The Online Library of Liberty

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• Introduction
• Principles of Political Economy
• Introduction
• Chapter I: On the Definitions of Wealth and Productive Labour
• Chapter II: On the Nature and Measures of Value
• Chapter III: Of the Rent of Land
• Chapter IV: Of the Wages of Labour
• Chapter V: Of the Profits of Capital
• Chapter VI: Of the Distinction Between Wealth and Value
• Chapter VII: On the Immediate Causes of the Progress of Wealth

chapter i

On the Definitions of Wealth and Productive Labour

section i

On the Definitions of Wealth

[A definition of wealth is desirable, though it may not be easy to give one not liable to some objection.

The liberty of a writer to define his terms as he pleases, provided he always uses them in the sense proposed, may be doubted, as an inquiry may be rendered futile by an inadequate or unusual definition.

The comparative merits of the systems of the Economists, and of Adam Smith, depend mainly upon their different definitions of wealth.

The Economists have confined the term wealth within too narrow limits.

Lord Lauderdale and other writers have given definitions which extend it too far.]

If we wish to attain any thing like precision in our inquiries, when we treat of wealth, | we must narrow the field of inquiry, and draw some line, which will leave us only those objects, the increase or decrease of which is capable of being estimated with more accuracy.

The line, which it seems most natural to draw, is that which separates material from immaterial objects, or those which are capable of accumulation and definite valuation, from those which rarely admit of these processes, and never in such a degree as to afford useful practical conclusions.

Adam Smith has no where given a very regular and formal definition of wealth; but that the meaning which he attaches to the term is confined to material objects, is, throughout his work, sufficiently manifest. His prevailing description of wealth may be said to be, “the annual produce of land and labour.” The objections to it, as a definition, are, that it refers to the sources of wealth before we are told what wealth is, and that it is besides not sufficiently discriminate, as it would include all the useless products of the earth, as well as those which are appropriated and enjoyed by man.(3)

To avoid these objections, and to keep at an equal distance from a too confined or too indiscriminate sense of the term, I should define wealth to be, those material objects which are necessary, useful, or agreeable to mankind. And I am inclined to believe, that the definition, thus limited, includes nearly all the objects which usually enter into our conceptions when we speak of wealth or riches; an advantage of considerable importance, | so long as we retain these terms both in common use, and in the vocabulary of political economy.

It is obviously, indeed, rather a metaphorical than a strict use of the word wealth, to apply it to every benefit or gratification of which man is susceptible; and we should hardly be prepared to acknowledge the truth of the proposition which affirmed, that riches were the sole source of human happiness.

It may fairly, therefore, I think, be said, that the wealth spoken of, in the science of political economy, is confined to material objects.

A country will therefore be rich or poor according to the abundance or scarcity with which these material objects are supplied, compared with the extent of territory; and the people will be rich or poor according to the abundance with which they are supplied, compared with the population.

section ii

On Productive and Unproductive Labour

[The question of productive labour is dependent upon the definition of wealth, both in the system of the Economists, and in that of Adam Smith.

The application of the term productive to the labour which is productive of wealth, however defined, is obviously useful.

Adam Smith’s definition of productive labour has been thought by some to be too extended, and by others too confined.

It would be difficult to proceed in our inquiries into the nature and causes of the wealth of nations, without some classification of the different kinds of labour.

Such a classification is necessary—1st. To explain the nature of capital, and its effect in increasing national wealth.]

Secondly, it is stated by Adam Smith, and it must be allowed to be stated justly, that the produce which is annually saved is as regularly consumed as that which is annually spent, but that it is consumed by a different set of people. (4) If this be the case, and if saving be allowed to be the immediate cause of the increase of capital, it must | be absolutely necessary, in all discussions relating to the progress of wealth, to distinguish by some particular title a set of people who appear to act so important a part in accelerating this progress. Almost all the lower classes of people of every society are employed in some way or other, and if there were no grounds of distinction in their employments, with reference to their effects on the national wealth, it is difficult to conceive what would be the use of saving from revenue to add to capital, as it would be merely employing one set of people in preference to another, when, according to the hypothesis, there is no essential difference between them. How then are we to explain the nature of saving, and the different effects of parsimony and extravagance upon the national capital? No political economist of the present day can by saving mean mere hoarding; and beyond this contracted and inefficient proceeding, no use of the term, in reference to national wealth, can well be imagined, but that which must arise from a different application of what is saved, founded upon a real distinction between the different kinds of labour which may be maintained by it.

If the labour of menial servants be as productive of wealth as the labour of manufacturers, why should not savings be employed in their maintenance, not only without being dissipated, but with a constant increase of value? But menial servants, lawyers, or physicians, who save from their salaries, are fully aware that their savings would be immediately dissipated again if they were advanced to | themselves instead of being employed in the maintenance of persons of a different description. To consider the expenditure of the unproductive labourers of Adam Smith, as advances made to themselves, and of the same nature as the advances of the master-manufacturer to his workmen, would be at once to confound the very useful and just distinction between those who live upon wages and those who live upon profits, and would render it quite impossible to explain the frequent and important operations of saving from revenue to add to capital, so absolutely necessary to the continued increase of wealth.*

It is not the question at present whether saving may or may not be carried too far (a point which will be considered in its proper place); but whether we can talk intelligibly of saving and accumulation, and discuss their effects on national wealth without allowing some distinction in the different kinds of labour.

Thirdly, it has been stated by Adam Smith, and stated truly, that there is a balance very different from the balance of trade, which, according as it happens to be favourable or unfavourable, occasions the prosperity or decay of every nation: this | is the balance of the annual produce and consumption. If in given periods the produce of a country exceeds its consumption, the means of increasing its capital will be provided, its population will soon increase, or the actual numbers will be better accommodated, and probably both. (5) If the consumption in such periods fully equals the produce, no means of increasing the capital will be afforded, and the society will be nearly at a stand. If the consumption exceeds the produce, every succeeding period will see the society worse supplied, and its prosperity and population will be evidently on the decline.

But if this balance be so important, if upon it depends the progressive, stationary, or declining state of a society, surely it must be of importance to distinguish those who mainly contribute to render this balance favourable from those who chiefly contribute to make the other scale preponderate. Without some such distinction we shall not be able to trace the causes why one nation is thriving and another is declining; and the superior riches of those countries where merchants and manufacturers abound, compared with those in which the retainers of a court and an overgrown aristocracy predominate, will not admit of an intelligible explanation.

[The increasing riches and prosperity of Europe since the feudal times could hardly be explained, if mere personal services were considered as equally productive of wealth with the labours of merchants and manufacturers.

If some distinction be necessary between the different kinds of labour, the next inquiry is, what this distinction should be?

The distinction adopted by the Economists would not enable us to explain those appearances in different countries, which, in common language, are allowed to proceed from different degrees of wealth.

The opposite opinion to that of the Economists has been already discussed, in the endeavour to shew that some distinction in the different kinds of labour is necessary.

A distinction between the different kinds of labour is the corner-stone of Adam Smith’s work.

Another sort of distinction, however, might be made, different from that of Adam Smith, which would not invalidate his reasonings.]

If we do not confine wealth to tangible and material objects, we might call all labour productive, but productive in different degrees; and the only change that would be required in Adam Smith’s work, on account of this mode of considering the subject, would be, the substitution of the terms more productive and less productive, for those of productive and unproductive.

All labour, for instance, might be stated to be productive of value to the amount of the value paid for it, and in proportion to the degree in which the produce of the different kinds of labour, when sold at the price of free competition, exceeds in value the price of the labour employed upon them.

Upon this principle the labours of agriculture would, generally speaking, be the most productive; because the produce of nearly all the land actually in use is not only of sufficient exchangeable value to pay the labourers employed upon it, but the profits of the stock advanced by the farmers, and the rents of the land let by the proprietors. Next to the labours of agriculture, those labours would in general be most productive the operations of which were most assisted by capital or the results of previous labour, as in all those cases the exchangeable value produced would most exceed the value of the labour employed in the production, and would support, in the shape of profits, the greatest number of additional persons, and tend most to the accumulation of capital. (6) |

The labour least productive of wealth would be that, the results of which were only equal in exchangeable value to the value paid for such labour, which would support therefore no other classes of society but the labourers actually employed, would replace little or no capital, and tend the least directly and effectively towards that kind of accumulation which facilitates future production. In this last division of productive labour would, of course, be found all the unproductive labourers of Adam Smith.

This mode of considering the subject has, perhaps, some advantages in particular points over that of Adam Smith. It would establish a useful and tolerably accurate scale of productiveness, instead of dividing labour only into two kinds, and drawing a hard line of distinction between them. It would determine, in the very definition, the natural pre-eminence of agriculture, which Adam Smith is obliged to explain afterwards, and, at the same time, shew the numerous cases where an increase of manufacturing and mercantile labour would be more productive, both to the state and to individuals, than an increase of agriculture; as in all those where, from a greater demand for manufactured and mercantile products, compared with the produce of the land, the profits of manufacturing and mercantile capital were greater than both the rent and profits combined of labour employed upon new and less fertile land. (7)

It would answer sufficiently to all the reasonings of Adam Smith on the accumulation of capi-|tal, the distinction between capital and revenue, the nature and effects of saving, and the balance of produce and consumption, merely by using the terms more and less productive, for productive and unproductive; and would have the additional advantage of keeping more constantly in view the necessary union of capital and skill with the more productive kinds of labour; and thus shew the reason why all the labourers of a savage nation might, according to Adam Smith, be productive, and yet the nation increase very slowly in wealth and population, while a rapid increase of both might be taking place in an improved country under a proportion of productive labourers very much inferior.

With regard to the kinds of labour which Adam Smith has called unproductive, and for which classification his theory has been most objected to, their productiveness to the amount of their worth in the estimation of the society, varying, of course, according to the different degrees of skill acquired, and the different degrees of plenty or scarcity in which they are found, would be fully allowed, though they would still always be distinguished from those more productive kinds of labour which support other classes of the society besides the labourers themselves.

Agricultural labour would stand in the first rank, for this simple reason, that its gross produce is sufficient to maintain a portion of all the three great classes of society; those who live upon rent, those who live upon profits, and those who live | upon wages. Manufacturing and mercantile labour would stand in the next rank; because the value of its produce will support a portion of two of these orders of society. And the unproductive labourers of Adam Smith would stand in the third rank of productiveness; because their labours directly support no other classes but themselves. (8)

This seems to be a simple and obvious classification, and places the different kinds of labour in a natural order with regard to productiveness, without interfering in any respect with their mutual dependence on each other as stimulants to each other’s increase.

[The great objection to this system is, that it makes the payment for labour, instead of the quantities of the product, the criterion of productiveness.

Yet if we once desert matter, we must adopt this criterion, or every human exertion to avoid pain and obtain pleasure is productive labour.

And if we do adopt this criterion, the very same kind of labour will be productive, or not, according as it is paid for, or not.

Unproductive labourers are of great importance in the production of wealth indirectly, as demanders, but they cannot, with propriety, be said to create the wealth which pays them.

Adam Smith’s distinction, which draws the line between what is matter and what is not matter, is probably the most useful and the least objectionable.

Susceptibility of accumulation is essential to our usual conceptions of wealth.

Capability of definite valuation is necessary to enable us to estimate the amount of wealth obtained by any kind of labour.

The labour realized upon material products is the only labour which is at once susceptible of accumulation and definite valuation.

The objection of M. Garnier, respecting musical instruments, and the tunes played upon them, answered.

Objections of M. Garnier, respecting the servants of government, answered.

Some unproductive labour is of much more use and importance than productive labour, but is incapable of being the subject of the gross calculations which relate to national wealth.

Having confined the definition of wealth to material objects, productive labour is that labour which is productive of wealth, that is, so directly productive of it, as to be estimated in the value of the objects produced.

The object of this discussion is not to make subtle distinctions, but to bespeak assent to a useful classification.]

[* ]One of the most able impugners of the doctrine of Adam Smith respecting productive labour is Mr. Ganilh, in his valuable Work on the various Systems of Political Economy; but he appears to me to fail entirely, when he attempts to shew that savings are preserved instead of being destroyed, when consumed by the idle classes. I cannot understand in what sense it can be said that menial servants annually reproduce the capital by which they are fed. Book III. c. ii.