a rich nation must submit; and it would not be more reasonable +to complain of it, than it would be in a rich merchant to lament that +his ship was exposed to the dangers of the sea, whilst his poor +neighbour's cottage was safe from all such hazard. + +From contingencies of this kind, though in an inferior degree, even +agriculture is not exempted. War, which in a commercial country, +interrupts the commerce of states, frequently prevents the exportation +of corn from countries where it can be produced with little cost, to +others not so favourably situated. Under such circumstances an unusual +quantity of capital is drawn to agriculture, and the country which +before imported becomes independent of foreign aid. At the termination +of the war, the obstacles to importation are removed, and a competition +destructive to the home-grower commences, from which he is unable to +withdraw, without the sacrifice of a great part of his capital. The best +policy of the state would be, to lay a tax, decreasing in amount from +time to time, on the importation of foreign corn, for a limited number +of years, in order to afford to the home-grower an opportunity to +withdraw his capital gradually from the land. In so doing the country +might not be making the most advantageous distribution of its capital, +but the temporary tax to which it was subjected, would be for the +advantage of a particular class, the distribution of whose capital was +highly useful in procuring a supply of food when importation was +stopped. If such exertions in a period of emergency were followed by +risk of ruin on the termination of the difficulty, capital would shun +such an employment. Besides the usual profits of stock, farmers would +expect to be compensated for the risk which they incurred of a sudden +influx of corn, and therefore the price to the consumer, at the seasons +when he most required a supply, would be enhanced, not only by the +superior cost of growing corn at home, but also by the insurance which +he would have to pay, in the price, for the peculiar risk to which +this employment of capital was exposed. Notwithstanding then, that it +would be more productive of wealth to the country, at whatever sacrifice +of capital it might be done, to allow the importation of cheap corn, it +would perhaps be advisable to charge it with a duty for a few years. + +In examining the question of rent, we found, that with every increase in +the supply of corn, and with the consequent fall of its price, capital +would be withdrawn from the poorer land; and land of a better +description, which would then pay no rent, would become the standard by +which the natural price of corn would be regulated. At 4_l._ per +quarter, land of an inferior quality, which may be designated by No. 6, +might be cultivated; at 3_l._ 10_s._ No. 5; at 3_l._ No. 4, and so on. +If corn, in consequence of permanent abundance, fell to 3_l._ 10_s._ the +capital employed on No. 6 would cease to be employed; for it was only +when corn was at 4_l._ that it could obtain the general profits, even +without paying rent: it would therefore be withdrawn to manufacture +those commodities with which all the corn grown on No. 6 would be +purchased and imported. In this employment it would necessarily be more +productive to its owner, or it would not be withdrawn from the other; +for if he could obtain more corn by growing it on land for which he paid +no rent, than by manufacturing a commodity with which he purchased it, +its price could not be under 4_l._ + +It has, however, been said that capital cannot be withdrawn from the +land; that it takes the form of expenses, which cannot be recovered, +such as manuring, fencing, draining, &c., which are necessarily +inseparable from the land. This is in some degree true; but that capital +which consists of cattle, sheep, hay and corn ricks, carts, &c. may be +withdrawn; and it always becomes a matter of calculation whether these +shall continue to be employed on the land, notwithstanding the low price +of corn, or whether they shall be sold, and their value transferred to +another employment. + +Suppose, however, the fact to be as stated, and that no part of the +capital could be withdrawn; the farmer would continue to raise corn, and +precisely the same quantity too, at whatever price it might sell; for it +could not be his interest to produce less, and if he did not so employ +his capital, he would obtain from it no return whatever. Corn could not +be imported, because he would sell it lower than 3_l._ 10_s._ rather +than not sell it at all, and by the supposition the importer could not +sell it under that price. Although then the farmers, who cultivated land +of this quality, would undoubtedly be injured by the fall in the +exchangeable value of the commodity which they produced,--how would the +country be affected? We should have precisely the same quantity of every +commodity produced, but raw produce and corn would sell at a much +cheaper price. The capital of a country consists of its commodities, and +as these would be the same as before, reproduction would go on at the +same rate. This low price of corn would however only afford the usual +profits of stock to the land, No. 5, which would then pay no rent, and +the rent of all better land would fall: wages would also fall, and +profits would rise. + +However low the price of corn might fall; if capital could not be +removed from the land, and the demand did not increase, no importation +would take place; for the same quantity as before would be produced at +home. Although there would be a different division of the produce, and +some classes would be benefited, and others injured, the aggregate of +production would be precisely the same, and the nation collectively +would neither be richer nor poorer. + +But there is this advantage always resulting from a relatively low price +of corn,--that the division of the actual production is more likely to +increase the fund for the maintenance of labour, inasmuch as more will +be allotted, under the name of profit, to the productive class, a less, +under the name of rent, to the unproductive class. + +This is true, even if the capital cannot be withdrawn from the land, +and must be employed there, or not be employed at all: but if great part +of the capital could be withdrawn, as it evidently could, it will be +only withdrawn, when it will yield more to the owner by being withdrawn +than by being suffered to remain where it was; it will only be withdrawn +then, when it can elsewhere be employed more productively both for the +owner and the public. He consents to sink that part of his capital which +cannot be separated from the land, because with that part which he can +take away, he can obtain a greater value, and a greater quantity of raw +produce, than by not sinking this part of the capital. His case is +precisely similar to that of a man who has erected machinery in his +manufactory at a great expense, machinery which is afterwards so much +improved upon by more modern inventions, that the commodities +manufactured by him very much sink in value. It would be entirely a +matter of calculation with him whether he should abandon the old +machinery, and erect the more perfect, _losing all the value of the +old_, or continue to avail himself of its comparatively feeble powers. +Who, under such circumstances, would exhort him to forego the use of +the better machinery, because it would deteriorate or annihilate the +value of the old? Yet this is the argument of those who would wish us to +prohibit the importation of corn, because it will deteriorate or +annihilate that part of the capital of the farmer which is for ever sunk +in land. They do not see that the end of all commerce is to increase +production, and that by increasing production, though you may occasion +partial loss, you increase the general happiness. To be consistent, they +should endeavour to arrest all improvements in agriculture and +manufactures, and all inventions of machinery; for though these +contribute to general abundance, and therefore to the general happiness, +they never fail, at the moment of their introduction, to deteriorate or +annihilate a part of the existing capital of farmers and manufacturers. + +Agriculture like all other trades, and particularly in a commercial +country, is subject to a re-action, which, in an opposite direction, +succeeds the action of a strong stimulus. Thus, when war interrupts the +importation of corn, its consequent high price attracts capital to the +land, from the large profits which such an employment of it affords; +this will probably cause more capital to be employed, and more raw +produce to be brought to market than the demands of the country require. +In such case, the price of corn will fall from the effects of a glut, +and much agricultural distress will be produced, till the average supply +is brought to a level with the average demand. + + + + +CHAPTER XVIII. + +VALUE AND RICHES, THEIR DISTINCTIVE PROPERTIES. + + +"A man is rich or poor," says Adam Smith, "according to the degree in +which he can afford to enjoy the necessaries, conveniences, and +amusements of human life." + +Value then essentially differs from riches, for value depends not on +abundance, but on the difficulty or facility of production. The labour +of a million of men in manufactures, will always produce the same value, +but will not always produce the same riches. By the invention of +machinery, by improvements in skill, by a better division of labour, or +by the discovery of new markets, where more advantageous exchanges may +be made, a million of men may produce double, or treble the amount of +riches, of "necessaries, conveniences, and amusements," in one state of +society, that they could produce in another, but they will not on that +account add any thing to value; for every thing rises or falls in value, +in proportion to the facility or difficulty of producing it, or in other +words, in proportion to the quantity of labour employed on its +production. Suppose with a given capital, the labour of a certain number +of men produced 1000 pair of stockings, and that by inventions in +machinery, the same number of men can produce 2000 pair, or that they +can continue to produce 1000 pair, and can produce besides 500 hats; +then the value of the 2000 pair of stockings; or of the 1000 pair of +stockings, and 500 hats, will be neither more nor less than that of the +1000 pair of stockings before the introduction of machinery; for they +will be the produce of the same quantity of labour. But the value of the +general mass of commodities will nevertheless be diminished; for +although the value of the increased quantity produced in consequence of +the improvement will be the same exactly as the value would have been of +the less quantity that would have been produced, had no improvement +taken place, an effect is also produced on the portion of goods still +unconsumed, which were manufactured previously to the improvement; the +value of those goods will be reduced, inasmuch as they must fall to the +level, quantity for quantity, of the goods produced under all the +advantages of the improvement: and the society will, notwithstanding the +increased quantity of its commodities, notwithstanding its augmented +riches, and its augmented means of enjoyment, have a less amount of +value. By constantly increasing the facility of production, we +constantly diminish the value of some of the commodities before +produced, though by the same means we not only add to the national +riches, but also to the power of future production. Many of the errors +in political economy have arisen from errors on this subject, from +considering an increase of riches, and an increase of value, as meaning +the same thing, and from unfounded notions as to what constituted a +standard measure of value. One man considers money as a standard of +value, and a nation grows richer or poorer, according to him, in +proportion as its commodities of all kinds can exchange for more or +less money. Others represent money as a very convenient medium for the +purpose of barter, but not as a proper measure by which to estimate the +value of other things: the real measure of value according to them is +corn,[27] and a country is rich or poor, according as its commodities +will exchange for more or less corn. There are others again, who +consider a country rich or poor, according to the quantity of labour +that it can purchase.[28] But why should gold, or corn, or labour, be +the standard measure of value, more than coals or iron?--more than +cloth, soap, candles, and the other necessaries of the labourer?--why, +in short, should any commodity, or all commodities together, be the +standard, when such a standard is itself subject to fluctuations in +value? Corn, as well as gold, may from difficulty or facility of +production, vary 10, 20, or 30 per cent., relatively to other things; +why should we always say, that it is those other things which have +varied, and not the corn? That commodity is alone invariable, which at +all times requires the same sacrifice of toil and labour to produce it. +Of such a commodity we have no knowledge, but we may hypothetically +argue and speak about it, as if we had; and may improve our knowledge of +the science, by shewing distinctly the absolute inapplicability of all +the standards which have been hitherto adopted. But supposing either of +these to be a correct standard of value, still it would not be a +standard of riches, for riches do not depend on value. A man is rich or +poor, according to the abundance of necessaries and luxuries, which he +can command; and whether the exchangeable value of these for money, for +corn, or for labour, be high or low, they will equally contribute to the +enjoyment of their possessor. It is through confounding the ideas of +value and wealth, or riches, that it has been asserted, that by +diminishing the quantity of commodities, that is to say, of the +necessaries, conveniences, and enjoyments of human life, riches may be +increased. If value were the measure of riches this could not be denied, +because by scarcity the value of commodities is raised; but if Adam +Smith be correct, if riches consist in necessaries and enjoyments, then +they cannot be increased by a diminution of quantity. + +It is true, that the man in possession of a scarce commodity is richer, +if by means of it he can command more of the necessaries and enjoyments +of human life; but as the general stock out of which each man's riches +are drawn, is diminished in quantity, by all that any individual takes +from it, other men's shares must necessarily be reduced in proportion as +this favoured individual is able to appropriate a greater quantity to +himself. + +Let water become scarce, says Lord Lauderdale, and be exclusively +possessed by an individual, and you will increase his riches, because +water will then have value; and if wealth be the aggregate of individual +riches, you will by the same means also increase wealth. You +undoubtedly will increase the riches of this individual, but inasmuch as +the farmer must sell a part of his corn, the shoemaker a part of his +shoes, and all men give up a portion of their possessions for the sole +purpose of supplying themselves with water, which they before had for +nothing, they are poorer by the whole quantity of commodities which they +are obliged to devote to this purpose, and the proprietor of water is +benefited precisely by the amount of their loss. The same quantity of +water, and the same quantity of commodities, are enjoyed by the whole +society, but they are differently distributed. This is however supposing +rather a monopoly of water than a scarcity of it. If it should be +scarce, then the riches of the country and of individuals would be +actually diminished, inasmuch as it would be deprived of a portion of +one of its enjoyments. The farmer would not only have less corn to +exchange for the other commodities which might be necessary or desirable +to him, but he and every other individual would be abridged in the +enjoyment of one of the most essential of their comforts. Not only +would there be a different distribution of riches, but an actual loss of +wealth. + +It may be said then of two countries possessing precisely the same +quantity of all the necessaries and comforts of life, that they are +equally rich, but the value of their respective riches would depend on +the comparative facility or difficulty with which they were produced. +For if an improved piece of machinery should enable us to make two pair +of stockings, instead of one, without additional labour, double the +quantity would be given in exchange for a yard of cloth. If a similar +improvement be made in the manufacture of cloth, stockings and cloth +will exchange in the same proportions as before, but they will both have +fallen in value; for in exchanging them for hats, for gold, or other +commodities in general, twice the former quantity must be given. Extend +the improvement to the production of gold, and every other commodity; +and they will all regain their former proportions. There will be double +the quantity of commodities annually produced in the country, and +therefore the wealth of the country will be doubled, but this wealth +will not have increased in value. + +Although Adam Smith has given the correct description of riches, which I +have more than once noticed, he afterwards explains them differently, +and says, "that a man must be rich or poor according to the quantity of +labour which he can afford to purchase." Now this description differs +essentially from the other, and is certainly incorrect; for suppose the +mines were to become more productive, so that gold and silver fell in +value, from the greater facility of their production; or that velvets +were to be manufactured with so much less labour than before, that they +fell to half their former value; the riches of all those who purchased +those commodities would be increased: one man might increase the +quantity of his plate, another might buy double the quantity of velvet; +but with the possession of this additional plate, and velvet, they could +employ no more labour than before; because as the exchangeable value of +velvet and of plate would be lowered, they must part with +proportionally more of these species of riches to purchase a day's +labour. Riches then cannot be estimated by the quantity of labour which +they can purchase. + +From what has been said, it will be seen that the wealth of a country +may be increased in two ways: it may be increased by employing a greater +portion of revenue in the maintenance of productive labour,--which will +not only add to the quantity, but to the value of the mass of +commodities; or it may be increased, without employing any additional +quantity of labour, by making the same quantity more productive,--which +will add to the abundance, but not to the value of commodities. + +In the first case, a country would not only become rich, but the value +of its riches would increase. It would become rich by parsimony; by +diminishing its expenditure on objects of luxury and enjoyment; and +employing those savings in reproduction. + +In the second case, there will not necessarily be either any diminished +expenditure on luxuries and enjoyments, or any increased quantity of +productive labour employed, but with the same labour more would be +produced; wealth would increase, but not value. Of these two modes of +increasing wealth, the last must be preferred, since it produces the +same effect without the privation and diminution of enjoyments, which +can never fail to accompany the first mode. Capital is that part of the +wealth of a country which is employed with a view to future production, +and may be increased in the same manner as wealth. An additional capital +will be equally efficacious in the production of future wealth, whether +it be obtained from improvements in skill and machinery, or from using +more revenue reproductively; for wealth always depends on the quantity +of commodities produced, without any regard to the facility with which +the instruments employed in production may have been procured. A certain +quantity of clothes and provisions will maintain and employ the same +number of men, and will therefore procure the same quantity of work to +be done, whether they be produced by the labour of 100 or of 200 men; +but they will be of twice the value if 200 have been employed on their +production. + +M. Say appears to me to have been singularly unfortunate in his +definition of riches and value in the first chapter of his excellent +work: the following is the substance of his reasoning: riches, he +observes, consist only of things which have a value in themselves: +riches are great, when the sum of the values of which they are composed +is great. They are small when the sum of their values is small. Two +things having an equal value, are riches of equal amount. They are of +equal value, when by general consent they are freely exchanged for each +other. Now, if mankind attach value to a thing, it is on account of the +_uses_ to which it is applicable. This faculty, which certain things +have, of satisfying the various wants of mankind, I call utility. To +create objects that have a value of any kind is to create riches, since +the utility of things is the first foundation of their value, and it is +the value of things which constitutes riches. But we do not create +objects: all we can do is to reproduce matter under another form--we can +give it utility. Production then is a creation, not of matter but of +utility, and it is measured by the value arising from the utility of the +object produced. The utility of any object, according to general +estimation, is pointed out by the quantity of other commodities for +which it will exchange. This valuation, arising from the general +estimate formed by society, constitutes what Adam Smith calls value in +exchange; what Turgot calls appreciable value; and what we may more +briefly designate by the term _value_. + +Thus far M. Say, but in his account of value and riches he has +confounded two things which ought always to be kept separate, and which +are called by Adam Smith, value in use and value in exchange. If by an +improved machine I can, with the same quantity of labour, make two pair +of stockings instead of one, I in no way impair the _utility_ of one +pair of stockings, though I diminish their value. If then I had +precisely the same quantity of coats, shoes, stockings, and all other +things, as before, I should have precisely the same quantity of useful +objects, and should therefore be equally rich, if utility were the +measure of riches; but I should have a less amount of value, for my +stockings would be of only half their former value. Utility then is not +the measure of exchangeable value. + +If we ask M. Say in what riches consist, he tells us in the possession +of objects having value. If we then ask him what he means by value, he +tells us that things are valuable in proportion as they possess utility. +If again we ask him to explain to us by what means we are to judge of +the utility of objects, he answers, by their value. Thus then the +measure of value is utility, and the measure of utility is value. + +M. Say, in speaking of the excellences and imperfections of the great +work of Adam Smith, imputes to him, as an error, that "he attributes to +the labour of man alone the power of producing value. A more correct +analysis shews us that value is owing to the action of labour, or rather +the industry of man, combined with the action of those agents which +nature supplies, and with that of capital. His ignorance of this +principle prevented him from establishing the true theory of the +influence of machinery in the production of riches." + +In contradiction to the opinion of Adam Smith, M. Say, in the fourth +chapter, speaks of the value which is given to commodities by natural +agents, such as the sun, the air, the pressure of the atmosphere &c., +which are sometimes substituted for the labour of man, and sometimes +concur with him in producing.[29] + +But these natural agents, though they add greatly to _value in use_, +never add exchangeable value, of which M. Say is speaking, to a +commodity: as soon as by the aid of machinery, or by the knowledge of +natural philosophy, you oblige natural agents to do the work which was +before done by man, the exchangeable value of such work falls +accordingly. If ten men turned a corn mill, and it be discovered that by +the assistance of wind, or of water, the labour of these ten men may be +spared, the flour, which is the produce of the work performed by the +mill, would immediately fall in value, in proportion to the quantity of +labour saved; and the society would be richer by the commodities which +the labour of the ten men could produce, the funds destined for their +maintenance being in no degree impaired. + +M. Say accuses Dr. Smith of having overlooked the value which is given +to commodities by natural agents, and by machinery, because he +considered that the value of all things was derived from the labour of +man; but it does not appear to me, that this charge is made out; for +Adam Smith no where under-values the services which these natural +agents and machinery perform for us, but he very justly distinguishes +the nature of the value which they add to commodities--they are +serviceable to us, by increasing the abundance of productions, by making +men richer, by adding to value in use; but as they perform their work +gratuitously, as nothing is paid for the use of air, of heat, and of +water, the assistance which they afford us, adds nothing to value in +exchange. In the first chapter of the second book, M. Say himself gives +a similar statement of value, for he says that "utility is the +foundation of value, that commodities are only desirable, because they +are in some way useful, but that their value depends not on their +utility, not on the degree in which they are desired, but on the +quantity of labour necessary to procure them." "The utility of a +commodity thus understood, makes it an object of man's desire, makes him +wish for it, and establishes a demand for it. When to obtain a thing, it +is sufficient to desire it, it may be considered as an article of +natural wealth, given to man in an unlimited quantity, and which he +enjoys, without purchasing it by any sacrifice; such are the air, water, +the light of the sun. If he obtained in this manner all the objects of +his wants and desires, he would be infinitely rich: he would be in want +of nothing. But unfortunately this is not the case; the greater part of +the things which are convenient and agreeable to him, as well as those +which are indispensably necessary in the social state, for which man +seems to be specifically formed, are not given to him gratuitously; they +could only exist by the exertion of certain labour, the employment of a +certain capital, and, in many cases, by the use of land. These are +obstacles in the way of gratuitous enjoyment; obstacles from which +result a real expense of production; because we are obliged to pay for +the assistance of these agents of production." "It is only when this +utility has thus been communicated to a thing (viz. by industry, +capital, and land,) that it is a production, _and that it has a value_. +It is its utility which is the foundation of the demand for it, _but the +sacrifices, and the charges necessary to obtain it, or in other +words, its price_, limits the extent of this demand." + +The confusion which arises from confounding the terms "value" and +"riches" will best be seen in the following passages.[31] His pupil +observes: "You have said, besides, that the riches of a society were +composed of the sum total of the values which it possessed; it appears +to me to follow, that the fall of one production, of stockings for +example, by diminishing the sum total of the value belonging to the +society, diminishes the mass of its riches;" to which the following +answer is given: "the _sum_ of the society's riches will not fall on +that account. Two pair of stockings are produced instead of one; and two +pair at three francs, are equally valuable with one pair at six francs. +The income of the society remains the same, because the manufacturer has +gained as much on two pair at three francs, as he gained on one pair at +six francs." Thus far M. Say, though incorrect, is at least consistent. +If value be the measure of riches, the society is equally rich, because +the value of all its commodities is the same as before. But now for his +inference. "But when the income remains the same, and productions fall +in price, the society is really enriched. If the same fall took place in +all commodities at the same time, which is not absolutely impossible, +the society by procuring at half their former price, all the objects of +its consumption, without having lost any portion of its income, would +really be twice as rich as before, and could purchase twice the quantity +of goods." + +In the first passage we are told, that if every thing fell to half its +value, from abundance, the society would be equally rich, because there +would be double the quantity of commodities at half their former value, +or in other words, there would be the same value. But in the last +passage we are informed, that by doubling the quantity of commodities, +although the value of each commodity should be diminished one half, and +therefore the value of all the commodities together be precisely the +same as before, yet the society would be twice as rich as before. In the +first case riches are estimated by the amount of value: in the second, +they are estimated by the abundance of commodities contributing to human +enjoyments. M. Say further says, "that a man is infinitely rich without +valuables, if he can for nothing obtain all the objects he desires;" yet +in another place we are told, "that riches consist, not in the product +itself, for it is not riches if it have not value, but in its value." +Vol. ii. p. 2. + + + + +CHAPTER XIX. + +EFFECTS OF ACCUMULATION ON PROFITS AND INTEREST. + + +From the account which has been given of the profits of stock, it will +appear, that no accumulation of capital will permanently lower profits, +unless there be some permanent cause for the rise of wages. If the funds +for the maintenance of labour were doubled, trebled, or quadrupled, +there would not long be any difficulty in procuring the requisite number +of hands, to be employed by those funds; but owing to the increasing +difficulty of making constant additions to the food of the country, +funds of the same value would probably not maintain the same quantity of +labour. If the necessaries of the workman could be constantly increased +with the same facility, there could be no permanent alteration in the +rate of profits or wages, to whatever amount capital might be +accumulated. Adam Smith, however, uniformly ascribes the fall of profits +to accumulation of capital, and to the competition which will result +from it, without ever adverting to the increasing difficulty of +providing food for the additional number of labourers which the +additional capital will employ. "The increase of stock he says, which +raises wages, tends to lower profit. When the stocks of many rich +merchants are turned into the same trade, their mutual competition +naturally tends to lower its profit; and when there is a like increase +of stock in all the different trades carried on in the same society, the +same competition must produce the same effect in all." Adam Smith speaks +here of a rise of wages, but it is of a temporary rise, proceeding from +increased funds before the population is increased; and he does not +appear to see, that at the same time that capital is increased, the work +to be effected by capital, is increased in the same proportion. M. Say +has however most satisfactorily shewn, that there is no amount of +capital which may not be employed in a country, because demand is only +limited by production. No man produces, but with a view to consume or +sell, and he never sells, but with an intention to purchase some other +commodity, which may be immediately useful to him, or which may +contribute to future production. By producing, then, he necessarily +becomes either the consumer of his own goods, or the purchaser and +consumer of the goods of some other person. It is not to be supposed +that he should, for any length of time, be ill-informed of the +commodities which he can most advantageously produce, to attain the +object which he has in view, namely, the possession of other goods; and +therefore it is not probable that he will continually produce a +commodity for which there is no demand.[32] + +There cannot then be accumulated in a country any amount of capital +which cannot be employed productively, until wages rise so high in +consequence of the rise of necessaries, and so little consequently +remains for the profits of stock, that the motive for accumulation +ceases.[33] While the profits of stock are high, men will have a motive +to accumulate. Whilst a man has any wished-for gratification unsupplied +he will have a demand for more commodities; and it will be an effectual +demand while he has any new value to offer in exchange for them. If ten +thousand pounds were given to a man having 100,000_l._ per annum, he +would not lock it up in a chest, but would either increase his expenses +by 10,000_l._; employ it himself productively, or lend it to some other +person for that purpose; in either case, demand would be increased, +although it would be for different objects. If he increased his +expenses, his effectual demand might probably be for buildings, +furniture, or some such enjoyment. If he employed his 10,000_l._ +productively, his effectual demand would be for food, clothing, and raw +material, which might set new labourers to work; but still it would be +demand.[34] + +Productions are always bought by productions, money is only the medium +by which the exchange is effected. Too much of a particular commodity +may be produced, of which there may be such a glut in the market, as not +to repay the capital expended on it; but this cannot be the case with +respect to all commodities; the demand for corn is limited by the mouths +which are to eat it, for shoes and coats by the persons who are to wear +them; but though a community, or a part of a community, may have as much +corn, and as many hats and shoes, as it is able or may wish to consume, +the same cannot be said of every commodity produced by nature or by art. +Some would consume more wine, if they had the ability to procure it. +Others having enough of wine, would wish to increase the quantity or +improve the quality of their furniture. Others might wish to ornament +their grounds, or to enlarge their houses. The wish to do all or some of +these is implanted in every man's breast; nothing is required but the +means, and nothing can afford the means, but an increase of production. +If I had food and necessaries at my disposal, I should not be long in +want of workmen who would put me in possession of some of the objects +most useful or most desirable to me. + +Whether these increased productions, and the consequent demand which +they occasion, shall or shall not lower profits, depends solely on the +rise of wages; and the rise of wages, excepting for a limited period, on +the facility of producing the food and necessaries of the labourer. I +say excepting for a limited period, because no point is better +established, than that the supply of labourers will always ultimately be +in proportion to the means of supporting them. + +There is only one case, and that will be temporary, in which the +accumulation of capital with a low price of food may be attended with a +fall of profits; and that is, when the funds for the maintenance of +labour increase much more rapidly than population;--wages will then be +high, and profits low. If every man were to forego the use of luxuries, +and be intent only on accumulation, a quantity of necessaries might be +produced, for which there could not be any immediate consumption. Of +commodities so limited in number, there might undoubtedly be an +universal glut, and consequently there might neither be demand for an +additional quantity of such commodities, nor profits on the employment +of more capital. If men ceased to consume, they would cease to produce. +This admission, does not impugn the general principle. In such a country +as England, for example, it is difficult to suppose that there can be +any disposition to devote the whole capital and labour of the country to +the production of necessaries only. + +When merchants engage their capitals in foreign trade, or in the +carrying trade, it is always from choice, and never from necessity: it +is because in that trade their profits will be somewhat greater than in +the home trade. + +Adam Smith has justly observed "that the desire of food is limited in +every man by the narrow capacity of the human stomach, but the desire of +the conveniences and ornaments of building, dress, equipage, and +household furniture, seems to have no limit or certain boundary." Nature +then has necessarily limited the amount of capital which can at any one +time be profitably engaged in agriculture, but she has placed no limits +to the amount of capital that may be employed in procuring "the +conveniences and ornaments" of life. To procure these gratifications in +the greatest abundance is the object in view, and it is only because +foreign trade, or the carrying trade, will accomplish it better, that +men engage in them, in preference to manufacturing the commodities +required, or a substitute for them, at home. If, however, from peculiar +circumstances, we were precluded from engaging capital in foreign trade, +or in the carrying trade, we should, though with less advantage, employ +it at home; and while there is no limit to the desire of "conveniences, +ornaments of building, dress, equipage, and household furniture," there +can be no limit to the capital that may be employed in procuring them, +except that which bounds our power to maintain the workmen who are to +produce them. + +Adam Smith however, speaks of the carrying trade as one not of choice, +but of necessity; as if the capital engaged in it would be inert if not +so employed, as if the capital in the home trade could overflow, if not +confined to a limited amount. He says, "when the capital stock of any +country is increased to such a degree, _that it cannot be all employed +in supplying the consumption, and supporting the productive labour of +that particular country_, the surplus part of it naturally disgorges +itself into the carrying trade, and is employed in performing the same +offices to other countries." + +"About ninety-six thousand hogsheads of tobacco are annually purchased +with a part of the surplus produce of British industry. But the demand +of Great Britain does not require, perhaps, more than fourteen thousand. +If the remaining eighty-two thousand, therefore, could not be sent +abroad _and exchanged for something more in demand at home_, the +importation of them would cease immediately, _and with it the productive +labour of all the inhabitants of Great Britain, who are at present +employed in preparing the goods with which these eighty-two thousand +hogsheads are annually purchased_." But could not this portion of the +productive labour of Great Britain be employed in preparing some other +sort of goods, with which something more in demand at home might be +purchased? And if it could not, might we not employ this productive +labour, though with less advantage, in making those goods in demand at +home, or at least some substitute for them? If we wanted velvets, might +we not attempt to make velvets; and if we could not succeed, might we +not make more cloth, or some other object desirable to us? + +We manufacture commodities, and with them buy goods abroad, because we +can obtain a greater quantity than we could make at home. Deprive us of +this trade, and we immediately manufacture again for ourselves. But this +opinion of Adam Smith is at variance with all his general doctrines on +this subject. "If a foreign country can supply us with a commodity +cheaper than we ourselves can make it, better buy it of them with some +part of the produce of our own industry, employed in a way in which we +have some advantage. _The general industry of the country being always +in proportion to the capital which employs it_, will not thereby be +diminished, but only left to find out the way in which it can be +employed with the greatest advantage." + +Again. "Those, therefore, who have the command of more food than they +themselves can consume, are always willing to exchange the surplus, or, +what is the same thing, the price of it, for gratifications of another +kind. What is over and above satisfying the limited desire, is given for +the amusement of those desires which cannot be satisfied, but seem to be +altogether endless. The poor, in order to obtain food, exert themselves +to gratify those fancies of the rich; and to obtain it more certainly, +they vie with one another in the cheapness and perfection of their work. +The number of workmen increases with the increasing quantity of food, or +with the growing improvement and cultivation of the lands; and as the +nature of their business admits of the utmost subdivisions of labours, +the quantity of materials which they can work up increases in a much +greater proportion than their numbers. Hence arises a demand for every +sort of material which human invention can employ, either usefully or +ornamentally, in building, dress, equipage, or household furniture; for +the fossils and minerals contained in the bowels of the earth, the +precious metals, and the precious stones." + +Adam Smith has justly observed, that it is extremely difficult to +determine the rate of the profits of stock. "Profit is so fluctuating, +that even in a particular trade, and much more in trades in general, it +would be difficult to state the average rate of it. To judge of what it +may have been formerly, or in remote periods of time, with any degree of +precision, must be altogether impossible." Yet since it is evident that +much will be given for the use of money, when much can be made by it, he +suggests, that "the market rate of interest will lead us to form some +notion of the rate of profits, and the history of the progress of +interest afford us that of the progress of profits." Undoubtedly if the +market rate of interest could be accurately known for any considerable +period, we should have a tolerably correct criterion, by which to +estimate the progress of profits. + +But in all countries, from mistaken notions of policy, the state has +interfered to prevent a fair and free market rate of interest, by +imposing heavy and ruinous penalties on all those who shall take more +than the rate fixed by law. In all countries probably these laws are +evaded, but records give us little information on this head, and point +out rather the legal and fixed rate, than the market rate of interest. +During the present war, exchequer and navy bills have frequently been at +so high a discount, as to afford the purchasers of them 7, 8 per cent., +or a greater rate of interest for their money. Loans have been raised by +Government at an interest exceeding 6 per cent., and individuals have +been frequently obliged, by indirect means, to pay more than 10 per +cent., for the interest of money; yet during this same period the legal +rate of interest has been uniformly at 5 per cent. Little dependance for +information then can be placed on that which is the fixed and legal rate +of interest, when we find it may differ so considerably from the market +rate. Adam Smith informs us, that from the 37th of Henry VIII., to 21st +of James I., 10 per cent. continued to be the legal rate of interest. +Soon after the restoration, it was reduced to 6 per cent., and by the +12th of Anne, to 5 per cent. He thinks the legal rate followed, and did +not precede the market rate of interest. Before the American War, +Government borrowed at 3 per cent., and the people of credit in the +capital, and in many other parts of the kingdom at 3-1/2, 4, and 4-1/2 +per cent. + +The rate of interest, though ultimately and permanently governed by the +rate of profit, is however subject to temporary variations from other +causes. With every fluctuation in the quantity and value of money, the +prices of commodities naturally vary. They vary also, as we have already +shewn, from the alteration in the proportion of supply to demand, +although there should not be either greater facility or difficulty of +production. When the market prices of goods fall from an abundant +supply, from a diminished demand, or from a rise in the value of money, +a manufacturer naturally accumulates an unusual quantity of finished +goods, being unwilling to sell them at very depressed prices. To meet +his ordinary payments, for which he used to depend on the sale of his +goods, he now endeavours to borrow on credit, and is often obliged to +give an increased rate of interest. This however is but of temporary +duration; for either the manufacturer's expectations were well grounded, +and the market price of his commodities rises, or he discovers that +there is a permanently diminished demand, and he no longer resists the +course of affairs: prices fall, and money and interest regain their real +value. If by the discovery of a new mine, by the abuses of banking, or +by any other cause, the quantity of money be greatly increased, its +ultimate effect is to raise the prices of commodities in proportion to +the increased quantity of money; but there is probably always an +interval, during which some effect is produced on the rate of interest. + +The price of funded property is not a steady criterion by which to judge +of the rate of interest. In time of war, the stock market is so loaded +by the continual loans of Government, that the price of stock has not +time to settle at its fair level before a new operation of funding takes +place, or it is affected by anticipation of political events. In time of +peace, on the contrary, the operations of the sinking fund, the +unwillingness, which a particular class of persons feel to divert their +funds to any other employment than that to which they have been +accustomed, which they think secure, and in which their dividends are +paid with the utmost regularity, elevates the price of stock, and +consequently depresses the rate of interest on these securities below +the general market rate. It is observable too, that for different +securities, Government pays very different rates of interest. Whilst +100_l._ capital in 5 per cent. stock is selling for 95_l._, an exchequer +bill of 100_l._, will be sometimes selling for 100_l._ 5_s._, for which +exchequer bill, no more interest will be annually paid than 4_l._ 11_s._ +3_d._: one of these securities pays to a purchaser at the above prices, +an interest of more than 5-1/4 per cent., the other but little more than +4-1/4; a certain quantity of these exchequer bills is required as a safe +and marketable investment for bankers; if they were increased much +beyond this demand, they would probably be as much depreciated as the 5 +per cent. stock. A stock paying 3 per cent. per annum will always sell +at a proportionally greater price than stock paying 5 per cent., for +the capital debt of neither can be discharged but at par, or 100_l._ +money for 100_l._ stock. The market rate of interest may fall to 4 per +cent., and Government would then pay the holder of 5 per cent. stock at +par, unless he consented to take 4 per cent., or some diminished rate of +interest under 5 per cent.: they would have no advantage from so paying +the holder of 3 per cent. stock, till the market rate of interest had +fallen below 3 per cent. per annum. To pay the interest on the national +debt, large sums of money are withdrawn from circulation four times in +the year for a few days. These demands for money being only temporary, +seldom affect prices; they are generally surmounted by the payment of a +large rate of interest.[36] + + + + +CHAPTER XX. + +BOUNTIES ON EXPORTATION, AND PROHIBITIONS OF IMPORTATION. + + +A bounty on the exportation of corn tends to lower its price to the +foreign consumer, but it has no permanent effect on its price in the +home market. + +Suppose that to afford the usual and general profits of stock, the price +of corn should in England be 4_l._ per quarter; it could not then be +exported to foreign countries where it sold for 3_l._ 15_s._ per +quarter. But if a bounty of 10_s._ per quarter were given on +exportation, it could be sold in the foreign market at 3_l._ 10_s._, and +consequently the same profit would be afforded to the corn grower, +whether he sold it at 3_l._ 10_s._ in the foreign, or at 4_l._ in the +home market. + +A bounty then, which should lower the price of British corn in the +foreign country, below the cost of producing corn in that country, would +naturally extend the demand for British, and diminish the demand for +their own corn. This extension of demand for British corn could not fail +to raise its price for a time in the home market, and during that time +to prevent also its falling so low in the foreign market as the bounty +has a tendency to effect. But the causes which would thus operate on the +market price of corn in England would produce no effect whatever on its +natural price, on its real cost of production. To grow corn would +neither require more labour nor more capital, and, consequently, if the +profits of the farmer's stock were before only equal to the profits of +the stock of other traders, they will, after the rise of price, be +considerably above them. By raising the profits of the farmer's stock, +the bounty will operate as an encouragement to agriculture, and capital +will be withdrawn from manufactures to be employed on the land, till the +enlarged demand for the foreign market has been supplied, when the price +of corn will again fall in the home market to its natural and necessary +price, and profits will be again at their ordinary and accustomed level. +The increased supply of grain operating on the foreign market, will also +lower its price in the country to which it is exported, and will thereby +restrict the profits of the exporter to the lowest rate at which he can +afford to trade. + +The ultimate effect then of a bounty on the exportation of corn, is not +to raise or to lower the price in the home market, but to lower the +price of corn to the foreign consumer--to the whole extent of the +bounty, if the price of corn had not before been lower in the foreign, +than in the home market--and in a less degree, if the price in the home +had been above the price in the foreign market. + +A writer in the fifth vol. of the Edinburgh Review on the subject of a +bounty on the exportation of corn, has very clearly pointed out its +effects on the foreign and home demand. He has also justly remarked, +that it would not fail to give encouragement to agriculture in the +exporting country; but he appears to have imbibed the common error which +has misled Dr. Smith, and I believe most other writers on this subject. +He supposes, because the price of corn ultimately regulates wages, that +therefore it will regulate the price of all other commodities. He says +that the bounty, "by raising the profits of farming, will operate as an +encouragement to husbandry; by raising the price of corn to the +consumers at home, it will diminish for the time their power of +purchasing this necessary of life, and thus abridge their real wealth. +It is evident, however, that this last effect must be temporary: the +wages of the labouring consumers had been adjusted before by +competition, and the same principle will adjust them again to the same +rate, by raising the money price of labour, _and, through that, of other +commodities, to the money price of corn_. The bounty upon exportation, +therefore, will ultimately raise the money price of corn in the home +market; not directly, however, but through the medium of an extended +demand in the foreign market, and a consequent enhancement of the real +price at home: _and this rise of the money price, when it has once been +communicated to other commodities, will of course become fixed_." + +If, however, I have succeeded in shewing that it is not the rise in the +money wages of labour which raises the price of commodities, but that +such rise always affects profits, it will follow that the prices of +commodities would not rise in consequence of a bounty. + +But a temporary rise in the price of corn, produced by an increased +demand from abroad, would have no effect on the money price of wages. +The rise of corn is occasioned by a competition for that supply which +was before exclusively appropriated to the home market. By raising +profits, additional capital is employed in agriculture, and the +increased supply is obtained; but till it be obtained, the high price is +absolutely necessary to proportion the consumption to the supply, which +would be counteracted by a rise of wages. The rise of corn is the +consequence of its scarcity, and is the means by which the demand of the +home purchasers is diminished. If wages were increased, the competition +would increase, and a further rise of the price of corn would become +necessary. In this account of the effects of a bounty, nothing has been +supposed to occur to raise the natural price of corn, by which its +market price is ultimately governed; for it has not been supposed that +any additional labour would be required on the land to insure a given +production, and this alone can raise natural price. If the natural price +of cloth were 20_s._ per yard, a great increase in the foreign demand +might raise the price to 25_s._, or more, but the profits which would +then be made by the clothier would not fail to attract capital in that +direction, and although the demand should be doubled, trebled, or +quadrupled, the supply would ultimately be obtained, and cloth would +fall to its natural price of 20_s._ So in the supply of corn, although +we should export 2, 3, or 800,000 quarters, annually, it would +ultimately be produced at its natural price, which never varies unless a +different quantity of labour becomes necessary to production. + +Perhaps in no part of Adam Smith's justly celebrated work are his +conclusions more liable to objection, than in the chapter on bounties. +In the first place, he speaks of corn as of a commodity of which the +production cannot be increased in consequence of a bounty on +exportation; he supposes invariably that it acts only on the quantity +actually produced, and is no stimulus to further production. "In years +of plenty," he says, "by occasioning an extraordinary exportation, it +necessarily keeps up the price of corn in the home market above what it +would naturally fall to. In years of scarcity, though the bounty is +frequently suspended, yet the great exportation which it occasions in +years of plenty, must frequently hinder, more or less, the plenty of one +year from relieving the scarcity of another. Both in the years of plenty +and in years of scarcity, therefore, the bounty necessarily tends to +raise the money price of corn somewhat higher than it otherwise would be +in the home market."[37] + +Adam Smith appears to have been fully aware, that the correctness of +his argument entirely depended on the fact, whether the increase "of the +money price of corn, by rendering that commodity more profitable to the +farmer, would not necessarily encourage its production." + +"I answer," he says, "that this might be the case, if the effect of the +bounty was to raise the real price of corn, or to enable the farmer, +with an equal quantity of it, to maintain a greater number of labourers +in the same manner, whether liberal, moderate, or scanty, as other +labourers are commonly maintained in his neighbourhood." + +If nothing were consumed by the labourer but corn, and if the portion +which he received, was the very lowest which his sustenance required, +there might be some ground for supposing that the quantity paid to the +labourer could, under no circumstances, be reduced,--but the money wages +of labour sometimes do not rise at all, and never rise in proportion to +the rise in the money price of corn, because corn, though an important +part, is only a part of the consumption of the labourer. If half his +wages were expended on corn, and the other half on soap, candles, fuel, +tea, sugar, clothing, &c., commodities on which no rise is supposed to +take place, it is evident that he would be quite as well paid with a +bushel and a half of wheat, when it was 16_s._ a bushel, as he was with +two bushels, when the price was 8_s._ per bushel; or with 24_s._ in +money, as he was before with 16_s._ His wages would rise only 50 per +cent. though corn rose 100 per cent., and, consequently, there would be +sufficient motive to divert more capital to the land, if profits on +other trades continued the same as before. But such a rise of wages +would also induce manufacturers to withdraw their capitals from +manufactures, to employ them on the land; for whilst the farmer +increased the price of his commodity 100 per cent., and his wages only +50 per cent., the manufacturer would be obliged also to raise wages 50 +per cent., whilst he had no compensation whatever, in the rise of his +manufactured commodity, for this increased charge of production; capital +would consequently flow from manufactures to agriculture, till the +supply would again lower the price of corn to 8_s._ per bushel, and +wages to 16_s._ per week; when the manufacturer would obtain the same +profits as the farmer, and the tide of capital would cease to set in +either direction. This is in fact the mode in which the cultivation of +corn is always extended, and the increased wants of the market supplied. +The funds for the maintenance of labour increase, and wages are raised. +The comfortable situation of the labourer induces him to +marry--population increases, and the demand for corn raises its price +relatively to other things,--more capital is profitably employed on +agriculture, and continues to flow towards it, till the supply is equal +to the demand, when the price again falls, and agricultural and +manufacturing profits are again brought to a level. + +But whether wages were stationary after the rise in the price of corn, +or advanced moderately, or enormously, is of no importance to this +question, for wages are paid by the manufacturer as well as by the +farmer, and, therefore, in this respect they must be equally affected by +a rise in the price of corn. But they are unequally affected in their +profits, inasmuch as the farmer sells his commodity at an advanced +price, while the manufacturer sells his for the same price as before. It +is however the inequality of profit, which is always the inducement to +remove capital from one employment to another, and therefore more corn +would be produced, and fewer commodities manufactured. Manufactures +would not rise, because fewer were manufactured, for a supply of them +would be obtained in exchange for the exported corn. + +A bounty, if it raises the price of corn, either raises it in comparison +with the price of other commodities, or it does not. If the affirmative +be true, it is impossible to deny the greater profits of the farmer, and +the temptation to the removal of capital, till its price is again +lowered by an abundant supply. If it does not raise it in comparison +with other commodities, where is the injury to the home consumer, beyond +the inconvenience of paying the tax? If the manufacturer pays a greater +price for his corn, he is compensated by the greater price at which he +sells his commodity, with which his corn is ultimately purchased. + +The error of Adam Smith proceeds precisely from the same source as that +of the writer in the Edinburgh Review; for they both think "that the +money price of corn regulates that of all other home-made +commodities."[38] "It regulates," says Adam Smith, "the money price of +labour, which must always be such as to enable the labourer to purchase +a quantity of corn sufficient to maintain him and his family, either in +the liberal, moderate, or scanty manner, in which the advancing, +stationary, or declining circumstances of the society oblige his +employers to maintain him. By regulating the money price of all the +other parts of the rude produce of land, it regulates that of the +materials of almost all manufactures. By regulating the money price of +labour, it regulates that of manufacturing art, and industry; and by +regulating both, it regulates that of the complete manufacture. _The +money price of labour, and of every thing that is the produce either of +land and labour, must necessarily rise or fall in proportion to the +money price of corn._" + +This opinion of Adam Smith, I have before attempted to refute. In +considering a rise in the price of commodities as a necessary +consequence of a rise in the price of corn, he reasons as though there +were no other fund from which the increased charge could be paid. He has +wholly neglected the consideration of profits, the diminution of which +forms that fund, without raising the price of commodities. If this +opinion of Dr. Smith were well founded, profits could never really fall, +whatever accumulation of capital there might be. If when wages rose, the +farmer could raise the price of his corn, and the clothier, the hatter, +the shoemaker, and every other manufacturer, could also raise the price +of their goods in proportion to the advance, although estimated in +money, they might be all raised, they would continue to bear the same +value relatively to each other. Each of these trades could command the +same quantity as before of the goods of the others, which, since it is +goods, and not money, which constitute wealth, is the only circumstance +that could be of importance to them; and the whole rise in the price of +raw produce and of goods, would be injurious to no other persons but to +those whose property consisted of gold and silver, or whose annual +income was paid in a contributed quantity of those metals, whether in +the form of bullion or of money. Suppose the use of money to be wholly +laid aside, and all trade to be carried on by barter. Under such +circumstances, could corn rise in exchangeable value with other things? +If it could, then it is not true that the value of corn regulates the +value of all other commodities; for to do that, it should not vary in +relative value to them. If it could not, then it must be maintained, +that whether corn be obtained on rich, or on poor land, with much +labour, or with little, with the aid of machinery, or without, it would +always exchange for an equal quantity of all other commodities. + +I cannot, however, but remark that, though Adam Smith's general +doctrines correspond with this which I have just quoted, yet in one part +of his work he appears to have given a correct account of the nature of +value. "The proportion between the value of gold and silver, and that of +goods of any other kind, _depends in all cases_," he says, "_upon the +proportion between the quantity of labour which is necessary in order to +bring a certain quantity of gold and silver to market, and that which is +necessary to bring thither a certain quantity of any other sort of +goods_." Does he not here fully acknowledge that if any increase takes +place in the quantity of labour, required to bring one sort of goods to +market, whilst no such increase takes place in bringing another sort +thither, those goods will rise in relative value. If no more labour be +required to bring cloth and gold to market, they will not vary in +relative value, but if more labour be required to bring corn and shoes +to market, will not corn and shoes rise in value relatively to cloth, +and money made of gold? + +Adam Smith again considers that the effect of the bounty is to cause a +partial degradation in the value of money. "That degradation," says he +"in the value of silver, which is the effect of the fertility of the +mines, and which operates equally, or very nearly equally, through the +greater part of the commercial world, is a matter of very little +consequence to any particular country. The consequent rise of all money +prices, though it does not make those who receive them really richer, +does not make them really poorer. A service of plate becomes really +cheaper, and every thing else remains precisely of the same real value +as before." This observation is most correct. + +"But that degradation in the value of silver, which being the effect +either of the peculiar situation, or of the political institutions of a +particular country, takes place only in that country, is a matter of +very great consequence, which, far from tending to make any body really +richer, tends to make every body really poorer. The rise in the money +price of all commodities, which is in this case peculiar to that +country, tends to discourage more or less every sort of industry which +is carried on within it, and to enable foreign nations, by furnishing +almost all sorts of goods for a smaller quantity of silver than its own +workmen can afford to do, to undersell them, not only in the foreign, +but even in the home market." + +I have elsewhere attempted to shew that a partial degradation in the +value of money, which shall affect both agricultural produce, and +manufactured commodities, cannot possibly be permanent. To say that +money is partially degraded, in this sense, is to say that all +commodities are at a high price; but while gold and silver are at +liberty to make purchases in the cheapest market, they will be exported +for the cheaper goods of other countries, and the reduction of their +quantity will increase their value at home; commodities will regain +their usual level, and those fitted for foreign markets will be +exported, as before. + +A bounty therefore cannot, I think, be objected to on this ground. + +If then, a bounty raises the price of corn in comparison with all other +things, the farmer will be benefited, and more land will be cultivated; +but if the bounty do not raise the value of corn relatively to other +things, then no other inconvenience will attend it, than that of paying +the bounty; one which I neither wish to conceal nor underrate. + +Dr. Smith states, that "by establishing high duties on the importation, +and bounties on the exportation of corn, the country gentlemen seemed to +have imitated the conduct of the manufacturers." By the same means both +had endeavoured to raise the value of their commodities. "They did not +perhaps attend to the great and essential difference which nature has +established between corn, and almost every other sort of goods. When by +either of the above means, you enable our manufacturers to sell their +goods for somewhat a better price than they otherwise could get for +them, you raise not only the nominal, but the real price of those goods. +You increase not only the nominal, but the real profit, the real wealth +and revenue of those manufacturers--you really encourage those +manufactures. But when, by the like institutions, you raise the nominal +or money price of corn, you do not raise its real value, you do not +increase the real wealth of our farmers or country gentlemen, you do not +encourage the growth of corn. The nature of things has stamped upon corn +a real value, which cannot be altered by merely altering its money +price. Through the world in general, that value is equal to the quantity +of labour which it can maintain." + +I have already attempted to shew, that the market price of corn, would, +under an increased demand from the effects of a bounty, exceed its +natural price, till the requisite additional supply was obtained, and +that then it would again fall to its natural price. But the natural +price of corn is not so fixed as the natural price of commodities; +because, with any great additional demand for corn, land of a worse +quality must be taken into cultivation, on which more labour will be +required to produce a given quantity, and the natural price of corn +would be raised. By a continued bounty, therefore, on the exportation of +corn, there would be created a tendency to a permanent rise in the price +of corn, and this, as I have shewn elsewhere,[39] never fails to raise +rent. Country gentlemen then have not only a temporary but a permanent +interest in prohibitions of the importation of corn, and in bounties on +its exportation; but manufacturers have no permanent interest in a +bounty on the exportation of commodities, their interest is wholly +temporary. + +A bounty on the exportation of manufactures will undoubtedly, as Dr. +Smith contends, raise the market price of manufactures, but it will not +raise their natural price. The labour of 200 men will produce double the +quantity of these goods that 100 could produce before; and +consequently, when the requisite quantity of capital was employed in +supplying the requisite quantity of manufactures, they would again fall +to their natural price. It is then only during the interval after the +rise in the market price of commodities, and before the additional +supply is obtained, that the manufacturers will enjoy high profits; for +as soon as prices had subsided, their profits would sink to the general +level. + +Instead of agreeing, therefore, with Adam Smith, that the country +gentlemen had not so great an interest in prohibiting the importation of +corn, as the manufacturer had in prohibiting the importation of +manufactured goods, I contend that they have a much superior interest; +for their advantage is permanent, while that of the manufacturer is only +temporary. Dr. Smith observes, that nature has established a great and +essential difference between corn and other goods, but the proper +inference from that circumstance is directly the reverse of that which +he draws from it; for it is on account of this difference that rent is +created, and that country gentlemen have an interest in the rise of the +natural price of corn. Instead of comparing the interest of the +manufacturer with the interest of the country gentleman, Dr. Smith +should have compared it with the interest of the farmer, which is very +distinct from that of his landlord. Manufacturers have no interest in +the rise of the natural price of their commodities, nor have farmers any +interest in the rise of the natural price of corn, or other raw produce, +though both these classes are benefited while the market price of their +productions exceeds their natural price. On the contrary, landlords have +a most decided interest in the rise of the natural price of corn; for +the rise of rent is the inevitable consequence of the difficulty of +producing raw produce, without which its natural price could not rise. +Now as bounties on exportation and prohibitions of the importation of +corn increase the demand, and drive us to the cultivation of poorer +lands, they necessarily occasion an increased difficulty of production. + +The sole effect of the bounty either on the exportation of manufactures, +or of corn, is to divert a portion of capital to an employment, which it +would not naturally seek. It causes a pernicious distribution of the +general funds of the society--it bribes a manufacturer to commence or +continue in a comparatively less profitable employment. It is the worst +species of taxation, for it does not give to the foreign country all +that it takes away from the home country, the balance of loss being made +up by the less advantageous distribution of the general capital. Thus, +if the price of corn is in England 4_l._, and in France 3_l._ 15_s._ a +bounty of 10_s._ will ultimately reduce it to 3_l._ 10_s._ in France, +and maintain it at the same price of 4_l._ in England. For every quarter +exported, England pays a tax of 10_s._ For every quarter imported into +France, France gains only 5_s._, so that the value of 5_s._ per quarter +is absolutely lost to the world, by such a distribution of its funds as +to cause diminished production, probably not of corn, but of some other +object of necessity or enjoyment. + +Mr. Buchanan appears to have seen the fallacy of Dr. Smith's arguments +respecting bounties, and on the last passage which I have quoted, very +judiciously remarks: "In asserting that nature has stamped a real value +on corn, which cannot be altered by merely altering its money price, Dr. +Smith confounds its value in use, with its value in exchange. A bushel +of wheat will not feed more people during scarcity than during plenty; +but a bushel of wheat will exchange for a greater quantity of luxuries +and conveniences when it is scarce, than when it is abundant; and the +landed proprietors, who have a surplus of food to dispose of, will +therefore, in times of scarcity, be richer men; they will exchange their +surplus for a greater value of other enjoyments, than when corn is in +greater plenty. It is vain to argue, therefore, that if the bounty +occasions a forced exportation of corn, it will not also occasion a real +rise of price." The whole of Mr. Buchanan's arguments on this part of +the subject of bounties, appear to me to be perfectly clear and +satisfactory. + +Mr. Buchanan however has not, I think, any more than Dr. Smith, or the +writer in the Edinburgh Review, correct opinions as to the influence of +a rise in the price of labour on manufactured commodities. From his +peculiar views, which I have elsewhere noticed, he thinks that the +price of labour has no connexion with the price of corn, and therefore +that the real value of corn might and would rise without affecting the +price of labour; but if labour were affected, he would maintain with +Adam Smith and the writer in the Edinburgh Review, that the price of +manufactured commodities would also rise; and then I do not see how he +would distinguish such a rise of corn, from a fall in the value of +money, or how he could come to any other conclusion than that of Dr. +Smith. In a note to page 276, vol. i. of the Wealth of Nations, Mr. +Buchanan observes, "but the price of corn does not regulate the money +price of all the other parts of the rude produce of land. It regulates +the price neither of metals, nor of various other useful substances, +such as coals, wood, stones, &c.; _and as it does not regulate the price +of labour, it does not regulate the price of manufactures_; so that the +bounty, in so far as it raises the price of corn, is undoubtedly a real +benefit to the farmer. It is not on this ground, therefore, that its +policy must be argued. Its encouragement to agriculture, by raising the +price of corn, must be admitted; and the question then comes to be, +whether agriculture ought to be thus encouraged?"--It is then, +according to Mr. Buchanan, a real benefit to the farmer, because it does +not raise the price of labour; but if it did, it would raise the price +of all things in proportion, and then it would afford no particular +encouragement to agriculture. + +It must, however, be conceded, that the tendency of a bounty on the +exportation of any commodity is to lower in a small degree the value of +money. Whatever facilitates exportation, tends to accumulate money in a +country; and on the contrary, whatever impedes exportation, tends to +diminish it. The general effect of taxation, by raising the prices of +the commodities taxed, tends to diminish exportation, and therefore to +check the influx of money; and on the same principle, a bounty +encourages the influx of money. This is more fully explained in the +general observations on taxation. + +The injurious effects of the mercantile system have been fully exposed +by Dr. Smith; the whole aim of that system was to raise the price of +commodities, in the home market, by prohibiting foreign competition; +but this system was no more injurious to the agricultural classes than +to any other part of the community. By forcing capital into channels +where it would not otherwise flow, it diminished the whole amount of +commodities produced. The price, though permanently higher, was not +sustained by scarcity, but by difficulty of production; and therefore, +though the sellers of such commodities sold them for a higher price, +they did not sell them, after the requisite quantity of capital was +employed in producing them, at higher profits.[40] + +The manufacturers themselves, as consumers, had to pay an additional +price for such commodities, and therefore it cannot be correctly said, +that "the enhancement of price occasioned by both, (corporation laws and +high duties on the importation of foreign commodities,) is every where +finally paid by the landlords, farmers, and labourers of the country." + +It is the more necessary, to make this remark, as in the present day the +authority of Adam Smith is quoted by country gentlemen for imposing +similar high duties on the importation of foreign corn. Because the cost +of production, and therefore the prices of various manufactured +commodities, are raised to the consumer by one error in legislation, the +country has been called upon, on the plea of justice, quietly to submit +to fresh exactions. Because we all pay an additional price for our +linen, muslin, and cottons, it is thought just that we should pay also +an additional price for our corn. Because, in the general distribution +of the labour of the world, we have prevented the greatest amount of +productions from being obtained by that labour in manufactured +commodities; we should further punish ourselves by diminishing the +productive powers of the general labour in the supply of raw produce. It +would be much wiser to acknowledge the errors which a mistaken policy +has induced us to adopt, and immediately to commence a gradual +recurrence to the sound principles of an universally free trade. + +"I have already had occasion to remark," observes M. Say, "in speaking +of what is improperly called the balance of trade, that if it suits a +merchant better to export the precious metals to a foreign country than +any other goods, it is also the interest of the state that he should +export them, because the state only gains or loses through the channel +of its citizens; and in what concerns foreign trade, that which best +suits the individual, best suits also the state; therefore, by opposing +obstacles to the exportation which individuals would be inclined to +make of the precious metals, nothing more is done, than to force them to +substitute some other commodity less profitable to themselves, and to +the state. It must however be remarked, that I say only _in what +concerns foreign trade_; because the profits which merchants make by +their dealings with their countrymen, as well as those which are made in +the exclusive commerce with colonies, are not entirely gains for the +state. In the trade between individuals of the same country, there is no +other gain but the value of an utility produced; _Que la valeur d'une +utilité produite_."[41] Vol. i. p. 401. I cannot see the distinction +here made between the profits of the home and foreign trade. The object +of all trade is to increase productions. If for the purchase of a pipe +of wine, I had it in my power to export bullion, which was bought with +the value of the produce of 100 days' labour, but Government, by +prohibiting the exportation of bullion, should oblige me to purchase my +wine with a commodity bought with the value of the produce of one +hundred and five days' labour, the produce of five days' labour is lost +to me, and, through me, to the state. But if these transactions took +place between individuals, in different provinces of the same country, +the same advantage would accrue both to the individual, and, through +him, to the country, if he were unfettered in his choice of the +commodities, with which he made his purchases; and the same +disadvantage, if he were obliged by Government to purchase with the +least beneficial commodity. If a manufacturer could work up with the +same capital, more iron where coals are plentiful, than he could where +coals are scarce, the country would be benefited by the difference. But +if coals were no where plentiful, and he imported iron, and could get +this additional quantity, by the manufacture of a commodity, with the +same capital and labour, he would in like manner benefit his country by +the additional quantity of iron. In the 6th Chap. of this work, I have +endeavoured to shew that all trade, whether foreign or domestic, is +beneficial, by increasing the quantity, and not by increasing the value +of productions. We shall have no greater value, whether we carry on the +most beneficial home and foreign trade, or in consequence of being +fettered by prohibitory laws, we are obliged to content ourselves with +the least advantageous. The rate of profits, and the value produced, +will be the same. The advantage always resolves itself into that which +M. Say appears to confine to the home trade; in both cases there is no +other gain but that of the value of an _utilité produite_. + + + + +CHAPTER XXI. + +ON BOUNTIES ON PRODUCTION. + + +It may not be uninstructive to consider the effects of a bounty on the +_production_ of raw produce and other commodities, with a view to +observe the application of the principles which I have been endeavouring +to establish, with regard to the profits of stock, the annual produce of +the land and labour, and the relative prices of manufactures and raw +produce. In the first place, let us suppose that a tax was imposed on +all commodities, for the purpose of raising a fund to be employed by +Government, in giving a bounty on the _production_ of corn. As no part +of such a tax would be expended by Government, and as all that was +received from one class of the people, would be returned to another, the +nation collectively would neither be richer nor poorer, from such a tax +and bounty. It would be readily allowed, that the tax on commodities by +which the fund was created, would raise the price of the commodities +taxed; all the consumers of those commodities therefore would contribute +towards that fund; in other words, their natural or necessary price +being raised, so would too their market price. But for the same reason +that the natural price of those commodities would be raised, the natural +price of corn would be lowered; before the bounty was paid on +production, the farmers obtained as great a price for their corn as was +necessary to repay them their rent and their expenses, and afford them +the general rate of profits; after the bounty, they would receive more +than that rate, unless the price of corn fell by a sum at least equal to +the bounty. The effect then of the tax and bounty, would be to raise the +price of commodities in a degree equal to the tax levied on them, and to +lower the price of corn by a sum equal to the bounty paid. It will be +observed too, that no permanent alteration could be made in the +distribution of capital between agriculture and manufactures, because as +there would be no alteration, either in the amount of capital or +population, there would be precisely the same demand for bread and +manufactures. The profits of the farmer would be no higher than the +general level, after the fall in the price of corn; nor would the +profits of the manufacturer be lower after the rise of manufactured +goods; the bounty then would not occasion any more capital to be +employed on the land in the production of corn, nor any less in the +manufacture of goods. But how would the interest of the landlord be +affected? On the same principles that a tax on raw produce would lower +the corn rent of land, leaving the money rent unaltered, a bounty on +production, which is directly the contrary of a tax, would raise corn +rent, leaving the money rent unaltered.[42] With the same money rent the +landlord would have a greater price to pay for his manufactured goods, +and a less price for his corn; he would probably therefore be neither +richer nor poorer. + +Now whether such a measure would have any operation on the wages of +labour, would depend on the question, whether the labourer, in +purchasing commodities, would pay as much towards the tax, as he would +receive from the bounty, in the low price of his food. If these two +quantities were equal, wages would continue unaltered; but if the +commodities taxed were not those consumed by the labourer, his wages +would fall, and his employer would be benefited by the difference. But +this is no real advantage to his employer; it would indeed operate to +increase the rate of his profits, as every fall of wages must do; but in +proportion as the labourer contributed less to the fund from which the +bounty was paid, and which, let it be remembered, must be raised, his +employer must contribute more; in other words, he would contribute as +much to the tax by his expenditure, as he would receive in the effects +of the bounty and the higher rate of profits together. He obtains a +higher rate of profits to requite him for his payment, not only of his +own quota of the tax, but of his labourer's also; the remuneration which +he receives for his labourer's quota appears in diminished wages, or, +which is the same thing, in increased profits; the remuneration for his +own appears in the diminution in the price of the corn which he +consumes, arising from the bounty. + +Here it will be proper to remark the different effects produced on +profits from an alteration in the real labour value of corn, and an +alteration in the relative value of corn, from taxation and from +bounties. If corn is lowered in price by an alteration in its labour +price, not only will the rate of the profits of stock be altered, but +the absolute profits also; which does not happen, as we have just seen, +when the fall is occasioned artificially by a bounty. In the real fall +in the value of corn, arising from less labour being required to produce +one of the most important objects of man's consumption, labour is +rendered more productive. With the same capital the same labour is +employed, and an increase of productions is the result; not only then +will the rate of profits, but the absolute profits of stock be +increased; not only will each capitalist have a greater money revenue, +if he employs the same money capital, but also when that money is +expended, it will procure him a greater sum of commodities; his +enjoyments will be augmented. In the case of the bounty, to balance the +advantage which he derives from the fall of one commodity, he has the +disadvantage of paying a price more than proportionally high for +another; he receives an increased rate of profits in order to enable him +to pay this higher price; so that his real situation is in no way +improved: though he gets a higher rate of profits, he has no greater +command of the produce of the land and labour of the country. When the +fall in the value of corn is brought about by natural causes, it is not +counteracted by the rise of other commodities; on the contrary, they +fall from the raw material falling from which they are made: but when +the fall in corn is occasioned by artificial means, it is always +counteracted by a real rise in the value of some other commodity, so +that if corn be bought cheaper, other commodities are bought dearer. + +This then is a further proof, that no particular disadvantage arises +from taxes on necessaries, on account of their raising wages and +lowering the rate of profits. Profits are indeed lowered, but only to +the amount of the labourer's portion of the tax, which must at all +events, be paid either by his employer, or by the consumer of the +produce of the labourer's work. Whether you deduct 50_l._ per annum from +the employer's revenue, or add 50_l._ to the prices of the commodities +which he consumes, can be of no other consequence to him or to the +community, than as it may equally affect all other classes. If it be +added to the prices of the commodity, a miser may avoid the tax by not +consuming; if it be indirectly deducted from every man's revenue, he +cannot avoid paying his fair proportion of the public burthens. + +A bounty on the production of corn then, would produce no real effect on +the annual produce of the land and labour of the country, although it +would make corn relatively cheap, and manufactures relatively dear. But +suppose now that a contrary measure should be adopted, that a tax should +be raised on corn for the purpose of affording a fund for a bounty on +the production of commodities. + +In such case, it is evident that corn would be dear, and commodities +cheap; labour would continue at the same price, if the labourer were as +much benefited by the cheapness of commodities as he was injured by the +dearness of corn; but if he were not, wages would rise, and profits +would fall, while money rent would continue the same as before; profits +would fall, because, as we have just explained, that would be the mode +in which the labourer's share of the tax would be paid by the employers +of labour. By the increase of wages the labourer would be compensated +for the tax which he would pay in the increased price of corn; by not +expending any part of his wages on the manufactured commodities, he +would receive no part of the bounty; the bounty would be all received by +the employers, and the tax would be partly paid by the employed; a +remuneration would be made to the labourers, in the shape of wages, for +this increased burden laid upon them, and thus the rate of profits would +be reduced. In this case too there would be a complicated measure +producing no national result whatever. + +In considering this question, we have purposely left out of our +consideration the effect of such a measure on foreign trade; we have +rather been supposing the case of an insulated country, having no +commercial connexion with other countries. We have seen that as the +demand of the country for corn and commodities would be the same, +whatever direction the bounty might take, there would be no temptation +to remove capital from one employment to another: but this would no +longer be the case if there were foreign commerce, and that commerce +were free. By altering the relative value of commodities and corn, by +producing so powerful an effect on their natural prices, we should be +applying a strong stimulus to the exportation of those commodities whose +natural prices were lowered, and an equal stimulus to the importation of +those commodities whose natural prices were raised, and thus such a +financial measure might entirely alter the natural distribution of +employments; to the advantage indeed of the foreign countries, but +ruinously to that in which so absurd a policy was adopted. + + + + +CHAPTER XXII. + +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. + + + + +CHAPTER XXIII. + +ON COLONIAL TRADE. + + +Adam Smith, in his observations on colonial trade, has shewn, most +satisfactorily, the advantages of a free trade, and the injustice +suffered by colonies, in being prevented by their mother countries, from +selling their produce at the dearest market, and buying their +manufactures and stores at the cheapest. He has shewn, that by +permitting every country freely to exchange the produce of its industry +when and where it pleases, the best distribution of the labour of the +world will be effected, and the greatest abundance of the necessaries +and enjoyments of human life will be secured. + +He has attempted also to shew, that this freedom of commerce, which +undoubtedly promotes the interest of the whole, promotes also that of +each particular country; and that the narrow policy adopted in the +countries of Europe respecting their colonies, is not less injurious to +the mother countries themselves, than to the colonies whose interests +are sacrificed. + +"The monopoly of the colony trade," he says, "like all the other mean +and malignant expedients of the mercantile system, depresses the +industry of all other countries, but chiefly that of the colonies, +without, in the least, increasing, but on the contrary diminishing, that +of the country in whose favour it is established." + +This part of his subject, however, is not treated in so clear and +convincing a manner as that in which he shews the injustice of this +system towards the colony. + +Without affirming or denying, that the actual practice of Europe with +regard to their colonies is injurious to the mother countries, I may be +permitted to doubt whether a mother country may not sometimes be +benefited by the restraints to which she subjects her colonial +possessions. Who can doubt, for example, that if England were the +colony of France, the latter country would be benefited by a heavy +bounty paid by England on the exportation of corn, cloth, or any other +commodities? In examining the question of bounties, on the supposition +of corn being at 4_l._ per quarter in this country, we saw, that with a +bounty of 10_s._ per quarter, on exportation in England, corn would have +been reduced to 3_l._ 10_s._ in France. Now, if corn had previously been +at 3_l._ 15_s._ per quarter in France, the French consumers would have +been benefited by 5_s._ per quarter on all imported corn; if the natural +price of corn in France were before 4_l._, they would have gained the +whole bounty of 10_s._ per quarter. France would thus be benefited by +the loss sustained by England: she would not gain a part only of what +England lost, but in some cases the whole. + +It may however be said, that a bounty on exportation is a measure of +internal policy, and could not easily be imposed by the mother country. + +If it would suit the interests of Jamaica and Holland to make an +exchange of the commodities which they respectively produce, without the +intervention of England, it is quite certain, that by their being +prevented from so doing, the interests of Holland and Jamaica would +suffer; but if Jamaica is obliged to send her goods to England, and +there exchange them for Dutch goods, an English capital, or English +agency, will be employed in a trade in which it would not otherwise be +engaged. It is allured thither by a bounty, not paid by England, but by +Holland and Jamaica. + +That the loss sustained, through a disadvantageous distribution of +labour in two countries, may be beneficial to one of them, while the +other is made to suffer more than the loss actually belonging to such a +distribution, has been stated by Adam Smith himself; which, if true, +will at once prove that a measure, which may be greatly hurtful to a +colony, may be partially beneficial to the mother country. + +Speaking of treaties of commerce, he says, "When a nation binds itself +by treaty, either to permit the entry of certain goods from one foreign +country which it prohibits from all others, or to exempt the goods of +one country from duties to which it subjects those of all others, the +country, or at least the merchants and manufacturers of the country, +whose commerce is so favoured, must necessarily derive great advantage +from the treaty. Those merchants and manufacturers enjoy a sort of +monopoly in the country, which is so indulgent to them. That country +becomes a market both more extensive and more advantageous for their +goods; more extensive, because the goods of other nations, being either +excluded or subjected to heavier duties, it takes off a greater quantity +of them; more advantageous, because the merchants of the favoured +country enjoying a sort of monopoly there, will often sell their goods +for a better price than if exposed to the free competition of all other +nations." + +Let the two nations, between which the commercial treaty is made, be the +mother country and her colony, and Adam Smith, it is evident, admits, +that a mother country may be benefited by oppressing her colony. It +may, however, be again remarked, that unless the monopoly of the foreign +market be in the hands of an exclusive company, no more will be paid for +commodities by foreign purchasers than by home purchasers; the price +which they will both pay will not differ greatly from their natural +price in the country where they are produced. England, for example, +will, under ordinary circumstances, always be able to buy French goods, +at the natural price of those goods in France, and France would have an +equal privilege of buying English goods at their natural price in +England. But at these prices, goods would be bought without a treaty. Of +what advantage or disadvantage then is the treaty to either party? + +The disadvantage of the treaty to the importing country would be this: +it would bind her to purchase a commodity, from England for example, at +the natural price of that commodity in England, when she might perhaps +have bought it at the much lower natural price of some other country. It +occasions then a disadvantageous distribution of the general capital, +which falls chiefly on the country bound by its treaty to buy in the +least productive market; but it gives no advantage to the seller on +account of any supposed monopoly, for he is prevented by the competition +of his own countrymen from selling his goods above their natural price; +at which he would sell them, whether he exported them to France, Spain, +or the West Indies, or sold them for home consumption. + +In what then does the advantage of the stipulation in the treaty +consist? It consists in this: these particular goods could not have been +made in England for exportation, but for the privilege which she alone +had of serving this particular market; for the competition of that +country, where the natural price was lower, would have deprived her of +all chance of selling those commodities. This, however, would have been +of little importance, if England were quite secure that she could sell +to the same amount any other goods which she might fabricate, either in +the French market, or with equal advantage in any other. The object +which England has in view, is, for example, to buy a quantity of French +wines of the value of 5000_l._--she desires then to sell goods +somewhere by which she may get 5000_l._ for this purpose. If France +gives her a monopoly of the cloth market, she will readily export cloth +for this purpose; but if the trade is free, the competition of other +countries may prevent the natural price of cloth in England from being +sufficiently low to enable her to get 5000_l._ by the sale of cloth, and +to obtain the usual profits by such an employment of her stock. The +industry of England must be employed then on some other commodity; but +there may be none of her productions which, at the existing value of +money, she can afford to sell at the natural price of other countries. +What is the consequence? The wine drinkers of England are still willing +to give 5000_l._ for their wine, and consequently 5000_l._ in money is +exported to France for that purpose. By this exportation of money its +value is raised in England, and lowered in other countries; and with it +the _natural price_ of all commodities produced by British industry is +also lowered. The advance in the price of money is the same thing as the +decline in the price of commodities. To obtain 5000_l._, British +commodities may now be exported; for at their reduced natural price +they may now enter into competition with the goods of other countries. +More goods are sold, however, at the low prices to obtain the 5000_l._ +required, which, when obtained, will not procure the same quantity of +wine; because, whilst the diminution of money in England has lowered the +natural price of goods there, the increase of money in France has raised +the natural price of goods and wine in France. Less wine then will be +imported into England, in exchange for its commodities, when the trade +is perfectly free, than when she is peculiarly favoured by commercial +treaties. The _rate_ of profits however will not have varied; money will +have altered in relative value in the two countries, and the advantage +gained by France will be the obtaining a greater quantity of English, in +exchange for a given quantity of French goods, while the loss sustained +by England will consist in obtaining a smaller quantity of French goods +in exchange for a given quantity of those of England. + +Foreign trade then, whether fettered, encouraged, or free, will always +continue, whatever may be the comparative difficulty of production in +different countries; but it can only be regulated by altering the +natural price, not the natural value at which commodities can be +produced in those countries, and that is effected by altering the +distribution of the precious metals. This explanation confirms the +opinion which I have elsewhere given, that there is not a tax, a bounty, +or a prohibition on the importation or exportation commodities which +does not occasion a different distribution of the precious metals, and +which does not therefore every where alter both the natural and the +market price of commodities. + +It is evident then, that the trade with a colony may be so regulated, +that it shall at the same time be less beneficial to the colony, and +more beneficial to the mother country, than a perfectly free trade. As +it is disadvantageous to a single consumer to be restricted in his +dealings to one particular shop, so is it disadvantageous for a nation +of consumers to be obliged to purchase of one particular country. If the +shop or the country afforded the goods required the cheapest, they would +be secure of selling them without any such exclusive privilege; and if +they did not sell cheaper, the general interest would require that they +should not be encouraged to continue a trade which they could not carry +on at an equal advantage with others. The shop, or the selling country, +might lose by the change of employments, but the general benefit is +never so fully secured, as by the most productive distribution of the +general capital; that is to say, by an universally free trade. + +An increase in the cost of production of a commodity, if it be an +article of the first necessity, will not necessarily diminish its +consumption; for although the general power of the purchasers to +consume, is diminished by the rise of any one commodity, yet they may +relinquish the consumption of some other commodity whose cost of +production has not risen. In that case, the quantity supplied will be in +the same proportion to the demand as before; the cost of production only +will have increased, and yet the price will rise, and must rise, to +place the profits of the producer of the enhanced commodity on a level +with the profits derived from other trades. + +M. Say acknowledges that the cost of production is the foundation of +price, and yet in various parts of his book he maintains that price is +regulated by the proportion which demand bears to supply. The real and +ultimate regulator of the relative value of any two commodities, is the +cost of their production, and neither the respective quantities which +may be produced, nor the competition amongst the purchasers. + +According to Adam Smith the colony trade, by being one in which British +capital only can be employed, has raised the rate of profits of all +other trades; and as in his opinion high profits, as well as high wages, +raise the prices of commodities, the monopoly of the colony trade has +been, according to him, injurious to the mother country; as it has +diminished her power of selling manufactured commodities as cheap as +other countries. He says, that "in consequence of the monopoly, the +increase of the colony trade has not so much occasioned an addition to +the trade which Great Britain had before, as a total change in its +direction. Secondly, this monopoly has necessarily contributed to keep +up the rate of profit in all the different branches of British trade, +higher than it naturally would have been, had all nations been allowed a +free trade to the British colonies." "But whatever raises in any country +the ordinary rate of profit higher than it otherwise would be, +necessarily subjects that country both to an absolute, and to a relative +disadvantage in every branch of trade of which she has not the monopoly. +It subjects her to an absolute disadvantage, because in such branches of +trade, her merchants cannot get this greater profit without selling +dearer than they otherwise would do, both the goods of foreign countries +which they import into their own, and the goods of their own country +which they export to foreign countries. Their own country must both buy +dearer and sell dearer; must both buy less and sell less; must both +enjoy less and produce less than she otherwise would do." + +"Our merchants frequently complain of the high wages of British labour +as the cause of their manufactures being undersold in foreign markets; +but they are silent about the high profits of stock. They complain of +the extravagant gain of other people, but they say nothing of their +own. The high profits of British stock, however, may contribute towards +raising the price of British manufacture in many cases as much, and in +some perhaps more, than the high wages of British labour." + +I allow that the monopoly of the colony trade will change, and often +prejudicially, the direction of capital; but from what I have already +said on the subject of profits, it will be seen that any change from one +foreign trade to another, or from home to foreign trade, cannot, in my +opinion, affect the rate of profits. The injury suffered will be what I +have just described; there will be a worse distribution of the general +capital and industry, and therefore less will be produced. The natural +price of commodities will be raised, and therefore, though the consumer +will be able to purchase to the same money value, he will obtain a less +quantity of commodities. It will be seen too, that if it even had the +effect of raising profits, it would not occasion the least alteration in +prices; prices being regulated neither by wages nor profits. + +And does not Adam Smith agree in this opinion, when he says, that "the +prices of commodities, or the value of gold and silver, as compared with +commodities, depends upon the proportion between the _quantity of +labour_ which is necessary, in order to bring a certain quantity of gold +and silver to market, and that which is necessary to bring thither a +certain quantity of any other sort of goods?" That quantity will not be +affected, whether profits be high or low, or wages low or high. How then +can prices be raised by high profits? + + + + +CHAPTER XXIV. + +ON GROSS AND NET REVENUE. + + +Adam Smith constantly magnifies the advantages which a country derives +from a large gross, rather than a large net income. "In proportion as a +greater share of the capital of a country is employed in agriculture," +he says, "the greater will be the quantity of productive labour which it +puts into motion within the country; as will likewise be the value which +its employment adds to the annual produce of the land and labour of the +society. After agriculture, the capital employed in manufactures puts +into motion the greatest quantity of productive labour, and adds the +greatest value to the annual produce. That which is employed in the +trade of exportation has the least effect of any of the three."[43] + +Granting for a moment that this were true; what would be the advantage +resulting to a country from the employment of a great quantity of +productive labour, if, whether it employed that quantity or a smaller, +its net rent and profits together would be the same. The whole produce +of the land and labour of every country is divided into three portions; +of these, one portion is devoted to wages, another to profits, and the +other to rent. It is from the two last portions only, that any +deductions can be made for taxes, or for savings; the former, if +moderate, constituting always the necessary expenses of production. To +an individual, with a capital of 20,000_l._, whose profits were 2000_l._ +per annum, it would be a matter quite indifferent, whether his capital +would employ a hundred, or a thousand men, whether the commodity +produced sold for 10,000_l._, or for 20,000_l._, provided, in all cases, +his profits were not diminished below 2000_l._ Is not the real interest +of the nation similar? Provided its net real income, its rent and +profits be the same, it is of no importance whether the nation consists +of ten or of twelve millions of inhabitants. Its power of supporting +fleets and armies, and all species of unproductive labour, must be in +proportion to its net, and not in proportion to its gross income. If +five millions of men could produce as much food and clothing as was +necessary for ten millions, food and clothing for five millions would be +the net revenue. Would it be of any advantage to the country, that to +produce this same net revenue, seven millions of men should be required, +that is to say, that seven millions should be employed to produce food +and clothing sufficient for twelve millions? The food and clothing of +five millions would be still the net revenue. The employing a greater +number of men would enable us neither to add a man to our army and navy, +nor to contribute one guinea more in taxes. + +It is not on the grounds of any supposed advantage accruing from a large +population, or of the happiness that may be enjoyed by a greater number +of human beings, that Adam Smith supports the preference of that +employment of capital, which gives motion to the greatest quantity of +industry, but expressly on the ground of its increasing the power of the +country; for he says, that "the riches, and, so far as power depends +upon riches, the power of every country must always be in proportion to +the value of its annual produce, the fund from which all taxes must +ultimately be paid." It must however be obvious, that the power of +paying taxes, is in proportion to the net, and not in proportion to the +gross revenue. + +In the distribution of employments amongst all countries, the capital of +poorer nations will be naturally employed in those pursuits, wherein a +great quantity of labour is supported at home, because in such countries +the food and necessaries for an increasing population can be most easily +procured. In rich countries, on the contrary, where food is dear, +capital will naturally flow, when trade is free, into those occupations, +wherein the least quantity of labour is required to be maintained at +home: such as the carrying trade, the distant foreign trade, where +profits are in proportion to the capital, and not in proportion to the +quantity of labour employed.[44] + +Although I admit, that from the nature of rent, a given capital employed +in agriculture, on any but the land last cultivated, puts in motion a +greater quantity of labour than an equal capital employed in +manufactures and trade, yet I cannot admit that there is any difference +in the quantity of labour employed by a capital engaged in the home +trade, and an equal capital engaged in the foreign trade. + +"The capital which sends Scots manufactures to London, and brings back +English corn and manufactures to Edinburgh," says Adam Smith, +"necessarily replaces, by every such operation, two British capitals +which had both been employed in the agriculture or manufactures of Great +Britain. + +"The capital employed in purchasing foreign goods for home consumption, +when this purchase is made with the produce of domestic industry, +replaces too, by every such operation, two distinct capitals; but one of +them only is employed in supporting domestic industry. The capital which +sends British goods to Portugal, and brings back Portuguese goods to +Great Britain, replaces, by every such operation, only one British +capital, the other is a Portuguese one. Though the returns, therefore, +of the foreign trade of consumption should be as quick as the home +trade, the capital employed in it will give but one half the +encouragement to the industry or productive labour of the country." + +This argument appears to me to be fallacious; for though two capitals, +one Portuguese and one English, be employed, as Dr. Smith supposes, +still a capital will be employed in the foreign trade, double of what +would be employed in the home trade. Suppose that Scotland employs a +capital of a thousand pounds in making linen, which she exchanges for +the produce of a similar capital employed in making silks in England. +Two thousand pounds, and a proportional quantity of labour will be +employed by the two countries. Suppose now, that England discovers, that +she can import more linen from Germany, for the silks which she before +exported to Scotland, and that Scotland discovers that she can obtain +more silks from France in return for her linen, than she before obtained +from England,--will not England and Scotland immediately cease trading +with each other, and will not the home trade of consumption be changed +for a foreign trade of consumption? But although two additional +capitals will enter into this trade, the capital of Germany and that of +France, will not the same amount of Scotch and of English capital +continue to be employed, and will it not give motion to the same +quantity of industry as when it was engaged in the home trade? + + + + +CHAPTER XXV. + +ON CURRENCY AND BANKS. + + +It is not my intention to detain the reader by any long dissertation on +the subject of money. So much has already been written on currency, that +of those who give their attention to such subjects, none but the +prejudiced are ignorant of its true principles. I shall therefore take +only a brief survey of some of the general laws which regulate its +quantity and value. + +Gold and silver, like all other commodities, are valuable only in +proportion to the quantity of labour necessary to produce them, and +bring them to market. Gold is about fifteen times dearer than silver, +not because there is a greater demand for it, nor because the supply of +silver is fifteen times greater than that of gold, but solely because +fifteen times the quantity of labour is necessary to procure a given +quantity of it. + +The quantity of money that can be employed in a country must depend on +its value: if gold alone were employed for the circulation of +commodities, a quantity would be required, one fifteenth only of what +would be necessary, if silver were made use of for the same purpose. + +A circulation can never be so abundant as to overflow; for by +diminishing its value, in the same proportion you will increase its +quantity, and by increasing its value, diminish its quantity.[45] + +While the state coins money, and charges no seignorage, money will be +of the same value as any other piece of the same metal of equal weight +and fineness; but if the state charges a seignorage for coinage, the +coined piece of money will generally exceed the value of the uncoined +piece of metal by the whole seignorage charged, because it will require +a greater quantity of labour, or, which is the same thing, the value of +the produce of a greater quantity of labour, to procure it. + +While the state alone coins, there can be no limit to this charge of +seignorage; for by limiting the quantity of coin, it can be raised to +any conceivable value. + +It is on this principle that paper money circulates: the whole charge +for paper money may be considered as seignorage. Though it has no +intrinsic value, yet, by limiting its quantity, its value in exchange is +as great as an equal denomination of coin, or of bullion in that coin. +On the same principle too, namely, by a limitation of its quantity, a +debased coin would circulate at the value it should bear, if it were of +the legal weight and fineness, not at the value of the quantity of metal +which it actually contained. In the history of the British coinage, we +find accordingly that the currency was never depreciated in the same +proportion that it was debased; the reason of which was, that it never +was multiplied in proportion to its diminished value.[46] + +After the establishment of banks, the state has not the sole power of +coining or issuing money. The currency may as effectually be increased +by paper as by coin; so that if a state were to debase its money, and +limit its quantity, it could not support its value, because the banks +would have an equal power of adding to the whole quantity of +circulation. + +On these principles it will be seen, that it is not necessary that paper +money should be payable in specie to secure its value; it is only +necessary that its quantity should be regulated according to the value +of the metal which is declared to be the standard. If the standard were +gold of a given weight and fineness, paper might be increased with every +fall in the value of gold, or, which is the same thing in its effects, +with every rise in the price of goods. + +"By issuing too great a quantity of paper," says Dr. Smith, "of which +the excess was continually returning, in order to be exchanged for gold +and silver, the Bank of England was, for many years together, obliged to +coin gold to the extent of between eight hundred thousand pounds and a +million a year, or at an average, about eight hundred and fifty thousand +pounds. For this great coinage the Bank, in consequence of the worn and +degraded state into which the gold coin had fallen a few years ago, was +frequently obliged to purchase bullion, at the high price of four pounds +an ounce, which it soon after issued in coin at 3_l._ 17_s._ 10-1/2_d._ +an ounce, losing in this manner between two and a half and three per +cent. upon the coinage of so very large a sum. Though the Bank therefore +paid no seignorage, though the Government was properly at the expense of +the coinage, this liberality of Government did not prevent altogether +the expense of the Bank." + +On the principle above stated, it appears to me most clear, that by not +re-issuing the paper thus brought in, the value of the whole currency, +of the degraded as well as the new gold coin, would have been raised; +when all demands on the Bank would have ceased. + +Mr. Buchanan, however, is not of this opinion, for he says, "that the +great expense to which the Bank was at this time exposed, was +occasioned, not, as Dr. Smith seems to imagine, by any imprudent issue +of paper, but by the debased state of the currency, and the consequent +high price of bullion. The Bank, it will be observed, having no other +way of procuring[47] guineas but by sending bullion to the mint to be +coined, was always forced to issue new coined guineas, in exchange for +its returned notes; and when the currency was generally deficient in +weight, and the price of bullion high in proportion, it became +profitable to draw these heavy guineas from the Bank in exchange for its +paper; to convert them into bullion, and to sell them with a profit for +bank paper, to be again returned to the Bank for a new supply of +guineas, which were again melted and sold. To this drain of specie, the +Bank must always be exposed while the currency is deficient in weight, +as both an easy and a certain profit then arises from the constant +interchange of paper for specie. It may be remarked, however, that to +whatever inconvenience and expense the Bank was then exposed by the +drain of its specie, it never was imagined necessary to rescind the +obligation to pay money for its notes." + +Mr. Buchanan evidently thinks that the whole currency must, necessarily, +be brought down to the level of the value of the debased pieces; but +surely by a diminution of the quantity of the currency, the whole that +remains can be elevated to the value of the best pieces. + +Dr. Smith appears to have forgotten his own principle, in his argument +on colony currency. Instead of ascribing the depreciation of that paper +to its too great abundance, he asks whether, allowing the colony +security to be perfectly good, a hundred pounds, payable fifteen years +hence, would be equally valuable with a hundred pounds to be paid +immediately? I answer yes, if it be not too abundant. + +Experience however shews, that neither a state nor a bank ever have had +the unrestricted power of issuing paper money, without abusing that +power: in all states, therefore, the issue of paper money ought to be +under some check and control; and none seems so proper for that purpose, +as that of subjecting the issuers of paper money to the obligation of +paying their notes, either in gold coin or bullion. + +A currency is in its most perfect state when it consists wholly of paper +money, but of paper money of an equal value with the gold which it +professes to represent. The use of paper instead of gold substitutes the +cheapest in place of the most expensive medium, and enables the country, +without loss to any individual, to exchange all the gold which it before +used for this purpose, for raw materials, utensils, and food, by the use +of which both its wealth and its enjoyments are increased. + +In a national point of view it is of no importance whether the issuers +of this well regulated paper money, be the government or a bank, it will +on the whole be equally productive of riches, whether it be issued by +one or by the other; but it is not so with respect to the interest of +individuals. In a country where the market rate of interest is 7 per +cent., and where the state requires for a particular expense 70,000_l._ +per annum, it is a question of importance to the individuals of that +country, whether they must be taxed to pay this 70,000_l._ per annum, or +whether they could raise it without taxes. Suppose that a million of +money should be required to fit out an expedition. If the state issued a +million of paper, and displaced a million of coin, the expedition would +be fitted out without any charge to the people; but if a bank issued a +million of paper, and lent it to Government at 7 per cent., thereby +displacing a million of coin, the country would be charged with a +continual tax of 70,000_l._ per annum: the people would pay the tax, the +bank would receive it, and the society would in either case be as +wealthy as before; the expedition would have been really fitted out by +the improvement of our system, by rendering capital, of the value of a +million, productive in the form of commodities, instead of letting it +remain unproductive in the form of coin; but the advantage would always +be in favour of the issuers of paper; and as the state represents the +people, the people would have saved the tax, if they, and not the bank, +had issued this million. + +I have already observed, that if there were perfect security that the +power of issuing paper money would not be abused, it would be of no +importance with respect to the riches of the country collectively, by +whom it was issued; and I have now shewn that the public would have a +direct interest that the issuers should be the state, and not a company +of merchants or bankers. The danger, however, is, that this power would +be more likely to be abused, if in the hands of Government, than if in +the hands of a banking company. A company would, it is said, be more +under the control of law, and although it might be their interest to +extend their issues beyond the bounds of discretion, they would be +limited and checked by the power which individuals would have of calling +for bullion or specie. It is argued that the same check would not be +long respected, if Government had the privilege of issuing money; that +they would be too apt to consider present convenience, rather than +future security, and might, therefore, on the alleged grounds of +expediency, be too much inclined to remove the checks, by which the +amount of their issues was controlled. + +Under an arbitrary government this objection would have great force, but +in a free country, with an enlightened legislature, the power of issuing +paper money, under the requisite checks of convertibility at the will of +the holder, might be safely lodged in the hands of commissioners +appointed for that special purpose, and they might be made totally +independent of the control of ministers. + +The sinking fund is managed by commissioners, responsible only to +parliament, and the investment of the money entrusted to their charge, +proceeds with the utmost regularity; what reason can there be to doubt +that the issues of paper money might be regulated with equal fidelity, +if placed under similar management? + +It may be said, that although the advantage accruing to the state, and, +therefore, to the public, from issuing paper money, is sufficiently +manifest, as it would exchange a portion of the national debt, on which +interest is paid by the public, into a debt bearing no interest, yet it +would be disadvantageous to commerce, as it would preclude the +merchants from borrowing money, and getting their bills discounted, the +method in which bank paper is partly issued. + +This, however, is to suppose that money could not be borrowed, if the +Bank did not lend it, and that the market rate of interest and profit +depends on the amounts of the issues of money, and on the channel +through which it is issued. But as a country would have no deficiency of +cloth, of wine, or any other commodity, if they had the means of paying +for it, in the same manner neither would there be any deficiency of +money to be lent, if the borrowers offered good security, and were +willing to pay the market rate of interest for it. + +In another part of this work, I have endeavoured to shew, that the real +value of a commodity is regulated, not by the accidental advantages +which may be enjoyed by some of its producers, but by the real +difficulties encountered by that producer who is least favoured. It is +so with respect to the interest for money; it is not regulated by the +rate at which the Bank will lend, whether it be 5, 4, or 3 per cent., +but by the rate of profits, which can be made by the employment of +capital, and which is totally independent of the quantity, or of the +value of money. Whether a bank lent one million, ten millions, or a +hundred millions, they would not permanently alter the market rate of +interest; they would alter only the value of the money which they thus +issued. In one case 10 or 20 times more money might be required to carry +on the same business, than what might be required in the other. The +applications to the Bank for money, then, depend on the comparison +between the rate of profits that may be made by the employment of it, +and the rate at which they are willing to lend it. If they charge less +than the market rate of interest, there is no amount of money which they +might not lend,--if they charge more than that rate, none but +spendthrifts and prodigals would be found to borrow of them. We +accordingly find, that when the market rate of interest exceeds the rate +of 5 per cent. at which the Bank uniformly lend, the discount office is +besieged with applicants for money; and, on the contrary, when the +market rate is even temporarily under 5 per cent. the clerks of that +office have no employment. + +The reason then why for the last twenty years, the Bank is said to have +given so much aid to commerce, by assisting the merchants with money, +is, because they have, during that whole period, lent money below the +market rate of interest; below that rate at which the merchants could +have borrowed elsewhere; but I confess that to me this seems rather an +objection to their establishment, than an argument in favour of it. + +What should we say of an establishment which should regularly supply +half the clothiers with their wool under the market price? Of what +benefit would it be to the community? It would not extend our trade, +because the wool would equally have been bought, if they had charged the +market price for it. It would not lower the price of cloth to the +consumer, because the price, as I have said before, would be regulated +by the cost of its production to those who were the least favoured. Its +sole effect then, would be to swell the profits of a part of the +clothiers beyond the general and common rate of profits. The +establishment would be deprived of its fair profits, and another part of +the community would be in the same degree benefited. Now this is +precisely the effect of our banking establishments; a rate of interest +is fixed by the law below that at which it can be borrowed in the +market, and at this rate the Bank are required to lend, or not to lend +at all. From the nature of their establishment, they have large funds +which they can only dispose of in this way; and a part of the traders of +the country are unfairly, and for the country unprofitably, benefited by +being enabled to supply themselves with an instrument of trade, at a +less charge than those who must be influenced only by market price. + +The whole business, which the whole community can carry on, depends on +the quantity of capital, that is, of its raw material, machinery, food, +vessels, &c., employed in production. After a well regulated paper money +is established, these can neither be increased nor diminished by the +operations of banking. If then the state were to issue the paper money +of the country, although it should never discount a bill, or lend one +shilling to the public, there would be no alteration in the amount of +trade; for we should have the same quantity of raw materials, of +machinery, food, and ships; and it is probable too, that the same amount +of money might be lent, not at 5 per cent. indeed, a rate fixed by law, +but at 6, 7, or 8 per cent., the result of the fair competition in the +market between the lenders and the borrowers. + +Adam Smith speaks of the advantages derived by merchants from the +superiority of the Scotch mode of affording accommodation to trade, over +the English mode, by means of cash accounts. These cash accounts are +credits given by the Scotch banker to his customers, in addition to the +bills which he discounts for them; but as the banker, in proportion as +he advances money, and sends it into circulation in one way, is debarred +from issuing so much in the other, it is difficult to perceive in what +the advantage consists. If the whole circulation will bear only one +million of paper, one million only will be circulated; and it can be of +no real importance either to the Banker or merchant, whether the whole +be issued in discounting bills, or a part be so issued, and the +remainder be issued by means of these cash accounts. + +It may perhaps be necessary to say a few words on the subject of the two +metals, gold and silver, which are employed in currency, particularly as +this question appears to perplex, in many people's minds, the plain and +simple principles of currency. "In England," says Dr. Smith, "gold was +not considered as a legal tender for a long time after it was coined +into money. The proportion between the values of gold and silver money +was not fixed by any public law or proclamation; but was left to be +settled by the market. If a debtor offered payment in gold, the creditor +might either reject such payment altogether, or accept of it at such a +valuation of the gold, as he and his debtor could agree upon." + +In this state of things it is evident that a guinea might sometimes +pass for 22_s._ or more, and sometimes for 18_s._ or less, depending +entirely on the alteration in the relative market value of gold and +silver. All the variations too in the value of gold, as well as in the +value of silver, would be rated in the gold coin,--it would appear as if +silver was invariable, and that gold only was subject to rise or fall. +Thus, although a guinea passed for 22_s._ instead of 18_s._ gold might +not have varied in value, the variation might have been wholly confined +to the silver, and therefore 22_s._ might have been of no more value +than 18_s._ were before. And on the contrary, the whole variation might +have been in the gold: a guinea, which was worth 18_s._ might have risen +to the value of 22_s._ + +If now we suppose this silver currency to be debased by clipping, and +also increased in quantity, a guinea might pass for 30_s._; for the +silver in 30_s._ of such debased money might be of no more value than +the gold in one guinea. By restoring the silver currency to its mint +value, silver money would rise; but it would appear as if gold fell, for +a guinea would probably be of no more value than 21 of such good +shillings. + +If now gold be also made a legal tender, and every debtor be at liberty +to discharge a debt by the payment of 420 shillings, or twenty guineas, +for every 21_l._ that he owes, he will pay in one or the other according +as he can most cheaply discharge his debt. If with five quarters of +wheat he can procure as much gold bullion as the mint will coin into +twenty guineas, and for the same wheat as much silver bullion as the +mint will coin for him into 430 shillings, he will prefer paying in +silver, because he would be a gainer of ten shillings by so paying his +debt. But if on the contrary he could obtain with this wheat as much +gold as would be coined into twenty guineas and a half, and as much +silver only as would coin into 420 shillings, he would naturally prefer +paying his debt in gold. If the quantity of gold which he could procure +could be coined only into twenty guineas, and the quantity of silver +into 420 shillings, it would be a matter of perfect indifference to him +in which money, silver or gold, it was that he paid his debt. It is not +then a matter of chance; it is not because gold is better fitted for +carrying on the circulation of a rich country, that gold is ever +preferred for the purpose of paying debts; but simply because it is the +interest of the debtor so to pay them. + +During a long period previous to 1797, the year of the restriction on +the Bank payments in coin, gold was so cheap, compared with silver, that +it suited the Bank of England, and all other debtors, to purchase gold +in the market, and not silver, for the purpose of carrying it to the +mint to be coined, as they could in that coined metal more cheaply +discharge their debts. The silver currency was during a great part of +this period very much debased, but it existed in a degree of scarcity, +and therefore on the principle which I have before explained, it never +sunk in its current value. Though so debased, it was still the interest +of debtors to pay in the gold coin. If indeed the quantity of this +debased silver coin had been enormously great, or if the mint had issued +such debased pieces, it might have been the interest of debtors to pay +in this debased money; but its quantity was limited and it sustained its +value, and therefore gold was in practice the real standard of +currency. + +That it was so, is no where denied; but it has been contended that it +was made so by the law which declared that silver should not be a legal +tender for any debt exceeding 25_l._, unless by weight, according to the +mint standard. + +But this law did not prevent any debtor from paying any debt, however +large its amount, in silver currency fresh from the mint; that the +debtor did not pay in this metal, was not a matter of chance, nor a +matter of compulsion, but wholly the effect of choice; it did not suit +him to take silver to the mint, it did suit him to take gold thither. It +is probable that if the quantity of this debased silver in circulation +had been enormously great, and also a legal tender, that a guinea would +have been again worth thirty shillings; but it would have been the +debased shilling that would have fallen in value, and not the guinea +that had risen. + +It appears then, that whilst each of the two metals was equally a legal +tender for debts of any amount, we were subject to a constant change in +the principal standard measure of value. It would sometimes be gold, +sometimes silver, depending entirely on the variations in the relative +value of the two metals, and at such times the metal, which was not the +standard, would be melted, and withdrawn from circulation, as its value +would be greater in bullion than in coin. This was an inconvenience +which it was highly desirable should be remedied, but so slow is the +progress of improvement, that although it had been unanswerably +demonstrated by Mr. Locke, and had been noticed by all writers on the +subject of money since his day, a better system was never adopted till +the last session of Parliament, when it was enacted that gold only +should be a legal tender for any sum exceeding forty-two shillings. + +Dr. Smith does not appear to have been quite aware of the effect of +employing two metals as currency, and both a legal tender for debts of +any amount; for he says that "in reality, during the continuance of any +one regulated proportion between the respective values of the different +metals in coin, the value of the most precious metal regulates the value +of the whole coin." Because gold was in his day the medium in which it +suited debtors to pay their debts, he thought that it had some inherent +quality by which it did then, and always would regulate the value of +silver coin. + +On the reformation of the gold coin in 1774 a new guinea fresh from the +mint would exchange for only twenty-one debased shillings; but in the +reign of King William, when the silver coin was in precisely the same +condition, a guinea also new and fresh from the mint would exchange for +thirty shillings. On this Mr. Buchanan observes, "here, then, is a most +singular fact, of which the common theories of currency offer no +account; the guinea exchanging at one time for thirty shillings, its +intrinsic worth in a debased silver currency, and afterwards the same +guinea exchanged for only twenty-one of those debased shillings. It is +clear that some great change must have intervened in the state of the +currency between these two different periods, of which Dr. Smith's +hypothesis offers no explanation." + +It appears to me, that the difficulty may be very simply solved, by +referring this different state of the value of the guinea at the two +periods mentioned, to the different _quantities_ of debased silver +currency in circulation. In King William's reign gold was not a legal +tender, it passed only at a conventional value. All the large payments +were probably made in silver, particularly as paper currency, and the +operations of banking, were then little understood. The quantity of this +debased silver money exceeded the quantity of silver money, which would +have been maintained in circulation, if nothing but undebased money had +been in use; and consequently it was depreciated as well as debased. But +in the succeeding period when gold was a legal tender, when bank-notes +also were used in effecting payments, the quantity of debased silver +money did not exceed the quantity of silver coin fresh from the mint, +which would have circulated if there had been no debased silver money; +hence though the money was debased, it was not depreciated. Mr. +Buchanan's explanation is somewhat different, he thinks that a +subsidiary currency is not liable to depreciation, but that the main +currency is. In King William's reign silver was the main currency, and +hence was liable to depreciation. In 1774 it was a subsidiary currency, +and therefore maintained its value. Depreciation, however, does not +depend on a currency being the subsidiary or the main currency, it +depends wholly on its being in excess of quantity. + +To a moderate seignorage on the coinage of money there cannot be much +objection, particularly on that currency which is to effect the smaller +payments. Money is generally enhanced in value to the full amount of the +seignorage, and therefore it is a tax which in no way affects those who +pay it, while the quantity of money is not in excess. It must, however, +be remarked, that in a country where a paper currency is established, +although the issuers of such paper should be liable to pay it in specie +on the demand of the holder, still, both their notes and the coin might +be depreciated to the full amount of the seignorage on that coin, which +is alone the legal tender, before the check, which limits the +circulation of paper, would operate. If the seignorage on gold coin were +5 per cent., for instance, the currency, by an abundant issue of +bank-notes, might be really depreciated 5 per cent. before it would be +the interest of the holders to demand coin for the purpose of melting it +into bullion; a depreciation to which we should never be exposed, if +either there was no seignorage on the gold coin; or, if a seignorage +were allowed, the holders of bank-notes might demand bullion, and not +coin, in exchange for them, at the mint price of 3_l._ 17_s._ 10-1/2_d._ +Unless then the bank should be obliged to pay their notes in bullion or +coin, at the will of the holder, the late law which allows a seignorage +of 6 per cent., or four pence per oz., on the silver coin, but which +directs that gold shall be coined by the mint without any charge +whatever, is perhaps the most proper, as it will more effectually +prevent any unnecessary variation of the currency.[48] + + + + +CHAPTER XXVI. + +ON THE COMPARATIVE VALUE OF GOLD, CORN, AND LABOUR, IN RICH AND IN POOR +COUNTRIES. + + +"Gold and silver, like all other commodities," says Adam Smith, +"naturally seek the market where the best price is given for them; and +the best price is commonly given for every thing in the country which +can best afford it. Labour, it must be remembered, is the ultimate price +which is paid for every thing; and in countries where labour is equally +well rewarded, the money price of labour will be in proportion to that +of the subsistence of the labourer. But gold and silver will naturally +exchange for a greater quantity of subsistence in a rich than in a poor +country; in a country which abounds with subsistence, than in one which +is but indifferently supplied with it." + +But corn is a commodity, as well as gold, silver, and other things; if +all commodities, therefore, have a high exchangeable value in a rich +country, corn must not be excepted; and hence we might correctly say, +that corn exchanged for a great deal of money, because it was dear, and +that money too exchanged for a great deal of corn, because that also was +dear; which is to assert that corn is dear and cheap at the same time. +No point in political economy can be better established, than that a +rich country is prevented from increasing in population, in the same +ratio as a poor country, by the progressive difficulty of providing +food. That difficulty must necessarily raise the relative price of food, +and give encouragement to its importation. How then can money, or gold +and silver, exchange for more corn in rich, than in poor countries? It +is only in rich countries, where corn is dear, that landholders induce +the legislature to prohibit the importation of corn. Who ever heard of a +law to prevent the importation of raw produce in America or +Poland?--Nature has effectually precluded its importation by the +comparative facility of its production in those countries. + +How then can it be true, that "if you except corn, and such other +vegetables, as are raised altogether by human industry, all other sorts +of rude produce--cattle, poultry, game of all kinds, the useful fossils +and minerals of the earth, &c., naturally grow dearer as the society +advances." Why should corn and vegetables alone be excepted? Dr. Smith's +error throughout his whole work, lies in supposing that the value of +corn is constant; that though the value of all other things may, the +value of corn never can be raised. Corn, according to him, is always of +the same value, because it will always feed the same number of people. +In the same manner it might be said, that cloth is always of the same +value, because it will always make the same number of coats. What can +value have to do with the power of feeding and clothing? + +Corn, like every other commodity, has in every country its natural +price, viz. that price which is necessary to its production, and without +which it could not be cultivated: it is this price which governs its +market price, and which determines the expediency of exporting it to +foreign countries. If the importation of corn were prohibited in +England, its natural price might rise to 6_l._ per quarter in England, +whilst it was only at half that price in France. If at this time, the +prohibition of importation were removed, corn would fall in the English +market, not to a price between 6_l._ and 3_l._, but ultimately and +permanently to the natural price of France, the price at which it could +be furnished to the English market, and afford the usual and ordinary +profits of stock in France; and it would remain at this price, whether +England consumed a hundred thousand, or a million of quarters. If the +demand of England were for the latter quantity, it is probable that, +owing to the necessity under which France would be, of having recourse +to land of a worse quality, to furnish this large supply, the natural +price would rise in France; and this would of course affect also the +price of corn in England. All that I contend for is, that it is the +natural price of commodities in the exporting country, which ultimately +regulates the prices at which they shall be sold, if they are not the +objects of monopoly, in the importing country. + +But Dr. Smith, who has so ably supported the doctrine of the natural +price of commodities ultimately regulating their market price, has +supposed a case in which he thinks that the market price would not be +regulated either by the natural price of the exporting or of the +importing country. "Diminish the real opulence either of Holland, or the +territory of Genoa," he says, "while the number of their inhabitants +remains the same; diminish their power of supplying themselves from +distant countries, and the price of corn, instead of sinking with that +diminution in the quantity of their silver which must necessarily +accompany this declension, either as its cause or as its effect, will +rise to the price of a famine." + +To me it appears, that the very reverse would take place: the diminished +power of the Dutch or Genoese to purchase generally, might depress the +price of corn for a time below its natural price in the country from +which it was exported, as well as in the countries in which it was +imported, but it is quite impossible that it could ever raise it above +that price. It is only by increasing the opulence of the Dutch or +Genoese, that you could increase the demand, and raise the price of corn +above its former price; and that would take place only for a very +limited time, unless new difficulties should arise in obtaining the +supply. + +Dr. Smith further observes on this subject: "When we are in want of +necessaries, we must part with all superfluities, of which the value, as +it rises in times of opulence and prosperity, so it sinks in times of +poverty and distress." This is undoubtedly true; but he continues, "it +is otherwise with necessaries. Their real price, the quantity of labour +which they can purchase or command, rises in times of poverty and +distress, and sinks in times of opulence and prosperity, which are +always times of great abundance, for they could not otherwise be times +of opulence and prosperity. Corn is a necessary, silver is only a +superfluity." + +Two propositions are here advanced, which have no connexion with each +other; one, that under the circumstances supposed, corn would command +more labour, which is not disputed; the other, that corn would sell at +a higher money price, that it would exchange for more silver; this I +contend to be erroneous. It might be true, if corn were at the same time +scarce, if the usual supply had not been furnished. But in this case it +is abundant, it is not pretended that a less quantity than usual is +imported, or that more is required. To purchase corn, the Dutch or +Genoese want money, and to obtain this money, they are obliged to sell +their superfluities. It is the market value and price of these +superfluities which falls, and money appears to rise as compared with +them. But this will not tend to increase the demand for corn, nor to +lower the value of money, the only two causes which can raise the price +of corn. Money, from a want of credit, and from other causes, may be in +great demand, and consequently dear, comparatively with corn; but on no +just principle can it be maintained, that under such circumstances money +would be cheap, and therefore, that the price of corn would rise. + +When we speak of the high or low value of gold, silver, or any other +commodity in different countries, we should always mention some medium +in which we are estimating them, or no idea can be attached to the +proposition. Thus, when gold is said to be dearer in England than in +Spain, if no commodity is mentioned, what notion does the assertion +convey? If corn, olives, oil, wine, and wool, be at a cheaper price in +Spain than in England; estimated in those commodities, gold is dearer in +Spain. If again, hardware, sugar, cloth, &c. be at a lower price in +England than in Spain, then, estimated in those commodities, gold is +dearer in England. Thus gold appears dearer or cheaper in Spain, as the +fancy of the observer may fix on the medium by which he estimates its +value. Adam Smith, having stamped corn and labour as an universal +measure of value, would naturally estimate the comparative value of gold +by the quantity of those two objects for which it would exchange: and, +accordingly, when he speaks of the comparative value of gold in two +countries, I understand him to mean its value estimated in corn and +labour. + +But we have seen, that, estimated in corn, gold may be of very different +value in two countries. I have endeavoured to shew that it will be low +in rich countries, and high in poor countries; Adam Smith is of a +different opinion: he thinks that the value of gold estimated in corn is +highest in rich countries. But without further examining which of these +opinions is correct, either of them is sufficient to shew, that gold +will not necessarily be lower in those countries which are in possession +of the mines, though this is a proposition maintained by Adam Smith. +Suppose England to be possessed of the mines, and Adam Smith's opinion, +that gold is of the greatest value in rich countries, to be correct: +although gold would naturally flow from England to all other countries +in exchange for their _goods_, it would not follow that gold was +necessarily lower in England, as compared with corn and labour, than in +those countries. In another place, however, Adam Smith speaks of the +precious metals being necessarily lower in Spain and Portugal, than in +other parts of Europe, because those countries happen to be almost the +exclusive possessors of the mines which produce them. "Poland, where the +feudal system still continues to take place at this day as beggarly a +country as it was before the discovery of America. _The money price of +corn, however, has risen_; THE REAL VALUE OF THE PRECIOUS METALS HAS +FALLEN in Poland, in the same manner as in other parts of Europe. Their +quantity, therefore, must have increased there as in other places, _and +nearly in the same proportion to the annual produce of the land and +labour_. This increase of the quantity of those metals, however, has +not, it seems, increased that annual produce, has neither improved the +manufactures and agriculture of the country, nor mended the +circumstances of its inhabitants. Spain and Portugal, the countries +which possess the mines, are, after Poland, perhaps, the two most +beggarly countries in Europe. The value of the precious metals, however, +_must be lower in Spain and Portugal_ than in any other parts of Europe, +loaded, not only with a freight and insurance, but with the expense of +smuggling, their exportation being either prohibited, or subjected to a +duty. _In proportion to the annual produce of the land and labour, +therefore, their quantity must be greater in_ those countries than in +any other part of Europe: those countries, however, are poorer than the +greater part of Europe. Though the feudal system has been abolished in +Spain and Portugal, it has not been succeeded by a much better." + +Dr. Smith's argument appears to me to be this:--Gold, when estimated in +corn, is cheaper in Spain than in other countries, and the proof of this +is, not that corn is given by other countries to Spain for gold, but +that cloth, sugar, hardware, are by those countries given in exchange +for that metal. + + + + +CHAPTER XXVII. + +TAXES PAID BY THE PRODUCER. + + +M. Say greatly magnifies the inconveniences which result if a tax on a +manufactured commodity is levied at an early, rather than at a late +period of its manufacture. The manufacturers, he observes, through whose +hands the commodity may successively pass, must employ greater funds in +consequence of having to advance the tax, which is often attended with +considerable difficulty to a manufacturer of very limited capital and +credit. To this observation no objection can be made. + +Another inconvenience on which he dwells is, that in consequence of the +advance of the tax, the profits on the advance also must be charged to +the consumer, and that this additional tax is one from which the +treasury derives no advantage. + +In this latter objection I cannot agree with M. Say. The state, we will +suppose, wants to raise _immediately_ 1000_l._ and levies it on a +manufacturer, who will not, for a twelve-month, be able to charge it to +the consumer on his finished commodity. In consequence of such delay, he +is obliged to charge for his commodity an additional price, not only of +1000_l._ the amount of the tax, but probably of 1100_l._, 100_l._ being +for interest on the 1000_l._ advanced. But in return for this additional +100_l._ paid by the consumer, he has a real benefit, inasmuch as his +payment of the tax which Government required immediately, and which he +must finally pay, has been postponed for a year; an opportunity, +therefore, has been afforded to him of lending to the manufacturer, who +had occasion for it, the 1000_l._ at 10 per cent., or at any other rate +of interest which might be agreed upon. Eleven hundred pounds payable at +the end of one year, when money is at 10 per cent. interest, is of no +more value than 1000_l._ to be paid immediately. If Government delayed +receiving the tax for one year till the manufacture of the commodity +was completed, it would, perhaps, be obliged to issue an Exchequer bill +bearing interest, and it would pay as much for interest as the consumer +would save in price, excepting, indeed, that portion of the price which +the manufacturer might be enabled, in consequence of the tax, to add to +his own real gains. If, for the interest of the Exchequer bill, +Government would have paid 5 per cent., a tax of 50_l._ is saved by not +issuing it. If the manufacturer borrowed the additional capital at 5 per +cent., and charged the consumer 10 per cent., he also will have gained 5 +per cent. on his advance over and above his usual profits, so that the +manufacturer and Government together gain, or save, precisely the sum +which the consumer pays. + +M. Simonde, in his excellent work, _De la Richesse Commerciale_, +following the same line of argument as M. Say, has calculated that a tax +of 4000 francs, paid originally by a manufacturer, whose profits were at +the moderate rate of 10 per cent., would, if the commodity manufactured +only passed through the hands of five different persons, be raised to +the consumer to the sum of 6734 francs. This calculation proceeds on +the supposition, that he who first advanced the tax, would receive from +the next manufacturer 4400 francs, and he again from the next, 4840 +francs; so that at each step 10 per cent. on its value would be added to +it. This is to suppose that the value of the tax would be accumulating +at compound interest, not at the rate of 10 per cent. per annum, but at +an absolute rate of 10 per cent., at every step of its progress. This +opinion of M. de Simonde would be correct if five years elapsed between +the first advance of the tax, and the sale of the taxed commodity to the +consumer; but if one year only elapsed, a remuneration of 400 francs, +instead of 2734, would give a profit at the rate of 10 per cent. per +annum, to all who had contributed to the advance of the tax, whether the +commodity had passed through the hands of five manufacturers or fifty. + + + + +CHAPTER XXVIII. + +ON THE INFLUENCE OF DEMAND AND SUPPLY ON PRICES. + + +It is the cost of production which must ultimately regulate the price of +commodities, and not, as has been often said, the proportion between the +supply and demand: the proportion between supply and demand may, indeed, +for a time affect the market value of a commodity, until it is supplied +in greater or less abundance, according as the demand may have increased +or diminished; but this effect will be only of temporary duration. + +Diminish the cost of production of hats, and their price will ultimately +fall to their new natural price, although the demand should be doubled, +trebled, or quadrupled. Diminish the cost of subsistence of men, by +diminishing the natural price of the food and clothing, by which life +is sustained, and wages will ultimately fall, notwithstanding that the +demand for labourers may very greatly increase. + +The opinion that the price of commodities depends solely on the +proportion of supply to demand, or demand to supply, has become almost +an axiom in political economy, and has been the source of much error in +that science. It is this opinion which has made Mr. Buchanan maintain +that wages are not influenced by a rise or fall in the price of +provisions, but solely by the demand and supply of labour; and that a +tax on the wages of labour would not raise wages, because it would not +alter the proportion of the demand of labourers to the supply. + +The demand for a commodity cannot be said to increase, if no additional +quantity of it be purchased or consumed; and yet under such +circumstances its money value may rise. Thus, if the value of money were +to fall, the price of every commodity would rise, for each of the +competitors would be willing to spend more money than before on its +purchase; but though its price rose 10 or 20 per cent. if no more were +bought than before, it would not, I apprehend, be admissible to say, +that the variation in the price of the commodity was caused by the +increased demand for it. Its natural price, its money cost of +production, would be really altered by the altered value of money; and +without any increase of demand, the price of the commodity would be +naturally adjusted to that new value. + +"We have seen," says M. Say, "that the cost of production determines the +lowest price to which things can fall: the price below which they cannot +remain for any length of time, because production would then be either +entirely stopped or diminished." Vol. ii. p. 26. + +He afterwards says that the demand for gold having increased in a still +greater proportion than the supply, since the discovery of the mines, +"its price in goods, instead of falling in the proportion of ten to one, +fell only in the proportion of four to one;" that is to say, instead of +falling in proportion as its natural price had fallen, fell in +proportion as the supply exceeded the demand.[49] "_The value of every +commodity rises always in a direct ratio to the demand, and in an +inverse ratio to the supply._" + +The same opinion is expressed by the Earl of Lauderdale. + +"With respect to the variations in value, of which every thing valuable +is susceptible, if we could for a moment suppose that any substance +possessed intrinsic and fixed value, so as to render an assumed quantity +of it constantly, under all circumstances, of an equal value, then the +degree of value of all things, ascertained by such a fixed standard, +would vary according to the proportion _betwixt the quantity of them_, +and the demand for them, and every commodity would of course be subject +to a variation in its value, from four different circumstances. + +1. "It would be subject to an increase of its value, from a diminution +of its quantity. + +2. "To a diminution of its value, from an augmentation of its quantity. + +3. "It might suffer an augmentation in its value, from the circumstance +of an increased demand. + +4. "Its value might be diminished by a failure of demand. + +"As it will, however, clearly appear that no commodity can possess fixed +and intrinsic value, so as to qualify it for a measure of the value of +other commodities, mankind are induced to select, as a practical measure +of value, that which appears the least liable to any of these four +sources of variations, _which are the sole causes of alteration of +value_. + +"When in common language, therefore, we express the _value_ of any +commodity, it may vary at one period from what it is at another, in +consequence of eight different contingencies. + +1. "From the four circumstances above stated, in relation to the +commodity of which we mean to express the value. + +2. "From the same four circumstances, in relation to the commodity we +have adopted as a measure of value."[50] + +This is true of monopolized commodities, and indeed of the market price +of all other commodities for a limited period. If the demand for hats +should be doubled, the price would immediately rise, but that rise would +be only temporary, unless the cost of production of hats, or their +natural price, were raised. If the natural price of bread should fall 50 +per cent. from some great discovery in the science of agriculture, the +demand would not greatly increase, for no man would desire more than +would satisfy his wants, and as the demand would not increase, neither +would the supply; for a commodity is not supplied merely because it can +be produced, but because there is a demand for it. Here then we have a +case where the supply and demand have scarcely varied, or if they have +increased they have increased in the same proportion; and yet the price +of bread will have fallen 50 per cent. at a time too when the value of +money had continued invariable. + +Commodities which are monopolized, either by an individual, or by a +company, vary according to the law which Lord Lauderdale has laid down: +they fall in proportion as the sellers augment their quantity, and rise +in proportion to the eagerness of the buyers to purchase them; their +price has no necessary connexion with their natural value: but the +prices of commodities, which are subject to competition, and whose +quantity may be increased in any moderate degree, will ultimately +depend, not on the state of demand and supply, but on the increased or +diminished cost of their production. + + + + +CHAPTER XXIX. + +MR. MALTHUS'S OPINIONS ON RENT. + + +Although the nature of rent has in the former pages of this work been +treated on at some length; yet I consider myself bound to notice some +opinions on the subject, which appear to me erroneous, and which are the +more important, as they are found in the writings of one to whom, of all +men of the present day, some branches of economical science are the most +indebted. Of Mr. Malthus's Essay on Population, I am happy in the +opportunity here afforded me of expressing my admiration. The assaults +of the opponents of this great work have only served to prove its +strength; and I am persuaded that its just reputation will spread with +the cultivation of that science of which it is so eminent an ornament. +Mr. Malthus too--has satisfactorily explained the principles of rent, +and shewed that it rises or falls in proportion to the relative +advantages, either of fertility or situation, of the different lands in +cultivation, and has thereby thrown much light on many difficult points +connected with the subject of rent, which were before either unknown, or +very imperfectly understood; yet he appears to me to have fallen into +some errors, which his authority makes it the more necessary, whilst his +characteristic candour renders it less unpleasing to notice. One of +these errors lies in supposing rent to be a clear gain and a new +creation of riches. + +I do not assent to all the opinions of Mr. Buchanan concerning rent; but +with those expressed in the following passage, quoted from his work by +Mr. Malthus, I fully agree; and therefore I must dissent from Mr. +Malthus's comment on them. + +"In this view it (rent) can form no general addition to the stock of the +community, as the neat surplus in question is nothing more than a +revenue transferred from one class to another; and from the mere +circumstance of its thus changing hands, it is clear that no fund can +arise, out of which to pay taxes. The revenue which pays for the produce +of the land, exists already in the hands of those who purchase that +produce; and, if the price of subsistence were lower, it would still +remain in their hands, where it would be just as available for taxation +as when, by a higher price, it is transferred to the landed proprietor." + +After various observations on the difference between raw produce and +manufactured commodities, Mr. Malthus asks, "Is it possible then, with +M. de Sismondi, to regard rent as the sole produce of labour, which has +a value purely nominal, and the mere result of that augmentation of +price which a seller obtains in consequence of a peculiar privilege; or, +with Mr. Buchanan, to consider it as no addition to the national wealth, +but merely transfer of value, advantageous only to the landlords, and +proportionably _injurious_ to the consumers?"[51] + +I have already expressed my opinion on this subject in treating of rent, +and have now only further to add, that rent is a creation of value, as I +understand that word, but not a creation of wealth. If the price of +corn, from the difficulty of producing any portion of it, should rise +from 4_l._ to 5_l._ per quarter, a million of quarters will be of the +value of 5,000,000_l._ instead of 4,000,000_l._, and as this corn will +exchange not only for more money but for more of every other commodity, +the possessors will have a greater amount of value; and as no one else +will in consequence have a less, the society altogether will be +possessed of greater value, and in that sense rent is a creation of +value. But this value is so far nominal that it adds nothing to the +wealth, that is to say, to the necessaries, conveniences, and enjoyments +of the society. We should have precisely the same quantity, and no more +of commodities, and the same million quarters of corn as before; but the +effect of its being rated at 5_l._ per quarter, instead of 4_l._, would +be to transfer a portion of the value of the corn and commodities from +their former possessors to the landlords. Rent then is a creation of +value, but not a creation of wealth; it adds nothing to the resources +of a country, it does not enable it to maintain fleets and armies; for +the country would have a greater disposable fund if its land were of a +better quality, and it could employ the same capital without generating +a rent. + +In another part of Mr. Malthus's "inquiry" he observes, "that the +immediate cause of rent is obviously the excess of price above the cost +of production at which raw produce sells in the market," and in another +place he says, "that the causes of the high price of raw produce may be +stated to be three:-- + +"First, and mainly, that quality of the earth, by which it can be made +to yield a greater portion of the necessaries of life than is required +for the maintenance of the persons employed on the land. + +"2dly. That quality peculiar to the necessaries of life of being able to +create their own demand, or to raise up a number of demanders in +proportion to the quantity of necessaries produced. + +"And 3dly. The comparative scarcity of the most fertile land." In +speaking of the high price of corn, Mr. Malthus evidently does not mean +the price per quarter or per bushel, but rather the excess of price for +which the whole produce will sell, above the cost of its production, +including always in the term "cost of production," profits as well as +wages. One hundred and fifty quarters of corn at 3_l._ 10_s._ per +quarter, would yield a larger rent to the landlord than 100 quarters at +4_l._, provided the cost of production were in both cases the same. + +High price, if the expression be used in this sense, cannot then be +called a _cause_ of rent; it cannot be said "that the immediate cause of +rent is obviously the excess of price above the cost of production, at +which raw produce sells in the market," for that excess is itself rent. +Rent, Mr. Malthus has defined to be "that portion of the value of the +whole produce which remains to the owner of the land, after all the +outgoings belonging to its cultivation, of whatever kind, have been +paid, including the profits of the capital employed, estimated according +to the usual and ordinary rate of the profits of agricultural stock at +the time being." Now whatever sum this excess may sell for, is money +rent; it is what Mr. Malthus means by "the excess of price above the +cost of production at which raw produce sells in the markets;" and +therefore in an inquiry into the causes which may elevate the price of +raw produce, compared with the cost of production, we are inquiring into +the causes which may elevate rent. + +In reference to the first cause of the rise of rent, Mr. Malthus has the +following observations: "We still want to know why the consumption and +supply are such as to make the price so greatly exceed the cost of +production, and the main cause is evidently the _fertility_ of the earth +in producing the necessaries of life. Diminish this plenty, diminish the +fertility of the soil, and the excess will diminish; diminish it still +further, and it will disappear." True, the excess of necessaries will +diminish and disappear, but that is not the question. The question is, +whether the excess of their price above the cost of their production +will diminish and disappear, for it is on this, that money rent depends. +Is Mr. Malthus warranted in his inference, that because the excess of +quantity will diminish and disappear, therefore "the cause of the _high +price_ of the necessaries of life above the cost of production is to be +found in their abundance, rather than in their scarcity; and is not only +essentially different from the high price occasioned by artificial +monopolies, but from the high price of those peculiar products of the +earth, not connected with food, which may be called natural and +necessary monopolies?" + +Are there no circumstances under which the fertility of the land, and +the plenty of its produce may be diminished, without occasioning a +diminished excess of its price above the cost of production, that is to +say, a diminished rent? If there are, Mr. Malthus's proposition is much +too universal; for he appears to me to state it as a general principle, +true under all circumstances, that rent will rise with the increased +fertility of the land, and will fall with its diminished fertility. + +Mr. Malthus would undoubtedly be right, if, in proportion as the land +yielded abundantly, a greater share of the whole produce were paid to +the landlord; but the contrary is the fact: when no other but the most +fertile land is in cultivation, the landlord has the smallest share of +the whole produce, as well as the smallest value, and it is only when +inferior lands are required to feed an augmenting population, that both +the landlord's share of the whole produce, and the value he receives, +progressively increase. + +Suppose that the demand is for a million of quarters of corn, and that +they are the produce of the land actually in cultivation. Now, suppose +the fertility of all the land to be so diminished, that the very same +lands will yield only 900,000 quarters. The demand being for a million +of quarters, the price of corn would rise, and recourse must necessarily +be had to land of an inferior quality sooner than if the superior land +had continued to produce a million of quarters. But it is this necessity +of taking inferior land into cultivation which is the cause of the rise +of rent. Rent, it must be remembered, is not in proportion to the +absolute fertility of the land in cultivation, but in proportion to its +relative fertility. Whatever cause may drive capital to inferior land, +must elevate rent; the cause of rent being, as stated by Mr. Malthus in +his third proposition, "the comparative scarcity of the most fertile +land." The price of corn will naturally rise with the difficulty of +producing the last portions of it; but as the cost of production will +not increase, as wages and profits taken together will continue always +of the same value,[52] it is evident that the excess of price above the +cost of production, or, in other words, rent, must rise with the +diminished fertility of the land, unless it is counteracted by a great +reduction of capital, population, and demand. It does not appear then +that Mr. Malthus's proposition is correct: rent does not immediately and +necessarily rise or fall with the increased or diminished fertility of +the land; but its increased fertility renders it capable of paying at +some future time an augmented rent. Land possessed of very little +fertility can never bear any rent; land of moderate fertility may be +made, as population increases, to bear a moderate rent; and land of +great fertility a high rent; but it is one thing to be able to bear a +high rent, and another thing actually to pay it. Rent may be lower in a +country where lands are exceedingly fertile than in a country where they +yield a moderate return, it being in proportion rather to relative than +absolute fertility--to the value of the produce, and not to its +abundance. Mr. Malthus says, that the "cause of the excess of price of +the necessaries of life above the cost of production, is to be found in +their abundance rather than their scarcity, and is essentially different +from the high price of those peculiar products of the earth, not +connected with food, which may be called natural and necessary +monopolies." + +In what are they essentially different? Would not the abundance of those +peculiar products of the earth cause a rise of rent, if the demand for +them at the same time increased? and can rent ever rise, whatever the +commodity produced may be, from abundance merely, and without an +increase of demand? + +The second cause of rent mentioned by Mr. Malthus, namely, "that quality +peculiar to the necessaries of life, of being able to create their own +demand, or to raise up a number of demanders in proportion to the +quantity of necessaries produced," does not appear to me to be any way +essential to it. It is not the abundance of necessaries which raises up +demanders, but the abundance of demanders which raises up necessaries. + +We are under no necessity of producing permanently any greater quantity +of a commodity than that which is demanded. If by accident any greater +quantity were produced, it would fall below its natural price, and +therefore would not pay the cost of production, together with the usual +and ordinary profits of stock: thus the supply would be checked till it +conformed to the demand, and the market price rose to the natural price. + +Mr. Malthus appears to me to be too much inclined to think that +population is only increased by the previous provision of food,--"that +it is food that creates its own demand,"--that it is by first providing +food that encouragement is given to marriage, instead of considering +that the general progress of population is affected by the increase of +capital, the consequent demand for labour, and the rise of wages; and +that the production of food is but the effect of that demand. + +It is by giving the workman more money, or any other commodity in which +wages are paid, and which has not fallen in value, that his situation is +improved. The increase of population, and the increase of food will +generally be the effect, but not the necessary effect of high wages. The +amended condition of the labourer, in consequence of the increased value +which is paid him, does not necessarily oblige him to marry and take +upon himself the charge of a family--he may, if it please him, exchange +his increased wages for any commodities that may contribute to his +enjoyments--for chairs, tables, and hardware; or for better clothes, +sugar, and tobacco. His increased wages then will be attended with no +other effect than an increased demand for some of those commodities; and +as the race of labourers will not be materially increased, his wages +will continue permanently high. But although this might be the +consequence of high wages, yet so great are the delights of domestic +society, that in practice it is invariably found that an increase of +population follows the amended condition of the labourer; and it is only +because it does so, that a new and increased demand arises for food. +This demand then is the effect of an increase of population, but not the +cause--it is only because the expenditure of the people takes this +direction, that the market price of necessaries exceeds the natural +price, and that the quantity of food required is produced; and it is +because the number of people is increased, that wages again fall. + +What motive can a farmer have to produce more corn than is actually +demanded, when the consequence would be a depression of its market price +below its natural price, and consequently a privation to him of a +portion of his profits, by reducing them below the general rate? "If," +says Mr. Malthus, "the necessaries of life, the most important products +of land, had not the property of creating an increase of demand +proportioned to their increased quantity, such increased quantity would +occasion a fall in their exchangeable value.[53] However abundant might +be the produce of a country, its population might remain stationary. And +this abundance without a proportionate demand, and with a very high corn +price of labour, which would naturally take place under these +circumstances, might reduce the price of raw produce, like the price of +manufactures, to the cost of production." + +"Might reduce the price of raw produce to the cost of production?" Is it +ever for any length of time either above or below this price? Does not +Mr. Malthus himself, state it never to be so? "I hope," he says, "to be +excused for dwelling a little, and presenting to the reader in various +forms the doctrine, that corn, in reference to the quantity _actually +produced_, is sold at its necessary price like manufactures, because I +consider it as a truth of the highest importance, which has been +overlooked by the economists, by Adam Smith, and all those writers, who +have represented raw produce as selling always at a monopoly price." + +"Every extensive country may thus be considered as possessing a +gradation of machines for the production of corn and raw materials, +including in this gradation not only all the various qualities of poor +land, of which every territory has generally an abundance, but the +inferior machinery which may be said to be employed when good land is +further and further forced for additional produce. As the price of raw +produce continues to rise, these inferior machines are successively +called into action; and as the price of raw produce continues to fall, +they are successively thrown out of action. The illustration here used +serves to shew at once the _necessity of the actual price of corn to the +actual produce_, and the different effect which would attend a great +reduction in the price of any particular manufacture, and a great +reduction in the price of raw produce."[54] + +How are these passages to be reconciled to that which affirms, that if +the necessaries of life had not the property of creating an increase of +demand proportioned to their increased quantity, the abundant quantity +produced would then, and then only, reduce the price of raw produce to +the cost of production? If corn is never under its natural price, it is +never more abundant than the actual population require it to be for +their own consumption; no store can be laid up for the consumption of +others; it can never then by its cheapness and abundance be a stimulus +to population. In proportion as corn can be produced cheaply, the +increased wages of the labourers will have more power to maintain +families. In America, population increases rapidly, because food can be +produced at a cheap price, and not because an abundant supply has been +previously provided. In Europe population increases comparatively +slowly, because food cannot be produced at a cheap value. In the usual +and ordinary course of things, the demand for all commodities precedes +their supply. By saying, that corn would, like manufactures, sink to its +price of production, if it could not raise up demanders, Mr. Malthus +cannot mean that all rent would be absorbed; for he has himself justly +remarked, that if all rent were given up by the landlords, corn would +not fall in price; rent being the effect, and not the cause of high +price, and there being always one quality of land in cultivation which +pays no rent whatever, the corn from which replaces by its price, only +wages and profits. + +In the following passage, Mr. Malthus has given an able exposition of +the causes of the rise in the price of raw produce in rich and +progressive countries, in every word of which I concur; but it appears +to me to be at variance with some of the propositions maintained by him +in some parts of his Essay on Rent. "I have no hesitation in stating, +that, independently of the irregularities in the currency of a country, +and other temporary and accidental circumstances, the cause of the high +comparative money price of corn is its high comparative _real price_, or +the greater quantity of capital and labour which must be employed to +produce it; and that the reasons why the real price of corn is higher, +and continually rising in countries which are already rich, and still +advancing in prosperity and population, is to be found in the necessity +of resorting constantly to poorer land, to machines which require a +greater expenditure to work them, and which consequently occasion each +fresh addition to the raw produce of the country to be purchased at a +greater cost; in short, it is to be found in the important truth, that +corn in a progressive country, is sold at the price necessary to yield +the actual supply; and that, as this supply becomes more and more +difficult, the price rises in proportion." + +The real price of a commodity is here properly stated to depend on the +greater or less quantity of labour and capital (that is, accumulated +labour) which must be employed to produce it. Real price does not, as +some have contended, depend on money value; nor, as others have said, on +value relatively to corn, labour, or any other commodity taken singly, +or to all commodities collectively; but, as Mr. Malthus justly says, "on +the greater (or less) quantity of capital and labour which must be +employed to produce it." + +Among the causes of the rise of rent, Mr. Malthus mentions, "such an +increase of population as will lower the wages of labour." But if, as +the wages of labour fall, the profits of stock rise, and they be +together always of the same value,[55] no fall of wages can raise rent, +for it will neither diminish the portion, nor the value of the portion +of the produce which will be allotted to the farmer and labourer +together, and therefore will not leave a larger portion, nor a larger +value for the landlord. In proportion as less is appropriated for wages, +more will be appropriated for profits, and _vice versa_. This division +will be settled by the farmer and his labourers, without any +interference of the landlord; and indeed it is a matter in which he can +have no interest, otherwise than as one division may be more favourable +than another, to new accumulations, and to a further demand for land. If +wages fall, profits, and not rent, would rise. If wages rose, profits, +and not rent, would fall. The rise of rent and wages, and the fall of +profits, are generally the inevitable effects of the same cause--the +increasing demand for food, the increased quantity of labour required to +produce it, and its consequently high price. If the landlord were to +forego his whole rent, the labourers would not be in the least +benefited. If the labourers were to give up their whole wages, the +landlords would derive no advantage from such a circumstance; but in +both cases the farmer would receive and retain all which they +relinquished. It has been my endeavour to shew in this work, that a +fall of wages would have no other effect than to raise profits. + +Another cause of the rise of rent, according to Mr. Malthus, is "such +agricultural improvements, or such increase of exertions, as will +diminish the number of labourers necessary to produce a given effect." +This would not raise the value of the whole produce, and would therefore +not increase rent. It would rather have a contrary tendency, it would +lower rent; for if in consequence of these improvements, the actual +quantity of food required could be furnished either with fewer hands, or +with a less quantity of land, the price of raw produce would fall, and +capital would be withdrawn from the land.[56] Nothing can raise rent, +but a demand for new land of an inferior quality, or some cause which +shall occasion an alteration in the relative fertility of the land +already under cultivation.[57] Improvements in agriculture, and in the +division of labour, are common to all land; they increase the absolute +quantity of raw produce obtained from each, but probably do not much +disturb the relative proportions which before existed between them. + +Mr. Malthus has justly commented on an error of Adam Smith, and says, +"the substance of his (Dr. Smith's) argument is, that corn is of so +peculiar a nature, that its real price cannot be raised by an increase +of its money price; and that, as it is clearly an increase of real price +alone, which can encourage its production, the rise of money price, +occasioned by a bounty, can have no such effect." + +He continues: "It is by no means intended to deny the powerful influence +of the price of corn upon the price of labour, on an average of a +considerable number of years; but that this influence is not such as to +prevent the movement of capital to, or from the land, which is the +precise point in question, will be made sufficiently evident by a short +inquiry into the manner in which labour is paid, and brought into the +market, and by a consideration of the consequences to which the +assumption of Adam Smith's proposition would inevitably lead."[58] + +Mr. Malthus then proceeds to shew, that demand and high price will as +effectually encourage the production of raw produce, as the demand and +high price of any other commodity will encourage its production. In this +view it will be seen, from what I have said of the effects of bounties, +that I entirely concur. I have noticed the passage Mr. Malthus's +"Observations on the Corn Laws," for the purpose of shewing in what a +different sense the term real price is used here, and in his other +pamphlet, entitled "Grounds of an Opinion, &c." In this passage Mr. +Malthus tells us, that "it is clearly an increase of real price alone +which can encourage the production of corn," and by real price he +evidently means the increase in its value relatively to all other +things, or in other words, the rise in its market above its natural +price, or the cost of its production. If by real price this is what is +meant, Mr. Malthus's opinion is undoubtedly correct; it is the rise in +the market price of corn which alone encourages its production, for it +may be laid down as a principle uniformly true, that the only +encouragement to the increased production of a commodity, is its market +value exceeding its natural or necessary value. + +But this is not the meaning which Mr. Malthus, on other occasions, +attaches to the term, real price. In the Essay on Rent, Mr. Malthus +says, by "the real growing price of corn, I mean the real _quantity_ of +labour and capital, _which has been employed_ to produce the last +additions which have been made to the national produce." In another part +he states "the cause of the high comparative real price of corn to be +the greater _quantity_ of capital and labour, which must be _employed_ +to produce it."[59] Suppose that in the foregoing passage we were to +substitute this definition of real price, would it not then run +thus?--"It is clearly the increase in the quantity of labour and capital +which must be employed to produce corn, which alone can encourage its +production." This would be to say, that it is clearly the rise in the +natural or necessary price of corn, which encourages its production--a +proposition which could not be maintained. It is not the price at which +corn can be produced, that has any influence on the quantity produced, +but the price at which it can be sold. It is in proportion to the degree +of the excess of its price above the cost of production, that capital is +attracted to or repelled from the land. If that excess be such as to +give to capital so employed, a greater than the general profit of stock, +capital will go to the land; if less, it will be withdrawn from it. + +It is not then by an alteration in the real price of corn that its +production is encouraged, but by an alteration in its market price. It +is not "because a greater quantity of capital and labour must be +employed to produce it," Mr. Malthus's just definition of real price, +that more capital and labour are attracted to the land, but because the +market price rises above this its real price, and, notwithstanding the +increased charge, makes the cultivation of land the more profitable +employment of capital. + +Nothing can be more just than the following observations of Mr. Malthus, +on Adam Smith's standard of value. "Adam Smith was evidently led into +this train of argument, from his habit of considering _labour as the +standard measure of value_, and corn as the measure of labour. But that +corn is a very inaccurate measure of labour, the history of our own +country will amply demonstrate; where labour, compared with corn, will +be found to have experienced very great and striking variations, not +only from year to year, but from century to century; and for ten, +twenty, and thirty years together. _And that neither labour nor any +other commodity can be an accurate measure of real value in exchange_, +is now considered as one of the most incontrovertible doctrines of +political economy; and, indeed, follows from the very definition of +value in exchange." + +If neither corn nor labour are accurate measures of real value in +exchange, which they clearly are not, what other commodity +is?--certainly none. If then the expression real price of commodities, +have any meaning, it must be that which Mr. Malthus has stated, in the +Essay on Rent--it must be measured by the proportionate quantity of +capital and labour necessary to produce them. + +In Mr. Malthus's "Inquiry into the Nature of Rent," he says, "that, +independently of irregularities in the currency of a country, and other +temporary and accidental circumstances, the cause of the high +comparative money price of corn, is its high comparative real price, _or +the greater quantity of capital and labour which must be employed to +produce it_."[60] + +This, I apprehend, is the correct account of all permanent variations in +price, whether of corn or of any other commodity. A commodity can only +permanently rise in price, either because a greater quantity of capital +and labour must be employed to produce it, or because money has fallen +in value; and on the contrary, it can only fall in price, either because +a less quantity of capital and labour may be employed to produce it, or +because money has risen in value. + +A variation arising from the latter of either of these alternatives, an +altered value of money, is common at once to all commodities; but a +variation arising from the former cause, is confined to the particular +commodity requiring more or less labour in its production. By allowing +the free importation of corn, or by improvements in agriculture, raw +produce would fall; but the price of no other commodity would be +affected, except in proportion to the fall in the real value, or cost of +production, of the raw produce which entered into its composition. + +Mr. Malthus, having acknowledged this principle, cannot, I think, +consistently maintain that the whole money value of all the commodities +in the country must sink exactly in proportion to the fall in the price +of corn. If the corn consumed in the country were of the value of ten +millions per annum, and the manufactured and foreign commodities +consumed were of the value of twenty millions, making altogether thirty +millions, it would not be admissible to infer that the annual +expenditure was reduced to 15 millions, because corn had fallen 50 per +cent., or from 10 to 5 millions. + +The value of the raw produce which entered into the composition of these +manufactures might not, for example, exceed 20 per cent. of their whole +value, and, therefore, the fall in the value of manufactured +commodities, instead of being from 20 to 10 millions, would be only from +20 to 18 millions; and after the fall in the price of corn of 50 per +cent., the whole amount of the annual expenditure, instead of falling +from 30 to 25 millions, would fall from 30 to 23 millions.[61] + +Instead of thus considering the effect of a fall in the value of raw +produce; as Mr. Malthus was bound to do by his previous admission; he +considers it as precisely the same thing with a rise of 100 per cent. in +the value of money, and, therefore, argues as if all commodities would +sink to half their former price. + +"During the twenty years, beginning with 1794," he says, "and ending +with 1813, the average price of British corn per quarter was about +eighty-three shillings; during the ten years ending with 1813, +ninety-two shillings; and during the last five years of the twenty, one +hundred and eight shillings. In the course of these twenty years, the +Government borrowed near five hundred millions of real capital; for +which, on a rough average, exclusive of the sinking fund, it engaged to +pay about five per cent. But if corn should fall to fifty shillings a +quarter, and other commodities in proportion, instead of an interest of +about five per cent., the Government would really pay an interest of +seven, eight, nine, and, for the last two hundred millions, ten per +cent. + +"To this extraordinary generosity towards the stockholders, I should be +disposed to make no kind of objection, if it were not necessary to +consider by whom it is to be paid; and a moment's reflection will shew +us, that it can only be paid by the industrious classes of society, and +the landlords, that is, by all those whose nominal income will vary with +the variations in the measure of value. The nominal revenues of this +part of the society, compared with the average of the last five years, +will be diminished one half, and out of this nominally reduced income, +they will have to pay the same nominal amount of taxes."[62] + +In the first place, I think, I have already shewn, that the nominal +income of the whole country will not be diminished in the proportion +for which Mr. Malthus here contends; it would not follow, that because +corn fell fifty per cent., each man's income would be reduced fifty per +cent. in value.[63] + +In the second place, I think the reader will agree with me, that the +increased charge, if admitted, would not fall exclusively "on the +landlords and the industrious classes of society:" the stockholder, by +his expenditure, contributes his share to the support of the public +burdens in the same way as the other classes of society. If then money +became really more valuable, although he would receive a greater value, +he would also pay a greater value in taxes, and, therefore, it cannot be +true that the whole addition to the real value of the interest would be +paid by "the landlords and the industrious classes." + +The whole argument, however, of Mr. Malthus, is built on an infirm +basis: it supposes, because the gross income of the country is +diminished, that, therefore, the net income must also be diminished, in +the same proportion. It has been one of the objects of this work to +shew, that with every fall in the real value of necessaries, the wages +of labour would fall, and that the profits of stock would rise--in other +words, that of any given annual value a less portion would be paid to +the labouring class, and a larger portion to those whose funds employed +this class. Suppose the value of the commodities produced in a +particular manufacture to be 1000_l._, and to be divided between the +master and his labourers, in the proportion of 800_l._ to labourers, and +200_l._ to the master; if the value of these commodities should fall to +900_l._, and 100_l._ be saved from the wages of labour, in consequence +of the fall of necessaries, the net income of the masters would be in no +degree impaired, and, therefore, he could with just as much facility pay +the same amount of taxes, after, as before the reduction of price.[64] + +And that wages would fall as much as the mass of commodities, or rather +that the net income remaining to landlords, farmers, manufacturers, +traders, and stockholders, the only real payers of taxes, would be as +great as before, is very highly probable; for nothing would be even +nominally lost to the society by the freest importation of corn, but +that portion of rent of which the landlords would be deprived in +consequence of the fall of raw produce. + +The difference between the value of corn and all other commodities sold +in the country, before and after the importation of cheap corn, would be +only equal to the fall of rent; because, independently of rent, the same +quantity of labour would always produce the same value. + +The whole reduction which is made in wages, is a value actually added to +the value of the net income before possessed by the society; whilst the +only value which is taken from that net income is the value of that part +of their rent of which the landlords will be deprived by a fall of raw +produce. When we consider that the fall of produce acts upon a limited +number of landlords, while it reduces the wages not only of those who +are employed in agriculture, but of all those who are occupied in +manufactures and commerce, it may well be doubted, whether the net +revenue of the society would suffer any abatement whatever.[65] + +But, if it did, it must not be supposed that the ability to pay taxes +will diminish in the same degree, as the money value, even of the net +revenue. Suppose that my net revenue were diminished from 1000_l._ to +900_l._; but that my taxes continued to be the same, to be 100_l._: is +it not probable that my ability to pay this 100_l._ may be greater with +the smaller than with the larger revenue? Commodities cannot fall so +universally as Mr. Malthus supposes, without greatly benefiting the +consumers, without enabling them with a much smaller money revenue to +command more of the conveniences, necessaries, and luxuries of human +life; and the question resolves itself into this--whether those who are +in possession of the net revenue of the country will be benefited as +much by the diminished price of commodities, as they will suffer by the +greater real taxation. On which side the balance may preponderate, will +depend on the proportion which taxes bear to the annual revenue; if it +be enormously large, it may undoubtedly more than counterbalance the +advantages from cheap necessaries; but I trust enough has been said, to +shew, that Mr. Malthus has very greatly over-rated the loss to the +tax-payers, from a fall in one of the most important necessaries of +life; and that if they were not entirely remunerated for the real +increase of taxes, by the fall of wages and increase of profits, they +would be more than compensated, by the cheaper price of all objects on +which their incomes were expended. + +That the stockholder is benefited by a great fall in the value of corn, +cannot be doubted; but if no one else be injured, that is no reason why +corn should be made dear: for the gains of the stockholder are national +gains, and increase, as all other gains do, the real wealth and power of +the country. If they are unjustly benefited, let the degree in which +they are so, be accurately ascertained, and then it is for the +legislature to devise a remedy; but no policy can be more unwise than to +shut ourselves out from the great advantages arising from cheap corn, +and abundant productions, merely because the stockholder would have an +undue proportion of the increase. + +To regulate the dividends on stock by the money value of corn, has never +yet been attempted. If justice and good faith required such a +regulation, a great debt is due to the old stockholders; for they have +been receiving the same money dividends for more than a century, +although corn has, perhaps, been doubled or trebled in price.[66] + +Mr. Malthus says, "It is true, that the last additions to the +agricultural produce of an improving country are not attended with a +large proportion of rent; and it is precisely this circumstance that may +make it answer to a rich country to import some of its corn, if it can +be secure of obtaining an equable supply. But in all cases the +importation of foreign corn must fail to answer nationally, if it is not +so much cheaper than the corn that can be grown at home, as to equal +both the profits and the rent of the grain which it displaces." +_Grounds_, &c. p. 36. + +As rent is the effect of the high price of corn, the loss of rent is the +effect of a low price. Foreign corn never enters into competition with +such home corn as affords a rent; the fall of price invariably affects +the landlord till the whole of his rent is absorbed;--if it fall still +more, the price will not afford even the common profits of stock; +capital will then quit the land for some other employment, and the corn, +which was before grown upon it, will then, and not till then, be +imported. From the loss of rent, there will be a loss of value, of +estimated money value, but there will be a gain of wealth. The amount +of the raw produce and other productions together will be increased, +from the greater facility with which they are produced; they will, +though augmented in quantity, be diminished in value. + +Two men employ equal capitals--one in agriculture, the other in +manufactures. That in agriculture produces a net annual value of +1200_l._ of which 1000_l._ is retained for profit, and 200_l._ is paid +for rent; the other in manufactures produces only an annual value of +1000_l._ Suppose that by importation, the same quantity of corn can be +obtained for commodities which cost 950_l._, and that, in consequence, +the capital employed in agriculture is diverted to manufactures, where +it can produce a value of 1000_l._ the net revenue of the country will +be of less value, it will be reduced from 2200_l._ to 2000_l._, but +there will not only be the same quantity of commodities and corn for its +own consumption, but also as much addition to that quantity as 50_l._ +would purchase, the difference between the value at which its +manufactures were sold to the foreign country, and the value of the corn +which was purchased from it. + +Mr. Malthus says, "It has been justly observed by Adam Smith, that no +equal quantity of productive labour employed in manufactures can ever +occasion so great a reproduction as in agriculture." If Adam Smith +speaks of value, he is correct, but if he speaks of riches, which is the +important point, he is mistaken, for he has himself defined riches to +consist of the necessaries, conveniences, and enjoyments of human life. +One set of necessaries and conveniences admits of no comparison with +another set; value in use cannot be measured by any known standard, it +is differently estimated by different persons. + + FOOTNOTES: + + [1] Chap. xv. part i. "Des Débouchés," contains in + particular some very important principles, which I believe + were first explained by this distinguished writer. + + [2] Book i. chap. 5. + + [3] "But though labour be the real measure of the + exchangeable value of all commodities, it is not that by + which their value is commonly estimated. It is often + difficult to ascertain the proportion between two + different quantities of labour. The time spent in two + different sorts of work will not always alone determine + this proportion. The different degrees of hardship + endured, and of ingenuity exercised, must likewise be + taken into account. There may be more labour in an hour's + hard work, than in two hours' easy business; or, in an + hour's application to a trade, which it costs ten years' + labour to learn, than in a month's industry at an ordinary + and obvious employment. But it is not easy to find any + accurate measure, either of hardship or ingenuity. In + exchanging, indeed, the different productions of different + sorts of labour for one another, some allowance is + commonly made for both. It is adjusted, however, not by + any accurate measure, but by the higgling and bargaining + of the market, according to that sort of rough equality, + which, though not exact, is sufficient for carrying on the + business of common life."--_Wealth of Nations._ Book i. + chap. 10. + + [4] Wealth of Nations, book i. chap. 10. + + [5] "The earth, as we have already seen, is not the only + agent of nature which has a productive power; but it is + the only one, or nearly so, that one set of men take to + themselves, to the exclusion of others; and of which + consequently they can appropriate the benefits. The waters + of rivers, and of the sea, by the power which they have of + giving movement to our machines, carrying our boats, + nourishing our fish, have also a productive power; the + wind which turns our mills, and even the heat of the sun, + work for us; but happily no one has yet been able to say: + the 'wind and the sun are mine, and the service which they + render must be paid for.'"--_Economie Politique, par J. B. + Say_, vol. ii. p. 124. + + [6] Has not M. Say forgotten, in the following passage, + that it is the cost of production which ultimately + regulates price? "The produce of labour employed on the + land has this peculiar property, that it does not become + more dear by becoming more scarce, because population + always diminishes at the same time that food diminishes, + and consequently the quantity of these products + _demanded_, diminishes at the same time as the quantity + supplied. Besides it is not observed that corn is more + dear in those places where there is plenty of uncultivated + land, than in completely cultivated countries. England and + France were much more imperfectly cultivated in the middle + ages than they are now; they produced much less raw + produce: nevertheless from all that we can judge by a + comparison with the value of other things, corn was not + sold at a dearer price. If the produce was less, so was + the population; the weakness of the demand compensated the + feebleness of the supply." vol. ii. 338. M. Say being + impressed with the opinion that the price of commodities + is regulated by the price of labour, and justly supposing + that charitable institutions of all sorts tend to increase + the population beyond what it otherwise would be, and + therefore to lower wages, says, "I suspect that the + cheapness of the goods, which come from England is partly + caused by the numerous charitable institutions which exist + in that country." vol. ii. 277. This is a consistent + opinion in one who maintains that wages regulate price. + + [7] "In agriculture too," says Adam Smith, "nature labours + along with man; and though her labour costs no expense, + its produce has its value, as well as that of the most + expensive workman." The labour of nature is paid, not + because she does much, but because she does little. In + proportion as she becomes niggardly in her gifts, she + exacts a greater price for her work. Where she is + munificently beneficent, she always works gratis. "The + labouring cattle employed in agriculture, not only + occasion, like the workmen in manufactures, the + reproduction of a value equal to their own consumption, or + to the capital which employs them, together with its + owner's profits, but of a much greater value. Over and + above the capital of the farmer and all its profits, they + regularly occasion the reproduction of the rent of the + landlord. This rent may be considered as the produce of + those powers of nature, the use of which the landlord + lends to the farmer. It is greater or smaller according to + the supposed extent of those powers, or in other words, + according to the supposed natural or improved fertility of + the land. It is the work of nature which remains, after + deducting or compensating every thing which can be + regarded as the work of man. It is seldom less than a + fourth, and frequently more than a third of the whole + produce. No equal quantity of productive labour employed + in manufactures, can ever occasion so great a + reproduction. _In them nature does nothing, man does all_; + and the reproduction must always be in proportion to the + strength of the agents that occasion it. The capital + employed in agriculture, therefore, not only puts into + motion a greater quantity of productive labour than any + equal capital employed in manufactures, but in proportion + too to the quantity of the productive labour which it + employs, it adds a much greater value to the annual + produce of the land and labour of the country, to the + _real_ wealth and revenue of its inhabitants. Of all the + ways in which a capital can be employed, it is by far the + most advantageous to the society."--Book II. chap. v. p. + 15. + + Does nature nothing for man in manufactures? Are the + powers of wind and water, which move our machinery, and + assist navigation, nothing? The pressure of the atmosphere + and the elasticity of steam, which enable us to work the + most stupendous engines--are they not the gifts of nature? + to say nothing of the effects of the matter of heat in + softening and melting metals, of the decomposition of the + atmosphere in the process of dyeing and fermentation. + There is not a manufacture which can be mentioned, in + which nature does not give her assistance to man, and give + it too, generously and gratuitously. + + In remarking on the passage which I have copied from Adam + Smith, Mr. Buchanan observes, "I have endeavoured to shew, + in the observations on productive and unproductive + Footnote: labour, contained in the fourth volume, that + agriculture adds no more to the national stock than any + other sort of industry. In dwelling on the reproduction of + rent as so great an advantage to society, Dr. Smith does + not reflect that rent is the effect of high price, and + that what the landlord gains in this way, he gains at the + expense of the community at large. There is no absolute + gain to the society by the reproduction of rent; it is + only one class profiting at the expense of another class. + The notion of agriculture yielding a produce, and a rent + in consequence, because nature concurs with human industry + in the process of cultivation, is a mere fancy. It is not + from the produce, but from the price at which the produce + is sold, that the rent is derived; and this price is got, + not because nature assists in the production, but because + it is the price which suits the consumption to the + supply." + + [8] To make this obvious, and to shew the degrees in which + corn and money rent will vary, let us suppose that the + labour of ten men will, on land of a certain quality, + obtain 180 quarters of wheat, and its value to be 4_l._ + per quarter, or 720_l._; and that 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._; or, as in the production of 170 + quarters, the labour of 10 men is necessary in one case, + and only 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._ If 10 men be + further employed, and the return be + + 160, the price will rise to £4 10 0 + 150, " " " " " 4 16 0 + 140, " " " " " 5 2 10 + + Now if no rent was paid for the land which yielded 180 + quarters when corn was at 4_l._ per quarter, the value of + 10 quarters would be paid as rent when only 170 could be + procured, which, at 4_l._ 4_s._ 8_d._ would be 42_l._ + 7_s._ 6_d._ + + 20 qrs. when 160 were produced, which at £4 10 0 would be £ 90 0 0 + 30 qrs. " 150 " " " " 4 16 0 " " 144 0 0 + 40 qrs. " 140 " " " " 5 2 10 " " 205 13 4 + + {100} { 100 + Corn rent then would increase {200} and money rent in the { 212 + in the proportion of {300} proportion of { 340 + {400} { 485 + + [9] With Mr. Buchanan in the following passage, if it + refers to temporary states of misery, I so far agree, that + "the great evil of the labourer's condition, is poverty, + arising either from a scarcity of food or of work; and in + all countries, laws without number have been enacted for + his relief. But there are miseries in the social state + which legislation cannot relieve; and it is useful + therefore to know its limits, that we may not, by aiming + at what is impracticable, miss the good which is really in + our power."--_Buchanan_, page 61. + + [10] The reader is desired to bear in mind, that for the + purpose of making the subject more clear, I consider money + to be invariable in value, and therefore every variation + of price to be referable to an alteration in the value of + the commodity. + + [11] The reader is aware, that we are leaving out of our + consideration the accidental variations arising from bad + and good seasons, or from the demand increasing or + diminishing by any sudden effect on the state of + population. We are speaking of the natural and constant, + not of the accidental and fluctuating price of corn. + + [12] The 180 quarters of corn would be divided in the + following proportions between landlords, farmers, and + labourers, with the above-named variations in the value of + corn. + + Price per qr. Rent. Profit. Wages. Total. + _£. s. d._ In Wheat. In Wheat. In Wheat. + 4 0 0 None. 120 qrs. 60 qrs.} + 4 4 8 10 qrs. 111.7 58.3 } + 4 10 0 20 103.4 56.6 } 180 + 4 16 0 30 95 55 } + 5 2 10 40 86.7 53.5 } + + and, under the same circumstances, money rent, wages, and + profit, would be as follows: + + Price per qr. Rent. Profit. Wages. Total. + _£. s. d._ _£. s. d._ _£. s. d._ _£. s. d._ _£. s. d._ + 4 0 0 None. 480 0 0 240 0 0 720 0 0 + 4 4 8 42 7 6 473 0 0 247 0 0 762 7 6 + 4 10 0 90 0 0 465 0 0 255 0 0 810 0 0 + 4 16 0 144 0 0 456 0 0 264 0 0 864 0 0 + 5 2 10 205 13 4 445 15 0 274 5 0 925 13 4 + + [13] See Adam Smith, book i. chap. 9. + + [14] It will appear then, that a country possessing very + considerable advantages in machinery and skill, and which + may therefore be enabled to manufacture commodities with + much less labour than her neighbours, may in return for + such commodities, import a portion of the corn required + for its consumption, even if its land were more fertile, + and corn could be grown with less labour than in the + country from which it was imported. Two men can both make + shoes and hats, and one is superior to the other in both + employments; but in making hats, he can only exceed his + competitor by one-fifth or 20 per cent., and in making + shoes he can excel him by one-third or 33 per cent.;--will + it not be for the interest of both, that the superior man + should employ himself exclusively in making shoes, and the + inferior man in making hats? + + [15] Book V. ch. ii. + + [16] M. Say appears to have imbibed the general opinion on + this subject. Speaking of corn, he says, "thence it + results, that its price influences the price of _all_ + other commodities. A farmer, a manufacturer, or a + merchant, employs a certain number of workmen, who all + have occasion to consume a certain quantity of corn. If + the price of corn rises, he is obliged to raise, in an + equal proportion, the price of his productions." Vol. i. + p. 255. + + [17] M. Say says, that "the tax, added to the price of a + commodity, raises its price. Every increase in the price + of a commodity, necessarily reduces the number of those + who are able to purchase it, or at least the quantity they + will consume of it." This is by no means a necessary + consequence. I do not believe, that if bread were taxed, + the consumption of bread would be diminished, more than if + cloth, wine, or soap, were taxed. + + [18] The following remark of the same author appears to me + equally erroneous: "When a high duty is laid on cotton, + the production of all those goods, of which cotton is the + basis, is diminished. If the total value added to cotton + in its various manufactures, in a particular country, + amounted to 100 millions of francs per annum, and the + effect of the tax was, to diminish the consumption one + half, then the tax would deprive that country every year + of 50 millions of francs, in addition to the sum received + by government." Vol. ii. p. 314. + + [19] It is observed by M. Say, "that a manufacturer is not + enabled to make the consumer pay the whole tax levied on + his commodity, because its increased price will diminish + its consumption." Should this be the case, should the + consumption be diminished, will not the supply also + speedily be diminished? Why should the manufacturer + continue in the trade if his profits are below the general + level? M. Say appears here also to have forgotten the + doctrine which he elsewhere supports, "that the cost of + production determines the price, below which commodities + cannot fall for any length of time, because production + would then be either suspended or diminished."--Vol. ii. + p. 26. + + "The tax in this case falls then partly on the consumer + who is obliged to give more for the commodity taxed, and + partly on the producer, who, after deducting the tax, will + receive less. The public treasury will be benefited by + what the purchaser pays in addition, and also by the + sacrifice which the producer is obliged to make of a part + of his profits. It is the effort of gunpowder, which acts + at the same time on the bullet which it projects, and on + the gun which it causes to recoil." Vol. ii. p. 333. + + [20] "Melon says, that the debts of a nation are debts due + from the right hand to the left, by which the body is not + weakened. It is true that the general wealth is not + diminished by the payment of the interest on arrears of + the debt: The dividends are a value which passes from the + hand of the contributor to the national creditor: Whether + it be the national creditor or the contributor who + accumulates or consumes it, is I agree of little + importance to the society; but the principal of the + debt--what has become of that? It exists no more. The + consumption which has followed the loan has annihilated a + capital which will never yield any further revenue. The + society is deprived not of the amount of interest, since + that passes from one hand to the other, but of the revenue + from a destroyed capital. This capital, if it had been + employed productively by him who lent it to the state, + would equally have yielded him an income, but that income + would have been derived from a real production, and would + not have been furnished from the pocket of a fellow + citizen."--_Say_, vol. ii. p. 357. This is both conceived + and expressed in the true spirit of the science. + + [21] "Manufacturing industry increases its produce in + proportion to the demand, and the price falls; _but the + produce of land cannot be so increased_; and a high price + is still necessary to prevent the consumption from + exceeding the supply." _Buchanan_, vol. iv. p. 40. Is it + possible that Mr. Buchanan can seriously assert, that the + produce of the land cannot be increased, if the demand + increases? + + [22] I wish the word "Profit" had been omitted. Dr. Smith + must suppose the profits of the tenants of these precious + vineyards to be above the general rate of profits. If they + were not, they would not pay the tax, unless they could + shift it either to the landlord or consumer. + + [23] See note, p. 346. + + [24] See note, p. 346. + + [25] Vol. iii. p. 355. + + [26] In a former part of this work, I have noticed the + difference between rent, properly so called, and the + remuneration paid to the landlord under that name, for the + advantages which the expenditure of his capital has + procured to his tenant; but I did not perhaps sufficiently + distinguish the difference which would arise from the + different modes in which this capital might be applied. As + a part of this capital, when once expended in the + improvement of a farm, is inseparably amalgamated with the + land, and tends to increase its productive powers, the + remuneration paid to the landlord for its use is strictly + of the nature of rent, and is subject to all the laws of + rent. Whether the improvement be made at the expense of + the landlord or the tenant, it will not be undertaken in + the first instance, unless there is a strong probability + that the return will at least be equal to the profit that + can be made by the disposition of any other equal capital; + but when once made, the return obtained will ever after be + wholly of the nature of rent, and will be subject to all + the variations of rent. Some of these expenses however, + only give advantages to the land for a limited period, and + do not add permanently to its productive powers: being + bestowed on buildings, and other perishable improvements, + they require to be constantly renewed, and therefore do + not obtain for the landlord any permanent addition to his + real rent. + + [27] Adam Smith says, "that the difference between the + real and the nominal price of commodities and labour, is + not a matter of mere speculation, but may sometimes be of + considerable use in practice." I agree with him; but the + real price of labour and commodities, is no more to be + ascertained by their price in goods, Adam Smith's real + measure, than by their price in gold and silver, his + nominal measure. The labourer is only paid a really high + price for his labour, when his wages will purchase the + produce of a great deal of labour. + + [28] In vol. i. p. 108, M. Say infers, that silver is now + of the same value, as in the reign of Louis XIV. "because + the same quantity of silver will buy the same quantity of + corn." + + [29] "The first man who knew how to soften metals by fire, + is not the creator of the value which that process adds to + the melted metal. That value is the result of the physical + action of fire added to the industry and capital of those + who availed themselves of this knowledge." + + "From this error Smith has drawn this false result, that + the value of all productions represents the recent or + former labour of man, _or in other words, that riches are + nothing else but accumulated labour; from which, by a + second consequence, equally false, labour is the sole + measure of riches, or of the value of productions_."[30] + The inferences with which M. Say concludes are his own, + and not Dr. Smith's; they are correct if no distinction be + made between value and riches: but though Adam Smith, who + defined riches to consist in the abundance of necessaries, + conveniences, and enjoyments of human life, would have + allowed that machines and natural agents might very + greatly add to the riches of a country, he would not have + allowed that they add any thing to value in exchange. + + [30] Chap. iv. p. 31. + + [31] M. Say, _Catechisme d'Economie Politique_, p. 99. + + [32] Adam Smith speaks of Holland, as affording an + instance of the fall of profits from the accumulation of + capital, and from every employment being consequently + overcharged. "The Government there borrow at 2 per cent., + and private people of good credit, at 3 per cent." But it + should be remembered, that Holland was obliged to import + almost all the corn which she consumed, and by imposing + heavy taxes on the necessaries of the labourer, she + further raised the wages of labour. These facts will + sufficiently account for the low rate of profits and + interest in Holland. + + [33] Is the following quite consistent with M. Say's + principle? "The more disposable capitals are abundant in + proportion to the extent of employment for them, the more + will the rate of interest on loans of capital fall."--Vol. + ii. p. 108. If capital to any extent can be employed by a + country, how can it be said to be abundant compared with + the extent of employment for it? + + [34] Adam Smith says, that "When the produce of any + particular branch of industry exceeds what the demand of + the country requires, the surplus must be sent abroad, and + exchanged for something for which there is a demand at + home. _Without such exportation a part of the productive + labour of the country must cease, and the value of its + annual produce diminish._ The land and labour of great + Britain produce generally more corn, woollens, and + hardware, than the demand of the home market requires. The + surplus part of them, therefore, must be sent abroad, and + exchanged for something for which there is a demand at + home. It is only by means of such exportation, that this + surplus can acquire a value sufficient to compensate the + labour and expense of producing it." One would be led to + think by the above passage, that Adam Smith concluded we + were under some necessity of producing a surplus of corn, + woollen goods, and hardware, and that the capital which + produced them could not be otherwise employed. It is, + however, always a matter of choice in what way a capital + shall be employed, and therefore there can never, for any + length of time, be a surplus of any commodity; for if + there were, it would fall below its natural price, and + capital would be removed to some more profitable + employment. No writer has more satisfactorily and ably + shewn than Dr. Smith, the tendency of capital to move from + employments in which the goods produced do not repay by + their price the whole expenses, including the ordinary + profits, of producing and bringing them to market.[35] + + [35] See Chap. 10. Book I. + + [36] "All kinds of public loans," observes M. Say, "are + attended with the inconvenience of withdrawing capital, or + portions of capital, from productive employments, to + devote them to consumption; and when they take place in a + country, _the Government of which does not inspire much + confidence_, they have the further inconvenience of + raising the interest of capital. Who would lend at 5 per + cent. per annum to agriculture, to manufacturers, and to + commerce, when a borrower may be found ready to pay an + interest of 7 or 8 per cent.? That sort of income, which + is called profit of stock, would rise then at the expense + of the consumer. Consumption would be reduced by the rise + in the price of produce; and the other productive services + would be less in demand, less well paid. The whole nation, + capitalists excepted, would be the sufferers from such a + state of things." To the question: "who would lend money + to farmers, manufacturers, and merchants, at 5 per cent. + per annum, when another borrower having little credit, + would give 7 or 8?" I reply, that every prudent and + reasonable man would. Because the rate of interest is 7 or + 8 per cent. there where the lender runs extraordinary + risk, is this any reason that it should be equally high in + those places where they are secured from such risks? M. + Say allows, that the rate of interest depends on the rate + of profits; but it does not therefore follow, that the + rate of profits depends on the rate of interest. One is + the cause, the other the effect, and it is impossible for + any circumstances to make them change places. + + [37] In another place he says, that "whatever extension of + the foreign market can be occasioned by the bounty, must, + in every particular year, be altogether at the expense of + the home market; as every bushel of corn which is exported + by means of the bounty, and which would not have been + exported without the bounty, would have remained in the + home market to increase the consumption, and to lower the + price of that commodity. The corn bounty, it is to be + observed, as well as every other bounty upon exportation, + imposes two different taxes upon the people; first, the + tax which they are obliged to contribute, in order to pay + the bounty; and, secondly, the tax which arises from the + advanced price of the commodity in the home market, and + which, as the whole body of the people are purchasers of + corn, must in this particular commodity be paid by the + whole body of the people. In this particular commodity, + therefore, this second tax is by much the heaviest of the + two." "For every five shillings, therefore, which they + contribute to the payment of the first tax, they must + contribute six pounds four shillings to the payment of the + second." "The extraordinary exportation of corn, + therefore, occasioned by the bounty, not only in every + particular year diminishes the home, just as much as it + extends the foreign market and consumption, but, by + restraining the population and industry of the country, + its final tendency is to stunt and restrain the gradual + extension of the home market, and thereby, in the long + run, rather to diminish than to augment the whole market + and consumption of corn." + + [38] The same opinion is held by M. Say. Vol. ii. p. 335. + + [39] See Chap. on Rent. + + [40] M. Say supposes the advantage of the manufacturers at + home to be more than temporary. "A Government which + absolutely prohibits the importation of certain foreign + goods, establishes a monopoly _in favour of those_ who + produce such commodities at home, _against those_ who + consume them; in other words, those at home who produce + them having the exclusive privilege of selling them, may + elevate their price above the natural price; and the + consumers at home, not being able to obtain them + elsewhere, are obliged to purchase them at a higher + price." Vol. i. p. 201. + + But how can they permanently support the market price of + their goods above the natural price, when every one of + their fellow citizens is free to enter into the trade? + they are guaranteed against foreign, but not against home + competition. The real evil arising to the country from + such monopolies, if they can be called by that name, lies, + not in raising the market price of such goods, but in + raising their real and natural price. By increasing the + cost of production, a portion of the labour of the country + is less productively employed. + + [41] Are not the following passages contradictory to the + one above quoted? "Besides, that home trade, though less + noticed, (because it is in a variety of hands) is the most + considerable, it is also the most profitable. The + commodities exchanged in that trade are necessarily the + productions of the same country." Vol. i. p. 84. + + "The English Government has not observed, that the most + profitable sales are those which a country makes to + itself, because they cannot take place, without two values + being produced by the nation; the value which is sold, and + the value with which the purchase is made." Vol. i. p. + 221. + + I shall, in the 24th chapter, examine the soundness of + this opinion. + + [42] See page 198. + + [43] M. Say is of the same opinion with Adam Smith: "The + most productive employment of capital, for the country in + general, after that on the land, is that of manufactures + and of home trade; because it puts in activity an industry + of which the profits are gained in the country, while + those capitals which are employed in foreign commerce, + make the industry and lands of all countries to be + productive, without distinction. + + "The employment of capital, the least favourable to a + nation, is that of carrying the produce of one foreign + country to another." _Say_, vol. ii. p. 120. + + [44] "It is fortunate that the natural course of things + draws capital, not to those employments where the greatest + profits are made, but to those where their operation is + most profitable to the community."--Vol. ii. p. 122. M. + Say has not told us what those employments are, which, + while they are the most profitable to the individual, are + not the most profitable to the state. If countries with + limited capitals, but with abundance of fertile land, do + not early engage in foreign trade, the reason is, because + it is less profitable to individuals, and therefore also + less profitable to the state. + + [45] "The use of gold and silver then establishes in every + place a certain necessity for these commodities; and when + the country possesses the quantity necessary to satisfy + this want, all that is further imported, not being in + demand, is unfruitful in value, and of no use to its + owners."--_Say_, vol. i. p. 187. + + In page 196, M. Say says, that supposing a country to + require 1000 carriages, and to be possessed of 1500--all + above 1000 would be useless; and thence he infers, that if + it possesses more money than is _necessary_, the overplus + will not be employed. + + [46] Whatever I say of gold coin, is equally applicable to + silver coin; but it is not necessary to mention both on + every occasion. + + [47] "In the transactions of Government with individuals, + and in those of individuals between themselves, a piece of + money is never received, whatever denomination may be + given to it, but at its intrinsic value, increased by the + value of the utility which the impression it bears has + added to it."--_Say_, vol. i. p. 327. + + "Money is so little a mark of value, that if the pieces of + money lose a part of their value by friction, from use, or + by the knavery of the clippers of money, all goods rise in + price in proportion to the alteration which they have + experienced; and if Government orders a recoinage, and + restores each piece to its legal weight and fineness, + goods will fall to their former price; if they have not + been exposed to variations from other causes."--_Say_, + vol. i. p. 346. + + [48] M. Say recommends that the seignorage should vary + according to the quantity of business that the mint might + be called upon to perform. + + "Government should not coin the bullion of individuals + except on payment, not only of the expenses, but also of + the profits of coining. This profit might be carried to a + considerable height, in consequence of the exclusive + privilege of coining; but it must vary according to the + circumstances of the mint, and the quantity required for + circulation." Vol. i. p. 380. + + Such a regulation would be extremely pernicious, and would + expose us to considerable and unnecessary variation in the + bullion value of the currency. + + [49] If with the quantity of gold and silver which + actually exists, these metals only served for the + manufacture of utensils and ornaments, they would be + abundant, and would be much cheaper than they are at + present; in other words, in exchanging them for any other + species of goods, we should be obliged to give + proportionally a greater quantity of them. But as a large + quantity of these metals is used for money, and as this + portion is used for no other purpose, there remains less + to be employed in furniture and jewellery; now this + scarcity adds to their value.--_Say_, vol. i. p. 316. See + also note to p. 78. + + [50] An Inquiry into the Nature and Origin of Public + Wealth, page 13. + + [51] An Inquiry into the Nature and Progress of Rent, p. + 15. + + [52] See page 124, where I have endeavoured to shew, that + whatever facility or difficulty there may be in the + production of corn; wages and profits together will be of + the same value. When wages rise, it is always at the + expense of profits, and when they fall, profits always + rise. + + [53] Of what increased quantity does Mr. Malthus speak? + Who is to produce it? Who can have any motive to produce + it, before any demand exists for an additional quantity? + + [54] Inquiry, &c. "In all progressive countries, the + average price of corn is never higher than what is + necessary to continue the average increase of produce." + Observations, p. 21. + + "In the employment of fresh capital upon the land, to + provide for the wants of an increasing population, whether + this fresh capital is employed in bringing more land under + the plough, or improving land already in cultivation, the + main question always depends upon the expected returns of + this capital; and no part of the gross profits can be + diminished, without diminishing the motive to this mode of + employing it. Every diminution of price, not fully and + immediately balanced by a proportioned fall in all the + necessary expenses of a farm, every tax on the land, every + tax on farming stock, every tax on the necessaries of + farmers, will tell in the computation; and if, after all + these outgoings are allowed for, the price of the produce + will not leave a fair remuneration for the capital + employed, according to the general rate of profits, and a + rent at least equal to the rent of the land in its former + state, no sufficient motive can exist to undertake the + projected improvement." Observations, p. 22. + + [55] See p. 124. + + [56] See p. 70, &c. + + [57] It is not necessary to state on every occasion, but + it must be always understood, that the same effect will be + produced by employing different, but equal portions of + capital on the land already in cultivation, with different + results. Rent is the difference of produce obtained with + equal capitals, and with equal labour on the same, or on + different qualities of land. + + [58] Observations on the Corn Laws, p. 4. + + [59] Upon shewing this passage to Mr. Malthus, at the time + when these papers were going to the press, he observed, + "that in these two instances he had inadvertently used the + term _real price_, instead of _cost of production_." It + will be seen from what I have already said, that to me it + appears, that in these two instances he has used the term + _real price_ in its true and just acceptation, and that in + the former case only it is incorrectly applied. + + [60] Page 40. + + [61] Manufactures, indeed, could not fall in any such + proportion, because, under the circumstances supposed, + there would be a new distribution of the precious metals + among the different countries. Our cheap commodities would + be exported in exchange for corn and gold, till the + accumulation of gold should lower its value, and raise the + money price of commodities. + + [62] The Grounds of an Opinion, &c. page 36. + + [63] Mr. Malthus, in another part of the same work, + supposes commodities to vary 25 or 20 per cent. when corn + varies 33-1/3. + + [64] In Chap. 24. I have observed, that the real resources + of a country, and its ability to pay taxes, depend on its + net, and not on its gross income. + + [65] This is on the supposition that money continued at + the same value. In the last note, I have endeavoured to + shew that money would not continue of the same + value,--that it would fall, from increased importation; a + fact which is much more favourable to my argument. + + [66] Mr. M'Culloch, in an able publication, has very + strongly contended for the justice of making the dividends + on the national debt conform to the reduced value of corn. + He is in favour of a free trade in corn, but he thinks it + should be accompanied by a reduction of interest to the + national creditor. + +THE END. + + + + + ERRATA. + + + _Page_ 190, _line_ 8, _for_ obtained, _read_ attained. + + 521, _line_ 20, _for_ twenty-one shillings, _read_ forty-two + shillings. + + 543, _last line_, _for_ give, _read_ spend. + + 555, _last line_, _for_ rent money, _read_ money rent. + + + + +INDEX. + + + A. + + _Accumulation_ of capital, effects of, on the relative value of + commodities, 16-42. + And on profits and interest, 398-416. + + _Agriculture_, effects of improvements in, on rents, 70-76. + Is affected by the distress proceeding from sudden revulsions + of trade, 368-372. + Agricultural improvements, no cause of the increase of rent, + 570, 571. + + + B. + + _Banks_, establishment of, affects the sole power of the state + in coining money, 502. + Consequence of the Bank of England issuing too great a quantity + of paper, 503-506. + The assistance given by the Bank of England to commerce, accounted + for, 513, 514.--See _Paper Currency_. + + _Bounties_, on the exportation of corn, lower its price to the foreign + consumer, 417-427. + Effects of a bounty in raising the price of corn, illustrated, 428. + Though such bounty may cause a partial degradation in the value + of money, yet such degradation cannot be permanent, 432-434. + Bounties on the exportation of manufactures raise their _market_ but + not their _natural_ price, 436-438. + The sole effect of bounty is to divert a portion of capital to an + employment which it would not naturally seek, 438. + Evils of such a system, 439-445. + A bounty on the production of corn, will produce no real effect on + the annual produce of the land and labour of the country, though + it would make corn relatively cheap, and manufactures relatively + dear, 449-455. + But the effect of a tax on corn, in order to afford a fund for a + bounty on the production of commodities, would be to enhance the + price of corn, and render commodities cheap, 456, 457. + + _Buchanan_ (Mr.), observations of, on Adam Smith's doctrine of + productive and unproductive labour, 64-66, _note_. + Remarks on his opinions respecting bounties on exportation, 440-442. + + + C. + + _Capital_, nature of, effects of the accumulation of, on the relative + value of commodities investigated, 16. + Effects of, in a savage or infant state of society, 17, 18, 23, 24. + And in a more advanced state of society, 19-21. + The relative values of _circulating_ and _fixed_ capitals + considered, 22, 23. + The distinction between circulating and fixed capitals difficult + to be strictly defined, 186, 187. + Considerations on the different modes of employing it, 83-88. + The increase of capital in quantity and value, productive of a + rise in the natural price of wages, 94, 95. + Increase of capital in quantity only, productive of a rise in + the market price of wages, _ibid._ + Effects of the accumulation of capital on profits and interest, + 398-416. + The sole effect of bounties on exportation, upon capital, is to + divert a portion of it to an employment which it would not + naturally seek, 438. Remarks on such effect, 439-445. + The profits, made by the employment of capital, regulate the rate + of interest for money, 512, 513. + + _Carrying trade_, observations on, 407. + + _Circulation_ of money can never overflow, and why, 500, 501. + Circulation of Paper, see _Paper Currency_. + + _Colonial Trade_, observations on, 476, 477. + Proofs, that trade with a colony may be so regulated as to be less + beneficial to the colony, and more beneficial to the mother + country, than a perfectly free trade, 477-486. + Benefits of a colonial trade, 487-490. + + _Commodities_, gold and silver an insufficient medium for determining + the varying value of, 7, 8. + Corn, an inadequate standard of the value of, 9-12. + The effects of an accumulation of capital on the relative value of + commodities, considered, 16-42. + Effects of a rise in wages on their value, 43, 44, and of the + payment of rent, 45, 46. + Their exchangeable value regulated by the greater quantity of labour + bestowed on their production by those who labour under the most + unfavourable circumstances, 59, 60. + The prices of commodities not necessarily increased by a rise in the + price of labour, 109, 110. + The cost of production regulates the price of commodities, 542, 567, + 568, 572, 573. + + _Corn_, a variable standard for determining the varying value of + things, 7-12. + Effects of the price of, on rent, 67-70. + Corn-rents materially affected by tithes, 227. + Advantage resulting from the relatively low price of corn, 373. + Bounties on the exportation of it, lower its price to the foreign + consumer, 417-427. + Effects of a bounty in raising the price of corn, 428. + A bounty on the production of, productive of no real effect on the + annual produce of the land and labour of the country, 449-455. + The price of corn enhanced by a tax on it, in order to afford a fund + for a bounty on the production of commodities, 456, 457. + Benefit of a high price of corn to landlords, 474, 475. + Investigation of the comparative value of corn, gold, and labour, in + rich and in poor countries, 527-537. + The production of corn encouraged by alteration in its market price, + 574, 575. + A fall in the value of corn beneficial to the stockholder, 586. + + _Cultivation_, not discouraged by a tax on land and its produce, 238. + + _Currency_. See _Gold_ and _Silver_, _Paper Currency_. + + + D. + + _Demand_ and supply, influence of, on prices, considered, 542. + Opinion of M. Say on this subject, 544. + And of the Earl of Lauderdale, 545-547. + Observations thereon, 547, 548. + + + E. + + _Economy_ in labour, reduces the relative value of commodities, 21. + Illustration of this principle, 22-42. + + _Exchange_, no criterion of the increased value of money, 178. + To be ascertained by estimating the value of the currency in + the currency of another country, 181, + and also by comparing it with some standard common to both + countries, 181-184. + Effects of paper currency on exchange, 310-314. + + _Exportation_ of corn, bounties on, lower its price to the foreign + consumer, 417-427. + Effects of, in raising the price of corn, illustrated, 428. + Bounties on the exportation of manufactures raise the market, + but not the natural, price of these, 436-438. + + + F. + + _Farmers_ pay more poor-rate than the manufacturers, 359-362. + + _Foreign Trade_, effects of an extension of, 146, 147. + Proofs that the profits of the favoured trade will speedily subside + to the general level, 148-154. + + _Funded Property_, the price of, no steady criterion by which to + judge of the rate of interest, 413-415. + + + G. + + _Gold_, and Silver, an insufficient medium for determining + the _variable_ value of commodities, 7, 8. + But, upon the whole, the least inconvenient standard + for money, 80, 81. + On whom a tax upon gold would ultimately fall, 249, 250. + The value of gold ultimately regulated by the comparative + facility or difficulty of producing it, 251. + Effects of a tax upon gold, 252-261. + Evils of prohibiting a free trade in the precious metals, + when the prices of commodities are raised, 309. + The value of gold and silver proportioned to the quantity + of labour necessary to produce them and bring them to + market, 499. + Remarks on the employment of these metals in currency, 516. + Their relative values at different periods, accounted for, + 516-526. + Investigation of the comparative value of gold, corn, + and labour, in rich and in poor countries, 527-537. + + _Gross Revenue_, advantages of, over-rated by Adam Smith, 491. + And by M. Say, 492, _note_. + Examination of this doctrine, 492-498. + A diminution of gross income, no diminution of net income, 579-583. + + + H. + + _Holland_, low rate of interest in, accounted for, 400, note. + + _Houses_, rents of, distinguished into two parts, 263. + Difference between rent of houses and that of land, 264. + Taxes on houses by whom ultimately borne, 266. + + + I. + + _Importation_ of corn, effects of a prohibition of, considered, + 437, 438. + + _Interest_, low rate of, in Holland, accounted for, 400, _note_. + Effects of accumulation on profits and interest, 398-410. + Observations on the rates of interest, 412-416. + The interest for money is regulated by the rate of profits which + can be made by the employment of capital, 512, 513. + + + L. + + _Labour_, the quantity of, requisite to obtain commodities, + the _principal_ source of their exchangeable value, 4, 5. + Effects of machinery on, considered, 9-11. + Economy in labour reduces the relative value of a commodity, + 21, 22. + Illustrations of this principle, 22-42. + Adam Smith's theory of productive and unproductive labour, + considered, 64-66, _notes_. + Natural price of, explained, 90, 91. + Market price of, what, 92. + Its influence on the happiness of the labourer, 92, 93. + Investigation of the comparative value of labour, gold, and corn, + in rich and in poor countries, 527-537. + + _Land_, the division of the whole produce of, between landlords, + capitalists, and labourers, is the criterion of rent, profits, + and wages, 44-48. + Its different productive qualities, a cause of rent, 54-58. + Effects of increasing its productive powers by agricultural + improvements, 70-76. + + _Landlords_, tithes injurious to, 229, 230. + Benefit of a high price of corn to them, 474, 475. + + _Land-Tax_, virtually a tax on rent, 232. + Effects of an equal land-tax, imposed indiscriminately on all land + cultivated, 234, 235. + Error of Dr. Adam Smith, on the inequality of land and all other + taxes, accounted for, 236-238. + Tax on land and its produce, no bar to cultivation, 238, 239. + Operation of the land-tax of Great Britain, considered, 239, 240. + Mistake of M. Say, corrected, 241, 242-246. + + _Lauderdale_ (Earl of), opinion of, on the influence of demand and + supply on prices, 545-547. + Remarks thereon, 547, 548. + + _Luxuries_, observations on the taxing of, 314. + Advantages and disadvantages of taxing them, considered, 327-329. + + + M. + + _Machinery_, effects of, in fixing the relative values of commodities, + 34-41. + + _Malthus_ (Mr.), examination of the opinions of, on rent, 549-566. + The real cost of production regulates the price of commodities, 567, + 568, 572, 573. + Increase of population no cause of the rise of rent, 569; + nor agricultural improvements, 570, 571. + His supposition, that net income is diminished, in proportion to a + diminution of gross income, disproved, 579-583. + Loss of rent, the effect of a low price of corn, 587, 588. + + _Manufactures_, improvement of, in any country, tends to alter the + distribution of the precious metals among the nations of the world, + 157-170. + Manufacturers pay less poor rate than farmers, 359-362. + The market price of manufactures, but not their natural price, + raised by bounties on their exportation, 436-438. + + _Mines_, distinguished by their fertility or barrenness, 77-79. + Effect of discovering the rich mines of America on the price of the + precious metals, 80. + Observations on the rent of mines, 462-467. + + _Money_, effects of the rise of, in value, on the price + of commodities, 43, 44. + The rate of profit not affected by variations in the value of + money, 46-48. + Different value of money in different countries, accounted for, + 170-173. + The value of money, _generally_, diminished by improvements in + the facility of working the mines of the precious metals, 178. + The demand for, regulated by its value, and its value by its + quantity, 250, 251. + Low value of, in Spain, prejudicial to the commerce and manufactures + of that country, 307. + Observations on the rates of interest for money, 412-416, 512, 513. + The value of, though partially degraded by a bounty on corn, yet not + permanently degraded, 432-434. + The quantity of, employed in a country, dependant upon its value, + 500. + Effects of the state charging a seignorage on coining money, 501, + 524, 525. + + _Monopoly-price_, observations on, 340-345. + + + N. + + _National Debt_, observations on, 340. + + _Net Revenue_, advantages of, unduly estimated by Adam Smith, 491, + and by M. Say, 492, _note_. + Examination of their doctrines, 492-498. + Is not diminished by a proportionate diminution of gross revenue, + 579-583. + + + P. + + _Paper Currency_, circulation of, explained, 501. + Paper-money not necessarily payable in specie, to secure its value, + 502. + But the quantity issued must be regulated according to the value + of the standard metal, _ibid._ 503. + The Bank of England, why liable to be drained of specie for its + paper currency, 504-506. + Compelling the issuers of paper money to pay their notes either + in gold coin or bullion, is the only control upon their abusing + their power of issuing such money, 507. + Provided there were perfect security against such abuse, it is + immaterial by whom paper money is issued, 509. + Illustration of this point, 510-516. + + _Poor-Laws_, pernicious tendency of, as they now exist, 111, 112, 115. + Remedies for, 113, 114. + + _Poor-Rates_, nature of, 355. + How levied, 356-358. + More falls on the farmer than on the manufacturer, in proportion + to their respective profits, 359-362. + + _Population_, increase of, no cause of the rise of rent, 569. + + _Price_ (real), of things, distinguished, 4. + Natural and market prices distinguished, and how governed, 82-89. + The prices of commodities not necessarily raised by a rise in the + price of labour, 109, 110. + Rise of price on raw produce, the only means by which the cultivator + can pay the tax imposed thereon, 195. + The market, but not the natural price of manufactures, raised by + bounties on their exportation, 436-438. + The influence of demand and supply on prices, considered, 542-548, + 567, 568, 572, 573. + Alteration in the market price of corn encourages its production, + 574, 575. + + _Produce_ of land, and labour of the country, must be divided between + capitalists, landlords, and labourers, to afford a criterion of + rent, profits, and wages, 44-48. + Effect of taxes on raw produce, 194. + Tax on raw produce raises the price of wages, 199. + Objections against taxing the produce of land, considered, 201-224. + Remarks on the inconveniences supposed to result from the payment + of taxes by the producer, 538-541. + + _Production_, difficulty of, benefits the landlord, 76. + The cost of production, the regulator of the price of commodities, + 542, 567, 568, 572, 573. + + _Profits_ of stock difficult to ascertain, 410. + The quantity of labour necessary to obtain the produce of land, + is the criterion by which to estimate the rate of profit, wages, + and rent, 44-48. + A rise in the price of corn, productive of a diminution in the + money value of the farmer's profits, 117-122. + A rise in the price of raw produce, if accompanied by a rise of + wages, lowers the agricultural and manufacturing profits, 125-130. + Proofs, that profits depend on the quantity of labour requisite to + provide necessaries for labourers, on that land, or with that + capital which yields no rent, 131-144. + Effects of an extension of foreign trade on profits, 146, 147. + Proofs, that the profits of the favoured trade will speedily + subside to the general level, 148-154. + And so with respect to home trade, 155-157. + Further proofs that profits depend on real wages, 173-175. + Tax on necessaries virtually a tax on profits, 269, 270. + Effects of a taxation of profits, considered, 270-284. + The profits of stock diminished by a tax on wages, 285. + Effects of accumulation on profits and interest, 398-416. + + _Prohibition_ of importation of corn, effects of, considered, 437, + 438. + + _Provisions_, causes of the high prices of, 203. + First, a deficient supply, _ibid._--204. + Secondly, a gradually increasing demand, ultimately attended with + an increased cost of production, 205. + Thirdly, a fall in the value of money, 209. + Fourthly, a tax on necessaries, 210. + + + R. + + _Rent_, nature of, 49, 50, 52, 362, _note_. + Adam Smith's doctrine of rents, considered, 50, 51. + The different productive qualities of land and increase of + population, the cause of rents, 54-58. + Rise of, the _effect_ of the increasing wealth of a country, + 65, 66. + Influence of the prices of corn on rent, 67-69. + Effects of agricultural improvements on rent, 70-76. + Observations on the rent of mines, 77-81. + Tax on rent falls wholly on the landlords, 220-224. + Corn-rents materially affected by tithes, 227. + Examination of Dr. Adam Smith's doctrine concerning the rent of + land, 458-475. + And of Mr. Malthus's opinions on rent, 549-566. + Increase of population is no cause of the rise of rent, 569. + Neither are agricultural improvements, 570, 571. + Loss of rent, the effect of low price of corn, 587, 588. + + _Riches_, defined, 377. + Difference between value and riches, 377-386. + Means of increasing the riches of a country, 386-388. + Erroneous views of M. Say on this subject considered, 388-397. + + + S. + + _Say_ (M.), erroneous views of, concerning the principles of the + land-tax in Great Britain, corrected, 241-244. + Examination of some of his principles of taxation, 319-324, 330, + 331, _notes_. + Remarks on his mistaken view of value and riches, 388-397. + Examination of his doctrine concerning bounties on exportation, + 443-448. + And on gross and net revenue, 492-498. + Danger resulting from his recommendation respecting the charging + of seignorage for coining money, 525, 526, _notes_. + Observations on his statement of the inconveniences resulting + from payment of taxes by the producer, 538-540. + His opinion on the influence of demand and supply on prices, + considered, 544, 545. + + _Scarcity_, a source of exchangeable value, 2. + + _Seignorage_, effects of, on the value of money, 501, 524, 525. + + _Simonde_ (M.), remarks on the opinion of, concerning the + inconveniences resulting from the payment of taxes by the producer, + 540, 541. + + _Silver._ See _Gold_ and _Silver_. + + _Sinking fund_, in England, merely nominal, 340. + How conducted, 510. + + _Smith_ (Dr. Adam), on the meaning of the term value, 1. + His doctrine that corn is a proper medium for fixing the varying + value of other things, examined, 7-9. + Strictures on his doctrine relative to labour being the _sole_ + ultimate standard of the exchangeable value of commodities, 10, + 11, 575, 576. + And on his definitions of rent, 49, 50. + His theory of productive and unproductive labour considered, + 64-66, _notes_. + Correction of his erroneous view of the inequality of taxes on + land, and all other taxes, 236-238. + His opinion on the taxes upon the wages of labour, 286. + Examination thereof by Mr. Buchanan, 287-292. + Observations thereon by the author of this work, 293-306. + Correction of his mistaken view of taxes upon luxuries, 314-319. + Remarks on his doctrine concerning bounties on exportation, + 420, 422-439. + Examination of his doctrine concerning the rent of land, 458-475. + And on gross and net revenue, 492-498. + Strictures on his principles of paper-currency, 503-508. + His statement respecting the advantages of the Scottish mode of + affording accommodation to trade, disproved, 515, 516-523. + Remarks on his doctrine relative to the comparative value of + gold, corn, and labour, in rich and in poor countries, 529-537. + + _Spain_, commerce and manufactures of, injured by the low value of + money there, 307. + + _Stamp-duty_, weight of, a bar to the transfer of landed property, + 267, 268. + + + T. + + _Taxes_, nature of, explained, 186. + Impolicy of taxes on capital, 190. + Taxes upon the transfer of property, 191. + On whom the several kinds of taxes principally fall, 192. + Objections to taxes on the transference of property, 192, 193. + Effect of taxes on raw produce, 194. + A rise of price in raw produce the only means by which + the cultivator can pay the tax, 195. + Such tax in fact paid by the consumer, 196-198. + Tax on raw produce and on the necessaries of the labourer, + raises the price of wages, 199. + Objections against the taxation of the produce of land, + considered and refuted, 201-224. + Tithes, an equal tax, 225. + Difference between them and a tax on raw produce, 226. + Objections to them, 227-231. + Tax on land, virtually a tax on rent, 232. + They ought to be clear and certain, 233, 234. + Effects of taxes on gold, considered, 247-261. + Ground rents, not a fair subject of taxation, 267. Taxes + on houses by whom ultimately borne, 266. + Taxes on necessaries, virtually a tax on profits, 269, 270. + Effects of taxation of profits considered, 270-284. + Taxes upon luxuries, 314. + Advantages and disadvantages of, 327-329. + Supposed absurdities in taxation, explained and obviated, + 315-317. + Proper objects of taxation, 326. + Observations on the taxation of other commodities than raw + produce, 330. + Effect of taxes to defray the interest of loans, 332-334. + Remarks on the tax upon malt, and every other tax on raw + produce, 346-353. + Nature and operation of the poor-rate, 355-362. + Examination of the inconveniences supposed to be sustained + by the payment of taxes by the producer, 538-541. + + _Tithes_, nature of, 225. + Are an equal tax, _ibid._ + Difference between tithes and a tax on raw produce, 226. + Tithes materially affect corn-rents, 227. + They act as a bounty on importation, and therefore are + injurious to landlords, 229, 230. + Do not discourage cultivation, 237, 238. + + _Trade_, general causes of sudden changes in the channels of, 363-365. + More particularly the commencement of war after a long peace, + or vice versa, 365-368. + The effects of such revulsions on agriculture, considered, 369-376. + Observations on the carrying trade, 407. + See _Foreign Trade_. + + + U. + + _Utility_, essential to exchangeable value, 2. + + + V. + + _Value_, definition of, 1. + The distinctive properties of value and riches considered, 377-397. + See _Labour_. + Utility essential to exchangeable value, 2. + Scarcity, one source of such value, _ibid._ + The quantity of labour required to obtain commodities, the principal + source of their exchangeable value, 3-15. + The effects of accumulation of capital on relative value, 16-42. + Effects of a rise in wages, on relative value, 43, 44. + Effects of payment of rent, on value, 45, 46. Variations in + the value of money make no difference in the _rate_ of profits, + 46, 47. + The value of gold and silver is in proportion to the labour + necessary to produce and bring them to market, 499, 500. + Investigation of the comparative value of gold, corn, and labour, + in rich and in poor countries, 527-537. + + + W. + + _Wages_, effects of a rise in, on relative value, 27-33, 43, 44, 48. + Natural and market prices of labour, 90-93. + Increase of capital in quantity and value, increases the natural + price of wages, 94, 95. + Increase of capital, but not in value, augments the market price + of wages, _ibid._ + Proofs that the increasing difficulty of providing an additional + quantity of food with the same proportional quantity of labour, + will raise wages, 97-104. + A rise in wages not necessarily productive of comfort to + the labourer, 105-108. + A rise of wages not _necessarily_ productive of a rise in the prices + of commodities, 109, 110, 286-289. + Wages will be raised by a tax on necessaries, 269-270. + And by a tax on wages, 285. + Effects of a tax upon wages, considered, 297-306. + + _Wealth_, causes of the increase of, 66. + + +J. M^{c}Creery, Printer, +Black-Horse-court, London. + + +_Albemarle-street, London, +May, 1817._ + + +NEW PUBLICATIONS. + + SPEECH of the Rt. Hon. GEORGE CANNING, 25th Feb. on the + Motion for a Reduction of the Lords of the Admiralty, 8vo. + 2_s._ + + The APOSTATE; a Tragedy, in Five Acts: now performing at + the Theatre in Covent Garden. By RICHARD SHEIL, Esq. 8vo. + 3_s._ + + LETTER to WILLIAM SMITH, ESQ. M. P. for Norwich, from + ROBERT SOUTHEY, ESQ. 8vo. 2_s._ + + A SERMON, preached at St. Mary's, Oxford, on Thursday, + March 6, 1817, before the Honourable Sir James Allan Park, + one of the Justices of his Majesty's Court of Common + Pleas, and the Honourable Sir James Burrough, one of the + Justices of His Majesty's Court of King's Bench, and + before the University, at the Lent Assizes, by JOHN + DAVISON, M. A. Fellow of Oriel College, Oxford, 4to. 1_s._ + 6_d._ + + PHROSYNE, a Grecian Tale. 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