The Online Library of Liberty

A project of Liberty Fund, Inc.

• Advertisement By the American Editor, to the Sixth Edition.
• Advertisement By the American Editor, to the Fifth Edition.
• Introduction
• Book I: Of the Production of Wealth.
• Book I, Chapter I.: Of What Is to Be Understood By the Term, Production.
• Book I, Chapter II.: Of the Different Kinds of Industry, and the Mode In Which They Concur In Production.
• Book I, Chapter III: Of the Nature of Capital, and the Mode In Which It Concurs In the Business of Production.
• Book I, Chapter IV: On Natural Agents That Assist In the Production of Wealth, and Specially of Land.
• Book I, Chapter V: On the Mode In Which Industry, Capital, and Natural Agents Unite In Production.
• Book I, Chapter VI: Of Operations Alike Common to All Branches of Industry.
• Book I, Chapter VII: Of the Labour of Mankind, of Nature, and of Machinery Respectively.
• Book I, Chapter VIII: Of the Advantages and Disadvantages Resulting From Division of Labour, and of the Extent to Which It May Be Carried.
• Book I, Chapter IX: Of the Different Methods of Employing Commercial Industry, and the Mode In Which They Concur In Production.
• Book I, Chapter X: Of the Transformations Undergone By Capital In the Progress of Production
• Book I, Chapter XI: Of the Formation and Multiplication of Capital.
• Book I, Chapter XII: Of Unproductive Capital
• Book I, Chapter XIII: Of Immaterial Products, Or Values Consumed At the Moment of Production.
• Book I, Chapter XIV: Of the Right of Property.
• Book I, Chapter XV: Of the Demand Or Market For Products.
• Book I, Chapter XVI: Of the Benefits Resulting From the Quick Circulation of Money and Commodities.
• Book I, Chapter XVII: Of the Effect of Government Regulations Intended to Influence Production.
• Book I, Chapter XVIII: Of the Effect Upon National Wealth, Resulting From the Productive Efforts of Public Authority.
• Book I, Chapter XIX: Of Colonies and Their Products.
• Book I, Chapter XX: Of Temporary and Permanent Emigration, Considered In Reference to National Wealth.
• Book I, Chapter XXI: Of the Nature and Uses of Money.
• Book I, Chapter XXII: Of Signs Or Representatives of Money.
• Book II: Of the Distribution of Wealth
• Book Ii, Chapter I: Of the Basis of Value; and of Supply and Demand.
• Book Ii, Chapter II: The Sources of Revenue.
• Book Ii, Chapter III: Of Real and Relative Variation of Price.
• Book Ii, Chapter IV: Of Nominal Variation of Price, and of the Peculiar Value of Bullion and of Coin.
• Book Ii, Chapter V: Of the Manner In Which Revenue Is Distributed Amongst Society.
• Book Ii, Chapter VI: Of What Branches of Production Yield the Most Liberal Recompense to Productive Agency.
• Book Ii, Chapter VII: Of the Revenue of Industry
• Book Ii, Chapter VIII: Of the Revenue of Capital.
• Book Ii, Chapter IX: Of the Revenue of Land.
• Book Ii, Chapter X: Of the Effect of Revenue Derived By One Nation From Another.
• Book Ii, Chapter XI: Of the Mode In Which the Quantity of the Product Affects Population.
• Book III: Of the Consumption of Wealth
• Book Iii, Chapter I: Of the Different Kinds of Consumption.
• Book Iii, Chapter II: Of the Effect of Consumption In General.
• Book Iii, Chapter III: Of the Effect of Productive Consumption.
• Book Iii, Chapter IV: Of the Effect of Unproductive Consumption In General.
• Book Iii, Chapter V: Of Individual Consumption—its Motives and Its Effects.
• Book Iii, Chapter VI: On Public Consumption
• Book Iii, Chapter VII: Of the Actual Contributors to Public Consumption.
• Book Iii, Chapter VIII: Of Taxation.
• Book Iii, Chapter IX: Of National Debt.
• Appendix A: a Table, Showing the Result of Value Lent to the State.

BOOK II

OF THE DISTRIBUTION OF WEALTH

BOOK II, CHAPTER I

OF THE BASIS OF VALUE; AND OF SUPPLY AND DEMAND.

The principal phenomena of production have been investigated in the first book; wherein I have shown how human industry, with the aid of capital and of natural agents and properties, creates every kind of utility, which is the primary source of value; and in what way social institutions and public authority operate to the benefit or the prejudice of production. This second book will be devoted to the consideration of the distribution of wealth: to which end it will be necessary, first, to analyze the nature of value, the object of distribution; secondly, to ascertain the laws, which regulate the distribution of value, when once created amongst the various members of society, so as to constitute individual revenue.

The valuation of an object is nothing more or less than the affirmation, that it is in a certain degree of comparative estimation with some other specified object; and any other object possessed of value may serve as the point of comparison. A house, for instance, may be valued in corn or in money. To say that it is worth 4000 dollars conveys a more accurate notion of its value, than to say that it is worth 4000 bushels of wheat, solely because the habit of reckoning the value of all commodities in coin makes it easier for the mind to form an idea of the value of 4000 dollars in other commodities, that is to say, of the quantity of other commodities obtainable for that sum, than of that obtainable for 4000 bushels of wheat. Yet, if wheat be 1 dollar a bushel, the degree of value expressed by each is the same.

In every act of valuation, the object valued is the fixed datum. In the instance first given, the house is the datum: it is a definite amount of materials, put together in a definite manner, upon a definite site. But the point of comparison is variable in amount, according to the degree of estimation in the mind of the valuer. If valued at 4000 dollars, the house is reckoned to be equivalent to so many pieces of silver coin of the weight of 416 grains, with a mixture of 179-1664 parts of alloy; if at 4500 dollars, or 3500 dollars, it is but a variation of the quantity of the commodity, that is the specific point of comparison. So likewise, if that point be wheat, the variable quantity of that commodity would express the degree of value.

Valuation is vague and arbitrary, when there is no assurance that it will be generally acquiesced in by others. The owner of the house may reckon it worth 4500 dollars, while an indifferent person would value it at no more than 3500 dollars, and probably neither would be right. But if another, or a dozen other persons be willing to give for it a specific amount of other commodities, say 4000 dollars, or 4000 bushels of wheat, we may conclude the estimate to be a correct one. A house that will fetch 4000 dollars in the market is worth that sum.1 But if one bidder only will give that price, and he is unable to re-sell it without loss, he will give more than it is worth. The only fair criterion of the value of an object is, the quantity of other commodities at large, that can be readily obtained for it in exchange, whenever the owner wishes to part with it; and this, in all commercial dealings, and in all money valuations, is called the current price.2

What is it, then, that determines this current price of commodities?

The want or desire of any particular object depends upon the physical and moral constitution of man, the climate he may live in, the laws, customs, and manners of the particular society, in which he may happen to be enrolled. He has wants, both corporeal and intellectual, social and individual; wants for himself and for his family. His bear-skin and reindeer are articles of the first necessity to the Laplander; whilst their very name is unknown to the lazzarone of Naples, who cares for nothing in the world if he get but his meal of macaroni. In Europe, courts of justice are considered indispensable to the maintenance of social union; whereas the Indian of America, the Tartar, and the Arab, feel no want of such establishments. It is not our business here to inquire, wherein these wants originate; we must take them as existing data, and reason upon them accordingly.

Of these wants, some are satisfied by the gratuitous agency of natural objects; as of air, water, or solar light. These may be denominated natural wealth, because they are the spontaneous offering of nature; and, as such, mankind is not called upon to earn them by any sacrifice or exertion whatever; for which reason, they are never possessed of exchangeable value. Other wants there are, that can only be satisfied by the employment of objects possessed of an utility, which they could not have been invested with without some modification by human agency,—without having undergone some change of condition, and without some difficulty having been surmounted for the purpose. Of this kind are the products of agriculture, commerce, and manufacture, in all their infinite ramifications. To them alone is any value attached; and for a very obvious reason; because the very act of production implies an act of mutual exchange, in which the producer has given his personal agency for the product obtained by its exertion. Wherefore, he will hardly resign it without receiving what is, in his estimation, an equivalent. These may be called social wealth, both because an act of exchange is in itself a social act, and because exclusive property in the product obtained by personal exertion, or by an act of exchange, can only be secured by social institutions. Social wealth, it is to be observed, is the only part of human wealth, that can form the subject of scientific research. 1. Because it is the only part that is the object of human estimation, or at least of such estimation, as is not altogether arbitrary and mental. 2. Because it is the only one which is created, distributed, and destroyed, according to any rules that can be assigned by human science.

The knowledge of the ground-work of the quality, value, or rather exchangeable value, leads to the perception of its origin. The items of social wealth are invested with value by the necessity of giving something to obtain them; and that something is productive exertion. When once obtained, when this sacrifice has been made in the attainment, the party is really more wealthy; he has wherewithal to satisfy more wants; and, if the object obtained by this sacrifice be unsuited to the personal wants of the owner, he may make use of it for the attainment of some object of personal desire, by the way of exchange for some other product; which other product will itself be the result of similar productive exertion; so that, in fact, the exchange will be a mere mutual transfer of the productive exertion on either side, whereof the two products respectively are the result. When a bushel of wheat is given for seven pounds of coffee, there is a mere transfer of the productive agency exerted in creating the one, for that exerted in the creation of the other.3

Wherefore, there is a current value or price established for productive service as well as for products. For, if the agency exerted in the creation of a bushel of wheat can obtain, as its reward, in the way of exchange, either a bushel of wheat or seven pounds of coffee indifferently, what is there to prevent its obtaining in the same way any other equivalent product, say a yard of cotton cloth, 5 yards of ribbon, a dozen plates, or any thing else? Should the bushel of wheat be exchangeable for a less amount of any of these commodities respectively, the productive agency exerted in the creation of wheat would be proportionately less rewarded, than that exerted in the creation of the specific commodity; and a portion of the former would be attracted to the latter branch of production, until the recompense of labour in each department should find its fair level.

Each class of productive agency has a current price peculiar to itself. If the productive agency exerted in the production of a bushel of wheat can obtain for itself but 1-15 of its own product, it will be entitled to no more than 1-15 of the value of any other product obtainable by exchange for that quantity of wheat; for instance to 1-15 of a dollar: and so of other products.

Thus it is obvious, that the current value of productive exertion is founded upon the value of an infinity of products compared one with another;4 that the value of products is not founded upon that of productive agency, as some authors have erroneously affirmed;5 and that since the desire of an object, and consequently its value, originates in its utility, it is the ability to create the utility wherein originates that desire, that gives value to productive agency; which value is proportionate to the importance of its co-operation in the business of production, and forms, in respect to each product individually, what is called, the cost of its production.

The utility of a product is not confined to one human being, but applies to a whole class of society at the least, as in the case of particular articles of clothing; or to a whole community, as in that of most of the articles of food that are adapted to human consumption in general, without distinction of sex or age. For this reason, the demand for a specific object, or product, or act of productive exertion, has a certain degree of extent. The aggregate demand for sugar in France is said to exceed 500,000 quintals per annum. Even the individual demand of a specific product for individual consumption may be more or less urgent. Whatever be its intensity, it may be called by the general name of demand; and the quantity attainable at a given time, and ready for the satisfaction of those who are in want of the specific article, may be called the supply or amount in circulation.

But this must be understood with some limitation; for there is no object of pleasure or utility, whereof the mere desire may not be unlimited, since every body is always ready to receive whatever can contribute to his benefit or gratification. There must, therefore, be some bounds to demand; and the most effectual limitation is, the ability to give some other equivalent product for the object of desire. All the porters in a commercial city might desire to have a coach and six for the more comfortable execution of their business, without raising the price of horses and carriages a tittle. The objects, which each individual has to give as an equivalent for the object of his desire, are no other than the products of his own productive means, which are limited even in the case of the most wealthy member of society.

Wealth is, in all countries, distributed in every degree of gradation, from the populous level of mediocrity to the solitary pinnacle of extreme affluence. Accordingly, the products most generally desirable are really demanded by a limited number only, because they alone have wherewithal to obtain them; and even their ability may be more or less according to circumstances. Whence it may be further concluded, that the same product or products may be in greater demand at a lower scale of price, and when attainable by less productive exertion, although nowise increased in utility, merely because accessible to a greater number of consumers; and, on the contrary, less in demand at a higher scale of price, because accessible to a smaller number.

Suppose that, in a severe winter, a method should be hit upon of manufacturing knit-waistcoats of woollen at 2 dollars each; probably all who should have 2 dollars left, after satisfying more urgent wants, would provide themselves with these waistcoats; but those who should have but a dollar and a half left must still go without. If the same article could be produced at one dollar and a half, these latter also might all be provided and become consumers; and the consumption would be still further extended, if they should be produced at one dollar only. In this manner, products formerly within reach of the rich alone have been made accessible to almost every class of society, as in the case of stockings.

When a product is raised in price, whether by taxation or otherwise howsoever, the contrary effect is experienced; the number of its consumers is reduced; for it can only be obtained by such as can afford to pay for it; and the ability to purchase is not increased by the same causes, that operate to raise the price. Thus, in England, the great majority of the population is wholly precluded from the consumption of vinous liquors, and of many other articles; for their attainment involves so large a sacrifice of products, or of productive agency, that those only can attempt it, who have a great deal of either to spare. In such cases, not only is the number of consumers diminished, but the consumption of each consumer is reduced also. Though a consumer of coffee may not be compelled, by a rise of its price, to relinquish that beverage altogether, he must at all events curtail the amount of his consumption; which is then like that of two individuals, of whom one discontinues, and the other remains able and willing to continue the use of the article.

In commercial speculation, as the purchaser does not buy for his own consumption, he proportions his purchases to what he expects to sell. Since, then, the quantity he can sell depends upon the price he can afford to sell at, he will buy less according as the price rises, and more according as it falls.

In poor countries, objects of even the commonest use, and of inferior price, frequently exceed the means of a great proportion of the population. There are countries, where shoes, though cheap, are out of reach of most of the inhabitants. The price of this commodity does not fall to a level with the means of the people; because that level is still below the bare cost of production. But, shoes of leather not being absolutely necessary to existence, those who are unable to procure these, wear wooden shoes, (sabots) or go barefoot. When this is unhappily the case with an article of primary necessity, part of the population must perish, or at least cease to be renewed. These are the causes of a general nature, that limit the demand for each product, and for all products in general.

In respect to supply, it consists of the whole of any commodity which the owners for the time being are disposed to part with for an equivalent, in other words, to sell at the current rate, and not merely of what is actually on sale at the time. The whole of this is also called the circulating or floating stock. Yet, strictly speaking, no commodity is in circulation, except during the act of transit from the seller to the purchaser, which is almost instantaneous. But the bare act of transit has no influence on the terms of the bargain, to which it is commonly subsequent; it is a mere matter of executive detail. The point of real importance is, the inclination of the owner to part with the object of property. A commodity is in circulation, whenever it is in quest of a purchaser, which it may be in the most urgent need of, without altering its locality in the least. Thus, the stock in a shop or warehouse is in circulation; thus too, lands, rent-charges, houses, and the like, are said to be in circulation, and the expression is intelligible enough. Even industry is sometimes in circulation and sometimes not, according as it is either in quest of employment, or already employed.

For the same reason, an object ceases to be in circulation, the moment it is set apart, either for consumption or for export to another market, or accidentally destroyed, or withdrawn by the caprice of its owner, or held back at a price, which amounts to a refusal to sell.

Inasmuch as supply consists of those commodities only, which are to be had at the current price or ordinary rate of the market, a commodity raised by the cost of production above that level, will cease to be produced, or to form part of the supply. Wherefore, the supply will be more abundant, when the current price is high, and more scanty when that price has declined.

Besides these universal and permanent limitations of supply and demand, there are others of a casual and transient nature, which always operate concurrently with the former.

The prospect of an abundant vintage will lower the price of all the wine on hand, even before a single pipe of the expected vintage has been brought to market; for the supply is brisker, and the sale duller, in consequence of the anticipation. The dealers are anxious to dispose of their stock in hand, in fear of the competition of the new vintage; while the consumers, on the other hand, retard their fresh purchases, in the expectation of gaining in price by the delay. A large arrival and immediate sale of foreign articles all at once, lowers their price, by the relative excess of supply above demand. On the contrary, the expectation of a bad vintage, or the loss of many cargoes on the voyage, will raise prices above the cost of production.

Moreover, there are some particular products, which nature or human institutions have subjected to monopoly, and thus prevented from being supplied in equal abundance with those of a similar description. Of this kind are the wines of particular and celebrated vineyards, the soil of which cannot be extended by the extended demand. So the postage of letters is, in most countries, charged at a monopoly-price.

Finally, whatever be the general or particular causes, that operate to determine the relative intensity of supply and demand, it is that intensity, which is the ground-work of price on every act of exchange; for price, it will be remembered, is merely the current value estimated in money. The demand for all objects of pleasure, or utility, would be unlimited, did not the difficulty of attainment, or price, limit and circumscribe the supply. On the other hand, the supply would be infinite, were it not restricted by the same circumstance, the price, or difficulty of attainment: for there can be no doubt, that whatever is producible would then be produced in unlimited quantity, so long as it could find purchasers at any price at all. Demand and supply are the opposite extremes of the beam, whence depend the scales of dearness and cheapness; the price is the point of equilibrium, where the momentum of the one ceases, and that of the other begins.

This is the meaning of the assertion, that, at a given time and place, the price of a commodity rises in proportion to the increase of the demand and the decrease of the supply, and vice versâ; or in other words, that the rise of price is in direct ratio to the demand, and inverse ratio to the supply.

The utility of an object, or, what is the same thing, the desire to obtain it, may possibly be unable to raise its price to a level with its cost of production. In this case it is not produced, because its production would cost more than the product would be worth. Probably the price that caviar6 would fetch at Paris would hardly equal the charge of producing it there; for it is so little in request there, that it scarcely would bring the lowest price that it could be procured for, and consequently it is not produced; but elsewhere, it is both produced and consumed in great quantities.

When the price of any object is legally fixed below the charges of its production, the production of it is discontinued, because nobody is willing to labour for a loss: those, who before earned their livelihood by this branch of production, must die of hunger, if they find no other employment; and those, who could have purchased the product at its natural price, are obliged to go without it. The establishment of the fixed rate, or maximum, is a suppression of a portion of production and consumption; that is to say, a diminution of the prosperity of the community, which consists in production and consumption. Even the produce already existing is not so properly consumed as it should be. For, in the first place, the proprietor withholds it as much as possible from the market. In the next, it passes into the hands, not of those who want it most, but of those who have most avidity, cunning, and dishonesty; and often with the most flagrant disregard of natural equity and humanity. A scarcity of corn occurs; the price rises in consequence; yet still it is possible, that the labourer, by redoubling his exertions, or by an increase of wages, may earn wherewithal to buy it at the market price. In the mean time, the magistrate fixes corn at half its natural price: what is the consequence? Another consumer, who had already provided himself, and consequently would have bought no more corn had it remained at its natural price, gets the start of the labourer, and now, from more superfluous precaution, and to take advantage of the forced cheapness, adds to his own store that portion, which should have gone to the labourer. The one has a double provision, the other none at all. The sale is no longer regulated by the wants and means, but by the superior activity of the purchasers. It is, therefore, not surprising, that a maximum of price on commodities should aggravate their scarcity.

A law, that simply fixes the price of commodities at the rate they would naturally obtain, is merely nugatory, or serves only to alarm producers and consumers, and consequently to derange the natural proportion between the production and the demand; which proportion, if left to itself, is invariably established in the manner most favourable to both.

Hope, fear, malevolence, benevolence, in short, every human passion or virtue may influence the scale of price. But it is the province of moral science to estimate the intensity of their effect upon actual price in every instance, which is the only thing we are here to attend to. Neither need we advert to the operation of the causes of a nature purely political, that may operate to raise the price of a product above the degree of its real utility. For these are of the same class with actual robbery and spoliation, which come under the department of criminal jurisprudence, although they may intrude themselves into the business of the distribution of wealth. The functions of national government, which is a class of industry, whose result or product is consumed by the governed as fast as it is produced, may be too dearly paid for, when they get into the hands of usurpation and tyranny, and the people be compelled to contribute a larger sum than is necessary for the maintenance of good government. This is a parallel case to that of a producer without competitors, whether he have got rid of them by force, or by accidental circumstances. He may raise his product to what price he will, even to the extreme limit of the consumer's ability, if his monopoly be seconded by authority. But it is the province of the political philosopher, and not of the political economist, to teach us how this evil may be avoided. In like manner, although it be the province of ethics, or of the knowledge of the moral qualities of man, to teach the means of ensuring the good conduct of mankind, in their mutual relations, yet, whenever the intervention of a superhuman power appears necessary to effect this purpose, those who assume to be the interpreters of that power must be paid for their service. If their labour be useful, its utility is an immaterial product, which has a real value; but, if mankind be nowise improved by it, their labour not being productive of utility, that portion of the revenues of society, devoted to their maintenance, is a total loss; a sacrifice without any return.

With the most earnest wish to confine myself within my subject it is impossible to avoid sometimes touching upon the confines of policy and morality, were it only for the purpose of marking out their points of contact.

BOOK II, CHAPTER II

THE SOURCES OF REVENUE.

It has been shown in Book I., that products are raised by the productive means at the command of mankind, that is to say, by human industry, capital, and natural powers and agents. The products thus raised, form the revenue of those possessed of these means of production, and enable them to procure such of the necessaries and comforts of existence, as are not furnished gratuitously, either by nature, or by their fellow-creatures.

The exclusive right to dispose of revenue is a consequence of the exclusive right, or property, in the means of production; and such of them, as are not the subject of human appropriation, are not either items of productive means, or sources of revenue; they form no part, of human wealth, which implies appropriation and exclusive possession; for there is no such thing as wealth, unless where property is known and established, and where possession is both acknowledged and secured.

The origin or the justice of the right of property, it is unnecessary to investigate, in the study of the nature, and progress of human wealth. Whether the actual owner of the soil, or the person from whom he derived its possession, have obtained it by prior occupancy, by violence, or by fraud, can make no difference whatever in the business of the production and distribution of its product or revenue.

Perhaps it is scarcely necessary to remark, that property in that class of productive means, which has been called human industry, and in that distinguished by the general name of capital, is far more sacred and indisputable, than in the remaining class of natural powers and agents. The industrious faculties of man, his intelligence, muscular strength, and dexterity, are peculiar to himself and inherent in his nature. And capital, or accumulated produce, is the mere result of human frugality and forbearance to exercise the faculty of consuming, which, if fully exerted, would have destroyed products as fast as they were created, and these never could have been the existing property of any one; wherefore, no one else, but he who has practised this self-denial, can claim the result of it with any show of justice. Frugality is next of kin to the actual creation of products, which confers the most unquestionable of all titles to the property in them.

These several sources of production are some of them alienable, as land, implements of arts, &c.; and some inalienable, as personal faculties. Some also are consumable, as are all the items of floating capital; others, inconsumable, as land. Some, too, there are, that are neither alienable nor consumable, yet are capable of destruction, as the human faculties, intellectual and corporeal, which vanish with human existence.

Such as are capable of consumption, as, for instance, the floating values, whereon production expends its energies, may be consumed either in such manner as to occasion a re-production, in which case they will still constitute a part of the means of production; or in such manner as to yield no further production, in which case they cease to form any part of those means, and are devoted to pure destruction, more or less rapid.

Although revenue, as well as the sources of production, is a constituent part of individual wealth, yet no one is reputed to reduce his fortune by the consumption of his revenue only, provided that he does not encroach upon his productive means; because revenue is a regenerating product, whereas the means of production, so long as they continue to exist, are a constant and perpetual source of new products.

The current value of these appropriable sources of production is established on the same principles, as that of all other objects; that is to say, by the conflicting influence of supply and demand. The only remark that need be made upon it is, that the demand does not originate in the enjoyment anticipated from the immediate use of the particular source; for a field or an implement of trade yields to the owner no direct enjoyment, which is capable of estimation; their value has reference to the value of the product they are capable of raising, which itself originates in the utility of that product, or the satisfaction it may be capable of affording.

With regard to those sources, that are inalienable, as are the human faculties of mind and body, they can never be the subject of actual exchange, and their value is a matter of mere mental estimation, grounded upon the value they may be capable of producing Thus the productive means of this description, which yield to an artisan the wages of 1 dollar a day, or of 365 dollars a year, may be reckoned equivalent to a vested capital yielding an equal annual revenue.

And now that we have taken this general and cursory view of the sources of production and of revenue in the abstract, we may enter upon a more minute analysis of their nature, which will lead us into the labyrinth of the science of political economy, and furnish us with a clue to some of its most intricate windings.

The immediate result of these sources is not, strictly speaking, a product, but a productive service that helps us to a product. Products should, therefore, be considered as the result of an interchange of productive service on the one hand, and the actual products on the other, subsequently to which, revenue appears for the first time in the shape of products; and these again may be exchanged for other products, into which latter form the same revenue will then be converted.

The conception of this matter will be rendered clearer by a practical illustration. A piece of arable land yields an annual product, say of 300 bushels of wheat, whereof 200 bushels more or less, may be considered as resulting from the agency of the capital and industry employed in its cultivation, and the remaining 100 bushels as resulting from the natural productive powers of the soil. The revenue, yielded by the land to the proprietor, will have appeared first in the way of concurring productive service afforded by the object of property, the land: which productive service will have been transferred or lent to the cultivator for the sum of 100 bushels of wheat, and this will be the first act of exchange. If these 100 bushels of wheat be converted into specie, either by the proprietor himself or by the cultivator on his behalf, and in consequence of a mutual arrangement, this specie will still be the same identical revenue, though under the secondary form of money.

This analysis will conduct us to a knowledge of the real value of revenue, which falls in with the general definition of value given in the preceding chapter, namely, the amount of other objects obtainable by exchange for the object of intended transfer What, then, is the object of transfer, for which revenue is given in exchange? why, the productive service of those means, that the receiver of revenue may be possessed of. And what is obtained by the primary act of exchange, which we designate production? why, products. Wherefore, the value of revenue is large in proportion, not to the value, but to the quantity of the product obtained, to the sum total of utility created.

Thus we find, that the ratio of national revenue, in the aggregate, is determined by the amount of the product, and not by its value.7 It is not so with individual revenue; because a variation in the relative value of different products will operate to swell that of one individual, or class, at the expense of another.

Could each member of society live on the primary products whereof his revenue is composed, the relative degree of revenue would, like that of nations, in the aggregate, depend upon the amount of the product, upon the sum of utility created, and not upon its exchangeable value. But, in a state of society at all elevated above barbarism, this is impossible; each individual consumes a much less quantity of his own peculiar product, than of those of other people, which he buys with his own. The grand point, therefore, of individual importance to the producer, is, the quantity of product not of his own creation, which he may be able to procure with his own productive means, or with the products created by their agency. Suppose, for instance, the land, capital, and personal faculties of a particular individual to be engaged in the cultivation of saffron; as he will probably himself consume little or no saffron, his revenue will consist of such other objects, as his annual crop of saffron can be exchanged for; and the ratio of that revenue will be elevated by a rise in the price of saffron; while that of the consumers of that article will be proportionately reduced to the full extent of the rise of its price. On the contrary, their revenue will be augmented in like manner by a fall of its price, to the prejudice of the revenue of the grower.

Every saving in the charges of production, that is to say, every saving in the productive agency exerted to raise the same product, is an increase of the revenue of the community to an equal extent; as, for example, the contrivance to raise as much upon one acre of land as before upon two, or to effect with two days' labour, what before required as much as four; for the productive agency thus released may be directed to the increase of production.8 And this accession of revenue will accrue to the individual benefit of the contriver, so long as the contrivance can be confined to his own knowledge; but to that of consumers at large, as soon as the notoriety shall have awakened competition, and obliged him to limit his profits to the actual charges of production.

However revenue may be transformed by the various acts of exchange, commencing with the productive agency, which is the primitive exhibition of revenue, it remains the same in substance, until the moment of its ultimate consumption. The revenue yielded by an acre of arable land remains, in reality, the same, both after its primary exchange, by the act of production, into the form of wheat, and after its secondary transformation into silver coin, even although the wheat have been consumed by the purchasers. But, as soon as the revenued individual converts his silver coin into an object of consumption, and that object is simply consumed, the value of his revenue thenceforth ceases to exist, and is destroyed and lost, although the silver coin, whose form it once assumed, continue in existence. It must not be imagined still to exist in the hands of the temporary holder of the coin, although lost to the receiver of revenue; but is equally lost to mankind at large; for the actual holder of the coin must have obtained possession of it by the transfer of other revenue of his own, or of some source of revenue before in his own possession.

When revenue is added to capital, it thenceforth ceases to be revenue, or, as such, to be capable of satisfying the wants of the proprietor; it can only yield an increased revenue, being an item of productive capital, consumable in the manner of capital, that is to say, in such way as to yield a product in exchange and return for the value consumed.

When capital or land, or personal service, is let out to hire, its productive power is transferred to the renter or adventurer in production, in consideration of a given amount of products agreed upon beforehand. It is a sort of speculative bargain, wherein the renter takes the risk of profit and loss, according as the revenue he may realise, or the product obtained by the agency transferred, shall exceed or fall short of the rent or hire he is to pay. Yet one revenue only can be realised; and, though a borrowed capital may yield to the adventurer an annual product of 10 per cent. instead of 5 per cent. which he pays in the shape of interest, yet the revenue of the capital, the productive service it affords, will not be 10 per cent.; for in that gross product is included the recompense of the productive agency, both of the capital and of the industry that has turned it to account.

The actual revenue of each individual is proportionate to the quantity of products at his disposal, being either the immediate fruit of his productive means, or the result of those transformations from its primitive state, which his revenue may have undergone, until it have assumed the shape of the ultimate object of his consumption. The ratio of that quantity, or of utility inherent in it, can only be estimated from its current price in the dealings of mankind. In this sense, the revenue of an individual is equal to the value derived from his productive means; which value, however, is the greater, in respect to the objects of his consumption, in proportion to the cheapness of those objects, which augments his command of other than his own immediate products.

In like manner, the revenue of a nation is the more considerable, in proportion to the intensity of the value whereof it consists, i. e. of the value of its aggregate productive powers, and to its high relative degree to the value of the objects of external attainment. The value of productive agency must be high, even where that of products is low; for it should be always recollected, that, since the intensity of value depends upon the quantity of objects obtainable in exchange, revenue, or, in other words, the agency of the national sources of production, is large, in proportion to the abundance and cheapness of the products derived from them.

BOOK II, CHAPTER III

OF REAL AND RELATIVE VARIATION OF PRICE.

The price of an article is the quantity of money it may be worth; current price, the quantity it may be sure of obtaining at the particular place. Its locality is material, for the desire of a specific object varies in relation to the quantity procurable according to the locality.

The price obtained upon the sale of an article represents all other articles procurable with that price. To say, that the price of an ell of broad-cloth is 8 dollars, implies, that it is exchangeable either for so much coined silver, or for so much of any other product or products as may be procurable with that sum. Money-price is selected for the purposes of an illustration, in preference to price in commodities at large, merely for greater simplicity; but the real and ultimate object of exchange is, not money, but commodities.

Price, in this sense, may be divided into buying price and selling price; that is to say, the price given to obtain possession of an object, and the price obtainable for the relinquishment of its possession.

The price paid for every product, at the time of its original attainment or creation, is, the charge of the productive agency exerted, or the cost of its production.9 Tracing upwards to this original price of a product, we unavoidably come to other products; for the charge of productive agency can only have been defrayed by other products. The daily wages of the weaver engaged in producing broad-cloth are products; they consist either of the articles of his daily subsistence, or of the money wherewith he may procure them, both which are equally products. Wherefore the production, as well as the subsequent interchange of products, may be said to resolve itself into a barter of one product for another, conducted upon a comparison of their respective current prices. But there is one important particular, that requires the most assiduous attention, the neglect or oversight of which has led to abundance of error and misrepresentation, and has made the works of many writers calculated only to mislead the students in this science.

An ell of broad-cloth, that has, in the production, required the purchase of productive agency at the price of 8 dollars, will have cost that sum in the manufacture; but if three-fourths only of that productive agency can be made to suffice for its production; if, supposing one kind of productive agency only to be requisite, 15 instead of 20 days' labour of a single workman be enabled to complete the product, the same ell of broad-cloth will cost 6 dollars to the producer, at the same rate of wages. In this case the current price of human productive agency will have remained the same, although the cost of production will have varied in the ratio of the difference between 6 dollars and 8 dollars. But, as this difference in the relation between the cost of production and the current price of the product holds out a prospect of larger profit than ordinary in this particular channel, it naturally attracts a larger proportion of productive agency, the exertion of which, by enlarging the supply, reduces again the current price to a level with the bare cost of production.10

This kind of variation in the price of a product I shall call real variation of price, because it is a positive variation, involving no equivalent variation in the object of exchange, and both may, and actually does occur, without any contemporaneous variation of the price, either of productive agency, of the products wherewith it is recompensed, or of those, for which the specific object of this real variation is procurable.

It is otherwise with regard to the variation of price of products already in existence one to another, without reference to their respective cost of production. When the wine of the last vintage that a month before sold at 40 dollars the tun, will fetch no more than 30 dollars, money and all other objects of desire to the wine-vender have actually advanced in price to him; for the productive agency exerted in raising the wine, receives a recompense of but 30 dollars, instead of 40 dollars in money, and of commodities in a like proportion, which is an abatement of ¼; whereas, in the instance above cited, an equal amount of productive agency will receive an equal recompense in all other products; for a degree of agency, which has both cost and received 6 dollars, will be equally well paid with one that cost and received 8 dollars.

In the former case, then, of a real variation, the wealth of the community will have received an accession; in the latter, of relative variation, it will have remained stationary; and for this plain reason; because, in the one case all the purchasers of cloth, will be so much the richer, without the seller being any poorer; while in the other, the gain of the one class will be exactly equipoised by the corresponding loss of the other. In the former case, a larger amount of products will be procured with an equal charge of production, and without any alteration in the revenues of either buyers or sellers: there will be more actual wealth, more means of enjoyment, without any increased expenditure of productive means; the aggregate utility will be augmented; the quantum of products procurable for the same price will be enlarged; all which are but varied expressions of the same meaning.

But whence is derived this accession of enjoyment, this larger supply of wealth, that nobody pays for? From the increased command acquired by human intelligence over the productive powers and agents presented gratuitously by nature. A power has been rendered available for human purposes, that had before been not known, or not directed to any human object; as in the instance of wind, water, and steam-engines: or one before known and available is directed with superior skill and effect, as in the case of every improvement in mechanism, whereby human or animal power is assisted or expanded. The merit of the merchant, who contrives, by good management, to make the same capital suffice for an extended business, is precisely analogous to that of the engineer, who simplifies machinery, or renders it more productive.

The discovery of a new mineral, animal, or vegetable, possessed of the properties of utility in a novel form, or in a greater degree of abundance or perfection, is an acquisition of the same kind. The productive means of mankind were amplified, and a larger product rendered procurable by an equal degree of human exertion, when indigo was substituted for woad, sugar for honey, and cochineal for the Tyrian dye. In all these instances of improvement, and those of a similar nature that may be hereafter effected, it is observable, that, since the means of production placed at the disposal of mankind become in reality more powerful, the product raised always increases in quantity, in proportion as it diminishes in value. We shall presently see the consequences of this circumstance.11

A fall of price may be general and affect all commodities at once; or it may be partial and affect certain commodities only; as I shall endeavour to explain by example.

Suppose that, when stockings were made by knitting only, thread-stockings, of a given quality, amounted to the price of 1 dollar the pair. Hence, we should infer, that the rent of the land whereon the flax was grown, the profits upon the labour and capital of the cultivators, those of the flax-dresser and spinner, with those likewise of the stocking-knitter, amounted altogether to the sum of a dollar for each pair of stockings. Suppose that, in consequence of the invention of a stocking-machine, 1 dollar will buy two pair of stockings instead of one. As the competition has a tendency to bring the price to a level with the cost of production, we may infer from this reduced price, that the outlay in land, capital, and labour, necessary to produce two pair of stockings, is still no more than 1 dollar; thus, with equal means of production, the product raised is doubled in quantity. And what is a convincing proof that this fall is positive, is the fact, that every person, of what profession soever, may thence-forward obtain a pair of stockings with half the quantity of his own particular product. A capitalist, the holder of 5 per cent. stock, was before obliged to devote the annual interest of 20 dollars to the purchase of a pair of stockings; he now gives the interest of 10 dollars only. A tradesman selling his sugar at 33 1/3 cents per lb. must before have sold 3 lb. of sugar to buy a pair of stockings, now he need but sell 1½ lb.: he therefore sacrifices in the pair of stockings only half the means of production he formerly devoted to the acquisition of the same object.

We have hitherto supposed this product alone to have fallen in price. Let us suppose two products to fall, stockings and sugar: that by an improvement of commerce, 1 lb. of sugar cost 22 cents instead of 33 cents. In this case all purchasers of sugar, including the stocking-maker, whose product has likewise fallen, will sacrifice, in the purchase of 1 lb. of sugar, but half the productive means, which they before allotted for that purpose.

The truth of this position may be easily ascertained. When sugar was at 33 1/3 cents per lb. and stockings at a dollar the pair, the stocking-maker was obliged to sell one pair of stockings, before he could buy 3 lbs. of sugar: and, as the charges of producing this pair of stockings were one dollar, he in reality bought 3 lbs. of sugar at the price of a dollar value in his own productive means; in like manner as the grocer bought a pair of stockings for 3 lbs. of sugar, that is to say, in his case also, for one dollar value of his peculiar productive means. But when both these commodities have fallen to half their price, one pair only, or productive means equivalent to 50 cents, would buy 3 lbs. of sugar; and 3 lbs. of sugar, procurable at a charge of production amounting to 50 cents, will suffice to purchase a pair of stockings. Wherefore, if two kinds of products, which we have set one against the other, and supposed to pass in exchange the one for the other, can both have fallen in price at the same time, are we not authorised to infer, that this fall is a positive fall, and has no reference or relation to the prices of commodities one to another? that commodities in general may fall at one and the same time, some more, some less, and yet that the diminution of price may be no loss to any body?

It is for this reason, that, in modern times, although wages stand in nearly the same relation to corn as they did four or five hundred years ago, yet the lower classes now enjoy many luxuries, that were then denied them; many articles of dress and household furniture, for instance, have suffered a real diminution of value; and that the same individuals are more scantily supplied with others, as with butcher's meat and game,12 because they have sustained a real increase of value.

Every saving in the cost of production implies the procurement, either of an equal product by the exertion of a smaller amount of productive agency, or of a larger product by the exertion of equal agency, which are both the same thing; and it is sure to be followed by an enlargement of the product. It may be thought, perhaps, that this increase of production may possibly take place without any corresponding increase of demand; and, therefore, that the price current of the product may fall below the cost of its production, even on its reduced scale. But this is a groundless apprehension; for the fall of price tends so strongly to expand the sphere of consumption, that, in all the instances I have been able to meet with, the increase of demand has invariably outrun the increasing powers of an improved production, operating upon the same productive means; so that every enlargement of the power of productive agency has created a demand for more of that agency, in the preparation of the product cheapened by the improvement.

Of this a striking example has been afforded by the invention of the art of printing. By this expeditious method of multiplying the copies of a literary work, each copy costs but a twentieth part of what was before paid for manuscript; an equal intensity of total demand, would, therefore, take off only twenty times the number of copies; but probably it is within the mark to say, that a hundred times as many are now consumed. So that, where there was formerly one copy only of the value of 12 dollars of present money, there are now a hundred copies, the aggregate value of which is 60 dollars, though that of each single copy be reduced to 1-20. Thus the reduction of price, consequent upon a real variation, does not occasion even a nominal diminution of wealth.13

On the other hand, and by the rule of contraries, as a real advance of price must always proceed from a deficiency in the product raised by equal productive means, it is attended by a diminution in the general stock of wealth; for the rise of price upon each portion does not counterpoise the reduction that takes place in the total quantity of the commodity; to say nothing of the greater relative dearness of the object of consumption to the consumer, and of his consequent impoverishment in comparison.

Suppose a murrain, or a bad system of management, to cause a scarcity of any kind of live stock, of sheep for instance, the price will rise, but not in proportion to the reduction of the supply; because in proportion as they grow dearer, the demand will decrease. If there were but one-fifth of the present number of sheep, it is very probable their price would advance to no more than double; so, that in place of five sheep, which might together be worth 20 dollars at 4 dollars each, there would remain but one valued at 8 dollars. The diminution of wealth in the article of sheep, notwithstanding the increased price, must therefore be computed at 60 per cent., which is considerably more than a moiety.14

Thus, it may be affirmed, that every real reduction of price, instead of reducing the nominal value of produce raised, in point of fact, augments it; and that a real increase of price reduces, instead of adding to the general wealth; to say nothing of the quantum of human enjoyment, which in the former case is multiplied, and in the latter abridged. Besides it would be a capital error to imagine, that a real fall of price, or in other words, a reduction in the price paid to productive exertion, occasions as much loss to the producer as gain to the consumer. A real depreciation of commodities is a benefit to the consumer, without curtailing the profits of the producer. The stocking-maker, who for one dollar manufactures two pair of stockings instead of one, gains as much upon that sum as if it were the price of a single pair. The landed proprietor receives the same rent, although, by a better rotation of crops, the tenant should multiply and cheapen the produce of his land. Whenever, without additional fatigue to the labourer, means are devised to double the quantity of work he can perform, the ratio of his daily gains is not reduced, although his product is sold at a lower price.15

This will serve to confirm and explain a maxim, which has been hitherto imperfectly understood, and even disputed by many writers, and sects of political reasoners; namely, that a country is rich and plentiful, in proportion as the price of commodities is low.16

For argument's sake, I will put the matter in the most favourable light for those who dispute this maxim, and suppose them to urge an extreme case, namely, that, by successive economical reductions, the charges of production are at length reduced to nothing; in which case, it is evident there can no longer be rent for land, interest upon capital, or wages on labour, and consequently, no longer any revenue to the productive classes. What then? Why then, I say, these classes would no longer exist. Every object of human want would stand in the same predicament as the air or the water, which are consumed without the necessity of being either produced or purchased. In like manner as every one is rich enough to provide himself with air, so would he be to provide himself with every other imaginable product. This would be the very acme of wealth. Political economy would no longer be a science; we should have no occasion to learn the mode of acquiring wealth; for we should find it ready made to our hands.

Although there be no instance of a product falling to nothing in price, and becoming worth no more than mere water, yet some kinds have undergone prodigious abatements; as fuel in those places where coal-pits have been discovered; and such abatements are so many approximations to that imaginary state of complete abundance, I have just been speaking of.

If different commodities have fallen in different ratios, some more, others less, it is plain they must have varied in relative value to each other. That which has fallen, stockings, for instance, has changed its value relatively to that which has not fallen, as butcher's meat; and such as have fallen in equal proportion, like stockings and sugar in our hypothesis, have varied in real though not in relative value.

There is this difference between a real and a relative variation of price: that the former is a change of value, arising from an alteration of the charges of production; the latter, a change, arising from an alteration of the ratio of value of one particular commodity to other commodities. Real variations are beneficial to buyers, without injury to sellers; and vice versâ; but in relative ones, what is gained by the seller is lost by the purchaser, and vice versâ. A dealer, having in his warehouse 100,000 lbs. of wool at 20 cents per lb., is worth 20,000 dollars; if, by reason of an extraordinary demand, wool should rise to 40 cents per lb., that portion of his capital will be doubled, but all goods brought to be exchanged for wool will lose as much in relative value as the wool will gain. A person in want of 100 lbs. of wool, who could before have obtained it by disposing, say of 20 bushels of wheat valued at 20 dollars, must now dispose of twice that quantity. He will lose the 20 dollars gained by the wool-dealer; and the nation be neither enriched nor impoverished.17

When sales of this kind take place between one nation and another, the nation, that sells the commodity, which has advanced in relative price, gains to the amount of the advance, and the purchasing nation loses precisely to the same extent. Such a rise of price adds nothing to the general stock of wealth, existing in the world, which can only be enlarged by the production of some new utility, that may become the object of price or estimation; whereas, in other cases, one always loses what another gains: and so it is with all kinds of jobbing transactions, founded upon the fluctuations of prices one upon another.

In all probability, the time is not very distant, when the European states, awake at length to their real interests, will renounce the costly rights of colonial dominion, and aim at the independent colonization of those tropical regions nearest to Europe; as of some parts of Africa. The vast cultivation of what are called colonial products, that would ensue, could not fail to supply Europe in the greatest abundance, and probably at most moderate prices. Such merchants as shall then have stock on hand, purchased at the old prices, certainly will make a loss upon that stock; but their loss will be a clear gain to the consumer, who will for a time enjoy this kind of produce, at a price inferior to the charge of production; the merchants will gradually replace their dear-bought produce, by other of equal quality, raised with superior intelligence; and the consumer will then reap the advantage of superior cheapness and multiplied enjoyment, with no loss to any body; for the merchant will both buy and sell cheaper; and human industry will have made a rapid stride, and opened a new road to affluence and abundance.18

BOOK II, CHAPTER IV

OF NOMINAL VARIATION OF PRICE, AND OF THE PECULIAR VALUE OF BULLION AND OF COIN.

In treating of the elevation and depression of the price of commodities, although value has been expressed in money, no notice has been taken of the value of money itself; which, to say the truth, plays no part in real, or even in relative variation of the price of other commodities. One product is always ultimately bought with another, even when paid for in the first instance in money. When the price of wool is doubled, it is purchased with twice the quantity of every other commodity, whether the exchange be made directly, or through the intermediate agency of money. The baker, who could have bought 1 lb. of wool with 6 lbs. of bread, or, with its price in money, say 20 cents, will be obliged to sacrifice 12 lbs. of bread to obtain the 40 cents necessary to purchase 1 lb. of wool at its advanced price. But, if it be proposed to compare together the relative value, not of stockings, meat, sugar, wool, bread, &c., but of any one of those articles with that of money itself, we shall find, that money, like all other commodities, may undergo, and often has, in fact, undergone a real variation; that is to say, a variation in the cost of its production; and a relative one, that is to say, a change of value, in comparison with other products.

Since the discovery of the American mines, silver, having fallen to about a fourth of its former value, has lost three-fourths of its relative value to all other products, whose price has, meanwhile remained stationary; as to that of corn, for instance; consequently, one must give 4 oz. of silver for 1 setier (about 43 bushels) of wheat, which, in the year 1500, was to be had for 1 oz. or thereabout. A commodity, which, since that period, may have fallen to half its price, while silver was falling to one-quarter, will, therefore, have doubled its relative value to silver, for this commodity then cost 1 oz., and would now be worth 4 oz. of silver, had it not fallen itself in value; but having itself lost one-half its value, it is sold for but 2 oz.; that is to say, for twice as much silver as at the former period.

Such is the effect of real and of relative variation in the price of silver. But, independently of these variations, there have been vast alterations in the denomination given, at different periods during the interim, to the same quantity of pure metal, which should make us place very little reliance on the accuracy of our estimate of real and relative variation.

In 1514, an ounce of silver would purchase 1 setier of wheat, which is now worth 4 oz.; this was a relative variation of silver to wheat. This quantity of silver then was denominated 30 sous;19 and, had the same quantity of silver still preserved the same denomination, 4 oz. would now be called 120s. or 6 fr. Thus, wheat at 6 fr. the setier would have risen in relation to silver, or silver have fallen in comparison with wheat. There would, however, have been no nominal variation. But 4 oz. of silver are now denominated 24 fr. instead of 6 fr.; so that there has been a nominal as well as a relative variation,—a mere verbal alteration. The real and relative variation has been in the ratio of 4 to 1; but the nominal value of money has declined in the ratio of 16 to 1, since 1514.

It is obvious, therefore, that one cannot form an idea of the value of a commodity from its estimate of money price, except during a space of time, and within a space of territory, in which neither the denomination of the coin, nor the value of its material, has undergone any change; else the valuation will be merely nominal, and convey no fixed idea of value whatever. To say that the setier of wheat sold for 30 sous in 1514, without explaining the then value of 30 sous, is giving us a price, that conveys either no idea at all, or a fallacious one, if it be meant to affirm, that the setier of wheat was then worth 30 sous of present money. In comparing values, the denomination of coin is useful only inasmuch as it designates the quantity of pure metal contained in the sum specified. It may serve to denote the quantity of the metal; but never serve as an index of value at any distance of time, or of place.

It is scarcely necessary to point out the effects of an alteration in the quantity of metal, to which a fixed denomination is given, upon national and individual property. Such an expedient can neither increase nor diminish the real, or even the relative value, either of the metal or of any other commodity. If 1 oz. of silver be struck into two crowns instead of one, two crowns will be paid wherever one was given before; that is to say, 1 oz. of silver will be given in either case: so that the value of silver will not have varied. But when a sale has been made on credit for a given time, and payment stipulated in crowns, the seller may be liable to receive ½ oz. in each crown, instead of 1 oz. according to the intention of the contracting parties. This transfer of the old denomination to a different portion of metal will, therefore, unjustly benefit the one party, to the injury of the other. For every profit to one individual is a loss to another, unless it arise from actual production, or from greater economy in the charges of production, which is equivalent to actual production.

With regard to the peculiar and inherent value of bullion or of money, it originates, like that of all other commodities, in the uses to which it is applicable, as we have before observed. The degree of that value is greater or less, according as its use is more or less extensive, its employment more or less necessary, and its supply more or less abundant.

Gold and silver, though the most common materials of money can not act as such while in an uncoined state; they are then not money, but the raw material of money. In the present condition of society, every individual can not turn bullion into coin at his pleasure; and, therefore, coin may be of considerably higher value than bullion of the same standard of weight and quality, if the demand for coin be more urgent than the demand for bullion. But bullion can never be perceptibly higher in value than coin of equal weight and quality; because the latter may be readily converted into the former. The reason why coin so seldom much exceeds bullion in value is, that the avidity of governments, which are monopolists of the business of coinage, to profit by the difference between coin and bullion, has led them into the error of overstocking the market with their manufacture of coin. Thus it is, that coin is never depressed in value below, and rarely much elevated above bullion. Wherefore, the detail of the circumstances, that have hitherto been, or may hereafter be, the occasion of variations in the intrinsic value of gold or silver bullion, will serve at the same time to explain the variations of their value in the peculiar character of money.

It has already been noticed,20 that the ten-fold supply of those metals, poured into the market in consequence of the discovery of America, did not effect a corresponding reduction of their value to 1/10 of what it had before been. For, the demand for them was at the same period greatly enlarged by the contemporaneous increase of commerce, manufacture, and luxury. All the leading states of Europe had before been wholly destitute of industry: the circulation of products, whether as capital or for mere consumption, was very trifling in amount. Industry and productive energy made a sudden and simultaneous effort all over Europe; and the commodity employed as the material of money, the agent of exchange, could not but come more in demand, upon the greater extent and frequency of mutual dealings. About the same time, the new route to the Eastern ocean, by rounding the Cape of Good Hope, was discovered, and drew abundance of adventurers into that direction; the products of the East obtained a more general consumption; but Europe, having no other products of her own to offer in exchange, was compelled to give the precious metals, of which India absorbed an immense quantity. Nevertheless, the multiplication of products tended to the increase and diffusion of wealth; mere higlers grew up unto opulent merchants, and the fishing towns of Holland already reckoned amongst their citizens individuals worth 200,000 dollars. The costly objects, that none but princes could before aspire to possess, became attainable by the commercial classes; and the increasing taste for plate and expensive furniture created a greater demand for gold and silver to be employed on those objects. Beyond all question, the value of those metals would have prodigiously advanced, had not the mines of America been then opportunely discovered.

Their discovery completely turned the scales. The rapid increase of the use and demand for gold and silver was far more than counterbalanced by the increasing supply, which completely glutted the market. Hence the great reduction of their value, which has been before observed upon, and which would have been far greater still, but for the concurrence of the circumstances just stated, whereby the value of silver, or its price in commodities at large, was checked in its fall, and limited to one-fourth, instead of being depressed in equal ratio with the increased supply, that is to say, to one-tenth.

This counteracting force must have escaped the penetration of Locke, or he would not have said, that the tenfold increase of silver, since the year 1500, necessarily raised the price of commodities in a tenfold degree. The few instances he might have cited in support of his position, were by no means sufficient to establish its accuracy; for a far greater number and variety of products might be mentioned, for which, as well as for silver, the demand compared with the supply had increased in the ratio of 2 ½ to 1, between 1500 and the date of the work of Locke in question.21 But, although this may be true of some particular products, it may not be so of abundance of others, for some of which the demand has not advanced at all since 1500, while the supply of others has kept pace with the progressive demand, and consequently the ratio of their value remained stationary, with the exception of trifling temporary variations arising from causes of a nature wholly distinct; which, by the way, should teach us the necessity, in this science, of submitting insulated facts to the test of reasoning: for fact will not subvert theory, unless the whole of the facts applicable be taken into consideration, as well as the whole of the circumstances, that may vary the nature of those facts which is hardly possible in any case.

The writers of the Encyclopedie have fallen into the same error, in stating,22 that a household establishment, wherein the silver plate should not have varied in quantity or quality from the middle of the sixteenth century to the present time, would be but one-tenth as rich in plate now as at the former period. Whereas, its comparative wealth would be reduced to one-fourth only; since, although the increase of supply has depressed that value to 10/100, the increase of demand, on the other hand, has raised it to 95/100.23

It is deserving of attention, that the major part of the coin is in constant circulation, in the appropriate sense of the word, as defined above. In this respect it differs from most other commodities; for they are in circulation only so long as they are in the hands of the dealers, and retire from it as soon as transferred to the consumer. Money, even when employed as capital, is never desired as an object of consumption, but merely as one of barter; every act of purchase is an offer of money in barter, and a furtherance of its circulation. The only part withdrawn from circulation is what may be hoarded or concealed, which is always done with a view to its re-appearance.

Gold or silver, in the shape of plate, embroidery, or jewellery, is in circulation only while in quest of, or in readiness for a purchaser; which it ceases to be, when it reaches the possession of the consumer.

The general use of silver amongst all the civilized nations of the world, coupled with its great facility of transport, makes it a commodity of such extensive demand, that none but a very large influx of fresh supply can sensibly affect its value. Thus, when Xenophon, in his essay on the revenues of Athens, urges his countrymen to give more assiduous attention to the working of the mines of Attica, by the suggestion, that silver does not, like other commodities, decline in value with the increase in quantity, he must be understood to say, that it does not perceptibly decline. Indeed, the mines of Attica were too inconsiderable in their product, to influence the value of the stock of that metal then existing in the numerous and flourishing states upon the borders of the Mediterranean Sea, and in Persia and India; between all which and Greece the commercial intercourse was sufficiently active, to keep the value of silver stationary in the Grecian market. The driblet of silver, furnished by Attician metallurgy, was a mere rivulet trickling into an ocean of existing supply. It was impossible for Xenophon to foresee the influx of the American torrent, or to guess at the consequence of its irruption.

If silver were, like corn and other fruits of the earth, an object of human food and sustenance, the enlargement of the sources of its supply would not have lowered its value; for the strong impulse of the human race, towards the multiplication of their species to a level with the means of subsistence, would have made the demand keep pace with the increase of supply. The tenfold multiplication of corn would be followed by a tenfold increase of the demand for it; inasmuch as it would engender new mouths to consume it; and corn would maintain nearly the same average of relative value to other commodities.

This will explain, why the variations of the value of silver are both slow in operation, and considerable in amount. Their slowness is owing to the universality of the demand, which prevents a moderate variation of supply from being sensibly felt; and their magnitude to the limited uses of the metal, which prevent the increase of demand from keeping pace with a rapid increase of supply.

Silver has utility for the purposes of plate, furniture, and ornament, as well as for those of money; and is the more copiously employed on those objects, in proportion to the degree of national wealth. Its use in the peculiar character of money is proportionate to the quantity of moveable and immoveable objects of property, that there may be to be circulated; wherefore, coin would be more abundantly required in richer than in poorer nations, were not the following circumstances to control this general rule.

1. The superior rapidity of circulation, both of money and commodities in a state of national opulence, which makes a smaller quantity of money requisite, in proportion to the total of commercial dealings. The same sum in a rich country will effect perhaps ten successive operations of exchange in the same space of time, as one in a poor country.24 Wherefore, the multiplication of commodities to be circulated is not necessarily attended with a co-extensive increase of the demand for money. The business of circulation is extended; but the agent of circulation becomes more active and efficient.

2. In a state of national opulence, credit is a more frequent substitute for money. In Chap. XXII, of the preceding book, it has been shown how a portion of the national money may be dispensed with by the employment of convertible paper, without any resulting inconvenience.25 By this expedient, the use of metal money, and, consequently, the demand for silver for the purposes of money, is considerably diminished. Nor is convertible paper the sole expedient of substitution amongst an industrious and commercial people; every kind of private obligations and covenants, as well as sales on credit, transfers of money-credit, and even mere debtor and creditor accounts current, have an effect precisely analogous.

Thus the necessity, and consequently the demand, for metal money never advances in equal ratio with the progressive multiplication of other products; and it may be truly said, that the richer a nation is, the smaller is the amount of its coin, in comparison with other nations.

Were the quantum of the supply alone to determine the exchangeable value of a commodity, silver would stand to gold in the ratio of 1 to 45; for silver and gold are produced by metallurgy as 45 to 1.26 But the demand for silver is greater than for gold; its uses are both far more general and far more various; and thus its relative value is prevented from falling lower than 1 to 15.

A portion of the demand for the precious metals is occasioned by their gradual destruction by use; for, although less subject to decay than most products, they are still perishable in a certain degree; and doubtless the wear, though slow, must be considerable upon the immense quantity of gold and silver in constant use, as well in the character of money, as in the various objects of spoons, forks, goblets, dishes, and jewellery of all sorts. There is likewise a large consumption in plating and gilding. Smith asserts, that the manufacturers of Birmingham alone, in his time, worked up annually, as much as the worth of 50,000l. in these ways.27 A further allowance must be made for the consumption of embroidery, tissue, book-binding, &c., all which may be set down as finally lost to other purposes. Add to this the buried hoards, the knowledge of which dies with the possessor, and the quantity lost by shipwreck.

If the nations of the world go on increasing their wealth, as most of them certainly have done for the last three centuries, their want of the precious metals will progressively advance, as well in consequence of the gradual wear, which will be greater in proportion to their increasing use, as of the multiplication and increased aggregate value of other commodities, which will create a larger demand for the purposes of transfer and circulation. If the produce of the mines do not keep pace with the increasing demand, the precious metals will rise in value, and less of them be given in exchange for other products in general. If the progress of mining shall keep pace with the advances of human industry, their value will remain stationary, as it seems to have done for the last two centuries; during which the demand and supply have regularly advanced together.28 And, if the supply of those metals outrun the progress of general wealth, as it seems to be doing at this moment, they will fall in respect to other commodities at large. Metal-money will thereby be rendered more cumbrous; but the other uses of gold and silver will be more widely diffused.

It would be a long and tedious task to expose all the false reasoning and erroneous views, originating in the perpetual confusion of the different kinds of variation, that it has cost so much time to analyze and distinguish. It is enough to put the reader into a condition himself to discover their fallacy, and estimate the tendency of measures avowedly directed to influence public wealth, by operating upon the scale of value.

BOOK II, CHAPTER V

OF THE MANNER IN WHICH REVENUE IS DISTRIBUTED AMONGST SOCIETY.

The causes, which determine the value of things, and which operate in the way described in the preceding chapters, apply without exception to all things possessed of value, however perishable; amongst others, therefore, to the productive service yielded by industry, capital, and land, in a state of productive activity. Those, who have had at their disposal any one of these three sources of production, are the venders of what we shall here denominate productive agency; and the consumers of its product are the purchasers. Its relative value, like that of every other commodity, rises in direct ratio to the demand, and inverse ratio to the supply.

The wholesale employers of industry, or adventurers, as they have been called, are but a kind of brokers between the venders and the purchasers, who engage a quantum of productive agency upon a particular product, proportionate to the demand for that product.29 The farmer, the manufacturer, the merchant, is constantly occupied in comparing the price, which the consumer of a given product will and can give for it, with the necessary charges of its production; if that comparison determine him to produce it, he is the organ of a demand for all the productive agency applicable to this object, and thus furnishes one of the bases of the value of that agency.

On the other hand, the agents of production, animate and inanimate, land, capital, and human labour, are supplied in larger or smaller quantity, according to the action of the various motives, that will be detailed in the succeeding chapters; thus forming the other bases of the value at which their agency is rated.30

Every product, when completed, repays by its value the whole amount of productive agency employed in its completion. A great part of this agency has been paid for before the entire completion of the product, and must have been advanced by somebody: other part has been remunerated on its completion; but the whole is always paid for ultimately out of the value of the product.

By way of exemplifying the mode, in which the value of a product is distributed amongst all that have concurred in its production, let us take a watch, and trace from the commencement, the manner in which its smallest parts have been procured, and in which their value has been paid to every one of the infinite number of concurring producers.

In the first place we find, that the gold, copper, and steel, used in its construction, have been purchased of the miner, who has received in exchange for these products, the wages of labour, interest of capital, and rent paid to the landed proprietor.

The dealers in metal, who buy of the original producer, re-sell to those engaged in watchmaking, and are thus reimbursed their advance, and paid the profits of their business into the bargain.

The respective mechanics, who fashion the different parts whereof a watch is composed, sell them to the watchmaker, who, in paying them, refunds the advance of their previous value, together with the interest upon that advance; and pays, besides, the wages of labour hitherto incurred. This very complex operation of payment may be effected by a single sum, equal to the aggregate of those united values. In the same way, the watchmaker deals with the mechanics that furnish the dial-plate, the glass, &c., and such ornaments as he may think fit to add,—diamonds, enamel, or any thing he pleases.

Last of all, the individual purchaser of the watch for his own use refunds to the watchmaker the whole of his advances, together with interest on each part respectively, and pays him besides, a profit on his personal skill and industry.

We find, then, that the total value of the watch has been shared amongst all its producers, perhaps long before it was finished; and those producers are much more numerous than I have described or than is generally imagined. Among them, probably, may be found the unconscious purchaser himself, who has bought the watch, and wears it in his job. For who knows but he may have advanced his own capital to a mining adventurer, or a dealer in metal; or to the director of a large factory; or to an individual who acts himself in none of these capacities, but has underlent to one or more such persons a part of the funds he has borrowed at interest from the identical consumer of the watch?

It has been observed, that it is by no means necessary for a product to be perfected for use, before the majority of its concurring producers can have been reimbursed that portion of value they have contributed to its completion; in a great many cases, these producers have even consumed their equivalent long before the product has arrived at perfection. Each successive producer makes the advance to his precursor of the then value of the product, including the labour already expended upon it. His successor in the order of production, reimburses him in turn, with the addition of such value as the product may have received in passing through his hands. Finally, the last producer, who is generally the retail dealer, is compensated by the consumer for the aggregate of all these advances, plus the concluding operation performed by himself upon the product.

The whole revenues of the community are distributed in one and the same manner.

That portion of the value produced, which accrues in this manner to the landed proprietor, is called the profit of land; which is sometimes transferred to the farmer, in consideration of a fixed rent.

The portion assigned to the capitalist, or person making the advances, however minute and for however short a period of time, is called the profit of capital; which capital is sometimes lent, and the profit relinquished on condition of a stipulated interest.

The portion assigned to the mere mechanic or labourer is called the profit of labour; which is sometimes relinquished for certain wages.31

Thus, each class receives its respective share of the total value produced; and this share composes its revenue. Some classes receive their share piecemeal, and consume as fast as they receive it; and these are the most numerous, for they comprise most of the labouring classes. The land-holder and the capitalist, who do not themselves turn their means to account, receive their revenue periodically, once or twice, or perhaps four times a year, according to the terms of the contract with the transferee. But, in whatever manner a revenue may be derived, it is always analogous in its nature, and must originate in actual value produced. Whatever value an individual receives in satisfaction of his wants, without having either directly or indirectly concurred in production of some kind or other, must be wholly either a gratuitous gift or a spoliation; there is no other alternative.

It is in this way, that the total value of products is distributed amongst the members of the community; I say, the total value, because such part of the whole value produced, as does not go to one of the concurring producers, is received by the rest. The clothier buys wool of the farmer, pays his workmen in every department, and sells the cloth, the result of their united exertion, at a price that reimburses all his advances, and affords himself a profit. He never reckons as profit, or as the revenue of his own industry, any thing more than the net surplus, after deducting all charges and outgoing; but those outgoings are merely an advance of their respective revenues to the previous producers, which are refunded by the gross value of the cloth. The price paid to the farmer for his wool, is the compound of the several revenues of the cultivator, the shepherd, and the landlord. Although the farmer reckons as net produce only the surplus remaining after payment of his landlord and his servants in husbandry, yet to them these payments are items of revenue,—rent to the one, and wages to the other; to the one, the revenue of his land, to the other, the revenue of his industry. The aggregate of all these is defrayed out of the value of the cloth, the whole32 of which forms the revenue of some one or other, and is entirely absorbed in that way.

Whence it appears, that the term net produce applies only to the individual revenue of each separate producer or adventurer in industry; but that the aggregate of individual revenue, the total revenue of the community, is equal to the gross produce of its land, capital, and industry. Which entirely subverts the system of the economists of the last century, who considered nothing but the net produce of the land as forming revenue, and therefore concluded that this net produce was all that the community had to consume, instead of admitting the obvious inference, that the whole of what has been created, may also be consumed by mankind.33

If national revenue consisted of the mere excess of value produced above value consumed, this most absurd consequence would be inevitable, namely, that, where a nation consumes in the year the total of its annual product, it will have no revenue whatever. Is a man possessed of an income of 2000 dollars a year, to be said to have no revenue, because he may think proper to spend the whole of it?

The whole amount of profit derived by an individual from his land, capital, and industry, within the year, is called his annual revenue. The aggregate of the revenues of all the individuals, whereof a nation consists, is its national revenue.34 Its sum is the gross value of the national product, minus the portion exported; for the relation of one nation, is like that of one individual to another. The profits of an individual are limited to the excess of his income above his expenditure, which expenditure, indeed, forms the revenue of other persons, but, if those persons be foreigners, must be reckoned in the estimate of the revenue of the respective nations they may belong to. Thus, for instance, when a consignment of ribbons is made to Brazil to the amount of 2000 dollars, and the returns received in cotton, in estimating the resulting product to France from this act of dealing, the export made to Brazil in payment of the cotton must be deducted. Supposing the investment of ribbons to procure, say 40 bales of cotton, which, when they reach France, will fetch 2400 dollars, 400 dollars only of that sum will go to the revenue of France, and the residue to that of Brazil.

Did all mankind form but one vast nation or community, it would be equally true in respect to mankind at large, as to the internal product of each insulated nation, that the whole gross value of the product would be revenue. But so long as it shall be necessary to consider the human race as split into distinct communities, taking each an independent interest, this circumstance must be taken into the account. Wherefore, a nation, whose imports exceed its exports in value, gains in revenue to the extent of the excess; which excess constitutes the profit of its external commerce. A nation that should export to the value of 20,000 dollars, and import to the value of 24,000 dollars wholly in goods, without any money passing on either side, would make a profit of 4000 dollars, in direct contradiction to the theory of the partizans of the balance of trade.35

The voluminous head of perishable products consumed within the year, nay, often at the very moment of production, as in the case of all immaterial products, is nevertheless an item of national revenue. For what are they but so many values produced and consumed in the satisfaction of human wants, which are the sole characteristics of revenue?

The estimation of individual and of national revenue is made in the same way, as that of every collection of values, under whatever varieties of form; as of the estate of a deceased person. Each product is successively valued in money or coin. For instance, the revenues of France are said to amount to 1800 millions of dollars which by no means implies, that the commerce of France produces a return of that amount in specie. Probably a very small amount of specie, or none at all, may have been imported. All that is meant by the assertion is, that the aggregate annual products of the nation, valued separately and successively in silver coin, make the total value above stated. The only reason of making the estimate in money is, the greater facility acquired by habit of forming an idea of the unchangeable value of a specific amount of money, than of other commodities. Were it not for that facility, it would be quite as well to make the estimate in corn; and to say, that the revenues of France amounted to 1,300,000,000 bushels of wheat, which at one dollar the bushel, would make precisely the same amount.

Money facilitates the circulation from hand to hand of the values composing both revenue and capital; but is itself not an item of annual revenue, not being an annual product, but a product of previous commerce or metallurgy, of a date more or less remote.

The same coin has effected the circulation of the former year, possibly of the former century, and has all the while remained the same in amount; nay, if the value of its material have declined in the interim, the nation will even have lost upon its capital existing under the form of money; just in the same way as a merchant would lose upon the fall of price of the goods in his warehouses.

Thus, although the greater part of revenue, that is to say, of value produced, is momentarily resolved into money, the money, the quantity of silver coin itself, is not what constitutes revence; revenue is value produced, wherewith that quantity of silver coin has been bought; and, as that value assumes the form of money but for a moment, the same identical pieces of money are made use of many times in the course of a year, for the purpose of paying or receiving specific portions of revenue. Indeed, some portions of revenue never assume the form of money at all. The manufacturer, that boards his workmen himself, pays part of their wages in food; so that this far greater portion of the mechanic's revenue is paid, received, and consumed, without having once taken the shape of money, even for an instant. In the United States of America, and in countries similarly circumstanced, it is not uncommon for the colonist to derive from the produce of his own estate, food, lodging, and raiment for the whole of his establishment; receiving and consuming his whole revenue in kind, without any intervention of money whatsoever.

I think I have said enough to warn the reader against confounding the money, into which revenue may be converted, with revenue itself; and to establish a conviction that the revenue of an individual, or of a nation, is not composed of the money received in lieu of the products of his or their creation, but is the actual product or its value, which, by a process of exchange, may undoubtedly arrive at its destination in the shape of a bag of crown pieces, or in any other shape whatsoever.

No value, whether received in the shape of money or otherwise, can form a portion of annual revenue, unless it be the product, or the price of a product, created within the year: all else is capital,—is property passing from one hand to another, either in exchange, as a gift, or by inheritance. For an item of capital, or one of revenue, may be transferred or paid any how, whether in the shape of personal or real, of moveable or immoveable property, or of money. But, no matter what shape it assume, revenue differs from capital essentially in this, that it is the result or product of a pre-existing source, whether land, capital, or industry.

It has with some been a matter of doubt, whether the same value, which has already been received by one individual as the profit or revenue of his land, capital, or industry, can constitute the revenue of a second. For instance, a man receives 100 crowns in part of his personal revenue, and lays it out in books; can this item of revenue, thus converted into books, and in that shape destined to his consumption, further contribute to form the revenue of the printer, bookseller, and all the other concurring agents in the production of the books, and be by them consumed a second time? The difficulty may be solved thus. The value forming the revenue of the first individual, derived from his land, capital, or industry, and by him consumed in the shape of books, was not originally produced in that form. There has been a double production: 1. Of corn perhaps by the land and the industry of the farmer, which has been converted into crown pieces, and paid as rent to the proprietor: 2. Of books by the capital and industry of the bookseller. The two products have been subsequently interchanged one for the other, and consumed each by the producer of the other: having arrived at the particular form adapted to their respective wants.

So likewise of immaterial products. The opinion of the lawyer, the advice of the physician, is the product of their respective talents and knowledge, which are their peculiar productive means. If the merchant have occasion to purchase their assistance, he gives for it a commercial product of his own converted into money. Each of them ultimately consumes his own revenue respectively, transformed into the object best adapted to his peculiar occasions.

BOOK II, CHAPTER VI

OF WHAT BRANCHES OF PRODUCTION YIELD THE MOST LIBERAL RECOMPENSE TO PRODUCTIVE AGENCY.

The aggregate value of a product, in the way just described, refunds to its different concurring producers the amount of their advances, with the addition in most cases, of a profit, that constitutes their revenue. But the profits of productive agency are not of equal amount in all its branches; some yielding but a very scanty revenue for the land, capital, or industry, embarked in them; while others give an exorbitant return.

True it is, that productive agents always endeavour to direct their agency to those employments, in which the profits are the greatest, and thus, by their competition, have as much tendency to lower price, as demand has to raise it; but the effects of competition can not always so nicely proportion the supply to the demand, as in every case to ensure an equal remuneration. Some kinds of labour are scantily supplied, in countries where people are not accustomed to them; and capital is often so sunk in a particular channel of production, that it can never be transferred to any other from that wherein it was originally embarked. Besides, the land may stubbornly resist that kind of cultivation, whose products are in the greatest demand.

One cannot trace the fluctuation of profit on each particular occasion. A wonderful change may be effected by a new invention, a hostile invasion, or a siege. Such partial circumstances may influence or derange the operation of general causes, but can not destroy their general tendency. No dissertation, however voluminous, could be made to embrace every individual circumstance, that by possibility may influence the relative value of objects; but one may specify general causes, and such as have an uniform activity; thereby enabling every one, when the particular occasion may present itself, to estimate the effect produced by the operation of partial and transient circumstances.

It may appear extraordinary at first sight, but will on inquiry be found generally true, that the largest profit is made, not on the dearest commodities or upon those which are least indispensable, but rather on those, which are the most common and least to be dispensed with. In fact the demand for these latter is necessarily permanent; for it is stimulated by actual want, and grows with every increase of the means of production; inasmuch as nothing tends to increase population more, than providing the means of its subsistence. The demand for superfluities, on the contrary, does not expand with the increased power of producing them. An extraordinary run, which, by the way, can never take place but in large towns, may raise the current considerably above the natural price; that is to say, above the actual cost of production; or a change of fashion may again depress it infinitely below that point. Superfluities are, after all, but objects of secondary want even to the rich themselves; and the demand for them is limited to the very small number of persons that can indulge in them. When a casual calamity obliges individuals to reduce their expenditure, when their revenues are curtailed by the ravages of war, by taxation, or by natural scarcity, the first items of retrenchment are always the articles of least necessary consumption. And this may serve, perhaps, to explain, why the productive agency directed to the raising of superfluities, is generally worse paid than that otherwise employed.

I say generally, for it is possible enough that, in a great metropolis, where the demand for luxuries is more urgent than elsewhere, and the dictates of fashion, however absurd, more implicitly obeyed than the eternal laws of nature; where a man will, perhaps, be content to lose his dinner, so he may appear in the evening circle in embroidered ruffles, it is possible, that in such a place the price of the gew-gaws may sometimes very liberally reward the labour and capital devoted to their production. But, except in such particular cases, balancing one year's profits with another, and allowing for contingent losses, it has been ascertained, that the adventurers in the production of superfluities make the most scanty profits, and that their workmen are the worst paid. The manufacturers of the finest laces in Normandy and Flanders are a very indigent set of people; and at Lyons, the workers of gold-embroidery are absolutely clothed in rags. Not but that very considerable profits have occasionally been derived from such articles. A hat-maker has been known to make a fortune by a fancy hat; but, taking all the profits made on superfluities, and deducting the value of goods remaining unsold, or, though sold, never paid for, we shall find that this class of products affords, on the whole, the scantiest profit. The most fashionable tradesmen are oftenest in the list of bankrupts.

Commodities of general use are attainable by a greater number of persons, and are in demand with almost every class of society. The chandelier is to be found only in the mansions of the rich; but the meanest cottage is furnished with the convenience of a candlestick: the demand for candlesticks is, therefore, regular, and always more brisk than that for chandeliers; and, even in the most opulent country, the total value of the candlesticks is far greater than that of the chandeliers.

The articles of human food are unquestionably those of most indispensable use; the demand for them recurs daily; and no occupations are so regular as those which minister to human sustenance. Wherefore, it is they that yield the most certain profit, notwithstanding the effects of brisk competition.36 The butchers, bakers, and porkmen, of Paris, are pretty sure to retire with a fortune sooner or later; indeed, I have it from pretty good authority in such matters, that half the houses and real property sold in Paris and the environs, is bought up by tradesmen in those lines.

It is on this account, that individuals and nations, who understand their true interest, unless they have very cogent reasons for acting otherwise, apply themselves in preference to the production of what tradesmen call current articles. Mr. Eden, who, in 1706, negotiated on the part of Great Britain the treaty of commerce concluded by M. de Vergennes, went upon this principle, in stipulating the free import of the common English earthenware into France. "The few dozens of plates we may sell you," said the English agent, "will be a poor set-off against the magnificent services of Sevres porcelain we shall take of you." This appeal to the vanity of the French agent was decisive. But, as soon as the English earthenware was admitted, its lightness, cheapness, convenience and simplicity of form, recommended it to the most moderate establishments; its regular import, in a short time, amounted to many millions, and continued increasing every year until the war. The exportation of Sevres china, was a mere trifle in comparison.

The scale for current articles, besides being more considerable, is likewise more steady. A tradesman is never long in disposing of common linen shirting.

The examples I have selected from the class of manufacture might easily be paralleled in the agricultural and commercial branches. A much larger value is consumed in lettuces than in pine-apples, throughout Europe at large; and the superb shawls of Cachemere are, in France, a very poor object in trade, in comparison with the plain cotton goods of Rouen.

Wherefore, it is a bad speculation for a nation to aim at the export of objects of luxury, and the import of objects of general utility. France supplies Germany with fashions and finery, which very few persons can make use of; and Germany makes the return in tapes and other merceries, in files, scythes, shovels, tongs, and other hardware of common use. But for the wines and oils of France, the annual product of a soil highly favoured by nature, together with a few products of superior execution, France would derive less advantage from Germany than Germany from France. The same may be said of the French trade with the north of Europe.37

BOOK II, CHAPTER VII

OF THE REVENUE OF INDUSTRY

SECTION I.

Of the Profits of Industry in general.

The general motives, which stimulate the demand of products, have been above investigated.38 When the demand for any product whatever, is very lively, the productive agency, through whose means alone it is obtainable, is likewise in brisk demand, which necessarily raises its ratio of value: this is true generally, of every kind of productive agency. Industry, capital, and land, all yield, ceteris paribus, the largest profits, when the general demand for products is most active, affluence most expanded, profits most widely diffused; and production most vigorous and prolific.

In the preceding chapter, we have seen that the demand for some products is always more steady and active than for others. Whence, we have inferred, that the agency directed to those particular products, receives the most ample remuneration.

Descending in our progress more and more into particular detail, we shall examine in this, and some following chapters, in what cases the profits of industry bear a greater or a less proportion to those of capital and of land, and vice versâ; together with the reasons why certain ways of employing industry, capital, or land, are more profitable than others.

To begin, then, with the comparison of the relative profits of industry, to those of capital and land, we shall find these bear the highest ratio, where abundance of capital creates a demand for a great mass of industrious agency; as it did in Holland before the revolution. Industrious agency was very dearly paid there; as it still is in countries like the United States of America, where population, and consequently, the human agents of production, spite of their rapid increase, bear no proportion to the demands of an unlimited extent of land, and of the daily accumulation of capital by the prevalence of frugal habits.

In countries thus circumstanced, the condition of man is generally the most comfortable; because those, who live in idleness upon the profits of their capital and land, are better able to live on moderate profits, than those who live upon the profits of their own industry only; the former, besides the resource of living on their capital, can, when they please, add the profits of industry to their other revenue; but the mere mechanic or labourer can not add at pleasure to the profits of his industry those of capital and land, of which he possesses none.

Proceeding next to compare the profits of different branches of industrious agency one with another, we shall find them greater or less in proportion, 1st, To the degree of danger, trouble, or fatigue, attending them, or to their being more or less agreeable; 2dly, To the regularity or irregularity of the occupation; 3dly, To the degree of skill or talent that may be requisite.

Every one of these causes tends to diminish the quantity of labour in circulation in each department, and consequently to vary its natural rate of profit. It is scarcely necessary to cite examples in support of propositions so very evident.

Among the agreeable or disagreeable circumstances attending an occupation, must be reckoned the consideration or contempt which it entails. Some professions are partly paid in honour. Of any given price, the more is paid in this coin, the less may be paid in any other, without deducing the ratio of price. Smith remarks, that the scholar, the poet, and the philosopher, are almost wholly paid in personal consideration.—Whether with reason or from prejudice, this is not entirely the case with the professions of a comic actor, a dancer, and innumerable others; they must, therefore, be paid in money what they are denied in estimation. "It seems absurd at first sight," says Smith, "that we should despise their persons, and yet reward their talents with the most profuse liberality. Whilst we do the one, however, we must of necessity do the other. Should the public opinion or prejudice ever alter with regard to such occupations, their pecuniary recompense would quickly diminish; More people would apply to them, and the competition would quickly reduce the price of their labour. Such talents, though far from being common, are by no means so rare as is imagined. Many people possess them in great perfection, who disdain to make this use of them; and many more are capable of acquiring them, if any thing could be honourably made by them."39

In some countries, the functions of national administration are requited at the same time with high honour and large emolument; but it is only so, where, instead of being open to free competition, like other occupations and professions, they are in the disposal of royal favour. A nation, awake to its true interest, is careful not to lavish this double recompense upon official mediocrity; but to husband its pecuniary bounty, where it is prodigal of distinction and authority.

Every temporary occupation is dearly paid; for the labourer must be indemnified as well for the time he is employed, as for that during which he is waiting for employment. A job coachmaster must charge more for the days he is employed, than may appear sufficient for his trouble and capital embarked, because the busy days must pay for the idle ones; any thing else would be ruin to him. The hire of masquerade dresses is expensive for the same reason; the receipts of the carnival must pay for the whole year. Upon a cross road, an innkeeper must charge high for indifferent entertainment; for he may be some days before the arrival of another traveller.

However, the proneness of mankind to expect, that, if there be a single lucky chance, it will be sure to fall to their peculiar lot, attracts towards particular channels a portion of industry disproportionate to the profit they hold out. 'In a perfectly fair lottery,' says the author of the Wealth of Nations, 'those who draw prizes ought to gain all that is lost by those who draw blanks. In a profession, where twenty fail for one that succeeds, that one ought to gain all that should have been gained by the unsuccessful twenty.'40 Now many occupations are far from being paid according to this rate. The same author states his belief, that, how extravagant soever the fees of counsellors at law of celebrity may appear, the annual gains of all the counsellors of a large town bear but a very small proportion to their annual expense; so that this profession, must, in great part, derive its subsistence from some other independent source of revenue.

It is hardly necessary to state, that these several causes of difference in the ratio of profit may act all in the same, or each in an opposite direction; or that, in the former case, the effect is more intense; whereas, in the latter, the opposite action of one controls and neutralizes the other. It would be a waste of time to prove, that the agreeable circumstances of a profession may balance the uncertainty of its product: or that a business that does not furnish constant occupation, and is moreover attended with danger, must be indemnified by a double increase of salary.

The last, and perhaps the principal cause of inequality in the profits of industry in general is, the degree of skill it may require.

When the skill requisite to any calling, whether of a superior or subordinate character, is attainable only by long and expensive training, that training must every year have involved a certain expense, and the total outlay forms an accumulated capital. In such case, its remuneration includes, over and above the wages of labour, an interest upon the capital advanced in the training, and an interest higher than the ordinary rate; for the capital advanced has been actually sunk, and exists no longer than the life of the individual. It should, therefore, be calculated as an annuity.41

It is for this reason, that all employments of time and talents, which require a liberal education, are better paid than those, which require less education. Education is capital which ought to yield interest, independent of the ordinary profits of industry.

There are facts, it is true, that militate against this principle; but they are capable of explanation. The priesthood is sometimes very ill paid;42 yet a religion, founded upon very complicated doctrines, and obscure historical facts, requires in its ministers a long course of study and probation, and such study and probation necessarily call for an advance of capital; it would seem requisite, therefore, for the continued existence of the clerical profession, that the salary of the minister should pay the interest on the capital expended, as well as the wages of his personal trouble, which the profits of the inferior clergy rarely exceed, particularly in Catholic countries. It must, however, be ascertained, whether the public have not themselves advanced this capital in the maintenance and education of clerical students at the public charge; in which case, the public advancing the capital, may find people enough to execute the duties for the mere wages of their labour, or a bare subsistence, especially where there is no family to be provided for.

When, besides expensive training, peculiar natural talent is required for a particular branch of industry, the supply is still more limited in proportion to the demand, and must consequently be better paid. A great nation will probably contain but two or three artists capable of painting a superior picture, or modelling a beautiful statue; if such objects, then, be much in demand, those few can charge almost what they please; and, though much of the profit is but the return with interest of capital advanced in the acquisition of their art, yet the profit it brings leaves a very large surplus.43 A celebrated painter, advocate, or physician, will have spent, of his own or relations' money, six or eight thousand dollars at most, in acquiring the ability from which his gains are derived; the interest of this sum calculated as an annuity, is but 800 dollars; so that, if he make 6000 dollars by his art, there remains an annual sum of 3000 dollars, which is wholly the salary of his skill and industry. If every thing affording revenue is to be set down as property, his fortune at ten years' purchase may be reckoned 50,000 dollars, even supposing him not to have inherited a sol.

SECTION II.

Of the Profits of the Man of Science.

The philosopher, the man who makes it his study to direct the laws of nature to the greatest possible benefit of mankind, receives a very small proportion of the products of that industry, which derives such prodigious advantage from the knowledge, whereof he is at the same time the depository and the promoter. The cause of his disproportionate payment seems to be, that, to speak technically, he throws into circulation, in a moment, an immense stock of his product, which is one that suffers very little by wear; so that it is long before operative industry is obliged to resort to him for a fresh supply.

The scientific acquirements, without which abundance of manufacturing processes could never have been executed, are probably the result of long study, intense reflection, and a course of experiments equally ingenious and delicate, that are the joint occupation of the highest degree of chemical, medical, and mathematical skill. But the knowledge, acquired with so much difficulty, is probably transmissible in a few pages; and, through the channel of public lectures, or of the press, is circulated in much greater abundance, than is required for consumption; or, rather, it spreads of itself, and, being imperishable, there is never any necessity to recur to those, from whom it originally emanated.

Thus, according to the natural laws, whereby the price of things is determined, this superior class of knowledge will be very ill paid; that is to say, it will receive a very inadequate portion of the value of the product, to which it has contributed. It is from a sense of this injustice, that every nation, sufficiently enlightened to conceive the immense benefit of scientific pursuits, has endeavoured, by special favours and flattering distinctions, to indemnify the man of science, for the very trifling profit derivable from his professional occupations, and from the exertion of his natural or acquired faculties.

Sometimes a manufacturer discovers a process, calculated either to introduce a new product, to increase the beauty of an old one, or to produce with greater economy; and, by observance of strict secrecy, may make for many years, for his whole life perhaps, or even bequeath to his children, profits exceeding the ordinary ratio of his calling. In this particular case the manufacturer combines two different operations of industry: that of the man of science, whose profit he engrosses himself, and that of the adventurer too. But few such discoveries can long remain secret; which is a fortunate circumstance for the public, because this secrecy keeps the price of the particular product it applies to above, and the number of consumers enabled to enjoy it below, the natural level.44

It is obvious, that I am speaking only of the revenue a man of science derives from his calling. There is nothing to prevent his being at the same time a landed proprietor, capitalist or adventurer and possessed of other revenue in these different capacities.

SECTION III.

Of the Profits of the Master-agent, or Adventurer, in Industry.

We shall, in this section, consider only that portion of the profits of the master-agent, or adventurer, which may be considered as the recompense of that peculiar character. If a master-manufacturer have a share in the capital embarked in his concern, he must be ranked pro tanto in the class of capitalists, and the benefits thence derived be set down as part of the profits of the capital so embarked.45

It very seldom happens, that the party engaged in the management of any undertaking, is not at the same time in the receipt of interest upon some capital of his own. The manager of a concern rarely borrows from strangers the whole of the capital employed. If he have but purchased some of the implements with his own capital, or made advances from his own funds, he will then be entitled to one portion of his revenue in quality of manager, and another in that of capitalist. Mankind are so little inclined to sacrifice any particle of their self-interest, that even those, who have never analyzed these respective rights, know well enough how to enforce them to their full extent in practice.

Our present concern is, to distinguish the portion of revenue, which the adventurer receives as adventurer. We shall see by and-by, what he, or somebody else, derives in the character of capitalist.

It may be remembered, that the occupation of adventurer is comprised in the second class of operations specified as necessary for the setting in motion of every class of industry whatever; that is to say, the application of acquired knowledge to the creation of a product for human consumption.46 It will likewise be recollected, that such application is equally necessary in agricultural, manufacturing, and commercial industry; that the labour of the farmer or cultivator on his own account, of the master-manufacturer and of the merchant, all come under this description; they are the adventurers in each department of industry respectively. The nature of the profits of these three classes of men, is what we are now about to consider.

The price of their labour is regulated, like that of all other objects, by the ratio of the supply, or quantity of that labour thrown into circulation, to the demand or desire for it. There are two principal causes operating to limit the supply, which, consequently, maintain at a high rate the price of this superior kind of labour.

It is commonly requisite for the adventurer himself to provide the necessary funds. Not that he must be already rich; for he may work upon borrowed capital; but he must at least be solvent, and have the reputation of intelligence, prudence, probity, and regularity; and must be able, by the nature of his connexions, to procure the loan of capital he may happen himself not to possess. These requisites shut out a great many competitors.

In the second place, this kind of labour requires a combination of moral qualities, that are not often found together. Judgment, perseverance, and a knowledge of the world, as well as of business. He is called upon to estimate, with tolerable accuracy, the importance of the specific product, the probable amount of the demand, and the means of its production: at one time he must employ a great number of hands; at another, buy or order the raw material, collect labourers, find consumers, and give at all times a rigid attention to order and economy; in a word, he must possess the art of superintendence and administration. He must have a ready knack of calculation, to compare the charges of production with the probable value of the product when completed and brought to market. In the course of such complex operations, there are abundance of obstacles to be surmounted, of anxieties to be repressed, of misfortunes to be repaired, and of expedients to be devised. Those who are not possessed of a combination of these necessary qualities, are unsuccessful in their undertakings; their concerns soon fall to the ground, and their labour is quickly withdrawn from the stock in circulation; leaving such only, as is successfully, that is to say, skillfully directed. Thus, the requisite capacity and talent limit the number of competitors for the business of adventurers. Nor is this all: there is always a degree of risk attending such undertakings; however well they may be conducted, there is a chance of failure; the adventurer may, without any fault of his own, sink his fortune, and in some measure his character; which is another check to the number of competitors, that also tends to make their agency so much the dearer.

All branches of industry do not require an equal degree of capacity and knowledge. A farmer who adventures in tillage, is not expected to have such extensive knowledge as a merchant, who adventures in trade with distant countries. The farmer may do well enough with a knowledge of the ordinary routine of two or three kinds of cultivation. But the science necessary for conducting a commerce with long returns is of a much higher order. It is necessary to be well versed, not only in the nature and quality of the merchandise in which the adventure is made, but likewise to have some notion of the extent of demand, and of the markets whither it is consigned for sale. For this purpose, the trader must be constantly informed of the price-current of every commodity in different parts of the world. To form a correct estimate of these prices, he must be acquainted with the different national currencies, and their relative value, or, as it is termed, the rate of exchange. He must know the means of transport, its risk and expense, the custom and laws of the people he corresponds with; in addition to all which, he must possess sufficient knowledge of mankind to preserve him from the dangers of misplaced confidence in his agents, correspondents, and connexions. If the science requisite to make a good farmer is more common than that which can make a good merchant, it is not surprising, that the labour of the former is but poorly paid, in comparison with that of the latter.

It is not meant by this to be understood, that commercial industry in every branch, requires a combination of rarer qualifications than agricultural. The retail dealers for the most part pursue the routine of their business quite as mechanically as the generality of farmers, and, in some kinds of cultivation, very uncommon care and sagacity are requisite. It is for the reader to make the application: the business of the teacher is, firmly to establish general principles; whence it will be easy to draw a multitude of inferences, varied and modified by circumstances, which are themselves the consequences of other principles laid down in other parts of the subject. Thus, in astronomy, when we are told, that all the planets describe equal areas in the same space of time, there is an implied reservation of such derangements, as arise from the proximity of other planets, whose attractive powers depend on another law of natural philosophy; and this must be attended to in the examination of the phenomena of each in particular. It is for him, who would apply general laws to particular and isolated cases, to make allowance for the influence of each of those laws or principles, whose existence is already recognised.

In reviewing presently the profit of mere manual labour, we shall see the peculiar advantage, which his character of master gives to the adventurer over the labourer; but it may be useful to observe by the way the other advantages within reach of an intelligent superior. He is the link of communication, as well between the various classes of producers, one with another, as between the producer and the consumer. He directs the business of production, and is the centre of many bearings and relations; he profits by the knowledge and by the ignorance of other people, and by every accidental advantage of production.

Thus, it is this class of producers, which accumulates the largest fortunes, whenever productive exertion is crowned by unusual success.

SECTION IV.

Of the Profits of the Operative Labourer.47

Simple, or rude labour may be executed by any man possessed of life and health; wherefore, bare existence is all that is requisite to insure a supply of this description of industry. Consequently, its wages seldom rise in any country much above what is absolutely necessary to subsistence; and the quantum of supply always remains on a level with the demand; nay, often goes beyond it; for the difficulty lies not in acquiring existence, but in supporting it. Whenever the mere circumstance of existence is sufficient for the execution of any kind of work, and that work affords the means of supporting existence, the vacuum is speedily filled up.

There is, however, one thing to be observed. Man does not come into the world with the size and strength sufficient to perform labour even of the rudest kind. He acquires this capability not till the age of fifteen or twenty, more or less, and may be regarded as an item of capital, formed of the growing annual accumulation of the sums spent in rearing him.48 By whom, then, is this accumulation effected? In general by the parents of the labourer, by persons of his own calling, or of one akin to it. In this class of life, therefore, the wages are somewhat more than is necessary for bare personal existence; they must be sufficient to maintain the children of the labourer also.

If the wages of the lowest class of labour were insufficient to maintain a family, and bring up children, its supply would never be kept up to the complement; the demand would exceed the supply in circulation; and its wages would increase, until that class were again enabled to bring up children enough to supply the deficiency.

This would happen, if marriage were discouraged amongst the labouring class. A man without wife or children may afford his labour at a much cheaper rate, than one who is a husband and a father. If celibacy were to gain ground amongst the labouring class, that class would not only contribute nothing to recruit its own members, but would prevent others from supplying the deficiency. A temporary fall in the price of manual labour, arising from the cheaper rate, at which single men can afford to work, would soon be followed by a disproportionate rise; because the number of workmen would fall off. Thus, even were it not more to the interest of masters to employ married men, on account of their steadiness, they should do so, though at a greater charge, to avoid the higher price of labour, that must eventually recoil on them.

Every particular line or profession does not, indeed, recruit its own numbers with children nursed among its own members. The new generation is transferred from one class of life to another, and particularly from rural occupations to occupations of a similar cast in the towns; for this reason, that children are cheaper trained in the country: all I mean to say is, that the rudest and lowest class of labour necessarily derives from its product a portion sufficient, not merely for its present maintenance, but likewise for the recruiting of its numerical strength.49

When a country is on the decline, and contains less of the means of production and less of knowledge, activity, and capital, the demand for raw or simple labour diminishes by degrees; wages fall, gradually below the rate necessary for recruiting the labouring class its numbers consequently decrease, and the offspring of the other classes, whose employment diminishes in the same proportion, is degraded to the step immediately below. On the contrary, when prosperity is advancing, the inferior classes not only fill up their own complement with ease, but furnish a surplus and addition to the classes immediately above them: and some, by great good fortune or brilliancy of talent, arrive at a still loftier eminence, and reach even the highest stations in society.

The labour of persons not entirely dependent for subsistence on the fruits of labour can be afforded cheaper, than that of such as are labourers by occupation. Being fed from other sources, their wages are not settled by the price of subsistence. The female spinners in country villages probably do not earn the half of their necessary expenses, small as they are: one is perhaps the mother, another the daughter, sister, aunt, or mother-in-law of a labourer, who would probably support her, if she earned nothing for herself. Were she dependent for subsistence on her own earnings only, she must evidently double her prices, or die of want; in other words, her industry must be paid doubly, or would cease to exist.

The same may be said of most kinds of work performed by females. They are in general but poorly paid, because a large proportion of them are supported by other resources than those of their own industry, and can, therefore, supply the work they are capable of at a cheaper rate, than even the bare satisfaction of their wants. The work of the monastic order is similarly circumstanced. It is fortunate for the actual labourers in those countries where monarchism abounds, that it manufactures little else but trumpery; for, if its industry were applied to works of current utility, the necessitous labourers in the same department, having families to support, would be unable to work at so low a rate, and must absolutely perish by want and starvation. The wages of manufacturing, are often higher than those of agricultural labour; but they are liable to the most calamitous oscillation. War or legislative prohibition will sometimes suddenly extinguish the demand for a particular product, and reduce the industry employed upon it to a state of utter destitution. The mere caprice of fashion is often fatal to whole classes. The substitution of shoe ribands for buckles was a severe temporary blow to the population of Sheffield and Birmingham.50

The smallest variations in the price of rude or simple labour have ever been justly considered as serious calamities. In classes of somewhat superior wealth and talents, which are, in fact, a species of personal wealth, a diminution in the rate of profits entails only a reduction of expense, or, at most, but trenches, in some measure, upon the capital those classes generally have at their disposal. But to those, whose whole income is a bare subsistence, a fall of wages is an absolute death-warrant, if not to the labourer himself, to part of his family at least.

Wherefore, all governments, pretending to the smallest paternal solicitude for their subjects' welfare, have evinced a readiness to aid the indigent class, whenever any unexpected event has accidentally reduced the wages of common labour below the level of the labourer's subsistence. Yet the benevolent intentions of the government have too often failed in their efficacy, for want of judgment in the choice of a remedy. To render it effective, it is necessary first to explore the cause of depression in the price of labour. If that depression be of a permanent nature, pecuniary and temporary aid is of no possible avail, and merely defers the pressure of the mischief. Of this nature are the discovery of new processes, the introduction of new articles of import, or the emigration of a considerable number of consumers.51 In such emergencies, a remedy must be sought in the discovery of some new and permanent occupation for the hands thrown out of employ, in the encouragement of new channels of industry, in the setting on foot of distant enterprises, the planting of colonies, &c.

If the depression be not of a permanent nature, if it be the mere result of good or bad crops, the temporary assistance should be limited to the unfortunate sufferers by the oscillation.

Governments or individuals, who attempt indiscriminate beneficence, will have the frequent mortification of finding their bounty unavailing. This may be more convincingly demonstrated by example than by argument.

Suppose in a vine district the quantity of casks to be so abundant, as to make it impossible to use them all. A war, or a statute levelled against the production of wine, may, perhaps, have caused many proprietors of vineyards to adopt a different cultivation of their lands; this is a permanent cause of surplus cooperage in the market. In ignorance of this cause, a general effort is made to assist the labouring coopers, either by purchasing their casks without wanting them, or by making up, in the shape of alms, the loss they have sustained in the diminution of their profits. Useless purchases, or eleemosynary aid, however, can not last forever; and, the moment they cease, the poor coopers will find themselves precisely in the same distressful situation, from which it was attempted to extricate them. All the sacrifices and expense will have been incurred with no advantage, other than that of a little delay in the date of their hopeless sufferings and privations.

Suppose on the contrary, the cause of the superabundance of casks to be but temporary; to be nothing more than the failure of the annual crop. If, instead of affording temporary relief to the working coopers, they be encouraged to remove to other districts, or to enter upon some other branch of industry, it will follow, that the next year, when wine may be abundant, there will be a scarcity of casks to receive it; the price will become exorbitant, and be settled at the suggestion of avarice and speculation; which being unable themselves to manufacture casks, after the means of producing them have been thus destroyed, part of the wine will probably be spoiled for want of casks to hold it. It will require a second shock and derangement of the rate of wages, before the manufacture of the article can be brought again to a level with the demand.

Whence it is evident, that the remedy must be adapted to the particular cause of the mischief; consequently, the cause must be ascertained, before the remedy is devised.

Necessary subsistence, then, may be taken to be the standard of the wages of common raw labour; but this standard is itself extremely fluctuating; for habit has great influence upon the extent of human wants. It is by no means certain, that the labourers of some cantons of France could exist under a total privation of wine. In London, beer is considered indispensable; that beverage is there so much an article of necessity, that beggars ask for money to buy a pot of beer, as commonly as in France for the purchase of a morsel of bread; and this latter object of solicitation, which appears to us so very natural, may seem impertinent to foreigners just arrived from a country, where the poor subsist on potatoes, manioc, or other still coarser diet.

What is necessary subsistence, depends, therefore, partly on the habits of the nation, to which the labourer may happen to belong. In proportion as the value he consumes is small, his ordinary wages may be low, and the product of his labour cheap. If his condition be improved, and his wages raised, either his product becomes dearer to the consumer, or the share of his fellow producers is diminished.

The disadvantages of their position are an effectual barrier against any great extension of the consumption of the labouring classes. Humanity, indeed, would rejoice to see them and their families dressed in clothing suitable to the climate and season; houses in roomy, warm, airy, and healthy habitations, and fed with wholesome and plentiful diet, with perhaps occasional delicacy and variety; but there are very few countries, where wants, apparently so moderate, are not considered far beyond the limits of strict necessity, and therefore not to be gratified by the customary wages of the mere labouring class.

The limit of strict necessity varies, not only according to the more or less comfortable condition of the labourer, and his family, but likewise according to the several items of expense reputed unavoidable in the country he inhabits. Among these is the one we have just adverted to; namely, the rearing of children; there are others less urgent and imperative in their nature, though equally enforced by feeling and natural sentiments; such as the care of the aged, to which unhappily the labouring class are far too inattentive. Nature could entrust the perpetuation of the human species to no impulse less strong, than the vehemence of appetite and desire, and the anxiety of paternal love; but has abandoned the aged, whom she no longer wants, to the slow workings of filial gratitude, or, what is even less to be depended upon, to the providence of their younger years. Did the habitual practice of society imperatively subject every family to the obligation of laying by some provision for age, as it commonly does for infancy, our ideas of necessity would be somewhat enlarged, and the minimum of wages somewhat raised.

It must appear shocking to the eye of philanthropy, that such is not always the case. It is lamentable to think of the little providence of the labouring classes against the season of casual misfortune, infirmity, and sickness, as well as against the certain helplessness of old age. Such considerations afford most powerful reasons for forwarding and encouraging provident associations of the labouring class, for the daily deposit of a trifling saving, as a fund in reserve for that period, when age, or unexpected calamity, shall cut off the resource of their industry.52 But such institutions can not be expected to succeed, unless the labourer be taught to consider these means of precaution as a matter of duty and necessity, and hold to the obligation to carry his savings to such places of deposit, as equally indispensable with the payment of his rent or taxes: this new duty would doubtless tend in a slight degree to raise the scale of wages, so as to allow of such frugality, but for that very reason it is desirable. How can such establishments thrive in countries where habit and the interested views of the government conspire to make the labourer spend in the public-house not only what he might lay by, but frequently the very subsistence of his family, in which all his comforts and pleasures should be centred. The vain and costly amusements of the rich are not always justifiable in the eye of reason; but how much more disastrous is the senseless dissipation of the poor! The mirth of the indigent is invariably seasoned with tears; and the orgies of the populace are days of mourning to the philosopher.

Besides the reasons advanced in this and the preceding sections, to explain why the wages of the adventurer, even if he derive no profit as a capitalist, are generally higher than those of the mere labourer, there are others, not so solid or well founded indeed, but such as nevertheless must not be overlooked.

The wages of the labourer are a matter of adjustment and compact between the conflicting interests of master and workman; the latter endeavouring to get as much, the former to give as little, as he possibly can; but in a contest of this kind, there is on the side of the master an advantage, over and above what is given him by the nature of his occupation. The master and the workman are no doubt equally necessary to each other; for one gains nothing but with the other's assistance; the wants of the master are, however, of the two, less urgent and less immediate. There are few masters but what could exist several months or even years, without employing a single labourer; and few labourers that can remain out of work for many weeks, without being reduced to the extremity of distress. And this circumstance must have its weight in striking the bargain for wages between them.

Sismondi, in a late work53 published since the appearance of my third edition, has suggested some legislative provisions, for the avowed purpose of bettering the condition of the labouring classes. He sets out with the position, that the low rate of their wages accrues to the benefit of the adventurers and masters who employ them; and thence infers, that in the moment of calamity, their claim for relief is upon the masters, and not upon society at large. Wherefore, he proposes to make it obligatory upon the proprietors and farmers of land at all times to feed the agricultural, and upon the manufacturers to provide subsistence for the manufacturing labourer. On the other hand, to prevent the probable excess of population, consequent upon the certain prospect of subsistence to themselves and their families, he would give to their respective masters the right of preventing or permitting marriage amongst their people.

This scheme, however entitled to favourable consideration by the motive of humanity in which it originated, seems to me altogether impracticable. It would be a gross violation of the right of property, to saddle one class of society with the compulsory maintenance of another; and it would be a violation still more gross, to give one set of men a personal control over another; for the freedom of personal action is the most sacred of all the objects of property. The arbitrary prohibition of marriage to one class is a premium to the procreation of all the rest. Besides, there is no truth in the position, that the low rate of wages redounds exclusively to the profit of the master. Their reduction, followed up by the constant action of competition, is sure to bring about a fall of the price of products; so that it is the class of consumers, in other words, the whole community, that derives the profit. And if it be so great as to throw the subsistence of the labourers upon the public at large, the public is in a great measure indemnified by the reduced prices of the objects of its consumption.

There are some evils incident to the imperfection of the human species, and to the constitution of nature; and of this description is the excess of population above the means of subsistence. On the whole, this evil is quite as severely felt in a horde of savages, as in a civilized community. It would be unjust to suppose it a creature of social institutions, and a mere fallacy to hold out the prospect of a complete remedy; and, however it may merit the thanks of mankind to study the means of palliation, we must be cautious not to give a ready ear to expedients that can have no good effect, and must prove worse than the disease itself. A government ought doubtless to protect the interests of the labouring classes, as far as it can do so without deranging the course of human affairs, or cramping the freedom of individual dealings; for those classes are less advantageously placed than the masters, in the common course of things; but a wise ruler will studiously avoid all interference between individuals, lest it superadd the evils of administration to those of natural position. Thus, he will equally protect the master and the labourer from the effects of combination. The masters have the advantage of smaller numbers and easier communication; whereas, the labourers can scarcely combine, without assuming the air of revolt and disaffection, which the police is ever on the watch to repress. Nay, the partisans of the exporting system have gone so far as to consider the combinations of the journeymen as injurious to national prosperity, because they tend to raise the price of the commodities destined for export, and thereby to injure their preference in the foreign market, which they look upon as so desirable. But what must be the character of that policy, which aims at national prosperity through the impoverishment of a large proportion of the home producers, with a view to supply foreigners at a cheaper rate, and give them all the benefit of the national privation and self-denial?

One sometimes meets with masters, who, in their anxiety to justify their avaricious practices by argument, assert roundly, that the labourer would perform less work, if better paid, and that he must be stimulated by the impulse of want. Smith, a writer of no small experience and singular penetration, is of a very different opinion. Let us take his own words. "The liberal reward of labour, as it encourages the propagation, so it increases the industry of the common people. The wages of labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encouragement it receives. A plentiful subsistence increases the bodily strength of the labourer, and the comfortable hope of bettering his condition, and of ending his days perhaps in ease and plenty, animates him to exert that strength to the utmost. Where wages are high, accordingly, we shall always find the workmen more active, diligent, and expeditious, than where they are low; in England, for example, than Scotland; in the neighbourhood of great towns, than in remote country places. Some workmen, indeed, when they can earn in four days what will maintain them through the week, will be idle the other three. This, however, is by no means the case with the greater part. Workmen, on the contrary, when they are liberally paid by the piece, are very apt to overwork themselves, and to ruin their health and constitution in a few years."54

SECTION V.

Of the Independence accruing to the Moderns from the Advancement of Industry.

The maxims of political economy are immutable; ere yet observed or discovered, they were operating in the way above described; the same cause regularly producing the same effect; the wealth of Tyre and of Amsterdam originated in a common source. It is society that has been subject to change, in the progressive advancement of industry.

The ancients were not nearly so far behind the moderns in agriculture, as in the mechanical arts. Wherefore, since agricultural products are alone55 essential to the multiplication of mankind, the unoccupied surplus of human labour was larger than in modern days. Those, who happened to have little or no land, unable to subsist upon the product of their own industry, unprovided with capital, and too proud to engage in those subordinate employments, which were commonly filled by slaves, had no resource but to borrow, without a prospect of the ability to repay, and were continually demanding that equal division of property, which was utterly impracticable. With a view to stifle their discontents, the leading men of the state were obliged to engage them in warlike enterprises, and, in the intervals of peace, to subsist them on the spoils of the enemy, or on their own private means. This was the grand source of the civil disorder and discord, which continually distracted the states of antiquity; of the frequency of their wars, of the corruption of their suffrages, and of the connexion of patron and client, which backed the ambition of a Marius and a Sylla, a Pompey and a Cæsar, an Antony and an Octavius, and which finally reduced the whole Roman people to the condition of servile attendants upon the court of a Caligula, a Heliogabalus, or some monster of equal enormity, whose grand condition of empire was the subsistence of the objects of his atrocious tyranny.

The industrious cities of Tyre, Corinth, and Carthage, were somewhat differently circumstanced; but they could not permanently resist the hostility of poorer and more warlike nations, impelled by the prospect of plunder. Industry and civilization were the continual prey of barbarism and penury; and Rome herself at length yielded to the attack of Gothic and Vandalic conquerors.

Thus re-plunged into a state of barbarism, the condition of Europe, during the middle ages, was but a revival of the earliest scenes of Grecian and Italian history, in an aggravated form. Each baron or great landholder, was surrounded by a circle of vassals or clients on his domain, ready to follow him in civil broils or foreign warfare.

I should trench upon the province of the historian, were I to attempt the delineation of the various causes that have aided the progress of industry since that period; but I may be allowed merely to note, by the way, the great change that has been effected, and the consequence of that change. Industry has become a means of subsistence to the bulk of the population, independent of the caprice of the large proprietors, and without being to them a constant source of alarm: it is nursed and supported by the capital accumulated by its own exertions. The relation of client and vassal has ceased to exist; and the poorest individual is his own master, and dependent upon his personal faculties alone. Nations can support themselves upon their internal resources; and governments derive from their subjects those supplies, which they were wont to dispense as a matter of favour.

The increasing prosperity of manufacture and commerce has raised them in the scale of estimation. The object of war is changed, from the spoliation and destruction of the sources of wealth, to their quiet and exclusive possession. For the last two centuries, where war has not been made to gratify the childish vanity of a nation or a monarch, the bone of contention has always been, either colonial sovereignty, or commercial monopoly. Instead of a contest of hungry barbarians against their wealthy and industrious neighbours, it has been one between civilized nations on either side; wherein the victor has shown the greatest anxiety to preserve the resources of the conquered territory. The invasion of Greece by the Turks, in the fifteenth century, appears to have been the final effort of pure barbarism arrayed against civilization. The present preponderance of industry and civilized habits amongst the general mass of mankind seems to exclude all probability of a recurrence of such calamitous events. Indeed, the improvement of military science takes away all fear of the result of such a conflict.

There is yet one step more to be made; and that can only be rendered practicable by the wider diffusion of the principles of political economy. They will some day have taught mankind that the sacrifice of their lives, in a contest for the acquisition or retention of colonial dominion or commercial monopoly, is a vain pursuit of a costly and delusive good; that external products, even those of the colonial dependencies of a nation, are only procurable with the products of domestic growth: that internal production is, therefore, the proper object of solicitude, and is best to be promoted by political tranquility, moderate and equal laws, and facility of intercourse. The fate of nations will thenceforth hang no longer upon the precarious tenure of political pre-eminence, but upon the relative degree of information and intelligence. Public functionaries will grow more and more dependent upon the productive classes, to whom they must look for supplies; the people, retaining the right of taxation in their own hands, will always be well governed; and the struggles of power against the current of improvement will end in its own subversion; for it will vainly strive against the dispensations of nature.

BOOK II, CHAPTER VIII

OF THE REVENUE OF CAPITAL.

The service, rendered by capital, in productive operations, establishes a demand for capital to be so employed, and enables the proprietors of it to charge more or less for that service.

Whether the capitalist thus employ his capital himself, or lend it to another for that purpose, it yields a profit, that is called the profit of capital, distinct from that of the industry employing it. In the former case, the profit obtained constitutes the revenue of his capital, which is added to that of his personal talent and industry, and often confounded with it.—In the latter, the revenue of capital is precisely the interest paid for its use, the proprietor abandoning to the borrower the profit derivable from his personal employment of the capital lent.

As the investigation of the interest of capital lent will help to throw light on the subject of the profit derivable from its personal employment, it may be as well, in the first instance, to acquire a just idea of the nature and variation of interest.

SECTION I.

Of Loans at Interest.

The interest of capital lent, improperly called the interest of money, was formerly denominated usury, that is to say, rent for its use and enjoyment; which, indeed, was the correct term; for interest is nothing more than the price, or rent, paid for the enjoyment of an object of value. But the word has acquired an odious meaning, and now presents to the mind the idea of illegal, exorbitant interest only, a milder but less expressive term having been substituted by common usage.

Before the functions and utility of capital were known, it is probable, that the demand of rent for it by lenders was considered an abuse and oppression,—an expedient to favour the rich and prejudice the poor; nay, further, that frugality, the sole means of amassing capital, was regarded as parsimony, and deemed a public mischief by the populace, in whose eyes, the sums not spent by great proprietors were looked upon as lost to themselves. They could not comprehend, that money, laid by to be turned to account in some beneficial employment, must be equally spent; for, if it were buried it could never be turned to account at all; that it is, in fact, spent in a manner a thousand times more profitable to the poor;56 and that a labouring man is never sure of earning a subsistence, except where there is a capital in reserve for him to work upon. This prejudice against rich individuals, who do not spend their whole income, still exists pretty generally; formerly it was universal; lenders themselves were not altogether free from it, but were so much ashamed of the part they were acting, as to employ the most disreputable agents in the collection of profits perfectly just, and highly advantageous to society.

It is, therefore, not surprising that the ecclesiastical, and at several periods, the civil codes, likewise, should have interdicted loans at interest; and that, during the whole of the middle ages, throughout the larger states of Europe, this traffic should have been reputed infamous, and abandoned to the Jews.—The little manufacturing or commercial industry of those days was kept alive by the scanty capital of the dealers and mechanics themselves: and agricultural industry, which was pursued with somewhat better success, was supported by the advances of the lords and great proprietors, who employed their serfs or retainers on their own account. Loans were contracted for, not with a view of profitably employing the money, but merely to satisfy some urgent want, so that the exactor of interest was profiting by a neighbour's distress; and it may easily be conceived, that a religion, founded on the principle of fraternal love, as the Christian religion is, must disapprove a calculating spirit, that even now is a stranger to generous bosoms, and repugnant to the common maxims of morality.—Montesquieu57 attributes the decline of commerce to this proscription of loans at interest; which was undoubtedly one cause, although, indeed, it was one amongst many.

The progressive advance of industry has taught us to view the loan of capital in a different light. In ordinary cases, it is no longer a resource in the hour of emergency, but an agent, an instrument, which may be turned to the great benefit, as well of society, as of the individual. Henceforward, it will be reckoned no more avaricious or immoral to take interest, than to receive rent for land, or wages for labour; it is an equitable compensation adjusted by mutual convenience; and the contract, fixing the terms between borrower and lender, is of precisely the same nature, as any other contract whatsoever.

In ordinary cases of exchange, however, the transaction is ended as soon as the exchange is completed; whereas, in the case of a loan, there remains to be calculated the risk the lender incurs of never recovering the whole, or at least a part, of his capital. The risk is practically estimated, and indemnified by some addition of interest, in the nature of a premium of insurance. Whenever there happens to be a question about the interest of advances, a careful distinction should be made between these, its two component parts; otherwise, there is always danger of error; and individuals, or even the agents of public authority, will be apt to involve themselves in useless and disastrous operations.

Thus, the practice of usury has been uniformly revived, whenever it has been attempted to limit the rate of interest, or abolish it altogether. The severer the penalties, and the more rigid their exaction, the higher the interest of money was sure to rise; and this is what might naturally have been expected; for the greater the risk, the greater premium of insurance did it require to tempt the lender. At Rome, while the republican form of government lasted, the interest of money was enormous, as it was natural to suppose, even if it were not a matter of history. The debtors, who are always the plebeians, were continually threatening their patrician creditors. The laws of Mahomet have prohibited loans at interest; and what is the consequence in the Mussulman dominions? Money is lent at interest, but the lender must be indemnified for the use of his capital, and, moreover, for the risk incurred in the contravention of the law. It was the same in Christian countries, so long as loans at interest were illegal: and where the necessity of borrowing enforced the toleration of the practice amongst the Jews, such were the humiliation, oppression, and extortion, to which, on one pretext or another, that nation was exposed on this score, that nothing short of a very heavy rate of interest could indemnify for such repeated loss and mortification. Letters patent of the French king John, bearing date in the year 1360, are now extant, which authorises the Jews to lend on pledges at the rate of four deniers per week for every livre of twenty sous, which is more than eighty-six per cent. per annum; but in the year following, the same monarch, though recorded as one of the most scrupulous performers of his royal word that our annals can boast of, caused the quantity of pure metal contained in the coin to be reduced; so that the lenders no longer received back a value equal to what they had lent.

This explanation will alone suffice to justify the very heavy interest demanded, without at all taking into calculation, that at a period, when loans were negotiated, not to forward industrious enterprises, but to support war, to feed extravagance, and to further the most hazardous projects; at a period when laws were powerless, and lenders unable legally to enforce their claims against their debtors, it required a very ample premium to cover the risk of non-payment. In fact, the premium of insurance absorbed the far greater part of what passed under the name of interest, or usury: and the actual bona fide interest, the rent for the use of capital lent, was reduced to a very trifle; for, though capital was scarce, there is reason to suppose, that productive employment was still more so. Of the 86 per cent. interest paid in the reign of king John, perhaps not more than 3 or 4 per cent. was the equivalent for the productive service of the capital advanced; for all productive labour is better paid now, than it was in those days; and even now-a-days the rent of capital can scarcely be reckoned higher than 5 per cent.; the excess is so much premium of insurance for the lender's indemnity.

Thus, the ratio of the premium of insurance, which frequently forms the greater portion of what is called interest, depends on the degree of security presented to the lender; which security consists chiefly in three circumstances:—1. The safety of the mode of employment; 2. The personal ability and character of the borrower; 3. The good government of the country he happens to reside in. We have just seen, how much the hazardous purposes, to which loans were applied in the middle ages, enhanced the premium of insurance necessarily paid to the lender.

It is the same with all perilous investments of capital, with a difference in degree only. The Athenians of old, made a distinction between marine interest, or interest of capital afloat, and land-interest, or interest on shore; the former was rated at 30 per cent. more or less per voyage, whether to the Euxine, or to any port in the Mediterranean.58 As two such voyages were accomplished with ease in the year, the annual marine interest may be rated at about 60, while other interest was commonly not more than 12 per cent. Supposing that, of the 12 per cent. one half was assigned to cover the risk of the lender; we shall find, that the mere annual rent or hire of money at Athens, was 6 per cent. only, which I should still think above the mark; yet, supposing it to have been so high, the marine interest allowed 54 per cent. for insurance of the lender's risk. So enormous a premium must be attributed in part to the barbarous habits then prevalent among the nations with whom they traded; for different nations were then much greater strangers to each other, than they are at present, and commercial laws and customs much less respected; and in part to the imperfections of the art of navigation. There was more danger in a voyage from the Piræus to Trapezus, though but three hundred leagues distant, than there is now in one from L'Orient to China, which is a distance of seven thousand. Thus, the improvements of geography and navigation have contributed to lower the rate of interest, and ultimately to reduce the cost price of products. Loans are sometimes contracted not for a productive investment, but for mere barren consumption. Transactions of this kind should always awaken the suspicion of the lender, inasmuch as they engender no means of repayment of either principal or interest. If charged upon a growing revenue, they are, at all events, an anticipation of that revenue; and if charged upon any of the sources of revenue, they afford the means of dissipating the particular source itself. If there be the security neither of revenue nor of its source, they barely place the property of one person at the wanton disposition of another.

Among the circumstances incident to the nature of the employment, which influence the rate of interest, the duration of the loan must not be forgotten; ceteris paribus, interest is lower when the lender can withdraw his funds at pleasure, or at least in a very short period; and that both on account of the positive advantage of having capital readily at command, and because there is less dread of a risk, which may probably be avoided by timely retreat. The facility of immediate negotiation presented by the transferable bills and notes of modern governments, is one principal cause of the low rate of interest, at which many of these governments are enabled to borrow.59 This interest, in my opinion, hardly covers the risk of the lender; but he always reckons on the certainty of selling his securities before the moment of catastrophe, should any serious alarm be entertained. The public securities that are not negotiable, bear a much higher interest; such, for instance, as the old personal annuities in France, which the government generally sold at the rate of 10 per cent. a high average for young lives. Wherefore the Genevese acted with excellent judgment, in settling their annuities on thirty lives of well-known public characters. By this means, they made their annuities negotiable, and so contrived to get the rate of interest of securities not negotiable, upon securities that were negotiable.

About the vast influence of personal character and ability in the borrower, in determining the amount of the premium of insurance to the lender, there can be no doubt whatever: they are the basis of what is called personal credit; and it is hardly necessary to say, that a person in good credit borrows at a cheaper rate, than another who has none.

Next to approved integrity and probity, what most contributes to the credit of an individual or of a government, is past punctuality in performance of engagements; this is, in fact, the very corner-stone of credit, and one that seldom proves insecure. But why, it may be asked, may not a man who has never yet made default in his payment, fail the very next moment? There is very little probability that he will, especially if his punctuality be of long standing. For, to have been ever punctual in his payments, he must either have always been possessed of value in hand sufficient to meet demands upon him; that is to say, he must have been a man of property over and above his debts, which is the best possible ground of trust; or else he must have managed matters so well, and have speculated with so much judgment and safety, as always to have had his returns arrive before the calls became due; thus evincing a degree of ability and prudence, which afforded an excellent guarantee for his future punctuality. The converse of this is the reason, why a merchant, that has once failed or hesitated in the performance of his engagements, thenceforward loses his credit entirely.

Finally, the good government of the country, where the debtor resides, reduces the risk of the creditor, and consequently, the premium of insurance he is obliged to demand to cover that risk. Hence it is, that the rate of interest rises, whenever the laws and their administration do not insure the performance of engagements. It is yet more aggravated, when they excite to the violation of them; as when they authorise non-payment, or do not acknowledge the validity of bona fide contracts.

The resort to personal restraint against insolvent debtors has been generally considered as injurious to the borrower; but is, on the contrary, much in his favour. Loans are made more willingly, and on better terms, where the rights of the lender are best secured by law.60 Besides, the encouragement to accumulate capital is thereby enlarged; whenever individuals mistrust the mode of investing their savings, there is a strong inducement to every one to consume the whole of his income, and this consideration will, perhaps, help to explain a curious moral phenomenon; namely, that irresistible avidity for excessive enjoyment, which is a common symptom in times of political turbulence and confusion.61

However, while on the subject of the necessity of personal severity towards debtors, I cannot recommend the practice of imprisonment; to confine a debtor is to command him to discharge his debts, and at the same time deprive him of the means of so doing. There seems more reason in the Hindu institution, giving the creditor the option of seizing the person of his insolvent debtor, and confining him at the creditor's own home to compulsory labour, for the creditor's benefit.62 But, whatever be the means, whereby the public authority enforces the payment of debts, they must always be ineffective, if law be partially or capriciously administered. The moment a debtor is, or hopes to be, out of his creditor's reach, there is a risk to be run by the creditor, which is of value, and must be indemnified.

After having thus detached from the rate of bare interest all that is paid as premium of insurance to the lender against the risk of total or partial loss of his capital, it remains to consider that part, which is purely and simply interest; that is to say, rent paid for the utility and the use of capital.

Now this portion of the gross sum called interest is larger in proportion as the supply of capital available for loans is less; and as the demand of capital for that specific object is greater; and again, that demand is the greater in proportion to the more numerous and more lucrative employments of capital. Consequently, a rise in the rate of interest does not infallibly or universally denote, that capital is growing scarcer; for possibly, it may be a sign, that its uses are multiplied. Smith has remarked this consequence upon the close of the very successful war on the part of England, which terminated with the peace of 1763.63 The rate of interest then advanced instead of declining; the important acquisitions of England had opened a new field for her commercial enterprise and speculation; capital was not diminished in quantity, but the demand for it was increased; and the rise of interest, which ensued, though in most cases a sign of impoverishment, was, in this, a consequence of the acquisition of new sources of wealth.

France, in 1812, experienced the opposite effect of a cause directly the reverse. A long and destructive war, which had annihilated almost all external communication; exorbitant taxation; the ruinous system of licenses; the commercial enterprises of the government itself; frequent and arbitrary alterations in the duties on import; confiscation, destruction, vexation; in fine, a system of administration uniformly avaricious and hostile to private interest, had rendered all enterprises of industry difficult, hazardous and ruinous in the extreme. The aggregate capital of the nation was probably on the decline; but the beneficial employment of it became still more rare as well as dangerous; so much so, that interest never fell so low in France as at that period; and, what is in general the sign of extreme prosperity, was then the effect of extreme distress.

These exceptions serve but to confirm the general and eternal law, that the more abundant is the disposable capital, in proportion to the multiplicity of its employments, the lower will the interest of borrowed capital fall. With regard to the supply of disposable capital, that must depend on the quantum of previous savings. On this head, I must refer to what I have before said upon the subject of the formation of capital.64

If it be desired, that capital in search of employment, and industry in search of capital, should both be satisfied in the fullest manner, entire liberty of dealing must be allowed in all matters touching loans at interest. Disposable capital, being thus left to itself, will seldom remain long unemployed; and there is every reason to believe, that as much industry will be called into activity, as the actual state of society will admit.

But it is essential to pay a strict attention to the meaning of the term, supply of disposable capital; for this alone can have any influence upon the rate of interest; it is only so much capital, as the owners have both the power and the will to dispose of, that can be said to be in circulation. A capital already vested and engaged in production or otherwise, is no longer in the market, and therefore no longer forms a part of the total circulating capital; its owner is no longer a competitor of other owners in the business of lending, unless the employment be one, from which capital may be easily disengaged and transferred to other objects. Thus, capital lent to a trader, and liable to be withdrawn from his hands at a short notice, and, à fortiori, capital employed in the discount of bills of exchange, which is one way of lending among commercial men, is capital, readily disposable and transferable to any other channel of employment, which the owner may judge convenient.

Capital employed by the owner on his own account, in a trade that may be soon wound up, in that of a grocer for instance, stands nearly in the same predicament. The articles he deals in find at all times a ready market, and the capital thus employed may be realized, repaid if lent, re-lent and re-employed in other trades, or applied to any other use. It is always either in actual circulation, or at least on the point of being so. Of all values, the one most immediately disposable is that of money. But capital embarked in the construction of a mill, or other fabric, or even in a movable of small dimensions, is fixed capital, which being no longer available for any other purpose, is withdrawn from the mass of circulating capital, and can no longer yield any other benefit than that of the product wherein it has been vested. Nor should it be lost sight of, that even though the mill or other fabric be sold, its value, as capital, is not by that means restored to circulation; it has merely passed from one proprietor to another. On the other hand, the disposable value, where-with the buyer has made the purchase, is not thrown out of circulation, having merely passed from his into the seller's hands. The sale neither increases nor diminishes the mass of floating capital in the market. Attention to this circumstance is essential to the forming a correct estimate of the causes, that determine the rate, as well of interest on capital, as likewise of profit accruing from capital employed, which we are about to consider presently.

It has been sometimes supposed, that capital is multiplied by the operation of credit. This error, though frequently recurring in works professing to treat of political economy, can only arise from a total ignorance of the nature and functions of capital. Capital consists of positive value vested in material substance, and not of immaterial products, which are utterly incapable of being accumulated. And a material product evidently cannot be in more places than one, or be employed by more persons than one, at the same identical moment. The works, machinery, utensils, provisions, and stock in hand, composing the capital of a manufacturer, may possibly be wholly borrowed; in which case, he will be acting upon a hired capital, and not on one of his own; yet, beyond all question that capital can be made use of by no one else, so long as it remains within his control and management: the lender has parted with the power of otherwise disposing of it for the time. A hundred others might have equal security and credit to offer; but their applications could not multiply the volume of disposable capital, and could have no other effect than to prevent other capital from remaining idle and out of employ.65

It is not to be expected, that I should here enter upon a computation of the motives of affection, consanguinity, generosity, or gratitude, which may occasionally give rise to the loan of capital, or influence the amount of interest demanded for it. Every reader must take upon himself to appreciate the influence of moral causes upon the laws of political economy, which alone we profess to expound.

To limit capitalists to the lending at a certain fixed rate only, is to set an arbitrary value on their commodity, to impose a maximum of price upon it, and to exclude, from the mass of floating or circulating capital, all that portion,whose proprietors cannot, or will not, accept of the limited rate of interest. Laws of this description are so mischievous, that it is well they are so little regarded as they almost always are, the wants of borrowers combining with those of lenders, for the purpose of evading them; which is easily managed, by stipulating for benefits to the lender, not indeed bearing the name of interest, although really the same thing in the end. The only consequence of such enactments is, to raise the rate of interest, by adding to the risks, to which the lender is exposed, and against which he must be indemnified. It is somewhat amusing to find that those governments, which have fixed the rate of interest, have almost invariably themselves set the example of breaking their own laws, by borrowing at higher than legal interest in their own case.

That interest should be fixed by law is highly proper and necessary; but it should be fixed only in cases, where there is no previous agreement about it; as in the case of a legal recovery of a sum with interest. And, in such case, I think the interest fixed by law should be estimated at the lowest rate that is usually paid by individuals; because the lowest rate is that paid by the safest investments. Now, it is quite consistent with justice, that the withholder of capital should restore it even with interest; but that is in the supposition, that it has remained all the while in his possession; which it cannot be supposed to have done, without his having invested it in the way the least hazardous, and consequently without his having drawn from it at least the lowest interest it would have afforded.

But this rate should not be denominated the legal interest, because the rate of interest ought no more to be restricted, or determined by law, than the rate of exchange, or the price of wine, linen, or any other commodity. And this is the proper place to expose a very prevalent error.

Capital, at the moment of lending, commonly assumes the form of money; whence it has been inferred, that abundance of money is the same thing as abundance of capital; and, consequently, that abundance of money is what lowers the rate of interest. Hence the erroneous expressions used by men of business, when they tell us, that money is scarce, or that money is plentiful; which, it must be confessed, are equally just and appropriate, as the very incorrect term, interest of money. The fact is, that abundance or scarcity of money, or of its substitute, whatever it may be, no more affects the rate of interest, than abundance or scarcity of cinnamon, of wheat, or of silk. The article lent is not any commodity in particular, or even money, which is itself but a commodity, like all others; but it is a value accumulated and destined to beneficial investment.

A man, who is about to lend, converts into money the aggregate value he means to devote to that particular purpose; and the borrower no sooner has it at command, than he exchanges it for something else; the money that has effected this operation, forthwith served to effect other similar or dissimilar operations; the payment of a tax perhaps, or the subsidy of an army. The value lent has but for a moment assumed the form of money, in the same manner, as we have traced revenue received and expended, passing through the same temporary form; the identical pieces of money serving perhaps a hundred times in the course of a year, to transfer equivalent portions of income. So, likewise, the same sum of money, that has served to transfer a value from the hands of one lender into those of a borrower, may, after infinite intervening transfers, perform the like office between a second borrower and lender, without stripping the former borrower of any part of the value he has received. In reality, then, it is value which has been borrowed, and not any particular sort of metal or of merchandise. All kinds of merchandise may be lent and borrowed, as well as money; nor does the rate of interest at all depend upon the quality of the object lent or borrowed. Nothing is more common in trade, than to lend and borrow other objects than money. When a manufacturer buys the raw material of his business at a certain credit, he, in fact, borrows the wool, or cotton, as the case may be, making use of the value of those materials in his concern; and their quality has no influence on the interest, with which he credits the seller.66 The glut or scarcity of the commodity lent only affects its relative price to other commodities, and has no influence whatever on the rate of interest upon its advance or loan. Thus, when silver money lost three-fourths of its former relative value, although four times as much of it was necessary to pass a loan of the same extent of capital, the rate of interest remained unaltered. The quantity of specie or money in the market, might increase tenfold, without multiplying the quantity of disposable, or circulating capital.67

Wherefore, it is a great abuse of words, to talk of the interest of money; and probably this erroneous expression has led to the false inference, that the abundance or scarcity of money regulates the rate of interest.68 Law, Montesquieu, nay, even the judicious Locke, in a work expressly treating of the means of lowering the interest of money, have all fallen into this mistake; and it is no wonder that others should have been misled by their authority. The theory of interest was wrapped in utter obscurity, until Hume and Smith69 dispelled the vapour. Nor will it ever be clearly comprehended, except by such as shall have acquired a correct notion of what has, throughout this work, been denominated capital, and shall proceed in the conviction, that the object lent or borrowed, is not a particular commodity or object of merchandise, but a portion of value,—of the aggregate value of the capital available for that object; and that the per centage paid for the use of this portion of capital, at all times and places, depends on the relative supply and demand of capital to be lent, and is wholly independent of the specific form or quality of the commodity, wherein the loan is made, whether it be money, or any other article whatever.

SECTION II.

Of the Profits of Capital.

We have now sufficiently considered the nature and motive of the interest paid by the borrower to the lender of capital, and, though it appears pretty plainly, that this interest is compounded of the rent of the capital, and of the premium of insurance against the risk of its partial or total loss, we have also seen enough, to comprehend the extreme difficulty of severing and distinguishing these two ingredients.

Let us then proceed, in the next place, to investigate the causes of the profit derivable from the employment of capital, whether by a borrower or by the proprietor himself: to which end it will be necessary, in the outset, to sever it from the profit of the industry, that turns it to account; and here again we shall meet with the greatest difficulty, in drawing the line of distinction; though it is easy to perceive, that these two classes of profit, generally speaking, are combined in the recompense or portion of the adventurer. Smith, and most of the English writers on this science, have omitted to notice this distinction; they comprise under the general head of the profit of capital, or stock, as they term it, many items, which evidently belong to the head of the profit of industry.70

Perhaps an approximation may be made to the accurate appreciation of that part of the aggregate profit, which appertains to the capital, and that, which appertains to the industry employing it, respectively, by comparing the mean ratio of total profit with the mean ratio of the difference of profit in the same line of business, which seems a fair index of the difference of the skill and labour engaged. We will suppose two houses, in the fur trade for example, to work each upon a capital of 100,000 dollars, and to make on the average, an annual profit, the one of 24,000 dollars, the other of 6000 dollars only; a difference of 18,000 dollars fairly referable to the different degree of skill and labour, the mean of which is 9000 dollars; this may be considered as the gains of industry, which, deducted from 15,000 dollars, the mean profit of the trade, will leave 6000 dollars for the profit of the capital embarked in it.

This example I could suggest as a means, rather of distinguishing those items of profit thus mixed up together, than of estimating their respective ratio with any tolerable certainty. But, without any index to the precise line of demarkation between the profits of capital and those of the industry employing it, we may take it for granted, that the former will always be proportionate to the risk of partial or total loss, and to the duration of the employment. In practice, adventurers, having capital at their command, always weigh beforehand the advantages and disadvantages of the different modes of investment, as specified above,71 and naturally prefer, ceteris paribus, those presenting the smallest risk and the quickest return; so that there is less competition of capital for hazardous and long-winded adventurers; indeed, none whatever is embarked in them, unless they hold out a rate of profit so much above the average rate, as to tempt the capitalist to run the risk. Theory, therefore, leads to the presumption, which is confirmed by the test of experience, that the profit of capital is high, in proportion to the hazard of the adventure, and to the length of its duration.

When a particular employment of capital, the trade with China, for instance, does not afford a profit proportionate, not only to the time of the detention, but likewise to the danger of loss, and the inconvenience of a long, perhaps a two years' duration of one single operation before the returns come to hand, a proportion of the capital is gradually withdrawn from that channel; the competition slackens, and the profits advance, until they rise high enough to attract fresh capital.72

This will serve also to explain, why the profits, derivable from a new mode of employment, are larger than those of common and ordinary employments, where the production and consumption have been well understood for years. In the former case, competition is deterred by the uncertainty of success; in the latter, allured by the security of the employment.

In short, in this matter, as in all others, where the interests of mankind clash one with another, the ratio is determined by the relative demand and supply for each mode of employment of capital respectively.

It is a maxim with Smith and those of his school, that human labour was the first price,—the original purchase-money, paid for all things. They have omitted to add, that for every object of purchase, there is, moreover, paid, the agency and co-operation of the capital employed in its production. Is not capital itself, they will say, composed of accumulated products,—of accumulated labour? Granted: but the value of capital, like that of land, is distinguishable from the value of its productive agency; the value of a field is quite different from that of its annual rent. When a capital of 1000 dollars is lent, or rather lent on hire, for a year, in consideration of 50 dollars more or less, its agency is transferred for that space of time, and for that consideration; besides the 50 dollars, the lender receives back the whole principal sum of 1000 dollars, which is applicable to the same objects as before. Thus, although the capital be itself a pre-existent product, the annual profit upon it is an entirely new one, and has no reference to the industry, wherein the capital originated.

Wherefore when a product is ultimately completed by the aid of capital, one portion of its value must go to recompense the agency of the capital, as well as another to reward that of the industry, that have concurred in its production. And the portion so applied is wholly distinct from the value of the capital itself, which is returned to the full amount, and emerges in a perfect state from its productive employment. Nor does this profit upon capital represent any part of the industry engaged in its original formation.

From all which it is impossible to avoid drawing this conclusion; that the profit of capital, like that of land and the other natural sources, is the equivalent given for a productive service, which though distinct from that of human industry, is nevertheless its efficient ally in the production of wealth.

SECTION III.

Of the Employments of Capital most beneficial to Society.

To the capitalist himself, the most advantageous employment of capital is that, which with equal risk yields the largest profit; but what is to him most beneficial, may perhaps not be so to the community at large; for capital has this peculiar faculty, that, besides being productive of a revenue peculiar to itself, it is, moreover, a means, whereby land and industry may generate a revenue likewise. This is an exception to the general principle, that what is the most productive to the individual, is so to the community at large. A capital lent to a foreign country, may very probably produce to the proprietors and the nation, the highest possible rate of interest; but can afford no assistance towards extending the revenue of the national territory, or for the national industry, as it would do, if employed within the pale of the nation.

The portion of capital embarked in domestic agriculture is employed best for the interests of a nation; it enhances the productive power of the land and of the labour of a country. It augments at once the profits of industry and those of real property. Capital employed under intelligent direction, may make barren rocks to bear increase. The Cevennes, the Pyrenees, and the Pays de Vaud, present on every side the view of mountains, once a scene of unvaried sterility, now covered with verdure and enriched by cultivation. Parts of these rocks have been blasted with gunpowder, and the shivered fragments employed in the construction of terraces one above another, supporting a thin stratum of earth carried thither by human labour. In this manner is the barren surface of the rock transformed into shelving platforms, richly furnished with verdure, and teeming with produce and population. The capital originally expended in these laborious improvements might, perhaps, have produced larger profits to the capitalist, if employed in external commerce; but probably the total revenue of the district would have been inferior in amount.

For a similar reason, capital cannot be more beneficially employed, than in strengthening and aiding the productive powers of nature. Well contrived and useful machinery produces more than the interest of its prime cost; and besides affording additional profit to the proprietor, benefits the consumer and the community at large, to the full extent of the saving effected by its means; for every thing saved is so much gain.

The productive employments, that rank next in point of national benefit, are those of manufacture and internal commerce; for the profits of the industry they set in motion are earned at home; whereas, capital embarked in foreign trade benefits the industry and natural resources of all nations indiscriminately.

The employment of capital, that tends least to the national advantage, is the carrying trade between one foreign country and another.

When a nation is possessed of an immense accumulation of capital, it will do well to embark it in all these different channels of industry; for they are all lucrative, and in nearly equal degree to the capitalist, though in very different degrees to the nation at large. What prejudice can arise to the lands of Holland, which are already in a high state of cultivation and management, and want neither clearing nor enclosing, or what injury be sustained by nations possessed of little territory, like the old states of Venice, Genoa, and Hamburg, from the large investments of national capital in the carrying trade? It flowed into that particular channel of employment, merely because there was no other open to it. But that class of trade, and generally all external commerce, is ill adapted to a nation deficient in capital, and having not enough to keep its agriculture and manufacture in activity; and it would be absurd for its government to give premature encouragement to those external branches of industry; for such a measure would but check the employment of capital in the manner best calculated to increase the national revenue. China, though it is the largest empire in the world, and must possess the greatest aggregate revenue, since it maintains the most numerous and dense population, abandons to foreigners almost all its external commerce. Undoubtedly, in her present condition, she would be a gainer by extending her external relations of commerce; but she affords a very striking example of the prosperity attainable without them.

It is very fortunate, that the natural course of things impels capital rather into those channels, which are the most beneficial to the community, than into those, which afford the largest ratio of profit. The investments generally preferred are those that are nearest home; whereof the first and foremost is the improvement of the soil, which is justly considered the most safe and permanent; the next, manufacture and internal commerce; and the last of all, external commerce, the trade of transport, and the commerce with distant nations. The owner of a capital, especially of a moderate one, will embark it rather under his own superintendence, than in distant and remote concerns. He is apt to think his risk too hazardous, when he loses sight of his property for any considerable length of time, when he consigns it to strangers, or can expect only tardy returns, or is exposed to the chances of litigation with fraudulent debtors, who may take advantage of their unsettled habits of life, or of the laws of foreign countries, with which he is himself unacquainted. Nothing, but the bait of exclusive privilege and monopoly-profit, or the violent derangement of internal industry, can induce an European nation, not possessed of a large surplus capital, to engage in the colonial or East India trade.73

BOOK II, CHAPTER IX

OF THE REVENUE OF LAND.

SECTION I.

Of the Profit of Landed Property.74

Land has the faculty of transforming and adapting to the use of mankind an infinity of substances, which, without its intervention, would be to them of no service; it yields nutriment and vegetative juices to the grain, the fruits, and vegetables, whereon we subsist; as well as to the forests, whereof we construct our houses, ships, and furniture, and whence we derive fuel to keep us warm. Its agency in the production of all these commodities may be called, the productive service of land. And thence it is, that the profit of the proprietor originates.

He derives a further benefit from the useful substances to be extracted from its entrails; the stone, metal, coal, peat, &c. &c.

Land, as we have above remarked, is not the only natural agent possessing productive properties; but it is the only one, or almost the only one, which man has been able to appropriate, and turn to his own peculiar and exclusive benefit. The water of rivers and of the ocean has the power of giving motion to machinery, affords a means of navigation, and supply of fish; it is, therefore, undoubtedly possessed of productive power. The wind turns our mill; even the heat of the sun co-operates with human industry; but happily no man has yet been able to say, the wind and the sun's rays are mine, and I will be paid for their productive services. I would not be understood to insinuate, that land should be no more the object of property, than the rays of the sun, or blast of the wind. There is an essential difference between these sources of production; the power of the latter is inexhaustible; the benefit derived from them by one man does not hinder another from deriving equal advantage. The sea and the wind can at the same time convey my neighbour's vessel and my own. With land it is otherwise. Capital and industry will be expended upon it in vain, if all are equally privileged to make use of it; and no one will be fool enough to make the outlay, unless assured of reaping the benefit. Nay, paradoxical as it may seem at first sight, it is, nevertheless, perfectly true, that a man, who is himself no share-holder of land, is equally interested in its appropriation with the share-holder himself. The savage tribes of New Zealand, and of the north-western coast of America, where the land is unappropriated, have the greatest difficulty in procuring a precarious subsistence upon fish and game, and are often reduced to devour worms, caterpillars, and the most nauseous vermin:75 not unfrequently even to wage war on one another, from absolute want, and to devour their prisoners as food; whereas, in Europe, where the appropriation is complete, the meanest individual, with bodily health, and inclination to work, is sure of shelter, clothing, and subsistence, at the least.

In preceding chapters, we have noticed the profit resulting from industry and capital, embarked in agriculture or other branches of industry. In the present, we are to inquire, wherein consists the peculiar profit of land itself, independent of that accruing from the industry and capital, devoted to its cultivation; and to consider the profit of land in the abstract, and whence it originates, without any inquiry as to who may be the cultivator, whether the proprietor himself, or a tenant under him.

It is the declared opinion of many writers,76 that the value of products is never more than the recompense of the human agency or surplus, that can be set apart as the peculiar profit of land, and constitute the rent paid for its use to the proprietor. The tenor of their argument is this: the proprietor of land lying waste or fallow having also a capital to dispose of, may, at his pleasure, expend it, either in cultivation, or in some other way. If he reckons that the cultivation of his land will yield him as large a return as any other investment, he will give it the preference; and, indeed, it is found by experience, that this mode of investment is preferred, even though somewhat less advantageous than others, as being at all events more safe. Well: and what do they infer from this? Why, that cultivation yields no return whatever, beyond the interest of the capital engaged in it;77 and if so, what is there left for the profit on the productive powers of the soil? Evidently nothing whatever. I have endeavoured to put the argument in the clearest and most intelligible light; and I have to observe upon it, that it proceeds upon a partial and imperfect view of the matter, and upon a total neglect of the influence of demand in the fixation of value. I will now endeavour to give a more complete view of the subject.

The productive power of the soil has no value, unless where its products are objects of demand. Travellers, who have explored the interior of America, and other desert parts of the globe, make repeated mention of tracts of the richest land, capable of every kind of culture, yet wholly destitute of any useful or valuable products. But no sooner is a colony established in the vicinity, or, by some means or other, a market found where the products of the soil will, in the way of exchange, pay the usual rate of interest upon the requisite advances, than cultivation begins immediately. Up to this point, there is no difference between us. But if any circumstance operate to aggravate the demand beyond this point, the value of agricultural products will exceed, and sometimes very greatly exceed, the ordinary rate of interest upon capital; and this excess it is, which constitutes the profit of land, and enables the actual cultivator, when not himself the proprietor, to pay a rent to the proprietor, after having first retained the full interest upon his own advances, and the full recompense of his own industry.

Land is an agent gratuitously furnished to mankind at large, by whom it is afterwards exclusively appropriated; but its appropriation does not begin to be profitable to the individual, in whose favour it is made, until its products are an object of demand, and until their supply ceases to be co-extensive with the desire for them, as it is with respect to some other natural objects, air, water, &c.

From those products of the soil only, thus raised in value by the demand, can there accrue that profit to the proprietor which has been called the profit of land; and which is paid in all civilized countries, and especially where manufacture and commerce multiply the objects of exchange. It may sometimes happen, that in a particular district of such a country, the rent of land may be very trifling; as in our own district of Sologne, where it is no more than 20 cents an acre; but this is owing to the want of roads, and particularly of water-carriage, which makes the charge of bringing its agricultural produce to market, added to the charge of cultivation, absorb nearly the whole value it will there sell for. In some countries, highly civilized and productive in the extreme, land pays no more than 3 or 4 per cent. upon its price or purchase-money. Yet, this is no proof of the poverty of the soil; it proves only, that it sells dear. A landed estate may yield 24 dollars the acre, and require very little expense of cultivation; as if it be laid down in pasture, for instance; in such case it must owe most of its value to its natural properties; yet, if it have cost the proprietor 800 dollars the acre, it will yield a return of 3 per cent. only. And herein consists the difference between the profit and the rent of land: profit is high or low, according to the quantum of the product; rent, according to the quantum of the purchase-money or price. An acre of land, yielding a profit of one dollar only, will bring as high a rent as an acre yielding a profit of 50 dollars, if 50 times as much has been paid for the one as for the other.

Whenever land is bought with capital, or capital with land, occasion is given for a comparison of the returns of the one species of property with the returns of the other. It is possible, that an estate, bought with a capital of 100,000 dollars, may produce but 3 or 4000 dollars per annum, whilst the same amount of capital would yield 5 or 6000 dollars. The lower rate of interest which the proprietor is content to take on a purchase of land, may be attributed, in the first place, to the superior stability of the investment. Capital can seldom be made productive, without undergoing several changes both of form and of place, the risk of which is always more or less alarming to persons unaccustomed to the operations of industry; whereas, on the contrary, landed property produces without any change of either quality or position. The satisfaction and pleasure attached to territorial possession, the consideration, weight, and dignity it communicates, and the titles and privileges with which it is in some countries accompanied, contribute greatly to increase this natural preference.

It is true, that land is more exposed than other property to the burden of public taxation, and to the arbitrary exactions of power, precisely because it can neither be removed nor concealed. A floating capital may take any shape whatever, and be removed at will. It can escape tyranny and civil commotions more readily, than even the person of its proprietor. It is a safer object of property; for it is often impossible to attach it, or to make it specifically responsible for the debts of the proprietor. Moreover, it is much less exposed to litigation than landed property. Yet, it is clear, that all these advantages are more than counterpoised by the superior risk of investment; and, that landed property is still preferred to floating capital; since land is dearer, in proportion to its annual returns.

Whatever may be the exchangeable price of land and capital one to the other, it is proper to observe, that their interchange makes no variation in the supply of productive agency of land and capital respectively in circulation, and disposable for the purpose of production; consequently, that exchangeable price can nowise affect the real and positive profit of land and of capital. When Richard sells his estate to Thomas, the productive service of the land is at the disposal of Thomas instead of Richard; and that of the capital, given in exchange for it, is at the disposal of Richard instead of Thomas.

The only thing, which really varies the amount of productive agency of land in circulation, is the actual amelioration of the soil, by clearing and bringing new land into cultivation, or enlarging the productive power of old land, and thus increasing its product. Savings and accumulations of capital are, in the shape of agricultural improvements, transformed into landed property, and made to participate in all the peculiar advantages and disadvantages attached to it. The same may be said of houses, and generally of all capita invested in a fixed and permanent object; it thenceforth loses the character of capital, and assumes that of landed property.

Whence we may draw this invariable maxim; that the productive agency of land is possessed of value, which value, like value in general, increases in the direct ratio of the demand, and the inverse ratio of the supply; and that, since land differs as much in quality, as in site and position, there is a peculiar demand and supply for each peculiar quality. A demand for so much wine, more or less, whatever it arise from, creates a specific demand for as much productive agency of the soil, as may be requisite for its growth;78 and the extent of surface, adapted to the culture of the grape, determines the supply of that productive service. If the soil, capable of growing good wine, be very limited in extent, and the demand for such wine very brisk, the profit of the soil itself will be extravagantly high.

It is worthy of remark, that all land, that yields any profit at all, however trifling the amount, even so little as 20 cents the acre, or even less, may be kept in a state of cultivation: and there have been many instances of its cultivation under such circumstances. Herein it differs from capital and industry. A labourer, if he finds himself settled in a place, where his labour does not yield him what he has reason to expect, can migrate to another. So, likewise, capital quickly flows from a channel, that affords a less, to one that affords a greater return. But land has not the same facilities: it is of necessity immoveable; consequently, out of its gross product, after the deduction in the first instance of all advances of capital, with interest, as well as of the profits of industry, without which there could be no product whatever, there still remains to be deducted the expense of carrying the product to the market, or place of exchange. When these several deductions absorb the whole product of the land, the land itself yields no profit at all, and the proprietor can never succeed in getting a rent from it. Even if he cultivate it himself, he can only gain a profit on his capital and industry, but will receive none whatever from the bare ownership of the land. In Scotland, there are tracts of unproductive land thus cultivated by the proprietors, which it would not answer for any one else to undertake. So, likewise, in the back settlements of the United States, there are tracts of great extent and fertility, whose revenue alone would not maintain the proprietors; yet they are, nevertheless, cultivated with success: but it is by the proprietors themselves, who consume the product at the place of growth, and are obliged to superadd to the profit of the land, which is little or nothing, the further profit of capital and personal industry, which afford a handsome competency.

It is obvious, that land, though in a state of cultivation, yields no profit, when no farmer will pay rent for it, which is a convincing proof that it gives no surplus, after allowing for the profit of the capital and industry requisite for its cultivation.

In the instance just mentioned, the effect is occasioned by the distance of the market; the expense of transport swallows up the profit, which might otherwise be made of the land. Other instances might be adduced, in which badness of seasons, war, or taxation, have produced the same effect, and partially or totally absorbed the profit of land, and thus thrown it out of cultivation.79

SECTION II.

Of Rent.

When a farmer takes a lease of land, he pays to the proprietor the profit accruing from its productive agency, and reserves to himself, besides the wages of his own industry the profit upon the capital he embarks in the concern; which capital consists in implements of husbandry, carts, cattle, &c. He is an adventurer in the business of agricultural industry; and, amongst the means he has to work with, there is one that does not belong to him, and for which he pays rent, i.e. the land.

The preceding section was occupied in explaining the source of the profit of land. Its rent is generally fixed at the highest rate of that profit, and for the following reason.

Agricultural adventure requires, on the average, a smaller capital,80 in proportion, than other classes of industry, reckoning the land itself as no part of the capital of the adventurer. Wherefore, there is a greater number of persons able, from their pecuniary circumstances, to embark in agricultural, than in any other speculations; consequently, a greater competition of bidders for land upon lease. On the other hand, the quantity of land fit for cultivation is limited in all countries; whereas the quantity of capital and the number of cultivators have no assignable limitation. Landed proprietors, therefore, at least in those countries which have been long peopled and cultivated, are enabled to enforce a kind of monopoly against the farmers. The demand for their commodity, land, may go on continually increasing; but the quantity of it can never be extended.

This circumstance is equally applicable to the nation at large, and to each particular province or district. The number of acres to be rented in each province is incapable of extension; whilst the number of persons in a condition to rent them has no fixed and absolute limit.

Whenever this is the case, the bargain between the land-holder and the tenant must always be greatly in favour of the former; and, whenever there is any portion of the soil, which yields to the latter more than the interest of his capital and the wages of his industry, a higher bidder will soon offer himself. The liberality of a few proprietors, the distance at which they happen to reside, the ignorance of others, and even of the farmers themselves, and the imprudence of a few more, may sometimes operate to depress the ratio of rent below the maximum of profit; but these are accidental circumstances, which act for a season only, and can never prevent the regular and constant action of natural causes, which must in the end prevail.

Besides this advantage accruing to the land-holder, derived from the very nature of things, he has likewise in general the advantage of possessing, or being able to accumulate greater wealth, and sometimes credit, patronage and influence, into the bargain: but the first advantage is alone sufficient to insure him the sole benefit of any circumstances, that may happen to enhance the profit of land. The opening of a canal or road, the increase of population, wealth, and affluence in the province, always operate to raise his rent. He also benefits by every improvement in the cultivation; for a man can afford to pay dearer for the hire of an instrument, when he knows how to turn it to better account.

When the proprietor himself expends a capital in the improvement of his land, in draining, irrigation, fences, buildings, houses, or other erections, the rent then includes, in addition to the profit of the land, the interest likewise of the capital so expended.81

The farmer may sometimes undertake these expenses of amelioration himself; but he can only calculate on receiving interest on the outlay during the continuance of his lease: at the expiration of which, the benefit must devolve to the land-holder, being wholly incapable of removal: thenceforward the landlord derives the whole profit, without having made any of the advances: for he receives a proportionate increase of rent in consequence. The farmer should, therefore, engage only in those improvements, whose effects will last no longer than his lease; unless the lease be long enough, to allow the profit arising from his improvements to repay the whole outlay, together with the interest. It is in this way, that long leases operate to increase the product of the land; and it is evident the effect will be the greatest, when the land is farmed by the proprietor himself; for he is far less likely, than the farmer, to lose the benefit of such advances; every judicious improvement yields him a permanent profit, and the original outlay is amply repaid, when the land is finally disposed of. The farmer's certainty of reaping the advantage till the end of his lease, is equally conducive to the improvement of landed property with the length of leases. On the contrary, such laws and customs, as authorize the cancelling of leases in specified cases, as in case of sale by the proprietor, are highly prejudicial to agriculture; since the farmer will hardly venture to undertake any considerable improvement, if kept in continual fear of seeing an intrusive successor appropriate the recompense of his ingenuity, labour, and capital. In fact, every improvement he should make would but increase the risk of that injustice; for land is far more saleable in good condition than otherwise.

Leases are nowhere more sacredly regarded than in England; and the privilege, enjoyed by leasees to the amount of 40s. (about 10 dollars) and upwards, of voting at Parliamentary elections, has, in some measure, restored the equipoise of power and influence between landlords and tenants, which seldom exists in practice. In no other country do we see tenants so confident of undisturbed possession, as to build upon ground held on lease. Such tenants improve the land, as if it were their own; and their landlords are punctually paid; which is less frequently the case elsewhere.

The land is sometimes cultivated by persons possessed of no capital whatever: the proprietor furnishes himself the requisite capital, as well as the land. They are called in France, metayers, and commonly pay to the landlord half the gross product. This arrangement is to be met with only in the infancy of agriculture, and is of all others the least conducive to improvement; for the party who bears the expense of amelioration, whether landlord or tenant, makes the other a gratuitous present of half the interest on his advances. This kind of tendency was more common in the feudal times, than it is at present. The lords were above tilling the land themselves, and their vassals had not the means. The largest incomes were then derived from the land, because the lords were large proprietors; but they bore no proportion to the extent of the land. Nor was this owing to the defect of agricultural skill, so much as to the scarcity of capital devoted to improvements. The lord felt little anxiety to improve his property, and expended, in a way more liberal than productive, an income that he might easily have tripled. He levied war, gave feasts and tournaments, and maintained a numerous retinue. If we look at the then degraded condition of commerce and manufacture, superadded to the insecurity of the agricultural interest, we need go no further for the explanation of the reason, why the bulk of the community was in the extreme of indigence; and why, independently of every political cause, the nation itself was weak and impotent. Five departments would now be able to repel attacks, which overwhelmed all France at that period: but happily for her, the other states of Europe were nowise in a better condition.

BOOK II, CHAPTER X

OF THE EFFECT OF REVENUE DERIVED BY ONE NATION FROM ANOTHER.

One nation cannot take from another the revenues of its industry. A German tailor, establishing himself in France, there makes a profit, in which Germany had no participation. But, if this tailor contrive to amass a little capital, and after the lapse of several years carry it back with him to his native country, he injures France to the same extent as a French capitalist, who should emigrate with the same amount of fortune.82 In a political view, the injury to the wealth of the nation is equal in both cases; but in a moral light, it is otherwise; for I reckon that a native Frenchman in quitting his country, robs it of an affectionate attachment, and a spirit of exclusive nationality, which it can never look for in a stranger born.

A nation, receiving a stray child into its bosom again, acquires a real treasure; inasmuch as in him it receives an addition to its population, an accession to the profits of national industry, and an acquisition of capital. It at the same time recovers a lost citizen, and the means for him to subsist upon. If the exile bring back his industry only, at any rate the profits of industry are added to the national stock. It is true, that a source of consumption is likewise super-added; but supposing it to counterbalance the advantage, there is no diminution of revenue, while the moral and political strength of the country is actually augmented.83

With regard to the capital lent by one nation to another, the effect upon their respective wealth is precisely analogous to that, resulting from every loan from one individual to another. If France borrow capital from Holland, and devote it to a productive purpose, she will gain the profit of industry and land accruing from the employment of that capital; and she will do so even though she pay interest; in like manner as a merchant or manufacturer borrows for the purposes of his concern, and gains a residue of profit, even after paying the interest of the loan.

But, if one state borrow from another, not for productive purposes, but for those of mere expenditure, the capital borrowed will then yield no return, and the national revenue be saddled with the interest to the foreign creditor. Such was the condition of France, when she borrowed from the Genoese, the Dutch, and the Genevese, for the support of her wars, or to feed the prodigality of a court. Yet it was better to borrow from strangers than from natives, even for the purpose of dissipation; because, the amount so borrowed was not withdrawn from the national productive capital of France. In either case, the French people would have to pay the interest;84 but had they likewise lent the capital, they would have had to pay the interest, and at the same time have lost the benefit, which their industry and land might have derived from its employment and agency.

With regard to such landed property, as may belong to foreigners residing abroad, the revenue arising from it is an item of foreign, and forms no part of the national revenue. But it is to be remembered, that the foreigner cannot have purchased it without a remittance of capital equal in value to the land; which capital is an equally valuable acquisition, particularly if the nation be possessed of improveable land in abundance, but of little capital to set industry in motion. In making his purchase of land, the foreigner exchanges a revenue of capital, which he leaves the nation to profit by, for a revenue of land; which he thenceforth receives: thus bartering interest of money for rent of land. If the national industry be active and skilfully directed, more benefit may be derived from the interest, than was before obtained from the rent; the purchaser, however, acquires a fixed and permanent property, in lieu of one more perishable, transferable, and destructible. Mismanagement may soon annihilate the capital the nation has acquired; but the land remains a permanent possession of the purchaser, and he may sell it and get back the value when he pleases. There is therefore nothing to be apprehended from the purchase of land by foreigners, provided there be wisdom enough, to employ in reproduction the value received in exchange.

The particular form, in which one nation may draw revenue from another, is of no importance whatever. It may be remitted in specie, in bullion, or in any other kind of merchandise: indeed it is of the greatest consequence to leave individuals to take it in the shape that best suits their convenience; for what suits them will infallibly be the best for both nations; in like manner as in the conduct of international trade, the commodity, which individuals export or import in preference, is that which best suits the mutual national interests.

The agents of the English East India Company drew from that country, either an annual revenue, or an accumulated fortune, which they returned to England to enjoy and live upon: they took good care not to withdraw these remittances in the shape of gold or silver, because the precious metals were of more relative value in Asia than in Europe; they remitted in the shape of India goods and products, on which a fresh profit was made on arrival in Europe: every million they remitted, swelled, perhaps, to so much as 1,200,000, by the time it reached the place of destination. Thus, Europe gained to the amount of 1,200,000, while India lost only a million. If these despoilers of India85  86 insisted on transmitting this whole sum in specie, they must have robbed Hindostan, perhaps, of 1,500,000, or upwards, for every 1,200,000 that England received. The same sum may, perhaps, have been amassed originally in specie; but it was always remitted in the shape of that commodity, which, for the time being, answered best as an object of transport. As long as exportation of any kind is allowed, and exportation has always been regarded by statesmen with a favourable eye, it is easy to receive in one country, the revenue and capital derived from another. And the remittance cannot be prevented by the government, without the interdiction of all external commerce, which, after all, would leave the resource of smuggling and contraband. In the eyes of political economy, nothing is more absurd, than to see governments prohibit the export of the national specie, as a means of checking the emigration of wealth.87

BOOK II, CHAPTER XI

OF THE MODE IN WHICH THE QUANTITY OF THE PRODUCT AFFECTS POPULATION.

SECTION I.

Of Population, as connected with Political Economy.

Having, in Book I, investigated the production of the articles necessary to the satisfaction of human wants, and in the present Book, traced their distribution among the different members of the community, let us now further extend our observations to the influence those products exercise upon the number of individuals, of which the community is composed; that is to say, upon population.

In her treatment of all organic bodies, nature seems to neglect the individual, and afford protection only to the species. Natural history presents very curious examples of her extraordinary care to perpetuate the species; but the most powerful means she adopts for that purpose, is the multiplication of germs in such vast profusion, that notwithstanding the immense variety of accidents occurring to prevent their early development, or destroy them in the progress to maturity, there are always left more than sufficient to perpetuate the species. Did not accident, destruction, or failure of the means of development, check the multiplication of organic existence, there is no animal or plant that might not cover the face of the globe in a very few years.

This faculty of infinite increase is common to man, with all other organic bodies; and although his superior intelligence continually enlarges his own means of existence, he must sooner or later arrive at the ultimum.

Animal existence depends upon the gratification of one sole and immediate want, that of food and sustenance; but man is enabled, by the faculty of communication with his species, to barter one product for another, and to regard the value, rather than the nature, of the product. The producer and owner of a piece of furniture of twenty dollars value, may consider himself as possessing as much human food, as may be procurable for that price. And with respect to the relative price of products, it is in all cases determined by the intensity of the desire, the degree of utility in each product for the time being. We may safely take it for granted, that mankind in general will not barter an object of more, for one of less urgent necessity. In a season of agricultural scarcity, a larger quantity of furniture will be given for a smaller quantity of human aliment; but it is invariably true, that whenever barter takes place, the object given on one side is worth that given on the other, and that the one is procurable for the other.88

Trade and barter, as we have seen above, adapt the products to the general nature of the demand. The objects, whether of food or raiment, or of habitation, for which the strongest desire is felt, are of course the most in request; and the wants of each family or individual, are more or less fully satisfied, in proportion to the ability to purchase these objects; which ability depends upon the productive means and exertion of each respectively; in plain terms, upon the revenue of each respectively. Thus, in the end, if we sift this matter to the bottom, we shall find, that families, and nations, which are but aggregations of families, subsist wholly on their own products; and that the amount of product in each case necessarily limits the numbers of those who can subsist upon it.

Such animals as are incapable of providing for future exigencies, after they are engendered, if they do not fall a prey to man, or some of their fellow brutes, perish the moment they experience an imperative want, which they have not the means of gratifying. But man has so many future wants to provide for, that he could not answer the end of his creation, without a certain degree of providence and forethought; and this provident turn can alone preserve the human species from part of the evils it would necessarily endure, if its numbers were to be perpetually reduced by the process of destructive violence.89

Yet notwithstanding the forethought ascribed to man, and the restraints imposed on him by reason, legislation, and social habits, the increase of population is always evidently co-extensive, and even something more than co-extensive, with the means of subsistence. It is a melancholy but an undoubted fact, that, even in the most thriving countries, part of the population annually dies of mere want. Not that all who perish from want absolutely die of hunger; though this calamity is of more frequent occurrence than is generally supposed.90 I mean only that they have not at command all the necessaries of life, and die for want of some part of those articles of necessity. A sick or disabled person may, perhaps, require nothing more than a little rest, or medical advice, together with, perhaps, some simple remedy, to set him up again; but the requisite rest, or advice, or remedy, is denied, or not afforded. A child may require the attentions of the mother, but the mother may perhaps be taken away to labour, by the imperious calls of necessity; and the child perish through accident, neglect, or disease. It is a fact well established by the researches of all who have turned their attention to statistics, that out of an equal number of children of wealthy and of indigent parents, at least twice as many of the latter die in infancy as of the former. In short, scanty or unwholesome diet, the insufficient change of linen, the want of warm and dry clothing, or of fuel, ruin the health, undermine the constitution, and sooner or later bring multitudes of human beings to an untimely end; and all, that perish in consequence of want beyond their means to supply, may be said to die of want.

Thus, to man, particularly in a forward state of civilization, a variety of products, some of them in the class of what have been denominated immaterial products, are necessaries of existence; these are multiplied in a degree proportionate to the desire for them, respectively, because its intensity causes a proportionate elevation of their price: and it may be laid down as a general maxim, that the population of a state is always proportionate to the sum of its production in every kind.91 This is a truth acknowledged by most writers on political economy, however various and discordant their opinions on most other points.92  93

It appears to me, however, that one very natural consequence, deducible from this maxim, has escaped their observation; which is, that nothing can permanently increase population, except the encouragement and advance of production; and that nothing can occasion its permanent diminution, but such circumstances as attack production in its sources.

The Romans were forever making regulations to repair the loss of population, occasioned by their state of perpetual external warfare. Their censors preached up matrimony; their laws offered premiums and honours to plurality of children; but these measures were fruitless. There is no difficulty in getting children; the difficulty lies in maintaining them. They should have enlarged their internal production, instead of spreading devastation amongst their neighbours. All their boasted regulations did not prevent the effectual depopulation of Italy and Greece, even long before the inroads of the barbarous northern hordes.94

The edict of Louis XVI. in favour of marriage, awarding pensions to those parents who should have ten, and larger ones to those who should have twelve children, was attended with no better success. The premiums that monarch held out in a thousand ways to indolence and uselessness, were much more adverse, than such poor encouragements could be conducive, to the increase of population.

It is the fashion to assert, that the discovery of the new world has tended to depopulate old Spain; whereas her depopulation has resulted from the vicious institutions of her government, and the small amount of her internal product, in proportion to her territorial extent.95 The most effectual encouragement to population is, the activity of industry, and the consequent multiplication of the national products. It abounds in all industrious districts, and, when a virgin soil happens to co-operate with the exertions of a community, whence idleness is altogether discarded, its rapid increase is truly astonishing. In the United States of America, population has been doubling in the course of twenty years.

For the same reasons, although temporary calamities may sweep off multitudes, yet, if they leave untainted the source of reproduction, they are sure to prove more afflicting to humanity, than fatal to population. It soon trenches again upon the limit, assigned by the aggregate of annual production. Messance has given some very curious calculations, whereby it appears, that after the ravages occasioned by the famous plague of Marseilles in 1720, marriages throughout Provence were more fruitful than before. The Abbé d'Expilly comes to the same conclusion. The same effect was observable in Prussia, after the plague of 1710. Although it had swept off a third of the population, the tables of Sussmilch96 show the number of births, which, before the plague, amounted annually to about 26,000, to have advanced in the year following, 1711, to no less than 32,000, It might have been supposed, that the number of marriages, after so terrible a mortality, would have been at least considerably reduced, on the contrary, it actually doubled; a strong indication of the tendency of population to keep always on a level with the national resources.

The loss of population is not the greatest calamity resulting from such temporary visitations; the first and greatest is, the misery they occasion to the human race. Great multitudes can not be swept from the land of the living by pestilence, famine or war, without the endurance of a vast deal of suffering and agony, by numbers of sentient beings; besides the pain, distress, and misery of the survivors; the destitution of widows, orphans, brothers, sisters, and parents. It is a subject of additional regret, if among the rest, there happen to fall one or two of those superior and enlightened men, whose single talents and virtues have more effect upon the happiness and wealth of nations, than the grovelling industry of a million of ordinary mortals.

Moreover, a great loss of human beings, arrived at maturity, is certainly a loss of so much acquired wealth or capital; for every grown person is an accumulated capital, representing all the advances expended during a course of many years, in training and making him what he is. A bantling a day old by no means replaces a man of twenty; and the well-known expression of the Prince de Condé, on the victorious field of Senef, was equally absurd and unfeeling.97

The destructive scourges of the human species, therefore, if not injurious to population, are at least an outrage on humanity; on which account alone, their authors are highly criminal.98

But though such temporary calamities are more afflicting to humanity than hurtful to the population of nations, far other is the effect of a vicious government, acting upon a bad system of political economy. This latter attacks the very principle of population, by drying up the sources of production; and since the numbers of mankind, as before seen, always approach nearly to the utmost limits the annual revenue of the nation will admit of, if the government reduce that revenue by the pressure of intolerable taxation, forcing the subject to sacrifice part of his capital, and consequently diminishing the aggregate means of subsistence and reproduction possessed by the community, such a government not only imposes a preventive check on further procreation, but may be fairly said to commit downright murder; for nothing so effectually thins the effective ranks of mankind, as privation of the means of subsistence.

The evil effects of monastic establishments upon population, have been severely and justly inveighed against; but the mode, in which they operate, has been misunderstood; it is the idleness, not the celibacy, of the monastic orders, that ought to be censured. They put their lands into cultivation, it is true, but where is the merit of that? Would the lands remain untilled, if the monastic system were abolished? So far from that evil resulting from the abolition, wherever these establishments have been converted into manufactories, of which the French revolution has offered many examples, equal agricultural produce has continued to be raised, and the produce of the manufacturing industry has been all clear gain; while the increased total product, thus created, has been followed by an increase of population also.

From these premises, may likewise be drawn this further conclusion; that the inhabitants of a country are not more scantily supplied with the necessaries of life, because their number is on the increase; nor more plentifully, because it is on the decline. Their relative condition depends on the relative quantity of products they have at their disposal; and it is easy to conceive these products to be considerable, though the population be dense; and scanty, though the population be thinly spread. Famine was of more frequent occurrence in Europe during the middle ages, than it has been of late years, although Europe is evidently more thickly peopled at present. The product of England, during the reign of queen Elizabeth, was not nearly so abundant as it is now, although her population was then less by half; and the population of Spain, reduced to but eight millions, enjoys not nearly so much affluence, as when it amounted to twenty-four.99

Some writers100 have considered a dense population as an index of national prosperity; and, doubtless, it is a certain sign of enlarged national production. But general prosperity implies the general diffusion and abundance of all the necessaries, and some of the superfluities of life amongst all classes of the population. Some parts of India and of China are oppressed with population, and with misery also; but their condition would be nowise improved by thinning its numbers, at least if it were brought about by a diminution of the aggregate product. Instead of reducing the numbers of the population, it were far more desirable to augment the gross product; which may always be effected by superior individual activity, industry, and frugality, and the better administration, that is to say, the less frequent interference of public authority.

But it will naturally be asked, if the population of a country regularly keeps pace with its means of subsistence, what will become of it in years of scarcity and famine?

Hear what Stewart101 says on the subject: "There is a very great deception as to the difference between crops; a good year for one soil is bad for another." "It is far from being true," he continues, "that the same number of people consume always the same quantity of food. In years of plenty, every one is well fed;—food is not so frugally managed; a quantity of animals are fatted for use;—and people drink more largely, because all is cheap. A year of scarcity comes; the people are ill fed; and when the lower classes come to divide with their children, the portions are brought to be very small;" instead of saving, they consume their previous hoard; and after all, it is unhappily too true, that part of that class must suffer and perish.

This calamity is most common in countries overflowing with population, like Hindostan, or China, where there is little external or maritime commerce, and where the poorer classes have always been strictly limited to the mere necessaries of life. There, the produce of ordinary years is barely sufficient to allow this miserable pittance; consequently, the slightest failure of the crop leaves multitudes wholly destitute of common necessaries, to rot and perish by wholesale. All accounts agree in representing that famines are, for this reason, very frequent and destructive in China and many parts of Hindostan.

Commerce in general, and maritime commerce in particular facilitates the interchange of products, even with the most remote countries, and thus renders it practicable to import articles of subsistence, in return for several other kinds of produce; but too great a dependence on this resource, leaves the nation at the mercy of every natural or political occurrence, which may happen to intercept or derange the intercourse with foreign countries. The intercourse must then be preserved at all events, no matter whether by force or fraud, competition must be got rid of by every means, however unjustifiable; a separate province, or weak ally, perhaps, is obliged to purchase the national products, under restrictions equally galling, as the exaction of actual tribute; and a commercial monopoly enforced, even at the hazard of a war; all which evils make the state of the nation extremely precarious indeed.

The produce of England, in articles of human subsistence, had undoubtedly increased largely towards the end of the 18th century; but its produce in articles of apparel and household furniture had probably increased still more rapidly. The consequence has been, that immensity of production, which enables her to multiply her population beyond what the produce of her soil can support,102 and to bear up under the pressure of public burthens, to which there is no parallel nor even approximation. But England has suffered severely, whenever foreign markets have been shut against her produce; and she has sometimes been obliged to resort to violent means to preserve her external intercourse. She would act wisely, perhaps, in discontinuing those encouragements, that impel fresh capital into the channels of manufacture and external commerce, and directing it rather towards that of agricultural industry. It is probable, that in that case, several districts, which have not yet received the utmost cultivation of which they are susceptible, particularly many parts of Scotland and Ireland, would raise agricultural produce enough to purchase most part, if not the whole, of the surplus product of her manufactures and commerce beyond her present consumption.103 Great Britain would thereby create for herself a domestic consumption, which is always the surest and the most advantageous. Her neighbours, no longer offended by the necessarily jealous and exclusive nature of her policy, would probably lay aside their hostile feelings, and become willing customers. But, after all, if her manufactured should still be disproportioned to her agricultural produce, what is there to prevent her from adopting a system of judicious colonization, and thus creating for herself fresh markets for the produce of her domestic industry in every part of the globe, whence she might derive, in return, a supply of food for her superfluous population?104

In this particular, the position of France appears to be precisely opposite to that of Great Britain. It would seem, that her agricultural product is equal to the maintenance of a much larger manufacturing and commercial population. The face of the country presents the picture of high and general cultivation; but the villages and country towns are, for the most part, surprisingly small, poor, ill-built, and ill-paved, the few shops scantily supplied, and the public houses neither neat nor comfortable. It is plain, the agricultural product must either be less than the appearance would indicate, or it must be consumed in a thriftless and unprofitable manner; probably both these causes are in operation.

In the first place, the production is far less than it might be; and that is chiefly owing to three causes:—1. The want of capital, particularly in enclosures, live stock, and amelioration:105 2. The indolence of the cultivators, and the too general neglect of weeding, trimming the hedges, clearing the trees of moss, destroying insects, &c. &c. 3. The neglect of a proper alternation of crops, and of the most approved methods of cultivation.

In the second place, the consumption is unthrifty and unprofitable; for a great part of it is mere waste, and yields no human gratification whatever. To speak of one article alone, that is, of firing, which is an object of great value in districts, where coal and wood are scarce; the waste of it is enormous in the huts of the peasantry lighted as they often are by the door-way only, and admitting the rain down the chimney while the fire is burning. Unwholesome beverage or food, and the indulgence of the alehouse, are like injurious modes of consumption.

In fine, towns and villages would be more thickly spread, and would besides present an appearance of greater affluence, were the generality of the inhabitants more active and industrious, and actuated by the laudable emulation, tinctured perhaps with some little vanity, rather of possessing every object of real utility, and exhibiting in their domestic arrangements the utmost order and neatness, than of living in indolence upon the rent of a trifling patrimony, or the scanty salary of some useless public employ. The small proprietor, with an income of 3 or 400 dollars per annum, just sufficient to vegetate upon, might double or triple it perhaps by adding the revenue derivable from personal industry; and even those engaged in useful occupations do not push them to the full extent of their activity and intelligence. Moreover, the spirit of inquiry and improvement has probably been disheartened by the example of frequent ill success; although the failure has commonly been occasioned by the want of judgment, perseverance, and frugality.

National population is uniformly proportionate to the quantum of national production; but it may vary locally within the limits of each state, according to the favourable or unfavourable operation of local circumstances. A particular district will be rich, because its soil is fertile, its inhabitants industrious, and possessed of capital accumulated by their frugality; in like manner as a family will surpass its neighbours in wealth, because of its superior intelligence and activity. The boundaries and political constitutions of states affect population only, inasmuch as they affect the national production. The influence of religion and national habits upon population is precisely analogous. All travellers agree, that protestant are both richer and more populous than catholic countries; and the reason is, because the habits of the former are more conducive to production.

SECTION II.

Of the influence of the Quality of a national product upon the local distribution of the Population.

For the earth to be cultivated, it is necessary that population should be spread over its surface; for industry and commerce to flourish, it is desirable to collect together in those spots, where the arts may be exercised with the most advantage; that is to say, where there can be the greatest subdivision of labour. The dyer naturally establishes himself near the clothier; the druggist near the dyer; the agent, or owner, of a vessel employed in the transport of drugs will approximate in locality to the druggist; and so of other producers in general.

At the same time, all such as live without labour on the interest of capital, or the rent of landed property, are attracted to the towns, where they find brought to a focus, every luxury to feed their appetites, as well as a choice of society, and a variety of pleasure and amusement. The charms of a town life attract foreign visiters, and all such as live by their labour, but are free to exercise it wherever they like. Thus, towns become the abode of literary men and artizans, and likewise the seats of government, of courts of justice, and most other public establishments; and their population is enlarged by the addition of all the persons attached to such establishments, and all who are accidentally brought thither by business.

Not but what there is always a number of country residents, that are employed in manufacturing industry, exclusive of such as make it their abode in preference. Local convenience, running water, the contiguity of a forest or a mine, will draw a good deal of machinery, and a number of labourers, in manufacture, out of the precincts of towns. There are, likewise, some kinds of work which must be performed in the neighbourhood of the consumers, that of the tailor, the shoemaker, or the farrier; but these are trifling compared with the manufacturing industry of all kinds executed in towns.

Writers on political economy have calculated, that a thriving country is capable of supporting in its towns, a population equal to that of the country. Some examples lead to an opinion, that it could support a still greater proportion, were its industry directed with greater skill and its agriculture conducted with more intelligence and less waste, even supposing its soil to be of very moderate fertility.106

Again, the cultivation of pasture land, requiring much less human labour than that of arable, it follows, that, in grazing countries, a greater proportion of the inhabitants can apply themselves to the arts of industry; which are therefore more attended to in pasture than in corn countries. Witness Flanders, Holland, and Normandy that was.107

From the period of the irruption of the barbarians into the Roman empire, down to the 17th century, that is to say, to a date almost within living memory, the towns made but little figure in the larger states of Europe. That portion of the population, which was thought to live upon the cultivators of the land, was not then, as now, composed principally of merchants and manufacturers, but consisted of a nobility, surrounded by numerous retainers, of churchmen and other idlers, the tenants of the chateau, the abbey, or the convent, with their several dependencies; very few of them living within the towns. The products of manufacture and commerce were very limited indeed; the manufacturers were the poor cottagers, and the merchants mere pedlars; a few rude implements of husbandry, and some very clumsy utensils and articles of furniture, answered all the purposes of cultivation and ordinary life. The fairs, held three or four times in the year, furnished commodities of a superior quality, which we should now look upon with contempt; and what rare household articles, stuffs, or jewels, of price, were from time to time imported from the commercial cities of Italy, or from the Greeks of Constantinople, were regarded as objects of uncommon luxury and magnificence, far too costly for any but the richest princes and nobles.

In this state of things, the towns of course made but a poor figure. Whatever magnificence they may possess in our time is of very modern date. In all the towns of France together, it would be impossible to point out a single handsome range of buildings, or fine street, of two hundred years' antiquity. There is nothing of anterior date, with the exception of a few Gothic churches, but clumsy tenements huddled together in dirty and crooked streets, utterly impassable to the swarm of carriages, cattle, and foot-passengers, that indicates the present population and opulence.

No country can yield the utmost agricultural produce it is equal to, until every part of its surface be studded with towns and cities. Few manufactures could arrive at perfection, without the conveniences they afford; and, without manufactures, what is there to give in exchange for agricultural products? A district whose agricultural products can find no market, feeds not half the number of inhabitants it is capable of supporting; and the condition, even of those it does support, is rude enough, and destitute both of comfort and refinement; they are in the lowest stage of civilization. But, if an industrious colony comes to establish itself in the district, and gradually forms a town, whose inhabitants increase till they equal the numbers of the original cultivators, the town will find subsistence on the agricultural product of the district, and the cultivators be enriched by the product of the industry of the town.

Moreover, towns offer indirect channels for the export of the agricultural values of the district to a distant market. The raw products of agriculture are not easy of transport, because the expense soon swallows up the total price of the commodity transported. Manufactured produce has greatly the advantage in this respect; for industry will frequently attach very considerable value to a substance of little bulk and weight. By the means of manufacture, the raw products of national agriculture are converted into manufactured goods of much more condensed value, which will defray the charge of a more distant transport, and bring a return of produce adapted to the wants of the exporting country.

There are many of the provinces of France, that are miserable enough at present, yet want nothing but towns to bring them into high cultivation. Their situation would, indeed, be hopeless, were we to adopt the system of that class of economists, which recommends the purchase of manufactures from foreign countries, with the raw produce of domestic agriculture. 108

However, if towns owe their origin and increase to the concentration of a variety of manufactures, great and small, manufactures, again, are to be set in activity by nothing but productive capital; and productive capital is only to be accumulated by frugality of consumption. Wherefore, it is not enough to trace the plan of a town, and give it a name; before it can have real existence, it must be gradually supplied with industrious hands, mechanical skill, implements of trade, raw materials and the necessary subsistence of those engaged in industry, until the completion and sale of their products. Otherwise, instead of founding a city, a mere scaffolding is run up, which must soon fall to the ground, because it rests upon no solid foundation. This was the case with regard to Ecatherinoslaw, in the Crimea; and was, indeed, foreseen by the emperor Joseph II., who assisted at the ceremony of its foundation, and laid the second stone in due form: "The empress of Russia and myself," said he to his suite, "have completed a great work in a single day: she has laid the first stone of a city, and I have laid the finishing one."

Nor will capital alone suffice to set in motion the mass of industry and the productive energy necessary to the formation and aggrandizement of a city, unless it present also the advantages of locality and of beneficent public institutions. The local position of Washington, it should seem, is adverse to its progress in size and opulence: for it has been outstripped by most of the other cities of the Union;109 whereas, Palmyra, in ancient times, grew both wealthy and populous, though in the midst of a sandy desert, solely because it had become the entrepot of commerce between Europe and eastern Asia. The same advantage gave importance and splendour to Alexandria, and, at a still more remote period, to Egyptian Thebes. The mere will of a despot could never have made it a city of a hundred gates, and of the magnitude and populousness recorded by Herodotus. Its grandeur must have been owing to its vicinity to the Red Sea and the channel of the Nile, and to its central position between India and Europe.110

If a city cannot be raised, neither does it seem, that its further aggrandizement can be arrested by the mere fiat of the monarch. Paris continued to increase, in defiance of abundance of regulations issued by the government of the day to limit its extension. The only effectual barrier is that opposed by natural causes, which it would be very difficult to define with precision, for it consists rather of an aggregate of little inconveniences, than of any grand or positive obstruction. In overgrown cities, the municipal administration is never well attended to; a vast deal of valuable time is lost in going from one quarter to another: the crossing and jostling is immense in the central parts: and the narrow streets and passages, having been calculated for a much smaller population, are unequal to the vast increase of horses, carriages, passengers, and traffic of all sorts. This evil is felt most seriously at Paris, and accidents are growing more frequent every day; yet new streets are now building on the same defective plan, with a certain prospect of a like inconvenience in a very few years hence.

[1.]My brother, Louis Say, of Nantes, has attacked this position in a short tract entitled, Principles Causes de la Richesse et de la Misère des Peuples et des Particuliers, 8vo. Paris. Déterville. He lays down the maxim, that objects are items of wealth, solely in respect of their actual utility, and not of their admitted or recognised utility. In the eye of reason, his position is certainly correct; but in this science relative value is the only guide. Unless the degree of utility be measured by the scale of comparison, it is left quite indefinite and vague, and, even at the same time and place, at the mercy of individual caprice. The positive nature of value was to be established, before political economy could pretend to the character of a science, whose province it is to investigate its origin, and the consequences of its existence.

[2.]In the earlier editions of this work, I had described the measure of value to be the value of the other product, that was the point of comparison, which was incorrect. The quantity and not the value of that other product, is the measure of value in the object of valuation. This mistake gave rise to much ambiguity of demonstration, which the severity of criticism, both fair and unfair, has taught me to correct. Fas est et ab hoste doceri.

[3.]It is scarcely necessary to mention, that when commodities are exchanged, not for one another, but for money, the case is nowise varied. No seller ever takes money for his own consumption, or for any other purpose, than as an object of a second exchange; so that, in reality, the product sold is exchanged for the product bought with the price. When a bushel of wheat has been sold for dollar, and 7 lbs. of coffee bought with that dollar, the wheat has actually been bartered for the coffee, and the money that has intervened has withdrawn itself as completely, as if it had never appeared at all in the transaction. Wherefore it is quite correct to say, that relative value is determined by the relation of commodities one to another, and not solely by that of each commodity to money.

[4.]It must not be inferred from this passage, that I mean to say, that the productive agency exerted in raising a product, whose charges of production have amounted to a dollar, although it is saleable for 75 cents only, is therefore worth but 75 cents. My position merely implies, that this amount of productive service has, in such case, raised a value of 75 cents only, though it might have raised a value of a dollar.

[5.]Ricardo, Prin. Pol. Econ. and Taxation.

[6.]A pickle made of the roe of sturgeons, a favourite condiment of Russian diet.

[7.]Hence the futility of any attempt to compare the wealth of different nations, of France and England for instance, by comparison of the value of their respective national products. Indeed, two values are not capable of comparison, when placed at a distance from each other. The only fair way of comparing the wealth of one nation with that of another, is, by a moral estimate of the individual welfare in each respectively.

[8.]And will be so for the most part, though not entirely, wherever the members of the community have no other hope of subsistence, than from the product of their own productive means; for the whole surplus of revenue thus created, is sure to go, in the end, to the appropriators of the natural sources of production; leaving those, whose productive means are merely personal, to employ them upon some other object, or upon an enlarged production of the same object. And this is a complete answer to the position of Sismondi and Malthus, that economy of human productive exertion makes the multiplication of unproductive consumers, not only probable, but necessary. But where a poor-law or monastic establishment provides for the subsistence of the human agency thus rendered superfluous, there will probably be no increase of national revenue consequent upon a saving of productive agency; for the surplus labour is thereby released from the necessity of exertion in some other channel. With such institutions, the enlargement of productive power by machinery or otherwise may be very great, without any enlargement of national production, revenue, or wealth. Translator.

[9.]Vide Wealth of Nations, book i. c. 5.

[10.]The cost of production is what Smith calls the natural price of products, as contrasted with their current or market price, as he terms it. But it results from what has been said above, that every act of barter or exchange, among the rest even that implied in the act of production, is conducted with reference to current price.

[11.]Within the last hundred years, the improvements of industry, effected by the advance of human knowledge, more especially in the department of natural science, have vastly abridged the business of production, but the slow progress in moral and political science, and particularly in the branch of social organisation, has hitherto prevented mankind from reaping the full benefit of those improvements. Yet it would be wrong to suppose they have reaped none at all. The pressure of taxation has indeed been doubled, tripled, or even quadrupled; yet population has increased in most countries of Europe; which is a sign, that a portion at least of the increase of products has fallen to the lot of the subject; and the population, besides being augmented, is likewise better lodged, clothed, and conditioned and I believe better fed too, than it was a century ago.

[12.]I find in the Recherches of Dupre de Saint Maur, that in 1342, an ox was sold from 10 to 11 livres tournois. This sum then contained 7 oz. of fine silver, which was worth about 28 oz. of the present day; and 28 oz. of our present money are coined into 171 fr. 30 c., (32 dollars,) which is lower than the price of an ordinary ox. A lean ox bought in Poitou for 300 fr., and afterwards fatted in Lower Normandy, will sell at Paris for from 450 to 500 fr. (84 to 93 dollars.) Butcher's meat has, therefore, more than doubled in price since the 14th century; and probably most other articles of food likewise; and, if the labouring classes had not at the same time been greatly benefited by the progress of industry, and put in possession of additional sources of revenue, they would be worse fed than in the time of Philip of Valois.

This may be easily explained. The growing revenues of the industrious classes have enabled them to multiply, and consequently to swell the demand for all objects of food. But their supply can not keep pace with the increasing demand, because, although the same surface of soil may be rendered more productive, it can not be so to an indefinite degree; and the supply of food by the channel of external commerce, is more expensive than by that of internal agriculture on account of the bulky nature of most of the articles of aliment.

[13.]Our data in relation to the products of former times are too few to enable us to deduce from them any precise result; but those at all acquainted with the subject will see, that, whether over or under-stated, will make no difference in the reasoning. The statistic researches of the present generation will provide future ages with more accurate means of calculation, but will add nothing to the solidity of the principles upon which it must be made.

[14.]Of this nature are the evil effects of taxation, (especially if it be exorbitant) upon the general wealth of the community, independently of its effects upon the individual assessed. The cost of production, and consequently the real price of commodities, are aggravated thereby, and their aggregate value diminished.

[15.]I have met with persons, who imagined themselves adding to national wealth, by favouring the production of expensive, in preference to that of cheaper articles. In their opinion, it is better to make a yard of rich brocade than one of common sarsenet. They do not consider, that, if the former costs four times as much as the latter, it is because it requires the exertion of four times as much productive agency, which could be made to produce four yards of the latter, as easily as one of the former. The total value is the same; but society derives less benefit; for a yard of brocade makes fewer dresses than four yards of sarsenet. It is the grand curse of luxury, that it ever presents meanness in company with magnificence.

[16.]Dupont de Nemours (Physiocratie. p. 117.) says, that "it must not be supposed, that the cheapness of commodities is advantageous to the lower classes; for the reduction of prices lessens the wages of the labourer, curtails his comforts, and affords him less work and lucrative occupation." But theory and practice both controvert this position. A fall of wages, occasioned solely by a fall in the price of commodities, does not diminish the comforts of the labourer, and, inasmuch as the low price of wages enables the adventurer to produce at a less expense, it tends powerfully to promote the vent and demand for the produce of labour.

Melon, Forbonnais, and all the partisans of the exclusive system, or balance of trade, concur with the economists in this erroneous opinion; and it has been re-affirmed by Sismondi, in his Nouveaux Prin. d'Econ. Pol. liv. iv. c. 6.; where the lower price of products is treated as an advantage gained by the consumer upon the producer, in despite of the obvious impossibility of any loss to the labouring or other productive classes, by a reduction tantamount only to the saving in the cost of production.

[17.]The Earl of Lauderdale published in 1807, a work, entitled, "Researches on the Nature and Origin of Public Wealth, and on the Causes which concur in its Increase;" the whole reasoning of which is built on this erroneous proposition, that the scarcity of a commodity, though it diminish the wealth of society in the aggregate, augments that of individuals, by increasing the value of that commodity in the hands of its possessors. Whence the author deduces the unsound conclusion, that national, differs in principle from individual wealth. He has not perceived, that, whenever a purchaser is obliged to make the acquisition by the sacrifice of a greater value, he loses just as much as the seller gains; and that every operation, designed to procure this kind of benefit, must occasion to one party a loss, equivalent to the gain of another.

He likewise refers this imaginary difference between the principle of public and of private wealth to this circumstance; that the accumulation of capital, which is an advantage to individual, is detrimental to national wealth, by obstructing the consumption, which is the stimulus of industry. He has fallen into the very common error of supposing, that capital is, by accumulation, withdrawn from consumption; whereas, on the contrary, it is consumed, but in a re-productive way, and so as to afford the means of a perpetual recurrence of purchase, which can occur but once in the case of unproductive consumption. Vide Book III. infrà. Thus it is, that a single error in principle, vitiates a whole work. The one in question is built upon this unsound foundation; and, therefore, serves only to multiply, instead of reducing the intricacies of the subject.*

[18.]The vast means at the disposal of Napoleon might have been successfully directed to this grand object, and then he would have left the reputation of having contributed to civilize, enrich, and people the world; and not of having been its scourge and devastator. When the Barbary shore shall be lined with peaceful, industrious, and polished inhabitants, the Mediterranean will be an immense lake, furrowed by the commerce of the wealthy nations, peopling its shores on every side.

[19.]Traité Historique, Leblanc: and, Essai sur les Monnaies, by Dupre de Saint Maur

[20.]Suprà, book i. chap. 21. sect. 7.

[21.]The increased intensity of the demand for silver compared with its supply, consequent upon the discovery of America, is stated at 2½ to 1, because, but for this increase of demand, the tenfold supply would have reduced its value to one-tenth of what it had been previously to that event, and given to 100 oz. the value of 10 oz. only. But 100 oz. were only reduced to one-fourth of their former value, i. e. to the value of 25 oz.; which bears to 10 oz. the ratio of 2½ to 1. This could not have been the case, unless the demand for silver, compared with the supply, had advanced in that proportion. But the supply having increased tenfold in the same interval, if we would find the ratio of the actual increase of the demand for silver, whether for the purposes of circulation, of luxury, or of manufacture, since the first discovery of the American mines, we must multiply 2½ by 10, which will give 25. And probably this estimate will not exceed the truth, although 25 times may seem a prodigious advance. However, it would doubtless have been infinitely less considerable, but for the influx of supply from America; for the excessive dearness of silver would have greatly curtailed the use of it. Silver plate would probably be as rare as gold plate is now; and silver coin would be less abundant, because it would go further, and be of higher value.

[22.]Art. Monnaies.

[23.]If we are to believe Ricardo, the increase of demand has no effect upon value, which is determined solely by the cost of production. He seems not to have perceived, that it is demand that makes productive agency an object of appreciation. A diminution of the demand for silver bullion would throw all those mines out of work, of which the lower scale of price was not adequate to the charges of bringing the product to market.

[24.]In a poor country, after a dealer has disposed of his wares, he is sometimes a long while before he can provide himself with the returns he has in view; and, during the interval, the money-proceeds remain idle in his hands. Moreover, in a poor country, the investment of money is always difficult. Savings are slow and gradual, and are seldom turned to profitable account, until after a lapse of many years; so that a great deal of money is always lying by in a state of inaction.

[25.]Ricardo, whom I look upon as the individual in Europe the best acquainted with the subject of money, both in theory and in practice, has shown, in his Proposal for an economical and secure Currency, that, when the good government of the state may be safely reckoned upon, paper may be substituted for the whole of a metallic money; and a material possessed of no intrinsic value by skilful management, be made to supplant a dear and cumbrous one, whose metallic properties are never called into play by the functions of money.

[26.]Humboldt. Essai Pol. sur la Nouvelle Espagne, 8vo. tom. iv. p. 222.

[27.]Wealth of Nations, book i. c. 11. The manufacturing consumption of Birmingham and other towns has greatly increased since the date of that work.*

[28.]We are assured by Humboldt, that the produce of the mines of Mexico has, in the last 100 years, been increased in the ratio of 110 to 25; also, that such is the abundance of silver ore, in the chain of the Andes, that, reckoning the number of veins either worked superficially, or not worked at all, one would be led to imagine, that Europe has hitherto had a mere sample of their incalculable stores. Essai Pol. sur la N. Espagne, 8vo. tom. iv. p. 149.

The very slight and gradual depreciation of gold and silver, effected by their immense and increasing annual supply, is one amongst many proofs of the rapid and general advance of human wealth, whereby the demand is made to keep pace with the supply. Yet I am inclined to think, that their value, after remaining nearly stationary for a century, has within the last thirty years begun again to decline. The setier of wheat, Paris measure, which was for a long time, on an average, sold for 4 oz. of silver, has now risen to 4½ oz., and rents are raised upon every renewal of lease. All other things seem to be rising in the like proportion: which indicates, that silver is undergoing a depreciation of relative value.*

[29.]It has been already seen, that the demand for every product is great, in proportion to the degree of its utility, and to the quantity of other products possessed by others, and capable of being given in exchange. In other words, the utility of an object, and the wealth of the purchasers, jointly determine the extent of the demand.

[30.]In digesting the plan of this work, I hesitated for a long time, whether or no to place the analysis of value before that of production; to explain the nature of the quality produced, before entering upon the investigation of the mode of its production. But it appeared to me, that to make the foundation of value intelligible, it was necessary to have a previous knowledge of wherein the cost of production consists; and for that purpose to have a just and enlarged conception of the agents of production, and of the service they are capable of yielding.

[31.]In the above instance of the watch, many of the artisans are themselves the adventurers in respect to their own industry; in which case their receipts are profits, not wages. If the maker exclusively of the chain himself, buys the steel in its rude state, works it up, and sells the chain on his own account, he is the adventurer in respect to this particular part of the manufacture. A flax-spinner buys a few penny-worth of flax, spins it, and converts her thread into money. Part of this money goes to the purchase of more flax; this is her capital; another portion is spent in satisfying her wants; this is the joint profit of her industry and her little capital, and forms her revenue.

[32.]Even that portion of the gross value, which is absorbed in the maintenance or restoration of the vested capital or machinery. If his works need repairs, which are executed by the proper mechanic, the sum expended in them forms the revenue of that mechanic, and is to the clothier a simple advance, which is refunded, like any other, by the value of the product when completed.

[33.]Part of the value created is due to natural agency, amongst which that of land is comprised. But, as stated above in Book I., land is treated as a machine or instrument, and its appropriator as the producer that sets it in motion; in like manner as the productive quality of capital is said to be the productive quality of the capitalist to whom it belongs. Mere verbal criticism is of little moment, when once the meaning is explained; it is the correctness of the idea, and not of the expression, that is material.

[34.]The term national revenue, has been sometimes incorrectly applied to the financial receipts of the state. Individuals, indeed, pay their taxes out of their respective revenues; but the sum levied by taxation is not revenue, but rather a tax upon revenue, and sometimes unhappily upon capital too.

[35.]Their profit arises from increase of value effected by the transport upon both the export and the import, by the time they have reached their destination respectively.

[36.]I speak here of the adventurers, masters, or tradesmen; the mere labourer or journeyman benefits only, as it were, by re-action. The farmer, who is an adventurer in agriculture, employed in raising products for human sustenance, lies under disadvantages, that very much curtail his profits. His concerns are too much at the mercy of his landlord, and of the financial exactions of public authority, to say nothing of the vicissitudes of seasons, to be very gainful on the average.

[37.]The reasoning of this whole chapter is superfluous and inconclusive. Where value is left to find its natural level, one class of productive agency will, in the long run, be equally recompensed with another, presenting an equipoise of facility or difficulty, of repute or disrepute, of enjoyment or suffering, in the general estimation of mankind; this he states fully in the next chapter. If our author means here to say merely, that a large class of productive agency will receive a larger portion of the general product as its recompense or revenue, or that agency in permanent employ will obtain a regular and permanent recompense, he has taken a very circuitous mode of expressing a position, which is, indeed, almost self-evident. The grand division of productive agency is into corporeal and intellectual; whereof the former is, on the average, the more amply rewarded by the rest of mankind, because the latter, in some measure, rewards itself. Thus, the profits of printing and bookselling are, on the whole, more liberal than those of authorship; because the latter is partly paid in self gratification, in vanity, or conscious merit. Translator.

[38.]Book I. c. 15.

[39.]Wealth of Nations, book i. c. 10.

[40.]Ibid.

[41.]Nay, even more than annuity interest on the sums spent in the education of the person who receives the salary; strictly speaking, it should be annuity interest upon the total sum devoted to the same class of study, whether it have or have not been made productive in its kind. Thus the aggregate of the fees of a physician ought to replace not only what has been spent in their studies, but, in addition, all the sums expended in the instruction of the students, who may have died during their education, or whose success may not have repaid the care bestowed upon them; for the stock of medical industry in actual existence could never have been reared, without the loss of some part of the outlay devoted to medical instruction. However, there is little use in too minute attention to accuracy in the estimates of political economy, which are frequently found at variance with fact, on account of the influence of moral considerations in the matter of national wealth, an influence that does not admit of mathematical estimation. The forms of algebra are therefore inapplicable to this science, and serve only to introduce unnecessary perplexity. Smith has not once had recourse to them.

[42.]I do not mean to include the superior orders of the clergy, whose benefices are extremely rich and well paid, though upon principles of state policy.

[43.]From which, however, is to be deducted the average loss on the general balance of less successful competitors in the same line. It does not appear, that, in England at least, any allowance is to be made for personal consideration, which is seldom attached in a high ratio even to the greatest excellence in the department of pure art. There is no instance of a sculptor or a painter arriving at the honours of the peerage, which have been placed within the reach of successful commercial enterprise. Translator.

[44.]Such of my readers as may imagine, that the sum of the production of a country is greater, when the scale of price is unnaturally high, are requested to refer to what has been said on the subject, suprà, Chap. 3, of this Book.

[45.]Smith is greatly embarrassed by his neglect of the distinction between the profits of superintendency, and those of capital. He confounds them under the general head of profits of stock; and all his sagacity and acuteness have scarcely been sufficient to expound the causes, which influence their fluctuations. Wealth of Nations, book i. c. 8. And no wonder he found himself thus perplexed; their value is regulated upon entirely different principles. The profits of labour depend upon the degree of skill, activity, judgment, &c. exerted; those of capital, on the abundance or scarcity of capital, the security of the investment, &c.

[46.]Vide suprà, Book I. chap. 6.

[47.]By the term labourer, I mean, the person who works on account of a master-agent, or adventurer, in industry; for such as are masters of their own labour, like the cobbler in his stall, or the itinerant knife-grinder, unite the two characters of adventurer and labourer; their profits being in part governed by the circumstances detailed in the preceding section, and partly by those developed in this. It is necessary also to premise, that the labour spoken of in the present section is that, which requires little or no study or training; the acquisition of any talent or personal skill entitles the possessor to a further profit, regulated upon the principles explained, suprà, sect. 1. of this chapter.

[48.]A full-grown man is an accumulated capital; the sum spent in rearing him is indeed consumed, but consumed in a reproductive way, calculated to yield the product man.

[49.]The evidence examined before a committee of the House of Commons of England, in 1815, leads to the conclusion, that the high price of food, at that period, had the effect of depressing, rather than elevating the scale of wages. I have myself remarked the similar effect of the scarcities in France, of the years 1811 and 1817. The difficulty of procuring subsistence either forced more labourers into the market, or exacted more exertion from those already engaged; thus occasioning a temporary glut of labour. But the necessary sufferings of the labouring class at the time must inevitably have thinned its ranks.

[50.]Malthus, Essay on Popul. ed. 5. b. iii. c. 13.

[51.]The second and last of these circumstances are neither of them necessarily, universally, or permanently, followed by the depression of the rate of wages. When a new object of import does not supersede one of either home or foreign production, it must tend to raise the rate of wages, as it can only be procured by enlarged home production. The emigration of consumers, continuing to draw subsistence from the country they desert, leaves in activity an equal mass of human labour, though possibly with some variation of employment. Besides it may be temporary only, as that of the English to the continent, and of the Irish both to England and to the continent; who possibly might be brought back by an improvement of domestic finances or of domestic security and comfort. Translator.

[52.]Saving-banks have succeeded in several districts of England, Holland, and Germany; particularly where the government has been wise enough to withhold its interference. The Insurance Company of Paris has set one on foot, upon the most liberal principles and with the most substantial guarantee. It is to be hoped, that the labouring classes in general will see the wisdom of placing their little savings in such an establishment, in preference to the hazardous investments they have often been decoyed into. There is besides a further national advantage in such a practice, namely, that of augmenting the general mass of productive capital, and consequently extending the demand for human agency.*

[53.]Nouveaux Prin. d'Econ. Pol. liv. vii. c. 9.

[54.]Wealth of Nations, book i. c. 8.

[55.]The "multiplication of mankind" is not, as is here asserted by our author, alone dependent upon "agricultural products;" but, likewise, upon every other description of commodities essential to human maintenance and support. Food, or subsistence, is unquestionably indispensable to the existence of man; but not more necessary to his prolonged being and health, than raiment, shelter, and fire. The position of Mr. Malthus, which limits population to subsistence only, and which is here taken for granted and adopted by our author, is not accurate or just; and by the more recent political economical inquirers has, therefore, either been modified or abandoned. Professor Senior, in his "Two Lectures on Population, delivered before the University of Oxford in Easter Term, 1828," in considering the general principles, adopts the following proposition, as what appears to him an outline of the laws of population: "That the population of a given district is limited only by moral or physical evil, or by the apprehension of a deficiency in the means of obtaining those articles of wealth; or, in other words, those necessaries, decencies and luxuries, which the habits of the individuals of each class of the inhabitants of that district lead them to require." American Editor.

[56.]Vide infrà, Book III. on the subject of re-productive consumption.

[57.]Esprit des Lois, liv. xxi. c. 20.

[58.]Voyage d'Anacharsis, tom. iv. p. 371.

[59.]This is strongly illustrated by the unfunded and the funded debt of Great Britain. The former, in the shape of exchequer and treasury bills, bears a rate of interest considerably lower than the latter in the shape of stock; because the bills are convertible readily at par; whereas, the usual rise and fall of the capital stock is much greater, than the interest upon it for short periods. Translator.

[60.]The personal restraint of the debtor has nowhere been carried to such extreme length as in England. Not only was a debtor at one time liable to imprisonment pendent lite, and before the debt was legally established, and that for the smallest sum; but the term of his imprisonment in execution after judgment, was absolutely unlimited. The hardship, in both these particulars, was partially remedied before the erection of our insolvent code; and that code has still further alleviated the condition of the debtor. But the whole system is vitiated, and in a great measure, neutralised, by total neglect of all measures for the prevention of insolvency, in limine. The grand expedient is, publicity of property; which, in the first place, gives the creditor the means of estimating beforehand, and with more accuracy, the grounds and fair extent of his debtor's credit; and in the next, enables him, in case of default, to resort to those means, instead of endeavouring to discover or extort them by personal restraint. Thus it is, that one error of policy is sure to engender another. Translator.

[61.]See the description of the Plague at Florence, as given after Boccaccio by Sismondi, in his admirable Histoire des Républiques d'Italie. A similar effect was observed at several of the most dreadful epochs of the French revolution.

[62.]Raynal, Histoire Philosophique, tom. i.

[63.]Wealth of Nations, book i. c. 9.

[64.]Suprà, Book I. chap. 11. It has been remarked that the rate of interest is usually somewhat lower in towns, than in country places. Wealth of Nations, book i. c. 9. The reason is plain. Capital is for the most part in the hands of the wealthy residents of the towns, or at least of persons who resort to them for their business, and carry with them the commodity they deal in, i. e. capital, which they do not like to employ at much distance from their own inspection. Towns, and particularly great cities, are the grand markets for capital, perhaps even more than for labour itself; accordingly, labour is there comparatively dearer than capital. In the country, where there is little unemployed capital, the contrary is observable. Thus, usury is more prevalent in country places; it would be less so, if the business of lending were more safe and in better repute.*

[65.]Vide suprà, Book I. chap. 10, 11, on the mode of employing, and on the transformation and accumulation of capital. What is here said does not militate against the positions laid down in Book I. chap. 22. on the representatives of money. A bill of exchange, with good names upon it, is only an expedient for borrowing of a third person actual and positive value, in the interim between the negotiation and the maturity of the bill. Bills and notes, payable on demand, or at sight, whether issued by the government, or by private banking-establishments, are a mere substitution of a cheap paper agent of circulation, in the place of a costly and metallic agent. The monetary functions of the metal being executed by the paper, the former is set free for other objects; and, inasmuch as it is exchangeable for other commodities or implements of industry, a positive accession is made by the substitution to the natural capital; but no further. The degree of the accession is limited strictly to the amount of value required for the business of circulation, and dispensed with by this expedient; which amount is a mere trifle, in comparison with the total value of the national capital.

[66.]Many loans on interest are made without bearing that name, and without implying a transfer of money. When a retail dealer supplies his shop by buying of the manufacturer or wholesale dealer, he borrows at interest, and repays, either at a certain term, or before it, retaining the discount, which is but the return of the interest charged him in addition to the price of the goods. When a provincial dealer makes a remittance to a banker at Paris, and afterwards draws upon his banker, he lends to him, during the time that elapses between the arrival of the remittance and the payment of the draft. The interest of this advance is allowed in the interest account which the banker annexes to the merchant's account current. In the Cours d'Economie Politique, compiled by Storch, for the instruction of the young grand-dukes of Russia, and printed at Petersburgh, tom. vi. p. 103, we are informed, that the English merchants, or factors, settled in Russia, sell to their customers at a credit of twelve months, which enables the Russian purchaser of current articles, to realize long before the day of payment, and turn the proceeds to account in the interim; thereby operating with English capital, never intended to be so employed. It is to be presumed, that the English indemnify themselves for this loss of interest, by the additional price of their goods. But the average rate of profit upon capital in Russia is so high, that even this round-about way of borrowing is sufficiently profitable to the native dealers.

[67.]This is no contradiction to the former position, that the precious metals form part of the capital of society. They form an item of capital, but not of disposable, or lendable capital; for they are already employed, and not in search of employment;—employed in the business of circulating value from one hand to another. If their supply exceed the demand for this object, they are sent to other parts, where their price continues higher; if their general abundance lower their price everywhere, the sum of their value is not increased, but a larger quantity of them is given in exchange for the same value in other commodities.

[68.]If interest were always low in proportion to the greater supply of money, it would be lower in Portugal, Brazil, and the West Indies, than in Germany, Switzerland, &c., which is by no means the case.

[69.]Essays of D. Hume, part ii. ess. 4. Wealth of Nations, book ii. c. 4. It is well for the student in political economy, that Locke and Montesquieu have not written more upon it; for the talent and ingenuity of a writer serve only to perplex a subject he is not thoroughly acquainted with. To say the truth, a man of lively wit can not satisfy his own mind without a degree of speciousness and plausibility, which is of all things the most dangerous to the generality of readers, who are not sufficiently grounded in principle to discover an error at first sight. In those sciences, which consist in mere compilation and classification, as in botany or natural history, one can scarcely read too much; but in those dependent upon the deduction of general laws from particular facts, the better course is to read little, and select that little with judgment.

[70.]This omission is justified by Smith, on the following grounds. "Let us suppose," says he, "that in some particular place, where the common annual profits of a manufacturing stock are 10 per cent, there are two different manufactures, in one of which the coarse materials annually wrought up cost only 700l., while the finer materials in the other cost 7000l. If the labour in each cost 300l. per annum, the capital employed in the one will amount only to 1000l.; whereas that employed in the other will amount to 7300l. At the rate of 10 per cent, therefore, the undertaker of the one will expect a yearly profit of 100l. only, and that of the other 730l.;" and he goes on to infer, "that the profit is in proportion to the capital, and not to the labour and skill of inspection and direction." But the instance put is altogether inconclusive; and it is equally easy to suppose the case of two manufactures, carried on in the same place, and in the same line, each with an equal capital of 1000l. the one under the conduct of an active, frugal, and intelligent manager, the other under that of an idle, ignorant, and extravagant one; the former yielding a profit of 150l. per annum, the latter one of 50l. only. The difference in this case will arise, not from any difference in the respective capitals employed, but from the difference in the skill and industry employing them; which latter qualities will be more productive in the one instance than in the other.

[71.]Book II. chap. 7. sect. 3.

[72.]To say nothing of the other motives, that attract industry towards any particular profession or repel it thence, which have been noticed in the preceding chapter. These motives sometimes operate all in the same direction, and then the profits of both industry and capital rise or fall together; when they act in opposite directions, the difference on the profit of capital balances that on the profit of industry; or vice versâ.

[73.][The reasoning of this whole section appears to me to be unsound and inconclusive. There is no distinction in point of productiveness, between any of the various employments of capital. There can, in short, be no line drawn between the different productive channels, into which capital may be directed. Whatever occupations tend to supply the wants and increase the comforts and accommodations of life, are, in the strictest sense of the word, equally productive, and nearly in the same proportion augment the national wealth. The capital employed in the carrying-trade between one foreign country and another is as advantageous to the individual and nation to which it belongs, as the capital employed at home. For, as has been already remarked in relation to the profits of industry (vide note page 6) in the absence of all restraints, the profits of all the different employments of capital, will be on an equality or nearly approaching it, inasmuch as any material difference will cause its diversion to a more productive channel, and thus restore the equilibrium. In a word, capital flows into the carrying-trade only because it yields a greater profit than it otherwise would do, did it not take that direction.

Moreover, there is no exception to the general principle, that what is most productive to the individual is also so to the community at large. Notwithstanding the contrary assertion of our author, in the foregoing section, a capital lent to, or employed in, a foreign country, if it yield to the proprietors and nation the highest rate of interest, must necessarily afford the national revenue as much, and extend the same assistance to the national industry, as if it were employed within the pale of the nation. If, for example, a capital lent abroad, give employment to foreign industry and natural agents, it is because its productive service, when things, I must again repeat, are left to take their natural course, will yield a larger revenue to its owners. Were not this the case, this capital would not seek employment abroad, but remain at home. The revenue produced by capital employed abroad, if the proprietor does not himself at the same time emigrate there, must be the means of calling into activity, and giving a greater development to the productive faculties of the national industry and land, as this revenue must be consumed, either productively or unproductively at home.] American Editor.

[74.]In the preceding chapter, I have given the interest, precedence of the profit, of capital, because the former helps to render the latter more intelligible. I have here adopted a contrary arrangement, because the consideration of the profit of land elucidates the subject of rent.

[75.]Malthus, in his Essay on Population, book i. c. 405, has given a detail of some of the revolting extremes, to which savage tribes have been reduced by the want of a regular supply of food.

[76.]Destutt de Tracy. Commentaire sur l'Esprit de Lois, c. 13. Ricardo*Prin. Of Pol. Econ. and Tax. c. 2.

[77.]According to these writers, even the interest of capital is not given as the recompense of its concurrence in the business of production. I have already exposed the fallacy of this opinion, suprà, chap. 8. sect. 2.

[78.]As well as a demand for the capital and industry requisite for the cultivation.

[79.]This catalogue of adverse circumstances, all bearing more strongly upon the profit of land, than upon that of other sources of revenue, explains the frequent and unavoidable remission of rent to the farmer, and proves the accuracy of M. de Sevigne's judgment, when she writes from the country:—"I wish my son could come here and convince himself of the fallacy of fancying oneself possessed of wealth, when one is only possessed of land." Lettre 224.

[80.]This is not universally true. In England, where agriculture has attained a high degree of perfection, arable farms require much larger capitals than formerly; and a farmer is commonly a much richer man, than the majority of the tradesmen in his neighbourhood. Translator.

[81.]The capital, vested in improvements upon land, is sometimes of greater value than the land itself. This is the case with dwelling-houses.

[82.]If, however, this capital be the fruit of his personal frugality, he robs France of no part of her wealth existing previous to his arrival. Had he continued resident there, the aggregate of the capital of France would have been increased to the full extent of his accumulation; but, in taking the whole away with him, he takes no more than his own earnings, and no value but what is of his own creation, in so doing, he commits no individual, and, therefore, no national wrong.

[83.]In the common course of things, such an addition is a national benefit, because it is an accession to the secondary source of production, i. e. industry. But defective human institutions may convert a benefit into a curse; as where a poor-law system gives gratuitous subsistence to a part of the population, capable of labour, but not incited by want. In such case, every additional human being may be a burthen instead of a prize; for he may be one more on the list of idle pensioners. Translator.

[84.]It will be shown in Book III. that the interest is equally lost, whether spent internally or externally.

[85.]Raynal tells us, that, inasmuch as the East India Company derived a revenue from Bengal, to be consumed in Europe, it must infallibly drain it of specie in the end, since the company is the only merchant, and imports no specie itself. But Raynal is mistaken in this. In the first place, private merchants do carry the precious metals to India, because they are of more value there than in Europe; and that very reason also deters the servants of the company, who may have made fortunes in Asia, from remitting them in specie.

And if it were to be suggested, that a fortune, remitted to Europe, is less substantial and more speedily dissipated, when it arrives in the shape of goods, than when in that of specie, this again would be an error. The form, that property happens to assume, does not affect its substantiality; when once transferred to Europe, it may be converted into specie, or land, or what not. It is the amount of values, and not the temporary form they appear under, which, in this colonial connexion, as in that of international trade, is the essential circumstance.

[86.]This is a harsh word, yet probably justified by the history of the original acquisition. But the scene has now changed; the servants of the sovereign company no longer look to spoliation as a public or private resource, but are content with the liberal remuneration of laborious duties, civil, military, and financial. A slight examination of the connexion between Britain and her Asiatic dependencies will show, how small a balance is remitted to the former in any shape; and it should be remembered that part, even of this, is but the interest of loans raised in England, for the purposes of Indian administration, though not always of a wise or paternal character. Translator.

[87.]The complete interception of all export of objects of value would not help them towards the point of intent; because free communication occasions a much greater influx than efflux of wealth. Value, or wealth, is by nature fugitive and independent. Incapable of all restraint, it is sure to vanish from the fetters that are contrived to confine it, and to expand and flourish under the influence of liberty.

[88.]Although all products are necessary to the social existence of man, the necessity of food being of all others most urgent and unceasing, and of most frequent recurrence, objects of aliment are justly placed first in the catalogue of the means of human existence. They are not all, however, the produce of the national territorial surface; but are procurable by commerce as well as by internal agriculture; and many countries contain a greater number of inhabitants than could subsist upon the produce of their land. Nay, the importation of another commodity may be equivalent to an importation of an article of food. The export of wines and brandies to the north of Europe is almost equivalent to an export of bread; for wine and brandy, in great measure, supply the place of beer and spirits distilled from grain, and thus allow the grain, which would otherwise be employed in the preparation of beer or spirits, to be reserved for that of bread.

[89.]The practice of infanticide in China proves, that the local prejudices of custom and of religion there counteract the foresight which tends to check the increase of population; and one can not but deplore such prejudices; for the human misery resulting from the destruction is great, in proportion as its object is more fully developed, and more capable of sensation. For this reason it would be still more barbarous and irrational policy to multiply wars, and other means of human destruction, in order to increase the enjoyments of the survivors; because the destructive scourge would affect human beings in a state more perfect, more susceptible of feeling and suffering, and arrived at a period of life when the mature display of his faculties renders man more valuable to himself and to others.

[90.]The Hospice de Bicetre, near Paris, contains, on the average, five or six thousand poor. In the scarcity of the year 1795, the governors could not afford them food, either so good or so abundant as usual; and I am assured by the house-steward of the establishment, that at that period almost all the inmates died.

It would appear from the returns given in a tract entitled "Observations on the Condition of the Labouring Classes," by J. Barton, that the average of deaths, in seven distinct manufacturing districts of England, has been proportionate to the dearness, or, in other words, to the scarcity of subsistence. I subjoin an extract from his statements.

From the same returns it appears, that the scarcity occasioned less mortality in the agricultural districts. The reason is manifest: the labourer is there more commonly paid in kind, and the high sale-price of the product enabled the farmer to give a high purchase-price for labour.*

[91.]Not but that accidental causes may sometimes qualify these general rules. A country, where property is very unequally distributed, and where a few individuals consume produce enough for the maintenance of numbers, will doubtless subsist a smaller population, than a country of equal production, where wealth is more equally diffused. The very opulent are notoriously averse to the burthen of a family; and the very indigent are unable to rear one.

[92.]Vide Stewart, On Political Economy, book i. c. 4. Quesnay Encyclopédie. art. Grains. Montesquieu, Esprit des Lois, liv. 18. c. 10. and liv. 23. c. 10. Buffon, ed. de Bernard, tom. iv. p. 266. Forbonnais, Principes et Observations, p. 39, 45. Hume, Essays, part 2. Ess. 2. Œuvres de Poivre, p. 145, 146. Condillac, Le Commerce et le Gouvernement, part 1. chap. 24, 25. Verri, Reflexions sur l'Economie Politique, c. 210. Mirabeau, Ami des Hommes, tom. i. p. 40. Raynal, Histoire de l'Etablissement, liv. 21. s. 23. Chastellux, de la Félicité Publique, tom. ii. p. 205. Necker, Administration des Finances de France, c. 9. and Notes sur l'Eloge de Colbert. Condorcet, Notes sur Voltaire, ed. de Kepl. tom. xlv. p. 60. Smith, Wealth of Nations, book i. c. 8, 11. Garnier, Abrégé Elémentaire, part 1. c. 3. and Préface de sa Traduction de Smith. Canard, Principes d'Economie Politique, p. 133. Godwin, On Political Justice, book viii. c. 3. Clavière, De la France et des Etats Unis, ed. 2. p. 60, 315. Brown-Duignan, Essay on the Principles of National Economy, p. 97. Lond. 1776. Beccaria, Elementi di Economia Publica, par. prim. c. 2, 3. Gorani, Recherches sur la Science du Gouvernement, tom. ii. c. 7. Sismondi, Nouv. Prin. d'Econ. Pol. liv. vii. c. 1. et seq. Vide also, more especially, Malthus, Essay on Population, a work of considerable research; the sound and powerful arguments of which would put this matter beyond dispute, if it indeed had been doubted.

[93.]The simple laws of population, or their general principles, which are few and plain, are examined, discussed, and established with great ability by Professor Senior, of Oxford, as well in the two lectures on Population we have already referred to, as in his subsequent correspondence with Mr. Malthus, to which these lectures gave rise, and which Mr. Senior has subjoined to them, in an appendix. Full justice is done, by Mr. Senior, to the originality and depth of Mr. Malthus's views on Population, as well as to their great importance, at the time he first gave them to the public; the inaccuracy, nevertheless, in his statement of the general proposition, namely, the tendency of every people to increase in their numbers, more rapidly than in their wealth, is clearly pointed out, and the errors which flow from it satisfactorily exhibited. "If a single country," says Mr. Senior, "can be found in which there is now less poverty than is universal in a savage state, it must be true, that under the circumstances in which that country has been placed, the means of subsistence have a greater tendency to increase than the population." American Editor.

[94.]Vide Livii Hist. lib. vi. Plutarchi Moralia, xxx. De defectu oraculorum Strabonis, lib. vii.

[95.]Ustariz has remarked, that the most populous provinces of Spain are those, from which there has been the greatest emigration to America.

[96.]Quoted by Malthus, in his Essay on Popul. vol. ii.

[97.]"Une nuit de Paris reparera tout cela." It requires the care and expenditure of twenty successive years to replace the full-grown man, that a cannonball has destroyed in a moment. The destruction of the human race by war is far more extensive than is commonly imagined. The ravage of a cultivated district, the plunder of dwelling-houses, the demolition of establishments of industry, the consumption of capital, &c. &c. deprive numbers of the means of livelihood, and cause many more to perish, than are left on the field of battle.

[98.]Upon this principle, no capital improvement of the medicinal or chirurgical art, like that of vaccination for instance, can permanently influence national population; yet its influence upon the lot of humanity may be very considerable; for it may operate powerfully to preserve beings already far advanced in age, in strength, and in knowledge: whom to replace, would cost fresh births and fresh advances; in other words, abundance of sacrifices, privations, and sufferings both to the parents and the children. When population must be kept up by additional births, there is always more of the suffering incident to the entrance and the exit of human existence; for they are both of more frequent occurrence. Population may be kept up with half the number of births and deaths, if the average term of life be advanced from forty to fifty years. There will, indeed, be a greater waste of the germs of existence; but the condition of mankind must be measured by the quantum of human suffering, whereof mere germs are not susceptible. The waste of them is so immense, in the ordinary course of nature, that the small addition can be of no consequence. Were the vegetable creation endowed with sensation, the best thing that could happen to it would be, that the seeds of all the vegetables, now rooted up and destroyed, should be decomposed before the vegetable faculties were awakened.

[99.]If population depends on the amount of product, the number of births is a very imperfect criterion, by which to measure it. When industry and produce are increasing, births are multiplied disproportionately to the existing population, so as to swell the estimate; on the contrary, in the declining state of national wealth, the actual population exceeds the average ratio to the births.

[100.]Wallace, Condorcet, Godwin.

[101.]Sir James, of Coltness, book i. c. 17.

[102.]In a pamphlet entitled, Considerations on British Agriculture, published in 1814, by W. Jacob, a member of the Royal Society, and a well-informed writer upon agricultural topics, we are told, (p. 34,) that England ceased to be an exporter, and became an importer, of wheat, about the year 1800.

[103.]The writer last cited enters into long details to show, that the soil of the British isles could be made to produce at least a third more than their present product, ibid. p. 115. et seq.

[104.]By judicious colonization, I mean colonization formed on the principles of complete expatriation, of self-government without control of the mother-country, and of freedom of external relations; but with the enjoyment of protection only by the mother-country, while it should continue necessary. Why should not political bodies imitate in this particular the relation of parent and child? When arrived at the age of maturity, the personal independence of the child is both just and natural; the relation it engenders is, moreover, the most lasting and most beneficial to both parties. Great part of Africa might be peopled with European colonies formed on these principles. The world has yet room enough, and the cultivated land on the face of the globe is far inferior in extent to the fertile land remaining untilled. The earl of Selkirk has thrown much light on this matter, in his tract on Emigration and the State of the Highlands.

[105.]The want of capital prevents the employment of machinery for expediting the operations, like the thrashing machine in common use in England. This makes a larger supply of human agency requisite in agriculture; and the more mouths there are to be fed, the smaller will be the surplus produce, which alone is disposable.

[106.]There is good reason to believe, that the total population of England is more than the double of that employed in her internal agriculture. From the returns laid before parliament, 1811, it appears there were in Great Britain, inclusive of Wales and Scotland, 895,998 families employed in agriculture; and that the total number of families amounted to 2,544,215, which would give but a third of the population to the purposes of agriculture.

Supposing him to be correct, France, within her old boundary, could maintain, on this principle, a population of 41 millions, supposing her merely to double her agricultural population; and of 60 millions, supposing her industry were equally active with that of Great Britain.*

It is the general remark of travellers, that the traffic of the great roads of France is much less, than might be expected, in a country possessing so many natural advantages. This may be attributed chiefly to the small number and size of her towns; for it is the communication from town to town that peoples the great road; that of the rural population being principally from one part of the village or farm to another.

Thus much at least is certain, that, when the towns raise a product for foreign consumption, they are then enabled to draw from abroad provisions in return, and may sustain a population much larger in proportion to that of the country. Of this we have instances in the numerous petty states, whose territory alone is barely sufficient to afford subsistence to one of the suburbs of their capital.

[107.]This position is too general. A pastoral nation, devoting the whole of its territory to pasture, could spare a very small proportion of its population for commerce and manufacture; witness Tartary and the Pampas of South America. Where a dense manufacturing and commercial population makes it advantageous to the land-holder to devote his land to pasture, and look to foreigners for the supply of corn, as in Holland, a small proportion of the population may, indeed be required for domestic, but a large proportion will be required for the animation of foreign agriculture. Translator.

[108.][The slow progress of agriculture in these provinces of France is not attributable to the want of towns in the midst of them; towns and cities are a consequence, not the cause of the general prosperity of a country. Nor would the adoption of a different policy from that which recommends the purchase of manufactures from foreign countries with the raw produce of domestic agriculture, improve the situation of these districts. A system of policy which should attempt by restraints or encouragements, to divert a portion of the capital and industry employed in agriculture or commerce from those channels towards the erection of a town, or the establishment of a manufactory, with a view to promote the better cultivation of the soil, would be subversive of this end.

To what causes then must the misery, said by our author to prevail in those provinces, be ascribed, or what has retarded their agricultural improvement? The prosperity of agriculture, as well as that of every other branch of industry, depends upon the unrestrained operation of individual interest; not only furnishing motives to exertion, but knowledge to direct that exertion. All that is necessary to enable a state to reach the highest pitch of opulence, is not to disturb the action of this important principle. The obstacles, it will accordingly be found, which have opposed the progress of improvement in the countries alluded to, may be traced to the interference by the public authorities with the salutary operation of this powerful motive of action, or, in other words, to their bad laws and political institutions. Sometimes imposing restraints on the cultivator, and exposing him to numberless oppressions, either by prescribing the mode in which the soil shall be cultivated, or the products it shall yield. And, when not thus directly interfering with the business of production, prohibiting the exportation of the raw produce of the soil, and thereby depriving it of the best market. At other times harassing the husbandman with taxation, the shameful inequalities of which, whilst they relieve the higher orders, permit the burden to fall, almost exclusively, on his shoulders, or depriving him of the freedom of trade from province to province within his own country; but, above all, by perpetuating the inheritance of landed property in particular bodies or families, without the power of alienation. These are a few of the corrupt and barbarous laws which have retarded the agriculture, not of these particular provinces of France only, but of many of the fairest portions of Europe.] American Editor.

[109.][The local position of Washington, perhaps, is not as advantageous as that of some of the other cities of the Union; it certainly, however, has not been adverse to its progress in population and wealth. In the year 1800, when Washington became the seat of the general government, its whole population amounted to 3,210; according to the census, it contained in 1810, 8,208 inhabitants, in 1820, 13,247 inhabitants, and in 1830, 18,828 inhabitants. In the year 1820 the whole number of buildings was 2,208, of which 925 were of brick. By the assessment valuation of the year 1830, the whole number of buildings was 3,125. It cannot, therefore, be said to have been outstripped by most of the other cities in the progress of improvement.] American Editor.

[110.]There is some stretch of imagination in this. Probably the Egyptian Thebes was itself the centre of manufacture and commerce in its day, and not its entrepot; indeed, there is no reason to suppose a very active intercourse between India and Europe to have existed at so early a period; and, if it had, Thebes would hardly have been the entrepot. But central India furnishes itself instances of cities containing as large a population. Nineveh and Babylon seem to have been quite as populous; each was probably the central point of an enormous domestic industry. Translator.

[17.]The Earl of Lauderdale published in 1807, a work, entitled, "Researches on the Nature and Origin of Public Wealth, and on the Causes which concur in its Increase;" the whole reasoning of which is built on this erroneous proposition, that the scarcity of a commodity, though it diminish the wealth of society in the aggregate, augments that of individuals, by increasing the value of that commodity in the hands of its possessors. Whence the author deduces the unsound conclusion, that national, differs in principle from individual wealth. He has not perceived, that, whenever a purchaser is obliged to make the acquisition by the sacrifice of a greater value, he loses just as much as the seller gains; and that every operation, designed to procure this kind of benefit, must occasion to one party a loss, equivalent to the gain of another.

He likewise refers this imaginary difference between the principle of public and of private wealth to this circumstance; that the accumulation of capital, which is an advantage to individual, is detrimental to national wealth, by obstructing the consumption, which is the stimulus of industry. He has fallen into the very common error of supposing, that capital is, by accumulation, withdrawn from consumption; whereas, on the contrary, it is consumed, but in a re-productive way, and so as to afford the means of a perpetual recurrence of purchase, which can occur but once in the case of unproductive consumption. Vide Book III. infrà. Thus it is, that a single error in principle, vitiates a whole work. The one in question is built upon this unsound foundation; and, therefore, serves only to multiply, instead of reducing the intricacies of the subject.*

[27.]Wealth of Nations, book i. c. 11. The manufacturing consumption of Birmingham and other towns has greatly increased since the date of that work.*

[28.]We are assured by Humboldt, that the produce of the mines of Mexico has, in the last 100 years, been increased in the ratio of 110 to 25; also, that such is the abundance of silver ore, in the chain of the Andes, that, reckoning the number of veins either worked superficially, or not worked at all, one would be led to imagine, that Europe has hitherto had a mere sample of their incalculable stores. Essai Pol. sur la N. Espagne, 8vo. tom. iv. p. 149.

The very slight and gradual depreciation of gold and silver, effected by their immense and increasing annual supply, is one amongst many proofs of the rapid and general advance of human wealth, whereby the demand is made to keep pace with the supply. Yet I am inclined to think, that their value, after remaining nearly stationary for a century, has within the last thirty years begun again to decline. The setier of wheat, Paris measure, which was for a long time, on an average, sold for 4 oz. of silver, has now risen to 4½ oz., and rents are raised upon every renewal of lease. All other things seem to be rising in the like proportion: which indicates, that silver is undergoing a depreciation of relative value.*

[52.]Saving-banks have succeeded in several districts of England, Holland, and Germany; particularly where the government has been wise enough to withhold its interference. The Insurance Company of Paris has set one on foot, upon the most liberal principles and with the most substantial guarantee. It is to be hoped, that the labouring classes in general will see the wisdom of placing their little savings in such an establishment, in preference to the hazardous investments they have often been decoyed into. There is besides a further national advantage in such a practice, namely, that of augmenting the general mass of productive capital, and consequently extending the demand for human agency.*

[64.]Suprà, Book I. chap. 11. It has been remarked that the rate of interest is usually somewhat lower in towns, than in country places. Wealth of Nations, book i. c. 9. The reason is plain. Capital is for the most part in the hands of the wealthy residents of the towns, or at least of persons who resort to them for their business, and carry with them the commodity they deal in, i. e. capital, which they do not like to employ at much distance from their own inspection. Towns, and particularly great cities, are the grand markets for capital, perhaps even more than for labour itself; accordingly, labour is there comparatively dearer than capital. In the country, where there is little unemployed capital, the contrary is observable. Thus, usury is more prevalent in country places; it would be less so, if the business of lending were more safe and in better repute.*

[76.]Destutt de Tracy. Commentaire sur l'Esprit de Lois, c. 13. Ricardo*Prin. Of Pol. Econ. and Tax. c. 2.

[90.]The Hospice de Bicetre, near Paris, contains, on the average, five or six thousand poor. In the scarcity of the year 1795, the governors could not afford them food, either so good or so abundant as usual; and I am assured by the house-steward of the establishment, that at that period almost all the inmates died.

It would appear from the returns given in a tract entitled "Observations on the Condition of the Labouring Classes," by J. Barton, that the average of deaths, in seven distinct manufacturing districts of England, has been proportionate to the dearness, or, in other words, to the scarcity of subsistence. I subjoin an extract from his statements.

From the same returns it appears, that the scarcity occasioned less mortality in the agricultural districts. The reason is manifest: the labourer is there more commonly paid in kind, and the high sale-price of the product enabled the farmer to give a high purchase-price for labour.*

[106.]There is good reason to believe, that the total population of England is more than the double of that employed in her internal agriculture. From the returns laid before parliament, 1811, it appears there were in Great Britain, inclusive of Wales and Scotland, 895,998 families employed in agriculture; and that the total number of families amounted to 2,544,215, which would give but a third of the population to the purposes of agriculture.

Supposing him to be correct, France, within her old boundary, could maintain, on this principle, a population of 41 millions, supposing her merely to double her agricultural population; and of 60 millions, supposing her industry were equally active with that of Great Britain.*

It is the general remark of travellers, that the traffic of the great roads of France is much less, than might be expected, in a country possessing so many natural advantages. This may be attributed chiefly to the small number and size of her towns; for it is the communication from town to town that peoples the great road; that of the rural population being principally from one part of the village or farm to another.

Thus much at least is certain, that, when the towns raise a product for foreign consumption, they are then enabled to draw from abroad provisions in return, and may sustain a population much larger in proportion to that of the country. Of this we have instances in the numerous petty states, whose territory alone is barely sufficient to afford subsistence to one of the suburbs of their capital.

[*]The error of Lauderdale is analogous to that of Sismondi and of Malthus, and arises from the notion, that an extension of productive power makes an extension of unproductive consumption necessary; whereas, it is thereby rendered possible, or at the utmost probable only. The state, as well as its subjects, may consume in a way conducive to the further extension of productive power, and the state, like an individual, is powerful and wealthy in proportion to the extent of the productive sources in its possession, and to the fertility of those sources. Translator.

[*]Mr. Jacobs, in his work on the precious metals, to which we have already had occasion to refer, has shed much light on the consumption, as well as on the production, of gold and silver, both before and since the discovery of the American continent. His twenty-sixth chapter is devoted to an inquiry into the consumption of the precious metals from 1810 to 1830. This chapter abounds with highly instructive and curious details, which it would be here impossible to present, but which furnish the grounds of the following statements, also taken from the same chapter, and which fully demonstrate the great increase in the consumption of gold and silver, in what our author, in this note, calls "the manufacturing consumption," since the date of Dr. Adam Smith's work on the Wealth of Nations, to which he refers.According, then, to Mr. Jacobs, the annual consumption of the precious metals, from 1810 to 1830, in their application to ornamental and luxurious purposes, he estimates as follows:

American Editor.

[*]In a former note we referred to the great decline, since the year 1809, in the productiveness of the whole mines, both in this and in the eastern continent, on the authorities which Mr. Jacobs has given, in his learned work on the precious metals. From the same work, we here extract his concluding observations of the twenty-sixth chapter, in relation to the stock of coin now in existence, by which it will appear, that during the twenty years from 1810 to 1830, the diminution of gold and silver coin amounted to nearly one-sixth part of the whole stock."We have estimated," says Mr. Jacobs, "the stock of coin in existence at the end of the year 1809 to have been 380 million pounds; and the additions made to it between that period and the year 1829, at the rate of 5,186,800 pounds annually, would make it 103,736,000 pounds.

"During the period we have been considering, and indeed for many years before, the comparative value of gold to silver had scarcely experienced any alteration. According to the view here taken, the amount of gold applied to purposes of luxury had far exceeded that of silver, perhaps in the proportion of four to one; but, on the other hand, the treasure transferred to India and China has consisted chiefly of silver, and much more gold had been brought to Europe from those countries than had been conveyed to them. It has before (twenty-fifth chapter of this inquiry) been attempted to be shown that the durability of gold in coin is in the proportion of four to one greater than that of silver. It has, too, been shown that the recently increased produce of the mines of Russia has consisted chiefly of gold. These circumstances, on which our limits do not admit of enlargement, might be shown to be sufficient to account for the equable rate of value which has been preserved between the two metals during a long period." American Editor.

[*][In the principal cities of the United States, Saving-banks have also been established, and have been attended with so much benefit, that they are now spreading through every part of the Union. To the Friendly or Beneficial Societies there are strong objections, to which the Saving-banks are not liable. The Friendly Societies have, undoubtedly, done some good; but attended with a certain portion of evil. The following extract from a report of the Committee of the Highland Society, places these latter societies in a very proper light."During the last century, a number of Friendly Societies have been established by the labourers in different parts of Great Britain, to enable them to make provision against want. The principle of these societies usually is, that the members pay a certain stated sum periodically, from which an allowance is made to them upon sickness or old age, and to their families upon their death. These societies have done much good; but they are attended with some disadvantages. In particular, the frequent meetings of the members occasion the loss of much time, and frequently of a good deal of money spent in entertainments. The stated payments must be regularly made; otherwise, after a certain time, the member (necessarily from its being in fact an insurance) loses the benefit of all that he has formerly paid. Nothing more than the stated payments can be made, however easily the member might be able at the moment to add a little to his store. Frequently the value of the chances on which the societies are formed, is ill calculated; in which case either the contributors do not receive an equivalent for their payments, or too large an allowance is given at first, which brings on the bankruptcy of the institution. Frequently the sums are embezzled by artful men, who, by imposing on the inexperience of the members, get themselves elected into offices of trust. The benefit is distant and contingent; each member not having benefit from his contributions in every case, but only in the case of his falling into the situations of distress provided for by the society. And the whole concern is so complicated, that many have hesitation in embarking in it their hard-earned savings."] American Editor.

[*]These remarks are just in the main; but the advantage of town over country, in this particular, may be reduced to a very trifle, by the ease of internal communication. In England the difference is scarcely perceptible. Translator.

[*]This chapter of Ricardo is perhaps the least satisfactory and intelligible of his whole work. It goes upon the principle detailed by Malthus, in his Essay on Rent; viz. that the ratio of rent is determined by the difference in the product of land of different qualities, the worst land in cultivation yielding no rent at all. But there is a great deal of land yielding rent without any cultivation; and, in a country where the whole of the land is appropriated, none is ever cultivated without paying some rent or other. The downs of Wiltshire yield a rent, without any labour, or capital, being expended upon them; so likewise the forests of Norway; this rent is the natural product of the soil; it is paid for the perception of that natural product, between which, and the desire for it, an artificial difficulty is interposed by human appropriation. The whole rent is, therefore, referable, not to the quality of the land only, but to the quality jointly with the appropriation; and so it is in all cases. Wherever a difficulty is thus interposed, rent will be paid upon all land brought into cultivation; for why should the proprietor part with the temporary possession for nothing, any more than the capitalist with his capital? And the ratio of rent is determined, not altogether by the quality of the soil, but by the intensity—1. Of the desire, or demand for its productive agency; 2. Of the artificial difficulty interposed by nature and human appropriation. The quality of the soil may vary the intensity of the demand for it beyond all question; for the quality is the productive agency: but the supply of agricultural industry and capital in the market will also vary the proportion of its product, which industry and capital will expect for themselves. Why is rent highest, when a population is condensed on a limited territorial surface? because then the utility of its productive qualities is more strongly felt and desired, in consequence of their intense difficulty and attainment. And why is rent still further raised by the prohibition of the import of products of external agriculture? because the natural difficulty of obtaining the benefit of the productive agency of foreign land is aggravated, by the artificial difficulty interposed by legislative enactments. The degree of productive agency, of course, affects the amount of the product; but rent originates in the union of that agency, or utility, with difficulty of attainment, natural and artificial, and is regulated in its ratio by their combined intensity. Translator.

[*]The latter reason is not very satisfactory; for the total receipts of the corn-growers are probably not larger in years of scarcity, than in those of abundance. Translator.

[*]Our author has here fallen into a palpaple error. The ratio of the agricultural, to the total population of Great Britain, has not been varied as above stated, solely, or even chiefly by the multiplication of the commercial and manufacturing classes; but by the transfer of the human labour spared in agriculture to the two other branches of industry. Agriculture might occupy one third only of the population of France, and yet the total population be decreased and not multiplied. Translator.