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Section VIII.—: Of the Distribution occasioned by Commerce, internal and external, considered as the Means of increasing the exchangeable Value of Produce. - Thomas Robert Malthus, Principles of Political Economy [1836]

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Principles of Political Economy (London: W. Pickering, 1836).

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Section VIII.—

Of the Distribution occasioned by Commerce, internal and external, considered as the Means of increasing the exchangeable Value of Produce.

The second main cause favourable to that increase of exchangeable value, which depends upon distribution, is internal and external commerce.

Every exchange which takes place in a country, effects a distribution of its produce better adapted to the wants of the society. It is with regard to both parties concerned, an exchange of what is wanted less for what is wanted more, and must therefore raise the value of both the products. If two districts, one of which possessed a rich copper mine, and the other a rich tin mine, had always been separated by an impassable river or mountain, there can be no doubt that on the opening of a communication, a greater demand would take place, and a greater price be given both for tin and copper; and this greater price of both metals, though it might only be temporary, would alone go a great way towards furnishing the additional capital wanted to supply the additional demand; and the capitals of both districts, and the products of both mines, would be increased both in quantity and value to a degree which could not have taken place without this new distribution of the produce, or some event equivalent to it.

The French Economists, in their endeavours to prove the unproductive nature of trade, always insisted that the effect of it was merely to equalize prices, which were in some places too high and in others too low, but in their amount the same as they would be after the exchange had taken place. This position must be considered as unfounded, and capable of being contradicted by incontrovertible facts. The increase of price at first, from the extension of the market, is unquestionable. And when to this we add the effect occasioned by the demand for further produce, and the means thus afforded of rapid accumulation for the supply of this demand, it is impossible to doubt for a moment the direct tendency of all internal trade to increase both the quantity and value of the national produce.

If indeed it did not tend to increase the value of the national produce, it would not be carried on. It is out of this increase that the merchants concerned are paid; and if some London goods are not more valued in Glasgow than in London, and some Glasgow goods more valued in London than in Glasgow, the merchants who exchange the articles in which these towns trade, would neither be doing themselves any good, nor any one else. It is a mere futile process to exchange one set of commodities for another, if the parties, after this new distribution of goods has taken place, are not better off than they were before. The giving one article for another has nothing to do with effectual demand, unless the commodity received so far exceeds in value the labour employed on the commodity parted with, as to yield adequate profits to the capitalists concerned, and to give them both the power and the will to set fresh labour to work in the same trade.

It has been said that the industry of a country is measured by the extent of its capital, and that the manner in which this capital is employed, though it may make some difference to the enjoyment of the inhabitants, makes very little in the value of the national revenue. This would be true on one supposition, and on one supposition only; namely that the inhabitants could be persuaded to estimate their confined productions just as highly, to be as eager to obtain and consume them, and as willing to work hard for them, and to make great sacrifices for them, as for the commodities which they obtain from a distance. But are we at liberty to make such a supposition? It is specifically to overcome the want of eagerness to purchase domestic commodities that the merchant exchanges them for others more in request. Could we but so alter the wants and tastes of the people of Glasgow as to make them estimate as highly the profusion of cotton goods which they produce, as any articles which they could receive in return for them under a prosperous trade, we should hear no more of their distresses. It may be allowed that the quantity of productive industry maintained in a country is nearly proportioned to the quantity of capital employed; but the value of the revenue will be greater or less, according to the market prices of the commodities produced. These market prices must obviously depend upon the interchange of goods; and consequently the value of the revenue, and the power and will to increase it, must depend upon that distribution of commodities which best adapts them to the wants and tastes of the society.

The whole produce of a nation may be said to have a market price in money and labour. When this market price is high, that is, when the prices of commodities rise so as to command a greater excess of labour above what they had cost in production than before, while the same capital and number of people had been employed upon them, it is evident that more fresh labour will be set in motion every year, and the increase of wealth will be certain and rapid. On the other hand, when the market prices of commodities are such as to be able to command very little more labour than the production of them has cost, it is as evident that the national wealth will proceed very slowly, or perhaps be quite stationary.

In the distribution of commodities, the circulating medium of every country bears a most important part; and, as I intimated before in a note, we are much more likely to obscure our reasonings than to render them clearer, by throwing it out of our consideration. It is not easy indeed, without reference to a circulating medium, to ascertain whether the commodities of a country are so distributed as to give them their proper value.

It may be said, perhaps, that if the funds for the maintenance of labour are at any time in unusual abundance, it may fairly be presumed that they will be able to command a more than usual quantity of labour. But they certainly will not be able to command more labour, nor even so much, if the distribution of them be defective; and in a country which has a circulating medium, the specific proof of the distribution being defective is, that the whole produce does not exchange for so large an amount of circulating medium as before, and that consequently the producers have been obliged to sell at a great diminution of money profits, or a positive money loss.

From the harvest of 1815 to the harvest of 1816, there cannot be a doubt that the funds for the maintenance of labour in this country were unusually abundant. Corn was particularly plentiful, and no other necessaries were deficient; yet it is an acknowledged fact, that great numbers were thrown out of employment, partly from the want of power, and partly from the want of will to employ the same quantity of labour as before. How is this fact to be accounted for? It would certainly not be easy to explain it without referring to a circulating medium. But the moment we refer to a circulating medium, the theory of the fact observed becomes perfectly clear. It is acknowledged that there was a fall in the money value of the raw produce, to the amount of nearly one third. But if the farmer sold his produce for only two thirds of the price at which he had before sold it, while the money price of labour had not fallen, it is evident that he would be quite unable to command the same quantity of labour, and to employ the same quantity of capital on his farm as he did the year before. And when afterwards a great fall of money prices took place in almost all manufactured products, occasioned in a considerable degree by this previous fall of raw produce, it is as evident that if the price of labour had not fallen, or not in proportion, so large a quantity of produce would be required to pay the labourer, that the manufacturers would be unable to employ the same number of workmen as before. In the midst of the plenty of necessaries, these two important classes of society would really have their power of employing labour diminished, while all those who possessed fixed incomes would have their power of employing labour increased, with very little chance of an increase of will to extend their demand in proportion; and the general result would resemble the effects of that partial distribution of products which would arise from the interruption of accustomed communications. The same quantity of commodities might be produced for a short time; but the distribution not being such as to proportion the supply in each quarter to the demand, the whole would fall in exchangeable value, and a decided check to production would be experienced in reference to the whole country. It follows, that the labouring classes of society may be thrown out of work in the midst of an abundance of necessaries, if these necessaries are not in the hands of those who are at the same time both able and willing to employ an adequate quantity of labour.

As long as this fall in the money price of produce continues to diminish the power of commanding labour, a discouragement to production must obviously continue; and if, after labour has adjusted itself to the new level of prices, the permanent distribution of the produce and the permanent tastes and habits of the people should not be favourable to an adequate degree of effectual consumption, the clearest principles of political economy shew that the profits of stock might be lower for any length of time than the state of the land rendered necessary; and that the retarded rate of production might be as permanent as the faulty distribution of the produce and the unfavourable tastes and habits which had occasioned it.

It is scarcely possible for any essential changes to take place in the value of the circulating medium of a country without occasioning an alteration in the distribution of its produce. The imprudent use of paper money must be allowed to be the principal cause of these changes. But even without a paper currency, or with one always maintaining the same value as bullion, every country is liable to changes in the value of its produce, compared with its money; and as such changes must have a great effect on the distribution of produce, partly temporary and partly permanent, a determination to reason on these subjects, without taking into account the effects of so powerful an agent, would be purposely to shut our eyes to the truth. Referring therefore ultimately to the command over labour as the best practical measure of the value of the whole produce, it will be useful to refer previously to its bullion value, in order to ascertain whether the distribution of the produce is such as to enable it to command labour in proportion to the increase of its quantity. If the bullion value of a country’s products so increases as to command yearly an increased quantity of labour without a fall of profits, we may feel pretty well assured that it is proceeding without check in wealth and prosperity. But, if there is merely an increase of commodities, it is impossible to say, without further inquiry, that they may not be so distributed as to retard, instead of promote, the further progress of national wealth.

It has been fully stated and allowed, that a period of comparative stagnation must finally arrive in every country from the difficulty of procuring subsistence. But a deficiency of effectual demand has often occasioned a similar stagnation at an early period of a nation’s progress. No country with a very confined market, internal as well as external, has ever been able to accumulate a large capital, because such a market prevents the formation of those wants and tastes, and that desire to consume, which are absolutely necessary to keep up the market prices of commodities, and prevent the fall of profits. The distribution of commodities occasioned by internal trade is the first step towards any considerable increase of wealth and capital; and if no exchanges could have taken place in this country, at a greater distance than five miles, it is probable that not a fifth part of our present capital could have been employed before the effective encouragement to accumulation and the further progress of wealth had nearly ceased.

The motives which urge individuals to engage in foreign commerce are precisely the same as those which lead to the interchange of goods between the more distant parts of the same country, namely, a desire to increase or keep up the market prices of the local products; and the increase of profits thus made by the individual, or the prevention of that fall of profits which would have taken place if the capital had been employed at home, must be considered as a comparative increase in the value of the national produce.

Mr. Ricardo begins his Chapter on Foreign Trade by stating that “No extension of foreign trade will immediately increase the amount of value in a country although it will very powerfully contribute to increase the mass of commodities, and therefore the sum of enjoyments.” This statement is quite consistent with his peculiar view of value, as depending solely upon the labour which a commodity has cost. However abundant may be the returns of the merchant, or however greatly they may exceed his exports in value according to the common acceptation of the term, it is certain that the labour employed in procuring these exports will at first remain the same. But, as it is so glaring and undeniable a fact that the returns from an unusually favourable trade will exchange for an unusual quantity of money, labour and domestic commodities; as this increased power of commanding money, labour and commodities is in reality what is meant by the merchant when he talks of the extension of the foreign market and a favourable trade, and as it is known that such a state of things often lasts a sufficient time to produce the most important results, it must be allowed that the statement is quite incorrect.

Undoubtedly, as Mr. Ricardo observes, the interest of the merchant is no way affected by importing fifty pipes of wine instead of twenty-five, if the fifty pipes be not of greater value. Profits, as I have shown, are always estimated by value, not by quantity. The specific object which the merchant has in view when he engages in foreign commerce, is to obtain returns for his capital of greater value than if he had employed it at home; and in all cases of a favourable foreign trade from extending markets, this is specifically what he obtains.

But Mr. Ricardo thinks that value cannot increase in one department of produce without its being diminished in some other.* This again may be true according to his view of value, but is utterly unfounded according to that more enlarged view of exchangeable value which is established and confirmed by experience. If any foreign power were to send to a particular merchant commodities of a new description which would sell in the London market for fifty thousand pounds, the wealth of such merchant would be increased to that extent; and who, I would ask, would be the poorer for it? It is no doubt true that the purchasers of these commodities may be obliged to forego the use of some of the articles which they had before been in the habit of buying,† and so far in some quarters demand may be diminished; but, to counterbalance this diminution, the enriched merchant will become a purchaser of additional goods to the amount perhaps of the whole fifty thousand pounds, and thus prevent any general fall in the value of the native produce consumed in the country, while the value of the foreign produce so consumed has increased to the amount of the whole of the new produce imported. I see no difference between a present from abroad, and the unusual profits of a new foreign trade, in their effects upon the wealth of a state. They are equally calculated to increase the wealth of the community, by an increase both of the quantity and value of the produce obtained.

It may perhaps be thought that the money value of the whole produce cannot be increased without an importation of money. But, in fact, a successful extension of foreign trade is exactly that state of things which most directly leads to the importation of bullion.* For what is it that the merchant exporter specifically considers as a successful extension of foreign commerce in dealing with civilized nations? Undoubtedly, the power of selling his exports abroad for a greater value than usual, estimated in bullion; and of course, if the goods which he would import in return will not sell at home so much higher as to warrant their importation, a part of the returns will finally be imported in money. But if on the whole trade only such an amount be imported as shall bear the same proportion to the returns in goods as the whole of the currency of the country does to the whole of its produce, it is obvious that no difficulty whatever can occur in the circulation of the commodities of the country at their former prices, with the single exception of those articles with which the foreign goods might directly enter into competition, which in this case would never be sufficient to prevent a general increase of value in the whole produce.

I most distinctly therefore differ from Mr. Ricardo in the conclusion implied in the following passage. “In all cases the demand for foreign and home commodities together, as far as regards value, is limited by the revenue and capital of the country. If one increases, the other must diminish.”* It appears to me that in almost every case of successful foreign trade, it is a matter of unquestionable fact that the demand for foreign and home commodities taken together decidedly increases; and that the increase in the value of foreign produce does not occasion a proportionate diminution in the value of home produce.

I would still however allow that the demand for foreign and home commodities together is limited by the value of the revenue and capital of the country; but, according to my view of the subject, the national revenue, which consists of the sum of rents, profits, and wages, is at once decidedly increased by the increased profits of the foreign merchant, without a proportionate diminution of revenue in any other quarter; whereas Mr. Ricardo is evidently of opinion that, though the abundance of commodities is increased, the revenue of the country, as far as regards value, remains the same.

It will readily be allowed that an increase in the quantity of commodities is one of the most desirable effects of foreign commerce; but I wish particularly to press on the attention of the reader that in almost all cases, another most important effect accompanies it, namely, an increase in the amount of exchangeable value. And that this latter effect is so necessary, in order to create a continued stimulus to productive industry, and keep up an abundant supply of commodities, that in the few cases in which it does not take place, a stagnation in the demand for labour is immediately perceptible, and the progress of wealth is checked. An extension of foreign commerce, according to the view which Mr. Ricardo takes of it, would, in my opinion, place us frequently in the situation in which this country was in the early part of 1816, when a sudden abundance and cheapness of corn and other commodities, from a great supply meeting a deficient demand, so diminished the value of the income of the country, that it could no longer command the same quantity of labour at the same price; the consequence of which was that, in the midst of plenty, thousands were thrown out of employment—a most painful but almost unavoidable preliminary to a fall in the money wages of labour, which it is obvious could alone enable the general income of the country to employ the same number of labourers as before, and, after a period of severe check to the increase of wealth, to recommence a progressive movement.

Mr. Ricardo always seems to think that it is quite the same to the labourer, whether he is able to command more of the necessaries of life by a rise in the money price of labour, or by a fall in the money price of provisions; but these two events, though apparently similar in their effects, may be, and in general are, most essentially different. An increase in the money wages of labour, generally implies such a distribution of the actual wealth as to give it an increasing value, to ensure full employment to all the labouring classes, and to create a demand for further produce, and for the capital which is to obtain it. In short, it is the infallible sign of health and prosperity. Whereas a general fall in the money price of necessaries often arises from so defective a distribution of the produce of the country, that the general amount of its value cannot be kept up; in which case, under the most favourable circumstances, a temporary period of want of employment and distress is unavoidable; and in many cases, (as may be too frequently observed in surveying the different countries of the globe,) this fall in the money price of necessaries is the accompaniment of a permanent want of employment and the most abject poverty, in consequence of a retrograde and permanently diminished wealth.

The reader will be fully aware that a great fall in the price of particular commodities, either from improved machinery or foreign commerce, is perfectly compatible with a continued and great increase, not only in the exchangeable value of the whole produce of the country, but even in the exchangeable value of the whole produce of these particular articles themselves. It has been already stated that the whole value of the cottons produced in this country has been prodigiously increased, notwithstanding the great fall in their price. The same may be said of teas, sugars, and many other articles, although when they were first imported, their prices were greatly higher than at present; and there can be little doubt, that if we were to attempt to make our own wines by means of hot-houses, they would altogether be worth much less money, and would give encouragement to much less industry that at present.

The causes of an increase in the effectual demand for particular commodities are of very easy explanation; but it has been considered, and with reason, as not very easy to explain the cause of that general briskness of demand which is sometimes so very sensibly felt throughout a whole country, and is so strikingly contrasted with the feeling which gives rise to the expression of trade being universally very dead. As the specific and immediate cause of this general increase of effective demand, I should decidedly point to such a distribution of the produce, and such an adaptation of it to the wants and tastes of the society as will give the money price for which it sells an increased command of labour before more labour has been employed on its production; and I am inclined to think that, if this test be applied to all the striking cases that have occurred, it will rarely or never be found to fail.

It cannot for a moment be doubted, for instance, that the annual increase of the produce of the United States of America, estimated either in bullion or in labour, has been greater than that of any country we are acquainted with, and that this has been greatly owing to their foreign commerce, which, notwithstanding their facility of production, has given a value to their corn and raw produce nearly equal to what they bear in many of the countries of Europe, and has consequently given to them a power of commanding the produce and labour of other countries which is quite extraordinary when compared with the quantity of labour which they have employed. It can as little be doubted that in this country, from 1793 to 1814, the whole exchangeable value of the produce, estimated either in labour, or in bullion, was greatly augmented every year. In this increase of value, as well as of riches, the extension of our foreign commerce has been considered, almost without a dissentient opinion, as a most powerful agent; and certainly till 1815, no appearances seemed to indicate, that the increasing value of our imports had the slightest tendency to diminish the value of our domestic produce. They both increased, together, and increased greatly, estimated either in bullion or labour.

But while in every country to which it seems possible to refer, an increase of value will be found to accompany increasing prosperity and riches, I believe that no single instance can be produced of a country engaged in a successful commerce, and exhibiting an increasing plenty of commodities, where the value of the whole produce estimated in labour, was retrograde or even stationary. And of the two ways in which capital may be accumulated, as stated by Mr. Ricardo in his chapter on Foreign Commerce, namely increase of revenue from increased profits, or a diminished expenditure arising from cheap commodities,* it will be found that the latter never has been, nor ever will be, experienced as an effective stimulus to the permanent and continued production of increasing wealth.

It is the natural tendency of foreign trade, (as of all sorts of exchanges by which a distribution is effected better suited to the wants of society,) immediately to increase the value of that part of the national revenue which consists of profits, without a proportionate diminution elsewhere. It is precisely this immediate increase of national income arising from the exchange of what is of less value in the country, for what is of more value, that furnishes both the power and will to employ more labour, and occasions the animated demand for labour, produce and capital, which is a striking and almost universal accompaniment of successful foreign commerce; whereas, a mere abundance of commodities falling very greatly in value compared with labour, though it may be called an actual increase of wealth, would obviously at first diminish the power of employing the same number of workmen, and a temporary glut and general deficiency of demand could not fail to ensue in labour, in produce, and in capital, attended with the usual distress which a glut must necessarily occasion.

Mr. Ricardo always views foreign trade in the light of means of obtaining cheaper commodities. But this is only looking to one half of its advantages, and I am strongly disposed to think, not the larger half. In our own commerce at least, this part of the trade is comparatively inconsiderable. The great mass of our imports consists of articles as to which there can be no kind of question about their comparative cheapness, as raised abroad or at home. If we could not import from foreign countries our silk, cotton and indigo, our tea, sugar, coffee and tobacco, our port, sherry, claret and champagne, our almonds, raisins, oranges and lemons, our various spices and our various drugs, with many other articles peculiar to foreign climates, it is quite certain that we should not have them at all. To estimate the advantage derived from their importation by their cheapness, compared with the quantity of labour and other advances which they would have cost, if we had attempted to raise them at home, would be perfectly preposterous. In reality, no such attempt would have been thought of. If we could by possibility have made fine claret at ten pounds a bottle, few or none would have drunk it; and the actual quantity of labour and other advances employed in obtaining these foreign commodities is at present beyond comparison greater than it would have been if we had not imported them.

We must evidently therefore estimate the advantage which we derive from such a trade upon a very different principle. This is the simple and obvious one often adverted to as the foundation of every act of barter, whether foreign or domestic, namely, the increased value which results from exchanging what is wanted less for what is wanted more. After we had, by our exports of home commodities, obtained in return all the foreign articles above-mentioned, we might be very much puzzled to say whether we had increased or decreased the quantity of our commodities, but we should feel quite certain that the new distribution of produce which had taken place, by giving us commodities much better suited to our wants and tastes than those which had been sent away, had decidedly increased the exchangeable value of our possessions, our means of enjoyment, and our wealth.

Taking therefore a very different view of the effects of foreign commerce on exchangeable value from Mr. Ricardo, I should bring forward the extension of markets as being, in its general tendency, pre-eminently favourable to that increase of value and wealth which arises from distribution.

[* ] It appears to me that if the two first sentences in Mr. Ricardo’s Chapter on Foreign Trade were well founded, there would be no intercourse between nations.

[† ] This, however, will not necessarily happen. The greater temptation offered to consumption may induce some persons to spend what they otherwise would have saved, and in many cases the wealth of the country, instead of suffering by this change, will gain by it. The increased consumption, as far as it goes, will occasion an increase of market prices and profits, and this increase of profits will soon restore the capital which for a short time had been diverted from its destined office.

[* ] The importation of bullion is not necessary to a rise of prices; for, there is no necessary connection between a given quantity of money and a given scale of prices.—If a certain quantity of money be exchanged for a certain quantity of goods, their price is of course represented by that money; but if the money is exchanged for one half only of the goods at a time, the whole quantity of goods will be worth twice the money; and if the money be exchanged for one third the goods at a time, their total price will be equal to three times the amount of the money. The quantity of goods, and the quantity of money may therefore remain the same, and prices may rise or fall notwithstanding.

This is fully exemplified by what occurs when there is a deficiency or an excess of any one commodity which is of very extensive consumption.—Take corn as an instance.—The total money value of a scanty crop is known to be much more, and the total money value of a super-abundant crop much less, than that of an ordinary crop, while the prices of other things remain the same. In this case, it is obvious, that the price of the whole produce, agricultural and manufactured together, (or its value estimated in money) will be either greater or less than ordinary, even though there shall be no greater or less quantity of money in circulation. And this is very easily explained. Those who have to pay dearer or cheaper for their corn, have no doubt less or more to spend on other things. But, to counterbalance this, the farmers means of purchasing other things are increased or diminished in the very same proportion. If I have a commodity, which, from being in great request, rises fron £10 to £20, the purchaser must forego his demand for other things to the extent of £20 instead of £10; but my demand for other things is increased from £10 to £20. All this may take place, and indeed is constantly taking place, without a shilling being added to the circulation.—Ed.

[* ] Princ. of Polit. Econ. ch. vii. p. 138, 2nd edit.

[* ] Princ. of Pol. Econ. ch. vii. p. 132, 2d edit.