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 produc