s the art of reasoning by figures upon matters relating to government; such as the revenues, number of people, extent and value of land, taxes, trade, &c. in any nation. These calculations are generally made with a view to ascertain the comparative strength, prosperity, and resources of any two or more nations. With this view, Sir William Petty, in his Political Arithmetic, entered into a variety of calculations concerning the different countries of Europe. With these calculations Dr Davenant was dissatisfied; and, therefore, from the observations of Mr Gregory King, he advanced others of his own. (See his Essay on Trade.) The advancement of society has entirely superseded the calculations of these writers; but their works are deserving of notice, as marking the progress of knowledge in this branch of political science. See the articles INSURANCE, MORTALITY, and STATISTICS. The subordinate parts of the science of political economy have been treated in separate articles of this work, with the fulness which their importance seemed to require. The present article, therefore, will be principally confined 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 of its different parts. In doing this, we shall have occasion to examine some of the more prominent theories advanced in this field of inquiry; our object being, not merely to lay before the reader what we conceive to be a true theory of the science, but also to present him with as full an exposition as our limits will allow of the doctrines advocated by the more celebrated of its professors.

PART I.

DEFINITION AND HISTORY.

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 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 the products necessary, useful, or agreeable to man, which it requires some portion of voluntary labour to produce, procure, or preserve.

This definition has been framed so as to exclude all reference to articles existing independently of man, and which may be obtained in unlimited quantities without any laborious exertion. Had such been the case with all the articles required to satisfy our wants and desires, this science would either not have existed, 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 under the observation of every man, and are continually modified by human interference. It is, in fact, the science of values; and nothing destitute of exchangeable value, or which will not be accepted as an equivalent for something else that is either wholly or partially the produce of labour, 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 value in exchange. Without utility nothing will ever be an object of demand; but how necessary soever any 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 exist independently of human agency, and if every individual have an indefinite command over it, it can never become the subject of an exchange, or afford any 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 are defended from the inclemency of the weather, are more useful than atmospheric air; and yet they are possessed of that 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 without any exertion; they are obtainable only by labour; and as none will voluntarily sacrifice the fruits of their industry without an equivalent, 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 between commodity, or its capacity to exchange for or buy other commodities, but also to express its utility, or its capacity and utility 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 to appease hunger, or of water to quench thirst—is a totally different and distinct quality from their capacity to exchange for or buy 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 frequently lost sight of by later writers. We have no doubt, indeed, that the confounding 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 it is said that water is highly valuable, the phrase has a very different meaning from what is attached to it when it is said that gold is valuable. Water is indispensable to existence, and has, therefore, a high degree of utility, or of "value in use;" but being generally obtainable 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 it in small supplies, it has a high value in exchange, and will be readily accepted as an equivalent for a large quantity of most other things. To confound these different sorts of value would evidently lead to the most erroneous conclusions. And, therefore, to avoid all chance of error from mistaking the sense of so important a word as value, we shall not use it except to signify exchangeable worth, or value in exchange; and shall employ the word utility to express the power or capacity of an article to satisfy our wants and desires.

A few words will suffice to show the necessity and importance of distinguishing between utility and value. Were they identical, or were they regulated by the same laws, it would necessarily follow, that whatever increased 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 merely raising its value. A deficient harvest increases the exchangeable value of corn, but most certainly it does not increase its utility. Were such an improvement made in the manufacture of hats as should enable them to be produced for half the expense it now takes to bring them to market, their value, and consequently their price, would very soon be also reduced a half. Each individual would be able to buy two hats for the same sum it 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

1 Economy, from οἶκος, a house, or family, and νόμος, a law—the government of a family. Hence political economy may be said to be to the state what domestic economy is to a family. would be greatly extended, and that they would be brought within the reach of a large proportion of those whose poverty might previously have hindered their obtaining them. The grand object, in fact, of this science 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 necessaries, conveniences, and luxuries at the disposal of every individual.

Political economy has frequently been 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 are necessary, useful, or agreeable to man, the definition is quite unexceptionable. But those 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." 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 Encyclopedia would really be the best treatise on political economy. Good health is useful and delightful, and therefore, on this hypothesis, the science of wealth should comprehend the science of medicine; civil and religious liberty are highly useful, and therefore the science of wealth should comprehend the science of politics; good acting is agreeable, and therefore, to be complete, the science of wealth should embrace a discussion of the principles of the historic art, and so on. Such definitions are obviously worse than useless. Their only effect is to generate confused and perplexed notions respecting the objects and limits of the science, and to prevent the student ever acquiring a distinct idea of the nature of the inquiries in which he is engaged.

Mr Malthus defined wealth to consist of "those material objects which are necessary, useful, and agreeable to man." (Principles of Political Economy, p. 28.) But waiving the objections that may justly be made to the introduction of the word "material," it is still too comprehensive to be made use of. Atmospheric air, and the heat of the sun, are both material products, and are highly useful and agreeable. But their independent existence, and incapacity of appropriation, exclude them, as has been already seen, from the investigations of this science.

Dr Smith has not explicitly stated the precise meaning he attached to the term wealth; but he most commonly describes it to be "the annual produce of land and labour." It has, however, been justly objected to this definition, that it refers to the sources of wealth before it is known what wealth is, and that it includes all the useless products of the earth, as well as those appropriated and enjoyed by man.

The above definition 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 products which have exchangeable value, and are necessary, useful, or agreeable," we give 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 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 obtainable only by the intervention of human labour, and which consequently may 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, this being a privilege he enjoys in common with every one else, 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 necessaries, 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 necessary to the existence of wealth, they cannot be confounded 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 command a much greater quantity of those necessaries and gratifications of which wealth consists, when their value declines, than when it increases. Wealth and value vary inversely,—the one increasing as the other diminishes, and diminishing 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 connected 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 the necessaries, luxuries, and enjoyments which form wealth; the laws which determine its distribution among the different classes of society; and how it may be most profitably consumed. To enter into lengthened arguments 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 it can only be procured through the intervention of industry—that man must earn his bread in 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 from 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 make us submit to the greatest privations, it is plainly impossible to doubt the utility and importance of the science which teaches the modes by which its acquisition may be facilitated, and by which the greatest amount of wealth may be obtained with the least difficulty. There is no class of persons to whom a knowledge of this science can be considered as 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 fertility of soil, as on their power to apply labour with perseverance, skill, and judgment. Industry can balance almost every other deficiency. It can render regions naturally inhospitable and unproductive, the comfortable abodes of an intelligent and refined, a crowded and wealthy population; but where it is wanting, the choicest 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 barbarism and wretchedness.

The possession of wealth being thus necessary to individual existence and comfort, and to the advancement of nations in the career of civilization, it may well excite astonishment that so few efforts should have been made to discover its sources and facilitate its acquisition, and that the study of political economy was not early considered as forming a principal part in a comprehensive system of education. 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 they were prohibited from engaging in any species of manufacturing or commercial industry; and in Athens and Rome, where this prohibition did not exist, these employments were universally regarded as mean, mercenary, and unworthy of freemen, and were in consequence carried on exclusively by slaves, or the very dregs of the people. 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 emperors, the cultivation of the soil was usually 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 dependent 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 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 accumulation as fraught with the most injurious consequences. It was impossible that this science should become an object of attention to men imbued with such prejudices; or that it should be studied by those who held the objects about which it is conversant in contempt, and spurned the labour by which wealth is produced.

At the establishment of our universities, the clergy being almost the exclusive possessors of the little knowledge then in existence, their peculiar feelings and pursuits naturally exercised a marked influence over 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, manu-

factures, 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 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 this science, and the little attention paid to it, down to a very recent date. 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 of its recent cultivation—has proved exceedingly unfavourable to its progress, and 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, it undoubtedly admits of as much certainty in its conclusions as any science not exclusively dependent on mere relation. A brief exposition of the principles on which it is founded, and of the mode in which its investigations should 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 civilisation depend, are not the offspring of legislative enactments. Man's existence depends on his exerting himself to produce wealth; and the desire implanted in his breast, which is 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 constitution of man and of the physical world, and their operations, like those of the mechanical principles, may 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 apply only 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 the same influence over every individual; and the theorist must satisfy himself with framing his 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 morals, as well as in 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 individuals to follow the bent of their inclination, and to engage in any branch of industry they think proper. This is the general theorem; and it is one which is established on the most comprehensive expe-

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1 The force of the prejudices on this head may be learned from the following quotations: "Illiberales autem et sordidi," Cicero says. "Questiones mercatoriarum, omniumque quorum opere, non quorum artes emuntur. Est enim illis ipsa merces auctoritatem servitutis. Sordidi etiam pauperi, qui mercatur a mercatoribus quod statim vendunt, nisi cuivis professioni, nisi admodum scientiae! Officinesque omnes in sordida arte consistant, nec cuivis gaudium ingenii potest halere efficere." Mercatura autem, si tenuis est, sordida putanda est: sin autem magna et copiosa, multa undique apportans, multisque sine vanitate impertiens, non est admodum virtu- peranda." (De Officiis, lib. I. sect. 42.)

"Vulgaris opificium, quae manu constant, et ad instruendam vitam occupate sunt; in quibus nulla decoris, nulla honesti similitudinis est." (Senecæ Epistolæ, ep. 89.)

A hundred similar quotations might be produced; but the one from Cicero is sufficient to establish the accuracy of what has been 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 of the opinions of the Romans on this subject, see the Dissertazione del Commercio di Rossini of Mengotti, which received a prize from the Academy of Paris in 1767, and the Memoria Apologetica del Commercio di Rossini of Torres, published at Venice in 1768.

"Rel militaris virtus praestat easteris omnibus; hæc populo Romano, hæc huius urbi veterem plerum peperit." (Cicero pro Marcius.) It is not, however, like the laws which regulate the motions of the planetary system, universally applicable; it will hold good in nineteen out of twenty instances, but the twentieth may be an exception. But it is not required of the economist that his theories should quadrature with the peculiar bias of a particular person. His conclusions are drawn from contemplating the principles 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 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 should 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 rather rash thence to conclude that society may be enriched by such means! This, however, is the single consideration to which the 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 this science, it is not enough to observe results in particular cases, or as they affect a few individuals; we must further inquire whether these results be 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 inconsistent with a uniform and constant fact, must be erroneous; but the observance of a particular result at variance with customary experience, and when we may not have the means of discriminating the circumstances attending it, should not make us hastily modify or reject a principle which accounts satisfactorily for the greater number of appearances.

The example of the few arbitrary princes, distinguished by their equity, humanity, and generosity, is not enough to overthrow the principle which teaches that it is of the essence 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 fortune in boisterous dissipation or vain expense, sufficient to invalidate the general conclusion, that the passion for accumulation is stronger and more powerful than the passion for expense. Had this not been the case, mankind could never have emerged from the condition of savages. The stupendous improvements made in different ages and nations, the forests that have been cut down, the marshes and lakes that have been drained and cultivated, the harbours, 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 instances of prodigality, the ascendancy and superior force of the accumulating principle.

The want of attention to these considerations has occasioned much of the error and misapprehension with which this science has been and still is infected. 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, no better than the indigested erudition of an almanac maker, Rise of the and affords no means of judging of the truth or falsehood of Science in a general principle.

But, though we are not to reject a received principle because of the apparent opposition of a few results, with the circumstances of which we are unacquainted, we should have no confidence in its solidity, unless it be deduced from a very comprehensive and careful induction. He who would arrive at a true knowledge of the laws regulating the production, distribution, and consumption of wealth, must draw his materials from a very wide surface; he should study man in every different situation—should have recourse to the history of society, arts, commerce, and civilization, to the works of philosophers and travellers, to everything, 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; should trace the rise, progress, and decline of industry; and, above all, 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 means of satisfactorily solving almost all the important problems in the science of wealth, and of devising a scheme of public administration calculated to insure the continued advancement of society in the career of improvement.

It should 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 be increased or diminished, except to ascertain their general operation and effect. The public interests should always 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.

Those who reflect on the variety and extent of the previous knowledge required for the construction of a sound theory of political economy, will cease to feel any surprise at the errors into which economists have been betrayed, or at the discrepancy of the opinions still entertained on some important points. This science 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 under different circumstances, the first cultivators of almost every branch of science begin 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 till they begin to be in request as furnishing the only test by which to ascertain the truth 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 occasions the production of the facts or raw materials he is afterwards to work into a system. The history of political economy strikingly exemplifies the truth of this remark. Being, as already observed, entirely unknown to the ancients, and but little attended to by our ancestors down to a comparatively late period, those circumstances which Mercantile would have enabled us to judge with the greatest precision, of the wealth and civilization of the more celebrated states of antiquity, and of Europe during the middle ages, have either been thought unworthy of notice by the historian, or have been very imperfectly and carelessly detailed. Those, therefore, who first began to trace the principles of the science had but a comparatively scanty experience on which to build their conclusions. Nor did they even avail themselves of the few historical facts with which they might easily have become acquainted, but almost exclusively confined their attention to those which happened to fall within the sphere of their own observation.

Accordingly to what has now been 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 standards by which 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—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 Chail, 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 necessaries, comforts, and luxuries, but to monopolize the largest possible supply of gold and silver. And, as these could not be obtained in countries destitute of mines, except in exchange for exported commodities, various schemes were resorted to for encouraging exportation, and for preventing the importation of most products other than the precious metals. In consequence, the excess of the value of the exports over that 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, that is, of the only real wealth 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 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 applied 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 defense 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 surplus to foreign countries to the value of L2,000,000, 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 L2,000,000; By this order duly kept in our trading, we may rest assured that the kingdom shall be enriched yearly L200,000, 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. 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 be impossible 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 L200,000 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 this rule for estimating the advantageousness of foreign commerce was long regarded by the generality of merchants and practical statesmen as infallible; and, until very recently, we were 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 establishment of the mercantile system, and to the enacting of regulations restrictive of the freedom of industry. The feudal governments established in the countries that had formed the western division of the Roman empire, early degenerated into a system of anarchy and lawless oppression. The princes, unable of themselves 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 citizens, abolishing every existing mark of servitude, and forming them into corporations, or bodies politic, to be governed by councils and magistrates of their own selection. The order and good government that were thus established in the cities, and the security 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 them that the princes derived the greater part of their supplies of money; and it was by means of their 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, whom they had laid under essential obligations, and who must have regarded them 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 monopoly of the home market to the native manufacturers. These, together with the privilege granted to the citizens of corporate towns, of preventing any individual from exercising any branch of business without leave from them, and a 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, in the view of encouraging manufacturing industry, in every country of 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 must be familiar to the reader, 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 woollen shrouds!

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. Those possessed of most influence, procured the privilege of carrying on particular branches of industry, to the exclusion of every one else. 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 make all classes join in petitioning for its abolition; and this, after much opposition on the part of government, who regarded the power of erecting monopolies as 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 warmly espoused by Colbert, the justly celebrated minister of finance during the most splendid period of the reign of Louis XIV.; and the year 1664, when the tariff, compiled under Colbert's direction, was promulgated, has been sometimes considered, though improperly, as the 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 manufactured goods, and the obstacles thrown in the way of their importation, 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 importation from abroad, and bounties and premiums on exportation from home, were the means by which it was to be attained! It cannot excite 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. Melon and Forbonnais in France—Genovesi in Italy—Mun, Sir Josiah Child, Dr Davent, 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 but few political errors which have produced more mischief than the mercantile system. Armed with power, it commanded and forbid where it should only have protected. The regulating mania which it inspired tormented industry in a thousand ways, to force it from its natural channels. It made each 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. This system 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 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 it has been productive of the least injury, it has retarded the progress of national prosperity; everywhere 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'Economie Politique, tome i. p. 122.)

The greater attention which began to be paid, in the Progress of seventeenth, and in the earlier part of the last century, to commercial 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. Until very recently 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 £30,000; the Company being bound to import, within six months after the termination of every voyage, except the first, as much gold and silver as should together be equal to the value of the silver they exported. But the Company's enemies 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

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1 Pliny, when enumerating the spices, silks, and other eastern products imported into Italy, says, "Minimaeque computationse milles centena millia sesterium annis omnibus, India et Seres, peninsulaeque illa (Arabia) imperia nostro demunt." (Hist. Nat. lib. xii. cap. 18.) 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. Progress of 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 ground that the commodities brought back were of greater value. They contended that the Company did not export a greater quantity of bullion than their charter authorized; and they further contended that this exportation was advantageous, because the commodities imported from India were chiefly re-exported to other countries, 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 compte. 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 should be as free as that of anything else. 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 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 1663 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 them in unlimited quantities.

In addition to the controversies respecting the East India trade, 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., drew 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 are strongly tinged with the prevailing spirit of the age, it cannot be denied that several of their authors rose far 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 selfish 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 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 Misselden, in his Circle of Commerce, published in 1623 (p. 36), refers to 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 the celebrated treatise on Foreign Trade 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 of 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 Mun's opinions, in so far as regards the question respecting the balance of trade, were identical with those of his contemporaries. But we believe he was the first who endeavoured to show, and who, in point of fact, successfully showed, that a favourable balance could not be procured 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.) 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 Mun's book, and constitute and form a part of his system. His observations in answer to Malynes's, 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 depopulate the mother country, is as conclusive as if it had proceeded from the pen of Mr 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 existing prejudices. Sir Josiah has also many 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, subtlety, and violence, is the general course of trade."

The radical defect of Sir Josiah Child's treatise consists in its being chiefly written to illustrate the advantages which he labours to show would result from reducing the legal rate of interest to four per cent.; an error into which he was led by mistaking the low interest of Holland for the principal cause of her wealth, when it 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

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1 These 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 is stated above.

2 This petition, and the reasons on which it is founded, were so well esteemed as to occasion its being reprinted in 1641.

3 These expressions are in the petition of the Company, presented to parliament in 1628. The author of this tract maintains the opinion 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 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 successfully contends that Sir Josiah Child had totally mistaken the cause of the wealth of the Dutch, of which he shows the lowness of 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 cantonised for the advantage of all parties?" (P. 34, ed. 1719.)

The great defect in the writings of Mun, Misselden, Child, and others, does not consist so much in their notions about the superior importance of the precious metals, or the balance of trade, as in those respecting the advantages they supposed were derivable from importing durable rather than rapidly perishable commodities and luxuries. This, however, was an extremely natural opinion; and we need not be surprised that the early writers on commerce fell into an error, from which neither the profound sagacity of Locke, nor the strong sense of Mr Harris, has been able to preserve them. But even so early as 1677, the fallacy of this opinion was 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 if there be a demand for wine, fruit, and such like articles, their importation in exchange for money is advantageous; and, on this ground, he defends the French trade, which was loudly declaimed against by the practical men of that day. 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 L1,600,000 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, kid-skins, 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-Progress of Nokes to be a butcher, Dick-a-Styles to be an exchange Commer- 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 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 to be a nuisance—a principle, if we may so call it, which has been acted upon down almost to this very hour.

In 1681 a pamphlet was published in defence of the East India Company, under the signature of "Philopatria," but evidently the production of Sir Josiah Child. In the introduction to this pamphlet the following 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 Sir Wil-1682, the subject of money is treated with great ability, Liam Pet- and the idea of draining England of her cash, by an unfa-tly's Quan-tovourable balance, successfully combated. "If some Eng- talumusish 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 anything 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 North. 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.

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1 It has been generally supposed that Hume was the first who showed (in his Essay on Interest) the fallacy of this opinion, and who proved that the rate of interest does 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 Cause of the Natural Rate of Interest, published two years before Mr Hume's Essay appeared.

2 Mr Fortrey's pamphlet has been much referred to. It was published in 1663, and reprinted in 1673. It contains a very good argument in favour of enclosures. The reference in the text sufficiently explains the opinions of the writer in regard to commerce. 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 advantageous to the merchant can be injurious to the public. His opinions respecting the imposition of a seigniorage 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 coynage is a perpetual motion found out, whereby to melt and coyn without ceasing, and so to feed goldsmiths and coyners at the public charge."

"That debasing the coyn is defrauding one another, and to the public there is no sort of advantage from it; for that admits no character or value but intrinsick."

"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, indeed, to suppose that it was designedly suppressed. At all events, it speedily became excessively scarce; and we are not aware that it has ever been referred to by any subsequent writer on commerce.

The disordered state of the coin, and the proceedings relative to the great recoining, 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. They immediately obtained a very extensive circulation; and though infected with some very grave errors, had a powerful influence in preventing the success of Mr Lowndes's proposal for degrading the standard of the coin, 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 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 Locke had fallen; and he had the further merit of ably demonstrating the fallacy of the popular opinions respecting the balance of trade; and of showing that no bullion could ever be sent abroad in payment of an unfavourable balance, unless it were at the time the cheapest and most profitable article of export.

The inferences deduced by 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 depended on the stamp affixed to it by government. This gross and unaccountable error destroyed the effect of 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, on other accounts, it was justly entitled.

The commercial writings of Dr Davenant, inspector-general of imports and exports, 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 considered a watchful attention to the balance of trade, and its "right government," as of the highest importance; but he did 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 was supposed to be unfavourable. But we are far from thinking that his commercial writings deserve the eulogies that

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1 See the Honourable Roger North's Life of his brother, the Honourable Sir Dudley North, p. 179. 2 Considerations on the Lowering of Interest and Raising the Value of Money, 1691. Further Considerations concerning Raising the Value of Money, 1695. progress of 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 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 pervaded by narrow and contracted views. There is no evidence to show that he was at all aware of the influence of commerce in facilitating the production of wealth, by giving rise to the territorial division of labour, and enabling each people to devote itself, in preference, to those employments for the successful prosecution of which they have some natural advantage.

In 1734, Jacob Vanderlint, who describes himself as a tradesman, published his tract entitled Money answers all Things. Dugald Stewart has referred to it in the Appendix to his 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 an Essay on the Causes of the Decline of Foreign Trade. This essay has been frequently referred to by Dr Smith, and it deserves his notice. Sir Matthew is a most intelligent and decided enemy of restrictions, monopolies, and prohibitions. To give full freedom to industry—he proposed that corporation privileges should be abolished; and that the existing taxes should be repealed, and replaced by a single tax laid on the consumers of luxuries, proportionally to their incomes. The following extracts will give an idea of the spirit and ability which pervades Sir Matthew's work:

"In the Memoirs of De Witt, 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?"

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."

Sir Matthew applies the same argument to expose the absurdity and injurious effect of the 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."

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; 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

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1 The progress of enlarged and liberal opinions with regard to commerce seems 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, 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 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.

2 We quote from the edition of the Essay published at Edinburgh in 1736. It appears from the work itself (p. 4), that it had been written in 1749; the first edition was in 1740. Progress of 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.)

Mr Hume.

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 ridiculed the fear of being deprived of a sufficiency of bullion; the liberality and expansion of his views respecting commerce; and the beauty of his illustrations, cannot be too highly praised. It did not, however, enter into his plan to give a systematic view of the influence of commerce, nor has he instituted any analysis of the sources of wealth. Mr Harris endeavoured to supply the latter deficiency; and his Essay on Money and Coins, published in 1757, is, perhaps, on the whole, the best economical treatise that appeared previously to the publication of the Wealth of Nations. We have already noticed 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 Docker. 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. Say and 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 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 1636. 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 are many just and striking observations on the injury France sustained from the want of a free internal traffic, and the oppressiveness of taxation, in the Dixme Royale of 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, was born so late as 1712. Gournay published translations of the treatise of Sir Josiah Child, and of a tract of Sir Thomas Culpepper, 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 désavantageux de faire le commerce."

But neither the efforts of the English nor French writers in favour of the freedom of commerce and industry the French had any considerable influence on the mercantile system. Their opinions respecting the nature of wealth, and 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. Locke, as will be afterwards seen, entertained correct opinions respecting the paramount influence of labour in the production of wealth; but he did not prosecute his investigations in the view of elucidating the principles of this science, and made no reference to them in his subsequent writings. Harris adopted 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, necessary in scientific works. The celebrated M. Quesnay, a physician attached to the court of Louis XV., was the first who attempted to investigate and analyse the sources of wealth, with the intention of ascertaining the fundamental principles of political economy, and who, consequently, 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, being struck with its depressed state in France, he 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 system of Colbert to the manufacturing and commercial classes over the agriculturists, had formed the most powerful obstacle 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,

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1 Scrittori Classici Italiani di Economia Politica. The publication of this collection of the works of her economical writers does honour to Italy, or rather to Napoleon, by whom it was liberally patronised. It was begun in 1803 and finished in 1805, in 50 volumes 8vo.

2 See Dupont's edition Des Oeuvres de M. Target, tom. iii. p. 311.

3 Maupertuis, in his Eloge of Montesquieu, candidly admits that France is indebted for the science of commerce, finance, and population, to England. The passage is curious: "Comme le plan de Montesquieu," he observes, "renfermait 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; et science si nouvelle paraît neuf, qu'elle n'y a encore point de nom. C'est chez vos 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 an acute work by Dutot, entitled Réflexions Politiques sur les Finances et le Commerce, 2 tomes 12mo, 1736. Dutot's work was in its turn very ably criticised by Duverney, in his Examen des Réflexions Politiques sur les Finances, &c. 2 tomes 12mo, 1740. These works contain a great deal of curious and interesting information respecting French finance. Duverney's account of the Mississippi Scheme is particularly good. 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 really increased the riches of a nation. Founding on the fact, that everything 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 is the only source of wealth, and held that industry is altogether incapable 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 his opinion. The fact, that all who engage in laborious undertakings, none but the cultivators of the soil pay rent for the use of natural agents, appeared to him an incontrovertible proof that agriculture is the only species of industry which yields a net surplus (produit net) over and above the expenses of production. Quesnay allowed that manufacturers and merchants are highly useful; but as they realize 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 manufacture or carry from place to place, than the mere equivalent of the capital or stock consumed in these operations. 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 wealth were wholly derived from the agriculturists. It further followed, that the expenses 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 opérations relatives aux richesses"—was 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, as of all other classes, would be best promoted by establishing a system of perfect freedom. He showed that the French economists 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 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 agriculturists, either by preventing the free exportation of their products, or by imposing on them any restrictive regulations. 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, p. 303), 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 society.

"On a vu," says the commentator of this system, M. Mercier de la Rivière, "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, encouragé 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.)

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 commodities are composed is originally derived from the earth, 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

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1 "Cherchant d'où vient les richesses des nations. Quesnay trouva qu'elles ne naissent que des travaux dans lesquels la Nature et la Puisance Dieu 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 culture, de la pêche, et de l'exploitation des mines, et des carrières." (See the Notice sur les Économistes, by one of the most zealous of the sect, Dupont de Nemours, in the Oeuvres de Turgot, tom. iii. p. 312.)

2 McCulloch's edition, i. vol. 8vo.

3 That Quesnay is entitled to the merit of originality cannot, we think, be disputed. He had certainly, however, 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 Remarks 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 borne 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, inclosing, as Dugald Stewart has justly observed, the very spirit of Quesnay's philosophy.

"What we call commodities is nothing but land severed from the man. Man deals in nothing but earth. The merchants are the factors of the world, to exchange every part of the earth for another. The king himself is fed by the labour of the ox; and the clothing of the army and the maintenance of the navy are all paid for by the owner of the soil, as the ultimate receiver. All things in the world are merely 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, had he really owed System of 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 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, this being 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 it will be hereafter seen, that the labour employed in manufactures and commerce is as productive of utility, and consequently of wealth, as that employed in agriculture. Neither is the cultivation of the soil, as Quesnay supposed, the only species of industry which yields a surplus 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 its being any proof of the superior productivity of agricultural industry, rent is a consequence of its becoming less productive! The opinion of Quesnay, that man derives no assistance from the productive powers of nature, unless when employed in agriculture, is totally destitute of foundation; and, in a subsequent part of this article, it will be shown that the manufacturer and merchant derive fully as much assistance from these powers as the agriculturist, fisher, or 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 systematical 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 Quesnay were early communicated to, and zealously espoused by, his friends the Marquis de Mirabeau, Mercier de la Riviere, 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 Letronne, 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 the French thirty livres the septier (48s. the quarter). This last edict, after being suspended in 1770, was again revived in 1778, during the administration of Turgot. But the facility given to the imposition of the *contribution fonciere* should certainly be considered as the greatest practical achievement 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.

Notwithstanding the defects of their theory, 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 the mercantile and economical theories were alike erroneous and defective; and that to establish the science 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 subsisting among the various phenomena manifested in the progress of civilization. The Count di Verri, whose Meditations on Political Economy were published in 1771, pointed out the fallacy of the opinions entertained by the French economists respecting the superior productivity of agriculture; and showed that all the operations of industry really consist of modifications of matter already in existence. But Verri did not trace the consequences of this important principle; and, possessing no clear and definite notions of what constituted wealth, he 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.

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 Lois of Montesquieu for politics. In this work the science was, for the first time, treated in its fullest extent, and many of its fundamental

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1 Turgot's *Réflexions 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.

2 Extracted from the *Histoire de Turgot*, the following are the principal works published by the French Economists:

- *Problème Économique, et Mémoire Général du Gouvernement Économique*, par François Quesnay, 4to. Versailles, 1758. - *Théorie de l'Économie*, par M. de Mirabeau, 4to, 1769. - *L'Ami des Hommes*, par M. de Mirabeau, two tomes, 1769, &c. - *Eléments de la Philosophie Rurale*, par M. de Mirabeau, three tomes 12mo, 1763. - *L'Ordre Naturel et Essentiel des Sociétés Politiques*, par Mercier de la Riviere, 4to, and two 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, two tomes, 1767. - *Lettres d'un Citoyen à un Magistrat, sur les Prolifiques et les autres Impôts*, par l'Abbé Bandeau, 1768.

3 "Alcuni benemeriti scrittori, rattrattati 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 manifestanti si chiamano una classe sterile. Rispettando il motto di vero e di utile che da essi è stato scritto, io non saprei associarli alla loro opinione né sul tributo, né su di questa pretesa classe sterile. La riproduzione è attribuibile alla manifattura ugualmente, quanto al lavoro de campi. Tutti i fenomeni del universo, siano essi prodotti dalla mano dell'uomo o vero dalle universali leggi della fisica, non ci danno idea di attuale crescita, ma unicamente di una modificazione della materia. Accostare e separare sono gli unici elementi che l'ingegno umano ritrova analizzando l'idea della riproduzione e tanto è riproduzione di valore e di ricchezza se la terra, l'aria, e l'acqua nei campi si trasformano in grano, come se colla mano dello uomo si trasformano il vetro in vetri, e gli altri prodotti in metalli, e vero alcuni pezzetti di metallo si trasformano a formare una ripetizione. Degli interi città, e degli stati interi campano non d'altra che sul prodotto di questa fecundità, e di più quella porzione che fa arricchire chi ha intrapresa la fabbrica e chi vi si impiega con felice talento." (Meditazioni sulla Economia Politica, § 3.) 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 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 have generally made 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 security 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 insure the most persevering and successful exertions. And whatever may be the form of government, those countries always advance in the career of improvement, in which the public burdens are moderate, industry free, and every individual permitted 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, intelligence, and liberality on the part of those in power, have frequently elevated absolute monarchies to a very high degree of opulence and prosperity; while 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 short-sighted policy of their rulers.

Politics and political economy are, therefore, sufficiently distinct. The politician examines the principles on which 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 principles of economical science. If they are, he pronounces them to be advantageous, and shows the nature and extent

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1 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 is not always a true test of the public advantageousness of different employments. He considered that agriculture, though not the only productive employment, is the most productive of any; that the home trade is more productive than a direct foreign trade; and the latter than the carrying trade. It will be hereafter seen that there is no foundation for these distinctions. Distinction 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 he 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 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 conflicting, but really harmonious interests of every different order of 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 this science, 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 make it satisfy our wants, and contribute to our enjoyments. The labour which is thus employed is the only source of wealth. Nature spontaneously furnishes the matter of which commodities are made; but, independently of labour, matter is rarely of any use, and is never of any value. Place us on the banks of a river, or in an orchard, and we shall infallibly perish of thirst or hunger, unless, by an effort of industry, we 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 to convey it from place to place, and to give it that peculiar shape, without which it may be totally useless, and Labour the 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 miner has extracted it from the mine, and brought it into a situation where it may be used. 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, while many were extremely noxious to man. His labour has given them utility, 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, p. 14.)

Those who observe the progress and trace the history of the human race in different countries and states of society, will find their comfort and happiness always pretty nearly proportioned to their expertness in appropriating the raw products of nature, and in fitting and adapting them 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 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 closely resemble in their habits and modes of subsistence, are but thinly scattered over the surface of the countries 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 the 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 begins fully to avail himself of his productive powers. 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 true that the earth does not gratuitously supply a single atom of wealth. It is a powerful machine given by Providence to man; but without his

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1 This point has been well stated by M. Destutt Tracy. "Non seulement," says he, "nous ne croyons 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 être dénué ni y rester. De là cet axiome admis par toute l'antiquité: rien ne vient de rien, et ne peut révéler rien. Que faisons-nous donc de notre travail, par notre action sur tous les êtres qui nous entourent? Jamais rien qu'opérer dans ces êtres des changements de forme ou de lieu qui les apprivoient 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'avaient 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'Idéologie, tome iii. p. 162.) 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 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: insomuch that plenty dependeth (next to God's favour) on the labour and industry of man."

But Locke had a much clearer apprehension of this doctrine. In his Essay on Civil Government, published in 1689, he has entered into a lengthened and able analysis to show that the products of the earth owe almost all their value to labour. "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 expenses 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 anything, 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 Labour the our bread, drink, and clothing, did not labour furnish us only Socrates with these more useful commodities; for whatever bread is of Wealth, 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 L5, 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 thirty. 'Tis labour, then, which puts the greatest part of value upon land, without which it would scarcely be worth anything; '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 felled 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, too long to reckon up." (Of Civil Government, book ii. § 40, 41, 42, and 43).

Had Locke carried his analysis a little further, he could not have failed to perceive that neither water, leaves, skins, nor any of the spontaneous products 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 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, productive powers, and 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 impossible it can have the smallest value.

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1 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 Smith, or than is to be found even in the Wealth of Nations. But Locke does not seem to have been sufficiently aware of the 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, however imposed, ultimately fall on the land; whereas it is plain he should, consistently with the above principle, 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.

2 Bishop Berkeley entertained very just opinions respecting the source of wealth. In his Querist, published in 1736, he asks,— Labour the "Si je retranche," to use a striking illustration of this only Source 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 placées dans l'intérieur de la terre, d'où on les tire, et où ils n'ont aucune valeur. De même, si j'en 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, éparpillées dans des déserts incultes, et sans aucune valeur." (Principes d'Economie Politique, p. 6.)

It is to labour, therefore, 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 labour alone gives value to commodities—it is plain that the great practical problem of this science must resolve itself into a discussion of the means by which labour may be rendered most efficient, that is, by which the greatest amount of necessary and desirable products may be obtained with the least outlay of labour. Wealth, as already seen, is always increased by 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, adds proportionally 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, equally lessens this power. This is the simple and decisive test by which we are to judge of every measure affecting the wealth of the country, and of every invention. If they render labour more productive—if they tend to reduce the value of commodities, to render them more easily obtainable, and, consequently, to bring them within the command of a greater portion of society—they are advantageous; but if their tendency be different, they are as certainly disadvantageous. Considered in this point of view, that great branch of the science 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 products from one country and place to another—is said to be agricultural, manufacturing, and commercial. An acquaintance with the particular processes, and most advantageous methods, of applying labour in each of these great departments of industry, forms the appropriate study of the agriculturist, manufacturer, and merchant. It is not consistent with his objects for 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 generally may be rendered most productive, and how its powers may be increased in all departments of industry.

Sect. II.—Means by which the Productive Powers of Labour are increased.—Security of Property.—Division of Produce.—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. The first, and most indispensable, is the security of property, or a strong conviction in the mind of every individual that he will be allowed to dispose at pleasure of the 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. Every improvement that either has been or that may yet be made, in the great art of producing the necessaries, comforts, and conveniencies of human life, will be found to be 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 is the first and most indispensable requisite to the production of wealth. Its utility in this respect is so obvious and striking, as to make it be 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 should be permitted to reap; that the labour of a man's body and the work of his hands should be considered as exclusively his own. No horde, how barbaroussoever, has been discovered in which the principle of meum et 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 allowed to rob him of the produce of his industry. No wonder, therefore, that the utility of some general regulations, securing 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 neighbours' landmarks at the head of his list of wicked men; and some of the earliest profane legislators subjected those guilty of this offence to a capital punishment. (Gouguet, De l'Origine des Lois, &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 property acquired by his industry, has undoubtedly formed the irresistible reason which has induced every people emerging from barbarism to establish this right. It is, in truth, the foundation on which all the institutions of society rest. Until property

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*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." (Quæst. Numbers 38 and 39.)

We shall afterwards notice Sir William Petty's opinion on this subject.

Say supposes that (Discours Préliminaire, p. 37), that Galiani was the first to show, in his treatise Della Moneta, published in 1759, that labour is the only source of wealth. But the passages we have now laid before the reader prove the erroneusness of this opinion. Galiani 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 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 Galiani being still less aware than Mr Locke of the value of the discovery. See Trattato della Moneta, p. 39, edit. 1780. The security of property has been publicly guaranteed; men look 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 were they not restrained by the strong arm of the law from prosecuting 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. The security of property is quite as necessary to accumulation as to production. No man ever denies himself an immediate gratification when it is within his power, unless he think that by doing so he has a fair prospect of obtaining, at some future period, a greater accession of comforts and enjoyments, or of avoiding some considerable evil. 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, instead of idling away the second day, accumulates the surplus which exceeds 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 counteract the desire of immediate gratification. But wherever property is insecure, we look in vain for the operation of this principle. "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 we shall not be permitted to use, and which will either expose us to the extortion of a rapacious government, or to the depredations of those who exist only by the plunder of their more industrious neighbours."

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 unjustifiable manner, when he is prevented from using his powers, in any way not injurious to others, that he considers most beneficial for himself. Of all the species of property a man can possess, the faculties of his mind and the powers of his body are most particularly his own. He should, therefore, be permitted to enjoy, that is, to use or exert these powers at 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 the property he has produced and accumulated is forcibly taken from him. 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 one else. It prevents them from using their natural capacities or powers in the way they might have considered best; and as every man who is not a slave is justly held to be the best, and, indeed, 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 preferable to that which he would otherwise follow. 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 to employ himself in any particular occupation.

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. The want of security, of a lively and well-founded expectation of being permitted freely to dispose of Property, the fruits of industry, is the principal cause of the wretched state of the Ottoman dominions in 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, to the disgrace of the other European powers, 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 possessors, but on their death revert to the sultan. Among the occupiers of land in Turkey there is, therefore, no thought of futurity. No one feels any interest about the prosperity of an unknown successor, and no one ever executes any improvement unless he expects to reap all the advantage during his own life. This is 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 were they assured that they would fall to pieces the moment they have 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 would long since have perceived that its own wealth, as well as that 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 give to each individual full power to dispose of the fruits of his labour, and to substitute a regular plan of taxation for 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 subject, are light when compared with those imposed on the English, the Hollanders, or the French. But when the latter have paid the taxes due to government, they know they will be permitted peaceably to enjoy or accumulate the remainder of their earnings; whereas the Turk has no security but that the moment after he has paid his stated contribution, the pasha, or one of his satellites, may strip 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.

The Jews have been supposed to afford an instance of a case of the 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, prevented their acquiring any property in land, and excluded them from participating in the charitable institutions of the different countries among which they are scattered. Having therefore no adventitious sup- Security of property 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 those have been very greatly exaggerated. It was natural that those 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 are, and always have been, as poor as their neighbours.

Let us not, therefore, deceive ourselves by supposing that it is possible for 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 indispensable to the successful exertion of the powers of industry. Where it is wanting, it is idle to expect either riches or civilization.

Rousseau and some other sentimental writers have made an objection to the right of property, which has been in some measure sanctioned by 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 being pointed out. The right of property has not made poverty, but it has made wealth. Previously 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 Kamtschatka. All classes have been benefited by the change; and it is mere error and delusion to suppose that the rich have been benefited at the expense of the poor. 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 shall reward you;" but it says, "labour, and I shall take care that none be permitted to rob you of the produce of your exertions." This right 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 that 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. "The security of property has overcome the natural aversion of man from labour, given him the empire of the earth, a fixed and permanent residence, and has implanted in his breast the love of 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 who have nothing against those who have something. The law which restrains this inclination, and which secures to the humblest individual 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, tom. 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 may 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 may 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 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 wealth and comforts of all classes are, in consequence, prodigiously augmented. In a country where the division of labour is carried to a considerable extent, agriculturists do not 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 conducing to their comforts and enjoyments; and it stimulates manufacturers and merchants to increase the quantity and to improve the quality of their goods, that they may obtain a greater supply of raw produce. A spirit of industry is thus universally diffused; and the apathy and languor which characterize a rude state of society entirely disappear.

But it is not the mere facility of exchanging, or the being able to barter the surplus produce of one's own labour for such parts of the produce of other people's labour as we may wish to have 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 large addition to the efficacy of... As respects the influence 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 will be more likely to discover easier and readier methods of carrying it on, when all their whole attention is devoted exclusively to it, than if they are led to attend to a variety of objects. But it is a mistake to suppose, as has been sometimes done, that the inventive genius of workmen and artificers is alone whetted and improved by the division of labour. As society advances, the study of particular branches of science and 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, attains to a degree of proficiency and expertise in it, 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 for 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 his respective sphere to furnish the greatest possible supply of necessaries, conveniences, and enjoyments.

But it is necessary to observe, that the advantages derived from the division of labour, though they may be, and labour in fact are, partially enjoyed in every country and state of society, can only be reaped in their full extent where there is a great power of exchanging, or an extensive market. Many employments cannot be separately carried on out of the precincts of a large city; and, in all cases, the division becomes more perfect, according as the demand for the produce of the workmen is extended. It is stated by Smith that ten labourers employed in different departments in a pin manufactory can produce 48,000 pins a day; but it is evident that were the demand not sufficiently extensive to take off this quantity, it would be impossible to carry the division so far. The same principle holds in every case. A cotton-mill could not be constructed in a small country, having 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 influence of the division of labour in increasing the quantity and perfection of the products of industry was noticed by several of the writers who preceded Dr. Smith, and especially by Harris and Turgot. But neither of these writers has done what Smith did. None of them fully analysed and exhibited its various effects, or showed that the power of engaging in different employments depends on the power of exchanging; and that, consequently, the advantages derived from the division of labour are necessarily dependent on, and regulated by, the extent of the market. This is a principle of great importance, by establishing which 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 était absolument neuve; et l'effet qu'elle a fait sur les contemporains de Smith, prouve bien qu'elle l'était 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.) 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 carried on between different districts of the same country, and between different countries, is founded. The various soils, climates, and capacities of production of the different districts of an extensive country, fit them for being appropriated 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 meadows and low grounds. Nothing is more obvious than that the inhabitants of these different districts, by confining themselves to those branches for the prosecution of which they have some peculiar natural capability, must produce an infinitely greater quantity of useful and desirable articles than they could do were they to employ themselves indiscriminately in every different employment. It is impossible to doubt that a vastly greater supply of manufactured goods, corn, and cattle, are produced by the inhabitants of Glasgow, the Carse of Gowrie, and Argyllshire, respectively, confining themselves to manufactures, agriculture, and the rearing of cattle, than if each endeavoured directly to raise these various products.

But it is easy to see that foreign trade, or the territorial division of labour between different and independent countries, contributes 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 with which 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 proportionally more advantageous. It would evidently cost infinitely more to raise the wines of France or Spain in England, than 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, that cannot 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 influence 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 for itself. 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 economically; while, by increasing the mass of necessary and useful products, it diffuses opulence, and binds together the universal society of nations by the common and powerful ties of mutual interest and reciprocal obligation. Commerce enables each particular state to profit by the inventions and discoveries of every other state. It creates new tastes and new appetites, and it also gives the means and the desire of gratifying them. The progress of domestic industry is accelerated by the competition of foreigners. Commerce has either entirely removed, or greatly weakened, a host of unworthy prejudices. It has shown that nothing can be more illiberal and absurd than that once prevalent dread of the progress of others in wealth and civilization; and that the true glory and real interest of each particular people will be more certainly advanced by endeavouring to emulate and outstrip its neighbours in the career of science and civilization, than by labouring to attain a barren pre-eminence in the bloody and destructive, though necessary, 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, our superior wool, and our command of coal, and skilful workmen, improved machinery, and all of the instruments of manufacturing industry, enable 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 able to produce wine at an infinitely less cost 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, and exchanging it with the Portuguese for wine, will obtain a vastly larger supply of that commodity than if she attempted to cultivate the grape at home; and Portugal, by exchanging her wine for the cloth of England, will obtain a much greater quantity of cloth than if she 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 has been already stated is sufficient to expose the sophism of the French economists, who contended, that as an equivalent must be always given for commodities brought from abroad, it is impossible foreign commerce should be 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 make any addition to its amount. 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 articles of greater value than those they give in exchange. It may have cost as much to produce the cloth with which the English merchant purchases the wine of Portugal, as it did to produce the latter, or it may have cost more. 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 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 take to produce it in Portugal. The advantage of the intercourse consists in this, that it enables each country to obtain commodities, for the production of which it has no natural capability, and which it would, therefore, cost vastly more to produce directly at home, at the price required to produce them in the most favourable circumstances, and with the least possible expense. The gain of the one party is not the loss of the other. Both benefit by the intercourse; for territorial it enables both to save labour and expense in the production of commodities, so that the wealth of the two countries is not only better distributed, but is also greatly increased, by the territorial division of labour established between them.

To set this important principle in a clearer point of view, let it be supposed 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 a given 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 outlay of capital and labour that she would obtain in return for the same outlay on cultivation at home; and Poland would, on her part, be enabled to obtain twice as much cloth in exchange for her corn as she would 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 expense 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. And no outlay, however great, could directly supply us with teas, spices, and fifty other most important articles.

"The commerce of one country with another is 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 expense." (Mill's Commerce Defended, p. 38.)

To enter into a more enlarged discussion of this interesting and important subject, would be inconsistent alike with the objects and limits of this article. In the articles on Colonies, and the Corn Trade and Corn Laws, we have examined the policy of the restrictions on the colonial and corn trades; 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 quite the reverse, and that it is by the excess of the value of the imports over that of the exports that the gain of the merchants, and consequently of the community, is to be estimated. In the fourth book of the Wealth of Nations, Dr Smith has examined and refuted the various arguments in favour of restrictions on 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 pamphlets of Mr Mill (Commerce Defended) and Colonel Torrens (Economists Refuted), in answer to Mr Spence's pamphlet entitled Britain Independent of Commerce. And ample information on most points relating to the practice, theory, and history of commerce, will be found in the Commercial Dictionary, by the author of this article.

When the division of labour was first introduced, barter was the only method of exchanging commodities. But according as society advanced, as the division of employments was extended, and exchanges became more numerous, the advantage of using one article as a common medium of exchange,—as an equivalent for all other commodities, and as a standard by which to ascertain their values,—soon became obvious. But this is a subject of which we have elsewhere treated at considerable length; and we beg to refer the reader, for a full investigation of the nature and functions of the common medium of exchange, to the articles Money, and Paper Money and Banks, in this work.

Accumulation and Employment of Capital.—Capital may be defined to be "that portion of the produce of labour saved from immediate consumption, which is employed to maintain productive labourers, or to facilitate 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 production, 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 were he destitute of circulating capital, or of food and clothes, he would be unable 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 without his spade and his plough? A weaver without his loom? or a house-carpenter without his saw, his axe, and his planes? The accumulation and employment of fixed and circulating capital is indispensable to the elevating of every 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 of his work. A weaver cannot apply himself entirely to his peculiar business, unless there is beforehand stored up somewhere, either in his own possession or in that of some other person, a stock sufficient to maintain him, and supply him with the materials and tools of his work, till he has not only completed, but sold his web. This accumulation must evidently be previous to his applying his industry for so long a time to such a peculiar business." (Wealth of Nations, p. 119.)

As the accumulation of stock must precede the division of labour, so its subsequent division can only be extended as capital is more and more accumulated. Accumulation and division act and re-act on each other. The quantity of raw materials which 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 already explained, a greater chance of discovering machines and processes for facilitating and abridging 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 amount of labour is made to produce a much 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 work to be executed that could not be executed, or commodities to be produced that could not be produced, without it.

Second.—It saves labour in the production of almost every species of commodities.

Third.—It enables work to be executed better, as well as more expeditiously.

With regard to the first of those modes in which we are benefited by the employment of capital, or to its enabling commodities to be produced that could not be produced without it, it is plain that the production of such commodities as require a considerable period for their completion, could not be attempted unless a stock of circulating capital, or of food and clothes sufficient for the maintenance of the labourer while employed on them, were previously provided. But the employment of fixed capital is frequently as necessary to production as the employment of circulating capital. It would be impossible to produce a pair of stockings without the aid of wires; and though the ground might be cultivated without the aid of a plough, it could not be cultivated without the aid of a spade or hoe. If we run over the vast catalogue of the various arts practised in a 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."

In the second place, the employment of capital not only enables many species of commodities to be produced that could not be produced without its co-operation, but it also enables labour to be saved 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 most powerful machines, that it requires a considerable effort of abstraction to render ourselves fully aware of the extent of the advantages we derive from them. But if we compare the arts practised alike by civilized man and the savage, we cannot fail to be convinced, that it is to the employment of fixed capital that we owe a very large portion of our superior comforts and enjoyments. Consider the advantages derived from the employment of the lower animals, which, in an economical point of view, are to be regarded only as machines! Consider the advantages derived from the formation of roads, bridges, harbours, and canals—the effect they have had in facilitating the conveyance of commodities, in distributing them most advantageously, and in reducing their price to the consumer! Consider the advantages 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 tools and machines has conferred on society, by cheapening and multiplying necessaries, 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 art conveyed 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 work to be done better, as well as more expeditiously, than it could be done without it. Cotton, for example, might be spun by hand; but the admirable machinery invented by Hargreaves, Arkwright, and others, has not only enabled a hundred or a thousand times more yarn to be produced than 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 to his figures that is given to them by the admirable machinery now used for that purpose. Not to mention the other and more important advantages derived from the invention of moveable types and printing, it is certain that 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 expense, 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 cheapness; and for both these advantages we are principally indebted to the excellence of our machinery.

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 its labourers, or of their productive powers. 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 be 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 the better education and training of workmen, by the 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 additional capital is required. It is only by its means that workmen 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 a particular part requires a much larger stock than where every man is occasionally employed in different parts 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 evidently 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 government." (Wealth of Nations, p. 152.) It is therefore apparent that no country can ever reach the stationary state, so long as she continues to add to her capital. So long as she does this, she will have an increasing demand for labour, and will be constantly augmenting the mass of necessaries, luxuries, and conveniencies, 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 capital, 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 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 proceed to explain the circumstances most favourable for its accumulation. Now, as capital is nothing but the accumulated produce of previous industry, it is evident that its increase will be most likely to 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, may accumulate twice as fast as the man who, either from a deficiency of skill, or from having 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 he who can only obtain five per cent. for his capital. Experience, too, shows, that while high profits afford greater means of saving, they act as incentives to accumulation. Hence it is found that, in those countries most rapidly increasing in wealth and population, the rate of profit is always comparatively high. Thus in the United States the rate of profit is usually twice as high 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 other advantage for the profitable employment of industry and stock, may be subjected to a despotical government, which does not respect the right of property; and the want of adequate security thence resulting may be sufficient to paralyse all the exertions of those who are otherwise placed in the most favourable situation for the accumulation of capital. But we have no hesitation in laying it down as a principle which holds in every case, and from which there is really no exception, that, if the governments of any two or more countries be about equally liberal, and property in each about 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 in population and riches. On the other hand, wherever they are low, the demand for labour is proportionally reduced, and the progress of society rendered so much the slower.

But however high the rate of profit, had men always accumulated up to their incomes, that is, had they always consumed the whole produce of their industry in the gratification of their immediate wants and desires, it is obvious there could have been no such thing as capital in the world, necessary High profits are advantageous, because they afford the means of amassing capital; but something more is necessary to make us use 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, to assist them in their future undertakings. 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 not have been divided; arts could not 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 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 Smith, "the principle which prompts to expense is the passion for 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 occasion. Though the principle of expense, therefore, prevails in almost all men upon some occasions, and in some men upon almost all occasions, yet in the greater part of men, taking the whole course of their life at an average, the principle of frugality seems not only to predominate, but to predominate very greatly." (Wealth of Nations, p. 151.)

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 government. The spirit of economy has been happily compared by Smith to the unknown principle of animal life—the vis medicatrix naturae—which frequently restores health and vigour to the constitution, in spite both of disease and of the absurd prescriptions of the physician.

But, however great the capacity of the principle of accumulation to repair the waste of capital, we must take care not to fall into the error of supposing, as very many have done, that its operations are in all cases promoted by a

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1 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 insure his capital against risk, and to make up for whatever may be peculiarly disagreeable in his business. Accumulation of capital: large public expenditure. To a certain extent, indeed, this is true. A moderate increase of taxation has the same effect on the habits and industry of a nation, that an increase of his family, or of his necessary and unavoidable expenses, has upon a private individual. Man is not influenced solely by hope; he is also powerfully operated upon by fear. Taxation brings the latter principle into the field. To the desire of rising in the world, inherent in the breast of every individual, an increase of taxation superadds the fear of being cast down to a lower station, of being deprived of conveniences and gratifications which habit has rendered almost indispensable; and the combined influence of the two principles produces efforts that could not be produced by the unassisted agency of either. They stimulate individuals to endeavour, by increased efforts of industry and economy, to repair the breach taxation has made in their fortunes; and it not unfrequently happens that their efforts do more than this, and that consequently the national wealth is increased through the increase of taxation. But we must be on our guard against the abuse of this doctrine. To render an increase of taxation a cause of greater exertion, economy, and invention, its increase should be slow and gradual; and it should never be carried to such a height as to incapacitate individuals from meeting the sacrifices it imposes on them, by such a moderate degree of increased exertion and economy as it may be in their power to make, without requiring any very violent change in their habits. The increase of taxation must not be such as to render it impracticable to overcome its influence, or to induce the belief that it is impracticable. Difficulties that are seen to be surmountable sharpen the inventive powers, and are readily grappled with; but an apparently insurmountable difficulty, or such an excessive weight of taxation as it was deemed impossible to meet, would not stimulate, but destroy exertion. Instead of producing new efforts of ingenuity and economy, it would produce only despair. Whenever taxation becomes so heavy that the produce it takes from individuals can no longer be replaced by fresh efforts, these efforts uniformly cease to be made; the population becomes dispirited, industry is paralysed, and the country rapidly declines.

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 augmented and rendered more efficient; so that, if not counteracted by the want of security, or by other adventitious causes, the principle of improvement would always operate, and would secure the constant advancement of nations in wealth and population.

To this same principle we owe the discovery and improvement of machinery. In every period, men endeavour to increase their productive powers, and improve their condition, by availing themselves of natural agents, and making them assist in performing tasks which must otherwise be performed by the hand only. The savage employs a club and a sling to facilitate the acquisition of game; and the same principle which prompted him to construct and use these rude instruments, never ceases to operate. It is always producing some new improvement, and, in an advanced and refined period, substitutes 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.

In the previous section, we endeavoured to show that the increase and diminution of capital is the pivot on which national prosperity principally hinges; that an increase of capital proportionally increases the means of supporting and employing labour, and that its diminution can hardly fail to lessen the comforts and enjoyments, and perhaps also the necessaries, of the productive classes, and to spread poverty and misery throughout the land; and we also endeavoured to show that the rise and decline of the rate of profit is the great cause of the increase and diminution of capital. But if such be the case, it seems impossible not to conclude, that such employments as yield the greatest profit, or in which industry is most productive, are the most advantageous. Dr Smith, however, with Mr Malthus and others, 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 will be productive of greater public advantage. We believe, however, notwithstanding the deference due to the authorities referred to, that this opinion rests on no good foundation; and that the average rate of profit is the test by which we should always judge which employment is most and which is least advantageous.

A capital may be employed in four different ways, viz., first, in the production of raw products; or, secondly, in manufacturing and preparing these raw products for 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 smaller parcels as may suit the convenience of those who want them. The capital of all those who undertake the improvement or cultivation of lands, mines, or fisheries, is employed in the first of these ways; that of all master manufacturers 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 should be employed in any way which may not be classed under some one or other of these heads.

It is unnecessary to enlarge on the importance of employing capital in the acquisition of raw produce, and especially in the cultivation of the soil. It is from the latter, including therein mines and fisheries, that the matter of all commodities that minister to our necessities, comforts, or enjoyments, must be originally derived. The industry which appropriates the raw or spontaneous products of the earth preceded every other. But these 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 whether any of the principal bread corns, as wheat, barley, rye, oats, &c., have been discovered growing spontaneously. But although this must originally have been the case, their extreme scarcity, and the labour required to raise them in considerable quantities, prove beyond all question that it is to agriculture 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 the same extent of an equally fertile country, occupied by hunters or shepherds, the powers of agricultural industry in increasing useful productions appear so 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, "Omnia autem rerum ex quibus aliquid acquiritur, nihil est agricultura melius, nihil uberior, nihil dulcior, nihil homine libero dignius."

But are there any really just grounds for this preference? Are not manufactures and commerce as advantageous as agriculture? It is plain that without agriculture we should never possess any considerable supply of the materials out of which food and clothes are made; but it is 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 and baker is as necessary to the production of bread, as that of the husbandman who tills the ground. It is the business of the agriculturist to raise flax and wool; but if the industry of the spinner and weaver did not give them utility, and fit them for being made a comfortable dress, they would be nearly, if not entirely, worthless. Without the labour of the miner who digs the mineral from the bowels of the earth, we should be destitute of the matter of which many of our most useful implements and splendid articles of furniture are made; but if we compare the ore when dug from the mine with the finished articles, we shall certainly be convinced that the labour of the purifiers and refiners of the ore, and of the artists who afterwards converted it to useful purposes, has been quite as advantageous as the industry of the miner.

But not only is it certain that manufacturing industry, or that species of industry which fits and adapts the raw produce of nature to our use, is requisite to render its acquisition of any considerable value; but it is also certain, that without manufacturing industry this very raw produce could never have been obtained in any considerable quantity. The mechanic who fabricates the plough contributes as efficaciously to the production of corn as the husbandman who guides it. But ploughwrights, millwrights, smiths, and all those artisans who prepare tools and machines for the husbandman, are really manufacturers, and differ in no respect from those employed to give utility to wool and cotton, except that they work on harder materials. Tools and machines are the produce of the industry of the tool and engine manufacturer; and without their aid it is impossible that agricultural, or any other sort of labour, should ever become considerably productive.

"Distinguer," says the Marquis Garnier, "le travail des ouvriers de l'agriculture d'avec celui des autres ouvriers, est une abstraction, presque toujours oiseuse. 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 simultané 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 des deux espèces de travail, on ne peut plus concevoir de véritable produit, de produit consommable et ayant une valeur réelle? La valeur du blé sur pied résulte de l'industrie du moissonneur qui récoltera, du batteur qui le séparera de la paille, du ménier 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 inutile. À 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 difference already seen, a vulgar error to suppose that the operations of husbandry add anything 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 industry, shape which fits it for his use. But it was contended by Quesnay and the French economists, and their opinions have in this instance been espoused by Smith, that the labour of the husbandman in adapting matter to our use is powerfully facilitated by the vegetative powers of nature, while the labour of the manufacturer has to perform everything itself without any such co-operation. "No equal quantity of productive labour, employed in manufactures," says Dr Smith, "can ever occasion so great a reproduction (as if it were employed in agriculture). In them nature does nothing, prior man does all; and the reproduction must always be in proportion to the strength of the agents that occasion it. The cost of 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 Nations, p. 162.)

This is perhaps the most objectionable passage in the Error of Wealth of Nations; and it is really astonishing that so acute and sagacious a reasoner as Smith should have maintained a doctrine so manifestly erroneous. It is unquestionably true, that nature powerfully 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 maturity. But does not nature do as much for man in every other department of industry? The powers operate of water and of wind, which 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 spontaneous gifts of nature? In fact, the advantage of machinery consists exclusively 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

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1 Discours Préliminaire, p. 58, 2d ed. of trans. of the Wealth of Nations. the labour of the sailor, to waft our ships from one hemisphere to another. In bleaching and fermentation the whole processes are carried on by natural agents. And it is to the influence of heat in softening and melting metals, preparing food, and warming 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, is it from being true that nature does much for man in agriculture, and nothing in manufactures, that the fact is more nearly the reverse.

There are no limits to the bounty of nature in manufactures, but there are limits, and those not very remote, to her bounty in agriculture. The greatest possible amount of capital may be expended in the construction of steam-engines, or of any other sort of machines, and after they have been multiplied to infinity, the last will be as powerful and 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 a progressively diminishing rate of profit. The rent of the landlord is not, as Smith supposed, 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 will be hereafter shown, 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 exclusive object of every species of productive industry, it is plain that the capital and labour 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 suit the wants of the consumers, are really as productive as if they were employed in either agriculture or manufactures. The miner gives utility to matter, to coal, for example, by bringing it from the bowels of the earth to its surface; but the merchant, or carrier, who transports this coal from the mine whence 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 coal-merchant. They are the result of the conjoint operations of both, and also of the operations of all those who have furnished them with the tools and implements used in their respective employments.

Not only, however, must commodities be brought from where they are produced to where they are to be consumed, but it is further necessary that they should be divided into such small and convenient portions, that each individual may be able to purchase the precise quantity he is desirous to obtain. "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 months' 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 imposed upon 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 one another. 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 employed in the grocery trade, cannot exceed what is sufficient to purchase that quantity. If this capital is divided between two different grocers, their competition will obviously tend to make both of them sell 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, p. 160.)

Thus it appears that all the modes in which capital can be employed in productive industry, or, in other words, that the raising of raw produce, the fashioning of this raw produce, after it is raised, into useful and agreeable articles, and the carrying of the raw and manufactured products from one place to another, and retailing 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 that employed in the others, to increase the mass of necessaries, conveniences, and luxuries. Without a previous supply of raw produce, we should have no manufactures; and without these and commercial industry, the greater part of this raw produce would be entirely worthless, and would 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 it for our use, and incorporates it with our body, is vitiated and deranged. Nothing therefore can be more silly and childish than the estimates so frequently put forth of the comparative advantages of agricultural, manufacturing, and commercial industry. They are all intimately 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 fictitious advantages at the expense of the rest, as being alike impolitic and pernicious. No preference can be given to agriculturists over manufacturers and merchants, or to the latter over the former, without occasioning the most extensively ruinous consequences. Men, in every instance, should 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 those of the public. Those who succeed best in increasing their own wealth, must necessarily This mutual dependence of the different branches of industry on each other, and the necessity of their cooperation to enable mankind to make any considerable progress in civilization, have been ably illustrated in an early number 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 intrusted 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 cooperate 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 it really was so. The returns under the population acts have shown the fallacy of these opinions. Great Britain was infinitely more of a manufacturing country in 1820 and 1830 than in 1780; but, notwithstanding the vast increase during the intermediate period of what we have been in the habit of considering unhealthy employments, the average mortality in England and Wales during the five years ending with 1820, was one in every fifty-five, and during the five years ending with 1830 it was one in every fifty-one, of the existing population, whereas in 1780 it was one in every forty. It may perhaps be said, that this increased healthiness is owing to 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 suffice to convince us that they have principally resulted from the turn not improvement of manufactures,—from the increased demand productive of the manufacturing population for the raw produce of the soil. In point of fact, however, it is certain, that much of this diminution of mortality is a direct, and not an indirect, consequence of the improvement and extension of manufactures. Every one knows the vast importance in respect of health, of the people having 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 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 to clothe themselves in a comfortable and elegant dress; and has been productive of an increase of 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 it requires the workman to bestow on one operation, has been supposed to exert a most pernicious influence over 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.) Smith, who has given so admirable an exposition of the benefits resulting 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 a 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 extensive information than is possessed by the agricultural labourers of any county of the empire. And this is really what a more unprejudiced inquiry into the subject would have led to anticipate. The variety of occupations in which the husbandman has 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 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 furnishing 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 ac-

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1 For an examination of Smith's opinion with respect to the advantages of different species of commerce, see Ricardo's Principles of Political Economy and Taxation, 1st ed. p. 497; and the Edinburgh Review for July 1819, p. 71. Different employments of capital and industry, and excess. They are thus driven to seek for recreation in mental excitement; and the circumstances in which they are placed afford every possible facility for their amusing and diverting themselves in this manner. By working together, they have constant opportunities of entering into conversation; and a small contribution from each 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 workmen employed in manufactures have become more intelligent 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, none will now venture to affirm that they are inferior to them in intellectual acquirements, or that they are mere machines without sentiment or reason. Mr Malthus, whose leanings of Mr Mal-were all on the side of agriculture, has justly 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 lead 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 employments yielding the highest profits are 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 a greater 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 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 is the best which yields the greatest profit; and hence, if two capitals yield equal profits, it is a proof that the departments of industry in which they are respectively invested, how much soever they may differ in many respects, are equally beneficial. Nothing can be more nugatory than to apprehend that the utmost freedom of industry should attract capital to a comparatively disadvantageous employment. If capital flows to manufactures or commerce rather than to agriculture, it is only 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 relation and dependence of the different kinds of industry, we 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 different 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 in their Production.

It is evident that only three classes—labourers, capitalists, and 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, 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 be no state of society in which any class besides 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 which preceded 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 the labour required to appropriate its spontaneous productions—the whole produce of labour would belong to the labourer, and the quantity of labour expended in procuring 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.

"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, p. 22.)

Thus far there is no room for doubt or difference of opinion. When there are none but labourers, all the produce of labour must obviously belong to them; and the quantity of labour required to produce commodities forms 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 abundance or scarcity in the market, compared with the demand. We believe, however, that this opinion rests on no good foundation, and that the cost of production is the grand regulating principle of price. But before proceeding further, it may be proper, the better 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, and the rate of profit derived from the capital vested in it, cannot, for any considerable period, either fall below, or rise above, the rates 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 those engaged in different employments, it is not meant to infer that all labourers receive precisely the same sum of money, or the same proportion of the produce of their labour. Such an opinion would be equally at variance with fact and with principle. Wages are a compensation made to the labourer 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 scavenger. A long course of training is required to instruct a man in the businesses of jewellery and engraving; and if this were not compensated by a higher rate of wages, none would choose to learn so difficult an art, and all persons would addict themselves, in preference, to such employments as hardly require any training. The cost of producing artificers or labourers regulates the wages they obtain, 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 spent in his apprenticeship, and generally all the clothes and provisions he consumes during the same period. He should, therefore, besides receiving the same rate of wages as husbandry labourers, and those who do not require to serve an apprenticeship, receive an additional rate, proportional to the extra time and expense spent in learning his business. If he did 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 a fair and reasonable compensation for the greater expense to which he had been put, there would be an 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 proportionally 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 distress, usually 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 should, 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 computed earnings of the greater part of manufacturers are nearly upon a level with the day-wages of common labourers, those of masons and bricklayers are generally from a half more to double those wages. Where common labourers earn four and five shillings a week, masons and bricklayers frequently earn seven and eight; and where the former earn nine or ten, as in London, the latter commonly earn fifteen and eighteen." (Wealth of Nations, p. 47.)

But these variations, instead of being inconsistent with the principle we have been endeavouring to establish, plainly result from it. Wages are equal, not when each workman 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 while every one may employ himself as he pleases, the higgling of the market will always adjust the rate of wages in different employments on the principle now mentioned, and it will, taking everything into account, 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 were it to rise above this common level, 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 Equality of object, either are, or should be, founded on periods of average wages and range duration; and whenever such is the case, we may allow profits, without occasioning the slightest error, assuming that the wages earned in different employments are, all things considered, about equal.

Equality of profits, engaged in different businesses varies proportionally to the size of the capital employed, 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, did the capital employed in them only yield the same profit that might be obtained by employing it in more secure businesses. No one will voluntarily place his fortune in a situation of comparative danger. Extraordinary risk must be compensated. And hence the well-known distinction between gross and nett profit. Gross profit varies according to the risk, respectability, and agreeableness of different employments, whereas nett profit is at any particular period the same, or very nearly the same, in them all. A gunpowder manufacturer, for example, must obtain as much profit, over and above that obtained from the capital engaged in the surest 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. Were he to obtain more than this rate, additional capital would be attracted to his business, and were he to obtain less, capital would be withdrawn from it. The constantly-acting principle of competition, or, which is the same thing, the self-interest of every individual, will not permit the wages or profits of 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 have capital vested 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 theoretical inquiries, be supposed, without occasioning any error of consequence, exactly to coincide.

The equality, or rather 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 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. Nothing can be more convincing and satisfactory than his reasoning on this subject. The equality of wages and of profits has, since the publication of his work, been always assumed as admitted and incontestible.

The equality of wages and profits once established, it is easy to see that variations in the demand and supply of commodities can exert no lasting influence over price. The cost of production, denominated by Smith and the Marquis Garnier necessary or natural price, is the ultimate regulator of the value of every commodity not subject 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 their cost 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 repay the outlay upon them, including the ordinary rate of profit on the capital employed. This is a limit below which it is obvious prices cannot be permanently reduced; and it is equally obvious that were they, 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 expense of production. If it be insufficient to do this, and the market cannot make commodities be produced and brought to purchase. A real demander must have the power, as well as the will, to purchase. A person with a sovereign 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; and why then does he not obtain the one as readily in exchange for his sovereign as the other? The reason is obvious; a sovereign will pay the expense of producing the one, but it will not pay the expense of producing the other. Were such an improvement made in the art of coachmaking as should enable coaches to be manufactured as cheaply as hats, then a sovereign would buy a coach as easily as it can now buy a hat. The demand for any particular commodity may become ten or twenty times more extensive, or it may decline in the same proportion; but if the cost of its production continue the same, no permanent variation will be occasioned in its price. Suppose, for example, that the demand for hats were suddenly doubled; that circumstance would undoubtedly occasion a rise of price, and the hatters would, in consequence, make large profits; but this rise would 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 tenfold, and that the cost of their production is diminished in the same proportion: we should, notwithstanding the increased demand, be able, in a very short time, to buy a hat for the tenth 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 hatters the common and average rate of profit on the capital employed in their business. It is admitted that variations of demand and supply occasion temporary variations of price. But it is essential to remark, that these variations are only temporary. The cost of production is the grand regulator of prices—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 variations of the seasons, and from which capital cannot be so easily withdrawn, there is a somewhat longer interval than in others before the market price of produce and the cost price of its production can be equalized. But that such an equalization will be brought about in the end is certain. No farmer, and no producer whatever, will continue to bring corn or other products to market, unless they sell for such a price as will pay the expense of their production, including therein the common and average rate of profit on the capital employed. An excess of supply occasionally de-

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1 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 sumus," says Varro, "debet velis imperium ac sumptum facere in culturam, si videt non possis reficere." (De Re Rustica, lib. I. § 2.) presses the prices of corn and other farm produce below this level; and the occupiers of land are, in consequence, involved in the greatest difficulties; but such gluts do not continue. The cultivators of the worst soils are driven from their employment; a smaller supply is, in consequence, brought to market; and prices are 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 interest of the cultivators will not permit prices to be permanently depressed below this level; and the interest of the public will not permit them to be permanently raised above it; for, if they were raised above it, 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 continue flowing in that direction, until the natural equilibrium of profit had been restored—that is, as will be afterwards seen, until the price of agricultural produce had fallen to such a sum as would 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 continue stationary, or about which market prices oscillate, until the cost of production increase or diminish. Were any great discovery made in agriculture—such a one, for instance, as would reduce the cost of cultivation a half, the price of agricultural produce would speedily fall in the same proportion, and it would continue to sell at that reduced rate until the increase of population forced recourse to soils of a decreasing degree of fertility. Whenever this took place, prices would again rise, unless the influence of the decreasing fertility were counterbalanced by some new improvement. Why is the price of corn almost invariably higher in England 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 that for silver, the reverse being 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 produce 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 producers of silver, iron, lead, or any other metal. They have no monopoly of the business. Every one may send capital to America, 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 pay the expenses of its production, and no more. Were a gold-mine discovered of equal productivity 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 upon the market, and its price would, in no very lengthened period, be reduced to the same level as silver.

In further illustration of this principle, take the case of cottons. None can deny that the demand for them has been prodigiously augmented within the last fifty or sixty years; and yet their price, instead of increasing, as it should have done had the popular theory of demand and supply been well founded, has been constantly and rapidly diminishing. If it be said that this is a consequence of the 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 could not have been brought to market, had not the diminution of prices, which has been constantly 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 reach of all classes; and enabled the poorest individuals to clothe themselves in a dress which, at the accession of George III., was fully as expensive as silk.

If a set of men were brought together from various countries, ignorant of each other's wants, and of the labour and expense necessary to produce the commodities which each producer possesses, these would be bought and sold according to the wants and fancies of the parties. In such circumstances, a whole pound of gold might be given for a pound of iron, and a whole gallon of wine for a gallon of small beer. As soon, however, as a commercial intercourse is established, and as the wants of society and the powers of production come to be 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 suffice to pay the expense of its production. This is in every civilized society the pivot on which exchangeable value always turns. A civilized man may obtain articles from a savage, in exchange for toys or trinkets, which it cost infinitely less to produce; but if he try to obtain the same advantage over his own countrymen, a very short experience will 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, unaccompanied by a variation in the cost of production, has any lasting influence over price. If the cost of production be diminished, price will equally decline, though the demand should be increased to any conceivable extent. If the cost of production be increased, price will equally rise, though the demand should sink to the lowest possible limit.

It must always be remembered, that this reasoning applies only to those commodities on which competition is allowed to operate without restraint, and whose quantity may be indefinitely increased by the application of fresh capital and industry to their production. When a particular individual, or class of individuals, obtains the exclusive privilege of manufacturing certain species of goods, the principle of competition is suspended with respect to them, and their price must, 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 as it would be were there 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 should have power to carry on. In point of fact, however, the market is never fully supplied with commodities produced under a monopoly. All classes of producers endeavour to obtain the highest possible price for their commodities; and when they are protected by a monopoly, against being undersold by others, they either keep the market undersupplied, or supply it with inferior articles, or both. Under 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 it would fetch 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 articles produced under artificial monopolies, there is another class whose quantity cannot be increased by human industry, and whose price is not, therefore, dependent on the cost of production. Ancient statues, vases, and gems, the pictures of the great masters, some species of wines produced in limited quantities only from soils of a particular quality and exposure, and a few other articles, come under this description. As their supply cannot be increased, their price varies inversely as the demand, and is totally unaffected by anything else.

But with these exceptions, which, when compared to the great mass of commodities, are but few and unimportant, wherever industry is unfettered and competition allowed to operate, the average price of the various products of art and industry always coincides with the cost of their production. Should a fall take place in the market price of any commodity, it cannot be said whether it is really advantageous, or whether a part of the wealth of the producers be not gratuitously transferred to the consumers, until it be learned whether the cost of production has been equally diminished. If this be the case, the fall of price will not be disadvantageous to the producers, and will be permanent; but if this be not the case—if the cost of production continue the same—the fall must be injurious to the producers, and prices will, in consequence, again attain their former level. It is the same with a rise of prices. No rise can be permanent unless the cost of production be proportionally increased. If that cost have remained stationary, or have 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 opinions respecting the regulating principle of price, and the discordant and erroneous opinions so very 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 vendue. 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 propor-

1 The theory of rent explained in this chapter was first promulgated and satisfactorily established in a tract on the Corn Laws, Edinburgh, 1777 (see p. 45-47). The author of this original and most important theory, Dr James Anderson, was a native of Hermandston in Midlothian, and subsequently editor of the Bee and other publications; in one of which (Observations on Agriculture and Natural History, &c. v. pp. 401-405), he gave a new exposition of his theory. But notwithstanding the clear and able manner in which he explained his doctrines, and their ingenuity and importance, they do not appear to have attracted the least attention, and seem to have been completely forgotten. So much was the case, that when Mr Malthus* and Sir Edward West† published tracts in 1815, explaining the nature and origin of rent, they were universally believed to be the authors of the theory. There is, we believe, no doubt as to their originality. Still, however, they were merely expositors of what had been clearly and ably explained about forty years previously to the publication of their pamphlets.

* An Inquiry into the Nature and Progress of Rent. † Essay on the Application of Capital to Land, by a Fellow of University College, Oxford (Sir E. West). 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 from the necessity of resorting, as population increases, to soils of a decreasing degree of fertility, and from the inability to apply capital indefinitely to the best land, without a diminished return. 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 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 unless the average market price of wheat be such as will indemnify the producers of the portion of the crop 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 exceed 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 afford the common and ordinary rate of profit to the raisers of that portion of the required supply which is produced in the most unfavourable circumstances, and with the greatest expense. The cost of producing this portion will always determine the average price of all the rest. And therefore it is plainly indifferent 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 belong 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 ten millions of quarters, and that one million of them must be raised 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 by the superior lands would be no boon to the cultivators of the inferior lands. It would not lessen their expenses; that is, it would not lessen the amount of capital and labour necessary to produce the portion of the required supply raised under the most unfavourable circumstances; and, unless it reduced this expense, it is quite impossible, supposing the demand not to decline, that it should lower prices. Although, therefore, landlords were to give up the whole of their rents, their doing so would have no influence upon the price of corn. Such an act would turn farmers into landlords, and landlords into beggars; but there its effect would stop. But the case is altogether different when the cost of production varies. If it be diminished, the competition of the producers will infallibly sink prices in an equal proportion. If it be increased, no supplies will be brought to market, unless the price rise to a corresponding level. In no case, therefore, whether the demand be great or small—whether for one or a million quarters—can the price of raw produce permanently exceed or fall below the sum required to pay the cost of producing that portion of the necessary 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 may hold in a to this theory. Nature and country like New Holland, where land is not appropriated.

Causes of Rent.

yet that the worst land in every civilized and appropriated country, like England, always yields 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.

It has been justly observed of this objection, that even were it well founded, it would not practically affect any of the conclusions we have endeavoured to establish. There are in England and Scotland thousands upon thousands of acres of land which do not let for L100; but to cultivate them would require an outlay of many millions, and the rent would consequently bear so small a proportion to the expenses of production, as to become altogether evanescent and inappreciable.

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. 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 these countries 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; 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 has been already seen, be exactly the same thing to the cultivator, whether he paid a rent of ten quarters for land yielding, with a certain outlay, a hundred quarters of corn, or employed the same capital in cultivating inferior land yielding only ninety quarters, for which he paid no rent. Were it possible always to obtain a hundred quarters for every equal additional capital applied to the superior soils, no person, it is obvious, would 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 indifferent, 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. Now, 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 as much 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 employ additional capital, if it will only replace itself, and afford the ordinary rate of profit. His employing this additional capital depends entirely on the price of raw produce being such as will repay his expenses 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 the landlord should require rent because an additional capital had been employed, he would withdraw it; since, by employing it in agriculture, he gets only the same profits he might get by employing it in any other department of industry. If the capital last applied to the soil yield more than the common and average rate of profit, fresh capital will be vested in agriculture; and competition will sink prices to a level that will enable them to yield this rate, and no more; if the capital last applied to the soil yield 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, supposes 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 see that this is a mistake. The price of raw produce is kept down to its necessary price by the competition of farmers, and not by that of landlords. Though there must necessarily be a very wide difference, in any country of considerable extent, between the best and worst soils, the gradation from the one extreme to the other is gradual, and almost imperceptible. The best differ but little from those immediately inferior to them, and the worst from those immediately above them. And hence it is quite 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 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 a little above the expense 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 brought under cultivation; and the increased supply would infallibly sink prices to the level that would 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, therefore, in so far as price is concerned, whether a country be 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 same principle—the cost of producing that portion of the necessary supply raised under the most unfavourable circumstances—that the price of raw produce is determined in England and France, and in New Holland and Illinois.

But then it is said that this reasoning involves a contradiction; that it accounts 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 the same Poland; and it will occasionally be low where it costs a great deal to produce it, when a redundant supply is brought to market. Suppose, as before, that the effectual demand for corn in Great Britain is such as will 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, the ardour of speculation, the miscalculation of farmers, or any other cause, lands of the sixth degree of 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 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 diminished return. Whenever this Nature and its case, rent begins to be paid; and it continues to increase according as cultivation is extended over poorer soils, and diminishes according as they 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 enter into price; for the produce raised on the poorest lands, or with the capital last applied to the soil, determines the price of all the rest; and this produce yields no 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, does not affect the price of commodities, or the principle which regulates their exchangeable value in the earliest stages of society, we have, in the next place, to inquire 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.—Influence of the Accumulation and Employment of Capital, and of Fluctuations in the Rate of Wages on Exchangeable Value.

It will be remembered, that the quantity of labour required to produce commodities, and bring them to market, formed, in the earliest stages of society, and before capital was accumulated, the standard by which their exchangeable value was regulated. But capital is merely the accumulated produce of anterior labour; and when it is employed in the production of commodities, their value is determined, not by the quantity of immediate labour only, but by the total quantity of immediate labour and of accumulated labour, or capital, necessarily laid out on them. Suppose that an individual can by a day's labour, without the assistance of capital, kill a deer; but that it requires a day's labour to construct the 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 it took as much labour to kill the latter as was required to kill two deer, and the beaver must, therefore, be worth the two deer. 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 he has killed. Had the weapons been more durable than has been 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 part, or five per cent., more than that required to kill a deer, and the animals would, of course, have been exchanged in that proportion. 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 the produce of anterior labour, that its accumulation and employment cannot affect the principle which makes the value of commodities depend 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; and if so, its value will be determined by the quantity of capital, that is, of antecedent labour, expended in its production; or it may be partly produced by capital, and partly by immediate labour, and then its value will be proportioned to the sum of the two, or, which is the same thing, to the total quantity of labour bestowed upon it. The principles now laid down are almost self-evident, and we are not aware that they have been disputed by any economist of consideration; but a considerable difference of opinion is entertained respecting the influence on value of the employment of workmen by capitalists, and of fluctuations in the rate of wages.

It does not, however, seem that there is much room for Exchange these differences. Suppose that a certain quantity of goods, twenty pairs of stockings, for example, manufactured by independent workmen, freely exchange for forty pairs of gloves also manufactured by independent workmen; they of labour formerly required for their production continued pitiable, though the workmen were 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 belonged to themselves, and that, in the second case, they had to share them with others. But it must be recollected, that in the first case the capital made use of in the production of the commodities also belonged to the workmen, and that in the latter case it has been furnished them by others. The question then comes to be,—does the circumstance of labourers voluntarily agreeing to give a portion of the commodities produced by them, as an equivalent or compensation for the wages, that is, for the capital furnished them by others, afford any ground for raising the value of 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 belong to the labourer, or is supplied to him by another, is obviously of no consequence. When the capital does not belong to the labourer, the commodities he produces 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 on their production. But the value of the commodities is the same, into how many portionssoever 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 possess a capital adequate to maintain himself and his family until his shoes are disposed of, and 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 return for his capital, equal to the profit obtained by the master-shoemaker, it would obviously be for his advantage to lend his capital to the latter, and to work on his 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 value depends on the total quantity of labour necessary for their production. It now only remains to trace the influence of fluctuations in the rate of wages on price. When this is done, the subject will be exhausted.

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, if any, what effects, on the value of commodities produced by the aid of capitals of equal degrees of durability; and, second, whether these fluctuations have any, and, if any, what effects, when the capitals employed are of unequal degrees of durability.

I. When all classes of producers employ 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 assented to by every one, and is indeed self-evident. But when such is the case, it is plainly impossible that a rise or fall of wages should occasion any variation in the value of commodities. To revert to our in money or commodities, proportional wages are often lowest when money wages are highest, and they are often rising at the moment that money wages are falling; and vice versa. And hence, in order to avoid falling into endless mistakes, it is best, in all theoretical investigations with respect to value, to consider wages in the light of a certain proportion of the produce of industry; as being really invariable, so long as this proportion continues unchanged; and as having really risen when it is increased, and really fallen when it is diminished.

The mistaking of fluctuations in the rate of money wages for fluctuations in the rate of proportional wages, has been the source of much error and misapprehension. A man whose wages are one shilling a day, must get two shillings to keep them at the same level, should the value of money decline a half; and the hat which now sells for ten shillings must then, for the same reason, sell for twenty shillings. It is obviously false to call this a real rise, either of wages or prices: this, however, is what is generally done. The manufacturer who gives sixpence a day more to his men, and who sells his goods at a proportionally higher price because of a fall in the real value of money, rarely suspects that there has been any such fall, and almost invariably concludes that the rise of wages has been the cause of the rise of prices, overlooking entirely the real cause of the rise of both—the decline in the value of the money or commodity in which wages and prices are estimated.

It has been seen that a general and equal increase of the labour required for the production of commodities cannot alter their relation to one another; and it is consequently obvious that this relation cannot be altered by a general and equal increase of the wages paid for that labour. Fluctuations in the rate of wages affect the proportion in which the produce of industry, under deduction of rent, is divided between capitalists and labourers—diminishing the proportion belonging to the capitalists when they rise, and increasing it when they fall. But as these changes in the distribution of commodities neither add to nor take from the quantity of labour required to produce them and bring them to market, they do not affect either their real or exchangeable value.

II. We have seen by the investigation under the preceding head, that, where the capitals employed in producing those 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 value of employed 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 do not, in such cases, equally affect all classes of producers, and the natural equilibrium of profit cannot be maintained without a variation in the value of their products. To illustrate this, let it be supposed that a certain quantity of goods, the produce of fixed capital or machinery fitted to last many years, freely exchanges for a certain quantity of other goods entirely produced by manual labour. It is plain they would not 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, whereas they would very seriously affect the proprietor of the goods produced by manual labour. And, therefore, when wages fluctuate, the 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 continue to yield the same common and average rate of profit. Let us endeavour to trace the mode in which this adjustment is effected.

The arguments now brought forward, to show the impossibility of fluctuations in the rate of wages affecting the value of commodities produced by capitals of the same durability, were first advanced by Mr Ricardo. He, too, was Exchange the first who endeavoured to analyse and discover the influence 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 more difficult branch of the science were still more important, and more at variance with the previously 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 confirmed their truth, and set them in a still clearer point of view.

Suppose a manufacturer has a machine worth £20,000, of a high degree of durability, and which can, without the assistance of any, or with but little, manual labour, produce commodities: If profits were at ten per cent., the commodities annually produced by this machine would sell for £20,000, together with a small addition to replace its wear and tear. Now, it is quite clear, 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. If profits were to rise fifteen 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 £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 £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 price of 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 see that this is really the case, and that, in point of fact, profits, supposing other things to continue the same, 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 any class of producers, whether their capitals were returnable in a day, a 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 the same extent with himself by the rise of wages,—that is, whose capitals were returnable in the same period as his own. This is as impossible as it is to change the relation of proportional numbers by multiplying or dividing them 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. 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. Suppose, now, 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. It has been already seen that, whatever might be the amount of the rise—whether it were one, ten, or a hundred per cent.—the holder of such capital could not 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 any one of them as a standard by which to measure profits, they would appear to have fallen in a still greater proportion.

Hence it is plain, that while other things remain the same, profits vary inversely as wages; that is, they fall when wages rise, and rise when wages fall. But, owing to the different 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 affects profits. We shall, however, state three different cases, which will briefly, and, it is hoped, 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 £1000 in the payment of wages must, if profits were at ten per cent., sell the commodities for £1100. But when wages rise five per cent., or to £1050, he would not be able to sell his commodities for more than £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 same degree that it affects 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 £500 in the payment of wages, and £500 as a fixed capital, when profits are at ten per cent., the commodities produced must, as before, sell for £1100. If wages rose five per cent., the capitalist would have to pay £525 as wages, and would, consequently, only retain £575 as profits. In this case, therefore, a rise of wages to the extent of five per cent. would, because of the employment of equal quantities of capital and immediate labour in the production of commodities, only sink profits two and a half 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 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 five 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 two and a half per cent. more than it has affected No. 2, and five per cent. more than it has affected No. 3. No. 1

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1 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 ten per cent., would at the end of that period amount to £20,000. must, therefore, as compared with No. 2, have risen two and a half per cent. in value; and, as compared with No. 3, it must have risen five per cent.; No. 2 must have fallen two and a half per cent. as compared with No. 1, and risen two and a half per cent. as compared with No. 3; and No. 3 must have fallen five per cent. as compared with No. 1, and two and a half 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 five per cent. by the fall, those of No. 2 would gain two and a half per cent., and those of No. 3 nothing; and the relative values of their commodities would be adjusted accordingly.

Thus, then, it appears, inasmuch as any commodity taken for a standard by which to estimate the values of other commodities, must itself be produced by capital returnable in a certain period, that when wages rise, commodities produced by less durable capitals than those which produce the commodity taken for a standard, will rise in exchangeable value; and 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 one per cent., those produced by No. 3 would decline two per cent., those produced by No. 4, three per cent., and so on until we arrive at No. 10, which will have fallen nine 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 one per cent., those produced by No. 8 would rise two per cent., and those produced by No. 1, nine 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, one per cent., the second, or No. 3, two 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, one per cent., the second, or No. 7, two per cent., &c. exactly the reverse of the other.

Hence it is obvious that the influence 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 and fixed capital employed in the production of money, all commodities produced by the agency of a greater quantity of labour, and with less fixed capital and machinery, will rise when wages rise, and fall when wages fall; but those that are produced by the agency of a less quantity of labour, 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 fluctuation of wages.

It should be observed, however, that variations in the exchangeable value of most commodities, caused by variations in the rate of proportional wages, are confined within comparatively narrow limits. It has been already seen, that were all commodities produced wholly by immediate labour, or wholly by capital, or wholly by equal quantities of both, no variation in the rate of wages would have any influence on their value. But, in point of fact, a very large class of commodities are produced by means of nearly equal portions of fixed and circulating capital; and as every rise of proportional wages that may take place must, under such circumstances, be balanced by a fall in the rate of profit, or by a proportional increase in the productivity of industry, it is evident that the value of the commodities in question, as compared with each other, would remain nearly stationary. Although, therefore, a rise of wages has a necessary tendency to raise the exchangeable value of one class of commodities, and consequently to lower that of another, the fall of profits, which must inevitably follow every rise of wages that is not accompanied by an increased productivity of industry, has a contrary effect, and tends to sink the value of the commodities which the increased rate of wages would raise, and to elevate the value of those which the same increased rate would sink. And it is only in extreme cases, or in the case of commodities produced almost wholly by direct manual labour on the one hand, or in that of those produced almost wholly by the aid of fixed capital or machinery on the other, that a variation in the rate of proportional wages occasions a considerable variation in their relative values.

It must also be observed, that though fluctuations in the rate of wages occasion some variation in the exchangeable value of particular commodities, they neither add to nor take from the total value of the entire mass. If they increase the value of those produced by the least durable capitals, they equally diminish the value of those produced by the more durable capitals. Their aggregate value continues, therefore, always the same. And though it may not be strictly true of a particular commodity, that its exchangeable value is directly as its cost or real value, or as the quantity of labour required to produce it and bring it to market, it is most true to affirm this of the mass of commodities taken together.

In thus endeavouring to trace the cost of all descriptions of non-monopolized commodities to the quantity of labour required for their production, it is not meant to deny that a very large portion of the useful or desirable qualities of such commodities may be the result of the action or labour of natural agents. But it is, as was previously seen, the peculiar and distinguishing feature of natural agents or powers, that they render their services gratuitously. Whatever they do is done without fee or reward. And hence, though their co-operation be necessary to the production of every species of useful and desirable articles, they add nothing to their value. This is a quality that can be communicated only by the labour of man, or by the instrumentality of capital appropriated or accumulated by his labour. In estimating the value of a quantity of corn, for example, we include only the labour of the individuals employed, as ploughmen, reapers, thrashers, &c. the value of the corn used as seed, and the value of the services rendered by the horses and instruments made use of in the different operations. Nothing whatever is set down to account of the aid derived from the vegetative powers of nature, and the action of the sun and showers; for though without them the crop could not be obtained, and our utmost exertions would be altogether fruitless, yet, as they are the free gift of Providence, they add nothing to the value of the

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1 These examples are substantially the same with those given by Mr Mill. See Elements of Political Economy, p. 77. Exchange produce; that is, they add nothing to its power of exchange for or buying labour, or other things procured by the intervention of labour.

It may be thought, perhaps, that this principle is at variance with what is observed to take place in the production of certain descriptions of commodities. Thus, if a cask of new wine be kept for a definite period, or till it arrive at maturity, it will acquire a higher value; now, as the change produced on the wine is entirely brought about by the operation of natural agents, and as, without the change, the wine would have no higher value, it has been contended that this is a case in which the labour of natural agents is plainly productive of an increased value. But it is easy to see that this is a mistake. The cask of wine is a capital, or is the result of the labour employed in cultivating, gathering, pressing, and otherwise preparing the grapes from which it was made. But it is necessary, in order to give time for the processes of fermentation, decomposition, &c., to effect the desired changes in the wine, that it should be laid aside until they are completed. The producer of wine would not, however, employ his capital in this way, unless it were to yield the same return that is derived from capital employed in other businesses. And hence it follows, that though the processes carried on by nature render the wine more desirable, or bestow on it a greater degree of utility, they add nothing to its value; the additional value which it acquires being a consequence of the profit accruing on the capital required to enable the processes to be carried on.

Besides the objection now stated, it has been contended by Colonel Torrens, in his valuable work on the Production of Wealth, in opposition to the theory we have been endeavouring to establish, that, after capital has been accumulated, the 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 market, but by the quantities of capital required for that purpose. At bottom, however, this theory is identical with that now explained. Capital is the accumulated produce of anterior labour; and its value, like that of everything else, is estimated by the quantity of labour required to procure it. In this respect, too, there is no difference, as has been already seen, between labourers and any other species of machines. A labourer is himself a portion of the national capital, and may, without impropriety, be considered, in theoretical investigations of this sort, in the light of a machine which it has required a certain outlay of labour to construct; the wages which he earns may be looked upon as a fair remuneration for his services, or, if we may so speak, they yield him the common and ordinary rate of profit on his capital, exclusive of a sum to replace its wear and tear, or to supply the place of the old and decayed labourers with new ones. Whether, therefore, a commodity have been produced by the outlay of a capital which it cost a certain quantity of labour to provide, or whether it have been produced by the expenditure of that amount of labour directly upon it, is of no moment. In either case it is the result of the same outlay of labour, or, if it be deemed a better phrase, of capital. There is, in truth, no substantial difference between the manual labour of man and the action of machinery. Men are themselves, in so far as their mere physical powers are concerned, and it is of such only that we are now talking, to be looked upon as capital, or to be considered in the same point of view as exchangeable tools or engines with which they perform their tasks, and to say that the exchangeable value of commodities depends on the quantities of capital expended on their production, is not to contradict, but is, in fact, only another way of expressing the identical proposition we have been endeavouring to illustrate.

Sect. V.—Division of the Produce of Industry, under deduction of Rent, between Capitalists and Workmen.—Definition of Profits.—Mr Ricardo's Theory of Profits; sense in which it is true.—Causes which occasion a Rise or a Fall of Profits.—Influence of the Decreasing Fertility of the Soil and of Taxation on Profits.

Before attempting to investigate the circumstances which determine the rate of profit, it is necessary to be aware of those which determine the proportions in which the whole produce of industry, under deduction of rent, is divided between labourers and capitalists.

This preliminary inquiry may be disposed of in a few words. We have seen, that the whole produce of the land and labour of every civilized society is always divided, in the first instance, into three, and not more than three, portions; the first of which goes to the labourers, the second to the capitalists or proprietors of stock, and the third to the landlords; and we have also seen, that the portion of the produce of industry, or of rent, which belongs to the landlords, as proprietors of the soil, and not as capitalists, is altogether extrinsic to the cost of production; and that the circumstance of the landlords' consenting to give it up, would not occasion any change in the productivity of industry, or any reduction in the price of raw produce. Supposing, then, that rent is deducted or set aside, it is obvious that all the remaining produce of the land and labour of every country must be primarily divided between the two great classes of labourers and capitalists. And it is further obvious, that were there no taxes in a country, or were the rate of taxation invariable, the proportion of the whole produce of industry, under deduction of rent, falling to the share of the labourers, could not be increased except by an equivalent reduction in the proportion falling to the share of the capitalists, and vice versa. Suppose, still better to illustrate this proposition, that the whole produce of industry in Great Britain is represented by the number 1000; suppose farther, that the landlords get 200 of this sum as rent, and that the remaining 800 is divided in equal portions between labourers and capitalists. Under these circumstances, it is quite obvious that nothing could be added to the proportion of the produce, or to the 400, falling to the labourers, except at the expense of the capitalists; nor to the proportion or 400 falling to the latter, except at the expense of the former.

Whether the 800 were increased to 1600, or reduced to 400, so long as those between whom it must be divided receive each a half, their relative condition must continue the same. And hence the propriety of the distinction between proportional and real wages, or wages estimated in parts of the produce raised by the labourer, and those estimated in definite quantities of money or produce. If the productivity of industry were to diminish, proportional wages might rise, notwithstanding that real wages, or the absolute quan-

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1 Sir William Petty stated, so early as 1677, that the value of commodities is always regulated by the quantity of labour required to produce them; there is, however, the same difference between his statements and the analysis and investigations of Mr Ricardo, whom we have principally followed in this section, that there is between the conjectures of Pythagoras respecting the true system of the world and the demonstrations of Euclid. But as the statement of Petty is curious, we subjoin it:

"H," 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 easie 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. cateris paribus." (Treatise of Taxes and Contributions, ed. 1673, p. 31.) It will facilitate the acquisition of clear and precise ideas respecting the circumstances which determine the average rate of profit in different employments, as that term is commonly understood, if we confine our attention, in the first place, to those that determine profits in agriculture,—both because the latter admit of being accurately measured, and because they may be taken as representing profits in other businesses. Agriculture is a branch of industry that must be carried on at all times, and under all circumstances; but it would not be carried on, if it did not, at an average, yield as great a return to the capital vested in it as other businesses; nor would these other businesses be carried on if they yielded a less return than is derived from agriculture. It necessarily follows, therefore, that the returns obtained from agricultural industry, or agricultural profits, may, in ordinary cases, be considered as identical with the returns or profits obtained from other businesses. Whenever, for example, the average return to an outlay of capital or labour worth a hundred quarters of wheat, employed in the cultivation of the soil, amounts to a hundred and ten quarters, we may safely infer that L100 employed in manufactures is also yielding L110; for a regard to their own interest will not permit those engaged in such departments to prosecute them for less profit than is obtained in agriculture, and the competition of the agriculturists will not permit them to obtain more.

Taking, then, as we are entitled to do, agricultural profits as a standard of all other profits, let us suppose that a landlord employs a capital equal in value to 10,000 quarters, or L10,000, in the cultivation of an estate; that he rise or fall spends 5000 quarters, or L5000, of this capital in seed, profits, in the keeping of horses, and in defraying the wear and tear of implements and machines; and 5000 quarters, or L5000, in paying the wages of his labourers. Suppose, now, that the return obtained by this landlord is 12,000 quarters, or L12,000; of which 10,000 quarters, or L10,000, go to replace his capital, and 1000 quarters, or L1000, to pay his taxes, leaving 1000 quarters, or L1000, as profits, being ten per cent. on the capital employed; it is plain from this case (and this case is, in point of principle, the actual case of all cultivators), that the rate of profit may be increased in three, but only in one or other of three, ways, viz. 1, by a fall of wages; 2, a fall of taxes; or, 3, an increased productiveness of industry.

Thus, it is obvious, 1, that if wages were reduced from 5000 to 4000 quarters, profits, supposing other things to be invariable, would be increased from 1000 to 2000 quarters, or from ten to twenty per cent.; if, 2, the burden of taxation were reduced from 1000 to 500 quarters, profits would be increased from 1000 to 1500 quarters, or from ten to fifteen per cent.; and if, 3, owing to the introduction of an improved system of agriculture, the return to a capital of 10,000 quarters were increased from 12,000 to 13,000 quarters, profits, supposing wages still to amount to 5000, and taxes to 1000 quarters, would be increased to 2000 quarters, or to twenty per cent.; and though, in this case, after the productiveness of industry had been increased, wages would form a less proportion of the whole produce of industry than they did previously, it is to be observed, that this diminished proportion is the consequence, and not the cause, of profits having risen; and, therefore, in such cases as this, and they are of very frequent occurrence, it is true to say, that proportional wages fall because profits rise; but the converse of the proposition is not true; for the rise of profits was occasioned by causes that had nothing whatever to do with wages, and which were, in fact, totally independent of them.

It is indeed true, inasmuch as the rise of profits is the result of an increased productiveness of industry, that the real value of the 13,000 quarters will not exceed the real value of the 12,000 previously obtained by the same quan- Profits and quantity of labour; but profits, in the sense in which they are practically understood, and as we understand them, do not depend on real values, but on the excess of the commodities produced above the capital expended in their production; and whenever this excess is augmented, without any previous depression in the rate of wages, the rate of profit must evidently be increased by the operation of causes extrinsic to variations in that rate.

Nor is this all. The rate of profit may remain stationary, or rise, though the proportion of the produce of industry falling to the share of the labourer be actually increased. Suppose, to exemplify this, that a landlord employs 1000 quarters of wheat as a capital, 500 of which are expended in seed, keep of horses, &c., and 500 in paying wages; if the produce be 1200 quarters, and the taxes to which he is subjected 100, his profits will amount to 100 quarters, or ten per cent.; suppose now that, owing to the introduction of improved machinery, or improved methods of culture, he only requires to expend 400 quarters in seed, keep of horses, &c., but that wages rise from 500 to 550 quarters, and that the same return is obtained; in this case, supposing taxation to be constant, the profits of the landlord will be increased from ten to fifteen three fourths per cent., though proportional wages have risen from five twelfths to five and a half twelfths of the whole produce.

It may be said, however, that if this increased productivity were confined to agriculture, and did not extend to most other important businesses, the price of agricultural produce would fall, while that of other produce would remain stationary; and that, in such a case, the profits of agricultural industry, if estimated in money, or in any commodity other than corn, would be diminished in consequence of the rise of wages. This is true; but Mr Ricardo has made no exception, in laying down his theory, in favour of those possible, and indeed frequently occurring cases, when, from any single circumstance, or combination of various circumstances, industry becomes generally more productive, and when, consequently, profits, estimated in money, corn, cloth, or any commodity in extensive demand, would have risen, without their rise having been occasioned by a fall of wages. And it is also true, that an increased productivity of agricultural industry, whether it have been caused by the introduction of an improved system of agriculture, or by the repeal of restrictions on the importation of corn into a comparatively populous country, most commonly extends itself to other businesses, and has the effect of bringing about a universal rise of profits; for, as raw produce forms the principal part of the labourer's subsistence, and as he obtains a larger quantity in exchange for the same amount of money, after it has fallen in price, his condition is so far improved; and a stimulus being, in this way, given to population, and the supply of labour increased, wages are reduced, and the rate of profit universally raised.

When industry, instead of becoming more productive, becomes less so, the opposite effects follow. Profits then fall, without any fall having previously taken place in the rate of wages. It is evident, therefore, that the proposition that a rise of profits cannot be brought about otherwise than by a fall of wages, nor a fall of profits otherwise than by a rise of wages, is true only in those cases in which the productivity of industry and the burden of taxation remain constant. So long as this is the case, or, which is the same thing, so long as the same capital is employed, and the same quantity of produce has to be divided between capitalists and labourers, the share of the one cannot be increased without that of the other being equally diminished; and it is also true, that if profits depended on the proportion in which the produce of industry is divided between capitalists and labourers, they could not be affected by variations in the productivity, but would be determined wholly by the state of proportional wages. But profits depend, as has been already seen, on the proportion which profits and wages bear to the capital by which they are produced, and not on the proportion which they bear to wages. Suppose an individual employs a capital of 1000 quarters, or L.1000, in cultivation; that he lays out half this capital in the payment of wages, and obtains a return of 1200 quarters, or L.1200; in this case, assuming he is not affected by taxation, his profits will amount to 200 quarters, or L.200, being at the rate of twenty per cent., and will be to wages in the proportion of two to five. Suppose, now, that the productivity of industry is universally doubled, and let it be farther supposed, that the additional 1200 quarters, or L.1200, is divided between the capitalist and his labourers in the former proportion of two to five, or that the capitalist gets 348 quarters, or L.348, of additional profits, and the labourers 857 quarters, or L.857, of additional wages; in this case, both parties will still obtain the same proportions of the produce of industry as before; and if we look only to them, we must say that neither profits nor wages have risen. But when we compare, as is invariably done in estimating profits, the return obtained by the capitalist with the capital he employs, it will be found, notwithstanding the constancy of proportional wages, that the rate of profit has increased from twenty to fifty-four per cent.

Thus, then, it appears, as was previously stated, that profits rise in one or other of the three following ways, viz. 1, from a fall of wages; or, 2, from a fall of taxes directly or indirectly affecting capitalists; or, 3, from an increased productivity of industry; and they fall, 1, from a rise of wages; or, 2, from an increase of taxes; or, 3, from a diminished productivity of industry. But they can neither rise nor fall, except from the operation of one or more of the causes now stated.

It is consistent with universal experience, that profits are invariably much higher in colonies, and thinly-peopled countries, than in countries that have been long settled, and where the population is comparatively dense; and that (referring to periods of average duration) their tendency is to fall in the progress of society. This sinking of profits in rich and populous countries has been ascribed by Dr Smith to the competition of capitalists. He supposes that when capital is augmented, its owners endeavour to encroach on each other's employments; and that, in furtherance of their object, they are tempted to offer their goods at a lower price, and to give higher wages to their workmen; which has a twofold influence in reducing profits. This theory was long universally assented to. It has been espoused by MM. Say, Sismondi, and Storch, by the Marquis Garnier, and, with some trifling modifications, by Mr Malthus. But, notwithstanding the deference due to these authorities, it is easy to see that competition can never bring about a general fall of profits. It prevents any one individual, or set of individuals, from monopolizing a particular branch of industry, and reduces the rate of profit in different businesses nearly to the same level; but this is its whole effect. Most certainly it has no tendency to lessen the productivity of industry, or to raise the average rate of wages or the rate of taxation; and if it do none of these things, it is quite impossible it should lower profits. So long as an individual, employing a capital of 1000 quarters, or L.1000, obtains from it a return of 1200 quarters, or L.1200, of which he has to pay 100 quarters, or L.100, as taxes, so long will his profits continue at ten per cent., whether he have the market to himself, or have 50,000 competitors. It is not competition, but it is the increase of taxation, and the necessity under which a growing society is placed of resorting to soils of less fertility to obtain supplies of food, that are the great causes of that reduction in the rate of profit which usually takes place in advanced periods. When the last lands taken into cultivation are fertile, there is a comparatively large amount of produce to be divided between capitalists and labourers; But with every successive diminution in the fertility of the soils to which recourse is had, the quantities of produce obtained by the same outlays of capital and labour necessarily diminish. And this diminution will obviously operate to reduce the rate of profit—1, by lessening the quantity of produce to be divided between capitalists and labourers; and, 2, by increasing the proportion falling to the share of the latter.

The influence of the decreasing productiveness of the soil, as well on the condition and fortunes of society, as on the rate of profit, is so very powerful, that we shall endeavour to trace and exhibit its operation a little more fully. It has been shown over and over again, that the principle of increase in the human race is so very strong, as not only to keep population steadily up to the means of subsistence, but to give it a tendency to exceed them. It is true, that a peculiar combination of favourable circumstances occasionally causes capital to increase faster than population, and wages are in consequence augmented. But such augmentation is rarely permanent, at least to the whole extent; for the additional stimulus it is almost sure of giving to population seldom fails, by proportioning the supply of labour to the increased demand, to reduce wages to their old level, or to one not much above it. If, therefore, it were possible always to employ additional capital in raising raw produce, in manufacturing that produce when raised, and in conveying the raw and manufactured products from place to place, with an equal return, it is evident, supposing taxation to continue invariable, that, speaking generally, the greatest increase of capital would not occasion any considerable fall in the rate of profit. So long as labour may be obtained at the same rate, and as its productive power is not diminished, so long must the profits of stock continue unaffected. It is evident, then, that the mere increase of capital has, by itself, no lasting influence on wages, and it is obviously 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, and in the manufactures and commerce of this or any other kingdom, provided the last million so employed be as productive, or yield as large a return, as the first. Now, this is invariably the case with the capital employed in manufactures and commerce. The greatest amount of capital and labour may be employed in fashioning raw produce, and adapting it to our use, and in transporting it from where it is produced to where it is to be consumed, without a diminished return. Whatever quantity of labour may now be required to build a ship or construct a machine, it is abundantly certain that an equal quantity will, at any future period, suffice to build a similar ship, or to construct a similar machine; and although these ships and machines were indefinitely multiplied, the last would be as well adapted to every useful purpose, and as serviceable, as the first. The probability, indeed, or rather the certainty, is, that the last would be much more serviceable than the first. It is not possible to assign limits to the powers and resources of genius, nor consequently to the improvement of machinery, and of the skill and industry of the labourer. Future Watts, Arkwrights, and Wedgwoods, will arise; and the stupendous discoveries of the last and present age will doubtless be equalled, and most probably surpassed, in the ages that are to come. It is therefore clear, that if equal quantities of capital and labour always raised equal quantities of raw produce, the greatest additions that might be made to them would not lessen the capacity of employing them 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 colesendi. Hand faciem esse viam volunt.

Equal quantities of capital and labour do not always produce equal quantities of raw produce. The soil is of limited extent and limited fertility; and this limitation is the real check—the insuperable obstacle—which prevents the means of subsistence, and consequently the inhabitants, of every country, from increasing in a geometrical proportion, until the space required for carrying on the operations of industry has become deficient.

It is plain that the decreasing productiveness of the soils to which every improving society is obliged to resort, will not, as was previously observed, merely lessen the quantity of produce to be divided between profits and wages, but will also increase the proportion of that produce falling to the share of the labourer. It is quite impossible to go on increasing the cost of raw produce, the principal part of the subsistence of the labourer, by forcing good or taking inferior lands into cultivation, without increasing wages. A rise of wages is seldom indeed 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 be not supplied with the means of subsistence; and though a certain period of varying extent, according to the circumstances of the country at the time, must generally elapse, when necessaries are rising in price, before wages are proportionally augmented, such an augmentation must, in all ordinary cases, be brought about in the end.

It is plain, therefore, inasmuch as there is never any falling off, but a constant increase, in the productiveness of the labour employed in manufacturing and commercial industry, that the subsistence of the labourer could not be increased in price; and, consequently, that it would not be necessary to make any additions to his natural wages, or the wages required to enable him to subsist and continue his race, were it not for the diminished power of agricultural labour, originating in the inevitable necessity under which man is placed, of resorting to inferior soils to obtain larger supplies of raw produce. The decreasing fertility of the soil is, therefore, at bottom, the great and only necessary cause of a fall of profits. The quantity of produce forming the return to capital and labour would never diminish, but for the diminution that uniformly takes place in the productiveness of the soil; nor is there any other physical cause why the proportion of wages to profits should be increased, and the rate of profit diminished, as it uniformly is, in the progress of society.

We have thus endeavoured to exhibit the ultimate influence which the necessity of resorting to poorer lands for supplies of food has on profits and wages. But though this cause of the reduction of profits be "of such magnitude and power as finally to overwhelm every other," its operations may be, and indeed commonly are, counteracted or facilitated by extrinsic causes. It is obvious, for example, that every discovery or improvement in agriculture, which enables a greater quantity of produce to be obtained for the same expense, has a similar effect on profits, as if the extent of superior soils were increased, and may, for a lengthened period, increase the rate of profit.

Had the inventive genius of man been limited in its powers, and had the various machines and implements used in agriculture, and the skill of the husbandman, speedily attained to their utmost perfection, the rise in the price of

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1 This supposes, of course, either that no improvements are made, or that their influence has been taken into account. 2 Malthus' Principles of Political Economy, &c. p. 317.