The Online Library of Liberty

A project of Liberty Fund, Inc.

• 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 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.