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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.

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.

[* ] 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.