The Online Library of Liberty

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• Advertisement to the Second Edition.
• Memoir of Robert Malthus.
• Principles of Political Economy.
• Introduction.
• Book I
• Chapter I.: Of the Definitions of Wealth and of Productive Labour.
• Section I.—: On the Definitions of Wealth.
• Section II.—: On Productive Labour.
• Chapter II.: On the Nature, Causes, and Measures of Value.
• Section I.—: On the Different Sorts of Value.
• Section II.—: Of Demand and Supply As They Affect Exchangeable Value.
• Section III.—: Of the Cost of Production As Affected By the Demand and Supply, and On the Mode of Representing Demand.
• Section IV.—: Of the Labour Which Has Been Employed On a Commodity Considered As a Measure of Its Exchangeable Value.
• Section V.—: Of the Labour Which a Commodity Will Command, Considered As a Measure of Value In Exchange.
• Section VI.—: On the Practical Application of the Measure of Value, and Its General Use and Advantages.
• Section VII.—: On the Variations In the Value of Money In the Same, and Different Countries.
• Chapter III.: Of the Rent of Land.
• Section I.—: Of the Nature and Causes of Rent.
• Section II.—: On the Necessary Separation of the Rent of Land From the Profits of the Cultivator and the Wages of the Labourer.
• Section III.—: Of the Causes Which Tend to Raise Rents In the Ordinary Progress of Civilized and Improved Societies.
• Section IV.—: Of the Causes Which Tend to Lower Rents.
• Section V.—: On the Dependance of the Actual Quantity of Produce Obtained From the Land, Upon the Existing Prices of Produce, and Existing Rents, Under the Same Agricultural Skill and the Same Value of Money.
• Section VI.—: Of the Connexion Between Great Comparative Wealth, and a High Comparative Price of Raw Produce.
• Section VII.—: On the Causes Which May Mislead the Landlord In Letting His Lands, to the Injury Both of Himself and the Country.
• Section VIII.—: On the Strict and Necessary Connection of the Interests of the Landlord and of the State.
• Section IX.—: General Remarks On the Surplus Produce of the Land.
• Chapter IV.: Of the Wages of Labour.
• Section I.—: On the Definition of the Wages of Labour, and Their Dependance Upon Supply and Demand.
• Section II.—: Of the Causes Which Principally Affect the Habits of the Labouring Classes.
• Section III.—: Of the Causes Which Principally Influence the Demand For Labour, and the Increase of the Population.
• Section IV.—: A Review of the Corn Wages of Labour From the Reign of Edward III.
• Section V.—: On the Conclusions to Be Drawn From the Preceding Review of the Prices of Corn and Labour During the Five Last Centuries.
• Chapter V.: Of the Profits of Capital.
• Section I.—: Of the Nature of Profits, and the Mode In Which They Are Estimated.
• Section II.—: Of the Limiting Principle of Profits.
• Section III.—: Of the Regulating Principle of Profits.
• Section IV.—: Of Profits As Affected By the Causes Practically In Operation.
• Section V. —: Remarks On Mr. Ricardo’s Theory of Profits.
• Chapter VI.: Of the Distinction Between Wealth and Value.
• Book II.
• Chapter I.: On the Progress of Wealth.
• Section I.—: Statement of the Particular Object of Inquiry.
• Section II.—: Of the Increase of Population Considered As a Stimulus to the Continued Increase of Wealth.
• Section III.—: Of Accumulation, Or the Saving From Revenue to Add to Capital, Considered As a Stimulus to the Increase of Wealth.
• Section IV.—: Of the Fertility of the Soil, Considered As a Stimulus to the Continued Increase of Wealth.
• Section V.—: Of Inventions to Save Labour, Considered As a Stimulus to the Continued Increase of Wealth.
• Section VI.—: Of the Necessity of a Union of the Powers of Production With the Means of Distribution, In Order to Ensure a Continued Increase of Wealth.
• Section VII.—: Of the Distribution Occasioned By the Division of Landed Property Considered As the Means of Increasing the Exchangeable Value of the Whole Produce.
• Section VIII.—: Of the Distribution Occasioned By Commerce, Internal and External, Considered As the Means of Increasing the Exchangeable Value of Produce.
• Section IX.—: Of the Distribution Occasioned By Personal Services and Unproductive Consumers, Considered As the Means of Increasing the Exchangeable Value of the Whole Produce.
• Section X.—: Application of Some of the Preceding Principles to the Distresses of the Labouring Classes Since 1815, With General Observations.

CHAPTER V.

OF THE PROFITS OF CAPITAL.

Section I.—

Of the Nature of Profits, and the Mode in which they are estimated.

It has been usual in speaking of that portion of the national revenue which goes to the capitalist in return for the employment of his capital, to call it by the name of the profits of stock. But stock is not so appropriate an expression in this case as capital. Stock is a more general term, and may be defined to be, all the material possessions of a country, or all its actual wealth, whatever may be its destination, while capital is that particular part of these possessions, or of this accumulated wealth, which is destined to be employed with a view to profit in the production and distribution of future wealth. They are often, however, used indiscriminately, and perhaps no great error may arise from it; but it may be useful to recollect, that all stock is not, properly speaking, capital, though all capital is stock; and consequently that capital may increase by an alteration in the proportion of that part of the whole stock which is employed productively, while the whole quantity of the stock, or the wealth of a country may remain at first the same.

The profits of capital consist of the difference between the value of a commodity produced, and the value of the advances necessary to produce it, and these advances consist of accumulations generally made up of wages, rents, taxes, interest, and profits.

The rate of profits is the proportion which the difference between the value of the commodity produced, and the value of the advances necessary to produce it, bears to the value of the advances. When the value of the product is great compared with the value of the advances, the excess being considerable, the rate of profits will be high. When the value of the product exceeds but little the value of the advances, the difference being small, the rate of profits will be low.

The varying rates of profit, therefore, obviously depend upon the causes which alter the proportions between the value of the advances necessary to production, and the value of the product obtained.

Profits, as we all know, are practically estimated by the money prices of the products compared with the money prices of the advances; and as money for the short periods during which mercantile transactions last, is universally considered as measuring value and not quantity, it follows, that profits, as it has been stated, are always practically estimated by the values of the products compared with the values of the advances, and not by their relative quantities. It would be impossible indeed to compare them as to quantity, because the advances necessary to produce commodities, are never all of the same kind as the commodities produced; and when they are not the same, their quantities do not admit of a comparison. We cannot compare shoes or cloth with corn or labour in regard to quantity.

It is of so much importance to be fully aware of the necessity of estimating both the advances and the returns of the capitalist in value and not in quantity, that it may be worth while to illustrate the difference in the results of the two modes of proceeding.

Of all the articles obtained by human industry, there is not one in which so great a part of the advances is identical with the produce as in the cultivation of corn. Let us consider what practically takes place in the production of this most important commodity.

The farmer practically pays his labourers in money. Let us suppose that this money, with the other money outgoings amounts to £200, that in the year in which the advance is made it will purchase 100 quarters of wheat, the price of wheat being £2 a quarter, and that the rate of profits is 20 per cent, in which case the return must be 120 quarters, or 20 per cent. in quantity. Now if in the next year there should be a scanty crop, yielding only 100 quarters instead of 120, then in reference to quantity there will be absolutely no excess in the returns, as compared with the outgoings, and the capitalist would have actually nothing to live upon. But would he really be so destitute? Far from it. He might perhaps be better off, instead of worse off than usual. Profits, as I have before stated, are always practically estimated by value, not quantity; and the real question is about the price of the produce compared with the price of the advances, and not the excess of the returns in wheat above the advances in wheat. Most happily for society such is the nature of things, that a diminution in the quantity of an article, other circumstances being the same, raises its price; and the diminution of one sixth in the supply of corn would probably raise it considerably more than one fifth. Taking the rise, however, only at one fifth, its value in money would be 48s. the quarter, and the sale of 83⅓ quarters would replace the capital expended, and leave 20 per cent. profit to the capitalist, that is, would leave as great a profit to the capitalist when the product in wheat was only equal to the advances in wheat, as when the product in wheat was 20 per cent. greater.

On the other hand, if the cultivator advanced capital of the value of £200 in rather a scarce year, when the price of wheat was 48s. the quarter, the advances in wheat would be represented by 83⅓ quarters, and if after harvest the produce were 120 quarters, in an estimate by quantity he would appear to gain 45 per cent.; but as his gains would really be estimated by value not quantity, and the price of wheat would have fallen from 48s. to 40s., it would take a hundred quarters of corn to replace the £200 advanced, and the produce being 120 quarters, profits would be only 20 per cent. instead of 45 per cent.

It appears, therefore, that if the profits of the cultivator were estimated by quantity they might vary between nothing and 45 per cent. at the very time when estimated by price or value, as they always are practically, the cultivator was in each year making a regular profit of 20 per cent.

In the above cases, I have supposed the price of the whole produce, and the rate of profits to remain the same; but if the price of the whole produce determined by the state of the supply compared with the demand, ceased to be to the prices of the advances in the proportion of 120 to 100, profits would either rise or fall. If the price of the whole produce should advance, that is, if the whole produce, whether consisting of 100 quarters or 120 quarters, should sell for £260 instead of £240, it is obvious that a smaller proportion of the whole value would be sufficient to replace the £200 advanced, and profits would be 30 per cent., instead of 20 per cent.*

On the other hand, if the price of the whole produce, whether great or small, were to fall, owing to the state of the supply compared with the demand, and instead of selling for £240, were to sell for £220, a larger proportion of the whole produce would be necessary to replace the capital of the £200 advanced, and profits would fall from 20 per cent., to 10 per cent.

It may be said, perhaps, that these variations in the quantity of produce are only temporary, and that it is the average excess which is referred to, and not the variations of that excess occasioned by the seasons. It may be observed in answer, that, as it is universally allowed that the prices of the farmer’s whole crop never rises in proportion to its abundance, and never falls in proportion to its deficiency, it is certain, that the average excess of value would not be the same as the average excess of produce.

Corn, on account of its being the main support of the labourer, is the only object in the production of which a comparison may be instituted between the quantity advanced and the quantity produced; yet even here we have found that the cause which determines profits is their relative values, and not their relative quantities.

In manufacturing and mercantile employments, there is no approach towards a possibility of comparing the advances with the products in regard to quantity. However, the powers of production in manufactures may increase, a nearly proportionate fall in the value of the produce determined by the state of the demand and supply prevents any permanent change in the division of produce, and consequently, leaves the capitalist in a short time with the same or nearly the same rate of profits. The workman receives a larger quantity of what he produces, but the same value; and his condition will be benefitted, chiefly in proportion to the utility of the article to him as a consumer. This is equally true in regard to mercantile products, cheapened by facility of transport, or the discovery of more abundant sources of foreign supply.

It is clear therefore, that profits are invariably measured by value, and never by quantity.

Now, it has been shown in the second chapter of this work, that the values of any commodities, or of the mass of commodities are always determined by the state of the supply compared with the demand; and that their values may be measured by the quantity of standard labour which they will command. It is also obvious from what has been said, that during the short periods which usually intervene between the advances of capital and the returns of produce, they may both be estimated correctly in money. In the employment of capital therefore, in any business, the advances, whether increasing or diminishing in value, may be known and measured beforehand, while the value of the product, and the proportion of that value which goes to replace the advances remains to be ascertained when the produce is sold.

The varying rate of profits therefore, in the production of every commodity depends upon the excess of its value when sold above the known value of the advances, determined in all cases by the state of the supply and the demand.

This is a universal proposition, equally applicable whether profits are affected by temporary or by more permanent causes, whether the productive powers of labour are great or small, increasing, stationary, or diminishing.

And it will be found, that this proposition is essentially the same as the proposition which states, that profits depend upon the proportion of the value of the whole produce, which goes to pay the wages of the labour employed to obtain it.*

The truth of this proposition is quite obvious in the cases where only immediate labour and the profits upon it are concerned. If a hundred pounds be expended in immediate labour, and the returns come in at the end of the year, and sell for £110, £120, or £130, it is evident that in each case the profits will be determined by the proportion of the value of the whole produce which is required to pay the labour employed.

If the value of the produce in the market be £110, the proportion required to pay the labourers will be of the value of the produce, and profits will be ten per cent. If the value of the produce be £120, the proportion required to pay the labour employed will be , and profits will be twenty per cent. If the value of the produce be £130, the proportion required to pay the labour advanced will be , and profits will be thirty per cent.

But it will be asked, how are we to compare the value of the produce with the labour required to obtain it, when the advances of the capitalist do not consist of labour alone.

In cases of this kind, the following very simple mode of proceeding presents itself. It will be allowed that the capitalist generally expects an equal profit upon all the parts of the capital which he advances. Let us suppose that a certain portion of the value of his advances, one-fourth for instance, consists of the wages of immediate labour, and three-fourths consist of accumulated labour and profits, with any additions which may arise from rents, taxes, or other outgoings. In this case one-fourth of the value of the produce obtained replaces with its proportionate profit that part of his capital which has been employed in the payment of immediate labour; and the other three-fourths replace with the remaining profit all his other advances: and thus it will be strictly true that the profits of the capitalist will vary with the varying value of this one-fourth of the produce compared with the quantity of labour employed; or, in other words, that profits depend on the proportion of the value of the produce which goes to pay the labour which has been employed.

As an instance let us suppose that a farmer employs in the cultivation of a certain portion of land £2000, £1500 of which he expends in seed, keep of horses, wear and tear of his fixed capital, interest upon his fixed and circulating capitals, rent, tithes, taxes, &c. and £500 upon immediate labour; and that the returns obtained at the end of the year are worth £2400. It is obvious that the value required to replace the advances being £2000 the farmer’s profits will be £400, or twenty per cent. And it is equally obvious that if we took one-fourth of the value of the produce, namely £600, and compared it with the amount paid in the wages of immediate labour, the result would shew exactly the same rate of profits.

There is no case however complicated which may not be easily solved in a similar manner.

When it is said that profits depend upon the division of the produce between the labourer and the capitalist, it is not of course meant to exclude the labourers and capitalists who have furnished those large portions of the advances which do not consist of the wages of immediate labour; and we must either trace accurately the proportions of accumulated labour and accumulated profits in these advances, which it is not always easy to do, or adopt the mode above suggested, which gives at once the proportion of the produce which goes to pay the wages of the immediate labour employed. The result is exactly the same as if we had measured the whole advances in standard labour, and had estimated the rate of profits by the excess of the value of the produce above what was required to pay the wages of that quantity of labour.

The reader will be aware that if we reckon the value of the fixed capital employed as a part of the advances, we must reckon the remaining value of such capital at the end of the year as a part of the annual returns. Without a correction of this kind it would appear that in those departments of industry in which the greatest quantity of fixed capital had been applied, the value of the capital compared with the value of the produce had been the greatest, from which it would seem to follow that the rate of profits had been the lowest; but though the capitalist naturally considers the whole of what he employs in production as capital advanced; yet in reality his annual advances consist only of his circulating capital, the wear and tear of his fixed capital with the interest upon it, and the interest of that part of his circulating capital which consists of the money employed in making his annual payments as they are called for.

The following is a statement in the first Report of the Factory Commissioners, (page 34) in which another class of advances under the head of contingencies is added:

The wages of the operatives or of the immediate labour employed in the production of the twist, form about one-sixth of the advances, and the comparison of these advances with one-sixth of the value of the produce will clearly indicate the rate of profit upon the whole of the advances.

In drawing the particular attention of the reader to the profits, which may be said to belong to the immediate labour employed in any production, it is by no means intended to propose a better mode of ascertaining profits than the ordinary one of comparing the annual money advances, with the annual money returns. The object is to show, that the two modes always accord, (except in the rare case of a change in the price of labour or alteration in the value of money during the interval which elapses between the advances and returns); and whether we take the most simple case, where the advances consist of immediate labour alone, or the most complex one, where but a small part only of the advances consists of immediate labour, it will always be found true that profits vary according to the proportion of the value of the whole produce which goes to pay the wages of the labour employed to obtain it.

Section II.—

Of the limiting Principle of Profits.

It has been stated in the preceding section, that the varying rate of profits depends upon the causes which alter the proportion between the value of the advances necessary to production, and the value of the produce obtained.

The two main causes which affect these proportions, are, the productiveness, or unproductiveness of the last capitals employed upon the land, by which a smaller, or a greater proportion of the value of the produce is capable of supporting the labourers employed. This may be called the limiting principle of profits. And, secondly, the varying value of the produce of the same quantity of labour occasioned by the accidental or ordinary state of the demand and supply, by which a greater or smaller proportion of that produce falls to the share of the labourers employed. This may be called the regulating principle of profits, this second cause is constantly modifying the first, but it will be desirable to consider them separately.

If then we suppose the first cause to operate singly, and the corn wages of the individual labourer to be always the same, the whole skill in agriculture remained unchanged, and there were no taxes nor any means of obtaining corn from foreign countries, the rate of profits must regularly fall, as the society advanced, and as it became necessary to resort to inferior machines which required more labour to put in action.

It would signify little, in this case, whether the last land taken into cultivation for food had yielded a rent in its uncultivated state. It is certain that the landlord would not allow it to be cultivated, unless he could, at the least, obtain the same rent for it as before. This must be considered as an absolute condition on the worst lands taken into cultivation in an improved country. After this payment was made, the remainder of the produce would be divided almost entirely between the capitalists and the labourers, and it is evident that if the number of labourers necessary to obtain a given produce were continually increasing, and the corn wages of each labourer remained the same, the portion destined to the payment of labour would be continually encroaching upon the portion destined to the payment of profits; and the rate of profits would of course continue regularly diminishing till, from the want of power or will to save, the progress of accumulation had ceased.

In this case, and supposing an equal demand for all the parts of the same produce,* it is obvious that the profits of capital in agriculture would be in proportion to the fertility of the last land taken into cultivation, or to the amount of the produce obtained by a given quantity of labour. And as profits in the same country tend to an equality, the general rate of profits would follow the same course.

But a moment’s consideration will shew us, that the supposition here made of a constant uniformity in the corn wages of labour is not only contrary to the actual state of things, but involves a contradiction.

The progress of population is almost exclusively regulated by the quantity of the necessaries of life actually awarded to the labourer; and if from the first he had no more than sufficient to keep up the actual population, the labouring classes could not increase, nor would there be any occasion for the progressive cultivation of poorer land. On the other hand, if the corn wages of labour were such as to admit of and encourage a considerable increase of population, and yet were always to remain the same, it would involve the contradiction of a continued increase of population at the same rate after the accumulation of capital, and the means of supporting such an increase had entirely ceased.

We cannot then make the supposition of a natural and constant rate of corn wages. And if we cannot fix the wages of labour estimated in necessaries, they must evidently vary with the progress of the funds destined for the maintenance of labour, compared with the supply of labour.

We may, however, if we please, suppose a uniform progress of capital and population, by which is not meant in the present case the same rate of progress permanently, which is impossible; but a uniform progress towards the greatest practicable amount, without temporary accelerations or retardations. And before we proceed to the actual state of things, it may be curious to consider in what manner profits would be affected under these circumstances.

At the commencement of the cultivation of a fertile country by civilized colonists, and while rich land was in great plenty, a small portion only of the value of the produce would be paid in the form of rent. The productiveness of labour being great, if nearly the whole were divided between wages and profits, the labourers might obtain a large quantity of produce, while a sufficient proportion of the whole might be left to yield large profits, and wages and profits would both be high at the same time.*

As the society continued to increase, if the territory were limited, or the soil of different qualities, it is quite obvious that the productive powers of labour as applied to the cultivation of land must gradually diminish; and as a given quantity of labour would yield a smaller and smaller return, there would evidently be a less and less produce to be divided between labour and profits.

If, as the powers of labour diminished, the physical wants of the labourer were also to diminish in the same proportion, then the same share of the whole produce might be left to the capitalist, and the rate of profits would not necessarily fall. But the physical wants of the labourer remain always the same; and though in the progress of society, from the increasing scarcity of provisions compared with labour, these wants are in general less fully supplied, and the corn wages of labour gradually fall; yet it is clear that there is a limit, and probably at no great distance, which cannot be passed. The command of a certain quantity of food is absolutely necessary to the labourer in order to support himself, and such a family as will maintain merely a stationary population. Consequently, if poorer lands which required more labour were successively taken into cultivation, it would not be possible for the corn wages of each individual labourer to be diminished in proportion to the diminished produce; a greater proportion of the whole would necessarily go to pay the wages of labour; and the rate of profits would continue regularly falling till the accumulation of capital had ceased.

Such would be the necessary course of profits and wages in the progressive accumulation of capital, as applied to the progressive cultivation of new and less fertile land, or the further improvement of what had before been cultivated; and on the supposition here made, the rates both of profits and of corn wages would be highest at first, and would regularly and gradually diminish together, till they both came to a stand at the same period, and the demand for an increase of produce ceased to be effective.

In the mean time, it will be asked, what becomes of the profits of capital employed in manufactures and commerce, a species of industry not like that employed upon the land, where the productive powers of labour necessarily diminish; but where these powers not only do not necessarily diminish, but very often greatly increase?

In the cultivation of land, the cause of the necessary diminution of profits is the diminution in the quantity of produce obtained by the same quantity of labour. In manufactures and commerce, it is the fall in the exchangeable value of the same amount of produce.

The labour required to produce corn, has a constant tendency to increase from inevitable physical causes, while the labour required to produce manufactures and articles of commerce sometimes greatly diminishes, sometimes remains stationary, and at all events increases much slower than the labour required to produce corn. When, therefore, profits fall in agriculture it becomes obviously more advantageous to employ capital in manufactures and commerce than on the land; and capital will in consequence be so employed till a fall has taken place in manufactures and commercial products from their comparative abundance. But it has been shown that the value of the same quantity of labour will always remain the same; and it is evident, that if the products fall in value, while the quantity of the labour, or the value of the capital required to produce them, remain the same, profits must fall. It is farther evident, that this fall must necessarily go on, till profits in manufactures and commerce have been reduced nearly to a level with those in agriculture. And thus it appears that in the progress of improvement, as poorer and poorer land is taken into cultivation, the general rate of profits must be limited by the powers of the soil last cultivated. If the last land taken into cultivation will only yield a certain excess of value above the lowest value of the capital necessary to produce it, it is obvious that profits, generally, cannot possibly be higher than this excess will allow. In the ascending scale, this is a barrier which cannot be passed. But limitation is essentially different from regulation. In the descending scale, while the land is still fertile profits may be lower in any degree. There is here no controlling necessity which determines the rate of profits; and below the highest limit which the actual state of the land will allow, ample scope is left for the operation of the regulating principle.

Section III.—

Of the regulating Principle of Profits.

The second cause which affects profits, is the varying value of the produce of the same quantity of labour on the same value of capital, determined by the state of the demand and supply. This may be called the regulating principle of profits, as within the extreme limits prescribed by the state of the land, all the variations of profits, whether temporary or durable, are regulated by it.

Such variations in the value of produce are occasioned principally by the abundance or scantiness of capital, including the funds for the maintenance of labour, as compared with the labour which it employs.

This is obviously a cause which, by awarding a greater or a smaller proportion of the produce to the labourer, must have a powerful influence on profits; and if considerable variations were to take place in the supplies of capital and produce and the supplies of labour, in a rich and unexhausted soil, the same effects might be produced on profits as by the operation of the first cause, and in a much shorter time.

In order to see more clearly the powerful effects of the second cause on profits, let us consider it for a moment as operating alone; and suppose, that while the capital and produce of a country continued increasing, its population were checked and kept short of the demand for it, by some miraculous influence. Under these circumstances, a gradation would take place in the proportion which capital and produce would bear to labour, and we should see in consequence a similar gradation take place in the rate of profits.

As capital and produce increased faster than labour, the profits of capital would fall, and if a progressive increase of capital and produce were to take place, while the population, by some hidden cause, were prevented from keeping pace with it, notwithstanding the fertility of the soil and the plenty of food, then profits would be gradually reduced, until, by successive reductions, the power and will to accumulate had ceased to operate; and this state of things might take place rapidly, if a great proportion of those who were engaged in personal services were rapidly converted by saving into productive labourers.

Profits in this case would experience the same kind of progressive diminution as they would by the progressive accumulation of capital in the present state of things; but rent and wages would be very differently affected. From what has before been stated on the subject of rent, the amount of it in such a country could not be great. According to the supposition, the progress of the population is retarded, and the number of labourers is limited, while land of considerable fertility remains uncultivated. The demand for fertile land therefore, compared with the supply, would be comparatively inconsiderable; and in reference to the whole of the national produce, the portion which would consist of rent would depend mainly upon the gradations of more fertile land which had been cultivated before the population had come to a stop, and upon the value of the produce to be derived from the land that was not cultivated.

With regard to wages they would continue progressively to rise, in necessaries, conveniences, and luxuries, so as to place the labourer in a condition continually and in all respects improving, as long as capital continued to increase.

In short, of the three great portions into which the mass of produce is divided, rent, profits, and wages, the two first would be low, because both the supply of land and the supply of capital would be abundant compared with the demand; while the wages of labour would be very high, because the funds for the maintenance of labour would be in great abundance compared with the supply of labourers; and thus the value of each would be regulated by the great principle of demand and supply.

If, instead of supposing the population to be checked by some peculiar influence, we make the more natural supposition of a limited territory, with all the land of nearly equal quality, and of such great fertility as to admit of very little capital being laid out upon it, the effects upon the profits of capital would be just the same as in the last instance, though they would be very different on rents and wages. After all the land had been cultivated, and no more capital could be employed on it, there cannot be a doubt that rents would be extremely high and profits and wages very low. The competition of increasing capital in manufactures and commerce would reduce the rate of profits, while the principle of population would continue to augment the number of the labouring classes, till their corn wages were so low as to check their further increase. It is probable that, owing to the assumed fertility of all the soil and the great proportion of persons which might be employed in manufactures and commerce, the exports would be great and the value of money very low. The money price of corn and money wages would perhaps be as high as if the cost of the whole produce in labour had been double or treble; food would then be a strict monopoly; rents would rise to an extraordinary height without any assistance from poor lands, and the gradations of soil; and profits might fall to the point only just sufficient to keep up the actual capital without any additional labour being necessary to procure the food of the labourer.

The effects which would obviously result from the two suppositions just made, clearly shew that the increasing quantity of labour required for the successive cultivation of poorer land is not theoretically necessary to a fall of profits from the highest rate to the lowest.

The former of these two suppositions further shews the great power possessed by the labouring classes of society, if they chose to exercise it. The comparative check to population, which was considered as occasioned by some miraculous influence, might in reality be effected by the prudence of the poor; and it would unquestionably be followed by the result described. It may naturally appear hard to the labouring classes that, of the vast mass of productions obtained from the land, the capital, and the labour of the country, so small a quantity should fall to the share of each individual. But the quantity is at present determined, and must always in future be determined, by the inevitable laws of supply and demand. If the market were comparatively understocked with labour, the landlords and capitalists would be obliged to give a larger quantity of produce to each workman. But with an abundant supply of labour, such a quantity, for a permanence, is an absolute impossibility. The rich have neither the power, nor can it be expected that they should all have the will, to keep the market understocked with labour. Yet every effort to ameliorate the lot of the poor generally, that has not this tendency, is perfectly futile and childish. It is quite obvious therefore, that the knowledge and prudence of the poor themselves, are absolutely the only means by which any general and permanent improvement in their condition can be effected. They are really the arbiters of their own destiny; and what others can do for them, is like the dust of the balance compared with what they can do for themselves. These truths are so important to the happiness of the great mass of society, that every opportunity should be taken of repeating them.

But, independent of any peculiar efforts of prudence on the part of the labouring classes, it appears from experience that while the productive powers of labour remain nearly the same, the supplies of labour and the supplies of capital and produce do not always keep pace with each other. Practically, they are often separated at some distance, and for a considerable period; and sometimes population increases faster than capital and produce, and at other times capital and produce increase faster than population.

It is obvious, for instance, that from the very nature of population, and the time required to bring full-grown labourers into the market, a sudden increase of capital and produce cannot effect a proportionate supply of labour in less than sixteen or eighteen years. On the other hand, when capital and produce are nearly stationary from the want of will to accumulate, it is well known that population in general is apt to increase faster than the produce which is to support it, till the wages of labour are reduced to that standard which, with the actual habits of the country, are no more than sufficient to maintain a stationary population.

These periods, in which population and produce do not keep pace with each other, are evidently of sufficient extent, essentially to alter the proportion which goes to pay the wages of labour; and consequently, to influence essentially the rate of profits.

So entirely, indeed, does the rate of profits depend on the division of the produce, occasioned by the state of the supply and the demand, that in comparing two countries together, the rate of profits will sometimes be found the lowest in that country, in which the productiveness of labour on the land is the greatest.

In Poland, and some other parts of Europe, where capital is scarce, profits are said to be higher than in America; yet it is probable that the last land taken into cultivation in America is much richer than the last land taken into cultivation in Poland. But in America the labourer earns perhaps the value of eighteen or twenty quarters of wheat in the year; in Poland only the value of eight or nine quarters of rye. This difference in the division of the produce, must make a great difference in the rate of profits; yet the causes which determine this division, far from being of so temporary a nature that they may be safely overlooked, might operate most powerfully for a great length of time. Such is the extent of America, that the corn wages of its labour may not essentially fall for a long term of years; and the effects of a scanty but stationary capital on an overflowing but stationary population might last for ever.

In dwelling thus upon the powerful effects which must inevitably be produced by the proportion which capital and produce bear to labour, and upon the necessity of giving adequate weight to the principle of demand and supply, or competition, in every explanation of the circumstances which determine profits, it is not meant to underrate the importance of that cause which depends upon the diminishing productiveness of labour on the last land taken into cultivation. This cause is indeed of such a nature, that, if its action goes on, it must finally overwhelm every other. Yet, still an attempt to estimate the rate of profits in any country for ten or twenty years together by a reference to this cause alone, would lead to the greatest practical errors.

The value of the government long annuities has a natural and constant tendency to diminish as they approach towards the term for which they were granted; yet it is well known, that out of the comparatively short term of 90 years, so large a proportion as twenty, has sometimes elapsed not only without any diminution, but with an actual increase of their value. When, however, they approach near to the term at which they expire, they must necessarily so diminish in value on this account alone, that no demand arising from plenty of money could possibly keep up their price. In the same manner, when cultivation is pushed to its extreme practical limits, that is, when the labour of a man upon the last land taken into cultivation will scarcely do more than support such a family as is necessary to maintain a stationary population, it is evident that no other cause or causes can prevent profits from sinking to the lowest rate required to maintain the actual capital. But though this principle is finally of the very greatest power, yet its progress is extremely slow and gradual; and while it is proceeding with scarcely perceptible steps to its final destination, the second cause is producing effects which entirely overcome it, and often for twenty or thirty, or even 100 years together, make the rate of profits take a course absolutely different from what it ought to be according to the first cause.

Section IV.—

Of Profits as affected by the Causes practically in operation.

We come now to the consideration of the various causes which may influence profits in the actual state of things, particularly in this country. And here it is evident that we shall have in operation both the causes already stated, with others which disturb and modify them.

In the progressive cultivation of poor land, occasioned by the increase of capital and population, profits as far as they depend upon natural fertility, will regularly fall; but if at the same time improvements in agriculture are taking place, they may certainly be such as, for a considerable period, not only to prevent profits from falling, but to allow of a rise. To what extent, and for what length of time, this circumstance might interrupt the progressive fall of profits occasioned by the necessity of taking poorer land into cultivation, without such improvements, it is not easy to say; but, as it is certain that in an extensive territory, consisting of soils not very different in their natural powers of production, the fall of profits arising from this cause would be slow, it is probable that for a considerable extent of time agricultural improvements, including of course the improved implements and machinery used in cultivation, as well as an improved system of cropping and managing the land, might more than balance it.

A second circumstance which would contribute to the same effect is, an increase of personal exertion among the labouring classes. This exertion is extremely different in different countries, and at different times in the same country. A day’s labour of a Hindoo, or a South-American Indian, will not admit of a comparison with that of an Englishman; and it has even been said, that though the money price of day-labour in Ireland is little more than the half of what it is in England, yet that Irish labour is not really cheaper than English, although it is well known that Irish labourers when in this country, with good examples and adequate wages to stimulate them, will work as hard as their English companions.

This latter circumstance alone clearly shows how different may be the personal exertions of the labouring classes in the same country at different times; and how different therefore may be the products of a given number of days labour, as the society proceeds from the indolence of the savage to the activity of the civilized state. This activity indeed, within certain limits, appears almost always to come forward when it is most called for, that is, when there is much work to be done without a full supply of persons to do it. The personal exertions of the South American Indian, the Hindoo, the Polish boor, and the Irish agricultural labourer, may be very different indeed 500 years hence.

A third circumstance which has a considerable effect on profits, and not unfrequently occurs, is, the unequal rise of some parts of the farmer’s capital, when the price of corn is raised by an increased demand. Under such a rise, (which if it continues is generally accompanied by an advanced price of standard labour, or a fall in the value of money,) the prices of many home commodities will be considerably modified for some time, by the unequal pressure of taxation, and the unequal rise in the prices of foreign commodities, and of the commodities worked up at home from foreign materials. The rise of corn and labour at home will not proportionally raise the price of such products; and as far as these products together with taxes, form a part of the farmer’s capital, a smaller proportion of the produce, owing to its increased value, will replace it. This remark is applicable to leather, timber, soap, candles, cottons, woollens, &c. &c., all of which enter more or less into the capitals of the farmer, or the wages of the labourer, and are all influenced in their prices more or less by importation.

A fourth circumstance, which favours a rise of profits is a fall in the prices of some important manufactures, as compared with corn, owing to improvements in machinery. This state of things always allows of some diminution in the corn wages of labour without a proportionate diminution of the comforts of the labourer: and if the money price of the farmer’s produce increases without a proportionate increase in the price of labour, and in the materials of which his advances consist, his profits must necessarily rise.

It appears then, that practically, and in the actual state of things, the physical necessity of a fall of profits in agriculture arising from the increasing quantity of labour required to produce the same quantity of food, may be so counteracted and overcome, for a considerable time by other causes, as to leave very great play to the influence of the competitions of capital.

The facts which support this conclusion are numerous and incontrovertible. It may be said, indeed, with truth that the different rates of profits during periods of peace and war, which are observed to take place in all countries, are chiefly attributable to the abundance or scarcity of capital and produce compared with the demand, and not to the varying productiveness of labour on the land. To the instances of this kind which have before been stated may be added the following one, which is so remarkably strong as to be alone almost decisive of the question, and having happened in our own country, is completely open to the most minute examination.

From the accession of George II. in 1727 to the commencement of the war in 1793, the interest of money was little more than 3 per cent. The public securities which had been reduced to 4 per cent. rose considerably after the reduction. According to Chalmers, the natural rate of interest ran steadily at 3 per cent.;* and it appears by a speech of Sir John Barnard’s that the 3 per cent. stocks sold at a premium upon Change. In 1750, after the termination of the war, the 4 per cent. stocks were reduced to 3½, for seven years, and from that time to 3 per cent. permanently.†

Excluding then the interval of war, we have here a period of twenty-two years, during which the general rate of interest was between 3½ and 3 per cent.

The temporary variations in the value of government securities will not certainly at all times be a correct criterion of the rate of profits or even of the rate of interest; but when they remain nearly steady for some time together, they must be considered as a fair approximation to a correct measure of interest; and when the public creditors of a government consent to a great fall in the interest which they had before received, rather than be paid off, it is a most decisive proof of a great difficulty in the means of employing capital profitably, and consequently a most decisive proof of a low rate of profits.

After an interval of nearly seventy years from the commencement of the period here noticed, and forty years from the end of it, during which a great accumulation of capital had taken place, and an unusual quantity of new land had been brought into cultivation, we find a period of twenty years succeed in which the average market rate of interest was rather above than below 5 per cent.; and we have certainly every reason to think, from the extraordinary rapidity with which capital was recovered, after it had been destroyed, that the rate of profits in general was quite in proportion to this high rate of interest.

The difficulty of borrowing on mortgage during a considerable part of the time is perfectly well known; and though the pressure of the public debt might naturally be supposed to create some alarm, and incline the owners of disposable funds to give a preference to landed security; yet it appears from the surveys of Arthur Young, that the number of years purchase given for land, was in 1811, 29¼, and forty years before, 32 or 32½,* —the most decisive proof that can well be imagined of an increase in the profits of capital employed upon land.

The nature of these facts, and the state of things under which they took place, (in the one case, in a state of peace with a slack demand for capital and produce, and in the other, a state of war with an unusual demand for both,) obviously and clearly point to the relative redundancy or deficiency of capital and produce as their cause. And the question which now remains to be considered, is, whether the circumstances which have been stated in this section are sufficient to account theoretically for such a free operation of this principle, notwithstanding the progressive accumulation of capital, and the progressive cultivation of fresh land, as to allow of low profits at an earlier period of this progress and higher profits at a later period. At all events, the facts must be accounted for, as they are so broad and glaring, and others of the same kind are in reality of such frequent recurrence, that they must be considered as at once decisive against any theory of profits which is inconsistent with them.

In the first period of the two which have been noticed it is known that the price of corn had fallen, and that the wages of labour had not only not fallen in proportion, but had been considered by some authorities as having risen. Adam Smith states the fall of corn and the rise of labour during the first sixty-four years of the last century as a sort of established fact;* but Arthur Young, in his very useful inquiries into the prices of corn and labour published in his Annals of Agriculture, seems to think that the fact is not well authenticated, and is inconsistent with the apparently slack demand for labour and produce, and comparatively slow progress of population, which took place during the period in question.† Allowing, however, even a stationary price of labour, with a falling price of corn, not arising from improvements, and the fall of agricultural profits is at once accounted for. Such a state of prices might alone be much more than sufficient to counteract the effects arising from the circumstance of pretty good land being yet uncultivated. When we add, that the other outgoings belonging to the farmers’ capital, such as leather, iron, timber, &c. &c., are supposed to have risen while the price of his main produce was falling, we can be at no loss to account for a low rate of agricultural profits, notwithstanding the unexhausted state of the country. And as to the low rate of mercantile and manufacturing profits, that would be accounted for at once by the increase of mercantile and manufactured products compared with the demand for them, and their consequent diminished prices in relation to labour.

In the subsequent period, from 1793 to 1813, it is probable that all the circumstances noticed in this section concurred to give room for the operation of that principle which depends upon the demand compared with the supply of capital.

In the first place, there can be no doubt of the improvements in agriculture which were going forwards during these twenty years, both in reference to the general management of the land, and the instruments which are connected with cultivation, or which in any way tend to facilitate the bringing of raw produce to market. 2dly, the increasing practice of task-work during these twenty years, together with the increasing employment of women and children, unquestionably occasioned a great increase of personal exertion; and more work was done by the same number of persons and families than before.

If to these two causes of the increased productiveness of the powers of labour we add a fall in the prices of manufactures from improved machinery, and a rise in the price of corn from increased demand, unaccompanied by a proportionate rise of most foreign, and many home commodities, the effect of taking poorer land into cultivation is so likely to be counterbalanced under such circumstances, that in the actual state of many countries, or in their probable state for some centuries to come, we may fairly lay our account to such a result when the occasion calls for it.

I should feel no doubt, for instance, of an increase in the rate of profits in this country for twenty years together, at the beginning of the twentieth century, compared with the twenty years which are now coming on; provided this near period were a period of profound tranquillity and peace and abundant capital, and the future period were a period in which capital was scanty in proportion to the demand for it owing to a war, attended by the circumstances of an increasing trade, and an increasing demand for agricultural produce similar to those which were experienced from 1793 to 1813.

But if this be so, and past experience justifies it, it follows, that in the actual state of things in most countries of the world, and within limited periods of moderate extent, the rate of profits will practically depend more upon the causes which affect the relative abundance or scarcity of capital, and the demand for produce compared with the supply, than on the fertility of the last land taken into cultivation. And consequently, to dwell on this latter point as the sole, or even the main cause which determines profits, must lead to the most erroneous conclusions. Adam Smith, in stating the cause of the fall of profits, has omitted this point, and in so doing has omitted a most important consideration; but in dwelling solely upon the abundance and competition of capital, he is practically much nearer the truth* than those who dwell almost exclusively on the quality of the last land taken into cultivation.

In individual cases, the illustration of this principle is constantly before our eyes. If a capital of a hundred pounds be expended in producing twelve hundred yards of calico, which sell for £120, profits will be 20 per cent. On the other hand, if they sell for £110, profits will be only 10 per cent.; and whether they sell for £110 or £120 will be determined by the state of the supply compared with the demand. The money wages of labour and the value of money may remain the same; but a different proportion of the produce is required to replace the capital:† in the first case a thousand yards are required, in the second nearly eleven hundred. It is evident however that the increase in the quantity of produce required to replace the capital is the consequence, not the cause of the fall of profits. The cause is the fall in the value of the produce of the same quantity of labour, or the same value of capital.

If instead of supposing that the same quantity of produce is obtained by the same value of capital, and sells at various prices, we suppose that the quantity produced and the prices at which it sells are both variable, which is the actual state of things, as profits depend upon proportion not quantity, it will be still true that profits will be determined by the proportion of the value of the produce which goes to replace the capital, whether the quantity remaining for profits be one hundred yards or four hundred yards, whether the labour employed on the land becomes less productive or more productive.

It will be said, perhaps, and truly, that the ordinary prices of commodities are not determined by the accidental state of the supply compared with the demand, but by the ordinary costs of production; but ordinary profits are one of the necessary conditions of the continued supply of commodities, and consequently one of the elements of their ordinary cost to the consumer; and this element is specifically determined by the ordinary state of the supply compared with the demand of the produce of the same value of capital. If the outlay of £100 for a year will obtain a produce which, on an average of ten or twelve years, sells for £120, the ordinary rate of profits will be 20 per cent. If at a future time the produce of the same value of outlay sells on an average during a similar period for £110, the ordinary rate of profits will be 10 per cent. The proportion of the produce which goes to replace the capital will in the latter case be instead of , and it is obvious that this increased proportion of the same produce which is required to replace the capital, is specifically occasioned by a fall in the value of the produce of the same capital.

It appears therefore that whether we refer to immediate or to ordinary profits, they must always depend upon the different values of the produce of the same value of capital determined by the state of the supply, immediate or ordinary, compared with the demand. And if labour be the measure of value which I trust has been shewn, this is the same as saying that profits are determined by the proportion of the value of the produce which goes to pay the labour which has obtained it; and it follows as a direct consequence that profits never fall but when the value of the produce of the same quantity of labour falls, and never rise but when the value of the produce of the same quantity of labour rises.*

Section V.—

Remarks on Mr. Ricardo’s Theory of Profits.

According to Mr. Ricardo profits are regulated by wages, and are high or low in proportion as wages are low or high;† or as he has expressed himself more fully in another part of his chapter on profits,

“In all countries, and at all times, profits depend upon the quantity of labour requisite to provide necessaries for the labourers on that land, or with that capital which yields no rent.”‡

It is here understood, that there are no other advances except those of wages; and, under these circumstances, the necessaries required to pay ten labourers must have required fewer than ten labourers to produce them, or there would have been no profits. It is further obvious that the profits upon the produce necessary to pay the wages of ten labourers must depend upon the difference between the whole produce, and that portion of it which is required to pay the number of labourers, whether nine, eight, seven, or any other proportion actually employed to produce the wages of the whole ten.

Mr. Ricardo’s proposition therefore will be found to be essentially the same as if he had said that profits are determined by the proportion of the produce which goes to pay the wages of the labour which obtained it. And so far this theory is quite correct. But in its application he combines with it two assumptions, which being unfounded renders it as a whole essentially erroneous. He assumes,*

1st. That the commodities which have cost in their production the same quantity of labour will on an average always be of the same value. And

2ndly. That the value of the same quantity of labour varies in proportion to the share of the produce which goes to pay the labourer; and the varying value of this labour being thus taken out of the supposed constant value of the produce obtained by them, the remainder determines the rate of profits.

If these assumptions were well founded the theory would be correct. But it has been shewn, in the 4th section of the 2nd chapter, that commodities which have cost in their production the same quantity of labour, or the same value of capital, are subject to great variations of value, owing to the varying rate and varying quantity of profits which must be added to the quantity of accumulated and immediate labour employed upon them, in order to make up their value.

And it has further been shewn in the 6th section of the same chapter that, however variable may be the quantity or proportion of produce awarded to each labourer, the value of that quantity or proportion will always be the same.

It is clear then that profits must be regulated upon a principle essentially different from that stated by Mr. Ricardo, and that instead of being determined by the varying value of a certain quantity of labour employed, compared with the given value of the commodity produced, they will be determined by the varying value of the commodity produced compared with the given value of the certain quantity of labour employed.

This conclusion will appear strikingly obvious, if we adopt that supposition respecting the mode of procuring the precious metals which would certainly maintain them most strictly of the same value, that is, if we suppose them to be procured by a uniform quantity of unassisted labour without any advances in the shape of capital beyond the necessaries of a single day. That the precious metals would in this case retain, more completely than in any other, the same value cannot be denied, as the quantity of labour actually employed in their production, and the quantity of labour they would command would be the same. But in this case, as was before stated, the money price of labour must remain permanently the same. We cannot however for a moment imagine that this impossibility of a rise or fall in the money price of labour could in any respect impede or interrupt the natural career of profits. The continued accumulation of capital and increasing difficulty of procuring subsistence would unquestionably lower profits. All commodities, in the production of which the same quantity of labour continued to be employed, but with the assistance of capitals of various kinds and amount, would fall in price, and just in proportion to the degree in which the price of the commodity had before been affected by profits; and with regard to corn, in the production of which more labour would be necessary, this article would rise in money price just to that point which would so reduce corn wages as to retard the progress of population in proportion to the diminution of effectual demand; and thus all the effects upon profits, attributed by Mr. Ricardo to a rise of money wages, would take place while money wages and the value of money remained precisely the same. It is obvious that, in this case, profits can only be regulated by the principle of competition, or of demand and supply, which would determine the degree in which the prices of commodities would fall; and their prices, compared with the uniform price of labour, would regulate the rate of profits.

If however instead of supposing gold to be obtained by immediate labour alone in the way here stated, we suppose with Mr. Ricardo that it is obtained by fixed and circulating capitals in certain proportions, it will be found (as we have before intimated) that the state of prices and the rise of labour, contemplated by him in the progress of cultivation, are owing to a fall in the value of money, and not to a rise in the value of labour.

As a further illustration of this point so essential to a just theory of profits, let us suppose a country supplied with gold by a mine of its own, from which the same quantity of metal could always be obtained by the same quantity of labour with the same value of other capital; and further let us suppose, that at a particular period the accumulation of capital was increasing faster than the effectual demand for the produce at its former price; under these circumstances, let us consider what would be the consequences on the prices of commodities and labour. It is obvious that all those commodities which continued to be obtained by the same quantity of labour with the same value of other capital would fall in value from the abundance of the supply; and gold among the rest becoming more abundant, a different division of the produce would take place between the labourers and the capitalists; a smaller proportion of it would go to pay profits, and a larger proportion to pay wages. Profits therefore would fall, and the money wages of labour would rise. And the question is whether the rise in the money wages of labour ought to be considered as a rise in the value of labour, or a fall in the value of money. Mr. Ricardo considers it a rise in the value of labour, and has founded all his calculations in his chapters on rent, wages, and profits, on this assumption. If indeed the value of the produce of the same quantity of labour, or of labour and capital,* were to remain the same, which is what he supposes, then it would be quite true that if a larger proportion of this produce went to pay the wages of labour, the value of labour would rise. But if the value of the produce falls, then the circumstance of a larger proportion of the produce going to pay the wages of labour by no means implies that the value of labour has risen. It only implies that the labourer receives a larger quantity of an article which has fallen in value. And that in the present case the article has fallen in value may with certainty be inferred both from the state of the supply compared with the demand, and the elementary costs of its production. It has been assumed that the supply is comparatively more abundant than before, on account of the increase of capital, although the productiveness of labour has remained the same. This must necessarily occasion a fall of profits, and this fall will be permanent if the same competition of capital continues. But if the rate of profits has fallen the elementary costs of production have fallen. In this case, the conditions of the supply of a certain quantity of gold are the advance of the same quantity of labour, with the same value of other capital, as before, and a less remuneration for profits. Consequently the elementary cost of gold to the purchaser is less than before.

If it be said, as Mr. Ricardo says, that a greater quantity of labour is required to produce the corn which pays the wages of the labourer, this may be conceded; but as a proportionate fall of profits is found to have taken place, the diminution of the element of profits balances* the increase of the element of labour, leaving the value of labour the same as before, while its increased price is occasioned by the fall in the value of money. And that the value of money must have fallen is further evident from the conclusions of Mr. Ricardo himself, quite independently of the measure which I have applied to it. According to his theory the prices of manufactured commodities, which have not been produced by improved machinery, will, in the progress of cultivation, remain nearly the same, while labour and all raw products will rise. If therefore we measure the value of money by its general power of purchasing, its fall is decidedly established. Of a certain mass of objects it purchases the same quantity as before; of a much larger mass of objects it purchases a smaller quantity.

If then in the system of Mr. Ricardo commodities obtained by the same quantity of labour appear to be of the same value, it is only because he has adopted as his measure a money, which from the nature of its composition as consisting in part of profits, necessarily varies with the variations in the values of the very commodities which it is intended to measure.

But in reference to the great limiting principle, which in his system is the only one which regulates profits, namely the increasing difficulty of procuring food from the soil, it merely in fact determines the range of possible profits; how high they may by possibility rise, and how low they may by possibility fall. It is indeed always ready to act; and, if not overcome by countervailing facilities, will necessarily lower the rate of profits on the land, from which it will be extended to all other departments of industry. But even then it always operates according to the laws of demand and supply and competition.

The specific reason why profits must fall as the land becomes more and more exhausted is, that from the intrinsic nature of necessaries, and of the soil from which they are procured, the demand for them and their price cannot possibly go on increasing in proportion to the expense of producing them. Though the value of a given quantity of produce rises on account of the increased quantity of labour required to obtain it, yet the value of the diminished produce of the same quantity of labour, or its efficiency in setting fresh labourers to work necessarily falls from the state of the demand and supply. The boundary to the further value of and effectual demand for corn, lies clear and distinct before us. Putting importation out of the question, it is precisely when the produce of the last land taken into cultivation will but just replace the capital and support the population employed in cultivating it. Profits must then be at their lowest theoretical limit. In their progress towards this point, the continued accumulation of capital will always have a tendency to lower them; and at no one period can they ever be higher than the state of the land, under all the circumstances, will admit.

They may be much lower, however, as was before stated, from an abundant supply of capital compared with the demand for produce, while the soil is still rich. Practically they are very rarely so high as the actual state of the land combined with the smallest possible quantity of food awarded to the labourer would admit of; and very rarely so low as not to allow the means of further accumulation.

What would be the effects upon the profits of stock of any given increase of capital, or even of any given increase of the labour necessary to produce a certain quantity of corn, it would be quite impossible to say before hand.* In the case of a mere increase of capital, however large, it has appeared that circumstances might occur to prevent any fall of profits for a great length of time. And, even in the case of an increase in the quantity of labour necessary to produce corn, it would depend entirely upon the principles of demand and supply and competition, whether the increase in the price of corn would be such as to throw almost the whole of the increased difficulty of production upon the labourer, or upon the capitalist, or again such as to divide the loss more equally between them, which is what generally happens.

No theory of profits therefore can approach towards correctness, which attempts to get rid of the principle of demand and supply and competition.

[* ] It happens not very unfrequently, that the rise in the price of agricultural produce greatly exceeds this. Mr. Tooke in his Details of the High and Low Prices, supposes that, owing to a rise in the price of wheat from about 48s. a quarter to 75s. in 1795 and 1796, with a rise of other agricultural produce nearly in proportion, the farmers and landlords, after an allowance made for every probable deduction, must have divided between them a net additional profit of 12 to 14 millions per annum, and a still greater profit in 1800 and 1801, pp. 303 and 305, 2nd edit.

[* ] This, though rather differently worded, is Mr. Ricardo’s proposition, but he has applied it incorrectly, as will be seen in a subsequent section.

[* ] It is necessary to qualify the position in this way, because, with regard to the main products of agriculture, it might easily happen that all the parts were not of the same value. If a farmer cultivated his lands by means of domestics living in his house whom he found in food and clothing, his advances might always be nearly the same in quantity and of the same high value in use; but in the case of a glut from the shutting up of an accustomed market, or a season of unusul abundance, a part of the crop might be of no value either in use or exchange, and his profits could by no means be determined, by the excess of the quantity produced, above the advances necessary to produce it, as before shewn, page 264.

[* ] The reader will recollect that wages always refer to quantity, unless otherwise particularly expressed, and profits to proportion.

[* ] Estimate of the strength of Great Britain, ch. vii. p. 115.

[† ] Ibid. ch. vii. p. 120.

[* ] Annals of Agriculture, No. 270, pp. 96, and 97, and No. 271, p. 215. Mr. Young expresses considerable surprise at these results, and does not seem to be sufficiently aware, that the number of years purchase given for land has nothing to do with prices, but expresses the abundance or scarcity of moveable capital compared with the means of employing it.

[* ] Wealth of Nations, Book I. ch. xi. p. 309, 313, 6th edit.

[† ] Annals of Agriculture, No. 270, p. 89.

[* ] It ought to be allowed that Adam Smith, in speaking of the effects of accumulation and competition on profits, naturally means to refer to a limited territory, a limited population, and a limited demand; but accumulation of capital under these circumstances involves every cause that can affect profits.

[† ] The reader is aware of the corrections to be made for fixed capital.

[* ] It is to be observed, that the various causes which practically affect profits, and which the author has enumerated in this section, are all reducible to one or the other of the two grand distinctions which are treated of in the two foregoing sections.—For instance, agricultural improvements, or increased personal exertions on the part of the labourer, whereby a larger produce is obtained with the same amount of labour, clearly belong to what he has denominated the limiting principle of profits, whilst the various circumstances which affect the value of the same quantity of produce, the labour employed being also the same, belong to the regulating principle of profits.—Ed.

[† ] Principles of Political Economy, ch. vi. p. 108, 3rd edit.

[‡ ] Id. p. 128.

[* ] Principles of Political Economy, ch. vi. p. 111, 3rd edit.

[* ] Mr. Ricardo often uses the terms quantity of labour, and quantity of labour and capital, to express the same thing. Generally, when on the subject of profits, he means the quantity of labour and capital, although it must be allowed that machinery and materials of different kinds cannot be estimated and compared by quantity. The true condensed expressions in regard to the advances on which profits are estimated must be (as it has appeared) either the quantity of labour, or the value of the capital. They are equivalent, and give the same results.

[* ] This balance necessarily takes place, as we have said, in the elementary cost of the varying wages of a given number of men, which always remains the same.

[* ] It has sometimes been said that profits depend entirely upon the productiveness of labour. If by productiveness of labour be meant what the words usually mean, and what they certainly ought to mean, namely the quantity of produce obtained by a given quantity of labour, every day’s experience shews that the statement is quite unfounded. If the words be intended to mean productiveness of value then no doubt profits depend upon the productiveness of labour. This truth is involved in the very definition of profits, namely the excess of the value of the produce above the value of the advances, or of a given quantity of labour advanced. It is exactly what has been here inculcated, but the usual and correct meaning of terms must not be changed on particular occasions.