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Title: On The Principles of Political Economy, and Taxation
Author: Ricardo, David
Language: English
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  ON

  THE PRINCIPLES

  OF

  POLITICAL ECONOMY,

  AND

  TAXATION.

  BY DAVID RICARDO, Esq.

  LONDON:

  JOHN MURRAY, ALBEMARLE-STREET

  1817.

  J. M^{c}CREERY. Printer,

  Black Horse Court, London.



PREFACE.


The produce of the earth--all that is derived from its surface by the
united application of labour, machinery, and capital, is divided among
three classes of the community; namely, the proprietor of the land, the
owner of the stock or capital necessary for its cultivation, and the
labourers by whose industry it is cultivated.

But in different stages of society, the proportions of the whole produce
of the earth which will be allotted to each of these classes, under the
names of rent, profit, and wages, will be essentially different;
depending mainly on the actual fertility of the soil, on the
accumulation of capital and population, and on the skill, ingenuity, and
instruments employed in agriculture.

To determine the laws which regulate this distribution, is the principal
problem in Political Economy: much as the science has been improved by
the writings of Turgot, Stuart, Smith, Say, Sismondi, and others, they
afford very little satisfactory information respecting the natural
course of rent, profit, and wages.

In 1815, Mr. Malthus in his "Inquiry into the Nature and Progress of
Rent," and a Fellow of University College, Oxford, in his "Essay on the
Application of Capital to Land," presented to the world, nearly at the
same moment, the true doctrine of rent; without a knowledge of which it
is impossible to understand the effect of the progress of wealth on
profits and wages, or to trace satisfactorily the influence of taxation
on different classes of the community, particularly when the commodities
taxed are the productions immediately derived from the surface of the
earth. Adam Smith, and the other able writers to whom I have alluded,
not having viewed correctly the principles of rent, have, it appears to
me, overlooked many important truths, which can only be discovered after
the subject of rent is thoroughly understood.

To supply this deficiency, abilities are required of a far superior cast
to any possessed by the writer of the following pages; yet after having
given to this subject his best consideration--after the aid which he has
derived from the works of the above-mentioned eminent writers--and after
the valuable experience which a few late years, abounding in facts, have
yielded to the present generation--it will not, he trusts, be deemed
presumptuous in him to state his opinions on the laws of profits and
wages, and on the operation of taxes. If the principles which he deems
correct should be found to be so, it will be for others more able than
himself to trace them to all their important consequences.

The writer, in combating received opinions, has found it necessary to
advert more particularly to those passages in the writings of Adam Smith
from which he sees reason to differ; but he hopes it will not on that
account be suspected that he does not, in common with all those who
acknowledge the importance of the science of Political Economy,
participate in the admiration which the profound work of this
celebrated author so justly excites.

The same remark may be applied to the excellent works of M. Say, who not
only was the first, or among the first, of continental writers, who
justly appreciated and applied the principles of Smith, and who has done
more than all other continental writers taken together, to recommend the
principles of that enlightened and beneficial system to the nations of
Europe; but who has succeeded in placing the science in a more logical,
and more instructive order; and has enriched it by several discussions,
original, accurate, and profound.[1] The respect, however, which the
author entertains for the writings of this gentleman, has not prevented
him from commenting with that freedom which he thinks the interests of
science require, on such passages of the "Economie Politique," as
appeared at variance with his own ideas.



  CONTENTS.


    CHAP.                                                           Page

       I. _On Value_                                                   1

      II. _On Rent_                                                   49

     III. _On the Rent of Mines_                                      77

      IV. _On Natural and Market Price_                               82

       V. _On Wages_                                                  90

      V*. _On Profits_                                               116

      VI. _On Foreign Trade_                                         146

     VII. _On Taxes_                                                 186

    VIII. _Taxes on Raw Produce_                                     194

   VIII*. _Taxes on Rent_                                            221

      IX. _Tithes_                                                   225

       X. _Land-Tax_                                                 232

      XI. _Taxes on Gold_                                            247

     XII. _Taxes on Houses_                                          262

    XIII. _Taxes on Profits_                                         269

     XIV. _Taxes on Wages_                                           285

      XV. _Taxes on other Commodities than Raw Produce_              330

     XVI. _Poor Rates_                                               354

    XVII. _On Sudden Changes in the Channels of Trade_               363

   XVIII. _Value and Riches, their Distinctive Properties_           377

     XIX. _Effects of Accumulation on Profits and Interest_          398

      XX. _Bounties on Exportation, and Prohibitions
             of Importation_                                         417

     XXI. _On Bounties on Production_                                449

    XXII. _Doctrine of Adam Smith concerning the Rent of Land_       458

   XXIII. _On Colonial Trade_                                        476

    XXIV. _On Gross and Net Revenue_                                 491

     XXV. _On Currency and Banks_                                    499

    XXVI. _On the comparative Value of Gold, Corn, and Labour,
             in Rich and in Poor Countries_                          527

   XXVII. _Taxes paid by the Producer_                               538

  XXVIII. _On the Influence of Demand and Supply on Prices_          542

    XXIX. _Mr. Malthus's Opinions on Rent_                           549



CHAPTER I.

ON VALUE.


It has been observed by Adam Smith, that "the word Value has two
different meanings, and sometimes expresses the utility of some
particular object, and sometimes the power of purchasing other goods
which the possession of that object conveys. The one may be called
_value in use_; the other, _value in exchange_. The things," he
continues, "which have the greatest value in use, have frequently little
or no value in exchange; and, on the contrary, those which have the
greatest value in exchange, have little or no value in use." Water and
air are abundantly useful; they are indeed indispensable to existence,
yet, under ordinary circumstances, nothing can be obtained in exchange
for them. Gold, on the contrary, though of little use compared with air
or water, will exchange for a great quantity of other goods.

Utility then is not the measure of exchangeable value, although it is
absolutely essential to it. If a commodity were in no way useful,--in
other words, if it could in no way contribute to our gratification,--it
would be destitute of exchangeable value, however scarce it might be, or
whatever quantity of labour might be necessary to procure it.

Possessing utility, commodities derive their exchangeable value from two
sources: from their scarcity, and from the quantity of labour required
to obtain them.

There are some commodities, the value of which is determined by their
scarcity alone. No labour can increase the quantity of such goods, and
therefore their value cannot be lowered by an increased supply. Some
rare statues and pictures, scarce books and coins, wines of a peculiar
quality, which can be made only from grapes grown on a particular soil,
of which there is a very limited quantity, are all of this description.
Their value is wholly independent of the quantity of labour originally
necessary to produce them, and varies with the varying wealth and
inclinations of those who are desirous to possess them.

These commodities, however, form a very small part of the mass of
commodities daily exchanged in the market. By far the greatest part of
those goods which are the objects of desire, are procured by labour; and
they may be multiplied, not in one country alone, but in many, almost
without any assignable limit, if we are disposed to bestow the labour
necessary to obtain them.

In speaking then of commodities, of their exchangeable value, and of the
laws which regulate their relative prices, we mean always such
commodities only as can be increased in quantity by the exertion of
human industry, and on the production of which competition operates
without restraint.

In the early stages of society, the exchangeable value of these
commodities, or the rule which determines how much of one shall be
given in exchange for another, depends solely on the comparative
quantity of labour expended on each.

"The real price of every thing," says Adam Smith, "what every thing
really costs to the man who wants to acquire it, is the toil and trouble
of acquiring it. What every thing is really worth to the man who has
acquired it, and who wants to dispose of it, or exchange it for
something else, is the toil and trouble which it can save to himself,
and which it can impose upon other people." "Labour was the first
price--the original purchase-money that was paid for all things." Again,
"in that early and rude state of society, which precedes both the
accumulation of stock and the appropriation of land, the proportion
between the quantities of labour necessary for acquiring different
objects, seems to be the only circumstance which can afford any rule for
exchanging them for one another. If among a nation of hunters, for
example, it usually cost twice the labour to kill a beaver which it does
to kill a deer, one beaver should naturally exchange for, or be worth
two deer. It is natural that what is usually the produce of two days',
or two hours' labour, should be worth double of what is usually the
produce of one day's, or one hour's labour."[2]

That this is really the foundation of the exchangeable value of all
things, excepting those which cannot be increased by human industry, is
a doctrine of the utmost importance in political economy; for from no
source do so many errors, and so much difference of opinion in that
science proceed, as from the vague ideas, which are attached to the word
value.

If the quantity of labour realized in commodities, regulate their
exchangeable value, every increase of the quantity of labour must
augment the value of that commodity on which it is exercised, as every
diminution must lower it.

Adam Smith, who so accurately defined the original source of
exchangeable value, and who was bound in consistency to maintain, that
all things became more or less valuable in proportion as more or less
labour was bestowed on their production, has himself erected another
standard measure of value, and speaks of things being more or less
valuable, in proportion as they will exchange for more or less of this
standard measure. Sometimes he speaks of corn, at other times of labour,
as a standard measure; not the quantity of labour bestowed on the
production of any object, but the quantity which it can command in the
market: as if these were two equivalent expressions, and as if because a
man's labour had become doubly efficient, and he could therefore produce
twice the quantity of a commodity, he would necessarily receive twice
the former quantity in exchange for it.

If this indeed were true, if the reward of the labourer were always in
proportion to what he produced, the quantity of labour bestowed on a
commodity, and the quantity of labour which that commodity would
purchase, would be equal, and either might accurately measure the
variations of other things: but they are not equal; the first is under
many circumstances an invariable standard, indicating correctly the
variations of other things; the latter is subject to as many
fluctuations as the commodities compared with it. Adam Smith, after most
ably shewing the insufficiency of a variable medium, such as gold and
silver, for the purpose of determining the varying value of other
things, has himself, by fixing on corn or labour, chosen a medium no
less variable.

Gold and silver are no doubt subject to fluctuations, from the discovery
of new and more abundant mines; but such discoveries are rare, and their
effects, though powerful, are limited to periods of comparatively short
duration. They are subject also to fluctuation, from improvements in the
skill and machinery with which the mines may be worked; as in
consequence of such improvements, a greater quantity may be obtained
with the same labour. They are further subject to fluctuation from the
decreasing produce of the mines, after they have yielded a supply to the
world, for a succession of ages. But from which of these sources of
fluctuation is corn exempted? Does not that also vary, on one hand, from
improvements in agriculture, from improved machinery and implements
used in husbandry, as well as from the discovery of new tracts of
fertile land, which in other countries may be taken into cultivation,
and which will affect the value of corn in every market where
importation is free? Is it not on the other hand subject to be enhanced
in value from prohibitions of importation, from increasing population
and wealth, and the greater difficulty of obtaining the increased
supplies, on account of the additional quantity of labour which the
cultivation of inferior lands requires? Is not the value of labour
equally variable; being not only affected, as all other things are, by
the proportion between the supply and demand, which uniformly varies
with every change in the condition of the community, but also by the
varying price of food and other necessaries, on which the wages of
labour are expended?

In the same country double the quantity of labour may be required to
produce a given quantity of food and necessaries at one time, that may
be necessary at another, and a distant time; yet the labourer's reward
may possibly be very little diminished. If the labourer's wages at the
former period, were a certain quantity of food and necessaries, he
probably could not have subsisted if that quantity had been reduced.
Food and necessaries in this case will have risen 100 per cent. if
estimated by the _quantity_ of labour necessary to their production,
while they will scarcely have increased in value, if measured by the
quantity of labour for which they will _exchange_.

The same remark may be made respecting two or more countries. In America
and Poland, a year's labour will produce much more corn than in England.
Now, supposing all other necessaries to be equally cheap in those three
countries, would it not be a great mistake to conclude, that the
quantity of corn awarded to the labourer, would in each country be in
proportion to the facility of production?

If the shoes and clothing of the labourer, could, by improvements in
machinery, be produced by one fourth of the labour now necessary to
their production, they would probably fall 75 per cent.; but so far is
it from being true, that the labourer would thereby be enabled
permanently to consume four coats, or four pair of shoes, instead of
one, that his wages would in no long time be adjusted by the effects of
competition, and the stimulus to population, to the new value of the
necessaries on which they were expended. If these improvements extended
to all the objects of the labourer's consumption, we should find him
probably at the end of a very few years, in possession of only a small,
if any, addition to his enjoyments, although the exchangeable value of
those commodities, compared with any other commodity, in the manufacture
of which no such improvement were made, had sustained a very
considerable reduction; and though they were the produce of a very
considerably diminished quantity of labour.

It cannot then be correct, to say with Adam Smith, "that as labour may
sometimes _purchase_ a greater, and sometimes a smaller quantity of
goods, it is their value which varies, not that of the labour which
purchases them;" and therefore, "that labour _alone never varying in
its own value_, is alone the ultimate and real standard by which the
value of all commodities can at all times and places be estimated and
compared;"--but it is correct to say, as Adam Smith had previously said,
"that the proportion between the quantities of labour necessary for
acquiring different objects, seems to be the only circumstance which can
afford any rule for exchanging them for one another;" or in other words,
that it is the comparative quantity of commodities which labour will
produce, that determines their present or past relative value, and not
the comparative quantities of commodities, which are given to the
labourer in exchange for his labour.

If any one commodity could be found, which now and at all times required
precisely the same quantity of labour to produce it, that commodity
would be of an unvarying value, and would be eminently useful as a
standard by which the variations of other things might be measured. Of
such a commodity we have no knowledge, and consequently are unable to
fix on any standard of value. It is, however, of considerable use
towards attaining a correct theory, to ascertain what the essential
qualities of a standard are, that we may know the causes of the
variation in the relative value of commodities, and that we may be
enabled to calculate the degree in which they are likely to operate.

       *       *       *       *       *

In speaking however of labour, as being the foundation of all value, and
the relative quantity of labour as determining the relative value of
commodities, I must not be supposed to be inattentive to the different
qualities of labour, and the difficulty of comparing an hour's, or a
day's labour, in one employment, with the same duration of labour in
another. The estimation in which different qualities of labour are held,
comes soon to be adjusted in the market with sufficient precision for
all practical purposes, and depends much on the comparative skill of the
labourer, and intensity of the labour performed. The scale, when once
formed, is liable to little variation. If a day's labour of a working
jeweller be more valuable than a day's labour of a common labourer, it
has long ago been adjusted, and placed in its proper position in the
scale of value.[3]

In comparing therefore the value of the same commodity, at different
periods of time, the consideration of the comparative skill and
intensity of labour, required for that particular commodity, needs
scarcely to be attended to, as it operates equally at both periods. One
description of labour at one time is compared with the same description
of labour at another; if a tenth, a fifth, or a fourth, has been added
or taken away, an effect proportioned to the cause will be produced on
the relative value of the commodity.

If a piece of cloth be now of the value of two pieces of linen, and if,
in ten years hence, the ordinary value of a piece of cloth should be
four pieces of linen, we may safely conclude, that either more labour is
required to make the cloth, or less to make the linen, or that both
causes have operated.

As the inquiry to which I wish to draw the reader's attention, relates
to the effect of the variations in the relative value of commodities,
and not in their absolute value, it will be of little importance to
examine into the comparative degree of estimation in which the different
kinds of human labour are held. We may fairly conclude, that whatever
inequality there might originally have been in them, whatever the
ingenuity, skill, or time necessary for the acquirement of one species
of manual dexterity more than another, it continues nearly the same
from one generation to another; or at least, that the variation is very
inconsiderable from year to year, and therefore, can have little effect
for short periods on the relative value of commodities.

"The proportion between the different rates both of wages and profit in
the different employments of labour and stock, seems not to be much
affected, as has already been observed, by the riches or poverty, the
advancing, stationary, or declining state of the society. Such
revolutions in the public welfare, though they affect the general rates
both of wages and profit, must in the end affect them equally in all
different employments. The proportion between them therefore must remain
the same, and cannot well be altered, at least for any considerable
time, by any such revolutions."[4]

It will be seen by the extract which I have made in page 4, from the
"Wealth of Nations," that though Adam Smith fully recognized the
principle, that the proportion between the quantities of labour
necessary for acquiring different objects, is the only circumstance
which can afford any rule for our exchanging them for one another, yet
he limits its application to "that early and rude state of society,
which precedes both the accumulation of stock and the appropriation of
land;" as if, when profits and rent were to be paid, they would have
some influence on the relative value of commodities, independent of the
mere quantity of labour that was necessary to their production.

Adam Smith, however, has no where analyzed the effects of the
accumulation of capital, and the appropriation of land, on relative
value. It is of importance, therefore, to determine how far the effects
which are avowedly produced on the exchangeable value of commodities, by
the comparative quantity of labour bestowed on their production, are
modified or altered by the accumulation of capital and the payment of
rent.

First, as to the accumulation of capital. Even in that early state to
which Adam Smith refers, some capital, though possibly made and
accumulated by the hunter himself would be necessary to enable him to
kill his game. Without some weapon, neither the beaver nor the deer
could be destroyed, and therefore the value of these animals would be
regulated, not solely by the time and labour necessary to their
destruction, but also by the time and labour necessary for providing the
hunter's capital, the weapon, by the aid of which their destruction was
effected.

Suppose the weapon necessary to kill the beaver, were constructed with
much more labour than that necessary to kill the deer, on account of the
greater difficulty of approaching near to the former animal, and the
consequent necessity of its being more true to its mark; one beaver
would naturally be of more value than two deer, and precisely for this
reason, that more labour would on the whole be necessary to its
destruction.

All the implements necessary to kill the beaver and deer might belong to
one class of men, and the labour employed in their destruction might be
furnished by another class; still, their comparative prices would be in
proportion to the actual labour bestowed, both on the formation of the
capital, and on the destruction of the animals. Under different
circumstances of plenty or scarcity of capital, as compared with labour,
under different circumstances of plenty or scarcity of the food and
necessaries essential to the support of men, those who furnished an
equal value of capital for either one employment or for the other, might
have a half, a fourth, or an eighth of the produce obtained, the
remainder being paid as wages to those who furnished the labour; yet
this division could not affect the relative value of these commodities,
since whether the profits of capital were greater or less, whether they
were 50, 20, or 10 per cent., or whether the wages of labour were high
or low, they would operate equally on both employments.

If we suppose the occupations of the society extended, that some provide
canoes and tackle necessary for fishing, others the seed and rude
machinery first used in agriculture, still the same principle would hold
true, that the exchangeable value of the commodities produced would be
in proportion to the labour bestowed on their production; not on their
immediate production only, but on all those implements or machines
required to give effect to the particular labour to which they were
applied.

If we look to a state of society in which greater improvements have been
made, and in which arts and commerce flourish, we shall still find that
commodities vary in value conformably with this principle: in estimating
the exchangeable value of stockings, for example, we shall find that
their value, comparatively with other things, depends on the total
quantity of labour necessary to manufacture them, and bring them to
market. First, there is the labour necessary to cultivate the land on
which the raw cotton is grown; secondly, the labour of conveying the
cotton to the country where the stockings are to be manufactured, which
includes a portion of the labour bestowed in building the ship in which
it is conveyed, and which is charged in the freight of the goods;
thirdly, the labour of the spinner and weaver; fourthly, a portion of
the labour of the engineer, smith, and carpenter, who erected the
buildings and machinery, by the help of which they are made; fifthly,
the labour of the retail dealer, and of many others, whom it is
unnecessary further to particularize. The aggregate sum of these various
kinds of labour, determines the quantity of other things for which these
stockings will exchange, while the same consideration of the various
quantities of labour which have been bestowed on those other things,
will equally govern the portion of them which will be given for the
stockings.

To convince ourselves that this is the real foundation of exchangeable
value, let us suppose any improvement to be made in the means of
abridging labour in any one of the various processes through which the
raw cotton must pass, before the manufactured stockings come to the
market, to be exchanged for other things; and observe the effects which
will follow. If fewer men were required to cultivate the raw cotton, or
if fewer sailors were employed in navigating, or shipwrights in
constructing the ship, in which it was conveyed to us; if fewer hands
were employed in raising the buildings and machinery, or if these when
raised, were rendered more efficient, the stockings would inevitably
fall in value, and consequently command less of other things. They
would fall, because a less quantity of labour was necessary to their
production, and would therefore exchange for a smaller quantity of those
things in which no such abridgment of labour had been made.

Economy in the use of labour never fails to reduce the relative value of
a commodity, whether the saving be in the labour necessary to the
manufacture of the commodity itself, or in that necessary to the
formation of the capital, by the aid of which it is produced. In either
case the price of stockings would fall, whether there were fewer men
employed as bleachers, spinners, and weavers, persons immediately
necessary to their manufacture; or as sailors, carriers, engineers, and
smiths, persons more indirectly concerned. In the one case, the whole
saving of labour would fall on the stockings, because that portion of
labour was wholly confined to the stockings; in the other, a portion
only would fall on the stockings, the remainder being applied to all
those other commodities, to the production of which the buildings,
machinery, and carriage, were subservient.

In every society the capital which is employed in production, is
necessarily of limited durability. The food and clothing consumed by the
labourer, the buildings in which he works, the implements with which his
labour is assisted, are all of a perishable nature. There is however a
vast difference in the time for which these different capitals will
endure: a steam-engine will last longer than a ship, a ship than the
clothing of the labourer, and the clothing of the labourer longer than
the food which he consumes.

According as capital is rapidly perishable, and requires to be
frequently reproduced, or is of slow consumption, it is classed under
the heads of circulating, or of fixed capital. A brewer, whose buildings
and machinery are valuable and durable, is said to employ a large
portion of fixed capital: on the contrary, a shoemaker, whose capital
is chiefly employed in the payment of wages, which are expended on food
and clothing, commodities more perishable than buildings and machinery,
is said to employ a large proportion of his capital as circulating
capital.

Two trades then may employ the same amount of capital; but it may be
very differently divided with respect to the portion which is fixed, and
that which is circulating.

Again two manufacturers may employ the same amount of fixed, and the
same amount of circulating capital; but the durability of their fixed
capitals may be very unequal. One may have steam engines of the value of
10,000_l._ the other, ships of the same value.

Besides the alteration in the relative value of commodities, occasioned
by more or less labour being required to produce them, they are also
subject to fluctuations from a rise of wages, and consequent fall of
profits, if the fixed capitals employed be either of unequal value, or
of unequal duration.

Suppose that in the early stages of society, the bows and arrows of the
hunter were of equal value, and of equal durability, with the canoe and
implements of the fisherman, both being the produce of the same quantity
of labour. Under such circumstances the value of the deer, the produce
of the hunter's day's labour, would be exactly equal to the value of
the fish, the produce of the fisherman's day's labour. The comparative
value of the fish and the game, would be entirely regulated by the
quantity of labour realised in each; whatever might be the quantity of
production, or however high or low general wages or profits might be. If
for example the canoes and implements of the fisherman were of the value
of 100_l._ and were calculated to last for ten years, and he employed
ten men, whose annual labour cost 100_l._ and who in one day obtained by
their labour twenty salmon: If the weapons employed by the hunter were
also of 100_l._ value and calculated to last ten years, and if he also
employed ten men, whose annual labour cost 100_l._ and who in one day
procured him ten deer; then the natural price of a deer would be two
salmon, whether the proportion of the whole produce bestowed on the men
who obtained it, were large or small. The proportion which might be paid
for wages, is of the utmost importance in the question of profits; for
it must at once be seen, that profits would be high or low, exactly in
proportion as wages were low or high; but it could not in the least
affect the relative value of fish and game, as wages would be high or
low at the same time in both occupations. If the hunter urged the plea
of his paying a large proportion, or the value of a large proportion of
his game for wages, as an inducement to the fisherman to give him more
fish in exchange for his game, the latter would state that he was
equally affected by the same cause; and therefore under all variations
of wages and profits, under all the effects of accumulation of capital,
as long as they continued by a day's labour to obtain respectively the
same quantity of fish, and the same quantity of game, the natural rate
of exchange would be, one deer for two salmon.

If with the same quantity of labour a less quantity of fish, or a
greater quantity of game were obtained, the value of fish would rise in
comparison with that of game. If, on the contrary, with the same
quantity of labour a less quantity of game, or a greater quantity of
fish was obtained, game would rise in comparison with fish.

If there were any other commodity which was invariable in its value,
requiring at all times, and under all circumstances, precisely the same
quantity of labour to obtain it, we should be able to ascertain, by
comparing the value of fish and game with this commodity, how much of
the variation was to be attributed to a cause which affected the value
of fish, and how much to a cause which affected the value of game.

Suppose money to be that commodity. If a salmon were worth 1_l._ and a
deer 2_l._ one deer would be worth two salmon. But a deer might become
of the value of three salmon, for more labour might be required to
obtain the deer, or less to get the salmon, or both these causes might
operate at the same time. If we had this invariable standard, we might
easily ascertain in what degree either of these causes operated. If
salmon continued to sell for 1_l._ whilst deer rose to 3_l._ we might
conclude that more labour was required to obtain the deer. If deer
continued at the same price of 2_l._ and salmon sold for 13_s._ 4_d._ we
might then be sure that less labour was required to obtain the salmon;
and if deer rose to 2_l._ 10_s._ and salmon fell to 16_s._ 8_d._ we
should be convinced that both causes had operated in producing the
alteration of the relative value of these commodities.

No alteration in the wages of labour could produce any alteration in the
relative value of these commodities; for if profits were 10 per cent.,
then to replace the 100_l._ circulating capital with 10 per cent.
profit, there must be a return of 110_l._: to replace the equal portion
of fixed capital, when profits are at the rate of 10 per cent. there
should be annually received 16.27_l._; for, the present value of an
annuity of 16.27_l._ for ten years, when money is at 10 per cent., is
100_l._; consequently all the game of the hunter should annually sell
for 126.27_l._ But the capital of the fisherman being the same in
quantity, and divided in the same proportion into fixed and circulating
capital, and being also of the same durability, he, to obtain the same
profits, must sell his goods for the same value. If wages rose 10 per
cent. and consequently 10 per cent. more circulating capital were
required in each trade, it would equally affect both employments. In
both, 210_l._ instead of 200_l._ would be required in order to produce
the former quantity of commodities; and these would sell precisely for
the same money, namely 126.27_l._: they would therefore be at the same
relative value, and profits would be equally reduced in both trades.

The prices of the commodities would not rise, because the money in which
they are valued is by the supposition of an invariable value, always
requiring the same quantity of labour to produce it.

If the gold mine from which money was obtained were in the same country,
in that case, after the rise of wages, 210_l._ might be necessary to be
employed, as capital, to obtain the same quantity of metal that 200_l._
obtained before: for the same reason that the hunter and fisherman
required 10_l._ in addition to their capitals, the miner would require
an equal addition to his. No greater quantity of labour would be
required in any of these occupations, but it would be paid for at a
higher price, and the same reasons which should make the hunter and
fisherman endeavour to raise the value of their game and fish, would
cause the owner of the mine to raise the value of his gold. This
inducement acting with the same force on all these three occupations,
and the relative situation of those engaged in them being the same
before and after the rise of wages, the relative value of game, fish,
and gold, would continue unaltered. Wages might rise twenty per cent.,
and profits consequently fall in a greater or less proportion, without
occasioning the least alteration in the relative value of these
commodities.

Now suppose, that with the same labour and fixed capital, more fish
could be produced, but no more gold or game, the relative value of fish
would fall in comparison with gold or game. If, instead of twenty
salmon, twenty-five were the produce of one day's labour, the price of a
salmon would be sixteen shillings instead of a pound, and two salmon and
a half, instead of two salmon, would be given in exchange for one deer,
but the price of deer would continue at 2_l._ as before. In the same
manner, if fewer fish could be obtained with the same capital and
labour, fish would rise in comparative value. Fish then would rise or
fall in exchangeable value, only because more or less labour was
required to obtain a given quantity; and it never could rise or fall
beyond the proportion of the increased or diminished quantity of labour
required.

If we had then an invariable standard, by which we could measure the
variation in other commodities, we should find that the utmost limit to
which they could permanently rise, was proportioned to the additional
quantity of labour required for their production; and that unless more
labour were required for their production, they could not rise in any
degree whatever. A rise of wages would not raise them in money value,
nor relatively to any other commodities, the production of which
required no additional quantity of labour, which employed the same
proportion of fixed and circulating capital, and fixed capital of the
same durability. If more or less labour were required in the production
of the other commodity, we have already stated that this will
immediately occasion an alteration in its relative value, but such
alteration is owing to the altered quantity of requisite labour, and not
to the rise of wages.

If the fixed and circulating capitals were in different proportions, or
if the fixed capital were of different durability, then the relative
value of the commodities produced, would be altered in consequence of a
rise of wages.

First, when the fixed and circulating capitals were in different
proportions, suppose that instead of 100_l._ fixed capital and 100_l._
circulating capital, the hunter should employ 150_l._ fixed capital and
50_l._ circulating capital, and that the fisherman should on the
contrary employ only 50_l._ fixed capital and 150_l._ circulating
capital.


  If profits be 10 per cent., the hunter must
    sell his goods for 79_l._ 8_s._ For,
  To replace his circulating capital
    of 50_l._ with a profit of 10 per
    cent. would require a value of           55_l._

  To replace his fixed capital with
    10 per cent. profit, the present
    value of an annuity for ten years
    of 24.4_l._ at 10 per cent. being
    150_l._                                  24.4_l._
                                             ------
                                             79.4_l._


  If profits be 10 per cent., the fisherman
  must sell his goods for 173_l._ 2_s._ 7_d._
  To replace his circulating capital
    of 150_l._ with 10 per cent. profit       165_l._
  To replace his fixed capital with
    10 per cent. profit, one-third of
    the hunter's                                8.13
                                               ------
                                              173.13_l._


Now if wages rise, although neither of these commodities should require
more labour for their production, yet their relative value will be
altered. Suppose wages to rise 6 per cent., the hunter would not require
more than an increase of 3_l._ to his capital, to employ the same number
of men, and obtain the same quantity of game; the fisherman would
require three times that sum, or 9_l._ The profits of stock would fall
to 4 per cent., the hunter would be obliged to sell his game for 73_l._
12_s._ 2_d._


  To replace his circulating capital
    of 53_l._ with a profit of 4 per
    cent.                                    55.12_l._

  To replace fixed capital, annually
    wasted, the present value of an
    annuity of 18.49_l._ for ten years,
    when money is at 4 per cent.,
    being 150_l._                            18.49
                                             -----
                                            £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.


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