The Online Library of Liberty

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• Preface.
• Conversation I.: Introduction.
• Conversation II.: Introduction — Continued.
• Conversation III.: On Property.
• Conversation IV.: On Property— Continued.
• Conversation V.: On the Division of Labour.
• Conversation VI.: On Capital.
• Conversation VII.: On Capital — Continued.
• Conversation VIII.: On Wages and Population.
• Conversation IX.: On Wages and Population. Continued.
• Conversation X.: On the Condition of the Poor.
• Conversation XI.: On Revenue.
• Conversation XII.: On Revenue Derived From Property In Land.
• Conversation XIII.: On Revenue Derived From the Cultivation of Land.
• Conversation XIV.: On the Revenue of Those Who Do Not Employ Their Capital Themselves.
• Conversation XV.: On Value and Price.
• Conversation XVI.: On Money.
• Conversation XVII.: Subject of Money Continued.
• Conversation XVIII.: On Commerce.
• Conversation XIX.: On Foreign Trade.
• Conversation XX.: Continuation of Foreign Trade.
• Conversation XXI.: Subject of Foreign Trade Continued.
• Conversation XXII.: On Expenditure.

CONVERSATION XI.

ON REVENUE.

mrs. b.

In our last conversation we have in some measure digressed from our subject; but I trust that you have not forgotten all we have said upon the accumulation of capital. Let us now proceed to examine more specifically the various modes in which it may be employed in order to produce a revenue or income. Capital may be invested: —

• In Agriculture,
• Mines,
• Fisheries,
• Manufactures, and
• Trade.

caroline.

Of all these ways of employing capital, agriculture, no doubt, must be the most advantageous to the country, as it produces the first necessaries of life.

mrs. b.

In these northern climates it is almost as essential to our existence to be clothed and lodged as to be fed; and manufactures are, you know, requisite for these purposes.

caroline.

True; but then agriculture has also the advantage of furnishing the raw materials for manufactures; it is the earth which supplies the produce with which our clothes are made and our houses built.

mrs. b.

Yet without manufactures these materials would not be produced; it is the demand of the manufacturer for such articles which causes them to be raised by the farmer; agriculture and manufactures thus re-act on each other to their mutual advantage.

caroline.

No doubt; but still it does not appear to me that they can be equally beneficial to the country. Manufactures do not, like agriculture, actually increase the produce of the earth; they create nothing new, but merely put together under another form the materials with which they are supplied by agriculture.

mrs. b.

True: but by such operations they frequently increase the value of these materials an hundred fold. The powers of man in processes of art are unquestionably inferior to those of nature, in the production of vegetation; for its operations consist not merely in a new system of chemical or mechanical combinations, but in the formation of organised bodies, endowed with the principles of life and of reproduction. You are mistaken, however, if you suppose that, in agriculture, any more than in manufactures, a single new particle of matter is created; it is merely by a new system of arrangements performed in that great laboratory of nature, the bosom of the earth, in a manner which eludes our observation, that the wonders of vegetation are developed.

caroline.

But in agriculture nature facilitates the labours of man; she seems to work together with the husbandman; and, provided that he but ploughs the field and sows the seed, she performs all the remainder of the task. It is nature that unfolds the germ, and raises up the plant out of the ground; she nourishes it with genial showers, she ripens it with sunbeams, and leaves the farmer little more to do than to gather in the fruits of her labours.

How different is the case in manufactures! There man must perform the whole of the work himself; and, notwithstanding the aid he derives from his mechanical or chemical inventions, it is all the result of his own toil; whether it be the labour of the head or the hands, it is all art.

mrs. b.

We are accustomed to speak of art in opposition to nature, without considering that art itself is natural to man. A state of nature in the human species, is a course of progressive improvement. Man is endowed with the faculties of invention and contrivance, which give him a considerable degree of command over the powers of nature, and render them in a great measure subservient to his use. He studies the peculiar properties of bodies in order to turn them to his advantage; he observes that light bodies float on the surface of the water, and he builds himself a boat; he feels the strength of the wind, and he raises sails; he discovers the powers of the magnet, and he directs his course by it to the most distant shores: but the water which supports the vessel, the wind which wafts it on, and the magnet which guides it, are all natural agents compelled by the art of man to serve his purposes.

We cannot, therefore, say that it is in agriculture alone that nature lends us her assistance. The miller is as much indebted to nature for grinding his corn as the farmer is for raising it. In manufactures, her share of the labour is sometimes even more considerable than in agriculture. You may recollect our observing, that the effect of machinery in facilitating labour consists chiefly in availing ourselves of the powers of nature to perform the principal part of the work; and there are some chemical processes of art for which we seem almost wholly indebted to nature. In bleaching, it is the air and light which perform the entire process; in the preparation of fermented liquors, we are ignorant even of the means which nature employs to accomplish this wonderful operation. In short, it would be difficult to point out any species of labour in which nature did not perform a share of the task.

caroline.

That is very true; and it requires only a little reflection to discover how much we owe to her assistance in every work of art. We could not make a watch without the property of elasticity natural to steel, which enables us to construct a spring; nor could the spring be fabricated without the natural agency of fire, rendered subservient to art.

But, Mrs. B., in agriculture we avail ourselves of machinery as well as of those secret operations of nature which produce vegetation.

mrs. b.

Undoubtedly we do; for every tool which facilitates manual labour is a machine — the spade and hoe, which save us the trouble of scratching up the earth with our hands — the plough and harrow, which still more facilitate the process — the flail, which prevents the necessity of rubbing out the corn — and the threshing-machine, which again diminishes the labour. Machinery is, however, not susceptible of being applied to rural occupations with the same degree of perfection as to the arts, because the processes of agriculture are extremely diversified, carried on over an extensive space, and dependent to a very considerable degree on the vicissitudes of the seasons, over which we have no control.

Agriculture, manufactures, and commerce, are all essential to the well-being of a country; and the question is not whether an exclusive preference should be given to any one of these branches of industry, but what are the proportions which they should bear to each other, in order to conduce most to the prosperity of the community.

caroline.

That is all I ask. I never imagined that every other interest should be sacrificed to that of agriculture; but I feel persuaded that, in this country at least, trade and manufactures meet with greater encouragement than agriculture.

mrs. b.

That is a point on which I cannot pretend to decide; and when you are a little better acquainted with the subject, you will be more aware of its difficulties.

caroline.

But surely political economists ought to know in what proportions the capital of a country should be distributed among these different branches of industry?

mrs. b.

It is not easily ascertained; because these proportions vary exceedingly in different countries, according to their local situation or peculiar circumstances. In America, for instance, or any new country in which land is cheap, population but thinly scattered, and capital scarce, the prevailing branch of industry will be agriculture. For in such countries, when a labourer accumulates a little money, which (where wages are so high) he is soon enabled to do, he is immediately tempted, by the cheapness of land, to lay it out in a farm; and though the wealth of the Americans is so rapidly increasing, they have hitherto found it more advantageous to import the greater part of their manufactured goods, than to establish manufactures at home, a circumstance not so much to be ascribed to a deficiency of capital, as to their having a more profitable use for it.

caroline.

And in England, where the population is abundant, and land comparatively scarce, we must find it advantageous to take their corn in exchange for our manufactures.

mrs. b.

No doubt; if old countries were not to purchase elsewhere some part of the agricultural produce they consume, new countries would not raise more than they required for their own consumption, for want of a foreign market to dispose of it.

In this country, where land is dear, if a labourer make a little money, he never thinks of purchasing land; he cannot even afford to rent a farm; but he may set up a shop, or invest his capital in a manufacture.

There are other circumstances which affect the destination of capital; such as the local situation of a country: if it abound with rivers and sea-ports, as is the case with England, so great a facility for the disposal of its manufactures in foreign parts will render that branch peculiarly advantageous.

caroline.

So then if agriculture suits one country best, manufactures are more profitable to another, and thus they mutually accommodate each other?

mrs. b.

Exactly. If in England the proportion of capital employed in manufactures be more than is requisite for our own use, it is because we find our advantage in supplying other countries with manufactures in exchange for their produce, and that advantage arises from our being able to import it cheaper than we could produce it at home. Agriculture thus leads to manufactures and trade, as youth leads to manhood; the progress of the former is the most rapid, the latter adds the vigour and stability of mature growth. Garnier, in his Introduction to his French edition of Adam Smith’s Essay, remarks on this subject, that, —

“It is almost in every instance an idle refinement to distinguish between the labour of those employed in agriculture, and those employed in manufactures and commerce; for wealth is necessarily the result of both descriptions of labour, and consumption can no more take place independently of the one than of the other. It is by their simultaneous concurrence that any thing becomes consumable, and of course that it comes to constitute wealth. The materials of all wealth originate in the bosom of the earth, but it is only by the aid of labour that they can ever truly constitute wealth; it is industry and labour which modify, divide, and combine the various productions of the soil, so as to render them fit for consumption.”

caroline.

But, Mrs. B., though political economists cannot specify the proportion of capital which should be employed in these several branches of industry, have they no means of judging whether it is actually distributed in that proportion which is most conducive to the welfare of a country? Men follow their own taste and inclination in the employment of their capital, and I fear the public benefit has very little weight in the scale.

mrs. b.

Fortunately, there is a better guide than mere inclination to regulate our choice in the employment of capital, and that is interest. Men are induced to invest their capital in those branches of industry which yield the greatest profits; and the greatest profits are afforded by those employments of which the country is the most in need.

caroline.

I do not exactly understand why there should be such a perfect coincidence between the wants of the public and the interest of the capitalist?

mrs. b.

The public are willing to give the highest price for things of which they stand in greatest need. Let us suppose there to be a deficiency of clothing for the people; the competition to obtain a portion of it raises the price of clothing, and increases the profits of the manufacturer of clothes. What will follow? Men who are making smaller profits by the cultivation of land will transfer some of their capital to the more advantageous employment of manufacturing clothes; in consequence of this more clothes will be made, the deficiency will no longer exist, the eager competition to purchase them will subside, they will fall in price, and reduce the profits of the manufacturer to those of the agriculturist — or, should these profits fall still lower, the farmer will take back the capital he had placed in manufactures to restore it to agriculture.

But though it is true that such transfers of property will eventually take place when one mode of employing capital becomes permanently more profitable than another, yet it is a work of time and of suffering; for a man will bear many losses before he will be induced to encounter the difficulties and disadvantages of a total change of occupation.

caroline.

A total change of business cannot be easily accomplished: the skill and experience acquired in one branch of industry might be quite useless in another; then the machinery of manufactures can no more be converted into implements of husbandry, than the latter could be rendered serviceable to the manufacturer. I should suppose that a farmer could not transfer his capital to manufactures or trade, nor a manufacturer or merchant to agriculture, but under disadvantages almost insuperable.

mrs. b.

Very true; and fortunately this is not requisite in order to restore the level of profits when its variations are slight or temporary.

In all rich countries there are many persons who live on the income produced by lending their money at interest, and there are few merchants or manufacturers who limit their dealings to the employment of their own capital, without having recourse to the loans of these monied men. When the profits of any particular branch of industry are found to be rising above the common level, those engaged in it are induced to borrow more in order to enlarge their dealings, whilst some other branch of industry which experiences a diminution of profit, contracts its dealings and discontinues borrowing. Mr. Ricardo observes* , that “When the demand for silks increases, and that for cloth diminishes, the clothier does not remove with his capital to the silk trade, but he dismisses some of his workmen, he discontinues his demand for the loan from bankers and monied men; while the case of the silk manufacturer is the reverse: he wishes to employ more workmen, and thus his motive for borrowing is increased: he borrows more, and thus capital is transferred from one employment to another, without the necessity of a manufacturer discontinuing his usual occupation.”

caroline.

Then the profits of agriculture and manufactures will always be, or at least tend to be, upon a footing of equality?

mrs. b.

Yes; tend to be: that is a very proper qualification, for these changes are not produced on a sudden. The tendency to equalization of profits takes place not only in agriculture and manufactures, but in every other branch of industry. In a country where capital is allowed to follow its natural course, it will always flow into that channel which affords the highest profits, till all employments of capital are nearly upon the same level.

caroline.

You say nearly, — why not exactly the same?

mrs. b.

Because, generally speaking, agricultural pursuits are more congenial to the tastes of the majority of mankind than manufactures or commerce: and hence, in countries where fertile land is to be obtained at an easy rate, a man no sooner acquires a little capital than he is desirous of purchasing land, and retiring even to remote and almost unpeopled districts, where he can live as the lord of his little domain; as is the case in America at present. Yet this preference will not lead beyond a certain limit; therefore it may be stated that the profits of different employments of capital are nearly upon a level.

caroline.

How admirably nature makes all her arrangements! The more I learn of political economy, the more it appears to me, that the institution of laws which control her operations are generally productive of greater evil than good.

mrs. b.

That may frequently be the case, but generally is too comprehensive a term. Every law that is enacted infringes more or less upon the natural order of things; and yet I should not hesitate to say, that the worst system of laws is preferable to no government at all. Art, we have observed, is natural to man; it is the result of reason, and leads him onwards in the progressive path of improvement. Instead of being chained down like the brute creation by instinct, he is free to follow where inclination leads. But as soon as he enters into a state of society, he feels the necessity of a control which nature has not imposed, and his reason enables him to devise one. He enacts laws which are more or less conducive to his good, in proportion as his rational faculties are developed and cultivated. Many of these laws, no doubt, are inimical to his welfare; yet the balance upon the whole is in their favour; the advantages resulting from the single law of the institution of property have conferred a greater benefit on mankind than all the evils which spring from the worst system of government.

caroline.

But this level — this equality of profits to which you say every branch of industry naturally tends, cannot yet have taken place in England, since manufactures and trade are here allowed to yield greater profits than agriculture.

mrs. b.

You are mistaken in that opinion. It is true that it is more common to see merchants and manufacturers accumulate large and rapid fortunes than farmers. They are a class who generally employ capital upon a more extensive scale, hence their riches make a greater show. Yet, upon the whole, trade and manufactures do not yield greater profits than agriculture.

caroline.

I cannot understand why the merchant and manufacturer should grow richer than the farmer, unless they make larger profits.

mrs. b.

You must observe that though a farmer does not so frequently and rapidly amass wealth as a merchant, neither is he so often ruined. The risks a man encounters in trade are much greater than in farming. The merchant is liable to severe losses arising from contingencies in trade, such as war, changes of fashion, bad debts, which scarcely affect the farmer; he must therefore have a chance of making proportionally greater profits.

caroline.

That is to say, that the chances of gain must balance the chances of loss?

mrs. b.

Yes; the merchant plays for a larger stake. If therefore he be so skilful or so fortunate as to make more than his average share of gains, he will accumulate wealth with greater rapidity than a farmer; but should either a deficiency of talents or of fortunate circumstances occasion an uncommon share of losses, he may become a bankrupt.

caroline.

But, Mrs. B., you should, on the other hand, consider that the farmer is exposed to the risk attending the uncertainty of the seasons; a cause which is continually operating, and over which we have no control.

mrs. b.

Yet, in these climates, the losses occasioned by such causes are seldom attended with ruinous consequences; for seasons which prove unfavourable to one kind of produce are often advantageous to another. And, besides, the produce of agriculture consisting chiefly of the necessaries of life, the demand for it cannot well be diminished, and the price rises not only in proportion to the scarcity, but even higher; so that farmers are said sometimes to make the greatest gains in a bad harvest.

We may then conclude that though agriculture, manufactures, and trade, do upon the whole afford similar profits, these profits are, amongst farmers, more equally shared than amongst merchants and manufacturers; some of whom amass immense wealth, whilst others become bankrupts.

The rate of profit, therefore, upon any employment of capital is, generally speaking, proportioned to the risks with which it is attended; but if calculated during a sufficient period of time, and upon a sufficient number of instances, to afford an average, all these different modes of employing capital will be found to yield similar profits.

It is thus that the distribution of capital to the several branches of agriculture, manufactures, and trade, preserve a due equilibrium; which, though it may be accidentally disturbed, cannot, whilst allowed to pursue its natural course, be permanently deranged. If you are well convinced of this, you will never wish to interfere with the natural distribution of capital.

You must not, however, consider this general equality of profits as being fixed and invariable, even in countries where government does not interfere with the direction of capital. A variety of circumstances occasion a temporary derangement of it. The invention of any new branch of industry, or the improvement of an old one, will raise the profits of capital invested in it; but no sooner is this discovered, than others, who have capital that can be diverted to the new employment, engage in this advantageous concern, and competition reduces the profits to their due proportion. The opening of a trade with a new country, or the breaking out of a war which impedes foreign commerce, will affect the profits of the merchant: but these accidents disturb the equal rate of profits as the winds disturb the sea; and when they cease, it returns to its natural level.

[* ]Principles of Political Economy, p. 84.