 On the Principles of Political Economy and Taxation, by David Ricardo 3rd edition, 1821 Preface The produce of the earth, all that is derived from its surface by the united application of labour, machinery and capital, is divided among three classes of the community, namely the proprietor of the land, the owner of the stock or capital necessary for its cultivation, and the labourers by whose industry it is cultivated. But in different stages of society, the proportions of the whole produce of the earth, which will be allotted to each of these classes, under the names of rent, profit and wages, will be essentially different, depending mainly on the actual fertility of the soil, on the accumulation of capital and population, and on the skill, ingenuity and instruments employed in agriculture. To determine the laws which regulate this distribution is the principal problem in political economy, much as the science has been improved by the writings of Turgut, Stuart Smith, Sey, Susmondi and others, they afford very little satisfactory information respecting the natural course of rent, profit and wages. In 1815, Mr. Malthus, in his Inquiry into the Nature and Progress of Rent, and a fellow of University College Oxford, in his Essay on the Application of Capital to Land, presented to the world, nearly at the same moment, the true doctrine of rent, without a knowledge of which it is impossible to understand the effect of the progress of wealth on profits and wages, or to trace satisfactorily the influence of taxation on different classes of the community, particularly when the commodities taxed are the productions immediately derived from the surface of the earth. Adam Smith and the other able writers to whom I have alluded not having viewed correctly the principles of rent have, it appears to me, overlooked many important truths, which can only be discovered after the subject of rent is thoroughly understood. To supply this deficiency, abilities are required of a far superior cast to any possessed by the writer of the following pages, yet after having given to this subject his best consideration, after the aid which he has derived from the work of the above mentioned eminent writers, and after the valuable experience which a few late years, abounding in facts, have yielded to the present generation, it will not he trusts be deemed presumptuous in him to state his opinions on the laws of profits and wages and on the operation of taxes. If the principles which he deems correct should be found to be so, it will be for others more able than himself to trace them to all their important consequences. The writer in combating received opinions has found it necessary to advert more particularly to those passages in the writings of Adam Smith, from which he sees reason to differ. He hopes it will not on that account be suspected that he does not, in common with all those who acknowledge the importance of the science of political economy, participate in the admiration which the profound work of this celebrated author so justly excites. The same remark may be applied to the excellent works of Monsieur Sey, who not only was the first or among the first of continental writers who justly appreciated and applied the principles of Smith, and who has done more than all other continental writers taken together to recommend the principles of that enlightened and beneficial system to the nations of Europe, but who has succeeded in placing the science in a more logical and more instructive order, and has enriched it by several discussions, original, accurate and profound. The respect however which the author entertains for the writings of this gentleman has not prevented him from commenting with that freedom which he thinks the interests of science require on such passages of the economy politic, has appeared at variance with his own ideas, advertisement to the third edition. In this edition I have endeavored to explain more fully than in the last my opinion on the difficult subject of value, and for that purpose have made a few additions to the first chapter. I have also inserted a new chapter on the subject of machinery and on the effects of its improvement on the interests of the different classes of the state. In the chapter on the distinctive properties of value and riches, I have examined the doctrines of Musia say on that important question, as amended in the fourth and last edition of his work. I have in the last chapter endeavored to place in a stronger point of view than before the doctrine of the ability of a country to pay additional money taxes, although the aggregate money value of the mass of its commodities should fall. In consequence either of the diminished quantity of labor required to produce its corn at home by improvements in its husbandry, or from its obtaining a part of its corn at a cheaper price from abroad by means of the exportation of its manufactured commodities. This consideration is of great importance as it regards the question of the policy of leaving unrestricted the importation of foreign corn, particularly in a country burdened with a heavy fixed money taxation, the consequence of an immense national debt. I have endeavored to show that the ability to pay taxes depends not on the gross money value of the mass of commodities, nor on the net money value of the revenues of capitalists and landlords, but on the money value of each man's revenue compared to the money value of the commodities which he usually consumes. March 26, 1821, Chapter 1, On Value. The value of a commodity or the quantity of any other commodity for which it will exchange depends on the relative quantity of labor which is necessary for its production, and not on the greater or less compensation which is paid for that labor. It has been observed by Adam Smith that the word value has two different meanings and sometimes expresses the utility of some particular object and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called value in use, the other value in exchange. The things he continues which have the greatest value in use have frequently little or no value in exchange, and on the contrary those which have the greatest value in exchange have little or no value in use. Water and air are abundantly useful, they are indeed indispensable to existence, yet under ordinary circumstances nothing can be obtained in exchange for them. Gold on the contrary though of little use compared with air or water will exchange for a great quantity of other goods. Utility then is not the measure of exchangeable value although it is absolutely essential to it. If a commodity were in no way useful, in other words if it could in no way contribute to our gratification it would be destitute of exchangeable value, however scarce it might be or whatever quantity of labor might be necessary to procure it. Possessing utility, commodities derive their exchangeable value from two sources, from their scarcity and from the quantity of labor required to obtain them. There are some commodities the value of which is determined by their scarcity alone. No labor can increase the quantity of such goods and therefore their value cannot be lowered by an increased supply. Some rare statues and pictures, scarce books and coins, wines of a peculiar quality which can be made only from greats grown on a particular soil of which there is a very limited quantity, are all of this description. Their value is wholly independent of the quantity of labor originally necessary to produce them and varies with the varying wealth and inclinations of those who are desirous to possess them. These commodities however form a very small part of the mass of commodities daily exchanged in the market. By far the greatest part of those goods which are the objects of desire are procured by labor and they may be multiplied, not in one country alone but in many, almost without any assignable limit if we are disposed to bestow the labor necessary to obtain them. In speaking then of commodities of their exchangeable value and of the laws which regulate their relative prices, we mean always such commodities only as can be increased in quantity by the exertion of human industry and on the production of which competition operates without restraint. In the early stages of society the exchangeable value of these commodities or the rule which determines how much of one shall be given in exchange for another depends almost exclusively on the comparative quantity of labor expended on each. The real price of everything says Adam Smith, what everything really costs to the man who wants to acquire it is the toil and trouble of acquiring it. What everything is really worth to it or the man who has acquired it and who wants to dispose of it or exchange it for something else is the toil and trouble which it can save to himself and which it can impose upon other people. Labor was the first price, the original purchase money that was paid for all things. Again in that early and rude state of society which precedes both the accumulation of stock and the appropriation of land, the proportion between the quantities of labor necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another. If among a nation of hunters for example it usually costs twice the labor to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer. It is natural that what is usually the produce of two days or two hours labor should be worth double of what is usually the produce of one days or one hours labor. That this is really the foundation of the exchangeable value of all things excepting those which cannot be increased by human industry is a doctrine of the utmost importance in political economy. For from no source to so many errors and so much difference of opinion in that science precede as from the vague ideas which are attached to the word value. If the quantity of labor realized in commodities regulate their exchangeable value every increase of the quantity of labor must augment the value of that commodity on which it is exercised as every diminution must lower it. Adam Smith who so accurately defined the original source of exchangeable value and who was bound in consistency to maintain that all things became more or less valuable in proportion as more or less labor was bestowed on their production has himself erected another standard measure of value and speaks of things being more or less valuable in proportion as they will exchange for more or less of this standard measure. Sometimes he speaks of corn at other times of labor as a standard measure not the quantity of labor bestowed on the production of any object but the quantity which it can command in the market as if these were two equivalent expressions and as if because a man's labor had become doubly efficient and he could therefore produce twice the quantity of a commodity it would necessarily receive twice the former quantity in exchange for it. If this indeed were true if the reward of the laborer were always in proportion to what he produced the quantity of labor bestowed on a commodity and the quantity of labor which that commodity would purchase would be equal and either might accurately measure the variations of other things but they are not equal. The first is under many circumstances an invariable standard indicating correctly the variations of other things the latter is subject to as many fluctuations as the commodities compared with it. Adam Smith after most ably showing the insufficiency of a variable medium such as gold and silver for the purpose of determining the varying value of other things has himself by fixing on corn or labor chosen a medium no less variable. Gold and silver are no doubt subject to fluctuations from the discovery of new and more abundant mines but such discoveries are rare and their effects though powerful are limited to periods of comparatively short duration. They are subject also to fluctuation from improvements in the skill and machinery with which the mines may be worked as in consequence of such improvements the greater quantity may be obtained with the same labor. They are further subject to fluctuation from the decreasing produce of the mines after they have yielded a supply to the world for a succession of ages. But from which of these sources of fluctuation is corn exempted? Does not that also vary on one hand from improvements in agriculture from improved machinery and implements used in husbandry as well as from the discovery of new tracts of fertile land which in other countries may be taken into cultivation and which will affect the value of corn in every market where importation is free. Is it not on the other hand subject to be enhanced in value from prohibitions of importation from increasing population and wealth and the greater difficulty of obtaining the increased supplies on account of the additional quantity of labor which the cultivation of inferior lands requires? Is not the value of labor equally variable being not only affected as all other things are by the proportion between the supply and demand which uniformly varies with every change in the condition of the community but also by the varying price of food and other necessaries on which the wages of labor are expended? In the same country double the quantity of labor may be required to produce a given quantity of food and necessaries at one time that may be necessary at another and at a distant time. Yet the laborer's reward may possibly be very little diminished. If the laborer's wages at the former period were a certain quantity of food and necessaries he probably could not have subsisted if that quantity had been reduced. Food and necessaries in this case will have risen 100% if estimated by the quantity of labor necessary to their production while they will scarcely have increased in value if measured by the quantity of labor for which they will exchange. The same remark may be made respecting two or more countries. In America and Poland on the last land taken into cultivation a year's labor of any given number of men will produce much more corn than on lands similarly circumstances in England. Now supposing all other necessaries to be equally cheap in those three countries would it not be a great mistake to conclude that the quantity of corn awarded to the laborer would in each country be in proportion to the facility of production? If the shoes and clothing of the laborer could by improvements in machinery be produced by one fourth of the labor now necessary to their production they would probably fall 75% but so far as it from being true that the laborer would thereby be enabled permanently to consume four coats or four pairs of shoes instead of one that it is probable his wages would in no long time be adjusted by the effects of competition and the stimulus to population to the new value of the necessaries on which they were expended. If these improvements extended to all the objects of the laborer's consumption we should find him probably at the end of a very few years in possession of only a small if any addition to his enjoyments although the exchangeable value of those commodities compared with any other commodity in the manufacture of which no such improvement were made had sustained a very considerable reduction and though they were the produce of a very considerably diminished quantity of labor it cannot then be correct to say with Adam Smith that as labor may sometimes purchase a greater and sometimes a smaller quantity of goods it is their value which varies not that of the labor which purchases them and therefore that labor alone never varying in its own value is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared but it is correct to say as Adam Smith had previously said that the proportion between the quantities of labor necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another or in other words that it is the comparative quantity of commodities which labor will produce that determines their present or past relative value and not the comparative quantities of commodities which are given to the laborer in exchange for his labor two commodities vary in relative value and we wish to know in which the variation has really taken place if we compare the present value of one with shoes stockings hats iron sugar and all other commodities we find that it will exchange for precisely the same quantity of all these things as before if we compare the other with the same commodities we find it has varied with respect to them all we may then with great probability infer that the variation has been in this commodity and not in the commodities with which we have compared it if one examining still more particularly into all the circumstances connected with the production of these various commodities we find that precisely the same quantity of labor and capital are necessary to the production of the shoes stockings hats iron sugar et cetera but that the same quantity as before is not necessary to produce the single commodity whose relative value is altered probability has changed into certainty and we are sure that the variation is in the single commodity we then discover also the cause of its variation if I found that an ounce of gold would exchange for a less quantity of all the commodities above enumerated and many others and if more over I found that by the discovery of a new and more fertile mine or by the employment of machinery to great advantage a given quantity of gold could be obtained with a less quantity of labor I should be justified in saying that the cause of the alteration in the value of gold relatively to other commodities was the greater facility of its production or the smaller quantity of labor necessary to obtain it in like manner if labor fell very considerably in value relatively to all other things and if I found that its fall was in consequence of an abundant supply encouraged by the great facility with which corn and the other necessaries of the laborer were produced it would I apprehend be correct for me to say that corn and necessaries had fallen in value in consequence of less quantity of labor being necessary to produce them and that this facility of providing for the support of the laborer had been followed by a fall in the value of labor no say Adam Smith and Mr. Malthus in the case of the gold you were correct in calling its variation a fall of its value because corn and labor had not then varied and as gold would command a less quantity of them as well as of all other things than before it was correct to say that all things had remained stationary and that gold only had varied but when corn and labor fall things which we have selected to be our standard measure of value not withstanding all the variations to which we acknowledge they are subject it would be highly improper to say so the correct language will be to say that corn and labor have remained stationary and all other things have risen in value now it is against this language that I protest I find that precisely as in the case of the gold the cause of the variation between corn and other things is the smaller quantity of labor necessary to produce it and therefore by all just reasoning I am bound to call the variation of corn and labor a fall in their value and not a rise in the value of the things with which they are compared if I have to hire a laborer for a week and instead of 10 shillings I pay him eight no variation having taken place in the value of money the laborer can probably obtain more food and necessaries with his eight shillings than he before obtained for 10 but this is owing not to a rise in the real value of his wages as stated by Adam Smith and more recently by Mr. Malthus but to a fall in the value of the things on which his wages are expended things perfectly distinct and yet for calling this a fall in the real value of wages I am told that I adopt new and unusual language not reconcilable with the true principles of the science to me it appears that the unusual and indeed inconsistent language is that used by my opponents suppose a laborer could be paid a bushel of corn for a week's work when the price of corn is 80 shillings per quarter and that he is paid a bushel and a quarter when the price falls to 40 shillings suppose too that he consumes half a bushel of corn a week in his own family and exchanges the remainder for other things such as fuel soap candles tea sugar salt et cetera et cetera if the three fourths of a bushel which will remain to him in one case cannot procure him as much of the above commodities as a half a bushel did in the other which it will not will labor have risen or fallen in value risen Adam Smith must say because his standard is corn and the laborer receives more corn for a week's labor fallen must the same Adam Smith say because the value of a thing depends on the power of purchasing other goods which the possession of that object conveys and labor has a less power of purchasing such other goods section two labor of different qualities differently rewarded this is no cause of variation in the relative value of commodities in speaking however of labor as being the foundation of all value and the relative quantity of labor is almost exclusively determining the relative value of commodities I must not be supposed to be inattentive to the different qualities of labor and the difficulty of comparing an hours or a day's labor in one employment with the same duration of labor in another the estimation in which different qualities of labor are held come soon to be adjusted in the market with sufficient precision for all practical purposes and depends much on the comparative skill of the laborer and intensity of the labor performed the scale when once formed is liable to little variation if a day's laborer of a working jeweler be more valuable than a day's laborer of a common laborer it has long ago been adjusted and placed in its proper position in the scale of value footnote from wealth of nations book one quote but though labor be the real measure of the exchangeable value of all commodities it is not that by which their value is commonly estimated it is often difficult to ascertain the proportion between two different quantities of labor the time spent in two different sorts of work will not always alone determine this proportion the different degrees of hardship endured and of ingenuity exercised must likewise be taken into account there may be more labor in an hour's hard work than in two hours easy business or in an hour's application to a trade which it costs 10 years labor to learn than in a month's industry at an ordinary and obvious employment but it is not easy to find any accurate measure either of hardship or ingenuity in exchanging indeed the different productions of different sorts of labor for one another some allowance is commonly made for both it is adjusted however not by any accurate measure but by the higgling and bargaining of the market according to that sort of rough equality which though not exact is sufficient for carrying on the business of common life wealth of nations book one unquote end of footnote in comparing therefore the value of the same commodity at different periods of time the consideration of the comparative skill and intensity of labor required for that particular commodity needs scarcely to be attended to as it operates equally at both periods one description of labor at one time is compared with the same description of labor at another if a tenth, a fifth, or a fourth has been added or taken away an effect proportioned to the cause will be produced on the relative value of the commodity if a piece of cloth be now of the value of two pieces of linen and if in 10 years hence the ordinary value of a piece of cloth should be four pieces of linen we may safely conclude that either more labor is required to make the cloth or less to make the linen or that both causes have operated as the inquiry to which I wish to draw the listener's attention relates to the effect of the variations in the relative value of commodities and not in their absolute value it will be of little importance to examine into the comparative degree of estimation in which the different kinds of human labor are held we may fairly conclude that whatever inequality there might originally have been in them whatever the ingenuity skill or time necessary for the requirement of one species of manual dexterity more than another it continues nearly the same from one generation to another or at least that the variation is very inconsiderable from year to year and therefore can have little effect for short periods on the relative value of commodities the proportion between the different rates both of wages and profit in the different employments of labor and stock seems not to be much affected as has already been observed by the riches or poverty the advancing, stationary or declining state of the society such revolutions in the public welfare though they affect the general rates both of wages and profit must in the end affect them equally in all different employments the proportion between them therefore must remain the same and cannot well be altered at least for any considerable time by any such revolutions section three not only the labor applied immediately to commodities affect their value but the labor also which is bestowed on the compliments tools and buildings with which much labor is assisted even in that early state to which Adam Smith refers some capital though possibly made and accumulated by the hunter himself would be necessary to enable him to kill his game without some weapon neither the beaver nor the deer could be destroyed and therefore the value of these animals would be regulated not solely by the time and labor necessary to their destruction but also by the time and labor necessary for providing the hunter's capital the weapon by the aid of which their destruction was affected suppose the weapon necessary to kill the beaver was constructed with much more labor than that necessary to kill the deer on account of the greater difficulty of approaching near to the former animal and the consequent necessity of its being more true to its mark one beaver would naturally be of more value than two deer and precisely for this reason that more labor would on the whole be necessary to its destruction or suppose that the same quantity of labor was necessary to make both weapons but that they were a very unequal durability of the durable implement only a small portion of its value would be transferred to the commodity a much greater portion of the value of the less durable implement would be realized in the commodity which it contributed to produce all the implements necessary to kill the beaver and deer might belong to one class of men and the labor employed in their destruction might be furnished by another class still their comparative prices would be in proportion to the actual labor bestowed both on the formation of the capital and on the destruction of the animals under different circumstances of plenty or scarcity of capital as compared with labor under different circumstances of plenty or scarcity of the food and necessary is essential to the support of men those who furnished an equal value of capital for either one employment or for the other might have a half a fourth or an eighth of the produce obtained the remainder being paid as wages to those who furnished the labor if this division could not affect the relative value of these commodities since whether the profits of capital were greater or less whether they were 50 20 or 10 percent or whether the wages of labor were high or low they would operate equally on both employments if we suppose the occupations of the society extended that some provide canoes and tackle necessary for fishing others the seed and root machinery first used in agriculture still the same principle would hold true that the exchangeable value of the commodities produced would be in proportion to the labor bestowed on their production not on their immediate production only but on all those implements or machines required to give effect to the particular labor to which they were applied if we look to a state of society in which greater improvements have been made and in which arts and commerce flourish we shall still find that commodities vary in value conformably with this principle in estimating the exchangeable value of stockings for example we shall find that their value comparatively with other things depends on the total quantity of labor necessary to manufacture them and bring them to market first there is the labor necessary to cultivate the land on which the raw cotton is grown secondly the labor of conveying the cotton to the country where the stockings are to be manufactured which includes a portion of the labor bestowed in building the ship in which it is conveyed and which is charged in the freight of the goods thirdly the labor of the spinner and weaver fourthly a portion of the labor of the engineer smith and carpenter who erected the buildings and machinery by the help of which they are made fifthly the labor of the retail dealer and of many others whom it is unnecessary for that particular eyes the aggregate sum of these various kinds of labor determines the quantity of other things for which these stockings will exchange while the same consideration of the various constants of labor which have been bestowed on those other things will equally govern the portion of them which will be given for the stockings to convince ourselves that this is the real foundation of exchangeable value let us suppose any improvement to be made in the means of abridging labor in any one of the various processes through which the raw cotton must pass before the manufactured stockings come to the market to be exchanged for other things and observe the effects which will follow if fewer men were required to cultivate the raw cotton or if fewer sailors were employed in navigating or shipwrights in constructing the ship in which it was conveyed to us if fewer hands were employed in raising the buildings and machinery or if these when raised were rendered more efficient the stockings would inevitably fall in value and consequently command less of other things they would fall because a less quantity of labor was necessary to their production and would therefore exchange for a smaller quantity of those things in which no such abridgment of labor had been made economy in the use of labor never fails to reduce the relative value of a commodity whether the saving be in the labor necessary to the manufacture of the commodity itself or in that necessary to the formation of the capital by the aid of which it is produced in either case the price of stockings would fall whether there were fewer men employed as bleachers spinners and weavers persons immediately necessary to their manufacture or as sailors carriers engineers and smiths persons more indirectly concerned in the one case the whole saving of labor would fall on the stockings because that portion of labor was wholly confined to the stockings in the other a portion only would fall on the stockings the remainder being applied to all those other commodities to the production of which the building's machinery and carriage were subservient suppose that in the early stages of society the bows and arrows of the hunter were of equal value and of equal durability with the canoe and implements of the fisherman both being the produce of the same quantity of labor under such circumstances the value of the deer the produce of the hunter's day's labor would be exactly equal to the value of the fish the produce of the fisherman's day's labor the comparative value of the fish and the game would be entirely regulated by the quantity of labor realized in each whatever might be the quantity of production or however high or low general wages or profits might be if for example the canoes and implements of the fisherman were of the value of 100 pounds and were calculated to last for 10 years and he employed 10 men whose annual labor cost 100 pounds and who in one day obtained by their labor 20 salmon if the weapons employed by the hunter were also of 100 pounds value and calculated to last 10 years and if he also employed 10 men whose annual labor cost 100 pounds and who in one day procured him 10 deer then the natural price of a deer would be 2 salmon whether the proportion of the whole produced bestowed on the men who obtained it were large or small the proportion which might be paid for wages is of the utmost importance in the question of profits for it must at once be seen that profits would be high or low exactly in proportion as wages were low or high but it could not in the least affect the relative value of fish and game as wages would be high or low at the same time in both occupations if the hunter urged the plea of his paying a large proportion or the value of a large proportion of his game for wages as an inducement to the fisherman to give him more fish in exchange for his game the latter would state that he was equally affected by the same cause and therefore under all variations of wages and profits under all the effects of accumulation of capital as long as they continued by a day's labor to obtain respectively the same quantity of fish and the same quantity of game the natural rate of exchange would be 1 deer for 2 salmon if with the same quantity of labor a less quantity of fish or a greater quantity of game were obtained the value of fish would rise in comparison with that of game if on the contrary with the same quantity of labor a less quantity of game or a greater quantity of fish was obtained game would rise in comparison with fish if there were any other commodity which was invariable in its value we should be able to ascertain by comparing the value of fish and game with this commodity how much of the variation was to be attributed to a cause which affected the value of fish and how much to a cause which affected the value of game suppose money to be that commodity if a salmon were worth one pound and a deer two pounds one deer would be worth two salmon but a deer might become of the value of three salmon for more labor might be required to obtain the deer or less to get the salmon or both these causes might operate at the same time if we had this invariable standard we might easily ascertain in what degree either of these causes operated if salmon continued to sell for one pound whilst deer rose to three pounds we might conclude that more labor was required to obtain the deer if deer continued at the same price of two pounds and salmon sold for 13 shillings four pence we might then be sure that less labor was required to obtain the salmon and if deer rose to two pounds 10 shillings and salmon fell to 16 shillings eight pence we should be convinced that both causes had operated in producing the alteration of the relative value of these commodities no alteration in the wages of labor could produce any alteration in the relative value of these commodities for suppose them to rise no greater quantity of labor would be required in any of these occupations but it would be paid for at a higher price and the same reasons which should make the hunter and fisherman endeavour to raise the value of their game and fish would cause the owner of the mine to raise the value of his gold this inducement acting with the same force on all these three occupations and the relative situation of those engaged in them being the same before and after the rise of wages the relative value of game fish and gold would continue unaltered wages might rise 20 percent and profits consequently fall in a greater or less proportion without occasioning the least alteration in the relative value of these commodities now suppose that with the same labor and fixed capital more fish could be produced but no more gold or game the relative value of fish would fall in comparison with gold or game if instead of 20 salmon 25 were the produce of one day's labor the price of a salmon would be 16 shillings instead of a pound and two salmon at a half instead of two salmon would be given in exchange for one deer but the price of deer would continue at two pounds as before in the same manner if fewer fish could be obtained with the same capital and labor fish would rise in comparative value fish then would rise or fall in exchangeable value only because more or less labor was required to obtain a given quantity and it never could rise or fall beyond the proportion of the increased or diminished quantity of labor required if we had then an invariable standard by which measure the variation in other commodities we should the utmost limit to which they could permanently rise if produced under the circumstances supposed was proportioned the additional quantity of labor required for their production and that unless more labor were required for their production they could not rise in any degree whatever a rise of wages would not raise them in money value nor relatively to any other commodities the production of which required no additional quantity of labor which employed the same proportion of fixed and circulating capital and fixed capital of the same durability if more or less labor were required in the production of the other commodity we have already stated that this will immediately occasion an alteration in its relative value but such alteration is owing to the altered quantity of requisite labor and not to the rise of wages section four the principle that the quantity of labor bestowed on the production of commodities regulates their relative value considerably modified by the employment of machinery and other fixed and durable capital in the former section we have supposed the implements and weapons necessary to kill the deer and salmon to be equally durable and to be the result of the same quantity of labor and we have seen that the variations in the relative value of deer and salmon depended solely on the varying quantities of labor necessary to obtain them but in every state of society the tools, implements, buildings and machinery employed in different trades may be of various degrees of durability and may require different portions of labor to produce them the proportions too in which the capital that is to support labor and the capital that is invested in tools, machinery and buildings may be variously combined this difference in the degree of durability of fixed capital and this variety in the proportions in which the two sorts of capital may be combined introduce another cause besides the greater or less quantity of labor necessary to produce commodities for the variations in their relative value this cause is the rise or fall in the value of labor the food and clothing consumed by the laborer the buildings in which he works the implements with which his labor is assisted are all of a perishable nature there is however a vast difference in the time for which these different capitals will endure a steam engine will last longer than a ship than the clothing of the laborer and the clothing of the laborer longer than the food which he consumes according as capital is rapidly perishable and requires to be frequently reproduced or is of slow consumption it is classed under the heads of circulating or a fixed capital footnote a division not essential and in which the line of demarcation cannot be accurately drawn end of footnote a brewer whose buildings and machinery are valuable and durable is said to employ a large portion of fixed capital on the contrary a shoemaker whose capital is chiefly employed in the payment of wages which are expended on food and clothing commodities more perishable than buildings and machinery is said to employ a large proportion of his capital as circulating capital it is also to be observed that the circulating capital may circulate or be returned to its employer in very unequal times the wheat bought by a farmer to sow is comparatively a fixed capital to the wheat purchased by a baker to make into loaves one leaves it in the ground and can obtain no return for a year the other can get it ground into flour sell it as bread to his customers and have his capital free to renew the same or commence any other employment in a week two trades then may employ the same amount of capital but it may be very differently divided with respect to the portion which is fixed and that which is circulating in one trade very little capital may be employed as circulating capital that is to say in the support of labor it may be principally invested in machinery implements buildings etc capital of a comparatively fixed and durable character in another trade the same amount of capital may be used but it may be chiefly employed in the support of labor and very little may be invested in implements machines and buildings a rise in the wages of labor cannot fail to affect unequally commodities produced under such different circumstances again two manufacturers may employ the same amount of fixed and the same amount of circulating capital but the durability of their fixed capitals may be very unequal one may have steam engines of the value of 10 000 pounds the other ships of the same value if men employed no machinery in production but labor only and were all the same length of time before they brought their commodities to market the exchangeable value of their goods would be precisely in proportion to the quantity of labor employed if they employed fixed capital of the same value and of the same durability then too the value of the commodities produced would be the same and they would vary with the greater or less quantity of labor employed on their production but although commodities produced under similar circumstances would not vary with respect to each other from any cause but an additional diminution of the quantity of labor necessary to produce one or other of them yet compared with others not produced with the same proportionate quantity of fixed capital they would vary from the other cause also which i have before mentioned namely a rise in the value of labor although neither more nor less labor were employed in the production of either of them barley and oats would continue to bear the same relation to each other under any variation of wages cotton goods and cloth would do the same if they also were produced under circumstances precisely similar to each other but yet with a rise or fall of wages barley might be more or less valuable compared with cotton goods and oats compared with cloth suppose two men employ 100 men each for a year in the construction of two machines and another man employs the same number of men in cultivating corn each of the machines at the end of the year will be of the same value as the corn but they will each be produced by the same quantity of labor suppose one of the owners of one of the machines to employ it with the assistance of 100 men the following year in making cloth and the owner of the other machine to employ his also with the assistance likewise of 100 men in making cotton goods while the farmer continues to employ 100 men as before in the cultivation of corn during the second year they will all have employed the same quantity of labor but the goods and machine together of the clothier and also of the cotton manufacturer will be the result of the labor of 200 men employed for a year or rather of the labor of 100 men for two years whereas the corn will be produced by the labor of 100 men for one year consequently if the corn be of the value of 500 pounds the machine and cloth of the clothier together ought to be of the value of 1,000 pounds and the machine and cotton goods of the cotton manufacturer ought to be also of twice the value of corn but they will be of more than twice the value of the corn for the profit on the clothiers and cotton manufacturer's capital for the first year has been added to their capitals while that of the farmer has been expended and enjoyed on account then of the different degrees of durability of their capitals or which is the same thing on account of the time which must elapse before one set of commodities can be brought to market they will be valuable not exactly in proportion to the quantity of labor bestowed on them they will not be as two to one but something more to compensate for the greater length of time which must elapse before the most valuable can be brought to market suppose that for the labor of each workman 50 pounds per animal paid or that 5,000 pounds capital were employed and profits were 10 percent the value of each of the machines as well as of the corn at the end of the first year would be 5,500 pounds the second year the manufacturers and farmer will again employ 5,000 pounds each in support of labor and will therefore again sell their goods for 5,500 pounds that the men using the machines to be on a par with the farmer must not only obtain 5,500 pounds for the equal capitals of 5,000 pounds employed on labor but they must obtain a further sum of 550 pounds for the profit on 5,500 pounds which they have invested in machinery and consequently their goods must sell for 6,050 pounds here then are capitalists employing precisely the same quantity of labor annually on the production of their commodities and yet the goods they produce differ in value on account of the different quantities of fixed capital or accumulated labor employed by each respectively the cloth and cotton goods are of the same value because they are the produce of equal quantities of labor and equal quantities of fixed capital but corn is not of the same value as these commodities because it is produced as far as regards fixed capital under different circumstances but how will their relative value be affected by a rise in the value of labor it is evident that the relative values of cloth and cotton goods will undergo no change for what affects one must equally affect the other under the circumstances supposed neither will the relative values of wheat and barley undergo any change for they are produced under the same circumstances as far as fixed and circulating capital are concerned but the relative value of corn to cloth or to cotton goods must be ordered by a rise of labor there can be no rise in the value of labor without a fall of profits if the corn is to be divided between the farmer and the laborer the larger the proportion that is given to the latter the less will remain for the former so if cloth or cotton goods be divided between the workman and his employer the larger the proportion given to the former the less remains for the latter suppose then that owing to a rise of wages profits fall from 10 to 9 percent instead of adding 550 pounds to the common price of their goods to 5500 pounds for the profits on their fixed capital the manufacturers would add only 9 percent on that sum or 495 pounds consequently the price would be 5995 pounds instead of 6050 pounds as the corn would continue to sell for 5500 pounds the manufactured goods in which more fixed capital was employed would fall relatively to the corn or to any other goods in which a less portion of fixed capital entered the degree of alteration in the relative value of goods or account of a rise or fall of labor would depend on the proportion which the fixed capital bore to the whole capital employed all commodities which are produced by very valuable machinery or in very valuable buildings all which require a great length of time before they can be brought to market would fall in relative value while all those which were chiefly produced by labor or which would be speedily brought to market would rise in relative value the listener however should remark that this cause of the variation of commodities is comparatively slight in its effects with such a rise of wages as should occasion a fall of 1 percent in profits goods produced under the circumstances I have supposed vary in relative value only 1 percent they fall with so great a fall of profits from 6,050 pounds to 5,995 pounds the greatest effects which could be produced on the relative prices of these goods from a rise of wages could not exceed six or seven percent but profits could not probably under any circumstances admit of a greater general and permanent depression than to that amount not so with the other great cause of the variation in the value of commodities namely the increase or diminution in the quantity of labor necessary to produce them if to produce the corn 80 instead of 100 men should be required the value of the corn would fall 20 percent or from 5,500 pounds to 4,400 pounds if to produce the cloth the labor of 80 instead of 100 men would suffice cloth would fall from 6,050 pounds to 4,950 pounds an alteration in the permanent rate of profits to any great amount is the effect of causes which do not operate but in the course of years whereas alterations in the quantity of labor necessary to produce commodities are of daily occurrence every improvement in machinery in tools in buildings in raising the raw material saves labor and enables us to produce the commodity to which the improvement is applied with more facility and consequently it's value alters in estimating then the causes of the variations in the value of commodities although it would be wrong wholly to omit the consideration of the effect produced by a rise or fall of labor it would be equally incorrect to attach much importance to it and consequently in the subsequent part of this work though I shall occasionally refer to this course of variation I shall consider all the great variations which take place in the relative value of commodities to be produced by the greater or less quantity of labor which may be required from time to time to produce them it is hardly necessary to say that commodities which have the same quantity of labor bestowed on their production will differ in exchangeable value if they cannot be brought to market in the same time suppose I employ 20 men at an expense of 1,000 pounds for a year in the production of a commodity and at the end of the year I employed 20 men again for another year at a further expense of 1,000 pounds in finishing or perfecting the same commodity and that I bring it to market at the end of two years if profits be 10% my commodity must sell for 2,310 pounds for I have employed 1,000 capital for one year and 2,100 pounds capital for one year more another man employs precisely the same quantity of labor but he employs it all in the first year he employs 40 men at an expense of 2,000 pounds and at the end of the first year he sells it with 10% profit or for 2,200 pounds here then are two commodities having precisely the same quantity of labor bestowed on them one of which sells for 2,310 pounds the other for 2,200 pounds this case appears to differ from the last but is in fact the same in both cases the superior price of one commodity is owing to the greater length of time which must elapse before it can be brought to market in the former case the machinery and cloth were more than double the value of the corn although only double the quantity of labor was bestowed on them in the second case one commodity is more valuable than the other although no more labor was employed on its production the difference in value arises in both cases from the profits being accumulated as capital and is only a just compensation for the time that the profits were withheld it appears then that the division of capital into different proportions of fixed and circulating capital employed in different trades introduces a considerable modification to the rule which is of universal application when labor is almost exclusively employed in production namely that commodities never vary in value unless a greater or less quantity of labor be bestowed on their production it being shown in this section that without any variation in the quantity of labor the rise of its value merely will occasion a fall in the exchangeable value of those goods in the production of which fixed capital is employed the larger the amount of fixed capital the greater will be the fall section five the principle that value does not vary with the rise of all of wages modified also by the unequal durability of capital and by the unequal rapidity with which it is returned to its employer in the last section we have supposed that of two equal capitals in two different occupations the proportions of fixed and circulating capitals were unequal now let us suppose them to be in the same proportion but of unequal durability in proportion as fixed capital is less durable it approaches to the nature of circulating capital it will be consumed and its value reproduced in a shorter time in order to preserve the capital of the manufacturer we have just seen that in proportion as fixed capital preponderates in a manufacturer when wages rise the value of commodities produced in that manufacturer is relatively lower than that of commodities produced in manufacturers where circulating capital preponderates in proportion to the less durability of fixed capital and its approach to the nature of circulating capital the same effect will be produced by the same cause if fixed capital be not of a durable nature it will require a great quantity of labor annually to keep it in its original state of efficiency but the labor so bestowed may be considered as really expended on the commodity manufactured which must bear a value in proportion to such labor if i had a machine worth 20 000 pounds which with very little labor was efficient to the production of commodities and if the wear and tear of such machine were of trifling amount and the general rate of profit 10 percent i should not require much more than 2000 pounds to be added to the price of the goods on account of the employment of my machine but if the wear and tear of the machine were great if the quantity of labor requisite to keep it in an efficient state would that of 50 men annually i should require an additional price for my goods equal to that which would be obtained by any other manufacturer who employed 50 men in the production of other goods and who used no machinery at all but a rise in the wages of labor would not equally affect commodities produced with machinery quickly consumed and commodities produced with machinery slowly consumed in the production of the one a great deal of labor would be continually transferred to the commodity produced in the other very little would be so transferred every rise of wages therefore or which is the same thing every fall of profits would lower the relative value of those commodities which were produced with a capital of a durable nature and would proportionally elevate those which were produced with capital more perishable a fall of wages would have precisely the contrary effect i have already said that fixed capital is of various degrees of durability suppose now a machine which could in any particular trade be employed to do the work of 100 men for a year and that it would last only for one year supposed to the machine to cost 5000 pounds and the wages annually paid to 100 men to be 5000 pounds it is evident that it would be a matter of indifference to the manufacturer whether he bought the machine or employed the men but suppose labor to rise and consequently the wages of 100 men for a year to amount to 5000 500 pounds it is obvious that the manufacturer would now no longer hesitate it would be for his interest to buy the machine and get his work done for 5000 pounds but will not the machine rise in price will not that also be worth 5000 500 pounds in consequence of the rise of labor it would rise in price if there were no stock employed on its construction and no profits to be paid to the maker of it if for example the machine were the produce of the labor of 100 men working one year upon it with wages of 50 pounds each and its price were consequently 5000 pounds should those wages rise to 55 pounds its price would be 5000 500 pounds but this cannot be the case less than 100 men are employed or it could not be sold for 5000 pounds for out of the 5000 pounds must be paid the profits of the stock which employed the men suppose then that only 85 men were employed at an expense of 50 pounds each or 4250 pounds per annum and that the 750 pounds which the sole of the machine would produce over and above the wages advanced to the men constituted the profits of the engineer's stock when wages rose 10% he would be obliged to employ an additional capital of 425 pounds and would therefore employ 4675 pounds instead of 4250 on which capital he would only get a profit of 325 pounds if we continued to sell his machine for 5000 pounds but this is precisely the case of all manufacturers and capitalists the rise of wages affects them all if therefore the maker of the machine should raise the price of it in consequence of a rise of wages an unusual quantity of capital would be employed in the construction of such machines till their price afforded only the common rate of profits footnote we here see why it is that old countries are constantly impelled to employ machinery and new countries to employ labor with every difficulty of providing for the maintenance of men labor necessarily rises and with every rise in the price of labor new temptations are offered to the use of machinery this difficulty of providing for the maintenance of men is in constant operation in old countries in new ones a very great increase in the population may take place without the least rise in the wages of labor it may be as easy to provide for the seventh eight and ninth million of men as for the second third and fourth end of footnote we see then that machines would not rise in price in consequence of a rise of wages the manufacturer however who in a general rise of wages can have recourse to a machine which shall not increase the charge of production on his commodity would enjoy peculiar advantages if he could continue to charge the same price for his goods but he as we have already seen would be obliged to lower the price of his commodities or capital would flow to his trade till his profits had sunk to the general level thus then is the public benefited by machinery these mute agents are always the produce of much less labor than that which they displace even when they are of the same money value through their influence an increase in the price of provisions which raises wages will affect fewer persons it will reach as in the above instance 85 men instead of 100 and the saving which is the consequence shows itself in the reduced price of the commodity manufactured neither machines nor the commodities made by them rise in real value but all commodities made by machines fall and fall in proportion to their durability it will be seen then that in the early stages of society before much machinery or durable capital is used the commodities produced by equal capitals will be nearly of equal value and will rise or fall only relatively to each other on account of more or less labor being required for their production but after the introduction of these expensive and durable instruments the commodities produced by the employment of equal capitals will be a very unequal value and although they will still be liable to rise or fall relatively to each other as more or less labor becomes necessary to their production they will be subject to another though a minor variation also from the rise or fall of wages and profits since goods which sell for 5 000 pounds may be the produce of a capital equal in amount to that from which are produced other goods which sell for 10 000 pounds the profits on their manufacture will be the same but those profits would be unequal if the prices of the goods did not vary with a rise or fall in the rate of profits it appears to that in proportion to the durability of capital employed in any kind of production the relative prices of those commodities on which such durable capital is employed will vary inversely as wages they will fall as wages rise and rise as wages fall and on the contrary those which are produced chiefly by labor with less fixed capital or with fixed capital over less durable character than the medium in which price is estimated will rise as wages rise and fall as wages fall section six on an invariable measure of value when commodities varied in relative value it would be desirable to have the means of ascertaining which of them fell and which rose in real value and this could be affected only by comparing them one after another with some invariable standard measure of value which should itself be subject to none of the fluctuations to which other commodities are exposed of such a measure it is impossible to be possessed because there is no commodity which is not itself exposed to the same variations as the things the value of which is to be ascertained that is there is none which is not subject to require more or less labor for its production but if this cause of variation in the value of a medium could be removed if it were possible that in the production of our money for instance the same quantity of labor should at all times be required still it would not be a perfect standard or invariable measure of value because as I have already endeavored to explain it would be subject to relative variations from a rise or fall of wages on account of the different proportions of fixed capital which might be necessary to produce it and to produce those other commodities whose alteration of value we wish to ascertain it might be subject to variations too from the same cause on account of the different degrees of durability of the fixed capital employed on it and the commodities to be compared with it all the time necessary to bring the one to market might be longer or shorter than the time necessary to bring the other commodities to market the variations of which were to be determined all which circumstances disqualify any commodity that can be thought of from being a perfectly accurate measure of value if for example we were to fix on gold as a standard it is evident that it is but a commodity obtained under the same contingencies as every other commodity and requiring labor and fixed capital to produce it like every other commodity improvements in the saving of labor might be applied to its production and consequently it might fall in relative value to other things merely on account of the greater facility of producing it if we suppose this cause of variation to be removed and the same quantity of labor to be always required to obtain the same quantity of gold still gold would not be a perfect measure of value by which we could accurately ascertain the variations in all other things because it would not be produced with precisely the same combinations of fixed and circulating capital as all other things nor with fixed capital of the same durability nor would it require precisely the same length of time before it could be brought to market it would be a perfect measure of value for all things produced under the same circumstances precisely as itself but for no others if for example it were produced under the same circumstances as we have supposed necessary to produce cloth and cotton goods it would be a perfect measure of value for those things but not so for corn for coals and other commodities produced with either a less or a greater proportion of fixed capital because as we have shown every alteration in the permanent rate of profits would have some effect on the relative value of all these goods independently of any alteration in the quantity of labor employed on their production if gold were produced under the same circumstances as corn even if they never changed it would not for the same reasons be at all times a perfect measure of the value of cloth and cotton goods neither gold then not any other commodity can ever be a perfect measure of value for all things but i have already remarked that the effect on the relative prices of things from a variation in profits is comparatively slight that by far the most important effects are produced by the varying quantities of labor required for production and therefore if we suppose this important cause of variation removed from the production of gold we shall probably possess as near an approximation to a standard measure of value as can be theoretically conceived may not gold be considered as a commodity produced with such proportions of the two kinds of capital as approach nearest to the average quantity employed in the production of most commodities may not these proportions be so nearly equally distance from the two extremes the one where little fixed capital is used the other where little labor is employed as to form a just mean between them if then i may suppose myself to be possessed of a standard so nearly approaching to an invariable one the advantage is that i shall be enabled to speak of the variations of other things without embarrassing myself on every occasion with the consideration of the possible alteration in the value of the medium in which price and value are estimated to facilitate then the object of this inquiry although i fully allow that money made of gold is subject to most of the variations of other things i shall suppose it to be invariable and therefore all alterations in price to be occasioned by some alteration in the value of the commodity of which i may be speaking before i quit this subject it may be proper to observe that adam smith and all the writers who have followed him have without one exception that i know of maintained that a rise in the price of labor would be uniformly followed by a rise in the price of all commodities i hope i have succeeded in showing that there are no grounds for such an opinion and that only those commodities would rise which had less fixed capital employed upon them than the medium in which price was estimated and that all those which had more would positively fall in price when wages rose on the contrary if wages fell those commodities only would fall which had a less proportion of fixed capital employed on them than the medium in which price was estimated all those which had more would positively rise in price it is necessary for me also to remark that i have not said because one commodity has so much labor bestowed upon it as will cost one thousand pounds and another so much as will cost two thousand pounds that therefore one would be of the value of one thousand pounds and the other of the value of two thousand pounds but i have said that their value will be to each other as two to one and that in those proportions they will be exchanged it is of no importance to the truth of this doctrine whether one of these commodities sells for one thousand one hundred pounds and the other for two thousand two hundred pounds or one for one thousand five hundred pounds and the other for three thousand pounds into that question i do not at present inquire i affirm only that their relative values will be governed by the relative quantities of labor bestowed on their production section seven different effects from the alteration in the value of money the medium in which price is always expressed or from the alteration in the value of the commodities which money purchases although i shall as i have already explained have occasion to consider money as invariable in value for the purpose of more distinctly pointing out the causes of relative variations in the value of other things it may be useful to notice the different effects which will follow from the prices of goods being altered by the causes to which i have already averted namely the different quantities of labor required to produce them and they're being altered by a variation in the value of money itself money being a variable commodity the rise of money wages will be frequently occasioned by a fall in the value of money a rise of wages from this cause will indeed be invariably accompanied by a rise in the price of commodities but in such cases it will be found that labor and all commodities have not varied in regard to each other and that the variation has been confined to money money from its being a commodity obtained from a foreign country from its being the general medium of exchange between all civilized countries and from its being also distributed among those countries in proportions which are ever changing with every improvement in commerce and machinery and with every increasing difficulty of obtaining food and necessaries for an increasing population is subject to incessant variations in stating the principles which regulate exchangeable value and price we should carefully distinguish between those variations which belong to the commodity itself and those which are occasioned by a variation in the medium in which value is estimated or price expressed a rise in wages from an alteration in the value of money produces a general effect on price and for that reason it produces no real effect whatever on profits on the contrary a rise of wages from the circumstance of the labor being more liberally rewarded or from a difficulty of procuring the necessaries on which wages are expended does not except in some instances produce the effect of raising price but has a great effect in lowering profits in the one case no greater proportion of the annual labor of the country is devoted to the support of the laborers in the other case a larger portion is so devoted it is according to the division of the whole produce of the land of any particular farm between the three classes of landlord capitalist and laborer that we are to judge of the rise or fall of rent profit and wages and not according to the value at which that produce may be estimated in a medium which is confessedly variable it is not by the absolute quantity of produce obtained by either class that we can correctly judge of the rate of profit rent and wages but by the quantity of labor required to obtain that produce by improvements in machinery and agriculture the whole produce may be doubled but if wages rent and profit be also doubled these three will bear the same proportions to one another as before and neither could be said to have relatively varied but if wages part took not of the whole of this increase if instead of being doubled were only increased one half if rent instead of being doubled were only increased three fourths and the remaining increase went to profit it would I apprehend be correct for me to say that rent and wages had fallen while profits had risen for if we had an invariable standard by which to measure the value of this produce we should find that a less value had fallen to the class of laborers and landlords and a greater to the class of capitalists than had given before we might find for example that though the absolute quantity of commodities had been doubled they were the produce of precisely the former quantity of labor of every hundred hats coats and quarters of corn produced if the laborers had before 25 the landlords had 25 and the capitalists had 50 making a total of 100 and if after these commodities were double the quantity of every 100 the laborers had only 22 the landlords had 22 and the capitalists had 56 of the 100 in that case I should say that wages and rent had fallen and profits risen though in consequence of the abundance of commodities the quantity paid to the laborer and landlord would have increased in the proportion of 25 to 44 wages are to be estimated by their real value vis by the quantity of labor and capital employed in producing them and not by their nominal value either in coats hats money or corn under the circumstances I have just supposed commodities would have fallen to half their former value and if money had not varied to half their former price also if then in this medium which had not varied in value the wages of the laborer should be found to have fallen it will not the less be a real fall because they might furnish him with a greater quantity of cheap commodities than his former wages the variation in the value of money however great makes no difference in the rate of profits for suppose the goods of the manufacturer to rise from 1000 pounds to 2000 pounds or 100 percent if his capital on which the variations of money have as much effect as on the value of produce if his machinery buildings and stock in trade rise also 100 percent his rate of profits will be the same and he will have the same quantity and no more of the produce of the labor of the country at his command if with a capital of a given value he can buy economy and labor double the quantity of produce and it fall to half its former price it will bear the same proportion to the capital that produced it which it did before and consequently profits will still be at the same rate if at the same time that he doubles the quantity of produce by the employment of the same capital the value of money is by any accident lowered one half the produce will sell for twice the money value that it did before but the capital employed to produce it will also be of twice its former money value and therefore in this case too the value of the produce will bear the same proportion to the value of the capital as it did before and although the produce be doubled rent wages and profits will only vary as the proportions vary in which this double produce may be divided among the three classes that share it chapter two on rent it remains however to be considered whether the appropriation of land and the consequent creation of rent will occasion any variation in the relative value of commodities independently of the quantity of labor necessary to production in order to understand this part of the subject we must inquire into the nature of rent and the laws by which its rise or fall is regulated rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil it is often however confounded with the interest and profit of capital and in popular language the term is applied to whatever is annually paid by a farmer to his landlord if off to adjoining farms of the same extent and of the same natural fertility one had all the conveniences of farming buildings and besides were properly drained and minured and adventagiously divided by hedges fences and walls while the other had none of these advantages more remuneration would naturally be paid for the use of one than for the use of the other it in both cases this remuneration would be called rent but it is evident that a portion only of the money annually to be paid for the improved farm would be given for the original and indestructible powers of the soil the other portion would be paid for the use of the capital which had been employed in ameliorating the quality of the land and in erecting such buildings as were necessary to secure and preserve the produce adam smith sometimes speaks of rent in the strict sense to which i am desirous of confining it but more often in the popular sense in which the term is usually employed he tells us that the demand for timber and its consequent high price in the more southern countries of europe caused a rent to be paid for forests in norway which could before afford no rent is it not however evident that the person who paid what he thus calls rent hated in consideration of the valuable commodity which was then standing on the land and that he actually repaid himself with a profit by the sale of the timber if indeed after the timber was removed any compensation were paid to the landlord for the use of the land for the purpose of growing timber or any other produce with a view to future demand such compensation might justly be called rent because it would be paid for the productive powers of the land but in the case stated by adam smith the compensation was paid for the liberty of removing and selling the timber and not for the liberty of growing it he speaks also of the rent of coal mines and of stone quarries to which the same observation applies that the compensation given 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 and 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 laws which regulate the progress of rent are widely different from those which regulate the progress of profits and seldom operate in the same direction in all improved countries that which is annually paid to the landlord partaking of both characters rent and profit is sometimes kept stationary by the effects of opposing causes at other times advances or receipts as one or the other of these causes preponderates in the future pages of this work then whenever i speak of the rent of land i wish to be understood as speaking of that compensation which is paid to the owner of land for the use of its original and indestructible powers on the first settling of a country in which there is an abundance of rich and fertile land a very small proportion of which is required to be cultivated for the support of the actual population or indeed can be cultivated with the capital which the population can command there will be no rent when no one would pay for the use of land when there was an abundant quantity not yet appropriated and therefore at the disposal of whosoever might choose to cultivate it on the common principles of supply and demand no rent could be paid for such land for the reasons stated why nothing is given for the use of air and water or for any other of the gifts of nature which exist in boundless quantity with a given quantity of materials and with the assistance of the pressure of the atmosphere and the elasticity of steam engines may perform work and abridge human labor to a very great extent but no charge is made for the use of these natural aids because they are inexhaustible and at every man's disposal in the same manner the brewer the distiller the dire make incessant use of the air and water for the production of their commodities but as the supplies boundless they bear no price footnote from economy politic by jbc volume two quote the earth as we have already seen is not the only agent of nature which has a productive power but it is the only one or nearly so that one set of men take to themselves to the exclusion of others and of which consequently they can appropriate the benefits the waters of rivers and of the sea by the power which they have of giving movement to our machines carrying our boats nourishing our fish have also a productive power the wind which turns our mills and even the heat of the sun work for us but happily no one has yet been able to say the wind and the sun are mine and the service which they render must be paid for unquote end of footnote if all land had the same properties if it were unlimited in quantity and uniform in quality no charge could be made for its use unless where it possessed peculiar advantages of situation it is only then because land is not unlimited in quantity and uniform in quality and because in the progress of population land of an inferior quality or less advantageously situated is called into cultivation that rent is ever paid for the use of it when in the progress of society land of the second degree of fertility is taken into cultivation rent immediately commences on that of the first quality and the amount of that rent will depend on the difference in the quality of these two portions of land when land of the third quality is taken into cultivation rent immediately commences on the second and it is regulated as before by the difference in their productive powers at the same time the rent of the first quality will rise but that must always be above the rent of the second by the difference between the produce which they yield with a given quantity of capital and labor with every step in the progress of population which shall oblige a country to have recourse to land of a worse quality to enable it to raise its supply of food rent on all the more fertile land will rise thus suppose land number one two three to yield with an equal employment of capital and labor a net produce of 100 90 and 80 quarters of corn in a new country where there is an abundance of fertile land compared with the population and where therefore it is only necessary to cultivate number one the whole net produce will belong to the cultivator and will be the profits of the stock which he advances as soon as population had so far increased as to make it necessary to cultivate number two from which 90 quarters only can be obtained after supporting the laborers rent would commence on number one for either there must be two rates of profit on agricultural capital or 10 quarters or the value of 10 quarters must be withdrawn from the produce of number one for some other purpose whether the proprietor of the land or any other person cultivated number one these 10 quarters would equally constitute rent for the cultivator of number two would get the same result with his capital whether he cultivated number one paying 10 quarters for rent or continued to cultivate number two paying no rent in the same manner it might be shown that when number three is brought into cultivation the rent of number two must be 10 quarters or the value of 10 quarters whilst the rent of number one would rise to 20 quarters for the cultivator of number three would have the same profits whether he paid 20 quarters for the rent of number one 10 quarters for the rent of number 2, or cultivated number 3, free of all rent. It often and indeed commonly happens that before number 2, 3, 4, or 5, or the inferior lands are cultivated, capital can be employed more productively on those lands which are already in cultivation. It may perhaps be found that by doubling the original capital employed on number 1, though the produce will not be doubled, will not be increased by 100 quarters, it may be increased by 85 quarters and that this quantity exceeds what could be obtained by employing the same capital on land number 3. In such case, capital will be preferably employed on the old land and will equally create a rent, for rent is always the difference between the produce obtained by the employment of two equal quantities of capital and labor. If, with a capital of 1,000 pounds, the tenant obtain 100 quarters of wheat from his land, and by the employment of a second capital of 1,000 pounds, he obtain a further return of 85, his landlord would have the power at the expiration of his lease of obliging him to pay 15 quarters, or an equivalent value, for additional rent. But there cannot be two rates of profit. If he is satisfied with a diminution of 15 quarters in the return for his second 1,000 pounds, it is because no employment more profitable can be found for it. The common rate of profit would be in that proportion, and if the original tenant refused, some other person would be found willing to give all which exceeded that rate of profit to the owner of the land from which he derived it. In this case, as well as in the other, the capital last employed pays no rent. For the greater productive powers of the first 1,000 pounds, 15 quarters is paid for rent. For the employment of the second 1,000 pounds, no rent whatever is paid. If the third 1,000 pounds be employed on the same land, with a return of 75 quarters, rent will then be paid for the second 1,000 pounds, and will be equal to the difference between the produce of these two, or 10 quarters. And at the same time, the rent of the first 1,000 pounds will rise from 15 to 25 quarters, while the last 1,000 pounds will pay no rent whatever. If then, good land existed in a quantity much more abundant than the production of food for an increasing population required, or if capital could be indefinitely employed without a diminished return on the old land, there could be no rise of rent. But rent invariably proceeds from the employment of an additional quantity of labor with a proportionally less return. The most fertile and most favorably situated land will be first cultivated, and the exchangeable value of its produce will be adjusted in the same manner as the exchangeable value of all other commodities, by the total quantity of labor necessary in various forms, from first to last, to produce it, and bring it to market. When land of an inferior quality is taken into cultivation, the exchangeable value of raw produce will rise, because more labor is required to produce it. The exchangeable value of all commodities, whether they be manufactured, or the produce of the mines, or the produce of land, is always regulated, not by the less quantity of labor that will suffice for their production under circumstances highly favorable, and exclusively enjoyed by those who have peculiar facilities of production, but by the greater quantity of labor necessarily bestowed on their production by those who have no such facilities, by those who continue to produce them under the most unfavorable circumstances, meaning, by the most unfavorable circumstances, the most unfavorable under which the quantity of produce required renders it necessary to carry on the production. Thus, in a charitable institution, whether poor are set to work with the funds of benefactors, the general prices of the commodities which are the produce of such work will not be governed by the peculiar facilities afforded to these workmen, but by the common, usual, and natural difficulties which every other manufacturer will have to encounter. The manufacturer enjoying none of these facilities might indeed be driven altogether from the market, if the supply afforded by these favored workmen were equal to all the wants of the community. But if he continued the trade, it would be only on condition that he should derive from it the usual and general rate of profits on stock. And that could only happen when his commodity sold for a price proportion to the quantity of labor bestowed on its production. Footnote, as not must you say forgotten in the following passage that it is the cost of production which ultimately regulates price. Quote, the produce of labor employed on the land has this peculiar property, that it does not become more dear by becoming more scarce, because population always diminishes at the same time that food diminishes. And consequently, the quantity of these products demanded diminishes at the same time as the quantity supplied. Besides, it is not observed that corn is more dear in those places where there is plenty of uncultivated land than in completely cultivated countries. England and France were much more imperfectly cultivated in the Middle Ages than they are now. They produced much less raw produce. Nevertheless, from all we can judge by a comparison with the value of other things, corn was not sold at a dearer price. If the produce was less, so was the population. The weakness of the demand compensated the feebleness of the supply. Unquote, must you say being impressed with the opinion that the price of commodities is regulated by the price of labor and justly supposing that charitable institutions of all sorts tend to increase the population beyond what it otherwise would be. And therefore to lower wages says, quote, I suspect that the cheapness of the goods which come from England is partly caused by the numerous charitable institutions which exist in that country. Unquote, this is a consistent opinion in one who maintains that wages regulate price. End of footnote. It is true that on the best land the same produce would still be obtained with the same labor as before. But its value would be enhanced in consequence of the diminished returns obtained by those who employed fresh labor and stock on the less fertile land. Notwithstanding then that the advantages of fertile over inferior lands are in no case lost, but only transferred from the cultivator and consumer to the landlord. Yet since more labor is required on the inferior lands, and since it is from such land only that we are enabled to furnish ourselves with the additional supply of raw produce, the comparative value of that produce will continue permanently above its former level and make an exchange for more hats, cloth shoes, etc., etc., in the production of which no such additional quantity of labor is required. The reason then why raw produce rises in comparative value is because more labor is employed in the production of the last portion obtained, and not because a rent is paid to the landlord. The value of corn is regulated by the quantity of labor bestowed on its production on that quality of land or with that portion of capital which pays no rent. Corn is not high because a rent is paid, but a rent is paid because corn is high, and it has been justly observed that no reduction would take place in the price of corn, although landlords should forego the hold of their rent. Such a measure would only enable some farmers to live like gentlemen, but would not diminish the quantity of labor necessary to raise raw produce on the least productive land in cultivation. Nothing is more common than to hear of the advantages which the land possesses over every other source of useful produce on account of the surplus which it yields in the form of rent. Yet when land is most abundant, when most productive, and most fertile, it yields no rent, and it is only when its powers of decay and less is yielded in return for labor that a share of the original produce of the more fertile portions is set apart for rent. It is singular that this quality in the land which should have been noticed as an imperfection, compared with the natural agents by which manufacturers are assisted, should have been pointed out as constituting its peculiar preeminence. If air, water, the elasticity of steam, and the pressure of the atmosphere were of various qualities, if they could be appropriated, and each quality existed only in moderate abundance, they, as well as the land, would afford a rent, as the successive qualities were brought into use. With every worse quality employed, the value of the commodities in the manufacture of which they were used would rise, because equal quantities of labor would be less productive. Man would do more by the sweat of his brow, and nature perform less, and the land would be no longer preeminent for its limited powers. If the surplus produce which land affords in the form of rent be an advantage, it is desirable that every year, the machinery newly constructed should be less efficient than the old, as that would undoubtedly give a greater exchangeable value to the goods manufactured, not only by that machinery, but by all the other machinery in the kingdom, and a rent would be paid to all those who possessed the most productive machinery. Extended footnote. In agriculture too, says Adam Smith, nature labors along with man, and though her labor costs no expense, its produce has its value, as well as that of the most expensive workmen. The labor of nature is paid, not because she does much, but because she does little. In proportion as she becomes niggably in her gifts, she exacts a greater price for her work, where she is magnificently beneficent, she always works gratis. Further quote from Adam Smith, the wealth of nations book two. The labour and cattle employed in agriculture, not only occasion, like the workmen in manufacturers, the reproduction of a value equal to their own consumption, or to the capital which employs them, together with its own profits, but of a much greater value over and above the capital of the farmer and all its profits. They regularly occasion the reproduction of the rent of the landlord. This rent may be considered as the produce of those powers of nature, the use of which the landlord lends to the farmer. It is greater or smaller according to the supposed extent of those powers, or in other words according to the supposed natural or improved fertility of the land. It is the work of nature which remains after deducting or compensating everything which can be regarded as the work of man. It is seldom less than a fourth and frequently more than a third of the whole produce. No equal quantity of productive labour employed in manufacturers can ever occasion so great a reproduction. In them nature does nothing, man does all, and the reproduction must always be in proportion to the strength of the agents that occasion it. The capital employed in agriculture therefore not only puts into motion a greater quantity of productive labour than any equal capital employed in manufacturers, but in proportion too to the quantity of the productive labour which it employs. It adds a much greater value to the annual produce of the land and labour of the country, to the real wealth and revenue of its inhabitants. Of all the ways in which a capital can be employed, it is by far the most advantageous to the society. Adam Smith, unquote, does nature nothing for man in manufacturers? Are the powers of wind and water which move our machinery and assist navigation nothing? The pressure of the atmosphere and the elasticity of steam which enable us to work the most stupendous engines, are they not the gifts of nature? They say nothing of the effects of the matter of heat and softening and melting metals, of the decomposition of the atmosphere in the process of dying and fermentation. There is not a manufacturer which can be mentioned in which nature does not give her assistance to man and give it to generously and gratuitously. In remarking on the passage which I have copied from Adam Smith, Mr Buchanan observes, quote, I have endeavored to show in the observations on productive and unproductive labour contained in the fourth volume that agriculture adds no more to the national stock than any other sort of industry. In dwelling on the reproduction of rent is so great an advantage to society, Dr Smith does not reflect that rent is the effect of high price and that what the landlord gains in this way he gains at the expense of the community at large. There is no absolute gain to the society by the reproduction of rent. It is only one class profiting at the expense of another class. The notion of agriculture yielding a produce and a rent in consequence because nature concurs with human industry in the process of cultivation is a mere fancy. It is not from the produce but from the price at which the produce is sold that the rent is derived and this price is got not because nature assists in the production but because it is the price which suits the consumption for the supply, unquote, end of footnote. The rise of rent is always the effect of the increasing wealth of the country and of the difficulty of providing food for its augmented population. It is a symptom but it is never a cause of wealth. For wealth often increases most rapidly while rent is either stationary or even falling. Rent increases most rapidly as the disposable land decreases in its productive powers. Wealth increases most rapidly in those countries where the disposable land is most fertile, where importation is least restricted and where through agricultural improvements, productions can be multiplied without any increase in the proportional quantity of labor and where consequently the progress of rent is slow. If the high price of corn were the effect and not the cause of rent, price would be proportionately influenced as rents were high or low and rent would be a component part of price. But that corn which is produced by the greatest quantity of labor is the regulator of the price of corn and rent does not and cannot enter in the least degree as a component part of its price. Footnote. The clearly understanding this principle is I am persuaded of the utmost importance to the science of political economy. End of footnote. Adam Smith therefore cannot be correct in supposing that the original rule which regulated the exchangeable value of commodities namely the comparative quantity of labor by which they were produced can be at all altered by the appropriation of land and the payment of rent. Raw material enters into the composition of most commodities but the value of that raw material as well as corn is regulated by the productiveness of the portion of capital last employed on the land and paying no rent. And therefore rent is not a component part of the price of commodities. We have been hitherto considering the effects of the natural progress of wealth and population on rent in a country in which the land is of variously productive powers and we have seen that with every portion of additional capital which it becomes necessary to employ on the land with a less productive return rent would rise. It follows from the same principles that any circumstances in the society which should make it unnecessary to employ the same amount of capital on the land and which should therefore make the portion last employed more productive would lower rent. Any great reduction in the capital of a country which should materially diminish the funds destined for the maintenance of labor would naturally have this effect. Population regulates itself by the funds which are to employ it and therefore always increases or diminishes with the increase or diminution of capital. Every reduction of capital is therefore necessarily followed by a less effective demand for corn by a fall of price and by diminished cultivation. In the reverse order to that in which the accumulation of capital raises rent will the diminution of it to lower rent. Land of a less unproductive quality will be in succession relinquished the exchangeable value of produce will fall and land of a superior quality will be the land last cultivated and that which will then pay no rent. The same effects may however be produced when the wealth and population of a country are increased if that increases accompanied by such marked improvements in agriculture as shall have the same effect of diminishing the necessity of cultivating the poorer lands or of expending the same amount of capital on the cultivation of the more fertile portions. If a million of quarters of corn be necessary for the support of a given population and it be raised on land of the qualities of number one two three and if an improvement be afterwards discovered by which it can be raised on number one and two without employing number three it is evident that the immediate effect must be a fall of rent for number two instead of number three will then be cultivated without paying any rent and the rent of number one instead of being the difference between the produce of number three and number one will be the difference only between number two and one with the same population and no more there can be no demand for any additional quantity of corn the capital and labor employed on number three will be devoted to the production of other commodities desirable to the community and can have no effect in raising rent unless the raw material from which they are made cannot be obtained without employing capital less advantageously on the land in which case number three must again be cultivated it is undoubtedly true that the fall in the relative price of raw produce in consequence of the improvement in agriculture or rather in consequence of less labor being bestowed on its production would naturally lead to increased accumulation for the profits of stock would be greatly augmented this accumulation would lead to an increased demand for labor to higher wages to an increased population to a further demand for raw produce and to an increased cultivation it is only however after the increase in the population that rent would be as high as before that is to say after number three was taken into cultivation a considerable period would have elapsed attended with a positive diminution of rent but improvements in agriculture are of two kinds those which increase the productive powers of the land and those which enable us by improving our machinery to obtain its produce with less labor they both lead to a fall in the price of raw produce they both affect rent but they do not affect it equally if they did not occasion a fall in the price of raw produce they would not be improvements for it is the essential quality of an improvement to diminish the quantity of labor before required to produce a commodity and this diminution cannot take place without a fall of its price or relative value the improvements which increase the productive powers of the land are such as the more skillful rotation of crops or the better choice of manure these improvements absolutely enable us to obtain the same produce from a smaller quantity of land if by the introduction of a course of turnips I can feed my sheep besides raising my corn the land on which the sheep were before fed becomes unnecessary and the same quantity of raw produce is raised by the employment of a less quantity of land if I discover a manure which will enable me to make a piece of land produce 20 percent more corn I may withdraw at least a portion of my capital from the most unproductive part of my farm but as I before observed it is not necessary that land should be thrown out of cultivation in order to reduce rent to produce this effect it is sufficient that successive portions of capital are employed on the same land with different results and that the portion which gives the least result should be withdrawn if by the introduction of the turnip husbandry or by the use of a more invigorating manure I can obtain the same produce with less capital and without disturbing the difference between the productive powers of the successive portions of capital I shall lower rent for a different and more productive portion will be that which will form the standard from which every other will be reckoned if for example the successive portions of capital yielded 100, 90, 80, 70 whilst I employed these four portions my rent would be 60 whilst the produce would be 340 and while I employed these portions the rent would remain the same although the produce of each should have an equal augmentation if instead of 100, 90, 80, 70 the produce should be increased to 125, 115, 105 and 95 the rent would still be 60 while the produce would be increased to 440 but with such an increase of produce without an increase of demand there could be no motive for employing so much capital on the land footnote I hope I am not understood as undervaluing the importance of all sorts of improvements in agriculture to landlords their immediate effect is to lower rent but as they give a great stimulus to population and at the same time enable us to cultivate poorer lands with less labor they are ultimately of immense advantage to landlords a period however must elapsed during which they are positively injurious to him end of footnote one portion would be withdrawn and consequently the last portion of capital would yield 105 instead of 95 and rent would fall to 30 whilst the produce would still be adequate to the wants of the population for it would be 345 quarters the demand being only for 340 quarters but there are improvements which may lower the relative value of produce without lowering the corn rent though they will lower the money rent of land such improvements do not increase the productive powers of the land but they enable us to obtain its produce with less labor they are rather directed to the formation of the capital applied to the land than to the cultivation of the land itself improvements in agricultural implements such as the plow and the thrashing machine economy and the use of horses employed in husbandry and a better knowledge of the veterinary art are of this nature less capital which is the same thing as less labor will be employed on the land but to obtain the same produce less land cannot be cultivated whether improvements of this kind however affect corn rent must depend on the question whether the difference between the produce obtained by the employment of different portions of capital be increased stationary or diminished if four portions of capital 50 60 70 and 80 be employed on the land giving each the same results and any improvement in the formation of such capital should enable me to withdraw five from each so that they should be 45 55 65 and 75 no alteration would take place in the corn rent but if the improvements were such as to enable me to make the whole saving on that portion of capital which is least productively employed corn rent would immediately fall because the difference between the capital most productive and the capital least productive would be diminished and it is this difference which constitutes rent without multiplying instances I hope enough has been said to show that whatever diminishes the inequality in the produce obtained from successive portions of capital employed on the same or on new land tends to lower rent and that whatever increases that inequality necessarily produces an opposite effect and tends to raise it in speaking of the rent of the landlord we have rather considered it as the proportion of the produce obtained with a given capital on any given farm without any reference to its exchangeable value but since the same cause the difficulty of production raises the exchangeable value of raw produce and raises also the proportion of raw produce paid to the landlord for rent it is obvious that the landlord is doubly benefited by difficulty of production first he obtains a greater share and secondly the commodity in which he is paid is of greater value chapter three on the rent of mines the metals like other things are obtained by labor nature indeed produces them but it is the labor of man which extracts them from the bowels of the earth and prepares them for our service mines as well as land generally pay a rent to their owner and this rent as well as the rent of land is the effect and never the cause of the high value of their produce if there were abundance of equally fertile mines which anyone might appropriate they could yield no rent the value of their produce would depend on the quantity of labor necessary to extract the metal from the mine and bring it to market but there are mines of various quantities affording very different results with equal quantities of labor the metal produced from the poorest mine that is worked must at least have an exchangeable value not only sufficient to procure all the clothes food and other necessaries consumed by those employed in working it and bringing the produce to market but also to afford the common and ordinary profits to him who advances the stock necessary to carry on the undertaking the return for capital from the poorest mine paying no rent would regulate the rent of all the other more productive mines this mine is supposed to yield the usual profits of stock or that the other mines produce more than this will necessarily be paid to the owners for rent since this principle is precisely the same as that which we have already laid down respecting land it will not be necessary further to enlarge on it it will be sufficient to remark that the same general rule which regulates the value of raw produce and manufactured commodities is applicable also to the metals their value depending not on the rate of profits nor on the rate of wages nor on the rent paid for mines but on the total quantity of labor necessary to obtain the metal and to bring it to market like every other commodity the value of the metals is subject to variation improvements may be made in the implements and machinery used in mining which may considerably abridge labor new and more productive mines may be discovered in which with the same labor more metal may be obtained or the facilities of bringing it to market may be increased in either of these cases the metals would fall in value and would therefore exchange for a less quantity of other things on the other hand from the increasing difficulty of obtaining the metal occasioned by the greater depth at which the mine must be worked and the accumulation of water or any other contingency its value compared with that of other things might be considerably increased it has therefore been justly observed that however honestly the coin of a country may conform to its standard money made of gold and silver is still liable to fluctuations in value not only to accidental and temporary but the permanent and natural variations in the same manner as other commodities by the discovery of America and the rich mines in which it abounds a very great effect was produced on the natural price of the precious metals this effect is by many supposed not yet to have terminated it is probable however that all the effects on the value of the metals resulting from the discovery of America have long ceased and if any fall has of late years taken place in their value it is to be attributed to improvements in the mode of working the mines from whatever cause it may have proceeded the effect has been so slow and gradual that little practical inconvenience has been felt from gold and silver being the general medium in which the value of all other things is estimated though undoubtedly a variable measure of value there is probably no commodity subject to fewer variations this and the other advantages which these metals possess such as their hardness their malleability their divisibility and many more have justly secured the preference everywhere given to them as a standard for the money of civilized countries if equal quantities of labor with equal quantities of fixed capital could at all times obtain from that mine which paid no rent equal quantities of gold gold would be as nearly an invariable measure of value as we could in the nature of things possess the quantity indeed would enlarge with the demand but its value would be invariable and it would be eminently well calculated to measure the varying value of all other things I have already in a former part of this work considered gold as endowed with this uniformity and in the following chapter I shall continue the supposition in speaking therefore of varying price the variation will be always considered as being in the commodity and never in the medium in which it is estimated chapter 4 on natural and market price in making labor the foundation of the value of commodities and the comparative quantity of labor which is necessary to their production the rule which determines the respective quantities of goods which shall be given in exchange for each other we must not be supposed to deny the accidental and temporary deviations of the actual or market price of commodities from this their primary and natural price in the ordinary course of events there is no commodity which continues for any length of time to be supplied precisely in that degree of abundance which the wants and wishes of mankind require and therefore there is none which is not subject to accidental and temporary variations of price it is only in consequence of such variations that capital is apportioned precisely and the requisite abundance and no more to the production of the different commodities which happen to be in demand with the rise or fall of price profits are elevated above or depressed below their general level and capital is either encouraged to enter into or is wanted apart from the particular employment in which the variation has taken place whilst every man is free to employ his capital where he pleases he will naturally seek for it that employment which is most advantageous he will naturally be dissatisfied with a profit of 10% if by removing his capital he can obtain a profit of 15% this restless desire on the part of all the employers of stock to quit a less profitable for a more advantageous business has a strong tendency to equalize the rate of profits of all or to fix them in such proportions as may in the estimation of the parties compensate for any advantage which one may have or may appear to have over the other it is perhaps very difficult to trace the steps by which this change is affected it is probably affected by a manufacturer not absolutely changing his employment but only lessening the quantity of capital he has in that employment in all rich countries there is a number of men forming what is called the moneyed class these men are engaged in no trade but live on the interest of their money which is employed in discounting bills or in loans to the more industrious part of the community the bankers too employ a large capital on the same objects the capital so employed forms a circulating capital of a large amount and is employed in larger or smaller proportions by all the different trades of a country there is perhaps no manufacturer however rich who limits his business to the extent that his own funds alone will allow he always has some portion of this floating capital increasing or diminishing according to the activity of the demand for his commodities when the demand for silks increases and that for cloth diminishes the clothier does not remove with his capital to the silk trade but he dismisses some of his workmen he discontinues his demand for the loan from bankers and moneyed men while the case of the silk manufacturer is the reverse he wishes to employ more workmen and thus his motive for borrowing is increased he borrows more and thus capital is transferred from one employment to another without the necessity of a manufacturer discontinuing his usual occupation when we look to the markets of a large town and observe how regularly they are supplied both with home and foreign commodities in the quantity in which they are required under all the circumstances of varying demand arising from the caprice of taste or a change in the amount of population without often producing either the effects of a glut from a too abundant supply or an enormously high price from the supply being unequal to the demand we must confess that the principle which apportions capital to each trade in the precise amount that it is required is more active than is generally supposed a capitalist in seeking profitable employment for his funds will naturally take into consideration all the advantages which one occupation possesses over another he may therefore be willing to forego a part of his money profit in consideration of the security, cleanliness, ease or any other real or fancied advantage which one employment may possess over another if from a consideration of these circumstances the profits of stock should be so adjusted that in one trade there were 20 in another 25 and in another 30 percent they would probably continue permanently with that relative difference and with that difference only for if any calls should elevate the profits of one of these trades 10 percent either these profits would be temporary and would soon again fall back to their usual station or the profits of the others would be elevated in the same proportion the present time appears to be one of the exceptions to the justness of this remark the termination of the war has so deranged the division which before existed of employments in Europe that every capitalist has not yet found his place in the new division which has now become necessary let us suppose that all commodities are at their natural price and consequently that the profits of capital in all employments are exactly at the same rate or differ only so much as in the estimation of the parties is equivalent to any real or fancied advantage which they possess or forego suppose now that a change of fashion should increase the demand for silks and lessen that for woolens their natural price the quantity of labor necessary to their production would continue unaltered but the market price of silks would rise and that of woolens would fall and consequently the profits of the silk manufacturer would be above whilst those of the woolen manufacturer would be below the general and adjusted rate of profits not only the profits but the wages of the workmen would be affected in these employments this increased demand for silks would however soon be supplied by the transference of capital and labor from the woolen to the silk manufacturer when the market prices of silks and woolens would again approach their natural prices and then the usual profits would be obtained by the respective manufacturers of those commodities it is then the desire which every capitalist has of diverting his funds from a less to a more profitable employment that prevents the market price of commodities from continuing for any length of time either much above or much below their natural price it is this competition which so adjusts the exchangeable value of commodities that after paying the wages for the labor necessary to their production and all other expenses required to put the capital employed in its original state of efficiency the remaining value or over plus will in each trade be in proportion to the value of the capital employed in the seventh chapter of the wealth of nations all that concerns this question is most ably treated having fully acknowledged the temporary effects which in particular employments of capital may be produced on the prices of commodities as well as on the wages of labor and the profits of stock by accidental causes without influencing the general price of commodities wages or profits since these effects are equally operative in all stages of society we will leave them entirely out of our consideration whilst we are treating of the laws which regulate natural prices natural wages and natural profits effects totally independent of these accidental courses in speaking then of the exchangeable value of commodities or the power of purchasing possessed by any one commodity I mean always that power which it would possess if not disturbed by any temporary or accidental cause and which is its natural price chapter five of wages labor like all other things which are purchased and sold and which may be increased or diminished in quantity has its natural and its market price the natural price of labor is that price which is necessary to enable the laborers one with another to subsist and to perpetuate their race without either increase or diminution the power of the laborer to support himself and the family which may be necessary to keep up the number of laborers does not depend on the quantity of money which he may receive for wages but on the quantity of food necessaries and conveniences become essential to him from habit which that money will purchase the natural price of labor therefore depends on the price of the food necessaries and conveniences required for the support of the laborer and his family with the rise of the price of food and necessaries the natural price of labor will rise with the fall in their price the natural price of labor will fall with the progress of society the natural price of labor has always a tendency to rise because one of the principal commodities by which its natural price is regulated has a tendency to become dearer from the greater difficulty of producing it as however the improvements in agriculture the discovery of new markets once provisions may be imported may for a time counteract the tendency to arise in the price of necessaries and may even occasion their natural price to fall so will the same causes produce the correspondent effects on the natural price of labor the natural price of all commodities accepting raw produce and labor has a tendency to fall in the progress of wealth and population but though on one hand they are enhanced in real value from the rise and the natural price of the raw material of which they are made this is more than counterbalanced by the improvements in machinery by the better division and distribution of labor and by the increasing skill both in science and art of the producers the market price of labor is the price which is really paid for it from the natural operation of the proportion of the supply to the demand labor is dear when it is scarce and cheap when it is plentiful however much the market price of labor may deviate from its natural price it has like commodities a tendency to conform to it it is when the market price of labor exceeds its natural price that the condition of the laborer is flourishing and happy that he has it in his power to command a greater proportion of the necessaries and enjoyments of life and therefore to rear a healthy and numerous family when however by the encouragement which high wages give to the increase of population the number of laborers is increased wages again fall to their natural price and indeed from a reaction sometimes fall below it when the market price of labor is below its natural price the condition of the laborers is most wretched then poverty deprives them of those comforts which custom renders absolute necessaries it is only after their privations have reduced their number or the demand for labor has increased that the market price of labor will rise to its natural price and that the laborer will have the moderate comforts which the natural rate of wages will afford notwithstanding the tendency of wages to conform to their natural rate their market rate may in an improving society for an indefinite period be constantly above it for no sooner may the impulse which an increased capital gives to a new demand for labor be obeyed than another increase of capital may produce the same effect and thus if the increase of capital be gradual and constant the demand for labor may give a continued stimulus to an increase of people capital is that part of the wealth of a country which is employed in production and consists of food clothing tools raw materials machinery etc necessary to give effect to labor capital may increase in quantity at the same time that its value rises an addition may be made to the food and clothing of a country at the same time that more labor may be required to produce the additional quantity than before in that case not only the quantity but the value of capital will rise or capital may increase without its value increasing and even when its value is actually diminishing not only may an addition be made to the food and clothing of a country but the addition may be made by the aid of machinery without any increase and even with an absolute diminution in the proportional quantity of labor required to produce them the quantity of capital may increase while neither the whole together nor any part of it singly will have a greater value than before it may actually have a less in the first case the natural price of labor which always depends on the price of food clothing and other necessaries will rise in the second it will remain stationary or fall but in both cases the market rate of wages will rise for in proportion to the increase of capital will be the increase in the demand for labor in proportion to the work to be done will be the demand for those who are to do it in both cases to the market price of labor will rise above its natural price and in both cases it will have a tendency to conform to its natural price but in the first case this agreement will be most speedily affected the situation of the laborer will be improved but not much improved for the increased price of food and necessaries would absorb a large portion of his increased wages consequently a small supply of labor or a trifling increase in the population will soon reduce the market price to the then increased natural price of labor in the second case the condition of the laborer will be very greatly improved he will receive increased money wages without having to pay any increased price and perhaps even a diminished price for the commodities which he and his family consume and it will not be till after a great addition has been made to the population that the market price of labor will again sink to its then low and reduced natural price thus then with every improvement of society with every increase in its capital the market wages of labor will rise but the permanence of their rise will depend on the question whether the natural price of labor has also risen and this again will depend on the rise in the natural price of those necessaries on which the wages of labor are expended it is not to be understood that the natural price of labor estimated even in food and necessaries is absolutely fixed and constant it varies at different times in the same country and very materially differs in different countries footnote from an essay on the external comp trade by Robert Torrens Esquire quote the shelter and the clothing which are indispensable in one country may be no way necessary in another and a laborer in Hindustan may continue to work with perfect vigor no receiving as his natural wages only such a supply of coverings would be insufficient to preserve a laborer in Russia from perishing even in countries situated in the same climate different habits of living will often occasion variations in the natural price of labor as considerable as those which are produced by natural causes unquote the whole of this subject is most ably illustrated by colonel torrens end of footnote it essentially depends on the habits and customs of the people an English laborer would consider his wages under their natural rate and too scanty to support a family if they enabled him to purchase no other food than potatoes and to live in no better habitation than a mud cabin if these moderate demands of nature are often deemed sufficient in countries where man's life is cheap and his wants easily satisfied many of the conveniences now enjoyed in an English cottage would have been thought luxurious at an earlier period of our history from manufactured commodities always falling and raw produce always rising with the progress of society such a disproportion in their relative value is at length created that in rich countries a laborer by the sacrifice of a very small quantity only of his food is able to provide liberally for all his other wants independently of the variations in the value of money which necessarily affect money wages with which we have here supposed to have no operation as we have considered money to be uniformly of the same value it appears then that wages are subject to a rise or fall from two courses first the supply and demand of laborers secondly the price of the commodities on which the wages of labor are expended in different stages of society the accumulation of capital or of the means of employing labor is more or less rapid and must in all cases depend on the productive powers of labor the productive powers of labor are generally greatest when there is an abundance of fertile land at such periods accumulation is often so rapid that laborers cannot be supplied with the same rapidity as capital it has been calculated that under favorable circumstances population may be doubled in 25 years but under the same favorable circumstances the whole capital of a country might possibly be doubled in a shorter period in that case wages during the whole period would have a tendency to rise because the demand for labor would increase still faster than the supply in new settlements where the arts and knowledge of countries far advanced in refinement are introduced it is probable that capital has a tendency to increase faster than mankind and if the deficiency of laborers were not supplied by more populist countries this tendency would very much raise the price of labor in proportion as these countries become populist and land of a worse quality is taken into cultivation the tendency to an increase of capital diminishes for the surplus produce remaining after satisfying the wants of the existing population must necessarily be in proportion to the facility of production is to the smaller number of persons employed in production although then it is probable that under the most favorable circumstances the power of production is still greater than that of population it will not long continue so for the land being limited in quantity and differing in quality with every increased portion of capital employed on it there will be a decreased rate of production whilst the power of population continues always the same in those countries where there is abundance of fertile land but where from the ignorance indolence and barbarism of the inhabitants they are exposed to all the evils of want and famine and where it has been said that population presses against the means of subsistence a very different remedy should be applied from that which is necessary in long settled countries where from the diminishing rate of the supply of raw produce all the evils of a crowded population are experienced in the one case the evil proceeds from bad government from the insecurity of property and from a want of education in all ranks of the people to be made happier they require only to be better governed and instructed as the augmentation of capital beyond the augmentation of people would be the inevitable result no increase in the population can be too great as the powers of production are still greater in the other case the population increases faster than the funds required for its support every exertion of industry unless accompanied by a diminished rate of increase in the population will add to the evil the production cannot keep pace with it with the population pressing against the means of subsistence the only remedies are either a reduction of people or a more rapid accumulation of capital in rich countries where all the fertile land is already cultivated the latter remedy is neither very practicable nor very desirable because its effect would be if pushed very far to render all classes equally poor but in poor countries where there are abundant means of production in store from fertile land not yet brought into cultivation it is the only safe and efficacious means of removing the evil particularly as its effect would be to elevate all classes of the people the friends of humanity cannot but wish that in all countries the laboring classes should have a taste for comforts and enjoyments and that they should be stimulated by all legal means in their exertions to procure them there cannot be a better security against a super abundant population in those countries where the laboring classes have the fewest ones and are contented with the cheapest food the people are exposed to the greatest vicissitudes and miseries they have no place of refuge from calamity they cannot seek safety in a lower station they are already so low that they can fall no lower on any deficiency of the chief article of their subsistence there are few substitutes of which they can avail themselves and dearth to them is attended with almost all the evils of famine in the natural advance of society the wages of labor will have a tendency to fall as far as they are regulated by supply and demand but the supply of laborers will continue to increase at the same rate whilst the demand for them will increase at a slower rate if for instance wages were regulated by a yearly increase of capital at the rate of two percent they would fall when it accumulated only at the rate of one and a half percent they would fall still lower when it increased only at the rate of one or half a percent and would continue to do so until the capital became stationary when wages also would become stationary and be only sufficient to keep up the numbers of the actual population i say that under these circumstances wages would fall if they were regulated only by the supply and demand of laborers if we must not forget that wages are also regulated by the prices of the commodities on which they are expended as population increases these necessaries will be constantly rising in price because more labor will be necessary to produce them if then the money wages of labor should fall whilst every commodity on which the wages of labor were expended rose the laborer would be doubly affected and would be soon totally deprived of subsistence instead therefore of the money wages of labor falling they would rise but they would not rise sufficiently to enable the laborer to purchase as many comforts and necessaries as he did before the rise in the price of those commodities if his annual wages were before 24 pounds or six quarters of corn when the price was four pounds per quarter he would probably receive only the value of five quarters when corn rose to five pounds per quarter but five quarters would cost 25 pounds he would therefore receive an addition in his money wages though with that addition he would be unable to furnish himself with the same quantity of corn and other commodities which he had before consumed in his family notwithstanding then that the laborer would be really worse paid yet this increase in his wages would necessarily diminish the profits of the manufacturer for his goods would sell at no higher price and yet the expense of producing them would be increased this however will be considered in our examination into the principles which regulate profits it appears then that the same cause which raises rent namely the increasing difficulty of providing an additional quantity of food with the same proportional quantity of labor will also raise wages and therefore if money be of an unvarying value both rent and wages will have a tendency to rise with the progress of wealth and population but there is this essential difference between the rise of rent and the rise of wages the rise in the money value of rent is accompanied by an increased share of the produce not only is the landlord's money rent greater but his corn rent also he will have more corn and each defined measure of that corn will exchange for a greater quantity of all other goods which have not been raised in value the fate of the laborer will be less happy he will receive more money wages it is true but his corn wages will be reduced and not only his command of corn but his general condition will be deteriorated by his finding it more difficult to maintain the market rate of wages above their natural rate while the price of corn rises 10 percent wages will always rise less than 10 percent but rent will always rise more the condition of the laborer will generally decline and that of the landlord will always be improved when wheat was at four pounds per quarter suppose the laborer's wages to be 24 pounds per annum or the value of six quarters of wheat and suppose half his wages to be expended on wheat and the other half or 12 pounds on other things he would receive 24 pounds 14 shillings when the wheat was at four pounds four shillings eight pounds or the value of 5.83 quarters he would receive 25 pounds 10 shillings when the wheat was at four pounds 10 shillings or the value of 5.66 quarters he would receive 26 pounds eight shillings when the wheat was at four pounds 16 shillings or the value of 5.5 quarters and he would receive 27 pounds 8 shillings and 6 when the wheat was at five pounds 2 shillings and 10 or the value of 5.33 quarters he would receive these wages to enable him to live just as well and no better than before for when corn was at four pounds per quarter He would expend for three quarters of corn at four pounds per quarter, 12 pounds, and on other things, 12 pounds, totaling 24 pounds. When the wheat was four pounds, four shillings and eight, three quarters which he and his family consumed would cost him 12 pounds, 14 shillings. Other things not altered in price, 12 pounds, giving a total of 24 pounds, 14 shillings. When at four pounds, 10 shillings, three quarters of wheat would cost 13 pounds, 10 shillings, and other things, 12 pounds, giving a total of 25 pounds, 10 shillings. When at four pounds, 16 shillings, three quarters of wheat would cost 14 pounds, eight shillings. Other things, 12 pounds, giving a total of 26 pounds, eight shillings. When at five pounds, two shillings, and 10, three quarters of wheat would cost 15 pounds, eight shillings, and six. Other things, 12 pounds, giving a total of 27 pounds, eight shillings and six. In proportion, as corn became dear, he would receive less corn wages, but his money wages would always increase, whilst his enjoyments on the above supposition would be precisely the same. But as other commodities would be raised in price in proportion as raw produce entered into their composition, he would have to pay more for some of them. Although his tea, sugar, soap, candles and house rent would probably be no dearer, he would pay more for his bacon, cheese, butter, linen, shoes and cloth, and therefore even with the previously mentioned increase of wages, his situation would be comparatively worse. But it may be said that I have been considering the effect of wages on price on the supposition that gold, or the metal from which money is made, is the produce of the country in which wages varied, and that the consequences which I have deduced agree little with the actual state of things, because gold is a metal of foreign production. The circumstance, however, of gold being a foreign production, will not invalidate the truth of the argument, because it may be shown that whether it were found at home or were imported from abroad, the effects ultimately and indeed immediately would be the same. When wages rise, it is generally because the increase of wealth and capital have occasioned a new demand for labour, which will infallibly be attended with an increased production of commodities. To circulate these additional commodities, even at the same prices as before, more money is required, more of this foreign commodity from which money is made, and which can only be obtained by importation. Whenever a commodity is required in greater abundance than before, its relative value rises comparatively with those commodities with which its purchase is made. If more hats were wanted, their price would rise, and more gold would be given for them. If more gold were required, gold would rise, and hats would fall in price, as a greater quantity of hats and of all other things would then be necessary to purchase the same quantity of gold. But in the case supposed, to say that commodities will rise because wages rise, is to affirm a positive contradiction. For we first say that gold will rise in relative value in consequence of demand, and secondly, that it will fall in relative value because prices will rise, to effects which are totally incompatible with each other. To say that commodities are raised in price is the same thing as to say that money is lowered in relative value, for it is by commodities that the relative value of gold is estimated. If then all commodities rose in price, gold could not come from abroad to purchase those dear commodities, but it would go from home to be employed with advantage in purchasing the comparatively cheaper foreign commodities. It appears then that the rise of wages will not raise the prices of commodities, whether the metal from which money is made be produced at home, or in a foreign country. All commodities cannot rise at the same time without an addition to the quantity of money. This addition could not be obtained at home, as we have already shown, nor could it be imported from abroad. To purchase any additional quantity of gold from abroad, commodities at home must be cheap, not dear. The importation of gold and a rise in the price of all homemade commodities with which gold is purchased or paid for, are effects absolutely incompatible. The extensive use of paper money does not alter this question, but paper money conforms or ought to conform to the value of gold, and therefore its value is influenced by such causes only as influence the value of that metal. These then are the laws by which wages are regulated and by which the happiness of far the greatest part of every community is governed. Like all other contracts, wages should be left to the fair and free competition of the market, and should never be controlled by the interference of the legislature. The clear and direct tendency of the poor laws is in direct opposition to these obvious principles. It is not as the legislature benevolently intended to amend the condition of the poor, but to deteriorate the condition of both poor and rich. Instead of making the poor rich, they are calculated to make the rich poor. And whilst the present laws are enforced, it is quite in the natural order of things that the fund for the maintenance of the poor should progressively increase, so that it has absorbed all the net revenue of the country, or at least so much of it as the state shall leave to us after satisfying its own never-failing demands for the public expenditure. Footnote. With Mr Buchanan in the following passage, if it refers to temporary states of misery, I so far agree that, quote, the great evil of the laborer's condition is poverty, arising either from a scarcity of food or of work, and in all countries laws without number have been enacted for his relief. But there are miseries in the social state which legislation cannot relieve, and it is useful therefore to know its limits, that we may not, by aiming at what is impracticable, miss the good which is really in our power. Unquote. End of footnote. This pernicious tendency of these laws is no longer a mystery, since it has been fully developed by the able hand of Mr Malthus, and every friend to the poor must ardently wish for their abolition. Unfortunately, however, they have been so long established, and the habits of the poor have been so formed upon their operation, that to eradicate them with safety from our political system requires the most cautious and skillful management. It is agreed by all who are most friendly to a repeal of these laws, that if it be desirable to prevent the most overwhelming distress to those for whose benefit they were erroneously enacted, their abolition should be affected by the most gradual steps. It is a truth which admits not a doubt that the comforts and well-being of the poor cannot be permanently secured without some regard on their part, or some effort on the part of the legislature, to regulate the increase of their numbers, and to render less frequent among them early and improvident marriages. The operation of the system of poor laws has been directly contrary to this. They have rendered restraint superfluous, and have invited imprudence by offering it a portion of the wages of prudence and industry. Footnote. The progress of knowledge manifested upon this subject in the House of Commons since 1796 has happily not been very small, as may be seen by contrasting the Lake Report of the Committee on the Poor Laws, and the following sentiments of Mr Pitt in that year. From Hansard's Parliamentary History, volume 32, Mr Pitt said, quote, Let us make relief in cases where there are a number of children a matter of right and honour, instead of a ground of appropriation and contempt. This will make a large family a blessing, and not a curse. And this will draw a proper line of distinction between those who are able to provide for themselves by their labour, and those who, after having enriched their country with a number of children, have a claim upon the assistance for support. End of footnote. The nature of the evil points out the remedy by gradually contracting the sphere of the poor laws, by impressing on the poor the value of independence, by teaching them that they must look not to systematic or casual charity, but to their own exertions for support. The prudence and forethought are neither unnecessary nor unprofitable virtues. We shall by degrees approach a sounder and more helpful state. No scheme for the amendment of the poor laws merits the least attention, which has not their abolition for its ultimate object. And he is the best friend to the poor and to the cause of humanity, who can point out how this end can be attained with the most security and at the same time with the least violence. It is not by raising in any manner different from the present the fund from which the poor are supported that the evil can be mitigated. It would not only be no improvement, but it would be an aggravation of the distress which we wish to see removed if the fund were increased in amount, but were levied according to some lake proposals as a general fund from the country at large. The present mode of its collection and application has served to mitigate its pernicious effects. Each parish raises a separate fund for the support of its own poor, hence it becomes an object of more interest and more practicability to keep the rates low than if one general fund were raised for the relief of the poor of the whole kingdom. A parish is much more interested in an economical collection of the rate and a sparing distribution of relief when the whole saving will be for its own benefit than if hundreds of other parishes were to partake of it. It is to this cause that we must describe the fact of the poor laws not having yet absorbed all the net revenue of the country. It is to the rigor with which they are applied that we are indebted for their not having become overwhelmingly oppressive. If by law every human being wanting support could be sure to obtain it and obtain it in such a degree as to make life tolerably comfortable, theory would lead us to expect that all other taxes together would be light compared with the single one of poor rates. The principle of gravitation is not more certain than the tendency of such laws to change wealth and power into misery and weakness, to call away the exertions of labour from every object, except that of providing mere subsistence, to confound all intellectual distinction, to busy the mind continually and supplying the bodies once, until at last all classes should be infected with the plague of universal poverty. Happily these laws have been in operation during a period of progressive prosperity, when the funds for the maintenance of labour have regularly increased and when an increase of population would be naturally called for. But if our progress should become more slow, if we should attain the stationary state from which I trust we are yet far distant, then will the pernicious nature of these laws become more manifest and alarming, and then too will their removal be obstructed by many additional difficulties. The profits of stock in different employments having been shown to bear a proportion to each other and to have a tendency to vary all in the same degree and in the same direction. It remains for us to consider what is the cause of the permanent variations in the rate of profit and the consequent permanent alterations in the rate of interest. We have seen that the price of corn is regulated by the quantity of labour necessary to produce it, with that portion of capital which pays no rent. Footnote. The listener is desired to bear in mind that for the purpose of making the subject more clear, I consider money to be invariable in value, and therefore every variation of price to be referable to an alteration in the value of the commodity. End of footnote. We have seen too that all manufactured commodities rise and fall in price, in proportion as more or less labour becomes necessary to their production. Neither the farmer who cultivates that quantity of land which regulates price, nor the manufacturer who manufactures goods, sacrifice any portion of the produced for rent. The whole value of their commodities is divided into two portions only. One constitutes the profits of stock, the other the wages of labour. Supposing corn and manufactured goods always to sell at the same price, profits would be high or low in proportion as wages were low or high. But suppose corn to rise in price because more labour is necessary to produce it. That cause will not raise the price of manufactured goods in the production of which no additional quantity of labour is required. If then wages continued the same, the profits of manufacturers would remain the same. But if, as is absolutely certain, wages should rise but the rise of corn, then their profits would necessarily fall. If a manufacturer always sold his goods for the same money, for £1,000 for example, his profits would depend on the price of the labour necessary to manufacture those goods. His profits would be less when wages amounted to £800 than when he paid only £600. In proportion then as wages rose, would profits fall. But if the price of raw produce would increase, it may be asked, whether the farmer at least would not have the same rate of profits, although he should pay an additional sum for wages. Certainly not, for he will not only have to pay in common with the manufacturer an increase of wages to each labourer he employs, but he will be obliged either to pay rent or to employ an additional number of labourers to obtain the same produce, and the rise in the price of raw produce will be proportioned only to that rent or that additional number, and will not compensate him for the rise of wages. If both the manufacturer and farmer employed 10 men on wages rising from £24 to £25 per annum per man, the whole sum paid by each would be £250 instead of £240. This is however the whole addition that would be paid by the manufacturer to obtain the same quantity of commodities. But the farmer on new land would probably be obliged to employ an additional man and therefore to pay an additional sum of £25 for wages, and the farmer on the old land would be obliged to pay precisely the same additional sum of £25 for rent, without which additional labour corn would not have risen, nor rent have been increased. One will therefore have to pay £275 for wages alone, the others for wages and rent together, each £25 more than the manufacturer. For this latter £25 the farmer is compensated by the addition to the price of raw produce, and therefore his profits still conform to the profits of the manufacturer. As this proposition is important I will endeavour still further to elucidate it. We have shown that in early stages of society both the landlords and the labourers share of the value of the produce of the earth would be but small, and that it would increase in proportion to the progress of wealth and the difficulty of procuring food. We have shown too that although the value of the labourers portion will be increased by the high value of food, his real share will be diminished, whilst that of the landlord will not only be raised in value, but will also be increased in quantity. The remaining quantity of the produce of the land after the landlord and labourer are paid necessarily belongs to the farmer and constitutes the profits of his stock, but it may be alleged that though as society advances his proportion of the whole produce will be diminished, it as it will rise in value he as well as the landlord and labourer may not with standing receive a greater value. It may be said for example that when corn rose from four pounds to ten pounds, the 180 quarters obtained from the best land would sell for one thousand eight hundred pounds instead of seven hundred and twenty pounds, and therefore though the landlord and labourer be proved to have a greater value for rent and wages, still the value of the farmer's profit might also be augmented. This however is impossible as I shall now endeavour to show. In the first place the price of corn would rise only in proportion to the increased difficulty of growing it on land of a worse quality. It has been already remarked that if the labour of ten men will on land of a certain quality obtain 180 quarters of wheat, and its value be four pounds per quarter or seven hundred and twenty pounds, and if the labour of ten additional men will on the same or any other land produce only one hundred and seventy quarters in addition, wheat would rise from four pounds to four pounds four shillings and eight. For one hundred and seventy to one hundred and eighty is as four pounds to four pounds four shillings and eight. In other words as for the production of one hundred and seventy quarters the labour of ten men is necessary in the one case and only that of nine point four four in the other, the rise would be as nine point four four to ten or as four pounds to four pounds four shillings and eight. In the same manner it might be shown that if the labour of ten additional men would only produce a hundred and sixty quarters the price would further rise to four pounds ten shillings if a hundred and fifty to four pounds sixteen shillings etc etc. But when one hundred and eighty quarters were produced on the land paying no rent and its price was four pounds per quarter it is sold for seven hundred and twenty pounds and when one hundred and seventy quarters were produced on the land paying no rent and the price rose to four pounds four shillings and eight it's still sold for seven hundred and twenty pounds. So one hundred and sixty quarters at four pounds ten shillings produce seven hundred and twenty pounds and one hundred and fifty quarters at four pounds sixteen shillings produce the same sum of seven hundred and twenty pounds. Now it is evident that if out of these equal values the farmer is at one time obliged to pay wages regulated by the price of wheat at four pounds and at other times at higher prices the rate of his profits will diminish in proportion to the rise in the price of corn. In this case therefore i think it is clearly demonstrated that a rise in the price of corn which increases the money wages of the laborer diminishes the money value of the farmers profits but the case of the farmer of the old and better land will be in no way different he also will have increased wages to pay and will never retain more of the value of the produce however high may be its price than seven hundred and twenty pounds to be divided between himself and his always equal number of laborers in proportion therefore as they get more he must retain less when the price of corn was at four pounds the whole one hundred and eighty quarters belonged to the cultivator and he sold it for seven hundred and twenty pounds when corn rose to four pounds four shillings and eight he was obliged to pay the value of ten quarters out of his one hundred and eighty for rent consequently the remaining one hundred and seventy yielded him no more than the seven hundred and twenty pounds when it rose further to four pounds ten shillings he paid twenty quarters for their value for rent and consequently only retained one hundred and sixty quarters which yielded the same sum of seven hundred and twenty pounds it will be seen then that whatever rise may take place in the price of corn in consequence of the necessity of employing more labor and capital to obtain a given additional quantity of produce such rise will always be equaled in value by the additional rent or additional labor employed so that whether corn sells for four pounds four pounds ten shillings or five pounds two shillings tempents the farmer will obtain for that which remains to him after paying rent the same real value thus we see that whether the produce belonging to the farmer be one hundred and eighty one hundred and seventy one hundred and sixty or one hundred and fifty quarters he always obtains the same sum of seven hundred and twenty pounds for it the price increasing in an inverse proportion to the quantity rent then it appears always falls on the consumer and never on the farmer for if the produce of his farm should uniformly be one hundred and eighty quarters with the rise of price he would retain the value of a less quantity for himself and give the value of a larger quantity to his landlord but the deduction would be such as to leave him always the same sum of seven hundred and twenty pounds it will be seen to that in all cases the same sum of seven hundred and twenty pounds must be divided between wages and profits if the value of the raw produce from the land exceed this value it belongs to rent whatever may be its amount if there be no excess there will be no rent whether wages or profits rise or fall it is this sum of seven hundred and twenty pounds from which they must both be provided on the one hand profits can never rise so high as to absorb so much of this seven hundred and twenty pounds that enough will not be left to furnish the laborers with absolute necessaries on the other hand wages can never rise so high as to leave no portion of this sum for profits thus in every case agricultural as well as manufacturing profits are lowered by a rise in the price of raw produce if it be accompanied by a rise of wages footnote the reader is aware that we are leaving out of our consideration the accidental variations arising from bad and good seasons or from the demand increasing or diminishing by any sudden effect on the state of population we are speaking of the natural and constant not the accidental and fluctuating price of commodities end of footnote if the farmer gets no additional value for the corn which remains to him after paying rent if the manufacturer gets no additional value for the goods which he manufactures and if both are obliged to pay a greater value in wages can any point be more clearly established than that profits must fall with the rise of wages the farmer then although he pays no part of his landlord's rent that being always regulated by the price of produce and invariably falling on the consumer has however a very decided interest in keeping rent low or rather in keeping the natural price of produce low as a consumer of raw produce and of those things into which raw produce enters as a component part he will in common with all other consumers be interested in keeping the price low but he is most materially concerned with the high price of corn as it affects wages with every rise in the price of corn he will have to pay out of an equal and unvarying sum of 720 pounds an additional sum for wages for the 10 men whom he is supposed constantly to employ we have seen in treating on wages that they invariably rise with the rise in the price of raw produce on a basis assumed for the purpose of calculation it will be seen that if when wheat is at four pounds per quarter wages should be 24 pounds per annum when wheat is at four pounds for shillings eight-pence wages would be 24 pounds 14 shillings when the wheat is four pounds 10 shillings wages would be 25 pounds eight shillings Now, of the unvarying fund of £720 to be distributed between laborers and farmers, when the price of wheat is at £4, the laborers will receive £240, the farmer will receive £480. When the price of wheat is at £4 for shillings and apents, the laborers will receive £247, the farmer will receive £473. When the price of wheat is at £4.10 shillings, the laborers will receive £255, the farmer will receive £465. When the price of wheat is at £4.16 shillings, the laborers will receive £264, the farmer will receive £456. And when the price of wheat is at £5, two shillings and apents, the laborers will receive £274.05 shillings, the farmer will receive £455.15 shillings. And supposing that the original capital of the farmer was £3,000, the profits of his stock being in the first instance £480 would be at the rate of 16%. When his profits fell to £473, they would be at the rate of 15.7%. When his profits fell to £465, they would be at the rate of 15.5%. When his profits fell to £456, they would be at the rate of 15.2%. And when his profits fell to £445, they would be at the rate of 14.8%. But the rate of profits will fall still more, because the capital of the farmer it must be recollected, consists in a great measure of raw produce such as his corn and hayricks, his unthreshed wheat and barley, his horses and cows, which would all rise in price in consequence of the rise of produce. His absolute profits would fall from £408 to £445.15 shillings. But if from the cause which I have just stated, his capital should rise from £3,000 to £3,200, the rate of his profits would, when corn was at £5.2 shillings and tempants, be under 14%. If a manufacturer had also employed £3,000 in his business, he would be obliged in consequence of the rise of wages to increase his capital in order to be enabled to carry on the same business. If his commodities sold before for £720, they would continue to sell at the same price, but the wages of labour which were before £240 would rise when corn was at £5.2 shillings and tempants to £274.5 shillings. In the first case, he would have a balance of £480 as profit on the £3,000. In the second, he would have a profit only of £445.15 shillings on an increased capital, and therefore his profits would conform to the altered rate of those of the farmer. There are a few commodities which are not more or less affected in their price by the rise of raw produce, because some raw material from the land enters into the composition of most commodities. Cotton goods, linen and cloth will all rise in price with the rise of wheat, but they rise on account of the greater quantity of labour expended on the raw material from which they are made, and not because more was paid by the manufacturer to the labourers whom he employed on those commodities. In all cases, commodities rise because more labour is expended on them, and not because the labour which is expended on them is at a higher value. Articles of jewellery, of iron, of plate and of copper would not rise, because none of the raw produce from the surface of the earth enters into their composition. It may be said that I have taken it for granted that money wages would rise with a rise in the price of raw produce, but that this is by no means a necessary consequence, as the labourer may be contented with fewer enjoyments. It is true that the wages of labour may previously have been at a high level, and that they may bear some reduction. If so, the fall of profits will be checked. But it is impossible to conceive that the money price of wages should fall, or remain stationary with a gradually increasing price of necessaries, and therefore it may be taken for granted that under ordinary circumstances, no permanent rise takes place in the price of necessaries without occasioning or having been preceded by a rise in wages. The effects produced on profits would have been the same, or nearly the same, if there had been any rise in the price of those other necessaries besides food, on which the wages of labour are expended. The necessity which the labourer would be under of paying an increased price for such necessaries would oblige him to demand more wages, and whatever increases wages necessarily reduces profits. But suppose the price of silks, velvet, furniture and any other commodities not required by the labourer to rise in consequence of more labour being expended on them, would not that affect profits? Certainly not. And nothing can affect profits but arise in wages. Silks and velvets are not consumed by the labourer, and therefore cannot raise wages. It is to be understood that I am speaking of profits generally. I have already remarked that the market price of a commodity may exceed its natural or necessary price, as it may be produced in less abundance than the new demand for it requires. This, however, is but a temporary effect. The high profits on capital employed in producing that commodity will naturally attract capital to that trade. And as soon as the requisite funds are supplied, and the quantity of the commodity is duly increased, its price will fall, and the profits of the trade will conform to the general level. A fall in the general rate of profits is by no means incompatible with a partial rise in profits in particular employments. It is through the inequality of profits that capital is moved from one employment to another. Whilst then general profits are falling and gradually setting at a lower level in consequence of the rise of wages, and the increasing difficulty of supplying the increasing population with necessaries, the profits of the farmer may, for an interval of some little duration, be above the former level. An extraordinary stimulus may also be given for a certain time to a particular branch of foreign and colonial trade. But the admission of this fact by no mean invalidates the theory that profits depend on high or low wages, wages on the price of necessaries, and the price of necessaries chiefly on the price of food. Because all other requisites may be increased almost without limit. It should be recollected that prices always vary in the market, and in the first instance, through the comparative state of demand and supply. Although cloth could be furnished at 40 shillings per yard and give the usual profits of stock, it may rise to 60 or 80 shillings from a general change of fashion, or from any other cause which should suddenly and unexpectedly increase the demand or diminish the supply of it. The makers of cloth will for a time have unusual profits, but capital will naturally flow to that manufacture till the supply and demand are again at their fair level, when the price of cloth will again sink to 40 shillings, its natural or necessary price. In the same manner with every increased demand for corn, it may rise so high as to afford more than the general profits to the farmer. If there be plenty of fertile land, the price of corn will again fall to its former standard, after the requisite quantity of capital has been employed in producing it, and profits will be as before. But if there be not plenty of fertile land, if to produce this additional quantity more than the usual quantity of capital and labor be required, corn will not fall to its former level. Its natural price will be raised, and the farmer, instead of obtaining permanently larger profits, will find himself obliged to be satisfied with the diminished rate which is the inevitable consequence of the rise of wages produced by the rise of necessaries. The natural tendency of profits then is to fall, for in the progress of society and wealth, the additional quantity of food required is obtained by the sacrifice of more and more labor. This tendency, this gravitation as it were of profits, is happily checked at repeated intervals by the improvements in machinery, connected with the production of necessaries, as well as by discoveries in the science of agriculture which enable us to relinquish a portion of labor before required, and therefore to lower the price of the prime necessary of the laborer. The rise in the price of necessaries and in the wages of labor is however limited. For as soon as wages should be equal, as in the case formally stated, to £720, a whole receipts of the farmer, there must be an end of accumulation. For no capital can then yield any profit whatever, and no additional labor can be demanded, and consequently population will have reached its highest point. Long indeed before this period, the very low rate of profits will have arrested all accumulation, and almost the whole produce of the country, after paying the laborers, will be the property of the owners of land and the receivers of tithes and taxes. Thus taking the form of very imperfect basis as the grounds of my calculation, it would appear that when corn was at £20 per quarter, the whole net income of the country would belong to the landlords. But then the same quantity of labor that was originally necessary to produce 180 quarters would be necessary to produce 36, since £20 is to £4 as £180 is to £36. The farmer then who produced 180 quarters, if any such there were, for the old and new capital employed on the land would be so blended that it could in no way be distinguished, would sell the 180 quarters at £20 per quarter or £3,600. The value of 144 quarters to the landlord for rent being the difference between 36 and 180 quarters, £2,880. The value of 36 quarters to labor is 10 in number, £720, leaving nothing whatever for profit. I have supposed that at this price of £20, the laborers would continue to consume three quarters each per annum or £60 and that on the other commodities they would expend £12, 72 for each laborer and therefore 10 laborers would cost £720 per annum. In all these calculations I have been desirous only to elucidate the principle and it is scarcely necessary to observe that my whole basis is assumed at random and merely for the purposes of exemplification. The results, though different in degree, would have been the same in principle, however accurately I might have set out in stating the difference in the number of laborers necessary to obtain the successive quantities of corn required by an increasing population, the quantity consumed by the laborers' family, etc, etc. My object has been to simplify the subject and I have therefore made no allowance for the increasing price of the other necessaries besides food of the laborer, an increase which would be the consequence of the increased value of the raw materials from which they are made and which would of course further increase wages and lower profits. I have already said that long before this state of prices was to become permanent there would be no motive for accumulation when no one accumulates but with a view to make his accumulation productive and it is only when so employed that it operates on profits. Without a motive there could be no accumulation and consequently such a state of prices could never take place. The farmer and manufacturer can no more live without profit than the laborer without wages. Their motive for accumulation will diminish with every diminution of profit and will cease altogether when their profits are so low as not to afford them an adequate compensation for their trouble and the risk which they must necessarily encounter in employing their capital productively. I must again observe that the rate of profits would fall much more rapidly than I have estimated in my calculation for the value of the produce being what I have stated it under the circumstances supposed, the value of the farmer stock would be greatly increased from its necessarily consisting of many of the commodities which had risen in value. Before corn could rise from £4 to £12 this capital would probably be doubled in exchangeable value and be worth £6,000 instead of £3,000. If then his profit were £180 or 6% on his original capital profits would not at that time be really at a higher rate than 3%. For £6,000 at 3% gives £180 and on those terms only could a new farmer with £6,000 money in his pocket enter into the farming business. Many trades would derive some advantage more or less from the same source the brewer the distiller the clothier the linen manufacturer would be partly compensated for the diminution of their profits by the rise in the value of their stock of raw and finished materials but a manufacturer of hardware of jewelry and of many other commodities as well as those whose capitals uniformly consisted of money would be subject to the whole fall in the rate of profits without any compensation whatever we should also expect that however the rate of the profits of stock might diminish in consequence of the accumulation of capital on the land and the rise of wages yet that the aggregate amount of profits would increase thus supposing that with repeated accumulations of £100,000 the rate of profit should fall from 20 to 19 to 18 to 17% a constantly diminishing rate we should expect that the whole amount of profits received by those successive owners of capital would be always progressive that it would be greater when the capital was 200,000 pounds than when 100,000 pounds still greater when 300,000 pounds and so on increasing though at a diminishing rate with every increase of capital this progression however is only true for a certain time thus 19% on 200,000 pounds is more than 20 on 100,000 pounds again 18% on 300,000 pounds is more than 19% on 200,000 pounds but after capital has accumulated to a large amount and profits have fallen the further accumulation diminishes the aggregate of profits thus suppose the accumulation should be one million pounds and the profits seven percent the whole amount of profits will be seventy thousand pounds now if an addition of 100,000 pounds capital be made to the million and profits should fall to six percent 66,000 pounds or a diminution of four thousand pounds will be received by the owners of stock although the whole amount of stock will be increased from one million pounds to one million one hundred thousand pounds they can however be no accumulation of capital so long as stock yields any profit at all without it's yielding not only an increase of produce but an increase of value by employing 100,000 pounds additional capital no part of the former capital will be rendered less productive the produce of the land and labor of the country must increase and its value will be raised not only by the value of the addition which is made to the former quantity of productions but by the new value which is given to the whole produce of the land by the increased difficulty of producing the last portion of it when the accumulation of capital however becomes very great notwithstanding this increased value it will be so distributed that a less value than before will be appropriated to profits while that which is devoted to rent and wages will be increased thus with successive additions of one hundred thousand pounds to capital with a fall in the rate of profits from twenty to nineteen to eighteen to seventeen percent etc the productions annually obtained will increase in quantity and be of more than the whole additional value which the additional capital is calculated to produce from twenty thousand pounds it will rise to more than thirty nine thousand pounds and then to more than fifty seven thousand pounds and when the capital employed is a million as we before supposed if a hundred thousand pounds more be added to it and the aggregate of profits is actually lower than before more than six thousand pounds will nevertheless be added to the revenue of the country but it will be to the revenue of the landlords and laborers they will obtain more than the additional produce and will from their situation be enabled to encroach even on the former gains of the capitalist thus suppose the price of corn to be four pounds per quarter and that therefore as we before calculated of every seven hundred and twenty pounds remaining to the farmer after payment of his rent four hundred and eighty pounds were retained by him and two hundred and forty pounds were paid to his laborers when the price rose to six pounds per quarter he would be obliged to pay his laborers three hundred pounds and retained only four hundred and twenty pounds for profits he would be obliged to pay them three hundred pounds to enable them to consume the same quantity of necessaries as before and no more now if the capital employed was so largest to yield a hundred thousand times seven hundred and twenty pounds or seventy two million pounds the aggregate of profits would be forty eight million pounds when wheat was at four pounds per quarter and if by employing a larger capital a hundred and five thousand pounds times seven hundred and twenty pounds were obtained when wheat was at six pounds or seventy five million six hundred thousand pounds profits would actually fall from forty eight million pounds to forty four million one hundred thousand pounds or a hundred and five thousand times four hundred and twenty pounds and wages would rise from twenty four million pounds to thirty one million five hundred thousand pounds wages would rise because more laborers would be employed in proportion to capital and each laborer would receive more money wages but the condition of the laborer as we have already shown would be worse in as much as he would be able to command a less quantity of the produce of the country the only real gainers would be the landlords they would receive higher rents first because produce would be of higher value and secondly because they would have a greatly increased proportion of that produce although a greater value is produced a greater proportion of wheat remains of that value after paying rent is consumed by the producers and it is this and this alone which regulates profits whilst the land yields abundantly wages may temporarily rise and the producers may consume more than their accustomed portion but the stimulus which will thus be given to population will speedily reduce the laborers to their usual consumption but when poor lands are taken into cultivation or when more capital and labor are expended on the old land with a less return of produce the effect must be permanent a greater proportion of that part of the produce which remains to be divided after paying rent between the owners of stock and the laborers will be apportioned to the latter each man may and probably will have a less absolute quantity but as more laborers are employed in proportion to the whole produce retained by the farmer the value of a greater proportion of the whole produce will be absorbed by wages and consequently the value of a smaller proportion will be devoted to profits this will necessarily be rendered permanent by the laws of nature which have limited the productive powers of the land thus we again arrive at the same conclusion which we have before attempted to establish that in all countries and all times profits depend on the quantity of labor requisite to provide necessaries for the laborers on that land or with that capital which yields no rent the effects then of accumulation will be different in different countries and will depend chiefly on the fertility of the land however extensive a country may be where the land is of a poor quality and where the importation of food is prohibited the most moderate accumulations of capital will be attended with great reductions in the rate of profit and a rapid rising rent and on the contrary a small but fertile country particularly if it freely permits the importation of food may accumulate a large stock of capital without any great diminution in the rate of profits or any great increase in the rent of land in the chapter on wages we have endeavored to show that the money price of commodities would not be raised by a rise of wages either on the supposition that gold the standard of money was the produce of this country or that it was imported from abroad but if it were otherwise if the prices of commodities were permanently raised by high wages the proposition would not be less true which asserts that high wages invariably affect the employers of labor by depriving them of a portion of their real profits supposing the Hatter, the Hosea and the Shoemaker each paid 10 pounds more wages in the manufacture of a particular quantity of their commodities and that the price of hats stockings and shoes rose by a sum sufficient to repay the manufacturer the 10 pounds their situation would be no better than if no such rise took place if the Hosea sold his stockings for 110 pounds instead of 100 pounds his profits would be precisely the same money amount as before but as he would obtain in exchange for this equal sum one tenth less of hats shoes and every other commodity and as he could with his former amount of savings employ fewer laborers at the increased wages and purchase fewer raw materials at the increased prices he would be in no better situation than if his money profits had been really diminished in amount and everything had remained at its former price thus then I have endeavored to show first that a rise of wages would not raise the price of commodities but would invariably lower profits and secondly that if the prices of all commodities could be raised still the effect on profits would be the same and that in fact the value of the medium only in which prices and profits are estimated would be lowered Chapter 7 On Foreign Trade No extension of foreign trade will immediately increase the amount of value in a country although it will very powerfully contribute to increase the mass of commodities and therefore the sum of enjoyments as the value of all foreign goods is measured by the quantity of the produce of our land and labor which is given in exchange for them we should have no greater value if by the discovery of new markets we obtained double the quantity of foreign goods in exchange for a given quantity of ours If by the purchase of English goods to the amount of £1,000 a merchant can obtain a quantity of foreign goods which he can sell in the English market for £1,200 he will obtain 20% profit by such an employment of his capital but neither his gains nor the value of the commodities imported will be increased or diminished by the greater or smaller quantity of foreign goods obtained whether for example he imports 25 or 50 pipes of wine his interest can be no way affected if at one time the 25 pipes and at another the 50 pipes equally sell for £1,200 in either case his profit will be limited to £200 or 20% on his capital and in either case the same value will be imported into England if the 50 pipes sold for more than £1,200 the profits of this individual merchant would exceed the general rate of profits and capital would naturally flow into this advantageous trade till the fall of the price of wine had brought everything to the former level it has indeed been contended that the great profits which are sometimes made by particular merchants in foreign trade will elevate the general rate of profits in the country and that the abstraction of capital from other employments to partake of the new and beneficial foreign commerce will raise prices generally and thereby increase profits it has been said by high authority that less capital being necessarily devoted to the growth of corn to the manufacture of cloth, hats and shoes etc while the demand continues the same the price of these commodities will be so increased that the farmer, hatter, clothier and shoemaker will have an increase of profits as well as the foreign merchant they who hold this argument agree with me that the profits of different employments have a tendency to conform to one another to advance and recede together our variance consists in this they contend that the equality of profits will be brought about by the general rise of profits and I'm of opinion that the profits of the favoured trade will speedily subside to the general level for first I deny that less capital will necessarily be devoted to the growth of corn to the manufacture of cloth, hats, shoes etc unless the demand for these commodities be diminished and if so their price will not rise in the purchase of foreign commodities either the same, a larger or a less portion of the produce of the land and labour of England will be employed if the same portion be so employed then will the same demand exist for cloth, shoes, corn and hats as before and the same portion of capital will be devoted to their production if in consequence of the price of foreign commodities being cheaper a less portion of the annual produce of the land and labour of England is employed in the purchase of foreign commodities more will remain for the purchase of other things if there be a greater demand for hats, shoes, corn etc of them before which there may be the consumers of foreign commodities having an additional portion of their revenue disposable the capital is also disposable with which the greater value of foreign commodities was before purchased so that with the increased demand for corn, shoes etc there exists also the means of procuring an increased supply and therefore neither prices nor profits can permanently rise if more of the produce of the land and labour of England be employed in the purchase of foreign commodities less can be employed in the purchase of other things and therefore fewer hats, shoes etc will be required at the same time that capital is liberated from the production of shoes, hats etc more must be employed in manufacturing those commodities with which foreign commodities are purchased and consequently in all cases the demand for foreign and home commodities together as far as regards value is limited by the revenue and capital of the country if one increases the other must diminish if the quantity of wine imported in exchange for the same quantity of English commodities be doubled the people of England can either consume double the quantity of wine that they did before or the same quantity of wine and a greater quantity of English commodities if my revenue had been £1,000 with which I purchased annually one pipe of wine for £100 and a certain quantity of English commodities for £900 when wine felt of £50 per pipe I might lay out the £50 saved either in the purchase of an additional pipe of wine or in the purchase of more English commodities if I bought more wine and every wine drinker did the same the foreign trade would not be in the least disturbed the same quantity of English commodities would be exported in exchange for wine and we should receive double the quantity though not double the value of wine but if I and others contented ourselves with the same quantity of wine as before fewer English commodities would be exported and the wine drinkers might either consume the commodities which were before exported or any others for which they had an inclination the capital required for their production would be supplied by the capital liberated from the foreign trade there are two ways in which capital may be accumulated it may be saved either in consequence of increased revenue or of diminished consumption if my profits are raised from £1,000 to £1,200 while my expenditure continues the same I accumulate annually £200 more than I did before if I save £200 out of my expenditure while my profits continue the same the same effect will be produced £200 per annum will be added to my capital the merchant who imported wine after profits had been raised from 20% to 40% instead of purchasing his English goods for £1,000 must purchase them for £857 to shillings and tendons still selling the wine which he imports in return for those goods for £1,200 or if he continued to purchase his English goods for £1,000 must raise the price of his wine for £1,400 he would thus obtain 40 instead of 20% profit on his capital but if in consequence of the cheapness of all the commodities on which his revenue was expended he and all other consumers could save the value of £200 out of every £1,000 they before expended they would more effectively add to the real wealth of the country in one case the savings would be made in consequence of an increase of revenue in the other in consequence of diminished expenditure if by the introduction of machinery the generality of the commodities on which revenue was expended fell 20% in value I should be enabled to save as effectively as if my revenue had been raised 20% but in one case the rate of profits is stationary in the other it is raised 20% if by the introduction of cheap foreign goods I can save 20% from my expenditure the effect will be precisely the same as if machinery had lowered the expense of their production but profits would not be raised it is not therefore in consequence of the extension of the market that the rate of profit is raised although such extension may be equally efficacious in increasing the mass of commodities and may thereby enable us to augment the funds destined for the maintenance of labour and the materials on which labour may be employed it is quite as important to the happiness of mankind that our enjoyment should be increased by the better distribution of labour by each country producing those commodities for which by its situation, its climate and its other natural or artificial advantages it is adapted and by there exchanging them for the commodities of other countries as that they should be augmented by a rise in the rate of profits it has been my endeavour to show throughout this work that the rate of profits can never be increased but by a fall in wages and that there can be no permanent fall of wages but in consequence of a fall of the necessaries on which wages are expended if therefore by the extension of foreign trade or by improvements in machinery the food and necessaries of the labourer can be brought to market at a reduced price profits will rise if instead of growing our own corn or manufacturing the clothing and other necessaries of the labourer we discover a new market from which we can supply ourselves with these commodities at a cheaper price wages will fall and profits will rise but if the commodities obtained at a cheaper rate by the extension of foreign commerce or by the improvement of machinery be exclusively the commodities consumed by the rich no alteration will take place in the rate of profits the rate of wages would not be affected although wine, velvet, silks and other expensive commodities should fall 50% and consequently profits would continue unaltered foreign trade then though highly beneficial to a country as it increases the amount and variety of the objects on which revenue may be expended and affords by the abundance and cheapness of commodities incentives to saving and to the accumulation of capital has no tendency to raise the profits of stock unless the commodities imported be of that description on which the wages of labour are expended the remarks which have been made respecting foreign trade apply equally to home trade the rate of profits is never increased by a better distribution of labour by the invention of machinery by the establishment of roads and canals or by any means of a bridging labour either in the manufacture or in the conveyance of goods these are causes which operate on price and never fail to be highly beneficial to consumers since they enable them with the same labour or with the value of the produce of the same labour to obtain in exchange a greater quantity of the commodity to which the improvement is applied but they have no effect whatever on profit on the other hand every diminution in the wages of labour raises profits but produces no effect on the price of commodities one is advantageous to all classes for all classes are consumers the other is beneficial only to producers they gain more but everything remains at its former price in the first case they get the same as before but everything on which their gains are expended is diminished in exchangeable value the same rule which regulates the relative value of commodities in one country does not regulate the relative value of the commodities exchanged between two or more countries under a system of perfectly free commerce each country naturally devotes its capital and labour to such employments as are most beneficial to each this pursuit of individual advantage is admirably connected with the universal good of the whole by stimulating industry, by regarding ingenuity and by using most efficaciously the peculiar powers bestowed by nature it distributes labour most effectively and most economically while by increasing the general mass of productions it diffuses general benefit and binds together by one common tie of interest and intercourse the universal society of nations throughout the civilized world it is this principle which determines that wine shall be made in France and Portugal that corn shall be grown in America and Poland and that hardware and other goods shall be manufactured in England in one and the same country profits are generally speaking always on the same level or differ only as the employment of capital may be more or less secure and agreeable it is not so between different countries if the profits of capital employed in Yorkshire should exceed those of capital employed in London capital would speedily move from London to Yorkshire and an equality of profits would be affected but if in consequence of the diminished rate of production in the lands of England from the increase of capital and population wages should rise and profits fall it would not follow that capital and population would necessarily move from England to Holland or Spain or Russia where profits might be higher if Portugal had no commercial connection with other countries instead of employing a great part of her capital and industry in the production of wines with which she purchases for her own use the cloth and hardware of other countries she would be obliged to devote a part of that capital to the manufacture of those commodities which she would thus obtain probably inferior in quality as well as quantity the quantity of wine which she shall give in exchange for the cloth of England is not determined by the respective quantities of labour devoted to the production of each as it would be if both commodities were manufactured in England or both in Portugal England may be so circumcised that to produce the cloth may require the labour of 100 men for one year and if she attempted to make the wine it might require the labour of 120 men for the same time England would therefore find it her interest to import wine and to purchase it by the exportation of cloth to produce the wine in Portugal might require only the labour of 80 men for one year and to produce the cloth in the same country might require the labour of 90 men for the same time it would therefore be advantageous for her to export wine in exchange for cloth this exchange might even take place notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England though she could make the cloth with the labour of 90 men she would import it from a country where it required the labour of 100 men to produce it because it would be advantageous to her rather to employ her capital in the production of wine for which she would obtain more cloth from England than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth thus England would give the produce of the labour of 100 men for the produce of the labour of 80 such an exchange could not take place between the individuals of the same country the labour of 100 Englishmen could not be given for that of 80 Englishmen but the produce of the labour of 100 Englishmen may be given for the produce of the labour of 80 Portuguese 60 Russians or 120 East Indians the difference in this respect between a single country and many is easily accounted for by considering the difficulty with which capital moves from one country to another to seek a more profitable employment and the activity with which it invariably passes from one province to another in the same country footnote it would appear then that a country possessing very considerable advantages in machinery and skill and which may therefore be enabled to manufacture commodities with much less labour than her neighbours may, in return for such commodities import a portion of the corn required for its consumption even if it's land were more fertile and corn could be grown with less labour than in the country from which it was imported two men can both make shoes and hats and one is superior to the other in both employments but in making hats it can only exceed his competitor by one fifth or 20% in making shoes he can excel him by one third or 33% would it not be for the interest of both that the superior man should employ himself exclusively in making shoes and the inferior man in making hats end of footnote it would undoubtedly be advantageous to the capitalists of England and to the consumers in both countries that under such circumstances the wine and the cloth should both be made in Portugal and therefore that the capital and labour of England employed in making cloth should be removed to Portugal for that purpose in that case the relative value of these commodities would be regulated by the same principle as if one were the producer of Yorkshire and the other of London and in every other case if capital freely flowed towards those countries where it could be most profitably employed there could be no difference in the rate of profit and no other difference in the real or labour price of commodities than the additional quantity of labour required to convey them to the various markets where they were to be sold experience however shows that the fancied or real insecurity of capital were not under the immediate control of its owner together with the natural disinclination which every man has to quit the country of his birth and connections and entrust himself with all his habits fixed to a strange government and new laws checks the emigration of capital these feelings which I should be sorry to see weakened induce most men of property to be satisfied with a low rate of profits in their own country rather than seek a more advantageous employment for their wealth in foreign nations gold and silver having been chosen for the general medium of circulation they are by the competition of commerce distributed in such proportions amongst the different countries of the world to accommodate themselves to the natural traffic which would take place if no such metals existed and the trade between countries were purely a trade of barter thus cloth cannot be imported into Portugal unless it sell there for more gold than it cost in the country from which it was imported and wine cannot be imported into England unless it will sell for more there than it cost in Portugal if the trade were purely a trade of barter it could only continue whilst England could make cloths so cheapest to obtain a greater quantity of wine with a given quantity of labour by manufacturing cloth than by growing vines and also whilst the industry of Portugal were attended by the reverse effects now suppose England to discover a process for making wine so that it should become her interest rather to grow it than import it she would naturally divert a portion of her capital foreign trade to the home trade she would cease to manufacture cloth for exportation and would grow wine for herself the money price of these commodities would be regulated accordingly wine would fall here while cloth continued at its former price and in Portugal no alteration would take place in the price of either commodity cloth would continue for some time to be exported from this country because its price would continue to be higher in Portugal than here but money instead of wine would be given in exchange for it till the accumulation of money here and its diminution abroad should so operate on the relative value of cloth in the two countries that it would cease to be profitable to export it if the improvement in making wine were of a very important description it might become profitable for the two countries to exchange employments for England to make all the wine and Portugal all the cloth consumed by them but this could be affected only by a new distribution of the precious metals which should raise the price of cloth in England and lower it in Portugal the relative price of wine would fall in England in consequence of the real advantage from the improvement of its manufacture that is to say its natural price would fall the relative price of cloth would rise there from the accumulation of money thus suppose before the improvement in making wine in England the price of wine here were 50 pounds per pipe and the price of a certain quantity of cloth were 45 pounds whilst in Portugal the price of the same quantity of wine was 45 pounds and that of the same quantity of cloth 50 pounds wine would be exported from Portugal with a profit of 5 pounds and cloth from England with a profit of the same amount suppose that after the improvement wine falls to 45 pounds in England the cloth continuing at the same price every transaction in commerce is an independent transaction whilst a merchant can buy cloth in England for 45 pounds and sell it with the usual profit in Portugal he will continue to export it from England his business is simply to purchase English cloth and to pay for it by a bill of exchange which he purchases with Portuguese money it is to him of no importance what becomes of this money he has discharged his debt by the remittance of the bill his transaction is undoubtedly regulated by the terms on which he can obtain this bill but they are known to him at the time and the causes which may influence the market price of bills or the rate of exchange and the duration of his if the markets be favourable for the exportation of wine from Portugal to England the exporter of the wine will be a seller of a bill which will be purchased either by the importer of the cloth or by the person who sold him his bill and thus without the necessity of money passing from either country the exporters in each country will be paid for their goods without having any direct transaction with each other the money paid in Portugal by the importer of cloth will be paid to the Portuguese exporter of wine and in England by the negotiation of the same bill the exporter of the cloth will be authorised to receive its value from the importer of wine but if the prices of wine were such that no wine could be exported to England the importer of cloth would equally purchase a bill but the price of that bill would be higher from the knowledge which the seller of it would possess that there was no counter bill in the market by which he could ultimately settle the transactions between the two countries he might know that the gold or silver money which he received in exchange for his bill must be actually exported to his correspondent in England to enable him to pay the demand which he had authorised to be made upon him and he might therefore charge in the price of his bill all the expenses to be incurred together with his fair and usual profit if then this premium for a bill on England should be equal to the profit on importing cloth the importation would of course cease but if the premium on the bill were only 2% if to be enabled to pay a debt in England 100 pounds, 102 pounds should be paid in Portugal whilst cloth which cost 45 pounds would sell for 50 pounds cloth would be imported bills would be bought and money would be exported till the diminution of money in Portugal and its accumulation in England had produced such a state of prices as would make it no longer profitable to continue these transactions but the diminution of money in one country and its increase in another did not operate on the price of one commodity only but on the prices of all and therefore the price of wine and cloth will be both raised in England and both lowered in Portugal the price of cloth from being 45 pounds in one country and 50 pounds in the other would probably fall to 49 pounds or 48 pounds in Portugal and rise to 46 pounds or 47 pounds in England and not afford a sufficient profit after paying a premium for a bill to induce any merchant to import that commodity it is thus that the money of each country is apportioned to it in such quantities that it may be necessary to regulate a profitable trade of barter England exported cloth in exchange for wine because by so doing her industry was rendered more productive to her she had more cloth and wine than 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 in producing wine let there be more difficulty in England in producing cloth or in Portugal in producing wine or let there be more facility in England in producing wine or in Portugal in producing cloth and the trade must immediately cease no change whatever takes place in the circumstances of Portugal but England finds that she can employ her labour more productively in the manufacture of wine and instantly the trade of barter between the two countries changes not only is the exportation of wine from Portugal stopped but a new distribution of the precious metals takes place and her importation of cloth is also prevented both countries would probably find it their interest to make their own wine and their own cloth but this singular result would take place in England though wine would be cheaper cloth would be elevated in price more would be paid for it by the consumer while in Portugal the consumers both of cloth and of wine would be able to purchase those commodities cheaper in the country where the improvement was made prices would be enhanced in that where no change had taken place but where they had been deprived of a profitable branch of foreign trade prices would fall this however is only a seeming advantage to Portugal the quantity of cloth and wine together produced in that country would be diminished while the quantity produced in England would be increased money would in some degree have changed its value in the two countries it would be lowered in England and raised in Portugal estimated in money the whole revenue of Portugal would be diminished estimated in the same medium the whole revenue of England would be increased thus then it appears that the improvement of the manufacture in any country tends to alter the distribution of the precious metals amongst the nations of the world it tends to increase the quantity of commodities at the same time that it raises general prices in the country where the improvement takes place to simplify the question I have been supposing that trade between two countries to be confined to two commodities to wine and cloth but it is well known that many in various articles enter into the list of exports and imports by the abstraction of money from one country the accumulation of it in another all commodities are affected in price and consequently encouragement is given to the exportation of many more commodities besides money which will therefore prevent so great an effect from taking place on the value of money in the two countries as might otherwise be expected besides the improvements in arts and machinery there are various other courses which are constantly operating on the natural course of trade and which interfere with the equilibrium and the relative value of money bounties on exportation new taxes on commodities sometimes by their direct and at other times by their indirect operation disturb the natural trade of barter and produce a consequent necessity of importing or exporting money in order that prices may be accommodated to the natural course of commerce and this effect is produced not only in the country where the disturbing cause takes place but in a greater or less degree in every country of the commercial world this will in some measure account for the different value of money in different countries it will explain to us why the prices of home commodities and those of great bulk though of comparatively small value are independently of other causes higher in those countries where manufacturers flourish of two countries having precisely the same population and the same quantity of land of equal fertility and cultivation with the same knowledge too of agriculture the prices of raw products will be highest in that weather greater skill and the better machinery is used in the manufacture of exportable commodities the rate of profits will probably differ but little for wages or the real reward of the laborer may be the same in both but those wages as well as raw produce will be rated higher in money in that country into which from the advantages attending their skill and machinery an abundance of money is imported in exchange for their goods of these two countries if one had the advantage in the manufacture of goods of one quality and the other in the manufacture of goods of another quality there would be no decided influx of the precious metals either but if the advantage very heavily preponderated in favor of either that effect would be inevitable in the former part of this work we have assumed for the purpose of argument that money always continued of the same value we are now endeavouring to show that besides the ordinary variations in the value of money and those which are common to the whole commercial world there are also partial variations to which money is subject in particular countries and in fact that the value of money is never the same depending as it does on relative taxation on manufacturing skill on the advantages of climate, natural productions and many other causes although however money is subject to such perpetual variations and consequently the prices of the commodities which are common to most countries are also subject to considerable difference yet no effect will be produced on the rate of profits either from the influx or efflux of money capital will not be increased because the circulating medium is augmented if the rent paid by the farmer to his landlord and the wages to his labourers be 20% higher in one country than another and if at the same time the nominal value of the farmer's capital be 20% more it will receive precisely the same rate of profits although he should sell his raw produce 20% higher profits it cannot be too often repeated depend on wages not on nominal but real wages not on the number of pounds that may be annually paid to the labourer and on the number of days work necessary to obtain those pounds wages may therefore be precisely the same in two countries they may bear too the same proportion to rent and to the whole produce obtained from the land although in one of those countries the labourer should receive 10 shillings per week and in the other 12 in the early states of society when manufacturers have made little progress and the produce of all countries is nearly simmer consisting of the bulk in most useful commodities the value of money in different countries will be regulated by their distance from the mines which supply the precious metals but as the arts and improvements of society advance and different nations excel in particular manufacturers although distance will still enter into the calculation the value of the precious metals will be chiefly regulated by the superiority of those manufacturers suppose all nations to produce corn capital and coarse clothing only and that it was by the exportation of such commodities that gold could be obtained from the countries which produced them or from those who held them in subjection gold would naturally be of greater exchangeable value in Poland than in England on account of the greater expense of sending such a bulky commodity as corn the more distant voyage and also the greater expense attending the conveying of gold to Poland this difference in the value of gold or which is the same thing this difference in the price of corn in the two countries would exist although the facilities of producing corn in England should far exceed those of Poland the productivity of the land and the superiority and skill and implements of the labourer if however Poland should be the first to improve her manufacturers if she should succeed in making a commodity which was generally desirable including great value in little bulk or if she should be exclusively blessed with some natural production generally desirable and not possessed by other countries she would obtain an additional quantity of gold in exchange for this commodity which would operate on the price of her corn cattle and coarse clothing the advantage of distance would probably be more than compensated by the advantage of having an exportable commodity of great value and money would be permanently of lower value in Poland than in England if on the contrary the advantage of skill and machinery were possessed by England another reason would be added to that which before existed why gold should be less valuable in England than in Poland and why corn, cattle and clothing should be at a higher price in the former country these I believe to be the only two causes which regulate the comparative value of money in the different countries of the world although taxation occasions a disturbance of the equilibrium of money it does so by depriving the country in which it is imposed of some of the advantages attending skill, industry and climate it has been my endeavour carefully to distinguish between a low value of money and a high value of corn or any other commodity with which money may be compared these have been generally considered as meaning the same thing but it is evident that when corn rises from 5 to 10 shillings of bushel it may be owing either to a fall in the value of money or to a rise in the value of corn thus we have seen that from the necessity of having recourse successively to land of a worse and worse quality in order to feed an increasing population corn must rise in relative value to other things if therefore money continued permanently of the same value corn will exchange for more of such money that is to say it will rise in price the same rise in the price of corn will be produced by such improvement of machinery and manufacturers as shall enable us to manufacture commodities with peculiar advantages for the influx of money will be the consequence will fall in value and therefore exchange for less corn but the effects resulting from a high price of corn when produced by the rise in the value of corn and when caused by a fall in the value of money are totally different in both cases the money price of wages will rise but if it be in consequence of all in the value of money not only wages and corn but all other commodities will rise if the manufacturer has more to pay for wages he will receive more for his manufactured goods and the rate of profits will remain unaffected but when the rise in the price of corn is the effect of the difficulty of production profits will fall but the manufacturer will be obliged to pay more wages and will not be able to remunerate himself by raising the price of his manufactured commodity any improvement in the facility of working the mines by which the precious metals may be produced with a less quantity of labor will sink the value of money generally it will then exchange for fewer commodities in all countries but when any particular country excels in manufacturers so is to occasion an influx of money towards it the value of money will be lower and the prices of corn and labor will be relatively higher in that country than in any other this higher value of money will not be indicated by the exchange bills may continue to be negotiated at par although the prices of corn and labor should be 10, 20 or 30 percent higher in one country than another under the circumstances supposed such a difference of prices is the natural order of things and the exchange can only be at par when a sufficient quantity of money is introduced into the country excelling in manufacturers so is to raise the price of it's corn and labor if foreign countries should prohibit the exportation of money and could successfully enforce obedience to such a law they might indeed prevent the rise in the prices of the corn and labor of the manufacturing country for such rise can only take place after the influx of the precious metals supposing paper money not to be used but they could not prevent the exchange from being very unfavorable to them if England were the manufacturing country and it were possible to prevent the importation of money the exchange with France Holland and Spain might be 5, 10 or 20 percent against those countries whenever the current of money is forcibly stopped and when money is prevented from settling at its just level there are no limits to the possible variations of the exchange the effects are similar to those which follow when a paper money not exchangeable for specie at the will of the holder is forced into circulation such a currency is necessarily confined to the country where it is issued it cannot when to abundant infuse itself generally amongst other countries the level of circulation is destroyed and the exchange will inevitably be unfavorable to the country where it is excessive in quantity just so would be the effects of a metallic circulation if by forcible means by laws which could not be evaded money should be detained in a country when the stream of trade gave it an impetus towards other countries when each country has precisely the quantity of money which it ought to have money will not indeed be of the same value in each for with respect to many commodities it may differ 5, 10 or even 20 percent but the exchange will be at par 100 pounds in England or the silver which is in 100 pounds will purchase a bill of 100 pounds or an equal quantity of silver in France, Spain or Holland in speaking of the exchange and the comparative value of money in different countries we must not in the least refer to the value of money estimated in commodities in either country the exchange is never ascertained by estimating the comparative value of money in corn, cloth or any commodity whatever but by estimating the value of the currency of one country or the currency of another it may also be ascertained by comparing it with some standard common to both countries if a bill on England for 100 pounds will purchase the same quantity of goods in France or Spain that a bill on Hamburg for the same sum will do the exchange between Hamburg and England is at par but if a bill on England for 130 pounds will purchase no more than a bill on Hamburg for 100 pounds the exchange is 30 percent against England in France may purchase a bill or the right of receiving 101 pounds in Holland 102 pounds in France and 105 pounds in Spain the exchange with England is in that case said to be 1 percent against Holland 2 percent against France and 5 percent against Spain it indicates that the level of currency is higher than it should be in those countries and the comparative value of their currencies and that of England would be immediately restored to par by abstracting from theirs or by adding to that of England those who maintained that our country was depreciated during the last 10 years when the exchange varied from 20 to 30 percent against this country have never contended as they have been accused of doing that money could not be more valuable in one country than another as compared with various commodities but they did contend that 130 pounds could not be detained in England unless it was depreciated when it was of no more value estimated in the money of Hamburg or of Holland than the bullion in 100 pounds by sending 130 good English pounds sterling to Hamburg even at an expense of 5 pounds I should be possessed there of 125 pounds what then could make me consent to give 130 pounds for a bill which would give me 100 pounds in Hamburg but that my pounds were not good pounds sterling they were deteriorated were degraded in intrinsic value below the pounds sterling of Hamburg and if actually sent there at an expense of 5 pounds would sell only for 100 pounds with metallic pounds sterling it is not denied that my 130 pounds would procure me 125 pounds in Hamburg but with paper pounds sterling I can only obtain 100 pounds and yet it was maintained that 130 pounds in paper was of equal value with 130 pounds in silver or gold some indeed more reasonably maintained that 130 pounds in paper was not of equal value with 130 pounds in metallic money but they said that it was the metallic money which had changed its value and not the paper money they wished to confine the meaning of the word depreciation to an actual fall of value and not to a comparative difference between the value of money and the standard by which by law it is regulated 100 pounds of English money was formally of equal value with and could purchase 100 pounds of Hamburg money in any other country a bill of 100 pounds on England or on Hamburg could purchase precisely the same quantity of commodities to obtain the same things I was late obliged to give 130 pounds English money when Hamburg could obtain them for 100 pounds Hamburg money if English money was of the same value then as before Hamburg money must have risen in value but where is the proof of this how is it to be ascertained whether English money has fallen or Hamburg money has risen there is no standard by which this can be determined it is a plea which admits of no proof and can neither be positively affirmed nor positively contradicted the nations of the world must have been early convinced that there was no standard of value in nature to which they might unerringly refer and therefore chose a medium which on the whole appeared to them less variable than any other commodity to this standard we must conform till the law has changed until some other commodity is discovered by the use of which we should obtain a more standard than that which we have established while gold is exclusively the standard in this country money will be depreciated when a pound sterling is not of equal value with 5 penny weights and 3 grains of standard gold and that whether gold rises or falls in general value chapter 8 on taxes taxes are a portion of the produce of the land and labour of a country placed at the disposal of the government and are always ultimately paid either from the capital or from the revenue of the country we have already shown how the capital of a country is either fixed or circulating according as it is of a more or less of a durable nature it is difficult to define strictly where the distinction between circulating and fixed capital begins but there are almost infinite degrees in the durability of capital the food of a country is consumed and reproduced at least once in every year the clothing of the labourer is probably not consumed and reproduced in less than 2 years whilst his house and furniture are calculated or for a period of 10 or 20 years when the annual productions of a country more than replace its annual consumption it is said to increase its capital when its annual consumption is not at least replaced by its annual production it is said to diminish its capital capital may therefore be increased by an increased production or by a diminished unproductive consumption if the consumption of the government when increased by the levy of the additional taxes be met either by an increased production or by a diminished consumption on the part of the people the taxes will fall upon revenue and the national capital will remain unimpaired but if there be no increased production or diminished unproductive consumption on the part of the people the taxes will necessarily fall on capital that is to say they will impair the fund allotted to productive consumption footnote it must be understood that all the productions of a country are consumed but it makes the greatest difference imaginable whether they are consumed by those who reproduce or by those who do not reproduce another value when we say that revenue is saved and added to capital what we mean is that the portion of revenue so said to be added to capital is consumed by productive instead of unproductive laborers there can be no greater error than in supposing that capital is increased by non-consumption if the price of labor should rise so high that notwithstanding the increase of capital no more could be employed I should say that such increase of capital would be still unproductively consumed end of footnote in proportion as the capital of a country is diminished its productions will be necessarily diminished and therefore if the same unproductive expenditure on the part of the people and of the government continue with a constantly diminishing annual reproduction the resources of the people in the state will fall away with increasing rapidity and distress and ruin will follow notwithstanding the immense expenditure of the English government during the last 20 years there can be little doubt but that the increased production on the part of the people has more than compensated for it the national capital has not merely been unimpaired it has been greatly increased and the annual revenue of the people even after the payment of their taxes is probably greater at the present time than at any former period of our history for the proof of this we might refer to the increase of population to the extension of agriculture to the increase of shipping and manufacturers to the building of docks to the opening of numerous canals as well as to many other expensive undertakings all denoting an increase both of capital and of annual production still, however it is certain that but for taxation this increase of capital would have been much greater there are no taxes which have not a tendency to lessen the power to accumulate all taxes must either fall on capital or revenue if they encroach on capital they must proportionably diminish that fund by whose extent the extent of the productive industry of the country must always be regulated and if they fall on revenue they must either lessen accumulation or save the amount of tax by making a corresponding diminution of their former unproductive consumption of the necessaries and luxuries of life some taxes will produce these effects in a much greater degree than others but the great evil of taxation is to be found not so much in any selection of its objects as in the general amount of its effects taken collectively taxes are not necessarily taxes on capital because they are laid on capital nor on income because they are laid on income if from my income of 1,000 pounds per annum I am required to pay 100 pounds it will really be a tax on my income should I be content with the expenditure of the remaining 900 pounds and it will be a tax on capital if I continue to spend 1,000 pounds the capital from which my income of 1,000 pounds is derived may be of the value of 10,000 pounds a tax of 1% on such capital would be 100 pounds but my capital would be unaffected if after paying this tax I in like manner contented myself with the expenditure of 900 pounds the desire which every man has to keep his station in life and to maintain his wealth at the height which it has once attained occasions most taxes whether laid on capital or on income to be paid from income and therefore as taxation proceeds or as government increases its expenditure the annual enjoyment of the people must be diminished unless they are enabled proportionally to increase their capitals and income it should be the policy of governments to encourage a disposition to do this in the capital and never to lay such taxes as will inevitably fall on capital since by so doing they impair the funds for the maintenance of labor and thereby diminish the future production of the country in England this policy has been neglected in taxing the probates of wills in the legacy duty and in all taxes affecting the transference of property from the dead to the living if a legacy of 1,000 pounds be subject to a tax of 100 pounds the legatee considers his legacy as only 900 pounds and feels no particular motive to save the 100 pounds duty from his expenditure and thus the capital of the country is diminished but if he had really received 1,000 pounds and had been required to pay 100 pounds as a tax on income on wine or horses or on servants he would probably have diminished or rather not increase his expenditure by that sum and the capital of the country would have been unimpaired taxes upon the transference of property from the dead to the living says Adam Smith for finally as well as immediately upon the persons to whom the property is transferred taxes on the sale of land fall altogether upon the seller the seller is almost always under the necessity of selling and must therefore take such a price as he can get the buyer is scarce ever under the necessity of buying and will therefore only give such a price as he likes he considers what the land will cost him in tax and price together the more he is obliged to pay in the way of tax the less he will be disposed to give in the way of price he will almost always upon a necessitous person and must therefore be very cruel and oppressive stamp duties and duties upon the registration of bonds and contracts for borrowed money fall altogether upon the borrower and in fact are always paid by him duties of the same kind upon law proceedings fall upon the suitors they reduce to both the capital value of the subject in dispute the more it costs to acquire any property the less must be the neat value of it when acquired all taxes upon the transference of property of every kind so far as they diminish the capital value of that property tend to diminish the funds destined for the maintenance of labour they are all more or less unthrifty taxes that increase the revenue of the sovereign which seldom maintains any but unproductive labourers at the expense of the capital of the people which maintains none but productive but this is not the only objection to taxes on the transference of property they prevent the national capital from being distributed in the way most beneficial to the community for the general prosperity there cannot be too much facility given to the conveyance and exchange of all kinds of property as it is by such means that capital of every species is likely to find its way into the hands of those who will best employ it in increasing the productions of the country why? asks Mr. Sey does an individual wish to sell his land it is because he has another employment in view in which his funds will be more productive why does another wish to purchase this same land? it is to employ a capital which brings him in too little which was unemployed or the use of which he thinks susceptible of improvement this exchange will increase the general income since it increases the income of these parties but if the charges are so exorbitant as to prevent the exchange they are an obstacle to this increase of the general income those taxes however are easily collected and this by many may be thought to afford some compensation for their injurious effects Chapter 9 Taxes on Raw Produce Having in a former part of this work established I hope satisfactorily the principle that the price of corn is regulated by the cost of its production on that land exclusively or rather with that capital exclusively which pays no rent it will follow that whatever may increase the cost of production will increase the price whatever may reduce it will lower the price the necessity of cultivating poorer land or of obtaining a less return with a given additional capital on land already in cultivation will inevitably raise the exchangeable value of raw produce the discovery of machinery which will enable the cultivator to obtain his corn at a less cost of production will necessarily lower its exchangeable value any tax which may be imposed on the cultivator whether in the shape of land, taxes, tithes or a tax on the produce when obtained will increase the cost of production and will therefore raise the price of raw produce if the price of raw produce did not rise so as to compensate the cultivator for the tax he would naturally quit a trade where his profits were reduced below the general level of profits this would occasion a diminution of supply until the unabated demand should have produced such a rise in the price of raw produce as to make the cultivation of it equally profitable with the investment of capital in any other trade the rise of price is the only means by which he could pay the tax and continue to derive the usual and general profits from this employment of his capital he could not deduct the tax from his rent and oblige his landlord to pay it but he pays no rent he would not deduct it from his profits for there is no reason why he should continue in an employment which yields small profits when all other employments are yielding greater there can then be no question but that he will have the power of raising the price of raw produce by a sum equal to the tax the tax on raw produce would not be paid by the landlord it would not be paid by the farmer but it would be paid in an increased price by the consumer it should be remembered is the difference between the produce obtained by equal portions of labour and capital employed on land of the same or different qualities it should be remembered too that the money rent of land and the corn rent of land do not vary in the same proportion in the case of a tax on raw produce of a land tax or tithes the corn rent of land will vary while the money rent will remain as before if as we have before supposed the land and cultivation were of three qualities and that with an equal amount of capital the price of corn were obtained from land number one 170 quarters of corn were obtained from land number two and 160 quarters of corn were obtained from land number three the rent of number one would be 20 quarters the difference between that of number three and number one and of number two 10 quarters the difference between that of number three and number two while number three would pay no rent whatever now if the price of corn were four pounds per quarter the money rent of number one would be 80 pounds and that of number 2, 40 pounds. Suppose a tax of 8 shillings per quarter to be imposed on corn, then the price would rise to 4 pounds 8 shillings, and if the landlords obtained the same corn rent as before, the rent of number 1 would be 88 pounds, and that of number 2, 44 pounds, but they would not obtain the same corn rent. The tax would fall heavier on number 1 than on number 2, and on number 2 than on number 3, because it would be levied on a greater quantity of corn. It is the difficulty of production on number 3 which regulates price, and corn rises to 4 pounds 8 shillings, but the profits of the capital employed on number 3 may be on a level with the general profits of stock. The produce and tax on the 3 qualities of land will be as follows. Number 1, yielding 180 quarters at 4 pounds 8 shillings per quarter, 792 pounds. Deduct the value of 16.3, or 8 shillings per quarter, on 180 quarters, 72, net corn produce 163.7, net money produce 720 pounds. Number 2, yielding 170 quarters at 4 pounds 8 shillings per quarter, 748 pounds. Deduct the value of 15.4 quarters at 4 pounds 8 shillings, or 8 shillings per quarter, on 170 quarters, 68, net corn produce 154.6, net money produce 680 pounds. Number 3, yielding 160 quarters at 4 pounds 8 shillings, 704 pounds. Deduct the value of 14.5 quarters at 4 pounds 8 shillings, or 8 shillings per quarter, on 160, 64, net corn produce 145.5, net money produce 640 pounds. The money rent of number 1 would continue to be 80 pounds, or the difference between 640 pounds and 720 pounds, and that of number 2, 40 pounds, or the difference between 640 pounds and 680 pounds, precisely the same as before. But the corn rent will be reduced from 20 quarters on number 1 to 18.2 quarters, the difference between 145.5 and 163.7 quarters, and that on number 2, from 10 to 9.1 quarters, the difference between 145.5 and 154.6 quarters. A tax on corn then would fall on the consumers of corn, and would raise its value as compared with all other commodities, in a degree proportion to the tax. In proportion as raw produce entered into the composition of other commodities, would their value also be raised, unless the tax were counterveiled by other causes. They would in fact be indirectly taxed, and their value would rise in proportion to the tax. A tax, however, on raw produce, and on the necessaries of the laborer, would have another effect. It would raise wages. From the effect of the principle of population on the increase of mankind, wages of the lowest kind never continue much above that rate, which nature and habit demand for the support of the laborers. This class is never able to bear any considerable proportion of taxation, and consequently, if they had to pay 8 shillings per quarter in addition for wheat, and in some smaller proportion for other necessaries, they would not be able to subsist on the same wages as before, and to keep up the race of laborers. Wages would inevitably and necessarily rise, and in proportion as they rose, profits would fall. Government would receive a tax of 8 shillings per quarter on all the corn consumed in the country, a part of which would be paid directly by the consumers of corn, the other part would be paid indirectly by those who employed labor, and would affect profits in the same manner as if wages had been raised from the increased demand for labor compared with the supply, or from an increasing difficulty of obtaining the food and necessaries required by the laborer. In as far as the tax might affect consumers, it would be an equal tax, but in as far as it would affect profits, it would be a partial tax, for it would neither operate on the landlord, nor on the stockholder, since they would continue to receive the one the same money rent, the other the same money dividends as before. A tax on the produce of the land then would operate as follows. First, it would raise the price of raw produce by a sum equal to the tax, and would therefore fall on each consumer in proportion to his consumption. Secondly, it would raise the wages of labor and lower profits. It may then be objected against such a tax, first, that by raising the wages of labor and lowering profits, it is an unequal tax, as it affects the income of the farmer, trader and manufacturer, and leaves untaxed the income of the landlord, stockholder, and others enjoying fixed incomes. Secondly, that there would be a considerable interval between the rise in the price of corn and the rise of wages, during which much distress would be experienced by the laborer. Thirdly, that raising wages and lowering profits is a discouragement to accumulation and acts in the same way as a natural poverty of soil. Fourthly, that by raising the price of raw produce, the prices of all commodities into which raw produce enters would be raised, and that therefore we should not meet the foreign manufacturer on equal terms in the general market. With respect to the first objection, that by raising the wages of labor and lowering profits, it acts unequally, as it affects the income of the farmer, and leaves untaxed the income of the landlord, stockholder, and others enjoying fixed incomes. It may be answered that if the operation of the tax be unequal, it is for the legislature to make it equal by taxing directly the rent of land and the dividends from stock. By so doing, all the objects of an income tax would be obtained without the inconvenience of having recourse to the obnoxious measure of crying into every man's concerns and arming commissioners with powers repugnant to the habits and feelings of a free country. With respect to the second objection, there would be a considerable interval between the rise of the price of corn and the rise of wages, during which much distress would be experienced by the lower classes. I answer that under different circumstances, wages follow the price of raw produce with very different degrees of celerity, that in some cases no effect whatever is produced on wages by a rise of corn. In others, the rise of wages precedes the rise in the price of corn. Again, in some the effect on wages is slow and in others rapid. Those who maintain that it is the price of necessaries which regulates the price of labor, always allowing for the particular state of progression in which the society may be, seem to have conceded too readily that a rise or fall in the price of necessaries will be very slowly succeeded by a rise or fall of wages. A high price of provisions may arise from very different causes and may accordingly produce very different effects. It may arise from, first, a deficient supply. Second, from a gradually increasing demand which may be ultimately attended with an increased cost of production. Thirdly, from a fall in the value of money. Fourthly, from taxes on necessaries. These four causes have not been sufficiently distinguished and separated by those who have inquired into the influence of a high price of necessaries on wages. We will examine them separately. A bad harvest will produce a high price of provisions and the high price is the only means by which the consumption is compelled to conform to the state of the supply. If all the purchases of corn were rich, the price might rise to any degree but the result would remain unaltered. The price would at last be so high that the least rich would be obliged to forego the use of a part of the quantity which they usually consumed. As by diminished consumption alone the demand could be brought down to the limits of the supply. Under such circumstances, no policy can be more absurd than that of forcibly regulating money wages by the price of food as is frequently done by misapplication of the poor laws. Such a measure affords no real relief to the labourer because its effect is still higher the price of corn and at last he must be obliged to limit his consumption in proportion to the limited supply. In the natural course of affairs a deficient supply from bad seasons without any pernicious and unwise interference would not be followed by a rise of wages. The raising of wages is merely nominal to those who receive them. It increases the competition in the corn market and its ultimate effect is to raise the profits of the growers and dealers in corn. The wages of labour are really regulated by the proportion between the supply and demand of labour and money is merely the medium or measure in which wages are expressed. In this case then the distress of the labourer is unavoidable and no legislation can afford a remedy except by the importation of additional food or by adopting the most useful substitutes. When a high price of corn is the effect of an increasing demand it is always preceded by an increase of wages but demand cannot increase without an increase of means in the people to pay for that which they desire. An accumulation of capital naturally produces an increased competition among the employers of labour and a consequent rise in its price. The increased wages are not always immediately expended on food but are first made to contribute to the other enjoyments of the labourer. His improved condition however induces and enables him to marry and then the demand for food for the support of his family naturally supersedes that of those other enjoyments on which his wages were temporarily expended. Corn rises then because the demand for it increases because there are those in the society who have improved means of paying for it and the profits of the farmer will be raised above the general level of profits till the requisite quantity of capital has been employed on its production. Whether after this has taken place corn shall again fall to its former price or shall continue permanently higher will depend on the quality of the land from which the increased quantity of corn has been supplied. If it be obtained from land of the same fertility as that which was last in cultivation and with no greater cost of labour the price will fall to its former state. Before a land it will continue permanently higher. The high wages in the first instance proceeded from an increase in the demand for labour in as much as it encouraged marriage and supported children. It produced the effect of increasing the supply of labour but when the supply is obtained wages will again fall to that former price if corn has fallen to its former price. To a higher than the former price if the increased supply of corn has been produced from land of an inferior quality. The high price is by no means incompatible with an abundant supply. The price is permanently high not because the quantity is deficient but because there has been an increased cost in producing it. It generally happens indeed that when a stimulus has been given to population an effect is produced beyond what the case requires. The population may be and generally is so much increased as notwithstanding the increased demand for labour to bear a greater proportion to the funds for maintaining labourers than before the increase of capital. In this case a reaction will take place. Wages will be below their natural level and will continue so that the proportion between the supply and demand has been restored. In this case then the rise in the price of corn is preceded by a rise of wages and therefore entails no distress on the labourer. A fall in the value of money and consequence of an influx of the precious metals from the mines or from the abuse of the privileges of banking is another cause for the rise of the price of food. But it will make no alteration in the quantity produced. It leaves undisturbed to the number of labourers as well as the demand for them for there will be neither an increase or an increase. The quantity of necessaries to be allotted to the labourer depends on the comparative demand and supply of necessaries with the comparative demand and supply of labour money being only the medium in which the quantity is expressed and as neither of these is altered the real reward of the labourer will not alter. Money wages will rise but they will only enable him to finish himself with the same quantity of necessaries as before. Those who dispute this principle are bound to show why an increase of money should not have the same effect in raising the price of labour has not been increased as they acknowledge it would have on the price of shoes of hats and of corn if the quantity of those commodities were not increased. The relative market value of hats and shoes is regulated by the demand and supply of hats compared with the demand and supply of shoes and money is but the medium in which their value is expressed. If shoes be doubled in price hats will also be doubled in price and they will retain the same comparative value. So if corn and all the necessaries of the labourer be doubled in price labour will be doubled in price also and while there is no interruption to the usual demand and supply of necessaries and of labour there can be no reason why they should not preserve their relative value. Neither a fall in the value of money nor a tax on raw produce that each will raise the price will necessarily interfere with the quantity of raw produce or with the number of people who are both able to purchase and willing to consume it. It is very easy to perceive why when the capital of a country increases irregularly wages should rise or rises in a less proportion and why when the capital of a country diminishes wages should fall while corn remains stationary or falls in a much less proportion and this too for a considerable time. The reason is because labour is a commodity which cannot be increased and diminished at pleasure. If there are too few hats in the market for the demand the price will rise only for a short time for in the course of one year by employing more capital in that trade any reasonable addition may be made to the quantity of hats and therefore their market price cannot long very much exceed their natural price but it is not so with man you cannot increase their number in one or two years when there is an increase of capital nor can you rapidly diminish their number when capital is in a retrograde state and therefore the number of hands increasing or diminishing slowly whilst the funds for the maintenance of labour increase or diminish rapidly there must be a considerable interval before the price of labour is exactly regulated by the price of corn and necessaries but in the case of a fall in the value of money or of a tax on corn there is not necessarily any excess in the supply of labour nor any abatement of demand and therefore there can be no reason why the labourer should sustain a real diminution of wages a tax on corn does not necessarily diminish the quantity of corn it only raises its money price it does not necessarily diminish the demand compared with the supply of labour why then should it diminish the portion paid to the labourer suppose it true that it did diminish the quantity given to the labourer in other words that it did not raise his money wages in the same proportion the tax raised on the price of corn which he consumed would not the supply of corn exceed the demand would it not fall in price and would not the labourer thus obtain his usual portion in such case indeed capital would be withdrawn from agriculture for if the price were not increased by the whole amount of the tax agricultural profits would be lower than the general level of profits and capital would seek a more advantageous employment in regard then to a tax on raw produce which is the point under discussion it appears to me that no interval would bear oppressively on the labourer would elapse between the rise in the price of raw produce and the rise in the wages of the labourer and therefore no other inconvenience would be suffered by this class than that which they would suffer from any other mode of taxation namely the risk that the tax might infringe on the funds destined for the maintenance of labour and might therefore check or abate the demand for it with respect to the third objection against taxes on raw produce namely that the raising wages and lowering profits would be a discouragement to accumulation and acts in the same way as a natural poverty of soil I have endeavoured to show in another part of this work that savings may be as effectively made from expenditure as from production from a reduction in the value of commodities as from a rise in the rate of profits by increasing my profits from £1,000 to £1,200 whilst prices continue the same my power of increasing my capital by savings is increased it is not increased so much as it would be if my profits continued as before whilst commodities were so lowered in price £800 would procure me as much as £1,000 purchased before now the sum required by the tax must be raised and the question simply is whether the same amount shall be taken from individuals by diminishing their profits or by raising the prices of the commodities on which their profits will be expended taxation under every form presents but a choice of evils if it do not act on profit or other sources of income it must act on expenditure and provided the burden be equally borne and do not repress reproduction it is indifferent on which it is laid taxes on production or on the profits of stock whether applied immediately to profits or indirectly by taxing the land or its produce have this advantage over other taxes that provided all other income be taxed no class of the community can escape them and each contributes according to his means from taxes on expenditure a miser may escape he may have an income of £10,000 per annum and expend only £300 taxes on profits whether direct or indirect he cannot escape he will contribute to them either by giving up a part or the value of a part of his produce or by the advanced prices of the necessary is essential to production he will be unable to continue to accumulate at the same rate he may indeed have an income of the same value but he will not have the same command of labour nor of an equal quantity of materials on which such labour can be exercised if a country is insulated from all others having no commerce with any of its neighbours will in no way shift any portion of its taxes from itself a portion of the produce of its land and labour will be devoted to the service of the state I cannot but think that unless it presses unequally on that class which accumulates and saves it will be of little importance whether the taxes be levied on profits, on agricultural or on manufactured commodities if my revenue be £1,000 per annum and I must pay taxes to the amount of £100 it is of little importance whether I pay it from my revenue leaving myself only £900 in addition for my agricultural commodities or for my manufactured goods if £100 is my fair proportion of the expenses of the country the virtue of taxation consists in making sure that I shall pay that £100 neither more nor less and that cannot be affected in any manner so securely as by taxes on wages profits or raw produce the fourth and last objection which remains to be noticed is that by raising the price of raw produce the prices of all commodities into which raw produce enters will be raised we shall not meet the foreign manufacturer on equal terms in the general market in the first place corn and all home commodities could not be materially raised in price without an influx of the precious metals for the same quantity of money could not circulate the same quantity of commodities at high as at low prices and the precious metals never could be purchased with dear commodities when more gold is required it must be obtained by giving more and not fewer commodities in exchange for it neither could the want of money be supplied for it is not paper that regulates the value of gold as a commodity but gold that regulates the value of paper unless then the value of gold could be lowered no paper could be added to the circulation without being depreciated and that the value of gold could not be lowered appears clear when we consider that the value of gold as a commodity must be regulated by the quantity of goods which must be given to foreigners in exchange for it when gold is cheap commodities are dear and when gold is dear commodities are cheap and fall in price now as no cause has shown why foreigners should sell their gold cheaper than usual it does not appear probable that there would be any influx of gold without such an influx there can be no increase of quantity no fall in its value no rise in the general price of goods footnote it may be doubted whether commodities raised in price merely by taxation would require any more money for their circulation I believe they would not end of footnote the purpose of the tax on raw produce would be to raise the price of raw produce and of all commodities on which raw produce entered but not in any degree proportion to the tax while other commodities in which no raw produce entered such as articles made of the metals and the earths would fall in price so that the same quantity of money as before would be adequate to the whole circulation the tax which should have the effect of raising the price of all home productions would not discourage exportation except during a very limited time if they were raised in price at home they would immediately be profitably exported because they would be subject to a burden here from which abroad they were free the tax would produce the same effect as an alteration in the value of money which was not general and common to all countries but confined to a single one if England were that country she might not be able to sell but she would be able to buy because importable commodities would not be raised in price under these circumstances nothing but money could be exported in return for foreign commodities would not long continue a nation cannot be exhausted of its money for after a certain quantity is left the value of the remainder will rise and such a price of commodities will be the consequence that they will again be capable of being profitably exported when money had risen therefore we should no longer export it in return for goods but we should export those manufacturers which had first been raised in price by the rise in the price of the raw produce from which they were made and then again lowered by the exportation of money but it may be objected that when money so rose in value it would rise with respect to foreign as well as home commodities and therefore that all encouragement to import foreign goods would cease but suppose we imported goods which cost 100 pounds abroad and which sold for 120 pounds here we should cease to import them when the value of money had so risen in England that they would only sell for 100 pounds here this however could never happen the motive which determines us to import a commodity is the discovery of its relative cheapness abroad if a country exports hats and imports cloth it does so because it can obtain more cloth by making hats and exchanging them for cloth than if it made the cloth itself if the rise of raw produce occasions any increased cost of production in making hats it would occasion also an increased cost in making cloth if therefore both commodities were made at home they would both rise one however being a commodity which we import would not rise neither would it fall when the value of money rose but by not falling it would regain its natural relation to the exported commodity the rise of raw produce makes a hat rise from 30 to 33 shillings or 10% the same cause if we manufactured cloth would make it rise from 20 shillings to 22 shillings per yard this rise does not destroy the relation between cloth and hats a hat was and continues to be worth one yard and a half of cloth but if we import cloth its price will continue uniformly at 20 shillings per yard unaffected first by the fall and then by the rise in the value of money whilst hats which had risen from 30 shillings to 33 shillings will again fall from 33 shillings to 30 shillings at which point the relation between cloth and hats will be restored to simplify the consideration of this subject I have been supposing that a rise in the value of raw materials would affect in an equal proportion all home commodities that if the effect on one were to raise it 10% it would raise all 10% but as the value of commodities is very differently made up of raw material and labour as some commodities for instance all those made from the metals would be unaffected by the rise of raw produce from the surface of the earth it is evident that there would be the greatest variety in the effects produced on the value of commodities via tax on raw produce as far as this effect was produced it would stimulate or retard the exploitation of particular commodities and would undoubtedly be attended with the same inconvenience that attends the taxing of commodities it would destroy the natural relation between the value of each thus the natural price of a hat instead of being the same as a yard and a half of cloth might only be of the value of a yard and a quarter or it might be of the value of a yard and three quarters and therefore rather at different direction might be given to foreign trade all these inconveniences would probably not interfere with the value of the exports and imports they would only prevent the very best distribution of the capital of the whole world which is never so well regulated as when every commodity is freely allowed to settle at its natural price unfettered by artificial restraints although then the rise in the price of most of our own commodities would for a time check exploitation generally and might permanently prevent the exploitation of a few commodities it could not materially interfere with foreign trade and would not place us under any comparative disadvantage as far as regarded competition in foreign markets chapter 10 taxes on rent a tax on rent would affect rent only it would fall solely on landlords and could not be shifted to any class of consumers the landlord could not raise his rent because he would leave unaltered the difference between the produce obtained from the least productive land in cultivation and that obtained from land of every quality three sorts of land number one, two and three are in cultivation and yield respectively with the same labor 180, 170 and 160 quarters of wheat but number three pays no rent and is therefore untaxed the rent then of number two cannot be made to exceed the value of 10 nor number one of 20 quarters such a tax could not raise the price of raw produce because as the cultivator of number three pays neither rent nor tax he would in no way be enabled to raise the price of the commodity produced a tax on rent would not discourage the cultivation of fresh land for such land pays no rent and would be untaxed if number four were taken into cultivation and yielded 150 quarters no tax would be paid for such land but it would create a rent of 10 quarters on number three which would then commence paying the tax a tax on rent as rent is constituted would discourage cultivation because it would be a tax on the profits of the landlord the term rent of land as I have elsewhere observed is applied to the whole amount of the value paid by the farmer to his landlord a part only of which is strictly rent the buildings and fixtures and other expenses paid for by the landlord forms strictly a part of the stock of the farm and must have been furnished by the tenant if not provided by the landlord rent is the sum paid to the landlord for the use of the land and for the use of the land only the further sum that is paid to him under the name of rent is for the use of the buildings etc and is really the profits of the landlord's stock in taxing rent as no distinction would be made between that part paid for the use of the land and that paid for the use of the landlord's stock a portion of the tax would fall on the landlord's profits and would therefore discourage cultivation unless the price of raw produce rose on that land for the use of which no rent was paid a compensation under that name might be given to the landlord for the use of his buildings these buildings would not be erected nor would raw produce be grown on such land till the price at which it sold would not only pay for all the usual outgoings but also this additional one of the tax this part of the tax does not fall on the landlord nor on the farmer but on the consumer of raw produce there can be little doubt but that if a tax on rent landlords would soon find a way to discriminate between that which is paid to them for the use of the land and that which is paid for the use of the buildings and the improvements which are made by the landlord's stock the latter would either be called the rent of house and buildings or on or new land taken into cultivation such buildings would be erected and improvements would be made by the tenant and not by the landlord the landlord's capital might indeed be really employed for that purpose it might be nominally expended by the tenant the landlord furnishing him with the means and the duration of the lease whether distinguished or not there is a real difference between the nature of the compensations which the landlord receives for these different objects and it is quite certain that a tax on the real rent of land falls wholly on the landlord but that a tax on that remuneration which the landlord receives for the use of his stock expended on the farm falls in a progressive country on the consumer of raw produce if a tax were laid on rent and no means of separating the remuneration now paid by the tenant to the landlord under the name of rent were adopted the tax as far as it regarded the rent on the buildings and other fixtures would never fall for any length of time on the landlord but on the consumer the capital expended on these buildings etc must afford the usual profit of stock but it would cease to afford this profit on the land last cultivated if the expenses of those buildings etc did not fall on the tenant and if they did the tenant would then cease to make his usual profits of stock unless he could charge them on the consumer Chapter 11 Tithes Tithes are attacks on the gross produce of the land and like taxes on raw produce fall wholly on the consumer they differ from attacks on rent in as much as they affect land which such a tax would not reach and raise the price of raw produce which that tax would not alter lands of the worst quality as well as of the best pay tithes and exactly in proportion to the quantity of produce obtained from them tithes are therefore an equal tax if land of the last quality or that which pays no rent and which regulates the price of corn yield a sufficient quantity to give the farmer the usual profits of stock when the price of wheat is 4 pounds per quarter the price must rise to 4 pounds 8 shillings before the same profits can be obtained after the tithes are imposed because for every quarter of wheat the cultivator must pay 8 shillings to the church and if he does not obtain the same profits there is no reason why he should not quit his employment when he can get them in other trades the only difference between tithes and taxes on raw produces that one is a variable money tax the other a fixed money tax in a stationary state of society where there is neither increased nor diminished facility of producing corn they will be precisely the same in their effects for in such a state corn will be at an invariable price and the tax will therefore be also invariable in either a retrograde state or in a state in which great improvements are made in agriculture and where consequently raw produce will fall in value comparatively with other things tithes will be a light tax than a permanent money tax for if the price of corn should fall from 4 pounds to 3 pounds tithes should not fall from 8 to 6 shillings in a progressive state of society yet without any marked improvements in agriculture the price of corn would rise and tithes would be a heavier tax than a permanent money tax if corn rose from 4 pounds to 5 pounds the tithes on the same land would advance from 8 to 10 shillings neither tithes nor a money tax will affect the money rent of landlords but both will materially affect corn rents we have already observed how a money tax operates on corn rents but it is equally evident that a similar effect would be produced by tithes if the lands number 1, 2, 3 respectively produced 180, 170 and 160 quarters the rents might be on number 1 20 quarters and on number 2 10 quarters but they would no longer preserve that proportion after the payment of tithes for if a tenth be taken from each the remaining produce will be 162 153 154 corn rent of number 1 will be reduced to 18 and that of number 2 to 9 quarters but the price of corn would rise from 4 pounds to 4 pounds 8 shillings 10 pence there are 144 quarters out of 4 pounds as 160 quarters to 4 pounds 8 shillings and 10 and consequently the money rent would continue unaltered for on number 1 it would be 80 pounds footnote 18 quarters at 4 pounds 8 shillings 10 pence and a footnote and on number 2 40 pounds footnote 9 quarters at 4 pounds 8 shillings 10 pence and a footnote the chief objection against tithes is that they are not a permanent and fixed tax but increase in value in proportion as the difficulty of producing corn increases if those difficulties should make the price of corn 4 pounds the taxes 8 shillings if they should increase it to 5 pounds the taxes 10 shillings and at 6 pounds it is 12 shillings they not only rise in value but they increase in amount and when number 3 was cultivated the tax was only levied on 180 quarters when number 2 was cultivated it was levied on 180 plus 170 or 350 quarters and when number 3 was cultivated on 180 plus 170 plus 160 equals 510 quarters not only is the amount of tax increased from 100,000 quarters to 200,000 quarters when the produce is increased from 1 to 2 millions of quarters but owing to the increased labour necessary to produce the second million relative value of raw produce is so advanced that the 200,000 quarters may be though only twice in quantity yet in value 3 times that of the 100,000 quarters which were paid before if an equal value were raised for the church by any other means increasing in the same manner as tithes increase proportionably with the difficulty of cultivation the effect would be the same and therefore it is a mistake to suppose that because they are raised on the land they discourage cultivation more than an equal amount would do if raised in any other manner the church would in both cases be constantly obtaining an increased portion of the net produce of the land and labour of the country in an improving state of society the net produce of land is always diminishing in proportion to its gross produce but it is from the net income of a country that all taxes are ultimately paid either in a progressive or in a stationary country a tax increasing with the gross income and falling on the net income must necessarily be a very burdensome and very intolerable tax tithes are a tenth of the gross and not of the net produce of the land and therefore as society improves in wealth they must though the same proportion of the gross produce become a larger and larger proportion of the net produce tithes however may be considered as injurious to landlords in as much as they act as a bounty on importation by taxing the growth of home corn while the importation of foreign corn remains unfettered and if in order to relieve the landlords from the effects of the diminished demand for land which such a bounty must encourage imported corn were also taxed in an equal degree with corn grown at home and the produce paid to the state no measure could be more fair and equitable since whatever were paid to the state by this tax would go to diminish the other taxes which the expenses of government make necessary but if such a tax were devoted only to increase the fund paid to the church it might indeed on the whole increase the general mass of production but it would diminish the portion of that mass allotted to the productive classes if the trade of cloth were left perfectly free our manufacturers might be able to sell cloth cheaper than we could import it if a tax were laid on the home manufacturer and not on the importer of cloth capital might be injuriously driven from the manufacturer of cloth to the manufacturer of some other commodity as cloth might then be imported cheaper than it could be made at home if imported cloth should also be taxed cloth would again be manufactured at home the consumer first bought cloth at home because it was cheaper than foreign cloth he then bought foreign cloth because it was cheaper untaxed than home cloth taxed he lastly bought it again at home because it was cheaper when both home and foreign cloth were taxed it is in the last case that he pays the greatest price for his cloth but all his additional payment is gained by the state in the second case he pays more than in the first but all he pays in addition is not received by the state it is an increased price caused by difficulty of production which is incurred because the most means of production are taken away from us by being fettered with a tax Chapter 12 Land Tax a land tax levied in proportion to the rent of land and varying with every variation of rent is in effect a tax on rent and as such a tax will not apply to that land which yields no rent nor to the produce of that capital which is employed on the land with a view to profit merely and which never pays rent it will not in any way affect the price of raw produce but will fall wholly on the landlords in no respect would such a tax differ from a tax on rent but if a land tax be imposed on all cultivated land however moderate that tax may be it will be a tax on produce and will therefore raise the price of produce if number 3 be the land last cultivated although it should pay no rent it cannot after the tax be cultivated and of course the general rate of profit unless the price of produce rise to meet the tax either capital will be withheld from that employment until the price of corn shall have risen in consequence of demand it will not be sufficiently to afford the usual profit or if already employed on such land it will quit it to seek a more advantageous employment the tax cannot be removed to the landlord for by the supposition he receives no rent such a tax may be proportion to the quality of the land and the abundance of its produce and then it differs in no respect from tithes or it may be a fixed tax per acre on all land cultivated whatever its quality may be a land tax of this latter description would be a very unequal tax and would be contrary to one of the four maxims with regard to taxes in general to which according to Adam Smith all taxes should conform the four maxims are as follows one the subjects of every state ought to contribute towards the support of the government as nearly as possible in proportion to their respective abilities two the tax which each individual is bound to pay ought to be certain and not arbitrary three every tax ought to be levied at the time or in the manner in which it is most likely to be convenient for the contributor to pay it four every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state an equal land tax imposed indiscriminately without any regard to the distinction of its quality on all land cultivated will raise the price of corn in proportion to the tax paid by the cultivator of the land of the worst quality lands of different quality with the employment of the same capital will yield very different quantities of raw produce if on the land which yields a thousand quarters of corn with a given capital a tax of one hundred pounds be laid corn will rise two shillings per quarter to compensate the farmer for the tax but with the same capital on land of a better quality two thousand quarters may be produced which at two shillings a quarter advance would give two hundred pounds the tax however bearing equally on both lands will be one hundred pounds on the better as well as on the inferior and consequently the consumer of corn will be taxed not only to pay the exigencies of the state but also to give to the cultivator of the better land a hundred pounds per annum during the period of his lease and afterwards to raise the rent of the landlord to that amount a tax of this description then would be contrary to the fourth maximum of Adam Smith it would take out and keep out of the pockets of the people more than what it brought into the treasury of the state the tie in France before the revolution was a tax of this description those lands only were taxed which were held by an ignoble tenure the price of raw produce rose in proportion to the tax and therefore they whose lands were not taxed were benefited by the increase of their rent taxes on raw produce as well as tithes are free from the subjection they raised the price of raw produce but they take from each quality of land a contribution in proportion to its actual produce and not in proportion to the produce of that which is the least productive from the peculiar view which Adam Smith took of rent from his not having observed that much capital is expended in every country on the land for which no rent is paid he concluded that all taxes on the land whether they were laid on the land itself in the form of land taxes or tithes or on the produce of the land or were taken from the profits of the farmer were all invariably paid by the landlord and that he was in all cases the real contributor although the tax was in general nominally advanced by the tenant taxes upon the produce of the land he says are in reality taxes upon the rent and though they may be originally advanced the farmer are finally paid by the landlord when a certain portion of the produce is to be paid away for a tax the farmer computes as well as he can what the value of this portion is one year with another likely to amount to and he makes a proportional abatement in the rent which he agrees to pay the landlord there is no farmer who does not compute beforehand what the church tithe which is a land tax of this kind is one year with another likely to amount to it is undoubtedly true that the farmer does calculate his probable outgoings of all descriptions when agreeing with his landlord for the rent of his farm and if for the tithe paid to the church or for the tax on the produce of the land he were not compensated by a rise in the relative value of the produce of his farm he would naturally endeavour to deduct them from his rent but this is precisely the question in dispute whether he will eventually deduct them from his rent or be compensated by a higher price of produce for the reasons which have been already given I cannot have the least doubt but that they would raise the price of produce and consequently that Adam Smith has taken an incorrect view of this important question Dr Smith's view of this subject is probably the reason why he has described the tithe and every other land tax of this kind under the appearance of perfect equality as very unequal taxes a certain portion of the produce being in different situations equivalent to a very different portion of the rent I have endeavour to show that such taxes do not fall with unequal weight on the different classes of farmers or landlords as they are both compensated by the rise of raw produce and only contribute to the tax in proportion as they are consumers of raw produce in as much indeed as wages and through wages the rate of profits are affected landlords instead of contributing their full share to such a tax are the class particularly exempted it is the profits of stock from which that portion of the taxes derived which falls on those labourers who from the insufficiency of their funds are incapable of paying taxes this portion is exclusively borne by all those whose income is derived from the employment of stock and therefore it in no degree affects landlords it is not to be inferred from this view of tithes and taxes on the land and its produce that they do not discourage cultivation everything which raises the exchangeable value of commodities of any kind which are in very general demand tends to discourage both cultivation and production but this is an evil inseparable from all taxation and is not confined to the particular taxes of which we are now speaking this may be considered indeed as the unavoidable disadvantage attending or taxes received and expended by the state every new tax becomes a new charge on production and raises natural price a portion of the labour of the country which was before at the disposal of the contributor to the tax is placed at the disposal of the state and cannot therefore be employed productively this portion may become so large that sufficient surplus may not be left to stimulate the exertions of those who usually augment by their savings the capital of the state taxation has happily never yet in any free country carried so far as instantly from year to year to diminish its capital such a state of taxation could not long be endured or if endured it would be constantly absorbing so much of the annual produce of the country as to occasion the most extensive scene of misery, famine and depopulation a land tax says Adam Smith which like that of Great Britain is assessed upon each district according to a certain invariable canon though it should be equal at the time of its first establishment necessarily becomes unequal in the process of time according to the unequal degrees of improvement or neglect in the cultivation of the different parts of the country in England the valuation according to which the different counties and parishes were assessed to the land tax by the fourth William and Mary was very unequal even at its first establishment this tax therefore so far offends against the first of the four maxims above mentioned it is perfectly agreeable to the other three it is perfectly certain the time of payment for the tax being the same as that for the rent is as convenient as it can be to the contributor though the landlord is in all cases the real contributor the tax is commonly advanced by the tenant to whom the landlord is obliged to allow it in the payment of the rent if the tax be shifted by the tenant not on the landlord but on the consumer then if it be not unequal at first it can never become so for the price of produce has been at once raised in proportion to the tax and will afterwards vary no more on that account it may offend if unequal as I have attempted to show that it will against the fourth maxim above mentioned but it will not offend against the first it may take more out of the pockets of the people than it brings into the public treasury of the state but it will not fall unequally on any particular class of contributors Mr Say appears to me to have mistaken the nature and effects of the English land tax when he says many persons attribute to this fixed valuation the great prosperity of English agriculture that it has very much contributed to it there can be no doubt but what should we say to a government which addressing itself to a small trader should hold this language with a small capital you are carrying on a limited trade and your direct contribution is in consequence very small borrow and accumulate capital extend your trade so that it may procure you immense profits yet you shall never pay a greater contribution moreover when your successors shall inherit your profits and shall have further increase them they shall not be valued higher to them than they are to you and your successors shall not bear a greater portion of the public burdens without doubt this would be a great encouragement given to manufacturers and trade but would it be just? could not their advancement be obtained at any other price? in England itself has not manufacturing and commercial industry made even greater progress since the same period without being distinguished with so much partiality a landlord by his aciduity economy and skill increases his annual revenue by 5,000 francs if the state claim of him the fifth part of his augmented income will not remain 4,000 francs of increase to stimulate his further exertions Mr Say supposes his aciduity economy and skill to increase his annual revenue by 5,000 francs but a landlord has no means of employing his aciduity economy and skill on his land unless he farms it himself and then it is in quality of capitalist and farmer that he makes the improvement and not in quality of landlord it is not conceivable that he could so augment the produce of his farm by any peculiar skill on his part without first increasing the quantity of capital employed upon it if he increased the capital by the same proportion to his increased capital as the revenue of all other farmers to their capitals if Mr Say suggestions were followed and the state were to claim the fifth part of the augmented income of the farmer it would be a partial tax on farmers acting on their profits and not affecting the profits of those in other employments the tax would be paid by all lands by those which yielded scantily as well as by those which yielded abundantly and on some lands there could be no compensation for it by deduction from rent no rent is paid a partial tax on profits never falls on the trade on which it is laid for the trader will either quit his employment or remunerate himself for the tax now those who pay no rent could be recompensed only by a rise in the price of produce and thus would Mr Say's proposed tax fall on the consumer and not either on the landlord or farmer if the proposed tax were increased in proportion to the increased quantity or value of the gross produce obtained from the land it would differ in nothing from tithes and would equally be transferred to the consumer whether then it fell on the gross or on the net produce of land it would be equally a tax on consumption and would only affect the landlord and farmer in the same way as other taxes on raw produce if no tax whatever had been laid on the land and the same sum had been raised by any other means agriculture would have flourished at least as well as it had done for it is impossible that any tax on land can be an encouragement to agriculture a moderate tax may not and probably does not greatly prevent and cannot encourage production the English government has held no such language as Mr Say has supposed it did not promise to exempt the agricultural class and their successes from all future taxation and to raise the further supplies which the state might require from the other classes of society it said only in the mode we will no further burden the land but we retain to ourselves the most perfect liberty of making you pay under some other form your full quota to the future exigencies of the state speaking of taxes in kind or a tax of a certain proportion of the produce which is precisely the same as Tithe Mr Say says this mode of taxation appears to be the most equitable there is however none which is less so it totally leaves out of consideration the advances made by the producer it is proportioned to the gross and not to the net revenue two agriculturalists cultivate different kinds of raw produce one cultivates corn on middling land his expenses amounting annually on an average to 8,000 francs the raw produce from his land sells for 12,000 francs he has then a net revenue of 4,000 francs his neighbour has past year old woodland which brings in every year a like sum of 12,000 francs but his expenses amount only to 2,000 francs he has therefore on an average a net revenue of 10,000 francs a law ordains that a 12th of the produce of all the fruits of the earth be levied in kind whatever they may be from the first is taken in consequence of this law corn of the value of 1,000 francs from the second, hey capital or wood of the same value of 1,000 francs what has happened from the one a quarter of his net income 4,000 francs has been taken from the other whose income was 10,000 francs a tenth only has been taken income is the net profit which remains after replacing the capital exactly in its former state has a merchant an income equal to all the sales which he makes in the course of a year certainly not only amounts to the excess of his sales above his advances and it is on this excess only that taxes on income should fall Monsieur Césaire in the above passage lies in supposing that because the value of the produce of one of these two farms after reinstating the capital is greater than the value of the produce of the other on that account the net income of the cultivators will differ by the same amount the net income of the landlords and tenants together of the woodland may be much greater than the net income of the landlords and tenants of the corn land but it is on account of the difference of rent and not on account of the difference in the rate of profit Monsieur Césaire has wholly omitted the consideration of the different amount of rent which these cultivators would have to pay there cannot be two rates of profit in the same employment and therefore when the value of produce is in different proportions to capital it is the rent which will differ and not the profit upon what pretense would one man with a capital of 2,000 francs be allowed to obtain a net profit of 10,000 francs from its employment whilst another with a capital of 8,000 francs would only obtain 4,000 francs let Monsieur Céaire make a due allowance for rent let him further allow for the effect which such a tax would have on the prices of these different kinds of raw produce and he will then perceive that it is not an unequal tax and further that the producers themselves will no otherwise contribute to it than any other class of consumers Chapter 13 Taxes on Gold The rise in the price of commodities in consequence of taxation or of difficulty of production will in all cases ultimately ensue but the duration of the interval before the market price will conform to the natural price must depend on the nature of the commodity and on the facility with which it can be reduced in quantity if the quantity of the commodity taxed could not be diminished if the capital of the farmer or of the hatter for instance could not be withdrawn to other employments it would be of no consequence that their profits were reduced below the general level by means of a tax unless the demand for their commodities should increase they would never be able to elevate the market price of corn and of hats up to their increased natural price their threats to leave their employments and remove their capitals to more favour trades would be treated as an idle menace which could not be carried into effect and consequently the price would not be raised by diminished production commodities however of all descriptions can be reduced in quantity and capital can be removed from trades or more so but with different degrees of rapidity in proportion as the supply of a particular commodity can be more easily reduced without inconvenience to the producer the price of it will more quickly rise after the difficulty of its production has been increased by taxation or by any other means corn being a commodity indispensably necessary to everyone little effect will be produced on the demand for it in consequence of attacks and therefore the supply would not probably be long excessive even if the producers had great difficulty in removing their capitals from the land for this reason the price of corn will speedily be raised by taxation and the farmer will be able to transfer the tax from himself to the consumer if the mines which supply us with gold were in this country and if gold were taxed it could not rise in relative value to other things till its quantity were reduced this would be more particularly the case if gold were used exclusively for money it is true that the least productive mines those which paid no rent could no longer be worked as they could not afford the general rate of profits till the relative value of gold rose by some equal to the tax the quantity of gold and therefore the quantity of money would be slowly reduced it would be a little diminished in one year a little more in another and finally its value would be raised in proportion to the tax but in the interval the proprietors or holders as they would pay the tax would be the sufferers and not those who used money if out of every one thousand quarters of wheat in the country and every one thousand produced in future government should exact one hundred quarters as a tax the remaining nine hundred quarters would exchange for the same quantity of other commodities that one thousand did before but if the same thing took place with respect to gold if of every one thousand pounds money now in the country or in future to be brought into it government could exact one hundred pounds as a tax the remaining nine hundred pounds would purchase very little more than nine hundred pounds purchased before the tax would fall upon him whose property consisted of money and would continue to do so till its quantity were reduced in proportion to the increased cost of its production caused by the tax this perhaps would be more particularly the case with respect to a metal used for money than any other commodity because the demand for money is not for a definite quantity as is the demand for clothes or for food the demand for money is regulated entirely by its value and its value by its quantity if gold were of double the value half the quantity would perform the same functions in circulation and if it were of half the value double the quantity would be required if the market value of corn be increased one tenth by taxation or by difficulty of production it is doubtful whether any effect whatever would be produced on the quantity consumed because every man's want is for a definite quantity and therefore if he has the means of purchasing he will continue to consume as before but for money the demand is exactly proportioned to its value no man could consume twice the quantity of corn which is usually necessary for his support but every man purchasing and selling only the same quantity of goods may be obliged to employ twice, thrice or any number of times the same quantity of money the argument which I have just been using applies only to those states of society in which the precious metals are used for money and where paper credit is not established the metal gold like all other commodities has its value in the market ultimately regulated by the comparative facility or difficulty of producing it and although from its durable nature and from the difficulty of reducing its quantity it does not readily bend to variation in its market value yet that difficulty is much increased from the circumstance of its being used as money if the quantity of gold in the market for the purpose of commerce only were 10,000 oz and the consumption in our manufacturers were 2,000 oz annually it might be raised one fourth or 25% in its value in one year by withholding the annual supply but if in consequence of its being used as money the quantity employed were 100,000 oz it would not be raised one fourth in value in less than 10 years as money made of paper may be readily reduced in quantity its value though its standard of gold would be increased as rapidly as that of the metal itself would be increased if the metal by forming a very small part of the circulation had a very slight connection with money if gold were the produce of one country only and it were used universally for money a very considerable tax might be imposed on it which would not fall on any country except in proportion as they used it in manufacturers and for utensils upon that portion which was used for money though a large tax might be received nobody would pay it this is a quality peculiar to money all other commodities of which there exists a limited quantity and which cannot be increased by competition are dependent for their value on the tastes, the caprice and the power of purchases but money is a commodity which no country has any wish or necessity to increase but it results from using 20 millions and from using 10 millions of currency a country might have a monopoly of silk or of wine and yet the prices of silks and wine might fall because from caprice or fashion or taste cloth and brandy might be preferred and substituted the same effect might in a degree take place with gold as far as its use is confined to manufacturers but while money is the general medium of exchange the demand for it is never a matter of choice but always of necessity you must take it in exchange for your goods and therefore there are no limits to the quantity which may be forced on you by foreign trade if it fall in value and no reduction to which you must not submit if it rise you may indeed substitute paper money but by this you do not and cannot lessen the quantity of money but that is regulated by the value of the standard for which it is exchangeable it is only by the rise of the price of commodities that you can prevent them from being exported from a country where they are purchased with little money that is called for more and this rise can only be affected by an importation of metallic money from abroad or by the creation or addition of paper money at home if then the king of Spain supposing him to be in exclusive possession of the mines and gold alone to be used for money which allay a considerable tax on gold he would very much raise its natural value and as its market value in Europe is ultimately regulated by its natural value in Spanish America more commodities would be given by Europe for a given quantity of gold but the same quantity of gold would not be produced in America as its value would only be increased in proportion to the diminution of quantity consequent on its increased cost of production no more goods then would be obtained in America in exchange for all their gold exported them before and it may be asked where then would be the benefit to Spain and her colonies the benefit would be this that if less gold were produced less capital would be employed in producing it the same value of goods from Europe would be imported by the employment of the smaller capital that was before obtained by the employment of the larger and therefore all the productions obtained by the employment of the capital withdrawn from the mines would be a benefit which Spain would derive from the imposition of the tax and which she could not obtain in such abundance or with such certainty by possessing the monopoly of any other commodity whatever from such attacks as far as money was concerned the nations of Europe would suffer no injury whatever they would have the same quantity of goods and consequently the same means of enjoyment as before but these goods would be circulated with a less quantity because of more valuable money if in consequence of the tax only one tenth of the present quantity of gold were obtained from the mines that tenth would be of equal value with the ten tenths now produced but the king of Spain is not exclusively in possession of the mines of the precious metals and if he were his advantage from their possession and the power of taxation would be very much reduced by the limitation of demand and consumption in Europe in consequence of the universal substitution in a greater or less degree of paper money the agreement of the market and natural prices of all commodities depends at all times on the facility with which the supply can be increased or diminished in the case of gold houses and labour as well as many other things this effect cannot under some circumstances be speedily produced but it is different with those commodities which are consumed and reproduced from year to year such as hats, shoes, corn and cloth they may be reduced if necessary and the interval cannot be long before the supply is contracted in proportion to the increased charge of producing them a tax on raw produce from the surface of the earth well as we have seen fall on the consumer and will in no way affect rent unless by diminishing the funds for the maintenance of labour it lowers wages, reduces the population and diminishes the demand for corn but a tax on the produce of gold mines must by enhancing the value of that metal necessarily reduce the demand for it and must therefore necessarily displace capital from the employment to which it was applied notwithstanding then that Spain would derive all the benefits which I have stated from a tax on gold the proprietors of those mines from which capital was withdrawn would lose all their rent this would be a loss to individuals but not a national loss rent being not a creation but merely a transfer of wealth the king of Spain and the proprietors of the mines which continue to be worked would together receive not only all that the liberated capital produced but all that the other proprietors lost suppose the mines of the first second and third quality to be worked would produce respectively 180 and 70 pounds weight of gold and therefore the rent of number one to be 30 pounds and that of number two 10 pounds suppose now the tax to be 70 pounds of gold per animal each mine worked and consequently that number one alone could be profitably worked it is evident that all rent would immediately disappear before the imposition of the tax out of the 100 pounds produced on number one a rent was paid of 30 pounds and the worker of the mine retained 70 a sum equal to the produce of the least productive mine the value then of what remains to the capitalist of the mine number one must be the same as before or he would not obtain the common profits of stock and consequently after paying 70 out of his 100 pounds for tax the value of the remaining 30 must be as great as the value of 70 was before and therefore the value of the whole 100 is greater as 233 pounds before its value might be higher or even this mine would cease to be worked being a monopolized commodity it could exceed its natural value and then it would pay a rent equal to that excess but no funds would be employed in the mine if it were below this value in return for one third of the labor and capital employed in the mines Spain would obtain as much gold as would exchange for the same or very nearly the same quantity of commodities as before she would be richer by the produce of the two thirds liberated from the mines if the value of the 100 pounds of gold should be equal to that of the 250 pounds extracted before the king of Spain's portion his 70 pounds would be equal to 175 at the former value a small part of the king's tax only would fall on his own subjects the greater part being obtained by the better distribution of capital the account of Spain would stand thus formally produced gold 250 pounds of the value of suppose 10,000 yards of cloth now produced by the two capitalists who quitted the mines the same value as 140 pounds of gold formally exchanged for equal to 5,600 yards of cloth by the capitalist who works the mine number one 30 pounds of gold increased in value as one to two and a half and therefore now of the value of 3,000 yards of cloth tax to the king 70 pounds increased also in value as one to two and a half and therefore now of the value of 7,000 yards of cloth giving a total of 15,600 of the 7,000 received by the king the people of Spain would contribute only 1,400 and 5,600 would be pure gain effected by the liberated capital if the tax instead of being a fixed sum per mine work were a certain portion of its produce the quantity would not be immediately reduced in consequence if a half a fourth or a third of each mine were taken for the tax it would nevertheless be the interest of the proprietors to make their mines yield as abundantly as before but if the quantity were not reduced but only a part of it transferred from the proprietor to the king its value would not rise the tax would fall on the people of the colonies and no advantage would be gained the tax of this kind would have the effect that Adam Smith supposes taxes on all produce would have on the rent of land it would fall entirely on the rent of the mine it pushed a little further indeed the tax would not only absorb the whole rent but would deprive the worker of the mine and he would consequently withdraw his capital from the production of gold if still further extended the rent of still better mines would be absorbed and capital would be further withdrawn and thus the quantity would be continually reduced and its value raised and the same effects would take place as we have already pointed out a part of the tax would be paid by the people of the Spanish colonies and the other part would be a new creation of produce by increasing the power of the instrument used as a medium of exchange taxes on gold are of two kinds one on the actual quantity of gold in circulation the other on the quantity that is annually produced from the mines both have a tendency to reduce the quantity and to raise the value of gold but by neither will its value be raised till the quantity is reduced and therefore such taxes will fall for a time until the supplies diminished on the proprietors of money but ultimately that part which will permanently fall on the community will be paid by the owner of the mine in the reduction of rent and by the purchases of that portion of gold which is used as a commodity contributing to the enjoyment of mankind and not set apart exclusively for a circulating medium chapter 14 taxes on houses there are also other commodities besides gold which cannot be speedily reduced in quantity any tax on which will therefore fall on the proprietor if the increase of price should lessen the demand taxes on houses are of this description though laid on the occupier they will frequently fall by a diminution of rent on the landlord the producer of the land is consumed and reproduced from year to year and so are many other commodities as they may therefore be speedily brought to a level with the demand that cannot long exceed their natural price but as a tax on houses may be considered in the light of an additional rent paid by the tenant its tendency will be to diminish the demand for houses of the same annual rent without diminishing their supply rent will therefore fall indirectly by the landlord the rent of a house says Adam Smith may be distinguished into two parts of which the one may very properly be called the building rent the other is commonly called the ground rent the building rent is the interest or profit of the capital expended in building the house in order to put the trade of a builder upon a level with other trades it is necessary that this rent should be sufficient first to pay the same interest which he would have got for his capital if he had lent it upon good security and secondly to keep the house in constant repair or what comes to the same thing to replace within a certain term of years the capital which had been employed in building it if in proportion to the interest of money the trade of the builder affords at any time a much greater profit than this it will soon draw so much capital from other trades as will reduce the profit to its proper level if it affords at any time much less than this other trades will soon draw so much capital from it as would again raise that profit whatever part of the whole rent of a house is sufficient for affording this reasonable profit naturally goes to the ground rent and where the owner of the ground and the owner of the building are two different persons it is in most cases completely paid to the former in country houses at a distance from any great town where there is a plentiful choice of ground the ground rent is scarcely anything or no more than what the space upon which the house stands would pay employed in agriculture in country villas in the neighborhood of some great town it is sometimes a good deal higher the transparency or beauty of situation is there frequently very highly paid for ground rents are generally highest in the capital and in those particular parts of it where there happens to be the greatest demand for houses whatever be the reason for that demand whether for trade and business, for pleasure and society or for mere vanity and fashion a tax on the rent of houses may either fall on the occupier on the ground landlord or on the building landlord in ordinary cases it may be presumed that the whole tax would be paid both immediately and finally by the occupier if the tax be moderate and the circumstances of the country such that it is either stationary or advancing there would be little motive for the occupier of a house to content himself with one of a worse description but if the tax be high or any other circumstances should diminish the demand for houses the landlord's income would fall for the occupier would be partly compensated for the tax by a diminution of rent it is however difficult to say in what proportions that part of the tax which was saved by the occupier by a fall of rent would fall on the building rent and the ground rent it is probable that in the first instance both would be affected but as houses are, though slowly yet certainly perishable and as no more would be built still the profits of the builder were restored to the general level building rent would after an interval be restored to its natural price as the builder receives rent only whilst the building endures he could pay no part of the tax under the most disastrous circumstances for any longer period the payment of this tax then would probably fall on the occupier and ground landlord but in what proportion this final payment would be divided between them says Adam Smith it is not perhaps very easy to ascertain the division would probably be very different in different circumstances and a tax of this kind might according to those different circumstances affect very unequally both the inhabitant of the house and the owner of the ground Adam Smith considers ground rents as peculiarly fit subjects for taxation both ground rents and the ordinary rent of land he says are a species of revenue which the owner in many cases enjoys without any care or attention of his own though a part of this revenue should be taken from him in order to defray the expenses of the state no discouragement will thereby be given to any sort of industry the annual produce of the land and labour of the society the real wealth and revenue of the great body of the people might be the same after such a tax as before ground rents and the ordinary rent of land are therefore perhaps the species of revenue which can best bear to have a peculiar tax imposed upon them it must be admitted that the effects of these taxes would be such as Adam Smith has described it would surely be very unjust to tax exclusively the revenue of any particular class of a community the burdens of the state should be borne by all in proportion to their means this is one of the four maxims mentioned by Adam Smith which should govern all taxation rent often belongs to those who after many years of toil have realised their gains and expended their fortunes in the purchase of land or houses and it certainly would be an infringement of that principle which should ever be held sacred the security of property to subject it to unequal taxation it is to be lamented that the duty by stamps with which the transfer of landed property is loaded materially impede the confluence of it into those hands where it would probably be made most productive and if it be considered that land regarded as a fit subject for exclusive taxation would not only be reduced in price to compensate for the risk of that taxation but in proportion to the indefinite nature and uncertain value of the risk partaking more of the nature of gambling than of sober trade it will appear probable that the hands into which land would in that case be most apt to fall would be the hands of those who possessed more of the qualities of the gambler than of the qualities of the sober minded proprietor who is likely to employ his land to the greatest advantage Chapter 15 Taxes on profits Taxes on those commodities which are generally denominated luxuries fall on those only who make use of them Taxes on wine is paid by the consumer of wine Attacks on pleasure horses or on coaches is paid by those who provide for themselves such enjoyments and in exact proportion as they provide them but taxes on necessaries do not affect the consumers of necessaries in proportion to the quantity that may be consumed by them but often in a much higher proportion Attacks on corn we have observed not only affects the manufacturer in the proportion that he and his family may consume corn but it alters the rate of profits of stock therefore also affects his income whatever raises the wages of labour lowers the profits of stock therefore every tax on any commodity consumed by the labourer has a tendency to lower the rate of profits Attacks on hats will raise the price of hats Attacks on shoes the price of shoes if this were not the case the tax would be finally paid by the manufacturer his profits would be reduced below the general level and he would quit his trade a partial tax on profits will raise the price of the commodity on which it falls Attacks, for example, on the profits of the hatter would raise the price of hats for if his profits were taxed and not those of any other trade his profits, unless he raised the price of his hats would be below the general rate of profits and he would quit his employment for another in the same manner Attacks on the profits of the farmer would raise the price of corn Attacks on the profits of the cloth and if a tax in proportion to profits were laid on all trades every commodity would be raised in price but if the mine which supplied us with the standard of our money were in this country and the profits of the miner were also taxed the price of no commodity would rise each man would give an equal proportion of his income and everything would be as before if money be not taxed and therefore be permitted to preserve its value whilst everything else is taxed and is raised in value the hatter, the farmer and the clothier each employing the same capitals would pay the same amount of tax if the tax be £100 the hats, the cloth and the corn would each be increased in value £100 if the hatter gains by his hats £1,100 instead of £1,000 he will pay £100 to government for the tax and therefore will still have £1,000 to lay out on goods for his own consumption but as the cloth, corn and all other commodities will be raised in price from the same cause he will not obtain more for his £1,000 than he before obtained for £910 and thus will he contribute by his diminished expenditure to the exigencies of the state he will by the payment of the tax have placed a portion of the produce of the land and labour of the country at the disposal of government instead of using that portion himself if instead of expending his £1,000 he adds it to his capital he will find in the rise of wages and in the increased cost of the raw material and machinery that his saving of £1,000 does not amount to more than a saving of £910 amounted to before if money be taxed or if by any other cause it's value be altered and all commodities remain precisely at the same price as before the profits of the manufacturer and farmer will also be the same as before they will continue to be £1,000 and as they will each have to pay £100 to government they will retain only £900 which will give them a less command over the produce of the land and labour of the country whether they expended in productive or unproductive labour precisely what they lose government will gain in the first case the contributor to the tax would for £1,000 have as greater quantity of goods as he before had for £910 in the second he would have only as much as he before had for £900 for the price of goods would remain unaltered and he would have only £900 to expend this proceeds from the difference in the amount of the tax in the first case it is only an 11th of his income in the second it is a 10th money in the two cases being of a different value but although if money be not taxed and do not alter in value all commodities will rise in price they will not rise in the same proportion they will not after the tax bear the same relative value to each other which they did before the tax in a former part of this work we discussed the effects of the division of capital into fixed and circulating or rather into durable and perishable capital on the prices of commodities we showed that two manufacturers might employ precisely the same amount of capital from it, precisely the same amount of profits but that they would sell their commodities for very different sums of money according as the capitals they employed were rapidly or slowly consumed and reproduced the one might sell his goods for £4000 the other for £10,000 and they might both employ £10,000 of capital and obtain 20% profit or £2,000 the capital of one might consist for example of £2,000 circulating capital to be reproduced and £8,000 fixed in buildings and machinery the capital of the other on the contrary might consist of £8,000 of circulating and of only £2,000 fixed capital in machinery and buildings now each of these persons would be taxed 10% on his income or £200 the one to make his business yield him the general rate of profit must raise his goods from £10,000 to £10,200 the other would also be obliged to raise the price of his goods from £4,000 to £4,200 if for the tax the goods sold by one of these manufacturers were 2.5 times more valuable than the goods of the other after the tax they will be 2.42 times more valuable the one kind will have risen 2% the other 5% consequently a tax upon income whilst money continued unaltered in value would alter the relative prices and value of commodities this would be true also if the tax instead of being laid on the profits were laid on the commodities themselves provided they were taxed in proportion to the value of the capital employed on their production they would rise equally, whatever might be their value and therefore they would not preserve the same proportion as before a commodity which rose from £10,000 to £11,000 would not bear the same relation as before to another which rose from £2,000 to £3,000 if under these circumstances money rose in value from whatever cause it might proceed it would not affect the prices of commodities in the same proportion the same cause which would lower the price of one £10,200 to £10,000 or less than 2% would lower the price of the other from £4,200 to £4,000 or 4.75% if they fell in any different proportion profits would not be equal but to make them equal when the price of the first commodity was £10,000 the price of the second should be £4,000 and when the price of the first was £10,200 the price of the other should be £4,200 the consideration of this fact will lead to the understanding of a very important principle which I believe has never been adverted to it is this that in a country where no taxation subsists the alteration in the value of money arising from scarcity or abundance will operate in an equal proportion on the prices of all commodities that if a commodity of £1,000 value rose to £1,200 or £4,800 a commodity of £10,000 value will rise to £12,000 or £4,800 but in a country where prices are artificially raised the abundance of money from an influx or the exploitation and consequence scarcity of it from foreign demand will not operate in the same proportion on the prices of all commodities some it will raise or lower 5,6 or 12% others 3,4 or 7% if a country were not taxed and money should fall in value its abundance in every market would produce similar effects in each if meat rose 20% bread, beer, shoes, labour and every commodity would also rise 20% it is necessary they should do so to secure to each trade the same rate of profits but this is no longer true when any of these commodities is taxed if in that case they should all rise in proportion to the fall in the value of money profits would be rendered unequal in the case of the commodities taxed, profits would be raised above the general level and capital would be removed from one employment to another till an equilibrium of profits was restored which could only be after the relative prices were altered will not this principle account for the different effects which it was remarked were produced on the prices of commodities from the altered value of money during the bank restriction it was objected to those who contended that the currency was at that period depreciated from the two great abundance of the paper circulation that if that were the fact all commodities ought to have risen in the same proportion but it was found that many had varied considerably more than others and thence it was inferred that the rise of prices was owing to something affecting the value of commodities and not to any alteration in the value of the currency it appears however as we have just seen that in a country where commodities are taxed they will not all vary in price in the same proportion either in consequence of a rise or of a fall in the value of currency if the profits of all trades were taxed accepting the profits of the farmer all goods would rise in money value accepting raw produce the farmer would have the same corn in come as before and would sell his corn also for the same money price but as he would be obliged to pay an additional price for all the commodities except corn which he consumed it would be to him a tax on expenditure nor would he be relieved from this tax by an alteration in the value of money for an alteration in the value of money might sink all the taxed commodities to their former price but the untaxed one would sink below its former level and therefore though the farmer would purchase his commodities at the same prices before he would have less money with which to purchase them the landlord too would be precisely in the same situation he would have the same corn and the same money rent as before if all commodities rose in price and money remained at the same value and he would have the same corn but a less money rent if all commodities remained at the same price so that in either case though his income were not directly taxed he would indirectly contribute towards the money raised but suppose the profits of the farmer to be also taxed he then would be in the same situation would be in the same situation as other traders his raw produce would rise so that he would have the same money revenue after paying the tax but he would pay an additional price for all the commodities he consumed raw produce included his landlord however would be differently situated he would be benefited by the tax on his tenants profits as he would be compensated for the additional price at which he would purchase his manufactured commodities if they rose in price and he would have the same money revenue if in consequence of a rise in the value of money they would be sold at their former price a tax on the profits of the farmer is not a tax proportioned to the gross produce of the land but to its net produce after the payment of rent wages and all other charges as the cultivators of the different kinds of land number one, two and three employ precisely the same capitals they will get precisely the same profits whatever may be the quantity of gross produce which one may obtain more than the other and consequently they will be all taxed alike suppose the gross produce of the land of the quality number one to be 180 quarters that of number two 170 quarters and that of number three 160 and each to be taxed 10 quarters the difference between the produce of number one number two and number three after paying the tax will be the same as before for if number one be reduced to 170 number two to 160 and number three to 150 quarters the difference between three and one will be as before 20 quarters and of number three and number two 10 quarters if after the tax the prices of corn and of every other commodity should remain the same as before money rent as well as corn rent would continue unaltered but if the price of corn and every other commodity should rise in consequence of the tax money rent will also rise in the same proportion if the price of corn were 4 pounds per quarter the rent of number one would be 80 pounds and that of number two 40 pounds but if corn rose 5% or to 4 pounds for shillings the rent would also rise 5% for 20 quarters of corn would then be worth 84 pounds and 10 quarters 42 pounds so that in every case the landlord will be unaffected by such a tax a tax on the profits of stock always leaves corn rent unaltered and therefore money rent varies with the price of corn but a tax on raw produce or tithes never leaves corn rent unaltered but generally leaves money rent the same as before in another part of this work I have observed that if a land tax of the same money amount were laid on every kind of land in cultivation without any allowance for difference of fertility it would be very unequal in its operation as it would be a profit to the landlord of the more fertile lands it would raise the price of corn in proportion to the burden born by the farmer of the worst land but this additional price being obtained for the greater quantity of produce yielded by the better land so that if the price increases and afterwards the advantage would go to the landlord in the form of an increase of rent the effect of an equal tax on the profits of the farmer is precisely the same it raises the money rent of the landlords if money retains the same value but as the profits of all other trades are taxed as well as those of the farmer and consequently the prices of all goods as well as corn are raised the landlord loses as much by the increased money price of the goods and corn on which his rent is expended the company should rise in value and all things should after a tax on the profits of stock fall to their former prices rent also would be the same as before the landlord would receive the same money rent and would obtain all the commodities on which it was expended at their former price so that under all circumstances he would continue untaxed footnote that the profits of the farmer only should be taxed and not the profits of any other capitalist would be highly beneficial to landlords it would in fact be a tax on the consumers partly for the benefit of the state and partly for the benefit of landlords end of footnote this circumstance is curious by taxing the profits of the farmer you do not burden him more than if you exempted his profits from the tax and the landlord has a decided interest that his tenants profits should be taxed as it is only on that condition that he himself continues really untaxed a tax on the profits of capital would also affect the stockholder if all commodities were to rise the dividends continued untaxed but if from the alteration in the value of money all commodities were to sink to their former price the stockholder would pay nothing towards the tax he would purchase all his commodities at the same price but would still receive the same money dividend if it be agreed that by taxing the profits of one manufacturer only the price of his goods would rise to put him on equality with all other manufacturers and that by taxing the profits of two manufacturers the new descriptions of goods must rise I do not see how it can be disputed that by taxing the profits of all manufacturers the prices of all goods would rise provided the mine which supplied us with money were in this country and continued untaxed but as money or the standard of money is a commodity imported from abroad the prices of all goods could not rise for such an effect could not take place without an additional quantity of money which could not be obtained in exchange for dear goods on further consideration I doubt whether any more money would be required to circulate the same quantity of commodities if their prices be raised by taxation and not by difficulty of production suppose one hundred thousand quarters of corn to be sold in a certain district and in a certain time at four pounds per quarter and that in consequence of a direct tax of eight shillings per quarter corn rises to four pounds eight shillings the same quantity of money I think and no more would be required to circulate this corn at the increased price if I before purchased eleven quarters at four pounds and in consequence of the tax am obliged to reduce my consumption to ten quarters I shall not require more money for in all cases I shall pay forty four pounds for my corn the public would in fact consume one eleventh less and this quantity would be consumed by government the money necessary to purchase it would be derived from the eight shillings per quarter to be received from the farmers in the shape of a tax but the amount levied would at the same time be paid to them for their corn therefore the tax is in fact a tax in kind and does not make it necessary that any more money should be used or if any so little that the quantity may be safely neglected end of footnote if however such a rise could take place it could not be permanent for it would have a powerful influence on foreign trade in return for commodities imported those dear goods could not be exported and therefore we should for a time continue to buy although we cease to sell and should export money or bullion till the relative prices of commodities were nearly the same as before it appears to me absolutely certain that a well regulated tax on profits would ultimately restore commodities both of home and foreign manufacture to the same money price which they bore before the tax was imposed as taxes on raw produce tithes, taxes on wages and on the necessaries of the labourer will by raising wages lower profits they will all though not in an equal degree be attended with the same effects the discovery of machinery which materially improves home manufacturers always tends to raise the relative value of money and therefore to encourage its importation all taxation all increased impediments either to the manufacturer or the grower of commodities tend on the contrary to lower the relative value of money and therefore to encourage its exportation chapter 16 taxes on wages taxes on wages will raise wages and therefore will diminish the rate of profits of stock we have already seen that a tax on necessaries will raise their prices and will be followed by a rise of wages the only difference between a tax on necessaries and a tax on wages is that the former will necessarily be accompanied by a rise in the price of necessaries but the latter will not towards a tax on wages consequently neither the stockholder the landlord nor any other class but the employers of labour will contribute a tax on wages is wholly a tax on profits a tax on necessaries is partly a tax on profits and partly a tax on rich consumers the ultimate effects which will result from such taxes then are precisely the same as those which result from a direct tax on profits the wages of the inferior classes of workmen says Adam Smith I have endeavored to show in the first book are everywhere necessarily regulated by two different circumstances the demand for labour and the ordinary or average price of provisions the demand for labour according as it happens to be either increasing stationery or declining population regulates the subsistence of the labourer and determines in what degree it will be either liberal moderate or scanty the ordinary or average price of provisions determines the quantity of money which must be paid to the workmen in order to enable him one year with another to purchase this liberal moderate or scanty subsistence while the demand for labour and the price of provisions therefore remain the same a direct tax upon the wages of labour can have no other effect than to raise them somewhat higher than the tax as it is here advanced by Dr Smith Mr Buchanan offers two objections first he denies that the money wages of labour are regulated by the price of provisions and secondly he denies that attacks on the wages of labour would raise the price of labour on the first point Mr Buchanan's argument is as follows page 59 the wages of labour it has already been remarked consist not in money but in what money purchases namely provisions and other necessaries and the allowance of the labourer out of the common stock will always be in proportion to the supply where provisions are cheap and abundant his share will be the larger and where they are scarce and dear it will be the less his wages will always give him his just share and they cannot give him more it is an opinion indeed adopted by Dr Smith and most other writers that the money price of labour is regulated by the money price of provisions and that when provisions rise in price wages rise in proportion but it is clear that the price of labour has no necessary connection with the price of food since it depends entirely on the supply of labourers compared with the demand besides it is to be observed that the high price of provisions is a certain indication of a deficient supply and arises in the natural course of things for the purpose of retarding the consumption a smaller supply of food shared among the same number of consumers will evidently leave a smaller portion to each and the labourer must bear his share of the common want to distribute this burden equally and to prevent the labourer from consuming subsistence so freely as before the price rises but wages it seems must rise along with it that he may still use the same quantity of a scarcer commodity and thus nature is represented as counteracting her own purposes first raising the price of food to diminish the consumption and afterwards raising wages to give the labourer the same supply as before in this argument of Mr 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 Buchanan assumes it as a certain indication of deficient supply he attributes to one cause exclusively that which may arise from many it is undoubtedly true that in the case of a deficient supply a smaller quantity will be shared among the same number of consumers and a smaller portion will fall to each to distribute this privation equally and to prevent the labourer from consuming subsistence so freely as before the price rises it must therefore be conceded to Mr Buchanan that any rise in the price of provisions occasioned by a deficient supply will not necessarily raise the money wages of labour as the consumption must be retarded which can only be affected by diminishing the power of the consumers to purchase but because the price of provisions is raised by a deficient supply we are by no means warranted in concluding as Mr Buchanan appears to do that there may not be an abundant supply with a high price not a high price with regard to money only but with regard to all other things the natural price of commodities which always ultimately governs their market price depends on the facility of production but the quantity produced is not in proportion to that facility although the lands which are now taken into cultivation are much inferior to the lands in cultivation three centuries ago and therefore the difficulty of production is increased who can entertain any doubt but that the quantity produced now very far exceeds the quantity then produced not only is a high price compatible with an increased supply but it rarely fails to accompany it if then in consequence of taxation or of difficulty of production the price of provisions be raised and the quantity be not diminished the money wages of labour will rise for as Mr Buchanan has justly observed the wages of labour consist not in money but in what money purchases namely provisions and other necessaries and the allowance of the labour out of the common stock will always be in proportion to the supply with respect to the second point whether a tax on the wages of labour would raise the price of labour after the labourer has received the fair recompense of his labour how can he have recourse on his employer for what he is afterwards compelled to pay away in taxes there is no law or principle in human affairs to warrant such a conclusion after the labourer has received his wages they are in his own keeping and he must as far as he is able bear the burden of whatever exactions he may ever afterwards be exposed to for he has clearly no way of compelling those to reimburse him who have already paid him the fair price of his work Mr Buchanan has quoted with great approbation the following able passage from Mr Malthus's work on population which appears to me completely to answer his objection the price of labour when left to find its natural level is a most important political barometer expressing the relation between the supply of provisions and the demand for them between the quantity to be consumed and the number of consumers and taken on average independently of accidental circumstances it further expresses clearly that is whatever may be the number of children to a marriage necessary to maintain exactly the present population the price of labour will be just sufficient to support this number or be above it or below it according to the state of the real funds the maintenance of labour whether stationary progressive or retrograde instead however of considering it in this light we consider it as something which we may raise or depress at pleasure something which depends principally on his magesis justices of the piece when in advance in the price of provisions he already expresses that the demand is too great for the supply in order to put the labourer in the same conditions before we raise the price of labour that is we increase the demand and are then much surprised that the price of provisions continues rising in this we act much in the same manner as if when the quicksilver in the common weatherglass stood at stormy we were to raise it by some forcible pressure to settled fare and then be greatly astonished that it continued raining the price of labour will express clearly the once of the society respecting population it will be just sufficient to support the population which at that time the state of the funds for the maintenance of labourers requires if the labourers wages were before only adequate to supply the requisite population they will after the tax be inadequate to that supply but he will not have the same funds to expend on his family labour will therefore rise because the demand continues and it is only by raising the price that the supply is not checked nothing is more common that the hats or malt rise when taxed they rise because the requisite supply would not be afforded if they did not rise so with labour when wages are taxed its price rises because if it did not the requisite population would not be kept up does not Mr Buchanan allow all that is contended for when he says that were he the labourer indeed reduced to a bare allowance of necessaries he would then suffer no further abatement of his wages as he could not on such conditions continue his race suppose the circumstances of the country to be such that the lowest labourers are not only called upon to continue their race but to increase it their wages would be regulated accordingly can they multiply in the degree required if a tax takes from them a part of their wages and reduces them to bare necessaries it is undoubtedly true that a taxed commodity will not rise in proportion to the tax if the demand for it diminish and if the quantity cannot be reduced if metallic money were in general use its value would not for a considerable time be increased by tax in proportion to the amount of the tax because at a higher price the demand would be diminished and the quantity would not be diminished and unquestionably the same cause frequently influences the wages of labour the number of labourers cannot be rapidly increased or diminished in proportion to the increase or diminution of the fund which is to employ them but in the case suppose there is no necessary diminution of demand 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 maintaining labourers unproductive indeed but still labourers if labour were not to rise when wages are taxed there would be a great increase in the competition for labour because the owners of capital who would have nothing to pay towards such a tax would have the same funds for employing labour whilst the government who received the tax would have an additional fund for the same purpose government and the people thus become competitors and the consequence of their competition is a rise in the price of labour the same number of men only will be employed but they will be employed at additional wages if the tax had been laid at once on the people of capital their fund for the maintenance of labour would have been diminished in the very same degree that the fund of government for that purpose had been increased and therefore there would have been no rise in wages for though there would be the same demand there would not be the same competition if when the tax were levied government at once exported the produce of it to a foreign state and if therefore these funds were devoted to the maintenance of foreign and not of English labourers such as soldiers sailors etc etc then indeed there would be a diminished demand for labour and wages might not increase although they were taxed but the same thing would happen if the tax had been laid on consumable commodities or the profits of stock or if in any other manner the same sum had been raised to supply this subsidy less labour could be employed at home in one case wages are prevented from rising in the other they must absolutely fall but suppose the amount of a tax on wages were after being raised on the labourers paid gratuitously to their employers it would increase their money fund for the maintenance of labour but it would not increase either commodities or labour it would consequently increase the competition amongst the employers of labour and the tax would be ultimately attended with no loss either to master or labourer the master would pay an increased price for labour the addition which the labourer received would be paid as a tax to government and would be again returned to the masters however not be forgotten that the produce of taxes is generally wastefully expended they are always obtained at the expense of the people's comforts and enjoyments and commonly either diminish capital or regard its accumulation by diminishing capital they tend to diminish the real fund destined for the maintenance of labour and therefore to diminish the real demand for it taxes then generally as far as they impair the real capital of the country diminish the demand for labour and therefore it is a probable but not a necessary nor a peculiar consequence of a tax on wages no wages would rise they would not rise by a sum precisely equal to the tax Adam Smith as we have seen has fully allowed that the effect of a tax on wages would be to raise wages by a sum at least equal to the tax and would be finally if not immediately paid by the employer of labour thus far we fully agree but we essentially differ in our views of the subsequent operation of such a tax a direct tax upon the wages of labour therefore says Adam Smith though the labourer might perhaps pay it out of his hand would be said to be even advanced by him at least if the demand for labour and the average price of provisions remained the same after the taxes before it in all such cases not only the tax but something more than the tax would in reality be advanced by the person who immediately employed him the final payment would in different cases fall upon different persons the rise which such a tax might occasion in the wages of manufacturing labour would be advanced by the master manufacturer who would be entitled and obliged to charge it with a profit upon the price of his goods the rise which such a tax might occasion in country labour would be advanced by the farmer who in order to maintain the same number of labourers as before would be obliged to employ a greater capital in order to get back this greater capital together with the ordinary profits of stock it would be necessary that he should retain a larger portion or what comes to the same thing the price of a larger portion of the produce of the land and consequently that he should pay less to the landlord the final payment of this rise of wages would in this case fall upon the landlord together with the additional profits of the farmer who had advanced it in all cases a direct tax upon the wages of labour must in the long run occasion both a greater reduction in the rent of land and a greater rise in the price of manufactured goods then would have followed from the proper assessment of a sum equal to the produce of the tax partly upon the rent of land and partly upon consumable commodities Volume 3 page 337 is asserted that the additional wages paid by farmers will ultimately fall on the landlords who will receive a diminished rent but that the additional wages paid by manufacturers would occasion a rise in the price of manufactured goods and will therefore fall on the consumers of those commodities now suppose a society to consist of landlords, manufacturers, farmers and labourers the labourers it is agreed would be recompensed for the tax but by whom who would pay that portion which did not fall on the landlords and the manufacturers could pay no part of it for if the price of their commodities should rise in proportion to the additional wages they paid they would be in a better situation after them before the tax if the clothia, the hatter and the shoemaker etc should be each able to raise the price of their goods 10% supposing 10% to recompense them completely for the additional wages they paid if as Adam Smith says they would be entitled and obliged to charge the additional wages with a profit upon the price of their goods they could each consume as much as before of each other's goods and therefore they would pay nothing towards the tax if the clothia paid more for his hats and shoes he would receive more for his cloth and if the hatter paid more for his cloth and shoes he would receive more for his hats all manufactured commodities then would be bought by them with as much advantage as before and in as much as corn would not be raised in price which is Dr Smith's supposition while they had an additional sum to lay out upon its purchase they would be benefited and not injured by such a tax if then neither the labourers nor the manufacturers would contribute towards such a tax if the farmers would be also recompensed by a fall of rent landlords alone must not only bear its whole weight but they must also contribute to the increased gains of the manufacturers to do this however they should consume all the manufactured commodities in the country for the additional price charged on the whole mass is little more than the tax originally imposed on the labourers in manufacturers now it will not be disputed that the clothia, the hatter and all other manufacturers are consumers of each other's goods it will not be disputed that labourers of all descriptions consume soap, cloth, shoes, candles and various other commodities it is therefore impossible that the whole weight of these taxes should fall on landlords only but if the labourers pay no part of the tax and yet manufactured commodities rise in price waiters must rise not only to compensate them for the tax but for the increased price of manufactured necessaries which as far as it affects agricultural labour will be a new cause for the fall of rent and as far as it affects manufacturing labour the rise in the price of goods this rise in the price of goods will again operate on wages and the action and reaction first of wages on goods and then of goods on wages will be extended without any assignable limits the arguments by which this theory is supported lead to such absurd conclusions that it may at once be seen that the principle is wholly indefensible for all the effects which are produced on the profits of stock and the wages of labour by a rise of rent and a rise of necessaries in the natural progress of society the increasing difficulty of production will equally follow from a rise of wages in consequence of taxation and therefore the enjoyment of the labourer as well as those of his employers will be curtailed by the tax and not by this tax particularly but by every other which should raise an equal amount as they would all tend to diminish the fund destined for the maintenance of labour the error of Adam Smith proceeds in the first place from supposing that all taxes paid by the farmer must necessarily fall on the landlord and no deduction from rent on this subject I have explained myself most fully and I trust that it has been shown to the satisfaction of the listener that since much capital is employed on the land which pays no rent and since it is the result obtained by this capital which regulates the price of raw produce no deduction can be made from rent and consequently either no remuneration will be made to the farmer for a tax on wages or if made it must be made by an addition to the price of raw produce if taxes press on the farmer he will be enabled to raise the price of raw produce to place himself on a level with those who carry on other trades but a tax on wages which would not affect him more than it would affect any other trade could not be removed or compensated by a high price of raw produce for the same reason which should induce him to raise the price of corn namely to remunerate himself for the tax would induce the clothier to raise the price of cloth the shoemaker, hatter and upholsterer to raise the price of shoes, hats and furniture if they could all raise the price of their goods so as to remunerate themselves with a profit for the tax as they are all consumers of each other's commodities it is obvious that the tax could never be paid for who would be the contributors if all were compensated I hope then that I have succeeded in showing that any tax which will have the effect of raising wages will be paid by a diminution of profits and therefore that a tax on wages is in fact a tax on profits this principle of the division of the produce of labour and capital between wages and profits is attempted to establish appears to me so certain that accepting in the immediate effects I should think it of little importance whether the profits of stock or the wages of labour were taxed by taxing the profits of stock you would probably alter the rate at which the funds for the maintenance of labour increase and wages would be disproportion to the state of that fund by being too high by taxing wages the reward paid to the labour would also be disproportion to the state of that fund by being too low in the one case by a fall in between profits and wages would be restored the tax on wages then does not fall on the landlord but it falls on the profits of stock it does not entitle and oblige the master manufacturer to charge it with a profit on the prices of his goods for he will be unable to increase their price and therefore he must himself wholly and without compensation pay such a tax footnote Monsieur Sey appears to have imbibed the general opinion on this subject speaking of corn he says thence it results that its price influences the price of all other commodities of barma a manufacturer or a merchant employs a certain number of workmen who all have occasion to consume a certain quantity of corn if the price of corn rises he is obliged to raise in an equal proportion the price of his productions unquote end of footnote if the effect of taxes on wages be such as I have described they do not merit the censure cast upon them by Dr Smith those of such taxes these and some other taxes of the same kind by raising the price of labour are said to have ruined the greater part of the manufacturers of Holland similar taxes though not quite so heavy take place in the Milanese in the states of Genoa in the duchy of Medina in the duchies of Parma, Pricentia and Guestana and in the ecclesiastical states a French author of some note has proposed to reform the finances of his country by substituting in the room of other taxes this most ruinous of all taxes there is nothing so absurd says Cicero which has not sometimes been asserted by some philosophers and in another place he says taxes upon necessaries by raising the wages of labour necessarily tend to raise the price of all manufacturers and consequently to diminish the extent of their sale and consumption they would not merit this censure even if Dr Smith's principle were correct that such taxes would enhance the prices of manufactured commodities for such an effect could be only temporary and would subject us to no disadvantage in our foreign trade if any cause should raise the price of a few manufactured commodities it would prevent or check their exportation but if the sane cause operated generally on all the effect would be merely nominal and would neither interfere with their relative value nor in any degree diminish the stimulus to a trade of barter which all commerce both foreign and domestic really is I have already attempted to show that when any cause raises the prices of all commodities the effects are nearly similar to a fall in the value of money if money falls in value all commodities rise in price and if the effect is confined to one country it will affect its foreign commerce in the same way as a high price of commodities caused by general taxation and therefore in examining the effects of a low value of money confined to one country we are also examining the effects of a high price of commodities confined to one country indeed Adam Smith was fully aware of the resemblance between these two cases he consistently maintained that the low value of money or as he calls it, of silver in Spain in consequence of the prohibition against its exportation was very highly prejudicial to the manufacturers and foreign commerce of Spain but that degradation in the value of silver which being the effect either of the peculiar situation or of the political institutions of a particular country takes place only in that country is a matter of very great consequence which far from tending to make anybody really richer tends to make everybody really poorer the rise in the money price of all commodities which is in this case peculiar to that country tends to discourage more or less every sort of industry which is carried on within it and to enable foreign nations like furnishing almost all sorts of goods for a smaller quantity of silver than its own workmen can afford to do to undersell them not only in the foreign but even in the home market Volume 2, page 278 one and I think the only one of the disadvantages of a low value of silver in a country proceeding from a forced abundance has been ably explained by Dr. Smith if the trade in gold and silver were free the gold and silver which would go abroad would not go abroad for nothing but would bring back an equal value of goods of some kind or another those goods too would not be all matters of mere luxury and expense to be consumed by idle people who produce nothing in return for their consumption as the real wealth and revenue of idle people would not be augmented by this extraordinary exportation of golden silver so would neither their consumption be augmented by it those goods would probably the greater part of them and certainly some part of them consistent materials tools and provisions for the employment and maintenance of industrious people who would reproduce with a profit the full value of their consumption a part of the dead stock of the society would thus be turned into active stock and would put into motion a greater quantity of industry than had been employed before by not allowing a free trade in the precious metals when the prices of commodities are raised either by taxation or by the influx of the precious metals you prevent a part of the dead stock of the society from being turned into active stock you prevent a greater quantity of industry from being employed but this is the whole amount of the evil an evil never felt by those countries where the exportation of silver is either allowed or connived at the exchanges between countries are at par only whilst they have precisely that quantity of currency which in the actual situation of things they should have to carry on the circulation of their commodities if the trade and the precious metals were perfectly free and money could be exported without any expense whatever the exchanges could be no otherwise in every country than at par if the trade and the precious metals were perfectly free if they were generally used in circulation even with the expenses of transporting them the exchange could never in any of them deviate more from par than by these expenses these principles I believe are now nowhere disputed if a country used paper money but exchangeable for species and therefore not regulated by any fixed standard if a country used paper money but exchangeable for species and therefore not regulated by any fixed standard the exchanges in that country might deviate from par in the same proportion as its money might be multiplied beyond that quantity which would have been allotted to it by general commerce if the trade and money had been free and the precious metals had been used either for money or for the standard of money if by the general operations of commerce 10 millions of pounds sterling of a known weight and fineness of bullion which would be the portion of England and 10 millions of paper pounds were substituted no effect would be produced on the exchange but if by the abuse of the power of issuing paper money 11 millions of pounds should be employed in the circulation the exchange would be 9% against England if 12 millions were employed the exchange would be 16% and if 20 millions the exchange would be 50% against England to produce this effect it is not however necessary that paper money should be employed any cause which retains in circulation a greater quantity of pounds than would have circulated if commerce had been free and the precious metals of a known weight and fineness had been used either for money or for the standard of money would exactly produce the same effects suppose that by clipping the money each pound did not contain the quantity of gold or silver which by law it should contain a greater number of such pounds might be employed in the circulation than if they were not clipped if from each pound one tenth were taken away 11 millions of such pounds might be used instead of 10 if two tenths were taken away 12 millions might be employed and if one half were taken away 20 millions might not be found superfluous if the latter some were used instead of 10 millions every commodity in England would be raised to double its former price and the exchange would be 50% against England but this would occasion no disturbance in foreign commerce nor discourage the manufacture of any one commodity if for example cloth rose in England from 20 pounds per piece we should just as freely exported after as before the rise for compensation of 50% would be made to the foreign purchaser in the exchange so that with 20 pounds of his money he could purchase a bill which would enable him to pay a debt of 40 pounds in England in the same manner if he exported a commodity which cost 20 pounds at home and which sold in England for 40 pounds he would only receive 20 pounds for 40 pounds in England would only purchase a bill for 20 pounds on a foreign country and all the blame effects would follow from whatever cause 20 millions could be forced to perform the business of circulation in England if 10 millions only were necessary if so absurd a law is the prohibition of the exploitation of the precious metals could be enforced and the consequence of such prohibition would have forced 1 millions of good pounds fresh from the mint instead of 10 into circulation the exchange would be 9% against England if 12 millions 16% and if 20 millions 50% against England but no discouragement would be given to the manufacturers of England. If home commodities sold at a high price in England, so would foreign commodities, and whether they were high or low would be of little importance to the foreign exporter and importer, whilst he would, on the one hand, be obliged to allow compensation in the exchange when his commodities sold at a dear rate, and would receive the same compensation when he was obliged to purchase English commodities at a high price. The sole disadvantage, then, which could happen to a country from retaining by prohibitory laws a greater quantity of gold and silver in circulation than would otherwise remain there, would be the loss which it would sustain from employing a portion of its capital unproductively instead of employing it productively. In the form of money this capital is productive of no profit. In the form of materials, machinery, and food for which it might be exchanged, it would be productive of revenue and would add to the wealth and the resources of the state. Thus, then, I hope I have satisfactorily proved that a comparatively low price of the precious metals in consequence of taxation, or in other words, a generally high price of commodities, would be of no disadvantage to a state as a part of the metals would be exported, which by raising their value would again lower the price of the commodities. And further, that if they were not exported, if by prohibitory laws they could be retained in a country, the effect on the exchange would counterbalance the effect on high prices. If, then, taxes on necessaries and on wages would not raise the prices of all commodities on which labour was expended, they cannot be condemned on such grounds. And moreover, even if the opinion given by Adam Smith that they would have such an effect were well founded, they would be in no degree injurious on that account. They would be objectionable for no other reason than those which might be justly urged against taxes of any other description. The landlords, as such, would be exempted from the burden of the tax. But as far as they directly employed labour in the expenditure of their revenues by supporting gardeners, menial servants, etc., they would be subject to its operation. It is undoubtedly true that taxes upon luxuries have no tendency to raise the price of any other commodities except that of the commodities taxed. But it is not true that taxes upon necessaries by raising the wages of labour necessarily tend to raise the price of all manufacturers. It is true that taxes upon luxuries are finally paid by the consumers of the commodities taxed without any retribution. They fall indifferently upon every species of revenue, the wages of labour, the profits of stock, and the rent of land. But it is not true that taxes upon necessaries so far as they affect the labouring poor are finally paid partly by landlords in the diminished rent of their lands and partly by rich consumers, whether landlords or others, in the advanced price of manufactured goods. For so far as these taxes affect the labouring poor, they will be almost wholly paid by the diminished profits of stock, a small part only being paid by the labourers themselves in the diminished demand for labour, which taxation of every kind has a tendency to produce. It is from Dr. Smith's erroneous view of the effect of those taxes that he has been led to the conclusion that the middling and superior ranks of people, if they understood their own interest, ought always to oppose all taxes upon the necessaries of life, as well as all direct taxes upon the wages of labour. This conclusion follows from his reasoning that the final payment of both one and the other falls altogether upon themselves and always with a considerable overcharge. They fall heaviest upon the landlords. For note, so far from this being true, they would scarcely affect the landlords and stockholders. End of footnote, who always pay in a double capacity in that of landlords by the reduction of their rent and in that of rich consumers by the increase of their expense. The observation of Sir Matthew Decker that certain taxes are in the price of certain goods sometimes repeated and accumulated four or five times is perfectly just with regard to taxes upon the necessaries of life. In the price of leather, for example, you must pay not only for the tax upon the leather of your own shoes, but for a part of that upon those of the shoemaker and the tanner. You must pay too for the tax upon the salt, upon the soap and upon the candles, which those workmen consume while employed in your service. And for the tax upon the leather, which the salt maker, the soap maker and the candle maker consume while employed in their service. Now, as Dr. Smith does not 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 is certain that government will receive no more than the tax imposed, it is impossible to conceive that more can be paid by the public upon whomsoever the tax may fall. The rich consumers may and indeed will pay for the poor consumer, but they will pay no more than the whole amount of the tax. And it is not in the nature of things that tax should be repeated and accumulated four or five times. A system of taxation may be defective, more may be raised from the people than what finds its way into the coffers of the state, as a part in consequence of its effect on prices, may possibly be received by those who are benefited by the peculiar mode in which taxes are laid. Such taxes are pernicious and should not be encouraged, for it may be laid down as a principle that when taxes operate justly, they conform to the first of Dr. Smith's maxims, and raised from the people as little as possible beyond what enters into the public treasury of the state. Mr. Sey says, others offer plans of finance and propose means for filling the coffers of the sovereign, without any charge to his subjects. But unless a plan of finance is of the nature of a commercial undertaking, it cannot give to government more than it takes away, either from individuals or from government itself under some other form. Something cannot be made out of nothing by the streak of a bond. In whatever way an operation may be disguised, whatever forms we may constrain a value to take, whatever metamorphosis we may make it undergo, we can only have a value by creating it or by taking it from others. The very best of all plans of finance is to spend little, and the best of all taxes is that which is the least in amount. Dr. Smith, uniformly, and I think justly, contends that the labouring classes cannot materially contribute to the burdens of the state. A tax on necessaries, or long wages, will therefore be shifted from the poor to the rich. If then the meaning of Dr. Smith is that certain taxes are in the price of certain goods sometimes repeated and accumulated four or five times, for the purpose only of accomplishing this end, namely the transference of the tax from the poor to the rich, it cannot be liable to censure on that account. Suppose the just share of the taxes of a rich consumer to be £100, and that he would pay it directly if the tax were laid on income, on wine, or on any other luxury. He would injury if by the taxation of necessaries he should be only called upon for the payment of £25, as far as his own consumption of necessaries and that of his family was concerned, but should be required to repeat this tax three times by paying an additional price for other commodities to remunerate the labourers or their employers for the tax risk they have been called upon to advance? Even in that case the reasoning is inconclusive, for if there be no more pay than what is required by government, of what importance can it be to the rich consumer whether he pay the tax directly by paying an increased price for an object of luxury or indirectly by paying an increased price for the necessaries and other commodities he consumes? If more be not paid by the people than what is received by government, the rich consumer will only pay his equitable share. If more is paid, Adam Smith should have stated by whom it is received, but his whole argument is founded in error, for the prices of commodities would not be raised by such taxes. Mr. Sey does not appear to me to have consistently adhered to the obvious principle which I have quoted from his able work, for in the next page speaking of taxation he says, when it is pushed too far it produces this lamentable effect. It deprives the contributor of a portion of his riches without enriching the state. This is what we may comprehend if we consider that every man's power of consuming, whether productively or not, is limited by his income. He cannot then be deprived of a part of his income without being obliged proportionally to reduce his consumption, hence arises a diminution of demand for those goods which he no longer consumes, and particularly for those on which the tax is imposed. From this diminution of demand, there results a diminution of production and consequently of taxable commodities. The contributor then will lose a portion of his enjoyments, the producer a portion of his profits, and the treasury a portion of its receipts. Mr. Sey instances the tax on salt in France, previous to the Revolution, which he says, diminished the production of salt by one half. If however less salt was consumed, less capital was employed in producing it, and therefore though the producer would obtain less profit on the production of salt, he would obtain more on the production of other things. If a tax, however burdensome it may be, falls on revenue and not on capital, it does not diminish demand, it only alters the nature of it. It enables government to consume as much of the produce of the land and labor of the country as was before consumed by the individuals who contribute to the tax, an evil sufficiently great without overcharging it. If my income is one thousand pounds per annum, and I am called upon for one hundred pounds per annum for a tax, I shall only be able to demand nine tenths of the quantity of goods which I before consumed, but I enable government to demand the other tenth. If the commodity taxed be corn, it is not necessary that my demand for corn should diminish, as I may prefer to pay one hundred pounds per annum more for my corn, and to the same amount of bait in my demand for wine, furniture or any other luxury. Footnote, Monsieur Say says that the tax added to the price of a commodity raises its price. Every increase in the price of a commodity necessarily reduces the number of those who are able to purchase it, or at least the quantity they will consume of it. This is by no means a necessary consequence. I do not believe that if bread were taxed, the consumption of bread would be diminished, more than if cloth, wine or soap were taxed. End of footnote. Less capital will consequently be employed in the wine or upholstery trade, but more will be employed in manufacturing those commodities on which the taxes levied by government will be expended. Monsieur Say says that Monsieur Togo, by reducing the market dues on fish, the droids d'entrer et d'aller sur la marée, in Paris one-half, did not diminish the amount of their produce, and that consequently the consumption of fish must have doubled. In first from this, that the profits of the fishermen and those engaged in the trade must also have doubled, and that the income of the country must have increased by the whole amount of these increased profits, and by giving a stimulus to accumulation must have increased the resources of the state. Footnote. The following remark of the same author, Monsieur Say, appears to me equally erroneous. When a high duty is laid on cotton, the production of all those goods of which cotton is the basis is diminished. If the total value added to cotton in its various manufacturers in a particular country amounted to 100 millions of francs per annum, and the effect of the tax was to diminish the consumption one-half, then the tax would deprive that country every year of 50 millions of francs, in addition to the sum received by government. End of footnote. Without calling in question the policy which dictated this alteration of the tax, I have my doubts whether it gave any great stimulus to accumulation. If the profits of the fishermen and others engaged in the trade would doubled in consequence of more fish being consumed, capital and labour must have been withdrawn from other occupations to engage them in this particular trade. But in those occupations, capital and labour were productive of profits, which must have been given up when they were withdrawn. The ability of the country to accumulate was only increased by the difference between the profits obtained in the business in which the capital was newly engaged, and those obtained in that from which it was withdrawn. Whether taxes be taken from revenue or capital, they diminish the taxable commodities of the state. If I cease to expend 100 pounds on wine, because by paying a tax of that amount I have enabled government to expend 100 pounds instead of expending it myself. 100 pounds worth of goods are necessarily withdrawn from the list of taxable commodities. If the revenue of the individuals of a country be 10 millions, they will have at least 10 millions worth of taxable commodities. If by taxing some, 1 million be transferred to the disposal of government, their revenue will still be nominally 10 millions, but they will remain with only 9 millions worth of taxable commodities. There are no circumstances under which taxation does not abridge the enjoyments of those on whom the taxes ultimately fall, and no means by which those enjoyments can again be extended but the accumulation of new revenue. Taxation can never be so equally applied as to operate in the same proportion on the value of all commodities and still to preserve them at the same relative value. It frequently operates very differently from the intention of the legislature by its indirect effects. We've already seen that the effect of a direct tax on call and what produce is, if money be also produced in the country, to raise the price of all commodities in proportion as raw produce enters into that composition and thereby to destroy the natural relation which previously existed between them. Another indirect effect is that it raises wages and lowers the rate of profits, and we have also seen in another part of this work that the effect of a rise in wages and a fall of profits is to lower the money prices of those commodities which are produced in a greater degree by the employment of fixed capital. That a commodity when taxed can no longer be so profitably exported is so well understood that a drawback is frequently allowed on its exportation and a duty laid on its importation. If these drawbacks and duties be accurately laid not only on the commodities themselves but on all which they may indirectly effect then indeed there will be no disturbance in the value of the precious metals. Since we could as readily export a commodity after being taxed as before and since no peculiar facility would be given to importation the precious metals would not more than before enter into the list of exportable commodities. Of all commodities none of perhaps so proper for taxation as those which either by the aid of nature or art are produced with peculiar facility. With respect to foreign countries such commodities may be classed under the head of those which are not regulated in their price by the quantity of labour bestowed but rather by the caprice, the tastes, and the power of the purchasers. If England had more productive tin mines than other countries or if from superior machinery or fuel she had peculiar facilities in manufacturing cotton goods the prices of tin and of cotton goods would still in England be regulated by the comparative quantity of labour and capital required to produce them and the competition of our merchants would make them very little dearer to the foreign consumer. Our advantage in the production of these commodities might be so decided that probably they could bear a very great additional price in the foreign market without very materially diminishing their consumption. This price they never could attain whilst competition was free at home by any other means but by a tax on their exportation. This tax would fall wholly on foreign consumers and part of the expenses of the government of England would be defrayed by a tax on the land and labour of other countries. The tax on tea which at present is paid by the people of England and goes to aid the expenses of the government of England might if laid in China on the exportation of the tea be diverted to the payment of the expenses of the government of China. Taxes on luxuries have some advantage over taxes on necessaries. They are generally paid from income and therefore do not diminish the productive capital of the country. If wine were much raised in price in consequence of taxation it is probable that a man would rather forego the enjoyments of wine and make any important encroachments on his capital to be enabled to purchase it. They are so identified with price that the contributor is hardly aware that he is paying a tax but they have also their disadvantages. First they never reach capital and on some extraordinary occasions it may be expedient that even capital should contribute towards the public exigencies and secondly there is no certainty as to the amount of the tax for it may not reach even income. A man intent on saving will exempt himself from a tax on wine by giving up the use of it. The income of the country may be undiminished and yet the state may be unable to raise a shilling by the tax. Whatever habit has rendered delightful will be relinquished with reluctance and will continue to be consumed notwithstanding a very heavy tax but this reluctance has its limits and experience every day demonstrates that an increase in the nominal amount of taxation often diminishes the produce. One man will continue to drink the same quantity of wine though the price of every bottle should be raised three shillings who would yet relinquish the use of wine rather than pay four. Another will be content to pay four yet refused to pay five shillings. The same may be said of other taxes on luxuries. Many would pay a tax of five pounds for the enjoyment which a horse affords who would not pay ten pounds or twenty pounds. It is not because they cannot pay more that they give up the use of wine and horses but because they will not pay more. Every man has some standard in his own mind by which he estimates the value of his enjoyments but that standard is as various as the human character. A country whose financial situation has become extremely artificial by the mischievous policy of accumulating a large national debt and a consequently enormous taxation is particularly exposed to the inconvenience attendant on this mode of raising taxes. After visiting with a tax the whole round of luxuries after laying horses, carriages, wine, servants and all the other enjoyments of the rich under contribution a minister is induced to have recourse to more direct taxes such as income and property taxes neglecting the golden maxim of must you say that the very best of all plans of finance is to spend little and the best of all taxes is that which is the least in amount. Chapter 17 Taxes on other commodities than raw produce On the same principle that a tax on corn would raise the price of corn a tax on any other commodity would raise the price of that commodity. If the commodity did not rise by a sum equal to the tax it would not give the same profit to the producer which he had before and he would remove his capital to some other employment. The taxing of all commodities whether they be necessary or luxuries will while money remains at an unaltered value raise their prices by a sum at least equal to the tax. Footnote It is observed by Monsieur Say quote that a manufacturer is not enabled to make the consumer pay the whole tax levied on his commodity because its increased price will diminish its consumption unquote. Should this be the case? Should the consumption be diminished? Will not the supply also speedily be diminished? Why should the manufacturer continue in the trade if his profits are below the general level? Monsieur Say appears here also to have forgotten the doctrine which he elsewhere supports quote that the cost of production determines the price below which commodities cannot fall for any length of time because production would be then either suspended or diminished unquote. End of footnote A tax on the manufactured necessaries of the laborer would have the same effect on wages as a tax on corn which differs from other necessaries only by being the first and most important on the list and it would produce precisely the same effects on the profits of stock and foreign trade but a tax on luxuries would have no other effect than to raise their price it would fall wholly on the consumer and could neither increase wages nor lower profits. Taxes which are levied on a country for the purpose of supporting war or for the ordinary expenses of the state and which are chiefly devoted to the support of unproductive laborers are taken from the productive industry of the country but every saving which can be made from such expenses will be generally added to the income if not to the capital of the contributors when for the expenses of a years war 20 millions are raised by means of a loan it is the 20 millions which are withdrawn from the productive capital of the nation. The million per annum which is raised by taxes to pay the interest of this loan is merely transferred from those who pay it to those who receive it from the contributor to the tax to the national creditor the real expense is the 20 millions and not the interest which must be paid for it. Footnote Monsieur Sayre remarks quote Melon says that the debts of a nation are debts due from the right hand to the left by which the body is not weakened it is true that the general wealth is not diminished by the payment of the interest on arrears of the debt the dividends are a value which passes from the hand of the contributor to the national creditor whether it be the national creditor or the contributor who accumulates or consume it is I agree of little importance to the society that the principle of the debt what has become of that it exists no more the consumption which has followed the loan has annihilated a capital which will never yield any further revenue the society is deprived not of the amount of interest since that passes from one hand to the other but of the revenue from a destroyed capital this capital if it had been employed productively by him who lent it to the state would equally have yielded him an income but that income would have been derived from a real production and would not have been furnished from the pocket of a fellow citizen unquote this is both conceived and expressed in the true spirit of the science end of footnote whether the interest be or be not paid the country will neither be richer nor poorer government might at once have required the 20 millions in the shape of taxes in which case it would not have been necessary to raise annual taxes to the amount of a million this however would not have changed the nature of the transaction an individual instead of being called upon to pay 100 pounds per annum might have been obliged to pay 2000 pounds once for all it might also have suited his convenience rather to borrow this 2000 pounds and to pay 100 pounds per annum for interest to the lender than to spare the larger sum from his own funds in one case it is a private transaction between a and b in the other government guarantees to be the payment of interest to be equally paid by a if the transaction had been of a private nature no public record would be kept of it and it would be a matter of comparative indifference to the country whether a faithfully performed his contract to be or unjustly retained the 100 pounds per annum in his own possession the country would have a general interest in the faithful performance of a contract but with respect to the national wealth it would have no other interest than whether a or b would make this 100 pounds most productive but on this question it would neither have the right nor the ability to decide it might be possible that if a retained it for his own use he might squander it unprofitably and if it were paid to b he might add it to his capital and employ it productively and the converse would also be possible b might squander it and a might employ it productively with a view to wealth only it might be equally or more desirable that a should or should not pay it but the claims of justice and good faith are greater utility and not to be compelled to yield to those of a less and accordingly if the state were called upon to interfere the course of justice would oblige a to perform his contract a debt guaranteed by the nation differs in no respect from the above transaction justice and good faith demand that the interest of the national debt should continue to be paid and that those who have advanced their capitals for the general benefit should not be required to forego their equitable claims on the plea of expediency but independently of this consideration it is by no means certain that political utility would gain anything by the sacrifice of political integrity it does by no means follow that the party exonerated from the payment of the interest of the national debt would employ it more productively than those to whom indisputably it is due by cancelling the national debt one man's income might be raised from 1,000 pounds to 1,500 pounds but another man's would be lowered from 1,500 pounds to 1,000 pounds these two men's incomes no amount to 2,500 pounds they would amount to no more then if it be the object of government to raise taxes they would be precisely the same taxable capital and income in one case as in the other it is not then by the payment of the interest on the national debt that a country is distressed nor is it by the exoneration from payment that it can be relieved it is only by saving from income and re-trenching in expenditure that the national capital can be increased and neither the income would be increased nor the expenditure diminished by the annihilation of the national debt it is by the profuse expenditure of government and of individuals and by loans that the country is impoverished every measure therefore which is calculated to promote public and private economy will relieve the public distress but it is error and illusion to suppose that a real national difficulty can be removed by shifting it from the shoulders of one class of the community who justly ought to bear it to the shoulders of another class who upon every principle of equity ought to bear no more than their share from what I have said it must not be inferred that I consider the system of borrowing as the best calculated to defray the extraordinary expenses of the state it is a system which tends to make us less thrifty to blind us to our real situation if the expenses of a war be 40 millions per annum and the share which a man would have to contribute towards that annual expense for 100 pounds he would endeavor on being at once called upon for his portion to save speedily the 100 pounds from his income by the system of loans he is called upon to pay only the interest of this 100 pounds or 5 pounds per annum and considers that he does enough by saving this 5 pounds from his expenditure and then deludes himself with the belief that he is as rich as before the whole nation by reasoning and acting in this manner save only the interest of 40 millions or 2 millions and thus not only lose all the interest or profit which 40 millions of capital employed productively would afford but also 38 millions the difference between their savings and expenditure if as I before observed each man had to make his own loan and contribute his full proportion to the exigencies of the state as soon as the war ceased taxation would cease and we should immediately fall into a natural state of prices out of his private funds A might have to pay B interest for the money he borrowed of him during the war to enable him to pay his quota of the expense but with this the nation would have no concern a country which has accumulated a large debt is placed in a most artificial situation and although the amount of taxes and the increased price of labor may not and I believe does not place it under any other disadvantage with respect to foreign countries except the unavoidable one of paying those taxes yet it becomes the interest of every contributor to withdraw his shoulder from the burden and to shift this payment from himself to another and the temptation to remove himself and his capital to another country where he will be exempted from such burdens becomes at last irresistible and overcomes the natural reluctance which every man feels to quit the place of his birth and the scene of his early associations a country which is involved itself in the difficulties attending this artificial system would act wisely by ransoming itself from them at the sacrifice of any portion of its property which might be necessary to redeem its debt that which is wise in an individual is wise also in a nation a man who has 10,000 pounds paying him an income of 500 pounds out of which he has to pay 100 pounds per annum towards the interest of the debt is really worth only 8,000 pounds and would be equally rich whether he continued to pay 100 pounds per annum or at once and for only once sacrificed 2,000 pounds but where it is asked would be the purchaser of the property which he must sell to obtain this 2,000 pounds the answer is plain the national creditor who is to receive this 2,000 pounds will want an investment for his money and will be disposed either to lend it to the landholder or manufacturer or to purchase from them a part of the property of which they have to dispose to such a payment the stockholders themselves would largely contribute this scheme has been often recommended but we have I fear neither wisdom enough nor virtue enough to adopt it it must however be admitted that during peace our unceasing efforts should be directed towards paying off that part of the debt which has been contracted during war and that no temptation of relief no desire of escape from present had I heard temporary distresses should induce us to relax in our attention to that great object no sinking fund can be efficient for the purpose of diminishing the debt if it be not derived from the excess of the public revenue over the public expenditure it is to be regretted that the sinking fund in this country is only such in name for there is no excess of revenue above expenditure it ought by economy to be made what it is professed to be a really efficient fund for the payment of the debt if from the breaking out of any future war we shall not have very considerably reduced our debt one of two things must happen either the whole expenses of that war must be defrayed by taxes raised from year to year or we must at the end of that war if not before submit to a national bankruptcy not that we shall be unable to bear any large additions to the debt it would be difficult to set limits to the powers of a great nation but assuredly there are limits to the price which in the form of perpetual taxation individuals will submit to pay for the privilege merely of living in their native country footnote in economy politic Monsieur Say says credit in general is good as it allows capitals to leave those hands where they are not usefully employed to pass into those where they will be made productive it diverts a capital from an employment useful only to the capitalist such as an investment in the public funds to make it productive in the hands of industry it facilitates the employment of all capitals and leaves none unemployed unquote this must be an oversight of Monsieur Say the capital of the stockholder can never be made productive it is in fact no capital if he were to sell his stock and employ the capital he obtained for it productively he could only do so by detaching the capital of the buyer of his stock from a productive employment end of footnote when a commodity is at a monopoly price it is at the very highest price at which the consumers are willing to purchase it commodities are only at a monopoly price when they know possible device their quantity can be augmented and when therefore the competition is wholly on one side amongst the buyers the monopoly price of one period may be much lower or higher than the monopoly price of another because the competition amongst the purchasers must depend on their wealth and their tastes and caprices those particular wines which are produced in very limited quantity and those works of art which from their excellence or rarity have acquired a fanciful value will be exchanged for a very different quantity of the produce of ordinary labour according as the society is rich or poor as it possesses an abundance or scarcity of such produce or as it may be in a rude or polished state the exchangeable value therefore of a commodity which is at a monopoly price is nowhere regulated by the cost of production raw produce is not at a monopoly price because the market price of barley and wheat is as much regulated by their cost of production as the market price of cloth and linen the only difference is this that one portion of the capital employed in agriculture regulates the price of corn namely that portion which pays no rent whereas in the production of manufactured commodities every portion of capital is employed with the same results and as no portion pays rent every portion is equally a regulator of price corn and other raw produce can be augmented too in quantity by the employment of more capital on the land and therefore they are not at a monopoly price there is competition among the sellers as well as amongst the buyers this is not the case in the production of those rare wines and those valuable specimens of art of which we have been speaking their quantity cannot be increased and their price is limited only by the extent of the power and will of the purchasers the rent of these vineyards may be raised beyond any moderately assignable limits because no other land being able to produce such wines none can be brought into competition with them the corn and raw produce of a country may indeed for a time sell at a monopoly price but they can do so permanently only when no more capital can be profitably employed on the lands and when therefore their produce cannot be increased at such time every portion of land in cultivation and every portion of capital employed on the land will yield a rent differing indeed in proportion to the difference in the return at such time too any tax which may be imposed on the farmer will fall on rent and not on the consumer he cannot raise the price of his corn because by the supposition it is already at the highest price at which the purchasers will or can buy it he will not be satisfied with a lower rate of profits than that obtained by other capitalists and therefore his only alternative will be to obtain a reduction of rent or to quit his employment Mr Buchanan considers corn and raw produce as at a monopoly price because they yield a rent all commodities which yield a rent he supposes must be at a monopoly price and that seems first that all taxes on raw produce would fall on the landlord and not on the consumer the price of corn he says which always affords a rent being a no-respect influence by the expenses of its production those expenses must be paid out of the rent and when they rise or fall therefore the consequence is not a higher or lower price but a higher or a lower rent in this view all taxes on farm servants horses or the implements of agriculture are in reality land taxes the burden falling on the farmer during the currency of his lease and on the landlord when the lease comes to be renewed in like manner all those improved implements of husbandry which save expense to the farmer such as machines for threshing and reaping whatever gives him easier access to the market such as good roads, canals and bridges though they lessen the original cost of corn do not lessen its market price whatever is saved by those improvements therefore belongs to the landlord as part of his rent it is evident that if we yield to Mr Buchanan the basis on which his argument is built namely that the price of corn always yields a rent all the consequences which he contends for would follow of course taxes on the farmer then would fall not on the consumer but on rent and all improvements in husbandry would increase rent but i hope i have made it sufficiently clear that until a country is cultivated in every part and up to the highest degree there is always a portion of capital employed on the land which yields no rent and that it is this portion of capital the result of which as in manufacturers is divided between profits and wages that regulates the price of corn the price of corn then which does not afford a rent being influenced by the expenses of its production those expenses cannot be paid out of rent the consequence therefore of those expenses increasing is a higher price and not a lower rent footnote Buchanan states quote manufacturing industry increases its produce in proportion to the demand and the price falls but the produce of land cannot be so increased and a high price is still necessary to prevent the consumption from exceeding the supply unquote is it possible that Mr Buchanan can seriously assert that the produce of the land cannot be increased if the demand increases end of footnote it is remarkable that both Adam Smith and Mr Buchanan who entirely agree that taxes on raw produce for land tax and tithes all fall on the rent of land and not on the consumers of all produce should nevertheless admit that taxes on malt would fall on the consumer of beer and not on the rent of the landlord Adam Smith's argument is so able a statement of the view which I take of the subject of the tax on malt and every other tax on raw produce that I cannot refrain from offering it to the attention of the listener the rent and profits of barley land must always be nearly equal to those of other equally fertile and equally well cultivated land if they were less some part of the barley land would soon be turned to some 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 a monopoly price a tax upon it necessarily reduces the rent and profit of the land which grows it footnote at which the wet profit had been omitted Dr Smith must suppose the profits of the tenants of these precious vineyards to be above the general rate of profits if they were not they would not pay the tax unless they could shift it either to the landlord or consumer end of footnote a tax upon the produce of those precious vineyards of which the wine falls so much short of the effectual demand that its price is always above the natural proportion to that of other equally fertile and equally well cultivated land would necessarily reduce the rent and profit of those vineyards the price of the wines being already the highest that could be got for the quantity commonly sent to market it could not be raised higher without diminishing that quantity and the quantity could not be diminished without still greater loss because the lands could not be turned to any other equally valuable produce the whole weight of the tax therefore would fall upon the rent and profit properly upon the rent of the vineyard but the ordinary price of barley has never been a monopoly price and the rent and profit of barley land have never been above their natural proportion to those of other equally fertile and equally well cultivated land the different taxes which have been imposed upon malt, beer and ale have never lowered the price of barley have never reduced the rent and profit of barley land the price of malt to the brewer has constantly risen in proportion to the taxes imposed upon it and those taxes together with the different duties upon beer and ale have constantly either raised the price or what comes to the same thing reduced the quality of those commodities to the consumer the final payment of those taxes has fallen constantly upon the consumer and not upon the producer on this passage Mr Buchanan remarks a duty on malt never could reduce the price of barley because unless as much could be made of barley by malting it as by selling it unmalted the quantity required would not be brought to market it is clear therefore that the price of malt must rise in proportion to the tax imposed on it as the demand could not otherwise be supplied the price of barley however is just as much a monopoly price as that of sugar they both yield a rent and the market price of both has equally lost all connection with the original cost it appears then to be the opinion of Mr Buchanan that a tax on malt would raise the price of malt but that a tax on the barley from which malt is made would not raise the price of barley and therefore if malt is taxed the tax will be paid by the consumer if barley is taxed it will be paid by the landlord as he will receive a diminished rent according to Mr Buchanan then barley is at a monopoly price at the highest price which the purchasers are willing to give for it but malt made of barley is not at a monopoly price and consequently it can be raised in proportion to the taxes that may be imposed upon it this opinion of Mr Buchanan of the effects of a tax on malt appears to me to be in direct contradiction to the opinion he has given of a similar tax a tax on bread a tax on bread will be ultimately paid not by a rise of price but by a reduction of rent if a tax on malt would raise the price of beer a tax on bread must raise the price of bread the following argument of mrs says founded on the same views as mr Buchanan's the quantity of wine or corn which a piece of land will produce will remain nearly the same whatever may be the tax with which it is charged the tax may take away a half or even three fourths of its net produce or of its rent if you please yet the land would nevertheless be cultivated for the half or the quarter not absorbed by the tax the rent that is to say the landlord's share would nearly be somewhat lower the reason of this will be perceived if we consider that in the case supposed the quantity of produce obtained from the land and centre market will remain nevertheless the same on the other hand the motives on which the demand for the produce is founded continue also the same now if the quantity of produce supplied and the quantity demanded necessarily continue the same notwithstanding the establishment or the increase of the tax the price of that produce will not vary and if the price do not vary the consumer will not pay the smallest portion of this tax would it be said that the farmer he who furnishes labour and capital will jointly with the landlord bear the burden of this tax certainly not because the circumstance of the tax has not diminished the number of farms to be let nor increase the number of farmers since in this instance also the supply and demand remain the same the rent of farms must also remain the same the example of the manufacturer of salt who can only make the consumers pay a portion of the tax and that of the landlord who cannot reimburse himself in the smallest degree prove the error of those who maintain in opposition to the economists that all taxes fall ultimately on the consumer volume to page 338 if the tax took away half or even three fourths of the net produce of the land and the price of produce did not rise how could those farmers obtain the usual profits of stock who paid very moderate rents having that quality of land which required a much larger proportion of labour to obtain a given result than land of a more fertile quality if the whole rent were emitted they would still obtain lower profits than those in other trades and would therefore not continue to cultivate their land unless they could raise the price of its produce if the tax fell on the farmers there would be fewer farmers disposed to hire farms if it fell on the landlord many farms would not be led at all for they would afford no rent but from what fund would those pay the tax who produce corn without paying any rent it is quite clear that the tax must fall on the consumer how would such land as mr say describes in the following passage pay a tax of one half or three fourths of its produce we see in scotland poor lands thus cultivated by the proprietor and which could be cultivated by no other person thus to we see in the interior provinces of the united states vast and fertile lands the revenue of which alone would not be sufficient for the maintenance of the proprietor these lands are cultivated nevertheless but it must be by the proprietor himself or in other words he must add to the rent which is little or nothing the profits of his capital and industry to enable him to live in competence it is well known that land though cultivated yields no revenue to the landlord when no farmer will be willing to pay a rent for it which is a proof that such land will give only the profits of the capital and of the industry necessary for its cultivation say volume 2 page 127 chapter 18 poor rates we have seen that taxes on raw produce and on the profits of the farmer will fall on the consumer of raw produce since unless he had the power of remunerating himself by an increase of price the tax would reduce his profits below the general level of profits and would urge him to remove his capital to some other trade we have seen too that he could not by deducting it from his rent transfer the tax to his landlord because that farmer who paid no rent would equally with the cultivator of better land be subject to the tax whether it will aid on raw produce or on the profits of the farmer i've also attempted to show that if a tax for general and affected equally all profits whether manufacturing or agricultural it would not operate either on the price of goods or raw produce but would be immediately as well as ultimately paid by the producers the tax on rented has been observed would fall on the landlord only and could not by any means be made to devolve on the tenant the poor rate is a tax which partakes of the nature of all these taxes and under different circumstances falls on the consumer of raw produce and goods on the profits of stock and on the rent of land it is a tax which falls with peculiar weight on the profits of the farmer and therefore may be considered as affecting the price of raw produce according to the degree in which it bears on manufacturing and agricultural profits equally it will be a general tax on the profits of stock and will occasion no alteration in the price of raw produce and manufacturers in proportion to the farmers inability to remunerate himself by raising the price of raw produce for that portion of the tax which peculiarly affects him it will be a tax on rent and will be paid by the landlord to know then the operation of the poor at any particular time you must ascertain whether at that time it affects in an equal or unequal degree the profits of the farmer and manufacturer and also whether the circumstances be such as to afford to the farmer the power of raising the price of raw produce the poor rates are professed to be levied on the farmer in proportion to his rent and accordingly the farmer who paid a very small rent or no rent at all should pay little or no tax if this were true poor rates as far as they are paid by the agricultural class would entirely fall on the landlord and could not be shifted to the consumer of raw produce but i believe that it is not true the poor rate is not levied according to the rent which a farmer actually pays to his landlord it is proportioned to the annual value of his land whether that annual value be given to it by the capital of the landlord or of the tenant if two farmers rented land of two different qualities in the same parish the one paying a rent of 100 pounds per annum for 50 acres of the most fertile land and the other the same sum of 100 pounds for 1000 acres of the least fertile land they would pay the same amount of poor rates if neither of them attempted to improve the land but if the farmer of the poor land presuming on a very long lease should be induced at a great expense to improve the productive powers of his land by manuring, draining, fencing etc. he would contribute to the poor rates not in proportion to the actual rent paid to the landlord but to the actual annual value of the land the rate might equal or exceed the rent but whether it did or not no part of this rate would be paid by the landlord it would have been previously calculated upon by the tenant and if the price of produce were not sufficient to compensate him for all his expenses together with this additional charge for poor rates his improvements would not have been undertaken it is evident then that the tax in this case is paid by the consumer for if there had been no rate the same improvements would have been undertaken and the usual in general rate of profits would have been obtained on the stock employed with a lower price of corn nor would it make the slightest difference in this question if the landlord had made these improvements himself that had in consequence raised his rent from 100 pounds to 500 pounds the rate would be equally charged to the consumer for whether the landlord should expend a large sum of money on his land would depend on the rent or what is called rent which he would receive as a remuneration for it and this again would depend on the price of corn or other raw produce being sufficiently high not only to cover this additional rent but also the rate to which the land would be subject if at the same time all manufacturing capital contributed to the poor rates in the same proportion as the capital expended by the farmer or landlord in improving the land then it would no longer be a partial tax on the profits of the farmers or landlords capital but a tax on the capital of all producers and therefore it could no longer be shifted either on the consumer of raw produce or on the landlord the farmer's profits would feel the effect of the rate no more than those of the manufacturer and the former could not any more than the latter plead it as a reason for an advance in the price of his commodity it is not the absolute but the relative fall of profits which prevents capital from being employed in any particular trade it is the difference of profit which sends capital from one employment to another it must be acknowledged however that in the actual state of the poor rates a much larger amount falls on the farmer than on the manufacturer in proportion to their respective profits the farmer being rated according to the actual productions which he obtains the manufacturer only according to the value of the buildings in which he works without any regard to the value of the machinery labor or stock which he may employ from this circumstance it follows that the farmer will be enabled to raise the price of his produce by this whole difference for since the tax falls unequally and peculiarly on his profits he would have less motive to devote his capital to the land than to employ it in some other trade were not the price of raw produce raised if on the contrary the rate had fallen with greater weight on the manufacturer than on the farmer he would have been enabled to raise the price of his goods by the amount of the difference for the same reason that the farmer under similar circumstances could raise the price of raw produce in a society therefore which is extending its agriculture when poor rates fall with peculiar weight on the land they will be paid partly by the employers of capital in the diminution of the profits of stock and partly by the consumer of raw produce in its increased price in such a state of things the tax may under some circumstances be even advantageous rather than injurious to landlords for if the tax paid by the cultivator of the worst land be higher in proportion to the quantity of produce obtained than that paid by the farmers of the more fertile lands the rise in the price of corn which will extend to all corn will more than compensate the latter for the tax this advantage will remain with them during the continuance of their leases but it will afterwards be transferred to their landlords this then would be the effect of poor rates in an advancing society but in a stationary or in a retrograde country so far as capital could not be withdrawn from the land if a further rate were levied for the support of the poor that part of it which fell on agriculture would be paid during the current leases by the farmers but at the expiration of those leases it would almost wholly fall on the landlords the farmer who during his former lease had expended his capital in improving his land if it was still in his own hands would be rated for this new tax according to the new value which the land had acquired by its improvement and this amount he would be obliged to pay during his lease although his profits might thereby be reduced below the general rate of profits for the capital which he has expended may be so incorporated with the land that it cannot be removed from it if indeed he or his landlord should it have been expended by him were able to remove this capital and thereby reduce the annual value of the land the rate would proportionably fall and as the produce would at the same time be diminished its price would rise he would be compensated for the tax by charging it to the consumer and no part would fall on rent but this is impossible at least with respect to some proportion of the capital and consequently in that proportion the tax will be paid by the farmers during their leases and by landlords at their expiration this additional tax if it fell with peculiar severity on manufacturers which it does not would under such circumstances be added to the price of their goods but there can be no reason why their profits should be reduced below the general rate of profits when their capitals might be easily removed to agriculture footnote in a former part of this work i have noticed the difference between rent properly so-called and the remuneration paid to the landlord under the name for the advantages which the expenditure of his capital has procured to his tenant but i did not perhaps sufficiently distinguish the difference which would arise from the different modes in which this capital might be applied as a part of this capital when once expended in the improvement of a firm is inseparably amalgamated with the land and tends to increase its productive powers the remuneration paid to the landlord for its use is strictly of the nature of rent and is subject to all the laws of rent whether the improvement be made at the expense of the landlord or the tenant it will not be undertaken in the first instance unless there is a strong probability that the return will at least be equal to the profit that can be made by the disposition of any other equal capital but when once made the return obtained will ever after be wholly of the nature of rent and will be subject by the variations of rent some of these expenses however only give advantages to the land for a limited period and do not add permanently to its productive powers being bestowed on buildings and other perishable improvements they require to be constantly renewed and therefore do not obtain for the landlord any permanent addition to his real rent end of footnote chapter 19 on sudden changes in the channels of trade a great manufacturing country is peculiarly exposed to temporary reverses and contingencies produced by the removal of capital from unemployment to another the demands for the produce of agriculture are uniform they are not under the influence of fashion prejudice or priests to sustain life food is necessary and the demand for food must continue in all ages and in all countries it is different with manufacturers the demand for any particular manufactured commodity is subject not only to the once but to the tastes and caprice of the purchasers a new tax too may destroy the comparative advantage which a country before possessed in the manufacture of a particular commodity or the effects of war may so raise the freight and insurance on its conveyance that it can no longer enter into competition with the home manufacturer of the country to which it was before exported in all such cases considerable distress and no doubt some loss will be experienced by those who are engaged in the manufacture of such commodities and it will be felt not only at the time of the change but through the whole interval during which they are removing their capitals and the labor which they can command from one employment to another nor will distress be experienced in that country alone where such difficulties originate but in the countries to which its commodities were before exported no country can long import unless it also exports or can long export unless it also imports if then any circumstance should occur which should permanently prevent a country from importing the usual amount of foreign commodities it will necessarily diminish the manufacture of some of those commodities which were usually exported and although the total value of the productions of the country will probably be but little altered since the same capital will be employed yet they will not be equally abundant and cheap and considerable distress will be experienced through the change of employment if by the employment of ten thousand pounds in the manufacture of cotton goods for exportation we imported annually three thousand pair of silk stockings of the value of two thousand pounds and by the interruption of foreign trade we should be obliged to withdraw this capital from the manufacture of cotton and employed ourselves in the manufacture of stockings we should still obtain stockings of the value of two thousand pounds provided no part of the capital we destroyed but instead of having three thousand pair we might only have two thousand five hundred in the removal of the capital from the cotton to the stocking trade much distress might be experienced but it would not considerably impair the value of the national property although it might lessen the quantity of our annual productions quick note mrs say writes quote commerce enables us to obtain a commodity in the place where it is to be found and to convey it to another where it is to be consumed it therefore gives us the power of increasing the value of the commodity by the whole difference between its price in the first of these places and its price in the second unquote true but how is this additional value given to it by adding to the cost of production first the expenses of conveyance secondly the profit on the advance of capital made by the merchant the commodity is only more valuable for the same reasons that every other commodity may become more valuable because more labor is expended on its production and conveyance before it is purchased by the consumer this must not be mentioned as one of the advantages of commerce when the subject is more closely examined it will be found that the whole benefits of commerce resolve themselves into the means which it gives us of acquiring not more valuable objects but more useful ones end of footnote the commencements of war after a long piece or a piece after a long war generally produces considerable distress in trade it changes in a great degree the nature of the employment to which the respective capitals of countries were before devoted and during the interval while they are settling in the situations which new circumstances have made the most beneficial much fixed capital is unemployed perhaps wholly lost and laborers are without full employment the duration of this distress will be longer or shorter according to the strength of that disinclination which most men feel to abandon that employment of their capital to which they have long been accustomed it is often protracted too by the restrictions and prohibitions to which the absurd jealousies which prevail between the different states of the commercial commonwealth give rise the distress which proceeds from a revulsion of trade is often mistaken for that which accompanies a diminution of the national capital and a retrograde state of society and it would perhaps be difficult to point out any marks by which they may be accurately distinguished when however such distress immediately accompanies a change from water peace our knowledge of the existence of such a cause will make it reasonable to believe that the funds for the maintenance of labor have rather been diverted from their usual channel than materially impaired and that after temporary suffering the nation will again advance in prosperity it must be remembered too that the retrograde condition is always an unnatural state of society man from youth grows to manhood then decays and dies but this is not the progress of nations when arrived to a state of the greatest figure their further advance may indeed be arrested but their natural tendencies to continue for ages to sustain undiminished their wealth and their population in rich and powerful countries where large capitals are invested in machinery more distress will be experienced from a revulsion in trade than in poorer countries where there is proportionally a much smaller amount of fixed and a much larger amount of circulating capital and where consequently more work is done by the labor of men it is not so difficult to withdraw a circulating as a fixed capital from any employment in which it may be engaged it is often impossible to divert the machinery which may have been erected for one manufacturer to the purposes of another but the clothing the food and the lodging of the laborer in one employment may be devoted to the support of the laborer in another or the same laborer may receive the same food clothing and lodging whilst his employment is changed this however is an evil to which a rich nation must submit and it would not be more reasonable to complain of it than it would be in a rich merchant to lament that his ship was exposed to the dangers of the sea whilst his poor neighbor's cottage was safe from all such hazard from contingencies of this kind though in an inferior degree even agriculture is not exempted or which in a commercial country interrupts the commerce of states frequently prevents the exportation of corn from countries where it can be produced with little cost to others not so favorably situated under such circumstances an unusual quantity of capital is drawn to agriculture and the country which before imported becomes independent of foreign aid at the termination of the war the obstacles to importation are removed and a competition destructive to the home grower commences from which he is unable to withdraw without the sacrifice of a great part of his capital the best policy of the state would be to lay a tax decreasing an amount from time to time on the importation of foreign corn for a limited number of years in order to afford to the home grower an opportunity to withdraw his capital gradually from the land footnote in the last volume to the supplement of the encyclopedia britannica article corn laws and trade are the following excellent suggestions and observations if we shall at any future period think of retracting our steps in order to give time to withdraw capital from the cultivation of our poor soils and to invest it in more lucrative employments a gradually diminishing scale of duties may be adopted the price of which foreign grain should be admitted duty-free may be made to decrease from 80 shillings its present limit by four shillings or five shillings per quarter annually till it reaches 50 shillings when the port could safely be thrown open and the restrictive system be forever abolished when this happy event shall have taken place it will be no longer necessary to force nature the capital and enterprise of the country will be turned into those departments of industry in which our physical situation national character or political institutions fit us to excel the core of poland and the raw cotton of carolina will be exchanged for the wares of Birmingham and the muslins of Glasgow the genuine commercial spirit that which permanently secures the property of nations is altogether inconsistent with the dark and shallow policy of monopoly the nations of the earth are like provinces of the same kingdom a free and unfettered intercourse is alike productive of general and of local advantage the whole article is well worthy of attention it is very instructive is ably written and shows that the author is completely master of the subject end of footnote in so doing the country might not be making the most advantageous distribution of its capital but the temporary tax to which it was subjected would be for the advantage of a particular class the distribution of whose capital was highly useful in procuring a supply of food when importation was stopped if such exertions in a period of emergency were followed by risk of ruin on the termination of the difficulty capital would shun such an employment besides the usual profits of stock farmers would expect to be compensated for the risk which they incurred of a sudden influx of corn and therefore the price to the consumer at the seasons when he most required a supply would be enhanced not only by the superior cost of growing corn at home but also by the insurance which he would have to pay in the price for the peculiar risk to which this employment of capital was exposed not with standing then that it would be more productive of wealth to the country at whatever sacrifice of capital it might be done to allow the importation of cheap corn it would perhaps be advisable to charge it with a duty for a few years in examining the question of rent we found that with every increase in the supply of corn and with the consequent fall of its price capital would be withdrawn from the poorer land and land of a better description which would then pay no rent would become the standard by which the natural price of corn would be regulated at four pounds per quarter land of an inferior quality which may be designated by number six might be cultivated at three pounds ten shillings number five at three pounds number four and so on if corn in consequence of permanent abundance fell to three pounds ten shillings the capital employed on number six would cease to be employed for it was only when corn was at four pounds that it could obtain the general profits even without paying rent it would therefore be withdrawn to manufacture those commodities with which all the corn grown on number six would be purchased and imported in this employment it would necessarily be more productive to its owner or it would not be withdrawn from the other for if he could not obtain more corn by purchasing it with a commodity which he manufactured then he got from the land for which he paid no rent its price could not be under four pounds it has however been said that capital cannot be withdrawn from the land that it takes the form of expenses which cannot be recovered such as manureing fencing draining etc which are necessarily inseparable from the land this is in some degree true but that capital which consists of cattle sheep hay and corn ricks carts etc may be withdrawn and it always becomes a matter of calculation whether these shall continue to be employed on the land notwithstanding the low price of corn or whether they shall be sold and their value transferred to another employment suppose however the fact to be as stated and that no part of the capital could be withdrawn footnote whatever capital becomes fixed on the land must necessarily be the landlords and not the tenants at the expiration of the lease whatever compensation the landlord may receive for this capital on reletting his land will appear in the form of rent but no rent will be paid if with a given capital more corn can be obtained from abroad than can be grown on this land at home if the circumstances of the society should require corn to be imported and 1000 quarters can be obtained by the employment of a given capital and if this land with the employment of the same capital will yield 1100 quarters 100 quarters will necessarily go to rent but if 1200 can be got from abroad then this land will go out of circulation for it will not then yield even the general rate of profit but this is no disadvantage however great the capital may have been that had been expended on the land such capital is spent with a view to augment the produce that it should be remembered is the end of what importance then can it be to the society whether half its capital be sunk in value or even annihilated if they obtain a greater annual quantity of production those who deplore the loss of capital in this case are for sacrificing the end to the means end of footnote the farmer would continue to raise corn and precisely the same quantity too at whatever price it might sell for it could not be his interest to produce less and if he did not so employ his capital he would obtain from it no return whatever corn could not be imported because he would sell it lower than three pounds 10 shillings rather than not sell it at all and by the supposition the importer could not sell it under that price although then the farmers who cultivated land of this quality would undoubtedly be injured by the fall in the exchangeable value of the commodity which they produced how would the country be affected we should have precisely the same quantity of every commodity produced but raw produce and corn would sell at a much cheaper price the capital of a country consists of its commodities and as these would be the same as before reproduction would go on at the same rate this alone price of corn would however only afford the usual profits of stock for the land number five which would then pay no rent and the rent of all better land would fall wages would also fall and profits would rise however low the price of corn might fall if capital could not be removed from the land and the demand did not increase no importation would take place but the same quantity as before would be produced at home although there would be a different division of the produce and some classes would be benefited and others injured the aggregate of production would be precisely the same and the nation collectively would neither be richer nor poorer but there is this advantage always resulting from a relatively low price of corn that the division of the actual production is more likely to increase the fund for the maintenance of labor in as much as more will be allotted under the name of profit to the productive class and less under the name rent to the unproductive class this is true even if a capital cannot be withdrawn from the land and must be employed there or not be employed at all but if great part of the capital can be withdrawn as it evidently could it will be only withdrawn when it will yield more to the owner by being withdrawn than by being suffered to remain where it was it will be only withdrawn then when it can elsewhere be employed more productively both for the owner and the public he consents to sink that part of his capital which cannot be separated from the land because with that part which he can take away he can obtain a greater value and a greater quantity of raw produce than by not sinking this part of the capital this case is precisely similar to that of a man who has erected machinery in his manufacturing at a great expense machinery which is afterwards so much improved upon by more modern inventions that the commodities manufactured by him very much sink in value it would be entirely a matter of calculation with him whether he should abandon the old machinery and erect the more perfect losing all the value of the old or continue to avail himself of its comparatively feeble powers who under such circumstances would exhort him to forego the use of the better machinery because it would deteriorate or annihilate the value of the old yet this is the argument of those who would wish us to prohibit the importation of corn because it will deteriorate or annihilate that part of the capital of the farmer which is forever sunk in land they do not see that the end of all commerce is to increase production and that by increasing production though you may occasion partial loss you increase the general happiness to be consistent they should endeavor to arrest all improvements in agriculture and manufacturers and all inventions of machinery for though these contribute to general abundance and therefore to the general happiness they never fail at the moment of their introduction to deteriorate or annihilate the value of a part of the existing capital of farmers and manufacturers footnote among the most able of the publications on the impolicy of restricting the importation of corn may be classed major torrens essay on the external corn trade his arguments appear to me to be unanswered and to be unanswerable end of footnote agriculture like all other trades and particularly in a commercial country is subject to a reaction which in an opposite direction succeeds the action of a strong stimulus thus when war interrupts the importation of corn its consequent high price attracts capital to the land from the large profits which such an employment of it affords this will probably cause more capital to be employed and more raw produce to be brought to market than the demands of the country require in such case the price of corn will fall from the effects of a glut and much agricultural distress will be produced till the average supply is brought to a level with the average demand chapter 20 value and riches their distinctive properties a man is rich or poor says adam smith according to the degree in which he can afford to enjoy the necessaries conveniences and amusements of human life value then essentially differs from riches for value depends not on abundance but on the difficulty or facility of production the labor of a million of men in manufacturers will always produce the same value but will not always produce the same riches by the invention of machinery by improvements in skill by better division of labor or by the discovery of new markets where more advantageous exchanges may be made a million of men may produce double or treble the amount of riches of necessaries conveniences and amusements in one state of society that they could produce in another but they will not on that account add anything to value for everything rises or falls in value in proportion to the facility or difficulty of producing it or in other words in proportion to the quantity of labor employed on its production suppose with a given capital the labor of a certain number of men produced 1000 pair of stockings and that by inventions in machinery the same number of men can produce 2000 pair or that they can continue to produce 1000 pair and can produce besides 500 hats then the value of the 2000 pair of stockings or of the 1000 pair of stockings and 500 hats will be neither more nor less than that of the 1000 pair of stockings before the introduction of machinery but they will be the produce of the same quantity of labor but the value of the general mass of commodities will nevertheless be diminished for although the value of the increased quantity produced in consequence of the improvements will be the same exactly as the value would have been of the less quantity that would have been produced had no improvement taken place an effect is also produced on the portion of good still unconsumed which were manufactured previously to the improvement the value of those goods will be reduced in as much as they must fall to the level quantity for quantity of the goods produced under all the advantages of the improvement and the society will notwithstanding the increased quantity of commodities notwithstanding its augmented riches and its augmented means of enjoyment have a less amount of value but constantly increasing the facility of production we constantly diminish the value of some of the commodities before produced though by the same means we not only add to the national riches but also to the power of future production many of the errors in political economy have arisen from errors on this subject from considering an increase of riches and an increase of value as meaning the same thing and from unfounded notions as to what constituted a standard measure of value one man considers money as a standard of value and a nation grows richer or poorer according to him in proportion as its commodities of all kinds can exchange for more or less money others represent money as a very convenient medium for the purpose of barter but not as a proper measure by which to estimate the value of other things the real measure of value according to them is corn footnote adam smith says quote that the difference between the real and the nominal price of commodities and labor is not a matter of mere speculation but may sometimes be of considerable use in practice unquote i agree with him but the real price of labor and commodities is no more to be ascertained by their price in goods adam smith's real measure than by their price in gold and silver is nominal measure the laborer is only paid a really high price for his labor when his wages will purchase the produce of a great deal of labor end of footnote and a country is rich or poor according as its commodities would exchange for more or less corn footnote must you say in first that silver is now of the same value as in the reign of louis the 14th because the same quantity of silver will buy the same quantity of corn end of footnote there are others again who consider a country rich or poor according to the quantity of labor that it can purchase but why should gold or corn or labor be the standard measure of value more than coals or iron more than cloth soap candles and the other necessaries of the laborer why in short should any commodity or all commodities together be the standard when such a standard is itself subject to fluctuations in value corn as well as gold may from difficulty or facility of production vary 10 20 or 30 percent relatively to other things why should we always say that it is those other things which have varied and not the corn that commodity is a lone invariable which at all times requires the same sacrifice of toil and labor to produce it of such a commodity we have no knowledge but we may hypothetically argue and speak about it as if we had and may improve our knowledge of the science by showing distinctly the absolute inapplicability of all the standards which have been hitherto adopted but supposing either of these to be a correct standard of value still it would not be a standard of riches for riches do not depend on value a man is rich or poor according to the abundance of necessaries and luxuries which he can command and whether the exchangeable value of these for money for corn or for labor be high or low they will equally contribute to the enjoyment of their possessor it is through confounding the ideas of value and wealth or riches that it has been asserted that by diminishing the quantity of commodities that is to save the necessaries conveniences and enjoyments of human life riches may be increased if value were the measure of riches this could not be denied because by scarcity the value of commodities is raised but if adam smith be correct if riches consist in necessaries and enjoyments then they cannot be increased by diminution of quantity it is true that the man in possession of a scarce commodity is richer if by means of it he can command more of the necessaries and enjoyments of human life but as the general stock out of which each man's riches are drawn is diminished in quantity by all that any individual takes from it other men's shares must necessarily be reduced in proportion as this favored individual is able to appropriate a greater quantity to himself let water become scarce says lord lord dale and be exclusively possessed by an individual and you will increase his riches because water will then have value and if wealth be the aggregate of individual riches you will by the same means also increase wealth you undoubtedly will increase the riches of this individual but inasmuch as the farmer must sell a part of his corn the shoemaker a part of his shoes and all men give up a portion of their possessions with the sole purpose of supplying themselves with water which they before had for nothing they are poorer by the whole quantity of commodities which they are obliged to devote to this purpose and the proprietor of water is benefited precisely by the amount of their loss the same quantity of water and the same quantity of commodities are enjoyed by the whole society but they're differently distributed this is however supposing rather a monopoly of water than a scarcity of it if it should be scarce then the riches of the country and of individuals would be actually diminished inasmuch as it would be deprived of a portion of one of its enjoyments the farmer would not only have less corn to exchange for the other commodities which might be necessary or desirable to him but he and every other individual would be abridged in the enjoyment of one of the most essential of their comforts not only would there be a different distribution of riches but an actual loss of wealth it may be said then of two countries possessing precisely the same quantity of all the necessaries and comforts of life that they are equally rich but the value of their respective riches would depend on the comparative facility or difficulty with which they were produced for if an improved piece of machinery should enable us to make two pair of stockings instead of one without additional labor double the quantity would be given in exchange for a yard of cloth if a similar improvement be made in the manufacturer of cloth stockings and cloth will exchange in the same proportions as before but they will both have fallen in value for in exchanging them for hats for gold or other commodities in general twice the former quantity must be given extend the improvement to the production of gold and every other commodity and they will all regain their former proportions there will be double the quantity of commodities annually produced in the country and therefore the wealth of the country will be doubled but this wealth will not have increased in value although adam smith has given the correct description of riches which i have more than once noticed he afterwards explains them differently and says that a man must be rich or poor according to the quantity of labor which he can afford to purchase now this description differs essentially from the other and is certainly incorrect for suppose the mines were to become more productive so that gold and silver fell in value from the greater facility of their production or that felvets were to be manufactured with so much less labor than before that they fell to half their former value the riches of all those who purchased those commodities would be increased one man might increase the quantity of his plate another might buy double the quantity of velvet with the possession of this additional plate and velvet they could employ no more labor than before because as the exchangeable value of velvet and of plate would be lowered they must part with proportionally more of these species of riches to purchase a day's labor riches then cannot be estimated by the quantity of labor which they can purchase from what has been said it will be seen that the wealth of the country may be increased in two ways it may be increased by employing a greater portion of revenue in the maintenance of productive labor which will not only add to the constip but to the value of the mass of commodities or it may be increased without employing any additional quantity of labor by making the same quantity more productive which will add to the abundance but not to the value of commodities in the first case a country would not only become rich but the value of its riches would increase it would become rich by parsimony by diminishing its expenditure on objects of luxury and enjoyment and employing those savings in reproduction in the second case there will not necessarily be either any diminished expenditure on luxuries and enjoyments or any increased quantity of productive labor employed but with the same labor more would be produced wealth would increase but not value of these two modes of increasing wealth the last must be preferred since it produces the same effect without deprivation and diminution of enjoyments which can never fail to accompany the first mode capital is that part of the wealth of a country which is employed with a view to future production and may be increased in the same manner as well an additional capital will be equally efficacious in the production of future wealth whether it be obtained from improvements in skill and machinery or from using more revenue reproductively for wealth always depends on the quantity of commodities produced without any regard to the facility with which the instruments employed in production may have been procured a certain quantity of clothes and provisions will maintain and employ the same number of men and will therefore procure the same quantity of work to be done whether they be produced by the labor of 100 or 200 men but they will be of twice the value of 200 have been employed on their production mr. say notwithstanding the corrections he has made in the fourth and last edition of his work that a economy politic appears to me to have been singularly unfortunate in his definition of riches and value he considers these two terms as synonymous and that a man is rich in proportion as he increases the value of his possessions and is enabled to command an abundance of commodities the value of incomes is then increased he observes if they can procure it does not signify by what means a greater quantity of products according to mr. say if the difficulty of producing cloth were to double and consequently cloth was to exchange for double the quantity of the commodities for which it exchanged before it would be doubled in value to which I give my fullest ascent but if there were any peculiar facility in producing the commodities and no increased difficulty in producing cloth and cloth should in consequence exchange as before for double the quantity of commodities mr. say would still say that cloth that doubled in value whereas according to my view of the subject he should say that cloth retained its former value and those particular commodities had fallen to half of their former value must not mr. say be inconsistent with himself when he says that by facility of production two sacks of corn may be produced by the same means that one was produced before and that each sack will therefore fall to half its former value and it maintained that the clothier who exchanges his cloth for two sacks of corn would obtain double the value he before obtained when he could only get one second exchange for his cloth if two sacks be of the value that one was of before he evidently obtains the same value and no more he gets indeed double the quantity of riches double the quantity of utility double the quantity of what adam smith calls value in use but not double the quantity of value and therefore mr. say cannot be right in considering value riches and utility to be synonymous indeed there are many parts of mr. say's work for which i can confidently refer in support of the doctrine which i maintain respecting the essential difference between value and riches although it must be confessed that there are also various other passages in which a contrary doctrine is maintained these passages i cannot reconcile and i point them out by putting them in opposition to each other that mr. say may if he should do me the honor to notice these observations in any future addition of his work give such explanations of his view as may remove the difficulty which many others as well as myself feel in our endeavors to expound them one in the exchange of two products we only in fact exchange the productive services which have served to creek them page 504 two there is no real dearness but that which arises from the cost of production a thing really dear is that which cost much in producing page 457 three the value of all the productive services that must be consumed to create a product constitute the cost of production of that product page 505 four it is utility which determines the demand for a commodity but it is the cost of its production which limit the extent of its demand when its utility does not elevate its value to the level of the cost of production the thing is not worth what it cost it is a proof that the productive services might be employed to create a commodity of a superior value the possessors of productive funds that is to say those who have the disposal of labour of capital or land are perpetually occupied in comparing the cost of production with the value of the things produced or which comes to the same thing in comparing the value of different commodities with each other because the cost of production is nothing else but the value of productive services consumed in forming a production and the value of a productive service is nothing else than the value of the commodity which is the result the value of a commodity the value of a productive service the value of the cost of production are all then similar values when everything is left to its natural course five the value of incomes is then increased if they can procure it does not signify by what means a greater quantity of product six price is the measure of the value of things and their value is the measure of their utility volume one page four seven exchanges made freely show at the time in the place and in the state of society in which we are the value which men attached to the things exchanged page four six six eight to produce is to create value by giving or increasing the utility of the thing and thereby establishing a demand for it which is the first cause of its value volume two page 487 nine utility being created constitutes a product the exchangeable value which results is only the measure of this utility the measure of the production which has taken place page 490 10 the utility which people of a particular country find in a product can no otherwise be appreciated than by the price which they give for it page 502 11 this price is the measure of the utility which it has in the judgment of men of the satisfaction which they derive from consuming it because they would not prefer consuming this utility if for the price which it cost they could acquire a utility which would give them more satisfaction page 506 12 the quantity of all other commodities which a person can immediately obtain in exchange for the commodity of which he wishes to dispose is at all times a value not to be disputed volume 2 page 4 if there is no real dearness but that which arises from cost of production c2 how can a commodity be said to rise in value c5 if its cost of production be not increased and merely because it will exchange for more of a cheap commodity for more of a commodity the cost of production of which has diminished when i give 2 000 times more cloth for a pound of gold than i give for a pound of iron does it prove that i attached 2 000 times more utility to gold than i do to iron certainly not it proves only as admitted by missus say c4 that the cost of production of gold is 2 000 times greater than the cost of production of iron if the cost of production of the two metals were the same i should give the same price for them but if utility with a measure of value it is probable i should give more for the iron it is the competition of the producers who are perpetually employed in comparing the cost of production with the value of the thing produced c4 which regulates the value of different commodities if then i give one shilling for a loaf and 21 shillings for a kidney it is no proof that this in my estimation is the comparative measure of their utility in number four missus say maintains with scarcely any variation the doctrine which i hold concerning value in his productive services he includes the services rendered by land capital and labor in line i include only capital and labor and wholly exclude land our difference proceeds from the different view which we take of rent i always consider it as the result of a partial monopoly never really regulating price but rather is the effect of it if all rent were relinquished by landlords i am of opinion that the commodities produced on the land would be no cheaper because there is always a portion of the same commodities produced on land for which no rent is or can be paid as the surplus produce is only sufficient to pay the profits of stock to conclude although no one is more disposed than i am to estimate highly the advantage which results to all classes of consumers from the real abundance and cheapness of commodities i cannot agree with missus say in estimating the value of the commodity by the abundance of other commodities for which it will exchange i am of the opinion of a very distinguished writer missus desto the tressie who says that to measure any one thing is to compare it with a determinant quantity of that same thing which we take for a standard of comparison for unity to measure then to ascertain a length a weight a value is to find how many times they contain meters grams francs in a word unit is of the same description a franc is not a measure of value for anything but for a quantity of the same metal of which francs are made unless francs and the thing to be measured can be referred to some other measure which is common to both this i think they can be they are both the result of labor and therefore labor is a common measure by which they're real as well as their relative value may be estimated this also i am happy to say appears to be missus desto the tressie's opinion footnote in elemande de logi missus de tressie has given a useful and enabled treatise on the general principles of political economy and i am sorry to be obliged to add that he supports by his authority the definitions which missus say has given of the words value riches and utility end of footnote he says as it is certain that our physical and moral faculties are alone our original riches the employment of those faculties labor of some kind is our only original treasure and that it is always from this employment that all those things are created which we call riches those which are the most necessary as well as those which are the most purely agreeable it is certain too that all those things only represent the labor which has created them and if they have a value or even two distinct values they can only derive them from that of the labor from which they emanate missus say in speaking of the excellences and imperfections of the great work of adam smith imputes to him as an error that he attributes to the labor of man alone the power of producing value a more correct analysis shows us that value is owing to the action of labor or rather the industry of man combined with the action of those agents which nature supplies and with that of capital its ignorance of this principle prevented him from establishing the true theory of the influence of machinery in the production of riches in contradiction to the opinion of adam smith missus say in the fourth chapter speaks of the value which is given to commodities by natural agents such as the sun the air the pressure of the atmosphere etc which are sometimes substituted for the labor of man and sometimes concur with him in producing footnote missus say writes quote the first man who knew how to soften metals by fire is not the creator of the value which that process adds to the melted metal that value is the result of the physical action of fire added to the industry and capital of those who availed themselves of this knowledge unquote and in a further passage missus say writes quote from this error smith has drawn this false result that the value of all productions represents the recent or former labor of man or in other words that which is a nothing else but accumulated labor from which by a second consequence equally false labor is the sole measure of riches or of the value of productions unquote the influences with which missus say concludes are his own and not dr smith's they are correct if no distinction be made between value and riches and in this passage missus say makes none but though adam smith who defined riches to consist in the abundance of necessaries conveniences and enjoyments of human life would have allowed that machines and natural agents might very greatly add to the riches of a country he would not have allowed that they add anything to the value of those riches end of footnote but these natural agents though they add greatly to value in use never add exchangeable value of which missus say is speaking to a commodity as soon as by the aid of machinery or by the knowledge of natural philosophy you oblige natural agents to do the work which was before done by man the exchangeable value of such work falls accordingly if 10 men turned a cornmeal and it be discovered that by the assistance of wind or water the labor of these 10 men may be spared the flower which is the produce partly of the work performed by the mill would immediately fall in value in proportion to the quantity of labor saved and the society would be richer by the commodities which the labor of the 10 men could produce the funds destined for their maintenance being in no degree impaired but you say constantly overlooks the essential difference that there is between value in use and value in exchange must you say accuses dr smith of having overlooked the value which is given to commodities by natural agents and by machinery because he considered that the value of all things was derived from the labor of man but it does not appear to me that this charge is made out for adam smith nowhere undervalues the services which these natural agents and machinery perform for us but he very justly distinguishes the nature of the value which they add to commodities they are serviceable to us by increasing the abundance of productions by making men richer by adding to value in use but as they perform their work gratuitously as nothing is paid for the use of air of heat and of water the assistance which they afford us adds nothing to value in exchange chapter 21 effects of accumulation on profits and interest from the account which has been given of the profits of stock it will appear that no accumulation of capital will permanently lower profits unless there be some permanent cause for the rise of wages if the funds for the maintenance of labor were doubled trebled or quadrupled there would not long be any difficulty in procuring the requisite number of hands to be employed by those funds but owing to the increasing difficulty of making constant additions to the food of the country funds of the same value would probably not maintain the same quantity of labor if the necessary of the workmen could be constantly increased with the same facility there could be no permanent alteration in the rate of profits or wages to whatever amount capital might be accumulated Adam Smith however uniformly ascribes the thought of profits to accumulation of capital and to the competition which will result from it without ever averting to the increasing difficulty of providing food the additional number of laborers which the additional capital will employ the increase of stock he says which raises wages tends to lower profit when the stocks of many rich merchants are turned into the same trade their mutual competition naturally tends to lower its profit and when there is a like increase of stock in all the different trades carried on in the same society the same competition must produce the same effect in all Adam Smith speaks here of a rise of wages but it is of a temporary rise proceeding from increased funds before the population is increased and he does not appear to see that at the same time that capital is increased the work to be affected by capital is increased in the same proportion but she say has however most satisfactorily shown that there is no amount of capital which may not be employed in a country because demand is only limited by production no man produces but with a view to consume or sell that he never sells but with an intention to purchase some other commodity which may be immediately useful to him or which may contribute to future production by producing then he necessarily becomes either the consumer of his own goods or the purchaser and consumer of the goods of some other person it is not to be supposed that he should for any length of time be ill informed of the commodities which he can most advantageously produce to attain the object which he has in view namely the possession of other goods and therefore it is not probable that he will continually produce a commodity for which there is no demand footnote Adam Smith speaks of Holland as affording an instance of the fall of profits from the accumulation of capital and from every employment being consequently overcharged quote the government there borrow at two percent and private people of good credit at three percent unquote but it should be remembered that Holland was obliged to import almost all the corn which he consumed and by imposing heavy taxes on the necessaries of the laborer she further raised the wages of labor these facts will sufficiently account for the low rate of profits and interest in Holland end of footnote that cannot then be accumulated in a country any amount of capital which cannot be employed productively until wages rise so high in consequence of the rise of necessaries and so little consequently remains for the profits of stock that the motive for accumulation ceases footnote is the following quite consistent with missus says principle quote the more disposable capitals are abundant in proportion to the extent of employment for them the more will the rate of interest on loans of capital fall unquote if capital to any extent can be employed by a country how can it be said to be abundant compared with the extent of employment for it end of footnote while the profits of stock are high men will have a motive to accumulate whilst a man has any wished for gratification unsupplied he will have a demand for more commodities and it will be an effectual demand while he has any new value to offer in exchange for them if ten thousand pounds were given to a man having one hundred thousand pounds per annum he would not lock it up in a chest but would either increase his expenses by ten thousand pounds employ it himself productively or lend it to some other person for that purpose in either case demand would be increased although it would be for different objects if he increased his expenses his effectual demand might probably be for buildings furniture or some such enjoyment if he employed his ten thousand pounds productively his effectual demand would be for food clothing and raw material which might set new laborers to work but still it would be a demand footnote adam smith says that quote when the produce of any particular branch of industry exceeds that the demand of the country requires the surplus must be sent abroad and exchanged for something for which there is a demand at home without such exploitation a part of the productive labor of the country must cease and the value of its annual produce diminish the land and labor of great britain produced generally more corn woolens and hardware than the demand of the home market requires the surplus part of them therefore must be sent abroad and exchanged for something for which there is a demand at home it is only by means of such exploitation that this surplus can acquire a value sufficient to compensate the labor and expense of producing it unquote one would be led to think by the previously quoted passage that adam smith concluded we were under some necessity of producing a surplus of corn woolen goods and hardware and that the capital which produced them could not otherwise be employed it is however always a matter of choice in what way a capital should be employed and therefore there can never for any length of time be a surplus of any commodity for if there were it would fall below its natural price and capital would be removed to some more profitable employment no writer has more satisfactorily and ably shown that dr smith the tendency of capital to move from employment in which the goods produced do not repay by their price the whole expenses including the ordinary profits of producing and bringing them to market end of footnote productions are always bought by productions or by services money is the only medium by which the exchange is affected too much of a particular commodity may be produced of which there may be such a glut in the market as not to repay the capital expended on it but this cannot be the case with respect to all commodities the demand for corn is limited by the mouths which are to eat it for shoes and coats by the persons who are to wear them but they were community or a part of a community may have as much corn and as many hats and shoes as it is able or may wish to consume the same cannot be said of every commodity produced by nature or by art some would consume more wine if they had the ability to procure it others having enough of wine would wish to increase the quantity or improve the quality of their furniture others might wish to ornament their grounds or to enlarge their houses the wish to do all or some of these is implanted in every man's breast nothing is required but the means and nothing can afford the means but an increase of production if i had food and necessaries at my disposal i should not be long in want of workmen who would put me in possession of some of the objects most useful or most desirable to me whether these increased productions and the consequent demand which they occasion child or shall not lower profits depends solely on the rise of wages and the rise of wages accepting for a limited period on the facility of producing the food and necessaries of the laborer i say accepting for a limited period because no point is better established than that the supply of laborers will always ultimately be in proportion to the means of supporting them there is only one case and that will be temporary in which the accumulation of capital with a low price of food may be attended with the fall of profits and that is when the funds for the maintenance of labor increase much more rapidly than population wages will then be high and profits low if every man were to forego the use of luxuries and be intent only on accumulation a quantity of necessaries might be produced for which there could not be any immediate consumption of commodities so limited in number there might undoubtedly be an universal clot and consequently there might neither be demand for an additional quantity of such commodities nor profits on the employment of more capital if men cease to consume they would cease to produce this admission does not impugn the general principle in such a country as england for example it is difficult to suppose that there can be any disposition to devote the whole capital and labor of the country for the production of necessaries only when merchants engage their capitals in foreign trade or in the carrying trade it is always from choice and never from necessity it is because in that trade their profits will be somewhat greater than in the home trade adam smith has justly observed that the desire of food is limited in every man by the narrow capacity of the human stomach but the desire of the conveniences and ornaments of building, dress, equipments and household furniture seems to have no limit or certain boundary nature then has necessarily limited the amount of capital which can at any one time be profitably engaged in agriculture but she has placed no limits to the amount of capital that may be employed in procuring the conveniences and ornaments of life to procure these gratifications in the greatest abundance is the object in view and it is only because foreign trade or the carrying trade will accomplish it better that men engage in them in preference to manufacturing the commodities required or a substitute for them at home if however from peculiar circumstances we were precluded from engaging capital in foreign trade or in the carrying trade we should though with less advantage employed at home and while there is no limit to the desire of conveniences ornaments of building, dress, equipments and household furniture there can be no limit to the capital that may be employed in procuring them except that which bounds our power to maintain the workmen who are to produce them Adam Smith however speaks of the carrying trade as one not of choice but of necessity as if the capital engaged in it would be inert if not so employed as if the capital in the home trade could overflow if not confined to a limited amount he says when the capital stock of any country is increased to such a degree that it cannot be all employed in supplying the consumption and supporting the productive labor of that particular country the surplus part of it naturally disgorges itself into the carrying trade and is employed in performing the same offices to other countries about 96,000 hoax heads of tobacco are annually purchased with a part of the surplus produce of British industry but the demand of Great Britain does not require perhaps more than 14,000 if the remaining 82,000 therefore could not be sent abroad and exchanged for something more in demand at home the importation of them would cease immediately and with it the productive labor of all the inhabitants of Great Britain who are at present employed in preparing the goods with which these 82,000 hoax heads are annually purchased but could not this portion of the productive labor of Great Britain be employed in preparing some other sort of goods with which something more in demand at home might be purchased and if it could not might we not employ this productive labor though with less advantage in making those goods in demand at home or at least some substitute for them if we wanted velvets might we not attempt to make velvets and if we could not succeed might we not make more cloth or some other object desirable to us we manufacture commodities and with them buy goods abroad because we can obtain a greater quantity than we could make at home deprive us of this trade and we immediately manufacture again for ourselves but this opinion of adam smith is at variance with all his general doctrines on this subject if a foreign country can supply us with a commodity cheaper than we ourselves can make it better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage the general industry of the country being always in proportion to the capital which employs it will not thereby be diminished but only left to find out the way in which it can be employed with the greatest advantage again those therefore who have the command of more food than they themselves can consume are always willing to exchange the surplus or what is the same thing the price of it for gratifications of another kind what is over and above satisfying the limited desire is given for the amusement of those desires which cannot be satisfied but seem to be altogether endless the poor in order to obtain food exert themselves to gratifying those fancies of the rich and to obtain it more certainly they vie with one another in the cheapness and perfection of their work the number of workmen increases with the increasing quantity of food or with the growing improvement and cultivation of the lands and as the nature of their business admits of the utmost subdivisions of labors the quantity of materials which they can work up increases in a much greater proportion than their numbers hence arises a demand for every sort of material which human invention can employ either usefully or ornamentally in building dress equipage or household furniture for the fossils and minerals contained in the bowels of the earth precious metals and the precious stones it follows then from these admissions that there is no limit to demand no limit to the employment of capital while it yields any profit and that however abundant capital may become there is no other adequate reason for a fall of profit but a rise of wages and further it may be added that the only adequate and permanent cause for the rise of wages is the increasing difficulty of providing food and necessaries for the increasing number of workmen adam smith has justly observed that it is extremely difficult to determine the rate of the profits of stock profit is so fluctuating that even in a particular trade and much more in trades in general it would be difficult to state the average rate of it to judge of what it may have been formally or in remote periods of time with any degree of precision must be altogether impossible yet since it is evident that much will be given for the use of money when much can be made by it he suggests that the market rate of interest will lead us to form some notion of the rate of profits and the history of the progress of interest afford us that of the progress of profits undoubtedly if the market rate of interest could be accurately known for any considerable period we should have a tolerably correct criterion by which to estimate the progress of profits but in all countries from mistaken notions of policy the status interfered to prevent a fair and free market rate of interest by imposing heavy and ruinous penalties on all those who shall take more than the rate fixed by law in all countries probably these laws are evaded but records give us little information on this head and point out rather the legal and fixed rate than the market rate of interest during the present war exchequer and navy bills have been frequently at so high a discount as to afford the purchases of them seven eight percent or a greater rate of interest for their money loans have been raised by government at an interest exceeding six percent and individuals have been frequently obliged by indirect means to pay more than 10 percent for the interest of money yet during the same period the legal rate of interest has been uniformly at five percent little dependence for information then can be placed on that which is the fixed and legal rate of interest when we find it may differ so considerably from the market rate adam smith informs us that from the thirty seventh of henry the eighth to the twenty first of james the first 10 continued to be the legal rate of interest soon after the restoration it was reduced to six percent and by the twelfth of an to five percent he thinks the legal rate followed and did not proceed the market rate of interest before the american war government borrowed at three percent and the people of credit in the capital and in many other parts of the kingdom at three and a half four and four and a half percent the rate of interest though ultimately and permanently governed by the rate of profit is however subject to temporary variations from other causes with every fluctuation in the quantity and value of money the prices of commodities naturally vary they vary also as we have already shown from the alteration in the proportion of supply to demand although there should not be either greater facility or difficulty of production when the market prices of goods fall from an abundant supply from a diminished demand or from a rise in the value of money a manufacturer naturally accumulates an unusual quantity of finished goods being unwilling to sell them at very depressed prices to meet his ordinary payments for which he used to depend on the sale of his goods he now endeavors to borrow on credit and is often obliged to give an increased rate of interest this however is but of temporary duration for either the manufacturer's expectations were well grounded and the market price of his commodities rises or he discovers that there is a permanently diminished demand and he no longer resists the course of affairs prices fall and money and interest regain their real value if by the discovery of a new mind by the abuses of banking or by any other cause the quantity of money be greatly increased its ultimate effect is to raise the prices of commodities in proportion to the increased quantity of money but there is probably always an interval during which some effect is produced on the rate of interest the price of funded property is not a steady criterion by which to judge of the rate of interest in time of war the stock market is so loaded by the continual loans of government that the price of stock has not time to settle at its fair level before a new operation of funding takes place or it is affected by anticipation of political events in time of peace on the contrary the operations of the sinking fund the unwillingness which a particular class of persons feel to divert their funds to any other employment than that to which they have been accustomed which they think secure and in which their dividends are paid with the utmost regularity elevates the price of stock and consequently depresses the rate of interest on these securities below the general market rate it is observable too that for different securities government pays very different rates of interest while 100 pounds capital in five percent stock is selling for 95 pounds an exchequer bill of 100 pounds will be sometimes selling for 100 pounds five shillings for which exchequer bill no more interest will be annually paid than four pounds eleven shillings three one of these securities pays to a purchaser of the above prices an interest of more than five and a quarter percent the other but little more than four and a quarter a certain quantity of these exchequer bills is required as a safe and marketable investment for bankers if they were increased much beyond this demand they would probably be as much depreciated as the five percent stock a stock paying three percent per annum will always sell at a proportionally greater price than the stock paying five percent the capital debt of neither can be discharged but at par or 100 pounds money for 100 pounds stock the market rate of interest may fall to four percent and government would then pay the holder of five percent stock at par unless he consented to take four percent or some diminished rate of interest under five percent they would have no advantage from so paying the holder of three percent stock till the market rate of interest had fallen below three percent per annum to pay the interest on the national debt large sums of money are withdrawn from circulation four times in the year for a few days these demands for money being only temporary seldom affect prices they're generally surmounted by the payment of a large rate of interest chapter 22 bounties on exportation and prohibitions of importation a bounty on the exportation of corn tends to lower its price to the foreign consumer but it has no permanent effect on its price in the home market suppose that to afford the usual and general profits of stock the price of corn should in england be four pounds per quarter it could not then be exported to foreign countries where it sold for three pounds fifteen shillings per quarter but if a bounty of ten shillings per quarter were given on exportation it could be sold in the foreign market at three pounds ten shillings and consequently the same profit would be afforded to the corn grower whether he sold it at three pounds ten shillings in the foreign or at four pounds in the home market a bounty then which should lower the price of british corn in the foreign country below the cost of producing corn in that country would naturally extend the demand for british and diminish the demand for their own corn this extension of demand for british corn could not fail to raise its price for a time in the home market and during that time to prevent also its falling so low in the foreign market as the bounty has a tendency to effect but the causes which would thus operate on the market price of corn in england would produce no effect whatever on its natural price or its real cost of production to grow corn would neither require more labor nor more capital and consequently if the profits of the farmer's stock were before only equal to the profits of the stock of other traders they will after the rise of price be considerably above them by raising the profits of the farmer's stock the bounty will operate as an encouragement to agriculture and capital will be withdrawn from manufacturers to be employed on the land till the enlarged demand for the foreign market has been supplied when the price of corn will again fall in the home market to its natural and necessary price and profits will be again at their ordinary and accustomed level the increased supply of grain operating on the foreign market will also lower its price in the country to which it is exported and will thereby restrict the profits of the exporter to the lowest rate at which he can afford to trade the ultimate effect then of a bounty on the exploitation of corn is not to raise or to lower the price in the home market but to lower the price of corn to the foreign consumer to the whole extent of the bounty if the price of corn had not before been lower in the foreign than in the home market and in a less degree if the price in the home had been above the price in the foreign market a writer in the fifth volume of the Edinburgh review on the subject of a bounty on the exploitation of corn has very clearly pointed out its effects on the foreign and home demand he has also justly remarked that it would not fail to give encouragement to agriculture in the exporting country but he appears to have imbibed the common error which has misled dr smith and i believe most other writers on this subject he supposes because the price of corn ultimately regulates wages that therefore it will regulate the price of all other commodities he says that the bounty by raising the profits of farming will operate as an encouragement to husbandry by raising the price of corn to the consumers at home it will diminish for the time their power of purchasing this necessary of life and thus abridge their real wealth it is evident however that this last effect must be temporary the wages of the labouring consumers had been adjusted before by competition and the same principle will adjust them again to the same rate by raising the money price of labour and through that of other commodities to the money price of corn the bounty upon exportation therefore will ultimately raise the money price of corn in the home market not directly however but through the medium of an extended demand in the foreign market and a consequent enhancement of the real price at home and this rise of the money price when it has once been communicated to other commodities will of course become fixed if however i have succeeded in showing that it is not the rise in the money wages of labour which raises the price of commodities but that such rise always affects profits it will follow that the prices of commodities would not rise in consequence of a bounty but a temporary rise in the price of corn produced by an increased demand from abroad would have no effect on the money price of labour the rise of corn is occasioned by competition for that supply which was before exclusively appropriated to the home market by raising profits additional capital is employed in agriculture and the increased supply is obtained until it be obtained the high price is absolutely necessary to proportion the consumption to the supply which would be counteracted by a rise of wages the rise of corn is the consequence of its scarcity and is the means by which the demand of the home purchases is diminished if wages were increased the competition would increase and a further rise of the price of corn would become necessary in this account of the effects of a bounty nothing has been supposed to occur to raise the natural price of corn by which its market price is ultimately governed for it has not been supposed that any additional labour would be required on the land to ensure a given production and this alone can raise its natural price if the natural price of cloth with 20 shillings per yard a great increase in the foreign demand might raise the price to 25 shillings or more but the profits which would then be made by the clothing would not fail to attract capital in that direction and although the demand should be doubled troubled or quadrupled the supply would ultimately be obtained and cloth would fall to its natural price of 20 shillings so in the supply of corn although we should export to three or eight hundred thousand quarters annually it would ultimately be produced at its natural price which never varies unless a different quantity of labour becomes necessary to production perhaps in no part of adam smith's justly celebrated work are his conclusions more liable to objection than in the chapter on bounties in the first place he speaks of corn as of a commodity of which the production cannot be increased in consequence of a bounty on exportation he supposes invariably that it acts only on the quantity actually produced and is no stimulus to further reduction in years of plenty he says by occasioning an extraordinary exportation it necessarily keeps up the price of corn in the home market above what it would naturally fall to in years of scarcity though the bounty is frequently suspended yet the great exportation which it occasions in years of plenty must frequently hinder more or less the plenty of one year from relieving the scarcity of another both in the years of plenty and in years of scarcity therefore the bounty necessarily tends to raise the money price of corn somewhat higher than it otherwise would be in the home market footnote in another place he says that quote whatever extension of the foreign market can be occasioned by the bounty must in every particular year be altogether at the expense of the home market and every bushel of corn which is exported by means of the bounty and which would not have been exported without the bounty would have remained in the home market to increase the consumption and to lower the price of that commodity the corn bounty it is to be observed as well as every other bounty upon exportation imposes two different taxes upon the people first the tax which they are obliged to contribute in order to pay the bounty and secondly the tax which arises from the advanced price of the commodity in the home market and which as the whole body of the people are purchasers of corn must in this particular commodity be paid by the whole body of the people in this particular commodity therefore the second tax is by much the heaviest of the two for every five shillings therefore which they contribute to the payment of the first tax they must contribute six pounds four shillings to the payment of the second the extraordinary exportation of corn therefore occasioned by the bounty not only in every particular year diminishes the home just as much as it extends the foreign market and consumption but by restraining the population and industry of the country its final tendency is to stunt and restrain the gradual extension of the home market and thereby in the long run rather to diminish than to augment the whole market and consumption of corn unquote end of footnote aderson it appears to have been fully aware that the correctness of his argument entirely depended on the fact whether the increase of the money price of corn by rendering that commodity more profitable to the farmer would not necessarily encourage its production by answer he says that this might be the case if the effect of the bounty was to raise the real price of corn or to enable the farmer with an equal quantity of it to maintain a greater number of laborers in the same manner whether liberal moderate or scanty as other laborers are commonly maintained in his neighborhood if nothing were consumed by the laborer but corn and if the portion which he received was the very lowest which his sustenance required there might be some ground for supposing that the quantity paid to the laborer could under no circumstances be reduced but the money wages of labor sometimes do not rise at all and never rise in proportion to the rise in the money price of corn because corn though an important part is only a part of the consumption of the laborer if half his wages were expended on corn and the other half on soap candles fuel tea sugar clothing etc commodities on which no rise is supposed to take place it is evident that he would be quite as well paid with a bushel and a half of wheat when it was 16 shillings of bushel as he was with two bushels when the price was eight shillings per bushel or with 24 shillings in money as he was before with 16 shillings his wages would rise only 50% though the corn rose 100% and consequently there would be sufficient motive to divert more capital to the land if profits on other trades continued the same as before but such a rise of wages would also induce manufacturers to withdraw their capital from manufacturers to employ them on the land but whilst the farmer increased the price of his commodity 100% and his wages only 50% the manufacturer would be obliged also to raise wages 50% whilst he had no compensation whatever in the rise of his manufactured commodity for this increased charge of production capital would consequently flow from manufacturers to agriculture till the supply would again lower the price of corn to 8 shillings per bushel and wages to 16 shillings per week when the manufacturer would obtain the same profits as the farmer and the tide of capital would cease to set in either direction this is in fact the mode in which the cultivation of corn is always extended and the increased once of the market supplied the funds for the maintenance of labor increase and wages are raised the comfortable situation of the laborer induces him to marry population increases and the demand for corn raises its price relatively to other things more capital is profitably employed on agriculture and continues to flow towards it till the supply is equal to the demand when the price again falls and agricultural and manufacturing profits are again brought to a level but whether wages were stationary after the rise in the price of corn or advanced moderately or enormously is of no importance to this question for wages are paid by the manufacturer as well as by the farmer and therefore in this respect they must be equally affected by a rise in the price of corn but they are unequally affected in their profits in as much as the farmer sells his commodity at an advanced price while the manufacturer sells his for the same prices before it is however the inequality of profit which is always the inducement to remove capital from one employment to another and therefore more corn would be produced and fewer commodities manufactured manufacturers would not rise because fuel would be manufactured for a supply of them would be obtained in exchange for the exported corn a bounty if it raises the price of corn either raises it in comparison with the price of other commodities or it does not if the affirmative be true it is impossible to deny the greater profits of the farmer and the temptation to the removal of capital till its price is again lowered by an abundant supply if it does not raise it in comparison with other commodities where is the injury to the home consumer beyond the inconvenience of paying the tax if the manufacturer pays a greater price for his corn he is compensated by the greater price at which he sells his commodity with which his corn is ultimately purchased the error of Adam Smith proceeds precisely from the same source as that of the writer in the Edinburgh review for they both think that the money price of corn regulates that of all other homemade commodities it regulates says Adam Smith the money price of labour which must always be such as to enable the labourer to purchase a quantity of corn sufficient to maintain him and his family either in the liberal moderate or scanty manner in which the advancing stationary or declining circumstances of the society oblige his employers to maintain him by regulating the money price of all the other parts of the rude produce of land it regulates that of the materials of almost all manufacturers by regulating the money price of labour it regulates that of manufacturing art and industry and by regulating both it regulates that of the complete manufacturer the money price of labour and of everything that is the produce either of land and labour must necessarily rise or fall in proportion to the money price of corn this opinion of adam smith i have before attempted to refute in considering a rise in the price of commodities as a necessary consequence of a rise in the price of corn he reasons as though there were no other fund from which the increased charge could be paid he has wholly neglected the consideration of profits the diminution of which forms that fund without raising the price of commodities if this opinion of dr smith were well founded profits could never rarely fall whatever accumulation of capital there might be if when wages rose the farmer could raise the price of his corn and the clothier the hat of the shoemaker and every other manufacturer could also raise the price of their goods in proportion to the advance although estimated in money they might be all raised they would continue to bear the same value relatively to each other each of these trades could command the same quantity as before of the goods of the others which since it is goods and not money which constitute wealth is the only circumstance that could be of importance to them and the whole rise in the price of raw produce and of goods would be injurious to no other persons but to those whose property consisted of gold and silver or whose annual income was paid in a contributed quantity of those metals whether in the form of bullion or of money suppose the use of money to be wholly laid aside and all trade to be carried on by barter under such circumstances could corn rise in exchangeable value with other things if it could then it is not true that the value of corn regulates the value of all other commodities but to do that it should not vary in relative value to them if it could not then it must be maintained that whether corn be obtained on rich or on poor land with much labor or with little with the aid of machinery or without it would always exchange for an equal quantity of all other commodities I cannot however but remark that though Adam Smith's general doctrines correspond with this which I have just quoted it in one part of his work he appears to have given a correct account of the nature of value the proportion between the value of gold and silver and that of goods of any other kind depends in all cases he says upon the proportion between the quantity of labor which is necessary in order to bring a certain quantity of gold and silver to market and that which is necessary to bring with a certain quantity of any other sort of goods as he not here fully acknowledged that if any increase takes place in the quantity of labor required to bring one sort of goods to market whilst no such increase takes place in bringing another sort with the first sort will rise in relative value if no more labor than before be required to bring either cloth or gold to market they will not vary in relative value but if more labor be required to bring corn and shoes to market will not corn and shoes rise in value relatively to cloth and money made of gold Adam Smith again considers that the effect of the bounty is to cause a partial degradation in the value of money that degradation says he in the value of silver which is the effect of the fertility of the mind and which operates equally or very nearly equally through the greater part of the commercial world is a matter of very little consequence to any particular country the consequent rise of all money prices though it does not make those who receive them really richer does not make them really poorer a service of plate becomes really cheaper and everything else remains precisely of the same real value as before this observation is most correct but that degradation in the value of silver which being the effect either of the peculiar situation or of the political institutions of a particular country takes place only in that country is a matter of very great consequence which far from tending to make anybody really richer tends to make everybody really poorer the rise in the money price of all commodities which is in this case peculiar to that country tends to discourage more or less every sort of industry which is carried on within it and to enable foreign nations by furnishing almost all sorts of goods for a smaller quantity of silver than its own workmen can afford to do to undersell them not only in the foreign but even in the home market i have elsewhere attempted to show that a partial degradation in the value of money which shall affect both agricultural produce and manufactured commodities cannot possibly be permanent to say that money is partially degraded in this sense is to say that all commodities are at a high price but while gold and silver are at liberty to make purchases in the cheapest market they will be exported for the cheaper goods of other countries and the reduction of their quantity will increase their value at home commodities will regain their usual level and those fitted for foreign markets will be exported as before a bounty therefore cannot i think be objected to on this ground if then a bounty raises the price of corn in comparison with all other things the farmer will be benefited and more land will be cultivated but if the bounty do not raise the value of corn relatively to other things then no other inconvenience will attend it than that of paying the bounty one which i neither wish to conceal nor underrate dr smith states that by establishing high duties on the importation and bounties on the exportation of corn the country gentlemen seemed to have imitated the conduct of the manufacturers by the same means both had endeavored to raise the value of their commodities they did not perhaps attend to the great and essential difference which nature has established between corn and almost every other sort of goods when by either of the above means you enable our manufacturers to sell their goods for somewhat a better price than they otherwise could get for them you raise not only the nominal but the real price of those goods you increase not only the nominal but the real profit the real wealth and revenue of those manufacturers you really encourage those manufacturers but when by the like institutions you raise the nominal or money price of corn you do not raise its real value you do not increase the real wealth of our farmers or country gentlemen you do not encourage the growth of corn the nature of things has stamped upon corn a real value which cannot be altered by merely altering its money price through the world in general that value is equal to the quantity of labor which it can maintain i have already attempted to show that the market price of corn would under an increased demand from the effects of a bounty exceed its natural price till the requisite additional supply was obtained and that then it would again fall to its natural price but the natural price of corn is not so fixed as the natural price of commodities because with any great additional demand for corn land of a worse quality must be taken into cultivation on which more labor will be required to produce a given quantity and the natural price of corn will be raised by a continued bounty therefore on the exploitation of corn there would be created a tendency to a permanent rise in the price of corn and this as i have shown elsewhere never fails to raise rent country gentlemen then have not only a temporary but a permanent interest in prohibitions of the importation of corn and in bounties on its exportation the manufacturers have no permanent interest in establishing high duties on the importation and bounties on the exportation of commodities their interest is wholly temporary a bounty on the exportation of manufacturers will undoubtedly as dr smith contends raise for a time the market price of manufacturers but it will not raise their natural price the labor of 200 men will produce double the quantity of these goods that 100 could produce before and consequently when the requisite quantity of capital was employed in supplying the requisite quantity of manufacturers they would again fall to their natural price and all advantage from a high market price would cease it is then only during the interval after the rise in the market price of commodities until the additional supplies obtained the manufacturers will enjoy high profits for as soon as prices had subsided their profits would sink to the general level instead of agreeing therefore with adam smith that the country gentlemen had not so great an interest in prohibiting the importation of corn as the manufacturer had in prohibiting the importation of manufactured goods i contend that they have a much superior interest but their advantage is permanent while that of the manufacturer is only temporary dr smith observes that nature has established a great and essential difference between corn and other goods but the proper inference from that circumstance is directly the reverse of that which he draws from it for it is on account of this difference that rent is created and that country gentlemen have an interest in the rise of the natural price of corn instead of comparing the interest of the manufacturer with the interest of the country gentlemen dr smith should have compared it with the interest of the farmer which is very distinct from that of his landlord manufacturers have no interest in the rise of the natural price of their commodities nor have farmers any interest in the rise of the natural price of corn or other raw produce though both these classes have benefited while the market price of their productions exceeds their natural price on the contrary landlords have a most decided interest in the rise of the natural price of corn but the rise of rent is the inevitable consequence of the difficulty of producing raw produce without which its natural price could not rise now as bounties on exportation and prohibitions of the importation of corn increase the demand and drive us to the cultivation of poorer lands they necessarily occasion an increased difficulty of production the sole effect of high duties on the importation either of manufacturers or of corn or of a bounty on the exportation is to divert a portion of capital to an employment which it would not naturally seek it causes a pernicious distribution of the general funds of the society it bribes a manufacturer to commence or continue in a comparatively less profitable employment it is the worst species of taxation for it does not give to the foreign country or that it takes away from the home country the balance of loss being made up by the less advantageous distribution of the general capital thus if the price of corn is in england four pounds and in france three pounds fifteen shillings a bounty of ten shillings will ultimately reduce it to three pounds ten shillings in france and maintain it at the same price of four pounds in england for every quarter exported england pays a tax of ten shillings for every quarter imported into france france gains only five shillings so that the value of five shillings per quarter is absolutely lost to the world by such a distribution of its funds as to cause diminished production probably not of corn but of some other object of necessity or enjoyment mr bucannon appears to have seen the fallacy of dr smith's arguments respecting bounties and on the last passage which i have quoted very judiciously remarks in asserting that nature has stamped a real value on corn which cannot be altered by merely altering its money price dr smith confounds its value in use with its value in exchange a bushel of wheat will not feed more people during scarcity than during plenty but a bushel of wheat will exchange for a greater quantity of luxuries and conveniences when it is scarce than when it is abundant and the landed proprietors who have a surplus of food to dispose of will therefore in times of scarcity be richer man they will exchange their surplus for a greater value of other enjoyments than when corn is in greater plenty it is vain to argue therefore that if the bounty occasions a forced exportation of corn it will not also occasion a real rise of price the whole of mr bucannon's arguments on this part of the subject of bounties appear to me to be perfectly clear and satisfactory mr bucannon however has not i think any more than dr smith or the writer in the edinburgh correct opinions as to the influence of a rise in the price of labor on manufactured commodities from his peculiar views which i have elsewhere noticed he thinks that the price of labor has no connection with the price of corn and therefore that the real value of corn might and would rise without affecting the price of labor but if labor were affected he would maintain with adam smith and the writer in the edinburgh review that the price of manufactured commodities would also rise and then i do not see how he would distinguish such a rise of corn from a fall in the value of money or how he could come to any other conclusion than that of dr smith in a note to page 276 volume one of the wealth of nations mr bucannon observes that the price of corn does not regulate the money price of all the other parts of the rude produce of land it regulates the price neither of metals nor of various other useful substances such as coals wood stones etc and as it does not regulate the price of labor it does not regulate the price of manufacturers so that the bounty in so far as it raises the price of corn is undoubtedly a real benefit to the farmer it is not on this ground therefore that its policy must be argued its encouragement agriculture by raising the price of corn must be admitted and the question then comes to be whether agriculture ought to be thus encouraged it is there according to mr bucannon a real benefit to the farmer because it does not raise the price of labor but if it did it would raise the price of all things in proportion and then it would afford no particular encouragement to agriculture it must however be conceded that the tendency of a bounty on the exportation of any commodity is to lower in a small degree the value of money whatever facilitates exportation tends to accumulate money in a country and on the contrary whatever impede's exportation tends to diminish it the general effect of taxation by raising the prices of the commodities taxed tends to diminish exportation and therefore to check the influx of money and on the same principle a bounty encourages the influx of money this is more fully explained in the general observations on taxation the injurious effects of the mercantile system have been fully exposed by dr smith the whole aim of that system was to raise the price of commodities in the home market by prohibiting foreign competition but this system was no more injurious to the agricultural classes than to any other part of the community by forcing capital into channels where it would not otherwise flow it diminished the whole amount of commodities produced the price though permanently higher was not sustained by scarcity but by difficulty of production and therefore though the sellers of such commodities sold them for a higher price they did not sell them after the requisite constee of capital was employed in producing them at higher profits footnote monsieur say supposes the advantage of the manufacturers at home to be more than temporary quote a government which absolutely prohibits the importation of certain foreign goods establishes a monopoly in favor of those who produce such commodities at home against those who consume them in other words those at home who produce them having the exclusive privilege of selling them they elevate their price above the natural price and the consumers at home not being able to obtain them elsewhere are obliged to purchase them at a higher price unquote but how can they permanently support the market price of their goods above the natural price when every one of their fellow citizens is free to enter into the trade they're guaranteed against foreign but not against home competition the real evil arising to the country from such monopolies if they can be called by that name lies not in raising the market price of such goods but in raising their real and natural price by increasing the cost of production a portion of the labor of the country is less productively employed end of footnote the manufacturers themselves as consumers had to pay an additional price for such commodities and therefore it cannot be correctly said that the enhancement of price occasioned by both operational laws and high duties on the importations of foreign commodities is everywhere fully paid by the landlords farmers and laborers of the country it is the more necessary to make this remark as in the present day the authority of adam smith is quoted by country gentlemen for imposing similar high duties on the importation of foreign corn because the cost of production and therefore the prices of various manufactured commodities are raised to the consumer by one error in legislation the country has been called upon on the plea of justice quietly to submit to fresh transactions because we 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 in the general distribution of the labor of the world we have prevented the greatest amount of productions from being obtained by our portion of that labor in manufactured commodities we should further punish ourselves by diminishing the productive powers of the general labor in the supply of raw produce it would be much wiser to acknowledge the errors which are mistaken policy has induced us to adopt and immediately to commence a gradual recurrence to the sound principles of an universally free trade but note from the article corn laws and trade supplement to encyclopedia britannica quote a freedom of trade is alone wanted to guarantee a country like britain abounding in all the varied products of industry in merchandise suited to the wants of every society from the possibility of a scarcity the nations of the earth are not condemned to throw the dice to determine which of them shall submit to famine there is always abundance of food in the world to enjoy a constant plenty we have only to lay aside our prohibitions and restrictions and cease to counteract the benevolent wisdom of providence unquote end of footnote i have already had occasion to remark observes must you say in speaking of what is improperly called the balance of trade that if it suits a merchant better to export the precious metals to a foreign country than any other goods it is also the interest of the state that he should export them because the state only gains or loses through the channel of its citizens and in what concerns foreign trade that which best suits the individual best suits also the state therefore by opposing obstacles to the exportation which individuals would be inclined to make of the precious metals nothing is done than to force them to substitute some other commodity less profitable to themselves and to the state it must however be remarked that i say only in what concerns foreign trade because the profits which merchants make by their dealings with their countrymen as well as those which are made in the exclusive commerce with colonies are not entirely gains for the state in the trade between individuals of the same country there is no other gain but the value of a new utility produced could have allowed the new till a tear productivity footnote i'm not the following passages contradictory to the one just quoted quote besides that home trade though less noticed because it is in a variety of hands is the most considerable it is also the most profitable the commodities exchanged in that trade are necessarily the productions of the same country unquote end of footnote volume 1 page 401 i cannot see the distinction here made between the profits of the home and foreign trade the object of all trade is to increase productions if for the purchase of a pipe of wine i had in my power to export bullion which was bought with the value of the produce of a hundred days labor but government by prohibiting the exportation of bullion should oblige me to purchase my wine with the commodity bought with the value of the produce of 105 days labor the produce of five days labor is lost to me and through me to the state but if these transactions took place between individuals in different provinces of the same country the same advantage would accrue both to the individual and through him to the country if he were unfettered in his choice of the commodities with which he made his purchases and the same disadvantage if he were obliged by government to purchase with the least beneficial commodity if a manufacturer could work up with the same capital more iron where coals are plentiful and he could where coals are scarce the country would be benefited by the difference but if coals were nowhere plentiful and he imported iron and could get this additional quantity by the manufacturer of a commodity with the same capital and labor he would in like manner benefit his country by the additional quantity of iron in the seventh chapter of this work i have endeavored to show that all trade whether foreign or domestic is beneficial by increasing the quantity and not by increasing the value of productions we shall have no greater value whether we carry on the most beneficial home and foreign trade or in consequence of being feted by prohibitory laws we are obliged to content ourselves with the least advantageous the rate of profits and the value produced will be the same the advantage always resolves itself into that which appears to confine to the home trade in both cases there is no other gain but that of the value of an utility productivity chapter 23 on bounties on production it may not be uninstructive to consider the effects of a bounty on the production of raw produce and other commodities with a view to observe the application of the principles which i have been endeavouring to establish with regard to the profits of stock the division of the annual produce of the land and labor and the relative prices of manufacturers and raw produce in the first place that are supposed that a tax was imposed on all commodities for the purpose of raising a fund to be employed by government in giving a bounty on the production of corn as no part of such a tax would be expended by government and as all that was received from one class of the people would be returned to another the nation collectively would neither be richer nor poorer from such a tax and bounty it would be readily allowed that the tax on commodities by which the fund was created would raise the price of the commodities taxed all the consumers of those commodities therefore would contribute towards that fund in other words their natural or necessary price being raised so would do their market price but for the same reason that the natural price of those commodities would be raised the natural price of corn would be lowered before the bounty was paid on production the farmers obtained as greater price for their corn as was necessary to repay them their rent and their expenses and afford them the general rate of profits after the bounty they would receive more than that rate unless the price of corn fell by a sum at least equal to the bounty the effect then of the tax and bounty would be to raise the price of commodities in a degree equal to the tax levied on them and to lower the price of corn by a sum equal to the bounty paid it will be observed too that no permanent alteration could be made in the distribution of capital between agriculture and manufacturers because as there would be no alteration either in the amount of capital or population there would be precisely the same demand for bread and manufacturers the profits of the farmer would be no higher than the general level after the fall in the price of corn nor would the profits of the manufacturer be lower after the rise of manufactured goods the bounty then would not occasion any more capital to be employed on the land in the production of corn nor any less in the manufacture of goods but how would the interest of the landlord be affected on the same principles that attacks on raw produce would lower the corn rent of land leaving the money rent unaltered a bounty on production which is directly the contrary of attacks would raise corn rent leaving the money rent unaltered with the same money rent the landlord would have a greater price to pay for his manufactured goods and a less price for his corn he would probably therefore be neither richer nor poorer now whether such a measure would have any operation on the wages of labor would depend on the question whether the laborer in purchasing commodities would pay as much towards the taxes he would receive from the effects of the bounty in the low price of his food if these two quantities were equal wages would continue unaltered but if the commodities taxed were not those consumed by the laborer his wages would fall and his employer would be benefited by the difference but this is no real advantage to his employer it would indeed operate to increase the rate of his profits as every fall of wages must do but in proportion as the laborer contributed less to the fund from which the bounty was paid and which let it be remembered must be raised his employer must contribute more in other words he would contribute as much to the tax by his expenditure as he would receive in the effects of the bounty and the higher rate of profits together he obtains a higher rate of profits to requite him for his payment not only of his own quota of the tax but of his laborers also the remuneration which he receives for his laborers quota appears in diminished wages or which is the same thing in increased profits the remuneration for his own appears in the diminution in the price of the corn which he consumes arising from the bounty here it will be proper to remark that different effects produced on profits from an alteration in the real labor or natural value of corn and an alteration in the relative value of corn from taxation and from bounties if corn is lowered in price by an alteration in its labor price not only will the rate of the profits of stock be altered but the condition of the capitalist will be improved with greater profits he will have no more to pay for the objects on which those profits are expended which does not happen as we have just seen when the fall is occasioned artificially by a bounty in the real fall in the value of corn arising from less labor being required to produce one of the most important objects of man's consumption labor is rendered more productive with the same capital the same labor is employed and an increase of productions is the result not only then will the rate of profits be increased but the condition of him who obtains them will be improved not only will each capitalist have a greater money revenue if he employs the same money capital but also when that money is expended it will procure him a greater sum of commodities his enjoyments will be augmented in the case of the bounty to balance the advantage which he derives from the fall of one commodity he has the disadvantage of paying a price more than proportionally high for another he receives an increased rate of profits in order to enable him to pay this higher price so that his real situation though not deteriorated is in no way improved though he gets a higher rate of profits he has no greater command of the produce of the land and labor of the country when the fall in the value of corn is brought about by natural causes it is not counteracted by the rise of other commodities on the contrary they fall from the raw material falling from which they are made but when the falling corn is occasioned by artificial means it is always counteracted by a real rise in the value of some other commodity so that if corn be bought cheaper other commodities are bought dearer this then is a further proof that no particular disadvantage arises from taxes on necessaries on account of their raising wages and lowering the rate of profits profits are indeed lowered but only to the amount of the laborers portion of the tax which must at all events be paid either by his employer or by the consumer of the produce of the laborers work whether you deduct £50 per annum from the employer's revenue or add £50 to the prices of the commodities which he consumes can be of no other consequence to him or to the community than as it may equally affect all other classes if it be added to the prices of the commodity a miser may avoid the tax by not consuming if it be indirectly deducted from every man's revenue he cannot avoid paying his fair proportion of the public burdens a bounty on the production of corn then would produce no real effect on the annual produce of the land and labor of the country although it would make corn relatively cheap and manufacturers relatively dear but suppose now that a contrary measure should be adopted that a tax should be raised on corn for the purpose of affording a fund for a bounty on the production of commodities in such case it is evident that corn would be dear and commodities cheap labor would continue at the same price if the laborer were as much benefited by the cheapness of commodities as he was injured by the dearness of corn but if he were not wages would rise and profits would fall while money rent would continue the same as before profits would fall because as we have just explained that would be the mode in which the laborer's share of the tax would be paid by the employers of labor by the increase of wages the laborer would be compensated for the tax which he would pay in the increased price of corn by not expending any part of his wages on the manufactured commodities he would receive no part of the bounty the bounty would be all received by the employers and the tax would be partly paid by the employed a remuneration would be made to the laborers in the shape of wages for this increased burden laid upon them and thus the rate of profits would be reduced in this case too there would be a complicated measure producing no national result whatever in considering this question we have purposely left out of our consideration the effect of such a measure on foreign trade we have rather been supposing the case of an insulated country having no commercial connection with other countries we have seen that as the demand of the country for corn and commodities would be the same whatever direction the bounty might take there would be no temptation to remove capital from unemployment to another but this would no longer be the case if there were foreign commerce and that commerce were free by altering the relative value of commodities and corn by producing so powerful in effect on their natural prices we should be applying a strong stimulus to the exploitation of those commodities whose natural prices were lowered and an equal stimulus to the importation of those commodities whose natural prices were raised and thus such a financial measure might entirely alter the natural distribution of employments to the advantage indeed of the foreign countries but ruinously to that in which so absurd a policy was adopted chapter 24 doctrine of adam smith concerning the rent of land such parts only of the produce of land says adam smith can commonly be brought to market of which the ordinary price is sufficient to replace the stock which must be employed in bringing them together with its ordinary profits if the ordinary price is more than this the surplus part of it will naturally go to the rent of land if it is not more though the commodity can be brought to market it can afford no rent to the landlord whether the price is or is not more depends upon the demand this passage would naturally lead the listener to conclude that its author could not have mistaken the nature of rent and that he must have seen that the quality of land which the exigencies of society might require to be taken into cultivation would depend on the ordinary price of its produce whether it were sufficient to replace the stock which must be employed in cultivating it together with its ordinary profits but he had adopted the notion that there were some parts of the produce of land for which the demand must always be such as to afford a greater price than what is sufficient to bring them to market and he considered food as one of those parts he says that land in almost any situation produces a greater quantity of food than what is sufficient to maintain all the labor necessary for bringing it to market in the most liberal way in which that labor is ever maintained the surplus too is always more than sufficient to replace the stock which employed that labor together with its profits something therefore always remains for a rent to the landlord but what proof does he give of this no other than the assertion that the most desert moors in norway in scotland produce some sort of pasture for cattle of which the milk and the increase are always more than sufficient not only to maintain all the labor necessary for tending them and to pay the ordinary profit to the farmer or owner of the herd or flock but to afford some small rent to the landlord now of this i may be permitted to entertain it out i believe that as yet in every country from the rudest to the most refined there is land of such a quality that it cannot yield a produce more than sufficiently valuable to replace the stock employed upon it together with the profits ordinary and usual in that country in america we all know that this is the case and yet no one maintains that the principles which regulate rent are different in that country and in europe but if it were true that england had so far advanced in cultivation that at this time there were no lands remaining which did not afford a rent it would be equally true that there formerly must have been such lands and that whether they'd be or not is of no importance to this question for it is the same thing if there be any capital employed in great britain on land which yields only the return of stock with its ordinary profits whether it be employed on old or a new land if a farmer agrees for land on a lease of seven or fourteen years he may propose to employ on it a capital of ten thousand pounds knowing that at the existing price of grain and raw produce he can replace that part of his stock which he is obliged to expend pay his rent and obtain the general rate of profit he will not employ eleven thousand pounds unless the last one thousand pounds can be employed so productively as to afford him the usual profits of stock in his calculation whether he shall employ it or not he considers only whether the price of raw produce is sufficient to replace his expenses and profits but he knows that he shall have no additional rent to pay even at the exploration of his lease his rent will not be raised for if his landlord should require rent because this additional one thousand pounds was employed he would withdraw it since by employing it he gets by the supposition only the ordinary and usual profits which he may obtain by any other employment of stock and therefore he cannot afford to pay rent for it unless the price of raw produce should further rise or which is the same thing unless the usual and general rate of profits should fall if the comprehensive mind of adam smith had been directed to this fact he would not have maintained that rent forms one of the component parts of the price of raw produce but price is everywhere regulated by the return obtained by this last portion of capital for which no rent whatever is paid if he had adverted to this principle he would have made no distinction between the law which regulates the rent of mines and the rent of land whether a coal mine for example he says can afford any rent depends partly upon its fertility and partly upon its situation a mine of any kind may be said to be either fertile or barren according as the quantity of mineral which can be brought from it by a certain quantity of labor is greater or less than what can be brought by an equal quantity from the greater part of other mines of the same kind some coal mines advantageously situated cannot be brought on account of their barrenness the produce does not pay the expense they can afford neither profit nor rent there are some of which the produce is barely sufficient to pay the labor and replace together with its ordinary profits the stock employed in working them they afford some profit to the undertaker of the work but no rent to the landlord they can be brought advantageously by nobody but the landlord who being himself the undertaker of the work gets the ordinary profit of the capital which he employs in it many coal mines in Scotland are brought in this manner and can be brought in no other the landlord will allow nobody else to work them without paying some rent and nobody can afford to pay any other coal mines in the same country sufficiently fertile cannot be brought on account of their situation a quantity of mineral sufficient to defray the expense of working could be brought from the mine by the ordinary or even less than the ordinary quantity of labor but in an inland country inly inhabited and without either good roads or water carriage this quantity could not be sold the whole principle of rent is here admirably and perspicuously explained every word is as applicable to land as it is to mines yet he affirms that it is otherwise in a states above ground the proportion both of their produce and of their rent is in proportion to their absolute and not to their relative fertility but suppose that there were no land which did not afford a rent then the amount of rent on the worst land would be in proportion to the excess of the value of the produce above the expenditure of capital and the ordinary profits of stock the same principle would govern the rent of land of a somewhat better quality or more favorably situated and therefore the rent of this land would exceed the rent of that inferior to it by the superior advantages which it possessed the same might be said of that of the third quality and so on to the very best is it not then a certain that it is the relative fertility of the land which determines the portion of the produce which shall be paid for the rent of land as it is that the relative fertility of mines determines the portion of their produce which shall be paid for the rent of mines after adam smith has declared that there are some mines which can only be worked by the owners as they will afford only sufficient to defray the expense of working together with the ordinary profits of the capital employed we should expect that he would admit that it was these particular mines which regulated the price of the produce from all mines if the old mines are insufficient to supply the quantity of coal required the price of coal will rise and will continue rising till the owner of a new and inferior mine finds that he can obtain the usual profits of stock by working his mine if his mine be tolerably fertile the rise will not be great before it becomes his interest so to employ his capital but if it be not tolerably fertile it is evident that the price must continue to rise till it will afford him the means of paying his expenses and obtaining the ordinary profits of stock it appears then that it is always the least fertile mine which regulates the price of coal adam smith however is of a different opinion he observes that the most fertile coal mine too regulates the price of coals at all the other mines in its neighborhood both the proprietor and the undertaker of the work find the one that he can get a greater rent the other that he can get a greater profit by somewhat underselling all their neighbors their neighbors are soon obliged to sell at the same price though they cannot so well afford it although it always diminishes and sometimes takes away altogether both their rent and their profit some works are abandoned altogether others can afford no rent and can be wrought only by the proprietor if the demand for coal should be diminished or if by new processes the quantity should be increased the price would fall and some mines would be abandoned but in every case the price must be sufficient to pay the expenses and profit of that mine which is worked without being charged with rent it is therefore the least fertile mine which regulates price indeed it is so stated in another place by adam smith himself for he says the lowest price at which coals can be sold for any considerable time is like that of all other commodities the price which is barely sufficient to replace together with its ordinary profits the stock which must be employed in bringing them to market at a coal mine for which the landlord can get no rent at which he must either work himself or let it alone altogether the price of coals must generally be nearly about this price at the same circumstance namely the abundance and consequent cheapness of coals from whatever cause it may arise which would make it necessary to abandon those mines on which there was no rent or a very moderate one would if there were the same abundance and consequent cheapness of raw produce render it necessary to abandon the cultivation of those lands for which either no rent was paid or a very moderate one if for example potatoes should become the general and common food of the people as rice is in some countries one fourth or one half of the land now in cultivation would probably be immediately abandoned for if as adam smith says an acre of potatoes will produce six thousand weight of solid nourishment three times the quantity produced by the acre of wheat they cannot be for a considerable time such a multiplication of people as to consume the quantity that might be raised on the land before employed for the cultivation of wheat much land would consequently be abandoned and rent would fall and it would not be till the population had been doubled or troubled that the same quantity of land could be in cultivation and the rent paid for it as highest before neither would any greater proportion of the gross produce be paid to the landlord whether it consisted of potatoes which would feed 300 people or of wheat which would feed only 100 because though the expenses of production would be very much diminished if the laborers wages were chiefly regulated by the price of potatoes and not by the price of wheat and though therefore the proportion of the whole gross produce after paying the laborers would be greatly increased yet no part of that additional proportion would go to rent but the whole invariably to profits profits being at all times raised as wages fall and lowered as wages rise whether wheat or potatoes were cultivated rent would be governed by the same principle it would be always equal to the difference between the quantities of produce obtained with equal capitals either on the same land or on land of different qualities and therefore while lands of the same quality were cultivated and there was no alteration in their relative fertility or advantages rent would always bear the same proportion to the gross produce adam smith however maintains that the proportion which falls to the landlord would be increased by a diminished cost of production and therefore that he would receive a larger share as well as a larger quantity from an abundant and from a scanty produce a rice field he says produces a much greater quantity of food than the most fertile cornfield two crops in the year from 30 to 60 bushels each are said to be the ordinary produce of an acre though its cultivation therefore requires more labor a much greater surplus remains after maintaining all that labor in those rice countries therefore where rice is the common and favorite vegetable food of the people and where the cultivators are chiefly maintained with it a greater share of this greater surplus should belong to the landlord than in corn countries mr. Buchanan also remarks that it is quite clear that if any other produce which the land yielded more abundantly than corn were to become the common food of the people the rent of the landlord would be improved in proportion to its greater abundance if potatoes were to become the common food of the people there would be a long interval during which the landlords would suffer an enormous deduction of rent they would not probably receive nearly so much of the sustenance of man as they now receive while that sustenance would fall to a third of its present value but all manufactured commodities on which a part of the landlord's rent is expended would suffer no other fall than that which proceeded from the fall in the raw material of which they were made and which would arise only from the greater fertility of the land which might then be devoted to its production when from the progress of population land of the same quality as before should be taken into cultivation the landlord would have not only the same proportion of the producers before but that proportion would also be of the same value as before rent then would be the same as before profits however would be much higher because the price of food and consequently wages would be much lower high profits are favorable to the accumulation of capital the demand for labor would further increase and landlords would be permanently benefited by the increased demand for land indeed the very same lands might be cultivated much higher when such an abundance of food could be produced from them and consequently they would in the progress of society admit of much higher rents and would sustain a much greater population than before this could not fail to be highly beneficial to landlords and is consistent with the principle which this inquiry I think will not fail to establish that all extraordinary profits are in their nature but of limited duration as the whole surplus produce of the soil after deducting from it only such moderate profits as are sufficient to encourage accumulation must finally rest with the landlord with so lower price of labor as such an abundant produce would cause not only with the lands already in cultivation yield a much greater quantity of produce but they would admit of a great additional capital being employed on them and a greater value to be drawn from them and at the same time lands of a very inferior quality could be cultivated with high profits to the great advantage of landlords as well as to the whole class of consumers the machine which produced the most important article of consumption would be improved and would be well paid for according as its services were demanded all the advantages would in the first instance be enjoyed by laborers capitalists and consumers but with the progress of population they would be gradually transferred to the proprietors of the soil independently of these improvements in which the community have an immediate and the landlords a remote interest the interest of the landlord is always opposed to that of the consumer and manufacturer corn can be permanently at an advanced price only because additional labor is necessary to produce it because its 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 is not the interest of the consumer to him it is desirable that corn should be low relatively to money and commodities for it is always with commodities or money that corn is purchased neither is it the interest of the manufacturer that corn should be at a high price for the high price of corn what occasion high wages but will not raise the price of his commodity not only then must more of his commodity or which comes to the same thing the value of more of his commodity be given in exchange for the corn which he himself consumes but more must be given or the value of more for wages to his workmen for which he will receive no remuneration all classes therefore accept the landlords will be injured by the increase in the price of corn the dealings between the landlord and the public are not like dealings in trade whereby both the seller and buyer may equally be set to gain but the loss is wholly on one side and the gain wholly on the other and if corn could by importation be procured cheaper the loss in consequence of not importing is far greater on one side than the gain is on the other adam smith never makes any distinction between a low value of money and a high value of corn and therefore infers that the interest of the landlord is not opposed to that of the rest of the community in the first case money is low relatively to all commodities in the other corn is high relatively to all in the first corn and commodities continue at the same relative values in the second corn is higher relatively to commodities as well as money the following observation of adam smith is applicable to a low value of money but it is totally inapplicable to a high value of corn if importation of corn was at all times free our farmers and country gentlemen would probably one year with another get less money for their corn than they do at present when importation is at most times in effect prohibited but the money which they got would be of more value would buy more goods of all other kinds and would employ more labor their real wealth their real revenue therefore would be the same as at present than it might be expressed by a smaller quantity of silver and they would neither be disabled nor discouraged from cultivating corn as much as they do at present on the contrary as the rise in the real value of silver in consequence of lowering the money price of corn low as somewhat the money price of all other commodities it gives the industry of the country where it takes place some advantage in all foreign markets and thereby tends to encourage and increase that industry at the extent of the home market for corn must be in proportion to the general industry of the country where it grows or to the number of those who produce something else to give in exchange for corn but in every country the home market as it is the nearest most convenient so is it likewise the greatest and most important market for corn that rise in the real value of silver therefore which is the effect of lowering the average money price of corn tends to enlarge the greatest and most important market for corn and thereby to encourage instead of discouraging its growth a high or low money price of corn arising from the abundance and cheapness of gold and silver is of no importance to the landlord as every sort of produce would be equally affected just as Adam Smith describes but a relatively high price of corn is at all times greatly beneficial to the landlord for first it gives him a greater quantity of corn for rent and secondly for every equal measure of corn he will have a command not only over a greater quantity of money but over a greater quantity of every commodity which money can purchase chapter 25 on colonial trade Adam Smith in his observations on colonial trade has shown most satisfactorily the advantages of a free trade and the injustice suffered by colonies in being prevented by their mother countries from selling their produce at the dearest market and buying their manufacturers and stores at the cheapest he has shown that by permitting every country freely to exchange the produce of its industry when and where it pleases the best distribution of the labor of the world will be affected and the greatest abundance of the necessaries and enjoyments of human life will be secured he has attempted also to show that this freedom of commerce which undoubtedly promotes the interest of the whole promotes also that of each particular country and that the narrow policy adopted in the countries of Europe respecting their colonies is not less injurious to the mother countries themselves than to the colonies whose interests are sacrificed the monopoly of the colony trade he says like all the other mean and malignant expedience of the mercantile system depresses the industry of all other countries but chiefly that of the colonies without in the least increasing but on the contrary diminishing that of the country in whose favorite is established this part of his subject however is not treated in so clear and convincing a manner as that in which he shows the injustice of this system towards the colony it may i think be doubted whether a mother country may not sometimes be benefited by the restraints to which she subjects her colonial possessions who can doubt for example that if england were the colony of france the latter country would be benefited by a heavy bounty paid by england on the exportation of corn cloth or any other commodities in examining the question of bounties on the supposition of corn being at four pounds per quarter in this country we saw that with a bounty of 10 shillings per quarter on exportation in england corn would have been reduced to three pounds 10 shillings in france now if corn had previously been at three pounds 15 shillings per quarter in france the french consumers would have been benefited by five shillings per quarter on all imported corn if the natural price of corn in france were before four pounds they would have gained the whole bounty of 10 shillings per quarter france would thus be benefited by the loss sustained by england she would not gain a part only of what england lost but the whole it may however be said that a bounty on exportation is a measure of internal policy and could not easily be imposed by the mother country if it would suit the interests of jamaica and holland to make an exchange of the commodities which they respectively produce without the intervention of england it is quite certain that by their being prevented from so doing the interests of holland and jamaica would suffer but if jamaica is obliged to send her goods to england and their exchange them for dutch goods an english capital or english agency will be employed in a trade in which it would not otherwise be engaged it is a lured thither by a bounty not paid by england but by holland and jamaica that the loss sustained through a disadvantageous distribution of labor in two countries may be beneficial to one of them while the other is made to suffer more than the loss actually belonging to such a distribution has been stated by adam smith himself which if true will at once prove that a measure which may be greatly hurtful to a colony may be partially beneficial to the mother country speaking of treaties of commerce he says when a nation binds itself by treaty either to permit the entry of certain goods from one foreign country which it prohibits from all others or to exempt the goods of one country from duties to which it subjects those of all others the country or at least the merchants and manufacturers of the country whose commerce is so favored must necessarily derive great advantage from the treaty those merchants and manufacturers enjoy a sort of monopoly in the country which is so indulgent to them that country becomes a market both more extensive and more advantageous for their goods more extensive because the goods of other nations being either excluded or subjected to heavier duties it takes off a greater quantity of them more advantageous because the merchants of the favored country enjoying a sort of monopoly there will often sell their goods for a better price than if exposed to the free competition of all other nations let the two nations between which the commercial treaty is made be the mother country in her colony and adam smith it is evident admits that a mother country may be benefited by oppressing her colony it may however be again remarked that unless the monopoly of the foreign market be in the hands of an exclusive company no more will be paid for commodities by foreign purchasers than by home purchasers the price which they will both pay will not differ greatly from their natural price in the country where they are produced england for example will under ordinary circumstances always be able to buy french goods at the natural price of those goods in france and france would have an equal privilege of buying english goods at their natural price in england but at these prices goods would be bought without a treaty of what advantage or disadvantage then is the treaty to either party the disadvantage of the treaty to the importing country would be this it would bind her to purchase a commodity from england for example at the natural price of that commodity in england when she might perhaps have bought it at the much lower natural price of some other country it occasions then a disadvantageous distribution of the general capital which falls chiefly on the country bound by its treaty to buy in the least productive market but it gives no advantage to the seller on account of any supposed monopoly for he is prevented by the competition of his own countrymen from selling his goods above their natural price at which he would sell them whether he exported them to france spain or the west indies or sold them for home consumption in what then does the advantage of the stipulation in the treaty consist it consists in this these particular goods could not have been made in england for exportation but for the privilege which she alone had of serving this particular market for the competition of that country where the natural price was lower would have deprived her of all chance of selling those commodities this however would have been of little importance if england were quite secure that she could sell to the same amount any other goods which she might fabricate either in the french market or with equal advantage in any other the object which england has in view is for example to buy a quantity of french wines of the value of five thousand pounds she desires then to sell goods somewhere by which she may get five thousand pounds for this purpose if france gives her a monopoly of the cloth market she will readily export cloth for this purpose but if the trade is free the competition of other countries may prevent the natural price of cloth in england from being sufficiently low to enable her to get five thousand pounds by the sale of cloth and to obtain the usual profits by such an employment of her stock the industry of england must be employed then on some other commodity but there may be none of her productions which at the existing value of money she can afford to sell at the natural price of other countries what is the consequence the wine drinkers of england are still willing to give five thousand pounds for their wine and consequently five thousand pounds in money is exported to france for that purpose by this exportation of money its value is raised in england and lowered in other countries and with it the natural price of all commodities produced by british industry is also lowered the advance in the value of money is the same thing as the decline in the price of commodities to obtain five thousand pounds british commodities may now be exported for at their reduced natural price they may now enter into competition with the goods of other countries more goods are sold however at the low prices to obtain the five thousand pounds required which when obtained will not procure the same quantity of wine because whilst the diminution of money in england has lowered the natural price of goods there the increase of money in france has raised the natural price of goods and wine in france less wine then will be imported into england in exchange for its commodities when the trade is perfectly free than when she is peculiarly favored by commercial treaters the rate of profits however will not have varied money will have altered in relative value in the two countries and the advantage gained by france will be the obtaining a greater quantity of english in exchange for a given quantity of french goods while the loss sustained by england will consist in obtaining a smaller quantity of french goods in exchange for a given quantity of those of england or in trade then whether fettered encouraged or free will always continue whatever may be the comparative difficulty of production in different countries but it can only be regulated by altering the natural price not the natural value at which commodities can be produced in those countries and that is affected by altering the distribution of the precious metals this explanation confirms the opinion which i have elsewhere given that there is not a tax a bounty or a prohibition on the importation or exportation of commodities which does not occasion a different distribution of the precious metals and which does not therefore everywhere alter both the natural and the market price of commodities it is evident then that the trade with the colony may be so regulated that it shall at the same time be less beneficial to the colony and more beneficial to the mother country than a perfectly free trade as it is disadvantageous to a single consumer to be restricted in his dealings to one particular shop so is it disadvantageous for a nation of consumers to be obliged to purchase of one particular country if the shop or the country afforded the goods required the cheapest they would be secure of selling them without any such exclusive privilege and if they did not sell cheaper the general interest would require that they should not be encouraged to continue a trade which they could not carry on at an equal advantage with others the shop or the selling country might lose by the change of employment but the general benefit is never so fully secured as by the most productive distribution of the general capital that is to say by a universally free trade an increase in the cost of production of a commodity if it be an article of the first necessity will not necessarily diminish its consumption for although the general power of the purchases to consume is diminished by the rise of any one commodity yet they may relinquish the consumption of some other commodity whose cost of production has not risen in that case the constantly supplied and the constantly demanded will be the same as before the cost of production only will have increased and yet the price will rise and must rise to place the profits of the producer of the enhanced commodity on a level with the profits derived from other trades as he say acknowledges that the cost of production is the foundation of price and yet in various parts of his book he maintains that price is regulated by the proportion which demand bears to supply the real and ultimate regulator of the relative value of any two commodities is the cost of their production and not the respective quantities which may be produced nor the competition amongst the purchasers according to adam smith the colony trade by being mine in which british capital only can be employed has raised the rate of profits of all other trades and as in his opinion high profits as well as high wages raised the prices of commodities the monopoly of the colony trade has been he thinks injurious to the mother country as it has diminished her power of selling manufactured commodities as cheap as other countries he says that in consequence of the monopoly the increase of the colony trade has not so much occasioned an addition to the trade which great britain had before as a total change in its direction secondly this monopoly has necessarily contributed to keep up the rate of profit in all the different branches of british trade higher than it naturally would have been had all nations been allowed a free trade through the british colonies but whatever raises in any country the ordinary rate of profit higher than it otherwise would be necessarily subjects that country both to an absolute and to a relative disadvantage in every branch of trade of which she has not the monopoly it subjects her to an absolute disadvantage because in such branches of trade her merchants cannot get this greater profit without selling dearer than they otherwise would do both the goods of foreign countries which they important to their own and the goods of their own country which they export to foreign countries their own country must both buy dearer and sell dearer must both buy less and sell less must both enjoy less and produce less than she otherwise would do our merchants frequently complain of the high wages of british laborers the cause of their manufacturers being undersold in foreign markets but they're silent about the high profits of stock they complain of the extravagant gain of other people they say nothing of their own the high profits of british stock however may contribute towards raising the price of british manufacture in many cases as much and in some perhaps more than the high wages of british labor i allow that the monopoly of the colony trade will change and often prejudically the direction of capital but from what i have already said on the subject of profits it will be seen that any change from one foreign trade to another or from home to foreign trade cannot in my opinion affect the rate of profits the injury suffered will be what i have just described there will be a worse distribution of the general capital and industry and therefore less will be produced the natural price of commodities will be raised and therefore the consumer will be able to purchase to the same money value he will obtain a less quantity of commodities it will be seen too that if it even had the effect of raising profits it would not occasion the least alteration in prices prices being regulated neither by wages nor profits and does not adam smith agree in this opinion when he says that the prices of commodities or the value of gold and silver as compared with commodities depends upon the proportion between the quantity of labor which is necessary in order to bring a certain quantity of gold and silver to market and that which is necessary to bring with a certain quantity of any other source of goods that quantity will not be affected whether profits be high or low or wages low or high how then can prices be raised by high profits chapter 26 on gross and net revenue adam smith constantly magnifies the advantages which a country derives from a large gross rather than a large net income in proportion as a greater share of the capital of a country is employed in agriculture he says the greater will be the quantity of productive labor which it puts into motion within the country as will likewise be the value which its employment adds to the annual produce of the land and labor of the society after agriculture the capital employed in manufacturers puts into motion the greatest quantity of productive labor and adds the greatest value to the annual produce that which is employed in the trade of exportation has the least effect of any of the three quick note mr say is of the same opinion with adam smith quote the most productive employment of capital for the country in general after that on the land is that of manufacturers and of home trade because it puts in activity an industry of which the profits are gained in the country while those capitals which are employed in foreign commerce make the industry and lands of all countries to be productive without distinction the employment of capital the least favorable to a nation is that of carrying the produce of one foreign country to another unquote say volume two end of footnote granting for a moment that this were true what would be the advantage resulting to a country from the employment of a great quantity of productive labor if whether it employed that quantity or a smaller its net rent and profits together would be the same the whole produce of the land and labor of every country is divided into three portions of these one portion is devoted to wages another to profits and the other to rent it is from the two last portions only that any deductions can be made for taxes or for savings the former if moderate constituting always the necessary expenses of production footnote perhaps this is expressed too strongly as more is generally allotted to the laborer under the name of wages than the absolute necessary expenses of production in that case a part of the net produce of the country is received by the laborer and may be saved or expended by him or it may enable him to contribute to the defense of the country end of footnote to an individual with a capital of 20 000 pounds whose profits were 2000 pounds per annum it would be a matter quite indifferent whether his capital would employ a hundred or a thousand men whether the commodity produced sold for 10 000 pounds or for 20 000 pounds provided in all cases his profits were not diminished below 2000 pounds it's not the real interest of the nation similar provided its net real income its rent and profits be the same it is of no importance whether the nation consists of 10 or of 12 millions of inhabitants its power of supporting fleets and armies and all species of unproductive labor must be in proportion to its net and not in proportion to its gross income if five millions of men could produce as much food and clothing as was necessary for 10 millions food and clothing for five millions would be the net revenue would it be of any advantage to the country that to produce this same net revenue seven millions of men should be required that is to say that seven millions should be employed to produce food and clothing sufficient for 12 millions the food and clothing of five millions would be still the net revenue the employing a greater number of men would enable us neither to add a man to our army and navy nor to contribute one guinea moor in taxes it is not on the grounds of any supposed advantage accruing from a large population or of the happiness that may be enjoyed by a greater number of human beings that adam smith supports the preference of that employment of capital which gives motion to the greatest quantity of industry but expressly on the ground of its increasing the power of the country footnote let's just say has totally misunderstood me and supposing that i have considered as nothing the happiness of so many human beings i think the text sufficiently shows that i was confining my remarks to the particular grounds on which adam smith addressed it end of footnote for he says that the riches and so far as power depends upon riches the power of every country must always be in proportion to the value of its annual produce the fund from which all taxes must ultimately be paid it must however be obvious that the power of paying taxes is in proportion to the net and not in proportion to the gross revenue in the distribution of employments amongst all countries the capital of poor nations will be naturally employed in those pursuits wherein a great quantity of labor is supported at home because in such countries the food and necessaries for an increasing population can be most easily procured in rich countries on the contrary where food is dear capital will naturally flow when trade is free into those occupations wherein the least quantity of labor is required to be maintained at home such as the carrying trade the distant foreign trade and trades where expensive machinery is required to trades where profits are in proportion to the capital and not in proportion to the quantity of labor employed footnote in volume two mr say writes quote it is fortunate that the natural course of things draws capital not to those employments where the greatest profits are made but to those where the operation is most profitable to the community unquote mr say has not told us what those employments are which while they are the most profitable to the individual are not the most profitable to the state if countries with limited capitals but with abundance of fertile land do not early engage in foreign trade the reason is because it is less profitable to individuals and therefore also less profitable to the state end of footnote although i admit that from the nature of rent a given capital employed in agriculture on any but the land last cultivated puts in motion a greater quantity of labor than an equal capital employed in manufacturers and trade yet i cannot admit that there is any difference in the quantity of labor employed by a capital engaged in the home trade and an equal capital engaged in the foreign trade the capital which sends scott's manufacturers to london and brings back english corn and manufacturers to edinburgh says adam smith necessarily replaces by every such operation two british capitals which had both been employed in the agriculture or manufacturers of great britain the capital employed in purchasing foreign goods for home consumption when this purchase is made with the produce of domestic industry replaces two by every such operation two distinct capitals but one of them only is employed in supporting domestic industry the capital which sends british goods to portugal and brings back portuguese goods to great britain replaces by every such operation only one british capital the other is a portuguese one though the returns therefore of the foreign trade of consumption should be as quick as the home trade the capital employed in it will give but one half the encouragement to the industry or productive labor of the country this argument appears to me to be fallacious for though two capitals one portuguese and one english be employed as dr smith supposes still a capital will be employed in the foreign trade double of what would be employed in the home trade suppose that scotland employs a capital of a thousand pounds in making linen which she exchanges for the produce of a similar capital employed in making silks in england two thousand pounds and a proportional quantity of labor will be employed by the two countries suppose now that england discovers that she can import more linen from germany for the silks which she before exported to scotland and that scotland discovers that she can obtain more silks from france in return for her linen than she before obtained from england will not england and scotland immediately cease trading with each other and will not the home trade of consumption be changed for a foreign trade of consumption but although two additional capitals will enter into this trade the capital of germany and that of france will not the same amount of scotch and of english capital continue to be employed and will it not give motion to the same quantity of industry as when it was engaged in the home trade chapter 27 on currency and banks so much has already been written on currency that of those who give their attention to such subjects none but the prejudiced are ignorant of its true principles i shall therefore take only a brief survey of some of the general laws which regulate its quantity and value gold and silver like all other commodities are valuable only in proportion to the quantity of labor necessary to produce them and bring them to market gold is about 15 times dearer than silver not because there is a greater demand for it nor because the supply of silver is 15 times greater than that of gold but solely because 15 times the quantity of labor is necessary to procure a given quantity of it the quantity of money that can be employed in a country must depend on its value if gold alone were employed for the circulation of commodities a quantity would be required one 15th only of what would be necessary if silver were made use of for the same purpose a circulation can never be so abundant as to overflow for by diminishing its value in the same proportion you will increase its quantity and by increasing its value diminish its quantity while the state coins money and charges no sinurage money will be of the same value as any other piece of the same metal of equal weight and fineness but if the state charges a sinurage for coinage the coined piece of money will generally exceed the value of the uncoined piece of metal by the whole sinurage charged because it will require a greater quantity of labor or which is the same thing the value of the produce of a greater quantity of labor to procure it while the state alone coins there can be no limit to this charge of sinurage for by limiting the quantity of coin it can be raised to any conceivable value it is on this principle that paper money circulates the whole charge for paper money may be considered a sinurage though it has no intrinsic value yet by limiting its quantity its value in exchange is as great as an equal denomination of coin or of bullion in that kind on the same principle too namely by limitation of its quantity a debased coin would circulate at the value it should bear if it were of the legal weight and fineness and not at the value of the quantity of metal which it actually contained in the history of the british coinage we find accordingly that the currency was never depreciated in the same proportion that it was debased the reason of which was that it never was increased in quantity in proportion to its diminished intrinsic value footnote whatever i say of gold coin is equally applicable to silver coin but it is not necessary to mention both on every occasion end of footnote there is no point more important in issuing paper money than to be fully impressed with the effects which follow from the principle of limitation of quantity it will scarcely be believed 50 years hence that bank directors and ministers gravely contended in our times both in parliament and before committees of parliament that the issues of notes by the bank of england unchecked by any power in the holders of such notes to demand an exchange either specie or bullion had not nor could have had any effect on the prices of commodities bullion or foreign exchanges after the establishment of banks the state has not the sole power of coining or issuing money the currency may as effectively be increased by paper as by coin so that if a state were to debase its money and limit its quantity it could not support its value because the banks would have an equal power of adding to the whole quantity of circulation on these principles it will be seen that it is not necessary that paper money should be payable in specie to secure its value it is only necessary that its quantity should be regulated according to the value of the metal which is declared to be the standard if the standard were gold of a given weight and fineness paper might be increased with every fall in the value of gold or which is the same thing in its effect with every rise in the price of goods by assuming too great a quantity of paper says dr. smith of which the excess was continually returning in order to be exchanged for gold and silver the bank of england was for many years together obliged to coin gold to the extent of between 800 000 pounds and a million a year or at an average about 850 000 pounds for this great coinage the bank in consequence of the worn and degraded state into which the gold coin had fallen a few years ago was frequently obliged to purchase bullion at the high price of four pounds an ounce which it soon after issued in coin at three pounds seventeen tenon apence an ounce losing in this manner between two and a half and three percent upon the coinage of so very large a sum though the bank therefore paid no synergy though the government was probably at the expense of the coinage this liberality of government did not prevent altogether the expense of the bank on the principle above stated it appears to me most clear that by not reissuing the paper thus brought in the value of the whole currency of the degraded as well as the new gold coin would have been raised when all demands on the bank would have ceased mr. bucannon however is not of this opinion for he says that the great expense to which the bank was at this time exposed was occasioned not as dr. smith seems to imagine by any imprudent issue of paper but by the debased state of the currency and the consequent high price of bullion the bank it will be observed having no other way of procuring guineas but by sending bullion to the mint to be coined was almost forced to issue new coined guineas in exchange for its returned notes and when the currency was generally deficient in weight and the price of bullion high in proportion it became profitable to draw these heavy guineas from the bank in exchange for its paper to convert them into bullion and to sell them with a profit for bank paper to be again returned to the bank for a new supply of guineas which were again melted and sold to this drain of specie the bank must always be exposed while the currency is deficient in weight as both an easy and a certain profit then arises from the constant interchange of paper for specie it may be remarked however that to whatever inconvenience and expense the bank was then exposed by the drain of its specie it never was imagined necessary to rescind the obligation to pay money for its notes mr. bucannon evidently thinks that the whole currency must necessarily be brought down to the level of the value of the debased pieces but surely by diminution of the quantity of the currency the whole that remains can be elevated to the value of the best pieces dr. smith appears to have forgotten his own principle in his argument on colony currency instead of ascribing the depreciation of that paper to its two great abundance he asks whether allowing the colony security to be perfectly good a hundred pounds payable fifteen years hence would be equally valuable with a hundred pounds to be paid immediately i also yes if it be not too abundant experience however shows that neither a state nor a bank ever have had the unrestricted power of issuing paper money without abusing that power in all states therefore the issue of paper money ought to be under some check and control and none seems so proper for that purpose as that of subjecting the issuers of paper money to the obligation of paying their notes either in gold coin or bullion to secure the public against any other variations in the value of currency than those to which the standard itself is subject and at the same time to carry on the circulation with a medium the least expensive is to attain the most perfect state to which a currency can be brought and we should possess all these advantages by subjecting the bank to the delivery of un coined gold or silver at the mint standard and price in exchange for their notes instead of the delivery of guineas by which means paper would never fall below the value of bullion without being followed by a reduction of its quantity to prevent the rise of paper above the value of bullion the bank should be also obliged to give their paper in exchange for standard gold at the price of three pound seventeen shillings per ounce not to give too much trouble to the bank the quantity of gold to be demanded in exchange for paper at the mint price of three pound seventeen tenenhappens or the quantity to be sold to the bank at three pound seventeen shillings should never be less than twenty ounces in other words the bank should be obliged to purchase any quantity of gold that was offered them not less than twenty ounces at three pound seventeen shillings per ounce and to sell any quantity that might be demanded at three pound seventeen tenenhappens footnote the price of three pound seventeen shillings here mentioned is of course an arbitrary price there might be good reason perhaps for fixing it either a little above or a little below in naming three pound seventeen shillings i wish only to elucidate the principle the price ought to be so fixed as to make it the interest of the seller of gold rather to sell it to the bank than to carry it to the mint to be coined the same remark applies to the specified quantity of twenty ounces there might be good reason for making it ten north thirty end of footnote while they have the power of regulating the quantity of their paper there is no possible inconvenience that could result to them from such a regulation the most perfect liberty should be given at the same time to export or import every description of bullion these transactions in bullion would be very few in number if the bank regulated their loans and issues of paper by the criterion which i have so often mentioned namely the price of standard bullion without attending to the absolute quantity of paper in circulation the object which i have in view would be in a great measure attained if the bank were obliged to deliver un coined bullion in exchange for their notes at the mint price and standard though they were not under the necessity of purchasing any quantity of bullion offered them at the prices to be fixed particularly if the mint were to continue open to the public for the coinage of money but that regulation is merely suggested to prevent the value of money from varying from the value of bullion more than the trifling difference between the prices at which the bank should buy and sell and which would be an approximation to that uniformity in its value which is acknowledged to be so desirable if the bank capriciously limited the quantity of their paper they would raise its value and gold might appear to fall below the limits at which i propose the bank should purchase gold in that case might be carried to the mint and the money returned from thence being added to the circulation would have the effect of lowering its value and making it again conform to the standard but it would neither be done so safely so economically nor so expeditiously as by the means which i have proposed against which the bank can have no objection to offer as it is for their interest to furnish the circulation with paper rather than oblige others to furnish it with coin under such a system and with a currency so regulated the bank would never be liable to any embarrassments whatever accepting on those extraordinary occasions when a general panic seizes the country and when everyone is desirous of possessing the precious metals as the most convenient mode of realizing or concealing his property against such panics banks have no security on any system from their very nature they are subject to them as at no time can there be in a bank or in a country so much specie or bullion as the moneyed individuals of such country have a right to demand should every man withdraw his balance from his banker on the same day many times the quantity of bank notes now in circulation would be insufficient to answer such a demand a panic of this kind was the cause of the crisis in 1797 and not as has been supposed the large advances which the bank had then made to government neither the bank nor government were at that time to blame it was the contagion of the unfounded fears of the timid part of the community which occasioned the run on the bank and it would equally have taken place if they had not made any advances to government and had possessed twice their present capital if the bank had continued paying in cash probably the panic would have subsided before their coin had been exhausted with the known opinion of the bank directors as to the rule for issuing paper money they may be said to have exercised their powers without any great indiscretion it is evident that they have followed their own principle with extreme caution in the present state of the law they have the power without any control whatever of increasing or reducing the circulation in any degree they may think proper the power which should neither be entrusted to the state itself nor to anybody in it as there can be no security for the uniformity in the value of the currency when its augmentation or diminution depends solely on the will of the issuers that the bank have the power of reducing the circulation to the very narrowest limits will not be denied even by those who agree in opinion with the directors that they have not the power of adding indefinitely to its quantity though i am fully assured that it is both against the interest and the wish of the bank to exercise this power to the detriment of the public yet when i contemplate the evil consequences which might ensue from a sudden and great reduction of the circulation as well as from a great addition to it i cannot but deprecate the facility with which the state has armed the bank with so formidable a prerogative the inconvenience to which country banks were subjected before the restriction on cash payments must at times have been very great but all periods of alarm or of expected alarm they must have been under the necessity of providing themselves with guineas that they might be prepared for every exigency which might occur guineas on these occasions were obtained at the bank in exchange for the larger notes and were conveyed by some confidential agent at expense and risk for the country bank after performing the offices to which they were destined they found their way again to london and in all probability were again lodged in the bank provided they had not suffered such a loss of weight as to reduce them below the legal standard if the plan now proposed of paying bank notes in bullion be adopted it would be necessary either to extend the same privilege to country banks or to make bank notes a legal tender in which later case there would be no alteration in the law respecting country banks as they would be required precisely as they now are to pay their notes when demanded in bank of england notes the saving which would take place from not submitting the guineas to the loss of weight from the friction which they must undergo in their repeated journeys as well as of the expenses of convenience would be considerable but by far the greatest advantage would result from the permanent supply of the country as well as of the london circulation as far as the smaller payments are concerned being provided in the very cheap medium paper instead of the very valuable medium gold thereby enabling the country to derive all the profit which may be obtained by the productive employment of a capital to that amount we should surely not be justified in rejecting so decided a benefit unless some specific inconvenience could be pointed out as likely to follow from adopting the cheaper medium a currency is in its most perfect state when it consists wholly of paper money but of paper money of an equal value with the gold which it professes to represent the use of paper instead of gold substitutes the cheapest in place of the most expensive medium and enables the country without loss to any individual to exchange all the gold which it before used for this purpose for raw materials utensils and food by the use of which both its wealth and its enjoyments are increased in a national point of view it is of no importance whether the issuers of this well-regulated paper money be the government or a bank it will on the whole be equally productive of riches whether it be issued by one or by the other but it is not so with respect to the interest of individuals in a country where the market rate of interest is seven percent and where the state requires for a particular expense seventy thousand pounds per annum it is a question of importance to the individuals of that country whether they must be taxed to pay this seventy thousand pounds per annum or whether they could raise it without taxes suppose that a million of money should be required to fit out an expedition if the state issued a million of paper and displaced a million of coin the expedition would be fitted out without any charge to the people but if a bank issued a million of paper and lent it to government at seven percent thereby displacing a million of coin the country would be charged with a continual tax of seventy thousand pounds per annum the people would pay the tax the bank would receive it and the society would in either case be as wealthy as before the expedition would have been rarely fitted out by the improvement of our system by rendering capital of the value of a million productive in the form of commodities instead of letting it remain unproductive in the form of coin but the advantage would always be in favor of the issuers of paper and as the state represents the people the people would have saved the tax if they and not the bank had issued this million i have already observed that if there were perfect security that the power of issuing paper money would not be abused it would be of no importance with respect to the riches of the country collectively by whom it was issued and i have now shown that the public would have a direct interest that the issuers should be the state and not a company of merchants or bankers the danger however is that this power would be more likely to be abused if in the hands of government than if in the hands of a banking company a company would it is said be more under the control of law and although it might be their interest to extend their issues beyond the bounds of discretion they would be limited and checked by the power which individuals would have of calling for bullion or specie it is argued that the same check would not be long respected if government had the privilege of issuing money that they would be too apt to consider present convenience rather than future security and might therefore on the alleged grounds of expediency be too much inclined to remove the checks by which the amount of their issues was controlled under an arbitrary government this objection would have great force but in a free country with an enlightened legislature the power of issuing paper money under the requisite checks of convertibility at the will of the holder might be safely lodged in the hands of commissioners appointed for that special purpose and they might be made totally independent of the control of ministers the sinking fund is managed by commissioners responsible only to parliament and the investment of the money entrusted to their charge proceeds with the utmost regularity what reason can there be to doubt that the issues of paper money might be regulated with equal fidelity if placed under similar management it may be said that although the advantage accruing to the state and therefore to the public from issuing paper money is sufficiently manifest as it would exchange a portion of the national debt on which interest is paid by the public into a debt bearing no interest yet it would be disadvantageous to commerce as it would preclude the merchants from borrowing money and getting their bills discounted the method in which bank paper is partly issued this however is to suppose that money could not be borrowed if the bank did not lend it and that the market rate of interest and profit depends on the amount of the issues of money and on the channel through which it is issued but as a country would have no deficiency of cloth of wine or any other commodity if they had the means of paying for it in the same manner neither would there be any deficiency of money to be lent if the borrowers offered good security and were willing to pay the market rate of interest for it in another part of this work I have endeavored to show that the real value of a commodity is regulated not by the accidental advantages which may be enjoyed by some of its producers but by the real difficulties encountered by that producer who is least favored it is so with respect to the interest for money it is not regulated by the rate at which the bank will then whether it be five four or three percent but by the rate of profits which can be made by the employment of capital and which is totally independent of the quantity or of the value of money whether a bank lent one million ten millions or a hundred millions would not permanently alter the market rate of interest they would alter only the value of the money which they thus issued in one case ten or twenty times more money might be required to carry on the same business than what might be required in the other the applications to the bank for money then depend on the comparison between the rate of profits that may be made by the employment of it and the rate at which they are willing to lend it if they charged less than the market rate of interest there is no amount of money which they might not lend if they charge more than that rate none but spend thrifts and prodigals would be found to borrow of them we accordingly find that when the market rate of interest exceeds the rate of five percent at which the bank uniformly lend the discount office is besieged with applicants for money and on the contrary when the market rate is even temporarily under five percent the clerks of that office have no employment the reason then why for the last 20 years the bank is said to have given so much aid to commerce by assisting the merchants with money is because they have during that whole period lent money below the market rate of interest below that rate at which the merchants could have borrowed elsewhere but i confess that to me this seems rather an objection to their establishment than an argument in favor of it what should we save an establishment which should regularly supply half the clothiest with wool under the market price of what benefit would it be to the community it would not extend our trade because the wool would equally have been bought if they had charged the market price for it it would not lower the price of cloth to the consumer because the price as i have said before would be regulated by the cost of its production to those who were the least favored its sole effect then would be to swell the profits of a part of the clothiest beyond the general and common rates of profits the establishment would be deprived of its fair profits and another part of the community would be in the same degree benefited now this is precisely the effect of our banking establishments a rate of interest is fixed by the law below that at which it can be borrowed in the market and at this rate the banks are required to lend or not to lend at all from the nature of their establishment they have large funds which they can only dispose of in this way and a part of the traders of the country are unfairly and for the country unprofitably benefited by being enabled to supply themselves with an instrument of trade at a less charge than those who must be influenced only by market price the whole business which the whole community can carry on depends on the quantity of its capital that is of its raw material machinery food vessels etc employed in production after a well regulated paper money is established these can neither be increased nor diminished by the operations of banking if then the state were to issue the paper money of the country although it should never discount a bill or lend one shilling to the public there would be no alteration in the amount of trade for we should have the same quantity of raw materials of machinery food and ships and it is probable too that the same amount of money might be lend not always at five percent indeed a rate fixed by law when that might be under the market rate but at six seven or eight percent the result of the fair competition in the market between the lenders and the borrowers adam smith speaks of the advantages derived by merchants from the superiority of the scotch mode of affording accommodation to trade over the english mode by means of cash accounts these cash accounts are credits given by the scotch banker to his customers in addition to the bills which he discounts for them but as the banker in proportion as he advances money and sends it into circulation in one way is debarred from issuing so much in the other it is difficult to perceive in what the advantage consists if the whole circulation will bear only one million of paper one million only will be circulated and it can be of no real importance either to the banker or merchant whether the whole be issued in discounting bills or apart be so issued and the remainder be issued by means of these cash accounts it may perhaps be necessary to say a few words on the subject of the two metals gold and silver which are employed in currency particularly as this question appears to perplex in many people's minds the plain and simple principles of currency in england says dr smith gold was not considered as a legal tender for a long time after it was coined into money the proportion between the values of gold and silver money was not fixed by any public law or proclamation but was left to be settled by the market if a debtor offered payment in gold the creditor might either reject such payment altogether or accept of it at such evaluation of the gold as he and his debtor could agree upon in this state of things it is evident that a guinea might sometimes pass for 22 shillings or more and sometimes for 18 shillings or less depending entirely on the alteration in the relative market value of gold and silver all the variations too in the value of gold as well as in the value of silver would be rated in the gold coin it would appear as if silver was invariable and as if gold only was subject to rise and fall thus although guinea passed for 22 shillings instead of 18 shillings gold might not have varied in value the variation might have been wholly confined to the silver and therefore 22 shillings might have been of no more value than 18 shillings were before and on the contrary the whole variation might have been in the gold a guinea which was worth 18 shillings might have risen to the value of 22 shillings if now we suppose this silver currency to be debased by clipping and also increased in quantity a guinea might pass for 30 shillings for the silver in 30 shillings of such debased money might be of no more value than the gold in one guinea by restoring the silver currency to its mint value silver money would rise but it would appear as if gold fell for a guinea would probably be of no more value than 21 of such good shillings if now gold be also made illegal tender and every debtor be at liberty to discharge a debt by the payment of 420 shillings or 20 guineas for every 21 pounds that he owes he will pay in one or the other according as he can most cheaply discharge his debt if with five quarters of wheat he can procure as much gold bullion as the mint will coin into 20 guineas and for the same wheat as much silver bullion as the mint will coin for him into 430 shillings he will prefer paying in silver because he would be a gainer of 10 shillings by so paying his debt but if on the contrary he could obtain with this wheat as much gold as would be coined into 20 guineas and a half and as much silver only as would coin into 420 shillings he would naturally prefer paying his debt in gold if the quantity of gold which he could procure could be coined only into 20 guineas and the quantity of silver into 420 shillings it would be a matter of perfect indifference to him in which money silver or gold it was that he paid his debt it is not then a matter of chance it is not because gold is better fitted for carrying on the circulation of a rich country that gold is ever preferred for the purpose of paying debts but simply because it is the interest of the debtor so to pay them during a long period previous to 1797 the year of the restriction on the bank payments in coin gold was so cheap compared with silver that it suited the bank of england and all other debtors to purchase gold in the market and not silver for the purpose of carrying it to the mint to be coined as they could in that coin metal more cheaply discharged their debts the silver currency was during a great part of this period very much debased but it existed in a degree of scarcity and therefore on the principle which i have before explained it never sunk in its current value though so debased it was still the interest of debtors to pay in the gold coin if indeed the constancy of this debased silver coin had been enormously great or if the mint had issued such debased pieces it might have been the interest of debtors to pay in this debased money but its quantity was limited and it sustained its value and therefore gold was in practice the real standard of currency that it was so is nowhere denied but it has been contended that it was made so by the law which declared that silver should not be a legal tender for any debt exceeding 25 pounds unless by weight according to the mint standard but this law did not prevent any debtor from paying his debt however large its amount in the silver currency fresh from the mint that the debtor did not pay in this metal was not a matter of chance nor a matter of compulsion but holy the effect of choice it did not suit him to take silver to the mint it did suit him to take gold liver it is probable that if the quantity of this debased silver in circulation had been enormously great and also a legal tender that a guinea would have been again worth 30 shillings but it would have been the debased shilling that would have fallen in value and not the guinea that had risen it appears though that whilst each of the two metals was equally a legal tender for debts of any amount we were subject to a constant change in the principal standard measure of value it would sometimes be gold sometimes silver depending entirely on the variations in the relative value of the two metals and at such times the metal which was not the standard would be melted and withdrawn from circulation as its value would be greater in premium than in coin this was an inconvenience which it was highly desirable should be remedied it's so slow is the progress of improvement that although it had been unanswerably demonstrated by mr lock and had been noticed by all writers on the subject of money since his day a better system was never adopted till the session of parliament 1816 when it was enacted that gold only should be a legal tender for any sum exceeding 40 shillings dr smith does not appear to have been quite aware of the effect of employing two metals as currency and both the legal tender for debts of any amount for he says that in reality during the continuance of any one regulated proportion between the respective values of the different metals in coin the value of the most precious metal regulates the value of the whole coin because gold was in his day the medium in which it suited debtors to pay their debts he thought that it had some inherent quality by which it did then and always would regulate the value of silver coin on the reformation of the gold coin in 1774 a new guinea fresh from the mint would exchange for only 21 debased shillings but in the reign of king william when the silver coin was in precisely the same condition a guinea also new and fresh from the mint would exchange for 30 shillings on this mr bucannon observes here then is a most singular fact of which the common theories of currency offer no account the guinea exchanging at one time for 30 shillings its intrinsic worth in a debased silver currency and after which the same guinea exchange for only 21 of those debased shillings it is clear that some great change must have intervened in the state of the currency between these two different periods of which dr smith's hypothesis offers no explanation it appears to me that the difficulty may be very simply solved by referring this different state of the value of the guinea at the two periods mentioned to the different quantities of debased silver currency in circulation in king william's reign gold was not a legal tender it passed only at conventional value all the large payments were probably made in silver particularly as paper currency and the operations of banking were then little understood the quantity of this debased silver money exceeded the quantity of silver money which would have been maintained in circulation if nothing but undebased money had been in use and consequently it was depreciated as well as debased but in the succeeding period when gold was a legal tender when banknotes also were used in effecting payments the quantity of debased silver money did not exceed the quantity of silver coin fresh from the mint which would have circulated if there had been no debased silver money hence though the money was debased it was not depreciated mr bucannon's explanation is somewhat different he thinks that a subsidiary currency is not liable to depreciation but that the main currency is in king william's reign silver was the main currency and hence was liable to depreciation in 1774 it was a subsidiary currency and therefore maintained its value depreciation however does not depend on a currency being the subsidiary of the main currency it depends wholly on its being in excess of quantity footnote it has lately been contended in parliament by lord lordedale that with the existing mint regulation the bank could not pay their notes in specie because the relative value of the two metals is such that it would be for the interest of all debtors to pay their debts with silver and not with gold coin while the law gives a power to all the creditors of the bank to demand gold in exchange for banknotes this gold is lordship things could be profitably exported and if so it contends that the bank to keep a supply will be obliged to buy gold constantly at a premium and sell it at par if every other debtor could pay in silver lord lordedale would be right but he cannot do so if this debt exceed 40 shillings this then would limit the amount of silver coin in circulation if government had not reserved to itself the power to stop the coinage of that metal whenever they might think it expedient because if too much silver were coined it would sink in relative value to gold and no man would accept it in payment for a debt exceeding 40 shillings unless a compensation were made for its lower value to pay a debt of 100 pounds 100 sovereigns or banknotes to the amount of 100 pounds would be necessary but 105 pounds in silver coin might be required if there were too much silver in circulation there are then two checks against an excessive quantity of silver coin first the direct check which government made any time interposed to prevent more from being coined secondly no motive of interest would lead anyone to take silver to the mint if he might do so for if it were coined it would not pass current at its mint but only at its market value end of footnote to a modern sinurage on the coinage of money there cannot be much objection particularly on that currency which is to affect the smaller payments money is generally enhanced in value to the full amount of the sinurage and therefore it is a tax which in no way affects those who pay it while the quantity of money is not in excess it must however be remarked that in a country where a paper currency is established although the issuers of such paper should be liable to pay it in specie on the demand of the holder still both their notes and the coin might be depreciated to the full amount of the sinurage on that coin which is alone the legal tender before the check which limits the circulation of paper would operate if the sinurage of gold coin were five percent for instance the currency by an abundant issue of banknotes might be really depreciated five percent before it would be the interest of the holders to demand coin for the purpose of melting it into bullion a depreciation to which we should never be exposed if either there was no sinurage on the gold coin or if a sinurage were allowed the holders of banknotes might demand bullion and not coin in exchange for them at the mint price of three pounds seventeen shillings ten and apence unless then the bank should be obliged to pay their notes in bullion or coin at the will of the holder the late law which allows a sinurage of six percent or four pence per ounce on the silver coin but which directs that gold shall be coined by the mint without any charge whatever is perhaps the most proper as it will most effectively prevent any unnecessary variation of the currency chapter 28 on the comparative value of gold corn and labor in rich and poor countries gold and silver like all other commodities says adam smith naturally seek the market where the best price is given for them and the best price is commonly given for everything in the country which can best afford it labor it must be remembered is the ultimate price which is paid for everything and in countries where labor is equally well rewarded the money price of labor will be in proportion to that of the subsistence of the laborer but gold and silver will naturally exchange for a greater quantity of substance in a rich than in a poor country in a country which abounds with subsistence but in one which is but indifferently supplied with it but corn is a commodity as well as gold silver and other things if all commodities therefore have a high exchangeable value in a rich country corn must not be accepted and hence we might correctly say that corn exchanged for a great deal of money because it was dear and that money do exchanged for a great deal of corn because that also was dear which is to assert that corn is dear and cheap at the same time no point in political economy can be better established than that a rich country is prevented from increasing in population in the same ratio as a poor country by the progressive difficulty of providing food that difficulty must necessarily raise the relative price of food and give encouragement to its importation how then can money or gold and silver exchange for more corn in rich than in poor countries it is only in rich countries where corn is dear that landholders induce the legislature to prohibit the importation of corn who ever heard of a law to prevent the importation of raw produce in america or poland nature has effectually precluded its importation by the comparative facility of its production in those countries how then can it be true that if you accept corn and such other vegetables as are raised all together by human industry all other sorts of raw produce cattle poultry game of all kinds the useful fossils and minerals of the earth etc naturally grow dearer as the society advances why should corn and vegetables alone be accepted dr smith's error throughout his whole work lies in supposing that the value of corn is constant that though the value of all other things may the value of corn never can be raised corn according to him is always of the same value because it will always feed the same number of people in the same manner it might be said that cloth is always of the same value because it would always make the same number of coats what can value have to do with the power of feeding and clothing corn like every other commodity has in every country its natural price there's that price which is necessary to its production and without which it could not be cultivated it is this price which governs its market price and which determines the expediency of exporting it to foreign countries if the importation of corn were prohibited in england its natural price might rise to six pounds per quarter in england when it was only at half that price in france if at this time the prohibition of importation were removed corn would fall in the english market not to a price between six pounds and three pounds but ultimately and permanently to the natural price of france the price at which it could be furnished to the english market and afford the usual and ordinary profits of stock in france and it would remain at this price where the england consumed a hundred thousand or a million of quarters if the demand of england were for the latter quantity it is probable that owing to the necessity under which france would be of having recourse to land of a worse quality to furnish this large supply the natural price would rise in france and this would of course affect also the price of corn in england all that i contend for is that it is the natural price of commodities in the exporting country which ultimately regulates the prices at which they shall be sold if they are not the objects of monopoly in the importing country but dr smith who has so ably supported the doctrine of the natural price of commodities ultimately regulating the market price has supposed a case in which he thinks that the market price would not be regulated either by the natural price of the exporting or of the importing country diminished the real opulence either of holland or the territory of genoa he says while the number of their inhabitants remains the same diminish their power of supplying themselves from distant countries and the price of corn instead of sinking with that diminution in the quantity of their silver which must necessarily accompany this declension either as it scores or as its effect will rise to the price of a famine to me it appears that the very reverse would take place the diminished power of the dutch or genoese to purchase generally might depress the price of corn for a time below its natural price in the country from which it was exported as well as in the countries in which it was imported but it is quite impossible that it could ever raise it above that price it is only by increasing the opulence of the dutch or genoese that you could increase the demand and raise the price of corn above its former price and that would also take place only for a very limited time unless new difficulties should arise in obtaining the supply dr smith further observes on this subject when we are in want of necessaries we must part with all superfluities of which the value as it rises in times of opulence and prosperity so it sinks in times of poverty and distress this is undoubtedly true but he continues it is otherwise with necessaries their real price the quantity of labor which they can purchase or command rises in times of poverty and distress and sinks in times of opulence and prosperity which are always times of great abundance for they could not otherwise be times of opulence and prosperity corn is a necessary silver is only a superfluity two propositions are here advanced which have no connection with each other one that under the circumstances supposed corn would command more labor which is not disputed the other that corn would sell at a higher money price that it would exchange for more silver this i can tend to be abronious it might be true if corn were at the same time scarce if the usual supplier not being furnished but in this case it is abundant it is not pretended that a less quantity than usual is imported or that more is required to purchase corn the dutch or genoese want money and to obtain this money they are obliged to sell their superfluities it is the market value and price of these superfluities which falls and money appears to rise as compared with them this will not tend to increase the demand for corn nor to lower the value of money the only two causes which can raise the price of corn money from a want of credit and from other causes may be in great demand and consequently dear comparatively with corn but on no just principle can it be maintained that under such circumstances money would be cheap and therefore that the price of corn would rise when we speak of the high or low value of gold silver or any other commodity in different countries we should always mention some medium in which we are estimating them or no idea can be attached to the proposition thus when gold is said to be dearer in england than in spain if no commodity is mentioned what notion does the assertion convey if corn olives oil wine and wool be at a cheaper price in spain than in england estimated in those commodities gold is dearer in spain if again hardware sugar cloth etc be at a lower price in england than in spain then estimated in those commodities gold is dearer in england thus gold appears dearer or cheaper in spain as the fancy of the observer may fix on the medium by which he estimates its value adam smith having stamped corn and labour as an universal measure of value would naturally estimate the comparative value of gold by the quantity of those two objects for which it would exchange and accordingly when he speaks of the comparative value of gold in two countries i understand him to mean its value estimated in corn and labour but we have seen that estimated in corn gold may be a very different value in two countries i have endeavored to show that it will be low in rich countries and high in poor countries adam smith is of a different opinion he thinks that the value of gold estimated in corn is highest in rich countries but without further examining which of these opinions is correct either of them is sufficient to show that gold will not necessarily be lower in those countries which are in possession of the mines though this is a proposition maintained by adam smith suppose england to be possessed of the mines and adam smith's opinion that gold is of the greatest value in rich countries to be correct although gold would naturally flow from england to all other countries in exchange for their goods it would not follow that gold was necessarily lower in england as compared with corn and labour than in those countries in another place however adam smith speaks of the precious metals being necessarily lower in spain and portugal than in other parts of europe because those countries happen to be almost the exclusive possessors of the mines which produce them poland where the feudal system still continues to take place is at this day as beggerly a country as it was before the discovery of america the money price of corn however has risen the real value of the precious metals has fallen in poland in the same manner as in other parts of europe the quantity therefore must have increased there as in other places and nearly in the same proportion to the annual produce of the land and labour this increase of the quantity of those metals however has not it seems increased that annual produce has neither improved the manufacturers and agriculture of the country nor mended the circumstances of its inhabitants spain and portugal the countries which possess the mines are after poland perhaps the two most beggerly countries in europe the value of the precious metals however must be lower in spain and portugal than in any other parts of europe loaded not only with a freight and insurance but with the expense of smuggling the exportation being either prohibited or subjected to a duty in proportion to the annual produce of the land and labour therefore their quantity must be greater in those countries than in any other part of europe those countries however are poorer than the greater part of europe though the feudal system has been abolished in spain and portugal it has not been succeeded by a much better doctor smith's argument appears to me to be this gold when estimated in corn is cheaper in spain than in other countries and the proof of this is not that corn is given by other countries to spain for gold but that cloth sugar hardware are by those countries given in exchange for that metal chapter 29 taxes paid by the producer must just say greatly magnifies the inconveniences which result if a tax on a manufactured commodity is levied at an early rather than at a late period of its manufacture the manufacturers he observes through whose hands the commodity may successfully pass must employ greater funds in consequence of having to advance the tax which is often attended with considerable difficulty to a manufacturer a very limited capital and credit to this observation no objection can be made another inconvenience on which he dwells is that in consequence of the advance of the tax the profits on the advance also must be charged to the consumer and that this additional tax is one from which the treasury derives no advantage in this latter objection i cannot agree with monsieur say the state we will suppose wants to raise immediately one thousand pounds and levies it on a manufacturer who will not for a twelve month be able to charge it to the consumer on his finished commodity in consequence of such delay he is obliged to charge for his commodity an additional price not only of one thousand pounds the amount of the tax but probably of one thousand one hundred pounds one hundred pounds being for interest on the one thousand pounds advanced but in return for this additional one hundred pounds paid by the consumer he has a real benefit in as much as his payment of the tax which government required immediately and which he must finally pay has been postponed for a year an opportunity therefore has been afforded to him of lending to the manufacturer who had occasion for it the one thousand pounds at ten percent or at any other rate of interest which might be agreed upon eleven hundred pounds payable at the end of one year when money is a ten percent interest is of no more value than one thousand pounds to be paid immediately if government delayed receiving the tax for one year till the manufacturer of the commodity was completed it would perhaps be obliged to issue an exchequer bill bearing interest and it would pay as much for interest as the consumer would save in price accepting indeed that portion of the price which the manufacturer might be enabled in consequence of the tax to add to his own real gains if the interest of the exchequer bill government would have paid five percent a tax of fifty pounds is saved by not issuing it if the manufacturer borrowed the additional capital at five percent and charged the consumer ten percent he also would have gained five percent on his advance over and above his usual profits so that the manufacturer and government together gain or save precisely the sum which the consumer pays mr. cimand in his excellent work the larice yes commercial following the same line of argument as mr. say has calculated that a tax of four thousand francs paid originally by a manufacturer whose profits were at the moderate rate of ten percent would if the commodity manufactured only passed through the hands of five different persons be raised to the consumer to the sum of six thousand seven hundred and thirty four francs this calculation proceeds on the supposition that he who first advanced the tax would receive from the next manufacturer four thousand four hundred francs and he again from the next four thousand eight hundred and forty francs so that at each step ten percent on its value would be added to it this is to suppose that the value of the tax would be accumulating at compound interest not at the rate of ten percent per annum but at an absolute rate of ten percent at every step of its progress this opinion of mr. disarmul would be correct if five years elapsed between the first advance of the tax and the sale of the taxed commodity to the consumer but if one year only elapsed a remuneration of four hundred francs instead of two thousand seven hundred and thirty four would give a profit at the rate of ten percent per annum to all who had contributed to the advance of the tax whether the commodity had passed through the hands of five manufacturers or fifty chapter thirty on the influence of demand and supply on prices it is the cost of production which must ultimately regulate the price of commodities and not as has been often said the proportion between the supply and demand the proportion between supply and demand may indeed for a time affect the market value of a commodity until it is supplied in greater or less abundance according as the demand may have increased or diminished but this effect will be only of temporary duration diminished the cost of production of hats and their price will ultimately fall to their new natural price although the demand should be doubled troubled or quadrupled diminished the cost of subsistence of men by diminishing the natural price of food and clothing by which life is sustained and wages will ultimately fall not withstanding that the demand for laborers may very greatly increase the opinion that the price of commodities depends solely on the proportion of supply to demand or demand to supply has become almost an axiom in political economy and has been the source of much error in that science it is this opinion which has made mr. Buchanan maintain that wages are not influenced by a rise or fall in the price of provisions but solely by the demand and supply of labor and that attacks on the wages of labor would not raise wages because it would not alter the proportion of the demand of laborers to the supply the demand for a commodity cannot be said to increase if no additional quantity of it be purchased or consumed and yet under such circumstances its money value may rise thus if the value of money were to fall the price of every commodity would rise for each of the competitors would be willing to spend more money than before on its purchase but though its price rose 10 or 20 percent if no more were bought than before it would not I apprehend be admissible to say that the variation in the price of the commodity was caused by the increased demand for it its natural price its money cost of production would be really altered by the altered value of money and without any increase of demand the price of the commodity would be naturally adjusted to that new value we have seen says mr. say that the cost of production determines the lowest price to which things can fall the price below which they cannot remain for any length of time because production would then be either entirely stopped or diminished volume 2 page 26 the afterwards says that the demand for gold having increased and a still greater proportion than the supply since the discovery of the mines its price in goods instead of falling in the proportion of 10 to 1 felt only in the proportion of 4 to 1 that is to say instead of falling in proportion as its natural price had fallen fell in proportion as the supply exceeded the demand footnote mr. say writes in volume 1 quote if with the quantity of golden silver which actually exists these metals only served for the manufacture of utensils and ornaments they would be abundant and would be much cheaper than they are at present in other words in exchanging them for any other species of goods we should be obliged to give proportionally a greater quantity of them but as a large quantity of these metals is used for money and as this portion is used for no other purpose there remains less to be employed in furniture and jewelry now this scarcity adds to their value unquote end of footnote the value of every commodity rises always in a direct ratio to the demand and in an inverse ratio to the supply the same opinion is expressed by the Earl of lauderdale with respect to the variations in value of which everything valuable is susceptible if we could for a moment suppose that any substance possessed intrinsic and fixed value so as to render an assumed quantity of it constantly under all circumstances of an equal value then the degree of value of all things ascertained by such a fixed standard would vary according to the proportion betwixt the quantity of them and the demand for them and every commodity would of course be subject to a variation in its value from four different circumstances one it would be subject to an increase of its value from a diminution of its quantity two to a diminution of its value from an augmentation of its quantity three it might suffer an augmentation in its value from the circumstance of an increased demand four its value might be diminished by a failure of demand as it will however clearly appear that no commodity can possess fixed and intrinsic value so as to qualify it for a measure of the value of other commodities mankind are induced to select as a practical measure of value that which appears the least liable to any of these four sources of variations which are the sole causes of alteration of value when in common language therefore we express the value of any commodity it may vary at one period from what it is at another in consequence of eight different contingencies one from the four circumstances above stated in relation to the commodity of which we mean to express the value two from the same four circumstances in relation to the commodity we have adopted as a measure of value this is true of monopolized commodities and indeed of the market price of all other commodities for a limited period if the demand for hats should be doubled the price would immediately rise but that rise would be only temporary unless the cost of production of hats or their natural price were raised if the natural price of bread should fall 50 percent from some great discovery in the science of agriculture the demand would not greatly increase for no man would desire more than would satisfy his wants and as the demand would not increase neither would the supply for a commodity is not supplied merely because it can be produced but because there is a demand for it here then we have a case where the supply and demand have scarcely varied or if they have increased they have increased in the same proportion and yet the price of bread will have fallen 50 percent at a time too when the value of money had continued invariable commodities which are monopolized either by an individual or by a company vary according to the law which lord lordedale has laid down they fall in proportion as the sellers augment their quantity and rise in proportion to the eagerness of the buyers to purchase them their price has no necessary connection with their natural value but the prices of commodities which are subject to competition and whose quantity may be increased in any moderate degree will ultimately depend not on the state of demand and supply but on the increased or diminished cost of their production chapter 31 on machinery in the present chapter i shall enter into some inquiry respecting the influence of machinery on the interests of the different classes of society a subject of great importance and one which appears never to have been investigated in a manner to lead to any certain or satisfactory results it is more incumbent on me to declare my opinion on this question because they have on further reflection undergone a considerable change and although i'm not aware that i have ever published anything respecting machinery which it is necessary for me to retract yet i have in other ways given my support to doctrines which i now think erroneous it therefore becomes a duty in me to submit my present views to examination with my reasons for entertaining them ever since i first turned my attention to questions of political economy i have been of opinion that such an application of machinery to any branch of production as should have the effect of saving labor was a general good accompanied only with that portion of inconvenience which in most cases attends the removal of capital and labor from one employment to another it appeared to me that provided the landlords had the same money rents they would be benefited by the reduction in the prices of some of the commodities on which those rents were expanded and which reduction of price could not fail to be the consequence of the employment of machinery the capitalist i thought was eventually benefited precisely in the same manner he indeed who made the discovery of the machine or who first usefully applied it would enjoy an additional advantage by making great profits for a time but in proportion as the machine came into general use the price of the commodity produced would from the effects of competition sink to its cost of production when the capitalist would get the same money profits as before and he would only participate in the general advantage as a consumer by being enabled with the same money revenue to command an additional quantity of comforts and enjoyments the class of laborers also i thought was equally benefited by the use of machinery as they would have the means of buying more commodities with the same money wages and i thought that no reduction of wages would take place because the capitalist would have the power of demanding and employing the same quantity of laborers before although he might be under the necessity of employing it in the production of a new or at any rate of a different commodity if by improved machinery with the employment of the same quantity of labor the quantity of stockings could be quadrupled and the demand for stockings were only doubled some laborers would necessarily be discharged from the stocking trade but as the capital which employed them was still in being and as it was the interest of those who had it to employ it productively it appeared to me that it would be employed on the production of some other commodity useful to the society for which they could not fail to be a demand for i was and am deeply impressed with the truth of the observation of adam smith that the desire for food is limited in every man by the narrow capacity of the human stomach at the desire of the conveniences and ornaments of building dress equipment and household furniture seems to have no limit or certain boundary as then it appeared to me that there would be the same demand for laborers before and that wages would be no lower i thought that the laboring class would equally with the other classes participate in the advantage from the general cheapness of commodities arising from the use of machinery these were my opinions and they continue on altered as far as regards the landlord and the capitalist but i am convinced that the substitution of machinery for human labor is often very injurious to the interests of the class of laborers my mistake arose from the supposition that whenever the net income of a society increased its gross income would also increase i now however see reason to be satisfied that the one fund from which landlords and capitalists derive their revenue may increase while the other that upon which the laboring classes mainly depend may diminish and therefore it follows if i am right that the same cause which may increase the net revenue of the country may at the same time render the population redundant and deteriorate the condition of the laborer a capitalist we will suppose employs a capital of the value of 20 000 pounds and that he carries on the junk business of a farmer and a manufacturer of necessities we will further suppose that 7 000 pounds of this capital is invested in fixed capital viz in buildings implements etc etc and that the remaining 13 000 pounds is employed as circulating capital in the support of labor let us suppose too that profits are 10 percent and consequently that the capitalists capital is every year put into its original state of efficiency and yields a profit of 2000 pounds each year the capitalist begins his operations by having food and necessaries in his possession of the value of 13 000 pounds all of which he sells in the course of the year to his own workmen for that sum of money and during the same period he pays them the like amount of money for wages at the end of the year they replace in his possession food and necessaries the value of 15 000 pounds 2000 pounds of which he consumes himself or disposes of as may best suit his pleasure and gratification as far as these products are concerned the gross produce for that year is 15 000 pounds and the net produce 2000 pounds suppose now that the following year the capitalist employs half his men in constructing a machine and the other half in producing food and necessaries as usual during that year he would pay the sum of 13 000 pounds in wages as usual and would sell food and necessaries to the same amount to his workmen but what would be the case the following year while the machine was being made only one half of the usual quantity of food and necessaries would be obtained and they would be only one half the value of the quantity which was produced before the machine would be worth 7 500 pounds and the food and necessaries 7 500 pounds and therefore the capital of the capitalist would be as great as before for he would have besides these two values his fixed capital worth 7 000 pounds making in the whole 20 000 pounds capital and 2000 pounds profit after deducting this latter sum for his own expenses he would have a no greater circulating capital than 5 500 pounds with which to carry on his subsequent operations and therefore his means of employing labour would be reduced in the proportion of 13 000 pounds to 5 500 pounds and consequently all the labour which was before employed by 7 500 pounds would become redundant the reduced quantity of labour which the capitalist can employ must indeed with the assistance of the machine and after deductions for its repairs produce a value equal to 7 500 pounds it must replace the circulating capital with a profit of 2000 pounds on the whole capital but if this be done if the net income be not diminished of what importance is it to the capitalist whether the gross income be of the value of 3000 pounds of 10 000 pounds or 15 000 pounds in this case then although the net produce will not be diminished in value although its power of purchasing commodities may be greatly increased the gross produce will have fallen from a value of 15 000 pounds to a value of 7 500 pounds but as the power of supporting a population and employing labour depends always on the gross produce of a nation and not on its net produce there will necessarily be a diminution in the demand for labour population will become redundant and the situation of the labouring classes will be that of distress and poverty as however the power of saving from revenue to add to capital must depend on the efficiency of the net revenue to satisfy the wants of the capitalist it could not fail to follow from the reduction in the price of commodities consequent on the introduction of machinery that with the same wants he would have increased means of saving increased facility of transferring revenue into capital but with every increase of capital he would employ more labourers and therefore a portion of the people thrown out of work in the first instance would be subsequently employed and if the increased production in consequence of the employment of the machine was so great as to afford in the shape of net produce as greater quantity of food and necessary as existed before in the form of gross produce there would be the same ability to employ the whole population and therefore there would not necessarily be any redundancy of people all I wish to prove is that the discovery and use of machinery may be attended with a diminution of gross produce and whenever that is the case it will be injurious to the labouring class as some of their number will be thrown out of employment and population will become redundant compared with the funds which are to employ it the case which I have supposed is the most simple that I could select but it would make no difference in the result if we suppose that the machinery was applied to the trade of any manufacturer that of a clothier for example or of a cotton manufacturer if in the trade of a clothier less cloth would be produced after the introduction of machinery for a part of that quantity which is disposed of for the purpose of paying a large body of workmen would not be required by their employer in consequence of using the machine it would be necessary for him to reproduce a value only equal to the value consumed together with the profits on the whole capital seven thousand five hundred pounds might do this as effectively as fifteen thousand pounds did before the case differing in no respect from the former instance it may be said however that the demand for cloth would be as great as before and it may be asked from whence would this supply come by whom would the cloth be demanded by the farmers and the other producers of necessaries who employed their capitals in producing these necessaries as a means of obtaining cloth they gave corn and necessaries to the clothier for cloth and he bestowed them on his workmen for the cloth which their work afforded him this trade would now cease the clothier would not want the food and clothing having fewer men to employ and having less cloth to dispose of the farmers and others who only produced necessaries as a means to an end could no longer obtain cloth by such an application of their capitals and therefore they would either themselves employ their capitals in producing cloth or would lend them to others in order that the commodity really wanted might be furnished and that for which no one had the means of paying or for which there was no demand might cease to be produced this then leads us to the same result the demand for labor would diminish and the commodities necessary to the support of labor would not be produced in the same abundance if these views be correct it follows first that the discovery and useful application of machinery always leads to the increase of the net produce of the country although it may not and will not after an inconsiderable interval increase the value of that net produce secondly that an increase of the net produce of a country is compatible with the diminution of the gross produce and that the motives for employing machinery are always sufficient to ensure its employment if it will increase the net produce although it may and frequently must diminish both the quantity of the gross produce and its value thirdly that the opinion entertained by the labouring class that the employment of machinery is frequently detrimental to their interests is not founded on prejudice and error but is conformable to the correct principles of political economy fourthly that if the improved means of production in consequence of the use of machinery should increase the net produce of a country in a degree so great as not to diminish the gross produce i mean always quantity of commodities and not value then the situation of all classes will be improved the landlord and capitalist will benefit not by an increase of rent and profit but by the advantages resulting from the expenditure of the same rent and profit on commodities very considerably reduced in value while the situation of the labouring classes will also be considerably improved first from the increased demand for menial servants secondly from the stimulus to savings from revenue which such an abundant net produce will afford and thirdly from the low price of all articles of consumption on which their wages will be expended independently of the consideration of the discovery and use of machinery to which our attention has been just erected the labouring class have no small interest in the manner in which the net income of the country is expended although it should in all cases be expended for the gratification and enjoyments of those who are fairly entitled to it if a landlord or a capitalist expends his revenue in the manner of an ancient baron in the support of a great number of retainers or menial servants he will give employment to much more labour than if he expended it on fine clothes or costly furniture on carriages on horses or in the purchase of any other luxuries in both cases the net revenue would be the same and so would be the gross revenue but the former would be realized in different commodities if my revenue were 10 000 pounds the same costing nearly of productive labour would be employed whether i realized it in fine clothes and costly furniture etc etc or in a quantity of food and clothing of the same value if however i realized my revenue in the first set of commodities no more labour would be consequently employed i should enjoy my furniture and my clothes and there would be an end of them but if i realized my revenue and food and clothing and my desire was to employ menial servants all those whom i could so employ with my revenue of 10 000 pounds or with the food and clothing which it would purchase would be to be added to the former demand for labourers and this addition would take place only because i chose this mode of expending my revenue as the labourers then are interested in the demand for labour they must naturally desire that as much of the revenue as possible should be diverted from expenditure on luxuries to be expended in the support of menial servants in the same manner a country engaged in war and which is under the necessity of maintaining large fleets and armies employs a great many more men than will be employed when the war terminates and the annual expenses which it brings with it cease if i were not called upon for a tax of 500 pounds during the war and which is expended on men in the situations of soldiers and sailors i might probably expend that portion of my income on furniture clothes books etc etc and whether it was expended in the one way or in the other there would be the same quantity of labour employed in production for the food and clothing of the soldier and sailor would require the same amount of industry to produce it as the more luxurious commodities but in the case of the war there would be the war there would be the additional demand for men as soldiers and sailors and consequently a war which is supported out of the revenue and not from the capital of a country it's favorable to the increase of population at the termination of the war when part of my revenue reverts to me and is employed as before in the purchase of wine furniture or other luxuries the population which it before supported and which the war called into existence will become redundant and by its effect on the rest of the population and its competition with it for employment will sink the value of wages and very materially deteriorate the condition of the labouring classes there is one other case that should be noticed of the possibility of an increase in the amount of the net revenue of a country and even of its gross revenue with a diminution of demand for labour and that is when the labour of horses is substituted for that of man if i employed 100 men on my farm and if i found that the food bestowed on 50 of those men could be diverted to the support of horses and afford me a greater return of raw produce after allowing for the interest of the capital which the purchase of the horses would absorb it would be advantageous to me to substitute the horses for the men and i should accordingly do so but this would not be for the interest of the man and unless the income i obtained was so much increased as to enable me to employ the men as well as the horses it is evident that the population would become redundant and the labourers condition would sink in the general scale it is evident he could not under any circumstances be employed in agriculture but if the produce of the land were increased by the substitution of horses for men he might be employed in manufacturers or as a menial servant the statements which i have made will not i hope lead to the inference that machinery should not be encouraged to facilitate the principle i have been supposing that improved machinery is suddenly discovered and extensively used but the truth is that these discoveries are gradual and rather operating determining the employment of the capital which is saved and accumulated and in diverting capital from its actual employment with every increase of capital in population food will generally rise on account of its being more difficult to produce the consequence of a rise of food will be a rise of wages and every rise of wages will have a tendency to determine the saved capital in a greater proportion than before to the employment of machinery machinery and labour are in constant competition and the former can frequently not be employed until labour rises in america and many other countries where the food of man is easily provided there is not nearly such great temptation to employ machinery as in england where food is high and costs much labour for its production the same cause that raises labour does not raise the value of machines and therefore with every augmentation of capital a greater proportion of it is employed on machinery the demand for labour will continue to increase with an increase of capital but not in proportion to its increase the ratio will necessarily be a diminishing ratio footnote in on the condition of the labouring classes of society barton writes quote the demand for labour depends on the increasing of circulating and not a fixed capital were it true that the proportion between these two sorts of capital is the same at all times and in all countries then indeed it follows that the number of labourers employed is in proportion to the wealth of the state but such a position has not the semblance of probability as arts are cultivated and civilization is extended fixed capital bears a larger and larger proportion to circulating capital the amount of fixed capital employed in the production of a piece of british muslin is at least a hundred probably a thousand times greater than that employed in the production of a similar piece of indian muslin and the proportion of circulating capital employed is a hundred or a thousand times less it is easy to conceive that under certain circumstances the whole of the annual savings of an industrious people might be added to fixed capital in which case they would have no effect in increasing the demand for labour unquote it is not easy i think to conceive that under any circumstance an increase in capital should not be followed by an increased demand for labour the most that can be said is that the demand will be in a diminishing ratio mr barton in the above publication has i think taken a correct view of some of the effects of an increasing amount of fixed capital on the condition of the labouring classes his essay contains much valuable information end of footnote i have before observed to that the increase of net incomes estimated in commodities which is always the consequence of improved machinery will lead to new savings and accumulations these savings it must be remembered are annual and must soon create a fund much greater than the gross revenue originally lost by the discovery of the machine when the demand for labour will be as great as before and the situation of the people will be still further improved by the increased savings which the increased net revenue will still enable them to make the employment of machinery could never be safely discouraged in a state for if a capital is not allowed to get the greatest net revenue that the use of machinery will afford here it will be carried abroad and this must be a much more serious discouragement to the demand for labour than the most extensive employment of machinery for what a capital is employed in this country it must create a demand for some labour machinery cannot be worked without the assistance of men it cannot be made but with the contribution of their labour by investing part of a capital in improved machinery there will be a diminution in the progressive demand for labour by exporting it to another country the demand will be wholly annihilated the prices of commodities too are regulated by their cost of production by employing improved machinery the cost of production of commodities is reduced and consequently you can afford to sell them in foreign markets at a cheaper price if however you were to reject the use of machinery while all other countries encouraged it you would be obliged to export your money in exchange for foreign goods till you sunk the natural prices of your goods to the prices of other countries in making your exchanges with those countries you might give a commodity which costs two days labour here for a commodity which cost one abroad and this disadvantageous exchange would be the consequence of your own act for the commodity which you export and which cost you two days labour would have cost you only one if you had not rejected the use of machinery the services of which your neighbours had more wisely appropriated to themselves Chapter 32 Mr Malthus's opinion on rent although the nature of rent has in the former pages of this work been treated on at some length yet i consider myself bound to notice some opinions on the subject which appear to me erroneous and which are the more important as they have found in the writings of one to whom of all men of the present day some branches of economical science are the most indebted of mr Malthus's essay on population i am happy and the opportunity here afforded me of expressing my admiration the assaults of the opponents of this great work have only served to prove its strength and i persuaded that its just reputation will spread with the cultivation of that science of which it is so eminent and ornament mr Malthus too has satisfactorily explained the principles of rent and showed that it rises or falls in proportion to the relative advantages either of fertility or situation of the different lands and cultivation and has thereby thrown much light on many difficult points connected with the subject of rent which were before either unknown or very imperfectly understood yet he appears to me to have fallen into some errors which his authority makes it the more necessary whilst his characteristic candor renders it less unpleasing to notice one of these errors lies in supposing rent to be a clear gain and a new creation of riches i do not assent to all the opinions of mr Buchanan concerning rent but with those expressed in the following passage quoted from his work by mr Malthus i fully agree and therefore i must dissent from mr Malthus's comment on them in this view it rent conform no general addition to the stock of the community as the needs surplus in question is nothing more than a revenue transferred from one class to another and from the mere circumstance of its thus changing hands it is clear that no fund can arise out of which to pay taxes the revenue which pays for the produce of the land exists already in the hands of those who purchase that produce and if the price of subsistence were lower it would still remain in their hands where it would be just as available for taxation as when by a higher price it is transferred to the landed proprietor after various observations on the difference between raw produce and manufactured commodities mr Malthus asks is it possible then with mr disis monday to regard rent as the sole produce of labour which has a value purely nominal and the mere result of that augmentation of price which a seller obtains in consequence of a peculiar privilege or with mr Buchanan to consider it as no addition to the national wealth but merely a transfer of value advantageous only to the landlords and proportionably injurious to the consumers i have already expressed my opinion on this subject in treating of rent and have now only further to add that rent is a creation of value as i understand that word but not a creation of wealth if the price of corn from the difficulty of producing any portion of it should rise from four pounds to five pounds per quarter a million of quarters will be of the value of five million instead of four million pounds and as this corn will exchange not only for more money but for more of every other commodity the possessors will have a greater amount of value and as no one else will in consequence have a less the society altogether will be possessed of greater value and in that sense rent is a creation of value but this value is so far nominal that it adds nothing to the wealth that is to say the necessary conveniences and enjoyments of the society we should have precisely the same quantity and no more of commodities and the same million quarters of corn as before but the effect of its being rated at five pounds per quarter instead of four pounds would be to transfer a portion of the value of the corn and commodities from their former possessors to the landlords rent then is a creation of value but not a creation of wealth it adds nothing to the resources of a country it does not enable it to maintain fleets and armies for the country would have a greater disposable fund if its land were of a better quality and it could employ the sane capital without generating a rent it must then be admitted that mr. sismondi and mr. Buchanan for both their opinions are substantially the same were correct when they considered rent as a value purely nominal and is forming no addition to the national wealth but merely as a transfer of value advantageous only to the landlords and proportionably injurious to the consumer in another part of mr. Malthus's inquiry he observes that the immediate cause of rent is obviously the excess of price above the cost of production at which raw produce sells in the market and in another place he says that the causes of the high price of raw produce may be stated to be three first and mainly that quality of the earth by which it can be made to yield a greater portion of the necessaries of life than is required with the maintenance of the persons employed on the land secondly that quality peculiar to the necessaries of life of being able to create their own demand or to raise up a number of demand as in proportion to the quantity of necessaries produced and thirdly the comparative scarcity of the most fertile land and speaking of the high price of corn mr. Malthus evidently does not mean the price per quarter or per bushel but rather the excess of price for which the whole produce will sell above the cost of its production including always in the term cost of its production profits as well as wages 150 quarters of corn at three pounds ten shillings per quarter would yield a larger rent for the landlord than 100 quarters at four pounds provided the cost of production were in both cases the same high price if the expression be used in this sense cannot then be called a cause of rent it cannot be said that the immediate cause of rent is obviously the excess of price above the cost of production at which raw produce sells in the market for that excess is itself rent rent mr. Malthus has defined to be that portion of the value of the whole produce which remains to the owner of the land after all the outgoings belonging to its cultivation of whatever kind have been paid including the profits of the capital employed estimated according to the usual and ordinary rate of the profits of agricultural stock at the time being now whatever sum this excess may sell for is money rent it is what mr. Malthus means by the excess of price above the cost of production at which raw produce sells in the market and therefore in an inquiry into the causes which may elevate the price of raw produce compared with the cost of production we are inquiring into the causes which may elevate rent in reference to the first cause which mr. Malthus has assigned for the rise of rent namely that the quality of the earth by which it can be made to yield a greater portion of the necessary is of life than is required for the maintenance of the persons employed on the land he makes the following observations we still want to know why the consumption and supplier such as to make the price so greatly exceed the cost of production and the main causes evidently the fertility of the earth in producing the necessary is of life diminish this plenty diminish the fertility of the soil and the excess will diminish diminish it still further and it will disappear true the excess of necessaries will diminish and disappear but that is not the question the question is whether the excess of their price above the cost of their production will diminish and disappear for it is on this that money rent depends is mr. Malthus warranted in his inference that because the excess of quantity will diminish and disappear therefore the cause of the high price of the necessaries of life above the cost of production is to be found in their abundance rather than in their scarcity and is not only essentially different from the high price occasioned by artificial monopolies but from the high price of those peculiar products of the earth not connected with food which may be called natural and necessary monopolies are there no circumstances under which the fertility of the land and the plenty of its produce may be diminished without occasioning a diminished excess of its price above the cost of production that is to say a diminished rent if there are mr. Malthus's proposition is much too universal for he appears to me to state it as a general principle true under all circumstances that rent will rise with the increased fertility of the land and will fall with its diminished fertility mr. Malthus would undoubtedly be right if of any given farm in proportion as the land yielded abundantly a greater share of the whole produce were paid to the landlord but the contrary is the fact when no other but the most fertile land is in cultivation the landlord has the smallest proportion of the whole produce as well as the smallest value and it is only when inferior lands are required to feed an augmenting population that both the landlord share of the whole produce and the value he receives progressively increase suppose that the demand is for a million of quarters of corn and that they are the produce of the land actually in cultivation now suppose the fertility of all the land to be so diminished that the very same lands will yield only nine hundred thousand quarters the demand being for a million quarters the price of corn would rise and recourse must necessarily be had to land of an inferior quality sooner than if the superior land continued to produce a million of quarters but it is this necessity of taking inferior land into cultivation which is the cause of the rise of rent and will elevate it although the quantity of corn received by the landlord be reduced in quantity rent it must be remembered is not in proportion to the absolute fertility of the land in cultivation but in proportion to its relative fertility whatever cause may drive capital to inferior land must elevate rent on the superior land the cause of rent being as stated by mr. Malthus in his third proposition the comparative scarcity of the most fertile land the price of corn will naturally rise with the difficulty of producing the last portions of it and the value of the whole quantity produced on a particular farm will be increased although its quantity be diminished but as the cost of production will not increase on the more fertile land as wages and profits taken together will continue always of the same value it is evident that the excess of price above the cost of production or in other words rent must rise with the diminished fertility of the land unless it is counteracted by a great reduction of capital population and demand it does not appear then that mr. Malthus's proposition is correct rent does not immediately and necessarily rise or fall with the increased or diminished fertility of the land but its increased fertility renders it capable of paying at some future time an augmented rent land possessed a very little fertility can never bear any rent land of moderate fertility may be made as population increases to bear a moderate rent and land of great fertility a high rent but it is one thing to be able to bear a high rent and another thing actually to pay it rent may be lower in a country where lands are exceedingly fertile than in a country where they yield a moderate return it being in proportion rather to relative than absolute fertility to the value of the produce and not to its abundance footnote mr. Malthus has observed in a late publication that I have misunderstood him in this passage as he did not mean to say that rent immediately necessarily rises and falls with the increased or diminished fertility of the land if so I certainly did misunderstand him mr. Malthus's words are diminish this plenty diminish the fertility of the soil and the excess rent will diminish diminish it still further and it will disappear mr. Malthus does not state his proposition conditionally but absolutely I contended against what I understood him to maintain that a diminution of the fertility of the soil was incompatible with an increase of rent end of footnote mr. Malthus supposes that the rent on land yielding those peculiar products of the earth which may be called natural and necessary monopolies is regulated by a principle essentially different from that which regulates the rent of land that yields the necessaries of life he thinks that it is the scarcity of the products of the first which is the cause of a high rent but that it is the abundance of the latter which produces the same effect this distinction does not appear to me to be well founded for you would have surely raised the rent of land yielding scarce wines as the rent of corn land by increasing the abundance of its produce if at the same time the demand for this peculiar commodity increased and without a similar increase of demand an abundant supply of corn would lower instead of raise the rent of corn land whatever the nature of the land may be high rent must depend on the high price of the produce but given the high price rent must be high in proportion to abundance and not to scarcity we are under no necessity of producing permanently any greater quantity of a commodity than that which is demanded if by accident any greater quantity were produced it would fall below its natural price and therefore would not pay the cost of production including in that cost the usual and ordinary profits of stock thus the supply would be checked till it conformed to the demand and the market price rose to the natural price mr. Malthus appears to me to be too much inclined to think that population is only increased by the previous provision of food that it is food that creates its own demand that it is by first providing food that encouragement is given to marriage instead of considering that the general progress of population is affected by the increase of capital the consequent demand for labor and the rise of wages and that the production of food is but the effect of that demand it is by giving the workmen more money or any other commodity in which wages are paid and which has not fallen in value that his situation is improved the increase of population and the increase of food will generally be the effect but not the necessary effect of high wages the amended condition of the laborer in consequence of the increased value which is paid him does not necessarily oblige him to marry and take upon himself the charge of a family he will in all probability employ a portion of his increased wages and furnishing himself abundantly with food and necessaries but with the remainder he may if it pleases him purchase any commodities that may contribute to his enjoyments chairs tables and hardware or better clothes sugar and tobacco his increased wages then will be attended with no other effect than an increased demand for some of those commodities and as the race of laborers will not be materially increased his wages will continue permanently high but although this might be the consequence of high wages yet so great are the delights of domestic society that in practice it is invariably found that an increase of population follows the amended condition of the laborer and it is only because it does so that with the trifling exception already mentioned a new and increased demand arises for food this demand then is the effect of an increase of capital and population but not the cause it is only because the expenditure of the people takes this direction that the market price of necessaries exceeds the natural price and that the quantity of food required is produced and it is because the number of people is increased that wages again fall what motive can a farmer have to produce more corn than is actually demanded when the consequence would be a depression of its market price below its natural price and consequently a privation to him of a portion of his profits by reducing them below the general rate if says mr. Malthus the necessaries of life the most important products of land had not the proper of creating an increase of demand proportion to their increased quantity such increased quantity would occasion a fall in their exchangeable value footnote of what increased quantity does mr. Malthus speak who is to produce it who can have any motive to produce it before any demand exists for an additional quantity end of footnote however abundant might be the produce of the country its population might remain stationary and this abundance without a proportionate demand and with a very high corn price of labor which would naturally take place under these circumstances might reduce the price of raw produce like the price of manufacturers for the cost of production might reduce the price of raw produce for the cost of production is it ever for any length of time either above or below this price does not mr. Malthus himself stated never to be so i hope he says to be excused for dwelling a little and presenting to the listener in various forms the doctrine that corn in reference to the quantity actually produced is sold at its necessary price like manufacturers because i consider it as a truth of the highest importance which has been overlooked by the economists by adam smith and all those writers who have represented raw produce are selling always at a monopoly price every extensive country may thus be considered as possessing a gradation of machines for the production of corn and more materials including in this gradation not only all the various qualities of poor land of which every territory has generally an abundance but the inferior machinery which may be said to be employed when good land is further and further forced for additional produce as the price of raw produce continues to rise these inferior machines are successively called into action and as the price of raw produce continues to fall they're successively thrown out of action the illustration here used serves to show at once the necessity of the actual price of corn to the actual produce and the different effect which would attend a great reduction in the price of any particular manufacturer and a great reduction in the price of raw produce footnote in observations quote in all progressive countries the average price of corn is never higher than what is necessary to continue the average increase of produce unquote further quote from observations in the employment of fresh capital upon the land to provide for the wants of an increasing population whether this fresh capital is employed in bringing more land under the plow or improving land already in cultivation the main question always depends upon the expected returns of this capital and no part of the gross profits can be diminished without diminishing the motive to this mode of employing it every diminution of price not fully and immediately balanced by a proportionate fall in all the necessary expenses of a farm every tax on the land every tax on farming stock every tax on the necessary of farmers will tell in the computation and if after all these outgoings are allowed for the price of the produce will not leave a fair remuneration for the capital employed according to the general rate of profits and a rent at least equal to the rent of the land in its former state no sufficient motive can exist to undertake the projected improvement unquote end of footnote how are these passages to be reconciled to that which affirms that if the necessary of life had not the property of creating an increase of demand proportion to their increased quantity the abundant quantity produced with then and then only reduced the price of raw produce to the cost of production if corn is never under its natural price it is never more abundant than the actual population required to be for their own consumption no stall can be laid up for the consumption of others it can never then by its cheapness and abundance be a stimulus to population in proportion as corn can be produced cheaply the increased wages of the laborers will have more power to maintain families in america population increases rapidly because food can be produced at a cheap price and not because an abundant supply has been previously provided in europe population increases comparatively slowly because food cannot be produced at a cheap value in the usual and ordinary course of things the demand for all commodities precedes their supply by saying that corn would like manufacturers sink to its price of production if it could not raise up demanders mr mouth this cannot mean that all rent would be absorbed for he has himself justly remarked that if all rent were given up by the landlords corn would not fall in price rent being the effect and not the cause of high price and there being always one quality of land in cultivation which pays no rent whatever the corn from which replaces by its price only wages and profits in the following passage mr mouth this has given an able exposition of the causes of the rise in the price of law produce in rich and progressive countries in every word of which i concur but it appears to me to be at variance with some of the propositions maintained by him in his essay on rent i have no hesitation in stating that independently of the irregularities in the currency of a country and other temporary and accidental circumstances the cause of the high comparative money price of corn is its high comparative real price or the greater quantity of capital and labor which must be employed to produce it and that the reasons why the real price of corn is higher and continually rising in countries which are already rich and still advancing in prosperity and population is to be found in the necessity of resorting constantly to poorer land to machines which require a greater expenditure to work them and which consequently occasion each fresh addition to the raw produce of the country to be purchased at a greater cost in short it is to be found in the important truth that corn in a progressive country is sold at a price necessary to yield the actual supply and that as this supply becomes more and more difficult the price rises in proportion the real price of a commodity is here properly stated to depend on the greater or less quantity of labor and capital that is accumulated labor which must be employed to produce it real price does not as some have contended depend on money value nor as others have said on value relatively to corn labor or any other commodity taken singly or to all commodities collectively but as mr. Malthus justly says on the greater or less quantity of capital and labor which must be employed to produce it among the causes of the rise of rent mr. Malthus mentions such an increase of population as will lower the wages of labor but if as the wages of labor for the profits of stock rise and they be together always of the same value no fall of wages can raise rent for it will neither diminish the portion nor the value of the portion of the produce which will be allotted to the farmer and laborer together and therefore will not leave a larger portion nor a larger value for the landlord in proportion as less is appropriated for wages more will be appropriated for profits and vice versa this division will be settled by the farmer and his laborers without any interference of the landlord and indeed it is a matter in which he can have no interest otherwise then as one division may be more favorable than another to new accumulations and to a further demand for land if wages fell profits and not rent would rise if wages rose profits and not rent would fall the rise of rent and wages and the fall of profits are generally the inevitable effects of the same cause the increasing demand for food the increased quantity of labor required to produce it and its consequently high price if the landlord were to forego his whole rent the laborers would not be in the least benefited if it were possible for the laborers to give up their whole wages the landlords would derive no advantage from such a circumstance but in both cases the farmer would receive and retain all which they relinquish it has been my endeavor to show in this work that a fall of wages would have no other effect than to raise profits every rise of profits is favorable to the accumulation of capital and to the further increase of population and therefore within all probability ultimately lead to an increase of rent another cause of the rise of rent according to mr. Malthus is such agricultural improvements or such increase of exertions as will diminish the number of laborers necessary to produce a given effect to this passage i have the same objection that i had against that which speaks of the increased fertility of land being the cause of an immediate rise of rent both the improvement in agriculture and the superior fertility will give to the land a capability of bearing at some future period a higher rent because with the same price of food there will be a great additional quantity but till the increase of population be in the same proportion the additional quantity of food would not be required and therefore rents would be lowered and not raised the quantity that could under the then existing circumstances be consumed could be furnished either with fewer hands or with a less quantity of land the price of raw produce would fall and capital would be withdrawn from the land nothing can raise rent but a demand for new land of an inferior quality or some cause which shall occasion an alteration in the relative fertility of the land already under cultivation footnote it is not necessary to state on every occasion but it must be always understood that the same result will follow as far as regards the price of raw produce and the rise of rent whether an additional capital of a given amount be employed on new land for which no rent is paid or on land already in cultivation if the produce obtained from both be precisely the same in quantity monsieur say in his note to the french translation of this work has endeavored to show that there is not at any time land in cultivation which does not pay rent and having satisfied himself on this point he concludes that he has overturned all the conclusions which result from that doctrine he infers for example that i'm not correct in saying that taxes on corn and other raw produce by elevating their price fall on the consumer and do not fall on rent he contends that such taxes must fall on rent but before monsieur say can establish the correctness of this inference he must also show that there is not any capital employed on the land for which no rent is paid now this he has not attempted to do in no part of his notes has he refuted or even noticed that important doctrine by his note to page 182 of the second volume of the french edition it does not appear to be aware that it has even been advanced end of footnote improvements in agriculture and in the division of labour are common to all land they increase the absolute quantity of raw produce obtained from each but probably do not much disturb the relative proportions which before existed between them mr. Malthus has justly commented on the error of dr smith's argument that corn is of so peculiar a nature that its production cannot be encouraged by the same means that the production of all other commodities is encouraged he observes it is by no means intended to deny the powerful influence of the price of corn upon the price of labour on an average of a considerable number of years but that this influence is not such as to prevent the movement of capital to or from the land which is the precise point in question will be made sufficiently evident by a short inquiry into the manner in which labour is paid and brought into the market and by a consideration of the consequences to which the assumption of adam smith's proposition would inevitably lead mr. Malthus then proceeds to show that demand and high price will as effectually encourage the production of raw produce as the demand and high price of any other commodity would encourage its production in this view it will be seen from what i have said of the effects of bounties that i entirely concur i have noticed the passage from mr. Malthus's observations on the corn laws with the purpose of showing in what a different sense the term real price is used here and in his other pamphlet entitled grounds of an opinion etc in this passage mr. Malthus tells us that it is clearly an increase of real price alone which can encourage the production of corn and by real price he evidently means the increase in its value relatively to all other things or in other words the rise in its market above its natural price or the cost of its production if by real price this is what is meant although i do not admit the propriety of thus naming it mr. Malthus's opinion is undoubtedly correct it is the rise in the market price of corn which alone encourages its production for it may be laid down as a principle uniformly true that the only great encouragement to the increased production of a commodity is its market value exceeding its natural or necessary value but this is not the meaning which mr. Malthus on other occasions attaches to the term real price in the essay on rent mr. Malthus says by the real growing price of corn i mean the real quantity of labor and capital which has been employed to produce the last additions which have been made to the national produce in another party states the cause of the high comparative real price of corn to be the greater quantity of capital and labor which must be employed to produce it footnote upon showing this passage to mr. Malthus at the time when these papers were going to press he observed quote that in these two instances he had inadvertently used the term real price instead of cost of production unquote it will be seen from what i've already said that to me it appears that in these two instances he has used the term real price in its true and just acceptation and that in the former case only it is incorrectly applied end of footnote suppose that in the foregoing passage we were to substitute this definition of real price we did not then run thus it is clearly the increase in the quantity of labor and capital which must be employed to produce corn which alone can encourage its production this would be to say that it is clearly the rise in the natural or necessary price of corn which encourages its production proposition which could not be maintained it is not the price at which corn can be produced that has any influence on the quantity produced but the price at which it can be sold it is in proportion to the degree of the difference of its price above or below the cost of production that capital is attracted to or repelled from the land if that excess be such as to give to capital so employed a greater than the general profit of stock capital will go to the land if less it will be withdrawn from it it is not then by an alteration in the real price of corn that its production is encouraged but by an alteration in its market price it is not because a greater quantity of capital and labor must be employed to produce it as to Malthus's just definition of real price that more capital and labor are attracted to the land but because the market price rises above this its real price and notwithstanding the increased charge makes the cultivation of land the more profitable employment of capital nothing can be more just than the following observations of Mr. Malthus on Adam Smith's standard of value Adam Smith was evidently led into this train of argument from his habit of considering labor as the standard measure of value and corn is the measure of labor but that corn is a very inaccurate measure of labor the history of our own country will amply demonstrate where labor compared with corn will be found to have experienced very great and striking variations not only from year to year but from century to century and for 10 20 and 30 years together and that neither labor nor any other commodity can be an accurate measure of real value in exchange is now considered as one of the most incontrovertible doctrines of political economy and indeed follows from the very definition of value in exchange if neither corn nor labor are accurate measures of real value in exchange which they clearly are not what other commodity is certainly none if then the expression real price of commodities have any meaning it must be that which Mr. Malthus has stated in the essay on rent it must be measured by the proportionate quantity of capital and labor necessary to produce them in Mr. Malthus's inquiry into the nature of rent he says that independently of irregularities in the currency of a country and other temporary and accidental circumstances the cause of the high comparative money price of corn is its high comparative real price or the greater quantity of capital and labor which must be employed to produce it this I apprehend is the correct account of all permanent variations in price whether of corn or of any other commodity a commodity can only permanently rise in price either because a greater quantity of capital and labor must be employed to produce it or because money has fallen in value and on the contrary it can only fall in price either because a less quantity of capital and labor may be be employed to produce it or because money has risen in value. A variation arising from the latter of these alternatives and altered value of money is common at once to all commodities, but a variation arising from the former cause is confined to the particular commodity requiring more or less labour in its production. By allowing the free importation of corn or by improvements in agriculture, raw produce would fall, but the price of no other commodity would be affected except in proportion to the fall in the real value or cost of production of the raw produce which entered into its composition. Mr. Malthus, having acknowledged this principle, cannot I think consistently maintain that the whole money value of all the commodities in the country must sink exactly in proportion to the fall in the price of corn. If the corn consumed in the count were of the value of 10 millions per annum and the manufactured and foreign commodities consumed were of the value of 20 millions, making altogether 30 millions, it would not be admissible to infer that the annual expenditure was reduced to 15 millions because corn had fallen 50% or from 10 to 5 millions. The value of the raw produce which entered into the composition of these manufacturers might not, for example, exceed 20% of their whole value and therefore the fall in the value of manufactured commodities instead of being from 20 to 10 millions would be only from 20 to 18 millions and after the fall in the price of corn for 50%, the whole amount of the annual expenditure instead of falling from 30 to 15 millions would fall from 30 to 23 millions. Footnote. Manufacturers indeed could not fall in any such proportion because under the circumstances supposed there would be a new distribution of the precious metals among the different countries. Our cheap commodities would be exported in exchange for corn and gold till the accumulation of gold should lower its value and raise the money price of commodities. End of footnote. This, I say, would be their value if you suppose it possible that with such a cheap price of corn no more corn and commodities would be consumed but as all those who had employed capital in the production of corn on those lands which would no longer be cultivated could employ it in the production of manufactured goods and only a part of those manufactured goods would be given in exchange for foreign corn as on any other supposition no advantage would be gained by importation and low prices. We should have the additional value of all that quantity of manufactured goods which were so produced and not exported to add to the above value so that the real diminution even in money value of all commodities in the country corn included would be equal only to the loss of the landlords by the reduction of their rents while the quantity of objects of enjoyment would be greatly increased. Instead of thus considering the effect of a fall in the value of raw produce as Mr. Malthus was bound to do by his previous admission he considers it as precisely the same thing as a rise of 100% in the value of money and therefore argues as if all commodities would sink to half their former price. During the 20 years beginning with 1794 he says and ending with 1813 the average price of British corn per quarter was about 83 shillings. During the 10 years ending with 1813 92 shillings and during the last five years of the 20 108 shillings in the course of these 20 years the government borrowed near 500 millions of real capital for which on a rough average exclusive of the sinking fund it engaged to pay about 5% But if corn should fall to 50 shillings a quarter and other commodities in proportion instead of an interest of about 5% the government would rarely pay an interest of 7, 8, 9 and for the last 200 millions 10%. Should this extraordinary generosity towards the stockholders I should be disposed to make no kind of objection if it were not necessary to consider by whom it is to be paid and a moment's reflection will show us that it can only be paid by the industrious classes of society and the landlords that is by all those whose nominal income will vary with the variations in the measure of value. The nominal revenues of this part of the society compared with the average of the last five years will be diminished one half and out of this nominally reduced income they will have to pay the same nominal amount of taxes. In the first place I think I have already shown that even the value of the gross income of the whole country will not be diminished in the proportion for which Mr. Malthus here contends. It would not follow that because corn fell 50% each man's gross income would be reduced 50% in value his net income might be actually increased in value. Footnote in the grounds of an opinion Mr. Malthus supposes commodities to vary 25 or 20% when corn varies 33 and one third. End of footnote in the second place I think the listener will agree with me that the increased charge if admitted will not fall exclusively on the landlords and the industrious classes of society. The stockholder by his expenditure contributes his share to the support of the public burdens in the same way as the other classes of society. If then money became really more valuable although he would receive a greater value he would also pay a greater value in taxes and therefore it cannot be true that the whole addition to the real value of the interest would be paid by the landlords and the industrious classes. The whole argument however of Mr. Malthus is built on an infirm basis. It supposes because the gross income of the country is diminished that therefore the net income must also be diminished in the same proportion. It has been one of the objects of this work to show that with every fall in the real value of necessaries the wages of labour would fall and that the profits of stock would rise. In other words that of any given annual value a less proportion would be paid to the labouring classes and a larger portion to those whose funds employed this class. Suppose the value of the commodities produced in a particular manufacturer to be £1,000 and to be divided between the master and his labourers in the proportion of £800 to labourers and £200 to the master. If the value of these commodities should fall to £900 and £100 be saved from the wages of labour in consequence of the fall of necessaries the net income of the masters would be in no degree impaired and therefore he could with just as much facility pay the same amount of taxes after as before the reduction of price. Footnote of net produce and gross produce Mr Say writes in volume two as follows quote the whole value produced is the gross produce this value after deducting from it the cost of production is the net produce unquote there can then be no net produce because the cost of production according to Mr Say consists of rent wages and profits in a later passage he continues quote the value of a product the value of a productive service the value of the cost of production are all then similar values whenever things are left to their natural course unquote take a hole from a hole and nothing remains end of footnote it is of importance to distinguish clearly between gross revenue and net revenue for it is from the net revenue of a society that all taxes must be paid suppose that all the commodities in the country all the corn raw produce manufactured goods etc which could be brought to market in the course of the year were of the value of 20 millions and that in order to obtain this value a labor of a certain number of men was necessary and that the absolute necessaries of these laborers required an expenditure of 10 millions i should say that the gross revenue of such society was 20 millions and its net revenue 10 millions it does not follow from this supposition that the laborers should receive only 10 millions for their labor they might receive 12 14 or 15 millions and in that case they would have two four or five millions of the net income the rest would be divided between landlords and capitalists but the whole net income would not exceed 10 millions suppose such a society paid two millions in taxes its net income would be reduced to eight millions suppose now money to become more valuable by one tenth all commodities would fall and the price of labor would fall because the absolute necessaries of the laborer formed a part of those commodities consequently the gross income would be reduced to 18 millions and the net income to nine millions if the taxes fell in the same proportion and instead of two millions one million eight hundred thousand pounds only were raised the net income would be further reduced to seven million two hundred thousand pounds precisely of the same value as the eight millions were before and therefore the society would neither be losers nor gainers by such an event but suppose that after the rise of money two millions were raised for taxes as before the society would be poorer by 200 000 pounds per annum their taxes would be really raised one ninth to alter the money value of commodities by altering the value of money and yet to raise the same money amount by taxes is then undoubtedly to increase the burdens of society but suppose of the 10 millions net revenue the landlords received five millions as rent and that by facility of production or by the importation of corn the necessary cost of that article in labor was reduced one million rent would fall one million and the prices of the mass of commodities would also fall to the same amount but the net revenue would be just as great as before the gross income would it is true be only 10 millions and the necessary expenditure to obtain it nine millions but the net income would be 10 millions now suppose two millions raised in taxes on this diminished gross income would the society altogether be richer or poorer richer certainly for after the payment of their taxes they would have as before a clear income of eight million to bestow on the purchase of commodities which had increased in quantity and fallen in price in the proportion of 20 to 19 not only then could the same taxation be endured but greater and yet the mass of the people be better provided with conveniences and necessaries if the net income of the society after paying the same money taxation be as great as before and the class of landholders lose one million from a fall of rent the other productive classes must have increased money incomes not withstanding the fall of prices the capitalist will then be doubly benefited the corn and butchers meet consumed by himself and his family will be reduced in price and the wages of his menial servants of his gardeners and laborers of all descriptions will be also lowered his horses and cattle will cost less and be supported at a less expense all the commodities in which raw produce enters at a principal part of their value will fall this aggregate amount of savings made on the expenditure of income at the same time that his money income is increased will then be doubly beneficial to him and will enable him not only to add to his enjoyments but to bear additional taxes if they should be required his additional consumption of tax commodities will much more than make up for the diminished demand of landlords consequent on the reduction of their rents the same observations apply to farmers and traders of every description but it may be said that the capitalist income will not be increased that the million deducted from the landlord's rent will be paid in additional wages to laborers be it so this will make no difference in the argument the situation of the society will be improved and they will be able to bear the same money burdens with greater facility than before it will only prove what is still more desirable that the situation of another class and by far the most important class in society is the one which is chiefly benefited by the new distribution all that they receive more than nine millions forms part of the net income of the country and it cannot be expended without adding to its revenue its happiness or its power distribute then the net income as you please give a little more to one class and a little less to another yet you do not thereby diminish it a greater amount of commodities will still be produced with the same labor although the amount of the gross money value of such commodities will be diminished but the net money income of the country that fund from which taxes are paid and enjoyments procured would be much more adequate than before to maintain the actual population to afforded enjoyments and luxuries and to support any given amount of taxation but the stockholder is benefited by a great fall in the value of corn cannot be doubted but if no one else be injured that is no reason why corn should be made dear for the gains of the stockholder are national gains and increase as all other gains do the real wealth and power of the country if they are unjustly benefited let the degree in which they are so be accurately ascertained and then it is for the legislature to devise a remedy but no policy can be more unwise than to shut ourselves out from the great advantages arising from cheap corn and abundant productions merely because the stockholder would have an undue proportion of the increase to regulate the dividends on stock by the money value of corn has never yet been attempted if justice and good faith required such a regulation a great debt is due to the old stockholders but they have been receiving the same money dividends for more than a century although corn has perhaps been doubled or trebled in price footnote mr. McCulloch an enable publication has very strongly contended for the justice of making the dividends on the national debt conform to the reduced value of corn he is in favor of a free trade in corn but he thinks it should be accompanied by a reduction of interest to the national creditor end of footnote but it is a great mistake to suppose that the situation of the stockholder will be more improved than that of the farmer the manufacturer and the other capitalists of the country it will in fact be less improved the stockholder will undoubtedly receive the same money dividend while not only the price of war produce and labor fell but the prices of many other things into which war produce ended as a component part this however is an advantage as i have just stated which he would enjoy in common with all other persons who had the same money incomes to expend his money income would not be increased that of the farmer manufacturer and other employers of labor would and consequently they would be doubly benefited it may be said that although it may be true that capitalists would be benefited by a rise of profits in consequence of a fall of wages yet that their incomes would be diminished by the fall in the money value of their commodities what is to lower them not any alteration in the value of money but nothing has been supposed to occur to alter the value of money not any diminution in the quantity of labor necessary to produce their commodities but no such causes operated and if it did operate would not lower money profits though it might lower money prices but the raw produce of which commodities are made is supposed to have fallen in price and therefore commodities will fall on that account true they will fall but therefore will not be attended with any diminution in the money income of the producer if he sell his commodity for less money it is only because one of the materials from which it is made has fallen in value if the clothier sell his cloth for 900 pounds instead of 1000 pounds his income will not be less if the wool from which it is made has declined 100 pounds in value mr. Malthus says it is true that the last additions to the agricultural produce of an improving country are not attended with a large proportion of rent and it is precisely the circumstance that may make it answer to a rich country to import some of its corn if it can be secure of obtaining an equitable supply but in all cases the importation of foreign corn must fail to answer nationally if it is not so much cheaper than the corn that can be grown at home as to equal both the profits and the rent of the grain which it displaces grounds etc page 36 in this observation mr. Malthus is quite correct but imported corn must be always so much cheaper than the corn that can be grown at home has to equal both the profits and the rent of the grain which it displaces if it were not no advantage to anyone could be obtained by importing it as rent is the effect of the high price of corn the loss of rent is the effect of a low price foreign corn never enters into competition with such home corn as affords a rent the fall of price invariably affects the landlord till the whole of his rent is absorbed if it falls still more the price will not afford even the common profits of stock capital will then quit the land for some other employment and the corn which was before grown upon it will then and not till then be imported from the loss of rent there will be a loss of value of estimated money value but there will be a gain of wealth the amount of the raw produce and other productions together will be increased from the greater facility with which they are produced they will though augmented in quantity be diminished in value two men employ equal capitals one in agriculture the other in manufacturers that in agriculture produces a net annual value of 1200 pounds of which 1000 pounds is retained for profit and 200 pounds is paid for rent the other in manufacturers produces only an annual value of 1000 pounds suppose that by importation the same quantity of corn which cost 1200 pounds can be obtained for commodities which cost 950 pounds and that in consequence the capital employed in agriculture is diverted to manufacturers where it can produce a value of 1000 pounds the net revenue of the country will be of less value it will be reduced from 2200 pounds to 2000 pounds but there will not only be the same quantity of commodities and corn for its own consumption but also as much addition to that quantity as 50 pounds would purchase the difference between the value at which its manufacturers were sold to the foreign country and the value of the corn which was purchased from it now this is precisely the question respecting the advantage of importing or growing corn it can never be imported till the quantity obtained from abroad by the employment of a given capital exceeds the quantity which the same capital will enable us to grow at home exceeds not only that quantity which falls to the share of the farmer but also that which is paid as rent to the landlord Mr Malthus says it has been justly observed by Adam Smith that no equal quantity of productive labor employed in manufacturers can ever occasion so great a reproduction as in agriculture if Adam Smith speaks of value he is correct but if he speaks of riches which is the important point he is mistaken for he has himself defined riches to consist of the necessaries conveniences and enjoyments of human life one set of necessaries and conveniences admits of no comparison with another set value in use cannot be measured by any known standard it is differently estimated by different persons