The Online Library of Liberty

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• Introduction
• Textual Introduction
• Acknowledgments
• Essays On Economics and Society 1824–1845
• War Expenditure 1824
• The Quarterly Review On Political Economy 1825
• The Corn Laws 1825
• Paper Currency and Commercial Distress 1826
• The Silk Trade 1826
• The New Corn Law 1827
• The Nature, Origin, and Progress of Rent 1828
• The Currency Juggle 1833
• Corporation and Church Property 1833
• Miss Martineau’s Summary of Political Economy 1834
• Essays On Some Unsettled Questions of Political Economy 1844
• Editor’s Note
• Preface
• Of the Laws of Interchange Between Nations; and the Distribution of the Gains of Commerce Among the Countries of the Commercial World
• Of the Influence of Consumption On Production
• On the Words Productive and Unproductive
• On Profits, and Interest
• On the Definition of Political Economy; and On the Method of Ainvestigation Proper to Ita
• The Currency Question 1844
• The Claims of Labour 1845
• De Quincey’s Logic of Political Economy 1845

THE NATURE, ORIGIN, AND PROGRESS OF RENT

1828

EDITOR’S NOTE

Note III to Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations. Ed. J. R. McCulloch. Edinburgh: Black, Tait, 1828, IV, 100-25. Running head: “Rent.” Unsigned; not republished. Identified in JSM’s bibliography as “A dissertation on Rent, in the notes subjoined to McCulloch’s edition of Smith’s Wealth of Nations. (Some parts of this note were however, altered by McCulloch)” (MacMinn, 9). Not mentioned in JSM’s Autobiography. Ney MacMinn and his fellow editors identify Note XXII, “Taxes on the Rent of Land” (ibid., 535-8) as JSM’s contribution, but it seems unlikely that he would describe this slight three-page note as a “dissertation on Rent”. (There is actually a third note on the subject in McCulloch’s edition, Note XXIX, “Additional Note on Rent” [ibid., 574-8], which from the context and the argument is almost certainly McCulloch’s.) The identification here offered is based on the copy of McCulloch’s edition in Somerville College, as well as on likelihood. In that copy the pencilled notes reproduced at 173, 178, and 179 below occur; their wording, together with the description in the bibliography, and McCulloch’s inscription in JSM’s copy (see 812-13 below), provide the best evidence now available. Internal evidence suggests that, in addition to the marked passages, the concluding paragraph (179-80) is by McCulloch.

The Nature, Origin, and Progress of Rent

there are few chapters in Dr. Smith’s great work more unsatisfactory than his chapter on rent. It contains, indeed, many curious and valuable disquisitions on several topics connected with rent; but it leaves untouched all the great questions with respect to its origin, nature, and causes. Those theoretical principles which had been undiscovered by his precursors, remained undiscovered by him: it was left to subsequent inquirers to ascertain the causes of rent, the laws which determine its amount, and the manner in which it is affected by the progress of society.

The price of every commodity, according to Dr. Smith, must on the average be at least sufficient to replace the capital necessarily expended in producing it, together with the ordinary profits of stock; because, if the price were permanently lower than this, the commodity would not be produced. But although this is the lowest price at which a commodity can be sold for any length of time, it is not the highest. Some commodities indeed can never permanently sell for more than the lowest price which will enable them to be brought to market; but others can. Corn, cattle, and all the most important articles of raw produce, compose the latter class; their price is usually such as to leave a surplus, after replacing with the ordinary profits the whole expense of producing them and bringing them to market: and this surplus falls to the landlord, since the farmer cannot permanently receive a profit on his capital exceeding what that capital could obtain in other trades.

Dr. Smith’s investigations appear to have stopped at this point. It is obvious, however, that the nature of rent was yet only half-explained, or rather was not explained at all. It is no explanation to say, that rent is a surplus above the ordinary profits of stock; because the very fact to be explained is the existence of such a surplus. If the price of every other commodity depends upon what is necessary for replacing with the ordinary profits the capital expended in its production, and if competition will not suffer it for any length of time to exceed this limit, why does not competition also keep down the price of raw produce to what is sufficient for replacing the capital, and affording the ordinary profits? Dr. Smith apparently did not consider this to require explanation, or deemed it sufficiently explained by the greatness of the demand. “There are some parts,” says he, “of the produce of land, for which the demand must always be such as to afford a greater price than what is sufficient to bring them to market:”^* —a reason which we must suppose him to have assigned rather because no other occurred to him, than because he was entirely satisfied with it, or had deduced it from any very careful analysis. A great demand is by no means sufficient to account for a high price. There are some commodities which, whatever might be the demand, would always be cheap; because they could always be produced and brought to market at a low price. Others, however trifling the demand, must always be dear; because if they were not dear, they could not be brought to market at all. Price, in short, does not depend upon the greatness of the demand. To produce a high price, the demand must be attended with some principle of limitation in the supply. Had Dr. Smith attended to this important truth, of which he has elsewhere proved himself to be well aware, he would have proceeded to inquire what is the principle of limitation in the case of corn; and this inquiry would most probably have disclosed to him the true theory of rent.

In the preceding note on value,^[*] commodities were divided into two classes; those which cannot be increased in quantity as the demand increases, and those which can. It was shown, that to the price and exchangeable value of the former class there is no limit, except the inability or unwillingness of the purchasers to give more; but that, of the other class, comprising the great mass of the physical objects of human desire, the price and value are determined by the cost of production; that is, by the quantity of labour required to produce them and bring them to market. Raw produce belongs to the latter class; since its quantity may be increased by additional labour, so as to meet any conceivable increase of demand. The value of raw produce, therefore, depends upon the cost of its production. But there is a peculiarity, in the circumstances under which raw produce is produced, which causes an apparent deviation from this law.

The value of every thing which is not limited in quantity, depends upon its cost of production. But suppose that there is a commodity which has two costs of production. The case is conceivable, and the following are the circumstances under which it would arise. Suppose that a commodity may be produced in two ways; one of them being much less expensive than the other, but depending upon the possession of a particular instrument, existing in limited quantity: and let there be a demand for a larger supply of the commodity than can be produced in the cheaper of the two ways; so that recourse must be had to the dearer for a part of the supply. This commodity might be said to have two costs of production. Which of these costs of production would regulate its value? Evidently the dearer of the two; that which yields the smallest produce to a given amount of labour and capital. For if the value of the produce were not sufficient to replace with its profits the expense of producing the commodity in the dearer mode, no portion of it would be produced in that mode; and as the other mode is assumed not to afford enough to satisfy the demand, its value would rise, from scarcity, to the point which would enable a larger supply to be sent to market. It could not rise above this limit, otherwise the producers of the additional supply would obtain more than the ordinary rate of profit; which the competition of other capitalists would necessarily prevent.

It is clear, however, that the value or price which affords the ordinary profits of stock to those who produce a commodity by a certain process, must afford more than these ordinary profits to those who produce it by a less expensive process. And if the instrument by which the cheaper method of production is effected can be engrossed and appropriated by one or more individuals to the exclusion of others, the whole excess of profits which it yields—that is, the whole amount of produce, or its value, produced in the cheaper mode, over and above that which is produced in the dearer mode—will belong to the proprietors of the instrument, and will form rent.

It appears, therefore, that any commodity, of which, from the necessary circumstances of its production, equal quantities of labour or equal capitals yield unequal returns, may yield a rent as soon as, from the extension of the demand, the most productive of the capitals becomes unable to supply the whole market. The value and price of the commodity, too, must always be sufficient to replace with its ordinary profit the least productive of the capitals; but, if such a quantity of the commodity as the least productive capital can produce, affords to that capital the ordinary profit, an equal quantity will yield the ordinary profit to each of the other capitals: whatever, therefore, any of them produces beyond this, constitutes a fund to the extent of which rent may be paid.

Now, the produce of land is actually obtained under circumstances precisely analogous to those supposed in the above investigation. The quantity of corn or cattle in existence, may be increased by the employment of an increased quantity of capital or labour, but it cannot always be increased in the same proportion as the capital. A double capital applied to the manufacture of hats, will in general produce a double quantity of hats. A double capital applied to the growth of corn, will seldom afford a double quantity of corn. In the earlier stages of cultivation the quantity of produce may perhaps be doubled, and even more than doubled, by doubling the outlay. But land does not admit of being indefinitely forced with an equal return. And notwithstanding the occasional occurrence of improvements, it is invariably found that in the long run the effects of these improvements are overbalanced by the decreasing productiveness of the land; and that, speaking generally, additional supplies of food can only be obtained by a greater proportional sacrifice of capital and labour.

When an increased supply of corn comes to be required, it may be got in one of two ways. Land which remained uncultivated may be taken into cultivation; or the old land may be made to afford a greater produce, by a more complete system of drainage, the use of more powerful manures and implements, the employment of additional cattle or additional hands, &c.^* It is characteristic of both these methods of increasing the produce, that a diminished quantity is, on an average, obtained in return for the same expenditure of labour and capital. In the case of new land this is obvious, since it would have been cultivated before, if its cultivation had not been less advantageous, all things considered, than that of the land which was cultivated. It is equally true, that when it is from the old cultivated land that the additional food is obtained, the additional capital which is employed scarcely ever produces so much in proportion to its amount, as the previous capitals. And if any proof of this be required, it is sufficient to observe, that otherwise none but the best lands, in fertility and situation taken together, would ever have been cultivated; for if the growing demands of the community could always have been supplied from those lands, without any enhancement of expense, the price of corn would never have risen sufficiently to enable the cultivation of any other lands to yield a profit.

It being established, therefore, that after a certain stage of cultivation a further supply of food must be obtained (if obtained at all) not only at a greater absolute, but at a greater comparative expense, it follows that when a further supply is wanted, the value and price of food must rise in proportion to the necessary increase in the cost of production;—and this, for one of the best of all possible reasons, viz. that until it has so risen, the food will not be produced. The exchangeable value of corn, therefore, has a constant tendency to rise with the increased demand occasioned by an increase of population.

The produce of land, then, being a commodity which has not one only, but several costs of production, and the greatest of these being of necessity the sole regulator of its price, it follows, in the manner which has been shown in the supposed case before examined, that the inequality in these several costs of production is at once the principal cause and the measure of rent.

If the nature of the land had been such that it had always yielded the same or a greater proportional return to every fresh outlay of capital and labour upon it, the entire supply of food required by the most populous nation, might, it is obvious, have been raised from one acre as easily as from millions. In such a state of things, prices could never have risen, and rent would have been wholly unknown. Neither could prices have risen, nor rent appeared, had there been an unbounded extent of good land. But it is because the earth is of limited extent, and because it yields, on an average, a constantly decreasing return, according as cultivation is extended, to the same outlay of capital and labour, that prices rise and rents are paid.

When, in the progress of cultivation, that indefinable stage is attained, at which the proportional return to any further application of capital begins to decrease, production will be carried no farther without a rise of prices. The cultivators will, in preference, invest their savings in some other employment, until the increase of population produces an increase of demand, which, not being met by a corresponding supply, must of course raise prices. In consequence of this rise, fresh capital may now be applied by the agriculturists either to improve the best lands, or to cultivate those of a somewhat inferior degree of fertility. As much, therefore, of the return to the old capital as is over and above the return to the new, will now be over and above the ordinary profits of stock; it will therefore constitute rent.

Suppose, for instance, that the productiveness of capital, on a particular piece of land, of the first degree of fertility, begins to decline after it has been made to produce twenty bushels of corn. Let it be supposed, that by superadding another capital equal to the first, not twenty, but fifteen bushels would be added to the produce. These fifteen bushels might with propriety be spoken of as the produce of the second capital, and the twenty bushels as the produce of the first. As soon as this additional quantity of produce is called for, by the increase of the demand, corn must rise in value and in price until the fifteen bushels exchange for as much money, and as much of all other things whose value has remained constant, as the twenty bushels did before; for the twenty bushels, at their former price, did not afford more than the usual profits of stock; the fifteen bushels, therefore, will not afford so much as the usual profits until they rise to that price. But when fifteen bushels come to afford the ordinary profit to the second capital, which is equal to the first, fifteen bushels will afford it likewise to the first capital. The remaining five bushels are thus over and above the ordinary profit of stock; and this being the case, the competition of the farmers will render them willing to pay them as rent to the landlord.

To carry the illustration a little farther, let population continue to increase until it becomes necessary to raise a still greater supply of corn. This is to be obtained by a still farther increase of expenditure upon the soil, which will be attended with a still greater falling off in the proportional return. Suppose, for instance, that a third capital, equal to either of the foregoing, yields a return of no more than ten bushels. Before these ten bushels will be produced, they must have risen to the same price which the twenty bushels were sold for at first, and the fifteen afterwards. Ten bushels will now yield to the producer the ordinary rate of profit upon the last outlay of capital. But if ten bushels afford him the ordinary profit upon one third part of his entire stock, thirty bushels will afford him that rate of profit upon the whole. A surplus of ten bushels will therefore remain out of the produce of the first capital, and another of five out of that of the second,—in all fifteen; the whole of which, being above the ordinary rate of profit, will constitute rent.^*

We may now perceive in what sense we ought to take the proposition of Dr. Smith, that the price of food is always sufficient not only to replace the capital expended with the profit which it would have obtained in other employments, but to leave, besides, a surplus to the landlord. So long as all the food which is raised is raised at the same cost of production, the above proposition is not true in any sense. The value of the produce is then exactly sufficient to replace the capital with its profit, and no more. But when, from the increase of demand, and the limited extent and fertility of the soil, some portion of the total quantity of food produced has of necessity been raised at a greater cost than the remainder, its value rises. It never is more than sufficient, however, to replace, with the ordinary profit, that portion of the whole capital employed which is attended with the least return. But as all the corn sold in the same market must be sold at the same price, and as that price is sufficient to replace with its profit the least productive portion of the capital employed, it must be more than sufficient to replace, with the same profit, all the remainder of the capital. Here, therefore, commences the surplus which Dr. Smith describes, and which he justly considers to be the measure of rent.

Let us now briefly recapitulate the important principles which we have endeavoured to establish:

1. That if the produce of land could always be increased in proportion to the outlay, there could be no such thing as rent.

2. That the produce of land cannot be increased in proportion to the outlay, but in a less proportion.

3. That the least productive, which, speaking generally, is the last portion of the outlay, must yield the ordinary profits of stock; and

4. That all which the other portions yield more than this, being above the ordinary profits, will constitute rent.

This result may be otherwise expressed in the following propositions:

1. That the causes of rent are, the limited extent of the land, and the inequality in the return to different portions of the capital expended on it.

2. That the rent which a piece of land may pay to its proprietor is equal to the excess of its produce, above what its produce would be if no part of the capital employed on it exceeded in productiveness the least productive agricultural capital in the neighbourhood; and—

3. (A corollary from the preceding)—That the least productive capital, among all those which supply the same market, pays no rent whatever:—a proposition of which some farther developments will be offered in the sequel.

Difference in proximity to the market is a source of rent precisely analogous to difference in fertility. When the produce of different lands is sold in the same market, and consequently at the same price, the land which is nearest to the market, and pays least for carriage, enjoys the same sort of advantage over the other as if it were more fertile. The price must be sufficient to indemnify the cultivators of both; it cannot, however, be sufficient to indemnify the one, without being more than sufficient to indemnify the other. It cannot afford to the cultivator of the more distant soil the profits of his stock, without leaving to the owner of the more adjacent one a surplus for rent; an equal price will always enable the nearer soil to be cultivated more highly than the distant one. When the towns are gradually compelled by the increase of their population not only to cultivate more and more highly the lands in their vicinity, but to draw a part of their supplies from a greater and greater distance, it may happen that the advantage of vicinity may more than counterbalance the disadvantage of barrenness, and lands of inferior fertility in the immediate environs of a large town may yield a considerable rent, while much richer land at a distance from the market will afford little, perhaps none. As vicinity to a town is always a cause of rent, so vicinity to a road or a navigable river or canal, by diminishing the expense of transporting the produce to some great market, may have a similar operation. It must be kept in mind that it is not the absolute fertility or position of any given lands, but their superiority, in these respects, as compared with other lands, supplying the same market, that enables their cultivators to pay a superior rent. It is obvious, too, that the larger the surface from which any particular market draws its supplies, the higher, in proportion to their fertility, will be the rent of the lands in its immediate neighbourhood.

The two sources of rent above described, fertility and proximity to the market, are totally distinct from those peculiarities of soil or situation which afford a rent on the common principle of monopoly. A peculiar kind of produce, such as tokay, which can only be obtained from a peculiar soil, and in limited quantity, may, from deficiency of supply, obtain a price exceeding, in any possible proportion, the cost of production. The whole of this excess, after deducting the ordinary profit upon the capital, will naturally fall into the hands of the landlord. Land laid out in dwelling-houses, gardens, or parks, and possessing peculiar beauties of situation or disposition, is also of the nature of a monopolized commodity, and its rent is governed entirely by the demand. It cannot indeed yield a rent inferior to that which it would afford if devoted to agriculture, but it may yield more, without any assignable limit. When the advantage of any situation consists in its affording greater facilities for business, as, for example, when a shop, by being situated in a frequented part of the town, enables the occupier to obtain greater annual profits than could be made by an equal capital in a shop possessing no peculiar advantages of situation, the difference between these extraordinary profits and the ordinary profits will be added to the rent of the ground. It will be easy for the reader to trace, in this and similar cases, how much of what is termed rent is analogous to the price of a monopolized commodity, and how much is analogous to rent properly so called.

If the theory of rent, thus explained, be sufficiently clear and intelligible, the mode of explanation adopted above has this advantage, that it frees the doctrine at once from a variety of objections which have been very idly urged against it when expressed in other language, and propounded in a different form.

None of the eminent economists, who have given expositions of this theory, ever imagined that it depended wholly on the unequal fertility of different soils. They all knew that the inequality in the returns to different portions of capital successively expended on the same soil, was, equally with the different qualities of soils, a source of rent. Not only indeed were they fully aware of this cause of rent, but they have all of them directly and unequivocally laid it down; expounded it with the greatest possible fulness, and left none of its important effects on wages, rent, profits, and values, unexplained. When, however, after having been once explained at length, the doctrine of rent had to be incidentally alluded to, for purposes which did not render it necessary to advert to the distinction between one of the two sources of rent and the other, it was shorter and more convenient to speak of the different qualities of the soil as being the cause of rent, than to combine the two causes in one expression, and speak co-ordinately of “the different qualities of the soil, and the difference in the proportional returns to the capitals successively applied to the same soil;” it being naturally supposed that every one would judge of the doctrine from the full and formal exposition of it, and not from incidental allusions. This laxity, however, has exposed them to misinterpretations which they can hardly be blamed for not having calculated upon. And it has been repeatedly urged, as a conclusive refutation of the new theory of rent, that there is no land which does not pay rent; that there would be rent if all the land was of uniform quality; and that all the lands of a country must pay rent, after all of them are taken into cultivation.

Any one who has read the foregoing exposition of the theory of rent, will perceive that these assertions, in so far as they are true, are corollaries from the very doctrine which they are supposed to disprove. If rent be the result of the unequal returns to different agricultural capitals, it follows necessarily, that whether the land be of equal or unequal fertility, it will all yield rent as soon as it is all cultivated, beyond the point after which any farther cultivation would require a greater proportional expense. Nothing, therefore, can be more idle than the objection, if this be all that is meant; and if any thing more than this be intended, it is erroneous.

It is not essential to the theory of rent, that there should be no land for which some rent is not paid. What the theory requires is, that of the whole capital employed in agriculture, there should always be one portion which yields no rent; one portion which barely replaces itself, with the ordinary profits of stock. This principle is the real foundation of the theory of rent, and it neither has been nor can be called in question. For if the price of produce be so high as to afford even to the least productive portion of the capital employed in the land, a surplus above the ordinary profit, it is obvious that at least the ordinary profit may be obtained by applying more capital, and cultivating still more highly. But as there is always, on the average, as much corn already grown as there is a demand for at the existing prices, this increase of cultivation, on a part of the land, must be counterbalanced by the entire abandonment of another part, or a glut will unavoidably ensue. In the one case the owners of the deserted land by their competition, in the other case the glut by a consequent fall of price, would extinguish the rent assumed to have been previously afforded by the least productive capital on the land.

It is evident, therefore, that there is always some portion of agricultural capital which neither does, nor at the existing prices can, yield rent. This being admitted, whether there is or is not any land which pays no rent, will be matter of mere contingency. It will depend upon the answer to this other question, whether there be in the country any land which returns to the first and most productive capital expended upon it, exactly the same proportional produce which the other cultivated lands afford to the last and least productive? If there be any such land it will be cultivated, and from what has been demonstrated above, it is evident that it can yield no rent. It is sufficiently obvious, that there will in general be land, in every extensive country, of this precise degree of fertility; because, in general, there is in such a country land of every degree of fertility, from the highest in existence down to that land which produces absolutely nothing. But whether there is or not, is, in so far as respects this theory, seldom worth the trouble of ascertaining; though it is unfair to argue that there can be no such land, because no proprietor will let his land gratis. There may be land in every farm which would yield no rent, if offered to be let separately from the rest; there may be entire farms which can yield no rent, and which are therefore farmed by the proprietor. No landlord will let his land gratis; but if his land is so bad that unless it be let gratis it cannot be let at all, he must either let it with other land, farm it himself, or suffer it to lie uncultivated.

Another objection which has been recently urged against the theory of rent, is, perhaps, worthy of a cursory notice, not so much on account of its intrinsic importance, as because it has not yet attracted the notice of any of the principal expounders of this theory. The substance of this objection is, that it is a mistake to suppose, as Mr. Ricardo and others have done, that the most fertile lands are first taken into cultivation. The light and sandy soils, it is affirmed, are usually first cultivated, while the clay and alluvial soils, though ultimately by far the most productive, require a greater original outlay of capital to bring them into cultivation, than can be spared in the early stages of agriculture.

Now, admitting the facts to be as here stated, it is singular how any one could have supposed that they were in any respect subversive of the doctrines previously laid down. If the richest land is sometimes the last cultivated, it follows, indeed, that the last capital expended is not always the least productive; but it does not therefore follow that the least productive capital does not regulate the price, whether that capital be the first applied or the last. So long as the demand cannot be fully supplied by the cultivation of this rich and fertile land, the cultivation of that which is inferior must be continued: and even though the latter were thrown out of tillage, it would still be true that the price of produce must be determined by the cost of raising that portion which is obtained by the agency of the least productive capital, which it is yet necessary to apply to the ground.

^aThe main purpose, however, for which this objection is propounded, appears to be that of demonstrating the advantage of a high price of corn. Dear corn causes, it is said, the cultivation not merely of barren land, but sometimes also of lands more fertile than any which are yet under tillage; and, therefore, it is beneficial! The fallacy of this statement consists in the misinterpretation of the term fertile lands. Fertility is here supposed to be a peculiar attribute of those lands on which a great absolute quantity of produce may be raised, without reference to expense; whereas it ought to be considered as belonging more particularly to those lands which yield, not the greatest absolute quantity of produce, but the greatest produce as compared with the expenses attending their cultivation. Suppose, for example, that there are two qualities of land in tillage, the one of which yields 100 quarters on a given surface, and the other 150 on the same surface; and suppose farther that an outlay of capital and labour equal to 50 is required in the cultivation of the former, and that the outlay required for the latter is equal to 80. Under these circumstances, it is plain that the land producing the 100 quarters would be deemed by an agriculturist, and by every one else, to be the most fertile of the two; inasmuch as fertility is never estimated by mere quantities of produce, but by the proportion which these quantities bear to the necessary outlay. It might perhaps be possible, by forcing at an immense expense, to make an acre of Snowden or Ben-Lomond yield as large a quantity of produce as could be obtained, under an ordinary system of management, from an acre in the vale of Gloucester or the Carse of Gowrie; but would any one maintain that they were therefore equally fertile? To suppose, indeed, that the most fertile lands should require a higher price of corn to keep them in cultivation than the less fertile, is an obvious contradiction.^a It is true that in a very early stage of society, when but little capital has been accumulated, it is sometimes necessary to consider, in the employment of it, not what will afford the greatest, but what will afford the most immediate return. Lands may not then be cultivated for want of capital, which it would be highly advantageous to cultivate if there were the means; but when the capital is found, and applied to these lands, then, if they are not only more fertile than the old lands, but more fertile in proportion to the outlay, they will admit of being cultivated at a lower price than before, instead of requiring a higher. The land which needs a higher price to make it equally profitable to the cultivator may be the more productive land, in as far as gross produce is concerned, but with a view to net profit it is unquestionably the more barren.

Besides the objections which have now been examined and refuted, another has been urged from time to time against the theory of rent, as now explained. The authors of this objection affect to suppose that Sir Edward West, Mr. Malthus, and Mr. Ricardo, considered the cultivation of inferior land as the cause of a high price of corn. But this, they allege, is to invert the order of the phenomena; the cultivation of inferior soils not being the cause but the effect of high price, and this high price being itself the effect of demand. This very doctrine, however, has been explicitly laid down by the distinguished authors previously referred to, and particularly by Mr. Ricardo.^* They have nowhere contended that a high price of corn was caused by the cultivation of inferior land; what they contend is, that it is caused by the necessity under which every increasing population is placed, of cultivating such inferior land, or of being starved. The wants and desires of man are the cause why all commodities are produced, and are, by consequence, the cause of their value; but it is the difficulty experienced in gratifying these wants and desires, or, in other words, the most incurred in the production of commodities, that measures and regulates this value. This is the theory laid down by Mr. Ricardo and the other expounders of the doctrine of rent, and it cannot be in any degree affected by the petty cavils alluded to.

If the view which has been taken in the preceding pages of the regulating principle of rent be the correct one, it will furnish a solution of several problems, which were either unanswered, or answered very inadequately, by Dr. Smith and his immediate successors. One of these is the effect produced upon rent by the various changes incident to the progress of society.

The state of society, so far as respects the accumulation of wealth, is either retrograde, stationary, or progressive. Each of these states affects rent in a different manner; but none of them affects it exactly alike under all circumstances.

In a retrograde state of society, the rent of land has a tendency to fall. The diminution of the national capital, which is the distinctive characteristic of this state, does not indeed of necessity diminish the power of the people to buy corn, because they would probably renounce every other comfort before they would sacrifice their customary supplies of food. But the soil also produces the materials of many important manufactures, and as the consumption of them would certainly be diminished, a smaller supply of these materials would be required; and the decline of population, which invariably results from any considerable diminution of the national capital, would in time diminish also the demand for food. The land would then cease to be cultivated so highly; the least productive portion of capital would be withdrawn, or, to use a more correct expression, would cease to be annually renewed; the price and value of raw produce would now be regulated by a more productive portion of capital, and the rent paid by that portion would be annihilated, and the corn rents paid by the superior portions would be reduced by an equal amount, while their value would be reduced by a still greater proportion. To revert to the numerical example previously exhibited, of the three capitals yielding 20, 15, and 10 quarters respectively, and affording a rent of 15 quarters; let the third and last be supposed to be withdrawn in consequence of the diminished demand. The second capital would then yield no rent, and the first no more than five quarters; being a reduction of two-thirds in the corn rent of the land: but as the price and value of corn would also have fallen in the ratio of 15 to 10, or one-third, the real reduction of rent will be, not as 3 to 1, but as 9 to 2. The interest, therefore, of the landlord, in so far as he is affected by a retrograde state of society, coincides with that of the community. What diminishes their wealth diminishes his, and generally in a decidedly greater proportion.

When the wealth of the community is stationary, rent also in general will be stationary. When the wealth of the community is progressive, rent in the most ordinary and natural course of things will be progressive. The growing demand for food requires a higher and higher cultivation, with a return continually diminishing in proportion to the outlay: the wealth of the landlord is therefore doubly augmented, first by the increasing corn rent, next by the continually increasing value of that corn.

The interest of the landlord, considered as affected by a progressive state of society, is so far identical with that of the community; and would be altogether so, were it not that in the progress of cultivation two counteracting principles usually come into play. One of these is an improved system of agriculture; the other is the importation of raw produce from foreign countries. Both these circumstances operate to increase the wealth of the community; both, however, are immediately, the latter perhaps even permanently, injurious to the pecuniary interests of the landlord.

A country which, in proportion to the fertility of its soil, is more thickly peopled than its neighbours, and in which, therefore, the land is more highly cultivated, and corn at a higher price, soon finds that it can increase its supply of food at a smaller sacrifice by purchasing a part of it from other less populous nations, than by pushing the cultivation of its own land any further. From this point, therefore, if importation be free, whatever increase may take place in its wealth and population, the demand for the produce of its land may not be increased, nor the price of that produce raised: and the income of the landlord may remain stationary, while that of the community is increasing; or if a forced increase of rent be produced by excluding foreign corn, and compelling the community to go on supplying its increasing demand by a higher cultivation of its own soil, the prohibition could not afterwards be taken off without depriving the landlord of the accession which he had gradually received to his income by the progress of population co-operating with a restricted corn trade. The wealth of the landlord would thus be, in the first instance at least, diminished by what would both immediately and ultimately add to the opulence of the community. The interest of the landlord is, in this respect, no longer coincident with, but is in some respects opposed to the interest of the nation.

Improvements in agriculture also, though beneficial to the community, are generally, at least for a time, injurious to the landlord. They enable the same produce to be obtained with a smaller capital. The least productive portion of capital, therefore, would be withdrawn, or rather would cease to be renewed: and it is unnecessary, after the explanations already given, to repeat in what manner this would affect the price of the produce and the income of the landlord. If indeed the demand for corn were to increase in proportion to the cheapness, so that the same capital as before would still be required, the landlord would be uninjured. If, for instance, instead of 20, 15, and 10 quarters, 40, 30, and 20 could now be produced with the three capitals before supposed, and that the increased cheapness should encourage consumption so much that the whole of this increased quantity could find a market, the rent which before was 15 quarters, would now be 30, but as the value and price of corn would be reduced one half, the landlord would be benefited only in the greater cheapness of the corn which he consumed in his family. If, on the other hand, as is perhaps most probable, the demand did not increase in the same proportion as the cheapness, the landlord, as such, would sustain a positive diminution of his income.

It is not unusual to hear surprise and sometimes even indignation expressed at the paradox, (for such it is often considered,) that the landlords are not benefited by the improvement of agriculture. There is, however, nothing paradoxical in the opinion when properly explained. Every landlord is benefited by the improvement of his own estate. But why? because it increases the produce of his estate, without so far increasing that of the whole country, as perceptibly to lower the general price of corn. The proper way to try the truth of the proposition, is to consider, not whether it is the interest of a landlord to improve his own estate, but whether it is his interest that his neighbours should universally improve theirs.

Improvements in agriculture, however, are, in the end, highly beneficial, even to landlords, by removing the ultimate limit of cultivation to a greater distance. The limit beyond which cultivation cannot, under any given system of cultivation, possibly extend, is that at which the last labourer employed barely reproduces his own subsistence. But an increase in the general productive powers of the soil, occasioned by an improvement, evidently enables more labourers and more capital to be applied before this point is attained. As every application of additional capital, with a diminished return, adds to the rent, improvements in agriculture enable an amount of rent to be ultimately paid, which could not have been paid under other circumstances. And notwithstanding the undeniable tendency of agricultural improvements to produce a temporary diminution of rent, it may be doubted whether that tendency has ever, to any considerable extent, been realized. The improvements which have been introduced into agriculture are so extremely limited, when compared with those of which some branches of manufacture have been found susceptible; and they are, besides, so very slow in making their way against those old habits and prejudices, which are perhaps more deeply rooted among the farmers than among any other class of producers, that the progress of population seems in most instances to have kept pace with the improvement of agriculture, and, in the same proportion as corn could be obtained cheaper, more corn has been required. It has not hitherto, indeed, been at any time the effect of an improvement to drive capital from the land, nor consequently to lower rent.

The adoption, by any considerable portion of the population, of a less costly food, of potatoes for instance, instead of wheat, is, in its effects upon cultivation, prices, and rents, exactly similar to an improvement in agriculture.

The above observations are of the greatest importance for removing the fallacies which frequently intrude themselves into discussions on the corn laws, and all other subjects involving the consideration of rent. Another corollary of equal importance from the principle of rent is the proposition, that rent does not form a part of the cost of production; or, as it is commonly, but somewhat vaguely expressed, that rent does not enter into price.

Dr. Smith, though his language on this point is not always clear or consistent with itself, seems to have perceived that rent does not form a part of the cost of production of raw produce. He lays it down, in substance, that corn is not high because rent is paid, but rent is paid because corn is high.^* Being of opinion, however, that from some cause or other the value of raw produce always exceeds its cost of production; and knowing that the cost of raw produce forms one part of the cost of all manufactured articles, he concluded, that the excess of the price of raw produce above its cost of production, or, in other words, rent, entered into the cost of all manufactures. The price of a manufactured article he thought must always be sufficient to pay not only the wages of the labour, and the profits of the stock, directly and indirectly employed in producing it, but likewise the rent of the land on which the raw material was grown; and thus, as he thought, rent, or at least the excess, which constitutes rent, is not only an effect but a cause of high price; since if that excess or that rent did not exist, all manufactures might be sold at a smaller price.

^bIt has now, however, been seen, that the price of raw produce does not exceed the cost of production, including in that expression the ordinary profits of the producer’s capital. The aggregate price exceeds the aggregate cost of production; but this is because the cost of production is unequal. The price exceeds the lowest, but not the highest cost of production. And this highest cost, since it regulates the price of the whole, may be considered, without impropriety, as the cost of the whole; and the rent to be a peculiar privilege of favoured individuals; just as if a bounty were given to a select party of cotton manufacturers, who were not sufficiently numerous to supply the whole market, it could not properly be said, that the cost of producing cottons had been diminished, though it would be really diminished to the favoured individuals.^b

If therefore there were no such thing as rent, neither raw produce, nor consequently manufactures, could be sold cheaper than they are; rent has no influence either on value or price, and may be entirely left out of consideration, whenever these subjects are discussed.

It only appears necessary further to observe, concerning the rent of land, that it is not to be confounded with the consideration, annual or otherwise, which is paid to the landlord for building houses or fences, cutting drains, or effecting any other improvement on the land, which requires to be regularly renewed. These are as much a part of the capital employed in cultivation, as ploughs or thrashing machines, and differ only by being in general the property of the landlord. If the landlord supplied half the stock on the farm, part of his income would evidently be profit, not rent; nor is the case different when he supplies not only the land, but any of its appurtenances, which, if they did not exist, must be provided from the capital of the farmer.

The rent of mines is regulated by principles very similar to those which determine the rent of land. The cost of production at the least fertile of all the mines which must be worked to obtain the requisite supply, regulates the price of the produce obtained from all the others. The ideas of Dr. Smith, on this subject, were, as has been previously remarked, extremely inaccurate.^*

^cThe chief difference between the principle of agricultural and that of mining rent, is, that the great law of the application of capital to land, the inequality of the return to different portions of the capital employed, does not apply to mines. It is true that the difficulty of working a mine increases as it becomes deeper. The return, therefore, to any new capital, applied to a mine, is generally a diminished return; but the return to the old capital diminishes along with it: there are not, as in the case of land, two portions of capital invested in the same mine, one of them producing more, and another less.^dAmong the consequences which flow from this circumstance, one is, that the least productive mining capital may yield a rent.^d The productiveness of different mines does not differ by imperceptible degrees, like that of different capitals on the same soil. If, for example, the richest mine could singly supply the demand of the whole world, the undertaker might keep the price of his produce above the cost of production at his own mine, provided he kept it a little below the cost of production at any other; and by this surplus, as by every other surplus of the same kind, it would not be the capitalist but the proprietor who would benefit.^c

The theory of rent, explained in the foregoing note, was, with the exception of the principle of population, to which alone it is inferior in importance, the first great discovery which followed the publication of the Wealth of Nations. It was first announced to the world in two pamphlets, published in 1815, by Mr. West, (now Sir Edward West, chief-justice of Bombay,) and Mr. Malthus. A pamphlet explanatory of the same doctrine was published by Mr. Ricardo,^[*] two years after: but, although he was posterior to the authors above named, in promulgating the doctrine, and less happy in his mode of explaining it than Sir Edward West, it is well known to many of his friends that he was in possession of the principle, and was accustomed to communicate it in conversation, several years prior to the publication of the earliest of these works. This is no disparagement of the merits of Sir Edward West, the originality of whose views cannot be doubted; and whose exposition of the principle, as well as of several collateral conclusions, evinces a thorough understanding of the subject, together with a perspicuity of style and clearness of arrangement, which entitle his essay to a very high rank among the works of political economists. His mode of treating the subject, being that which is best adapted to a reader who comes directly from the perusal of the Wealth of Nations, has for the most part been adopted in this note. Mr. Malthus also, though not quite so comprehensive and methodical, has clearly explained the fundamental principle of rent, but has fallen into some errors in its application, of which the length to which this note has already extended forbids any particular examination. The most important of them consists in supposing, that if an improvement took place in agriculture, which had the effect of economizing labour, or if the wages of labour were reduced, the saving thus made would be added to the rent of the land. It has been shown above,^[*] that in the first of these two cases, the price would fall, and the benefit of the saving would be given to the consumers. It will be shown hereafter,^[†] in treating of profits, that what would be saved to the producer by the other cause, a fall of wages being a saving not peculiar to agriculture, but common to all employments whatever, would be added to profits, and gained, not by the landlord, but by capitalists in general.

[* ][An Inquiry into the Nature and Causes of the Wealth of Nations, ed. J. R. McCulloch. Edinburgh: Black and Tait, 1828.] Vol. i., p. 241.

[[*] ]Wealth of Nations, ed. McCulloch, vol. IV, pp. 81-100.

[* ]This is what is meant by the application of additional capital. Inasmuch as all capital was originally produced by labour, it is the application of additional labour. Either the one phrase or the other may be used indiscriminately, as was explained in the note on Labour. [Wealth of Nations, ed. McCulloch, vol. IV, pp. 73-80.]

[* ]The case here chosen for illustration does not strictly exemplify the real course of circumstances, though it corresponds with it accurately enough for the purpose in hand. The decline in the proportional return to capital does not in reality take place, as is here supposed, at regular intervals or successive stages, but gradually and imperceptibly, from the effect of improvements, and by insensible steps. The fifteen bushels, and afterwards the ten, would not be produced all of them at the same cost; on the contrary, every bushel would probably cost somewhat more than that which preceded it. The slightest increase of demand would accordingly be attended with some rise of price; and every bushel, except the last, would yield a rent equal to the difference between its cost of production and that of the last. When, therefore, there came to be a demand for the whole thirty-five or forty-five bushels, the land would in reality yield a much higher rent than five or fifteen bushels. But to have attempted to express these minutiæ by means of numerals, would have produced interminable confusion and complexity.

[a-a][this passage put in square brackets in the Somerville College copy; in the margin JSM has written: The passage within brackets is by the editor—who has omitted what the author wrote on this topic.]

[* ]See his Principles of Political Economy, &c. 3d edit., p. 178.

[* ][Wealth of Nations, ed. McCulloch.] Vol. i., p. 241.

[b-b][a marginal line is drawn beside this passage in the Somerville College copy; in the margin JSM has written: Unsatisfactory]

[* ][Wealth of Nations, ed. McCulloch.] Vol. i., p. 276, [editor’s] note.

[c-c][a marginal line is drawn beside this passage in the Somerville College copy; in the margin JSM has written: Qy]

[d-d][a second line is drawn beside this sentence in the Somerville College copy; the comment mentioned in the preceding note may refer to this sentence]

[[*] ]West, Essay on the Application of Capital to Land. London: Underwood, 1815; Malthus, An Inquiry into the Nature and Progress of Rent. London: Murray, 1815; Ricardo, Essay on the Influence of a Low Price of Corn on the Profits of Stock. London: Murray, 1815.

[[*] ]Pp. 176-7 above.

[[†] ]Wealth of Nations, ed. McCulloch, vol. IV, pp. 184ff.