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Title:OnThePrinciplesofPoliticalEconomy,andTaxation

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ON

THEPRINCIPLES

OF

POLITICALECONOMY,AND

TAXATION.

BYDAVIDRICARDO,Esq.

LONDON:

JOHNMURRAY,ALBEMARLE-STREET

1817.

J.M CCREERY.Printer,BlackHorseCourt, London.

PREFACE.

THE produce of the earth—all that is derived from its surface by the united application of labour,machinery,andcapital, isdividedamongthreeclassesofthecommunity;namely,theproprietorofthe land, theownerof thestockorcapitalnecessaryfor itscultivation,andthe labourersbywhoseindustryitiscultivated.

But indifferent stagesof society, theproportionsof thewholeproduceof the earthwhichwill beallotted to each of these classes, under the names of rent, profit, and wages, will be essentiallydifferent; depending mainly on the actual fertility of the soil, on the accumulation of capital andpopulation,andontheskill,ingenuity,andinstrumentsemployedinagriculture.

Todeterminethelawswhichregulatethisdistribution,istheprincipalprobleminPoliticalEconomy:muchasthesciencehasbeenimprovedbythewritingsofTurgot,Stuart,Smith,Say,Sismondi,and

others, they afford very little satisfactory information respecting the natural course of rent, profit,andwages.

In1815,Mr.Malthusinhis"InquiryintotheNatureandProgressofRent,"andaFellowofUniversityCollege,Oxford,inhis"EssayontheApplicationofCapitaltoLand,"presentedtotheworld,nearlyat the same moment, the true doctrine of rent; without a knowledge of which it is impossible tounderstand the effect of the progress ofwealth on profits andwages, or to trace satisfactorily theinfluenceoftaxationondifferentclassesofthecommunity,particularlywhenthecommoditiestaxedare the productions immediately derived from the surface of the earth.AdamSmith, and the otherable writers to whom I have alluded, not having viewed correctly the principles of rent, have, itappearstome,overlookedmanyimportanttruths,whichcanonlybediscoveredafterthesubjectofrentisthoroughlyunderstood.

Tosupplythisdeficiency,abilitiesarerequiredofafarsuperiorcasttoanypossessedbythewriterofthefollowingpages;yetafterhavinggiventothissubjecthisbestconsideration—aftertheaidwhichhe has derived from the works of the above-mentioned eminent writers—and after the valuableexperiencewhichafewlateyears,aboundinginfacts,haveyieldedtothepresentgeneration—itwillnot,hetrusts,bedeemedpresumptuousinhimtostatehisopinionsonthelawsofprofitsandwages,andontheoperationof taxes.If theprincipleswhichhedeemscorrectshouldbefoundtobeso, itwillbeforothersmoreablethanhimselftotracethemtoalltheirimportantconsequences.

Thewriter, in combating received opinions, has found it necessary to advertmore particularly tothosepassagesinthewritingsofAdamSmithfromwhichheseesreasontodiffer;buthehopesitwillnot on that account be suspected that he does not, in commonwith all thosewho acknowledge theimportance of the science of Political Economy, participate in the admirationwhich the profoundworkofthiscelebratedauthorsojustlyexcites.

The same remarkmaybeapplied to the excellentworksofM.Say,whonotonlywas the first, oramongthefirst,ofcontinentalwriters,whojustlyappreciatedandappliedtheprinciplesofSmith,andwhohasdonemorethanallothercontinentalwriterstakentogether,torecommendtheprinciplesofthatenlightenedandbeneficialsystemtothenationsofEurope;butwhohassucceededinplacingthescience in amore logical, andmore instructive order; and has enriched it by several discussions,original,accurate,andprofound.1Therespect,however,whichtheauthorentertainsforthewritingsof this gentleman, has not prevented him fromcommentingwith that freedomwhich he thinks theinterestsofscience require,onsuchpassagesof the"EconomiePolitique,"asappearedatvariancewithhisownideas.

CONTENTS.

CHAP. PageI. OnValue 1II. OnRent 49III. OntheRentofMines 77IV. OnNaturalandMarketPrice 82V. OnWages 90

V*. OnProfits 116VI. OnForeignTrade 146VII. OnTaxes 186

VIII. TaxesonRawProduce 194VIII*. TaxesonRent 221

IX. Tithes 225X. Land-Tax 232XI. TaxesonGold 247XII. TaxesonHouses 262XIII. TaxesonProfits 269XIV. TaxesonWages 285XV. TaxesonotherCommoditiesthanRawProduce 330XVI. PoorRates 354XVII. OnSuddenChangesintheChannelsofTrade 363XVIII. ValueandRiches,theirDistinctiveProperties 377XIX. EffectsofAccumulationonProfitsandInterest 398XX. BountiesonExportation,andProhibitionsofImportation 417XXI. OnBountiesonProduction 449XXII. DoctrineofAdamSmithconcerningtheRentofLand 458XXIII. OnColonialTrade 476XXIV. OnGrossandNetRevenue 491XXV. OnCurrencyandBanks 499XXVI. OnthecomparativeValueofGold,Corn,andLabour,inRichandinPoorCountries 527XXVII. TaxespaidbytheProducer 538XXVIII. OntheInfluenceofDemandandSupplyonPrices 542XXIX.Mr.Malthus'sOpinionsonRent 549

CHAPTERI.

ONVALUE.

IT has been observed by Adam Smith, that "the word Value has two different meanings, andsometimes expresses the utility of someparticular object, and sometimes the power of purchasingother goodswhich the possession of that object conveys.The onemay be calledvalue in use; theother, value in exchange. The things," he continues, "which have the greatest value in use, havefrequentlylittleornovalueinexchange;and,onthecontrary,thosewhichhavethegreatestvalueinexchange, have little or no value in use." Water and air are abundantly useful; they are indeedindispensable toexistence,yet,underordinarycircumstances,nothingcanbeobtained inexchangeforthem.Gold,onthecontrary,thoughoflittleusecomparedwithairorwater,willexchangeforagreatquantityofothergoods.

Utility then is not themeasure of exchangeable value, although it is absolutely essential to it. If acommodity were in no way useful,—in other words, if it could in no way contribute to ourgratification,—itwouldbedestituteofexchangeablevalue,howeverscarceitmightbe,orwhateverquantityoflabourmightbenecessarytoprocureit.

Possessing utility, commodities derive their exchangeable value from two sources: from theirscarcity,andfromthequantityoflabourrequiredtoobtainthem.

Therearesomecommodities,thevalueofwhichisdeterminedbytheirscarcityalone.Nolabourcanincrease the quantity of such goods, and therefore their value cannot be lowered by an increased

supply.Somerarestatuesandpictures,scarcebooksandcoins,winesofapeculiarquality,whichcanbemadeonlyfromgrapesgrownonaparticularsoil,ofwhichthereisaverylimitedquantity,areallofthisdescription.Theirvalueiswhollyindependentofthequantityoflabouroriginallynecessarytoproduce them, and varies with the varying wealth and inclinations of those who are desirous topossessthem.

Thesecommodities,however,formaverysmallpartofthemassofcommoditiesdailyexchangedinthemarket.Byfarthegreatestpartofthosegoodswhicharetheobjectsofdesire,areprocuredbylabour; and they may be multiplied, not in one country alone, but in many, almost without anyassignablelimit,ifwearedisposedtobestowthelabournecessarytoobtainthem.

Inspeaking thenofcommodities,of theirexchangeablevalue,andof the lawswhichregulate theirrelativeprices,wemeanalwayssuchcommoditiesonlyascanbeincreasedinquantitybytheexertionofhumanindustry,andontheproductionofwhichcompetitionoperateswithoutrestraint.

In the early stages of society, the exchangeable value of these commodities, or the rule whichdetermines how much of one shall be given in exchange for another, depends solely on thecomparativequantityoflabourexpendedoneach.

"The real price of every thing," saysAdamSmith, "what every thing really costs to themanwhowantstoacquireit,isthetoilandtroubleofacquiringit.Whateverythingisreallyworthtothemanwhohasacquiredit,andwhowantstodisposeofit,orexchangeitforsomethingelse,isthetoilandtroublewhich itcansave tohimself,andwhich itcan imposeuponotherpeople.""Labourwas thefirstprice—theoriginalpurchase-moneythatwaspaidforallthings."Again,"inthatearlyandrudestate of society,which precedes both the accumulation of stock and the appropriation of land, theproportionbetweenthequantitiesoflabournecessaryforacquiringdifferentobjects,seemstobetheonlycircumstancewhichcanaffordanyruleforexchangingthemforoneanother.Ifamonganationofhunters,forexample,itusuallycosttwicethelabourtokillabeaverwhichitdoestokilladeer,onebeavershouldnaturallyexchangefor,orbeworthtwodeer.Itisnaturalthatwhatisusuallytheproduceoftwodays',ortwohours'labour,shouldbeworthdoubleofwhatisusuallytheproduceofoneday's,oronehour'slabour."2

That this is really the foundation of the exchangeable value of all things, excepting those whichcannotbeincreasedbyhumanindustry,isadoctrineoftheutmostimportanceinpoliticaleconomy;forfromnosourcedosomanyerrors,andsomuchdifferenceofopinioninthatscienceproceed,asfromthevagueideas,whichareattachedtothewordvalue.

Ifthequantityoflabourrealizedincommodities,regulatetheirexchangeablevalue,everyincreaseofthequantityof labourmustaugment thevalueof thatcommodityonwhichit isexercised,aseverydiminutionmustlowerit.

Adam Smith, who so accurately defined the original source of exchangeable value, and whowasboundinconsistencytomaintain,thatallthingsbecamemoreorlessvaluableinproportionasmoreor less labourwasbestowedon their production, has himself erected another standardmeasureofvalue,andspeaksofthingsbeingmoreorlessvaluable,inproportionastheywillexchangeformoreorlessofthisstandardmeasure.Sometimeshespeaksofcorn,atothertimesoflabour,asastandardmeasure;notthequantityoflabourbestowedontheproductionofanyobject,butthequantitywhichitcancommand in themarket:as if thesewere twoequivalentexpressions,andas ifbecauseaman'slabour had become doubly efficient, and he could therefore produce twice the quantity of a

commodity,hewouldnecessarilyreceivetwicetheformerquantityinexchangeforit.

Ifthisindeedweretrue,iftherewardofthelabourerwerealwaysinproportiontowhatheproduced,thequantityof labourbestowedonacommodity, and thequantityof labourwhich that commoditywouldpurchase,wouldbeequal,andeithermightaccuratelymeasurethevariationsofotherthings:but they are not equal; the first is under many circumstances an invariable standard, indicatingcorrectly the variations of other things; the latter is subject to as many fluctuations as thecommoditiescomparedwithit.AdamSmith,aftermostablyshewingtheinsufficiencyofavariablemedium,suchasgoldandsilver, for thepurposeofdeterminingthevaryingvalueofother things,hashimself,byfixingoncornorlabour,chosenamediumnolessvariable.

Goldandsilverarenodoubtsubjecttofluctuations,fromthediscoveryofnewandmoreabundantmines; but such discoveries are rare, and their effects, though powerful, are limited to periods ofcomparativelyshortduration.Theyaresubjectalsotofluctuation,fromimprovementsintheskillandmachinerywithwhichtheminesmaybeworked;asinconsequenceofsuchimprovements,agreaterquantity may be obtained with the same labour. They are further subject to fluctuation from thedecreasingproduceof themines,after theyhaveyieldedasupplyto theworld,forasuccessionofages.Butfromwhichof thesesourcesoffluctuationiscornexempted?Doesnot thatalsovary,onone hand, from improvements in agriculture, from improved machinery and implements used inhusbandry,aswellasfromthediscoveryofnewtractsoffertileland,whichinothercountriesmaybetakenintocultivation,andwhichwillaffect thevalueofcornineverymarketwhereimportationisfree? Is it noton theotherhand subject tobe enhanced invalue fromprohibitionsof importation,fromincreasingpopulationandwealth,andthegreaterdifficultyofobtainingtheincreasedsupplies,onaccountoftheadditionalquantityoflabourwhichthecultivationofinferiorlandsrequires?Isnotthevalueoflabourequallyvariable;beingnotonlyaffected,asallotherthingsare,bytheproportionbetween the supply anddemand,whichuniformlyvarieswith every change in the conditionof thecommunity,butalsobythevaryingpriceoffoodandothernecessaries,onwhichthewagesoflabourareexpended?

Inthesamecountrydoublethequantityoflabourmayberequiredtoproduceagivenquantityoffoodandnecessariesatone time, thatmaybenecessaryatanother, andadistant time;yet the labourer'srewardmaypossiblybevery littlediminished. If the labourer'swagesat theformerperiod,wereacertainquantityoffoodandnecessaries,heprobablycouldnothavesubsistedifthatquantityhadbeenreduced.Foodandnecessariesinthiscasewillhaverisen100percent.ifestimatedbythequantityoflabournecessarytotheirproduction,whiletheywillscarcelyhaveincreasedinvalue,ifmeasuredbythequantityoflabourforwhichtheywillexchange.

Thesameremarkmaybemaderespecting twoormorecountries. InAmericaandPoland,ayear'slabourwill producemuchmore corn than inEngland.Now, supposing all other necessaries to beequallycheapinthosethreecountries,woulditnotbeagreatmistaketoconclude,thatthequantityofcornawardedtothelabourer,wouldineachcountrybeinproportiontothefacilityofproduction?

Iftheshoesandclothingofthelabourer,could,byimprovementsinmachinery,beproducedbyonefourthofthelabournownecessarytotheirproduction,theywouldprobablyfall75percent.;butsofar is it frombeing true, that the labourerwould therebybeenabledpermanently to consume fourcoats,orfourpairofshoes,insteadofone,thathiswageswouldinnolongtimebeadjustedbytheeffectsofcompetition,andthestimulustopopulation, tothenewvalueofthenecessariesonwhichtheywereexpended.Iftheseimprovementsextendedtoalltheobjectsofthelabourer'sconsumption,weshould findhimprobablyat theendofavery fewyears, inpossessionofonlya small, if any,

addition tohis enjoyments, although the exchangeablevalueof those commodities, comparedwithanyothercommodity,inthemanufactureofwhichnosuchimprovementweremade,hadsustainedavery considerable reduction; and though theywere the produceof a very considerably diminishedquantityoflabour.

Itcannotthenbecorrect,tosaywithAdamSmith,"thataslabourmaysometimespurchaseagreater,andsometimesasmallerquantityofgoods,itistheirvaluewhichvaries,notthatofthelabourwhichpurchasesthem;"andtherefore,"thatlabouralonenevervaryinginitsownvalue,isalonetheultimateandrealstandardbywhichthevalueofallcommoditiescanatalltimesandplacesbeestimatedandcompared;"—butitiscorrecttosay,asAdamSmithhadpreviouslysaid,"thattheproportionbetweenthequantitiesoflabournecessaryforacquiringdifferentobjects,seemstobetheonlycircumstancewhich can afford any rule for exchanging them for one another;" or in otherwords, that it is thecomparativequantityofcommoditieswhichlabourwillproduce,thatdeterminestheirpresentorpastrelativevalue,andnotthecomparativequantitiesofcommodities,whicharegiventothelabourerinexchangeforhislabour.

If any one commodity could be found, which now and at all times required precisely the samequantity of labour to produce it, that commodity would be of an unvarying value, and would beeminentlyusefulasastandardbywhichthevariationsofotherthingsmightbemeasured.Ofsuchacommoditywehavenoknowledge,andconsequentlyareunabletofixonanystandardofvalue.Itis,however, of considerable use towards attaining a correct theory, to ascertain what the essentialqualities of a standard are, that wemay know the causes of the variation in the relative value ofcommodities,andthatwemaybeenabledtocalculatethedegreeinwhichtheyarelikelytooperate.

In speaking however of labour, as being the foundation of all value, and the relative quantity oflabourasdeterminingtherelativevalueofcommodities,Imustnotbesupposedtobeinattentivetothedifferentqualitiesoflabour,andthedifficultyofcomparinganhour's,oraday'slabour,inoneemployment,withthesamedurationoflabourinanother.Theestimationinwhichdifferentqualitiesoflabourareheld,comessoontobeadjustedinthemarketwithsufficientprecisionforallpracticalpurposes, and dependsmuch on the comparative skill of the labourer, and intensity of the labourperformed.Thescale,whenonceformed,isliabletolittlevariation.Ifaday'slabourofaworkingjewellerbemorevaluablethanaday'slabourofacommonlabourer,ithaslongagobeenadjusted,andplacedinitsproperpositioninthescaleofvalue.3

In comparing therefore the value of the same commodity, at different periods of time, theconsiderationofthecomparativeskillandintensityoflabour,requiredforthatparticularcommodity,needsscarcelytobeattendedto,asitoperatesequallyatbothperiods.Onedescriptionof labouratonetimeiscomparedwiththesamedescriptionoflabouratanother;ifatenth,afifth,orafourth,hasbeenaddedortakenaway,aneffectproportionedtothecausewillbeproducedontherelativevalueofthecommodity.

Ifapieceofclothbenowofthevalueoftwopiecesoflinen,andif,intenyearshence,theordinaryvalueof apieceof cloth shouldbe fourpiecesof linen,wemay safely conclude, that eithermorelabourisrequiredtomakethecloth,orlesstomakethelinen,orthatbothcauseshaveoperated.

AstheinquirytowhichIwishtodrawthereader'sattention,relatestotheeffectofthevariationsinthe relativevalueof commodities, andnot in their absolutevalue, itwillbeof little importance to

examineintothecomparativedegreeofestimationinwhichthedifferentkindsofhumanlabourareheld.Wemay fairly conclude, that whatever inequality there might originally have been in them,whatever the ingenuity, skill, or time necessary for the acquirement of one species of manualdexteritymorethananother,itcontinuesnearlythesamefromonegenerationtoanother;oratleast,that thevariation isvery inconsiderable fromyear toyear, and therefore, canhave little effect forshortperiodsontherelativevalueofcommodities.

"Theproportionbetweenthedifferentratesbothofwagesandprofitinthedifferentemploymentsoflabour and stock, seems not to be much affected, as has already been observed, by the riches orpoverty, the advancing, stationary, or declining state of the society. Such revolutions in the publicwelfare, though they affect thegeneral rates bothofwages andprofit,must in the end affect themequallyinalldifferentemployments.Theproportionbetweenthemthereforemustremainthesame,andcannotwellbealtered,atleastforanyconsiderabletime,byanysuchrevolutions."4

ItwillbeseenbytheextractwhichIhavemadeinpage4,fromthe"WealthofNations,"thatthoughAdam Smith fully recognized the principle, that the proportion between the quantities of labournecessaryforacquiringdifferentobjects,istheonlycircumstancewhichcanaffordanyruleforourexchangingthemforoneanother,yethelimitsitsapplicationto"thatearlyandrudestateofsociety,whichprecedesboththeaccumulationofstockandtheappropriationofland;"asif,whenprofitsandrent were to be paid, they would have some influence on the relative value of commodities,independentofthemerequantityoflabourthatwasnecessarytotheirproduction.

Adam Smith, however, has no where analyzed the effects of the accumulation of capital, and theappropriation of land, on relative value. It is of importance, therefore, to determine how far theeffectswhichareavowedlyproducedontheexchangeablevalueofcommodities,bythecomparativequantity of labour bestowed on their production, are modified or altered by the accumulation ofcapitalandthepaymentofrent.

First, as to the accumulationof capital.Even in that early state towhichAdamSmith refers, somecapital, thoughpossiblymadeandaccumulatedby thehunterhimselfwouldbenecessary toenablehimtokillhisgame.Withoutsomeweapon,neitherthebeavernorthedeercouldbedestroyed,andthereforethevalueoftheseanimalswouldberegulated,notsolelybythetimeandlabournecessarytotheirdestruction,butalsobythetimeandlabournecessaryforprovidingthehunter'scapital,theweapon,bytheaidofwhichtheirdestructionwaseffected.

Supposetheweaponnecessarytokillthebeaver,wereconstructedwithmuchmorelabourthanthatnecessary to kill the deer, on account of the greater difficulty of approaching near to the formeranimal,andtheconsequentnecessityofitsbeingmoretruetoitsmark;onebeaverwouldnaturallybeofmorevaluethantwodeer,andpreciselyforthisreason,thatmorelabourwouldonthewholebenecessarytoitsdestruction.

Alltheimplementsnecessarytokill thebeaveranddeermightbelongtooneclassofmen,andthelabour employed in their destructionmight be furnished by another class; still, their comparativepriceswouldbeinproportiontotheactuallabourbestowed,bothontheformationofthecapital,andon thedestructionof theanimals.Underdifferentcircumstancesofplentyor scarcityofcapital,ascomparedwithlabour,underdifferentcircumstancesofplentyorscarcityofthefoodandnecessariesessential to the support of men, those who furnished an equal value of capital for either oneemploymentorfor theother,mighthaveahalf,afourth,oraneighthof theproduceobtained, theremainderbeingpaidaswagestothosewhofurnishedthelabour;yet thisdivisioncouldnotaffect

the relative value of these commodities, since whether the profits of capital were greater or less,whether theywere 50, 20, or 10per cent., orwhether thewagesof labourwere highor low, theywouldoperateequallyonbothemployments.

Ifwesupposetheoccupationsofthesocietyextended,thatsomeprovidecanoesandtacklenecessaryfor fishing, others the seed and rude machinery first used in agriculture, still the same principlewouldholdtrue,thattheexchangeablevalueofthecommoditiesproducedwouldbeinproportiontothe labour bestowedon their production; not on their immediate production only, but on all thoseimplementsormachinesrequiredtogiveeffecttotheparticularlabourtowhichtheywereapplied.

Ifwelooktoastateofsocietyinwhichgreaterimprovementshavebeenmade,andinwhichartsandcommerce flourish, we shall still find that commodities vary in value conformably with thisprinciple: in estimating the exchangeable value of stockings, for example, we shall find that theirvalue, comparatively with other things, depends on the total quantity of labour necessary tomanufacturethem,andbringthemtomarket.First,thereisthelabournecessarytocultivatethelandonwhichtherawcottonisgrown;secondly,thelabourofconveyingthecottontothecountrywherethestockingsaretobemanufactured,whichincludesaportionofthelabourbestowedinbuildingtheshipinwhichitisconveyed,andwhichischargedinthefreightofthegoods;thirdly,thelabourofthespinnerandweaver;fourthly,aportionofthelabouroftheengineer,smith,andcarpenter,whoerected thebuildingsandmachinery,by thehelpofwhich theyaremade; fifthly, the labourof theretaildealer,andofmanyothers,whomitisunnecessaryfurthertoparticularize.Theaggregatesumof thesevariouskindsof labour, determines thequantityofother things forwhich these stockingswill exchange, while the same consideration of the various quantities of labour which have beenbestowedonthoseotherthings,willequallygoverntheportionofthemwhichwillbegivenforthestockings.

To convince ourselves that this is the real foundation of exchangeable value, let us suppose anyimprovement to be made in the means of abridging labour in any one of the various processesthroughwhichtherawcottonmustpass,beforethemanufacturedstockingscometothemarket,tobeexchangedforotherthings;andobservetheeffectswhichwillfollow.Iffewermenwererequiredtocultivate the raw cotton, or if fewer sailors were employed in navigating, or shipwrights inconstructing theship, inwhich itwasconveyed tous; if fewerhandswereemployed in raising thebuildingsandmachinery,orifthesewhenraised,wererenderedmoreefficient,thestockingswouldinevitablyfallinvalue,andconsequentlycommandlessofotherthings.Theywouldfall,becausealessquantityoflabourwasnecessarytotheirproduction,andwouldthereforeexchangeforasmallerquantityofthosethingsinwhichnosuchabridgmentoflabourhadbeenmade.

Economy in theuseof labournever fails to reduce the relativevalueofacommodity,whether thesavingbeinthelabournecessarytothemanufactureofthecommodityitself,orinthatnecessarytotheformationofthecapital,bytheaidofwhichitisproduced.Ineithercasethepriceofstockingswould fall, whether therewere fewermen employed as bleachers, spinners, andweavers, personsimmediatelynecessary to theirmanufacture; or as sailors, carriers, engineers, and smiths, personsmoreindirectlyconcerned.Intheonecase,thewholesavingoflabourwouldfallonthestockings,because that portion of labour was wholly confined to the stockings; in the other, a portion onlywould fall on the stockings, the remainder being applied to all those other commodities, to theproductionofwhichthebuildings,machinery,andcarriage,weresubservient.

Ineverysocietythecapitalwhichisemployedinproduction,isnecessarilyoflimiteddurability.Thefoodandclothingconsumedbythe labourer, thebuildings inwhichheworks, the implementswith

whichhislabourisassisted,areallofaperishablenature.Thereishoweveravastdifferenceinthetimeforwhichthesedifferentcapitalswillendure:asteam-enginewilllastlongerthanaship,ashipthan the clothing of the labourer, and the clothing of the labourer longer than the foodwhich heconsumes.

Accordingascapital is rapidlyperishable, and requires tobe frequently reproduced,or isof slowconsumption, it is classed under the heads of circulating, or of fixed capital. A brewer, whosebuildingsandmachineryarevaluableanddurable,issaidtoemployalargeportionoffixedcapital:onthecontrary,ashoemaker,whosecapitalischieflyemployedinthepaymentofwages,whichareexpendedonfoodandclothing,commoditiesmoreperishablethanbuildingsandmachinery,issaidtoemployalargeproportionofhiscapitalascirculatingcapital.

Twotradesthenmayemploythesameamountofcapital;butitmaybeverydifferentlydividedwithrespecttotheportionwhichisfixed,andthatwhichiscirculating.

Againtwomanufacturersmayemploythesameamountoffixed,andthesameamountofcirculatingcapital;butthedurabilityoftheirfixedcapitalsmaybeveryunequal.Onemayhavesteamenginesofthevalueof10,000l.theother,shipsofthesamevalue.

Besidesthealterationintherelativevalueofcommodities,occasionedbymoreorlesslabourbeingrequiredtoproducethem,theyarealsosubjecttofluctuationsfromariseofwages,andconsequentfallofprofits,ifthefixedcapitalsemployedbeeitherofunequalvalue,orofunequalduration.

Supposethatintheearlystagesofsociety,thebowsandarrowsofthehunterwereofequalvalue,andofequaldurability,with thecanoeand implementsof the fisherman,bothbeing theproduceof thesamequantityoflabour.Undersuchcircumstancesthevalueofthedeer,theproduceofthehunter'sday's labour,would be exactly equal to the value of the fish, the produce of the fisherman's day'slabour.Thecomparativevalueofthefishandthegame,wouldbeentirelyregulatedbythequantityoflabour realised in each; whatever might be the quantity of production, or however high or lowgeneralwagesorprofitsmightbe.Ifforexamplethecanoesandimplementsofthefishermanwereofthevalueof100l.andwerecalculatedtolastfortenyears,andheemployedtenmen,whoseannuallabour cost 100l. and who in one day obtained by their labour twenty salmon: If the weaponsemployed by the hunter were also of 100l. value and calculated to last ten years, and if he alsoemployedtenmen,whoseannuallabourcost100l.andwhoinonedayprocuredhimtendeer;thenthe natural price of a deer would be two salmon, whether the proportion of the whole producebestowedonthemenwhoobtainedit,werelargeorsmall.Theproportionwhichmightbepaidforwages,isoftheutmostimportanceinthequestionofprofits;foritmustatoncebeseen,thatprofitswouldbehighorlow,exactlyinproportionaswageswereloworhigh;butitcouldnotintheleastaffect therelativevalueoffishandgame,aswageswouldbehighor lowat thesame time inbothoccupations. If the hunter urged the plea of his paying a large proportion, or the value of a largeproportion of his game for wages, as an inducement to the fisherman to give him more fish inexchange for his game, the latterwould state that hewas equally affected by the same cause; andthereforeunderallvariationsofwagesandprofits,underalltheeffectsofaccumulationofcapital,aslongastheycontinuedbyaday'slabourtoobtainrespectivelythesamequantityoffish,andthesamequantityofgame,thenaturalrateofexchangewouldbe,onedeerfortwosalmon.

Ifwiththesamequantityoflabouralessquantityoffish,oragreaterquantityofgamewereobtained,the value of fish would rise in comparison with that of game. If, on the contrary, with the samequantityoflabouralessquantityofgame,oragreaterquantityoffishwasobtained,gamewouldrise

incomparisonwithfish.

Iftherewereanyothercommoditywhichwasinvariableinitsvalue,requiringatalltimes,andunderallcircumstances,preciselythesamequantityoflabourtoobtainit,weshouldbeabletoascertain,bycomparing the value of fish and gamewith this commodity, howmuch of the variationwas to beattributed to a causewhich affected the value of fish, andhowmuch to a causewhich affected thevalueofgame.

Supposemoneytobethatcommodity.Ifasalmonwereworth1l.andadeer2l.onedeerwouldbeworthtwosalmon.Butadeermightbecomeofthevalueofthreesalmon,formorelabourmightberequiredtoobtainthedeer,orlesstogetthesalmon,orboththesecausesmightoperateatthesametime. If we had this invariable standard, we might easily ascertain in what degree either of thesecauses operated. If salmon continued to sell for 1l.whilst deer rose to 3l. wemight conclude thatmore labourwas required toobtain thedeer. Ifdeercontinuedat thesamepriceof2l. and salmonsoldfor13s.4d.wemightthenbesurethatlesslabourwasrequiredtoobtainthesalmon;andifdeerroseto2l.10s.andsalmonfellto16s.8d.weshouldbeconvincedthatbothcauseshadoperatedinproducingthealterationoftherelativevalueofthesecommodities.

No alteration in the wages of labour could produce any alteration in the relative value of thesecommodities;forifprofitswere10percent.,thentoreplacethe100l.circulatingcapitalwith10percent.profit,theremustbeareturnof110l.:toreplacetheequalportionoffixedcapital,whenprofitsareat therateof10percent. thereshouldbeannuallyreceived16.27l.; for, thepresentvalueofanannuityof16.27l.fortenyears,whenmoneyisat10percent.,is100l.;consequentlyallthegameofthehuntershouldannuallysellfor126.27l.Butthecapitalofthefishermanbeingthesameinquantity,and divided in the same proportion into fixed and circulating capital, and being also of the samedurability,he,toobtainthesameprofits,mustsellhisgoodsforthesamevalue.Ifwagesrose10percent. and consequently 10 per cent.more circulating capital were required in each trade, it wouldequallyaffectbothemployments.Inboth,210l.insteadof200l.wouldberequiredinordertoproducethe former quantity of commodities; and these would sell precisely for the same money, namely126.27l.:theywouldthereforebeatthesamerelativevalue,andprofitswouldbeequallyreducedinbothtrades.

Thepricesofthecommoditieswouldnotrise,becausethemoneyinwhichtheyarevaluedisbythesuppositionofaninvariablevalue,alwaysrequiringthesamequantityoflabourtoproduceit.

Ifthegoldminefromwhichmoneywasobtainedwereinthesamecountry,inthatcase,aftertheriseofwages,210l.mightbenecessarytobeemployed,ascapital, toobtain thesamequantityofmetalthat200l.obtainedbefore:forthesamereasonthatthehunterandfishermanrequired10l.inadditiontotheircapitals,theminerwouldrequireanequaladditiontohis.Nogreaterquantityoflabourwouldbe required in any of these occupations, but it would be paid for at a higher price, and the samereasonswhichshouldmakethehunterandfishermanendeavourtoraisethevalueoftheirgameandfish,wouldcausetheowneroftheminetoraisethevalueofhisgold.Thisinducementactingwiththesameforceonallthesethreeoccupations,andtherelativesituationofthoseengagedinthembeingthesamebeforeandaftertheriseofwages,therelativevalueofgame,fish,andgold,wouldcontinueunaltered. Wages might rise twenty per cent., and profits consequently fall in a greater or lessproportion,withoutoccasioningtheleastalterationintherelativevalueofthesecommodities.

Nowsuppose,thatwiththesamelabourandfixedcapital,morefishcouldbeproduced,butnomoregoldorgame, therelativevalueoffishwouldfall incomparisonwithgoldorgame.If, insteadof

twenty salmon, twenty-fivewere the produce of one day's labour, the price of a salmonwould besixteen shillings instead of a pound, and two salmon and a half, instead of two salmon,would begiven in exchange for onedeer, but theprice of deerwould continue at 2l. as before. In the samemanner, if fewer fish could be obtained with the same capital and labour, fish would rise incomparative value. Fish thenwould rise or fall in exchangeable value, only becausemore or lesslabourwasrequiredtoobtainagivenquantity;anditnevercouldriseorfallbeyondtheproportionoftheincreasedordiminishedquantityoflabourrequired.

Ifwehadthenaninvariablestandard,bywhichwecouldmeasurethevariationinothercommodities,weshould find that theutmost limit towhich theycouldpermanently rise,wasproportioned to theadditionalquantityoflabourrequiredfortheirproduction;andthatunlessmorelabourwererequiredfortheirproduction,theycouldnotriseinanydegreewhatever.Ariseofwageswouldnotraisethemin money value, nor relatively to any other commodities, the production of which required noadditionalquantityof labour,whichemployedthesameproportionoffixedandcirculatingcapital,andfixedcapitalofthesamedurability.Ifmoreorlesslabourwererequiredintheproductionoftheother commodity, we have already stated that this will immediately occasion an alteration in itsrelativevalue,butsuchalterationisowingto thealteredquantityofrequisite labour,andnot to theriseofwages.

If the fixed and circulating capitals were in different proportions, or if the fixed capital were ofdifferent durability, then the relative value of the commodities produced, would be altered inconsequenceofariseofwages.

First,when the fixed and circulating capitalswere indifferent proportions, suppose that insteadof100l.fixedcapitaland100l.circulatingcapital,thehuntershouldemploy150l.fixedcapitaland50l.circulatingcapital,andthatthefishermanshouldonthecontraryemployonly50l.fixedcapitaland150l.circulatingcapital.

Ifprofitsbe10percent.,thehuntermustsellhisgoodsfor79l.8s.For,Toreplacehiscirculatingcapitalof50l.withaprofitof10percent.wouldrequireavalueof 55l.

Toreplacehisfixedcapitalwith10percent.profit,thepresentvalueofanannuityfortenyearsof24.4l.at10percent.being150l. 24.4l.

—— 79.4l.

Ifprofitsbe10percent.,thefishermanmustsellhisgoodsfor173l.2s.7d.Toreplacehiscirculatingcapitalof150l.withaprofitof10percent.wouldrequireavalueof 165l.

To replacehis fixedcapitalwith10percent.profit,one-thirdof thehunter' 8.13

——— 173.13l.

Now if wages rise, although neither of these commodities should require more labour for theirproduction,yettheirrelativevaluewillbealtered.Supposewagestorise6percent.,thehunterwouldnotrequiremorethananincreaseof3l.tohiscapital,toemploythesamenumberofmen,andobtain

thesamequantityofgame; thefishermanwouldrequire three times thatsum,or9l.Theprofitsofstockwouldfallto4percent.,thehunterwouldbeobligedtosellhisgamefor73l.12s.2d.

Toreplacehiscirculatingcapitalof53l.withaprofitof4percent. 55.12l.Toreplacefixedcapital,annuallywasted,thepresentvalueofanannuityof18.49l.fortenyears,being150l. 18.49 —— £73.61 ——Thefishermanwouldsellhisfishfor171l.11s.5d.viz. Toreplacehiscirculatingcapitalof159l.withaprofitof4percent. £165.360Toreplacefixedcapitalannuallywasted,thepresentvalueofanannuityof6.163l.,fortenyearsat4percent.,being50l. 6.163 ———— £171.523 Gamewastofishbefore as100to218.Itwouldnowbe as100to233.

Thuswesee,thatwitheveryriseofwages,inproportionasthecapitalemployedinanyoccupationconsistsofcirculatingcapital,itsproducewillbeofgreaterrelativevaluethanthegoodsproducedinanotheroccupation,wherealessproportionofcirculating,andagreaterproportionoffixedcapitalareemployed.

Secondly, suppose the proportions of fixed capital to be the same; but of different degrees ofdurability. In proportion as fixed capital is less durable, it approaches to the nature of circulatingcapital.Itwillbeconsumedinashortertime,anditsvaluereproducedinordertopreservethecapitalof themanufacturer.Wehave just seen, that inproportion as circulating capital preponderates in amanufacture,whenwagesrise,thevalueofcommoditiesproducedinthatmanufacture,isrelativelyhigher than that of commodities produced in manufactures where fixed capital preponderates. Inproportiontothelessdurabilityoffixedcapital,anditsapproachtothenatureofcirculatingcapital,thesameeffectwillbeproducedbythesamecause.

Suppose that an engine ismade,whichwill last for a hundredyears, and that its value is 20,000l..Suppose too, that this machine, without any labour whatever, could produce a certain quantity ofcommodities annually, and that profits were 10 per cent.: the whole value of the goods producedwouldbeannually2,000l.2s.11d.;fortheprofitof20,000l.

at10percent.perannum,isat10percent.perannum,is £2,000Andanannuityof2s.11d.will,attheendofthatperiod,replaceacapitalof20,000l. 211 ———Consequentlythegoodsmustsellfor £2000211

If the same amount of capital, viz. 20,000l., be employed in supporting productive labour, and beannuallyconsumedandreproduced,as it iswhenemployed inpayingwages, then togiveanequal

profit of 10 per cent. on 20,000l. the commodities producedmust sell for 22,000l. Now supposelabour so to rise, that instead of 20,000l. being sufficient to pay the wages of those employed inproducingthelattercommodities,20,952l.isrequired;thenprofitswillfallto5percent.:forasthesecommoditieswouldsellfornomorethanbefore,

viz. £22,000andtoproducethem £20,952wouldberequisite, ———therewouldremainnomorethan £1,048

onacapitalof20,952l.Iflaboursorose,that21,153l.wererequired,profitswouldfallto4percent.andifitrose,sothat21,359l.wasemployed,profitswouldfallto3percent.

But, as nowageswould be paid by the owner of themachine, whichwould last 100 years, whenprofits fell to 5 per cent. the price of his goodsmust fall to 1007l.13s. 8d. viz. 1000l. to pay hisprofits,and7l.13s.8d. toaccumulate for100yearsat5percent. to replacehiscapitalof20,000l.Whenprofitsfellto4percent.hisgoodsmustsellfor816l.3s.2d.,andwhenat3percent.for632l.16s.7d.Byariseinthepriceoflabourthen,under7percent.,whichhasnoeffectonthepricesofcommodities wholly produced by labour, a fall of no less than 68 per cent. is effected on thosecommodities wholly produced bymachinery. If the proprietor of themachine sold his goods formorethan632l.16s.7d.,hewouldgetmorethan3percent.,thegeneralprofitofstock;andasotherscouldfurnishthemselveswithmachinesatthesamepriceof20,000l.theywouldbesomultiplied,thathewouldbe inevitablyobliged tosink thepriceofhisgoods, till theyaffordedonly theusualandgeneralprofitsofstock.

Inproportionasthismachinewerelessdurable,priceswouldbelessaffectedbythefallofprofit,andtheriseofwages.If,forexample,themachinewouldlastonlytenyears,whenprofitswereat10percent.

thegoodsshouldsellfor £3254 whenat 5percent. 2590 4percent. 2465 3percent. 2344

forsucharethesumsrequisitetoplacehisprofitsonaparwithothers,andtoreplacehiscapitalattheendoftenyears;or,whichisthesamething,sucharetheannuitieswhich20,000l.wouldpurchasefortenyearsatthoserates.Ifthemachinewouldlastonlythreeyears,whenprofitswere10percent.

thepriceofthegoodswouldbe £8042 at 5percent. 7344 4percent. 7206 3percent. 7070

Ifitwouldlastonlyoneyear,whenprofitswere10percent.

thegoodswouldsellfor £22,000 at 5percent. 21,000

4percent. 20,800 3percent. 20,600

thereforewhenprofitsfellfrom10to3percent.thegoods,whichwereproducedwithequalcapitals,wouldfall

68percent.ifthemachinewouldlast 100years.28percent.ifthemachinewouldlast 10years.13percent.ifthemachinewouldlast 3years.Andlittlemorethan6percent.ifitwouldlastonly 1year.

These results are of such importance to the science of political economy, yet accord so littlewithsomeofitsreceiveddoctrines,whichmaintainthateveryriseinwagesisnecessarilytransferredtothepriceofcommodities,thatitmaynotbesuperfluoustoelucidatethesubjectstillfurther.

Amanufacturerofhatsemploysahundredmenatanannualexpenseof50l.each,whoproducehimcommoditiesof thevalueof8000l.Amachinecalculatedto lastpreciselyayear,andtodoequallywellthesameworkasthe100men,isofferedtohimfor5000l.,thesum,exactly,thatheisexpendingonwages.Itwillbeamatterofindifferencetothemanufacturer,whetherhepurchasethemachine,orcontinuetoemploythemen.Nowifthewagesoflabourrise10percent.andanadditionalcapitalof500l. be consequently required to enable him to employ the same labour, whilst his commoditiescontinuetosellfor8000l.,hewillnolongerhesitate,butwillatoncepurchasethemachine,andwilldo the same annually,whilewages continue above the original 5000l. Butwill he be able now topurchasethemachineattheformerprice?willnotitsvaluebeincreased,inconsequenceoftheriseoflabour?Itwouldbeincreased,iftherewerenostockemployedinitsconstruction,andnoprofitstobepaidtothemakerofit.If,forexample, themachinewereproducedby100menworkingoneyearupon itwithwagesof50l. each, and itspricewere5000l., should thosewages rise to55l. itspricewouldbe5500l.:butthiscannotbethecase;lessthan100menareemployed,oritcouldnotbesoldfor5000l.;foroutofthe5000l.mustbepaidtheprofitsofthestockwhichemployedthemen.Supposethenthatonlyeighty-fivemenwereemployedatanexpenseof4250l.perannum,andthatthe750l.,whichthesaleofthemachinewouldproduceoverandabovethewagesadvancedtothemen,constitutedtheprofitsoftheengineer'sstock.Whenwagesrose10percent.,hewouldbeobligedtoemployanadditionalcapitalof425l.,andwouldthereforeemploy4675l.,insteadof4250l.,onwhichcapitalhewouldonlygetaprofitof325l. ifhecontinuedtosellhismachinefor5000l.;but this ispreciselythecaseofallmanufacturersandcapitalists;theriseofwagesaffectsthemall.Ifthereforethemakerofthemachineshouldraisethepriceofhismachineinconsequenceofariseofwages,anunusualquantityofcapitalwouldbeemployedin theconstructionofsuchmachines, till theirpriceaffordedonly theusualprofits.Themanufacturerofhats,by theemploymentof themachine, ifhesellshishatsfor8000l.,ispreciselyinthesamesituationasbefore;heemploysnomorecapital,andobtains the sameprofits.The competitionof tradewouldnot long allow this; for as capitalwouldflowtothemostprofitableemployment,hewouldbeobligedtolowerthepriceofhats,tillhisprofitshadsunktothegenerallevel.Thusthenisthepublicbenefitedbymachinery:thesemuteagentsarealwaystheproduceofmuchlesslabourthanthatwhichtheydisplace,evenwhentheyareofthesamemoneyvalue.Throughtheirinfluence,anincreaseinthepriceofprovisionswhichraiseswages,willaffectfewerpersons:itwillreach,asintheaboveinstance,eighty-fivemeninsteadofahundred;andthe saving which is the consequence, shews itself in the reduced price of the commoditymanufactured.Neithermachinesnoranyothercommoditiesareraisedinprice,butallcommoditieswhicharemadebymachinesfall,andfallinproportiontotheirdurability.

Itappears,then,thatinproportiontothequantityandthedurabilityofthefixedcapitalemployedinanykindofproduction,therelativepricesofthosecommoditiesonwhichsuchcapitalisemployed,willvaryinverselyaswages;theywillfallaswagesrise.Itappearstoothatnocommoditieswhateverareraisedinabsoluteprice,merelybecausewagesrise;thattheyneverriseunlessadditionallabourbebestowedon them;but that all commodities in theproductionofwhich fixed capital enters, notonlydonotrisewithariseofwages,butabsolutelyfall;falltooasmuchas68percent.,withariseofsevenpercent. inwages, iffixedcapitalbeexclusivelyemployed,andbeof thedurationof100years.

Theabovestatement,whichasserts thecompatibilityofariseofwages,withafallofprices,has,Iknow,thedisadvantageofnovelty,andmusttrusttoitsownmeritsforadvocates;whilstithasforitsopponents, writers of distinguished and deserved reputation. It should however be carefullyremembered,thatinthiswholeargumentIamsupposingmoneytobeofaninvariablevalue;inotherwords, to be always the produce of the same quantity of unassisted labour.Money, however, is avariablecommodity;andtheriseofwagesaswellasofcommodities,isfrequentlyoccasionedbyafallinthevalueofmoney.Ariseofwagesfromthiscausewillindeedbeinvariablyaccompaniedbyariseinthepriceofcommodities:butinsuchcases,itwillbefoundthatlabourandallcommoditieshavenotvariedinregardtoeachother,andthatthevariationhasbeenconfinedtomoney.

Money, from its being a commodity obtained from a foreign country, from its being the generalmediumofexchangebetweenallcivilizedcountries,andfromitsbeingalsodistributedamongthosecountries in proportions which are ever changing with every improvement in commerce andmachinery,andwitheveryincreasingdifficultyofobtainingfoodandnecessariesforanincreasingpopulation, is subject to incessant variations. In stating the principleswhich regulate exchangeablevalue and price, we should carefully distinguish between those variations which belong to thecommodity itself, and thosewhich are occasioned by a variation in themedium inwhich value isestimated,orpriceexpressed.

Ariseinwages,fromanalterationinthevalueofmoney,producesageneraleffectonprice,andforthatreasonitproducesnorealeffectwhateveronprofits.Onthecontrary,ariseofwages,fromthecircumstanceof the labourerbeingmore liberally rewarded,or fromadifficultyofprocuring thenecessariesonwhichwagesareexpended,doesnotproducetheeffectofraisingprice,buthasagreateffectinloweringprofits.Intheonecase,nogreaterproportionoftheannuallabourofthecountryisdevotedtothesupportofthelabourers,intheothercase,alargerportionissodevoted.

Itisaccordingtothedivisionofthewholeproduceofthelandandlabourofthecountry,betweenthethreeclassesoflandlords,capitalists,andlabourers,thatwearetojudgeofrent,profit,andwages,and not according to the value at which that produce may be estimated in a medium which isconfessedlyvariable.

Itisnotbytheabsolutequantityofproduceobtainedbyeitherclass,thatwecancorrectlyjudgeoftherate of profit, rent, and wages, but by the quantity of labour required to obtain that produce. Byimprovementsinmachineryandagriculture,thewholeproducemaybedoubled;butifwages,rent,andprofit, be alsodoubled, these threewill bear the sameproportions toone another, andneithercouldbesaidtohaverelativelyvaried.Butifwagespartooknotofthewholeofthisincrease;ifthey,insteadofbeingdoubled,wereonlyincreasedonehalf,ifrent,insteadofbeingdoubled,wereonlyincreasedthree-fourths,andtheremainingincreasewenttoprofit, itwould,Iapprehend,becorrectforme to say, that rent andwages had fallen,while profits had risen; for ifwe had an invariablestandard,bywhichtomeasurethevalueofthisproduce,weshouldfindthatalessvaluehadfallento

the class of labourers and landlords, and a greater to the class of capitalists, than had been givenbefore. We might find for example, that though the absolute quantity of commodities had beendoubled, theywere theproduceof precisely the formerquantityof labour.Of everyhundredhats,coats,andquartersofcornproduced,

ifthelabourershad 25Thelandlords 25Andthecapitalists 25 —— 100

Andif,afterthesecommoditiesweredoubledinquantity,ofevery100

Thelabourershadonly 22Thelandlords 22Andthecapitalists 22 —— 100

InthatcaseIshouldsay,thatwagesandrenthadfallen,andprofitsrisen;thoughinconsequenceoftheabundanceofcommodities,thequantitypaidtothelabourerandlandlordwouldhaveincreasedintheproportionof25to44.Wagesaretobeestimatedbytheirrealvalue,viz.bythequantityoflabourandcapitalemployedinproducingthem,andnotbytheirnominalvalueeitherincoats,hats,money,orcorn.UnderthecircumstancesIhavejustsupposed,commoditieswouldhavefallentohalf theirformervalue;and, ifmoneyhadnotvaried, tohalf theirformerpricealso.If thenin thismedium,whichhadnotvariedinvalue,thewagesofthelabourershouldbefoundtohavefallen,itwillnotthelessbearealfall,becausetheymightfurnishhimwithagreaterquantityofcheapcommodities,thanhisformerwages.

Thevariationinthevalueofmoney,howevergreat,makesnodifferenceintherateofprofits; forsupposethegoodsofthemanufacturertorisefrom1000l.to2000l.,or100percent.,ifhiscapital,onwhich the variations ofmoney have asmuch effect as on the value of produce, if hismachinery,buildings,andstockintraderisemorethan100percent.,hisrateofprofitshasfallen,andhehasaproportionablylessquantityoftheproduceofthelabourofthecountryathiscommand.

If,withcapitalofagivenvalue,hedoublethequantityofproduce,itsvaluefallsonehalf,andthenitwillbearthesameproportiontothecapitalwhichproducedit,asitdidbefore.

Ifatthesametimethathedoublesthequantityofproducebytheemploymentofthesamecapital,thevalueofmoneyisbyanyaccidentloweredonehalf,theproducewillsellfortwicethemoneyvaluethatitdidbefore;butthecapitalemployedtoproduceit,willalsobeoftwiceitsformermoneyvalue;andthereforeinthiscasetoo,thevalueoftheproducewillbearthesameproportiontothevalueofthecapitalas itdidbefore;andalthoughtheproducebedoubled,rent,wages,andprofitswillonlyvaryastheproportionsvary, inwhichthisdoubleproducemaybedividedamongthethreeclassesthatshareit.

It appears then that the accumulation of capital, by occasioning different proportions of fixed andcirculatingcapitaltobeemployedindifferenttrades,andbygivingdifferentdegreesofdurabilityto

such fixed capital, introduces a considerable modification to the rule, which is of universalapplicationintheearlystatesofsociety.

Commodities,thoughtheycontinuetoriseandfall,inproportionasmoreorlesslabourisnecessaryto theirproduction, arealsoaffected in their relativevaluebya riseor fallofprofits, sinceequalprofitsmaybederivedfromgoodswhichsellfor2,000l.andfromthosewhichsellfor10,000l.;andconsequentlythevariationsofthoseprofits,independentlyofanyincreasedordiminishedquantityoflabourrequiredforthegoodsinquestion,mustaffecttheirpricesindifferentproportions.

Itappearstoo,thatcommoditiesmaybeloweredinvalueinconsequenceofarealriseofwages,buttheynevercanberaisedfromthatcause.Ontheotherhand,theymayrisefromafallofwages,astheythenlosethepeculiaradvantagesofproduction,whichhighwagesaffordedthem.

CHAPTERII.

ONRENT.

ITremainshowevertobeconsidered,whethertheappropriationofland,andtheconsequentcreationofrent,willoccasionanyvariationintherelativevalueofcommodities,independentlyofthequantityoflabournecessarytoproduction.Inordertounderstandthispartofthesubject,wemustinquireintothenatureofrent,andthelawsbywhichitsriseorfallisregulated.Rentisthatportionoftheproduceoftheearth,whichispaidtothelandlordfortheuseoftheoriginalandindestructiblepowersofthesoil.Itisoftenhoweverconfoundedwiththeinterestandprofitofcapital,andinpopularlanguagethetermisappliedtowhateverisannuallypaidbyafarmertohislandlord.If,oftwoadjoiningfarmsofthesameextent,andofthesamenaturalfertility,onehadalltheconveniencesoffarmingbuildings,were, besides, properly drained andmanured, and advantageously divided by hedges, fences, andwalls,whiletheotherhadnoneoftheseadvantages,moreremunerationwouldnaturallybepaidfortheuseofone,thanfortheuseoftheother;yetinbothcasesthisremunerationwouldbecalledrent.Butitisevident,thataportiononlyofthemoneyannuallytobepaidfortheimprovedfarm,wouldbegivenfortheoriginalandindestructiblepowersofthesoil;theotherportionwouldbepaidfortheuseof thecapitalwhichhadbeenemployed inameliorating thequalityof the land,and inerectingsuchbuildingsaswerenecessarytosecureandpreservetheproduce.AdamSmithsometimesspeaksofrent,inthestrictsensetowhichIamdesirousofconfiningit,butmoreofteninthepopularsense,inwhichthetermisusuallyemployed.Hetellsus,thatthedemandfortimber,anditsconsequenthighprice,inthemoresoutherncountriesofEurope,causedarenttobepaidforforestsinNorway,whichcouldbeforeaffordno rent. Is itnothoweverevident, that thepersonwhopaid,whathe thuscallsrent,paiditinconsiderationofthevaluablecommoditywhichwasthenstandingontheland,andthathe actually repaid himselfwith a profit, by the sale of the timber? If, indeed, after the timberwasremoved, any compensationwere paid to the landlord for the use of the land, for the purpose ofgrowingtimberoranyotherproduce,withaviewtofuturedemand,suchcompensationmightjustlybecalledrent,becauseitwouldbepaidfortheproductivepowersoftheland;butinthecasestatedbyAdamSmith,thecompensationwaspaidforthelibertyofremovingandsellingthetimber,andnotforthelibertyofgrowingit.Hespeaksalsooftherentofcoalmines,andofstonequarries,towhichthe sameobservation applies—that the compensation given for themine or quarry, is paid for thevalueofthecoalorstonewhichcanberemovedfromthem,andhasnoconnexionwiththeoriginaland indestructible powers of the land. This is a distinction of great importance, in an inquiry

concerning rent and profits; for it is found, that the lawswhich regulate the progress of rent, arewidelydifferentfromthosewhichregulatetheprogressofprofits,andseldomoperateinthesamedirection. In all improved countries, thatwhich is annually paid to the landlord, partaking of bothcharacters, rent andprofit, is sometimeskept stationaryby theeffectsofopposingcauses, atothertimesadvancesorrecedes,asoneorotherofthesecausespreponderates.Inthefuturepagesofthiswork, then, whenever I speak of the rent of land, I wish to be understood as speaking of thatcompensation,whichispaidtotheowneroflandfortheuseofitsoriginalandindestructiblepowers.

Onthefirstsettlingofacountry,inwhichthereisanabundanceofrichandfertileland,averysmallproportionofwhichisrequiredtobecultivatedforthesupportoftheactualpopulation,orindeedcanbecultivatedwith thecapitalwhich thepopulationcancommand, therewillbeno rent; fornoonewould pay for the use of land, when there was an abundant quantity not yet appropriated, andthereforeatthedisposalofwhosoevermightchoosetocultivateit.

Onthecommonprinciplesofsupplyanddemand,norentcouldbepaidforsuchland,forthereasonstated,whynothingisgivenfortheuseofairandwater,orforanyotherofthegiftsofnaturewhichexistinboundlessquantity.Withagivenquantityofmaterials,andwiththeassistanceofthepressureoftheatmosphere,andtheelasticityofsteam,enginesmayperformwork,andabridgehumanlabourto a very great extent; but no charge is made for the use of these natural aids, because they areinexhaustible,andateveryman'sdisposal.Inthesamemannerthebrewer,thedistiller,thedyer,makeincessant use of the air and water for the production of their commodities; but as the supply isboundless,itbearsnoprice.5Ifalllandhadthesameproperties,ifitwereboundlessinquantity,anduniform in quality, no charge could be made for its use, unless where it possessed peculiaradvantages of situation. It is only then because land is of different qualities with respect to itsproductive powers, and because in the progress of population, land of an inferior quality, or lessadvantageouslysituated,iscalledintocultivation,thatrentiseverpaidfortheuseofit.When,intheprogressofsociety,landoftheseconddegreeoffertilityistakenintocultivation,rentimmediatelycommencesonthatofthefirstquality,andtheamountofthatrentwilldependonthedifferenceinthequalityofthesetwoportionsofland.

Whenlandofthethirdqualityistakenintocultivation,rentimmediatelycommencesonthesecond,anditisregulatedasbefore,bythedifferenceintheirproductivepowers.Atthesametime,therentofthe first quality will rise, for thatmust always be above the rent of the second, by the differencebetweentheproducewhichtheyyieldwithagivenquantityofcapitalandlabour.Witheverystepintheprogressofpopulation,whichshallobligeacountrytohaverecoursetolandofaworsequality,toenableittoraiseitssupplyoffood,rent,onallthemorefertileland,willrise.

Thus suppose land—No. 1, 2, 3,—to yield,with an equal employment of capital and labour, a netproduceof100,90,and80quartersofcorn.Inanewcountry,wherethereisanabundanceoffertilelandcomparedwith thepopulation, andwhere therefore it isonlynecessary tocultivateNo.1, thewholenetproducewillbelongtothecultivator,andwillbetheprofitsofthestockwhichheadvances.As soonaspopulationhad so far increasedas tomake itnecessary tocultivateNo.2, fromwhichninetyquartersonlycanbeobtainedaftersupportingthelabourers,rentwouldcommenceonNo.1;foreithertheremustbetworatesofprofitonagriculturalcapital,ortenquarters,orthevalueoftenquarters must be withdrawn from the produce of No. 1, for some other purpose. Whether theproprietor of the land, or any other person, cultivated No. 1, these ten quarters would equallyconstitute rent; for the cultivator of No. 2 would get the same result with his capital, whether hecultivatedNo.1,payingtenquartersforrent,orcontinuedtocultivateNo.2,payingnorent.InthesamemanneritmightbeshewnthatwhenNo.3isbroughtintocultivation,therentofNo.2mustbetenquarters,orthevalueoftenquarters,whilsttherentofNo.1wouldrisetotwentyquarters;forthecultivatorofNo.3wouldhavethesameprofitswhetherhepaidtwentyquartersfortherentofNo.1,tenquartersfortherentofNo.2,orcultivatedNo.3freeofallrent.

It often, and indeed commonly happens that before No. 2, 3, 4, or 5, or the inferior lands arecultivated,capitalcanbeemployedmoreproductivelyonthoselandswhicharealreadyincultivation.Itmayperhapsbefound,thatbydoublingtheoriginalcapitalemployedonNo.1,thoughtheproducewillnotbedoubled,willnotbeincreasedby100quarters,itmaybeincreasedbyeighty-fivequarters,andthatthisquantityexceedswhatcouldbeobtainedbyemployingthesamecapitalonland,No.3.

Insuchcase,capitalwillbepreferablyemployedontheoldland,andwillequallycreatearent;forrentisalwaysthedifferencebetweentheproduceobtainedbytheemploymentoftwoequalquantitiesofcapitalandlabour.Ifwithacapitalof1000l.atenantobtain100quartersofwheatfromhisland,

andby theemploymentof a secondcapitalof1000l., he obtain a further returnof eighty-five, hislandlordwouldhavethepowerattheexpirationofhislease,ofobliginghimtopayfifteenquarters,oranequivalentvalue, foradditional rent; for therecannotbe tworatesofprofit. Ifhe issatisfiedwithadiminutionoffifteenquartersinthereturnforhissecond1000l.,itisbecausenoemploymentmoreprofitablecanbefoundforit.Thecommonrateofprofitwouldbeinthatproportion,andiftheoriginal tenant refused, someotherpersonwouldbe foundwilling togiveallwhichexceeded thatrateofprofittotheownerofthelandfromwhichhederivedit.

Inthiscase,aswellasintheother,thecapitallastemployedpaysnorent.Forthegreaterproductivepowersofthefirst1000l.,fifteenquartersispaidforrent,fortheemploymentofthesecond1000l.norentwhateverispaid.Ifathird1000l.beemployedonthesameland,withareturnofseventy-fivequarters,rentwillthenbepaidforthesecond1000l.andwillbeequaltothedifferencebetweentheproduceofthesetwo,ortenquarters;andatthesametimetherentofthefirst1000l.willrisefromfifteentotwenty-fivequarters;whilethelast1000l.willpaynorentwhatever.

If then good land existed in a quantity much more abundant than the production of food for anincreasing population required, or if capital could be indefinitely employed without a diminishedreturn on the old land, there could be no rise of rent; for rent invariably proceeds from theemploymentofanadditionalquantityoflabourwithaproportionallylessreturn.

Themostfertile,andmostfavourablysituatedlandwillbefirstcultivated,andtheexchangeablevalueof its produce will be adjusted in the same manner as the exchangeable value of all othercommodities,bythetotalquantityoflabournecessaryinvariousforms,fromfirsttolast,toproduceit,andbringittomarket.Whenlandofaninferiorqualityistakenintocultivation,theexchangeablevalueofrawproducewillrise,becausemorelabourisrequiredtoproduceit.

The exchangeable value of all commodities,whether they bemanufactured, or the produce of themines,ortheproduceofland,isalwaysregulated,notbythelessquantityoflabourthatwillsufficefor theirproductionundercircumstanceshighly favourable, andexclusivelyenjoyedby thosewhohavepeculiarfacilitiesofproduction;butbythegreaterquantityoflabournecessarilybestowedontheirproductionbythosewhohavenosuchfacilities;bythosewhocontinuetoproducethemunderthemostunfavourablecircumstances;meaning—by themostunfavourablecircumstances, themostunfavourable under which the quantity of produce required renders it necessary to carry on theproduction.

Thus, in a charitable institution,where the poor are set toworkwith the funds of benefactors, thegeneralpricesofthecommodities,whicharetheproduceofsuchwork,willnotbegovernedbythepeculiar facilities afforded to these workmen, but by the common, usual, and natural difficulties,which every othermanufacturerwill have to encounter. Themanufacturer enjoying none of thesefacilitiesmightindeedbedrivenaltogetherfromthemarket,ifthesupplyaffordedbythesefavouredworkmenwereequaltoallthewantsofthecommunity;butifhecontinuedthetrade,itwouldbeonlyon condition that he should derive from it the usual and general rate of profits on stock; and thatcould only happen when his commodity sold for a price proportioned to the quantity of labourbestowedonitsproduction.6

It is true, that on the best land, the same producewould still be obtainedwith the same labour asbefore,butitsvaluewouldbeenhancedinconsequenceofthediminishedreturnsobtainedbythosewho employed fresh labour and stock on the less fertile land. Notwithstanding then, that theadvantagesoffertileoverinferiorlandsareinnocaselost,butonlytransferredfromthecultivator,

orconsumer,tothelandlord,yetsincemorelabourisrequiredontheinferiorlands,andsinceitisfrom such land only that we are enabled to furnish ourselves with the additional supply of rawproduce,thecomparativevalueofthatproducewillcontinuepermanentlyaboveitsformerlevel,andmakeitexchangeformorehats,cloth,shoes,&c.&c.intheproductionofwhichnosuchadditionalquantityoflabourisrequired.

Thereasonthen,whyrawproducerisesincomparativevalue,isbecausemorelabourisemployedintheproductionofthelastportionobtained,andnotbecausearentispaidtothelandlord.Thevalueofcornisregulatedbythequantityoflabourbestowedonitsproductiononthatqualityofland,orwiththatportionofcapital,whichpaysnorent.Cornisnothighbecausearentispaid,butarentispaidbecausecornishigh;andithasbeenjustlyobserved,thatnoreductionwouldtakeplaceinthepriceofcorn,althoughlandlordsshouldforegothewholeoftheirrent.Suchameasurewouldonlyenablesomefarmerstolivelikegentlemen,butwouldnotdiminishthequantityoflabournecessarytoraiserawproduceontheleastproductivelandincultivation.

Nothingismorecommonthantohearoftheadvantageswhichthelandpossessesovereveryothersourceofusefulproduce,onaccountofthesurpluswhichityieldsintheformofrent.Yetwhenlandismost abundant,whenmostproductive, andmost fertile, it yieldsno rent; and it isonlywhen itspowersdecay,andlessisyieldedinreturnforlabour,thatashareoftheoriginalproduceofthemorefertileportionsissetapartforrent.Itissingularthatthisqualityintheland,whichshouldhavebeennoticed as an imperfection, comparedwith the natural agents bywhichmanufacturers are assisted,shouldhavebeenpointedoutasconstitutingitspeculiarpre-eminence.Ifair,water,theelasticityofsteam,andthepressureof theatmosphere,wereofvariousqualities; if theycouldbeappropriated,andeachqualityexistedonlyinmoderateabundance,theyaswellasthelandwouldaffordarent,asthesuccessivequalitieswerebrought intouse.Witheveryworsequalityemployed, thevalueof thecommodities in the manufacture of which they were used would rise, because equal quantities oflabourwouldbelessproductive.Manwoulddomorebythesweatofhisbrow,andnatureperformless;andthelandwouldbenolongerpre-eminentforitslimitedpowers.

If the surplus producewhich land affords in the formof rent be an advantage, it is desirable that,every year, the machinery newly constructed should be less efficient than the old, as that wouldundoubtedly give a greater exchangeable value to the goods manufactured, not only by thatmachinery,butbyalltheothermachineryinthekingdom;andarentwouldbepaidtoallthosewhopossessedthemostproductivemachinery.7

Theriseofrentisalwaystheeffectoftheincreasingwealthofthecountry,andofthedifficultyofprovidingfoodforitsaugmentedpopulation.It isasymptom,butit isneveracauseofwealth;forwealth often increasesmost rapidlywhile rent is either stationary, or even falling. Rent increasesmostrapidly,asthedisposablelanddecreasesinitsproductivepowers.Wealthincreasesmostrapidlyinthosecountrieswherethedisposablelandismostfertile,whereimportationisleastrestricted,andwherethroughagriculturalimprovements,productionscanbemultipliedwithoutanyincreaseintheproportionalquantityoflabour,andwhereconsequentlytheprogressofrentisslow.

If the high price of cornwere the effect, and not the cause of rent, pricewould be proportionallyinfluenced as rentswere high or low, and rentwould be a component part of price.But that cornwhichisproducedwiththegreatestquantityoflabouristheregulatorofthepriceofcorn,andrentdoesnotandcannotenterintheleastdegreeasacomponentpartofitsprice.AdamSmith,therefore,cannot be correct in supposing that the original rule which regulated the exchangeable value of

commodities,namelythecomparativequantityoflabourbywhichtheywereproduced,canbeatallalteredbytheappropriationoflandandthepaymentofrent.Rawmaterialentersintothecompositionof most commodities, but the value of that raw material as well as corn, is regulated by theproductivenessoftheportionofcapitallastemployedontheland,andpayingnorent;andthereforerentisnotacomponentpartofthepriceofcommodities.

Wehavebeenhitherto considering the effects of the natural progress ofwealth andpopulationonrent, inacountry inwhich the land isofvariouslyproductivepowers;andwehaveseen, thatwithevery portion of additional capital which it becomes necessary to employ on the landwith a lessproductivereturn,rentwouldrise.Itfollowsfromthesameprinciples,thatanycircumstancesinthesocietywhich shouldmake it unnecessary to employ the same amount of capital on the land, andwhichshouldthereforemaketheportionlastemployedmoreproductive,wouldlowerrent.Anygreatreduction in the capital of a country, which shouldmaterially diminish the funds destined for themaintenanceoflabour,wouldnaturallyhavethiseffect.Populationregulatesitselfbythefundswhichare to employ it, and therefore always increases or diminisheswith the increase or diminution ofcapital.Every reductionof capital is thereforenecessarily followedbya lesseffectivedemand forcorn, by a fall of price, and by diminished cultivation. In the reverse order to that in which theaccumulationofcapitalraisesrent,willthediminutionofitlowerrent.Landofalessunproductivequalitywillbeinsuccessionrelinquished,theexchangeablevalueofproducewillfall,andlandofasuperiorqualitywillbethelandlastcultivated,andthatwhichwillthenpaynorent.

The same effects may however be produced when the wealth and population of a country areincreased,ifthatincreaseisaccompaniedbysuchmarkedimprovementsinagriculture,asshallhavethesameeffectofdiminishingthenecessityofcultivatingthepoorerlands,orofexpendingthesameamountofcapitalonthecultivationofthemorefertileportions.

Ifamillionofquartersofcornbenecessaryforthesupportofagivenpopulation,anditberaisedonlandofthequalitiesofNo.1,2,3;andifanimprovementbeafterwardsdiscoveredbywhichitcanberaisedonNo.1and2,withoutemployingNo.3,itisevidentthattheimmediateeffectmustbeafallofrent;forNo.2,insteadofNo.3,willthenbecultivatedwithoutpayinganyrent;andtherentofNo.1,insteadofbeingthedifferencebetweentheproduceofNo.3andNo.1,willbe thedifferenceonlybetween No. 2 and 1. With the same population, and no more, there can be no demand for anyadditional quantity of corn; the capital and labour employed on No. 3, will be devoted to theproductionofothercommoditiesdesirabletothecommunity,andcanhavenoeffectinraisingrentunlesstherawmaterialfromwhichtheyaremadecannotbeobtainedwithoutemployingcapitallessadvantageouslyontheland,inwhichcaseNo.3mustagainbecultivated.

It is undoubtedly true, that the fall in the relative price of raw produce, in consequence of theimprovement in agriculture, or rather in consequence of less labour being bestowed on itsproduction,wouldnaturallyleadtoincreasedaccumulation;fortheprofitsofstockwouldbegreatlyaugmented.Thisaccumulationwouldleadtoanincreaseddemandforlabour,tohigherwages,toanincreasedpopulation,toafurtherdemandforrawproduce,andtoanincreasedcultivation.Itisonly,however,aftertheincreaseinthepopulation,thatrentwouldbeashighasbefore;thatistosay,afterNo.3wastakenintocultivation.Aconsiderableperiodwouldhaveelapsed,attendedwithapositivediminutionofrent.

Butimprovementsinagricultureareoftwokinds:thosewhichincreasetheproductivepowersoftheland,andthosewhichenableustoobtainitsproducewithlesslabour.Theybothleadtoafallinthepriceofrawproduce;theybothaffectrent,buttheydonotaffectitequally.Iftheydidnotoccasiona

fallinthepriceofrawproduce,theywouldnotbeimprovements;foritistheessentialqualityofanimprovement todiminish thequantityof labourbefore required toproducea commodity; and thisdiminutioncannottakeplacewithoutafallofitspriceorrelativevalue.

The improvementswhich increase the productive powers of the land, are such as themore skilfulrotationofcrops,orthebetterchoiceofmanure.Theseimprovementsabsolutelyenableustoobtainthesameproducefromasmallerquantityofland.If,bytheintroductionofacourseofturnips,Icanfeedmysheepbesidesraisingmycorn,thelandonwhichthesheepwerefedbecomesunnecessary,and the same quantity of raw produce is raised by the employment of a less quantity of land. If Idiscoveramanurewhichwillenablemetomakeapieceoflandproduce20percent.morecorn,Imaywithdrawatleastaportionofmycapitalfromthemostunproductivepartofmyfarm.But,asIhavebeforeobserved, it isnotnecessary that landshouldbe thrownoutofcultivation, inorder toreducerent:toproducethiseffect,itissufficientthatsuccessiveportionsofcapitalareemployedonthe same land with different results, and that the portion which gives the least result should bewithdrawn. If, by the introduction of the turnip husbandry, or by the use of a more invigoratingmanure,Icanobtainthesameproducewithlesscapital,andwithoutdisturbingthedifferencebetweenthe productive powers of the successive portions of capital, I shall lower rent; for a different andmoreproductiveportionwillbe thatwhichwill form the standard fromwhicheveryotherwillbereckoned.If,forexample,thesuccessiveportionsofcapitalyielded100,90,80,70;whilstIemployedthesefourportions,myrentwouldbe60,orthedifferencebetween

70and100=30

whilsttheproducewouldbe340

10070and90=20 9070and80=10 80

— 7060 —— 340

andwhileIemployedtheseportions,therentwouldremainthesame,althoughtheproduceofeachshouldhaveanequalaugmentation.If,insteadof100,90,80,70,theproduceshouldbeincreasedto125,115,105,95,therentwouldstillbe60,orthedifferencebetween

95and125=30

whilst the produce would beincreasedto440

12595and115=20 11595and105=10 105

— 9560 —— 440

Butwithsuchanincreaseofproduce,withoutanincreaseofdemand,therecouldbenomotiveforemployingsomuchcapitalonthe land;oneportionwouldbewithdrawn,andconsequently the lastportionofcapitalwouldyield105insteadof95,andrentwouldfallto30,orthedifferencebetween

105and125=20whilst theproducewouldbe stilladequate to the wants of thepopulation, for it would be 345

125105and115=10 115

— 105

30 quarters,or —— 345

thedemandbeingonlyfor340quarters.—Butthereareimprovementswhichmaylowertherelativevalueofproducewithoutloweringthecornrent,thoughtheywilllowerthemoneyrentofland.Suchimprovements do not increase the productive powers of the land, but they enable us to obtain itsproducewithlesslabour.Theyareratherdirectedtotheformationofthecapitalappliedtotheland,thantothecultivationofthelanditself.Improvementsinagriculturalimplements,suchastheploughand the threshing machine, economy in the use of horses employed in husbandry, and a betterknowledgeoftheveterinaryart,areofthisnature.Lesscapital,whichisthesamethingaslesslabour,willbeemployedontheland;buttoobtainthesameproduce,lesslandcannotbecultivated.Whetherimprovements of this kind, however, affect corn rent, must depend on the question, whether thedifference between the produce obtained by the employment of different portions of capital beincreased, stationary,ordiminished. If fourportionsofcapital,50,60,70,80,beemployedon theland, giving each the same results, and any improvement in the formation of such capital shouldenablemetowithdraw5fromeach,sothattheyshouldbe45,55,65,and75,noalterationwouldtakeplaceinthecornrent;butiftheimprovementsweresuchastoenablemetomakethewholesavingonthe largest portion of capital, that portion which is least productively employed, corn rent wouldimmediately fall, because the difference between the capital most productive and the capital leastproductivewouldbediminished;anditisthisdifferencewhichconstitutesrent.

Withoutmultiplying instances, I hope enough has been said to shew, that whatever diminishes theinequalityintheproduceobtainedfromsuccessiveportionsofcapitalemployedonthesameoronnew land, tends to lower rent; and thatwhatever increases that inequality, necessarily produces anoppositeeffect,andtendstoraiseit.

Inspeakingof therentof thelandlord,wehaveratherconsidereditastheproportionof thewholeproduce,withoutanyreferencetoitsexchangeablevalue;butsincethesamecause,thedifficultyofproduction, raises the exchangeable value of raw produce, and raises also the proportion of rawproducepaidtothelandlordforrent,itisobviousthatthelandlordisdoublybenefitedbydifficultyofproduction.Firstheobtainsagreatershare,andsecondlythecommodityinwhichheispaidisofgreatervalue.8

CHAPTERIII.

ONTHERENTOFMINES.

THEmetals, like other things, are obtained by labour. Nature, indeed, produces them; but it is thelabourofmanwhichextractsthemfromthebowelsoftheearth,andpreparesthemforourservice.

Mines,aswellasland,generallypayarenttotheirowner;andthisrent,aswellastherentofland,istheeffect,andneverthecauseofthehighvalueoftheirproduce.

Iftherewereabundanceofequallyfertilemines,whichanyonemightappropriate,theycouldyieldnorent; thevalueof theirproducewoulddependon thequantityof labournecessary toextract themetalfromthemineandbringittomarket.

But there are mines of various qualities, affording very different results, with equal quantities oflabour.Themetalproducedfromthepoorestminethatisworked,mustatleasthaveanexchangeablevalue,notonlysufficient toprocureall theclothes, food,andothernecessariesconsumedbythoseemployed inworking it, and bringing the produce tomarket, but also to afford the common andordinaryprofitstohimwhoadvancesthestocknecessarytocarryontheundertaking.Thereturnforcapitalfromthepoorestminepayingnorent,wouldregulatetherentofalltheothermoreproductivemines. Thismine is supposed to yield the usual profits of stock.All that the othermines producemore than this,willnecessarilybepaid to theowners for rent.Since thisprinciple isprecisely thesame as thatwhichwe have already laid down respecting land, itwill not be necessary further toenlargeonit.

Itwillbesufficient toremark, that thesamegeneral rulewhichregulates thevalueofrawproduceandmanufacturedcommodities,isapplicablealsotothemetals;theirvaluedependingnotontherateofprofits,norontherateofwages,norontherentpaidformines,butonthetotalquantityoflabournecessarytoobtainthemetal,andtobringittomarket.

Like everyother commodity, thevalueof themetals is subject to variation. Improvementsmaybemadeintheimplementsandmachineryusedinmining,whichmayconsiderablyabridgelabour;newandmoreproductiveminesmaybediscovered,inwhich,withthesamelabour,moremetalmaybeobtained;orthefacilitiesofbringingittomarketmaybeincreased.Ineitherofthesecasesthemetalswould fall invalue,andwould thereforeexchange fora lessquantityofother things.On theotherhand,fromtheincreasingdifficultyofobtainingthemetal,occasionedbythegreaterdepthatwhichthe mine must be worked, and the accumulation of water, or any other contingency, its value,comparedwiththatofotherthings,mightbeconsiderablyincreased.

Ithasthereforebeenjustlyobserved,thathoweverhonestlythecoinofacountrymayconformtoitsstandard,moneymadeofgoldandsilverisstillliabletofluctuationsinvalue,notonlytoaccidentalandtemporary,buttopermanentandnaturalvariations,inthesamemannerasothercommodities.

BythediscoveryofAmericaandtherichminesinwhichitabounds,averygreateffectwasproducedon the natural price of the precious metals. This effect is by many supposed not yet to haveterminated. It isprobablehowever thatall theeffectson thevalueof themetals, resulting fromthediscoveryofAmericahavelongceased,andifanyfallhasoflateyearstakenplaceintheirvalue,itistobeattributedtoimprovementsinthemodeofworkingthemines.

From whatever cause it may have proceeded, the effect has been so slow and gradual, that littlepractical inconveniencehasbeen felt fromgold and silverbeing thegeneralmedium inwhich thevalue of all other things is estimated. Though undoubtedly a variable measure of value, there isprobablynocommoditysubjecttofewervariations.Thisandtheotheradvantageswhichthesemetalspossess, such as their hardness, their malleability, their divisibility, and many more, have justlysecuredthepreferenceeverywheregiventothem,asastandardforthemoneyofcivilizedcountries.

Having acknowledged the imperfections to which money made of gold and silver is liable as ameasure of value, from the greater or less quantity of labour which may, under varyingcircumstances, be necessary for the production of thosemetals,wemay be permitted tomake thesuppositionthatalltheseimperfectionswereremoved,andthatequalquantitiesoflabourcouldatalltimes obtain, from thatminewhich paid no rent, equal quantities of gold.Goldwould then be aninvariablemeasureofvalue.Thequantityindeedwouldenlargewiththedemand,butitsvaluewouldbe invariable, and itwould be eminentlywell calculated tomeasure the varying value of all other

things.Ihavealreadyinaformerpartofthisworkconsideredgoldasendowedwiththisuniformity,andinthefollowingchapterIshallcontinuethesupposition.Inspeakingthereforeofvaryingprice,thevariationwillbealwaysconsideredasbeinginthecommodity,andneverinthemediuminwhichitisestimated.

CHAPTERIV.

ONNATURALANDMARKETPRICE.

INmakinglabourthefoundationofthevalueofcommodities,andthecomparativequantityoflabourwhichisnecessarytotheirproduction,therulewhichdeterminestherespectivequantitiesofgoodswhichshallbegiveninexchangeforeachother,wemustnotbesupposedtodenytheaccidentalandtemporary deviations of the actual or market price of commodities from this, their primary andnaturalprice.

Intheordinarycourseofevents,thereisnocommoditywhichcontinuesforanylengthoftimetobesuppliedpreciselyinthatdecreeofabundance,whichthewantsandwishesofmankindrequire,andthereforethereisnonewhichisnotsubjecttoaccidentalandtemporaryvariationsofprice.

It is only in consequence of such variations, that capital is apportioned precisely, in the requisiteabundance and no more, to the production of the different commodities which happen to be indemand.With theriseorfallofprice,profitsareelevatedabove,ordepressedbelowtheirgenerallevel, and capital is either encouraged to enter into, or is warned to depart from the particularemploymentinwhichthevariationhastakenplace.

Whilst everyman is free to employ his capitalwhere he pleases, hewill naturally seek for it thatemploymentwhichismostadvantageous;hewillnaturallybedissatisfiedwithaprofitof10percent.,ifbyremovinghiscapitalhecanobtainaprofitof15percent.Thisrestlessdesireonthepartofallthe employers of stock, to quit a less profitable for a more advantageous business, has a strongtendency to equalize the rate of profits of all, or to fix them in such proportions, as may in theestimationoftheparties,compensateforanyadvantagewhichonemayhave,ormayappeartohaveover the other. It is perhaps very difficult to trace the steps bywhich this change is effected: it isprobablyeffected,byamanufacturernotabsolutelychanginghisemployment,butonlylesseningthequantityofcapitalhehasinthatemployment.Inallrichcountries,thereisanumberofmenformingwhat iscalled themoniedclass; thesemenareengaged inno trade,but liveon the interestof theirmoney, which is employed in discounting bills, or in loans to the more industrious part of thecommunity.The bankers too employ a large capital on the sameobjects.The capital so employedformsacirculatingcapitalofalargeamount,andisemployed,inlargerorsmallerproportions,byallthedifferenttradesofacountry.Thereisperhapsnomanufacturer,howeverrich,wholimitshisbusinesstotheextentthathisownfundsalonewillallow:hehasalwayssomeportionofthisfloatingcapital,increasingordiminishingaccordingtotheactivityofthedemandforhiscommodities.Whenthedemandforsilks increases,andthatforclothdiminishes, theclothierdoesnotremovewithhiscapitaltothesilktrade,buthedismissessomeofhisworkmen,hediscontinueshisdemandfor theloanfrombankersandmoniedmen;whilethecaseofthesilkmanufactureristhereverse:hewishestoemploymoreworkmen,and thushismotive forborrowing is increased:heborrowsmore, andthuscapitalistransferredfromoneemploymenttoanother,withoutthenecessityofamanufacturer

discontinuinghisusualoccupation.Whenwelooktothemarketsofalargetown,andobservehowregularlytheyaresuppliedbothwithhomeandforeigncommodities,inthequantityinwhichtheyarerequired, under all the circumstances of varying demand, arising from the caprice of taste, or achangein theamountofpopulation,withoutoftenproducingeither theeffectsofaglutfromatooabundantsupply,oranenormouslyhighpricefromthesupplybeingunequaltothedemand,wemustconfess that the principle which apportions capital to each trade in the precise amount that it isrequired,ismoreactivethanisgenerallysupposed.

Acapitalist,inseekingprofitableemploymentforhisfunds,willnaturallytakeintoconsiderationalltheadvantageswhichoneoccupationpossessesoveranother.Hemaythereforebewillingtoforegoapart of his money profit, in consideration of the security, cleanliness, ease, or any other real orfanciedadvantagewhichoneemploymentmaypossessoveranother.

Iffromaconsiderationofthesecircumstances,theprofitsofstockshouldbesoadjustedthatinonetrade they were 20, in another 25, and in another 30 per cent., they would probably continuepermanently with that relative difference, and with that difference only; for if any cause shouldelevate the profits of oneof these trades 10per cent. either these profitswouldbe temporary, andwouldsoonagainfallbacktotheirusualstation,ortheprofitsoftheotherswouldbeelevatedinthesameproportion.

Let us suppose that all commodities are at their natural price, and consequently that the profits ofcapitalinallemploymentsareexactlyatthesamerate,ordifferonlysomuchas,intheestimationoftheparties,isequivalenttoanyrealorfanciedadvantagewhichtheypossessorforego.Supposenow,that a change of fashion should increase the demand for silks, and lessen that forwoollens; theirnaturalprice,thequantityoflabournecessarytotheirproduction,wouldcontinueunaltered,butthemarketpriceofsilkswouldrise,andthatofwoollenswouldfall;andconsequentlytheprofitsofthesilkmanufacturerwould be above,whilst those of thewoollenmanufacturerwould be below, thegeneral and adjusted rate of profits.Not only the profits, but thewages of theworkmenwould beaffectedintheseemployments.Thisincreaseddemandforsilkswouldhoweversoonbesupplied,bythe transference of capital and labour from thewoollen to the silkmanufacture; when themarketprices of silks andwoollenswould again approach their natural prices, and then the usual profitswouldbeobtainedbytherespectivemanufacturersofthosecommodities.

Itisthenthedesire,whicheverycapitalisthas,ofdivertinghisfundsfromalesstoamoreprofitableemployment,thatpreventsthemarketpriceofcommoditiesfromcontinuingforanylengthoftimeeither much above, or much below their natural price. It is this competition which so adjusts theexchangeable value of commodities, that after paying the wages for the labour necessary to theirproduction, and all other expenses required to put the capital employed in its original state ofefficiency, the remaining value or overpluswill in each trade be in proportion to the value of thecapitalemployed.

Inthe7thchap.oftheWealthofNations,allthatconcernsthisquestionismostablytreated.Havingfully acknowledged the temporary effects which, in particular employments of capital, may beproducedonthepricesofcommodities,aswellasonthewagesoflabour,andtheprofitsofstock,byaccidentalcauses,withoutinfluencingthegeneralpriceofcommodities,wages,orprofits,sincetheseeffectsareequallyoperativeinallstagesofsociety,wemaybepermittedtoleavethementirelyoutofourconsideration,whilstwearetreatingofthelawswhichregulatenaturalprices,naturalwages,andnatural profits, effects totally independent of these accidental causes. In speaking then of theexchangeablevalueofcommodities,orthepowerofpurchasingpossessedbyanyonecommodity,I

mean always that power which it would possess, if not disturbed by any temporary or accidentalcause,andwhichisitsnaturalprice.

CHAPTERV.

ONWAGES

LABOUR, like all other things which are purchased and sold, and which may be increased ordiminished inquantity,has itsnaturaland itsmarketprice.Thenaturalpriceof labour is thatpricewhichisnecessarytoenablethelabourers,onewithanother, tosubsistandtoperpetuatetheirrace,withouteitherincreaseordiminution.

Thepowerofthelabourertosupporthimself,andthefamilywhichmaybenecessarytokeepupthenumberoflabourers,doesnotdependonthequantityofmoney,whichhemayreceiveforwages;butonthequantityoffood,necessaries,andconveniencesbecomeessentialtohimfromhabit,whichthatmoney will purchase. The natural price of labour, therefore, depends on the price of the food,necessaries,andconveniencesrequiredforthesupportofthelabourerandhisfamily.Withariseinthepriceoffoodandnecessaries,thenaturalpriceoflabourwillrise;withthefallintheirprice,thenaturalpriceoflabourwillfall.

Withtheprogressofsociety,thenaturalpriceoflabourhasalwaysatendencytorise,becauseoneoftheprincipalcommoditiesbywhichitsnaturalprice isregulated,hasa tendencytobecomedearer,from the greater difficulty of producing it. As, however, the improvements in agriculture, thediscovery of new markets, whence provisions may be imported, may for a time counteract thetendencytoariseinthepriceofnecessaries,andmayevenoccasiontheirnaturalpricetofall,sowillthesamecausesproducethecorrespondenteffectsonthenaturalpriceoflabour.

Thenaturalpriceofallcommoditiesexceptingrawproduceandlabourhasatendencytofall,intheprogressofwealthandpopulation;forthough,ononehand,theyareenhancedinrealvalue,fromtheriseinthenaturalpriceoftherawmaterialofwhichtheyaremade,thisismorethancounterbalancedby the improvements in machinery, by the better division and distribution of labour, and by theincreasingskill,bothinscienceandart,oftheproducers.

Themarketpriceoflabouristhepricewhichisreallypaidforit,fromthenaturaloperationoftheproportion of the supply to the demand; labour is dear when it is scarce, and cheap when it isplentiful.Howevermuch themarketpriceof labourmaydeviate from itsnaturalprice, ithas, likecommodities,atendencytoconformtoit.

It iswhen themarketpriceof labourexceeds itsnaturalprice, that theconditionof the labourer isflourishingandhappy,thathehasitinhispowertocommandagreaterproportionofthenecessariesandenjoymentsoflife,andthereforetorearahealthyandnumerousfamily.Whenhowever,bytheencouragement which high wages give to the increase of population, the number of labourers isincreased,wagesagainfalltotheirnaturalprice,andindeedfromare-actionsometimesfallbelowit.

When themarket price of labour is below its natural price, the condition of the labourers ismostwretched:thenpovertydeprivesthemofthosecomfortswhichcustomrendersabsolutenecessaries.Itisonlyaftertheirprivationshavereducedtheirnumber,orthedemandforlabourhasincreased,that

themarketpriceoflabourwillrisetoitsnaturalprice,andthatthelabourerwillhavethemoderatecomforts,whichthenaturalpriceofwageswillafford.

Notwithstandingthetendencyofwagestoconformtotheirnaturalrate,theirmarketratemay,inanimprovingsociety,foranindefiniteperiod,beconstantlyaboveit; fornosoonermaythe impulse,which an increased capital gives to a new demand for labour be obeyed, than another increase ofcapitalmayproducethesameeffect;andthusif theincreaseofcapitalbegradualandconstant, thedemandforlabourmaygiveacontinuedstimulustoanincreaseofpeople.

Capitalisthatpartofthewealthofacountry,whichisemployedinproduction,andconsistsoffood,clothing,tools,rawmaterial,machinery,&c.necessarytogiveeffecttolabour.

Capitalmayincreaseinquantityatthesametimethatitsvaluerises.Anadditionmaybemadetothefoodandclothingof a country, at the same time thatmore labourmaybe required toproduce theadditionalquantitythanbefore;inthatcasenotonlythequantity,butthevalueofcapitalwillrise.

Orcapitalmayincreasewithoutitsvalueincreasing,andevenwhileitsvalueisactuallydiminishing;notonlymayanadditionbemadetothefoodandclothingofacountry,buttheadditionmaybemadeby the aid of machinery, without any increase, and even with an absolute diminution in theproportionalquantityoflabourrequiredtoproducethem.Thequantityofcapitalmayincrease,whileneitherthewholetogether,noranypartofitsingly,willhaveagreatervaluethanbefore.

Inthefirstcase,thenaturalpriceofwages,whichalwaysdependsonthepriceoffood,clothing,andother necessaries,will rise; in the second, it will remain stationary, or fall; but in both cases themarketrateofwageswillrise,forinproportiontotheincreaseofcapitalwillbetheincreaseinthedemandforlabour;inproportiontotheworktobedonewillbethedemandforthosewhoaretodoit.

Inbothcasestoothemarketpriceoflabourwillriseaboveitsnaturalprice;andinbothcasesitwillhave a tendency to conform to its natural price, but in the first case this agreement will bemostspeedily effected. The situation of the labourerwill be improved, but notmuch improved; for theincreased price of food and necessaries will absorb a large portion of his increased wages;consequentlyasmallsupplyoflabour,oratriflingincreaseinthepopulation,willsoonreducethemarketpricetothethenincreasednaturalpriceoflabour.

In the second case, the condition of the labourer will be very greatly improved; he will receiveincreasedmoneywages,withouthavingtopayanyincreasedprice,andperhaps,evenadiminishedprice for the commodities which he and his family consume; and it will not be till after a greatadditionhasbeenmadetothepopulation,thatthemarketpriceofwageswillagainsinktotheirthenlowandreducednaturalprice.

Thus,then,witheveryimprovementofsociety,witheveryincreaseinitscapital,themarketwagesoflabourwill rise; but the permanence of their risewill depend on the question,whether the naturalprice ofwages has also risen; and this againwill depend on the rise in the natural price of thosenecessaries,onwhichthewagesoflabourareexpended.

It isnottobeunderstoodthatthenaturalpriceofwages,estimatedeveninfoodandnecessaries, isabsolutely fixed and constant. It varies at different times in the same country, and verymateriallydiffers in different countries. It essentially depends on the habits and customs of the people. AnEnglish labourer would consider his wages under their natural rate, and too scanty to support a

family,iftheyenabledhimtopurchasenootherfoodthanpotatoes,andtoliveinnobetterhabitationthan amud cabin; yet thesemoderate demands of nature are often deemed sufficient in countrieswhere"man'slifeischeap,"andhiswantseasilysatisfied.ManyoftheconveniencesnowenjoyedinanEnglishcottage,wouldhavebeenthoughtluxuriesatanearlyperiodofourhistory.

Frommanufacturedcommoditiesalwaysfalling,andrawproducealwaysrising,withtheprogressofsociety, such a disproportion in their relative value is at length created, that in rich countries alabourer,bythesacrificeofaverysmallquantityonlyofhisfood,isabletoprovideliberallyforallhisotherwants.

Independentlyofthevariationsinthevalueofmoney,whichnecessarilyaffectwages,butwhichwehaveheresupposedtohavenooperation,aswehaveconsideredmoneytobeuniformlyofthesamevalue,wagesaresubjecttoariseorfallfromtwocauses:

1st.Thesupplyanddemandoflabourers.

2dly.Thepriceofthecommoditiesonwhichthewagesoflabourareexpended.

Indifferent stagesof society, theaccumulationofcapital,orof themeansofemploying labour, ismoreorlessrapid,andmustinallcasesdependontheproductivepowersoflabour.Theproductivepowersof labouraregenerallygreatestwhen there isanabundanceof fertile land:atsuchperiodsaccumulationisoftensorapid,thatlabourerscannotbesuppliedwiththesamerapidityascapital.

Ithasbeencalculated,thatunderfavourablecircumstancespopulationmaybedoubledintwenty-fiveyears;butunderthesamefavourablecircumstances,thewholecapitalofacountrymightpossiblybedoubled ina shorterperiod. In that case,wagesduring thewholeperiodwouldhavea tendency torise,becausethedemandforlabourwouldincreasestillfasterthanthesupply.

In new settlements, where the arts and knowledge of countries far advanced in refinement areintroduced, it is probable that capital has a tendency to increase faster than mankind: and if thedeficiency of labourers were not supplied by more populous countries, this tendency would verymuch raise the price of labour. In proportion as these countries become populous, and land of aworse quality is taken into cultivation, the tendency to an increase of capital diminishes; for thesurplusproduceremaining,aftersatisfyingthewantsoftheexistingpopulation,mustnecessarilybein proportion to the facility of production, viz. to the smaller number of persons employed inproduction.Although,then,itisprobable,thatunderthemostfavourablecircumstances,thepowerofproduction is still greater than that of population, itwill not long continue so; for the land beinglimitedinquantity,anddifferinginquality;witheveryincreasedportionofcapitalemployedonit,therewill be a decreased rate of production, whilst the power of population continues always thesame.

Inthosecountrieswherethereisabundanceoffertileland,butwhere,fromtheignorance,indolence,andbarbarismoftheinhabitants,theyareexposedtoalltheevilsofwantandfamine,andwhereithasbeensaidthatpopulationpressesagainstthemeansofsubsistence,averydifferentremedyshouldbeappliedfromthatwhichisnecessaryinlongsettledcountries,where,fromthediminishingrateofthesupplyof rawproduce, all the evils of a crowdedpopulation are experienced. In the one case, themisery proceeds from the inactivity of the people. To be made happier, they need only to bestimulated to exertion; with such exertion, no increase in the population can be too great, as thepowersofproductionarestillgreater.Intheothercase,thepopulationincreasesfasterthanthefundsrequired for its support. Every exertion of industry, unless accompanied by a diminished rate of

increaseinthepopulation,willaddtotheevil,forproductioncannotkeeppacewithit.

InsomecountriesofEurope,andmanyofAsia,aswellasintheislandsintheSouthSeas,thepeopleare miserable, either from a vicious government or from habits of indolence, which make themprefer present ease and inactivity, though without security against want, to a moderate degree ofexertion,withplentyof food andnecessaries.Bydiminishing their population, no reliefwould beafforded,forproductionswoulddiminishinasgreat,oreveninagreater,proportion.Theremedyfor the evils underwhichPoland and Ireland suffer,which are similar to those experienced in theSouthSeas,istostimulateexertion,tocreatenewwants,andtoimplantnewtastes;forthosecountriesmust accumulate a much larger amount of capital, before the diminished rate of production willrendertheprogressofcapitalnecessarilylessrapidthantheprogressofpopulation.Thefacilitywithwhich thewants of the Irish are supplied, permits that people to pass a great part of their time inidleness:ifthepopulationwerediminished,thisevilwouldincrease,becausewageswouldrise,andthereforethelabourerwouldbeenabled,inexchangeforastilllessportionofhislabour,toobtainallthathismoderatewantsrequire.

GivetotheIrishlaboureratasteforthecomfortsandenjoymentswhichhabithasmadeessentialtotheEnglishlabourer,andhewouldbethencontenttodevoteafurtherportionofhistimetoindustry,thathemightbeenabledtoobtainthem.Notonlywouldallthefoodnowproducedbeobtained,butavast additional value in those other commodities, to the production ofwhich the nowunemployedlabour of the country might be directed. In those countries, where the labouring classes have thefewest wants, and are contented with the cheapest food, the people are exposed to the greatestvicissitudesandmiseries.Theyhavenoplaceofrefugefromcalamity;theycannotseeksafetyinalower station; they are already so low, that they can fall no lower.On any deficiency of the chiefarticleoftheirsubsistence,therearefewsubstitutesofwhichtheycanavailthemselves,anddearthtothemisattendedwithalmostalltheevilsoffamine.

Inthenaturaladvanceofsociety,thewagesoflabourwillhaveatendencytofall,asfarastheyareregulatedby supply anddemand; for the supplyof labourerswill continue to increase at the samerate,whilstthedemandforthemwillincreaseataslowerrate.If,forinstance,wageswereregulatedbyayearlyincreaseofcapital,attherateof2percent.,theywouldfallwhenitaccumulatedonlyattherateof1½percent.Theywouldfallstilllowerwhenitincreasedonlyattherateof1,or½percent.,andwouldcontinuetodosountilthecapitalbecamestationary,whenwagesalsowouldbecomestationary, andbeonly sufficient tokeepup thenumbersof theactualpopulation. I say that,underthese circumstances, wages would fall, if they were regulated only by the supply and demand oflabourers;butwemustnotforget,thatwagesarealsoregulatedbythepricesofthecommoditiesonwhichtheyareexpended.

Aspopulationincreases,thesenecessarieswillbeconstantlyrisinginprice,becausemorelabourwillbe necessary to produce them. If, then, the money wages of labour should fall, whilst everycommodityonwhichthewagesoflabourwereexpendedrose,thelabourerwouldbedoublyaffected,andwouldbesoontotallydeprivedofsubsistence.Instead,therefore,ofthemoneywagesoflabourfalling, theywould rise; but theywould not rise sufficiently to enable the labourer to purchase asmany comforts and necessaries as he did before the rise in the price of those commodities. If hisannualwageswerebefore24l.,orsixquartersofcornwhenthepricewas4l.perquarter,hewouldprobablyreceiveonlythevalueoffivequarterswhencornroseto5l.perquarter.Butfivequarterswouldcost25l.;hewouldthereforereceiveanadditioninhismoneywages,thoughwiththatadditionhewouldbeunabletofurnishhimselfwiththesamequantityofcornandothercommodities,which

hehadbeforeconsumedinhisfamily.

Notwithstanding, then, that the labourerwould be reallyworse paid, yet this increase in hiswageswould necessarily diminish the profits of themanufacturer; for his goodswould sell at no higherprice,andyettheexpenseofproducingthemwouldbeincreased.This,however,willbeconsideredinourexaminationintotheprincipleswhichregulateprofits.

Itappears,then,thatthesamecausewhichraisesrent,namely,theincreasingdifficultyofprovidinganadditionalquantityoffoodwith thesameproportionalquantityof labour,willalsoraisewages;and therefore ifmoneybeofanunvaryingvalue,bothrentandwageswillhavea tendency to risewiththeprogressofwealthandpopulation.

But there is this essentialdifferencebetween the riseof rent and the riseofwages.The rise in themoneyvalueofrentisaccompaniedbyanincreasedshareoftheproduce;notonlyisthelandlord'smoneyrentgreater,buthiscornrentalso;hewillhavemorecorn,andeachdefinedmeasureofthatcornwillexchangeforagreaterquantityofallothergoodswhichhavenotbeenraisedinvalue.Thefateof the labourerwill be lesshappy:hewill receivemoremoneywages, it is true, but his cornwages will be reduced; and not only his command of corn, but his general condition will bedeteriorated,byhisfindingitmoredifficulttomaintainthemarketrateofwagesabovetheirnaturalrate.Whilethepriceofcornrises10percent.,wageswillalwaysriselessthan10percent.,butrentwillalwaysrisemore; theconditionofthelabourerwillgenerallydecline,andthatofthelandlordwillalwaysbeimproved.

Whenwheatwasat4l.perquarter,supposethelabourer'swagestobe24l.perannum,orthevalueofsixquartersofwheat,andsupposehalfhiswagestobeexpendedonwheat,andtheotherhalf,or12l.,onotherthings.Hewouldreceive

£24.14.

whenwheatwasat

£4.4.8.

orthevalueof

5.83qrs.25.10. 4.10. 5.66qrs.26.8. 4.16. 5.50qrs.27.8.6 5.2.10 5.33qrs.

Hewouldreceivethesewagestoenablehimtolivejustaswell,andnobetter,thanbefore;forwhencornwasat4l.perquarter,hewouldexpendforthreequartersofcorn,

at4l.perqr. £12andonotherthings 12 ——

24

Whenwheatwas4l.4s.8d., threequarters,whichheandhisfamilyconsumed,wouldcosthim £12.14

otherthingsnotalteredinprice 12 ——

24.14

Whenat4l.10s.,threequartersofwheatwouldcost £13.10andotherthings 12 —— 25.10

Whenat4l.16s.,threeqrs.ofwheat £14.8Otherthings 12 ——

26.8

Whenat5.2.10l.threequartersofwheatwouldcost £15.8.6.Otherthings 12 —— 27.8.6

Inproportionascornbecamedear,hewouldreceive lesscornwages,buthismoneywageswouldalwaysincrease,whilsthisenjoymentsontheabovesupposition,wouldbepreciselythesame.Butasother commodities would be raised in price in proportion as raw produce entered into theircomposition,hewouldhavemore topayforsomeof them.Althoughhis tea,sugar,soap,candles,andhouserent,wouldprobablybenodearer,hewouldpaymoreforhisbacon,cheese,butter,linen,shoes, and cloth; and therefore, even with the above increase of wages, his situation would becomparativelyworse.ButitmaybesaidthatIhavebeenconsideringtheeffectofwagesonprice,onthesuppositionthatgold,orthemetalfromwhichmoneyismade,istheproduceofthecountryinwhichwagesvaried;andthattheconsequenceswhichIhavededucedagreelittlewiththeactualstateofthings,becausegoldisametalofforeignproduction.Thecircumstancehowever,ofgoldbeingaforeign production, will not invalidate the truth of the argument, because it may be shewn, thatwhether it were found at home, or were imported from abroad, the effects ultimately and indeedimmediatelywouldbethesame.

Whenwages rise, it isgenerallybecause the increaseofwealthandcapitalhaveoccasionedanewdemandforlabour,whichwillinfalliblybeattendedwithanincreasedproductionofcommodities.To

circulate theseadditionalcommodities,evenat thesamepricesasbefore,moremoneyis required,more of this foreign commodity fromwhichmoney ismade, andwhich can only be obtained byimportation.Wheneveracommodityisrequiredingreaterabundancethanbefore,itsrelativevaluerises comparatively with those commodities with which its purchase is made. If more hats werewanted,theirpricewouldrise,andmoregoldwouldbegivenforthem.Ifmoregoldwererequired,goldwould rise, and hatswould fall in price, as a greater quantity of hats and of all other thingswouldthenbenecessarytopurchasethesamequantityofgold.Butinthecasesupposed,tosaythatcommoditieswillrise,becausewagesrise,istoaffirmapositivecontradiction;forwefirstsaythatgoldwill rise in relativevalue inconsequenceofdemand,andsecondly, that itwill fall in relativevaluebecausepriceswillrise,twoeffectswhicharetotallyincompatiblewitheachother.Tosaythatcommoditiesareraisedinprice,isthesamethingastosaythatmoneyisloweredinrelativevalue;forit isbycommoditiesthattherelativevalueofgoldisestimated.If thenallcommoditiesroseinprice,goldcouldnotcomefromabroadtopurchasethosedearcommodities,butitwouldgofromhometobeemployedwithadvantageinpurchasingthecomparativelycheaperforeigncommodities.Itappearsthen,thattheriseofwageswillnotraisethepricesofcommodities,whetherthemetalfromwhichmoneyismadebeproducedathomeorinaforeigncountry.Allcommoditiescannotriseatthe same timewithout an addition to thequantityofmoney.This additioncouldnotbeobtained athome,aswehavealreadyshewn;norcoulditbeimportedfromabroad.Topurchaseanyadditionalquantity of gold from abroad, commodities at homemust be cheap, not dear. The importation ofgold,andariseinthepriceofallhome-madecommoditieswithwhichgoldispurchasedorpaidfor,areeffectsabsolutelyincompatible.Theextensiveuseofpapermoneydoesnotalterthisquestion,forpaper money conforms, or ought to conform to the value of gold, and therefore its value isinfluencedbysuchcausesonlyasinfluencethevalueofthatmetal.

Thesethenarethelawsbywhichwagesareregulated,andbywhichthehappinessoffarthegreatestpartofeverycommunity isgoverned.Likeallothercontracts,wagesshouldbe left to the fairandfreecompetitionofthemarket,andshouldneverbecontrolledbytheinterferenceofthelegislature.

Theclearanddirecttendencyofthepoorlaws,isindirectoppositiontotheseobviousprinciples:itisnot,asthelegislaturebenevolentlyintended,toamendtheconditionofthepoor,buttodeterioratetheconditionofbothpoorandrich;insteadofmakingthepoorrich,theyarecalculatedtomaketherichpoor;andwhilstthepresentlawsareinforce,itisquiteinthenaturalorderofthingsthatthefundforthemaintenanceofthepoorshouldprogressivelyincrease,tillithasabsorbedalltheneatrevenueofthecountry,oratleastsomuchofitasthestateshallleavetous,aftersatisfyingitsownneverfailingdemandsforthepublicexpenditure.9

Thispernicioustendencyoftheselawsisnolongeramystery,sinceithasbeenfullydevelopedbytheable hand of Mr. Malthus; and every friend to the poor must ardently wish for their abolition.Unfortunatelyhowever theyhavebeenso longestablished,and thehabitsof thepoorhavebeensoformedupontheiroperation,thattoeradicatethemwithsafetyfromourpoliticalsystemrequiresthemostcautiousandskilfulmanagement.Itisagreedbyallwhoaremostfriendlytoarepealoftheselaws,thatifitbedesirabletopreventthemostoverwhelmingdistresstothoseforwhosebenefittheywereerroneouslyenacted,theirabolitionshouldbeeffectedbythemostgradualsteps.

It is a truth which admits not a doubt, that the comforts and well being of the poor cannot bepermanentlysecuredwithoutsomeregardontheirpart,orsomeeffortonthepartofthelegislature,to regulate the increase of their numbers, and to render less frequent among them early andimprovidentmarriages.Theoperationofthesystemofpoorlawshasbeendirectlycontrarytothis.

Theyhaverenderedrestraintsuperfluous,andhaveinvitedimprudencebyofferingitaportionofthewagesofprudenceandindustry.

Thenatureoftheevilpointsouttheremedy.Bygraduallycontractingthesphereofthepoorlaws;byimpressing on the poor the value of independence, by teaching them that they must look not tosystematicorcasualcharity,buttotheirownexertionsforsupport,thatprudenceandforethoughtareneither unnecessary nor unprofitable virtues, we shall by degrees approach a sounder and morehealthfulstate.

Noschemefortheamendmentofthepoorlawsmeritstheleastattention,whichhasnottheirabolitionfor itsultimateobject;andhe is thebest friend to thepoor,and to thecauseofhumanity,whocanpoint out how this end can be attainedwith themost security, and at the same timewith the leastviolence.Itisnotbyraisinginanymannerdifferentfromthepresent,thefundfromwhichthepooraresupported,thattheevilcanbemitigated.Itwouldnotonlybenoimprovement,butitwouldbeanaggravationofthedistresswhichwewishtoseeremoved,ifthefundwereincreasedinamount,orwere levied according to some late proposals, as a general fund from the country at large. Thepresent mode of its collection and application has served to mitigate its pernicious effects. Eachparish raises a separate fund for the supportof itsownpoor.Hence itbecomesanobject ofmoreinterest andmorepracticability tokeep the rates low, than if onegeneral fundwere raised for therelief of the poor of the whole kingdom. A parish is much more interested in an economicalcollectionoftherate,andasparingdistributionofrelief,whenthewholesavingwillbeforitsownbenefit,thanifhundredsofotherparishesweretopartakeofit.

It is to thiscause, thatwemustascribethefactof thepoorlawsnothavingyetabsorbedall thenetrevenueofthecountry;itistotherigourwithwhichtheyareapplied,thatweareindebtedfortheirnothavingbecomeoverwhelminglyoppressive.Ifbylaweveryhumanbeingwantingsupportcouldbesuretoobtainit,andobtainitinsuchadegreeastomakelifetolerablycomfortable,theorywouldleadus toexpect thatallother taxes togetherwouldbe lightcomparedwith thesingleoneofpoorrates.Theprincipleofgravitationisnotmorecertainthanthetendencyofsuchlawstochangewealthandpowerintomiseryandweakness;tocallawaytheexertionsoflabourfromeveryobject,exceptthat of providing mere subsistence; to confound all intellectual distinction; to busy the mindcontinuallyinsupplyingthebody'swants;untilatlastallclassesshouldbeinfectedwiththeplagueofuniversal poverty. Happily these laws have been in operation during a period of progressiveprosperity, when the funds for the maintenance of labour have regularly increased, and when anincreaseofpopulationwouldbenaturallycalledfor.Butifourprogressshouldbecomemoreslow;if we should attain the stationary state, from which I trust we are yet far distant, then will theperniciousnatureoftheselawsbecomemoremanifestandalarming;andthentoowilltheirremovalbeobstructedbymanyadditionaldifficulties.

CHAPTERV*.

ONPROFITS.

THEprofitsofstockindifferentemployments,havingbeenshewntobearaproportiontoeachother,andtohaveatendencytovaryallinthesamedegreeandinthesamedirection,itremainsforustoconsider what is the cause of the permanent variations in the rate of profit, and the consequent

permanentalterationsintherateofinterest.

Wehaveseenthattheprice10ofcornisregulatedbythequantityoflabournecessarytoproduceit,withthatportionofcapitalwhichpaysnorent.Wehaveseentoothatallmanufacturedcommoditiesriseandfall inprice, inproportionasmoreor less labourbecomesnecessary to theirproduction.Neither the farmerwhocultivates thatqualityof land,which regulatesprice,nor themanufacturer,whomanufactures goods, sacrifice any portion of the produce for rent. Thewhole value of theircommodities is divided into two portions only: one constitutes the profits of stock, the other thewagesoflabour.

Supposingcornandmanufacturedgoodsalways tosellat thesameprice,profitswouldbehighorlowinproportionaswageswereloworhigh.Butsupposecorntoriseinpricebecausemorelabourisnecessarytoproduceit;thatcausewillnotraisethepriceofmanufacturedgoodsintheproductionofwhichnoadditionalquantityoflabourisrequired.Ifthenwagescontinuedthesame,profitswouldremainthesame;butif,asisabsolutelycertain,wagesshouldrisewiththeriseofcorn,thenprofitswouldnecessarilyfall.

If amanufacturer always sold his goods for the samemoney, for 1000l. for example, his profitswoulddependonthepriceofthelabournecessarytomanufacturethosegoods.Hisprofitswouldbelesswhenwagesamountedto800l. thanwhenhepaidonly600l. Inproportionthenaswagesrose,would profits fall. But if the price of raw produce would increase, it may be asked, whether thefarmeratleastwouldnothavethesamerateofprofits,althoughheshouldpayanadditionalpriceforwages?Certainlynot:forhewillnotonlyhavetopay,incommonwiththemanufacturer,anincreaseofwages to each labourer he employs, but hewill be obliged either to pay rent, or to employ anadditionalnumberoflabourerstoobtainthesameproduce;andtheriseinthepriceofrawproducewillbeproportionedonlytothatrent,orthatadditionalnumber,andwillnotcompensatehimfortheriseofwages.

Ifboththemanufacturerandfarmeremployedtenmen,onwagesrisingfrom24l.to25l.perannum.perman, thewhole sumpaid by eachwould be 250l. insteadof240l. This is, however, thewholeadditionthatwouldbepaidbythemanufacturertoobtainthesamequantityofcommodities;butthefarmeronnewlandwouldprobablybeobligedtoemployanadditionalman,andthereforetopayanadditionalsumof25l.forwages;andthefarmerontheoldlandwouldbeobligedtopaypreciselythesameadditionalsumof25l.forrent;withoutwhichadditionallabour,cornwouldnothaverisen.Onewillthereforehavetopay275l.forwagesalone,theother,forwagesandrenttogether;each25l.morethanthemanufacturer:forthislatter25l. theyarecompensatedbytheadditiontothepriceofraw produce, and therefore their profits still conform to the profits of the manufacturer. As thispropositionisimportant,Iwillendeavourstillfurthertoelucidateit.

Wehaveshewnthatinearlystagesofsociety,boththelandlord'sandthelabourer'sshareofthevalueof the produce of the earth, would be but small; and that it would increase in proportion to theprogressofwealth,andthedifficultyofprocuringfood.Wehaveshewntoo,thatalthoughthevalueof the labourer's portion will be increased by the high value of food, his real share will bediminished;whilstthatofthelandlordwillnotonlyberaisedinvalue,butwillalsobeincreasedinquantity.

The remaining quantity of the produce of the land, after the landlord and labourer are paid,necessarilybelongstothefarmer,andconstitutestheprofitsofhisstock.Butitmaybealleged,thatthoughassocietyadvances,hisproportionofthewholeproducewillbediminished,yetasitwillrise

invalue,he,aswellasthelandlordandlabourer,may,notwithstanding,receiveagreatervalue.

Itmaybesaidforexample,thatwhencornrosefrom4l.to10l.,the180quartersobtainedfromthebest landwouldsellfor1800l. insteadof720l.;and therefore, though the landlordand labourerbeprovedtohaveagreatervalueforrentandwages,stillthevalueofthefarmer'sprofitmightalsobeaugmented.Thishoweverisimpossible,asIshallnowendeavourtoshew.

In the first place, the price of corn would rise only in proportion to the increased difficulty ofgrowingitonlandofaworsequality.

Ithasbeenalreadyremarked,thatifthelabouroftenmenwill,onlandofacertainquality,obtain180quartersofwheat,anditsvaluebe4l.perquarter,or720l.;andif thelabouroftenadditionalmen,willonthesameoranyotherland,produceonly170quartersinaddition,wheatwouldrisefrom4l.to4l.4s.8d.;for170:180::4l.:4l.4s.8d.Inotherwords,asfortheproductionof170quarters,thelabouroftenmenisnecessary,intheonecase,andonlythatof9.44intheother,therisewouldbeas9.44 to 10, or as 4l. to 4l.4s.8d. In the samemanner itmight be shewn, that if the labour of tenadditionalmenwouldonlyproduce160quarters,thepricewouldfurtherriseto4l.10s.;if150,to4l.16s.,&c.&c.

Butwhen180quarterswereproducedonthelandpayingnorent,anditspricewas4l.perquarter,itsoldfor £720

Andwhen170quarterswereproducedonthelandpayingnorent,andthepriceroseto4l.4s.8d.itstillsoldfor 720

So,160quartersat4l.10s.produce 720And150quartersat4l.16s.producethesamesumof 720

Now it is evident, that ifoutof theseequalvalues, the farmer is atone timeobliged topaywagesregulatedbythepriceofwheatat4l.,andatothertimesathigherprices,therateofhisprofitswilldiminishinproportiontotheriseinthepriceofcorn.

In this case, therefore, I think it is clearly demonstrated that a rise in the price of corn, whichincreasesthemoneywagesofthelabourer,diminishesthemoneyvalueofthefarmer'sprofits.

But thecaseof the farmerof theoldandbetter landwillbe innowaydifferent;healsowillhaveincreasedwagestopay,andwillneverretainmoreofthevalueoftheproduce,howeverhighmaybeits price, than 720l. to be divided between himself and his always equal number of labourers; inproportionthereforeastheygetmore,hemustretainless.

Whenthepriceofcornwasat4l.,thewhole180quartersbelongedtothecultivator,andhesolditfor720l.Whencornroseto4l.4s.8d.hewasobligedtopaythevalueoftenquartersoutofhis180forrent,consequentlytheremaining170yieldedhimnomorethan720l.:whenitrosefurtherto4l.10s.hepaidtwentyquarters,ortheirvalue,forrent,andconsequentlyonlyretained160quarters,whichyieldedthesamesumof720l.

Itwill be seen then, thatwhatever risemay take place in the price of corn, in consequence of thenecessityofemployingmorelabourandcapitaltoobtainagivenadditionalquantityofproduce,suchrisewill alwaysbeequalled invalueby theadditional rent,or additional labouremployed; so thatwhethercornsellsfor4l.,4l.10s.,or5l.2s.10d., the farmerwillobtainfor thatwhichremains tohim,afterpayingrent, thesamerealvalue.Thuswesee, thatwhether theproducebelonging to the

farmerbe180,170,160,or150quarters,healwaysobtains thesamesumof720l. for it; thepriceincreasinginaninverseproportiontothequantity.

Rentthen,itappears,alwaysfallsontheconsumer,andneveronthefarmer;foriftheproduceofhisfarm should uniformly be 180 quarters,with the rise of price, hewould retain the value of a lessquantityforhimself,andgivethevalueofalargerquantitytohislandlord;butthedeductionwouldbesuchastoleavehimalwaysthesamesumof720l.

Itwillbeseentoothat,inallcases,thesamesumof720l.mustbedividedbetweenwagesandprofits.Ifthevalueoftherawproducefromthelandexceedthisvalue,itbelongstorent,whatevermaybeitsamount. If therebenoexcess, therewillbenorent.Whetherwagesorprofits riseorfall, it is thissumof720l.fromwhichtheymustbothbeprovided.Ontheonehand,profitscanneverrisesohighastoabsorbsomuchofthis720l.,thatenoughwillnotbelefttofurnishthelabourerswithabsolutenecessaries;ontheotherhand,wagescanneverrisesohighastoleavenoportionofthissumforprofits.

Thusineverycase,agricultural,aswellasmanufacturingprofitsareloweredbyariseinthepriceofrawproduce,ifitbeaccompaniedbyariseofwages.11Ifthefarmergetsnoadditionalvalueforthecornwhich remains to him after paying rent, if themanufacturer gets no additional value for thegoodswhichhemanufactures,andifbothareobligedtopayagreatervalueinwages,cananypointbemoreclearlyestablishedthanthatprofitsmustfall,withariseofwages?

Thefarmerthen,althoughhepaysnopartofhislandlord'srent, thatbeingalwaysregulatedbytheprice of produce, and invariably falling on the consumers, has however a very decided interest inkeeping rent low, or rather in keeping the natural price of produce low. As a consumer of rawproduce,andofthosethingsintowhichrawproduceentersasacomponentpart,hewillincommonwithallotherconsumers,beinterestedinkeepingthepricelow.Butheismostmateriallyconcernedwiththehighpriceofcornasitaffectswages.Witheveryriseinthepriceofcorn,hewillhavetopayoutofanequalandunvaryingsumof720l.,anadditionalsumforwagestothetenmenwhomheissupposedconstantlytoemploy.Wehaveseenintreatingonwages,thattheyinvariablyrisewiththeriseinthepriceofrawproduce.Onabasisassumedforthepurposeofcalculation,page106,itwillbeseenthatifwhenwheatisat4l.perquarter,wagesshouldbe24l.perannum.

£s.d. £s.d.

WhenWheatisat

448

wageswouldbe

241404100 251004160 26805210 2786

Now,oftheunvaryingfundof720l.tobedistributedbetweenlabourersandfarmers,

£s.d. £s. £s.d.

WhenthepriceofWheatat

400

thelabourerwillreceive

2400

theformerwillreceive

48000448 2470 473004108 2550 465004168 2640 45600528 2745 4451512

Andsupposingthattheoriginalcapitalofthefarmerwas3000l.,theprofitsofhisstockbeinginthefirstinstance480l.,wouldbeattherateof16percent.Whenhisprofitsfellto473l.,theywouldbeattherateof15.7percent.

465 15.5

456 15.2

445 14.8

But therateofprofitswill fall stillmore,because thecapitalof the farmer, itmustbe recollected,consistsinagreatmeasureofrawproduce,suchashiscornandhay-ricks,hisunthreshedwheatandbarley,hishorsesandcows,whichwouldallriseinpriceinconsequenceoftheriseofproduce.Hisabsoluteprofitswouldfallfrom480l.to445l.15s.;butiffromthecausewhichIhavejuststated,hiscapitalshouldrisefrom3000l.to3200l.therateofhisprofitswould,whencornwasat5l.2s.10d.,beunder14percent.

Ifamanufacturerhadalsoemployed3000l. inhisbusiness,hewouldbeobligedinconsequenceoftheriseofwages,toincreasehiscapital,inordertobeenabledtocarryonthesamebusiness.Ifhiscommoditiessoldbefore for720l., theywouldcontinue to sell at the sameprice;but thewagesoflabour,whichwerebefore240l.,wouldrisewhencornwasat5l.2s.10d.to274l.5s.Inthefirstcasehewouldhaveabalanceof480l.asprofiton3000l., in thesecondhewouldhaveaprofitonlyof445l.15s.,onanincreasedcapital,andthereforehisprofitswouldconformtothealteredrateofthoseofthefarmer.

There are few commoditieswhich are notmore or less affected in their price by the rise of rawproduce,becausesomerawmaterialfromthelandentersintothecompositionofmostcommodities.Cottongoods,linen,andcloth,willallriseinpricewiththeriseofwheat;buttheyriseonaccountofthe greater quantity of labour expended on the raw material from which they are made, and notbecause more was paid by the manufacturer to the labourers whom he employed on thosecommodities.

Inallcases,commoditiesrisebecausemorelabourisexpendedonthem,andnotbecausethelabourwhichisexpendedonthemisatahighervalue.Articlesofjewellery,ofiron,ofplate,andofcopper,would not rise, because none of the raw produce from the surface of the earth enters into theircomposition.

ItmaybesaidthatIhavetakenitforgranted,thatmoneywageswouldrisewithariseinthepriceofrawproduce,butthatthisisbynomeansanecessaryconsequence,asthelabourermaybecontentedwithfewerenjoyments.Itistruethatthewagesoflabourmaypreviouslyhavebeenatahigh level,andthattheymaybearsomereduction.Ifso,thefallofprofitswillbechecked;butitisimpossibletoconceivethatthemoneypriceofwagesshouldfall,orremainstationarywithagraduallyincreasingpriceofnecessaries;andthereforeitmaybetakenforgrantedthat,underordinarycircumstances,nopermanentrisetakesplaceinthepriceofnecessaries,withoutoccasioning,orhavingbeenprecededbyariseinwages.

Theeffectsproducedonprofits,wouldhavebeenthesame,ornearlythesame,iftherehadbeenanyriseinthepriceofthoseothernecessaries,besidesfood,onwhichthewagesoflabourareexpended.Thenecessitywhichthelabourerwouldbeunderofpayinganincreasedpriceforsuchnecessaries,wouldobligehimtodemandmorewages;andwhateverincreaseswages,necessarilyreducesprofits.But suppose the price of silks, velvets, furniture, and any other commodities, not required by the

labourer, to rise in consequence of more labour being expended on them, would not that affectprofits? certainly not: for nothing can affect profits but a rise inwages; silks and velvets are notconsumedbythelabourer,andthereforecannotraisewages.

ItistobeunderstoodthatIamspeakingofprofitsgenerally.Ihavealreadyremarkedthatthemarketprice of a commodity may exceed its natural or necessary price, as it may be produced in lessabundance than the new demand for it requires. This however is but a temporary effect. The highprofitsoncapitalemployed inproducing thatcommoditywillnaturallyattractcapital to that trade;andassoonastherequisitefundsaresupplied,andthequantityofthecommodityisdulyincreased,itspricewillfall,andtheprofitsofthetradewillconformtothegenerallevel.Afallinthegeneralrateofprofitsisbynomeansincompatiblewithapartialriseofprofitsinparticularemployments.Itis through the inequalityof profits, that capital ismoved fromone employment to another.Whilstthengeneralprofitsarefalling,andgraduallysettlingatalowerlevelinconsequenceoftheriseofwages, and the increasing difficulty of supplying the increasing population with necessaries, theprofits of the farmer,may, for an interval of some little duration, be above the former level. Anextraordinary stimulusmaybe alsogiven for a certain time, to aparticularbranchof foreignandcolonialtrade;buttheadmissionofthisfactbynomeansinvalidatesthetheory,thatprofitsdependonhigh or lowwages,wages on the price of necessaries, and the price of necessaries chiefly on thepriceoffood,becauseallotherrequisitesmaybeincreasedalmostwithoutlimit.

It shouldbe recollected thatpricesalwaysvary in themarket, and in the first instance, through thecomparativestateofdemandandsupply.Althoughclothcouldbefurnishedat40s.peryard,andgivetheusualprofitsofstock, itmayrise to60or80s. fromageneralchangeof fashion,or fromanyothercausewhichshouldsuddenlyandunexpectedlyincreasethedemand,ordiminishthesupplyofit. Themakers of clothwill for a time have unusual profits, but capitalwill naturally flow to thatmanufacture,tillthesupplyanddemandareagainattheirfairlevel,whenthepriceofclothwillagainsinkto40s.,itsnaturalornecessaryprice.Inthesamemanner,witheveryincreaseddemandforcorn,itmayrisesohighastoaffordmorethanthegeneralprofitstothefarmer.Iftherebeplentyoffertileland,thepriceofcornwillagainfalltoitsformerstandard,aftertherequisitequantityofcapitalhasbeenemployedinproducingit,andprofitswillbeasbefore;butiftherebenotplentyoffertileland,if,toproducethisadditionalquantity,morethantheusualquantityofcapitalandlabourberequired,corn will not fall to its former level. Its natural price will be raised, and the farmer, instead ofobtainingpermanentlylargerprofits,willfindhimselfobligedtobesatisfiedwiththediminishedratewhichistheinevitableconsequenceoftheriseofwages,producedbytheriseofnecessaries.

Thenaturaltendencyofprofitsthenistofall;for,intheprogressofsocietyandwealth,theadditionalquantityof foodrequired isobtainedby thesacrificeofmoreandmore labour.This tendency, thisgravitation as it were of profits, is happily checked at repeated intervals by the improvements inmachinery,connectedwiththeproductionofnecessaries,aswellasbydiscoveriesinthescienceofagriculturewhichenableustorelinquishaportionoflabourbeforerequired,andthereforetolowerthepriceoftheprimenecessaryofthelabourer.Theriseinthepriceofnecessariesandinthewagesoflabourishoweverlimited;forassoonaswagesshouldbeequal(asinthecaseformerlystated)to720l.,thewholereceiptsofthefarmer,theremustbeanendofaccumulation;fornocapitalcanthenyield anyprofitwhatever, andnoadditional labour canbedemanded, andconsequentlypopulationwillhavereacheditshighestpoint.Longindeedbeforethisperiod,theverylowrateofprofitswillhave arrested all accumulation, and almost the whole produce of the country, after paying thelabourers,willbethepropertyoftheownersoflandandthereceiversoftithesandtaxes.

Thus,takingtheformerveryimperfectbasisasthegroundsofmycalculation,itwouldappearthatwhencornwasat20l.perquarter,thewholenetincomeofthecountrywouldbelongtothelandlords,forthenthesamequantityoflabourthatwasoriginallynecessarytoproduce180quarters,wouldbenecessary toproduce36;since20l. :4l. ::180 :36.Thefarmer then,whooriginallyproduced180quarters, (if any such there were, for the old and new capital employed on the land would be soblended,thatitcouldinnowaybedistinguished,)wouldsellthe

180qrs.at20l.perqr.or £3600

Thevalueof 144grs. to landlord for rent, being the difference between 36 and180qrs. 2880 ——

36grs. 720thevalueof 50grs. tolabourersteninnumber 720

leavingnothingwhateverforprofit.

At this price of 20l. the labourerswould continue to consume three quarters each perannumor £60

Andonothercommoditiestheywouldexpend 12 —— 72foreachlabourer ——Andthereforetenlabourerswouldcost 720l.perannum.

In all these calculations I have been desirous only to elucidate the principle, and it is scarcelynecessary to observe, that my whole basis is assumed at random, and merely for the purpose ofexemplification. The results though different in degree, would have been the same in principle,howeveraccuratelyImighthavesetoutinstatingthedifferenceinthenumberoflabourersnecessaryto obtain the successive quantities of corn required by an increasing population, the quantityconsumedby the labourer's family,&c.&c.Myobjecthasbeen to simplify the subject, and Ihavethereforemadenoallowancefor the increasingpriceof theothernecessaries,besides food,of thelabourer; an increasewhichwould be the consequence of the increased value of the rawmaterialfromwhichtheyaremade,andwhichwouldofcoursefurtherincreasewages,andlowerprofits.

Ihavealreadysaid, that longbefore this stateofpriceswasbecomepermanent, therewouldbenomotive for accumulation; for no one accumulates but with a view to make his accumulationproductive,anditisonlywhensoemployedthatitoperatesonprofits.Withoutamotivetherecouldbenoaccumulation,andconsequentlysuchastateofpricesnevercouldtakeplace.Thefarmerandmanufacturer can nomore live without profit, than the labourer without wages. Theirmotive foraccumulation will diminish with every diminution of profit, and will cease altogether when theirprofits are so low as not to afford them an adequate compensation for their trouble, and the riskwhichtheymustnecessarilyencounterinemployingtheircapitalproductively.

Imustagainobserve,thattherateofprofitswouldfallmuchmorerapidlythanIhaveestimatedinmycalculation:forthevalueoftheproducebeingwhatIhavestateditunderthecircumstancessupposed,thevalueofthefarmer'sstockwouldbegreatlyincreasedfromitsnecessarilyconsistingofmanyofthecommoditieswhichhadriseninvalue.Beforecorncouldrisefrom4l.to12l.hiscapitalwouldprobablybedoubledinexchangeablevalue,andbeworth6000l. insteadof3000l. If thenhisprofitwere180l.,or6percent.onhisoriginalcapital,profitswouldnotatthattimebereallyatahigherratethan3percent.;for6000l.at3percent.gives180l.;andonthosetermsonlycouldanewfarmerwith6000l.moneyinhispocketenterintothefarmingbusiness.

Many trades would derive some advantage,more or less, from the same source. The brewer, thedistiller,theclothier,thelinenmanufacturer,wouldbepartlycompensatedforthediminutionoftheirprofits,by the rise in thevalueof their stockof rawand finishedmaterials;butamanufacturerofhardware,of jewellery,andofmanyothercommodities,aswellas thosewhosecapitalsuniformlyconsisted of money, would be subject to the whole fall in the rate of profits, without anycompensationwhatever.

Weshouldalsoexpectthat,howevertherateoftheprofitsofstockmightdiminishinconsequenceoftheaccumulationofcapitalon the land,and the riseofwages,yet theaggregateamountofprofitswould increase. Thus supposing that, with repeated accumulations of 100,000l., the rate of profitshouldfallfrom20to19,to18,to17percent.,aconstantlydiminishingrate,weshouldexpectthatthe whole amount of profits received by those successive owners of capital would be alwaysprogressive;thatitwouldbegreaterwhenthecapitalwas200,000l.,thanwhen100,000l.;stillgreaterwhen300,000l.;andsoon, increasing, thoughatadiminishing rate,withevery increaseofcapital.Thisprogressionhoweverisonlytrueforacertaintime:thus19percent.on200,000l.ismorethan20 on 100,000l.; again 18 per cent. on 300,000l. ismore than 19 per cent. on 200,000l.; but aftercapital has accumulated to a large amount, and profits have fallen, the further accumulationdiminishes the aggregate of profits.Thus suppose the accumulation should be 1,000,000l., and theprofits7percent.thewholeamountofprofitswillbe70,000l.;nowifanadditionof100,000l.capitalbemadetothemillion,andprofitsshouldfallto6percent.,66,000l.oradiminutionof4000l.willbereceived by the owners of stock, although the whole amount of stock will be increased from1,000,000l.to1,100,000l.

Therecan,however,benoaccumulationofcapital,solongasstockyieldsanyprofitatall,withoutitsyieldingnotonlyanincreaseofproduce,butanincreaseofvalue.Byemploying100,000l.additionalcapital,nopartof theformercapitalwillberenderedlessproductive.Theproduceof the landandlabourofthecountrymustincrease,anditsvaluewillberaised,notonlybythevalueoftheadditionwhichismadetotheformerquantityofproductions,butbythenewvaluewhichisgiventothewholeproduceoftheland,bytheincreaseddifficultyofproducingthelastportionofit,whichnewvaluealwaysgoestorent.Whentheaccumulationofcapital,however,becomesverygreat,notwithstandingthis increased value, it will be so distributed that a less value than before will be appropriated toprofits, while that which is devoted to rent and wages will be increased. Thus with successiveadditionsof100,000l.tocapital,withafallintherateofprofits,from20to19,to18,to17percent.&c. the productions annually obtained will increase in quantity, and be of more than the wholeadditionalvalue,which the additional capital is calculated toproduce.From20,000l. itwill rise tomorethan39,000l.andthentomorethan57,000l.,andwhenthecapitalemployedisamillion,aswebeforesupposed,if100,000l.morebeaddedtoit,andtheaggregateofprofitsisactuallylowerthanbefore,morethan6000l.willneverthelessbeaddedtotherevenueofthecountry,butitwillbetotherevenue of the landlords; they will obtain more than the additional produce, and will from theirsituationbeenabledtoencroachevenontheformergainsofthecapitalist.Thus,supposethepriceofcorntobe4l.perquarter,andthattherefore,aswebeforecalculated,ofevery720l.remainingtothefarmerafterpaymentofhis rent,480l.wereretainedbyhim,and240l.werepaid tohis labourers;whenthepriceroseto6l.perquarter,hewouldbeobligedtopayhislabourers300l.andretainonly420l. for profits.Now if the capital employedwere so large as to yield a hundred thousand times720l. or 72,000,000l. the aggregate of profits would be 48,000,000l. when wheat was at 4l. perquarter;andifbyemployingalargercapital,105,000times720l.wereobtainedwhenwheatwasat6l., or 75,600,000l., profitswould actually fall from48,000,000l. to 44,100,000l. or 105,000 times420l., and wages would rise from 24,000,000l. to 31,500,000l. Wages would rise because more

labourerswouldbeemployed,inproportiontocapital;andeachlabourerwouldreceivemoremoneywages;buttheconditionofthelabourer,aswehavealreadyshewn,wouldbeworse,inasmuchashewouldbeabletocommandalessquantityoftheproduceofthecountry.Theonlyrealgainerswouldbethelandlords;theywouldreceivehigherrents,first,becauseproducewouldbeofahighervalue,andsecondly,becausetheywouldhaveagreatlyincreasedproportion.

Althoughagreatervalueisproduced,agreaterproportionofwhatremainsofthatvalue,afterpayingrent,isconsumedbytheproducers,anditisthis,andthisalone,whichregulatesprofits.Whilstthelandyieldsabundantly,wagesmaytemporarilyrise,andtheproducersmayconsumemorethantheiraccustomedproportion;butthestimuluswhichwillthusbegiventopopulation,willspeedilyreducethe labourers to their usual consumption.Butwhen poor lands are taken into cultivation, orwhenmorecapitalandlabourareexpendedontheoldland,withalessreturnofproduce,theeffectmustbepermanent.Agreaterproportionofthatpartoftheproducewhichremainstobedivided,afterpayingrent,betweentheownersofstockandthelabourers,willbeapportionedtothelatter.Eachmanmay,andprobablywill,havealessabsolutequantity;butasmorelabourersareemployedinproportiontothewholeproduceretainedbythefarmer,thevalueofagreaterproportionofthewholeproducewillbeabsorbedbywages,andconsequentlythevalueofasmallerproportionwillbedevotedtoprofits.Thiswillnecessarilyberenderedpermanentbythelawsofnature,whichhavelimitedtheproductivepowersoftheland.

Thusweagainarriveatthesameconclusionwhichwehavebeforeattemptedtoestablish:—thatinallcountries,andatall times,profitsdependonthequantityof labourrequisite toprovidenecessariesfor the labourers, on that land or with that capital which yields no rent. The effects then ofaccumulationwill bedifferent indifferent countries, andwill dependchieflyon the fertilityof theland. However extensive a country may be where the land is of a poor quality, and where theimportationoffoodisprohibited,themostmoderateaccumulationsofcapitalwillbeattendedwithgreatreductionsintherateofprofit,andarapidriseinrent;andonthecontraryasmallbutfertilecountry, particularly if it freely permits the importation of food,may accumulate a large stock ofcapitalwithoutanygreatdiminutionintherateofprofits,oranygreatincreaseintherentofland.IntheChapteronWages,wehaveendeavouredtoshewthatthemoneypriceofcommoditieswouldnotbe raised by a rise of wages, either on the supposition that gold, the standard ofmoney, was theproduceofthiscountry,orthatitwasimportedfromabroad.Butifitwereotherwise,ifthepricesofcommoditieswerepermanentlyraisedbyhighwages,thepropositionwouldnotbelesstrue,whichassertsthathighwagesinvariablyaffecttheemployersoflabour,bydeprivingthemofaportionoftheirrealprofits.Supposingthehatter,thehosier,andtheshoemaker,eachpaid10l.morewagesinthemanufactureofaparticularquantityof theircommodities, and that thepriceofhats, stockings,andshoes, rosebya sumsufficient to repay themanufacturer the10l.; their situationwouldbenobetter than ifnosuchrise tookplace. If thehosiersoldhisstockingsfor110l. insteadof100l.,hisprofitswouldbepreciselythesamemoneyamountasbefore;butashewouldobtaininexchangeforthis equal sum,one tenth lessofhats, shoes, andeveryother commodity, andashecouldwithhisformeramountofsavingsemployfewer labourersat the increasedwages,andpurchasefewerrawmaterialsattheincreasedprices,hewouldbeinnobettersituationthanifhismoneyprofitshadbeenreally diminished in amount, and every thing had remained at its former price. Thus then I haveendeavouredtoshew,first,thatariseofwageswouldnotraisethepriceofcommodities,butwouldinvariably lower profits; and secondly, that if the prices of commodities could be raised, still theeffectonprofitswouldbethesame;andthatinfactthevalueofthemediumonlyinwhichpricesandprofitsareestimatedwouldbelowered.

CHAPTERVI.

ONFOREIGNTRADE.

NOextensionofforeigntradewillimmediatelyincreasetheamountofvalueinacountry,althoughitwill very powerfully contribute to increase the mass of commodities, and therefore the sum ofenjoyments.Asthevalueofallforeigngoodsismeasuredbythequantityoftheproduceofourlandandlabour,whichisgiveninexchangeforthem,weshouldhavenogreatervalue,ifbythediscoveryofnewmarkets,weobtaineddoublethequantityofforeigngoodsinexchangeforagivenquantityofours.IfbythepurchaseofEnglishgoodstotheamountof1000l.amerchantcanobtainaquantityofforeigngoods,whichhecansellintheEnglishmarketfor1,200l.,hewillobtain20percent.profitby such an employment of his capital; but neither his gains, nor the value of the commoditiesimported, will be increased or diminished by the greater or smaller quantity of foreign goodsobtained.Whether,forexample,heimportstwenty-fiveorfiftypipesofwine,hisinterestcanbenowayaffected,ifatonetimethetwenty-fivepipes,andatanotherthefiftypipes,equallysellfor1,200l.Ineithercasehisprofitwillbelimitedto200l.,or20percent.onhiscapital;andineithercasethesamevaluewillbeimportedintoEngland.Ifthefiftypipessoldformorethan1,200l.,theprofitsofthis individualmerchantwouldexceed thegeneral rateofprofits, andcapitalwouldnaturally flowintothisadvantageoustrade,till thefallofthepriceofwinehadbroughteverythingtotheformerlevel.

Ithasindeedbeencontended,thatthegreatprofitswhicharesometimesmadebyparticularmerchantsin foreign trade,will elevate the general rate of profits in the country, and that the abstraction ofcapitalfromotheremployments, topartakeof thenewandbeneficialforeigncommerce,willraiseprices generally, and thereby increase profits. It has been said, by high authority, that less capitalbeingnecessarilydevotedtothegrowthofcorn,tothemanufactureofcloth,hats,shoes,&c.whilethedemandcontinuesthesame,thepriceofthesecommoditieswillbesoincreased,thatthefarmer,hatter,clothier,andshoemaker,willhaveanincreaseofprofits,aswellastheforeignmerchant.13

They who hold this argument agree with me, that the profits of different employments have atendency toconform tooneanother; toadvanceand recede together.Ourvarianceconsists in this:Theycontend,thattheequalityofprofitswillbebroughtaboutbythegeneralriseofprofits;andIamofopinion,thattheprofitsofthefavouredtradewillspeedilysubsidetothegenerallevel.

For,first,Idenythatlesscapitalwillnecessarilybedevotedtothegrowthofcorn,tothemanufactureofcloth,hats, shoes,&c.,unless thedemand for thesecommoditiesbediminished; and if so, theirpricewillnotrise.Inthepurchaseofforeigncommodities,eitherthesame,alarger,oralessportionof the produce of the land and labour of England will be employed. If the same portion be soemployed,thenwillthesamedemandexistforcloth,shoes,corn,andhats,asbefore,andthesameportion of capital will be devoted to their production. If, in consequence of the price of foreigncommoditiesbeingcheaper,alessportionoftheannualproduceofthelandandlabourofEnglandisemployedinthepurchaseofforeigncommodities,morewillremainforthepurchaseofotherthings.Iftherebeagreaterdemandforhats,shoes,corn,&c.thanbefore,whichtheremaybe,theconsumersofforeigncommoditieshavinganadditionalportionoftheirrevenuedisposable,thecapitalisalsodisposablewithwhichthegreatervalueofforeigncommoditieswasbeforepurchased;sothatwiththe increased demand for corn, shoes, &c. there exists also the means of procuring an increased

supply,andthereforeneitherpricesnorprofitscanpermanentlyrise.Ifmoreof theproduceof theland and labour of England be employed in the purchase of foreign commodities, less can beemployedinthepurchaseofotherthings,andthereforefewerhats,shoes,&c.willberequired.Atthesametimethatcapitalisliberatedfromtheproductionofshoes,hats,&c.moremustbeemployedinmanufacturingthosecommoditieswithwhichforeigncommoditiesarepurchased;andconsequentlyin all cases the demand for foreign and home commodities together, as far as regards value, islimited by the revenue and capital of the country. If one increases, the othermust diminish. If theimportationofwine,giveninexchangeforthesamequantityofEnglishcommoditiesbedoubled,thepeopleofEnglandcaneitherconsumedoublethequantityofwinethattheydidbefore,orthesamequantityofwineandagreaterquantityofEnglishcommodities.Ifmyrevenuehadbeen1000l.,withwhichIpurchasedannuallyonepipeofwinefor100l.andacertainquantityofEnglishcommoditiesfor900l.;whenwinefellto50l.perpipe,Imightlayoutthe50l.saved,eitherinthepurchaseofanadditionalpipeofwine,orinthepurchaseofmoreEnglishcommodities.IfIboughtmorewine,andevery wine-drinker did the same, the foreign trade would not be in the least disturbed; the samequantity of English commoditieswould be exported in exchange forwine, andwe should receivedoublethequantity,thoughnotdoublethevalueofwine.ButifI,andotherscontentedourselveswiththe samequantityofwineasbefore, fewerEnglishcommoditieswouldbeexported, and thewine-drinkersmighteitherconsumethecommoditieswhichwerebeforeexported,oranyothersforwhichthey had an inclination.The capital required for their productionwould be supplied by the capitalliberatedfromtheforeigntrade.

Therearetwowaysinwhichcapitalmaybeaccumulated:itmaybesavedeitherinconsequenceofincreasedrevenue,orofdiminishedconsumption.Ifmyprofitsareraisedfrom1000l.to1200l.whilemyexpenditurecontinuesthesame,Iaccumulateannually200l.morethanIdidbefore.IfIsave200l.outofmyexpenditurewhilemyprofitscontinuethesame,thesameeffectwillbeproduced;200l.perannumwillbeadded tomycapital.Themerchantwho importedwineafterprofitshadbeen raisedfrom20percent.to40percent.,insteadofpurchasinghisEnglishgoodsfor1000l.,mustpurchasethemfor857l.2s.10d.,stillsellingthewinewhichheimportsinreturnforthosegoodsfor1200l.;or, if he continued to purchase his English goods for 1000l., must raise the price of his wine to1400l.;hewouldthusobtain40insteadof20percent.profitonhiscapital;butif,inconsequenceofthecheapnessofallthecommoditiesonwhichhisrevenuewasexpended,heandallotherconsumerscouldsavethevalueof200l.outofevery1000l.theybeforeexpended,theywouldmoreeffectuallyaddtotherealwealthofthecountry;inonecase, thesavingswouldbemadeinconsequenceofanincreaseofrevenue,intheotherinconsequenceofdiminishedexpenditure.

If, by the introduction of machinery, the generality of the commodities on which revenue wasexpendedfell20percent. invalue, Ishouldbeenabled tosaveaseffectuallyas ifmyrevenuehadbeenraised20percent.;butinonecasetherateofprofitsisstationary,intheotheritisraised20percent.—If,bytheintroductionofcheapforeigngoods,Icansave20percent.frommyexpenditure,theeffectwill be precisely the same as ifmachineryhad lowered the expenseof their production, butprofitswouldnotberaised.

It is not, therefore, in consequenceof the extensionof themarket that the rateof profits is raised,althoughsuchextensionmaybeequallyefficaciousinincreasingthemassofcommodities,andmaytherebyenableustoaugmentthefundsdestinedforthemaintenanceoflabour,andthematerialsonwhich labour may be employed. It is quite as important to the happiness of mankind, that ourenjoymentsshouldbeincreasedbythebetterdistributionoflabour,byeachcountryproducingthosecommoditiesforwhichbyitssituation,itsclimate,anditsothernaturalorartificialadvantagesitis

adapted,andbytheirexchangingthemforthecommoditiesofothercountries,asthattheyshouldbeaugmentedbyariseintherateofprofits.

Ithasbeenmyendeavourtoshewthroughoutthiswork,thattherateofprofitscanneverbeincreasedbutbyafallinwages,andthattherecanbenopermanentfallofwagesbutinconsequenceofafallofthenecessariesonwhichwagesareexpended.If,therefore,bytheextensionofforeigntrade,orbyimprovementsinmachinery,thefoodandnecessariesofthelabourercanbebroughttomarketatareducedprice,profitswillrise.If, insteadofgrowingourowncorn,ormanufacturingtheclothingandothernecessariesofthelabourer,wediscoveranewmarketfromwhichwecansupplyourselveswith these commodities at a cheaperprice,wageswill fall andprofits rise;but if the commoditiesobtained at a cheaper rate, by the extension of foreign commerce, or by the improvement ofmachinery,beexclusivelythecommoditiesconsumedbytherich,noalterationwilltakeplaceintherate of profits. The rate of wages would not be affected, although wine, velvets, silks, and otherexpensivecommodities,shouldfall50percent.,andconsequentlyprofitswouldcontinueunaltered.

Foreigntrade,then,thoughhighlybeneficialtoacountry,asitincreasestheamountandvarietyoftheobjects on which revenue may be expended, and affords, by the abundance and cheapness ofcommodities, incentives to saving, and to the accumulationof capital, hasno tendency to raise theprofitsofstock,unlessthecommoditiesimportedbeofthatdescriptiononwhichthewagesoflabourareexpended.

Theremarkswhichhavebeenmaderespectingforeigntrade,applyequallytohometrade.Therateofprofits is never increased by a better distribution of labour, by the invention ofmachinery, by theestablishmentofroadsandcanals,orbyanymeansofabridginglaboureitherinthemanufactureorin the conveyance of goods.These are causeswhich operate on price, and never fail to be highlybeneficialtoconsumers;sincetheyenablethemwiththesamelabour,orwiththevalueoftheproduceof the same labour, to obtain in exchange a greater quantity of the commodity to which theimprovement is applied; but they have no effect whatever on profit. On the other hand, everydiminutioninthewagesoflabourraisesprofits,butproducesnoeffectonthepriceofcommodities.One is advantageous to all classes, for all classes are consumers; the other is beneficial only toproducers;theygainmore,buteverythingremainsatitsformerprice.Inthefirstcase,theygetthesameasbefore; but every thingonwhich their gains are expended, is diminished in exchangeablevalue.

Thesamerulewhichregulatestherelativevalueofcommoditiesinonecountry,doesnotregulatetherelativevalueofthecommoditiesexchangedbetweentwoormorecountries.

Underasystemofperfectlyfreecommerce,eachcountrynaturallydevotesitscapitalandlabourtosuchemploymentsasaremostbeneficialtoeach.Thispursuitofindividualadvantageisadmirablyconnectedwiththeuniversalgoodofthewhole.Bystimulatingindustry,byrewardingingenuity,andby using most efficaciously the peculiar powers bestowed by nature, it distributes labour mosteffectivelyandmosteconomically:while,byincreasingthegeneralmassofproductions,itdiffusesgeneral benefit, and binds together by one common tie of interest and intercourse, the universalsocietyofnationsthroughoutthecivilizedworld.ItisthisprinciplewhichdeterminesthatwineshallbemadeinFranceandPortugal,thatcornshallbegrowninAmericaandPoland,andthathardwareandothergoodsshallbemanufacturedinEngland.

Inoneandthesamecountry,profitsare,generallyspeaking,alwaysonthesamelevel;ordifferonlyastheemploymentofcapitalmaybemoreorlesssecureandagreeable.Itisnotsobetweendifferent

countries.IftheprofitsofcapitalemployedinYorkshire,shouldexceedthoseofcapitalemployedinLondon,capitalwouldspeedilymovefromLondontoYorkshire,andanequalityofprofitswouldbeeffected;butifinconsequenceofthediminishedrateofproductioninthelandsofEngland,fromtheincreaseofcapitalandpopulation,wagesshouldrise,andprofitsfall,itwouldnotfollowthatcapitalandpopulationwouldnecessarilymovefromEnglandtoHolland,orSpain,orRussia,whereprofitsmightbehigher.

IfPortugalhadnocommercialconnexionwithothercountries,insteadofemployingagreatpartofher capital and industry in the productionofwines,withwhich shepurchases for her ownuse thecloth andhardwareof other countries, shewouldbeobliged to devote a part of that capital to themanufactureofthosecommodities,whichshewouldthusobtainprobablyinferiorinqualityaswellasquantity.

ThequantityofwinewhichsheshallgiveinexchangefortheclothofEngland,isnotdeterminedbythe respective quantities of labour devoted to the production of each, as it would be, if bothcommoditiesweremanufacturedinEngland,orbothinPortugal.

Englandmaybesocircumstanced,thattoproducetheclothmayrequirethelabourof100menforoneyear;andifsheattemptedtomakethewine,itmightrequirethelabourof120menforthesametime.Englandwouldthereforefinditherinteresttoimportwine,andtopurchaseitbytheexportationofcloth.

ToproducethewineinPortugal,mightrequireonlythelabourofeightymenforoneyear,and toproducetheclothin thesamecountry,mightrequire thelabourofninetymenfor thesametime.Itwouldthereforebeadvantageousforhertoexportwineinexchangeforcloth.Thisexchangemighteven takeplace,notwithstanding that thecommodity importedbyPortugalcouldbeproduced therewithlesslabourthaninEngland.Thoughshecouldmaketheclothwiththelabourofninetymen,shewould import it from a countrywhere it required the labour of 100men to produce it, because itwouldbeadvantageoustoherrathertoemployhercapitalintheproductionofwine,forwhichshewouldobtainmoreclothfromEngland,thanshecouldproducebydivertingaportionofhercapitalfromthecultivationofvinestothemanufactureofcloth.

Thus,Englandwouldgivetheproduceofthelabourof100menfortheproduceofthelabourof80.Suchanexchangecouldnottakeplacebetweentheindividualsofthesamecountry.Thelabourof100Englishmen cannot be given for that of 80 Englishmen, but the produce of the labour of 100Englishmenmaybegivenfortheproduceofthelabourof80Portuguese,60Russians,or120EastIndians.Thedifferenceinthisrespect,betweenasinglecountryandmany,iseasilyaccountedfor,byconsidering the difficulty with which capital moves from one country to another, to seek amoreprofitableemployment,andtheactivitywithwhichitinvariablypassesfromoneprovincetoanotherinthesamecountry.14

It would undoubtedly be advantageous to the capitalists of England, and to the consumers in bothcountries,thatundersuchcircumstances,thewineandtheclothshouldbothbemadeinPortugal,andtherefore that the capital and labour ofEngland employed inmaking cloth, should be removed toPortugalforthatpurpose.Inthatcase,therelativevalueofthesecommoditieswouldberegulatedbythesameprinciple,asifoneweretheproduceofYorkshire,andtheotherofLondon;andineveryother case, if capital freely flowed towards those countries where it could be most profitablyemployed, therecouldbenodifference in the rateofprofit, andnootherdifference in the realorlabourpriceofcommodities, than theadditionalquantityof labour required toconvey them to the

variousmarketswheretheyweretobesold.

Experience however shews, that the fancied or real insecurity of capital, when not under theimmediatecontrolofitsowner,togetherwiththenaturaldisinclinationwhicheverymanhastoquitthe country of his birth and connexions, and intrust himselfwith all his habits fixed, to a strangegovernmentandnewlaws,checktheemigrationofcapital.Thesefeelings,whichIshouldbesorrytoseeweakened, inducemostmenof property to be satisfiedwith a low rate of profits in their owncountry,ratherthanseekamoreadvantageousemploymentfortheirwealthinforeignnations.

Gold and silver having been chosen for the general medium of circulation, they are, by thecompetition of commerce, distributed in such proportions amongst the different countries of theworld,astoaccommodatethemselvestothenaturaltrafficwhichwouldtakeplaceifnosuchmetalsexisted,andthetradebetweencountrieswerepurelyatradeofbarter.

Thus, cloth cannot be imported intoPortugal, unless it sell there formoregold than it cost in thecountryfromwhichitwasimported;andwinecannotbeimportedintoEngland,unlessitwillsellformoretherethanitcostinPortugal.Ifthetradewerepurelyatradeofbarter,itcouldonlycontinuewhilstEnglandcouldmakeclothsocheapastoobtainagreaterquantityofwinewithagivenquantityof labour, bymanufacturing cloth thanbygrowingvines; and alsowhilst the industry ofPortugalwereattendedbythereverseeffects.NowsupposeEnglandtodiscoveraprocessformakingwine,sothatitshouldbecomeherinterestrathertogrowitthanimportit:shewouldnaturallydivertaportionof her capital from the foreign trade to the home trade; shewould cease tomanufacture cloth forexportation, and would grow wine for herself. The money price of these commodities would beregulatedaccordingly;winewouldfallherewhileclothcontinuedatitsformerprice,andinPortugalnoalterationwouldtakeplaceinthepriceofeithercommodity.Clothwouldcontinueforsometimetobeexportedfromthiscountry,becauseitspricewouldcontinuetobehigherinPortugalthanhere;butmoneyinsteadofwinewouldbegiven inexchangefor it, till theaccumulationofmoneyhere,anditsdiminutionabroad,shouldsooperateontherelativevalueofclothinthetwocountries,thatitwouldceasetobeprofitabletoexportit.Iftheimprovementinmakingwinewereofaveryimportantdescription,itmightbecomeprofitableforthetwocountriestoexchangeemployments;forEnglandtomakeallthewine,andPortugalallthecloth,consumedbythem:butthiscouldbeeffectedonlybyanewdistributionofthepreciousmetals,whichshouldraisethepriceofclothinEngland,andloweritinPortugal.TherelativepriceofwinewouldfallinEnglandinconsequenceoftherealadvantagefromtheimprovementofitsmanufacture;thatistosay,itsnaturalpricewouldfall:therelativepriceofclothwouldrisetherefromtheaccumulationofmoney.

Thus,supposebeforetheimprovementinmakingwineinEngland,thepriceofwineherewere50l.perpipe,andthepriceofacertainquantityofclothwere45l.,whilstinPortugalthepriceofthesamequantityofwinewas45l.,andthatof thesamequantityofcloth50l.;winewouldbeexportedfromPortugalwithaprofitof5l.,andclothfromEnglandwithaprofitofthesameamount.

Suppose that,after the improvement,winefalls to45l. inEngland, theclothcontinuingat thesameprice.Everytransactionincommerceisanindependenttransaction.WhilstamerchantcanbuyclothinEnglandfor45l., and sell itwith theusualprofit inPortugal,hewill continue toexport it fromEngland.Hisbusiness is simply topurchaseEnglishcloth, and topay for itbyabillof exchange,which he purchases with Portuguese money. It is to him of no importance what becomes of thismoney; he has discharged his debt by the remittance of the bill. His transaction is undoubtedlyregulatedbythetermsonwhichhecanobtainthisbill,buttheyareknowntohimatthetime;andthecauseswhichmayinfluencethemarketpriceofbills,ortherateofexchange,isnoconsiderationof

his.

IfthemarketsbefavourablefortheexportationofwinefromPortugaltoEngland,theexporterofthewinewillbeasellerofabill,whichwillbepurchasedeitherbytheimporterofthecloth,orbythepersonwhosoldhimhisbill;andthuswithoutthenecessityofmoneypassingfromeithercountry,theexportersineachcountrywillbepaidfortheirgoods.Withouthavinganydirecttransactionwitheach other, the money paid in Portugal by the importer of cloth will be paid to the Portugueseexporterofwine;andinEnglandbythenegociationofthesamebill,theexporteroftheclothwillbeauthorizedtoreceiveitsvaluefromtheimporterofwine.

ButifthepricesofwineweresuchthatnowinecouldbeexportedtoEngland,theimporterofclothwouldequallypurchaseabill;butthepriceofthatbillwouldbehigher,fromtheknowledgewhichthe seller of it would possess, that there was no counter bill in the market by which he couldultimately settle the transactions between the two countries: hemight know that the gold or silvermoneywhichhereceivedinexchangeforhisbill,mustbeactuallyexportedtohiscorrespondentinEngland, to enable him to pay the demandwhich he had authorized to bemade upon him, and hemightthereforechargeinthepriceofhisbillalltheexpensestobeincurred,togetherwithhisfairandusualprofit.

If then this premium for a bill on England should be equal to the profit on importing cloth, theimportationwould of course cease; but if the premium on the billwere only 2 per cent., if to beenabledtopayadebtinEnglandof100l.,102l. shouldbepaid inPortugal,whilstclothwhichcost45l. would sell for 50l., cloth would be imported, bills would be bought, and money would beexported, till thediminutionofmoney inPortugal, and its accumulation inEngland,hadproducedsuchastateofprices,aswouldmakeitnolongerprofitabletocontinuethesetransactions.

Butthediminutionofmoneyinonecountry,anditsincreaseinanother,donotoperateonthepriceofonecommodityonly,butonthepricesofall,andthereforethepriceofwineandclothwillbebothraisedinEngland,andbothloweredinPortugal.Thepriceofclothfrombeing45l. inonecountry,and 50l. in the other, would probably fall to 49l. or 48l. in Portugal, and rise to 46l. or 47l. inEngland,andnotaffordasufficientprofitafterpayingapremiumforabill,toinduceanymerchanttoimportthatcommodity.

It is thus that the money of each country is apportioned to it in such quantities only as may benecessary to regulate a profitable trade of barter. England exported cloth in exchange for wine,becausebysodoing,herindustrywasrenderedmoreproductivetoher;shehadmoreclothandwinethan if she had manufactured both for herself; and Portugal imported cloth, and exported wine,because the industry of Portugal could be more beneficially employed for both countries inproducing wine. Let there be more difficulty in England in producing cloth, or in Portugal inproducing wine, or let there be more facility in England in producing wine, or in Portugal inproducingcloth,andthetrademustimmediatelycease.

No change whatever takes place in the circumstances of Portugal; but England finds that she canemployher labourmoreproductively in themanufactureofwine, and instantly the tradeofbarterbetweenthetwocountrieschanges.NotonlyistheexportationofwinefromPortugalstopped,butanewdistributionofthepreciousmetalstakesplace,andherimportationofclothisalsoprevented.

Bothcountrieswouldprobablyfindittheirinteresttomaketheirownwineandtheirowncloth;butthis singular result would take place: in England, though wine would be cheaper, cloth would be

elevatedinprice,morewouldbepaidforitbytheconsumer;whileinPortugaltheconsumers,bothofclothandofwine,wouldbeabletopurchasethosecommoditiescheaper.Inthecountrywheretheimprovement wasmade, prices would be enhanced; in that where no change had taken place, butwheretheyhadbeendeprivedofaprofitablebranchofforeigntrade,priceswouldfall.

This,however,isonlyaseemingadvantagetoPortugal,forthequantityofclothandwinetogetherproduced in that country would be diminished, while the quantity produced in England would beincreased.Moneywould in somedegree have changed its value in the two countries—itwould beloweredinEngland,andraisedinPortugal.Estimatedinmoney,thewholerevenueofPortugalwouldbediminished;estimatedinthesamemedium,thewholerevenueofEnglandwouldbeincreased.

Thus then it appears, that the improvement of a manufacture in any country tends to alter thedistributionofthepreciousmetalsamongstthenationsoftheworld:ittendstoincreasethequantityofcommodities,atthesametimethatitraisesgeneralpricesinthecountrywheretheimprovementtakesplace.

Tosimplifythequestion,Ihavebeensupposingthetradebetweentwocountriestobeconfinedtotwocommodities,towineandcloth,butitiswellknownthatmanyandvariousarticlesenterintothelistofexportsandimports.Bytheabstractionofmoneyfromonecountry,andtheaccumulationofitinanother, all commodities are affected in price, and consequently encouragement is given to theexportation of manymore commodities besides money, which will therefore prevent so great aneffectfromtakingplaceonthevalueofmoneyinthetwocountries,asmightotherwisebeexpected.

Besidetheimprovementsinartsandmachinery,therearevariousothercauseswhichareconstantlyoperatingon thenatural courseof trade, andwhich interferewith the equilibrium, and the relativevalueofmoney.Bountiesonexportationor importation,new taxesoncommodities, sometimesbytheir direct, and at other times by their indirect operation, disturb the natural trade of barter, andproduce a consequent necessity of importing or exporting money, in order that prices may beaccommodatedtothenaturalcourseofcommerce;andthiseffectisproducednotonlyinthecountrywhere the disturbing cause takes place, but, in a greater or less degree, in every country of thecommercialworld.

Thiswill in somemeasure account for the different value ofmoney in different countries; itwillexplain to uswhy the prices of home commodities, and those of great bulk, are, independently ofother causes, higher in those countries where manufactures flourish. Of two countries havingpreciselythesamepopulation,andthesamequantityoflandofequalfertilityincultivation,withthesameknowledgetooofagriculture,thepricesofrawproducewillbehighestinthatwherethegreaterskill, and the bettermachinery is used in themanufacture of exportable commodities. The rate ofprofitswillprobablydifferbutlittle;forwages,ortherealrewardofthelabourer,maybethesameinboth;butthosewages,aswellasrawproduce,willberatedhigherinmoneyinthatcountry,intowhich,fromtheadvantagesattendingtheirskillandmachinery,anabundanceofmoneyisimportedinexchangefortheirgoods.

Ofthesetwocountries,ifonehadtheadvantageinthemanufactureofgoodsofonequality,andtheotherinthemanufactureofgoodsofanotherquality,therewouldbenodecidedinfluxofthepreciousmetals into either; but if the advantage very heavily preponderated in favour of either, that effectwouldbeinevitable.

In the formerpartof thiswork,wehaveassumedfor thepurposeofargument, thatmoneyalwayscontinuedofthesamevalue;wearenowendeavouringtoshewthatbesidestheordinaryvariationsinthe value ofmoney, and thosewhich are common to thewhole commercialworld, there are alsopartial variations to which money is subject in particular countries; and in fact, that the value ofmoney is never the same in any two countries, depending as it does on relative taxation, onmanufacturingskill,ontheadvantagesofclimate,naturalproductions,andmanyothercauses.

Although,however,moneyissubjecttosuchperpetualvariations,andconsequentlythepricesofthecommoditieswhicharecommontomostcountries,arealsosubjecttoconsiderabledifference,yetnoeffectwillbeproducedontherateofprofits,eitherfromtheinfluxoreffluxofmoney.Capitalwillnotbeincreased,becausethecirculatingmediumisaugmented.Iftherentpaidbythefarmertohislandlord,andthewagestohislabourers,be20percent.higherinonecountrythananother,andifatthesametimethenominalvalueofthefarmer'scapitalbe20percent.more,hewillreceivepreciselythesamerateofprofits,althoughheshouldsellhisrawproduce20percent.higher.

Profits,itcannotbetoooftenrepeated,dependonwages;notonnominal,butrealwages;notonthenumber of pounds that may be annually paid to the labourer, but on the number of days' worknecessarytoobtainthosepounds.Wagesmaythereforebepreciselythesameintwocountries:theymaybeartoothesameproportiontorent,andtothewholeproduceobtainedfromtheland,althoughinoneofthosecountriesthelabourershouldreceivetenshillingsperweek,andintheothertwelve.

In the early states of society,whenmanufactures havemade little progress, and the produce of allcountriesisnearlysimilar,consistingofthebulkyandmostusefulcommodities,thevalueofmoneyin different countries will be chiefly regulated by their distance from themineswhich supply the

preciousmetals;butastheartsandimprovementsofsocietyadvance,anddifferentnationsexcelinparticular manufactures, although distance will still enter into the calculation, the value of thepreciousmetalswillbechieflyregulatedbythesuperiorityofthosemanufactures.

Suppose all nations to produce corn, cattle, and coarse clothing only, and that it was by theexportation of such commodities that gold could be obtained from the countries which producedthem,orfromthosewhoheldtheminsubjection;goldwouldnaturallybeofgreaterexchangeablevalue in Poland than in England, on account of the greater expense of sending such a bulkycommodityascornthemoredistantvoyage,andalsothegreaterexpenseattendingtheconveyingofgoldtoPoland.

Thisdifferenceinthevalueofgold,orwhichisthesamething,thisdifferenceinthepriceofcorninthetwocountries,wouldexistalthoughthefacilitiesofproducingcorninEnglandshouldfarexceedthoseofPoland,fromthegreaterfertilityoftheland,andthesuperiorityintheskillandimplementsofthelabourer.

IfhoweverPolandshouldbethefirsttoimprovehermanufactures,ifsheshouldsucceedinmakingacommoditywhichwasgenerally desirable, includinggreat value in little bulk, or if she shouldbeexclusively blessedwith some natural production, generally desirable, and not possessed by othercountries, shewould obtain an additional quantity of gold in exchange for this commodity,whichwould operate on the price of her corn, cattle, and coarse clothing. The disadvantage of distancewouldprobablybemorethancompensatedbytheadvantageofhavinganexportablecommodityofgreatvalue, andmoneywouldbepermanentlyof lowervalue inPoland than inEngland. Ifon thecontrary,theadvantageofskillandmachinerywerepossessedbyEngland,anotherreasonwouldbeaddedtothatwhichbeforeexisted,whygoldshouldbelessvaluableinEnglandthaninPoland,andwhycorn,cattle,andclothing,shouldbeatahigherpriceintheformercountry.

These I believe to be the only two causes which regulate the comparative value of money in thedifferentcountriesoftheworld;foralthoughtaxationoccasionsadisturbanceoftheequilibriumofmoney,itdoessobydeprivingthecountryinwhichitisimposedofsomeoftheadvantagesattendingskill,industry,andclimate.

Ithasbeenmyendeavourcarefullytodistinguishbetweenalowvalueofmoney,andahighvalueofcorn, or any other commodity with which money may be compared. These have been generallyconsideredasmeaningthesamething;butitisevident,thatwhencornrisesfromfivetotenshillingsabushel,itmaybeowingeithertoafallinthevalueofmoney,ortoariseinthevalueofcorn.Thuswehaveseen,thatfromthenecessityofhavingrecoursesuccessivelytolandofaworseandworsequality,inordertofeedanincreasingpopulation,cornmustriseinrelativevaluetootherthings.Iftherefore money continue permanently of the same value, corn will exchange for more of suchmoney,thatistosay,itwillriseinprice.Thesameriseinthepriceofcornwillbeproducedbysuchimprovement of machinery in manufactures, as shall enable us to manufacture commodities withpeculiar advantages: for the influx of money will be the consequence; it will fall in value, andthereforeexchangeforlesscorn.Buttheeffectsresultingfromahighpriceofcornwhenproducedbytheriseinthevalueofcorn,andwhencausedbyafallinthevalueofmoney,aretotallydifferent.Inbothcasesthemoneypriceofwageswillrise,butifitbeinconsequenceofthefallinthevalueofmoney,notonlywagesandcorn,butallothercommoditieswillrise.Ifthemanufacturerhasmoretopayforwages,hewillreceivemoreforhismanufacturedgoods,andtherateofprofitswillremainunaffected.Butwhentheriseinthepriceofcornistheeffectofthedifficultyofproduction,profitswill fall; for the manufacturer will be obliged to pay more wages, and will not be enabled to

remuneratehimselfbyraisingthepriceofhismanufacturedcommodity.

Anyimprovementinthefacilityofworkingthemines,bywhichthepreciousmetalsmaybeproducedwithalessquantityoflabour,willsinkthevalueofmoneygenerally.Itwillthenexchangeforfewercommodities in all countries; but when any particular country excels in manufactures, so as tooccasionaninfluxofmoneytowardsit,thevalueofmoneywillbelower,andthepricesofcornandlabourwillberelativelyhigherinthatcountry,thaninanyother.

Thishighervalueofmoneywillnotbeindicatedbytheexchange;billsmaycontinuetobenegotiatedatpar,althoughthepricesofcornandlabourshouldbe10,20,or30percent.higherinonecountrythananother.Under thecircumstances supposed, suchadifferenceofprices is thenaturalorderofthings,andtheexchangecanonlybeatparwhenasufficientquantityofmoneyisintroducedintothecountryexcellinginmanufactures,soastoraisethepriceofitscornandlabour.Ifforeigncountriesshouldprohibit the exportationofmoney, andcould successfully enforceobedience to sucha law,theymightindeedpreventtheriseinthepricesofthecornandlabourofthemanufacturingcountry;forsuchrisecanonlytakeplaceaftertheinfluxofthepreciousmetals,supposingpapermoneynottobeused;buttheycouldnotpreventtheexchangefrombeingveryunfavourabletothem.IfEnglandwere the manufacturing country, and it were possible to prevent the importation of money, theexchangewithFrance,Holland,andSpain,mightbe5,10,or20percent.againstthosecountries.

Wheneverthecurrentofmoneyisforciblystopped,andwhenmoneyispreventedfromsettlingatitsjust level, there areno limits to thepossible variationsof the exchange.The effects are similar tothosewhich follow,when a papermoney, not exchangeable for specie at thewill of the holder, isforced intocirculation.Suchacurrency isnecessarilyconfined to thecountrywhere it is issued: itcannot,whentooabundant,diffuseitselfgenerallyamongstothercountries.Thelevelofcirculationisdestroyed,andtheexchangewillinevitablybeunfavourabletothecountrywhereitisexcessiveinquantity: just sowouldbe theeffectsofametalliccirculation, ifby forciblemeans,by lawswhichcould not be evaded,money should be detained in a country,when the stream of trade gave it animpetustowardsothercountries.

Wheneachcountryhaspreciselythequantityofmoneywhichitoughttohave,moneywillnotindeedbeofthesamevalueineach,forwithrespecttomanycommoditiesitmaydiffer5,10,oreven20percent.,buttheexchangewillbeatpar.OnehundredpoundsinEngland,orthesilverwhichisin100l.,willpurchaseabillof100l.,oranequalquantityofsilverinFrance,Spain,orHolland.

Inspeakingoftheexchangeandthecomparativevalueofmoneyindifferentcountries,wemustnotintheleastrefertothevalueofmoneyestimatedincommodities,ineithercountry.Theexchangeisneverascertainedbyestimating thecomparativevalueofmoney incorn, cloth,or anycommoditywhatever,butbyestimatingthevalueofthecurrencyofonecountry,inthecurrencyofanother.

Itmayalsobeascertainedbycomparingitwithsomestandardcommontobothcountries.IfabillonEngland for 100l. will purchase the same quantity of goods in France or Spain, that a bill onHamburghforthesamesumwilldo,theexchangebetweenHamburghandEnglandisatpar;butifabillonEnglandfor130l.,willpurchasenomorethanabillonHamburghfor100l.,theexchangeis30percent.againstEngland.

InEngland100l.maypurchaseabill,ortherightofreceiving101l.inHolland,102l.inFrance,and105l.inSpain.TheexchangewithEnglandis,inthatcase,saidtobe1percent.againstHolland,2percent.againstFrance,and5percent.againstSpain.Itindicatesthatthelevelofcurrencyishigherthan

it shouldbe in thosecountries, and thecomparativevalueof their currencies, and thatofEngland,wouldbeimmediatelyrestoredtopar,byabstractingfromtheirs,orbyaddingtothatofEngland.

Thosewhomaintainedthatourcurrencywasdepreciatedduringthelasttenyears,whentheexchangevariedfrom20to30percent.againstthiscountry,havenevercontended,astheyhavebeenaccusedof doing, that money could not bemore valuable in one country than another, as compared withvariouscommodities;buttheydidcontend,that130l.couldnotbedetainedinEngland,whenitwasofnomorevalue,estimatedinthemoneyofHamburgh,orofHolland,than100l.

Bysending130l.goodEnglishpoundssterlingtoHamburgh,evenatanexpenseof5l.,Ishouldbepossessedthereof125l.;whatthencouldmakemeconsenttogive130l.forabillwhichwouldgiveme100l.inHamburgh,butthatmypoundswerenotgoodpoundssterling?—theyweredeteriorated,weredegradedinintrinsicvaluebelowthepoundssterlingofHamburgh,andifactuallysentthere,atanexpenseof5l.,wouldsellonly for100l.Withmetallicpounds sterling, it is notdenied thatmy130l.wouldprocureme125l. inHamburgh,butwithpaperpoundssterlingIcanonlyobtain100l.;andyetitismaintainedthat130l.inpaper,isofequalvaluewith130l.insilverorgold.

Some indeedmore reasonablymaintained, that130l. inpaperwasnot of equal valuewith130l. inmetallicmoney;buttheysaidthatitwasthemetallicmoneywhichhadchangeditsvalue,andnotthepapermoney.Theywishedtoconfinethemeaningoftheworddepreciationtoanactualfallofvalue,andnottoacomparativedifferencebetweenthevalueofmoney,andthestandardbywhichbylawitis regulated.One hundred pounds of Englishmoneywas formerly of equal valuewith, and couldpurchase 100l. of Hamburgh money: in any other country a bill of 100l. on England, or onHamburgh,couldpurchasepreciselythesamequantityofcommodities.Toobtainthesamethings,Iwas lately obliged to give 130l. English money, when Hamburgh could obtain them for 100l.Hamburghmoney. IfEnglishmoneywasof thesamevalue thenasbefore,Hamburghmoneymusthaveriseninvalue.Butwhereistheproofofthis?HowisittobeascertainedwhetherEnglishmoneyhasfallen,orHamburghmoneyhasrisen?thereisnostandardbywhichthiscanbedetermined.Itisapleawhichadmitsofnoproof, andcanneitherbepositivelyaffirmed,norpositivelycontradicted.The nations of the worldmust have been early convinced, that there was no standard of value innature, to which we might unerringly refer, and therefore chose a medium, which, on the wholeappearedtothemlessvariablethananyothercommodity.

To this standard we must conform till the law is changed, and till some other commodity isdiscovered, by the use ofwhichwe shall obtain amore perfect standard, than thatwhichwe haveestablished.Whilegoldisexclusivelythestandardinthiscountry,moneywillbedepreciated,whenapoundsterlingisnotofequalvaluewith5dwts.and3grs.ofstandardgold,andthat,whethergoldrisesorfallsingeneralvalue.

CHAPTERVII.

ONTAXES.

TAXESareaportionoftheproduceofthelandandlabourofacountry,placedatthedisposalofthegovernment; and are always ultimately paid, either from the capital, or from the revenue of thecountry.

Wehavealreadyshewnhowthecapitalofacountryiseitherfixedorcirculating,accordingasitisofa more or of a less durable nature. It is difficult to define strictly, where the distinction betweencirculatingandfixedcapitalbegins;fortherearealmostinfinitedegreesinthedurabilityofcapital.Thefoodofacountryisconsumedandreproduced,at leastonceineveryyear; theclothingofthelabourer is probably not consumed and reproduced in less than two years; whilst his house andfurniturearecalculatedtoendureforaperiodoftenortwentyyears.

When the annual productions of a country exceed its annual consumption, it is said to increase itscapital;when its annual consumption at least is not replaced by its annual production, it is said todiminish its capital. Capital may therefore be increased by an increased production, or by adiminishedconsumption.

Iftheconsumptionofthegovernment,whenincreasedbythelevyofadditionaltaxes,bemeteitherbyanincreasedproduction,orbyadiminishedconsumptiononthepartofthepeople,thetaxeswillfalluponrevenue,andthenationalcapitalwillremainunimpaired;butiftherebenoincreasedproductionordiminishedconsumptiononthepartofthepeople,thetaxeswillnecessarilyfalloncapital.

Inproportionasthecapitalofacountryisdiminished,itsproductionswillbenecessarilydiminished;andtherefore,ifthesameexpenditureonthepartofthepeopleandofthegovernmentcontinue,withaconstantlydiminishingannualreproduction,theresourcesofthepeopleandthestatewillfallawaywithincreasingrapidity,anddistressandruinwillfollow.

Notwithstanding the immense expenditure of the English government during the last twenty years,there can be little doubt but that the increased production on the part of the people hasmore thancompensated for it. The national capital has not merely been unimpaired, it has been greatlyincreased, and the annual revenueof thepeople, even after thepayment of their taxes, is probablygreateratthepresenttimethanatanyformerperiodofourhistory.

Fortheproofofthiswemightrefertotheincreaseofpopulation—totheextensionofagriculture—totheincreaseofshippingandmanufactures—tothebuildingofdocks—totheopeningofnumerouscanals,aswellastomanyotherexpensiveundertakings;alldenotinganincreasebothofcapitalandofannualproduction.

Therearenotaxeswhichhavenotatendencytoimpedeaccumulation,becausetherearenonewhichmay not be considered as checking production, and as causing the same effects as a bad soil orclimate,adiminutionofskillorindustry,aworsedistributionoflabour,orthelossofsomeusefulmachinery;andalthoughsometaxeswillproducetheseeffectsinamuchgreaterdegreethanothers,itmustbeconfessedthatthegreateviloftaxationistobefound,notsomuchinanyselectionofitsobjects,asinthegeneralamountofitseffectstakencollectively.

Taxesarenotnecessarilytaxesoncapital,becausetheyarelaidoncapital;noronincome,becausetheyarelaidonincome.Iffrommyincomeof1000l.perannum,Iamrequiredtopay100l.,itwillreallybeataxonmyincome,shouldIbecontentwiththeexpenditureoftheremaining900l.;butitwillbeataxoncapital,ifIcontinuetospend1000l.

Thecapitalfromwhichmyincomeof1000l.isderivedmaybeofthevalueof10,000l.;ataxofonepercent.onsuchcapitalwouldbe100l.;butmycapitalwouldbeunaffected,ifafterpayingthistax,Iinlikemannercontentedmyselfwiththeexpenditureof900l.

Thedesirewhicheverymanhas tokeephisstation in life,and tomaintainhiswealthat theheight

which it has once attained, occasionsmost taxes,whether laid on capital or on income, to be paidfrom income; and therefore as taxation proceeds, or as government increases its expenditure, theannual expenditure of the people must be diminished, unless they are enabled proportionally toincreasetheircapitalsandincome.Itshouldbethepolicyofgovernmentstoencourageadispositionto do this in the people, and never to lay such taxes aswill inevitably fall on capital; since by sodoing, they impair the funds for the maintenance of labour, and thereby diminish the futureproductionofthecountry.

InEnglandthispolicyhasbeenneglected,intaxingtheprobatesofwills,inthelegacyduty,andinalltaxesaffectingthetransferenceofpropertyfromthedeadtotheliving.Ifalegacyof1000l.besubjecttoataxof100l.,thelegateeconsidershislegacyasonly900l.,andfeelsnoparticularmotivetosavethe100l.duty fromhisexpenditure,and thus thecapitalof thecountry isdiminished;but ifhehadreallyreceived1000l.andhadbeenrequiredtopay100l.asataxonincome,onwine,onhorses,oronservants,hewouldprobablyhavediminished,orrathernotincreasedhisexpenditurebythatsum,andthecapitalofthecountrywouldhavebeenunimpaired.

"Taxesuponthetransferenceofpropertyfromthedeadtotheliving,"saysAdamSmith,"fallfinally,aswellas immediately,upon thepersons towhomtheproperty is transferred.Taxeson thesaleofland fall altogether upon the seller.The seller is almost alwaysunder thenecessity of selling, andmustthereforetakesuchapriceashecanget.Thebuyerisscarceeverunderthenecessityofbuying,andwillthereforeonlygivesuchapriceashelikes.Heconsiderswhatthelandwillcosthimintaxandprice together.Themorehe isobligedtopayin thewayof tax, the lesshewillbedisposedtogiveinthewayofprice.Suchtaxes,therefore,fallalmostalwaysuponanecessitousperson,andmustthereforebeverycruelandoppressive.""Stampduties,anddutiesupontheregistrationofbondsandcontractsforborrowedmoney,fallaltogetherupontheborrower,andinfactarealwayspaidbyhim.Dutiesofthesamekinduponlawproceedingsfalluponthesuitors.Theyreducetoboththecapitalvalueof thesubject indispute.Themore it costs toacquireanyproperty, the lessmustbe theneatvalueof itwhenacquired.All taxesuponthe transferenceofpropertyofeverykind,sofaras theydiminishthecapitalvalueofthatproperty,tendtodiminishthefundsdestinedforthemaintenanceoflabour.Theyareallmoreor lessunthrifty taxes, that increase the revenueof the sovereign,whichseldommaintainsanybutunproductivelabourers,at theexpenseofthecapitalofthepeople,whichmaintainsnonebutproductive."

But this isnot theonlyobjection to taxeson the transferenceofproperty; theyprevent thenationalcapital from being distributed in the way most beneficial to the community. For the generalprosperity, therecannotbe toomuch facilitygiven to theconveyanceandexchangeofallkindsofproperty,asitisbysuchmeansthatcapitalofeveryspeciesislikelytofinditswayintothehandsofthosewhowillbestemployitinincreasingtheproductionsofthecountry."Why,"asksM.Say,"doesanindividualwishtosellhisland?itisbecausehehasanotheremploymentinviewinwhichhisfundswillbemoreproductive.Whydoesanotherwishtopurchasethissameland?itistoemployacapitalwhichbringshimin too little,whichwasunemployed,or theuseofwhichhe thinkssusceptibleofimprovement.Thisexchangewillincreasethegeneralincome,sinceitincreasestheincomeoftheseparties.But if thechargesare soexorbitantas toprevent theexchange, theyareanobstacle to thisincreaseofthegeneralincome."Thosetaxeshoweverareeasilycollected;andthisbymanymaybethoughttoaffordsomecompensationfortheirinjuriouseffects.

CHAPTERVIII.

TAXESONRAWPRODUCE.

HAVINGinaformerpartofthisworkestablished,Ihopesatisfactorily,theprinciple,thatthepriceofcorn is regulated by the cost of its production on that land exclusively, or ratherwith that capitalexclusively,whichpaysnorent,itwillfollowthatwhatevermayincreasethecostofproductionwillincreasetheprice;whatevermayreduceit,willlowertheprice.Thenecessityofcultivatingpoorerland,orofobtainingalessreturnwithagivenadditionalcapitalonlandalreadyincultivation,willinevitably raise the exchangeable value of raw produce. The discovery of machinery, which willenable the cultivator to obtain his corn at a less cost of production, will necessarily lower itsexchangeablevalue.Anytaxwhichmaybeimposedonthecultivator,whetherintheshapeofland-tax, tithes, or a tax on the produce when obtained, will increase the cost of production, and willthereforeraisethepriceofrawproduce.

If the price of raw produce did not rise so as to compensate the cultivator for the tax, he wouldnaturallyquita tradewherehisprofitswere reducedbelow thegeneral levelofprofits: thiswouldoccasionadiminutionofsupply,untiltheunabateddemandshouldhaveproducedsuchariseinthepriceofrawproduce,astomakethecultivationofitequallyprofitablewiththeinvestmentofcapitalinanyothertrade.

Ariseofpriceistheonlymeansbywhichhecouldpaythetax,andcontinuetoderivetheusualandgeneralprofits fromthisemploymentofhiscapital.Hecouldnotdeduct the taxfromhisrent,andobligehislandlordtopayit,forhepaysnorent.Hewouldnotdeductitfromhisprofits,forthereisno reason why he should continue in an employment which yields small profits, when all otheremploymentsareyieldinggreater.Therecanthenbenoquestion,butthathewillhavethepowerofraisingthepriceofrawproducebyasumequaltothetax.

Ataxonrawproducewouldnotbepaidbythe landlord; itwouldnotbepaidbythefarmer;but itwouldbepaid,inanincreasedprice,bytheconsumer.

Rent,itshouldberemembered,isthedifferencebetweentheproduceobtainedbyequalportionsoflabourandcapitalemployedonlandofthesameordifferentqualities.Itshouldberememberedtoo,thatthemoneyrentofland,andthecornrentofland,donotvaryinthesameproportion.

Inthecaseofataxonrawproduce,ofalandtax,ortithes,thecornrentoflandwillvary,whilethemoneyrentwillremainasbefore.

If,aswehavebeforesupposed,thelandincultivationwereofthreequalities,andthatwithanequalamountofcapital,

180qrs.ofcornwereobtainedfromland No.1.170 from 2.160 from 3.

therentofNo.1wouldbe20quarters,thedifferencebetweenthatofNo.3andNo.1;andofNo.2,10quarters,thedifferencebetweenthatofNo.3andNo.2;whileNo.3wouldpaynorentwhatever.

Nowifthepriceofcornwere4l.perquarter,themoneyrentofNo.1wouldbe80l.,andthatofNo.2,40l.

Supposeataxof8s.perquartertobeimposedoncorn;thenthepricewouldriseto4l.8s.;andifthelandlordsobtainedthesamecornrentasbefore,therentofNo.1wouldbe88l.,andthatofNo.2,44l.Buttheywouldnotobtainthesamecornrent;thetaxwouldfallheavieronNo.1thanonNo.2,andonNo.2thanonNo.3,becauseitwouldbeleviedonagreaterquantityofcorn.Itisthedifficultyofproduction onNo. 3which regulates price; and corn rises to 4l.8s., that the profits of the capitalemployedonNo.3maybeonalevelwiththegeneralprofitsofstock.

Theproduceandtaxonthethreequalitiesoflandwillbeasfollows:

No.1,yielding 180 qrs.at4l.8s.perqr. £792Deductthevalueof 16.3 or8s.perqr.on180qrs. 72 —— ——Netcornproduce 163.7 Netmoneyproduce £720 —— —— No.2,yielding 170 qrs.at4l.8s.perqr. £748Deductthevalueof 15.4 qrs.at4l.8s.or8s.perqr.on170qrs. 68 —— ——Netcornproduce 154.6 Netmoneyproduce £680 —— —— No.3, 160 qrs.at4l.8s. £704Deductthevalueof 14.5 qrs.at4l.8s.or8s.perqr.on160 64 —— ——Netcornproduce 145.5 Netmoneyproduce £640 —— ——

ThemoneyrentofNo.1wouldcontinuetobe80l.,orthedifferencebetween640and720l.;andthatofNo.2,40l.,or thedifferencebetween640l.and680l.,precisely thesameasbefore;but thecornrentwill be reduced from20quarters onNo. 1 to 18.2quarters, and that onNo. 2 from10 to9.1quarters.

Ataxoncorn,then,wouldfallontheconsumersofcorn,andwouldraiseitsvalueascomparedwithallothercommodities,inadegreeproportionedtothetax.Inproportionasrawproduceenteredintothe composition of other commodities, would their value also be raised, unless the tax werecountervailedbyothercauses.Theywouldinfactbe indirectly taxed,andtheirvaluewouldrise inproportiontothetax.

Atax,however,onrawproduce,andonthenecessariesofthelabourer,wouldhaveanothereffect—itwouldraisewages.Fromtheeffectoftheprincipleofpopulationontheincreaseofmankind,wagesofthelowestkindnevercontinuemuchabovethatratewhichnatureandhabitdemandforthesupportof the labourers. This class is never able to bear any considerable portion of taxation; and,consequently,iftheyhadtopay8s.perquarterinadditionforwheat,andinsomesmallerproportionforothernecessaries,theywouldnotbeabletosubsistonthesamewagesasbefore,andtokeepuptheraceof labourers.Wageswould inevitablyandnecessarily rise;and inproportionas theyrose,profitswouldfall.Governmentwouldreceiveataxof8s.perquarteronallthecornconsumedinthecountry,apartofwhichwouldbepaiddirectlyby theconsumersofcorn; theotherpartwouldbepaid indirectly by thosewho employed labour, andwould affect profits in the samemanner as ifwageshadbeenraisedfromtheincreaseddemandforlabourcomparedwiththesupply,orfromanincreasingdifficultyofobtainingthefoodandnecessariesrequiredbythelabourer.

Inasfarasthetaxmightaffectconsumers,itwouldbeanequaltax,butinasfarasitwouldaffectprofits,itwouldbeapartialtax;foritwouldneitheroperateonthelandlordnoronthestockholder,since they would continue to receive, the one the same money rent, the other the same moneydividendsasbefore.Ataxontheproduceofthelandthenwouldoperateasfollows:

1st.Itwouldraisethepriceofrawproducebyasumequaltothetax,andwouldthereforefalloneachconsumerinproportiontohisconsumption.

2dly.Itwouldraisethewagesoflabour,andlowerprofits.

Itmaythenbeobjectedagainstsuchatax,

1st.Thatbyraisingthewagesoflabour,andloweringprofits,itisanunequaltax,asitaffectstheincomeofthefarmer,trader,andmanufacturer,andleavesuntaxedtheincomeofthelandlord,stockholder,andothersenjoyingfixedincomes.

2dly.Thattherewouldbeaconsiderableintervalbetweentheriseinthepriceofcornandtheriseofwages,duringwhichmuchdistresswouldbeexperiencedbythelabourer.

3rdly.Thatraisingwagesandloweringprofitsisadiscouragementtoaccumulation,andactsinthesamewayasanaturalpovertyofsoil.

4thly. That by raising the price of raw produce, the prices of all commodities into which rawproduceenters,wouldberaised,andthatthereforeweshouldnotmeettheforeignmanufactureonequaltermsinthegeneralmarket.

With respect to the first objection, that by raising thewages of labour and loweringprofits it actsunequally, as it affects the income of the farmer, trader, andmanufacturer, and leaves untaxed theincomeofthelandlord,stockholder,andothersenjoyingfixedincomes,—itmaybeanswered,thatiftheoperationofthetaxbeunequal,itisforthelegislaturetomakeitequal,bytaxingdirectlytherentof land, and the dividends from stock. By so doing, all the objects of an income tax would beobtained, without the inconvenience of having recourse to the obnoxious measure of prying intoeveryman'sconcerns,andarmingcommissionerswithpowersrepugnanttothehabitsandfeelingsofafreecountry.

Withrespecttothesecondobjection,thattherewouldbeaconsiderableintervalbetweentheriseofthe price of corn and the rise ofwages, duringwhichmuch distresswould be experienced by thelowerclasses,—Ianswer,thatunderdifferentcircumstances,wagesfollowthepriceofrawproducewithverydifferentdegreesofcelerity;thatinsomecasesnoeffectwhateverisproducedonwagesbyariseofcorn;inothers,theriseofwagesprecedestheriseinthepriceofcorn;again,insometheeffectisslow,andinotherstheintervalmustbeveryshort.

Thosewhomaintain that it is the price of necessarieswhich regulates the price of labour, alwaysallowingfortheparticularstateofprogressioninwhichthesociety,maybeseemtohaveconcededtooreadily,thatariseorfallinthepriceofnecessarieswillbeveryslowlysucceededbyariseorfallofwages.A high price of provisionsmay arise from very different causes, andmay accordinglyproduceverydifferenteffects.Itmayarisefrom

1st.Adeficientsupply.

2nd.Fromagraduallyincreasingdemand,whichmaybeultimatelyattendedwithanincreasedcostofproduction.

3dly.Fromafallinthevalueofmoney.

4thly.Fromtaxesonnecessaries.

Thesefourcauseshavenotbeensufficientlydistinguishedandseparatedbythosewhohaveinquiredintotheinfluenceofahighpriceofnecessariesonwages.Wewillexaminethemseverally.

Abadharvestwillproduceahighpriceofprovisions,andthehighpriceistheonlymeansbywhichtheconsumptioniscompelledtoconformtothestateofthesupply.Ifallthepurchasersofcornwererich,thepricemightrisetoanydegree,buttheresultwouldremainunaltered;thepricewouldatlastbesohigh,thattheleastrichwouldbeobligedtoforegotheuseofapartofthequantitywhichtheyusuallyconsumed,asbydiminishedconsumptionalone, thedemandcouldbebroughtdown to thelimitsof thesupply.Undersuchcircumstancesnopolicycanbemoreabsurd, than thatof forciblyregulatingmoneywagesby thepriceof food,as is frequentlydone,bymisapplicationof thepoorlaws.Suchameasureaffordsnorealrelieftothelabourer,becauseitseffectistoraisestillhigherthepriceof corn, andat last hemustbeobliged to limit his consumption inproportion to the limitedsupply. In thenaturalcourseofaffairsadeficientsupplyfrombadseasons,withoutanyperniciousandunwiseinterference,wouldnotbefollowedbyariseofwages.Theraisingofwagesismerelynominaltothosewhoreceivethem;itincreasesthecompetitioninthecornmarket,anditsultimateeffect is to raise the profits of the growers and dealers in corn. The wages of labour are reallyregulated by the proportion between the supply and demand of necessaries, and the supply anddemandoflabour;andmoneyismerelythemedium,ormeasure,inwhichwagesareexpressed.Inthis case then the distress of the labourer is unavoidable, and no legislation can afford a remedy,exceptbytheimportationofadditionalfood.

Whenahighpriceofcornistheeffectofanincreasingdemand,itisalwaysprecededbyanincreaseofwages, for demand cannot increase,without an increase ofmeans in the people to pay for thatwhichtheydesire.Anaccumulationofcapitalnaturallyproducesanincreasedcompetitionamongtheemployers of labour, and a consequent rise in its price. The increasedwages are not immediatelyexpended on food, but are first made to contribute to the other enjoyments of the labourer. Hisimprovedconditionhoweverinduces,andenableshimtomarry,andthenthedemandforfoodforthesupportofhis familynaturallysupersedes thatof thoseotherenjoymentsonwhichhiswagesweretemporarilyexpended.Cornrisesthenbecausethedemandforitincreases,becausetherearethoseinthesocietywhohaveimprovedmeansofpayingfor it;and theprofitsof thefarmerwillberaisedabove the general level of profits, till the requisite quantity of capital has been employed on itsproduction.Whether, after this has taken place, corn shall again fall to its former price, or shallcontinuepermanentlyhigher,willdependonthequalityofthelandfromwhichtheincreasedquantityofcornhasbeensupplied.Ifitbeobtainedfromlandofthesamefertility,asthatwhichwaslastincultivation,andwithnogreatercostoflabour,thepricewillfalltoitsformerstate;iffrompoorerland, itwill continue permanently higher. The highwages in the first instance proceeded from anincrease in thedemand for labour: inasmuchas it encouragedmarriage, and supportedchildren, itproduced theeffectof increasing thesupplyof labour.Butwhenthesupply isobtained,wageswillagain fall to their formerprice, if cornhas fallen to its formerprice: to ahigher than the formerprice,iftheincreasedsupplyofcornhasbeenproducedfromlandofaninferiorquality.Ahighpriceisbynomeansincompatiblewithanabundantsupply:thepriceispermanentlyhigh,notbecausethequantityisdeficient,butbecausetherehasbeenanincreasedcostinproducingit.Itgenerallyhappensindeed,thatwhenastimulushasbeengiventopopulation,aneffectisproducedbeyondwhatthecaserequires;thepopulationmaybe,andgenerallyissomuchincreasedas,notwithstandingtheincreased

demandfor labour, tobearagreaterproportiontothefundsformaintaininglabourers thanbeforetheincreaseofcapital.Inthiscaseare-actionwilltakeplace,wageswillbebelowtheirnaturallevel,andwillcontinueso, till theusualproportionbetween thesupplyanddemandhasbeenrestored. Inthiscase then, therise in thepriceofcorn isprecededbyariseofwages,and thereforeentailsnodistressonthelabourer.

Afallinthevalueofmoney,inconsequenceofaninfluxofthepreciousmetalsfromthemines,orfromtheabuseoftheprivilegesofbanking,isanothercausefortheriseofthepriceoffood;butitwillmakenoalterationinthequantityproduced.Itleavesundisturbedtoothenumberoflabourers,aswellas thedemandfor them;for therewillbeneitheran increasenoradiminutionofcapital.Thequantityofnecessariestobeallottedtothelabourer,dependsonthecomparativedemandandsupplyofnecessaries,withthecomparativedemandandsupplyoflabour;moneybeingonlythemediuminwhichthequantityisexpressed;andasneitheroftheseisaltered,therealrewardofthelabourerwillnot alter.Money wages will rise, but they will only enable him to furnish himself with the samequantity of necessaries as before. Those who dispute this principle, are bound to shew why anincreaseofmoneyshouldnothavethesameeffectinraisingthepriceoflabour,thequantityofwhichhasnotbeenincreased,astheyacknowledgeitwouldhaveonthepriceofshoes,ofhats,andofcorn,ifthequantityofthosecommoditieswerenotincreased.Therelativemarketvalueofhatsandshoesisregulatedbythedemandandsupplyofhats,comparedwiththedemandandsupplyofshoes,andmoneyisbutthemediuminwhichtheirvalueisexpressed.Ifshoesbedoubledinprice,hatswillalsobedoubledinprice,andtheywillretainthesamecomparativevalue.Soifcornandallthenecessariesof the labourer be doubled in price, labour will be doubled in price also, and while there is nointerruptiontotheusualdemandandsupplyofnecessariesandoflabour,therecanbenoreasonwhytheyshouldnotpreservetheirrelativevalue.

Neitherafallinthevalueofmoney,norataxonrawproduce,thougheachwillraisetheprice,willnecessarily interferewith thequantityof rawproduce;orwith thenumberofpeople,whoarebothable to purchase, andwilling to consume it. It is very easy to perceivewhy,when the capital of acountryincreasesirregularly,wagesshouldrise,whilstthepriceofcornremainsstationary,orrisesinalessproportion;andwhy,whenthecapitalofacountrydiminishes,wagesshouldfallwhilstcornremainsstationary,orfallsinamuchlessproportion,andthistooforaconsiderabletime;thereasonis,becauselabourisacommoditywhichcannotbeincreasedanddiminishedatpleasure.Iftherearetoo fewhats in themarket for thedemand, thepricewill rise,butonly fora short time; for in thecourseofoneyear,byemployingmorecapitalinthattrade,anyreasonableadditionmaybemadetothe quantity of hats, and therefore their market price cannot long verymuch exceed their naturalprice;butitisnotsowithmen;youcannotincreasetheirnumberinoneortwoyearswhenthereisanincreaseofcapital,norcanyourapidlydiminishtheirnumberwhencapitalisinaretrogradestate;and therefore, the number of hands increasing or diminishing slowly, whilst the funds for themaintenanceoflabourincreaseordiminishrapidly,theremustbeaconsiderableintervalbeforethepriceoflabourisexactlyregulatedbythepriceofcornandnecessaries;butinthecaseofafallinthevalueofmoney,orofataxoncorn,thereisnotnecessarilyanyexcessinthesupplyoflabour,noranyabatementofdemand,andthereforetherecanbenoreasonwhythelabourershouldsustainarealdiminutionofwages.

A taxoncorndoesnotnecessarilydiminish thequantityof corn, it only raises itsmoneyprice; itdoes not necessarily diminish the demand comparedwith the supplyof labour;why then should itdiminishtheportionpaidtothelabourer?Supposeittruethatitdiddiminishthequantitygiventothelabourer,inotherwords,thatitdidnotraisehismoneywagesinthesameproportionasthetaxraised

thepriceofthecornwhichheconsumed;wouldnotthesupplyofcornexceedthedemand?—woulditnotfallinprice?andwouldnotthelabourerthusobtainhisusualportion?Insuchcaseindeedcapitalwouldbewithdrawnfromagriculture;forifthepricewerenotincreasedbythewholeamountofthetax,agriculturalprofitswouldbelowerthanthegenerallevelofprofits,andcapitalwouldseekmoreadvantageous employment. In regard then to a tax on raw produce, which is the point underdiscussion, it appears tome thatno intervalwhichcouldbearoppressivelyon the labourer,wouldelapsebetweentheriseinthepriceofrawproduce,andtheriseinthewagesofthelabourer;andthatthereforenootherinconveniencewouldbesufferedbythisclass,thanthatwhichtheywouldsufferfromanyothermodeoftaxation,namely,theriskthatthetaxmightinfringeonthefundsdestinedforthemaintenanceoflabour,andmightthereforecheckorabatethedemandforit.

Withrespecttothethirdobjectionagainsttaxesonrawproduce,namely,thattheraisingwages,andloweringprofits,isadiscouragementtoaccumulation,andactsinthesamewayasanaturalpovertyofsoil; Ihaveendeavoured toshewinanotherpartof thiswork thatsavingsmaybeaseffectuallymadefromexpenditureasfromproduction;fromareductioninthevalueofcommodities,asfromariseintherateofprofits.Byincreasingmyprofitsfrom1000l.to1200l.,whilstpricescontinuethesame,mypowerofincreasingmycapitalbysavingsisincreasedbutitisnotincreasedsomuchasitwouldbeifmyprofitscontinuedasbefore,whilstcommoditiesweresoloweredinprice,that800l.wouldprocuremeasmuchas1000l.purchasedbefore.

Taxationundereveryformpresentsbutachoiceofevils;ifitdoesnotactonprofit, itmustactonexpenditure; and provided the burden be equally borne, and do not repress reproduction, it isindifferent on which it is laid. Taxes on production, or on the profits of stock, whether appliedimmediatelytoprofits,orindirectly,bytaxingthelandoritsproduce,havethisadvantageoverothertaxes;noclassofthecommunitycanescapethem,andeachcontributesaccordingtohismeans.

Fromtaxesonexpenditureamisermayescape;hemayhavean incomeof10,000perannum,andexpendonly300l.; but from taxes on profits,whether direct or indirect, he cannot escape; hewillcontributetothemeitherbygivingupapartorthevalueofapartofhisproduce;orbytheadvancedpricesof thenecessariesessential toproduction,hewillbeunable tocontinue toaccumulateat thesamerate.Hemayindeedhaveanincomeofthesamevalue,buthewillnothavethesamecommandoflabour,norofanequalquantityofmaterialsonwhichsuchlabourcanbeexercised.

Ifacountryisinsulatedfromallothers,havingnocommercewithanyofitsneighbours,itcaninnowayshiftanyportionofitstaxesfromitself.Aportionoftheproduceofitslandandlabourwillbedevotedtotheserviceofthestate;andIcannotbutthinkthat,unlessitpressesunequallyonthatclasswhichaccumulatesandsaves,itwillbeoflittleimportancewhetherthetaxesbeleviedonprofits,onagricultural,oronmanufacturedcommodities. Ifmyrevenuebe1000l.perannum,and Imustpaytaxes to the amount of 100l., it is of little importance whether I pay it frommy revenue, leavingmyselfonly900l.,orpay100l.inadditionformyagriculturalcommodities,orformymanufacturedgoods.If100l.ismyfairproportionoftheexpensesofthecountry,thevirtueoftaxationconsistsinmaking sure that I shall pay that 100l., neither more nor less; and that cannot be effected in anymannersosecurelyasbytaxesonwages,profits,orrawproduce.

The fourth and last objection which remains to be noticed is: That by raising the price of rawproduce, the prices of all commodities into which raw produce enters, will be raised, and thatthereforeweshallnotmeettheforeignmanufactureronequaltermsinthegeneralmarket.

Inthefirstplace,cornandallhomecommoditiescouldnotbemateriallyraisedinpricewithoutan

influxofthepreciousmetals;forthesamequantityofmoneycouldnotcirculatethesamequantityofcommodities,athighasat lowprices,and thepreciousmetalsnevercouldbepurchasedwithdearcommodities. When more gold is required, it must be obtained by giving more, and not fewercommoditiesinexchangeforit.Neithercouldthewantofmoneybesuppliedbypaper,foritisnotpaper that regulates the value of gold as a commodity, but gold that regulates the value of paper.Unless thenthevalueofgoldcouldbelowered,nopapercouldbeaddedto thecirculationwithoutbeingdepreciated.Andthatthevalueofgoldcouldnotbeloweredappearsclear,whenweconsiderthatthevalueofgoldasacommoditymustberegulatedbythequantityofgoodswhichmustbegiventoforeignersinexchangeforit.Whengoldischeap,commoditiesaredear;andwhengoldisdear,commoditiesarecheap,andfallinprice.Nowasnocauseisshewnwhyforeignersshouldselltheirgoldcheaperthanusual,itdoesnotappearprobablethattherewouldbeanyinfluxofgold.Withoutsuchaninfluxtherecanbenoincreaseofquantity,nofallinitsvalue,noriseinthegeneralpriceofgoods.

Theprobableeffectofataxonrawproducewouldbetoraisethepriceofallcommoditiesinwhichrawproduceentered,butnotinanydegreeproportionedtothetax;whileothercommoditiesinwhichnorawproduceentered,suchasarticlesmadeofthemetalsandtheearths,wouldfallinprice:sothatthesamequantityofmoneyasbeforewouldbeadequatetothewholecirculation.

Ataxwhichshouldhavetheeffectofraisingthepriceofallhomeproductions,wouldnotdiscourageexportation,exceptduringavery limited time. If theywere raised inpriceathome, theycouldnotindeed immediately be profitably exported, because theywould be subject to a burthen here fromwhichabroadtheywerefree.Thetaxwouldproducethesameeffectasanalterationinthevalueofmoney,whichwasnotgeneralandcommontoallcountries,butconfinedtoasingleone.IfEnglandwere that country, shemight not be able to sell, but shewould be able to buy, because importablecommoditieswouldnot be raised inprice.Under these circumstancesnothingbutmoneycouldbeexportedinreturnforforeigncommodities,butthisisatradewhichcouldnotlongcontinue;anationcannotbeexhaustedofitsmoney,forafteracertainquantityhasleftit,thevalueoftheremainderwillrise, and such a price of commoditieswill be the consequence, that theywill again be capable ofbeingprofitablyexported.Whenmoneyhadrisen,therefore,weshouldnolongerexportitinreturnforgoodsimported,butweshouldexportthosemanufactureswhichhadfirstbeenraisedinprice,bytheriseinthepriceoftherawproducefromwhichtheyweremade,andthenagainloweredbytheexportationofmoney.

Butitmaybeobjected,thatwhenmoneysoroseinvalue,itwouldrisewithrespecttoforeignaswellashomecommodities, and therefore that all encouragement to import foreigngoodswould cease.Thus,supposeweimportedgoodswhichcost100l.abroad,andwhichsoldfor120l.here,weshouldceasetoimportthem,whenthevalueofmoneyhadsoriseninEngland,thattheywouldonlysellfor100l.here:thishowevercouldneverhappen.Themotivewhichdeterminesustoimportacommodity,isthediscoveryofitsrelativecheapnessabroad:itisthecomparisonofitsnaturalpriceabroad,withitsnaturalpriceathome.Ifacountryexportshats,andimportscloth,itdoessobecauseitcanobtainmoreclothbymakinghats,andexchangingthemforcloth,thanifitmadetheclothitself.Iftheriseofrawproduceoccasionsanyincreasedcostofproductioninmakinghats,itwouldoccasionalsoanincreasedcostinmakingcloth.Ifthereforebothcommoditiesweremadeathome,theywouldbothrise.One,however,beingacommoditywhichweimport,wouldnotrise,neitherwoulditfall,whenthe value of money rose; for by not falling, it would regain its natural relation to the exportedcommodity.The riseof rawproducemakesahat rise from30 to33 shillings,or10percent.: thesamecauseifwemanufacturedcloth,wouldmakeitrisefrom20s.to22s.peryard.Thisrisedoes

notdestroytherelationbetweenclothandhats;ahatwas,andcontinuestobe,worthoneyardandahalfofcloth.Butifweimportcloth,itspricewillcontinueuniformlyat20s.peryard,unaffectedfirstbythefall,andthenbytheriseinthevalueofmoney;whilsthats,whichhadrisenfrom30s.to33s.,willagainfallfrom33s.to30s.,atwhichpointtherelationbetweenclothandhatswillberestored.

Tosimplify theconsiderationof this subject, Ihavebeen supposing that a rise in thevalueof rawmaterialswouldaffect,inanequalproportion,allhomecommodities;thatiftheeffectononeweretoraiseit10percent.,itwouldraiseall10percent.;butasthevalueofcommoditiesisverydifferentlymade up of rawmaterial and labour; as some commodities, for instance all thosemade from themetals,wouldbeunaffectedbytheriseofrawproducefromthesurfaceoftheearth,itisevidentthattherewouldbethegreatestvarietyintheeffectsproducedonthevalueofcommodities,byataxonraw produce. As far as this effect was produced, it would stimulate or retard the exportation ofparticularcommodities,andwouldundoubtedlybeattendedwiththesameinconveniencethatattendsthetaxingofcommodities;itwoulddestroythenaturalrelationbetweenthevalueofeach.Thus,thenaturalpriceofahat, insteadofbeingthesameasayardandahalfofcloth,mightonlybeof thevalueofayardandaquarter,oritmightbeofthevalueofayardandthreequarters,andthereforerather a different direction might be given to foreign trade. All these inconveniences would notinterferewiththevalueoftheexportsandimports;theywouldonlypreventtheverybestdistributionof the capital of thewholeworld,which is never sowell regulated, aswhen every commodity isfreelyallowedtosettleatitsnaturalprice.

Although then the rise in the price of most of our own commodities, would for a time checkexportationgenerally,andmightpermanentlypreventtheexportationofafewcommodities,itcouldnot materially interfere with foreign trade, and would not place us under any comparativedisadvantageasfarasregardedcompetitioninforeignmarkets.

CHAPTERVIII.*

TAXESONRENT.

ATAXonrentwouldaffectrentonly;itwouldfallwhollyonlandlords,andcouldnotbeshiftedtoanyclassofconsumers.Thelandlordcouldnotraisehisrent,becausehewouldleaveunalteredthedifference between the produce obtained from the least productive land in cultivation, and thatobtainedfromlandofeveryotherquality.Threesortsofland,No.1,2,and3,areincultivation,andyieldrespectivelywiththesamelabour180,170,and160quartersofwheat;butNo.3paysnorent,andisthereforeuntaxed:therentthenofNo.2cannotbemadetoexceedthevalueoften,norNo.1,oftwentyquarters.Suchataxcouldnotraisethepriceofrawproduce,becauseasthecultivatorofNo.3paysneitherrentnortax,hewouldinnowaybeenabledtoraisethepriceofthecommodityproduced.Ataxonrentwouldnotdiscouragethecultivationoffreshland,forsuchlandpaysnorent,andwouldbeuntaxed.IfNo.4weretakenintocultivation,andyielded150quarters,notaxwouldbepaidforsuchland;butitwouldcreatearentoftenquartersonNo.3,whichwouldthencommencepayingthetax.

A taxon rent,as rent isconstituted,woulddiscouragecultivation,because itwouldbea taxon theprofitsofthelandlord.Thetermrentofland,asIhaveelsewhereobserved,isappliedtothewholeamount of the value paid by the farmer to his landlord, a part only of which is strictly rent. The

buildingsandfixtures,andotherexpensespaidforbythelandlord,formstrictlyapartofthestockofthefarm,andmusthavebeenfurnishedbythetenant,ifnotprovidedbythelandlord.Rentisthesumpaidtothelandlordfortheuseoftheland,andfortheuseofthelandonly.Thefurthersumthatispaidtohimunderthenameofrent,isfortheuseofthebuildings,&c.,andisreallytheprofitsofthelandlord'sstock.Intaxingrent,asnodistinctionwouldbemadebetweenthatpartpaidfortheuseofthe land, and that paid for the use of the landlord's stock, a portion of the tax would fall on thelandlord'sprofits,andwouldthereforediscouragecultivation,unlessthepriceofrawproducerose.Onthatland,fortheuseofwhichnorentwaspaid,acompensationunderthatnamemightbegiventothe landlord for the use of his buildings. These buildings would not be erected, nor would rawproducebegrownonsuch land, till thepriceatwhich it soldwouldnotonlypay forall theusualoutgoings,butalsoforthisadditionaloneofthetax.Thispartofthetaxdoesnotfallonthelandlord,noronthefarmer,butontheconsumerofrawproduce.

There can be little doubt, but that if a taxwere laid on rent, landlordswould soon find a way todiscriminatebetweenthatwhichwaspaidtothemfortheuseoftheland,andthatwhichwaspaidfortheuseof thebuildings,andthe improvementswhichweremadebythe landlord'sstock.Thelatterwouldeitherbecalledtherentofhouseandbuildings,orinallnewlandtakenintocultivationsuchbuildings and improvementswould bemade by the tenant, and not by the landlord.The landlord'scapitalmight indeed be really employed for that purpose; it might be nominally expended by thetenant,thelandlordfurnishinghimwiththemeans,eitherintheshapeofaloan,orinthepurchaseofan annuity for the duration of the lease. Whether distinguished or not, there is a real differencebetweenthenatureofthecompensationswhichthelandlordreceivesforthesedifferentobjects;anditisquitecertain,thatataxontherealrentoflandfallswhollyonthelandlord,butthatataxonthatremunerationwhichthelandlordreceivesfortheuseofhisstockexpendedonthefarm,fallsontheconsumerof rawproduce. Ifa taxwere laidon rent,andnomeansofseparating the remunerationnow paid by the tenant to the landlord under the name of rent were adopted, the tax, as far as itregardedtherentonthebuildingsandotherfixtures,wouldneverfallforanylengthoftimeonthelandlord,buton theconsumer.Thecapital expendedon thesebuildings,&c.,mustafford theusualprofitsofstock;butitwouldceasetoaffordthisprofitonthelandlastcultivated,iftheexpensesofthosebuildings,&c.didnotfallonthetenant;andiftheydid,thetenantwouldthenceasetomakehisusualprofitsofstock,unlesshecouldchargethemontheconsumer.

CHAPTERIX.

TITHES.

TITHESareataxonthegrossproduceoftheland,and,liketaxesonrawproduce,fallwhollyontheconsumer.Theydifferfroma taxonrent, inasmuchas theyaffect landwhichsucha taxwouldnotreach;andraisethepriceofrawproduce,whichthattaxeofrawproduce,whichthattaxwouldnotalter.Landsof theworst quality, aswell asof thebest, pay tithes, and exactly inproportion to thequantityofproduceobtainedfromthem;tithesarethereforeanequaltax.

If landof thelastquality,or thatwhichpaysnorent,andwhichregulatesthepriceofcorn,yieldasufficient quantity to give the farmer the usual profits of stock,when the price ofwheat is 4l. perquarter, the price must rise to 4l. 8s. before the same profits can be obtained after the tithes areimposed,becauseforeveryquarterofwheatthecultivatormustpayeightshillingstothechurch.

Theonlydifferencebetweentithesandtaxesonrawproduce,is,thatoneisavariablemoneytax,theother a fixed money tax. In a stationary state of society, where there is neither increased nordiminishedfacilityofproducingcorn,theywillbepreciselythesameintheireffects;forinsuchastate corn will be at an invariable price, and the tax will therefore be also invariable. In either aretrograde state, or in a state in which great improvements are made in agriculture, and whereconsequentlyrawproducewillfall invaluecomparativelywithother things, titheswillbea lightertaxthanapermanentmoneytax;forifthepriceofcornshouldfallfrom4l.to3l.,thetaxwouldfallfromeighttosixshillings.Inaprogressivestateofsociety,yetwithoutanymarkedimprovementsinagriculture,thepriceofcornwouldrise,andtitheswouldbeaheaviertaxthanapermanentmoneytax.Ifcornrosefrom4l.to5l.,thetithesonthesamelandwouldadvancefromeighttotenshillings.

Neithertithesnoramoneytaxwillaffectthemoneyrentoflandlords,butbothwillmateriallyaffectcorn rents.We have already observed how a money tax operates on corn rents, and it is equallyevident that a similar effect would be produced by tithes. If the lands, No. 1, 2, 3, respectivelyproduced180,170,and160quarters,therentsmightbeonNo.1,twentyquarters,andonNo.2,tenquarters;buttheywouldnolongerpreservethatproportionafterthepaymentoftithes:forifatenthbetakenfromeach,theremainingproducewillbe162,153,144,andconsequentlythecornrentofNo.1willbereducedtoeighteen,andthatofNo.2toninequarters.Butthepriceofcornwouldrisefrom4l.to4l.8s.10⅔d.;forninequartersareto4l.astenquartersto4l.8s.10⅔d.,andconsequentlythemoneyrentwouldcontinueunaltered;foronNo.1itwouldbe80l.,andonNo.2,40l.

Thechiefobjectionagainsttithesis,thattheyarenotapermanentandfixedtax,butincreaseinvalue,inproportionasthedifficultyofproducingcornincreases.Ifthosedifficultiesshouldmakethepriceofcorn4l.thetaxis8s.,iftheyshouldincreaseitto5l.,thetaxis10s.,andat6l.,itis12s.Theynotonly rise in value, but they increase in amount: thus,whenNo. 1was cultivated, the taxwas onlyleviedon180quarters;whenNo.2wascultivated,itwasleviedon180+170,or350quarters;andwhenNo. 3was cultivated, on 180+ 170+ 160= 510 quarters.Not only is the amount of the taxincreasedfrom100,000quarters,to200,000quarters,whentheproduceisincreasedfromonetotwomillionsofquarters;but,owingtotheincreasedlabournecessarytoproducethesecondmillion,therelativevalueofrawproduceissoadvanced,thatthe200,000quartersmaybe,thoughonlytwiceinquantity,yetinvaluethreetimesthatofthe100,000quarterswhichwerepaidbefore.

Ifanequalvaluewereraisedfor thechurchbyanyothermeans, increasingin thesamemannerastithes increase, proportionablywith the difficulty of cultivation, the effectwould be the same.Thechurchwouldbeconstantlyobtaininganincreasedportionofthenetproduceofthelandandlabourof the country. In an improving state of society, the net produce of land is always diminishing inproportiontoitsgrossproduce;butitisfromthenetincomeofacountrythatalltaxesareultimatelypaid,eitherinaprogressiveorinastationarycountry.Ataxincreasingwiththegrossincome,andfallingonthenetincome,mustnecessarilybeaveryburdensome,andaveryintolerabletax.Tithesareatenthofthegross,andnotofthenetproduceoftheland,andthereforeassocietyimprovesinwealth, theymust, though the same proportion of the gross produce, become a larger and largerportionofthenetproduce.

Tithes howevermay be considered as injurious to landlords, inasmuch as they act as a bounty onimportation, by taxing the growth of home corn, while the importation of foreign corn remainsunfettered.And if in order to relieve the landlords from the effects of the diminished demand forland,whichsuchabountymustencourage,importedcornwerealsotaxedonetenth,andtheproducepaidtothestate,nomeasurecouldbemorefairandequitable;sincewhateverwerepaidtothestateby

thistax,wouldgotodiminishtheothertaxeswhichtheexpensesofgovernmentmakenecessary:butifsuchataxweredevotedonlytoincreasethefundpaidtothechurch,itmightindeedonthewholeincreasethegeneralmassofproduction,butitwoulddiminishtheportionofthatmassallottedtotheproductiveclasses.

If the tradeofclothwere leftperfectly free,ourmanufacturersmightbeable to sell clothcheaperthanwecouldimportit.Ifataxwerelaidonthehomemanufacturer,andnotontheimporterofcloth,capitalmightbeinjuriouslydrivenfromthemanufactureofclothtothemanufactureofsomeothercommodity, as itmight thenbe importedcheaper than it couldbemadeathome. If importedclothshouldalsobetaxed,clothwouldagainbemanufacturedathome.Theconsumerfirstboughtclothathome,becauseitwascheaperthanforeigncloth;hethenboughtforeigncloth,becauseitwascheaperuntaxedthanhomeclothtaxed:helastlyboughtitagainathome,becauseitwascheaperwhenbothhomeandforeignclothweretaxed.Itisinthelastcasethathepaysthegreatestpriceforhiscloth,butallhisadditionalpaymentisgainedbythestate.Inthesecondcase,hepaysmorethaninthefirst,butall he pays in addition is not received by the state, it is an increased price caused by difficulty ofproduction,which is incurred,because theeasiestmeansofproductionare takenawayfromus,bybeingfetteredwithatax.

CHAPTERX.

LAND-TAX.

ALAND-TAX, levied inproportion to therentof land,andvaryingwitheveryvariationofrent, is ineffect a tax on rent; and as such a taxwill not apply to that landwhich yields no rent, nor to theproduceofthatcapitalwhichisemployedonthelandwithaviewtoprofitmerely,andwhichneverpaysrent,itwillnotinanywayaffectthepriceofrawproduce,butwillfallwhollyonthelandlords.Innorespectwouldsuchataxdifferfromataxonrent.Butifaland-taxbeimposedonallcultivatedland,howevermoderatethattaxmaybe,itwillbeataxonproduce,andwillthereforeraisethepriceofproduce.IfNo.3bethelandlastcultivated,althoughitshouldpaynorent,itcannot,afterthetax,becultivated,andafford thegeneral rateofprofit,unless thepriceofproducerise tomeet the tax.Either capital will be withheld from that employment until the price of corn shall have risen, inconsequenceofdemand,sufficientlytoaffordtheusualprofit;orifalreadyemployedonsuchland,itwillquitit,toseekamoreadvantageousemployment.Thetaxcannotberemovedtothelandlord,forbythesuppositionhereceivesnorent.Suchataxmaybeproportionedtothequalityofthelandandtheabundanceofitsproduce,andthenitdiffersinnorespectfromtithes;oritmaybeafixedtaxperacreonalllandcultivated,whateveritsqualitymaybe.

Aland-taxofthislatterdescriptionwouldbeaveryunequaltax,andwouldbecontrarytooneofthefourmaximswith regard to taxes ingeneral, towhich, according toAdamSmith, all taxes shouldconform.Thefourmaximsareasfollow:

1."ThesubjectsofeverystateoughttocontributetowardsthesupportoftheGovernment,asnearlyaspossibleinproportiontotheirrespectiveabilities.

2."Thetaxwhicheachindividualisboundtopayoughttobecertainandnotarbitrary.

3. "Every tax ought to be levied at the time, or in the manner in which it is most likely to beconvenientforthecontributortopayit.

4. "Every tax ought to be so contrived as both to take out and to keep out of the pockets of thepeopleaslittleaspossible,overandabovewhatitbringsintothepublictreasuryofthestate."

Anequalland-tax,imposedindiscriminatelyandwithoutanyregardtothedistinctionofitsquality,onall landcultivated,will raise thepriceofcorn inproportion to the taxpaidby thecultivatorof thelandof theworst quality.Landsof different quality,with the employment of the same capital,willyieldverydifferentquantitiesofrawproduce.Ifonthelandwhichyieldsathousandquartersofcornwithagivencapital,ataxof100l.belaid,cornwillrise2s.perquartertocompensatethefarmerforthetax.Butwiththesamecapitalonlandofabetterquality,2,000quartersmaybeproduced,whichat2s.aquarteradvance,wouldgive200l.;thetax,however,bearingequallyonbothlandswillbe100l.onthebetteraswellasontheinferior,andconsequentlytheconsumerofcornwillbetaxed,notonlytopaytheexigenciesofthestate,butalsotogivetothecultivatorofthebetterland,100l.perannum.duringtheperiodofhislease,andafterwardstoraisetherentofthelandlordtothatamount.Ataxofthisdescription thenwouldbecontrary to the fourthmaximofAdamSmith, itwould takeoutandkeepoutof thepocketsof thepeople,more thanwhat itbrought into the treasuryof the state.Thetaille in France before the Revolution,was a tax of this description; those lands onlywere taxed,whichwereheldbyan ignoble tenure, thepriceof rawproduce rose inproportion to the tax, andthereforetheywhoselandswerenottaxed,werebenefitedbytheincreaseoftheirrent.Taxesonrawproduceaswellas tithesarefreefromthisobjection: theyraise thepriceof rawproduce,but theytake from each quality of land a contribution in proportion to its actual produce, and not inproportiontotheproduceofthatwhichistheleastproductive.

From the peculiar viewwhichAdamSmith took of rent, from his not having observed thatmuchcapitalisexpendedineverycountry,onthelandforwhichnorentispaid,heconcludedthatalltaxeson the land, whether theywere laid on the land itself in the form of land-tax or tithes, or on theproduce of the land, orwere taken from the profits of the farmer,were all invariably paid by thelandlord,andthathewasinallcasestherealcontributor,althoughthetaxwasingeneral,nominallyadvancedbythetenant."Taxesupontheproduceoftheland,"hesays,"areinrealitytaxesupontherent; and though theymay be originally advanced by the farmer, are finally paid by the landlord.Whenacertainportionoftheproduceistobepaidawayforatax,thefarmercomputesaswellashecan,what the value of this portion is, one yearwith another, likely to amount to, and hemakes aproportionableabatementintherentwhichheagreestopaytothelandlord.Thereisnofarmerwhodoesnotcomputebeforehandwhatthechurchtithe,whichisaland-taxofthiskind,is,oneyearwithanother, likely to amount to." It is undoubtedly true, that the farmer does calculate his probableoutgoingsofalldescriptions,whenagreeingwithhislandlordconcerningtherentofhisfarm;andifforthetithepaidtothechurch,orforthetaxontheproduceoftheland,hewerenotcompensatedbyariseintherelativevalueoftheproduceofhisfarm,hewouldnaturallydeductthemfromhisrent.Butthisispreciselythequestionindispute:whetherhewilleventuallydeductthemfromhisrent,orbe compensated by a higher price of produce. For the reasons which have been already given, Icannothavetheleastdoubtbutthattheywouldraisethepriceofproduce,andconsequentlythatAdamSmithhastakenanincorrectviewofthisimportantquestion.

Dr.Smith'sviewofthissubjectisprobablythereasonwhyhehasdescribed"thetithe,andeveryotherland-taxofthiskind,undertheappearanceofperfectequality,asveryunequaltaxes;acertainportionoftheproducebeingindifferentsituations,equivalenttoaverydifferentportionoftherent."Ihaveendeavoured to shew that such taxes do not fall with unequal weight on the different classes offarmersorlandlords,astheyarebothcompensatedbytheriseofrawproduce,andonlycontributetothetaxinproportionastheyareconsumersofrawproduce.Inasmuchindeedaswages,andthroughwages,therateofprofitsareaffected,landlords,insteadofcontributingtheirfullsharetosuchatax,are the class peculiarly exempted. It is the profits of stock, fromwhich that portion of the tax isderivedwhichfallson those labourers,whofromthe insufficiencyof their funds,are incapableofpaying taxes; this portion is exclusively borne by all those whose income is derived from theemploymentofstock,andthereforeitinnodegreeaffectslandlords.

Itisnottobeinferredfromthisviewoftithes,andtaxesonthelandanditsproduce,thattheydonotdiscouragecultivation.Everythingwhichraisestheexchangeablevalueofcommoditiesofanykind,whichareinverygeneraldemand,tendstodiscouragebothcultivationandproduction;butthisisanevil inseparable fromall taxation, and isnot confined to theparticular taxesofwhichwearenowspeaking.

This may be considered indeed as the unavoidable disadvantage attending all taxes received andexpendedbythestate.Everynewtaxbecomesanewchargeonproduction,andraisesnaturalprice.Aportionofthelabourofthecountrywhichwasbeforeatthedisposalofthecontributortothetax,isplacedatthedisposalofthestate.Thisportionmaybecomesolarge,thatsufficientsurplusproducemaynotbelefttostimulatetheexertionsofthosewhousuallyaugmentbytheirsavingsthecapitalofthestate.Taxationhashappilyneveryet inanyfreecountrybeencarriedsofarasconstantly fromyeartoyeartodiminishitscapital.Suchastateoftaxationcouldnotbelongendured;orifendured,itwouldbeconstantlyabsorbingsomuchoftheannualproduceofthecountryastooccasionthemostextensivesceneofmisery,famine,anddepopulation.

"A land-tax," says Adam Smith, "which like that of Great Britain, is assessed upon each districtaccordingtoacertaininvariablecanon,thoughitshouldbeequalatthetimeofitsfirstestablishment,necessarilybecomesunequalinprocessoftime,accordingtotheunequaldegreesofimprovementorneglectinthecultivationofthedifferentpartsofthecountry.InEnglandthevaluationaccordingtowhichthedifferentcountiesandparisheswereassessedtotheland-taxbythe4th.WilliamandMary,wasveryunequal,evenatitsfirstestablishment.Thistax,therefore,sofaroffendsagainstthefirstofthefourmaximsabovementioned.It isperfectlyagreeabletotheotherthree.It isperfectlycertain.Thetimeofpaymentforthetaxbeingthesameasthatfortherent,isasconvenientasitcanbetothecontributor.Thoughthelandlordisinallcasestherealcontributor,thetaxiscommonlyadvancedbythetenant,towhomthelandlordisobligedtoallowitinthepaymentoftherent."

Ifthetaxbeshiftedbythetenantnotonthelandlordbutontheconsumer,thenifitbenotunequalatfirst,itcanneverbecomeso;forthepriceofproducehasbeenatonceraisedinproportiontothetax,andwill afterwardsvarynomoreon that account. Itmayoffend ifunequal, as Ihaveattempted toshewthatitwill,againstthefourthmaximabovementioned,butitwillnotoffendagainstthefirst.Itmaytakemoreoutofthepocketsofthepeoplethanitbringsintothepublictreasuryofthestate,butitwillnotfallunequallyonanyparticularclassofcontributors.M.Sayappearstometohavemistakenthe nature and effects of the English land-tax,when he says, "Many persons attribute to this fixedvaluation,thegreatprosperityofEnglishagriculture.Thatithasverymuchcontributedtoittherecanbe no doubt. Butwhat shouldwe say to aGovernment,which, addressing itself to a small trader,

shouldholdthislanguage:'Withasmallcapitalyouarecarryingonalimitedtrade,andyourdirectcontributionisinconsequenceverysmall.Borrow,andaccumulatecapital;extendyourtrade,sothatitmayprocureyouimmenseprofits;yetyoushallneverpayagreatercontribution.Moreover,whenyour successors shall inherit your profits, and shall have further increased them, they shall not bevaluedhighertothemthantheyaretoyou;andyoursuccessorsshallnotbearagreaterportionofthepublicburdens.'

"Withoutdoubtthiswouldbeagreatencouragementgiventomanufacturesandtrade;butwoulditbejust? Could not their advancement be obtained at any other price? In England itself, has notmanufacturingandcommercialindustrymadeevengreaterprogress,sincethesameperiod,withoutbeingdistinguishedwithsomuchpartiality?Alandlordbyhisassiduity,economy,andskill,increaseshisannualrevenueby5000francs.If thestateclaimofhimthefifthpartofhisaugmentedincome,willtherenotremain4000francsofincreasetostimulatehisfurtherexertions?"

IfMr. Say's suggestionwere followed, and the statewere to claim the fifth part of the augmentedincomeof thefarmer, itwouldbeapartial tax,actingonthefarmer'sprofits,andnotaffecting theprofitsofotheremployments.Thetaxwouldbepaidbyalllands,bythosewhichyieldedscantilyaswellasbythosewhichyieldedabundantly;andonsomelandstherecouldbenocompensationforitbydeductionfromrent,fornorentispaid.Apartialtaxonprofitsneverfallsonthetradeonwhichitislaid,forthetraderwilleitherquithisemployment,orremuneratehimselfforthetax.Nowthosewhopaynorentcouldberecompensedonlybyariseinthepriceofproduce,andthuswouldM.Say'sproposedtaxfallontheconsumer,andnoteitheronthelandlordorfarmer.

If the proposed taxwere increased in proportion to the increased quantity, or value, of the grossproduce obtained from the land, it would differ in nothing from tithes, and would equally betransferredtotheconsumer.Whetherthenitfellonthegrossoronthenetproduceofland,itwouldbeequallyataxonconsumption,andwouldonlyaffectthelandlordandfarmerinthesamewayasothertaxesonrawproduce.

Ifnotaxwhateverhadbeenlaidontheland,andthesamesumhadbeenraisedbyanyothermeans,agriculturewouldhaveflourishedatleastaswellasithasdone;foritisimpossiblethatanytaxonlandcanbeanencouragementtoagriculture;amoderatetaxmaynot,andprobablydoesnot,greatlyprevent,butitcannotencourageproduction.TheEnglishGovernmenthasheldnosuchlanguageasM.Sayhassupposed.Itdidnotpromisetoexempttheagriculturalclassandtheirsuccessorsfromallfuturetaxation,andtoraisethefurthersupplieswhichthestatemightrequire,fromtheotherclassesofsociety;itsaidonly,"inthismodewewillnofurtherburthentheland;butweretaintoourselvesthemost perfect liberty ofmaking you pay, under some other form, your full quota to the futureexigenciesofthestate."

Speakingoftaxesinkind,orataxofacertainproportionoftheproduce,whichispreciselythesameastithes,M.Saysays,"Thismodeoftaxationappearstobethemostequitable;thereishowevernonewhich is less so: it totally leaves out of consideration the advances made by the producer; it isproportionedtothegross,andnottothenetrevenue.Twoagriculturistscultivatedifferentkindsofrawproduce:onecultivatescornonmiddlingland,hisexpensesamountingannuallyonanaverageto8000francs;therawproducefromhislandssellsfor12,000francs;hehasthenanetrevenueof4000francs.

"Hisneighbourhaspastureorwoodland,whichbringsineveryyearalikesumof12,000francs,buthis expenses amountonly to 2000 francs.Hehas therefore on an average a net revenue of 10,000

francs.

"Alawordainsthatatwelfthoftheproduceofallthefruitsoftheearthbeleviedinkind,whatevertheymaybe.Fromthefirstistakeninconsequenceofthislaw,cornofthevalueof1000francs;andfromthesecond,hay,cattle,orwood,ofthesamevalueof1000francs.Whathashappened?Fromtheone, a quarter of his net income, 4000 francs, has been taken; from the other,whose incomewas10,000francs,atenthonlyhasbeentaken.Incomeisthenetprofitwhichremainsafterreplacingthecapitalexactlyinitsformerstate.Hasamerchantanincomeequaltoallthesaleswhichhemakesinthe course of a year? certainly not; his income only amounts to the excess of his sales above hisadvances,anditisonthisexcessonlythattaxesonincomeshouldfall."

M.Say'serrorintheabovepassageliesinsupposingthatbecausethevalueoftheproduceofoneofthesetwofarms,afterre-instatingthecapital,isgreaterthanthevalueoftheproduceoftheother,onthat account the net income of the cultivators will differ by the same amount.M. Say has whollyomittedtheconsiderationofthedifferentamountofrent,whichthesecultivatorswouldhavetopay.There cannot be two rates of profit in the same employment, and therefore when produce is indifferentproportionstocapital,itistherentwhichwilldiffer,andnottheprofit.Uponwhatpretencewouldonemanwithacapitalof2000francs,beallowedtoobtainanetprofitof10,000francsfromitsemployment,whilstanotherwithacapitalof8000francswouldonlyobtain4000francs?LetM.Saymakeadueallowanceforrent;lethimfurtherallowfortheeffectwhichsuchataxwouldhaveon the prices of these different kinds of raw produce, and he will then perceive that it is not anunequal tax, and further that the producers themselveswill not otherwise contribute to it, than anyotherclassofconsumers.

CHAPTERXI.

TAXESONGOLD.

THEriseinthepriceofcommodities,inconsequenceoftaxationorofdifficultyofproduction,willinallcasesultimatelyensue;butthedurationoftheinterval,beforethemarketpriceofcommoditiesconformstotheirnaturalprice,mustdependonthenatureofthecommodity,andonthefacilitywithwhichitcanbereducedinquantity.Ifthequantityofthecommoditytaxedcouldnotbediminished,ifthecapitalofthefarmerorofthehatterforinstance,couldnotbewithdrawntootheremployments,itwouldbeofnoconsequencethattheirprofitswerereducedbelowthegenerallevelbymeansofatax;unless the demand for their commodities should increase, theywould never be able to elevate themarket price of corn and hats up to the increased natural price. Their threats to leave theiremployments,andremovetheircapitalstomorefavouredtrades,wouldbetreatedasanidlemenacewhichcouldnotbecarriedintoeffect;andconsequentlythepricewouldnotberaisedbydiminishedproduction.Commoditieshoweverofalldescriptionscanbereducedinquantity,andcapitalcanberemovedfromtradeswhicharelessprofitabletothosewhicharemoreso,butwithdifferentdegreesof rapidity. Inproportionas the supplyofaparticularcommoditycanbemoreeasily reduced, thepriceofitwillmorequicklyriseafterthedifficultyofitsproductionhasbeenincreasedbytaxation,orbyanyothermeans.Cornbeingacommodity indispensablynecessary toeveryone, littleeffectwillbeproducedonthedemandforitinconsequenceofatax,andthereforethesupplycouldnotbelongexcessive,eveniftheproducershadgreatdifficultyinremovingtheircapitalsfromtheland;thepriceofcorntherefore,willspeedilyberaisedbytaxation,andthefarmerwillbeenabledtotransfer

thetaxfromhimselftotheconsumer.

Ifthemineswhichsupplyuswithgoldwereinthiscountry,andifgoldweretaxed,itcouldnotriseinrelativevaluetootherthingstillitsquantitywerereduced.Thiswouldbemoreparticularlythecase,ifgoldwereexclusivelyusedformoney.Itistruethattheleastproductivemines,thosewhichpaidnorent,couldnolongerbeworked,astheycouldnotaffordthegeneralrateofprofitstilltherelativevalue of gold rose, by a sum equal to the tax. The quantity of gold, and therefore the quantity ofmoneywouldbeslowlyreduced;itwouldbealittlediminishedinoneyear,alittlemoreinanother,andfinally itsvaluewouldberaised inproportionto the tax;but in the interval, theproprietorsorholders,astheywouldpaythetax,wouldbethesufferers,andnotthosewhousedmoney.Ifoutofevery1000quartersofwheatinthecountry,andevery1000producedinfuture,governmentshouldexact100quartersasatax,theremaining900quarterswouldexchangeforthesamequantityofothercommoditiesthat1000didbefore;butifthesamethingtookplacewithrespecttogold,ifofevery1000l.moneynowinthecountry,orinfuturetobebroughtintoit,governmentcouldexact100l.asatax,theremaining900l.wouldpurchaseverylittlemorethan900l.purchasedbefore.Thetaxwouldfalluponhim,whosepropertyconsistedofmoney,andwouldcontinuetodosotillitsquantitywerereducedinproportiontotheincreasedcostofitsproductioncausedbythetax.

Thisperhapswouldbemoreparticularly thecasewithrespect toametalusedformoney, thananyothercommodity,becausethedemandformoneyisnotforadefinitequantity,asisthedemandforclothes, or for food.Thedemand formoney is regulated entirelyby its value, and its valueby itsquantity. If gold were of double the value, half the quantity would perform the same functions incirculation,andifitwereofhalfthevalue,doublethequantitywouldberequired.Ifthemarketvalueofcornbeincreasedonetenthbytaxation,orbydifficultyofproduction,itisdoubtful,whetheranyeffect whatever would be produced on the quantity consumed, because every man's want is for adefinitequantity,and, therefore, ifhehas themeansofpurchasing,hewillcontinue toconsumeasbefore;butformoney,thedemandisexactlyproportionedtoitsvalue.Nomancouldconsumetwicethequantityofcorn,whichisusuallynecessaryforhissupport,buteverymanpurchasingandsellingonlythesamequantityofgoods,maybeobligedtoemploytwice,thrice,oranynumberoftimesthesamequantityofmoney.

The argument which I have just been using, applies only to those states of society in which thepreciousmetalsareusedformoney,andwherepapercreditisnotestablished.Themetalgoldlikeallother commodities has its value in the market ultimately regulated by the comparative facility ordifficultyofproducingit;andalthoughfromitsdurablenature,andfromthedifficultyofreducingits quantity, it does not readily bend to variations in its market value, yet that difficulty is muchincreasedfromthecircumstanceofitsbeingusedasmoney.Ifthequantityofgoldinthemarketforthepurposeofcommerceonly,were10,000ounces,andtheconsumptioninourmanufactureswere2000 ounces annually, it might be raised one fourth, or 25 per cent. in its value, in one year, bywithholding the annual supply; but if in consequence of its being used as money, the quantityemployedwere100,000ounces,itwouldnotberaisedonefourthinvalueinlessthantenyears.Asmoneymadeofpapermaybe readily reduced inquantity, itsvalue, though its standardweregold,wouldbe increasedas rapidlyas thatof themetal itselfwouldbe increased if ithadnoconnexionwhateverwithmoney.

If gold were the produce of one country only, and it were used universally for money, a veryconsiderabletaxmightbeimposedonit,whichwouldnotfallonanycountry,exceptinproportionastheyuseditinmanufactures,andforutensils;uponthatportionwhichwasusedformoney,thougha

large tax might be received, nobody would pay it. This is a quality peculiar to money. All othercommoditiesofwhichthereexistsalimitedquantity,andwhichcannotbeincreasedbycompetition,aredependantfortheirvalue,onthetastes,thecaprice,andthepowerofpurchasers;butmoneyisacommoditywhichnocountryhasanywishornecessitytoincrease:nomoreadvantageresultsfromusingtwentymillions,thanfromusingtenmillionsofcurrency.Acountrymighthaveamonopolyofsilk,orofwine,andyetthepricesofsilksandwinemightfall,becausefromcapriceorfashion,ortaste, cloth and brandymight be preferred, and substituted; the same effectmight in a degree takeplacewithgold,asfarasitsuseisconfinedtomanufactures:butwhilemoneyisthegeneralmediumofexchange,thedemandforitisneveramatterofchoice,butalwaysofnecessity;youmusttakeitinexchangeforyourgoods,andthereforetherearenolimits tothequantitywhichmaybeforcedonyoubyforeigntrade,ifitfallinvalue;andnoreductiontowhichyoumustnotsubmit,ifitrise.Youmayindeedsubstitutepapermoney,butbythisyoudonot,andcannotlessenthequantityofmoney;itisonlybytheriseofthepriceofcommodities,thatyoucanpreventthemfrombeingexportedfromacountrywheretheyarepurchasedwithlittlemoney,toacountrywheretheycanbesoldformore,andthisrisecanonlybeeffectedbyanimportationofmetallicmoneyfromabroad,orbythecreationoraddition of paper money at home. If then the King of Spain, supposing him to be in exclusivepossessionofthemines,andgoldalonetobeusedformoney,weretolayaconsiderabletaxongold,hewouldverymuchraiseitsnaturalvalue;andasitsmarketvalueinEuropeisultimatelyregulatedby itsnaturalvalue inSpanishAmerica,morecommoditieswouldbegivenbyEuropeforagivenquantityofgold.ButthesamequantityofgoldwouldnotbeproducedinAmerica,asitsvaluewouldonly be increased in proportion to the diminution of quantity consequent on its increased cost ofproduction. No more goods then would be obtained in America, in exchange for all their goldexported, than before; and it may be asked, where then would be the benefit to Spain and hercolonies?Thebenefitwouldbethis,thatiflessgoldwereproduced,lesscapitalwouldbeemployedinproducingit;thesamevalueofgoodsfromEuropewouldbeimportedbytheemploymentofthesmaller capital, that was before obtained by the employment of the larger; and therefore all theproductionsobtainedbytheemploymentofthecapitalwithdrawnfromthemines,wouldbeabenefitwhichSpainwould derive from the imposition of the tax, andwhich she could not obtain in suchabundance, orwith such certainty, by possessing themonopoly of any other commoditywhatever.From such a tax, as far as money was concerned, the nations of Europe would suffer no injurywhatever; they would have the same quantity of goods, and consequently the same means ofenjoymentasbefore,butthesegoodswouldbecirculatedwithalessquantityofmoney.

If inconsequenceof the tax,onlyone tenthof thepresentquantityofgoldwereobtained from themines,thattenthwouldbeofequalvaluewiththetententhsnowproduced.ButtheKingofSpainisnotexclusivelyinpossessionoftheminesofthepreciousmetals;andifhewere,hisadvantagefromtheirpossession,andthepoweroftaxation,wouldbeverymuchreducedbythelimitationofdemandandconsumptioninEurope,inconsequenceoftheuniversalsubstitution,inagreaterorlessdegree,ofpapermoney.Theagreementofthemarketandnaturalpricesofallcommodities,dependsatalltimesonthefacilitywithwhichthesupplycanbeincreasedordiminished.Inthecaseofgold,houses,and labour,aswellasmanyother things, thiseffectcannot,undersomecircumstances,bespeedilyproduced.Butitisdifferentwiththosecommoditieswhichareconsumedandreproducedfromyeartoyear,suchashats,shoes,corn,andcloth;theymaybereducedifnecessary,andtheintervalcannotbelongbeforethesupplyiscontractedinproportiontotheincreasedchargeofproducingthem.

Ataxonrawproducefromthesurfaceoftheearth,will,aswehaveseen,fallontheconsumer,andwillinnowayaffectrent;unless,bydiminishingthefundsforthemaintenanceoflabour,itlowerswages,reducesthepopulation,anddiminishesthedemandforcorn.Butataxontheproduceofgold

minesmust, by enhancing the value of thatmetal, necessarily reduce the demand for it, andmustthereforenecessarilydisplacecapitalfromtheemploymenttowhichitwasapplied.Notwithstandingthen,thatSpainwouldderiveallthebenefitswhichIhavestatedfromataxongold,theproprietorsofmines from which capital was withdrawn would lose all their rent. This would be a loss toindividuals,butnotanationalloss;rentbeingnotacreation,butmerelyatransferofwealth:theKingofSpain,andtheproprietorsofthemineswhichcontinuedtobeworked,wouldtogetherreceivenotonlyallthattheliberatedcapitalproduced,butallthattheotherproprietorslost.

Supposetheminesofthe1st,2nd,and3rdqualitytobeworked,andtoproducerespectively100,80,and70poundsweightofgold,andthereforetherentofNo.1tobethirtypounds,andthatofNo.2tenpounds. Suppose now the tax to be seventy pounds of gold per annumon eachmineworked; andconsequentlythatNo.1alonecouldbeprofitablyworked;itisevidentthatallrentwouldimmediatelydisappear.Beforetheimpositionofthetax,outofthe100poundsproducedonNo.1,arentwaspaidofthirtypounds,andtheworkerofthemineretainedseventy,asumequaltotheproduceoftheleastproductivemine.ThevaluethenofwhatremainstothecapitalistofthemineNo.1mustbethesameasbefore,orhewouldnotobtainthecommonprofitsofstock;andconsequently,afterpayingseventyout of his 100 pounds for tax, the value of the remaining thirtymust be as great as seventywerebefore,andthereforethevalueofthewholehundredasgreatas233poundsbefore.Itsvaluemightbehigher,butitcouldnotbelower,oreventhisminewouldceasetobeworked.Beingamonopolisedcommodity,itcouldexceeditsnaturalvalue,andthenitwouldpayarentequaltothatexcess;butnofundswouldbeemployedinthemine,ifitwerebelowthisvalue.Inreturnforonethirdofthelabourandcapitalemployedinthemines,Spainwouldobtainasmuchgoldaswouldexchangeforthesame,orverynearlythesame,quantityofcommoditiesasbefore.Shewouldbericherbytheproduceofthetwothirdsliberatedfromthemines.Ifthevalueofthe100poundsofgoldshouldbeequaltothatofthe250poundsextractedbefore;thekingofSpain'sportion,hisseventypounds,wouldbeequalto175attheformervalue:asmallpartoftheking'staxonlywouldfallonhisownsubjects,thegreaterpartbeingobtainedbythebetterdistributionofcapital.

TheaccountofSpainwouldstandthus:

Formerlyproduced:Gold250pounds,ofthevalueof(suppose). 10,000 yardsof

cloth.

Nowproduced:Bythetwocapitalistswhoquittedthemines,thevalueof140poundsofgold,or 5,000 yardsof

cloth.

By the capitalistwhoworks themine,No. 1, thirty pounds of gold increased in value, as 1 to 2½, andthereforenowofthevalueof 3,000 yardsof

cloth.

Taxtothekingseventypounds,nowofthevalueof 7,000 yardsofcloth.

——

15,600

——

Ofthe7000receivedbytheking,thepeopleofSpainwouldcontributeonly1400,and5600wouldbepuregain,effectedbytheliberatedcapital.

If the tax, insteadofbeingafixedsumpermineworked,wereacertainportionof itsproduce, thequantitywouldnotbereducedinconsequence.Ifahalf,afourth,orathirdofeachmineweretakenfor the tax, it would nevertheless be the interest of the proprietors to make their mines yield asabundantlyasbefore;butifthequantitywerenotreduced,butonlyapartofittransferredfromtheproprietortotheking,itsvaluewouldnotrise;thetaxwouldfallonthepeopleofthecolonies,andnoadvantagewouldbegained.A taxof thiskindwouldhave theeffect thatAdamSmith supposestaxesonrawproducewouldhaveontherentofland—itwouldfallentirelyontherentofthemine.Ifpushedalittlefurther,thetaxwouldnotonlyabsorbthewholerent,butwoulddeprivetheworkerofthemineof thecommonprofitsofstock,andhewouldconsequentlywithdrawhiscapitalfromtheproduction of gold. If still further extended, the rent of still bettermineswould be absorbed, andcapitalwouldbefurtherwithdrawn;andthusthequantitywouldbecontinuallyreduced,anditsvalueraised,andthesameeffectswouldtakeplaceaswehavealreadypointedout;apartofthetaxwouldbepaidbythepeopleoftheSpanishcolonies,andtheotherpartwouldbeanewcreationofproduce,byincreasingthepoweroftheinstrumentusedasamediumofexchange.Taxesongoldareoftwokinds, one on the actual quantity of gold in circulation, the other on the quantity that is annuallyproducedfromthemines.Bothhaveatendencytoreducethequantity,andtoraisethevalueofgold;butbyneitherwillitsvalueberaisedtillthequantityisreduced,andthereforesuchtaxeswillfallforatime,untilthesupplyisdiminished,ontheproprietorsofmoney,butultimatelytheywillbepaidbytheownerofthemineinthereductionofrent,andbythepurchasersofthatportionofgold,whichisusedasacommoditycontributingtotheenjoymentsofmankind,andnotsetapartexclusivelyforacirculatingmedium.

CHAPTERXII.

TAXESONHOUSES.

THEREarealsoothercommoditiesbesidesgoldwhichcannotbespeedilyreducedinquantity;anytaxonwhichwillthereforefallontheproprietor,iftheincreaseofpriceshouldlessenthedemand.

Taxesonhousesareof thisdescription; though laidon theoccupier, theywill frequently fallbyadiminutionofrentonthelandlord.Theproduceofthelandisconsumedandreproducedfromyeartoyear,andsoaremanyothercommodities;astheymaythereforebespeedilybroughttoalevelwiththedemand,theycannotlongexceedtheirnaturalprice.Butasataxonhousesmaybeconsideredinthe light of an additional rent paid by the tenant, its tendencywill be to diminish the demand forhousesofthesameannualrent,withoutdiminishingtheirsupply.Rentwillthereforefall,andapartofthetaxwillbepaidindirectlybythelandlord.

"Therentofahouse,"saysAdamSmith,"maybedistinguishedintotwoparts,ofwhichtheonemayveryproperlybecalledthebuildingrent,theotheriscommonlycalledthegroundrent.Thebuildingrentistheinterestorprofitofthecapitalexpendedinbuildingthehouse.Inordertoputthetradeofabuilderuponalevelwithothertrades,itisnecessarythatthisrentshouldbesufficientfirsttopaythesame interest which he would have got for his capital, if he had lent it upon good security; andsecondly,tokeepthehouseinconstantrepair,orwhatcomestothesamething,toreplacewithina

certain termof years the capitalwhich had been employed in building it." "If in proportion to theinterestofmoney,thetradeofthebuilderaffordsatanytimeamuchgreaterprofitthanthis,itwillsoondrawsomuchcapitalfromothertrades,aswillreducetheprofittoitsproperlevel.Ifitaffordsatanytimemuchlessthanthis,othertradeswillsoondrawsomuchcapitalfromitaswillagainraisethat profit. Whatever part of the whole rent of a house is over and above what is sufficient foraffording this reasonable profit, naturally goes to the ground rent; and where the owner of theground,andtheownerofthebuildingaretwodifferentpersons,itisinmostcasescompletelypaidtotheformer.Incountryhouses,atadistancefromanygreattown,wherethereisaplentifulchoiceofground,thegroundrentisscarcelyanything,ornomorethanwhatthespaceuponwhichthehousestands,wouldpayifemployedinagriculture.Incountryvillas,intheneighbourhoodofsomegreattown,itissometimesagooddealhigher,andthepeculiarconveniency,orbeautyofsituation,istherefrequently very highly paid for. Ground rents are generally highest in the capital, and in thoseparticular parts of it, where there happens to be the greatest demand for houses, whatever be thereasonforthatdemand,whetherfortradeandbusiness,forpleasureandsociety,orformerevanityandfashion."Ataxontherentofhousesmayeitherfallontheoccupier,onthegroundlandlord,oronthebuildinglandlord.Inordinarycasesitmaybepresumed,thatthewholetaxwouldbepaidbothimmediatelyandfinallybytheoccupier.

If the tax be moderate, and the circumstances of the country such, that it is either stationary oradvancing,therewouldbelittlemotivefortheoccupierofahousetocontenthimselfwithoneofaworsedescription.Butifthetaxbehigh,oranyothercircumstancesshoulddiminishthedemandforhouses,thelandlord'sincomewouldfall,fortheoccupierwouldbepartlycompensatedforthetaxbyadiminutionofrent.Itis,however,difficulttosay,inwhatproportionsthatpartofthetax,whichwassaved by the occupier by a fall of rent, would fall on the building rent and the ground rent. It isprobable, that in the first instance, both would be affected; but as houses are, though slowly, yetcertainlyperishable,andasnomorewouldbebuilt,tilltheprofitsofthebuilderwererestoredtothegeneral level,buildingrent,would,afteran interval,be restored to itsnaturalprice.As thebuilderreceives rent only whilst the building endures, he could pay no part of the tax, under the mostdisastrouscircumstances,foranylongerperiod.

Thepaymentofthistax,then,wouldultimatelyfallontheoccupierandgroundlandlord,but"inwhatproportion,thisfinalpaymentwouldbedividedbetweenthem,"saysAdamSmith,"itisnotperhapsveryeasytoascertain.Thedivisionwouldprobablybeverydifferentindifferentcircumstances,anda taxof thiskindmight, according to thosedifferent circumstances, affectveryunequallyboth theinhabitantofthehouse,andtheowneroftheground."15

AdamSmithconsidersgroundrentsaspeculiarlyfitsubjectsfortaxation."Bothgroundrents,andtheordinary rent of land," he says, "are a species of revenue,which the owner inmany cases enjoys,withoutanycareorattentionofhisown.Thoughapartofthisrevenueshouldbetakenfromhim,inorder to defray the expenses of the state, no discouragementwill thereby be given to any sort ofindustry.Theannualproduceofthelandandlabourofthesociety,therealwealthandrevenueofthegreatbodyofthepeople,mightbethesameaftersuchataxasbefore.Groundrents,andtheordinaryrentofland,are,therefore,perhapsthespeciesofrevenue,whichcanbestbeartohaveapeculiartaximposeduponthem."ItmustbeadmittedthattheeffectsofthesetaxeswouldbesuchasAdamSmithhasdescribed;butitwouldsurelybeveryunjust,totaxexclusivelytherevenueofanyparticularclassofacommunity.Theburdensofthestateshouldbebornebyallinproportiontotheirmeans:thisisone of the fourmaximsmentioned byAdam Smith, which should govern all taxation. Rent oftenbelongstothosewhoaftermanyyearsoftoil,haverealisedtheirgains,andexpendedtheirfortunes

inthepurchaseofland;anditcertainlywouldbeaninfringementofthatprinciplewhichshouldeverbeheldsacred,thesecurityofproperty,tosubjectittounequaltaxation.Itistobelamented,thattheduty by stamps, with which the transfer of landed property is loaded, materially impedes theconveyanceof it into thosehands,where itwouldprobablybemademostproductive.And if it beconsidered, that land,regardedasafitsubjectforexclusive taxation,wouldnotonlybereducedinprice, to compensate for the risk of that taxation, but in proportion to the indefinite nature anduncertainvalueoftherisk,wouldbecomeafitsubjectforspeculations,partakingmoreofthenatureofgambling,thanofsobertrade,itwillappearprobable,thatthehandsintowhichlandwouldinthatcase be most apt to fall, would be the hands of those, who possess more of the qualities of thegambler,thanofthequalitiesofthesober-mindedproprietor,whoislikelytoemployhislandtothegreatestadvantage.

CHAPTERXIII.

TAXESONPROFITS.

TAXESonthosecommodities,whicharegenerallydenominatedluxuries,fallonthoseonlywhomakeuseofthem.Ataxonwineispaidbytheconsumerofwine.Ataxonpleasurehorses,oroncoaches,ispaidbythosewhoprovideforthemselvessuchenjoyments,andinexactproportionastheyprovidethem. But taxes on necessaries do not affect the consumers of necessaries, in proportion to thequantity thatmaybeconsumedby them,butoften inamuchhigherproportion.A taxoncorn,wehaveobserved,notonlyaffectsamanufacturerintheproportionthatheandhisfamilymayconsumecorn,butitalterstherateofprofitsofstock,andthereforealsoaffectshisincome.Whateverraisesthewagesoflabour,lowerstheprofitsofstock;thereforeeverytaxonanycommodityconsumedbythelabourer,hasatendencytolowertherateofprofits.

Ataxonhatswillraisethepriceofhats;ataxonshoes,thepriceofshoes;ifthiswerenotthecase,the taxwouldbe finallypaidby themanufacturer; his profitswouldbe reducedbelow thegenerallevel,andhewouldquithis trade.Apartial taxonprofitswill raise thepriceof thecommodityonwhichitfalls:atax,forexample,ontheprofitsofthehatter,wouldraisethepriceofhats;forifhisprofitsweretaxed,andnotthoseofanyothertrade,hisprofits,unlessheraisedthepriceofhishats,wouldbebelowthegeneralrateofprofits,andhewouldquithisemploymentforanother.

In the samemanner a tax on the profits of the farmerwould raise the price of corn; a tax on theprofitsoftheclothier,thepriceofcloth;andifataxinproportiontoprofitswerelaidonalltrades,everycommoditywouldberaisedinprice.Butifthemine,whichsupplieduswiththestandardofourmoney,wereinthiscountry,andtheprofitsoftheminerwerealsotaxed,thepriceofnocommoditywould rise, eachmanwouldgiveanequalproportionofhis income, andevery thingwouldbe asbefore.

Ifmoney be not taxed, and therefore be permitted to preserve its value,whilst every thing else istaxed,andisraisedinvalue,thehatter,thefarmer,andclothier,eachemployingthesamecapitals,andobtainingthesameprofits,willpaythesameamountoftax.Ifthetaxbe100l.,thehats,thecloth,andthecorn,willeachbeincreasedinvalue100l.Ifthehattergainbyhishats1100l.,insteadof1000l.,hewillpay100l.toGovernmentforthetax;andthereforewillstillhave1000l.tolayoutongoodsforhisownconsumption.Butasthecloth,corn,andallothercommodities,willberaisedinpricefrom

thesamecause,hewillnotobtainmoreforhis1000l.thanhebeforeobtainedfor910l.,andthuswillhecontributebyhisdiminishedexpendituretotheexigenciesofthestate;hewill,bythepaymentofthetax,haveplacedaportionoftheproduceofthelandandlabourofthecountryatthedisposalofGovernment,insteadofusingthatportionhimself.Ifinsteadofexpendinghis1000l.,headdsittohiscapital,hewillfindintheriseofwages,andintheincreasedcostoftherawmaterialandmachinery,thathissavingof1000l.doesnotamounttomorethanasavingof910l.amountedtobefore.

Ifmoneybetaxed,orifbyanyothercauseitsvaluebealtered,andallcommoditiesremainpreciselyat the same price as before, the profits of the manufacturer and farmer will also be the same asbefore,theywillcontinuetobe1000l.;andastheywilleachhavetopay100l. toGovernment,theywillretainonly900l.,whichwillgivethemalesscommandovertheproduceofthelandandlabourofthecountry,whethertheyexpenditinproductiveorunproductivelabour.Preciselywhattheylose,Governmentwillgain. In thefirstcase thecontributor to the taxwould, for1000l.,haveasgreat aquantityofgoodsashebeforehadfor910l.;inthesecond,hewouldhaveonlyasmuchashebeforehadfor900l.Thisproceedsfromthedifferenceintheamountofthetax;inthefirstcaseitisonlyaneleventhofhisincome,intheseconditisatenth;moneyinthetwocasesbeingofadifferentvalue.

Butalthough,ifmoneybenottaxed,anddonotalterinvalue,allcommoditieswillriseinprice,theywillnotrise in thesameproportion; theywillnotafter the taxbear thesamerelativevaluetoeachotherwhich they did before the tax. In a former part of thiswork,we discussed the effects of thedivision of capital into fixed and circulating, or rather into durable and perishable capital, on thepricesofcommodities.Weshewedthattwomanufacturersmightemploypreciselythesameamountofcapital,andmightderivefromitpreciselythesameamountofprofits,butthattheywouldselltheircommoditiesforverydifferentsumsofmoney,accordingasthecapitalstheyemployedwererapidly,orslowly,consumedandreproduced.Theonemightsellhisgoodsfor4000l.,theotherfor10,000l.,andtheymightbothemploy10,000l.ofcapital,andobtain20percent.profit,or2000l.Thecapitalofonemight consist for exampleof2000l. circulating capital, tobe reproduced, and8000l. fixed, inbuildings and machinery; the capital of the other on the contrary might consist of 8000l. ofcirculating,andofonly2000l.fixedcapitalinmachineryandbuildings.Nowifeachofthesepersonswere tobe taxed10per cent. onhis income,or200l., the one, tomakehis business yield him thegeneralrateofprofit,mustraisehisgoodsfrom10,000l.to10,200l.;theotherwouldalsobeobligedtoraisethepriceofhisgoodsfrom4000l.to4200l.Beforethetax,thegoodssoldbyoneofthesemanufacturerswere2½timesmorevaluablethanthegoodsoftheother;afterthetaxtheywillbe2.42timesmorevaluable:theonekindwillhaverisen2percent.;theother5percent.:consequentlyataxuponincome,whilstmoneycontinuedunalteredinvalue,wouldaltertherelativepricesandvalueofcommodities.Thisistrue,ifthetaxinsteadofbeinglaidontheprofitswerelaidonthecommoditiesthemselves: provided they were taxed in proportion to the value of the capital employed on theirproduction, they would rise equally, whatever might be their value, and therefore they would notpreserve the same proportion as before. A commodity, which rose from ten to eleven thousandpounds,wouldnotbearthesamerelationasbefore,toanotherwhichrosefrom2to3000l.Ifunderthesecircumstancesmoneyroseinvalue,fromwhatevercauseitmightproceed,itwouldnotaffectthepricesofcommodities in thesameproportion.Thesamecausewhichwouldlower thepriceofonefrom10,200l.to10,000l.orlessthan2percent.,wouldlowerthepriceoftheotherfrom4200l.to4000l.or4-3/4percent.Iftheyfellinanydifferentproportion,profitswouldnotbeequal;fortomakethemequal,whenthepriceofthefirstcommoditywas10,000l.,thepriceofthesecondshouldbe4000l.;andwhenthepriceofthefirstwas10,200l.,thepriceoftheothershouldbe4200l.

Theconsiderationof this factwill lead to theunderstandingofavery importantprinciple,which I

believehasneverbeenadvertedto.Itisthis;thatinacountrywherenotaxationsubsists,thealterationinthevalueofmoneyarisingfromscarcityorabundancewilloperateinanequalproportionontheprices of all commodities; that if a commodity of 1000l. value rise to 1200l., or fall to 800l., acommodityof10,000l.valuewillriseto12,000l.orfallto8000l.;butinacountrywherepricesareartificially raised by taxation, the abundance of money from an influx, or the exportation andconsequentscarcityofitfromforeigndemand,willnotoperateinthesameproportiononthepricesofallcommodities;someitwillraiseor lower5,6,or12percent.,others3,4,or7percent.Ifacountrywerenottaxed,andmoneyshouldfallinvalue,itsabundanceineverymarketwouldproducesimilareffects ineach. Ifmeat rose20percent.,bread,beer, shoes, labour, andeverycommodity,wouldalsorise20percent.;itisnecessarytheyshoulddoso,tosecuretoeachtradethesamerateofprofits.Butthisisnolongertruewhenanyofthesecommoditiesistaxed;ifinthatcasetheyshouldallriseinproportiontothefallinthevalueofmoney,profitswouldberenderedunequal;inthecaseof the commodities taxed profits would be raised above the general level, and capital would beremovedfromoneemployment toanother, tillanequilibriumofprofitswasrestored,whichcouldonlybe,aftertherelativepriceswerealtered.

Willnotthisprincipleaccountforthedifferenteffects,whichitwasremarkedwereproducedonthepricesofcommodities,fromthealteredvalueofmoneyduringtheBank-restriction?Itwasobjectedtothosewhocontendedthatthecurrencywasatthatperioddepreciated,fromthetoogreatabundanceof thepapercirculation, that, if thatwere the fact,allcommoditiesought tohave risen in thesameproportion;butitwasfoundthatmanyhadvariedconsiderablymorethanothers,andthenceitwasinferredthattheriseofpriceswasowingtosomethingaffectingthevalueofcommodities,andnottoanyalterationinthevalueofthecurrency.Itappearshowever,aswehavejustseen,thatinacountrywhere commodities are taxed, they will not all vary in price in the same proportion, either inconsequenceofariseorofafallinthevalueofcurrency.

If the profits of all tradeswere taxed, excepting the profits of the farmer, all goodswould rise inmoneyvalue,exceptingrawproduce.Thefarmerwouldhavethesamecornincomeasbefore,andwouldsellhiscornalsoforthesamemoneyprice;butashewouldbeobligedtopayanadditionalprice for all the commodities, except corn, which he consumed, it would be to him a tax onexpenditure.Norwouldheberelieved from this taxbyanalteration in thevalueofmoney, foranalterationinthevalueofmoneymightsinkall thetaxedcommoditiestotheirformerprice,buttheuntaxedonewouldsinkbelowitsformerlevel;andtherefore,thoughthefarmerwouldpurchasehiscommoditiesatthesamepriceasbefore,hewouldhavelessmoneywithwhichtopurchasethem.

Thelandlordtoowouldbepreciselyinthesamesituation,hewouldhavethesamecorn,andthesamemoneyrentasbefore,ifallcommoditiesroseinprice,andmoneyremainedatthesamevalue;andhewouldhavethesamecorn,butalessmoneyrent,ifallcommoditiesremainedatthesameprice:sothatineithercase,thoughhisincomewerenotdirectlytaxed,hewouldindirectlycontributetowardsthemoneyraised.

Butsupposetheprofitsofthefarmertobealsotaxed,hethenwouldbeinthesamesituationasothertraders;hisrawproducewouldrise,sothathewouldhavethesamemoneyrevenue,afterpayingthetax,buthewouldpayanadditionalpriceforallthecommoditiesheconsumed,rawproduceincluded.

Hislandlordhoweverwouldbedifferentlysituated,hewouldbebenefitedbythetaxonhistenant'sprofits, as he would be compensated for the additional price at which he would purchase hismanufacturedcommodities, if theyroseinprice;andhewouldhavethesamemoneyrevenue,if inconsequenceof a rise in thevalueofmoney, commodities soldat their formerprice.A taxon the

profitsofthefarmer,isnotataxproportionedtothegrossproduceoftheland,buttoitsnetproduce,after thepaymentof rent,wages, andall other charges.As the cultivatorsof thedifferentkindsofland,No. 1, 2, and 3, employ precisely the same capitals, theywill get precisely the same profits,whatever may be the quantity of gross produce, which one may obtain more than the other; andconsequentlytheywillbealltaxedalike.SupposethegrossproduceofthelandofthequalityNo.1,tobe180qrs.,thatofNo.2,170qrs.,andofNo3,160,andeachtobetaxed10quarters,thedifferencebetweentheproduceofNo.1,No.2,andNo.3,afterpayingthetax,willbethesameasbefore;forifNo.1bereducedto170,No.2to160,andNo.3to150qrs.;thedifferencebetween3and1willbeasbefore,20qrs.;andofNo.3andNo.2,10qrs.Ifafterthetaxthepricesofcornandofeveryothercommodity should remain the same as before, money rent as well as corn rent, would continueunaltered;butifthepriceofcorn,andeveryothercommodityshouldriseinconsequenceofthetax,moneyrentwillalsoriseinthesameproportion.Ifthepriceofcornwere4l.perquarter,therentofNo.1wouldhavebeen80l.,andthatofNo.2,40l.;but ifcornrosetenpercent.,or to4l.8s., rentwouldalsorisetenpercent.,fortwentyquartersofcornwouldthenbeworth88l.,andtenquarters44l.;sothatineverycasethelandlordwillbeunaffectedbysuchatax.Ataxontheprofitsofstockalwaysleavescornrentunaltered,andthereforemoneyrentvarieswiththepriceofcorn;butataxonrawproduce,ortithes,neverleavescornrentunaltered,butgenerallyleavesmoneyrentthesameasbefore. Inanotherpartof thiswork Ihaveobserved, that if a land-taxof the samemoneyamount,were laid on every kind of land in cultivation,without any allowance for difference of fertility, itwould be very unequal in its operation, as itwould be a profit to the landlord of themore fertilelands.Itwouldraisethepriceofcorninproportiontotheburdenbornebythefarmeroftheworstland;butthisadditionalpricebeingobtainedforthegreaterquantityofproduceyieldedbythebetterland, farmers of such land would be benefited during their leases, and afterwards, the advantagewouldgotothelandlordintheformofanincreaseofrent.Theeffectofanequaltaxontheprofitsofthefarmerispreciselythesame;itraisesthemoneyrentofthelandlords,ifmoneyretainsthesamevalue;butastheprofitsofallothertradesaretaxed,aswellasthoseofthefarmer,andconsequentlythepricesofallgoods,aswellascorn,areraised,thelandlordlosesasmuchbytheincreasedmoneypriceofthegoodsandcornonwhichhisrentisexpended,ashegainsbytheriseofhisrent.Ifmoneyshould rise in value, and all things should, after a tax on the profits of stock, fall to their formerprices,rentalsowouldbethesameasbefore.Thelandlordwouldreceivethesamemoneyrent,andwouldobtainall thecommoditiesonwhich itwasexpendedat their formerprice;so thatunderallcircumstanceshewouldcontinueuntaxed.

A tax on the profits of stockwould also affect the stockholder, if all commoditieswere to rise inproportiontothetax;butiffromthealterationinthevalueofmoney,allcommoditiesweretosinktotheir former price, the stockholderwould pay nothing towards the tax; hewould purchase all hiscommoditiesatthesameprice,butwouldstillreceivethesamemoneydividend.

Ifitbeagreed,thatbytaxingtheprofitsofonemanufactureronly,thepriceofhisgoodswouldrise,to put him on an equality with all other manufacturers; and that by taxing the profits of twomanufacturers,thepricesoftwodescriptionsofgoodsmustrise,Idonotseehowitcanbedisputed,thatbytaxingtheprofitsofallmanufacturers,thepricesofallgoodswouldrise,providedtheminewhichsupplieduswithmoney,wereinthecountrytaxed.Butasmoney,orthestandardofmoney,isacommodityimportedfromabroad,thepricesofallgoodscouldnotrise;forsuchaneffectcouldnottakeplacewithoutanadditionalquantityofmoney,whichcouldnotbeobtainedinexchangefordeargoods,aswasshewninpage108.Ifhowever,sucharisecouldtakeplace,itcouldnotbepermanent,foritwouldhaveapowerfulinfluenceonforeigntrade.Inreturnforcommoditiesimported,thosedeargoodscouldnotbeexported,andthereforeweshouldforatimecontinuetobuy,althoughwe

ceased to sell; and should export money, or bullion, till the relative prices of commodities werenearly the same as before. It appears tome absolutely certain, that awell regulated taxonprofits,would ultimately restore commodities both of home and foreignmanufacture, to the samemoneypricewhichtheyborebeforethetaxwasimposed.

As taxes on raw produce, tithes, taxes on wages, and on the necessaries of the labourer, will, byraisingwages,lowerprofits,theywillall,thoughnotinanequaldegree,beattendedwiththesameeffects.

Thediscoveryofmachinery,whichmaterially improveshomemanufactures, always tends to raisethe relative value ofmoney, and therefore to encourage its importation.All taxation, all increasedimpediments,eithertothemanufacturer,orthegrowerofcommodities,tendonthecontrarytolowertherelativevalueofmoney,andthereforetoencourageitsexportation.

CHAPTERXIV.

TAXESONWAGES.

TAXESonwageswillraisewages,andthereforewilldiminishtherateoftheprofitsofstock.Wehavealreadyseenthatataxonnecessarieswillraisetheirprices,andwillbefollowedbyariseofwages.The only difference between a tax on necessaries, and a tax on wages is, that the former willnecessarilybeaccompaniedbyariseinthepriceofnecessaries,butthelatterwillnot;towardsataxonwages,consequently,neitherthestockholder,thelandlord,noranyotherclassbuttheemployersoflabourwillcontribute.Ataxonwagesiswhollyataxonprofits,ataxonnecessariesispartlyataxonprofits,andpartlyataxonrichconsumers.Theultimateeffectswhichwillresultfromsuchtaxesthenarepreciselythesameasthosewhichresultfromadirecttaxonprofits.

"Thewagesoftheinferiorclassesofworkmen,"saysAdamSmith,"Ihaveendeavouredtoshewinthefirstbook,areeverywherenecessarilyregulatedbytwodifferentcircumstances;thedemandforlabour, and the ordinary or average price of provisions. The demand for labour, according as ithappens tobeeither increasing, stationary,ordeclining,or to requirean increasing, stationary,ordecliningpopulation,regulatesthesubsistenceofthelabourer,anddeterminesinwhatdegreeitshallbe either liberal,moderate, or scanty.Theordinaryor average price of provisions determines thequantityofmoneywhichmustbepaidtotheworkman,inordertoenablehimoneyearwithanothertopurchasethisliberal,moderate,orscantysubsistence.Whilethedemandforlabour,andthepriceofprovisions, therefore remain thesame,adirect taxupon thewagesof labourcanhavenoothereffectthantoraisethemsomewhathigherthanthetax."

Totheproposition,asitishereadvancedbyDr.Smith,Mr.Buchananofferstwoobjections.First,hedenies that themoneywages of labour are regulated by the price of provisions; and secondly, hedenies that a tax on the wages of labour would raise the price of labour. On the first point, Mr.Buchanan's argument is as follows, page 59: "Thewages of labour, it has already been remarked,consistnotinmoney,butinwhatmoneypurchases,namely,provisionsandothernecessaries;andtheallowanceofthelaboureroutofthecommonstock,willalwaysbeinproportiontothesupply.Whereprovisionsarecheapandabundant,hissharewillbethelarger;andwheretheyarescarceanddear,itwillbetheless.Hiswageswillalwaysgivehimhisjustshare,andtheycannotgivehimmore.Itis

anopinion indeed, adoptedbyDr.Smith andmostotherwriters, that themoneypriceof labour isregulated by themoney price of provisions, and thatwhen provisions rise in price,wages rise inproportion.Butitisclearthatthepriceoflabourhasnonecessaryconnexionwiththepriceoffood,since itdependsentirelyon thesupplyof labourerscomparedwith thedemand.Besides, it is tobeobserved,thatthehighpriceofprovisionsisacertainindicationofadeficientsupply,andarisesinthenaturalcourseofthings,forthepurposeofretardingtheconsumption.Asmallersupplyoffood,sharedamongthesamenumberofconsumers,willevidentlyleaveasmallerportiontoeach,andthelabourermustbearhisshareofthecommonwant.Todistributethisburdenequally,andtopreventthelabourer fromconsumingsubsistenceso freelyasbefore, theprice rises.Butwages it seemsmustrisealongwithit,thathemaystillusethesamequantityofascarcercommodity;andthusnatureisrepresented as counteracting her own purposes: first, raising the price of food, to diminish theconsumption,andafterwards,raisingwagestogivethelabourerthesamesupplyasbefore."

In this argument ofMr. Buchanan, there appears to me, to be a great mixture of truth and error.Because a high price of provisions is sometimes occasioned by a deficient supply,Mr. Buchananassumes it as a certain indication of a deficient supply.He attributes to one cause exclusively, thatwhichmayarise frommany. It isundoubtedly true, that in thecaseofadeficient supply,a smallerquantitywillbesharedamongthesamenumberofconsumers,andasmallerportionwillfalltoeach.Todistributethisprivationequally,andtopreventthelabourerfromconsumingsubsistencesofreelyasbefore,thepricerises.ItmustthereforebeconcededtoMr.Buchanan,thatanyriseinthepriceofprovisions,occasionedbyadeficientsupply,willnotnecessarilyraisethemoneywagesoflabour;asthe consumption must be retarded; which can only be effected by diminishing the power of theconsumerstopurchase.But,becausethepriceofprovisionsisraisedbyadeficientsupply,wearebynomeanswarrantedinconcluding,asMr.Buchananappearstodo,thattheremaynotbeanabundantsupply,withahighprice;notahighpricewith regard tomoneyonly,butwith regard toallotherthings.

Thenaturalpriceofcommodities,whichalwaysultimatelygoverns theirmarketprice,dependsonthefacilityofproduction;butthequantityproducedisnotinproportiontothatfacility.Althoughthelands, which are now taken into cultivation, are much inferior to the lands in cultivation threecenturiesago,andthereforethedifficultyofproductionisincreased,whocanentertainanydoubt,butthatthequantityproducednow,veryfarexceedsthequantitythenproduced?Notonlyisahighpricecompatiblewithan increasedsupply,but it rarely fails toaccompany it. If, then, inconsequenceoftaxation, or of difficulty of production, the price of provisions be raised, and the quantity be notdiminished, themoney wages of labour will rise; for asMr. Buchanan has justly observed, "Thewagesof labourconsistnot inmoney,but inwhatmoneypurchases,namely,provisionsandothernecessaries;andtheallowanceofthelaboureroutofthecommonstock,willalwaysbeinproportiontothesupply."

Withrespecttothesecondpoint,whetherataxonthewagesoflabourwouldraisethepriceoflabour,Mr.Buchanansays,"After the labourerhasreceivedthefair recompenseofhis labour,howcanhehaverecourseonhisemployer,forwhatheisafterwardscompelledtopayawayintaxes?Thereisnolaworprinciple inhumanaffairs towarrantsuchaconclusion.After the labourerhasreceivedhiswages, theyareinhisownkeeping,andhemust,as farashe isable,bear theburthenofwhateverexactionshemayeverafterwardsbeexposed to: forhehasclearlynowayofcompelling those toreimbursehim,whohavealreadypaidhimthefairpriceofhiswork."Mr.Buchananhasquotedwithgreatapprobation,thefollowingablepassagefromMr.Malthus'sworkonpopulation,whichappearstomecompletelytoanswerhisobjection."Thepriceoflabour,whenlefttofinditsnaturallevel,isa

mostimportantpoliticalbarometer,expressingtherelationbetweenthesupplyofprovisions,andthedemandforthem,betweenthequantitytobeconsumed,andthenumberofconsumers;and,takenontheaverage,independentlyofaccidentalcircumstances,itfurtherexpresses,clearly,thewantsofthesociety respecting population, that is, whatever may be the number of children to a marriagenecessary tomaintain exactly the present population, the price of labour will be just sufficient tosupport this number, or be above it, or below it, according to the state of the real funds, for themaintenance of labour, whether stationary, progressive, or retrograde. Instead, however, ofconsideringit in this light,weconsider itassomethingwhichwemayraiseordepressatpleasure,somethingwhichdependsprincipallyonhismajesty'sjusticesofthepeace.Whenanadvanceinthepriceofprovisionsalreadyexpressesthatthedemandistoogreatforthesupply,inordertoputthelabourerinthesameconditionasbefore,weraisethepriceoflabour,thatis,weincreasethedemand,andarethenmuchsurprised,thatthepriceofprovisionscontinuesrising.Inthis,weactmuchinthesamemanner,asif,whenthequicksilverinthecommonweatherglass,stoodatstormy,weweretoraise it by some forcible pressure to settled fair, and then be greatly astonished that it continuedraining."

"Thepriceoflabourwillexpress,clearly,thewantsofthesocietyrespectingpopulation;"itwillbejustsufficienttosupportthepopulation,whichatthattimethestateofthefundsforthemaintenanceoflabourers, requires. If the labourer's wages were before only adequate to supply the requisitepopulation,theywill,afterthetax,beinadequatetothatsupply,forhewillnothavethesamefundstoexpend on his family. Labourwill therefore rise, because the demand continues, and it is only byraisingtheprice,thatthesupplyisnotchecked.

Nothing ismorecommon, than to seehatsormalt risewhen taxed; they risebecause the requisitesupplywouldnotbeaffordediftheydidnotrise:sowithlabour,whenwagesaretaxed,itspricerises,because,ifitdidnot,therequisitepopulationwouldnotbekeptup.DoesnotMr.Buchananallowallthatiscontendedfor,whenhesays,that"werehe(thelabourer)indeedreducedtoabareallowanceofnecessaries, he would then suffer no further abatement of his wages, as he could not on suchconditionscontinuehis race?"Suppose thecircumstancesof thecountry tobesuch, that the lowestlabourersarenotonlycalledupontocontinuetheirrace,buttoincreaseit;theirwageswouldhavebeen regulated accordingly.Can theymultiply, if a tax takes from thema part of theirwages, andreducesthemtobarenecessaries?

Itisundoubtedlytrue,thatataxedcommoditywillnotriseinproportiontothetax,ifthedemandforitwilldiminish,andifthequantitycannotbereduced.Ifmetallicmoneywereingeneraluse,itsvaluewould not for a considerable time be increased by a tax, in proportion to the amount of the tax,becauseatahigherprice,thedemandwouldbediminished,andthequantitywouldnotbediminished;and unquestionably the same cause frequently influences the wages of labour, the number oflabourerscannotberapidly increasedordiminishedinproportionto the increaseordiminutionofthe fund, which is to employ them; but in the case supposed, there is no necessary diminution ofdemand for labour, and if diminished, the demand does not abate in proportion to the tax. Mr.Buchanan forgets that the fund raised by the tax is employed by Government in maintaininglabourers,unproductiveindeed,butstilllabourers.Iflabourwerenottorisewhenwagesaretaxed,therewould be a great increase in the competition for labour, because the owners of capital,whowould have nothing to pay towards such a tax,would have the same funds for imploying labour;whilst theGovernmentwho received the taxwould have an additional fund for the same purpose.Governmentandthepeoplethusbecomecompetitors,andtheconsequenceoftheircompetitionisarise in the price of labour. The same number of men only will be employed, but they will be

employedatadditionalwages.

If the taxhadbeenlaidatonceonthepeople, their fundfor themaintenanceof labourwouldhavebeen diminished in the very same degree that the fund of Government for that purpose had beenincreased;andthereforetherewouldhavebeennoriseinwages;forthoughtherewouldbethesamedemand,therewouldnotbethesamecompetition.Ifwhenthetaxwerelevied,Governmentatonceexportedtheproduceofitasasubsidytoaforeignstate,andifthereforethesefundsweredevotedtothemaintenance of foreign, and not ofEnglish labourers, such as soldiers, sailors,&c.&c.; then,indeed,therewouldbeadiminisheddemandforlabour,andwagesmightnotincreasealthoughtheyweretaxed;butthesamethingwouldhappenifthetaxhadbeenlaidonconsumablecommodities,ontheprofitsofstock,orifinanyothermannerthesamesumhadbeenraisedtosupplythissubsidy:lesslabourcouldbeemployedathome.Inonecasewagesarepreventedfromrising,intheothertheymust absolutely fall. But suppose the amount of a tax on wages were, after being raised on thelabourers, paid gratuitously to their employers, it would increase their money fund for themaintenanceoflabour,butitwouldnotincreaseeithercommoditiesorlabour.Itwouldconsequentlyincreasethecompetitionamongsttheemployersoflabour,andthetaxwouldbeultimatelyattendedwithno losseither tomasteror labourer.Themasterwouldpayan increasedprice for labour; theaddition which the labourer received would be paid as a tax to Government, and would be againreturnedtothemasters.Itmusthowevernotbeforgottenthattheproduceoftaxesisoftenwastefullyexpended, and that by diminishing capital they tend to diminish the real fund destined for themaintenanceoflabour;andthereforetodiminishtherealdemandforit.Taxesthen,generally,asfaras they impair the realcapitalof thecountry,diminish thedemandfor labour,and therefore it is aprobable,butnotanecessary,norapeculiarconsequenceofataxonwages,thatthoughwageswouldrise,theywouldnotrisebyasumpreciselyequaltothetax.

AdamSmith,aswehaveseen,hasfullyallowedthat theeffectofa taxonwageswouldbetoraisewages by a sum at least equal to the tax, and would be finally, if not immediately, paid by theemployeroflabour.Thusfarwefullyagree;butweessentiallydifferinourviewsofthesubsequentoperationofsuchatax.

"A direct tax upon thewages of labour, therefore," saysAdamSmith, "though the labourermightperhapspayitoutofhishand,couldnotproperlybesaidtobeevenadvancedbyhim;atleastifthedemandforlabourandtheaveragepriceofprovisionsremainedthesameafterthetaxasbeforeit.Inallsuchcases,notonlythetax,butsomethingmorethanthetax,wouldinrealitybeadvancedbytheperson who immediately employed him. The final payment would in different cases fall upondifferentpersons.The risewhichsucha taxmightoccasion in thewagesofmanufacturing labour,wouldbeadvancedbythemastermanufacturer,whowouldbeentitledandobligedtochargeitwithaprofit,uponthepriceofhisgoods.Therisewhichsuchataxmightoccasionincountrylabourwouldbeadvancedbythefarmer,who,inordertomaintainthesamenumberoflabourersasbefore,wouldbe obliged to employ a greater capital. In order to get back this greater capital, together with theordinaryprofitsofstock,itwouldbenecessarythatheshouldretainalargerportion,orwhatcomestothesamething,thepriceofalargerportionoftheproduceoftheland,andconsequentlythatheshouldpaylessrenttothelandlord.Thefinalpaymentofthisriseofwages,therefore,wouldinthiscasefalluponthelandlord,togetherwiththeadditionalprofitsofthefarmerwhohadadvancedit.Inall cases a direct tax upon the wages of labour must, in the long run, occasion both a greaterreductionintherentofland,andagreaterriseinthepriceofmanufacturedgoods,thanwouldhavefollowed,fromtheproperassessmentofasumequaltotheproduceofthetax,partlyupontherentofland,andpartlyuponconsumablecommodities."Vol.iii.p.337.Inthispassageitisassertedthatthe

additionalwagespaidbyfarmerswillultimatelyfallonthelandlords,whowillreceiveadiminishedrent; but that the additional wages paid by manufacturers will occasion a rise in the price ofmanufacturedgoods,andwillthereforefallontheconsumersofthosecommodities.

Nowsupposeasocietytoconsistoflandlords,manufacturers,farmers,andlabourers.Thelabourers,itisagreed,wouldberecompensedforthetax;—butbywhom?—whowouldpaythatportionwhichdid not fall on the landlords?—themanufacturers could pay no part of it; for if the price of theircommodities should rise inproportion to theadditionalwages theypaid, theywouldbe inabettersituationafterthanbeforethetax.Iftheclothier,thehatter,theshoemaker,&c.,shouldbeeachabletoraisethepriceoftheirgoods10percent.,—supposing10percent. torecompensethemcompletelyfortheadditionalwagestheypaid,—if,asAdamSmithsays,"theywouldbeentitledandobligedtochargetheadditionalwageswithaprofituponthepriceoftheirgoods,"theycouldeachconsumeasmuchasbeforeofeachother'sgoods,and therefore theywouldpaynothing towards the tax. If theclothierpaidmoreforhishatsandshoes,hewouldreceivemoreforhiscloth,andifthehatterpaidmoreforhisclothandshoes,hewouldreceivemoreforhishats.Allmanufacturedcommoditiesthenwould be bought by themwith asmuch advantage as before, and inasmuch as cornwould not beraisedinpricewhilsttheyhadanadditionalsumtolayoutuponitspurchase,theywouldbebenefited,andnotinjuredbysuchatax.

Ifthenneitherthelabourersnorthemanufacturerswouldcontributetowardssuchatax;ifthefarmerswouldbealsorecompensedbyafallofrent,landlordsalonemustnotonlybearitswholeweight,butthey must also contribute to the increased gains of the manufacturers. To do this, however, theyshouldconsumeallthemanufacturedcommoditiesinthecountry,fortheadditionalpricechargedonthewholemassislittlemorethanthetaxoriginallyimposedonthelabourersinmanufactures.

Nowitwillnotbedisputedthattheclothier,thehatter,andallothermanufacturers,areconsumersofeach other's goods; it will not be disputed that labourers of all descriptions consume soap, cloth,shoes, candles, andvarious other commodities: it is therefore impossible that thewholeweight ofthesetaxesshouldfallonlandlordsonly.

But if the labourerspaynopartof the tax,andyetmanufacturedcommodities rise inprice,wagesmust rise, not only to compensate them for the tax, but for the increased price of manufacturednecessaries,which,asfarasitaffectsagriculturallabour,willbeanewcauseforthefallofrent;and,asfarasitaffectsmanufacturinglabour,forafurtherriseinthepriceofgoods.Thisriseinthepriceofgoodswillagainoperateonwages,andtheactionandre-action,firstofwagesongoods,andthenof goods on wages, will be extended without any assignable limits. The arguments by which thistheoryissupported,leadtosuchabsurdconclusionsthatitmayatoncebeseenthattheprincipleiswhollyindefensible.

Alltheeffectswhichareproducedontheprofitsofstockandthewagesoflabour,byariseofrentandariseofnecessaries,inthenaturalprogressofsociety,andincreasingdifficultyofproduction,willbeproducedbyariseofwagesinconsequenceoftaxation;andthereforetheenjoymentsofthelabourer, as well as those of his employers, will be curtailed by the tax; and not by this taxparticularly,butbyanyotherwhichshouldraiseanequalamount.

TheerrorofAdamSmithproceedsinthefirstplacefromsupposing,thatalltaxespaidbythefarmermustnecessarily fallon the landlord, in the shapeof adeduction from rent.On this subject Ihaveexplainedmyselfmost fully,andI trust that ithasbeenshewn, to thesatisfactionof thereader, thatsincemuchcapitalisemployedonthelandwhichpaysnorent,andsinceitistheresultobtainedbythis capital which regulates the price of raw produce, no deduction can be made from rent; andconsequentlyeitherno remunerationwillbemade to the farmer fora taxonwages,or ifmade, itmustbemadebyanadditiontothepriceofrawproduce.

Iftaxespressunequallyonthefarmer,hewillbeenabledtoraisethepriceofrawproduce,toplacehimselfonalevelwiththosewhocarryonothertrades;butataxonwages,whichwouldnotaffecthimmorethanitwouldaffectanyothertrade,couldnotberemovedorcompensatedbyahighpriceofrawproduce;for,thesamereasonwhichshouldinducehimtoraisethepriceofcorn,namely,toremuneratehimselfforthetax,wouldinducetheclothiertoraisethepriceofcloth,theshoemaker,hatter,andupholsterer,toraisethepriceofshoes,hats,andfurniture.

Iftheycouldallraisethepriceoftheirgoods,soastoremuneratethemselves,withaprofit,forthetax;astheyareallconsumersofeachother'scommodities,itisobviousthatthetaxcouldneverbepaid;forwhowouldbethecontributorsifallwerecompensated?

IhopethenthatIhavesucceededinshewing,thatanytaxwhichshallhavetheeffectofraisingwages,willbepaidbyadiminutionofprofits,andthereforethatataxonwagesisinfactataxonprofits.

Thisprincipleofthedivisionoftheproduceoflabourandcapitalbetweenwagesandprofits,whichIhaveattemptedtoestablish,appearstomesocertain,thatexceptingintheimmediateeffects,Ishouldthinkitoflittleimportancewhethertheprofitsofstock,orthewagesoflabour,weretaxed.Bytaxingthe profits of stock, you would probably alter the rate at which the funds for themaintenance oflabourincrease,andwageswouldbedisproportionedtothestateofthatfund,bybeingtoohigh.Bytaxingwages,therewardpaidtothelabourerwouldalsobedisproportionedtothestateofthatfund,bybeing too low. In theonecasebya fall, and in theotherbya rise inmoneywages, thenaturalequilibriumbetweenprofitsandwageswouldberestored.Ataxonwagesthendoesnotfallonthelandlord,butitfallsontheprofitsofstock:itdoesnot"entitleandobligethemastermanufacturertochargeitwithaprofitonthepricesofhisgoods,"forhewillbeunabletoincreasetheirprice,andthereforehemusthimselfwhollyandwithoutcompensationpaysuchatax.16

If theeffectof taxesonwagesbesuchasIhavedescribed, theydonotmerit thecensurecastuponthembyDr. Smith.He observes of such taxes, "These, and someother taxes of the same kind, byraisingthepriceoflabour,aresaidtohaveruinedthegreaterpartof themanufacturesofHolland.Similar taxes, though not quite so heavy, take place in theMilanese, in the states ofGenoa, in theduchyofModena,intheduchiesofParma,Placentia,andGuastalla,andintheecclesiasticalstates.AFrenchauthorofsomenote,hasproposedtoreformthefinancesofhiscountry,bysubstitutingintheroomofothertaxes,thismostruinousofalltaxes.'Thereisnothingsoabsurd,'saysCicero,'whichhasnotsometimesbeenassertedbysomephilosophers.'"Andinanotherplacehesays:"taxesuponnecessaries,by raising thewagesof labour,necessarily tend to raise thepriceofallmanufactures,

and consequently to diminish the extent of their sale and consumption."Theywouldnotmerit thiscensure; even if Dr. Smith's principle were correct that such taxes would enhance the prices ofmanufacturedcommodities;forsuchaneffectcouldbeonlytemporary,andwouldsubjectustonodisadvantage in our foreign trade. If any cause should raise the price of a few manufacturedcommodities,itwouldpreventorchecktheirexportation;butifthesamecauseoperatedgenerallyonall,theeffectwouldbemerelynominal,andwouldneitherinterferewiththeirrelativevalue,norinany degree diminish the stimulus to a trade of barter; which all commerce, both foreign anddomestic,reallyis.

Ihavealreadyattemptedtoshew,thatwhenanycauseraisesthepricesofallcommoditiesingeneral,theeffectsarenearlysimilartoafallinthevalueofmoney.Ifmoneyfallsinvalue,allcommoditiesrise inprice;and if theeffect isconfined toonecountry, itwillaffect its foreigncommerce in thesamewayasahighpriceofcommoditiescausedbygeneraltaxation;andthereforeinexaminingtheeffectsofalowvalueofmoneyconfinedtoonecountry,wearealsoexaminingtheeffectsofahighprice of commodities confined to one country. Indeed Adam Smith was fully aware of theresemblancebetweenthesetwocases,andconsistentlymaintainedthatthelowvalueofmoney,or,ashe calls it, of silver in Spain, in consequence of the prohibition against its exportation, was veryhighlyprejudicial tothemanufacturesandforeigncommerceofSpain."But thatdegradationinthevalueofsilver,whichbeingtheeffecteitherofthepeculiarsituation,orofthepoliticalinstitutionsofaparticularcountry,takesplaceonlyinthatcountry,isamatterofverygreatconsequence,which,farfromtendingtomakeanybodyreallyricher,tendstomakeeverybodyreallypoorer.Theriseinthemoney price of all commodities,which is in this case peculiar to that county, tends to discouragemoreor lesseverysortof industrywhich iscarriedonwithin it,and toenableforeignnations,byfurnishingalmostallsortsofgoodsforasmallerquantityofsilverthanitsownworkmencanaffordtodo,toundersellthemnotonlyintheforeign,buteveninthehomemarket."Vol.ii.page278.

One,andIthinktheonlyoneofthedisadvantagesofalowvalueofsilverinacountry,proceedingfromaforcedabundance,hasbeenablyexplainedbyDr.Smith.Ifthetradeingoldandsilverwerefree,"thegoldandsilverwhichwouldgoabroad,wouldnotgoabroadfornothing,butwouldbringbackanequalvalueofgoodsofsomekindoranother.Thosegoodstoowouldnotbeallmattersofmere luxuryandexpense, tobeconsumedby idlepeople,whoproducenothing in return for theirconsumption. As the real wealth and revenue of idle people would not be augmented by thisextraordinaryexportationofgoldandsilver,sowouldneithertheirconsumptionbeaugmentedbyit.Thosegoodswould,probably thegreaterpartof them,andcertainlysomepartof them,consist inmaterials, tools, and provisions, for the employment andmaintenance of industrious people, whowould reproducewithaprofit, the fullvalueof their consumption.Apartof thedead stockof thesociety would thus be turned into active stock, and would put into motion a greater quantity ofindustrythanhadbeenemployedbefore."

Bynotallowingafreetradeinthepreciousmetalswhenthepricesofcommoditiesareraised,eitherbytaxation,orbytheinfluxofthepreciousmetals,youpreventapartofthedeadstockofthesocietyfrombeingturnedintoactivestock—youpreventagreaterquantityofindustryfrombeingemployed.Butthisisthewholeamountoftheevil;anevilneverfeltbythosecountrieswheretheexportationofsilveriseitherallowedorconnivedat.

Theexchangesbetweencountriesareatparonly,whilsttheyhavepreciselythatquantityofcurrencywhich in the actual situation of things they should have to carry on the circulation of theircommodities. If the trade in thepreciousmetalswereperfectly free, andmoneycouldbeexported

withoutanyexpensewhatever,theexchangescouldbenootherwiseineverycountrythanatpar.Ifthetradeinthepreciousmetalswereperfectlyfree,iftheyweregenerallyusedincirculation,evenwiththeexpensesoftransportingthem,theexchangecouldneverinanyofthemdeviatemorefrompar,thanbytheseexpenses.TheseprinciplesIbelievearenownowheredisputed.Ifacountryusedpapermoneynotexchangeableforspecie,andthereforenotregulatedbyanyfixedstandard,theexchangesinthatcountrymightdeviateasmuchfrompar,asitsmoneymightbemultipliedbeyondthatquantitywhichwouldhavebeenallottedtoitbygeneralcommerce,ifthetradeinmoneyhadbeenfree,andthepreciousmetalshadbeenused,eitherformoney,orforthestandardofmoney.

If by thegeneral operationsof commerce, 10millionsof pounds sterling, of a knownweight andfineness of bullion, should be the portion of England, and 10 millions of paper pounds weresubstituted,noeffectwouldbeproducedontheexchange;butifbytheabuseofthepowerofissuingpapermoney,11millionsofpoundsshouldbeemployedinthecirculation,theexchangewouldbe9percent.againstEngland;if12millionswereemployed,theexchangewouldbe16percent.;andif20millions, the exchangewould be 50 per cent. against England. To produce this effect it is nothowevernecessary thatpapermoney shouldbeemployed: anycausewhich retains incirculationagreaterquantityofpoundsthanwouldhavecirculated,ifcommercehadbeenfree,andthepreciousmetalsofaknownweightandfinenesshadbeenused,eitherformoney,orforthestandardofmoney,would exactly produce the same effects. Suppose that by clipping the money, each pound did notcontainthequantityofgoldorsilverwhichbylawitshouldcontain,agreaternumberofsuchpoundsmightbeemployedinthecirculation,thaniftheywerenotclipped.Iffromeachpoundonetenthweretakenaway,11millionsofsuchpoundsmightbeusedinsteadof10;iftwotenthsweretakenaway,12millions might be employed; and if one half were taken away, 20 millions might not be foundsuperfluous.Ifthelattersumwereusedinsteadof10millions,everycommodityinEnglandwouldberaised todouble its formerprice,and theexchangewouldbe50percent.againstEngland,but thiswould occasion no disturbance in foreign commerce, nor discourage themanufacture of any onecommodity.Ifforexample,clothroseinEnglandfrom20l.to40l.perpiece,weshouldjustasfreelyexport it afterasbefore the rise, foracompensationof50percent.wouldbemade to the foreignpurchaser in the exchange; so that with 20l. of his money, he could purchase a bill which wouldenablehimtopayadebtof40l. inEngland.Inthesamemannerifheexportedacommoditywhichcost20l.athome,andwhichsoldinEnglandfor40l.hewouldonlyreceive20l.,for40l.inEnglandwould only purchase a bill for 20l. on a foreign country. The same effects would follow fromwhatevercause20millionscouldbeforcedtoperformthebusinessofcirculationinEngland,if10millionsonlywerenecessary.Ifsoabsurdalaw,astheprohibitionoftheexportationofthepreciousmetals,couldbeenforced,andtheconsequenceofsuchprohibitionweretoforce11millionsinsteadof10intocirculation,theexchangewouldbe9percent.againstEngland;if12millions,16percent.;and if 20 millions, 50 per cent. against England. But no discouragement would be given to themanufacturesofEngland; ifhomecommodities soldat ahighprice inEngland, sowould foreigncommodities; and whether they were high or low would be of little importance to the foreignexporterandimporter,whilsthewould,ontheonehand,beobligedtoallowacompensationintheexchangewhenhiscommoditiessoldatadearrate,andwouldreceivethesamecompensation,whenhewasobligedtopurchaseEnglishcommoditiesatahighprice.Thesoledisadvantagethenwhichcouldhappentoacountryfromretainingbyprohibitorylawsagreaterquantityofgoldandsilverincirculation than would otherwise remain there, would be the loss which it would sustain fromemployingaportionofitscapitalunproductively,insteadofemployingitproductively.Intheformofmoney this capital is productive of no profit; in the form ofmaterials, machinery, and food, forwhichitmightbeexchanged,itwouldbeproductiveofrevenue,andwouldaddtothewealthandthe

resourcesofthestate.ThusthenIhopeIhavesatisfactorilyproved,thatacomparativelylowpriceofthe precious metals, in consequence of taxation, or in other words, a generally high price ofcommodities, would be of no disadvantage to a state, as a part of the metals would be exported,which,byraisingtheirvalue,wouldagainlowerthepricesofcommodities.Andfurther,thatiftheywere not exported, if by prohibitory laws they could be retained in a country, the effect on theexchangewouldcounterbalancetheeffectofhighprices.If thentaxesonnecessariesandonwageswould not raise the prices of all commodities on which labour was expended, they cannot becondemnedonsuchgrounds;andmoreover,eveniftheopinionthattheywouldhavesuchaneffectwerewellfounded,theywouldbeinnodegreeinjuriousonthataccount.

It is undoubtedly true, that "taxes upon luxuries have no tendency to raise the price of any othercommodities,exceptthatofthecommoditiestaxed;"butitisnottrue,thattaxesuponnecessaries,byraising thewagesof labour, necessarily tend to raise thepriceof allmanufactures." It is true, that"taxes upon luxuries are finally paid by the consumers of the commodities taxed, without anyretribution.Theyfallindifferentlyuponeveryspeciesofrevenue,thewagesoflabour,theprofitsofstock, and the rentof land;"but it isnot true, "that taxesuponnecessariesso faras theyaffect thelabouringpoor,arefinallypaidpartlybylandlordsinthediminishedrentoftheirlands,andpartlybyrichconsumers,whetherlandlordsorothers, intheadvancedpriceofmanufacturedgoods;"forsofarasthesetaxesaffectthelabouringpoor,theywillbealmostwhollypaidbythediminishedprofitsof stock, a small part only being paid by the labourers themselves in the diminished demand forlabour,whichtaxationofeverykindhasatendencytoproduce.

It is from Dr. Smith's erroneous view of the effect of those taxes, that he has been led to theconclusion, that "themiddling and superior ranks of people, if they understood their own interest,ought always to oppose all taxes upon the necessaries of life, aswell as all direct taxes upon thewagesof labour."Thisconclusion follows fromhis reasoning,"that the finalpaymentofbothoneandtheotherfallsaltogetheruponthemselves,andalwayswithaconsiderableovercharge.Theyfallheaviest upon the landlords, who always pay in a double capacity; in that of landlords, by thereduction of their rent, and in that of rich consumers, by the increase of their expense. TheobservationofSirMatthewDecker, that certain taxes are in theprice of certain goods, sometimesrepeated and accumulated four or five times, is perfectly just with regard to taxes upon thenecessariesoflife.Inthepriceofleather,forexample,youmustpay,notonlyforthetaxupontheleatherofyourownshoes,butforapartofthatuponthoseoftheshoemakerandthetanner.Youmustpaytooforthetaxuponthesalt,uponthesoap,anduponthecandles,whichthoseworkmenconsumewhile employed in your service, and for the tax upon the leather, which the salt-maker, the soap-maker,andthecandle-makerconsume,whileemployedintheirservice."

NowasDr.Smithdoesnot contend that the tanner, the salt-maker, the soap-maker, and the candle-maker, will either of them be benefited by the tax on leather, salt, soap, and candles; and as it iscertain,thatgovernmentwillreceivenomorethanthetaximposed,itisimpossibletoconceive,thatmore can be paid by the public uponwhomsoever the taxmay fall. The rich consumersmay, andindeedwill,payforthepoorconsumer,buttheywillpaynomorethanthewholeamountofthetax;and it is not in the nature of things, that "the tax should be repeated and accumulated four or fivetimes."

Asystemoftaxationmaybedefective;moremayberaisedfromthepeople,thanwhatfindsitswayintothecoffersofthestate,asapart,inconsequenceofitseffectonprices,maypossiblybereceivedbythose,whoarebenefitedbythepeculiarmodeinwhichtaxesarelaid.Suchtaxesarepernicious,

andshouldnotbeencouraged;foritmaybelaiddownasaprinciple,thatwhentaxesoperatejustly,theyconformtothefirstofDr.Smith'smaxims,andraisefromthepeopleaslittleaspossiblebeyondwhat enters into the public treasury of the state. M. Say says, "others offer plans of finance, andproposemeansforfillingthecoffersofthesovereign,withoutanychargetohissubjects.Butunlessaplanoffinanceisofthenatureofacommercialundertaking,itcannotgivegovernmentmorethanittakesaway,eitherfromindividuals,orfromgovernmentitself,undersomeotherform.Somethingcannot be made out of nothing, by the stroke of a wand. In whatever way an operation may bedisguised,whateverformswemayconstrainavaluetotake,whatevermetamorphosiswemaymakeitundergo,wecanonlyhaveavaluebycreatingit,orbytakingitfromothers.Theverybestofallplansoffinanceistospendlittle,andthebestofalltaxesis,thatwhichistheleastinamount."

Dr. Smith uniformly, and I think justly, contends, that the labouring classes cannot materiallycontributetotheburdensofthestate.Ataxonnecessaries,oronwages,willthereforebeshiftedfromthepoortotherich:ifthen,themeaningofDr.Smithis,"thatcertaintaxesareinthepriceofcertaingoods sometimes repeated, and accumulated four or five times," for the purpose only ofaccomplishingthisend,namely,thetransferenceofthetaxfromthepoortotherich,theycannotbeliabletocensureonthataccount.

Supposethejustshareofthetaxesofarichconsumertobe100l.,andthathewouldpayitdirectly,ifthe taxwere laidon income,onwine,oron anyother luxury,hewould sufferno injury if by thetaxation of necessaries, he should be only called upon for the payment of 25l., as far as his ownconsumptionofnecessaries,and thatofhis familywasconcerned,butshouldberequired torepeatthistaxthreetimes,bypayinganadditionalpriceforothercommoditiestoremuneratethelabourers,or their employers, for the taxwhich theyhavebeencalledupon to advance.Even in that case thereasoningisinconclusive:foriftherebenomorepaidthanwhatisrequiredbyGovernment;ofwhatimportance can it be to the rich consumer,whetherhepay the taxdirectly, bypayingan increasedpriceforanobjectofluxury,orindirectly,bypayinganincreasedpriceforthenecessariesandothercommoditiesheconsumes?Ifmorebenotpaidbythepeople,thanwhatisreceivedbyGovernment,therichconsumerwillonlypayhisequitableshare;ifmoreispaid,AdamSmithshouldhavestatedbywhomitisreceived.

M. Say does not appear tome to have consistently adhered to the obvious principle,which I havequotedfromhisablework;forinthenextpage,speakingoftaxation,hesays,"Whenitispushedtoofar,itproduces this lamentableeffect, itdeprives thecontributorofaportionofhisriches,withoutenriching the state. This is what we may comprehend, if we consider that every man's power ofconsuming,whetherproductivelyornot, is limitedbyhis income.Hecannot thenbedeprivedofapartofhisincome,withoutbeingobligedproportionallytoreducehisconsumption.Hencearisesadiminutionofdemandforthosegoods,whichhenolongerconsumes,andparticularlyforthoseonwhichthetaxisimposed.Fromthisdiminutionofdemand,thereresultsadiminutionofproduction,andconsequentlyoftaxablecommodities.Thecontributorthenwillloseaportionofhisenjoyments;theproducer,aportionofhisprofits;andthetreasury,aportionofitsreceipts."

M.SayinstancesthetaxonsaltinFrance,previoustotherevolution;which,hesays,diminishedtheproduction of salt by one half. If, however, less salt was consumed, less capital was employed inproducingit;andtherefore,thoughtheproducerwouldobtainlessprofitsontheproductionofsalt,hewouldobtainmoreontheproductionofotherthings.Ifatax,howeverburdensomeitmaybe,fallsonrevenue,andnotoncapital,itdoesnotdiminishdemand,itonlyaltersthenatureofit.ItenablesGovernmenttoconsumeasmuchoftheproduceofthelandandlabourofthecountry,aswasbefore

consumedbytheindividualswhocontributetothetax.Ifmyincomeis1000l.perannum,andIamcalleduponfor100l.perannumforatax,Ishallonlybeabletodemandninetenthsofthequantityofgoods, which I before consumed, but I enable Government to demand the other tenth. If thecommodity taxed be corn, it is not necessary thatmy demand for corn should diminish, as Imayprefertopay100l.perannummoreformycorn,and to thesameamountabate inmydemandforwine, furniture, or any other luxury.17 Less capital will consequently be employed in thewine orupholsterytrade,butmorewillbeemployedinmanufacturingthosecommodities,onwhichthetaxesleviedbyGovernmentwillbeexpended.

M.SaysaysthatM.Turgot,byreducingthemarketduesonfish(lesdroitsd'entréeetdehallesurlamarée) in Paris one half, did not diminish the amount of their produce, and that consequently, theconsumption of fishmust have doubled.He infers from this, that the profits of the fisherman andthose engaged in the trade,must also have doubled, and that the income of the countrymust haveincreased,bythewholeamountoftheseincreasedprofits;andbygivingastimulustoaccumulation,musthaveincreasedtheresourcesofthestate.18

Withoutcallinginquestionthepolicy,whichdictatedthisalterationofthetax,Imaybepermittedtodoubtwhetheritgaveanygreatstimulustoaccumulation.If theprofitsofthefishermanandothersengagedinthetrade,weredoubledinconsequenceofmorefishbeingconsumed,capitalandlabourmusthavebeenwithdrawnfromotheroccupationstoengagetheminthisparticulartrade.Butinthoseoccupationscapitalandlabourwereproductiveofprofits,whichmusthavebeengivenupwhentheywere withdrawn. The ability of the country to accumulate was only increased by the differencebetween the profits obtained in the business in which the capital was newly engaged, and thoseobtainedinthatfromwhichitwaswithdrawn.

Whethertaxesbetakenfromrevenueorcapital,theydiminishthetaxablecommoditiesofthestate.IfIceasetoexpend100l.onwine,becausebypayingataxofthatamountIhaveenabledGovernmenttoexpend 100l. instead of expending itmyself, one hundred poundsworth of goods are necessarilywithdrawnfromthelistoftaxablecommodities.Iftherevenueoftheindividualsofacountrybe10millions, theywill have at least 10millionsworthof taxable commodities. If by taxing some, onemillion be transferred to the disposal of Government, their revenue will still be nominally 10millions,but theywill remainwithonlyninemillionsworthof taxablecommodities.Therearenocircumstances under which taxation does not abridge the enjoyments of those on whom the taxesultimatelyfall,andnomeansbywhichthoseenjoymentscanagainbeextended,buttheaccumulationofnewrevenue.

Taxationcanneverbe so equally applied, as tooperate in the sameproportionon thevalueof allcommodities, and still to preserve them at the same relative value. It frequently operates verydifferentlyfromtheintentionofthelegislature,byitsindirecteffects.Wehavealreadyseen,thattheeffectofadirecttaxoncornandrawproduce,is,ifmoneybealsoproducedinthecountry,toraisethepriceofallcommodities,inproportionasrawproduceentersintotheircomposition,andtherebytodestroythenaturalrelationwhichpreviouslyexistedbetweenthem.Anotherindirecteffectis,thatitraiseswages,andlowerstherateofprofits;andwehavealsoseen,inanotherpartofthiswork,thattheeffectofariseofwages,andafallofprofits,istolowerthemoneypricesofthosecommoditieswhichareproducedinagreaterdegreebytheemploymentoffixedcapital.

Thatacommoditywhentaxedcannolongerbesoprofitablyexported,issowellunderstood,thatadrawback is frequently allowed on its exportation, and a duty laid on its importation. If these

drawbacksanddutiesbeaccurately laid,notonlyon thecommodities themselves,butonallwhichtheymayindirectlyaffect,thenindeedtherewillbenodisturbanceinthevalueofthepreciousmetals.Sincewe could as readily export a commodity after being taxed as before, and since no peculiarfacilitywouldbegiventoimportation,thepreciousmetalswouldnot,morethanbefore,enterintothelistofexportablecommodities.

Of all commodities, none are perhaps so proper for taxation, as thosewhich either by the aid ofnatureorart,areproducedwithpeculiarfacility.Withrespecttoforeigncountries,suchcommoditiesmaybeclassedundertheheadofthosewhicharenotregulatedintheirpricebythequantityoflabourbestowed,butratherbythecaprice,thetastes,andthepowerofthepurchasers.IfEnglandhadmoreproductive tinmines than other countries, or if from superiormachinery or fuel she had peculiarfacilitiesinmanufacturingcottongoods,thepricesoftin,andofcottongoodswouldstillinEnglandbe regulated by the comparative quantity of labour and capital required to produce them, and thecompetition of our merchants would make them very little dearer to the foreign consumer. Ouradvantageintheproductionofthesecommoditiesmightbesodecided,thatprobablytheycouldbeara very great additional price in the foreign market, without very materially diminishing theirconsumption.Thisprice theynevercouldattain,whilstcompetitionwasfreeathome,byanyothermeansbutbyataxontheirexportation.Thistaxwouldfallwhollyonforeignconsumers,andpartoftheexpensesof theGovernmentofEnglandwouldbedefrayed,bya taxon the landand labourofothercountries.Thetaxontea,whichatpresentispaidbythepeopleofEngland,andgoestoaidtheexpenses of theGovernment of England,might, if laid inChina, on the exportation of the tea, bedivertedtothepaymentoftheexpensesoftheGovernmentofChina.

Taxes on luxuries have some advantage over taxes on necessaries. They are generally paid fromincome,andthereforedonotdiminishtheproductivecapitalofthecountry.Ifwineweremuchraisedinpriceinconsequenceoftaxation,itisprobablethatamanwouldratherforegotheenjoymentsofwine,thanmakeanyimportantencroachmentsonhiscapital,tobeenabledtopurchaseit.Theyaresoidentifiedwithprice, that thecontributor ishardlyaware thathe ispayinga tax.But theyhavealsotheirdisadvantages.First, theynever reachcapital,andonsomeextraordinaryoccasions itmaybeexpedientthatevencapitalshouldcontributetowardsthepublicexigencies;andsecondly,thereisnocertaintyastotheamountofthetax,foritmaynotreachevenincome.Amanintentonsavingwillexempthimself froma taxonwine,bygivingup theuseof it.The incomeof the countrymaybeundiminished,andyetthestatemaybeunabletoraiseashillingbythetax.

Whateverhabithasrendereddelightful,willberelinquishedwithreluctance,andwillcontinuetobeconsumednotwithstandingaveryheavy tax;but this reluctancehas its limits,andexperienceeverydaydemonstrates thatan increase in thenominalamountof taxation,oftendiminishes theproduce.Onemanwillcontinuetodrinkthesamequantityofwine,thoughthepriceofeverybottleshouldberaisedthreeshillings,whowouldyetrelinquishtheuseofwineratherthanpayfour.Anotherwillbecontenttopayfour,yetrefusetopayfiveshillings.Thesamemaybesaidofothertaxesonluxuries:manywouldpayataxof5l.fortheenjoymentwhichahorseaffords,whowouldnotpay10l.or20l.Itisnotbecausetheycannotpaymore,thattheygiveuptheuseofwineandofhorses,butbecausetheywillnotpaymore.Everymanhassomestandardinhisownmindbywhichheestimatesthevalueofhisenjoyments,butthatstandardisasvariousasthehumancharacter.Acountrywhosefinancialsituationhasbecomeextremelyartificial,bythemischievouspolicyofaccumulatingalargenationaldebt,andaconsequentlyenormoustaxation,isparticularlyexposedtotheinconvenienceattendantonthismodeofraisingtaxes.Aftervisitingwithataxthewholeroundofluxuries;afterlayinghorses,carriages,wine,servants,andall theotherenjoymentsof therich,undercontribution;aminister is

disposedtoconcludethatthecountryisarrivedatthemaximumoftaxation,becausebyincreasingtherate,hecannot increase theamountofanyoneof these taxes.But in thisconclusionhewillnotbealways correct, for it is very possible that such a country could bear a very great addition to itsburdenswithoutinfringingontheintegrityofitscapital.

CHAPTERXV.

TAXESONOTHERCOMMODITIESTHANRAWPRODUCE.

ONthesameprinciplethatataxoncornwouldraisethepriceofcorn,ataxonanyothercommoditywouldraisethepriceofthatcommodity.If thecommoditydidnotrisebyasumequaltothetax,itwouldnotgivethesameprofittotheproducerwhichhehadbefore,andhewouldremovehiscapitaltosomeotheremployment.

Thetaxingofallcommodities,whethertheybenecessariesorluxuries,will,whilemoneyremainsatanunalteredvalue,raisetheirpricesbyasumatleastequaltothetax.19Ataxonthemanufacturednecessariesofthelabourerwouldhavethesameeffectonwagesasataxoncorn,whichdiffersfromother necessaries only by being the first and most important on the list; and it would producepreciselythesameeffectsontheprofitsofstockandforeigntrade.Butataxonluxurieswouldhaveno other effect than to raise their price. It would fall wholly on the consumer, and could neitherincreasewages,norlowerprofits.

Taxeswhichareleviedonacountryforthepurposeofsupportingwar,orfortheordinaryexpensesofthestate,andwhicharechieflydevotedtothesupportofunproductivelabourers,aretakenfromtheproductiveindustryofthecountry;andeverysavingwhichcanbemadefromsuchexpenseswillbegenerallyaddedtotheincome,ifnottothecapitalofthecontributors.Whenfortheexpensesofayear's war, twenty millions are raised by means of a loan, it is the twenty millions which arewithdrawnfromtheproductivecapitalofthenation.Themillionperannumwhichisraisedbytaxestopaytheinterestofthisloan,ismerelytransferredfromthosewhopayittothosewhoreceiveit,fromthecontributortothetaxtothenationalcreditor.Therealexpenseis thetwentymillions,andnot the interestwhichmustbepaidfor it.20Whetherthe interestbeorbenotpaid, thecountrywillneither be richer nor poorer. Governmentmight at once have required the twentymillions in theshapeoftaxes;inwhichcaseitwouldnothavebeennecessarytoraiseannualtaxestotheamountofamillion.Thishoweverwouldnothavechangedthenatureofthetransaction.Anindividualinsteadofbeingcalledupontopay100l.perannum,mighthavebeenobligedtopay2000l.onceforall.Itmightalsohavesuitedhisconveniencerathertoborrowthis2000l.,andtopay100l.perannumforinteresttothelender,thantosparethelargersumfromhisownfunds.InonecaseitisaprivatetransactionbetweenAandB,intheotherGovernmentguaranteestoBthepaymentoftheinteresttobeequallypaidbyA.Ifthetransactionhadbeenofaprivatenature,nopublicrecordwouldbekeptofit,anditwould be amatter of comparative indifference to the country whether A faithfully performed hiscontract toB, orunjustly retained, the100l. per annum in his ownpossession.The countrywouldhave a general interest in the faithful performance of a contract, but with respect to the nationalwealth,itwouldhavenootherinterestthanwhetherAorBwouldmakethis100l.mostproductive,butonthisquestionitwouldneitherhavetherightnortheabilitytodecide.Itmightbepossible,thatifAretaineditforhisownuse,hemightsquanderitunprofitably,andifitwerepaidtoB,hemightadd

it to his capital, and employ it productively. And the converse would also be possible, B mightsquanderit,andAmightemployitproductively.Withaviewtowealthonly, itmightbeequallyormoredesirablethatAshouldorshouldnotpayit;buttheclaimsofjusticeandgoodfaith,agreaterutility, arenot tobecompelled toyield to thoseofa less; andaccordingly, if the statewerecalledupontointerfere,thecourtsofjusticewouldobligeAtoperformhiscontract.Adebtguaranteedbythenation,differs inno respect from theabove transaction. Justiceandgood faithdemand that theinterest of the national debt should continue to be paid, and that those who have advanced theircapitalsforthegeneralbenefit,shouldnotberequiredtoforegotheirequitableclaims,onthepleaofexpediency.

Butindependentlyofthisconsideration,itisbynomeanscertain,thatpoliticalutilitywouldgainanythingbythesacrificeofpoliticalintegrity;itdoesbynomeansfollow,thatthepartyexoneratedfromthe payment of the interest of the national debt would employ it more productively than those towhomindisputablyitisdue.Bycancellingthenationaldebt,oneman'sincomemightberaisedfrom1000l.to1500l.,butanotherman'swouldbeloweredfrom1500l.to1000l.Thesetwomen'sincomenowamountto2500l.,theywouldamounttonomorethen.IfitbetheobjectofGovernmenttoraisetaxes,therewouldbepreciselythesametaxablecapitalandincomeinonecase,asintheother.Itisnotthenbythepaymentoftheinterestonthenationaldebtthatacountryisdistressed,norisitbytheexonerationfrompaymentthatitcanberelieved.Itisonlybysavingfromincome,andretrenchinginexpenditure,thatthenationalcapitalcanbeincreased;andneithertheincomewouldbeincreased,northeexpenditurediminishedbytheannihilationofthenationaldebt.ItisbytheprofuseexpenditureofGovernment, and of individuals, and by loans, that a country is impoverished; every measurethereforewhichiscalculatedtopromotepublicandprivateœconomywillrelievethepublicdistress;but it iserroranddelusion, tosuppose thata realnationaldifficultycanberemoved,byshifting itfrom the shouldersofoneclassof thecommunity,who justlyought tobear it, to the shouldersofanotherclass,whouponeveryprincipleofequityoughttobearnomorethantheirshare.FromwhatIhave said, itmustnotbe inferred that I consider the systemofborrowingas thebest calculated todefraytheextraordinaryexpensesofthestate.It isasystemwhichtendstomakeuslessthrifty—toblindustoourrealsituation.Iftheexpensesofawarbe40millionsperannum,andthesharewhichamanwouldhavetocontributetowardsthatannualexpensewere100l.,hewouldendeavour,onbeingatoncecalleduponforhisportion,tosavespeedilythe100l.fromhisincome.Bythesystemofloansheiscalledupontopayonlytheinterestofthis100l.,or5l.perannum,andconsidersthathedoesenoughbysavingthis5l.fromhisexpenditure,andthendeludeshimselfwiththebeliefthatheisasrichasbefore.Thewholenation,byreasoningandactinginthismanner,saveonlytheinterestof40millions, or two millions; and thus, not only lose all the interest or profit which 40 millions ofcapital, employed productively, would afford, but also 38 millions, the difference between theirsavingsandexpenditure.If,asIbeforeobserved,eachmanhadtomakehisownloan,andcontributehisfullproportiontotheexigenciesofthestate,assoonasthewarceased,taxationwouldcease,andweshouldimmediatelyfallintoanaturalstateofprices.Outofhisprivatefunds,AmighthavetopaytoBinterestforthemoneyheborrowedofhimduringthewar,toenablehimtopayhisquotaoftheexpense;butwith this thenationwouldhavenoconcern.Acountrywhichhasaccumulateda largedebtisplacedinamostartificialsituation;andalthoughtheamountoftaxes,andtheincreasedpriceof labour, may not, and I believe does not, place it under any other disadvantage with respect toforeign countries, except the unavoidable one of paying those taxes, yet it becomes the interest ofeverycontributortowithdrawhisshoulderfromtheburthen,andtoshiftthispaymentfromhimselftoanother;andthetemptationtoremovehimselfandhiscapitaltoanothercountry,wherehewillbeexempted from such burthens, becomes at last irresistible, and overcomes the natural reluctance

whicheverymanfeelstoquittheplaceofhisbirth,andthesceneofhisearlyassociations.Acountrywhich has involved itself in the difficulties attending this artificial system, would act wisely byransomingitselffromthem,atthesacrificeofanyportionofitspropertywhichmightbenecessaryto redeem its debt. That which is wise in an individual, is wise also in a nation. Aman who has10,000l., payinghiman incomeof 500l., out ofwhich he has to pay 100l. per annum towards theinterestofthedebt, isreallyworthonly8000l.,andwouldbeequallyrich,whetherhecontinuedtopay100l.perannum,oratonce,andforonlyonce,sacrificed2000l.Butwhere,itisasked,wouldbethe purchaser of the property which he must sell to obtain this 2000l.? The answer is plain: thenationalcreditor,who is to receive this2000l.,willwant an investment forhismoney, andwillbedisposedeithertolendittothelandholder,ormanufacturer,ortopurchasefromthemapartofthepropertyofwhichtheyhavetodispose.Tosuchaneffectthestockholdersthemselveswouldlargelycontribute.Suchaschemehasbeenoftenrecommended,butwehave,Ifear,neitherwisdomenough,norvirtueenough,toadoptit.Itmusthoweverbeadmitted,thatduringpeace,ourunceasingeffortsshouldbedirectedtowardspayingoffthatpartofthedebtwhichhasbeencontractedduringwar;andthatnotemptationofrelief,nodesireofescapefrompresent,andIhopetemporarydistresses,shouldinduceustorelaxinourattentiontothatgreatobject.Nosinkingfundcanbeefficientforthepurposeof diminishing thedebt, if it be not derived from the excess of thepublic revenueover thepublicexpenditure.Itistoberegretted,thatthesinkingfundinthiscountryisonlysuchinname;forthereisnoexcessofrevenueaboveexpenditure.Itoughtbyeconomy,tobemadewhatitisprofessedtobe,areallyefficientfundforthepaymentofthedebt.Ifonthebreakingoutofanyfuturewar,weshallnothaveveryconsiderablyreducedourdebt,oneoftwothingsmusthappen,eitherthewholeexpensesofthatwarmustbedefrayedbytaxesraisedfromyeartoyear,orwemust,attheendofthatwar,ifnotbefore,submittoanationalbankruptcy;notthatweshallbeunabletobearanylargeadditionstothedebt;itwouldbedifficulttosetlimitstothepowersofagreatnation;butassuredlytherearelimitstothe price,which in the formof perpetual taxation, individualswill submit to pay for the privilegemerelyoflivingintheirnativecountry.

Whenacommodityisatamonopolyprice,itisattheveryhighestpriceatwhichtheconsumersarewillingtopurchaseit.Commoditiesareonlyatamonopolyprice,whenbynopossibledevicetheirquantitycanbeaugmented;andwhentherefore,thecompetitioniswhollyononeside—amongstthebuyers.Themonopolypriceofoneperiodmaybemuchlowerorhigherthanthemonopolypriceofanother,becausethecompetitionamongstthepurchasersmustdependontheirwealth,andtheirtastesandcaprices.Thosepeculiarwines,whichareproducedinverylimitedquantity,andthoseworksofart,which from their excellence or rarity, have acquired a fanciful value,will be exchanged for averydifferentquantityoftheproduceofordinarylabour,accordingasthesocietyisrichorpoor,asitpossessesanabundanceorscarcityofsuchproduce,orasitmaybeinarudeorpolishedstate.Theexchangeablevaluethereforeofacommoditywhichisatamonopolyprice,isnowhereregulatedbythecostofproduction.

Rawproduce isnotatamonopolyprice,because themarketpriceofbarleyandwheat isasmuchregulatedbytheircostofproduction,asthemarketpriceofclothandlinen.Theonlydifferenceisthis,thatoneportionofthecapitalemployedinagricultureregulatesthepriceofcorn,namely,thatportionwhichpaysnorent;whereas,intheproductionofmanufacturedcommodities,everyportionofcapitalisemployedwiththesameresults;andasnoportionpaysrent,everyportionisequallyaregulatorofprice:corn,andotherrawproduce,canbeaugmentedtooinquantity,bytheemploymentofmore capital on the land, and therefore they are not at amonopoly price.There is competitionamongthesellers,aswellasamongstthebuyers.Thisisnotthecaseintheproductionofthoserarewines,andthosevaluablespecimensofart,ofwhichwehavebeenspeaking;theirquantitycannotbe

increased,andtheirpriceis limitedonlybytheextentofthepowerandwillofthepurchasers.Therentofthesevineyardsmayberaisedbeyondanymoderatelyassignablelimits,becausenootherlandbeingabletoproducesuchwines,nonecanbebroughtintocompetitionwiththem.

Thecornandrawproduceofacountry,mayindeedforatimesellatamonopolyprice;buttheycandosopermanentlyonlywhennomorecapital canbeprofitablyemployedon the lands, andwhen,therefore, theirproducecannotbeincreased.Atsuchtime,everyportionoflandincultivation,andeveryportionofcapitalemployedonthelandwillyieldarent,differingindeedinproportiontothedifferenceinthereturn.Atsuchatimetoo,anytaxwhichmaybeimposedonthefarmer,willfallonrent,andnotontheconsumer.Hecannotraisethepriceofhiscorn,because,bythesupposition,itisalreadyatthehighestpriceatwhichthepurchaserswillorcanbuyit.Hewillnotbesatisfiedwithalowerrateofprofits,thanthatobtainedbyothercapitalists,and,therefore,hisonlyalternativewillbetoobtainareductionofrent,ortoquithisemployment.

Mr.Buchananconsiderscornandrawproduceasatamonopolyprice,becausetheyyieldarent:allcommoditieswhichyieldarent,hesupposesmustbeatamonopolyprice;andthenceheinfers,thatalltaxesonrawproducewouldfallonthelandlord,andnotontheconsumer."Thepriceofcorn,"hesays,"whichalwaysaffordsarent,beinginnorespectinfluencedbytheexpensesofitsproduction,thoseexpensesmustbepaidoutoftherent;andwhentheyriseorfall,therefore,theconsequenceisnotahigheroralowerprice,butahigheroralowerrent.Inthisview,all taxesonfarmservants,horses,or the implementsofagriculture,are inreality land-taxes; theburdenfallingonthefarmerduring thecurrencyofhis lease, andon the landlord,when the leasecomes tobe renewed. In likemanner all those improved implements of husbandry which save expense to the farmer, such asmachines for threshingand reaping,whatevergiveshimeasier access to themarket, suchasgoodroads,canals,andbridges,thoughtheylessentheoriginalcostofcorn,donotlessenitsmarketprice.Whateverissavedbythoseimprovements,therefore,belongstothelandlordaspartofhisrent."

ItisevidentthatifweyieldtoMr.Buchananthebasisonwhichhisargumentisbuilt,namely,thattheprice of corn always yields a rent, all the consequences which he contends for would follow ofcourse.Taxesonthefarmerwouldthenfallnotontheconsumerbutonrent;andallimprovementsinhusbandrywould increase rent: but I hope I havemade it sufficiently clear, that until a country iscultivatedineverypart,anduptothehighestdegree,thereisalwaysaportionofcapitalemployedonthe land which yields no rent, and that it is this portion of capital, the result of which, as inmanufactures,isdividedbetweenprofitsandwages,thatregulatesthepriceofcorn.Thepriceofcornthen,whichdoesnotaffordarent,beinginfluencedbytheexpensesofitsproduction,thoseexpensescannotbepaidoutofrent.Theconsequencethereforeofthoseexpensesincreasing,isahigherprice,andnotalowerrent.21

It is remarkable that both Adam Smith and Mr. Buchanan, who entirely agree that taxes on rawproduce,aland-tax,andtithes,allfallontherentofland,andnotontheconsumersofrawproduce,shouldneverthelessadmitthattaxesonmaltwouldfallontheconsumerofbeer,andnotontherentofthelandlord.AdamSmith'sargumentissoableastatementoftheviewwhichItakeofthesubjectofthetaxonmalt,andeveryothertaxonrawproduce,thatIcannotrefrainfromofferingit totheattentionofthereader.

"Therentandprofitsofbarleylandmustalwaysbenearlyequaltothoseofotherequallyfertile,andequallywellcultivatedland.Iftheywereless,somepartofthebarleylandwouldsoonbeturnedtosome other purpose; and if they were greater, more land would soon be turned to the raising of

barley. When the ordinary price of any particular produce of land is at what may be called amonopolyprice,ataxuponitnecessarilyreducestherentandprofit22ofthelandwhichgrowsit.Atax upon the produce of those precious vineyards, of which the wine falls so much short of theeffectualdemand,thatitspriceisalwaysabovethenaturalproportiontothatofotherequallyfertile,andequallywell cultivated land,wouldnecessarily reduce the rent andprofit22 of thosevineyards.Thepriceofthewinesbeingalreadythehighestthatcouldbegotforthequantitycommonlysenttomarket,itcouldnotberaisedhigherwithoutdiminishingthatquantity;andthequantitycouldnotbediminished without still greater loss, because the lands could not be turned to any other equallyvaluable produce. The whole weight of the tax, therefore, would fall upon the rent and profit;23properlyupontherentofthevineyard.""Buttheordinarypriceofbarleyhasneverbeenamonopolyprice;andtherentandprofitofbarleylandhaveneverbeenabovetheirnaturalproportiontothoseofotherequallyfertileandequallywellcultivatedland.Thedifferenttaxeswhichhavebeenimposeduponmalt, beer, and ale,have never lowered the price of barley; have never reduced the rent andprofit24ofbarleyland.Thepriceofmalttothebrewerhasconstantlyriseninproportiontothetaxesimposeduponit;andthosetaxes,togetherwiththedifferentdutiesuponbeerandale,haveconstantlyeitherraisedtheprice,or,whatcomestothesamething,reducedthequalityofthosecommoditiestotheconsumer.Thefinalpaymentofthosetaxeshasfallenconstantlyupontheconsumer,andnotupontheproducer."OnthispassageMr.Buchananremarks,"Adutyonmaltnevercouldreducethepriceofbarley,because,unlessasmuchcouldbemadeofbarleybymaltingitasbysellingitunmalted,thequantityrequiredwouldnotbebroughttomarket.Itisclear,therefore,thatthepriceofmaltmustriseinproportiontothetaximposedonit,asthedemandcouldnototherwisebesupplied.Thepriceofbarley,however, is just asmuchamonopolypriceas thatof sugar; theybothyielda rent, and themarketpriceofbothhasequallylostallconnexionwiththeoriginalcost."

ItappearsthentobetheopinionofMr.Buchanan,thatataxonmaltwouldraisethepriceofmalt,butthatataxonthebarleyfromwhichmaltismade,wouldnotraisethepriceofbarley;andtherefore,ifmaltistaxed,thetaxwillbepaidbytheconsumer;ifbarleyistaxed,itwillbepaidbythelandlord,ashewillreceiveadiminishedrent.AccordingtoMr.Buchananthen,barleyisatamonopolyprice,atthehighestpricewhichthepurchasersarewillingtogiveforit;butmaltmadeofbarleyisnotatamonopolyprice, and consequently it canbe raised in proportion to the taxes thatmaybe imposedupon it.ThisopinionofMr.Buchananof theeffectsofa taxonmaltappears tome tobe indirectcontradiction to theopinionhehasgivenof a similar tax, a taxonbread. "A taxonbreadwill beultimatelypaid,notbyariseofprice,butbyareductionofrent."24Ifataxonmaltwouldraisethepriceofbeer,ataxonbreadmustraisethepriceofbread.

ThefollowingargumentofM.SayisfoundedonthesameviewsasMr.Buchanan's:"Thequantityofwineorcornwhichapieceoflandwillproduce,willremainnearlythesame,whatevermaybethetaxwithwhichitischarged.Thetaxmaytakeawayahalf,oreventhree-fourthsofitsnetproduce,orofitsrentifyouplease,yetthelandwouldneverthelessbecultivatedforthehalforthequarternotabsorbedby the tax.Therent, that is tosay the landlord'sshare,wouldmerelybesomewhat lower.Thereasonofthiswillbeperceived,ifweconsider,thatinthecasesupposed,thequantityofproduceobtainedfromtheland,andsenttomarket,willremainneverthelessthesame.Ontheotherhandthemotivesonwhichthedemandfortheproduceisfoundedcontinuealsothesame.

"Now,ifthequantityofproducesupplied,andthequantitydemanded,necessarilycontinuethesame,notwithstandingtheestablishmentortheincreaseofthetax, thepriceofthatproducewillnotvary;andifthepricedonotvary,theconsumerwillnotpaythesmallestportionofthistax.

"Will itbesaid that thefarmer,hewhofurnishes labourandcapital,will, jointlywith the landlord,beartheburdenofthistax?certainlynot;becausethecircumstanceorthetaxhasnotdiminishedthenumberoffarmstobelet,norincreasedthenumberoffarmers.Sinceinthisinstancealsothesupplyand demand remain the same, the rent of farms must also remain the same. The example of themanufacturer of salt, who can onlymake the consumers pay a portion of the tax, and that of thelandlordwhocannotreimbursehimselfinthesmallestdegree,provetheerrorofthosewhomaintain,inoppositiontotheeconomists,thatalltaxesfallultimatelyontheconsumer."—Vol.ii.p.338.

If the tax "took away half, or even three-fourths of the net produce of the land," and the price ofproduce did not rise, how could those farmers obtain the usual profits of stock who paid verymoderate rents, having that quality of landwhich required amuch larger proportion of labour toobtainagivenresult,thanlandofamorefertilequality?Ifthewholerentwereremitted,theywouldstillobtainlowerprofitsthanthoseinothertrades,andwouldthereforenotcontinuetocultivatetheirland,unless theycould raise thepriceof itsproduce. If the tax fellon the farmers, therewouldbefewerfarmersdisposedtohirefarms;ifitfellonthelandlord,manyfarmswouldnotbeletatall,fortheywouldaffordno rent.But fromwhat fundwould thosepay the taxwhoproducecornwithoutpayinganyrent?Itisquiteclearthatthetaxmustfallontheconsumer.Howwouldsuchland,asM.Saydescribesinthefollowingpassage,payataxofone-halforthree-fourthsofitsproduce?

"WeseeinScotlandpoorlandsthuscultivatedbytheproprietor,andwhichcouldbecultivatedbynootherperson.ThustooweseeintheinteriorprovincesoftheUnitedStatesvastandfertilelands,therevenueofwhichalonewouldnotbesufficientforthemaintenanceoftheproprietor.Theselandsarecultivatednevertheless,butitmustbebytheproprietorhimself,or,inotherwords,hemustaddtotherent, which is little or nothing, the profits of his capital and industry, to enable him to live incompetence.Itiswellknownthatland,thoughcultivated,yieldsnorevenuetothelandlordwhennofarmerwillbewillingtopayarentforit:whichisaproofthatsuchlandwillgiveonlytheprofitsofthecapitalandoftheindustrynecessaryforitscultivation."—Say,Vol.ii.p.127.

CHAPTERXVI.

POORRATES.

WEhaveseenthattaxesonrawproduce,andontheprofitsofthefarmer,willfallontheconsumerofrawproduce;sinceunlesshehadthepowerofremuneratinghimselfbyanincreaseofprice,thetaxwouldreducehisprofitsbelowthegenerallevelofprofits,andwouldurgehimtoremovehiscapitaltosomeothertrade.Wehaveseentoothathecouldnot,bydeductingitfromhisrent,transferthetaxto his landlord; because that farmerwho paid no rent,would, equallywith the cultivator of betterland,besubjecttothetax,whetheritwerelaidonrawproduce,orontheprofitsofthefarmer.Ihavealso attempted to shew, that if a tax were general, and affected equally all profits, whethermanufacturingoragricultural,itwouldnotoperateeitheronthepriceofgoodsorrawproduce,butwould be immediately, as well as ultimately, paid by the producers. A tax on rent, it has beenobserved,would fallon the landlordonly,andcouldnotbyanymeansbemade todevolveon thetenant.

The poor rate is a tax which partakes of the nature of all these taxes, and under differentcircumstancesfallson theconsumerofrawproduceandgoods,on theprofitsofstock,andonthe

rentofland.Itisataxwhichfallswithpeculiarweightontheprofitsofthefarmer,andthereforemaybeconsidered as affecting thepriceof rawproduce.According to thedegree inwhich it bearsonmanufacturingandagriculturalprofitsequally,itwillbeageneraltaxontheprofitsofstock,andwilloccasionnoalteration in thepriceof rawproduceandmanufactures. Inproportion to the farmer'sinabilitytoremuneratehimself,byraisingthepriceofrawproduce,forthatportionofthetaxwhichpeculiarly affects him, itwill be a taxon rent, andwill bepaidby the landlord.Toknow then theoperationofthepoorrateatanyparticulartime,wemustascertainwhetheratthattimeitaffectsinanequal or unequal degree the profits of the farmer and manufacturer; and also whether thecircumstancesbesuchastoaffordtothefarmerthepowerofraisingthepriceofrawproduce.

Thepoorratesareprofessedtobeleviedonthefarmerinproportiontohisrent;andaccordingly,thefarmerwhopaidaverysmallrent,ornorentatall,shouldpaylittleornotax.Ifthisweretrue,poorrates,asfarastheyarepaidbytheagriculturalclass,wouldentirelyfallonthelandlord,andcouldnotbeshiftedtotheconsumerofrawproduce.ButIbelievethatisnottrue;thepoorrateisnotleviedaccording to the rentwhicha farmeractuallypays tohis landlord; it isproportioned to theannualvalue of his land,whether that annual value be given to it by the capital of the landlord or of thetenant.

Iftwofarmersrentedlandoftwodifferentqualitiesinthesameparish,theonepayingarentof100l.perannumfor50acresofthemostfertileland,andtheotherthesamesumof100l.for1000acresoftheleastfertileland,theywouldpaythesameamountofpoorrates, ifneitherofthemattemptedtoimprove the land; but if the farmer of the poor land, presuming on a very long lease, should beinduced at a great expense to improve the productive powers of his land, bymanuring, draining,fencing,&c.,hewouldcontribute to thepoor rates,not inproportion to theactual rentpaid to thelandlord, but to the actual annual value of the land. The rate might equal or exceed the rent; butwhetheritdidornot,nopartofthisratewouldbepaidbythelandlord.Itwouldhavebeenpreviouslycalculateduponbythetenant;andifthepriceofproducewerenotsufficienttocompensatehimforallhisexpenses,togetherwiththisadditionalchargeforpoorrates,hisimprovementswouldnothavebeenundertaken. It isevident then that the tax in thiscase ispaidby theconsumer; for if therehadbeennorate,thesameimprovementswouldhavebeenundertaken,andtheusualandgeneralrateofprofitswouldhavebeenobtainedonthestockemployed,withalowerpriceofcorn.

Nor would it make the slightest difference in this question, if the landlord had made theseimprovementshimself,andhadinconsequenceraisedhisrentfrom100l.to500l.;theratewouldbeequallychargedtotheconsumer;forwhetherheshouldexpendalargesumofmoneyonhisland,woulddependontherent,orwhatiscalledrent,whichhewouldreceiveasaremunerationforit;andthisagainwoulddependonthepriceofcorn,orotherrawproduce,beingsufficientlyhighnotonlytocoverthisadditionalrent,butalsotheratetowhichthelandwouldbesubject.Butifat thesametime allmanufacturing capital contributed to the poor rates, in the same proportion as the capitalexpendedbythefarmerorlandlordinimprovingtheland,thenitwouldnolongerbeapartialtaxontheprofitsofthefarmer'sorlandlord'scapital,butataxonthecapitalofallproducers;andthereforeitcouldnolongerbeshiftedeitherontheconsumerofrawproduceoronthelandlord.Thefarmer'sprofitswouldfeeltheeffectoftheratenomorethanthoseofthemanufacturer;andtheformercouldnot,anymorethanthelatter,pleaditasareasonforanadvanceinthepriceofhiscommodity.Itisnot theabsolute,but therelativefallofprofits,whichpreventscapital frombeingemployed inanyparticulartrade:itisthedifferenceofprofitwhichsendscapitalfromoneemploymenttoanother.

Itmustbeacknowledgedhowever,thatintheactualstateofthepoorrates,amuchlargeramountfalls

on the farmer thanon themanufacturer, inproportion to their respectiveprofits; the farmerbeingratedaccording to theactualproductionswhichheobtains, themanufactureronlyaccording to thevalueofthebuildingsinwhichheworks,withoutanyregardtothevalueofthemachinery,labour,orstock,whichhemayemploy.From this circumstance it follows, that the farmerwill be enabled toraise the price of his produce by this whole difference. For since the tax falls unequally, andpeculiarlyonhisprofits,hewouldhavelessmotivetodevotehiscapitaltotheland,thantoemployitinsomeothertrade,unlessthepriceofrawproducewereraised.Ifonthecontrary,theratehadfallenwithgreaterweightonthemanufacturerthanonthefarmer,hewouldhavebeenenabledtoraisethepriceofhisgoodsbytheamountofthedifference,forthesamereasonthatthefarmer,undersimilarcircumstances, could raise the price of raw produce. In a society therefore,which is extending itsagriculture,when poor rates fall with peculiarweight on the land, theywill be paid partly by theemployers of capital in a diminution of the profits of stock, and partly by the consumer of rawproduce in its increasedprice. Insuchastateof things, the taxmay,undersomecircumstances,beevenadvantageousratherthaninjurioustolandlords;forifthetaxpaidbythecultivatoroftheworstland,behigherinproportiontothequantityofproduceobtained,thanthatpaidbythefarmersofthemore fertile lands, the rise in the price of corn, which will extend to all corn, will more thancompensate the latter for the tax. This advantagewill remainwith them during the continuance oftheirleases,butitwillafterwardsbetransferredtotheirlandlords.Thisthenwouldbetheeffectofpoor rates inanadvancingsociety;but inastationary,or ina retrogradecountry,sofarascapitalcouldnotbewithdrawnfromtheland,ifafurtherratewereleviedforthesupportofthepoor,thatpartofitwhichfellonagriculturewouldbepaid,duringthecurrentleases,bythefarmers,butattheexpirationofthoseleasesitwouldalmostwhollyfallonthelandlords.Thefarmer,whoduringhisformerlease,hadexpendedhiscapitalinimprovinghisland,ifitwerestillinhisownhands,wouldberatedforthisnewtaxaccordingtothenewvaluewhichthelandhadacquiredbyitsimprovement,andthisamounthewouldbeobligedtopayduringhis lease,althoughhisprofitsmight therebybereduced below the general rate of profits; for the capital which he has expended may be soincorporatedwiththeland,thatitcannotberemovedfromit.Ifindeedhe,orhislandlord,(shouldithavebeenexpendedbyhim)wereabletoremovethiscapital,andtherebyreducetheannualvalueoftheland,theratewouldproportionablyfall,andastheproducewouldatthesametimebediminished,itspricewouldrise;hewouldbecompensatedforthetax,bychargingittotheconsumer,andnopartwouldfallonrent;butthisisimpossible,atleastwithrespecttosomeproportionofthecapital,andconsequently in that proportion the tax will be paid by the farmers during their leases, and bylandlordsattheirexpiration.Thisadditionaltax,asfarasitfellunequallyonmanufacturers,wouldundersuchcircumstancesbeaddedtothepriceoftheirgoods;fortherecanbenoreasonwhytheirprofits should be reduced below the general rate of profits, when their capitals might be easilyremovedtoagriculture.25

CHAPTERXVII.

ONSUDDENCHANGESINTHECHANNELSOFTRADE.

A GREAT manufacturing country is peculiarly exposed to temporary reverses and contingencies,producedbytheremovalofcapitalfromoneemploymenttoanother.Thedemandsfortheproduceofagricultureareuniform,theyarenotundertheinfluenceoffashion,prejudice,orcaprice.Tosustainlife,foodisnecessary,andthedemandforfoodmustcontinueinallages,andinallcountries.Itis

differentwithmanufactures; thedemandforanyparticularmanufacturedcommodity, issubjectnotonly to the wants, but to the tastes and caprice of the purchasers. A new tax toomay destroy thecomparative advantage which a country before possessed in the manufacture of a particularcommodity;ortheeffectsofwarmaysoraisethefreightandinsuranceonitsconveyance,thatitcanno longerenter intocompetitionwith thehomemanufactureof thecountry towhich itwasbeforeexported. In all such cases, considerable distress, and no doubt some loss,will be experienced bythosewhoareengagedinthemanufactureofsuchcommodities;anditwillbefeltnotonlyatthetimeofthechange,butthroughthewholeintervalduringwhichtheyareremovingtheircapitals,andthelabourwhichtheycancommand,fromoneemploymenttoanother.

Norwill distress be experienced in that country alonewhere such difficulties originate, but in thecountriestowhichitscommoditieswerebeforeexported.Nocountrycanlongimportunlessitalsoexports, or can long export unless it also imports. If then any circumstance should occur, whichshouldpermanentlypreventacountryfromimporting theusualamountofforeigncommodities, itwill necessarily diminish the manufacture of some of those commodities which were usuallyexported; and although the total valueof theproductionsof the countrywill probably be but littlealtered,sincethesamecapitalwillbeemployed,yettheywillnotbeequallyabundantandcheap;andconsiderabledistresswillbeexperiencedthroughthechangeofemployments.Ifbytheemploymentof10,000l. in themanufactureofcottongoods forexportation,we importedannually3000pairofsilkstockingsofthevalueof2000l.,andbytheinterruptionofforeigntradeweshouldbeobligedtowithdrawthiscapitalfromthemanufactureofcotton,andemployitourselvesinthemanufactureofstockings,weshouldstillobtainstockingsofthevalueof2000l.providednopartofthecapitalweredestroyed;but insteadofhaving3000pair,wemightonlyhave2,500.In theremovalof thecapitalfrom the cotton to the stocking trade, much distress might be experienced, but it would notconsiderably impair thevalueof thenationalproperty,although itmight lessen thequantityofourannualproductions.

The commencement of war after a long peace, or of peace after a long war, generally producesconsiderabledistressintrade.Itchangesinagreatdegreethenatureoftheemploymentstowhichtherespectivecapitalsofcountrieswerebeforedevoted;andduringtheintervalwhiletheyaresettlinginthe situations which new circumstances have made the most beneficial, much fixed capital isunemployed,perhapswholly lost, and labourers arewithout full employment.Thedurationof thisdistresswillbelongerorshorteraccordingtothestrengthofthatdisinclination,whichmostmenfeelto abandon that employment of their capital towhich they have long been accustomed. It is oftenprotracted too by the restrictions and prohibitions, to which the absurd jealousies which prevailbetweenthedifferentstatesofthecommercialcommonwealthgiverise.

Thedistresswhichproceedsfromarevulsionoftrade,isoftenmistakenforthatwhichaccompaniesadiminutionofthenationalcapital,andaretrogradestateofsociety;anditwouldperhapsbedifficulttopointoutanymarksbywhichtheymaybeaccuratelydistinguished.

When,however,suchdistressimmediatelyaccompaniesachangefromwartopeace,ourknowledgeoftheexistenceofsuchacausewillmakeitreasonabletobelieve,thatthefundsforthemaintenanceoflabourhaveratherbeendivertedfromtheirusualchannelthanmateriallyimpaired,andthataftertemporarysuffering,thenationwillagainadvanceinprosperity.Itmustberememberedtoothattheretrogradeconditionisalwaysanunnaturalstateofsociety.Manfromyouthgrowstomanhood,thendecays,anddies;butthisisnottheprogressofnations.Whenarrivedtoastateofthegreatestvigour,their further advancemay indeedbe arrested, but their natural tendency is to continue for ages, to

sustainundiminishedtheirwealth,andtheirpopulation.

Inrichandpowerfulcountrieswherelargecapitalsareinvestedinmachinery,moredistresswillbeexperiencedfromarevulsionintrade,thaninpoorercountrieswherethereisproportionallyamuchsmalleramountof fixed,andamuch largeramountofcirculatingcapital, andwhereconsequentlymorework isdoneby the labourofmen. It isnot sodifficult towithdrawacirculatingas a fixedcapital, from any employment in which it may be engaged. It is often impossible to divert themachinerywhichmay have been erected for onemanufacture, to the purposes of another; but theclothing,thefood,andthelodgingofthelabourerinoneemploymentmaybedevotedtothesupportofthelabourerinanother,orthesamelabourermayreceivethesamefood,clothing,andlodging,whilsthisemploymentischanged.This,however,isaneviltowhicharichnationmustsubmit;anditwouldnotbemorereasonabletocomplainofit,thanitwouldbeinarichmerchanttolamentthathisshipwasexposedtothedangersofthesea,whilsthispoorneighbour'scottagewassafefromallsuchhazard.

Fromcontingenciesofthiskind,thoughinaninferiordegree,evenagricultureisnotexempted.War,whichinacommercialcountry,interruptsthecommerceofstates,frequentlypreventstheexportationofcornfromcountrieswhereitcanbeproducedwithlittlecost,toothersnotsofavourablysituated.Under such circumstances an unusual quantity of capital is drawn to agriculture, and the countrywhich before imported becomes independent of foreign aid. At the termination of the war, theobstaclestoimportationareremoved,andacompetitiondestructivetothehome-growercommences,fromwhich he is unable towithdraw,without the sacrifice of a great part of his capital. The bestpolicyofthestatewouldbe,tolayatax,decreasinginamountfromtimetotime,ontheimportationofforeigncorn,foralimitednumberofyears,inordertoaffordtothehome-groweranopportunitytowithdrawhiscapitalgraduallyfromtheland.Insodoingthecountrymightnotbemakingthemostadvantageousdistributionofitscapital,butthetemporarytaxtowhichitwassubjected,wouldbefortheadvantageofaparticularclass,thedistributionofwhosecapitalwashighlyusefulinprocuringasupply of food when importation was stopped. If such exertions in a period of emergency werefollowedbyriskofruinontheterminationofthedifficulty,capitalwouldshunsuchanemployment.Besides theusualprofitsofstock, farmerswouldexpect tobecompensatedfor theriskwhich theyincurredofasuddeninfluxofcorn,andthereforethepricetotheconsumer,attheseasonswhenhemostrequiredasupply,wouldbeenhanced,notonlybythesuperiorcostofgrowingcornathome,butalsobytheinsurancewhichhewouldhavetopay,intheprice,forthepeculiarrisktowhichthisemploymentofcapitalwasexposed.Notwithstandingthen,thatitwouldbemoreproductiveofwealthto the country, atwhatever sacrificeof capital itmight bedone, to allow the importationof cheapcorn,itwouldperhapsbeadvisabletochargeitwithadutyforafewyears.

Inexaminingthequestionofrent,wefound,thatwitheveryincreaseinthesupplyofcorn,andwiththeconsequentfallofitsprice,capitalwouldbewithdrawnfromthepoorerland;andlandofabetterdescription,whichwouldthenpaynorent,wouldbecomethestandardbywhichthenaturalpriceofcornwouldberegulated.At4l.perquarter,landofaninferiorquality,whichmaybedesignatedbyNo. 6, might be cultivated; at 3l. 10s. No. 5; at 3l. No. 4, and so on. If corn, in consequence ofpermanentabundance,fellto3l.10s.thecapitalemployedonNo.6wouldceasetobeemployed;foritwasonlywhencornwasat4l.thatitcouldobtainthegeneralprofits,evenwithoutpayingrent:itwouldthereforebewithdrawntomanufacturethosecommoditieswithwhichall thecorngrownonNo.6wouldbepurchasedandimported.Inthisemploymentitwouldnecessarilybemoreproductiveto its owner, or it would not be withdrawn from the other; for if he could obtain more corn bygrowing it on land forwhich he paid no rent, than bymanufacturing a commoditywithwhich he

purchasedit,itspricecouldnotbeunder4l.

It has, however, been said that capital cannotbewithdrawn from the land; that it takes the formofexpenses,whichcannotberecovered,suchasmanuring,fencing,draining,&c.,whicharenecessarilyinseparablefromtheland.Thisisinsomedegreetrue;butthatcapitalwhichconsistsofcattle,sheep,hay and corn ricks, carts, &c. may be withdrawn; and it always becomes a matter of calculationwhether theseshallcontinue tobeemployedon the land,notwithstanding the lowpriceofcorn,orwhethertheyshallbesold,andtheirvaluetransferredtoanotheremployment.

Suppose, however, the fact to be as stated, and that no part of the capital could bewithdrawn; thefarmerwouldcontinuetoraisecorn,andpreciselythesamequantitytoo,atwhateverpriceitmightsell;foritcouldnotbehisinteresttoproduceless,andifhedidnotsoemployhiscapital,hewouldobtainfromitnoreturnwhatever.Corncouldnotbeimported,becausehewouldsellitlowerthan3l.10s.ratherthannotsellitatall,andbythesuppositiontheimportercouldnotsellitunderthatprice.Althoughthenthefarmers,whocultivatedlandofthisquality,wouldundoubtedlybeinjuredbythefall in theexchangeablevalueof thecommoditywhich theyproduced,—howwould thecountrybeaffected?Weshouldhavepreciselythesamequantityofeverycommodityproduced,butrawproduceandcornwouldsellatamuchcheaperprice.Thecapitalofacountryconsistsofitscommodities,andasthesewouldbethesameasbefore,reproductionwouldgoonatthesamerate.Thislowpriceofcornwouldhoweveronlyaffordtheusualprofitsofstocktotheland,No.5,whichwouldthenpaynorent,andtherentofallbetterlandwouldfall:wageswouldalsofall,andprofitswouldrise.

However low the price of cornmight fall; if capital could not be removed from the land, and thedemanddidnotincrease,noimportationwouldtakeplace;forthesamequantityasbeforewouldbeproduced at home.Although therewould be a different division of the produce, and some classeswouldbebenefited,andothersinjured,theaggregateofproductionwouldbepreciselythesame,andthenationcollectivelywouldneitherberichernorpoorer.

Butthereisthisadvantagealwaysresultingfromarelativelylowpriceofcorn,—thatthedivisionoftheactualproductionismorelikelytoincreasethefundforthemaintenanceoflabour,inasmuchasmorewillbeallotted,underthenameofprofit,totheproductiveclass,aless,underthenameofrent,totheunproductiveclass.

Thisistrue,evenifthecapitalcannotbewithdrawnfromtheland,andmustbeemployedthere,ornotbeemployedatall:butifgreatpartofthecapitalcouldbewithdrawn,asitevidentlycould,itwillbeonlywithdrawn,whenitwillyieldmoretotheownerbybeingwithdrawnthanbybeingsufferedtoremain where it was; it will only be withdrawn then, when it can elsewhere be employed moreproductively both for the owner and the public. He consents to sink that part of his capital whichcannot be separated from the land, becausewith that partwhich he can take away, he can obtain agreatervalue,andagreaterquantityofrawproduce,thanbynotsinkingthispartofthecapital.Hiscase ispreciselysimilar to thatofamanwhohaserectedmachinery inhismanufactoryatagreatexpense,machinerywhichisafterwardssomuchimproveduponbymoremoderninventions,thatthecommodities manufactured by him very much sink in value. It would be entirely a matter ofcalculationwithhimwhetherheshouldabandontheoldmachinery,anderectthemoreperfect,losingallthevalueoftheold,orcontinuetoavailhimselfofitscomparativelyfeeblepowers.Who,undersuch circumstances,would exhort him to forego the use of the bettermachinery, because itwoulddeteriorateorannihilatethevalueoftheold?Yetthisistheargumentofthosewhowouldwishustoprohibittheimportationofcorn,becauseitwilldeteriorateorannihilatethatpartofthecapitalofthefarmerwhich is foreversunk in land.Theydonotsee that theendofallcommerce is to increaseproduction,andthatbyincreasingproduction,thoughyoumayoccasionpartialloss,youincreasethegeneralhappiness.Tobeconsistent,theyshouldendeavourtoarrestallimprovementsinagricultureandmanufactures,andallinventionsofmachinery;forthoughthesecontributetogeneralabundance,and therefore to the general happiness, they never fail, at the moment of their introduction, todeteriorateorannihilateapartoftheexistingcapitaloffarmersandmanufacturers.

Agriculturelikeallothertrades,andparticularlyinacommercialcountry,issubjecttoare-action,which,inanoppositedirection,succeedstheactionofastrongstimulus.Thus,whenwarinterruptstheimportationofcorn, itsconsequenthighpriceattractscapital to the land,fromthelargeprofitswhichsuchanemploymentofitaffords;thiswillprobablycausemorecapitaltobeemployed,andmorerawproducetobebroughttomarketthanthedemandsofthecountryrequire.Insuchcase,thepriceofcornwillfallfromtheeffectsofaglut,andmuchagriculturaldistresswillbeproduced,tilltheaveragesupplyisbroughttoalevelwiththeaveragedemand.

CHAPTERXVIII.

VALUEANDRICHES,THEIRDISTINCTIVEPROPERTIES.

"AMANisrichorpoor,"saysAdamSmith,"accordingtothedegreeinwhichhecanaffordtoenjoy

thenecessaries,conveniences,andamusementsofhumanlife."

Valuethenessentiallydiffersfromriches,forvaluedependsnotonabundance,butonthedifficultyorfacilityofproduction.Thelabourofamillionofmeninmanufactures,willalwaysproducethesame value, but will not always produce the same riches. By the invention of machinery, byimprovements in skill, by a better division of labour, or by the discovery of newmarkets,wheremore advantageous exchangesmay bemade, amillion ofmenmay produce double, or treble theamountofriches,of"necessaries,conveniences,andamusements," inonestateofsociety, that theycouldproduce inanother,but theywillnoton that accountaddany thing tovalue; for every thingrisesorfallsinvalue,inproportiontothefacilityordifficultyofproducingit,orinotherwords,inproportion to thequantityof labour employedon its production.Supposewith a given capital, thelabour of a certain number of men produced 1000 pair of stockings, and that by inventions inmachinery,thesamenumberofmencanproduce2000pair,orthattheycancontinuetoproduce1000pair,andcanproducebesides500hats;thenthevalueofthe2000pairofstockings;orofthe1000pairofstockings,and500hats,willbeneithermorenorlessthanthatofthe1000pairofstockingsbeforetheintroductionofmachinery;fortheywillbetheproduceofthesamequantityoflabour.Butthevalueofthegeneralmassofcommoditieswillneverthelessbediminished;foralthoughthevalueoftheincreasedquantityproducedinconsequenceoftheimprovementwillbethesameexactlyasthevaluewouldhavebeenofthelessquantitythatwouldhavebeenproduced,hadnoimprovementtakenplace,aneffectisalsoproducedontheportionofgoodsstillunconsumed,whichweremanufacturedpreviouslytotheimprovement;thevalueofthosegoodswillbereduced,inasmuchastheymustfalltothelevel,quantityforquantity,ofthegoodsproducedunderalltheadvantagesoftheimprovement:and the societywill, notwithstanding the increased quantity of its commodities, notwithstanding itsaugmentedriches,anditsaugmentedmeansofenjoyment,havealessamountofvalue.Byconstantlyincreasing thefacilityofproduction,weconstantlydiminish thevalueofsomeof thecommoditiesbeforeproduced, thoughby the samemeanswenotonlyadd to thenational riches,butalso to thepoweroffutureproduction.Manyoftheerrorsinpoliticaleconomyhavearisenfromerrorsonthissubject,fromconsideringanincreaseofriches,andanincreaseofvalue,asmeaningthesamething,andfromunfoundednotionsastowhatconstitutedastandardmeasureofvalue.Onemanconsidersmoneyasastandardofvalue,andanationgrowsricherorpoorer,accordingtohim,inproportionasitscommoditiesofallkindscanexchangeformoreorlessmoney.Othersrepresentmoneyasaveryconvenientmediumforthepurposeofbarter,butnotasapropermeasurebywhichtoestimatethevalueofotherthings:therealmeasureofvalueaccordingtothemiscorn,26andacountryisrichorpoor,accordingasitscommoditieswillexchangeformoreorlesscorn.Thereareothersagain,whoconsideracountryrichorpoor,accordingtothequantityoflabourthatitcanpurchase.27Butwhyshouldgold,orcorn,orlabour,bethestandardmeasureofvalue,morethancoalsoriron?—morethancloth,soap,candles,andtheothernecessariesofthelabourer?—why,inshort,shouldanycommodity, or all commodities together, be the standard,when such a standard is itself subject tofluctuationsinvalue?Corn,aswellasgold,mayfromdifficultyorfacilityofproduction,vary10,20,or30percent.,relativelytootherthings;whyshouldwealwayssay,thatitisthoseotherthingswhichhavevaried,andnotthecorn?Thatcommodityisaloneinvariable,whichatalltimesrequiresthesamesacrificeoftoilandlabourtoproduceit.Ofsuchacommoditywehavenoknowledge,butwemayhypotheticallyargueandspeakaboutit,asifwehad;andmayimproveourknowledgeofthescience, by shewing distinctly the absolute inapplicability of all the standards which have beenhithertoadopted.Butsupposingeitherofthesetobeacorrectstandardofvalue,stillitwouldnotbeastandard of riches, for riches do not depend on value. A man is rich or poor, according to theabundanceofnecessariesandluxuries,whichhecancommand;andwhethertheexchangeablevalue

of these for money, for corn, or for labour, be high or low, they will equally contribute to theenjoymentoftheirpossessor.Itisthroughconfoundingtheideasofvalueandwealth,orriches,thatithasbeenasserted,thatbydiminishingthequantityofcommodities,thatistosay,ofthenecessaries,conveniences,andenjoymentsofhumanlife,richesmaybeincreased.Ifvaluewerethemeasureofrichesthiscouldnotbedenied,becausebyscarcitythevalueofcommoditiesisraised;butifAdamSmithbecorrect,ifrichesconsistinnecessariesandenjoyments,thentheycannotbeincreasedbyadiminutionofquantity.

It is true, that the man in possession of a scarce commodity is richer, if by means of it he cancommandmore of the necessaries and enjoyments of human life; but as the general stock out ofwhicheachman'srichesaredrawn,isdiminishedinquantity,byallthatanyindividualtakesfromit,othermen'ssharesmustnecessarilybe reduced inproportionas this favoured individual isable toappropriateagreaterquantitytohimself.

Letwaterbecomescarce,saysLordLauderdale,andbeexclusivelypossessedbyanindividual,andyouwill increasehis riches,becausewaterwill thenhavevalue; and ifwealthbe the aggregateofindividualriches,youwillbythesamemeansalsoincreasewealth.Youundoubtedlywillincreasetherichesofthisindividual,butinasmuchasthefarmermustsellapartofhiscorn,theshoemakerapartofhis shoes, andallmengiveupaportionof theirpossessions for the solepurposeof supplyingthemselveswithwater,whichtheybeforehadfornothing, theyarepoorerbythewholequantityofcommoditieswhichtheyareobligedtodevotetothispurpose,andtheproprietorofwaterisbenefitedprecisely by the amount of their loss. The same quantity of water, and the same quantity ofcommodities,areenjoyedbythewholesociety,buttheyaredifferentlydistributed.Thisishoweversupposingratheramonopolyofwaterthanascarcityofit.Ifitshouldbescarce,thentherichesofthecountry and of individuals would be actually diminished, inasmuch as it would be deprived of aportionofoneofitsenjoyments.Thefarmerwouldnotonlyhavelesscorntoexchangefortheothercommoditieswhichmightbenecessaryordesirabletohim,butheandeveryotherindividualwouldbeabridgedintheenjoymentofoneofthemostessentialoftheircomforts.Notonlywouldtherebeadifferentdistributionofriches,butanactuallossofwealth.

Itmaybesaidthenoftwocountriespossessingpreciselythesamequantityofallthenecessariesandcomfortsoflife,thattheyareequallyrich,butthevalueoftheirrespectivericheswoulddependonthe comparative facility or difficultywithwhich theywere produced. For if an improved piece ofmachineryshouldenableustomaketwopairofstockings,insteadofone,withoutadditionallabour,doublethequantitywouldbegiveninexchangeforayardofcloth.Ifasimilarimprovementbemadeinthemanufactureofcloth,stockingsandclothwillexchangeinthesameproportionsasbefore,buttheywillbothhavefalleninvalue;forinexchangingthemforhats,forgold,orothercommoditiesin general, twice the former quantitymust be given.Extend the improvement to the production ofgold,andeveryothercommodity;and theywillall regain their formerproportions.Therewillbedoublethequantityofcommoditiesannuallyproducedinthecountry,andthereforethewealthofthecountrywillbedoubled,butthiswealthwillnothaveincreasedinvalue.

Although Adam Smith has given the correct description of riches, which I have more than oncenoticed,heafterwardsexplainsthemdifferently,andsays,"thatamanmustberichorpooraccordingto thequantityof labourwhichhecanafford topurchase."Now thisdescriptiondiffersessentiallyfromtheother,andiscertainlyincorrect;forsupposetheminesweretobecomemoreproductive,sothatgoldandsilverfellinvalue,fromthegreaterfacilityoftheirproduction;orthatvelvetsweretobemanufacturedwithsomuch less labour thanbefore, that theyfell tohalf their formervalue; the

richesofallthosewhopurchasedthosecommoditieswouldbeincreased:onemanmightincreasethequantityofhisplate,anothermightbuydoublethequantityofvelvet;butwiththepossessionofthisadditional plate, and velvet, they could employ no more labour than before; because as theexchangeablevalueofvelvetandofplatewouldbelowered,theymustpartwithproportionallymoreofthesespeciesofrichestopurchaseaday'slabour.Richesthencannotbeestimatedbythequantityoflabourwhichtheycanpurchase.

Fromwhathasbeensaid,itwillbeseenthatthewealthofacountrymaybeincreasedintwoways:itmaybeincreasedbyemployingagreaterportionofrevenueinthemaintenanceofproductivelabour,—whichwillnotonlyaddtothequantity,buttothevalueofthemassofcommodities;oritmaybeincreased,withoutemployinganyadditionalquantityof labour,bymaking the samequantitymoreproductive,—whichwilladdtotheabundance,butnottothevalueofcommodities.

Inthefirstcase,acountrywouldnotonlybecomerich,butthevalueofitsricheswouldincrease.Itwould become rich by parsimony; by diminishing its expenditure on objects of luxury andenjoyment;andemployingthosesavingsinreproduction.

In thesecondcase, therewillnotnecessarilybe either anydiminishedexpenditureon luxuries andenjoyments,oranyincreasedquantityofproductivelabouremployed,butwiththesamelabourmorewouldbeproduced;wealthwouldincrease,butnotvalue.Ofthesetwomodesofincreasingwealth,thelastmustbepreferred,sinceitproducesthesameeffectwithouttheprivationanddiminutionofenjoyments,whichcanneverfailtoaccompanythefirstmode.Capitalisthatpartofthewealthofacountry which is employed with a view to future production, and may be increased in the samemanneraswealth.Anadditionalcapitalwillbeequallyefficaciousintheproductionoffuturewealth,whether it be obtained from improvements in skill and machinery, or from using more revenuereproductively; for wealth always depends on the quantity of commodities produced, without anyregardtothefacilitywithwhichtheinstrumentsemployedinproductionmayhavebeenprocured.Acertainquantityofclothesandprovisionswillmaintainandemploythesamenumberofmen,andwillthereforeprocurethesamequantityofworktobedone,whethertheybeproducedbythe labourof100orof200men;buttheywillbeoftwicethevalueif200havebeenemployedontheirproduction.

M.Sayappearstometohavebeensingularlyunfortunateinhisdefinitionofrichesandvalueinthefirst chapter of his excellent work: the following is the substance of his reasoning: riches, heobserves,consistonlyofthingswhichhaveavalueinthemselves:richesaregreat,whenthesumofthevaluesofwhichtheyarecomposedisgreat.Theyaresmallwhenthesumoftheirvaluesissmall.Two things having an equal value, are riches of equal amount. They are of equal value,when bygeneralconsenttheyarefreelyexchangedforeachother.Now,ifmankindattachvaluetoathing,itisonaccountoftheusestowhichitisapplicable.Thisfaculty,whichcertainthingshave,ofsatisfyingthevariouswantsofmankind,Icallutility.Tocreateobjectsthathaveavalueofanykindistocreateriches, since the utility of things is the first foundationof their value, and it is the value of thingswhich constitutes riches.Butwedo not create objects: allwe can do is to reproducematter underanotherform—wecangiveitutility.Productionthenisacreation,notofmatterbutofutility,anditismeasured by the value arising from the utility of the object produced. The utility of any object,accordingtogeneralestimation,ispointedoutbythequantityofothercommoditiesforwhichitwillexchange.Thisvaluation,arisingfromthegeneralestimateformedbysociety,constituteswhatAdamSmithcallsvalue inexchange;whatTurgotcallsappreciablevalue;andwhatwemaymorebrieflydesignatebythetermvalue.

Thus farM.Say,but inhisaccountofvalueand richeshehasconfounded two thingswhichought

alwaystobekeptseparate,andwhicharecalledbyAdamSmith,valueinuseandvalueinexchange.IfbyanimprovedmachineIcan,withthesamequantityoflabour,maketwopairofstockingsinsteadofone,Iinnowayimpairtheutilityofonepairofstockings,thoughIdiminishtheirvalue.IfthenIhadprecisely the samequantityof coats, shoes, stockings, andallother things, asbefore, I shouldhavepreciselythesamequantityofusefulobjects,andshouldthereforebeequallyrich,ifutilitywerethemeasureofriches;butIshouldhavealessamountofvalue,formystockingswouldbeofonlyhalftheirformervalue.Utilitythenisnotthemeasureofexchangeablevalue.

IfweaskM.Sayinwhatrichesconsist,hetellsusinthepossessionofobjectshavingvalue.Ifwethenaskhimwhat hemeansbyvalue, he tells us that things are valuable in proportion as theypossessutility.Ifagainweaskhimtoexplaintousbywhatmeanswearetojudgeoftheutilityofobjects,heanswers,bytheirvalue.Thusthenthemeasureofvalueisutility,andthemeasureofutilityisvalue.

M.Say,inspeakingoftheexcellencesandimperfectionsofthegreatworkofAdamSmith,imputestohim,asanerror,that"heattributestothelabourofmanalonethepowerofproducingvalue.Amorecorrectanalysisshewsusthatvalueisowingtotheactionof labour,orrather theindustryofman,combinedwiththeactionofthoseagentswhichnaturesupplies,andwiththatofcapital.Hisignoranceofthisprinciplepreventedhimfromestablishingthetruetheoryoftheinfluenceofmachineryintheproductionofriches."

In contradiction to the opinion ofAdam Smith,M. Say, in the fourth chapter, speaks of the valuewhich is given to commodities by natural agents, such as the sun, the air, the pressure of theatmosphere&c.,whicharesometimessubstitutedforthelabourofman,andsometimesconcurwithhiminproducing.28

But thesenaturalagents, though theyaddgreatly tovalue inuse,neveraddexchangeablevalue,ofwhichM.Sayisspeaking,toacommodity:assoonasbytheaidofmachinery,orbytheknowledgeofnaturalphilosophy,youobligenaturalagentstodotheworkwhichwasbeforedonebyman,theexchangeablevalueofsuchworkfallsaccordingly.Iftenmenturnedacornmill,anditbediscoveredthatbytheassistanceofwind,orofwater,thelabourofthesetenmenmaybespared,theflour,whichistheproduceoftheworkperformedbythemill,wouldimmediatelyfallinvalue,inproportiontothequantityoflaboursaved;andthesocietywouldbericherbythecommoditieswhichthelabourofthetenmencouldproduce,thefundsdestinedfortheirmaintenancebeinginnodegreeimpaired.

M.SayaccusesDr.Smithofhavingoverlookedthevaluewhichisgiventocommoditiesbynaturalagents, andbymachinery, because he considered that the value of all thingswas derived from thelabourofman;butitdoesnotappeartome,thatthischargeismadeout;forAdamSmithnowhereundervaluestheserviceswhichthesenaturalagentsandmachineryperformforus,butheveryjustlydistinguishesthenatureofthevaluewhichtheyaddtocommodities—theyareserviceabletous,byincreasingtheabundanceofproductions,bymakingmenricher,byaddingtovalueinuse;butastheyperform their work gratuitously, as nothing is paid for the use of air, of heat, and of water, theassistancewhichtheyaffordus,addsnothingtovalueinexchange.Inthefirstchapterofthesecondbook,M.Sayhimselfgivesasimilarstatementofvalue,forhesaysthat"utilityisthefoundationofvalue,thatcommoditiesareonlydesirable,becausetheyareinsomewayuseful,butthattheirvaluedependsnotontheirutility,notonthedegreeinwhichtheyaredesired,butonthequantityoflabournecessarytoprocurethem.""Theutilityofacommoditythusunderstood,makesitanobjectofman'sdesire,makeshimwishforit,andestablishesademandforit.Whentoobtainathing,itissufficienttodesireit,itmaybeconsideredasanarticleofnaturalwealth,giventomaninanunlimitedquantity,

andwhichheenjoys,withoutpurchasingitbyanysacrifice;suchare theair,water, the lightof thesun.Ifheobtainedinthismanneralltheobjectsofhiswantsanddesires,hewouldbeinfinitelyrich:hewouldbeinwantofnothing.Butunfortunatelythis isnot thecase; thegreaterpartof thethingswhichareconvenientandagreeabletohim,aswellasthosewhichareindispensablynecessaryinthesocialstate,forwhichmanseemstobespecificallyformed,arenotgiventohimgratuitously;theycouldonlyexistbytheexertionofcertainlabour,theemploymentofacertaincapital,and,inmanycases, by the use of land. These are obstacles in theway of gratuitous enjoyment; obstacles fromwhichresultarealexpenseofproduction;becauseweareobligedtopayfortheassistanceoftheseagents of production." "It is onlywhen this utility has thus been communicated to a thing (viz. byindustry,capital,andland,)thatitisaproduction,andthatithasavalue.Itisitsutilitywhichisthefoundationofthedemandforit,butthesacrifices,andthechargesnecessarytoobtainit,orinotherwords,itsprice,limitstheextentofthisdemand."

Theconfusionwhicharisesfromconfoundingtheterms"value"and"riches"willbestbeseeninthefollowingpassages.30Hispupilobserves:"Youhavesaid,besides, that therichesofasocietywerecomposedofthesumtotalofthevalueswhichitpossessed;itappearstometofollow,thatthefallofoneproduction,ofstockingsforexample,bydiminishingthesumtotalofthevaluebelongingtothesociety,diminishes themassof its riches;" towhich thefollowinganswer isgiven:"thesumof thesociety'sricheswillnotfallonthataccount.Twopairofstockingsareproducedinsteadofone;andtwopairat threefrancs,areequallyvaluablewithonepairatsixfrancs.Theincomeof thesocietyremains the same,because themanufacturerhasgainedasmuchon twopair at three francs, ashegainedononepairatsixfrancs."ThusfarM.Say,thoughincorrect,isatleastconsistent.Ifvaluebethemeasureofriches,thesocietyisequallyrich,becausethevalueofallitscommoditiesisthesameasbefore.Butnowforhisinference."Butwhentheincomeremainsthesame,andproductionsfallinprice,thesocietyisreallyenriched.Ifthesamefalltookplaceinallcommoditiesatthesametime,whichisnotabsolutelyimpossible,thesocietybyprocuringathalftheirformerprice,alltheobjectsof itsconsumption,withouthaving lostanyportionof its income,would reallybe twiceas richasbefore,andcouldpurchasetwicethequantityofgoods."

Inthefirstpassagewearetold,thatifeverythingfelltohalfitsvalue,fromabundance,thesocietywouldbeequallyrich,becausetherewouldbedoublethequantityofcommoditiesathalftheirformervalue,orinotherwords,therewouldbethesamevalue.Butinthelastpassageweareinformed,thatby doubling the quantity of commodities, although the value of each commodity should bediminishedonehalf,andthereforethevalueofallthecommoditiestogetherbepreciselythesameasbefore,yetthesocietywouldbetwiceasrichasbefore.Inthefirstcaserichesareestimatedbytheamountofvalue:inthesecond,theyareestimatedbytheabundanceofcommoditiescontributingtohumanenjoyments.M.Sayfurthersays,"thatamanisinfinitelyrichwithoutvaluables,ifhecanfornothingobtainalltheobjectshedesires;yetinanotherplacewearetold,"thatrichesconsist,notintheproductitself,foritisnotrichesifithavenotvalue,butinitsvalue."Vol.ii.p.2.

CHAPTERXIX.

EFFECTSOFACCUMULATIONONPROFITSANDINTEREST.

FROMtheaccountwhichhasbeengivenoftheprofitsofstock,itwillappear,thatnoaccumulationof

capitalwillpermanentlylowerprofits,unlesstherebesomepermanentcausefortheriseofwages.Ifthefundsforthemaintenanceoflabourweredoubled,trebled,orquadrupled,therewouldnotlongbe any difficulty in procuring the requisite number of hands, to be employed by those funds; butowingtotheincreasingdifficultyofmakingconstantadditionstothefoodofthecountry,fundsofthesame value would probably not maintain the same quantity of labour. If the necessaries of theworkmancouldbeconstantlyincreasedwiththesamefacility,therecouldbenopermanentalterationin the rate of profits or wages, to whatever amount capital might be accumulated. Adam Smith,however, uniformly ascribes the fall of profits to accumulation of capital, and to the competitionwhichwillresultfromit,withouteveradvertingtotheincreasingdifficultyofprovidingfoodfortheadditionalnumberof labourerswhich theadditionalcapitalwillemploy."The increaseof stockhesays,whichraiseswages,tendstolowerprofit.Whenthestocksofmanyrichmerchantsareturnedintothesametrade,theirmutualcompetitionnaturallytendstoloweritsprofit;andwhenthereisalikeincreaseofstockinallthedifferenttradescarriedoninthesamesociety,thesamecompetitionmust produce the same effect in all." Adam Smith speaks here of a rise of wages, but it is of atemporaryrise,proceedingfromincreasedfundsbeforethepopulationisincreased;andhedoesnotappear to see, that at the same time that capital is increased, thework to be effected by capital, isincreased in the same proportion.M. Say has however most satisfactorily shewn, that there is noamount of capital which may not be employed in a country, because demand is only limited byproduction.Nomanproduces, butwith a view to consumeor sell, and he never sells, butwith anintentiontopurchasesomeothercommodity,whichmaybeimmediatelyusefultohim,orwhichmaycontribute tofutureproduction.Byproducing, then,henecessarilybecomeseither theconsumerofhis owngoods, or the purchaser and consumer of the goodsof someother person. It is not to besupposed that he should, for any length of time, be ill-informedof the commoditieswhichhe canmost advantageously produce, to attain the objectwhich he has in view, namely, the possession ofothergoods;andthereforeitisnotprobablethathewillcontinuallyproduceacommodityforwhichthereisnodemand.31

There cannot then be accumulated in a country any amount of capital which cannot be employedproductively, until wages rise so high in consequence of the rise of necessaries, and so littleconsequently remains for theprofitsof stock, that themotive foraccumulationceases.32While theprofitsof stockarehigh,menwill haveamotive to accumulate.Whilst amanhas anywished-forgratification unsupplied hewill have a demand formore commodities; and itwill be an effectualdemandwhilehehasanynewvaluetoofferinexchangeforthem.Iftenthousandpoundsweregiventoamanhaving100,000l.perannum,hewouldnotlockitupinachest,butwouldeitherincreasehisexpenses by 10,000l.; employ it himself productively, or lend it to some other person for thatpurpose;ineithercase,demandwouldbeincreased,althoughitwouldbefordifferentobjects.Ifheincreasedhisexpenses,hiseffectualdemandmightprobablybeforbuildings,furniture,orsomesuchenjoyment. If he employed his 10,000l. productively, his effectual demand would be for food,clothing,andrawmaterial,whichmightsetnewlabourerstowork;butstillitwouldbedemand.33

Productionsarealwaysboughtbyproductions,moneyisonlythemediumbywhichtheexchangeiseffected.Toomuchofaparticularcommoditymaybeproduced,ofwhichtheremaybesuchaglutinthemarket,asnot torepaythecapitalexpendedonit;but thiscannotbethecasewithrespect toallcommodities;thedemandforcornislimitedbythemouthswhicharetoeatit,forshoesandcoatsbythepersonswhoaretowearthem;butthoughacommunity,orapartofacommunity,mayhaveasmuchcorn,andasmanyhatsandshoes,asitisableormaywishtoconsume,thesamecannotbesaidofeverycommodityproducedbynatureorbyart.Somewouldconsumemorewine,iftheyhadthe

abilitytoprocureit.Othershavingenoughofwine,wouldwishtoincreasethequantityorimprovethequalityoftheirfurniture.Othersmightwishtoornamenttheirgrounds,ortoenlargetheirhouses.Thewishtodoallorsomeof theseis implantedineveryman'sbreast;nothing is requiredbut themeans,andnothingcanaffordthemeans,butanincreaseofproduction.IfIhadfoodandnecessariesatmydisposal,Ishouldnotbelonginwantofworkmenwhowouldputmeinpossessionofsomeoftheobjectsmostusefulormostdesirabletome.

Whethertheseincreasedproductions,andtheconsequentdemandwhichtheyoccasion,shallorshallnotlowerprofits,dependssolelyontheriseofwages;andtheriseofwages,exceptingforalimitedperiod,on the facilityofproducing the foodandnecessariesof the labourer. I sayexcepting foralimitedperiod, becausenopoint is better established, than that the supplyof labourerswill alwaysultimatelybeinproportiontothemeansofsupportingthem.

Thereisonlyonecase,andthatwillbetemporary,inwhichtheaccumulationofcapitalwithalowpriceoffoodmaybeattendedwithafallofprofits;andthatis,whenthefundsforthemaintenanceoflabour increasemuchmore rapidly than population;—wageswill then be high, and profits low. Ifevery man were to forego the use of luxuries, and be intent only on accumulation, a quantity ofnecessaries might be produced, for which there could not be any immediate consumption. Ofcommoditiesso limited innumber, theremightundoubtedlybeanuniversalglut,andconsequentlytheremight neither be demand for an additional quantity of such commodities, nor profits on theemploymentofmorecapital.Ifmenceasedtoconsume,theywouldceasetoproduce.Thisadmission,doesnot impugn thegeneralprinciple. In suchacountryasEngland, forexample, it isdifficult tosupposethattherecanbeanydispositiontodevotethewholecapitalandlabourofthecountrytotheproductionofnecessariesonly.

Whenmerchants engage their capitals in foreign trade, or in the carrying trade, it is always fromchoice,andneverfromnecessity:itisbecauseinthattradetheirprofitswillbesomewhatgreaterthaninthehometrade.

Adam Smith has justly observed "that the desire of food is limited in every man by the narrowcapacityofthehumanstomach,butthedesireoftheconveniencesandornamentsofbuilding,dress,equipage, and household furniture, seems to have no limit or certain boundary." Nature then hasnecessarily limited the amount of capital which can at any one time be profitably engaged inagriculture,butshehasplacednolimitstotheamountofcapitalthatmaybeemployedinprocuring"theconveniencesandornaments"oflife.Toprocurethesegratificationsinthegreatestabundanceistheobjectinview,anditisonlybecauseforeigntrade,orthecarryingtrade,willaccomplishitbetter,thatmenengageinthem,inpreferencetomanufacturingthecommoditiesrequired,orasubstituteforthem,athome.If,however,frompeculiarcircumstances,wewereprecludedfromengagingcapitalinforeigntrade,orinthecarryingtrade,weshould,thoughwithlessadvantage,employitathome;andwhile there isno limit to thedesireof "conveniences, ornamentsofbuilding,dress, equipage, andhousehold furniture," therecanbeno limit to thecapital thatmaybeemployed inprocuring them,exceptthatwhichboundsourpowertomaintaintheworkmenwhoaretoproducethem.

AdamSmithhowever, speaksof thecarrying tradeasonenotofchoice,butofnecessity;as if thecapital engaged in it would be inert if not so employed, as if the capital in the home trade couldoverflow, if not confined to a limited amount. He says, "when the capital stock of any country isincreased to such a degree, that it cannot be all employed in supplying the consumption, andsupportingtheproductivelabourofthatparticularcountry,thesurpluspartofitnaturallydisgorgesitselfintothecarryingtrade,andisemployedinperformingthesameofficestoothercountries."

"Aboutninety-six thousandhogsheadsof tobaccoareannuallypurchasedwithapartof thesurplusproduceofBritish industry.But thedemandofGreatBritaindoesnot require, perhaps,more thanfourteen thousand. If the remaining eighty-two thousand, therefore, could not be sent abroad andexchangedforsomethingmoreindemandathome,theimportationofthemwouldceaseimmediately,andwithittheproductivelabourofalltheinhabitantsofGreatBritain,whoareatpresentemployedinpreparingthegoodswithwhichtheseeighty-twothousandhogsheadsareannuallypurchased."ButcouldnotthisportionoftheproductivelabourofGreatBritainbeemployedinpreparingsomeothersortofgoods,withwhichsomethingmoreindemandathomemightbepurchased?Andifitcouldnot,mightwenotemploythisproductivelabour,thoughwithlessadvantage,inmakingthosegoodsindemandathome,oratleastsomesubstituteforthem?Ifwewantedvelvets,mightwenotattempttomake velvets; and ifwe could not succeed,mightwe notmakemore cloth, or some other objectdesirabletous?

Wemanufacture commodities, andwith them buy goods abroad, because we can obtain a greaterquantitythanwecouldmakeathome.Depriveusofthistrade,andweimmediatelymanufactureagainforourselves.But thisopinionofAdamSmith is atvariancewith all hisgeneraldoctrineson thissubject."Ifaforeigncountrycansupplyuswithacommoditycheaperthanweourselvescanmakeit,betterbuyitofthemwithsomepartoftheproduceofourownindustry,employedinawayinwhichwehavesomeadvantage.Thegeneralindustryofthecountrybeingalwaysinproportiontothecapitalwhichemploysit,willnottherebybediminished,butonlylefttofindoutthewayinwhichitcanbeemployedwiththegreatestadvantage."

Again."Those,therefore,whohavethecommandofmorefoodthantheythemselvescanconsume,are always willing to exchange the surplus, or, what is the same thing, the price of it, forgratificationsofanotherkind.Whatisoverandabovesatisfyingthelimiteddesire,isgivenfortheamusementofthosedesireswhichcannotbesatisfied,butseemtobealtogetherendless.Thepoor,inorder to obtain food, exert themselves to gratify those fancies of the rich; and to obtain it morecertainly, they viewith one another in the cheapness and perfection of theirwork.The number ofworkmen increases with the increasing quantity of food, or with the growing improvement andcultivation of the lands; and as the nature of their business admits of the utmost subdivisions oflabours,thequantityofmaterialswhichtheycanworkupincreasesinamuchgreaterproportionthantheirnumbers.Hencearisesademandforeverysortofmaterialwhichhumaninventioncanemploy,eitherusefullyorornamentally,inbuilding,dress,equipage,orhouseholdfurniture;forthefossilsandmineralscontainedinthebowelsoftheearth,thepreciousmetals,andthepreciousstones."

AdamSmithhas justlyobserved, that it isextremelydifficult todeterminetherateof theprofitsofstock."Profitissofluctuating,thateveninaparticulartrade,andmuchmoreintradesingeneral,itwouldbedifficult tostatetheaveragerateofit.Tojudgeofwhatitmayhavebeenformerly,orinremoteperiodsoftime,withanydegreeofprecision,mustbealtogetherimpossible."Yetsinceitisevidentthatmuchwillbegivenfortheuseofmoney,whenmuchcanbemadebyit,hesuggests,that"themarketrateofinterestwillleadustoformsomenotionoftherateofprofits,andthehistoryoftheprogressofinterestaffordusthatoftheprogressofprofits."Undoubtedlyif themarketrateofinterestcouldbeaccuratelyknownforanyconsiderableperiod,weshouldhaveatolerablycorrectcriterion,bywhichtoestimatetheprogressofprofits.

Butinallcountries,frommistakennotionsofpolicy,thestatehasinterferedtopreventafairandfreemarketrateofinterest,byimposingheavyandruinouspenaltiesonallthosewhoshalltakemorethanthe rate fixed by law. In all countries probably these laws are evaded, but records give us little

informationonthishead,andpointoutratherthelegalandfixedrate,thanthemarketrateofinterest.During thepresentwar, exchequer andnavybillshave frequentlybeenat sohighadiscount, as toaffordthepurchasersofthem7,8percent.,oragreaterrateofinterestfortheirmoney.LoanshavebeenraisedbyGovernmentataninterestexceeding6percent.,andindividualshavebeenfrequentlyobliged,byindirectmeans,topaymorethan10percent.,fortheinterestofmoney;yetduringthissame period the legal rate of interest has been uniformly at 5 per cent. Little dependance forinformationthencanbeplacedonthatwhichis thefixedandlegalrateof interest,whenwefinditmaydiffersoconsiderablyfromthemarketrate.AdamSmithinformsus,thatfromthe37thofHenryVIII., to 21st of James I., 10 per cent. continued to be the legal rate of interest. Soon after therestoration,itwasreducedto6percent.,andbythe12thofAnne,to5percent.Hethinksthelegalratefollowed,anddidnotprecedethemarketrateofinterest.BeforetheAmericanWar,Governmentborrowedat3percent.,andthepeopleofcreditinthecapital,andinmanyotherpartsofthekingdomat3½,4,and4½percent.

The rate of interest, thoughultimately andpermanentlygovernedby the rate of profit, is howeversubjecttotemporaryvariationsfromothercauses.Witheveryfluctuationinthequantityandvalueofmoney,thepricesofcommoditiesnaturallyvary.Theyvaryalso,aswehavealreadyshewn,fromthealterationintheproportionofsupplytodemand,althoughthereshouldnotbeeithergreaterfacilityordifficultyofproduction.Whenthemarketpricesofgoodsfall fromanabundantsupply,fromadiminisheddemand,orfromariseinthevalueofmoney,amanufacturernaturallyaccumulatesanunusualquantityoffinishedgoods,beingunwillingtosellthematverydepressedprices.Tomeethisordinary payments, for which he used to depend on the sale of his goods, he now endeavours toborrowoncredit,and isoftenobliged togivean increasedrateof interest.Thishowever isbutoftemporaryduration; foreither themanufacturer'sexpectationswerewellgrounded,and themarketpriceofhiscommoditiesrises,orhediscoversthatthereisapermanentlydiminisheddemand,andhenolongerresiststhecourseofaffairs:pricesfall,andmoneyandinterestregaintheirrealvalue.Ifbythediscoveryofanewmine,bytheabusesofbanking,orbyanyothercause,thequantityofmoneybe greatly increased, its ultimate effect is to raise the prices of commodities in proportion to theincreasedquantityofmoney;but there isprobablyalwaysan interval,duringwhichsomeeffect isproducedontherateofinterest.

Thepriceoffundedpropertyisnotasteadycriterionbywhichtojudgeoftherateofinterest.Intimeofwar,thestockmarketissoloadedbythecontinualloansofGovernment,thatthepriceofstockhasnot timetosettleat its fair levelbeforeanewoperationoffundingtakesplace,or it isaffectedbyanticipationofpoliticalevents.Intimeofpeace,onthecontrary,theoperationsofthesinkingfund,the unwillingness, which a particular class of persons feel to divert their funds to any otheremploymentthanthattowhichtheyhavebeenaccustomed,whichtheythinksecure,andinwhichtheirdividendsarepaidwiththeutmostregularity,elevatesthepriceofstock,andconsequentlydepressesthe rate of interest on these securities below the generalmarket rate. It is observable too, that fordifferent securities,Government pays very different rates of interest.Whilst 100l. capital in 5 percent.stockissellingfor95l.,anexchequerbillof100l.,willbesometimessellingfor100l.5s., forwhichexchequerbill,nomoreinterestwillbeannuallypaidthan4l.11s.3d.:oneofthesesecuritiespaystoapurchaserattheaboveprices,aninterestofmorethan5¼percent.,theotherbutlittlemorethan4¼;acertainquantityoftheseexchequerbillsisrequiredasasafeandmarketableinvestmentforbankers; if they were increased much beyond this demand, they would probably be as muchdepreciated as the 5 per cent. stock. A stock paying 3 per cent. per annum will always sell at aproportionally greater price than stock paying 5 per cent., for the capital debt of neither can bedischargedbutatpar,or100l.moneyfor100l. stock.Themarket rateof interestmayfall to4per

cent.,andGovernmentwouldthenpaytheholderof5percent.stockatpar,unlessheconsentedtotake4percent.,orsomediminishedrateofinterestunder5percent.:theywouldhavenoadvantagefromsopayingtheholderof3percent.stock,tillthemarketrateofinteresthadfallenbelow3percent.perannum.Topaytheinterestonthenationaldebt, largesumsofmoneyarewithdrawnfromcirculationfour timesintheyearforafewdays.Thesedemandsformoneybeingonlytemporary,seldomaffectprices;theyaregenerallysurmountedbythepaymentofalargerateofinterest.35

CHAPTERXX.

BOUNTIESONEXPORTATION,ANDPROHIBITIONSOFIMPORTATION.

ABOUNTYon theexportationofcorn tends to lower itsprice to theforeignconsumer,but ithasnopermanenteffectonitspriceinthehomemarket.

Supposethattoaffordtheusualandgeneralprofitsofstock,thepriceofcornshouldinEnglandbe4l.perquarter;itcouldnotthenbeexportedtoforeigncountrieswhereitsoldfor3l.15s.perquarter.Butifabountyof10s.perquarterweregivenonexportation,itcouldbesoldintheforeignmarketat3l.10s.,andconsequentlythesameprofitwouldbeaffordedtothecorngrower,whetherhesolditat3l.10s.intheforeign,orat4l.inthehomemarket.

Abountythen,whichshouldlowerthepriceofBritishcornintheforeigncountry,belowthecostofproducing corn in that country, would naturally extend the demand for British, and diminish thedemandfortheirowncorn.ThisextensionofdemandforBritishcorncouldnotfailtoraiseitspriceforatimeinthehomemarket,andduringthattimetopreventalsoitsfallingsolowintheforeignmarketasthebountyhasatendencytoeffect.Butthecauseswhichwouldthusoperateonthemarketpriceofcorn inEnglandwouldproducenoeffectwhateveron itsnaturalprice,on its realcostofproduction.Togrowcornwouldneitherrequiremorelabournormorecapital,and,consequently,iftheprofitsof thefarmer'sstockwerebeforeonlyequal to theprofitsof thestockofother traders,theywill,after theriseofprice,beconsiderablyabove them.Byraising theprofitsof thefarmer'sstock,thebountywilloperateasanencouragementtoagriculture,andcapitalwillbewithdrawnfrommanufacturestobeemployedontheland, till theenlargeddemandfortheforeignmarkethasbeensupplied,whenthepriceofcornwillagainfallinthehomemarkettoitsnaturalandnecessaryprice,and profits will be again at their ordinary and accustomed level. The increased supply of grainoperatingontheforeignmarket,willalsoloweritspriceinthecountrytowhichitisexported,andwilltherebyrestricttheprofitsoftheexportertothelowestrateatwhichhecanaffordtotrade.

Theultimateeffectthenofabountyontheexportationofcorn,isnottoraiseortolowerthepriceinthehomemarket,buttolowerthepriceofcorntotheforeignconsumer—tothewholeextentofthebounty,ifthepriceofcornhadnotbeforebeenlowerintheforeign,thaninthehomemarket—andinalessdegree,ifthepriceinthehomehadbeenabovethepriceintheforeignmarket.

Awriter in the fifthvol.of theEdinburghReviewon thesubjectofabountyon theexportationofcorn, has very clearly pointed out its effects on the foreign and home demand.He has also justlyremarked,thatitwouldnotfailtogiveencouragementtoagricultureintheexportingcountry;butheappears to have imbibed the common errorwhich hasmisledDr. Smith, and I believemost otherwriters on this subject. He supposes, because the price of corn ultimately regulates wages, that

thereforeitwillregulatethepriceofallothercommodities.Hesaysthatthebounty,"byraisingtheprofitsoffarming,willoperateasanencouragementtohusbandry;byraisingthepriceofcorntotheconsumersathome,itwilldiminishforthetimetheirpowerofpurchasingthisnecessaryoflife,andthusabridgetheirrealwealth.Itisevident,however,thatthislasteffectmustbetemporary:thewagesof the labouring consumers had been adjusted before by competition, and the same principlewilladjustthemagaintothesamerate,byraisingthemoneypriceoflabour,and,throughthat,ofothercommodities,tothemoneypriceofcorn.Thebountyuponexportation,therefore,willultimatelyraisethemoneypriceofcorn in thehomemarket;notdirectly,however,but through themediumofanextendeddemandintheforeignmarket,andaconsequentenhancementoftherealpriceathome:andthisriseofthemoneyprice,whenithasoncebeencommunicatedtoothercommodities,willofcoursebecomefixed."

If,however,Ihavesucceededinshewingthat it isnot theriseinthemoneywagesof labourwhichraisesthepriceofcommodities,butthatsuchrisealwaysaffectsprofits,itwillfollowthatthepricesofcommoditieswouldnotriseinconsequenceofabounty.

Butatemporaryriseinthepriceofcorn,producedbyanincreaseddemandfromabroad,wouldhaveno effect on themoney price of wages. The rise of corn is occasioned by a competition for thatsupplywhichwasbeforeexclusivelyappropriatedtothehomemarket.Byraisingprofits,additionalcapitalisemployedinagriculture,andtheincreasedsupplyisobtained;buttillitbeobtained,thehighprice is absolutely necessary to proportion the consumption to the supply, which would becounteractedbyariseofwages.Theriseofcornistheconsequenceofitsscarcity,andisthemeansbywhichthedemandofthehomepurchasersisdiminished.Ifwageswereincreased,thecompetitionwouldincrease,andafurtherriseofthepriceofcornwouldbecomenecessary.Inthisaccountoftheeffectsofabounty,nothinghasbeensupposedtooccurtoraisethenaturalpriceofcorn,bywhichitsmarketpriceisultimatelygoverned;forithasnotbeensupposedthatanyadditionallabourwouldberequiredonthelandtoinsureagivenproduction,andthisalonecanraisenaturalprice.Ifthenaturalpriceofclothwere20s.peryard,agreatincreaseintheforeigndemandmightraisethepriceto25s.,ormore,buttheprofitswhichwouldthenbemadebytheclothierwouldnotfailtoattractcapitalinthatdirection,andalthoughthedemandshouldbedoubled,trebled,orquadrupled,thesupplywouldultimately be obtained, and cloth would fall to its natural price of 20s. So in the supply of corn,althoughweshouldexport2,3,or800,000quarters,annually,itwouldultimatelybeproducedatitsnatural price, which never varies unless a different quantity of labour becomes necessary toproduction.

Perhaps in no part of Adam Smith's justly celebrated work are his conclusions more liable toobjection,thaninthechapteronbounties.Inthefirstplace,hespeaksofcornasofacommodityofwhich theproduction cannot be increased in consequenceof a bountyon exportation; he supposesinvariablythatitactsonlyonthequantityactuallyproduced,andisnostimulustofurtherproduction."Inyearsofplenty,"hesays,"byoccasioninganextraordinaryexportation,itnecessarilykeepsupthepriceofcorninthehomemarketabovewhatitwouldnaturallyfallto.Inyearsofscarcity,thoughthebountyisfrequentlysuspended,yetthegreatexportationwhichitoccasionsinyearsofplenty,mustfrequentlyhinder,moreorless,theplentyofoneyearfromrelievingthescarcityofanother.Bothintheyearsofplentyandinyearsofscarcity,therefore,thebountynecessarilytendstoraisethemoneypriceofcornsomewhathigherthanitotherwisewouldbeinthehomemarket."36

AdamSmithappearstohavebeenfullyaware,thatthecorrectnessofhisargumententirelydependedon the fact,whether the increase "of themoney price of corn, by rendering that commoditymore

profitabletothefarmer,wouldnotnecessarilyencourageitsproduction."

"Ianswer,"hesays,"thatthismightbethecase,iftheeffectofthebountywastoraisetherealpriceofcorn,ortoenablethefarmer,withanequalquantityofit,tomaintainagreaternumberoflabourersin the same manner, whether liberal, moderate, or scanty, as other labourers are commonlymaintainedinhisneighbourhood."

Ifnothingwereconsumedbythelabourerbutcorn,andiftheportionwhichhereceived,wastheverylowestwhich his sustenance required, theremight be some ground for supposing that the quantitypaid to the labourer could, under no circumstances, be reduced,—but themoneywages of laboursometimes do not rise at all, and never rise in proportion to the rise in themoney price of corn,becausecorn,thoughanimportantpart,isonlyapartoftheconsumptionofthelabourer.Ifhalfhiswageswere expended on corn, and the other half on soap, candles, fuel, tea, sugar, clothing,&c.,commoditiesonwhichnoriseissupposedtotakeplace,itisevidentthathewouldbequiteaswellpaidwithabushelandahalfofwheat,whenitwas16s.abushel,ashewaswithtwobushels,whenthepricewas8s.perbushel;orwith24s.inmoney,ashewasbeforewith16s.Hiswageswouldriseonly50percent. thoughcorn rose100percent., and, consequently, therewouldbe sufficientmotive todivertmorecapitaltotheland,ifprofitsonothertradescontinuedthesameasbefore.Butsuchariseofwageswouldalsoinducemanufacturerstowithdrawtheircapitalsfrommanufactures,toemploythemontheland;forwhilst thefarmerincreasedthepriceofhiscommodity100percent.,andhiswagesonly50percent.,themanufacturerwouldbeobligedalsotoraisewages50percent.,whilsthehadnocompensationwhatever,intheriseofhismanufacturedcommodity,forthisincreasedchargeof production; capital would consequently flow from manufactures to agriculture, till the supplywould again lower the price of corn to 8s. per bushel, and wages to 16s. per week; when themanufacturerwouldobtainthesameprofitsasthefarmer,andthetideofcapitalwouldceasetosetineitherdirection.Thisisinfactthemodeinwhichthecultivationofcornisalwaysextended,andtheincreasedwantsofthemarketsupplied.Thefundsforthemaintenanceoflabourincrease,andwagesare raised.The comfortable situationof the labourer induceshim tomarry—population increases,and the demand for corn raises its price relatively to other things,—more capital is profitablyemployedonagriculture,andcontinuestoflowtowardsit,tillthesupplyisequaltothedemand,whenthepriceagainfalls,andagriculturalandmanufacturingprofitsareagainbroughttoalevel.

Butwhetherwageswere stationary after the rise in the price of corn, or advancedmoderately, orenormously,isofnoimportancetothisquestion,forwagesarepaidbythemanufactureraswellasby the farmer,and, therefore, in this respect theymustbeequallyaffectedbya rise in thepriceofcorn.Buttheyareunequallyaffectedintheirprofits,inasmuchasthefarmersellshiscommodityatanadvancedprice,while themanufacturer sellshis for the sameprice asbefore. It ishowever theinequality of profit, which is always the inducement to remove capital from one employment toanother, and therefore more corn would be produced, and fewer commodities manufactured.Manufactures would not rise, because fewer were manufactured, for a supply of them would beobtainedinexchangefortheexportedcorn.

A bounty, if it raises the price of corn, either raises it in comparison with the price of othercommodities,oritdoesnot.Iftheaffirmativebetrue,itisimpossibletodenythegreaterprofitsofthefarmer,andthetemptationtotheremovalofcapital,tillitspriceisagainloweredbyanabundantsupply.Ifitdoesnotraiseitincomparisonwithothercommodities,whereistheinjurytothehomeconsumer,beyondtheinconvenienceofpayingthetax?Ifthemanufacturerpaysagreaterpriceforhiscorn,heiscompensatedbythegreaterpriceatwhichhesellshiscommodity,withwhichhiscorn

isultimatelypurchased.

The error of Adam Smith proceeds precisely from the same source as that of the writer in theEdinburghReview;fortheyboththink"thatthemoneypriceofcornregulatesthatofallotherhome-made commodities."37 "It regulates," says Adam Smith, "the money price of labour, which mustalwaysbesuchastoenablethelabourertopurchaseaquantityofcornsufficienttomaintainhimandhis family,either in the liberal,moderate,or scantymanner, inwhich theadvancing, stationary,ordeclining circumstances of the society oblige his employers to maintain him. By regulating themoneypriceofall theotherpartsof the rudeproduceof land, it regulates thatof thematerialsofalmostallmanufactures.Byregulatingthemoneypriceoflabour,itregulatesthatofmanufacturingart, and industry; andby regulatingboth, it regulates that of the completemanufacture.Themoneypriceoflabour,andofeverythingthatistheproduceeitheroflandandlabour,mustnecessarilyriseorfallinproportiontothemoneypriceofcorn."

ThisopinionofAdamSmith,Ihavebeforeattemptedtorefute.Inconsideringariseinthepriceofcommoditiesasanecessaryconsequenceofa rise in thepriceofcorn,he reasonsas though therewere no other fund fromwhich the increased charge could be paid. He has wholly neglected theconsideration of profits, the diminution of which forms that fund, without raising the price ofcommodities.IfthisopinionofDr.Smithwerewellfounded,profitscouldneverreallyfall,whateveraccumulationofcapital theremightbe. Ifwhenwagesrose, thefarmercouldraise thepriceofhiscorn,and theclothier, thehatter, theshoemaker,andeveryothermanufacturer,couldalsoraise theprice of their goods in proportion to the advance, although estimated inmoney, theymight be allraised,theywouldcontinuetobearthesamevaluerelativelytoeachother.Eachofthesetradescouldcommand the samequantityasbeforeof thegoodsof theothers,which, since it isgoods,andnotmoney,whichconstitutewealth,istheonlycircumstancethatcouldbeofimportancetothem;andthewholeriseinthepriceofrawproduceandofgoods,wouldbeinjurioustonootherpersonsbuttothosewhosepropertyconsistedofgoldandsilver,orwhoseannualincomewaspaidinacontributedquantityofthosemetals,whetherintheformofbullionorofmoney.Supposetheuseofmoneytobewhollylaidaside,andalltradetobecarriedonbybarter.Undersuchcircumstances,couldcornriseinexchangeablevaluewithotherthings?Ifitcould,thenitisnottruethatthevalueofcornregulatesthevalueofallothercommodities; for todo that, it shouldnotvary in relativevalue to them. If itcouldnot, then itmustbemaintained, thatwhethercornbeobtainedonrich,oronpoor land,withmuch labour,orwith little,with theaidofmachinery,orwithout, itwouldalwaysexchangeforanequalquantityofallothercommodities.

I cannot, however, but remark that, though Adam Smith's general doctrines correspond with thiswhichIhavejustquoted,yetinonepartofhisworkheappearstohavegivenacorrectaccountofthenatureofvalue."Theproportionbetweenthevalueofgoldandsilver,andthatofgoodsofanyotherkind,depends in all cases," he says, "upon the proportion between the quantity of labourwhich isnecessaryinordertobringacertainquantityofgoldandsilvertomarket,andthatwhichisnecessarytobringthitheracertainquantityofanyothersortofgoods."Doeshenotherefullyacknowledgethatifanyincreasetakesplaceinthequantityoflabour,requiredtobringonesortofgoodstomarket,whilstnosuchincreasetakesplaceinbringinganothersortthither,thosegoodswillriseinrelativevalue.Ifnomorelabourberequiredtobringclothandgoldtomarket,theywillnotvaryinrelativevalue,butifmorelabourberequiredtobringcornandshoestomarket,willnotcornandshoesriseinvaluerelativelytocloth,andmoneymadeofgold?

AdamSmithagainconsidersthattheeffectofthebountyistocauseapartialdegradationinthevalue

ofmoney."Thatdegradation,"sayshe"inthevalueofsilver,whichistheeffectofthefertilityofthemines,andwhichoperatesequally,orverynearlyequally,throughthegreaterpartofthecommercialworld, is amatter of very little consequence to any particular country. The consequent rise of allmoneyprices, though it does notmake thosewho receive them really richer, does notmake themreallypoorer.Aserviceofplatebecomesreallycheaper,andeverythingelseremainspreciselyofthesamerealvalueasbefore."Thisobservationismostcorrect.

"Butthatdegradationinthevalueofsilver,whichbeingtheeffecteitherofthepeculiarsituation,orofthepoliticalinstitutionsofaparticularcountry,takesplaceonlyinthatcountry,isamatterofverygreatconsequence,which,farfromtendingtomakeanybodyreallyricher,tendstomakeeverybodyreallypoorer.Theriseinthemoneypriceofallcommodities,whichisinthiscasepeculiartothatcountry,tendstodiscouragemoreorlesseverysortofindustrywhichiscarriedonwithinit,andtoenableforeignnations,byfurnishingalmostallsortsofgoodsforasmallerquantityofsilverthanitsownworkmen can afford to do, to undersell them, not only in the foreign, but even in the homemarket."

Ihaveelsewhereattemptedtoshewthatapartialdegradationinthevalueofmoney,whichshallaffectbothagriculturalproduce,andmanufacturedcommodities,cannotpossiblybepermanent.Tosaythatmoneyispartiallydegraded,inthissense,istosaythatallcommoditiesareatahighprice;butwhilegoldandsilverareatlibertytomakepurchasesinthecheapestmarket,theywillbeexportedforthecheaper goods of other countries, and the reduction of their quantity will increase their value athome; commodities will regain their usual level, and those fitted for foreign markets will beexported,asbefore.

Abountythereforecannot,Ithink,beobjectedtoonthisground.

If then, a bounty raises the price of corn in comparison with all other things, the farmer will bebenefited,andmorelandwillbecultivated;butifthebountydonotraisethevalueofcornrelativelytootherthings,thennootherinconveniencewillattendit,thanthatofpayingthebounty;onewhichIneitherwishtoconcealnorunderrate.

Dr.Smithstates,that"byestablishinghighdutiesontheimportation,andbountiesontheexportationof corn, the country gentlemen seemed to have imitated the conduct of themanufacturers."By thesamemeans both had endeavoured to raise the value of their commodities. "They did not perhapsattend to the great and essential differencewhich nature has established between corn, and almosteveryothersortofgoods.Whenbyeitheroftheabovemeans,youenableourmanufacturerstoselltheirgoodsforsomewhatabetterpricethantheyotherwisecouldgetforthem,youraisenotonlythenominal,buttherealpriceofthosegoods.Youincreasenotonlythenominal,buttherealprofit,therealwealthandrevenueofthosemanufacturers—youreallyencouragethosemanufactures.Butwhen,bythelikeinstitutions,youraisethenominalormoneypriceofcorn,youdonotraiseitsrealvalue,youdonotincreasetherealwealthofourfarmersorcountrygentlemen,youdonotencouragethegrowthofcorn.Thenatureofthingshasstampeduponcornarealvalue,whichcannotbealteredbymerelyalteringitsmoneyprice.Throughtheworldingeneral,thatvalueisequaltothequantityoflabourwhichitcanmaintain."

Ihavealreadyattempted to shew, that themarketpriceofcorn,would,underan increaseddemandfromtheeffectsofabounty,exceeditsnaturalprice,tilltherequisiteadditionalsupplywasobtained,andthatthenitwouldagainfalltoitsnaturalprice.Butthenaturalpriceofcornisnotsofixedasthenaturalpriceofcommodities;because,withanygreatadditionaldemandforcorn, landofaworse

qualitymust be taken into cultivation, onwhichmore labourwill be required to produce a givenquantity, and the natural price of corn would be raised. By a continued bounty, therefore, on theexportationofcorn,therewouldbecreatedatendencytoapermanentriseinthepriceofcorn,andthis,asIhaveshewnelsewhere,38neverfails toraiserent.Countrygentlementhenhavenotonlyatemporarybutapermanentinterestinprohibitionsoftheimportationofcorn,andinbountiesonitsexportation; but manufacturers have no permanent interest in a bounty on the exportation ofcommodities,theirinterestiswhollytemporary.

Abountyontheexportationofmanufactureswillundoubtedly,asDr.Smithcontends,raisethemarketpriceofmanufactures,but itwillnot raise theirnaturalprice.The labourof200menwillproducedouble the quantity of these goods that 100 could produce before; and consequently, when therequisitequantityofcapitalwasemployed insupplying the requisitequantityofmanufactures, theywouldagainfall totheirnaturalprice.It isthenonlyduringtheintervalaftertheriseinthemarketpriceofcommodities,andbeforetheadditionalsupplyisobtained,thatthemanufacturerswillenjoyhighprofits;forassoonaspriceshadsubsided,theirprofitswouldsinktothegenerallevel.

Instead of agreeing, therefore, with Adam Smith, that the country gentlemen had not so great aninterestinprohibitingtheimportationofcorn,asthemanufacturerhadinprohibitingtheimportationof manufactured goods, I contend that they have a much superior interest; for their advantage ispermanent, while that of the manufacturer is only temporary. Dr. Smith observes, that nature hasestablishedagreatandessentialdifferencebetweencornandothergoods,but theproper inferencefromthatcircumstanceisdirectlythereverseofthatwhichhedrawsfromit;foritisonaccountofthisdifferencethatrentiscreated,andthatcountrygentlemenhaveaninterestintheriseofthenaturalpriceofcorn.Insteadofcomparingtheinterestof themanufacturerwiththeinterestof thecountrygentleman,Dr.Smithshouldhavecompareditwiththeinterestofthefarmer,whichisverydistinctfrom that of his landlord.Manufacturers have no interest in the rise of the natural price of theircommodities, nor have farmers any interest in the rise of the natural price of corn, or other rawproduce,thoughboththeseclassesarebenefitedwhilethemarketpriceoftheirproductionsexceedstheirnaturalprice.Onthecontrary,landlordshaveamostdecidedinterest intheriseofthenaturalpriceof corn; for the rise of rent is the inevitable consequenceof thedifficultyof producing rawproduce, without which its natural price could not rise. Now as bounties on exportation andprohibitionsoftheimportationofcornincreasethedemand,anddriveustothecultivationofpoorerlands,theynecessarilyoccasionanincreaseddifficultyofproduction.

The sole effect of the bounty either on the exportation ofmanufactures, or of corn, is to divert aportion of capital to an employment, which it would not naturally seek. It causes a perniciousdistributionofthegeneralfundsofthesociety—itbribesamanufacturertocommenceorcontinueinacomparativelylessprofitableemployment.Itistheworstspeciesoftaxation,foritdoesnotgivetotheforeigncountryallthatittakesawayfromthehomecountry,thebalanceoflossbeingmadeupbythelessadvantageousdistributionofthegeneralcapital.Thus,ifthepriceofcornisinEngland4l.,andinFrance3l.15s.abountyof10s.willultimatelyreduceitto3l.10s.inFrance,andmaintainitatthesamepriceof4l. inEngland.Foreveryquarterexported,Englandpaysa taxof10s.ForeveryquarterimportedintoFrance,Francegainsonly5s.,sothatthevalueof5s.perquarterisabsolutelylosttotheworld,bysuchadistributionofitsfundsastocausediminishedproduction,probablynotofcorn,butofsomeotherobjectofnecessityorenjoyment.

Mr.BuchananappearstohaveseenthefallacyofDr.Smith'sargumentsrespectingbounties,andonthelastpassagewhichIhavequoted,veryjudiciouslyremarks:"Inassertingthatnaturehasstampeda

realvalueoncorn,whichcannotbealteredbymerelyalteringitsmoneyprice,Dr.Smithconfoundsits value in use, with its value in exchange. A bushel of wheat will not feed more people duringscarcitythanduringplenty;butabushelofwheatwillexchangeforagreaterquantityofluxuriesandconveniences when it is scarce, than when it is abundant; and the landed proprietors, who have asurplusoffoodtodisposeof,willtherefore,intimesofscarcity,berichermen;theywillexchangetheirsurplusforagreatervalueofotherenjoyments,thanwhencornisingreaterplenty.Itisvaintoargue,therefore,thatifthebountyoccasionsaforcedexportationofcorn,itwillnotalsooccasionareal riseofprice."ThewholeofMr.Buchanan'sargumentson thispartof the subjectofbounties,appeartometobeperfectlyclearandsatisfactory.

Mr. Buchanan however has not, I think, anymore than Dr. Smith, or the writer in the EdinburghReview, correct opinions as to the influence of a rise in the price of labour on manufacturedcommodities. Fromhis peculiar views,which I have elsewhere noticed, he thinks that the price oflabourhasnoconnexionwiththepriceofcorn,andthereforethattherealvalueofcornmightandwouldrisewithoutaffectingthepriceoflabour;butiflabourwereaffected,hewouldmaintainwithAdam Smith and thewriter in the EdinburghReview, that the price ofmanufactured commoditieswouldalsorise;andthenIdonotseehowhewoulddistinguishsuchariseofcorn,fromafallinthevalueofmoney,orhowhecouldcometoanyotherconclusion thanthatofDr.Smith. Inanote topage276,vol. i. of theWealthofNations,Mr.Buchananobserves, "but thepriceof corndoesnotregulate themoney price of all the other parts of the rude produce of land. It regulates the priceneitherofmetals,norofvariousotherusefulsubstances,suchascoals,wood,stones,&c.;andasitdoesnotregulatethepriceoflabour,itdoesnotregulatethepriceofmanufactures;sothatthebounty,in so far as it raises thepriceof corn, isundoubtedlya realbenefit to the farmer. It isnoton thisground, therefore, that its policymust be argued. Its encouragement to agriculture, by raising thepriceofcorn,mustbeadmitted;andthequestionthencomestobe,whetheragricultureoughttobethusencouraged?"—Itisthen,accordingtoMr.Buchanan,arealbenefittothefarmer,becauseitdoesnotraisethepriceoflabour;butifitdid,itwouldraisethepriceofallthingsinproportion,andthenitwouldaffordnoparticularencouragementtoagriculture.

Itmust,however,beconceded,thatthetendencyofabountyontheexportationofanycommodityistolowerinasmalldegreethevalueofmoney.Whateverfacilitatesexportation,tendstoaccumulatemoney in a country; and on the contrary,whatever impedes exportation, tends to diminish it. Thegeneral effect of taxation, by raising the prices of the commodities taxed, tends to diminishexportation, and therefore to check the influx of money; and on the same principle, a bountyencouragestheinfluxofmoney.Thisismorefullyexplainedinthegeneralobservationsontaxation.

TheinjuriouseffectsofthemercantilesystemhavebeenfullyexposedbyDr.Smith;thewholeaimofthat system was to raise the price of commodities, in the home market, by prohibiting foreigncompetition;butthissystemwasnomoreinjurioustotheagriculturalclassesthantoanyotherpartofthecommunity.Byforcingcapitalintochannelswhereitwouldnototherwiseflow,itdiminishedthewholeamountofcommoditiesproduced.Theprice,thoughpermanentlyhigher,wasnotsustainedbyscarcity,butbydifficultyofproduction;andtherefore,thoughthesellersofsuchcommoditiessoldthemforahigherprice,theydidnotsellthem,aftertherequisitequantityofcapitalwasemployedinproducingthem,athigherprofits.39

Themanufacturersthemselves,asconsumers,hadtopayanadditionalpriceforsuchcommodities,and therefore it cannot be correctly said, that "the enhancement of price occasioned by both,(corporationlawsandhighdutiesontheimportationofforeigncommodities,)iseverywherefinally

paidbythelandlords,farmers,andlabourersofthecountry."

It is themorenecessary, tomake this remark,as in thepresentday theauthorityofAdamSmith isquotedbycountrygentlemen for imposingsimilarhighdutieson the importationof foreigncorn.Because thecostofproduction,and therefore thepricesofvariousmanufacturedcommodities,areraisedtotheconsumerbyoneerrorinlegislation,thecountryhasbeencalledupon,onthepleaofjustice, quietly to submit to fresh exactions. Becausewe all pay an additional price for our linen,muslin, and cottons, it is thought just that we should pay also an additional price for our corn.Because,inthegeneraldistributionofthelabouroftheworld,wehavepreventedthegreatestamountofproductionsfrombeingobtainedbythatlabourinmanufacturedcommodities;weshouldfurtherpunishourselvesbydiminishing theproductivepowersof thegeneral labour in the supplyof rawproduce.Itwouldbemuchwisertoacknowledgetheerrorswhichamistakenpolicyhasinducedustoadopt,andimmediatelytocommenceagradualrecurrencetothesoundprinciplesofanuniversallyfreetrade.

"Ihavealreadyhadoccasiontoremark,"observesM.Say,"inspeakingofwhatisimproperlycalledthebalanceoftrade,thatifitsuitsamerchantbettertoexportthepreciousmetalstoaforeigncountrythananyothergoods, it isalsotheinterestofthestatethatheshouldexport them,becausethestateonlygainsorlosesthroughthechannelofitscitizens;andinwhatconcernsforeigntrade,thatwhichbestsuitstheindividual,bestsuitsalsothestate;therefore,byopposingobstaclestotheexportationwhich individualswouldbe inclined tomakeof thepreciousmetals,nothingmore isdone, than toforcethemtosubstitutesomeothercommoditylessprofitabletothemselves,andtothestate.Itmusthowever be remarked, that I say only in what concerns foreign trade; because the profits whichmerchants make by their dealings with their countrymen, as well as those which are made in theexclusivecommercewithcolonies,arenotentirelygainsforthestate.Inthetradebetweenindividualsofthesamecountry,thereisnoothergainbutthevalueofanutilityproduced;Quelavaleurd'uneutilitéproduite."40Vol.i.p.401.Icannotseethedistinctionheremadebetweentheprofitsofthehomeandforeigntrade.Theobjectofalltradeistoincreaseproductions.Ifforthepurchaseofapipeofwine,Ihaditinmypowertoexportbullion,whichwasboughtwiththevalueoftheproduceof100days' labour, but Government, by prohibiting the exportation of bullion, should oblige me topurchasemywinewithacommodityboughtwiththevalueoftheproduceofonehundredandfivedays'labour,theproduceoffivedays'labourislosttome,and,throughme,tothestate.Butifthesetransactions took place between individuals, in different provinces of the same country, the sameadvantagewouldaccruebothtotheindividual,and,throughhim,tothecountry,ifhewereunfetteredinhischoiceofthecommodities,withwhichhemadehispurchases;andthesamedisadvantage,ifhewere obliged by Government to purchase with the least beneficial commodity. If a manufacturercouldworkupwiththesamecapital,moreironwherecoalsareplentiful,thanhecouldwherecoalsarescarce,thecountrywouldbebenefitedbythedifference.Butifcoalswerenowhereplentiful,andheimportediron,andcouldgetthisadditionalquantity,bythemanufactureofacommodity,withthesame capital and labour, hewould in likemanner benefit his country by the additional quantity ofiron. In the 6thChap. of thiswork, I have endeavoured to shew that all trade,whether foreign ordomestic,isbeneficial,byincreasingthequantity,andnotbyincreasingthevalueofproductions.Weshallhavenogreatervalue,whetherwecarryonthemostbeneficialhomeandforeigntrade,orinconsequenceofbeingfetteredbyprohibitorylaws,weareobligedtocontentourselveswiththeleastadvantageous.The rateofprofits, and thevalueproduced,willbe the same.TheadvantagealwaysresolvesitselfintothatwhichM.Sayappearstoconfinetothehometrade;inbothcasesthereisnoothergainbutthatofthevalueofanutilitéproduite.

CHAPTERXXI.

ONBOUNTIESONPRODUCTION.

ITmaynotbeuninstructivetoconsidertheeffectsofabountyontheproductionofrawproduceandother commodities, with a view to observe the application of the principles which I have beenendeavouring to establish, with regard to the profits of stock, the annual produce of the land andlabour,andtherelativepricesofmanufacturesandrawproduce.Inthefirstplace,letussupposethatatax was imposed on all commodities, for the purpose of raising a fund to be employed byGovernment, in giving a bounty on the production of corn. As no part of such a tax would beexpended by Government, and as all that was received from one class of the people, would bereturnedtoanother,thenationcollectivelywouldneitherberichernorpoorer,fromsuchataxandbounty.Itwouldbereadilyallowed,thatthetaxoncommoditiesbywhichthefundwascreated,wouldraise thepriceof the commodities taxed; all the consumersof those commodities thereforewouldcontributetowardsthatfund;inotherwords,theirnaturalornecessarypricebeingraised,sowouldtootheirmarketprice.Butforthesamereasonthatthenaturalpriceofthosecommoditieswouldberaised, thenatural priceof cornwouldbe lowered; before thebountywaspaidonproduction, thefarmersobtainedasgreatapricefor theircornaswasnecessarytorepaythemtheirrentandtheirexpenses,andaffordthemthegeneralrateofprofits;afterthebounty,theywouldreceivemorethanthatrate,unlessthepriceofcornfellbyasumatleastequaltothebounty.Theeffectthenofthetaxandbounty,wouldbetoraisethepriceofcommoditiesinadegreeequaltothetaxleviedonthem,and to lower the price of corn by a sum equal to the bounty paid. Itwill be observed too, that nopermanent alteration could be made in the distribution of capital between agriculture andmanufactures,becauseastherewouldbenoalteration,eitherintheamountofcapitalorpopulation,therewould be precisely the same demand for bread andmanufactures. The profits of the farmerwouldbenohigherthanthegenerallevel,afterthefallinthepriceofcorn;norwouldtheprofitsofthemanufacturerbeloweraftertheriseofmanufacturedgoods;thebountythenwouldnotoccasionany more capital to be employed on the land in the production of corn, nor any less in themanufactureofgoods.Buthowwouldtheinterestofthelandlordbeaffected?Onthesameprinciplesthat a tax on raw producewould lower the corn rent of land, leaving themoney rent unaltered, abounty on production, which is directly the contrary of a tax, would raise corn rent, leaving themoneyrentunaltered.41Withthesamemoneyrentthelandlordwouldhaveagreaterpricetopayforhismanufacturedgoods,andalesspriceforhiscorn;hewouldprobablythereforebeneitherrichernorpoorer.

Nowwhethersuchameasurewouldhaveanyoperationonthewagesoflabour,woulddependonthequestion,whetherthelabourer,inpurchasingcommodities,wouldpayasmuchtowardsthetax,ashewouldreceivefromthebounty,inthelowpriceofhisfood.Ifthesetwoquantitieswereequal,wageswouldcontinueunaltered;butifthecommoditiestaxedwerenotthoseconsumedbythelabourer,hiswageswouldfall,andhisemployerwouldbebenefitedbythedifference.Butthisisnorealadvantagetohis employer; itwould indeedoperate to increase the rateofhisprofits, as every fall ofwagesmustdo;but inproportionas the labourer contributed less to the fund fromwhich thebountywaspaid,andwhich,letitberemembered,mustberaised,hisemployermustcontributemore;inotherwords,hewouldcontributeasmuchtothetaxbyhisexpenditure,ashewouldreceiveintheeffectsofthebountyandthehigherrateofprofitstogether.Heobtainsahigherrateofprofitstorequitehimforhispayment,notonlyofhisownquotaof the tax,butofhis labourer's also; the remuneration

whichhereceivesforhislabourer'squotaappearsindiminishedwages,or,whichisthesamething,inincreasedprofits;theremunerationforhisownappearsinthediminutioninthepriceofthecornwhichheconsumes,arisingfromthebounty.

Here itwillbeproper to remark thedifferenteffectsproducedonprofits fromanalteration in thereal labour value of corn, and an alteration in the relative value of corn, from taxation and frombounties.Ifcornisloweredinpricebyanalterationinitslabourprice,notonlywilltherateoftheprofitsofstockbealtered,buttheabsoluteprofitsalso;whichdoesnothappen,aswehavejustseen,whenthefallisoccasionedartificiallybyabounty.Intherealfallinthevalueofcorn,arisingfromless labour being required to produce one of the most important objects of man's consumption,labour is rendered more productive. With the same capital the same labour is employed, and anincreaseofproductionsistheresult;notonlythenwilltherateofprofits,buttheabsoluteprofitsofstockbeincreased;notonlywilleachcapitalisthaveagreatermoneyrevenue,ifheemploysthesamemoney capital, but also when that money is expended, it will procure him a greater sum ofcommodities;hisenjoymentswillbeaugmented.Inthecaseofthebounty,tobalancetheadvantagewhichhederives from the fallofonecommodity,hehas thedisadvantageofpayingapricemorethanproportionallyhighforanother;hereceivesanincreasedrateofprofitsinordertoenablehimtopaythishigherprice;sothathisrealsituationisinnowayimproved:thoughhegetsahigherrateofprofits,hehasnogreatercommandoftheproduceofthelandandlabourofthecountry.Whenthefallinthevalueofcornisbroughtaboutbynaturalcauses,itisnotcounteractedbytheriseofothercommodities;onthecontrary,theyfallfromtherawmaterialfallingfromwhichtheyaremade:butwhenthefallincornisoccasionedbyartificialmeans,itisalwayscounteractedbyarealriseinthevalueof someother commodity, so that if cornbe bought cheaper, other commodities are boughtdearer.

This then is a further proof, that no particular disadvantage arises from taxes on necessaries, onaccountoftheirraisingwagesandloweringtherateofprofits.Profitsareindeedlowered,butonlytothe amount of the labourer's portion of the tax, which must at all events, be paid either by hisemployer,orby theconsumerof theproduceof the labourer'swork.Whetheryoudeduct50l. perannumfromtheemployer'srevenue,oradd50l.tothepricesofthecommoditieswhichheconsumes,canbeofnootherconsequence tohimor to thecommunity, thanas itmayequallyaffectallotherclasses.Ifitbeaddedtothepricesofthecommodity,amisermayavoidthetaxbynotconsuming;ifitbeindirectlydeductedfromeveryman'srevenue,hecannotavoidpayinghisfairproportionofthepublicburthens.

Abountyontheproductionofcornthen,wouldproducenorealeffectontheannualproduceoftheland and labour of the country, although it would make corn relatively cheap, and manufacturesrelatively dear. But suppose now that a contrary measure should be adopted, that a tax should beraisedoncornforthepurposeofaffordingafundforabountyontheproductionofcommodities.

Insuchcase,itisevidentthatcornwouldbedear,andcommoditiescheap;labourwouldcontinueatthesameprice, if the labourerwereasmuchbenefitedby thecheapnessofcommoditiesashewasinjuredbythedearnessofcorn;butifhewerenot,wageswouldrise,andprofitswouldfall,whilemoneyrentwouldcontinuethesameasbefore;profitswouldfall,because,aswehavejustexplained,thatwouldbe themodeinwhichthe labourer'sshareof the taxwouldbepaidbytheemployersoflabour.Bytheincreaseofwagesthelabourerwouldbecompensatedforthetaxwhichhewouldpayin the increased price of corn; by not expending any part of his wages on the manufacturedcommodities, he would receive no part of the bounty; the bounty would be all received by the

employers,andthetaxwouldbepartlypaidbytheemployed;aremunerationwouldbemadetothelabourers,intheshapeofwages,forthisincreasedburdenlaiduponthem,andthustherateofprofitswouldbereduced.Inthiscasetootherewouldbeacomplicatedmeasureproducingnonationalresultwhatever.

In considering this question,we have purposely left out of our consideration the effect of such ameasureonforeigntrade;wehaveratherbeensupposingthecaseofaninsulatedcountry,havingnocommercialconnexionwithothercountries.Wehaveseenthatasthedemandofthecountryforcornand commoditieswouldbe the same,whatever direction the bountymight take, therewouldbe notemptationtoremovecapitalfromoneemploymenttoanother:butthiswouldnolongerbethecaseifthere were foreign commerce, and that commerce were free. By altering the relative value ofcommodities and corn, by producing so powerful an effect on their natural prices, we should beapplying a strong stimulus to the exportation of those commodities whose natural prices werelowered,andanequalstimulus to the importationof thosecommoditieswhosenaturalpriceswereraised,andthussuchafinancialmeasuremightentirelyalterthenaturaldistributionofemployments;totheadvantageindeedoftheforeigncountries,butruinouslytothatinwhichsoabsurdapolicywasadopted.

CHAPTERXXII.

DOCTRINEOFADAMSMITHCONCERNINGTHERENTOFLAND.

"SUCHpartsonlyoftheproduceofland,"saysAdamSmith,"cancommonlybebroughttomarket,ofwhichtheordinarypriceissufficienttoreplacethestockwhichmustbeemployedinbringingthemthither,togetherwithitsordinaryprofits.Iftheordinarypriceismorethanthis,thesurpluspartofitwillnaturallygototherentofland.Ifitisnotmore,thoughthecommoditycanbebroughttomarket,itcanaffordnorenttothelandlord.Whetherthepriceis,orisnotmore,dependsuponthedemand."

Thispassagewouldnaturallyleadthereadertoconcludethatitsauthorcouldnothavemistakenthenature of rent, and that hemust have seen that the quality of landwhich the exigencies of societymight require to be taken into cultivation would depend on "the ordinary price of its produce,"whetheritwere"sufficienttoreplacethestock,whichmustbeemployedincultivatingit,togetherwithitsordinaryprofits."

But he had adopted the notion that "there were some parts of the produce of land for which thedemandmust always be such as to afford a greater price thanwhat is sufficient to bring them tomarket;"andheconsideredfoodasoneofthoseparts.

Hesays,that"land,inalmostanysituation,producesagreaterquantityoffoodthanwhatissufficienttomaintainall thelabournecessaryforbringingit tomarket, inthemost liberalwayinwhichthatlabourisevermaintained.Thesurplustooisalwaysmorethansufficienttoreplacethestockwhichemployedthatlabour,togetherwithitsprofits.Something,therefore,alwaysremainsforarenttothelandlord."

Butwhat proof does he give of this?—no other than the assertion that "themost desert moors inNorwayandScotlandproducesomesortofpastureforcattle,ofwhichthemilkandtheincreasearealwaysmorethansufficient,notonlytomaintainallthelabournecessaryfortendingthem,andtopay

theordinaryprofittothefarmer,orowneroftheherdorflock,buttoaffordsomesmallrenttothelandlord."NowofthisImaybepermittedtoentertainadoubt.Ibelievethatasyetineverycountry,fromtherudesttothemostrefined,thereislandofsuchaqualitythatitcannotyieldaproducemorethansufficientlyvaluabletoreplacethestockemployeduponit,togetherwiththeprofitsordinaryandusualinthatcountry.InAmericaweallknowthatthisisthecase,andyetnoonemaintainsthattheprinciples which regulate rent are different in that country and in Europe. But if it were true thatEnglandhadsofaradvancedincultivation,thatatthistimetherewerenolandsremainingwhichdidnot afford a rent, itwouldbe equally true that there formerlymust havebeen such lands; and thatwhethertherebeornotisofnoimportancetothisquestion,forit isthesamethingiftherebeanycapital employed inGreat Britain on landwhich yields only the return of stockwith its ordinaryprofits,whetheritbeemployedonoldoronnewland.Ifafarmeragreesforlandonaleaseofsevenorfourteenyears,hemayproposetoemployonitacapitalof10,000l.,knowingthatattheexistingpriceofgrainandrawproduce,hecanreplacethatpartofhisstockwhichheisobligedtoexpend,payhisrent,andobtainthegeneralrateofprofit.Hewillnotemploy11,000l.,unlessthelast1,000l.can be employed so productively as to afford him the usual profits of stock. In his calculation,whetherheshallemployitornot,heconsidersonlywhetherthepriceofrawproduceissufficienttoreplacehisexpensesandprofits,forheknowsthatheshallhavenoadditionalrenttopay.Evenattheexpirationofhisleasehisrentwillnotberaised;forifhislandlordshouldrequirerent,becausethisadditional 1000l. was employed, he would withdraw it; since by employing it he gets, by thesupposition,only theordinaryandusualprofitswhichhemayobtainbyanyother employmentofstock;andthereforehecannotaffordtopayrentforit,unlessthepriceofrawproduceshouldfurtherrise,or,whichisthesamething,unlesstheusualandgeneralrateofprofitsshouldfall.

If the comprehensive mind of Adam Smith had been directed to this fact, he would not havemaintained that rent forms one of the component parts of the price of raw produce; for price iseverywhereregulatedbythereturnobtainedbythislastportionofcapital,forwhichnorentwhateverispaid.Ifhehadadvertedtothisprinciple,hewouldhavemadenodistinctionbetweenthelawwhichregulatestherentofminesandtherentofland.

"Whetheracoalmine,forexample,"hesays,"canaffordanyrent,dependspartlyuponitsfertility,andpartlyuponitssituation.Amineofanykindmaybesaidtobeeitherfertileorbarren,accordingasthequantityofmineralwhichcanbroughtfromitbyacertainquantityoflabour,isgreaterorlessthanwhatcanbebroughtbyanequalquantityfromthegreaterpartofotherminesofthesamekind.Some coalmines, advantageously situated, cannot bewrought on account of their barrenness.Theproducedoesnotpaytheexpense.Theycanaffordneitherprofitnorrent.Therearesome,ofwhichtheproduceisbarelysufficienttopaythelabour,andreplace,togetherwithitsordinaryprofits,thestockemployedinworkingthem.Theyaffordsomeprofittotheundertakerofthework,butnorenttothelandlord.Theycanbewroughtadvantageouslybynobodybutthelandlord,whobeinghimselftheundertakerofthework,getstheordinaryprofitofthecapitalwhichheemploysinit.Manycoalmines in Scotland arewrought in thismanner, and can bewrought in no other. The landlordwillallownobodyelsetoworkthemwithoutpayingsomerent,andnobodycanaffordtopayany.

"Other coalmines in the same country, sufficiently fertile, cannot bewrought on account of theirsituation.Aquantityofmineralsufficient todefraytheexpenseofworking,couldbebroughtfromtheminebytheordinary,orevenlessthantheordinaryquantityoflabour;butinaninlandcountry,thinly inhabited, andwithout either good roads orwater-carriage, this quantity could not be sold."Thewhole principle of rent is here admirably and perspicuously explained, but everyword is asapplicabletolandasit is tomines;yetheaffirmsthat"it isotherwiseinestatesaboveground.The

proportion,bothoftheirproduceandoftheirrent,isinproportiontotheirabsolute,andnottotheirrelativefertility."Butsupposethattherewerenolandwhichdidnotaffordarent;then,theamountofrenton theworst landwouldbe inproportion to the excessof thevalueof theproduce above theexpenditureofcapitalandtheordinaryprofitsofstock:thesameprinciplewouldgoverntherentofland of a somewhat better quality, ormore favourably situated, and therefore the rent of this landwouldexceedtherentofthatinferiortoit,bythesuperioradvantageswhichitpossessed;thesamemightbesaidofthatofthethirdquality,andsoontotheverybest.Isitnotthenascertainthatitistherelativefertilityofthelandwhichdeterminestheportionoftheproducewhichshallbepaidfortherentofland,asitisthattherelativefertilityofminesdeterminestheportionoftheirproduce,whichshallbepaidfortherentofmines?

AfterAdamSmithhasdeclaredthattherearesomemineswhichcanonlybeworkedbytheowners,astheywillaffordonlysufficienttodefraytheexpenseofworking,togetherwiththeordinaryprofitsofthecapitalemployed,weshouldexpectthathewouldadmitthatitwastheseparticularmineswhichregulated the price of the produce. If the oldmines are insufficient to supply the quantity of coalrequired,thepriceofcoalwillrise,andwillcontinuerisingtilltheownerofanewandinferiorminefindsthathecanobtaintheusualprofitsofstockbyworkinghismine.Ifhisminebetolerablyfertile,the risewill not be great before it becomes his interest so to employ his capital; but if it be lessproductive,itisevidentthatthepricemustcontinuetorisetillitwillaffordhimthemeansofpayinghisexpenses,andobtaining theordinaryprofitsof stock. It appears, then, that it isalways the leastfertileminewhich regulates the price of coal.AdamSmith, however, is of a different opinion: heobserves,that"themostfertilecoalminetooregulatesthepriceofcoalsatalltheotherminesinitsneighbourhood.Both the proprietor and the undertaker of thework find, the one that he canget agreaterrent,theother,thathecangetagreaterprofit,bysomewhatundersellingalltheirneighbours.Theirneighboursaresoonobligedtosellatthesameprice,thoughtheycannotsowellaffordit,andthough it always diminishes, and sometimes takes away altogether, both their rent and their profit.Someworks are abandoned altogether; others can affordno rent, and canbewrought onlyby theproprietor."Ifthedemandforcoalshouldbediminished,orifbynewprocessesthequantityshouldbeincreased,thepricewouldfall,andsomemineswouldbeabandoned;butineverycase,thepricemustbesufficienttopaytheexpensesandprofitofthatminewhichisworkedwithoutbeingchargedwithrent.It isthereforetheleastfertileminewhichregulatesprice.Indeedit issostatedinanotherplace byAdam Smith himself, for he says, "The lowest price at which coals can be sold for anyconsiderabletime,islikethatofallothercommodities,thepricewhichisbarelysufficienttoreplace,togetherwithitsordinaryprofits,thestockwhichmustbeemployedinbringingthemtomarket.Atacoalmine forwhich the landlord canget no rent, butwhichhemust eitherworkhimself, or let italonealltogether,thepriceofcoalsmustgenerallybenearlyaboutthisprice."

Butthesamecircumstance,namely,theabundanceandconsequentcheapnessofcoals,fromwhatevercause itmayarise,whichwouldmake it necessary to abandon thoseminesonwhich therewasnorent,oraverymoderateone,would,iftherewerethesameabundance,andconsequentcheapnessofrawproduce, render itnecessary toabandon thecultivationof those lands forwhicheitherno rentwaspaid,oraverymoderateone.If,forexample,potatoesshouldbecomethegeneralandcommonfoodofthepeople,asriceisinsomecountries,onefourth,oronehalfofthelandnowincultivation,would probably be immediately abandoned; for if, asAdamSmith says, "an acre of potatoeswillproducesixthousandweightofsolidnourishment, threetimesthequantityproducedbytheacreofwheat,"therecouldnotbeforaconsiderabletimesuchamultiplicationofpeople,astoconsumethequantity thatmight be raised on the land before employed for the cultivation ofwheat;much landwould consequently be abandoned, and rentwould fall; and itwouldnot be till the populationhad

beendoubledortrebled,thatthesamequantityoflandcouldbeincultivation,andtherentpaidforitashighasbefore.

Neither would any greater proportion of the gross produce be paid to the landlord, whether itconsistedofpotatoes,whichwouldfeed threehundredpeople,orofwheat,whichwouldfeedonlyone hundred; because, though the expenses of production would be very much diminished if thelabourer'swageswerechieflyregulatedbythepriceofpotatoesandnotbythepriceofwheat,andthough therefore the proportion of thewhole gross produce, after paying the labourers,would begreatlyincreased,yetnopartofthatadditionalproportionwouldgotorent,butthewholeinvariablytoprofits,—profitsbeingatalltimesraisedaswagesfall,andloweredaswagesrise.Whetherwheatorpotatoeswerecultivated,rentwouldbegovernedbythesameprinciple—itwouldbealwaysequalto thedifferencebetween thequantitiesofproduceobtainedwithequal capitals, eitheron the samelandoronlandofdifferentqualities;andtherefore,whilelandsofthesamequalitywerecultivated,andtherewasnoalterationintheirrelativefertilityoradvantages,rentwouldalwaysbearthesameproportiontothegrossproduce.

AdamSmith,however,maintainsthattheproportionwhichfallstothelandlordwouldbeincreasedbyadiminishedcostofproduction,andtherefore,thathewouldreceivealargershareaswellasalarger quantity, froman abundant than froma scantyproduce. "A rice field," he says, "produces amuchgreaterquantityoffoodthanthemostfertilecornfield.Twocropsintheyear,fromthirtytosixtybushelseach,aresaid tobe theordinaryproduceofanacre.Though itscultivation thereforerequiresmorelabour,amuchgreatersurplusremainsaftermaintainingallthatlabour.Inthosericecountriestherefore,wherericeisthecommonandfavouritevegetablefoodofthepeople,andwherethecultivatorsarechieflymaintainedwithit,agreatershareofthisgreatersurplusshouldbelongtothelandlordthanincorncountries."

Mr.Buchananalso remarks, that "it isquite clear, that if anyotherproducewhich the landyieldedmoreabundantlythancorn,weretobecomethecommonfoodofthepeople,therentofthelandlordwouldbeimprovedinproportiontoitsgreaterabundance."

Ifpotatoeswere tobecome thecommonfoodof thepeople, therewouldbea long intervalduringwhichthe landlordswouldsufferanenormousdeductionofrent.Theywouldnotprobablyreceivenearlysomuchofthesustenanceofmanastheynowreceive,whilethatsustenancewouldfall toathirdofitspresentvalue.Butallmanufacturedcommodities,onwhichapartofthelandlord'srentisexpended,wouldsuffernootherfall thanthatwhichproceededfromthefall intherawmaterialofwhichtheyweremade,andwhichwouldariseonlyfromthegreaterfertilityoftheland,whichmightthenbedevotedtoitsproduction.

When from the progress of population, land of the same quality as before should be taken intocultivation, to produce the food required, and the same number of men should be employed inproducingit,thelandlordwouldhavenotonlythesameproportionoftheproduceasbefore,butthatproportionwouldalsobeofthesamevalueasbefore.Rentthenwouldbethesameasbefore;profits,however,would bemuch higher, because the price of food, and consequently ofwages,would bemuchlower.Highprofitsarefavourabletotheaccumulationofcapital.Thedemandforlabourwouldfurtherincrease,andlandlordswouldbepermanentlybenefitedbytheincreaseddemandforland.

Theinterestofthelandlordisalwaysopposedtothatoftheconsumerandmanufacturer.Corncanbepermanentlyatanadvancedprice,onlybecauseadditionallabourisnecessarytoproduceit;becauseits cost of production is increased. The same cause invariably raises rent, it is therefore for the

interest of the landlord that the cost attending the production of corn should be increased. This,however,isnottheinterestoftheconsumer;tohimitisdesirablethatcornshouldbelowrelativelyto money and commodities, for it is always with commodities or money that corn is purchased.Neitherisittheinterestofthemanufacturerthatcornshouldbeatahighprice,forthehighpriceofcornwill occasion highwages, butwill not raise the price of his commodity.Not only thenmustmoreofhiscommodity,or,whichcomestothesamething,thevalueofmoreofhiscommodity,begiveninexchangeforthecornwhichhehimselfconsumes,butmoremustbegiven,orthevalueofmore,forwagestohisworkmen,forwhichhewillreceivenoremuneration.Allclassestherefore,except the landlords,willbe injuredby the increase in thepriceofcorn.Thedealingsbetween thelandlordandthepublicarenotlikedealingsintrade,wherebyboththesellerandbuyermayequallybesaidtogain,butthelossiswhollyononeside,andthegainwhollyontheother;andifcorncouldbyimportationbeprocuredcheaper,thelossinconsequenceofnotimportingisfargreaterononeside,thanthegainisontheother.

AdamSmithnevermakesanydistinctionbetweena lowvalueofmoney,andahighvalueofcorn,and therefore infers, that the interest of the landlord is not opposed to that of the rest of thecommunity. In the firstcase,money is lowrelatively toallcommodities; in theother,corn ishighrelativelytoall.Inthefirst,cornandcommoditiescontinueatthesamerelativevalues,inthesecond,cornishigherrelativelytocommoditiesaswellasmoney.

The following observation ofAdamSmith is applicable to a low value ofmoney, but it is totallyinapplicabletoahighvalueofcorn."Ifimportation(ofcorn)wasatalltimesfree,ourfarmersandcountrygentlemenwouldprobablyoneyearwithanother,getlessmoneyfortheircornthantheydoatpresent,whenimportationisatmosttimesineffectprohibited;butthemoneywhichtheygotwouldbeofmorevalue,wouldbuymoregoodsofallotherkinds,andwouldemploymorelabour.Theirrealwealth,theirrealrevenue,therefore,wouldbethesameasatpresent,thoughitmightbeexpressedbya smaller quantity of silver; and theywould neither be disabled nor discouraged from cultivatingcorn as much as they do at present. On the contrary, as the rise in the real value of silver, inconsequenceof lowering themoney price of corn, lowers somewhat themoney price of all othercommodities,itgivestheindustryofthecountrywhereittakesplace,someadvantageinallforeignmarkets,andtherebytendstoencourageandincreasethatindustry.Buttheextentofthehomemarketfor corn, must be in proportion to the general industry of the country where it grows, or to thenumberofthosewhoproducesomethingelse,togiveinexchangeforcorn.Butineverycountrythehomemarket,asitisthenearestandmostconvenient,soisitlikewisethegreatestandmostimportantmarket forcorn.That rise in the realvalueofsilver, therefore,which is theeffectof lowering theaveragemoneypriceofcorn,tendstoenlargethegreatestandmostimportantmarketforcorn,andtherebytoencourage,insteadofdiscouragingitsgrowth."

Ahighorlowmoneypriceofcorn,arisingfromtheabundanceandcheapnessofgoldandsilver,isofnoimportancetothelandlord,aseverysortofproducewouldbeequallyaffected,justasAdamSmithdescribes;butarelativelyhighpriceofcornisatalltimesgreatlybeneficialtothelandlord,aswiththesamequantityofcornitnotonlygiveshimacommandoveragreaterquantityofmoney,butoveragreaterquantityofeverycommoditywhichmoneycanpurchase.

CHAPTERXXIII.

ONCOLONIALTRADE.

ADAMSMITH,inhisobservationsoncolonialtrade,hasshewn,mostsatisfactorily,theadvantagesofafreetrade,andtheinjusticesufferedbycolonies,inbeingpreventedbytheirmothercountries,fromsellingtheirproduceatthedearestmarket,andbuyingtheirmanufacturesandstoresatthecheapest.Hehasshewn,thatbypermittingeverycountryfreelytoexchangetheproduceofitsindustrywhenandwhereitpleases,thebestdistributionofthelabouroftheworldwillbeeffected,andthegreatestabundanceofthenecessariesandenjoymentsofhumanlifewillbesecured.

He has attempted also to shew, that this freedom of commerce, which undoubtedly promotes theinterest of the whole, promotes also that of each particular country; and that the narrow policyadopted in the countries of Europe respecting their colonies, is not less injurious to the mothercountriesthemselves,thantothecolonieswhoseinterestsaresacrificed.

"Themonopolyofthecolonytrade,"hesays,"likealltheothermeanandmalignantexpedientsofthemercantile system, depresses the industry of all other countries, but chiefly that of the colonies,without,intheleast,increasing,butonthecontrarydiminishing,thatofthecountryinwhosefavouritisestablished."

Thispartofhissubject,however,isnottreatedinsoclearandconvincingamannerasthatinwhichheshewstheinjusticeofthissystemtowardsthecolony.

Without affirming or denying, that the actual practice of Europe with regard to their colonies isinjurious to themother countries, Imay be permitted to doubtwhether amother countrymay notsometimes be benefited by the restraints towhich she subjects her colonial possessions.Who candoubt,forexample,thatifEnglandwerethecolonyofFrance,thelattercountrywouldbebenefitedbyaheavybountypaidbyEnglandontheexportationofcorn,cloth,oranyothercommodities?Inexaminingthequestionofbounties,onthesuppositionofcornbeingat4l.perquarterinthiscountry,we saw, that with a bounty of 10s. per quarter, on exportation in England, cornwould have beenreducedto3l.10s.inFrance.Now,ifcornhadpreviouslybeenat3l.15s.perquarterinFrance,theFrenchconsumerswouldhavebeenbenefitedby5s.perquarteronallimportedcorn;ifthenaturalpriceofcorninFrancewerebefore4l.,theywouldhavegainedthewholebountyof10s.perquarter.FrancewouldthusbebenefitedbythelosssustainedbyEngland:shewouldnotgainapartonlyofwhatEnglandlost,butinsomecasesthewhole.

Itmayhoweverbesaid, thatabountyonexportationisameasureof internalpolicy,andcouldnoteasilybeimposedbythemothercountry.

IfitwouldsuittheinterestsofJamaicaandHollandtomakeanexchangeofthecommoditieswhichtheyrespectivelyproduce,withouttheinterventionofEngland,itisquitecertain,thatbytheirbeingpreventedfromsodoing,theinterestsofHollandandJamaicawouldsuffer;butifJamaicaisobligedto send her goods to England, and there exchange them for Dutch goods, an English capital, orEnglishagency,willbeemployedinatradeinwhichitwouldnototherwisebeengaged.Itisalluredthitherbyabounty,notpaidbyEngland,butbyHollandandJamaica.

That the loss sustained, through a disadvantageousdistributionof labour in two countries,maybebeneficialtooneofthem,whiletheotherismadetosuffermorethanthelossactuallybelongingtosuchadistribution,hasbeenstatedbyAdamSmithhimself;which,iftrue,willatonceprovethatameasure,whichmaybegreatlyhurtfultoacolony,maybepartiallybeneficialtothemothercountry.

Speakingoftreatiesofcommerce,hesays,"Whenanationbindsitselfbytreaty,eithertopermittheentryofcertaingoodsfromoneforeigncountrywhichitprohibitsfromallothers,ortoexemptthegoodsofonecountryfromdutiestowhichitsubjectsthoseofallothers,thecountry,oratleastthemerchants and manufacturers of the country, whose commerce is so favoured, must necessarilyderivegreatadvantagefromthetreaty.Thosemerchantsandmanufacturersenjoyasortofmonopolyinthecountry,whichissoindulgenttothem.Thatcountrybecomesamarketbothmoreextensiveandmoreadvantageousfortheirgoods;moreextensive,becausethegoodsofothernations,beingeitherexcludedorsubjected toheavierduties, it takesoffagreaterquantityof them;moreadvantageous,becausethemerchantsofthefavouredcountryenjoyingasortofmonopolythere,willoftenselltheirgoodsforabetterpricethanifexposedtothefreecompetitionofallothernations."

Let the two nations, betweenwhich the commercial treaty ismade, be themother country and hercolony,andAdamSmith,itisevident,admits,thatamothercountrymaybebenefitedbyoppressinghercolony.Itmay,however,beagainremarked,thatunlessthemonopolyoftheforeignmarketbeinthehandsofanexclusivecompany,nomorewillbepaidforcommoditiesbyforeignpurchasersthanbyhomepurchasers;thepricewhichtheywillbothpaywillnotdiffergreatlyfromtheirnaturalpricein thecountrywhere theyareproduced.England, forexample,will,underordinarycircumstances,alwaysbeabletobuyFrenchgoods,atthenaturalpriceofthosegoodsinFrance,andFrancewouldhaveanequalprivilegeofbuyingEnglishgoodsattheirnaturalpriceinEngland.Butattheseprices,goodswouldbeboughtwithoutatreaty.Ofwhatadvantageordisadvantagethenisthetreatytoeitherparty?

Thedisadvantageofthetreatytotheimportingcountrywouldbethis:itwouldbindhertopurchaseacommodity,fromEnglandforexample,atthenaturalpriceofthatcommodityinEngland,whenshemightperhapshaveboughtitatthemuchlowernaturalpriceofsomeothercountry.Itoccasionsthenadisadvantageousdistributionofthegeneralcapital,whichfallschieflyonthecountryboundbyitstreatytobuyintheleastproductivemarket;butitgivesnoadvantagetotheselleronaccountofanysupposedmonopoly,forheispreventedbythecompetitionofhisowncountrymenfromsellinghisgoodsabove theirnaturalprice;atwhichhewouldsell them,whetherheexported themtoFrance,Spain,ortheWestIndies,orsoldthemforhomeconsumption.

In what then does the advantage of the stipulation in the treaty consist? It consists in this: theseparticulargoodscouldnothavebeenmade inEnglandforexportation,but for theprivilegewhichshealonehadofservingthisparticularmarket;forthecompetitionofthatcountry,wherethenaturalpricewaslower,wouldhavedeprivedherofallchanceofsellingthosecommodities.This,however,would have beenof little importance, ifEnglandwere quite secure that she could sell to the sameamount any other goods which she might fabricate, either in the French market, or with equaladvantageinanyother.TheobjectwhichEnglandhasinview,is,forexample, tobuyaquantityofFrenchwinesofthevalueof5000l.—shedesiresthentosellgoodssomewherebywhichshemayget5000l.forthispurpose.IfFrancegivesheramonopolyoftheclothmarket,shewillreadilyexportcloth for this purpose; but if the trade is free, the competition of other countriesmay prevent thenaturalpriceofclothinEnglandfrombeingsufficientlylowtoenablehertoget5000l.bythesaleofcloth,andtoobtain theusualprofitsbysuchanemploymentofherstock.TheindustryofEnglandmustbeemployedthenonsomeothercommodity;buttheremaybenoneofherproductionswhich,attheexistingvalueofmoney,shecanaffordtosellatthenaturalpriceofothercountries.Whatistheconsequence? The wine drinkers of England are still willing to give 5000l. for their wine, andconsequently5000l.inmoneyisexportedtoFranceforthatpurpose.Bythisexportationofmoneyitsvalue is raised in England, and lowered in other countries; and with it the natural price of all

commoditiesproducedbyBritishindustryisalsolowered.Theadvanceinthepriceofmoneyisthesame thing as thedecline in theprice of commodities.Toobtain5000l.,British commoditiesmaynow be exported; for at their reduced natural price theymay now enter into competitionwith thegoods of other countries. More goods are sold, however, at the low prices to obtain the 5000l.required, which, when obtained, will not procure the same quantity of wine; because, whilst thediminutionofmoneyinEnglandhasloweredthenaturalpriceofgoodsthere,theincreaseofmoneyinFrancehasraisedthenaturalpriceofgoodsandwineinFrance.Lesswinethenwillbeimportedinto England, in exchange for its commodities, when the trade is perfectly free, thanwhen she ispeculiarlyfavouredbycommercialtreaties.Therateofprofitshoweverwillnothavevaried;moneywillhavealteredinrelativevalueinthetwocountries,andtheadvantagegainedbyFrancewillbetheobtainingagreaterquantityofEnglish,inexchangeforagivenquantityofFrenchgoods,whilethelosssustainedbyEnglandwillconsist inobtainingasmallerquantityofFrenchgoodsinexchangeforagivenquantityofthoseofEngland.

Foreigntradethen,whetherfettered,encouraged,orfree,willalwayscontinue,whatevermaybethecomparativedifficultyofproductionindifferentcountries;butitcanonlyberegulatedbyalteringthenaturalprice,notthenaturalvalueatwhichcommoditiescanbeproducedinthosecountries,andthatiseffectedbyalteringthedistributionofthepreciousmetals.ThisexplanationconfirmstheopinionwhichIhaveelsewheregiven,thatthereisnotatax,abounty,oraprohibitionontheimportationorexportationcommoditieswhichdoesnotoccasionadifferentdistributionofthepreciousmetals,andwhichdoesnotthereforeeverywherealterboththenaturalandthemarketpriceofcommodities.

Itisevidentthen,thatthetradewithacolonymaybesoregulated,thatitshallatthesametimebelessbeneficialtothecolony,andmorebeneficialtothemothercountry,thanaperfectlyfreetrade.Asitisdisadvantageoustoasingleconsumertoberestrictedinhisdealingstooneparticularshop,soisitdisadvantageousforanationofconsumerstobeobligedtopurchaseofoneparticularcountry.Iftheshoporthecountryaffordedthegoodsrequiredthecheapest,theywouldbesecureofsellingthemwithout any such exclusive privilege; and if they did not sell cheaper, the general interest wouldrequire that theyshouldnotbeencouraged tocontinuea tradewhich theycouldnotcarryonatanequal advantage with others. The shop, or the selling country, might lose by the change ofemployments,butthegeneralbenefitisneversofullysecured,asbythemostproductivedistributionofthegeneralcapital;thatistosay,byanuniversallyfreetrade.

Anincreaseinthecostofproductionofacommodity,ifitbeanarticleofthefirstnecessity,willnotnecessarilydiminishitsconsumption;foralthoughthegeneralpowerofthepurchaserstoconsume,isdiminishedby the riseofanyonecommodity,yet theymayrelinquish theconsumptionofsomeothercommoditywhosecostofproductionhasnotrisen.Inthatcase,thequantitysuppliedwillbeinthesameproportiontothedemandasbefore;thecostofproductiononlywillhaveincreased,andyetthepricewillrise,andmustrise,toplacetheprofitsoftheproduceroftheenhancedcommodityonalevelwiththeprofitsderivedfromothertrades.

M.Sayacknowledgesthatthecostofproductionisthefoundationofprice,andyetinvariouspartsofhisbookhemaintains thatprice is regulatedby theproportionwhichdemandbears tosupply.Thereal and ultimate regulator of the relative value of any two commodities, is the cost of theirproduction, and neither the respective quantities which may be produced, nor the competitionamongstthepurchasers.

According to Adam Smith the colony trade, by being one in which British capital only can beemployed,hasraisedtherateofprofitsofallothertrades;andasinhisopinionhighprofits,aswell

ashighwages,raisethepricesofcommodities,themonopolyofthecolonytradehasbeen,accordingto him, injurious to the mother country; as it has diminished her power of selling manufacturedcommoditiesascheapasothercountries.Hesays,that"inconsequenceofthemonopoly,theincreaseof the colony trade has not somuch occasioned an addition to the tradewhichGreat Britain hadbefore,asatotalchangeinitsdirection.Secondly,thismonopolyhasnecessarilycontributedtokeepuptherateofprofitinallthedifferentbranchesofBritishtrade,higherthanitnaturallywouldhavebeen,hadallnationsbeenallowedafree trade to theBritishcolonies.""Butwhateverraises inanycountrytheordinaryrateofprofithigherthanitotherwisewouldbe,necessarilysubjectsthatcountrybothtoanabsolute,andtoarelativedisadvantageineverybranchoftradeofwhichshehasnotthemonopoly. It subjects her to an absolute disadvantage, because in such branches of trade, hermerchantscannotgetthisgreaterprofitwithoutsellingdearerthantheyotherwisewoulddo,boththegoods of foreign countrieswhich they import into their own, and the goods of their own countrywhichtheyexporttoforeigncountries.Theirowncountrymustbothbuydearerandselldearer;mustbothbuylessandsellless;mustbothenjoylessandproducelessthansheotherwisewoulddo."

"Our merchants frequently complain of the high wages of British labour as the cause of theirmanufacturesbeingundersoldinforeignmarkets;buttheyaresilentaboutthehighprofitsofstock.Theycomplainoftheextravagantgainofotherpeople,buttheysaynothingoftheirown.ThehighprofitsofBritishstock,however,maycontributetowardsraisingthepriceofBritishmanufactureinmanycasesasmuch,andinsomeperhapsmore,thanthehighwagesofBritishlabour."

Iallow that themonopolyof thecolony tradewill change,andoftenprejudicially, thedirectionofcapital;but fromwhat Ihavealready saidon the subjectofprofits, itwillbe seen that anychangefromoneforeigntradetoanother,orfromhometoforeigntrade,cannot,inmyopinion,affecttherate of profits. The injury suffered will be what I have just described; there will be a worsedistributionofthegeneralcapitalandindustry,andthereforelesswillbeproduced.Thenaturalpriceof commoditieswill be raised, and therefore, though the consumerwill be able topurchase to thesamemoneyvalue,hewillobtainalessquantityofcommodities.Itwillbeseentoo,thatifitevenhadtheeffectofraisingprofits,itwouldnotoccasiontheleastalterationinprices;pricesbeingregulatedneitherbywagesnorprofits.

AnddoesnotAdamSmithagreeinthisopinion,whenhesays,that"thepricesofcommodities,orthevalueofgoldandsilver,ascomparedwithcommodities,dependsupon theproportionbetween thequantity of labour which is necessary, in order to bring a certain quantity of gold and silver tomarket,and thatwhich isnecessary tobring thitheracertainquantityofanyothersortofgoods?"Thatquantitywillnotbeaffected,whetherprofitsbehighorlow,orwagesloworhigh.Howthencanpricesberaisedbyhighprofits?

CHAPTERXXIV.

ONGROSSANDNETREVENUE.

ADAMSMITHconstantlymagnifiestheadvantageswhichacountryderivesfromalargegross,ratherthanalargenetincome."Inproportionasagreatershareofthecapitalofacountryisemployedinagriculture,"hesays,"thegreaterwillbethequantityofproductivelabourwhichitputsintomotionwithinthecountry;aswilllikewisebethevaluewhichitsemploymentaddstotheannualproduceof

thelandandlabourof thesociety.Afteragriculture, thecapitalemployedinmanufacturesputs intomotionthegreatestquantityofproductivelabour,andaddsthegreatestvaluetotheannualproduce.Thatwhichisemployedinthetradeofexportationhastheleasteffectofanyofthethree."42

Grantingforamomentthatthisweretrue;whatwouldbetheadvantageresultingtoacountryfromtheemploymentofagreatquantityofproductive labour, if,whether it employed thatquantityorasmaller,itsnetrentandprofitstogetherwouldbethesame.Thewholeproduceofthelandandlabourofeverycountryisdividedintothreeportions;ofthese,oneportionisdevotedtowages,anothertoprofits,andtheothertorent.Itisfromthetwolastportionsonly,thatanydeductionscanbemadefortaxes, or for savings; the former, if moderate, constituting always the necessary expenses ofproduction. To an individual, with a capital of 20,000l., whose profits were 2000l. per annum, itwouldbeamatterquiteindifferent,whetherhiscapitalwouldemployahundred,orathousandmen,whetherthecommodityproducedsoldfor10,000l.,orfor20,000l.,provided,inallcases,hisprofitswerenotdiminishedbelow2000l.Isnottherealinterestofthenationsimilar?Provideditsnetrealincome,itsrentandprofitsbethesame,itisofnoimportancewhetherthenationconsistsoftenoroftwelve millions of inhabitants. Its power of supporting fleets and armies, and all species ofunproductivelabour,mustbeinproportiontoitsnet,andnotinproportiontoitsgrossincome.Iffivemillionsofmencouldproduceasmuchfoodandclothingaswasnecessaryfor tenmillions, foodandclothingforfivemillionswouldbethenetrevenue.Woulditbeofanyadvantagetothecountry,that toproducethissamenetrevenue,sevenmillionsofmenshouldberequired, that is tosay, thatsevenmillionsshouldbeemployedtoproducefoodandclothingsufficientfortwelvemillions?Thefoodandclothingoffivemillionswouldbestillthenetrevenue.Theemployingagreaternumberofmenwouldenableusneithertoaddamantoourarmyandnavy,nortocontributeoneguineamoreintaxes.

It is not on the grounds of any supposed advantage accruing from a large population, or of thehappinessthatmaybeenjoyedbyagreaternumberofhumanbeings,thatAdamSmithsupportsthepreferenceofthatemploymentofcapital,whichgivesmotiontothegreatestquantityofindustry,butexpresslyonthegroundofitsincreasingthepowerofthecountry;forhesays,that"theriches,and,sofaraspowerdependsuponriches,thepowerofeverycountrymustalwaysbeinproportiontothevalueofitsannualproduce,thefundfromwhichalltaxesmustultimatelybepaid."Itmusthoweverbeobvious, that thepowerofpayingtaxes, is inproportion to thenet,andnot inproportion to thegrossrevenue.

In the distribution of employments amongst all countries, the capital of poorer nations will benaturallyemployedinthosepursuits,whereinagreatquantityoflabourissupportedathome,becauseinsuchcountriesthefoodandnecessariesforanincreasingpopulationcanbemosteasilyprocured.Inrichcountries,onthecontrary,wherefoodisdear,capitalwillnaturallyflow,whentradeisfree,intothoseoccupations,whereintheleastquantityoflabourisrequiredtobemaintainedathome:suchasthecarryingtrade,thedistantforeigntrade,whereprofitsareinproportiontothecapital,andnotinproportiontothequantityoflabouremployed.43

AlthoughIadmit,thatfromthenatureofrent,agivencapitalemployedinagriculture,onanybuttheland last cultivated, puts inmotion a greater quantity of labour than an equal capital employed inmanufactures and trade, yet I cannot admit that there is any difference in the quantity of labouremployedbyacapitalengagedinthehometrade,andanequalcapitalengagedintheforeigntrade.

"The capital which sends Scots manufactures to London, and brings back English corn and

manufactures toEdinburgh,"saysAdamSmith,"necessarilyreplaces,byeverysuchoperation, twoBritishcapitalswhichhadbothbeenemployedintheagricultureormanufacturesofGreatBritain.

"The capital employed in purchasing foreign goods for home consumption,when this purchase ismade with the produce of domestic industry, replaces too, by every such operation, two distinctcapitals;butoneofthemonlyisemployedinsupportingdomesticindustry.ThecapitalwhichsendsBritish goods to Portugal, and brings back Portuguese goods toGreat Britain, replaces, by everysuchoperation,onlyoneBritishcapital,theotherisaPortugueseone.Thoughthereturns,therefore,oftheforeigntradeofconsumptionshouldbeasquickasthehometrade,thecapitalemployedinitwillgivebutonehalftheencouragementtotheindustryorproductivelabourofthecountry."

This argument appears to me to be fallacious; for though two capitals, one Portuguese and oneEnglish, be employed, asDr.Smith supposes, still a capitalwill be employed in the foreign trade,doubleofwhatwouldbeemployedinthehometrade.SupposethatScotlandemploysacapitalofathousandpoundsinmakinglinen,whichsheexchangesfortheproduceofasimilarcapitalemployedin making silks in England. Two thousand pounds, and a proportional quantity of labour will beemployedbythetwocountries.Supposenow,thatEnglanddiscovers,thatshecanimportmorelinenfromGermany,forthesilkswhichshebeforeexportedtoScotland,andthatScotlanddiscoversthatshecanobtainmoresilksfromFranceinreturnforherlinen,thanshebeforeobtainedfromEngland,—willnotEnglandandScotland immediatelycease tradingwitheachother, andwillnot thehometradeofconsumptionbechanged fora foreign tradeofconsumption?Butalthough twoadditionalcapitalswillenterintothistrade,thecapitalofGermanyandthatofFrance,willnotthesameamountofScotch andofEnglish capital continue tobe employed, andwill it notgivemotion to the samequantityofindustryaswhenitwasengagedinthehometrade?

CHAPTERXXV.

ONCURRENCYANDBANKS.

ITisnotmyintentiontodetainthereaderbyanylongdissertationonthesubjectofmoney.Somuchhasalreadybeenwrittenoncurrency,thatofthosewhogivetheirattentiontosuchsubjects,nonebuttheprejudicedareignorantofitstrueprinciples.Ishallthereforetakeonlyabriefsurveyofsomeofthegenerallawswhichregulateitsquantityandvalue.

Goldandsilver,likeallothercommodities,arevaluableonlyinproportiontothequantityoflabournecessarytoproducethem,andbringthemtomarket.Goldisaboutfifteentimesdearerthansilver,notbecausethereisagreaterdemandforit,norbecausethesupplyofsilverisfifteentimesgreaterthan that of gold, but solely because fifteen times the quantity of labour is necessary to procure agivenquantityofit.

Thequantityofmoneythatcanbeemployedinacountrymustdependonitsvalue:ifgoldalonewereemployedforthecirculationofcommodities,aquantitywouldberequired,onefifteenthonlyofwhatwouldbenecessary,ifsilverweremadeuseofforthesamepurpose.

A circulation can never be so abundant as to overflow; for by diminishing its value, in the sameproportionyouwillincreaseitsquantity,andbyincreasingitsvalue,diminishitsquantity.44

While the state coinsmoney, and charges no seignorage,moneywill be of the same value as anyotherpieceofthesamemetalofequalweightandfineness;butifthestatechargesaseignorageforcoinage,thecoinedpieceofmoneywillgenerallyexceedthevalueoftheuncoinedpieceofmetalbythewholeseignoragecharged,because itwill requireagreaterquantityof labour,or,which is thesamething,thevalueoftheproduceofagreaterquantityoflabour,toprocureit.

While the statealonecoins, therecanbeno limit to this chargeof seignorage; forby limiting thequantityofcoin,itcanberaisedtoanyconceivablevalue.

It is on this principle that paper money circulates: the whole charge for paper money may beconsideredasseignorage.Thoughithasnointrinsicvalue,yet,by limitingitsquantity, itsvalue inexchange is as great as an equal denomination of coin, or of bullion in that coin. On the sameprinciple too, namely, by a limitationof its quantity, adebased coinwould circulate at thevalue itshouldbear,ifitwereofthelegalweightandfineness,notatthevalueofthequantityofmetalwhichitactuallycontained.InthehistoryoftheBritishcoinage,wefindaccordinglythatthecurrencywasneverdepreciatedinthesameproportionthatitwasdebased;thereasonofwhichwas,thatitneverwasmultipliedinproportiontoitsdiminishedvalue.45

Aftertheestablishmentofbanks, thestatehasnot thesolepowerofcoiningorissuingmoney.Thecurrencymay as effectually be increased by paper as by coin; so that if a statewere to debase itsmoney,and limit itsquantity, itcouldnotsupport itsvalue,because thebankswouldhaveanequalpowerofaddingtothewholequantityofcirculation.

On these principles itwill be seen, that it is not necessary that papermoney should be payable inspecie tosecure itsvalue; it isonlynecessary that itsquantityshouldberegulatedaccording to thevalueofthemetalwhichisdeclaredtobethestandard.Ifthestandardweregoldofagivenweightandfineness,papermightbeincreasedwitheveryfallinthevalueofgold,or,whichisthesamethinginitseffects,witheveryriseinthepriceofgoods.

"By issuing too great a quantity of paper," says Dr. Smith, "of which the excess was continuallyreturning, inorder tobeexchanged forgoldandsilver, theBankofEnglandwas, formanyyearstogether,obligedtocoingoldtotheextentofbetweeneighthundredthousandpoundsandamillionayear, or at an average, about eight hundred and fifty thousand pounds. For this great coinage theBank,inconsequenceofthewornanddegradedstateintowhichthegoldcoinhadfallenafewyearsago,wasfrequentlyobligedtopurchasebullion,atthehighpriceoffourpoundsanounce,whichitsoonafterissuedincoinat3l.17s.10½d.anounce,losinginthismannerbetweentwoandahalfandthree per cent. upon the coinage of so very large a sum. Though the Bank therefore paid noseignorage, though theGovernment was properly at the expense of the coinage, this liberality ofGovernmentdidnotpreventaltogethertheexpenseoftheBank."

On the principle above stated, it appears to me most clear, that by not re-issuing the paper thusbroughtin,thevalueofthewholecurrency,ofthedegradedaswellasthenewgoldcoin,wouldhavebeenraised;whenalldemandsontheBankwouldhaveceased.

Mr.Buchanan,however,isnotofthisopinion,forhesays,"thatthegreatexpensetowhichtheBankwasatthistimeexposed,wasoccasioned,not,asDr.Smithseemstoimagine,byanyimprudentissueofpaper,butbythedebasedstateofthecurrency,andtheconsequenthighpriceofbullion.TheBank,itwillbeobserved,havingnootherwayofprocuring46guineasbutbysendingbulliontotheminttobecoined,was always forced to issuenewcoinedguineas, in exchange for its returnednotes; and

whenthecurrencywasgenerallydeficient inweight,andthepriceofbullionhighinproportion, itbecameprofitabletodrawtheseheavyguineasfromtheBankinexchangeforitspaper; toconvertthemintobullion,andtosellthemwithaprofitforbankpaper,tobeagainreturnedtotheBankforanew supply of guineas,whichwere againmelted and sold. To this drain of specie, theBankmustalwaysbeexposedwhilethecurrencyisdeficientinweight,asbothaneasyandacertainprofitthenarises from the constant interchange of paper for specie. It may be remarked, however, that towhatever inconvenienceandexpense theBankwas thenexposedby thedrainof its specie, itneverwasimaginednecessarytorescindtheobligationtopaymoneyforitsnotes."

Mr.Buchananevidentlythinksthatthewholecurrencymust,necessarily,bebroughtdowntothelevelof the value of the debased pieces; but surely by a diminution of the quantity of the currency, thewholethatremainscanbeelevatedtothevalueofthebestpieces.

Dr.Smithappearstohaveforgottenhisownprinciple,inhisargumentoncolonycurrency.Insteadofascribing the depreciation of that paper to its too great abundance, he asks whether, allowing thecolonysecuritytobeperfectlygood,ahundredpounds,payablefifteenyearshence,wouldbeequallyvaluablewithahundredpoundstobepaidimmediately?Iansweryes,ifitbenottooabundant.

Experiencehowever shews, thatneither a statenor abankeverhavehad theunrestrictedpowerofissuingpapermoney,withoutabusing thatpower: inall states, therefore, the issueofpapermoneyought to be under some check and control; and none seems so proper for that purpose, as that ofsubjectingtheissuersofpapermoneytotheobligationofpayingtheirnotes,eitheringoldcoinorbullion.

Acurrencyisinitsmostperfectstatewhenitconsistswhollyofpapermoney,butofpapermoneyofan equal value with the gold which it professes to represent. The use of paper instead of goldsubstitutesthecheapestinplaceofthemostexpensivemedium,andenablesthecountry,withoutlosstoanyindividual,toexchangeallthegoldwhichitbeforeusedforthispurpose,forrawmaterials,utensils,andfood,bytheuseofwhichbothitswealthanditsenjoymentsareincreased.

In a national point of view it is of no importancewhether the issuers of thiswell regulated papermoney,bethegovernmentorabank,itwillonthewholebeequallyproductiveofriches,whetheritbeissuedbyoneorbytheother;butitisnotsowithrespecttotheinterestofindividuals.Inacountrywherethemarketrateofinterestis7percent.,andwherethestaterequiresforaparticularexpense70,000l.perannum,itisaquestionofimportancetotheindividualsofthatcountry,whethertheymustbetaxedtopaythis70,000l.perannum,orwhethertheycouldraiseitwithouttaxes.Supposethatamillionofmoneyshouldberequiredtofitoutanexpedition.Ifthestateissuedamillionofpaper,anddisplacedamillionofcoin,theexpeditionwouldbefittedoutwithoutanychargetothepeople;butifabankissuedamillionofpaper,andlentittoGovernmentat7percent.,therebydisplacingamillionofcoin,thecountrywouldbechargedwithacontinualtaxof70,000l.perannum:thepeoplewouldpaythetax,thebankwouldreceiveit,andthesocietywouldineithercasebeaswealthyasbefore;theexpeditionwouldhavebeenreallyfittedoutbytheimprovementofoursystem,byrenderingcapital,of the value of a million, productive in the form of commodities, instead of letting it remainunproductive in the form of coin; but the advantage would always be in favour of the issuers ofpaper;andasthestaterepresentsthepeople,thepeoplewouldhavesavedthetax,ifthey,andnotthebank,hadissuedthismillion.

I have already observed, that if therewere perfect security that the power of issuing papermoneywould not be abused, it would be of no importance with respect to the riches of the country

collectively,bywhomitwasissued;andIhavenowshewnthatthepublicwouldhaveadirectinterestthattheissuersshouldbethestate,andnotacompanyofmerchantsorbankers.Thedanger,however,is, that thispowerwouldbemorelikely tobeabused, if in thehandsofGovernment, thanif in thehands of a banking company.A companywould, it is said, bemore under the control of law, andalthoughitmightbetheirinteresttoextendtheirissuesbeyondtheboundsofdiscretion,theywouldbelimitedandcheckedbythepowerwhichindividualswouldhaveofcallingforbullionorspecie.Itisarguedthatthesamecheckwouldnotbelongrespected,ifGovernmenthadtheprivilegeofissuingmoney; that theywouldbe tooapt toconsiderpresentconvenience, rather than futuresecurity,andmight,therefore,ontheallegedgroundsofexpediency,betoomuchinclinedtoremovethechecks,bywhichtheamountoftheirissueswascontrolled.

Underanarbitrarygovernmentthisobjectionwouldhavegreatforce,butinafreecountry,withanenlightened legislature, the power of issuing paper money, under the requisite checks ofconvertibility at the will of the holder, might be safely lodged in the hands of commissionersappointed for that special purpose, and they might be made totally independent of the control ofministers.

Thesinkingfundismanagedbycommissioners,responsibleonlytoparliament,andtheinvestmentofthemoneyentrustedtotheircharge,proceedswiththeutmostregularity;whatreasoncantherebetodoubtthattheissuesofpapermoneymightberegulatedwithequalfidelity,ifplacedundersimilarmanagement?

Itmaybesaid, thatalthough theadvantageaccruing to thestate,and, therefore, to thepublic, fromissuingpapermoney,issufficientlymanifest,asitwouldexchangeaportionofthenationaldebt,onwhichinterestispaidbythepublic,intoadebtbearingnointerest,yetitwouldbedisadvantageoustocommerce, as it would preclude the merchants from borrowing money, and getting their billsdiscounted,themethodinwhichbankpaperispartlyissued.

This,however,istosupposethatmoneycouldnotbeborrowed,iftheBankdidnotlendit,andthatthemarket rate of interest and profit depends on the amounts of the issues ofmoney, and on thechannelthroughwhichit is issued.Butasacountrywouldhavenodeficiencyofcloth,ofwine,oranyothercommodity,iftheyhadthemeansofpayingforit,inthesamemannerneitherwouldtherebeanydeficiencyofmoney tobe lent, if theborrowersofferedgoodsecurity,andwerewilling topaythemarketrateofinterestforit.

In another part of this work, I have endeavoured to shew, that the real value of a commodity isregulated,notbytheaccidentaladvantageswhichmaybeenjoyedbysomeofitsproducers,butbytherealdifficultiesencounteredbythatproducerwhoisleastfavoured.Itissowithrespecttotheinterestformoney;itisnotregulatedbytherateatwhichtheBankwilllend,whetheritbe5,4,or3percent.,but by the rate of profits, which can be made by the employment of capital, and which is totallyindependentofthequantity,orofthevalueofmoney.Whetherabanklentonemillion,tenmillions,orahundredmillions,theywouldnotpermanentlyalterthemarketrateofinterest;theywouldalteronlythevalueofthemoneywhichtheythusissued.Inonecase10or20timesmoremoneymightberequiredtocarryonthesamebusiness,thanwhatmightberequiredintheother.TheapplicationstotheBankformoney,then,dependonthecomparisonbetweentherateofprofitsthatmaybemadebythe employment of it, and the rate atwhich they arewilling to lend it. If they charge less than themarketrateofinterest,thereisnoamountofmoneywhichtheymightnotlend,—iftheychargemorethanthatrate,nonebutspendthriftsandprodigalswouldbefoundtoborrowofthem.Weaccordinglyfind,thatwhenthemarketrateofinterestexceedstherateof5percent.atwhichtheBankuniformly

lend,thediscountofficeisbesiegedwithapplicantsformoney;and,onthecontrary,whenthemarketrateiseventemporarilyunder5percent.theclerksofthatofficehavenoemployment.

The reason then why for the last twenty years, the Bank is said to have given so much aid tocommerce,byassisting themerchantswithmoney, is,because theyhave,during thatwholeperiod,lent money below the market rate of interest; below that rate at which the merchants could haveborrowedelsewhere;but I confess that tome this seems rather anobjection to their establishment,thananargumentinfavourofit.

Whatshouldwesayofanestablishmentwhichshouldregularlysupplyhalf theclothierswith theirwoolunderthemarketprice?Ofwhatbenefitwoulditbetothecommunity?Itwouldnotextendourtrade,becausethewoolwouldequallyhavebeenbought,iftheyhadchargedthemarketpriceforit.Itwouldnotlowerthepriceofclothtotheconsumer,becausetheprice,asIhavesaidbefore,wouldberegulatedbythecostofitsproductiontothosewhoweretheleastfavoured.Itssoleeffectthen,wouldbetoswelltheprofitsofapartoftheclothiersbeyondthegeneralandcommonrateofprofits.Theestablishmentwouldbedeprivedofitsfairprofits,andanotherpartofthecommunitywouldbeinthesame degree benefited. Now this is precisely the effect of our banking establishments; a rate ofinterestisfixedbythelawbelowthatatwhichitcanbeborrowedinthemarket,andatthisratetheBankarerequiredtolend,ornottolendatall.Fromthenatureoftheirestablishment,theyhavelargefundswhichtheycanonlydisposeofinthisway;andapartofthetradersofthecountryareunfairly,andforthecountryunprofitably,benefitedbybeingenabledtosupplythemselveswithaninstrumentoftrade,atalesschargethanthosewhomustbeinfluencedonlybymarketprice.

Thewholebusiness,whichthewholecommunitycancarryon,dependsonthequantityofcapital,thatis,ofitsrawmaterial,machinery,food,vessels,&c.,employedinproduction.Afterawellregulatedpaper money is established, these can neither be increased nor diminished by the operations ofbanking. If then the state were to issue the paper money of the country, although it should neverdiscountabill,orlendoneshillingtothepublic,therewouldbenoalterationintheamountoftrade;for we should have the same quantity of raw materials, of machinery, food, and ships; and it isprobabletoo,thatthesameamountofmoneymightbelent,notat5percent.indeed,aratefixedbylaw,butat6,7,or8percent.,theresultofthefaircompetitioninthemarketbetweenthelendersandtheborrowers.

AdamSmithspeaksoftheadvantagesderivedbymerchantsfromthesuperiorityoftheScotchmodeofaffordingaccommodationtotrade,overtheEnglishmode,bymeansofcashaccounts.Thesecashaccounts are credits givenby theScotchbanker to his customers, in addition to thebillswhichhediscounts for them; but as the banker, in proportion as he advances money, and sends it intocirculation inoneway, isdebarred from issuing somuch in theother, it isdifficult toperceive inwhattheadvantageconsists.Ifthewholecirculationwillbearonlyonemillionofpaper,onemilliononlywillbecirculated;anditcanbeofnorealimportanceeithertotheBankerormerchant,whetherthewholebeissuedindiscountingbills,orapartbesoissued,andtheremainderbeissuedbymeansofthesecashaccounts.

Itmayperhaps be necessary to say a fewwords on the subject of the twometals, gold and silver,whichareemployed incurrency,particularlyas thisquestionappears toperplex, inmanypeople'sminds, the plain and simple principles of currency. "In England," says Dr. Smith, "gold was notconsideredasalegaltenderforalongtimeafteritwascoinedintomoney.Theproportionbetweenthevaluesofgoldandsilvermoneywasnotfixedbyanypubliclaworproclamation;butwaslefttobe settled by themarket. If a debtor offeredpayment in gold, the creditormight either reject such

paymentaltogether,oracceptofitatsuchavaluationofthegold,asheandhisdebtorcouldagreeupon."

Inthisstateofthingsitisevidentthataguineamightsometimespassfor22s.ormore,andsometimesfor18s.orless,dependingentirelyonthealterationintherelativemarketvalueofgoldandsilver.Allthevariationstoointhevalueofgold,aswellasinthevalueofsilver,wouldberatedinthegoldcoin,—itwouldappearasifsilverwasinvariable,andthatgoldonlywassubjecttoriseorfall.Thus,althoughaguineapassedfor22s. insteadof18s.goldmightnothavevariedinvalue, thevariationmighthavebeenwhollyconfinedtothesilver,andtherefore22s.mighthavebeenofnomorevaluethan18s.werebefore.Andonthecontrary,thewholevariationmighthavebeeninthegold:aguinea,whichwasworth18s.mighthaverisentothevalueof22s.

Ifnowwesuppose this silvercurrency tobedebasedbyclipping,andalso increased inquantity,aguineamightpassfor30s.;forthesilverin30s.ofsuchdebasedmoneymightbeofnomorevaluethanthegold inoneguinea.Byrestoringthesilvercurrencyto itsmintvalue,silvermoneywouldrise;butitwouldappearasifgoldfell,foraguineawouldprobablybeofnomorevaluethan21ofsuchgoodshillings.

If nowgoldbe alsomade a legal tender, and everydebtor be at liberty to discharge a debt by thepaymentof420shillings,or twentyguineas, forevery21l. thatheowes,hewillpay inoneor theother according as he canmost cheaply discharge his debt. If with five quarters of wheat he canprocureasmuchgoldbullionas themintwillcoin into twentyguineas,and for thesamewheatasmuchsilverbullionasthemintwillcoinforhiminto430shillings,hewillpreferpayinginsilver,becausehewouldbeagaineroftenshillingsbysopayinghisdebt.Butifonthecontraryhecouldobtainwiththiswheatasmuchgoldaswouldbecoinedintotwentyguineasandahalf,andasmuchsilveronlyaswouldcoininto420shillings,hewouldnaturallypreferpayinghisdebtingold.Ifthequantityofgoldwhichhecouldprocurecouldbecoinedonlyintotwentyguineas,andthequantityofsilverinto420shillings,itwouldbeamatterofperfectindifferencetohiminwhichmoney,silverorgold,itwasthathepaidhisdebt.Itisnotthenamatterofchance;itisnotbecausegoldisbetterfittedforcarryingonthecirculationofarichcountry,thatgoldiseverpreferredforthepurposeofpayingdebts;butsimplybecauseitistheinterestofthedebtorsotopaythem.

Duringalongperiodpreviousto1797,theyearoftherestrictionontheBankpaymentsincoin,goldwas so cheap, compared with silver, that it suited the Bank of England, and all other debtors, topurchasegoldinthemarket,andnotsilver,forthepurposeofcarryingittotheminttobecoined,astheycouldinthatcoinedmetalmorecheaplydischargetheirdebts.Thesilvercurrencywasduringagreatpartofthisperiodverymuchdebased,butitexistedinadegreeofscarcity,andthereforeontheprinciplewhichIhavebeforeexplained,itneversunkinitscurrentvalue.Thoughsodebased,itwasstill theinterestofdebtorstopayinthegoldcoin.If indeedthequantityofthisdebasedsilvercoinhad been enormously great, or if themint had issued such debased pieces, itmight have been theinterestofdebtorstopayinthisdebasedmoney;butitsquantitywaslimitedanditsustaineditsvalue,andthereforegoldwasinpracticetherealstandardofcurrency.

That itwasso, isnowheredenied;but ithasbeencontended that itwasmadesoby the lawwhichdeclared that silver should not be a legal tender for any debt exceeding 25l., unless by weight,accordingtothemintstandard.

But this lawdidnot prevent anydebtor frompaying anydebt, however large its amount, in silvercurrencyfreshfromthemint;thatthedebtordidnotpayinthismetal,wasnotamatterofchance,noramatterofcompulsion,butwhollytheeffectofchoice;itdidnotsuithimtotakesilvertothemint,itdidsuithimtotakegoldthither.Itisprobablethatifthequantityofthisdebasedsilverincirculationhadbeenenormouslygreat,andalsoalegaltender,thataguineawouldhavebeenagainworththirtyshillings; but itwould have been the debased shilling thatwould have fallen in value, and not theguineathathadrisen.

Itappearsthen,thatwhilsteachofthetwometalswasequallyalegaltenderfordebtsofanyamount,weweresubjecttoaconstantchangeintheprincipalstandardmeasureofvalue.Itwouldsometimesbegold,sometimessilver,dependingentirelyonthevariationsintherelativevalueofthetwometals,and at such times the metal, which was not the standard, would be melted, and withdrawn fromcirculation,asitsvaluewouldbegreaterinbullionthanincoin.Thiswasaninconveniencewhichitwashighlydesirableshouldberemedied,butsoslowistheprogressofimprovement,thatalthoughithadbeenunanswerablydemonstratedbyMr.Locke,andhadbeennoticedbyallwritersonthesubjectofmoneysincehisday,abettersystemwasneveradoptedtillthelastsessionofParliament,whenitwasenactedthatgoldonlyshouldbealegaltenderforanysumexceedingforty-twoshillings.

Dr.Smithdoesnotappeartohavebeenquiteawareoftheeffectofemployingtwometalsascurrency,andbothalegaltenderfordebtsofanyamount;forhesaysthat"inreality,duringthecontinuanceofanyoneregulatedproportionbetweentherespectivevaluesofthedifferentmetalsincoin,thevalueof themostpreciousmetal regulates thevalueof thewholecoin."Becausegoldwas inhisday themediuminwhichitsuiteddebtorstopaytheirdebts,hethoughtthatithadsomeinherentqualitybywhichitdidthen,andalwayswouldregulatethevalueofsilvercoin.

Onthereformationofthegoldcoinin1774anewguineafreshfromthemintwouldexchangeforonly twenty-one debased shillings; but in the reign of KingWilliam,when the silver coinwas inpreciselythesamecondition,aguineaalsonewandfreshfromthemintwouldexchangefor thirtyshillings.OnthisMr.Buchananobserves,"here,then,isamostsingularfact,ofwhichthecommontheories of currency offer no account; the guinea exchanging at one time for thirty shillings, itsintrinsic worth in a debased silver currency, and afterwards the same guinea exchanged for onlytwenty-oneofthosedebasedshillings.Itisclearthatsomegreatchangemusthaveintervenedinthestateofthecurrencybetweenthesetwodifferentperiods,ofwhichDr.Smith'shypothesisoffersnoexplanation."

Itappearstome,thatthedifficultymaybeverysimplysolved,byreferringthisdifferentstateofthevalue of the guinea at the two periods mentioned, to the different quantities of debased silvercurrency in circulation. In KingWilliam's reign gold was not a legal tender, it passed only at aconventional value. All the large payments were probably made in silver, particularly as papercurrency, and the operations of banking, were then little understood. The quantity of this debasedsilver money exceeded the quantity of silver money, which would have been maintained incirculation,ifnothingbutundebasedmoneyhadbeeninuse;andconsequentlyitwasdepreciatedaswell asdebased.But in the succeedingperiodwhengoldwas a legal tender,whenbank-notes alsowereusedineffectingpayments,thequantityofdebasedsilvermoneydidnotexceedthequantityofsilver coin fresh from themint, whichwould have circulated if there had been no debased silver

money;hencethoughthemoneywasdebased, itwasnotdepreciated.Mr.Buchanan'sexplanationissomewhatdifferent,hethinksthatasubsidiarycurrencyisnotliabletodepreciation,butthatthemaincurrency is. In King William's reign silver was the main currency, and hence was liable todepreciation.In1774itwasasubsidiarycurrency,andthereforemaintaineditsvalue.Depreciation,however,doesnotdependonacurrencybeingthesubsidiaryorthemaincurrency,itdependswhollyonitsbeinginexcessofquantity.

Toamoderateseignorageonthecoinageofmoneytherecannotbemuchobjection,particularlyonthatcurrencywhichistoeffectthesmallerpayments.Moneyisgenerallyenhancedinvaluetothefullamountoftheseignorage,andthereforeitisataxwhichinnowayaffectsthosewhopayit,whilethequantityofmoney isnot inexcess. Itmust,however,be remarked, that inacountrywhereapapercurrencyisestablished,althoughtheissuersofsuchpapershouldbeliabletopayitinspecieonthedemandoftheholder,still,boththeirnotesandthecoinmightbedepreciatedtothefullamountoftheseignorageonthatcoin,whichisalonethelegaltender,beforethecheck,whichlimitsthecirculationofpaper,wouldoperate.Iftheseignorageongoldcoinwere5percent.,forinstance,thecurrency,byanabundantissueofbank-notes,mightbereallydepreciated5percent.beforeitwouldbetheinterestoftheholderstodemandcoinforthepurposeofmeltingitintobullion;adepreciationtowhichweshouldneverbeexposed,ifeithertherewasnoseignorageonthegoldcoin;or,ifaseignoragewereallowed,theholdersofbank-notesmightdemandbullion,andnotcoin,inexchangeforthem,atthemintpriceof3l.17s.10½d.Unlessthenthebankshouldbeobligedtopaytheirnotesinbullionorcoin,atthewilloftheholder,thelatelawwhichallowsaseignorageof6percent.,orfourpenceperoz., on the silver coin, butwhich directs that gold shall be coined by themintwithout any chargewhatever,isperhapsthemostproper,asitwillmoreeffectuallypreventanyunnecessaryvariationofthecurrency.47

CHAPTERXXVI.

ONTHECOMPARATIVEVALUEOFGOLD,CORN,ANDLABOUR,INRICHANDINPOORCOUNTRIES.

"GOLDandsilver,likeallothercommodities,"saysAdamSmith,"naturallyseekthemarketwherethebest price is given for them; and the best price is commonly given for every thing in the countrywhichcanbestaffordit.Labour,itmustberemembered,istheultimatepricewhichispaidforeverything;andincountrieswherelabourisequallywellrewarded,themoneypriceoflabourwillbeinproportiontothatofthesubsistenceofthelabourer.Butgoldandsilverwillnaturallyexchangeforagreater quantity of subsistence in a rich than in a poor country; in a countrywhich aboundswithsubsistence,thaninonewhichisbutindifferentlysuppliedwithit."

Butcornisacommodity,aswellasgold,silver,andotherthings;ifallcommodities,therefore,haveahighexchangeablevalueinarichcountry,cornmustnotbeexcepted;andhencewemightcorrectlysay, that corn exchanged for a great deal of money, because it was dear, and that money tooexchangedforagreatdealofcorn,becausethatalsowasdear;whichistoassertthatcornisdearandcheap at the same time. No point in political economy can be better established, than that a richcountry is prevented from increasing in population, in the same ratio as a poor country, by theprogressivedifficultyofprovidingfood.Thatdifficultymustnecessarilyraise therelativepriceoffood,andgiveencouragementtoitsimportation.Howthencanmoney,orgoldandsilver,exchange

formorecorn in rich, than inpoorcountries? It isonly in richcountries,wherecorn isdear, thatlandholders induce the legislature toprohibit the importationof corn.Whoeverheardof a law topreventtheimportationofrawproduceinAmericaorPoland?—Naturehaseffectuallyprecludeditsimportationbythecomparativefacilityofitsproductioninthosecountries.

Howthencanitbetrue,that"ifyouexceptcorn,andsuchothervegetables,asareraisedaltogetherbyhumanindustry,allothersortsofrudeproduce—cattle,poultry,gameofallkinds,theusefulfossilsandmineralsoftheearth,&c.,naturallygrowdearerasthesocietyadvances."Whyshouldcornandvegetablesalonebeexcepted?Dr.Smith'serrorthroughouthiswholework,liesinsupposingthatthevalueofcornisconstant;thatthoughthevalueofallotherthingsmay,thevalueofcornnevercanberaised.Corn, according to him, is always of the same value, because itwill always feed the samenumberofpeople.Inthesamemanneritmightbesaid,thatclothisalwaysofthesamevalue,becauseitwillalwaysmakethesamenumberofcoats.Whatcanvaluehavetodowiththepoweroffeedingandclothing?

Corn, like every other commodity, has in every country its natural price, viz. that price which isnecessarytoitsproduction,andwithoutwhichitcouldnotbecultivated:itisthispricewhichgovernsits market price, and which determines the expediency of exporting it to foreign countries. If theimportation of corn were prohibited in England, its natural pricemight rise to 6l. per quarter inEngland,whilstitwasonlyathalfthatpriceinFrance.Ifatthistime,theprohibitionofimportationwereremoved,cornwouldfallintheEnglishmarket,nottoapricebetween6l.and3l.,butultimatelyandpermanentlytothenaturalpriceofFrance,thepriceatwhichitcouldbefurnishedtotheEnglishmarket,andaffordtheusualandordinaryprofitsofstockinFrance;anditwouldremainatthisprice,whetherEnglandconsumedahundredthousand,oramillionofquarters.If thedemandofEnglandwereforthelatterquantity,itisprobablethat,owingtothenecessityunderwhichFrancewouldbe,ofhavingrecoursetolandofaworsequality,tofurnishthislargesupply,thenaturalpricewouldriseinFrance;andthiswouldofcourseaffectalsothepriceofcorninEngland.AllthatIcontendforis,thatitisthenaturalpriceofcommoditiesintheexportingcountry,whichultimatelyregulatesthepricesatwhichtheyshallbesold,iftheyarenottheobjectsofmonopoly,intheimportingcountry.

ButDr.Smith,whohassoablysupportedthedoctrineofthenaturalpriceofcommoditiesultimatelyregulatingtheirmarketprice,hassupposedacaseinwhichhethinksthatthemarketpricewouldnotberegulatedeitherbythenaturalpriceof theexportingorof the importingcountry."Diminish thereal opulence either of Holland, or the territory of Genoa," he says, "while the number of theirinhabitantsremains thesame;diminish theirpowerofsupplying themselvesfromdistantcountries,andthepriceofcorn,insteadofsinkingwiththatdiminutioninthequantityoftheirsilverwhichmustnecessarilyaccompanythisdeclension,eitheras itscauseoras itseffect,willrise to thepriceofafamine."

To me it appears, that the very reverse would take place: the diminished power of the Dutch orGenoesetopurchasegenerally,mightdepressthepriceofcornforatimebelowitsnaturalpriceinthecountryfromwhichitwasexported,aswellasinthecountriesinwhichitwasimported,butitisquiteimpossiblethatitcouldeverraiseitabovethatprice.ItisonlybyincreasingtheopulenceoftheDutchorGenoese,thatyoucouldincreasethedemand,andraisethepriceofcornaboveitsformerprice;andthatwouldtakeplaceonlyforaverylimitedtime,unlessnewdifficultiesshouldariseinobtainingthesupply.

Dr.Smithfurtherobservesonthissubject:"Whenweareinwantofnecessaries,wemustpartwithallsuperfluities,ofwhichthevalue,asitrisesintimesofopulenceandprosperity,soitsinksintimesof

poverty and distress."This is undoubtedly true; but he continues, "it is otherwisewith necessaries.Their real price, the quantity of labour which they can purchase or command, rises in times ofpovertyanddistress,andsinksintimesofopulenceandprosperity,whicharealwaystimesofgreatabundance, for they couldnot otherwisebe timesof opulence andprosperity.Corn is a necessary,silverisonlyasuperfluity."

Twopropositionsarehereadvanced,whichhavenoconnexionwitheachother;one, thatunderthecircumstances supposed, cornwould commandmore labour,which is not disputed; the other, thatcornwouldsellatahighermoneyprice,thatitwouldexchangeformoresilver;thisIcontendtobeerroneous. Itmight be true, if cornwere at the same time scarce, if theusual supplyhadnot beenfurnished.Butinthiscaseitisabundant,itisnotpretendedthatalessquantitythanusualisimported,or thatmore is required. To purchase corn, theDutch orGenoesewantmoney, and to obtain thismoney, they are obliged to sell their superfluities. It is the market value and price of thesesuperfluitieswhichfalls,andmoneyappearstoriseascomparedwiththem.Butthiswillnottendtoincreasethedemandforcorn,nortolowerthevalueofmoney,theonlytwocauseswhichcanraisethepriceofcorn.Money,fromawantofcredit,andfromothercauses,maybeingreatdemand,andconsequentlydear,comparativelywithcorn;butonnojustprinciplecanitbemaintained,thatundersuchcircumstancesmoneywouldbecheap,andtherefore,thatthepriceofcornwouldrise.

When we speak of the high or low value of gold, silver, or any other commodity in differentcountries,weshouldalwaysmentionsomemediuminwhichweareestimatingthem,ornoideacanbeattachedto theproposition.Thus,whengoldissaidtobedearer inEnglandthaninSpain, ifnocommodityismentioned,whatnotiondoestheassertionconvey?Ifcorn,olives,oil,wine,andwool,be at a cheaper price in Spain than in England; estimated in those commodities, gold is dearer inSpain. If again, hardware, sugar, cloth, &c. be at a lower price in England than in Spain, then,estimatedinthosecommodities,goldisdearerinEngland.ThusgoldappearsdearerorcheaperinSpain, as the fancyof theobservermay fix on themediumbywhichhe estimates its value.AdamSmith,havingstampedcornandlabourasanuniversalmeasureofvalue,wouldnaturallyestimatethecomparative value of gold by the quantity of those two objects forwhich itwould exchange: and,accordingly,whenhespeaksofthecomparativevalueofgoldintwocountries,Iunderstandhimtomeanitsvalueestimatedincornandlabour.

Butwehaveseen,that,estimatedincorn,goldmaybeofverydifferentvalueintwocountries.Ihaveendeavouredtoshewthatitwillbelowinrichcountries,andhighinpoorcountries;AdamSmithisofadifferentopinion:hethinksthatthevalueofgoldestimatedincornishighestinrichcountries.Butwithoutfurtherexaminingwhichoftheseopinionsiscorrect,eitherofthemissufficienttoshew,that gold will not necessarily be lower in those countries which are in possession of the mines,though this is a propositionmaintained by Adam Smith. Suppose England to be possessed of themines,andAdamSmith'sopinion, thatgoldisof thegreatestvalueinrichcountries, tobecorrect:althoughgoldwouldnaturallyflowfromEnglandtoallothercountriesinexchangefortheirgoods,itwouldnotfollowthatgoldwasnecessarilylowerinEngland,ascomparedwithcornandlabour,thaninthosecountries.Inanotherplace,however,AdamSmithspeaksofthepreciousmetalsbeingnecessarily lower in Spain and Portugal, than in other parts of Europe, because those countrieshappentobealmost theexclusivepossessorsof themineswhichproducethem."Poland,where thefeudal system still continues to take place at this day as beggarly a country as it was before thediscovery ofAmerica.Themoney price of corn, however, has risen;THEREALVALUEOF THE PRECIOUSMETALSHASFALLENinPoland,inthesamemannerasinotherpartsofEurope.Theirquantity,therefore,musthaveincreasedthereasinotherplaces,andnearlyinthesameproportiontotheannualproduce

of the land and labour. This increase of the quantity of thosemetals, however, has not, it seems,increasedthatannualproduce,hasneitherimprovedthemanufacturesandagricultureofthecountry,normendedthecircumstancesofitsinhabitants.SpainandPortugal,thecountrieswhichpossessthemines, are, after Poland, perhaps, the two most beggarly countries in Europe. The value of thepreciousmetals,however,must be lower in SpainandPortugal than in anyother parts ofEurope,loaded,notonlywitha freightand insurance,butwith theexpenseof smuggling, theirexportationbeingeitherprohibited,or subjected toaduty. Inproportion to theannualproduceof the landandlabour,therefore,theirquantitymustbegreaterin thosecountriesthaninanyotherpartofEurope:thosecountries,however,arepoorerthanthegreaterpartofEurope.ThoughthefeudalsystemhasbeenabolishedinSpainandPortugal,ithasnotbeensucceededbyamuchbetter."

Dr.Smith'sargumentappears tome tobe this:—Gold,whenestimated incorn, ischeaper inSpainthaninothercountries,andtheproofofthisis,notthatcornisgivenbyothercountriestoSpainforgold,butthatcloth,sugar,hardware,arebythosecountriesgiveninexchangeforthatmetal.

CHAPTERXXVII.

TAXESPAIDBYTHEPRODUCER.

M.SAYgreatlymagnifiestheinconvenienceswhichresult ifa taxonamanufacturedcommodityislevied at an early, rather than at a late period of itsmanufacture.Themanufacturers, he observes,through whose hands the commodity may successively pass, must employ greater funds inconsequenceofhaving to advance the tax,which isoftenattendedwith considerabledifficulty to amanufacturerofverylimitedcapitalandcredit.Tothisobservationnoobjectioncanbemade.

Another inconvenience on which he dwells is, that in consequence of the advance of the tax, theprofitsontheadvancealsomustbechargedtotheconsumer,andthatthisadditionaltaxisonefromwhichthetreasuryderivesnoadvantage.

In this latter objection I cannot agree with M. Say. The state, we will suppose, wants to raiseimmediately 1000l. and levies it on a manufacturer, who will not, for a twelve-month, be able tochargeittotheconsumeronhisfinishedcommodity.Inconsequenceofsuchdelay,heisobligedtochargeforhiscommodityanadditionalprice,notonlyof1000l.theamountofthetax,butprobablyof1100l.,100l.beingforinterestonthe1000l.advanced.Butinreturnforthisadditional100l.paidby the consumer, he has a real benefit, inasmuch as his payment of the tax which Governmentrequiredimmediately,andwhichhemustfinallypay,hasbeenpostponedforayear;anopportunity,therefore, has been afforded to him of lending to the manufacturer, who had occasion for it, the1000l. at10percent.,oratanyother rateof interestwhichmightbeagreedupon.Elevenhundredpoundspayableattheendofoneyear,whenmoneyisat10percent.interest,isofnomorevaluethan1000l. to be paid immediately. If Government delayed receiving the tax for one year till themanufactureof thecommoditywascompleted, itwould,perhaps,beobligedto issueanExchequerbill bearing interest, and it would pay asmuch for interest as the consumer would save in price,excepting,indeed,thatportionofthepricewhichthemanufacturermightbeenabled,inconsequenceofthetax,toaddtohisownrealgains.If,fortheinterestoftheExchequerbill,Governmentwouldhave paid 5 per cent., a tax of 50l. is saved by not issuing it. If the manufacturer borrowed theadditionalcapitalat5percent.,andchargedtheconsumer10percent.,healsowillhavegained5per

cent. on his advance over and above his usual profits, so that the manufacturer and Governmenttogethergain,orsave,preciselythesumwhichtheconsumerpays.

M.Simonde,inhisexcellentwork,DelaRichesseCommerciale,followingthesamelineofargumentasM.Say,hascalculatedthatataxof4000francs,paidoriginallybyamanufacturer,whoseprofitswereatthemoderaterateof10percent.,would,ifthecommoditymanufacturedonlypassedthroughthe hands of five different persons, be raised to the consumer to the sum of 6734 francs. Thiscalculationproceedson thesupposition, thathewhofirstadvanced the tax,wouldreceivefromthenextmanufacturer4400francs,andheagainfromthenext,4840francs;sothatateachstep10percent. on its value would be added to it. This is to suppose that the value of the tax would beaccumulatingatcompoundinterest,notattherateof10percent.perannum,butatanabsoluterateof10percent.,ateverystepof itsprogress.ThisopinionofM.deSimondewouldbecorrect if fiveyears elapsed between the first advance of the tax, and the sale of the taxed commodity to theconsumer;butifoneyearonlyelapsed,aremunerationof400francs,insteadof2734,wouldgiveaprofit at the rate of 10 per cent. per annum, to all who had contributed to the advance of the tax,whetherthecommodityhadpassedthroughthehandsoffivemanufacturersorfifty.

CHAPTERXXVIII.

ONTHEINFLUENCEOFDEMANDANDSUPPLYONPRICES.

ITisthecostofproductionwhichmustultimatelyregulatethepriceofcommodities,andnot,ashasbeenoftensaid, theproportionbetween thesupplyanddemand: theproportionbetweensupplyanddemandmay,indeed,foratimeaffectthemarketvalueofacommodity,untilitissuppliedingreaterorlessabundance,accordingasthedemandmayhaveincreasedordiminished;butthiseffectwillbeonlyoftemporaryduration.

Diminishthecostofproductionofhats,andtheirpricewillultimatelyfalltotheirnewnaturalprice,althoughthedemandshouldbedoubled,trebled,orquadrupled.Diminishthecostofsubsistenceofmen,bydiminishingthenaturalpriceofthefoodandclothing,bywhichlifeissustained,andwageswillultimatelyfall,notwithstandingthatthedemandforlabourersmayverygreatlyincrease.

Theopinionthatthepriceofcommoditiesdependssolelyontheproportionofsupplytodemand,ordemand to supply, has become almost an axiom in political economy, and has been the source ofmucherrorinthatscience.It is thisopinionwhichhasmadeMr.Buchananmaintainthatwagesarenot influencedbya riseor fall in thepriceofprovisions,but solelyby thedemandand supplyoflabour;andthata taxonthewagesof labourwouldnotraisewages,because itwouldnotalter theproportionofthedemandoflabourerstothesupply.

Thedemandforacommoditycannotbesaidtoincrease,ifnoadditionalquantityofitbepurchasedorconsumed;andyetundersuchcircumstancesitsmoneyvaluemayrise.Thus,ifthevalueofmoneyweretofall,thepriceofeverycommoditywouldrise,foreachofthecompetitorswouldbewillingtospendmoremoneythanbeforeonitspurchase;butthoughitspricerose10or20percent.ifnomorewereboughtthanbefore,itwouldnot,Iapprehend,beadmissibletosay,thatthevariationinthepriceofthecommoditywascausedbytheincreaseddemandforit.Itsnaturalprice,itsmoneycostofproduction, would be really altered by the altered value of money; and without any increase of

demand,thepriceofthecommoditywouldbenaturallyadjustedtothatnewvalue.

"Wehaveseen,"saysM.Say,"thatthecostofproductiondeterminesthelowestpricetowhichthingscanfall:thepricebelowwhichtheycannotremainforanylengthoftime,becauseproductionwouldthenbeeitherentirelystoppedordiminished.Vol.ii.p.26.

Heafterwardssays that thedemandforgoldhaving increased inastillgreaterproportion than thesupply,sincethediscoveryofthemines,"itspriceingoods,insteadoffallingintheproportionoftentoone,fellonlyintheproportionoffourtoone;"thatistosay,insteadoffallinginproportionasitsnaturalpricehadfallen,fellinproportionasthesupplyexceededthedemand.48"Thevalueofeverycommodityrisesalwaysinadirectratiotothedemand,andinaninverseratiotothesupply."

ThesameopinionisexpressedbytheEarlofLauderdale.

"Withrespecttothevariationsinvalue,ofwhicheverythingvaluableissusceptible,ifwecouldforamomentsupposethatanysubstancepossessedintrinsicandfixedvalue,soas torenderanassumedquantityof itconstantly,underallcircumstances,ofanequalvalue, then thedegreeofvalueofallthings, ascertained by such a fixed standard, would vary according to the proportion betwixt thequantityof them, and the demand for them, and every commoditywouldof course be subject to avariationinitsvalue,fromfourdifferentcircumstances.

1."Itwouldbesubjecttoanincreaseofitsvalue,fromadiminutionofitsquantity.

2."Toadiminutionofitsvalue,fromanaugmentationofitsquantity.

3."Itmightsufferanaugmentationinitsvalue,fromthecircumstanceofanincreaseddemand.

4."Itsvaluemightbediminishedbyafailureofdemand.

"Asitwill,however,clearlyappearthatnocommoditycanpossessfixedandintrinsicvalue,soastoqualify it for a measure of the value of other commodities, mankind are induced to select, as apractical measure of value, that which appears the least liable to any of these four sources ofvariations,whicharethesolecausesofalterationofvalue.

"Whenincommonlanguage,therefore,weexpressthevalueofanycommodity,itmayvaryatoneperiodfromwhatitisatanother,inconsequenceofeightdifferentcontingencies.

1. "From the four circumstances above stated, in relation to the commodity ofwhichwemean toexpressthevalue.

2."Fromthesamefourcircumstances,inrelationtothecommoditywehaveadoptedasameasureofvalue."49

Thisis trueofmonopolizedcommodities,andindeedofthemarketpriceofallothercommoditiesforalimitedperiod.Ifthedemandforhatsshouldbedoubled,thepricewouldimmediatelyrise,butthatrisewouldbeonlytemporary,unlessthecostofproductionofhats,ortheirnaturalprice,wereraised.Ifthenaturalpriceofbreadshouldfall50percent.fromsomegreatdiscoveryinthescienceof agriculture, the demandwould not greatly increase, for nomanwoulddesiremore thanwouldsatisfyhiswants,andasthedemandwouldnotincrease,neitherwouldthesupply;foracommodityisnotsuppliedmerelybecause itcanbeproduced,butbecause there isademandfor it.Here thenwehaveacasewherethesupplyanddemandhavescarcelyvaried,or if theyhaveincreasedtheyhave

increasedinthesameproportion;andyetthepriceofbreadwillhavefallen50percent.atatimetoowhenthevalueofmoneyhadcontinuedinvariable.

Commoditieswhicharemonopolized,eitherbyanindividual,orbyacompany,varyaccordingtothelaw which Lord Lauderdale has laid down: they fall in proportion as the sellers augment theirquantity,andrise inproportion to theeagernessof thebuyers topurchase them; theirpricehasnonecessary connexionwith their natural value: but the prices of commodities, which are subject tocompetition, andwhosequantitymaybe increased inanymoderatedegree,willultimatelydepend,notonthestateofdemandandsupply,butontheincreasedordiminishedcostoftheirproduction.

CHAPTERXXIX.

MR.MALTHUS'SOPINIONSONRENT.

ALTHOUGHthenatureofrenthasintheformerpagesofthisworkbeentreatedonatsomelength;yetIconsidermyselfbound tonoticesomeopinionson thesubject,whichappear tomeerroneous,andwhichare themore important,as theyarefound in thewritingsofone towhom,ofallmenof thepresentday,somebranchesofeconomicalsciencearethemostindebted.OfMr.Malthus'sEssayonPopulation, I am happy in the opportunity here afforded me of expressing my admiration. Theassaults of the opponents of this great work have only served to prove its strength; and I ampersuaded that its just reputation will spread with the cultivation of that science of which it is soeminentanornament.Mr.Malthustoo—hassatisfactorilyexplainedtheprinciplesofrent,andshewedthat it rises or falls in proportion to the relative advantages, either of fertility or situation, of thedifferentlandsincultivation,andhastherebythrownmuchlightonmanydifficultpointsconnectedwith thesubjectofrent,whichwerebeforeeitherunknown,orveryimperfectlyunderstood;yetheappearstometohavefallenintosomeerrors,whichhisauthoritymakesitthemorenecessary,whilsthischaracteristiccandourrendersitlessunpleasingtonotice.Oneoftheseerrorsliesinsupposingrenttobeacleargainandanewcreationofriches.

Idonotassenttoall theopinionsofMr.Buchananconcerningrent;butwiththoseexpressedinthefollowingpassage,quotedfromhisworkbyMr.Malthus,Ifullyagree;andthereforeImustdissentfromMr.Malthus'scommentonthem.

"Inthisviewit(rent)canformnogeneraladditiontothestockofthecommunity,astheneatsurplusinquestionisnothingmorethanarevenuetransferredfromoneclasstoanother;andfromthemerecircumstanceofitsthuschanginghands,itisclearthatnofundcanarise,outofwhichtopaytaxes.Therevenuewhichpaysfortheproduceoftheland,existsalreadyinthehandsofthosewhopurchasethatproduce;and,ifthepriceofsubsistencewerelower,itwouldstillremainintheirhands,whereitwould be just as available for taxation as when, by a higher price, it is transferred to the landedproprietor."

Aftervariousobservationson thedifferencebetween rawproduceandmanufacturedcommodities,Mr.Malthus asks, "Is it possible then,withM. de Sismondi, to regard rent as the sole produce oflabour,whichhasavaluepurelynominal,andthemereresultofthataugmentationofpricewhichaseller obtains in consequence of a peculiar privilege; or, withMr. Buchanan, to consider it as noadditiontothenationalwealth,butmerelytransferofvalue,advantageousonlytothelandlords,and

proportionablyinjurioustotheconsumers?"50

Ihavealreadyexpressedmyopiniononthissubjectintreatingofrent,andhavenowonlyfurthertoadd,thatrentisacreationofvalue,asIunderstandthatword,butnotacreationofwealth.Ifthepriceofcorn,fromthedifficultyofproducinganyportionofit,shouldrisefrom4l.to5l.perquarter,amillionofquarterswill beof thevalueof 5,000,000l. insteadof4,000,000l., and as this cornwillexchangenotonlyformoremoneybutformoreofeveryothercommodity,thepossessorswillhaveagreateramountofvalue;andasnooneelsewillinconsequencehavealess,thesocietyaltogetherwillbepossessedofgreatervalue,andinthatsenserentisacreationofvalue.Butthisvalueissofarnominal that it adds nothing to the wealth, that is to say, to the necessaries, conveniences, andenjoymentsofthesociety.Weshouldhavepreciselythesamequantity,andnomoreofcommodities,and thesamemillionquartersofcornasbefore;but theeffectof itsbeing ratedat5l. per quarter,insteadof4l.,wouldbe to transfer aportionof thevalueof the corn and commodities from theirformerpossessors tothelandlords.Rent thenisacreationofvalue,butnotacreationofwealth; itaddsnothingtotheresourcesofacountry,itdoesnotenableittomaintainfleetsandarmies;forthecountrywouldhaveagreaterdisposablefundifitslandwereofabetterquality,anditcouldemploythesamecapitalwithoutgeneratingarent.

InanotherpartofMr.Malthus's"inquiry"heobserves,"thattheimmediatecauseofrentisobviouslytheexcessofprice above thecostofproductionatwhich rawproduce sells in themarket," and inanotherplacehesays,"thatthecausesofthehighpriceofrawproducemaybestatedtobethree:—

"First,andmainly,thatqualityoftheearth,bywhichitcanbemadetoyieldagreaterportionofthenecessariesoflifethanisrequiredforthemaintenanceofthepersonsemployedontheland.

"2dly.Thatqualitypeculiartothenecessariesoflifeofbeingabletocreatetheirowndemand,ortoraiseupanumberofdemandersinproportiontothequantityofnecessariesproduced.

"And3dly.Thecomparativescarcityofthemostfertileland."Inspeakingofthehighpriceofcorn,Mr.Malthusevidentlydoesnotmeanthepriceperquarterorperbushel,butrathertheexcessofpriceforwhichthewholeproducewillsell,abovethecostofitsproduction,includingalwaysintheterm"costofproduction,"profitsaswellaswages.Onehundredandfiftyquartersofcornat3l.10s.perquarter, would yield a larger rent to the landlord than 100 quarters at 4l., provided the cost ofproductionwereinbothcasesthesame.

Highprice,iftheexpressionbeusedinthissense,cannotthenbecalledacauseofrent;itcannotbesaid"thattheimmediatecauseofrentisobviouslytheexcessofpriceabovethecostofproduction,atwhichrawproducesellsinthemarket,"forthatexcessisitselfrent.Rent,Mr.Malthushasdefinedtobe"thatportionofthevalueofthewholeproducewhichremainstotheowneroftheland,afteralltheoutgoingsbelongingtoitscultivation,ofwhateverkind,havebeenpaid,includingtheprofitsofthecapital employed, estimated according to the usual and ordinary rate of the profits of agriculturalstockat the timebeing."Nowwhatever sum this excessmay sell for, ismoney rent; it iswhatMr.Malthusmeansby"theexcessofpriceabovethecostofproductionatwhichrawproducesellsinthemarkets;" and therefore in an inquiry into the causeswhichmay elevate theprice of rawproduce,comparedwiththecostofproduction,weareinquiringintothecauseswhichmayelevaterent.

Inreferencetothefirstcauseoftheriseofrent,Mr.Malthushasthefollowingobservations:"Westillwant toknowwhy theconsumptionandsupplyaresuchas tomake thepricesogreatlyexceed thecost of production, and the main cause is evidently the fertility of the earth in producing the

necessariesoflife.Diminishthisplenty,diminishthefertilityofthesoil,andtheexcesswilldiminish;diminish it still further, and it will disappear." True, the excess of necessaries will diminish anddisappear,butthatisnotthequestion.Thequestionis,whethertheexcessoftheirpriceabovethecostof their productionwill diminish and disappear, for it is on this, thatmoney rent depends. IsMr.Malthuswarranted inhis inference, thatbecause theexcessofquantitywilldiminishanddisappear,therefore"thecauseofthehighpriceofthenecessariesoflifeabovethecostofproductionistobefoundintheirabundance,ratherthanintheirscarcity;andisnotonlyessentiallydifferentfromthehighpriceoccasionedbyartificialmonopolies,butfromthehighpriceofthosepeculiarproductsoftheearth,notconnectedwithfood,whichmaybecallednaturalandnecessarymonopolies?"

Aretherenocircumstancesunderwhichthefertilityoftheland,andtheplentyofitsproducemaybediminished,withoutoccasioningadiminishedexcessofitspriceabovethecostofproduction,thatistosay,adiminishedrent?Ifthereare,Mr.Malthus'spropositionismuchtoouniversal;forheappearsto me to state it as a general principle, true under all circumstances, that rent will rise with theincreasedfertilityoftheland,andwillfallwithitsdiminishedfertility.

Mr.Malthuswouldundoubtedlyberight, if, inproportionas the landyieldedabundantly, a greatershareofthewholeproducewerepaidtothelandlord;butthecontraryisthefact:whennootherbutthemostfertilelandisincultivation,thelandlordhasthesmallestshareofthewholeproduce,aswellas the smallest value, and it is only when inferior lands are required to feed an augmentingpopulation, that both the landlord's share of the whole produce, and the value he receives,progressivelyincrease.

Supposethatthedemandisforamillionofquartersofcorn,andthattheyaretheproduceofthelandactuallyincultivation.Now,supposethefertilityofallthelandtobesodiminished,thattheverysamelandswillyieldonly900,000quarters.Thedemandbeingforamillionofquarters,thepriceofcornwould rise, and recoursemust necessarily be had to land of an inferior quality sooner than if thesuperiorlandhadcontinuedtoproduceamillionofquarters.Butitisthisnecessityoftakinginferiorland into cultivationwhich is the cause of the rise of rent.Rent, itmust be remembered, is not inproportiontotheabsolutefertilityofthelandincultivation,butinproportiontoitsrelativefertility.Whatevercausemaydrivecapitaltoinferiorland,mustelevaterent;thecauseofrentbeing,asstatedbyMr.Malthusinhisthirdproposition,"thecomparativescarcityofthemostfertileland."Thepriceofcornwillnaturally risewith thedifficultyofproducing the lastportionsof it;butas thecostofproductionwillnot increase, aswagesandprofits taken togetherwill continuealwaysof the samevalue,51 it isevident that theexcessofpriceabove thecostofproduction,or, inotherwords, rent,must risewith thediminished fertilityof the land,unless it is counteractedbyagreat reductionofcapital,population,anddemand.ItdoesnotappearthenthatMr.Malthus'spropositioniscorrect:rentdoes not immediately and necessarily rise or fall with the increased or diminished fertility of theland;but its increased fertility renders it capableofpayingat some future timeanaugmented rent.Landpossessedofverylittlefertilitycanneverbearanyrent;landofmoderatefertilitymaybemade,aspopulationincreases,tobearamoderaterent;andlandofgreatfertilityahighrent;butitisonething to be able to bear a high rent, and another thing actually to pay it. Rentmay be lower in acountrywherelandsareexceedinglyfertilethaninacountrywheretheyyieldamoderatereturn,itbeinginproportionrathertorelativethanabsolutefertility—tothevalueoftheproduce,andnottoitsabundance.Mr.Malthussays,thatthe"causeoftheexcessofpriceofthenecessariesoflifeabovethecost of production, is to be found in their abundance rather than their scarcity, and is essentiallydifferentfromthehighpriceofthosepeculiarproductsoftheearth,notconnectedwithfood,whichmaybecallednaturalandnecessarymonopolies."

Inwhataretheyessentiallydifferent?Wouldnottheabundanceofthosepeculiarproductsoftheearthcause a rise of rent, if the demand for them at the same time increased? and can rent ever rise,whatever the commodity produced may be, from abundance merely, and without an increase ofdemand?

ThesecondcauseofrentmentionedbyMr.Malthus,namely,"thatqualitypeculiartothenecessariesoflife,ofbeingabletocreatetheirowndemand,ortoraiseupanumberofdemandersinproportiontothequantityofnecessariesproduced,"doesnotappeartometobeanywayessentialtoit.Itisnotthe abundance of necessaries which raises up demanders, but the abundance of demanders whichraisesupnecessaries.

Weareundernonecessityofproducingpermanentlyanygreaterquantityofacommoditythanthatwhichisdemanded.Ifbyaccidentanygreaterquantitywereproduced,itwouldfallbelowitsnaturalprice,andthereforewouldnotpaythecostofproduction,togetherwiththeusualandordinaryprofitsofstock:thusthesupplywouldbecheckedtillitconformedtothedemand,andthemarketpricerosetothenaturalprice.

Mr.Malthusappearstometobetoomuchinclinedtothinkthatpopulationisonlyincreasedbytheprevious provision of food,—"that it is food that creates its own demand,"—that it is by firstproviding food that encouragement is given to marriage, instead of considering that the generalprogressofpopulationisaffectedbytheincreaseofcapital,theconsequentdemandforlabour,andtheriseofwages;andthattheproductionoffoodisbuttheeffectofthatdemand.

It is by giving theworkmanmoremoney, or any other commodity inwhichwages are paid, andwhich has not fallen in value, that his situation is improved. The increase of population, and theincreaseoffoodwillgenerallybetheeffect,butnotthenecessaryeffectofhighwages.Theamendedcondition of the labourer, in consequence of the increased value which is paid him, does notnecessarilyobligehimtomarryandtakeuponhimselfthechargeofafamily—hemay,ifitpleasehim,exchangehisincreasedwagesforanycommoditiesthatmaycontributetohisenjoyments—forchairs,tables,andhardware;orforbetterclothes,sugar,andtobacco.Hisincreasedwagesthenwillbeattendedwithnoothereffectthananincreaseddemandforsomeofthosecommodities;andastherace of labourerswill not bematerially increased, hiswageswill continue permanently high. Butalthough this might be the consequence of high wages, yet so great are the delights of domesticsociety, that in practice it is invariably found that an increase of population follows the amendedconditionofthelabourer;anditisonlybecauseitdoesso,thatanewandincreaseddemandarisesforfood.Thisdemandthenistheeffectofanincreaseofpopulation,butnotthecause—itisonlybecausethe expenditure of the people takes this direction, that themarket price of necessaries exceeds thenatural price, and that the quantity of food required is produced; and it is because the number ofpeopleisincreased,thatwagesagainfall.

What motive can a farmer have to produce more corn than is actually demanded, when theconsequencewouldbeadepressionof itsmarketpricebelow itsnaturalprice, andconsequentlyaprivationtohimofaportionofhisprofits,byreducingthembelowthegeneralrate?"If,"saysMr.Malthus,"thenecessariesoflife,themostimportantproductsofland,hadnotthepropertyofcreatingan increase of demand proportioned to their increased quantity, such increased quantity wouldoccasionafallintheirexchangeablevalue.52Howeverabundantmightbetheproduceofacountry,itspopulationmightremainstationary.Andthisabundancewithoutaproportionatedemand,andwithaveryhighcornpriceoflabour,whichwouldnaturallytakeplaceunderthesecircumstances,might

reducethepriceofrawproduce,likethepriceofmanufactures,tothecostofproduction."

"Mightreducethepriceofrawproducetothecostofproduction?"Isiteverforanylengthoftimeeitheraboveorbelowthisprice?DoesnotMr.Malthushimself,stateitnevertobeso?"Ihope,"hesays,"tobeexcusedfordwellingalittle,andpresentingtothereaderinvariousformsthedoctrine,that corn, in reference to the quantity actually produced, is sold at its necessary price likemanufactures,becauseIconsideritasatruthofthehighestimportance,whichhasbeenoverlookedby the economists, by Adam Smith, and all those writers, who have represented raw produce assellingalwaysatamonopolyprice."

"Every extensive country may thus be considered as possessing a gradation of machines for theproductionofcornandrawmaterials,includinginthisgradationnotonlyallthevariousqualitiesofpoor land, ofwhich every territory has generally an abundance, but the inferiormachinerywhichmaybesaidtobeemployedwhengoodlandisfurtherandfurtherforcedforadditionalproduce.Asthepriceofrawproducecontinuestorise,theseinferiormachinesaresuccessivelycalledintoaction;and as the price of raw produce continues to fall, they are successively thrown out of action.Theillustrationhereused serves to shewat once thenecessityof theactual priceof corn to theactualproduce,andthedifferenteffectwhichwouldattendagreatreductionin thepriceofanyparticularmanufacture,andagreatreductioninthepriceofrawproduce."53

Howarethesepassagestobereconciledtothatwhichaffirms,thatifthenecessariesoflifehadnotthepropertyofcreatinganincreaseofdemandproportionedtotheirincreasedquantity,theabundantquantity produced would then, and then only, reduce the price of raw produce to the cost ofproduction? If corn is never under its natural price, it is never more abundant than the actualpopulationrequireittobefortheirownconsumption;nostorecanbelaidupfortheconsumptionofothers;itcanneverthenbyitscheapnessandabundancebeastimulustopopulation.Inproportionascorncanbeproducedcheaply,theincreasedwagesofthelabourerswillhavemorepowertomaintainfamilies. InAmerica,population increases rapidly,because foodcanbeproducedat a cheapprice,and not because an abundant supply has been previously provided. InEurope population increasescomparativelyslowly,becausefoodcannotbeproducedatacheapvalue. In theusualandordinarycourseofthings,thedemandforallcommoditiesprecedestheirsupply.Bysaying,thatcornwould,likemanufactures, sink to its price of production, if it could not raise up demanders,Mr.Malthuscannotmeanthatallrentwouldbeabsorbed;forhehashimselfjustlyremarked,thatifallrentweregivenupbythelandlords,cornwouldnotfallinprice;rentbeingtheeffect,andnotthecauseofhighprice,andtherebeingalwaysonequalityoflandincultivationwhichpaysnorentwhatever,thecornfromwhichreplacesbyitsprice,onlywagesandprofits.

In the followingpassage,Mr.Malthushasgivenanable expositionof thecausesof the rise in theprice of raw produce in rich and progressive countries, in every word of which I concur; but itappearstometobeatvariancewithsomeofthepropositionsmaintainedbyhiminsomepartsofhisEssayonRent."Ihavenohesitationinstating,that,independentlyoftheirregularitiesinthecurrencyofacountry, andother temporaryandaccidental circumstances, thecauseof thehighcomparativemoneypriceofcornisitshighcomparativerealprice,orthegreaterquantityofcapitalandlabourwhichmustbeemployedtoproduceit;andthatthereasonswhytherealpriceofcornishigher,andcontinually rising in countries which are already rich, and still advancing in prosperity andpopulation,istobefoundinthenecessityofresortingconstantlytopoorerland,tomachineswhichrequireagreaterexpendituretoworkthem,andwhichconsequentlyoccasioneachfreshadditiontothe rawproduce of the country to be purchased at a greater cost; in short, it is to be found in the

important truth, thatcorn inaprogressivecountry, issoldat thepricenecessary toyield theactualsupply;andthat,asthissupplybecomesmoreandmoredifficult,thepricerisesinproportion."

The realpriceofacommodity ishereproperly stated todependon thegreateror lessquantityoflabour and capital (that is, accumulated labour)whichmust be employed to produce it.Real pricedoes not, as some have contended, depend on money value; nor, as others have said, on valuerelativelytocorn,labour,oranyothercommoditytakensingly,ortoallcommoditiescollectively;but,asMr.Malthusjustlysays,"onthegreater(orless)quantityofcapitalandlabourwhichmustbeemployedtoproduceit."

Amongthecausesoftheriseofrent,Mr.Malthusmentions,"suchanincreaseofpopulationaswilllowerthewagesoflabour."Butif,asthewagesoflabourfall,theprofitsofstockrise,andtheybetogetheralwaysofthesamevalue,54nofallofwagescanraiserent,foritwillneitherdiminishtheportion,northevalueoftheportionoftheproducewhichwillbeallottedtothefarmerandlabourertogether, and therefore will not leave a larger portion, nor a larger value for the landlord. Inproportionaslessisappropriatedforwages,morewillbeappropriatedforprofits,andviceversa.Thisdivisionwillbesettledbythefarmerandhislabourers,withoutanyinterferenceofthelandlord;andindeeditisamatterinwhichhecanhavenointerest,otherwisethanasonedivisionmaybemorefavourable than another, to new accumulations, and to a further demand for land. If wages fall,profits,andnotrent,wouldrise.Ifwagesrose,profits,andnotrent,wouldfall.Theriseofrentandwages,andthefallofprofits,aregenerallytheinevitableeffectsofthesamecause—theincreasingdemandforfood, theincreasedquantityof labourrequiredtoproduceit,anditsconsequentlyhighprice.Ifthelandlordweretoforegohiswholerent,thelabourerswouldnotbeintheleastbenefited.If the labourerswere togiveup theirwholewages, the landlordswouldderivenoadvantage fromsuch a circumstance; but in both cases the farmer would receive and retain all which theyrelinquished.Ithasbeenmyendeavourtoshewinthiswork,thatafallofwageswouldhavenoothereffectthantoraiseprofits.

Anothercauseoftheriseofrent,accordingtoMr.Malthus, is"suchagricultural improvements,orsuch increaseofexertions, aswilldiminish thenumberof labourersnecessary toproduceagiveneffect."Thiswouldnotraisethevalueofthewholeproduce,andwouldthereforenotincreaserent.Itwould rather have a contrary tendency, it would lower rent; for if in consequence of theseimprovements, the actual quantity of food required could be furnished eitherwith fewer hands, orwithalessquantityofland,thepriceofrawproducewouldfall,andcapitalwouldbewithdrawnfromtheland.55Nothingcanraiserent,butademandfornewlandofan inferiorquality,orsomecausewhich shall occasion an alteration in the relative fertility of the land already under cultivation.567Improvementsinagriculture,andinthedivisionoflabour,arecommontoallland;theyincreasetheabsolutequantityofrawproduceobtainedfromeach,butprobablydonotmuchdisturbtherelativeproportionswhichbeforeexistedbetweenthem.

Mr.Malthushas justlycommentedonanerrorofAdamSmith,andsays,"thesubstanceofhis (Dr.Smith's) argument is, that corn isof sopeculiar anature, that its realpricecannotbe raisedbyanincrease of its money price; and that, as it is clearly an increase of real price alone, which canencourageitsproduction,theriseofmoneyprice,occasionedbyabounty,canhavenosucheffect."

Hecontinues:"Itisbynomeansintendedtodenythepowerfulinfluenceofthepriceofcornuponthepriceoflabour,onanaverageofaconsiderablenumberofyears;butthatthisinfluenceisnotsuchastopreventthemovementofcapitalto,orfromtheland,whichistheprecisepointinquestion,willbe

madesufficientlyevidentbyashortinquiryintothemannerinwhichlabourispaid,andbroughtintothemarket, and by a consideration of the consequences towhich the assumption ofAdamSmith'spropositionwouldinevitablylead."57

Mr.Malthus then proceeds to shew, that demand and high price will as effectually encourage theproductionofrawproduce,asthedemandandhighpriceofanyothercommoditywillencourageitsproduction.Inthisviewitwillbeseen,fromwhatIhavesaidoftheeffectsofbounties,thatIentirelyconcur.IhavenoticedthepassageMr.Malthus's"ObservationsontheCornLaws,"forthepurposeofshewinginwhatadifferentsensethetermrealpriceisusedhere,andinhisotherpamphlet,entitled"GroundsofanOpinion,&c." In thispassageMr.Malthus tellsus, that"it isclearlyan increaseofrealpricealonewhichcanencouragetheproductionofcorn,"andbyrealpriceheevidentlymeanstheincreaseinitsvaluerelativelytoallotherthings,orinotherwords,theriseinitsmarketaboveitsnaturalprice,orthecostofitsproduction.Ifbyrealpricethisiswhatismeant,Mr.Malthus'sopinionis undoubtedly correct; it is the rise in the market price of corn which alone encourages itsproduction,foritmaybelaiddownasaprincipleuniformlytrue,thattheonlyencouragementtotheincreasedproductionofacommodity,isitsmarketvalueexceedingitsnaturalornecessaryvalue.

ButthisisnotthemeaningwhichMr.Malthus,onotheroccasions,attachestotheterm,realprice.IntheEssayonRent,Mr.Malthussays,by"therealgrowingpriceofcorn,Imeantherealquantityoflabourandcapital,whichhasbeenemployed toproducethelastadditionswhichhavebeenmadetothenationalproduce."Inanotherparthestates"thecauseofthehighcomparativerealpriceofcorntobethegreaterquantityofcapitalandlabour,whichmustbeemployedtoproduceit."58Supposethatintheforegoingpassageweweretosubstitutethisdefinitionofrealprice,woulditnotthenrunthus?—"Itisclearlytheincreaseinthequantityoflabourandcapitalwhichmustbeemployedtoproducecorn,whichalonecanencourageitsproduction."Thiswouldbetosay,thatitisclearlytheriseinthenaturalornecessarypriceofcorn,whichencouragesitsproduction—apropositionwhichcouldnotbemaintained.Itisnotthepriceatwhichcorncanbeproduced,thathasanyinfluenceonthequantityproduced,but thepriceatwhichitcanbesold.It is inproportionto thedegreeof theexcessof itspriceabovethecostofproduction,thatcapitalisattractedtoorrepelledfromtheland.Ifthatexcessbesuchastogivetocapitalsoemployed,agreaterthanthegeneralprofitofstock,capitalwillgototheland;ifless,itwillbewithdrawnfromit.

It isnot thenbyanalteration in the realpriceof corn that itsproduction is encouraged,butbyanalteration in its market price. It is not "because a greater quantity of capital and labour must beemployedtoproduceit,"Mr.Malthus'sjustdefinitionofrealprice,thatmorecapitalandlabourareattractedtotheland,butbecausethemarketpricerisesabovethisitsrealprice,and,notwithstandingtheincreasedcharge,makesthecultivationoflandthemoreprofitableemploymentofcapital.

NothingcanbemorejustthanthefollowingobservationsofMr.Malthus,onAdamSmith'sstandardofvalue."AdamSmithwasevidently led into this trainofargument, fromhishabitofconsideringlabourasthestandardmeasureofvalue,andcornas themeasureof labour.But thatcornisaveryinaccuratemeasureoflabour,thehistoryofourowncountrywillamplydemonstrate;wherelabour,comparedwithcorn,willbefoundtohaveexperiencedverygreatandstrikingvariations,notonlyfromyeartoyear,butfromcenturytocentury;andforten,twenty,andthirtyyearstogether.Andthatneitherlabournoranyothercommoditycanbeanaccuratemeasureofrealvalueinexchange,isnowconsideredasoneofthemostincontrovertibledoctrinesofpoliticaleconomy;and,indeed,followsfromtheverydefinitionofvalueinexchange."

Ifneithercornnorlabourareaccuratemeasuresofrealvalueinexchange,whichtheyclearlyarenot,whatothercommodityis?—certainlynone.Ifthentheexpressionrealpriceofcommodities,haveanymeaning,itmustbethatwhichMr.Malthushasstated,intheEssayonRent—itmustbemeasuredbytheproportionatequantityofcapitalandlabournecessarytoproducethem.

InMr.Malthus's"InquiryintotheNatureofRent,"hesays,"that,independentlyofirregularitiesinthecurrency of a country, and other temporary and accidental circumstances, the cause of the highcomparativemoneypriceofcorn,isitshighcomparativerealprice,orthegreaterquantityofcapitalandlabourwhichmustbeemployedtoproduceit.59

This,Iapprehend,isthecorrectaccountofallpermanentvariationsinprice,whetherofcornorofany other commodity. A commodity can only permanently rise in price, either because a greaterquantityofcapitalandlabourmustbeemployedtoproduceit,orbecausemoneyhasfalleninvalue;andonthecontrary,itcanonlyfallinprice,eitherbecausealessquantityofcapitalandlabourmaybeemployedtoproduceit,orbecausemoneyhasriseninvalue.

A variation arising from the latter of either of these alternatives, an altered value of money, iscommonatoncetoallcommodities;butavariationarisingfromtheformercause,isconfinedtotheparticular commodity requiring more or less labour in its production. By allowing the freeimportationofcorn,orbyimprovementsinagriculture,rawproducewouldfall;butthepriceofnoother commodity would be affected, except in proportion to the fall in the real value, or cost ofproduction,oftherawproducewhichenteredintoitscomposition.

Mr.Malthus,havingacknowledgedthisprinciple,cannot,Ithink,consistentlymaintainthatthewholemoneyvalueofallthecommoditiesinthecountrymustsinkexactlyinproportiontothefallinthepriceofcorn.Ifthecornconsumedinthecountrywereofthevalueoftenmillionsperannum,andthemanufacturedandforeigncommoditiesconsumedwereofthevalueoftwentymillions,makingaltogetherthirtymillions,itwouldnotbeadmissibletoinferthattheannualexpenditurewasreducedto15millions,becausecornhadfallen50percent.,orfrom10to5millions.

Thevalueof therawproducewhichentered into thecompositionof thesemanufacturesmightnot,for example, exceed 20 per cent. of their whole value, and, therefore, the fall in the value ofmanufacturedcommodities, insteadofbeing from20 to10millions,wouldbeonly from20 to18millions; and after the fall in the price of corn of 50 per cent., the whole amount of the annualexpenditure,insteadoffallingfrom30to25millions,wouldfallfrom30to23millions.60

Insteadofthusconsideringtheeffectofafallinthevalueofrawproduce;asMr.Malthuswasboundtodobyhispreviousadmission;heconsiders itasprecisely thesame thingwitha riseof100percent. in the value ofmoney, and, therefore, argues as if all commoditieswould sink to half theirformerprice.

"Duringthetwentyyears,beginningwith1794,"hesays,"andendingwith1813,theaveragepriceofBritish corn per quarter was about eighty-three shillings; during the ten years ending with 1813,ninety-twoshillings;andduringthelastfiveyearsofthetwenty,onehundredandeightshillings.Inthe course of these twenty years, the Government borrowed near five hundred millions of realcapital;forwhich,onaroughaverage,exclusiveofthesinkingfund,itengagedtopayaboutfivepercent.Butifcornshouldfalltofiftyshillingsaquarter,andothercommoditiesinproportion,insteadof an interest of about fiveper cent., theGovernmentwould reallypay an interest of seven, eight,nine,and,forthelasttwohundredmillions,tenpercent.

"Tothisextraordinarygenerositytowardsthestockholders,Ishouldbedisposedtomakenokindofobjection,ifitwerenotnecessarytoconsiderbywhomitistobepaid;andamoment'sreflectionwillshewus,thatitcanonlybepaidbytheindustriousclassesofsociety,andthelandlords,thatis,byallthose whose nominal income will vary with the variations in the measure of value. The nominalrevenues of this part of the society, compared with the average of the last five years, will bediminished one half, and out of this nominally reduced income, they will have to pay the samenominalamountoftaxes."61

Inthefirstplace,Ithink,Ihavealreadyshewn,thatthenominalincomeofthewholecountrywillnotbe diminished in the proportion for which Mr. Malthus here contends; it would not follow, thatbecausecornfellfiftypercent.,eachman'sincomewouldbereducedfiftypercent.invalue.62

Inthesecondplace,Ithinkthereaderwillagreewithme,thattheincreasedcharge,ifadmitted,wouldnotfallexclusively"onthelandlordsandtheindustriousclassesofsociety:"thestockholder,byhisexpenditure,contributeshisshare to thesupportof thepublicburdens in thesamewayas theotherclassesofsociety.Ifthenmoneybecamereallymorevaluable,althoughhewouldreceiveagreatervalue, hewould also pay a greater value in taxes, and, therefore, it cannot be true that thewholeadditiontotherealvalueoftheinterestwouldbepaidby"thelandlordsandtheindustriousclasses."

Thewholeargument,however,ofMr.Malthus, isbuiltonan infirmbasis: it supposes,because thegrossincomeofthecountryisdiminished,that,therefore,thenetincomemustalsobediminished,inthesameproportion.Ithasbeenoneoftheobjectsofthisworktoshew,thatwitheveryfallintherealvalueofnecessaries,thewagesoflabourwouldfall,andthattheprofitsofstockwouldrise—inotherwords,thatofanygivenannualvaluealessportionwouldbepaidtothelabouringclass,andalargerportiontothosewhosefundsemployedthisclass.Supposethevalueofthecommoditiesproducedinaparticularmanufacturetobe1000l.,andtobedividedbetweenthemasterandhislabourers,intheproportionof800l.tolabourers,and200l.tothemaster;ifthevalueofthesecommoditiesshouldfallto900l.,and100l.besavedfromthewagesoflabour,inconsequenceofthefallofnecessaries,thenetincomeofthemasterswouldbeinnodegreeimpaired,and,therefore,hecouldwithjustasmuchfacilitypaythesameamountoftaxes,after,asbeforethereductionofprice.63

And that wages would fall as much as the mass of commodities, or rather that the net incomeremaining to landlords, farmers,manufacturers, traders, and stockholders, the only real payers oftaxes,wouldbeasgreatasbefore,isveryhighlyprobable;fornothingwouldbeevennominallylosttothesocietybythefreestimportationofcorn,butthatportionofrentofwhichthelandlordswouldbedeprivedinconsequenceofthefallofrawproduce.

Thedifferencebetweenthevalueofcornandallothercommoditiessoldinthecountry,beforeandaftertheimportationofcheapcorn,wouldbeonlyequaltothefallofrent;because,independentlyofrent,thesamequantityoflabourwouldalwaysproducethesamevalue.

Thewholereductionwhichismadeinwages,isavalueactuallyaddedtothevalueofthenetincomebeforepossessedbythesociety;whilsttheonlyvaluewhichistakenfromthatnetincomeisthevalueofthatpartoftheirrentofwhichthelandlordswillbedeprivedbyafallofrawproduce.Whenweconsiderthatthefallofproduceactsuponalimitednumberoflandlords,whileitreducesthewagesnotonlyofthosewhoareemployedinagriculture,butofallthosewhoareoccupiedinmanufacturesand commerce, it may well be doubted, whether the net revenue of the society would suffer anyabatementwhatever.64

But,ifitdid,itmustnotbesupposedthattheabilitytopaytaxeswilldiminishinthesamedegree,asthemoneyvalue,evenofthenetrevenue.Supposethatmynetrevenuewerediminishedfrom1000l.to900l.;butthatmytaxescontinuedtobethesame,tobe100l.:isitnotprobablethatmyabilitytopaythis100l.maybegreaterwiththesmallerthanwiththelargerrevenue?CommoditiescannotfallsouniversallyasMr.Malthussupposes,withoutgreatlybenefiting theconsumers,withoutenablingthemwithamuchsmallermoneyrevenue tocommandmoreof theconveniences,necessaries,andluxuriesofhumanlife;andthequestionresolvesitselfintothis—whetherthosewhoareinpossessionofthenetrevenueofthecountrywillbebenefitedasmuchbythediminishedpriceofcommodities,as theywill suffer by the greater real taxation.Onwhich side the balancemay preponderate,willdependontheproportionwhichtaxesbear to theannualrevenue; if itbeenormouslylarge, itmayundoubtedlymorethancounterbalancetheadvantagesfromcheapnecessaries;butItrustenoughhasbeensaid,toshew,thatMr.Malthushasverygreatlyover-ratedthelosstothetax-payers,fromafallinoneofthemostimportantnecessariesoflife;andthatiftheywerenotentirelyremuneratedforthereal increase of taxes, by the fall of wages and increase of profits, they would be more thancompensated,bythecheaperpriceofallobjectsonwhichtheirincomeswereexpended.

Thatthestockholderisbenefitedbyagreatfallinthevalueofcorn,cannotbedoubted;butifnooneelsebeinjured,thatisnoreasonwhycornshouldbemadedear:forthegainsofthestockholderarenationalgains,andincrease,asallothergainsdo,therealwealthandpowerofthecountry.Iftheyareunjustlybenefited,letthedegreeinwhichtheyareso,beaccuratelyascertained,andthenitisforthelegislaturetodevisearemedy;butnopolicycanbemoreunwisethantoshutourselvesoutfromthegreatadvantagesarisingfromcheapcorn,andabundantproductions,merelybecausethestockholderwouldhaveanundueproportionoftheincrease.

Toregulatethedividendsonstockbythemoneyvalueofcorn,hasneveryetbeenattempted.Ifjusticeandgoodfaithrequiredsucharegulation,agreatdebtisduetotheoldstockholders;fortheyhavebeenreceivingthesamemoneydividendsformorethanacentury,althoughcornhas,perhaps,beendoubledortrebledinprice.65

Mr.Malthussays,"Itistrue,thatthelastadditionstotheagriculturalproduceofanimprovingcountryarenotattendedwithalargeproportionofrent;anditispreciselythiscircumstancethatmaymakeitanswertoarichcountrytoimportsomeofitscorn,ifitcanbesecureofobtaininganequablesupply.But inallcases the importationof foreigncornmust fail toanswernationally, if it isnotsomuchcheaperthanthecornthatcanbegrownathome,astoequalboththeprofitsandtherentofthegrainwhichitdisplaces."Grounds,&c.p.36.

Asrentistheeffectofthehighpriceofcorn,thelossofrentistheeffectofalowprice.Foreigncornnever enters into competition with such home corn as affords a rent; the fall of price invariablyaffects the landlord till thewhole of his rent is absorbed;—if it fall stillmore, the pricewill notaffordeventhecommonprofitsofstock;capitalwillthenquitthelandforsomeotheremployment,andthecorn,whichwasbeforegrownuponit,willthen,andnottillthen,beimported.Fromthelossofrent,therewillbealossofvalue,ofestimatedmoneyvalue,buttherewillbeagainofwealth.Theamountoftherawproduceandotherproductionstogetherwillbeincreased,fromthegreaterfacilitywithwhichtheyareproduced;theywill,thoughaugmentedinquantity,bediminishedinvalue.

Twomenemployequalcapitals—one inagriculture, theother inmanufactures.That inagricultureproducesanetannualvalueof1200l.ofwhich1000l.isretainedforprofit,and200l.ispaidforrent;theotherinmanufacturesproducesonlyanannualvalueof1000l.Supposethatbyimportation, the

samequantityofcorncanbeobtainedforcommoditieswhichcost950l.,andthat,inconsequence,thecapitalemployedinagricultureisdivertedtomanufactures,whereitcanproduceavalueof1000l.thenetrevenueofthecountrywillbeoflessvalue,itwillbereducedfrom2200l.to2000l.,buttherewillnotonlybe thesamequantityofcommoditiesandcornfor itsownconsumption,butalsoasmuchaddition to that quantity as 50l. would purchase, the difference between the value at which itsmanufacturesweresoldtotheforeigncountry,andthevalueofthecornwhichwaspurchasedfromit.

Mr.Malthussays,"Ithasbeen justlyobservedbyAdamSmith, thatnoequalquantityofproductivelabour employed inmanufactures can ever occasion so great a reproduction as in agriculture." IfAdamSmithspeaksofvalue,heiscorrect,butifhespeaksofriches,whichistheimportantpoint,heis mistaken, for he has himself defined riches to consist of the necessaries, conveniences, andenjoyments of human life.One set of necessaries and conveniences admits of no comparisonwithanother set; value in use cannot bemeasuredby anyknown standard, it is differently estimatedbydifferentpersons.

[1]Chap.xv.parti."DesDébouchés,"containsinparticularsomeveryimportantprinciples,whichIbelievewerefirstexplainedbythisdistinguishedwriter.

[2]Booki.chap.5.

[3]"Butthoughlabourbetherealmeasureoftheexchangeablevalueofallcommodities,itisnotthatbywhich their value is commonly estimated. It is often difficult to ascertain the proportion between twodifferentquantitiesoflabour.Thetimespentintwodifferentsortsofworkwillnotalwaysalonedeterminethis proportion. The different degrees of hardship endured, and of ingenuity exercised,must likewise betakenintoaccount.Theremaybemorelabourinanhour'shardwork,thanintwohours'easybusiness;or,inanhour'sapplicationtoatrade,whichitcoststenyears'labourtolearn,thaninamonth'sindustryatanordinary and obvious employment.But it is not easy to find any accuratemeasure, either of hardship oringenuity.Inexchanging,indeed,thedifferentproductionsofdifferentsortsoflabourforoneanother,someallowance iscommonlymadeforboth. It isadjusted,however,notbyanyaccuratemeasure,butby thehigglingandbargainingofthemarket,accordingtothatsortofroughequality,which,thoughnotexact,issufficientforcarryingonthebusinessofcommonlife."—WealthofNations.Booki.chap.10.

[4]WealthofNations,booki.chap.10.

[5]"Theearth,aswehavealreadyseen,isnottheonlyagentofnaturewhichhasaproductivepower;butitistheonlyone,ornearlyso,thatonesetofmentaketothemselves,totheexclusionofothers;andofwhichconsequently theycanappropriate thebenefits.Thewatersof rivers,andof thesea,by thepowerwhichtheyhaveofgivingmovementtoourmachines,carryingourboats,nourishingourfish,havealsoaproductivepower;thewindwhichturnsourmills,andeventheheatofthesun,workforus;buthappilynoonehasyetbeenable tosay: the 'windand thesunaremine,and theservicewhich they rendermustbepaidfor.'"—EconomiePolitique,parJ.B.Say,vol.ii.p.124.

[6]HasnotM.Say forgotten, in the followingpassage, that it is thecostofproductionwhichultimatelyregulatesprice?"Theproduceof labouremployedonthe landhas thispeculiarproperty, that itdoesnotbecomemoredearbybecomingmorescarce,becausepopulationalwaysdiminishesatthesametimethatfooddiminishes,andconsequentlythequantityoftheseproductsdemanded,diminishesatthesametimeasthequantitysupplied.Besidesitisnotobservedthatcornismoredearinthoseplaceswherethereisplentyof uncultivated land, than in completely cultivated countries. England and France were much moreimperfectly cultivated in the middle ages than they are now; they produced much less raw produce:neverthelessfromallthatwecanjudgebyacomparisonwiththevalueofotherthings,cornwasnotsoldatadearerprice.Iftheproducewasless,sowasthepopulation;theweaknessofthedemandcompensatedthe feebleness of the supply." vol. ii. 338. M. Say being impressed with the opinion that the price ofcommoditiesisregulatedbythepriceoflabour,andjustlysupposingthatcharitableinstitutionsofallsortstendtoincreasethepopulationbeyondwhatitotherwisewouldbe,andthereforetolowerwages,says,"Isuspect that the cheapness of the goods, which come from England is partly caused by the numerouscharitable institutions which exist in that country." vol. ii. 277. This is a consistent opinion in one whomaintainsthatwagesregulateprice.

[7]"Inagriculturetoo,"saysAdamSmith,"naturelaboursalongwithman;andthoughherlabourcostsnoexpense,itsproducehasitsvalue,aswellasthatofthemostexpensiveworkman."Thelabourofnatureispaid,notbecauseshedoesmuch,butbecauseshedoeslittle.Inproportionasshebecomesniggardlyinhergifts, she exacts a greater price for her work.Where she is munificently beneficent, she always worksgratis."Thelabouringcattleemployedinagriculture,notonlyoccasion,liketheworkmeninmanufactures,thereproductionofavalueequaltotheirownconsumption,ortothecapitalwhichemploysthem,togetherwithitsowner'sprofits,butofamuchgreatervalue.Overandabovethecapitalof thefarmerandall itsprofits,theyregularlyoccasionthereproductionoftherentofthelandlord.Thisrentmaybeconsideredastheproduceof thosepowersofnature, theuseofwhich the landlord lends to the farmer. It isgreaterorsmaller according to the supposedextentof thosepowers,or inotherwords, according to the supposednatural or improved fertility of the land. It is the work of nature which remains, after deducting orcompensatingeverythingwhichcanberegardedastheworkofman.It isseldomlessthanafourth,andfrequentlymore thana thirdof thewholeproduce.Noequalquantityofproductive labour employed inmanufactures,caneveroccasionsogreatareproduction.Inthemnaturedoesnothing,mandoesall;andthe reproductionmust always be in proportion to the strength of the agents that occasion it. The capitalemployed inagriculture, therefore,notonlyputs intomotionagreaterquantityofproductive labour thananyequalcapitalemployedinmanufactures,butinproportiontootothequantityoftheproductivelabourwhichitemploys,itaddsamuchgreatervaluetotheannualproduceofthelandandlabourofthecountry,totherealwealthandrevenueofitsinhabitants.Ofallthewaysinwhichacapitalcanbeemployed,itisbyfarthemostadvantageoustothesociety."—BookII.chap.v.p.15.

Does nature nothing for man in manufactures? Are the powers of wind and water, which move our

machinery,andassistnavigation,nothing?Thepressureoftheatmosphereandtheelasticityofsteam,whichenable us towork themost stupendous engines—are they not the gifts of nature? to say nothing of theeffectsofthematterofheatinsofteningandmeltingmetals,ofthedecompositionoftheatmosphereintheprocessofdyeing and fermentation.There is not amanufacturewhich canbementioned, inwhichnaturedoesnotgiveherassistancetoman,andgiveittoo,generouslyandgratuitously.

In remarking on the passage which I have copied from Adam Smith, Mr. Buchanan observes, "I haveendeavoured to shew, in theobservationsonproductive andunproductive labour, contained in the fourthvolume,thatagricultureaddsnomoretothenationalstockthananyothersortofindustry.Indwellingonthereproductionofrentassogreatanadvantagetosociety,Dr.Smithdoesnotreflectthatrentistheeffectof high price, and thatwhat the landlord gains in thisway, he gains at the expense of the community atlarge.Thereisnoabsolutegaintothesocietybythereproductionofrent;it isonlyoneclassprofitingatthe expense of another class. The notion of agriculture yielding a produce, and a rent in consequence,becausenatureconcurswithhumanindustryintheprocessofcultivation,isamerefancy.Itisnotfromtheproduce,butfromthepriceatwhichtheproduceissold, thattherentisderived;andthispriceisgot,notbecause nature assists in the production, but because it is the price which suits the consumption to thesupply."

[8]Tomakethisobvious,andtoshewthedegreesinwhichcornandmoneyrentwillvary,letussupposethatthelabouroftenmenwill,onlandofacertainquality,obtain180quartersofwheat,anditsvaluetobe4l.perquarter,or720l.;andthatthelabouroftenadditionalmenwill,onthesameoranyotherland,produceonly170quarters inaddition;wheatwouldrisefrom4l. to4l.4s.8d. for170:180::4l.:4l. 4s.8d.;or,as in theproductionof170quarters, the labourof10men isnecessary inonecase,andonlyof9.44intheother,therisewouldbeas9.44to10,oras4l. to4l.4s.8d.If10menbefurtheremployed,andthereturnbe

160, thepricewillriseto £4 10 0150, ------ 4 16 0140, ------ 5 2 10

Now if no rentwas paid for the landwhich yielded 180 quarterswhen cornwas at 4l. per quarter, thevalueof10quarterswouldbepaidasrentwhenonly170couldbeprocured,which,at4l.4s.8d.wouldbe42l.7s.6d.

20qrs. when 160 wereproduced,whichat £4 10 0 wouldbe £4 90 030qrs. .. 150 .......... 4 16 0 ... 144 0 040qrs. .. 140 .......... 4 2 10 ... 205 13 4

Cornrentthenwouldincreaseintheproportionof

100andmoneyrentinthe

proportionof

100212 100340 100400 465

[9]WithMr.Buchanan in thefollowingpassage, if it refers to temporarystatesofmisery, Isofaragree,that"thegreatevilofthelabourer'scondition,ispoverty,arisingeitherfromascarcityoffoodorofwork;and in all countries, lawswithout number have been enacted for his relief. But there aremiseries in thesocialstatewhichlegislationcannotrelieve;andit isusefulthereforetoknowitslimits,thatwemaynot,byaimingatwhatisimpracticable,missthegoodwhichisreallyinourpower."—Buchanan,page61.

[10]Thereaderisdesiredtobearinmind,thatforthepurposeofmakingthesubjectmoreclear,Iconsidermoneytobeinvariableinvalue,andthereforeeveryvariationofpricetobereferabletoanalterationinthevalueofthecommodity.

[11]Thereaderisaware,thatweareleavingoutofourconsiderationtheaccidentalvariationsarisingfrombadandgoodseasons,orfromthedemandincreasingordiminishingbyanysuddeneffectonthestateofpopulation.Wearespeakingofthenaturalandconstant,notoftheaccidentalandfluctuatingpriceofcorn.

[12]The180quartersofcornwouldbedividedinthefollowngproportionsbetweenlandlords,farmers,andlabourers,withtheabove-namedvariationsinthevalueofcorn.

Priceperqr. Rent. Profit. Wages. Total.£.s.d. InWheat. InWheat. InWheat.

400 None. 120qrs. 60qrs.

180448 10qrs 111.7 58.34100 20qrs 103.4 56.64160 30 95 555210 40 86.7 53.5

and,underthesamecircumstances,moneyrent,wages,andprofit,wouldbeasfollows:

Priceperqr. Rent. Profit. Wages. Total.£. s. d. £. s. d. £. s. d. £. s. d. £. s. d.4 0 0 None. 480 0 0 240 0 0 720 0 04 4 8 42 7 8 473 0 0 247 0 0 762 7 64 10 0 90 0 0 465 0 0 255 0 0 810 0 04 16 0 144 0 0 456 0 0 264 0 0 864 0 05 2 10 205 13 4 445 15 0 274 5 0 925 13 4

[13]SeeAdamSmith,booki.chap.9.

[14] Itwill appear then, that a country possessingvery considerable advantages inmachinery and skill,and which may therefore be enabled to manufacture commodities with much less labour than herneighbours,mayinreturnforsuchcommodities, importaportionofthecornrequiredforitsconsumption,evenifitslandweremorefertile,andcorncouldbegrownwithlesslabourthaninthecountryfromwhichit was imported. Two men can both make shoes and hats, and one is superior to the other in bothemployments;but inmakinghats,he canonlyexceedhis competitorbyone-fifthor20per cent., and inmakingshoeshecanexcelhimbyone-thirdor33percent.;—willitnotbefortheinterestofboth,thatthesuperiormanshouldemployhimselfexclusivelyinmakingshoes,andtheinferiormaninmakinghats?

[15]BookV.ch.ii.

[16]M.Sayappearstohaveimbibedthegeneralopiniononthissubject.Speakingofcorn,hesays,"thenceit results, that its price influences the price of all other commodities. A farmer, a manufacturer, or amerchant,employsacertainnumberofworkmen,whoallhaveoccasiontoconsumeacertainquantityofcorn.If thepriceofcornrises,heisobligedtoraise, inanequalproportion, thepriceofhisproductions."Vol.i.p.255.

[17]M.Saysays, that"the tax,added to thepriceofacommodity, raises itsprice.Every increase in thepriceofacommodity,necessarilyreducesthenumberofthosewhoareabletopurchaseit,oratleastthequantity theywillconsumeof it."This isbynomeansanecessaryconsequence. Idonotbelieve, that ifbreadweretaxed,theconsumptionofbreadwouldbediminished,morethanifcloth,wine,orsoap,weretaxed.

[18]Thefollowingremarkofthesameauthorappearstomeequallyerroneous:"Whenahighdutyislaidoncotton, theproductionofall thosegoods,ofwhichcottonis thebasis, isdiminished.If thetotalvalueaddedtocottoninitsvariousmanufactures,inaparticularcountry,amountedto100millionsoffrancsperannum,andtheeffectofthetaxwas,todiminishtheconsumptiononehalf,thenthetaxwoulddeprivethatcountryeveryyearof50millionsoffrancs,inadditiontothesumreceivedbygovernment."Vol.ii.p.314.

[19]ItisobservedbyM.Say,"thatamanufacturerisnotenabledtomaketheconsumerpaythewholetaxleviedonhiscommodity,becauseitsincreasedpricewilldiminishitsconsumption."Shouldthisbethecase,should the consumptionbediminished,will not the supply also speedilybediminished?Why should themanufacturercontinueinthetradeifhisprofitsarebelowthegenerallevel?M.Sayappearsherealsotohaveforgottenthedoctrinewhichheelsewheresupports,"thatthecostofproductiondeterminestheprice,below which commodities cannot fall for any length of time, because production would then be eithersuspendedordiminished."—Vol.ii.p.26.

"The tax in this case falls then partly on the consumerwho is obliged to givemore for the commoditytaxed,andpartlyontheproducer,who,afterdeductingthetax,willreceiveless.Thepublictreasurywillbebenefitedbywhatthepurchaserpaysinaddition,andalsobythesacrificewhichtheproducerisobligedtomakeofapartofhisprofits.Itistheeffortofgunpowder,whichactsatthesametimeonthebulletwhichitprojects,andonthegunwhichitcausestorecoil."Vol.ii.p.333.

[20] "Melon says, that thedebts of a nation are debts due from the right hand to the left, bywhich thebodyisnotweakened.Itistruethatthegeneralwealthisnotdiminishedbythepaymentoftheinterestonarrearsofthedebt:Thedividendsareavaluewhichpassesfromthehandofthecontributortothenationalcreditor:Whetheritbethenationalcreditororthecontributorwhoaccumulatesorconsumesit,isIagreeoflittleimportancetothesociety;buttheprincipalofthedebt—whathasbecomeofthat?Itexistsnomore.Theconsumptionwhichhasfollowedtheloanhasannihilatedacapitalwhichwillneveryieldanyfurtherrevenue.Thesocietyisdeprivednotoftheamountofinterest,sincethatpassesfromonehandtotheother,butoftherevenuefromadestroyedcapital.Thiscapital,ifithadbeenemployedproductivelybyhimwholentit tothestate,wouldequallyhaveyieldedhimanincome,butthatincomewouldhavebeenderivedfromarealproduction,andwouldnothavebeenfurnishedfromthepocketofafellowcitizen."—Say,vol.ii.p.357.Thisisbothconceivedandexpressedinthetruespiritofthescience.

[21]"Manufacturingindustryincreasesitsproduceinproportiontothedemand,andthepricefalls;buttheproduce of land cannot be so increased; and a high price is still necessary to prevent the consumptionfromexceedingthesupply."Buchanan,vol.iv.p.40.IsitpossiblethatMr.Buchanancanseriouslyassert,thattheproduceofthelandcannotbeincreased,ifthedemandincreases?

[22]Iwish theword"Profit"hadbeenomitted.Dr.Smithmustsuppose theprofitsof the tenantsof thesepreciousvineyards tobeabove thegeneral rateofprofits. If theywerenot, theywouldnotpay the tax,unlesstheycouldshiftiteithertothelandlordorconsumer.

[23]Seenote,p.346.

[24]Vol.iii.p.355.

[25]Inaformerpartofthiswork,Ihavenoticedthedifferencebetweenrent,properlysocalled,andtheremunerationpaidtothelandlordunderthatname,fortheadvantageswhichtheexpenditureofhiscapitalhas procured to his tenant; but I did not perhaps sufficiently distinguish the differencewhichwould arisefrom the different modes in which this capital might be applied. As a part of this capital, when onceexpendedintheimprovementofafarm,isinseparablyamalgamatedwiththeland,andtendstoincreaseitsproductivepowers,theremunerationpaidtothelandlordforitsuseisstrictlyofthenatureofrent,andissubject to all the lawsof rent.Whether the improvement bemade at the expenseof the landlordor thetenant,itwillnotbeundertakeninthefirstinstance,unlessthereisastrongprobabilitythatthereturnwillatleastbeequaltotheprofitthatcanbemadebythedispositionofanyotherequalcapital;butwhenoncemade, the return obtainedwill ever after bewholly of the nature of rent, andwill be subject to all thevariationsofrent.Someoftheseexpenseshowever,onlygiveadvantagestothelandforalimitedperiod,anddonotaddpermanently to itsproductivepowers:beingbestowedonbuildings,andotherperishableimprovements, they require to be constantly renewed, and therefore do not obtain for the landlord anypermanentadditiontohisrealrent.

[26]Adam Smith says, "that the difference between the real and the nominal price of commodities andlabour,isnotamatterofmerespeculation,butmaysometimesbeofconsiderableuseinpractice."Iagreewithhim;buttherealpriceoflabourandcommodities,isnomoretobeascertainedbytheirpriceingoods,AdamSmith'srealmeasure,thanbytheirpriceingoldandsilver,hisnominalmeasure.Thelabourerisonlypaidareallyhighpriceforhislabour,whenhiswageswillpurchasetheproduceofagreatdealoflabour.

[27] In vol. i. p. 108,M. Say infers, that silver is nowof the same value, as in the reign ofLouisXIV."becausethesamequantityofsilverwillbuythesamequantityofcorn."

[28] "The first manwho knew how to softenmetals by fire, is not the creator of the value which thatprocessaddstothemeltedmetal.Thatvalueistheresultofthephysicalactionoffireaddedtotheindustryandcapitalofthosewhoavailedthemselvesofthisknowledge."

"FromthiserrorSmithhasdrawnthisfalseresult,thatthevalueofallproductionsrepresentstherecentorformer labour of man, or in other words, that riches are nothing else but accumulated labour; fromwhich,byasecondconsequence,equallyfalse,labouristhesolemeasureofriches,orofthevalueofproductions."29 The inferenceswithwhichM. Say concludes are his own, and notDr. Smith's; they arecorrectifnodistinctionbemadebetweenvalueandriches:butthoughAdamSmith,whodefinedrichestoconsistintheabundanceofnecessaries,conveniences,andenjoymentsofhumanlife,wouldhaveallowedthatmachines and natural agentsmight very greatly add to the riches of a country, hewould not haveallowedthattheyaddanythingtovalueinexchange.

[29]Chap.iv.p.31.

[30]M.Say,Catechismed'EconomiePolitique,p.99.

[31]AdamSmithspeaksofHolland,asaffordinganinstanceofthefallofprofitsfromtheaccumulationof

capital,andfromeveryemploymentbeingconsequentlyovercharged."TheGovernmentthereborrowat2percent.,andprivatepeopleofgoodcredit,at3percent."Butitshouldberemembered,thatHollandwasobligedtoimportalmostallthecornwhichsheconsumed,andbyimposingheavytaxesonthenecessariesofthelabourer,shefurtherraisedthewagesoflabour.ThesefactswillsufficientlyaccountforthelowrateofprofitsandinterestinHolland.

[32]IsthefollowingquiteconsistentwithM.Say'sprinciple?"Themoredisposablecapitalsareabundantinproportion to theextentofemployment for them, themorewill the rateof intereston loansofcapitalfall."—Vol. ii. p. 108. If capital to any extent can be employed by a country, how can it be said to beabundantcomparedwiththeextentofemploymentforit?

[33] Adam Smith says, that "When the produce of any particular branch of industry exceeds what thedemandofthecountryrequires,thesurplusmustbesentabroad,andexchangedforsomethingforwhichthereisademandathome.Withoutsuchexportationapartoftheproductivelabourofthecountrymustcease, and the value of its annual produce diminish. The land and labour of great Britain producegenerallymorecorn,woollens,andhardware,thanthedemandofthehomemarketrequires.Thesurpluspartofthem,therefore,mustbesentabroad,andexchangedforsomethingforwhichthereisademandathome.Itisonlybymeansofsuchexportation,thatthissurpluscanacquireavaluesufficienttocompensatethelabourandexpenseofproducingit."Onewouldbeledtothinkbytheabovepassage,thatAdamSmithconcludedwewereundersomenecessityofproducingasurplusofcorn,woollengoods,andhardware,andthatthecapitalwhichproducedthemcouldnotbeotherwiseemployed.Itis,however,alwaysamatterofchoiceinwhatwayacapitalshallbeemployed,andthereforetherecannever,foranylengthoftime,beasurplusofanycommodity;foriftherewere,itwouldfallbelowitsnaturalprice,andcapitalwouldberemovedtosomemoreprofitableemployment.NowriterhasmoresatisfactorilyandablyshewnthanDr.Smith,thetendencyofcapitaltomovefromemploymentsinwhichthegoodsproduceddonotrepaybytheirpricethewholeexpenses,includingtheordinaryprofits,ofproducingandbringingthemtomarket.34]

[34]SeeChap.10.BookI.

[35] "All kindsof public loans," observesM.Say, "are attendedwith the inconvenienceofwithdrawingcapital, or portions of capital, from productive employments, to devote them to consumption; andwhentheytakeplaceinacountry,theGovernmentofwhichdoesnotinspiremuchconfidence, theyhave thefurther inconvenience of raising the interest of capital. Who would lend at 5 per cent. per annum toagriculture,tomanufacturers,andtocommerce,whenaborrowermaybefoundreadytopayaninterestof7or8percent.?Thatsortofincome,whichiscalledprofitofstock,wouldrisethenattheexpenseoftheconsumer. Consumptionwould be reduced by the rise in the price of produce; and the other productiveserviceswould be less in demand, lesswell paid.Thewhole nation, capitalists excepted,would be thesufferersfromsuchastateofthings."Tothequestion:"whowouldlendmoneytofarmers,manufacturers,andmerchants,at5percent.perannum,whenanotherborrowerhavinglittlecredit,wouldgive7or8?"Ireply, thateveryprudentandreasonablemanwould.Becausetherateofinterest is7or8percent. therewhere the lender runsextraordinary risk, is thisany reason that it shouldbeequallyhigh in thoseplaceswhere they are secured from such risks?M.Say allows, that the rate of interest dependson the rate ofprofits;but itdoesnot therefore follow, that therateofprofitsdependson therateof interest.One is thecause,theothertheeffect,anditisimpossibleforanycircumstancestomakethemchangeplaces.

[36] In another placehe says, that "whatever extensionof the foreignmarket canbe occasionedby thebounty,must,ineveryparticularyear,bealtogetherattheexpenseofthehomemarket;aseverybushelofcorn which is exported by means of the bounty, and which would not have been exported without thebounty,wouldhave remained in thehomemarket to increase theconsumption, and to lower thepriceofthat commodity.The corn bounty, it is to be observed, aswell as every other bounty upon exportation,imposestwodifferenttaxesuponthepeople;first,thetaxwhichtheyareobligedtocontribute,inordertopaythebounty;and,secondly,thetaxwhicharisesfromtheadvancedpriceofthecommodityinthehomemarket, and which, as the whole body of the people are purchasers of corn, must in this particularcommoditybepaidby thewholebodyof thepeople. In thisparticularcommodity, therefore, thissecondtax isbymuch theheaviestof the two.""Forevery five shillings, therefore,which theycontribute to thepaymentofthefirsttax,theymustcontributesixpoundsfourshillingstothepaymentofthesecond.""Theextraordinaryexportationofcorn, therefore,occasionedby thebounty,notonly ineveryparticularyeardiminishesthehome,justasmuchasitextendstheforeignmarketandconsumption,but,byrestrainingthepopulationandindustryofthecountry,itsfinaltendencyistostuntandrestrainthegradualextensionofthehome market, and thereby, in the long run, rather to diminish than to augment the whole market andconsumptionofcorn."

[37]ThesameopinionisheldbyM.Say.Vol.ii.p.335.

[38]SeeChap.onRent.

[39] M. Say supposes the advantage of the manufacturers at home to be more than temporary. "AGovernmentwhichabsolutelyprohibitstheimportationofcertainforeigngoods,establishesamonopolyinfavourofthosewhoproducesuchcommoditiesathome,againstthosewhoconsumethem;inotherwords,those at homewhoproduce themhaving the exclusiveprivilegeof selling them,may elevate their priceabovethenaturalprice;andtheconsumersathome,notbeingabletoobtainthemelsewhere,areobligedtopurchasethematahigherprice."Vol.i.p.201.

Buthowcantheypermanentlysupportthemarketpriceoftheirgoodsabovethenaturalprice,wheneveryone of their fellow citizens is free to enter into the trade? they are guaranteed against foreign, but notagainsthomecompetition.Therealevilarisingtothecountryfromsuchmonopolies,iftheycanbecalledbythatname,lies,notinraisingthemarketpriceofsuchgoods,butinraisingtheirrealandnaturalprice.Byincreasingthecostofproduction,aportionofthelabourofthecountryislessproductivelyemployed.

[40]Arenot the followingpassages contradictory to theone abovequoted? "Besides, that home trade,though less noticed, (because it is in a variety of hands) is the most considerable, it is also the mostprofitable.Thecommoditiesexchangedinthat tradearenecessarilytheproductionsofthesamecountry."Vol.i.p.84.

"TheEnglishGovernmenthasnotobserved,thatthemostprofitablesalesarethosewhichacountrymakestoitself,becausetheycannottakeplace,withouttwovaluesbeingproducedbythenation;thevaluewhichissold,andthevaluewithwhichthepurchaseismade."Vol.i.p.221.

Ishall,inthe24thchapter,examinethesoundnessofthisopinion.

[41]Seepage198.

[42]M.SayisofthesameopinionwithAdamSmith:"Themostproductiveemploymentofcapital,forthecountry in general, after that on the land, is that ofmanufactures and of home trade; because it puts inactivityanindustryofwhichtheprofitsaregainedinthecountry,whilethosecapitalswhichareemployedinforeigncommerce,maketheindustryandlandsofallcountriestobeproductive,withoutdistinction.

"Theemploymentofcapital,theleastfavourabletoanation,isthatofcarryingtheproduceofoneforeigncountrytoanother."Say,vol.ii.p.120.

[43] "It is fortunate that the natural course of things draws capital, not to those employmentswhere thegreatestprofitsaremade,buttothosewheretheiroperationismostprofitabletothecommunity."—Vol.ii.p.122.M.Sayhasnottolduswhatthoseemploymentsare,which,whiletheyarethemostprofitabletotheindividual,arenotthemostprofitabletothestate.Ifcountrieswithlimitedcapitals,butwithabundanceoffertileland,donotearlyengageinforeigntrade,thereasonis,becauseitislessprofitabletoindividuals,andthereforealsolessprofitabletothestate.

[44]"Theuseofgoldandsilverthenestablishesineveryplaceacertainnecessityforthesecommodities;andwhenthecountrypossessesthequantitynecessarytosatisfythiswant,allthatisfurtherimported,notbeingindemand,isunfruitfulinvalue,andofnousetoitsowners."—Say,vol.i.p.187.

Inpage196,M.Saysays,thatsupposingacountrytorequire1000carriages,andtobepossessedof1500—all above 1000 would be useless; and thence he infers, that if it possesses more money than isnecessary,theoverpluswillnotbeemployed.

[45]Whatever I sayofgoldcoin, is equallyapplicable to silvercoin;but it isnotnecessary tomentionbothoneveryoccasion.

[46]"InthetransactionsofGovernmentwithindividuals,andinthoseofindividualsbetweenthemselves,apiece of money is never received, whatever denomination may be given to it, but at its intrinsic value,increasedbythevalueoftheutilitywhichtheimpressionitbearshasaddedtoit."—Say,vol.i.p.327.

"Moneyissolittleamarkofvalue,thatifthepiecesofmoneyloseapartoftheirvaluebyfriction,fromuse,orbytheknaveryoftheclippersofmoney,allgoodsriseinpriceinproportiontothealterationwhichtheyhaveexperienced;andifGovernmentordersarecoinage,andrestoreseachpiecetoits legalweightandfineness,goodswillfall totheirformerprice;iftheyhavenotbeenexposedtovariationsfromothercauses."—Say,vol.i.p.346.

[47]M.Sayrecommendsthattheseignorageshouldvaryaccordingtothequantityofbusinessthatthemintmightbecalledupontoperform.

"Governmentshouldnotcointhebullionof individualsexceptonpayment,notonlyof theexpenses,butalsoof theprofitsofcoining.Thisprofitmightbecarried toaconsiderableheight, inconsequenceof theexclusiveprivilegeofcoining;butitmustvaryaccordingtothecircumstancesofthemint,andthequantityrequiredforcirculation."Vol.i.p.380.

Sucharegulationwouldbeextremelypernicious,andwouldexposeus toconsiderableandunnecessaryvariationinthebullionvalueofthecurrency.

[48] If with the quantity of gold and silver which actually exists, these metals only served for themanufactureofutensilsandornaments,theywouldbeabundant,andwouldbemuchcheaperthantheyareat present; in otherwords, in exchanging them for anyother species of goods,we shouldbeobliged togiveproportionallyagreaterquantityof them.Butasa largequantityof thesemetals isusedformoney,and as this portion is used for no other purpose, there remains less to be employed in furniture andjewellery;nowthisscarcityaddstotheirvalue.—Say,vol.i.p.316.Seealsonotetop.78.

[49]AnInquiryintotheNatureandOriginofPublicWealth,page13.

[50]AnInquiryintotheNatureandProgressofRent,p.15.

[51]Seepage124,whereIhaveendeavouredtoshew,thatwhateverfacilityordifficultytheremaybeintheproductionofcorn;wagesandprofitstogetherwillbeofthesamevalue.Whenwagesrise,itisalwaysattheexpenseofprofits,andwhentheyfall,profitsalwaysrise.

[52]OfwhatincreasedquantitydoesMr.Malthusspeak?Whoistoproduceit?Whocanhaveanymotivetoproduceit,beforeanydemandexistsforanadditionalquantity?

[53] Inquiry, &c. "In all progressive countries, the average price of corn is never higher than what isnecessarytocontinuetheaverageincreaseofproduce."Observations,p.21.

"In the employment of fresh capital upon the land, to provide for thewants of an increasing population,whetherthisfreshcapitalisemployedinbringingmorelandundertheplough,orimprovinglandalreadyincultivation,themainquestionalwaysdependsupontheexpectedreturnsofthiscapital;andnopartofthegross profits can be diminished, without diminishing the motive to this mode of employing it. Everydiminution of price, not fully and immediately balanced by a proportioned fall in all the necessaryexpenses of a farm, every taxon the land, every taxon farming stock, every taxon thenecessaries offarmers, will tell in the computation; and if, after all these outgoings are allowed for, the price of theproduce will not leave a fair remuneration for the capital employed, according to the general rate ofprofits,andarentatleastequaltotherentofthelandinitsformerstate,nosufficientmotivecanexisttoundertaketheprojectedimprovement."Observations,p.22.

[54]Seep.124.

[55]Seep.70,&c.

[56]Itisnotnecessarytostateoneveryoccasion,butitmustbealwaysunderstood,thatthesameeffectwillbeproducedbyemployingdifferent,butequalportionsofcapitalon the landalreadyincultivation,withdifferentresults.Rentisthedifferenceofproduceobtainedwithequalcapitals,andwithequallabouronthesame,orondifferentqualitiesofland.

[57]ObservationsontheCornLaws,p.4.

[58]UponshewingthispassagetoMr.Malthus,atthetimewhenthesepapersweregoingtothepress,heobserved, "that in these two instances he had inadvertently used the term real price, instead of cost ofproduction.ItwillbeseenfromwhatIhavealreadysaid,thattomeitappears,thatinthesetwoinstanceshe has used the term real price in its true and just acceptation, and that in the former case only it isincorrectlyapplied.

[59]Page40.

[60] Manufactures, indeed, could not fall in any such proportion, because, under the circumstancessupposed,therewouldbeanewdistributionofthepreciousmetalsamongthedifferentcountries.Ourcheapcommoditieswouldbeexportedinexchangeforcornandgold,tilltheaccumulationofgoldshouldloweritsvalue,andraisethemoneypriceofcommodities.

[61]TheGroundsofanOpinion,&c.page36.

[62]Mr.Malthus,inanotherpartofthesamework,supposescommoditiestovary25or20percent.whencornvaries33⅓.

[63]InChap.24.Ihaveobserved,thattherealresourcesofacountry,anditsabilitytopaytaxes,dependonitsnet,andnotonitsgrossincome.

[64]Thisisonthesuppositionthatmoneycontinuedatthesamevalue.Inthelastnote,Ihaveendeavouredtoshewthatmoneywouldnotcontinueofthesamevalue,—thatitwouldfall,fromincreasedimportation;afactwhichismuchmorefavourabletomyargument.

[65] Mr. M'Culloch, in an able publication, has very strongly contended for the justice of making thedividendsonthenationaldebtconformtothereducedvalueofcorn.Heisinfavourofafreetradeincorn,buthethinksitshouldbeaccompaniedbyareductionofinteresttothenationalcreditor.

THEEND.

ERRATA.

Page190,line8,forobtained,readattained.521,line20,fortwenty-oneshillings,readforty-twoshillings.543,lastline,forgive,readspend.555,lastline,forrentmoney,readmoneyrent.

INDEX.

A.

ACCUMULATIONofcapital,effectsof,ontherelativevalueofcommodities,16-42.Andonprofitsandinterest,398-416.

Agriculture,effectsofimprovementsin,onrents,70-76.Isaffectedbythedistressproceedingfromsuddenrevulsionsoftrade,368-372.

Agriculturalimprovements,nocauseoftheincreaseofrent,570,571.

B.

Banks,establishmentof,affectsthesolepowerofthestateincoiningmoney,502.ConsequenceoftheBankofEnglandissuingtoogreataquantityofpaper,503-506.TheassistancegivenbytheBankofEnglandtocommerce,accountedfor,513,514.--SeePaperCurrency.Bounties,ontheexportationofcorn,loweritspricetotheforeignconsumer,417-427.Effectsofabountyinraisingthepriceofcorn,illustrated,428.Thoughsuchbountymaycauseapartialdegradationinthevalueofmoney,yetsuchdegradationcannotbepermanent,432-

434.Bountiesontheexportationofmanufacturesraisetheirmarketbutnottheirnaturalprice,436-438.Thesoleeffectofbountyistodivertaportionofcapitaltoanemploymentwhichitwouldnotnaturallyseek,438.Evilsofsuchasystem,439-445.Abountyontheproductionofcorn,willproducenorealeffectontheannualproduceofthelandandlabourofthecountry,

thoughitwouldmakecornrelativelycheap,andmanufacturesrelativelydear,449-455.Buttheeffectofataxoncorn,inordertoaffordafundforabountyontheproductionofcommodities,wouldbetoenhance

thepriceofcorn,andrendercommoditiescheap,456,457.Buchanan(Mr.),observationsof,onAdamSmith'sdoctrineofproductiveandunproductivelabour,64-66,note.Remarksonhisopinionsrespectingbountiesonexportation,440-442.

C.

Capital,natureof,effectsoftheaccumulationof,ontherelativevalueofcommoditiesinvestigated,16.Effectsof,inasavageorinfantstateofsociety,17,18,23,24.Andinamoreadvancedstateofsociety,19-21.Therelativevaluesofcirculatingandfixedcapitalsconsidered,22,23.Thedistinctionbetweencirculatingandfixedcapitalsdifficulttobestrictlydefined,186,187.Considerationsonthedifferentmodesofemployingit,83-88.Theincreaseofcapitalinquantityandvalue,productiveofariseinthenaturalpriceofwages,94,95.Increaseofcapitalinquantityonly,productiveofariseinthemarketpriceofwages,ibid.Effectsoftheaccumulationofcapitalonprofitsandinterest,398-416.Thesoleeffectofbountiesonexportation,uponcapital,istodivertaportionofittoanemploymentwhichitwouldnot

naturallyseek,438.Remarksonsucheffect,439-445.Theprofits,madebytheemploymentofcapital,regulatetherateofinterestformoney,512,513.

Carryingtrade,observationson,407.Circulationofmoneycanneveroverflow,andwhy,500,501.

CirculationofPaper,seePaperCurrency.ColonialTrade,observationson,476,477.

Proofs,thattradewithacolonymaybesoregulatedastobelessbeneficialtothecolony,andmorebeneficialtothemothercountry,

thanaperfectlyfreetrade,477-486.Benefitsofacolonialtrade,487-490.

Commodities,goldandsilveraninsufficientmediumfordeterminingthevaryingvalueof,7,8.Corn,aninadequatestandardofthevalueof,9-12.Theeffectsofanaccumulationofcapitalontherelativevalueofcommodities,considered,16-42.Effectsofariseinwagesontheirvalue,43,44,andofthepaymentofrent,45,46.Theirexchangeablevalueregulatedbythegreaterquantityoflabourbestowedontheirproductionbythosewholabourunder

themostunfavourablecircumstances,59,60.Thepricesofcommoditiesnotnecessarilyincreasedbyariseinthepriceoflabour,109,110.Thecostofproductionregulatesthepriceofcommodities,542,567,568,572,573.

Corn,avariablestandardfordeterminingthevaryingvalueofthings,7-12.

Effectsofthepriceof,onrent,67-70.Corn-rentsmateriallyaffectedbytithes,227.Advantageresultingfromtherelativelylowpriceofcorn,373.Bountiesontheexportationofit,loweritspricetotheforeignconsumer,417-427.Effectsofabountyinraisingthepriceofcorn,428.Abountyontheproductionof,productiveofnorealeffectontheannualproduceofthelandandlabourofthecountry,449-

455.Thepriceofcornenhancedbyataxonit,inordertoaffordafundforabountyontheproductionofcommodities,456,457.Benefitofahighpriceofcorntolandlords,474,475.Investigationofthecomparativevalueofcorn,gold,andlabour,inrichandinpoorcountries,527-537.Theproductionofcornencouragedbyalterationinitsmarketprice,574,575.Afallinthevalueofcornbeneficialtothestockholder,586.

Cultivation,notdiscouragedbyataxonlandanditsproduce,238.Currency.SeeGoldandSilver,PaperCurrency.

D.

Demandandsupply,influenceof,onprices,considered,542.OpinionofM.Sayonthissubject,544.AndoftheEarlofLauderdale,545-547.Observationsthereon,547,548.

E.

Economyinlabour,reducestherelativevalueofcommodities,21.Illustrationofthisprinciple,22-42.

Exchange,nocriterionoftheincreasedvalueofmoney,178.Tobeascertainedbyestimatingthevalueofthecurrencyinthecurrencyofanothercountry,181,andalsobycomparingitwithsomestandardcommontobothcountries,181-184.Effectsofpapercurrencyonexchange,310-314.

Exportationofcorn,bountieson,loweritspricetotheforeignconsumer,417-427.Effectsof,inraisingthepriceofcorn,illustrated,428.Bountiesontheexportationofmanufacturesraisethemarket,butnotthenatural,priceofthese,436-438.

F.

Farmerspaymorepoor-ratethanthemanufacturers,359-362.ForeignTrade,effectsofanextensionof,146,147.

Proofsthattheprofitsofthefavouredtradewillspeedilysubsidetothegenerallevel,148-154.FundedProperty,thepriceof,nosteadycriterionbywhichtojudgeoftherateofinterest,413-415.

G.

Gold,andSilver,aninsufficientmediumfordeterminingthevariablevalueofcommodities,7,8.But,uponthewhole,theleastinconvenientstandardformoney,80,81.Onwhomataxupongoldwouldultimatelyfall,249,250.Thevalueofgoldultimatelyregulatedbythecomparativefacilityordifficultyofproducingit,251.Effectsofataxupongold,252-261.Evilsofprohibitingafreetradeinthepreciousmetals,whenthepricesofcommoditiesareraised,309.Thevalueofgoldandsilverproportionedtothequantityoflabournecessarytoproducethemandbringthemtomarket,499.Remarksontheemploymentofthesemetalsincurrency,516.Theirrelativevaluesatdifferentperiods,accountedfor,516-526.Investigationofthecomparativevalueofgold,corn,andlabour,inrichandinpoorcountries,527-537.

GrossRevenue,advantagesof,over-ratedbyAdamSmith,491.AndbyM.Say,492,note.Examinationofthisdoctrine,492-498.Adiminutionofgrossincome,nodiminutionofnetincome,579-583.

H.

Holland,lowrateofinterestin,accountedfor,400,note.Houses,rentsof,distinguishedintotwoparts,263.

Differencebetweenrentofhousesandthatofland,264.Taxesonhousesbywhomultimatelyborne,266.

I.

Importationofcorn,effectsofaprohibitionof,considered,437,438.Interest,lowrateof,inHolland,accountedfor,400,note.

Effectsofaccumulationonprofitsandinterest,398-410.Observationsontheratesofinterest,412-416.Theinterestformoneyisregulatedbytherateofprofitswhichcanbemadebytheemploymentofcapital,512,513.

L.

Labour,thequantityof,requisitetoobtaincommodities,theprincipalsourceoftheirexchangeablevalue,4,5.Effectsofmachineryon,considered,9-11.Economyinlabourreducestherelativevalueofacommodity,21,22.Illustrationsofthisprinciple,22-42.AdamSmith'stheoryofproductiveandunproductivelabour,considered,64-66,notes.Naturalpriceof,explained,90,91.Marketpriceof,what,92.Itsinfluenceonthehappinessofthelabourer,92,93.Investigationofthecomparativevalueoflabour,gold,andcorn,inrichandinpoorcountries,527-537.

Land,thedivisionofthewholeproduceof,betweenlandlords,capitalists,andlabourers,isthecriterionofrent,profits,andwages,44-48.

Itsdifferentproductivequalities,acauseofrent,54-58.Effectsofincreasingitsproductivepowersbyagriculturalimprovements,70-76.

Landlords,tithesinjuriousto,229,230.Benefitofahighpriceofcorntothem,474,475.

Land-Tax,virtuallyataxonrent,232.Effectsofanequalland-tax,imposedindiscriminatelyonalllandcultivated,234,235.ErrorofDr.AdamSmith,ontheinequalityoflandandallothertaxes,accountedfor,236-238.Taxonlandanditsproduce,nobartocultivation,238,239.Operationoftheland-taxofGreatBritain,considered,239,240.MistakeofM.Say,corrected,241,242-246.

Lauderdale(Earlof),opinionof,ontheinfluenceofdemandandsupplyonprices,545-547.Remarksthereon,547,548.

Luxuries,observationsonthetaxingof,314.Advantagesanddisadvantagesoftaxingthem,considered,327-329.

M.

Machinery,effectsof,infixingtherelativevaluesofcommodities,34-41.Malthus(Mr.),examinationoftheopinionsof,onrent,549-566.

Therealcostofproductionregulatesthepriceofcommodities,567,568,572,573.

Increaseofpopulationnocauseoftheriseofrent,569;noragriculturalimprovements,570,571.Hissupposition,thatnetincomeisdiminished,inproportiontoadiminutionofgrossincome,disproved,579-583.Lossofrent,theeffectofalowpriceofcorn,587,588.

Manufactures,improvementof,inanycountry,tendstoalterthedistributionofthepreciousmetalsamongthenationsoftheworld,157-170.

Manufacturerspaylesspoorratethanfarmers,359-362.Themarketpriceofmanufactures,butnottheirnaturalprice,raisedbybountiesontheirexportation,436-438.

Mines,distinguishedbytheirfertilityorbarrenness,77-79.EffectofdiscoveringtherichminesofAmericaonthepriceofthepreciousmetals,80.Observationsontherentofmines,462-467.

Money,effectsoftheriseof,invalue,onthepriceofcommodities,43,44.Therateofprofitnotaffectedbyvariationsinthevalueofmoney,46-48.Differentvalueofmoneyindifferentcountries,accountedfor,170-173.Thevalueofmoney,generally,diminishedbyimprovementsinthefacilityofworkingtheminesofthepreciousmetals,178.Thedemandfor,regulatedbyitsvalue,anditsvaluebyitsquantity,250,251.Lowvalueof,inSpain,prejudicialtothecommerceandmanufacturesofthatcountry,307.Observationsontheratesofinterestformoney,412-416,512,513.Thevalueof,thoughpartiallydegradedbyabountyoncorn,yetnotpermanentlydegraded,432-434.Thequantityof,employedinacountry,dependantuponitsvalue,500.Effectsofthestatechargingaseignorageoncoiningmoney,501,524,525.

Monopoly-price,observationson,340-345.

N.

NationalDebt,observationson,340.NetRevenue,advantagesof,undulyestimatedbyAdamSmith,491,

andbyM.Say,492,note.Examinationoftheirdoctrines,492-498.Isnotdiminishedbyaproportionatediminutionofgrossrevenue,579-583.

P.

PaperCurrency,circulationof,explained,501.Paper-moneynotnecessarilypayableinspecie,tosecureitsvalue,502.Butthequantityissuedmustberegulatedaccordingtothevalueofthestandardmetal,ibid.503.TheBankofEngland,whyliabletobedrainedofspecieforitspapercurrency,504-506.Compellingtheissuersofpapermoneytopaytheirnoteseitheringoldcoinorbullion,istheonlycontrolupontheirabusing

theirpowerofissuingsuchmoney,507.Providedtherewereperfectsecurityagainstsuchabuse,itisimmaterialbywhompapermoneyisissued,509.Illustrationofthispoint,510-516.

Poor-Laws,pernicioustendencyof,astheynowexist,111,112,115.Remediesfor,113,114.

Poor-Rates,natureof,355.Howlevied,356-358.Morefallsonthefarmerthanonthemanufacturer,inproportiontotheirrespectiveprofits,359-362.

Population,increaseof,nocauseoftheriseofrent,569.Price(real),ofthings,distinguished,4.

Naturalandmarketpricesdistinguished,andhowgoverned,82-89.Thepricesofcommoditiesnotnecessarilyraisedbyariseinthepriceoflabour,109,110.Riseofpriceonrawproduce,theonlymeansbywhichthecultivatorcanpaythetaximposedthereon,195.Themarket,butnotthenaturalpriceofmanufactures,raisedbybountiesontheirexportation,436-438.

Theinfluenceofdemandandsupplyonprices,considered,542-548,567,568,572,573.Alterationinthemarketpriceofcornencouragesitsproduction,574,575.

Produceofland,andlabourofthecountry,mustbedividedbetweencapitalists,landlords,andlabourers,toaffordacriterionofrent,profits,andwages,44-48.

Effectoftaxesonrawproduce,194.Taxonrawproduceraisesthepriceofwages,199.Objectionsagainsttaxingtheproduceofland,considered,201-224.Remarksontheinconveniencessupposedtoresultfromthepaymentoftaxesbytheproducer,538-541.

Production,difficultyof,benefitsthelandlord,76.Thecostofproduction,theregulatorofthepriceofcommodities,542,567,568,572,573.

Profitsofstockdifficulttoascertain,410.Thequantityoflabournecessarytoobtaintheproduceofland,isthecriterionbywhichtoestimatetherateofprofit,wages,

andrent,44-48.Ariseinthepriceofcorn,productiveofadiminutioninthemoneyvalueofthefarmer'sprofits,117-122.Ariseinthepriceofrawproduce,ifaccompaniedbyariseofwages,lowerstheagriculturalandmanufacturingprofits,125-

130.Proofs,thatprofitsdependonthequantityoflabourrequisitetoprovidenecessariesforlabourers,onthatland,orwiththat

capitalwhichyieldsnorent,131-144.Effectsofanextensionofforeigntradeonprofits,146,147.Proofs,thattheprofitsofthefavouredtradewillspeedilysubsidetothegenerallevel,148-154.Andsowithrespecttohometrade,155-157.Furtherproofsthatprofitsdependonrealwages,173-175.Taxonnecessariesvirtuallyataxonprofits,269,270.Effectsofataxationofprofits,considered,270-284.Theprofitsofstockdiminishedbyataxonwages,285.Effectsofaccumulationonprofitsandinterest,398-416.

Prohibitionofimportationofcorn,effectsof,considered,437,438.Provisions,causesofthehighpricesof,203.

First,adeficientsupply,ibid.—204.Secondly,agraduallyincreasingdemand,ultimatelyattendedwithanincreasedcostofproduction,205.Thirdly,afallinthevalueofmoney,209.Fourthly,ataxonnecessaries,210.

R.

Rent,natureof,49,50,52,362,note.AdamSmith'sdoctrineofrents,considered,50,51.Thedifferentproductivequalitiesoflandandincreaseofpopulation,thecauseofrents,54-58.Riseof,theeffectoftheincreasingwealthofacountry,65,66.Influenceofthepricesofcornonrent,67-69.Effectsofagriculturalimprovementsonrent,70-76.Observationsontherentofmines,77-81.Taxonrentfallswhollyonthelandlords,220-224.Corn-rentsmateriallyaffectedbytithes,227.ExaminationofDr.AdamSmith'sdoctrineconcerningtherentofland,458-475.AndofMr.Malthus'sopinionsonrent,549-566.Increaseofpopulationisnocauseoftheriseofrent,569.Neitherareagriculturalimprovements,570,571.Lossofrent,theeffectoflowpriceofcorn,587,588.

Riches,defined,377.Differencebetweenvalueandriches,377-386.Meansofincreasingtherichesofacountry,386-388.

ErroneousviewsofM.Sayonthissubjectconsidered,388-397.

S.

Say(M.),erroneousviewsof,concerningtheprinciplesoftheland-taxinGreatBritain,corrected,241-244.Examinationofsomeofhisprinciplesoftaxation,319-324,330,331,notes.Remarksonhismistakenviewofvalueandriches,388-397.Examinationofhisdoctrineconcerningbountiesonexportation,443-448.Andongrossandnetrevenue,492-498.Dangerresultingfromhisrecommendationrespectingthechargingofseignorageforcoiningmoney,525,526,notes.Observationsonhisstatementoftheinconveniencesresultingfrompaymentoftaxesbytheproducer,538-540.Hisopinionontheinfluenceofdemandandsupplyonprices,considered,544,545.

Scarcity,asourceofexchangeablevalue,2.Seignorage,effectsof,onthevalueofmoney,501,524,525.Simonde(M.),remarksontheopinionof,concerningtheinconveniencesresultingfromthepaymentoftaxesbytheproducer,540,

541.Silver.SeeGoldandSilver.Sinkingfund,inEngland,merelynominal,340.

Howconducted,510.Smith(Dr.Adam),onthemeaningofthetermvalue,1.

Hisdoctrinethatcornisapropermediumforfixingthevaryingvalueofotherthings,examined,7-9.Stricturesonhisdoctrinerelativetolabourbeingthesoleultimatestandardoftheexchangeablevalueofcommodities,10,11,

575,576.Andonhisdefinitionsofrent,49,50.Histheoryofproductiveandunproductivelabourconsidered,64-66,notes.Correctionofhiserroneousviewoftheinequalityoftaxesonland,andallothertaxes,236-238.Hisopiniononthetaxesuponthewagesoflabour,286.ExaminationthereofbyMr.Buchanan,287-292.Observationsthereonbytheauthorofthiswork,293-306.Correctionofhismistakenviewoftaxesuponluxuries,314-319.Remarksonhisdoctrineconcerningbountiesonexportation,420,422-439.Examinationofhisdoctrineconcerningtherentofland,458-475.Andongrossandnetrevenue,492-498.Stricturesonhisprinciplesofpaper-currency,503-508.HisstatementrespectingtheadvantagesoftheScottishmodeofaffordingaccommodationtotrade,disproved,515,516-523.Remarksonhisdoctrinerelativetothecomparativevalueofgold,corn,andlabour,inrichandinpoorcountries,529-537.

Spain,commerceandmanufacturesof,injuredbythelowvalueofmoneythere,307.Stamp-duty,weightof,abartothetransferoflandedproperty,267,268.

T.

Taxes,natureof,explained,186.Impolicyoftaxesoncapital,190.Taxesuponthetransferofproperty,191.Onwhomtheseveralkindsoftaxesprincipallyfall,192.Objectionstotaxesonthetransferenceofproperty,192,193.Effectoftaxesonrawproduce,194.Ariseofpriceinrawproducetheonlymeansbywhichthecultivatorcanpaythetax,195.Suchtaxinfactpaidbytheconsumer,196-198.Taxonrawproduceandonthenecessariesofthelabourer,raisesthepriceofwages,199.Objectionsagainstthetaxationoftheproduceofland,consideredandrefuted,201-224.Tithes,anequaltax,225.

Differencebetweenthemandataxonrawproduce,226.Objectionstothem,227-231.Taxonland,virtuallyataxonrent,232.Theyoughttobeclearandcertain,233,234.Effectsoftaxesongold,considered,247-261.Groundrents,notafairsubjectoftaxation,267.Taxesonhousesbywhomultimatelyborne,266.Taxesonnecessaries,virtuallyataxonprofits,269,270.Effectsoftaxationofprofitsconsidered,270-284.Taxesuponluxuries,314.Advantagesanddisadvantagesof,327-329.Supposedabsurditiesintaxation,explainedandobviated,315-317.Properobjectsoftaxation,326.Observationsonthetaxationofothercommoditiesthanrawproduce,330.Effectoftaxestodefraytheinterestofloans,332-334.Remarksonthetaxuponmalt,andeveryothertaxonrawproduce,346-353.Natureandoperationofthepoor-rate,355-362.Examinationoftheinconveniencessupposedtobesustainedbythepaymentoftaxesbytheproducer,538-541.

Tithes,natureof,225.Areanequaltax,ibid.Differencebetweentithesandataxonrawproduce,226.Tithesmateriallyaffectcorn-rents,227.Theyactasabountyonimportation,andthereforeareinjurioustolandlords,229,230.Donotdiscouragecultivation,237,238.

Trade,generalcausesofsuddenchangesinthechannelsof,363-365.Moreparticularlythecommencementofwarafteralongpeace,orviceversa,365-368.Theeffectsofsuchrevulsionsonagriculture,considered,369-376.Observationsonthecarryingtrade,407.SeeForeignTrade.

U.

Utility,essentialtoexchangeablevalue,2.

V.

Value,definitionof,1.Thedistinctivepropertiesofvalueandrichesconsidered,377-397.SeeLabour.Utilityessentialtoexchangeablevalue,2.Scarcity,onesourceofsuchvalue,ibid.Thequantityoflabourrequiredtoobtaincommodities,theprincipalsourceoftheirexchangeablevalue,3-15.Theeffectsofaccumulationofcapitalonrelativevalue,16-42.Effectsofariseinwages,onrelativevalue,43,44.Effectsofpaymentofrent,onvalue,45,46.Variationsinthevalueofmoneymakenodifferenceintherateofprofits,46,47.Thevalueofgoldandsilverisinproportiontothelabournecessarytoproduceandbringthemtomarket,499,500.Investigationofthecomparativevalueofgold,corn,andlabour,inrichandinpoorcountries,527-537.

W.

Wages,effectsofarisein,onrelativevalue,27-33,43,44,48.Naturalandmarketpricesoflabour,90-93.Increaseofcapitalinquantityandvalue,increasesthenaturalpriceofwages,94,95.

Increaseofcapital,butnotinvalue,augmentsthemarketpriceofwages,ibid.Proofsthattheincreasingdifficultyofprovidinganadditionalquantityoffoodwiththesameproportionalquantityoflabour,

willraisewages,97-104.Ariseinwagesnotnecessarilyproductiveofcomforttothelabourer,105-108.Ariseofwagesnotnecessarilyproductiveofariseinthepricesofcommodities,109,110,286-289.Wageswillberaisedbyataxonnecessaries,269-270.Andbyataxonwages,285.Effectsofataxuponwages,considered,297-306.

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