Ricardo's Principles of Political Economy and Taxations, Part 1
On The Principles of Political Economy and Taxation
Part 1
London: John Murray, Albemarle-Street,
by David Ricardo, 1817
(third 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 Turgot, Stuart, Smith, Say, Sismondi, 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 works 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; but 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 M. Say,
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.(1*) 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 'Economie
Politique,' as appeared at variance with his own ideas.
Advertisement to the Third Edition
In this Edition I have endeavoured 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 MACHlNERY, 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 M. Say on that important
question, as amended in the fourth and last edition of his work. I have in
the last chapter endeavoured 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 labour 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 burthened with a
heavy fixed money taxation, the consequence of an immense National
Debt. I have endeavoured to shew, 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 labour
which is necessary for its production, and not on the greater or less
compensation which is paid for that labour.
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 labour might be necessary to procure it.
Possessing utility, commodities derive their exchangeable value from
two sources: from their scarcity, and from the quantity of labour
required to obtain them.
There are some commodities, the value of which is determined by
their scarcity alone. No labour 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 grapes 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 labour
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 labour,. 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 labour
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 labour expended on each.
'The real price of every thing,' says Adam Smith, 'what every thing
really costs to the man who wants to acquire it, is the toil and trouble of
acquiring it. What every thing 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.' 'Labour 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
labour 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 cost twice
the labour 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' labour, should be worth
double of what is usually the produce of one day's, or one hour's
labour.'(2*)
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 do so many errors, and so much difference of opinion in that
science proceed, as from the vague ideas which are attached to the word
value.
If the quantity of labour realized in commodities, regulate their
exchangeable value, every increase of the quantity of labour 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 labour 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 labour,
as a standard measure; not the quantity of labour 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 labour had become doubly efficient, and he could therefore
produce twice the quantity of a commodity, he would necessarily
receive twice the former quantity in exchange for it.
If this indeed were true, if the reward of the labourer were always in
proportion to what he produced, the quantity of labour bestowed on a
commodity, and the quantity of labour 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 labour, 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, a greater quantity
may be obtained with the same labour. 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 labour
which the cultivation of inferior lands requires? Is not the value of
labour 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
labour are expended?
In the same country double the quantity of labour may be required to
produce a given quantity of food and necessaries at one time, that may
be necessary at another, and a distant time; yet the labourer's reward
may possibly be very little diminished. If the labourer'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 per cent if
estimated by the quantity of labour necessary to their production, while
they will scarcely have increased in value, if measured by the quantity
of labour for which they will exchange.
The same remark may be made respecting two or more countries. In
America and Poland, on the land last taken into cultivation, a year's
labour of any given number of men, will produce much more corn than
on land similarly circumstanced 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
labourer, would in each country be in proportion to the facility of
production?
If the shoes and clothing of the labourer, could, by improvements in
machinery, be produced by one fourth of the labour now necessary to
their production, they would probably fall 75 per cent; but so far is it
from being true, that the labourer would thereby be enabled
permanently to consume four coats, or four pair 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 labourer'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 labour.
It cannot then be correct, to say with Adam Smith, 'that as labour may
sometimes purchase a greater, and sometimes a smaller quantity of
goods, it is their value which varies, not that of the labour which
purchases them;' and therefore, 'that labour 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 labour 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 labour will produce,
that determines their present or past relative value, and not the
comparative quantities of commodities, which are given to the labourer
in exchange for his labour.
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 on examining still more particularly into all the circumstances
connected with the production of these various commodities, we find
that precisely the same quantity of labour and capital are necessary to
the production of the shoes, stockings, hats, iron, sugar, &c.; but that the
same quantity as before is not necessary to produce the single
commodity whose relative value is altered, probability is 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,
moreover, 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 labour, 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 labour necessary to obtain it. In
like manner, if labour 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 labourer, 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 labour being necessary to
produce them, and that this facility of providing for the support of the
labourer had been followed by a fall in the value of labour. 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 labour 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 labour fall, things which we have selected to be our standard
measure of value, notwithstanding 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 labour 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 labour necessary to produce it, and
therefore, by all just reasoning, I am bound to call the variation of corn
and labour 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 labourer for a week,
and instead of ten shillings I pay him eight, no variation having taken
place in the value of money, the labourer can probably obtain more food
and necessaries, with his eight shillings, than he before obtained for ten:
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 is 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 reconcileable 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 labourer to be paid a bushel of corn for a week's work, when
the price of corn is 80s. per quarter, and that he is paid a bushel and a
quarter when the price falls to 40s. 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, &c. &c.; 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 half a bushel
did in the other, which it will not, will labour have risen or fallen in
value? Risen, Adam Smith must say, because his standard is corn, and the
labourer receives more corn for a week's labour. 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 labour has a less power of purchasing such other goods.
Section II
Labour of different qualities differently rewarded. This is no cause of
variation in the relative value of commodities.
In speaking, however, of labour, as being the foundation of all value,
and the relative quantity of labour as almost exclusively determining
the relative value of commodities, I must not be supposed to be
inattentive to the different qualities of labour, and the difficulty of
comparing an hour's or a day's labour, in one employment, with the
same duration of labour in another. The estimation in which different
qualities of labour are held, comes soon to be adjusted in the market
with sufficient precision for all practical purposes, and depends much
on the comparative skill of the labourer, and intensity of the labour
performed. The scale, when once formed, is liable to little variation. If a
day's labour of a working jeweller be more valuable than a day's labour
of a common labourer, it has long ago been adjusted, and placed in its
proper position in the scale of value.(3*)
In comparing therefore the value of the same commodity, at different
periods of time, the consideration of the comparative skill and intensity
of labour, required for that particular commodity, needs scarcely to be
attended to, as it operates equally at both periods. One description of
labour at one time is compared with the same description of labour 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
ten years hence, the ordinary value of a piece of cloth should be four
pieces of linen, we may safely conclude, that either more labour 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 reader'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
labour 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 acquirement 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 labour 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.'(4*)
Section III
Not only the labour applied immediately to commodities affect their
value, but the labour also which is bestowed on the complements, tools,
and buildings, with which much labour 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 labour
necessary to their destruction, but also by the time and labour necessary
for providing the hunter's capital, the weapon, by the aid of which their
destruction was effected.
Suppose the weapon necessary to kill the beaver, was constructed with
much more labour 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 labour would, on the whole, be necessary to its
destruction. Or suppose that the same quantity of labour was necessary
to make both weapons, but that they were of 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 labour employed in their destruction might
be furnished by another class; still, their comparative prices would be in
proportion to the actual labour 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 labour,
under different circumstances of plenty or scarcity of the food and
necessaries 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 labour. yet 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 IO per
cent or whether the wages of labour 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 rude
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 labour bestowed on their production; not on their
immediate production only, but on all those implements or machines
required to give effect to the particular labour 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 labour necessary to manufacture them, and bring them
to market. First, there is the labour necessary to cultivate the land on
which the raw cotton is grown; secondly, the labour of conveying the
cotton to the country where the stockings are to be manufactured, which
includes a portion of the labour bestowed in building the ship in which
it is conveyed, and which is charged in the freight of the goods; thirdly,
the labour of the spinner and weaver; fourthly, a portion of the labour of
the engineer, smith, and carpenter, who erected the buildings and
machinery, by the help of which they are made; fifthly, the labour of the
retail dealer, and of many others, whom it is unnecessary further to
particularize. The aggregate sum of these various kinds of labour,
determines the quantity of other things for which these stockings will
exchange, while the same consideration of the various quantities of
labour 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 labour 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 labour was necessary to their production,
and would therefore exchange for a smaller quantity of those things in
which no such abridgment of labour had been made.
Economy in the use of labour never fails to reduce the relative value
of a commodity, whether the saving be in the labour 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 labour would fall on the stockings, because that portion of
labour 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 buildings,
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 labour. Under such circumstances the value of the deer, the
produce of the hunter's day's labour, would be exactly equal to the value
of the fish, the produce of the fisherman's day's labour. The comparative
value of the fish and the game, would be entirely regulated by the
quantity of labour 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 and were calculated to last for ten years, and he employed
ten men, whose annual labour cost £100 and who in one day obtained by
their labour twenty salmon: If the weapons employed by the hunter were
also of £100 value and calculated to last ten years, and if he also
employed ten men, whose annual labour cost £100 and who in one day
procured him ten deer; then the natural price of a deer would be two
salmon, whether the proportion of the whole produce 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 labour to obtain respectively the same
quantity of fish, and the same quantity of game, the natural rate of
exchange would be one deer for two salmon.
If with the same quantity of labour 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 labour 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 £1 and a
deer £2 one deer would be worth two salmon. But a deer might become
of the value of three salmon, for more labour 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 £1 whilst deer rose to £3 we might conclude that
more labour was required to obtain the deer. If deer continued at the
same price of £2 and salmon sold for 13s. 4d. we might then be sure that
less labour was required to obtain the salmon; and if deer rose to £2 10s.
and salmon fell to 16s. 8d. 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 labour could produce any alteration in
the relative value of these commodities; for suppose them to rise, no
greater quantity of labour 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 twenty per cent, 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 labour 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 twenty
salmon, twenty-five were the produce of one day's labour, the price of a
salmon would be sixteen shillings instead of a pound, and two salmon
and a half, instead of two salmon, would be given in exchange for one
deer, but the price of deer would continue at £2 as before. In the same
manner, if fewer fish could be obtained with the same capital and
labour, fish would rise in comparative value. Fish then would rise or fall
in exchangeable value, only because more or less labour was required to
obtain a given quantity; and it never could rise or fall beyond the
proportion of the increased or diminished quantity of labour 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 labour required for their
production; and that unless more labour 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 labour, which employed the same proportion of fixed and circulating
capital, and fixed capital of the same durability. If more or less labour
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 labour, and not to the rise of wages.
Section IV
The principle that the quantity of labour 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 labour, and we have seen that the
variations in the relative value of deer and salmon depended solely on
the varying quantities of labour 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 labour to produce them. The
proportions, too, in which the capital that is to support labour, 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 labour necessary to produce commodities, for the
variations in their relative value - this cause is the rise or fall in the
value of labour.
The food and clothing consumed by the labourer, the buildings in
which he works, the implements with which his labour 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, a ship than the clothing of the labourer, and the
clothing of the labourer 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 of fixed capital.(5*) 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 labour - it may be principally
invested in machinery, implements, buildings, &c. 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 labour, and very little may be invested in implements,
machines, and buildings. A rise in the wages of labour 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, the other, ships of the same value.
If men employed no machinery in production but labour 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 labour 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 labour
employed on their production.
But although commodities produced under similar circumstances,
would not vary with respect to each other, from any cause but an
addition or diminution of the quantity of labour 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 labour, although neither more nor less labour 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 one hundred 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, for they will each be
produced by the same quantity of labour. Suppose one of the owners of
one of the machines to employ it, with the assistance of one hundred
men, the following year in making cloth, and the owner of the other
machine to employ his also, with the assistance likewise of one hundred
men, in making cotton goods, while the farmer continues to employ one
hundred men as before in the cultivation of corn. During the second
year they will all have employed the same quantity of labour, but the
goods and machine together of the clothier, and also of the cotton
manufacturer, will be the result of the labour of two hundred men,
employed for a year; or, rather, of the labour of one hundred men for two
years; whereas the corn will be produced by the labour of one hundred
men for one year, consequently if the corn be of the value of £500 the
machine and cloth of the clothier together, ought to be of the value of
£1,000 and the machine and cotton goods of the cotton manufacturer
ought to be also of twice the value of the corn. But they will be of more
than twice the value of the corn, for the profit on the clothier's 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 labour 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 labour of each workman £50 per annum were
paid, or that £5,000 capital were employed and profits were 10 per cent,
the value of each of the machines as well as of the corn, at the end of the
first year, would be £5,500. The second year the manufacturers and
farmer will again employ £5,000 each in the support of labour, and will
therefore again sell their goods for £5,500, but the men using the
machines, to be on a par with the farmer, must not only obtain £5,500,
for the equal capitals of £5,000 employed on labour, but they must
obtain a further sum of £550; for the profit on £5,500 which they have
invested in machinery, and consequently their goods must sell for
£6,050. Here then are capitalists employing precisely the same quantity
of labour 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 labour, employed by each respectively.
The cloth and cotton goods are of the same value, because they are the
produce of equal quantities of labour, 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
labour? 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 altered by a rise of labour.
There can be no rise in the value of labour without a fall of profits. If
the corn is to be divided between the farmer and the labourer, 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 per cent, instead of adding £550 to the common
price of their goods (to £5,500) for the profits on their fixed capital, the
manufacturers would add only 9 per cent on that sum, or £495,
consequently the price would be £5,995 instead of £6,050. As the corn
would continue to sell for £5,500, the manUfactured goods in which
more fixed capital was employed, would fall relatively to 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, on account of a rise or fall of
labour, 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, or 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 labour, or which would be speedily brought to market
would rise in relative value.
The reader, 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 one per. cent in profits, goods
produced under the circumstances I have supposed, vary in relative
value only one per cent: they fall with so great a fall of profits from
£6,050 to £5,995. The greatest effects which could be produced on the
relative prices of these goods from a rise of wages, could not exceed 6 or
7 per cent; for 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
labour necessary to produce them. If to produce the corn, eighty, instead
of one hundred men, should be required, the value of the corn would fall
20 per cent or from £5,500 to £4,400. If to produce the cloth, the labour
of eighty instead of one hundred men would suffice, cloth would fall
from £6,050 to £4,950. 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 labour necessary
to produce commodities, are of daily occurrence. Every improvement in
machinery, in tools, in buildings, in raising the raw material, saves
labour, and enables us to produce the commodity to which the
improvement is applied with more facility, and consequently its 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 labour, 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 cause 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 labour 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 labour bestowed on their production, will differ in
exchangeable value, if they cannot be brought to market in the same
time.
Suppose I employ twenty men at an expense of £1,000 for a year in the
production of a commodity, and at the end of the year I employ twenty
men again for another year, at a further expense of £1,000 in finishing or
perfecting the same commodity, and that I bring it to market at the end
of two years, if profits be 10 per cent, my commodity must sell for
£2,310; for I have employed £1,000 capital for one year, and £2,100
capital for one year more. Another man employs precisely the same
quantity of labour, but he employs it all in the first year; he employs
forty men at an expense of £2,000, and at the end of the first year he sells
it with 10 per cent profit, or for £2,200. Here then are two commodities
having precisely the same quantity of labour bestowed on them, one of
which sells for £2,310 - the other for £2,200.
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 labour was
bestowed on them. In the second case, one commodity is more valuable
than the other, although no more labour 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 labour is almost exclusively employed in production;
namely, that commodities never vary in value, unless a greater or less
quantity of labour be bestowed on their production, it being shown in
this section that without any variation in the quantity of labour, 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 V
The principle that value does not vary with the rise of fall 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 manufacture, when wages rise, the value of
commodities produced in that manufacture, is relatively lower than that
of commodities produced in manufactures 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 labour annually to keep it in its original state of efficiency;
but the labour so bestowed may be considered as really expended on the
commodity manufactured, which must bear a value in proportion to
such labour. If I had a machine worth £20,000 which with very little
labour 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 per cent, I should not require much more than £2,000 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 labour requisite to keep it in an efficient state were that of
fifty men annually, I should require an additional price for my goods,
equal to that which would be obtained by any other manufacturer who
employed fifty men in the production of other goods, and who used no
machinery at all.
But a rise in the wages of labour 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 labour 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 one hundred men for a year, and that it
would last only for one year. Suppose too, the machine to cost £5,000,
and the wages annually paid to one hundred men to be £5,000, 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
labour to rise, and consequently the wages of one hundred men for a
year to amount to £5,500, 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 £5,000. But will not the machine rise in price, will
not that also be worth £5,500 in consequence of the rise of labour? 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 labour of one hundred men, working one year
upon it with wages of £50 each, and its price were consequently £5,000;
should those wages rise to £55, its price would be £5,500, but this cannot
be the case; less than one hundred men are employed or it could not be
sold for £5,000, for out of the £5,000 must be paid the profits of the stock
which employed the men. Suppose then that only eighty-five men were
employed at an expense of £50 each, or £4,250 per annum, and that the
£750 which the sale 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 per cent he would be obliged to employ an
additional capital of £425 and would therefore employ £4,675 instead
of £4,250, on which capital he would only get a profit of £325 if he
continued to sell his machine for £5,000; 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.(6*) 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 labour 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, eighty-five
men instead of a hundred, 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 labour 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 of very unequal value; and although they will still
be liable to rise or fall relatively to each other, as more or less labour
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 may be the produce of a capital equal
in amount to that from which are produced other goods which sell for
£10,000, 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, too, 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 labour with
less fixed capital, or with fixed capital of a less durable character than
the medium in which price is estimated, will rise as wages rise, and fall
as wages fall.
Section VI
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 effected 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 labour 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 labour should at all times be required,
still it would not be a perfect standard or invariable measure of value,
because, as I have already endeavoured 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 wished 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 - or 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 labour and fixed capital to produce it.
Like every other commodity, improvements in the saving of labour
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 labour 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 labour 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, nor
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
labour 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 the average quantity employed in the
production of most commodities? May not these proportions be so
nearly equally distant from the two extremes, the one where little fixed
capital is used, the other where little labour 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 enquiry, 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 labour
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 labour bestowed upon it as will cost £1,000 and
another so much as will cost £2,000 that therefore one would be of the
value of £1,000 and the other of the value of £2,000 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 £1,10O and the
other for £2,200, or one for £1,500 and the other for £3,000; into that
question I do not at present enquire; I affirm only, that their relative
values will be governed by the relative quantities of labour bestowed on
their production.(7*)
Section VII
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 adverted, namely, the different quantities of labour
required to produce them, and their 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 labour 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 labourer 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 labour of the country is devoted to the support
of the labourers; 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
labourer, 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 labour 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 partook 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 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 labourers 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 labour. Of every hundred hats, coats, and quarters of
corn produced, if
The labourers had before... 25
The landlords ... 25
And the capitalists ... 50
100:
And if, after these commodities were double the quantity, of every 100
The labourers had only.. 22
The landlords ... 22
And the capitalists... 56
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 labourer and landlord would have increased in the
proportion of 25 to 44. Wages are to be estimated by their real value, viz.
by the quantity of labour 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 labourer 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 £1,000 to £2,000, or 100 per cent, 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 per cent, his rate of profits will be the same, and he will have
the same quantity, and no more, of the produce of the labour of the
country at his command.
If, with a capital of a given value, he can, by economy in labour,
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 2
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
labour necessary to production. In order to understand this part of the
subject, we must enquire 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, of two 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 manured,
and advantageously 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; yet 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, paid it 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 enquiry 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 recedes, 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; for 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 reason 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 labour 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 dyer, make incessant use of the air and
water for the production of their commodities; but as the supply is
boundless, they bear no price.(8*) 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, for 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 labour. 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 - No. 1, 2, 3, - to yield, with an equal employment
of capital and labour, 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
No. 1, 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 No. 2, from which
ninety quarters only can be obtained after supporting the labourers, rent
would commence on No. 1; for either there must be two rates of profit on
agricultural capital, or ten quarters, or the value of ten quarters must be
withdrawn from the produce of No. 1, for some other purpose. Whether
the proprietor of the land, or any other person, cultivated No. 1, these ten
quarters would equally constitute rent; for the cultivator of No. 2 would
get the same result with his capital, whether he cultivated No. 1, paying
ten quarters for rent, or continued to cultivate No. 2, paying no rent. In
the same manner it might be shown that when No. 3 is brought into
cultivation, the rent of No. 2 must be ten quarters, or the value of ten
quarters, whilst the rent of No. 1 would rise to twenty quarters; for the
cultivator of No. 3 would have the same profits whether he paid twenty
quarters for the rent of No. 1, ten quarters for the rent of No. 2, or
cultivated No. 3 free of all rent.
It often, and, indeed, commonly happens, that before No. 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 No.
1, though the produce will not be doubled, will not be increased by 100
quarters, it may be increased by eighty-five quarters, and that this
quantity exceeds what could be obtained by employing the same
capital, on land No. 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 labour. If, with a capital of £1,000, a tenant obtain 100 quarters of
wheat from his land, and by the employment of a second capital of
£1,000, he obtain a further return of eighty-five, his landlord would
have the power at the expiration of his lease, of obliging him to pay
fifteen quarters, or an equivalent value, for additional rent; for there
cannot be two rates of profit. If he is satisfied with a diminution of
fifteen quarters in the return for his second £1,000, 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, fifteen
quarters is paid for rent, for the employment of the second £1,000 no
rent whatever is paid. If a third £1,000 be employed on the same land,
with a return of seventy-five quarters, rent will then be paid for the
second £1,000, and will be equal to the difference between the produce
of these two, or ten quarters; and at the same time the rent of the first
£1,000 will rise from fifteen to twenty-five quarters; while the last
£1,000 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; for rent invariably proceeds from the
employment of an additional quantity of labour 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 labour 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 labour 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 labour 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 labour 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, where the 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
proportioned to the quantity of labour bestowed on its production.(9*)
It is true, that on the best land, the same produce would still be
obtained with the same labour as before, but its value would be
enhanced in consequence of the diminished returns obtained by those
who employed fresh labour 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, or
consumer, to the landlord, yet, since more labour 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 it exchange for more hats, cloth, shoes, &c. &c.
in the production of which no such additional quantity of labour is
required.
The reason then, why raw produce rises in comparative value, is
because more labour 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 labour 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
whole of their rent. Such a measure would only enable some farmers to
live like gentlemen, but would not diminish the quantity of labour
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 decay, and less is yielded in return for labour,
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 pre-eminence. 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 labour 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 pre-eminent 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.(10*)
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
labour, 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 proportionally 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 labour 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.(11*) Adam Smith, therefore, cannot be
correct in supposing that the original rule which regulated the
exchangeable value of commodities, namely, the comparative quantity
of labour 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 labour, 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 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 increase is 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 No. 1, 2, 3; and if
an improvement be afterwards discovered by which it can be raised on
No. 1 and 2, without employing No. 3, it is evident that the immediate
effect must be a fall of rent; for No. 2, instead of No. 3, will then be
cultivated without paying any rent; and the rent of No. 1, instead of
being the difference between the produce of No. 3 and No. 1, will be the
difference only between No. 2 and 1. With the same population, and no
more, there can be no demand for any additional quantity of corn; the
capital and labour employed on No. 3 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 No. 3 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 labour 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 labour, 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 No. 3 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 labour.
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 labour
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 skilful 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 turn.ps, 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 per cent 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, or the
difference between
70 and 100 = 30
70 and 90 = 20
70 and 80 = 10
60
whilst the produce would be 340
100
90
80
70
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, 95, the rent would still be 60, or the difference between
95 and 125 = 30
95 and 115 = 20
95 and 105 = 10
60
whilst the produce would be increased to 440
125
115
105
95
440
But with such an increase of produce, without an increase of
demand,(12*) there could be no motive for employing so much capital
on the land; one portion would be withdrawn, and consequently the last
portion of capital would yield 105 instead of 95, and rent would fall to
30, or the difference between
105 adn 125 = 20
105 and 115 = 10
30
whilst the produce will be still adequate to the wants of the population,
for it would be 345 quarters, or
125
115
105
345
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 labour. 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 plough and the thrashing machine, economy in 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
labour, 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, 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 5 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.(13*)
Chapter 3
On the Rent of Mines
The metals, like other things, are obtained by labour. Nature, indeed,
produces them; but it is the labour 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 any one might
appropriate, they could yield no rent; the value of their produce would
depend on the quantity of labour necessary to extract the metal from the
mine and bring it to market.
But there are mines of various qualities, affording very different
results, with equal quantities of labour. 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. All 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 labour 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 labour;
new and more productive mines may be discovered, in which, with the
same labour, 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 to 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 every where given to them, as a standard for the
money of civilized countries.
If equal quantities of labour, 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 labour the foundation of the value of commodities, and the
comparative quantity of labour 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, in 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 warned to depart 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 per cent, if by
removing his capital he can obtain a profit of 15 per cent. 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 effected: it is probably effected,
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 monied
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 has always 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 monied 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 they were 20, in another 25, and
in another 30 per cent, they would probably continue permanently with
that relative difference, and with that difference only; for if any cause
should elevate the profits of one of these trades 10 per cent 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 woollens; their natural price,
the quantity of labour necessary to their production, would continue
unaltered, but the market price of silks would rise, and that of woollens
would fall; and consequently the profits of the silk manufacturer would
be above, whilst those of the woollen 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 labour from the woollen to the silk manufacture; when the
market prices of silks and woollens 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 labour necessary to their production, and all
other expenses required to put the capital employed in its original state
of efficiency, the remaining value or overplus will in each trade be in
proportion to the value of the capital employed.
In the 7th chap. 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 labour, 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 causes. 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 5
Of Wages
Labour, 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 labour is that price which is necessary
to enable the labourers, one with another, to subsist and to perpetuate
their race, without either increase or diminution.
The power of the labourer to support himself, and the family which
may be necessary to keep up the number of labourers, 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
labour, therefore, depends on the price of the food, necessaries, and
conveniences required for the support of the labourer and his family.
With a rise in the price of food and necessaries, the natural price of
labour will rise; with the fall in their price, the natural price of labour
will fall.
With the progress of society the natural price of labour 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, whence provisions may be
imported, may for a time counteract the tendency to a rise 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
labour.
The natural price of all commodities, excepting raw produce and
labour, has a tendency to fall, in the progress of wealth and population;
for though, on one hand, they are enhanced in real value, from the rise
in 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 labour, and by the increasing skill,
both in science and art, of the producers.
The market price of labour is the price which is really paid for it, from
the natural operation of the proportion of the supply to the demand;
labour is dear when it is scarce, and cheap when it is plentiful. However
much the market price of labour may deviate from its natural price, it
has, like commodities, a tendency to conform to it.
It is when the market price of labour exceeds its natural price, that the
condition of the labourer 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 labourers is increased, wages
again fall to their natural price, and indeed from a re-action sometimes
fall below it.
When the market price of labour is below its natural price, the
condition of the labourers 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
labour has increased, that the market price of labour will rise to its
natural price, and that the labourer 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 labour 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 labour 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, &c. necessary to give effect to labour.
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 labour 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 while
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 labour 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,
but may actually have a less.
In the first case, the natural price of labour, 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 labour; in proportion to the work to be
done will be the demand for those who are to do it.
In both cases too the market price of labour 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 effected.
The situation of the labourer will be improved, but not much improved;
for the increased price of food and necessaries will absorb a large
portion of his increased wages; consequently a small supply of labour,
or a trifling increase in the population, will soon reduce the market
price to the then increased natural price of labour.
In the second case, the condition of the labourer 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 labour 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 labour will rise; but the permanence of
their rise will depend on the question, whether the natural price of
labour has also risen; and this again will depend on the rise in the
natural price of those necessaries on which the wages of labour are
expended.
It is not to be understood that the natural price of labour, 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.(14*) It essentially depends on the habits and
customs of the people. An English labourer 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; yet 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 luxuries 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 labourer, 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, but 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 causes:
1st. The supply and demand of labourers.
2dly. The price of the commodities on which the wages of labour are
expended.
In different stages of society, the accumulation of capital, or of the
means of employing labour, is more or less rapid, and must in all cases
depend on the productive powers of labour. The productive powers of
labour are generally greatest when there is an abundance of fertile land:
at such periods accumulation is often so rapid, that labourers cannot be
supplied with the same rapidity as capital.
It has been calculated, that under favourable circumstances
population may be doubled in twenty-five years; but under the same
favourable 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
labour 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
labourers were not supplied by more populous countries, this tendency
would very much raise the price of labour. In proportion as these
countries become populous, 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, viz. to the smaller number of persons employed in
production. Although, then, it is probable, that under the most
favourable 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, for production cannot
keep pace with it.
With a 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
labouring 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 superabundant
population. 1 In those countries, where the labouring classes have the
fewest wants, 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 labour will have a
tendency to fall, as far as they are regulated by supply and demand; for
the supply of labourers 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 2 per
cent, they would fall when it accumulated only at the rate of 1 1/2 per
cent. They would fall still lower when it increased only at the rate of 1,
or 1/2 per cent, 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 labourers; but 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