The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface.
• Lecture I.
• Lecture II.
• Lecture III.
• Lecture IV.
• Lecture V.
• Lecture VI.
• Lecture VII.
• Lecture VIII.
• Lecture IX.
• Lecture X.
• Lecture XI.
• Appendix.
• Note On Page 32.
• Page 37.
• Page 39.
• Page 57.
• Page 65.
• Page 133.
• Page 145.
• Page 149.
• Page 164.
• Page 175.
• Page 183.
• Page 203.
• Page 223.

APPENDIX.

Note on Page 32.

Many questions respecting value are sometimes rendered difficult of comprehension, by a complexity necessarily produced by the manner in which the business of life is conducted. This complexity does not affect the truth of any of the conclusions, although as it sometimes detracts from the accuracy of the manner in which elementary principles are simply stated, it may be urged as an objection to the conclusions which are drawn from them. Thus in estimating the cost of production, it may be said that the same land, labour, and capital, are often employed at the same time in the production of several different commodities. These are sold separately, and how then is the cost of production of each to be ascertained. The difficulty of solving this question will disappear, if we attend to the manner in which the cost of production influences the prices of commodities. The demand and supply regulate the price, and the cost of production influences it, by confining the supply to such a quantity as can be sold at a price sufficient to repay the cost of production. But still it is the relation of the supply and demand that immediately regulates the price both of the whole and of each part. But the relative value of the parts may vary with the circumstances that occasion a variation in the demand for the several parts. And in such cases, in general, any circumstance that increases the demand for one part, without increasing the cost of production, will diminish the price of the other parts. For as the cost of production has not increased, the principle of competition will prevent the price of all the parts from being more than the cost of production. And as the demand for one part has increased, its price, and its supply will also increase; but this being necessarily attended with an increased supply of the other parts, for which there has been no increased demand, will diminish the price of those parts.

Thus the freight of goods outwards and homewards ought to pay the expense of the voyage in and out, with the wear and tear of the ship, usual profits, &c. If, then, any circumstance connected with the state of trade, usually creates a greater demand for freight homewards, it will have a proportional effect in diminishing the freight of a cargo outwards. The encouragement therefore given by the present rates of customs to the importation of timber from Canada, has a considerable effect in reducing the freight of all goods sent to America, and of encouraging emigration, by reducing the fares to passengers.

The business of farming is, in this respect, still more complicated. This complexity arises from the necessity of a rotation of crops, and from the manner in which some of the products of agriculture are partially rivals to others, by answering the same purposes. As an illustration, let us consider what would be the effects of the general introduction of turnip husbandry into a country where it was previously unknown. The first effect would be to diminish the cost of production of sheep—the animal fed on that root—and of wheat, as the crop next in rotation, unless so far as those effects might be counteracted by any increase of population. But the effects would not stop here. The produce of the sheep consists of mutton and wool, of which the former would experience only a slight decline of price, as the effect of its lessened cost of production would partially be obviated by driving its rival beef from the market, and thus obtaining an increased demand. The fall therefore in wool, the peculiar product of the sheep, would be more considerable. But as beef sustains a slight fall of price, while the cost of production of black cattle remains undiminished, their peculiar products, viz. hides, cheese, and butter, must experience a corresponding rise, although no alteration has been made in the cost or mode of producing them. A similar train of reasoning would lead us to conclude that if any new use was discovered for hides, which had the effect of producing a great increase in their price, these consequences would follow—a fall in the price of beef and of mutton, and a rise in the price of wool and of wheat. These would be instances of a change taking place in the relative values of commodities, without any alteration in their cost of production: unless by a metaphysical abstraction, not very consistent with our notion of what the cost of production is, we suppose the cost of production of an entire complex commodity, to be appropriated in different proportions to its several parts.

Page 37.

Adam Smith uses the expression “effectual demand” in a somewhat different sense. He understands by it, the demand of those who are willing to pay the natural price of the commodity. Such a demand he calls effectual, “since it may be sufficient to effectuate the bringing of the commodity to market.” The definition I have given in the text will I trust be found a more convenient one, as it is upon effectual demand, so defined, that the prices of commodities depend. The expression “proportion between the demand and supply” is a very indefinite and vague one, and is apt to mislead. To maintain the truth of the proposition, we cannot attach definite and uniform ideas to the terms “proportion,” “demand,” “supply.” To give an instance of the manner in which this proposition may mislead, I shall give an example which shews the fallacy of this doctrine, when accurate deductions are attempted to be drawn from it. I quote from D. G. Lubè, M.A., on the gold currency. “As, then, exchangeable value varies directly as the demand, and inversely as the supply; that is, since the greater the demand, and the smaller the supply, of a given article, the higher will be its value, and vice versa;—any one acquainted with the first principles of arithmetic will know, that it may be expressed by a fraction, whose numerator shall be the relative demand, and denominator the natural supply; for the value of a fraction varies directly as the numerator, and inversely as the denominator. Thus, in general terms, making (d) stand for the demand, and (s) for the supply, the fraction will represent the relative value of each commodity.”—Page 66. Again, “Let us suppose, for instance, that while the demand for food rose, in consequence of the increase of wealth and population, in the ratio of 3 to 5, the supply was at the same time augmented in the proportion of 8 to 9; the value of produce, in the first instance, would be represented by , and in the second, by : any one at all versed in the doctrine of fractions, will know that the first fraction is to the second as 27 to 40. These two numbers then, 27 and 40, will represent the several values of agricultural produce at the periods assumed.”—Page 70.

Page 39.

Colonel Torrens argues, with much ingenuity, that profit does not form part of the cost of production, but that it is the excess of the price of a commodity above its cost of production, and that it is only because it does not form part of the cost of production that it exists at all. The question, however, originates in a verbal dispute, or in a misconception of the meaning of the expression “cost of production.” “Labour” and “profit” are not corresponding terms. To be accurate, we should speak either of labour and capital, or of wages and profits. Adhering to this language, it will be correct to say that commodities are produced by labour and by the employment of capital; and their cost to the consumer, i. e. the price he has to pay for those, is called wages and profit: and those are therefore, relatively to him, the cost of production. In like manner, the cost of production to the capitalist is what the production has cost him; that is to say, the wages he has paid to the labourer, and the use of the capital which he advanced, and which he is deprived of until he is reimbursed by the sale of the commodity. This latter is not profit, indeed, but it is the sacrifice for which profit is required, and by the extent of which the amount of profit is regulated. As profit, therefore, measures this sacrifice, it is not inconvenient, although it may not be accurate, to speak of wages and profits as constituting the cost of production of an article in the possession of the manufacturer. He has paid wages to the labourer, and he has surrendered the profit which he might have derived from any other employment of his capital. Many similar cases will occur to the reader, where, instead of labour, employment of capital, and use of land, we substitute their prices, viz. wages, profits, and rent. As in the case of a small proprietor cultivating his own land with his own capital and labour, he ought to get for the produce an amount equal to the wages he might have earned by his labour, the profit he might have made of his capital, and the rent he could have procured for his land. If it were asked, what does the manufacturer or merchant gain, since he derives a profit only equivalent to the use of the capital he surrenders? I should say that he converts a source of revenue into revenue itself, just as the labourer gains by an employment which converts into a revenue his natural capacity for labour, and as a landlord gains by receiving rent for the productive powers of the soil.

Page 57.

Potatoes appear to be in very bad repute among political economists. Some even hint that the poverty of Ireland is in a great measure to be attributed to the use of this food. The reader may form some idea of the horror with which they have been viewed, by looking to the Index to Mr. M‘Culloch’s edition of Smith’s Wealth of Nations, where, under the title “Potatoes,” he will find a reference for the “rapid and alarming progress of potatoes in France.” Such language would be more applicable, if they eat men instead of feeding them. Something however may be said to vindicate them from the charge of creating or aggravating the poverty that prevails in Ireland. The strongest objection which is urged against the use of potatoes arises from the impossibility of storing them from one year to another. “The whole crop must necessarily be exhausted in a single year; so that when the inhabitants have the misfortune to be overtaken by a scarcity, its pressure cannot be alleviated, as is almost uniformly the case in corn-feeding countries, by bringing the reserves of former years into the market. Every year is thus left to shift for itself.” This is undoubtedly a disadvantage, which, however, I think is compensated by the utility of potatoes as food for cattle. This use, as it were, stores them up for succeeding years; and in times of scarcity, when potatoes rise in price, it then becomes unprofitable to feed cattle with them, and the portion usually devoted to this purpose is drawn out as a reserve to satisfy the wants of the population.

In the three years terminating the 5th January, 1826, the annual average number of swine exported from Ireland to Great Britain was 74,000. Besides that large number of swine, there were exported 340,000 cwts. of bacon and pork. The immense quantity of potatoes which was consumed in fattening those animals, formed a resource out of which the wants of the human population could have been supplied had a scarcity occurred. Although potatoes cannot easily be hoarded or exported, yet pigs can; and potatoes may be considered as the raw materials of which pigs are manufactured. But whatever be the staple food of the people, if the nation is poor, a dearth will occasionally occur; and if we look to the history of England, or of any country at a time when it was as poor as Ireland is now, we shall find that dearths and famines were more frequent there, and more tremendous in their effects than they have been in Ireland during the last thirty years.

A second objection is, that on account of the bulk and weight of potatoes, a scarcity can never be materially relieved by importation. Now, in the case of a poor country with a perfect freedom of trade existing between it and a rich one, which has a similar soil and climate, as in the case of England and Ireland, this immobility of potatoes is rather an advantage to the poorer country. If a scarcity here cannot be relieved by importation, neither can it be aggravated by exportation. If potatoes could easily be transported from place to place, the latter event would most frequently take place. Their price would necessarily rise to the same height in both countries. But prices rise faster in proportion to the scarcity, in a rich than in a poor country, and therefore whenever there was a scarcity common to both countries, exportation would take place from Ireland to England.

It is said that people who live chiefly on butcher’s meat and corn, would probably enjoy a greater quantity of other articles, so that it would be possible for them in times of scarcity to make such retrenchments as might enable them to elude its pressure. Mr. M‘Culloch also observes, that so long as potatoes are used only as a subsidiary species of food, their introduction serves to improve the condition of the labourer, and they frequently afford him additional means of support when there is a failure of the corn crops. Now I do not understand how potatoes can afford additional means of support to corn-fed people in times of scarcity. Where are the potatoes to come from? They surely are not grown as a reserve for years of scarcity, to be thrown away in years of ordinary plenty. The ordinary cultivation will be the ordinary consumption, and there will not be an additional supply of potatoes to compensate for a deficient harvest of corn.

As to the possibility of eluding the pressure of a scarcity of provisions by a retrenchment of other articles, that (putting importation out of the question) is impossible. A single family may do so, but an entire population, however wealthy, cannot. In this respect the poorest and the wealthiest countries are on an equality. If the supply is deficient one fifth, the consumption must diminish one fifth. If the population is wealthy, prices will rise very high to enforce that diminution of consumption. If it is poor, a smaller rise of price will produce the same effect, and that is all the difference. The demonstration of this is obvious.

What gives an appearance of plausibility to the common declamations against the use of potatoes is, that they confound the custom of living chiefly upon potatoes with the poverty which introduces that custom. And then it is argued that people who live upon Bread and beef, can more easily purchase articles of furniture and of clothing, and will form a richer and more comfortable population than those who have the means of procuring nothing more expensive than potatoes. This is true. But the question is, whether the use of the potato produces poverty, or aggravates its evils, or the contrary. On this head the principal complaint is that it is a cheap, and wholesome, and palatable food, and consequently produces an inconvenient increase of population, and that this increase of population lowers the wages and depresses the condition of the labourer. Also it is said to be favourable to the comfort of the population, that the price of subsistence should bear a high proportion to the price of comforts and decencies, for that then the number of those who enjoy such comforts and decencies will bear a high proportion to the number of those who possess but the means of a bare subsistence. And it is said that the introduction of such a cheap food as potatoes, prevents the existence of that high proportion. I shall consider separately those arguments, which indeed are not very consistent with each other.

It is certain that in any given state of the population, the cheapness of food, arising from a facility of production, cannot be injurious to the inhabitants. It will not lower their habits, nor depress their condition, but it will have the directly contrary effect. The real wages of their labour do not depend upon the price of provisions, but upon the value of the articles which their labour produces. Of that sum, the less is required to purchase food, the more will remain to purchase other things. The labourer’s condition will be the more elevated, and he will find it the easier to provide the comforts and decencies of life for himself and his family. But it is said, such a state of things cannot last. The facility of procuring food will produce a redundant population, inconsistent with the prosperity of the labouring classes. But admitting that the population will increase with great rapidity, what injurious effect has this on the condition of the labourer. Even upon the principles of the anti-populationists, it only affects him by creating a difficulty of procuring food, by increasing the cost of production, and thus raising its price. The necessity of resorting to inferior soils, so far as it is not counteracted by agricultural improvements, reduces the wages of labour as measured in provisions; but other consequences of an increase of population, are, a better system of a division of labour, increased facilities of conveyance, improvements in manufactures: all these increase the command of the labourer over all the conveniences and decencies of life. Thus, if food is too cheap in comparison with articles of clothing and furniture, an increase of population is the remedy. An increase of population produced by cheapness of food cannot therefore be deemed an evil, unless a man is prepared to maintain, that cheap food, which would otherwise be a good, is an evil, merely because of its tendency to increase the population, and that an increase of population, which would otherwise be a good, is an evil, merely because of its tendency to raise the price of food.

It is an advantage to a country to be supplied with cheap food, when that cheapness results from a low cost of production. But the poverty of a country may also be the cause of provisions being cheap. They are then cheap, not because they are easily produced, but because the labour which produces them is of little value, and is sold cheap. Unfortunately this is the chief cause why potatoes are so cheap in Ireland. Many circumstances have thrown difficulties in the way of employing capital in Ireland. Either from natural disposition or education, the Irish labourer is a bad workman. Property and life are not adequately protected, and notwithstanding the low wages of Irish labour, it is not found a profitable expedient to employ it in manufacture. However, the influence of those causes is probably on the decline. A fuller protection will be afforded to property and life, capital will flow in, the Irish will become more industrious, more skilful, more honest workmen, and will receive a better remuneration for their labour. When this takes place, potatoes will rise in price, as the labour employed in their production will become more valuable. Dearness is only an evil when it arises from the quantity of labour employed in production, but when it arises from the high price of that labour, it is an indication of prosperity. On the other hand, when cheapness of provisions is caused, not by the low cost of production, but by a low price of labour, it is a symptom of poverty, but it alleviates that evil, although it indicates its existence.

Another charge is brought against potatoes, which, if it were well founded, would indeed be a most serious one. It is alleged that the potato crop is irregular, uncertain, and extremely liable to failures. As a proof of this it is asserted that in bad seasons the price has frequently risen to three times the price of ordinary years. I believe that at the commencement of the present century, wheat was nearly three times its present price. That, certainly, does not frequently occur with respect to potatoes: in my own experience I never knew it to take place. While writing this, a book was sent in to me, and the wrapper about it was a sheet of a report made in 1818, on the cause of the typhus fever which had then lately been raging in Ireland. This report attributed the origin of the fever in certain parts of Ireland to the sufferings of the peasantry, arising principally from the dearness and scarcity of food—potatoes, it said, being at the time the fever appeared, from 3½d. to 4d. a stone. The report proceeded to state the abatement of fever in the following year, which led some to think that the epidemic had worn out. But the framer of the report attributed this beneficial change to the comfortable condition of the peasantry—potatoes, it said, being then only 3d. a stone. If a variation in the price of potatoes, in the proportion of 3 to 1, was of frequent occurrence, a variation from 4d. to 3d. would not have been spoken of, as if those prices were the extremes.

But the variations which take place from year to year are not entirely to be laid to the blame of the potato. Our customs and husbandry are the principal cause. First, in many parts of Ireland, potatoes are not a regular marketable article. It is the custom for every labourer to take from a rood to an acre of land, on which he plants potatoes for his own family. Thus, at the commencement of the season, each person is entrusted with the entire store destined for his own consumption, or at least with a very great part of it. It is evident that in a year of scarcity this custom has the effect of preventing that rigid economy which otherwise would mitigate the scarcity, by spreading the deficiency over the entire year. Any single husbandman may happen to have a bad crop in a good year. A scarcity, therefore, in his little store does not alarm him, nor prevent him from dispensing the usual supply of potatoes to himself, his family, and his pig. Were he obliged from the commencement to resort to the market for food, the rise of prices would indicate the scarcity, and would enforce a timely attention to economy, and thus prevent the occurrence of a dearth.

Those little husbandmen, too, are necessarily bad farmers. They have no selection of land in which to plant their potatoes; they are obliged to put up with any land they can get, and from want of capital they are unable to lay out a sufficient quantity of manure upon the land. So hardy is the potato, that in ordinary years it yields a tolerable crop, and it ought not hastily to be reputed a variable crop if it fails in bad seasons, when badly cultivated upon land in which it ought never have been planted.

The potato, when properly cultivated, suffers less from unfavourable weather than any kind of corn. Excessive drought or excessive wet are its only enemies, and of all inclemencies of the weather the effects of those can best be remedied by agricultural skill and capital. With proper drainage the potato will bear rain and wind that will lodge, or rot, or blight half the corn in the country, and in years of drought they can be watered without much expense. It is probable that the present generation will witness the general introduction of machines for this latter purpose.

I have merely alluded concisely to the arguments that may be urged in defence of potatoes, because I think that the presumption is entirely in their favor. He who argues against them should make out a very strong case. Providence has bestowed upon the world a prolific, wholesome, and palatable vegetable. These qualities must insure its general cultivation in all countries adapted to its growth. And it is a hard matter to believe that the introduction of this plant should naturally and almost inevitably introduce general distress. It would be a singular instance of permanent national unhappiness, being introduced by any thing except a course of irreligion, vice, or folly.

Page 65.

“The proportion between the different rates both of wages and profit in the different employments of labour and stock, seems not to be much affected, as has already been observed, by the riches or poverty, the advancing, stationary, or declining state of the society. Such revolutions in the public welfare, though they affect the general rates both of wages and profit, must in the end affect them equally in all employments. The proportion between them, therefore, must remain the same, and cannot well be altered, at least for any considerable time, by any such revolutions.”—Wealth of Nations, Book I. Chap. 10.

Page 133.

In “Ella of Garveloch,” one of Miss Martineau’s ‘Illustrations of Political-Economy,’ the doctrine is very boldly asserted, that it is the taking and cultivation of inferior soil that subjects the better land to the payment of rent.

Page 145.

Mr. Ricardo contends that tithes, by raising the price of agricultural produce will fall wholly on the consumer. They will be, as it were, an addition to the cost of production. In this he falls into an error which occurs frequently in his work, namely, that of supposing that the cost of production influences the price without diminishing the supply. As if men first determined what they should consume, and then had the goods made according to order, and paid the cost of production, because on such terms only would the goods be produced for them. He says, “goods rise, because otherwise the requisite supply would not be afforded.” The fact is that goods rise because the producers limit the supply, as well as they can calculate, to such an amount as they hope to dispose of at a remunerating price, and when they miscalculate and produce too much, prices fall, notwithstanding the cost of production, and the producers suffer a loss, and are compelled not to produce such an abundant supply. This is most evident in the very case of agricultural produce, where the price varies from year to year, and is never fixed as the average. In an abundant season prices fall, and the consumer does not pay more in order to encourage the producer on future occasions to raise the requisite supply; and in a season of scarcity prices rise above the cost of production.

The effect of tithes, supposing the population to be unaffected, and putting importation and exportation out of the question, would be, by raising prices to tax the consumer, and by diminishing the usual consumption and production to reduce rents.

Mr. Ricardo makes a distinction between high prices as caused by a scarcity, and as caused by a great cost of production. I cannot recognise the propriety of such a distinction. An increase of price can only be produced by a diminution in the supply or an increased intensity of demand. The latter may be produced by the increased wealth of the population, the former by an increased cost of production. But in this case it is the diminution of the supply, not the increased cost of production, that increased the prices. If no change had taken place in the cost of production, the same diminution of supply would be necessary and sufficient to produce precisely the same increase of price.

The same opinion, that an increase in the cost of production of an article will raise its price without diminishing its consumption, combined with some confusion in reasoning, led Mr. Ricardo to assert that a tax upon the profits of the farmer would be advantageous to the landlord.

Page 149.

“In short, let the Ricardo economists turn and torture the thing as they will, rent is nothing more than the interest of the capital laid out in the purchase of, or improving the land; the value of which depends not so much upon the fertility, as on the situation and the uses to which it may be applied.”—Lube on the Gold Currency, page 25.

Page 164.

I consider the consumption by labourers to be as strictly unproductive as the consumption of rich landlords or capitalists. The opposite opinion appears to lead to several serious errors, and is, I think, founded upon a false analogy, and a misconception of the nature of productive consumption. The distinction I have made between productive and unproductive consumption, is by the object which the consumer has immediately in view in the consumption. If the object is profit, or to transfer a value to some commodity, then the consumption is to be deemed productive. But if the maintenance or enjoyment of the consumer is the object which he has in view, and the value is not, by such consumption, transferred to some other commodity, the consumption may be considered as unproductive consumption. This is the only distinction which can be consistently adhered to. On any other distinction, it will not be found easy to give an answer to such questions as these. If two labourers earn, the one ten shillings, the other twenty shillings a week, and if the latter spends fifteen shillings, and saves five, how much of his consumption is to be deemed productive? Is it the ten shillings which he spends on necessaries, or is the five shillings to be added which he spends on luxuries? In either case his labour adds a value to the work beyond the amount of his consumption, and which would not be increased or diminished by an increase or diminution of his expenditure. The value added by the toil of the labourer to any commodity, is the value of his labour, that is, the amount of his wages. It certainly is not equal to the amount of both his wages and his consumption, and it would be an inconvenient and unnecessary enumeration to say, that the value of his labour is equal to the amount of what he spends in necessaries and in luxuries, and of what he saves.

Persons are misled by a false analogy. Inanimate matter has no will, no choice to work or to refuse, no power to select a master. It therefore does its work gratuitously, and therefore the work done has no value except that which is caused by the expense of making and working the machinery. The supply is not limited by any other principle. If a greater value was created by their work, more machines would be made and worked, until the increased supply reduced the value produced by them to the amount just stated. But in the case of men the matter is different. They may work or not, as they think proper, and the number of men willing to work at any time is limited, and an additional supply cannot be immediately procured. They may choose their masters and their employments, and make terms for themselves, and are not driven like machines to work for such a sum as in the most economical manner will be sufficient to keep them in repair, and to supply them with the commodities necessarily consumed during the work. The wages of labour can never sink to this limit, and have not even any tendency to approach it.

This opinion, together with an error as to the source from which profit is derived, has led to the agricultural theory which represents land as the only source of wealth. The supporters of this theory alleged that land, besides the wages of the labourer, and the profit of the farmer, yields a net surplus produce which is paid as rent to the landlord; but that in manufactures, no value is added to the manufactured commodity, except the value of the provisions and other articles consumed by the labourer during the progress of the work. No value therefore is created by such labour, since the labourer is consuming for his support as much as he is producing by his toil.

Now this argument proceeds upon a total disregard of the productive power of capital, which is the source of profit, and without injury to the consumer or labourer, produces a surplus equally net as the rent of land. Besides, the value produced by the labourer, or the wages he receives, may much exceed the value consumed by him. He may be a painter of eminence, annually creating a value of £10,000, and perhaps not spending £1,000. But even the sum consumed by the labourer does not detract from the value produced by him. The necessity he lies under of procuring food and raiment is not caused by his labour. The ultimate object of all production is consumption, and I would not deem any labour unproductive of wealth or utility merely because the value of the produce is shortly afterwards consumed by the labourer and his family. The two very opposite errors are nearly allied—that of considering the artisan’s consumption as productive, and his labour as unproductive. It might with as much reason be contended that land does not produce any wealth, since the net surplus it yields is punctually consumed by the landlord. There are in the savings banks in England several millions of money, deposited there by labourers, whose wages must to at least that amount have exceeded their consumption.

Page 175.

Those who argue against the proposition, tacitly admit the propriety of the correction relating to the time. For they omit an obvious argument that would be perfectly valid if the correction was not implied; I mean an argument founded on the supposition that the return remaining the same as before, and the advances to labourers remaining the same, the return by the introduction of some improvement, should be yielded at a less interval of time from the period when the advance was made. This, it might then be argued, would not alter the proportional wages, while it would increase the rate of profit per cent. per annum.

Page 183.

Some idea of this doctrine appears to have passed through the mind of Adam Smith; but he did not dwell upon, nor form it into a system. “When the most fertile and best situated lands have been all occupied, less profit can be made by the cultivation of what is inferior both in soil and situation, and less interest can be afforded for the stock which is so employed. In the greater part of our colonies, accordingly, both the legal and the market rate of interest have been considerably reduced during the course of the present century.”—Wealth of Nations, Book I. Chap. 9.

Adam Smith appears not to have possessed much taste or capacity for long or subtle trains of reasoning. The “Wealth of Nations” is written with very little attention to system, and this circumstance has probably tended to increase its utility. It prevented any error from infecting the entire work. An erroneous principle could never lead the author far astray. He possessed all the qualities necessary for writing a most useful work, while the science was yet in a rude imperfect state. Strong good sense, freedom from prejudice, extensive information, love of truth, and profound observation, are the qualities eminently displayed by the author of the “Wealth of Nations.”

Page 203.

The expense of supporting the labourer in that style which he has been accustomed to consider indispensable to his decent subsistence, has no effect in regulating the rate of his wages. The mode in which he usually lives is dependent upon the amount of the wages he usually receives, and not on the latter upon the former. The relation of the labourer to his income and expenses is the same as that of the landlord and capitalist to theirs. In all cases alike you may reasonably presume that the income of any class of men is large, if you observe them habitually incurring great expenses; but in all cases alike I conceive it to be plain, that the income of no class of men can be kept up or prevented from sinking by continuing the expenses in which they were accustomed to indulge in better times. This appears sufficiently evident without proof, or is best proved by the investigation which I have attempted to give of the source from which the income of each class is derived, and the circumstances by which the amount of it is regulated.

But it may not be useless to remark upon a few facts which appear to countenance the opinion that the wages of the labourer depend upon the price of the articles on which he expends them. The first is, that wages are generally high in great towns, where provisions are usually dear, and the expenses of living great. This, however, depends upon the principles which regulate the relative, not the absolute, wages of labourers. The expense of living in a large town is a disadvantage which must be compensated by increased wages, otherwise labourers would remove from the town to the country, until, from the scarcity of labourers, wages in town should rise to such an amount as to make up for the expense of living in town. But does the same argument apply to the case of a difference of price of provisions in different times. The labourers have not the power of adjourning their existence from one period of time to another, in the same manner as they can remove from town to country, if such removal will increase the amount of the necessaries of life which their wages can command. The cases are not analogous, therefore, since the cause which operates in one, does not exist in the other.

I may also remark, that the high wages of labourers in large towns arises, in part, from their superiority in skill, as the best workmen naturally flock to the place where employment is most easily procured, and where competition is greatest. Another cause why the rate of wages sometimes appears to be affected by the price of provisions is, that the price of provisions is in reality affected by the rate of wages and the wealth of the labourer. If the quantity of food bears the same proportion to the population in two different periods or countries, the price of provisions will be greatest in that period or country where the labourer can afford to pay the most for his food.

As no inference can be drawn from those facts, the doctrine must depend upon argument. The following is the argument usually used to prove that the wages of the labourer depend upon the expenses incident to his condition. If the wages of the labourer are more or less than a certain amount, proportioned to the expense of supporting a labourer according to the usual style of living among his class, the population will increase or diminish until wages rise or fall to that amount. I shall not now enter upon a full discussion of an argument involving the complicated question of population. The argument is fallacious, even if the facts upon which it is founded were true; but I believe no example was ever found where the population diminished or ceased to increase, while the labourers had the power of supporting their usual average families by giving up a portion of their usual comforts. They never will embrace that alternative which would affect the population. I said that the argument was fallacious, because it only goes to prove that the population would diminish, until at the expiration of a considerable period, wages would rise to their former amount. The intermediate time, being equal to at least one generation, would afford space and opportunities for a change of habits, feelings, and circumstances to arise among the labourers.

The doctrine is carried frequently much farther than any supporter of it attempts to push the proof. Miss Martineau, in her Tale entitled “French Wines and Politics,” lays down the doctrine, that in a season of scarcity the wages of labour will rise so as to preserve their usual proportion to the price of provisions, although no increase will, at the same time, take place in the price of commodities produced by labour. What is the inducement to employ a labourer, if his wages will cost more than the produce of his labour? Is it physically possible, in a time of scarcity, that every person can obtain his usual portion of provisions out of the deficient supply? Does experience shew that in a scarcity the wages of labour sustain any increase?

This opinion, which Miss Martineau is singular in supporting, is anticipated by Mr. Ricardo, and easily refuted.—(Principles of Political-Economy, page 177. See also the quotation in page 247.) Mr. Ricardo’s own opinion is not, however, more correct—“The price of labour will express, clearly, the wants of the society respecting population; it will be just sufficient to support the population, which at that time the state of the funds for the maintenance of labourers requires. If the labourer’s wages were before only adequate to supply the requisite population, they will, after the tax imposed upon wages, be inadequate to that supply, for he will not have the same funds to expend on his family. Labour will therefore rise, because the demand continues, and it is only by raising the price that the supply is not checked.”—(Ricardo, page 251.) I should say that the “wants of the society respecting population” are the number which the society can support in happiness and comfort. This depends, among other things, upon the institutions of the country, and it is possible that a bad law, by diminishing that number, may diminish the wants of the society respecting population. Mr. Ricardo argues thus:—The wages of labour indicate the wants of the society respecting population, because they enable the society to support that population. He assumes then, without reason, that a circumstance tending apparently to diminish those wages, will leave unaffected the wants of the society, which are measured by those wages, and that therefore the wages of labour will remain as before. Mr. Ricardo’s opinion is, that a tax upon wages falls entirely upon profits. I have shewn that a moderate tax upon wages would be sufficient to absorb profits if it fell upon them, and therefore a tax a little greater must partially fall upon wages, even if the capitalist were altogether to surrender his profit. The concluding paragraph which I have quoted from Mr. Ricardo, expresses clearly the great error respecting the nature of the operation of the cost of production, which pervades his entire work—“It is only by raising the price that the supply is not checked.” The true statement would be—It is only by checking or limiting the supply that the price is raised up to the cost of production. In a note upon tithes, I have shewn an instance of the operation of this error of Mr. Ricardo.

The next writer who has pushed to an extreme length the principle against which I am contending in this note, is Mr. Sadlier, one of the first of political economists, if he will permit himself to be ranked among them. He has the following passage: “I understand it to be a universally acknowledged axiom, that the wages of labour have a constant tendency to accommodate themselves to the actual average expenses of those rendering it. If there be the least truth in this, the proposal to the working classes that they should diminish their expenditure in order to save money, would only have the effect, if attended to universally, of decreasing the remuneration of their labour precisely in the same proportion as they had diminished their comforts.” Mr. Sadlier is not so inconsistent as to think that such a reduction would be brought about by an increase of population; but he thinks such economy would produce idleness, as men will only labour up to their necessity. I believe, however, that it is universally found to be true, that the principle of saving, when once it has taken possession of the mind, is a much stronger motive to exertion than the desire to spend.

Page 223.

Mr. Ricardo frequently asserts that wages and profits together are always of the same value, and that nothing but a rise in one can produce a fall in the other. He uses the term “wages,” sometimes to signify the absolute wages which the labourer receives, and sometimes as the proportional wages. This did not arise from an abuse of words or a confusion of ideas, it was the natural and necessary consequence of a hypothesis, which for simplicity of illustration, he laid down at the commencement of his work. He assumes that any given quantity of gold, or the metal of which money is made, is always produced by the same quantity of labour, with the same quantity of fixed and circulating capital employed at the same interval of time before its its production. On this hypothesis, if gold is raised from mines within the kingdom, absolute money wages will be identical with, and be measured by, proportional wages, and a rise of wages, that is of money wages, will always be accompanied by a fall of profits.

THE END.