THE greater number of the subordinate parts of the science of Political Economy have been treated, in various articles of this Supplement, with the fulness which their relative importance seemed to require. In the present article, therefore, we shall principally confine ourselves to an attempt to define the objects and limits of the science—to trace its progress—to exhibit and establish the fundamental principles on which it is founded—and to point out the relation and dependence subsisting between its different parts. In doing this, we shall have occasion to examine the more prominent of the theories which have been advanced in this field of inquiry; our object being, not merely to lay before our readers what we conceive to be a true theory of the science, but also to present them with as full an exposition as our limits will allow of the particular doctrines advocated by the most celebrated of its professors.
Definition of the Science—Causes of its being neglected in Greece and Rome, and in the Middle Ages—Species of Evidence on which its Conclusions are founded—Rise of the Science in Modern Europe—Mercantile System—Progress of Commercial Philosophy in England in the Seventeenth and Eighteenth Centuries—System of M. Quesnay and the French Economists—Publication of the "Wealth of Nations"—Distinction between Politics and Statistics and Political Economy.
Political Economy* is the science of the laws which regulate the production, distribution, and consumption of those material products which have exchangeable value, and which are either necessary, useful, or agreeable to man.
This definition has been framed so as to exclude all reference to such articles as exist independently of man, and of which unlimited quantities can be obtained without any degree of laborious exertion. Had such been the case with all the articles required to satisfy our wants, and to gratify our desires, this science would either have had no existence at all, or would have been cultivated only as a source of amusement, without any view to utility. Political Economy is exclusively conversant with objects which come within the observation of every man, and which are continually modified by human interference. It is, in fact, the science of values; and nothing which is not possessed of exchangeable value, or which will not be accepted as an equivalent for something else, can come within the scope of its
inquiries. It is obvious, however, that an article may be possessed of the highest degree of utility, or, as it is sometimes termed, of intrinsic worth, and yet be wholly destitute of exchangeable value. Without utility of some species or another, no article will ever be an object of demand; but how necessary so ever any particular article may be to our comfort, or even existence, and however great the demand for it, still, if it be a spontaneous production of nature—if it exists independently of human agency, and if every individual has an indefinite command over it, it can never become the subject of an exchange, or afford a basis for the reasonings of the economist. It cannot justly be said, that the food with which we appease the cravings of hunger, or the clothes by which we defend ourselves from the inclemency of the weather, are more useful than atmospheric air; and yet they are possessed of that exchangeable value of which it is totally destitute. The reason is, that food and clothes are not, like air, gratuitous products: they cannot be had at all times, and without any exertion; they are obtainable only by labour; and as no one will voluntarily sacrifice the fruits of his industry, without receiving an equivalent in return, they are truly said to possess exchangeable value.
The word value has, we are aware, been very generally employed to express, not only the exchangeable worth of a commodity, or its capacity of exchanging for other commodities, but also to express its utility, or its capacity of satisfying our wants, and of contributing to our comforts and enjoyments. But it is obvious, that the utility of commodities—that the capacity of bread, for example, to appease hunger, or of water to quench thirst—is a totally different and distinct quality from their capacity of exchanging for other commodities. Dr Smith perceived this difference, and showed the importance of carefully distinguishing between the utility, or, as he expressed it, the "value in use," of commodities, and their value in exchange. But he did not always keep this distinction in view, and it has been very generally lost sight of by M. Say, Mr Malthus, and other late writers. We have no doubt, indeed, that the confounding together of these opposite qualities has been one of the principal causes of the confusion and obscurity in which many branches of the science, not in themselves difficult, are still involved. When, for example, we say that water is highly valuable, we unquestionably attach a very different meaning to the phrase from what we attach to it when we say that gold is valuable. Water is indispensable to existence, and has, therefore, a high degree of utility, or of "value in use;" but as it can be generally ob-
* Economy, from oikos, a house, or family, and nomos, a law—the government of a family. Hence Political Economy may be said to be to the state what domestic economy is to a single family.
Definition. tained in large quantities, without much labour or exertion, it has, in most places, but a very low value in exchange. Gold, on the other hand, is of comparatively little utility; but as it exists only in limited quantities, and as a great deal of labour is necessary to procure a small supply of it, it has a high exchangeable value, and may be exchanged or bartered for a large quantity of most other commodities. To confound these different sorts of value would evidently lead to the most erroneous conclusions. And hence, to avoid all chance of error from mistaking the sense of so important a word as value, we shall never use it except to signify exchangeable worth, or value in exchange; and shall always use the word utility to express the power or capacity of an article to satisfy our wants, or gratify our desires.
A few words will suffice to show the necessity and importance of always distinguishing between the utility of a commodity and its value. If utility and value in exchange were identical, or if they were regulated by the same laws, it would necessarily follow, that the same circumstances which were calculated to increase the utility of any article would also increase its value, and vice versa. But the fact is distinctly and completely the reverse. The utility of a commodity is never increased by simply raising, but it is, in the great majority of instances, increased by lowering, its value. A deficient harvest increases the exchangeable value of corn, but most certainly it does not increase its utility. If such an improvement were to take place in the manufacture of hats as would enable them to be produced for a half of the expense it now takes to bring them to market, their value, and consequently their price, would very soon be reduced a half also. Each individual would thus be able to buy two hats for the same sum it had formerly required to buy one; and while the utility of no single hat would be impaired by this fall of value, it is plain that the sphere of their utility would be greatly extended, and that they would be brought within the reach of a large proportion of those whose poverty might previously have rendered them unable to obtain them. In fact, the grand object of the science of Political Economy is to discover the means by which the value of commodities may be reduced to the lowest possible limits. For, the more their value is reduced, the more obtainable they become, and the greater, consequently, is the amount of the necessaries, conveniences, and luxuries at the disposal of every individual.
Definition of the term Wealth. Political Economy has been frequently defined to be "the science which treats of the production, distribution, and consumption of wealth;" and if by wealth be meant those material products which possess exchangeable value, and which are necessary, useful, or agreeable to man, the definition is quite unexceptionable. But the economists who have adopted this definition have attached a different, and a much too extensive meaning to the term wealth. They have sometimes, for example, considered wealth as synonymous with "all that man desires as useful and agreeable to him." But if Political Economy were to embrace a discussion of the production and distribution of all that is useful and
agreeable, it would include within itself every other science; and the best Encyclopædia would really be the best treatise on Political Economy. Good health is useful and delightful, and, therefore, on this hypothesis, the science of wealth ought to comprehend the science of medicine; civil and religious liberty are highly useful, and, therefore, the science of wealth must comprehend the science of politics; good acting is agreeable, and, therefore, to be complete, the science of wealth must embrace a discussion of the principles of the histrionic art, and so on. Such definitions are obviously worse than useless. They can have no effect but to generate confused and perplexed notions respecting the objects and limits of the science, and to prevent the student ever acquiring a clear and distinct idea of the nature of the inquiries in which he is engaged.
Mr Malthus has defined wealth to consist of "those material objects which are necessary, useful, and agreeable to man." (Principles of Political Economy, p. 28.) But this definition, though infinitely less objectionable than the preceding, is much too comprehensive to be used in Political Economy. Atmospheric air, and the heat of the sun, are both material products, and are highly useful and agreeable. But their independent existence, and their incapacity of appropriation, excludes them, as we have already shown, from the investigations of this science.
Dr Smith has not explicitly stated what was the precise meaning attached by him to the term wealth; but he most commonly describes it to be "the annual produce of land and labour." Mr Malthus, however, has justly objected to this definition, that it refers to the sources of wealth, before we know what wealth is, and that it includes all the useless products of the earth, as well as those which are appropriated and enjoyed by man.
The definition we have given is not liable to any of these objections. By confining the science to a discussion of the laws regulating "the production, distribution, and consumption of those material products which have exchangeable value, and which are either necessary, useful, or agreeable," we give to it a distinct and definite object. When thus properly restricted, the researches of the economist occupy a field which is exclusively his own. He runs no risk of wasting his time in inquiries which belong to other sciences, or in unprofitable investigations respecting the production and consumption of articles which cannot be appropriated, and which exist independently of human industry.
Capacity of appropriation is indispensably necessary to constitute wealth. And we shall invariably employ this term to distinguish those products only which are obtained by the intervention of human labour, and which, consequently, can be appropriated by one individual, and consumed exclusively by him. A man is not said to be wealthy, because he has an indefinite command over atmospheric air, for this is a privilege which he enjoys in common with every other man, and which can form no ground of distinction; but he is said to be wealthy, according to the degree in which he can afford to command those neces-
Definition. —saries, conveniences, and luxuries which are not the gifts of nature, but the products of human industry. It must, however, be carefully observed, that, although the possession of value be thus necessary to the existence of wealth, they cannot be confounded together without leading to the most erroneous conclusions. Wealth and value are as widely different as utility and value. It is plain that every man will be able to command a much greater quantity of these necessaries and gratifications, of which wealth consists when their value declines, or when they become more easily obtainable, than when their value increases. Wealth and value vary in an inverse ratio. The one increases as the other diminishes, and diminishes as the other increases.—Wealth is greatest where the facility of production is greatest, and value is greatest where the difficulty of production is greatest.
The science of Political Economy is exclusively conversant with that class of phenomena, which the exertion of human industry exhibits. Its object is to ascertain the means by which this industry may be rendered most productive of necessaries, comforts, luxuries, and enjoyments, or of wealth in the proper sense of the word; by which this wealth may be most advantageously distributed among the different classes of the society; and by which it may be most profitably consumed. To enter into a lengthened argument to prove the importance of a science having such objects in view, would be worse than useless. The consumption of wealth is indispensable to existence; but the eternal law of Providence has decreed that wealth can only be procured by the intervention of industry—that man must earn his bread by the sweat of his brow. This twofold necessity renders the production of wealth a constant and principal object of the exertions of the vast majority of the human race. It has subdued the natural aversion of man to labour, given activity to indolence, and armed the patient hand of industry with zeal to undertake, and perseverance to overcome, the most difficult and disagreeable tasks. But when wealth is thus necessary, when the desire to acquire it is sufficient to induce us to submit to the greatest privations, it is plainly impossible to doubt the utility and paramount importance of the science which teaches the modes by
which its acquisition may be facilitated, and by which we may be enabled to obtain the greatest amount of wealth with the least possible difficulty. There is no class of people to whom a knowledge of this science can be considered as either extrinsic or superfluous. There are some, doubtless, to whom it may be of more advantage than to others; but it is of the utmost consequence to all. The prosperity of individuals, and consequently of nations, does not depend nearly so much on salubrity of climate, or on the fertility and convenient situation of the soils they inhabit, as on the power possessed by them, of applying their labour with perseverance, skill, and judgment. Industry can balance almost every other deficiency. It can render regions naturally inhospitable barren and unproductive, the comfortable abodes of an intelligent and refined, a crowded and wealthy population; but where it is wanting, the most precious gifts of nature are of no value, and countries possessed of the greatest capabilities of improvement, with difficulty furnish a miserable subsistence to the scanty population of hordes distinguished only by their ignorance, barbarism, and wretchedness.
But when the possession of wealth is thus necessary to individual existence and comfort, and to the advancement of nations in the career of civilization, it may justly excite our astonishment that so few efforts should have been made to discover its sources, and facilitate its acquisition, and that the study of Political Economy, should not have been early considered as forming a principal part in a comprehensive system of education. Two circumstances, to which we shall now briefly advert, seem to us to have been the principal causes of the neglect of this science. The first is the institution of domestic slavery in the ancient world; and the second the darkness of the period when the plan of education in the universities of modern Europe was first organized.
The citizens of Greece and Rome considered it degrading to employ themselves in those occupations which form the principal business of the inhabitants of modern Europe. In some of the Grecian states the citizens were prohibited from engaging in any species of manufacturing or commercial industry; and in Athens and Rome, where such a prohibition did not exist, these employments were universally regarded as mean, mercenary, and unworthy of free-men, and were in consequence carried on exclusively by slaves, or the very dregs of the people.*
* The force of the prejudices on this head may be learned from the following quotations: "Illiberales autem et sordidi," Cicero says, "questus mercenariorum, omniumque quorum operæ, non quorum artes emuntur. Est enim illis ipsa merces auctoramentum servitutis. Sordidi etiam putandi, qui mercantur a mercatoribus quod statim vendant, nihil enim proficiunt, nisi admodum mentiantur! Opificesque omnes in sordida arte versantur, nec enim quidquam ingenium potest habere officina * * * Mercatura autem, si tenuis est, sordida putanda est; sin autem magna et copiosa, multa undique apportans, multisque sine vanitate impertiens, non est admodum vituperanda" (De Officiis, Lib. I. sect. 42.)
"Vulgaris opificum, quæ manu constant, et ad instruendam vitam occupatæ sunt; in quibus nulla decoris, nulla honesti simulatio est." (Seneca Epistolæ, Ep. 89.)
A hundred similar quotations might be produced; but the one we have given from Cicero is sufficient to establish the accuracy of what we have advanced. The strength of the prejudice against commerce and the arts is proved by its exerting so powerful an influence over so cultivated a mind. For a further discussion
Causes of the neglect of Political Economy. Agriculture was treated with more respect. Some of the most distinguished characters in the earlier ages of Roman history had been actively engaged in rural affairs; but, notwithstanding their example, in the flourishing period of the Republic, and under the Imperial Regime, the cultivation of the soil was almost entirely carried on by slaves, belonging to the landlord, and employed on his account. The mass of Roman citizens were either engaged in the military service, or derived a precarious and dependant subsistence from the supplies of corn furnished by the conquered provinces. In such a state of society the relations subsisting in modern Europe between landlords and tenants, and masters and servants, were unknown; and the ancients were in consequence entire strangers to all those interesting and important questions arising out of the rise and fall of rents and wages, which form so important a branch of economical science. The spirit of the philosophy of the ancient world was also extremely unfavourable to the cultivation of Political Economy. The luxurious or more refined mode of living of the rich, was regarded by the ancient moralists as an evil of the first magnitude. They considered it as subversive of those warlike virtues, which were the principal objects of their admiration, and, in consequence, they denounced the passion for accumulating wealth as fraught with the most injurious and destructive consequences. It was impossible that Political Economy could become an object of attention, to men imbued with such prejudices; or that it could be studied by those who held the objects about which it is conversant in contempt, and who spurned that labour by which wealth is produced.
At the establishment of our universities, the clergy were almost the exclusive possessors of the little knowledge then in existence. It was natural, therefore, that their peculiar feelings and pursuits should have a marked influence on the plans of education they were employed to frame. Grammar, rhetoric, logic, school divinity, and civil law, comprised the whole course of study. To have appointed professors to explain the principles of commerce, and the means by which labour might be rendered most effective, would have been considered as equally superfluous and degrading to the dignity of science. The prejudices against commerce, manufactures, and luxury, generated in antiquity, had a powerful influence in the middle ages. None were possessed of any clear ideas concerning the true sources of wealth, happiness, and prosperity. The intercourse between the different countries was extremely limited, and was rather confined to marauding excursions, and a piratical scramble for the precious metals, than to a commerce founded on the gratification of real or reciprocal wants.
These circumstances sufficiently account for the
slow progress of, and the little attention paid to this science up to a very recent period. And since it became an object of more general attention and liberal inquiry, the opposition between the theories and opinions that have been espoused by the most eminent of its professors,—a necessary and inevitable result, as we shall immediately show, of its recent cultivation, has proved exceedingly unfavourable to its progress, and has generated a disposition to distrust its best established conclusions. This prejudice is, however, extremely ill-founded; and notwithstanding the diversity of the theories that have been formed to explain its various phenomena, Political Economy admits of as much certainty in its conclusions as any science not exclusively dependent on mere relation. A brief exposition of the nature of the principles on which it is founded, and of the mode in which its investigations ought to be conducted, will evince the correctness of this statement.
Political Economy is not a science of speculation, but of fact and experiment. The principles on which the production and accumulation of wealth and the progress of civilization depend, are not the offspring of legislative enactments. Man must exert himself to produce wealth, because he cannot exist without it; and the desire implanted in the breast of every individual of rising in the world and improving his condition, impels him to save and accumulate. The principles which form the basis of this science make, therefore, a part of the original constitution of man and of the physical world, and their operations, like those of the mechanical principles, are to be traced by the aid of observation and analysis. There is, however, a material distinction between the physical and the moral and political sciences. The conclusions of the former apply in every case, while those of the latter only apply in the majority of cases. The principles on which the production and accumulation of wealth depend are inherent in our nature, but they do not exercise precisely the same influence over the conduct of every individual; and the theorist must satisfy himself with framing his general rules so as to explain their operation in the majority of instances, leaving it to the sagacity of the observer to modify them so as to suit individual cases. Thus it is an admitted principle in the science of Morals, as well as of Political Economy, that by far the largest proportion of the human race have a much clearer view of what is conducive to their own interests, than it is possible for any other man, or select number of men to have, and consequently that it is sound policy to allow every individual to follow the bent of his inclination, and to engage in any branch of industry he thinks proper. This is the general theorem; and it is one which is established on the most comprehensive experience. It is not, however, like the laws which regulate the motions of
of the opinions of the Romans on this subject, we refer our readers to the Dissertazione del Commercio de Romani of Mengotti, which received a prize from the Academy of Paris in 1787, and to the Memoria Apolegetica del Commercio de Romani of Torres, published at Venice in 1788.
* "Rei militaris virtus præstat cæteris omnibus; hæc populo Romano, hæc huic urbi æternam gloriam peperit."—(Cicero pro Murena.)
Evidence on the planetary system,—it will hold good in nineteen which the out of twenty instances, but the twentieth may be an Conclusions exception. But it is not required of the economist, of Political Economy that his theories should quadrature with the peculiar areFounded. bias of the mind of a particular person. His conclusions are drawn from contemplating the principles which are found to determine the condition of mankind, as presented on the large scale of nations and empires. His business is with man in the aggregate—with states, and not with families—with the passions and propensities which actuate the great bulk of the human race, and not with those which are occasionally found to influence the conduct of a solitary individual.
This distinction should be kept constantly in view. Nothing is more common than to hear it objected to some of the best established truths in political and economical science, that they are at variance with certain facts, and that, therefore, they must be rejected. But these objections very often originate in an entire misapprehension of the nature of the science. It would be easy to produce a thousand instances of individuals who have been enriched by monopolies and restrictions, and even by robbery and plunder; though it would certainly be a little too much to conclude from thence that society could be enriched by such means! This, however, is the single consideration to which the political economist has to attend;—and, until it can be shown that monopolies and restrictions are not destructive of national wealth, and that what is gained by the monopolist is not lost by the public, he is justified in considering them injurious. To arrive at a well-founded conclusion in economical science, it is not enough to observe results in particular cases, or as they affect particular individuals; we must further inquire whether these results are constant and universally applicable—whether the same circumstances which have given rise to them in one instance, would in every instance, and in every state of society, be productive of the same or similar results—A theory which is inconsistent with an uniform and constant fact, must be erroneous; but the observance of a particular result at variance with our customary experience, and when we may not have had the means of discriminating the circumstances attending it, ought not to induce us hastily to modify or reject a principle which accounts satisfactorily for the greater number of appearances.
The example of the few arbitrary princes who have been equitable, humane, and generous, is not enough to overthrow the principle which teaches that it is the nature of irresponsible power to debauch and vitiate its possessors—to render them haughty, cruel, and suspicious; nor is the example of those who, attentive only to present enjoyment, and careless of the future, lavish their fortunes in boisterous dissipation or vain expence, sufficient to invalidate the general conclusion, that the passion for accumulation is stronger and more powerful than the passion for expence. Had this not been the case, mankind could never have emerged from the condition of savages. The multiplied and stupendous improvements which have been made in different ages and nations—the forests
that have been cut down—the marshes and lakes which the roads, and bridges that have been constructed—the cities and edifices that have been raised—are all the fruit of a saving of income, and establish, in despite of a thousand individual instances of prodigality, the ascendancy and superior force of the accumulating principle.
It is from the want of attention to these considerations that much of the error and misapprehension with which the science of Political Economy has been, and still is infected, has arisen. Almost all the absurd theories and opinions which have successively appeared have been supported by an appeal to facts. But a knowledge of facts, without a knowledge of their mutual relation—without being able to show why the one is a cause and the other an effect—is, to use the illustration of M. Say, really no better than the indigested erudition of an almanack maker, and can afford no means of judging of the truth or falsehood of a general principle.
But, although we are not to reject a received principle because of the apparent opposition of a few results, with the particular circumstances of which we are unacquainted, we can have no confidence in its solidity if it be not deduced from a very comprehensive and careful induction. To arrive at a true knowledge of the laws regulating the production, distribution, and consumption of wealth, the economist must draw his materials from a very wide surface; he should study man in every different situation—he should have recourse to the history of society, of arts, of commerce, and of civilization—to the works of philosophers and travellers—to every thing, in short, that can throw light on the causes which accelerate or retard the progress of civilization. He should observe the changes which have taken place in the fortunes and condition of the human race in different regions and ages of the world. He should trace the rise, progress, and decline of industry, and he should carefully discriminate the effect of different political measures, and the various circumstances wherein an advancing and declining society differ from each other. Such investigations, by disclosing the real causes of national opulence and refinement, and of poverty and degradation, furnish the economist with the means of giving a satisfactory solution of almost all the important problems in the science of wealth, and of devising a scheme of public administration calculated to ensure the continued advancement of the society in the career of improvement.
It must always be kept in mind that it is no part of the business of the economist to inquire into the means by which individual fortunes may have been increased or diminished, except to ascertain their general operation and effect. The public interests ought always to form the exclusive objects of his attention. He is not to frame systems, and devise schemes, for increasing the wealth and enjoyments of particular classes; but to apply himself to discover the sources of national wealth, and universal prosperity, and the means by which they may be rendered most productive.
When we reflect on the variety and extent of the previous knowledge requisite for the construction of a sound theory of Political Economy, we cease to feel any surprise at the errors into which economists have been betrayed, or at the discrepancy of the opinions which are still entertained on some important points. Political Economy is of very recent origin. Though various treatises of considerable merit had previously appeared on some of its separate parts, it was not treated as a whole, or in a scientific manner, until about the middle of last century. This circumstance is of itself enough to account for the number of erroneous systems that have since appeared. Instead of deducing their general conclusions from a comparison of particular facts, and a careful examination of the phenomena attending the operation of different principles, and of the same principles in different circumstances, the first cultivators of almost every branch of science have begun by framing their theories on a very narrow and insecure basis. Nor is it really in their power to go to work differently. Observations are scarcely ever made or particulars noted for their own sakes. It is not until they begin to be in request as furnishing the only test by which to ascertain the truth or falsehood of some popular theory, that they are made in sufficient numbers, and with sufficient accuracy. It is, in the peculiar phraseology of this science, the effectual demand of the theorist that regulates the production of the facts or raw materials, which he is afterwards to work into a system. The history of Political Economy strikingly exemplifies the truth of this remark. Being, as we have already observed, entirely unknown to the ancients, and but little attended to by our ancestors up to a comparatively late period, those circumstances which would have enabled us to judge with the greatest precision of the wealth and civilization of the inhabitants of the most celebrated states of antiquity, and of Europe during the middle ages, have either been thought unworthy of the notice of the historian, or have been only very imperfectly and carelessly detailed. Those, therefore, who first began to trace the general principles of the science had but a comparatively limited and scanty experience on which to build their conclusions. Nor did they even avail themselves of the few historical facts with which they might have easily become acquainted, but almost exclusively confined their attention to those which happened to fall within the sphere of their own observation.
Agreeably to what we have now stated, we find that the theories advanced by the early economical writers were formed on the most contracted basis, and were only fitted to explain a few of the most obvious and striking phenomena. The Mercantile Theory, for example, was entirely bottomed on the popular and prevalent opinions respecting money. The precious metals having been long used, both as a standard whereby to ascertain the comparative value of different commodities, and as the equivalents for which they were most frequently exchanged, acquired a fictitious importance, not merely in the estimation of the vulgar, but in that of persons of the greatest discernment. The
simple consideration that all buying and selling is really nothing more than the bartering of one commodity for another—of a certain quantity of corn or wool, for example, for a certain quantity of gold or silver, and vice versa, was entirely overlooked. The attention was gradually transferred from the money's worth to the money itself; and the wealth of individuals and of states came to be measured, not by the abundance of their disposable products—by the quantity or value of the commodities with which they could afford to purchase the precious metals—but by the quantity of these metals actually in their possession. It is on this flimsy and fallacious hypothesis that the theories of almost every writer on economical subjects antecedent to the appearance of the works of Child, North, and Locke, in England, and of Gournay and Quesnay, in France, are founded; and, what is of infinitely greater moment, it is on this same hypothesis that the different civilized countries have proceeded to regulate their intercourse with each other. Their grand object has not been to facilitate the production of the necessaries, comforts, and luxuries of life, but to monopolise the largest possible supply of gold and silver. And, as in countries destitute of mines, these could not be obtained except in exchange for exported commodities, various schemes were resorted to for encouraging exportation, and for preventing the importation of almost all products other than the precious metals. In consequence of this opinion, the excess of the value of the exports over the value of the imports was long considered as the most infallible test of the progress of a country in the career of wealth. This excess, it was believed, could not be balanced otherwise than by an equivalent importation of gold or silver, or of the only real wealth which it was then supposed a country could possess.
These principles and conclusions, though absolutely false and erroneous, afford a tolerable explanation of a few very obvious phenomena; and, what did more to recommend them, they are in perfect unison with the popular prejudices on the subject. It was natural, therefore, that they should be espoused by the merchants or practical men, who were the earliest writers on this science. They did not consider it necessary to subject the principles they assumed to any refined analysis or examination. But, reckoning them as sufficiently established by the common consent and agreement of mankind, they directed themselves exclusively to the discussion of the practical measures calculated to give them the greatest efficacy.
"Although a kingdom," says one of the earliest and ablest writers in defence of the mercantile system, "may be enriched by gifts received, or by purchase taken, from some other nations, yet these are things uncertain, and of small consideration, when they happen. The ordinary means, therefore, to increase our wealth and treasure, is by foreign trade, wherein we must ever observe this rule—to sell more to strangers yearly than we consume of theirs in value. For, suppose, that when this kingdom is plentifully served with cloth,
lead, tin, iron, fish, and other native commodities, we do yearly export the overplus to foreign countries to the value of L. 2,200,000, by which means we are enabled, beyond the seas, to buy and bring in foreign wares for our use and consumption to the value of L. 2,000,000: By this order duly kept in our trading, we may rest assured that the kingdom shall be enriched yearly L. 200,000, which must be brought to us as so much treasure; because that part of our stock which is not returned to us in wares, must necessarily be brought home in treasure." —(Mun's Treasure by Foreign Trade, orig. ed. p. 11.)
The gain on our foreign commerce is here supposed to consist exclusively of the gold and silver which, it is taken for granted, must necessarily be brought home in payment of the excess of exported commodities. Mr Mun lays no stress whatever on the circumstance of foreign commerce enabling us to obtain an infinite variety of useful and agreeable products, which it would either have been impossible for us to produce at all, or to produce so cheaply, at home. We are desired to consider all this accession of wealth—all the vast addition made by commerce to the motives which stimulate, and to the comforts and enjoyments which reward the labour of the industrious, as nothing, and to fix our attention exclusively on the balance of L. 200,000 of gold and silver! This is much the same as if we were desired to estimate the comfort and advantage derived from a suit of clothes, by the number and glare of the metal buttons by which they are fastened! And yet the rule for estimating the advantageousness of foreign commerce, which Mr Mun has here given, was long regarded by the generality of merchants and practical statesmen as infallible; and such is the inveteracy of ancient prejudices, that even now we are annually congratulated on the excess of our exports over our imports!
But there were other circumstances, besides the erroneous notions respecting the precious metals, which led to the formation of the mercantile system, and to the enacting of regulations restrictive of the freedom of industry. The feudal government established in the countries that had formed the western division of the Roman Empire, degenerated into a system of anarchy and lawless oppression. The princes, who were of themselves totally unable to restrain the usurpations of the greater barons, or to control their violence, endeavoured to strengthen their influence and consolidate their power, by attaching the inhabitants of cities and towns to their interests. For this purpose, they granted them charters, enfranchising the inhabitants, abolishing every existing mark of servitude, and forming them into corporations, or bodies politic, to be governed by a council and magistrates of their own selection. The order and good government that was thus established in the cities, and the security of property enjoyed by their inhabitants, when the rest of the country was a prey to rapine and disorder, stimulated their industry, and gave them a vast ascendancy over the cultivators of the soil. It was from the cities that the princes derived the greater part of their supplies of money; and it was
by their assistance and co-operation that they were enabled to control and subdue the pride and independence of the barons. But the citizens did not render this assistance to their sovereigns merely by way of compensation for the original gift of their charters. They were continually soliciting and obtaining new privileges. And it was not to be expected that princes, so very deeply indebted to them, and by whom they must have been regarded as forming by far the most industrious and deserving portion of their subjects, should be at all disinclined to gratify their wishes. To enable them to obtain their provisions cheap, and to carry on their industry to the best advantage, the exportation of corn, and of the raw materials of their manufactures, was strictly prohibited; at the same time that heavy duties and absolute prohibitions were interposed to prevent the importation of manufactured articles from abroad, and to secure the complete monopoly of the home market to the home manufacturers. These, together with the privilege granted to the citizens of corporate towns of preventing any individual from exercising any branch of business until he had obtained leave from them; and the variety of subordinate regulations intended to force the importation of the raw materials required in manufactures, and the exportation of the manufactured goods, form the principal features of the system of public economy adopted, with the view of encouraging manufacturing industry, in every country in Europe, in the fourteenth, fifteenth, sixteenth, and seventeenth centuries. The freedom of industry recognised by their ancient laws was almost totally destroyed. It would be easy to mention a thousand instances of the excess to which this artificial system was carried in England and other countries; but as many of these instances must be familiar to our readers, we shall only observe, as illustrative of its spirit, that by an act passed in 1678, for the encouragement of the English woollen manufacture, it was ordered that all dead bodies should be wrapped in a woollen shroud!
But the exclusion of foreign competition, and the monopoly of the home-market, did not satisfy the manufacturers and merchants. Having obtained all the advantage they could from the public, they attempted to prey on each other. Such of them as possessed most influence, procured the privilege of carrying on particular branches of industry to the exclusion of every other individual. This abuse was carried to a most oppressive height in the reign of Elizabeth, who granted an infinite number of new patents. At length, the grievance became so intolerable, as to induce all classes to join in petitioning for its abolition, which, after much opposition on the part of the Crown, by whom the power of erecting monopolies was considered a very valuable branch of the prerogative, was effected by an act passed in the 21st of James I. But this act did not touch any of the fundamental principles of the mercantile or manufacturing system; and the exclusive privileges of all bodies-corporate were exempted from its operation.
In France the interests of the manufacturers were
Mercantile System. warmly espoused by the justly celebrated M. Colbert, minister of finances during the most splendid period of the reign of Louis XIV.; and the year 1664, when the famous tariff, compiled under Colbert's direction, was first promulgated, has been sometimes considered, though improperly, as the real era of the manufacturing system.
These restrictions were zealously supported by the writers in defence of the mercantile system, and the balance of trade. The facilities given to the exportation of home manufactured goods, and the obstacles thrown in the way of their importation from abroad, seemed to them to be particularly well fitted for making the exports exceed the imports, and procuring a favourable balance. Instead, therefore, of regarding these regulations as the offspring of a selfish monopolizing spirit, they looked on them as having been dictated by the soundest policy. The manufacturing and mercantile systems were thus naturally blended together. The acquisition of a favourable balance of payments was the grand object to be accomplished; and heavy duties and restrictions on importations from abroad and bounties and premiums on exportation from home, were the means by which this object was to be attained! It cannot excite our surprise that a system having so many popular prejudices in its favour, and which afforded a plausible and convenient apology for the exclusive privileges enjoyed by the manufacturing and commercial classes, should have early attained, or that it should still preserve, notwithstanding the overthrow of its principles, a powerful practical influence. Mellon and Forbonnais in France,—Genovesi in Italy,—Mun, Sir Josiah Child, Dr Davenant, the authors of the British Merchant, and Sir James Stuart, in England—are the ablest writers who have espoused, some with more and some with fewer exceptions, the leading principles of the mercantile system.
“It is no exaggeration to affirm, that there are very few political errors which have produced more mischief than the mercantile system. Armed with power, it has commanded and forbid where it should only have protected. The regulating mania which it has inspired has tormented industry in a thousand ways, to force it from its natural channels. It has made each particular nation regard the welfare of its neighbours as incompatible with its own; hence the reciprocal desire of injuring and impoverishing each other; and hence that spirit of commercial rivalry which has been the immediate or remote cause of the greater number of modern wars. It is this system which has stimulated nations to employ force or cunning to extort commercial treaties, productive of no
real advantage to themselves, from the weakness or ignorance of others. It has formed colonies that the mother country might enjoy the monopoly of their trade, and force them to resort exclusively to her markets. In short, where this system has been productive of the least injury, it has retarded the progress of national prosperity; every where else it has deluged the earth with blood, and has depopulated and ruined some of those countries whose power and opulence it was supposed it would carry to the highest pitch.” (Storch, Traité d’Économie Politique, Tome I. p. 122.)
The greater attention which began to be paid, in the seventeenth, and in the earlier part of the last century, to subjects connected with finance, commerce, and agriculture, gradually prepared the way for the downfall of the mercantile system. The English writers preceded those of every other country, in pointing out its defects, and in discovering the real nature and functions of money, and the true principles of commerce. The establishment of a direct intercourse with India did much to accelerate the progress of sound opinions. The precious metals have always been one of the most advantageous articles of export to the East.* And when the East India Company was established in 1600, power was given them annually to export foreign gold coins or bullion, of the value of L. 30,000. The Company were, however, bound to import, within six months after the return of every voyage, except the first, as much gold and silver as should together be equal to the value of the silver exported by them. But the enemies of the Company contended, that these regulations were not complied with, and that it was contrary to all principle, and highly injurious to the public interests, to permit the exportation of any quantity of bullion. The merchants and others interested in the India trade, among whom we have to reckon Sir Dudley Digges, whose defence of the Company was published in 1615, Mr Mun, who published a very able pamphlet in defence of the Company in 1621,† Mr Misselden, and more recently, Sir Josiah Child, could not controvert the reasoning of their opponents, without openly impugning some of the commonly received opinions regarding money. In such circumstances, it is easy to see, that prejudice would be forced to give way to interest. At first, however, the advocates of the Company did not contend, nor is there, indeed, any good reason for thinking that they were of opinion that the exportation of gold or silver to the East Indies was beneficial on the single ground that the commodities brought back were of greater value. They contended, that the Company did not export a greater
* Pliny, when enumerating the spices, silks, and other eastern products imported into Italy, says, “Minimique computatione millies centena millia sestertium annis omnibus, India et Seres, peninsulaque illa (Arabia) imperia nostro demunt.” (Hist. Nat. Lib. XII. cap. 18.)
† The Emperor Charles V. used to say that the Portuguese, who then engrossed almost the whole commerce of the East, were the common enemies of Christendom, inasmuch as they drained it of its treasure to export it to infidels!—(Misselden On Free Trade, p. 24.)
† This pamphlet, which is now become extremely rare, is printed in Purchas's Pilgrims, Vol. I. p. 732.
quantity of bullion than their charter authorized them to do; and they further contended, that this exportation was advantageous, because the commodities imported from India were chiefly re-exported to other countries, from whence a greater quantity of bullion was obtained in exchange for them.* But even this was an immense advance in the progress to a sounder theory. C'est toujours le premier pas qui coûte. The advocates of the Company began gradually to assume a higher tone; and at length boldly contended that bullion was nothing but a commodity, and that its exportation ought to be rendered as free as the exportation of any other commodity. Nor were these opinions confined to the partners of the East India Company. They were gradually communicated to others; and many eminent merchants were taught to look with suspicion on several of the received maxims, and were in consequence led to acquire more correct and comprehensive views regarding commercial intercourse. The new ideas ultimately made their way into the House of Commons; and in 1668, the statutes prohibiting the exportation of foreign coin and bullion were repealed, and full liberty given to the East India Company, and to private traders, to export the same in unlimited quantities.
In addition to the controversies respecting the East India trade, the discussions to which the foundation of the colonies in America and the West Indies, the establishment of a compulsory provision for the support of the poor, and the acts prohibiting the exportation of wool, and the non-importation of Irish cattle, &c. gave rise, attracted an extraordinary portion of the public attention to questions connected with the domestic policy of the country. In the course of the seventeenth century, a more than usual number of tracts were published on commercial and economical subjects. And although the doctrines of the greater number of the writers are strongly tinctured with the prevailing spirit of the age, it cannot be denied, that several of them have risen above the prejudices of their contemporaries, and have an unquestionable right to be regarded as the founders of the modern theory of commerce; as the earliest teachers of those sound and liberal doctrines, by which it has been shown, that the prosperity of states can never be promoted by restrictive regulations, or by the depression of their neighbours—that the genuine spirit of commerce is inconsistent with the dark and shallow policy of monopoly—and that the self-interest of mankind, not less than their duty, requires them to live in peace, and to cultivate friendship with each other.
We have already referred to Mr Mun's treatise, entitled England's Treasure by Foreign Trade.
This treatise was first published in 1664; but there is good reason to suppose that it had been written many years previously. Mr Mun's son, in the dedication to Lord Southampton, prefixed by him to the work, says, that his father "was, in his time, famous among merchants," a mode of expression which he would hardly have used, had not a considerable period elapsed since his father's death: and Mr Edward Misselden, in his Circle of Commerce, published in 1623, (p. 36), refers to Mr Mun's tract on the East India trade, and speaks of its author as being an accomplished and experienced merchant. Perhaps, therefore, we shall not be far wrong if we assume, that this treatise was written so early as 1635 or 1640. At all events, it is certain, that the doctrines which it contains do not differ much from those which he had previously maintained in his pamphlet in defence of the East India Company, and some of the expressions are literally the same with those in the petition presented by that body to Parliament in 1628, which is known to have been written by Mr Mun.† The extract we have previously given, shows that Mr Mun's opinions, in so far as regards the question respecting the balance of trade, were exactly the same with those of his contemporaries. But, we believe, he was the first who endeavoured to show, and who has, in point of fact, successfully shown, that a favourable balance could never be produced by restrictive regulations:—that the exportation and importation of bullion, coin, and every other commodity, should be freely permitted;—and that violent measures will never bring gold or silver into a kingdom, or retain them in it. (pp. 27, 92, &c. original ed.) Mr Mun also distinctly lays it down, "that those who have wares cannot want money," and that "it is not the keeping of our money in the kingdom, but the necessity and use of our wares in foreign countries, and our want of other commodities, that causeth the vent and consumption on all sides which causeth a quick and ample trade." (p. 43.)‡ Nor are these detached and incidental passages thrown out at random. They breathe the same spirit which pervades the rest of Mr Mun's book, and constitute and form a part of his system. His observations in answer to Malynes, on some rather difficult questions connected with exchange, are both accurate and ingenious.
The first edition of Sir Josiah Child's celebrated work on trade (A New Discourse of Trade, &c.) was published in 1668; but it was very greatly enlarged in the next edition, published in 1690. There are many sound and liberal doctrines advanced in this book. The argument to show that colonies do not and cannot depopulate the mother country is as conclusive as if it had proceeded from the pen of Mr
* Those who have not the original pamphlets may consult Macpherson's History of Commerce, Vol. II. pp. 297, 315, 511,—Macpherson's Account of the European Commerce with India, pp. 94, 104,—and Mr Robert Grant's Sketch of the History of the Company, p. 44, where they will find an ample confirmation of what we have stated.
† This petition, and the reasons on which it is founded, were so well esteemed, as to occasion its being reprinted in 1641.
‡ These expressions are in the petition of the Company, presented to Parliament in 1628.
Malthus; and the just and forcible reasoning in defence of the naturalization of the Jews is highly creditable to the liberality and good sense of the writer, and discovers a mind greatly superior to the prejudices of the age. Sir Josiah has also many good and judicious observations on the bad effects of the laws against forestalling and regrating; on those limiting the number of apprentices; and on corporation privileges.
When treating of the laws relating to the exportation of wool, Sir Josiah lays it down as an axiom, "That they that can give the best price for a commodity shall never fail to have it by one means or other, notwithstanding the opposition of any laws, or interposition of any power by sea or land; of such force, subtilty, and violence, is the general course of trade."
The radical defect of Sir Josiah Child's Treatise consists in the circumstance of its being chiefly written to illustrate the advantages, which he labours to show, would result from forcibly reducing the rate of interest to four per cent.; an error into which he had been led by mistaking the low interest of Holland for the principal cause of her wealth, when this low interest was in truth the effect of her comparatively heavy taxation.
It is, however, worthy of remark, that this error was very soon detected. In the same year (1668) that Sir Josiah's Treatise first appeared, a tract was published, entitled, Interest of Money mistaken, or a Treatise, proving that the Abatement of Interest is the Effect and not the Cause of the Riches of a Nation. The author of this tract maintains the same opinions that were afterwards held by Locke and Montesquieu, that the interest of money does not depend on statutory regulations, but that it varies according to the comparative opulence of a country; or rather according to the comparative scarcity and abundance of money—increasing when the supply of money diminishes, and diminishing when it increases.* Having endeavoured to establish this principle, the author of the tract successfully contends that Sir Josiah Child had totally mistaken the cause of the wealth of the Dutch, of which he shows the lowness of their interest was merely a consequence.
In 1672, Sir William Petty published his celebrated tract, entitled, the Political Anatomy of Ireland. In this work, the absurdity of the act passed in 1664, prohibiting the importation of cattle, beef, &c. from Ireland into Britain, is ably exposed, and the advantage of an unconstrained internal commerce clearly set forth. "If it be good for England," says Sir William, "to keep Ireland a distinct kingdom, why do not the predominant party in Parliament,
suppose the western members, make England beyond Trent another kingdom, and take tolls and customs upon the borders? Or why was there ever any union between England and Wales? And why may not the entire kingdom of England be further canonised for the advantage of all parties?" (P. 34, ed. 1719.)
The great defect in the writings of Mun, Misdelden, Child, and others, did not really consist so much in their notions about the superior importance of the precious metals, or even the balance of trade, as in their notions respecting the superior advantages derived from the importation of durable, rather than of rapidly perishable commodities, and luxuries. This, however, was an extremely natural opinion; and we cannot be surprised that the earlier writers on commerce should not have avoided falling into an error, from which neither the profound sagacity of Locke, nor the strong sense of Mr Harris, have been able to preserve them. But even so early as 1677, the fallacy of this opinion had been perceived. In that year, there appeared a small tract, entitled, England's Great Happiness; or, a Dialogue between Content and Complaint; in which the author contends, that the importation of wine, and other consumable commodities, for which there is a demand, in exchange for money, is advantageous; and, on this ground, defends the French trade, which was as loudly declaimed against by the practical men of that day as it is by those of the present. We shall make a short extract from this remarkable tract:
"Complaint.—You speak plain; but what think you of the French trade? which draws away our money by wholesale. Mr Fortrey, † whom I have heard you speak well of, gives an account that they get L. 1,600,000 a-year from us.
"Content.—Tis a great sum; but, perhaps, were it put to a vote in a wise Council, whether for that reason the trade should be left off, 'twould go in the negative. For paper, wine, linen, Castile soap, brandy, olives, capers, prunes, kidskins, taffaties, and such like, we cannot be without; and for the rest, which you are pleased to style Apes and Peacocks (although wise Solomon ranked them with gold and ivory), they set us all agog, and have increased among us many considerable trades. * * I must confess, I had rather they'd use our goods than money; but if not, I WOULD NOT LOSE THE GETTING OF TEN POUND BECAUSE I CAN'T GET AN HUNDRED; and I don't question but when the French get more foreign trade, they'll give more liberty to the bringing in foreign goods. I'll suppose John-a-Nokes to be a butcher,
* It has been generally supposed that Mr Hume was the first who showed (in his Essay on Interest) the fallacy of this opinion, and who proved that the rate of interest did not depend on the abundance or scarcity of money, but on the abundance or scarcity of disposable capital compared with the demands of the borrowers, and the rate of profit. This, however, is a mistake, the doctrine in question having been fully demonstrated in a pamphlet written by Mr Massie, entitled, Essay on the Governing Causes of the Natural Rate of Interest, published two years before Mr Hume's Essay appeared.
† Mr Fortrey's pamphlet has been much referred to. It was published in 1668, and reprinted in 1673. It contains a very good argument in favour of inclosures. The reference in the text sufficiently explains the opinions of the writer in regard to commerce.
Dick-a-Styles to be an Exchange man, yourself a lawyer, will you buy no meat or ribbands, or your wife a fine Indian gown or fan, because they will not truck with you for indentures which they have need of? I suppose no; but if you get money enough of others, you care not though you give it away in specie for these things; I think 'tis the same case."
The general spirit of this tract may perhaps be better inferred from the titles of some of the dialogues. Among others, we have "To export money our great advantage;"—"The French trade a profitable trade;"—"Variety of wares for all markets, a great advantage;"—"High living, a great improvement to the arts;"—"Invitation of foreign arts, a great advantage;"—"Multitudes of traders, a great advantage," &c. &c. But its influence was far too feeble to arrest the current of popular prejudice. In the year after its publication (1678) the importation of French commodities was prohibited for three years. This prohibition was made perpetual in the reign of William III. when the French trade was declared a nuisance!—a principle, if we may so call it, which has been acted upon to this very hour.
In 1681, a pamphlet was published in defence of the East India Company, under the signature of "Philopatrie," but evidently the production of Sir Josiah Child. In the introduction to this pamphlet, the following general principles are laid down:—
"That all close monopolies (Sir Josiah contends that the East India Company does not come under this description), of what nature or kind soever, are destructive to trade, and consequently obstructive to the increase of the value of our lands."
"That silver or gold, coined or uncoined, though they are used for a measure of all other things, are no less a commodity than wine, oil, tobacco, cloth, or stuffs; and may, in many cases, be exported as much to the national advantage as any other commodity."
"That no nation ever was, or will be, considerable in trade, that prohibits the exportation of bullion." (p. 3.)
In Sir William Petty's Quantulumcunque, published in 1682, the subject of money is treated with great ability, and the idea of draining England of her cash, by an unfavourable balance, successfully combated. "If some English merchants," it is said, "should be so improvident as to carry out money only, then the foreign merchants would buy up such English commodities as they wanted with money brought into England from their respective countries, or with such commodities as England likes better than money; for the vending of English commodities doth not depend on any thing else but the use and need which foreigners have of them." Sir W. denies that "a country is the poorer for having less money;" and concludes by strongly condemning the laws regulating the rate of interest; observing, that there may as well be laws to regulate the rate of exchange and of insurance. (See pp. 3, 6, 8, original edition.)
But a tract, entitled, Discourses on Trade, principally directed to the Cases of Interest, Coinage, Clipping, and Increase of Money, written by Sir Dudley North, and published in 1691, unquestionably contains a far more able statement of the true principles of commerce than any that had then appeared.
We regret that our limits will not permit our giving so full an account as we could have wished of this extraordinary tract. The author is a most intelligent and consistent advocate of the great principles of commercial freedom. He is not, like the most eminent of his predecessors, well informed on one subject, and erroneous on another. He is throughout sound and liberal. His system is consentaneous in its parts, and complete. He shows, that in commercial matters, nations have the same interests as individuals; and exposes the absurdity of supposing, that any trade which is advantageous to the merchant can be injurious to the public. His opinions respecting the imposition of a seignorage on the coinage of money, and the expediency of sumptuary laws, then in great favour, are equally enlightened.
We subjoin from the preface to this tract an abstract of the general propositions maintained in it:
"THAT THE WHOLE WORLD AS TO TRADE IS BUT AS ONE NATION OR PEOPLE, AND THEREIN NATIONS ARE AS PERSONS."
"That the loss of a trade with one nation is not that only, separately considered, but so much of the trade of the world rescinded and lost, for all is combined together."
"THAT THERE CAN BE NO TRADE UNPROFITABLE TO THE PUBLIC; FOR IF ANY PROVE SO, MEN LEAVE IT OFF; AND WHEREVER THE TRADERS THRIVE, THE PUBLIC, OF WHICH THEY ARE A PART, THRIVE ALSO."
"That to force men to deal in any prescribed manner may profit such as happen to serve them; but the public gains not, because it is taking from one subject to give to another."
"That no laws can set prices in trade, the rates of which must and will make themselves. But when such laws do happen to lay any hold, it is so much impediment to trade, and therefore prejudicial."
"That money is a merchandise, whereof there may be a glut, as well as a scarcity, and that even to an inconvenience."
"THAT A PEOPLE CANNOT WANT MONEY TO SERVE THE ORDINARY DEALING, AND MORE THAN ENOUGH THEY WILL NOT HAVE."
"That no man will be the richer for the making much money, nor have any part of it, but as he buys it for an equivalent price."
"That the free coinage is a perpetual motion found out, whereby to melt and coin without ceasing, and so to feed goldsmiths and coyners at the public charge."
"That debasing the coin is defrauding one another, and to the public there is no sort of advantage from it; for that admits no character, or value, but intrinsic."
"That the sinking by alloy or weight is all one."
"That exchange and ready money are the same, nothing but carriage and re-carriage being saved."
"That money exported in trade is an increase to the wealth of the nation; but spent in war, and payments abroad, is so much impoverishment."
"In short, that ALL FAVOUR TO ONE TRADE, OR INTEREST, IS AN ABUSE, AND CUTS SO MUCH OF PROFIT FROM THE PUBLIC."
Unluckily this admirable tract never obtained any considerable circulation. There is good reason, in-
Progress of deed, to suppose that it was designedly suppressed. *
Commercial At all events, it speedily became excessively scarce;
Science in and we are not aware that it has ever been referred
England. to by any subsequent writer on commerce.
Mr. Locke. The disordered state of the coin, and the proceedings relative to the great recoinage in the reign of William III., led to a great deal of discussion both in and out of Parliament, and contributed, in no ordinary degree, to diffuse juster notions respecting money and commerce. It was then that Mr. Locke published his well known tracts on Money.† These tracts immediately obtained a very extensive circulation; and though infected with some very grave errors, they had a powerful influence in preventing Mr. Lowndes's proposal for degrading the standard of the coin from being carried into effect, and in contributing to establish the true theory of money. The restoration of the currency was not, however, effected without great opposition. A large minority in Parliament supported Mr. Lowndes's views; and they were also supported by a number of writers. Of these, Mr. Nicholas Barbon seems to have been one of the ablest. In his tract, entitled, A Discourse concerning Coining the New Money Lighter, published in 1696, he detected several of the errors into which Mr. Locke had fallen; and he has the further merit of having ably demonstrated the fallacy of the popular opinions respecting the balance of trade; and of having shown, that no bullion could ever be sent abroad in payment of an unfavourable balance, unless it was at the time the cheapest and most profitable article of export.
The inferences deduced by Mr. Barbon from his investigations into the balance of trade and foreign exchange are:
“That a trading nation is made rich by traffic and the industry of the inhabitants—and that the native stock of a nation can never be wasted.
“That no sort of commodities ought to be totally prohibited—and that the freer trade is, the better the nation will thrive.
“That the poverty and riches of a nation does not depend on a lesser or greater consumption of foreign trade, nor on the difference of the value of those goods that are consumed.
“That the balance of trade is a notion that serves rather to puzzle all debates of trade, than to discover any particular advantages a nation may get by regulating of trade.
“That the balance of trade (if there be one) is not the cause of sending away the money out of a nation: But that proceeds from the difference of the value of bullion in several countries, and from the profit that
the merchant makes by sending it away more than by bills of exchange.
“That there is no occasion to send away money or bullion to pay bills of exchange, or balance accounts.
“That all sorts of goods, of the value of the bill of exchange, or the balance of the account, will answer the bill, and balance the account as well as money.”—(p. 59.)
It is singular, that a writer possessed of such sound and enlarged opinions respecting the principles of commercial intercourse, and who had shown that bullion differed in no respect from other commodities, should have maintained, that the value of coined money chiefly depended on the stamp affixed to it by government. This gross and unaccountable error destroyed the effect of Mr. Barbon's tract; and was, most probably, the cause of the oblivion into which it very soon fell, and of its never having attracted that attention to which it was on other accounts justly entitled.
The commercial writings of Dr. Davenant, Inspector-General of Imports and Exports in the reign of Queen Anne, were published in the interval between 1695 and 1711. Though a partisan of the mercantile system, Dr. Davenant had emancipated himself from many of the prejudices of its more indiscriminate and zealous supporters. He considers a watchful attention to the balance of trade, and its “right government,” as of the highest importance; but he does not consider wealth as consisting exclusively of gold or silver; or that prohibitions and restrictions should be rashly imposed, even on the intercourse with those countries with which the balance is supposed to be unfavourable. But we are far from thinking, that the commercial writings of Dr. Davenant deserve the eulogies that have been bestowed on them; or that they had any material effect in accelerating the progress of sound commercial science. They do not, in fact, contain a single principle that is not to be found in the work of Sir Josiah Child. Some of Dr. Davenant's paragraphs are exceedingly good; but the treatises of which they form a part are remarkably inconclusive, and are for the most part founded on narrow and contracted principles. There is no evidence to show that Dr. Davenant was at all aware of the effect of commerce in facilitating the production of wealth, by enabling the inhabitants of each particular country to devote themselves, in preference, to those employments for the successful prosecution of which they have some natural advantage.‡
In 1734, Jacob Vanderlint, who describes him-Jacob Vanderlint.
* See the Honourable Roger North's Life of his brother, the Honourable Sir Dudley North, p. 179.
† Considerations on the Lowering of Interest and Raising the Value of Money, 1691. Further Considerations concerning Raising the Value of Money, 1695.
‡ The progress of enlarged and liberal opinions with regard to commerce seem to have been in no small degree counteracted by the publication of the British Merchant. This work was written by some of the first merchants of their time, and was chiefly intended to expose the alleged defects in the commercial treaty with France negotiated by Queen Anne's Tory administration in 1713. It consists of a series of papers published weekly, and afterwards collected in three volumes. Public opinion being very much against the treaty, the British Merchant enjoyed a large share of popularity. Its authors appear to have
self as a tradesman, published his tract, entitled, Money answers all Things. Mr Stewart has referred to this tract in the Appendix to his valuable Life of Dr Smith, and has quoted some passages, illustrative of the advantages of commercial freedom, which, he truly says, "will bear a comparison, both in point of good sense and of liberality, with what was so ably urged by Mr Hume twenty years afterwards, in his Essay on the Jealousy of Trade." Vanderlint closes his pamphlet with an argument in favour of the substitution of a territorial tax in place of every other—an idea borrowed from Locke, and subsequently adopted by the French economists.
In 1744, * Sir Matthew Decker, an extensive merchant, published his Essay on the Causes of the Decline of Foreign Trade. This essay has been frequently referred to by Dr Smith, and it deserved his notice. Sir Matthew is a most intelligent and decided enemy of all restrictions, monopolies, and prohibitions whatever. To give full freedom to industry—he proposes that all corporation privileges should be abolished; and that all the existing taxes should be repealed, and replaced by a single tax laid on the consumers of luxuries, proportionally to their incomes. The following short extracts will give an idea of the spirit and ability which pervades Sir Matthew's work:—
"In the Memoirs of De Will, it is said, 'that restraint is always hurtful to trade;' the reason whereof is plain; for nature has given various products to various countries, and thereby knit mankind in an intercourse to supply each other's wants. To attempt to sell our products, but to buy little or none from foreigners, is attempting an impossibility, acting contrary to the intent of nature, cynically, and absurdly; and, as ours is a populous manufacturing country, might be prejudicial to our interests; for, could we raise all necessaries and vanities within ourselves, this intercourse designed by nature would be destroyed; and then, how is our navy, our only bulwark, to be maintained?" (p. 147.)
"Trade cannot, will not, be forced; let other nations prohibit, by what severity they please, interest will prevail; they may embarrass their own trade, but cannot hurt a nation, whose trade is free, so much as themselves. Spain has prohibited our woollens; but had a reduction of our taxes brought them to their natural value only, they would be the cheapest in Europe of their goodness, consequently must be more demanded by the Spaniards, be smuggled into their country in spite of their government, and sold at better prices; their people would be dearer clothed, with duties and prohibitions, than without, consequently must sell their oil, wine, and other commodities, dearer; whereby other nations, raising the like growths, would gain ground upon them, and their balance of trade grow less and less. But should we, for that reason, prohibit their commodities? By no means; for the dearer they grow, no more than what
are just necessary will be used; their prohibition does their own business; some may be necessary for us; what are so, we should not make dearer to our own people; some may be proper to assort cargoes for other countries, and why should we prohibit our people that advantage? WHY HURT OURSELVES TO HURT THE SPANIARDS? If we would retaliate effectually upon them for their ill-intent, handsome premiums given to our plantations to raise the same growths as Spain might enable them to supply us cheaper than the Spaniards could do, and establish a trade they could never recover. Premiums may gain trade, but prohibitions will destroy it." (p. 163.)
Sir Matthew applies the same argument to expose the absurdity and injurious effect of our restraints on the trade with France. "I allow," he says, "that Britain should be always vigilant over the designs of France, but need not be afraid of her power; her wise regulations in trade should be the objects we should keep our eyes upon, and out-do her if possible; or else, as she rises, we must sink. But it is our comfort, that our remedy is always in our own hands; nor can there be any solid reason for the nation's paying dearer to other countries for goods we could buy cheaper in France. Would any wise dealer in London buy goods of a Dutch shopkeeper for 15d. or 18d. when he could have the same from a French shopkeeper for 1s.? Would he not consider, that, by so doing, he would empty his own pockets the sooner, and that, in the end, he would greatly injure his own family by such whims? And shall this nation commit an absurdity that stares every private man in the face? — The certain way to be secure is to be more powerful, that is, to extend our trade as far as it is capable of; and as restraints have proved its ruin, to reject them, and depend on freedom for our security; bidding defiance to the French, or any nation in Europe, that took umbrage at our exerting our natural advantages." (p. 184.)
We do not know that the impolicy of restrictions on the importation of foreign corn has ever been more ably and triumphantly exposed than in the following passage: "Every home commodity, in a free trade, will find its natural value; for, though that fluctuates, as of necessity it must, according to the plentifulness or scarcity of seasons, yet, for the home consumption, every home commodity must have great advantage over the foreign, as being upon the spot, and free from freight, insurance, commission, and charges, which on the produce of lands, being all bulky commodities, must in general be about 15 per cent., and a greater advantage cannot be given without prejudice; for 15 per cent. makes a great difference in the price of necessaries between the nation selling and the nation buying, and is a great difficulty on the latter, but, arising from the natural course of things, cannot be helped; though it is a sufficient security to the landholder, that foreigners can never import more necessaries than are absolutely required;
been thoroughly imbued with all the prejudices of the mercantile sect; and the work is now only deserving of notice as containing the fullest exposition of their peculiar doctrines.
* We quote from the edition of the Essay published at Edinburgh in 1756. It appears from the work itself (p. 4), that it had been written in 1740; the first edition was in 1740.
and, I presume, in such cases, they have more charity than to starve the people merely for an imaginary profit, which yet would prove their ruin in the end; for it is a fallacy and an absurdity to think to raise the value of lands by oppressions on the people that cramp their trade; for if trade declines, the common people must either come upon the parish, or fly for business to our neighbours: in the first case, they become a heavy tax on the rich, and instead of buying the produce of their lands, must have it given them; and in the second case, when the consumers are gone, what price will the produce of land bear?" (p. 56.)
Of a work so well known as Mr Hume's Political Essays (published in 1752) it is almost superfluous to speak. The ability with which he has combated the prejudice against the French trade, and exposed the absurdity of the dread of being deprived of a sufficient supply of bullion; the liberality and expansion of his views respecting commerce in general; and the beauty of his illustrations, cannot be too highly praised. It did not, however, enter into Mr Hume's plan to give a systematic view of the effects of commerce, nor has he instituted any analysis of the sources of wealth. Mr Harris has endeavoured to supply the latter deficiency; and his Essay upon Money and Coins, published in 1757, is, perhaps, on the whole, the best economical treatise that had appeared previously to the publication of the Wealth of Nations. We have already noticed Mr Harris's mistake of supposing that it was more profitable to import durable rather than rapidly consumable commodities; and, as a writer on commerce, he is undoubtedly very inferior to Sir Dudley North and Sir Matthew Decker. But the comprehensive and able manner in which he has treated the subject of money; the skill with which he has illustrated the effects of the division of labour in facilitating production and increasing wealth; and the near approach he has made to some of the fundamental doctrines of Dr Smith, if they do not give him a pre-eminence, certainly place him in the first rank among his precursors.
We have been induced to treat of the progress of commercial science in England at considerable
length, partly on account of the interest and importance of the subject, and partly because we are not acquainted with any work in which it has been investigated. M. Say and some other continental writers contend, that the Italians and French were the first who discovered and established the just principles of commercial intercourse. But the details we have now given prove the indisputable priority of the English. The economical works of Davanzati, Serra, Turbolo, and Scaruffi, are almost wholly occupied with a discussion of the effects of a forced reduction of the standard of money. They deserve credit for having opposed all tampering with the currency; but the arguments they employ to show its injustice and impolicy, are stated with much greater brevity and force in Sir Robert Cotton's speech in the Privy Council in 1626. The Discorso Economico of Bandini, the earliest writer on commerce whose works have been thought worthy of a place in the voluminous collection of Italian works on Political Economy, * was published so late as 1737. Belloni and Algarotti's Essays on Commerce, both very inferior to the works of Sir Josiah Child or Sir Dudley North, were published, the former in 1750, and the latter in 1763.
The French have still less claim than the Italians to be considered the discoverers of the true principles of commerce. There is much accurate observation, and many just, patriotic, and striking observations on the injury France sustained from the want of a free internal traffic, and from the oppressiveness of taxation, in the Dixme Royale of the famous Marshal Vauban, written in 1698. But Vincent de Gournay, whom the French state to be one of the earliest of their authors, who entertained comprehensive and liberal notions regarding commerce in general, was born so late as 1712.† M. Gournay published translations of the treatise of Sir Josiah Child, and of a tract of Sir Thomas Culpepper's, at Paris in 1752. So slow was the progress of economical science in France, that even Montesquieu has a chapter entitled, "A quelles nations il est disadvantageux de faire le commerce."‡
But neither the efforts of the English nor French
* Scrittori Classici Italiani di Economia Politica. The publication of this collection of the works of her economical writers does honour to Italy. It was begun in 1803 and finished in 1805, in 50 volumes, 8vo.
† See Dupont's edition Des Oeuvres de M. Turgot, Tom. III. p. 311.
‡ Maupertuis, in his Eloge of Montesquieu, candidly admits that France is indebted for the science of commerce, finance, and population, or of Political Economy, to England. The passage is curious: "Comme le plan de Montesquieu," he observes, "renfermoit tout ce qui peut être utile au genre humain, il n'a pas oublié cette partie essentielle qui regarde le commerce, les finances, la population: Science si nouvelle parmi nous, qu'elle n'y a encore point de nom.—C'est chez nos voisins qu'elle est née; et elle y demeure jusque à ce que M. Melon lui fit passer le mer."
Melon's work, Essai Politique sur le Commerce, was published in 1734.—It is entirely founded on the principles of the mercantile system. Mr Bindon translated it into English, and published it, along with some rather valuable annotations and remarks, at Dublin in 1739.
Melon had advocated the ruinous policy of raising the denomination of the coin. This gave occasion to the publication of a very acute work by Dutot, entitled, Reflexions Politiques sur les Finances et le Commerce, 2 Tomes, 12mo. 1738. Dutot's work was in its turn very ably criticised by Duverney, in his Examen des Reflexions Politiques sur le Finances, &c. 2 Tomes, 12mo. 1740. These works contain a great deal of very curious and interesting information respecting the French finances. Duverney's account of the famous Mississippi Scheme is particularly good.
writers in favour of the freedom of commerce and industry had any considerable influence on the mercantile system. Their opinions respecting the nature of wealth, and of the causes of national opulence, being confused and contradictory, their arguments in favour of a liberal system of commerce had somewhat of an empirical appearance, and failed of making that impression which is always made by arguments founded on well established principles, and shown to be consistent with experience. Mr Locke, as we shall hereafter show, unquestionably entertained very correct opinions respecting the paramount influence of labour in the production of wealth; but he did not prosecute his investigations with the view of elucidating the principles of this science, and made no reference to them in his subsequent writings. Mr Harris adopted Mr Locke's views, and deduced from them some practical inferences of great importance; but his general reasonings are merely introductory to his Treatise on Money, and are not illustrated with that fulness of detail, or in that comprehensive and systematic manner that is necessary in scientific works. The celebrated M. Quesnay, a physician, attached to the court of Louis XV., has the unquestionable merit of being the first who attempted to investigate and analyze the sources of wealth, with the intention of ascertaining the fundamental principles of Political Economy, and who gave it a systematic form, and raised it to the rank of a science. Quesnay's father was a small proprietor, and having been educated in the country, he was naturally inclined to regard agriculture with more than ordinary partiality. At an early period of his life he had been struck with its depressed state in France, and had set himself to discover the causes which had prevented its making that progress which the industry of the inhabitants, the fertility of the soil, and the excellence of the climate, seemed to insure. In the course of this inquiry, he speedily discovered that the prohibition of exporting corn to foreign countries, and the preference given by the regulations of Colbert to the manufacturing and commercial classes over the agriculturists, had been one of the most powerful obstacles to the progress and improvement of agriculture. But Quesnay did not satisfy himself with exposing the injustice of this preference, and its pernicious consequences. His zeal for the interests of agriculture led him, not merely to place it on the same level with manufactures and commerce, but to raise it above them, by endeavouring to show that it was the only species of industry which contributed to increase the riches of a nation. Founding on the indisputable fact, that every thing which either ministers to our wants, or gratifies our desires, must be originally derived from the earth, Quesnay assumed as a self-evident truth, that the earth was the only source of wealth; and held that industry was altogether in-
capable of producing any new value, except when employed in agriculture, including therein fisheries and mines.* His observation of the striking effects of the vegetative powers of nature, and his inability to explain the real origin and causes of rent, confirmed him in this opinion. The circumstance, that of all who are engaged in laborious undertakings, none but the cultivators of the soil paid rent for the use of natural agents, appeared to him an incontrovertible proof, that agriculture was the only species of industry which yielded a net surplus (produit net) over and above the expences of production. Quesnay allowed that manufacturers and merchants were highly useful; but, as they realised no net surplus in the shape of rent, he contended they did not add any greater value to the raw material of the commodities they manufactured or carried from place to place, than what was just equivalent to the value of the capital or stock consumed by them. These principles once established, it followed that landlords, farmers, and labourers employed in agriculture, were the only productive classes in a state; and that the labour of manufacturers and traders being unproductive, their means of subsistence, and their wealth, could only be derived from the agriculturists. It further followed, that the expences of government, and the various public burdens, however imposed, must be defrayed out of the produit net, or rent of the landlords; and, consistently with this principle, Quesnay proposed that all the existing taxes should be repealed, and that a single tax (l'Impôt unique), levied directly from the produce of the land, should be imposed in their stead.
The economical table of M. Quesnay—" Cette formule étonnante," says Dupont, " qui peint la naissance, la distribution, et la reproduction des richesses, et qui sert à calculer avec tant de sûreté, de promptitude, et de précision, l'effet de toutes les operations relatives aux richesses"—was first published at Versailles in 1758.
But, however much impressed with the importance of agriculture over every other species of industry, Quesnay did not solicit for it any exclusive favour or protection. He successfully contended that the interests of the agriculturists, and of all the other classes, would be best promoted by establishing a system of perfect freedom. He showed that it could never be the interest of the proprietors and cultivators of the soil to fetter or discourage the industry of merchants, artificers, and manufacturers: for the greater the liberty which they enjoyed, the greater would be their competition, and their products would, in consequence, be sold so much the cheaper. Neither, on the other hand, could it ever be the interest of the unproductive classes to harass and oppress the industry of the agriculturists, either by preventing the free exportation of their products, or by
* " Cherchant d'où vient les richesses des nations, Quesnay trouva qu'elles ne naissent que des travaux dans lesquels la Nature et la Puissance Divine, concourent avec les efforts pour produire ou faire recueillir des productions nouvelles: de sorte qu'on ne peut attendre l'augmentation des ces richesses que de la cultivation, de la pêche, et de l'exploitation des mines et des carrières." (See the Notice sur les Economistes, by one of the most zealous of the sect, Dupont de Nemours, in the Œuvres de Turgot, Tome III. p. 312.)
System of the French Economists. any restrictive regulations whatsoever. When the cultivators enjoy the greatest degree of freedom, their industry, and, consequently, their surplus produce—the only fund from which any accession of national wealth can be derived, will be carried to the greatest possible extent. According to this "liberal and generous system" (Wealth of Nations, Vol. III. p. 17), the establishment of perfect liberty, perfect security, and perfect justice, is the only, as it is the infallible, means of securing the highest degree of prosperity to all classes of the society.
"Ou a vu," says the Commentator of this system, M. Mercier de la Riviere, "qu'il est de l'essence de l'ordre que l'intérêt particulier d'un seul ne puisse jamais être séparé de l'intérêt commun de tous; nous en trouvons une preuve bien convaincante dans les effets que produit naturellement et nécessairement la plénitude de la liberté qui doit régner dans le commerce, pour ne point blesser la propriété. L'intérêt personnel encouragée par cette grande liberté, presse vivement et perpétuellement chaque homme en particulier, de perfectionner, de multiplier les choses dont il est vendeur; de grossir ainsi la masse des jouissances qu'il peut procurer aux autres hommes, afin de grossir, par ce moyen, la masse des jouissances que les autres hommes peuvent lui procurer en échange. Le monde alors va de lui-même; le désir de jouir, et la liberté de jouir ne cessant de provoquer la multiplication des productions et l'accroissement de l'industrie, ils impriment à toute la société, un mouvement qui devient une tendance perpétuelle vers son meilleur état possible."—(Tome II. p. 444.)*
System of the French Economists. We shall have other opportunities of fully examining the principles of this theory. At present, it is sufficient to remark, that, in assuming agriculture to be the only source of wealth, because the matter of which all commodities are composed must be originally derived from the earth, M. Quesnay and his followers mistake altogether the nature of production, and really suppose wealth to consist of matter. But, in its natural state, matter is very rarely possessed of utility, and is always destitute of value. It is only by means of the labour bestowed in the appropriation of matter, and in fitting and preparing it for our use, that it acquires exchangeable value, and becomes wealth. Human industry does not produce wealth by making any additions to the matter of our globe; for this is a quantity susceptible neither of augmentation nor diminution. Its real effect is simply to produce wealth by giving utility to matter already in existence; and we shall hereafter show that the labour employed in manufactures and commerce is just as productive of utility, and consequently of wealth, as the labour employed in agriculture. Neither is the cultivation of the soil, as M. Quesnay supposed, the only species of industry which yields a surplus produce over the expenses of production. When none but the best soils are cultivated, and when, consequently, agriculture is most productive, no rent, or produit net, is obtained from the land; and it is only after recourse has been had to poorer soils, and when the productive powers of the labour and capital employed in cultivation begin to diminish, that rent begins to appear. So that, instead of being a consequence
* That M. Quesnay is entitled to the merit of originality cannot, we think, be disputed. It is certain, however, that he had been anticipated in several of his peculiar doctrines by some English writers of the previous century. The fundamental principles of the economical system are distinctly and clearly stated in a tract entitled Reasons for a limited Exportation of Wool, published in 1677. "That it is of the greatest concern and interest of the nation," says the author of the tract, "to preserve the nobility, gentry, and those to whom the land of the country belongs, at least, much greater than a few artificers employed in working the superfluity of our wool, or the merchants who gain by the exportation of our manufactures, is manifest—1. Because they are the masters and proprietaries of the foundation of all the wealth in this nation, all profit arising out of the ground which is theirs. 2. Because they bear all taxes and public burdens; which, in truth, are only born by those who buy, and sell not; all sellers, raising the price of their commodities, or abating of their goodness, according to their taxes."—(Not being able to procure the pamphlet itself, we quote from the extract given in Mr Smith's Memoirs of Wool, Vol. I. p. 254.)
In 1696, Mr Asgill published a treatise entitled Several Assertions Proved, in order to Create Another Species of Money than Gold, in support of Dr Chamberlayne's proposition for a Land Bank. We extract from this treatise the following passage, breathing, as Mr Stewart has justly observed, the very spirit of Quesnay's philosophy:—
"What we call commodities is nothing but land severed from the soil—Man deals in nothing but earth. The merchants are the factors of the world, to exchange one part of the earth for another. The king himself is fed by the labour of the ox: and the clothing of the army and victualling of the navy must all be paid for to the owner of the soil as the ultimate receiver. All things in the world are originally the produce of the ground, and there must all things be raised."—(This passage has been quoted in Lord Lauderdale's Inquiry into the Nature and Origin of Public Wealth, 2d ed. p. 109.)
These passages are interesting, as exhibiting the first germs of the theory of the Economists. But there is no reason whatever to suppose that Quesnay was aware of the existence of either of the tracts referred to. The subjects treated in them were of too local a description to excite the attention of foreigners; and Quesnay was too candid to conceal his obligations to them, had he really owed them any. It is probable he may have seen Mr Locke's treatise on Raising the Value of Money, where the idea is thrown out that all taxes fall ultimately on the land. But there is an immeasurable difference between the suggestion of Locke and the well digested system of Quesnay.
of the superior productiveness of agricultural industry, rent is really a consequence of its being less productive! The opinion of M. Quesnay, that the labour of man derives no assistance from the productive powers of nature, except when employed in agriculture, is totally destitute of foundation; and, in a subsequent part of this article, we shall show that the manufacturer and merchant derive fully as much assistance from these powers as either the agriculturist, the fisher, or the miner.
Though the theory of the French economists, considered in reference to the fundamental principles of the science, was equally erroneous with that to which it was opposed, its novelty and ingenuity, its systematic and consentaneous form, the liberal system of commercial intercourse which it recommended, and the benevolent and excellent character of its founder, speedily obtained for it a very high degree of reputation. The opinions of M. Quesnay were early communicated to, and zealously espoused by, his friends the Marquis de Mirabeau, M. Mercier de la Riviere, M. Dupont de Nemours, and others; and were afterwards advocated by Turgot, one of the most distinguished statesmen of whom France has to boast; and by Letrosne, Condorcet, Raynal, and most of the succeeding French writers on commerce and finance. Their practical influence on the legislation of the country has also been considerable. In 1763 the free transportation of corn from one province to another was permitted; and in 1764 liberty was given to export it to foreign countries whenever the home price did not exceed 30 livres the septier (48s. the quarter). This last edict, after
being suspended in 1770, was again revived in 1778 under the administration of Turgot. But the facility given to the imposition of the contribution fonciere, ought certainly to be considered as the greatest practical achievement of the labours of the economists; and there is but too much reason to fear it will long continue to afford a palpable demonstration of the fallacy of their doctrines. †
But, notwithstanding the defects of their theory, there can be no question that the labours of the French economists contributed powerfully to accelerate the progress of economical science. In reasoning on subjects connected with national wealth, it was now found to be necessary to subject its sources, and the laws which regulate its production and distribution, to a more accurate and searching analysis. In the course of this examination, it was speedily ascertained that both the mercantile and economical theories were erroneous and defective; and that to establish the science of Political Economy on a firm foundation, it was necessary to take a much more extensive survey, and to seek for its principles, not in a few partial and distorted facts, or in metaphysical abstractions, but in the connection and relation subsisting among the various phenomena manifested in the progress of civilization. The Count di Verri, whose Meditations on Political Economy were published in 1771, demonstrated the fallacy of the opinions entertained by the French economists respecting the superior productiveness of the labour employed in agriculture; and showed that all the operations of industry really consist of modifications of matter already in existence. ‡ But Verri
* Turgot's Reflexions sur la Formation, et la Distribution des Richesses published in 1771, is certainly the best of all the works founded on the principles of the economists; and is, in some respects, the best work on Political Economy published previously to the Wealth of Nations.
† Exclusive of the Reflexions of Turgot, the following are the principal works published by the French Economists:—
Tableau Economique, et Maximes Generales du Gouvernement Economique, par Francois Quesnay, 4to. Versailles, 1758.
Theorie de l'Impôt, par M. de Mirabeau, 4to, 1760.
L'Ami des Hommes, par M. de Mirabeau, 7 Tomes, 1760, &c.
Elements de la Philosophie Rurale, par M. de Mirabeau, 3 Tomes, 12mo, 1763.
L'Ordre Naturel et Essentiel des Societes Politiques, par Mercier de la Riviere, 4to, and 2 Tomes 12mo, 1767.
Sur l'Origine et Progrès d'une Nouvelle Science, par Dupont de Nemours, 1767.
La Physiocratie, ou Constitution Naturelle du Gouvernement le plus avantageux aux genre humain, par Quesnay, 2 Tomes, 1767.
Lettres d'un Citoyen à un Magistrat, sur les vingtièmes et les autres impôts, par l'Abbe Baudelaire, 1768.
‡ Alcuni benemeriti scrittori, rattristati dai gravi disordini, che soffrono i popoli per le gabelle, sono passati all'estremo de considerare ingiusto e mal collocato il tributo se non ripartito sui fondi di terra, e colla creazione di un linguaggio ascetico, hanno eretta la setta degli economisti, presso la quale ogni uomo che non adoperi l'aratro, e un essere sterile, e i malfattori si chiamano una classe sterile. Rispettando il molto di vero e di utile che da essi è stato scritto, io non saprei associarmi alla loro opinione ne sul tributo, ne su di questa pretesa classe sterile. La riproduzione è attribuibile alla manifattura ugualmente, quanto al lavoro dei campi. Tutti i fenomeni dell'universo, sieno essi prodotti dalla mano dell'uomo o vero dalle universali leggi della fisica, non ci danno idea di attuale creazione, ma unicamente di una modificazione della materia. Accostare e separe sono gli unici elementi che l'ingegno umano ritrova analizzando l'idea della riproduzione; e tanto e riproduzione di valore e di ricchezza se la terra, l'aria, e l'acqua ne' campi si trasmutino in grano, come se colla mano dello uomo il glutine di un insetto si trasmuti in velluto, o vero alcuni pezzetti di metallo si organizzino a formare una ripetizione. Degli interi città, e degli stati interi campagnoli non d'altro che sul prodotto di questa fecondissima classe sterile, la di cui riproduzione comprende il valore della materia prima, la consumazione proporzionata delle mani impiegatevi, e di più quella porzione
System of the French Economists. did not trace the consequences of this important principle; and, possessing no clear and definite notions of what constituted wealth, did not attempt to discover the means by which labour might be facilitated. He made several valuable additions to particular branches of the science, and had sufficient acuteness to detect the errors in the systems of others; but the task of constructing a better system in their stead required talents of a far higher order.
Wealth of Nations. At length, in 1776, our illustrious countryman Adam Smith published the Wealth of Nations—a work which has done for Political Economy what the Principia of Newton did for Physics, and the Esprit des Loix of Montesquieu for Politics. In this work the science was, for the first time, treated in its fullest extent, and many of its fundamental principles placed beyond the reach of cavil and dispute. In opposition to the French economists, Dr Smith showed, that labour is the only source of wealth, and that the desire inherent in the breast of every individual to improve his fortune and rise in the world is the cause of its accumulation. He next traced the means by which the powers of labour may be rendered most effective, and showed that it is productive of wealth when employed in manufactures and commerce, as well as when employed in the cultivation of the land. Having established these principles, Dr Smith showed, in opposition to the commonly received opinions of the merchants, politicians, and statesmen of his time, that wealth did not consist in the abundance of gold and silver, but in the abundance of the various necessaries, conveniences, and enjoyments of human life; he showed that individuals are always the best judges of what is for their own interest, and that, in prosecuting branches of industry advantageous to themselves, they necessarily prosecute such as are advantageous to the public.* From thence Dr Smith drew his grand inference, that every regulation intended to force industry into particular channels, or to determine the species of commercial intercourse to be carried on between different parts of the same country, or between distant and independent countries, is impolitic and pernicious—injurious to the rights of individuals—and adverse to the progress of real opulence and lasting prosperity.
The fact that traces of most of these principles, and even that the distinct statement of many of those that are most important, may be found in the works of previous writers, does not in the least detract from the real merits of Dr Smith. In adopting the discoveries of others, he has made them his own; he
has demonstrated the truth of principles on which his predecessors had, in most cases, stumbled by chance; has disentangled and separated them from the errors by which they were incumbered; has traced their remote consequences, and pointed out their limitations; has shown their practical importance and real value—their mutual dependence and relation; and has reduced them into a consistent, harmonious, and magnificent system. We do not mean to say that Dr Smith has produced a perfect work. Undoubtedly there are errors, and those, too, of no slight importance, in the Wealth of Nations. The principles to which we have just referred, and which form the basis of the work, are unimpeachable; but Dr Smith has not always reasoned correctly from them, and he has occasionally introduced others, which a more careful observation and analysis has shown to be ill-founded. But, after every allowance has been made for these defects, enough still remains to justify us in considering Dr Smith as the real founder of the science. If he has not left us a perfect work, he has, at all events, left us one which contains a greater mass of useful and universally interesting truths than has ever been given to the world by any other individual; and he has pointed out and smoothed the route, by following which, subsequent philosophers have been enabled to perfect much that he had left incomplete, to rectify the mistakes into which he had fallen, and to make many new and important discoveries. Whether, indeed, we refer to the soundness of its leading doctrines, to the liberality and universal applicability of its practical conclusions, or to the powerful and beneficial influence it has had on the progress and perfection of economical science, and still more on the policy and destiny of nations, Dr Smith's work must be placed in the foremost rank of those that have done most to liberalise, enlighten, and enrich mankind.
Distinction between Politics and Political Economy. The practical part of the science of Political Economy was long confounded with that of Politics; and it is undoubtedly true that they are very intimately connected, and that it is frequently impossible to treat those questions which strictly belong to the one without referring more or less to the principles and conclusions of the other. But, in their leading features, they are sufficiently distinct. The laws which regulate the production and distribution of wealth are the same in every country and stage of society. Those circumstances which are favourable or unfavourable to the increase of riches and population in a republic may equally exist, and will have
che fa arricchire chi ha intrapresa la fabbrica e chi vi s'impiega con felice talento.—Meditazioni sulla Economia Politica, § 3.
* It is of importance to observe, that Dr Smith does not say, that, in prosecuting such branches of industry as are most advantageous to themselves, individuals necessarily prosecute such as are at the same time most advantageous to the public. His leaning to the system of the Economists—a leaning perceptible in every part of his work—made him so far swerve from the principles of his own system, as to admit, that individual advantage was not always a true test of the public advantageousness of different employments. He considered agriculture, though not the only productive employment, the most productive of any. He also considered the home trade as more productive than a direct foreign trade, and the latter than the carrying trade. We shall hereafter show, that there is no foundation for these distinctions.
exactly the same effects, in a monarchy. That security of property, without which there can be no steady and continued exertion—that freedom of engaging in every different branch of industry, so necessary to call the various powers and resources of human talent and ingenuity into action—and that economy in the public expenditure, so conducive to the accumulation of national wealth—are not the exclusive attributes of any particular species of government. If free states generally make the most rapid advances in wealth and population, it is an indirect rather than a direct consequence of their political constitution. It results more from the greater certainty which a popular government presents that the right of property will be held sacred—that the freedom of industry will be less fettered and restricted,—and that the public income will be more judiciously levied and expended, than from the circumstance of a greater proportion of the people being permitted to exercise political rights and privileges. Give the same securities to the subjects of an absolute monarch, and they will make the same advances. Industry does not require to be stimulated by extrinsic advantages. The additional comforts and enjoyments which it procures have always been found sufficient to ensure the more persevering and successful exertions. And whatever may have been the form of government, those countries have always advanced in the career of improvement, in which the public burdens have been moderate, the freedom of industry permitted, and every individual enabled peaceably to enjoy the fruits of his labour. It is not, therefore, so much on its political organization, as on the talents and spirit of its rulers, that the wealth of a country is principally dependent. Economy, moderation, and intelligence on the part of those in power, have frequently elevated absolute monarchies to a very high degree of opulence and of prosperity; while, on the other hand, all the advantages derived from a more liberal system of government have not been able to preserve free states from being impoverished and exhausted by the extravagance, intolerance, and shortsighted policy of their rulers.
The sciences of Politics and of Political Economy are, therefore, sufficiently distinct. The politician examines the principles on which all government is founded, he endeavours to determine in whose hands the supreme authority may be most advantageously placed,—and unfolds the reciprocal duties and obligations of the governing and governed portions of society. The political economist does not take so high a flight. It is not of the constitution of the government, but of its acts only, that he presumes to judge. Whatever measures affect the production or distribution of wealth, necessarily come within the scope of his observation, and are canvassed by
him. He examines whether they are in unison with the just principles of economical science. If they are, he pronounces them to be advantageous, and shows the nature and extent of the benefits of which they will be productive; if they are not, he shows in what respect they are defective, and to what extent their operation will be injurious. But he does this without inquiring into the constitution of the government by which these measures have been adopted. The circumstance of their having emanated from the privy council of an arbitrary monarch, or the representative assembly of a free state, though in other respects of supreme importance, cannot affect the immutable principles by which the economist is to form his opinion upon them.
Besides being confounded with politics, the practical part of Political Economy has frequently been confounded with Statistics; but they are still more easily separated and distinguished. The object of the statistician is to describe the condition of a particular country at a particular period; while the object of the political economist is to discover the causes which have brought it into that condition, and the means by which its wealth and riches may be indefinitely increased. He is to the statistician what the physical astronomer is to the mere observer. He takes the facts furnished by the researches of the statistician, and after comparing them with those furnished by historians and travellers, he applies himself to discover their relation. By a patient induction—by carefully observing the circumstances attending the operation of particular principles, he discovers the effects of which they are really productive, and how far they are liable to be modified by the operation of other principles. It is thus that the relation between rent and profit—between profit and wages, and the various general laws which regulate and connect the apparently clashing, but really harmonious interests of every different order in society, have been discovered and established with all the certainty of demonstrative evidence.
PART II.—PRODUCTION OF WEALTH.
SECT. I.—Definition of Production—Labour the only Source of Wealth.
All the operations of nature and of art are reducible to, and really consist of transmutations,—of changes of form and of place. By production, in the science of Political Economy, we are not to understand the production of matter, for that is exclusively the attribute of Omnipotence, but the production of utility, and consequently of exchangeable value, by appropriating and modifying matter already in existence, so as to fit it to satisfy our wants, and to contribute to our enjoyments. The labour which is thus employed is the only source of wealth.*
* This point has been strongly and ably stated by M. Destutt Tracy—"Non-seulement," says he, "nous ne créons jamais rien, mais il nous est même impossible de concevoir ce que c'est que créer ou anéantir, si nous entendons rigoureusement par ces mots, faire quelque chose de rien, ou réduire quelque chose à rien; car nous n'avons jamais vu un être quelconque sortir du néant ni y rentrer. De là cet axiome admis par toute l'antiquité: rien ne vient de rien, et ne peut redevenir rien. Que faisons-nous donc par notre travail, par notre action sur tous les êtres qui nous entourent? Jamais rien, qu'opérer dans ces êtres des changements
Labour the only Source of Wealth.
ture spontaneously furnishes the matter of which commodities are made; but, independently of labour, matter is rarely of any use whatever, and is never of any value. Place us on the banks of a river, or in an orchard, and we shall infallibly perish, either of thirst or hunger, if we do not, by an effort of industry, raise the water to our lips, or pluck the fruit from its parent tree. It is seldom, however, that the mere appropriation of matter is sufficient. In the infinite majority of cases, labour is required not only to appropriate it, but also to convey it from place to place, and to give it that peculiar figure and shape, without which it may be totally useless, and incapable of either ministering to our necessities or our comforts. The coal used in our fires is buried deep in the bowels of the earth, and is absolutely worthless until the labour of the miner has extracted it from the mine, and brought it into a situation where it can be made use of. The stones and mortar of which our houses are built, and the rugged and shapeless materials from which the various articles of convenience and ornament with which they are furnished have been prepared, were, in their original state, alike destitute of value and utility. And of the innumerable variety of animal, vegetable, and mineral products which form the materials of our food and clothes, none were originally serviceable, and many were extremely noxious to man. It is his labour that has given them utility, that has subdued their bad qualities, and made them satisfy his wants, and minister to his comforts and enjoyments. "Labour was the first price, the original purchase money that was paid for all things. It was not by gold or by silver, but by labour, that all the wealth of the world was originally purchased."—(Wealth of Nations, Vol. I. p. 44. 8vo edit.)
If we observe the progress, and trace the history of the human race in different countries and states of society, we shall find their comfort and happiness to have been always nearly proportioned to the power which they possessed of rendering their labour effective in appropriating the raw products of nature, and in fitting and adapting matter to their use. The savage, whose labour is confined to the gathering of wild fruits, or to the picking up of the shell fish on the sea coast, is placed at the very bottom of the scale of civilization, and is, in point of comfort, decidedly inferior to many of the lower animals. The first step in the progress of society is made when man learns to hunt wild animals, to feed himself with their flesh, and to clothe himself with their skins. But labour, when confined to the chase, is extremely barren and unproductive. Tribes of hunters, like beasts of prey, whom they are justly said to resemble closely in their habits and modes of subsistence, are but thinly scattered over the surface of the country which they occupy; and notwithstanding the fewness of their numbers, any unusual
deficiency in the supply of game never fails to reduce them to the extremity of want. The second step in the progress of society is made when the tribes of hunters and fishers apply their labour, like the ancient Scythians and modern Tartars, to the domestication of wild animals and the rearing of flocks. Their subsistence is much less precarious than that of hunters, but they are almost entirely destitute of all those comforts and elegancies which give to civilized life its chief value. The third and most decisive step in the progress of civilization—in the great art of producing the necessaries and conveniences of life—is made when the wandering tribes of hunters and shepherds renounce their migratory habits, and become agriculturists and manufacturers. It is then, properly speaking, that man, shaking off that indolence which is natural to him, begins fully to avail himself of the productive powers of industry. He then becomes laborious, and, by a necessary consequence, his wants are then, for the first time, fully supplied, and he acquires an extensive command over the articles necessary to his comfort as well as his subsistence.
However paradoxical the assertion may at first sight appear, it is, notwithstanding, unquestionably true that the earth does not gratuitously supply us with a single atom of wealth. It is a powerful machine given by Providence to man; but without labour this machine would be altogether useless, and would for ever stand idle and unemployed. It is to labour that the products of the earth owe their value, and it is by its intervention that they become useful. The surface of the earth is, in its natural state, covered with fruits and game; its bowels contain an infinite variety of mineral products; its seas and rivers are stored with fish, and it is endowed with inexhaustible vegetative and productive powers; but all these powers and products are plainly of no use whatever, and have no value, until the labour of man has called the former into action, and appropriated the latter, and given them that peculiar form which is required to fit them to support his existence, or to increase his enjoyments.
The importance of labour in the production of wealth was very clearly perceived both by Hobbes and Locke. At the commencement of the 24th chapter (entitled, "Of the Nutrition and Procreation of a Commonwealth") of the Leviathan, published in 1651, Hobbes says, "The nutrition of a commonwealth consisteth in the plenty and distribution of materials conducing to life."
"As for the plenty of matter, it is a thing limited by nature to those commodities which, from (the two breasts of our common mother) land and sea, God usually either freely giveth, or for labour selleth to mankind."
"For the matter of this nutriment, consisting in animals, vegetables, minerals, God hath freely laid
de forme on de lieu qui les approprient à notre usage, qui les rendent utiles à la satisfaction de nos besoins. Voilà ce que nous devons entendre par produire; c'est donner aux choses une utilité qu'elles n'avoient pas. Quel que soit notre travail, s'il n'en résulte point d'utilité, il est infructueux; s'il en résulte, il est productif."—(Éléments d'Ideologie, Tome III. p. 162.)
them before us, in or near to the face of the earth; so as there needeth no more but the labour and industry of receiving them. Inasmuch that plenty dependeth (next to God's favour) on the labour and industry of man."
But Mr Locke had a much clearer apprehension of this doctrine. In his Essay on Civil Government, published in 1689, he has entered into a lengthened, discriminating, and able analysis to show that it is from labour that the products of the earth derive almost all their value. "Let any one consider," says he, "what the difference is between an acre of land planted with tobacco or sugar, sown with wheat or barley, and an acre of the same land lying in common, without any husbandry upon it, and he will find that the improvement of labour makes the far greater part of the value. I think it will be but a very modest computation to say, that of the products of the earth useful to the life of man, nine-tenths are the effects of labour; nay, if we will rightly consider things as they come to our use, and cast up the several expences about them, what in them is purely owing to nature, and what to labour, we shall find, that in most of them ninety-nine hundredths are wholly to be put on the account of labour."
"There cannot be a clearer demonstration of any thing, than several nations of the Americans are of this, who are rich in land, and poor in all the comforts of life; whom nature having furnished as liberally as any other people with the materials of plenty; i. e. a fruitful soil apt to produce in abundance what might serve for food, raiment, and delight; yet for want of improving it by labour, have not one hundredth part of the conveniences we enjoy; and the king of a large and fruitful territory there feeds, lodges, and is worse clad than a day-labourer in England."
"To make this a little clear, let us but trace some of the ordinary provisions of life through their several progresses, before they come to our use, and see how much of their value they receive from human industry. Bread, wine, and cloth, are things of daily use, and great plenty; yet, notwithstanding, acorns, water, and leaves, or skins, must be our bread, drink, and clothing, did not labour furnish us with these more useful commodities; for whatever bread is more worth than acorns, wine than water, and cloth or silk than leaves, skins, or moss, that is solely owing to labour and industry; the one of these being the food and raiment which unassisted nature furnishes us with; the other provisions which our industry and pains prepare for us; which how much they exceed the other in value, when any one hath computed, he will then see how much labour makes
the far greatest part of the value of things we enjoy in this world; and the ground which produces the materials is scarce to be reckoned on as any, or, at most, but a very small part of it.
"An acre of land that bears here twenty bushels of wheat, and another in America, which, with the same husbandry, would do the like, are, without doubt, of the same natural intrinsic value. But yet, the benefit mankind receives from the one in a year is worth L. 5, and from the other possibly not worth one penny; if all the profit an Indian received from it were to be valued and sold here, at least, I may truly say, not 1/1000. — 'Tis labour, then, which puts the greatest part of value upon land, without which it would scarcely be worth any thing: 'Tis to that we owe the greatest part of its useful products; for all that the straw, bran, bread of that acre of wheat, is more worth than the product of an acre of good land, which lies waste, is all the effect of labour. For 'tis not merely the ploughman's pains, the reaper's and thrasher's toil, and the baker's sweat, is to be counted into the bread we eat, the labour of those who broke the oxen, who digged and wrought the iron and stones, who fitted and framed the timber employed about the plough, mill, oven, or any other utensils, which are a vast number, requisite to this corn, from its being seed to be sown, to its being made bread, must all be charged on the account of labour, and received as an effect of that. Nature and the earth furnishing only the almost worthless materials as in themselves. — 'Twould be a strange catalogue of things that industry provided and made use of about every loaf of bread, before it came to our use, if we could trace them. Iron, wood, leather, barks, timber, stone, brick, coals, lime, cloth, dyeing-drugs, pitch, tar, masts, ropes, and all the materials made use of in the ship that brought away the commodities made use of by any of the workmen, to any part of the work; all which, it would be almost impossible, at least too long to reckon up." (Of Civil Government, Book II. § 40, 41, 42, and 43.) *
Had Mr Locke carried his analysis a little further, he could not have failed to perceive that neither water, leaves, skins, nor any of the spontaneous productions of nature, have any value, except what they owe to the labour required to appropriate them. The value of water to a man placed on the bank of a river depends on the labour necessary to raise it from the river to his lips; and its value, when carried ten or twenty miles off, is equally dependent on the labour necessary to convey it there. All the rude products, and all the productive powers and
* This is a very remarkable passage. It contains a far more distinct and comprehensive statement of the fundamental doctrine, that labour is the constituent principle of value, than is to be found in any other writer previous to Dr Smith, or than is to be found even in the Wealth of Nations. But Mr Locke does seem to have been sufficiently aware of the real value of the principle he had elucidated, and has not deduced from it any important practical conclusion. On the contrary, in his tract on the Raising of the Value of Money, published in 1691, he lays it down broadly that all taxes, howsoever imposed, must ultimately fall on the land; whereas, it is plain he ought, consistently with the above principle, to have shown that they would fall, not exclusively on the produce of land, but generally on the produce of industry, or on all species of commodities.
Labour the only Source of Wealth. capacities of nature, are gratuitously offered to man. Nature is not niggardly or parsimonious. She neither demands nor receives an equivalent for her favours. An object which it does not require any portion of labour to appropriate or to adapt to our use, may be of the very highest utility; but, as it is the free gift of nature, it is utterly impossible it can be possessed of the smallest value.*
"Si je retranche," to use a striking illustration of this doctrine given by M. Canard, "de ma montre, par la pensée, tous les travaux qui lui ont été successivement appliqués, il ne restera que quelques grains de minéral placés dans l'intérieur de la terre d'où on les a tirés, et où ils n'ont aucune valeur. De même si je décompose le pain que je mange, et que j'en retranche successivement tous les travaux successifs qu'il a reçus, il ne restera que quelques tiges d'herbes, graminées, éparses dans des déserts incultes, et sans aucune valeur." (Principes d'Économie Politique, p. 6.)
It is to labour, therefore, and to labour only, that man owes every thing possessed of exchangeable value. Labour is the talisman that has raised him from the condition of the savage—that has changed the desert and the forest into cultivated fields—that has covered the earth with cities and the ocean with ships—that has given us plenty, comfort, and elegance, instead of want, misery, and barbarism.
Having established this fundamental principle—having shown that it is labour only that gives exchangeable value to commodities—it is plain the great practical problem of the science of Political Economy must resolve itself into a discussion of the means whereby labour may be rendered most efficient, or whereby the greatest amount of necessary, useful, and agreeable products may be obtained with the least quantity of labour. Wealth, as we have already shown, is always increased with every diminution of the labour required to produce the articles of which it consists. Every measure and invention that has any tendency to save labour, or to reduce the cost of producing commodities, must add proportionably to our power of obtaining wealth and riches, while every measure or regulation that has any tendency to waste labour, or to raise the cost of producing commodities, must equally lessen this power. This is the simple and decisive test by which we are to judge of the expediency of
every measure affecting the wealth of the country, and of the value of every invention. If they render labour more productive—if they have a tendency to reduce the exchangeable value of commodities, to render them more easily obtainable, and to bring them within the command of a greater portion of society, they must be advantageous; but if their tendency be different, they must as certainly be disadvantageous. Considered in this point of view, that great branch of the science of Political Economy which treats of the production of wealth, will be found to be abundantly simple, and easily understood.
Labour, according as it is applied to the raising of raw produce—to the fashioning of that raw produce, when raised, into articles of utility, convenience, or ornament—and to the conveyance of raw and wrought produce from one country and place to another—is said to be agricultural, manufacturing, or commercial. An acquaintance with the particular processes, and most advantageous methods, of applying labour in each of these grand departments of industry, forms the peculiar and appropriate study of the agriculturist, manufacturer, and merchant. It is not consistent with the object of the political economist to enter into the details of particular businesses and professions. He confines himself to an investigation of the means by which labour in general may be rendered most productive, and how its powers may be increased in all the departments of industry.
SECT. II.—Means by which the Productive Powers of Labour are increased—Security of Property—Division of Labour—Accumulation and Employment of Capital.
The most careless and inattentive observer of the progress of mankind from poverty to affluence must have early perceived, that there are three circumstances whose conjoint operation is necessary to stimulate and improve the productive powers of industry, and in the absence of which men could never have emerged from barbarism. The first, and most indispensable, is the security of property, or a well-founded conviction in the mind of every individual that he will be allowed to dispose at pleasure of the
* Bishop Berkeley entertained very just opinions respecting the source of wealth. In his Querist, published in 1735, he asks,—"Whether it were not wrong to suppose land itself to be wealth? And whether the industry of the people is not first to be considered, as that which constitutes wealth, which makes even land and silver to be wealth, neither of which would have any value, but as means and motives to industry?"
"Whether, in the wastes of America, a man might not possess twenty miles square of land, and yet want his dinner, or a coat to his back."—Querist, Numbers 38 and 39.
We shall afterwards notice Sir William Petty's opinion on this subject.
M. Say appears to think (Discours Préliminaire, p. 37) that Galvani was the first who showed, in his treatise Della Moneta, published in 1750, that labour was the only source of wealth. But the passages we have now laid before the reader prove the erroneousness of this opinion. Galvani has entered into no analysis or argument to prove the correctness of his statement; and, as it appears from other parts of his work, that he was well acquainted with Mr Locke's Tracts on Money, a suspicion naturally arises that he had seen the Essay on Civil Government, and that he was really indebted to it for a knowledge of this principle. This suspicion derives strength from the circumstance of Galvani being still less aware than Mr Locke of the value of the discovery.—See Trattato Della Moneta, p. 39, ediz. 1780.
fruits of his labour. The second is the introduction of exchange or barter, and the consequent appropriation of particular individuals to particular employments. And the third is the accumulation and employment of the produce of previous labour, or, as it is more commonly termed, of capital, or stock. All the improvements that have ever been made, or that ever can be made, in the great art of producing the necessaries, comforts, and conveniences of human life, are all resolvable into the more judicious and successful application of one or more of those means of stimulating labour, and adding to its power. To give a full exposition of the nature and influence of each would far exceed the limits of this article; and we must content ourselves with such observations as may suffice to give a general idea of their operation.
SECURITY OF PROPERTY.—Security of property is the first and most indispensable requisite to the production of wealth. Its utility in this respect is, indeed, so obvious and striking, that it has been more or less respected in every country, and in the earliest and rudest periods of society. All have been impressed with the reasonableness of the maxim which teaches that those who sow ought to be permitted to reap—that the labour of a man's body and the work of his hands are to be considered as exclusively his own. No savage horde has ever been discovered in which the principle of meum and tuum was not recognised. Nothing, it is plain, could ever tempt any one to engage in any laborious employment—he would neither domesticate wild animals, nor clear and cultivate the ground, if, after months and years of toil, when his flocks had become numerous, and his harvests were ripening for the sickle, a stranger were to be allowed to rob him of the produce of his industry. No wonder, therefore, that the utility of some general regulations, which should secure to every individual the peaceable enjoyment of the produce he had raised, and of the ground he had cultivated and improved, suggested itself to the first legislators. The author of the book of Job places those who removed their neighbour's land-marks at the head of his list of wicked men; and some of the earliest profane legislators subjected those who were guilty of this offence to a capital punishment. (Goguet, De l'Origine des Loix, &c. Tom. I. p. 30. 4to ed.)
Dr Paley has said that the law of the land is the real foundation of the right of property. But the obvious utility of securing to each individual the produce which has been raised by his industry, has undoubtedly formed the irresistible reason which has induced every people emerging from barbarism to establish this right. The institution of the right of property is, in truth, the foundation on which all the other institutions of society rest. Until property had been publicly guaranteed, men must have looked on each other as enemies, rather than as friends. The idle and improvident are always desirous of seizing on the earnings of the laborious and frugal; and, if they were not restrained by the strong arm of the law—if they were permitted to prosecute their attacks, they would, by generating a feeling of insecurity, effectually check both industry and accumulation, and sink
all classes to the same level of hopeless misery as themselves. In truth, the security of property is even more necessary to accumulation than it is to production. No man ever did or ever will deny himself an immediate gratification when it is within his power, unless he thinks, that, by doing so, he has a fair prospect of obtaining a greater accession of comforts and enjoyments, or of avoiding a greater evil at some future period. Where the right of property is vigilantly protected, an industrious man, who produces as much by one day's labour as is sufficient to maintain him two days, does not lie idle the second day, but accumulates the surplus produce above his wants as a capital; the increased consequence and enjoyments which the possession of capital brings along with it, being, in the great majority of cases, more than sufficient to counterbalance the desire of immediate gratification. But, wherever property is insecure, we look in vain for the operation of the principle of accumulation. "It is plainly better for us," is then the invariable language of the people, "to enjoy while it is in our power, than to accumulate property which we shall not be permitted to use, and which will either expose us to the extortion of a rapacious government, or to the unrestrained depredations of those who exist only by the plunder of their more industrious neighbours."
But the security of property is not violated merely when a man is deprived of the power of peaceably enjoying the fruits of his industry; it is also violated, and perhaps in a still more glaring and unjustifiable manner, when he is prevented from using the powers with which nature has endowed him, in any way, not injurious to others, that he considers most beneficial to himself. Of all the species of property which a man can possess, the faculties of his mind and the powers of his body are most particularly his own. He ought, therefore, to be permitted to enjoy, that is, to use or exert these powers at his discretion. And hence the right of property is as much, or more infringed upon, when a man is interdicted from engaging in a particular branch of business, as it is when he is forcibly bereft of the property he had produced and accumulated. Every monopoly which gives to a few individuals the exclusive power of carrying on certain branches of industry, is thus, in fact, established in direct violation of the right of property of every other individual. It prevents them from using their natural capacities or powers in the manner which they might have considered best; and, as every man who is not a slave is held, and justly held, to be the best, and, indeed, the only judge of what is advantageous for himself, the principles of natural law and the right of property are both subverted when he is excluded from any employment. In like manner, the right of property is violated whenever any regulation is made to force an individual to employ his labour or capital in a particular way. The property of a landlord is violated when he is compelled to adopt any system of cultivation, even supposing it to be really preferable to that which he was previously following. The property of the capitalist is violated when he is obliged to accept a particular rate of interest for his stock, and the property of the labourer is violated whenever he is obliged
Security of Property. to betake himself, in preference, to any particular occupation.
Effects of insecurity. The finest soil, the finest climate, and the finest intellectual powers, can prevent no people from becoming barbarous, poor, and miserable, if they have the misfortune to be subjected to a government which does not respect the right of property. This is the greatest of all calamities. The ravages of civil war, of pestilence, and of famine, may be repaired; but nothing can enable a nation to contend against the deadly influence of an established system of violence and rapine. It is the want of security—the want of any lively and well-founded expectation of being permitted freely to dispose of the fruits of their industry, that is the principal cause of the wretched state of the Ottoman dominions at the present day, as it was of the decline of industry and arts in Europe during the middle ages. When the Turkish conquerors overran those fertile and beautiful countries in which they are still permitted to encamp, they parcelled them among their followers, on condition of their performing certain military services, on a plan corresponding, in many important particulars, to the feudal system of our ancestors. But these possessions are not hereditary. They do not descend to the children or legatees of the present possessor, but, on his death, revert to the Sultan. Among the occupiers of land in Turkey there is, therefore, no thought of futurity. No one can feel any interest about the prosperity of an unknown successor; and no one ever executes any improvement of which he does not expect to be able to reap all the advantage during his own life. This is assigned by Lady Wortley Montague as the cause why the Turks are so extremely careless about their houses. They never construct them of solid or durable materials. And it would be a gratification to them to be assured that they would fall to pieces the moment after they had breathed their last. Under this miserable government the palaces have been changed into cottages, and the cities into villages. The long continued want of security has extinguished the very spirit of industry, and destroyed not only the power, but even the desire to emerge from barbarism.
Had it been possible for arbitrary power to profit by the lessons of experience, it must long since have perceived that its own wealth, as well as the wealth of its subjects, would be most effectually promoted by maintaining the inviolability of property. Were the Turkish government to establish a vigilant system of police—to secure to each individual the unrestricted power of disposing of the fruits of his labour—and to substitute a regular plan of taxation in the place of the present odious system of extortion and tyranny, industry would revive, capital and population would be augmented, and moderate duties, imposed on a few articles in general demand, would bring a much larger sum into the coffers of the treasury than all that is now obtained by force and violence. The stated public burdens to which the Turks are sub-
jected are light when compared with those imposed Security of Property. on the English, the Hollanders, or the French. But the latter know that when they have paid the taxes due to government, they will be permitted peaceably to enjoy or to accumulate the remainder of their earnings; whereas the Turk has no security but that the next moment after he has paid his stated contribution, the Pacha, or one of his satellites, may trip him of every additional farthing he possesses! Security is the foundation—the principal element in every well digested system of finance. When maintained inviolate, it enables a country to support, without much difficulty, a very heavy load of taxes; but where there is no security—where property is a prey to rapine and spoliation—to the attacks of the needy, the powerful, or the profligate—the smallest burdens are justly regarded as oppressive, and uniformly exceed the means of the impoverished and spiritless inhabitant.
Case of the Jews. The Jews have been supposed to afford an instance of a people, whose property has been long exposed to an almost uninterrupted series of attacks, and who have, notwithstanding, continued to be rich and industrious. But when rightly examined, it will be found that the case of the Jews forms no exception to the general rule. The absurd prejudices with which the Jews have been almost universally regarded, long prevented their acquiring any property in land, and have excluded them from participating in the benefits derived from the charitable institutions of the different countries among which they are scattered. Having, therefore, no adventurous support on which to depend, in the event of their becoming infirm or destitute, they had a powerful additional motive to save and accumulate; and being excluded from agriculture, they were of necessity compelled to addict themselves, in preference, to commerce. In an age when the profession of a merchant was generally looked upon as something mean and sordid, and when, of course, they had comparatively little competition, they must have made considerable profits; but these have been very greatly exaggerated. It was natural that those who were indebted to the Jews should represent their gains as enormous; for this inflamed the existing prejudices against them, and afforded a miserable pretext for defrauding them of their just claims. There are a few rich Jews in most of the large cities of Europe; but the majority of that race have ever been, and still are, as poor as their neighbours.
Let us not, therefore, deceive ourselves by supposing that it is possible for any nation or any people to emerge from barbarism, or to become wealthy, populous, and civilized, without the security of property. From whatever point of the political compass we may set out, this is the principle to which we must come at last. Security is indispensably necessary to the successful exertion of the powers of industry. Where it is wanting, it is idle to expect either riches or civilization.*
* "Ce n'est que là ou les propriétés sont assurées, ou l'emploi des capitaux est abandonné au choix de
have made an objection to the institution of the right of property, which has been, in some measure, sanctioned by the authority of the Marquis Beccaria.* They allow that the security of property is advantageous for those who possess it; but they contend, that it is disadvantageous for those who are poor and destitute. It has condemned, they affirm, the greater portion of mankind to a state of misery, and has provided for the exaltation of the few by the depression of the many! The sophistry of this reasoning is so apparent, as hardly to require to be pointed out. The right of property has not made poverty, but it has made wealth. Previous to the institution of this right, those nations which are now most civilized, were sunk to the same level of wretchedness and misery as the savages of New Holland and Kamtschatska. All classes have been benefited by this change; and it is mere error and delusion to suppose that the rich have been benefited at the expense of the poor. The institution of the right of property gives no advantage to any one man over any other man. It deals out justice impartially to all. It does not say, labour, and I will reward you; but it says, "labour, and I shall take care that none shall be permitted to rob you of the produce of your exertions." The institution of the right of property has not made all men rich, because it could not make all men frugal and industrious. But it has done more than all the other institutions of society put together to produce this effect. It is not, as it has been sometimes ignorantly or knavishly represented, a bulwark thrown up to protect and secure the property of a few favourites of fortune. It is a rampart raised by society against its common enemies—against rapine and violence, plunder and oppression. Without its protection, the rich man would become poor, and the poor man would never be able to become rich—all would sink to the same bottomless abyss of barbarism and poverty. "It is the security of property," to use the just and forcible expressions of a profound writer, "that has overcome the natural aversion of man to labour, that has given him the empire of the earth, that has given him a fixed and permanent residence, that has implanted in his breast the love of his country and of posterity. To enjoy immediately—to enjoy without labour, is the natural inclination of every man. This inclination must be restrained; for its obvious tendency is to arm all those who have nothing against those who have something. The law which restrains this inclination, and which secures to the humblest indivi-
dual the quiet enjoyment of the fruits of his industry, is the most splendid achievement of legislative wisdom—the noblest triumph of which humanity has to boast."—(Bentham, Traité de Legislation, Tome II. p. 37.)
DIVISION OF LABOUR.—The division of labour naturally divides itself into two separate branches;—
1st, The division of labour among individuals; and
2d, Its division among nations.
1. Individual Division of Labour.—The division of labour can only be imperfectly introduced in rude societies, and thinly peopled countries. But in every state of society—in the rudest, as well as in the most improved—we can trace the operation and effects of this principle. The various physical powers, talents, and propensities with which men are endowed, naturally fit them for different occupations; and a regard to mutual interest and convenience necessarily leads them, at a very early period, to establish a system of barter and a separation of employments. Each individual finds that he can obtain a greater quantity of all sorts of commodities by devoting himself to some particular business, and exchanging his surplus produce for such parts of the produce of other people's labour as he may have occasion for and they may be disposed to part with, than if he had attempted directly to produce all the articles which he consumes. As society advances, this division becomes more and more extended. In process of time, one man becomes a tanner, or dresser of skins; another, a shoemaker; a third, a weaver; a fourth, a house-carpenter; a fifth, a smith, and so on. Each endeavours to cultivate and bring to perfection whatever talent or genius he may possess for the species of industry in which he is employed. The national wealth and the comforts of all classes are, in consequence, prodigiously augmented. In a country where the division of labour has been carried to a considerable extent, agriculturists are not obliged to spend their time in clumsy attempts to manufacture their own produce; and manufacturers cease to interest themselves about the raising of corn and the fattening of cattle. The facility of exchanging is the vivifying principle of industry. It stimulates agriculturists to adopt the best system of cultivation and to raise the largest crops, because it enables them to exchange whatever portion of the produce of their lands exceeds their own wants for other commodities conducive to their comforts and enjoyments; and it equally stimulates manufacturers and merchants to increase the quantity and to improve the quality of their goods, that they may
ceux qui les possèdent; ce n'est que la dis-jonction, que les particuliers seront encouragés à se soumettre aux privations les plus dures pour compenser par leurs épargnes les retards que la profusion du gouvernement peut apporter aux progrès de la richesse national. Si l'Angleterre, malgré ses guerres ruineuses, est parvenue à un haut degré d'opulence; si malgré les contributions énormes dont le peuple y est chargé, son capital est pourtant accrue dans le silence par l'économie des particuliers, il ne faut attribuer ces effets qu'à la liberté des personnes et à la sûreté des propriétés qui y regnent, plus que dans aucun autre pays de l'Europe, la Suisse excepté." (Storch, Traité d'Économie Politique, Tom. I. p. 317.)
Speaking of theft, Beccaria calls it, "Il delitto di quella infelice parte di uomini, a cui il diritto di proprietà (terribile, e forse non necessario diritto), non ha lasciato, che una nuda esistenza."—Dei Delitti e delle Pene, § 22.
Division of Labour. thereby be enabled to obtain a greater supply of raw produce. A spirit of industry is thus universally diffused; and that apathy and languor, which is characteristic of a rude state of society, entirely disappear.
But it is not the mere facility of exchanging, or the circumstance of being able to barter the surplus produce of one's own labour for such parts of the surplus produce of other people's labour, as we may be desirous of obtaining and they may choose to part with, that renders the separation of employments of such signal advantage. The introduction of barter and the division of labour not only enables each individual to betake himself in preference to those departments which suit his taste and disposition, but it makes a positive and a large addition to the efficacy of his powers, and enables him to produce a much greater quantity of commodities than he could have done had he engaged indiscriminately in different employments. Dr Smith, who has treated this subject in the most masterly manner, has classed the circumstances which conspire to increase the productive powers of industry, when labour is divided, under the following heads:—First, To the increase of the skill and dexterity of every particular workman; second, to the saving of time, which is commonly lost in passing from one particular employment to another; and, third, to the circumstance of the division of employments having a tendency to facilitate the invention of machines and of processes for abridging and saving labour. We shall make a few observations on each of these heads.
Division of Labour increases the skill and dexterity of the Workman: 1st, Respecting the improvement of the skill and dexterity of the labourer, it is sufficiently plain that when a person's whole attention is devoted to one branch of business, when all the energies of his mind and the powers of his body are made to converge, as it were, to a single point, he must attain to a degree of proficiency in that particular branch, to which no individual engaged in a variety of occupations can be expected to reach. A peculiar play of the muscles, or sleight of hand, is necessary to perform the simplest operation in the best and most expeditious manner; and this can only be acquired by habitual and constant practice. Dr Smith has given a striking example, in the case of the nail manufacturer, of the extreme difference between training a workman to the precise occupation in which he is to be employed, and training him to a similar and closely allied occupation. "A common smith," says he, "who, though accustomed to handle the hammer, has never been used to make nails, if, upon some particular occasion, he is obliged to attempt it, will scarce, I am assured, be able to make above two or three hundred nails in a day, and those very bad ones. A smith who has been accustomed to make nails, but whose sole or principal business has not been that of a nailer, can seldom, with his utmost diligence, make more than eight hundred or a thousand nails in a day. But I have seen several boys under twenty years of age, who had never exercised any other trade but that of making nails, who, when they exerted themselves, could make, each of them, upwards of two thousand three hundred nails in a day;" or nearly three times the number of the smith
who had been accustomed to make them, but who was not entirely devoted to that particular business! Division of Labour.
2d, The effect of the division of labour in preventing that waste of time in moving from one employment to another, which must always take place when an individual is engaged in different occupations, is even more obvious than the advantage derived from the improvement of the skill and dexterity of the labourer. When the same individual carries on different employments, in different and perhaps distant places, and with different sets of tools, it is plainly impossible he can avoid losing a considerable portion of time in passing between them. If the different businesses in which a labourer is to be engaged could be carried on in the same workshop, the loss of time would be less, but even in that case it would be considerable. "A man," as Dr Smith has justly observed, "commonly saunters a little in changing from one business to another. When he first begins his work, he is seldom keen or hearty; his mind is said not to go along with it, and for some time he rather trifles than applies himself in good earnest. The habit of sauntering and of indolent and careless application, which is naturally, or rather necessarily acquired by every country workman, who is obliged to change his work and his tools every half hour, and to apply his hand in working different ways almost every day of his life, renders him almost always slothful and lazy, and incapable of any rigorous application, even on the most pressing occasion. Independent, therefore, of his deficiency in point of dexterity, this cause alone must always reduce considerably the quantity of work which he is capable of performing."—(Wealth of Nations, I. p. 14.)
3d, With regard to the effect of the division of employments in facilitating the invention of machines, and processes for abridging and saving labour, it is obvious that those engaged in any branch of industry must be more likely to discover easier and readier methods for carrying it on, when the whole attention of their minds is devoted exclusively to it, than if it were dissipated among a variety of objects. But it is a mistake to suppose, as has been sometimes done, that it is only the inventive genius of workmen and artificers that is whetted and improved by the division of labour. As society advances, the study of particular branches of science and of philosophy becomes the principal or sole occupation of the most ingenious men. Chemistry becomes a distinct science from natural philosophy; the physical astronomer separates himself from the astronomical observer, the political economist from the politician, and each meditating exclusively, or principally, on his peculiar department of science, attains to a degree of proficiency and expertness in it to which the general scholar seldom or never reaches. And hence, in labouring to promote our own ends, we all necessarily adopt that precise course which is most advantageous to all. Like the different parts of a well constructed engine, the inhabitants of a civilized country are all mutually dependent on, and connected with, each other. Without any previous concert, and obeying only the powerful and steady impulse of self-interest, they universally conspire to the same great end, and
contribute each in their respective sphere to furnish the greatest possible supply of necessaries, luxuries, conveniences, and enjoyments.
But it is necessary to observe, that the advantages derived from the division of labour, though they may be, and in fact are, partially enjoyed in every country and state of society, can only be carried to their full extent, where there is a great power of exchanging, or an extensive market. There are an infinite variety of employments which cannot be separately carried on out of the precincts of a large city; and, in all cases, the division becomes just so much the more perfect, according as the demand for the produce of the workmen is extended. It is stated by Dr Smith that ten labourers employed in different departments in a pin manufactory can produce 48,000 pins a day; but it is evident that if the demand was not sufficiently extensive to take off this quantity, it would be impossible to carry the division so far. The same principle holds good in every case. A cotton mill could not be constructed in a small country which had no intercourse with its neighbours. The demand and competition of Europe and America has been necessary to carry the manufactures of Glasgow, Manchester, and Birmingham, to their present state of improvement.
The effects of the division of labour in increasing the quantity and perfection of the products of industry have been noticed by several of the writers who preceded Dr Smith, and especially by Mr Harris and M. Turgot. But neither of these writers have done what Dr Smith did. None of them have fully analysed and exhibited its various effects; and none of them have shown that the power of engaging in different employments depended on the power of exchanging; and that, consequently, the advantages derived from the division of labour were necessarily dependent on, and regulated by, the extent of the market. This is a principle of very great importance, and by establishing it Dr Smith shed a new light on the whole science, and laid the foundation of many important practical conclusions. "Présentée de cette manière," says M. Storch, "l'idée de la division du travail étoit absolument neuve; et l'effet qu'elle a fait sur les contemporains de Smith, prouve bien qu'elle l'étoit réellement pour eux. Telle qu'elle se trouve indiquée dans les passages que je viens de citer, elle n'a fait aucune impression. Développée par Smith, cette idée a d'abord saisi tous ses lecteurs; tous en ont senti la vérité et l'importance; et cela suffit pour lui en assurer tout l'honneur, lors même que son génie ait été guidé par les indications de ses devanciers."—(Tome VI. p. 10.)
2. Territorial Division of Labour, or Commerce.—Besides that sort of division of labour which enables each individual in a limited society to confine himself to a particular employment, there is another and most important branch of the division of labour, which not only enables particular individuals, but the inhabitants of entire districts, and even nations, to addict themselves in preference to certain branches of industry. It is on this territorial division of labour, if we may so term it, that the commerce which is carried on between different districts of the same country, and between different
countries, is founded. The various soils, climates, and capacities of production, of different districts of an extensive country, fit them for being appropriated in preference to certain species of industry. A district where coal is abundant, which has an easy access to the ocean, and a considerable command of internal navigation, is the natural seat of manufactures. Wheat and other species of grain are the proper products of rich arable soils; and cattle, after being reared in mountainous districts, are most advantageously fattened in meadow and low grounds. Nothing is more obvious than that the inhabitants of these different districts, by separately confining themselves to the particular branches of industry for the successful prosecution of which they have some peculiar natural capability, must produce an infinitely greater quantity of useful and agreeable commodities than they could do were they to devote their labour indiscriminately to every different employment. It is impossible to doubt that vastly more manufactured goods, more corn, and more cattle, are produced by the inhabitants of Glasgow, of the Carse of Gowrie, and of Argyleshire, respectively confining themselves to manufactures, agriculture, and the rearing of cattle, than if each endeavoured directly to supply themselves with all these various products, without the intervention of an exchange.
But it is easy to see that foreign trade, or the territorial division of labour between different and independent countries, will contribute to increase the wealth of each in precisely the same manner that the trade between different provinces of the same kingdom contributes to increase their wealth. There is a still greater difference between the productive powers wherewith nature has endowed different and distant countries than there is between the productive powers of the provinces of the same country. The establishment of a free intercourse between them must, therefore, be proportionably advantageous. It would evidently cost an infinitely greater expence to raise the wines of France or Spain in England than it would do to make Yorkshire yield the same products as Devonshire. Indeed, there are a multitude of products, and some of them of the very greatest utility, which cannot possibly be raised except in particular situations. Were it not for commercial intercourse, we should not be able to obtain the smallest supply of tea, sugar, raw cotton, raw silk, gold bullion, and a thousand other equally useful and valuable commodities. Providence, by giving different soils, climates, and natural productions, to different countries, has evidently provided for their mutual intercourse and civilization. By permitting the people of each to employ their capital and labour in those departments in which their geographical situation, the physical capacities of their soil, their national character and habits fit them to excel, foreign commerce has a wonderful effect in multiplying the productions of art and industry. When the freedom of commerce is not restricted, each country necessarily devotes itself to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the good of the whole. By stimulating industry, by rewarding ingenuity, and
by using most efficaciously the particular powers bestowed by nature, commerce distributes labour most effectively and most economically; while, by increasing the general mass of necessary and useful products, it diffuses general opulence, and binds together the universal society of nations by the common and powerful ties of mutual interest and reciprocal obligation. Commerce has enabled each particular state to profit by the inventions and discoveries of every other state. It has given us new tastes and new appetites, and it has also given us the means and the desire of gratifying them. The progress of domestic industry has been accelerated by the competition of foreigners. Commerce has either entirely removed, or greatly weakened, a host of the most unworthy prejudices. It has shown, that nothing can be more illiberal, irrational, and absurd, than that dread of the progress of others in wealth and civilization that was once so prevalent; and it has shown that the true glory and real interest of each particular people will be more certainly advanced by emulating and outstripping each other in the career of science and civilization, than by labouring to attain a barren pre-eminence in the bloody and destructive art of war.
The influence of commerce in giving increased efficacy to labour, and augmenting national wealth, may be easily illustrated. Thus, in the case of the intercourse, or territorial division of labour, carried on between England and Portugal, it is plain that the superiority of the wool of England, our command of coals, of skilful workmen, of improved machinery, and of all the instruments of manufacturing industry, enables us to produce cloth at a much cheaper rate than the Portuguese: But, on the other hand, the soil and climate of Portugal being peculiarly favourable for the cultivation and growth of the grape, she is enabled to produce wine at an infinitely cheaper rate than it can be produced here. And hence it is obvious, that England, by confining herself to the manufacture of cloth, in which she has a natural advantage on her side, and exchanging it with the Portuguese for wine, will obtain a vastly larger supply of that commodity than if she had attempted to cultivate the grape at home: And Portugal, by exchanging her wine for the cloth of England, will, on her part, obtain a much greater quantity of cloth than if she had attempted to counteract the intention of nature, by converting a portion of her capital and industry from the raising of wine, in which she has an advantage, to the manufacture of cloth, in which the advantage is on the side of another.
What we have already stated is sufficient to expose the sophism involved in the reasoning of the French economists, who contended, that as an equivalent must be always given for such commodities as are obtained from foreigners, it is impossible foreign commerce can ever become a means of increasing wealth. How, they asked, can the wealth of a country be increased by giving equal values for equal values? They admitted, that commerce might be the means of making a better distribution of the wealth of the world; but as it did nothing more than exchange one sort of wealth for another, they denied that it could ever make any addition to that
wealth. At first sight, this sophistical and delusive statement appears sufficiently conclusive; but a very few words will be sufficient to demonstrate its fallacy. The advantage of commerce does not consist in its enabling either of the parties who carry it on to obtain commodities of greater value, than those they give in exchange for them. It may have cost as much, or more, to produce the cloth wherewith the English merchant purchases the wine of Portugal, as it did to produce the latter. But then, it must be observed, that in making the exchange, the value of the wine is estimated by what it takes to produce it in Portugal, which has peculiar natural capabilities for that species of industry, and not by what it would take to produce it in England were the trade put an end to; and, in like manner, the value of the cloth is estimated by what it takes to produce it in England, and not by what it would cost to produce it in Portugal. The advantage of the intercourse between the two countries consists in this, that it enables each of them to obtain commodities, for the production of which they have no natural capability, and which it would, therefore, cost a comparatively large sum to produce directly at home at the price which it costs to produce them in the most favourable circumstances, and with the least possible expence. The gain of the one party is not the loss of the other. Both of them are benefited by this intercourse. For both of them are thereby enabled to save labour and expence in the production of commodities; and the wealth of the two countries is not only better distributed, but it is also positively and greatly increased by the territorial division of labour established between them.
To set this important principle in a clearer point of view, let us suppose that in England a given number of men can, in a given time, manufacture 10,000 yards of cloth, and raise 1000 quarters of wheat, and that the same number of men can, in the same time, manufacture in Poland 5000 yards of cloth and raise 2000 quarters of wheat. It is plain, that the establishment of a free intercourse between the two countries would, in these circumstances, enable England, by manufacturing cloth and exporting it to Poland, to obtain twice the quantity of corn in exchange for a given expenditure of capital and labour that she could obtain in return for the same expenditure directly laid out in the cultivation of land at home; and Poland would, on the other hand, be enabled to obtain twice as much cloth in exchange for her corn as she could have done had she attempted directly to manufacture it. How ridiculous then to contend, that commerce is not a means of adding to the efficacy of labour, and, consequently, of increasing wealth! Were the intercourse between England and Portugal and the West Indies put an end to, it would require, at the very least, a hundred, or perhaps a thousand times the expence to produce Port wine, sugar, and coffee, directly in this country, that it does to produce the equivalents sent to Portugal and the West Indies in exchange for them.
"The commerce of one country with another is," to use the words of Mr Mill, "merely an extension of that division of labour by which so many benefits are conferred on the human race. As the same
country is rendered richer by the trade of one province with another; as its labour becomes thus infinitely more divided and more productive than it could otherwise have been; and as the mutual interchange of all those commodities which one province has and another wants, multiplies the accommodations and comforts of the whole, and the country becomes thus in a wonderful degree more opulent and happy; so the same beautiful train of consequences is observable in the world at large, that vast empire of which the different kingdoms may be regarded as the provinces. In this magnificent empire, one province is favourable to the production of one species of produce, and another province to another. By their mutual intercourse, mankind are enabled to distribute their labour as best fits the genius of each particular country and people. The industry of the whole is thus rendered incomparably more productive; and every species of necessary, useful, and agreeable accommodation is obtained in much greater abundance, and with infinitely less expence."—(Commerce Defended, p. 38.)
To enter into a more enlarged discussion of this interesting and important subject, would be inconsistent with the object and limits of this article. In our articles on COLONIES and the CORN TRADE AND LAWS, we have examined the policy of the restrictions on the colonial trade, and on the corn trade; and in the article EXCHANGE, we have pointed out the circumstances which regulate the importation and exportation of the precious metals; and have shown, that, instead of the excess of exports over imports being any criterion of an advantageous commerce, it is just the reverse, and that it is by the excess of the value of the imports over the value of the exports that the direct gains of the merchants, and consequently of the community, are to be estimated. In the fourth book of the Wealth of Nations, Dr Smith has examined and refuted the various arguments in favour of the restrictions imposed on the freedom of commerce, in the most able and masterly manner, and with an amplitude of illustration, which leaves nothing to be desired. A very complete exposure of the sophisms of the French economists, on the subject of commerce, may be found in the ingenious and valuable pamphlets of Mr Mill (Commerce Defended) and Colonel Torrens (Economists Refuted), written in answer to Mr Spence's pamphlet entitled, Britain Independent of Commerce. The chapter on Foreign Trade in Mr Ricardo's great work is equally original and profound, and deserves to be carefully studied by those who wish to make themselves thoroughly acquainted with the theory of commerce.
When the division of labour was first introduced, barter was the only method by which commodities were exchanged. But according as society advanced, as the division of employments was extended, and as exchanges became more numerous, the advantage of using some one commodity as a common medium of exchange—as an equivalent for all other commodities, and as a standard by which to ascertain their relative values, soon became obvious. But this is a subject of which we have elsewhere treated at considerable length; and we beg leave to refer
our readers for a full investigation of the nature and functions of the common medium of exchange to the article MONEY in this Supplement, and the authorities there quoted.
ACCUMULATION AND EMPLOYMENT OF CAPITAL.—Capital may be defined to be "that portion of the produce of labour which is saved from immediate consumption, and employed in maintaining productive industry, or in facilitating production." Its accumulation and employment is indispensably necessary to the successful prosecution of almost every branch of industry. Without that species of capital, which chiefly consists of tools and engines, and which has been denominated fixed, labour could never be rendered considerably productive; and without that species of capital which chiefly consists of the food and clothes required for the consumption of the labourer during the time he is employed in the production of commodities, and which has been denominated circulating, he never could engage in any undertaking which did not yield an almost immediate return. An agricultural labourer, for example, might have an ample supply of carts and ploughs, of oxen and horses, and generally of all the instruments and animals used in his department of industry, but if he were destitute of circulating capital, or of food and clothes, he would not be able to avail himself of their assistance, and instead of tilling the ground, would have to betake himself immediately to some species of appropriative industry: And, on the other hand, supposing the husbandman to be abundantly supplied with provisions, what could he do without the assistance of fixed capital or tools? What could the most skilful agriculturist perform if he were deprived of his spade and his plough? a weaver if he were deprived of his loom? or a house-carpenter if he were deprived of his saw, his hatchet, and his planes? The accumulation and employment of both fixed and circulating capital is indispensably necessary to elevate any nation in the scale of civilization. And it is only by their conjoined and powerful operation that wealth can be largely produced and universally diffused.
The division of labour is a consequence of the previous accumulation of capital. Before labour can be divided, "A stock of goods of different kinds must be stored up somewhere, sufficient to maintain the labourer, and to supply him with the materials and tools for carrying on his work. A weaver, for example, could not apply himself entirely to his peculiar business, unless there was beforehand stored up somewhere, either in his own possession, or in that of some other person, a stock sufficient for his maintenance, and for supplying him with the materials and implements required to carry on his work, till he has not only completed but sold his web. This accumulation must evidently be previous to his applying himself for so long a time to a peculiar business."—(Wealth of Nations, Vol. I. p. 408.)
As the accumulation of stock must have preceded the division of labour, so its subsequent division can only be extended as capital is more and more accumulated. Accumulation and division act and react on each other. The quantity of raw materials which
Employment of Capital. the same number of people can work up increases in a great proportion, as labour comes to be more and more subdivided; and according as the operations of each workman are reduced to a greater degree of identity and simplicity, he has, as we have already explained, a greater chance of discovering machines and processes for facilitating and abridging his labour. The quantity of industry, therefore, not only increases in every country with the increase of the stock or capital which sets it in motion; but, in consequence of this increase, the division of labour becomes extended, new and more powerful implements and machines are invented, and the same quantity of labour is thus made to produce an infinitely greater quantity of commodities.
Besides its effect in enabling labour to be divided, capital contributes to facilitate labour, and produce wealth in the three following ways:
First.—It enables us to execute work that could not be executed, or to produce commodities that could not be produced without it.
Second.—It saves labour in the production of almost every species of commodities.
Third.—It enables us to execute work better, as well as more expeditiously.
With regard to the first of these modes in which we are benefited by the employment of capital, or to the circumstance of its enabling us to produce commodities that could not be produced without it, it is plain that the production of all such commodities as require a considerable period for their completion, could not have been attempted if a stock of circulating capital, or of food and clothes sufficient for the maintenance of the labourer while employed on them, had not been previously provided. But the employment of fixed is frequently as necessary to the production of commodities as the employment of circulating capital. It would be plainly impossible to produce a pair of stockings without the aid of wires; and, although the ground might be cultivated without the aid of the plough, it could not be cultivated without the aid of a spade or a hoe. If we run over the vast catalogue of the various arts practised in a highly polished and civilized country, it will be found that there are very few that can be carried on by the mere employment of the fingers, or tools with which man is furnished by nature. It is almost always necessary to provide ourselves with the results of previous industry, and to strengthen our feeble hands by arming them, if we may so speak, "with the force of all the elements."
2d. It Saves Labour in the Production of Commodities. In the second place, the employment of capital not only enables us to produce many species of commodities that never could have been produced without its co-operation, but it also enables us to save labour in the production of many others, and, by lowering their price, brings them within the reach of a far greater number of consumers. We have been so long accustomed to make use of the productive sources of the most powerful machines, that it requires a considerable effort of abstraction to render ourselves fully aware of the real extent of the advantages we derive from them. But if we compare
the state of the arts practised alike by civilized man and the savage, we cannot fail to be convinced that it is to the use and employment of fixed capital that we owe a very large proportion of our superior comforts and enjoyments. Consider the advantages which man has derived from the employment of the lower animals, which, in an economical point of view, are regarded only as machines! Consider the advantages that have been derived from the formation of roads, bridges, harbours, and canals—the effect they have had in facilitating the conveyance of commodities, and consequently in distributing them most advantageously, and in reducing their price to the consumer! Consider the advantages that have been derived from the construction of ships, and the improvement of navigation! But it is in vain to attempt even to glance at the numberless benefits which the employment of the fixed capital vested in tools and other instruments, has conferred on society, by cheapening and multiplying necessities, conveniences, and luxuries. It is by their means that our fields are cultivated, our houses constructed, our clothes manufactured, our ships built, and the treasures of knowledge and of art transferred from one hemisphere to another! If we consult the history of the human race—if we trace their slow and gradual advancement from barbarism to refinement, we shall be convinced that their progress from their lowest and most abject, to their highest and most polished, state, has been always accompanied, and chiefly promoted, by the accumulation of fresh capital, and the invention and improvement of tools and engines.
The third advantage derived from the employment of capital consists in the circumstance of its enabling us to execute work better, as well as more expeditiously, than it could be done without it. Cotton, for example, might be spun by the hand; but the admirable machinery invented by Hargreaves, Arkwright, and others, has not only enabled us to spin an hundred or a thousand times as great a quantity of yarn as could be spun by means of a common spindle, but it has also improved its quality, and given to it a degree of fineness, and of evenness, or equality, in its parts, which was never previously attained. It would require a painter months, or it might be years, to paint with a brush the cottons, or printed cloths used in the hanging of a single room; and it would be very difficult, if not impossible, for the best artist to give the same perfect identity and sameness to his figures that is given to them by the admirable machinery now in use for that purpose. Not to mention the other and more important advantages of which the invention of moveable types and printing has been productive, it is certain that the beauty of the most perfect manuscript—one on which years of patient and irksome labour have been expended—is unable, in point of delicacy and correctness, to match a well printed work, executed in the hundredth part of the time, and at a hundredth part of the expence required to copy the manuscript. The great foreign demand for English manufactured goods results no less from the superiority of the manufacture, than from their greater
Employment of Capital. cheapness; and for both these advantages we are principally indebted to the excellence of our machinery.
The Power to Employ Labour depends on the Amount of Capital. There are other considerations which equally illustrate the extreme importance of the accumulation and employment of capital. The produce of the labour of a nation cannot be increased otherwise than by an increase in the number of labourers, or by an increase in the productive powers of the existing labourers. But without an increase of capital it is in most cases impossible to employ another workman with advantage. If capital be not augmented, and if the food and clothes destined for the support of the labourers, and the tools and machines with which they are to operate, be all required for the maintenance and efficient employment of the labourers in existence at any given period, there can be no additional demand for them. In such circumstances, the rate of wages cannot rise; and if the number of inhabitants are increased, they must be worse provided for. Neither can the productive powers of the labourer be augmented, without a previous increase of capital. It is only by a better education and training of workmen, by a greater subdivision of their employments, or by an improvement of machinery, that their productive powers can ever be materially increased. But in almost all these cases, an additional capital is required. It is only by means of an additional capital that the workman can be better trained, or that the undertaker of any work can either provide his workmen with better machinery, or make a more proper distribution of employment among them. When the work to be done consists of a number of parts, to keep every man constantly employed in one particular part, requires a much larger stock than where every man is occasionally employed in every different part of the work. "When," says Dr Smith, "we compare the state of a nation at two different periods, and find that the annual produce of its land and labour is greater at the latter than at the former, that its lands are better cultivated, its manufactures more numerous and more flourishing, and its trade more extensive, we may be assured that its capital must have increased during the interval between these two periods, and that more must have been added to it by the good conduct of some, than had been taken from it, either by the private misconduct of others, or by the public extravagance of the government."—(Wealth of Nations, Vol. II. p. 23.) It is, therefore, apparent that no country can ever reach the stationary state, so long as she continues to accumulate additional capital. While she does this, she will always have a constantly increasing demand for labour, and will be constantly augmenting the mass of necessaries, luxuries, and conveniences, and, consequently, also the numbers of her people. But with every diminution of the previous rate at which
capital had been accumulating, the demand for labour will decline. When no additions are made to its stock, no more labour will be, or, indeed, can be employed. And should the national capital be diminished, the condition of the great body of the people would be greatly deteriorated—for the wages of labour would be reduced, and pauperism, with all its attendant train of vice, misery, and crime, would spread its ravages throughout the largest portion of society.
Having thus endeavoured to point out the vast importance of the employment of capital, and the manner in which it co-operates in facilitating production, we shall proceed to explain the circumstances most favourable for its accumulation. Now, as capital is nothing more than the accumulated produce of previous industry, it is evident its increase will be most rapid where industry is most productive, or, in other words, where the profits of stock are highest.* The man who can produce a bushel of wheat in three days has it in his power to accumulate twice as much as the man who, either from a deficiency of skill, or from his being obliged to cultivate a bad soil, is forced to labour six days to produce the same quantity; and the capitalist who can invest stock so as to yield him a profit of ten per cent. has it equally in his power to accumulate twice as fast as the capitalist who can only obtain five per cent. for his capital. Conformably to this statement, it is found that the rate of profit, or, which is the same thing, that the power to accumulate capital, is always greatest in those countries which are most rapidly augmenting their wealth and population. The rate of profit, or the power to employ labour and capital with advantage, is ordinarily twice as great in the United States as in Great Britain or France; and it is to this that the more rapid advancement of the former in wealth and population is entirely to be ascribed. We do not mean to say that high profits are necessarily, and in every instance, accompanied by a great degree of prosperity. Countries with every possible advantage for the profitable employment of industry and of stock, may be subjected to a despotic government, which does not respect the right of property; and the want of adequate security resulting from this circumstance may be of itself sufficient to paralyse all the exertions of those who are otherwise placed in the most favourable situation for the accumulation of capital and of wealth. But we have no hesitation in laying it down as a principle which holds good in every case, and from which there is really no exception, that, if the governments of any two or more countries be equally liberal, and property in each equally well secured, their comparative prosperity will depend on the rate of profit. Wherever profits are high, there is a great demand for labour, and the society rapidly augments both its population and its riches. On the
* To avoid all chance of misconception, it is necessary to observe, that this refers to net profit, or to the sum which remains to the capitalist after all his outgoings are compensated, including therein a sum sufficient to ensure his capital against risk, and to make up for whatever may be peculiarly disagreeable in his business.
other hand, wherever they are low, the demand for labour is proportionably reduced, and the progress of society rendered so much the slower.
But however high the rate of profit, it is evident, that, if men had always lived up to their incomes,—that is, if they had always consumed the whole produce of their industry in the gratification of their immediate wants and desires, there could have been no such thing as capital in the world. High profits are advantageous, because they afford the means of amassing capital; but something more is necessary to induce us to make use of these means, and this is the accumulating principle. The desire implanted in the breast of every individual of rising in the world, and improving his condition, has prompted mankind to save a portion of their income, or of the produce of their industry, from immediate consumption, and to set it apart as a fund, or capital, for the support of additional workmen. It is to this principle, therefore, or rather to its effect, parsimony, that we owe capital; and it is to capital that we owe almost all our comforts and enjoyments. Without its assistance and co-operation, labour could never have been divided; arts could never have made any progress; and mankind must have continued to shelter themselves, as in the earliest ages, in caves and forests, and to clothe themselves with the skins of wild animals. All the accumulated riches of the world—the cities which cover its surface—the ships which traverse its seas—and all the innumerable variety of improvements, owe their origin to this principle,—to the desire to rise in the world, and, consequently, to save and amass.
It has been wisely ordered, that this principle should be as powerful as it is advantageous. "With regard to profusion," says Dr Smith, "the principle which prompts to expence is the desire of present enjoyment; which, though sometimes violent, and very difficult to be restrained, is in general only momentary and occasional. But the principle which prompts to save is the desire of bettering our condition; a desire which, though generally calm and dispassionate, comes with us from the womb, and never leaves us till we go into the grave. In the whole interval which separates these two moments, there is scarce, perhaps, a single instance in which any man is so perfectly and completely satisfied with his situation as to be without any wish of alteration or improvement of any kind. An augmentation of fortune is the means by which the greater part of men propose and wish to better their condition. It is the means the most vulgar and the most obvious; and the most likely way of augmenting their fortune is to save and accumulate some part of what they acquire, either regularly and annually, or upon some extraordinary occasions. Though the principle of expence, therefore, prevails in almost all men upon some occasions, yet in the greater part of men, taking the whole course of their life at an average, the principle of frugality not only predominates, but predominates very greatly." (Wealth of Nations, Vol. II. p. 19.)
It is this principle which carries society forward. The spirit of parsimony, and the efforts which the
frugal and industrious classes make to improve their condition, in most instances balance not only the profusion of individuals, but also the more wasteful profusion and extravagance of governments. The spirit of economy has been happily compared by Smith to the unknown principle of animal life—the vis medicatrix naturæ,—which frequently restores health and vigour to the constitution, in spite both of disease and of the absurd prescriptions of the physician.
We must have a care, however, lest we fall into the error of supposing, as Mr Malthus and many others have done, that public expenditure is a cause of individual accumulation. Its effect is, in every instance, distinctly and completely the reverse. The more government spends, the less remains for individuals to save. Necessity may compel a man to exert himself to pay heavy taxes; but it is choice, and not necessity, which makes him withdraw a portion of the produce of his industry from immediate consumption, and employ it as a stock. This distinction must be kept constantly in view. It cannot be denied that it is necessity that forces farmers and manufacturers to sell a portion of their produce to pay the taxes to which they are subjected; but when these taxes are paid, the government is satisfied, and it is plainly their own free option—their desire to improve their condition, and to rise higher in the world, and not compulsion, that induces them to accumulate another portion of their produce as capital. The capitals of England and of France have not increased, because of the vast expenditure of their governments, but in despite of it. Those who continued to accumulate, notwithstanding the share of their produce taken from them by government was increased, would evidently have had greater means of accumulation, had this share not been increased, or increased in a less proportion. But accumulation, like the other passions, increases as the means of gratifying it increase. In point of fact, the greatest accumulations are invariably made where there is the greatest power to accumulate. There are no internal taxes in America; she is possessed of vast tracts of fertile and uncultivated soil; and industry is, in consequence, extremely productive. And, agreeably to what we have now stated, America doubles her capital and population every five-and-twenty years, and is advancing in the career of wealth and civilization with a rapidity unknown in any other country.
Ambition to rise is the animating principle of society. Instead of remaining satisfied with the condition of their fathers, the great object of mankind in every age has been to rise above it—to elevate themselves in the scale of wealth. To continue stationary, or to retrograde, is not natural to society. Man from youth grows to manhood, then decays and dies; but such is not the destiny of nations. The arts, sciences, and capital of one generation become the patrimony of that which succeeds them; and in their hands are improved and augmented, and rendered more powerful and efficient; so that, if not counteracted by the want of security, or by other adventitious causes, the principle of improvement
Accumulation of Capital. would always operate, and would secure the constant advancement of nations in wealth and population.
It is to this same principle that we owe the discovery and improvement of machinery. Mankind have, in every stage of society, endeavoured to increase their productive powers, and to improve their condition, by availing themselves of the assistance of natural agents, and making them contribute to the performance of tasks which must otherwise have been performed by the hand only. The savage avails himself of the aid of a club and a sling to facilitate the acquisition of game, and abridge his labour; and the same principle which prompted him to resort to and construct these rude instruments, never ceases to operate. It is always producing some new improvement; and in an advanced and refined period, gives us ships for canoes, muskets for slings, steam-engines for clubs, and cotton mills for distaffs. "The hand of man," says Colonel Torrens, "is not armed with any efficient natural instrument, such as the beak of the bird, or the claw of the quadruped, for operating directly upon the materials presented to him; but it is admirably adapted for receiving and applying artificial implements, and for employing the powers of one substance to produce the desired changes in another. Hence almost all the grand results in manufacturing industry are brought about by means of capital. Throughout the world there are no very striking inequalities in the muscular force by which direct labour is performed; and it is mainly owing to the differences in the quantity of capital, and in the skill with which it is applied, that in one country man is found naked and destitute, and that in another all the rude productions of the earth, and all the forces of nature, are made to contribute to his comfort, and to augment his power." —(On the Production of Wealth, p. 89.)
SECT. III.—Different Employments of Capital and Industry—Manufactures and Commerce shown to be equally advantageous as Agriculture—Rate of Profit true test of Individual and Public Advantage.
will be productive of greater public advantage. We believe, however, that we shall be able to show that this opinion rests on no good foundation; and that the average rate of profit is the single and infallible test by which we are always to judge which employment is most and which is least advantageous. Different Employments of Capital and Industry.
A capital may be employed in four different ways, either, first, in the production of the raw produce required for the use and consumption of the society; or, secondly, in manufacturing and preparing that raw produce for immediate use and consumption; or, thirdly, in transporting the raw and manufactured products from one place to another according to the demand; or, fourthly, in dividing particular portions of either into such small parcels as suit the convenience of those who want them. The capitals of all those who undertake the improvement or cultivation of lands, mines, or fisheries, are employed in the first of these ways; the capital of all master manufacturers is employed in the second; that of all wholesale merchants in the third; and that of all retailers in the fourth. It is difficult to conceive that a capital can be employed in any way which may not be classed under some one or other of these heads.
On the importance of the employment of capital in the acquisition of raw produce, and especially in the cultivation of the soil, it is unnecessary to enlarge. It is from the soil, including under that term mines and fisheries, that the matter of all commodities that either minister to our necessities, our comforts, or our enjoyments, must have been originally derived. The industry which appropriates the raw productions of the earth, as they are offered to us by nature, preceded every other. But these spontaneous productions are always extremely limited. And it is by agriculture only, that is, by the united application of immediate labour and of capital, to the cultivation of the ground, that large supplies of those species of raw produce, which form the principal part of the food of man, can be obtained. It is not quite certain that any of the species of grain, as wheat, barley, rye, oats, &c. have ever been discovered growing spontaneously. But, although this must originally have been the case, still the extreme scarcity of such spontaneous productions in every country with which we are acquainted, and the labour which it requires to raise them in considerable quantities, prove beyond all question that it is to agriculture that we are almost exclusively indebted for them. The transition from the pastoral to the agricultural mode of life is decidedly the most important step in the progress of society. Whenever, indeed, we compare the quantity of food, and of other raw products, obtained from a given surface of a well cultivated country, with those obtained from an equal surface of an equally fertile country, occupied by hunters or shepherds, the powers of agricultural industry in increasing useful productions appear so striking and extraordinary, that we cease to feel surprise at the preference which has been so early and generally given to agriculture over manufactures and commerce; and are disposed to subscribe without hesitation to the panegyric of Cicero when he says, "Omnium autem rerum ex quibus aliquid acquiritur, nihil est agricultura melius, nihil uberius, nihil dulcius, nihil homine, nihil libero dignius."
We have, in the previous section, endeavoured to show, that the increase and diminution of capital is the grand point on which national prosperity hinges,—that if you increase capital, you instantly increase the means of supporting and employing additional labour, and that if you diminish capital, you instantly take away a portion of the comforts and enjoyments, and perhaps also of the necessities of the productive classes, and spread poverty and misery throughout the land; and we also endeavoured to show that the increase and diminution of the rate of profit was the great cause of the increase and diminution of capital. If such be the case, it seems impossible to resist coming to the conclusion, that those employments which yield the greatest profit, or in which industry is most productive, are the most advantageous. But Dr Smith, Mr Malthus, and most other political economists, have objected to this standard. They allow that if two capitals yield equal profits, the employments in which they are engaged are equally beneficial to their possessors; but they contend, that, if one of these capitals be employed in agriculture, it
But are there really any just grounds for this pre-
ference? Are not manufactures and commerce equal-
ly advantageous as agriculture? It is plain that with-
out agriculture we could never possess any consider-
able supply of the materials out of which food and
clothes are made; but is it not equally plain, that
without a knowledge of the arts by which they are
converted into food and clothes, the largest supply
of these materials could be of little or no service? The labour of the miller who grinds the corn, and of
the baker who bakes it, is equally necessary to the
production of bread, as the labour of the husband-
man who tills the ground. It is the business of the
agriculturist to raise flax and wool; but if the labour
of the spinner and the weaver had not given them
utility, and fitted them for being made a comfortable
dress, they would have been nearly, if not entirely
worthless. Without the labour of the miner who
digs the mineral from the bowels of the earth, we
could not have obtained the matter out of which many
of our most useful implements and splendid articles
of furniture have been made; but if we compare the
ore when dug from the mine with the finished arti-
cles, we shall certainly be convinced that the labour
of the purifiers and refiners of the ore, and of the arti-
sts who have afterwards converted it to useful pur-
poses, has been quite as advantageous as the indus-
try of the miner.
But not only is it certain that manufacturing in-
dustry, or that species of industry which fits and
adapts the raw produce of nature to our use, is re-
quisite to render its acquisition of any considerable
value; but it is also certain, that without manufac-
turing industry this very raw produce could never
have been obtained in any considerable quantity.
The labour of the mechanic who fabricates the plough
is as efficacious in the producing of corn as the la-
bour of the husbandman who guides it. But the
plough-wright, the mill-wright, the smith, and all
those artisans who prepare tools and machines for
the husbandman, are really manufacturers, and differ
in no respect whatever from those who are employed
to give utility to wool and cotton, except that they
work on harder materials. The fixed capital vested
in tools and machines is the product of the labour
of the tool and engine manufacturer; and without the
aid of this fixed capital, it is impossible that agricul-
tural labour, or that any other sort of labour, could
ever have become considerably productive.
"Distinguer," says the Marquis Garnier, "le tra-
vail des ouvriers de l'agriculture d'avec celui des
autres ouvriers, est une abstraction presque toujours
oïseuse. Toute richesse, dans le sens dans lequel
nous la concevons, est nécessairement le résultat de
ces deux genres de travail, et la consommation ne
peut pas plus se passer de l'un que de l'autre. Sans
leur concours simultanément il ne peut y avoir de chose
consommable, et par conséquent point de richesse.
Comment pourrait-on donc comparer leurs produits
respectifs, puisque, en séparant ces deux espèces de
travail, on ne peut plus concevoir de véritable pro-
duit, de produit consommable et ayant une valeur
réelle? La valeur du blé sur pied résulte de l'indus-
trie du moissonneur qui recueillera, du batteur qui
le séparera de la paille, du meunier et du boulanger
qui le convertiront successivement en farine et en
pain, tout comme elle résulte du travail du laboureur
et du semeur. Sans le travail du tisserand, le lin
n'aurait pas plus le droit d'être compté au nombre
des richesses, que l'ortie ou tout autre végétal inu-
tile. A quoi pourrait-il donc servir de rechercher
lequel de ces deux genres de travail contribue le
plus à l'avancement de la richesse nationale? N'est-
ce pas comme si l'on disputait pour savoir lequel, du
pied droit ou du pied gauche, est plus utile dans
l'action de marcher?"
In fact, there is not at bottom any real distinction
between agricultural and manufacturing industry. It
is, as we have already shown, a vulgar error to sup-
pose that the operations of husbandry add any thing
to the stock of matter already in existence. All that
man can do, and all that he ever does, is merely to
give to matter that particular form or shape which
fits it for his use. But it was contended by M.
Quesnay and the French economists, and their opi-
nions have in this instance been espoused by Dr
Smith, that the labour of the husbandman in adapt-
ing matter to our use is powerfully facilitated by the
aid derived from the vegetative powers of nature,
while the labour of the manufacturer has to perform
every thing itself without any such co-operation.—
"No equal quantity of productive labour, or capital
employed in manufactures," says Dr Smith, "can
ever occasion so great a reproduction as if it were
employed in agriculture. In manufactures nature
does NOTHING, man does ALL; and the reproduction
must always be proportioned 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 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."—(Wealth of Na-
tions, II. p. 53.)
This is perhaps the most objectionable passage in
the Wealth of Nations; and it is really astonishing
how so acute and sagacious a reasoner as Dr Smith
could have maintained a doctrine so manifestly erro-
neous. It is unquestionably true, that nature pow-
erfully assists the labour of man in agriculture. The
husbandman prepares the ground for the seed, and
deposits it there; but it is nature that unfolds the
germ, that feeds and ripens the growing plant, and
brings it to a state of maturity. But does not nature
do as much for us in every other department of in-
dustry? The powers of water and of wind, which
* See page 58 of the Discours Préliminaire to the second edition of the translation of the Wealth of Nations, by the Marquis Garnier. The same passage is in the first edition, published in 1802.
move our machinery, support our ships, and impel them over the deep,—the pressure of the atmosphere, and the elasticity of steam, which enable us to work the most stupendous engines, are they not the spontaneous gifts of nature? In fact, the single and exclusive advantage of machinery consists in its having enabled us to press the powers of nature into our service, and to make them perform the principal part of what would otherwise have been wholly the work of man. In navigation, for example, is it possible to doubt, that the powers of nature—the buoyancy of the water, the impulse of the wind, and the polarity of the magnet, contribute fully as much as the direct labour of the sailor to waft our ships from one hemisphere to another? In bleaching and in fermentation the whole process is carried on by natural agents. And it is to the effects of heat in softening and melting metals, in preparing our food, and in warming our houses, that we owe many of our most powerful and convenient instruments, and that these northern climates have been made to afford a comfortable habitation. So far, indeed, from its being true that nature does much for man in agriculture, and nothing in manufactures, that the fact is nearly the reverse. There are no limits to the bounty of nature in manufactures, but there are limits, and not very remote ones, to her bounty in agriculture. The greatest possible amount of capital might be expended in the construction of steam-engines, or of any other sort of machinery, and after they had been multiplied to infinity, the last would be as powerful and as efficient in saving labour and producing commodities as the first. Such, however, is not the case with the soil. Lands of the first quality are speedily exhausted; and it is impossible to apply capital indefinitely even to the best soils, without obtaining from it a constantly diminishing rate of profit. The rent of the landlord is not, as Dr Smith conceived it to be, the recompense of the work of nature remaining, after all that part of the product is deducted which can be regarded as the recompense of the work of man! But it is, as we shall hereafter show, the excess of produce obtained from the best soils in cultivation, over that which is obtained from the worst—it is a consequence not of the increase, but of the diminution of the productive power of the labour employed in agriculture.
But if the giving utility to matter be, as it really is, the single and exclusive object of every species of productive industry, it is plain that the capital and labour which is employed in carrying commodities from where they are produced to where they are to be consumed; and in dividing them into minute portions, so as to fit the wants of the consumers, is really as productive as either agriculture or manufactures. The labour of the miner gives utility to matter—to coal for example—by bringing it from the bowels of the earth to its surface; but the labour of the merchant, or carrier, who transports this coal from the mine where it has been dug to the city, or place where it is to be burned, gives it a further, and perhaps a more considerable value. We do not owe our fires exclusively to the miner, or exclusively to the coal merchant. They are the result of the conjoint operations of both, and also of the opera-
tions of all those who have furnished them with the tools and implements used in their respective employments.
Not only, however, is it necessary that commodities should be brought from where they are produced to where they are to be consumed, but it is also necessary that they should be divided into such small and convenient portions, that each individual may have it in his power to purchase the precise quantity of them he is desirous of obtaining. "If," says Dr Smith, "there was no such trade as a butcher, every man would be obliged to purchase a whole ox or a whole sheep at a time. This would generally be inconvenient to the rich, and much more so to the poor. If a poor workman was obliged to purchase a month's, or six months' provisions at a time, a great part of the stock which he employs as a capital in the instruments of his trade, or in the furniture of his shop, and which yields him a revenue, he would be forced to place in that part of his stock which is reserved for immediate consumption, and which yields him no revenue. Nothing can be more convenient for such a person than to be able to purchase his subsistence from day to day, or even from hour to hour, as he wants it. He is thereby enabled to employ almost his whole stock as a capital. He is thus enabled to furnish work to a greater value, and the profit which he makes by it in this way much more than compensates the additional price which the labour of the retailer gives to the goods. The prejudices of some political writers against shopkeepers and tradesmen are altogether without foundation. So far is it from being necessary, either to tax them, or to restrict their numbers, that they can never be multiplied so as to hurt the public interests, though they may so as to hurt their own individual interests. The quantity of grocery goods, for example, which can be sold in a particular town, is limited by the demand of that town and its neighbourhood. The capital, therefore, which can be advantageously employed in the grocery trade, cannot exceed the capital required to purchase and retail these goods. If this capital is divided between two different grocers, their competition will obviously tend to make both of them still cheaper than if it were in the hands of one only; and if it were divided among twenty, their competition would be just so much the greater, and the chance of their combining together in order to raise the price just so much the less. Their competition might, perhaps, ruin some of themselves; but to take care of this is the business of the parties concerned, and it may safely be trusted to their discretion. It can never hurt either the consumer or the producer; on the contrary, it must tend to make the retailers both sell cheaper and buy dearer, than if the whole trade was monopolized by one or two persons. Some of them, perhaps, may occasionally decoy a weak customer to buy what he has no occasion for. This evil is, however, of too little importance to deserve the public attention, nor would it necessarily be prevented by restricting their numbers."—(Wealth of Nations, II. p. 48.)
Thus it appears, that all the modes in which capital can be employed in productive industry, or, in
Different Employ-
ments of Ca-
pital and In-
dustry.
other words, that the raising of raw produce, the fashioning of this raw produce after it is raised into useful and agreeable articles, the carrying of the raw and manufactured products from one place to another, and the retailing of them in such portions as may suit the public demand, are equally advantageous: that is, the capital and labour employed in any one of these departments contributes equally with the capital and labour employed in the others, to increase the mass of necessaries, conveniences, and luxuries. Without a previous supply of raw produce, we could have no manufactures; and without manufactures and commercial industry, the greater part of this raw produce would be entirely worthless, and could neither satisfy our wants nor contribute to our comforts. Manufacturers and merchants are to the body politic what the digestive powers are to the human body. We could not exist without food; but the largest supplies of food cannot lengthen our days when the machinery by which nature prepares and adapts this food for our use, and incorporates it with our body, is vitiated and deranged. Nothing, therefore, can be more silly and childish than the estimates that are so frequently put forth of the comparative advantages of agricultural, manufacturing, and commercial industry. They are all intimately and indissolubly connected, and depend upon, and grow out of each other. "Land and trade," to borrow the just and forcible expressions of Sir Josiah Child, "are twins, and have always, and ever will, wax and wane together. It cannot be ill with trade but lands will fall, nor ill with lands but trade will feel it." This reasoning cannot be controverted; and on its authority, we are entitled to condemn every attempt to exalt one species of industry, by giving it factitious advantages at the expence of the rest, as being equally impolitic and pernicious. No preference has ever been given, or can be given, to agriculturists over manufacturers and merchants, or to manufacturers and merchants over agriculturists, without occasioning the most extensively ruinous consequences. Men ought, in every instance, to be allowed to follow their own inclinations in the employment of their stock and industry. Where industry is free, the interests of individuals can never be opposed to the interests of the public. When we succeed best in increasing our own wealth, we must necessarily also succeed best in increasing the wealth of the state of which we are subjects.*
This mutual dependence of the different branches of industry on each other, and the necessity of their co-operation to enable mankind to make any considerable progress in civilization, has been ably illustrated in one of the early numbers of the Edinburgh Review. "It may safely be concluded, that all those occupations which tend to supply the necessary wants, or to multiply the comforts and pleasures of human life, are equally productive, in
the strict sense of the word, and tend to augment the mass of human riches, meaning, by riches, all those things which are necessary, or convenient, or delightful to man. The progress of society has been productive of a complete separation of employments originally united. At first, every man provided, as well as he could, for his necessities as well as his pleasures, and for all his wants, as well as all his enjoyments. By degrees a division of these cares was introduced; the subsistence of the community became the province of one class, its comforts of another, and its gratifications of a third. The different operations subservient to the attainment of each of these objects were then entrusted to different hands; and the universal establishment of barter connected the whole of these divisions and subdivisions together—enabled one man to manufacture for all, without danger of starving by not ploughing or hunting, and another to plough or hunt for all, without the risk of wanting tools or clothes by not manufacturing. It has thus become as impossible to say exactly who feeds, clothes, or entertains the community, as it would be to say which of the many workmen employed in the manufacture of pins is the actual pin-maker, or which of the farm-servants produces the crop. All the branches of useful industry work together to the common end, as all the parts of each branch co-operate to its particular object. If you say that the farmer feeds the community, and produces all the raw materials which the other classes work upon, we answer, that unless those other classes worked up the raw materials, and supplied the farmer's necessities, he would be forced to allot part of his labour to this employment, whilst he forced others to assist in raising raw produce. In such a complicated system, it is clear that all labour has the same effect, and equally increases the whole mass of wealth. Nor can any attempt be more vain than theirs who would define the particular parts of the machine that produce the motion, which is necessarily the result of the whole powers combined, and depends on each particular one of the mutually connected members."—(Vol. IV. p. 362.)
Much has been said respecting the extraordinary Mortality of large manufacturing establishments. The ready communication of contagion where people are crowded together—the want of sufficient ventilation—the confinement of children—and the positive unhealthiness of some particular processes, are circumstances from which most writers have been led to infer that the mortality in manufacturing cities must be unusually great, without giving themselves the trouble to inquire whether the fact really was so. The returns under the population acts have shown the fallacy of these opinions. No one can doubt that Great Britain was infinitely more of a manufacturing country in 1810 and 1820 than in 1780; but, notwithstanding the vast increase during the intermediate period of what we have been in the
* For a particular examination of Dr Smith's opinion with respect to the comparative advantages of different species of commerce, see Mr Ricardo's Principles of Political Economy and Taxation, 1st ed. p. 497, and the Edinburgh Review for July 1819, p. 71.
habit of considering unhealthy employments, the average mortality in England and Wales in 1810 was only one in every 58, and in 1820 only one in every 58 of the existing population, whereas in 1780 it was one in every 40. It may perhaps be said, that this increased healthiness is owing to the improvements in agriculture—to the drainage of bogs and marshes, the inclosure and cultivation of commons and wastes,—and not to the extension of manufactures. But suppose this were admitted, still we should have to inquire what had occasioned these extraordinary improvements in agriculture? And a moment's reflection would be sufficient to convince us that they have principally resulted from the improvement of manufactures—from the increased demand of the manufacturing population for the raw produce of the soil. In point of fact, however, it is certain, that much of the late diminution of mortality is a direct, and not an indirect consequence of the improvement and extension of manufactures. Every one knows of what vast importance it is to the health of the people that they should have the means of providing themselves with comfortable clothes at a cheap rate. And this is one of the many advantages which improvements in manufacturing industry always bring along with them. The reduction in the price of cotton goods only, occasioned by the greater facility with which they are now produced, has enabled the poorest classes of individuals to clothe themselves in a warm, clean, and elegant dress; and has thus been productive of an increase of comfort and enjoyment, of which it is extremely difficult for us, who have so long experienced its beneficial effects, to estimate the extent.
The effect of the extreme subdivision of labour in manufacturing establishments, and the exclusive attention which it requires the workman to bestow on one single operation, has been supposed to exert a most pernicious influence on his mental faculties. The genius of the master is said to be cultivated, but that of the workman to be condemned to perpetual neglect. Most mechanical arts, we are told, succeed best under a total suppression of sentiment and reason. A habit of moving the hand or the foot is said to be independent of either; and the workshop has been compared to an engine, the parts of which are men! (Ferguson on Civil Society, p. 303.) Dr Smith, who has given so admirable an exposition of the benefits which society has derived from the division of labour, has notwithstanding concurred with the popular prejudices on this subject; and has gone so far as to affirm that constant application to one particular occupation in a large manufactory, "necessarily renders the workman as stupid and ignorant as it is possible to make a human being." Nothing can be more marvellously incorrect than these representations. Instead of its being true that the workmen employed in manufacturing establishments are less intelligent and acute than those employed in agriculture, the fact is distinctly and completely the reverse. The weavers, and other mechanics of Glasgow, Manchester, and Birmingham, possess infinitely more general and extended information than is possessed by the agricultural labourers of any county in the empire. And this is really what a more unprejudiced inquiry into the subject would have led
us to anticipate. The variety of the occupations in which the husbandman is made successively to engage, their constant liability to be affected by so variable a power as the weather, and the perpetual change in the appearance of the objects which daily meet his eyes, and with which he is conversant, occupy his attention, and render him a stranger to that ennui and desire for extrinsic and adventitious excitement which must ever be felt by those who are constantly engaged in burnishing the point of a pin, and in performing the same endless routine of precisely similar operations. This want of excitement cannot, however, be so cheaply or effectually gratified in any other way as it may be by cultivating—that is, by stimulating the mental powers. The generality of workmen have no time for dissipation; and if they had, the wages of labour in all old settled and densely peopled countries are too low, and the propensity to save and accumulate too powerful, to permit any very large proportion of them seeking to divert themselves by indulging in riot and excess. They are thus driven to seek for recreation in mental excitement; and the circumstances in which they are placed afford them every possible facility for amusing and diverting themselves in this manner. By working together, they have constant opportunities of entering into conversation; and a small individual contribution enables them to obtain a large supply of newspapers and of the cheaper class of periodical publications. But whatever difference of opinion may exist respecting the cause, there can be no doubt of the fact, that the intelligence of the workmen employed in manufactures has increased according as their numbers have increased, and as their employments have been more and more subdivided. We do not believe that they ever were less intelligent than the agriculturists; but, whatever may have been the case formerly, no one will now venture to affirm that they are inferior to them in intellectual acquirements, or that they are mere machines without sentiment or reason. Even Mr Malthus, whose leanings are all on the side of agriculture, has justly and eloquently observed, that "Most of the effects of manufactures and commerce on the general state of society are in the highest degree beneficial. They infuse fresh life and activity into all classes of the state, afford opportunity for the inferior orders to rise by personal merit and exertion, and stimulate the higher orders to depend for distinction upon other grounds than mere rank and riches. They excite invention; encourage science and the useful arts; spread intelligence and spirit; inspire a taste for conveniences and comforts among the labouring classes; and, above all, give a new and happier structure to society, by increasing the proportion of the middle classes—that body on which the liberty, public spirit, and good government of every country must mainly depend." (Observations on the Effects of the Corn Laws, p. 29.)
Thus, then, we arrive, by a different route, at the same result we have already endeavoured to establish. The inextinguishable passion for gain—the auri sacra fames—will always induce capitalists to employ their stocks in those branches of industry which yield, all things considered, the highest rate of profit. And it is clear to
demonstration, that those employments which yield the highest profits are always those in which it is most for the public interest that capital should be invested. The profits of a particular branch of industry are rarely raised except by an increased demand for its produce. Should the demand for cottons increase, there would be an increased competition for them; and as their price would, in consequence, be augmented, the manufacturers would obtain comparatively high profits. But the rate of profit in different employments has a natural tendency to equality; and it can never, when monopolies do not interpose, continue either permanently higher or lower in one than in the rest. As soon, therefore, as the rise in the price of cottons had taken place, additional capital would begin to be employed in their production. The manufacturers engaged in the cotton trade would endeavour to borrow additional capital, and the capitalists who were engaged in less lucrative employments would gradually contract their businesses, and transfer a portion of their stock to where it would yield them a larger return. The equilibrium of profit would thus be again restored. For the additional capital employed in the production of cottons, by proportioning their supply to the increased demand, would infallibly reduce their price to its proper level. Such is the mode in which the interests of individuals are, in every case, rendered subservient to those of the public. High profits attract capital; but high profits in particular businesses are the effect of high prices; and these are always reduced, and the commodities brought within the command of a greater number of purchasers, as soon as additional capital has been employed in their production. It is clear, therefore, that that employment of capital is the best which yields the greatest profit; and hence, if two capitals yield equal profits, it is a plain proof that the departments of industry in which they are respectively invested, however much they may differ in many respects, are equally beneficial to the country. Nothing can be more nugatory than to apprehend that the utmost freedom of industry can ever be the means of attracting capital to a comparatively disadvantageous employment. If capital flows to manufactures or commerce rather than to agriculture, it can only be because it has been found to yield larger profits to the individual, and consequently to the state.
PART III.—DISTRIBUTION OF WEALTH.
Having thus endeavoured to trace the various methods by which that labour which is the only source of wealth may be rendered most productive, and to exhibit the mutual relation and dependence of the different kinds of industry, we now proceed to the second division of our subject, or to an investigation of the laws regulating the proportions in which the various products of art and industry are distributed among the various classes of the people.
SECT. I.—Primary Division of the Produce of Industry—Value of Commodities measured in the Earliest Stages of Society by the Quantities of Labour expended on their Production.
It is self-evident that only three classes—the la-
bourers, the possessors of capital, and the proprietors of land, are ever directly concerned in the production of commodities. It is to them, therefore, that all that is derived from the surface of the earth, or from its bowels, by the united application of immediate labour and of capital, or accumulated labour, must primarily belong. The other classes of society have no revenue except what they derive either voluntarily, or by compulsion, from these three classes.
But although there is no state of society in which any other class besides those of labourers, landlords, and capitalists, participates directly in the produce of industry, there are states of society in which that produce belongs exclusively to one only of these classes; and others in which it belongs to two of them, to the exclusion of the third. The reason is, that, in the earliest stages of society, there is little or no capital accumulated, and the distinction between labourers and capitalists is, in consequence, unknown; and that in all newly settled and unappropriated countries, abundance of fertile land may be obtained without paying any rent.
In that remote period preceding the establishment of a right of property in land, and the accumulation of capital or stock—when men roamed, without any settled habitations, over the surface of the earth, and existed by means of that labour only that was required to appropriate the spontaneous productions of the soil, the whole produce of labour would belong to the labourer, and the quantity of labour that had been expended in the procuring of different articles, would plainly form the only standard by which their relative worth, or exchangeable value, could be estimated. "If among a nation of hunters," says Dr Smith, "it usually costs twice the labour to kill a beaver that it does to kill a deer, one beaver would 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.
"If the one species of labour should be more severe than the other, some allowance will naturally be made for this superior hardship; and the produce of one hour's labour in the one way, frequently exchanges for that of two hours' labour in the other.
"Or if the one species of labour requires an uncommon degree of dexterity and ingenuity, the esteem which men have for such talents will naturally give a value to their produce, superior to what would be due to the time employed about it. Such talents can seldom be acquired but in consequence of long application, and the superior value of their produce may frequently be no more than a reasonable compensation for the time and labour which must be spent in acquiring them. In the advanced state of society, allowances of this kind, for superior hardship and superior skill, are commonly made in the wages of labour; and something of the same kind must probably have taken place in the earliest and rudest period.
"In this state of things, the whole produce of labour belongs to the labourer; and the quantity of labour commonly employed in acquiring or producing any commodity, is the only circumstance which
can regulate the quantity of labour (of other commodities) which it commonly ought to purchase, command, or exchange for."—(Wealth of Nations, I. p. 70.)
Thus far there is no room for doubt or difference of opinion. When there is no class but labourers, all the produce of labour must obviously belong to them; and the quantity of labour required to produce commodities must form the only standard by which their exchangeable worth or value can be estimated. It is at this point, therefore, that we are to begin the investigation of the laws regulating the division of the produce of industry among the three great classes of labourers, capitalists, and landlords; and we shall do this by endeavouring, in the first place, to acquire a knowledge of the laws which regulate the exchangeable value of commodities in an advanced period of society, when circulating and fixed capital are employed in their production, and when land is appropriated, and rent paid. A previous acquaintance with the circumstances which determine the value of commodities, will be found to be indispensable to enable us to ascertain the principles which regulate their distribution.
SECT. II.—Preliminary Considerations—Equality of Wages and Profits—Inquiry into the Effect of Variations of Demand and Supply on Price—Cost of Production shown to be its regulating Principle.
If the popular opinions on this subject were well founded, the inquiry on which we are now about to enter might be disposed of in a very few words. The exchangeable value of commodities, when compared with each other, and their value or price when compared with money, is held almost universally to depend on their relative abundance or scarcity in the market, compared with the demand. We believe, however, that we shall be able to show, that this opinion rests on no good foundation, and that it is the cost of production which is the sole regulating principle of price. But, before proceeding further, it is necessary, in order to facilitate our investigations in this and the following sections, to premise, that wherever industry is free, the rate of wages earned by the labourers engaged in any particular department of industry, and the rate of profit derived from the capital vested in it, cannot, for any considerable period, either fall below, or rise above, the rate of wages and profits accruing to the labourers and capitalists engaged in other departments.
With regard to the first of these positions, or to the equality of the wages earned by the labourers engaged in different employments, it is not meant to infer that all labourers receive precisely the same sum of money, or the same proportional share of the produce of their labour. Such an opinion would be equally at variance with the fact, and with the principle it is our object to elucidate. Wages are a compensation given to the labourer in return for the exertion of his physical powers, or of his skill, or ingenuity. They must, therefore, vary according to the greater intensity of the labour to be performed, and to the degree of skill and ingenuity required. Wages would not be equal if a jeweller or engraver, for example, received no higher
rate than a common farm servant, or a scavenger. A long course of training is required to instruct a man in the business of jewelling and engraving; and if this were not compensated, by a higher rate of wages, it is evident no one would choose to learn so difficult an art; but would addict himself in preference to such employments as hardly require any training. The cost of producing artificers, or labourers, regulates the wages they obtain, precisely in the same way that the cost of producing commodities regulates their value. A man who practises a difficult or nice business, loses all the time that is spent in his apprenticeship, and generally also the clothes and provisions consumed by him during the same period. This person ought, therefore, to obtain not only the same rate of wages as husbandry labourers, and those who do not require to serve an apprenticeship, but he ought also to obtain an additional rate proportioned to the extra time and expence spent in learning his business. If he does not obtain this additional rate, it is plain he would not be so well paid as the husbandry labourers; and if he obtained more than what was a fair and reasonable compensation for the greater expence to which he had been put, there would be an immediate influx of labourers into that particular business, and competition would not fail to reduce wages to their proper level.
Besides this prominent cause of apparent inequality, wages vary in amount proportionably to the ease and hardship, the agreeableness and disagreeableness, the constancy and inconstancy of employment. In the greater part of manufactures, a journeyman may, except in periods of general revulsion, generally be able to obtain constant employment. But there are several businesses, such, for example, as those of masons and bricklayers, that can neither be carried on in hard frost nor foul weather. Their earnings must therefore be able not only to maintain them while they are employed, but also while they are idle, and to make them some compensation for those anxious and desponding moments which the thought of so precarious a situation must sometimes occasion. Hence, says Dr Smith, "where the daily earnings of the greater number of manufacturers are nearly upon a level with the daily earnings of the superior class of farm servants, the wages of masons and bricklayers are generally from fifty to one hundred per cent. higher. Where common labourers earn four or five shillings a week, masons and bricklayers frequently earn seven and eight; and where the former earn nine or ten, the latter commonly earn fifteen and eighteen."—(Wealth of Nations, I. p. 157.)
But these variations, instead of being inconsistent with the principle we have been endeavouring to establish, plainly result from it. The wages earned by different classes of workmen are equal, not when each earns the same number of shillings or of pence, in a given space of time—but when each is paid in proportion to the severity of the labour he has to perform, to the degree of previous education and of skill that it requires, and to the other causes of variation. So long, indeed, as the principle of competition is allowed to operate without restraint, or so long as each individual is allowed to employ himself as he pleases, we may be assured that the higgling
Equality of Wages and Profits. of the market will always adjust the rate of wages in different employments on the principle we have now mentioned, and that it will be very nearly equal. If the rate of wages in one department were depressed below the common level, labourers would leave it to go to others; and if it were to rise above this common level, then, it is plain, labourers would be attracted from those departments where wages were lower, until the increased supply had sunk them to their just level. A period of greater or less duration, according to the circumstances of the country at the time, is always required to bring about this equalization. But all theoretical inquiries, and such as have the establishment of principles for their object, either are, or ought to be, founded on periods of average duration; and whenever such is the case, we may always, without occasioning the slightest error, assume, that the wages earned in different employments are, all things considered, precisely equal.
Equality of the Profits of the Capital employed in different businesses. In like manner, the profit accruing to the capitalists engaged in different businesses must always vary proportionably to the greater or less risk, and other circumstances specially affecting the capital they employ in them. It is obvious, indeed, that profits have not attained their level until they have been adjusted so as to balance these different advantages and disadvantages. None would engage in unusually hazardous undertakings, if the capital employed in them only yielded the same profit that might have been obtained by employing it in more secure businesses. No one would choose voluntarily to place his fortune in a situation of comparative danger. Wherever there is extraordinary risk, that risk must be compensated. And hence, the well known distinction between gross and net profit. Gross profit always varies according to the risk, the respectability, and the agreeableness of different employments, while net profit is the same, or very nearly the same, at any particular period, in them all. A gunpowder manufacturer, for example, must obtain as much profit, over and above the profit obtained from the capital engaged in the securest businesses, as will suffice to guarantee or insure his capital, from the extraordinary risk to which it is exposed, in a business of such extreme hazard. If the gunpowder manufacturer were to obtain more than this rate, additional capital would be attracted to his business, and if he were to obtain less, he would withdraw capital from it. The great and constantly acting principle of competition, or, which is just the same thing, the self-interest of every individual will never permit the wages or the profits obtained by any particular set of workmen or capitalists, taking all things into account, to continue either long below or long above the common and average rate of wages and profits obtained by those who are employed, or who have capital invested in other businesses. It is by this common standard that the wages and profits of particular businesses are always regulated; they can never diverge considerably from it; they have a constant tendency to equalization; and may, in all theoretical inquiries, be supposed, without occasioning any error of consequence, exactly to coincide.
The principle of the equality, or rather of the constant tendency to equality, of the wages earned by
the labourers, and of the profits derived from the capital, employed, at the same time, in all the various branches of industry, was pointed out by Mr Harris, and also by Mr Cantillon, in his work entitled, The Analysis of Trade, &c. published in 1759; but it was first fully demonstrated in the eighth, ninth, and tenth chapters of the first book of the Wealth of Nations. The establishment of this principle was one of the greatest services rendered by Dr Smith to the science of Political Economy. Nothing can be clearer, more convincing and satisfactory, than his reasoning on this subject. The equality of wages and of profits has, ever since the publication of his work, been always assumed as admitted and incontestable.
The principle of the equality of wages and profits once established, it is easy to show that variations in the demand and supply of commodities can exert no lasting influence on price. It is the cost of production—denominated by Smith and the Marquis Garnier necessary, or natural price—which is the permanent and ultimate regulator of the exchangeable value or price of every commodity which is not subjected to a monopoly, and which may be indefinitely increased in quantity by the application of fresh capital and labour to its production. That the market price of such commodities and the cost of production do not always coincide is certain; but they cannot, for any considerable period, be far separated, and have a constant tendency to equality. It is plain that no man will continue to produce commodities if they sell for less than the cost of their production—that is, for less than will indemnify him for his expences, and yield him the common and average rate of profit on his capital. This is a limit below which it is obviously impossible prices can be permanently reduced; and it is equally obvious, that if they were, for any considerable period, to rise above it, additional capital would be attracted to the advantageous business, and the competition of the producers would lower prices.
A demand, to be effectual, must be such as will cover the expence of production. If it is not sufficient to do this, it can never be a means of causing commodities to be produced and brought to market. A real demander must have the power, as well as the will, to purchase. A person with 20s. in his pocket may be as anxious,—nay, he may be ten times more anxious, to become the purchaser of a coach than of a hat; why then does he not obtain the one as readily in exchange for his 20s. as the other? The reason is obvious—20s. will pay the expence of producing the one, and it will not pay the expence of producing the other. But if such an improvement were to take place in the art of coachmaking, as would enable any one to produce a coach as cheaply as a hat, then 20s. would buy a coach as easily as it can now buy a hat. The demand for any particular commodity may become ten or ten thousand times more extensive, or it may decline in the same proportion; but if the cost of its production continues the same, no permanent variation will be occasioned in its price. Suppose, for example, that the demand for hats is suddenly doubled, that circumstance would undoubtedly occasion a rise of price, and the hatters would, in consequence, make large profits; but this rise
could only be of very limited duration; for the large profits would immediately attract additional capital to the hat manufacture; an increased supply of hats would be brought to market, and if no variation took place in the cost of production, their price would infallibly sink to its former level. Suppose, on the other hand, that the demand for hats is increased a thousand fold, and the cost of producing them diminished in the same proportion, we should, notwithstanding the increased demand, be able, in a very short time, to buy a hat for the thousandth part of what it now costs. Again, suppose the demand for hats to decline, and the cost of producing them to increase, the price would, notwithstanding the diminished demand, gradually rise, till it had reached the point at which it would yield the hat the common and average rate of profit on the capital employed in their business. It is admitted that variations in the demand and supply occasion temporary variations of price. But it is essential to remark, that these variations are only temporary. It is the cost of production that is the grand regulator of price—the centre of all those transitory and evanescent oscillations on the one side and the other; and wherever industry is free, the competition of the producers will always elevate or sink prices to this level.
In certain branches of industry, such, for example, as agriculture, which are liable to be seriously affected by the variations of the seasons, and from which capital cannot be easily withdrawn, there is a somewhat longer interval than in others, before the market price of produce and the cost of producing it can be equalized. But that such an equalization will be brought about in the end is absolutely certain. No farmer, and no producer whatever, will continue to bring corn or other products to market, if they do not sell for such a price as will pay the expence of their production, including therein the common and average rate of profit on the capital employed by them.* An excess of supply has now (January 1823) depressed the prices of corn and other farm produce below this level; and the occupiers of poor land are, in consequence, involved in the greatest difficulties; but most assuredly this glut will not continue. A part of the cultivators of poor soils will be driven from their employment. A smaller supply will be brought to market; and prices will be adjusted so as to yield the customary rate of profit, and no more, to the agriculturists who continue the cultivation of the poorest soils.—The self-interest of the cultivators will not permit prices to be permanently depressed below this level; and the self-interest of the public will not permit them to be permanently raised above it; for, if they were raised above it, then the cultivators would gain more than the common and average rate of profit, and capital would, of course, be immediately attracted to agriculture, and would conti-
nue flowing in that direction, until the natural Cost of Pro-
and indestructible equilibrium of profit had been
restored—that is, as we shall afterwards show, un-
til the price of agricultural produce had fallen to
such a sum as would just yield the average rate
of profit to the cultivators of the worst soils, or
the improvers of the best. This is the point at
which average prices must continue stationary, or
about which market prices must oscillate, until the
cost of production be increased or diminished. If
any great discovery were made in agriculture—such
a discovery, for instance, as would reduce the cost
of cultivation a half, the price of agricultural pro-
duce would fall in the same proportion, and would
continue to sell at that reduced rate until the in-
crease of population forced recourse to soils of a
decreasing degree of fertility. Whenever this took
place, prices would again rise. Why is the price of
corn almost invariably higher in this country than in
France? Is it because we have a greater demand
for it, or because of the greater cost of production
in this country?
A pound weight of gold is at present worth about
fifteen pounds of silver. It cannot, however, be
said that this is a consequence of the demand for
gold being greater than the demand for silver, for
the reverse is the fact. Neither can it be said to be
a consequence of an absolute scarcity of gold; for,
those who choose to pay a sufficient price for it may
obtain it in any quantity they please. The cause of
this difference in the price of the two metals consists
entirely in the circumstance of its costing about fifteen
times as much to produce a pound of gold as to pro-
duce a pound of silver. That this is really the case, is
plain from the admitted fact that the producers of
gold do not gain any greater profit than the pro-
ducers of silver, iron, lead, or any other metal. They
have no monopoly of the business. Every indivi-
dual who pleases may send capital to Brazil, and
become a producer of gold; and wherever this is the
case, the principle of competition will always force
the product to be sold at such a price as will just
pay the expences of its production and no more. Were a gold mine discovered of equal productive-
ness with the silver mines, the production of gold
would immediately become the most advantageous of
all businesses; an immense supply of that metal
would, in consequence, be thrown on the market,
and its price would, in a very short period, be re-
duced to the same level as silver.
As a further illustration of this principle take the
case of cottons. No one can deny that the demand
for them has been prodigiously augmented within
the last fifty or sixty years; and yet their price, in-
stead of increasing, as it ought to have done, had the
popular theory of demand and supply been well-
founded, has been constantly and rapidly diminish-
ing. If it is said that this is a consequence of the
* Some of the advocates of the agricultural interest have represented this as one of the "dangerous dogmas" of the Scotch Economists! But it can boast of a much more remote origin:—"Nemo enim sanus," says Varro, "debet velle impensam ac sumptum facere in culturam, si videt non posse refici." (De Re Rustica, Lib. I. § 2.)
Cost of Production the regulating Principle of Price.
supply of cottons having augmented in a still greater ratio than the demand, we answer that this is not enough to explain the fall of price. The supply would not and could not possibly have been brought to market, had not the constant diminution of prices, which has been going on since the invention of spinning-jennies in 1767, been balanced by an equal diminution of the cost of production. It is to this principle—to the vastly increased facility of production, occasioned by the stupendous inventions and discoveries of Hargreaves, Watt, Arkwright, Crompton, and others, that the lower price and increased demand for cottons is exclusively owing. The increased facility of production has brought them within the reach of all classes of the people; and enabled the poorest individuals in the kingdom to clothe themselves in a dress which, at the accession of George III. was fully as expensive as silk.
Competition of the Producers in a Civilized Society will always sink Prices to the Cost of Production.
If you bring a set of men together from various countries who are ignorant of each other's wants, and of the labour and expence necessary to produce the commodities which each possesses, the commodities will be bought and sold according to the relative wants and fancies of the parties. In such circumstances, a pound of gold might be given for a pound of iron, and a gallon of wine for a gallon of small beer. As soon, however, as a commercial intercourse has been established, and as the wants of society and the powers of production come to be well and generally known, an end is put to this method of bartering. Thousands of sellers then enter the market. But when such is the case, it is no longer possible to sell a pound of gold for a pound of iron; and why? because the producers of iron will undersell each other until they have, by their competition, reduced its price to such a sum as will just suffice to pay the expence of its production. This is in every civilized society the pivot on which exchangeable value always turns. A civilized man might be able to obtain commodities from a savage, in exchange for toys or trinkets, which it cost infinitely less to produce; but if he tries to obtain the same advantage over his own countrymen, a very short experience will be enough to satisfy him that they are quite as clear-sighted and attentive to their own interests as he is.
Thus, then, it appears, that no variation of demand, if it be unaccompanied by a variation in the cost of production, can have any lasting influence on price. If the cost of production be diminished, price will be equally diminished, though the demand should be increased to any conceivable extent. If the cost of production be increased, price will be equally increased, though the demand should sink to the lowest possible limit.
Influence of Monopolies.
It must always be remembered, that this reasoning only applies to the case of those commodities on which competition is allowed to operate without restraint, and whose quantity can be indefinitely increased by the application of fresh capital and industry to their production. When a particular individual, or class of individuals, obtain the exclusive privilege of manufacturing certain species of goods, the operation of the principle of competition is suspended with respect to them, and their price must,
Cost of Production the regulating Principle of Price.
therefore, entirely depend on the proportion in which they are brought to market compared with the demand. If monopolists supplied the market liberally, or kept it always as fully stocked with commodities as it would have been had there been no monopoly, the commodities produced by them would sell at their natural price, and the monopoly would have no further disadvantage than the exclusion of the public from an employment which every one ought to have the right of carrying on. In point of fact, however, the market is never fully supplied with commodities produced under a monopoly. Every class of producers naturally endeavour to obtain the highest possible price for their commodities; and if they are protected by means of a monopoly, against the risk of being undersold by others, they will either keep the market understocked, or supply it with inferior articles, or both. In such circumstances, the price of the commodity, if it cannot be easily smuggled from abroad, or clandestinely produced at home, will be elevated to the highest point to which the competition of the buyers can raise it, and may, in consequence, be sold for five, ten, or twenty times the sum for which it would be offered were competition permitted to operate in its production. The will and power of the purchasers to offer a high price forms the only limit to the rapacity of monopolists.
Besides the commodities produced under an artificial monopoly, there is another class whose quantity cannot be increased by the operation of human industry, and whose price is not, therefore, dependent on the cost of their production. Ancient statues, vases, and gems, the pictures of the great masters, some species of wines which can be produced in limited quantities only from soils of a particular quality and exposure, and a few other commodities, come under this description. As their supply cannot be increased, their price must vary inversely as the demand, and is totally unaffected by any other circumstance.
Average Price always coincident with Cost of Production.
But with these exceptions, which, when compared to the great mass of commodities, are extremely few and unimportant, wherever industry is unrestricted and competition allowed to operate, the average price of the various products of art and industry, always coincides with the cost of their production. When a fall takes place in the market price of any commodity, we cannot say whether that fall is really advantageous, or whether a part of the wealth of the producers be not gratuitously transferred to the consumers, until we learn whether the cost of production has been equally diminished. If this is the case, the fall of price will not have been disadvantageous to the producers, and will be permanent; but if this has not been the case—if the cost of production continues the same, the fall must have been injurious to the producers, and prices will, in consequence, speedily attain their former level. It is the same with a rise of prices. No rise can be permanent except where the cost of production has been proportionably increased. If that cost has remained stationary, or has not increased in a corresponding ratio, prices will decline as soon as the ephemeral causes of enhancement have disappeared.
The extreme importance of having correct opi-
x k
Cost of Production respecting the regulating principle of price, and the discordant and erroneous opinions that are still so exceedingly prevalent with regard to it, will, we hope, be deemed a sufficient apology for the length of the previous remarks, and for the insertion of the following paragraph from the Histoire de la Monnaie of the Marquis Garnier, in which the doctrine we have been endeavouring to establish is enforced with equal ability and eloquence:
“Mais les producteurs tendent continuellement à régler la quantité des productions sur la somme des demandes; ils ne resteront pas au-dessous de ce point, sans être tentés d'accroître la masse de leurs produits; et ils ne peuvent le dépasser sans s'exposer à perdre. Ces deux quantités, celle des produits et celle des demandes, s'efforcent donc à se mettre en équilibre l'une avec l'autre. Il existe donc un point de repos vers lequel elles gravitent chacune de son côté; un point qui est leur niveau, et c'est ce point qui constitue le prix naturel de la chose vénale. Quelle est la limite au-delà de laquelle le producteur ne peut porter la quantité de ses produits? C'est le prix naturel; car, s'il ne peut obtenir ce prix pour tout son produit, il sera en perte. Quelle est la borne des demandes du consommateur? C'est le prix naturel; car il ne veut pas donner plus que l'équivalent de ce qu'il reçoit. Si, par une découverte, ou par un perfectionnement de l'industrie, le producteur est mis à même d'établir l'article sur lequel il s'exerce à moins de temps et de dépense, alors le prix naturel baissera, mais aussi la somme des demandes accroîtra dans une proportion pareille, parce que plus de consommateurs seront en état de payer ce prix naturel, moins élevé que l'ancien. Le prix naturel sera toujours, pour chaque chose vénale, la limite commune au-delà de laquelle la somme des demandes de cette chose et la quantité de sa production ne devront plus faire de progrès. Quand le prix courant est le prix naturel, le producteur et le consommateur se donnent réciproquement l'équivalent de ce qu'ils reçoivent. Quand le prix courant s'écarte du prix naturel, ou c'est la consommation qui souffre au profit de la production, ou c'est la production qui souffre au profit de la consommation. Cet état de souffrance ne peut durer, et de-là procèdent les variations du prix courant. Ces variations, que Smith a expliquées et analysées avec une si parfaite lucidité, ne sont autre chose que les efforts pour revenir au prix naturel. Tenter d'expliquer ces variations, sans reconnaître l'existence d'un prix naturel, ce serait vouloir expliquer les oscillations du pendule sans convenir de sa tendance vers un centre de gravitation; ce serait supposer un effort sans but et sans mobile; ce serait admettre le mouvement et nier le repos; enfin, en voyant les phénomènes du cours des fluides et de l'équilibre des solides, ce serait contester les lois du niveau et de la pesanteur. Si les choses vénales n'ont point de prix naturel, alors les mouvemens de la circulation seront dirigés par une force aveugle et inconnue; les prix
moyens ne seront plus que le résultat de chances Nature and Causes of Rent. purement fortuites; il n'y aura plus d'équivalent réel; les valeurs n'auront plus de mesure naturelle; l'économie politique ne pourra plus aspirer à être au rang des sciences, puisqu'elle manquera du caractère essentiel qui les constitue telles, et que les faits dont elle traite ne seront plus fondés sur les lois immuables de la nature.”—(Tome I. Introduction, p. 62.)
Having thus shown that it is the cost of production which is the sole regulating principle of price, we shall now proceed to investigate the elements which enter into and constitute the cost of producing commodities in an advanced state of society, when a rent is paid for land, and circulating and fixed capital employed to facilitate the labour of the workman. This is, of all others, the most important, as it is the most radical inquiry in the science of the distribution of wealth; and it is indeed impossible, without possessing accurate notions on this subject, to advance a single step without falling into errors. We shall begin by endeavouring to ascertain whether rent enters into the cost of production, or not.
SECT. III.—Nature, Origin, and Progress of Rent—Not a Cause but a Consequence of the High Value of Raw Produce—Does not enter into Price—Distinction between Agriculture and Manufactures.
Dr Smith was of opinion, that, after land had become property, and rent began to be paid, such rent made an equivalent addition to the exchangeable value of the produce of the soil. (Wealth of Nations, I. p. 75.) This opinion was first called in question in two pamphlets of extraordinary merit, published nearly at the same time, by Mr Malthus,* and a Fellow of University College, Oxford.† These writers endeavoured to show that rent was not, as had been generally supposed, a consequence of land being appropriated and of limited extent, but of the superior productiveness of one species of land over another; and that the annihilation of rents would not, provided the same extent of land was cultivated, enable its produce to be sold at a lower price. Mr Ricardo has illustrated and enforced this doctrine with his usual ability—has stripped it of the errors by which it had been encumbered, and has shown its vast importance to a right understanding of the laws which regulate the rise and fall of profits. But the subject is still far from being exhausted; and we hope to be able to treat it in a somewhat different manner from what it has been treated by either of these gentlemen, and to obviate some rather specious objections which have not come under their notice.
Rent is properly “that portion of the produce of the earth which is paid by the farmer to the landlord for the use of the natural and inherent powers of the soil.” If buildings have been erected on a farm, or if it has been inclosed, drained, or in any way improved, by an expenditure of capital and labour, the sum which a farmer will pay to the land-
* An Inquiry into the Nature and Progress of Rent, by the Rev. T. R. Malthus, 1815.
† An Essay on the Application of Capital to Land, by a Fellow of University College, Oxford, 1815.
Nature and Causes of Rent. lord for its use will be composed, not only of what is properly rent, but also of a remuneration for the use of the capital which has been laid out in its improvement. In common language, these two sums are always confounded together, under the name of rent; but in an inquiry of this nature, it is necessary to consider them as perfectly distinct. The laws by which rent and profits are regulated being totally different, those which govern the one cannot be ascertained if it be not considered separately from the other.
No Rent paid on the first settling of any Country. On the first settling of any country abounding in large tracts of unappropriated land, no rent is ever paid; and for this plain and obvious reason, that no person will pay a rent for what may be procured in unlimited quantities for nothing. Thus in New Holland, where there is an ample supply of fertile and unappropriated land, it is certain, that, until the best lands are all cultivated, no such thing as rent will ever be heard of. Suppose, however, that tillage has been carried to this point, and that the increasing demand can, in the actual state of the science of agriculture, be no longer supplied by the best lands, it is plain that either the increase of population must cease, or the inhabitants must consent to pay such an additional price for raw produce as will enable the second quality of land to be cultivated.
Origin of Rent. No advance short of this will procure them another bushel of corn; and competition will not, as we shall immediately show, allow them to pay more for it. They have, therefore, but one alternative. If they choose to pay a price sufficient to cover the expense of cultivating land of the second quality, they will obtain additional supplies; if they do not, they must want them. Suppose, now, that the consumers offer such a price as will pay the expense of producing corn on soils which, in return for the same expenditure as would have produced 100 quarters on lands of the first quality, will only yield 90 quarters; it is plain it will then be just the same thing to a farmer whether he pays a rent of ten quarters for the first quality of land, or farms the second quality, which is unappropriated and open to him, without paying any rent. If the population went on increasing, lands which would yield only 80, 70, 60, 50, &c. quarters in return for the same expenditure that had obtained 100 quarters from the best lands, might be successively brought under cultivation. And when recourse had been had to these inferior lands, the rent of the land of the higher qualities would plainly be equal to the difference, or the value of the difference, between their produce and the produce of the worst quality under cultivation. Suppose, for example, that the worst quality under cultivation yields 60 quarters, then the rent of the first quality will be 40 quarters, or 100—60; the rent of the second quality would, in like manner, be equal to the difference between 90 and 60, or 30 quarters; the rent of the third quality would be equal to 80—60, or 20 quarters, and so on. The produce raised on the land last cultivated, or with the capital last applied to the soil, would always be sold at its necessary price, or at that price which is just sufficient to yield the cultivators the common and average rate of profit, or, which is the same thing,
Progress of Rent.
Nature and Causes of Rent. to cover the cost of its production. If the price were above this level, then agriculture would be the best of all businesses, and tillage would be immediately extended; if, on the other hand, the price fell below this level, capital would be withdrawn from the soil, and the poorer lands thrown out of cultivation. In such circumstances, it is undeniably certain that no rent could enter into the price of that portion of produce raised with the capital last applied to the soil. Its price is exclusively made up of wages and profits. The proprietors of the superior lands obtain rent; but this is the necessary result of their greater fertility. The demand cannot be supplied without cultivating inferior soils; and to enable them to be cultivated, their produce must sell for such a price as will afford the ordinary rate of profit to their cultivators. This price will, however, yield a surplus over and above the ordinary rate of profit to the cultivators of the more fertile lands, and this surplus is rent.
An increase of rent is not, therefore, as is very generally supposed, occasioned by improvements in agriculture, or by an increase in the fertility of the soil. It results entirely from the necessity of resorting, as population increases, to soils of a decreasing degree of fertility. Rent varies in an inverse proportion to the amount of produce obtained by means of the capital and labour employed in cultivation;—that is, it increases when the profits of agricultural labour diminish, and diminishes when they increase. Profits are at their maximum in countries like New Holland, Indiana, and Illinois, and generally in all situations in which no rent is paid, and the best lands only cultivated; but it cannot be said that rents have attained their maximum so long as capital yields any surplus in the shape of profit.
A quarter of wheat may be raised in the Vale of Gloucester, or in the Carse of Gowrie, at perhaps a fourth or a fifth part of the expense necessary to raise it on the worst soils in cultivation. There cannot, however, be at the same time two or more prices for the same article in the same market. And it is plain, that if the average market price of wheat be not such as will indemnify the producers of that which is raised on the worst soils, they will cease bringing it to market, and the required supplies will no longer be obtained; and it is equally plain, that if the market price of wheat exceeds this sum, fresh capital will be applied to its production, and competition will soon sink prices to their natural level—that is, to such a sum as will just afford the common and ordinary rate of profit to the raisers of that portion of the required supply of corn which is produced in the most unfavourable circumstances, and with the greatest expense. It is by the cost of producing this portion that the average price of all the rest must always be regulated. And, therefore, it is plainly all one to the consumers whether, in an advanced stage of society, the excess of return over the cost of production on lands of the first quality belongs to a non-resident landlord, or an occupier. It must belong to the one or the other. Corn is not high because a rent is paid, but a rent is paid because corn is high—because the demand is such that it cannot be supplied without cultivating soils of a diminished degree of fertility, as compared with the best. Suppose there is an effectual demand for
10 millions of quarters, and that it is necessary to raise one million of these quarters on lands which yield nothing but the common and average rate of profit to their cultivators; it is clear that the relinquishing of the rents payable on the superior lands would be no boon whatever to the cultivators of the inferior lands. It would not lessen their expences; that is, it would not lessen the quantum of capital and labour necessary to produce that portion of the required supply which is raised in the most unfavourable circumstances; and, if it did not reduce this expence, it is utterly impossible, supposing the demand not to decline, that it could lower prices. Mr Malthus is, therefore, right in saying, that although landlords were to give up the whole of their rents, their doing so would have no influence on the price of corn. Such an act would only turn farmers into gentlemen, and gentlemen into beggars. The case is, however, distinctly and completely different when the cost of production varies. If it is diminished, the competition of the producers will infallibly sink prices in an equal proportion: If it is increased, no supplies will be brought to market, unless the price be raised to a corresponding level. In no case, therefore, whether the demand be great or small—whether for one or one million of quarters, can the price of raw produce ever permanently exceed or fall below the sum necessary to pay the cost of producing that portion of the supply that is raised on the worst land, or with the last capital laid out on the soil.
Two objections have been made to this theory. In the first place, it has been said that, though it might hold good in a country like New Holland, where land is not appropriated, still it is true that all the lands in every civilized and appropriated country like England, always yield some small rent to the proprietor; and that, therefore, it cannot be said that the price of produce is, in such countries, determined by the cost of raising it on that quality of land which pays no rent.
Mr Mill has justly observed of this objection, that even if it were well-founded, it could not practically affect any of the conclusions we have endeavoured to establish. There are in England and Scotland thousands of acres of land which do not let for £20; but to cultivate them would require an outlay of many thousands; and the rent would consequently bear so small a proportion to the expences of production, as to become altogether evanescent and inappreciable. (Elements of Political Economy, p. 19, 1st edit.)
There can be no doubt, however, that there is in this, and most other extensive countries, a great deal of land which yields no rent whatever. In the United States and Russia such is unquestionably the case; and yet no one presumes to say that the laws which regulate rent in the United States and Russia are different from those which regulate it in England and France. The poorest lands are always let in immense tracts. If it were attempted to let particular portions of these tracts separately, they would bring no rent whatever; but they appear to yield rent, because rent is paid not for them, but for the more fertile spots intermixed with them. But although it were really true that every rood of land in Britain paid
a high rent, it would still be true that such rent did not, and could not, enter into the price of raw produce. The rent of a country consists of the difference, or the value of the difference, between the produce obtained from the capital first applied to the land, and that which is last applied to it. It would, as we have already shown, be exactly the same thing to the cultivator, whether he paid a rent of ten quarters to a landlord for land yielding, with a certain outlay, 100 quarters of corn, or employed the same capital in Price.
cultivating inferior land yielding only 90 quarters, for which he paid no rent. If it were possible always to obtain 100 quarters for every equal additional capital applied to the superior soils, no person, it is obvious, would ever resort to those of inferior fertility. But the fact, that, in the progress of society, new and less fertile land is always brought into cultivation, demonstrates that additional capital and labour cannot be indefinitely applied with the same advantage to the old land. The state of society in any particular country may be such—the demand for agricultural produce may be so great, that every quality of land actually yields rent; but it is the same thing if there be any capital employed on land which yields only the return of stock with its ordinary profits, whether that capital be employed on old or new land. That there is a very large amount of capital employed in such a manner in this and every other country, is abundantly certain. A farmer who rents a farm, besides employing on it such a capital as will, at the existing prices of raw produce, enable him to pay his rent, to obtain the average rate of profit, and to replace his stock previously to the expiration of his lease, will also employ an additional capital, if it will only replace itself, and afford the ordinary rate of profit. Whether he shall employ this additional capital or not, depends entirely on the circumstance of the price of raw produce being such as will repay his expences and profits; for he knows he will 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 an additional capital had been employed, he would withdraw it; since, by employing it in agriculture, he got only the same profits he might have got by employing it in any other department of industry. If the capital last applied to the soil yields more than the common and average rate of profit, fresh capital will be invested in agriculture, and competition will sink prices to such a level as will just enable them to yield this rate, and no more; if the capital last applied to the soil yields less than this common and average rate of profit, it will be withdrawn, until, by the rise of price, the last remaining capital yields this common rate. In every case, therefore, whether the last quality of land taken into cultivation yields rent or not, the last capital applied to the soil yields only the common and average rate of profit; and, consequently, the price of the produce which it yields, and which regulates the price of all the rest, is totally unaffected by rent.
It has, in the second place, been objected to this account of the nature and causes of rent, that it takes for granted, that, in all extensive countries, landlords permit the farmers of the worst lands to occupy them
without paying any rent. But, it is easy to show that this is a mistake. The price of raw produce is not kept down to its necessary price by the competition of farmers, but by that of the landlords themselves. Though there must necessarily be a very wide difference, in any country of considerable extent, between the best and worst soils, still the gradation from the one extreme to the other is gradual, and almost imperceptible. The best differ but little from those which are immediately inferior to them, and the worst from those immediately above them. And hence it is just as impossible to point out the precise point where the first quality ends and the second begins, or where the second ends and the third begins, as it is to point out the precise point where the contiguous colours of the rainbow differ. Now, suppose that the numbers 1, 2, 3, 4, 5, 6, 7, &c. designate the different qualities of soil in an extensive country, and suppose that the effectual demand for raw produce is such as will just afford the common and average rate of profit to those who cultivate land of the fifth degree of fertility, or that represented by No. 5; when such is the case, there can be no doubt that No. 5 will be cultivated; for, besides the peculiar attractions which agriculture possesses, it would be quite as advantageous to cultivate it as to engage in any other business. It would not, however, be more advantageous; for its produce would yield no surplus in the shape of rent. But suppose that a combination took place among the proprietors of Nos. 1, 2, 3, 4, and 5, to withhold a portion of their produce from market; and that, in consequence of this, or any other cause, the price of corn is raised ever so little above the expence of its production on No. 5; in that case, it is obvious that soils of the very next degree of fertility, or that portion of No. 6, which, in point of productive power, differs extremely little from No. 5, would be instantly brought under cultivation; and the increased supply would infallibly sink prices to the level that would just afford the average rate of profit, and no more, to the cultivators of No. 5, or of the poorest soils which the supply of the effectual demand renders it necessary to cultivate. It is quite the same thing, therefore, in so far as price is concerned, whether a country is appropriated or not. When it is appropriated, prices are kept down to their lowest limit by the competition of the landlords. And it is by the self same principle,—the cost of producing that portion of the necessary supply raised in the most unfavourable circumstances,—that the price of raw produce is determined in England and France, as it is determined in New Holland and Illinois.
Does not account both for a Rise and Fall of Price in the same Way.
But then it is said, that this reasoning involves a contradiction,—that it accounts both for a rise and a fall of price in the same way, or by an extension of cultivation! In point of fact, however, it does no such thing. The market price of corn will always be low where it is cheaply produced, as in Poland; and it will occasionally be low where it costs a great deal to produce it, when a redundant supply is brought to market, as is the case in England at this moment. Suppose, as before, that the effectual demand for corn in Great Britain is at present such as will just enable lands of the fifth degree of fertility to
be cultivated; but that, owing to variable harvests, to injudicious encouragement held out by the Legislature, to the ardour of speculation, to the miscalculation of farmers, or to any other cause, lands of the sixth degree of fertility have been cultivated; the increased quantity of produce that must thus be thrown on the market will plainly depress prices to such an extent, that, instead of yielding average profits to the cultivators of No. 6, they will not yield them to the cultivators of No. 5. But they will yield more to the cultivators of No. 5 than to those of No. 6; the latter, therefore, will be first driven from their business; and when they have retired, prices will rise, not indeed to such a height as to enable No. 6 to be cultivated, but so high as to enable the cultivators of No. 5 to continue their business; that is, as we have already shown, to the precise sum that will enable the raisers of the last portion of the produce necessary to supply the effectual demand to obtain the common and average rate of profit. Should the demand, instead of continuing stationary, increase so that it could not be supplied without cultivating Nos. 6 and 7, the price will have to rise in proportion to the increased expence of cultivating them. But to whatever extent the demand might increase, still, if such an improvement were made in agriculture, or in the art of raising corn, as would enable the supply to be obtained from No. 1 only, the price would necessarily and infallibly fall to the precise sum that paid the expences of its cultivators, and rent would entirely disappear.
This analysis of the nature and causes of rent discovers an important and fundamental distinction between agricultural and commercial and manufacturing industry. In manufactures, the worst machinery is first set in motion, and every day its powers are improved by new inventions; and it is rendered capable of yielding a greater amount of produce with the same expence. And as no limits can be assigned to the quantity of improved machinery that may be introduced—as a million of steam-engines may be constructed for the same, or rather for a less, proportional expence than would be required for the construction of one—the competition of capitalists never fails to reduce the price of manufactured commodities to the sum which the least expensive method of production necessarily requires for their production.
In agriculture, on the contrary, the best machinery, that is, the best soils, are first brought under cultivation, and recourse is afterwards had to inferior soils, requiring a greater expenditure of capital and labour to produce the same supplies. The improvements in the construction of farming implements, and meliorations in agricultural management, which occasionally occur in the progress of society, really reduce the price of raw produce, and, by making less capital yield the same supplies, have a tendency to reduce rent. But, the fall of price which is permanent in manufactures, is only temporary in agriculture. A fall in the price of raw produce, by enabling every class to obtain greater quantities than before, in exchange for their products or their labour, raises the rate of profit, and leads, of course, to an increased accumulation of capital. But the
industry of a nation being always in proportion to the amount of its capital, this accumulation necessarily leads to a greater demand for labour, to higher wages, to an increased population, and, consequently, to a further demand for raw produce and an extended cultivation. Agricultural improvements check for a while the necessity of having recourse to inferior soils and the rise of rents; but the check can only be temporary. The stimulus which they, at the same time, give to population, and the natural tendency of mankind to increase beyond the means of subsistence, is sure, in the end, to raise prices, and by forcing recourse to poor lands, to raise rents.
Mr Malthus has, in illustrating this important distinction between agricultural and manufacturing industry, set the doctrine of rent in a clear and striking point of view. "The earth," he observes, "has been sometimes compared to a vast machine, presented by nature to man for the production of food and raw materials; but to make the resemblance more just, as far as they admit of comparison, we should consider the soil as a present to man of a great number of machines, all susceptible of continued improvement by the application of capital to them, but yet of very different original qualities and powers."
"This great inequality in the powers of the machinery employed in procuring raw produce, forms one of the most remarkable features which distinguishes the machinery of the land from the machinery employed in manufactures."
"When a machine in manufactures is invented, which will produce more finished work with less labour and capital than before, if there be no patent, or as soon as the patent is over, a sufficient number of such machines may be made to supply the whole demand, and to supersede entirely the use of all the old machinery. The natural consequence is, that the price is reduced to the price of production from the best machinery, and if the price were to be depressed lower, the whole of the commodity would be withdrawn from the market."
"The machines which produce corn and raw materials, on the contrary, are the gifts of nature, not the works of man; and we find by experience that these gifts have very different qualities and powers. The most fertile lands of a country, those which, like the best machinery in manufactures, yield the greatest products with the least labour and capital, are never found sufficient to supply the effective demand of an increasing population. The price of raw produce, therefore, naturally rises till it becomes sufficiently high to pay the cost of raising it with inferior machines, and by a more expensive process; and, as there cannot be two prices for corn of the same quality, all the other machines, the working of which requires less capital compared with the produce, must yield rents in proportion to their goodness."
"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 large 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 show 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."
"I have no hesitation, then, in affirming that the reason 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 is sold at the price necessary to yield the actual supply; and that, as the production of this supply becomes more and more difficult, the price rises in proportion."
"I hope to be excused for having dwelt so long, and presented 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 entirely overlooked by the economists, by Dr Smith, and all those writers who have represented raw produce as selling always at a monopoly price."—(Inquiry into the Nature and Progress of Rent, p. 37.)
It appears, therefore, that in the earliest stages of society, and when only the best lands are cultivated, no rent is ever paid. The landlords, as such, do not begin to share in the produce of the soil until it becomes necessary to cultivate lands of an inferior degree of fertility, or to apply capital to the superior lands with a diminishing return. Whenever this is the case, rent begins to be paid; and it continues to increase according as cultivation is extended over poorer soils; and diminishes according as these poorer soils are thrown out of cultivation. Rent, therefore, depends exclusively on the extension of tillage. It is high where tillage is widely extended over inferior lands; and low where it is confined to the superior descriptions only. But in no case does rent ever enter into price. For, the produce raised on the poorest lands, or with the capital last applied to the cultivation of the soil, regulates the price of all the rest; and this produce never yields any surplus above the common and average rate of profit.
It being thus established that the circumstance of land being appropriated, and rent paid to the landlords, cannot affect the price of commodities, or make any difference whatever on the principle which regulates their exchangeable value in the earliest stages of society, we proceed, in the next place, to inquire
Exchangeable Value. into the effects of the accumulation and employment of capital, and of the rise and fall of wages on the value of commodities.
SECT. IV.—Effect of the Accumulation and Employment of Capital, and of Fluctuations in the Rate of Wages on Exchangeable Value.
It will be remembered, that the comparative quantities of labour required to produce commodities and to bring them to market, formed, in the early ages of society, and before capital was accumulated, the principle by which their comparative or exchangeable value was regulated. But capital is nothing more than the accumulated produce of anterior labour; and when it is employed in the production of commodities, their value must plainly be regulated, not by the quantity of immediate labour only, but by the total quantity of immediate labour and of accumulated labour, or capital, which have been necessarily laid out in their production. Suppose that an individual can by a day's labour, without the assistance of any capital whatever, kill a deer; but that it requires a day's labour to construct weapons necessary to enable him to kill a beaver, and another day's labour to kill it, it is evident, supposing the weapons to have been rendered useless in killing the beaver, that one beaver really took as much labour to kill it as was required to kill two deer, and must, therefore, be worth twice as much. The durability of the weapons, or capital of the beaver hunter, is obviously an element of the greatest importance in estimating the value of the animals killed by him. Had the weapons been more durable than we have supposed,—had they served, for example, to kill twenty beavers instead of one, then it is plain the quantity of labour required to kill a beaver would only have been one twentieth more than the labour required to kill a deer, and the animals would, of course, have been exchanged in that proportion to each other. With every extension of the duration of the weapons, the value of the deer and the beaver would obviously be brought still nearer to equality.
It appears, therefore, inasmuch as capital is nothing but anterior labour, that its accumulation and employment cannot affect the principle which makes the exchangeable value of commodities dependent on the quantities of labour required for their production. A commodity may be altogether produced by capital, without the co-operation of any immediate labour whatever, and, if so, its value in exchange will plainly be regulated by the quantity of capital, that is, of labour expended in its production: or it may be partly produced by capital, and partly by immediate labour, and then its exchangeable value will be proportioned to the sum of the two, or, which is still the same thing, to the total quantity of labour bestowed upon it. The principles we have now laid down are almost self-evident, and we are not aware that they have been disputed by any political economist of consideration; but a considerable difference of opinion is entertained respecting the effects occasioned by the employment of workmen by capitalists, and by fluctuations in the rate of wages, on value.
It does not, however, seem to us that there is much room for these differences. Suppose that a certain quantity of goods, twenty pairs of stockings for example, manufactured by independent workmen, freely exchanged for forty pairs of gloves also manufactured by independent workmen, they would necessarily continue to do so, provided the quantity of labour formerly required for their production continued invariable, after the workmen had been employed by some master manufacturer. In
the first case it is true, as Dr Smith has observed, that the whole goods produced by the workmen would belong to themselves, and that, in the second case, they would have to share them with others. But it must be recollected, that in the first case the capital, or accumulated labour, made use of in the production of the commodities, belonged to the workmen, and that in the latter case it has been furnished them by others. The question then comes to be, Can the circumstance of the labourers voluntarily agreeing to give a portion of the commodities produced by them, as an equivalent, or compensation for the advantage and assistance derived from the use of the capital, or labour of others, afford any ground for raising the value of the commodities? It is evident it cannot. The profits of stock are only another name for the wages of accumulated labour. They make a part of the price of every commodity in whose production any portion of capital has been wasted. But whether the capital belongs to the labourer himself, or is furnished him by another, is obviously of no consequence. When the capital does not belong to the labourer, the commodities produced by him are divided into two specific portions, whereof one is the return for the immediate labour, and the other for the capital, or accumulated labour, expended in producing them. But the aggregate value of the commodities is precisely the same into how many portions soever they may be divided. A shoemaker who manufactures shoes on his own account, must obtain the same rate of profit on their sale, that would accrue to a master shoemaker were he employed by him as a workman. He must not only possess a capital adequate to maintain himself and his family until his shoes can be disposed of, but he must also be able to provide himself with a workshop and tools, to advance money to the tanner to pay his leather, and to provide for various other outgoings. If he did not, exclusive of the ordinary wages of labour, realize a rate of profit, or a compensation for the employment of his capital, equal to the profit obtained by the master shoemaker, it would obviously be for his advantage to lend it to him, and to work on his own account; and it is plain, inasmuch as his shoes could not be sold for a higher price than those of the capitalist, that he could not realize a greater rate of profit.
It appears, therefore, that the circumstance of the accumulated labour or capital, and the immediate labour required to produce commodities being furnished by different classes of people, makes no difference whatever on the principle which shows that their exchangeable value depends on the total quantity of labour necessary for their production. It now only
Exchangeable Value. remains to trace the effects of fluctuations in the rate of wages on price. When we have done this, we shall have exhausted the subject.
Effect of Fluctuations in the Rate of Wages on Exchangeable Value:— To simplify this inquiry, we shall divide it into two branches. We shall inquire, first, whether fluctuations in the rate of wages have any, and what effects on the relative value of commodities produced by the aid of capitals of equal degrees of durability; and, second, whether these fluctuations have any, and what effects when the capitals employed are of unequal degrees of durability.
1st. Effect of these Fluctuations when the Capitals employed in Production are of the same degree of Durability. I. When every class of producers employ either fixed or circulating capitals, of precisely the same degree of durability, they must be all equally affected by a rise or fall of wages. This is a principle which is equally assented to by Mr Ricardo and Mr Malthus, and which is indeed self-evident. But when such is the case, it is plainly impossible that a rise or fall of wages can occasion any variation in the exchangeable, or comparative value of commodities. To revert to our former example, let us suppose that wages, at the rate of one shilling a day, were paid by the stocking manufacturer, one pair of whose stockings exchanged for two pairs of gloves, and that, from some cause or other, the wages of his workmen have been doubled, or raised to two shillings, the question is, could he now obtain a greater quantity of gloves in exchange for his stockings? It is obvious he could not. He could not urge the circumstance of his being obliged to pay a greater amount of wages to his workmen, as a reason why the glove manufacturer should give him more gloves in exchange for his stockings; for, the latter would have it in his power to reply, that the same rise of wages affected him to precisely the same extent. If, therefore, one pair of stockings was previously worth two pairs of gloves, they would continue to preserve this relation to each other, so long as the quantities of labour required for their production was not varied, whatever might be the fluctuation of wages—whether they fell to a sixpence, or rose to a guinea a day. Even if the price of commodities rose, which it could not, when wages rose, that would be of no advantage to the producers. Commodities are always bought by commodities, or by labour. Of what consequence, then, could it be to a capitalist, when wages rose, to sell his commodities at an equal advance; when he, in his turn, would be obliged to give so much more for every commodity which he purchased? If wages rise 50 per cent. a producer, a farmer, for example, would be precisely in the same condition, whether he sold his corn for 50 per cent. advance, and gave an additional 50 per cent. as he would be obliged to do, for his hats, shoes, clothes, &c. &c. or sold his corn at its former price, and bought all the commodities which he consumed at the prices he had formerly given for them.
In order farther to illustrate this principle, we may be allowed to make a supposition, which, although it can never actually take place, will serve to set our doctrine in a clearer point of view. Should the quantities of labour required for the production of every species of commodities be increased in exactly the same proportion, it is plain their exchange-
able values would remain unaltered. Their real Exchangeable Value. price would, however, be augmented. A bushel of corn would not then exchange for a greater quantity of muslins or of broad cloth, than it did before the increased expence of its production; but each would be the produce of a greater quantity of labour. In such circumstances, the prices of commodities would remain stationary, while the wealth and comforts of the society would be materially diminished. Every person would have to make greater exertions to obtain a given quantity of any one commodity; but as the expence of producing all commodities is, by the supposition, equally increased, it would not be necessary to make any greater exertions to obtain one than another, and their comparative values would be totally unaffected.
But, if a general and equal increase of the quantity of labour required for the production of commodities could not alter their relative values to one another, how is that to be effected by a general and equal increase of the wages paid for that labour? The thing is obviously impossible. If a beaver exchanged for a deer, when wages were at one shilling a day, it must do the same when they are increased to two shillings, or ten shillings, or twenty shillings. However high wages might be raised, the market-price of the beaver and deer would continue unchanged. After wages had been raised, the value of the deer would be differently divided—a greater share would belong to the labourer, and a less to the capitalist; but that would be the only effect produced. The real price of the commodities would not be in the least influenced by this rise of wages. The quantity of labour required for their production would not be increased; and it would, therefore, be equally easy to obtain them.
II. We have seen by the investigation under the preceding head, that, where the fixed or circulating capitals employed in the production of commodities are of equal degrees of durability, fluctuations in the rate of wages affect all classes of producers to the same extent, and have, therefore, no influence on the exchangeable value of commodities, or on their price. But when the capitals employed are of different degrees of durability, this is not the case. Fluctuations in the rate of wages cannot, in such circumstances, equally affect every class of producers, and the natural and indestructible equilibrium of profit could not be maintained without a variation in the relative value of their products. To illustrate this, let us suppose, that a certain quantity of goods, the produce of fixed capital or machinery fitted to last many years, freely exchange for a certain quantity of other goods entirely produced by manual labour. It is plain they could not continue to be exchanged on this footing, after a rise or fall of wages. For the proprietor of the machinery would be very little affected by such fluctuations, while the proprietor of the goods produced by manual labour would be very seriously affected by them. And, therefore, when wages fluctuate, the relative values of the goods produced by capitals of different degrees of durability must also fluctuate—that is, they must be adjusted so that they may still continue to yield the same common and average rate
Exchange- of profit. Let us now endeavour to trace the mode
able Value. in which this adjustment is effected.
The arguments we have brought forward, to show the impossibility of fluctuations in the rate of wages, affecting the exchangeable value of commodities produced by capitals of the same durability, were first advanced by Mr Ricardo. He, too, was the first who endeavoured to analyse and discover the precise effects of fluctuations in the rate of wages on commodities, when the capitals employed in their production were not of the same degree of durability. The results of his researches in this most difficult branch of the science were still more important, and more completely at variance with the universally received opinions of political economists. Mr Ricardo not only showed that it was impossible for any rise of wages to raise the price of all commodities; but he also showed, that in many cases a rise of wages necessarily led to a fall of prices, and a fall of wages to a rise of prices! The novelty of these opinions, and the talent and ingenuity with which they were supported, immediately recommended them to general notice; and the repeated examinations to which they have been subjected have served to confirm their truth, and to set them in a still clearer point of view. Some of the subordinate doctrines respecting value advanced by Mr Ricardo in the first and second editions of his Principles of Political Economy and Taxation, were opposed by Mr Malthus in his recent publication. But Mr Malthus does not attempt to invalidate the leading principles established by Mr Ricardo; and the alterations and corrections which the latter has made in the third edition of his work, have gone far to remove the objections of Mr Malthus.
Suppose a manufacturer has a machine worth L. 20,000, of a high degree of durability, and which can, without the assistance of any manual labour, produce commodities. If profits were at 10 per cent., the commodities produced by this machine would sell for L. 2000, together with a very small addition to replace its wear and tear.* Now, it is quite certain, that if, from any cause whatever, profits either rise or fall, the price of the goods produced by this machine would also rise or fall.—(Malthus's Principles of Political Economy, p. 92.) If profits were to rise to 15 per cent., the price of the goods produced by the machine must, in order that its owner may obtain the same profit with other capitalists, rise to L. 3000; and if, on the other hand, profits fall to five per cent., the price of his goods must, for the same reason, fall to L. 1000. If, therefore, it can be shown that a rise of wages reduces the rate of profits, it is plain it must also reduce the exchangeable value, or price, of all such commodities as are chiefly produced by machinery, or fixed capital of a considerable degree of durability, or by circulating capital returnable at distant periods, and vice versa. But it is not difficult
to show that this is really the case, and that, in point
of fact, profits always fall when wages rise, and rise
when wages fall.
It is plain, from what has been previously stated, that to whatever extent wages might rise, it would be impossible for the producers of any species of commodities, whether the capitals employed in their production were returnable in a day, or week, or any other period, to obtain a larger share of the commodities produced by others of the same class,—that is, whose capitals were returnable in equal periods with their own. Suppose wages rise ten or twenty per cent., that would not enable the holder of a capital returnable every month, or every twelve months, to obtain any additional value in exchange for his commodities from such of his fellow capitalists as were affected to precisely the same extent with himself by the rise of wages,—that is, whose capitals were returnable in the very same period as his own. This is as absolutely impossible as it is to change the relation of proportional numbers by multiplying or dividing them all by the same number; and, therefore, it cannot be true that a rise of wages will raise the price of any one commodity, as compared with all other commodities.
But, if a rise of wages cannot do this, it is demonstrably certain it must lower profits. Let us suppose that the numbers 1, 2, 3, 4, 5, 6, 7, 8, 9, and 10, represent capitals of corresponding degrees of durability. When wages fluctuate, the proprietors of the least durable capitals, numbers 1, 2, 3, 4, and 5, are plainly more affected thereby than the proprietors of the more durable capitals, numbers 6, 7, 8, 9, and 10. Let us suppose that wages rise, and let us endeavour to discover what would be the effect of this rise on the holder of a capital of the tenth degree of durability. We have already shown that whatever might be the amount of the rise—whether it were 1, 10, or 100 per cent., the holder of such a capital could not possibly obtain any additional quantity of the commodities belonging to other producers whose capitals were also of the tenth degree of durability; and in so far, therefore, as this class of commodities is concerned, profits will be reduced to the precise extent that wages have risen. But the holders of the other capitals are all of them more affected by the rise of wages than the holders of No. 10; and if we took either of them as a standard by which to measure profits, they would appear to have fallen in a still greater proportion.
It is absolutely certain, therefore, that profits vary
inversely as wages,—that is, they fall when wages rise, and rise when wages fall. But owing to the dif-
ferent and ever varying proportions in which fixed and circulating capital and immediate labour are employed in the production of commodities, it is extremely difficult to discover the precise extent to which any given fluctuation in the rate of wages af-
* So small a sum as two shillings and elevenpence would be sufficient for this purpose, if the machine would last for 100 years; for an annuity of two shillings and elevenpence accumulating for 100 years at 10 per cent., would, at the end of that period, amount to L. 20,000.
Exchange-
able Value.
effects profits. We shall, however, state three different cases which will briefly, and, we hope, satisfactorily, elucidate the manner in which fluctuations in the rate of wages always operate, and the method to be followed in estimating their influence on profits.
1. If all commodities were produced by immediate labour, or by capital employed in the payment of wages, it is obvious that every rise of wages would cause an equal fall of profits. A capitalist who employed L. 1000 in the payment of wages, must, if profits were at 10 per cent., sell the commodities for L. 1100. But when wages rise 5 per cent., or to L. 1050, he would not be able to sell his commodities for more than L. 1100; for money is itself a commodity, and as, by the supposition, all commodities are produced by immediate labour, the rise of wages would affect the producers of money in the very same degree that it affected all other producers. In this case, therefore, it is plain every rise of wages will equally sink profits, and every fall of wages will equally raise them.
2. If all commodities were produced, one-half by immediate labour, and the other half by capital, profits would only fall to half the extent that wages rose. Suppose a capitalist employs L. 500 in the payment of wages, and L. 500 as a fixed capital, when profits are at 10 per cent., the commodities produced must, as before, sell for L. 1100. If wages rose 5 per cent., the capitalist would have to pay L. 525 as wages, and would, consequently, only retain L. 75 as profits. In this case, therefore, a rise of wages to the extent of 5 per cent. would, because of the employment of equal quantities of capital and immediate labour in the production of commodities, only sink profits per cent.
3. If all commodities were produced by capital of a high degree of durability, the capitalists, it is obvious, would not be at all affected by a rise of wages, and profits would, of course, continue as before.
Now, suppose that commodities, instead of being wholly produced either by immediate labour, as in the first case, or wholly by equal quantities of immediate labour and of capital, as in the second, or wholly by fixed capital as in the third, are partly produced in the one mode and partly in the other, and let us see what effect this increase of 5 per cent. in the rate of wages would have on their relative values. To facilitate this inquiry, we shall distinguish these three descriptions of commodities by the Nos. 1, 2, and 3. Now, it is quite evident that the rise of wages has affected No. 1 per cent. more than it has affected No. 2, and 5 per cent. more than it has affected No. 3. No. 1 must, therefore, as compared with No. 2, have risen per cent. in exchangeable value, and as compared with No. 3, it must have risen 5 per cent.; No. 2 must have fallen per cent. as compared with No. 1, and risen per cent. as compared with No. 3; and No. 3 must have fallen 5 per cent. as compared with No. 1, and per cent. as compared with No. 2. If wages, instead of rising, had fallen, the same
effects would obviously have been produced, but in a reversed order. The proprietors of the commodities of the class No. 1 would gain 5 per cent. by the fall; those of No. 2 would gain per cent., and those of No. 3 nothing; and the relative values of these commodities would be adjusted accordingly. * Exchange-
able Value.
Thus, then, it appears, inasmuch as any commodity taken for a standard by which to estimate the relative values of other commodities, must itself be produced by capital returnable in a certain period, that when wages rise, all commodities produced by less durable capitals than those which produce the commodity taken for a standard, will rise in exchangeable value, and all those produced by more durable capitals will fall; and conversely when wages are reduced. Suppose, as before, that the Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9, and 10, represent capitals of corresponding degrees of durability. If a commodity produced by the least durable capital, No. 1, and which may be supposed to be wholly employed in the payment of wages, be taken for a standard, all commodities whatever produced by the other and more durable capitals would fall in value when wages rose; and if we suppose those produced by No. 2 to decline 1 per cent., those produced by No. 3 would decline 2 per cent., those produced by No. 4 3 per cent., and so on until we arrive at No. 10, which will have fallen 9 per cent. If, on the other hand, a commodity produced by the most durable capital, No. 10, and which may be supposed to consist wholly of highly durable machinery, be made the standard, when wages rise all the commodities produced by the other less durable capitals would also rise; and if those produced by No. 9 rose 1 per cent., those produced by No. 8 would rise 2 per cent., and those produced by No. 1 9 per cent. If a commodity produced by capital of a medium degree of durability, as No. 5, and which may be supposed to consist half of circulating capital employed in the payment of wages, and half of fixed capital or machinery, be taken as a standard, the commodities produced by the less durable capitals, Nos. 4, 3, 2, and 1, will rise with a rise of wages, on the former hypothesis, the first, or No. 4, 1 per cent., the second, or No. 3, 2 per cent., &c.; while those produced by the more durable capitals, Nos. 6, 7, 8, 9, and 10, will fall, the first, or No. 6, 1 per cent., the second, or No. 7, 2 per cent., &c. exactly the reverse of the other.
Hence it is obvious that the effect which variations in the rate of wages have on price will principally depend on the nature of the capital employed in the production of gold and silver. Whatever may be the proportions of circulating capital appropriated to the payment of wages, and of fixed capital employed in the production of the material of which money is made, all those commodities which are produced by the agency of a greater quantity of labour and with less fixed capital or machinery, will rise when wages rise, and fall when wages fall; but those that are produced by the agency of a less quantity of la-
* The examples we have here given are substantially the same with those given by Mr Mill. See his valuable work entitled Elements of Political Economy, p. 77.
Exchange-
able Value.
hour, and with more fixed capital or machinery, will fall when wages rise, and rise when wages fall; and those that are produced in nearly the same circumstances, or by the agency of the same quantities of circulating and fixed capital as money, will not be affected by the fluctuations of wages.
Variations of Ex-
changeable
Value caus-
ed by Fluctua-
tions in
the Rate of
Wages con-
fined within
narrow li-
mits.
It should, however, be observed that the variations in the exchangeable value of commodities caused by variations in the rate of wages, are confined within very narrow limits, and can hardly, in any circumstances, exceed 6 or 7 per cent.* There can be no rise of wages without a fall of profits. The produce of the land, or rather of the capital which pays no rent, and which governs the price of all the rest, is divided between the farmer and the labourer, and the more that is given to the latter, the less will plainly remain for the former. The same is the case in every other department of industry. Whenever, therefore, wages rise, profits necessarily and unavoidably fall; and this fall not only checks the rise that would otherwise take place in the price of the goods produced by less durable capitals than the medium in which price is estimated; but it also checks the fall that would take place in the price of the goods produced by more durable capitals. To exemplify this, let us suppose a manufacturer employs a capital of L. 10,000, one-half being employed as machinery, and the other half as a circulating capital appropriated to the payment of wages. If profits are at 10 per cent., the goods produced by the manufacturer must sell for L. 11,000. Now, suppose wages to rise one per cent., if the price of the goods were proportionably increased, they would have to sell for L. 11,050. But they would not be proportionably increased; for every rise of wages must lower profits. Suppose, then, that profits are reduced per cent., the goods will still sell for L. 11,000, the increase of L. 50 caused by the rise of wages, being just equivalent to the fall of L. 50 caused by the reduction of profits. Although, therefore, a rise of wages has a necessary tendency to raise the exchangeable value of one class of commodities, and to lower that of another class, the fall of profits, which must inevitably follow every rise of wages, has a different effect, and tends to sink the price of the commodities which the increase in the rate of wages would raise, and to elevate the price of those which the same increase would sink. In the great majority of cases, these opposite effects mutually balance each other; and prices continue nearly the same, after a fall or rise of wages, as before.
* This is not the case with the other great cause of variations in the value of commodities, namely, the increase or diminution in the quantity of labour necessary to produce them. An alteration in the permanent rate of profits, to any great amount, is the effect of causes which do not operate but in the course of years; whereas alterations in the quantity of labour necessary to produce commodities are of daily occurrence. Every improvement in machinery,
in tools, in building, in raising the raw material, saves labour, and enables us to produce the commodity to which the improvement is applied with more facility, and, consequently, its value alters. In estimating, then, the causes of the variation in the value of commodities, although it would be wrong wholly to omit the consideration of the effect produced by a rise or fall of labour, it would be equally incorrect to attach much importance to it; and, consequently, in the subsequent part of this work, though I shall occasionally refer to this cause of variation, I shall consider all the great variations which take place in the relative value of commodities to be produced by the greater or less quantity of labour which may be required to produce them." (Ricardo, Principles, &c. p. 33.)
Exchange-
able Value.
The universally received opinions respecting the Variations in the Rate of Money Wages cause of the Popular Opinion.
effect of a rise of wages on the price of commodities have obviously originated from a rise in the money price of commodities being almost always confounded with a rise in their real price. But these two things are totally distinct. Real wages, as we shall afterwards show, depend on the proportion of the produce of industry which belongs to the labourer. They are high when this proportion is large, and they are low when it is small. It is to real wages that we always refer. And it is plain, that every inference respecting the rate of real wages, drawn from fluctuations in the rate of money wages at different periods, must be completely erroneous, if we have not estimated such money wages with reference to the relative values of money and commodities at the time when the fluctuations took place. The money wages of labour may be raised from 1s. to 2s. or 5s. a-day; and the real wages of labour may, notwithstanding, be all the while diminishing. This has been actually the case in Britain during the last thirty-five years. Money wages were in 1810 double what they had been in 1790; but, as the exchangeable value of our currency had, in the interval, been more than proportionably reduced, the price of commodities rose still faster than wages; and the proportion of the produce of industry belonging to the labourers, or their real wages, was consequently diminished. In such a case, to ascribe the rise of prices to the rise of wages would be evidently absurd. In no case, however, will it be found that a rise of real wages will raise the price of all commodities. A large class will remain stationary, after wages rise; another class will rise a little; and another class will fall a little. All considerable variations in the relative value of commodities are the consequence of variations in the quantity of labour required for their production, and not of variations in the rate at which that labour is paid.
Colonel Torrens contends, in his late valuable work on the Production of Wealth, in opposition to the theory we have now endeavoured to establish, that after capital has been accumulated, the relative, or exchangeable value of commodities, is no longer, as in the early stages of society, determined by the total quantities of labour required to bring them to
Exchange-
able Value
of Commo-
dities does
not depend
on the
Quantity
of Capital
employed in
their Pro-
duction.
* Ricardo On the Principles of Political Economy and Taxation, 3d edit. p. 33.
market, but by the quantities of capital expended on their production. At bottom, however, this theory is precisely the same with that which we have just explained. Capital is nothing but immediate labour accumulated; and to say that the exchangeable value of commodities depends on the quantity of it employed in their production, is only another way of expressing the identical proposition we have illustrated. Colonel Torrens, however, and those who agree with him, contend that the difference between the two theories is not apparent but real. "If," say they, "two capitalists employ equal stocks, the one in paying the wages of masons employed to build a house, and the other in purchasing wine after it has been put into casks, and keeping it until it has become fit for use, then, as the products of equal capitals must always be equal, the house and the wine will be worth precisely the same sum, though it is plain they are produced by very different quantities of labour." This case is very ingeniously put; and it deserves attention from the opportunity which it affords of explaining a point respecting which there has been a great deal of misconception. At first sight, it certainly seems as if both accumulated labour and immediate labour had been employed in the construction of the house, and accumulated labour only in the production of the wine. But, in point of fact, all that is done in either case is, to change the form of equal capitals; to transmute, if we may so speak, a certain quantity of capital, through the medium of human hands, into a house; and to transmute the same quantity of stock, through the medium of natural powers, into wine fit for drinking. The capital which is consumed by the mason in food and clothes is plainly not expended on the house, but on himself; and it is his immediate labour only, or the exertion of his physical powers, that forms the only labour really expended on the house. The employer of the mason paid him his wages, not, as Colonel Torrens supposes, in the unreasonable expectation, that he would lay out these wages, in addition to the labour of his hands, on his house, but that he might lay out the wages on himself, and give him his labour as an equivalent for them. The object which the builder of the house had really in view was, to convert a certain amount of capital into a house, and to accomplish this object, it was necessary that the capital should, in the first place, be exchanged for, or converted into, the immediate labour of masons. In the production of the wine, this species of transmutation was not necessary; the effect which had, in the first case, been produced by the agency of men, being, in the second case, produced by the agency
of the processes which Nature herself carried on in the casks. It is clear, therefore, that no greater quantity of labour was required to produce the house than to produce the wine. Different agents were employed to convert the capital into the finished commodities, but that was all. The quantity of capital which set these agents in motion was, in both cases, exactly the same, and, consequently, both products were brought into existence by the same quantity of labour.
The error into which Colonel Torrens has fallen, shows the necessity, in estimating the cost of commodities, of always separating between the capital, or accumulated labour, expended in the payment of wages, and the immediate labour which that capital employs. The sum of these two really amounts to twice the quantity of labour actually expended on the commodities. The capital given as wages to the labourer is merely the price, or equivalent of his labour; and the cost of producing the commodity must, therefore, be determined by the amount of wages, or of immediate labour given for these wages, taken singly and not together. When fixed capital is used, the cost of the commodity depends, as we have already shown, on the quantity of immediate labour, or circulating capital, and of fixed capital, necessarily expended on their production.
No one can fail to observe how naturally and beautifully these conclusions harmonise with the principles we endeavoured to establish when treating of the production of wealth. We there showed that no commodity which it did not require some portion of labour to appropriate or produce, could be possessed of exchangeable value, or become wealth; and that every diminution of the quantity of labour required to produce commodities, lowered their exchangeable value, and made them more easily obtainable by all classes: And the analysis we have now completed shows, that labour is not only essential to the existence of exchangeable value, but that it is in every stage of society, from the rudest to the most improved, the single and only principle which enters into its composition.*
SECT. V.—Profits and Wages vary inversely—Accumulation of Capital not the Cause of a Fall of Profits—The Increasing Sterility of the Soil shown to be the Chief Cause of a Rise of Wages, and consequently of a Fall of Profits—Distinction between Absolute and Proportional Wages.
Having shown in the previous sections, that no part of the produce of the capital last applied to the cultivation of the land, and which regulates the price
* Sir William Petty had stated, so early as 1667, that the value of commodities is always regulated by the quantity of labour required to produce them; but there is the same difference between his statements and the analysis and investigations of Mr Ricardo, whom we have followed in this section, that there is between the conjectures of Pythagoras respecting the true system of the world and the demonstrations of Newton. The statement of Sir William Petty is however curious, and we subjoin it:
"If," says he, "a man can bring to London an ounce of silver out of the earth in Peru in the same time that he can produce a bushel of corn, then one is the natural price of the other; now, if, by reason of new and more case mines, a man can get two ounces of silver as easily as formerly he did one, then corn will be as cheap at 10s. the bushel as it was before at 5s. ceteris paribus." (Treatise of Taxes and Contributions, ed. 1679, p. 31.)
Profits and Wages. of all the rest, goes to the landlord as rent, but that it is exclusively divided between the capitalist and the labourer; and having also shown that a rise of wages does not raise the value of commodities, it follows necessarily and directly that profits must vary inversely as wages, that is, they must fall as wages rise, and rise as wages fall. The limits to which this article has already extended, prevent our entering into an investigation of the various circumstances which determine the market rate of wages. It is sufficient to remark, that it can never, for any considerable period, fall below such a sum as is required to support the existing labourers, and to enable them to continue their race. This is termed by Dr Smith and Mr Ricardo the necessary rate of wages, and forms a limit below which it is quite impossible they can be permanently reduced. But as the subsistence of the labourer must always principally consist of raw produce; and as, owing to the necessity of resorting to superior soils as society advances, its price has a constant tendency to rise, the necessary rate of wages must have the same tendency. Agreeably to this theory, therefore, we should expect, that in all newly settled countries, and where none but the best soils are cultivated, profits would be high; and that in all old settled and densely peopled countries, and where soils of a very inferior quality are cultivated, profits would be comparatively low—and such we find to be really the case.
We might here take leave of this part of our subject; but as the theory we have deduced from the conclusions in our previous sections is very different from the common one, we shall endeavour to set it in a still clearer point of view.
Opinion of Dr Smith, &c. Dr Smith was of opinion, that the rate of profit varied inversely as the amount of capital, or, in other words, that it was always greatest where capital was least abundant, and lowest where capital was most abundant. He supposed, that, according as capital increased, the principle of competition would stimulate capitalists to endeavour to encroach on the employments of each other; and that, in furtherance of their object they would be tempted to offer their goods at a lower price, and to give higher wages to their workmen. (Wealth of Nations, Vol. II. p. 38.) This theory was long universally assented to. It has been espoused by MM. Say, Sismondi, and Storch, by the Marquis Garnier, and, with some slight modifications, by Mr Malthus. But, notwithstanding the deference due to these authorities, it is easy to see that the principle of competition could never be productive of a general fall in the rate of profit. Competition will prevent any one individual from obtaining a higher rate of profit than his neighbours; but no one will say that competition diminishes the productiveness of industry, and it is on this that the rate of profit must always depend. The fall of profits which invariably takes place, as society advances, and population becomes denser, is not owing to competition, but to a very different cause—to a DIMINUTION OF THE POWER TO EMPLOY CAPITAL WITH ADVANTAGE, resulting either from a decrease in the fertility of the soil, which
must be taken into cultivation in the progress of society, or from an increase of taxation.
Mr Malthus has demonstrated, that population has a constant tendency not only to equal, but to exceed the means of subsistence. But if the supply of labourers be always increased in proportion to every increase in the demand for their labour, it is plain the mere accumulation of capital could never sink profits by raising wages—that is, by increasing the labourer's share of the commodities produced by him. It is true, a sudden increase of capital would, by causing an unusually great demand for labourers, raise wages, and lower profits: but such a rise of wages could not be permanent; for the additional stimulus it would give to the principle of population would, as Mr Malthus has shown, by proportioning the supply of labour to the increased demand, infallibly reduce wages to their former level. If, therefore, it were possible always to employ additional capital in the raising of raw produce, in the manufacturing of that raw produce when raised, and in the conveying of the raw and manufactured products from place to place, with an equal return, it is evident, supposing taxation to continue invariable, that no conceivable increase of the national capital could occasion the slightest fall in the rate of profit. So long as labour is obtainable at the same rate, and so long as the productive power of that labour is not diminished, so long must the profits of stock continue unaffected. Assuming, then, that the mere increase of capital has no lasting effect on wages, it must obviously be the same thing, in so far as the rate of profit is concerned, whether ten or ten thousand millions be employed in the cultivation of the soil, in the manufactures and commerce of this, or any other kingdom; provided the last million so employed be as productive, or yields as large a return as the first. But such is always the case with the capital employed in manufactures and commerce. The greatest possible amount of capital and labour may be employed in fitting and adapting raw produce to our use, and in transporting it from where it is produced to where it is to be consumed, without a diminished return. If a given quantity of labour will now build a ship of a given burden, or construct a machine of a given power, it is certain that an equal quantity of labour will at any future period be able to build a similar ship, or to construct a similar machine; and it is also certain, that although these ships and machines were indefinitely increased, the last would be equally well adapted for every useful purpose, and equally serviceable as the first. The probability, indeed, or rather, we should say, the certainty is, that the last would be much more serviceable than the first. No possible limit can be assigned to the powers and resources of genius, to the improvement of machinery, and of the skill and industry of the labourer. Future Watts, Arkwrights, and Wedgewoods, will arise; and the stupendous discoveries of the last and present age will doubtless be equalled, and perhaps surpassed, in those which are to come. It is, therefore, clear to demonstration, that if equal quantities of capital and labour could always raise equal quantities of raw produce, the utmost additions to the capital
of the nation could never diminish the capacity to employ that capital with advantage, or sink the rate of profit. But here, and here only, the bounty of Nature is limited, and she deals out her gifts with a frugal and parsimonious hand.
Pater ipse colendi
Haud facilem esse viam voluit.
Equal quantities of capital and labour do not always obtain equal quantities of raw produce. In raising it, man has to contend with constantly increasing difficulties. The soil is of limited extent, and of still more limited fertility. In every advancing country, the most fertile lands are, as we have already seen, speedily brought under cultivation, and recourse must then be had to lands of a less degree of fertility, or which yield less produce in return for the same expenditure. It is this limited fertility of the soil that is the real cause of a fall of profits. It is utterly impossible to go on increasing the price of that raw produce, which forms the principal part of the subsistence of the labourer, by taking inferior soils into cultivation, without also increasing his wages. A rise of wages is seldom or never exactly coincident with a rise in the price of necessaries, but they can never be very far separated. The price of the necessaries of life is, in fact, the cost of producing labour. The labourer cannot work if he is not supplied with the means of subsistence. And although a certain period of varying extent, according to the circumstances of the country at the time, must always elapse, when necessaries are rising in price, before wages can be proportionably augmented, there can be no question but that, in the end, such an augmentation will be brought about. Now, as rent is nothing but the excess, or the value of the excess, of the produce obtained from the best above that obtained from the very worst soils in cultivation, it is plain it does not enter into the cost of production, and can have no influence whatever on prices. Still better to elucidate this fundamental principle, let us suppose that an individual has two loaves on his table; one raised on very fertile land, the other on the very worst land in cultivation: in the latter, there will be no rent, and it will be wholly divided between wages and profits. We have already shown that it is the cost of producing this loaf which will regulate the price of all other loaves; and although it will be true that the rent which the loaf raised on the best land will afford will be equal to all the difference between the expence of growing the corn of which it is made, and the corn raised on the worst lands of which the standard loaf is made, yet it is only in consequence of this difference that any rent whatever is paid. Twenty different loaves, all selling for the same price, may yield different portions of rent; but it is one only, that which yields no rent, which regulates the value of the rest, and which is to be considered as the standard. It is demonstrable, therefore, that rent does not enter into price. Wages and profits make up the whole value of every commodity. And, therefore, when wages rise, profits must fall; and when wages fall, profits must rise. But we have shown that there is never any falling off, but a constant increase, in the
productiveness of the labour employed in manufacturing and preparing raw produce. And such being the case, it is demonstrably certain, that the subsistence of the labourer could never be increased in price, and consequently that no additions could ever be made to his necessary wages, were it not for the diminished power of agricultural labour, originating in the inevitable necessity under which we are placed, of resorting to poorer soils to obtain raw produce as society advances. The constantly decreasing fertility of the soil is, therefore, at bottom, the great and permanent cause of a fall of profits. Profits would never fall if wages were not increased; and, supposing taxation to continue invariable, wages would never be increased were it not for the decreasing fertility of the soil, and the consequent increase of the labour necessary to obtain corn and other raw products.
"With a permanently high price of corn," says Mr Ricardo, "caused by increased labour on the land, wages would be high; and, as commodities would not rise on account of the rise of wages, profits would necessarily fall. If goods worth L. 1000 require at one time labour which cost L. 800, and at another time the price of the same quantity of labour is raised to L. 900, profits will fall from L. 200 to L. 100. Profits would not fall in one trade only, but in all. High wages equally affect the profits of the farmer, the manufacturer, and the merchant. There is no other way of keeping profits up but by keeping wages down."—(On Protection to Agriculture, p. 43.)
It is necessary, however, to observe, that although profits depend on wages, they do not depend on wages estimated in money, in corn, or any other commodity, but on PROPORTIONAL wages, that is, on the share of the commodities produced by the labourer, or of their value, which is given to him. It is, indeed, easy to see that proportional wages may be increased, at the same time that wages, if estimated in corn, or any other necessary, would be found to be diminished; and, in point of fact, such is almost uniformly found to be the case when recourse is had to poor soils. Suppose that the produce obtained from a given amount of capital applied to the land last taken into cultivation in America yields 100 quarters, the labourer will perhaps receive 60 quarters, or 60 per cent. of the produce as his wages. But the same amount of capital, if applied to the land last taken into cultivation in Britain, would not yield more than 50 quarters; and supposing the labourer to get only 40 quarters, or 20 quarters less than in America, still his proportional wages, or the wages which determine the rate of profit, would be 80 per cent. or 20 per cent. higher than in America. In the early stages of society, and wherever the best lands only are cultivated, proportional wages are always low, and profits high; but these low proportional wages are always the most advantageous to the labourer, because, as labour is, in such circumstances, extremely productive, a small per-centage of its total amount gives a large supply of necessaries and conveniences. In the advanced stages of society, on the other hand, and wherever lands of a very inferior degree of fertility are cultivated, proportional wages are high and profits low; but owing to the increased difficulty of pro-
Profits and Wages. duction, these high proportional wages afford only a comparatively small supply of necessaries and conveniences.
It is therefore on proportional wages that profits must always depend; and owing to the increasing difficulty of producing corn and other products, such proportional wages always increase as society advances. This natural tendency of profits to fall is occasionally checked by improvements in machinery, and by discoveries in agriculture; but the effects of these improvements are only temporary; for, by stimulating population, they never fail, in the long run, to force recourse to poor soils; and whenever this is the case, profits must unavoidably fall.
It has been contended, that both wages and profits are high in America, and that, therefore, the theory which we now have been endeavouring to explain, and which makes profits in every case to depend on wages, must be erroneous. But the remarks we have just made show that this objection is totally unfounded. It is by proportional quantities, and not by absolute quantities, that we are to estimate the effect of wages on profits. The American labourer receives a less proportion of the produce raised by him than the British labourer, and profits are consequently high in America; but as the American labourer cultivates none but the best soils, and which yield a very large produce, his smaller share of this large aggregate produce gives him a great absolute quantity of necessaries and conveniences, and his condition is, therefore, comparatively prosperous.
An Increase of Taxation Reduces Profits. We have, throughout this discussion, been supposing taxation to be invariable. It is plain, however, that as soon as it is increased, it must have one or other of two effects—it must either lower the labourer's command over necessaries and luxuries, and degrade his condition, or it must fall on profits. There are limits, however, and those not very difficult to be attained, to the power of the labourers to pay taxes; and whenever these limits have been reached, they must entirely fall on profits. It has, therefore, been most justly and truly observed by Dr Smith, that a heavy taxation has exactly the same effects as an increased barrenness of the soil, and an increased inclemency of the heavens.
Errors of Sir J. Child and Dr Smith with respect to the Low Rate of Profit in Holland. The great wealth and commercial prosperity of Holland has been confidently appealed to by Sir Josiah Child, and others, as a convincing proof of the superior advantages of low profits and interest; and seems also to have led Dr Smith to suppose that the mere accumulation of capital could sink the rate of profit. But in this instance, there can be no doubt that Sir Josiah Child mistook the effect of heavy taxation for the cause of wealth, and that Dr Smith mistook the same effect for the effect of the accumulation of capital. A country, whose average rate of profit is considerably less than the
average rate of profit in surrounding countries, may, notwithstanding, abound in wealth, and be possessed of immense capital; but it is the height of error to suppose, that this lowness of profit could have facilitated their accumulation. There is unquestionable evidence to show that the capital of Holland had been chiefly amassed when profits were comparatively high; and that the subsequent fall of profits was almost entirely a consequence of the oppressiveness of taxation, and the continued increase of the public debt. In 1580, the interest of the public debt of the province of Holland amounted to 117,000 florins, but so rapidly did it increase, that in 1655, during the administration of the famous John de Witt, the states were compelled to reduce the interest of the debt from 5 to 4 per cent.; and yet, notwithstanding this reduction, it amounted, in 1678, to 7,107,128 florins! (Metelkamp, Statistique de la Hollande, p. 203.) It was this enormous increase of the public debt, and the proportionable increase of taxation which it occasioned, and not the accumulation of capital, that was the real and sole cause of the fall of profits in Holland, and ultimately of her decline and ruin. Sir William Temple, in his Observations on the United Provinces, mentions that the trade of Holland was on the decline in 1668, the period when Sir Josiah Child's Treatise was first published; and he farther states, that the vast capitals of the Dutch merchants had been chiefly accumulated previously to the war in which the Republic had been engaged with Cromwell and Charles II., and when, of course, taxation was much lighter, and the rate of profits much higher than at any subsequent period.*
High proportional wages and low profits, for they are inseparably connected, ought never to be made the subject of complaint, if they occur in the natural progress of society, under a parsimonious government, and a system of perfectly free intercourse with other countries. But if they are the result of heavy taxation caused by profuse expenditure, or by restrictions which prevent the importation of cheap foreign corn, and which, therefore, force the cultivation of inferior soils at home, they cannot be too strongly condemned. A nation placed in such circumstances must not only advance slowly, when compared with other nations which are enabled to raise their supplies of raw produce from superior soils—the power to accumulate capital must not only be diminished, but a strong temptation must be held out to transfer it to other countries. The love of country—the thousand ties of society and friendship—the ignorance of foreign languages, and the desire to have one's stock employed under their own inspection, will, no doubt, in very many instances, induce capitalists to rest contented with a less rate of profit in their own, than they might realise by investing their funds in other countries. But this love of
* For an account of the effect of heavy taxes on the industry of Holland, see the second volume of the Traité de la Richesse de la Hollande, pp. 39 and 179; and a memoir On the Means of Redressing and Amending the Trade of the Republic, drawn up from information communicated by the best informed merchants, and published by order of the Stadtholder, William IV. Prince of Orange, in 1751. This memoir was translated into English, and published in London in the same year.
country has its limits. The love of gain—the aurea sacra fames—is a no less powerful and constantly operating principle; and if capitalists are once assured that their stock can be laid out with equal security, and with considerably greater advantage, in foreign states, an efflux of capital to a greater or less extent will unquestionably take place.
A manufacturing and commercial country, which has wisely adopted a liberal commercial system, has no reason to be alarmed at the effects of competition in any department of industry. The production of one commodity opens a market for the exchange, that is, for the sale of some other commodity. What a manufacturing and commercial nation has really to fear is, that its average rate of profit should fall lower than the average rate of profit in the neighbouring countries. If this should be the case, its progress will, in consequence, be retarded; and it will ultimately languish and decline. Neither the skill, industry, and perseverance of artisans, nor the most improved and powerful machinery, can permanently withstand the paralyzing and deadening influence of a comparatively low rate of profit. And such a comparative reduction, it must never be forgotten, will be constantly produced by a comparatively heavy taxation, and by acting on a factitious and exclusive commercial system; for, by preventing the importation of cheap foreign corn, we necessarily force the cultivation of poor soils, and thus by raising proportional wages, sink profits.
PART IV.—CONSUMPTION OF WEALTH.
Having in the previous sections endeavoured to explain the means by which labour is facilitated, and wealth produced, and to investigate the laws regulating its distribution among the various classes of the society, we come now to the third and last division of the science of Political Economy, or to that which treats of the CONSUMPTION OF WEALTH.
Definition of Consumption—Consumption the end of Production—Test of Advantageous and Disadvantageous Consumption—Error of Dr Smith's Opinions with respect to Unproductive Consumption—Error of those who contend, that to facilitate Production it is necessary to encourage Consumption—Cause of Gluts—Consumption of Government—Conclusion.
We formerly showed, that, by the production of a commodity was not meant the production of matter, for that is exclusively the prerogative of Omnipotence, but the giving to matter already in existence such a shape as might fit it for ministering to our wants and enjoyments. In like manner, by consumption is not meant the consumption, or annihilation of matter, for that is equally impossible as its creation, but merely the consumption or annihilation of those qualities which render commodities useful and desirable. To consume the products of art or industry is, therefore, really to deprive the matter of which they consist of the utility, and consequently of the exchangeable value communicated to it by labour. And hence we are not to measure consumption by the magnitude, the weight, or the number of the products consumed, but exclusively by their value.
Large consumption is the destruction of large value, however small the bulk in which that value may happen to be compressed.
Consumption, in the sense in which the word is used by Political Economists, is synonymous with use. We produce commodities only that we may be able to use or consume them. Consumption is the great end and object of all human industry. Production is merely a means to attain an end. No one would produce were it not that he might afterwards consume. All the products of art and industry are destined to be consumed, or made use of; and when a commodity is brought into a state fit to be used, if its consumption be deferred, a loss is incurred. All products are intended either to satisfy the immediate wants, or to add to the enjoyments of their producers; or they are intended to be employed as capital, and made to reproduce a greater value than themselves. In the first case, by delaying to use them, it is plain we either refuse to satisfy a want, or deny ourselves a gratification it is in our power to obtain;—and in the second, by delaying to use them, it is equally plain we allow the instruments of production to lie idle, and lose the profit that might be derived from their employment.
But, although all commodities are produced only to be consumed, we must not fall into the error of supposing, that all consumption is equally advantageous to the individual, or the society. If an individual employs a set of labourers to build him a house the one summer, and to pull it down the next, their labour, or rather the capital he gave them in exchange for their labour, and which they have consumed during the time they were engaged in this futile employment, is evidently destroyed for ever, and absolutely lost both to himself and the public; whereas, had he employed them in the raising of corn, or in the production of any species of valuable produce, he would have obtained commodities of equal, or more than equal, value to the capital he gave them. The value of the return, or the advantage obtained from the consumption, is, therefore, the true and only test of advantageous and disadvantageous, or, as it is more commonly termed, of productive and unproductive consumption. Commodities are consumed productively when the advantage or benefit accruing in consequence to their possessors, or when the value of the products obtained in their stead exceeds their value; and they are consumed unproductively when the value of the advantage or benefit, or the value of the new commodities, is less than their value. It is on this balance of consumption and reproduction, and not, as was so long supposed, on the balance of trade, that the prosperity or decay of every nation depends. If, in given periods, the commodities produced in a country exceed those consumed in it, the means of increasing its capital will be provided, and its population will either increase, or the actual numbers will be better accommodated, or both. If the consumption in such periods fully equals the reproduction, no means will be afforded of increasing the stock or capital of the nation, and society will be at a stand. And if the consumption exceeds the reproduction, every succeeding period will see the society worse supplied; its prosperity and population will evident-
Consump-
tion of
Wealth.
ly decline, and pauperism will gradually and progressively spread itself over the whole country.
It is impossible, however, to fix on any standard by a comparison with which we may be able to obtain even a tolerable approximation to the comparative value or advantage of different kinds of consumption. This is a point on which the sentiments of no two individuals can ever exactly coincide. The opinions of each will always depend more or less on the situation in which he is placed. The rich man will naturally be inclined to give a greater extension to the limits of advantageous consumption than the man of middling fortune; and the latter than the man who is poor. And it is undoubtedly true that a man's expenses ought always to bear some proportion to the magnitude of his fortune, and his condition in society; and that what might be proper and advantageous expenditure in one case, might be exceedingly improper and disadvantageous in another. It is, therefore, quite impossible to frame any system of rules on the subject of expenditure, which shall be applicable to the case of every individual; and even if it were practicable, there is no ground to think that the formation of such rules would be of the smallest utility. The state has no right whatever to control individual expenditure; nor, even if it had such a right, could it exercise it without occasioning serious injury. The public interest requires that the national capital should, if possible, be constantly kept on the increase; or, which is the same thing, that the consumption of any given period should be made the means of reproducing a greater value. But we have sufficiently proved that this cannot, in any case, or under any circumstances, be the result of a system of surveillance and restriction. Industry and frugality never have been, and never can be, promoted by such means. To render a man industrious, secure him the peaceable enjoyment of the fruits of his industry;—to wean him from extravagance, and to render him frugal and parsimonious, allow him to reap all the disadvantage of the one line of conduct, and all the advantage of the other. The poverty and loss of station which is the necessary and inevitable result of improvident and prodigal consumption, is a sufficient security against its ever becoming injuriously prevalent; and wherever the public burdens are moderate, property protected, and the perfect and uncontrolled freedom of industry secured, the constant efforts of the great body of the people to rise in the world and improve their condition, will ensure the continued increase of national wealth. It is idle to expect that all unproductive and unprofitable expenditure can ever be avoided; but the experience of all tolerably well governed states proves, that the amount of the produce of industry productively expended, is always infinitely greater than that which is expended unproductively.
Luxury not
disadvan-
tageous.
It was long a prevalent opinion among moralists, that the labour bestowed on the production of luxuries, and consequently their consumption, was unproductive. But this opinion is now almost universally abandoned. Unless, indeed, all comforts and enjoyments are to be proscribed, it is impossible to say where necessaries end, and luxuries begin. But
if we are to understand by necessaries such products only as are absolutely required for the support of human life, every thing but wild fruits, roots, and water, must be deemed superfluous; and in this view of the matter, the peasantry of Ireland, who live only on potatoes and butter-milk, must be considered as contributing much more to the national wealth than the peasantry of Britain! The mere statement of such a doctrine is sufficient for its refutation. Every thing that stimulates exertion is advantageous. The mere necessaries of life may be obtained with comparatively little labour; and those savage and uncivilized hordes, who have no desire to possess its comforts, are proverbially and notoriously indolent and dissipated. To make men industrious—to make them shake off that lethargy which is natural to them, they must be inspired with a taste for the luxuries and enjoyments of civilized life. When this is done, their artificial wants will become equally clamorous with those that are strictly necessary, and they will increase exactly as the means of gratifying them increase. Wherever a taste for comforts and conveniences has been generally diffused, the wants and desires of man become altogether unlimited. The gratification of one leads directly to the formation of another. In highly civilized societies, new products and new modes of enjoyment are constantly presenting themselves as motives to exertion, and as means of rewarding it. Perseverance is, in consequence, given to all the operations of industry; and idleness, and its attendant train of evils, almost entirely disappear. "What," asks Dr Paley, "can be less necessary, or less connected with the sustenance of human life, than the whole produce of the silk, lace, and plate manufactory? Yet what multitudes labour in the different branches of these arts! What can be imagined more capricious than the fondness for tobacco and snuff? Yet how many various occupations, and how many thousands in each, are set at work in administering to this frivolous gratification?" It is the stimulus which the desire to possess these articles of luxury gives to industry that renders their introduction advantageous. The earth is capable of furnishing food adequate for the support of a much greater portion of human beings than can be employed in its cultivation. But those who are in possession of the soil will not part with their produce for nothing; or rather, they will not raise at all what they can neither use themselves nor exchange for what they want. As soon, however, as a taste for conveniences and luxuries has been introduced, the occupiers of the ground raise from it the utmost that it can be made to produce, and exchange the surplus for such conveniences and gratifications as they are desirous of obtaining; and, in consequence, the producers of these articles, though they have neither property in the soil, nor any concern in its cultivation, are regularly and liberally supplied with its produce. In this way, the quantity of necessaries, as well as of useful and agreeable products, is vastly increased by the introduction of a taste for luxuries; and the population are, in consequence, not only better provided for, but their numbers are proportionably and greatly augmented.
It is plain, therefore, that the consumption of lux-
uries cannot, provided it be confined within proper limits, be justly considered as either disadvantageous or unproductive. If, indeed, a man were to consume more luxuries than his labour or his fortune enabled him to command, his consumption would be disadvantageous. But it is plain, the same thing would equally have happened had he consumed a greater quantity of necessaries than he could afford. The mischief does not consist in the species of articles consumed, but in the excess of their value over the means of purchasing them possessed by the consumers. This, however, is a fault which ought always to be left to be corrected by the self-interest of those concerned. The poverty and degradation caused by indulging in unproductive consumption is a natural and sufficient guarantee against its ever being carried to an injurious extent. To attempt to lessen unproductive consumption by proscribing luxury, is really the same thing as to attempt to enrich a country by taking away some of the most powerful motives to production.
Dr Smith has given another criterion of productive and unproductive consumption; but his opinions on this subject, though exceedingly ingenious, and supported with his usual ability, appear to rest on no solid foundation. He divides society into two great classes. The first consists of those who fix, or, as he terms it, "realize their labour in some particular subject, or vendible commodity, which lasts for some time at least after that labour is past;" the second, of those whose labour leaves nothing in existence after the moment of exertion, but perishes in the act of performance. The former are said by Dr Smith to be productive, the latter unproductive, labourers. Not that, in making this distinction, Dr Smith means to undervalue the services performed by the unproductive class, or to deny that they are often of the highest utility; for he admits that such is frequently the case: but he contends, that these services, however useful, do not augment the wealth of the country; and, consequently, that the commodities consumed by this class are unproductively consumed, and have a tendency to impoverish, not to enrich, the society. But to avoid the chance of misrepresentation, we shall give Dr Smith's opinions in his own words.
"There is one sort of labour," says he, "which adds to the value of the subject upon which it is bestowed; there is another which has no such effect. The former, as it produces a value, may be called productive; the latter unproductive labour. Thus the labour of a manufacturer adds, generally, to the value of the materials which he works upon, that of his own maintenance, and of his master's profit. The labour of a menial servant, on the contrary, adds to the value of nothing. Though the manufacturer has his wages advanced to him by his master, he, in reality, costs him no expense, the value of those wages being generally restored, together with a profit, in the improved value of the subject upon which his labour is bestowed. But the maintenance of a menial servant never is restored. A man grows rich by employing a multitude of manufacturers; he grows poor by maintaining a multitude of menial servants. The labour of the latter, however, has its value and
deserves its reward as well as that of the former. But the labour of the manufacturers fixes and realizes itself in some particular subject, or vendible commodity, which lasts for some time at least after that labour is past. It is, as it were, a certain quantity of labour stocked and stored up to be employed, if necessary, upon some other occasion. That subject, or, what is the same thing, the price of that subject, can afterwards, if necessary, put into motion a quantity of labour equal to that which had originally produced it. The labour of the menial servant, on the contrary, does not fix or realize itself in any particular subject or vendible commodity. His services generally perish in the very instant of their performance, and seldom leave any trace or value behind them for which an equal quantity of service could afterwards be procured.
"The labour of some of the most respectable orders in the society is like that of menial servants, unproductive of any value, and does not fix or realize itself in any permanent subject or vendible commodity, which endures after that labour is past, and for which an equal quantity of labour could afterwards be procured. The sovereign, for example, with all the officers both of justice and war who serve under him, the whole army and navy, are unproductive labourers. They are the servants of the public, and are maintained by a part of the annual produce of the industry of other people. Their service, how honourable, how necessary, or how useful soever, produces nothing for which an equal quantity of service can afterwards be procured. The protection, security, and defence of the commonwealth, the effect of their labour this year, will not purchase its protection, security, and defence for the year to come. In the same class must be ranked some both of the greatest and most important, and some of the most frivolous professions: churchmen, lawyers, physicians, men of letters of all kinds; players, buffoons, musicians, opera-singers, opera-dancers, &c. The labour of the meanest of these has a certain value, regulated by the very same principles which regulate that of every other sort of labour; and that of the noblest and most useful produces nothing which could afterwards purchase or procure an equal quantity of labour. Like the declamation of the actor, the harangue of the orator, or the tune of the musician, the work of all of them perishes in the very instant of its production." (Wealth of Nations, II. p. 1.)
Such are the opinions of Dr Smith, and it will not, we think, be very difficult to show the fallacy of the distinction he has endeavoured to establish between the labour, and consequently also the consumption, of the different classes of society. To begin with the case of the menial servant:—Dr Smith says, that his labour is unproductive, because it is not realized in a vendible commodity, while the labour of the manufacturer is productive, because it is so realized. But of what, may we ask, is the labour of the manufacturer really productive? Does it not consist exclusively of comforts and conveniences required for the use and accommodation of society? The manufacturer is not a producer of
matter, but of utility only. And is it not obvious that the labour of the menial servant is also productive of utility? If, for example, the labour expended in converting the wool of the sheep into a coat be, as it unquestionably is, productive, then surely the labour expended in cleaning and brushing the coat, and rendering it fit to be worn, must be so too. It is universally allowed, that the labour of the husbandman in raising corn, beef, and other articles of provision, is productive; but if so, why is the labour of the menial servant who performs the necessary and indispensable task of preparing and dressing these articles, and fitting them to be used, to be stigmatized as unproductive? It is clear to demonstration, that there is no difference whatever between the two species of industry—that they are either both productive, or both unproductive. To produce a fire, is it not just as necessary that coals should be carried from the cellar to the grate, as that they should be carried from the bottom of the mine to the surface of the earth? And if it is said, that the miner is a productive labourer, must we not also say the same of the servant, who is employed to make and mend the fire? The whole of Dr Smith's reasoning proceeds on a false hypothesis. He has made a distinction where there is none, and where there can be none. The end of all human exertion is the same—that is, to increase the sum of necessities, comforts, and enjoyments; and it must be left to the judgment of every man to determine what proportion of these comforts he will have in the shape of menial services, and what in the shape of material products. It is an error to suppose that a man is impoverished by maintaining menial servants, any more than by indulging in any other species of expence. It is true he will be ruined if he keeps more servants than he has occasion for, or than he can afford to pay; but his ruin would be equally certain were he to purchase an excess of food or clothes, or to employ more workmen in any branch of manufacture than are required to carry it on, or than his capital could employ. To keep two ploughmen when one only might suffice, is just as improvident and wasteful expenditure as it is to keep two footmen to do the business of one. It is in the extravagant quantity of the commodities we consume or of the labour we employ, and not in the particular species of commodities or labour, that we must seek for the causes of impoverishment.
The same reasoning applies to all the other cases mentioned by Dr Smith. Take, for example, the case of the physician. Dr Smith tells us that he is an unproductive labourer, because he does not directly produce something that has exchangeable value. But if he does the same thing indirectly, what is the difference? If the exertions of the physician are conducive to health, and if, as is undoubtedly the case, he enables others to produce more than they could do without his assistance, then it is plain he is indirectly, at least, if not directly, a productive labourer. Dr Smith makes no scruple about admitting the just title of the workman employed to repair a steam-engine to be enrolled in the productive class; and yet he would place a physician, who had been instrumental in saving the life
of an Arkwright or a Watt, among those that are unproductive! It is impossible that these inconsistencies and contradictions could have occurred to Dr Smith; and the errors into which he has fallen in treating this important branch of the science, shows in the strongest manner the absolute necessity of advancing with extreme caution, and of subjecting every theory, how plausible and ingenious soever it may appear when first stated, to a severe and patient examination.
The amusements furnished by players, singers, and so forth, come under the description of luxuries, and have precisely the same effect on the public wealth as the introduction of a taste for tobacco, tea, or other superfluities. They create new wants, and by so doing, stimulate our industry to procure the means of gratifying them. They are really, therefore, a means of production; and while they furnish us with elegant and amusing recreation, they certainly add to the mass of useful material products.
The productiveness of the higher class of functionaries mentioned by Dr Smith is still more obvious. So far, indeed, from being unproductive, they are, when they discharge properly the duties of their high station, the most productive labourers in a state. Dr Smith says, that the results of their service, that is, to use his own words, "the protection, security, and defence of the commonwealth any one year, will not purchase its protection, security, and defence for the year to come." But this is plainly an error. We do not say that the protection and security afforded by good government is directly a cause of wealth; but it is plain that without this security and protection, the productive powers of industry could not have been called into action. Dr Smith would allow that the material products produced by the society one year, were to form the means of producing its supplies of necessities, conveniences, and enjoyments during the following year. But without the security and protection afforded by government, these products would either have not existed at all, or their quantity would have been very greatly diminished. How, then, is it possible to deny that those whose labour is necessary to afford this security are productively employed? Take the case of the labourers employed to construct fences; no one ever presumed to doubt that their labour is productive; and yet they do not contribute directly to the production of corn or of any other valuable product. The object of their industry is to give protection and security; to guard the fields that have been fertilized and planted by the husbandman from depredation; and to enable him to prosecute his employments without having his attention distracted by the care of watching. But if the security and protection afforded by the hedger and ditcher justly entitle them to be classed among those who contribute to enrich their country, on what principle can we reckon those public servants whose exertions protect property in the mass, and render every portion of it secure against hostile aggression, and the attacks of thieves and plunderers, be said to be unproductive? If the labourers who protect a single corn field from the neighbouring crows and cattle be productive, then surely the
judges and magistrates, the soldiers and sailors, who protect every field in the empire, and to whom it is owing that every class of inhabitants feel secure in the enjoyment of their property, rights, and privileges, have a right to be classed among those whose services are supereminently productive.
That much wealth has been unproductively consumed by the servants of the public, both in this and other countries, it is impossible to doubt. But we are not to argue from the abuses extrinsic to a beneficial institution against the institution itself. If the public pay their servants excessive salaries, or employ a greater number than is required for the purposes of good government and security, it is their own fault. Their conduct is quite the same as that of a manufacturer who should pay his labourers comparatively high wages, and employ more of them than he had occasion for. But, although a state or an individual may act in this foolish and extravagant manner, it would obviously be the extreme of folly and absurdity to conclude from thence that all public servants and all manufacturing labourers are unproductive! If the establishments which provide security and protection be formed on an extravagant scale, if we have more judges or magistrates, more soldiers or sailors, than are necessary, or if we pay them larger salaries than would suffice to procure the services of others, let their numbers and their salaries be reduced. The excess, if there be any, is not a fault inherent in the nature of such establishments, but results entirely from the extravagant scale on which they have been arranged.
But, in showing that Dr Smith was mistaken in considering the consumption of menial servants, and of lawyers, physicians, and public functionaries unproductive, we must beware of falling into the opposite extreme, and of countenancing the erroneous and infinitely more dangerous doctrine of those who contend that consumption, even when most unproductive, ought to be encouraged as a means of stimulating production, and of increasing the demand for labour! The consumption of the classes mentioned by Dr Smith is advantageous, because they render services in return, which those who employ them, and who are the only proper judges in such a case, consider to be of greater value than the wages they pay them. But the case would be totally different, if the Government and those who employ labourers, were to do so, not in order to profit by their services, but to stimulate production by their consumption! It is a fallacy and an absurdity to suppose that production can ever be encouraged by a wasteful consumption of the products of industry. A man is stimulated to produce when he finds a ready market for the produce of his labour, that is, when he can readily exchange them for other products. And hence the true and only encouragement of industry consists, not in the increase of wasteful and improvident consumption, but in the increase of production. Every new product necessarily forms a new equivalent, or a new means of purchasing some other product. It must always be remembered, that the mere existence of a demand, how intense soever it may be, cannot of itself be a means of encouraging production. To become a real demander, a man
must not only have the will, but he must also have the power, to purchase the commodity he wishes to possess; or, in other words, he must be able to offer an equivalent for it. There never has been, nor is it in the nature of things that there ever can be, any limits to our wish to possess the products of art and industry. It is the power to give effect to our wishes, or to furnish other products in exchange for those we are desirous of obtaining, that is the real and only desideratum. The more, therefore, that this power is increased, that is, the more industrious every individual becomes, his means of offering equivalents for the products of others will be so much the more increased, and the market will be rendered so much the more extensive.
Mr Sismondi and Mr Malthus have, indeed, contended, in opposition to this doctrine, that the productiveness of industry may really be carried to excess; and that, in a country where there are great facilities of production, a large unproductive consumption is necessary to stimulate industry, and prevent the overloading of the market. But if we attend to the motives which cause men to engage in any branch of industry, we shall be satisfied that the apprehensions of these writers are unfounded, and that the utmost facility of production can never be productive of a permanent glut of the market, or require to be counteracted by means of unproductive expenditure. In exerting his productive powers, every man's object is either directly to consume the produce of his labour himself, or to exchange it for such commodities as he wishes to obtain from others: If he does the first—if he directly consumes the produce of his industry, there is an end of the matter, and it is evident that the multiplication of such produce to infinity could never occasion a glut: If he does the second—if he brings the produce of his industry to market, and offers it in exchange for other commodities, then, and then only, there may be glut; but why? Not certainly because there has been any excess of production, but because the producers have not properly adapted their means to their ends. They wanted, for example, to obtain silks, and they offered cottons in exchange for them; the proprietors of the silks were, however, already sufficiently supplied with cottons, and they wanted broad cloths. The cause of the glut is, therefore, obvious. It consists not in over-production, but in the production of cottons, which were not wanted, instead of broad cloths, which were wanted. Let this error be rectified, and the glut will disappear. Even supposing the proprietors of silks to be not only supplied with cottons, but with cloth and every other commodity that the demanders can produce, it would not invalidate the principle for which we are contending. If those who want silks cannot obtain them from those who have them, by means of an exchange, they have an obvious resource at hand—let them cease to produce the commodities which they do not want, and directly produce the silks which they do want, or substitutes for them. It is plain, therefore, that the utmost facility of production can never be a means of overloading the market. Too much of one commodity may occa-
sionally be produced; but it is quite impossible that there can be too great a supply of every species of commodities. For every excess there must be a corresponding deficiency. The fault is not in producing too much, but in producing commodities which do not suit the tastes of those with whom we wish to exchange them, or which we cannot ourselves consume. If we attend to these two grand requisites, we may increase the power of production a thousand or a million of times, and we shall be as free of all excess as if we diminished it in the same proportion. Unproductive consumption is not, therefore, necessary to prevent the overloading of the market; and to maintain that it contributes to increase national wealth in any other way, is really just the same thing as to maintain that wealth would be increased by throwing a portion of it into the sea or the fire.*
Montesquieu has said, and the same sentiment has been expressed in a thousand different shapes, "Si les riches ne depensent pas beaucoup les pauvres mourront de faim." (Liv. VII. chap. 4.) Montesquieu was betrayed into this error, from his being unacquainted with the nature and functions of capital. The profusion of the rich, far from being of any advantage to the poor, is really one of the greatest calamities that can befall them. It is impossible that the demand for labour can be increased without an increase of capital. When the parsimonious principle predominates, capital increases, and as capital increases, the demand for labour is increased, the existing inhabitants are better provided for, and their numbers are increased; on the contrary, wherever profusion and wasteful expenditure predominates, capital is diminished, the inhabitants are daily worse and worse provided for, and idleness, pauperism, and disease prevail. Besides, it must be remembered, that what is annually saved, is as regularly consumed as what is annually spent. The only difference is, that it is consumed in a different manner—consumed by those who render a great-
er value in return, instead of being consumed by such as render no real value whatever.†
"By what a frugal man annually saves," says Dr Smith, "he not only affords maintenance to an additional number of labourers for that or the ensuing year, but, like the founder of a public workhouse, he establishes, as it were, a perpetual fund for the maintenance of an equal number in all time to come. The perpetual allotment and destination of this fund, indeed, is not always guarded by any positive law, by any trust-right, or deed of mortmain. It is always guarded, however, by a very powerful principle, the plain and evident interest of every individual to whom any share of it shall ever belong. No part of it can afterwards be employed to maintain any but productive hands, without an evident loss to the person who thus perverts it from its proper destination." (Wealth of Nations, II. p. 14.)
We have already stated the impossibility of laying down any general rules on the subject of individual consumption. What the public is really interested in is, that it should never be carried on for the absurd purpose of occasioning a demand for the products of industry, and that it should be less than the reproduction; or, in other words, that the capital of the country should be kept constantly on the increase. But there is no instance of any people having ever missed an opportunity to save and accumulate. And in all tolerably well governed countries the principle of accumulation in individuals has always had a marked ascendancy over the principle of expence, and the national capital, and, consequently, the riches of the country, have been constantly augmented.
But this is seldom the case with the consumption carried on by governments and their servants. Individuals are fully sensible of the value of the articles they expend. In the vast majority of instances, they are the direct result of their industry, perseverance, and economy; and they will not consume them, unless to obtain an equivalent advantage. But such is not the situation of governments. They con-
* M. Say was the first who showed, in a satisfactory manner, that effective demand depends upon production. (See his chapter De Debouchés.) But the principles from which his conclusions are drawn had been stated so early as 1752, in a tract of Dean Tucker's, entitled Queries on the late Naturalization Bill. As this tract is now become of rare occurrence, we shall subjoin the queries referred to.
"Whether it is possible, in the nature of things, for ALL trades and professions to be overstocked? And whether, if you were to remove any proportional number from each calling, the remainder would not have the same grounds of complaint they had before?
"Whether, in fact, any tradesman thinks there are too many of other occupations to become his customers; though narrow selfish views lead him to wish there were fewer of his own trade?
"If a particular trade be at any time overstocked, will not the disease cure itself? That is, will not some persons take to other trades, and fewer young people be bred up to that which is least profitable? And whether any other remedy but this is not, in fact, curing one transient disorder by bringing on many which are dangerous, and will grow inveterate?
"WHETHER IT IS NOT AN INFALLIBLE MAXIM, THAT ONE MAN'S LABOUR CREATES EMPLOYMENT FOR ANOTHER?" (p. 13.)
For a farther demonstration of the same principle, see Mr Mill's Commerce Defended, p. 80.
† For a farther and very able discussion of the opinion of Montesquieu, see the 7th chapter of the Commentaire sur l'Esprit des Loix of M. Destutt-Tracy, and Tom. IV. p. 383, of the Éléments d'Ideologie of the same author.
sume the produce of the labour of others, not of their own; and this circumstance prevents them from being so much interested in its profitable expenditure, and so much alive to the injurious consequences of extravagant and wasteful expenditure as their subjects. But economy on the part of government, though more difficult to be obtained, is of infinitely greater importance than economy on the part of any individual. Should a private gentleman think of acting on the principle that profusion is a virtue, and that industry may be encouraged by increasing unprofitable consumption, he will most certainly be ruined; his ruin, however, will only be directly injurious to the individuals in his own employment, and will have but a very slight indirect effect on others. But similar conduct on the part of government would most probably be productive either of revolution, or of national poverty and degradation. If, then, it is most desirable that individuals should have a correct knowledge of their real interest in the consumption of commodities; how much more so must it be that government should possess that knowledge? Economy and frugality are virtues in a private station; but in a public station their influence upon national happiness is so vast, that they are not only the first of virtues, but the most pressing of duties.
“Si les dépenses publiques,” M. Say observes, “affectent la somme des richesses précisément de la même manière que les dépenses privées, les mêmes principes d'économie doivent presider aux unes et aux autres. Il n'y a pas plus deux sortes d'économie, qu'il n'y a deux sortes de probité, deux sortes de morale. Si un gouvernement comme un particulier font des consommations desquelles il doit résulter une production de valeur supérieure à la valeur consommée, ils exercent une industrie productive; si la valeur consommée n'a laissé aucun produit, c'est une valeur perdue pour l'une comme pour l'autre, mais qui en se dissipant, a fort bien pu rendre le service qu'on en attendait. Les munitions de guerre et de bouche, le temps et les travaux de fonctionnaires civils et militaires qui ont servi à la défense de l'état, n'existent plus, quoique ayant été parfaitement bien employés, il en est des ces choses comme de denrées et des services qu'une famille a consommés pour son usage.
Cet emploi n'a présenté aucun avantage autre que la satisfaction d'un besoin; si le besoin n'existait pas, la consommation, la dépense, n'ont plus été qu'un mal sans compensation. Il en est de même des consommations de l'état;—consommer pour consommer, dépenser par système, réclamer une service pour l'avantage de lui accorder une salaire, anéantir une chose pour avoir occasion de la payer est une extravagance de la part d'un gouvernement comme de la part d'un particulier, dans un petit état comme dans un grand, dans une république comme dans un monarchie. Un gouvernement dissipateur est même bien plus coupable qu'un particulier: celui-ci consomme les produits qui lui appartiennent, tandis qu'un gouvernement n'est pas propriétaire: il n'est qu'administrateur de la fortune publique.” (Tome II. p. 268.)
We have now shown how labour may be rendered most productive of wealth—how that wealth is distributed among the various classes of the society—and how it may be most advantageously consumed. We have shown the close and indissoluble connection subsisting between private and public opulence, and that whatever has any tendency to increase the former, must, to the same extent, increase the latter;—and we have shown that SECURITY OF PROPERTY, FREEDOM OF INDUSTRY, AND MODERATION IN THE PUBLIC EXPENDITURE, are the only, as they are the certain, means by which the various powers and resources of human talent and ingenuity can be called into action, and society made continually to advance in the career of wealth and civilization. Every increase of security or of freedom is a benefit, as every diminution, whether of the one or the other, is an evil. It is by the spontaneous and unconstrained efforts of individuals to improve their condition and to rise in the world, and by these efforts only, that nations become rich and powerful. The labour and the savings of individuals are at once the source and the measure of national opulence and public prosperity. They may be compared to the drops of dew which invigorate and mature all vegetable nature. None of them has singly any perceptible influence; but we owe the foliage of summer and the fruits of autumn to their combined action. (S.S.)