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DISTRIBUTION OF WEALTH. - Nassau William Senior, Political Economy 
Political Economy (London: Richard Griffin and Co. 3rd ed. 1854).
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DISTRIBUTION OF WEALTH.
Of the three great branches of Political Economy, the Nature, the Production, and the Distribution of Wealth, we have now considered the two former, and we proceed to treat of the last, namely, of the laws according to which all that is produced is Distributed among those who become its ultimate consumers. In that state of society which is presupposed by the Political Economist, this is principally effected by means of Exchange. We may indeed conceive a state of human existence admitting of this distribution without the intervention of Exchanges. But such a situation of society, if it can be called society, neither deserves nor requires scientific investigation. Political Economy considers men in that more advanced state, which may fairly be called their natural state, since it is the state to which they are impelled by the provisions of nature, in which each individual relies on his fellows for the greater part, in many cases for the whole of what he consumes, and supplies his own wants principally or wholly by the Exchanges in which he contributes to theirs.
But we must admit that we use each of the words Production and Exchange in a sense rather more extensive than is usual. We have already stated that we apply the word Production to much that would commonly be called appropriation, and that we include under Exchanges what are usually termed public burdens. We consider all that is received by the officers of government as given in Exchange for Services affording protection, more or less complete, against foreign or domestic violence or fraud. It is true, as we have already remarked, that this Exchange is conducted on peculiar principles. In those governments which are not democratic or representative, the rulers themselves assess the amount which they are to receive, and generally assess it at the utmost which, under such circumstances, can be extorted from their subjects. And even under representative or democratic institutions, no individual inhabitant is permitted to refuse his share of the general contribution, though he should disclaim his share in the general protection. But the transaction, though often involuntary, and still more often inequitable, is still an Exchange, and on the whole a beneficial exchange. The worst and most inefficient government affords to its subjects a cheaper and a more effectual Protection than they could obtain by their individual and unaided exertions.
The laws by which Exchanges are regulated may be divided into two great branches. The one comprises those laws which apply generally to all Exchanges; the other those which apply specifically to the respective kinds of Exchanges in which the owners of the different Productive Instruments exchange specifically with one another the Produce of those Instruments.
In treating of the one, we have to consider the general laws which regulate Exchanges; in treating of the other, the relative proportions in which different classes of the community benefit by those laws. The things exchanged will be the principal subjects of the one discussion, the exchanging parties of the other.
One of the greatest difficulties to which a writer on Political Economy is exposed, arises from the mutual dependence of the different propositions constituting the Science; a dependence which makes it difficult to explain any one without a frequent allusion to many others. And this is particularly the case with respect to distribution. The proportions in which different classes of the community are entitled to the things that are produced, cannot be explained without a constant reference to the general Laws of Exchange; and, on the other hand, those Laws cannot be discussed without a constant reference to the exchanging parties. Admitting, as we are forced to do, that no arrangement can be free from objection, we have thought that the least objectionable mode of presenting the subject of distribution will be to begin by a general classification of the parties among whom the results of the different instruments of production are divided; then to proceed to state the general laws of exchange; and, lastly, to point out the general circumstances which decide in what proportions the different classes of the community share in the general distribution.
Society divided into Three Classes—Labourers, Capitalists, and Proprietors of Natural Agents.
According to the usual language of Political Economists, Labour, Capital, and Land are the three Instruments of Production; Labourers, Capitalists, and Landlords are the three classes of Producers; and the whole Produce is divided into Wages, Profit, and Rent: the first designating the Labourer’s share, the second that of the Capitalist, and the third that of the Landlord. We approve, on the whole, of the principles on which this classification is founded, but we have been forced, much against our will, to make considerable alterations in the language in which it has been usually expressed; to add some new terms, and to enlarge or contract the signification of some others.
It appears to us that, to have a nomenclature which should fully and precisely indicate the facts of the case, not less than twelve distinct terms would be necessary. For each class there ought to be a name for the Instrument employed or exercised, a name for the Class of persons who employ or exercise it, a name for the Act of employing or exercising it, and a name for the Share of the produce by which that act is remunerated. Of these terms we have not much more than half, as will appear if we examine each class separately.
Nomenclature applicable to the First Class, the Labourers.—For the first class we have the terms “to Labour,” “a Labourer,” and “Wages.” Neither of these terms expresses the instruments of production: the substantive “labour” and the verb “to labour,” express merely an act. “A labourer,” is an agent, and wages are a result: but what is the thing employed? what is it that the labourer exerts? Clearly his mental or bodily faculties. With the addition of this term the nomenclature of the first class will be complete. To Labour is to employ strength of body or mind for the purpose of Production; the person who does so is a Labourer, and Wages are his remuneration.
Nomenclature applicable to the Second Class, the Capitalists.—In the second class we have the words Capital, Capitalist, and Profit. These terms express the instrument, the person who employs or exercises it, and his remuneration; but there is no familiar term to express the act, the conduct of which profit is the reward, and which bears the same relation to profit which labour does to wages. To this conduct we have already given the name of Abstinence. The addition of this term will complete the nomenclature of the second class. Capital is an article of wealth, the result of human exertion, employed in the production or distribution of Wealth. Abstinence expresses both the act of abstaining from the unproductive use of capital, and also the similar conduct of the man who devotes his labour to the production of remote rather than of immediate results. The person who so acts is a Capitalist, the reward of his conduct is Profit.
Nomenclature applicable to the Third Class, the Proprietors of Natural Agents.—The defectiveness of the established nomenclature is more striking when we come to the third class. Wages and Profits are the creation of man. They are the recompense for the sacrifice made in the one case, of ease, in the other, of immediate enjoyment. But a considerable part of the produce of every country is the recompense of no sacrifice whatever; is received by those who neither labour nor put by, but merely hold out their hands to accept the offerings of the rest of the community.
The powers of nature, as distinguished from those of man, are necessary to afford a field for the exercise of human abstinence and labour. Of these, some from their abundance and the notoriety of the means of employing them, are incapable of appropriation. Being universally accessible, they bear no price notwithstanding their utility; and what has been produced with their assistance has no value beyond that of the labour and abstinence which it has cost. It sells therefore for a price equal to, but not exceeding, the sum of the wages and profits which must be paid if the production is to be continued. The agency of nature is equally essential to the production of timber in the forests of Upper Canada and in England. But the supply of timber in the forests of Upper Canada is practically unlimited. No portion of the price of a Canadian hut is paid for the agency of nature in producing the logs of which it is constructed. The pine while standing was valueless. The purchaser pays only for the labour and abstinence necessary to fell and to fashion it.
But the assistance of an Appropriated Natural Agent may render possible the production of a commodity more valuable than the result of equal labour and abstinence without such assistance. Such a commodity sells for a price exceeding the sum of the wages and profits which are sufficient to repay the capitalist and the labourer who have been employed on it. The surplus is taken by the proprietor of the natural agent, and is his reward, not for having laboured or abstained, but simply for not having withheld what he was able to withhold; for having permitted the gifts of nature to be accepted.
If we subtract from the price of an English oak what must be paid for the labour of him who planted the sapling, and for the abstinence of those who allowed it to grow for a century, still something is to be paid for the use of the land by which it was nourished. And that is the price of the agency not of man but of nature.
Of the Agents afforded by nature, the principal is the Land, with its Rivers, Ports, and Mines. In the rare cases in which the quantity of useful land is practically unlimited, a state of things which occurs only in the early stages of colonization, Land is an agent universally accessible, and, as nothing is paid for its use, the whole produce belongs to the cultivators, and is divided, under the names of wages and profit, between the capitalists and the labourers, of whose abstinence and industry it is the result.
But in all old Countries, and even in colonies within a very few years after their foundation, certain Lands, from peculiar advantages of soil or situation, are found to make more than the average return to a given expenditure of capital and industry. The proprietor of such lands, if he cultivate them himself, receives a surplus after having paid the wages of his labourers and deducted the profit to which he is entitled on his capital. He of course receives the same surplus if, instead of cultivating them himself, he lets them out to some other capitalist. The tenant receives the same profit, and the labourers receive the same wages as if they were employed on land possessing merely average natural advantages; the surplus forms the rent of the proprietor, or, as we usually term him, the landlord. The whole produce, instead of two, is divided into three shares—Rent, Profit, and Wages. If the owner is also the capitalist or farmer, he receives two of these shares, both the profit and the rent. If he allow it to be cultivated by the capital of another, he receives only rent. But rent, with or without profit, he necessarily receives. And when the whole of a Country has been appropriated, though it be true, as will be shown hereafter, that some of the produce is raised by the application of additional capital without payment of additional rent, and may therefore be said to be raised rent free, yet it is equally true that a rent is received from every cultivated acre; a rent rising or falling according to the accidents of soil and situation, but the necessary result of limited extent and productive power.
It is obvious, however, as we have already stated, that land though the principal, is not the only natural agent that can be appropriated. The mere knowledge of the operations of nature, as long as the use of that knowledge can be confined either by secrecy or by law, creates a revenue to its possessor analogous to the rent of land. The knowledge of the effect on the fibres of cotton of rollers moving with different velocities, enabled a village barber to found in a very few years a more than aristocratic fortune. Still greater wealth might probably have been acquired by Dr. Jenner, if he could have borne somewhat to limit the benefits which he has conferred on mankind.
When the author of a useful discovery puts it himself in practice, he is like a proprietor farming his own property; the produce, after paying average wages for the labour and average profits for the capital employed, affords a still further revenue, the effect not of that capital or of that labour, but of the discovery, the creation not of man but of nature. If, instead of using it himself, he let out to another the privilege of using it, he obtains a revenue so precisely resembling the rent of land, that it often receives the same name. The payment made by a manufacturer to a patentee for the privilege of using the patent process, is usually termed, in commercial language, a Rent; and under the same head must be ranked all the peculiar advantages of situation or connection, and all extraordinary qualities of body and mind. The surplus revenue which they occasion beyond average wages and profits is a revenue for which no additional sacrifice has been made. The proprietor of these advantages differs from a landlord only in the circumstance that he cannot in general let them out to be used by another, and must consequently either allow them to be useless or turn them to account himself. He is forced, therefore, always to employ on them his own industry, and generally his own capital, and receives not only rent, but wages and profit. If, therefore, the established division is adhered to, and all that is produced is to be divided into rent, profit, and wages,—and certainly that appears to be the most convenient classification, and if wages and profit are to be considered as the rewards of peculiar sacrifices, the former the remuneration for labour, and the latter for abstinence from immediate enjoyment, it is clear that under the term “rent” must be included all that is obtained without any sacrifice; or, which is the same thing, beyond the remuneration for that sacrifice; all that nature or fortune bestows either without any exertion on the part of the recipient, or in addition to the average remuneration for the exercise of industry or the employment of capital.
But though we see no objection to this extension of the word rent, the terms land and landlord are too precise to admit of being equally extended. It would be too great an innovation to include under the term land every natural agent which is capable of appropriation, or under the term landlord every proprietor of such an agent. For these terms we must substitute those of natural agent, and proprietor of a natural agent. And the third class will then have a term for the third instrument of production, a term for the owner of that instrument, and a term for the share which he receives of the produce; terms corresponding with the terms faculties of body and mind, labourer and wages, as applied to the first class, and with capital, capitalist, and profit, as applied to the second. We shall still want a term corresponding with labour and abstinence,—a term indicating the conduct which enables the proprietor of a natural agent to receive a rent. But as this conduct implies no sacrifice,—as it consists merely in not suffering the instrument of which he is the owner to be useless, it perhaps does not require a distinct designation. When a man possesses an estate, we take it for granted that he does not allow it to lie waste, but either uses it himself, or lets it to a tenant. In ordinary language the receipt of rent is included under the term ownership. There will therefore be little danger of obscurity if we consider the word “possess,” when applied to the proprietor of a natural agent, as implying the receipt of the advantages afforded by that agent, or, in other words, of rent. Talents, indeed, often lie idle, but in that case they may be considered for economical purposes as not possessed. In fact, unaccompanied by the will to use them, they are useless.
But though the whole produce may be considered as divided into three shares, one which is taken by the capitalists, another by the labourers, and another by the proprietors of the natural agents which have concurred in the production, it is very seldom that any given commodity, or the produce of any one productive exertion, is thus actually divided. The nearest approach to it takes place in those cases in which producers belonging to different classes become partners, and agree that the produce of their join exertions shall be sold and the price divided between them. Such a partnership is often formed between a capitalist and his labourers when the success of the enterprise depends much on the zeal of the labourers, and the capitalist is unable to overlook them. Such is the case in the Greenland fishery. The men seldom receive preascertained wages, but, on the termination of the voyage, the blubber is sold, and the price divided between the owners and the crew. The practice is the same in privateering, and probably in many other maritime speculations. Somewhat similar is the mode of letting land called the métayer system. Under that system, which is still common on the Continent of Europe, and probably is always to be found in a certain state of society, the landlord supplies the capital as well as the land, and receives half the crop, the remainder forming the wages of the tenant or head labourer, and of the inferior work-people in his employ. But these are exceptions occasioned by the peculiarities of the adventure, or by the poverty or ignorance of imperfect civilization. The usual practice is to consider one of the parties as entitled to the whole product, paying to the others a price for their co-operation. The person so entitled is uniformly the capitalist: the sums which he pays for wages and rent are the purchase-money for the services of the labourer, and for the use of the natural agent employed.
In most cases a considerable interval elapses between the period at which the natural agent and the labourer are first employed, and the completion of the product. In this climate the harvest is seldom reaped until nearly a year after it has been sown; a still longer time is required for the maturity of oxen; and a longer still for that of a horse; and sixty or seventy years may pass between the commencement of a plantation, and the time at which the timber is saleable. It is obvious that neither the landlord nor the labourer, as such, can wait during all this interval for their remuneration. The doing so would, in fact, be an act of abstinence. It would be the employment of land and labour in order to obtain remote results. This sacrifice is made by the capitalist, and he is repaid for it by his appropriate remuneration, profit. He advances to the landlord and the labourer, and in most cases to some previous capitalist, the price of their respective assistance; or, in other words the hire of the land and capital belonging to one, and of the mental and bodily powers of another, and becomes solely entitled to the whole of the product. The success of his operations depends on the proportion which the value of that produce, (or, in commercial language, the value of his returns,) bears to the value of his advances, taking into consideration the time for which those advances have been made. If the value of the return is inferior to that of the advance, he is obviously a loser; he is a loser if it be merely equal, as he has incurred abstinence without profit, or, in ordinary language, has lost the interest on his capital. He is a loser even if the value of his returns do not exceed that of his advances by an amount equal to the current rate of profit for the period during which the advance has been made. In any of these cases the product is sold, so far as the capitalist is concerned, for less than the cost of its production. The employment of capital, therefore, is necessarily a speculation; it is the purchase of so much productive power which may or may not occasion a remunerative return.
The common language of Economists, therefore, which describes the landlord, the capitalist, and the labourer as sharers of the produce, is a fiction. Almost all that is produced is in the first instance the property of the capitalist; he has purchased it by having previously paid the rent and wages, and incurred or paid for the abstinence, which were necessary to its production. A portion of it, but generally a small portion, he consumes himself in the state in which he receives it; the remainder he sells. He may, if he think fit, employ the price of all that he sells in purchases for his own gratification; but he cannot remain a capitalist unless he consent to employ some portion of it in the hire of the land and labour, by the assistance of which the process of production is to be continued or recommended. He cannot, generally speaking, fully retain his situation as a capitalist unless he employ enough to hire as much land and labour as before; and if he wish to raise himself in the world, he must, generally speaking, not merely keep up, but increase the sum which he devotes to the purchase of productive force. If, for instance, he has hired the use of a farm for a year for £1000, and has paid £2000 more as wages to his labourers, and has expended £1000 in the purchase, from other capitalists, of Agricultural stock, and at the end of the year has sold the produce for £4400, he may, if he like, spend on his own gratification the whole of that £4400; or he may so spend only £400, and employ the rest in hiring the farm and the labourers, and purchasing stock for another year; or he may spend on himself only £200, and by employing productively £4200 instead of £4000, hire more land, or more labourers, or purchase more stock and provide for the increase of his capital and his profit. But in whatever way he employ his £4400, he still must pay it to landlords, (using that word to comprise all proprietors of natural agents,) capitalists, and labourers.
It has been objected, however, that this nomenclature is incomplete. Rent, profit, and wages, it has been said, designate only those portions of the annual produce which the producers consume for their own gratification. They form the revenue of a nation. A further portion and a very large one, must be employed, not as revenue, but as capital; not in directly supplying the wants or directly ministering to the enjoyments of either landlords, labourers, or capitalists, but merely in keeping up the instruments of production. Thus of the farmer’s whole return, which we have supposed to be of the value of £4400, we may suppose a portion, amounting in value to £200, to have consisted of corn which he returned to the earth as seed, and another portion amounting to the same value, to have consisted of the forage which he gave to his working cattle. It has been said that neither this seed nor this forage was rent, profit, or wages.
The answer to this objection is, that the seed-corn and forage in question were the result of land, labour, and abstinence; they were entitled, therefore, when produced, to be denominated rent, wages, or profit, and the circumstance that they were employed to produce future instead of immediate gratification, does not vary their character. When produced, they were revenue: their conversion into capital was a subsequent accident. No one would except against the expression that such and such a labourer has saved part of his wages and employed them in stocking his garden. If the words revenue and income were co-extensive with expenditure, the common statement, that a man is living within his income, would be a contradiction in terms.
Perhaps this may be made clearer if we retrace the history of capital.
The primary instruments of production were labour, and those productive agents which are spontaneously afforded by nature. The first dwellers on the earth had only rent and wages. The savage who, instead of devouring the animals which he had entrapped, reserved them to become the origin of a domesticated flock, and he who reserved, to be employed as seed, some of the grains which he had gathered, laid the foundation of capital. The produce of that flock and of that seed was partly rent, partly wages, and partly profit. And it did not cease to be so, although he refused to employ the whole of it on his immediate gratification.
It must be admitted, however, that the portion of the annual produce which is employed in the production or the support of brute or inanimate capital is not usually termed rent, wages, or profit. It has not, in fact, any specific name. But it appears to us to be the most philosophical arrangement to consider it as rent, wages, or profit, according to the character of its proprietor, without regard to its subsequent destination.
Having made this general classification of the parties among whom the results of the different productive instruments are divided, we now proceed to consider the general laws which regulate the proportions in which those results are exchanged for one another. To a certain degree this question was considered when we treated of value; but not having at that time explained the words production, wages, profit, or rent, we were unable to do more than to state and illustrate the following propositions:—
First, that all those things, and those things only, are susceptible of exchange, which, being transferable, are limited in supply, and are capable, directly or indirectly, of affording pleasure or preventing pain; a capacity to which we have affixed the name of utility. Secondly, that the reciprocal values of any two things, or, in other words, the quantity of the one which will exchange for a given quantity of the other, depend on two sets of causes; those which occasion the utility and limit the supply of the one, and those which limit the supply and occasion the utility of the other. The causes which occasion the utility and limit the supply of any given commodity or service, we denominated the intrinsic causes of its value. Those which limit the supply and occasion the utility of the commodities or services for which it is capable of being exchanged, we denominated the extrinsic causes of its value. And, thirdly, that comparative limitation of supply, or, to speak more familiarly, though less philosophically, comparative scarcity, though not sufficient to constitute value, is by far its most important element; utility, or, in other words, demand, being mainly dependent on it. We had not then shown the means by which supply is effected. Having done this, having shown that human Labour and Abstinence, and the spontaneous agency of Nature, are the three instruments of production, we are at liberty to explain what are the obstacles which limit the supply of all that is produced, and the mode in which those obstacles affect the reciprocal values of the different subjects of exchange.
Price.—In the following discussion, however, we shall in general substitute price, or value in money, for general value.
The general value of any commodity, that is, the quantity of all the other subjects of exchange which might be obtained in return for a given quantity of it, is incapable of being ascertained. Its specific value in any other commodity may be ascertained by the experiment of an exchange; the anxiety of each party in the exchange to give as little and obtain as much as possible, leading him to investigate, as accurately as he can, the intrinsic causes giving value to each of the articles to be exchanged. This is, however, a troublesome operation, and many expedients are used to diminish its frequency. The most obvious one is to consider a single exchange, or the mean of a few exchanges, as a model for subsequent exchanges of a similar nature. By an extension of this expedient it may become a model for exchanges not of a similar nature. If given quantities of two different articles are each found by experience to exchange for a given quantity of a third article, the proportionate value of the two first-mentioned articles may, of course, be inferred. It is measured by the third. Hence arise the advantages of selecting, as one of the subjects of every exchange, a single commodity, or, more correctly, a species of commodities constituted of individuals of precisely similar qualities. In the first place, all persons can ascertain, with tolerable accuracy, the intrinsic causes which give value to the selected commodity, so that one half the trouble of an exchange is ready performed. And, secondly, if an exchange is to be effected between any other two commodities, the quantity of each that is usually exchanged for a given quantity of the third commodity is ascertained, and their relative value is inferred. The commodity thus selected as the general instrument of exchange, whatever be its substance, whether salt, as in Abyssinia, cowries, as on the Coast of Guinea, or the precious metals, as in Europe, is money. When the use of such a commodity, or, in other words, of money, has become established, value in money, or price, is the only value familiarly contemplated. The scarcity and durability of gold and silver (the substances used as money by all civilized nations) make them peculiarly unsusceptible of alteration in value from intrinsic causes. On these accounts we think it better, in the following discussion, to refer rather to price than to general value, and to consider the value of money, so far as it depends on intrinsic causes, to be unvarying.
We must preface our explanation of the effect on price of the causes limiting supply, by a remark which may appear self-evident, but which must always be kept in recollection, namely, that where the only natural agents employed are those which are universally accessible, and therefore are practically unlimited in supply, the utility of the produce, or, in other words, its power, directly or indirectly, of producing gratification, or preventing pain, must be in proportion to the sacrifices made to produce it, unless the producer has misapplied his exertions; since no man would willingly employ a given amount of labour or abstinence in producing one commodity, if he could obtain more gratification by devoting them to the production of another.
We now revert to the causes which limit supply.
There are some commodities the results of agents no longer in existence, or acting at remote and uncertain periods, the supply of which cannot be increased, or cannot be reckoned upon. Antiques and relics belong to the first class, and all the very rare productions of Nature or Art, such as diamonds of extraordinary size, or pictures, or statues of extraordinary beauty, to the second. The values of such commodities are subject to no definite rules, and depend altogether on the wealth and taste of the community. In common language, they are said to bear a fancy price, that is, a price depending principally on the caprice or fashion of the day. The Boccaccio, which a few years ago sold for £2000, and after a year or two’s interval for £700, may, perhaps, fifty years hence, be purchased for a shilling. Relics which, in the ninth century, were thought too valuable to admit of a definite price, would now be thought equally incapable of price in consequence of their utter worthlessness. In the following discussion we shall altogether omit such commodities, and confine our attention to those of which the supply is capable of increase, either regular, or sufficiently approaching to regularity, to admit of calculation.
The obstacle to the supply of those commodities which are produced by labour and abstinence with that assistance only from nature which every one can command, consists solely in the difficulty of finding persons ready to submit to the labour and abstinence necessary to their production. In other words, their supply is limited by the cost of their production.
Cost of Production.—The term “cost of production” must be familiar to those who are acquainted with the writings of modern Economists; but, like most terms in Political Economy, though currently used, it has never been accurately defined; and it appears to us impossible that it should have been defined without the assistance of the term “abstinence,” or of some equivalent expression.
Mr. Ricardo, who originally introduced the term “cost of production,” uses as an equivalent expression, “the quantity of labour which has been bestowed on the production of a commodity.” Mr. Mill (Ch. iii. sec. 2,) appears to consider cost of production as equivalent to “quantity of labour.” Mr. Malthus more elaborately defines it as “the advance of the quantity of accumulated and immediate labour necessary to production, with such a per centage upon the whole of the advances for the time they have been employed as is equivalent to ordinary profits.” (Definitions, p. 242.)
In a note to the third edition, page 46, Mr. Ricardo admits that profit also forms a part of the cost of production. Mr. Mill, by a stretch of language, in the convenience of which we cannot concur, includes profit under the term labour. The definitions of Mr. Ricardo and Mr. Mill appear, therefore, to coincide. And that adopted by Mr. Malthus only differs from them in referring, not to the labour that has been employed, but to that which must be employed if the production must be continued. In this respect the language of Mr. Malthus is undoubtedly the most correct. The sacrifices that have been made to produce a given commodity have no effect on its value. All that the purchaser considers is the amount of sacrifice that its production would require at the time of the exchange. If the expense of producing a pair of stockings was suddenly to fall or to rise by one half, a rise or fall in the value of the existing stockings would be the consequence, although the labour that has been employed on them is of course unalterable. And when Mr. Ricardo and Mr. Mill speak of the labour which has been employed on a commodity as affecting its value, they must be understood as implying that the circumstances of production remain unchanged.
Colonel Torrens considers cost of production as equivalent to “the amount of capital expended on production,” and refuses to consider profit as forming one of its elements. His remarks throw so much light on the whole subject, that we will venture to extract them at some length.
“Those writers who contend for the general equality of market and natural price, include the customary rate of profit under the term natural price, or cost of production. But this classification is highly unphilosophical and incorrect. The profits of stock never make any part of the expense of production; they are, on the contrary, a new creation brought into existence in consequence of this expense. The farmer, we will suppose, expends one hundred quarters of corn in cultivating his fields, and obtains in return one hundred and twenty quarters. In this case twenty quarters, being the excess of produce above expenditure, constitute the farmer’s profit, but it would be absurd to call this excess or profit a part of the expenditure. The expenditure or cost of production was one hundred quarters. It has been now repaid with a surplus of twenty quarters; and, unless the surplus which remains after the expenditure is replaced, be a part of the expenditure, unless, in fact, one hundred and twenty quarters be equal to a hundred, it is impossible that market price should be equivalent to natural. Supposing that corn is £3 per quarter, then, in the case we have stated, the natural price of the farmer’s produce, or the one hundred quarters expended upon production, will be equivalent to £300; while the produce of one hundred and twenty quarters obtained in return will be equivalent to £360. The excess of market above natural price, or cost of production, is profit; and to contend that this profit is included in the cost of production, is the same thing as contending that the hundred quarters, or £300 laid out in cultivation, are equal to the one hundred and twenty quarters, or £360 thereby obtained.
“In manufacturing, as well as in agricultural industry, the profit of stock is distinct from the cost of production. The master manufacturer expends a certain quantity of raw material, of tools and implements of trade, and of subsistence for labourers, and obtains in return a given quantity of finished work. This finished work must possess a higher exchangeable value than the materials, tools, and subsistence, by the advance of which it was obtained; otherwise the master could have no inducement to continue his business. Manufacturing industry would cease if the value produced did not exceed the value expended. But it is the excess of value which the finished work possesses above the value of the materials, implements, and subsistence expended, that constitutes the master’s profit; and therefore we cannot assert that the profit of his stock is included in the cost of production without affirming the gross absurdity, that the excess of value above expenditure constitutes a part of expenditure. Supposing that the materials, tools, and subsistence cost £300, and that the finished work is worth £360, then the difference will be the master’s profit; and we cannot maintain that the annual profit is included in the amount of expenditure, or cost of production, without urging the contradiction that £300 are equal to £360.
“The profit of stock, so far from forming any part of the cost of production, is a surplus remaining after this cost has been completely replaced. In carrying on their business, the farmer and manufacturer do not expend their profit, they create it. It forms no part of their first advances; on the contrary, it forms a part of their subsequent returns. It could not have been employed in carrying on the work of production, because, until this work was completed, it had no existence. It is essentially a surplus, a new creation, over and above all that is necessary to replace the cost of production, or, in other words, the capital advanced. It is hoped that enough has been said to convince the reader of the nature of the error into which those Economists fall who maintain that the profit of stock is included in the expense of production, and that natural and market price tend to an equality. Market price is that which we give in order to obtain a commodity by exchange in the market: natural price is that which we give to effect a purchase at the great storehouse of nature: it consists of the several articles of capital employed in production, and cannot by possibility include the surplus or profit created during the progress of production.”20
Colonel Torrens’s remarks are just, so far as they apply to the mere expressions which he is criticising. Profit is certainly not a means, but a result. It is true that unless that result were expected, production would not be continued. Neither the farmer nor the manufacturer could be induced by any other motive to abstain from the unproductive enjoyment of his capital; so food would not be produced unless its consumption were necessary or agreeable. But the obtaining a profit is no more a part of the cost of producing a harvest than the gratification of appetite is a part of the cost of producing a dinner, or protection from cold part of the cost of producing a coat.
Want of the term abstinence, or of some equivalent expression, has led Mr. Malthus into inaccuracy of language. He seems to have felt that something besides mere labour is essential to production. He felt that simple industry would not convert a naked heath into a valuable wood; that the planter, in addition to the labour of inserting and protecting the saplings, incurred the additional sacrifice of directing his labour to the production of remote results; and that the successive generations of proprietors, in suffering the young plantation to become mature, sacrificed their own emolument to that of their successors. He seems to have felt that these sacrifices were part of the cost of producing the wood, and, having no term to express them, he denominated them by the name of their reward. When he termed profit a part of the cost of production, he appears to us to have meant not profit, but that conduct which is repaid by profit: an inaccuracy precisely similar to that committed by those who term wages a part of the cost of production; meaning not wages, which are the result, but the labour for which wages are the remuneration.
Colonel Torrens’s error is an error of omission. He refuses to consider profit as part of the cost of production, but he does not substitute for it abstinence or any equivalent expression. Although he admits that where equal capitals are employed the value of the products may differ if the one be brought to market sooner than the other, he has not stated the principle on which this difference depends. That principle is that, though in both cases the labour employed is the same, more abstinence is necessary in the one case than in the other.
Cost of Production Defined.—By Cost of Production, then, we mean the sum of the labour and abstinence necessary to production. But Cost of Production, thus defined, must be divided into the cost of production on the part of the producer or seller, and the cost of production on the part of the consumer or purchaser. The first is of course the amount of the labour and abstinence which must be undergone by him who offers for sale a given class of commodities or services in order to enable him to continue to produce them. The second is, the amount of the labour and abstinence which must be undergone by those to whom a given commodity or service is offered for sale, if, instead of purchasing, they themselves, or some of them on the behalf of themselves and the others, were to produce it. The first is equal to the minimum, the second to the maximum, of price. For, on the one hand, no man would continue to produce, for the purpose of sale, what should sell for less than it cost him to produce it. And, on the other hand, no men would continue to buy what they themselves, or some of them on the behalf of themselves and the others, could produce at less expense. With respect to those commodities, or, to speak more accurately, with respect to the value of those parts or attributes of commodities, which are the subjects of equal competition, which may be produced by all persons with equal advantages, the cost of production to the producer and the cost of production to the consumer are the same. Their price, therefore, represents the aggregate amount of the labour and abstinence necessary to continue their production. If their price should fall lower, the wages or the profits of those employed in their production must fall below the average remuneration of the labour and abstinence that must be undergone if their production is to be continued. In time, therefore, it is discontinued or diminished, until the value of the product has been raised by the diminution of the supply. If the price should rise beyond the cost of their production, the producers must receive more than an average remuneration for their sacrifices. As soon as this has been discovered, capital and industry flow towards the employment which, by this supposition, offers extraordinary advantages. These who formerly were purchasers, or persons on their behalf, turn producers themselves, until the increased supply has equalized the price with the cost of production.
Some years ago London depended for water on the New River Company. As the quantity which they can supply is limited, the price rose with the extension of buildings, until it so far exceeded the cost of production as to induce some of the consumers to become producers. Three new Water Companies were established, and the price fell as the supply increased, until the shares in the New River Company fell to nearly one-fourth of their former value; from £15,000 to £4000. If the metropolis should continue to increase, these transactions will recur. The price of water will increase and exceed the cost at which it could be afforded. New Companies will arise, and, unless the additional supply is checked by greater natural obstacles than those which the existing Companies have to surmount, the price will again fall to its present level.
But though, under free competition, cost of production is the regulator of price, its influence is subject to much occasional interruption. Its operation can be supposed to be perfect only if we suppose that there are no disturbing causes, that capital and labour can be at once transferred, and without loss, from one employment to another, and that every producer has full information of the profit to be derived from every mode of production. But it is obvious that these suppositions have no resemblance to the truth. A large portion of the capital essential to production consists of buildings, machinery, and other implements, the results of much time and labour, and of little service for any except their existing purposes. A still larger portion consists of knowledge and of intellectual and bodily dexterity, applicable only to the processes in which those qualities were originally acquired. Again, the advantage derived from any given business depends so much upon the dexterity and the judgment with which it is managed, that few capitalists can estimate, except upon an average of some years, the amount of their own profits, and still fewer can estimate those of their neighbours. Established businesses, therefore, may survive the causes in which they originated, and become gradually extinguished as their comparative unprofitableness is discovered, and the labourers and capital engaged in them wear away without being replaced; and, on the other hand, other employments are inadequately supplied with the capital and industry which they could profitably absorb. During the interval, the products of the one sell for less, and those of the others for more, than their cost of production. Political Economy does not deal with particular facts but with general tendencies, and when we assign to cost of production the power of regulating price in cases of equal competition, we mean to describe it not as a point to which price is attached, but as a centre of oscillation which it is always endeavouring to approach.
We have seen that, under circumstances of equal competition, or, in other words, where all persons can become producers, and that with equal advantages, the cost of production on the part of the producer or seller, and the cost of production on the part of the consumer or purchaser, are the same, and that the commodity thus produced sells for its cost of production; or, in other words, at a price equal to the sum of the labour and abstinence which its production requires; or, to use a more familiar expression, at a price equal to the amount of the wages and profits which must be paid to induce the producers to continue their exertions. It has lately been a general opinion that the bulk of commodities is produced under circumstances of equal competition. “By far the greater part of those goods,” says Mr. Ricardo, (Principles, &c. p. 3,) “which are the objects of desire, are produced by labour, and may be multiplied almost without any assignable limit, if we are disposed to bestow the labour necessary to obtain them. In speaking then of commodities, of their exchangeable value, and of the laws which regulate their relative prices, we always mean such commodities only as can be increased in quantity by the exertion of human industry, and in the production of which competition operates without restraint.”
Now it is clear that the production in which no appropriated natural agent has concurred, is the only production which has been made under circumstances of perfectly equal competition. And how few are the commodities of which the production has in no stage been assisted by peculiar advantages of soil, or situation, or by extraordinary talent of body or mind, or by processes generally unknown, or protected by law from imitation? Where the assistance of these agents, to which we have given the general name of natural agents, has been obtained, the result is more valuable than the result of equal labour and abstinence unassisted by similar aids. A commodity thus produced is called the subject of a monopoly; and the person who has appropriated such a natural agent, a monopolist.
Monopolies may be divided into four kinds.
Land.—The soil of every extensive district is of different degrees of fertility and convenience of situation, and the soils of each degree constitute a distinct class of natural agents, affording each a distinct amount of assistance to the cultivator. And we have seen that each portion of soil, whatever be its fertility, agricultural skill remaining the same, generally gives a less and less proportionate return to each additional quantity of labour and abstinence bestowed on its cultivation, and may be said, therefore, to comprise within itself a system of natural agents of different powers. The different classes of natural agents will be successively employed, in proportion to their efficiency; an inferior class being never resorted to while a superior one is equally accessible: and each class, until it has been completely appropriated, may be considered as practically unlimited in supply, since it is universally accessible. What shall be the worst natural agent employed, or, in other words, to what extent inferior soils shall be cultivated, or additional labour and abstinence employed at a comparative disadvantage on the cultivation of those which are more fertile or better situated, must always be determined by the wealth and wants of the community; by the quantity of agricultural produce which they have the power and the desire to purchase. While those wants can be satisfied by slightly cultivating only a portion of the most fertile and best situated land, that land, though highly productive, indeed more productive in proportion to the labour and abstinence bestowed on it than at any subsequent stage, cannot be a separate and independent source of value. It is then a natural agent universally accessible, and its produce, however large, will exchange only for the value of the labour and abstinence employed on its production. In short, the cost of production to the producer, and the cost of production to the consumer, are, under such circumstances, the same. This is the state of some of the fertile and thinly-peopled districts of the tropics. The inhabitants of the greater part of the Tierra Caliente, of Mexico, appropriate at will from the fertile wilderness over which they are scattered the small patches which afford them the materials of lodging, food, and raiment. We are told that in these districts the labour of a week will provide subsistence for a year, but even this vast productive power, or even any conceivable increase in it, is incapable of giving value to the assistance afforded as long as the supply of that assistance remains unlimited.
It becomes limited, however, in the very earliest stages of improvement. Both the causes and the consequences of this event may be illustrated by tracing the progress of a Colony.
When a body of emigrants arrives on the coast of an unoccupied district, their first operation must be to fix the situation of their future metropolis; the seat of government, of law, of foreign trade, and of those manufactures which require the congregation of numerous workmen. We may suppose their numbers and the local advantages to be such as to enable them to occupy, within such a distance from their infant town as to render the expense of carriage immaterial, as much land of the highest fertility as each agricultural family may wish to cultivate. The agricultural produce thus obtained must sell for its cost of production to the producer; every consumer being able at will to turn a producer, with advantages equal to those enjoyed by the existing producers, and being unwilling to give for the result of a given amount of labour and abstinence on their part more than the result of an equal amount of labour and abstinence on his own part. Such a commodity rapidly increases in numbers and in wealth, and that increase is accompanied by an increased desire and ability to purchase agricultural produce. Until the supply of raw produce has been increased, the price must now rise above the cost of production. But when the most fertile lands within a given distance of the town have been occupied, there remain only three modes of increasing the supply; either, 1. by cultivating the fertile lands at a greater distance from the town; or, 2. by cultivating the inferior land in its neighbourhood; or, 3. by employing additional labour and abstinence in the cultivation of the lands already occupied. Whichever of these plans be adopted, and probably they will all be adopted, the additional quantity must be supplied at an increased expense. The first is loaded with the expenses of carriage; and we know that a given amount of labour and abstinence is employed to comparative disadvantage, when applied either to the cultivation of inferior land, or to the further improvement of the best land.
The immediate consequence of the increase of supply must be a fall of price, but a fall not equal to the previous rise. The additional supply is produced under circumstances of equal competition, every consumer having it in his power to turn producer by occupying the more distant or less fertile territory; it sells, therefore, for the cost of production to the producer. But commodities of precisely the same qualities cannot sell in the same market for different prices. The purchaser of a bushel of wheat does not inquire whether it was grown within a furlong or at ten miles from the place of sale. The produce, therefore, of the fertile lands in the immediate vicinity of the market, sells at the same price as that of the distant or inferior land.
That price, as it is equal to the cost of production of what is produced at the greatest expense, must exceed the cost of production of what is produced at the least expense. The proprietor of the most fertile and best situated land has no motive to take less, as he cannot, like the owner of a patent, increase the amount of what he produces and continue to produce at equal advantage; and the purchaser cannot support an offer of less, as he cannot turn producer but by submitting to disadvantages which equalize the current price and the cost of production.
As the Colony grows into a People and an Empire, the same processes are repeated. Every increase of wealth and population raises the price of raw produce. Increase of price occasions an increase of supply, raised at a comparatively greater expense. The price falls in consequence of the increased supply, but is prevented from falling to its former level by the increase which has taken place in the cost of producing that part of the whole supply which is brought to market at the greatest expense.
The effect will be the same whether we select for the scene a continent or an island; a district containing soils of every degree of fertility, or of precisely uniform quality. The Anglo-Americans have supplied their constantly increasing wants chiefly by spreading themselves backwards over their unbounded Western territory, and have made little use of inferior soils, or of high cultivation, except in the immediate vicinity of their cities. In Malta, a single acre receives more labour than would be devoted to a square mile in the Illinois; but precisely the same motives impel the Maltese to terrace his mountains into gardens, and the American to reclaim the prairies of the Missouri.
It may be inferred, from the picture which we have given of the progress of society, that we believe an increased difficulty of obtaining raw produce to be the natural incident to an increase of population. In the absence of counteracting causes it certainly would be so; but those causes are so powerful, that, unless checked by legislation, they in many respects balance the causes which we have been considering. In a colony, the counteracting causes appear likely to preponderate for a period, the duration of which must of course depend in part on the quantity of fertile and unoccupied land in its vicinity. As the circle of appropriated land expands, and the expense of bringing food to the consumers becomes more oppressive, there is a tendency in the consumers to follow the food. The colonial capital, now turned into a metropolis, may continue to send out portion after portion of her increased inhabitants, until the whole territory acquires something approaching to an average amount of cultivation. Again, in every Country increased wealth and numbers are accompanied by increased agricultural skill and improved means of transport. The use of implements, the division of labour, and physical knowledge are powerful aids to the agriculturist, though they do not afford to him the almost magical increase of power which they give to the manufacturer. The improvements in carriage are still more important: a given amount of labour applied for twenty years to a given piece of land, would probably now produce a return four or five times as great as would have been obtained at the Conquest. But the labour necessary to transport that produce one hundred miles is probably now not one one-hundredth of what it was then. No improvements in husbandry instruments, or in breeding, or in the rotation of crops, have been so efficient as the substitution of the waggon, the Macadamized road, the canal, the navigable river, and the railway, for the pack-horse of our ancestors and the dangerous tracks through which they beat out and picked their way. The intervention of a hill or a morass was then an obstacle sufficient to allow the price of corn on one side to be double that on the other; and London was so dependent on the immediately adjacent Counties, that the landlords of those Counties petitioned against the opening of roads, as interfering with their vested right to a monopoly of the metropolitan supply; a petition which failed because the immediate interests of other landlords opposed it.
But the principal means by which a Country, when increasing in wealth and population, may avoid the necessity of raising its raw produce at a constantly increasing disadvantage, is by importation.
We have seen that additional labour employed in manufactures produces an increasing proportionate effect; that if one thousand men can in a given time work up one million of pounds of cotton, two thousand men would be able to work up in the same time more than two millions of pounds, and four thousand men, much more than twice as much as two thousand. As a nation increases in opulence and population, it becomes the interest, therefore, of the community to devote their additional population rather to manufactures, in which they have a constantly increasing advantage, than to agriculture, at a constantly increasing disadvantage. As their industry becomes more and more efficient, they are in general able to purchase with the produce of a given amount of labour and abstinence a larger and larger amount of the produce of the industry of their less advanced contemporaries. The produce of the labour of a single Englishman employed for a given time in fabricating cotton, will purchase the cotton grown by the labour of five, or perhaps ten Hindoos, or the wheat grown by three, or perhaps five, Lithuanians or Poles.
It must be recollected, indeed, that a nation, while extending its manufactures, must increase its importation of raw produce; and we have already stated that the increased labour at which the additional produce must be obtained would retard the progress of such a community. But though this is unquestionable, though it is even certain that, if sufficient time be allowed, this obstacle is able not merely to retard, but almost to arrest, the advance of manufactures, there seems to be little to fear from it within any of those periods within which calculations for practical purposes are generally confined. In the first place, the stimulus of an advantageous trade must tend to increase the agricultural skill of the exporting nations, and increase the facilities of transport; causes which, especially in the earlier stages of a nation’s improvement, often enable it, and for considerable periods, to bring to market an increased quantity of raw produce with the same or even less proportionate labour. And, secondly, even if we suppose the manufacturing nation to be supplied by its agricultural customers at an increased proportionate expense to them, it does not follow that the proportionate expense to her need be increased. The increased difficulty on the one side may be balanced by the increased facility on the other. We will suppose that at present one hundred thousand yards of muslin, fabricated by twelve Englishmen, can be exchanged for one hundred and fifty quarters of wheat, raised by thirty-six Poles; that an increase in population of one-third makes it necessary to import two hundred instead of one hundred and fifty quarters, and that the two hundred quarters are raised, not by forty-eight, the former proportion, but by sixty Poles. If the increase in our skill has kept pace with our increase of numbers, it is probable that eighteen Englishmen would be able to fabricate at least two hundred thousand yards of muslin, instead of one hundred and fifty thousand, the former proportion. The exchange under such circumstances, instead of being less, would be more beneficial than before. England would purchase more corn, and Poland more muslin, at a less proportionate amount of labour.
It must be carefully remembered that the preceding remarks apply not to the higher or lower price of raw produce, but to the greater or less difficulty in obtaining it; things which have no necessary connection; one of them depending on the causes which affect the general value of raw produce, the other on the causes which affect the general value of money. At the same time, and in the same place, the prices of articles exactly measure the difficulty of obtaining them. It is exactly half as difficult to get a commodity that costs one sovereign as to get a commodity that costs two. But this is only true at the same time and in the same place. Though in England a quarter of corn now costs about fifty shillings, and in the reign of Henry VIII, cost about twenty, it is probable that it was then more difficult to obtain one than it is now. This must have been the case if it was then more difficult to obtain twenty shillings than it is now to obtain fifty. It is equally clear that, although a quarter of wheat now costs in England about ten ounces of silver, and about six ounces in Poland, yet, if it is easier in England to obtain ten ounces of silver than in Poland to obtain six ounces, it is easier in England to obtain a quarter of wheat than it is in Poland. Experience shows that wealth and population almost always increase together, though not in equal ratios, the increase of wealth being, as we have already stated, generally greater than the increase of population. The increased capital and labour of an increasing population are naturally directed to manufactures, in which, as we have already seen, every increased production is more easily effected. As their labour becomes more productive, the value of the products of a given quantity of that labour rises in the general market of the world; or, in other words, they obtain in return for it a greater amount of the precious metals; or, in other words, a higher price. Therefore, although they may have to pay a higher price for a given quantity of raw produce, whether of home growth or imported, it does not follow that the difficulty of obtaining that given quantity has increased; it is possible, and not improbable, that it may have diminished. A nation so situated may be compared to an individual whose income happens to be rising at the same time when the price of corn is rising. If the rise of his income more than counterbalances the rise of corn, he finds it every year more easy to purchase a given quantity, though he may have to give a higher and higher price for it.
Effects of the Cost of Production on Price.—We have seen that production may take place under five different circumstances.
The price of those commodities which are comprehended in the first class appears to be subject to laws capable of accurate investigation. Where labour alone has been employed, the price must be equal to the wages of that labour. Where that labour has been assisted by abstinence, or, in other words, where a period has elapsed between the employment of the labour and the sale of its produce, the price must be equal to the amount of the wages of that labour and the remuneration to be paid either to the labourer for having suffered the payment of his wages to be deferred, or to the capitalist who has paid those wages in advance.
There are, however, very few commodities of which the whole price can be resolved into the remuneration for the labour, or the abstinence, or both, which must be bestowed on their production.
Mere abstinence can produce nothing. Labour, or the agency of nature, must afford the subject with respect to which it is to be exercised. It is possible, indeed, that a natural agent universally accessible may sometimes afford a product of no value at first, but capable of becoming valuable by mere keeping; but no instance of the kind occurs to us, and some little trouble is generally requisite for the mere safe custody of any article.
Mere labour does produce a very few articles. The laver collected and sold on the coast of Devonshire is an example. It grows naturally on the unappropriated rocks within the influence of the tide, and in abundance practically unlimited. No instruments are necessary to gather or prepare it, and, as it will not keep, it is sold as soon as it has been collected and washed. The price of a given quantity consists, therefore, merely of the wages of those who gather, wash, and bring it to market.
A class of commodities, perhaps rather larger, but still inconsiderable when compared with the general mass, is produced by labour and abstinence, assisted only by those natural agents which are universally accessible. It is difficult, however, to point out an article, however simple, that can be exposed to sale without the concurrence, direct or indirect, of many hundred, or, more frequently, of many thousand different producers; almost every one of whom will be found to have been aided by some monopolized agent.
There are few things of which the price seems to consist more exclusively of wages and profits than a watch;21 but if we trace it from the mine to the pocket of the purchaser, we shall be struck by the payment of rent (the invariable sign of the agency of some instrument not universally accessible) at every stage of its progress. Rent was paid for the privilege of extracting from the mines the metals of which it is composed; for the land which afforded the materials of the ships in which those metals were transported to an English port; for the wharfs at which they were landed, and the warehouses where they were exposed to sale; the watchmaker pays a rent for the land covered by his manufactories, and the retailer for that on which his shop is situated. The miner, the shipwright, the house-builder, and the watchmaker, all use implements formed of materials produced by the same processes as the materials of the watch, and subject also in their different stages to similar payments of rent. The whole amount of all these different payments forms probably a very small portion of the value of the watch; but if we were to attempt to enumerate them, they would be found subdivided into ramifications too minute for calculation. What remains consists of the wages of the workmen, and the profits of the capitalists who paid those wages in advance. The attempt to trace back these wages and profits to their earliest beginnings, would be as vain as the attempt to enumerate all the payments of rent. In estimating, therefore, the value of a manufactured commodity, we seldom go farther back than to the price paid by the manufacturer for his materials and implements, a price which must have included all previous payments of rent, wages, and profits.
We will now trace the causes which increase the value of those materials after they have been the property of the manufacturer. We will suppose a watchmaker’s capital to consist of materials worth £500, that he has bought the land covered by his buildings for £500, and has expended £900 in erecting them, that his tools have cost him £100, and that an annual expense of £100 is necessary to keep his buildings and tools in repair. We will suppose him to employ ten workmen, each receiving at an average £100 a-year, and that one year is the average period from the commencement to the sale of a watch. We will suppose that his ten workmen can annually convert his £500 worth of materials into five hundred watches, and that the average rate of profit in his business amounts to ten per centum per annum. To give him this profit it is clear that his watches must sell for
It will be observed that, although a year is supposed to elapse between the commencement and the sale of a watch, we suppose the cost of its production to have been advanced for only half-a-year. The fact is that some part of the advances must have been made for more, and some for less than half-a-year. Supposing a workman to have been employed on the watch for a year, and paid daily, he received his first day’s wages one year before the watch was sold, but his last day’s wages on the very day of the sale; six months, therefore, is the average period for which the whole were advanced before the sale; just as large a proportion having been advanced for a shorter as for a longer period.
It will be observed, too, that we suppose the whole value of the materials, repairs, and wages to be repaid, but only a profit on the value of the land, buildings, and tools. The first are annually expended by the capitalist, the second remain to be used as instruments of further production. The land is indestructible, and the damage done to the buildings and tools is paid for by the £100 supposed to be expended in repairs.
But the whole cost of production has not yet been enumerated.
In the first place, some wages must be allowed to the master watchmaker himself for his labour in superintending his business; and, secondly, some profit on the expense of his education. And as his knowledge and habits, which form his mental capital, will not survive him, something more than the average rate of profit is necessary to replace their value.
If we suppose the expense of his education to have amounted to £1000, and that it will be replaced with average profit by an annual return of £15 per cent., and the average wages of labour to be £30 a-year, we have £180 to add to the price of the watches, and £9 more for the advance of this sum for half-a-year, making £1944.
The last source of expense is taxation, or, in other words, the wages and profits of those who have protected all the different producers of the watches from foreign and domestic violence and fraud. A considerable portion of the price paid by the watchmaker for his materials, tools, and buildings, probably consisted of the taxation to which those commodities had been previously subjected; but the taxation which we are now considering is that which he incurs during the year supposed to be employed in manufacturing the watch.
This is an expense little capable of previous estimation; partly because the expenses of government are subject to constant variation, and partly because no general principle regulates the proportions in which those expenses are divided among the contributors. In England they are in general imposed upon the persons using or producing certain commodities; upon the use, for instance, of a carriage or window, and upon the production of candles or glass. We will suppose the annual taxation imposed on the shop and other instruments of production used by the watchmaker to amount to £53 7s., the profit on the advance of this sum for half-a-year would exceed by a slight fraction £2 13s., together £56, making with the £1944, the amount of our previous calculation, the sum of £2000, the whole cost of production of the five hundred watches, or £4 a-piece.
The different sums in this example have of course been taken at random; but we have thought it worth while to go through it partly as an instance of the calculations on which every manufacturer must found his estimate of the profit or loss likely to follow any given undertaking; and partly to show in how many shapes, labour, abstinence, and the agency of nature, or, in other words, rent, profits, and wages, are constantly re-appearing in every productive process.
When we speak, therefore, of a class of commodities as produced under circumstances of equal competition, or as the result of labour and abstinence unassisted by any other appropriated agent, and consider their price as equal to the sum of the wages and profits that must be paid for their production, we do not mean to state that any such commodities exist, but that, if they did exist, such would be the laws by which their price would be regulated; and that so far as labour or abstinence, or both, are conducive to the production of any given commodity, it is to be considered as produced under circumstances of equal competition, and as worth the wages or profits, or both, with which that labour or abstinence, or both, must be remunerated.
Effects of Monopolies on Price.—The prices of the commodities comprised in the second, third, and fourth classes, are but little governed by any general rules. The prices of those comprised in the second class, cannot rise above the cost of production when unassisted by the monopolized agent, but have a tendency to approach the cost of production to the monopolist. The prices of those comprised in the third and fourth classes have no necessary limits, but approach much more nearly to the cost of production in the fourth class, where the monopolist can increase his produce, than in the third class, where nature strictly limits the amount that can be produced.
Rent.—The price of the commodities comprised in the fifth and last class, those which are produced under what may be called unequal competition or qualified monopoly, where all persons may become producers, but every additional quantity is obtained at a greater proportionate expense, has a constant tendency to coincide with the cost of production of that portion which is continued to be produced at the greatest expense. The annual supply of London requires about one million five hundred thousand quarters of wheat. Of this quantity, perhaps fifty thousand can be obtained only by means of high cultivation, or very distant carriage, at an expense of about 50s. a quarter. While the wants and the wealth of the inhabitants of London are such as to make them require, and enable them to purchase, one million five hundred thousand quarters, and the expenses of carriage and cultivation remain unaltered, it is clear that the whole quantity, supposing it to be of uniform quality, must sell at the rate of 50s. a quarter. If it were to sell for less, the last fifty thousand quarters would cease to be produced, and the price would again rise in consequence of the deficiency of the supply. But of the whole one million five hundred thousand quarters, a portion, perhaps fifty thousand, might be produced by slightly cultivating the most fertile and best situated land, at the expense of 10s. a quarter. A hundred thousand may cost the producer 20s. a quarter, two hundred thousand 25s., two hundred thousand more 30s. a quarter, and the cost of production of all, except the last fifty thousand, must have been less than the 50s. for which they are sold. The difference between the price and the cost of production is Rent. It is an advantage derived from the use of a natural agent not universally accessible. It is taken, therefore, by the owner of the agent by whose assistance it was obtained.
A portion of the whole supply, however, that portion which is produced at the greatest expense, is produced without any payment of rent. If the cost of producing and sending to market from a given farm be in the following proportions: for one hundred quarters £100, for ninety more £100, for eighty more £100, for seventy more £100, for sixty more £100, for fifty more £100, for forty more £100, and for thirty-three and one-third of a quarter more £100, and the price per quarter is 60s., it is clear that the landlord’s rent will be in the following proportions:—
And it is equally clear that no rent can be paid by the farmer for the privilege of producing the last thirty-three one-third quarters, as the whole £100 for which it sells is absorbed by the cost of production. The last thirty-three one-third quarters will continue to be produced as long as the wants and the wealth of the purchasers render them willing and able to purchase a quantity of corn, the whole of which cannot be supplied unless this last and most expensive portion is produced. If those wants and wealth should increase, it might become necessary to raise an additional supply at a still further additional expense, at the cost, we will say, of £100 for only twenty quarters. But it is clear that this could not be done unless the price should be £5 a quarter, since that is the lowest price at which the cost of producing the last supply would be repaid. The price, indeed, would probably have previously risen to above £5 a quarter, since an interval must have elapsed between the increased demand occasioned by the increased wants and wealth of the purchasers and the increase of the supply. During that interval the price must have risen somewhat above the price at which it would settle when the additional supply had been obtained. The appearance of that additional supply would sink it to £5 a quarter, the cost at which that supply is produced, but it could not permanently fall below that price unless a diminution should take place either in the wants or wealth of the purchasers, or in the expenses of cultivation or conveyance.
All this appears almost too plain for formal statement. It is, however, one of the most recent discoveries in Political Science: so recent that it can scarcely be said to be universally admitted even in this Country,and abroad it does not seem to be even comprehended. If any writer could be expected to be fully master of it, it would be Say, the most distinguished of the Continental Economists, and the annotator on Ricardo. In his notes to the French translation of the Principles of Political Economy and Taxation, he constantly objects to Mr. Ricardo’s Reasonings, the fact that all cultivated land pays rent; as if such a fact were inconsistent with the existence of corn-raised without the payment of rent. He repeats this objection in a note to a passage in which Ricardo has demonstrated its falsity. In the twenty-fourth chapter of the Principles, Mr. Ricardo examines Adam Smith’s opinions on rent.
“Adam Smith,” observes Mr. Ricardo, “had adopted the notion that there were some parts of the produce of land for which the demand must always be such as to afford a greater price than what is sufficient to bring them to market; and he considered food as one of those parts.
“He says that ‘land in almost every situation produces a greater quantity of food than what is sufficient to maintain all the labour necessary for bringing it to market, in the most liberal way in which labour is ever maintained. The surplus, too, is always more than sufficient to replace the stock which employed that labour, together with its profits. Something, therefore, always remains for a rent to the landlord.’
“But what proof does he give of this? No other than the assertion that ‘the most desert moors in Norway and Scotland produce some sort of pasture for cattle, of which the milk and the increase are always more than sufficient not only to maintain all the labour necessary for tending them, and to pay the ordinary profit to the farmer or owner of the herd or flock, but to afford some small rent to the landlord.’ Now of this I may be permitted to entertain a doubt. I believe that as yet in every Country, from the rudest to the most refined, there is land of such a quality that it cannot yield a produce more than sufficiently valuable to replace the stock employed on it, together with the profits ordinary and usual in that Country. In America we all know that this is the case, and yet no one maintains that the principles which regulate rent are different in that Country and in Europe. But if it were true that England had so far advanced in cultivation, that at this time there were no lands remaining which did not afford a rent, it would be equally true, that there formerly must have been such lands; and that whether there be or not, is of no importance to this question, for it is the same thing if there be any capital employed in Great Britain on land which yields only the return of stock with its ordinary profits, whether it be employed on new or old land. If a farmer agrees for land on a lease for seven or fourteen years, he may propose to employ on it a capital of £10,000, knowing that at the existing price of grain and raw produce he can replace that part of his stock which he is obliged to expend, pay his rent, and obtain the general rate of profit. He will not employ £11,000 unless the last £1000 can be employed so productively as to afford him the usual profits of stock. In his calculation whether he shall employ it or not, he considers only whether the price of raw produce is sufficient to replace his expenses and profits, for he knows that he shall have no additional rent to pay. Even at the expiration of his lease his rent will not be raised; for if his landlord should require rent, because this additional £1000 was employed, he would withdraw it, since by employing it he gets by the supposition, only the ordinary and usual profits which he may obtain by any other employment of stock.” Principles, &c., 389–391.
To this passage, M. Say affixes the following note: “This is precisely what Adam Smith does not admit, since he says that the worst land in Scotland gives to its proprietor a rent.” We answer to M. Say: “This is precisely what Mr. Ricardo declares to be immaterial, since a portion of what is produced on a farm giving a rent of ten guineas an acre, may be produced without any rent being paid for the privilege of producing it.”
It must be admitted, however, that the doctrine in question has often been stated in a form likely to confuse the dull or inattentive, and liable to the cavils of the uncandid. Mr. Ricardo, who, though not its discoverer, is its best known expositor, was led, both by his merits and his deficiencies, into frequent inaccuracy of language. He was not enough master of logic to obtain precision, or even to estimate its importance. His sagacity prevented his making sufficient allowance for the stupidity or carelessness of his readers; and he was too earnest a lover of truth to anticipate wilful misconstruction.
Under the influence of these causes he is, perhaps, the most incorrect writer who ever attained philosophical eminence; and there are few subjects on which he has been guilty of more faults of expression than on rent.
He perceived that an increased will and power on the part of the community to purchase raw produce, and the impossibility of increasing the supply but at an increased expense, must necessarily raise rents, and must also occasion an extension of cultivation. Associating, therefore, in his own mind the ideas of the rise of rents and of the extension of cultivation, he has often spoken of them as if they stood in the relation of cause and effect: as if the extension of cultivation were a cause of the rise of rent, instead of being, as it obviously is, a means by which that rise is counteracted. The inaccuracy is so obvious that we can scarcely suppose it to have misled any reader of tolerable care and acuteness.
He has also too frequently used the expression “the corn raised on land paying no rent,” as an equivalent for “the corn raised without the payment of rent.” And when his opponents reply, as is true, that “in old Countries all land pays a rent,” he has sometimes denied the truth of the reply, instead of showing, as he has done in the passage which we have quoted, that the doctrine is just as true when applied to a small district in which all the land is highly rented, as when applied to a colony where rent is the exception and freedom from it the rule.
Again, he has often spoken of the existence of rent as dependent on the cultivation of land of different degrees of fertility, or on the fact that the same land repays, with a proportionably smaller return, the application of additional capital. And yet it is clear that if we suppose the existence of a populous and opulent district of great but uniform fertility, giving a large return to a given expenditure of capital, but incapable of giving any return whatever on a less expenditure, or any greater return on a larger expenditure, such a district would afford a high rent though every rood of land and every portion of the capital applied to it would be equally productive.
Consequences of the Proposition that Additional Labour, when employed in Manufactures is MORE, and when employed in Agriculture is LESS, efficient in proportion.—We now proceed to consider some remarkable consequences of the proposition [see page 81,] that additional labour when employed in Manufactures is more, and when employed in Agriculture less, efficient in proportion; or, in other words, that the efficiency of labour increases in Manufactures in an increasing ratio, and in Agriculture in a decreasing ratio. And, consequently, that every additional quantity of manufactured produce is obtained, so far as the manufacturing of it is alone concerned, at a less proportionate cost, and every additional quantity of agricultural produce is obtained, generally speaking, at a greater proportionate cost.
Taxes on manufactured commodities ultimately raise the price, and that by an amount exceeding the amount of the tax. Taxes on agricultural produce in its unmanufactured state do not necessarily occasion any ultimate rise of price, and raise it, if at all, by an amount less than that of the tax.
Effect of Taxation on Manufactured Produce.—The first proposition may be easily illustrated.
We will suppose a tax on watches of twenty-five per cent. on their value to have existed from the commencement of that trade. As there is no reason to suppose that the profits or the wages of master watchmakers or their workmen are, under present circumstances, above the average wages and profits of persons similarly employed, it is clear that, if such a tax had always existed, the price for the time being of watches must always have been one-fourth higher than it has been, or the trade of watchmaking would have been followed neither by labourers nor capitalists. It is clear also that such an increase of price must always have diminished or retarded in its increase the sale, and, consequently, the production of watches. But if fewer watches had been made, the smaller number would have been made at a greater proportionate expense. And the price of watches must have been higher than it actually has been, first by the amount of the tax, and, secondly, by the greater expensiveness of the more limited manufacture. It is equally clear that, after the removal of such a tax, the price of watches would sink, first by the amount of the tax removed, and, secondly, by the improvement in the manufacture consequent on an increased production. It is equally clear that, if such a tax were now for the first time to be imposed, the price of watches must rise, first by the amount of the tax, and, secondly, by the amount of the increased proportionate expense of making and selling the diminished quantity sold, or watchmaking would cease to be as profitable as the average of trades. It is clear, too, that the more the use of watches diminished, the higher the price must eventually rise. If only ten new watches were made every year, they would probably cost £500 a-piece. If only one were made, it would probably cost little less than the whole price of the ten. It is true that these effects would not immediately follow either the imposition or the removal of the tax; an interval must in either case elapse, during which, the existing capital in the watchmaking trade continuing the same, the supply of watches would be neither increased nor diminished, and, consequently, the price but little affected. During this interval, both the wages and the profits of those engaged in that business would be unnaturally high, or unnaturally low, and they would not acquire their natural level until, in the case of the removal of the tax, a sufficient number of persons were educated to the business, or, in the case of the imposition of the tax, the number of persons educated to the business had been sufficiently diminished, to enable the supply of watches to be proportioned to the demand, at a price giving average profits and wages to the capitalists and labourers employed in their manufacture and sale.
Effect of Taxation on Agricultural Produce.— But if agricultural produce were subjected to such a tax, relief would be afforded by precisely the same conduct which in manufactures aggravates the pressure, namely, by a diminution of production.
It may be assumed that capital is fairly distributed among the various channels for its employment, and that, in the absence of peculiar disturbing causes, agriculture, the most agreeable of all occupations, has not less than an average share of it. It may therefore be assumed, generally speaking, that capital is employed on land until its produce repays, but does not more than repay, the expense of cultivation; or, in other words, that the occupier of land pushes its cultivation until the additional produce obtained by means of the last labourers employed is just sufficient, at the existing price, to pay their wages, and average profits to himself, for the time during which those wages must be paid in advance. On the imposition of a tax, either the price of what he produces must rise by the amount of the tax, or the farmer must discontinue the production of that portion of his crop which is raised at the greatest expense.
We will suppose a farmer to occupy a farm containing six hundred acres of arable land of different degrees of fertility; one hundred acres of which, with the labour of ten men directly and indirectly employed on them, would give a return which, in order to reduce it to one denomination, we will call six quarters of wheat an acre; one hundred others capable of giving with an equal number of men only five quarters per acre; one hundred others, four quarters per acre; one hundred others, three quarters per acre; one hundred others, two quarters per acre; and the last and worst one hundred acres, only one quarter per acre. We will suppose, also, that the wages of ten men for a year amount at an average to £400, or £40 a man; that the farmer has to advance these wages for a year before the produce is sold; and that the average rate of profit in similar occupations, is ten per cent. per annum. Under such circumstances, when wheat was £2 4s. a quarter it would be worth his while to employ every man whose labour produced twenty quarters, the price of which would amount to £44, being £40 for the labourer’s wages, and £4 for the farmer’s profit. The forty men supposed to be employed on the four best qualities of soil produce each this amount and more; the ten men employed on the fifth quality of soil produce each precisely this amount, namely, a return of two hundred quarters, worth £440. The sixth and last quality of soil, on which one man could produce only ten quarters, would not repay the cultivation of wheat. Now, if a tax were laid on raw produce, which, to make the illustrations less complex, we will call a tax of 14s. 8d. on every quarter of wheat, and no rise of price should take place, it is obvious that it would no longer be worth his while to cultivate any land of worse quality than that in which the labour of ten men could produce three hundred quarters of corn; a return which, at the existing price of £2 4s. a quarter, would procure £660, being £220 for the tax, and £440 as before for wages and profits. But it would obviously be worth his while to cultivate land of that quality, and also to employ labour in the cultivation of his superior land up to the point at which the labour of an additional man would no longer produce an additional product of thirty quarters. Nothing but a tax so great as absolutely to prohibit agriculture, such a tax as never has existed, and which would, in fact, be rather a penalty than a tax, could induce him to discharge all his labourers, and leave his best land uncultivated. We do not deny that he would be a loser, even by the conduct which we have supposed him to adopt. We do not deny that he would much have preferred a rise in the price of corn equal to the tax,—a rise which would have enabled him to continue in its existing investment all his agricultural capital. But we deny that any imposition to which the name of a tax can fairly be applied, though unaccompanied by a rise of price, would induce him altogether to discontinue production. And we wish to draw the attention of our readers to the contrast between his situation and that of the manufacturer, whom any tax, however slight, if unaccompanied by a rise of price, must in time force to discontinue manufacturing. What is a remedy to the agriculturist is an aggravation of evil to the manufacturer; a diminution of capital makes what remains in agriculture more productive, and makes what remains in manufactures less so.
It has been supposed, however, that the price of agricultural produce would rise to the full amount of the tax, and that the whole amount of that tax would consequently fall on the consumer. This is the opinion of Mr. Ricardo and of Mr. Mill. And it is on this ground that they both maintain that the effect of tithes is to produce a rise in the price of raw produce equal to the whole value of the tithe, and affecting equally all classes so far as they are consumers of raw produce. We believe that the immediate effect of a general tax on raw produce is to raise the price, but to an amount not equal to that of the tax; but that its ultimate effect is to diminish the consumption and production of raw produce, but to leave its price unaffected.
To prove our first proposition we need only show that the rise of price, which we admit to be the immediate consequence of the imposition of the tax, would diminish the consumption, and consequently the production of the taxed commodity. It has been shown already that as production is diminished, the expense of producing the quantity still produced is diminished: and that the price of agricultural produce depends on the expense of producing that portion of it which is produced at the greatest expense, or, in other words, under circumstances of equal competition. That no person would diminish his consumption of corn in consequence of the rise of its price, is therefore a premise necessary to the conclusion which we are combating. This is true as respects that portion of the population of England which is dependent on parochial relief. In those districts in which the amount of that relief is calculated with reference to the price of bread, their means of purchasing are unconnected with price, and neither rise with its fall nor sink with its rise. It is true, also, as respects the families of those opulent individuals (a prominent, but in fact a small portion of society) whose direct expenditure in bread and flour bears a small proportion to their general expenses. But the bulk of the community, consisting of the labourers who receive no parish assistance, and happily they are now the majority, and we trust, will soon be the great majority; and the smaller shopkeepers and farmers, unquestionably regulate, in a great measure, their purchases of wheat by its price. Much of their consumption, when it is comparatively cheap, consists of puddings and pies, articles of mere luxury, which, on the slightest rise, are immediately discontinued. If the rise continue, they turn from wheaten bread to cheaper subsistence: in the North to oatmeal, in the South to potatoes. And, indeed, without recurring to details, it may be laid down as a principle of universal application, that, in the absence of disturbing causes, every increase in the price of a commodity must diminish both the ability and the will to purchase it.
We now proceed to prove our second proposition, namely, that the ultimate effect of a tax on raw produce is not to raise its price, but to diminish the quantity produced. It will be at once admitted that the price of raw produce, in any Country, does not depend on the positive extent, or on the positive fertility of that Country, but, all the other things remaining the same, on the proportion which that extent, or that fertility bears to the number and wealth of the existing inhabitants. It may be low in a barren territory, if that territory be thinly peopled, just as it may be high in a fertile and populous one. It is high in the rich Lowlands of Scotland, and low in the sandy plains of Poland. And it will also be admitted that, all other things remaining the same, the population of a Country is in proportion to its extent and its fertility. Now, the ultimate effect of tithes, or of any other tax, on the cultivation of land, is precisely the same as if the Country in which they have long prevailed was thereby rendered rather less extensive, or rather less fertile, and, consequently, rather less populous, and probably also rather poorer than it otherwise would have been.
Tithes.—If England, from time immemorial, had been rather more extensive, or rather more fertile than it now is, no one will suppose that the price of provisions would have been lower than it now is. We should have had rather more corn, and a rather greater population to eat that corn, than we now have. The increase would have been positive, not relative. So if Devonshire or Lincolnshire had never existed, the agricultural produce and the population of England would each have been positively diminished; but, as they would have borne the same proportion to one another as they do now, the price of the existing quantity of corn could not have been higher than it is now. So if tithes had never existed, we should have had rather more corn and a rather larger and probably a rather richer population; every thing else would have been as it is. It is true that, if a new Devonshire, or a new Lincolnshire, fit for immediate cultivation, were now suddenly added to our shores, the immediate consequences would be an increased supply of provisions, and a fall in their price. But it is also true that, if this accession to our territory were followed by no change in our habits and institutions, the comparative cheapness, which would be its immediate consequence, would gradually disappear as our population rose with the increased supply of subsistence, and, ultimately, we should be just where we are now, excepting that we should be rather more numerous. So, if tithes were suddenly commuted, and their interference, such as it is, with agricultural improvement, got rid of, the same consequences would follow as if the extent of our territory, or its fertility, were suddenly augmented. And, supposing no improvement to take place in our institutions and habits, the consequent increase of our population would bring us back, as far as the price of provisions is concerned, to the point at which we are now.
It is probable, indeed, that the ultimate effect of the abolition of tithes would be not a lowering but an increase of the price of raw produce. A denser population cultivating a territory, the productiveness of which had increased in proportion to the increased number of its inhabitants, would probably advance in opulence. The productiveness of the soil of a Country in proportion to its population being given, or, in other words, the amount of raw produce and the number of people being ascertained, the smaller the extent of the land from which that amount is obtained the better. The expenses of transport, and the trouble and loss of time in journeys, are material elements of the cost of production both in agriculture and in manufactures, and the amount of these expenses depends principally on the extent of Country affording a given return. As our industry became more efficient the value of our labour would rise in the general market of the world, and the consequence would be a general rise of prices, in which agricultural produce would participate. But these statements form no part of our argument. We believe, indeed, that the ultimate effect of tithes is to lower the price of raw produce: but all that we have undertaken to show is, that they do not raise it.
From these premises follow very important practical inferences. If we lay a tax on the production at home of any manufactured commodity which is produced with the same, or nearly the same, facility abroad, it is absolutely necessary that a duty of the same, or a rather greater amount, should be imposed on the importation of that commodity. On the imposition of the tax the cost of production at home is increased, first by the tax, and, secondly, by the increased expense of producing the smaller quantity which, when the price becomes higher, continues to be demanded. But if importation were untaxed, the cost of production abroad would be diminished in consequence of the diminished proportionate expense of producing the larger quantity demanded. The domestic production, and with the domestic production the tax, would not be merely diminished, but absolutely destroyed, and the whole result would be gratuitous evil. But when a tax, unbalanced by any countervailing duty on importation, is imposed on any agricultural produce for which a foreign substitute can be obtained, the only result is to stop that portion which is most expensive of the domestic production. The least productive part of the existing agricultural capital is withdrawn, or worn out without being replaced. The deficiency is attempted to be supplied by importation; but the increased demand, instead of lowering, as would be the case with manufactures, raises the cost of production abroad, just as the diminished demand, instead of raising, lowers the cost of production at home. The price of agricultural produce rises until the state of the population has accommodated itself to the change, and then falls to its former level. If our present heavy tax on the domestic production of glass were unbalanced by any duty on importation, all the English glass-works would in time be abandoned. Or, if some of our glass-works were free from the tax, and others subject to it, all those which were taxed would be ruined. But the lands in England which are subject to the payment of tithes are not thrown out of cultivation by the competition of those which are free from that burden, or by the importation of the tithe-free corn and cattle of Scotland, or of the comparatively tithe-free produce of Ireland. The estates which are subject to tithes continue to be productive, they continue even to afford a rent, though the burden diminishes the productiveness, and diminishes in a still greater degree the rent.
Before we quit the subject of tithes, it may be worth while to expose another error connected with them, namely, the popular opinion that their tendency to increase in amount is greater than that of rent. We believe the fact to be just the reverse.
Tithes are a definite, rent is an indefinite, share of the produce. Tithes can never exceed a tenth; rent need not be a tenth, or even a hundredth, but may amount to a fourth, a third, a half, or even more than a half. Tithes, therefore, can be exacted, where rent cannot be; but when once any spot of land can afford to pay both rent and tithes, there is no comparison between their respective powers of increase. This will immediately appear on a reference to the familiar illustration of the progress of rent.
If we suppose a Country to be divided into ten districts designated by the numbers from 1 to 10, each of equal extent, but each of a different degree of fertility, No. 1 producing, at a given expense, two hundred quarters of corn, and the amount of the produce, at the same expense, of each quality of land, diminishing by ten quarters, until we come to No. 10, which produces only one hundred quarters, we shall find that when No. 1 only will pay for cultivation, it affords twenty quarters for tithes, and no rent. When the price of corn has risen sufficiently to enable No. 2 to be cultivated, there will be on Nos. 1 and 2 thirty-nine quarters for tithes, and on No. 1 ten for rent. When No. 3 has become worth cultivation, there will be on Nos. 1, 2, and 3, fifty-seven for tithes, and on Nos. 1 and 2 thirty for rent. When No. 4 has become worth cultivating, there will be on Nos. 1, 2, 3, and 4, seventy-four for tithes, and on Nos. 1, 2, and 3, sixty for rent. When No. 5 has become worth cultivating, there will be on Nos. 1, 2, 3, 4, and 5, ninety for tithes, and on Nos. 1, 2, 3, and 4, one hundred for rent. Rent has now passed tithes, and its subsequent superiority is very striking. When No. 6 has become worth cultivating, there will be one hundred and five for tithes, and one hundred and fifty for rent. When No. 7 has become worth cultivating, there will be one hundred and nineteen for tithes, and two hundred and ten for rent. When No. 8 has become worth cultivating, tithes will be one hundred and thirty-two, and rent two hundred and eighty. When No. 9 has become worth cultivating, tithes will be one hundred and forty-four, and rent three hundred and sixty. And when No. 10 has become worth cultivating, tithes will be one hundred and fifty-five, and rent four hundred and fifty. And the same results will follow if, instead of supposing fresh land of a regularly decreasing fertility to be taken into cultivation, we suppose further capital to be applied to the same land, with a regularly decreasing proportionate return. Of course we do not mean that either of these suppositions represents what actually takes place, but they each represent the course of events to which there is a natural tendency. They represent the relative ratio at which rent and tithes would increase in the absence of disturbing causes. It must be recollected, however, that these events would not take place in the regular order in which we have placed them, except on the supposition of each different district which we have supposed to be successively cultivated being of the same extent, and of each successive application of capital being of the same value. If, for instance, No. 10 were ten times as large as any one of the other districts, and received ten times as much capital, it would increase the whole amount of titheable produce by one thousand quarters instead of by one hundred quarters, and tithes would be raised from one hundred and forty-four quarters to two hundred and forty-four quarters, while rent would have risen only from three hundred and sixty quarters to four hundred and fifty. In such an event, therefore, tithes would rise more than rent. And it must also be recollected that tithes and rent do not rise at precisely the same period. The highest amount of rent must be just before the land producing the additional supply has been cultivated. The increased demand is then in full operation, and has not been counteracted by the increased supply. But the amount of tithes is not increased until after the additional supply has been produced. Their increase, therefore, is generally contemporaneous with a temporary fall of rent: which is probably one of the causes of the popular opinion that their general tendency to increase is greater than that of rent. Another source of that opinion is, that in England the land has been for centuries subject to a constant process of subdivision, while tithes, except the comparatively small part which belongs to laymen, have not. The incumbent of a given benefice receives the tithes of the same quantity of land which was tithed by his predecessor three hundred years ago. But that land three hundred years ago may have belonged to one or two persons, and may now be divided between ten or twenty. The present incumbent’s income may bear a higher proportion than his predecessors did to the average income of a single landlord, though it bears a lower proportion to the aggregate income of all the landlords of the parish. And as a general proposition, we have no doubt that, in a progressive Country, the value of tithes will seldom increase in proportion to the increasing value of the land out of which they issue.
It appears, therefore, that in a new or ill-peopled Country where the abundance of land and the want of agricultural capital almost prevent the existence of rent, in the economical sense of the word, tithes are the only endowment which a Clergy can receive from the soil. We see, therefore, why they were adopted for the Israelites, who, in fact, were colonists, and by our Danish and Saxon ancestors. We see too why the attempt to endow with lands the Canadian Church has so signally failed. Tithes would not, perhaps, have been a politic, but they would have been an actual endowment. The reserves stand so many desert spots in the midst of improvements retarding the settlement, interrupting the communications, and injuring the wealth and civilization of all that is round them. Five centuries hence they might afford an ample provision.
Relative Proportions of Rent, Profit, and Wages.
Having given a general outline of the three great classes among whom all that is produced is distributed, and of the general laws which regulate the comparative values of different products, we now proceed to consider the general laws which regulate the proportions in which Landlords, Capitalists, and Labourers share in the general distribution, or, in other words, which regulate the proportions which Rent, Profit, and Wages bear to one another.
Nomenclature.—We have followed the established nomenclature which divides society into Landlords, Capitalists, and Labourers; and revenue into Rent, Wages, and Profit. And we have defined Rent to be the revenue spontaneously offered by nature or accident; Wages, the reward of labour; and Profit, that of abstinence. At a distance these divisions appear clearly marked, but when we look into the details, we find them so intermingled that it is scarcely possible to subject them to a classification which shall not sometimes appear to be inconsistent, and still more frequently to be arbitrary. But it must be remembered that questions of classification relate rather to language than to facts; and that our object will have been effected if we can assist the memory by supplying a precise and consistent nomenclature.
We will begin by recurring to a subject to which we have already alluded, the frequent difficulty of deciding whether a given revenue ought or ought not to be called Rent. When an estate has been for some time leased to a careful tenant, it generally receives permanent ameliorations, which enable the owner, at the expiration of the lease, to obtain a higher rent. A bog worth 2s. annually an acre may be converted into arable or pasture worth annually ?2. Is the increase of revenue rent or profit? It arises from an additional fertility, now inseparably attached to the land. It is received by the owner without sacrifice on his part. It is, in fact, undistinguishable from the previous rent. On the other hand, its existence is owing to the abstinence of the farmer, who devoted to a distant object, the amelioration of the land, labour which he might have employed in producing immediate enjoyment for himself. If the owner of the estate had farmed it himself, and had directed labour to be employed on its permanent improvement, the additional produce occasioned by those improvements would clearly have been termed profit. It appears, therefore, most convenient to term it profit when occasioned by the improvements made by a tenant. In fact, these improvements are as consistently to be termed capital as a dock or a cotton-mill. Whose capital are they then? During the lease the capital of the tenant; when it has fallen in, the capital of the landlord, who has purchased them by engaging not to raise the rent during the currency of the lease.
We may be asked, then, whether the improvements which form the greater part of the value of the soil of every well-cultivated district are all, and for ever, to be termed capital? Whether the payments received from his tenants by the present owner of a Lincolnshire estate, reclaimed by the Romans from the sea, are to be termed, not rent but profit on the capital which was expended fifteen centuries ago? The answer is, that, for all useful purposes, the distinction of profit from rent ceases as soon as the capital, from which a given revenue arises, has become, whether by gift or by inheritance, the property of a person to whose abstinence and exertions it did not owe its creation. The revenue arising from a dock, or a wharf, or a canal, is profit in the hands of the original constructor. It is the reward of his abstinence in having employed capital for the purposes of production instead of for those of enjoyment. But in the hands of his heir it has all the attributes of rent. It is to him the gift of fortune, not the result of a sacrifice. It may be said, indeed, that such a revenue is the reward for the owner’s abstinence in not selling the dock or the canal and spending its price in enjoyment. But the same remark applies to every species of transferable property. Every estate may be sold, and the purchase money wasted. If the last basis of classification were adopted, the greater part of what every Political Economist has termed rent must be called profit.
Again, there are few employments in which extraordinary powers of body or mind do not receive an extraordinary remuneration. It is the privilege of talent to work not only better but more easily. It will generally be found, therefore, that the commodity or service produced by a first-rate workman, while it sells for more than an average price, has cost less than an average amount of labour. Sir Walter Scott could write a volume with the labour of about three hours a-day for a month, and for so doing received ?500 or ?1000. An ordinary writer, with equal application, would find it difficult to produce a volume in three months, and still more difficult to sell it for ?50.
Is then the extraordinary remuneration of the labourer, which is assisted by extraordinary talents, to be termed Rent or Wages? It originates in the bounty of nature; so far it seems to be rent. It is to be obtained only on the condition of undergoing labour; so far it seems to be wages. It might be termed, with equal correctness, rent, which can be received only by a labourer, or wages, which can be received only by the proprietor of a natural agent. But as it is clearly a surplus, the labour having been previously paid for by average wages, and that surplus the spontaneous gift of nature, we have thought it most convenient to term it rent. And for the same reason we term rent what might, with equal correctness, be termed fortuitous profit. We mean the surplus advantages which are sometimes derived from the employment of capital after making full compensation for all the risk that has been encountered, and all the sacrifices which have been made, by the capitalist. Such are the fortuitous profits of the holders of warlike stores on the breaking out of unexpected hostilities; or of the holders of black cloth on the sudden death of one of the Royal family. Such would be the additional revenue of an Anglesea miner, if, instead of copper, he should come on an equally fertile vein of silver. The silver would, without doubt, be obtained by means of labour and abstinence; but they would have been repaid by an equal amount of copper. The extra value of the silver would be the gift of nature, and therefore rent.
Secondly. It is still more difficult to draw the line between Profit and Wages. There are, perhaps, a few cases in which capital may improve in value, without superintendence or change, simply by being preserved from consumption. Wine and timber, perhaps, afford instances. But even a wine-cellar or a plantation, if totally neglected, would probably deteriorate. And, as a general rule, it may be laid down that capital is an instrument which, to be productive of profit, must be employed, and that the person who directs its employment must labour, that is, must to a certain degree conquer his indolence, sacrifice his favourite pursuits, and often incur other inconveniences from his residence, from the persons to whose contact he is exposed, from confinement, or from exposure to the weather, and must also often submit to some inferiority of rank. If labour be in general necessary to the use of material capital, it is universally necessary to the use of that immaterial capital which consists of appropriate knowledge, and of moral and intellectual habits and reputation,—a capital created and kept up at more expense, and productive of a greater return than that which is material, but which, from the impossibility of actually transferring it, or implanting in one man the ability of another, can never be productive but through the labour of its possessor.
Is then the remuneration of this labour to be termed Wages or Profit? A certain portion of it, that portion which would be sufficient to repay equal exertions and hardships endured by an ordinary labourer, unprovided with capital, must, without doubt, be termed wages. And where extraordinary natural talents or favourable accidents have occasioned the exertions of the capitalist to obtain more than an average remuneration, that excess is, as we have already seen, rent. But the revenue to which our present question applies is the revenue obtained from the employment of capital, after deducting ordinary interest on the capital, as the remuneration for the abstinence of the capitalist, ordinary wages, as the remuneration for his labour, and any extraordinary advantages which may have been the result of accident.
The subject may be made clearer by a few examples; and we have endeavoured to find some in which the remuneration for the capitalist’s trouble, instead of being, as is usually the case, mixed up with the gross amount of his returns, appears as a separate item. The trade of bill-broking affords an instance. The business of a bill-broker is to advance, before it becomes due, the money for which bills of exchange are drawn, deducting, under the name of discount, interest at the rate of not more than five per cent. per annum on the sum secured by the bill. In time of peace, and in the ordinary state of the money-market, the rate of discount varies from four to three per cent. per annum. It has been sometimes as low as two and-a-half. It appears at first strange that such a trade should exist, since the money capital employed in it does not return even so high a profit as may often be obtained from the public funds, leaving the additional risk and labour uncompensated. It is, in fact, a trade which no one would carry on if he employed in it his own money.
The commercial inhabitants of a great trading city have from time to time under their control considerable sums of money for short periods. Scarcely a single estate in this Country is mortgaged or sold without the price or the mortgage-money being placed for some days at a banker’s or agent’s until the “more last words” of the lawyers have been said. These sums cannot in the mean time be employed in any permanent investment; but they can be lent from day to day, or, in some cases, from week to week, and it is better to lend them at the lowest rate of interest than to suffer them to lie perfectly idle. The bill-broker’s trade is to borrow these sums from week to week, or even from day to day, at one rate of interest, and to lend them from month to month, or for two or three months, at a higher. To borrow, for instance, at two per cent., and to lend at three.
It is obvious that these operations require much knowledge, industry, and skill. The broker must be well acquainted with the circumstances of almost every eminent commercial man in order to estimate the value of his acceptance or indorsement. He must keep up his knowledge by unremitting observation, and by inferences drawn from very slight hints and appearances. He must also have the skill so to manage his concerns as to have his receipts always falling in to correspond with his engagements. This knowledge, and the moral and intellectual habits which enable him to apply it, form his personal or immaterial capital. But he must also have a material capital, not for the purpose of being employed in his business, for no one would so employ money of his own, but as the means of obtaining confidence. The interest paid by a broker is so trifling, that no one would lend to him if it implied the slightest risk; and the best pledge which he can give is the notoriety of his possessing a large capital, which could at any time make good an unforeseen interruption in his regular receipts. This capital he must not waste, but he may employ it productively, and may consume on himself the annual profit derived from it. The confidence which it enables him to enjoy is a distinct advantage.
We will suppose a bill-broker to possess ?100,000, in the Four per Cents.; and to have sufficient knowledge, skill, and character as a man of business and of wealth, to be able, at an average throughout the year, to borrow ?400,000 at two per cent., and to lend the same sum at three per cent. Is the ?4000 a-year which his business would give him wages or profit?
Again, a capital which in this Country would enable its employer to obtain ten per cent., would often, if he were to employ it in Jamaica or Calcutta, produce fifteen or twenty. If the capitalist with ?50,000 encounter the climate and the society of Jamaica, and is rewarded by his annual returns being raised from ?5000 to ?7500, is his additional income of ?2500 a-year wages or profit?
There is no doubt that a sufficient portion of it to purchase the same services from a person unprovided with capital, must be considered as wages: ?50 a-year, however, would considerably exceed this sum. The remaining ?2000 a-year may be considered, with equal correctness, either wages which can be received only by the possessor of ?500,000, or profit which can be received only by a person willing to labour in Jamaica.
Adam Smith considers it as profit. “The profits of stock,” he observes,22 “it may, perhaps, be thought, are only a different name for the wages of a particular sort of labour, the labour of inspection or direction. They are, however, altogether different, are regulated by quite different principles, and bear no proportion to the quantity, the hardship, or the ingenuity of this supposed labour of inspection and direction. They are regulated altogether by the value of the stock employed, and are greater or smaller in proportion to this stock. If we suppose two manufacturers, the one employing a capital of ?1000, and the other one of ?7300, in a place where the common profits of manufacturing stock are ten per cent., the one will expect a profit of about ?100 a-year, while the other will expect about ?730. Yet their labour of inspection may be very nearly or altogether the same. In many great works, almost the whole labour of this kind is committed to some principal clerk. His wages properly express the value of this labour of inspection and direction. Though in settling them some regard is commonly had, not only to his labour and skill, but to the trust which is reposed in him, yet they never bear any regular proportion to the capital of which he oversees the management. And the owner of this capital, though he is thus discharged of almost all labour, still expects that his profits should bear a regular proportion to his capital.”
After much hesitation, we have resolved to adopt this as the most convenient classification, and to confine the term wages to the remuneration for simple labour; including under the word labour the endurance of all its attendant hardships, but excluding from the word wages the additional revenue which the labourer often receives because he happens to be also a capitalist. We have done so on the grounds which are so ably stated in the passage which we lastly quoted.
To revert to our supposition of a capitalist with ?50,000 repaid by an extra revenue of ?2500 a-year for living in Jamaica: it is clear that another capitalist taking there ?100,000 would, c?teris paribus, obtain an extra revenue of ?5000 a-year, and that notwithstanding his labour would not necessarily be greater than that of the first-mentioned capitalist, or notwithstanding it might in fact be much less. Perhaps the best plan might appear to be, to apply the term wages to the remuneration of mere labour, the term interest to the remuneration of mere abstinence, and the term profit to the combination of wages and interest, to the remuneration of abstinence and labour combined. This would make it necessary to subdivide capitalists into two classes, the inactive and the active: the first receiving mere interest, the second obtaining profit.
In this, however, as in many other cases, the inconveniences occasioned by a departure from an established nomenclature and an established classification are so great, that we do not think that they will be compensated by the nearer approach to precision. We shall continue, therefore, to include under the term profit the whole revenue that is obtained from the possession or employment of capital, after deducting those accidental advantages which we have termed rent, and also deducting a sufficient sum to pay to the capitalist, if actively employed, the wages which would purchase an equal amount of labour from a person unpossessed of capital. In one respect, however, we are forced to differ from Adam Smith. Although he considers the useful acquired knowledge and abilities of all the inhabitants of a Country as part of the national fortune, as a capital fixed and realized in the persons of their possessors, yet he generally terms the revenue derived from this capital wages. “The average and ordinary rates of profit in the different employments of stock are,” he observes, “more nearly on a level than the wages of the different sorts of labour. The difference between the earnings of a common labourer and those of a well-employed lawyer or physician, is evidently much greater than that between the ordinary profits in any two different branches of trade.” Book i. ch. x.
According to our nomenclature (and indeed according to that of Smith, if the produce of capital is to be termed profit) a very small portion of the earnings of the lawyer or of the physician can be called wages. Forty pounds a-year would probably pay all the labour that either of them undergoes, in order to make, we will say, ?4000 a-year. Of the remaining ?3960, probably ?3000 may in each case be considered as rent, as the result of extraordinary talent or good fortune. The rest is profit on their respective capitals; capitals partly consisting of knowledge, and of moral and intellectual habits acquired by much previous expense and labour, and partly of connection and reputation acquired during years of probation while their fees were inadequate to their support.
Under this view of the case, the revenue which consists of profit will in the progress of improvement bear a constantly increasing proportion to that which consists of wages. There appears no reason to doubt that, as civilization advances, every person will receive an education which will materially increase his power of production. Brutes and machinery can effect almost every thing that is to be effected by mere bodily exertion. Whatever requires mind, will be done better in proportion as the mind has received earlier or more judicious cultivation. We have heard it made a subject of complaint, that the uneducated Irish have dispossessed the English of the lowest employments in London and its neighbourhood. We rather rejoice that the English are sufficiently educated to be fit for better things. If they had remained as ignorant as their rivals, many who are now earning 40s. a-week as mechanics, might have been breaking stones and carrying hods at 2s. a-day. Even in our present state of civilization, which, high as it appears by comparison, is far short of what may easily be conceived, or even of what may confidently be expected, the intellectual and moral capital of Great Britain far exceeds all her material capital, not only in importance, but even in productiveness. The families that receive mere wages probably do not form a fourth of the community; and the comparatively large amount of the wages even of these is principally owing to the capital and skill with which their efforts are assisted and directed by the more educated members of the society. Those who receive mere rent, even using that word in its largest sense, are still fewer: and the amount of rent, like that of wages, principally depends on the knowledge by which the gifts of nature are directed and employed. The bulk of the national revenue is profit; and of that profit the portion which is mere interest on material capital probably does not amount to one-third. The rest is the result of personal capital, or, in other words, of education.
It is not on the accidents of soil or climate, or on the existing accumulation of the material instruments of production, but on the quantity and the diffusion of this immaterial capital, that the wealth of a Country depends. The climate, the soil, and the situation of Ireland have been described as superior, and certainly are not much inferior, to our own. Her poverty has been attributed to the want of material capital; but were Ireland now to exchange her native population for seven millions of our English North Countrymen, they would quickly create the capital that is wanted. And were England, North of Trent, to be peopled exclusively by a million of families from the West of Ireland, Lancashire and Yorkshire would still more rapidly resemble Connaught. Ireland is physically poor because she is morally and intellectually poor, because she is morally and intellectually uneducated. And while she continues uneducated, while the ignorance and violence of her population render persons and property insecure, and prevent the accumulation and prohibit the introduction of capital, legislative measures, intended solely and directly to relieve her poverty, may not indeed be ineffectual, for they may aggravate the disease, the symptoms of which they are meant to palliate, but undoubtedly will be productive of no permanent benefit. Knowledge has been called power; it is far more certainly wealth. Asia Minor, Syria, Egypt, and the Northern coast of Africa, were once among the richest, and are now among the most miserable countries in the world, simply because they have fallen into the hands of a people without a sufficiency of the immaterial sources of wealth to keep up the material ones. “In what way,” asks Adam Smith, “has Europe contributed to the grandeur of the colonies of America? In one way, and in one way only, she has contributed a great deal. Magna virum mater. She bred and formed the men who were capable of achieving such great actions, and for laying the foundation of so great an empire; and there is no other quarter of the world of which the policy is capable of forming, or has ever actually and in fact formed such men. The colonies owe to Europe the education and great views of their active and interprising founders, and some of the greatest and most important of them owe to her scarce any thing else.”
Causes on which the Proportionate Amount of Rent depends.
We have already defined Rent to be the revenue spontaneously offered by nature or accident, or, in other words, to be the price paid for the assistance of an appropriated natural agent. It might with equal propriety be defined the surplus produce arising from the use of an appropriated natural agent, or the amount by which the price of the produce of an appropriated natural agent exceeds the costs of its production.
The nature and the progress of the Rent of Land have usually been illustrated by supposing lands of different fertility to be successively taken into cultivation. Thus the land No. 1 is supposed to afford, in return for the application of a given amount of labour and capital, one hundred quarters; No. 2, ninety quarters; No. 3, eighty quarters; No. 4, seventy quarters; No. 5, sixty quarters; and so on. While any portion of the most fertile lands is unappropriated, No. 1 only is cultivated, and no rent is paid. Before it has become necessary to cultivate No. 2, No. 1 must have become an appropriated agent, affording a larger return than can be obtained without its assistance. Its owner, or, as he is termed, the landlord, obtains, therefore, the value of that assistance, being ten quarters, or the difference between one hundred quarters and ninety quarters; and receives it himself, in kind, if he himself is the cultivator, or is paid for it the remuneration termed “rent,” if he allows another person to be the cultivator. Before it has become necessary to cultivate No. 3, the rent of No. 1 must have risen from ten quarters to twenty, and No. 2, from giving no rent, must have given a rent of ten quarters; and so on until the point is reached at which the labour and capital employed will produce a return only sufficient to give a bare subsistence to the labourer and average profits to the capitalist: the highest extreme to which cultivation can be intentionally pushed, and one indeed beyond which it is seldom carried.
It is obvious, therefore, that the amount of rent depends on two causes: 1. the positive productiveness of the natural agent by which it is afforded; 2. the comparative productiveness of that agent, or the degree in which it exceeds those agents which are universally accessible. If the supply of natural agents were unlimited, or if their power of affording assistance were to cease, in either case rent would be at an end. Rent is the value of their assistance, and that value, like all others, depends partly on their utility, and partly on their limitation of supply. Much error has arisen from attending to only one of these causes.
The French Economists23 perceived that the produce of fertile land, the most important of all appropriated natural agents, sells for a price exceeding the expense of its cultivation. This excess of price, or produit net, as they termed it, they conceived to be the only source of wealth. All other commodities appeared to them merely to represent the toil employed in their acquisition. They believed, therefore, a community to be rich in proportion to the amount of rent received by the proprietors of its land; and consequently that production enriches only so far as it is subservient to the creation of rent.
It is impossible that they could have maintained this doctrine, if they had perceived that abundance is an element in wealth, and that high rents and the greatest abundance are incompatible; or if they had recollected that, according to their views, a community possessing the highest skill and exerting the utmost diligence, but scattered over a territory of unbounded extent and fertility, as they might be even unacquainted with the existence of such a thing as rent, must be totally without riches, must be poor from the mere prodigality of their resources.
In the following passage Mr. Ricardo seems to have fallen into an opposite error:—
“Nothing is more common than to hear of the advantages which the land possesses over every other source of useful produce, on account of the surplus which it yields in the form of rent. Yet when land is most abundant, when most productive, and most fertile, it yields no rent; and it is only when its powers decay, and less is yielded in return for labour, that a share of the original produce of the more fertile portions is set apart for rent. It is singular that this quality in the land, which should have been noticed as an imperfection, compared with the natural agents by which manufactures are assisted, should have been pointed out as constituting its peculiar pre-eminence. If air, water, the elasticity of steam, and the pressure of the atmosphere, were of various qualities, if they could have been appropriated, and each quality existed only in moderate abundance, they, as well as the land, would afford a rent, as the successive qualities were brought into use. With every worse quality employed, the value of the commodities in the manufacture of which they were used would rise, because equal quantities of labour would be less productive. Man would do more with the sweat of his brow, and nature would perform less; and the land would be no longer pre-eminent for its limited powers.
“If the surplus produce which the land affords in the form of rent be an advantage, it is desirable that every year the machinery newly constructed should be less efficient than the old, as that would undoubtedly give a greater exchangeable value to the goods manufactured, not only by that machinery, but by all other machinery in the Kingdom; and a rent would be paid to all those who possessed the most productive machinery.
“The labour of nature is paid not because she does much, but because she does little. In proportion as she becomes niggardly in her gifts, she exacts a greater price for her work. Where she is munificently beneficent she always works gratis.” Principles, p. 63.
Mr. Ricardo seems to have forgotten that the quality which enables land to afford rent, namely, the power of producing the subsistence of more persons than are required for its cultivation, is an advantage without which rent could not have existed. As the population of any given district becomes more dense, the surplus produce of its soil, or, in other words, the amount of its produce which remains after provision has been made for the subsistence of those by whom it is cultivated, has a constant tendency to increase; either because the increase of agricultural skill and capital increases its positive fertility, or because a diminution of its relative fertility, a diminution of its produce relatively to the numbers of its cultivators, forces the poorer classes to be satisfied with a less amount of raw produce; or from both these causes combined. Of these two causes of rent, one is a benefit, the other an evil. That we have in this Country perhaps a million of acres capable of producing, with average labour, forty bushels of corn an acre, is a benefit; that we have not more than a million such acres is an evil. That the average amount of what an agricultural labourer produces much exceeds what is absolutely necessary for the subsistence of an agricultural family is a benefit. That the extent of our fertile land, and the amount of our capital, in proportion to our population, are not sufficient to enable him to consume, directly or indirectly, for his own advantage and that of his family, all that he produces, is an evil. To produce rent, both the benefit and the evil must coexist. The one occasions rent to be demanded; but it is the other which enables it to be paid.
Mr. Ricardo’s attention seems to have been confined to the evil. But rent might be enormously increased without the increase of that evil, or even though that evil should be diminished. If the proprietor of a single estate could by a wish triple its produce, he would augment, in a much greater ratio, its rent. Would this increase be owing to the parsimony of nature? It may be said that it would be owing to the comparative unproductiveness of the rest of the Country. It must be admitted that, if we could suddenly triple the productive powers of all the land in this Country, the population remaining the same, the whole amount of rent would fall, and the condition of all classes, except of that comparatively small class which subsists on the rent of land, would be much improved. But if our population were also tripled, rents would be prodigiously increased, the situation of the landlords would be improved and that of no other class deteriorated. In fact, the condition of all other classes would be improved, as the increased division of labour and ease of communication occasioned by a greater density of population would cheapen and improve our manufactures. If the population, instead of being tripled, were only doubled, the situation of the Country would be still better. The rise in rent, though not equal to what it would have been if the population had been tripled, would still be very great, and both raw produce and manufactures would be more abundant than they were previously. Now this is, in fact, what has occurred in England during the last hundred and thirty years. Since the beginning of the 18th century the population of England has about doubled. The produce of the land has certainly tripled, probably quadrupled. Rent has risen in a still greater proportion; but that rise has been accompanied by a rise of wages, estimated in every commodity consumed by the labourers, excepting a few, such as spirituous and fermented liquors, which have been made the subject of special taxation. With the same labour the labourer can obtain more corn, and perhaps five times as much of the most useful manufactures. Can it be fairly said that rents have risen because nature has done little? that the price paid for her assistance has been increased because she has become more niggardly in her gifts? It is true that, if the productiveness of the land, instead of being tripled, had been centupled, rents might not have risen; but it is equally true that they would not have risen, if instead of being tripled, it had remained stationary. The condition essential to the payment of the labour of nature is not, as Mr. Ricardo states it, that her assistance shall be little, but that it shall not be infinite.
As rent arises from the agency not of man, but of nature, its amount does not depend on the will or the exertions of its recipient. The owner of the land, or of the natural agent, whatever it be, for the use of which persons are willing to pay rent, receives the sum which their mutual competition forces them to give. As it is all pure gain, he accepts the largest sum that is offered, however trifling its amount. Nor, on the other hand, does the amount of rent depend on the will or the exertions of those who pay it. Whatever be the value of the services of an appropriated natural agent, that value must be paid by the person who wishes to use them, as both parties to the bargain are aware, that if it is not hired by one applicant it will be by another. The amount, therefore, is subject to no general rule; it has neither a minimum nor a maximum. It depends on the degree in which nature has endowed certain instruments with peculiar productive powers, and the number of those instruments compared with the number and wealth of the persons able and willing to hire them. There is, probably, now land near New York selling for ?1000 an acre, which a century ago could have been obtained for a dollar.
Proportionate Amounts of Profit and Wages.
Profits and Wages differ in almost all respects from Rent. They are each subject to a minimum and a maximum. They are subject to a minimum, because each of them is the result of a sacrifice. It may be difficult to say what is the minimum with respect to profit, but it is clear that every capitalist, as a motive to abstain from the immediate and unproductive enjoyment of his capital, must require some remuneration exceeding the lowest that is conceivable. The minimum at which wages can be permanently fixed is of course the sum necessary to enable the existing labouring population to subsist. On the other hand, as the rate of wages depends in a great measure on the number of labourers, and the rate of profit on the amount of capital, both high wages and high profits have a tendency to produce their own diminution. High wages, by stimulating an increase of population, and therefore an increase of the number of labourers, and high profits, by occasioning an increase of capital. It will be seen in a future portion of this Treatise that, if the amount of capital employed in the payment of wages increases, the number of labourers remaining the same, profits will fall; and that if the number of labourers increases, the amount of capital and the productiveness of labour remaining the same, wages will fall; and that, if they both increase in equal proportions, both will have a tendency to fall, in consequence of the larger proportion which they will each bear to the power of the natural agents whose services they each require. And although it may not be easy to fix the maximum of either wages or profits, yet it may be laid down generally, that in no Country have profits continued for any considerable period at the average rate of fifty per cent. per annum, or wages at such a rate as to afford the labourer ten times the amount necessary for the subsistence of a family.
Adam Smith has laid down, that “the whole of the advantages and disadvantages of the different employments of labour and capital must, in the same neighbourhood, be either perfectly equal, or continually tending to equality. If in the same neighbourhood there was any employment evidently either more or less advantageous than the rest, so many people would crowd into it in the one case, and so many would desert it in the other, that its advantages would soon return to the level of other employments. This at least would be the case in a society where things were left to take their natural course, where there was perfect liberty, and every man was perfectly free both to choose what occupation he thought proper, and to change it as often as he thought proper. Every man’s interest would prompt him to seek the advantageous and to shun the disadvantageous employment.” Wealth of Nations, Book i. ch. x.
The truth of these remarks of Adam Smith is obvious. It is obvious also that, in the absence of disturbing causes, the desire of obtaining a more advantageous field for the employment of his mental and bodily faculties, which leads a man to move from one part of the same neighbourhood to another, would lead him from village to village and from country to country. For commercial purposes, the whole civilized world is one extended neighbourhood; and the same causes which tend to equalize profits in Liverpool and London, tend to equalize them in London and Calcutta. But when we look into the details, we are struck by the difference in the remuneration of persons apparently undergoing equal toils, and exercising equal abstinence. We find a general exempt from more than half the hardships of a private, and receiving more than a hundred times his pay. We find barristers making ?10,000 or ?15,000 a-year, while a copying clerk is paid for labour as assiduous and more irksome by only ?100. We find the purchaser of an Exchequer-bill willing to pay a large premium for the privilege of advancing capital at a profit of three per cent. per annum, while a shopkeeper thinks himself ill paid by less than twenty per cent. We find a London banker satisfied with a profit of seven per cent., while his partner in Calcutta requires fifteen.
Circumstances which decide what, at a given time and in a given place, shall be the average rate of Wages, and the average rate of Profit.—These differences are partly real and partly apparent. So far as they are real, they are occasioned partly by the influence of the different instruments of production, or, in other words, the different sources of revenue, on one another; the influence for instance, of the rate of profits on the amount of wages, and of the amount of wages on the rate of profits; partly by the greater or less severity of the sacrifices which the labourer and the capitalist must make in addition to the undergoing mere toil or abstinence; and partly by the difficulty with which capital and labour are transferred from one employment to another. A difficulty caused partly by physical obstacles and partly by human habits and institutions. The influence of these causes on the average rates of wages and of profits in the same Country, in different employments of labour and capital, we shall consider hereafter; and having assumed for the purposes of the following discussion that a certain average rate of wages and a certain average rate of profit exists, we shall now endeavour to explain the causes by which these average rates are determined, or, in other words, to explain the circumstances which decide what, at a given time and in a given place, shall be the average rate of wages and the average rate of profit. We have already stated, as one of the principal sources of difficulty in Political Economy, the mutual dependence of its different propositions. A dependence which, as it respects the theory of wages and profits, is so great that it is impossible to give a complete view of the causes which affect the one, without adverting to all those which affect the other. We will endeavour to keep them as distinct as we can, and we shall begin by wages, as that subject is capable of being separately considered to the greatest extent.
Meanings of the words High and Low, as applied to Wages.—We have already defined Wages to be the remuneration received by the labourer in recompense for having exerted his faculties of mind and body. They are said to be high or low, in proportion to the extent of that remuneration. That extent has been estimated by three different measures; and the words high and low wages have, consequently, been used in three different senses.
First. Wages have been termed high or low, according to the amount of money earned by the labourer within a given period, without any reference to the commodities which that money would purchase; as when we say that wages have risen in England since the reign of Henry VII., because the labourer now receives 1s. 6d, or 2s. a-day, and then received only 4½d.
Secondly. They have been termed high or low, according to the quantity and quality of the commodities obtained by the labourer, without any reference to his receipts in money; as when we say that wages have fallen in England since the reign of Henry VII., because the labourer then earned two pecks of wheat a-day, and now earns only one.
Thirdly. They have been termed high or low, according to the share or proportion which the labourer receives of the produce of his own labour, without any reference to the total amount of that produce.
The first nomenclature, that which measures wages simply by their amount in money, is the popular one. The second, that which considers wages simply with reference to the quantity and quality of the commodities received by the labourer, or, to speak more correctly, purchasable with his money wages, was that generally adopted by Adam Smith. The third, that which considers wages as high or low, simply with reference to the labourer’s share or proportion of what he produces, was introduced by Mr. Ricardo, and has been continued by many of his followers.
This last use of the words high and low wages has always appeared to us one of the most unfortunate of Mr. Ricardo’s many innovations in the language of Political Economy. In the first place, it has a tendency to withdraw our attention, even when we are considering the subject of wages, from the facts which most influence the labourer’s condition. To ascertain whether his wages are high or low, we are desired to inquire, not whether he is ill or well paid,—not whether he is well or ill fed, or clothed, or lodged, or warmed, but simply what proportion of what he produces comes to his share. During the last four or five years many a hand-weaver has received only 8s. 3d. for producing, by a fortnight’s exertion, a web that the capitalist has sold for 8s. 4d. A coal merchant often pays his men ?2 a-week, and charges his employers for their services ?2 10s. But, according to Mr. Ricardo’s nomenclature, the wages of the weaver, at 4s. 1½d. a-week, are much higher than those of the coal-heaver at ?2, since the weaver receives 99 per cent. of the value of his labour, while the coal-heaver has only 80 per cent.
And, even if the nomenclature in question were free from this objection, even if the point on which it endeavours to fix the attention were the most important, instead of being the least important, incident to wages, it still would be inconvenient, from its tendency to render the writer who employs it both inconsistent and obscure. It is almost impossible to affix to terms of familiar use a perfectly new meaning, and not from time to time to slide into the old one. When Mr. Ricardo says that “nothing can affect profits but a rise of wages,” p. 118; that “whatever raises the wages of labour lowers the profits of stock,” p. 231; that “high wages invariably affect the employers of labour by depriving them of a portion of their real profits,” p. 129; that, “as the wages of labour fall the profits of stock rise,” p. 499; he means by high wages, not a large amount, but a large proportion. But when he speaks of the “encouragement which high wages give to the increase of population,” pp. 88–361, he means by high wages a large amount. And many of his followers and opponents have supposed the words high and low to be used by him as indicative of quantity, not proportion. The consequence has been that, since the publication of his great Work, an opinion has prevailed that high wages and high profits are incompatible, and that whatever is taken from the one is added to the other. The slightest attempt to try this theory by an actual example will show its absurdity. The usual supposition is, that the capitalist, at an average, advances the wages of his labourers for one year, and receives, after deducting rent, one-tenth of the value of what they produce. We are inclined to think that in England the average rate of profit is rather greater, and the average period of advance rather less. After making many inquiries on these subjects in Manchester, we found the general opinion to be, that the manufacturing capitalist turns his capital, at an average, twice in the year, and receives on each operation a profit of 5 per cent.; and that the shopkeeper, at an average, turns his capital four times in a year, and receives on each operation a profit of about 3½ per cent. On these data the labourer’s share would, of course, be much greater than according to the ordinary estimate. We will suppose, however, that estimate to be correct, and that, after rent has been deducted, the labourer receives, on an average, nine-tenths of the value of what he produces. Under these circumstances a rise in the amount of wages amounting to one-tenth, or from 10s. to 11s. a-week, if that rise is to be deducted from the capitalist’s share, would utterly destroy all profit whatever. A rise of one-fifth, or from 10s. to 12s. a-week, would occasion to the capitalist a loss equal to the whole amount of his former profit. A fall in wages of one-tenth would double profits; a fall of one-fifth would treble them. Now we know that general variations in the amount of wages to the amount of one-tenth or one-fifth, or to a greater extent, are not of unfrequent occurrence. Yet who ever heard of their producing such an effect on profits?
And yet this doctrine has received the sanction both of theoretic and practical men. Mr. Francis Place is asked by the Committee on Artisans and Machinery, (First Report p. 46,24 ) “Do not the masters in consequence of a rise of wages raise their prices?”—“No,” he answers; “I believe there is no principle of Political Economy better established than this of wages; increase of wages must come from profits.”
Did Mr. Place ever apply this doctrine when his men asked for higher wages on a general mourning? Even the Committee appear to have taken this view of the question. The subject is so important, that we will venture to extract the following passage from the Report made in the following Session:—
“Those eminent persons who, during the last fifty years, have reduced the rules that govern the operations of trade and industry to a Science, undertake to show, by arguments and facts, that the effect of low wages is not a low price of the commodity to which they are applied, but the raising of the average rate of profits in the Country in which they exist. The explanation of this proposition occupies a large portion of the justly celebrated work of the late Mr. Ricardo, on the Principles of Political Economy; and is also ably set forth in the following evidence of Mr. M’Culloch, to which your Committee particularly desire to draw the attention of the House:—
“‘Have you turned your attention to the effect of fluctuations in the rate of wages on the price of commodities?’—‘I have.’
“‘Do you consider that when wages rise the price of commodities will proportionally increase?’—‘I do not think that a real rise of wages has any effect whatever, or but a very imperceptible one on the price of commodities.’
“‘Then, supposing wages to be really lower in France than in this Country, do you think that that circumstance would give the French any advantage over us in the foreign market’—‘No, I do not; I do not think it would give them any advantage whatever. I think it would occasion a different distribution of the produce of industry in France from what would obtain in England, but that would be all. In France the labourers would get a less proportion of the produce of industry, and the capitalists a larger proportion.’
“‘Could not the French manufacturer, if he gets his labour for less than the English manufacturer, afford to sell his goods for less?’ ‘As the value of goods is made up wholly of labour and profit, the whole and only effect of a French manufacturer getting his labour for less than an English manufacturer is to enable him to make more profit than the English manufacturer can make, but not to lower the price of his goods. The low rate of wages in France goes to establish a high rate of profits in all branches of industry in France.’
“‘What conclusion do you come to in making a comparison between wages in England and wages in France?’—‘I come to this conclusion, that, if it be true that wages are really higher in England than in France, the only effect of that would be to lower the profits of capital in England below their level in France, but that will have no effect whatever on the price of the commodities produced in either Country.’
“‘When you say that wages do not affect prices, what is it that does affect prices?’—‘An increase or diminution of the quantity of labour necessary to the production of the commodity.’
“‘supposing that there was a free export of machinery, so that France could get that machinery, do you think that under those circumstances we should retain those advantages which we possess at the present moment?’—‘Yes, we should; for the export of the machinery would not lower our wages, or increase the wages in France, so that we should preserve that advantage to the full extent that we have it at this moment.’
“‘Will you explain to the Committee why you are of opinion that the French manufacturer would not undersell the English, seeing that his profits are larger than the English manufacturer?’—‘Because if he were to offer to undersell the English, he can only do it by consenting to accept a less rate of profit on his capital than the other French capitalists are making on theirs, and I cannot suppose a man of common sense would act upon such a principle.’
“‘Are the Committee to understand, that although a French manufacturer pays half the wages to his men in France which our manufacturers do in England, yet that his wages being on a par, or a level, in general, with the other wages in France, will render his profits on a par with them, and consequently he would not undersell the English merchant by lowering his profits below the average rate of profits in France?’—‘Precisely so. I believe, in point of fact, there is no such difference; but he could not undersell the English manufacturer unless he took lower profits than all other producers in France were making. I might illustrate this by what takes place every day in England, where you never find the proprietor of rich land, in order to get rid of his produce, offering it in Mark Lane at a lower rate than that which is got by a farmer or proprietor of the very worst land in the Kingdom.’
“‘Would it not produce a larger sale if the French manufacturer were to sell at a less price?’—’supposing that to be so, the greater the sale the greater would be the loss of profit.’”25
We have extracted this passage as indicating the views of the Committee, not those of Mr. M’Culloch. Mr. M’Culloch, as will appear on turning to his evidence, meant by wages really high and really low, not a larger or a smaller amount, but a larger or a smaller proportion. But the Committee appear to have understood him to mean a larger or a smaller amount.
Mr. Bradbury had previously stated the common day wages in France to be about half the wages paid in England.
He was asked, “In what way do you consider that lower wages in France give the French manufacturers an advantage over English manufacturers?”—“I conceive that if they pay 3d. a pound for spinning to the operative spinner, and we pay 6d., that would give them an advantage of 3d. a pound in the cost.”
“You mean to say that the French would be able to sell the article they make, in consequence of paying lower wages, cheaper than the English could sell it?”—“They could afford it 3d. a pound cheaper.”
“You mean to say that, according to the rate of wages paid, the price of the article for which they are paid is high or low?”—“It may be afforded higher or lower, I should imagine, as the cost be more or less.”
“Therefore the whole reason and ground on which you think that low wages give them an advantage is, that low wages contribute to enable them to sell the article cheaper than if they paid higher wages?”—“Yes, labour constituting a material feature in the cost.”
“You conceive that increased cost would be a loss to the party, if the price was not increased in proportion?”—“I should imagine so.”
“Might not the profits of the proprietor be lessened?”—“They might be lessened, which is in effect a loss.”
“Might not that enable him to bear the loss which the difference of wages produces?”26 —“If he chose to make that sacrifice.”
“Might not the profits be lessened until there were no profits at all?”27 —“Very easily, I should think.”—(Fifth Report of the Select Committee on Artisans and Machinery, pp. 547, 549, 550.)
It was with reference to this evidence that Mr. M’Culloch was examined. His examination commences thus:—
“Have you read the evidence which has been given before this Committee?”—“I have read portions of it only.”
“Have you read the evidence given by Mr. Bradbury?”—“A part of it.”
“That part in which he conceives that foreigners have an advantage over the English manufacturers in consequence of wages being lower in France?”—“Yes, I have read that.”
And then follows the question:—
“Have you turned your attention to the effect of fluctuations in the rate of wages on the price of commodities?”
Now if the Committee understood Mr. M’Culloch to mean, by high or low wages, not a great or small amount, but a great or small proportion, his evidence and that of Mr. Bradbury had nothing in common.
The whole of the confusion has been occasioned by the verbal ambiguity which we have pointed out, and would not have arisen if Mr. Ricardo had used any other adjectives than high and low to express a larger or smaller proportion.
The two other meanings of the words high and low wages, that which refers to the money, and that which refers to the commodities, received by the labourer, are both equally convenient, if we consider the rate of wages at the same time and place; for then they both mean the same thing. At the same time and place the labourer who receives the highest wages necessarily obtains the most commodities. But when we refer to different places, or different times, the words high or low wages direct the attention to very different subjects, as we understand them to mean more or less in money, or more or less in commodities. The differences which have taken place in the amount of money wages at different times inform us of scarcely any thing but the abundance or scarcity of the precious metals at those times: facts which are seldom of much importance. The differences in the amount of money wages in different places at the same time are of much more importance, since they indicate the different values of the labour of different Countries in the general market of the world. But even these differences afford no premises from which the positive condition of the labouring classes, in any Country, can be inferred, and but imperfect grounds for estimating their relative condition. The only data which enable us to ascertain the actual situation of the labourers at any given time and place, or their comparative situation at different times and places, are the quantity and quality of the commodities which form their wages, if paid in kind, or are purchasable with their wages, if paid in money. And as the actual or comparative situation of the labourer is the principal object of the following inquiry, we shall use the word wages to express, not the money, but the commodities, which the labourer receives; and we shall consider wages to rise as the quantity or quality of those commodities is increased or improved, and to fall as that quantity or quality is diminished or deteriorated.
It is obvious, too, that the labourer’s situation does not depend on the amount which he receives at any one time, but on his average receipts during a given period—during a week, a month, or a year; and that the longer the period taken, the more accurate will be the estimate. Weekly wages have, of course, more tendency to equality than daily ones, and annual than monthly; and, if we could ascertain the amount earned by a man during five, or ten, or twenty years, we should know his situation better than if we confined our attention to a single year. There is, however, so much difficulty in ascertaining the amount of wages during very long periods, that a single year will probably be the best that we can take. It comprehends what, in most climates, are very different—summer and winter wages; it comprehends also the period during which the most important vegetable productions come to maturity in temperate climates, and on that account has generally been adopted by Political Economists as the average period for which capital is supposed to be advanced.
We should observe that we include, as part of the wages of the married labourer, those of his wife and unemancipated children. To omit them would lead to inaccurate estimates of the comparative situation of the labourers in different Countries, or in different occupations. In those employments which are carried on under shelter, and with the assistance of that machinery which affords power, and requires human aid only for its direction, the industry of a woman, or a child, approaches in efficiency that of a full-grown man. A girl of fourteen can manage a power-loom nearly as well as her father; but where strength, or exposure to the seasons, is required, little can be done by the wife, or the girls, or even by the boys, until they approach the age at which they usually quit their father’s house. The earnings of the wife and children of many a Manchester weaver or spinner exceed, or equal, those of himself. Those of the wife and children of an agricultural labourer, or of a carpenter, or a coalheaver, are generally unimportant—while the husbands, in each case, receive 15s. a-week, the weekly income of the one family may be 40s., and that of the other only 17s. or 18s.
It must be admitted, however, that the workman does not retain the whole of this apparent pecuniary advantage. The wife is taken from her household labours, and a part of the increased wages is employed in purchasing what might, otherwise, be produced at home. The evils to the children are still greater. The infants suffer from the want of maternal attention, and those who are older from fatigue and confinement, from the want of childish relaxation and amusement, and, what is far more important, from the deficiency of religious, moral, and intellectual education. The establishment of infant and Sunday schools, and laws regulating the number of hours during which children may labour, are palliatives of these evils, but they must exist, to a certain degree, whenever the labour of the wife and children is the subject of sale; and though not, all of them, perhaps, strictly within the province of Political Economy, must never be omitted in any estimate of the causes affecting the welfare of the labouring classes.
Difference between the Amount of Wages and the Price of Labour.—The last preliminary point to which we have to call the reader’s attention is, the difference between the Amount of Wages and the Price of Labour, or, in other words, between the earnings of a labourer during a given time, and the price paid for the performance of a given quantity of work.
If men were the only labourers, and if every man worked equally hard, and for the same number of hours, during the year, these two expressions would be synonymous. If each man, for instance, worked three hundred days during each year, and ten hours during each day, one three-thousandth part of each man’s yearly wages would be the price of an hour’s labour. But neither of these propositions is true. The yearly wages of a family often include, as we have seen, the results of the labour of the wife and children. And few things are less uniform than the number of working days during the year, or of working hours during the day, or the degree of exertion undergone during these hours.
The established annual holidays in Protestant Countries are between fifty and sixty. In many Catholic Countries they exceed one hundred. Among the Hindoos they are said to occupy nearly half the year. But these holidays are confined to a certain portion of the population; the labour of a sailor, or a soldier, or a menial servant, admits of scarcely any distinction of days.
Again, in Northern and Southern latitudes, the hours of out-door labour are limited by the duration of light; and in all climates by the weather. When the labourer works under shelter, the daily hours of labour may be uniform throughout the year. And, independently of natural causes, the daily hours of labour vary in different Countries, and in different employments in the same Country. The daily hours of labour are, perhaps, longer in France than in England, and certainly are longer in England than in Hindostan. In Manchester the manufacturer generally works twelve hours a-day; in Birmingham, ten: a London shopman is seldom employed more than eight or nine.
There is still more discrepancy between the exertions made by different labourers in a given period. They are often, indeed, unsusceptible of comparison. There is no common measure of the toils undergone by a miner and a tailor, or of those of a shopman and an iron-founder. And labour which is the same in kind may vary indefinitely both in intensity and in productiveness. Many of the witnesses examined by the Committee on Artisans and Machinery (Session of 1824,) were English manufacturers, who had worked in France. They agree as to the comparative indolence and inefficiency of the French labourer, even during his hours of employment. One of the witnesses, Adam Young, had been two years in one of the best manufactories in Alsace. He is asked, “Did you find the spinners there as industrious as the spinners in England?” and replies, “No; a spinner in England will do twice as much as a Frenchman. They get up at four in the morning, and work till ten at night; but our spinners will do as much in six hours as they will in ten.”
“Had you any Frenchmen employed under you?”—“Yes; eight at two francs a day.”
“What had you a day?”—“Twelve francs.”
“Supposing you had had eight English carders under you, how much more work could you have done?”—“With one Englishman I could have done more than I did with those eight Frenchmen. It cannot be called work they do: it is only looking at it, and wishing it done.”
“Do the French make their yarn at a greater expense?”—“Yes; though they have their hands for much less wages than in England.”—Pp. 580, 582.
The following evidence of Edwin Rose, given on the Factory Inquiry of 1833, relates to a rather later period, and is valuable from the extensive experience of the witness.
“Are wages lower in France, as far as you have seen, than in England?”—“If I have a shop of men in England for any thing, then I have to see how much I have to pay them for the work they turn out of any kind; but if I have the same shop in France, then I must have twice the number of hands to do the same amount of work. It is true I pay them less a-piece there; but I have seen that you must have twice as large a building to contain the hands, twice as many clerks and book-keepers, and overlookers to look after them, and twice as many tools to do the same quantity of work as is done here in England; and the master there must have twice as much interest of money on all this; and their minds seem to me to get more bewildered with stress of work there than here. It seems to me that you have double the number of people there to do the same amount of work, whatever it be; but their wages are lower in money.”
“But do you consider their wages higher in reality?”—“I really do; they are better paid in proportion to the work they turn out than what the English are.”
“What do you think of French workmen, as workmen?”—“I don’t think they have that perseverance that English have. I often have noticed them trying a thing, and then, if it don’t answer at first, they seem terrified, and shrug up their shoulders, and throw it aside; but an English workman keeps trying and trying, and won’t give up near so soon as the Frenchman. A house-joiner or carpenter’s wages are from thirty-five to forty sous a day. His work compared with English work is very rough, and but little of it in comparison. A stonemason’s wages are from three francs to four francs. They are inferior to our masons in laying foundations. Then, as to time of work, I think two English masons in the same time do more work on an average than three of theirs.”
“In short, do you know any single species of labour that stands a master cheaper in France than in England, quality and quantity of work being considered?”—“I don’t know any, unless it be tailors’ and shoemakers’ wages; and I am not sure about them. Clothes are dearer in France than in England; but shoes are cheaper, the duty being off leather.”—First Report of the Factory Commission, D. i. p. 121.
Even in the same Country, and in the same employments, similar inequalities are constantly observed. Every one is aware that much more exertion is undergone by the labourer by task-work than by the day-labourer; by the independent day-labourer than by the pauper; and even by the pauper than by the convict.
It is obvious that the rate of wages is less likely to be uniform than the price of labour, as the amount of wages will be affected, in the first place, by any variations in the price, and in the second place, by any variations in the amount, of the labour exerted.
In England, the average annual wages of labour are three times as high as they are in Ireland; but as the labourer in Ireland is said not to do more than one-third of what is done by the labourer in England, the price of labour may, in both Countries, be about equal. In England, the labourer by task-work earns much more than the day-labourer; but, as it is certainly as profitable to employ him, the price of his labour cannot be higher. It may be supposed, indeed, that the price of labour is every where, and at all times, the same; and, if there were no disturbing causes,—if all persons knew perfectly well their own interest, and strictly followed it, and there were no difficulties in moving capital and labour from place to place, and from employment to employment,—the price of labour, at the same time, would be every where the same. But these difficulties occasion the price of labour to vary materially, even at the same time and place; and variations both in the amount of wages and in the price of labour, at different times and in different places, are occasioned not only by these causes, but by others which will be considered in a subsequent part of this Treatise.
These variations affect very differently the labourer and his employer. The employer is interested in keeping down the price of labour; but while that price remains the same, while at a given expense he gets a given amount of work done, his situation remains unaltered. If a farmer can get a field trenched for ?12, it is indifferent to him whether he pays the whole of that sum to three capital workmen, or to four ordinary ones. The three would receive higher wages than the four, but, as they would do proportionably more work, their labour would come just as cheap. If the three could be hired at ?3 10s. a-piece, while the four required ?3 a-piece, though the wages of the three would be higher, the price of the work done by them would be lower.
It is true that the causes which raise the amount of the labourer’s wages often raise the rate of the capitalist’s profits. If, by increased industry, one man performs the work of two, both the amount of wages and the rate of profits will generally be raised. But the rate of profit will be raised, not by the rise of wages, but in consequence of the additional supply of labour having diminished its price, or having diminished the period for which it had previously been necessary to advance that price, or having rendered, as in the instances mentioned by Edwin Rose, the labour previously employed more productive.
The labourer, on the other hand, is principally interested in the amount of wages. The amount of his wages being fixed, it is certainly his interest that the price of his labour should be high, for on that depends the degree of exertion imposed on him. But, if the amount of his wages be low, he must be comparatively poor—if that amount be high he must be comparatively rich—whatever be his remuneration for each specific act of exertion. In the one case he will have leisure and want; in the other toil and abundance. We are far from thinking that the evils of severe and incessant labour, or the benefits of a certain degree of leisure, ought to be left out in any estimate of happiness. But, as we observed in the beginning of this Treatise, it is not with happiness, but with wealth, that we are concerned as Political Economists; we profess to state facts for the information and instruction of the student, not to lay down rules to guide the conduct of the legislator. In explaining the general laws according to which wealth is produced and distributed, we do not assume that all the means by which it can be augmented ought to be encouraged, or even to be permitted. We do not assume even that wealth is a benefit. In fact, however, wealth and happiness are very seldom opposed. Nature, when she imposed on man the necessity of labour, tempered his repugnance to it by making long-continued inactivity painful, and by strongly associating with exertion the idea of its reward. The poor and half employed Irish labourer, or the still poorer and less industrious savage, is as inferior in happiness as he is in income to the hard-worked English artisan. The Englishman’s industry may sometimes be excessive; his desire to better his condition may sometimes drive him on toils productive of disease ill recompensed by the increase of his wages; but that such is not generally the case may be proved by comparing the present duration of life in England with its former duration, or with its duration in other Countries. It is generally admitted that, during the last fifty years, a marked increase has taken place in the industry of our population, and that they are now the hardest-working labourers in the world. But during the whole of that period the average duration of their lives has been constantly increasing, and appears still to increase; and, notwithstanding the apparent unhealthiness of many of their occupations, notwithstanding the atmosphere of smoke and steam and, what appears to be still more injurious, of dust, in which many of them labour for sixty-nine hours a week, they enjoy, as a community, longer life than the lightly-toiled inhabitants of the most favoured soils and climates.
The average annual mortality in England and Wales is computed by Mr. Rickman at one in forty-nine. In the extensive inquiry instituted by the Poor-Law Commissioners in 1834 into the state of the labouring classes in America and the Continent of Europe, the only Countries in which the mortality appeared to be so small as in England, were Norway, in which it appeared to be one in fifty-four, and the Basses Pyrenees, in which it appeared to be one in fifty. In all the other Countries which gave returns it exceeded the English proportion sometimes by doubling it, and in the majority of instances by more than one-fourth.28
Having marked the distinction which really exists between the price of labour and the amount of wages, we shall for the future consider every labouring family as consisting of the same number of persons, and exerting the same degree of industry. On that supposition, the distinction between the price of labour and the amount of wages will be at an end; or rather, the only distinction will be, that the former expression designates the remuneration for each specific exertion; the latter, the aggregate of all those separate remunerations, as summed up at the end of each year. And the question to be answered will be, what are the causes which decide what in any given Country, and at any given period, shall be the quantity and quality of the commodities obtained by a labouring family during a year?
Proximate Cause deciding the Rate of Wages.
The proximate cause appears to be clear. The quantity and quality of the commodities obtained by each labouring family during a year must depend on the quantity and quality of the commodities directly or indirectly appropriated during the year to the use of the labouring population, compared with the number of labouring families, (including under that term all those who depend on their own labour for subsistence;) or, to speak more concisely, on the Extent of the Fund for the maintenance of Labourers, compared with the Number of Labourers to be maintained.
Discussion of Seven Opinions inconsistent with this Proposition.—This proposition is so nearly self-evident, that if Political Economy were a new Science we should assume it without further remark. But we must warn our readers that this proposition is inconsistent with opinions which are entitled to consideration, some from the number, and others from the authority, of those who maintain them.
First. It is inconsistent with the doctrine, that the Rate of Wages depends solely on the proportion which the number of Labourers bears to the amount of Capital in a Country. The word capital has been used in so many senses that it is difficult to state this doctrine precisely; but we know of no definition of that term which will not include many things that are not used by the labouring classes; and if our proposition be correct, no increase or diminution of these things can directly affect wages. If half the plate glass in the Country were to be destroyed to-morrow the capital of the Country would be diminished; but the only sufferers would be those who possess or wish to possess plate glass; among whom the labouring classes are not included. But if half the existing stock of coarse tobacco were destroyed, the immediate consequence would be a fall of wages; not as estimated in money, but as estimated in the commodities consumed by the labourer. Though receiving the same money wages, the labourer would have less tobacco, or, if he chose to continue undiminished his consumption of tobacco, then less of other things, than he had before. So if a foreign merchant were to come to settle in this Country, and bring with him a cargo of raw and manufactured silk, lace, and diamonds, that cargo would increase the capital of the Country; silk, lace, and diamonds would become more abundant, and the enjoyments of those who use them would be increased: the enjoyments of the labourers, supposing them not to be consumers of silk, lace, or diamonds, would not be directly increased: indirectly and consequentially, they might be increased. The silk might be re-exported in a manufactured state, and commodities for the use of labourers imported in return; and then, and not till then, wages would rise; but that rise would be occasioned, not by the first addition to the capital of the Country, which was made in the form of silk, but by the substituted addition made in the form of commodities used by the labourer.
Secondly. It is inconsistent with the doctrine, that Wages depend on the proportion borne by the number of Labourers to the whole revenue of the society of which they are members. In the example last suggested, of the introduction of a new supply of lace or diamonds, the revenues of those who use lace or diamonds would be increased; but as wages are not spent on those articles, they would remain unaltered. It is possible, indeed, to state cases in which the revenue of a large portion of a community might be increased, and yet the wages of the labourers might fall without an increase of their numbers. We will suppose the principal trade of Ireland to be the raising of produce for the English market; and that for every two hundred acres ten families were employed in raising, on half the land, their own subsistence, and on the remainder corn and other exportable crops requiring equal labour. Under such circumstances, if a demand should arise in the English market for cattle, butchers’-meat, and wool, instead of corn, it would be the interest of the Irish landlords and farmers to convert their estates from arable into pasture. Instead of ten families for every two hundred acres, two might be sufficient: one to raise the subsistence of the two, and the other to tend the cattle and sheep. The revenue of the landlords and the farmers would be increased: and, if they employed the whole of that increase in the purchase of Irish labour, all parties would be benefited. But if they devoted the greater part of it to the purchase of English manufactures, the services of a large portion of the Irish labourers would cease to be required; a large portion of the land formerly employed in producing commodities for their use would be devoted to the production of commodities for the use of England; and the fund for the maintenance of Irish labour would fall, notwithstanding the increase of the revenue of the landlords and farmers.
Absenteeism.—Thirdly. It is inconsistent with the prevalent opinion that the non-residence of landlords, funded proprietors, mortgagees, and other unproductive consumers, can be detrimental to the labouring inhabitants of a Country which does not export raw produce.
In a Country which exports raw produce, wages may be lowered by such non-residence. If an Irish landlord resides on his estate, he requires the services of certain persons, who must also be resident there, to minister to his daily wants. He must have servants, gardeners, and perhaps gamekeepers. If he build a house, he must employ resident masons and carpenters; part of his furniture he may import, but the greater part of it must be made in his neighbourhood; a portion of his land, or, what comes to the same thing, a portion of his rent, must be employed in producing food, clothing, and shelter for all these persons, and for those who produce that food, clothing, and shelter. If he were to remove to England, all these wants would be supplied by Englishmen. The land and capital which was formerly employed in providing the maintenance of Irish labourers would be employed in producing corn and cattle to be exported to England to provide the subsistence of English labourers. The whole quantity of commodities appropriated to the use of Irish labourers would be diminished, and that appropriated to the use of English labourers increased, and wages would, consequently, rise in England, and fall in Ireland.
It is true that these effects would not be co-extensive with the landlord’s income. While, in Ireland, he must have consumed many foreign commodities, he must have purchased tea, wine, and sugar, and other things which the climate and the manufactures of Ireland do not afford, and he must have paid for them by sending corn and cattle to England. It is true, also, that while in Ireland he probably employed a portion of his land and of his rents for other purposes, from which the labouring population received no benefit, as a deer park, or a pleasure garden, or in the maintenance of horses or hounds. On his removal, that portion of his land which was a park would be employed, partly in producing exportable commodities, and partly in producing subsistence for its cultivators; and that portion which fed horses for his use might be employed in feeding horses for exportation. The first of these alterations would do good; the second could do no harm. Nor must we forget that, through the cheapness of conveyance between England and Ireland, a portion or perhaps all, of those whom he employed in Ireland might follow him to England, and, in that case, wages in neither Country would be affected. The fund for the maintenance of labourers in Ireland, and the number of labourers to be maintained, would both be equally diminished, and the fund for the maintenance of labourers in England, and the number of labourers to be maintained, would both be equally increased.
But after making all these deductions, and they are very great, from the supposed effect of the absenteeism of the Irish proprietors on the labouring classes in Ireland, we cannot agree with Mr. M’Culloch that it is immaterial. We cannot but join in the general opinion that their return, though it would not affect the prosperity of the British Empire, considered as a whole, would be immediately beneficial to Ireland, though perhaps too much importance is attached to it.
In Mr. M’Culloch’s celebrated examination before the Committee on the state of Ireland, (4th Report, 814, Sess. 1825), he was asked, “Supposing the largest export of Ireland were in live cattle, and that a considerable portion of rent had been remitted in that manner, does not such a mode of producing the means of paying rent contribute less to the improvement of the poor than any extensive employment of them in labour would produce?”—He replies, “Unless the means of paying rent are changed when the landlord goes home, his residence can have no effect whatever.”
“Would not,” he is asked, “the population of the country be benefited by the expenditure among them of a certain portion of the rent which (if he had been absent) has (would have) been remitted (to England)?” “No,” he replies. “I do not see how it could be benefited in the least. If you have a certain value laid out against Irish commodities in the one case, you will have a certain value laid out against them in the other. The cattle are either exported to England, or they stay at home. If they are exported, the landlord will obtain an equivalent for them in English commodities; if they are not, he will obtain an equivalent for them in Irish commodities; so that in both cases the landlord lives on the cattle, or on the value of the cattle: and whether he lives in Ireland or in England, there is obviously just the very same amount of commodities for the people of Ireland to subsist upon.”
This reasoning assumes that the landlord, while resident in Ireland, himself personally devours all the cattle produced on his estates; for on no other supposition can there be the very same amount of commodities for the people of Ireland to subsist upon, whether their cattle are retained in Ireland or exported.
But when a Country does not export raw produce, the consequences of absenteeism are very different. Those who derive their incomes from such a Country cannot possibly spend them abroad until they have previously spent them at home.
When a Leicestershire landlord is resident on his estate, he employs a certain portion of his land, or, what is the same, of his rent, in maintaining the persons who provide for him those commodities and services, which must be produced on the spot where they are consumed. If he should remove to London, he would want the services of Londoners, and the produce of land and capital which previously maintained labourers resident in Leicester would be sent away to maintain labourers resident in London. The labourers would probably follow, and wages in Leicestershire and London would then be unaltered; but until they did so, wages would rise in the one district and fall in the other. At the same time, as the rise and fall would compensate one another, as the fund for the maintenance of labour, and the number of labourers to be maintained, would each remain the same, the same amount of wages would be distributed among the same number of persons, though not precisely in the same proportion as before.
If he were now to remove to Paris, a new distribution must take place. As the price of raw produce is lower in France than in England, and the difference in habits and language between the two Countries prevents the transfer of labourers from the one to the other, neither the labourers nor the produce of his estates could follow him. He must employ French labourers, and he must convert his share of the produce of his estate, or, what is the same thing, his rent, into some exportable form in order to receive it abroad. It may be supposed that he would receive his rent in money. Even if he were to do so, the English labourers would not be injured, for as they do not eat or drink money, provided the same amount of commodities remained for their use, they would be unaffected by the export of money. But it is impossible that he could receive his rent in money unless he chose to suffer a gratuitous loss. The rate of exchange between London and Paris is generally rather in favour of London, and scarcely ever so deviates from par between any two Countries, as to cover the expense of transferring the precious metals from the one to the other, excepting between the Countries which do, and those which do not, possess mines. The remittances from England to France must be sent, therefore, in the form of manufactures, either directly to France, or to some Country with which France has commercial relations. And how would these manufactures be obtained? Of course in exchange for the landlord’s rent. His share of the produce of his estates would now go to Birmingham or Sheffield, or Manchester or London, to maintain the labourers employed in producing manufactures, to be sent and sold abroad for his profit. An English absentee employs his income precisely as if he were to remain at home and consume nothing but hardware and cottons. Instead of the services of gardeners and servants, upholsterers and tailors, he purchases those of spinners, and weavers, and cutlers. In either case his income is employed in maintaining labourers, though the class of labourers is different; and in either case, the whole fund for the maintenance of labourers, and the number of labourers to be maintained, remaining unaltered, the wages of labour cannot be affected.
But, in fact, that fund would be rather increased in quantity and rather improved in quality. It would be increased, because land previously employed as a park, or in feeding dogs and horses, or hares and pheasants, would now be employed in producing food or clothing for men. It would be improved, because the increased production of manufactured commodities would occasion an increased division of labour, the use of more and better machinery, and the other improvements which we have ascertained to be its necessary accompaniments.
One disadvantage, and one only, it appears to us would be the result. The absentee in a great measure escapes domestic taxation. We say in a great measure, because he still remains liable, if a proprietor of houses or of land, to those taxes which fall upon rent: he pays too, a part of the taxes on the materials of manufactures; and if it were our policy to tax income or exported commodities, he might be forced to pay to the public revenue even more than his former proportion. But, under our present system, which throws the bulk of taxation on commodities produced for internal consumption, he receives the greater part of his revenue without deduction, and, instead of contributing to the support of the British Government, contributes to support that of France or Italy. This inconvenience, perhaps, about balances the advantages which we have just mentioned, and leaves a community which exports only manufactures neither impoverished nor enriched by the residence abroad of its unproductive members.
We ought, perhaps, on this occasion again to remind our readers that it is to wealth and poverty that our attention, when writing on Political Economy, is confined. The moral effects of absenteeism must never be neglected by a writer who inquires into the causes which promote the happiness of nations, but are without the province of a Political Economist. Nor do we regret that they are so, for they form a subject on which it is far more difficult to obtain satisfactory results. In one respect, indeed, the moral question is the more simple, as it is not complicated by the consideration whether raw produce or manufactures are exported, or whether the non-resident landlord is abroad, or in some town within his own Country. If his presence is to be morally beneficial, it must be his presence on his own estate. To the inhabitants of that estate the place to which he absents himself is indifferent. Adam Smith believed his residence to be morally injurious. “The residence of a court,” he observes, (book ii. ch. iii.) “in general makes the inferior sort of people dissolute and poor. The inhabitants of a large village, after having made considerable progress in manufactures, have become idle in consequence of a great Lord having taken up his residence in their neighbourhood.” And Mr. M’Culloch, whose fidelity and intelligence as an observer may be relied on, states, as the result of his own experience, that in Scotland the estates of absentees are almost always the best managed. Much, of course, depends on individual character; but we are inclined to believe that, in general, the presence of men of large fortune is morally detrimental, and that of men of moderate fortune morally beneficial, to their immediate neighbourhood. The habits of expense and indulgence which, in different gradations, prevail among all the members of a great establishment, are mischievous as examples, and perhaps still more so as sources of repining and discontent. The drawing-room and stable do harm to the neighbouring gentry, and the housekeeper’s room and servant’s hall to their inferiors. But families of moderate income, including under that term incomes between ?500 and ?2000 a year, appear to be placed in the station most favourable to the acquisition of moral and intellectual excellence, and in its diffusion among their associates and dependents. We have no doubt that a well-regulated gentleman’s family, removing the prejudices, soothing the quarrels, directing and stimulating the exertions, and awarding praise or blame to the conduct of the villagers round them, is among the most efficient means by which the character of a neighbourhood can be improved. It is the happiness of this Country that almost every parish has a resident fitted by fortune and education for these services; and bound, not merely by feelings of propriety, but as a matter of express and professional duty, to their performance. The dispersion throughout the Country of so many thousand clerical families, each acting in its own district as a small centre of civilization, is an advantage to which, perhaps, we have been too long accustomed to be able to appreciate its extent.
Still, however, we think that even the moral effects of absenteeism have been exaggerated. Those who declaim against the twelve thousand English families supposed to be resident abroad, seem to forget that not one-half, probably not one-quarter, of them, if they were to return, would dwell any where but in towns, where their influence would be wasted, or probably not even exerted. What does it signify to the Northumbrian or Devonshire peasant whether his landlord lives in London, or Cheltenham, or Rome? And even of those who would reside in the country, how many would exercise that influence beneficially? How many would be fox-hunters or game-preservers, or surround themselves with dependents whose example would more than compensate for the virtues of their masters? Nothing can be more rash than to predict that good would be the result of causes which are quite as capable of producing evil.
The economical effects have been still more generally misunderstood; and we have often been tempted to wonder that doctrines so clear as those which we have just been submitting to our readers should be admitted with reluctance even by those who feel the proofs to be unanswerable, and should be rejected at once by others, as involving a paradox too monstrous to be worth examination.
Much of this, probably, arises from a confusion of the economical with the moral part of the question. Many writers and readers of Political Economy forget that the clearest proof that absenteeism diminishes the virtue or the happiness of the remaining members of a community is no answer to arguments which aim only at proving that it does not diminish their wealth.
Another and perhaps the chief source of error is the circumstance that, when the landlord is present, the gain is concentrated, and the loss diffused, when he is absent the gain is diffused, and the loss concentrated. When he quits his estate, we can put our finger on the village tradesman and labourer who lose his custom and employment. We cannot trace the increase of custom and employment that is consequently scattered among millions of manufacturers. When he returns, we see that the expenditure of ?2000 or ?3000 a year in a small circle gives wealth and spirit to its inhabitants. We do not see, however clearly we may infer it, that so much the less is expended in Manchester, Birmingham, or Leeds. The inhabitants of his village attribute their gain and their loss to its causes; and their complaints and acknowledgments are loud in proportion to the degree in which they feel their interests to be affected. No single manufacturer is conscious that the average annual export of more than forty millions sterling has been increased or diminished to the amount of ?2000 or ?3000. And even if aware of that increase or diminution, he would not attribute it to the residence in Yorkshire or Paris of a given individual, of whose existence he probably is not aware. When to obvious and palpable effects nothing is to be opposed but inferences deduced by a long, though perfectly demonstrative, reasoning process, no one can doubt which will prevail, both with the uneducated, and the educated, vulgar.
Many persons, also, are perplexed by the consideration, that all the commodities which are exported as remittances of the absentee’s income are exports for which no return is obtained; that they are as much lost to this Country as if they were a tribute paid to a foreign State, or even as if they were thrown periodically into the sea. This is unquestionably true; but it must be recollected, that whatever is unproductively consumed is, by the very terms of the proposition, destroyed, without producing any return. The only difference between the two cases is, that the resident landlord performs that destruction here; the absentee performs it abroad. In either case, he first purchases the services of those who produce the things which he, for his benefit, not for theirs, is to consume. If he stays here, he pays a man to brush a coat, or clean a pair of boots, or arrange a table; all which in an hour after are in their former condition. When abroad, he pays an equal sum for the production of needles, or calicoes, which are sent abroad, and equally consumed without further benefit to those who produced them. They are, in fact, sold for money to be employed in paying the wages of those foreign servants who now brush the shoes and draw the corks, which, if the landlord had not been an absentee, would have been brushed and drawn in England. The income of unproductive consumers, however paid, is a tribute;and whether they enjoy it here or elsewhere, is their own concern. We know that a man cannot eat his cake and have it; and it is equally true that he cannot sell a cake to another and keep it for himself.
Again, some acute reasoners appear to us to have been led into error on this subject, by perceiving that the income of an absentee is generally remitted to him by means of a trade in which the returns are comparatively slow,29 and that the expenditure of his income is profitable to those among whom he resides.30 Now assuming that these circumstances occasion a loss to any body, it is clear that the loss falls solely on the absentee. His rents are, in the first instance, expended as quickly as they are received in the purchase of manufactured commodities, to be exported for his benefit as a means of remittance. They are expended, therefore, in the support of the trade of the English manufacturer, a trade giving quick returns, high wages, and, if we may judge from the additional capital which it is attracting every day, high profits. The absentee, in thus spending his income, gives to England all that an unproductive consumer can give, the wages and the profits arising from the expenditure in England of his income as fast as he receives it. Neither the gain nor the loss attending on the remittance or on the subsequent expenditure of its amount are any concern of ours. They affect only the absentee. If he selects ill the place of his residence, he may have to lose by remittances at long dates, or at an unfavourable exchange, or have to pay dearly for bad commodities or unskillful services. If he selects it well, he may be a gainer by the intermediate operations to which his income has been subjected, and receive a larger revenue than he would have obtained at home, or may spend that revenue more agreeably. But with all this England has nothing to do.
The last cause to which we attribute the slow progress of correct opinions on this subject is their distastefulness to the most influential members of the community. Nothing can be more flattering to landlords, annuitants, mortgagees, and fundholders, than to be told that their residence is of vital importance to the Country. Nothing can be more humiliating than to be assured that it is utterly immaterial to the rest of the community whether they live in Brighton, or London, or Paris. Those who are aware how much our judgment, even in matters of Science, is influenced by our wishes, will not be surprised at the prejudices against a doctrine which forbids the bulk of the educated class to believe that they are benefactors to their Country by the mere act of residing within its shores.
We may appear, perhaps, to have dwelt too much on a single subject; but no prevalent error can be effectually exposed until its prevalence has been accounted for. And these are errors which are to be heard in every society, and often from those whose general views in Political Economy are correct. They may be called harmless errors, but no error is, in fact, harmless; and when there is so much in our habits that really requires alteration, we may lose sight of the real and the remediable causes of evil, while our attention is misdirected to absenteeism.
Machinery.—Fourthly. Our proposition that the Rate of Wages depends on the extent of the fund for the maintenance of labourers, compared with the number of labourers to be maintained, is inconsistent with the doctrine that the general rate of wages can, except in two cases, be diminished by the introduction of Machinery.
The two cases in which the introduction of Machinery can produce such an effect are, first, when labour is employed in the construction of machinery, which labour would otherwise have been employed in the production of commodities for the use of labourers; and, secondly, when the machine itself consumes commodities which would otherwise have been consumed by labourers, and that to a greater extent than it produces them.
The first case is put by Mr. Ricardo, in his chapter on machinery; but in so detailed a form, that, instead of quoting it, we will extract its substance, with a slight variation of the terms. He supposes a capitalist to carry on the business of a manufacturer of commodities for the use of labourers; or, to use a more concise expression, the business of a manufacturer of wages. He supposes him to have been in the habit of commencing every year with a capital consisting of wages for a certain number of labourers, which we call twenty-six, and of employing that capital in hiring twenty men, to reproduce, during the year, wages for the whole twenty-six, and six to produce commodities for himself. He now supposes him to employ ten of his men during a year in producing, not wages, but a machine, which, with the aid of seven men to keep it in repair and work it, will produce every year wages for thirteen men; that is wages for six men besides the seven that work it. At the end of the year the capitalist’s situation would be unaltered: he would have wages for thirteen men, the produce of the labour of his other ten men during the year; and his machine, also the produce of the labour of ten men during the year, and therefore of equal value. And his situation would continue unaltered. Every year his machine would produce wages for thirteen men, of whom seven must be employed in repairing and working it, and six might, as before, be employed for the benefit of the capitalist. But we have seen that, during the year in which the machine was constructed, only ten men were employed in producing wages instead of twenty, and, consequently, that wages were produced for only thirteen men instead of for twenty-six. At the end of that year, therefore, the fund for the maintenance of labour was diminished, and wages must, consequently, have fallen. It is of great importance to recollect, that the only reason for this fall was the diminution of the annual production. The twenty men produced wages for twenty-six men, the machine produces wages for only thirteen. The vulgar error on this subject supposes the evil to arise, not from its true cause, the expense of constructing the machine, but from the productive powers of that machine. So far is this from being true, that those productive powers are the specific benefit which is to be set against the evil of its expensiveness. If, instead of wages for thirteen men, the machine could produce wages for thirty, its use, as soon as it came into operation, would have increased instead of diminishing the fund for the maintenance of labour. The same effect would have been produced, if the machine could have been obtained without expense; or if the capitalist, instead of building it out of his capital, had built it out of his profits; if, instead of withdrawing ten men for a year from the production of wages, he had employed in its construction, during two years, five of the men whom he is supposed to have employed in producing commodities for his own use. In either case, the additional produce obtained from the machine would have been an additional fund for the maintenance of labour; and wages must, according to our elementary proposition, have risen.
We have thought it necessary to state this possible evil as a part of the theory of machinery, but we are far from attaching any practical importance to it. We do not believe that there exists upon record a single instance in which the whole annual produce has been diminished by the use of inanimate machinery. Partly in consequence of the expense of constructing the greater part of machinery being defrayed out of profits or rent, and partly in consequence of the great proportion which the productive powers of machinery bear to the expense of its construction, its use is uniformly accompanied by an enormous increase of production. The annual consumption of cotton wool in this Country, before the introduction of the spinning-jenny, did not exceed twelve hundred thousand pounds; it now amounts to two hundred and forty millions. The number of copies of books extant at any one period before the invention of the printing-press was probably smaller than that which is now produced in a single day. Mr. Ricardo’s proposition, therefore, (Princ. 474,) that the use of machinery frequently diminishes the quantity of the gross produce of a Country, is erroneous, so far as it depends on the case which he has supposed, and of which we have stated the substance.
The other exception, that where the machine itself consumes commodities which would otherwise have been consumed by labourers, and that to a greater extent than it produces them, applies only to the case of horses and working-cattle, which may be termed animated machines. We will suppose a farmer to employ on his farm twenty men, who produce annually their own subsistence, and that of six other men producing commodities for the use of their master. If five horses, consuming we will say, as much as eight men, could do the work of ten men, it would be worth the farmer’s while to substitute them for eight of his men, as he would be able to increase the number of persons who work for his own benefit from six to eight. But after deducting the subsistence of the horses, the fund for the maintenance of labourers would be reduced from wages for twenty-six men to wages for eighteen. We cannot refuse to admit that such cases may exist, or to deplore the misery that must accompany them. They are, in fact, now occurring in Ireland, and are occasioning much of the distress of that Country. They seem, indeed, to be the natural accompaniments of a certain period in the progress of national improvement. In the early stages of society, the rank and even the safety of the landed proprietor is principally determined by the number of his dependents. The best mode of increasing that number is to allow the land, which he does not occupy as his own demesne, to be subdivided into small tenements, each cultivated by one family, and just sufficient for their support. Such tenants can of course pay little rent, but they are enabled by their abundant leisure, and forced by their absolute dependence, to swell the retinue, and aid the political influence, of their landlord in peace, and to follow his banner in public and private war. Cameron of Lochiel, whose rental did not exceed ?500 a year, carried with him into the rebellion of 1745, eight hundred men raised from his own tenantry. But in the progress of civilization, as wealth becomes the principal means of distinction and influence, landowners prefer rent to dependents. To obtain rent, that process of cultivation must be employed which will give, not absolutely the greatest amount of produce, but the greatest after deducting the expenses. For this purpose a tract of five hundred acres, from which fifty families produced their own subsistence, and produced scarcely any thing more, may be converted into one farm, and with the labour of ten families, and as many horses, may produce the subsistence of only thirty families. Fortunately, however, the period at which these alterations take place is generally one of great social improvement; so that, after a short interval, the increased diligence and skill with which labour is applied occasion an increase of the produce, after deducting the new expenditure. The fund for the maintenance of labourers now becomes increased from two different sources—partly from the increased efficiency of human labour when aided by that of horses and cattle, and partly from the results of a part of the human labour set free by the substitution of brutes. The ultimate consequences of such a change are always beneficial; the change itself must, in general, be accompanied by distress.
But with the exception of these two cases, one of which produces only temporary effects, and the other, though apparently possible, seems never actually to occur, it appears clear that the use of machinery must either raise the general rate of wages, or leave it unaltered.
When machinery is applied to the production of commodities which are not intended, directly or indirectly, for the use of labourers, it occasions no alteration in the general rate of wages; we say the general rate of wages, because it may diminish the rate of wages in some employments,—a diminution always compensated by a corresponding increase in some others. A small screw was shown to us at Birmingham which, in the manufacture of corkscrews, performed the work of fifty-nine men; with its assistance one man could cut a spiral groove in as many corkscrew shanks as sixty men could have cut in the same time with the tools previously in use. As the use of corkscrews is limited, it is not probable that the demand for them has sufficiently increased to enable the whole number of labourers previously employed in their manufacture to remain so employed after such an increase in their productive power. Some of the corkscrewmakers, therefore, must have been thrown out of work, and the rate of wages in that trade probably fell. But as the whole fund for the maintenance of labourers, and the whole number of labourers to be maintained, remained unaltered, that fall must have been balanced by a rise somewhere else—a rise which we may trace to its proximate cause, by recollecting that the fall in the price of corkscrews must have left every purchaser of a corkscrew a fund for the purchase of labour, rather larger than he would have possessed if he had paid the former price.
If, however, machinery be applied to the production of any commodity used by the labouring population, the general rate of wages will rise. That it cannot fall is clear, on the grounds which we have just stated. If the improvement be great, and the commodity not subject to a corresponding increase of demand, some of the labourers formerly employed in its production will be thrown out of employment, and wages, in that trade, will fall—a fall which, as the whole fund for the maintenance of labour is not diminished, must be met by a corresponding rise in some other trade. But the fund will be increased by the additional quantity produced of the commodity to which the improvement has been applied: estimated in that commodity, therefore, the general rate of wages, or, in other words, the quantity of commodities obtained by the labouring population, will be increased by the introduction of machinery; estimated in all others, it will be stationary.
The example taken from the manufacture of corkscrews is as unfavourable to the effects of machinery as can be proposed; for the use of the commodity is supposed to be unable to keep up with the increased power of production, and the whole number of labourers employed on it is, consequently, diminished. This, however, is a very rare occurrence. The usual effect of an increase in the facility of producing a commodity is so to increase its consumption as to occasion the employment of more, not less, labour than before.
We have already called the reader’s attention to the effects of machinery in the manufacture of cotton and in printing. Each of these trades probably employs ten times as many labourers as it would have employed if spinning-jennies and types had not been invented. Under such circumstances, (and they are the usual ones,) the benefits of machinery are not alloyed by even partial inconvenience.
Those who are little affected by inferences from general propositions may be influenced by a witness who states the results of his own observations. We will support our argument, therefore, by the following extract from Mr. Cowell’s valuable preface to the Tables of Wages constructed by him in the performance of his duties as a Commissioner on the Factory Inquiry:—
“As long as the cotton-working continues to extend, the apprehensions entertained by the operatives of a fall in wages, either for adults or children, consequent upon improvements in machinery, are groundless. Their assertion is, (and it was repeated to me innumerable times,) that they have to turn out more work now for less wages than formerly. The Manchester and Salford Advertiser, which is the journal of the operatives, scarcely publishes a number which does not ring the changes on this assertion; and in that for the 11th of January, 1834, it asserts, ‘that a spinner now turns out double the work for a tenth less wages than in 1804.’
“The matter stands thus: in 1804 a spinner was paid 8s. 6d. for every pound of yarn of the fineness of two hundred hanks to the pound, spinning on a mule of the average productive power of that time. What that productive power was I do not know. But in 1829 he was paid at the rate of 4s. 1d. for spinning the same quality on a mule of the productive power of three hundred and twelve; in 1831, and at present, at the rate of 2s. 5d. and 2s. 8½d. for spinning the same quality on a mule of the productive power of six hundred and forty-eight. These quotations are from the Manchester prices.
“Thus, in 1829, the spinner turned off three hundred and twelve pounds of yarn in the same time that he now takes to turn off six hundred and forty eight. He was paid at the rate of 4s. 1d. per pound in 1829, he is now paid at the rate of 2s. 5d. But three hundred and twelve pounds at 4s. 1d. amount to one thousand two hundred and seventy-four shillings, and six hundred and forty-eight pounds at 2s. 5d. to one thousand five hundred and sixty-six shillings. He receives, therefore, two hundred and ninety-two shillings more than he did in 1829 for equal times of work. It is perfectly true that he does ‘more work for less wages than in 1829;’ but this is nothing to the purpose, when the proposition to be proved is, that ‘wages are lower than formerly.’ I mean to say, that a spinner earns a shilling, or a pound, or a hundred pounds, in less time at present than he would have consumed in earning a shilling, or a pound, or a hundred pounds, ten years ago, and with the same or less labour; that this enhancement of his earnings has been owing to improvements in machinery; that the progress of improvements will progressively advance his earnings still higher, and at the same time enable a greater number of individuals to profit by the enhanced rate than actually profits by the actual rate; (provided that nothing occurs to prevent the cotton business from developing itself for the next thirty years as it has done for the last;) and that any improvement in the machinery in any one of the numerous departments of cotton-working will operate to enhance the rate of wages in all other branches, as well as in that department in which it takes place, by increasing the actual previous demand for labour in those other branches. I assert that every improvement of cotton machinery, in any department of cotton-working, has hitherto had the effect of enabling ‘an operative’ (speaking in general of every one, in every department whatever) to earn a greater net amount of money, in any given time, than he would have done if the improvements had never taken place.
“The misconceptions as to the real effect of machinery on the wages of labour which the operatives entertain are the causes of turnouts and strikes; they produce rankling discontent towards their masters, and I regret that I have not had the opportunity of giving them a fuller exposure.
“I certainly consider it of great consequence that the operatives themselves should be satisfied that improvements in machinery tend to raise the amount of money that they gain individually and generally, for the same number of hours’ work. Those who dispute the fact must, I think, admit that I have established it in the cases which I have selected, as far as spinners are concerned; and as they must likewise admit that the improvement specified creates a fresh and additional demand for young hands, they must also admit that the wages of young hands are augmented in consequence. They must equally admit, that as the price of the article will be lowered in the market from the effects of the improvement, more of it will be consumed; and hence that, in all the correlate processes connected with spinning of cotton, more hands will be required, and consequently that wages throughout the whole range of cotton-working will be better than they were before. If these considerations should induce operatives to hesitate before they combine and turn out against new machinery, before they again cabal for shortening the hours of work, in order to counteract the (fancied) injurious effect upon wages of improvements in machinery, and should lead them to neglect the advice of those who urge them ‘to strike for eight hours’ work and twelve hours’ earnings,’ (and this is the advice they have lately received,) my purpose will be answered.
“The generality of the operatives in cotton-working are well-meaning, respectable, shrewd, and sensible; and I believe that if the real effect of machinery in augmenting the actual rate of their earnings, and in enabling a greater number of persons to benefit by the augmented rate, could be fairly set before them and rendered familiar to their minds, it would have a most beneficial effect upon their actions as members of society.”—Factory Inquiry Commission, 2d Report, D. I. 119.n.m.
Fifthly. Closely connected with this mistake, and occasioned by the same habit of attending only to what is temporary and partial, and neglecting what is permanent and general; of dwelling on the evil that is concentrated, and being insensible to the benefit that is diffused, is the common error of supposing that the general rate of wages can be reduced by the importation of foreign commodities. In fact, the opening of a new market is precisely analogous to the introduction of a new machine, except that it is a machine which it costs nothing to construct or to keep up. If the foreign commodity be not consumed by the labouring population, its introduction leaves the general rate of wages unaffected; if it be used by them, their wages are raised as estimated in that commodity. If the laws which favour the wines of the Cape to the exclusion of those of France were repealed, more labourers would be employed in producing commodities for the French market, and fewer for that of the Cape, Wages might temporarily fall in the one trade, and rise in the other. The clear benefit would be derived by the drinkers of wine, who, at the same expense, would obtain more or better wine. So if what are called the protecting duties on French silks were removed, fewer labourers would be employed in the direct production of silk, and more in its indirect production, by the production of the cottons or hardware with which it would be purchased. The wearers of silk would be the only class ultimately benefited; and as the labouring population neither wear silk nor drink wine, the general rate of wages would, in both cases, remain unaltered. But if the laws which prohibit our obtaining on the most advantageous terms sugar and corn, were altered, that portion of the fund for the maintenance of labour, which consists of corn and sugar, would be increased. And the general rate of wages, as estimated in two of the most important articles of food, would be raised.
Sixthly. The views which we have been endeavouring to explain are inconsistent with the common opinion, that the unproductive consumption of landlords and capitalists is beneficial to the labouring classes, because it furnishes them with employment. “Tillage,” says Paley, (and this is another form of the same fallacy,) “is preferable to pasturage, not only because the provision which it yields goes much further in the sustentation of life, but because it affords employment to a more numerous peasantry.” The production of more subsistence is certainly an advantage, but what is the advantage of its requiring more labour? If this be an advantage, the fertility of land is an evil. If the thing required be employment, we should abandon ploughs and even spades. To scratch up a rood with the fingers would give more employment than to dig an acre. Those who maintain that unproductive consumption does good by affording employment, must forget that it is not employment, but food, clothing, shelter, and fuel, in short, the materials of subsistence and comfort, that the labouring classes require. The word “employment” is merely a concise form of designating toil, trouble, exposure, and fatigue. It is indeed sometimes elliptically used as implying the subsistence which is purchased by enduring it. A poor man complains that he wants work. He might work to his heart’s content, and with no man’s leave, if he chose to carry stones from the bottom to the top of a hill. But what he wants is work as a means of obtaining payment. He would be happy to get the payment without the work. Toil, exposure, and fatigue, per se, are evils, and the less of them that is required for obtaining a given amount of subsistence and comfort, or, in other words, the greater the facility of obtaining that given amount, the better, c?teris paribus, will be the condition of the labouring classes; indeed, of all classes in the community. What occasions the prosperity of a colony? Not the dearness of subsistence, but its cheapness; not the difficulty of obtaining food, clothing, shelter, and fuel, but the facility. Now how can unproductive consumption increase this facility? How can the fund from which all are to be maintained be augmented by the destruction of a portion of it? If the higher orders were to return to the customs of a century ago, and cover their coats with gold lace, they might enjoy their own finery; but how would that benefit their inferiors? The theory which we are considering replies that they would be benefited by being employed in making the lace. It is true that a coat, instead of costing ?5, would cost ?55. But what becomes now of the extra ?50? for it cannot be said that, because it is not spent on a laced coat, it does not exist. If a landlord with ?10,000 a-year spends it unproductively, he pays it away to those who furnish the embellishments of his house and grounds, and supply his stable, his equipage, and his clothes. Suppose him now to abandon all unproductive expenditure, to confine himself to bare necessaries, and to earn them by his own labour, the first consequence would be, that those among whom he previously spent his ?10,000 a-year would lose him as an employer; and beyond this the theory in question sees nothing. But what would he do with the ?10,000 which he would still annually receive? No one supposes that he would lock it up in a box, or bury it in his garden. Whether productively or unproductively, it still must be spent. If spent by himself, as by the supposition it would be spent productively, it must increase, and every year still further increase, the whole fund applicable to the use of the rest of the community. If not spent by himself, it must be lent, as is done by a miser of the present day, to some other person, and by that person it must be spent productively or unproductively. He might, perhaps, buy with it property in the English funds; but what becomes of it in the hands of the person who sells to him that funded property? He might buy with it French rentes; but in what form would the price of those rentes go to Paris?—In the form, as we have seen, of manufactured commodities. Qu?cunque vi? dat?, every man must spend his income; and the less he spends on himself, the more remains for the rest of the world.
Preference of Services to Commodities.—The seventh and last theory inconsistent with our own views, to which we shall call the reader’s attention, is that proposed by Mr. Ricardo in the following passage:—
“The labouring class have no small interest in the manner in which the net income of the Country is expended, although it should, in all cases, be expended for the gratification and enjoyment of those who are fairly entitled to it.
“If a landlord, or a capitalist, expends his revenue in the manner of an ancient Baron, in the support of a great number of retainers or menial servants, he will give employment to much more labour than if he expended it on fine clothes or costly furniture.
“In both cases the net revenue would be the same, and so would be the gross revenue, but the former would be realized in different commodities. If my revenue were ?10,000, the same quantity nearly of productive labour would be employed, whether I realized it in fine clothes and costly furniture, &c. &c., or in a quantity of food and clothing of the same value. If, however, I realized my revenue in the first set of commodities, no more labour would be consequently employed: I should enjoy my furniture and my clothes, and there would be an end of them: but if I realised my revenue in food and clothing, and my desire was to employ menial servants, all those whom I could so employ with my revenue of ?10,000, or with the food and clothing which it would purchase, would be to be added to the former demand for labourers, and this addition would take place only because I chose this mode of expending my revenue. As the labourers, then, are interested in the demand for labour, they must naturally desire that as much as possible should be diverted from expenditure on luxuries, to be expended in the support of menial servants.
“In the same manner a Country engaged in war, and which is under the necessity of maintaining large fleets and armies, employs a great many more men than will be employed when the war terminates, and the annual expenses which it brings with it cease.
“If I were not called upon for a tax of ?500 during the war, which is expended on men in the situations of soldiers and sailors, I might probably spend that portion of my income on furniture, clothes, books, &c. &c., and whether it was expended in the one way or the other, there would be the same quantity of labour employed in production; for the food and clothing of the soldier and sailor would require the same amount of industry to produce them as the more luxurious commodities: but, in the case of war, there would be the additional demand for men as soldiers and sailors; and, consequently, a war which is supported out of the revenue, and not from the capital of a Country, is favourable to an increase of population.
“At the termination of the war, when part of my revenue reverts to me, and is employed as before in the purchase of wine, furniture, or other luxuries, the population which it before supported, and which the war called into existence, will become redundant, and by its effect on the rest of the population, and its competition with it for employment, will sink the value of wages, and very materially deteriorate the condition of the labouring classes.”31
Mr. Ricardo’s theory is, that it is more beneficial to the labouring classes to be employed in the production of services than in the production of commodities; that it is better for them to be employed in standing behind chairs than in making chairs; as soldiers or sailors than as manufacturers. Now, as it is clear that the whole quantity of commodities provided for the use of labourers is not increased by the conversion of an artisan into a footman or a soldier, either Mr. Ricardo must be wrong, or our elementary proposition is false.
Mr. Ricardo seems to have been led to his conclusions by observing that the wages of servants, sailors, and soldiers, are principally paid in kind—those of artisans in money. He correctly states, that if a man with ?10,000 a-year spends his income in the purchase of commodities for his own use, he retains, after having made those purchases, no further fund for the maintenance of labour; but that if he spends it in the purchase of commodities to be employed in maintaining menial servants, he has, in those purchased commodities, a new fund with which he can maintain a certain number of menial servants. It appeared to him, therefore, that the landlord would, in the latter case, be able to spend his income twice over; to subsist twice as many persons as before. It did not occur to him that the landlord, by purchasing himself the subsistence of his servants, merely does for them what they would be able to do better for themselves; that, instead of spending his own income twice over, he merely takes on himself the business of spending theirs for them. He did not perceive that all that the landlord spends in purchasing the subsistence and clothing of his servants, is so much deducted from what he would otherwise have to pay to them in money, to be by them employed in the purchase of subsistence and clothing; and that if he were to give to his servants the value of their whole subsistence in money, the whole body of labourers would be just as well maintained as in the supposed case of his purchasing their subsistence, and then giving it to them in exchange for their services. No one would maintain that, if it were the general practice, in this Country, as it is in India, to give to servants board wages, the demand for labour would be lessened; or that if it were the practice, as it is in semi-barbarous Countries, to maintain servants to produce within their masters’ walls the commodities which we are accustomed to purchase from shops, such as the fine clothes and furniture to which Mr. Ricardo alludes, the demand for labour would be increased. Still less could it be maintained, that if those servants, instead of producing commodities, were employed in following their master’s person, or mounting guard before his door, such a change would create an additional demand for men, and be favourable to an increase of population.
So far are we from concurring in Mr. Ricardo’s opinion, that it is the interest of the labourers that revenue should be spent rather on services than on commodities, that we believe their interest to be precisely opposite. In the first place, the labourer can generally manage better his own income than it can be managed for him by his master. If a domestic servant could earn as wages the whole sum which he costs his master, even if he were to spend it as he received it, he would probably spend it with more enjoyment. Secondly, the income spent on services is generally spent in the purchase of what perishes at the instant of its creation; that spent on commodities often leaves results which, when their first purchaser has done with them, are serviceable to others. In this Country the poor are, to a great extent, clothed with garments originally provided for their superiors. In all the better class of cottages may be found articles of furniture which never could have been made for their present possessors. A large portion of the commodities which now contribute to the comfort of the labouring classes would never have existed if it had been the fashion in this Country, during the last fifty years, to prefer retinue and attendance to durable commodities. And, thirdly, the income employed on commodities is favourable to the creation of both material and immaterial capital; that employed on services is not. The duties of a servant are so easily learned, that he can scarcely be termed a skilled labourer; his accumulations are small in amount, and seldom turned to much advantage. The artisan learns a trade, in which every year adds to his skill, and is taught mechanical and chemical processes, often susceptible of indefinite improvement, and in which a single invention may raise the author to wealth, and diffuse prosperity over a whole district, or even a whole nation. An industrious artisan can often save a large portion of his income, and invest it with great and immediate profit. He purchases with his savings a small stock of tools and materials, and, by the vigilance and activity which can be applied only to a small capital, renders every portion of it efficient. The ancestors, and not the remote ancestors, of some of our richest and our proudest families, the authors of some of our most valuable discoveries, were common mechanics. What menial servant has in this Country, and in modern times, been a public benefactor, or even raised himself to affluence? Both history and observation show that those Countries in which expenditure is chiefly employed in the purchase of services are poor, and those in which it is chiefly employed on commodities are rich.
Mr. Ricardo’s theory as to the effects of war is still more strikingly erroneous. It is, in the first place, open to all the objections which we have already opposed to his views respecting menial servants. The revenue which is employed in maintaining soldiers and sailors would, even if unproductively consumed, maintain at least an equal number of servants and artisans; and that portion of it which would have been employed in the maintenance of artisans would (as we have seen) have been far more beneficially employed. The demand for soldiers and sailors is not, as he terms it, an additional, it is merely a substituted, demand. But a great part of that revenue would have been productively consumed. Instead of employing some labourers in converting suburbs into fortifications, and forests into navies, to perish by dry rot in harbour, or by exposure at sea, and others in walking the deck and parading on the rampart, it would have employed them in adding more and more every year to the fund from which their subsistence is derived. War is mischievous to every class in the community; but to none is it such a curse as to the labourers.
Causes on which the Extent of the Fund for the Maintenance of Labour Depends.
We have now explained the principal errors which are inconsistent with our elementary proposition, namely, that the quantity and quality of the commodities obtained by each labouring family during the year must depend on the quantity and quality of the commodities directly or indirectly appropriated during the year to the use of the labouring population, compared with the number of labouring families, or, to speak more concisely, on the extent of the fund for the maintenance of labourers, compared with the number of labourers to be maintained.
On what, then, does the extent of that fund depend? In the first place, on the productiveness of labour in the direct or indirect production of the commodities used by the labourer; and, in the second place, on the number of persons directly or indirectly employed in the production of things for the use of labourers, compared with the whole number of labouring families. If we wished to ascertain the comparative wages of the labouring population in two parishes, containing each, we will say, twenty-four labouring families, these are the only two points to which we need direct our inquiries. If we found that in the one parish eighteen families, and in the other only twelve, were employed in producing commodities for the whole twenty-four, we should infer that, supposing the labour of each to be equally productive, wages must be higher by one-fourth in the first than in the second. But if we found that in the second parish labour was more productive by one-half than in the first, we should infer an equality of wages in the two.
Causes which affect Productiveness of labour.—We will begin by considering the causes which affect the productiveness of labour in the direct or indirect production of the commodities used by the labourer. We add the word indirect, not with reference to the whole fund which supplies the maintenance of all the labourers throughout the world, but with reference to the fund which supplies the wants of the labourers in a particular Country. If we consider the whole world as forming one community, it is obvious that the fund for the subsistence of the labouring portion of that community cannot be increased by the increased production of those commodities which they do not use; by the increased production, for instance, of lace or statues.
But the fund for the maintenance of the labourers in any given Country may be, and often is, materially dependent on the facility with which they can produce commodities useless to themselves except as the instruments of exchange. The tea, the tobacco, and the sugar used by our labouring population are principally obtained in return for exported commodities unfitted for our climate and our habits. But the superior facility with which we produce those exported commodities enables, or, if legislative interference did not prevent it, would enable, our labouring population to obtain tea, sugar, and tobacco with less labour than they cost in the Countries of which they are the natural growth. It is unimportant to the labourer whether his corn is the produce of the soil of England or of Poland; whether it is obtained directly by means of the plough, or indirectly by means of the loom.
On what then does the first of these two causes, namely, the productiveness of labour, depend?
First. It depends partly on the corporeal, intellectual, and moral qualities of the labourer; on his diligence, his skill, and his strength of body and mind. And these depend on causes, many of which are imperfectly understood, and others are too complicated to admit of concise explanation, or to be fully considered without entering into investigations connected indeed with Political Economy, but not within its peculiar province. Much may depend on race and on climate; much more depends on religion, education, and government. One cause only we shall slightly dwell on, because it is simple, and has not been sufficiently considered by any writers except M. Quetelet,32 and Sir F. d’Ivernois,33 and that is, the mean age of the labouring population. This depends partly on the average duration of life in a Country, and partly on the rate at which its population is increasing. In England, the average duration of life is supposed to amount to about forty-four years. In many Countries it does not reach thirty-five; in some it does not attain twenty-five. Again, in some Countries the population doubles every twenty-five years. At the present rate of increase in England it would double in about fifty. The average period of its doubling throughout Europe is supposed to be about a century.
Now it is obvious that, the number of persons and the rate of increase in any two Countries being given, that Country would have the greater number of adults in which the average duration of life was the longer; and, the longevity being given, that Country would have the greater proportion of adults in which the rate of increase was the slower. Longevity, and a population stationary or slowly increasing, are therefore favourable to the productiveness of labour.
Secondly. The corporeal, intellectual, and moral qualities of the labourer being given, the productiveness of labour in any Country will partly depend on the natural agents by which it is assisted, or, in other words, on the climate, soil, situation, and extent in proportion to its population, of that Country.
To some Countries nature has refused the means of supporting human life; to others she has refused the means of wealth. No exertions would enable a community to exist long on Melville Island, or in the Deserts of Africa, or to exist comfortably in Greenland or Nova Zembla. But, though she can deny riches, she cannot give them. The finest districts in the world are among the poorest. With all the brute and inanimate sources of affluence profusely scattered before them, the inhabitants of the greater part of Africa, America, and Asia want the moral and intellectual qualities by which the raw materials of wealth are to be worked up. Even the Icelanders seem to be richer than the Guachos. But, although local advantages are far from being the most efficient causes of the productiveness of labour, their influence must not be disregarded. They have enabled the colonies of highly civilized nations to advance to opulence with a rapidity of which we have no other example.
Thirdly. The productiveness of labour partly depends on the degree in which it is assisted by abstinence, or, to use a more familiar expression, by the use of capital.
We have already explained the advantages afforded by capital, and traced them to the use of implements and the division of labour, and need only remind our readers that, of all means by which labour can be rendered productive, the use of capital is far the most efficient. Without tools, and without the division of employments, man would be an animal less capable of obtaining enjoyment, or even subsistence, than the brutes of the field.
Fourthly. The last of the causes which influence the productiveness of labour is the existence or the absence of government interference.
The essential business of government is to afford defence; to protect the community against foreign and domestic violence and fraud. Unfortunately, however, governments have generally supposed it to be their duty, not merely to give security but wealth; not merely to enable their subjects to produce and enjoy in safety, but to teach them what to produce and how to enjoy; to give them instruction how to manage their own concerns, and to force them to obey that instruction.
Unfortunately, too, the ignorance and folly with which they have attempted to execute this office have been equal to the ignorance and folly which led them to undertake it. Partly under the influence of what has been called the Mercantile Theory, the theory which teaches that wealth consists of gold and silver, and may be indefinitely increased by exporting commodities, and receiving only money in return; and partly misled by the circumstance, that when an individual, or a class, obtains a monopoly against the public, the loss, however great, becomes imperceptible from its diffusion, and the gain, however trifling, is obvious, because it is concentrated, it has long been the ruling principle of commercial statesmen to favour direct at the expense of indirect production; to refuse participation in the benefits bestowed by nature on foreign Countries, though at the expense of surrendering a portion of what she has conferred on their own; and to force the industry of their subjects from those channels in which they have peculiar advantages, into those for which their climate, their habits, and their soil are inappropriate.
It is under the influence of these causes that the civilized world has lately exhibited the strange spectacle of general peace accompanied by general distress. During the War, the greater part of Southern Europe had coalesced into one vast Empire; a single Sovereign ruled from Hamburgh to Rome; and hundreds of lines of custom-houses and revenue-officers, that had previously interposed against commerce barriers more impassable than seas or mountains, were swept away. Napoleon was deeply steeped in the mercantile theory, and his conduct shows how completely his views were founded on unreflecting prejudice. In obedience to that theory, he believed free trade between independent States to be like gambling between individuals, and therefore mischievous to the one or to the other: mischievous in fact to the one which, in the ultimate settling of accounts, had to pay a balance in money. While France and Italy were under different rulers, he therefore must have believed that the inhabitants of one of the two Countries would be injured by being allowed to purchase the commodities of the other. But the framers of the mercantile theory, blind as they were, had never ventured to object to the freest intercourse between the inhabitants of contiguous districts in the same Empire. When he had forced under his yoke Belgium and France, he allowed them therefore a freedom of intercourse which he still prohibited between France and Austria; totally forgetting that the benefit of an exchange does not depend on the accident, whether the parties to it are, or are not, fellow-subjects. His theories were servile copies of errors unhappily too prevalent, and faded away before his strong common sense, on the slightest variation of appearances, though the facts on which the question turns were unaltered.
On the termination of the War, Napoleon’s Empire was broken up into independent Kingdoms, and each State set to work to reimpose on itself the fetters which his powerful hand had broken. Douaniers and preventive-service men were found instruments as efficient in wasting the resources of their own Country, and in arresting the improvement of their neighbours’, as armies and fleets. The produce of France became contraband in Belgium and Italy, and the produce of Belgium and Italy in France. America solemnized the Peace by a tariff, and England by a corn law. To prohibit whatever is wanted became again the rule in commercial policy. Russia is an agricultural Country: she therefore forbad the import of foreign manufactures. England is abundantly supplied with manufactures: she therefore prohibited corn.
We are inclined to think that the conduct of Russia was practically more mischievous than that of England. She has adhered to the anti-commercial system with far more pertinacity than we have; indeed, every change which she has made has been to add to duties, and to extend prohibitions. But the objections in principle against the exclusion of raw produce seem to us still more forcible than those against the exclusion of manufactures. In the first place, the consumption of the labourer consists principally of raw produce, or slightly worked commodities. No restrictions on the importation of the finer manufactures can affect him. But laws against the importation of raw produce are specifically directed against the labouring population. Their professed object is to diminish, in fact, the principal fund for the maintenance of labour. And, secondly, when an agricultural Country prohibits foreign manufactures, the labourer is, to a certain extent, indemnified by a consequent fall in the price of raw produce. On the other hand, when a manufacturing Country prohibits the importation of raw produce, the price of all commodities, excepting labour, has a tendency to increase, and the labourer finds it more difficult to obtain every article of his consumption.
This may require some explanation. We have already shown, that every additional quantity of raw produce is, generally speaking, obtained at a greater proportional expense. To prohibit the importation of manufactures is, of course, to prohibit the exportation of the raw produce, which otherwise would have been employed in purchasing them. As a smaller quantity of raw produce is wanted, a smaller quantity is produced, and that quantity is produced at a less proportionate expense; labour, though less productive in clothes and furniture, becomes more productive in raw produce; the price of raw produce, therefore, falls, and the labourer, in having less to pay for food, obtains some compensation for having more to pay for other commodities. The greater part of the evil falls on the proprietors of the land. On the contrary, every additional quantity of manufactured produce is obtained, so far as the manufacturing of it is concerned, at a less proportionate expense. Every increase of the supply is accompanied by the introduction of more and better machinery, and by a further division of labour. As in the former case, restrictions on the importation of raw produce are, in fact, restrictions on the exportation of manufactures. Fewer manufactured commodities being wanted, and consequently fewer produced, what are produced are produced at the expense of proportionately more labour than would otherwise be necessary. More raw produce must be raised at home, and that also must be raised at a greater proportionate expense of labour. The price of the one kind of commodities rises, because it has become necessary to produce more, and that of the other, because it has become necessary to produce less. The productiveness of labour is diminished each way, and the only person uninjured is the landlord.
To a certain extent, however, the misdirection of industry by government interference is a necessary evil. The duties of government cannot be performed without a public revenue; nor can a considerable public revenue be raised without taxation; and the struggle to escape taxation always tends to divert industry from its natural channels. The tax which is least open to this objection, a tax on rent, must tend to prevent the application of capital to land; a tax on profits to occasion the exportation of capital; a tax on income derived from property to prevent accumulation; a tax on wages to occasion their payment rather in kind than in money, and to prevent the labourer from acquiring durable and visible property in the hope of pleading his poverty as an excuse. Taxes on specific articles are evaded by the substitution of some less burdened or cheaper commodity. The beer and malt duties are avoided by the substitution of spirits. The duties on tea and coffee by the use of roasted corn. Now, every tax, so far as it is evaded, is simply mischievous. A window blocked up to avoid window tax may diminish the light and air enjoyed by a whole family, but adds nothing to the public revenue. A distinct and a still greater injury arises from taxation imposed on the instruments and processes of industry. The salt tax, while it existed, prevented in a great measure the use of salt in agriculture. The duty on advertisements prevents venders and purchasers from knowing each other’s wants and supplies. The duties on leather, on spirits, and on glass, have not only prevented England from attaining, in the manufacture of those commodities, her usual superiority, but have kept her positively behind the improved part of Europe. To prevent fraud on the Excise, the manufacturer is subject to innumerable regulations and prohibitions incompatible with a proper economy of materials and division of labour, and which bend very reluctantly to improvements. To improve is necessarily to alter, and any alteration in the process prescribed by law may entangle the manufacturer within the meshes of a regulating Act of Parliament.
It is commonly supposed that men are sufficiently ready to grumble at taxation; but the fact that they are very imperfectly aware of the degree and kind of evil indirectly inflicted might be proved from many instances. To select only one. Most persons are aware of the far higher price borne by good malting barley above the ordinary barley used only for feeding stock; nor can any one doubt that the price of beer is materially enhanced by this circumstance. But, probably, not one consumer in ten thousand has any idea that this is connected with taxation. Yet, in fact, a large proportion of the barley set aside as unfit for malting would make, as far as nature is concerned, very good malt, but requires a process somewhat different from that which the Excise regulations prescribe, and is consequently rendered by law useless for that purpose. It may easily be conceived that, if the times and modes of ploughing, harrowing, and sowing, were prescribed by law, a large portion of land now productive would lie waste.
A Country which has been forced by the folly or the rapacity of its own government, or by the folly or rapacity of other States, to raise a large public revenue, suffers in general far more from the indirect than from the direct effects of taxation; suffers more by being prevented from producing, than by being obliged to pay.
The causes which determine the productiveness of labour in the direct or indirect production of the commodities used by the labourer appear, therefore, to be four. First, the personal character of the labourer, his corporeal, intellectual, and moral qualities; secondly, the degree in which he is assisted by natural agents; thirdly, the degree in which he is assisted by capital; fourthly, the degree of freedom with which he is allowed to direct his industry.
Causes which Divert Labour from the Production of Commodities for the use of Labouring Families.