 Book 4, Chapter 1, of Principles of Economics. This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer, visit LibriVox.org. This reading by Karl Manchester 2008. Principles of Economics by Alfred Marshall. Book 4, The Agents of Production, Land, Labour, Capital and Organisation. Chapter 1, Introductory. Section 1, The Agents of Production are commonly classed as land, labour and capital. By land is meant the material and the forces which nature gives freely for man's aid in land and water, in air and light and heat. By labour is meant the economic work of man, whether with the hand or the head. Footnote, Labour is classed as economic when it is quote, undergone partly or wholly with a view to some good other than the pleasure directly derived from it, end quote. Such labour with the head as does not tend directly or indirectly to promote material production, as for instance the work of the schoolboy at his tasks is left out of account so long as we are confining our attention to production in the ordinary sense of the term. From some points of view, but not from all, the phrase land, labour, capital would be more symmetrical if labour were interpreted to mean the labourers, i.e. mankind. C. Walrus, economique politique pure, lesson 17 and Professor Fisher, Economic Journal, volume 6. End footnote. By capital is meant all stored up provision for the production of material goods and for the attainment of those benefits which are commonly reckoned as part of income. It is the main stock of wealth regarded as an agent of production rather than as a direct source of gratification. Capital consists in a great part of knowledge and organisation and of this some part is private property and other part is not. Knowledge is our most powerful engine of production, it enables us to subdue nature and force her to satisfy our wants. Organisation aids knowledge. It has many forms e.g. that of a single business, that of various businesses in the same trade, that of various trades relatively to one another and that of the state providing security for all and help for many. The distinction between public and private property in knowledge and organisation is of great and growing importance. In some respects of more importance than that between public and private property in material things and partly for that reason it seems best sometimes to reckon organisation apart as a distinct agent of production. It cannot be fully examined till a much later stage in our enquiry but something has to be said of it in the present book. In a sense there are only two agents of production, nature and man. Capital and organisation are the result of the work of man aided by nature and directed by his power of forecasting the future and his willingness to make provision for it. If the character and powers of nature and of man be given, the growth of wealth and knowledge and organisation follow from them as effect from cause. But on the other hand man is himself largely formed by his surroundings in which nature plays a great part and thus from every point of view man is the centre of the problem of production as well as that of consumption and also of that further problem of the relations between the two which goes by the twofold name of distribution in exchange. The growth of mankind in numbers, in health and strength, in knowledge, ability and in richness of character is the end of all our studies but it is an aim to which economics can do no more than contribute some important elements. In its broader aspects therefore the study of this growth belongs to the end if to any part of a treatise on economics but does not properly belong even there. Meanwhile we cannot avoid taking account of the direct agency of man in production and of the conditions which govern his efficiency as a producer and on the whole it is perhaps the most convenient cause as it certainly is that most in accordance with English tradition to include some account of the growth of population in numbers and character as a part of the general discussion of production. Section 2 It is not possible at this stage to do more than indicate very slightly the general relations between demand and supply, between consumption and production but it may be well while the discussion of utility and value is fresh in our minds to take a short glance at the relations between value and the disutility or discomodity that has to be overcome in order to obtain those goods which have value because they are at once desirable and difficult of attainment. All that can be said now must be provisional and may even seem rather to raise difficulties than to solve them and there will be an advantage in having before us a map in however slight and broken outline of the ground to be covered. While demand is based on the desire to obtain commodities supply depends mainly on the overcoming of the unwillingness to undergo discomodities. These fall generally under two heads, labour and the sacrifice involved in putting off consumption. It must suffice here to give a sketch of the part played by ordinary labour in supply. It will be seen hereafter that remarks similar, though not quite the same, might have been made about the work of management and the sacrifice which is involved, sometimes but not always, in that waiting which is involved in accumulating the means of production. The discomodity of labour may arise from bodily or mental fatigue or from it being carried on in unhealthy surroundings. Or with unwelcome associates, or from its occupying time that is wanted for recreation or for social or intellectual pursuits. But whatever be the form of the discomodity, its intensity nearly always increases with the severity and the duration of labour. Of course much exertion is undergone for its own sake as for instance in mountaineering, in playing games and in the pursuit of literature, of art and of science. And much hard work is done under the influence of a desire to benefit others. Footnote. We have seen that if a person makes the whole of his purchases, at the price he would be just willing to pay for his last purchases, he gains a surplus of satisfaction on his earlier purchases since he gets them for less than he would have paid rather than go without them. So if the price paid to him for doing any work is an adequate reward for that part which he does most unwillingly, and if, as generally happens, the same payment is given for that part of the work which he does less unwillingly and at less real cost to himself, then from that part he obtains a producer's surplus. Some difficulties connected with this notion are considered in Appendix K. End footnote. But the chief motive to most labour, in our use of the term, is the desire to obtain some material advantage which in the present state of the world appears generally in the form of the gain of a certain amount of money. It is true that even when a man is working for hire he often finds pleasure in his work, but he generally gets so far tired before it is done that he is glad when the hour for stopping arrives. Perhaps after he has been out of work for some time he might, as far as his immediate comfort is concerned, rather work for nothing than not work at all. But he will probably prefer not to spoil his market any more than a manufacturer would by offering what he has for sale much below its normal price. On this matter much will need to be said in another volume. In technical phrase this may be called the marginal disutility of labour. Footnote. Theory of political economy, chapter 5. This doctrine has been emphasised and developed in much detail by American and Austrian economists. End footnote. 4. As with every increase in the amount of a commodity its marginal utility falls, and as with every fall in that desirableness there is a fall in the price that can be got for the whole of the commodity and not for the last part only, so the marginal disutility of labour generally increases with every increase in its amount. The unwillingness of anyone already in an occupation to increase his exertions depends, under ordinary circumstances, on fundamental principles of human nature which economists have to accept as ultimate facts. As Jevons remarks, there is often some resistance to be overcome before setting to work. Some little painful effort is often involved at starting, but this gradually diminishes to zero and is succeeded by pleasure which increases for a while until it attains a certain low maximum, after which it diminishes to zero and is succeeded by increasing weariness and craving for relaxation and change. In intellectual work however, the pleasure and excitement after they have once set in often go on increasing till progress is stopped of necessity or by prudence. Everyone in health has a certain store of energy on which he can draw, but which can only be replaced by rest, so that if his expenditure exceed his income for long his health becomes bankrupt and employers often find that in cases of great need a temporary increase of pay will induce their workmen to do an amount of work which they cannot long keep up whatever they are paid for it. One reason of this is that the need for relaxation becomes more urgent with every increase in the hours of labour beyond a certain limit. The disagreeableness of additional work increases partly because, as the time left for rest and other activities diminishes, the agreeableness of additional free time increases. Subject to these and some other qualifications, it is broadly true that the exertions which any set of workers will make rise or fall with a rise or fall in the remuneration which is offered to them. As the price required to attract purchases for any given amount of a commodity was called the demand price for that amount during a year or any other given time, so the price required to call forth the exertion necessary for producing any given amount of a commodity may be called the supply price for that amount during the same time. And if for the moment we assumed that production depended solely on the exertions of a certain number of workers already in existence and trained for their work, we should get a list of supply prices corresponding to the list of demand prices which we have already considered. This list would set forth theoretically in one column of figures various amounts of exertion and therefore of production and in a parallel column the prices which must be paid to induce the available workers to put forth these amounts of exertion. But this simple method of treating the supply of work of any kind and consequently the supply of goods made by that work assumes that the number of those who are qualified for it is fixed and that assumption can be made only for short periods of time. The total numbers of the people change under the action of many causes. Of these causes only some are economic but among them the average earnings of labour take a prominent place though their influence on the growth of numbers is fitful and irregular. But the distribution of the population between different trades is more subject to the influence of economic causes. In the long run the supply of labour in any trade is adapted more or less closely to the demand for it. Thoughtful parents bring up their children to the most advantageous occupations to which they have access, that is to those that offer the best reward. In wages and other advantages in return for labour that is not too severe in quantity or character and for skill that is not too hard to be acquired This adjustment between demand and supply can however never be perfect. Fluctuations of demand make it much greater or much less for a while even for many years than would have been just sufficient to induce parents to select for their children that trade rather than some other of the same class. Although therefore the reward to be had for any kind of work at any time does stand in some relation to the difficulty of acquiring the necessary skill combined with exertion to disagreeableness the waste of leisure etc involved in the work itself yet this correspondence is liable to great disturbances. The study of these disturbances is a difficult task and it will occupy us much in later stages of our work but the present book is mainly descriptive and raises few difficult problems. End of book 4 chapter 1 Chapter 2 of Principles of Economics book 4 This is a Libravox recording. All Libravox recordings are in the public domain. For more information or to volunteer please visit Libravox.org Principles of Economics book 4 by Alfred Marshall Chapter 2 The Fertility of Land The requisites of production are commonly spoken of as land, labour and capital those material things which owe their usefulness to human labour being classed under capital and those which owe nothing to it being classed as land. The distinction is obviously a loose one for bricks are but pieces of earth slightly worked up and the soil of old settled countries has for the greater part been worked over many times by man and owes to him its present form. There is however a scientific principle underlying the distinction. While man has no power of creating matter he creates utilities by putting things into a useful form and the utilities made by him can be increased in supply if there is an increased demand for them. They have a supply price but there are other utilities over the supply of which he has no control they are given as a fixed quantity by nature and have therefore no supply price. The term land has been extended by economists so as to include the permanent sources of these utilities whether they are found in land as the term is commonly used or in seas and rivers, in sunshine and rain, in winds and waterfalls. When we have inquired what it is that marks off land from those material things which we regard as products of the land we shall find that the fundamental attribute of land is its extension. The right to use a piece of land gives command over a certain space a certain part of the earth's surface. The area of the earth is fixed the geometric relations in which any particular part of it stands to other parts are fixed. Man has no control over them they are wholly unaffected by demand they have no cost of production there is no supply price at which they can be produced. The use of a certain area of the earth's surface is a primary condition of anything that man can do it gives him room for his own actions with the enjoyment of the heat and the light the air and the rain which nature assigns to that area and it determines his distance from and in a great measure his relations to other things and other persons. We shall find that it is this property of land which though as yet insufficient prominence has been given to it is the ultimate cause of the distinction which all riders on economics are compelled to make between land and other things. It is the foundation of much that is most interesting and most difficult in economic science. Some parts of the earth's surface contribute to production chiefly by the services which they render to the navigator others are of chief value to the miner others though this selection is made by man rather than by nature to the builder but when the productiveness of land is spoken of it is the product of what is turned to its agricultural use. To the agriculturist an area of land is the means of supporting a certain amount of vegetable and perhaps ultimately of animal life. For this purpose the soil must have certain mechanical and chemical qualities. Mechanically it must be so far yielding that the fine roots of plants can push their way freely in it and yet it must be firm enough to give them a good hold. Some sandy soils do by affording water to free a passage for then it will often be dry and the plant food will be washed away almost as soon as it is formed in the soil or put into it. Nor must it air as stiff clays do by not allowing the water a fairly free passage. For constant supplies of fresh water and of the air that it brings with it in its journey through the soil are essential. They convert into plant food the minerals and gases that otherwise would be useless or even poisonous. The action of fresh air and water and of frosts are nature's tillage of the soil and even unaided they will in time make almost any part of the earth's surface fairly fertile if the soil that they form can rest where it is and is not torn away downhill by rain and torrents as soon as it is formed. But man gives great aid in this mechanical preparation of the soil. The chief purpose of his tillage is to help nature to enable the soil to hold plant roots gently but firmly and to enable the air and water to move about freely in it. And farm yard manure subdivides clay soils and makes them lighter and more open. While to sandy soils it gives a much needed firmness of texture and helps them mechanically as well as chemically to hold the materials of plant food which would otherwise be quickly washed out of them. Chemically the soil must have the inorganic elements that the plant wants in a form palatable to it and in some cases a man can make a great change with but little labor. Four, he can then turn a barren into a very fertile soil by adding a small quantity of just those things that are needed using in most cases either lime in some of its many forms or those artificial manures which modern chemical science has provided in great variety and he is now calling in the aid of bacteria to help him in his work. By all these means the fertility of the soil can be brought under man's control. He can by sufficient labor make almost any land bear large crops. He can prepare the soil mechanically and chemically for whatever crops he intends to grow next. He can adapt his crops to the nature of the soil and to one another selecting such a rotation that each will leave the land in such a state and at such a time of the year that it can be worked up easily and without loss of time into a suitable seed bed for the upcoming crop. He can even permanently alter the nature of the soil by draining it or by mixing with it other soil that will supplement its deficiencies. Hither too this has been done only on a small scale. Chalk and lime, clay and marl have been but thinly spread over the fields. A completely new soil has seldom been made and it has been picked in gardens and other favored spots. But it is possible and even as some think probable that at some future time the mechanical agencies used in making railways and other great earthworks may be applied on a large scale to creating a rich soil by mixing two poor soils with opposite faults. All these changes are likely to be carried out more extensively and thoroughly in the future than in the past. But even now the greater part of the soil in old countries owes much of its character to human action. All that lies just below the surface has in it a large element of capital, the produce of man's past labor. Those free gifts of nature which Ricardo classed as the inherent and indestructible properties of the soil have been largely modified, partly impoverished and partly enriched by the work of many generation of men. But it is different with that which is above the surface. Every acre has given to it by nature an annual income of heat and light, of air and moisture and over these man has but little control. He may indeed alter the climate a little by extensive drainage works or by planting forests or cutting them down. But on the whole the action of the sun and the wind and the rain are an annuity fixed by nature for each plot of land. Ownership of the land gives possession of this annuity and it also gives the space required for the life and action of vegetables and animals. The value of this space being much affected by its geographical position. We may then continue to use the ordinary distinction between the original or inherent properties which the land derives from nature and the artificial properties which it owes to human action. Provided we remember that the first include the space relations of the plot in question and the annuity that nature has given it of sunlight and air and rain and that in many cases these are the chief inherent properties of the soil. It is chiefly from them that the ownership of agricultural land derives its peculiar significance and the theory of rent its special character. But the question how far the fertility of any soil is due to the original properties given to it by nature and how far to the changes in it made by man cannot be fully discussed without taking account of the kind of produce raised from it. Human agency can do much more to promote of some crops than of others. At one end of the scale are forest trees and oak well planted and with plenty of room has very little to gain from man's aid. There is no way of applying labour to it so as to obtain any considerable return. Nearly the same may be said of the grass on some rich river bottoms which are endowed with a rich soil and good natural drainage. Wild animals feeding off this grass without man's care will farm it nearly as well as he does. And much of the richest farm land in England paying a rent of six pounds an acre and upwards would give to unaided nature almost as great a return as it's got from it now. Next come land which though not quite so rich is still kept in permanent pasture and after this comes arable land on which man does not trust to nature's sowing but prepares for each crop a seed bed to suit its special wants. He sows the seed himself and weeds away the rivals to it. The seeds which he sows are selected for their habit of quickly maturing and fully developing just those parts which are most useful to him. And though the habit of making the selection carefully is only quite modern and is even now far from general yet the continued work of thousands of years has given him plants that have but little resemblance to their wild ancestors. Lastly the kinds of produce which owe most to man's labour and care are the choice or kinds of fruits, flowers and vegetables and of animals particularly those which are used for improving their own breeds. For while nature left to herself would select those that are best able to take care of themselves and their offspring, man selects those which will provide him most quickly with the largest supplies of the things he most wants and many of the choices products could not hold their own at all without his care. Thus various then are the parts which man plays in aiding nature to raise the different kinds of agricultural produce. In each case he works on till the extra return got by extra capital and labour has so far diminished that it will no longer remunerate him for applying them. Where this limit is soon reached he leaves nature to do nearly all the work. Where his share in the production has been great it is because he has been able to work far without reaching this limit. We are thus brought to consider the law of diminishing return. It is important to note that the return to capital and labour now under discussion is measured by the amount of the produce raised independently of any changes that may meanwhile take place in the exchange value or price of produce. Such for instance as might occur if a new railway had been made in the neighbourhood or the population of the county had increased much while agricultural produce could not be imported easily. Such changes will be of vital importance when we come to draw inferences from the law of diminishing return and particularly when we discuss the pressure of increasing population on the means of subsistence. But they have no bearing on the law itself because that has to do not with the value of the produce raised but only with its amount. End of chapter 2 Chapter 3 of Principles of Economics Book 4 This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer please visit LibriVox.org Recording by Icy Jumbo Principles of Economics Book 4 by Alfred Marshall Chapter 3 The fertility of land continued The tendency to diminishing return Section 1 The law of or statement of tendency 2 diminishing return may be provisionally worded thus. An increase in the capital and labour applied in the cultivation of land causes in general a less than proportionate increase in the amount of produce raised unless it happens to coincide with an improvement in the arts of agriculture. We learn from history and by observation that every agriculturist in every age and climb desires to have the good use of a good deal of land and that when he cannot get it freely he will pay for it if he has the means. If he thought that he would get as good results by applying all his capital and labour to a very small piece he would not pay for any but a very small piece. When the land that requires no clearing is to be had for nothing everyone uses just that quantity which he thinks will give his capital and labour the largest return. His cultivation is extensive not intensive. He does not aim at getting many bushels of corn from any one acre for then he would cultivate only a few acres. His purpose is to get as large a total crop as possible with a given expenditure of seed and labour and therefore he sows as many acres as he can manage to bring under a light cultivation. Of course he may go too far. He may spread his work over so large an area that he would gain by concentrating his capital and labour on a smaller space and under these circumstances if he could get command over more capital and labour so as to apply more to each acre the land would give him an increasing return. That is an extra return larger in proportion than it gives to his present expenditure. But if he has made his calculations rightly he is using just so much ground as will give him the highest return and he would lose by concentrating his capital and labour on a smaller area. If he had command over more capital and labour and were to apply more to his present land he would gain less than he would by taking up more land. He would get a diminishing return that is an extra return smaller in proportion than he gets for the last applications of capital and labour that he now makes provided of course that there is meanwhile no perceptible improvement in his agricultural skill. As his sons grow up they will have more capital and labour to apply to land and in order to avoid obtaining a diminishing return they will want to cultivate more land. But perhaps by this time all the neighbouring land is already taken up and in order to get more they must buy it or pay a rent for the use of it or migrate to nothing. Footnote Increasing return in the earlier stages arises partly from economy of organisation similar to that which gives an advantage to manufacture on a large scale but it is also partly due to the fact that where land is very slightly cultivated the farmers crops are at to be smothered by nature's crops of weeds. The relation between diminishing and increasing return is discussed further in the last chapter End of Footnote This tendency to a diminishing return was the cause of Abraham's parting from Lot and of most of the migrations of which history tells. Footnote Quotation from Genesis chapter 13 verse 6 The land was not able to bear them that they might dwell together for their substance was great so that they could not dwell together. End of Footnote And wherever the right to cultivate land was in request we may be sure that the tendency to a diminishing return is in full operation. Were it not for this tendency every farmer could save nearly the whole of his rent by giving up all but a small piece of his land and bestowing all his capital and labour on that. If all the capital and labour which he would in that case apply to it gave us good a return in proportion as that which he now applies to it he would get from that plot as he now gets from his whole farm and he would make a net gain of all his rent save that of the little plot that he retained. It may be conceded that the ambition of farmers often leads them to take more land than they can properly manage and indeed almost every great authority on agriculture from Arthur Young downwards has invade against this mistake. But when they tell a farmer that he would gain by applying his capital and labour to a smaller area they do not necessarily mean that he would get a larger gross produce. It is sufficient for their argument that the saving in rent would more than counterbalance any probable diminution of the total returns that he got from the land. If a farmer pays a fourth of his producer's rent he would gain by concentrating his capital and labour on less land provided the extra capital and labour applied to each acre gave anything more than three fourths as good a return in proportion as he got from his earlier expenditure. Again it may be granted that much land, even in a country as advanced as England is so unskillfully cultivated that it could be made to give more than double its present gross produce if twice the present capital and labour were applied to it skillfully. Very likely those are right who maintain that if all English farmers were as able, wise and energetic as the best are they might profitably apply twice the capital and labour that is now applied. Assuming rent to be one fourth of the present produce they might get seven hundred weight of produce for every four that they now get. It is conceivable that with still more improved methods they might get eight hundred weight or even more. But this does not prove that as things are further capital and labour could obtain from land an increasing return. The fact remains that taking farmers as they are with the skill and energy which they actually have we find as the result of universal observation that there is not open to them a short road to riches by giving up a great part of their land by concentrating all their capital and labour on the remainder and saving for their own pockets the rent of all but that remainder. The reason why they cannot do this is told in the law of diminishing return. That return being measured has already been said by its quantity not its exchange value. We may now state distinctly the limitations which were implied under the words in general in our provisional wording of the law. The law is a statement of a tendency which may indeed be held in check for a time by improvements in the arts of production and by the fitful course of the development of the full powers of the soil. But which must ultimately become irresistible if the demand for produce should increase without limit. Our final statement of the tendency may then be divided into two parts thus Although an improvement in the arts of agriculture may raise the rate of return which the land generally affords to any given amount of capital and labour and although the capital and labour already applied to any piece of land may have been so inadequate for the development of its full powers that some further expenditure on it even with the existing arts of agriculture would give a more than proportionate return yet these conditions are rare in an old country and except where they are present the application of increased capital and labour to land will add a less than proportionate amount to the produce raised unless there be meanwhile an increase in the skill of the individual cultivator. Secondly whatever may be the future developments of the arts of agriculture a continued increase in the application of capital and labour to land must ultimately result in a diminution of the extra produce which can be obtained by a given extra amount of capital and labour. Section 2 Making use of a term suggested by James Mill we may regard the capital and labour applied to land as consisting of equal successive doses. As we have seen the return to the first few doses may be perhaps small and a greater number of doses may get a larger proportionate return. The return to successive doses may even in exceptional cases alternatively rise and fall. But our law states that sooner or later it being always supposed that there is meanwhile no change in the arts of cultivation a point will be reached after which all further doses will obtain a less proportionate return than the preceding doses. The dose is always a combined dose of labour and capital whether it is applied by a peasant owner working unaided on his own land or at the charges of a capitalist farmer who does no manual labour himself. But in the latter case the main body of the outlay presents itself in the form of money and when discussing the business economy of farming in relation to English conditions it is often convenient to consider the labour converted market value into a money equivalent and to speak of doses of capital simply rather than doses of labour and capital. The dose which only just remunerates the cultivator may be said to be the marginal dose and the return to it the marginal return. If there happens to be in the neighbourhood land that is cultivated but only just pays its expenses and so gives no surplus for rent we may suppose this dose is applied to it. We can then say that the dose applied to it is applied to land on the margin of cultivation and this way of speaking has the advantage of simplicity. But it is not necessary for the argument to suppose that there is any such land. What we want to fix our minds on is the return to the marginal dose. Whether it happens to be applied to poor land or to rich does not matter all that is necessary should be the last dose which can profitably be applied to that land. Footnote Riccardo was well aware of this though he did not emphasise it enough. Those opponents of his doctrine who have supposed that it has no application to places where all the land pays a rent have mistaken the nature of his argument. End of footnote When we speak of the marginal or last dose applied to the land we do not mean the last in time we mean that dose which is on the margin of profitable expenditure that is which is applied so as just to give the ordinary returns to the capital and labour of the cultivator without affording any surplus. To take a concrete instance we may suppose a farmer to be thinking of sending the hoas over a field once more and after a little hesitation he decides that it is worth his while but only just worth his while to do it. The dose of capital and labour spent on doing it is then the last dose in our present sense though there are many doses still to be applied in reaping the crop. Of course the return to this last dose cannot be separated from the others but we ascribe to it all that part of the produce which we believe would not have been produced if the farmer had decided against the extra hoeing. Footnote An illustration from recorded experiments may help to make clearer the notion of the return to a marginal dose of capital and labour. The Arkansas Experimental Station see the times 18th of November 1889 reported that four plots of an acre each were treated exactly alike except in the matter of plowing and harrowing with the following results. Plot number one was plowed once and yielded 16 bushels per acre. Plot number two was plowed once and harrowed once and yielded 18.5 bushels per acre. Plot number three was plowed twice and harrowed once and yielded 21.2 bushels per acre. Plot number four was plowed twice and harrowed twice and yielded 23.25 bushels per acre. This would show that the dose of capital and labour applied in harrowing a second time an acre which had already been plowed twice gave a return of 1.712 bushels. And if the value of these bushels after allowing for expenses of harvesting etc just replaced that dose with profits then that dose was a marginal one even though it was not the last in point of time since those spent on harvesting must needs come later. End of footnote Since the return to the dose on the margin of cultivation just remunerates the cultivator it follows that he will be just remunerated for the whole of his capital and labour by as many times the marginal return as he has applied doses in all. Whatever he gets in excess of this is the surplus produce of the land. This surplus is retained by the cultivator if he owns the land himself. Footnote Let us seek a graphical illustration. It is to be remembered that graphical illustrations are not proofs. They are merely pictures corresponding very roughly to the main conditions of certain real problems. They obtain clearness of outline by leaving out of account many considerations which vary from one practical problem to another and of which the farmer must take full account in his own special case. If on any given field there were expended a capital of fifty pounds a certain amount of produce would be raised from it. A certain amount larger than the former would be raised if there were expended on it a capital of fifty one pounds. The difference between these two amounts may be regarded as the produce due to the fifty first pound and if we suppose the capital to be applied in successive doses of one pound each we may speak of this difference as the produce due to the fifty first dose. Let the doses be represented in order by successive equal divisions of the line o d a horizontal axis. Let there now be drawn from the division of this line representing the fifty first dose m a line mp at right angles to o d in thickness equal to the length of one of the divisions and such that its length represents the amount of the produce due to the fifty first dose. Suppose this done for each separate division up to that corresponding to the last dose which it is found profitable to put on the land. Let this last dose be the one hundred and tenth at d and dc the corresponding return that only just remunerates the farmer. The extremities of such lines will lie on a curve apc where a is on the vertical axis and p is an arbitrary point somewhere between a and c on the curve. The gross produce will be represented by the sum of these lines i.e.since the thickness of each line is equal to the length of the division on which it stands by the area odca Let cgh be drawn parallel to do cutting pm in g then mg is equal to cd and since dc just remunerates the farmer for one dose will just remunerate him for another and so for all the portions of the thick vertical lines cut off between od and hc therefore the sum of these i.e. the area odch represents the share of the produce that is required to remunerate him while the remainder ahgca is the surplus produce which under certain conditions becomes the rent. It is important to note that this description of the nature of surplus produce is not a theory of rent we shall not be ready for that till a much later stage All that can be said here is that this surplus produce may under certain conditions become the rent which the owner of the land can exact from the tenant for its use but as we shall see here after the full rent of a farm in an old country is made up of three elements the first being due to the value of the soil as it was made by nature the second to improvements made in it by man and the third which is often the most important of all to the growth of a dense and rich population and to facilities of communication by public roads, railroads etc it is to be noted also that in an old country it is impossible to discover what was the original state of the land before it was first cultivated the results of some of man's work are for good and evil fixed in the land and cannot be distinguished from those of nature's work the line of division is blurred and must be drawn more or less arbitrarily but for most purposes it is best to regard the first difficulties of coping with nature as pretty well conquered before we begin to reckon the farmer's cultivation thus the returns that we counters to the first doses of capital and labour are generally the largest of all and the tendency of the return to diminish shows itself at once having English agriculture chiefly in view we may fairly take, as Ricardo did this as the typical case footnote that is we may substitute in figure 11 which is the figure with the previous footnote the dotted line B A' for B A where A' is considerably higher up the vertical axis than was A and regard A' BPC as the typical curve for the return to capital and labour applied in English agriculture where A' BPC is a monotonically decreasing curve no doubt crops of wheat and some other annuals cannot be raised at all without some considerable labour but natural grasses which sow themselves will yield a good return of rough cattle to scarcely any labour it has already been noticed book 3, chapter 3, section 1 the law of diminishing return bears a close analogy to the law of demand the return which land gives to a dose of capital and labour may be regarded as the price which land offers for that dose lands return to capital and labour is, so to speak her effective demand for them her return to any dose is her demand price for that dose and the list of returns that she will give to successive doses may thus be regarded as her demand schedule but to avoid confusion we shall call it her return schedule corresponding to the case of the land in the text is that of a man who may be willing to pay a larger proportionate price for a paper that would cover the whole of the walls of his room than for one that would go only half way and then his demand schedule would at one stage show an increase and not a diminution of demand price for an increased quantity but in the aggregate demand of many individuals these unevennesses destroy one another so that the aggregate demand schedule of a group of people always shows the demand price as falling steadily with every increase in the amount offered in the same way grouping together many pieces of land we might obtain a return schedule that would show a constant diminution for every increase of capital and labour applied but it is more easy to ascertain and in some ways more important to take note of the variations of individual demand in the case of plots of land than in the case of people and therefore our typical return schedule is not drawn out so as to show as even a diminution of return as our typical demand schedule does of demand price End of footnote Section 3 Let us next inquire on what depends the rate of diminution or of increase of the returns to successive doses of capital and labour we have seen that there are great variations in the share of the produce which man may claim as the additional result of his own work over what unaided nature would have produced that man's share is much larger with some crops and soils and methods of cultivation than with others thus broadly speaking it increases as we passed from forest to pasture land from pasture to arable and from plough land to spade land and this is because the rate of diminution of the return is as a rule greatest in forests rather less in pasture still less in arable land and least of all in spade land there is a acute measure of the richness or fertility of land even if there be no change in the arts of production a mere increase in the demand for produce may invert the order in which two adjacent pieces of land rank as regards fertility the one which gives the smaller produce when both are uncultivated or when the cultivation of both is equally slight may rise above the other and justly rank as the more fertile equal thoroughness in other words many of those lands which are the least fertile when cultivation is merely extensive become among the most fertile when cultivation is intensive for instance self-drained pasture land may give a return large in proportion to a very slight expenditure of capital and labour but a rapidly diminishing return to further expenditure as population increases it may gradually become profitable to break up some of the pasture and introduce a mixed cultivation of roots and grains and grasses and then the return to further doses of capital and labour may diminish less quickly other land makes poor pasture but will give more or less liberal returns to a great deal of capital and labour applied in tilling and in manuring it its returns to the early doses are not very high but they diminish slowly again other land is marshy it may as did the ffens of East England produce little but osears and wild fowl or as is the case in many tropical districts it may be prolific of vegetation but so shrouded with malaria that it is difficult for man to live there and still more to work there in such cases the returns to capital and labour are at first small but as drainage progresses they increase afterwards perhaps they again fall off footnote this case may be represented by diagrams if the produce rises in real value in the ratio of OH prime to OH so that the amount required to remunerate the farmer for a dose of capital and labour has fallen from OH to OH prime the surplus produce rises only to AH prime C prime which is not very much greater than its old amount AHC seen in figure 12 representing the first case the second case is represented in figure 13 where a similar change in the price of produce makes the new surplus produce AH prime C prime about three times as large as the old surplus, AHC and the third in figure 14 the earliest doses of capital and labour applied to the land give so poor a return that it would not be worthwhile to apply them unless it were intended to carry the cultivation further but later doses give an increasing return which culminates at P and afterwards diminishes if the price to be got for produce is so low that an amount OH double prime is required to remunerate the cultivator for a dose of capital and labour it will then be only just profitable to cultivate the land for then cultivation will be carried as far as D double prime there will be a deficit on the earlier doses represented by the area H double prime A E double prime and a surplus on the later doses represented by the area E double prime P C double prime and as these two are about equal the cultivation of the land so far will only just pay its way but if the price of produce rises till OH is sufficient to remunerate the cultivator for a dose of capital and labour the deficit on the earlier doses will sink to HAE and the surplus on the later doses will rise to EPC the net surplus the true rend in case the land is hired out will be the excess of EPC over HAE should the price rise further till OH prime is sufficient to remunerate the cultivator for a dose of capital and labour this net surplus will rise to the very large amount represented by the excess of E prime P C prime over H prime A E prime end of footnote but when improvements of this kind have once been made the capital invested in the soil cannot be removed the early history of the cultivation is not repeated and the produce due to further applications of capital and labour shows a tendency to diminishing return footnote in such a case as this the earlier doses are pretty sure to be sunk in the land and the actual rent paid if the land is hired out will then include profits on them in addition to the surplus produce or true rent thus shown provision can easily be made in the diagrams for the returns due to the landlord's capital end of footnote similar though less conspicuous changes may occur on the land already well cultivated for instance without being marshy it may be in need of a little drainage to take off the stagnant water from it and to enable fresh water and air to stream through it or the subsoil may happen to be naturally richer than the soil at the surface or again though not itself rich it may have just those properties in which the surface soil is deficient and then a thorough system of deep steam plowing may permanently change the character of the land thus we need not suppose that when the return to extra capital and labour has begun to diminish it will always continue to do so improvements in the arts of production may it has always been understood raised generally the return which can be got by any amount of capital and labour but this is not what is meant here the point is that independently of any increase in his knowledge and using only those methods with which he has long been familiar a farmer finding extra capital and labour at his command may sometimes obtain an increasing return even at a late stage in his cultivation footnote of course his return may diminish and then increase and then diminish again and yet again increase when he is at a position to carry out some further extensive change as was represented by figure 11 but more extreme instances of the kind represented by figure 15 are not very rare in figure 15 the curve is hilly and mountainous and descends steeply at the right hand side end of footnote it has well been said that as the strength of a chain is that of its weakest link so fertility is limited by that element in which it is most deficient those who are in a hurry will reject a chain which has one or two very weak links however strong the rest may be and prefer to it a much slighter chain that has no flaw but if there is heavy work to be done and they have time to make repairs they will set the larger chain in order and then its strength will exceed that of the other in this we find the explanation of much that is apparently strange in agricultural history the first settlers in a new country generally avoid land which does not lend itself to immediate cultivation they are often repelled by the very luxuriance of natural vegetation if it happens to be of a kind that they do not want they do not care to plough land that is at all heavy however rich it might become if thoroughly worked they will have nothing to do with waterlogged land they generally select light land which can easily be worked with a double plough and then they sow their seed broadly so that the plants when they grow up may have plenty of light and air and may collect their food from a wide area when America was first settled many farming operations that are now done by horse machinery were still done by hand and though now the farmers have a strong preference for flat prairie land free from stumps and stones where their machines can work easily and without risk they had then no great objection to a hillside their crops were light in proportion to their acreage but heavy in proportion to the capital and labour expended in raising them we cannot then call one piece of land more fertile than another until we know something about the skill and enterprise of its cultivators and the amount of capital and labour at their disposal and till we know whether the demand for produce is such as to make intensive cultivation profitable with the resources at their disposal if it is those lands will be the most fertile which give the highest average returns to a large expenditure of capital and labour but if not those will be the most fertile which give the best returns to the first few doses the term fertility has no meaning except with reference to the special circumstances of a particular time and place but even when so limited there is some uncertainty as to the usage of the term sometimes attention is directed chiefly to the power which land has of giving adequate returns to intensive cultivation and so bearing a large total produce per acre and sometimes to its power of yielding a large surplus produce or rent even though its gross produce is not very large thus in England now rich arable land is very fertile in the former sense rich meadow in the latter for many purposes it does not matter which of the senses of the term is understood in the few cases in which it does not matter an interpretation clause must be supplied in the context footnote if the price of produce is such that an amount of it OH figures 12, 13 and 14 is required to pay the cultivator for one dose of capital and labour the cultivation will be carried as far as D and the produce raised A O D C will be greatest in figure 12 next greatest in figure 13 and least in figure 14 but if the demand for agricultural produce so rises that OH prime is enough to repay the cultivator for a dose the cultivation will be carried as far as D prime and the produce raised will be A O D prime C prime which is greatest in figure 14 next in figure 13 and least in figure 12 the contrast would have been even stronger if we had considered the surplus produce which remains after deducting what is sufficient to repay the cultivator and which becomes under some conditions the rent of the land for this is AHC in figures 12 and 13 in the first case and AH prime C prime in the second while in figure 14 it is in the first case the excess of A O D C P A over O D C H ie the excess of P E C over A H E and in the second case the excess of PE prime C prime over AH prime E prime end of footnote section 4 but further the order of fertility of different soils is liable to be changed by changes in the methods of cultivation and in the relative values of different crops thus when at the end of last century Mr Koch showed how to grow wheat well on light soils by preparing the way with clover they rose relatively to clay soils and now though they are still sometimes called from an old custom poor some of them have a higher value and are really more fertile than much of the land that used to be carefully cultivated while they were left in a state of nature again the increasing demand in central Europe for wood to be used as fuel and for building purposes has raised the value of the pine covered mountain slopes relatively to almost every other kind of land but in England this rise has been prevented by the substitution of coal for wood as fuel and of iron for wood as a material for ship building and lastly by England's special facilities for importing wood again the cultivation of rice and jute often gives a very high value to lands that are too much covered with water to bear most other crops and again since the repeal of the corn laws the prices of meat and dairy produce have risen in England relatively to that of corn those arable soils that would grow rich forage crops in rotation with corn rose relatively to the cold clay soils and permanent pasture recovered part of that great fall in value relatively to arable land which had resulted from the growth of population footnote Rogers six centuries of work and wages page 73 calculates that rich meadow had about the same value estimated in grain five or six centuries ago as it has now but that the value of arable land similarly estimated has increased about five fold in the same time this is partly due to the great importance of hay at a time when roots and other modern kinds of winter food for cattle were unknown end of footnote independently of any change in the suitability of the prevailing crops and methods of cultivation for special soils there is a constant tendency towards equality in the value of different soils in the absence of any special cause to the contrary the growth of population and wealth will make the poorer soils gain on the richer land that was at one time entirely neglected is made by much labour to raise rich crops its annual income of light and heat and air is probably as good as those of richer soils while its faults can be much lessened by labour footnote thus we may compare two pieces of land represented in figures 16 and 17 where figure 16 curves gently down to the right and figure 17 curves down more steeply with regard to which the law of diminishing return acts in a similar way so that their produce curves have similar shapes but the former has a higher fertility than the other for all degrees of intensity of cultivation the value of the land may generally be represented by its surplus produce or rent which is in each case represented by AHC when OH is required to repay a dose of capital and labour and by AH prime C prime when the growth of numbers and wealth have made OH prime sufficient it is clear that AH prime C prime in figure 17 bears a more favourable comparison with AH prime C prime in figure 16 than does AHC in figure 17 with AHC in figure 16 in the same way though not to the same extent the total produce AOD prime C prime in figure 17 bears a more favourable comparison with AOD prime C prime in figure 16 than does AODC in figure 17 with AODC in figure 16 it is ingeniously argued in Wicksteed's coordinates of laws of distribution pages 51 and 2 that rent may be negative of course taxes may absorb rent but land which will not reward the plough will grow trees or rough grass le roi'r bolio repartition des richesses chapter 2 has collected several facts illustrating this tendency of poor lands to rise in value relatively to rich he quotes the following figures showing the rental in francs per hectare of five classes of land in several communes of the département de lures et de lois in 1829 and 1852 respectively in 1829 class 1 yielded 58 francs class 2, 48 class 3, 34 class 4, 20 and class 5, 8 but in 1852 class 1 yielded 80 francs class 2, 78 class 3, 60 class 4, 50 and class 5, 40 end of footnote absolute standard for fertility so there is none of good cultivation the best cultivation in the richest part of the channel islands for instance involves a lavish expenditure of capital and labour on each acre for they are near good markets and have a monopoly of an equitable and early climate if left to nature the land would not be very fertile for though it has many virtues it has two weak links being deficient in phosphoric acid and potash but partly by the aid of abundant seaweed on its shores these links can be strengthened and the chain thus becomes exceptionally strong intense or as it is ordinarily called in England good cultivation will thus raise 100 pounds worth of early potatoes from a single acre but an equal expenditure per acre by the farmer in western America would ruin him relatively to his circumstances it would not be good but bad cultivation section 5 Ricardo's wording of the law of diminishing return was inexact it is however probable that the inaccuracy was not due to careless thinking but only to careless writing in any case he would have been justified in thinking that these conditions were not of great importance in the peculiar circumstances of England at the time at which he wrote and for the special purposes of the particular practical problems he had in view of course he could not anticipate the great series of inventions which were to open up new sources of supply and with the aid of free trade to revolutionise English agriculture but the agricultural history of England and other countries might have led him to lay greater stress on the probability of a change footnote as Rosha says political economy section 155 in judging Ricardo it must not be forgotten that it was not his intention to write a textbook on the science of political economy but only to communicate to those versed in it the results of his research is in as brief a manner as possible hence he writes so frequently making certain assumptions and his words are to be extended to other cases only after due consideration or rather rewritten to suit the changed case end of footnote he stated that the first settlers in a new country invariably chose the richest lands and that as population increased poorer and poorer soils were gradually brought under cultivation speaking carelessly as though there were an absolute standard of fertility but as we have already seen where land is free everyone chooses that which is best adapted for his own purpose and that which will give him all things considered the best return for his capital and labour he looks out therefore for land that can be cultivated at once and passes by land that has any weak links in the chain of its elements of fertility however strong it may be in some other links besides having to avoid malaria he must think of his communication with his markets and the base of his resources and in some cases the need for security against the attacks of enemies and wild beasts outweighs all other considerations it is therefore not to be expected that the lands which were first chosen should turn out always to be those which ultimately come to be regarded as the most fertile Ricardo did not consider this point and thus laid himself open to attacks by Cary and others which though for the greater part based on a misinterpretation of his position have yet some solid substance in them the fact that in new countries soils which an English farmer would regard as poor are sometimes cultivated before neighbouring soils which he would regard as rich is not inconsistent as some foreign writers have supposed with the general tenor of Ricardo's doctrines its practical importance is in relation to the conditions under which the growth of population tends to cause increased pressure on the means of subsistence it shifts the centre of interest from the mere amount of the farmers produce to its exchange value in terms of the things which the industrial population in his neighbourhood will offer for it footnote Cary claims to have proved that in every quarter of the world cultivation has commenced on the sides of the hills where the soil was poorest and where the natural advantages of situation were the least with the growth of wealth and population men have been seen descending from the highlands bounding the valley on either side and coming together at its feet principles of social science chapter 4 section 4 he has even argued that whenever a thickly peopled country is laid waste whenever population, wealth and the power of association decline it is the rich soil that is abandoned by men who fly again to the poorer ones same book chapter 5 section 3 the rich soils being rendered difficult and dangerous by the rapid growth of jungles which harbour wild beasts and banditi and perhaps by malaria the experience of more recent settlers in South Africa and elsewhere does not however generally support his conclusions which are indeed based largely on facts relating to warm countries but much of the apparent attractiveness of tropical countries is delusive they would give a very rich return to hard work but hard work in them is impossible at present though some change in this respect may be made by the progress of medical and especially bacteriological science a cool refreshing breeze is as much a necessity of vigorous life as food itself land that offers plenty of food but whose climate destroys energy is not more productive of the raw material of human well-being than land that supplies less food but has an invigorating climate the late Duke of Argyll described the influence of insecurity and poverty in compelling the cultivation of the hills before that of the valleys of the highlands was feasible Scotland as it is and was End of footnote Section 6 Ricardo and the economists of his time generally were too hasty in deducing this influence from the law of diminishing return and they did not allow enough for the increase of strength that comes from organisation but in fact every farmer is aided by the presence of neighbours whether agriculturalists or townspeople footnote in a new country an important form of this assistance is to enable him to venture on rich land that he would have otherwise shunned through fear of enemies or of malaria end of footnote even if most of them are engaged like himself in agriculture they gradually supply him with good roads and other means of communication they give him a market in which he can buy at reasonable terms what he wants necessaries, comforts and luxuries for himself and his family and all the various requisites for his farm work they surround him with knowledge medical aid instruction and amusement are brought to his door his mind becomes wider and his efficiency is in many ways increased and if the neighbouring market town expands into a large industrial centre his gain is much greater all his produce is worth more some things which he used to throw away fetch a good price he finds new openings in dairy farming and market gardening and with a larger range of produce he makes use of rotations that keep his land always active without denuding it of any one of the elements that are necessary for its fertility further as we shall see later on an increase of population tends to develop the organisation of trade and industry and therefore the law of diminishing return does not apply to the total capital and labour spent in a district as sharply as to that on a single farm even when cultivation has reached a stage after which each successive dose applied to a field would get a less return than the preceding dose it may be possible for an increase in the population to cause a more than proportional increase in the means of subsistence it is true that the evil day is only deferred but it is deferred the growth of population if not checked by other causes must ultimately be checked by the difficulty of obtaining raw produce but in spite of the law of diminishing return the pressure of population on the means of subsistence may be restrained for a long time to come by the opening up of new fields of supply by the cheapening of railway and steamship communication and by the growth of organisation and knowledge against this must be set the growing difficulty of getting fresh air and light and in some cases fresh water in densely peopled places the natural beauties of a place of fashionable resort have a direct money value which cannot be overlooked but it requires some effort to realise the true value to men women and children of being able to stroll amid beautiful and varied scenery section 7 as has already been said the land in economic phrase includes rivers and the sea in river fisheries the extra return to additional applications of capital and labour shows a rapid diminution as to the sea opinions differ its volume is vast and fish are very prolific and some think that a practically unlimited supply can be drawn from the sea by man without appreciably affecting the numbers that remain there or in other words that the law of diminishing return scarcely applies at all to sea fisheries while others think that experience shows are falling off in the productiveness of those fisheries that have been vigorously worked especially by steam trawlers the question is important for the future population of the world will be appreciably affected as regards both quantity and quality by the available supply of fish the produce of mines again among which may be reckoned quarries and brick fields is said to conform to the law of diminishing return but this statement is misleading it is true that we find continually increasing difficulty in obtaining a further supply of minerals except in so far as we obtain increased power over nature's stalls through improvements in the arts of mining and through better knowledge of the contents of the earth's crust and there is no doubt that other things being equal the continued application of capital and labour to mines will result in a diminishing rate of yield but this yield is not a net yield like the return of which we speak in the law of diminishing return that return is part of a constantly recurring income while the produce of mines is merely a giving up of their stored up treasures the produce of the field is something other than the soil for the field properly cultivated retains its fertility but the produce of the mine is part of the mine itself to put the same thing in another way the supply of agricultural produce and of fish is a perennial stream mines are as it were nature's reservoir the more nearly a reservoir is exhausted the greater is the labour of pumping from it but if one man could pump it out in ten days ten men could pump it out in one day and when once empty it would yield no more so the mines that are being opened this year might just as easily have been opened many years ago if the plans have been properly laid in advance and the requisite specialised capital and skill got ready for the work ten years supply of coal might have been raised in one year without any increased difficulty and when a vein had once given up its treasure it could produce no more this difference is illustrated by the fact that the rent of a mine is calculated on a different principle from that of a farm the farmer contracts to give back the land as rich as he found it a mining company cannot do this and while the farmers rent is reckoned by the year mining rent consists chiefly of royalties which are levied in proportion to the stores that are taken out of nature's storehouse footnote as Ricardo says principles chapter 2 the compensation given by the less e for the mine or quarry is paid for the value of the coal or stone which can be removed from them and has no connection with the original or indestructible powers of the land but both he and others seem sometimes to lose sight of these distinctions in discussing the law of diminishing return in its application to mines especially is this the case in Ricardo's criticism of Adam Smith's theory of rent principles chapter 24 end of footnote on the other hand services which land renders to man in giving him space and light and air in which to live and work do conform strictly to the law of diminishing return it is advantageous to apply a constantly increasing capital to land that has any special advantages of situation natural or acquired buildings tower up towards the sky natural light and ventilation are supplemented by artificial means and the steam lift reduces the disadvantage of the highest floors and for this expenditure there is a return of extra convenience but it is a diminishing return however great the ground rent may be a limit is at last reached after which it is better to pay more ground rent for a larger area than to go on piling up story on story any further just as the farmer finds that at last a stage is reached at which more intensive cultivation will not pay its expenses and it is better to pay more rent for extra land than to face the diminution in the return which he would get by applying more capital and labour to his old land footnote of course the return to capital spent in building increases for the earlier doses even where land can be had for almost nothing it is cheaper to build houses two stories high than one and hitherto it has been thought cheapest to build factories about four stories high but a belief is growing up in America that where land is not very dear factories should be only two stories high partly in order to avoid the evil effects of vibration and of the expensive foundations and walls required to prevent it in a high building that is it is found that the return of accommodation diminishes perceptibly after the capital and labour required to raise two stories on the land end of footnote from this it results that the theory of ground rents is substantially the same as that of farm rents this and similar facts will presently enable us to simplify and extend the theory of value as given by Ricardo and Mill and what is true of building land is true of many other things if a manufacturer has say three planing machines there is a certain amount of work which he can get out of them easily if he wants to get more work from them he must laboriously economise every minute of their time during the ordinary hours and perhaps work overtime thus after they are once well employed every successive application of effort to them brings him a diminishing return at last the net return is so small that he finds it cheaper to buy a fourth machine than to force so much work out of his old machines just as a farmer who has already cultivated his land highly finds it cheaper to take in more land than to force more produce from his present land indeed there are points of view from which the income derived from machinery partakes the nature of rent as will be shown in book 5 note on the law of diminishing return section 8 the elasticity of the notion of diminishing return cannot be fully considered here for it is but an important detail of that large general problem of the economic distribution of resources in the investment of capital which is the pivot of the main argument of book 5 and indeed of a great part of the whole volume but a few words about it seem now to be called for in this place because much stress has recently been laid on it under the able and suggestive leadership of Professor Carver footnote see also the writings of Professor's Bullock and Landry end of footnote if a manufacturer expands an inordinately large amount of his resources on machinery so that a considerable part of it is habitually idle or on buildings so that a considerable part of his space is not well filled by his office staff so that he has to employ some of them on work that is not worth what it costs then his excessive expenditure in that particular direction will not be as remunerative as his previous expenditure had been and it may be said to yield him a diminishing return but this use of the phrase though strictly correct is apt to mislead unless used with caution for when the tendency to a diminishing return from increased labour and capital applied to land is regarded as a special instance of the general tendency to diminishing return from any agent of production applied in excessive proportion to other agents one is apt to take it for granted that the supply of the other factors can be increased that is to say one is apt to deny the existence of that condition the fixedness of the whole stock of cultivable land in an old country which was the main foundation of those great classical discussions of the law of diminishing return which we have just been considering even the individual farmer may not always be able to get an additional 10 or 50 acres adjoining his own farm just when he wants them say that prohibitive price and in that respect land differs from most other agents of production even from the individual point of view this difference may indeed be regarded as of little account in regards to the individual farmer but from the social point of view from the point of view of the following chapters on population it is vital let us look into this in every phase of any branch of production there is some distribution of resources between various expenditures which yields a better result than any other the abler the man in control of any business the nearer he will approach to the ideally perfect distribution just as the abler the primitive housewife in control of a family stock of wool the nearer she will approach to an ideal distribution of wool between the different needs of the family footnote the tendencies of diminishing utility and of diminishing return have their roots, the one in the qualities of human nature, the other in the technical conditions of industry but the distributions of resources to which they point are governed by exactly similar laws in mathematical phrase the problems in maxima and minima to which they give rise are expressed by the same general equations as may be seen by reference to mathematical note 14 end of footnote if his business extends he will extend his uses of each requisite of production in due proportion but not as has sometimes been said proportionately for instance the proportion of manual work to machine work which would be appropriate in a small furniture factory would not be appropriate in a large one if he makes the best possible apportionment of his resources he gets the greatest marginal return from each appliance of production of which his business is capable if he uses too much of any one he gets a diminishing return from it because the others are not able to back it up properly and this diminishing return is analogous to that which a farmer obtains when he cultivates land so intensively that he obtains a diminishing return from it if the farmer can get more land at the same rent as he has paid for the old he will take more land or else lie open to the imputation of being a bad businessman and this illustrates the fact that land from the point of view of the individual cultivator is simply one form of capital but when older economists spoke of the law of diminishing return they were looking at the problems of agriculture not only from the point of view of the individual cultivator but also from that of the nation as a whole now if the nation as a whole finds its stock of planing machines or plows inappropriately large or inappropriately small it can redistribute its resources it can obtain more of that in which it is deficient while gradually lessening its stock of such things as are superabundant but it cannot do that in regard to land it can cultivate its land more intensively but it cannot get any more and for that reason the older economists rightly insisted that from the social point of view land is not on exactly the same footing as those implements of production which man can increase without limit no doubt in a new country where there is an abundance of rich land not yet brought under cultivation this fixedness of the total stock of land is not operative American economists often speak of the value or rent of land as varying with the land's distance from good markets rather than with its fertility because even now there is a great deal of rich land in their country which is not fully cultivated and in like manner they labour little stress on the fact that the diminishing return to labour and capital in general applied to the land by discrete farmers in such a country as England is not exactly on the same footing as the diminishing return to an inappropriate investment of their resources by indiscreet farmers or manufacturers in a disproportionately large number of plows or planing machines it is true that when the tendency to diminishing return is generalised the return is apt to be expressed in terms of value and not of quantity it must however be conceded that the older method of measuring return in terms of quantity often jostled against the difficulty of rightly interpreting a dose of labour and capital without the aid of a money measure and that though helpful for a broad preliminary survey it cannot be carried very far but even the recourse to money fails us if we want to bring to a common standard the productiveness of lands in distant times or places and we must then fall back on rough and more or less arbitrary modes of measurement which make no aim at numerical precision but will yet suffice for the broader purposes of history we have to take account of the facts that there are great variations in the relative amounts of labour and capital in a dose and that interest on capital is generally a much less important item in backward than in advanced stages of agriculture in spite of the fact that the rate of interest is generally much lower in the latter for most purposes it is probably best to take as a common standard a days unskilled labour of given efficiency we thus regard the dose as made up of so much labour of different kinds and such charges for the use and replacement of capital as will together make up the value of say 10 days such labour the relative proportions of these elements and their several values in terms of such labour being fixed according to the special circumstances of each problem footnote the labour part of the dose is of course current agricultural labour the capital part is itself also the product of labour in past times rendered by workers of many kinds and degrees accompanied by waiting end of footnote a similar difficulty is found in comparing the returns obtained by labour and capital applied in different circumstances so long as the crops are of the same kind the quantity of one return can be measured off against that of another but when there are of different kinds they cannot be compared till they are reduced to a common measure of value when for instance it is said that land would give better returns to the capital and labour expended on it with one crop or rotation of crops than with another the statement must be understood to hold only on the basis of the prices at the time in such a case we must take the whole period of rotation together assuming the land to be in the same condition at the beginning and the end of the rotation and counting on the one hand all the labour and capital applied during the whole period and on the other the aggregate returns of all the crops it must be remembered that the return due to a dose of labour and capital is not here taken to include the value of the capital itself for instance if part of the capital on a farm consists of two year old oxen then the returns to a year's labour and capital will include not the full weight of these oxen at the end of the year but only of the addition that has been made to it during that year again when a farmer is said to work with a capital of ten pounds to the acre this includes the value of everything that he has on the farm but the total volume of the doses of labour and capital applied to a farm during say a year does not include the whole value of the fixed capital such as the machinery and horses but only the value of their use after allowing for interest depreciation and repairs though it does include the whole value of the circulating capital such as seed the above is the method of measuring capital generally adopted and it is to be taken for granted if nothing is said to the contrary but another method is more suitable occasionally sometimes it is convenient to speak as though all the capital applied were circulating capital applied at the beginning of the year or during it and in that case everything that is on the farm at the end of the year is part of the produce thus young cattle are regarded as a sort of raw material which is worked up in the course of time into fat cattle ready for the butcher the farm implements may even be treated in the same way their value at the beginning of the year being taken as so much circulating capital applied to the farm and at the end of the year as so much produce this plan enables us to avoid a good deal of repetition of conditioning clauses as to depreciation etc and to save the use of words in many ways it is often the best plan for general reasonings of an abstract character particularly if they are expressed in a mathematical form the law of diminishing return must have occupied thoughtful men in every densely peopled country it was first stated clearly by Thurgo, Övre, Édition Der, Book 1 pages 420-21 as Professor Cannon has shown and its chief applications were developed by Ricardo End of Chapter 3