THE WORKS

AND CORRESPONDENCE OF

DAVID RICARDO

volume 1

plan of the edition

volume

I. Principles of Political Economy and Taxation

II. Notes on Malthus

III. Pamphlets and Papers, 1809–1811

IV. Pamphlets and Papers, 1815–1823

V. Speeches and Evidence

VI. Letters, 1810–1815

VII. Letters, 1816–1818

VIII. Letters, 1819–June 1821

IX. Letters, July 1821–1823

X. Biographical Miscellany

XI. General Index

THE WORKS

AND CORRESPONDENCE OF

David RicardoEdited by Piero Sraffa

with the Collaboration of M. H. Dobb

8volume 1

On the Principles ofPolitical Economy and

Taxation

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The works and correspondence of David Ricardo / editedby Piero Sraffa; with the collaboration of M. H. Dobb.

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CONTENTS OF VOLUME I

General Preface page vii

Introduction xiii

Table of Section-Headings of Chapter I in eds. 2 and 3 lxiii

Tables of Concordance for part of Chapter I ineds. 1, 2 and 3 lxiv

ON THE PRINCIPLES OF POLITICALECONOMY, AND TAXATION page 1

Preface 5

Advertisement to the Third Edition 8

Contents 9

Index 430

Table of corresponding pages in various editions 443

facsimiles

Pages of edition 1 showing double numbering ofChapters V and VIII (reduced) xxvii, xxix

Title-pages of editions 1, 2 and 3 1–3

GENERAL PREFACE

When Ricardo’s Letters to Trower were published in 1899 (the lastof three similar collections) the editors of that volume remarked intheir Introduction: ‘Two appreciable desiderata still remain—literaryevidence of his long and close intimacy with James Mill, and theimportant “Notes on Malthus”’. They concluded that furtherknowledge of Ricardo would have to wait ‘until some fortunateaccident or more successful search’ brought these to light. The Noteson Malthus have since been found and published; and the last biggap is now filled by the discovery of both sides of the extensivecorrespondence between Ricardo and James Mill which is herepublished for the first time.

Moreover, the letters of Malthus to Ricardo have been foundand are first published in the present edition. Of these, longbelieved lost, Professor Foxwell had written in 1907 (when pub-lishing in the Economic Journal a solitary letter which had survived):‘The loss of Malthus’ share in this correspondence may be rankedby economists next to that other literary disaster, the destructionof David Hume’s comments on the “Wealth of Nations.” ’1

It is perhaps unique in economic literature for the writings, lettersand speeches of one thinker to have such unity of subject matter (asis the case with Ricardo) that, although his works and correspon-dence are extant almost complete, they admit of publication virtuallyin their entirety as being all of them of interest to the economist.A certain amount of repetition is inevitable in the publication in fullof this material. Nevertheless, to have the same doctrines presentedat successive stages of their development, in varied contexts and todifferent audiences has evident advantages. At the same time somuch of Ricardo’s writing consists of discussion with contemporariesas to require the inclusion of much of their contribution in the formof letters and extracts from writings and speeches.

Most of the new material in the present edition will be found inthe four volumes of Letters (vols. VI–IX). Besides the correspon-

1 But see vol. XI, p. xxvii.

viii General Preface

dence with Mill and the letters from Malthus and other correspondents,these volumes include a number of new miscellaneous letters ofRicardo. Altogether well over half of the 555 letters have not beenpreviously published. Several new papers and notes are appendedto the volumes of Pamphlets and Papers (vols. III–IV): of thesethe one most likely to attract attention is the unfinished paperon ‘Absolute Value and Exchangeable Value’ on which Ricardohad been engaged in the last weeks of his life. The speeches in theHouse of Commons, hitherto scattered over eleven volumes of Han-sard, have been collected in vol. V, which also contains his speecheson other occasions and his evidence to Parliamentary Committees.The Notes on Malthus in vol. II are accompanied by the relevanttext of Malthus. For the Principles in vol. I the variants of the severaleditions are given in full in notes and are analysed in the Introduction.In general, editorial Introductions or Notes, which are prefixed toeach of Ricardo’s works, are confined to an account of the immediateoccasion from which that work arose and of the circumstances inwhich it was written.

When the search for unpublished manuscripts for the presentedition started in 1930 a large box labelled ‘Papers of the lateD. Ricardo, Esq. M.P.’ was discovered by Mr Frank Ricardoat Bromesberrow Place, near Ledbury, formerly the residence ofRicardo’s eldest son, Osman. This, which had lain untouched fornearly a hundred years, turned out to contain practically all theletters of permanent interest received by Ricardo as well as draftsand other papers of his own. It has been the largest single sourceof new material and it constitutes the bulk of what in the presentedition is referred to as the ‘Ricardo Papers’ (abbreviated to ‘R.P. ’).A bundle of similar papers, which had become separated from themain body, was found earlier by Mr Frank Ricardo and these werepublished by Professor J. H. Hollander while the present edition wasin preparation, so that it was possible to include them as well. Othermanuscripts were subsequently traced, among them being smallergroups of letters to John Murray, to Francis Horner and to J.-B. Say.

The result was that all the series of Ricardo’s letters to his chiefcorrespondents and theirs to him were to hand, except his letters to

General Preface ix

James Mill. Yet it was just these which, having presumably beeninherited by John Stuart Mill, one might have expected above allto be preserved. There was, on the other hand, Bain’s disquietingstatement in the preface to his biography of James Mill (1882) that‘several valuable collections of letters have been destroyed.’ More-over, while the papers of John Stuart Mill, which were dispersedat auction in 1922, included a parcel containing letters addressed toJames Mill, none of these when traced to their ultimate buyers provedto be from Ricardo. Years of systematic enquiry among the numerousdescendants of Mill and their executors and friends in all parts ofthe world met with no success; and it looked as though this editionwould have to appear with the last gap no more than half-filled.

Then, in July 1943, quite unexpectedly, a locked metal box wasfound by Mr C. K. Mill in the house of his father-in-law, Mr F. E.Cairnes, at Raheny, Co. Dublin; and on the box being opened bya locksmith the first thing to appear was a brown paper parceladdressed to J. S. Mill, Esq., India House, City, and inscribed‘Mr David Ricardo’s Manscripts’. This parcel proved to containthe whole series of letters to Mill as well as a number of new writingsof Ricardo which also had belonged to James Mill. All the paperswere promptly and generously placed at the disposal of the editorby the owners, through the good offices of Professor O’Brienand Professor Hayek. Reporting to Lord Keynes on the importanceof this discovery, Professor O’Brien wrote from Dublin: ‘It canalmost be compared with the find of the Boswell manuscripts in thebox at Malahide Castle. Curiously enough Malahide Castle andRaheny, where Mr Cairnes lives, are quite close together.’

The remaining contents of the box were papers of John ElliotCairnes, the economist, who was father of Mr F. E. Cairnes. TheRicardo manuscripts had no doubt come to him from his intimatefriend John Stuart Mill, either directly or more probably through thelatter’s literary executrix, Miss Helen Taylor.

Previous to this, by the summer of 1940, six volumes of thepresent edition had been set up in page-proof, while the volumeof Speeches and Evidence had reached the stage of galley-proofs.The discovery of these ‘Mill-Ricardo papers’ made it necessary,

x General Preface

when work on the edition was resumed after the war, to break up thethree volumes of letters (since they were arranged in chronologicalorder) and to expand them to four volumes. At the same timethe additions to the volume of Pamphlets and Papers required itsdivision into two volumes. The resultant nine volumes are nowin course of publication; and it is hoped to complete the Worksand Correspondence of Ricardo with a volume of biographical andbibliographical miscellany, and a General Index.

In 1948 Mr Maurice Dobb came in to assist with the editorial work,in particular being associated in the writing of the Introductions tovols. I, II, V and VI.

The fact that such a long time has elapsed since much of the earlywork on this edition was carried out has resulted in certain anomaliesin editorial references. This will be specially noticeable in the caseof references to persons who have died in the interim. Moreover,in some cases, manuscripts which are mentioned as being in thepossession of a private owner have been transferred to publiccollections (and others may be before this edition is completed).It is hoped in the tenth volume to bring this type of informationup-to-date.

It would be impossible to acknowledge in this Preface all thedebts incurred in the preparation of the present edition. Helpreceived in connection with particular points is mentioned in theappropriate places, and acknowledgement here must be confined tothose persons to whom the greatest obligations have been incurredor whose help has extended to the edition as a whole.

The initiative in launching this enterprise was due to the lateLord Keynes, who to the end of his life showed the closest interestand lent his active support, particularly in the search for unpublishedmaterial and in advising on the planning and annotation of thevolumes. His successor as Secretary of the Royal Economic Society,Professor Austin Robinson, has continued his interest and assistanceto the progress of the edition. To both of them, as well as to theCouncil of the Society, a special debt must be acknowledged for theirforbearance toward the delays and interruptions in the editing ofthese volumes.

General Preface xi

Thanks are first of all due to the late Lt.-Col. H. G. Ricardo andto Mr Frank Ricardo for their generous cooperation and for per-mission to publish such of the writings of their ancestor as arecopyright; in particular to the former for the loan of books anddocuments at Gatcombe, and to the latter for his fruitful search formanuscripts, for making available those in his possession and formuch trouble taken in securing others. Acknowledgement mustalso be made to Mr C. K. Mill, to the late Mr F. E. Cairnes and toMr Robert Malthus for making available important collections ofpapers in their possession and for waiving any copyright that mightbelong to them; to Sir John Murray for the loan of letters and forvaluable information from the records of his publishing house; to thelate Sir Bernard Mallet for permission to quote extensively from theunpublished Diaries of John Lewis Mallet in his possession; to LadyLangman, M. Edgar Raoul-Duval and Professor H. E. Butler forallowing access to letters in their possession; to the Delegates of theOxford University Press, to The Johns Hopkins Press and to theAmerican Economic Association for permission to reprint writings ofRicardo published by them; and finally, for valuable assistance, adviceor information, to the late Dr James Bonar, Professor Jacob Viner,Professor F. A. Hayek, Professor George O’Brien, the late ProfessorEdwin Cannan, Sir Theodore Gregory, Mr Nicholas Kaldor andDr R. Mattioli.

Indispensable help of a general nature (apart from what is acknow-ledged in particular places) has been given at various times in thecapacity of editorial assistant by Dr Eduard Rosenbaum, Dr KarlBode, Mrs Barbara Lowe and, for shorter periods, Miss MargerySeward and Mrs Lucy Munby.

Finally, the editor must record a particular obligation to theprinters of the Cambridge University Press for the unfailing patienceand sure judgment upon which he has been able to rely throughoutthe twenty years that this edition has been ‘in the press’.

p. s.trinity collegecambridgeDecember 1950

1 Letter of 18 August 1815, below,VI, 249. Cp. Grenfell’s reference ina letter of 1 August 1815 to ‘the workwhich you have in Contemplation onthe Corn Trade’ (below, VI, 242),which was no doubt an allusion to an

enlargement of the Essay (whose fulltitle refers to the ‘Price of Corn’ and‘Restrictions on Importation’).2 Letter of 23 August 1815, below,VI, 252.3 Below, VI, 309.

INTRODUCTION

Summary. I. The Writing of the Principles, p. xiii. II. James Mill’sContribution, p. xix. III. Arrangement and Subdivision, p. xxii.IV. The Chapter On Value in Edition 1, p. xxx. V. Principal Changesin Chapter On Value in Eds. 2 and 3, p. xxxvii. VI. Edition 2, p. xlix.VII. Edition 3, p. liii. VIII. The Present Edition, p. lx.

I. The Writing of the Principles

The plan from which the Principles of Political Economy, andTaxation originated had taken shape soon after the publication ofthe Essay on the Influence of a Low Price of Corn on the Profits ofStock in February 1815. At first Ricardo’s intention (at James Mill’ssuggestion) had been merely to produce an enlarged version of theEssay. As he writes to J.-B. Say from his country house, GatcombPark, in August 1815: ‘Mr. Mill wishes me to write it over again atlarge’, adding immediately, ‘I fear the undertaking exceeds mypowers’.1 Mill, however, as he tells Ricardo in the same month, isdetermined to give him no rest till he is ‘plunged over head and ears inpolitical economy.’2 Six weeks later (on 10 October) the larger book isalready being treated by Mill as a definite commitment: ‘I expect youare by this time in a condition to give me some account of the progressyou have been making in your book. I now consider you as fairlypledged to that task.’3 On the 29th of the same month Ricardo iswriting to Trower of his determination to ‘concentrate all the talent’he possesses upon the subject on which his opinions ‘differ from thegreat authority of Adam Smith, Malthus &c.a’, namely ‘the principlesof Rent, Profit and Wages’. ‘For my own satisfaction I shall cer-tainly make the attempt, and perhaps with repeated revisions during

xiv Introduction

1 Below, VI, 315–16.2 ib. 314.3 ib. 321.4 Letter to Malthus, 7 Feb. 1816,below, VII, 19.

5 Below, VI, 326.6 ib. 330.7 ib. 338–40.8 ib. 348.

a year or two I shall at last produce something that may be under-stood.’1 On 9 November we find Mill, in reply to a discouragedletter from Ricardo (‘Oh that I were capable of writing a book!’2),assuming the role of ‘schoolmaster’ and commanding Ricardo ‘tobegin to the first of the three heads of your proposed work, rent,profit, wages—viz. rent, without an hours delay’.3

Throughout this period Ricardo was held back by difficulties ofcomposition. As he later complained to Malthus, ‘I make no progressin the difficult art of composition. I believe that ought to be mystudy’.4 Trower’s help consisted in the not very practical advice toconsult Dr Blair’s Lectures on Rhetoric and Belles Lettres.5 Mill,however, sent detailed instructions for the writing of the ‘opusmagnum’;6 by 22 December 1815 he is waiting ‘in anticipation of theMS’ which he expects ‘soon to receive, as part of the great work’;and in giving further instruction as to the mode of writing he insistsalways that Ricardo should consider his readers ‘as people ignorantof the subject’. Mill also sets him a ‘school exercise’: to give a proof,step by step, of the proposition which he (Ricardo) had often stated,‘That improvements in agriculture raise the profits of stock, andproduce immediately no other effects.’ ‘For as you are alreadythe best thinker on political economy, I am resolved you shall also bethe best writer.’7

It is remarkable that in these letters of October and November1815 which give the main headings of the proposed work (Rent,Profit, Wages) there is no reference to Value. This is mentioned forthe first time, as a separate subject with which it occurred to Ricardothat he would have to deal, in a letter to Mill of 30 December. ‘Iknow I shall be soon stopped by the word price,’ he writes, ‘and thenI must apply to you for advice and assistance. Before my readerscan understand the proof I mean to offer, they must understand thetheory of currency and of price.’8 From this time onwards theproblem of Value increasingly troubled him. On 7 February 1816 he

Introduction xv

1 Below, VII, 20.2 ib. 60.3 Letter to Malthus, 24 April 1816,ib. 28.4 Letter to Malthus, 28 May 1816,ib. 36.5 ib. 54.

6 ib. 58.7 ib. 60.8 Ricardo to Mill, 8 September, andMill to Ricardo, 6 October 1816,ib. 65–6, 73.9 ib. 82–4.10 ib. 71.

writes to Malthus: ‘If I could overcome the obstacles in the way ofgiving a clear insight into the origin and law of relative or ex-changeable value I should have gained half the battle.’1

In February 1816 he moved to London, whither he brought hispapers, some of which he read to Mill while he was there.2 But intown the work made no progress. ‘I may continue to amuse myselfwith my speculations, but I do not think I shall ever proceed further.Obstacles almost invincible oppose themselves to my progress, andI find the greatest difficulty to avoid confusion in the most simple ofmy statements.’3 A month later he is writing: ‘My labours havewholly ceased for two months;—whether in the quiet and calm ofthe country I shall again resume them is very doubtful.’4

In July, back at Gatcomb, he resumed work; having (as he writesto Mill) ‘little temptation to desert my work for the pleasure ofwalking or riding, as the weather has been almost uniformly bad’,yet not able ‘wholly to seclude myself ’.5 But although Ricardo’sletters continued ‘so much in the old desponding tone’,6 by themiddle of August Mill could infer that he must have by that time‘a pretty mass of papers, written first and last upon the subject’:papers which Mill asked to have sent to him, arranged by subjects ifpossible, with ‘some indication of what each subdivision is about’,or else ‘higgledy-piggledy all together’.7 Despite Mill’s insistence,Ricardo delayed sending the manuscript for two months, under thepretext that he must copy it out.8 Eventually, on 14 October 1816 hesent an extensive draft, covering the ground of the first seven chapters,or the whole of the ‘Principles of Political Economy’ proper; addingin the letter to Mill in which he announced their despatch, ‘I shall nowconsider the subject of taxation’.9

The real reason for the delay was that he had ‘been very muchimpeded by the question of price and value’ (as he wrote to Malthus),10

and that (as he informed Mill) he had ‘been beyond measure puzzled

xvi Introduction

1 Below, VII, 83–4. Cp. Trower’sreference to the ‘two months’ lost byRicardo in ascertaining the error ofhis own theory (ib. 95).

2 ib. 82.3 ib. 98–9.

to find out the law of price.’ ‘I found on a reference to figures thatmy former opinion could not be correct and I was full a fortnightpondering on my difficulty before I knew how to solve it.’1 Thisimportant change was evidently connected with the ‘curious effect’(to which he called Mill’s attention in the same letter) of a rise ofwages in lowering the prices of ‘those commodities which are chieflyobtained by the aid of machinery and fixed capital’.2

A letter from Mill of 18 November 1816 written immediatelyafter reading the MS and making ‘marginal contents’ for his ownuse, enables us to reconstruct the contents of that MS with the helpof the text of the first edition; for Mill’s comments touch on the maintopics in the order in which they were treated under four heads.3

1. ‘Your explanation of the general principle that quantity oflabour is the cause and measure of exchangeable value, excepting inthe cases which you except, is both satisfactory, and clear.’

2. ‘Your exposition and argumentation to shew, in opposition toA. Smith, that profits of stock do not disturb that law, are luminous.So are the exposition and argumentation to shew that rent alsooperates no such disturbance.’

Up to this point Mill finds the argument ‘clear, and easily under-stood’. He continues his comments on the MS as follows:

3. ‘At page 79 you begin the enquiry concerning the causes ofalterations in the state of wages; and from this to p. 105, I think thetopics are somewhat mixed together...I consider the inquiry in thesepages as an inquiry not into the causes of change in the rate of wagesalone, but the causes of changes in the wages, profits, and rentall together.’ This is undoubtedly the part which underwent thegreatest alteration before publication; and probably included dis-cussion of that ‘curious effect’ which had cost Ricardo so muchtime and thought during the summer and which eventually appearedin the chapter On Value in edition 1. Ricardo no doubt had thesepages in mind when he wrote to Mill: ‘They are worse than theyotherwise would be in consequence of my becoming better acquainted

Introduction xvii

1 ib. 82.2 So much material (the last part ofthe chapter On Value) was insertedbetween the two arguments on profitsand on rent that the connection be-tween them was obscured. Indeed,in edition 3 the passage establishingthat connection (p. 22–3, n. 3) is

omitted altogether; while, somewhatincongruously, the opening sentenceof the chapter On Rent, which pre-supposes that connection (‘It remainshowever to be considered’), is pre-served in all editions. Cp. also p. 78,n. 1.

with the subject as I have proceeded. Much of what is said in thebeginning should be left out or altered to agree with what I thinkthe more correct views which I afterwards adopted.’1

4. Mill goes on to deal with ‘the inquiry concerning foreigntrade, which commences at p. 106, and continues to the end’. Thepropositions which he mentions are: ‘That foreign trade augmentsnot the value of a nations property: that it may be good for a countryto import commodities from a country where the production of thosesame commodities costs more, than it would cost at home: thata change in manufacturing skill in one country, produces a new dis-tribution of the precious metals’.

Of the four parts of this draft all but the third can easily beidentified in the Principles in a form which, from its agreement withMill’s description, appears to be substantially unchanged in the firstedition.

Thus the first part, consisting of the statement of the law of value,with its exceptions (rare statues, etc.), will be found below, p. 11 top. 22.

Of the second part, the statement in opposition to Adam Smiththat the law is not disturbed either by the payment of profits or bythe payment of rent appears in the passage of edition 1 given below,p. 22–3, note 3; the full argument regarding profits is on pages 22 to26 (first paragraph) in the chapter On Value; that regarding rent ison pages 67 to 78 (first paragraph) in the chapter On Rent.2

And of the fourth part (the enquiry into Foreign Trade) the pointsnoted by Mill will be found, in the same order, as follows: (a) thatForeign Trade does not add to value, below, p. 128 to p. 133 (secondparagraph); (b) the theory of comparative costs, below, p. 133 top. 137 (first paragraph); (c) the redistribution of the precious metalsfollowing a change of skill in one country, below, p. 137 to p. 141

xviii Introduction

1 Below, VII, 87–8, 106.2 ib. 107.3 ib. 115.4 Letter to Mill, 17 Nov. 1816, ib. 88.

5 ib. 100–1, 115.6 ib. 120 and 139–40.7 ib. 140.

(third paragraph). This covers rather more than half of the chapterOn Foreign Trade in the Principles.

On the other hand, the enquiry into wages (occupying page 79to page 105 of the MS draft), which Mill considered confused withthe enquiries into profits and rent, has no exact counterpart in thepublished work. No doubt the material which it contained, greatlyexpanded, was partly embodied in the chapter On Value and for therest distributed over the chapters On Natural and Market Price, OnWages and On Profits.

Having despatched the first parcel of MS and having set to workon taxation, Ricardo by 17 November 1816 had completed and sentto Mill the ‘inquiry into the subject of Taxation’ (as Mill describedit).1 This part, Mill thought, would require more work than the firstone before it was ready for the press: ‘you have followed the orderof your own thoughts,’ and the matter would need re-arrangementso as ‘to facilitate introduction into the minds of your readers’.2

Up to this point what Ricardo had done was (as he wrote toMalthus) ‘rather a statement of my own opinions, than an attempt atthe refutation of the opinions of others’.3 Having finished taxation,he proceeded ‘to read Adam Smith once more, to take note of allpassages which very much favor, or are directly opposed to mypeculiar opinions’;4 he also re-read Say’s Traite d’Economie politiqueand Buchanan’s commentary on the Wealth of Nations and made notesof his own criticisms.5 These criticisms formed the basis of the groupof controversial chapters which follows the chapters on taxation.Finally, at the end of January he read again Malthus’s pamphlets onrent and corn, and early in March, while printing was in progress, hesent to Malthus the MS of his last chapter, which contains his com-ments upon them.6

The printing of the Principles began at the end of February 1817.At first it went on briskly at the rate of a sheet a day, as Ricardo wroteto Malthus, and by 9 March eleven sheets, out of a total of thirty-eight, had been corrected.7 In the Monthly Literary Advertiser of

Introduction xix

1 ib. 145.2 ib. 147.3 ib. 148.4 Autobiography, 1873, p. 27.5 Annual Biography and Obituary,for the Year 1824, p. 374. McCulloch

makes a similar statement, probablyderived from the above, in thenumerous versions of his Life andWritings of Mr. Ricardo (omitting inthe later ones any reference to Mill).

10 March it was included in Murray’s list of works ‘in the Press’.On 26 March, when Ricardo put the last part of his manuscript intothe printer’s hands, he complained that the latter did ‘not proceedregularly at the same even pace’.1 But he still hoped that it wouldbe out on Monday, 7 April, which appears to have been the dateoriginally fixed for its appearance.2 However, publication was delayed,and the final date was announced in The Day and New Times ofWednesday, 16 April, where the book was advertised by Murrayunder the caption, ‘On Saturday will be published’. The date wasconfirmed in the same paper of Saturday, 19 April, with an advertise-ment opening ‘This Day will be published’ and giving the price, 14s.Since Trower on 28 April wrote to Ricardo from Godalming thankinghim for the book ‘which arrived a few days ago’,3 it could not havebeen sent much later than the 19th. We can therefore take this(19 April 1817) as the date of publication.

II. James Mill’s Contribution

John Stuart Mill says in his Autobiography that Ricardo’s Principles‘never would have been published or written, but for the entreatyand strong encouragement of my father; for Ricardo, the most modestof men, though firmly convinced of the truth of his doctrines,deemed himself so little capable of doing them justice in expositionand expression, that he shrank from the idea of publicity’.4 In asimilar strain the obituary, probably written by Ricardo’s brother,says that he was ‘very reluctant, first to write, and afterwards topublish this work; and it was only by the successive urgings of someof his most confidential friends, but particularly through the influenceof Mr. Mill, that he was at length prevailed upon to do so.’5 Thesestatements, if they are taken to refer to James Mill’s influence instimulating and encouraging Ricardo, are fully borne out by the

xx Introduction

1 His obligations to Mill in thisrespect are summed up by Ricardo ina letter of 2 Dec. 1816: ‘If I am suc-cessful in my undertaking it will be toyou mainly that my success will beowing, for without your encourage-ment I do not think that I should haveproceeded, and it is to you that I lookfor assistance of the utmost impor-tance to me—the arranging thedifferent parts, and curtailing whatmay be superfluous.’ (Below, VII,101.)2 C. F. Dunbar, ‘Ricardo’s Use ofFacts’, in Quarterly Journal ofEconomics, July 1887, vol. i, p. 475.

3 ‘He was with difficulty induced topublish it; and if in writing it he hadin view any readers at all, they werechiefly those statesmen and businessmen with whom he associated. So hepurposely omitted many things whichwere necessary for the logical com-pleteness of his argument, but whichthey would regard as obvious.’A. Marshall, Principles of Economics,Appendix on ‘Ricardo’s Theory ofValue’, 8th ed., p. 813 and cp. p. 761 n.4 Below, VII, 88.5 Below, VI, 320–1.6 ib. 321.

correspondence between Ricardo and Mill.1 Nevertheless, they areopen to misunderstanding. For they have given rise to the view,first advanced by Professor Dunbar, that ‘Ricardo’s book waswritten, not for the public eye, but as a statement of opinionsmade for his own purposes, and that its publication was an after-thought of his friends.’2 Through its acceptance by Marshall3 thisbelief has gained general currency. The Ricardo-Mill correspondencenow makes it certain that this opinion is unfounded, and that fromthe very beginning the idea of publication was present in Ricardo’smind, although from time to time he was beset by doubts as to hisability to achieve his object (as has been shown in several passagesquoted above). A typical statement is the following which he madein a letter to Mill when he was in the middle of composition inNovember 1816: ‘I have an anxious desire to produce somethingworth publishing, but that I unaffectedly fear will not be in mypower.’4

At the same time it is clear that Mill’s contribution to the makingof the Principles was less than might have been expected from hispromises and encouragement. On the theory there is little doubtthat his influence was negligible; he had been out of touch withPolitical Economy for some time5 and his letters to Ricardo containlittle discussion of theoretical issues. Mill’s letters of this period arefull of advice relating to ‘the art of laying down your thoughts, inthe way most easy of apprehension’.6 But despite his repeated as-surances that he would see to the order and arrangement (‘if you

Introduction xxi

1 ib. 321.2 Below, p. 106. The old-fashioneduse of the negative is a peculiarity ofMill, as Bain points out ( James Mill,p. 426). Another passage in which itoccurs (below, p. 64: ‘if wages par-took not...’) shows also other signsof, at least, revision by Mill.3 Below, p. 107.4 ib. 352.5 That the first three paragraphs ofthe Preface are stamped with Mill’s‘tone and style’ has been noticed bySimon N. Patten, ‘The Interpretationof Ricardo’, in Quarterly Journal ofEconomics, April 1893, vol. vii,p. 338.6 Below, pp. 105–9.

7 Compare e.g. the following entrieswith the passages referred to: ‘Popu-lation, increase of, no cause of the riseof rent, 410, 411.’ ‘Labour, AdamSmith’s theory of productive and un-productive labour, considered, 76–77,notes.’ ‘Value, Effects of payment ofrent on value, 64, 65.’ ‘Smith, Stric-tures on his doctrine relative to labourbeing the sole ultimate standard of theexchangeable value of commodities,16, 17, 416.’ The same applies toadditions to the Index made in ed. 3:e.g. under Taxes, entry stating thata tax on rent ‘discourages cultivation,173–5.’ (Page-references are to thepresent edition.)8 ‘Ricardo on Political Economy’, inMonthly Review, Dec. 1820, p. 416.

entrust the inspection of it to me’1) it seems likely that in the mainthe sequence of topics was left as Ricardo had originally workedthrough them. In detail however Mill probably did a good deal ofwork. Here and there a phrase unmistakeably characteristic of Mill(such as ‘It is a truth which admits not a doubt’,2 ‘the nature of theevil points out the remedy’,3 or ‘none but the prejudiced are ignorantof its true principles’4) provides evidence of his hand. His touch canalso be recognised in the polished wording of the Preface5 and in thelong passage on the ‘pernicious tendency’ of the poor laws.6

Among Mill’s more humble tasks was probably the compilationof the Index, which in method and clarity of expression is strikinglysimilar to the Index of his History of British India, published laterin 1817. It is noticeable that several entries exhibit misunderstandingof the text or radical change of emphasis such as to suggest that theycannot be by the author of the book.7 At any rate contemporarycritics of Ricardo seized upon the contrast between the language ofthe text and that of the Index, to the disadvantage of the former.Thus, one of them says that Ricardo ‘relied for a correction of hisdeficient perspicuity on his Index, which is clear and minute’.8

Another, Samuel Bailey, notes: ‘the only place in Mr. Ricardo’swork, where I have been able to find the expression of the generalrule properly qualified, is the Index. He there says, “the quantity of

xxii Introduction

1 A Critical Dissertation on the Nature,Measures, and Causes of Value,London, Hunter, 1825, pp. 213–14.2 Below, VII, 108.3 A number of commentators, fromDe Quincey to Marx, have suggestedways of rearranging the chapters in alogical order. (See ‘Dialogues ofThree Templars’, in De Quincey’sWorks, ed. Masson, vol. ix, p. 53,and Marx’s Theorien uber den Mehr-wert, vol. II, 1, pp. 5–6. For severalother attempts see J. H. Hollander,David Ricardo, A Centenary Estimate,Baltimore, 1910, p. 82.)4 Letter from Mill, 14 August 1816,below, VII, 60.

5 Letter from Mill, 16 Dec. 1816, ib.108–9. It is interesting that it wasonly at this late stage in the prepara-tion of the book (December 1816)that Mill put to Ricardo the questionwhether he would ‘chuse to includein it a view of the whole science’: ‘Or,whether you will content yourselfwith those parts of the science whichyou yourself have improved.’ (ib. 107.)To which Ricardo replied that itwould be easier for him to publishonly those parts which had ‘particu-larly engaged’ his attention; addingthat, if this were favourably received,he might later ‘take a view of thewhole science.’ (ib. 112.)

labour requisite to obtain commodities the principal source of theirexchangeable value.”’1

The accurate yet free translation of the passages quoted from Sayis probably also due to Mill, who had advised against quotation inFrench.2

III. Arrangement and Subdivision

Thus Mill’s promises that, once Ricardo had set down his thoughtson paper, he himself would attend to their proper arrangement mayin the event have fallen short of fulfilment. In any case, the result isnot such as to do much credit to Mill’s passion for system; and theapparent defects in the arrangement of the work as a whole haveoften been noted by Ricardo’s critics.3

This arrangement was the direct result of the manner in whichRicardo proceeded in his work. As his letters show, he wrote ac-cording to the sequence of his own ideas, without any more elaborateplan than was implied in the heading, ‘Rent, Profit and Wages’.Mill, indeed, had instructed him to ‘proceed, without loss of time...thinking nothing of order, thinking nothing of repetitions, thinkingnothing of stile—regarding nothing, in short, but to get all thethoughts blurred upon paper some how or another’.4 ‘When wehave the whole before us, we will then lay our heads together, to seehow it may be sorted and shaped to the best advantage.’5 The threeparts in which Ricardo composed it and which he sent separately toMill correspond to the three groups into which the chapters of the

Introduction xxiii

1 Vol. i, p. 196, note: ‘See a Disserta-tion on the Principles of Taxation,the most profound, by far, which hasyet been given to the world, byDavid Ricardo, Esq. in his work “Onthe Principles of Political Economyand Taxation.”’ This footnote wasno doubt inserted in the proofs whichMill was correcting when he receivedthat part of Ricardo’s MS (cp. below,VII, 106 and 111).2 Below, VII, 100.

3 Letter to McCulloch, 13 June 1820,below, VIII, 194.4 Another question which immediate-ly arises out of this subject (and alsolacks any obvious connection withPoor Rates) is that of extending thenotion of Rent to include the returnon such capital as cannot be withdrawnfrom the land. This was made thesubject of a long footnote attached tothe end of the chapter on Poor Rates.

published work naturally fall: the Political Economy, Taxation andthe polemical chapters at the end. The arrangement would have beenless open to criticism if this division had been made explicitly bymeans of separate headings. Mill indeed at an early stage had ex-pected such a division to be made, as is shown by a footnote in hisHistory of British India, 1817, where he refers to the group of Ricardo’schapters dealing with taxes as ‘a Dissertation on the Principles ofTaxation’.1 And Ricardo in a letter to Mill of the same period(December 1816) describes that part of the book to which most ofhis criticisms of Adam Smith were to be relegated as ‘the appendix’.2

However, within each of the first two parts the order of thechapters coincides closely with the order in which the topics aretreated in the Wealth of Nations, as comparison of the chapter-headings shows (see table on the following page).

The only important difference is in the place given to Rent, whichwas dictated by the necessity for Ricardo of ‘getting rid of rent’ (ashe put it), in order to simplify the problem of the distribution betweencapitalist and labourer.3 As a result, unlike Adam Smith, he dealswith Rent immediately after Value and before Wages and Profits.

The parallel applies equally to Taxation (see table on p. xxv).This group of chapters on taxation is followed by Chapter XVII,

On Sudden Changes in the Channels of Trade (numbered XIX ined. 3), the position of which is determined by its arising immediatelyout of the subject of the removal of capital from one employment toanother, discussed at the end of the chapter on Poor Rates.4 Thethird, and last, group consists of the chapters commenting uponvarious doctrines of Adam Smith and other writers, forming ‘the

xxiv Introduction

1 Below, VII, 107. 2 ib. 112.

Political Economy

Adam Smith, Book i Ricardo, Ed. i

Ch. v Of the real and nominal Price ofCommodities

Ch. i On Value

Ch. vi Of the component Parts of thePrice of Commodities

Ch. ii On RentCh. iii On the Rent of Mines

Ch. vii Of the natural and Market Priceof Commodities

Ch. iv On Natural and MarketPrice

Ch. viii Of the Wages of Labour Ch. v On Wages

Ch. ix Of the Profits of Stock Ch. v* On Profits

Ch. x Of Wages and Profit in thedifferent Employments ofLabour and Stock1

Ch. xi Of the Rent on Land

Ch. vi On Foreign Trade

1 This is treated by Ricardo in the Chapter on Value, in the five paragraphs which were later to constituteSection ii of this chapter; below, pp. 20–2.

appendix’ or a series of critical excursuses, with little connection eachwith the other.

It was only after the whole was written that thought was givento the question of subdivision. As late as 16 December 1816, afterreceiving the MS both of the Political Economy and of Taxation,Mill asks: ‘And how would you arrange it in Chapters and Sections?Think of your Chapters and Sections; and when you have made outa list send it to me’.1 To this Ricardo replies: ‘as for the division intochapters, and sections, I am greatly afraid that I shall be unequal to it.’2

Thus the process of cutting up the undivided work into chaptersbegan after writing was completed; indeed, it went on while theprinting was in progress, and the last cut was made after the bookhad actually been printed off. As we shall presently see it is by thislate subdividing that the puzzling anomaly of ed. 1, namely the

Introduction xxv

1 See Cannan, A Review of Economic Theory, p. 243.

Taxation

Adam Smith, Book v, Ch. ii, Part ii Ricardo, Ed. i

Of Taxes Ch. vii On Taxes

Ch. viii Taxes on RawProduce

Art. ist Taxes upon Rent Ch. viii* Taxes on RentTaxes upon Rent of Land

Taxes which are proportioned,not to the Rent, but to theProduce of Land

Ch. ixCh. x

TithesLand-Tax

Ch. xi Taxes on Gold

Taxes upon the Rent of Houses Ch. xii Taxes on Houses

Art. 2d Taxes upon Profit, or upon theRevenue arising from Stock

Taxes upon the Profit of partic-ular Employments

Ch. xiii Taxes on Profits

Art. 3d Taxes upon the Wages ofLabour

Ch. xiv Taxes on Wages

Art. 4th Taxes . . . upon every differentSpecies of Revenue

Capitation Taxes

Taxes upon Consumable Com-modities

Ch. xv Taxes upon otherCommoditiesthan Raw Produce

Ch. xvi Poor Rates

double numbering of chapters, can be explained; and not, as it wouldbe natural to suppose,1 by the insertion of additional matter as anafterthought. Of this double numbering there are two instances.

The first instance is that of the chapters On Wages and On Profits,both of which are headed ‘Chapter V’. In the table of contents,however, while the former is numbered ‘V’, the latter appears as‘V*’. It is unlikely that this duplication was in the MS which wassent to the printer; since presumably Ricardo had made (as Mill hadinstructed him to do) a list of his chapters, and in such a list duplica-

xxvi Introduction

1 First proofs were in page galley,not in the long galley which is usualat the present time.

2 Letter to Malthus of 9 March 1817,below, VII, 140.

tion could scarcely have been overlooked. It can be conjectured,therefore, that in the MS the matter of what are now Chapter IV,On Natural and Market Price, and Chapter V, On Wages, formeda single Chapter IV (presumably entitled ‘On Wages’) and thatthey were then subdivided during the revision of the proofs; thetitle of Chapter IV being altered and a new chapter-division (ChapterV, On Wages) introduced. The close link between these two chapters(which in the first draft sent to Mill had no doubt been among thetopics ‘mixed together’) is shown by the continuity of the argumentwhich in the chapter On Wages opens (and continues for severalpages) in terms of the natural and market price of labour. Moreover,the statement at the end of Chapter III (below, p. 87) that he wouldcontinue the supposition of the invariable value of gold ‘in thefollowing chapter ’, must have been written when the two followingchapters were undivided, since the ‘supposition’ is only relevant tothe subject matter of what was to become Chapter V, On Wages.Further, it is a typographical peculiarity of the original edition 1 thatthe text of the last page of the former of these two chapters and thatof the first page of the latter (namely pp. 89 and 90 of ed. 1), if puttogether, form exactly a normal full page (see facsimile opposite). Ifwe assume that they were so joined together in the first proof, theprinter could make the subdivision without disturbing the setting ofthe subsequent pages1—at the expense only of making the openingpage of the chapter On Wages two or three lines longer (as turns outto be the case) than the opening page of a chapter would normallybe. As Ricardo was receiving a sheet of proofs a day,2 he could notimmediately adjust the numbering of the subsequent chapters; and,as he was presumably returning them at once, he would never havethe two chapters numbered V simultaneously before him. Thus theduplication would only be detected when the table of contents cameto be compiled, after the body of the book had been printed off.

The explanation in the second instance is based on strongerevidence; and it is, indeed, by analogy with this case that our con-

xxviii Introduction

1 This is the case in all the copiesexamined. It would be of interest ifa copy were to be found in which the

binder had failed to carry out thereplacement.

jecture about the first derives support for its own rather slenderfoundation. This second case concerns the chapters ‘Taxes on RawProduce’ and ‘Taxes on Rent’ which are respectively numberedVIII and VIII*, the asterisk appearing both in the chapter-headingand in the table of contents. Our suggestion is that these two at onetime formed a single chapter (numbered VIII and entitled ‘Taxes onRaw Produce’) and that they were separated, not in the revision ofthe proofs, but at a much later stage—after the Index had beencompiled and indeed after the book had been printed off: so that thepages affected had to be reprinted, and substituted by the binder inevery one of the 750 copies of the edition.1

The existence of these ‘cancels’, as they are called, becomesapparent on examination of copies bound in paper boards as theywere originally published. Three leaves are affected (the 6th, 7th and8th of the sheet ‘signed’, or lettered, P); that is to say, six pages,including the last two pages of ‘Taxes on Raw Produce’ and thefour pages of ‘Taxes on Rent’ (pp. 219–224 of edition 1, corre-sponding to pp. 171–175 below). These three leaves are visiblypasted in, to replace an equal number cut off, the flaps of whichjut out between the pages—in some copies so much as half an inch.That they were printed separately from the sheet is conclusivelyproved by the fact that the first two of them are ‘conjugate’, that isto say joined together at the back, thus forming a single piece ofpaper even after the book has been cut—which otherwise would beimpossible for the sixth and seventh leaves of an octavo sheet.

The making of a new Chapter VIII* out of the last four pages ofthe pre-existing Chapter VIII involved moving forward the text ofthese four pages to make room for the opening of the new chapterwhich must be on a fresh page. The repercussion of this displace-ment would be limited if the last page of the chapter had been partlyempty and therefore capable of absorbing it. This appears to havebeen the case. (See facsimile opposite. As much matter as was removedfrom p. 220 and p. 221 has been shifted on to p. 224, filling it up

xxx Introduction

1 For helpful criticism of the abovearguments concerning chapter-num-bers the editor is indebted to the late

Professor Cannan to whom theywere submitted in 1931.2 Generally referred to in thesevolumes as the Essay on Profits.

completely; even that was insufficient, with the result that p. 221 ismuch longer than a normal opening page.)

Thus our hypothesis requires that the discussion of taxes on rent,which now begins on p. 221 (below, p. 173), should originally havebegun in the space now blank on p. 220 (below, p. 172). It is in factverified by an entry in the Index, under Rent, ‘Tax on rent fallswholly on the landlord’ which refers to pp. 220–224 (correspondingto pp. 172–175 below). This, incidentally, shows that the Index hadbeen compiled before Chapter VIII was subdivided.

In the same way we obtain confirmation of the two chaptershaving been originally one from Index entries which lump themtogether. (Under Taxes, ‘Objections against the taxation of theproduce of land, considered and refuted, 201–224’—correspondingto pp. 160–175 below. Similarly under Produce.)

While therefore it appears that the first of the two instances ofdouble-numbering was due to an oversight, the second turns out tohave been deliberate; and we may suppose that it was the discoveryof the first case, by then beyond mending, which suggested thesecond to Ricardo and made it acceptable to the printer.1

The correspondence with Mill and the make-up of the bookenable us to follow the process of dividing the work into chapters upto the last moment before publication. This process continued evenlater, in the form of the subdivision of Chapter I into Sections, whichwas only done in edition 2, and carried further in edition 3, as isdescribed below, p. lii–liii.

IV. The Chapter on Value in Edition 1

By far the most perplexing as well as most extensive changes insuccessive editions of the Principles occur in the first chapter. Anecessary preliminary to a study of these changes is a survey of theformation of the new theory of value out of the fragmentary ele-ments of such a theory which are to be found in the Essay onthe Influence of a low Price of Corn on the Profits of Stock.2

Introduction xxxi

1 Ricardo to Trower, 8 March 1814,below, VI, 104. Cp. Essay on Profits,below, IV, 23.

2 See below, VI, 102–5.

At first, both in the Essay and in Ricardo’s letters of 1814 and early1815, a basic principle had been that ‘it is the profits of the farmer thatregulate the profits of all other trades’. Malthus opposed him in thisview, asserting that ‘the profits of the farmer no more regulate theprofits of other trades, than the profits of other trades regulate theprofits of the farmer’.1 After the Essay this principle disappearsfrom view, and is not to be found in the Principles.

The rational foundation of the principle of the determining roleof the profits of agriculture, which is never explicitly stated byRicardo, is that in agriculture the same commodity, namely corn,forms both the capital (conceived as composed of the subsistencenecessary for workers) and the product; so that the determination ofprofit by the difference between total product and capital advanced,and also the determination of the ratio of this profit to the capital, isdone directly between quantities of corn without any question ofvaluation. It is obvious that only one trade can be in the specialposition of not employing the products of other trades while all theothers must employ its product as capital. It follows that if there isto be a uniform rate of profit in all trades it is the exchangeablevalues of the products of other trades relatively to their own capitals(i.e. relatively to corn) that must be adjusted so as to yield the samerate of profit as has been established in the growing of corn; since inthe latter no value changes can alter the ratio of product to capital,both consisting of the same commodity.

Although this argument is never stated by Ricardo in any of hisextant letters and papers, he must have formulated it either in hislost ‘papers on the profits of Capital’ of March 18142 or in conversa-tion, since Malthus opposes him in the following terms which are nodoubt an echo of Ricardo’s own formulation: ‘In no case of produc-tion, is the produce exactly of the same nature as the capital advanced.Consequently we can never properly refer to a material rate ofproduce...It is not the particular profits or rate of produce upon theland which determines the general profits of stock and the interest

xxxii Introduction

1 Letter of 5 Aug. 1814, below,VI, 117–18.2 ib. 108.3 Below, IV, 17.4 The feature of calculating theadvances of the farmer in corn issingled out by Malthus as ‘the faultof Mr. Ricardo’s table’; since circu-lating capital did not consist only ofcorn, but included ‘tea sugar cloaths&c for the labourers’; so that a rise inthe relative price of corn would‘afford a greater surplus from the

land’ (letters of 12, and 14 March1815, below, VI, 185–7).5 See the statement that profits de-pend upon the ‘proportion of theannual labour of the country [which]is devoted to the support of thelabourers’, below, p. 48–9, and ‘thesame conclusion’ on p. 126 below.Cp. Malthus’s reference to Ricardo’scriterion of wages as ‘the cost inlabour of the labourer’s wages’ andto its connection with the rate ofprofit, below, II, 249–50.

of money.’1 The nearest that Ricardo comes to an explicit statementon these lines is in a striking passage in a letter of June 1814: ‘Therate of profits and of interest must depend on the proportion of pro-duction to the consumption necessary to such production.’2 Thenumerical examples in the Essay reflect this approach; and particularlyin the well-known Table3 which shows the effects of an increase ofcapital, both capital and the ‘neat produce’ are expressed in corn, andthus the profit per cent is calculated without need to mention price.4

The advantage of Ricardo’s method of approach is that, at the costof considerable simplification, it makes possible an understanding ofhow the rate of profit is determined without the need of a methodfor reducing to a common standard a heterogeneous collection ofcommodities.

In the Principles, however, with the adoption of a generaltheory of value, it became possible for Ricardo to demonstrate thedetermination of the rate of profit in society as a whole instead ofthrough the microcosm of one special branch of production.At the same time he was enabled to abandon the simplification thatwages consist only of corn, which had been under frequent attackfrom Malthus, and to treat wages as composed of a variety of pro-ducts (including manufactures), although food was still predominantamong them. It was now labour, instead of corn, that appeared onboth sides of the account—in modern terms, both as input and out-put: as a result, the rate of profits was no longer determined bythe ratio of the corn produced to the corn used up in production,but, instead, by the ratio of the total labour of the country to thelabour required to produce the necessaries for that labour.5 (But

Introduction xxxiii

1 Letter of 13 June 1820, below, VIII,194; cp. also letters to Mill of 16 Nov.1820, ib. 297, and to McCulloch of17 Jan. 1821, ib. 337.2 ‘The prices of all commoditiesmust increase if the price of corn be

increased.’ (Letter to Malthus, 25July 1814, below, VI, 114 and cp.108.) See also Note 3 on Bentham,below, III, 270.3 Below, IV, 21.

while the theory that the profits of the farmer determine all otherprofits disappears in the Principles, the more general proposition thatthe productivity of labour on land which pays no rent is funda-mental in determining general profits continues to occupy a centralposition).

Many years later, an echo of the old corn-ratio theory (whichrendered distribution independent of value) can perhaps be recognisedwhen Ricardo in a moment of discouragement with the difficultiesof value writes to McCulloch: ‘After all, the great questions ofRent, Wages, and Profits must be explained by the proportions inwhich the whole produce is divided between landlords, capitalists,and labourers, and which are not essentially connected with thedoctrine of value.’1

Parallel with this ran another theme in the development ofRicardo’s thought. At first he had subscribed to the generallyaccepted view that a rise in corn prices, through its effect upon wages,would be followed by a rise of all other prices.2 He had not regardedthis view as inconsistent with his theory of profit so long as the latterhad been expressed in its primitive ‘agricultural’ form. The conflictbetween the two however was bound to become apparent in thedegree to which he groped towards a more general form of histheory; since the supposed general rise of prices obscured the simplerelation of the rise of wages to the fall of profits. Already in theEssay on Profits, although his general presentation is still in the‘agricultural’ form, he repudiates the accepted view in a footnote:‘It has been thought that the price of corn regulates the prices of allother things. This appears to me to be a mistake.’3 Elsewhere inthe Essay, in connection with this question, there are passages whichforeshadow his full theory of value and already link it with the theoryof profits: ‘The exchangeable value of all commodities rises as the

xxxiv Introduction

1 Below, IV, 19.2 ib. 35–6.

3 Letter to Mill of 30 Dec. 1815,below, VI, 348.

difficulties of their production increase. If then new difficulties occurin the production of corn, from more labour being necessary, whilstno more labour is required to produce gold, silver, cloth, linen &c.the exchangeable value of corn will necessarily rise, as compared withthose things.’1 Further on in the Essay he states: ‘A fall in the priceof corn, in consequence of improvements in agriculture or of impor-tation, will lower the exchangeable value of corn only,—the price ofno other commodity will be affected. If, then, the price of labourfalls, which it must do when the price of corn is lowered, the realprofits of all descriptions must rise’.2

All these elements of the Essay are taken over into the chapterOn Value in the Principles with the addition of several new ones,some of which have come to be regarded as the most characteristicof Ricardo’s theory, and are there built into a systematic theory ofValue, on which are now based the theories of Rent, Wages andProfit.

The turning point in this transition from the Essay to the Prin-ciples was reached when, at the end of 1815, having set to work onthe Principles, he wrote to Mill: ‘I know I shall be soon stopped bythe word price’ (above, p. xiv). This is the first time that he facesthe necessity for a general solution of the problem, instead of beingcontent with dealing with the difficulties of price piece-meal as theyarise in particular problems. At once a proper understanding of thematter appears to him as involving: (a) the distinction betweencauses which affect the value of money and causes which affect thevalue of commodities; (b) the supposition of the invariability of theprecious metals as a standard of value; (c) the opposition to the viewthat the price of corn regulates the prices of all other commodities.These three things, which are so closely connected in his mind as tobe almost identified, are what he calls ‘the sheet anchor on which allmy propositions are built.’3

The distinction between the two types of influences upon value(on the side of money and on the side of commodities) is madepossible by Ricardo’s treatment of money as a commodity like

Introduction xxxv

1 Below, p. 55; and for the case wheregold would have to be imported(which would be impossible in theface of a rise of commodity prices),p. 104–5.

2 Letter to Mill, 14 Oct. 1816, below,VII, 82.3 Below, p. 46.4 Below, p. 61.5 2 Dec. 1816, below, VII, 100.

any other. Thus a change in wages could not alter the pricesof commodities, since (if the gold mine from which money wasobtained were in the same country) a rise of wages would affect theowner of the gold mine as much as the other industries.1 Hence it wasthe relative conditions of production of gold and of other commoditiesthat determined prices, and not the remuneration of labour.

The attempt to weave into his general theory the propositionwhich he had established that a rise of wages does not raise prices,led immediately to his discovery of ‘the curious effect which therise of wages produces on the prices of those commodities whichare chiefly obtained by the aid of machinery and fixed capital.’2 Ityielded the triumphant conclusion that, not only was it false that arise of wages would raise the price of every commodity (as ‘AdamSmith, and all the writers who have followed him’3 had maintainedthat it would do), but on the contrary, it caused the prices of manycommodities to fall: a result of which he stressed the ‘importance tothe science of political economy’, although it accorded so little ‘withsome of its received doctrines’.4

The importance which Ricardo came to attach to the principlethat the value of a thing was regulated by the quantity of labourrequired for its production, and not by the remuneration of thatlabour, reflected his recognition that what his new theory wasopposed to was not merely the popular view of the effect of wageson prices but another and more general theory of Adam Smith (ofwhich that effect came to appear as a particular case)—what Ricardoreferred to in writing to Mill as Adam Smith’s ‘original error re-specting value’.5 This latter theory, in brief, was that ‘as soon asstock has accumulated in the hands of particular persons’ and ‘assoon as the land of any country has all become private property’, theprice of commodities is arrived at by a process of adding up the wages,profit and rent: ‘in every improved society, all the three enter moreor less, as component parts, into the price of the far greater part of

xxxvi Introduction

1 Wealth of Nations, Bk. 1, ch. vi, ‘Ofthe Component Parts of the Price ofCommodities’; Cannan’s ed., vol. 1,pp. 50, 51, 52. Later however (ib.p. 147) this is qualified by the observa-tion that rent enters as an effect, nota cause, of price.2 ib. p. 54.3 ib. p. 65.

4 Below, p. 22–3, note.5 A Review of Economic Theory, p. 176.The contrast is particularly strikingbetween the headings given in ed. 2to the respective Sections (ii andiii–iv) to which Cannan is referring:see the Table of Section-Headingsat the end of this Introduction.

commodities.’1 In other words, ‘wages, profit, and rent, are thethree original sources...of all exchangeable value.’2 Adam Smithspeaks also of the natural price varying ‘with the natural rate of eachof its component parts, of wages, profit, and rent’.3

In the chapter On Value, Ricardo criticises Adam Smith forlimiting the rule that commodities exchange according to the amountof labour required for their production to ‘that early and rude stateof society, which precedes both the accumulation of stock and theappropriation of land’; ‘as if when profits and rent were to be paid,they would have some influence on the relative value of commodities,independent of the mere quantity of labour that was necessary totheir production.’ But, Ricardo adds, Adam Smith ‘has no whereanalysed the effects of the accumulation of capital, and the appropria-tion of land, on relative value.’4 (The effect of ‘the appropriation ofland’ is left by Ricardo for later consideration in the chapter OnRent, and in the chapter On Value he deals only with the accumula-tion of capital.) This passage in which he criticises Adam Smith haspuzzled readers, since it appears to be ‘flatly contradicted’ (as Cannanput it)5 by the following sections of the chapter.

It is not until 1818 in a letter to Mill, now first available, thatRicardo states precisely the nature of his quarrel with Adam Smith’stheory and thereby clarifies this passage.

This he does by contrasting his own reading of the matter withthat of Torrens. ‘He [Torrens] makes it appear that Smith says thatafter capital accumulates and industrious people are set to work thequantity of labour employed is not the only circumstance thatdetermines the value of commodities, and that I oppose this opinion.Now I want to shew that I do not oppose this opinion in the waythat he represents me to do so, but Adam Smith thought, that as in

Introduction xxxvii

1 Letter to Mill, 28 Dec. 1818, below,VII, 377. Editor’s italics.2 Quarterly Journal of Economics,1904, vol. xviii, pp. 455–91.

3 ib. pp. 479 and 481.4 ib. p. 485.5 Editor’s note to Letters to McCul-loch, 1895, p. 72.

the early stages of society, all the produce of labour belonged to thelabourer, and as after stock was accumulated, a part went to profits,that accumulation, necessarily, without any regard to the differentdegrees of durability of capital, or any other circumstance whatever,raised the prices or exchangeable value of commodities, and con-sequently that their value was no longer regulated by the quantity oflabour necessary to their production. In opposition to him, I main-tain that it is not because of this division into profits and wages,—itis not because capital accumulates, that exchangeable value varies,but it is in all stages of society, owing only to two causes: one themore or less quantity of labour required, the other the greater or lessdurability of capital:—that the former is never superseded by thelatter, but is only modified by it.’1 The relevance of this statement tocertain changes in later editions will become apparent in the nextsection.

V. Principal Changes in the Chapter On Value inEditions 2 and 3

It will be convenient to deal with the main changes in the chapter OnValue in editions 2 and 3 before we deal with these editions as a whole.

It has come to be a widely accepted opinion about Ricardo thatin subsequent editions he steadily retreated under pressure of hiscritics from the theory of value presented in edition 1. This was theview disseminated by Professor Hollander in his well-known articleon ‘The Development of Ricardo’s Theory of Value’.2 In speakingof edition 2 Hollander says that the textual changes in it ‘althoughnot vital’ could be regarded ‘as highly significant’ and that it ‘showedan appreciable increase of reserve in the advocacy of “embodiedlabour” as a universal measure of value’.3 With reference to edition 3he says that the chapter On Value ‘is in content and tendency verydifferent’4 from that in the first edition; and elsewhere he speaks of‘greater emphasis upon the modifications of the principles whichdetermine relative value’ due to the employment of capital.5 Pro-

xxxviii Introduction

1 A Review of Economic Theory, 1929,p. 185 and p. 176. The opposite andunusual view has been put forwardby H. Biaujeaud, Essai sur la theorie

ricardienne de la valeur, Paris, 1934,p. 125.2 Below, pp. 53, 56–63, 66.3 Below, p. 22–3, n. 3.

fessor Cannan went further and spoke of Ricardo’s ‘unwillingadmission of the influence of interest on capital as a modification ofthe pure labour-cost theory of value’. Concerning the effect ofcapital on value, says Cannan, Ricardo ‘was weak from the beginning,and he weakened more and more as time went on and criticism multi-plied’.1 Thus the view of a retreat in Ricardo’s position over succes-sive editions has become established. But an examination of thechanges in the text in the light of the new evidence lends no supportto this view: the theory of edition 3 appears to be the same, inessence and in emphasis, as that of edition 1.

The alterations were certainly extensive; little more than half ofthe final version (edition 3) of the chapter On Value being found inthe same form in edition 1. Although the changes made in edition 2were small and there was little rearrangement of the matter, thesubdivision into sections was first introduced in that edition; thisonly emphasized the repetition and lack of order in the treatmentand rendered necessary the complete rearrangement and rewritingof edition 3. Thus the statement of the exceptions to the law of valuedue to different proportions of capital (or, as Ricardo put it, to therise or fall of wages), which was repeated in edition 1 in differentplaces2 (and is still scattered under several sections in edition 2) ismostly collected in edition 3 under Sections iv and v.

All the evidence in favour of a ‘weakening’ of Ricardo is based onthe current misunderstanding of certain changes in the text which theletter to Mill quoted at the end of the last section enables us to rectify.The evidence in question rests mainly upon two changes. First, thedropping in edition 3 of the passage in which Adam Smith wascriticised for having limited the application of the principle of valueto the ‘early and rude state of society’,3 a change which looks at firstsight significant; we now know however that this was withdrawnbecause it had lent itself to misinterpretation, and the letter quotedabove shows that Ricardo was not shaken in his position by Torrens’s

Introduction xxxix

1 Below, p. 12, n. 1, and cp. p. 20, n. 3.2 See also the reference in Notes onMalthus (which belong to the timeof the revision for ed. 3) to ‘com-paratively of very slight effect’(below, II, 59) and ‘of no great

magnitude’ (ib. 101), and cp. ib. 66,82. A similar reference to ‘insigni-ficant in its effects’ is found in a letterto Malthus of 9 Oct. 1820, below,VIII, 279.3 The Measure of Value, 1823, p. 12, n.

criticism. The second change is the replacement in edition 3 of thestatement that exchangeable value ‘depends solely’ upon the quantityof labour realised in a commodity with ‘depends almost exclusively’.1

But here again the letter to Mill now makes it clear that the back-ground against which the ‘solely’ of edition 1 is to be understood isthat no prices can rise as a result of a rise of wages—they can only beraised by an increase in the difficulty of production. On the otherhand, in ed. 3 the ‘almost exclusively’ reflects the change in the choiceof standard from ed. 1 to ed. 3 (to be described below, pp. xlii–xlv),the new standard permitting a rise of price, as a result of a rise ofwages, in the case of commodities produced without fixed capital.

This phrase thus takes its place as one of a series of modificationswhich were designed to minimise the extent of such price-changes ineither direction as, in terms of the newly adopted standard, do occurwhen wages rise. The other passages introduced in edition 3 to thesame effect were as follows: ‘it would be...incorrect to attach muchimportance to it’, below, p. 36; ‘another, though a minor variation’,p. 42; ‘comparatively slight in its effects’, p. 36 and again p. 45.2

The implication of these changes is clear enough and Malthus atany rate did not regard edition 3 as showing any weakening:‘The effects of slow or quick returns, and of the different proportionsof fixed and circulating capitals, are distinctly allowed by Mr. Ricardo;but in his last edition, (the third, p. [36]) he has much underratedtheir amount.’3

At one moment between edition 2 and edition 3 Ricardo did showsigns of weakening. In a much-quoted passage he wrote to McCullochon 13 June 1820: ‘I sometimes think that if I were to write the chapteron value again which is in my book, I should acknowledge that therelative value of commodities was regulated by two causes insteadof by one, namely, by the relative quantity of labour necessary to

xl Introduction

1 Below, VIII, 194.2 At any rate Professor Hollander’ssuggestion that Ricardo’s failure tocarry out a ‘thoroughgoing recon-struction’ of this chapter in ed. 3 hadanything to do with ‘the urgency ofthe printer’ (op. cit., p. 484) can bedismissed in view of the ample notice

given to the author and the subse-quent delays in publishing thatedition, described in section vii ofthis Introduction.3 Below, viii, 279, 280.4 ib. 344.5 E. Cannan, A Review of EconomicTheory, p. 174.

produce the commodities in question, and by the rate of profit forthe time that the capital remained dormant, and until the commoditieswere brought to market. Perhaps I should find the difficulties nearlyas great in this view of the subject as in that which I have adopted.’1

Within six months he did rewrite the chapter, and evidently found‘the difficulties’ of this view even greater than in the case of hisoriginal view, since he now in ed. 3 confirmed it.2

Letters written in these intervening months provide evidenceenough that this weakening was no more than a passing mood.Already on 9 Oct. 1820 he is writing to Malthus: ‘You say that myproposition “that with few exceptions the quantity of labouremployed on commodities determines the rate at which they willexchange for each other, is not well founded.” I acknowledge that itis not rigidly true, but I say that it is the nearest approximation totruth, as a rule for measuring relative value, of any I have everheard’; and adds: ‘My first chapter will not be materially altered—inprinciple I think it will not be altered at all.’3 And on 25 Jan. 1821,while still wrestling with the problem of a standard of absolute value,he writes to McCulloch: ‘I am fully persuaded that in fixing on thequantity of labour realised in commodities as the rule which governstheir relative value we are in the right course.’4

Although no essential change was made in successive editionsabout the rule which determines value, two considerable alterationswere made in connection with the choice of an invariable measure ofvalue. The search for what has been called ‘the chimera of an invari-able standard of value’5 preoccupied Ricardo to the end of his life.However, the problem which mainly interested him was not that offinding an actual commodity which would accurately measure thevalue of corn or silver at different times and places; but rather that of

Introduction xli

1 Ricardo to McCulloch, 21 Aug.1823, below, IX, p. 358 and cp. p. 377.Cp. also below, p. 17, n. 3. This ideathat to every theory of value therecorresponds an appropriate ‘invari-able measure’ is evidently based onRicardo’s experience with his owntheory, where to the determination ofvalue by embodied labour there corre-sponds an invariable measure in theshape of a commodity produced bya constant quantity of labour; and inso far as there are exceptions to thetheory, to the same extent the ac-curacy of the measure is affected.This correspondence, however, is a

peculiar property of Ricardo’s theoryand does not necessarily apply toother theories. Thus there would notseem to be such a relation betweenthe theory that wages determine pricesand the ‘labour commanded’ standard(see on the other hand below, p. 16–17).2 Below, pp. 27, n., and 17, n. 3.3 Below, p. 17, n. 3.4 Below, p. 44. He adds that suchcircumstances ‘disqualify any com-modity that can be thought of frombeing a perfectly accurate measure ofvalue.’

finding the conditions which a commodity would have to satisfy inorder to be invariable in value—and this came close to identifyingthe problem of a measure with that of the law of value: ‘Is it not clearthen that as soon as we are in possession of the knowledge of thecircumstances which determine the value of commodities, we areenabled to say what is necessary to give us an invariable measure ofvalue?’1

The first of the alterations of which we have spoken was occasionedby a growing sense of the difficulty of even conceiving of such aninvariable commodity. In ed. 1 and ed. 2 the essential quality whicha commodity must have to be invariable is that it should require ‘atall times, and under all circumstances, precisely the same quantity oflabour’ to produce it.2 He admitted that ‘of such a commodity wehave no knowledge’. But this he regarded as only a practical difficulty;and he expressed no doubts as to what the ‘essential qualities’ ofsuch a standard were.3 In ed. 3, however, Ricardo enlarged on thedifficulty and stated that, even if a commodity could be found whichsatisfied that requirement, ‘still it would not be a perfect standard orinvariable measure of value’, since ‘it would be subject to relativevariations from a rise or fall of wages’ on account of different pro-portions of fixed capital or different durabilities of fixed capital ordifferent times necessary to bring it to market.4 Thus the sameexceptions which he had discovered in the fundamental rule deter-mining value cropped up again in attempting to define the qualitiesof an invariable standard.

xlii Introduction

1 Below, p. 63. The italics are theeditor’s.2 Cp. below, IV, 305–6.3 Below, p. 61 n. and cp. p. 31, n. 2,p. 53, n. 1, p. 58, n. 2.4 Elements of Political Economy,1821, p. 185. Cp. Ricardo’s example,below, p. 61, and his reference onp. 59 to capital ‘annually consumed andreproduced, as it is when employed inpaying wages’. Malthus also under-stood it in this way: ‘Mr. Ricardo, inorder to illustrate his proposition,has placed it, at a venture, among

those commodities where the ad-vances consist solely in the paymentof labour, and the returns come inexactly in the year.’ (Principles ofPolitical Economy; below, II, 64–5.)5 Below, pp. 17, n. 3, 27, n., 55, 87,n. 1, 275.6 Except where (as in the example onp. 55–6) all commodities, includingmoney, are explicitly assumed to beproduced with the same proportionsof fixed and circulating capitals.7 Below, p. 66.

The second change concerned the conditions of production of thecommodity to be adopted as standard. These were defined as followsin ed. 1: ‘in this whole argument I am supposing money to be of aninvariable value; in other words, to be always the produce of thesame quantity of unassisted labour’.1 In that edition Ricardo onlyacknowledged two forms of variation of capital: different proportionsof fixed and circulating capital and different durabilities of fixedcapital. He had not yet noticed the ‘different times it takes to market’(or durability of circulating capital), to which his attention was to bedrawn by Torrens;2 with the result that in edition 2 this was intro-duced as a third form of variation of capital.3 In ed. 1 therefore‘unassisted’ meant unassisted by fixed capital, with the tacit assump-tion that the period which all things took to produce and bring tomarket (i.e. circulating capital to circulate) was a year. As JamesMill was to put it in his Elements, ‘A year is assumed in politicaleconomy as the period which includes a revolving circle of produc-tion and consumption.’4

The qualification ‘unassisted’ is made explicitly by Ricardo onlyin the carefully worded passage which we have quoted, and in otherplaces5 he mentions simply ‘the same quantity of labour’. But tothe deductions based upon it the qualification is essential; and ined. 1 it is consistently implied in Ricardo’s argument.6 It is, indeed,from this definition of invariable money that there follows thestriking result that ‘commodities may be lowered in value in conse-quence of a real rise of wages, but they never can be raised from thatcause’7 (the reason being that in the production of some commodities

Introduction xliii

1 Below, p. 58.2 Below, p. 58, nn. 1 and 4.3 Below, p. 63, n. 3. This latterchange was the result of summing upin this sentence (which in ed. 2becomes the conclusion of a Section)the three possible causes of a rise of

commodities. Since one of thesecauses was a fall in value of the mediumitself, this precluded the use of theterm ‘absolute price’ (which pre-supposes an invariable medium).4 Below, II, 62–4.5 ib. 64.

fixed capital enters while it does not enter into the production ofgold, or money). Here ‘value’ clearly refers to ‘absolute’ value,i.e. value measured in the invariable standard. When Ricardo in ed. 1speaks of ‘relative value’,1 he says that, with a rise of wages, somegoods will rise compared with others.

In ed. 2 the substance of the argument is unchanged; but a numberof alterations in wording, which emphasize this paradox of com-modities falling in value when wages rise, tend to obscure the dis-tinction just mentioned between the effect of changes in wages upon‘absolute’ and upon ‘relative’ value. Thus, passages which statedthat, with a rise of wages, some commodities rise in relative valuecompared with others, in ed. 2 are turned round so as to say thatsome commodities fall in terms of others.2 And in the statement ofed. 1 that ‘no commodities whatever are raised in absolute price,merely because wages rise’, the words ‘absolute price’ are confusinglyreplaced by ‘exchangeable value’.3

Malthus, in his Principles of Political Economy, draws attention tothe case of commodities where the period of turnover of circulatingcapital may be less than one year.4 In such a case (covering, as hesuggests, ‘a large class of commodities’) prices will rise ‘conse-quently upon a rise in the price of labour and fall of profits’. Ricardoin his Note5 upon this passage admits that he has ‘inadvertentlyomitted to consider’ this case, and that ‘Mr. Malthus is quite right inasserting that many commodities in which labour chiefly enters, andwhich can be quickly brought to market will rise, with a rise in thevalue of labour’. The ‘correct opinion’ as he now states it is that, inconsequence of ‘a rise in the money price of wages, and a fall ofprofits, so far from its being true that all other commodities wouldalso rise in price, there will be a large class which will absolutely fall—some which will not vary at all, and another large class which will

xliv Introduction

1 Below, II, 62–3. This admission of arise is made rather grudgingly (‘in atrifling degree’, and cp. ib. n. 7).2 First in a letter of 10 Sept. 1819,below, VIII, 64–5, and then in hisPrinciples of Political Economy,below, II, 81.3 Below, II, 81. As Ricardo laterwrote to McCulloch: ‘Malthus hassupposed a case of a man by a day’slabour being enabled to pick up acertain number of grains of gold or

silver on the sea shore;—suppose hecould pick up as much silver as wecoin into a shilling, labour nevercould fall below a shilling a day, andif corn rose in silver labour could notrise’ (below, VIII, 343).4 Ricardo to McCulloch, 25 Jan. 1821,ib. 344.5 ib. 193.6 Below, p. 45.7 Below, p. 35, p. 43, n. 4, p. 48, n. 3.

rise.’1 This concession in the Notes on Malthus marks the transitionbetween ed. 2 and ed. 3.

As an extreme instance of the case to which he had drawn attentionMalthus introduced2 the striking example of silver picked up on thesea-shore with the labour of one day and therefore without eitherfixed or circulating capital—a standard in terms of which ‘no rise inthe price of labour could take place’.3

At the time when his ed. 3 was already in the press Ricardo wroteto McCulloch: ‘when I want to fix a standard of absolute value I amundetermined whether to chuse labour for a year, a month, a week,or a day’.4 But he had already suggested to McCulloch in a previousletter (in June 1820) that ‘perhaps the best adapted to the generalmass of commodities’ was ‘the medium’ between the ‘two extremes’:‘one, where the commodity is produced without delay, and bylabour only, without the intervention of capital; the other where itis the result of a great quantity of fixed capital, contains very littlelabour, and is not produced without considerable delay.’ ‘Thosecommodities on one side of this medium, would rise in comparativevalue with it, with a rise in the price of labour, and a fall in the rateof profits; and those on the other side might fall from the samecause.’5

In edition 3, therefore, the standard adopted was money ‘producedwith such proportions of the two kinds of capital as approachnearest to the average quantity employed in the production of mostcommodities’;6 and the relevant passages were accordingly alteredto the effect that, with a rise of wages, some commodities would falland others rise in terms of this standard.7 (If measured in such a

Introduction xlv

1 Letter to McCulloch, 13 June 1820,below, VIII, 193.2 Below, IV, 357ff.

3 Below, IV, 405.4 Below, p. 45–6.5 Below, IV, 405.

standard, the average price of all commodities, and their aggregatevalue, would remain unaffected by a rise or fall of wages.)

Already in one of the letters to McCulloch from which we have justquoted Ricardo had suggested that ‘all the exceptions to the generalrule’ could be reduced to ‘one of time’:1 i.e. all those deriving fromdifferent proportions of fixed and circulating capitals, differentdurabilities of fixed capital, or differences in the ‘time it takes tomarket’ (or durability of circulating capital) could be reduced toterms of labour employed for a longer or a shorter time. This con-ception was the one to which he finally adhered. In the newly-discovered paper on ‘Absolute Value and Exchangeable Value’,2

written at the end of his life, the standard adopted in ed. 3 was ineffect equated to that of ed. 1 by the statement that ‘a commodityproduced by labour employed for a year is a mean between theextremes of commodities produced on one side by labour andadvances for much more than a year, and on the other by labouremployed for a day only without any advances, and the mean willin most cases give a much less deviation from truth than if either ofthe extremes were used as a measure.’3

Having started, therefore, with ‘labour employed for a year’,regarded as the ‘extreme’ of ‘unassisted labour’, Ricardo becameconvinced, firstly that this was not really an ‘extreme’ since manycommodities were produced by labour employed for less than oneyear, and secondly that, if he were to take ‘labour employed fora day only without any advances’, this would be the equivalent ofa ‘labour commanded’ standard and wages could never rise in termsof this standard. He accordingly in edition 3 takes ‘a just mean’between the extremes, ‘produced with such proportions of the twokinds of capital as approach nearest to the average’.4 Having doneso, he comes finally to the view that this mean can be reduced to‘a commodity produced by labour employed for a year’5—the verystandard which he had used in edition 1, but which he had at thattime treated as being an ‘extreme’.

xlvi Introduction

1 Below, p. 21 and cp. p. 63.2 Below, pp. 42–3.3 To Malthus, 9 Oct. 1820, below,VIII, 279; to McCulloch, 25 Jan. 1821,ib. 344; to Trower, 4 July (as ‘posi-tive value’) and 22 Aug. 1821, IX,1–2 and 38; and frequently in 1823,ib. 297–300, 346, 356, 377–8.

4 Below, IV, 399n. See a similarstatement in Principles, below, p. 43.5 Below, IV, 397.6 As the context shows, ‘natural’here stands for ‘absolute’.7 Below, IV, 375.8 ib. 368.

The idea of an ‘invariable measure’ has for Ricardo its necessarycomplement in that of ‘absolute value’. This concept appears in thePrinciples at first (in ed. 1) as ‘absolute value’1 and later (in ed. 3) as‘real value’,2 it comes out from time to time in his letters,3 and takesmore definite shape in his last paper on ‘Absolute Value and Ex-changeable Value’. In one of his drafts for that paper he writes:‘No one can doubt that it would be a great desideratum in politicalEconomy to have such a measure of absolute value in order to enableus to know[,] when commodities altered in exchangeable value[,] inwhich the alteration in value had taken place’.4 In another draft heexplains what he means by a test of whether a commodity has alteredin value: ‘I may be asked what I mean by the word value, andby what criterion I would judge whether a commodity had or hadnot changed its value. I answer, I know no other criterion of a thingbeing dear or cheap but by the sacrifices of labour made to obtain it.’5

And elsewhere he writes: ‘To me it appears a contradiction to saya thing has increased in natural6 value while it continues to be pro-duced under precisely the same circumstances as before.’7

Ricardo starts (in ed. 1 of the Principles) by applying the conceptto the problem of two commodities which have changed in relativevalue as a result of a change in the difficulty of production: absolutevalue is then the criterion for deciding in which of the two the realchange has occurred. He ends (in his last paper on value) by bringingthis criterion to bear upon another problem, namely the distinctionbetween two causes of changes in exchangeable value: for, ‘difficultyor facility of production is not absolutely the only cause of variationin value[,] there is one other, the rise or fall of wages’, since com-modities cannot ‘be produced and brought to market in precisely thesame time’.8 Absolute value, however, reflects only the first type ofchange and is not affected by the latter. As Ricardo says with

Introduction xlvii

1 ib. 373.2 Draft letter to McCulloch, 15 Aug.1823, below, IX, 355–6. Cp. thephrase ‘It must then be confessedthat there is no such thing in natureas a perfect measure of value’, below,

IV, 404; also a similar expressionbelow, IX, 361, and the closingsentence of his last letter (to Mill,5 Sept. 1823), ib. 387.3 Below, IV, 405; quoted more fullyabove, p. xlv.

reference to a commodity which changes in price owing to a rise ofwages: ‘If the measure was perfect it ought not to vary at all’.1

After one of the numerical examples with which in a letter of 1823he illustrates this deviation, he comments as follows: ‘The twocommodities change in relative value....Can it be said that theproportions of capital we employ are in any way altered? or theproportion of labour? certainly not, nothing has altered but the rateof distribution between employer and employed...—this and thisonly is the reason why they alter in relative value’; and he concludes:‘The fact is there is not any measure of absolute value which can inany degree be deemed an accurate one.’2 Accordingly he falls backon his admittedly imperfect standard as giving the least ‘deviationfrom truth’.3

In this attempt to extend the application of absolute value to thesecond problem (that of distinguishing the two sorts of changesin exchangeable values) Ricardo was confronted with this dilemma:whereas the former application presupposes an exact proportionalitybetween relative and absolute value, the latter implies a variabledeviation of exchangeable from absolute value for each individualcommodity. This contradiction Ricardo never completely succeededin resolving, as is apparent from his last paper.

There is another respect in which his last paper on value revertsto a position similar to that of edition 1. The effects on value ofdifferent proportions or durabilities of capital can be looked uponfrom two distinct aspects. First, that of occasioning a difference inthe relative values of two commodities which are produced by equalquantities of labour. Second, that of the effect which a rise of wageshas in producing a change in their relative value. In edition 1 thesecond aspect is the one exclusively considered: whenever differentproportions or durabilities of capital are mentioned in connection

xlviii Introduction

1 In ed. 2 a statement about ‘unequalvalue’ is introduced casually below,p. 62, n. In ed. 3 this aspect is con-sidered below, p. 34 and p. 37, secondand fourth paragraphs. Cp. also letterto Malthus, 9 Oct. 1820, below, VIII,279.

2 See the Preface to the Principles,and also the oft-quoted passage onthe problem of Political Economy inthe letter to Malthus of 9 Oct. 1820,below, VIII, 278.3 Above, p. xxxiii.

with value, Ricardo always speaks in terms of the effect of a rise ofwages. The first aspect creeps into the later editions: once intoedition 2 and a few times into edition 3, usually as incidental to discus-sion of variations in value, and probably as a result of argument withhis opponents, particularly Torrens and Malthus, who looked at theproblem from this angle.1 But while in edition 3 Ricardo sometimesrefers to different proportions or durabilities of capital as causingdifferences in relative values, the effect of a rise in wages remains inthe forefront, and it is upon this aspect that attention is focusedin the paper on ‘Absolute Value and Exchangeable Value’.

This preoccupation with the effect of a change in wages arosefrom his approach to the problem of value which, as we have seen,was dominated by his theory of profits. The ‘principal problemin Political Economy’ was in his view the division of the national pro-duct between classes2 and in the course of that investigation he wastroubled by the fact that the size of this product appears to changewhen the division changes. Even though nothing has occurred tochange the magnitude of the aggregate, there may be apparentchanges due solely to change in measurement, owing to the fact thatmeasurement is in terms of value and relative values have beenaltered as a result of a change in the division between wages andprofits. This is particularly evident in the extreme case where theaggregate is composed of the same commodities in the same quan-tities, and yet its magnitude will appear to have changed as measuredin value.

Thus the problem of value which interested Ricardo was how tofind a measure of value which would be invariant to changes in thedivision of the product; for, if a rise or fall of wages by itself broughtabout a change in the magnitude of the social product, it would behard to determine accurately the effect on profits. (This was, of course,the same problem as has been mentioned earlier3 in connection with

Introduction xlix

1 Below, IX, 357.2 Below, IX, 359–60 and note. Cp.also the paper on value of the sameperiod, below, IV, 393–4.3 Of ed. 2 and ed. 3 1000 each were

printed. These figures have beenkindly supplied by Sir John Murrayfrom the records of his firm.4 Ricardo to Trower, 15 June 1817,below, VII, 162.

Ricardo’s corn-ratio theory of profits.) On the other hand, Ricardowas not interested for its own sake in the problem of why two com-modities produced by the same quantities of labour are not of thesame exchangeable value. He was concerned with it only in so faras thereby relative values are affected by changes in wages. Thetwo points of view of difference and of change are closely linkedtogether; yet the search for an invariable measure of value, whichis so much at the centre of Ricardo’s system, arises exclusively fromthe second and would have no counterpart in an investigation ofthe first.

This function of the theory of value of making it possible, in theface of changes in distribution, to measure changes in the magnitudeof aggregates of commodities of different kinds or, what is even moreimportant, to ascertain its constancy, appears once more in connec-tion with the measurement of the quantity of capital. With referenceto the theory of Torrens (‘that commodities are valuable accordingto the value of the capital employed on their production, and thetime for which it is so employed’) Ricardo says in the letter toMcCulloch of 21 Aug. 1823: ‘I would ask what means you have ofascertaining the equal value of capitals?... These capitals are not thesame in kind [if they were, he points out in an earlier draft, ‘theirproportional quantities would indicate their proportional values’1]...and if they themselves are produced in unequal times they are subjectto the same fluctuations as other commodities. Till you have fixed thecriterion by which we are to ascertain value, you can say nothing ofequal capitals’; for, as he says in another draft of this letter, ‘the meansof ascertaining their equality or variation of value is the very thing indispute.’2

VI. Edition 2

Only 750 copies of edition 1 of the Principles had been printed,3 andwithin two months of publication Murray told Ricardo that a secondedition would ‘most assuredly be required’.4 Ricardo, however,

l Introduction

1 Ricardo to McCulloch, 24 Nov.1818, ib. 337. According to Mallet itwas this review which ‘got off thefirst edition’ (below, VIII, 152, n. 2).In October Malthus wrote: ‘I hear thesale of your work goes on swim-mingly’ (below, VII, 312).2 ib. 327.3 ib. 328 and 331.4 ib. 331.

5 Advt. in The Times. The price wasstated as 14s.6 Below, VII, 370.7 Below, p. 413, note.8 Below, VII, 371–2.9 Letter to Mill, 22 and 28 Dec. 1818,ib. 371, 379.10 Letter to Say, 11 Jan. 1820, belowVIII, 150.

heard no more of this until after the appearance of McCulloch’sreview in the number of the Edinburgh Review for June 1818(actually published in August) by which the sale was ‘much acceler-ated’.1 On 8 November 1818 Ricardo wrote to Mill: ‘I hear fromvarious quarters that my book is selling very fast, and that a newedition will soon be required’; adding, ‘I think in the last conversa-tion we had together we agreed that there would not be very greatadvantage in making any new arrangement of the contents, as itappears to have made the impression I could wish on those who havewell considered it’.2 On 17 November 1818 he received a requestfrom Murray to prepare a second edition; and within a week Ricardohad the book ready for the press.3 In sending the revised copy toMurray, he mentioned that it contained ‘a few very trifling alterations’and asked that the proposed division into sections of the first chaptershould be sent by messenger to Mill for his approval.4 However,edition 2 was not published until 27 February 1819.5

In the intervening period he received the French translation ofhis own Principles, with Say’s notes;6 and in reply to one of thesenotes he added a passage referring to the question whether the theoryof rent depended upon the existence of land which paid no rent.7

This point had also been the subject of discussion during a visit ofMalthus to Gatcomb in December 1818.8 At one time he thoughtof having Say’s notes translated and published as an appendix of hisown ed. 2; but he referred the matter to Murray, who evidentlydecided against it.9

On the whole, the alterations in edition 2 were unimportant, andRicardo could say that it contained ‘nothing new’.10 A few changesmade to meet criticisms of particular points are of some interest andcan be identified as follows. Some passages on taxation had been

Introduction li

1 Ricardo to McCulloch, 24 Nov.1818, below, VII, 337–8. McCullochsent a number of suggestions (ib.351–4), several of which wereadopted, including: a second passageabout taxation which was rewrittenin McCulloch’s own words (below,p. 152); part of the pamphletEconomical and Secure Currency wasinserted in Chapter XXVII; andthe ‘principle of limitation’ wasenlarged upon in the discussion ofpaper money (below, p. 353–4).2 Below, pp. 96–7, 271. Cp. letter toMill, below VII, 333.3 Preface to An Essay on the ExternalCorn Trade, 1815, pp. xiii–xiv.

4 Below, p. 100.5 Below, p. 60, n.6 Below, pp. 412 and 428–9. Cp.letters to Malthus, 24 June and 20 Aug.1818, below, VII, 271, 282–3.7 For instances in his earlier writings,see below, IV, 22; letter to Malthus,30 July 1815, below VI, 241; and inlater writings: below, II, 63, n. 5,231, n. 6 and 411; letter to Malthus,3 Aug. 1823, below, IX, 325.8 Below, p. 95, n. 3, p. 96, notes 1, 3,4, p. III, n. 3.9 Below, p. 94, n. 1, p. 303, n. 2, p. 334,n. 3. In a few cases the expressionwas retained in ed. 3: see p. 118, p. 145,and Index, under Wages.

criticised by McCulloch. When he was revising the book for edition 2Ricardo wrote to McCulloch that he proposed to alter a passagewhich might be considered to ‘hold out an apology to ministers fortaxation’, and asked for suggestions ‘on all those passages whichyou would like to see altered’.1 Two footnotes were added to meetTorrens’s complaint that he had not been mentioned.2 The first ofthese (p. 96–7) notices a passage from Torrens on the natural priceof labour (which is remarkable for its emphasis on the influence of‘habits of living’), for which Torrens had claimed originality.3 Theadoption of Torrens’s suggestion about the ‘unequal durability’ ofcirculating capitals has been mentioned above. A passage on thecauses of the miserable state of the Irish peasantry criticised by GeorgeEnsor was omitted;4 and a note was added to Chapter I in defence ofthe illustration of a machine producing without human labour whichhad been ridiculed in the British Review.5 Two changes, one aboutthe effect of improvements in agriculture on rent and the other aboutcorn importation and profits,6 which appear to have arisen out ofcorrespondence with Malthus, anticipated more extensive alterationsin edition 3.

One group of apparently slight corrections may be more signi-ficant than at first appears. In ed. 1 Ricardo had frequently employedthe curious phrase ‘price of wages’;7 in ed. 2 however the expressionis removed in several cases,8 and its elimination is carried further ined. 3.9 Although in places he clearly treats this phrase as inter-

lii Introduction

1 See e.g. p. 95–6 where all theseexpressions are used as equivalent.2 Cp. below, p. 49–50; and cp.p. 274–5 note.3 Below, p. 19.4 Principles of Economics, 8th ed.,p. 550.5 As he says in another context,below, IV, 409.

6 In his letter to Murray of 23 Nov.1818 Ricardo mentions 4 sections,but in his letter to Mill of the samedate (sent through Murray the nextday) ‘four’ is altered to ‘five’ (below,VII, 331, 333, n. 1).7 Below, p. 22, n. 2. See the Tableof Section-Headings of Chapter I,below, p. lxiii.

changeable with ‘price of labour’ or simply ‘wages’,1 it mustoriginally have been related to the expression ‘real value of wages’,which he uses in explaining the peculiar sense in which he is to beunderstood when he speaks of the rise or fall of wages: namely asreferring to the proportion of the total product going to labour, andnot to the absolute quantity of commodities received by thelabourers.2 However, after thus defining the ‘real value of wages’,he did not use again that expression in the Principles, except whenin ed. 3 he had to defend himself against Malthus’s complaint that hehad adopted ‘new and unusual language’ in connection with wages:3

—a complaint renewed in later times by Marshall, who deploredRicardo’s failure to invent some new term for the purpose.4 Perhapsthe early use of ‘price of wages’ was a sign that Ricardo at first feltthe need for a special term, whereas later he seems to have come toregard the unqualified term ‘wages’ as adequate, ‘at least amongPolitical Economists’,5 to describe proportional wages.

The only prominent change was the subdivision of the chapterOn Value into sections each carrying its own heading. It was onthese that he had consulted Mill. The division introduced in edition 2seems to have been made at first into four sections, and then to havebeen changed to five before the titles were sent to Mill,6 in whichform it finally appeared. This required the splitting of a section intotwo, and it was probably Section i that was divided, the additionalheading being: ‘Sect. ii. The accumulation of capital makes nodifference in the principle stated in the last section’.7 That theheading of Section i was written when that section included thewhole of what was published as Section ii, is shown by the fact thatits statement that value does not depend ‘on the greater or less com-pensation which is paid for that labour’ can only refer to the text of

Introduction liii

1 Cp. also the heading of Section iii:‘The principle stated in the fore-going section...’. This must refer toSection i, which on our suppositionoriginally preceded it immediately.It is also to be noted that the divisionbetween Sections i and ii is the onlyone which was effected without a re-writing of the closing and openingpassages; by contrast to what Ricardo

said to Mill in his letter of 23 Nov.1818 about a summary ‘at the end ofeach section’ (below, VII, 333).2 Below, p. 53, n. 1.3 Below, p. 66.4 Below, VIII, 315.5 ib. 206, 213.6 Ricardo to Trower, 14 Jan. 1821,ib. 333.

the latter part of Section ii.1 It may be noticed that Section i, thusreduced, was further subdivided in edition 3, without the headingbeing changed; with the result that the heading of Section i stilladequately covers the contents of the whole of the first three sectionsof the chapter in edition 3.

This subdivision required the rewriting of certain passages whichnow formed the beginning and the end of sections. But it is sur-prising how little rearrangement was made: only an obviously mis-placed paragraph in the middle of the chapter2 and the three con-cluding paragraphs3 were transferred to more appropriate places.

VII. Edition 3

Before Ricardo left London for the country in July 1820 Murray toldhim that ‘he should soon wish to publish a new edition’ of thePrinciples; 4 and during the next six months (which, after a few weeksat Brighton, he spent at Gatcomb)5 he revised his book for edition 3.This was done in the intervals of what was to become his main pre-occupation during this period: re-reading, and writing his Notes on,Malthus’s Principles of Political Economy. At first he had intendedto include in edition 3 his defence against Malthus’s attacks. But heafterwards gave up this project; Mill (who in August and Septemberwas on a visit to Gatcomb) had ‘strongly dissuaded’ him from it,and advised him not to notice any attacks for fear of ‘giving toocontroversial a character’ to the book.6

On 4 September 1820 Ricardo writes to Malthus: ‘I have beenlooking over my first chapter, with a view to make a few alterationsin it before the work goes to another edition. I find my task verydifficult, but I hope I shall make my opinions more clear and

liv Introduction

1 Below, VIII, 229.2 Letter of 14 Oct. 1820, ib. 283–4.3 Monthly Literary Advertiser, 10Jan. 1821.4 Below, VIII, 333, and cp. 335.5 ib. 342.

6 Letter to Professor Prevost ofGeneva, published by G. W. Zinkein Journal of Economic History, May1942, vol. ii, p. 181.7 Below, VIII, 373.8 ib. 379.

intelligible.’1 A month later he could report substantial progress toMill: ‘I have done what I at present think necessary to my firstchapter, and have laid it by for fresh inspection after I have for-gotten it a little.’2

Early in January 1821 Murray included Ricardo’s ‘Third edition,corrected’ in his advertised list of ‘works preparing for immediatepublication’.3 In a letter of 14 January Ricardo wrote that he ex-pected his third edition to be printed within a few days;4 and againon 25 January he wrote that the first chapter was ‘now printing’and referred to one of the later chapters of the book as being ‘in theprinters hands’.5

However, it was nearly four months from this time before thenew edition was on sale; Murray’s advertisement of actual publicationappearing for the first time in the Morning Chronicle of 18 May 1821,the price being stated as 12s. The reason for the delay is disclosed bya letter of Malthus to Prevost of 26 April 1821: ‘Mr. Murray mybookseller seems to be of opinion that the times are not favour-able for book-selling and is now keeping back a new edition of Mr.Ricardo’s work which is finished, because the former edition has notgone off so soon as he had calculated upon.’6 This did not preventRicardo in the meantime from sending advance copies to his friends.On 25 April he wrote to McCulloch that he had asked Murray tosend him a copy ‘last week’;7 and on 8 May in sending a copy toSay he wrote: ‘Owing to the delay of Bookseller, and Printer, thetime has been protracted far beyond my expectation, but at lengthI am able to send you herewith one of the first published copies ofthis last edition.’8

The changes in this edition were considerably more extensivethan those made in edition 2. Yet Ricardo seems to have regardedthem, for the most part, as unimportant. We find him writing toTrower on 14 January 1821: ‘I have carefully looked over every

Introduction lv

1 ib. 333.2 ib. 373.3 Below, p. 81.4 Below, II, 117.5 ib. 118.

6 Below, p. 335. However, the state-ment on the same page that ‘theinterest of the landlord is alwaysopposed to that of consumer andmanufacturer’ remains in ed. 3.

part of it, and with my limited powers of composition I am convincedI can do very little to improve it’;1 and on 25 April to McCulloch:‘You will not find much of novelty in the new edition’.2

The main changes in the first chapter have already been mentioned.As regards arrangement, the five sections of edition 2 were increasedto seven by subdividing Section 1 and also adding a new sectionOn an Invariable Measure of Value. The rearrangement of the textof this chapter, begun in edition 2, was continued more extensively;and although a few anomalies remained, the chapter gained greaterunity. Passages previously misplaced were transferred to the appro-priate sections, and repetitions were avoided either by omitting apassage or by incorporating different passages into one.

Many of the Notes on Malthus’s Principles are reflected in thealterations made in the new edition. With reference to his olddifference with Malthus as to the effect of agricultural improvementsupon rent, Ricardo adds a footnote3 in edition 3 allowing theultimate benefit to landlords, without yielding his contention thatthe immediate effect of improvements was harmful to them. Malthushad asked in what sense Ricardo could agree with Sismondi andBuchanan in saying that the price of corn ‘is like that of a commonmonopoly, or advantageous only to the landlords, and proportion-ably injurious to the consumers’.4 Ricardo’s reply was that the land-lord’s interest was ‘that the machine which he had for producingcorn should be in demand—that in fact his rent depended on it’.Only after cheap corn had increased population would ‘the advantageof the improvement’ be ‘transferred to the landlord’.5 A similaridea is expressed in two new paragraphs added to Chapter XXIV,in which he states that, when the productivity of the soil is increased,‘all the advantages would, in the first instance, be enjoyed by labourers,capitalists and consumers; but with the progress of population, theywould be gradually transferred to the proprietors of the soil.’6

On the advantages of free importation of corn Ricardo was even

lvi Introduction

1 Below, II, 195.2 ib. 196–7.3 ib. 197 and 198, n. 2. In the Essayon Profits Ricardo, apparently refer-ring to the net, rather than the gross,produce, had made the more sweepingstatement: ‘The landlord not onlyobtains a greater produce, but a largershare.’ (Below, IV, 18.) This is an

instance of a more general change thatis noticeable between the Essay onProfits and ed. 3 of the Principles:namely, a gradual shift of emphasisfrom the antithesis of rent and profitsto that of wages and profits.4 Below, II, 196–7, n. 1.5 Below, p. 83 and cp. p 49, n. 1 andpp. 402–3.

more emphatic than he had been in previous editions. In the ‘Adver-tisement to the Third Edition’ (below, p. 8) he directs the attentionof the reader to the changes which he has introduced into the lastchapter, in order to throw into sharper relief the doctrine of theincreased ability of a country to pay taxes as a result of a diminishedcost of food.

Malthus in his Principles had also criticised Ricardo for havingapplied to rent his measure by ‘proportions or cost in labour’,1 andhaving suggested as a result that with the extension of cultivationthe proportion of rent to the total produce of land would increase.Ricardo devoted one of his Notes2 to a restatement of his position,and explained in effect that rent would take up an increased propor-tion of the produce of the old lands, or, if additional capitals beemployed on the same lands, an increased proportion ‘of eachquantity before obtained’.3 In a deleted passage in the Notes onMalthus he explains his meaning concisely as follows: ‘Rent is nota proportion of the produce obtained—it is not governed like wagesor profits by proportions—depending as it does on the differencebetween the quantity of produce obtained by two equal capitals.If therefore I have anywhere said that rent rises or falls in the propor-tion that the produce obtained is increased or diminished I havecommitted an error. I am not however conscious of having so done’.4

Nevertheless, in edition 3 he modified a number of passages whichhad laid him open to Malthus’s criticism. Typical of these is thechange in the phrase of editions 1 and 2, ‘In speaking of the rent ofthe landlord, we have rather considered it as the proportion of thewhole produce’, the concluding words of which are replaced inedition 3 by: ‘as the proportion of the produce obtained with a givencapital on any given farm’.5

Introduction lvii

1 See below, VIII, 301.2 Below, pp. 279–285.3 Below, pp. 287–8.4 Below, VIII, 315.

5 Below, p. 249, p. 264 and p. 348.6 Below, p. 388.7 Below, p. 392.8 Below, IV, 35.

The changes in ed. 3 due to Say were occasioned partly by changesin the 4th edition (1819) of Say’s Traite and partly by Say’s Lettresa M. Malthus (1820) on which Ricardo had written some notes atthe same time as he was writing his Notes on Malthus.1 The mainchange is the rewriting of several paragraphs in the chapter on Valueand Riches2 and the omission of some paragraphs in the same chapterwhich cite extensively from the earlier editions of Say’s Traite,3 inview of changes made by Say in his 4th edition.4 There were alsoa few minor additions in other chapters.5

The most revolutionary change in edition 3 is the new chapterOn Machinery, in which Ricardo retracts his previous opinion thatthe introduction of machinery is beneficial to all the different classesof society. ‘My mistake’, he explains, ‘arose from the supposition,that whenever the net income of a society increased, its gross incomewould also increase; I now, however, see reason to be satisfied thatthe one fund, from which landlords and capitalists derive theirrevenue, may increase, while the other, that upon which thelabouring class mainly depend, may diminish’.6 His conclusionmust have shocked his friends even more than the change ofprinciple itself: ‘That the opinion entertained by the labouringclass, that the employment of machinery is frequently detrimental totheir interests, is not founded on prejudice and error, but is con-formable to the correct principles of political economy.’7

Previously Ricardo had held the view that, since machinery madeit possible to produce commodities at a lower cost, it must lead toan increase in their quantity and accordingly be beneficial to allclasses of society. He had not expressed this view in the earliereditions of the Principles, and the only place where he had statedin print an opinion as to the effect of machinery upon labour was anincidental reference in the Essay on Profits where he alluded to ‘theeffects of improved machinery, which it is now no longer questioned,has a decided tendency to raise the real wages of labour.’8 But as he

lviii Introduction

1 16 Dec. 1819, below, V, 30. Thatit was generally accepted that Ricardoheld these views is shown by Malthus’statement in his Principles of PoliticalEconomy: ‘I quite agree with Mr.Ricardo, however, in approving allsaving of labour and inventions inmachinery’ (below, II, 381).2 Cp. Ricardo’s letter to Barton of20 May 1817, which however wasprior to the publication of the

pamphlet (below, VII, 157–9).3 Edinburgh Review, Jan. 1820, p. 171.4 Letter to McCulloch, 29 March1820, below, VIII, 171.5 Edinburgh Review, March 1821,p. 115.6 McCulloch to Ricardo, 5 June 1821,below, VIII, 382. He also says thatif Ricardo’s new opinion is correct‘the laws against the Luddites are adisgrace to the Statute book’ (ib. 385).

says at the beginning of the new chapter he had ‘in other ways’ givensupport to those doctrines. He probably had in mind a speech inParliament in 1819 on Robert Owen’s plan in which he had declaredthat ‘it could not be denied, on the whole view of the subject, thatmachinery did not lessen the demand for labour’.1 Barton’s pam-phlet of 1817, Observations on the Condition of the Labouring Classes,with its view as to the adverse effects of machinery on labour, doesnot seem to have influenced Ricardo at the time of its publication;2

although he quotes it with approval in the new chapter in edition 3.When McCulloch, in an article on ‘Taxation and the Corn Laws’ inthe Edinburgh Review of January 1820, had approved the ideas ofBarton (of whose pamphlet the article was ostensibly a review),Ricardo wrote to McCulloch contesting this opinion. McCullochhad stated that ‘the fixed capital invested in a machine, must alwaysdisplace a considerably greater quantity of circulating capital,—forotherwise there could be no motive to its erection; and hence its firsteffect is to sink, rather than increase, the rate of wages.’3 In replyRicardo had said: ‘the employment of machinery I think neverdiminishes the demand for labour—it is never a cause of a fall in theprice of labour, but the effect of its rise.’4 McCulloch became a convertto this view, and in an article in the Edinburgh Review of March 1821maintained that ‘no improvement of machinery can possibly diminishthe demand for labour, or reduce the rate of wages.’5 It is scarcelysurprising that he should have taken strong exception to Ricardo’ssudden change of front on the matter, and that on seeing the newedition he should have bitterly complained (in a letter now firstpublished) of ‘the extreme erroneousness of the principles to whichyou have incautiously lent the sanction of your name’.6

Introduction lix

1 Below, II, 234–6.2 ib. 234–6.3 ib. 239 and cp. footnote. Ricardo,however, in Note 243 states that

‘unmixed advantages’ are derivedfrom inventions to save labour (ib.365).4 Below, p. 388.

The writing of the Notes on Malthus in the autumn of 1820,especially Note 149, marked a transition-stage in Ricardo’s thinkingon the subject. Malthus in his chapter ‘Of the Wages of Labour’had quoted Barton to the effect that ‘the demand for labour can onlybe in proportion to the increase of the circulating, not the fixedcapital’; but, while admitting that ‘this is no doubt true in individualcases’, Malthus had asserted that ‘it is not necessary to make thedistinction in reference to a whole nation’ and that ‘in general...theuse of fixed capital is extremely favourable to the abundance ofcirculating capital’.1 Ricardo commented on this as follows: ‘Theeffective demand for labour must depend upon the increase of thatpart of capital, in which the wages of labour are paid...—to thecapitalist it can be of no importance whether his capital consists offixed or of circulating capital, but it is of the greatest importance tothose who live by the wages of labour; they are greatly interested inincreasing the gross revenue, as it is on the gross revenue that mustdepend the means of providing for the population. If capital isrealized in machinery, there will be little demand for an increasedquantity of labour’.2 Another Note (153) seems to approach evencloser to the new doctrine: ‘It might be possible to do almost all thework performed by men with horses, would the substitution ofhorses in such case, even if attended with a greater produce, beadvantageous to the working classes, would it not on the contraryvery materially diminish the demand for labour?’3

The final step in his change of opinion came when (as he himselfsays in the new chapter) he ceased to hold that ‘whenever the netincome of a society increased, its gross income would also increase’,4

and came to hold instead that machinery could be profitable tointroduce and yet result in a smaller total product, and demand forlabour.

There is no evidence as to the precise stage at which Ricardoadopted his final view that improved machinery might actuallydiminish the gross produce. Mallet, in an entry in his diary at the

lx Introduction

1 In Political Economy Club, Cen-tenary Volume, 1921, pp. 211–12. Theoccasion referred to may have been thedinner party of 12 Jan. 1820, on whichsee below, VIII, 152–3, n.

2 See letter to Malthus of that date,ib. 311.3 ib. 377.4 ib. 373.5 Letter of 18 June 1821, ib. 390.

time of Ricardo’s death in September 1823, stated: ‘It accidentallyhappened at a dinner at his [Ricardo’s] house three years ago, atwhich Mr. Grenfell, Mr. Tooke, and other persons were present,that in consequence of an objection which then occurred to me asto the prevailing opinions on the subject of the unmixed benefitresulting from the substitution of machinery for human labour, Mr.Ricardo was afterwards led (although he then differed from me) toreconsider the subject and to write the additional chapter on machineryin his 3rd edition. This he told me himself in the kindest and mostingenuous manner.’1 He apparently had not yet changed his views by29 Nov. 1820;2 and the first intimation we have is in a letter of Malthusto Sismondi of 12 March 1821, which mentions that Ricardo hasaltered his views on machinery.3 McCulloch evidently knew nothinguntil Ricardo’s letter to him of 25 April 1821 with its reference to‘a change in my sentiments respecting the advantages of machinery’.4

Having made the change, however, Ricardo stoutly defended hisnew position against McCulloch’s objections. ‘These truths’, hewrote, ‘appear to me to be as demonstrable as any of the truths ofgeometry, and I am only astonished that I should so long have failedto see them.’5

VIII. The Present Edition

The present edition of the Principles is based on a complete collationof the first, second and third editions. The text adopted is that ofedition 3, published in 1821, the last to be revised by Ricardo. Allthe variants of editions 1 and 2 are given in the editor’s footnotes.

A special method, however, has had to be adopted in the case ofChapter I, On Value, in some parts of which the changes are soextensive and so complicated as to make it impossible to convey tothe reader an adequate idea of them by means of footnotes alone.Accordingly, at the end of that chapter the text of edition 1 for thelast two-thirds of the chapter is printed in smaller type as an Appendix

Introduction lxi

(below, pp. 52–66). The footnotes to the corresponding text ofedition 3 (pp. 26–51) indicate all the differences from editions 1 and 2;but while in the case of shorter passages these are quoted in fullin the footnotes, for the longer ones reference is merely givento the text in the Appendix. On the other hand, the footnotes tothe text of edition 1 in the Appendix give only the changes inedition 2.

In addition, to give a clearer picture of the rearrangement of thematter, a Table of Concordance, exhibiting the relative position ofcorresponding paragraphs in editions 1 and 3 for this part of thechapter, has been inserted at the end of this Introduction on afolding sheet.* The correspondence between the passages shown inthis Table is sometimes no more than approximate, and for theprecise relation between them the reader should refer to the foot-notes. On the same folding sheet* a similar Table has been given forthe location in edition 3 of such passages as were newly added inedition 2.

Thus by the combined use of the Tables of Concordance and ofthe footnotes the reader should be enabled either to read edition 3,tracing back the text to the earlier versions of editions 1 and 2, oralternatively to read edition 1, following out the modifications ofthe text in the subsequent editions.

A comparative Table of Section-Headings of the chapter On Valuein editions 2 and 3 is given at the end of this Introduction.

Ricardo’s original Index is reprinted, with the variants of theeditions noted, as described on page 430 below.

To facilitate the identification in the present edition of page-references made in terms of the editions of Ricardo’s Principles mostfrequently quoted by earlier writers, a Table of Corresponding Pageshas been supplied at the end of this volume.

* [Thus in the 1951 edition. In this 2004 edition the Tables of Concor-dance between editions 1 and 3 and between editions 2 and 4 have beenplaced at the end of this Introduction on pp. lxiv and lxv, respectively. Allsuch changes in this edition will be explained in footnotes enclosed withinsquare brackets and indicated by asterisks.]

lxii Introduction

Both in this and in the subsequent volumes of the present editionthe author’s footnotes are indicated by asterisks and printed rightacross the page, whereas the editor’s footnotes are distinguished bynumerals and (when the amount of material allows) by being printedin double column.

The editor’s footnotes attempt to indicate Ricardo’s sources inparticular passages and to complete his references to authorities.The references to Adam Smith have been supplemented with thecorresponding pages of Cannan’s edition of the Wealth of Nations(2 vols., London, Methuen, 1904).

The spelling and punctuation of the original have been retained.Misprints if obvious have been corrected, but those which givea conceivable alternative reading have been left unchanged; in bothcases attention has generally been drawn to them in a footnote.

TABLE OF SECTION-HEADINGSOF CHAPTER 1, ON VALUE

IN EDITIONS 2 AND 3Edition 2 Edition 3

Section i. The value of a com-modity, or the quantity of any othercommodity for which it will exchange,depends on the relative quantity of labourwhich is necessary for its production, andnot on the greater or less compensationwhich is paid for that labour. p. 11�

Section i. The value of a com-modity, or the quantity of any othercommodity for which it will exchange,depends on the relative quantity of labourwhich is necessary for its production, andnot on the greater or less compensationwhich is paid for that labour. p. 11Section ii. Labour of differentqualities differently rewarded. This nocause of variation in the relative value ofcommodities. p. 20

Section ii The accumulation ofcapital makes no difference in theprinciple stated in the last section. p. 22

Section iii. Not only the labourapplied immediately to commoditiesaffect their value, but the labour alsowhich is bestowed on the implements,tools, and buildings, with which suchlabour is assisted. p. 22

Section iii. The principle stated inthe foregoing section considerably mod-ified by the employment of machinery asfixed capital. p. 30

Section iv. The principle that thequantity of labour bestowed on theproduction of commodities regulates theirrelative value, considerably modified bythe employment of machinery and otherfixed and durable capital. p. 30

Section iv. The principle that valuedoes not vary with the rise or fall of wages,modified also by the unequal durabilityof capital, and by the unequal rapiditywith which it is returned to itsemployer. p. 38

Section v. The principle that valuedoes not vary with the rise or fall of wages,modified also by the unequal durabilityof capital, and by the unequal rapiditywith which it is returned to itsemployer. p. 38

Section vi. On an invariablemeasure of value. p. 43

Section v. Different effects from thealteration in the value of money, themedium in which price is alwaysexpressed, or from the alteration in thevalue of the commodities which moneypurchases. p. 47

Section vii. Different effects fromthe alteration in the value of money, themedium in which price is alwaysexpressed, or from the alteration in thevalue of the commodities which moneypurchases. p. 47

T A B L E O F C O N C O R D A N C Ebetween Editions 2 and 3 for the paragraphs added in Edition 2

in the latter part of Chapter I, On Value

Edition 2 Edition 3

page page52 n. 1 A division 31n. A division53 n. 1 It is also to be observed 31 It is also to be observed56 n. 1 It appears then by this section58 n. 1. It appears then that the division 37 It appears then that the division58 n. 2 In the last section 38 In the last section60 n. 1 To put the principle

�37 It is hardly necessary

61n. The same result 37 Suppose I employ37 This case appears

62 n. 1 It will be seen, then 42 It will be seen, then65 n. 3 If with a capital 51 If, with a capital

1 Edward West.

PREFACE

The produce of the earth—all that is derived from its surfaceby the united application of labour, machinery, and capital, isdivided among three classes of the community; namely, theproprietor of the land, the owner of the stock or capital neces-sary for its cultivation, and the labourers by whose industryit is cultivated.

But in different stages of society, the proportions of thewhole produce of the earth which will be allotted to each ofthese classes, under the names of rent, profit, and wages, willbe essentially different; depending mainly on the actual fertilityof the soil, on the accumulation of capital and population, andon the skill, ingenuity, and instruments employed in agri-culture.

To determine the laws which regulate this distribution, isthe principal problem in Political Economy: much as the sciencehas been improved by the writings of Turgot, Stuart, Smith,Say, Sismondi, and others, they afford very little satisfactoryinformation respecting the natural course of rent, profit, andwages.

In 1815, Mr. Malthus, in his “Inquiry into the Nature andProgress of Rent,” and a Fellow of University College, Oxford,1

in his “Essay on the Application of Capital to Land,” presentedto the world, nearly at the same moment, the true doctrine ofrent; without a knowledge of which, it is impossible to under-stand the effect of the progress of wealth on profits and wages,or to trace satisfactorily the influence of taxation on differentclasses of the community; particularly when the commoditiestaxed are the productions immediately derived from the surface

6 Preface

of the earth. Adam Smith, and the other able writers to whomI have alluded, not having viewed correctly the principles ofrent, have, it appears to me, overlooked many important truths,which can only be discovered after the subject of rent isthoroughly understood.

To supply this deficiency, abilities are required of a farsuperior cast to any possessed by the writer of the followingpages; yet, after having given to this subject his best considera-tion—after the aid which he has derived from the works of theabove-mentioned eminent writers—and after the valuable ex-perience which a few late years, abounding in facts, haveyielded to the present generation—it will not, he trusts, bedeemed presumptuous in him to state his opinions on the lawsof profits and wages, and on the operation of taxes. If theprinciples which he deems correct, should be found to be so,it will be for others, more able than himself, to trace them toall their important consequences.

The writer, in combating received opinions, has found itnecessary to advert more particularly to those passages in thewritings of Adam Smith from which he sees reason to differ;but he hopes it will not, on that account, be suspected thathe does not, in common with all those who acknowledge theimportance of the science of Political Economy, participate inthe admiration which the profound work of this celebratedauthor so justly excites.

The same remark may be applied to the excellent works ofM. Say, who not only was the first, or among the first, ofcontinental writers, who justly appreciated and applied theprinciples of Smith, and who has done more than all othercontinental writers taken together, to recommend the principlesof that enlightened and beneficial system to the nations ofEurope; but who has succeeded in placing the science in amore logical, and more instructive order; and has enriched it

Preface 7

1 The reference is to the 2nded., 1814, of J. B. Say’s Traited’Economie politique; the chapter

‘Des debouches’ was already inthe 1st ed., 1803 (Bk. 1, ch. xxii).

by several discussions, original, accurate, and profound.* Therespect, however, which the author entertains for the writingsof this gentleman, has not prevented him from commentingwith that freedom which he thinks the interests of sciencerequire, on such passages of the “Economie Politique,” asappeared at variance with his own ideas.

* Chap. xv. part i. “Des Debouches,” contains, in particular, somevery important principles, which I believe were first explained by thisdistinguished writer.1

ADVERTISEMENTTO THE THIRD EDITION

In this Edition I have endeavoured to explain more fully than in thelast, my opinion on the difficult subject of Value, and for that purposehave made a few additions to the first chapter. I have also inserted anew chapter on the subject of Machinery, and on the effects of itsimprovement on the interests of the different classes of the State. Inthe chapter on the Distinctive Properties of Value andRiches, I have examined the doctrines of M. Say on that importantquestion, as amended in the fourth and last edition of his work. I havein the last chapter endeavoured to place in a stronger point of viewthan before, the doctrine of the ability of a country to pay additionalmoney taxes, although the aggregate money value of the mass of itscommodities should fall, in consequence either of the diminished quan-tity of labour required to produce its corn at home, by improvementsin its husbandry, or from its obtaining a part of its corn at a cheaperprice from abroad, by means of the exportation of its manufacturedcommodities. This consideration is of great importance, as it regardsthe question of the policy of leaving unrestricted the importation offoreign corn, particularly in a country burthened with a heavy fixedmoney taxation, the consequence of an immense National Debt. I haveendeavoured to shew, that the ability to pay taxes, depends, not on thegross money value of the mass of commodities, nor on the net moneyvalue of the revenues of capitalists and landlords, but on the moneyvalue of each man’s revenue, compared to the money value of thecommodities which he usually consumes.

March 26, 1821.

CONTENTS

chap. page

I. On Value 11[Appendix to Chap. I, text of ed. 1 52]

II. On Rent 67III. On the Rent of Mines 85IV. On Natural and Market Price 88V. On Wages 93

VI. On Profits 110VII. On Foreign Trade 128

VIII. On Taxes 150IX. Taxes on Raw Produce 156X. Taxes on Rent 173

XI. Tithes 176XII. Land-Tax 181

XIII. Taxes on Gold 191XIV. Taxes on Houses 201XV. Taxes on Profits 205

XVI. Taxes on Wages 215XVII. Taxes on other Commodities than Raw

Produce 243XVIII. Poor Rates 257

XIX. On Sudden Changes in the Channels ofTrade 263

XX. Value and Riches, their Distinctive Properties 273XXI. Effects of Accumulation on Profits and

Interest 289XXII. Bounties on Exportation, and Prohibitions of

Importation 301

10 Contents

chap. pageXXIII. On Bounties on Production 321XXIV. Doctrine of Adam Smith concerning the

Rent of Land 327XXV. On Colonial Trade 338

XXVI. On Gross and Net Revenue 347XXVII. On Currency and Banks 352

XXVIII. On the comparative Value of Gold, Corn,and Labour, in Rich and in Poor Countries 373

XXIX. Taxes paid by the Producer 379XXX. On the Influence of Demand and Supply on

Prices 382XXXI. On Machinery 386

XXXII. Mr. Malthus’s Opinions on Rent 398

[In ed. 1, owing to the duplication in two cases of the chapter numbers, thenumbering from Ch. V onwards was as follows: V, On Wages; V*, OnProfits; VI, On Foreign Trade; VII, On Taxes; VIII, Taxes on Raw Produce;VIII*, Taxes on Rent; IX, Tithes, and so on. The chapter on Machinery(XXXI) was added in ed. 3; therefore the last chapter (Mr. Malthus’s Opin-ions on Rent) was XXIX in ed. 1, and XXXI in ed. 2.]

1 Ed. 1 does not divide this chapterinto sections; ed. 2 divides it intofive sections and ed. 3 into seven.Section 1 bears the same heading ined. 2 and in ed. 3.

2 Wealth of Nations, Bk. 1, ch. iv;Cannan’s ed., vol. i, p. 30. Thepassage continues by contrastingwater with diamonds.

chapter i

On Value

section i

The value of a commodity, or the quantity of any other commodityfor which it will exchange, depends on the relative quantity oflabour which is necessary for its production, and not on thegreater or less compensation which is paid for that labour.1

It has been observed by Adam Smith, that “the word Valuehas two different meanings, and sometimes expresses the utilityof some particular object, and sometimes the power of pur-chasing other goods which the possession of that object con-veys. The one may be called value in use; the other value inexchange. The things,” he continues, “which have the greatestvalue in use, have frequently little or no value in exchange;and, on the contrary, those which have the greatest value inexchange, have little or no value in use.”2 Water and air areabundantly useful; they are indeed indispensable to existence,yet, under ordinary circumstances, nothing can be obtained inexchange for them. Gold, on the contrary, though of little usecompared with air or water, will exchange for a great quantityof other goods.

Utility then is not the measure of exchangeable value, al-though it is absolutely essential to it. If a commodity were inno way useful,—in other words, if it could in no way con-tribute to our gratification,—it would be destitute of exchange-able value, however scarce it might be, or whatever quantityof labour might be necessary to procure it.

12 Principles ch. i

1 Eds. 1–2 read ‘depends solely’.

Possessing utility, commodities derive their exchangeablevalue from two sources: from their scarcity, and from thequantity of labour required to obtain them.

There are some commodities, the value of which is deter-mined by their scarcity alone. No labour can increase thequantity of such goods, and therefore their value cannot belowered by an increased supply. Some rare statues and pictures,scarce books and coins, wines of a peculiar quality, which canbe made only from grapes grown on a particular soil, of whichthere is a very limited quantity, are all of this description. Theirvalue is wholly independent of the quantity of labour originallynecessary to produce them, and varies with the varying wealthand inclinations of those who are desirous to possess them.

These commodities, however, form a very small part of themass of commodities daily exchanged in the market. By farthe greatest part of those goods which are the objects of desire,are procured by labour; and they may be multiplied, not inone country alone, but in many, almost without any assignablelimit, if we are disposed to bestow the labour necessary toobtain them.

In speaking then of commodities, of their exchangeable value,and of the laws which regulate their relative prices, we meanalways such commodities only as can be increased in quantityby the exertion of human industry, and on the production ofwhich competition operates without restraint.

In the early stages of society, the exchangeable value of thesecommodities, or the rule which determines how much of oneshall be given in exchange for another, depends almost ex-clusively1 on the comparative quantity of labour expended oneach.

“The real price of every thing,” says Adam Smith, “whatevery thing really costs to the man who wants to acquire it,

On Valuesec. i 13

1 Ch. v and vi; Cannan’s ed. vol. i, pp. 32 and 49.

is the toil and trouble of acquiring it. What every thing is reallyworth to the man who has acquired it, and who wants to dis-pose of it, or exchange it for something else, is the toil andtrouble which it can save to himself, and which it can imposeupon other people.” “Labour was the first price—the originalpurchase-money that was paid for all things.” Again, “in thatearly and rude state of society, which precedes both the accu-mulation of stock and the appropriation of land, the proportionbetween the quantities of labour necessary for acquiring dif-ferent objects seems to be the only circumstance which canafford any rule for exchanging them for one another. If amonga nation of hunters, for example, it usually cost twice the labourto kill a beaver which it does to kill a deer, one beaver shouldnaturally exchange for, or be worth two deer. It is naturalthat what is usually the produce of two days’, or two hours’labour, should be worth double of what is usually the produceof one day’s, or one hour’s labour.”*

That this is really the foundation of the exchangeable valueof all things, excepting those which cannot be increased byhuman industry, is a doctrine of the utmost importance inpolitical economy; for from no source do so many errors, andso much difference of opinion in that science proceed, as fromthe vague ideas which are attached to the word value.

If the quantity of labour realized in commodities, regulatetheir exchangeable value, every increase of the quantity oflabour must augment the value of that commodity on whichit is exercised, as every diminution must lower it.

Adam Smith, who so accurately defined the original sourceof exchangeable value, and who was bound in consistency tomaintain, that all things became more or less valuable in pro-portion as more or less labour was bestowed on their produc-

* Book i. chap. 5.1

14 Principles ch. i

tion, has himself erected another standard measure of value,and speaks of things being more or less valuable, in proportionas they will exchange for more or less of this standard measure.Sometimes he speaks of corn, at other times of labour, as astandard measure; not the quantity of labour bestowed on theproduction of any object, but the quantity which it can com-mand 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 com-modity, he would necessarily receive twice the former quantityin exchange for it.

If this indeed were true, if the reward of the labourer werealways in proportion to what he produced, the quantity oflabour bestowed on a commodity, and the quantity of labourwhich that commodity would purchase, would be equal, andeither might accurately measure the variations of other things:but they are not equal; the first is under many circumstances aninvariable standard, indicating correctly the variations of otherthings; the latter is subject to as many fluctuations as the com-modities compared with it. Adam Smith, after most ablyshowing the insufficiency of a variable medium, such as goldand silver, for the purpose of determining the varying valueof other things, has himself, by fixing on corn or labour, chosena medium no less variable.

Gold and silver are no doubt subject to fluctuations, fromthe discovery of new and more abundant mines; but such dis-coveries are rare, and their effects, though powerful, are limitedto periods of comparatively short duration. They are sub-ject also to fluctuation, from improvements in the skill andmachinery with which the mines may be worked; as in con-sequence of such improvements, a greater quantity may beobtained with the same labour. They are further subject tofluctuation from the decreasing produce of the mines, after they

On Valuesec. i 15

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 inagriculture, from improved machinery and implements usedin husbandry, as well as from the discovery of new tracts offertile land, which in other countries may be taken into cultiva-tion, and which will affect the value of corn in every marketwhere importation is free? Is it not on the other hand subjectto be enhanced in value from prohibitions of importation, fromincreasing population and wealth, and the greater difficulty ofobtaining the increased supplies, on account of the additionalquantity of labour which the cultivation of inferior lands re-quires? Is not the value of labour equally variable; being notonly affected, as all other things are, by the proportion betweenthe supply and demand, which uniformly varies with everychange in the condition of the community, but also by thevarying price of food and other necessaries, on which the wagesof labour are expended?

In the same country double the quantity of labour may berequired to produce a given quantity of food and necessariesat one time, that may be necessary at another, and a distanttime; yet the labourer’s reward may possibly be very littlediminished. If the labourer’s wages at the former period, werea certain quantity of food and necessaries, he probably couldnot have subsisted if that quantity had been reduced. Foodand necessaries in this case will have risen 100 per cent. ifestimated by the quantity of labour necessary to their produc-tion, while they will scarcely have increased in value, if measuredby the quantity of labour for which they will exchange.

The same remark may be made respecting two or morecountries. In America and Poland, on the land last taken intocultivation, a year’s labour of any given number of men, willproduce much more corn than on land similarly circumstanced

16 Principles ch. i

1 In ed. 1 this sentence reads ‘InAmerica and Poland, a year’s labourwill produce much more corn thanin England.’

2 Eds. 1–2 do not contain ‘it isprobable’.

in England.1 Now, supposing all other necessaries to be equallycheap in those three countries, would it not be a great mistaketo conclude, that the quantity of corn awarded to the labourer,would in each country be in proportion to the facility of pro-duction?

If the shoes and clothing of the labourer, could, by improve-ments in machinery, be produced by one fourth of the labournow necessary to their production, they would probably fall75 per cent.; but so far is it from being true, that the labourerwould thereby be enabled permanently to consume four coats,or four pair of shoes, instead of one, that it is probable2 hiswages would in no long time be adjusted by the effects ofcompetition, and the stimulus to population, to the new valueof the necessaries on which they were expended. If theseimprovements extended to all the objects of the labourer’s con-sumption, we should find him probably at the end of a veryfew years, in possession of only a small, if any, addition to hisenjoyments, although the exchangeable value of those com-modities, compared with any other commodity, in the manu-facture of which no such improvement were made, had sustaineda very considerable reduction; and though they were theproduce of a very considerably diminished quantity oflabour.

It cannot then be correct, to say with Adam Smith, “thatas labour may sometimes purchase a greater, and sometimes asmaller quantity of goods, it is their value which varies, notthat of the labour which purchases them;” and therefore, “thatlabour alone never varying in its own value, is alone the ultimateand real standard by which the value of all commodities can

On Valuesec. i 17

1 Bk. 1, ch. v; vol. i, p. 35. Thequotations contain some minor in-accuracies and the italics, as in mostother cases, are Ricardo’s.2 Bk. 1, ch. vi; vol. i, p. 49. Quotedmore fully above, p. 13.3 In place of the four paragraphsthat follow in the text, and whichconclude the section, eds. 1–2read: ‘If any one commodity couldbe found, which now and at alltimes required precisely the samequantity of labour to produce it,that commodity would be of anunvarying value, and would beeminently useful as a standard bywhich the variations of other thingsmight be measured. Of such acommodity we have no knowledge,and consequently are unable to fixon any standard of value. It is,

however, of considerable use to-wards attaining a correct theory, toascertain what the essential qualitiesof a standard are, that we may knowthe causes of the variation in therelative value of commodities, andthat we may be enabled to calculatethe degree in which they are likelyto operate.’ See however a similarpassage retained in ed. 3, below,p. 275; and cp. Section vi, p. 43 ff.,which is inserted in ed. 3.

In eds. 1–2 the paragraph givenin this footnote is followed directlyby the paragraph which in ed. 3opens Section ii (p. 20); in ed. 1 thetwo paragraphs are separated by aprinter’s rule (the only trace ofsubdivision of this chapter in ed. 1);in ed. 2 the rule is dropped.

at all times and places be estimated and compared;”1—but itis correct to say, as Adam Smith had previously said, “thatthe proportion between the quantities of labour necessaryfor acquiring different objects seems to be the only circum-stance which can afford any rule for exchanging them for oneanother;”2 or in other words, that it is the comparative quantityof commodities which labour will produce, that determinestheir present or past relative value, and not the comparativequantities of commodities, which are given to the labourer inexchange for his labour.3

Two commodities vary in relative value, and we wish toknow in which the variation has really taken place. If we com-pare the present value of one, with shoes, stockings, hats, iron,sugar, and all other commodities, we find that it will exchangefor precisely the same quantity of all these things as before.If we compare the other with the same commodities, we findit has varied with respect to them all: we may then with great

18 Principles ch. i

1 Malthus’s Principles of Political Economy, ch. ii, sect. vii; below, II, 95 ff.

probability infer that the variation has been in this com-modity, and not in the commodities with which we havecompared it. If on examining still more particularly into allthe circumstances connected with the production of thesevarious commodities, we find that precisely the same quantityof labour and capital are necessary to the production of theshoes, stockings, hats, iron, sugar, &c.; but that the samequantity as before is not necessary to produce the single com-modity whose relative value is altered, probability is changedinto certainty, and we are sure that the variation is in thesingle commodity: we then discover also the cause of itsvariation.

If I found that an ounce of gold would exchange for a lessquantity of all the commodities above enumerated, and manyothers; and if, moreover, I found that by the discovery of anew and more fertile mine, or by the employment of machineryto great advantage, a given quantity of gold could be obtainedwith a less quantity of labour, I should be justified in saying thatthe cause of the alteration in the value of gold relatively to othercommodities, was the greater facility of its production, or thesmaller quantity of labour necessary to obtain it. In like manner,if labour fell very considerably in value, relatively to all otherthings, and if I found that its fall was in consequence of anabundant supply, encouraged by the great facility with whichcorn, and the other necessaries of the labourer, were produced,it would, I apprehend, be correct for me to say that corn andnecessaries had fallen in value in consequence of less quantityof labour being necessary to produce them, and that this facilityof providing for the support of the labourer had been followedby a fall in the value of labour. No, say Adam Smith andMr. Malthus,1 in the case of the gold you were correct in callingits variation a fall of its value, because corn and labour had not

On Valuesec. i 19

1 Malthus, op. cit., below, II, 190–4.

then varied; and as gold would command a less quantity ofthem, as well as of all other things, than before, it was correctto say that all things had remained stationary, and that goldonly had varied; but when corn and labour fall, things whichwe have selected to be our standard measure of value, not-withstanding all the variations to which we acknowledge theyare subject, it would be highly improper to say so; the correctlanguage will be to say, that corn and labour have remainedstationary, and all other things have risen in value.

Now it is against this language that I protest. I find thatprecisely, as in the case of the gold, the cause of the variationbetween corn and other things, is the smaller quantity of labournecessary to produce it, and therefore, by all just reasoning,I am bound to call the variation of corn and labour a fall intheir value, and not a rise in the value of the things with whichthey are compared. If I have to hire a labourer for a week,and instead of ten shillings I pay him eight, no variation havingtaken place in the value of money, the labourer can probablyobtain more food and necessaries, with his eight shillings, thanhe before obtained for ten: but this is owing, not to a rise inthe real value of his wages, as stated by Adam Smith, and morerecently by Mr. Malthus, but to a fall in the value of the thingson which his wages are expended, things perfectly distinct; andyet for calling this a fall in the real value of wages, I am toldthat I adopt new and unusual language, not reconcileable withthe true principles of the science.1 To me it appears that theunusual and, indeed, inconsistent language, is that used by myopponents.

Suppose a labourer to be paid a bushel of corn for a week’swork, when the price of corn is 80s. per quarter, and that heis paid a bushel and a quarter when the price falls to 40s.Suppose, too, that he consumes half a bushel of corn a-week

20 Principles ch. i

1 In substance, Bk. i, ch. v; vol. i,p. 33.2 Ed. 2 does not contain thisheading and continues Section i top. 22.

3 Eds. 1–2 do not contain ‘almostexclusively’.4 An echo, as Cannan points out(Review of Ec. Th., p. 175), of AdamSmith’s ‘esteem’ (vol. i, p. 49).

in his own family, and exchanges the remainder for otherthings, such as fuel, soap, candles, tea, sugar, salt, &c. &c.;if the three-fourths of a bushel which will remain to him, inone case, cannot procure him as much of the above com-modities as half a bushel did in the other, which it will not,will labour have risen or fallen in value? Risen, Adam Smithmust say, because his standard is corn, and the labourer receivesmore corn for a week’s labour. Fallen, must the same AdamSmith say, “because the value of a thing depends on the powerof purchasing other goods which the possession of that objectconveys,”1 and labour has a less power of purchasing suchother goods.

section ii

Labour of different qualities differently rewarded. This no causeof variation in the relative value of commodities.2

In speaking, however, of labour, as being the foundation of allvalue, and the relative quantity of labour as almost exclusively3

determining the relative value of commodities, I must not besupposed to be inattentive to the different qualities of labour,and the difficulty of comparing an hour’s or a day’s labour, inone employment, with the same duration of labour in another.The estimation4 in which different qualities of labour are held,comes soon to be adjusted in the market with sufficient pre-cision for all practical purposes, and depends much on thecomparative skill of the labourer, and intensity of the labourperformed. The scale, when once formed, is liable to littlevariation. If a day’s labour of a working jeweller be morevaluable than a day’s labour of a common labourer, it has long

On Valuesec. ii 21

1 Cp. a similar distinction in a letterof 9 Oct. 1820, below, VIII, 279.2 This passage actually occurs in

Bk. i, ch. v; vol. i, p. 33. But

ago been adjusted, and placed in its proper position in the scaleof value.*

In comparing therefore the value of the same commodity,at different periods of time, the consideration of the compara-tive skill and intensity of labour, required for that particularcommodity, needs scarcely to be attended to, as it operatesequally at both periods. One description of labour at one timeis 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 therelative 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 clothshould be four pieces of linen, we may safely conclude, thateither more labour is required to make the cloth, or less tomake 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 ofcommodities, and not in their absolute value,1 it will be of little

* “But though labour be the real measure of the exchangeable valueof all commodities, it is not that by which their value is commonlyestimated. It is often difficult to ascertain the proportion between twodifferent quantities of labour. The time spent in two different sorts ofwork will not always alone determine this proportion. The differentdegrees of hardship endured, and of ingenuity exercised, must likewisebe taken into account. There may be more labour in an hour’s hard work,than in two hours easy business; or, in an hour’s application to a tradewhich it costs ten years’ labour to learn, than in a month’s industry atan ordinary and obvious employment. But it is not easy to find anyaccurate measure, either of hardship or ingenuity. In exchanging, indeed,the different productions of different sorts of labour for one another, someallowance is commonly made for both. It is adjusted, however, not byany accurate measure, but by the higgling and bargaining of the market,according to that sort of rough equality, which though not exact, issufficient for carrying on the business of common life.”—Wealth ofNations, book i. chap. 10.2

Bk. i, ch. x, pt. i, contains a longdiscussion of the same subject.

22 Principles ch. i

1 Cannan’s ed., vol. i, p. 144.2 In ed. 2 ‘Section ii. The ac-cumulation of capital makes nodifference in the principle stated inthe last section.’3 Eds. 1–2 prefix to this paragraphan additional passage, which reads:

‘It will be seen by the extractwhich I have made in page [13],from the “Wealth of Nations,” thatthough Adam Smith fully recog-nized the principle, that the pro-portion between the quantities oflabour necessary for acquiring dif-

importance to examine into the comparative degree of estima-tion in which the different kinds of human labour are held. Wemay fairly conclude, that whatever inequality there mightoriginally have been in them, whatever the ingenuity, skill, ortime necessary for the acquirement of one species of manualdexterity more than another, it continues nearly the same fromone generation to another; or at least, that the variation is veryinconsiderable from year to year, and therefore, can have littleeffect, for short periods, on the relative value of commodities.

“The proportion between the different rates both of wagesand 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 decliningstate 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 employ-ments. The proportion between them therefore must remainthe same, and cannot well be altered, at least for any con-siderable time, by any such revolutions.”*

* Wealth of Nations, book i. chap. 10.1

section iii

Not only the labour applied immediately to commodities affecttheir value, but the labour also which is bestowed on the imple-ments, tools, and buildings, with which such labour is assisted.2

Even 3 in that early state to which Adam Smith refers, somecapital, though possibly made and accumulated by the hunter

On Valuesec. iii 23

ferent objects, is the only circum-stance which can afford any rulefor our exchanging them for oneanother, yet he limits its applica-tion to “that early and rude stateof society, which precedes both theaccumulation of stock and the ap-propriation of land;” as if, whenprofits and rent were to be paid,they would have some influenceon the relative value of commodi-ties, independent of the merequantity of labour that was neces-sary to their production.

‘Adam Smith, however, has nowhere analyzed the effects of theaccumulation of capital, and theappropriation of land, on relative

value. It is of importance, there-fore, to determine how far theeffects which are avowedly pro-duced on the exchangeable valueof commodities, by the compara-tive quantity of labour bestowedon their production, are modifiedor altered by the accumulation ofcapital and the payment of rent.

‘First, as to the accumulationof capital. Even’ etc.

This ‘First’ is to be related tothe phrase ‘It remains however to beconsidered’ which opens the chapteron Rent, p. 67; cp. also p. 77–8.1 Eds. 1–2 ‘were’.2 Eds. 1–2 do not contain this sen-tence, beginning ‘Or suppose’.

himself, would be necessary to enable him to kill his game.Without some weapon, neither the beaver nor the deer couldbe destroyed, and therefore the value of these animals wouldbe regulated, not solely by the time and labour necessary totheir destruction, but also by the time and labour necessaryfor providing the hunter’s capital, the weapon, by the aid ofwhich their destruction was effected.

Suppose the weapon necessary to kill the beaver, was1 con-structed with much more labour than that necessary to kill thedeer, on account of the greater difficulty of approaching nearto the former animal, and the consequent necessity of its beingmore true to its mark; one beaver would naturally be of morevalue than two deer, and precisely for this reason, that morelabour would, on the whole, be necessary to its destruction.Or suppose that the same quantity of labour was necessary tomake both weapons, but that they were of very unequaldurability; of the durable implement only a small portion ofits value would be transferred to the commodity, a much greaterportion of the value of the less durable implement would berealized in the commodity which it contributed to produce.2

24 Principles ch. i

All the implements necessary to kill the beaver and deermight belong to one class of men, and the labour employedin their destruction might be furnished by another class; still,their comparative prices would be in proportion to the actuallabour bestowed, both on the formation of the capital, and onthe destruction of the animals. Under different circumstancesof plenty or scarcity of capital, as compared with labour, underdifferent circumstances of plenty or scarcity of the food andnecessaries essential to the support of men, those who furnishedan equal value of capital for either one employment or for theother, might have a half, a fourth, or an eighth of the produceobtained, the remainder being paid as wages to those whofurnished the labour; yet this division could not affect therelative value of these commodities, since whether the profitsof capital were greater or less, whether they were 50, 20, or10 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, thatsome provide canoes and tackle necessary for fishing, othersthe seed and rude machinery first used in agriculture, still thesame principle would hold true, that the exchangeable valueof the commodities produced would be in proportion to thelabour bestowed on their production; not on their immediateproduction only, but on all those implements or machinesrequired to give effect to the particular labour to which theywere applied.

If we look to a state of society in which greater improve-ments have been made, and in which arts and commerceflourish, we shall still find that commodities vary in valueconformably with this principle: in estimating the exchangeablevalue of stockings, for example, we shall find that their value,comparatively with other things, depends on the total quantityof labour necessary to manufacture them, and bring them to

On Valuesec. iii 25

market. First, there is the labour necessary to cultivate the landon which the raw cotton is grown; secondly, the labour ofconveying the cotton to the country where the stockings areto be manufactured, which includes a portion of the labourbestowed in building the ship in which it is conveyed, andwhich is charged in the freight of the goods; thirdly, the labourof the spinner and weaver; fourthly, a portion of the labourof the engineer, smith, and carpenter, who erected the buildingsand machinery, by the help of which they are made; fifthly,the labour of the retail dealer, and of many others, whom it isunnecessary further to particularize. The aggregate sum of thesevarious kinds of labour, determines the quantity of other thingsfor which these stockings will exchange, while the same con-sideration of the various quantities of labour which have beenbestowed on those other things, will equally govern the portionof them which will be given for the stockings.

To convince ourselves that this is the real foundation ofexchangeable value, let us suppose any improvement to bemade in the means of abridging labour in any one of the variousprocesses through which the raw cotton must pass, before themanufactured stockings come to the market, to be exchangedfor other things; and observe the effects which will follow. Iffewer men were required to cultivate the raw cotton, or if fewersailors were employed in navigating, or shipwrights in con-structing the ship, in which it was conveyed to us; if fewerhands were employed in raising the buildings and machinery,or if these, when raised, were rendered more efficient, thestockings would inevitably fall in value, and consequentlycommand less of other things. They would fall, becausea less quantity of labour was necessary to their production,and would therefore exchange for a smaller quantity of thosethings in which no such abridgment of labour had beenmade.

26 Principles ch. i

1 The text of ed. 1, with the variantsof ed. 2, for the remainder ofthis chapter is given below, pp.52–66.2 Ed. 1 contains here in additionfive paragraphs of which in ed. 3

four occur later in the chapter andthe fifth is omitted. Ed. 2 also con-tains here five paragraphs, all ofwhich occur later in ed. 3, thougharranged in a different order. Seep. 30, n. 2, and cp. pp. 52–3.

Economy1 in the use of labour never fails to reduce the rela-tive value of a commodity, whether the saving be in the labournecessary to the manufacture of the commodity itself, or inthat necessary to the formation of the capital, by the aid ofwhich it is produced. In either case the price of stockingswould fall, whether there were fewer men employed as bleachers,spinners, and weavers, persons immediately necessary to theirmanufacture; or as sailors, carriers, engineers, and smiths, per-sons more indirectly concerned. In the one case, the wholesaving of labour would fall on the stockings, because thatportion of labour was wholly confined to the stockings; in theother, a portion only would fall on the stockings, the remainderbeing applied to all those other commodities, to the productionof which the buildings, machinery, and carriage, were sub-servient.2

Suppose that in the early stages of society, the bows andarrows of the hunter were of equal value, and of equal dura-bility, with the canoe and implements of the fisherman, bothbeing the produce of the same quantity of labour. Under suchcircumstances the value of the deer, the produce of the hunter’sday’s labour, would be exactly equal to the value of the fish,the produce of the fisherman’s day’s labour. The comparativevalue of the fish and the game, would be entirely regulatedby the quantity of labour realized in each; whatever might bethe quantity of production, or however high or low generalwages or profits might be. If for example the canoes and imple-ments of the fisherman were of the value of 100l. and werecalculated to last for ten years, and he employed ten men,whose annual labour cost 100l. and who in one day obtained

On Valuesec. iii 27

1 Eds. 1–2 contain here in addition‘requiring at all times, and underall circumstances, precisely the same

quantity of labour to obtain it’.Cp. the discussion of this conditionin ed. 3 on p. 44.

by their labour twenty salmon: If the weapons employed bythe hunter were also of 100l. value and calculated to last tenyears, and if he also employed ten men, whose annual labourcost 100l. and who in one day procured him ten deer; thenthe natural price of a deer would be two salmon, whether theproportion of the whole produce bestowed on the men whoobtained it, were large or small. The proportion which mightbe paid for wages, is of the utmost importance in the questionof profits; for it must at once be seen, that profits would behigh or low, exactly in proportion as wages were low or high;but it could not in the least affect the relative value of fish andgame, as wages would be high or low at the same time in bothoccupations. If the hunter urged the plea of his paying a largeproportion, or the value of a large proportion of his game forwages, as an inducement to the fisherman to give him morefish in exchange for his game, the latter would state that hewas equally affected by the same cause; and therefore underall variations of wages and profits, under all the effects ofaccumulation of capital, as long as they continued by a day’slabour to obtain respectively the same quantity of fish, and thesame quantity of game, the natural rate of exchange wouldbe 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 fishwould rise in comparison with that of game. If, on the con-trary, with the same quantity of labour a less quantity of game,or a greater quantity of fish was obtained, game would rise incomparison with fish.

If there were any other commodity which was invariablein its value,1 we should be able to ascertain, by comparing thevalue of fish and game with this commodity, how much of the

28 Principles ch. i

1 In place of the words ‘for sup-pose them to rise’ eds. 1–2 containa passage of twenty-six lines (see

pp. 54–5); in the course of this‘the miner’ is introduced as a thirdoccupation.

variation was to be attributed to a cause which affected thevalue of fish, and how much to a cause which affected the valueof game.

Suppose money to be that commodity. If a salmon wereworth 1l. and a deer 2l. one deer would be worth two salmon.But a deer might become of the value of three salmon, formore labour might be required to obtain the deer, or less toget the salmon, or both these causes might operate at the sametime. If we had this invariable standard, we might easilyascertain in what degree either of these causes operated. Ifsalmon continued to sell for 1l. whilst deer rose to 3l. we mightconclude that more labour was required to obtain the deer.If deer continued at the same price of 2l. and salmon sold for13s. 4d. we might then be sure that less labour was requiredto obtain the salmon; and if deer rose to 2l. 10s. and salmonfell to 16s. 8d. we should be convinced that both causes hadoperated in producing the alteration of the relative value ofthese commodities.

No alteration in the wages of labour could produce anyalteration in the relative value of these commodities; for sup-pose them to rise,1 no greater quantity of labour would berequired in any of these occupations, but it would be paid forat a higher price, and the same reasons which should make thehunter and fisherman endeavour to raise the value of their gameand fish, would cause the owner of the mine to raise the valueof his gold. This inducement acting with the same force onall these three occupations, and the relative situation of thoseengaged in them being the same before and after the rise ofwages, the relative value of game, fish, and gold, would con-tinue unaltered. Wages might rise twenty per cent., and profits

On Valuesec. iii 29

1 Eds. 1–2 do not contain ‘if produced under the circumstances sup-posed,’.

consequently fall in a greater or less proportion, without occa-sioning the least alteration in the relative value of these com-modities.

Now suppose, that with the same labour and fixed capital,more fish could be produced, but no more gold or game, therelative value of fish would fall in comparison with gold orgame. If, instead of twenty salmon, twenty-five were the pro-duce of one day’s labour, the price of a salmon would be six-teen shillings instead of a pound, and two salmon and a half,instead of two salmon, would be given in exchange for onedeer, but the price of deer would continue at 2l. as before. Inthe same manner, if fewer fish could be obtained with the samecapital and labour, fish would rise in comparative value. Fishthen would rise or fall in exchangeable value, only becausemore or less labour was required to obtain a given quantity;and it never could rise or fall beyond the proportion of theincreased or diminished quantity of labour required.

If we had then an invariable standard, by which we couldmeasure the variation in other commodities, we should findthat the utmost limit to which they could permanently rise,if produced under the circumstances supposed,1 was propor-tioned to the additional quantity of labour required for theirproduction; and that unless more labour were required for theirproduction, they could not rise in any degree whatever. A riseof wages would not raise them in money value, nor relativelyto any other commodities, the production of which requiredno additional quantity of labour, which employed the sameproportion of fixed and circulating capital, and fixed capital ofthe same durability. If more or less labour were required inthe production of the other commodity, we have already statedthat this will immediately occasion an alteration in its relative

30 Principles ch. i

1 Ed. 2 contains here an additionalparagraph (see p. 56, n. 1), afterwhich it opens ‘Section iii. Theprinciple stated in the foregoingsection considerably modified by theemployment of machinery as fixedcapital.’2 So much of the first seven para-graphs of this section as is con-

tained in eds. 1–2 occurs in thoseeds. earlier in the chapter; seep. 26, n. 2 above and cp. pp. 52–3below.3 Eds. 1–2 do not contain thisparagraph; but for similar state-ments in those eds. see p. 53(‘Besides the alteration’) and p. 56(‘If the fixed’).

value, but such alteration is owing to the altered quantity ofrequisite labour, and not to the rise of wages.1

section iv

The principle that the quantity of labour bestowed on the produc-tion of commodities regulates their relative value, considerablymodified by the employment of machinery and other fixed anddurable capital.2

In the former section we have supposed the implements andweapons necessary to kill the deer and salmon, to be equallydurable, and to be the result of the same quantity of labour,and we have seen that the variations in the relative value ofdeer and salmon depended solely on the varying quantities oflabour necessary to obtain them,—but in every state of society,the tools, implements, buildings, and machinery employed indifferent trades may be of various degrees of durability, andmay require different portions of labour to produce them. Theproportions, 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 ofdurability of fixed capital, and this variety in the proportionsin which the two sorts of capital may be combined, introduceanother cause, besides the greater or less quantity of labournecessary to produce commodities, for the variations in theirrelative value—this cause is the rise or fall in the value oflabour.3

On Valuesec. iv 31

1 Eds. 1–2 prefix to this paragraphan additional sentence which reads:‘In every society the capital whichis employed in production, is neces-sarily of limited durability. Thefood’ etc.2 Ed. 1 does not contain this para-graph. Ed. 2 places it three para-

graphs below, after the one begin-ning ‘Again two manufacturers’.It was added, like the paragraphquoted on p. 61, note, to meet anobjection of Torrens.3 Ed. 1 does not contain this foot-note; see, however, the passage onthe difficulty of demarcation, p. 150.

The food1 and clothing consumed by the labourer, thebuildings in which he works, the implements with which hislabour is assisted, are all of a perishable nature. There is how-ever a vast difference in the time for which these differentcapitals will endure: a steam-engine will last longer than a ship,a ship than the clothing of the labourer, and the clothing of thelabourer longer than the food which he consumes.

According as capital is rapidly perishable, and requires tobe frequently reproduced, or is of slow consumption, it isclassed under the heads of circulating, or of fixed capital.*A brewer, whose buildings and machinery are valuable anddurable, is said to employ a large portion of fixed capital: onthe contrary, a shoemaker, whose capital is chiefly employedin the payment of wages, which are expended on food andclothing, commodities more perishable than building andmachinery, is said to employ a large proportion of his capitalas circulating capital.

It is also to be observed that the circulating capital maycirculate, or be returned to its employer, in very unequal times.The wheat bought by a farmer to sow is comparatively a fixedcapital to the wheat purchased by a baker to make into loaves.One leaves it in the ground, and can obtain no return for ayear; the other can get it ground into flour, sell it as bread tohis customers, and have his capital free to renew the same, orcommence any other employment in a week.2

* A division not essential, and in which the line of demarcation cannotbe accurately drawn.3

32 Principles ch. i

1 Eds. 1–2 do not contain thisparagraph.2 Eds. 1–2 do not contain the re-

mainder of this section, except forthe passages mentioned in the noteson pp. 35, 37 and 38, n. 2.

Two trades then may employ the same amount of capital;but it may be very differently divided with respect to the por-tion which is fixed, and that which is circulating.

In one trade very little capital may be employed as circu-lating capital, that is to say in the support of labour—it maybe 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, butit may be chiefly employed in the support of labour, and verylittle 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.1

Again two manufacturers may employ the same amount offixed, and the same amount of circulating capital; but thedurability of their fixed capitals may be very unequal. Onemay have steam-engines of the value of 10,000l., the other,ships of the same value.2

If men employed no machinery in production but labouronly, and were all the same length of time before they broughttheir commodities to market, the exchangeable value of theirgoods would be precisely in proportion to the quantity oflabour employed.

If they employed fixed capital of the same value and of thesame durability, then, too, the value of the commodities pro-duced would be the same, and they would vary with the greateror less quantity of labour employed on their production.

But although commodities produced under similar circum-stances, would not vary with respect to each other, from anycause but an addition or diminution of the quantity of labournecessary to produce one or other of them, yet compared with

On Valuesec. iv 33

others not produced with the same proportionate quantity offixed capital, they would vary from the other cause also whichI have before mentioned, namely, a rise in the value of labour,although neither more nor less labour were employed in theproduction of either of them. Barley and oats would continueto bear the same relation to each other under any variation ofwages. Cotton goods and cloth would do the same, if theyalso were produced under circumstances precisely similar toeach other, but yet with a rise or fall of wages, barley might bemore or less valuable compared with cotton goods, and oatscompared with cloth.

Suppose two men employ one hundred men each for a yearin the construction of two machines, and another man employsthe same number of men in cultivating corn, each of the ma-chines 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 employit, with the assistance of one hundred men, the following yearin making cloth, and the owner of the other machine to employhis also, with the assistance likewise of one hundred men, inmaking cotton goods, while the farmer continues to employone hundred men as before in the cultivation of corn. Duringthe second year they will all have employed the same quantityof labour, but the goods and machine together of the clothier,and also of the cotton manufacturer, will be the result of thelabour of two hundred men, employed for a year; or, rather,of the labour of one hundred men for two years; whereas thecorn will be produced by the labour of one hundred men forone year, consequently if the corn be of the value of 500l. themachine and cloth of the clothier together, ought to be of thevalue of 1000l. and the machine and cotton goods of the cottonmanufacturer, 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

34 Principles ch. i

the profit on the clothier’s and cotton manufacturer’s capital forthe first year has been added to their capitals, while that of thefarmer has been expended and enjoyed. On account then of thedifferent degrees of durability of their capitals, or, which is thesame thing, on account of the time which must elapse beforeone set of commodities can be brought to market, they will bevaluable, not exactly in proportion to the quantity of labourbestowed on them,—they will not be as two to one, but some-thing more, to compensate for the greater length of time whichmust elapse before the most valuable can be brought to market.

Suppose that for the labour of each workman 50l. per annumwere paid, or that 5000l. capital were employed and profits were10 per cent., the value of each of the machines as well as ofthe corn, at the end of the first year, would be 5,500l. Thesecond year the manufacturers and farmer will again employ5000l. each in the support of labour, and will therefore againsell their goods for 5,500l., but the men using the machines,to be on a par with the farmer, must not only obtain 5,500l.,for the equal capitals of 5000l. employed on labour, but theymust obtain a further sum of 550l.; for the profit on 5,500l.which they have invested in machinery, and consequently theirgoods must sell for 6,050l. Here then are capitalists employingprecisely the same quantity of labour annually on the produc-tion of their commodities, and yet the goods they producediffer in value on account of the different quantities of fixedcapital, or accumulated labour, employed by each respectively.The cloth and cotton goods are of the same value, because theyare the produce of equal quantities of labour, and equal quanti-ties of fixed capital; but corn is not of the same value as thesecommodities, because it is produced, as far as regards fixedcapital, under different circumstances.

But how will their relative value be affected by a rise in thevalue of labour? It is evident that the relative values of cloth

On Valuesec. iv 35

1 Although the last three para-graphs are not contained in eds.1–2, they correspond in substanceto pp. 56 (‘First,’ etc.) to 58. The

text of ed. 3 embodies a correctionsuggested by Malthus (that somecommodities rise with wages); cp.below, p. 43, n. 4.

and cotton goods will undergo no change, for what affects onemust equally affect the other, under the circumstances sup-posed: neither will the relative values of wheat and barleyundergo any change, for they are produced under the samecircumstances as far as fixed and circulating capital are con-cerned; but the relative value of corn to cloth, or to cottongoods, must be altered by a rise of labour.

There can be no rise in the value of labour without a fallof profits. If the corn is to be divided between the farmer andthe labourer, the larger the proportion that is given to the latter,the less will remain for the former. So if cloth or cotton goodsbe divided between the workman and his employer, the largerthe proportion given to the former, the less remains for thelatter. Suppose then, that owing to a rise of wages, profits fallfrom 10 to 9 per cent., instead of adding 550l. to the commonprice of their goods (to 5,500l.) for the profits on their fixedcapital, the manufacturers would add only 9 per cent. on thatsum, or 495l., consequently the price would be 5,995l. insteadof 6,050l. As the corn would continue to sell for 5,500l., themanufactured goods in which more fixed capital was employed,would fall relatively to corn or to any other goods in whicha less portion of fixed capital entered. The degree of alterationin the relative value of goods, on account of a rise or fall oflabour, would depend on the proportion which the fixed capitalbore to the whole capital employed. All commodities whichare produced by very valuable machinery, or in very valuablebuildings, or which require a great length of time before theycan be brought to market, would fall in relative value, while allthose which were chiefly produced by labour, or which wouldbe speedily brought to market would rise in relative value.1

36 Principles ch. i

The reader, however, should remark, that this cause of thevariation of commodities is comparatively slight in its effects.With such a rise of wages as should occasion a fall of one percent. in profits, goods produced under the circumstances I havesupposed, vary in relative value only one per cent.; they fallwith so great a fall of profits from 6,050l. to 5,995l. The greatesteffects which could be produced on the relative prices of thesegoods from a rise of wages, could not exceed 6 or 7 per cent.; forprofits could not, probably, under any circumstances, admit ofa greater general and permanent depression than to that amount.

Not so with the other great cause of the variation in thevalue of commodities, namely, the increase or diminution inthe quantity of labour necessary to produce them. If to pro-duce the corn, eighty, instead of one hundred men, should berequired, the value of the corn would fall 20 per cent. or from5,500l. to 4,400l. If to produce the cloth, the labour of eightyinstead of one hundred men would suffice, cloth would fallfrom 6,050l. to 4,950l. An alteration in the permanent rate ofprofits, to any great amount, is the effect of causes which donot operate but in the course of years; whereas alterations inthe quantity of labour necessary to produce commodities, areof daily occurrence. Every improvement in machinery, in tools,in buildings, in raising the raw material, saves labour, andenables us to produce the commodity to which the improve-ment is applied with more facility, and consequently its valuealters. In estimating, then, the causes of the variations in thevalue of commodities, although it would be wrong whollyto omit the consideration of the effect produced by a rise orfall of labour, it would be equally incorrect to attach muchimportance to it; and consequently, in the subsequent part ofthis work, though I shall occasionally refer to this cause ofvariation, I shall consider all the great variations which takeplace in the relative value of commodities to be produced by

On Valuesec. iv 37

1 For notice of this case in ed. 2 see p. 61, n. and cp. p. 31, n. 2.

the greater or less quantity of labour which may be requiredfrom time to time to produce them.

It is hardly necessary to say, that commodities which havethe same quantity of labour bestowed on their production, willdiffer in exchangeable value, if they cannot be brought tomarket in the same time.1

Suppose I employ twenty men at an expense of 1000l. fora year in the production of a commodity, and at the end of theyear I employ twenty men again for another year, at a furtherexpense of 1000l. in finishing or perfecting the same com-modity, and that I bring it to market at the end of two years,if profits be 10 per cent., my commodity must sell for 2,310l.;for I have employed 1000l. capital for one year, and 2,100l.capital for one year more. Another man employs precisely thesame quantity of labour, but he employs it all in the first year;he employs forty men at an expense of 2000l., and at the endof the first year he sells it with 10 per cent. profit, or for2,200l. Here then are two commodities having precisely thesame quantity of labour bestowed on them, one of which sellsfor 2,310l.—the other for 2,200l.

This case appears to differ from the last, but is, in fact, thesame. In both cases the superior price of one commodity isowing to the greater length of time which must elapse beforeit can be brought to market. In the former case the machineryand cloth were more than double the value of the corn, althoughonly double the quantity of labour was bestowed on them. Inthe second case, one commodity is more valuable than theother, although no more labour was employed on its produc-tion. The difference in value arises in both cases from theprofits being accumulated as capital, and is only a just com-pensation for the time that the profits were withheld.

It appears then that the division of capital into different

38 Principles ch. i

1 Eds. 1–2 read ‘in the early states[ed. 2 ‘stages’] of society’ in place of‘when labour is almost exclusivelyemployed in production’.2 This paragraph appears first ined. 2 (see p. 58, n. 1); but its opening

lines embody a paragraph which ined. 1 appeared later in the chapter(see p. 66, ‘It appears then thatthe accumulation’, etc.).3 Section iv of ed. 2; the summaryheading is uniform in eds. 2–3.

proportions of fixed and circulating capital, employed in dif-ferent trades, introduces a considerable modification to therule, which is of universal application when labour is almostexclusively employed in production1; namely, that commoditiesnever vary in value, unless a greater or less quantity of labourbe bestowed on their production, it being shown in this sectionthat without any variation in the quantity of labour, the riseof its value merely will occasion a fall in the exchangeablevalue of those goods, in the production of which fixed capitalis employed; the larger the amount of fixed capital, the greaterwill be the fall.2

section v

The principle that value does not vary with the rise or fall ofwages, modified also by the unequal durability of capital, and bythe unequal rapidity with which it is returned to its employer.3

In the last section we have supposed that of two equal capitalsin two different occupations, the proportions of fixed and circu-lating capitals were unequal, now let us suppose them to bein the same proportion but of unequal durability. In propor-tion as fixed capital is less durable, it approaches to the natureof circulating capital. It will be consumed and its value repro-duced in a shorter time, in order to preserve the capital of themanufacturer. We have just seen, that in proportion as fixedcapital preponderates in a manufacture, when wages rise, thevalue of commodities produced in that manufacture, is rela-tively lower than that of commodities produced in manufactureswhere circulating capital preponderates. In proportion to the

On Valuesec. v 39

1 For the differences in this para-graph between ed. 1 and ed. 3(which in this case is uniform with

ed. 2) see the notes to the paragraphbeginning ‘Secondly’, on p. 58below.

less durability of fixed capital, and its approach to the natureof circulating capital, the same effect will be produced by thesame cause.1

If fixed capital be not of a durable nature, it will require agreat quantity of labour annually to keep it in its original stateof efficiency; but the labour so bestowed may be consideredas really expended on the commodity manufactured, whichmust bear a value in proportion to such labour. If I had amachine worth 20,000l. which with very little labour wasefficient to the production of commodities, and if the wear andtear of such machine were of trifling amount, and the generalrate of profit 10 per cent., I should not require much morethan 2000l. to be added to the price of the goods, on accountof the employment of my machine; but if the wear and tearof the machine were great, if the quantity of labour requisiteto keep it in an efficient state were that of fifty men annually,I should require an additional price for my goods, equal tothat which would be obtained by any other manufacturer whoemployed fifty men in the production of other goods, and whoused no machinery at all.

But a rise in the wages of labour would not equally affectcommodities produced with machinery quickly consumed, andcommodities produced with machinery slowly consumed. Inthe production of the one, a great deal of labour would becontinually transferred to the commodity produced—in theother 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 whichwere produced with a capital of a durable nature, and wouldproportionally elevate those which were produced with capital

40 Principles ch. i

1 The last two paragraphs corre-spond in substance to the passageof eds. 1–2 which begins on p. 59(‘Suppose that an engine’ etc.) andconcludes at the end of p. 60.2 In eds. 1–2 the first part of thisparagraph is contained in substanceonly (p. 61, ‘A manufacturer ofhats’ etc.).3 Eds. 1–2 ‘It would be increased,’.

4 Eds. 1–2 ‘in’.5 Eds. 1–2 ‘were produced by 100men’.6 Eds. 1–2 do not contain ‘con-sequently’.7 A misprint for ‘of the stock’,which is the reading of eds. 1–2.Also the punctuation of this sen-tence is more correct in the earliereds.: see below, p. 61.

more perishable. A fall of wages would have precisely thecontrary effect.1

I have already said that fixed capital is of various degrees ofdurability—suppose now a machine which could in any par-ticular trade be employed to do the work of one hundred menfor a year, and that it would last only for one year. Supposetoo, the machine to cost 5000l., and the wages annually paidto one hundred men to be 5000l., it is evident that it wouldbe a matter of indifference to the manufacturer whether hebought the machine or employed the men. But suppose labourto rise, and consequently the wages of one hundred men fora year to amount to 5,500l., it is obvious that the manufacturerwould now no longer hesitate, it would be for his interest tobuy the machine and get his work done for 5000l. But willnot the machine rise in price, will not that also be worth5,500l. in consequence of the rise of labour?2 It would rise inprice3 if there were no stock employed on4 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 hundredmen,5 working one year upon it with wages of 50l. each, andits price were consequently 6 5000l.; should those wages riseto 55l., its price would be 5,500l., but this cannot be the case;less than one hundred men are employed or it could not besold for 5000l., for out of the 5000l. must be paid the profitsof stock7 which employed the men. Suppose then that only

On Valuesec. v 41

1 Eds. 1–2 do not contain ‘50l.each, or’.2 Eds. 1–2 ‘only the usual profits’.3 Eds. 1–2 do not contain this sen-

tence and join this paragraph andthe next one together.4 Eds. 1–2 do not contain this note.

eighty-five men were employed at an expense of 50l. each, or1

4,250l. per annum, and that the 750l. which the sale of themachine would produce over and above the wages advancedto the men, constituted the profits of the engineer’s stock.When wages rose 10 per cent. he would be obliged to employan additional capital of 425l. and would therefore employ4,675l. instead of 4,250l., on which capital he would only geta profit of 325l. if he continued to sell his machine for 5000l.;but this is precisely the case of all manufacturers and capitalists;the rise of wages affects them all. If therefore the maker ofthe machine should raise the price of it in consequence ofa rise of wages, an unusual quantity of capital would beemployed in the construction of such machines, till their priceafforded only the common rate of profits2.* We see then thatmachines would not rise in price, in consequence of a rise ofwages.3

The manufacturer, however, who in a general rise of wages,can have recourse to a machine which shall not increase thecharge of production on his commodity, would enjoy peculiaradvantages if he could continue to charge the same price forhis goods; but he, as we have already seen, would be obligedto lower the price of his commodities, or capital would flow

* We here see why it is that old countries are constantly impelled toemploy machinery, and new countries to employ labour. With everydifficulty of providing for the maintenance of men, labour necessarilyrises, and with every rise in the price of labour, new temptations areoffered to the use of machinery. This difficulty of providing for the main-tenance of men is in constant operation in old countries, in new ones avery great increase in the population may take place without the leastrise in the wages of labour. It may be as easy to provide for the 7th,8th, and 9th million of men as for the 2d, 3d, and 4th.4

42 Principles ch. i

1 This sentence replaces two sen-tences of eds. 1–2, in which asimilar argument is applied to ‘themanufacturer of hats’; for theearlier version see p. 62.2 Eds. 1–2 ‘Neither machines norany other commodities are raisedin price’.

3 Eds. 1–2 ‘which are made’.4 Ed. 2 contains in addition ‘fixed’.5 Ed. 2 places the ‘only’ here.6 Ed. 2 does not contain ‘anddurable’.7 Ed. 2 does not contain ‘another,though a minor’.8 Ed. 2 ‘2,000l.’

to his trade till his profits had sunk to the general level.1 Thusthen is the public benefited by machinery: these mute agentsare always the produce of much less labour than that whichthey displace, even when they are of the same money value.Through their influence, an increase in the price of provisionswhich raises wages will affect fewer persons; it will reach, asin the above instance, eighty-five men instead of a hundred, andthe saving which is the consequence, shows itself in the reducedprice of the commodity manufactured. Neither machines, northe commodities made by them, rise in real value,2 but allcommodities made3 by machines fall, and fall in proportion totheir durability.

It will be seen, then, that in the early stages of society,before much machinery or durable4 capital is used, the com-modities produced by equal capitals will be nearly of equalvalue, and will rise or fall only relatively to each other5 onaccount of more or less labour being required for their pro-duction; but after the introduction of these expensive anddurable6 instruments, the commodities produced by the em-ployment of equal capitals will be of very unequal value; andalthough they will still be liable to rise or fall relatively to eachother, as more or less labour becomes necessary to their pro-duction, they will be subject to another, though a minor7 vari-ation, also, from the rise or fall of wages and profits. Sincegoods which sell for 5000l.8 may be the produce of a capitalequal in amount to that from which are produced other goodswhich sell for 10,000l., the profits on their manufacture will

On Valuesec. v 43

1 This paragraph is not in ed. 1,but its latter part embodies a para-graph which in ed. 1 appeared laterin the chapter (p. 66, ‘Commodities,though they continue’, etc.).2 Ed. 1 ‘It appears, then, that inproportion to the quantity anddurability of the fixed capital’.3 Ed. 1 does not contain ‘durable’.4 For the reading of the remainderof this paragraph in ed. 1 and ined. 2, see below, p. 63, text andnote 3. The essential difference will

be found in the statement of theearlier eds. that ‘no commoditieswhatever are raised [‘in absoluteprice’, ed. 1; ‘in exchangeablevalue’, ed. 2] merely because wagesrise’. See Malthus’s criticism ofed. 2, accepted by Ricardo, below,II, 64; and cp. above, p. 35, n.5 Eds. 1–2 do not contain anypart of this Section. For Ricardo’searlier views on an invariablestandard of value see above, p. 17,n. 3 and below, p. 63.

be the same; but those profits would be unequal, if the pricesof the goods did not vary with a rise or fall in the rate ofprofits.1

It appears, too, that in proportion to the durability of capital2

employed in any kind of production, the relative prices of thosecommodities on which such durable3 capital is employed, willvary inversely as wages; they will fall as wages rise,4 and riseas wages fall; and, on the contrary, those which are producedchiefly by labour with less fixed capital, or with fixed capitalof a less durable character than the medium in which price isestimated, will rise as wages rise, and fall as wages fall.

section vi

On an invariable measure of value.5

When commodities varied in relative value, it would bedesirable to have the means of ascertaining which of them felland which rose in real value, and this could be effected onlyby comparing them one after another with some invariablestandard measure of value, which should itself be subject tonone of the fluctuations to which other commodities are ex-posed. Of such a measure it is impossible to be possessed,because there is no commodity which is not itself exposed to

44 Principles ch. i

the same variations as the things, the value of which is to beascertained; that is, there is none which is not subject to requiremore or less labour for its production. But if this cause of varia-tion in the value of a medium could be removed—if it werepossible that in the production of our money for instance, thesame quantity of labour should at all times be required, stillit would not be a perfect standard or invariable measure ofvalue, because, as I have already endeavoured to explain, itwould be subject to relative variations from a rise or fall ofwages, on account of the different proportions of fixed capitalwhich might be necessary to produce it, and to produce thoseother commodities whose alteration of value we wished toascertain. It might be subject to variations too, from the samecause, on account of the different degrees of durability of thefixed capital employed on it, and the commodities to be com-pared with it—or the time necessary to bring the one to market,might be longer or shorter than the time necessary to bringthe other commodities to market, the variations of which wereto be determined; all which circumstances disqualify any com-modity that can be thought of from being a perfectly accuratemeasure of value.

If, for example, we were to fix on gold as a standard, it isevident that it is but a commodity obtained under the samecontingencies as every other commodity, and requiring labourand fixed capital to produce it. Like every other commodity,improvements in the saving of labour might be applied to itsproduction, and consequently it might fall in relative value toother things merely on account of the greater facility of pro-ducing it.

If we suppose this cause of variation to be removed, and thesame quantity of labour to be always required to obtain thesame quantity of gold, still gold would not be a perfect measureof value, by which we could accurately ascertain the variations

On Valuesec. vi 45

in all other things, because it would not be produced withprecisely the same combinations of fixed and circulating capitalas all other things; nor with fixed capital of the same durability;nor would it require precisely the same length of time, beforeit could be brought to market. It would be a perfect measureof value for all things produced under the same circumstancesprecisely as itself, but for no others. If, for example, it wereproduced under the same circumstances as we have supposednecessary to produce cloth and cotton goods, it would be aperfect measure of value for those things, but not so for corn,for coals, and other commodities produced with either a lessor a greater proportion of fixed capital, because, as we haveshown, every alteration in the permanent rate of profits wouldhave some effect on the relative value of all these goods, inde-pendently of any alteration in the quantity of labour employedon their production. If gold were produced under the samecircumstances as corn, even if they never changed, it wouldnot, for the same reasons, be at all times a perfect measure ofthe value of cloth and cotton goods. Neither gold then, norany other commodity, can ever be a perfect measure of valuefor all things; but I have already remarked, that the effect onthe relative prices of things, from a variation in profits, iscomparatively slight; that by far the most important effects areproduced by the varying quantities of labour required forproduction; and therefore, if we suppose this important causeof variation removed from the production of gold, we shallprobably possess as near an approximation to a standardmeasure of value as can be theoretically conceived. May notgold be considered as a commodity produced with such pro-portions of the two kinds of capital as approach nearest tothe average quantity employed in the production of most com-modities? May not these proportions be so nearly equallydistant from the two extremes, the one where little fixed capital

46 Principles ch. i

1 See the quotations from some of these writers given below, pp. 302,307 and 315.

is used, the other where little labour is employed, as to forma just mean between them?

If, then, I may suppose myself to be possessed of a standardso 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 con-sideration of the possible alteration in the value of the mediumin which price and value are estimated.

To facilitate, then, the object of this enquiry, although Ifully allow that money made of gold is subject to most of thevariations of other things, I shall suppose it to be invariable,and therefore all alterations in price to be occasioned by somealteration in the value of the commodity of which I may bespeaking.

Before I quit this subject, it may be proper to observe, thatAdam Smith, and all the writers who have followed him, have,without one exception that I know of, maintained that a risein the price of labour would be uniformly followed by a risein the price of all commodities.1 I hope I have succeeded inshowing, that there are no grounds for such an opinion, andthat only those commodities would rise which had less fixedcapital employed upon them than the medium in which pricewas estimated, and that all those which had more, wouldpositively fall in price when wages rose. On the contrary, ifwages fell, those commodities only would fall, which had aless proportion of fixed capital employed on them, than themedium in which price was estimated; all those which hadmore, 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 uponit as will cost 1000l. and another so much as will cost 2000l.

On Valuesec. vi 47

1 Section v of ed. 2; the summaryheading is uniform in eds. 2–3.2 Malthus’s Principles, below, II, 30.

3 On the issue raised in this note(which is not contained in eds. 1–2)see below, II, 34 and 101.

that therefore one would be of the value of 1000l. and theother of the value of 2000l. but I have said that their valuewill be to each other as two to one, and that in thoseproportions they will be exchanged. It is of no importanceto the truth of this doctrine, whether one of these com-modities sells for 1,100l. and the other for 2,200l., or one for1,500l. and the other for 3000l.; into that question I do notat present enquire; I affirm only, that their relative values willbe governed by the relative quantities of labour bestowed ontheir production.*

section vii

Different effects from the alteration in the value of money, themedium in which price is always expressed, or from the alter-ation in the value of the commodities which money purchases.1

Although I shall, as I have already explained, have occasionto consider money as invariable in value, for the purpose ofmore distinctly pointing out the causes of relative variationsin the value of other things, it may be useful to notice thedifferent effects which will follow from the prices of goodsbeing altered by the causes to which I have already adverted,

* Mr. Malthus remarks on this doctrine, “We have the power indeed,arbitrarily, to call the labour which has been employed upon a commodityits real value, but in so doing, we use words in a different sense from thatin which they are customarily used; we confound at once the very im-portant distinction between cost and value; and render it almost impossibleto explain with clearness, the main stimulus to the production of wealth,which in fact depends upon this distinction.”2

Mr. Malthus appears to think that it is a part of my doctrine, that thecost and value of a thing should be the same;—it is, if he means by cost,“cost of production” including profits. In the above passage, this is whathe does not mean, and therefore he has not clearly understood me.3

48 Principles ch. i

1 This paragraph is not in eds. 1–2;but cp. in those eds. the sentence be-ginning ‘It should however be care-fully remembered’, below, p. 63.2 Eds. 1–2 ‘Money, however, is a

variable commodity; and the riseof wages as well as of commodities,is’.3 Eds. 1–2 do not contain ‘, exceptin some instances,’.

namely, the different quantities of labour required to producethem, and their being altered by a variation in the value ofmoney itself.1

Money, being a variable commodity, the rise of money-wages will be 2 frequently occasioned by a fall in the value ofmoney. A rise of wages from this cause will, indeed, be in-variably accompanied by a rise in the price of commodities;but in such cases, it will be found that labour and all commodi-ties have not varied in regard to each other, and that the varia-tion has been confined to money.

Money, from its being a commodity obtained from a foreigncountry, from its being the general medium of exchange be-tween all civilized countries, and from its being also distributedamong those countries in proportions which are ever changingwith every improvement in commerce and machinery, and withevery increasing difficulty of obtaining food and necessariesfor an increasing population, is subject to incessant variations.In stating the principles which regulate exchangeable valueand price, we should carefully distinguish between those varia-tions which belong to the commodity itself, and those whichare occasioned by a variation in the medium in which valueis 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 pro-duces no real effect whatever on profits. On the contrary, arise of wages, from the circumstance of the labourer beingmore liberally rewarded, or from a difficulty of procuring thenecessaries on which wages are expended, does not, except insome instances,3 produce the effect of raising price, but has a

On Valuesec. vii 49

1 Eds. 1–2 ‘of the whole produce ofthe land and labour of the country,between the three classes of land-lords, capitalists, and labourers’.Cp. below, p. 83, n. For what may

have been an attempt to redraftthis passage for ed. 3, see Notes onMalthus, below, II, 195, n. 2.2 Ed. 1 does not contain ‘the riseor fall of ’.

great effect in lowering profits. In the one case, no greaterproportion of the annual labour of the country is devoted tothe support of the labourers; in the other case, a larger portionis so devoted.

It is according to the division of the whole produce of theland of any particular farm, between the three classes of land-lord, capitalist, and labourer,1 that we are to judge of the riseor fall of 2 rent, profit, and wages, and not according to thevalue at which that produce may be estimated in a mediumwhich is confessedly variable.

It is not by the absolute quantity of produce obtained byeither class, that we can correctly judge of the rate of profit,rent, and wages, but by the quantity of labour required toobtain that produce. By improvements in machinery and agri-culture, the whole produce may be doubled; but if wages, rent,and profit be also doubled, these three will bear the same pro-portions to one another as before, and neither could be saidto have relatively varied. But if wages partook not of the wholeof this increase; if they, instead of being doubled, were onlyincreased one-half; if rent, instead of being doubled, were onlyincreased three-fourths, and the remaining increase went toprofit, it would, I apprehend, be correct for me to say, thatrent and wages had fallen while profits had risen; for if wehad an invariable standard by which to measure the value ofthis produce, we should find that a less value had fallen to theclass of labourers and landlords, and a greater to the class ofcapitalists, than had been given before. We might find, forexample, that though the absolute quantity of commodities hadbeen doubled, they were the produce of precisely the former

50 Principles ch. i

1 Ed. 1 does not contain ‘before’. 2 Eds. 1–2 ‘were doubled in’.

quantity of labour. Of every hundred hats, coats, and quartersof corn produced, if

The labourers had before1 . . . . 25The landlords . . . . . . . . 25And the capitalists . . . . . . 50

100:And if, after these commodities were double the 2 quantity, ofevery 100

The labourers had only . . . . . 22The landlords . . . . . . . . 22And the capitalists . . . . . . 56

100:In that case I should say, that wages and rent had fallen andprofits risen; though, in consequence of the abundance of com-modities, the quantity paid to the labourer and landlord wouldhave increased in the proportion of 25 to 44. Wages are to beestimated by their real value, viz. by the quantity of labourand capital employed in producing them, and not by theirnominal value either in coats, hats, money, or corn. Underthe circumstances I have just supposed, commodities wouldhave fallen to half their former value, and if money had notvaried, to half their former price also. If then in this medium,which had not varied in value, the wages of the labourer shouldbe found to have fallen, it will not the less be a real fall, becausethey might furnish him with a greater quantity of cheap com-modities than his former wages.

The variation in the value of money, however great, makesno difference in the rate of profits; for suppose the goods ofthe manufacturer to rise from 1000l. to 2000l., or 100 per cent.,if his capital, on which the variations of money have as mucheffect as on the value of produce, if his machinery, buildings,

On Valuesec. vii 51

1 For the differences in the last twoparagraphs between ed. 1 and ed. 3(which in this case is uniform withed. 2) see the notes on p. 65 below.2 Ed. 1 has here three additional

paragraphs (see p. 66), which ineds. 2–3 are partly incorporatedearlier in the chapter (see p. 38,n. 2 and p. 43, n. 1).

and stock in trade rise also 100 per cent., his rate of profitswill be the same, and he will have the same quantity, and nomore, of the produce of the labour of the country at his com-mand.

If, with a capital of a given value, he can, by economy inlabour, double the quantity of produce, and it fall to half itsformer price, it will bear the same proportion to the capitalthat produced it which it did before, and consequently profitswill still be at the same rate.1

If, at the same time that he doubles the quantity of produceby the employment of the same capital, the value of moneyis by any accident lowered one half, the produce will sell fortwice the money value that it did before; but the capital em-ployed to produce it will also be of twice its former moneyvalue; and therefore in this case too, the value of the producewill bear the same proportion to the value of the capital as itdid before; and although the produce be doubled, rent, wages,and profits will only vary as the proportions vary, in whichthis double produce may be divided among the three classesthat share it.2

1 Ed. 2 attaches here a footnote: ‘Adivision not essential, and in which

the line of demarcation cannot be ac-curately drawn.’ Cp., for ed. 1, p. 150.

[APPENDIX TO CHAPTER I

Text of edition 1, with variants of edition 2, for the latter partof the Chapter (pp. 26–51) ]

Economy in the use of labour never fails to reduce the relativevalue of a commodity, whether the saving be in the labour necessaryto the manufacture of the commodity itself, or in that necessary tothe formation of the capital, by the aid of which it is produced. Ineither case the price of stockings would fall, whether there werefewer men employed as bleachers, spinners, and weavers, personsimmediately necessary to their manufacture; or as sailors, carriers,engineers, and smiths, persons more indirectly concerned. In theone 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 re-mainder being applied to all those other commodities, to the pro-duction of which the buildings, machinery, and carriage, weresubservient.

In every society the capital which is employed in production, isnecessarily of limited durability. The food and clothing consumedby the labourer, the buildings in which he works, the implementswith which his labour is assisted, are all of a perishable nature. Thereis however a vast difference in the time for which these differentcapitals will endure: a steam-engine will last longer than a ship,a ship than the clothing of the labourer, and the clothing of thelabourer longer than the food which he consumes.

According as capital is rapidly perishable, and requires to be fre-quently reproduced, or is of slow consumption, it is classed underthe heads of circulating, or of fixed capital.1 A brewer, whosebuildings and machinery are valuable and durable, is said to employa large portion of fixed capital: on the contrary, a shoe-maker, whosecapital is chiefly employed in the payment of wages, which areexpended on food and clothing, commodities more perishable thanbuildings and machinery, is said to employ a large proportion of hiscapital as circulating capital.

On Value [First Edition]ch. i 53

1 Instead of this paragraph, which ined. 2 is removed to p. 56 below (see ib.note 2), ed. 2 has here: ‘It is also tobe observed that the circulatingcapital may circulate, or be returnedto its employer, in very unequaltimes. The wheat bought by a farmerto sow is comparatively a fixed capitalto the wheat purchased by a baker

to make it into loaves. One leavesit in the ground, and can obtain noreturn for a year; the other can getit ground into flour, sell it as breadto his customers, and have his capitalfree to renew the same, or commenceany other employment in a week.’ Cp.the paragraph, also added in ed. 2,below, p. 61, note.

Two trades then may employ the same amount of capital; but itmay be very differently divided with respect to the portion which isfixed, and that which is circulating.

Again two manufacturers may employ the same amount of fixed,and the same amount of circulating capital; but the durability oftheir fixed capitals may be very unequal. One may have steamengines of the value of 10,000l. the other, ships of the same value.

Besides the alteration in the relative value of commodities, occa-sioned by more or less labour being required to produce them, theyare also subject to fluctuations from a rise of wages, and consequentfall of profits, if the fixed capitals employed be either of unequalvalue, or of unequal duration.1

Suppose that in the early stages of society, the bows and arrowsof the hunter were of equal value, and of equal durability, with thecanoe and implements of the fisherman, both being the produceof the same quantity of labour. Under such circumstances the valueof the deer, the produce of the hunter’s day’s labour, would beexactly equal to the value of the fish, the produce of the fisherman’sday’s labour. The comparative value of the fish and the game, wouldbe entirely regulated by the quantity of labour realised in each;whatever might be the quantity of production, or however highor low general wages or profits might be. If for example the canoesand implements of the fisherman were of the value of 100l. and werecalculated to last for ten years, and he employed ten men, whoseannual labour cost 100l. and who in one day obtained by their labourtwenty salmon: If the weapons employed by the hunter were alsoof 100l. value and calculated to last ten years, and if he also employedten men, whose annual labour cost 100l. and who in one day pro-cured him ten deer; then the natural price of a deer would be twosalmon, whether the proportion of the whole produce bestowed onthe men who obtained it, were large or small. The proportion whichmight be paid for wages, is of the utmost importance in the questionof profits; for it must at once be seen, that profits would be high

54 Principles ch. i

or low, exactly in proportion as wages were low or high; but itcould not in the least affect the relative value of fish and game, aswages 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 thevalue of a large proportion of his game for wages, as an inducementto 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 allthe effects of accumulation of capital, as long as they continued by aday’s labour to obtain respectively the same quantity of fish, andthe 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 agreater quantity of game were obtained, the value of fish wouldrise in comparison with that of game. If, on the contrary, with thesame quantity of labour a less quantity of game, or a greater quantityof fish was obtained, game would rise in comparison with fish.

If there were any other commodity which was invariable in itsvalue, requiring at all times, and under all circumstances, preciselythe same quantity of labour to obtain it, we should be able to ascer-tain, by comparing the value of fish and game with this commodity,how much of the variation was to be attributed to a cause whichaffected the value of fish, and how much to a cause which affectedthe value of game.

Suppose money to be that commodity. If a salmon were worth1l. and a deer 2l. one deer would be worth two salmon. But a deermight become of the value of three salmon, for more labour mightbe required to obtain the deer, or less to get the salmon, or boththese causes might operate at the same time. If we had this invariablestandard, we might easily ascertain in what degree either of thesecauses operated. If salmon continued to sell for 1l. whilst deer roseto 3l. we might conclude that more labour was required to obtainthe deer. If deer continued at the same price of 2l. and salmon soldfor 13s. 4d. we might then be sure that less labour was required toobtain the salmon; and if deer rose to 2l. 10s. and salmon fell to16s. 8d. we should be convinced that both causes had operated inproducing the alteration of the relative value of these commodities.

No alteration in the wages of labour could produce any alterationin the relative value of these commodities; for if profits were 10 percent., then to replace the 100l. circulating capital with 10 per cent.

On Value [First Edition]ch. i 55

profit, there must be a return of 110l: to replace the equal portionof fixed capital, when profits are at the rate of 10 per cent. thereshould be annually received 16.27l.; for, the present value of anannuity of 16.27l. for ten years, when money is at 10 per cent., is100l.; consequently all the game of the hunter should annually sellfor 126.27l. But the capital of the fisherman being the same inquantity, and divided in the same proportion into fixed and circu-lating capital, and being also of the same durability, he, to obtainthe same profits, must sell his goods for the same value. If wagesrose 10 per cent. and consequently 10 per cent. more circulatingcapital were required in each trade, it would equally affect bothemployments. In both, 210l. instead of 200l. would be requiredin order to produce the former quantity of commodities; and thesewould sell precisely for the same money, namely 126.27l.: theywould therefore be at the same relative value, and profits would beequally reduced in both trades.

The prices of the commodities would not rise, because the moneyin which they are valued is by the supposition of an invariable value,always requiring the same quantity of labour to produce it.

If the gold mine from which money was obtained were in thesame country, in that case, after the rise of wages, 210l. might benecessary to be employed, as capital, to obtain the same quantityof metal that 200l. obtained before: for the same reason that thehunter and fisherman required 10l. in addition to their capitals, theminer would require an equal addition to his. No greater quantityof labour would be required in any of these occupations, but itwould be paid for at a higher price, and the same reasons whichshould make the hunter and fisherman endeavour to raise the valueof their game and fish, would cause the owner of the mine to raisethe value of his gold. This inducement acting with the same forceon all these three occupations, and the relative situation of thoseengaged 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 fallin a greater or less proportion, without occasioning the least altera-tion in the relative value of these commodities.

Now suppose, that with the same labour and fixed capital, morefish could be produced, but no more gold or game, the relativevalue of fish would fall in comparison with gold or game. If, insteadof twenty salmon, twenty-five were the produce of one day’s labour,

56 Principles ch. i

1 Ed. 2 adds here a paragraph whichconcludes its Section 11: ‘It appearsthen by this section, that notwith-standing the accumulation of capital,commodities would not necessarilyvary in relative value from a rise inwages, unless it was accompanied byincreased facility or difficulty in theproduction of one or more of them.’(Cp. a draft of this, which showedhesitation whether relative values‘vary’ or ‘rise’, in a letter to Mill,below, VII, 333, n. 2.)

After this, ed. 2 opens ‘Section iii’

under the heading: ‘The principlestated in the foregoing section con-siderably modified by the employmentof machinery as fixed capital.’2 Ed. 2 omits this paragraph andplaces here the paragraph beginning‘Besides the alteration’ which ined. 1 occurs above, p. 53.3 Ed. 2 opens the paragraph ‘Thussuppose the fixed and circulatingcapital of the hunter and fishermanto be together equal in amount, butto be in different proportions; sup-pose that instead’ etc.

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 givenin exchange for one deer, but the price of deer would continue at 2l.as before. In the same manner, if fewer fish could be obtained withthe same capital and labour, fish would rise in comparative value.Fish then would rise or fall in exchangeable value, only becausemore or less labour was required to obtain a given quantity; andit never could rise or fall beyond the proportion of the increasedor diminished quantity of labour required.

If we had then an invariable standard, by which we could measurethe variation in other commodities, we should find that the utmostlimit to which they could permanently rise, was proportioned tothe additional quantity of labour required for their production; andthat unless more labour were required for their production, theycould not rise in any degree whatever. A rise of wages would notraise 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 wererequired in the production of the other commodity, we have alreadystated that this will immediately occasion an alteration in its relativevalue, but such alteration is owing to the altered quantity of requisitelabour, and not to the rise of wages.1

If the fixed and circulating capitals were in different proportions,or if the fixed capital were of different durability, then the relativevalue of the commodities produced, would be altered in consequenceof a rise of wages.2

First, when the fixed and circulating capitals were in differentproportions, suppose that instead3 of 100l. fixed capital and 100l.

On Value [First Edition]ch. i 57

circulating capital, the hunter should employ 150l. fixed capital and50l. circulating capital, and that the fisherman should on the contraryemploy only 50l. fixed capital and 150l. circulating capital.

If profits be 10 per cent., the hunter must sell his goods for79l. 8s. For,

To replace his circulating capital of 50l. with a profit of10 per cent. would require a value of . . . . . 55l.

To replace his fixed capital with 10 per cent. profit, thepresent value of an annuity for ten years of 24.4l. at10 per cent. being 150l. . . . . . . . . . . 24.4l.

79.4l.

If profits be1 10 per cent., the fisherman must sell his goods for173l. 2s. 7d.

To replace his circulating capital of 150l. with 10 percent. profit . . . . . . . . . . . . . . 165l.

To replace his fixed capital with 10 per cent. profit, one-third of the hunter’s . . . . . . . . . . . 8.13

173.13l.

Now if wages rise, although neither of these commodities shouldrequire more labour for their production, yet their relative value willbe altered. Suppose wages to rise 6 per cent., the hunter would notrequire more than an increase of 3l. to his capital, to employ thesame number of men, and obtain the same quantity of game; thefisherman would require three times that sum, or 9l. The profitsof stock would fall to 4 per cent., the hunter would be obliged tosell his game for 73l. 12s. 2d.

To replace his circulating capital of 53l. with a profit of4 per cent. . . . . . . . . . . . . . . 55.12l.

To replace fixed capital, annually wasted, the presentvalue of an annuity of 18.49l. for ten years, whenmoney is at 4 per cent., being 150l. . . . . . . 18.49

£73.61

1 Ed. 2 ‘But with the same rate of profits of ’ in place of ‘If profits be’.

58 Principles ch. i

1 In place of this paragraph ed. 2reads: ‘It appears then that the divisionof capital into different proportionsof fixed and circulating capital, em-ployed in different trades, introducesa considerable modification to therule, which is of universal applicationin the early stages of society, namely,that commodities never vary in value,unless a greater or less quantity oflabour be bestowed on their produc-tion, it being shewn in this sectionthat without any variation in thequantity of labour, the rise of itsvalue merely will occasion a fall inthe exchangeable value of thosegoods, in the production of whichfixed capital is employed; the largerthe amount of fixed capital, thegreater will be the fall.’ This in-corporates a paragraph which in ed. 1occurs on p. 66 (see ib. note 2).

After this, ed. 2 opens ‘Section iv’under the heading: ‘The principle thatvalue does not vary with the rise or fallof wages, modified also by the unequaldurability of capital, and by the unequalrapidity with which it is returned to itsemployer.’2 Ed. 2 replaces this sentence by: ‘Inthe last section we have supposedthat of two equal capitals in twodifferent occupations, the proportionsof fixed and circulating capitals wereunequal, now let us suppose them tobe in the same proportion but of un-equal durability.’ Cp. below, p. 61, n.3 Ed. 2 places ‘in a shorter time,’here instead of five words earlier.4 Ed. 2 reads ‘fixed’ in place of‘circulating’; and accordingly, fartherdown in the sentence, ‘relativelylower’ in place of ‘relatively higher’and ‘circulating’ in place of ‘fixed’.

The fisherman would sell his fish for 171l. 11s. 5d. viz.

To replace his circulating capital of 159l. with a profitof 4 per cent. . . . . . . . . . . . . . £165.360

To replace fixed capital annually wasted, the presentvalue of an annuity of 6.163l., for ten years at 4 percent., being 50l. . . . . . . . . . . . . 6.163

£171.523

Game was to fish before as 100 to 218.It would now be . . as 100 to 233.

Thus we see, that with every rise of wages, in proportion as thecapital employed in any occupation consists of circulating capital,its produce will be of greater relative value than the goods producedin another occupation, where a less proportion of circulating, and agreater proportion of fixed capital are employed.1

Secondly, suppose the proportions of fixed capital to be the same;but of different degrees of durability.2 In proportion as fixed capitalis less durable, it approaches to the nature of circulating capital.It will be consumed in a shorter time, and its value reproduced3 inorder to preserve the capital of the manufacturer. We have just seen,that in proportion as circulating4 capital preponderates in a manu-facture, when wages rise, the value of commodities produced in that

On Value [First Edition]ch. i 59

manufacture, is relatively higher than that of commodities producedin manufactures where fixed capital preponderates. In proportionto the less durability of fixed capital, and its approach to the natureof circulating capital, the same effect will be produced by the samecause.

Suppose that an engine is made, which will last for a hundred years,and that its value is 20,000l. Suppose too, that this machine, withoutany labour whatever, could produce a certain quantity of commodi-ties annually, and that profits were 10 per cent.: the whole valueof the goods produced would be annually 2,000l. 2s. 11d.; for theprofit of 20,000l. at 10 per cent. per annum, is . . £2,000And an annuity of 2s. 11d. for 100 years, at 10 per

cent. will, at the end of that period, replace acapital of 20,000l. . . . . . . . . . . . 2 11

Consequently the goods must sell for . . . . . £2000 2 11

If the same amount of capital, viz. 20,000l., be employed in sup-porting productive labour, and be annually consumed and repro-duced, as it is when employed in paying wages, then to give anequal profit of 10 per cent. on 20,000l. the commodities producedmust sell for 22,000l. Now suppose labour so to rise, that insteadof 20,000l. being sufficient to pay the wages of those employed inproducing the latter commodities, 20,952l. is required; then profitswill fall to 5 per cent.: for as these commodities would sell for nomore than before, viz. . . . . . . . £22,000 and to producethem. . . . . . . . . . . . . £20,952 would be re-quisite, there would remain no morethan . . . . . . . . . . . . . £10481

on a capital of

20,952l. If labour so rose, that 21,153l. were required, profits wouldfall to 4 per cent. and if it rose, so that 21,359l. was employed,profits would fall to 3 per cent.

But, as no wages would be paid by the owner of the machine,which would last 100 years, when profits fell to 5 per cent. the priceof his goods must fall to 1007l. 13s. 8d. viz. 1000l. to pay his profits,and 7l. 13s. 8d. to accumulate for 100 years at 5 per cent. to replacehis capital of 20,000l. When profits fell to 4 per cent. his goods mustsell for 816l. 3s. 2d., and when at 3 per cent. for 632l. 16s. 7d. Bya rise in the price of labour then, under 7 per cent., which has no

1 Ed. 2 adds ‘or 5 per cent. profit,’.

60 Principles ch. i

1 Ed. 2 attaches here a footnote andadds a paragraph in the text.

The footnote reads: ‘To put theprinciple in a strong point of view,I have supposed a machine to do

work without any assistance fromhuman labour, which is evidentlyimpossible. A writer in the BritishReview has absurdly argued as ifthis supposition was essential to the

effect on the prices of commodities wholly produced by labour, afall of no less than 68 per cent. is effected on those commoditieswholly produced by machinery. If the proprietor of the machinesold his goods for more than 632l. 16s. 7d., he would get morethan 3 per cent., the general profit of stock; and as others couldfurnish themselves with machines at the same price of 20,000l. theywould be so multiplied, that he would be inevitably obliged to sinkthe price of his goods, till they afforded only the usual and generalprofits of stock.

In proportion as this machine were less durable, prices would beless affected by the fall of profit, and the rise of wages. If, forexample, the machine would last only ten years, when profits wereat 10 per cent. the goods should sell for . . . . £3254when at 5 per cent. . . . . . . . . . . . 2590

4 per cent. . . . . . . . . . . . 24653 per cent. . . . . . . . . . . . 2344

for such are the sums requisite to place his profits on a par withothers, and to replace his capital at the end of ten years; or, whichis the same thing, such are the annuities which 20,000l. would pur-chase for ten years at those rates. If the machine would last onlythree years, when profits were 10 per cent. the price of the goodswould be . . . . . . . . . . . . . . . £8042at 5 per cent. . . . . . . . . . . . . . 7344

4 per cent. . . . . . . . . . . . . . 72063 per cent. . . . . . . . . . . . . . 7070

If it would last only one year, when profits were 10 per cent. thegoods would sell for. . . . . . . . . £22,000at 5 per cent. . . . . . . . . . . 21,000

4 per cent. . . . . . . . . . . 20,8003 per cent. . . . . . . . . . . 20,600: therefore

when profits fell from 10 to 3 per cent. the goods, which were pro-duced with equal capitals, would fall

68 per cent. if the machine would last . . . . . . 100 years.28 per cent. if the machine would last . . . . . . . 10 years.13 per cent. if it would last. . . . . . . . . . . 3 years.And little more than 6 per cent. if it would last only 1 year.1

On Value [First Edition]ch. i 61

truth of the principle. But it is ob-vious that similar results, though notequal in degree, will take place whenboth manufacturers employ labour,and machinery or other capital, if thelatter be of unequal durability.’ (SeeBritish Review, Nov. 1817, Art. xv,‘Political Economy and Taxation’;cp. letter to Trower, below, VII, 219.)

The new paragraph reads: ‘Thesame result will take place if thecirculating capitals be of unequaldurability. If from the nature of twodifferent trades, in which equalcapitals are employed, one manu-facturer could not bring the com-modity he produced to market in less

than one year, while the other couldbring his there in three months, thecommodity of the first would fall inrelative value to the second with everyrise of wages and fall of profits. Itmust be unnecessary to go intofurther calculations to prove this tobe true, as it rests precisely on thesame principle as the case alreadyconsidered, namely, the different de-gree of durability of two equalcapitals.’ This was intended to meetan objection raised by Torrens; seeletter to McCulloch, below, VII, 338.Cp. similar changes above, p. 31, n. 2,p. 53, n. 1 and p. 58, n. 1 (heading ofSection iv) and n. 2.

These results are of such importance to the science of politicaleconomy, yet accord so little with some of its received doctrines,which maintain that every rise in wages is necessarily transferredto the price of commodities, that it may not be superfluous toelucidate the subject still further.

A manufacturer of hats employs a hundred men at an annualexpense of 50l. each, who produce him commodities of the value of8000l. A machine calculated to last precisely a year, and to doequally well the same work as the 100 men, is offered to him for5000l., the sum, exactly, that he is expending on wages. It will bea matter of indifference to the manufacturer, whether he purchasethe machine, or continue to employ the men. Now if the wages oflabour rise 10 per cent. and an additional capital of 500l. be con-sequently required to enable him to employ the same labour, whilsthis commodities continue to sell for 8000l., he will no longer hesitate,but will at once purchase the machine, and will do the same annually,while wages continue above the original 5000l. But will he be ablenow to purchase the machine at the former price? will not its valuebe increased, in consequence of the rise of labour? It would beincreased, if there were no stock employed in its construction, andno profits to be paid to the maker of it. If, for example, the machinewere produced by 100 men working one year upon it with wagesof 50l. each, and its price were 5000l., should those wages rise to55l. its price would be 5500l.: but this cannot be the case; less than100 men are employed, or it could not be sold for 5000l.; for outof the 5000l. must be paid the profits of the stock which employedthe men. Suppose then that only eighty-five men were employed

62 Principles ch. i

1 Ed. 2 adds here a paragraphembodying one which in ed. 1 ap-pears on p. 66 (see ib. note 3). Thenew paragraph reads: ‘It will beseen, then, that in the early stages ofsociety, before much machinery ordurable fixed capital is used, the com-modities produced by equal capitalswill be nearly of equal value, and willrise or fall relatively to each otheronly on account of more or less labourbeing required for their production;but after the introduction of theseexpensive instruments, the com-modities produced by the employ-ment of equal capitals will be of very

unequal value; and although theywill still be liable to rise or fallrelatively to each other, as more orless labour becomes necessary to theirproduction, they will be subject tovariation also from the rise or fallof wages and profits. Since goodswhich sell for 2,000l. may be theproduce of a capital equal in amountto that from which are producedother goods which sell for 10,000l.the profits on their manufacture willbe the same; but those profits wouldbe unequal, if the prices of the goodsdid not vary with a rise or fall in therate of profits.’

at an expense of 4250l. per annum, and that the 750l., which thesale of the machine would produce over and above the wages ad-vanced to the men, constituted the profits of the engineer’s stock.When wages rose 10 per cent., he would be obliged to employ anadditional capital of 425l., and would therefore employ 4675l., insteadof 4250l., on which capital he would only get a profit of 325l. ifhe continued to sell his machine for 5000l.; but this is precisely thecase of all manufacturers and capitalists; the rise of wages affectsthem all. If therefore the maker of the machine should raise theprice of his machine in consequence of a rise of wages, an unusualquantity of capital would be employed in the construction of suchmachines, till their price afforded only the usual profits. The manu-facturer of hats, by the employment of the machine, if he sells hishats for 8000l., is precisely in the same situation as before; he em-ploys no more capital, and obtains the same profits. The competitionof trade would not long allow this; for as capital would flow tothe most profitable employment, he would be obliged to lower theprice of hats, till his profits had sunk to the general level. Thusthen is the public benefited by machinery: these mute agents arealways the produce of much less labour than that which they dis-place, even when they are of the same money value. Through theirinfluence, 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 theconsequence, shews itself in the reduced price of the commoditymanufactured. Neither machines nor any other commodities areraised in price, but all commodities which are made by machinesfall, and fall in proportion to their durability.1

It appears, then, that in proportion to the quantity and the

On Value [First Edition]ch. i 63

1 Ed. 2 ‘It appears, too, that in pro-portion to the durability of capital’.

3 The remainder of the paragraph ined. 2 reads ‘, and rise as wages fall;and that no commodities whateverare raised in exchangeable valuemerely because wages rise; they areonly so raised when more labour isbestowed on their production, whenwages fall, or when the medium in

which they are estimated falls invalue.’

After this, ed. 2 opens ‘Section v’under the heading: Different effectsfrom the alteration in the value ofmoney, the medium in which price isalways expressed, or from the alterationin the value of the commodities whichmoney purchases.’

durability of the fixed capital1 employed in any kind of production,the relative prices of those commodities on which such2 capital isemployed, will vary inversely as wages; they will fall as wages rise.3

It appears too that no commodities whatever are raised in absoluteprice, merely because wages rise; that they never rise unless addi-tional labour be bestowed on them; but that all commodities in theproduction of which fixed capital enters, not only do not rise witha rise of wages, but absolutely fall; fall too as much as 68 per cent.,with a rise of seven per cent. in wages, if fixed capital be exclusivelyemployed, and be of the duration of 100 years.

The above4 statement, which asserts the compatibility of a riseof wages, with a fall of prices, has, I know, the disadvantage ofnovelty, and must trust to its own merits for advocates; whilst ithas for its opponents, writers of distinguished and deserved reputa-tion.5 It should however be carefully remembered, that in this wholeargument I am supposing money to be of an invariable value; inother words, to be always the produce of the same quantity of un-assisted labour. Money, however, is a variable commodity; and therise of wages as well as of commodities, is frequently occasioned bya fall in the value of money. A rise of wages from this cause willindeed be invariably accompanied by a rise in the price of com-modities: but in such cases, it will be found that labour and allcommodities have not varied in regard to each other, and that thevariation has been confined to money.

Money, from its being a commodity obtained from a foreigncountry, from its being the general medium of exchange betweenall civilized countries, and from its being also distributed amongthose countries in proportions which are ever changing with everyimprovement in commerce and machinery, and with every increasingdifficulty of obtaining food and necessaries for an increasing popula-tion, is subject to incessant variations. In stating the principleswhich regulate exchangeable value and price, we should carefully

4 Ed. 2 ‘The foregoing’.5 Cp. above, p. 46.

2 Ed. 2 adds ‘durable’.

64 Principles ch. i

distinguish between those variations which belong to the com-modity itself, and those which are occasioned by a variation in themedium in which value is estimated, or price expressed.

A rise in wages, from an alteration in the value of money, pro-duces a general effect on price, and for that reason it produces noreal 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 wagesare expended, does not produce the effect of raising price, but hasa great effect in lowering profits. In the one case, no greater pro-portion of the annual labour of the country is devoted to the supportof the labourers, in the other case, a larger portion is so devoted.

It is according to the division of the whole produce of the landand labour of the country, between the three classes of landlords,capitalists, and labourers, that we are to judge of 1 rent, profit, andwages, and not according to the value at which that produce maybe estimated in a medium which is confessedly variable.

It is not by the absolute quantity of produce obtained by eitherclass, that we can correctly judge of the rate of profit, rent, andwages, but by the quantity of labour required to obtain that produce.By improvements in machinery and agriculture, the whole producemay be doubled; but if wages, rent, and profit, be also doubled,these three will bear the same proportions to one another, and neithercould be said to have relatively varied. But if wages partook notof the whole of this increase; if they, instead of being doubled, wereonly increased one half, if rent, instead of being doubled, were onlyincreased three-fourths, and the remaining increase went to profit,it would, I apprehend, be correct for me to say, that rent and wageshad fallen, while profits had risen; for if we had an invariablestandard, by which to measure the value of this produce, we shouldfind that a less value had fallen to the class of labourers and land-lords, and a greater to the class of capitalists, than had been givenbefore. We might find for example, that though the absolute quantityof commodities had been doubled, they were the produce of pre-cisely the former quantity of labour. Of every hundred hats, coatsand quarters of corn produced, if the labourers had2 25

The landlords . . . . . . . . . . . . . . 25And the capitalists . . . . . . . . . . . . 50

100

1 Ed. 2 adds ‘the rise or fall of ’. 2 Ed. 2 adds ‘before’.

On Value [First Edition]ch. i 65

1 There is a full stop here in ed. 1,which seems uncalled for.2 Ed. 2 from here reads ‘rise also100 per cent., his rate of profits willbe the same, and he will have thesame quantity and no more of theproduce of the labour of the countryat his command.’3 In ed. 2 this paragraph reads ‘If

with a capital of a given value, hecan by economy in labour doublethe quantity of produce, and it fall tohalf its former price, it will bear thesame proportion to the capital thatproduced it which it did before, andconsequently profits will still be atthe same rate.’

And if, after these commodities were doubled in quantity, ofevery 100

The labourers had only . . . . . . . . . . . 22The landlords . . . . . . . . . . . . . . 22And the capitalists . . . . . . . . . . . . 56

100 1

In that case I should say, that wages and rent had fallen, and profitsrisen; though in consequence of the abundance of commodities, thequantity paid to the labourer and landlord would have increasedin the proportion of 25 to 44. Wages are to be estimated by theirreal value, viz. by the quantity of labour and capital employed inproducing 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, ifmoney had not varied, to half their former price also. If then inthis medium, which had not varied in value, the wages of thelabourer should be found to have fallen, it will not the less be areal fall, because they might furnish him with a greater quantityof cheap commodities, than his former wages.

The variation in the value of money, however great, makes nodifference in the rate of profits; for suppose the goods of the manu-facturer to rise from 1000l. to 2000l., or 100 per cent., if his capital,on which the variations of money have as much effect as on thevalue of produce, if his machinery, buildings, and stock in trade 2

rise more than 100 per cent., his rate of profits has fallen, and hehas a proportionably less quantity of the produce of the labour ofthe country at his command.

If, with capital of a given value, he double the quantity of pro-duce, its value falls one half, and then it will bear the same propor-tion to the capital which produced it, as it did before.3

If at the same time that he doubles the quantity of produce by

66 Principles ch. i

2 In ed. 2 this paragraph is incor-porated above, p. 58 (see ib. n. 1).3 In ed. 2 this paragraph is incor-porated above, p. 62 (see ib. n. 1).

4 Ed. 2 omits this paragraph. Seehowever, for a similar passage carriedover into ed. 2, above, p. 63, firstparagraph and n. 3.

the employment of the same capital, the value of money is by anyaccident lowered one half, the produce will sell for twice the moneyvalue that it did before; but the capital employed to produce it,will also be of twice its former money value; and therefore in thiscase too, the value of the produce will bear the same proportionto the value of the capital as it did before; and although the producebe doubled, rent, wages, and profits will only vary as the proportionsvary, in which this double produce may be divided among the threeclasses that share it.1

It appears then that the accumulation of capital, by occasioningdifferent proportions of fixed and circulating capital to be employedin different trades, and by giving different degrees of durability tosuch fixed capital, introduces a considerable modification to therule, which is of universal application in the early states of society.2

Commodities, though they continue to rise and fall, in proportionas more or less labour is necessary to their production, are alsoaffected in their relative value by a rise or fall of profits, since equalprofits may be derived from goods which sell for 2,000l. and fromthose which sell for 10,000l.; and consequently the variations ofthose profits, independently of any increased or diminished quantityof labour required for the goods in question, must affect their pricesin different proportions.3

It appears too, that commodities may be lowered in value inconsequence of a real rise of wages, but they never can be raisedfrom that cause. On the other hand, they may rise from a fall ofwages, as they then lose the peculiar advantages of production,which high wages afforded them.4

1 Ed. 2 concludes the chapter here.

1 Cp. above, p. 22–3, end of n. 3.2 In ed. 1 this and the next para-graph are not separated.

3 Eds. 1–2 ‘buildings, were, be-sides,’.

chapter ii

On Rent

It remains1 however to be considered, whether the appropria-tion of land, and the consequent creation of rent, will occasionany variation in the relative value of commodities, indepen-dently of the quantity of labour necessary to production. Inorder to understand this part of the subject, we must enquireinto the nature of rent, and the laws by which its rise or fallis regulated.2

Rent is that portion of the produce of the earth, which ispaid to the landlord for the use of the original and indestructiblepowers of the soil. It is often, however, confounded with theinterest and profit of capital, and, in popular language, the termis applied to whatever is annually paid by a farmer to his land-lord. If, of two adjoining farms of the same extent, and of thesame natural fertility, one had all the conveniences of farmingbuildings, and, besides, were3 properly drained and manured,and advantageously divided by hedges, fences and walls, whilethe other had none of these advantages, more remunerationwould naturally be paid for the use of one, than for the use ofthe other; yet in both cases this remuneration would be calledrent. But it is evident, that a portion only of the moneyannually to be paid for the improved farm, would be givenfor the original and indestructible powers of the soil; the otherportion would be paid for the use of the capital which had beenemployed in ameliorating the quality of the land, and in erectingsuch buildings as were necessary to secure and preserve theproduce. Adam Smith sometimes speaks of rent, in the strictsense to which I am desirous of confining it, but more often

68 Principles ch. ii

1 Bk. 1, ch. xi, pt. ii; vol. 1, p. 164.2 ib. vol. 1, pp. 163, 167.

3 Eds. 1–2 do not contain ‘the’.

in the popular sense, in which the term is usually employed.He tells us, that the demand for timber, and its consequent highprice, in the more southern countries of Europe, caused a rentto be paid for forests in Norway, which could before affordno rent.1 Is it not, however, evident, that the person whopaid what he thus calls rent, paid it in consideration of thevaluable commodity which was then standing on the land, andthat he actually repaid himself with a profit, by the sale of thetimber? If, indeed, after the timber was removed, any com-pensation were paid to the landlord for the use of the land, forthe purpose of growing timber or any other produce, with aview to future demand, such compensation might justly becalled rent, because it would be paid for the productive powersof the land; but in the case stated by Adam Smith, the com-pensation was paid for the liberty of removing and selling thetimber, and not for the liberty of growing it. He speaks alsoof the rent of coal mines, and of stone quarries,2 to which thesame observation applies—that the compensation given for themine or quarry, is paid for the value of the coal or stone whichcan be removed from them, and has no connection with theoriginal and indestructible powers of the land. This is a distinc-tion of great importance, in an enquiry concerning rent andprofits; for it is found, that the laws which regulate the progressof rent, are widely different from those which regulate the pro-gress of profits, and seldom operate in the same direction. Inall improved countries, that which is annually paid to the land-lord, partaking of both characters, rent and profit, is sometimeskept stationary by the effects of opposing causes; at other timesadvances or recedes, as one or the3 other of these causes pre-ponderates. In the future pages of this work, then, wheneverI speak of the rent of land, I wish to be understood as speaking

On Rentch. ii 69

1 Cp. the ‘original and inherentpower of the land’ in Essay onProfits, below, IV, 18, n. The defini-tion of rent is extended below,p. 261, n., to include the remunera-

tion paid to the landlord for theuse of all ‘indestructible powers’ ofland, whether original or not.2 Ed. 1 ‘it bears’.

of that compensation, which is paid to the owner of land forthe use of its original and indestructible powers.1

On the first settling of a country, in which there is an abun-dance of rich and fertile land, a very small proportion of whichis required to be cultivated for the support of the actual popula-tion, or indeed can be cultivated with the capital which thepopulation can command, there will be no rent; for no onewould pay for the use of land, when there was an abundantquantity not yet appropriated, and, therefore, at the disposalof whosoever might choose to cultivate it.

On the common principles of supply and demand, no rentcould be paid for such land, for the reason stated why nothingis given for the use of air and water, or for any other of thegifts of nature which exist in boundless quantity. With a givenquantity of materials, and with the assistance of the pressureof the atmosphere, and the elasticity of steam, engines may per-form work, and abridge human labour to a very great extent;but no charge is made for the use of these natural aids, becausethey are inexhaustible, and at every man’s disposal. In thesame manner the brewer, the distiller, the dyer, make incessantuse of the air and water for the production of their com-modities; but as the supply is boundless, they bear2 no price.*

*“The earth, as we have already seen, is not the only agent of naturewhich has a productive power; but it is the only one, or nearly so, thatone set of men take to themselves, to the exclusion of others; and ofwhich, consequently, they can appropriate the benefits. The waters ofrivers, and of the sea, by the power which they have of giving movementto our machines, carrying our boats, nourishing our fish, have also aproductive power; the wind which turns our mills, and even the heat ofthe sun, work for us; but happily no one has yet been able to say, the‘wind and the sun are mine, and the service which they render must bepaid for.’”—Economie Politique, par J. B. Say, vol. ii. p. 124.

70 Principles ch. ii

1 Eds. 1–2 ‘boundless in quantity’.2 Ed. 1 ‘It is only then becauseland is of different qualities withrespect to its productive powers’.

Ed. 2 is uniform with ed. 3, exceptthat it has ‘boundless’ in place of‘unlimited’.

If all land had the same properties, if it were unlimited inquantity,1 and uniform in quality, no charge could be made forits use, unless where it possessed peculiar advantages of situa-tion. It is only, then, because land is not unlimited in quantityand uniform in quality,2 and because in the progress of popula-tion, 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 degreeof fertility is taken into cultivation, rent immediately com-mences on that of the first quality, and the amount of that rentwill depend on the difference in the quality of these two por-tions of land.

When land of the third quality is taken into cultivation, rentimmediately commences on the second, and it is regulated asbefore, by the difference in their productive powers. At thesame time, the rent of the first quality will rise, for that mustalways be above the rent of the second, by the differencebetween the produce which they yield with a given quantityof capital and labour. With every step in the progress of popula-tion, which shall oblige a country to have recourse to land ofa 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 equalemployment of capital and labour, a net produce of 100, 90,and 80 quarters of corn. In a new country, where there is anabundance of fertile land compared with the population, andwhere therefore it is only necessary to cultivate No. 1, thewhole net produce will belong to the cultivator, and will bethe profits of the stock which he advances. As soon as popula-tion had so far increased as to make it necessary to cultivate

On Rentch. ii 71

No. 2, from which ninety quarters only can be obtained aftersupporting the labourers, rent would commence on No. 1; foreither there must be two rates of profit on agricultural capital,or ten quarters, or the value of ten quarters must be withdrawnfrom the produce of No. 1, for some other purpose. Whetherthe proprietor of the land, or any other person, cultivated No. 1,these ten quarters would equally constitute rent; for the culti-vator of No. 2 would get the same result with his capital,whether he cultivated No. 1, paying ten quarters for rent, orcontinued to cultivate No. 2, paying no rent. In the samemanner it might be shown that when No. 3 is brought intocultivation, the rent of No. 2 must be ten quarters, or the valueof ten quarters, whilst the rent of No. 1 would rise to twentyquarters; for the cultivator of No. 3 would have the sameprofits whether he paid twenty quarters for the rent of No. 1,ten quarters for the rent of No. 2, or cultivated No. 3 free ofall rent.

It often, and, indeed, commonly happens, that before No. 2,3, 4, or 5, or the inferior lands are cultivated, capital can beemployed more productively on those lands which are alreadyin cultivation. It may perhaps be found, that by doubling theoriginal capital employed on No. 1, though the produce willnot be doubled, will not be increased by 100 quarters, it maybe increased by eighty-five quarters, and that this quantityexceeds what could be obtained by employing the same capital,on land No. 3.

In such case, capital will be preferably employed on the oldland, and will equally create a rent; for rent is always thedifference between the produce obtained by the employmentof two equal quantities of capital and labour. If, with a capitalof 1000l., a tenant obtain 100 quarters of wheat from his land,and by the employment of a second capital of 1000l., he obtaina further return of eighty-five, his landlord would have the

72 Principles ch. ii

power at the expiration of his lease, of obliging him to payfifteen quarters, or an equivalent value, for additional rent; forthere cannot be two rates of profit. If he is satisfied with adiminution of fifteen quarters in the return for his second1000l., it is because no employment more profitable can befound for it. The common rate of profit would be in that pro-portion, and if the original tenant refused, some other personwould be found willing to give all which exceeded that rateof profit to the owner of the land from which he derived it.

In this case, as well as in the other, the capital last employedpays no rent. For the greater productive powers of the first1000l., fifteen quarters is paid for rent, for the employment ofthe second 1000l. no rent whatever is paid. If a third 1000l.be employed on the same land, with a return of seventy-fivequarters, rent will then be paid for the second 1000l., and willbe equal to the difference between the produce of these two,or ten quarters; and at the same time the rent of the first 1000l.will rise from fifteen to twenty-five quarters; while the last1000l. will pay no rent whatever.

If, then, good land existed in a quantity much more abundantthan the production of food for an increasing population re-quired, or if capital could be indefinitely employed without adiminished return on the old land, there could be no rise ofrent; for rent invariably proceeds from the employment of anadditional quantity of labour with a proportionally less return.

The most fertile, and most favorably situated, land will befirst cultivated, and the exchangeable value of its produce willbe adjusted in the same manner as the exchangeable value ofall other commodities, by the total quantity of labour necessaryin various forms, from first to last, to produce it, and bring itto market. When land of an inferior quality is taken into cultiva-tion, the exchangeable value of raw produce will rise, becausemore labour is required to produce it.

On Rentch. ii 73

The exchangeable value of all commodities, whether theybe manufactured, or the produce of the mines, or the produceof land, is always regulated, not by the less quantity of labourthat will suffice for their production under circumstances highlyfavorable, and exclusively enjoyed by those who have peculiarfacilities of production; but by the greater quantity of labournecessarily bestowed on their production by those who haveno such facilities; by those who continue to produce themunder the most unfavorable circumstances; meaning—by themost unfavorable circumstances, the most unfavorable underwhich the quantity of produce required, renders it necessaryto carry on the production.

Thus, in a charitable institution, where the poor are set towork with the funds of benefactors, the general prices of thecommodities, which are the produce of such work, will notbe governed by the peculiar facilities afforded to these work-men, but by the common, usual, and natural difficulties, whichevery other manufacturer will have to encounter. The manu-facturer enjoying none of these facilities might indeed be drivenaltogether from the market, if the supply afforded by thesefavored workmen were equal to all the wants of the com-munity; but if he continued the trade, it would be only oncondition that he should derive from it the usual and generalrate of profits on stock; and that could only happen when hiscommodity sold for a price proportioned to the quantity oflabour bestowed on its production.*

*Has not M. Say forgotten, in the following passage, that it is the costof production which ultimately regulates price? “The produce of labouremployed on the land has this peculiar property, that it does not becomemore dear by becoming more scarce, because population always diminishesat the same time that food diminishes, and consequently the quantity ofthese products demanded, diminishes at the same time as the quantity sup-plied. Besides, it is not observed that corn is more dear in those placeswhere there is plenty of uncultivated land, than in completely cultivatedcountries. England and France were much more imperfectly cultivated

74 Principles ch. ii

1 See Malthus’s Inquiry into the Nature and Progress of Rent, 1815, p. 57.

It is true, that on the best land, the same produce would stillbe obtained with the same labour as before, but its value wouldbe enhanced in consequence of the diminished returns obtainedby those who employed fresh labour and stock on the less fertileland. Notwithstanding, then, that the advantages of fertileover inferior lands are in no case lost, but only transferredfrom the cultivator, or consumer, to the landlord, yet, sincemore labour is required on the inferior lands, and since it isfrom such land only that we are enabled to furnish ourselveswith the additional supply of raw produce, the comparativevalue of that produce will continue permanently above itsformer level, and make it exchange for more hats, cloth, shoes,&c. &c. in the production of which no such additional quantityof labour is required.

The reason then, why raw produce rises in comparativevalue, is because more labour is employed in the productionof the last portion obtained, and not because a rent is paidto the landlord. The value of corn is regulated by the quantityof labour bestowed on its production on that quality of land,or with that portion of capital, which pays no rent. Corn isnot high because a rent is paid, but a rent is paid because cornis high; and it has been justly observed,1 that no reductionin the middle ages than they are now; they produced much less rawproduce; nevertheless from all that we can judge by a comparison withthe value of other things, corn was not sold at a dearer price. If theproduce was less, so was the population; the weakness of the demandcompensated the feebleness of the supply.” Vol. ii. 338. M. Say beingimpressed with the opinion that the price of commodities is regulatedby the price of labour, and justly supposing that charitable institutionsof all sorts tend to increase the population beyond what it otherwisewould be, and therefore to lower wages, says, “I suspect that the cheap-ness of the goods, which come from England, is partly caused by thenumerous charitable institutions which exist in that country.” vol. ii. 277.This is a consistent opinion in one who maintains that wages regulateprice.

On Rentch. ii 75

would take place in the price of corn, although landlords shouldforego the whole of their rent. Such a measure would onlyenable some farmers to live like gentlemen, but would notdiminish the quantity of labour necessary to raise raw produceon the least productive land in cultivation.

Nothing is more common than to hear of the advantageswhich the land possesses over every other source of usefulproduce, on account of the surplus which it yields in the formof rent. Yet when land is most abundant, when most pro-ductive, and most fertile, it yields no rent; and it is only whenits powers decay, and less is yielded in return for labour, thata share of the original produce of the more fertile portions isset apart for rent. It is singular that this quality in the land,which should have been noticed as an imperfection, comparedwith 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 pressureof the atmosphere, were of various qualities; if they could beappropriated, and each quality existed only in moderate abun-dance, they, as well as the land, would afford a rent, as the suc-cessive qualities were brought into use. With every worsequality employed, the value of the commodities in the manu-facture of which they were used, would rise, because equalquantities of labour would be less productive. Man would domore by the sweat of his brow, and nature perform less; andthe land would be no longer pre-eminent for its limitedpowers.

If the surplus produce which land affords in the form of rentbe an advantage, it is desirable that, every year, the machinerynewly constructed should be less efficient than the old, as thatwould undoubtedly give a greater exchangeable value to thegoods manufactured, not only by that machinery but byall the other machinery in the kingdom; and a rent would

76 Principles ch. ii

1 Adam Smith actually says ‘Thelabourers and’. There are otherminor inaccuracies in the quotation.

2 Cannan’s ed., vol. i, pp. 343–4.The italics are Ricardo’s.3 Ed. 3 misprints ‘dying’.

be paid to all those who possessed the most productivemachinery.*

*“In agriculture too,” says Adam Smith, “nature labours along withman; and though her labour costs no expense, its produce has its value,as well as that of the most expensive workman.” The labour of natureis paid, not because she does much, but because she does little. In pro-portion as she becomes niggardly in her gifts, she exacts a greater pricefor her work. Where she is munificently beneficent, she always worksgratis. “The1 labouring cattle employed in agriculture, not only occasion,like the workmen in manufactures, the reproduction of a value equal totheir own consumption, or to the capital which employs them, togetherwith its owner’s profits, but of a much greater value. Over and abovethe capital of the farmer and all its profits, they regularly occasion thereproduction of the rent of the landlord. This rent may be consideredas the produce of those powers of nature, the use of which the landlordlends to the farmer. It is greater or smaller according to the supposedextent of those powers, or in other words, according to the supposednatural or improved fertility of the land. It is the work of nature whichremains, after deducting or compensating every thing which can beregarded as the work of man. It is seldom less than a fourth, and frequentlymore than a third of the whole produce. No equal quantity of productivelabour employed in manufactures, can ever occasion so great a reproduc-tion. In them nature does nothing, man does all; and the reproduction mustalways be in proportion to the strength of the agents that occasion it.The capital employed in agriculture, therefore, not only puts into motiona greater quantity of productive labour than any equal capital employedin manufactures, but in proportion too, to the quantity of the productivelabour which it employs, it adds a much greater value to the annualproduce of the land and labour of the country, to the real wealth andrevenue of its inhabitants. Of all the ways in which a capital can be em-ployed, it is by far the most advantageous to the society.”—Book II.chap. v. p. 15.2

Does nature nothing for man in manufactures? Are the powers ofwind and water, which move our machinery, and assist navigation,nothing? The pressure of the atmosphere and the elasticity of steam,which enable us to work the most stupendous engines—are they not thegifts of nature? to say nothing of the effects of the matter of heat insoftening and melting metals, of the decomposition of the atmospherein the process of dyeing3 and fermentation. There is not a manufacturewhich can be mentioned, in which nature does not give her assistanceto man, and give it too, generously and gratuitously.

In remarking on the passage which I have copied from Adam Smith,

On Rentch. ii 77

1 Misprinted ‘motion’ in all eds.of Ricardo.

2 Buchanan’s ed. of the Wealth ofNations, vol. ii, p. 55, note.3 Ed. 1 does not contain this note.

The rise of rent is always the effect of the increasing wealthof the country, and of the difficulty of providing food for itsaugmented population. It is a symptom, but it is never a causeof wealth; for wealth often increases most rapidly while rent iseither stationary, or even falling. Rent increases most rapidly, asthe disposable land decreases in its productive powers. Wealthincreases most rapidly in those countries where the disposableland is most fertile, where importation is least restricted, andwhere through agricultural improvements, productions can bemultiplied without any increase in the proportional quantityof labour, and where consequently the progress of rent is slow.

If the high price of corn were the effect, and not the causeof rent, price would be proportionally influenced as rents werehigh or low, and rent would be a component part of price.But that corn which is produced by the greatest quantity oflabour is the regulator of the price of corn; and rent does notand cannot enter in the least degree as a component part ofits price.* Adam Smith, therefore, cannot be correct in sup-posing that the original rule which regulated the exchangeable

Mr. Buchanan observes, “I have endeavoured to show, in the observationson productive and unproductive labour, contained in the fourth volume,that agriculture adds no more to the national stock than any other sortof industry. In dwelling on the reproduction of rent as so great anadvantage to society, Dr. Smith does not reflect that rent is the effectof high price, and that what the landlord gains in this way, he gains atthe expense of the community at large. There is no absolute gain to thesociety by the reproduction of rent; it is only one class profiting at theexpense of another class. The notion1 of agriculture yielding a produce,and a rent in consequence, because nature concurs with human industryin the process of cultivation, is a mere fancy. It is not from the produce,but from the price at which the produce is sold, that the rent is derived;and this price is got not because nature assists in the production, butbecause it is the price which suits the consumption to the supply.”2

*The clearly understanding this principle is, I am persuaded, of theutmost importance to the science of political economy.3

78 Principles ch. ii

1 For Adam Smith’s ‘supposition’(not previously referred to in ed. 3),see p. 22–3, n. 3.2 Should probably read ‘a less andless’, as the sense requires. This mayindeed have been the reading in

the copy sent to the printer, as anabnormally wide spacing of thenext line in ed. 1 indicates thatsome letters were removed afterthe type had been set.

value of commodities, namely, the comparative quantity oflabour by which they were produced, can be at all altered bythe appropriation of land and the payment of rent.1 Rawmaterial enters into the composition of most commodities, butthe value of that raw material, as well as corn, is regulated bythe productiveness of the portion of capital last employed onthe land, and paying no rent; and therefore rent is not a com-ponent part of the price of commodities.

We have been hitherto considering the effects of the naturalprogress of wealth and population on rent, in a country inwhich the land is of variously productive powers; and we haveseen, that with every portion of additional capital which itbecomes necessary to employ on the land with a less productivereturn, rent would rise. It follows from the same principles,that any circumstances in the society which should make itunnecessary to employ the same amount of capital on the land,and which should therefore make the portion last employedmore productive, would lower rent. Any great reduction inthe capital of a country, which should materially diminish thefunds destined for the maintenance of labour, would naturallyhave this effect. Population regulates itself by the funds whichare to employ it, and therefore always increases or diminisheswith the increase or diminution of capital. Every reduction ofcapital is therefore necessarily followed by a less effective de-mand for corn, by a fall of price, and by diminished cultivation.In the reverse order to that in which the accumulation of capitalraises rent, will the diminution of it lower rent. Land of a less2

unproductive quality will be in succession relinquished, the

On Rentch. ii 79

exchangeable value of produce will fall, and land of a superiorquality will be the land last cultivated, and that which will thenpay no rent.

The same effects may however be produced, when the wealthand population of a country are increased, if that increase isaccompanied by such marked improvements in agriculture, asshall have the same effect of diminishing the necessity of culti-vating the poorer lands, or of expending the same amount ofcapital on the cultivation of the more fertile portions.

If a million of quarters of corn be necessary for the supportof a given population, and it be raised on land of the qualitiesof No. 1, 2, 3; and if an improvement be afterwards discoveredby which it can be raised on No. 1 and 2, without employingNo. 3, it is evident that the immediate effect must be a fall ofrent; for No. 2, instead of No. 3, will then be cultivated withoutpaying any rent; and the rent of No. 1, instead of being thedifference between the produce of No. 3 and No. 1, will bethe difference only between No. 2 and 1. With the same popula-tion, and no more, there can be no demand for any additionalquantity of corn; the capital and labour employed on No. 3will be devoted to the production of other commodities desirableto the community, and can have no effect in raising rent, unlessthe raw material from which they are made cannot be obtainedwithout employing capital less advantageously on the land, inwhich case No. 3 must again be cultivated.

It is undoubtedly true, that the fall in the relative price ofraw produce, in consequence of the improvement in agriculture,or rather in consequence of less labour being bestowed on itsproduction, would naturally lead to increased accumulation; forthe profits of stock would be greatly augmented. This accumu-lation would lead to an increased demand for labour, to higherwages, to an increased population, to a further demand for rawproduce, and to an increased cultivation. It is only, however,

80 Principles ch. ii

1 Ed. 1 does not contain ‘, by im-proving our machinery,’.2 Misprinted ‘effect’ in ed. 3.

3 Misprinted ‘increased’ in eds. 2–3.4 Ed. 1 ‘as I have’.

after the increase in the population, that rent would be as highas before; that is to say, after No. 3 was taken into cultivation.A considerable period would have elapsed, attended with apositive diminution of rent.

But improvements in agriculture are of two kinds: thosewhich increase the productive powers of the land, and thosewhich enable us, by improving our machinery,1 to obtain itsproduce with less labour. They both lead to a fall in the priceof raw produce; they both affect rent, but they do not affect2

it equally. If they did not occasion a fall in the price of rawproduce, they would not be improvements; for it is the essentialquality of an improvement to diminish the quantity of labourbefore required to produce a commodity; and this diminutioncannot take place without a fall of its price or relative value.

The improvements which increase3 the productive powersof the land, are such as the more skilful rotation of crops, orthe better choice of manure. These improvements absolutelyenable us to obtain the same produce from a smaller quantityof land. If, by the introduction of a course of turnips, I canfeed my sheep besides raising my corn, the land on which thesheep were before fed becomes unnecessary, and the samequantity of raw produce is raised by the employment of a lessquantity of land. If I discover a manure which will enable meto make a piece of land produce 20 per cent. more corn, I maywithdraw at least a portion of my capital from the most un-productive part of my farm. But, as I4 before observed, it is notnecessary that land should be thrown out of cultivation, inorder to reduce rent: to produce this effect, it is sufficient thatsuccessive portions of capital are employed on the same landwith different results, and that the portion which gives the leastresult should be withdrawn. If, by the introduction of the

On Rentch. ii 81

1 Eds. 1–2 do not contain this note;it was added, with other similarpassages elsewhere, as a reply toMalthus’s criticisms (below, II,118), but Ricardo had already

stated in the Essay on Profits(below, IV, 19), that the fall of rentwould be temporary; cp. also, fored. 1, above, pp. 79–80 and for ed.2, below, p. 412.

turnip husbandry, or by the use of a more invigorating manure,I can obtain the same produce with less capital, and withoutdisturbing the difference between the productive powers of thesuccessive portions of capital, I shall lower rent; for a differentand more productive portion will be that which will form thestandard from which every other will be reckoned. If, forexample, 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

� �100

70 and 90 � 20 9070 and 80 � 10 whilst the produce 80

would be 340 7060

340

and while I employed these portions, the rent would remainthe same, although the produce of each should have an equalaugmentation. If, instead of 100, 90, 80, 70, the produce shouldbe increased to 125, 115, 105, 95, the rent would still be 60, orthe difference between

95 and 125 � 30

� �125

95 and 115 � 20 whilst the produce 11595 and 105 � 10 would be increased 105

to 440 9560

440

But with such an increase of produce, without an increase ofdemand,* there could be no motive for employing so much

*I hope I am not understood as undervaluing the importance of allsorts of improvements in agriculture to landlords—their immediate effectis to lower rent; but as they give a great stimulus to population, and atthe same time enable us to cultivate poorer lands, with less labour, theyare ultimately of immense advantage to landlords. A period howevermust elapse, during which they are positively injurious to him.1

82 Principles ch. ii

1 Ed. 1 ‘would’. 2 Ed. 1 ‘on the largest portion ofcapital, that portion’.

capital on the land; one portion would be withdrawn, and con-sequently the last portion of capital would yield 105 insteadof 95, and rent would fall to 30, or the difference between

105 and 125 � 20

�whilst the produce will1 be still

�125

105 and 115 � 10 adequate to the wants of the 115population, for it would be 345 105

30 quarters, or345

the demand being only for 340 quarters.—But there are im-provements which may lower the relative value of producewithout lowering the corn rent, though they will lower themoney rent of land. Such improvements do not increase theproductive powers of the land; but they enable us to obtainits produce with less labour. They are rather directed to theformation of the capital applied to the land, than to the cultiva-tion of the land itself. Improvements in agricultural implements,such as the plough and the thrashing machine, economy inthe use of horses employed in husbandry, and a better know-ledge of the veterinary art, are of this nature. Less capital,which is the same thing as less labour, will be employed on theland; but to obtain the same produce, less land cannot becultivated. Whether improvements of this kind, however, affectcorn rent, must depend on the question, whether the differencebetween the produce obtained by the employment of differentportions of capital be increased, stationary, or diminished. Iffour portions of capital, 50, 60, 70, 80, be employed on theland, giving each the same results, and any improvement inthe formation of such capital should enable me to withdraw5 from each, so that they should be 45, 55, 65, and 75, noalteration would take place in the corn rent; but if the improve-ments were such as to enable me to make the whole saving onthat portion of capital,2 which is least productively employed,

On Rentch. ii 83

1 Eds. 1–2 read ‘of the whole pro-duce,’ and do not contain ‘obtainedwith a given capital on any givenfarm,’. On the question of rent asa proportion (with which this cor-

rection and those on p. 49, n. 1above and p. 402, n. 4 below areconcerned) see Notes on Malthus,below, II, 196–8.

corn rent would immediately fall, because the difference be-tween the capital most productive, and the capital least pro-ductive, would be diminished; and it is this difference whichconstitutes rent.

Without multiplying instances, I hope enough has been saidto show, that whatever diminishes the inequality in the produceobtained from successive portions of capital employed on thesame or on new land, tends to lower rent; and that whateverincreases that inequality, necessarily produces an opposite effect,and tends to raise it.

In speaking of the rent of the landlord, we have rather con-sidered it as the proportion of the produce,1 obtained with agiven capital on any given farm, without any reference to itsexchangeable value; but since the same cause, the difficulty ofproduction, raises the exchangeable value of raw produce, andraises also the proportion of raw produce paid to the landlordfor rent, it is obvious that the landlord is doubly benefited bydifficulty of production. First he obtains a greater share, andsecondly the commodity in which he is paid is of greater value.*

*To make this obvious, and to show the degrees in which corn andmoney rent will vary, let us suppose that the labour of ten men will,on land of a certain quality, obtain 180 quarters of wheat, and its valueto be 4l. per quarter, or 720l.; and that the labour of ten additional menwill, on the same or any other land, produce only 170 quarters in addition;wheat would rise from 4l. to 4l. 4s. 8d. for 170 : 180 :: 4l. : 4l. 4s. 8d.; or,as in the production of 170 quarters, the labour of 10 men is necessaryin one case, and only of 9.44 in the other, the rise would be as 9.44 to10, or as 4l. to 4l. 4s. 8d. If 10 men be further employed, and the return be

160, the price will rise to £4 10 0150, . . . . . . . 4 16 0140, . . . . . . . 5 2 10

Now if no rent was paid for the land which yielded 180 quarters, whencorn was at 4l. per quarter, the value of 10 quarters would be paid as

84 Principles ch. ii

rent when only 170 could be procured, which, at 4l. 4s. 8d. would be42l. 7s. 6d.

20 qrs. when 160 were produced, which at £4 10 0 would be £90 0 030 qrs. .......... 150 .............................................4 16 0.................. 144 0 040 qrs. .......... 140............................................. 5 2 10................... 205 13 4

�100

� �100

Corn rent1 would increase 200 and money rent in the 212in the proportion of 300 proportion of 340

400 485

1 Ed. 1 has here in addition ‘then’.

chapter iii

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 whichextracts them from the bowels of the earth, and prepares themfor 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 neverthe cause of the high value of their produce.

If there were abundance of equally fertile mines, which anyone might appropriate, they could yield no rent; the value oftheir produce would depend on the quantity of labour necessaryto extract the metal from the mine and bring it to market.

But there are mines of various qualities, affording very dif-ferent results, with equal quantities of labour. The metal pro-duced from the poorest mine that is worked, must at least havean exchangeable value, not only sufficient to procure all theclothes, food, and other necessaries consumed by those em-ployed in working it, and bringing the produce to market, butalso to afford the common and ordinary profits to him whoadvances the stock necessary to carry on the undertaking. Thereturn for capital from the poorest mine paying no rent, wouldregulate the rent of all the other more productive mines. Thismine is supposed to yield the usual profits of stock. All thatthe other mines produce more than this, will necessarily bepaid to the owners for rent. Since this principle is preciselythe same as that which we have already laid down respectingland, it will not be necessary further to enlarge on it.

It will be sufficient to remark, that the same general rulewhich regulates the value of raw produce and manufactured

86 Principles ch. iii

commodities, is applicable also to the metals; their value de-pending not on the rate of profits, nor on the rate of wages,nor on the rent paid for mines, but on the total quantity oflabour necessary to obtain the metal, and to bring it to market.

Like every other commodity, the value of the metals is subjectto variation. Improvements may be made in the implementsand machinery used in mining, which may considerably abridgelabour; 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. Ineither of these cases the metals would fall in value, and wouldtherefore exchange for a less quantity of other things. On theother hand, from the increasing difficulty of obtaining themetal, occasioned by the greater depth at which the mine mustbe worked, and the accumulation of water, or any other con-tingency, its value compared with that of other things, mightbe considerably increased.

It has therefore been justly observed, that however honestlythe coin of a country may conform to its standard, money madeof gold and silver is still liable to fluctuations in value, not onlyto accidental and temporary, but to permanent and naturalvariations, in the same manner as other commodities.

By the discovery of America and the rich mines in which itabounds, a very great effect was produced on the natural priceof the precious metals. This effect is by many supposed notyet to have terminated. It is probable, however, that all theeffects on the value of the metals, resulting from the discoveryof America, have long ceased; and if any fall has of late yearstaken place in their value, it is to be attributed to improvementsin the mode of working the mines.

From whatever cause it may have proceeded, the effect hasbeen so slow and gradual, that little practical inconvenience hasbeen felt from gold and silver being the general medium in

On the Rent of Minesch. iii 87

1 In place of this sentence eds. 1–2read: ‘Having acknowledged theimperfections to which money madeof gold and silver is liable as ameasure of value, from the greateror less quantity of labour whichmay, under varying circumstances,be necessary for the production ofthose metals, we may be permittedto make the supposition that allthese imperfections were removed,and that equal quantities of labour

could at all times obtain, from thatmine which paid no rent, equalquantities of gold. Gold wouldthen be an invariable measure ofvalue.’ (Cp. Notes on Malthus,below, II, 83.)2 When this was written, ‘thefollowing chapter’ probably in-cluded what is now the chapter‘On Wages’. See Introduction,section iii.

which the value of all other things is estimated. Though un-doubtedly a variable measure of value, there is probably nocommodity subject to fewer variations. This and the otheradvantages which these metals possess, such as their hardness,their malleability, their divisibility, and many more, have justlysecured the preference every where given to them, as a standardfor the money of civilized countries.

If equal quantities of labour, with equal quantities of fixedcapital, could at all times obtain, from that mine which paidno rent, equal quantities of gold, gold would be as nearly aninvariable measure of value, as we could in the nature of thingspossess.1 The quantity indeed would enlarge with the demand,but its value would be invariable, and it would be eminentlywell calculated to measure the varying value of all other things.I have already in a former part of this work considered gold asendowed with this uniformity, and in the following chapter2

I shall continue the supposition. In speaking therefore ofvarying price, the variation will be always considered as beingin the commodity, and never in the medium in which it isestimated.

chapter iv

On Natural and Market Price

In making labour the foundation of the value of commodities,and the comparative quantity of labour which is necessary totheir production, the rule which determines the respectivequantities of goods which shall be given in exchange for eachother, we must not be supposed to deny the accidental andtemporary deviations of the actual or market price of com-modities from this, their primary and natural price.

In the ordinary course of events, there is no commoditywhich continues for any length of time to be supplied preciselyin that degree of abundance, which the wants and wishes ofmankind require, and therefore there is none which is notsubject to accidental and temporary variations of price.

It is only in consequence of such variations, that capital isapportioned precisely, in the requisite abundance and no more,to the production of the different commodities which happento be in demand. With the rise or fall of price, profits areelevated above, or depressed below their general level, andcapital is either encouraged to enter into, or is warned to departfrom the particular employment in which the variation hastaken place.

Whilst every man is free to employ his capital where hepleases, he will naturally seek for it that employment which ismost advantageous; he will naturally be dissatisfied with aprofit of 10 per cent., if by removing his capital he can obtaina profit of 15 per cent. This restless desire on the part of allthe employers of stock, to quit a less profitable for a moreadvantageous business, has a strong tendency to equalize therate of profits of all, or to fix them in such proportions, as may

On Natural and Market Pricech. iv 89

in the estimation of the parties, compensate for any advantagewhich one may have, or may appear to have over the other.It is perhaps very difficult to trace the steps by which this changeis effected: it is probably effected, by a manufacturer not abso-lutely changing his employment, but only lessening the quantityof capital he has in that employment. In all rich countries, thereis a number of men forming what is called the monied class;these men are engaged in no trade, but live on the interest oftheir money, which is employed in discounting bills, or in loansto the more industrious part of the community. The bankerstoo employ a large capital on the same objects. The capital soemployed forms a circulating capital of a large amount, and isemployed, in larger or smaller proportions, by all the differenttrades of a country. There is perhaps no manufacturer, how-ever rich, who limits his business to the extent that his ownfunds alone will allow: he has always some portion of thisfloating capital, increasing or diminishing according to theactivity of the demand for his commodities. When the demandfor silks increases, and that for cloth diminishes, the clothierdoes not remove with his capital to the silk trade, but he dis-misses some of his workmen, he discontinues his demand forthe loan from bankers and monied men; while the case of thesilk manufacturer is the reverse: he wishes to employ moreworkmen, and thus his motive for borrowing is increased: heborrows more, and thus capital is transferred from one employ-ment to another, without the necessity of a manufacturer dis-continuing his usual occupation. When we look to the marketsof a large town, and observe how regularly they are suppliedboth with home and foreign commodities, in the quantity inwhich they are required, under all the circumstances of varyingdemand, arising from the caprice of taste, or a change in theamount of population, without often producing either theeffects of a glut from a too abundant supply, or an enormously

90 Principles ch. iv

1 Eds. 1–2 do not contain this paragraph.

high price from the supply being unequal to the demand, wemust confess that the principle which apportions capital to eachtrade in the precise amount that it is required, is more activethan is generally supposed.

A capitalist, in seeking profitable employment for his funds,will naturally take into consideration all the advantages whichone occupation possesses over another. He may therefore bewilling to forego a part of his money profit, in considerationof the security, cleanliness, ease, or any other real or fanciedadvantage which one employment may possess over another.

If from a consideration of these circumstances, the profitsof stock should be so adjusted, that in one trade they were20, in another 25, and in another 30 per cent., they wouldprobably continue permanently with that relative difference,and with that difference only; for if any cause should elevatethe profits of one of these trades 10 per cent. either these profitswould be temporary, and would soon again fall back to theirusual station, or the profits of the others would be elevatedin the same proportion.

The present time appears to be one of the exceptions to thejustness of this remark. The termination of the war has soderanged the division which before existed of employments inEurope, that every capitalist has not yet found his place in thenew division which has now become necessary.1

Let us suppose that all commodities are at their naturalprice, and consequently that the profits of capital in all employ-ments are exactly at the same rate, or differ only so much as,in the estimation of the parties, is equivalent to any real orfancied advantage which they possess or forego. Suppose nowthat a change of fashion should increase the demand for silks,and lessen that for woollens; their natural price, the quantityof labour necessary to their production, would continue un-

On Natural and Market Pricech. iv 91

1 Misprinted ‘changeable’ in ed. 3.2 Bk. i, ch. vii, ‘Of the natural andmarket Price of Commodities.’

3 Ed. 1 ‘we may be permitted to’.

altered, but the market price of silks would rise, and that ofwoollens would fall; and consequently the profits of the silkmanufacturer would be above, whilst those of the woollenmanufacturer would be below, the general and adjusted rateof profits. Not only the profits, but the wages of the workmen,would be affected in these employments. This increased demandfor silks would however soon be supplied, by the transferenceof capital and labour from the woollen to the silk manufacture;when the market prices of silks and woollens would againapproach their natural prices, and then the usual profits wouldbe obtained by the respective manufacturers of those com-modities.

It is then the desire, which every capitalist has, of divertinghis funds from a less to a more profitable employment, thatprevents the market price of commodities from continuingfor any length of time either much above, or much belowtheir natural price. It is this competition which so adjusts theexchangeable1 value of commodities, that after paying thewages for the labour necessary to their production, and all otherexpenses required to put the capital employed in its originalstate of efficiency, the remaining value or overplus will in eachtrade be in proportion to the value of the capital employed.

In the 7th chap. of the Wealth of Nations,2 all that concernsthis question is most ably treated. Having fully acknowledgedthe temporary effects which, in particular employments ofcapital, may be produced on the prices of commodities, as wellas on the wages of labour, and the profits of stock, by accidentalcauses, without influencing the general price of commodities,wages, or profits, since these effects are equally operative in allstages of society, we will3 leave them entirely out of our con-

92 Principles ch. iv

sideration, whilst we are treating of the laws which regulatenatural prices, natural wages and natural profits, effects totallyindependent of these accidental causes. In speaking then of theexchangeable value of commodities, or the power of purchasingpossessed by any one commodity, I mean always that powerwhich it would possess, if not disturbed by any temporary oraccidental cause, and which is its natural price.

1 These opening passages appearto be derived from Torrens’s Essay

on the External Corn Trade, 1815,p. 62; cp. below, p. 96–7, n.

chapter v

On Wages

Labour, like all other things which are purchased and sold,and which may be increased or diminished in quantity, has itsnatural and its market price. The natural price of labour is thatprice which is necessary to enable the labourers, one withanother, to subsist and to perpetuate their race, without eitherincrease or diminution.

The power of the labourer to support himself, and the familywhich may be necessary to keep up the number of labourers,does not depend on the quantity of money which he mayreceive for wages, but on the quantity of food, necessaries, andconveniences become essential to him from habit, which thatmoney will purchase. The natural price of labour, therefore,depends on the price of the food, necessaries, and conveniencesrequired for the support of the labourer and his family. Witha rise in the price of food and necessaries, the natural price oflabour will rise; with the fall in their price, the natural priceof labour will fall.1

With the progress of society the natural price of labour hasalways a tendency to rise, because one of the principal com-modities by which its natural price is regulated, has a tendencyto become dearer, from the greater difficulty of producing it.As, however, the improvements in agriculture, the discoveryof new markets, whence provisions may be imported, may fora time counteract the tendency to a rise in the price of neces-saries, and may even occasion their natural price to fall, so willthe same causes produce the correspondent effects on the naturalprice of labour.

The natural price of all commodities, excepting raw produce

94 Principles ch. v

1 Eds. 1–2 ‘natural price of wages’.

and labour, has a tendency to fall, in the progress of wealthand population; for though, on one hand, they are enhancedin real value, from the rise in the natural price of the raw materialof which they are made, this is more than counterbalanced bythe improvements in machinery, by the better division anddistribution of labour, and by the increasing skill, both inscience and art, of the producers.

The market price of labour is the price which is really paidfor it, from the natural operation of the proportion of thesupply to the demand; labour is dear when it is scarce, andcheap when it is plentiful. However much the market priceof labour may deviate from its natural price, it has, like com-modities, 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 proportionof the necessaries and enjoyments of life, and therefore to reara healthy and numerous family. When, however, by the en-couragement which high wages give to the increase of popula-tion, the number of labourers is increased, wages again fall totheir natural price, and indeed from a re-action sometimes fallbelow it.

When the market price of labour is below its natural price,the condition of the labourers is most wretched: then povertydeprives them of those comforts which custom renders absolutenecessaries. It is only after their privations have reduced theirnumber, or the demand for labour has increased, that themarket price of labour will rise to its natural price, and thatthe labourer will have the moderate comforts which the naturalrate of wages1 will afford.

Notwithstanding the tendency of wages to conform to theirnatural rate, their market rate may, in an improving society,

On Wagesch. v 95

1 Ed. 1 ‘raw material’.2 Ed. 1 does not contain ‘, but mayactually have a less’.

3 Ed. 1 ‘natural price of wages’.

for an indefinite period, be constantly above it; for no soonermay the impulse, which an increased capital gives to a newdemand for labour be obeyed, than another increase of capitalmay produce the same effect; and thus, if the increase of capitalbe gradual and constant, the demand for labour may give acontinued stimulus to an increase of people.

Capital is that part of the wealth of a country which isemployed in production, and consists of food, clothing, tools,raw materials1, machinery, &c. necessary to give effect to labour.

Capital may increase in quantity at the same time that itsvalue rises. An addition may be made to the food and clothingof a country, at the same time that more labour may be re-quired to produce the additional quantity than before; in thatcase not only the quantity, but the value of capital will rise.

Or capital may increase without its value increasing, andeven while its value is actually diminishing; not only may anaddition be made to the food and clothing of a country, butthe addition may be made by the aid of machinery, without anyincrease, and even with an absolute diminution in the pro-portional quantity of labour required to produce them. Thequantity of capital may increase, while neither the wholetogether, nor any part of it singly, will have a greater value thanbefore, but may actually have a less2.

In the first case, the natural price of labour3, which alwaysdepends on the price of food, clothing, and other necessaries,will rise; in the second, it will remain stationary, or fall; butin both cases the market rate of wages will rise, for in propor-tion to the increase of capital will be the increase in the demandfor labour; in proportion to the work to be done will be thedemand for those who are to do it.

96 Principles ch. v

1 Ed. 1 ‘market price of wages’.2 Eds. 1–2 ‘their’.

3 Ed. 1 ‘natural price of wages’.4 Ed. 1 ‘natural price of wages’.

In both cases too the market price of labour will rise aboveits natural price; and in both cases it will have a tendency toconform to its natural price, but in the first case this agreementwill be most speedily effected. The situation of the labourerwill be improved, but not much improved; for the increasedprice of food and necessaries will absorb a large portion of hisincreased wages; consequently a small supply of labour, or atrifling increase in the population, will soon reduce the marketprice to the then increased natural price of labour.

In the second case, the condition of the labourer will be verygreatly improved; he will receive increased money wages, with-out having to pay any increased price, and perhaps even adiminished price for the commodities which he and his familyconsume; and it will not be till after a great addition has beenmade to the population, that the market price of labour1 willagain sink to its2 then low and reduced natural price.

Thus, then, with every improvement of society, with everyincrease 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 labour3 has also risen; and thisagain will depend on the rise in the natural price of thosenecessaries on which the wages of labour are expended.

It is not to be understood that the natural price of labour4,estimated even in food and necessaries, is absolutely fixed andconstant. It varies at different times in the same country, andvery materially differs in different countries.* It essentially

*“The shelter and the clothing which are indispensable in one countrymay be no way necessary in another; and a labourer in Hindostan maycontinue to work with perfect vigour, though receiving, as his naturalwages, only such a supply of covering as would be insufficient to preservea labourer in Russia from perishing. Even in countries situated in thesame climate, different habits of living will often occasion variations in

On Wagesch. v 97

1 Ed. 1 ‘early’.2 Eds. 1–2 do not contain ‘money’.3 Ed. 1 does not contain ‘it appearsthen that’.4 London, Hatchard, 1815. Thereference should be to p. 63.5 Ed. 2 ‘Major’.

6 Ed. 1 does not contain this note.It was inserted, with another onp. 271 below, because of Torrens’scomplaint that he had not beenmentioned in ed. 1; see letter toTrower, below, VII, 179–80, andto Mill, ib. p. 333.

depends on the habits and customs of the people. An Englishlabourer would consider his wages under their natural rate, andtoo scanty to support a family, if they enabled him to purchaseno other food than potatoes, and to live in no better habitationthan a mud cabin; yet these moderate demands of nature areoften deemed sufficient in countries where “man’s life is cheap”,and his wants easily satisfied. Many of the conveniences nowenjoyed in an English cottage, would have been thought luxuriesat an earlier1 period of our history.

From manufactured commodities always falling, and rawproduce always rising, with the progress of society, such a dis-proportion in their relative value is at length created, that inrich countries a labourer, by the sacrifice of a very smallquantity only of his food, is able to provide liberally for allhis other wants.

Independently of the variations in the value of money, whichnecessarily affect money2 wages, but which we have here sup-posed to have no operation, as we have considered money tobe uniformly of the same value, it appears then that3 wagesare 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.

the natural price of labour, as considerable as those which are producedby natural causes,”—p. 68. An Essay on the External Corn Trade, by R.Torrens, Esq.4

The whole of this subject is most ably illustrated by Colonel5 Torrens.6

98 Principles ch. v

1 Malthus’s Essay on Population, Bk. 1, ch. i.

In different stages of society, the accumulation of capital,or of the means of employing labour, is more or less rapid, andmust in all cases depend on the productive powers of labour.The productive powers of labour are generally greatest whenthere is an abundance of fertile land: at such periods accumula-tion is often so rapid, that labourers cannot be supplied withthe same rapidity as capital.

It has been calculated, that under favourable circumstancespopulation may be doubled in twenty-five years;1 but under thesame favourable circumstances, the whole capital of a countrymight 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 thanthe supply.

In new settlements, where the arts and knowledge of countriesfar advanced in refinement are introduced, it is probable thatcapital has a tendency to increase faster than mankind: and ifthe deficiency of labourers were not supplied by more populouscountries, this tendency would very much raise the price oflabour. In proportion as these countries become populous, andland of a worse quality is taken into cultivation, the tendencyto an increase of capital diminishes; for the surplus produceremaining, 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 favourablecircumstances, the power of production is still greater thanthat of population, it will not long continue so; for the landbeing limited in quantity, and differing in quality, with everyincreased portion of capital employed on it, there will be adecreased rate of production, whilst the power of populationcontinues always the same.

On Wagesch. v 99

1 Ed. 1 in place of the last twosentences reads ‘In the one case,the misery proceeds from the in-activity of the people. To be madehappier, they need only to be stimu-lated to exertion; with such ex-ertion, no increase’. Cp. below,p. 100, n.

2 The argument in this paragraphis derived from John Weyland(The Principles of Population andProduction, 1816, pp. 25–30). Cp.letter to Trower of 15 July 1816,below, VII, 48.

In those countries where there is abundance of fertile land,but where, from the ignorance, indolence, and barbarism of theinhabitants, they are exposed to all the evils of want and famine,and where it has been said that population presses against themeans of subsistence, a very different remedy should be appliedfrom that which is necessary in long settled countries, where,from the diminishing rate of the supply of raw produce, all theevils of a crowded population are experienced. In the one case,the evil proceeds from bad government, from the insecurityof property, and from a want of education in all ranks of thepeople. To be made happier they require only to be bettergoverned and instructed, as the augmentation of capital, beyondthe augmentation of people, would be the inevitable result. Noincrease1 in the population can be too great, as the powers ofproduction are still greater. In the other case, the populationincreases faster than the funds required for its support. Everyexertion of industry, unless accompanied by a diminished rateof increase in the population, will add to the evil, for produc-tion cannot keep pace with it.2

With a population pressing against the means of subsistence,the only remedies are either a reduction of people, or a morerapid accumulation of capital. In rich countries, where all thefertile land is already cultivated, the latter remedy is neithervery practicable nor very desirable, because its effect would be,if pushed very far, to render all classes equally poor. But inpoor countries, where there are abundant means of productionin store, from fertile land not yet brought into cultivation, it

100 Principles ch. v

1 In place of these last two sen-tences and the preceding paragraph,ed. 1 reads: ‘In some countries ofEurope, and many of Asia, as wellas in the islands in the South Seas,the people are miserable, eitherfrom a vicious government or fromhabits of indolence, which makethem prefer present ease and in-activity, though without securityagainst want, to a moderate degreeof exertion, with plenty of foodand necessaries. By diminishingtheir population, no relief wouldbe afforded, for productions woulddiminish in as great, or even in agreater, proportion. The remedyfor the evils under which Polandand Ireland suffer, which are similarto those experienced in the SouthSeas, is to stimulate exertion, tocreate new wants, and to implantnew tastes; for those countries mustaccumulate a much larger amountof capital, before the diminishedrate of production will render theprogress of capital necessarily lessrapid than the progress of popula-tion. The facility with which thewants of the Irish are supplied, per-mits that people to pass a greatpart of their time in idleness: if thepopulation were diminished, thisevil would increase, because wageswould rise, and therefore the

labourer would be enabled, in ex-change for a still less portion ofhis labour, to obtain all that hismoderate wants require.

‘Give to the Irish labourer a tastefor the comforts and enjoymentswhich habit has made essential tothe English labourer, and he wouldbe then content to devote a furtherportion of his time to industry,that he might be enabled to obtainthem. Not only would all the foodnow produced be obtained, but avast additional value in those othercommodities, to the production ofwhich the now unemployed labourof the country might be directed.’

These passages were rewrittenas a result of criticisms by GeorgeEnsor in his Inquiry concerning thePopulation of Nations: containinga Refutation of Mr. Malthus’sEssay on Population, London, E.Wilson, 1818, pp. 264–5. Afterpointing out that Ricardo’s ownaccount of an English labourer(below, p. 106) ‘is no object ofadmiration’, Ensor asked: ‘But howare these tastes to be excited inIrish labourers? Is it supposed thatthey are not like other humancreatures? but that they make choiceof privations?’ (See Ricardo’s letterto Mill of 23 Nov. 1818, below,VII, 334.)

is the only safe and efficacious means of removing the evil,particularly as its effect would be to elevate all classes of thepeople.

The friends of humanity cannot but wish that in all countriesthe labouring classes should have a taste for comforts and en-joyments, and that they should be stimulated by all legal meansin their exertions to procure them. There cannot be a bettersecurity against a superabundant population.1 In those coun-

On Wagesch. v 101

tries, where the labouring classes have the fewest wants, andare contented with the cheapest food, the people are exposedto the greatest vicissitudes and miseries. They have no placeof refuge from calamity; they cannot seek safety in a lowerstation; they are already so low, that they can fall no lower.On any deficiency of the chief article of their subsistence, thereare few substitutes of which they can avail themselves, anddearth to them is attended with almost all the evils of famine.

In the natural advance of society, the wages of labour willhave a tendency to fall, as far as they are regulated by supplyand demand; for the supply of labourers will continue to in-crease at the same rate, whilst the demand for them will increaseat a slower rate. If, for instance, wages were regulated by ayearly increase of capital, at the rate of 2 per cent., they wouldfall when it accumulated only at the rate of 1 per cent. They1�

2

would fall still lower when it increased only at the rate of 1,or per cent., and would continue to do so until the capital1�

2

became stationary, when wages also would become stationary,and be only sufficient to keep up the numbers of the actualpopulation. I say that, under these circumstances, wages wouldfall, if they were regulated only by the supply and demandof labourers; but we must not forget, that wages are alsoregulated by the prices of the commodities on which they areexpended.

As population increases, these necessaries will be constantlyrising in price, because more labour will be necessary to pro-duce them. If, then, the money wages of labour should fall,whilst every commodity on which the wages of labour wereexpended rose, the labourer would be doubly affected, andwould be soon totally deprived of subsistence. Instead, there-fore, of the money wages of labour falling, they would rise;but they would not rise sufficiently to enable the labourer topurchase as many comforts and necessaries as he did before the

102 Principles ch. v

rise in the price of those commodities. If his annual wages werebefore 24l., or six quarters of corn when the price was 4l. perquarter, he would probably receive only the value of fivequarters when corn rose to 5l. per quarter. But five quarterswould cost 25l.; he would therefore receive an addition in hismoney wages, though with that addition he would be unableto furnish himself with the same quantity of corn and othercommodities, which he had before consumed in his family.

Notwithstanding, then, that the labourer would be reallyworse paid, yet this increase in his wages would necessarilydiminish the profits of the manufacturer; for his goods wouldsell at no higher price, and yet the expense of producing themwould be increased. This, however, will be considered in ourexamination into the principles which regulate profits.

It appears, then, that the same cause which raises rent,namely, the increasing difficulty of providing an additionalquantity of food with the same proportional quantity of labour,will also raise wages; and therefore if money be of an unvaryingvalue, both rent and wages will have a tendency to rise withthe progress of wealth and population.

But there is this essential difference between the rise of rentand the rise of wages. The rise in the money value of rent isaccompanied by an increased share of the produce; not only isthe landlord’s money rent greater, but his corn rent also; hewill have more corn, and each defined measure of that cornwill exchange for a greater quantity of all other goods whichhave not been raised in value. The fate of the labourer will beless happy; he will receive more money wages, it is true, buthis corn wages will be reduced; and not only his commandof corn, but his general condition will be deteriorated, by hisfinding it more difficult to maintain the market rate of wagesabove their natural rate. While the price of corn rises 10 percent., wages will always rise less than 10 per cent., but rent will

On Wagesch. v 103

always rise more; the condition of the labourer will generallydecline, and that of the landlord will always be improved.

When wheat was at 4l. per quarter, suppose the labourer’swages to be 24l. per annum, or the value of six quarters ofwheat, and suppose half his wages to be expended on wheat,and the other half, or 12l., on other things. He would receive

24l. 14s.

� �4l. 4s. 8d.

� �5.83 qrs.

25l. 10s. when wheat 4l. 10s. or the 5.66 qrs.26l. 8s. was at 4l. 16s. value of 5.50 qrs.27l. 8s. 6d. 5l. 2s. 10d. 5.33 qrs.

He would receive these wages to enable him to live just aswell, and no better, than before; for when corn was at 4l. perquarter, he would expend for three quarters of corn, at 4l. perquarter . . . . . . . . . . . . 12l.and on other things . . . . . . . 12l.

24l.When wheat was 4l. 4s. 8d., three quarters, which he and hisfamily consumed, would cost him . . . . . . . . 12l. 14s.other things not altered in price. . . . . . . . . 12l.

24l. 14s.When at 4l. 10s, three quarters of wheat would cost 13l. 10s.and other things . . . . . . . . . . . . . . 12l.

25l. 10s.When at 4l. 16s., three qrs. of wheat . . . . . . . 14l. 8s.Other things. . . . . . . . . . . . . . . . 12l.

26l. 8s.When at 5l. 2s. 10d. three quarters of wheat wouldcost . . . . . . . . . . . . . . . . . . 15l. 8s. 6d.Other things. . . . . . . . . . . . . . . 12l.

27l. 8s. 6d.

In proportion as corn became dear, he would receive lesscorn wages, but his money wages would always increase,

104 Principles ch. v

whilst his enjoyments, on the above supposition, would be pre-cisely the same. But as other commodities would be raised inprice in proportion as raw produce entered into their composi-tion, he would have more to pay for some of them. Althoughhis tea, sugar, soap, candles, and house rent, would probablybe no dearer, he would pay more for his bacon, cheese, butter,linen, shoes, and cloth; and therefore, even with the aboveincrease of wages, his situation would be comparatively worse.But it may be said that I have been considering the effect ofwages on price, on the supposition that gold, or the metal fromwhich money is made, is the produce of the country in whichwages varied; and that the consequences which I have deducedagree little with the actual state of things, because gold is ametal of foreign production. The circumstance, however, ofgold being a foreign production, will not invalidate the truthof the argument, because it may be shewn, that whether it werefound at home, or were imported from abroad, the effectsultimately and, indeed, immediately would be the same.

When wages rise, it is generally because the increase ofwealth and capital have occasioned a new demand for labour,which will infallibly be attended with an increased productionof commodities. To circulate these additional commodities,even at the same prices as before, more money is required, moreof this foreign commodity from which money is made, andwhich can only be obtained by importation. Whenever a com-modity is required in greater abundance than before, its relativevalue rises comparatively with those commodities with whichits purchase is made. If more hats were wanted, their pricewould rise, and more gold would be given for them. Ifmore gold were required, gold would rise, and hats would fallin price, as a greater quantity of hats and of all other thingswould then be necessary to purchase the same quantity of gold.But in the case supposed, to say that commodities will rise,

On Wagesch. v 105

because wages rise, is to affirm a positive contradiction; for wefirst say that gold will rise in relative value in consequence ofdemand, and secondly, that it will fall in relative value becauseprices will rise, two effects which are totally incompatible witheach other. To say that commodities are raised in price, is thesame thing as to say that money is lowered in relative value;for it is by commodities that the relative value of gold isestimated. If then all commodities rose in price, gold couldnot come from abroad to purchase those dear commodities, butit would go from home to be employed with advantage in pur-chasing the comparatively cheaper foreign commodities. It ap-pears, then, that the rise of wages will not raise the prices ofcommodities, whether the metal from which money is madebe produced at home or in a foreign country. All commoditiescannot rise at the same time without an addition to the quantityof money. This addition could not be obtained at home, aswe have already shewn; nor could it be imported from abroad.To purchase any additional quantity of gold from abroad,commodities at home must be cheap, not dear. The importationof gold, and a rise in the price of all home-made commoditieswith which gold is purchased or paid for, are effects absolutelyincompatible. The extensive use of paper money does not alterthis question, for paper money conforms, or ought to conform,to the value of gold, and therefore its value is influenced bysuch causes only as influence the value of that metal.

These then are the laws by which wages are regulated, andby which the happiness of far the greatest part of every com-munity is governed. Like all other contracts, wages shouldbe left to the fair and free competition of the market, and shouldnever be controlled by the interference of the legislature.

The clear and direct tendency of the poor laws, is in directopposition to these obvious principles: it is not, as the legisla-ture benevolently intended, to amend the condition of the poor,

106 Principles ch. v

1 Ed. 1 ‘neat’.2 Essay on Population, 4th ed.,London, 1807, vol. ii, Bk. iii, chs.v, vi.

3 Buchanan’s ed. of the Wealth ofNations, vol. iv, Observations.

but to deteriorate the condition of both poor and rich; insteadof making the poor rich, they are calculated to make the richpoor; and whilst the present laws are in force, it is quite in thenatural order of things that the fund for the maintenance ofthe poor should progressively increase, till it has absorbed allthe net1 revenue of the country, or at least so much of it as thestate shall leave to us, after satisfying its own never failingdemands for the public expenditure.*

This pernicious tendency of these laws is no longer a mystery,since it has been fully developed by the able hand of Mr. Malthus;2

and every friend to the poor must ardently wish for theirabolition. Unfortunately, however, they have been so longestablished, and the habits of the poor have been so formedupon their operation, that to eradicate them with safety fromour political system, requires the most cautious and skilfulmanagement. It is agreed by all who are most friendly to arepeal of these laws, that if it be desirable to prevent the mostoverwhelming distress to those for whose benefit they wereerroneously enacted, their abolition should be effected by themost gradual steps.

It is a truth which admits not a doubt, that the comforts andwell-being of the poor cannot be permanently secured withoutsome regard on their part, or some effort on the part of the

*With Mr. Buchanan in the following passage, if it refers to temporarystates of misery, I so far agree, that “the great evil of the labourer’s con-dition is poverty, arising either from a scarcity of food or of work; andin all countries, laws without number have been enacted for his relief.But there are miseries in the social state which legislation cannot relieve;and it is useful therefore to know its limits, that we may not, by aimingat what is impracticable, miss the good which is really in our power.”—Buchanan, page 61.3

On Wagesch. v 107

1 See the ‘Report from the SelectCommittee on the Poor Laws’dated 4 July 1817 (ParliamentaryPapers, 1817, vol. vi) and cp. letter

to Trower of 10 Dec. 1817, below,VII, 219.2 Ed. 1 does not contain this note.

legislature, to regulate the increase of their numbers, and torender less frequent among them early and improvident mar-riages. The operation of the system of poor laws has beendirectly contrary to this. They have rendered restraint super-fluous, and have invited imprudence, by offering it a portion ofthe wages of prudence and industry.*

The nature of the evil points out the remedy. By graduallycontracting the sphere of the poor laws; by impressing on thepoor the value of independence, by teaching them that theymust look not to systematic or casual charity, but to their ownexertions for support, that prudence and forethought are neitherunnecessary nor unprofitable virtues, we shall by degrees ap-proach a sounder and more healthful state.

No scheme for the amendment of the poor laws merits theleast attention, which has not their abolition for its ultimateobject; and he is the best friend to the poor, and to the causeof humanity, who can point out how this end can be attainedwith the most security, and at the same time with the leastviolence. It is not by raising in any manner different from thepresent, the fund from which the poor are supported, that theevil can be mitigated. It would not only be no improvement,

*The progress of knowledge manifested upon this subject in the Houseof Commons since 1796, has happily not been very small, as may be seenby contrasting the late report of the committee on the poor laws,1 andthe following sentiments of Mr. Pitt, in that year.

“Let us,” said he, “make relief in cases where there are a number ofchildren a matter of right and honour, instead of a ground of opprobriumand contempt. This will make a large family a blessing, and not a curse;and this will draw a proper line of distinction between those who areable to provide for themselves by their labour, and those who afterhaving enriched their country with a number of children, have a claimupon its assistance for support.”—Hansard’s Parliamentary History,vol. 32, page 710.2

108 Principles ch. v

1 See Curwen’s speech on the PoorLaws, 21 Feb. 1817, Hansard,XXXV, 520–1.

2 Misprinted ‘tolerable’ in ed. 3.

but it would be an aggravation of the distress which we wishto see removed, if the fund were increased in amount, or werelevied according to some late proposals,1 as a general fund fromthe country at large. The present mode of its collection andapplication has served to mitigate its pernicious effects. Eachparish raises a separate fund for the support of its own poor.Hence it becomes an object of more interest and more practica-bility to keep the rates low, than if one general fund were raisedfor the relief of the poor of the whole kingdom. A parish ismuch more interested in an economical collection of the rate,and a sparing distribution of relief, when the whole saving willbe for its own benefit, than if hundreds of other parishes wereto partake of it.

It is to this cause, that we must ascribe the fact of the poorlaws not having yet absorbed all the net revenue of the country;it is to the rigour with which they are applied, that we areindebted for their not having become overwhelmingly op-pressive. If by law every human being wanting support couldbe sure to obtain it, and obtain it in such a degree as to makelife tolerably2 comfortable, theory would lead us to expect thatall other taxes together would be light compared with thesingle one of poor rates. The principle of gravitation is notmore certain than the tendency of such laws to change wealthand power into misery and weakness; to call away the exertionsof labour from every object, except that of providing meresubsistence; to confound all intellectual distinction; to busy themind continually in supplying the body’s wants; until at lastall classes should be infected with the plague of universalpoverty. Happily these laws have been in operation during aperiod of progressive prosperity, when the funds for the main-

On Wagesch. v 109

tenance of labour have regularly increased, and when an in-crease of population would be naturally called for. But if ourprogress should become more slow; if we should attain thestationary state, from which I trust we are yet far distant, thenwill the pernicious nature of these laws become more manifestand alarming; and then, too, will their removal be obstructedby many additional difficulties.

1 In ed. 1 this chapter is numbered‘V’ in the chapter-heading and ‘V*’in the Contents. See above, p. 10, n.

2 Above, p. 90.3 Eds. 1–2 read ‘quality’, whichseems more appropriate.

chapter vi

On Profits1

The profits of stock, in different employments, having beenshewn2 to bear a proportion to each other, and to have a ten-dency to vary all in the same degree and in the same direction,it remains for us to consider what is the cause of the permanentvariations in the rate of profit, and the consequent permanentalterations in the rate of interest.

We have seen that the price* of corn is regulated by thequantity of labour necessary to produce it, with that portionof capital which pays no rent. We have seen, too, that all manu-factured commodities rise and fall in price, in proportion asmore or less labour becomes necessary to their production.Neither the farmer who cultivates that quantity3 of land, whichregulates price, nor the manufacturer, who manufactures goods,sacrifice any portion of the produce for rent. The whole valueof their commodities is divided into two portions only: oneconstitutes the profits of stock, the other the wages of labour.

Supposing corn and manufactured goods always to sell atthe same price, profits would be high or low in proportionas wages were low or high. But suppose corn to rise in pricebecause more labour is necessary to produce it; that cause willnot raise the price of manufactured goods in the productionof which no additional quantity of labour is required. If, then,

* The reader is desired to bear in mind, that for the purpose of makingthe subject more clear, I consider money to be invariable in value, andtherefore every variation of price to be referable to an alteration in thevalue of the commodity.

On Profitsch. vi 111

1 Ed. 1 does not contain ‘of manu-facturers’.2 Ed. 1 does not contain ‘their’.

3 Ed. 1 ‘an additional price forwages’.

wages continued the same, the profits of manufacturers1 wouldremain the same; but if, as is absolutely certain, wages shouldrise with the rise of corn, then their 2 profits would necessarilyfall.

If a manufacturer always sold his goods for the same money,for 1000l., for example, his profits would depend on the priceof the labour necessary to manufacture those goods. His profitswould be less when wages amounted to 800l. than when hepaid only 600l. In proportion then as wages rose, wouldprofits fall. But if the price of raw produce would increase,it may be asked, whether the farmer at least would not havethe same rate of profits, although he should pay an additionalsum for wages3? Certainly not: for he will not only have topay, in common with the manufacturer, an increase of wagesto each labourer he employs, but he will be obliged either topay rent, or to employ an additional number of labourers toobtain the same produce; and the rise in the price of rawproduce will be proportioned only to that rent, or thatadditional number, and will not compensate him for the riseof wages.

If both the manufacturer and farmer employed ten men, onwages rising from 24l. to 25l. per annum per man, the wholesum paid by each would be 250l. instead of 240l. This is, how-ever, the whole addition that would be paid by the manu-facturer to obtain the same quantity of commodities; but thefarmer on new land would probably be obliged to employ anadditional man, and therefore to pay an additional sum of 25l.for wages; and the farmer on the old land would be obligedto pay precisely the same additional sum of 25l. for rent; with-out which additional labour, corn would not have risen, nor

112 Principles ch. vi

1 Ed. 1 does not contain ‘, nor renthave been increased’.

2 Ed. 1 ‘they are’ in place of ‘thefarmer is’.3 Ed. 1 ‘their’.

rent have been increased.1 One will therefore have to pay 275l.for wages alone, the other, for wages and rent together; each25l. more than the manufacturer: for this latter 25l. the farmeris2 compensated by the addition to the price of raw produce,and therefore his3 profits still conform to the profits of themanufacturer. As this proposition is important, I will en-deavour still further to elucidate it.

We have shewn that in early stages of society, both the land-lord’s and the labourer’s share of the value of the produce ofthe earth, would be but small; and that it would increase inproportion to the progress of wealth, and the difficulty of pro-curing food. We have shewn, too, that although the value ofthe labourer’s portion will be increased by the high value offood, his real share will be diminished; whilst that of the land-lord will not only be raised in value, but will also be increasedin quantity.

The remaining quantity of the produce of the land, after thelandlord and labourer are paid, necessarily belongs to thefarmer, and constitutes the profits of his stock. But it may bealleged, that though as society advances, his proportion of thewhole produce will be diminished, yet as it will rise in value,he, as well as the landlord and labourer, may, notwithstanding,receive a greater value.

It may be said for example, that when corn rose from 4l. to10l., the 180 quarters obtained from the best land would sellfor 1800l. instead of 720l.; and, therefore, though the landlordand labourer be proved to have a greater value for rent andwages, still the value of the farmer’s profit might also beaugmented. This, however, is impossible, as I shall now en-deavour to shew.

On Profitsch. vi 113

1 Above, p. 83, n. 2 Ed. 1 ‘it sold’, which seems correct.

In the first place, the price of corn would rise only in pro-portion to the increased difficulty of growing it on land of aworse quality.

It has been already remarked,1 that if the labour of ten menwill, on land of a certain quality, obtain 180 quarters of wheat,and its value be 4l. per quarter, or 720l.; and if the labour often additional men, will on the same or any other land produceonly 170 quarters in addition, wheat would rise from 4l. to4l. 4s. 8d.; for 170 : 180 :: 4l. : 4l. 4s. 8d. In other words, asfor the production of 170 quarters, the labour of ten men isnecessary, in the one case, and only that of 9.44 in the other,the rise would be as 9.44 to 10, or, as 4l. to 4l. 4s. 8d. In thesame manner it might be shewn, that if the labour of ten ad-ditional men would only produce 160 quarters, the price wouldfurther rise to 4l. 10s.; if 150, to 4l. 16s. &c. &c.

But when 180 quarters were produced on the landpaying no rent, and its price was 4l. per quarter, itis sold2 for . . . . . . . . . . . . . . £720

And when 170 quarters were produced on the landpaying no rent, and the price rose to 4l. 4s. 8d. itstill sold for . . . . . . . . . . . . . . 720

So 160 quarters at 4l. 10s. produce . . . . . . . 720And 150 quarters at 4l. 16s. produce the same sum of 720

Now it is evident, that if out of these equal values, thefarmer is at one time obliged to pay wages regulated by theprice of wheat at 4l., and at other times at higher prices,the rate of his profits will diminish in proportion to the rise inthe price of corn.

In this case, therefore, I think it is clearly demonstrated thata rise in the price of corn, which increases the money wages

114 Principles ch. vi

of the labourer, diminishes the money value of the farmer’sprofits.

But the case of the farmer of the old and better land willbe in no way different; he also will have increased wages topay, and will never retain more of the value of the produce,however high may be its price, than 720l. to be divided betweenhimself and his always equal number of labourers; in propor-tion therefore as they get more, he must retain less.

When the price of corn was at 4l. the whole 180 quartersbelonged to the cultivator, and he sold it for 720l. When cornrose to 4l. 4s. 8d. he was obliged to pay the value of ten quartersout of his 180 for rent, consequently the remaining 170 yieldedhim no more than 720l.: when it rose further to 4l. 10s. hepaid twenty quarters, or their value, for rent, and consequentlyonly retained 160 quarters, which yielded the same sum of720l.

It will be seen, then, that whatever rise may take place inthe price of corn, in consequence of the necessity of employingmore labour and capital to obtain a given additional quantityof produce, such rise will always be equalled in value by theadditional rent, or additional labour employed; so that whethercorn sells for 4l., 4l. 10s. or 5l. 2s. 10d. the farmer will obtainfor that which remains to him, after paying rent, the same realvalue. Thus we see, that whether the produce belonging to thefarmer be 180, 170, 160, or 150 quarters, he always obtains thesame sum of 720l. for it; the price increasing in an inverse pro-portion to the quantity.

Rent then, it appears, always falls on the consumer, andnever on the farmer; for if the produce of his farm shoulduniformly be 180 quarters, with the rise of price, he wouldretain the value of a less quantity for himself, and give the valueof a larger quantity to his landlord; but the deduction wouldbe such as to leave him always the same sum of 720l.

On Profitsch. vi 115

It will be seen too, that, in all cases, the same sum of 720l.must be divided between wages and profits. If the value ofthe raw produce from the land exceed this value, it belongs torent, whatever may be its amount. If there be no excess, therewill be no rent. Whether wages or profits rise or fall, it is thissum of 720l. from which they must both be provided. On theone hand, profits can never rise so high as to absorb so muchof this 720l. that enough will not be left to furnish the labourerswith absolute necessaries; on the other hand, wages can neverrise so high as to leave no portion of this sum for profits.

Thus in every case, agricultural, as well as manufacturingprofits are lowered by a rise in the price of raw produce, if itbe accompanied by a rise of wages.* If the farmer gets noadditional value for the corn which remains to him after payingrent, if the manufacturer gets no additional value for the goodswhich he manufactures, and if both are obliged to pay a greatervalue in wages, can any point be more clearly established thanthat profits must fall, with a rise of wages?

The farmer then, although he pays no part of his landlord’srent, that being always regulated by the price of produce, andinvariably falling on the consumers, has however a verydecided interest in keeping rent low, or rather in keeping thenatural price of produce low. As a consumer of raw produce,and of those things into which raw produce enters as a com-ponent part, he will, in common with all other consumers, beinterested in keeping the price low. But he is most materiallyconcerned with the high price of corn as it affects wages. Withevery rise in the price of corn, he will have to pay out of anequal and unvarying sum of 720l. an additional sum for wages

* The reader is aware, that we are leaving out of our considerationthe accidental variations arising from bad and good seasons, or fromthe demand increasing or diminishing by any sudden effect on the stateof population. We are speaking of the natural and constant, not of theaccidental and fluctuating price of corn.

116 Principles ch. vi

1 All eds. have a full stop herewhere it seems out of place.

2 Ed. 1 ‘labourer’3 Should be ‘445’.

to the ten men whom he is supposed constantly to employ.We have seen in treating on wages that they invariably risewith the rise in the price of raw produce. On a basis assumedfor the purpose of calculation, page 103, it will be seen thatif when wheat is at 4l. per quarter, wages should be 24l. perannum1

£. s. d. £. s. d.

�4 4 8

� �24 14 0

4 10 0 25 10 04 16 0 wages would be 26 8 05 2 10 27 8 6

Now, of the unvarying fund of 720 l. to be distributed be-tween labourers and farmers.

£. s. d. £. s. £. s. d.

�4 0 0

� �240 0

� �480 0 0

4 4 8 the labourers2 247 0 the farmer 473 0 04 10 0 will receive 255 0 will receive 465 0 04 16 0 264 0 456 0 05 2 10 274 5 4553 15 *

* The 180 quarters of corn would be divided in the following pro-portions between landlords, farmers, and labourers, with the above-named variations in the value of corn.

Price per qr. Rent. Profit. Wages. Total.£. s. d. In Wheat. In Wheat. In Wheat.4 0 0 None. 120 qrs. 60 qrs.

�4 4 8 10 qrs. 111.7 58.34 10 0 20 103.4 56.6 1804 16 0 30 95 555 2 10 40 86.7 53.3

and, under the same circumstances, money rent, wages, and profit, wouldbe as follows:

Price per qr. Rent. Profit. Wages. Total.£. s d. £. s d. £. s d. £. s d. £. s d.4 0 0 None. 480 0 0 240 0 0 720 0 04 4 8 42 7 6 473 0 0 247 0 0 762 7 64 10 0 90 0 0 465 0 0 255 0 0 810 0 04 16 0 144 0 0 456 0 0 264 0 0 864 0 05 2 10 205 13 4 445 15 0 274 5 0 925 13 4

Whe

nW

heat

isat

Whe

nW

heat

isat

Whe

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epr

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ofW

heat

isat

Whe

nth

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Whe

at

On Profitsch. vi 117

And supposing that the original capital of the farmer was3000l., the profits of his stock being in the first instance 480l.would be at the rate of 16 per cent. When his profits fell to473l. they would be at the rate of 15.7 per cent.

465l. . . . . . . . . . . . . 15.5456l. . . . . . . . . . . . . 15.2445l. . . . . . . . . . . . . 14.8

But the rate of profits will fall still more, because the capitalof the farmer, it must be recollected, consists in a great measureof raw produce, such as his corn and hay-ricks, his unthreshedwheat and barley, his horses and cows, which would all risein price in consequence of the rise of produce. His absoluteprofits would fall from 480l. to 445l. 15s.; but if from the causewhich I have just stated, his capital should rise from 3000l.to 3200l. the rate of his profits would, when corn was at5l. 2s. 10d. be under 14 per cent.

If a manufacturer had also employed 3000l. in his business,he would be obliged in consequence of the rise of wages, toincrease his capital, in order to be enabled to carry on the samebusiness. If his commodities sold before for 720l. they wouldcontinue to sell at the same price; but the wages of labour,which were before 240l. would rise when corn was at 5l. 2s. 10d.to 274l. 5s. In the first case he would have a balance of 480l. asprofit on 3000l., in the second he would have a profit onlyof 445l. 15s., on an increased capital, and therefore his profitswould conform to the altered rate of those of the farmer.

There are few commodities which are not more or lessaffected in their price by the rise of raw produce, because someraw material from the land enters into the composition of mostcommodities. Cotton goods, linen, and cloth, will all rise inprice with the rise of wheat; but they rise on account of thegreater quantity of labour expended on the raw material fromwhich they are made, and not because more was paid by the

118 Principles ch. vi

manufacturer to the labourers whom he employed on thosecommodities.

In all cases, commodities rise because more labour is ex-pended on them, and not because the labour which is expendedon them is at a higher value. Articles of jewellery, of iron, ofplate, and of copper, would not rise, because none of the rawproduce from the surface of the earth enters into their com-position.

It may be said that I have taken it for granted, that moneywages would rise with a rise in the price of raw produce, butthat this is by no means a necessary consequence, as the labourermay be contented with fewer enjoyments. It is true that thewages of labour may previously have been at a high level, andthat they may bear some reduction. If so, the fall of profitswill be checked; but it is impossible to conceive that the moneyprice of wages should fall, or remain stationary with a graduallyincreasing price of necessaries; and therefore it may be takenfor granted that, under ordinary circumstances, no permanentrise takes place in the price of necessaries, without occasioning,or having been preceded by a rise in wages.

The effects produced on profits would have been the same,or nearly the same, if there had been any rise in the price ofthose other necessaries, besides food, on which the wages oflabour are expended. The necessity which the labourer wouldbe under of paying an increased price for such necessaries,would oblige him to demand more wages; and whatever in-creases wages, necessarily reduces profits. But suppose theprice of silks, velvets, furniture, and any other commodities,not required by the labourer, to rise in consequence of morelabour being expended on them, would not that affect profits?Certainly not: for nothing can affect profits but a rise in wages;silks and velvets are not consumed by the labourer, and there-fore cannot raise wages.

On Profitsch. vi 119

It is to be understood that I am speaking of profits generally.I have already remarked, that the market price of a commoditymay exceed its natural or necessary price, as it may be producedin less abundance than the new demand for it requires. This,however, is but a temporary effect. The high profits on capitalemployed in producing that commodity, will naturally attractcapital to that trade; and as soon as the requisite funds are sup-plied, and the quantity of the commodity is duly increased, itsprice will fall, and the profits of the trade will conform to thegeneral level. A fall in the general rate of profits is by no meansincompatible with a partial rise of profits in particular employ-ments. It is through the inequality of profits, that capital ismoved from one employment to another. Whilst then generalprofits are falling, and gradually settling at a lower level inconsequence of the rise of wages, and the increasing difficultyof supplying the increasing population with necessaries, theprofits of the farmer may, for an interval of some little duration,be above the former level. An extraordinary stimulus may bealso given for a certain time, to a particular branch of foreignand colonial trade; but the admission of this fact by no meansinvalidates the theory, that profits depend on high or low wages,wages on the price of necessaries, and the price of necessarieschiefly on the price of food, because all other requisites maybe increased almost without limit.

It should be recollected that prices always vary in the market,and in the first instance, through the comparative state of de-mand and supply. Although cloth could be furnished at 40s.per yard, and give the usual profits of stock, it may rise to60 or 80s. from a general change of fashion, or from any othercause which should suddenly and unexpectedly increase thedemand, or diminish the supply of it. The makers of cloth willfor a time have unusual profits, but capital will naturally flowto that manufacture, till the supply and demand are again at

120 Principles ch. vi

their fair level, when the price of cloth will again sink to 40s.,its natural or necessary price. In the same manner, with everyincreased demand for corn, it may rise so high as to affordmore than the general profits to the farmer. If there be plentyof fertile land, the price of corn will again fall to its formerstandard, after the requisite quantity of capital has been em-ployed in producing it, and profits will be as before; but ifthere be not plenty of fertile land, if, to produce this additionalquantity, more than the usual quantity of capital and labourbe required, corn will not fall to its former level. Its naturalprice will be raised, and the farmer, instead of obtainingpermanently larger profits, will find himself obliged to besatisfied with the diminished rate which is the inevitableconsequence of the rise of wages, produced by the rise ofnecessaries.

The natural tendency of profits then is to fall; for, in theprogress of society and wealth, the additional quantity of foodrequired is obtained by the sacrifice of more and more labour.This tendency, this gravitation as it were of profits, is happilychecked at repeated intervals by the improvements in machinery,connected with the production of necessaries, as well as bydiscoveries in the science of agriculture which enable us torelinquish a portion of labour before required, and thereforeto lower the price of the prime necessary of the labourer. Therise in the price of necessaries and in the wages of labour ishowever limited; for as soon as wages should be equal (as inthe case formerly stated) to 720l., the whole receipts of thefarmer, there must be an end of accumulation; for no capitalcan then yield any profit whatever, and no additional labour canbe demanded, and consequently population will have reachedits highest point. Long indeed before this period, the very lowrate of profits will have arrested all accumulation, and almostthe whole produce of the country, after paying the labourers,

On Profitsch. vi 121

1 Eds. 1–2 have here in addition‘originally’.

2 Ed. 1 does not contain ‘I havesupposed that’.3 Eds. 1–2 ‘And on other’.

will be the property of the owners of land and the receivers oftithes and taxes.

Thus, taking the former very imperfect basis as the groundsof my calculation, it would appear that when corn was at 20l.per quarter, the whole net income of the country would belongto the landlords, for then the same quantity of labour that wasoriginally necessary to produce 180 quarters, would be neces-sary to produce 36; since 20l. : 4l. :: 180 : 36. The farmer then,who1 produced 180 quarters, (if any such there were, for theold and new capital employed on the land would be so blended,that it could in no way be distinguished,) would sell the

180 qrs. at 20l. per qr. or . . . . . . . . £3600

the value of 144 qrs. to landlord for rent, being the difference� �between 36 and 180 qrs.2880

36 qrs. 720the value of 36 qrs. to labourers ten in number . . . . . . 720

leaving nothing whatever for profit.

I have supposed that2 at this price of 20l. the labourers would continueto consume three quarters each per annum or £60

And that on the other3 commodities they wouldexpend . . . . . . . . . . . . 12

72 for each labourer.And therefore ten labourers would cost 720l. per annum.

In all these calculations I have been desirous only to elucidatethe principle, and it is scarcely necessary to observe, that mywhole basis is assumed at random, and merely for the purposeof exemplification. The results though different in degree, wouldhave been the same in principle, however accurately I mighthave set out in stating the difference in the number of labourersnecessary to obtain the successive quantities of corn requiredby an increasing population, the quantity consumed by thelabourer’s family, &c. &c. My object has been to simplify the

122 Principles ch. vi

subject, and I have therefore made no allowance for the in-creasing price of the other necessaries, besides food, of thelabourer; an increase which would be the consequence of theincreased value of the raw materials from which they are made,and which would of course further increase wages, and lowerprofits.

I have already said, that long before this state of prices wasbecome permanent, there would be no motive for accumula-tion; for no one accumulates but with a view to make hisaccumulation productive, and it is only when so employed thatit operates on profits. Without a motive there could be noaccumulation, and consequently such a state of prices nevercould take place. The farmer and manufacturer can no morelive without profit, than the labourer without wages. Theirmotive for accumulation will diminish with every diminutionof profit, and will cease altogether when their profits are solow as not to afford them an adequate compensation for theirtrouble, and the risk which they must necessarily encounterin employing their capital productively.

I must again observe, that the rate of profits would fall muchmore rapidly than I have estimated in my calculation: for thevalue of the produce being what I have stated it under thecircumstances supposed, the value of the farmer’s stock wouldbe greatly increased from its necessarily consisting of many ofthe commodities which had risen in value. Before corn couldrise from 4l. to 12l. his capital would probably be doubled inexchangeable value, and be worth 6000l. instead of 3000l. Ifthen his profit were 180l., or 6 per cent. on his original capital,profits would not at that time be really at a higher rate than3 per cent.; for 6000l. at 3 per cent. gives 180l.; and on thoseterms only could a new farmer with 6000l. money in his pocketenter into the farming business.

Many trades would derive some advantage, more or less,

On Profitsch. vi 123

1 Ed. 1 does not contain ‘that’.

from the same source. The brewer, the distiller, the clothier,the linen manufacturer, would be partly compensated for thediminution of their profits, by the rise in the value of theirstock of raw and finished materials; but a manufacturer of hard-ware, of jewellery, and of many other commodities, as well asthose whose capitals uniformly consisted of money, would besubject to the whole fall in the rate of profits, without any com-pensation whatever.

We should also expect that, however the rate of the profitsof stock might diminish in consequence of the accumulationof capital on the land, and the rise of wages, yet that1 theaggregate amount of profits would increase. Thus supposingthat, with repeated accumulations of 100,000l., the rate of profitshould fall from 20 to 19, to 18, to 17 per cent., a constantlydiminishing rate, we should expect that the whole amount ofprofits received by those successive owners of capital would bealways progressive; that it would be greater when the capitalwas 200,000l., than when 100,000l.; still greater when 300,000l.;and so on, increasing, though at a diminishing rate, with everyincrease of capital. This progression however is only true fora certain time: thus 19 per cent. on 200,000l. is more than 20on 100,000l.; again 18 per cent. on 300,000l. is more than19 per cent. on 200,000l.; but after capital has accumulated toa large amount, and profits have fallen, the further accumula-tion diminishes the aggregate of profits. Thus suppose theaccumulation should be 1,000,000l., and the profits 7 per cent.the whole amount of profits will be 70,000l.; now if an additionof 100,000l. capital be made to the million, and profits shouldfall to 6 per cent., 66,000l. or a diminution of 4,000l. will bereceived by the owners of stock, although the whole amountof stock will be increased from 1,000,000l. to 1,100,000l.

There can, however, be no accumulation of capital, so long

124 Principles ch. vi

1 Ed. 1 has here in addition ‘, whichnew value always goes to rent’.

2 Ed. 1 does not contain ‘andlabourers’.

as stock yields any profit at all, without its yielding not onlyan increase of produce, but an increase of value. By employing100,000l. additional capital, no part of the former capital willbe rendered less productive. The produce of the land and labourof the country must increase, and its value will be raised, notonly by the value of the addition which is made to the formerquantity of productions, but by the new value which is givento the whole produce of the land, by the increased difficultyof producing the last portion of it.1 When the accumulationof capital, however, becomes very great, notwithstanding thisincreased value, it will be so distributed that a less value thanbefore will be appropriated to profits, while that which isdevoted to rent and wages will be increased. Thus with suc-cessive additions of 100,000l. to capital, with a fall in the rateof profits, from 20 to 19, to 18, to 17 per cent. &c. the produc-tions annually obtained will increase in quantity, and be ofmore than the whole additional value, which the additionalcapital is calculated to produce. From 20,000l. it will rise tomore than 39,000l. and then to more than 57,000l. and whenthe capital employed is a million, as we before supposed, if100,000l. more be added to it, and the aggregate of profits isactually lower than before, more than 6,000l. will neverthelessbe added to the revenue of the country, but it will be to therevenue of the landlords and labourers;2 they will obtain morethan the additional produce, and will from their situation beenabled to encroach even on the former gains of the capitalist.Thus, suppose the price of corn to be 4l. per quarter, and thattherefore, as we before calculated, of every 720l. remaining tothe farmer after payment of his rent, 480l. were retained byhim, and 240l. were paid to his labourers; when the price roseto 6l. per quarter, he would be obliged to pay his labourers

On Profitsch. vi 125

1 Ed. 1 does not contain the last twolines, beginning ‘: he would beobliged’.

2 Eds. 1–2 do not contain ‘of thatproduce’.

300l. and retain only 420l. for profits: he would be obligedto pay them 300l. to enable them to consume the same quantityof necessaries as before, and no more.1 Now if the capitalemployed were so large as to yield a hundred thousandtimes 720l. or 72,000,000l. the aggregate of profits would be48,000,000l. when wheat was at 4l. per quarter; and if by em-ploying a larger capital, 105,000 times 720l. were obtainedwhen wheat was at 6l., or 75,600,000l., profits would actuallyfall from 48,000,000l. to 44,100,000l. or 105,000 times 420l.,and wages would rise from 24,000,000l. to 31,500,000l. Wageswould rise because more labourers would be employed, in pro-portion to capital; and each labourer would receive moremoney wages; but the condition of the labourer, as we havealready shewn, would be worse, inasmuch as he would be ableto command a less quantity of the produce of the country. Theonly real gainers would be the landlords; they would receivehigher rents, first, because produce would be of a higher value,and secondly, because they would have a greatly increased pro-portion of that produce.2

Although a greater value is produced, a greater proportionof what remains of that value, after paying rent, is consumedby the producers, and it is this, and this alone, which regulatesprofits. Whilst the land yields abundantly, wages may tem-porarily rise, and the producers may consume more than theiraccustomed proportion; but the stimulus which will thus begiven to population, will speedily reduce the labourers to theirusual consumption. But when poor lands are taken into cultiva-tion, or when more capital and labour are expended on the oldland, with a less return of produce, the effect must be permanent.A greater proportion of that part of the produce which remains

126 Principles ch. vi

1 Above, p. 48–9. 2 Eds. 1–2 ‘and at all times’.3 Above, p. 105.

to be divided, after paying rent, between the owners of stockand the labourers, will be apportioned to the latter. Each manmay, and probably will, have a less absolute quantity; but asmore labourers are employed in proportion to the whole pro-duce retained by the farmer, the value of a greater proportionof the whole produce will be absorbed by wages, and con-sequently the value of a smaller proportion will be devotedto profits. This will necessarily be rendered permanent by thelaws of nature, which have limited the productive powers ofthe land.

Thus we again arrive at the same conclusion which we havebefore1 attempted to establish:—that in all countries, and alltimes2, profits depend on the quantity of labour requisite toprovide necessaries for the labourers, on that land or with thatcapital which yields no rent. The effects then of accumulationwill be different in different countries, and will depend chieflyon the fertility of the land. However extensive a country maybe where the land is of a poor quality, and where the importa-tion of food is prohibited, the most moderate accumulationsof capital will be attended with great reductions in the rate ofprofit, and a rapid rise in rent; and on the contrary a small butfertile country, particularly if it freely permits the importationof food, may accumulate a large stock of capital without anygreat diminution in the rate of profits, or any great increasein the rent of land. In the Chapter on Wages, we have en-deavoured to shew3 that the money price of commodities wouldnot be raised by a rise of wages, either on the supposition thatgold, the standard of money, was the produce of this country,or that it was imported from abroad. But if it were otherwise,if the prices of commodities were permanently raised by highwages, the proposition would not be less true, which asserts

On Profitsch. vi 127

1 Eds. 1–2 do not contain ‘all’.

that high wages invariably affect the employers of labour, bydepriving them of a portion of their real profits. Supposingthe hatter, the hosier, and the shoemaker, each paid 10l. morewages in the manufacture of a particular quantity of their com-modities, and that the price of hats, stockings, and shoes, roseby a sum sufficient to repay the manufacturer the 10l.; theirsituation would be no better than if no such rise took place.If the hosier sold his stockings for 110l. instead of 100l., hisprofits would be precisely the same money amount as before;but as he would obtain in exchange for this equal sum, onetenth less of hats, shoes, and every other commodity, and ashe could with his former amount of savings employ fewerlabourers at the increased wages, and purchase fewer rawmaterials at the increased prices, he would be in no bettersituation than if his money profits had been really diminishedin amount, and every thing had remained at its former price.Thus then I have endeavoured to shew, first, that a rise of wageswould not raise the price of commodities, but would invariablylower profits; and secondly, that if the prices of all1 commoditiescould be raised, still the effect on profits would be the same;and that in fact the value of the medium only in which pricesand profits are estimated would be lowered.

chapter vii

On Foreign Trade

No extension of foreign trade will immediately increase theamount of value in a country, although it will very powerfullycontribute to increase the mass of commodities, and thereforethe sum of enjoyments. As the value of all foreign goods ismeasured by the quantity of the produce of our land and labour,which is given in exchange for them, we should have no greatervalue, if by the discovery of new markets, we obtained doublethe quantity of foreign goods in exchange for a given quantityof our’s. If by the purchase of English goods to the amountof 1000l., a merchant can obtain a quantity of foreign goods,which he can sell in the English market for 1,200l., he willobtain 20 per cent. profit by such an employment of his capital;but neither his gains, nor the value of the commodities im-ported, will be increased or diminished by the greater or smallerquantity of foreign goods obtained. Whether, for example, heimports twenty-five or fifty pipes of wine, his interest can beno way affected, if at one time the twenty-five pipes, and atanother the fifty pipes, equally sell for 1,200l. In either casehis profit will be limited to 200l., or 20 per cent. on his capital;and in either case the same value will be imported into England.If the fifty pipes sold for more than 1,200l., the profits of thisindividual merchant would exceed the general rate of profits,and capital would naturally flow into this advantageous trade,till the fall of the price of wine had brought every thing to theformer level.

It has indeed been contended, that the great profits which aresometimes made by particular merchants in foreign trade, willelevate the general rate of profits in the country, and that the

On Foreign Tradech. vii 129

1 Cannan’s ed., vol. 1, p. 95.

abstraction of capital from other employments, to partake ofthe new and beneficial foreign commerce, will raise pricesgenerally, and thereby increase profits. It has been said, byhigh authority, that less capital being necessarily devoted tothe growth of corn, to the manufacture of cloth, hats, shoes, &c.while the demand continues the same, the price of these com-modities will be so increased, that the farmer, hatter, clothier,and shoemaker, will have an increase of profits, as well as theforeign merchant.*

They who hold this argument agree with me, that the profitsof different employments have a tendency to conform to oneanother; to advance and recede together. Our variance con-sists in this: They contend, that the equality of profits will bebrought about by the general rise of profits; and I am ofopinion, that the profits of the favoured trade will speedilysubside to the general level.

For, first, I deny that less capital will necessarily be devotedto the growth of corn, to the manufacture of cloth, hats, shoes,&c. unless the demand for these commodities be diminished;and if so, their price will not rise. In the purchase of foreigncommodities, either the same, a larger, or a less portion of theproduce of the land and labour of England will be employed.If the same portion be so employed, then will the same demandexist for cloth, shoes, corn, and hats, as before, and the sameportion of capital will be devoted to their production. If, inconsequence of the price of foreign commodities being cheaper,a less portion of the annual produce of the land and labour ofEngland is employed in the purchase of foreign commodities,more will remain for the purchase of other things. If there bea greater demand for hats, shoes, corn, &c. than before, whichthere may be, the consumers of foreign commodities having an

* See Adam Smith, book i. chap. 9.1

130 Principles ch. vii

1 Ed. 1 ‘If the importation of wine, given’.

additional portion of their revenue disposable, the capital isalso disposable with which the greater value of foreign com-modities was before purchased; so that with the increaseddemand for corn, shoes, &c. there exists also the means ofprocuring an increased supply, and therefore neither prices norprofits can permanently rise. If more of the produce of theland and labour of England be employed in the purchase offoreign commodities, less can be employed in the purchase ofother things, and therefore fewer hats, shoes, &c. will be re-quired. At the same time that capital is liberated from theproduction of shoes, hats, &c. more must be employed inmanufacturing those commodities with which foreign com-modities are purchased; and consequently in all cases the de-mand for foreign and home commodities together, as far asregards value, is limited by the revenue and capital of thecountry. If one increases, the other must diminish. If thequantity of wine, imported1 in exchange for the same quantityof English commodities, be doubled, the people of Englandcan either consume double the quantity of wine that they didbefore, or the same quantity of wine and a greater quantity ofEnglish commodities. If my revenue had been 1000l., withwhich I purchased annually one pipe of wine for 100l. anda certain quantity of English commodities for 900l.; when winefell to 50l. per pipe, I might lay out the 50l. saved, either in thepurchase of an additional pipe of wine, or in the purchase ofmore English commodities. If I bought more wine, and everywine-drinker did the same, the foreign trade would not be inthe least disturbed; the same quantity of English commoditieswould be exported in exchange for wine, and we should re-ceive double the quantity, though not double the value of wine.But if I, and others, contented ourselves with the same quantityof wine as before, fewer English commodities would be ex-

On Foreign Tradech. vii 131

ported, and the wine-drinkers might either consume the com-modities which were before exported, or any others for whichthey had an inclination. The capital required for their produc-tion would be supplied by the capital liberated from the foreigntrade.

There are two ways in which capital may be accumulated:it may be saved either in consequence of increased revenue,or of diminished consumption. If my profits are raised from1000l. to 1200l. while my expenditure continues the same,I accumulate annually 200l. more than I did before. If I save200l. out of my expenditure, while my profits continue thesame, the same effect will be produced; 200l. per annum willbe added to my capital. The merchant who imported wine afterprofits had been raised from 20 per cent. to 40 per cent., insteadof purchasing his English goods for 1000l. must purchase themfor 857l. 2s. 10d., still selling the wine which he imports inreturn for those goods for 1200l.; or, if he continued to pur-chase his English goods for 1000l. must raise the price of hiswine to 1400l.; he would thus obtain 40 instead of 20 per cent.profit on his capital; but if, in consequence of the cheapnessof all the commodities on which his revenue was expended,he and all other consumers could save the value of 200l. outof every 1000l. they before expended, they would more effectu-ally add to the real wealth of the country; in one case, thesavings would be made in consequence of an increase of revenue,in the other, in consequence of diminished expenditure.

If, by the introduction of machinery, the generality of thecommodities on which revenue was expended fell 20 per cent.in value, I should be enabled to save as effectually as if myrevenue had been raised 20 per cent.; but in one case the rateof profits is stationary, in the other it is raised 20 per cent.—If, by the introduction of cheap foreign goods, I can save 20 percent. from my expenditure, the effect will be precisely the same

132 Principles ch. vii

1 Ed. 1 ‘profits’ in place of ‘profit’.

as if machinery had lowered the expense of their production,but profits would not be raised.

It is not, therefore, in consequence of the extension of themarket that the rate of profit1 is raised, although such extensionmay be equally efficacious in increasing the mass of commodities,and may thereby enable us to augment the funds destined forthe maintenance of labour, and the materials on which labourmay be employed. It is quite as important to the happinessof mankind, that our enjoyments should be increased by thebetter distribution of labour, by each country producing thosecommodities for which by its situation, its climate, and itsother natural or artificial advantages, it is adapted, and by theirexchanging them for the commodities of other countries, asthat they should be augmented by a rise in the rate of profits.

It has been my endeavour to shew throughout this work,that the rate of profits can never be increased but by a fall inwages, and that there can be no permanent fall of wages butin consequence of a fall of the necessaries on which wages areexpended. If, therefore, by the extension of foreign trade, orby improvements in machinery, the food and necessaries of thelabourer can be brought to market at a reduced price, profitswill rise. If, instead of growing our own corn, or manu-facturing the clothing and other necessaries of the labourer, wediscover a new market from which we can supply ourselveswith these commodities at a cheaper price, wages will fall andprofits rise; but if the commodities obtained at a cheaper rate,by the extension of foreign commerce, or by the improvementof machinery, be exclusively the commodities consumed by therich, no alteration will take place in the rate of profits. The rateof wages would not be affected, although wine, velvets, silks,and other expensive commodities should fall 50 per cent., andconsequently profits would continue unaltered.

On Foreign Tradech. vii 133

Foreign trade, then, though highly beneficial to a country,as it increases the amount and variety of the objects on whichrevenue may be expended, and affords, by the abundance andcheapness of commodities, incentives to saving, and to the ac-cumulation of capital, has no tendency to raise the profits ofstock, unless the commodities imported be of that descriptionon which the wages of labour are expended.

The remarks which have been made respecting foreign trade,apply equally to home trade. The rate of profits is never in-creased by a better distribution of labour, by the invention ofmachinery, by the establishment of roads and canals, or by anymeans of abridging labour either in the manufacture or in theconveyance of goods. These are causes which operate on price,and never fail to be highly beneficial to consumers; since theyenable them with the same labour, or with the value of theproduce of the same labour, to obtain in exchange a greaterquantity of the commodity to which the improvement is ap-plied; but they have no effect whatever on profit. On the otherhand, every diminution in the wages of labour raises profits,but produces no effect on the price of commodities. One isadvantageous to all classes, for all classes are consumers; theother is beneficial only to producers; they gain more, but everything remains at its former price. In the first case they getthe same as before; but every thing on which their gains areexpended, is diminished in exchangeable value.

The same rule which regulates the relative value ofcommodities in one country, does not regulate the relativevalue of the commodities exchanged between two or morecountries.

Under a system of perfectly free commerce, each countrynaturally devotes its capital and labour to such employmentsas are most beneficial to each. This pursuit of individual ad-vantage is admirably connected with the universal good of the

134 Principles ch. vii

whole. By stimulating industry, by rewarding ingenuity, andby using most efficaciously the peculiar powers bestowed bynature, it distributes labour most effectively and most eco-nomically: while, by increasing the general mass of productions,it diffuses general benefit, and binds together by one commontie of interest and intercourse, the universal society ofnations throughout the civilized world. It is this principlewhich determines that wine shall be made in France andPortugal, that corn shall be grown in America and Poland,and that hardware and other goods shall be manufactured inEngland.

In one and the same country, profits are, generally speaking,always on the same level; or differ only as the employment ofcapital may be more or less secure and agreeable. It is not sobetween different countries. If the profits of capital employedin Yorkshire, should exceed those of capital employed inLondon, capital would speedily move from London to York-shire, and an equality of profits would be effected; but if inconsequence of the diminished rate of production in the landsof England, from the increase of capital and population,wages should rise, and profits fall, it would not follow thatcapital and population would necessarily move from Englandto Holland, or Spain, or Russia, where profits might behigher.

If Portugal had no commercial connexion with other coun-tries, instead of employing a great part of her capital and in-dustry in the production of wines, with which she purchasesfor her own use the cloth and hardware of other countries, shewould be obliged to devote a part of that capital to the manu-facture of those commodities, which she would thus obtainprobably inferior in quality as well as quantity.

The quantity of wine which she shall give in exchange forthe cloth of England, is not determined by the respective

On Foreign Tradech. vii 135

quantities of labour devoted to the production of each, as itwould be, if both commodities were manufactured in England,or both in Portugal.

England may be so circumstanced, that to produce the clothmay require the labour of 100 men for one year; and if sheattempted to make the wine, it might require the labour of120 men for the same time. England would therefore find ither interest to import wine, and to purchase it by the exporta-tion of cloth.

To produce the wine in Portugal, might require only thelabour of 80 men for one year, and to produce the cloth in thesame country, might require the labour of 90 men for the sametime. It would therefore be advantageous for her to exportwine in exchange for cloth. This exchange might even take place,notwithstanding that the commodity imported by Portugalcould be produced there with less labour than in England.Though she could make the cloth with the labour of 90 men,she would import it from a country where it required the labourof 100 men to produce it, because it would be advantageousto her rather to employ her capital in the production of wine,for which she would obtain more cloth from England, thanshe could produce by diverting a portion of her capital fromthe cultivation of vines to the manufacture of cloth.

Thus England would give the produce of the labour of100 men, for the produce of the labour of 80. Such an exchangecould not take place between the individuals of the samecountry. The labour of 100 Englishmen cannot be given forthat of 80 Englishmen, but the produce of the labour of 100Englishmen may be given for the produce of the labour of80 Portuguese, 60 Russians, or 120 East Indians. The differencein this respect, between a single country and many, is easilyaccounted for, by considering the difficulty with which capitalmoves from one country to another, to seek a more profitable

136 Principles ch. vii

1 Cp. A. Smith’s taylor and shoemaker, Bk. iv, ch. ii; vol. 1, p. 422.

employment, and the activity with which it invariably passesfrom one province to another in the same country.*

It would undoubtedly be advantageous to the capitalists ofEngland, and to the consumers in both countries, that undersuch circumstances, the wine and the cloth should both bemade in Portugal, and therefore that the capital and labour ofEngland employed in making cloth, should be removed toPortugal for that purpose. In that case, the relative value ofthese commodities would be regulated by the same principle,as if one were the produce of Yorkshire, and the other ofLondon: and in every other case, if capital freely flowed towardsthose countries where it could be most profitably employed,there could be no difference in the rate of profit, and no otherdifference in the real or labour price of commodities, than theadditional quantity of labour required to convey them to thevarious markets where they were to be sold.

Experience, however, shews, that the fancied or real in-security of capital, when not under the immediate control ofits owner, together with the natural disinclination which everyman has to quit the country of his birth and connexions, andintrust himself with all his habits fixed, to a strange govern-ment and new laws, check the emigration of capital. Thesefeelings, which I should be sorry to see weakened, induce most

* It will appear then, that a country possessing very considerableadvantages in machinery and skill, and which may therefore be enabledto manufacture commodities with much less labour than her neighbours,may, in return for such commodities, import a portion of the cornrequired for its consumption, even if its land were more fertile, and corncould be grown with less labour than in the country from which it wasimported. Two men can both make shoes and hats, and one is superiorto the other in both employments; but in making hats, he can onlyexceed his competitor by one-fifth or 20 per cent., and in making shoeshe can excel him by one-third or 33 per cent.;—will it not be for theinterest of both, that the superior man should employ himself exclusivelyin making shoes, and the inferior man in making hats?1

On Foreign Tradech. vii 137

men of property to be satisfied with a low rate of profits intheir own country, rather than seek a more advantageous em-ployment for their wealth in foreign nations.

Gold and silver having been chosen for the general mediumof circulation, they are, by the competition of commerce, dis-tributed in such proportions amongst the different countriesof the world, as to accommodate themselves to the naturaltraffic which would take place if no such metals existed, andthe trade between countries were purely a trade of barter.

Thus, cloth cannot be imported into Portugal, unless it sellthere for more gold than it cost in the country from which itwas imported; and wine cannot be imported into England, un-less it will sell for more there than it cost in Portugal. If thetrade were purely a trade of barter, it could only continue whilstEngland could make cloth so cheap as to obtain a greaterquantity of wine with a given quantity of labour, by manu-facturing cloth than by growing vines; and also whilst theindustry of Portugal were attended by the reverse effects. Nowsuppose England to discover a process for making wine, sothat it should become her interest rather to grow it than importit; she would naturally divert a portion of her capital from theforeign trade to the home trade; she would cease to manu-facture cloth for exportation, and would grow wine for herself.The money price of these commodities would be regulatedaccordingly; wine would fall here while cloth continued at itsformer price, and in Portugal no alteration would take placein the price of either commodity. Cloth would continue forsome time to be exported from this country, because its pricewould continue to be higher in Portugal than here; but moneyinstead of wine would be given in exchange for it, till theaccumulation of money here, and its diminution abroad, shouldso operate on the relative value of cloth in the two countries,that it would cease to be profitable to export it. If the improve-

138 Principles ch. vii

ment in making wine were of a very important description,it might become profitable for the two countries to exchangeemployments; for England to make all the wine, and Portugalall the cloth consumed by them; but this could be effected onlyby a new distribution of the precious metals, which should raisethe price of cloth in England, and lower it in Portugal. Therelative price of wine would fall in England in consequenceof the real advantage from the improvement of its manu-facture; that is to say, its natural price would fall; the relativeprice of cloth would rise there from the accumulation ofmoney.

Thus, suppose before the improvement in making wine inEngland, the price of wine here were 50l. per pipe, and theprice of a certain quantity of cloth were 45l., whilst in Portugalthe price of the same quantity of wine was 45l., and that of thesame quantity of cloth 50l.; wine would be exported fromPortugal with a profit of 5l. and cloth from England with aprofit of the same amount.

Suppose that, after the improvement, wine falls to 45l. inEngland, the cloth continuing at the same price. Every trans-action in commerce is an independent transaction. Whilst amerchant can buy cloth in England for 45l. and sell it with theusual profit in Portugal, he will continue to export it fromEngland. His business is simply to purchase English cloth, andto pay for it by a bill of exchange, which he purchases withPortuguese money. It is to him of no importance what be-comes of this money: he has discharged his debt by the re-mittance of the bill. His transaction is undoubtedly regulatedby the terms on which he can obtain this bill, but they areknown to him at the time; and the causes which may influencethe market price of bills, or the rate of exchange, is no con-sideration of his.

If the markets be favorable for the exportation of wine from

On Foreign Tradech. vii 139

Portugal to England, the exporter of the wine will be a sellerof a bill, which will be purchased either by the importer ofthe cloth, or by the person who sold him his bill; and thuswithout the necessity of money passing from either country,the exporters in each country will be paid for their goods.Without having any direct transaction with each other, themoney paid in Portugal by the importer of cloth will be paidto the Portuguese exporter of wine; and in England by thenegotiation of the same bill, the exporter of the cloth will beauthorized to receive its value from the importer of wine.

But if the prices of wine were such that no wine could beexported to England, the importer of cloth would equally pur-chase a bill; but the price of that bill would be higher, fromthe knowledge which the seller of it would possess, that therewas no counter bill in the market by which he could ultimatelysettle the transactions between the two countries; he mightknow that the gold or silver money which he received inexchange for his bill, must be actually exported to his corre-spondent in England, to enable him to pay the demand whichhe had authorized to be made upon him, and he might thereforecharge in the price of his bill all the expenses to be incurred,together with his fair and usual profit.

If then this premium for a bill on England should be equalto the profit on importing cloth, the importation would ofcourse cease; but if the premium on the bill were only 2 percent., if to be enabled to pay a debt in England of 100l., 102l.should be paid in Portugal, whilst cloth which cost 45l. wouldsell for 50l., cloth would be imported, bills would be bought,and money would be exported, till the diminution of moneyin Portugal, and its accumulation in England, had producedsuch a state of prices as would make it no longer profitableto continue these transactions.

But the diminution of money in one country, and its increase

140 Principles ch. vii

in another, do not operate on the price of one commodity only,but on the prices of all, and therefore the price of wine andcloth will be both raised in England, and both lowered inPortugal. The price of cloth, from being 45l. in one countryand 50l. in the other, would probably fall to 49l. or 48l. inPortugal, and rise to 46l. or 47l. in England, and not afforda sufficient profit after paying a premium for a bill to induceany merchant to import that commodity.

It is thus that the money of each country is apportionedto it in such quantities only as may be necessary to regulate aprofitable trade of barter. England exported cloth in exchangefor wine, because, by so doing, her industry was rendered moreproductive to her; she had more cloth and wine than if shehad manufactured both for herself; and Portugal importedcloth and exported wine, because the industry of Portugalcould be more beneficially employed for both countries in pro-ducing wine. Let there be more difficulty in England inproducing cloth, or in Portugal in producing wine, or letthere be more facility in England in producing wine, or inPortugal in producing cloth, and the trade must immediatelycease.

No change whatever takes place in the circumstances ofPortugal; but England finds that she can employ her labourmore productively in the manufacture of wine, and instantlythe trade of barter between the two countries changes. Notonly is the exportation of wine from Portugal stopped, but anew distribution of the precious metals takes place, and herimportation of cloth is also prevented.

Both countries would probably find it their interest to maketheir own wine and their own cloth; but this singular resultwould take place: in England, though wine would be cheaper,cloth would be elevated in price, more would be paid for it bythe consumer; while in Portugal the consumers, both of cloth

On Foreign Tradech. vii 141

and of wine, would be able to purchase those commoditiescheaper. In the country where the improvement was made,prices would be enhanced; in that where no change had takenplace, but where they had been deprived of a profitable branchof foreign trade, prices would fall.

This, however, is only a seeming advantage to Portugal, forthe quantity of cloth and wine together produced in thatcountry would be diminished, while the quantity produced inEngland would be increased. Money would in some degreehave changed its value in the two countries, it would be loweredin England and raised in Portugal. Estimated in money, thewhole revenue of Portugal would be diminished; estimated inthe same medium, the whole revenue of England would beincreased.

Thus then it appears, that the improvement of a manufacturein any country tends to alter the distribution of the preciousmetals amongst the nations of the world: it tends to increasethe quantity of commodities, at the same time that it raisesgeneral prices in the country where the improvement takesplace.

To simplify the question, I have been supposing the tradebetween two countries to be confined to two commodities—towine and cloth; but it is well known that many and variousarticles enter into the list of exports and imports. By the abstrac-tion of money from one country, and the accumulation of itin another, all commodities are affected in price, and con-sequently encouragement is given to the exportation of manymore commodities besides money, which will therefore preventso great an effect from taking place on the value of money inthe two countries as might otherwise be expected.

Beside the improvements in arts and machinery, there arevarious other causes which are constantly operating on thenatural course of trade, and which interfere with the equili-

142 Principles ch. vii

1 Ed. 1 does not contain ‘though of comparatively small value,’.

brium, and the relative value of money. Bounties on exporta-tion or importation, new taxes on commodities, sometimes bytheir direct, and at other times by their indirect operation,disturb the natural trade of barter, and produce a consequentnecessity of importing or exporting money, in order that pricesmay be accommodated to the natural course of commerce; andthis effect is produced not only in the country where thedisturbing cause takes place, but, in a greater or less degree,in every country of the commercial world.

This will in some measure account for the different valueof money in different countries; it will explain to us why theprices of home commodities, and those of great bulk, thoughof comparatively small value,1 are, independently of othercauses, higher in those countries where manufactures flourish.Of two countries having precisely the same population, andthe same quantity of land of equal fertility in cultivation, withthe same knowledge too of agriculture, the prices of raw pro-duce will be highest in that where the greater skill, and thebetter machinery is used in the manufacture of exportable com-modities. The rate of profits will probably differ but little; forwages, or the real reward of the labourer, may be the same inboth; but those wages, as well as raw produce, will be ratedhigher in money in that country, into which, from the ad-vantages attending their skill and machinery, an abundance ofmoney is imported in exchange for their goods.

Of these two countries, if one had the advantage in the manu-facture of goods of one quality, and the other in the manufactureof goods of another quality, there would be no decided influxof the precious metals into either; but if the advantage veryheavily preponderated in favour of either, that effect wouldbe inevitable.

In the former part of this work, we have assumed, for the

On Foreign Tradech. vii 143

1 ‘in fact’ is the reading of eds. 1–2; ed. 3 misprints ‘to fact’.

purpose of argument, that money always continued of the samevalue; we are now endeavouring to shew that besides theordinary variations in the value of money, and those whichare common to the whole commercial world, there are alsopartial variations to which money is subject in particularcountries; and in fact,1 that the value of money is never thesame in any two countries, depending as it does on relativetaxation, on manufacturing skill, on the advantages of climate,natural productions, and many other causes.

Although, however, money is subject to such perpetualvariations, and consequently the prices of the commoditieswhich are common to most countries, are also subject to con-siderable difference, yet no effect will be produced on the rateof profits, either from the influx or efflux of money. Capitalwill not be increased, because the circulating medium is aug-mented. If the rent paid by the farmer to his landlord, and thewages to his labourers, be 20 per cent. higher in one countrythan another, and if at the same time the nominal value of thefarmer’s capital be 20 per cent. more, he will receive preciselythe same rate of profits, although he should sell his raw pro-duce 20 per cent. higher.

Profits, it cannot be too often repeated, depend on wages;not on nominal, but real wages; not on the number of poundsthat may be annually paid to the labourer, but on the numberof days’ work, necessary to obtain those pounds. Wages maytherefore be precisely the same in two countries; they may beartoo the same proportion to rent, and to the whole produceobtained from the land, although in one of those countries thelabourer should receive ten shillings per week, and in the othertwelve.

In the early states of society, when manufactures have madelittle progress, and the produce of all countries is nearly similar,

144 Principles ch. vii

consisting of the bulky and most useful commodities, the valueof money in different countries will be chiefly regulated bytheir distance from the mines which supply the precious metals;but as the arts and improvements of society advance, anddifferent nations excel in particular manufactures, althoughdistance will still enter into the calculation, the value of theprecious metals will be chiefly regulated by the superiority ofthose manufactures.

Suppose all nations to produce corn, cattle, and coarseclothing only, and that it was by the exportation of such com-modities that gold could be obtained from the countries whichproduced them, or from those who held them in subjection;gold would naturally be of greater exchangeable value in Polandthan in England, on account of the greater expense of sendingsuch a bulky commodity as corn the more distant voyage, andalso the greater expense attending the conveying of gold toPoland.

This difference in the value of gold, or which is the samething, this difference in the price of corn in the two countries,would exist, although the facilities of producing corn in Englandshould far exceed those of Poland, from the greater fertility ofthe land, and the superiority in the skill and implements of thelabourer.

If however Poland should be the first to improve her manu-factures, if she should succeed in making a commodity whichwas generally desirable, including great value in little bulk, orif she should be exclusively blessed with some natural produc-tion, generally desirable, and not possessed by other countries,she would obtain an additional quantity of gold in exchangefor this commodity, which would operate on the price of hercorn, cattle, and coarse clothing. The disadvantage of distancewould probably be more than compensated by the advantageof having an exportable commodity of great value, and money

On Foreign Tradech. vii 145

would be permanently of lower value in Poland than in England.If, on the contrary, the advantage of skill and machinery werepossessed by England, another reason would be added to thatwhich before existed, why gold should be less valuable inEngland than in Poland, and why corn, cattle, and clothing,should be at a higher price in the former country.

These I believe to be the only two causes which regulatethe comparative value of money in the different countries ofthe world; for although taxation occasions a disturbance of theequilibrium of money, it does so by depriving the country inwhich it is imposed of some of the advantages attending skill,industry, and climate.

It has been my endeavour carefully to distinguish betweena low value of money, and a high value of corn, or any othercommodity with which money may be compared. These havebeen generally considered as meaning the same thing; but itis evident, that when corn rises from five to ten shillings abushel, it may be owing either to a fall in the value of money,or to a rise in the value of corn. Thus we have seen, that fromthe necessity of having recourse successively to land of a worseand worse quality, in order to feed an increasing population,corn must rise in relative value to other things. If thereforemoney continue permanently of the same value, corn will ex-change for more of such money, that is to say, it will rise inprice. The same rise in the price of corn will be produced bysuch improvement of machinery in manufactures, as shall en-able us to manufacture commodities with peculiar advantages:for the influx of money will be the consequence; it will fallin value, and therefore exchange for less corn. But the effectsresulting from a high price of corn when produced by the risein the value of corn, and when caused by a fall in the value ofmoney, are totally different. In both cases the money price ofwages will rise, but if it be in consequence of the fall in the

146 Principles ch. vii

value of money, not only wages and corn, but all other com-modities will rise. If the manufacturer has more to pay forwages, he will receive more for his manufactured goods, andthe rate of profits will remain unaffected. But when the risein the price of corn is the effect of the difficulty of production,profits will fall; for the manufacturer will be obliged to paymore wages, and will not be enabled to remunerate himself byraising the price of his manufactured commodity.

Any improvement in the facility of working the mines, bywhich the precious metals may be produced with a less quantityof labour, will sink the value of money generally. It will thenexchange for fewer commodities in all countries; but when anyparticular country excels in manufactures, so as to occasion aninflux of money towards it, the value of money will be lower,and the prices of corn and labour will be relatively higher inthat country, than in any other.

This higher value of money will not be indicated by theexchange; bills may continue to be negociated at par, althoughthe prices of corn and labour should be 10, 20, or 30 per cent.higher in one country than another. Under the circumstancessupposed, such a difference of prices is the natural order ofthings, and the exchange can only be at par, when a sufficientquantity of money is introduced into the country excelling inmanufactures, so as to raise the price of its corn and labour.If foreign countries should prohibit the exportation of money,and could successfully enforce obedience to such a law, theymight indeed prevent the rise in the prices of the corn andlabour of the manufacturing country; for such rise can onlytake place after the influx of the precious metals, supposingpaper money not to be used; but they could not prevent theexchange from being very unfavourable to them. If Englandwere the manufacturing country, and it were possible to pre-vent the importation of money, the exchange with France,

On Foreign Tradech. vii 147

Holland, and Spain, might be 5, 10, or 20 per cent. against thosecountries.

Whenever the current of money is forcibly stopped, andwhen money is prevented from settling at its just level, thereare no limits to the possible variations of the exchange. Theeffects are similar to those which follow, when a paper money,not exchangeable for specie at the will of the holder, is forcedinto circulation. Such a currency is necessarily confined to thecountry where it is issued: it cannot, when too abundant,diffuse itself generally amongst other countries. The level ofcirculation is destroyed, and the exchange will inevitably beunfavourable to the country where it is excessive in quantity:just so would be the effects of a metallic circulation, if byforcible means, by laws which could not be evaded, moneyshould be detained in a country, when the stream of tradegave it an impetus towards other countries.

When each country has precisely the quantity of moneywhich it ought to have, money will not indeed be of the samevalue in each, for with respect to many commodities it maydiffer 5, 10, or even 20 per cent., but the exchange will be atpar. One hundred pounds in England, or the silver which isin 100l., will purchase a bill of 100l., or an equal quantity ofsilver in France, Spain, or Holland.

In speaking of the exchange and the comparative value ofmoney in different countries, we must not in the least refer tothe value of money estimated in commodities, in either country.The exchange is never ascertained by estimating the compara-tive value of money in corn, cloth, or any commodity what-ever, but by estimating the value of the currency of one country,in the currency of another.

It may also be ascertained by comparing it with some standardcommon to both countries. If a bill on England for 100l. willpurchase the same quantity of goods in France or Spain, that

148 Principles ch. vii

1 Eds. 1–2 do not contain ‘unlessit was depreciated,’.

2 Eds. 1–2 do not contain ‘thebullion in’.

a bill on Hamburgh for the same sum will do, the exchangebetween Hamburgh and England is at par; but if a bill onEngland for 130l., will purchase no more than a bill on Ham-burgh for 100l., the exchange is 30 per cent. against England.

In England 100l. may purchase a bill, or the right of re-ceiving 101l. in Holland, 102l. in France, and 105l. in Spain.The exchange with England is, in that case, said to be 1 percent. against Holland, 2 per cent. against France, and 5 percent. against Spain. It indicates that the level of currency ishigher than it should be in those countries, and the comparativevalue of their currencies, and that of England, would be im-mediately restored to par, by abstracting from theirs, or byadding to that of England.

Those who maintained that our currency was depreciatedduring the last ten years, when the exchange varied from 20 to30 per cent. against this country, have never contended, as theyhave been accused of doing, that money could not be morevaluable in one country than another, as compared with variouscommodities; but they did contend, that 130l. could not bedetained in England, unless it was depreciated,1 when it wasof no more value, estimated in the money of Hamburgh, or ofHolland, than the bullion in2 100l.

By sending 130l. good English pounds sterling to Ham-burgh, even at an expense of 5l., I should be possessed thereof 125l.; what then could make me consent to give 130l. fora bill which would give me 100l. in Hamburgh, but thatmy pounds were not good pounds sterling?—they were de-teriorated, were degraded in intrinsic value below the poundssterling of Hamburgh, and if actually sent there, at an expenseof 5l., would sell only for 100l. With metallic pounds sterling,it is not denied that my 130l. would procure me 125l. in Ham-burgh, but with paper pounds sterling I can only obtain 100l.;

On Foreign Tradech. vii 149

1 Eds. 1–2 ‘is’, here and six wordsbelow.

2 Ed. 1 ‘we’.

and yet it was1 maintained that 130l. in paper, was of equalvalue with 130l. in silver or gold.

Some indeed more reasonably maintained, that 130l. inpaper was not of equal value with 130l. in metallic money;but they said that it was the metallic money which had changedits value, and not the paper money. They wished to confinethe meaning of the word depreciation to an actual fall of value,and not to a comparative difference between the value ofmoney, and the standard by which by law it is regulated. Onehundred pounds of English money was formerly of equal valuewith, and could purchase 100l. of Hamburgh money: in anyother country a bill of 100l. on England, or on Hamburgh,could purchase precisely the same quantity of commodities. Toobtain the same things, I was lately obliged to give 130l. Englishmoney, when Hamburgh could obtain them for 100l. Ham-burgh money. If English money was of the same value thenas before, Hamburgh money must have risen in value. Butwhere is the proof of this? How is it to be ascertained whetherEnglish money has fallen, or Hamburgh money has risen? thereis no standard by which this can be determined. It is a pleawhich admits of no proof, and can neither be positivelyaffirmed, nor positively contradicted. The nations of the worldmust have been early convinced, that there was no standardof value in nature, to which they2 might unerringly refer, andtherefore chose a medium, which on the whole appeared tothem less variable than any other commodity.

To this standard we must conform till the law is changed,and till some other commodity is discovered, by the use ofwhich we shall obtain a more perfect standard, than that whichwe have established. While gold is exclusively the standard inthis country, money will be depreciated, when a pound sterlingis not of equal value with 5 dwts. and 3 grs. of standard gold,and that, whether gold rises or falls in general value.

1 Above p. 31.2 Eds. 1–2 read ‘exceed’ instead of‘more than replace’.

3 Eds. 1–2 ‘at least is not’.4 Eds. 1–2 do not contain ‘un-productive’.

chapter viii

On Taxes

Taxes are a portion of the produce of the land and labour ofa country, placed at the disposal of the government; and arealways ultimately paid, either from the capital, or from therevenue of the country.

We have already shewn how the capital of a country iseither fixed or circulating, according as it is of a more or of a lessdurable nature.1 It is difficult to define strictly, where the dis-tinction between circulating and fixed capital begins; for thereare almost infinite degrees in the durability of capital. The foodof a country is consumed and reproduced at least once in everyyear; the clothing of the labourer is probably not consumedand reproduced in less than two years; whilst his house andfurniture are calculated to endure for a period of ten or twentyyears.

When the annual productions of a country more than re-place2 its annual consumption, it is said to increase its capital;when its annual consumption is not at least3 replaced by itsannual production, it is said to diminish its capital. Capitalmay therefore be increased by an increased production, or bya diminished unproductive4 consumption.

If the consumption of the government, when increased bythe levy of additional taxes, be met either by an increasedproduction, or by a diminished consumption on the part ofthe people, the taxes will fall upon revenue, and the nationalcapital will remain unimpaired; but if there be no increased

On Taxesch. viii 151

1 Eds. 1–2 do not contain ‘unpro-ductive’.2 Eds. 1–2 do not contain the re-mainder of this sentence.

3 Eds. 1–2 do not contain ‘unpro-ductive’.4 Cp. Wealth of Nations, Bk. 11,ch. iii; vol. 1, p. 320.5 Eds. 1–2 do not contain this note.

production or diminished unproductive1 consumption on thepart of the people, the taxes will necessarily fall on capital2,that is to say, they will impair the fund allotted to productiveconsumption.*

In proportion as the capital of a country is diminished, itsproductions will be necessarily diminished; and, therefore, ifthe same unproductive3 expenditure on the part of the peopleand of the government continue, with a constantly diminishingannual reproduction, the resources of the people and the statewill fall away with increasing rapidity, and distress and ruinwill follow.

Notwithstanding the immense expenditure of the Englishgovernment during the last twenty years, there can be littledoubt but that the increased production on the part of thepeople has more than compensated for it. The national capitalhas not merely been unimpaired, it has been greatly increased,and the annual revenue of the people, even after the paymentof their taxes, is probably greater at the present time than atany former period of our history.

For the proof of this we might refer to the increase ofpopulation—to the extension of agriculture—to the increase

*It must be understood that all the productions of a country are con-sumed; but it makes the greatest difference imaginable whether they areconsumed by those who reproduce, or by those who do not reproduceanother value. When we say that revenue is saved, and added to capital,what we mean is, that the portion of revenue, so said to be added tocapital, is consumed by productive instead of unproductive labourers.4

There can be no greater error than in supposing that capital is increasedby non-consumption. If the price of labour should rise so high, thatnotwithstanding the increase of capital, no more could be employed,I should say that such increase of capital would be still unproductivelyconsumed.5

152 Principles ch. viii

1 Ed. 2 does not contain ‘unpro-ductive’.2 In ed. 1 this paragraph does notcontain the first sentence and reads:‘There are no taxes which have nota tendency to impede accumulation,because there are none which maynot be considered as checking pro-duction, and as causing the sameeffects as a bad soil or climate, adiminution of skill or industry, a

worse distribution of labour, or theloss of some useful machinery; andalthough some taxes will producethese effects in a much greaterdegree than others, it must be con-fessed that the great evil of taxa-tion is to be found,’ etc. The altera-tion, and the actual wording of it,were suggested by McCulloch; seehis letter, below, VII, 353.

of shipping and manufactures—to the building of docks—tothe opening of numerous canals, as well as to many otherexpensive undertakings; all denoting an increase both of capitaland of annual production.

Still, however, it is certain that but for taxation this increaseof capital would have been much greater. There are no taxeswhich have not a tendency to lessen the power to accumulate.All taxes must either fall on capital or revenue. If they en-croach on capital, they must proportionably diminish that fundby whose extent the extent of the productive industry of thecountry must always be regulated; and if they fall on revenue,they must either lessen accumulation, or force the contributorsto save the amount of the tax, by making a correspondingdiminution of their former unproductive1 consumption of thenecessaries and luxuries of life. Some taxes will produce theseeffects in a much greater degree than others; but the great evilof taxation is to be found,2 not so much in any selection ofits objects, as in the general amount of its effects taken col-lectively.

Taxes are not necessarily taxes on capital, because they arelaid on capital; nor on income, because they are laid on income.If from my income of 1000l. per annum, I am required to pay100l., it will really be a tax on my income, should I be contentwith the expenditure of the remaining 900l.; but it will be atax on capital, if I continue to spend 1000l.

On Taxesch. viii 153

1 Ed. 1 ‘obtained’, corrected inErrata.

2 Eds. 1–2 ‘expenditure’ in placeof ‘enjoyments’.

The capital from which my income of 1000l. is derived, maybe of the value of 10,000l.; a tax of one per cent. on such capitalwould be 100l.; but my capital would be unaffected, if afterpaying this tax, I in like manner contented myself with theexpenditure of 900l.

The desire which every man has to keep his station in life,and to maintain his wealth at the height which it has onceattained,1 occasions most taxes, whether laid on capital or onincome, to be paid from income; and therefore as taxation pro-ceeds, or as government increases its expenditure, the annualenjoyments2 of the people must be diminished, unless they areenabled proportionally to increase their capitals and income.It should be the policy of governments to encourage a dis-position to do this in the people, and never to lay such taxesas will inevitably fall on capital; since by so doing, they impairthe funds for the maintenance of labour, and thereby diminishthe future production of the country.

In England this policy has been neglected, in taxing theprobates of wills, in the legacy duty, and in all taxes affectingthe transference of property from the dead to the living. If alegacy of 1000l. be subject to a tax of 100l., the legatee con-siders his legacy as only 900l. and feels no particular motiveto save the 100l. duty from his expenditure, and thus the capitalof the country is diminished; but if he had really received 1000l.,and had been required to pay 100l. as a tax on income, on wine,on horses, or on servants, he would probably have diminished,or rather not increased his expenditure by that sum, and thecapital of the country would have been unimpaired.

“Taxes upon the transference of property from the dead tothe living,” says Adam Smith, “fall finally, as well as imme-diately, upon the persons to whom the property is transferred.

154 Principles ch. viii

1 Adam Smith says ‘very fre-quently cruel’.2 Adam Smith says ‘of productivelabour’.

3 Bk. v, ch. ii, Appendix to articlesi and ii; vol. ii, pp. 346–7.

Taxes on the sale of land fall altogether upon the seller. Theseller is almost always under the necessity of selling, and must,therefore, take such a price as he can get. The buyer is scarceever under the necessity of buying, and will, therefore, onlygive such a price as he likes. He considers what the land willcost him in tax and price together. The more he is obliged topay in the way of tax, the less he will be disposed to give inthe way of price. Such taxes, therefore, fall almost always upona necessitous person, and must, therefore, be very cruel1 andoppressive.” “Stamp duties, and duties upon the registrationof bonds and contracts for borrowed money, fall altogetherupon the borrower, and in fact are always paid by him. Dutiesof the same kind upon law proceedings fall upon the suitors.They reduce to both the capital value of the subject in dispute.The more it costs to acquire any property, the less must bethe neat value of it when acquired. All taxes upon the trans-ference of property of every kind, so far as they diminish thecapital value of that property, tend to diminish the fundsdestined for the maintenance of labour2. They are all more orless unthrifty taxes, that increase the revenue of the sovereign,which seldom maintains any but unproductive labourers, atthe expense of the capital of the people, which maintains nonebut productive.”3

But this is not the only objection to taxes on the transferenceof property; they prevent the national capital from beingdistributed in the way most beneficial to the community. Forthe general prosperity, there cannot be too much facility givento the conveyance and exchange of all kinds of property, asit is by such means that capital of every species is likely tofind its way into the hands of those, who will best employ it

On Taxesch. viii 155

1 Traite d’Economie politique, 2nd ed., 1814, vol. ii, p. 312.

in increasing the productions of the country. “Why,” asksM. Say, “does an individual wish to sell his land? it is becausehe has another employment in view in which his funds willbe more productive. Why does another wish to purchase thissame land? it is to employ a capital which brings him in toolittle, which was unemployed, or the use of which he thinkssusceptible of improvement. This exchange will increase thegeneral income, since it increases the income of these parties.But if the charges are so exorbitant as to prevent the exchange,they are an obstacle to this increase of the general income.”1

Those taxes, however, are easily collected; and this by manymay be thought to afford some compensation for their injuriouseffects.

chapter ix

Taxes on Raw Produce

Having in a former part of this work established, I hopesatisfactorily, the principle, that the price of corn is regulatedby the cost of its production on that land exclusively, or ratherwith that capital exclusively, which pays no rent, it will followthat whatever may increase the cost of production will increasethe price; whatever may reduce it, will lower the price. Thenecessity of cultivating poorer land, or of obtaining a lessreturn with a given additional capital on land already in cultiva-tion, will inevitably raise the exchangeable value of raw pro-duce. The discovery of machinery, which will enable thecultivator to obtain his corn at a less cost of production, willnecessarily lower its exchangeable value. Any tax which maybe imposed on the cultivator, whether in the shape of land-tax,tithes, or a tax on the produce when obtained, will increasethe cost of production, and will therefore raise the price ofraw produce.

If the price of raw produce did not rise so as to compensatethe cultivator for the tax, he would naturally quit a trade wherehis profits were reduced below the general level of profits; thiswould occasion a diminution of supply, until the unabateddemand should have produced such a rise in the price of rawproduce, as to make the cultivation of it equally profitable withthe investment of capital in any other trade.

A rise of price is the only means by which he could pay thetax, and continue to derive the usual and general profits fromthis employment of his capital. He could not deduct the taxfrom his rent, and oblige his landlord to pay it, for he paysno rent. He would not deduct it from his profits, for there is

Taxes on Raw Producech. ix 157

1 Above, p. 83, n. and p. 113.

no reason why he should continue in an employment whichyields small profits, when all other employments are yieldinggreater. There can then be no question, but that he will havethe power of raising the price of raw produce by a sum equalto the tax.

A tax on raw produce would not be paid by the landlord;it would not be paid by the farmer; but it would be paid, inan increased price, by the consumer.

Rent, it should be remembered, is the difference betweenthe produce obtained by equal portions of labour and capitalemployed on land of the same or different qualities. It shouldbe remembered too, that the money rent of land, and the cornrent of land, do not vary in the same proportion.

In the case of a tax on raw produce, of a land-tax, or tithes,the corn rent of land will vary, while the money rent willremain as before.

If, as we have before supposed,1 the land in cultivation wereof three qualities, and that with an equal amount of capital,

180 qrs. of corn were obtained from land No. 1.170 . . . . . . from . . . . . . 2.160 . . . . . . from . . . . . . 3.

the rent of No. 1 would be 20 quarters, the difference betweenthat of No. 3 and No. 1; and of No. 2, 10 quarters, the differencebetween that of No. 3 and No. 2; while No. 3 would pay norent whatever.

Now if the price of corn were 4l. per quarter, the moneyrent of No. 1 would be 80l., and that of No. 2, 40l.

Suppose a tax of 8s. per quarter to be imposed on corn;then the price would rise to 4l. 8s.; and if the landlords ob-tained the same corn rent as before, the rent of No. 1 wouldbe 88l. and that of No. 2, 44l. But they would not obtain the

158 Principles ch. ix

1 Should read ‘Deduct the valueof 16.3 qrs. at 4l. 8s. or 8s. per qr.on 180 qrs.’; cp. under Nos. 2and 3.2 Eds. 1–2 do not contain ‘yield-ing’.

3 Eds 1 does not contain ‘thedifference between 145.5 and 163.7quarters,’ nor the similar phraseat the end of the paragraph.

same corn rent; the tax would fall heavier on No. 1 than onNo. 2, and on No. 2 than on No. 3, because it would be leviedon a greater quantity of corn. It is the difficulty of productionon No. 3 which regulates price; and corn rises to 4l. 8s., thatthe profits of the capital employed on No. 3 may be on a levelwith the general profits of stock.

The produce and tax on the three qualities of land will beas follows:

No. 1, yielding 180 qrs. at 4l. 8s. per qr. . . . . £792Deduct the value of 16.3 or 8s. per qr. on 180 qrs.1 . . 72

Net corn produce 163.7 Net money produce £720

No. 2, yielding 170 qrs. at 4l. 8s. per qr. . . . . £748

Deduct the value of 15.4 68qrs. at 4l. 8s. or 8s. per qr.� �on 170 qrs. . . . .

Net corn produce 154.6 Net money produce £680

No. 3, yielding 2 160 qrs. at 4l. 8s. . . . . . . £704

Deduct the value of 14.5 64qrs. at 4l. 8s. or 8s. per qr.� �on 160 . . . . . .

Net corn produce 145.5 Net money produce £640

The money rent of No. 1 would continue to be 80l., or thedifference between 640l. and 720l., and that of No. 2, 40l.,or the difference between 640l. and 680l., precisely the sameas before; but the corn rent will be reduced from 20 quarterson No. 1, to 18.2 quarters, the difference between 145.5 and163.7 quarters,3 and that on No. 2 from 10 to 9.1 quarters,the difference between 145.5 and 154.6 quarters.

Taxes on Raw Producech. ix 159

1 Eds. 1–2 ‘portion’.

A tax on corn, then, would fall on the consumers of corn,and would raise its value as compared with all other com-modities, in a degree proportioned to the tax. In proportionas raw produce entered into the composition of other com-modities, would their value also be raised, unless the tax werecountervailed by other causes. They would in fact be indirectlytaxed, and their value would rise in proportion to the tax.

A tax, however, on raw produce, and on the necessaries ofthe labourer, would have another effect—it would raise wages.From the effect of the principle of population on the increaseof mankind, wages of the lowest kind never continue muchabove that rate which nature and habit demand for the supportof the labourers. This class is never able to bear any consider-able proportion1 of taxation; and, consequently, if they had topay 8s. per quarter in addition for wheat and in some smallerproportion for other necessaries, they would not be able tosubsist on the same wages as before, and to keep up the raceof labourers. Wages would inevitably and necessarily rise; andin proportion as they rose, profits would fall. Governmentwould receive a tax of 8s. per quarter on all the corn consumedin the country, a part of which would be paid directly by theconsumers of corn; the other part would be paid indirectly bythose who employed labour, and would affect profits in thesame manner as if wages had been raised from the increaseddemand for labour compared with the supply, or from an in-creasing difficulty of obtaining the food and necessaries requiredby the labourer.

In as far as the tax might affect consumers, it would be anequal tax, but in as far as it would affect profits, it would be apartial tax; for it would neither operate on the landlord noron the stockholder, since they would continue to receive, theone the same money rent, the other the same money dividends

160 Principles ch. ix

1 Eds. 1–2 ‘manufacture’.

as before. A tax on the produce of the land then would operateas follows:

1st. It would raise the price of raw produce by a sum equalto the tax, and would therefore fall on each consumerin proportion to his consumption.

2dly. It would raise the wages of labour, and lower profits.

It may then be objected against such a tax,

1st. That by raising the wages of labour, and loweringprofits, it is an unequal tax, as it affects the income ofthe farmer, trader, and manufacturer, and leaves un-taxed the income of the landlord, stockholder, andothers enjoying fixed incomes.

2dly. That there would be a considerable interval betweenthe rise in the price of corn and the rise of wages,during which much distress would be experienced bythe labourer.

3dly. That raising wages and lowering profits is a dis-couragement to accumulation, and acts in the same wayas a natural poverty of soil.

4thly. That by raising the price of raw produce, the pricesof all commodities into which raw produce enters,would be raised, and that therefore we should not meetthe foreign manufacturer1 on equal terms in the generalmarket.

With respect to the first objection, that by raising the wagesof labour and lowering profits it acts unequally, as it affectsthe income of the farmer, trader, and manufacturer, and leavesuntaxed the income of the landlord, stockholder, and othersenjoying fixed incomes,—it may be answered, that if the opera-tion of the tax be unequal, it is for the legislature to make itequal, by taxing directly the rent of land, and the dividends

Taxes on Raw Producech. ix 161

1 Ed. 1 ‘again, in some the effect is slow, and in others the intervalmust be very short.’

from stock. By so doing, all the objects of an income taxwould be obtained, without the inconvenience of having re-course to the obnoxious measure of prying into every man’sconcerns, and arming commissioners with powers repugnantto the habits and feelings of a free country.

With respect to the second objection, that there would be aconsiderable interval between the rise of the price of corn andthe rise of wages, during which much distress would be ex-perienced by the lower classes,—I answer, that under differentcircumstances, wages follow the price of raw produce with verydifferent degrees of celerity; that in some cases no effect what-ever is produced on wages by a rise of corn; in others, therise of wages precedes the rise in the price of corn; again, insome the effect on wages is slow, and in others rapid.1

Those who maintain that it is the price of necessaries whichregulates the price of labour, always allowing for the particularstate of progression in which the society may be, seem to haveconceded too readily, that a rise or fall in the price of necessarieswill be very slowly succeeded by a rise or fall of wages.A high price of provisions may arise from very different causes,and may accordingly produce very different effects. It mayarise from

1st. A deficient supply.2nd. From a gradually increasing demand, which may be

ultimately attended with an increased cost of production.3rdly. From a fall in the value of money.4thly. From taxes on necessaries.

These four causes have not been sufficiently distinguishedand separated by those who have inquired into the influenceof a high price of necessaries on wages. We will examine themseverally.

162 Principles ch. ix

1 Eds. 1–2 do not contain ‘, or byadopting the most useful sub-stitutes’.

The argument in this paragraphis derived from Malthus, Essay onPopulation, 4th ed., 1807, vol. ii,pp. 79–82.

A bad harvest will produce a high price of provisions, andthe high price is the only means by which the consumptionis compelled to conform to the state of the supply. If all thepurchasers of corn were rich, the price might rise to any degree,but the result would remain unaltered; the price would at lastbe so high, that the least rich would be obliged to forego theuse of a part of the quantity which they usually consumed, asby diminished consumption alone the demand could be broughtdown to the limits of the supply. Under such circumstancesno policy can be more absurd, than that of forcibly regulatingmoney wages by the price of food, as is frequently done, bymisapplication of the poor laws. Such a measure affords noreal relief to the labourer, because its effect is to raise stillhigher the price of corn, and at last he must be obliged to limithis consumption in proportion to the limited supply. In thenatural course of affairs a deficient supply from bad seasons,without any pernicious and unwise interference, would not befollowed by a rise of wages. The raising of wages is merelynominal to those who receive them; it increases the competitionin the corn market, and its ultimate effect is to raise the profitsof the growers and dealers in corn. The wages of labour arereally regulated by the proportion between the supply anddemand of necessaries, and the supply and demand of labour;and money is merely the medium, or measure, in which wagesare expressed. In this case then the distress of the labourer isunavoidable, and no legislation can afford a remedy, except bythe importation of additional food, or by adopting the mostuseful substitutes.1

When a high price of corn is the effect of an increasingdemand, it is always preceded by an increase of wages, for

Taxes on Raw Producech. ix 163

1 Eds. 1–2 do not contain ‘always’.

demand cannot increase, without an increase of means in thepeople to pay for that which they desire. An accumulation ofcapital naturally produces an increased competition among theemployers of labour, and a consequent rise in its price. Theincreased wages are not always1 immediately expended onfood, but are first made to contribute to the other enjoymentsof the labourer. His improved condition however induces,and enables him to marry, and then the demand for food forthe support of his family naturally supersedes that of thoseother enjoyments on which his wages were temporarily ex-pended. Corn rises then because the demand for it increases,because there are those in the society who have improvedmeans of paying for it; and the profits of the farmer will beraised above the general level of profits, till the requisite quantityof capital has been employed on its production. Whether, afterthis has taken place, corn shall again fall to its former price,or shall continue permanently higher, will depend on thequality of the land from which the increased quantity of cornhas been supplied. If it be obtained from land of the samefertility, as that which was last in cultivation, and with nogreater cost of labour, the price will fall to its former state;if from poorer land, it will continue permanently higher. Thehigh wages in the first instance proceeded from an increasein the demand for labour: inasmuch as it encouraged marriage,and supported children, it produced the effect of increasing thesupply of labour. But when the supply is obtained, wages willagain fall to their former price, if corn has fallen to its formerprice: to a higher than the former price, if the increased supplyof corn has been produced from land of an inferior quality.A high price is by no means incompatible with an abundantsupply: the price is permanently high, not because the quantityis deficient, but because there has been an increased cost in

164 Principles ch. ix

producing it. It generally happens indeed, that when a stimulushas been given to population, an effect is produced beyondwhat the case requires; the population may be, and generallyis so much increased as, notwithstanding the increased demandfor labour, to bear a greater proportion to the funds for main-taining labourers than before the increase of capital. In thiscase a re-action will take place, wages will be below their naturallevel, and will continue so, till the usual proportion betweenthe supply and demand has been restored. In this case then,the rise in the price of corn is preceded by a rise of wages,and therefore entails no distress on the labourer.

A fall in the value of money, in consequence of an influxof the precious metals from the mines, or from the abuse ofthe privileges of banking, is another cause for the rise of theprice of food; but it will make no alteration in the quantityproduced. It leaves undisturbed too the number of labourers,as well as the demand for them; for there will be neither anincrease nor a diminution of capital. The quantity of necessariesto be allotted to the labourer, depends on the comparativedemand and supply of necessaries, with the comparative demandand supply of labour; money being only the mediumin which the quantity is expressed; and as neither of these isaltered, the real reward of the labourer will not alter. Moneywages will rise, but they will only enable him to furnish himselfwith the same quantity of necessaries as before. Those whodispute this principle, are bound to shew why an increase ofmoney should not have the same effect in raising the priceof labour, the quantity of which has not been increased, as theyacknowledge it would have on the price of shoes, of hats, andof corn, if the quantity of those commodities were not increased.The relative market value of hats and shoes is regulated bythe demand and supply of hats, compared with the demandand supply of shoes, and money is but the medium in which

Taxes on Raw Producech. ix 165

their value is expressed. If shoes be doubled in price, hats willalso be doubled in price, and they will retain the same com-parative value. So if corn and all the necessaries of the labourerbe doubled in price, labour will be doubled in price also, andwhile there is no interruption to the usual demand and supplyof necessaries and of labour, there can be no reason why theyshould not preserve their relative value.

Neither a fall in the value of money, nor a tax on raw pro-duce, though each will raise the price, will necessarily interferewith the quantity of raw produce; or with the number ofpeople, who are both able to purchase, and willing to consumeit. It is very easy to perceive why, when the capital of a countryincreases irregularly, wages should rise, whilst the price of cornremains stationary, or rises in a less proportion; and why,when the capital of a country diminishes, wages should fallwhilst corn remains stationary, or falls in a much less pro-portion, and this too for a considerable time; the reason is,because labour is a commodity which cannot be increased anddiminished at pleasure. If there are too few hats in the marketfor the demand, the price will rise, but only for a short time;for in the course of one year, by employing more capital inthat trade, any reasonable addition may be made to the quantityof hats, and therefore their market price cannot long very muchexceed their natural price; but it is not so with men; you cannotincrease their number in one or two years when there is anincrease of capital, nor can you rapidly diminish their numberwhen capital is in a retrograde state; and, therefore, the numberof hands increasing or diminishing slowly, whilst the funds forthe maintenance of labour increase or diminish rapidly, theremust be a considerable interval before the price of labour isexactly regulated by the price of corn and necessaries; but inthe case of a fall in the value of money, or of a tax on corn,there is not necessarily any excess in the supply of labour, nor

166 Principles ch. ix

1 Eds. 1–2 do not contain ‘a’. 2 Above, p. 131.

any abatement of demand, and therefore there can be noreason why the labourer should sustain a real diminution ofwages.

A tax on corn does not necessarily diminish the quantityof corn, it only raises its money price; it does not necessarilydiminish the demand compared with the supply of labour; whythen should it diminish the portion paid to the labourer? Sup-pose it true that it did diminish the quantity given to thelabourer, in other words, that it did not raise his money wagesin the same proportion as the tax raised the price of the cornwhich he consumed; would not the supply of corn exceed thedemand?—would it not fall in price? and would not thelabourer thus obtain his usual portion? In such case, indeed,capital would be withdrawn from agriculture; for if the pricewere not increased by the whole amount of the tax, agriculturalprofits would be lower than the general level of profits, andcapital would seek a1 more advantageous employment. In re-gard then to a tax on raw produce, which is the point underdiscussion, it appears to me that no interval which could bearoppressively on the labourer, would elapse between the risein the price of raw produce, and the rise in the wages of thelabourer; and that therefore no other inconvenience would besuffered by this class, than that which they would suffer fromany other mode of taxation, namely, the risk that the tax mightinfringe on the funds destined for the maintenance of labour,and might therefore check or abate the demand for it.

With respect to the third objection against taxes on rawproduce, namely, that the raising wages, and lowering profits,is a discouragement to accumulation, and acts in the same wayas a natural poverty of soil; I have endeavoured to shew inanother part of this work2 that savings may be as effectuallymade from expenditure as from production; from a reduction

Taxes on Raw Producech. ix 167

1 Ed. 1 does not contain this para-graph.2 Eds. 1–2 do not contain ‘or othersources of income,’.

3 Ed. 1 ‘burden’.4 Eds. 1–2 do not contain ‘thatprovided all other income be taxed,’.

in the value of commodities, as from a rise in the rate of profits.By increasing my profits from 1000l. to 1200l., whilst pricescontinue the same, my power of increasing my capital bysavings is increased, but it is not increased so much as it wouldbe if my profits continued as before, whilst commodities wereso lowered in price, that 800l. would procure me as much as1000l. purchased before.

Now the sum required by the tax must be raised, and thequestion simply is, whether the same amount shall be takenfrom individuals by diminishing their profits, or by raising theprices of the commodities on which their profits will be ex-pended.1

Taxation under every form presents but a choice of evils;if it do not act on profit, or other sources of income,2 it mustact on expenditure; and provided the burthen3 be equallyborne, and do not repress reproduction, it is indifferent onwhich it is laid. Taxes on production, or on the profits of stock,whether applied immediately to profits, or indirectly, by taxingthe land or its produce, have this advantage over other taxes;that provided all other income be taxed,4 no class of the com-munity can escape them, and each contributes according to hismeans.

From taxes on expenditure a miser may escape; he may havean income of 10,000l. per annum, and expend only 300l.; butfrom taxes on profits, whether direct or indirect, he cannotescape; he will contribute to them either by giving up a partor the value of a part of his produce; or by the advanced pricesof the necessaries essential to production, he will be unable tocontinue to accumulate at the same rate. He may, indeed, havean income of the same value, but he will not have the same

168 Principles ch. ix

1 Eds. 2–3 misprint ‘consist’.

command of labour, nor of an equal quantity of materials onwhich such labour can be exercised.

If a country is insulated from all others, having no com-merce with any of its neighbours, it can in no way shift anyportion of its taxes from itself. A portion of the produce of itsland and labour will be devoted to the service of the State;and I cannot but think that, unless it presses unequally on thatclass which accumulates and saves, it will be of little importancewhether the taxes be levied on profits, on agricultural, or onmanufactured commodities. If my revenue be 1000l. per annum,and I must pay taxes to the amount of 100l., it is of little im-portance whether I pay it from my revenue, leaving myselfonly 900l., or pay 100l. in addition for my agricultural com-modities, or for my manufactured goods. If 100l. is my fairproportion of the expenses of the country, the virtue of taxationconsists1 in making sure that I shall pay that 100l., neither morenor less; and that cannot be effected in any manner so securelyas by taxes on wages, profits, or raw produce.

The fourth and last objection which remains to be noticedis: That by raising the price of raw produce, the prices of allcommodities into which raw produce enters, will be raised,and that, therefore, we shall not meet the foreign manufactureron equal terms in the general market.

In the first place, corn and all home commodities could notbe materially raised in price without an influx of the preciousmetals; for the same quantity of money could not circulate thesame quantity of commodities, at high as at low prices, and theprecious metals never could be purchased with dear com-modities. When more gold is required, it must be obtained bygiving more, and not fewer commodities in exchange for it.Neither could the want of money be supplied by paper, for itis not paper that regulates the value of gold as a commodity,

Taxes on Raw Producech. ix 169

1 Ed. 2 misprints ‘rise’.2 Ed. 1 does not contain ‘of rawproduce, and’.

but gold that regulates the value of paper. Unless then thevalue of gold could be lowered, no paper could be added tothe circulation without being depreciated. And that the valueof gold could not be lowered, appears clear, when we considerthat the value of gold as a commodity must be regulated bythe quantity of goods which must be given to foreigners inexchange for it. When gold is cheap, commodities are dear;and when gold is dear, commodities are cheap, and fall inprice. Now as no cause is shewn why foreigners should selltheir gold cheaper than usual, it does not appear probable thatthere would be any influx of gold. Without such an influx therecan be no increase of quantity, no fall in its value, no rise inthe general price of goods.*

The probable effect of a tax on raw produce, would be toraise1 the price of raw produce, and2 of all commodities in whichraw produce entered, but not in any degree proportioned tothe tax; while other commodities in which no raw produceentered, such as articles made of the metals and the earths,would fall in price: so that the same quantity of money asbefore would be adequate to the whole circulation.

A tax which should have the effect of raising the price ofall home productions, would not discourage exportation, ex-cept during a very limited time. If they were raised in priceat home, they could not indeed immediately be profitablyexported, because they would be subject to a burthen here fromwhich abroad they were free. The tax would produce the sameeffect as an alteration in the value of money, which was notgeneral and common to all countries, but confined to a single

*It may be doubted whether commodities raised in price, merely bytaxation, would require any more money for their circulation. I believethey would not.3

3 Eds. 1–2 do not contain this note.Cp. below, p. 213–14, n.

170 Principles ch. ix

1 Eds. 1–2 ‘for goods imported’.2 Eds. 1–2 ‘its natural price abroadwith its natural price at home’.

3 Ed. 3 misprints ‘export’.

one. If England were that country, she might not be able tosell, but she would be able to buy, because importable com-modities would not be raised in price. Under these circum-stances nothing but money could be exported in return forforeign commodities, but this is a trade which could not longcontinue; a nation cannot be exhausted of its money, for aftera certain quantity has left it, the value of the remainder will rise,and such a price of commodities will be the consequence, thatthey will again be capable of being profitably exported. Whenmoney had risen, therefore, we should no longer export it inreturn for goods,1 but we should export those manufactureswhich had first been raised in price, by the rise in the priceof the raw produce from which they were made, and then againlowered by the exportation of money.

But it may be objected, that when money so rose in value,it would rise with respect to foreign as well as home com-modities, and therefore that all encouragement to import foreigngoods would cease. Thus, suppose we imported goods whichcost 100l. abroad, and which sold for 120l. here, we shouldcease to import them, when the value of money had so risenin England, that they would only sell for 100l. here: this, how-ever, could never happen. The motive which determines us toimport a commodity, is the discovery of its relative cheapnessabroad: it is the comparison of its price abroad with its priceat home 2. If a country exports 3 hats, and imports cloth, it doesso because it can obtain more cloth by making hats, and ex-changing them for cloth, than if it made the cloth itself. If therise of raw produce occasions any increased cost of productionin making hats, it would occasion also an increased cost inmaking cloth. If, therefore, both commodities were made at

Taxes on Raw Producech. ix 171

home, they would both rise. One, however, being a com-modity which we import, would not rise, neither would it fall,when the value of money rose; for by not falling, it wouldregain its natural relation to the exported commodity. The riseof raw produce makes a hat rise from 30 to 33 shillings, or10 per cent.: the same cause if we manufactured cloth, wouldmake it rise from 20s. to 22s. per yard. This rise does notdestroy the relation between cloth and hats; a hat was, andcontinues to be, worth one yard and a half of cloth. But ifwe import cloth, its price will continue uniformly at 20s. peryard, unaffected first by the fall, and then by the rise in thevalue of money; whilst hats, which had risen from 30s. to 33s.,will again fall from 33s. to 30s., at which point the relationbetween cloth and hats will be restored.

To simplify the consideration of this subject, I have beensupposing that a rise in the value of raw materials would affect,in an equal proportion, all home commodities; that if the effecton one were to raise it 10 per cent., it would raise all 10 percent.; but as the value of commodities is very differently madeup of raw material and labour; as some commodities, for in-stance, all those made from the metals, would be unaffectedby the rise of raw produce from the surface of the earth, it isevident that there would be the greatest variety in the effectsproduced on the value of commodities, by a tax on raw pro-duce. As far as this effect was produced, it would stimulateor retard the exportation of particular commodities, and wouldundoubtedly be attended with the same inconvenience thatattends the taxing of commodities; it would destroy the naturalrelation between the value of each. Thus the natural price ofa hat, instead of being the same as a yard and a half of cloth,might only be of the value of a yard and a quarter, or it mightbe of the value of a yard and three quarters, and thereforerather a different direction might be given to foreign trade.

172 Principles ch. ix

1 Ed. 1 does not contain ‘probably’. 2 Ed. 1 does not contain ‘,un-fettered by artificial restraints’.

All these inconveniences would probably1 not interfere withthe value of the exports and imports; they would only preventthe very best distribution of the capital of the whole world,which is never so well regulated, as when every commodityis freely allowed to settle at its natural price, unfettered byartificial restraints.2

Although then the rise in the price of most of our own com-modities, would for a time check exportation generally, andmight permanently prevent the exportation of a few commodi-ties, it could not materially interfere with foreign trade, andwould not place us under any comparative disadvantage as faras regarded competition in foreign markets.

1 In ed. 1 this chapter is numbered‘VIII*’ both here and in the Con-

tents. See above, p. 10, n.2 Above, p. 67.

chapter x

Taxes on Rent1

A tax on rent would affect rent only; it would fall whollyon landlords, and could not be shifted to any class of con-sumers. The landlord could not raise his rent, because he wouldleave unaltered the difference between the produce obtainedfrom the least productive land in cultivation, and that obtainedfrom land of every other quality. Three sorts of land, No. 1, 2,and 3, are in cultivation, and yield respectively with the samelabour, 180, 170, and 160 quarters of wheat; but No. 3 paysno rent, and is therefore untaxed: the rent then of No. 2 cannotbe made to exceed the value of ten, nor No. 1, of twentyquarters. Such a tax could not raise the price of raw produce,because as the cultivator of No. 3 pays neither rent nor tax,he would in no way be enabled to raise the price of the com-modity produced. A tax on rent would not discourage thecultivation of fresh land, for such land pays no rent, and wouldbe untaxed. If No. 4 were taken into cultivation, and yielded150 quarters, no tax would be paid for such land; but it wouldcreate a rent of ten quarters on No. 3, which would then com-mence paying the tax.

A tax on rent, as rent is constituted, would discourage culti-vation, because it would be a tax on the profits of the landlord.The term rent of land, as I have elsewhere observed,2 is appliedto the whole amount of the value paid by the farmer to hislandlord, a part only of which is strictly rent. The buildingsand fixtures, and other expenses paid for by the landlord, formstrictly a part of the stock of the farm, and must have been

174 Principles ch. x

1 Ed. 1 ‘but also for this’.2 Ed. 1 ‘was’.3 Ed. 1 ‘was’.4 Ed. 1 ‘were’.

5 Ed. 1 ‘in’.6 Ed. 1 does not contain ‘wouldbe erected,’.

furnished by the tenant, if not provided by the landlord. Rentis the sum paid to the landlord for the use of the land, and forthe use of the land only. The further sum that is paid to himunder the name of rent, is for the use of the buildings, &c.,and is really the profits of the landlord’s stock. In taxing rent,as no distinction would be made between that part paid forthe use of the land, and that paid for the use of the landlord’sstock, a portion of the tax would fall on the landlord’s profits,and would, therefore, discourage cultivation, unless the priceof raw produce rose. On that land, for the use of which norent was paid, a compensation under that name might be givento the landlord for the use of his buildings. These buildingswould not be erected, nor would raw produce be grown onsuch land, till the price at which it sold would not only payfor all the usual outgoings, but also this1 additional one of thetax. This part of the tax does not fall on the landlord, nor onthe farmer, but on the consumer of raw produce.

There can be little doubt but that if a tax were laid on rent,landlords would soon find a way to discriminate between thatwhich is2 paid to them for the use of the land, and that whichis3 paid for the use of the buildings, and the improvementswhich are4 made by the landlord’s stock. The latter wouldeither be called the rent of house and buildings, or on5 all newland taken into cultivation, such buildings would be erected,6

and improvements would be made by the tenant, and not bythe landlord. The landlord’s capital might indeed be reallyemployed for that purpose; it might be nominally expendedby the tenant, the landlord furnishing him with the means,either in the shape of a loan, or in the purchase of an annuityfor the duration of the lease. Whether distinguished or not,

Taxes on Rentch. x 175

1 Eds. 1–2 do not contain ‘, in aprogressive country,’.

2 Eds. 1–2 ‘profits’.

there is a real difference between the nature of the compensa-tions which the landlord receives for these different objects;and it is quite certain, that a tax on the real rent of land fallswholly on the landlord, but that a tax on that remunerationwhich the landlord receives for the use of his stock expendedon the farm, falls, in a progressive country,1 on the consumerof raw produce. If a tax were laid on rent, and no means ofseparating the remuneration now paid by the tenant to thelandlord under the name of rent were adopted, the tax, as faras it regarded the rent on the buildings and other fixtures,would never fall for any length of time on the landlord, buton the consumer. The capital expended on these buildings, &c.,must afford the usual profit2 of stock; but it would cease toafford this profit on the land last cultivated, if the expenses ofthose buildings, &c., did not fall on the tenant; and if theydid, the tenant would then cease to make his usual profits ofstock, unless he could charge them on the consumer.

1 Ed. 1 does not contain the remainder of this paragraph.

chapter xi

Tithes

Tithes are a tax on the gross produce of the land, and, liketaxes on raw produce, fall wholly on the consumer. They differfrom a tax on rent, inasmuch as they affect land which such atax would not reach; and raise the price of raw produce, whichthat tax would not alter. Lands of the worst quality, as wellas of the best, pay tithes, and exactly in proportion to thequantity of produce obtained from them; tithes are thereforean equal tax.

If land of the last quality, or that which pays no rent, andwhich regulates the price of corn, yield a sufficient quantityto give the farmer the usual profits of stock, when the priceof wheat is 4l. per quarter, the price must rise to 4l. 8s. beforethe same profits can be obtained after the tithes are imposed,because for every quarter of wheat the cultivator must payeight shillings to the church,1 and if he does not obtain thesame profits, there is no reason why he should not quit hisemployment, when he can get them in other trades.

The only difference between tithes and taxes on raw pro-duce, is, that one is a variable money tax, the other a fixedmoney tax. In a stationary state of society, where there isneither increased nor diminished facility of producing corn,they will be precisely the same in their effects; for, in such astate, corn will be at an invariable price, and the tax will there-fore be also invariable. In either a retrograde state, or in astate in which great improvements are made in agriculture, andwhere consequently raw produce will fall in value comparativelywith other things, tithes will be a lighter tax than a permanent

Tithesch. xi 177

1 Above, p. 157 ff.2 Ed. 1 ‘nine’ in place of ‘144’.3 Ed. 1 ‘ten’ in place of ‘160’.

4 Eds. 1–2 do not contain this orthe next note.

money tax; for if the price of corn should fall from 4l. to 3l.,the tax would fall from eight to six shillings. In a progressivestate of society, yet without any marked improvements inagriculture, the price of corn would rise, and tithes would bea heavier tax than a permanent money tax. If corn rose from4l. to 5l., the tithes on the same land would advance from eightto ten shillings.

Neither tithes nor a money tax will affect the money rentof landlords, but both will materially affect corn rents. Wehave already observed1 how a money tax operates on corn rents,and it is equally evident that a similar effect would be producedby tithes. If the lands, No. 1, 2, 3, respectively produced 180,170, and 160 quarters, the rents might be on No. 1, twentyquarters, and on No. 2, ten quarters; but they would no longerpreserve that proportion after the payment of tithes: for if atenth be taken from each, the remaining produce will be 162,153, 144, and consequently the corn rent of No. 1 will bereduced to eighteen, and that of No. 2 to nine quarters. Butthe price of corn would rise from 4l. to 4l. 8s. 10 d.; for 14422�

3

quarters are to 4l. as 1603 quarters to 4l. 8s. 10 d., and con-2�3

sequently the money rent would continue unaltered; for onNo. 1 it would be 80l.,* and on No. 2, 40l.†

The chief objection against tithes is, that they are not apermanent and fixed tax, but increase in value, in proportionas the difficulty of producing corn increases. If those diffi-culties should make the price of corn 4l., the tax is 8s., if theyshould increase it to 5l., the tax is 10s., and at 6l., it is 12s.They not only rise in value, but they increase in amount: thus,

* 18 Quarters at 4l. 8s. 10 d.42�3

† 9 Quarters at 4l. 8s. 10 d.2�3

178 Principles ch. xi

1 Eds. 1–2 ‘of the tax’.2 Ed. 1 does not contain the re-mainder of this sentence.

3 Ed. 1 does not contain ‘in bothcases’.4 Eds. 1–2 ‘portion’.

when No. 1 was cultivated, the tax was only levied on180 quarters; when No. 2 was cultivated, it was levied on180 � 170, or 350 quarters; and when No. 3 was cultivated,on 180 � 170 � 160 � 510 quarters. Not only is the amountof tax1 increased from 100,000 quarters, to 200,000 quarters,when the produce is increased from one to two millions ofquarters; but, owing to the increased labour necessary to pro-duce the second million, the relative value of raw produce isso advanced, that the 200,000 quarters may be, though onlytwice in quantity, yet in value three times that of the 100,000quarters which were paid before.

If an equal value were raised for the church by any othermeans, increasing in the same manner as tithes increase, pro-portionably with the difficulty of cultivation, the effect wouldbe the same 2, and therefore it is a mistake to suppose that,because they are raised on the land, they discourage cultiva-tion more than an equal amount would do if raised in any othermanner. The church would in both cases3 be constantly ob-taining an increased portion of the net produce of the land andlabour of the country. In an improving state of society, thenet produce of land is always diminishing in proportion to itsgross produce; but it is from the net income of a country thatall taxes are ultimately paid, either in a progressive or in astationary country. A tax increasing with the gross income,and falling on the net income, must necessarily be a very burden-some, and a very intolerable tax. Tithes are a tenth of the gross,and not of the net produce of the land, and therefore as societyimproves in wealth, they must, though the same proportionof the gross produce, become a larger and larger proportion4

of the net produce.

Tithesch. xi 179

1 Ed. 1 reads ‘taxed one tenth’ inplace of ‘taxed, in an equal degreewith corn grown at home’.

2 Eds. 1–2 ‘it’ in place of ‘cloth’.

Tithes, however, may be considered as injurious to land-lords, inasmuch as they act as a bounty on importation, bytaxing the growth of home corn, while the importation offoreign corn remains unfettered. And if, in order to relievethe landlords from the effects of the diminished demand forland, which such a bounty must encourage, imported corn werealso taxed, in an equal degree with corn grown at home,1 andthe produce paid to the State, no measure could be more fairand equitable; since whatever were paid to the State by thistax, would go to diminish the other taxes which the expensesof Government make necessary: but if such a tax were devotedonly to increase the fund paid to the church, it might indeedon the whole increase the general mass of production, but itwould diminish the portion of that mass allotted to the pro-ductive classes.

If the trade of cloth were left perfectly free, our manu-facturers might be able to sell cloth cheaper than we couldimport it. If a tax were laid on the home manufacturer, andnot on the importer of cloth, capital might be injuriouslydriven from the manufacture of cloth to the manufacture ofsome other commodity, as cloth2 might then be importedcheaper than it could be made at home. If imported clothshould also be taxed, cloth would again be manufactured athome. The consumer first bought cloth at home, because it wascheaper than foreign cloth; he then bought foreign cloth, be-cause it was cheaper untaxed than home cloth taxed: he lastlybought it again at home, because it was cheaper when bothhome and foreign cloth were taxed. It is in the last case thathe pays the greatest price for his cloth, but all his additionalpayment is gained by the state. In the second case, he pays

180 Principles ch. xi

more than in the first, but all he pays in addition is not receivedby the State, it is an increased price caused by difficulty ofproduction which is incurred, because the easiest means of pro-duction are taken away from us, by being fettered with a tax.

1 Bk. v, ch. ii; vol. 11, pp. 310–12.

chapter xii

Land-Tax

A land-tax, levied in proportion to the rent of land, andvarying with every variation of rent, is in effect a tax on rent;and as such a tax will not apply to that land which yields norent, nor to the produce of that capital which is employed onthe land with a view to profit merely, and which never paysrent, it will not in any way affect the price of raw produce,but will fall wholly on the landlords. In no respect would sucha tax differ from a tax on rent. But if a land-tax be imposed onall cultivated land, however moderate that tax may be, it willbe a tax on produce, and will therefore raise the price of pro-duce. If No. 3 be the land last cultivated, although it shouldpay no rent, it cannot, after the tax, be cultivated, and affordthe general rate of profit, unless the price of produce rise tomeet the tax. Either capital will be withheld from that em-ployment until the price of corn shall have risen, in consequenceof demand, sufficiently to afford the usual profit; or if alreadyemployed on such land, it will quit it, to seek a more advan-tageous employment. The tax cannot be removed to the land-lord, for by the supposition he receives no rent. Such a taxmay be proportioned to the quality of the land and the abun-dance of its produce, and then it differs in no respect fromtithes; or it may be a fixed tax per acre on all land cultivated,whatever its quality may be.

A land-tax of this latter description would be a very unequaltax, and would be contrary to one of the four maxims withregard to taxes in general, to which, according to Adam Smith,1

all taxes should conform. The four maxims are as follow:

182 Principles ch. xii

1. “The subjects of every state ought to contribute towardsthe support of the government, as nearly as possible inproportion to their respective abilities.

2. “The tax which each individual is bound to pay oughtto be certain and not arbitrary.

3. “Every tax ought to be levied at the time, or in themanner in which it is most likely to be convenient forthe contributor to pay it.

4. “Every tax ought to be so contrived as both to take outand to keep out of the pockets of the people as little aspossible, over and above what it brings into the publictreasury of the State.”

An equal land-tax, imposed indiscriminately and withoutany regard to the distinction of its quality, on all land cultivated,will raise the price of corn in proportion to the tax paid bythe cultivator of the land of the worst quality. Lands of dif-ferent quality, with the employment of the same capital, willyield very different quantities of raw produce. If on the landwhich yields a thousand quarters of corn with a given capital,a tax of 100l. be laid, corn will rise 2s. per quarter to compen-sate the farmer for the tax. But with the same capital on landof a better quality, 2,000 quarters may be produced, which at2s. a quarter advance, would give 200l.; the tax, however,bearing equally on both lands will be 100l. on the better aswell as on the inferior, and consequently the consumer of cornwill be taxed, not only to pay the exigencies of the State, butalso to give to the cultivator of the better land, 100l. per annumduring the period of his lease, and afterwards to raise the rentof the landlord to that amount. A tax of this description thenwould be contrary to the fourth maxim of Adam Smith, itwould take out and keep out of the pockets of the peoplemore than what it brought into the treasury of the State. The

Land-Taxch. xii 183

1 Bk. v, ch. ii; vol. 11, p. 321. 2 Ed. 1 ‘concerning’ in place of‘for’.

taille in France before the Revolution, was a tax of this de-scription; those lands only were taxed, which were held by anignoble tenure, the price of raw produce rose in proportionto the tax, and therefore they whose lands were not taxed, werebenefited by the increase of their rent. Taxes on raw produce,as well as tithes, are free from this objection: they raise theprice of raw produce, but they take from each quality of landa contribution in proportion to its actual produce, and not inproportion to the produce of that which is the least productive.

From the peculiar view which Adam Smith took of rent,from his not having observed that much capital is expendedin every country, on the land for which no rent is paid, heconcluded that all taxes on the land, whether they were laidon the land itself in the form of land-tax or tithes, or on theproduce of the land, or were taken from the profits of thefarmer, were all invariably paid by the landlord, and that hewas in all cases the real contributor, although the tax was, ingeneral, nominally advanced by the tenant. “Taxes upon theproduce of the land,” he says, “are in reality taxes upon therent; and though they may be originally advanced by thefarmer, are finally paid by the landlord. When a certain portionof the produce is to be paid away for a tax, the farmer computesas well as he can, what the value of this portion is, one yearwith another, likely to amount to, and he makes a proportion-able abatement in the rent which he agrees to pay to the land-lord. There is no farmer who does not compute beforehandwhat the church-tithe, which is a land-tax of this kind is, oneyear with another, likely to amount to.”1 It is undoubtedlytrue, that the farmer does calculate his probable outgoings ofall descriptions, when agreeing with his landlord for2 the rentof his farm; and if for the tithe paid to the church, or for the

184 Principles ch. xii

1 Eds. 1–2 do not contain ‘en-deavour to’.

2 Bk. v, ch. ii; vol. 11, p. 321.

tax on the produce of the land, he were not compensated bya rise in the relative value of the produce of his farm, he wouldnaturally endeavour to1 deduct them from his rent. But thisis precisely the question in dispute: whether he will eventuallydeduct them from his rent, or be compensated by a higher priceof produce. For the reasons which have been already given, Icannot have the least doubt but that they would raise the priceof produce, and consequently that Adam Smith has taken anincorrect view of this important question.

Dr. Smith’s view of this subject is probably the reason whyhe has described “the tithe, and every other land-tax of thiskind, under the appearance of perfect equality, as very un-equal taxes; a certain portion of the produce being, in differentsituations, equivalent to a very different portion of the rent.”2

I have endeavoured to shew that such taxes do not fall withunequal weight on the different classes of farmers or landlords,as they are both compensated by the rise of raw produce, andonly contribute to the tax in proportion as they are consumersof raw produce. Inasmuch indeed as wages, and through wages,the rate of profits are affected, landlords, instead of contributingtheir full share to such a tax, are the class peculiarly exempted.It is the profits of stock, from which that portion of the taxis derived which falls on those labourers, who, from the in-sufficiency of their funds, are incapable of paying taxes; thisportion is exclusively borne by all those whose income isderived from the employment of stock, and therefore it in nodegree affects landlords.

It is not to be inferred from this view of tithes, and taxeson the land and its produce, that they do not discouragecultivation. Every thing which raises the exchangeable valueof commodities of any kind, which are in very general demand,

Land-Taxch. xii 185

1 Eds. 1–2 do not contain ‘, and cannot therefore be employed pro-ductively’.

tends to discourage both cultivation and production; but thisis an evil inseparable from all taxation, and is not confined tothe particular taxes of which we are now speaking.

This may be considered, indeed, as the unavoidable dis-advantage attending all taxes received and expended by theState. Every new tax becomes a new charge on production,and raises natural price. A portion of the labour of the countrywhich was before at the disposal of the contributor to the tax,is placed at the disposal of the State, and cannot therefore beemployed productively.1 This portion may become so large,that sufficient surplus produce may not be left to stimulate theexertions of those who usually augment by their savings thecapital of the State. Taxation has happily never yet in anyfree country been carried so far as constantly from year toyear to diminish its capital. Such a state of taxation couldnot be long endured; or if endured, it would be constantlyabsorbing so much of the annual produce of the country as tooccasion the most extensive scene of misery, famine, and de-population.

“A land-tax,” says Adam Smith, “which, like that of GreatBritain, is assessed upon each district according to a certaininvariable canon, though it should be equal at the time of itsfirst establishment, necessarily becomes unequal in process oftime, according to the unequal degrees of improvement orneglect in the cultivation of the different parts of the country.In England the valuation according to which the differentcounties and parishes were assessed to the land-tax by the 4th,William and Mary, was very unequal, even at its first establish-ment. This tax, therefore, so far offends against the first of thefour maxims above mentioned. It is perfectly agreeable to theother three. It is perfectly certain. The time of payment for

186 Principles ch. xii

1 Bk. v, ch. ii; vol. 11, p. 313.

the tax being the same as that for the rent, is as convenientas it can be to the contributor. Though the landlord is in allcases the real contributor, the tax is commonly advanced bythe tenant, to whom the landlord is obliged to allow it in thepayment of the rent.”1

If the tax be shifted by the tenant not on the landlord buton the consumer, then if it be not unequal at first, it can neverbecome so; for the price of produce has been at once raised inproportion to the tax, and will afterwards vary no more onthat account. It may offend, if unequal, as I have attempted toshew that it will, against the fourth maxim above mentioned,but it will not offend against the first. It may take more out ofthe pockets of the people than it brings into the public treasuryof the State, but it will not fall unequally on any particular classof contributors. M. Say appears to me to have mistaken thenature and effects of the English land-tax, when he says, “Manypersons attribute to this fixed valuation, the great prosperityof English agriculture. That it has very much contributed toit there can be no doubt. But what should we say to a Govern-ment, which, addressing itself to a small trader, should holdthis language: ‘With a small capital you are carrying on alimited trade, and your direct contribution is in consequencevery small. Borrow and accumulate capital; extend your trade,so that it may procure you immense profits; yet you shall neverpay a greater contribution. Moreover, when your successorsshall inherit your profits, and shall have further increased them,they shall not be valued higher to them than they are to you;and your successors shall not bear a greater portion of thepublic burdens.’

“Without doubt this would be a great encouragement givento manufactures and trade; but would it be just? Could nottheir advancement be obtained at any other price? In England

Land-Taxch. xii 187

1 Traite d’Economie politique, 2nded., 1814, vol. 11, pp. 353–4.2 Eds. 1–2 do not contain this para-graph.3 Ed. 1 ‘Mr.’

4 In eds. 1–2 the remainder of thissentence reads ‘a partial tax, actingon the farmer’s profits, and notaffecting the profits of other em-ployments.’

itself, has not manufacturing and commercial industry madeeven greater progress, since the same period, without beingdistinguished with so much partiality? A landlord by hisassiduity, economy, and skill, increases his annual revenue by5000 francs. If the State claim of him the fifth part of hisaugmented income, will there not remain 4000 francs of increaseto stimulate his further exertions?”1

M. Say supposes, “A landlord by his assiduity, economy andskill, to increase his annual revenue by 5000 francs;” but alandlord has no means of employing his assiduity, economyand skill on his land, unless he farms it himself; and then it isin quality of capitalist and farmer that he makes the improve-ment, and not in quality of landlord. It is not conceivable thathe could so augment the produce of his farm by any peculiarskill on his part, without first increasing the quantity of capitalemployed upon it. If he increased the capital, his larger revenuemight bear the same proportion to his increased capital, as therevenue of all other farmers to their capitals.2

If M.3 Say’s suggestion were followed, and the State wereto claim the fifth part of the augmented income of the farmer,it would be4 a partial tax on farmers, acting on their profits,and not affecting the profits of those in other employments.The tax would be paid by all lands, by those which yieldedscantily as well as by those which yielded abundantly; and onsome lands there could be no compensation for it by deductionfrom rent, for no rent is paid. A partial tax on profits neverfalls on the trade on which it is laid, for the trader will eitherquit his employment, or remunerate himself for the tax. Nowthose who pay no rent could be recompensed only by a rise

188 Principles ch. xii

1 Eds. 1–2 ‘encouragement’, not in italics.

in the price of produce, and thus would M. Say’s proposedtax fall on the consumer, and not either on the landlord orfarmer.

If the proposed tax were increased in proportion to theincreased quantity, or value, of the gross produce obtained fromthe land, it would differ in nothing from tithes, and wouldequally be transferred to the consumer. Whether then it fellon the gross or on the net produce of land, it would be equallya tax on consumption, and would only affect the landlord andfarmer in the same way as other taxes on raw produce.

If no tax whatever had been laid on the land, and the samesum had been raised by any other means, agriculture wouldhave flourished at least as well as it has done; for it is impossiblethat any tax on land can be an encouragement 1 to agriculture;a moderate tax may not, and probably does not, greatly prevent,but it cannot encourage production. The English Governmenthas held no such language as M. Say has supposed. It did notpromise to exempt the agricultural class and their successorsfrom all future taxation, and to raise the further supplies whichthe State might require, from the other classes of society; itsaid only, “in this mode we will no further burthen theland; but we retain to ourselves the most perfect liberty ofmaking you pay, under some other form, your full quota tothe future exigencies of the State.”

Speaking of taxes in kind, or a tax of a certain proportionof the produce, which is precisely the same as tithes, M. Saysays, “This mode of taxation appears to be the most equitable;there is, however, none which is less so: it totally leaves outof consideration the advances made by the producer; it is pro-portioned to the gross, and not to the net revenue. Twoagriculturists cultivate different kinds of raw produce: onecultivates corn on middling land, his expenses amounting an-

Land-Taxch. xii 189

1 Traite d’Economie politique, 1814,vol. 11, pp. 349–50.

2 Eds. 1–2 do not contain this sen-tence, beginning ‘The net income’.

nually on an average to 8000 francs: the raw produce from hislands sells for 12,000 francs; he has then a net revenue of4000 francs.

“His neighbour has pasture or wood land, which brings inevery year a like sum of 12,000 francs, but his expenses amountonly to 2000 francs. He has therefore on an average a netrevenue of 10,000 francs.

“A law ordains that a twelfth of the produce of all the fruitsof the earth be levied in kind, whatever they may be. Fromthe first is taken in consequence of this law, corn of the valueof 1000 francs; and from the second, hay, cattle, or wood,of the same value of 1000 francs. What has happened? Fromthe one, a quarter of his net income, 4000 francs, has beentaken; from the other, whose income was 10,000 francs, a tenthonly has been taken. Income is the net profit which remainsafter replacing the capital exactly in its former state. Has amerchant an income equal to all the sales which he makes inthe course of a year? certainly not; his income only amountsto the excess of his sales above his advances, and it is on thisexcess only that taxes on income should fall.”1

M. Say’s error in the above passage lies in supposing thatbecause the value of the produce of one of these two farms,after reinstating the capital, is greater than the value of theproduce of the other, on that account the net income of thecultivators will differ by the same amount. The net income ofthe landlords and tenants together of the wood land, may bemuch greater than the net income of the landlords and tenantsof the corn land; but it is on account of the difference of rent,and not on account of the difference in the rate of profit.2

M. Say has wholly omitted the consideration of the differentamount of rent, which these cultivators would have to pay.

190 Principles ch. xii

1 Eds. 1–2 do not contain ‘the value of ’.

There cannot be two rates of profit in the same employment,and therefore when the value of 1 produce is in different pro-portions to capital, it is the rent which will differ, and not theprofit. Upon what pretence would one man with a capital of2000 francs, be allowed to obtain a net profit of 10,000 francsfrom its employment, whilst another, with a capital of 8000francs, would only obtain 4000 francs? Let M. Say make adue allowance for rent; let him further allow for the effectwhich such a tax would have on the prices of these differentkinds of raw produce, and he will then perceive that it is notan unequal tax, and further that the producers themselves willno otherwise contribute to it, than any other class of consumers.

1 Eds. 1–2 read ‘before the marketprice of commodities conforms totheir’.

2 Eds. 1–2 ‘and hats up to the’.3 Eds. 1–2 do not contain ‘withoutinconvenience to the producer,’.

chapter xiii

Taxes on Gold

The rise in the price of commodities, in consequence of taxa-tion or of difficulty of production, will in all cases ultimatelyensue; but the duration of the interval, before the market pricewill conform to the1 natural price, must depend on the natureof the commodity, and on the facility with which it can bereduced in quantity. If the quantity of the commodity taxedcould not be diminished, if the capital of the farmer or of thehatter for instance, could not be withdrawn to other employ-ments, it would be of no consequence that their profits werereduced below the general level by means of a tax; unless thedemand for their commodities should increase, they wouldnever be able to elevate the market price of corn and of hatsup to their2 increased natural price. Their threats to leave theiremployments, and remove their capitals to more favouredtrades, would be treated as an idle menace which could notbe carried into effect; and consequently the price would notbe raised by diminished production. Commodities, however,of all descriptions can be reduced in quantity, and capital canbe removed from trades which are less profitable to those whichare more so, but with different degrees of rapidity. In pro-portion as the supply of a particular commodity can be moreeasily reduced, without inconvenience to the producer,3 theprice of it will more quickly rise after the difficulty of its pro-duction has been increased by taxation, or by any other means.Corn being a commodity indispensably necessary to every one,

192 Principles ch. xiii

2 Eds. 1–2 read ‘from the land; theprice of corn therefore,’.

3 Eds. 1–2 ‘exclusively used’.

little effect will be produced on the demand for it in conse-quence of a tax, and therefore the supply would not probablybe1 long excessive, even if the producers had great difficultyin removing their capitals from the land. For this reason, theprice of corn2 will speedily be raised by taxation, and the farmerwill be enabled to transfer the tax from himself to the con-sumer.

If the mines which supply us with gold were in this country,and if gold were taxed, it could not rise in relative value toother things, till its quantity were reduced. This would be moreparticularly the case, if gold were used exclusively3 for money.It is true that the least productive mines, those which paid norent, could no longer be worked, as they could not afford thegeneral rate of profits till the relative value of gold rose, bya sum equal to the tax. The quantity of gold, and, therefore,the quantity of money would be slowly reduced: it would bea little diminished in one year, a little more in another, andfinally its value would be raised in proportion to the tax; butin the interval, the proprietors or holders, as they would paythe tax, would be the sufferers, and not those who used money.If out of every 1,000 quarters of wheat in the country, andevery 1000 produced in future, Government should exact 100quarters as a tax, the remaining 900 quarters would exchangefor the same quantity of other commodities that 1000 didbefore; but if the same thing took place with respect to gold,if of every 1000l. money now in the country, or in future tobe brought into it, Government could exact 100l. as a tax, theremaining 900l. would purchase very little more than 900l. pur-chased before. The tax would fall upon him, whose propertyconsisted of money, and would continue to do so till its quantity

1 Eds. 1–2 ‘could not be’.

Taxes on Goldch. xiii 193

were reduced in proportion to the increased cost of its pro-duction caused by the tax.

This, perhaps, would be more particularly the case withrespect to a metal used for money, than any other commodity;because the demand for money is not for a definite quantity,as is the demand for clothes, or for food. The demand formoney is regulated entirely by its value, and its value by itsquantity. If gold were of double the value, half the quantitywould perform the same functions in circulation, and if it wereof half the value, double the quantity would be required. If themarket value of corn be increased one tenth by taxation, orby difficulty of production, it is doubtful whether any effectwhatever would be produced on the quantity consumed, be-cause every man’s want is for a definite quantity, and, there-fore, if he has the means of purchasing, he will continue toconsume as before: but for money, the demand is exactlyproportioned to its value. No man could consume twice thequantity of corn, which is usually necessary for his support,but every man purchasing and selling only the same quantityof goods, may be obliged to employ twice, thrice, or anynumber of times the same quantity of money.

The argument which I have just been using, applies onlyto those states of society in which the precious metals are usedfor money, and where paper credit is not established. The metalgold, like all other commodities, has its value in the marketultimately regulated by the comparative facility or difficulty ofproducing it; and although from its durable nature, and fromthe difficulty of reducing its quantity, it does not readily bendto variations in its market value, yet that difficulty is muchincreased from the circumstance of its being used as money.If the quantity of gold in the market for the purpose of com-merce only, were 10,000 ounces, and the consumption in ourmanufactures were 2000 ounces annually, it might be raised

194 Principles ch. xiii

1 The remainder of this sentence ined. 1 reads ‘if it had no connexionwhatever with money’; in ed. 2 ‘if

by forming a very small part, ithad a very slight connection withmoney’.

one fourth, or 25 per cent. in its value, in one year, by with-holding the annual supply; but if in consequence of its beingused as money, the quantity employed were 100,000 ounces,it would not be raised one fourth in value in less than ten years.As money made of paper may be readily reduced in quantity,its value, though its standard were gold, would be increasedas rapidly as that of the metal itself would be increased,1 ifthe metal, by forming a very small part of the circulation, hada very slight connexion with money.

If gold were the produce of one country only, and it wereused universally for money, a very considerable tax might beimposed on it, which would not fall on any country, exceptin proportion as they used it in manufactures, and for utensils;upon that portion which was used for money, though a largetax might be received, nobody would pay it. This is a qualitypeculiar to money. All other commodities of which thereexists a limited quantity, and which cannot be increased bycompetition, are dependent for their value, on the tastes, thecaprice, and the power of purchasers; but money is a com-modity which no country has any wish or necessity to increase:no more advantage results from using twenty millions, thanfrom using ten millions of currency. A country might havea monopoly of silk, or of wine, and yet the prices of silks andwine might fall, because from caprice or fashion, or taste, clothand brandy might be preferred, and substituted; the same effectmight in a degree take place with gold, as far as its use is con-fined to manufactures: but while money is the general mediumof exchange, the demand for it is never a matter of choice, butalways of necessity: you must take it in exchange for yourgoods, and, therefore, there are no limits to the quantity which

Taxes on Goldch. xiii 195

1 Ed. 1 does not contain ‘, for thatis regulated by the value of the

standard for which it is exchange-able’.

may be forced on you by foreign trade, if it fall in value; andno reduction to which you must not submit, if it rise. Youmay, indeed, substitute paper money, but by this you do not,and cannot lessen the quantity of money, for that is regulatedby the value of the standard for which it is exchangeable1;it is only by the rise of the price of commodities, that you canprevent them from being exported from a country where theyare purchased with little money, to a country where they canbe sold for more, and this rise can only be effected by animportation of metallic money from abroad, or by the creationor addition of paper money at home. If then the King ofSpain, supposing him to be in exclusive possession of the mines,and gold alone to be used for money, were to lay a considerabletax on gold, he would very much raise its natural value; andas its market value in Europe is ultimately regulated by itsnatural value in Spanish America, more commodities would begiven by Europe for a given quantity of gold. But the samequantity of gold would not be produced in America, as itsvalue would only be increased in proportion to the diminutionof quantity consequent on its increased cost of production.No more goods then would be obtained in America, in ex-change for all their gold exported, than before; and it may beasked, where then would be the benefit to Spain and herColonies? The benefit would be this, that if less gold wereproduced, less capital would be employed in producing it; thesame value of goods from Europe would be imported by theemployment of the smaller capital, that was before obtainedby the employment of the larger; and, therefore, all the pro-ductions obtained by the employment of the capital withdrawnfrom the mines, would be a benefit which Spain would derivefrom the imposition of the tax, and which she could not obtain

196 Principles ch. xiii

1 Ed. 1 reads simply ‘a less quantity of money.’

in such abundance, or with such certainty, by possessing themonopoly of any other commodity whatever. From such atax, as far as money was concerned, the nations of Europewould suffer no injury whatever; they would have the samequantity of goods, and consequently the same means of enjoy-ment as before, but these goods would be circulated with aless quantity, because a more valuable money.1

If in consequence of the tax, only one tenth of the presentquantity of gold were obtained from the mines, that tenthwould be of equal value with the ten tenths now produced.But the King of Spain is not exclusively in possession of themines of the precious metals; and if he were, his advantagefrom their possession, and the power of taxation, would bevery much reduced by the limitation of demand and consump-tion in Europe, in consequence of the universal substitution,in a greater or less degree, of paper money. The agreementof the market and natural prices of all commodities, dependsat all times on the facility with which the supply can be in-creased or diminished. In the case of gold, houses, and labour,as well as many other things, this effect cannot, under somecircumstances, be speedily produced. But it is different withthose commodities which are consumed and reproduced fromyear to year, such as hats, shoes, corn, and cloth; they maybe reduced, if necessary, and the interval cannot be long beforethe supply is contracted in proportion to the increased chargeof producing them.

A tax on raw produce from the surface of the earth, will,as we have seen, fall on the consumer, and will in no wayaffect rent; unless, by diminishing the funds for the main-tenance of labour, it lowers wages, reduces the population, anddiminishes the demand for corn. But a tax on the produceof gold mines must, by enhancing the value of that metal,

Taxes on Goldch. xiii 197

1 i.e. ‘the capitalist of the mine’mentioned two lines below; cp.‘deprive the worker of the mine

of the common profits of stock’,below, p. 199.2 Eds. 1–2 ‘must be as great asseventy were before’.

necessarily reduce the demand for it, and must therefore neces-sarily displace capital from the employment to which it wasapplied. Notwithstanding then, that Spain would derive allthe benefits which I have stated from a tax on gold, the pro-prietors of those mines from which capital was withdrawnwould lose all their rent. This would be a loss to individuals,but not a national loss; rent being not a creation, but merelya transfer of wealth: the King of Spain, and the proprietorsof the mines which continued to be worked, would togetherreceive not only all that the liberated capital produced, but allthat the other proprietors lost.

Suppose the mines of the 1st, 2nd, and 3rd quality to beworked, and to produce respectively 100, 80, and 70 poundsweight of gold, and therefore the rent of No. 1 to be thirtypounds, and that of No. 2 ten pounds. Suppose now the taxto be seventy pounds of gold per annum on each mine worked;and consequently that No. 1 alone could be profitably worked;it is evident that all rent would immediately disappear. Beforethe imposition of the tax, out of the 100 pounds producedon No. 1, a rent was paid of thirty pounds, and the worker ofthe mine1 retained seventy, a sum equal to the produce of theleast productive mine. The value, then, of what remains to thecapitalist of the mine No. 1, must be the same as before, orhe would not obtain the common profits of stock; and, con-sequently, after paying seventy out of his 100 pounds for tax,the value of the remaining thirty must be as great as the valueof seventy was before 2, and therefore the value of the wholehundred as great as 233 pounds before. Its value might behigher, but it could not be lower, or even this mine wouldcease to be worked. Being a monopolised commodity, it could

198 Principles ch. xiii

1 Ed. 1 reads ‘the value of 140pounds of gold, or’.2 Eds. 1–2 ‘king’, here and fourlines below.

3 Ed. 1 does not contain ‘increasedalso in value as 1 to 2 , and there-1�

2

fore’.

exceed its natural value, and then it would pay a rent equalto that excess; but no funds would be employed in the mine,if it were below this value. In return for one third of the labourand capital employed in the mines, Spain would obtain as muchgold as would exchange for the same, or very nearly the samequantity of commodities as before. She would be richer bythe produce of the two thirds liberated from the mines. If thevalue of the 100 pounds of gold should be equal to that ofthe 250 pounds extracted before; the King of Spain’s portion,his seventy pounds, would be equal to 175 at the former value:a small part of the King’s tax only would fall on his own sub-jects, the greater part being obtained by the better distributionof capital.

The account of Spain would stand thus:

Formerly produced:

Gold 250 pounds, of the value of (suppose) � 10,000 yards of cloth.

Now produced:

By the two capitalists who quitted the mines, thesame value as 140 pounds of gold formerlyexchanged for; equal to1 . . . . . .

� 5,600 yards ofcloth.

By the capitalist who works the mine, No. 1,thirty pounds of gold, increased in value, as1 to 2 , and therefore now of the value of . .1�

2� 3,000 yards of

cloth.Tax to the King 2 seventy pounds, increased also

in value as 1 to 2 , and therefore 3 now of the1�2

value of . . . . . . . . . . . .� 7,000 yards of

cloth.15,600

Of the 7000 received by the King, the people of Spain would

Taxes on Goldch. xiii 199

1 Ed. 1 does not contain ‘im-mediately’.2 Ed. 1 does not contain ‘indeed,’.

3 In ed. 1 this and the followingparagraph are not separated.

contribute only 1400, and 5600 would be pure gain, effectedby the liberated capital.

If the tax, instead of being a fixed sum per mine worked,were a certain portion of its produce, the quantity would notbe immediately1 reduced in consequence. If a half, a fourth,or a third of each mine were taken for the tax, it would never-theless be the interest of the proprietors to make their minesyield as abundantly as before; but if the quantity were notreduced, but only a part of it transferred from the proprietorto the king, its value would not rise; the tax would fall on thepeople of the colonies, and no advantage would be gained.A tax of this kind would have the effect that Adam Smithsupposes taxes on raw produce would have on the rent ofland—it would fall entirely on the rent of the mine. If pusheda little further, indeed,2 the tax would not only absorb thewhole rent, but would deprive the worker of the mine of thecommon profits of stock, and he would consequently with-draw his capital from the production of gold. If still furtherextended, the rent of still better mines would be absorbed, andcapital would be further withdrawn; and thus the quantitywould be continually reduced, and its value raised, and thesame effects would take place as we have already pointed out;a part of the tax would be paid by the people of the Spanishcolonies, and the other part would be a new creation of pro-duce, by increasing the power of the instrument used as amedium of exchange.3

Taxes on gold are of two kinds, one on the actual quantityof gold in circulation, the other on the quantity that is annuallyproduced from the mines. Both have a tendency to reduce thequantity, and to raise the value of gold; but by neither will

200 Principles ch. xiii

1 Ed. 1 reads ‘they’ in place of ‘that part which will permanently fallon the community,’.

its value be raised till the quantity is reduced, and thereforesuch taxes will fall for a time, until the supply is diminished,on the proprietors of money, but ultimately that part whichwill permanently fall on the community,1 will be paid by theowner of the mine in the reduction of rent, and by the pur-chasers of that portion of gold, which is used as a commoditycontributing to the enjoyments of mankind, and not set apartexclusively for a circulating medium.

1 Ed. 3 inserts here ‘that’ (perhaps a misprint for ‘then’); it is notcontained in eds. 1–2.

chapter xiv

Taxes on Houses

There are also other commodities besides gold which cannotbe speedily reduced in quantity; any tax on which will thereforefall on the proprietor, if the increase of price should lessen thedemand.

Taxes on houses are of this description; though laid on theoccupier, they will frequently fall by a diminution of rent onthe landlord. The produce of the land is consumed and re-produced from year to year, and so are many other commodities;as they may therefore be speedily brought to a level with thedemand, they cannot long exceed their natural price. But as atax on houses may be considered in the light of an additionalrent paid by the tenant, its tendency will be to diminish thedemand for houses of the same annual rent, without diminishingtheir supply. Rent will therefore fall, and a part of the tax1

will be paid indirectly by the landlord.“The rent of a house,” says Adam Smith, “may be dis-

tinguished into two parts, of which the one may very properlybe called the building rent, the other is commonly called theground rent. The building rent is the interest or profit of thecapital expended in building the house. In order to put thetrade of a builder upon a level with other trades, it is necessarythat this rent should be sufficient first to pay the same interestwhich he would have got for his capital, if he had lent it upongood security; and, secondly, to keep the house in constantrepair, or what comes to the same thing, to replace within acertain term of years the capital which had been employed in

202 Principles ch. xiv

1 Ricardo here omits a sentenceof Adam Smith; the followingsentence is inaccurately quoted.

2 Bk. v, ch. ii, pt. ii, art. i; vol. ii,pp. 324–5.

building it.” “If in proportion to the interest of money, thetrade of the builder affords at any time a much greater profitthan this, it will soon draw so much capital from other trades,as will reduce the profit to its proper level. If it affords atany time much less than this, other trades will soon draw somuch capital from it as will again raise that profit. Whateverpart of the whole rent of a house is over and above what issufficient for affording this reasonable profit, naturally goes tothe ground rent; and where the owner of the ground, and theowner of the building, are two different persons, it is in mostcases completely paid to the former.1 In country houses, at adistance from any great town, where there is a plentiful choiceof ground, the ground rent is scarcely any thing, or no morethan what the space upon which the house stands, would payemployed in agriculture. In country villas, in the neighbour-hood of some great town, it is sometimes a good deal higher,and the peculiar conveniency, or beauty of situation, is therefrequently very highly paid for. Ground rents are generallyhighest in the capital, and in those particular parts of it, wherethere happens to be the greatest demand for houses, whateverbe the reason for that demand, whether for trade and business,for pleasure and society, or for mere vanity and fashion.”2

A tax on the rent of houses may either fall on the occupier,on the ground landlord, or on the building landlord. Inordinary cases it may be presumed, that the whole tax wouldbe paid both immediately and finally by the occupier.

If the tax be moderate, and the circumstances of the countrysuch, that it is either stationary or advancing, there would belittle motive for the occupier of a house to content himselfwith one of a worse description. But if the tax be high, or any

Taxes on Housesch. xiv 203

1 Cannan’s ed., vol ii, p. 326.

other circumstances should diminish the demand for houses,the landlord’s income would fall, for the occupier would bepartly compensated for the tax by a diminution of rent. It is,however, difficult to say, in what proportions that part of thetax, which was saved by the occupier by a fall of rent, wouldfall on the building rent and the ground rent. It is probablethat, in the first instance, both would be affected; but as housesare, though slowly, yet certainly perishable, and as no morewould be built, till the profits of the builder were restored tothe general level, building rent would, after an interval, berestored to its natural price. As the builder receives rent onlywhilst the building endures, he could pay no part of the tax,under the most disastrous circumstances, for any longerperiod.

The payment of this tax, then, would ultimately fall on theoccupier and ground landlord, but, “in what proportion, thisfinal payment would be divided between them,” says AdamSmith, “it is not perhaps very easy to ascertain. The divisionwould probably be very different in different circumstances,and a tax of this kind might, according to those differentcircumstances, affect very unequally both the inhabitant of thehouse, and the owner of the ground.”*

Adam Smith considers ground rents as peculiarly fit subjectsfor taxation. “Both ground rents, and the ordinary rent ofland,” he says, “are a species of revenue, which the owner inmany cases enjoys, without any care or attention of his own.Though a part of this revenue should be taken from him, inorder to defray the expenses of the State, no discouragementwill thereby be given to any sort of industry. The annualproduce of the land and labour of the society, the real wealthand revenue of the great body of the people, might be the same

* Book v. chap. ii.1

204 Principles ch. xiv

1 Bk. v, ch. ii; vol. ii, p. 328. 2 Ed. 1 does not contain ‘or houses’.

after such a tax as before. Ground rents, and the ordinary rentof land are, therefore, perhaps, the species of revenue, whichcan best bear to have a peculiar tax imposed upon them.”1

It must be admitted that the effects of these taxes would be suchas Adam Smith has described; but it would surely be veryunjust, to tax exclusively the revenue of any particular classof a community. The burdens of the State should be borne byall in proportion to their means: this is one of the four maximsmentioned by Adam Smith, which should govern all taxation.Rent often belongs to those who, after many years of toil, haverealised their gains, and expended their fortunes in the purchaseof land or houses2; and it certainly would be an infringementof that principle which should ever be held sacred, the securityof property, to subject it to unequal taxation. It is to belamented, that the duty by stamps, with which the transfer oflanded property is loaded, materially impedes the conveyanceof it into those hands, where it would probably be made mostproductive. And if it be considered, that land, regarded as afit subject for exclusive taxation, would not only be reduced inprice, to compensate for the risk of that taxation, but in pro-portion to the indefinite nature and uncertain value of the risk,would become a fit subject for speculations, partaking moreof the nature of gambling, than of sober trade, it will appearprobable, that the hands into which land would in that casebe most apt to fall, would be the hands of those, who possessmore of the qualities of the gambler, than of the qualities ofthe sober-minded proprietor, who is likely to employ his landto the greatest advantage.

1 Above, p. 159.

chapter xv

Taxes on Profits

Taxes on those commodities, which are generally denominatedluxuries, fall on those only who make use of them. A tax onwine is paid by the consumer of wine. A tax on pleasure horses,or on coaches, is paid by those who provide for themselvessuch enjoyments, and in exact proportion as they provide them.But taxes on necessaries do not affect the consumers of neces-saries, in proportion to the quantity that may be consumed bythem, but often in a much higher proportion. A tax on corn,we have observed,1 not only affects a manufacturer in the pro-portion that he and his family may consume corn, but it altersthe rate of profits of stock, and therefore also affects his income.Whatever raises the wages of labour, lowers the profits ofstock; therefore every tax on any commodity consumed by thelabourer, has a tendency to lower the rate of profits.

A tax on hats will raise the price of hats; a tax on shoes, theprice of shoes; if this were not the case, the tax would be finallypaid by the manufacturer; his profits would be reduced belowthe general level, and he would quit his trade. A partial taxon profits will raise the price of the commodity on which itfalls: a tax, for example, on the profits of the hatter, wouldraise the price of hats; for if his profits were taxed, and notthose of any other trade, his profits, unless he raised the priceof his hats, would be below the general rate of profits, and hewould quit his employment for another.

In the same manner, a tax on the profits of the farmer wouldraise the price of corn; a tax on the profits of the clothier, theprice of cloth; and if a tax in proportion to profits were laidon all trades, every commodity would be raised in price. But

206 Principles ch. xv

1 Eds. 1–2 ‘gain’.2 ‘every thing else is taxed’ is to be

assumed, as in the preceding para-graph.

if the mine, which supplied us with the standard of our money,were in this country, and the profits of the miner were alsotaxed, the price of no commodity would rise, each man wouldgive an equal proportion of his income, and every thing wouldbe as before.

If money be not taxed, and therefore be permitted to preserveits value, whilst every thing else is taxed, and is raised in value,the hatter, the farmer, and clothier, each employing the samecapitals, and obtaining the same profits, will pay the sameamount of tax. If the tax be 100l., the hats, the cloth, and thecorn, will each be increased in value 100l. If the hatter gains1

by his hats 1100l., instead of 1000l., he will pay 100l. to Govern-ment for the tax; and therefore will still have 1000l. to lay outon goods for his own consumption. But as the cloth, corn, andall other commodities, will be raised in price from the samecause, he will not obtain more for his 1000l. than he beforeobtained for 910l., and thus will he contribute by his diminishedexpenditure to the exigencies of the State; he will, by the pay-ment of the tax, have placed a portion of the produce of theland and labour of the country at the disposal of Government,instead of using that portion himself. If instead of expendinghis 1000l., he adds it to his capital, he will find in the rise ofwages, and in the increased cost of the raw material andmachinery, that his saving of 1000l. does not amount to morethan a saving of 910l. amounted to before.

If money be taxed,2 or if by any other cause its value bealtered, and all commodities remain precisely at the same priceas before, the profits of the manufacturer and farmer will alsobe the same as before, they will continue to be 1000l.; and asthey will each have to pay 100l. to Government, they willretain only 900l., which will give them a less command over

Taxes on Profitsch. xv 207

1 Ed. 1 does not contain ‘, for theprice of goods would remain un-

altered, and he would have only900l. to expend’.2 Above, pp. 30–38 and 52–3.

the produce of the land and labour of the country, whetherthey expend it in productive or unproductive labour. Preciselywhat they lose, Government will gain. In the first case thecontributor to the tax would, for 1000l., have as great a quantityof goods as he before had for 910l.; in the second, he wouldhave only as much as he before had for 900l., for the price ofgoods would remain unaltered, and he would have only 900l.to expend.1 This proceeds from the difference in the amountof the tax; in the first case it is only an eleventh of his income,in the second it is a tenth; money in the two cases being ofa different value.

But although, if money be not taxed, and do not alter invalue, all commodities will rise in price, they will not rise inthe same proportion; they will not after the tax bear the samerelative value to each other which they did before the tax. In aformer part of this work,2 we discussed the effects of thedivision of capital into fixed and circulating, or rather intodurable and perishable capital, on the prices of commodities.We shewed that two manufacturers might employ precisely thesame amount of capital, and might derive from it precisely thesame amount of profits, but that they would sell their com-modities for very different sums of money, according as thecapitals they employed were rapidly, or slowly, consumed andreproduced. The one might sell his goods for 4000l., the otherfor 10,000l., and they might both employ 10,000l. of capital,and obtain 20 per cent. profit or 2000l. The capital of one mightconsist, for example, of 2000l. circulating capital, to be repro-duced, and 8000l. fixed, in buildings and machinery; the capitalof the other, on the contrary, might consist of 8000l. of cir-culating, and of only 2000l. fixed capital in machinery and

208 Principles ch. xv

1 Ed. 1 ‘This is true’.

buildings. Now, if each of these persons were to be taxed tenper cent. on his income, or 200l., the one, to make his businessyield him the general rate of profit, must raise his goods from10,000l. to 10,200l.; the other would also be obliged to raisethe price of his goods from 4000l. to 4200l. Before the tax,the goods sold by one of these manufacturers were 2 times1�

2

more valuable than the goods of the other; after the tax theywill be 2.42 times more valuable: the one kind will have risentwo per cent.; the other five per cent.: consequently a tax uponincome, whilst money continued unaltered in value, would alterthe relative prices and value of commodities. This would betrue also,1 if the tax instead of being laid on the profits, werelaid on the commodities themselves: provided they were taxedin proportion to the value of the capital employed on theirproduction, they would rise equally, whatever might be theirvalue, and therefore they would not preserve the same pro-portion as before. A commodity, which rose from ten toeleven thousand pounds, would not bear the same relation asbefore, to another which rose from 2 to 3000l. If under thesecircumstances, money rose in value, from whatever cause itmight proceed, it would not affect the prices of commoditiesin the same proportion. The same cause which would lowerthe price of one from 10,200l. to 10,000l. or less than two percent. would lower the price of the other from 4200l. to 4000l.or 4 per cent. If they fell in any different proportion, profits3�

4

would not be equal; for to make them equal, when the priceof the first commodity was 10,000l., the price of the secondshould be 4000l.; and when the price of the first was 10,200l.,the price of the other should be 4200l.

The consideration of this fact will lead to the understandingof a very important principle, which, I believe, has never beenadverted to. It is this; that in a country where no taxation

Taxes on Profitsch. xv 209

1 Misprinted ‘as’ in ed. 3.

subsists, the alteration in the value of money arising fromscarcity or abundance will operate in an equal proportion onthe prices of all commodities; that if a commodity of 1000l.value rise to 1200l., or fall to 800l., a commodity of 10,000l.value will rise to 12,000l. or fall to 8000l.; but in a countrywhere prices are artificially raised by taxation, the abundanceof money from an influx, or the exportation and consequentscarcity of it from foreign demand, will not operate in the sameproportion on the prices of all commodities; some it will raiseor lower 5, 6, or 12 per cent., others 3, 4, or 7 per cent. If acountry were not taxed, and money should fall in value, itsabundance in every market would produce similar effects ineach. If meat rose 20 per cent., bread, beer, shoes, labour, andevery commodity, would also rise 20 per cent.; it is necessarythey should do so, to secure to each trade the same rate ofprofits. But this is no longer true when any of these com-modities is taxed; if in that case they should all rise in pro-portion to the fall in the value of money, profits would berendered unequal; in the case of the commodities taxed, profitswould be raised above the general level, and capital would beremoved from one employment to another, till an equilibriumof profits was restored, which could only be, after the relativeprices were altered.

Will not this principle account for the different effects, whichit was remarked were produced on the prices of commodities,from the altered value of money during the Bank-restriction?It was objected to those who contended that the currency wasat1 that period depreciated, from the too great abundance of thepaper circulation, that, if that were the fact, all commoditiesought to have risen in the same proportion; but it was foundthat many had varied considerably more than others, and thenceit was inferred that the rise of prices was owing to something

210 Principles ch. xv

1 This subject is further discussed in a letter to Trower of 28 Jan.1820, below, VIII, 153 ff.

affecting the value of commodities, and not to any alterationin the value of the currency. It appears, however, as we havejust seen, that in a country where commodities are taxed, theywill not all vary in price in the same proportion, either inconsequence of a rise or of a fall in the value of currency.1

If the profits of all trades were taxed, excepting the profitsof the farmer, all goods would rise in money value, exceptingraw produce. The farmer would have the same corn income asbefore, and would sell his corn also for the same money price;but as he would be obliged to pay an additional price for allthe commodities, except corn, which he consumed, it wouldbe to him a tax on expenditure. Nor would he be relievedfrom this tax by an alteration in the value of money, for analteration in the value of money might sink all the taxed com-modities to their former price, but the untaxed one would sinkbelow its former level; and, therefore, though the farmer wouldpurchase his commodities at the same price as before, he wouldhave less money with which to purchase them.

The landlord, too, would be precisely in the same situation,he would have the same corn, and the same money-rent asbefore, if all commodities rose in price, and money remainedat the same value; and he would have the same corn, but a lessmoney-rent, if all commodities remained at the same price: sothat in either case, though his income were not directly taxed,he would indirectly contribute towards the money raised.

But suppose the profits of the farmer to be also taxed, hethen would be in the same situation as other traders: his rawproduce would rise, so that he would have the same moneyrevenue, after paying the tax, but he would pay an additional pricefor all the commodities he consumed, raw produce included.

His landlord, however, would be differently situated, he

Taxes on Profitsch. xv 211

1 Eds. 1–2 ‘would have been’.2 Eds. 1–2 ‘but if corn rose tenper cent., or to 4l. 8s., rent would

also rise ten per cent., for twentyquarters of corn would then beworth 88l., and ten quarters 44l.’

would be benefited by the tax on his tenant’s profits, as hewould be compensated for the additional price at which hewould purchase his manufactured commodities, if they rose inprice; and he would have the same money revenue, if in con-sequence of a rise in the value of money, commodities soldat their former price. A tax on the profits of the farmer, isnot a tax proportioned to the gross produce of the land, butto its net produce, after the payment of rent, wages, and allother charges. As the cultivators of the different kinds of land,No. 1, 2 and 3, employ precisely the same capitals, they willget precisely the same profits, whatever may be the quantityof gross produce, which one may obtain more than the other;and consequently they will be all taxed alike. Suppose thegross produce of the land of the quality No. 1 to be 180 qrs.,that of No. 2, 170 qrs., and of No. 3, 160, and each to be taxed10 quarters, the difference between the produce of No. 1, No. 2and No. 3, after paying the tax, will be the same as before;for if No. 1 be reduced to 170, No. 2 to 160, and No. 3 to150 qrs.; the difference between 3 and 1 will be as before,20 qrs.; and of No. 3 and No. 2, 10 qrs. If, after the tax, theprices of corn and of every other commodity should remainthe same as before, money rent as well as corn rent, wouldcontinue unaltered; but if the price of corn, and every othercommodity should rise in consequence of the tax, money rentwill also rise in the same proportion. If the price of corn were4l. per quarter, the rent of No. 1 would be1 80l., and that ofNo. 2, 40l.; but if corn rose five per cent., or to 4l. 4s., rentwould also rise five per cent., for twenty quarters of corn wouldthen be worth 84l., and ten quarters 42l.; 2 so that in everycase the landlord will be unaffected by such a tax. A tax on

212 Principles ch. xv

1 Above, p. 182.2 In eds. 1–2 not in italics.

the profits of stock always leaves corn rent unaltered, and there-fore money rent varies with the price of corn; but a tax onraw produce, or tithes, never leaves corn rent unaltered, butgenerally leaves money rent the same as before. In anotherpart of this work1 I have observed, that if a land-tax of the samemoney amount, were laid on every kind of land in cultivation,without any allowance for difference of fertility, it would bevery unequal in its operation, as it would be a profit to thelandlord of the more fertile lands. It would raise the price ofcorn in proportion to the burden borne by the farmer of theworst land; but this additional price being obtained for thegreater quantity of produce yielded by the better land, farmersof such land would be benefited during their leases, and after-wards, the advantage would go to the landlord in the form ofan increase of rent. The effect of an equal tax on the profits 2 ofthe farmer is precisely the same; it raises the money rent ofthe landlords, if money retains the same value; but as theprofits of all other trades are taxed as well as those of thefarmer, and consequently the prices of all goods, as well ascorn, are raised, the landlord loses as much by the increasedmoney price of the goods and corn on which his rent is ex-pended, as he gains by the rise of his rent. If money shouldrise in value, and all things should, after a tax on the profitsof stock, fall to their former prices, rent also would be thesame as before. The landlord would receive the same moneyrent, and would obtain all the commodities on which it wasexpended at their former price; so that under all circumstanceshe would continue untaxed.*

* That the profits of the farmer only should be taxed, and not the profitsof any other capitalist, would be highly beneficial to landlords. It would,in fact, be a tax on the consumers of raw produce, partly for the benefitof the State, and partly for the benefit of landlords.3

3 Eds. 1–2 do not contain this note.

Taxes on Profitsch. xv 213

1 Ed. 1 does not contain this para-graph.2 Eds. 1–2 ‘of stock’.3 Eds. 1–2 do not contain ‘, al-

though his dividends continueduntaxed’.4 Ed. 1 reads ‘were in the countrytaxed.’

This circumstance is curious. By taxing the profits of thefarmer you do not burthen him more than if you exemptedhis profits from the tax, and the landlord has a decided interestthat his tenants’ profits should be taxed, as it is only on thatcondition that he himself continues really untaxed.1

A tax on the profits of capital2 would also affect the stock-holder, if all commodities were to rise in proportion to the tax,although his dividends continued untaxed3; but if, from thealteration in the value of money, all commodities were to sinkto their former price, the stock-holder would pay nothingtowards the tax; he would purchase all his commodities at thesame price, but would still receive the same money dividend.

If it be agreed, that by taxing the profits of one manu-facturer only, the price of his goods would rise, to put himon an equality with all other manufacturers; and that by taxingthe profits of two manufacturers, the prices of two descriptionsof goods must rise, I do not see how it can be disputed, thatby taxing the profits of all manufacturers, the prices of all goodswould rise, provided the mine which supplied us with money,were in this country, and continued untaxed.4 But as money,or the standard of money, is a commodity imported fromabroad, the prices of all goods could not rise; for such an effectcould not take place without an additional quantity of money,*

* On further consideration, I doubt whether any more money wouldbe required to circulate the same quantity of commodities, if their pricesbe raised by taxation, and not by difficulty of production. Suppose100,000 quarters of corn to be sold in a certain district, and in a certaintime, at 4l. per quarter, and that in consequence of a direct tax of 8s.per quarter, corn rises to 4l. 8s., the same quantity of money, I think,and no more, would be required to circulate this corn at the increasedprice. If I before purchased 11 quarters at 4l., and in consequence of thetax am obliged to reduce my consumption to 10 quarters, I shall not

214 Principles ch. xv

1 Eds. 1–2 do not contain this note.Cp. above, p. 169, n. On Ricardo’schange of view on this subject, see

‘A Note on Prices and Taxation’,below, IV, 319 ff.

which could not be obtained in exchange for dear goods, aswas shewn in page 104. If, however, such a rise could takeplace, it could not be permanent, for it would have a powerfulinfluence on foreign trade. In return for commodities im-ported, those dear goods could not be exported, and thereforewe should for a time continue to buy, although we ceased tosell; and should export money, or bullion, till the relative pricesof commodities were nearly the same as before. It appears tome absolutely certain, that a well regulated tax on profits, wouldultimately restore commodities both of home and foreign manu-facture, to the same money price which they bore before thetax was imposed.

As taxes on raw produce, tithes, taxes on wages, and on thenecessaries of the labourer, will, by raising wages, lower profits,they will all, though not in an equal degree, be attended withthe same effects.

The discovery of machinery, which materially improveshome manufactures, always tends to raise the relative value ofmoney, and therefore to encourage its importation. All taxa-tion, all increased impediments, either to the manufacturer, orthe grower of commodities, tend, on the contrary, to lowerthe relative value of money, and therefore to encourage itsexportation.

require more money, for in all cases I shall pay 44l. for my corn. Thepublic would, in fact, consume one-eleventh less, and this quantity wouldbe consumed by Government. The money necessary to purchase it, wouldbe derived from the 8s. per quarter, to be received from the farmers inthe shape of a tax, but the amount levied would at the same time be paidto them for their corn; therefore the tax is in fact a tax in kind, and doesnot make it necessary that any more money should be used, or, if any,so little, that the quantity may be safely neglected.1

chapter xvi

Taxes on Wages

Taxes on wages will raise wages, and therefore will diminishthe rate of the profits of stock. We have already seen that a taxon necessaries will raise their prices, and will be followed bya rise of wages. The only difference between a tax on neces-saries, and a tax on wages is, that the former will necessarilybe accompanied by a rise in the price of necessaries, but thelatter will not; towards a tax on wages, consequently, neitherthe stock-holder, the landlord, nor any other class but theemployers of labour will contribute. A tax on wages is whollya tax on profits, a tax on necessaries is partly a tax on profits,and partly a tax on rich consumers. The ultimate effects whichwill result from such taxes then, are precisely the same as thosewhich result from a direct tax on profits.

“The wages of the inferior classes of workmen,” says AdamSmith, “I have endeavoured to shew in the first book, are everywhere necessarily regulated by two different circumstances; thedemand for labour, and the ordinary or average price of pro-visions. The demand for labour, according as it happens to beeither increasing, stationary, or declining, or to require an in-creasing, stationary, or declining population, regulates the sub-sistence of the labourer, and determines in what degree it shallbe either liberal, moderate, or scanty. The ordinary or averageprice of provisions determines the quantity of money whichmust be paid to the workman, in order to enable him, one yearwith another, to purchase this liberal, moderate, or scanty sub-sistence. While the demand for labour, and the price of pro-visions, therefore, remain the same, a direct tax upon the wages

216 Principles ch. xvi

1 Bk. v. ch. ii, pt. ii, art. iii; vol. ii,p. 348. Ricardo’s italics.2 Buchanan’s ed. of the Wealth of

Nations, vol. iv, Observations.Ricardo’s italics.

of labour can have no other effect than to raise them somewhathigher than the tax.”1

To the proposition, as it is here advanced by Dr. Smith,Mr. Buchanan offers two objections. First, he denies that themoney wages of labour are regulated by the price of provisions;and secondly, he denies that a tax on the wages of labour wouldraise the price of labour. On the first point, Mr. Buchanan’sargument is as follows, page 592: “The wages of labour, it hasalready been remarked, consist not in money, but in whatmoney purchases, namely, provisions and other necessaries;and the allowance of the labourer out of the common stock,will always be in proportion to the supply. Where provisionsare cheap and abundant, his share will be the larger; and wherethey are scarce and dear, it will be the less. His wages willalways give him his just share, and they cannot give him more.It is an opinion, indeed, adopted by Dr. Smith and most otherwriters, that the money price of labour is regulated by themoney price of provisions, and that when provisions rise inprice, wages rise in proportion. But it is clear that the priceof labour has no necessary connexion with the price of food,since it depends entirely on the supply of labourers comparedwith the demand. Besides, it is to be observed, that the highprice of provisions is a certain indication of a deficient supply,and arises in the natural course of things, for the purpose ofretarding the consumption. A smaller supply of food, sharedamong the same number of consumers, will evidently leave asmaller portion to each, and the labourer must bear his shareof the common want. To distribute this burden equally, andto prevent the labourer from consuming subsistence so freelyas before, the price rises. But wages it seems must rise along

Taxes on Wagesch. xvi 217

1 Ed. 1 ‘of a deficient’.

with it, that he may still use the same quantity of a scarcercommodity; and thus nature is represented as counteracting herown purposes: first, raising the price of food, to diminish theconsumption, and afterwards, raising wages to give the labourerthe same supply as before.”

In this argument of Mr. Buchanan, there appears to me tobe a great mixture of truth and error. Because a high priceof provisions is sometimes occasioned by a deficient supply,Mr. Buchanan assumes it as a certain indication of deficient1

supply. He attributes to one cause exclusively, that which mayarise from many. It is undoubtedly true, that in the case of adeficient supply, a smaller quantity will be shared among thesame number of consumers, and a smaller portion will fall toeach. To distribute this privation equally, and to prevent thelabourer from consuming subsistence so freely as before, theprice rises. It must, therefore, be conceded to Mr. Buchanan,that any rise in the price of provisions, occasioned by a deficientsupply, will not necessarily raise the money wages of labour,as the consumption must be retarded; which can only beeffected by diminishing the power of the consumers to pur-chase. But, because the price of provisions is raised by adeficient supply, we are by no means warranted in concluding,as Mr. Buchanan appears to do, that there may not be anabundant supply, with a high price; not a high price withregard to money only, but with regard to all other things.

The natural price of commodities, which always ultimatelygoverns their market price, depends on the facility of produc-tion; but the quantity produced is not in proportion to thatfacility. Although the lands, which are now taken into cultiva-tion, are much inferior to the lands in cultivation three centuriesago, and, therefore, the difficulty of production is increased,who can entertain any doubt, but that the quantity produced

218 Principles ch. xvi

1 Buchanan’s ed. of the Wealth ofNations, vol. iii, p. 338, note.

2 Ed. 3 has ‘Work on Popula-tion’.

now, very far exceeds the quantity then produced? Not onlyis a high price compatible with an increased supply, but it rarelyfails to accompany it. If, then, in consequence of taxation, orof difficulty of production, the price of provisions be raised,and the quantity be not diminished, the money wages of labourwill rise; for, as Mr. Buchanan has justly observed, “The wagesof labour consist not in money, but in what money purchases,namely, provisions and other necessaries; and the allowanceof the labourer out of the common stock, will always be inproportion to the supply.”

With respect to the second point, whether a tax on the wagesof labour would raise the price of labour, Mr. Buchanan says,“After the labourer has received the fair recompense of hislabour, how can he have recourse on his employer, for whathe is afterwards compelled to pay away in taxes? There is nolaw or principle in human affairs to warrant such a conclusion.After the labourer has received his wages, they are in his ownkeeping, and he must, as far as he is able, bear the burthen ofwhatever exactions he may ever afterwards be exposed to: forhe has clearly no way of compelling those to reimburse him,who have already paid him the fair price of his work.”1

Mr. Buchanan has quoted, with great approbation, the fol-lowing able passage from Mr. Malthus’s work on population,2

which appears to me completely to answer his objection. “Theprice of labour, when left to find its natural level, is a mostimportant political barometer, expressing the relation betweenthe supply of provisions, and the demand for them, betweenthe quantity to be consumed, and the number of consumers;and, taken on the average, independently of accidental circum-stances, it further expresses, clearly, the wants of the societyrespecting population; that is, whatever may be the number

Taxes on Wagesch. xvi 219

1 Quoted by Buchanan (ib. vol. iv, pp. 62–3) from Essay on Population,3rd ed., 1806, vol. ii, pp. 165–6.

of children to a marriage necessary to maintain exactly thepresent population, the price of labour will be just sufficientto support this number, or be above it, or below it, accordingto the state of the real funds, for the maintenance of labour,whether stationary, progressive, or retrograde. Instead, how-ever, of considering it in this light, we consider it as somethingwhich we may raise or depress at pleasure, something whichdepends principally on his Majesty’s justices of the peace. Whenan advance in the price of provisions already expresses thatthe demand is too great for the supply, in order to put thelabourer in the same condition as before, we raise the price oflabour, that is, we increase the demand, and are then muchsurprised, that the price of provisions continues rising. In this,we act much in the same manner, as if, when the quicksilverin the common weather glass, stood at stormy, we were to raiseit by some forcible pressure to settled fair, and then be greatlyastonished that it continued raining.”1

“The price of labour will express, clearly, the wants of thesociety respecting population;” it will be just sufficient to sup-port the population, which at that time the state of the fundsfor the maintenance of labourers, requires. If the labourer’swages were before only adequate to supply the requisite popula-tion, they will, after the tax, be inadequate to that supply, forhe will not have the same funds to expend on his family. Labourwill, therefore, rise, because the demand continues, and it isonly by raising the price, that the supply is not checked.

Nothing is more common, than to see hats or malt rise whentaxed; they rise because the requisite supply would not beafforded if they did not rise: so with labour, when wages aretaxed, its price rises, because, if it did not, the requisite popula-tion would not be kept up. Does not Mr. Buchanan allow all

220 Principles ch. xvi

1 Buchanan’s ed. of the Wealth ofNations, vol. iii, p. 338, note.2 Eds. 1–2 ‘would have been’.

3 Eds. 1–2 do not contain ‘in thedegree required’.4 Ed. 1 ‘for it will diminish’.

that is contended for, when he says, that “were he (the labourer)indeed reduced to a bare allowance of necessaries, he wouldthen suffer no further abatement of his wages, as he could noton such conditions continue his race?”1 Suppose the circum-stances of the country to be such, that the lowest labourersare not only called upon to continue their race, but to in-crease it; their wages would be2 regulated accordingly. Canthey multiply in the degree required,3 if a tax takes fromthem a part of their wages, and reduces them to bare neces-saries?

It is undoubtedly true, that a taxed commodity will not risein proportion to the tax, if the demand for it diminish,4 andif the quantity cannot be reduced. If metallic money were ingeneral use, its value would not for a considerable time beincreased by a tax, in proportion to the amount of the tax,because at a higher price, the demand would be diminished,and the quantity would not be diminished; and unquestionablythe same cause frequently influences the wages of labour; thenumber of labourers cannot be rapidly increased or diminishedin proportion to the increase or diminution of the fund whichis to employ them; but in the case supposed, there is no neces-sary diminution of demand for labour, and if diminished, thedemand does not abate in proportion to the tax. Mr. Buchananforgets that the fund raised by the tax, is employed by Govern-ment in maintaining labourers, unproductive indeed, but stilllabourers. If labour were not to rise when wages are taxed,there would be a great increase in the competition for labour,because the owners of capital, who would have nothing to paytowards such a tax, would have the same funds for employinglabour; whilst the Government who received the tax would

Taxes on Wagesch. xvi 221

1 Eds. 1–2 do not contain ‘of capital’.

have an additional fund for the same purpose. Governmentand the people thus become competitors, and the consequenceof their competition is a rise in the price of labour. The samenumber of men only will be employed, but they will be em-ployed at additional wages.

If the tax had been laid at once on the people of capital1, theirfund for the maintenance of labour would have been diminishedin the very same degree that the fund of Government for thatpurpose had been increased; and therefore there would havebeen no rise in wages; for though there would be the samedemand, there would not be the same competition. If whenthe tax were levied, Government at once exported the produceof it as a subsidy to a foreign State, and if therefore these fundswere devoted to the maintenance of foreign, and not of Englishlabourers, such as soldiers, sailors, &c. &c.; then, indeed, therewould be a diminished demand for labour, and wages might notincrease, although they were taxed; but the same thing wouldhappen if the tax had been laid on consumable commodities,on the profits of stock, or if in any other manner the same sumhad been raised to supply this subsidy: less labour could beemployed at home. In one case wages are prevented fromrising, in the other they must absolutely fall. But suppose theamount of a tax on wages were, after being raised on thelabourers, paid gratuitously to their employers, it would in-crease their money fund for the maintenance of labour, but itwould not increase either commodities or labour. It wouldconsequently increase the competition amongst the employersof labour, and the tax would be ultimately attended with noloss either to master or labourer. The master would pay anincreased price for labour; the addition which the labourerreceived would be paid as a tax to government, and would beagain returned to the masters. It must, however, not be for-

222 Principles ch. xvi

1 Ed. 1 in place of the next threelines reads ‘is often wastefullyexpended, and that by diminishingcapital they tend’ etc.2 Above, pp. 215–16.3 Adam Smith continues ‘The

final payment of this rise of wages,therefore, together with the ad-ditional profit of the master manu-facturer, would fall upon the con-sumer.’

gotten, that the produce of taxes1 is generally wastefully ex-pended, they are always obtained at the expense of the people’scomforts and enjoyments, and commonly either diminish capitalor retard its accumulation. By diminishing capital they tendto diminish the real fund destined for the maintenance of labour;and therefore to diminish the real demand for it. Taxes then,generally, as far as they impair the real capital of the country,diminish the demand for labour, and therefore it is a probable,but not a necessary, nor a peculiar consequence of a tax onwages, that though wages would rise, they would not rise bya sum precisely equal to the tax.

Adam Smith, as we have seen,2 has fully allowed that theeffect of a tax on wages, would be to raise wages by a sum atleast equal to the tax, and would be finally, if not immediately,paid by the employer of labour. Thus far we fully agree; butwe essentially differ in our views of the subsequent operationof such a tax.

“A direct tax upon the wages of labour, therefore,” saysAdam Smith, “though the labourer might perhaps pay it outof his hand, could not properly be said to be even advancedby him; at least if the demand for labour and the average priceof provisions remained the same after the tax as before it. In allsuch cases, not only the tax but something more than the tax,would in reality be advanced by the person who immediatelyemployed him. The final payment would in different cases fallupon different persons. The rise which such a tax might occa-sion in the wages of manufacturing labour, would be advancedby the master manufacturer, who would be entitled and obligedto charge it with a profit, upon the price of his goods.3 The rise

Taxes on Wagesch. xvi 223

1 The reference is to Buchanan’sed.; in Cannan’s ed., vol. ii, p. 349.There are several inaccuracies in

the quotation, and the italics areRicardo’s.2 Eds. 1–2 have a full stop here.

which such a tax might occasion in country labour, would beadvanced by the farmer, who, in order to maintain the samenumber of labourers as before, would be obliged to employa greater capital. In order to get back this greater capital,together with the ordinary profits of stock, it would be necessarythat he should retain a larger portion, or what comes to thesame thing, the price of a larger portion, of the produce of theland, and consequently that he should pay less rent to the land-lord. The final payment of this rise of wages would in thiscase fall upon the landlord, together with the additional profitsof the farmer who had advanced it. In all cases a direct tax uponthe wages of labour must, in the long run, occasion both agreater reduction in the rent of land, and a greater rise in theprice of manufactured goods, than would have followed, fromthe proper assessment of a sum equal to the produce of thetax, partly upon the rent of land, and partly upon consumablecommodities.” Vol. iii. p. 337.1 In this passage it is assertedthat the additional wages paid by farmers will ultimately fallon the landlords, who will receive a diminished rent; but thatthe additional wages paid by manufacturers will occasion a risein the price of manufactured goods, and will therefore fall onthe consumers of those commodities.

Now, suppose a society to consist of landlords, manu-facturers, farmers and labourers,2 the labourers, it is agreed,would be recompensed for the tax;—but by whom?—whowould pay that portion which did not fall on the landlords?—the manufacturers could pay no part of it; for if the price oftheir commodities should rise in proportion to the additionalwages they paid, they would be in a better situation after thanbefore the tax. If the clothier, the hatter, the shoe-maker, &c.,should be each able to raise the price of their goods 10 per

224 Principles ch. xvi

1 Ed. 1 does not contain ‘which isDr. Smith’s supposition’.

2 Misprinted ‘good’ in ed. 3.

cent.,—supposing 10 per cent. to recompense them com-pletely for the additional wages they paid,—if, as Adam Smithsays, “they would be entitled and obliged to charge theadditional wages with a profit upon the price of their goods,”they could each consume as much as before of each other’sgoods, and therefore they would pay nothing towards the tax.If the clothier paid more for his hats and shoes, he wouldreceive more for his cloth, and if the hatter paid more for hiscloth and shoes, he would receive more for his hats. All manu-factured commodities then would be bought by them with asmuch advantage as before, and inasmuch as corn would notbe raised in price which is Dr. Smith’s supposition1 whilst theyhad an additional sum to lay out upon its purchase, they wouldbe benefited, and not injured by such a tax.

If then neither the labourers nor the manufacturers wouldcontribute towards such a tax; if the farmers would be alsorecompensed by a fall of rent, landlords alone must not onlybear its whole weight, but they must also contribute to theincreased gains of the manufacturers. To do this, however,they should consume all the manufactured commodities in thecountry, for the additional price charged on the whole massis little more than the tax originally imposed on the labourersin manufactures.

Now it will not be disputed that the clothier, the hatter, andall other manufacturers, are consumers of each other’s goods2;it will not be disputed that labourers of all descriptions consumesoap, cloth, shoes, candles, and various other commodities; itis therefore impossible that the whole weight of these taxesshould fall on landlords only.

But if the labourers pay no part of the tax, and yet manu-factured commodities rise in price, wages must rise, not only

Taxes on Wagesch. xvi 225

1 Eds. 1–2 ‘be produced by’ inplace of ‘equally follow from’.2 Eds. 1–2 ‘any’ in place of ‘every’.

3 Ed. 1 does not contain the re-mainder of this sentence.4 Above, pp. 183–4.

to compensate them for the tax, but for the increased price ofmanufactured necessaries, which, as far as it affects agriculturallabour, will be a new cause for the fall of rent; and, as far asit affects manufacturing labour, for a further rise in the priceof goods. This rise in the price of goods will again operateon wages, and the action and re-action first of wages on goods,and then of goods on wages, will be extended without anyassignable limits. The arguments by which this theory is sup-ported, lead to such absurd conclusions, that it may at oncebe seen that the principle is wholly indefensible.

All the effects which are produced on the profits of stockand the wages of labour, by a rise of rent and a rise of neces-saries, in the natural progress of society, and increasing difficultyof production, will equally follow from1 a rise of wages inconsequence of taxation; and, therefore, the enjoyments of thelabourer, as well as those of his employers, will be curtailedby the tax; and not by this tax particularly, but by every2

other which should raise an equal amount,3 as they would alltend to diminish the fund destined for the maintenance of la-bour.

The error of Adam Smith proceeds in the first place fromsupposing, that all taxes paid by the farmer must necessarilyfall on the landlord, in the shape of a deduction from rent. Onthis subject, I have explained myself most fully,4 and I trustthat it has been shewn, to the satisfaction of the reader, thatsince much capital is employed on the land which pays no rent,and since it is the result obtained by this capital which regulatesthe price of raw produce, no deduction can be made from rent;and, consequently, either no remuneration will be made to thefarmer for a tax on wages, or if made, it must be made by anaddition to the price of raw produce.

226 Principles ch. xvi

If taxes press unequally on the farmer, he will be enabledto raise the price of raw produce, to place himself on a levelwith those who carry on other trades; but a tax on wages, whichwould not affect him more than it would affect any othertrade, could not be removed or compensated by a high priceof raw produce; for the same reason which should induce himto raise the price of corn, namely, to remunerate himself forthe tax, would induce the clothier to raise the price of cloth,the shoemaker, hatter, and upholsterer, to raise the price ofshoes, hats, and furniture.

If they could all raise the price of their goods, so as toremunerate themselves, with a profit, for the tax; as they areall consumers of each other’s commodities, it is obvious thatthe tax could never be paid; for who would be the contributorsif all were compensated?

I hope, then, that I have succeeded in shewing, that any taxwhich shall have the effect of raising wages, will be paid by adiminution of profits, and, therefore, that a tax on wages is infact a tax on profits.

This principle of the division of the produce of labour andcapital between wages and profits, which I have attempted toestablish, appears to me so certain, that excepting in the im-mediate effects, I should think it of little importance whetherthe profits of stock, or the wages of labour, were taxed. Bytaxing the profits of stock, you would probably alter the rateat which the funds for the maintenance of labour increase, andwages would be disproportioned to the state of that fund, bybeing too high. By taxing wages, the reward paid to thelabourer would also be disproportioned to the state of thatfund, by being too low. In the one case by a fall, and in theother by a rise in money wages, the natural equilibrium be-tween profits and wages would be restored. A tax on wages,then, does not fall on the landlord, but it falls on the profits

Taxes on Wagesch. xvi 227

1 Adam Smith says ‘of the greaterpart of other taxes’.

2 Bk. v, ch. ii, pt. ii, art. iv; vol. ii,pp. 359–60.3 ib. vol. ii, p. 357.

of stock: it does not “entitle and oblige the master manu-facturer to charge it with a profit on the prices of his goods,”for he will be unable to increase their price, and therefore hemust himself wholly and without compensation pay such atax.*

If the effect of taxes on wages be such as I have described,they do not merit the censure cast upon them by Dr. Smith.He observes of such taxes, “These, and some other taxes ofthe same kind, by raising the price of labour, are said to haveruined the greater part of the manufacturers of Holland. Similartaxes, though not quite so heavy, take place in the Milanese,in the states of Genoa, in the duchy of Modena, in the duchiesof Parma, Placentia, and Guastalla, and in the ecclesiasticalstates. A French author of some note, has proposed to reformthe finances of his country, by substituting in the room of othertaxes,1 this most ruinous of all taxes. ‘There is nothing soabsurd,’ says Cicero, ‘which has not sometimes been assertedby some philosophers.’”2 And in another place he says: “taxesupon necessaries, by raising the wages of labour, necessarilytend to raise the price of all manufactures, and consequentlyto diminish the extent of their sale and consumption.”3 Theywould not merit this censure, even if Dr. Smith’s principlewere correct, that such taxes would enhance the prices of manu-factured commodities; for such an effect could be only tem-porary, and would subject us to no disadvantage in our foreign

* M. Say appears to have imbibed the general opinion on this subject.Speaking of corn, he says, “thence it results, that its price influencesthe price of all other commodities. A farmer, a manufacturer, or a mer-chant, employs a certain number of workmen, who all have occasion toconsume a certain quantity of corn. If the price of corn rises, he is obligedto raise, in an equal proportion, the price of his productions.” Vol. i.p. 255.

228 Principles ch. xvi

1 Ed. 1 ‘of all commodities ingeneral’.2 Above, pp. 168–72.

3 Not in italics in ed. 1, or in theWealth of Nations.

trade. If any cause should raise the price of a few manufacturedcommodities, it would prevent or check their exportation; butif the same cause operated generally on all, the effect would bemerely nominal, and would neither interfere with their relativevalue, nor in any degree diminish the stimulus to a trade ofbarter, which all commerce, both foreign and domestic, reallyis.

I have already attempted to shew, that when any cause raisesthe prices of all commodities,1 the effects are nearly similar toa fall in the value of money. If money falls in value, all com-modities rise in price; and if the effect is confined to onecountry, it will affect its foreign commerce in the same wayas a high price of commodities caused by general taxation,2 and,therefore, in examining the effects of a low value of moneyconfined to one country, we are also examining the effects of ahigh price of commodities confined to one country. Indeed,Adam Smith was fully aware of the resemblance between thesetwo cases, and consistently maintained that the low value ofmoney, or, as he calls it, of silver in Spain, in consequence of theprohibition against its exportation, was very highly prejudicialto the manufactures and foreign commerce of Spain. “But thatdegradation in the value of silver, which being the effect eitherof the peculiar situation, or of the political institutions of aparticular country, takes place only in that country, is a matterof very great consequence, which, far from tending to makeany body really richer, tends to make every body really poorer.The rise in the money price of all commodities, which is in this casepeculiar to that country,3 tends to discourage more or less everysort of industry which is carried on within it, and to enableforeign nations, by furnishing almost all sorts of goods for asmaller quantity of silver than its own workmen can afford to

Taxes on Wagesch. xvi 229

1 The reference is to Buchanan’sed.; in Cannan’s ed., vol. ii, pp.12–13.

2 Adam Smith says ‘much aug-mented’.3 Bk. iv, ch. v; vol. ii, pp. 14–15.

do, to undersell them not only in the foreign, but even in thehome market.” Vol. ii. page 278.1

One, and I think the only one, of the disadvantages of a lowvalue of silver in a country, proceeding from a forced abun-dance, has been ably explained by Dr. Smith. If the trade ingold and silver were free, “the gold and silver which wouldgo abroad, would not go abroad for nothing, but would bringback an equal value of goods of some kind or another. Thosegoods, too, would not be all matters of mere luxury and expense,to be consumed by idle people, who produce nothing in returnfor their consumption. As the real wealth and revenue of idlepeople would not be augmented by this extraordinary exporta-tion of gold and silver, so would neither their consumption beaugmented2 by it. Those goods would, probably the greaterpart of them, and certainly some part of them, consist inmaterials, tools, and provisions, for the employment and main-tenance of industrious people, who would reproduce with aprofit, the full value of their consumption. A part of the deadstock of the society would thus be turned into active stock,and would put into motion a greater quantity of industry thanhad been employed before.”3

By not allowing a free trade in the precious metals when theprices of commodities are raised, either by taxation, or by theinflux of the precious metals, you prevent a part of the deadstock of the society from being turned into active stock—youprevent a greater quantity of industry from being employed.But this is the whole amount of the evil; an evil never felt bythose countries where the exportation of silver is either allowedor connived at.

The exchanges between countries are at par only, whilst they

230 Principles ch. xvi

1 Ed. 1 ‘might deviate as much frompar, as’; ed. 2 (owing to an im-

perfect correction) ‘might deviate asfrom par, in the same proportion as’.

have precisely that quantity of currency which in the actualsituation of things they should have to carry on the circulationof their commodities. If the trade in the precious metals wereperfectly free, and money could be exported without any ex-pense whatever, the exchanges could be no otherwise in everycountry than at par. If the trade in the precious metals wereperfectly free, if they were generally used in circulation, evenwith the expenses of transporting them, the exchange couldnever in any of them deviate more from par, than by theseexpenses. These principles, I believe, are now no where dis-puted. If a country used paper money, not exchangeable forspecie, and, therefore, not regulated by any fixed standard, theexchanges in that country might deviate from par, in the sameproportion as1 its money might be multiplied beyond thatquantity which would have been allotted to it by general com-merce, if the trade in money had been free, and the preciousmetals had been used, either for money, or for the standardof money.

If by the general operations of commerce, 10 millions ofpounds sterling, of a known weight and fineness of bullion,should be the portion of England, and 10 millions of paperpounds were substituted, no effect would be produced on theexchange; but if by the abuse of the power of issuing papermoney, 11 millions of pounds should be employed in the circu-lation, the exchange would be 9 per cent. against England; if12 millions were employed, the exchange would be 16 per cent.;and if 20 millions, the exchange would be 50 per cent. againstEngland. To produce this effect it is not, however, necessarythat paper money should be employed: any cause which retainsin circulation a greater quantity of pounds than would havecirculated, if commerce had been free, and the precious metals

Taxes on Wagesch. xvi 231

1 Ed. 1 does not contain ‘of good pounds, fresh from the mint,’.

of a known weight and fineness had been used, either for money,or for the standard of money, would exactly produce the sameeffects. Suppose that by clipping the money, each pound didnot contain the quantity of gold or silver which by law it shouldcontain, a greater number of such pounds might be employed inthe circulation, than if they were not clipped. If from each poundone tenth were taken away, 11 millions of such pounds might beused instead of 10; if two tenths were taken away, 12 millionsmight be employed; and if one half were taken away, 20 millionsmight not be found superfluous. If the latter sum were used in-stead of 10 millions, every commodity in England would be raisedto double its former price, and the exchange would be 50 percent. against England; but this would occasion no disturbancein foreign commerce, nor discourage the manufacture of anyone commodity. If, for example, cloth rose in England from20l. to 40l. per piece, we should just as freely export it after asbefore the rise, for a compensation of 50 per cent. would bemade to the foreign purchaser in the exchange; so that with20l. of his money, he could purchase a bill which would enablehim to pay a debt of 40l. in England. In the same mannerif he exported a commodity which cost 20l. at home, andwhich sold in England for 40l. he would only receive 20l.,for 40l. in England would only purchase a bill for 20l. ona foreign country. The same effects would follow fromwhatever cause 20 millions could be forced to perform thebusiness of circulation in England, if 10 millions only werenecessary. If so absurd a law, as the prohibition of the exporta-tion of the precious metals, could be enforced, and the con-sequence of such prohibition were to force 11 millions ofgood pounds, fresh from the mint,1 instead of 10, into circula-tion, the exchange would be 9 per cent. against England; if12 millions, 16 per cent.; and if 20 millions, 50 per cent. against

232 Principles ch. xvi

1 Eds. 1–2 do not contain ‘given by Adam Smith,’.

England. But no discouragement would be given to the manu-factures of England; if home commodities sold at a high pricein England, so would foreign commodities; and whether theywere high or low would be of little importance to the foreignexporter and importer, whilst he would, on the one hand, beobliged to allow a compensation in the exchange when hiscommodities sold at a dear rate, and would receive the samecompensation, when he was obliged to purchase English com-modities at a high price. The sole disadvantage, then, whichcould happen to a country from retaining, by prohibitory laws,a greater quantity of gold and silver in circulation than wouldotherwise remain there, would be the loss which it wouldsustain from employing a portion of its capital unproductively,instead of employing it productively. In the form of moneythis capital is productive of no profit; in the form of materials,machinery, and food, for which it might be exchanged, it wouldbe productive of revenue, and would add to the wealth andthe resources of the State. Thus then, I hope, I have satis-factorily proved, that a comparatively low price of the preciousmetals, in consequence of taxation, or, in other words, agenerally high price of commodities, would be of no dis-advantage to a State, as a part of the metals would be exported,which, by raising their value, would again lower the pricesof commodities. And further, that if they were not exported,if by prohibitory laws they could be retained in a country,the effect on the exchange would counterbalance the effectof high prices. If, then, taxes on necessaries and on wageswould not raise the prices of all commodities on which labourwas expended, they cannot be condemned on such grounds;and moreover, even if the opinion given by Adam Smith,1 thatthey would have such an effect were well founded, they wouldbe in no degree injurious on that account. They would be

Taxes on Wagesch. xvi 233

1 Eds. 1–2 contain neither this para-graph nor the last sentence of theprevious paragraph, beginning‘They would be’.

2 Bk. v, ch. ii, pt. ii, art. iv; vol. ii,p. 357. The passages quoted arealmost consecutive.

objectionable for no other reason than those which might bejustly urged against taxes of any other description.

The landlords, as such, would be exempted from the burdenof the tax; but as far as they directly employed labour in theexpenditure of their revenues, by supporting gardeners, menialservants, &c. they would be subject to its operation.1

It is undoubtedly true, that “taxes upon luxuries have notendency to raise the price of any other commodities, exceptthat of the commodities taxed;” but it is not true, “that taxesupon necessaries, by raising the wages of labour, necessarilytend to raise the price of all manufactures.” It is true, that“taxes upon luxuries are finally paid by the consumers of thecommodities taxed, without any retribution. They fall in-differently upon every species of revenue, the wages of labour,the profits of stock, and the rent of land;” but it is not true,“that taxes upon necessaries, so far as they affect the labouringpoor, are finally paid partly by landlords in the diminished rentof their lands, and partly by rich consumers, whether landlordsor others, in the advanced price of manufactured goods;”2 for,so far as these taxes affect the labouring poor, they will be almostwholly paid by the diminished profits of stock, a small partonly being paid by the labourers themselves in the diminisheddemand for labour, which taxation of every kind has a tendencyto produce.

It is from Dr. Smith’s erroneous view of the effect of thosetaxes, that he has been led to the conclusion, that “the middlingand superior ranks of people, if they understood their owninterest, ought always to oppose all taxes upon the necessariesof life, as well as all direct taxes upon the wages of labour.”This conclusion follows from his reasoning, “that the final

234 Principles ch. xvi

1 An Essay on the Causes of the De-cline of the Foreign Trade, London,1744, p. 17.

2 Bk. v, ch. ii, pt. ii, art. iv; vol. ii,p. 357.3 Eds. 1–2 do not contain this note.

payment of both one and the other falls altogether upon them-selves, and always with a considerable overcharge. They fallheaviest upon the landlords,* who always pay in a doublecapacity; in that of landlords, by the reduction of their rent,and in that of rich consumers, by the increase of their expense.The observation of Sir Matthew Decker,1 that certain taxes, arein the price of certain goods, sometimes repeated and accumu-lated four or five times, is perfectly just with regard to taxesupon the necessaries of life. In the price of leather, for example,you must pay, not only for the tax upon the leather of yourown shoes, but for a part of that upon those of the shoemakerand the tanner. You must pay, too, for the tax upon the salt,upon the soap, and upon the candles, which those workmenconsume while employed in your service, and for the tax uponthe leather, which the salt-maker, the soap-maker, and thecandle-maker consume, while employed in their service.”2

Now as Dr. Smith does not contend that the tanner, thesalt-maker, the soap-maker, and the candle-maker, will eitherof them be benefited by the tax on leather, salt, soap, andcandles; and as it is certain, that Government will receive nomore than the tax imposed, it is impossible to conceive, thatmore can be paid by the public upon whomsoever the tax mayfall. The rich consumers may, and indeed will, pay for the poorconsumer, but they will pay no more than the whole amountof the tax; and it is not in the nature of things, that “the taxshould be repeated and accumulated four or five times.”

A system of taxation may be defective; more may be raisedfrom the people, than what finds its way into the coffers of theState, as a part, in consequence of its effect on prices, may

* So far from this being true, they would scarcely affect the landlordsand stockholder.3

Taxes on Wagesch. xvi 235

1 Eds. 1–2 do not contain ‘to’. 2 Traite d’Economie politique, 2nded., 1814, vol. ii, p. 298.

possibly be received by those who are benefited by the peculiarmode in which taxes are laid. Such taxes are pernicious, andshould not be encouraged; for it may be laid down as a principle,that when taxes operate justly, they conform to the first ofDr. Smith’s maxims, and raise from the people as little aspossible beyond what enters into the public treasury of theState. M. Say says, “others offer plans of finance, and proposemeans for filling the coffers of the sovereign, without anycharge to his subjects. But unless a plan of finance is of thenature of a commercial undertaking, it cannot give to1 Govern-ment more than it takes away, either from individuals or fromGovernment itself, under some other form. Something cannotbe made out of nothing, by the stroke of a wand. In whateverway an operation may be disguised, whatever forms we mayconstrain a value to take, whatever metamorphosis we maymake it undergo, we can only have a value by creating it, orby taking it from others. The very best of all plans of financeis to spend little, and the best of all taxes is, that which is theleast in amount.”2

Dr. Smith uniformly, and I think justly, contends, that thelabouring classes cannot materially contribute to the burdensof the State. A tax on necessaries, or on wages, will thereforebe shifted from the poor to the rich: if then the meaning ofDr. Smith is, “that certain taxes are in the price of certaingoods sometimes repeated, and accumulated four or five times,”for the purpose only of accomplishing this end, namely, thetransference of the tax from the poor to the rich, they cannotbe liable to censure on that account.

Suppose the just share of the taxes of a rich consumer to be100l. and that he would pay it directly, if the tax were laid onincome, on wine, or on any other luxury; he would suffer no

236 Principles ch. xvi

1 Ed. 1 does not contain the remainder of this sentence.

injury if by the taxation of necessaries, he should be only calledupon for the payment of 25l., as far as his own consumptionof necessaries, and that of his family was concerned, but shouldbe required to repeat this tax three times, by paying an ad-ditional price for other commodities to remunerate the labour-ers, or their employers, for the tax which they have been calledupon to advance. Even in that case the reasoning is inconclu-sive: for if there be no more paid than what is required byGovernment; of what importance can it be to the rich con-sumer, whether he pay the tax directly, by paying an increasedprice for an object of luxury, or indirectly, by paying an in-creased price for the necessaries and other commodities he con-sumes? If more be not paid by the people, than what is re-ceived by Government, the rich consumer will only pay hisequitable share; if more is paid, Adam Smith should have statedby whom it is received1, but his whole argument is foundedin error, for the prices of commodities would not be raised bysuch taxes.

M. Say does not appear to me to have consistently adheredto the obvious principle, which I have quoted from his ablework; for in the next page, speaking of taxation, he says,“When it is pushed too far, it produces this lamentable effect,it deprives the contributor of a portion of his riches, withoutenriching the State. This is what we may comprehend, if weconsider that every man’s power of consuming, whether pro-ductively or not, is limited by his income. He cannot then bedeprived of a part of his income, without being obliged pro-portionally to reduce his consumption. Hence arises a diminu-tion of demand for those goods, which he no longer consumes,and particularly for those on which the tax is imposed. Fromthis diminution of demand, there results a diminution ofproduction, and consequently of taxable commodities. The

Taxes on Wagesch. xvi 237

1 Traite, 1814, vol. ii, p. 300.2 ib. vol. ii, p. 300, note.3 Ed. 1 ‘profits’.

4 Ed. 1 does not contain ‘, an evilsufficiently great without over-charging it’.

contributor then will lose a portion of his enjoyments; theproducer a portion of his profits; and the treasury, a portionof its receipts.”1

M. Say instances the tax on salt in France, previous to therevolution; which, he says, diminished the production of saltby one half.2 If, however, less salt was consumed, less capitalwas employed in producing it; and, therefore, though the pro-ducer would obtain less profit3 on the production of salt, hewould obtain more on the production of other things. If a tax,however burdensome it may be, falls on revenue, and not oncapital, it does not diminish demand, it only alters the natureof it. It enables Government to consume as much of the pro-duce of the land and labour of the country, as was before con-sumed by the individuals who contribute to the tax, an evilsufficiently great without overcharging it 4. If my income is1000l. per annum, and I am called upon for 100l. per annumfor a tax, I shall only be able to demand nine tenths of thequantity of goods, which I before consumed, but I enableGovernment to demand the other tenth. If the commoditytaxed be corn, it is not necessary that my demand for cornshould diminish, as I may prefer to pay 100l. per annum morefor my corn, and to the same amount abate in my demand forwine, furniture, or any other luxury.* Less capital will con-sequently be employed in the wine or upholstery trade, butmore will be employed in manufacturing those commodities,on which the taxes levied by Government will be expended.

* M. Say says, that “the tax added to the price of a commodity, raisesits price. Every increase in the price of a commodity, necessarily reducesthe number of those who are able to purchase it, or at least the quantitythey will consume of it.” This is by no means a necessary consequence.I do not believe, that if bread were taxed, the consumption of bread wouldbe diminished, more than if cloth, wine, or soap were taxed.

238 Principles ch. xvi

1 Traite d’Economie politique, 1814,vol. ii, pp. 301–2.

2 Ed. 1 ‘I may be permitted todoubt’.

M. Say says1 that M. Turgot, by reducing the market dueson fish (les droits d’entree et de halle sur la maree) in Paris onehalf, did not diminish the amount of their produce, and thatconsequently, the consumption of fish must have doubled. Heinfers from this, that the profits of the fisherman and thoseengaged in the trade, must also have doubled, and that theincome of the country must have increased, by the wholeamount of these increased profits; and by giving a stimulus toaccumulation, must have increased the resources of the State.*

Without calling in question the policy, which dictated thisalteration of the tax, I have my doubts,2 whether it gave anygreat stimulus to accumulation. If the profits of the fishermanand others engaged in the trade, were doubled in consequenceof more fish being consumed, capital and labour must havebeen withdrawn from other occupations to engage them in thisparticular trade. But in those occupations capital and labourwere productive of profits, which must have been given upwhen they were withdrawn. The ability of the country toaccumulate, was only increased by the difference between theprofits obtained in the business in which the capital was newlyengaged, and those obtained in that from which it was with-drawn.

Whether taxes be taken from revenue or capital, they diminishthe taxable commodities of the State. If I cease to expend 100l.on wine, because by paying a tax of that amount I have enabled

* The following remark of the same author appears to me equallyerroneous: “When a high duty is laid on cotton, the production of allthose goods of which cotton is the basis is diminished. If the total valueadded to cotton in its various manufactures, in a particular country,amounted to 100 millions of francs per annum, and the effect of the taxwas, to diminish the consumption one half, then the tax would deprivethat country every year of 50 millions of francs, in addition to the sumreceived by Government.” Vol. ii. p. 314.

Taxes on Wagesch. xvi 239

1 Above, pp. 159 and 169. 2 Above, pp. 62–3 (ed. 1) and p. 46(ed. 3).

Government to expend 100l. instead of expending it myself,one hundred pounds worth of goods are necessarily withdrawnfrom the list of taxable commodities. If the revenue of theindividuals of a country be 10 millions, they will have at least10 millions worth of taxable commodities. If by taxing some,one million be transferred to the disposal of Government, theirrevenue will still be nominally 10 millions, but they will remainwith only nine millions worth of taxable commodities. Thereare no circumstances under which taxation does not abridgethe enjoyments of those on whom the taxes ultimately fall, andno means by which those enjoyments can again be extended,but the accumulation of new revenue.

Taxation can never be so equally applied, as to operate in thesame proportion on the value of all commodities, and still topreserve them at the same relative value. It frequently operatesvery differently from the intention of the legislature, by its in-direct effects. We have already seen,1 that the effect of adirect tax on corn and raw produce, is, if money be also pro-duced in the country, to raise the price of all commodities, inproportion as raw produce enters into their composition, andthereby to destroy the natural relation which previously ex-isted between them. Another indirect effect is, that it raiseswages, and lowers the rate of profits; and we have also seen,in another part of this work,2 that the effect of a rise of wages,and a fall of profits, is to lower the money prices of those com-modities which are produced in a greater degree by the employ-ment of fixed capital.

That a commodity, when taxed, can no longer be so pro-fitably exported, is so well understood, that a drawback isfrequently allowed on its exportation, and a duty laid on itsimportation. If these drawbacks and duties be accurately laid,

240 Principles ch. xvi

not only on the commodities themselves, but on all which theymay indirectly affect, then, indeed, there will be no disturbancein the value of the precious metals. Since we could as readilyexport a commodity after being taxed as before, and since nopeculiar facility would be given to importation, the preciousmetals would not, more than before, enter into the list ofexportable commodities.

Of all commodities, none are perhaps so proper for taxation,as those which, either by the aid of nature or art, are producedwith peculiar facility. With respect to foreign countries, suchcommodities may be classed under the head of those which arenot regulated in their price by the quantity of labour bestowed,but rather by the caprice, the tastes, and the power of thepurchasers. If England had more productive tin mines thanother countries, or if, from superior machinery or fuel, she hadpeculiar facilities in manufacturing cotton goods, the prices oftin, and of cotton goods, would still in England be regulatedby the comparative quantity of labour and capital required toproduce them, and the competition of our merchants wouldmake them very little dearer to the foreign consumer. Ouradvantage in the production of these commodities might be sodecided, that probably they could bear a very great additionalprice in the foreign market, without very materially diminishingtheir consumption. This price they never could attain, whilstcompetition was free at home, by any other means but by atax on their exportation. This tax would fall wholly on foreignconsumers, and part of the expenses of the Government ofEngland would be defrayed, by a tax on the land and labourof other countries. The tax on tea, which at present is paid bythe people of England, and goes to aid the expenses of theGovernment of England, might, if laid in China, on the ex-portation of the tea, be diverted to the payment of the expensesof the Government of China.

Taxes on Wagesch. xvi 241

Taxes on luxuries have some advantage over taxes on neces-saries. They are generally paid from income, and therefore donot diminish the productive capital of the country. If winewere much raised in price in consequence of taxation, it isprobable that a man would rather forego the enjoyments ofwine, than make any important encroachments on his capital,to be enabled to purchase it. They are so identified with price,that the contributor is hardly aware that he is paying a tax.But they have also their disadvantages. First, they never reachcapital, and on some extraordinary occasions it may be ex-pedient that even capital should contribute towards the publicexigencies; and secondly, there is no certainty as to the amountof the tax, for it may not reach even income. A man intenton saving, will exempt himself from a tax on wine, by giving upthe use of it. The income of the country may be undiminished,and yet the State may be unable to raise a shilling by the tax.

Whatever habit has rendered delightful, will be relinquishedwith reluctance, and will continue to be consumed notwith-standing a very heavy tax; but this reluctance has its limits, andexperience every day demonstrates that an increase in thenominal amount of taxation, often diminishes the produce.One man will continue to drink the same quantity of wine,though the price of every bottle should be raised three shillings,who would yet relinquish the use of wine rather than pay four.Another will be content to pay four, yet refuse to pay fiveshillings. The same may be said of other taxes on luxuries:many would pay a tax of 5l. for the enjoyment which a horseaffords, who would not pay 10l. or 20l. It is not because theycannot pay more, that they give up the use of wine and ofhorses, but because they will not pay more. Every man hassome standard in his own mind by which he estimates the valueof his enjoyments, but that standard is as various as the humancharacter. A country whose financial situation has become

242 Principles ch. xvi

1 Ed. 1, from here to the end of thechapter, reads: ‘a minister is dis-posed to conclude that the countryis arrived at the maximum of taxa-tion, because by increasing the rate,he cannot increase the amount ofany one of these taxes. But in thisconclusion he will not be alwayscorrect, for it is very possible that

such a country could bear a verygreat addition to its burdens with-out infringing on the integrity ofits capital.’ This passage was alteredbecause in McCulloch’s opinion itheld out ‘an apology to ministersfor taxation’; see Ricardo’s letter,below, VII, 337–8,2 Quoted above, p. 235.

extremely artificial, by the mischievous policy of accumulatinga large national debt, and a consequently enormous taxation,is particularly exposed to the inconvenience attendant on thismode of raising taxes. After visiting with a tax the wholeround of luxuries; after laying horses, carriages, wine, servants,and all the other enjoyments of the rich, under contribution;1

a minister is induced to have recourse to more direct taxes,such as income and property taxes, neglecting the goldenmaxim of M. Say, “that the very best of all plans of financeis to spend little, and the best of all taxes is that which is theleast in amount.”2

chapter xvii

Taxes on other Commoditiesthan Raw Produce

On the same principle that a tax on corn would raise the priceof corn, a tax on any other commodity would raise the priceof that commodity. If the commodity did not rise by a sumequal to the tax, it would not give the same profit to the pro-ducer which he had before, and he would remove his capitalto some other employment.

The taxing of all commodities, whether they be necessariesor luxuries, will, while money remains at an unaltered value,raise their prices by a sum at least equal to the tax.* A tax onthe manufactured necessaries of the labourer would have thesame effect on wages as a tax on corn, which differs from othernecessaries only by being the first and most important on thelist; and it would produce precisely the same effects on theprofits of stock and foreign trade. But a tax on luxuries would

* It is observed by M. Say, “that a manufacturer is not enabled tomake the consumer pay the whole tax levied on his commodity, becauseits increased price will diminish its consumption.” Should this be thecase, should the consumption be diminished, will not the supply alsospeedily be diminished? Why should the manufacturer continue in thetrade, if his profits are below the general level? M. Say appears herealso to have forgotten the doctrine which he elsewhere supports, “thatthe cost of production determines the price, below which commoditiescannot fall for any length of time, because production would be theneither suspended or diminished.”—Vol. ii. p. 26.

“The tax in this case falls then partly on the consumer who is obligedto give more for the commodity taxed, and partly on the producer, who,after deducting the tax, will receive less. The public treasury will bebenefited by what the purchaser pays in addition, and also by the sacrificewhich the producer is obliged to make of a part of his profits. It is theeffort of gunpowder, which acts at the same time on the bullet which itprojects, and on the gun which it causes to recoil.”—Vol. ii. p. 333.

244 Principles ch. xvii

1 Essai politique sur le commerce, ‘nouvelle edition’, 1761, p. 296.

have no other effect than to raise their price. It would fallwholly on the consumer, and could neither increase wages norlower profits.

Taxes which are levied on a country for the purpose of sup-porting war, or for the ordinary expenses of the State, andwhich are chiefly devoted to the support of unproductivelabourers, are taken from the productive industry of thecountry; and every saving which can be made from such ex-penses will be generally added to the income, if not to thecapital of the contributors. When, for the expenses of a year’swar, twenty millions are raised by means of a loan, it is thetwenty millions which are withdrawn from the productivecapital of the nation. The million per annum which is raisedby taxes to pay the interest of this loan, is merely transferredfrom those who pay it to those who receive it, from the con-tributor to the tax, to the national creditor. The real expenseis the twenty millions, and not the interest which must bepaid for it.* Whether the interest be or be not paid, the countrywill neither be richer nor poorer. Government might at oncehave required the twenty millions in the shape of taxes; in

* “Melon says,1 that the debts of a nation are debts due from the righthand to the left, by which the body is not weakened. It is true that thegeneral wealth is not diminished by the payment of the interest on arrearsof the debt: The dividends are a value which passes from the hand of thecontributor to the national creditor: Whether it be the national creditoror the contributor who accumulates or consumes it, is, I agree, of littleimportance to the society; but the principal of the debt—what hasbecome of that? It exists no more. The consumption which has followedthe loan has annihilated a capital which will never yield any furtherrevenue. The society is deprived not of the amount of interest, since thatpasses from one hand to the other, but of the revenue from a destroyedcapital. This capital, if it had been employed productively by him wholent it to the State, would equally have yielded him an income, but thatincome would have been derived from a real production, and would nothave been furnished from the pocket of a fellow citizen.”—Say, vol. ii.p. 357. This is both conceived and expressed in the true spirit of thescience.

Taxes on Other Commoditiesch. xvii 245

1 Ed. 1 ‘of the interest’.

which case it would not have been necessary to raise annualtaxes to the amount of a million. This, however, would nothave changed the nature of the transaction. An individualinstead of being called upon to pay 100l. per annum, mighthave been obliged to pay 2000l. once for all. It might alsohave suited his convenience rather to borrow this 2000l., andto pay 100l. per annum for interest to the lender, than to sparethe larger sum from his own funds. In one case it is a privatetransaction between A and B, in the other Government guaran-tees to B the payment of interest1 to be equally paid by A.If the transaction had been of a private nature, no public recordwould be kept of it, and it would be a matter of comparativeindifference to the country whether A faithfully performed hiscontract to B, or unjustly retained the 100l. per annum in hisown possession. The country would have a general interest inthe faithful performance of a contract, but with respect to thenational wealth, it would have no other interest than whetherA or B would make this 100l. most productive; but on thisquestion it would neither have the right nor the ability todecide. It might be possible, that if A retained it for his ownuse, he might squander it unprofitably, and if it were paid toB, he might add it to his capital, and employ it productively.And the converse would also be possible; B might squanderit, and A might employ it productively. With a view to wealthonly, it might be equally or more desirable that A should orshould not pay it; but the claims of justice and good faith,a greater utility, are not to be compelled to yield to those ofa less; and accordingly, if the State were called upon to inter-fere, the courts of justice would oblige A to perform his con-tract. A debt guaranteed by the nation, differs in no respectfrom the above transaction. Justice and good faith demandthat the interest of the national debt should continue to be

246 Principles ch. xvii

1 Eds. 1–2 ‘a’ in place of ‘the’.2 Eds. 1–2 spell ‘œconomy’.

3 In ed. 1 this and the three sub-sequent paragraphs are joined to-gether.

paid, and that those who have advanced their capitals for thegeneral benefit, should not be required to forego their equitableclaims, on the plea of expediency.

But independently of this consideration, it is by no meanscertain, that political utility would gain any thing by thesacrifice of political integrity; it does by no means follow, thatthe party exonerated from the payment of the interest of thenational debt would employ it more productively than thoseto whom indisputably it is due. By cancelling the nationaldebt, one man’s income might be raised from 1000l. to 1500l.,but another man’s would be lowered from 1500l. to 1000l.These two men’s incomes now amount to 2500l., they wouldamount to no more then. If it be the object of Governmentto raise taxes, there would be precisely the same taxable capitaland income in one case, as in the other. It is not, then, by thepayment of the interest on the national debt, that a country isdistressed, nor is it by the exoneration from payment that itcan be relieved. It is only by saving from income, and re-trenching in expenditure, that the national capital can be in-creased; and neither the income would be increased, nor theexpenditure diminished by the annihilation of the national debt.It is by the profuse expenditure of Government, and of indi-viduals, and by loans, that the1 country is impoverished; everymeasure, therefore, which is calculated to promote public andprivate economy2, will relieve the public distress; but it iserror and delusion to suppose, that a real national difficultycan be removed, by shifting it from the shoulders of one classof the community, who justly ought to bear it, to the shouldersof another class, who, upon every principle of equity, oughtto bear no more than their share.3

Taxes on Other Commoditiesch. xvii 247

From what I have said, it must not be inferred that I con-sider the system of borrowing as the best calculated to defraythe extraordinary expenses of the State. It is a system whichtends to make us less thrifty—to blind us to our real situation.If the expenses of a war be 40 millions per annum, and theshare which a man would have to contribute towards thatannual expense were 100l., he would endeavour, on being atonce called upon for his portion, to save speedily the 100l.from his income. By the system of loans, he is called upon topay only the interest of this 100l., or 5l. per annum, and con-siders that he does enough by saving this 5l. from his expendi-ture, and then deludes himself with the belief, that he is as richas before. The whole nation, by reasoning and acting in thismanner, save only the interest of 40 millions, or two millions;and thus, not only lose all the interest or profit which 40millions of capital, employed productively, would afford, butalso 38 millions, the difference between their savings and ex-penditure. If, as I before observed, each man had to makehis own loan, and contribute his full proportion to the exi-gencies of the State, as soon as the war ceased, taxation wouldcease, and we should immediately fall into a natural state ofprices. Out of his private funds, A might have to pay to Binterest for the money he borrowed of him during the war,to enable him to pay his quota of the expense; but with thisthe nation would have no concern.

A country which has accumulated a large debt, is placed ina most artificial situation; and although the amount of taxes,and the increased price of labour, may not, and I believe doesnot, place it under any other disadvantage with respect toforeign countries, except the unavoidable one of paying thosetaxes, yet it becomes the interest of every contributor to with-draw his shoulder from the burthen, and to shift this paymentfrom himself to another; and the temptation to remove himself

248 Principles ch. xvii

1 Ed. 1 ‘To such an effect’.2 Ed. 1 ‘Such a scheme’.

3 It was first proposed by ArchibaldHutcheson in 1714; see below, V,41, n. 1.

and his capital to another country, where he will be exemptedfrom such burthens, becomes at last irresistible, and overcomesthe natural reluctance which every man feels to quit the placeof his birth, and the scene of his early associations. A countrywhich has involved itself in the difficulties attending this arti-ficial system, would act wisely by ransoming itself from them,at the sacrifice of any portion of its property which might benecessary to redeem its debt. That which is wise in an individual,is wise also in a nation. A man who has 10,000l., paying himan income of 500l., out of which he has to pay 100l. per annumtowards the interest of the debt, is really worth only 8000l.,and would be equally rich, whether he continued to pay 100l.per annum, or at once, and for only once, sacrificed 2000l. Butwhere, it is asked, would be the purchaser of the property whichhe must sell to obtain this 2000l.? the answer is plain: thenational creditor, who is to receive this 2000l., will want aninvestment for his money, and will be disposed either to lendit to the landholder, or manufacturer, or to purchase from thema part of the property of which they have to dispose. To sucha payment1 the stockholders themselves would largely con-tribute. This scheme 2 has been often recommended,3 but wehave, I fear, neither wisdom enough, nor virtue enough, toadopt it. It must, however, be admitted, that during peace,our unceasing efforts should be directed towards paying offthat part of the debt which has been contracted during war;and that no temptation of relief, no desire of escape frompresent, and I hope temporary distresses, should induce us torelax in our attention to that great object.

No sinking fund can be efficient for the purpose of diminish-ing the debt, if it be not derived from the excess of the public

Taxes on Other Commoditiesch. xvii 249

1 Eds. 1–2 do not contain this note.Say’s reference to ‘the publicfunds’ appears first in his 4th ed.,

1819; the passage was altered in the5th ed., 1826, in a way that avoidsRicardo’s objection.

revenue over the public expenditure. It is to be regretted, thatthe sinking fund in this country is only such in name; forthere is no excess of revenue above expenditure. It ought, byeconomy, to be made what it is professed to be, a reallyefficient fund for the payment of the debt. If, on the breakingout of any future war, we shall not have very considerablyreduced our debt, one of two things must happen, either thewhole expenses of that war must be defrayed by taxes raisedfrom year to year, or we must, at the end of that war, if notbefore, submit to a national bankruptcy; not that we shall beunable to bear any large additions to the debt; it would bedifficult to set limits to the powers of a great nation; butassuredly there are limits to the price, which in the form ofperpetual taxation, individuals will submit to pay for the privi-lege merely of living in their native country.*

When a commodity is at a monopoly price, it is at the veryhighest price at which the consumers are willing to purchase it.Commodities are only at a monopoly price, when by no possibledevice their quantity can be augmented; and when therefore,the competition is wholly on one side—amongst the buyers.The monopoly price of one period may be much lower orhigher than the monopoly price of another, because the com-

* “Credit, in general, is good, as it allows capitals to leave those handswhere they are not usefully employed, to pass into those where they willbe made productive: it diverts a capital from an employment useful onlyto the capitalist, such as an investment in the public funds, to make itproductive in the hands of industry. It facilitates the employments of allcapitals, and leaves none unemployed.”—Economie Politique, p. 463.2 Vol. 4th Edition.—This must be an oversight of M. Say. The capitalof the stockholder can never be made productive—it is, in fact, no capital.If he were to sell his stock, and employ the capital he obtained for it,productively, he could only do so by detaching the capital of the buyerof his stock from a productive employment.1

250 Principles ch. xvii

petition amongst the purchasers must depend on their wealth,and their tastes and caprices. Those peculiar wines, which areproduced in very limited quantity, and those works of art,which from their excellence or rarity, have acquired a fancifulvalue, will be exchanged for a very different quantity of theproduce of ordinary labour, according as the society is rich orpoor, as it possesses an abundance or scarcity of such produce,or as it may be in a rude or polished state. The exchangeablevalue therefore of a commodity which is at a monopoly price,is no where regulated by the cost of production.

Raw produce is not at a monopoly price, because the marketprice of barley and wheat is as much regulated by their costof production, as the market price of cloth and linen. The onlydifference is this, that one portion of the capital employed inagriculture regulates the price of corn, namely, that portionwhich pays no rent; whereas, in the production of manu-factured commodities, every portion of capital is employedwith the same results; and as no portion pays rent, every por-tion is equally a regulator of price: corn, and other raw produce,can be augmented, too, in quantity, by the employment ofmore capital on the land, and therefore they are not at a mono-poly price. There is competition among the sellers, as well asamongst the buyers. This is not the case in the production ofthose rare wines, and those valuable specimens of art, of whichwe have been speaking; their quantity cannot be increased, andtheir price is limited only by the extent of the power and willof the purchasers. The rent of these vineyards may be raisedbeyond any moderately assignable limits, because no other landbeing able to produce such wines, none can be brought intocompetition with them.

The corn and raw produce of a country may, indeed, for atime sell at a monopoly price; but they can do so permanentlyonly when no more capital can be profitably employed on the

Taxes on Other Commoditiesch. xvii 251

1 Buchanan’s ed. of Wealth of Nations, vol. iv, Observations, pp. 37–8.

lands, and when, therefore, their produce cannot be increased.At such time, every portion of land in cultivation, and everyportion of capital employed on the land will yield a rent, differ-ing, indeed, in proportion to the difference in the return. At sucha time too, any tax which may be imposed on the farmer, will fallon rent, and not on the consumer. He cannot raise the price ofhis corn, because, by the supposition, it is already at the highestprice at which the purchasers will or can buy it. He will not besatisfied with a lower rate of profits, than that obtained byother capitalists, and, therefore, his only alternative will be toobtain a reduction of rent, or to quit his employment.

Mr. Buchanan considers corn and raw produce as at amonopoly price, because they yield a rent: all commoditieswhich yield a rent, he supposes must be at a monopoly price;and thence he infers, that all taxes on raw produce would fallon the landlord, and not on the consumer. “The price ofcorn,” he says, “which always affords a rent, being in no respectinfluenced by the expenses of its production, those expensesmust be paid out of the rent; and when they rise or fall, there-fore, the consequence is not a higher or lower price, but ahigher or a lower rent. In this view, all taxes on farm servants,horses, or the implements of agriculture, are in reality land-taxes; the burden falling on the farmer during the currency ofhis lease, and on the landlord, when the lease comes to berenewed. In like manner all those improved implements ofhusbandry which save expense to the farmer, such as machinesfor threshing and reaping, whatever gives him easier access tothe market, such as good roads, canals and bridges, though theylessen the original cost of corn, do not lessen its market price.Whatever is saved by those improvements, therefore, belongsto the landlord as part of his rent.”1

It is evident that if we yield to Mr. Buchanan the basis on

252 Principles ch. xvii

which his argument is built, namely, that the price of cornalways yields a rent, all the consequences which he contendsfor would follow of course. Taxes on the farmer would thenfall not on the consumer but on rent; and all improvements inhusbandry would increase rent: but I hope I have made itsufficiently clear, that until a country is cultivated in every part,and up to the highest degree, there is always a portion of capitalemployed on the land which yields no rent, and that it is thisportion of capital, the result of which, as in manufactures, isdivided between profits and wages that regulates the price ofcorn. The price of corn, then, which does not afford a rent,being influenced by the expenses of its production, those ex-penses cannot be paid out of rent. The consequence thereforeof those expenses increasing, is a higher price, and not a lowerrent.*

It is remarkable that both Adam Smith and Mr. Buchanan,who entirely agree that taxes on raw produce, a land-tax, andtithes, all fall on the rent of land, and not on the consumers ofraw produce, should nevertheless admit that taxes on malt wouldfall on the consumer of beer, and not on the rent of the land-lord. Adam Smith’s argument is so able a statement of theview which I take of the subject of the tax on malt, and everyother tax on raw produce, that I cannot refrain from offeringit to the attention of the reader.

“The rent and profits of barley land must always be nearlyequal to those of other equally fertile, and equally well culti-vated land. If they were less, some part of the barley landwould soon be turned to some other purpose; and if they were

* “Manufacturing industry increases its produce in proportion to thedemand, and the price falls; but the produce of land cannot be so increased;and a high price is still necessary to prevent the consumption fromexceeding the supply.” Buchanan, vol. iv. p. 40. Is it possible that Mr.Buchanan can seriously assert, that the produce of the land cannot beincreased, if the demand increases?

Taxes on Other Commoditiesch. xvii 253

1 Adam Smith says ‘of the produce of ’.

greater, more land would soon be turned to the raising ofbarley. When the ordinary price of any particular produce ofland is at what may be called a monopoly price, a tax upon itnecessarily reduces the rent and profit* of the land which growsit. A tax upon the produce of those precious vineyards, ofwhich the wine falls so much short of the effectual demand,that its price is always above the natural proportion to thatof 1 other equally fertile, and equally well cultivated land, wouldnecessarily reduce the rent and profit* of those vineyards. Theprice of the wines being already the highest that could be gotfor the quantity commonly sent to market, it could not beraised higher without diminishing that quantity; and the quan-tity could not be diminished without still greater loss, becausethe lands could not be turned to any other equally valuableproduce. The whole weight of the tax, therefore, would fallupon the rent and profit*; properly upon the rent of the vine-yard.” “But the ordinary price of barley has never been amonopoly price; and the rent and profit of barley land havenever been above their natural proportion to those of otherequally fertile and equally well cultivated land. The differenttaxes which have been imposed upon malt, beer, and ale, havenever lowered the price of barley; have never reduced the rentand profit* of barley land. The price of malt to the brewer, hasconstantly risen in proportion to the taxes imposed upon it;and those taxes, together with the different duties upon beerand ale, have constantly either raised the price, or, what comesto the same thing, reduced the quality of those commoditiesto the consumer. The final payment of those taxes has fallen

* I wish the word “Profit” had been omitted. Dr. Smith must sup-pose the profits of the tenants of these precious vineyards to be abovethe general rate of profits. If they were not, they would not pay the tax,unless they could shift it either to the landlord or consumer.

254 Principles ch. xvii

1 Bk. v, ch. ii, pt. ii, art. iv; vol. ii,pp. 376–7.

2 Buchanan’s ed. of the Wealth ofNations, vol. iii, p. 386, note.

constantly upon the consumer, and not upon the producer.”1

On this passage Mr. Buchanan remarks, “A duty on malt nevercould reduce the price of barley, because, unless as much couldbe made of barley by malting it as by selling it unmalted, thequantity required would not be brought to market. It is clear,therefore, that the price of malt must rise in proportion to thetax imposed on it, as the demand could not otherwise be sup-plied. The price of barley, however, is just as much a monopolyprice as that of sugar; they both yield a rent, and the marketprice of both has equally lost all connexion with the originalcost.”2

It appears then to be the opinion of Mr. Buchanan, that atax on malt would raise the price of malt, but that a tax on thebarley from which malt is made, would not raise the price ofbarley; and, therefore, if malt is taxed, the tax will be paid bythe consumer; if barley is taxed, it will be paid by the landlord,as he will receive a diminished rent. According to Mr. Buchananthen, barley is at a monopoly price, at the highest price whichthe purchasers are willing to give for it; but malt made ofbarley is not at a monopoly price, and consequently it can beraised in proportion to the taxes that may be imposed upon it.This opinion of Mr. Buchanan of the effects of a tax on maltappears to me to be in direct contradiction to the opinion hehas given of a similar tax, a tax on bread. “A tax on bread willbe ultimately paid, not by a rise of price, but by a reductionof rent.”* If a tax on malt would raise the price of beer, a taxon bread must raise the price of bread.

The following argument of M. Say is founded on the sameviews as Mr. Buchanan’s: “The quantity of wine or corn whicha piece of land will produce, will remain nearly the same, what-

* Vol. iii. p. 355.

Taxes on Other Commoditiesch. xvii 255

ever may be the tax with which it is charged. The tax may takeaway a half, or even three-fourths of its net produce, or of itsrent if you please, yet the land would nevertheless be cultivatedfor the half or the quarter not absorbed by the tax. The rent,that is to say the landlord’s share, would merely be somewhatlower. The reason of this will be perceived, if we consider, thatin the case supposed, the quantity of produce obtained fromthe land, and sent to market, will remain nevertheless the same.On the other hand the motives on which the demand for theproduce is founded, continue also the same.

“Now, if the quantity of produce supplied, and the quantitydemanded, necessarily continue the same, notwithstanding theestablishment or the increase of the tax, the price of that pro-duce will not vary; and if the price do not vary, the consumerwill not pay the smallest portion of this tax.

“Will it be said that the farmer, he who furnishes labour andcapital, will, jointly with the landlord, bear the burden of thistax? certainly not; because the circumstance of the tax has notdiminished the number of farms to be let, nor increased thenumber of farmers. Since in this instance also the supply anddemand remain the same, the rent of farms must also remainthe same. The example of the manufacturer of salt, who canonly make the consumers pay a portion of the tax, and that ofthe landlord who cannot reimburse himself in the smallestdegree, prove the error of those who maintain, in oppositionto the economists, that all taxes fall ultimately on the con-sumer.”—Vol. ii. p. 338.

If the tax “took away half, or even three-fourths of the netproduce of the land,” and the price of produce did not rise,how could those farmers obtain the usual profits of stock whopaid very moderate rents, having that quality of land whichrequired a much larger proportion of labour to obtain a givenresult, than land of a more fertile quality? If the whole rent

256 Principles ch. xvii

were remitted, they would still obtain lower profits than thosein other trades, and would therefore not continue to cultivatetheir land, unless they could raise the price of its produce.If the tax fell on the farmers, there would be fewer farmersdisposed to hire farms; if it fell on the landlord, many farmswould not be let at all, for they would afford no rent. Butfrom what fund would those pay the tax who produce cornwithout paying any rent? It is quite clear that the tax must fallon the consumer. How would such land, as M. Say describesin the following passage, pay a tax of one-half or three-fourthsof its produce?

“We see in Scotland poor lands thus cultivated by the pro-prietor, and which could be cultivated by no other person.Thus too, we see in the interior provinces of the United Statesvast and fertile lands, the revenue of which, alone, would notbe sufficient for the maintenance of the proprietor. These landsare cultivated nevertheless, but it must be by the proprietorhimself, or, in other words, he must add to the rent, which islittle or nothing, the profits of his capital and industry, toenable him to live in competence. It is well known that land,though cultivated, yields no revenue to the landlord when nofarmer will be willing to pay a rent for it: which is a proof thatsuch land will give only the profits of the capital, and of theindustry necessary for its cultivation.”—Say, Vol. ii. p. 127.

chapter xviii

Poor Rates

We have seen that taxes on raw produce, and on the profitsof the farmer, will fall on the consumer of raw produce; sinceunless he had the power of remunerating himself by an increaseof price, the tax would reduce his profits below the general levelof profits, and would urge him to remove his capital to someother trade. We have seen too, that he could not, by deductingit from his rent, transfer the tax to his landlord; because thatfarmer who paid no rent, would, equally with the cultivatorof better land, be subject to the tax, whether it were laid on rawproduce, or on the profits of the farmer. I have also attemptedto shew, that if a tax were general, and affected equally allprofits, whether manufacturing or agricultural, it would notoperate either on the price of goods or raw produce, but wouldbe immediately, as well as ultimately, paid by the producers.A tax on rent, it has been observed, would fall on the landlordonly, and could not by any means be made to devolve on thetenant.

The poor rate is a tax which partakes of the nature of allthese taxes, and under different circumstances falls on the con-sumer of raw produce and goods, on the profits of stock, andon the rent of land. It is a tax which falls with peculiar weighton the profits of the farmer, and therefore may be consideredas affecting the price of raw produce. According to the degreein which it bears on manufacturing and agricultural profitsequally, it will be a general tax on the profits of stock, and willoccasion no alteration in the price of raw produce and manu-factures. In proportion to the farmer’s inability to remuneratehimself, by raising the price of raw produce, for that portionof the tax which peculiarly affects him, it will be a tax on rent,

258 Principles ch. xviii

1 Ed. 1 does not contain ‘it’.

and will be paid by the landlord. To know, then, the operationof the poor rate at any particular time, we must ascertainwhether at that time it affects in an equal or unequal degreethe profits of the farmer and manufacturer; and also whetherthe circumstances be such as to afford to the farmer the powerof raising the price of raw produce.

The poor rates are professed to be levied on the farmer inproportion to his rent; and accordingly, the farmer who paida very small rent, or no rent at all, should pay little or no tax.If this were true, poor rates, as far as they are paid by theagricultural class, would entirely fall on the landlord, and couldnot be shifted to the consumer of raw produce. But I believethat it1 is not true; the poor rate is not levied according to therent which a farmer actually pays to his landlord; it is propor-tioned to the annual value of his land, whether that annualvalue be given to it by the capital of the landlord or of thetenant.

If two farmers rented land of two different qualities in thesame parish, the one paying a rent of 100l. per annum for 50acres of the most fertile land, and the other the same sum of100l. for 1000 acres of the least fertile land, they would paythe same amount of poor rates, if neither of them attemptedto improve the land; but if the farmer of the poor land, pre-suming on a very long lease, should be induced, at a greatexpense, to improve the productive powers of his land, bymanuring, draining, fencing, &c., he would contribute to thepoor rates, not in proportion to the actual rent paid to thelandlord, but to the actual annual value of the land. The ratemight equal or exceed the rent; but whether it did or not,no part of this rate would be paid by the landlord. It wouldhave been previously calculated upon by the tenant; and if theprice of produce were not sufficient to compensate him for all

Poor Ratesch. xviii 259

1 Ed. 1 ‘he’ instead of ‘the land-lord’.

2 Ed. 1 ‘But if ’.

his expenses, together with this additional charge for poorrates, his improvements would not have been undertaken. Itis evident, then, that the tax in this case is paid by the con-sumer; for if there had been no rate, the same improvementswould have been undertaken, and the usual and general rateof profits would have been obtained on the stock employed,with a lower price of corn.

Nor would it make the slightest difference in this question,if the landlord had made these improvements himself, and hadin consequence raised his rent from 100l. to 500l.; the ratewould be equally charged to the consumer; for whether thelandlord1 should expend a large sum of money on his land,would depend on the rent, or what is called rent, which hewould receive as a remuneration for it; and this again woulddepend on the price of corn, or other raw produce, beingsufficiently high not only to cover this additional rent, but alsothe rate to which the land would be subject. If 2 at the sametime all manufacturing capital contributed to the poor rates,in the same proportion as the capital expended by the farmeror landlord in improving the land, then it would no longerbe a partial tax on the profits of the farmer’s or landlord’scapital, but a tax on the capital of all producers; and, therefore,it could no longer be shifted either on the consumer of rawproduce or on the landlord. The farmer’s profits would feel theeffect of the rate no more than those of the manufacturer; andthe former could not, any more than the latter, plead it as areason for an advance in the price of his commodity. It is notthe absolute, but the relative fall of profits, which preventscapital from being employed in any particular trade: it is thedifference of profit which sends capital from one employmentto another.

260 Principles ch. xviii

1 Ed. 1 ‘unless the price of raw produce were raised.’

It must be acknowledged, however, that in the actual stateof the poor rates, a much larger amount falls on the farmerthan on the manufacturer, in proportion to their respectiveprofits; the farmer being rated according to the actual produc-tions which he obtains, the manufacturer only according to thevalue of the buildings in which he works, without any regardto the value of the machinery, labour, or stock which he mayemploy. From this circumstance it follows, that the farmerwill be enabled to raise the price of his produce by this wholedifference. For since the tax falls unequally, and peculiarly onhis profits, he would have less motive to devote his capital tothe land, than to employ it in some other trade, were not theprice of raw produce raised.1 If, on the contrary, the rate hadfallen with greater weight on the manufacturer than on thefarmer, he would have been enabled to raise the price of hisgoods by the amount of the difference, for the same reason thatthe farmer under similar circumstances could raise the price ofraw produce. In a society, therefore, which is extending itsagriculture, when poor rates fall with peculiar weight on theland, they will be paid partly by the employers of capital in adiminution of the profits of stock, and partly by the consumerof raw produce in its increased price. In such a state of things,the tax may, under some circumstances, be even advantageousrather than injurious to landlords; for if the tax paid bythe cultivator of the worst land, be higher in proportionto the quantity of produce obtained, than that paid by thefarmers of the more fertile lands, the rise in the price ofcorn, which will extend to all corn, will more than com-pensate the latter for the tax. This advantage will remain withthem during the continuance of their leases, but it will after-wards be transferred to their landlords. This, then, would bethe effect of poor rates in an advancing society; but in a

Poor Ratesch. xviii 261

1 Eds. 1–2 ‘This additional tax, asfar as it fell unequally on manu-facturers, would’.

2 Above, p. 67.

stationary, or in a retrograde country, so far as capital couldnot be withdrawn from the land, if a further rate were leviedfor the support of the poor, that part of it which fell on agri-culture would be paid, during the current leases, by the farmers;but, at the expiration of those leases, it would almost whollyfall on the landlords. The farmer, who, during his former lease,had expended his capital in improving his land, if it were stillin his own hands would be rated for this new tax accordingto the new value which the land had acquired by its improve-ment, and this amount he would be obliged to pay during hislease, although his profits might thereby be reduced below thegeneral rate of profits; for the capital which he has expendedmay be so incorporated with the land, that it cannot be re-moved from it. If, indeed, he, or his landlord, (should it havebeen expended by him) were able to remove this capital, andthereby reduce the annual value of the land, the rate wouldproportionably fall, and as the produce would at the same timebe diminished, its price would rise; he would be compensatedfor the tax, by charging it to the consumer, and no part wouldfall on rent; but this is impossible, at least with respect to someproportion of the capital, and consequently in that proportionthe tax will be paid by the farmers during their leases, and bylandlords at their expiration. This additional tax, if it fell withpeculiar severity on manufacturers, which it does not, would,1

under such circumstances, be added to the price of their goods;for there can be no reason why their profits should be reducedbelow the general rate of profits, when their capitals might beeasily removed to agriculture.*

* In a former part of this work,2 I have noticed the difference betweenrent, properly so called, and the remuneration paid to the landlord underthat name, for the advantages which the expenditure of his capital has

262 Principles ch. xviii

procured to his tenant; but I did not perhaps sufficiently distinguish thedifference which would arise from the different modes in which thiscapital might be applied. As a part of this capital, when once expendedin the improvement of a farm, is inseparably amalgamated with the land,and tends to increase its productive powers, the remuneration paid tothe landlord for its use is strictly of the nature of rent, and is subjectto all the laws of rent. Whether the improvement be made at the expenseof the landlord or the tenant, it will not be undertaken in the first instance,unless there is a strong probability that the return will at least be equalto the profit that can be made by the disposition of any other equal capital;but when once made, the return obtained will ever after be wholly of thenature of rent, and will be subject to all the variations of rent. Some ofthese expenses, however, only give advantages to the land for a limitedperiod, and do not add permanently to its productive powers: beingbestowed on buildings, and other perishable improvements, they requireto be constantly renewed, and therefore do not obtain for the landlordany permanent addition to his real rent.

chapter xix

On Sudden Changes in theChannels of Trade

A great manufacturing country is peculiarly exposed totemporary reverses and contingencies, produced by the removalof capital from one employment to another. The demands forthe produce of agriculture are uniform, they are not under theinfluence of fashion, prejudice, or caprice. To sustain life, foodis necessary, and the demand for food must continue in allages, and in all countries. It is different with manufactures;the demand for any particular manufactured commodity, issubject not only to the wants, but to the tastes and caprice ofthe purchasers. A new tax too may destroy the comparativeadvantage which a country before possessed in the manufactureof a particular commodity; or the effects of war may so raisethe freight and insurance on its conveyance, that it can nolonger enter into competition with the home manufacture of thecountry to which it was before exported. In all such cases,considerable distress, and no doubt some loss, will be ex-perienced by those who are engaged in the manufacture ofsuch commodities; and it will be felt not only at the time ofthe change, but through the whole interval during which theyare removing their capitals, and the labour which they cancommand, from one employment to another.

Nor will distress be experienced in that country alone wheresuch difficulties originate, but in the countries to which itscommodities were before exported. No country can long im-port, unless it also exports, or can long export unless it alsoimports. If, then, any circumstance should occur, which shouldpermanently prevent a country from importing the usual amount

264 Principles ch. xix

1 Eds. 1–2 do not contain this note.The reference is to the 4th ed., 1819,of Say’s Traite d’Economie politique,

but the passage was already inthe 2nd ed. of Say, 1814, vol. 11,pp. 437–8.

of foreign commodities, it will necessarily diminish the manu-facture of some of those commodities which were usuallyexported; and although the total value of the productions ofthe country will probably be but little altered, since the samecapital will be employed, yet they will not be equally abundantand cheap; and considerable distress will be experienced throughthe change of employments. If by the employment of 10,000l.in the manufacture of cotton goods for exportation, we im-ported annually 3000 pair of silk stockings of the value of2000l., and by the interruption of foreign trade we should beobliged to withdraw this capital from the manufacture of cotton,and employ it ourselves in the manufacture of stockings, weshould still obtain stockings of the value of 2000l. providedno part of the capital were destroyed; but instead of having3000 pair, we might only have 2500. In the removal of thecapital from the cotton to the stocking trade, much distressmight be experienced, but it would not considerably impairthe value of the national property, although it might lessenthe quantity of our annual productions.*

* “Commerce enables us to obtain a commodity in the place whereit is to be found, and to convey it to another where it is to be consumed;it therefore gives us the power of increasing the value of the commodity,by the whole difference between its price in the first of these places, andits price in the second.” M. Say, p. 458, vol. ii. True, but how is thisadditional value given to it? By adding to the cost of production, first,the expenses of conveyance; secondly, the profit on the advances ofcapital made by the merchant. The commodity is only more valuable,for the same reasons that every other commodity may become morevaluable, because more labour is expended on its production and con-veyance, before it is purchased by the consumer. This must not be men-tioned as one of the advantages of commerce. When the subject is moreclosely examined, it will be found that the whole benefits of commerceresolve themselves into the means which it gives us of acquiring, not morevaluable objects, but more useful ones.1

Sudden Changes in Channels of Tradech. xix 265

The commencement of war after a long peace, or of peaceafter a long war, generally produces considerable distress intrade. It changes in a great degree the nature of the employ-ments to which the respective capitals of countries were beforedevoted; and during the interval while they are settling in thesituations which new circumstances have made the most bene-ficial, much fixed capital is unemployed, perhaps wholly lost,and labourers are without full employment. The duration ofthis distress will be longer or shorter according to the strengthof that disinclination, which most men feel to abandon thatemployment of their capital to which they have long beenaccustomed. It is often protracted too by the restrictions andprohibitions, to which the absurd jealousies which prevail be-tween the different States of the commercial commonwealthgive rise.

The distress which proceeds from a revulsion of trade, isoften mistaken for that which accompanies a diminution of thenational capital, and a retrograde state of society; and it wouldperhaps be difficult to point out any marks by which they maybe accurately distinguished.

When, however, such distress immediately accompanies achange from war to peace, our knowledge of the existence ofsuch a cause will make it reasonable to believe, that the fundsfor the maintenance of labour have rather been diverted fromtheir usual channel, than materially impaired, and that aftertemporary suffering, the nation will again advance in pros-perity. It must be remembered too that the retrograde con-dition is always an unnatural state of society. Man fromyouth grows to manhood, then decays, and dies; but this isnot the progress of nations. When arrived to a state of thegreatest vigour, their further advance may indeed be arrested,but their natural tendency is to continue for ages, to sustainundiminished their wealth, and their population.

266 Principles ch. xix

In rich and powerful countries, where large capitals are in-vested in machinery, more distress will be experienced froma revulsion in trade, than in poorer countries where there isproportionally a much smaller amount of fixed, and a muchlarger amount of circulating capital, and where consequentlymore work is done by the labour of men. It is not so difficultto withdraw a circulating as a fixed capital, from any employ-ment in which it may be engaged. It is often impossible todivert the machinery which may have been erected for onemanufacture, to the purposes of another; but the clothing, thefood, and the lodging of the labourer in one employment maybe devoted to the support of the labourer in another; or thesame labourer may receive the same food, clothing and lodging,whilst his employment is changed. This, however, is an evilto which a rich nation must submit; and it would not be morereasonable to complain of it, than it would be in a rich merchantto lament that his ship was exposed to the dangers of the sea,whilst his poor neighbour’s cottage was safe from all such hazard.

From contingencies of this kind, though in an inferior degree,even agriculture is not exempted. War, which in a commercialcountry, interrupts the commerce of States, frequently preventsthe exportation of corn from countries where it can be pro-duced with little cost, to others not so favourably situated.Under such circumstances an unusual quantity of capital isdrawn to agriculture, and the country which before importedbecomes independent of foreign aid. At the termination ofthe war, the obstacles to importation are removed, and a com-petition destructive to the home-grower commences, fromwhich he is unable to withdraw, without the sacrifice of a greatpart of his capital. The best policy of the State would be, tolay a tax, decreasing in amount from time to time, on theimportation of foreign corn, for a limited number of years,in order to afford to the home-grower an opportunity to with-

Sudden Changes in Channels of Tradech. xix 267

1 Vol. 111, p. 363.2 Ed. 1 does not contain this note.It was added in ed. 2 with another(below, p. 318) at the request of

McCulloch, who was the authorof the Encyclopædia article; seeMcCulloch’s letter, below, VII,354.

draw his capital gradually from the land.* In so doing, thecountry might not be making the most advantageous distribu-tion of its capital, but the temporary tax to which it was sub-jected, would be for the advantage of a particular class, thedistribution of whose capital was highly useful in procuringa supply of food when importation was stopped. If suchexertions in a period of emergency were followed by risk ofruin on the termination of the difficulty, capital would shunsuch an employment. Besides the usual profits of stock, farmerswould expect to be compensated for the risk which they in-curred of a sudden influx of corn; and, therefore, the priceto the consumer, at the seasons when he most required asupply, would be enhanced, not only by the superior cost ofgrowing corn at home, but also by the insurance which he

* In the last volume to the supplement of the Encyclopædia Britannica,1

article “Corn Laws and Trade,” are the following excellent suggestionsand observations: “If we shall at any future period, think of retracingour steps, in order to give time to withdraw capital from the cultivationof our poor soils, and to invest it in more lucrative employments, agradually diminishing scale of duties may be adopted. The price at whichforeign grain should be admitted duty free, may be made to decreasefrom 80s. its present limit, by 4s. or 5s. per quarter annually, till it reaches50s. when the ports could safely be thrown open, and the restrictivesystem be for ever abolished. When this happy event shall have takenplace, it will be no longer necessary to force nature. The capital andenterprise of the country will be turned into those departments of industryin which our physical situation, national character, or political institutions,fit us to excel. The corn of Poland, and the raw cotton of Carolina, willbe exchanged for the wares of Birmingham, and the muslins of Glasgow.The genuine commercial spirit, that which permanently secures theprosperity of nations, is altogether inconsistent with the dark and shallowpolicy of monopoly. The nations of the earth are like provinces of thesame kingdom—a free and unfettered intercourse is alike productive ofgeneral and of local advantage.” The whole article is well worthy ofattention; it is very instructive, is ably written, and shews that the authoris completely master of the subject.2

268 Principles ch. xix

1 Eds. 1–2 read ‘for if he couldobtain more corn by growing it onland for which he paid no rent,than by manufacturing a com-modity with which he purchasedit, its price could not be under 4l.’2 The allusion is to W. Jacob who,attacking a passage of Ricardo’sEssay on Profits (below, IV, 32),

had remarked that ‘the capital in-vested in the poorer lands cannot bewithdrawn’, adding: ‘Every manwho has been ten miles from theRoyal Exchange, knows that deepploughing, cleaning, manuring,liming, and draining ... form thecapital thus expended’ (A Letter toSamuel Whitbread, 1815, p. 34).

would have to pay, in the price, for the peculiar risk to whichthis employment of capital was exposed. Notwithstanding,then, that it would be more productive of wealth to the country,at whatever sacrifice of capital it might be done, to allow theimportation of cheap corn, it would, perhaps, be advisable tocharge it with a duty for a few years.

In examining the question of rent, we found, that with everyincrease in the supply of corn, and with the consequent fallof its price, capital would be withdrawn from the poorer land;and land of a better description, which would then pay no rent,would become the standard by which the natural price of cornwould be regulated. At 4l. per quarter, land of an inferiorquality, which may be designated by No. 6, might be culti-vated; at 3l. 10s. No. 5; at 3l. No. 4, and so on. If corn, inconsequence of permanent abundance, fell to 3l. 10s., the capitalemployed on No. 6 would cease to be employed; for it wasonly when corn was at 4l. that it could obtain the general profits,even without paying rent: it would, therefore, be withdrawnto manufacture those commodities with which all the corngrown on No. 6 would be purchased and imported. In thisemployment it would necessarily be more productive to itsowner, or it would not be withdrawn from the other; for ifhe could not obtain more corn by purchasing it with a com-modity which he manufactured, than he got from the land forwhich he paid no rent, its price could not be under 4l.1

It has, however, been said,2 that capital cannot be withdrawn

Sudden Changes in Channels of Tradech. xix 269

1 Eds. 1–2 do not contain this note. Cp. Ricardo’s reply to Brougham’sspeech of 30 May 1820, below, V, 85–6.

from the land; that it takes the form of expenses, which cannotbe recovered, such as manuring, fencing, draining, &c., whichare necessarily inseparable from the land. This is in some degreetrue; but that capital which consists of cattle, sheep, hay andcorn ricks, carts, &c. may be withdrawn; and it always becomesa matter of calculation, whether these shall continue to beemployed on the land, notwithstanding the low price of corn,or whether they shall be sold, and their value transferred toanother employment.

Suppose, however, the fact to be as stated, and that no partof the capital could be withdrawn*; the farmer would con-tinue to raise corn, and precisely the same quantity too, atwhatever price it might sell; for it could not be his interestto produce less, and if he did not so employ his capital, hewould obtain from it no return whatever. Corn could not beimported, because he would sell it lower than 3l. 10s. ratherthan not sell it at all, and by the supposition the importer couldnot sell it under that price. Although then the farmers, who

* Whatever capital becomes fixed on the land, must necessarily be thelandlord’s, and not the tenants’, at the expiration of the lease. Whatevercompensation the landlord may receive for this capital, on re-letting hisland, will appear in the form of rent; but no rent will be paid, if, with agiven capital, more corn can be obtained from abroad, than can be grownon this land at home. If the circumstances of the society should requirecorn to be imported, and 1000 quarters can be obtained by the employ-ment of a given capital, and if this land, with the employment of the samecapital, will yield 1100 quarters, 100 quarters will necessarily go to rent;but if 1200 can be got from abroad, then this land will go out of cultiva-tion, for it will not then yield even the general rate of profit. But this isno disadvantage, however great the capital may have been, that had beenexpended on the land. Such capital is spent with a view to augment theproduce—that, it should be remembered, is the end; of what importancethen can it be to the society, whether half its capital be sunk in value,or even annihilated, if they obtain a greater annual quantity of produc-tion? Those who deplore the loss of capital in this case, are for sacrificingthe end to the means.1

270 Principles ch. xix

1 Ed. 1 ‘could’.

cultivated land of this quality, would undoubtedly be injuredby the fall in the exchangeable value of the commodity whichthey produced,—how would the country be affected? Weshould have precisely the same quantity of every commodityproduced, but raw produce and corn would sell at a muchcheaper price. The capital of a country consists of its com-modities, and as these would be the same as before, reproduc-tion would go on at the same rate. This low price of cornwould however only afford the usual profits of stock to the land,No. 5, which would then pay no rent, and the rent of all betterland would fall: wages would also fall, and profits would rise.

However low the price of corn might fall; if capital couldnot be removed from the land, and the demand did not increase,no importation would take place; for the same quantity asbefore would be produced at home. Although there would bea different division of the produce, and some classes would bebenefited, and others injured, the aggregate of productionwould be precisely the same, and the nation collectively wouldneither be richer nor poorer.

But there is this advantage always resulting from a relativelylow price of corn,—that the division of the actual productionis more likely to increase the fund for the maintenance of labour,inasmuch as more will be allotted, under the name of profit,to the productive class, a less under the name rent, to the un-productive class.

This is true, even if the capital cannot be withdrawn fromthe land, and must be employed there, or not be employed atall: but if great part of the capital can1 be withdrawn, as itevidently could, it will be only withdrawn, when it will yieldmore to the owner by being withdrawn than by being sufferedto remain where it was; it will only be withdrawn then, whenit can elsewhere be employed more productively both for the

Sudden Changes in Channels of Tradech. xix 271

1 Ed. 1 does not contain ‘the valueof ’.2 Cp. the similar arguments in

Essay on Profits, below, IV, 33, 41.3 Ed. 1 does not contain this note.On its origin see above, p. 97, n. 6.

owner and the public. He consents to sink that part of hiscapital which cannot be separated from the land, because withthat part which he can take away, he can obtain a greater value,and a greater quantity of raw produce, than by not sinking thispart of the capital. His case is precisely similar to that of a manwho has erected machinery in his manufactory at a great ex-pense, machinery which is afterwards so much improved uponby more modern inventions, that the commodities manu-factured by him very much sink in value. It would be entirelya matter of calculation with him whether he should abandonthe old machinery, and erect the more perfect, losing all thevalue of the old, or continue to avail himself of its comparativelyfeeble powers. Who, under such circumstances, would exhorthim to forego the use of the better machinery, because it woulddeteriorate or annihilate the value of the old? Yet this is theargument of those who would wish us to prohibit the importa-tion of corn, because it will deteriorate or annihilate that partof the capital of the farmer which is for ever sunk in land.They do not see that the end of all commerce is to increaseproduction, and that by increasing production, though you mayoccasion partial loss, you increase the general happiness. To beconsistent, they should endeavour to arrest all improvements inagriculture and manufactures, and all inventions of machinery;for though these contribute to general abundance, and there-fore to the general happiness, they never fail, at the momentof their introduction, to deteriorate or annihilate the value of 1

a part of the existing capital of farmers and manufacturers.2*

* Among the most able of the publications, on the impolicy of re-stricting the Importation of Corn, may be classed Major Torrens’ Essayon the External Corn Trade. His arguments appear to me to be un-answered, and to be unanswerable.3

272 Principles ch. xix

Agriculture, like all other trades, and particularly in a com-mercial country, is subject to a reaction, which, in an oppositedirection, succeeds the action of a strong stimulus. Thus, whenwar interrupts the importation of corn, its consequent highprice attracts capital to the land, from the large profits whichsuch an employment of it affords; this will probably cause morecapital to be employed, and more raw produce to be broughtto market than the demands of the country require. In suchcase, the price of corn will fall from the effects of a glut, andmuch agricultural distress will be produced, till the averagesupply is brought to a level with the average demand.

1 Bk. i, ch. v; vol. i, p. 32.

chapter xx

Value and Riches, theirDistinctive Properties

“A man is rich or poor,” says Adam Smith, “according tothe degree in which he can afford to enjoy the necessaries, con-veniences, and amusements of human life.”1

Value, then, essentially differs from riches, for value dependsnot on abundance, but on the difficulty or facility of production.The labour of a million of men in manufactures, will alwaysproduce the same value, but will not always produce the sameriches. By the invention of machinery, by improvements inskill, by a better division of labour, or by the discovery ofnew markets, where more advantageous exchanges may bemade, a million of men may produce double, or treble theamount of riches, of “necessaries, conveniences, andamusements,” in one state of society, that they could pro-duce in another, but they will not on that account add anything to value; for every thing rises or falls in value, in pro-portion to the facility or difficulty of producing it, or, in otherwords, in proportion to the quantity of labour employed onits production. Suppose with a given capital, the labour of acertain number of men produced 1000 pair of stockings, andthat by inventions in machinery, the same number of men canproduce 2000 pair, or that they can continue to produce 1000pair, and can produce besides 500 hats; then the value of the2000 pair of stockings, or of the 1000 pair of stockings, and500 hats, will be neither more nor less than that of the 1000 pairof stockings before the introduction of machinery; for they will

274 Principles ch. xx

1 Ed. 1 ‘of its commodities’.2 Bk. i, ch. v; vol. i, p. 35. Adam

Smith says ‘the distinction’, not‘the difference’.

be the produce of the same quantity of labour. But the value ofthe general mass of commodities will nevertheless be diminished;for, although the value of the increased quantity produced, inconsequence of the improvement, will be the same exactly asthe value would have been of the less quantity that would havebeen produced, had no improvement taken place, an effect isalso produced on the portion of goods still unconsumed, whichwere manufactured previously to the improvement; the valueof those goods will be reduced, inasmuch as they must fall tothe level, quantity for quantity, of the goods produced underall the advantages of the improvement: and the society will,notwithstanding the increased quantity of commodities1, not-withstanding its augmented riches, and its augmented meansof enjoyment, have a less amount of value. By constantly in-creasing the facility of production, we constantly diminish thevalue of some of the commodities before produced, though bythe same means we not only add to the national riches, butalso to the power of future production. Many of the errors inpolitical economy have arisen from errors on this subject, fromconsidering an increase of riches, and an increase of value, asmeaning the same thing, and from unfounded notions as towhat constituted a standard measure of value. One man con-siders money as a standard of value, and a nation grows richeror poorer, according to him, in proportion as its commoditiesof all kinds can exchange for more or less money. Othersrepresent money as a very convenient medium for the purposeof barter, but not as a proper measure by which to estimatethe value of other things; the real measure of value accordingto them, is corn,* and a country is rich or poor, according as

* Adam Smith says, “that the difference between the real and thenominal price of commodities and labour, is not a matter of mere specula-tion, but may sometimes be of considerable use in practice.”2 I agree

Value and Richesch. xx 275

1 In eds. 1–2 the note on Say isattached here instead of two linesabove.2 These observations on an in-variable standard of value should

have been altered in ed. 3 to agreewith the changes introduced inChapter I; see above, p. 17, n. 3and cp. p. 43 ff.

its commodities will exchange for more or less corn.* Thereare others again, who consider a country rich or poor, ac-cording to the quantity of labour that it can purchase.1 Butwhy should gold, or corn, or labour, be the standard measureof value, more than coals or iron?—more than cloth, soap,candles, and the other necessaries of the labourer?—why, inshort, should any commodity, or all commodities together, bethe standard, when such a standard is itself subject to fluctua-tions in value? Corn, as well as gold, may from difficulty orfacility of production, vary 10, 20, or 30 per cent., relativelyto other things; why should we always say, that it is thoseother things which have varied, and not the corn? That com-modity is alone invariable, which at all times requires the samesacrifice of toil and labour to produce it. Of such a commoditywe have no knowledge, but we may hypothetically argue andspeak about it, as if we had; and may improve our knowledgeof the science, by shewing distinctly the absolute inapplica-bility of all the standards which have been hitherto adopted.2

But supposing either of these to be a correct standard of value,still it would not be a standard of riches, for riches do notdepend on value. A man is rich or poor, according to theabundance of necessaries and luxuries which he can command;and whether the exchangeable value of these for money, for

with him; but the real price of labour and commodities, is no more tobe ascertained by their price in goods, Adam Smith’s real measure, thanby their price in gold and silver, his nominal measure. The labourer isonly paid a really high price for his labour, when his wages will purchasethe produce of a great deal of labour.

* In vol. i. p. 108, M. Say infers, that silver is now of the same value,as in the reign of Louis XIV. “because the same quantity of silver willbuy the same quantity of corn.”

276 Principles ch. xx

1 An Inquiry into the Nature andOrigin of Public Wealth, and into

the Means and Causes of its Increase,Edinburgh, 1804, p. 44.

corn, or for labour, be high or low, they will equally contributeto the enjoyment of their possessor. It is through confoundingthe ideas of value and wealth, or riches that it has been asserted,that by diminishing the quantity of commodities, that is to sayof the necessaries, conveniences, and enjoyments of human life,riches may be increased. If value were the measure of riches,this could not be denied, because by scarcity the value of com-modities is raised; but if Adam Smith be correct, if richesconsist in necessaries and enjoyments, then they cannot be in-creased by a diminution of quantity.

It is true, that the man in possession of a scarce commodityis richer, if by means of it he can command more of the neces-saries and enjoyments of human life; but as the general stockout of which each man’s riches are drawn, is diminished inquantity, by all that any individual takes from it, other men’sshares must necessarily be reduced in proportion as this favouredindividual is able to appropriate a greater quantity to him-self.

Let water become scarce, says Lord Lauderdale,1 and beexclusively possessed by an individual, and you will increasehis riches, because water will then have value; and if wealthbe the aggregate of individual riches, you will by the same meansalso increase wealth. You undoubtedly will increase the richesof this individual, but inasmuch as the farmer must sell a partof his corn, the shoemaker a part of his shoes, and all men giveup a portion of their possessions for the sole purpose of sup-plying themselves with water, which they before had fornothing, they are poorer by the whole quantity of commoditieswhich they are obliged to devote to this purpose, and theproprietor of water is benefited precisely by the amount oftheir loss. The same quantity of water, and the same quantity

Value and Richesch. xx 277

of commodities, are enjoyed by the whole society, but theyare differently distributed. This is, however, supposing rathera monopoly of water than a scarcity of it. If it should bescarce, then the riches of the country and of individuals wouldbe actually diminished, inasmuch as it would be deprived of aportion of one of its enjoyments. The farmer would not onlyhave less corn to exchange for the other commodities whichmight be necessary or desirable to him, but he, and everyother individual, would be abridged in the enjoyment of one ofthe most essential of their comforts. Not only would there bea different distribution of riches, but an actual loss of wealth.

It may be said, then, of two countries possessing preciselythe same quantity of all the necessaries and comforts of life,that they are equally rich, but the value of their respective richeswould depend on the comparative facility or difficulty withwhich they were produced. For if an improved piece ofmachinery should enable us to make two pair of stockings,instead of one, without additional labour, double the quantitywould be given in exchange for a yard of cloth. If a similarimprovement be made in the manufacture of cloth, stockingsand cloth will exchange in the same proportions as before, butthey will both have fallen in value; for in exchanging them forhats, for gold, or other commodities in general, twice theformer quantity must be given. Extend the improvement tothe production of gold, and every other commodity; and theywill all regain their former proportions. There will be doublethe quantity of commodities annually produced in the country,and therefore the wealth of the country will be doubled, butthis wealth will not have increased in value.

Although Adam Smith has given the correct description ofriches, which I have more than once noticed, he afterwardsexplains them differently, and says, “that a man must be richor poor according to the quantity of labour which he can afford

278 Principles ch. xx

1 Bk. i, ch. v; vol. i, p. 32.

to purchase.”1 Now, this description differs essentially fromthe other, and is certainly incorrect; for, suppose the mineswere to become more productive, so that gold and silver fellin value, from the greater facility of their production; or thatvelvets were to be manufactured with so much less labour thanbefore, that they fell to half their former value; the riches ofall those who purchased those commodities would be in-creased; one man might increase the quantity of his plate,another might buy double the quantity of velvet; but with thepossession of this additional plate and velvet, they could em-ploy no more labour than before; because, as the exchangeablevalue of velvet and of plate would be lowered, they must partwith proportionally more of these species of riches to purchasea day’s labour. Riches, then, cannot be estimated by the quantityof labour which they can purchase.

From what has been said, it will be seen that the wealth ofa country may be increased in two ways: it may be increasedby employing a greater portion of revenue in the maintenanceof productive labour,—which will not only add to the quantity,but to the value of the mass of commodities; or it may beincreased, without employing any additional quantity of labour,by making the same quantity more productive,—which willadd to the abundance, but not to the value of commodities.

In the first case, a country would not only become rich, butthe value of its riches would increase. It would become richby parsimony; by diminishing its expenditure on objects ofluxury and enjoyment; and employing those savings in re-production.

In the second case, there will not necessarily be either anydiminished expenditure on luxuries and enjoyments, or anyincreased quantity of productive labour employed, but withthe same labour more would be produced; wealth would in-

Value and Richesch. xx 279

1 Ed. 1 ‘or of 200’.2 Eds. 1–2 in place of the five para-graphs that follow in the text(ending p. 285) read:

‘M. Say appears to me to havebeen singularly unfortunate in hisdefinition of riches and value in thefirst chapter of his excellent work:the following is the substance of hisreasoning: riches, he observes, con-sist only of things which have avalue in themselves: riches aregreat, when the sum of the valuesof which they are composed isgreat. They are small when the sum

of their values is small. Two thingshaving an equal value, are richesof equal amount. They are of equalvalue, when by general consentthey are freely exchanged for eachother. Now, if mankind attachvalue to a thing, it is on accountof the uses to which it is applicable.This faculty, which certain thingshave, of satisfying the variouswants of mankind, I call utility. Tocreate objects that have a value ofany kind is to create riches, sincethe utility of things is the firstfoundation of their value, and it is

crease, but not value. Of these two modes of increasing wealth,the last must be preferred, since it produces the same effectwithout the privation and diminution of enjoyments, which cannever fail to accompany the first mode. Capital is that part ofthe wealth of a country which is employed with a view tofuture production, and may be increased in the same manneras wealth. An additional capital will be equally efficacious inthe production of future wealth, whether it be obtained fromimprovements in skill and machinery, or from using morerevenue reproductively; for wealth always depends on thequantity of commodities produced, without any regard to thefacility with which the instruments employed in productionmay have been procured. A certain quantity of clothes andprovisions will maintain and employ the same number of men,and will therefore procure the same quantity of work to bedone, whether they be produced by the labour of 100 or 2001

men; but they will be of twice the value if 200 have beenemployed on their production.2

M. Say, notwithstanding the corrections he has made in thefourth and last edition of his work, “Traite d’EconomiePolitique,” appears to me to have been singularly unfortunatein his definition of riches and value. He considers these two

280 Principles ch. xx

the value of things which constitutesriches. But we do not create ob-jects: all we can do is to reproducematter under another form—wecan give it utility. Production thenis a creation, not of matter but ofutility, and it is measured by thevalue arising from the utility of theobject produced. The utility of anyobject, according to general estima-tion, is pointed out by the quantityof other commodities for whichit will exchange. This valuation,arising from the general estimateformed by society, constitutes whatAdam Smith calls value in exchange;what Turgot calls appreciable value;and what we may more brieflydesignate by the term value.

‘Thus far M. Say, but in his ac-count of value and riches he hasconfounded two things which oughtalways to be kept separate, andwhich are called by Adam Smith,value in use and value in exchange.If by an improved machine I can,with the same quantity of labour,make two pair of stockings insteadof one, I in no way impair theutility of one pair of stockings,

though I diminish their value. Ifthen I had precisely the samequantity of coats, shoes, stockings,and all other things, as before, Ishould have precisely the samequantity of useful objects, andshould therefore be equally rich,if utility were the measure ofriches; but I should have a lessamount of value, for my stockingswould be of only half their formervalue. Utility then is not themeasure of exchangeable value.

‘If we ask M. Say in what richesconsist, he tells us in the possessionof objects having value. If we thenask him what he means by value,he tells us that things are valuablein proportion as they possessutility. If again we ask him to ex-plain to us by what means we areto judge of the utility of objects,he answers, by their value. Thusthen the measure of value is utility,and the measure of utility is value.’

These references are to Say’sTraite d’Economie politique, 2nd ed.,1814; those in the text of ed. 3 areto Say’s 4th. ed., 1819.

terms as synonymous, and that a man is rich in proportion ashe increases the value of his possessions, and is enabled to com-mand an abundance of commodities. “The value of incomes isthen increased,” he observes, “if they can procure, it doesnot signify by what means, a greater quantity of products.”According to M. Say, if the difficulty of producing cloth wereto double, and consequently cloth was to exchange for doublethe quantity of the commodities for which it exchanged before,it would be doubled in value, to which I give my fullest assent;but if there were any peculiar facility in producing the com-modities, and no increased difficulty in producing cloth, andcloth should in consequence exchange as before for double the

Value and Richesch. xx 281

quantity of commodities, M. Say would still say that cloth haddoubled in value, whereas according to my view of the subject,he should say, that cloth retained its former value, and thoseparticular commodities had fallen to half their former value.Must not M. Say be inconsistent with himself when he says,that by facility of production, two sacks of corn may be pro-duced by the same means that one was produced before, andthat each sack will therefore fall to half its former value, andyet maintain that the clothier who exchanges his cloth for twosacks of corn, will obtain double the value he before obtained,when he could only get one sack in exchange for his cloth.If two sacks be of the value that one was of before, he evidentlyobtains the same value and no more,—he gets, indeed, doublethe quantity of riches—double the quantity of utility—doublethe quantity of what Adam Smith calls value in use, but notdouble the quantity of value, and therefore M. Say cannot beright in considering value, riches, and utility to be synonymous.Indeed, there are many parts of M. Say’s work to which I canconfidently refer in support of the doctrine which I maintain,respecting the essential difference between value and riches,although it must be confessed that there are also various otherpassages in which a contrary doctrine is maintained. Thesepassages I cannot reconcile, and I point them out by puttingthem in opposition to each other, that M. Say may, if he shoulddo me the honour to notice these observations in any futureedition of his work, give such explanations of his views asmay remove the difficulty, which many others, as well as my-self, feel in our endeavours to expound them.

282 Principles ch. xx

2 p. 497, note.3 Should be vol. i.

1. In the exchange of two pro-ducts, we only in fact ex-change the productive ser-vices which have served tocreate them. p. 504.

2. There is no real dearness butthat which arises from thecost of production. A thingreally dear, is that which costs,much in producing. 497.1

3. The value of all the productiveservices that must be con-sumed to create a product,constitute the cost of produc-tion of that product. 505.

4. It is utility which determinesthe demand for a commodity,but it is the cost of its produc-tion which limits the extentof its demand. When itsutility does not elevate itsvalue to the level of the costof production, the thing isnot worth what it cost; it isa proof that the productiveservices might be employedto create a commodity ofa superior value. The pos-sessors of productive funds,that is to say, those whohave the disposal of labour,of capital or land, are per-petually occupied in com-paring the cost of productionwith the value of the thingsproduced, or which comesto the same thing, in com-paring the value of differentcommodities with each other;because the cost of produc-tion is nothing else but thevalue of productive services,consumed in forming a pro-duction; and the value of a

5. The value of incomes is thenincreased, if they can pro-cure (it does not signifyby what means,) a greaterquantity of products.2

6. Price is the measure of thevalue of things, and theirvalue is the measure of theirutility. 2 Vol.3 p. 4.

7. Exchanges made freely, shew atthe time, in the place, and inthe state of society in whichwe are, the value which menattach to the things ex-changed. 466.

8. To produce, is to create value,by giving or increasing theutility of a thing, and therebyestablishing a demand for it,which is the first cause of itsvalue. Vol. 2. 487.

9. Utility being created, constitutesa product. The exchangeablevalue which results, is onlythe measure of this utility, themeasure of the productionwhich has taken place. 490.

10. The utility which people of aparticular country find in aproduct, can no otherwisebe appreciated than by theprice which they give forit. 502.

11. This price, is the measure ofthe utility, which it has inthe judgment of men; of thesatisfaction which they de-rive from consuming it, be-cause they would not preferconsuming this utility, iffor the price which it cost theycould acquire a utility whichwould give them more satis-faction. 506.

1 Should be p. 457.

Value and Richesch. xx 283

1 pp. 507–8.2 These quotations are from Say’s4th ed., 1819; they are all, except 6

and 12, to be found in the ‘Epitomedes principes de l’economie poli-tique’ which concludes vol. ii.

productive service is nothingelse than the value of thecommodity, which is the re-sult. The value of a com-modity, the value of a pro-ductive service, the value ofthe cost of production are all,then, similar values whenevery thing is left to itsnatural course.1

12. The quantity of all other com-modities which a person canimmediately obtain in ex-change for the commodityof which he wishes to dispose,is at all times a value not tobe disputed. Vol. 2. 4.2

If there is no real dearness but that which arises from costof production, (see 2.) how can a commodity be said to risein value, (see 5.) if its cost of production be not increased?and merely because it will exchange for more of a cheap com-modity—for more of a commodity the cost of production ofwhich has diminished? When I give 2000 times more clothfor a pound of gold than I give for a pound of iron, does itprove that I attach 2000 times more utility to gold than I doto iron? certainly not; it proves only as admitted by M. Say,(see 4.) that the cost of production of gold is 2000 times greaterthan the cost of production of iron. If the cost of productionof the two metals were the same, I should give the same pricefor them; but if utility were the measure of value, it is probableI should give more for the iron. It is the competition of theproducers “who are perpetually employed in comparing thecost of production with the value of the thing produced,”(see 4.) which regulates the value of different commodities.If, then, I give one shilling for a loaf, and 21 shillings for aguinea, it is no proof that this in my estimation is the com-parative measure of their utility.

In No. 4, M. Say maintains with scarcely any variation, thedoctrine which I hold concerning value. In his productiveservices, he includes the services rendered by land, capital, andlabour; in mine I include only capital and labour, and wholly

284 Principles ch. xx

1 Elemens d’ideologie, Premiere par-tie. Ideologie proprement dite, ‘parA. L. C. Destutt-Tracy, Senateur’,2nd ed., Paris, Courcier, 1804,p. 187.

2 Elemens d’ideologie, IVe et Ve

parties. Traite de la volonte et de seseffets, ‘par le Cte Destutt de Tracy,Pair de France’, Paris, Courcier,1815, pp. 99–100.

exclude land. Our difference proceeds from the different viewwhich we take of rent: I always consider it as the result of apartial monopoly, never really regulating price, but rather asthe effect of it. If all rent were relinquished by landlords, I amof opinion, that the commodities produced on the land wouldbe no cheaper, because there is always a portion of the same com-modities produced on land, for which no rent is or can be paid,as the surplus produce is only sufficient to pay the profits of stock.

To conclude, although no one is more disposed than I amto estimate highly the advantage which results to all classesof consumers, from the real abundance and cheapness of com-modities, I cannot agree with M. Say, in estimating the valueof a commodity, by the abundance of other commodities forwhich it will exchange; I am of the opinion of a very distin-guished writer, M. Destutt de Tracy, who says, that “Tomeasure any one thing is to compare it with a determinatequantity of that same thing which we take for a standard ofcomparison, for unity. To measure, then to ascertain a length,a weight, a value, is to find how many times they containmetres, grammes, francs, in a word, unities of the same de-scription.”1 A franc is not a measure of value for any thing,but for a quantity of the same metal of which francs are made,unless francs, and the thing to be measured, can be referredto some other measure which is common to both. This, I think,they can be, for they are both the result of labour; and, there-fore, labour is a common measure, by which their real as wellas their relative value may be estimated. This also, I am happyto say, appears to be M. Destutt de Tracy’s opinion.* He says,

* Elemens d’Ideologie, Vol. iv. p. 99.2—In this work M. de Tracyhas given a useful and an able treatise on the general principles of Political

Value and Richesch. xx 285

1 Here end the five paragraphs in-serted in ed. 3 (cp. above, p. 279,n. 2).

2 Traite d’Economie politique, 2nded., 1814, vol. i, pp. li–lii.3 Eds. 1–2 do not contain this note.

“as it is certain that our physical and moral faculties are aloneour original riches, the employment of those faculties, labourof some kind, is our only original treasure, and that it is alwaysfrom this employment, that all those things are created whichwe call riches, those which are the most necessary, as well asthose which are the most purely agreeable. It is certain too,that all those things only represent the labour which has createdthem, and if they have a value, or even two distinct values, theycan only derive them from that of the labour from which theyemanate.”1

M. Say, in speaking of the excellences and imperfections ofthe great work of Adam Smith, imputes to him, as an error,that “he attributes to the labour of man alone, the power ofproducing value. A more correct analysis shews us that valueis owing to the action of labour, or rather the industry of man,combined with the action of those agents which nature supplies,and with that of capital. His ignorance of this principle pre-vented him from establishing the true theory of the influenceof machinery in the production of riches.”2

In contradiction to the opinion of Adam Smith, M. Say, inthe fourth chapter, speaks of the value which is given to com-modities by natural agents, such as the sun, the air, the pressureof the atmosphere, &c., which are sometimes substituted forthe labour of man, and sometimes concur with him in pro-ducing.† But these natural agents, though they add greatly tovalue in use, never add exchangeable value, of which M. Say

Economy, and I am sorry to be obliged to add, that he supports, by hisauthority, the definitions which M. Say has given of the words “value,”“riches,” and “utility.”3

† “The first man who knew how to soften metals by fire, is not thecreator of the value which that process adds to the melted metal. That

286 Principles ch. xx

1 Eds. 1–2 do not contain ‘partly’.2 Ed. 1 does not contain this sen-tence.3 Eds. 1–2 do not contain ‘, and in

this passage M. Say makes none’.4 Misprinted ‘convenience’ in eds.2–3.5 Eds. 1–2 ‘to value in exchange.’

is speaking, to a commodity: as soon as by the aid of machinery,or by the knowledge of natural philosophy, you oblige naturalagents to do the work which was before done by man, theexchangeable value of such work falls accordingly. If ten menturned a corn mill, and it be discovered that by the assistanceof wind, or of water, the labour of these ten men may be spared,the flour which is the produce partly1 of the work performedby the mill, would immediately fall in value, in proportion tothe quantity of labour saved; and the society would be richerby the commodities which the labour of the ten men couldproduce, the funds destined for their maintenance being in nodegree impaired. M. Say constantly overlooks the essentialdifference that there is between value in use, and value inexchange.2

M. Say accuses Dr. Smith of having overlooked the valuewhich is given to commodities by natural agents, and bymachinery, because he considered that the value of all thingswas derived from the labour of man; but it does not appear

value is the result of the physical action of fire added to the industryand capital of those who availed themselves of this knowledge.”

“From this error Smith has drawn this false result, that the value ofall productions represents the recent or former labour of man, or, in otherwords, that riches are nothing else but accumulated labour; from which, bya second consequence, equally false, labour is the sole measure of riches, orof the value of productions.”* The inferences with which M. Say concludesare his own, and not Dr. Smith’s; they are correct if no distinction bemade between value and riches, and in this passage M. Say makes none3:but though Adam Smith, who defined riches to consist in the abundanceof necessaries, conveniences4 and enjoyments of human life, would haveallowed that machines and natural agents might very greatly add to theriches of a country, he would not have allowed that they add any thingto the value of those riches.5

* Chap. iv. p. 31.

Value and Richesch. xx 287

1 Eds. 1–2 have here an additionalpassage:

‘In the first chapter of the secondbook, M. Say himself gives a similarstatement of value, for he says that“utility is the foundation of value,that commodities are only desir-able, because they are in some wayuseful, but that their value dependsnot on their utility, not on the de-gree in which they are desired, buton the quantity of labour neces-sary to procure them.” “Theutility of a commodity thus under-stood, makes it an object of man’sdesire, makes him wish for it, andestablishes a demand for it. Whento obtain a thing, it is sufficient todesire it, it may be considered as anarticle of natural wealth, given toman in an unlimited quantity, andwhich he enjoys, without pur-chasing it by any sacrifice; such arethe air, water, the light of the sun.If he obtained in this manner all theobjects of his wants and desires, hewould be infinitely rich: he wouldbe in want of nothing. But unfor-tunately this is not the case; thegreater part of the things which areconvenient and agreeable to him, aswell as those which are indispens-ably necessary in the social state, for

which man seems to be specificallyformed, are not given to him gra-tuitously; they could only exist bythe exertion of certain labour, theemployment of a certain capital,and, in many cases, by the use ofland. These are obstacles in the wayof gratuitous enjoyment; obstaclesfrom which result a real expense ofproduction; because we are ob-liged to pay for the assistance ofthese agents of production.” “It isonly when this utility has thus beencommunicated to a thing (viz. byindustry, capital, and land,) that itis a production, and that it has avalue. It is its utility which is thefoundation of the demand for it,but the sacrifices, and the chargesnecessary to obtain it, or in otherwords, its price, limits the extent ofthis demand.” [Traite d’Economiepolitique, 2nd ed., 1814, vol. ii,pp. 3, 4. The first passage is a freesummary, not a quotation.]

‘The confusion which arises fromconfounding the terms “value” and“riches” will best be seen in thefollowing passages. (M. Say, Cate-chisme d’Economie Politique, p. 99.)His pupil observes: “You havesaid, besides, that the riches of asociety were composed of the sum

to me, that this charge is made out; for Adam Smith nowhere undervalues the services which these natural agents andmachinery perform for us, but he very justly distinguishes thenature of the value which they add to commodities—they areserviceable to us, by increasing the abundance of productions,by making men richer, by adding to value in use; but as theyperform their work gratuitously, as nothing is paid for the useof air, of heat, and of water, the assistance which they affordus, adds nothing to value in exchange.1

288 Principles ch. xx

total of the values which it pos-sessed; it appears to me to follow,that the fall of one production, ofstockings for example, by diminish-ing the sum total of the value be-longing to the society, diminishesthe mass of its riches;” to whichthe following answer is given: “thesum of the society’s riches will notfall on that account. Two pair ofstockings are produced instead ofone; and two pair at three francs,are equally valuable with one pairat six francs. The income of thesociety remains the same, becausethe manufacturer has gained asmuch on two pair at three francs, ashe gained on one pair at six francs.”Thus far M. Say, though incorrect,is at least consistent. If value be themeasure of riches, the society isequally rich, because the value of allits commodities is the same as be-fore. But now for his inference.“But when the income remains thesame, and productions fall in price,the society is really enriched. If thesame fall took place in all com-modities at the same time, which isnot absolutely impossible, the so-ciety by procuring at half theirformer price, all the objects of itsconsumption, without having lostany portion of its income, wouldreally be twice as rich as before,

and could purchase twice thequantity of goods.”

‘In the first passage we are told,that if every thing fell to half itsvalue, from abundance, the societywould be equally rich, becausethere would be double the quantityof commodities at half their formervalue, or in other words therewould be the same value. But inthe last passage we are informed,that by doubling the quantity ofcommodities, although the value ofeach commodity should be di-minished one half, and thereforethe value of all the commoditiestogether be precisely the same asbefore, yet the society would betwice as rich as before. In the firstcase riches are estimated by theamount of value: in the second,they are estimated by the abundanceof commodities contributing tohuman enjoyments. M. Say furthersays, “that a man is infinitely richwithout valuables, if he can fornothing obtain all the objects hedesires[”]; yet in another place weare told, “that riches consist, not inthe product itself, for it is not richesif it have not value, but in itsvalue.” Vol. ii, p. 2.’

On the changes introduced inthis chapter in ed. 3, see letter toMcCulloch of 4 Dec. 1820, below,VIII, 315.

1 Bk. i, ch. ix; vol. i, p. 89.

chapter xxi

Effects of Accumulation onProfits and Interest

From the account which has been given of the profits of stock,it will appear, that no accumulation of capital will permanentlylower profits, unless there be some permanent cause for the riseof wages. If the funds for the maintenance of labour weredoubled, trebled, or quadrupled, there would not long be anydifficulty in procuring the requisite number of hands, to beemployed by those funds; but owing to the increasing difficultyof making constant additions to the food of the country, fundsof the same value would probably not maintain the same quan-tity of labour. If the necessaries of the workman could beconstantly increased with the same facility, there could be nopermanent alteration in the rate of profits or wages, to whateveramount capital might be accumulated. Adam Smith, however,uniformly ascribes the fall of profits to accumulation of capital,and to the competition which will result from it, without everadverting to the increasing difficulty of providing food for theadditional number of labourers which the additional capital willemploy. “The increase of stock,” he says, “which raises wages,tends to lower profit. When the stocks of many rich merchantsare turned into the same trade, their mutual competitionnaturally tends to lower its profit; and when there is a likeincrease of stock in all the different trades carried on in the samesociety, the same competition must produce the same effect inall.”1 Adam Smith speaks here of a rise of wages, but it is ofa temporary rise, proceeding from increased funds before thepopulation is increased; and he does not appear to see, that at

290 Principles ch. xxi

1 Bk. i, ch. ix; vol. i, p. 93.

the same time that capital is increased, the work to be effectedby capital, is increased in the same proportion. M. Say has,however, most satisfactorily shewn, that there is no amount ofcapital which may not be employed in a country, becausedemand is only limited by production. No man produces, butwith a view to consume or sell, and he never sells, but with anintention to purchase some other commodity, which may beimmediately useful to him, or which may contribute to futureproduction. By producing, then, he necessarily becomes eitherthe consumer of his own goods, or the purchaser and consumerof the goods of some other person. It is not to be supposedthat he should, for any length of time, be ill-informed of thecommodities which he can most advantageously produce, toattain the object which he has in view, namely, the possessionof other goods; and, therefore, it is not probable that he willcontinually produce a commodity for which there is no de-mand.*

There cannot, then, be accumulated in a country any amountof capital which cannot be employed productively, until wagesrise so high in consequence of the rise of necessaries, and solittle consequently remains for the profits of stock, that themotive for accumulation ceases.† While the profits of stock arehigh, men will have a motive to accumulate. Whilst a man has

* Adam Smith speaks of Holland, as affording an instance of the fallof profits from the accumulation of capital, and from every employmentbeing consequently overcharged. “The Government there borrow at2 per cent., and private people of good credit, at 3 per cent.”1 But it shouldbe remembered, that Holland was obliged to import almost all the cornwhich she consumed, and by imposing heavy taxes on the necessaries ofthe labourer, she further raised the wages of labour. These facts willsufficiently account for the low rate of profits and interest in Holland.

† Is the following quite consistent with M. Say’s principle? “The moredisposable capitals are abundant in proportion to the extent of employmentfor them, the more will the rate of interest on loans of capital fall.”—Vol. ii. p. 108. If capital to any extent can be employed by a country, howcan it be said to be abundant, compared with the extent of employmentfor it?

Effects of Accumulationch. xxi 291

1 Bk. ii, ch. v; vol. i, p. 352. The italics are Ricardo’s.

any wished-for gratification unsupplied, he will have a demandfor more commodities; and it will be an effectual demand whilehe has any new value to offer in exchange for them. If tenthousand pounds were given to a man having 100,000l. perannum, he would not lock it up in a chest, but would eitherincrease his expenses by 10,000l.; employ it himself produc-tively, or lend it to some other person for that purpose; in eithercase, demand would be increased, although it would be fordifferent objects. If he increased his expenses, his effectualdemand might probably be for buildings, furniture, or somesuch enjoyment. If he employed his 10,000l. productively, hiseffectual demand would be for food, clothing, and raw material,which might set new labourers to work; but still it would bedemand.*

Productions are always bought by productions, or by

* Adam Smith says, that “When the produce of any particular branchof industry exceeds what the demand of the country requires, the surplusmust be sent abroad, and exchanged for something for which there is ademand at home. Without such exportation, a part of the productive labourof the country must cease, and the value of its annual produce diminish. Theland and labour of Great Britain produce generally more corn, woollens,and hardware, than the demand of the home market requires. The surpluspart of them, therefore, must be sent abroad, and exchanged for somethingfor which there is a demand at home. It is only by means of such exporta-tion, that this surplus can acquire a value sufficient to compensate thelabour and expense of producing it.”1 One would be led to think by theabove passage, that Adam Smith concluded we were under some necessityof producing a surplus of corn, woollen goods, and hardware, and thatthe capital which produced them could not be otherwise employed. It is,however, always a matter of choice in what way a capital shall be employed,and therefore there can never, for any length of time, be a surplus of anycommodity; for if there were, it would fall below its natural price, andcapital would be removed to some more profitable employment. Nowriter has more satisfactorily and ably shewn than Dr. Smith, the tendencyof capital to move from employments in which the goods produced donot repay by their price the whole expenses, including the ordinary profits,of producing and bringing them to market.*

* See Chap. X. Book I.

292 Principles ch. xxi

1 Ed. 1 does not contain ‘or by services;’.

services;1 money is only the medium by which the exchange iseffected. Too much of a particular commodity may be produced,of which there may be such a glut in the market, as not to repaythe capital expended on it; but this cannot be the case withrespect to all commodities; the demand for corn is limited bythe mouths which are to eat it, for shoes and coats by the personswho are to wear them; but though a community, or a part ofa community, may have as much corn, and as many hats andshoes, as it is able or may wish to consume, the same cannot besaid of every commodity produced by nature or by art. Somewould consume more wine, if they had the ability to procure it.Others having enough of wine, would wish to increase thequantity or improve the quality of their furniture. Othersmight wish to ornament their grounds, or to enlarge theirhouses. The wish to do all or some of these is implanted inevery man’s breast; nothing is required but the means, andnothing can afford the means, but an increase of production.If I had food and necessaries at my disposal, I should not belong in want of workmen who would put me in possession ofsome of the objects most useful or most desirable to me.

Whether these increased productions, and the consequentdemand which they occasion, shall or shall not lower profits,depends solely on the rise of wages; and the rise of wages,excepting for a limited period, on the facility of producing thefood and necessaries of the labourer. I say excepting for alimited period, because no point is better established, than thatthe supply of labourers will always ultimately be in proportionto the means of supporting them.

There is only one case, and that will be temporary, in whichthe accumulation of capital with a low price of food may beattended with a fall of profits; and that is, when the funds forthe maintenance of labour increase much more rapidly than

Effects of Accumulationch. xxi 293

1 Bk. i, ch. xi, pt. ii; vol. i, p. 165.

population;—wages will then be high, and profits low. Ifevery man were to forego the use of luxuries, and be intent onlyon accumulation, a quantity of necessaries might be produced,for which there could not be any immediate consumption. Ofcommodities so limited in number, there might undoubtedlybe an universal glut, and consequently there might neither bedemand for an additional quantity of such commodities, norprofits on the employment of more capital. If men ceased toconsume, they would cease to produce. This admission doesnot impugn the general principle. In such a country as England,for example, it is difficult to suppose that there can be anydisposition to devote the whole capital and labour of thecountry to the production of necessaries only.

When merchants engage their capitals in foreign trade, or inthe carrying trade, it is always from choice, and never fromnecessity: it is because in that trade their profits will be some-what greater than in the home trade.

Adam Smith has justly observed “that the desire of food islimited in every man by the narrow capacity of the humanstomach, but the desire of the conveniences and ornaments ofbuilding, dress, equipage, and household furniture, seems tohave no limit or certain boundary.”1 Nature then has neces-sarily limited the amount of capital which can at any one timebe profitably engaged in agriculture, but she has placed nolimits to the amount of capital that may be employed in pro-curing “the conveniences and ornaments” of life. To procurethese gratifications in the greatest abundance is the object inview, and it is only because foreign trade, or the carrying trade,will accomplish it better, that men engage in them in preferenceto manufacturing the commodities required, or a substitute forthem, at home. If, however, from peculiar circumstances, wewere precluded from engaging capital in foreign trade, or in the

294 Principles ch. xxi

1 Bk. ii, ch. v; vol. i, p. 353. Theitalics are Ricardo’s in this and thefollowing quotations.2 Adam Smith says ‘must’, not‘would’. There are other minor

inaccuracies in this and the follow-ing quotations.3 Adam Smith says ‘those’.4 Bk. ii, ch. v; vol. i, p. 352.

carrying trade, we should, though with less advantage, employit at home; and while there is no limit to the desire of “con-veniences, ornaments of building, dress, equipage, and house-hold furniture,” there can be no limit to the capital that may beemployed in procuring them, except that which bounds ourpower to maintain the workmen who are to produce them.

Adam Smith, however, speaks of the carrying trade as one,not of choice, but of necessity; as if the capital engaged in itwould be inert if not so employed, as if the capital in the hometrade could overflow, if not confined to a limited amount. Hesays, “when the capital stock of any country is increased tosuch a degree, that it cannot be all employed in supplying theconsumption, and supporting the productive labour of that particularcountry , the surplus part of it naturally disgorges itself into thecarrying trade, and is employed in performing the same officesto other countries.”1

“About ninety-six thousand hogsheads of tobacco are an-nually purchased with a part of the surplus produce of Britishindustry. But the demand of Great Britain does not require,perhaps, more than fourteen thousand. If the remaining eighty-two thousand, therefore, could not be sent abroad and exchangedfor something more in demand at home, the importation of themwould2 cease immediately, and with it the productive labour of allthe 3 inhabitants of Great Britain, who are at present employed inpreparing the goods with which these eighty-two thousand hogs-heads are annually purchased.”4 But could not this portion ofthe productive labour of Great Britain be employed in pre-paring some other sort of goods, with which something morein demand at home might be purchased? And if it could not,

Effects of Accumulationch. xxi 295

1 Ricardo omits here a few wordsnot pertinent to the issue.

2 Bk. iv, ch. ii; vol. i, p. 422.

might we not employ this productive labour, though with lessadvantage, in making those goods in demand at home, or atleast some substitute for them? If we wanted velvets, might wenot attempt to make velvets; and if we could not succeed, mightwe not make more cloth, or some other object desirable to us?

We manufacture commodities, and with them buy goodsabroad, because we can obtain a greater quantity than we couldmake at home. Deprive us of this trade, and we immediatelymanufacture again for ourselves. But this opinion of AdamSmith is at variance with all his general doctrines on this subject.“If a foreign country can supply us with a commodity cheaperthan we ourselves can make it, better buy it of them with somepart of the produce of our own industry, employed in a way inwhich we have some advantage. The general industry of thecountry being always in proportion to the capital which employs it,will not thereby be diminished,1 but only left to find out theway in which it can be employed with the greatest advantage.”2

Again. “Those, therefore, who have the command of morefood than they themselves can consume, are always willing toexchange the surplus, or, what is the same thing, the price of it,for gratifications of another kind. What is over and above satis-fying the limited desire, is given for the amusement of thosedesires which cannot be satisfied, but seem to be altogetherendless. The poor, in order to obtain food, exert themselves togratify those fancies of the rich; and to obtain it more certainly,they vie with one another in the cheapness and perfection oftheir work. The number of workmen increases with the in-creasing quantity of food, or with the growing improvementand cultivation of the lands; and as the nature of their businessadmits of the utmost subdivisions of labours, the quantity ofmaterials which they can work up increases in a much greater

296 Principles ch. xxi

1 Bk. i, ch. xi, pt. ii; vol. i, p. 165.2 Ed. 1 does not contain this para-graph.

3 These two passages, although ininverted commas, are not quota-tions, but free summaries. See Bk. i,ch. ix; vol. i, pp. 89–90.

proportion than their numbers. Hence arises a demand forevery sort of material which human invention can employ,either usefully or ornamentally, in building, dress, equipage, orhousehold furniture; for the fossils and minerals contained inthe bowels of the earth, the precious metals, and the preciousstones.”1

It follows then from these admissions that there is no limit todemand—no limit to the employment of capital while it yieldsany profit, and that however abundant capital may become,there is no other adequate reason for a fall of profit but a rise ofwages, and further it may be added, that the only adequate andpermanent cause for the rise of wages is the increasing difficultyof providing food and necessaries for the increasing number ofworkmen.2

Adam Smith has justly observed, that it is extremely difficultto determine the rate of the profits of stock. “Profit is sofluctuating, that even in a particular trade, and much more intrades in general, it would be difficult to state the average rateof it. To judge of what it may have been formerly, or in remoteperiods of time, with any degree of precision must be altogetherimpossible.” Yet since it is evident that much will be given forthe use of money, when much can be made by it, he suggeststhat “the market rate of interest will lead us to form some notionof the rate of profits, and the history of the progress of interestafford us that of the progress of profits.”3 Undoubtedly if themarket rate of interest could be accurately known for any con-siderable period, we should have a tolerably correct criterion,by which to estimate the progress of profits.

But in all countries, from mistaken notions of policy, theState has interfered to prevent a fair and free market rate of

Effects of Accumulationch. xxi 297

1 Eds. 1–2 ‘have frequently been’. 2 Bk. i, ch. ix; vol. i, pp. 90–91.

interest, by imposing heavy and ruinous penalties on all thosewho shall take more than the rate fixed by law. In all countriesprobably these laws are evaded, but records give us little in-formation on this head, and point out rather the legal and fixedrate, than the market rate of interest. During the present war,Exchequer and Navy Bills have been frequently1 at so high adiscount, as to afford the purchasers of them 7, 8 per cent., ora greater rate of interest for their money. Loans have beenraised by Government at an interest exceeding 6 per cent. andindividuals have been frequently obliged, by indirect means, topay more than 10 per cent. for the interest of money; yet duringthis same period the legal rate of interest has been uniformly at5 per cent. Little dependence for information then can be placedon that which is the fixed and legal rate of interest, when wefind it may differ so considerably from the market rate. AdamSmith informs us,2 that from the 37th of Henry VIII. to 21st ofJames I. 10 per cent. continued to be the legal rate of interest.Soon after the Restoration, it was reduced to 6 per cent., andby the 12th of Anne, to 5 per cent. He thinks the legal ratefollowed, and did not precede the market rate of interest.Before the American war, Government borrowed at 3 per cent.,and the people of credit in the capital, and in many other partsof the kingdom at 3 , 4, and 4 per cent.1 1� �

2 2

The rate of interest, though ultimately and permanentlygoverned by the rate of profit, is however subject to temporaryvariations from other causes. With every fluctuation in thequantity and value of money, the prices of commodities natu-rally vary. They vary also, as we have already shewn, fromthe alteration in the proportion of supply to demand, althoughthere should not be either greater facility or difficulty of pro-duction. When the market prices of goods fall from an abundantsupply, from a diminished demand, or from a rise in the value

298 Principles ch. xxi

of money, a manufacturer naturally accumulates an unusualquantity of finished goods, being unwilling to sell them at verydepressed prices. To meet his ordinary payments, for which heused to depend on the sale of his goods, he now endeavours toborrow on credit, and is often obliged to give an increased rateof interest. This, however, is but of temporary duration; foreither the manufacturer’s expectations were well grounded, andthe market price of his commodities rises, or he discovers thatthere is a permanently diminished demand, and he no longerresists the course of affairs: prices fall, and money and interestregain their real value. If by the discovery of a new mine, bythe abuses of banking, or by any other cause, the quantity ofmoney be greatly increased, its ultimate effect is to raise theprices of commodities in proportion to the increased quantityof money; but there is probably always an interval, duringwhich some effect is produced on the rate of interest.

The price of funded property is not a steady criterion bywhich to judge of the rate of interest. In time of war, the stockmarket is so loaded by the continual loans of Government, thatthe price of stock has not time to settle at its fair level, beforea new operation of funding takes place, or it is affected byanticipation of political events. In time of peace, on the con-trary, the operations of the sinking fund, the unwillingness,which a particular class of persons feel to divert their funds toany other employment than that to which they have beenaccustomed, which they think secure, and in which theirdividends are paid with the utmost regularity, elevates the priceof stock, and consequently depresses the rate of interest onthese securities below the general market rate. It is observabletoo, that for different securities, Government pays very differentrates of interest. Whilst 100l. capital in 5 per cent. stock isselling for 95l., an exchequer bill of 100l., will be sometimesselling for 100l. 5s., for which exchequer bill, no more interest

Effects of Accumulationch. xxi 299

1 Traite d’Economie politique, 2nd ed., 1814, vol. ii, p. 360. The italicsare Ricardo’s.

will be annually paid than 4l. 11s. 3d.: one of these securitiespays to a purchaser at the above prices, an interest of more than5 per cent., the other but little more than 4 ; a certain quantity1 1� �

4 4

of these exchequer bills is required as a safe and marketableinvestment for bankers; if they were increased much beyondthis demand, they would probably be as much depreciated asthe 5 per cent. stock. A stock paying 3 per cent. per annum willalways sell at a proportionally greater price than stock paying5 per cent., for the capital debt of neither can be discharged butat par, or 100l. money for 100l. stock. The market rate ofinterest may fall to 4 per cent., and Government would thenpay the holder of 5 per cent. stock at par, unless he consentedto take 4 per cent. or some diminished rate of interest under5 per cent.: they would have no advantage from so paying theholder of 3 per cent. stock, till the market rate of interest hadfallen below 3 per cent. per annum. To pay the interest on thenational debt, large sums of money are withdrawn from circu-lation four times in the year for a few days. These demands formoney being only temporary, seldom affect prices; they aregenerally surmounted by the payment of a large rate ofinterest.*

* “All kinds of public loans,” observes M. Say, “are attended with theinconvenience of withdrawing capital, or portions of capital, from pro-ductive employments, to devote them to consumption; and when theytake place in a country, the Government of which does not inspire muchconfidence, they have the further inconvenience of raising the interest ofcapital. Who would lend at 5 per cent. per annum to agriculture, to manu-facturers, and to commerce, when a borrower may be found ready to payan interest of 7 or 8 per cent.? That sort of income, which is called profitof stock, would rise then at the expense of the consumer. Consumptionwould be reduced by the rise in the price of produce; and the other pro-ductive services would be less in demand, less well paid. The whole nation,capitalists excepted, would be the sufferers from such a state of things.”1

To the question: “who would lend money to farmers, manufacturers,and merchants, at 5 per cent. per annum, when another borrower, having

300 Principles ch. xxi

little credit, would give 7 or 8?” I reply, that every prudent and reasonableman would. Because the rate of interest is 7 or 8 per cent. there, where thelender runs extraordinary risk, is this any reason that it should be equallyhigh in those places where they are secured from such risks? M. Sayallows, that the rate of interest depends on the rate of profits; but it doesnot therefore follow, that the rate of profits depends on the rate of interest.One is the cause, the other the effect, and it is impossible for any circum-stances to make them change places.

chapter xxii

Bounties on Exportation, andProhibitions of Importation

A bounty on the exportation of corn tends to lower its priceto the foreign consumer, but it has no permanent effect on itsprice in the home market.

Suppose that to afford the usual and general profits of stock,the price of corn should in England be 4l. per quarter; it couldnot then be exported to foreign countries where it sold for3l. 15s. per quarter. But if a bounty of 10s. per quarter weregiven on exportation, it could be sold in the foreign market at3l. 10s., and consequently the same profit would be afforded tothe corn grower, whether he sold it at 3l. 10s. in the foreign, orat 4l. in the home market.

A bounty then, which should lower the price of British cornin the foreign country, below the cost of producing corn in thatcountry, would naturally extend the demand for British, anddiminish the demand for their own corn. This extension ofdemand for British corn could not fail to raise its price for atime in the home market, and during that time to prevent alsoits falling so low in the foreign market as the bounty has atendency to effect. But the causes which would thus operate onthe market price of corn in England would produce no effectwhatever on its natural price, or its real cost of production. Togrow corn would neither require more labour nor more capital,and, consequently, if the profits of the farmer’s stock werebefore only equal to the profits of the stock of other traders,they will, after the rise of price, be considerably above them.By raising the profits of the farmer’s stock, the bounty willoperate as an encouragement to agriculture, and capital will be

302 Principles ch. xxii

1 October 1804, Art. xv, p. 190 ff.(by Francis Horner).

2 See below, p. 307.

withdrawn from manufactures to be employed on the land, tillthe enlarged demand for the foreign market has been supplied,when the price of corn will again fall in the home market to itsnatural and necessary price, and profits will be again at theirordinary and accustomed level. The increased supply of grainoperating on the foreign market, will also lower its price in thecountry to which it is exported, and will thereby restrict theprofits of the exporter to the lowest rate at which he can affordto trade.

The ultimate effect then of a bounty on the exportation ofcorn, is not to raise or to lower the price in the home market,but to lower the price of corn to the foreign consumer—to thewhole extent of the bounty, if the price of corn had not beforebeen lower in the foreign, than in the home market—and in aless degree, if the price in the home had been above the pricein the foreign market.

A writer in the fifth vol. of the Edinburgh Review,1 on thesubject of a bounty on the exportation of corn, has very clearlypointed out its effects on the foreign and home demand. Hehas also justly remarked, that it would not fail to give encourage-ment to agriculture in the exporting country; but he appears tohave imbibed the common error which has misled Dr. Smith,2

and, I believe, most other writers on this subject. He supposes,because the price of corn ultimately regulates wages, that there-fore it will regulate the price of all other commodities. He saysthat the bounty, “by raising the profits of farming, will operateas an encouragement to husbandry; by raising the price of cornto the consumers at home, it will diminish for the time theirpower of purchasing this necessary of life, and thus abridgetheir real wealth. It is evident, however, that this last effectmust be temporary: the wages of the labouring consumers had

Bounties on Exportationch. xxii 303

1 p. 197. The italics are Ricardo’s. 2 Eds. 1–2 ‘money price of wages.’

been adjusted before by competition, and the same principlewill adjust them again to the same rate, by raising the moneyprice of labour, and, through that, of other commodities, to themoney price of corn. The bounty upon exportation, therefore,will ultimately raise the money price of corn in the home market;not directly, however, but through the medium of an extendeddemand in the foreign market, and a consequent enhancementof the real price at home: and this rise of the money price, whenit has once been communicated to other commodities, will of coursebecome fixed.”1

If, however, I have succeeded in shewing that it is not therise in the money wages of labour which raises the price ofcommodities, but that such rise always affects profits, it willfollow that the prices of commodities would not rise in con-sequence of a bounty.

But a temporary rise in the price of corn, produced by anincreased demand from abroad, would have no effect on themoney price of labour.2 The rise of corn is occasioned by a com-petition for that supply which was before exclusively appro-priated to the home market. By raising profits, additional capitalis employed in agriculture, and the increased supply is obtained;but till it be obtained, the high price is absolutely necessary toproportion the consumption to the supply, which would becounteracted by a rise of wages. The rise of corn is the con-sequence of its scarcity, and is the means by which the demandof the home purchasers is diminished. If wages were increased,the competition would increase, and a further rise of the priceof corn would become necessary. In this account of the effectsof a bounty, nothing has been supposed to occur to raise thenatural price of corn, by which its market price is ultimatelygoverned; for it has not been supposed, that any additionallabour would be required on the land to insure a given pro-

304 Principles ch. xxii

1 Eds. 1–2 do not contain ‘its’.2 Bk. iv, ch. v.

3 ib. vol. ii, p. 9. There are slightinaccuracies in this and the follow-ing quotations.

duction, and this alone can raise its1 natural price. If the naturalprice of cloth were 20s. per yard, a great increase in the foreigndemand might raise the price to 25s., or more, but the profitswhich would then be made by the clothier would not fail toattract capital in that direction, and although the demand shouldbe doubled, trebled, or quadrupled, the supply would ultimatelybe obtained, and cloth would fall to its natural price of 20s. So,in the supply of corn, although we should export 2, 3, or 800,000quarters annually, it would ultimately be produced at its naturalprice, which never varies, unless a different quantity of labourbecomes necessary to production.

Perhaps in no part of Adam Smith’s justly celebrated work,are his conclusions more liable to objection, than in the chapteron bounties.2 In the first place, he speaks of corn as of a com-modity of which the production cannot be increased, in con-sequence of a bounty on exportation; he supposes invariably,that it acts only on the quantity actually produced, and is nostimulus to further production. “In years of plenty,” he says,“by occasioning an extraordinary exportation, it necessarilykeeps up the price of corn in the home market above what itwould naturally fall to. In years of scarcity, though the bountyis frequently suspended, yet the great exportation which itoccasions in years of plenty, must frequently hinder, more orless, the plenty of one year from relieving the scarcity of another.Both in the years of plenty and in years of scarcity, therefore,the bounty necessarily tends to raise the money price of cornsomewhat higher than it otherwise would be in the homemarket.”*3

* In another place he says, that “whatever extension of the foreignmarket can be occasioned by the bounty, must, in every particular year,be altogether at the expense of the home market; as every bushel of corn

Bounties on Exportationch. xxii 305

1 Bk. iv, ch. v; vol. ii, p. 11. 2 ib. vol. ii, pp. 10–11.

Adam Smith appears to have been fully aware, that thecorrectness of his argument entirely depended on the fact,whether the increase “of the money price of corn, by renderingthat commodity more profitable to the farmer, would notnecessarily encourage its production.”

“I answer,” he says, “that this might be the case, if the effectof the bounty was to raise the real price of corn, or to enablethe farmer, with an equal quantity of it, to maintain a greaternumber of labourers in the same manner, whether liberal,moderate, or scanty, as other labourers are commonly main-tained in his neighbourhood.”1

If nothing were consumed by the labourer but corn, and ifthe portion which he received was the very lowest which hissustenance required, there might be some ground for supposing,that the quantity paid to the labourer could, under no circum-stances, be reduced,—but the money wages of labour sometimesdo not rise at all, and never rise in proportion to the rise in the

which is exported by means of the bounty, and which would not havebeen exported without the bounty, would have remained in the homemarket to increase the consumption, and to lower the price of that com-modity. The corn bounty, it is to be observed, as well as every otherbounty upon exportation, imposes two different taxes upon the people:first, the tax which they are obliged to contribute, in order to pay thebounty; and, secondly, the tax which arises from the advanced price ofthe commodity in the home market, and which, as the whole body of thepeople are purchasers of corn, must, in this particular commodity, be paidby the whole body of the people. In this particular commodity, therefore,this second tax is by much the heaviest of the two.” “For every fiveshillings, therefore, which they contribute to the payment of the first tax,they must contribute six pounds four shillings to the payment of thesecond.” “The extraordinary exportation of corn, therefore, occasionedby the bounty, not only in every particular year diminishes the home, justas much as it extends the foreign market and consumption; but, by re-straining the population and industry of the country, its final tendency isto stunt and restrain the gradual extension of the home market, and thereby,in the long run, rather to diminish than to augment the whole market andconsumption of corn.”2

306 Principles ch. xxii

money price of corn, because corn, though an important part,is only a part of the consumption of the labourer. If half hiswages were expended on corn, and the other half on soap,candles, fuel, tea, sugar, clothing, &c., commodities on whichno rise is supposed to take place, it is evident that he would bequite as well paid with a bushel and a half of wheat, when it was16s. a bushel, as he was with two bushels, when the price was8s. per bushel; or with 24s. in money, as he was before with 16s.His wages would rise only 50 per cent. though corn rose 100 percent.; and, consequently, there would be sufficient motive todivert more capital to the land, if profits on other trades con-tinued the same as before. But such a rise of wages would alsoinduce manufacturers to withdraw their capitals from manu-factures, to employ them on the land; for whilst the farmerincreased the price of his commodity 100 per cent., and hiswages only 50 per cent., the manufacturer would be obliged alsoto raise wages 50 per cent., whilst he had no compensationwhatever, in the rise of his manufactured commodity, for thisincreased charge of production; capital would consequentlyflow from manufactures to agriculture, till the supply wouldagain lower the price of corn to 8s. per bushel, and wages to16s. per week; when the manufacturer would obtain the sameprofits as the farmer, and the tide of capital would cease to setin either direction. This is in fact the mode in which the cultiva-tion of corn is always extended, and the increased wants of themarket supplied. The funds for the maintenance of labour in-crease, and wages are raised. The comfortable situation of thelabourer induces him to marry—population increases, and thedemand for corn raises its price relatively to other things—more capital is profitably employed on agriculture, and con-tinues to flow towards it, till the supply is equal to the demand,when the price again falls, and agricultural and manufacturingprofits are again brought to a level.

Bounties on Exportationch. xxii 307

1 Eds. 1–2 ‘were’ in place of ‘would be’.

But whether wages were stationary after the rise in the priceof corn, or advanced moderately, or enormously, is of no im-portance to this question, for wages are paid by the manu-facturer as well as by the farmer, and, therefore, in this respectthey must be equally affected by a rise in the price of corn. Butthey are unequally affected in their profits, inasmuch as thefarmer sells his commodity at an advanced price, while themanufacturer sells his for the same price as before. It is, how-ever, the inequality of profit, which is always the inducement toremove capital from one employment to another; and, there-fore, more corn would be produced, and fewer commoditiesmanufactured. Manufactures would not rise, because fewerwould be1 manufactured, for a supply of them would be obtainedin exchange for the exported corn.

A bounty, if it raises the price of corn, either raises it in com-parison with the price of other commodities, or it does not. Ifthe affirmative be true, it is impossible to deny the greaterprofits of the farmer, and the temptation to the removal ofcapital, till its price is again lowered by an abundant supply. Ifit does not raise it in comparison with other commodities, whereis the injury to the home consumer, beyond the inconvenienceof paying the tax? If the manufacturer pays a greater price forhis corn, he is compensated by the greater price at which he sellshis commodity, with which his corn is ultimately purchased.

The error of Adam Smith proceeds precisely from the samesource as that of the writer in the Edinburgh Review; for theyboth think “that the money price of corn regulates that of allother home-made commodities.”* “It regulates,” says AdamSmith, “the money price of labour, which must always be suchas to enable the labourer to purchase a quantity of corn suffi-

* The same opinion is held by M. Say.—Vol. ii. p. 335.

308 Principles ch. xxii

1 Ricardo omits here a paragraphof Adam Smith’s text.2 Adam Smith says ‘or’.

3 Bk. iv, ch. v; vol. ii, pp. 11–12.The italics are Ricardo’s.4 Above, pp. 28 ff. and 54 ff.

cient to maintain him and his family, either in the liberal,moderate, or scanty manner, in which the advancing, stationary,or declining circumstances of the society oblige his employersto maintain him.1 By regulating the money price of all the otherparts of the rude produce of land, it regulates that of the materialsof almost all manufactures. By regulating the money price oflabour, it regulates that of manufacturing art and industry; andby regulating both, it regulates that of the complete manu-facture. The money price of labour, and of every thing that is theproduce either of land and 2 labour, must necessarily rise or fall inproportion to the money price of corn.”3

This opinion of Adam Smith, I have before attempted torefute.4 In considering a rise in the price of commodities as anecessary consequence of a rise in the price of corn, he reasonsas though there were no other fund from which the increasedcharge could be paid. He has wholly neglected the considera-tion of profits, the diminution of which forms that fund, withoutraising the price of commodities. If this opinion of Dr. Smithwere well founded, profits could never really fall, whateveraccumulation of capital there might be. If, when wages rose,the farmer could raise the price of his corn, and the clothier, thehatter, the shoemaker, and every other manufacturer, could alsoraise the price of their goods in proportion to the advance,although estimated in money they might be all raised, theywould continue to bear the same value relatively to each other.Each of these trades could command the same quantity as beforeof the goods of the others, which, since it is goods, and notmoney, which constitute wealth, is the only circumstance thatcould be of importance to them; and the whole rise in the priceof raw produce and of goods, would be injurious to no other

Bounties on Exportationch. xxii 309

1 In eds. 1–2 the last four words arein italics.2 Bk. ii, ch. ii; vol. i, pp. 311-12.The quotation is abridged, and theitalics are Ricardo’s.

3 Ed. 1 ‘those goods’ in place of‘the first sort’.4 Ed. 1 ‘If no more labour be re-quired to bring cloth and gold.’.

persons but to those whose property consisted of gold andsilver, or whose annual income was paid in a contributed quan-tity of those metals, whether in the form of bullion or of money.Suppose the use of money to be wholly laid aside, and all tradeto be carried on by barter. Under such circumstances, couldcorn rise in exchangeable value with other things? If it could,then it is not true that the value of corn regulates the value ofall other commodities; for to do that, it should not vary inrelative value to them. If it could not, then it must be main-tained, that whether corn be obtained on rich, or on poor land,with much labour, or with little, with the aid of machinery, orwithout, it would always exchange for an equal quantity of allother commodities.

I cannot, however, but remark that, though Adam Smith’sgeneral doctrines correspond with this which I have just quoted,yet in one part of his work he appears to have given a correctaccount of the nature of value. “The proportion between thevalue of gold and silver, and that of goods of any other kind,depends in all cases,1” he says, “upon the proportion betweenthe quantity of labour which is necessary in order to bring a certainquantity of gold and silver to market, and that which is necessaryto bring thither a certain quantity of any other sort of goods.”2

Does he not here fully acknowledge that if any increase takesplace in the quantity of labour, required to bring one sort ofgoods to market, whilst no such increase takes place in bringinganother sort thither, the first sort3 will rise in relative value. Ifno more labour than before be required to bring either cloth orgold4 to market, they will not vary in relative value, but if morelabour be required to bring corn and shoes to market, will not

310 Principles ch. xxii

1 Bk. iv, ch. v; vol. ii, pp. 12–13. 2 Above, pp. 168–72 and cp.p. 228.

corn and shoes rise in value relatively to cloth, and moneymade of gold?

Adam Smith again considers that the effect of the bounty isto cause a partial degradation in the value of money. “Thatdegradation,” says he, “in the value of silver, which is theeffect of the fertility of the mines, and which operates equally,or very nearly equally, through the greater part of the com-mercial world, is a matter of very little consequence to anyparticular country. The consequent rise of all money prices,though it does not make those who receive them really richer,does not make them really poorer. A service of plate be-comes really cheaper, and every thing else remains preciselyof the same real value as before.” This observation is mostcorrect.

“But that degradation in the value of silver, which being theeffect either of the peculiar situation, or of the political institu-tions of a particular country, takes place only in that country,is a matter of very great consequence, which, far from tendingto make any body really richer, tends to make every body reallypoorer. The rise in the money price of all commodities, whichis in this case peculiar to that country, tends to discourage moreor less every sort of industry which is carried on within it, andto enable foreign nations, by furnishing almost all sorts of goodsfor a smaller quantity of silver than its own workmen canafford to do, to undersell them, not only in the foreign, buteven in the home market.”1

I have elsewhere 2 attempted to shew that a partial degradationin the value of money, which shall affect both agriculturalproduce, and manufactured commodities, cannot possibly bepermanent. To say that money is partially degraded, in thissense, is to say that all commodities are at a high price; but

Bounties on Exportationch. xxii 311

while gold and silver are at liberty to make purchases in thecheapest market, they will be exported for the cheaper goods ofother countries, and the reduction of their quantity, will increasetheir value at home; commodities will regain their usual level,and those fitted for foreign markets will be exported, as be-fore.

A bounty, therefore, cannot, I think, be objected to on thisground.

If then, a bounty raises the price of corn in comparison withall other things, the farmer will be benefited, and more land willbe cultivated; but if the bounty do not raise the value of cornrelatively to other things, then no other inconvenience willattend it, than that of paying the bounty; one which I neitherwish to conceal nor underrate.

Dr. Smith states, that “by establishing high duties on theimportation, and bounties on the exportation of corn, thecountry gentlemen seemed to have imitated the conduct of themanufacturers.” By the same means, both had endeavoured toraise the value of their commodities. “They did not, perhaps,attend to the great and essential difference which nature hasestablished between corn, and almost every other sort of goods.When by either of the above means, you enable our manu-facturers to sell their goods for somewhat a better price thanthey otherwise could get for them, you raise not only thenominal, but the real price of those goods. You increase notonly the nominal, but the real profit, the real wealth and revenueof those manufacturers—you really encourage those manu-facturers. But when, by the like institutions, you raise thenominal or money price of corn, you do not raise its real value,you do not increase the real wealth of our farmers or countrygentlemen, you do not encourage the growth of corn. Thenature of things has stamped upon corn a real value, whichcannot be altered by merely altering its money price. Through

312 Principles ch. xxii

1 Bk. iv, ch. v; vol. ii, pp. 16–17.A very free quotation, with severalomissions.2 Above, p. 301.3 Ed. 1 ‘would’.

4 Eds. 1–2 ‘a bounty’ in place of‘establishing high duties on the im-portation, and bounties’.5 Eds. 1–2 do not contain ‘for atime’.

the world in general, that value is equal to the quantity of labourwhich it can maintain.”1

I have already attempted to shew,2 that the market price ofcorn would, under an increased demand from the effects of abounty, exceed its natural price, till the requisite additionalsupply was obtained, and that then it would again fall to itsnatural price. But the natural price of corn is not so fixed as thenatural price of commodities; because, with any great additionaldemand for corn, land of a worse quality must be taken intocultivation, on which more labour will be required to producea given quantity, and the natural price of corn will3 be raised.By a continued bounty, therefore, on the exportation of corn,there would be created a tendency to a permanent rise in theprice of corn, and this, as I have shewn elsewhere,* neverfails to raise rent. Country gentlemen, then, have not onlya temporary but a permanent interest in prohibitions of theimportation of corn, and in bounties on its exportation; butmanufacturers have no permanent interest in establishinghigh duties on the importation, and bounties4 on the exportationof commodities; their interest is wholly temporary.

A bounty on the exportation of manufactures will, un-doubtedly, as Dr. Smith contends, raise for a time5 the marketprice of manufactures, but it will not raise their natural price.The labour of 200 men will produce double the quantity ofthese goods that 100 could produce before; and, consequently,when the requisite quantity of capital was employed in supplyingthe requisite quantity of manufacturers, they would again fallto their natural price, and all advantage from a high market

* See Chapter on Rent.

Bounties on Exportationch. xxii 313

1 Eds. 1–2 do not contain, ‘and alladvantage from a high market pricewould cease.’.

2 Eds. 1–2 ‘before’ in place of ‘till’.3 Misprinted ‘exceed’ in ed. 3.

price would cease.1 It is, then, only during the interval after therise in the market price of commodities, and till2 the additionalsupply is obtained, that the manufacturers will enjoy highprofits; for as soon as prices had subsided, their profits wouldsink to the general level.

Instead of agreeing, therefore, with Adam Smith, that thecountry gentlemen had not so great an interest in prohibitingthe importation of corn, as the manufacturer had in prohibitingthe importation of manufactured goods, I contend, that theyhave a much superior interest; for their advantage is permanent,while that of the manufacturer is only temporary. Dr. Smithobserves, that nature has established a great and essentialdifference between corn and other goods, but the proper in-ference from that circumstance is directly the reverse of thatwhich he draws from it; for it is on account of this differencethat rent is created, and that country gentlemen have an interestin the rise of the natural price of corn. Instead of comparingthe interest of the manufacturer with the interest of the countrygentleman, Dr. Smith should have compared it with the interestof the farmer, which is very distinct from that of his landlord.Manufacturers have no interest in the rise of the natural priceof their commodities, nor have farmers any interest in the riseof the natural price of corn, or other raw produce, though boththese classes are benefited while the market price of their pro-ductions exceeds3 their natural price. On the contrary, landlordshave a most decided interest in the rise of the natural price ofcorn; for the rise of rent is the inevitable consequence of thedifficulty of producing raw produce, without which its naturalprice could not rise. Now, as bounties on exportation and pro-hibitions of the importation of corn increase the demand, and

314 Principles ch. xxii

1 Eds. 1–2 ‘The sole effect of the bounty either on the exportation ofmanufactures, or of corn, is’.

drive us to the cultivation of poorer lands, they necessarilyoccasion an increased difficulty of production.

The sole effect of high duties on the importation either ofmanufactures or of corn, or of a bounty on their exportation,is1 to divert a portion of capital to an employment, which itwould not naturally seek. It causes a pernicious distribution ofthe general funds of the society—it bribes a manufacturer tocommence or continue in a comparatively less profitable em-ployment. It is the worst species of taxation, for it does notgive to the foreign country all that it takes away from the homecountry, the balance of loss being made up by the less advan-tageous distribution of the general capital. Thus, if the price ofcorn is in England 4l. and in France 3l. 15s. a bounty of 10s.will ultimately reduce it to 3l. 10s. in France, and maintain it atthe same price of 4l. in England. For every quarter exported,England pays a tax of 10s. For every quarter imported intoFrance, France gains only 5s., so that the value of 5s. perquarter is absolutely lost to the world, by such a distribution ofits funds as to cause diminished production, probably not ofcorn, but of some other object of necessity or enjoyment.

Mr. Buchanan appears to have seen the fallacy of Dr. Smith’sarguments respecting bounties, and on the last passage whichI have quoted, very judiciously remarks: “In asserting thatnature has stamped a real value on corn, which cannot be alteredby merely altering its money price, Dr. Smith confounds itsvalue in use with its value in exchange. A bushel of wheat willnot feed more people during scarcity than during plenty; buta bushel of wheat will exchange for a greater quantity of luxuriesand conveniences when it is scarce, than when it is abundant;and the landed proprietors, who have a surplus of food to dis-pose of, will, therefore, in times of scarcity, be richer men; they

Bounties on Exportationch. xxii 315

1 Buchanan’s ed. of the Wealth ofNations, vol. ii, p. 287, note.

2 Above, p. 216.3 Should be vol. ii.

will exchange their surplus for a greater value of other enjoy-ments, than when corn is in greater plenty. It is vain to argue,therefore, that if the bounty occasions a forced exportation ofcorn, it will not also occasion a real rise of price.”1 The wholeof Mr. Buchanan’s arguments on this part of the subject ofbounties, appear to me to be perfectly clear and satisfactory.

Mr. Buchanan, however, has not, I think, any more thanDr. Smith, or the writer in the Edinburgh Review, correctopinions as to the influence of a rise in the price of labour onmanufactured commodities. From his peculiar views, whichI have elsewhere noticed,2 he thinks that the price of labour hasno connexion with the price of corn, and, therefore, that thereal value of corn might and would rise without affecting theprice of labour; but if labour were affected, he would maintainwith Adam Smith and the writer in the Edinburgh Review, thatthe price of manufactured commodities would also rise; andthen I do not see how he would distinguish such a rise of corn,from a fall in the value of money, or how he could come to anyother conclusion than that of Dr. Smith. In a note to page 276,vol. i.3 of the Wealth of Nations, Mr. Buchanan observes, “butthe price of corn does not regulate the money price of all theother parts of the rude produce of land. It regulates the priceneither of metals, nor of various other useful substances, suchas coals, wood, stones, &c.; and as it does not regulate the priceof labour, it does not regulate the price of manufactures; so that thebounty, in so far as it raises the price of corn, is undoubtedlya real benefit to the farmer. It is not on this ground, therefore,that its policy must be argued. Its encouragement to agri-culture, by raising the price of corn, must be admitted; and thequestion then comes to be, whether agriculture ought to bethus encouraged?”—It is then, according to Mr. Buchanan, a

316 Principles ch. xxii

1 Above, pp. 168–72. 2 Bk. iv, ‘Of Systems of PoliticalŒconomy’.

real benefit to the farmer, because it does not raise the price oflabour; but if it did, it would raise the price of all things inproportion, and then it would afford no particular encourage-ment to agriculture.

It must, however, be conceded, that the tendency of a bountyon the exportation of any commodity is to lower in a smalldegree the value of money. Whatever facilitates exportation,tends to accumulate money in a country; and, on the contrary,whatever impedes exportation, tends to diminish it. The generaleffect of taxation, by raising the prices of the commoditiestaxed, tends to diminish exportation, and, therefore, to checkthe influx of money; and on the same principle, a bounty en-courages the influx of money. This is more fully explained inthe general observations on taxation.1

The injurious effects of the mercantile system have been fullyexposed by Dr. Smith;2 the whole aim of that system was toraise the price of commodities, in the home market, by pro-hibiting foreign competition; but this system was no moreinjurious to the agricultural classes than to any other part of thecommunity. By forcing capital into channels where it wouldnot otherwise flow, it diminished the whole amount of com-modities produced. The price, though permanently higher, wasnot sustained by scarcity, but by difficulty of production; and,therefore, though the sellers of such commodities sold them fora higher price, they did not sell them, after the requisite quantityof capital was employed in producing them, at higher profits.*

* M. Say supposes the advantage of the manufacturers at home to bemore than temporary. “A government which absolutely prohibits theimportation of certain foreign goods, establishes a monopoly in favour ofthose who produce such commodities at home, against those who consumethem; in other words, those at home who produce them having theexclusive privilege of selling them, may elevate their price above the

Bounties on Exportationch. xxii 317

1 Bk. i, ch. x; vol. i, p. 129. 2 Eds. 1–2 do not contain ‘ourportion of ’.

The manufacturers themselves, as consumers, had to pay anadditional price for such commodities, and, therefore, it cannotbe correctly said, that “the enhancement of price occasioned byboth, (corporation laws and high duties on the importations offoreign commodities,) is every where finally paid by the land-lords, farmers, and labourers of the country.”1

It is the more necessary to make this remark, as in the presentday the authority of Adam Smith is quoted by country gentle-men, for imposing similar high duties on the importation offoreign corn. Because the cost of production, and, therefore,the prices of various manufactured commodities, are raised tothe consumer by one error in legislation, the country has beencalled upon, on the plea of justice, quietly to submit to freshexactions. Because we all pay an additional price for our linen,muslin, and cottons, it is thought just that we should pay alsoan additional price for our corn. Because, in the general dis-tribution of the labour of the world, we have prevented thegreatest amount of productions from being obtained, by ourportion of 2 that labour, in manufactured commodities, we shouldfurther punish ourselves by diminishing the productive powersof the general labour in the supply of raw produce. It would bemuch wiser to acknowledge the errors which a mistaken policyhas induced us to adopt, and immediately to commence a

natural price; and the consumers at home, not being able to obtain themelsewhere, are obliged to purchase them at a higher price.” Vol. i. p. 201.

But how can they permanently support the market price of their goodsabove the natural price, when every one of their fellow citizens is free toenter into the trade? They are guaranteed against foreign, but not againsthome competition. The real evil arising to the country from such mono-polies, if they can be called by that name, lies, not in raising the marketprice of such goods, but in raising their real and natural price. By in-creasing the cost of production, a portion of the labour of the country isless productively employed.

318 Principles ch. xxii

1 Ed. 1 does not contain this note. The author of the article wasMcCulloch; cp. above, p. 267.

gradual recurrence to the sound principles of an universally freetrade.*

“I have already had occasion to remark,” observes M. Say,“in speaking of what is improperly called the balance of trade,that if it suits a merchant better to export the precious metals toa foreign country than any other goods, it is also the interest ofthe State that he should export them, because the State onlygains or loses through the channel of its citizens; and in whatconcerns foreign trade, that which best suits the individual, bestsuits also the State; therefore, by opposing obstacles to theexportation which individuals would be inclined to make of theprecious metals, nothing more is done, than to force them tosubstitute some other commodity less profitable to themselvesand to the State. It must, however, be remarked, that I sayonly in what concerns foreign trade; because the profits whichmerchants make by their dealings with their countrymen, aswell as those which are made in the exclusive commerce withcolonies, are not entirely gains for the State. In the tradebetween individuals of the same country, there is no other gainbut the value of an utility produced; que la valeur d’une utiliteproduite.”† Vol. i. p. 401. I cannot see the distinction heremade between the profits of the home and foreign trade. The

* “A freedom of trade is alone wanted to guarantee a country likeBritain, abounding in all the varied products of industry, in merchandisesuited to the wants of every society, from the possibility of a scarcity. Thenations of the earth are not condemned to throw the dice to determinewhich of them shall submit to famine. There is always abundance of foodin the world. To enjoy a constant plenty, we have only to lay aside ourprohibitions and restrictions, and cease to counteract the benevolentwisdom of Providence.” Article, “Corn Laws and Trade.” Supplementto Encyclopædia Britannica.1

† Are not the following passages contradictory to the one abovequoted? “Besides, that home trade, though less noticed, (because it is in

Bounties on Exportationch. xxii 319

1 All eds. print ‘6th Chap.’, which correctly denotes the chapter ‘OnForeign Trade’ in ed. 1. but not in eds. 2–3 (cp. above, p. 10).

object of all trade is to increase productions. If for the purchaseof a pipe of wine, I had it in my power to export bullion, whichwas bought with the value of the produce of 100 days’ labour,but Government, by prohibiting the exportation of bullion,should oblige me to purchase my wine with a commoditybought with the value of the produce of 105 days’ labour, theproduce of five days’ labour is lost to me, and, through me, tothe State. But if these transactions took place between indi-viduals, in different provinces of the same country, the sameadvantage would accrue both to the individual, and, throughhim, to the country; if he were unfettered in his choice of thecommodities, with which he made his purchases; and the samedisadvantage, if he were obliged by Government to purchasewith the least beneficial commodity. If a manufacturer couldwork up with the same capital, more iron where coals areplentiful, than he could where coals are scarce, the countrywould be benefited by the difference. But if coals were nowhere plentiful, and he imported iron, and could get this addi-tional quantity, by the manufacture of a commodity, with thesame capital and labour, he would in like manner benefit hiscountry by the additional quantity of iron. In the 7th Chap.1

of this work, I have endeavoured to shew that all trade, whetherforeign or domestic, is beneficial, by increasing the quantity,and not by increasing the value of productions. We shall have

a variety of hands) is the most considerable, it is also the most profitable.The commodities exchanged in that trade are necessarily the productionsof the same country.” Vol. i. p. 84.

“The English Government has not observed, that the most profitablesales are those which a country makes to itself, because they cannot takeplace, without two values being produced by the nation; the value whichis sold, and the value with which the purchase is made.” Vol. i. p. 221.

I shall, in the 26th chapter, examine the soundness of this opinion.

320 Principles ch. xxii

no greater value, whether we carry on the most beneficial homeand foreign trade, or in consequence of being fettered by pro-hibitory laws, we are obliged to content ourselves with theleast advantageous. The rate of profits, and the value produced,will be the same. The advantage always resolves itself into thatwhich M. Say appears to confine to the home trade; in bothcases there is no other gain but that of the value of an utiliteproduite.

1 Ed. 3 misprints ‘productions’here and in one of the running titles,but has ‘production’ in the Contentsand in the other running titles.

2 Eds. 1–2 do not contain ‘thedivision of ’.

chapter xxiii

On Bounties on Production1

It may not be uninstructive to consider the effects of a bountyon the production of raw produce and other commodities, witha view to observe the application of the principles which I havebeen endeavouring to establish, with regard to the profits ofstock, the division of 2 the annual produce of the land andlabour, and the relative prices of manufactures and raw produce.In the first place let us suppose that a tax was imposed on allcommodities, for the purpose of raising a fund to be employedby Government, in giving a bounty on the production of corn.As no part of such a tax would be expended by Government,and as all that was received from one class of the people, wouldbe returned to another, the nation collectively would neitherbe richer nor poorer, from such a tax and bounty. It would bereadily allowed, that the tax on commodities by which the fundwas created, would raise the price of the commodities taxed;all the consumers of those commodities, therefore, would con-tribute towards that fund; in other words, their natural or neces-sary price being raised, so would, too, their market price. Butfor the same reason that the natural price of those commoditieswould be raised, the natural price of corn would be lowered;before the bounty was paid on production, the farmers obtainedas great a price for their corn as was necessary to repay themtheir rent and their expenses, and afford them the general rateof profits; after the bounty, they would receive more than thatrate, unless the price of corn fell by a sum at least equal to the

322 Principles ch. xxiii

1 Eds. 1–2 do not contain ‘the effects of ’.

bounty. The effect then of the tax and bounty, would be to raisethe price of commodities in a degree equal to the tax levied onthem, and to lower the price of corn by a sum equal to the bountypaid. It will be observed, too, that no permanent alterationcould be made in the distribution of capital between agricultureand manufactures, because as there would be no alteration,either in the amount of capital or population, there would beprecisely the same demand for bread and manufactures. Theprofits of the farmer would be no higher than the general level,after the fall in the price of corn; nor would the profits of themanufacturer be lower after the rise of manufactured goods;the bounty then would not occasion any more capital to beemployed on the land in the production of corn, nor any less inthe manufacture of goods. But how would the interest of thelandlord be affected? On the same principles that a tax on rawproduce would lower the corn rent of land, leaving the moneyrent unaltered, a bounty on production, which is directly thecontrary of a tax, would raise corn rent, leaving the money rentunaltered.* With the same money rent the landlord would havea greater price to pay for his manufactured goods, and a lessprice for his corn; he would probably therefore be neither richernor poorer.

Now, whether such a measure would have any operation onthe wages of labour, would depend on the question, whetherthe labourer, in purchasing commodities, would pay as muchtowards the tax as he would receive from the effects of 1 thebounty, in the low price of his food. If these two quantitieswere equal, wages would continue unaltered; but if the com-modities taxed were not those consumed by the labourer, hiswages would fall, and his employer would be benefited by thedifference. But this is no real advantage to his employer; it

* See p. 158.

On Bounties on Productionch. xxiii 323

1 Eds. 1–2 do not contain ‘, ornatural,’.2 From here to the end of the nextsentence eds. 1–2 read ‘but the abso-

lute profits also; which does nothappen, as we have just seen, whenthe fall is occasioned artificially bya bounty.’

would indeed operate to increase the rate of his profits, as everyfall of wages must do; but in proportion as the labourer con-tributed less to the fund from which the bounty was paid, andwhich, let it be remembered, must be raised, his employer mustcontribute more; in other words, he would contribute as muchto the tax by his expenditure, as he would receive in the effectsof the bounty and the higher rate of profits together. He obtainsa higher rate of profits to requite him for his payment, not onlyof his own quota of the tax, but of his labourer’s also; theremuneration which he receives for his labourer’s quota, appearsin diminished wages, or, which is the same thing, in increasedprofits; the remuneration for his own appears in the diminutionin the price of the corn which he consumes, arising from thebounty.

Here it will be proper to remark the different effects pro-duced on profits from an alteration in the real labour, or natural,1

value of corn, and an alteration in the relative value of corn,from taxation and from bounties. If corn is lowered in price byan alteration in its labour price, not only will the rate of theprofits of stock be altered,2 but the condition of the capitalistwill be improved. With greater profits, he will have no more topay for the objects on which those profits are expended; whichdoes not happen, as we have just seen, when the fall is occasionedartificially by a bounty. In the real fall in the value of corn,arising from less labour being required to produce one of themost important objects of man’s consumption, labour is ren-dered more productive. With the same capital the same labouris employed, and an increase of productions is the result; notonly then will the rate of profits be increased, but the condition

324 Principles ch. xxiii

1 Eds. 1–2 ‘not only then will therate of profits, but the absoluteprofits of stock be increased’.

2 Eds. 1–2 do not contain ‘, thoughnot deteriorated,’.

of him who obtains them will be improved1; not only will eachcapitalist have a greater money revenue, if he employs the samemoney capital, but also when that money is expended, it willprocure him a greater sum of commodities; his enjoyments willbe augmented. In the case of the bounty, to balance the ad-vantage which he derives from the fall of one commodity, hehas the disadvantage of paying a price more than proportionallyhigh for another; he receives an increased rate of profits in orderto enable him to pay this higher price; so that his real situation,though not deteriorated,2 is in no way improved: though he getsa higher rate of profits, he has no greater command of theproduce of the land and labour of the country. When the fall inthe value of corn is brought about by natural causes, it is notcounteracted by the rise of other commodities; on the contrary,they fall from the raw material falling from which they aremade: but when the fall in corn is occasioned by artificial means,it is always counteracted by a real rise in the value of some othercommodity, so that if corn be bought cheaper, other commo-dities are bought dearer.

This then is a further proof, that no particular disadvantagearises from taxes on necessaries, on account of their raisingwages and lowering the rate of profits. Profits are indeedlowered, but only to the amount of the labourer’s portion of thetax, which must at all events be paid either by his employeror by the consumer of the produce of the labourer’s work.Whether you deduct 50l. per annum from the employer’srevenue, or add 50l. to the prices of the commodities which heconsumes, can be of no other consequence to him or to thecommunity, than as it may equally affect all other classes. If itbe added to the prices of the commodity, a miser may avoid the

On Bounties on Productionch. xxiii 325

tax by not consuming; if it be indirectly deducted from everyman’s revenue, he cannot avoid paying his fair proportion ofthe public burthens.

A bounty on the production of corn then, would produce noreal effect on the annual produce of the land and labour of thecountry, although it would make corn relatively cheap, andmanufactures relatively dear. But suppose now that a contrarymeasure should be adopted, that a tax should be raised on cornfor the purpose of affording a fund for a bounty on the produc-tion of commodities.

In such case, it is evident that corn would be dear, and com-modities cheap; labour would continue at the same price if thelabourer were as much benefited by the cheapness of com-modities as he was injured by the dearness of corn; but if hewere not, wages would rise, and profits would fall, while moneyrent would continue the same as before; profits would fall,because, as we have just explained, that would be the mode inwhich the labourer’s share of the tax would be paid by theemployers of labour. By the increase of wages the labourerwould be compensated for the tax which he would pay in theincreased price of corn; by not expending any part of his wageson the manufactured commodities, he would receive no part ofthe bounty; the bounty would be all received by the employers,and the tax would be partly paid by the employed; a remunera-tion would be made to the labourers, in the shape of wages, forthis increased burden laid upon them, and thus the rate ofprofits would be reduced. In this case too there would be acomplicated measure producing no national result whatever.

In considering this question, we have purposely left out ofour consideration the effect of such a measure on foreign trade;we have rather been supposing the case of an insulated country,having no commercial connexion with other countries. Wehave seen that as the demand of the country for corn and com-

326 Principles ch. xxiii

modities would be the same, whatever direction the bountymight take, there would be no temptation to remove capitalfrom one employment to another: but this would no longer bethe case if there were foreign commerce, and that commercewere free. By altering the relative value of commodities andcorn, by producing so powerful an effect on their natural prices,we should be applying a strong stimulus to the exportation ofthose commodities whose natural prices were lowered, and anequal stimulus to the importation of those commodities whosenatural prices were raised, and thus such a financial measuremight entirely alter the natural distribution of employments; tothe advantage indeed of the foreign countries, but ruinously tothat in which so absurd a policy was adopted.

1 Adam Smith says ‘may’.2 Bk. i, ch. xi; vol. i, p. 146. Theitalics are Ricardo’s.

3 ib. vol. i, p. 146.

chapter xxiv

Doctrine of Adam Smith concerningthe Rent of Land

“Such parts only of the produce of land,” says Adam Smith,“can commonly be brought to market, of which the ordinaryprice is sufficient to replace the stock which must be employedin bringing them thither, together with its ordinary profits. Ifthe ordinary price is more than this, the surplus part of it willnaturally go to the rent of land. If it is not more, though thecommodity can1 be brought to market, it can afford no rent to thelandlord. Whether the price is, or is not more, depends upon thedemand.”2

This passage would naturally lead the reader to concludethat its author could not have mistaken the nature of rent, andthat he must have seen that the quality of land which theexigencies of society might require to be taken into cultivation,would depend on “the ordinary price of its produce,” whether itwere “sufficient to replace the stock, which must be employed incultivating it, together with its ordinary profits.”

But he had adopted the notion that “there were some partsof the produce of land for which the demand must always besuch as to afford a greater price than what is sufficient to bringthem to market;”3 and he considered food as one of those parts.

He says, that “land, in almost any situation, produces agreater quantity of food than what is sufficient to maintain allthe labour necessary for bringing it to market, in the mostliberal way in which that labour is ever maintained. The surplus,

328 Principles ch. xxiv

2 ib. vol. i, pp. 147–8.

too, is always more than sufficient to replace the stock whichemployed that labour, together with its profits. Something,therefore, always remains for a rent to the landlord.”1

But what proof does he give of this?—no other than theassertion that “the most desert moors in Norway and Scotlandproduce some sort of pasture for cattle, of which the milk andthe increase are always more than sufficient, not only to main-tain all the labour necessary for tending them, and to pay theordinary profit to the farmer, or owner of the herd or flock, butto afford some small rent to the landlord.”2 Now of this I maybe permitted to entertain a doubt; I believe that as yet in everycountry, from the rudest to the most refined, there is land ofsuch a quality that it cannot yield a produce more than suffi-ciently valuable to replace the stock employed upon it, togetherwith the profits ordinary and usual in that country. In Americawe all know that this is the case, and yet no one maintains thatthe principles which regulate rent, are different in that countryand in Europe. But if it were true that England had so faradvanced in cultivation, that at this time there were no landsremaining which did not afford a rent, it would be equally true,that there formerly must have been such lands; and that whetherthere be or not, is of no importance to this question, for it is thesame thing if there be any capital employed in Great Britain onland which yields only the return of stock with its ordinaryprofits, whether it be employed on old or on new land. If afarmer agrees for land on a lease of seven or fourteen years, hemay propose to employ on it a capital of 10,000l., knowing thatat the existing price of grain and raw produce, he can replacethat part of his stock which he is obliged to expend, pay hisrent, and obtain the general rate of profit. He will not employ11,000l., unless the last 1000l. can be employed so productivelyas to afford him the usual profits of stock. In his calculation,

1 Bk. i, ch. xi, pt. i; vol. i, p. 147.

Adam Smith on Rentch. xxiv 329

whether he shall employ it or not, he considers only whetherthe price of raw produce is sufficient to replace his expenses andprofits, for he knows that he shall have no additional rent topay. Even at the expiration of his lease his rent will not beraised; for if his landlord should require rent, because this addi-tional 1000l. was employed, he would withdraw it; since byemploying it, he gets, by the supposition, only the ordinaryand usual profits which he may obtain by any other employ-ment of stock; and, therefore, he cannot afford to pay rent forit, unless the price of raw produce should further rise, or, whichis the same thing, unless the usual and general rate of profitsshould fall.

If the comprehensive mind of Adam Smith had been directedto this fact, he would not have maintained that rent forms oneof the component parts of the price of raw produce; for price isevery where regulated by the return obtained by this last portionof capital, for which no rent whatever is paid. If he had advertedto this principle, he would have made no distinction betweenthe law which regulates the rent of mines and the rent of land.

“Whether a coal mine, for example,” he says, “can affordany rent, depends partly upon its fertility, and partly upon itssituation. A mine of any kind may be said to be either fertileor barren, according as the quantity of mineral which can bebrought from it by a certain quantity of labour, is greater or lessthan what can be brought by an equal quantity from the greaterpart of other mines of the same kind. Some coal mines, ad-vantageously situated, cannot be wrought on account of theirbarrenness. The produce does not pay the expense. They canafford neither profit nor rent. There are some, of which theproduce is barely sufficient to pay the labour, and replace,together with its ordinary profits, the stock employed in workingthem. They afford some profit to the undertaker of the work,but no rent to the landlord. They can be wrought advan-

330 Principles ch. xxiv

1 Bk. i, ch. xi, pt. ii; vol. i, pp.165–6.

2 Adam Smith says ‘The value’.3 Bk. i, ch. xi, pt. iii; vol. i, p. 174.

tageously by nobody but the landlord, who being himself theundertaker of the work, gets the ordinary profit of the capitalwhich he employs in it. Many coal mines in Scotland arewrought in this manner, and can be wrought in no other. Thelandlord will allow nobody else to work them without payingsome rent, and nobody can afford to pay any.

“Other coal mines in the same country, sufficiently fertile,cannot be wrought on account of their situation. A quantityof mineral sufficient to defray the expense of working, could bebrought from the mine by the ordinary, or even less than theordinary quantity of labour; but in an inland country, thinlyinhabited, and without either good roads or water-carriage, thisquantity could not be sold.”1 The whole principle of rent ishere admirably and perspicuously explained, but every word isas applicable to land as it is to mines; yet he affirms that “it isotherwise in estates above ground. The proportion,2 both oftheir produce and of their rent, is in proportion to their abso-lute, and not to their relative fertility.”3 But, suppose that therewere no land which did not afford a rent; then, the amount ofrent on the worst land would be in proportion to the excess ofthe value of the produce above the expenditure of capital andthe ordinary profits of stock: the same principle would governthe rent of land of a somewhat better quality, or more favourablysituated, and, therefore, the rent of this land would exceed therent of that inferior to it, by the superior advantages which itpossessed; the same might be said of that of the third quality,and so on to the very best. Is it not, then, as certain, that it isthe relative fertility of the land, which determines the portionof the produce, which shall be paid for the rent of land, as it isthat the relative fertility of mines, determines the portion oftheir produce, which shall be paid for the rent of mines?

Adam Smith on Rentch. xxiv 331

1 Eds. 1–2 do not contain ‘from allmines’.2 Eds. 1–2 ‘less productive’ inplace of ‘not tolerably fertile’.

3 Bk. i, ch. xi, pt. ii; vol. i, pp.167–8.

After Adam Smith has declared that there are some mineswhich can only be worked by the owners, as they will affordonly sufficient to defray the expense of working, together withthe ordinary profits of the capital employed, we should expectthat he would admit that it was these particular mines whichregulated the price of the produce from all mines.1 If the oldmines are insufficient to supply the quantity of coal required,the price of coal will rise, and will continue rising till the ownerof a new and inferior mine finds that he can obtain the usualprofits of stock by working his mine. If his mine be tolerablyfertile, the rise will not be great before it becomes his interest soto employ his capital; but if it be not tolerably fertile,2 it isevident that the price must continue to rise till it will afford himthe means of paying his expenses, and obtaining the ordinaryprofits of stock. It appears, then, that it is always the least fertilemine which regulates the price of coal. Adam Smith, however,is of a different opinion: he observes, that “the most fertile coalmine, too, regulates the price of coals at all the other mines inits neighbourhood. Both the proprietor and the undertaker ofthe work find, the one that he can get a greater rent, the other,that he can get a greater profit, by somewhat underselling alltheir neighbours. Their neighbours are soon obliged to sell atthe same price, though they cannot so well afford it, and thoughit always diminishes, and sometimes takes away altogether, boththeir rent and their profit. Some works are abandoned alto-gether; others can afford no rent, and can be wrought only bythe proprietor.”3 If the demand for coal should be diminished,or if by new processes the quantity should be increased, theprice would fall, and some mines would be abandoned; but inevery case, the price must be sufficient to pay the expenses and

332 Principles ch. xxiv

1 Bk. i, ch. xi, pt. ii; vol. i, p. 168. 2 ib. pt. i; vol. i, p. 161.

profit of that mine which is worked without being charged withrent. It is, therefore, the least fertile mine which regulates price.Indeed, it is so stated in another place by Adam Smith himself,for he says, “The lowest price at which coals can be sold forany considerable time, is like that of all other commodities, theprice which is barely sufficient to replace, together with itsordinary profits, the stock which must be employed in bringingthem to market. At a coal mine for which the landlord can getno rent, but which he must either work himself, or let it aloneall together, the price of coals must generally be nearly aboutthis price.”1

But the same circumstance, namely, the abundance and con-sequent cheapness of coals, from whatever cause it may arise,which would make it necessary to abandon those mines onwhich there was no rent, or a very moderate one, would, ifthere were the same abundance, and consequent cheapness ofraw produce, render it necessary to abandon the cultivation ofthose lands for which either no rent was paid, or a very moderateone. If, for example, potatoes should become the general andcommon food of the people, as rice is in some countries, onefourth, or one half of the land now in cultivation, would pro-bably be immediately abandoned; for if, as Adam Smith says,“an acre of potatoes will produce six thousand weight of solidnourishment, three times the quantity produced by the acre ofwheat,”2 there could not be for a considerable time such amultiplication of people, as to consume the quantity that mightbe raised on the land before employed for the cultivation ofwheat; much land would consequently be abandoned, and rentwould fall; and it would not be till the population had beendoubled or trebled, that the same quantity of land could be incultivation, and the rent paid for it as high as before.

Neither would any greater proportion of the gross produce

Adam Smith on Rentch. xxiv 333

1 Bk. i, ch. xi, pt. i; vol. i, p. 160. The italics are Ricardo’s.

be paid to the landlord, whether it consisted of potatoes, whichwould feed three hundred people, or of wheat, which wouldfeed only one hundred; because, though the expenses of prod-uction would be very much diminished if the labourer’s wageswere chiefly regulated by the price of potatoes and not by theprice of wheat, and though therefore the proportion of thewhole gross produce, after paying the labourers, would begreatly increased, yet no part of that additional proportionwould go to rent, but the whole invariably to profits,—profitsbeing at all times raised as wages fall, and lowered as wages rise.Whether wheat or potatoes were cultivated, rent would begoverned by the same principle—it would be always equal tothe difference between the quantities of produce obtained withequal capitals, either on the same land or on land of differentqualities; and, therefore, while lands of the same quality werecultivated, and there was no alteration in their relative fertilityor advantages, rent would always bear the same proportion tothe gross produce.

Adam Smith, however, maintains that the proportion whichfalls to the landlord would be increased by a diminished costof production, and, therefore, that he would receive a largershare as well as a larger quantity, from an abundant than froma scanty produce. “A rice field,” he says, “produces a muchgreater quantity of food than the most fertile corn field. Twocrops in the year, from thirty to sixty bushels each, are said tobe the ordinary produce of an acre. Though its cultivation,therefore, requires more labour, a much greater surplus remainsafter maintaining all that labour. In those rice countries, there-fore, where rice is the common and favourite vegetable food ofthe people, and where the cultivators are chiefly maintainedwith it, a greater share of this greater surplus should belong to thelandlord than in corn countries.”1

334 Principles ch. xxiv

1 Buchanan’s ed. of the Wealth ofNations, vol. i, p. 266, note.2 Eds. 1–2 contain in addition ‘toproduce the food required, and the

same number of men should be em-ployed in producing it,’.3 Ed. 1 ‘consequently of wages’.

Mr. Buchanan also remarks, that “it is quite clear, that if anyother produce which the land yielded more abundantly thancorn, were to become the common food of the people, the rentof the landlord would be improved in proportion to its greaterabundance.”1

If potatoes were to become the common food of the people,there would be a long interval during which the landlordswould suffer an enormous deduction of rent. They would notprobably receive nearly so much of the sustenance of man asthey now receive, while that sustenance would fall to a third ofits present value. But all manufactured commodities, on whicha part of the landlord’s rent is expended, would suffer no otherfall than that which proceeded from the fall in the raw materialof which they were made, and which would arise only from thegreater fertility of the land, which might then be devoted to itsproduction.

When, from the progress of population, land of the samequality as before should be taken into cultivation,2 the landlordwould have not only the same proportion of the produce asbefore, but that proportion would also be of the same value asbefore. Rent then would be the same as before; profits, how-ever, would be much higher, because the price of food, andconsequently wages3, would be much lower. High profits arefavourable to the accumulation of capital. The demand forlabour would further increase, and landlords would be per-manently benefited by the increased demand for land.

Indeed, the very same lands might be cultivated much higher,when such an abundance of food could be produced from them,and consequently they would, in the progress of society, admitof much higher rents, and would sustain a much greater popu-

Adam Smith on Rentch. xxiv 335

1 Eds. 1–2 do not contain the lasttwo paragraphs or the first two linesof the next. They were added tomeet Malthus’s criticism; see below,

II, 118 and cp. above, p. 81, n. 1.2 Eds. 1–2 begin this paragraph‘The interest’.

lation than before. This could not fail to be highly beneficial tolandlords, and is consistent with the principle which this en-quiry, I think, will not fail to establish; that all extraordinaryprofits are in their nature but of limited duration, as the wholesurplus produce of the soil, after deducting from it only suchmoderate profits as are sufficient to encourage accumulation,must finally rest with the landlord.

With so low a price of labour as such an abundant producewould cause, not only would the lands already in cultivationyield a much greater quantity of produce, but they would admitof a great additional capital being employed on them, and agreater value to be drawn from them, and, at the same time,lands of a very inferior quality could be cultivated with highprofits, to the great advantage of landlords, as well as to thewhole class of consumers. The machine which produced themost important article of consumption would be improved, andwould be well paid for according as its services were demanded.All the advantages would, in the first instance, be enjoyed bylabourers, capitalists, and consumers; but with the progress ofpopulation, they would be gradually transferred to the pro-prietors of the soil.1

Independently of these improvements, in which the com-munity have an immediate, and the landlords a remote interest,the interest2 of the landlord is always opposed to that of theconsumer and manufacturer. Corn can be permanently at anadvanced price, only because additional labour is necessary toproduce it; because its cost of production is increased. The samecause invariably raises rent, it is therefore for the interest of thelandlord that the cost attending the production of corn shouldbe increased. This, however, is not the interest of the consumer;

336 Principles ch. xxiv

to him it is desirable that corn should be low relatively to moneyand commodities, for it is always with commodities or moneythat corn is purchased. Neither is it the interest of the manu-facturer that corn should be at a high price, for the high priceof corn will occasion high wages, but will not raise the priceof his commodity. Not only, then, must more of his com-modity, or, which comes to the same thing, the value ofmore of his commodity, be given in exchange for the corn whichhe himself consumes, but more must be given, or the value ofmore, for wages to his workmen, for which he will receive noremuneration. All classes, therefore, except the landlords, willbe injured by the increase in the price of corn. The dealingsbetween the landlord and the public are not like dealings intrade, whereby both the seller and buyer may equally be saidto gain, but the loss is wholly on one side, and the gain whollyon the other; and if corn could by importation be procuredcheaper, the loss in consequence of not importing is far greateron one side, than the gain is on the other.

Adam Smith never makes any distinction between a low valueof money, and a high value of corn, and therefore infers, thatthe interest of the landlord is not opposed to that of the rest ofthe community. In the first case, money is low relatively to allcommodities; in the other, corn is high relatively to all. In thefirst, corn and commodities continue at the same relative values;in the second, corn is higher relatively to commodities as wellas money.

The following observation of Adam Smith is applicable toa low value of money, but it is totally inapplicable to a highvalue of corn. “If importation (of corn) was at all times free,our farmers and country gentlemen would probably, one yearwith another, get less money for their corn than they do atpresent, when importation is at most times in effect prohibited;but the money which they got would be of more value, would

Adam Smith on Rentch. xxiv 337

1 Ricardo here omits several words,which do not affect the sense.2 Bk. iv, ch. v; vol. ii, p. 37.3 In eds. 1–2 the remainder of theparagraph reads ‘, as with the same

quantity of corn it not only giveshim a command over a greaterquantity of money, but over agreater quantity of every com-modity which money can purchase.’

buy more goods of all other kinds, and would employ more labour.Their real wealth, their real revenue, therefore, would be thesame as at present, though it might be expressed by a smallerquantity of silver; and they would neither be disabled nor dis-couraged from cultivating corn as much as they do at present.On the contrary, as the rise in the real value of silver, in con-sequence of lowering the money price of corn, lowers somewhatthe money price of all other commodities, it gives the industryof the country where it takes place, some advantage in allforeign markets, and thereby tends to encourage and increasethat industry. But the extent of the home market for corn, mustbe in proportion to the general industry of the country whereit grows, or to the number of those who produce somethingelse,1 to give in exchange for corn. But in every country thehome market, as it is the nearest and most convenient, so is itlikewise the greatest and most important market for corn. Thatrise in the real value of silver, therefore, which is the effect oflowering the average money price of corn, tends to enlarge thegreatest and most important market for corn, and thereby toencourage, instead of discouraging, its growth.”2

A high or low money price of corn, arising from the abun-dance and cheapness of gold and silver, is of no importance tothe landlord, as every sort of produce would be equally affected,just as Adam Smith describes; but a relatively high price of cornis at all times greatly beneficial to the landlord3; for first, it giveshim a greater quantity of corn for rent; and, secondly, for everyequal measure of corn he will have a command, not only overa greater quantity of money, but over a greater quantity ofevery commodity which money can purchase.

1 Bk. iv, ch. vii, pt. iii; vol. ii, p. 111.

chapter xxv

On Colonial Trade

Adam Smith, in his observations on colonial trade, has shewn,most satisfactorily, the advantages of a free trade, and theinjustice suffered by colonies, in being prevented by theirmother countries, from selling their produce at the dearestmarket, and buying their manufactures and stores at the cheapest.He has shewn, that by permitting every country freely to ex-change the produce of its industry when and where it pleases,the best distribution of the labour of the world will be effected,and the greatest abundance of the necessaries and enjoymentsof human life will be secured.

He has attempted also to shew, that this freedom of com-merce, which undoubtedly promotes the interest of the whole,promotes also that of each particular country; and that thenarrow policy adopted in the countries of Europe respectingtheir colonies, is not less injurious to the mother countriesthemselves, than to the colonies whose interests are sacrificed.

“The monopoly of the colony trade,” he says, “like all theother mean and malignant expedients of the mercantile system,depresses the industry of all other countries, but chiefly that ofthe colonies, without, in the least, increasing, but on the con-trary diminishing, that of the country in whose favour it isestablished.”1

This part of his subject, however, is not treated in so clearand convincing a manner as that in which he shews the injusticeof this system towards the colony.

On Colonial Tradech. xxv 339

1 Eds. 1–2 begin this paragraph‘Without affirming or denying,that the actual practice of Europewith regard to their colonies is in-jurious to the mother countries,

I may be permitted to doubtwhether’.2 Above, p. 314.3 Ed. 1 ‘but in some cases thewhole.’

It may, I think, be doubted whether1 a mother country maynot sometimes be benefited by the restraints to which she sub-jects her colonial possessions. Who can doubt, for example, thatif England were the colony of France, the latter country wouldbe benefited by a heavy bounty paid by England on the exporta-tion of corn, cloth, or any other commodities? In examiningthe question of bounties, on the supposition of corn being at4l. per quarter in this country, we saw,2 that with a bounty of10s. per quarter, on exportation in England, corn would havebeen reduced to 3l. 10s. in France. Now, if corn had previouslybeen at 3l. 15s. per quarter in France, the French consumerswould have been benefited by 5s. per quarter on all importedcorn; if the natural price of corn in France were before 4l., theywould have gained the whole bounty of 10s. per quarter. Francewould thus be benefited by the loss sustained by England: shewould not gain a part only of what England lost, but the whole.3

It may, however, be said, that a bounty on exportation is ameasure of internal policy, and could not easily be imposed bythe mother country.

If it would suit the interests of Jamaica and Holland to makean exchange of the commodities which they respectively pro-duce, without the intervention of England, it is quite certain,that by their being prevented from so doing, the interests ofHolland and Jamaica would suffer; but if Jamaica is obliged tosend her goods to England, and there exchange them for Dutchgoods, an English capital, or English agency, will be employedin a trade in which it would not otherwise be engaged. It isallured thither by a bounty, not paid by England, but byHolland and Jamaica.

340 Principles ch. xxv

1 Adam Smith says ‘of theirs’. 2 Bk. iv, ch. vi; vol. ii, p. 46.

That the loss sustained, through a disadvantageous distribu-tion of labour in two countries, may be beneficial to one ofthem, while the other is made to suffer more than the lossactually belonging to such a distribution, has been stated byAdam Smith himself; which, if true, will at once prove that ameasure, which may be greatly hurtful to a colony, may bepartially beneficial to the mother country.

Speaking of treaties of commerce, he says, “When a nationbinds itself by treaty, either to permit the entry of certain goodsfrom one foreign country which it prohibits from all others, orto exempt the goods of one country from duties to which itsubjects those of all others, the country, or at least the merchantsand manufacturers of the country, whose commerce is sofavoured, must necessarily derive great advantage from thetreaty. Those merchants and manufacturers enjoy a sort ofmonopoly in the country, which is so indulgent to them. Thatcountry becomes a market, both more extensive and moreadvantageous for their goods; more extensive, because thegoods of other nations, being either excluded or subjected toheavier duties, it takes off a greater quantity of them1; moreadvantageous, because the merchants of the favoured country,enjoying a sort of monopoly there, will often sell their goodsfor a better price than if exposed to the free competition of allother nations.”2

Let the two nations, between which the commercial treaty ismade, be the mother country and her colony, and Adam Smith,it is evident, admits, that a mother country may be benefited byoppressing her colony. It may, however, be again remarked,that unless the monopoly of the foreign market be in the handsof an exclusive company, no more will be paid for commoditiesby foreign purchasers than by home purchasers; the price whichthey will both pay will not differ greatly from their natural

On Colonial Tradech. xxv 341

price in the country where they are produced. England, forexample, will, under ordinary circumstances, always be able tobuy French goods, at the natural price of those goods in France,and France would have an equal privilege of buying Englishgoods at their natural price in England. But at these prices,goods would be bought without a treaty. Of what advantageor disadvantage then is the treaty to either party?

The disadvantage of the treaty to the importing countrywould be this: it would bind her to purchase a commodity,from England for example, at the natural price of that com-modity in England, when she might perhaps have bought itat the much lower natural price of some other country. Itoccasions then a disadvantageous distribution of the generalcapital, which falls chiefly on the country bound by its treatyto buy in the least productive market; but it gives no advantageto the seller on account of any supposed monopoly, for he isprevented by the competition of his own countrymen fromselling his goods above their natural price; at which he wouldsell them, whether he exported them to France, Spain, or theWest Indies, or sold them for home consumption.

In what then does the advantage of the stipulation in thetreaty consist? It consists in this: these particular goods couldnot have been made in England for exportation, but for theprivilege which she alone had of serving this particular market;for the competition of that country, where the natural price waslower, would have deprived her of all chance of selling thosecommodities. This, however, would have been of little im-portance, if England were quite secure that she could sell to thesame amount any other goods which she might fabricate, eitherin the French market, or with equal advantage in any other.The object which England has in view, is, for example, to buya quantity of French wines of the value of 5000l.—she desiresthen to sell goods somewhere by which she may get 5000l. for

342 Principles ch. xxv

1 Ed. 1 ‘in the price of money’.

this purpose. If France gives her a monopoly of the clothmarket, she will readily export cloth for this purpose; but if thetrade is free, the competition of other countries may preventthe natural price of cloth in England from being sufficiently lowto enable her to get 5000l. by the sale of cloth, and to obtain theusual profits by such an employment of her stock. The industryof England must be employed, then, on some other commodity;but there may be none of her productions which, at the existingvalue of money, she can afford to sell at the natural price ofother countries. What is the consequence? The wine drinkersof England, are still willing to give 5000l. for their wine, andconsequently 5000l. in money is exported to France for thatpurpose. By this exportation of money its value is raised inEngland, and lowered in other countries; and with it the naturalprice of all commodities produced by British industry is alsolowered. The advance in the value of money1 is the same thingas the decline in the price of commodities. To obtain 5000l.,British commodities may now be exported; for at their reducednatural price they may now enter into competition with thegoods of other countries. More goods are sold, however, at thelow prices to obtain the 5000l. required, which, when obtained,will not procure the same quantity of wine; because, whilst thediminution of money in England has lowered the natural priceof goods there, the increase of money in France has raised thenatural price of goods and wine in France. Less wine, then, willbe imported into England, in exchange for its commodities,when the trade is perfectly free, than when she is peculiarlyfavoured by commercial treaties. The rate of profits, however,will not have varied; money will have altered in relative valuein the two countries, and the advantage gained by France willbe the obtaining a greater quantity of English, in exchange fora given quantity of French, goods, while the loss sustained by

On Colonial Tradech. xxv 343

1 Above, pp. 141–2.

England will consist in obtaining a smaller quantity of Frenchgoods in exchange for a given quantity of those of England.

Foreign trade, then, whether fettered, encouraged, or free,will always continue, whatever may be the comparative diffi-culty of production in different countries; but it can only beregulated by altering the natural price, not the natural value, atwhich commodities can be produced in those countries, andthat is effected by altering the distribution of the precious metals.This explanation confirms the opinion which I have elsewheregiven,1 that there is not a tax, a bounty, or a prohibition, on theimportation or exportation of commodities, which does notoccasion a different distribution of the precious metals, andwhich does not, therefore, every where alter both the naturaland the market price of commodities.

It is evident, then, that the trade with a colony may be soregulated, that it shall at the same time be less beneficial to thecolony, and more beneficial to the mother country, than a per-fectly free trade. As it is disadvantageous to a single consumerto be restricted in his dealings to one particular shop, so is itdisadvantageous for a nation of consumers to be obliged topurchase of one particular country. If the shop or the countryafforded the goods required the cheapest, they would be secureof selling them without any such exclusive privilege; and if theydid not sell cheaper, the general interest would require that theyshould not be encouraged to continue a trade which they couldnot carry on at an equal advantage with others. The shop, or theselling country, might lose by the change of employments, butthe general benefit is never so fully secured, as by the mostproductive distribution of the general capital; that is to say, byan universally free trade.

An increase in the cost of production of a commodity, if it bean article of the first necessity, will not necessarily diminish its

344 Principles ch. xxv

1 Ed. 1 ‘In that case, the quantitysupplied will be in the same pro-portion to the demand as before’.

2 Ed. 1 ‘neither’ in place of ‘not’.3 Ed. 1 ‘according to him’ inplace of ‘he thinks’.

consumption; for although the general power of the purchasersto consume, is diminished by the rise of any one commodity,yet they may relinquish the consumption of some other com-modity whose cost of production has not risen. In that case,the quantity supplied and the quantity demanded, will be thesame as before1; the cost of production only will have increased,and yet the price will rise, and must rise, to place the profits ofthe producer of the enhanced commodity on a level with theprofits derived from other trades.

M. Say acknowledges that the cost of production is thefoundation of price, and yet in various parts of his book hemaintains that price is regulated by the proportion which de-mand bears to supply. The real and ultimate regulator of therelative value of any two commodities, is the cost of theirproduction, and not2 the respective quantities which may beproduced, nor the competition amongst the purchasers.

According to Adam Smith, the colony trade, by being onein which British capital only can be employed, has raised therate of profits of all other trades; and as, in his opinion, highprofits, as well as high wages, raise the prices of commodities,the monopoly of the colony trade has been, he thinks3, injuriousto the mother country; as it has diminished her power of sellingmanufactured commodities as cheap as other countries. Hesays, that “in consequence of the monopoly, the increase of thecolony trade has not so much occasioned an addition to thetrade which Great Britain had before, as a total change in itsdirection. Secondly, this monopoly has necessarily contributedto keep up the rate of profit in all the different branches ofBritish trade, higher than it naturally would have been, had allnations been allowed a free trade to the British colonies.” “But

On Colonial Tradech. xxv 345

1 Bk. iv, ch. vii, pt. iii; vol. ii,pp. 99–100.

2 Above, p. 133.

whatever raises in any country the ordinary rate of profit higherthan it otherwise would be, necessarily subjects that countryboth to an absolute, and to a relative disadvantage in everybranch of trade of which she has not the monopoly. It subjectsher to an absolute disadvantage, because in such branches oftrade, her merchants cannot get this greater profit withoutselling dearer than they otherwise would do, both the goods offoreign countries which they import into their own, and thegoods of their own country which they export to foreigncountries. Their own country must both buy dearer and selldearer; must both buy less and sell less; must both enjoy lessand produce less than she otherwise would do.”

“Our merchants frequently complain of the high wages ofBritish labour as the cause of their manufactures being under-sold in foreign markets; but they are silent about the high profitsof stock. They complain of the extravagant gain of otherpeople, but they say nothing of their own. The high profits ofBritish stock, however, may contribute towards raising theprice of British manufacture in many cases as much, and insome perhaps more, than the high wages of British labour.”1

I allow that the monopoly of the colony trade will change,and often prejudicially, the direction of capital; but from whatI have already said on the subject of profits,2 it will be seen thatany change from one foreign trade to another, or from hometo foreign trade, cannot, in my opinion, affect the rate of profits.The injury suffered will be what I have just described; therewill be a worse distribution of the general capital and industry,and, therefore, less will be produced. The natural price of com-modities will be raised, and, therefore, though the consumerwill be able to purchase to the same money value, he will obtaina less quantity of commodities. It will be seen too, that if it

346 Principles ch. xxv

1 Bk. ii, ch. ii; vol. i, pp. 311–12.This passage has been quoted

above, p. 309; in neither case isthe quotation verbally accurate.

even had the effect of raising profits, it would not occasion theleast alteration in prices; prices being regulated neither bywages nor profits.

And does not Adam Smith agree in this opinion, when hesays, that “the prices of commodities, or the value of gold andsilver as compared with commodities, depends upon the pro-portion between the quantity of labour which is necessary inorder to bring a certain quantity of gold and silver to market,and that which is necessary to bring thither a certain quantityof any other sort of goods?”1 That quantity will not beaffected, whether profits be high or low, or wages low or high.How then can prices be raised by high profits?

1 Bk. ii, ch. v; vol. i, p. 346.

chapter xxvi

On Gross and Net Revenue

Adam Smith constantly magnifies the advantages which acountry derives from a large gross, rather than a large netincome. “In proportion as a greater share of the capital of acountry is employed in agriculture,” he says, “the greater willbe the quantity of productive labour which it puts into motionwithin the country; as will likewise be the value which its em-ployment adds to the annual produce of the land and labour ofthe society. After agriculture, the capital employed in manu-factures puts into motion the greatest quantity of productivelabour, and adds the greatest value to the annual produce. Thatwhich is employed in the trade of exportation has the leasteffect of any of the three.”*1

Granting, for a moment, that this were true; what would bethe advantage resulting to a country from the employment ofa great quantity of productive labour, if, whether it employedthat quantity or a smaller, its net rent and profits together wouldbe the same. The whole produce of the land and labour of everycountry is divided into three portions: of these, one portion isdevoted to wages, another to profits, and the other to rent. It isfrom the two last portions only, that any deductions can be

* M. Say is of the same opinion with Adam Smith: “The most pro-ductive employment of capital, for the country in general, after that onthe land, is that of manufactures and of home trade; because it puts inactivity an industry of which the profits are gained in the country, whilethose capitals which are employed in foreign commerce, make the industryand lands of all countries to be productive, without distinction.

“The employment of capital the least favourable to a nation, is that ofcarrying the produce of one foreign country to another.” Say, vol. ii.p. 120.

348 Principles ch. xxvi

1 Eds. 1–2 do not contain this note;Say, in a note to the French ed.of Ricardo’s Principles, 1819 (Vol. ii,

pp. 222–3), had criticised the state-ment in the text as too general.

made for taxes, or for savings; the former, if moderate, con-stituting always the necessary expenses of production.* To anindividual with a capital of 20,000l., whose profits were 2000l.per annum, it would be a matter quite indifferent whether hiscapital would employ a hundred or a thousand men, whether thecommodity produced sold for 10,000l., or for 20,000l., pro-vided, in all cases, his profits were not diminished below 2000l.Is not the real interest of the nation similar? Provided its netreal income, its rent and profits be the same, it is of no impor-tance whether the nation consists of ten or of twelve millionsof inhabitants. Its power of supporting fleets and armies, andall species of unproductive labour, must be in proportion to itsnet, and not in proportion to its gross income. If five millionsof men could produce as much food and clothing as was neces-sary for ten millions, food and clothing for five millions wouldbe the net revenue. Would it be of any advantage to the country,that to produce this same net revenue, seven millions of menshould be required, that is to say, that seven millions should beemployed to produce food and clothing sufficient for twelvemillions? The food and clothing of five millions would be stillthe net revenue. The employing a greater number of men wouldenable us neither to add a man to our army and navy, nor tocontribute one guinea more in taxes.

It is not on the grounds of any supposed advantage accruingfrom a large population, or of the happiness that may be en-joyed by a greater number of human beings, that Adam Smith

* Perhaps this is expressed too strongly, as more is generally allottedto the labourer under the name of wages, than the absolutely necessaryexpenses of production. In that case a part of the net produce of thecountry is received by the labourer, and may be saved or expended by him;or it may enable him to contribute to the defence of the country.1

On Gross and Net Revenuech. xxvi 349

1 Bk. ii, ch. v; vol. i, p. 351.2 Eds. 1–2 do not contain ‘andtrades where expensive machineryis required; to trades’.3 Eds. 1–2 do not contain this note.It refers to a note by Say in theFrench ed. of Ricardo’s Principles

(vol. ii, p. 224) where he arguesthat there is ‘une plus grande massede bonheur’ in a population ofseven millions than in one of five.Cp. Notes on Malthus, below, II,382.4 Ed. 1 ‘their’.

supports the preference of that employment of capital, whichgives motion to the greatest quantity of industry, but expresslyon the ground of its increasing the power of the country* forhe says, that “the riches, and, so far as power depends uponriches, the power of every country must always be in proportionto the value of its annual produce, the fund from which alltaxes must ultimately be paid.”1 It must however be obvious,that the power of paying taxes, is in proportion to the net, andnot in proportion to the gross, revenue.

In the distribution of employments amongst all countries,the capital of poorer nations will be naturally employed in thosepursuits, wherein a great quantity of labour is supported athome, because in such countries the food and necessaries for anincreasing population can be most easily procured. In richcountries, on the contrary, where food is dear, capital willnaturally flow, when trade is free, into those occupationswherein the least quantity of labour is required to be main-tained at home: such as the carrying trade, the distant foreigntrade, and trades where expensive machinery is required; totrades2 where profits are in proportion to the capital, and not inproportion to the quantity of labour employed.†

* M. Say has totally misunderstood me in supposing that I have con-sidered as nothing, the happiness of so many human beings. I think thetext sufficiently shews that I was confining my remarks to the particulargrounds on which Adam Smith had rested it.3

† “It is fortunate that the natural course of things draws capital, notto those employments where the greatest profits are made, but to thosewhere the4 operation is most profitable to the community.”—Vol. ii.p. 122. M. Say has not told us what those employments are, which, whilethey are the most profitable to the individual, are not the most profitable

350 Principles ch. xxvi

1 Adam Smith says ‘as quick asthose of ’.

2 Bk. ii, ch. v; vol. i, p. 348.

Although I admit, that from the nature of rent, a given capitalemployed in agriculture, on any but the land last cultivated,puts in motion a greater quantity of labour than an equal capitalemployed in manufactures and trade, yet I cannot admit thatthere is any difference in the quantity of labour employed bya capital engaged in the home trade, and an equal capitalengaged in the foreign trade.

“The capital which sends Scots manufactures to London,and brings back English corn and manufactures to Edinburgh,”says Adam Smith, “necessarily replaces, by every such opera-tion, two British capitals which had both been employed in theagriculture or manufactures of Great Britain.

“The capital employed in purchasing foreign goods forhome consumption, when this purchase is made with the pro-duce of domestic industry, replaces, too, by every such operation,two distinct capitals; but one of them only is employed in sup-porting domestic industry. The capital which sends Britishgoods to Portugal, and brings back Portuguese goods to GreatBritain, replaces, by every such operation, only one Britishcapital, the other is a Portuguese one. Though the returns,therefore, of the foreign trade of consumption should be asquick as1 the home trade, the capital employed in it will givebut one half the encouragement to the industry or productivelabour of the country.”2

This argument appears to me to be fallacious; for though twocapitals, one Portuguese and one English, be employed, asDr. Smith supposes, still a capital will be employed in the foreigntrade, double of what would be employed in the home trade.

to the State. If countries with limited capitals, but with abundance offertile land, do not early engage in foreign trade, the reason is, becauseit is less profitable to individuals, and therefore also less profitable to theState.

On Gross and Net Revenuech. xxvi 351

1 Eds. 1–2 have a full stop here.

Suppose that Scotland employs a capital of a thousand poundsin making linen, which she exchanges for the produce of asimilar capital employed in making silks in England,1 twothousand pounds, and a proportional quantity of labour willbe employed by the two countries. Suppose now, that Englanddiscovers, that she can import more linen from Germany, forthe silks which she before exported to Scotland, and thatScotland discovers that she can obtain more silks from Francein return for her linen, than she before obtained from England,—will not England and Scotland immediately cease tradingwith each other, and will not the home trade of consumptionbe changed for a foreign trade of consumption? But althoughtwo additional capitals will enter into this trade, the capital ofGermany and that of France, will not the same amount ofScotch and of English capital continue to be employed, and willit not give motion to the same quantity of industry as when itwas engaged in the home trade?

1 In ed. 1 the chapter opens ‘It isnot my intention to detain thereader by any long dissertation onthe subject of money. So much’.2 In ed. 1 a note is attached here:

‘“The use of gold and silver thenestablishes in every place a certainnecessity for these commodities;and when the country possesses thequantity necessary to satisfy thiswant, all that is further imported,

not being in demand, is unfruitfulin value, and of no use to itsowners.”—Say, vol. i. p. 187.

‘In page 196, M. Say says, thatsupposing a country to require1000 carriages, and to be possessedof 1500—all above 1000 would beuseless; and thence he infers, that ifit possesses more money than isnecessary, the overplus will not beemployed.’

chapter xxvii

On Currency and Banks

So much1 has already been written on currency, that of thosewho give their attention to such subjects, none but the pre-judiced are ignorant of its true principles. I shall, therefore,take only a brief survey of some of the general laws whichregulate its quantity and value.

Gold and silver, like all other commodities, are valuable onlyin proportion to the quantity of labour necessary to producethem, and bring them to market. Gold is about fifteen timesdearer than silver, not because there is a greater demand for it,nor because the supply of silver is fifteen times greater than thatof gold, but solely because fifteen times the quantity of labouris necessary to produce a given quantity of it.

The quantity of money that can be employed in a countrymust depend on its value: if gold alone were employed for thecirculation of commodities, a quantity would be required, onefifteenth only of what would be necessary, if silver were madeuse of for the same purpose.

A circulation can never be so abundant as to overflow; for bydiminishing its value, in the same proportion you will increaseits quantity, and by increasing its value, diminish its quantity.2

On Currency and Banksch. xxvii 353

1 Eds. 1–2 ‘state’, here and below.2 Eds. 1–2 do not contain ‘and’.

3 Eds. 1–2 ‘never was multiplied’.4 Ed. 1 does not contain ‘intrinsic’.

While the State1 coins money, and charges no seignorage,money will be of the same value as any other piece of the samemetal of equal weight and fineness; but if the State charges aseignorage for coinage, the coined piece of money will generallyexceed the value of the uncoined piece of metal by the wholeseignorage charged, because it will require a greater quantityof labour, or, which is the same thing, the value of the produceof a greater quantity of labour, to procure it.

While the State alone coins, there can be no limit to thischarge of seignorage; for by limiting the quantity of coin, itcan be raised to any conceivable value.

It is on this principle that paper money circulates: the wholecharge for paper money may be considered as seignorage.Though it has no intrinsic value, yet, by limiting its quantity,its value in exchange is as great as an equal denomination of coin,or of bullion in that coin. On the same principle, too, namely,by a limitation of its quantity, a debased coin would circulate atthe value it should bear, if it were of the legal weight and fine-ness, and2 not at the value of the quantity of metal which itactually contained. In the history of the British coinage, wefind, accordingly, that the currency was never depreciated inthe same proportion that it was debased; the reason of whichwas, that it never was increased in quantity,3 in proportion to itsdiminished intrinsic4 value.*

There is no point more important in issuing paper money,than to be fully impressed with the effects which follow fromthe principle of limitation of quantity. It will scarcely bebelieved fifty years hence, that Bank directors and ministersgravely contended in our times, both in parliament, and before

* Whatever I say of gold coin, is equally applicable to silver coin; butit is not necessary to mention both on every occasion.

354 Principles ch. xxvii

1 Ed. 1 does not contain this para-graph. See McCulloch’s advice to‘enlarge a little on the principle oflimitation’ (below, VII, 353). For

the contention of the Bank Direc-tors before the Bullion Committeesee below, III, 357, 373.

committees of parliament, that the issues of notes by the Bank ofEngland, unchecked by any power in the holders of such notes,to demand in exchange either specie, or bullion, had not, norcould have any effect on the prices of commodities, bullion, orforeign exchanges.1

After the establishment of Banks, the State has not the solepower of coining or issuing money. The currency may aseffectually be increased by paper as by coin; so that if a Statewere to debase its money, and limit its quantity, it could notsupport its value, because the Banks would have an equal powerof adding to the whole quantity of circulation.

On these principles, it will be seen that it is not necessary thatpaper money should be payable in specie to secure its value; itis only necessary that its quantity should be regulated accordingto the value of the metal which is declared to be the standard.If the standard were gold of a given weight and fineness, papermight be increased with every fall in the value of gold, or, whichis the same thing in its effects, with every rise in the price ofgoods.

“By issuing too great a quantity of paper,” says Dr. Smith,“of which the excess was continually returning, in order to beexchanged for gold and silver, the Bank of England was, formany years together, obliged to coin gold to the extent ofbetween eight hundred thousand pounds and a million a year,or at an average, about eight hundred and fifty thousandpounds. For this great coinage, the Bank, in consequence ofthe worn and degraded state into which the gold coin hadfallen a few years ago, was frequently obliged to purchasebullion, at the high price of four pounds an ounce, which it soonafter issued in coin at 3l. 17s. 10 d. an ounce, losing in this1�

2

On Currency and Banksch. xxvii 355

1 Bk. ii, ch. ii; vol. i, p. 285.2 In ed. 1 a note is attached here:

‘“In the transactions of Govern-ment with individuals, and in thoseof individuals between themselves,a piece of money is never received,whatever denomination may begiven to it, but at its intrinsic value,increased by the value of the utilitywhich the impression it bears hasadded to it.”—Say, vol. i. p. 327.

‘“Money is so little a mark of

value, that if the pieces of moneylose a part of their value by friction,from use, or by the knavery of theclippers of money, all goods rise inprice in proportion to the alterationwhich they have experienced; andif Government orders a recoinage,and restores each piece to its legalweight and fineness, goods will fallto their former price; if they havenot been exposed to variations fromother causes.”—Say, vol. i. p. 346.’

manner between two and a half and three per cent, upon thecoinage of so very large a sum. Though the Bank, therefore,paid no seignorage, though the Government was properly atthe expense of the coinage, this liberality of Government didnot prevent altogether the expense of the Bank.”1

On the principle above stated, it appears to me most clear,that by not re-issuing the paper thus brought in, the value ofthe whole currency, of the degraded as well as the new goldcoin, would have been raised, when all demands on the Bankwould have ceased.

Mr. Buchanan, however, is not of this opinion, for he says,“that the great expense to which the Bank was at this timeexposed, was occasioned, not, as Dr. Smith seems to imagine,by any imprudent issue of paper, but by the debased state of thecurrency, and the consequent high price of bullion. The Bank,it will be observed, having no other way of procuring 2 guineasbut by sending bullion to the Mint to be coined, was alwaysforced to issue new coined guineas, in exchange for its returnednotes; and when the currency was generally deficient in weight,and the price of bullion high in proportion, it became profitableto draw these heavy guineas from the Bank in exchange for itspaper; to convert them into bullion, and to sell them with aprofit for Bank paper, to be again returned to the Bank for anew supply of guineas, which were again melted and sold. Tothis drain of specie, the Bank must always be exposed while the

356 Principles ch. xxvii

1 Buchanan’s ed. of the Wealth ofNations, vol. i, pp. 477–8, note.2 Bk. ii, ch. ii; vol. i, p. 309.3 Eds. 1–2 ‘control’.4 The square brackets in this caseare Ricardo’s. The quotation is not

contained in ed. 1 and was insertedat McCulloch’s suggestion; seebelow, VII, 353.5 Below, IV, 66–70.6 Ed. 2 does not contain ‘by theauthor’.

currency is deficient in weight, as both an easy and a certainprofit then arises from the constant interchange of paper forspecie. It may be remarked, however, that to whatever incon-venience and expense the Bank was then exposed by the drainof its specie, it never was imagined necessary to rescind theobligation to pay money for its notes.”1

Mr. Buchanan evidently thinks that the whole currency must,necessarily, be brought down to the level of the value of thedebased pieces; but, surely, by a diminution of the quantity ofthe currency, the whole that remains can be elevated to the valueof the best pieces.

Dr. Smith appears to have forgotten his own principle, in hisargument on colony currency. Instead of ascribing the de-preciation of that paper to its too great abundance, he askswhether, allowing the colony security to be perfectly good, ahundred pounds, payable fifteen years hence, would be equallyvaluable with a hundred pounds to be paid immediately?2

I answer yes, if it be not too abundant.Experience, however, shews, that neither a State nor a Bank

ever have had the unrestricted power of issuing paper money,without abusing that power: in all States, therefore, the issueof paper money ought to be under some check and controul3;and none seems so proper for that purpose, as that of subjectingthe issuers of paper money to the obligation of paying theirnotes, either in gold coin or bullion.

[4“To secure the public* against any other variations in the

* This, and the following paragraphs, to the close of the bracket,p. 361, is extracted from a Pamphlet entitled “Proposals for an Economicaland Secure Currency,”5 published by the author 6 in the year 1816.

On Currency and Banksch. xxvii 357

value of currency than those to which the standard itself issubject, and, at the same time, to carry on the circulation witha medium the least expensive, is to attain the most perfect stateto which a currency can be brought, and we should possess allthese advantages by subjecting the Bank to the delivery ofuncoined gold or silver at the Mint standard and price, inexchange for their notes, instead of the delivery of guineas; bywhich means paper would never fall below the value of bullion,without being followed by a reduction of its quantity. Toprevent the rise of paper above the value of bullion, the Bankshould be also obliged to give their paper in exchange forstandard gold at the price of 3l. 17s. per ounce. Not to give toomuch trouble to the Bank, the quantity of gold to be demandedin exchange for paper at the Mint price of 3l. 17s. 10 d., or the1�

2

quantity to be sold to the Bank at 3l. 17s., should never be lessthan twenty ounces. In other words the Bank should be obligedto purchase any quantity of gold that was offered them, not lessthan twenty ounces, at 3l. 17s.* per ounce, and to sell anyquantity that might be demanded at 3l. 17s. 10 d. While they1�

2

have the power of regulating the quantity of their paper, thereis no possible inconvenience that could result to them from sucha regulation.

“The most perfect liberty should be given, at the same timeto export or import every description of bullion. These trans-actions in bullion would be very few in number, if the Bankregulated their loans and issues of paper by the criterion whichI have so often mentioned, namely, the price of standard

* The price of 3l. 17s. here mentioned, is, of course, an arbitrary price.There might be good reason, perhaps, for fixing it either a little above, ora little below. In naming 3l. 17s. I wish only to elucidate the principle.The price ought to be so fixed as to make it the interest of the seller of goldrather to sell it to the Bank, than to carry it to the Mint to be coined.

The same remark applies to the specified quantity of twenty ounces.There might be good reason for making it ten or thirty.

358 Principles ch. xxvii

bullion, without attending to the absolute quantity of paper incirculation.

“The object which I have in view would be in a greatmeasure attained, if the Bank were obliged to deliver uncoinedbullion, in exchange for their notes, at the Mint price andstandard; though they were not under the necessity of pur-chasing any quantity of bullion offered them at the prices to befixed, particularly if the Mint were to continue open to thepublic for the coinage of money: for that regulation is merelysuggested, to prevent the value of money from varying fromthe value of bullion more than the trifling difference betweenthe prices at which the Bank should buy and sell, and whichwould be an approximation to that uniformity in its value,which is acknowledged to be so desirable.

“If the Bank capriciously limited the quantity of their paper,they would raise its value; and gold might appear to fall belowthe limits at which I propose the Bank should purchase. Gold,in that case, might be carried to the Mint, and the money re-turned from thence, being added to the circulation, would havethe effect of lowering its value, and making it again conform tothe standard; but it would neither be done so safely, so eco-nomically, nor so expeditiously, as by the means which I haveproposed; against which the Bank can have no objection tooffer, as it is for their interest to furnish the circulation withpaper, rather than oblige others to furnish it with coin.

“Under such a system, and with a currency so regulated, theBank would never be liable to any embarrassments whatever,excepting on those extraordinary occasions, when a generalpanic seizes the country, and when every one is desirous ofpossessing the precious metals as the most convenient mode ofrealizing or concealing his property. Against such panics,Banks have no security, on any system; from their very naturethey are subject to them, as at no time can there be in a Bank,

On Currency and Banksch. xxvii 359

or in a country, so much specie or bullion as the moniedindividuals of such country have a right to demand. Shouldevery man withdraw his balance from his banker on the sameday, many times the quantity of Bank notes now in circulationwould be insufficient to answer such a demand. A panic of thiskind was the cause of the crisis in 1797; and not, as has beensupposed, the large advances which the Bank had then made toGovernment. Neither the Bank nor Government were at thattime to blame; it was the contagion of the unfounded fears ofthe timid part of the community, which occasioned the run onthe Bank, and it would equally have taken place if they had notmade any advances to Government, and had possessed twicetheir present capital. If the Bank had continued paying in cash,probably the panic would have subsided before their coin hadbeen exhausted.

“With the known opinion of the Bank directors, as to therule for issuing paper money, they may be said to have exercisedtheir powers without any great indiscretion. It is evident thatthey have followed their own principle with extreme caution.In the present state of the law, they have the power, withoutany control whatever, of increasing or reducing the circulationin any degree they may think proper: a power which shouldneither be intrusted to the State itself, nor to any body in it;as there can be no security for the uniformity in the value of thecurrency, when its augmentation or diminution depends solelyon the will of the issuers. That the Bank have the power ofreducing the circulation to the very narrowest limits will notbe denied, even by those who agree in opinion with the directors,that they have not the power of adding indefinitely to its quan-tity. Though I am fully assured, that it is both against theinterest and the wish of the Bank to exercise this power to thedetriment of the public, yet, when I contemplate the evil con-sequences which might ensue from a sudden and great reduction

360 Principles ch. xxvii

of the circulation, as well as from a great addition to it, I cannotbut deprecate the facility with which the State has armed theBank with so formidable a prerogative.

“The inconvenience to which country banks were subjectedbefore the restriction on cash payments, must, at times, havebeen very great. At all periods of alarm, or of expected alarm,they must have been under the necessity of providing themselveswith guineas, that they might be prepared for every exigencywhich might occur. Guineas, on these occasions, were obtainedat the Bank in exchange for the larger notes, and were conveyedby some confidential agent, at expense and risk, to the countrybank. After performing the offices to which they were des-tined, they found their way again to London, and in all prob-ability were again lodged in the Bank, provided they had notsuffered such a loss of weight, as to reduce them below the legalstandard.

“If the plan now proposed, of paying Bank notes in bullion,be adopted, it would be necessary either to extend the sameprivilege to country banks, or to make Bank notes, a legaltender, in which latter case, there would be no alteration in thelaw respecting country banks, as they would be required, pre-cisely as they now are, to pay their notes, when demanded, inBank of England notes.

“The saving which would take place, from not submittingthe guineas to the loss of weight, from the friction which theymust undergo in their repeated journeys, as well as of theexpenses of conveyance, would be considerable; but by far thegreatest advantage would result from the permanent supply ofthe country, as well as of the London circulation, as far as thesmaller payments are concerned, being provided in the verycheap medium, paper, instead of the very valuable medium,gold; thereby enabling the country to derive all the profit whichmay be obtained by the productive employment of a capital to

On Currency and Banksch. xxvii 361

1 The square brackets in this case are Ricardo’s; see above p. 356.

that amount. We should surely not be justified in rejecting sodecided a benefit, unless some specific inconvenience could bepointed out as likely to follow from adopting the cheapermedium.”]1

A currency is in its most perfect state when it consists whollyof paper money, but of paper money of an equal value with thegold which it professes to represent. The use of paper insteadof gold, substitutes the cheapest in place of the most expensivemedium, and enables the country, without loss to any individual,to exchange all the gold which it before used for this purpose,for raw materials, utensils, and food; by the use of which, bothits wealth and its enjoyments are increased.

In a national point of view, it is of no importance whetherthe issuers of this well regulated paper money be the Govern-ment or a Bank, it will, on the whole, be equally productive ofriches, whether it be issued by one or by the other; but it is notso with respect to the interest of individuals. In a countrywhere the market rate of interest is 7 per cent., and where theState requires for a particular expense 70,000l. per annum, it isa question of importance to the individuals of that country,whether they must be taxed to pay this 70,000l. per annum, orwhether they could raise it without taxes. Suppose that amillion of money should be required to fit out an expedition.If the State issued a million of paper, and displaced a millionof coin, the expedition would be fitted out without any chargeto the people; but if a Bank issued a million of paper, and lentit to Government at 7 per cent., thereby displacing a million ofcoin, the country would be charged with a continual tax of70,000l. per annum: the people would pay the tax, the Bankwould receive it, and the society would in either case be aswealthy as before; the expedition would have been really fittedout by the improvement of our system, by rendering capital of

362 Principles ch. xxvii

the value of a million productive in the form of commodities,instead of letting it remain unproductive in the form of coin;but the advantage would always be in favour of the issuers ofpaper; and as the State represents the people, the people wouldhave saved the tax, if they, and not the Bank, had issued thismillion.

I have already observed, that if there were perfect securitythat the power of issuing paper money would not be abused, itwould be of no importance with respect to the riches of thecountry collectively, by whom it was issued; and I have nowshewn that the public would have a direct interest that the issuersshould be the State, and not a company of merchants or bankers.The danger, however, is, that this power would be more likelyto be abused, if in the hands of Government, than if in the handsof a banking company. A company would, it is said, be moreunder the control of law, and although it might be their interestto extend their issues beyond the bounds of discretion, theywould be limited and checked by the power which individualswould have of calling for bullion or specie. It is argued that thesame check would not be long respected, if Government hadthe privilege of issuing money; that they would be too apt toconsider present convenience, rather than future security, andmight, therefore, on the alleged grounds of expediency, be toomuch inclined to remove the checks, by which the amount oftheir issues was controlled.

Under an arbitrary Government, this objection would havegreat force; but, in a free country, with an enlightened legis-lature, the power of issuing paper money, under the requisitechecks of convertibility at the will of the holder, might besafely lodged in the hands of commissioners appointed for thatspecial purpose, and they might be made totally independentof the control of ministers.

The sinking fund is managed by commissioners, responsible

On Currency and Banksch. xxvii 363

1 Ed. 1 ‘amounts’. 2 Above, p. 73.

only to parliament, and the investment of the money entrustedto their charge, proceeds with the utmost regularity; whatreason can there be to doubt that the issues of paper moneymight be regulated with equal fidelity, if placed under similarmanagement?

It may be said, that although the advantage accruing to theState, and, therefore, to the public, from issuing paper money, issufficiently manifest, as it would exchange a portion of thenational debt, on which interest is paid by the public, into adebt bearing no interest; yet it would be disadvantageous tocommerce, as it would preclude the merchants from borrowingmoney, and getting their bills discounted, the method in whichBank paper is partly issued.

This, however, is to suppose that money could not beborrowed, if the Bank did not lend it, and that the market rateof interest and profit depends on the amount1 of the issues ofmoney, and on the channel through which it is issued. But asa country would have no deficiency of cloth, of wine, or anyother commodity, if they had the means of paying for it, in thesame manner neither would there be any deficiency of moneyto be lent, if the borrowers offered good security, and werewilling to pay the market rate of interest for it.

In another part of this work,2 I have endeavoured to shew,that the real value of a commodity is regulated, not by theaccidental advantages which may be enjoyed by some of itsproducers, but by the real difficulties encountered by that pro-ducer who is least favoured. It is so with respect to the interestfor money; it is not regulated by the rate at which the Bank willlend, whether it be 5, 4, or 3 per cent., but by the rate of profitswhich can be made by the employment of capital, and which istotally independent of the quantity, or of the value of money.Whether a Bank lent one million, ten millions, or a hundred

364 Principles ch. xxvii

1 Eds. 1–2 ‘with their wool’.

millions, they would not permanently alter the market rate ofinterest; they would alter only the value of the money whichthey thus issued. In one case, 10 or 20 times more money mightbe required to carry on the same business, than what might berequired in the other. The applications to the Bank for money,then, depend on the comparison between the rate of profits thatmay be made by the employment of it, and the rate at whichthey are willing to lend it. If they charge less than the marketrate of interest, there is no amount of money which they mightnot lend,—if they charge more than that rate, none but spend-thrifts and prodigals would be found to borrow of them. Weaccordingly find, that when the market rate of interest exceedsthe rate of 5 per cent. at which the Bank uniformly lend, thediscount office is besieged with applicants for money; and, onthe contrary, when the market rate is even temporarily under5 per cent., the clerks of that office have no employment.

The reason, then, why for the last twenty years, the Bank issaid to have given so much aid to commerce, by assisting themerchants with money, is, because they have, during that wholeperiod, lent money below the market rate of interest; belowthat rate at which the merchants could have borrowed else-where; but, I confess, that to me this seems rather an objectionto their establishment, than an argument in favour of it.

What should we say of an establishment which shouldregularly supply half the clothiers with wool1 under the marketprice? Of what benefit would it be to the community? It wouldnot extend our trade, because the wool would equally have beenbought if they had charged the market price for it. It would notlower the price of cloth to the consumer, because the price, asI have said before, would be regulated by the cost of its pro-duction to those who were the least favoured. Its sole effect,then, would be, to swell the profits of a part of the clothiers

On Currency and Banksch. xxvii 365

1 Eds. 1–2 do not contain ‘its’.2 Eds. 1–2 do not contain ‘always’.3 Eds. 1–2 do not contain ‘when

that might be under the marketrate,’.4 Bk. ii, ch. ii; vol. i, pp. 280–3.

beyond the general and common rate of profits. The establish-ment would be deprived of its fair profits, and another part ofthe community would be in the same degree benefited. Nowthis is precisely the effect of our banking establishments; a rateof interest is fixed by the law below that at which it can beborrowed in the market, and at this rate the Bank are requiredto lend, or not to lend at all. From the nature of their establish-ment, they have large funds which they can only dispose of inthis way; and a part of the traders of the country are unfairly,and, for the country, unprofitably benefited, by being enabledto supply themselves with an instrument of trade, at a less chargethan those who must be influenced only by market price.

The whole business, which the whole community can carryon, depends on the quantity of its1 capital, that is, of its rawmaterial, machinery, food, vessels, &c. employed in production.After a well regulated paper money is established, these canneither be increased nor diminished by the operations ofbanking. If, then, the State were to issue the paper money ofthe country, although it should never discount a bill, or lendone shilling to the public, there would be no alteration in theamount of trade; for we should have the same quantity of rawmaterials, of machinery, food, and ships; and it is probable, too,that the same amount of money might be lent, not always2 at5 per cent. indeed, a rate fixed by law, when that might be underthe market rate,3 but at 6, 7, or 8 per cent., the result of thefair competition in the market between the lenders and theborrowers.

Adam Smith speaks4 of the advantages derived by merchantsfrom the superiority of the Scotch mode of affording accom-modation to trade, over the English mode, by means of cash

366 Principles ch. xxvii

1 Bk. i, ch. v; vol. i, p. 41.2 Ed. 1 ‘that’ in place of ‘as if ’.

3 Ed. 1 ‘or’ in place of ‘and’.

accounts. These cash accounts are credits given by the Scotchbanker to his customers, in addition to the bills which he dis-counts for them; but, as the banker, in proportion as he ad-vances money, and sends it into circulation in one way, isdebarred from issuing so much in the other, it is difficult toperceive in what the advantage consists. If the whole circulationwill bear only one million of paper, one million only will becirculated; and it can be of no real importance either to thebanker or merchant, whether the whole be issued in discountingbills, or a part be so issued, and the remainder be issued bymeans of these cash accounts.

It may perhaps be necessary to say a few words on the sub-ject of the two metals, gold and silver, which are employed incurrency, particularly as this question appears to perplex, inmany people’s minds, the plain and simple principles of cur-rency. “In England,” says Dr. Smith, “gold was not consideredas a legal tender for a long time after it was coined into money.The proportion between the values of gold and silver moneywas not fixed by any public law or proclamation, but was leftto be settled by the market. If a debtor offered payment in gold,the creditor might either reject such payment altogether, oraccept of it at such a valuation of the gold, as he and his debtorcould agree upon.”1

In this state of things it is evident that a guinea might some-times pass for 22s. or more, and sometimes for 18s. or less,depending entirely on the alteration in the relative market valueof gold and silver. All the variations, too, in the value of gold,as well as in the value of silver, would be rated in the gold coin,—it would appear as if silver was invariable, and as if 2 goldonly was subject to rise and3 fall. Thus, although a guineapassed for 22s. instead of 18s., gold might not have varied in

On Currency and Banksch. xxvii 367

value; the variation might have been wholly confined to thesilver, and therefore 22s. might have been of no more valuethan 18s. were before. And, on the contrary, the whole varia-tion might have been in the gold: a guinea, which was worth18s., might have risen to the value of 22s.

If now we suppose this silver currency to be debased byclipping, and also increased in quantity, a guinea might pass for30s.; for the silver in 30s. of such debased money might be ofno more value than the gold in one guinea. By restoring thesilver currency to its Mint value, silver money would rise: butit would appear as if gold fell, for a guinea would probably beof no more value than 21 of such good shillings.

If now gold be also made a legal tender, and every debtor beat liberty to discharge a debt by the payment of 420 shillings,or twenty guineas for every 21l. that he owes, he will pay inone or the other according as he can most cheaply discharge hisdebt. If with five quarters of wheat he can procure as much goldbullion as the Mint will coin into twenty guineas, and for thesame wheat as much silver bullion as the Mint will coin for himinto 430 shillings, he will prefer paying in silver, because hewould be a gainer of ten shillings by so paying his debt. But if,on the contrary, he could obtain with this wheat as much goldas would be coined into twenty guineas and a half, and as muchsilver only as would coin into 420 shillings, he would naturallyprefer paying his debt in gold. If the quantity of gold which hecould procure could be coined only into twenty guineas, andthe quantity of silver into 420 shillings, it would be a matter ofperfect indifference to him in which money, silver or gold, itwas that he paid his debt. It is not then a matter of chance; it isnot because gold is better fitted for carrying on the circulationof a rich country, that gold is ever preferred for the purposeof paying debts; but, simply, because it is the interest of thedebtor so to pay them.

368 Principles ch. xxvii

1 Ed. 1 ‘any’ in place of ‘his’.

During a long period previous to 1797, the year of therestriction on the Bank payments in coin, gold was so cheap,compared with silver, that it suited the Bank of England, andall other debtors, to purchase gold in the market, and not silver,for the purpose of carrying it to the Mint to be coined, as theycould in that coined metal more cheaply discharge their debts.The silver currency was, during a great part of this period, verymuch debased; but it existed in a degree of scarcity, and, there-fore, on the principle which I have before explained, it neversunk in its current value. Though so debased, it was still theinterest of debtors to pay in the gold coin. If, indeed, thequantity of this debased silver coin had been enormously great,or if the Mint had issued such debased pieces, it might havebeen the interest of debtors to pay in this debased money; butits quantity was limited, and it sustained its value, and, there-fore, gold was in practice the real standard of currency.

That it was so, is no where denied; but it has been contended,that it was made so by the law, which declared that silver shouldnot be a legal tender for any debt exceeding 25l., unless byweight, according to the Mint standard.

But this law did not prevent any debtor from paying his1

debt, however large its amount, in silver currency fresh fromthe Mint; that the debtor did not pay in this metal, was not amatter of chance, nor a matter of compulsion, but wholly theeffect of choice; it did not suit him to take silver to the Mint, itdid suit him to take gold thither. It is probable, that if thequantity of this debased silver in circulation had been enor-mously great, and also a legal tender, that a guinea would havebeen again worth thirty shillings; but it would have been thedebased shilling that would have fallen in value, and not theguinea that had risen.

It appears, then, that whilst each of the two metals was

On Currency and Banksch. xxvii 369

1 Further Considerations ConcerningRaising the Value of Money, 1695,p. 20.2 Eds. 1–2 ‘the last session of Par-liament’.3 Ed. 1 in the text reads ‘twenty-one’; in the Errata ‘forty-two’.‘A guinea’ had been the suggestionof Adam Smith (Wealth of Nations,

vol. i, p. 46) and of Lord Liverpool(see below, III, 67, n. 1); ‘twoguineas’ was the Government pro-posal made on 30 May 1816 (Han-sard, XXXIV, 958); ‘40s.’ wasenacted later in the same year (56Geo. III, c. 68).4 Bk. i, ch. v; vol. i, p. 43.

equally a legal tender for debts of any amount, we were subjectto a constant change in the principal standard measure of value.It would sometimes be gold, sometimes silver, depending en-tirely on the variations in the relative value of the two metals;and at such times the metal, which was not the standard, wouldbe melted, and withdrawn from circulation, as its value wouldbe greater in bullion than in coin. This was an inconvenience,which it was highly desirable should be remedied; but so slowis the progress of improvement, that although it had beenunanswerably demonstrated by Mr. Locke,1 and had beennoticed by all writers on the subject of money since his day,a better system was never adopted till the session of Parliament,18162, when it was enacted that gold only should be a legaltender for any sum exceeding forty 3 shillings.

Dr. Smith does not appear to have been quite aware of theeffect of employing two metals as currency, and both a legaltender for debts of any amount; for he says, that “in reality,during the continuance of any one regulated proportion be-tween the respective values of the different metals in coin, thevalue of the most precious metal regulates the value of the wholecoin.”4 Because gold was in his day the medium in which itsuited debtors to pay their debts, he thought that it had someinherent quality by which it did then, and always would regu-late the value of silver coin.

On the reformation of the gold coin in 1774, a new guineafresh from the Mint, would exchange for only twenty-one

370 Principles ch. xxvii

1 Buchanan’s ed. of the Wealth of Nations, vol. i, p. 65, note.

debased shillings; but in the reign of King William, when thesilver coin was in precisely the same condition, a guinea alsonew and fresh from the Mint would exchange for thirty shillings.On this Mr. Buchanan observes, “here, then, is a most singularfact, of which the common theories of currency offer noaccount; the guinea exchanging at one time for thirty shillings,its intrinsic worth in a debased silver currency, and afterwardsthe same guinea exchanged for only twenty-one of those de-based shillings. It is clear that some great change must haveintervened in the state of the currency between these twodifferent periods, of which Dr. Smith’s hypothesis offers noexplanation.”1

It appears to me, that the difficulty may be very simplysolved, by referring this different state of the value of the guineaat the two periods mentioned, to the different quantities ofdebased silver currency in circulation. In King William’s reigngold was not a legal tender; it passed only at a conventionalvalue. All the large payments were probably made in silver,particularly as paper currency, and the operations of banking,were then little understood. The quantity of this debased silvermoney exceeded the quantity of silver money, which wouldhave been maintained in circulation, if nothing but undebasedmoney had been in use; and, consequently, it was depreciatedas well as debased. But in the succeeding period when gold wasa legal tender, when Bank notes also were used in effectingpayments, the quantity of debased silver money did not exceedthe quantity of silver coin fresh from the Mint, which wouldhave circulated if there had been no debased silver money;hence, though the money was debased, it was not depreciated.Mr. Buchanan’s explanation is somewhat different; he thinksthat a subsidiary currency is not liable to depreciation, but thatthe main currency is. In King William’s reign silver was the

On Currency and Banksch. xxvii 371

1 See Lord Lauderdale’s Protestagainst the rejection of his amend-ment to the Bank Restriction Con-tinuance Bill, of 27 May 1818, inJournals of the House of Lords, 1817–1818, p. 698. Cp. below, VIII, 3.2 Ed. 2 does not contain ‘if so, hecontends’.3 Ed. 2 ‘would’.

4 In ed. 2 this clause is not inbrackets.5 Ed. 2 does not contain ‘, if therewere too much silver in circula-tion’.6 Ed. 2 does not contain ‘if hemight do so,’.7 Ed. 2 does not contain ‘only’.8 Ed. 1 does not contain this note.

main currency, and hence was liable to depreciation. In 1774 itwas a subsidiary currency, and, therefore, maintained its value.Depreciation, however, does not depend on a currency beingthe subsidiary or the main currency, it depends wholly on itsbeing in excess of quantity.*

To a moderate seignorage on the coinage of money therecannot be much objection, particularly on that currency whichis to effect the smaller payments. Money is generally enhancedin value to the full amount of the seignorage, and, therefore, it

* It has lately been contended in parliament by Lord Lauderdale,1 that,with the existing Mint regulation, the Bank could not pay their notes inspecie, because the relative value of the two metals is such, that it wouldbe for the interest of all debtors to pay their debts with silver and not withgold coin, while the law gives a power to all the creditors of the Bank todemand gold in exchange for Bank notes. This gold, his Lordship thinks,could be profitably exported, and if so, he contends2 that the Bank, to keepa supply, will3 be obliged to buy gold constantly at a premium, and sellit at par. If every other debtor could pay in silver, Lord Lauderdale wouldbe right; but he cannot do so if his debt exceed 40s. This, then, wouldlimit the amount of silver coin in circulation, (if Government had notreserved to itself the power to stop the coinage of that metal wheneverthey might think it expedient,)4 because if too much silver were coined,it would sink in relative value to gold, and no man would accept it inpayment for a debt exceeding 40 shillings, unless a compensation weremade for its lower value. To pay a debt of 100l., one hundred sovereigns,or Bank notes to the amount of 100l. would be necessary, but 105l., insilver coin might be required, if there were too much silver in circulation.5

There are, then, two checks against an excessive quantity of silver coin;first, the direct check which Government may at any time interpose toprevent more from being coined; secondly, no motive of interest wouldlead any one to take silver to the Mint, if he might do so,6 for if it werecoined, it would not pass current at its Mint, but only7 at its market value.8

372 Principles ch. xxvii

1 Ed. 1 ‘on’.2 Eds. 1–2 ‘more’.3 In ed. 1 a note is attached here:

‘M. Say recommends that theseignorage should vary accordingto the quantity of business that themint might be called upon to per-form.

‘“Government should not cointhe bullion of individuals except onpayment, not only of the expenses,but also of the profits of coining.

This profit might be carried to aconsiderable height, in consequenceof the exclusive privilege of coin-ing; but it must vary according tothe circumstances of the mint, andthe quantity required for circula-tion.”—Vol. i. p. 380.

‘Such a regulation would be ex-tremely pernicious, and would ex-pose us to considerable and unne-cessary variation in the bullion valueof the currency.’

is a tax which in no way affects those who pay it, while thequantity of money is not in excess. It must, however, be re-marked, that in a country where a paper currency is established,although the issuers of such paper should be liable to pay it inspecie on the demand of the holder, still, both their notes andthe coin might be depreciated to the full amount of the seignorageon that coin, which is alone the legal tender, before the check,which limits the circulation of paper, would operate. If theseignorage of 1 gold coin were 5 per cent. for instance, the cur-rency, by an abundant issue of Bank-notes, might be reallydepreciated 5 per cent. before it would be the interest of theholders to demand coin for the purpose of melting it intobullion; a depreciation to which we should never be exposed,if either there was no seignorage on the gold coin; or, if aseignorage were allowed, the holders of Bank-notes might de-mand bullion, and not coin, in exchange for them, at the Mintprice of 3l. 17s. 10 d. Unless, then, the Bank should be obliged1�

2

to pay their notes in bullion or coin, at the will of the holder,the late law which allows a seignorage of 6 per cent., or four-pence per oz., on the silver coin, but which directs that goldshall be coined by the Mint without any charge whatever, isperhaps the most proper, as it will most2 effectually prevent anyunnecessary variation of the currency.3

1 Eds. 1–2 repeat ‘in’. 2 Bk. i, ch. xi, pt. iii; vol. i, p. 189.

chapter xxviii

On the comparative Value of Gold,Corn, and Labour, in Rich and1 Poor Countries

“Gold and silver, like all other commodities,” says AdamSmith, “naturally seek the market where the best price is givenfor them; and the best price is commonly given for every thingin the country which can best afford it. Labour, it must beremembered, is the ultimate price which is paid for every thing;and in countries where labour is equally well rewarded, themoney price of labour will be in proportion to that of the sub-sistence of the labourer. But gold and silver will naturallyexchange for a greater quantity of subsistence in a rich than ina poor country; in a country which abounds with subsistence,than in one which is but indifferently supplied with it.”2

But corn is a commodity, as well as gold, silver, and otherthings; if all commodities, therefore, have a high exchangeablevalue in a rich country, corn must not be excepted; and hencewe might correctly say, that corn exchanged for a great deal ofmoney, because it was dear, and that money, too, exchangedfor a great deal of corn, because that also was dear; which is toassert that corn is dear and cheap at the same time. No point inpolitical economy can be better established, than that a richcountry is prevented from increasing in population, in the sameratio as a poor country, by the progressive difficulty of pro-viding food. That difficulty must necessarily raise the relativeprice of food, and give encouragement to its importation. Howthen can money, or gold and silver, exchange for more corn inrich, than in poor countries? It is only in rich countries, where

374 Principles ch. xxviii

1 Bk. i, ch. xi, pt. iii; vol. i, p. 216.

corn is dear, that landholders induce the legislature to prohibitthe importation of corn. Who ever heard of a law to preventthe importation of raw produce in America or Poland?—Nature has effectually precluded its importation by the com-parative facility of its production in those countries.

How, then, can it be true, that “if you except corn, and suchother vegetables, as are raised altogether by human industry,all other sorts of rude produce—cattle, poultry, game of allkinds, the useful fossils and minerals of the earth, &c., naturallygrow dearer as the society advances.”1 Why should corn andvegetables alone be excepted? Dr. Smith’s error throughouthis whole work, lies in supposing that the value of corn isconstant; that though the value of all other things may, thevalue of corn never can be raised. Corn, according to him, isalways of the same value because it will always feed the samenumber of people. In the same manner it might be said, thatcloth is always of the same value, because it will always makethe same number of coats. What can value have to do with thepower of feeding and clothing?

Corn, like every other commodity, has in every country itsnatural price, viz. that price which is necessary to its production,and without which it could not be cultivated: it is this pricewhich governs its market price, and which determines the ex-pediency of exporting it to foreign countries. If the importa-tion of corn were prohibited in England, its natural price mightrise to 6l. per quarter in England, whilst it was only at half thatprice in France. If at this time, the prohibition of importationwere removed, corn would fall in the English market, not to aprice between 6l. and 3l., but ultimately and permanently to thenatural price of France, the price at which it could be furnishedto the English market, and afford the usual and ordinary profitsof stock in France; and it would remain at this price, whether

Gold, Corn, and Labourch. xxviii 375

1 Bk. i, ch. xi, pt. iii; vol. i, p. 190.

England consumed a hundred thousand, or a million of quarters.If the demand of England were for the latter quantity, it isprobable that, owing to the necessity under which France wouldbe, of having recourse to land of a worse quality, to furnish thislarge supply, the natural price would rise in France; and thiswould of course affect also the price of corn in England. Allthat I contend for is, that it is the natural price of commoditiesin the exporting country, which ultimately regulates the pricesat which they shall be sold, if they are not the objects of mono-poly, in the importing country.

But Dr. Smith, who has so ably supported the doctrine of thenatural price of commodities ultimately regulating their marketprice, has supposed a case in which he thinks that the marketprice would not be regulated either by the natural price of theexporting or of the importing country. “Diminish the realopulence either of Holland, or the territory of Genoa,” he says,“while the number of their inhabitants remains the same;diminish their power of supplying themselves from distantcountries, and the price of corn, instead of sinking with thatdiminution in the quantity of their silver which must necessarilyaccompany this declension, either as its cause or as its effect,will rise to the price of a famine.”1

To me it appears, that the very reverse would take place: thediminished power of the Dutch or Genoese to purchase gene-rally, might depress the price of corn for a time below its naturalprice in the country from which it was exported, as well as inthe countries in which it was imported; but it is quite impossiblethat it could ever raise it above that price. It is only by in-creasing the opulence of the Dutch or Genoese, that you couldincrease the demand, and raise the price of corn above its formerprice; and that would take place only for a very limited time,unless new difficulties should arise in obtaining the supply.

376 Principles ch. xxviii

1 Bk. i, ch. xi, pt. iii; vol. i, p. 191.

Dr. Smith further observes on this subject: “When we arein want of necessaries, we must part with all superfluities, ofwhich the value, as it rises in times of opulence and prosperity,so it sinks in times of poverty and distress.” This is undoubtedlytrue; but he continues, “it is otherwise with necessaries. Theirreal price, the quantity of labour which they can purchase orcommand, rises in times of poverty and distress, and sinks intimes of opulence and prosperity, which are always times ofgreat abundance, for they could not otherwise be times ofopulence and prosperity. Corn is a necessary, silver is only asuperfluity.”1

Two propositions are here advanced, which have no con-nexion with each other; one, that under the circumstances sup-posed, corn would command more labour, which is not dis-puted; the other, that corn would sell at a higher money price,that it would exchange for more silver; this I contend to beerroneous. It might be true, if corn were at the same timescarce—if the usual supply had not been furnished. But in thiscase it is abundant; it is not pretended that a less quantity thanusual is imported, or that more is required. To purchase corn,the Dutch or Genoese want money, and to obtain this money,they are obliged to sell their superfluities. It is the market valueand price of these superfluities which falls, and money appearsto rise as compared with them. But this will not tend to increasethe demand for corn, nor to lower the value of money, the onlytwo causes which can raise the price of corn. Money, from awant of credit, and from other causes, may be in great demand,and consequently dear, comparatively with corn; but on no justprinciple can it be maintained, that under such circumstancesmoney would be cheap, and therefore, that the price of cornwould rise.

When we speak of the high or low value of gold, silver, orany other commodity in different countries, we should always

Gold, Corn, and Labourch. xxviii 377

mention some medium in which we are estimating them, or noidea can be attached to the proposition. Thus, when gold is saidto be dearer in England than in Spain, if no commodity is men-tioned, what notion does the assertion convey? If corn, olives,oil, wine, and wool, be at a cheaper price in Spain than inEngland; estimated in those commodities, gold is dearer inSpain. If, again, hardware, sugar, cloth, &c. be at a lower pricein England than in Spain, then, estimated in those commodities,gold is dearer in England. Thus gold appears dearer or cheaperin Spain, as the fancy of the observer may fix on the mediumby which he estimates its value. Adam Smith, having stampedcorn and labour as an universal measure of value, would na-turally estimate the comparative value of gold by the quantityof those two objects for which it would exchange: and, accord-ingly, when he speaks of the comparative value of gold in twocountries, I understand him to mean its value estimated in cornand labour.

But we have seen, that, estimated in corn, gold may be ofvery different value in two countries. I have endeavoured toshew that it will be low in rich countries, and high in poorcountries; Adam Smith is of a different opinion: he thinks thatthe value of gold, estimated in corn, is highest in rich countries.But without further examining which of these opinions iscorrect, either of them is sufficient to shew, that gold will notnecessarily be lower in those countries which are in possessionof the mines, though this is a proposition maintained by AdamSmith. Suppose England to be possessed of the mines, andAdam Smith’s opinion, that gold is of the greatest value in richcountries, to be correct: although gold would naturally flowfrom England to all other countries in exchange for their goods,it would not follow that gold was necessarily lower in England,as compared with corn and labour, than in those countries. Inanother place, however, Adam Smith speaks of the preciousmetals being necessarily lower in Spain and Portugal, than in

378 Principles ch. xxviii

1 Ricardo omits here ‘as they comefrom those countries to all otherparts of Europe’.

2 Bk. i, ch. xi, pt. iii; vol. i, p. 238.The italics are Ricardo’s.

other parts of Europe, because those countries happen to bealmost the exclusive possessors of the mines which producethem. “Poland, where the feudal system still continues to takeplace, is at this day as beggarly a country as it was before thediscovery of America. The money price of corn, however, hasrisen; the real value of the precious metals has fallenin Poland, in the same manner as in other parts of Europe.Their quantity, therefore, must have increased there as in otherplaces, and nearly in the same proportion to the annual produce ofthe land and labour. This increase of the quantity of those metals,however, has not, it seems, increased that annual produce; hasneither improved the manufactures and agriculture of thecountry, nor mended the circumstances of its inhabitants.Spain and Portugal, the countries which possess the mines, are,after Poland, perhaps, the two most beggarly countries inEurope. The value of the precious metals, however, must belower in Spain and Portugal than in any other parts of Europe,1

loaded, not only with a freight and insurance, but with theexpense of smuggling, their exportation being either prohibited,or subjected to a duty. In proportion to the annual produce of theland and labour, therefore, their quantity must be greater in thosecountries than in any other part of Europe: those countries,however, are poorer than the greater part of Europe. Thoughthe feudal system has been abolished in Spain and Portugal, ithas not been succeeded by a much better.”2

Dr. Smith’s argument appears to me to be this: Gold, whenestimated in corn, is cheaper in Spain than in other countries,and the proof of this is, not that corn is given by other countriesto Spain for gold, but that cloth, sugar, hardware, are by thosecountries given in exchange for that metal.

1 Eds. 1–2 ‘M. Say’.2 Traite d’Economie politique, 2nded., 1814, vol. ii, p. 342.

3 ib. vol. ii, pp. 342–3.

chapter xxix

Taxes paid by the Producer

Mons. Say 1 greatly magnifies the inconveniences which resultif a tax on a manufactured commodity is levied at an early,rather than at a late period of its manufacture. The manu-facturers, he observes,2 through whose hands the commoditymay successively pass, must employ greater funds in conse-quence of having to advance the tax, which is often attendedwith considerable difficulty to a manufacturer of very limitedcapital and credit. To this observation no objection can bemade.

Another inconvenience on which he dwells3 is, that in con-sequence of the advance of the tax, the profits on the advancealso must be charged to the consumer, and that this additionaltax is one from which the treasury derives no advantage.

In this latter objection I cannot agree with M. Say. TheState, we will suppose, wants to raise immediately 1000l. andlevies it on a manufacturer, who will not, for a twelvemonth,be able to charge it to the consumer on his finished commodity.In consequence of such delay, he is obliged to charge for hiscommodity an additional price, not only of 1000l., the amountof the tax, but probably of 1100l., 100l. being for interest on the1000l. advanced. But in return for this additional 100l. paid bythe consumer, he has a real benefit, inasmuch as his payment ofthe tax which Government required immediately, and which hemust finally pay, has been postponed for a year; an opportunity,therefore, has been afforded to him of lending to the manu-

380 Principles ch. xxix

1 J. C. L. Simonde, De la Richessecommerciale, ou Principes d’Eco-nomie politique, appliques a lalegislation du commerce, Geneve,

Paschoud, 1803, vol. ii, pp. 43–6.When this work was published, theauthor had not yet adopted thename Sismondi.

facturer, who had occasion for it, the 1000l. at 10 per cent., orat any other rate of interest which might be agreed upon.Eleven hundred pounds payable at the end of one year, whenmoney is at 10 per cent. interest, is of no more value than 1000l.to be paid immediately. If Government delayed receiving thetax for one year till the manufacture of the commodity wascompleted, it would, perhaps, be obliged to issue an Exchequerbill bearing interest, and it would pay as much for interest asthe consumer would save in price, excepting, indeed, that por-tion of the price which the manufacturer might be enabled inconsequence of the tax, to add to his own real gains. If for theinterest of the Exchequer bill, Government would have paid5 per cent., a tax of 50l. is saved by not issuing it. If the manu-facturer borrowed the additional capital at 5 per cent., andcharged the consumer 10 per cent., he also will have gained5 per cent. on his advance over and above his usual profits, sothat the manufacturer and Government together gain, or save,precisely the sum which the consumer pays.

M. Simonde, in his excellent work, De la Richesse Com-merciale, following the same line of argument as M. Say, hascalculated1 that a tax of 4000 francs, paid originally by a manu-facturer, whose profits were at the moderate rate of 10 per cent.,would, if the commodity manufactured, only passed throughthe hands of five different persons, be raised to the consumer tothe sum of 6734 francs. This calculation proceeds on the sup-position, that he who first advanced the tax, would receive fromthe next manufacturer 4400 francs, and he again from the next,4840 francs; so that at each step 10 per cent. on its value wouldbe added to it. This is to suppose that the value of the tax wouldbe accumulating at compound interest; not at the rate of 10 per

Taxes Paid by the Producerch. xxix 381

cent. per annum, but at an absolute rate of 10 per cent. at everystep of its progress. This opinion of M. de Simonde would becorrect, if five years elapsed between the first advance of thetax, and the sale of the taxed commodity to the consumer; butif one year only elapsed, a remuneration of 400 francs, insteadof 2734, would give a profit at the rate of 10 per cent. perannum, to all who had contributed to the advance of the tax,whether the commodity had passed through the hands of fivemanufacturers or fifty.

1 See above p. 216.

chapter xxx

On the Influence ofDemand and Supply on Prices

It is the cost of production which must ultimately regulate theprice of commodities, and not, as has been often said, the pro-portion between the supply and demand: the proportion be-tween supply and demand may, indeed, for a time, affect themarket value of a commodity, until it is supplied in greater orless abundance, according as the demand may have increased ordiminished; but this effect will be only of temporary duration.

Diminish the cost of production of hats, and their price willultimately fall to their new natural price, although the demandshould be doubled, trebled, or quadrupled. Diminish the costof subsistence of men, by diminishing the natural price of thefood and clothing, by which life is sustained, and wages willultimately fall, notwithstanding that the demand for labourersmay very greatly increase.

The opinion that the price of commodities depends solelyon the proportion of supply to demand, or demand to supply,has become almost an axiom in political economy, and has beenthe source of much error in that science. It is this opinion whichhas made Mr. Buchanan maintain that wages are not influencedby a rise or fall in the price of provisions, but solely by thedemand and supply of labour; and that a tax on the wages oflabour would not raise wages, because it would not alter theproportion of the demand of labourers to the supply.1

The demand for a commodity cannot be said to increase, ifno additional quantity of it be purchased or consumed; and yet,under such circumstances, its money value may rise. Thus, if

Influence of Demand and Supplych. xxx 383

1 Ed. 1 ‘to give’, corrected inErrata.2 Vol. ii, p. 18.

3 Vol. ii, p. 395.4 Misprinted ‘vol. ii’ in ed. 3.

the value of money were to fall, the price of every commoditywould rise, for each of the competitors would be willing tospend1 more money than before on its purchase; but though itsprice rose 10 or 20 per cent. if no more were bought than before,it would not, I apprehend, be admissible to say, that the varia-tion in the price of the commodity was caused by the increaseddemand for it. Its natural price, its money cost of production,would be really altered by the altered value of money; andwithout any increase of demand, the price of the commoditywould be naturally adjusted to that new value.

“We have seen,” says M. Say, “that the cost of productiondetermines the lowest price to which things can fall: the pricebelow which they cannot remain for any length of time, becauseproduction would then be either entirely stopped or dimi-nished.” Vol. ii. p. 26.

He afterwards says, that the demand for gold having in-creased in a still greater proportion than the supply, since thediscovery of the mines, “its price in goods, instead of fallingin the proportion of ten to one, fell only in the proportion offour to one;”2 that is to say, instead of falling in proportion asits natural price had fallen, fell in proportion as the supplyexceeded the demand.*—“The value of every commodity risesalways in a direct ratio to the demand, and in an inverse ratio tothe supply.”3

* [“]If, with the quantity of gold and silver which actually exists, thesemetals only served for the manufacture of utensils and ornaments, theywould be abundant, and would be much cheaper than they are at present:in other words, in exchanging them for any other species of goods, weshould be obliged to give proportionally a greater quantity of them. Butas a large quantity of these metals is used for money, and as this portionis used for no other purpose, there remains less to be employed in furnitureand jewellery; now this scarcity adds to their value.[”]—Say, vol. i.4

p. 316. See also note to p. 78.

384 Principles ch. xxx

The same opinion is expressed by the Earl of Lauderdale.“With respect to the variations in value, of which every

thing valuable is susceptible, if we could for a moment supposethat any substance possessed intrinsic and fixed value, so as torender an assumed quantity of it constantly, under all circum-stances, of an equal value, then the degree of value of all things,ascertained by such a fixed standard, would vary according tothe proportion betwixt the quantity of them, and the demand forthem, and every commodity would, of course, be subject to avariation in its value, from four different circumstances:

1. “It would be subject to an increase of its value, from adiminution of its quantity.

2. “To a diminution of its value, from an augmentation ofits quantity.

3. “It might suffer an augmentation in its value, from thecircumstance of an increased demand.

4. “Its value might be diminished by a failure of demand.“As it will, however, clearly appear that no commodity can

possess fixed and intrinsic value, so as to qualify it for a measureof the value of other commodities, mankind are induced toselect, as a practical measure of value, that which appears theleast liable to any of these four sources of variations, which arethe sole causes of alteration of value.

“When, in common language, therefore, we express thevalue of any commodity, it may vary at one period from what itis at another, in consequence of eight different contingencies:

1. “From the four circumstances above stated, in relationto the commodity of which we mean to express the value.

2. “From the same four circumstances, in relation to thecommodity we have adopted as a measure of value.”*

This is true of monopolized commodities, and indeed of themarket price of all other commodities for a limited period. If

* An Inquiry into the Nature and Origin of Public Wealth, page 13.

Influence of Demand and Supplych. xxx 385

the demand for hats should be doubled, the price would imme-diately rise, but that rise would be only temporary, unless thecost of production of hats, or their natural price, were raised.If the natural price of bread should fall 50 per cent. from somegreat discovery in the science of agriculture, the demand wouldnot greatly increase, for no man would desire more than wouldsatisfy his wants, and as the demand would not increase, neitherwould the supply; for a commodity is not supplied merelybecause it can be produced, but because there is a demand for it.Here, then, we have a case where the supply and demand havescarcely varied, or if they have increased, they have increasedin the same proportion; and yet the price of bread will havefallen 50 per cent. at a time, too, when the value of money hadcontinued invariable.

Commodities which are monopolized, either by an individual,or by a company, vary according to the law which LordLauderdale has laid down: they fall in proportion as the sellersaugment their quantity, and rise in proportion to the eagernessof the buyers to purchase them; their price has no necessaryconnexion with their natural value: but the prices of commo-dities, which are subject to competition, and whose quantitymay be increased in any moderate degree, will ultimately de-pend, not on the state of demand and supply, but on the increasedor diminished cost of their production.

1 Eds. 1–2 do not contain thischapter.

2 Perhaps an allusion to his ownspeech on Owen’s plan on 16 Dec.1819; see below, V, 30.

chapter xxxi

On Machinery1

In the present chapter I shall enter into some enquiry respectingthe influence of machinery on the interests of the differentclasses of society, a subject of great importance, and one whichappears never to have been investigated in a manner to lead toany certain or satisfactory results. It is more incumbent on meto declare my opinion on this question, because they have, onfurther reflection, undergone a considerable change; and al-though I am not aware that I have ever published any thingrespecting machinery which it is necessary for me to retract,yet I have in other ways 2 given my support to doctrines whichI now think erroneous; it, therefore, becomes a duty in me tosubmit my present views to examination, with my reasons forentertaining them.

Ever since I first turned my attention to questions of politicaleconomy, I have been of opinion, that such an application ofmachinery to any branch of production, as should have theeffect of saving labour, was a general good, accompanied onlywith that portion of inconvenience which in most cases attendsthe removal of capital and labour from one employment toanother. It appeared to me, that provided the landlords hadthe same money rents, they would be benefited by the reductionin the prices of some of the commodities on which those rentswere expended, and which reduction of price could not fail tobe the consequence of the employment of machinery. Thecapitalist, I thought, was eventually benefited precisely in the

On Machinerych. xxxi 387

1 Also quoted above, p. 293.

same manner. He, indeed, who made the discovery of themachine, or who first usefully applied it, would enjoy an addi-tional advantage, by making great profits for a time; but, inproportion as the machine came into general use, the price ofthe commodity produced, would, from the effects of competi-tion, sink to its cost of production, when the capitalist would getthe same money profits as before, and he would only participatein the general advantage, as a consumer, by being enabled, withthe same money revenue, to command an additional quantity ofcomforts and enjoyments. The class of labourers also, I thought,was equally benefited by the use of machinery, as they wouldhave the means of buying more commodities with the samemoney wages, and I thought that no reduction of wages wouldtake place, because the capitalist would have the power ofdemanding and employing the same quantity of labour asbefore, although he might be under the necessity of employingit in the production of a new, or at any rate of a different com-modity. If, by improved machinery, with the employment ofthe same quantity of labour, the quantity of stockings could bequadrupled, and the demand for stockings were only doubled,some labourers would necessarily be discharged from thestocking trade; but as the capital which employed them was stillin being, and as it was the interest of those who had it to employit productively, it appeared to me that it would be employedon the production of some other commodity, useful to thesociety, for which there could not fail to be a demand; for I was,and am, deeply impressed with the truth of the observation ofAdam Smith, that “the desire for food is limited in every man,by the narrow capacity of the human stomach, but the desire ofthe conveniences, and ornaments of building, dress, equipageand household furniture, seems to have no limit or certainboundary.”1 As, then, it appeared to me that there would be

388 Principles ch. xxxi

the same demand for labour as before, and that wages would beno lower, I thought that the labouring class would, equally withthe other classes, participate in the advantage, from the generalcheapness of commodities arising from the use of machinery.

These were my opinions, and they continue unaltered, as faras regards the landlord and the capitalist; but I am convinced,that the substitution of machinery for human labour, is oftenvery injurious to the interests of the class of labourers.

My mistake arose from the supposition, that whenever thenet income of a society increased, its gross income would alsoincrease; I now, however, see reason to be satisfied that the onefund, from which landlords and capitalists derive their revenue,may increase, while the other, that upon which the labouringclass mainly depend, may diminish, and therefore it follows, ifI am right, that the same cause which may increase the netrevenue of the country, may at the same time render the popu-lation redundant, and deteriorate the condition of the labourer.

A capitalist we will suppose employs a capital of the value of20,000l. and that he carries on the joint business of a farmer,and a manufacturer of necessaries. We will further suppose,that 7000l. of this capital is invested in fixed capital, viz. inbuildings, implements, &c. &c. and that the remaining 13,000l.is employed as circulating capital in the support of labour. Letus suppose, too, that profits are 10 per cent., and consequentlythat the capitalist’s capital is every year put into its originalstate of efficiency, and yields a profit of 2000l.

Each year the capitalist begins his operations, by having foodand necessaries in his possession of the value of 13,000l., all ofwhich he sells in the course of the year to his own workmen forthat sum of money, and, during the same period, he pays themthe like amount of money for wages: at the end of the year theyreplace in his possession food and necessaries of the value of15,000l., 2000l. of which he consumes himself, or disposes of

On Machinerych. xxxi 389

as may best suit his pleasure and gratification. As far as theseproducts are concerned, the gross produce for that year is15,000l., and the net produce 2000l. Suppose now, that thefollowing year the capitalist employs half his men in con-structing a machine, and the other half in producing food andnecessaries as usual. During that year he would pay the sumof 13,000l. in wages as usual, and would sell food and neces-saries to the same amount to his workmen; but what would bethe case the following year?

While the machine was being made, only one-half of theusual quantity of food and necessaries would be obtained, andthey would be only one-half the value of the quantity which wasproduced before. The machine would be worth 7500l., and thefood and necessaries 7500l., and, therefore, the capital of thecapitalist would be as great as before; for he would have besidesthese two values, his fixed capital worth 7000l., making in thewhole 20,000l. capital, and 2000l. profit. After deducting thislatter sum for his own expenses, he would have a no greatercirculating capital than 5500l. with which to carry on his sub-sequent operations; and, therefore, his means of employinglabour, would be reduced in the proportion of 13,000l. to 5500l.,and, consequently, all the labour which was before employedby 7500l., would become redundant.

The reduced quantity of labour which the capitalist canemploy, must, indeed, with the assistance of the machine, andafter deductions for its repairs, produce a value equal to 7500l.,it must replace the circulating capital with a profit of 2000l. onthe whole capital; but if this be done, if the net income be notdiminished, of what importance is it to the capitalist, whetherthe gross income be of the value of 3000l., of 10,000l., or of15,000l.?

In this case, then, although the net produce will not bediminished in value, although its power of purchasing com-

390 Principles ch. xxxi

modities may be greatly increased, the gross produce will havefallen from a value of 15,000l. to a value of 7500l., and as thepower of supporting a population, and employing labour, de-pends always on the gross produce of a nation, and not on itsnet produce, there will necessarily be a diminution in the demandfor labour, population will become redundant, and the situationof the labouring classes will be that of distress and poverty.

As, however, the power of saving from revenue to add tocapital, must depend on the efficiency of the net revenue, tosatisfy the wants of the capitalist, it could not fail to followfrom the reduction in the price of commodities consequent onthe introduction of machinery, that with the same wants hewould have increased means of saving,—increased facility oftransferring revenue into capital. But with every increase ofcapital he would employ more labourers; and, therefore, aportion of the people thrown out of work in the first instance,would be subsequently employed; and if the increased pro-duction, in consequence of the employment of the machine,was so great as to afford, in the shape of net produce, as great aquantity of food and necessaries as existed before in the formof gross produce, there would be the same ability to employthe whole population, and, therefore, there would not neces-sarily be any redundancy of people.

All I wish to prove, is, that the discovery and use of machinerymay be attended with a diminution of gross produce; andwhenever that is the case, it will be injurious to the labouringclass, as some of their number will be thrown out of employ-ment, and population will become redundant, compared withthe funds which are to employ it.

The case which I have supposed, is the most simple that Icould select; but it would make no difference in the result, ifwe supposed that the machinery was applied to the trade of anymanufacturer,—that of a clothier, for example, or of a cotton

On Machinerych. xxxi 391

manufacturer. If in the trade of a clothier, less cloth would beproduced after the introduction of machinery; for a part of thatquantity which is disposed of for the purpose of paying a largebody of workmen, would not be required by their employer.In consequence of using the machine, it would be necessary forhim to reproduce a value, only equal to the value consumed,together with the profits on the whole capital. 7500l. might dothis as effectually as 15,000l. did before, the case differing in norespect from the former instance. It may be said, however, thatthe demand for cloth would be as great as before, and it may beasked from whence would this supply come? But by whomwould the cloth be demanded? By the farmers and the otherproducers of necessaries, who employed their capitals in pro-ducing these necessaries as a means of obtaining cloth: theygave corn and necessaries to the clothier for cloth, and hebestowed them on his workmen for the cloth which their workafforded him.

This trade would now cease; the clothier would not want thefood and clothing, having fewer men to employ and having lesscloth to dispose of. The farmers and others, who only producednecessaries as means to an end, could no longer obtain cloth bysuch an application of their capitals, and, therefore, they wouldeither themselves employ their capitals in producing cloth, orwould lend them to others, in order that the commodity reallywanted might be furnished; and that for which no one had themeans of paying, or for which there was no demand, mightcease to be produced. This, then, leads us to the same result;the demand for labour would diminish, and the commoditiesnecessary to the support of labour would not be produced inthe same abundance.

If these views be correct, it follows, 1st. That the discovery,and useful application of machinery, always leads to the increaseof the net produce of the country, although it may not, and will

392 Principles ch. xxxi

not, after an inconsiderable interval, increase the value of thatnet produce.

2dly. That an increase of the net produce of a country is com-patible with a diminution of the gross produce, and that themotives for employing machinery are always sufficient to insureits employment, if it will increase the net produce, although itmay, and frequently must, diminish both the quantity of thegross produce, and its value.

3dly. That the opinion entertained by the labouring class,that the employment of machinery is frequently detrimental totheir interests, is not founded on prejudice and error, but isconformable to the correct principles of political economy.

4thly. That if the improved means of production, in con-sequence of the use of machinery, should increase the net produceof a country in a degree so great as not to diminish the grossproduce, (I mean always quantity of commodities and notvalue,) then the situation of all classes will be improved. Thelandlord and capitalist will benefit, not by an increase of rentand profit, but by the advantages resulting from the expenditureof the same rent, and profit, on commodities, very considerablyreduced in value, while the situation of the labouring classeswill also be considerably improved; 1st, from the increaseddemand for menial servants; 2dly, from the stimulus to savingsfrom revenue, which such an abundant net produce will afford;and 3dly, from the low price of all articles of consumption onwhich their wages will be expended.

Independently of the consideration of the discovery and useof machinery, to which our attention has been just directed,the labouring class have no small interest in the manner in whichthe net income of the country is expended, although it should,in all cases, be expended for the gratification and enjoymentsof those who are fairly entitled to it.

On Machinerych. xxxi 393

If a landlord, or a capitalist, expends his revenue in themanner of an ancient baron, in the support of a great number ofretainers, or menial servants, he will give employment to muchmore labour, than if he expended it on fine clothes, or costlyfurniture; on carriages, on horses, or in the purchase of anyother luxuries.

In both cases the net revenue would be the same, and sowould be the gross revenue, but the former would be realisedin different commodities. If my revenue were 10,000l., the samequantity nearly of productive labour would be employed,whether I realised it in fine clothes and costly furniture, &c. &c.or in a quantity of food and clothing of the same value. If,however, I realised my revenue in the first set of commodities,no more labour would be consequently employed:—I shouldenjoy my furniture and my clothes, and there would be an endof them; but if I realised my revenue in food and clothing, andmy desire was to employ menial servants, all those whom Icould so employ with my revenue of 10,000l., or with the foodand clothing which it would purchase, would be to be added tothe former demand for labourers, and this addition would takeplace only because I chose this mode of expending my revenue.As the labourers, then, are interested in the demand for labour,they must naturally desire that as much of the revenue aspossible should be diverted from expenditure on luxuries, tobe expended in the support of menial servants.

In the same manner, a country engaged in war, and which isunder the necessity of maintaining large fleets and armies,employs a great many more men than will be employed whenthe war terminates, and the annual expenses which it bringswith it, cease.

If I were not called upon for a tax of 500l. during the war,and which is expended on men in the situations of soldiers andsailors, I might probably expend that portion of my income on

394 Principles ch. xxxi

furniture, clothes, books, &c. &c. and whether it was expendedin the one way or in the other, there would be the same quantityof labour employed in production; for the food and clothing ofthe soldier and sailor would require the same amount of industryto produce it as the more luxurious commodities; but in thecase of the war, there would be the additional demand for menas soldiers and sailors; and, consequently, a war which is sup-ported out of the revenue, and not from the capital of a country,is favourable to the increase of population.

At the termination of the war, when part of my revenuereverts to me, and is employed as before in the purchase of wine,furniture, or other luxuries, the population which it beforesupported, and which the war called into existence, will becomeredundant, and by its effect on the rest of the population, andits competition with it for employment, will sink the value ofwages, and very materially deteriorate the condition of thelabouring classes.

There is one other case that should be noticed of the possi-bility of an increase in the amount of the net revenue of acountry, and even of its gross revenue, with a diminution ofdemand for labour, and that is, when the labour of horses issubstituted for that of man. If I employed one hundred menon my farm, and if I found that the food bestowed on fifty ofthose men, could be diverted to the support of horses, andafford me a greater return of raw produce, after allowing forthe interest of the capital which the purchase of the horseswould absorb, it would be advantageous to me to substitutethe horses for the men, and I should accordingly do so; but thiswould not be for the interest of the men, and unless the incomeI obtained, was so much increased as to enable me to employthe men as well as the horses, it is evident that the populationwould become redundant, and the labourers’ condition wouldsink in the general scale. It is evident he could not, under any

On Machinerych. xxxi 395

circumstances, be employed in agriculture; but if the produceof the land were increased by the substitution of horses for men,he might be employed in manufactures, or as a menial servant.

The statements which I have made will not, I hope, lead tothe inference that machinery should not be encouraged. Toelucidate the principle, I have been supposing, that improvedmachinery is suddenly discovered, and extensively used; but thetruth is, that these discoveries are gradual, and rather operate indetermining the employment of the capital which is saved andaccumulated, than in diverting capital from its actual employ-ment.

With every increase of capital and population, food willgenerally rise, on account of its being more difficult to produce.The consequence of a rise of food will be a rise of wages, andevery rise of wages will have a tendency to determine the savedcapital in a greater proportion than before to the employmentof machinery. Machinery and labour are in constant compe-tition, and the former can frequently not be employed untillabour rises.

In America and many other countries, where the food of manis easily provided, there is not nearly such great temptation toemploy machinery as in England, where food is high, and costsmuch labour for its production. The same cause that raiseslabour, does not raise the value of machines, and, therefore,with every augmentation of capital, a greater proportion of itis employed on machinery. The demand for labour will con-tinue to increase with an increase of capital, but not in propor-tion to its increase; the ratio will necessarily be a diminishingratio.*

* “The demand for labour depends on the increasing of circulating,and not of fixed capital. Were it true that the proportion between thesetwo sorts of capital is the same at all times, and in all countries, then, indeed,it follows that the number of labourers employed is in proportion to thewealth of the State. But such a position has not the semblance of prob-

396 Principles ch. xxxi

1 Observations on the Circumstanceswhich Influence the Condition of the

Labouring Classes of Society, byJohn Barton, London, Arch, 1817.

I have before observed, too, that the increase of net incomes,estimated in commodities, which is always the consequence ofimproved machinery, will lead to new savings and accumula-tions. These savings, it must be remembered are annual, andmust soon create a fund, much greater than the gross revenue,originally lost by the discovery of the machine, when thedemand for labour will be as great as before, and the situationof the people will be still further improved by the increasedsavings which the increased net revenue will still enable themto make.

The employment of machinery could never be safely dis-couraged in a State, for if a capital is not allowed to get thegreatest net revenue that the use of machinery will afford here,it will be carried abroad, and this must be a much more seriousdiscouragement to the demand for labour, than the most ex-tensive employment of machinery; for, while a capital is em-ployed in this country, it must create a demand for some labour;machinery cannot be worked without the assistance of men, it

ability. As arts are cultivated, and civilization is extended, fixed capitalbears a larger and larger proportion to circulating capital. The amount offixed capital employed in the production of a piece of British muslin is atleast a hundred, probably a thousand times greater than that employed inthe production of a similar piece of Indian muslin. And the proportionof circulating capital employed is a hundred or a thousand times less. It iseasy to conceive that, under certain circumstances, the whole of the annualsavings of an industrious people might be added to fixed capital, in whichcase they would have no effect in increasing the demand for labour.”

Barton, “On the Condition of the Labouring Classes of Society,”1

page 16.It is not easy, I think, to conceive that under any circumstances, an

increase of capital should not be followed by an increased demand forlabour; the most that can be said is, that the demand will be in a diminishingratio. Mr. Barton, in the above publication, has, I think, taken a correctview of some of the effects of an increasing amount of fixed capital on thecondition of the labouring classes. His Essay contains much valuableinformation.

On Machinerych. xxxi 397

cannot be made but with the contribution of their labour. Byinvesting part of a capital in improved machinery, there will bea diminution in the progressive demand for labour; by ex-porting it to another country, the demand will be whollyannihilated.

The prices of commodities, too, are regulated by their costof production. By employing improved machinery, the cost ofproduction of commodities is reduced, and, consequently, youcan afford to sell them in foreign markets at a cheaper price. If,however, you were to reject the use of machinery, while allother countries encouraged it, you would be obliged to exportyour money, in exchange for foreign goods, till you sunk thenatural prices of your goods to the prices of other countries.In making your exchanges with those countries, you might givea commodity which cost two days labour, here, for a commoditywhich cost one, abroad, and this disadvantageous exchangewould be the consequence of your own act, for the commoditywhich you export, and which cost you two days labour, wouldhave cost you only one if you had not rejected the use ofmachinery, the services of which your neighbours had morewisely appropriated to themselves.

chapter xxxii

Mr. Malthus’s Opinions on Rent

Although the nature of rent has in the former pages of thiswork been treated on at some length; yet I consider myselfbound to notice some opinions on the subject, which appear tome erroneous, and which are the more important, as they arefound in the writings of one, to whom, of all men of the presentday, some branches of economical science are the most indebted.Of Mr. Malthus’s Essay on Population, I am happy in the oppor-tunity here afforded me of expressing my admiration. The as-saults of the opponents of this great work have only served toprove its strength; and I am persuaded that its just reputationwill spread with the cultivation of that science of which it is soeminent an ornament. Mr. Malthus, too, has satisfactorily ex-plained the principles of rent, and shewed that it rises or falls inproportion to the relative advantages, either of fertility orsituation, of the different lands in cultivation, and has therebythrown much light on many difficult points connected with thesubject of rent, which were before either unknown, or very im-perfectly understood; yet he appears to me to have fallen intosome errors, which his authority makes it the more necessary,whilst his characteristic candour renders it less unpleasing tonotice. One of these errors lies in supposing rent to be a cleargain and a new creation of riches.

I do not assent to all the opinions of Mr. Buchanan con-cerning rent; but with those expressed in the following passage,quoted from his work by Mr. Malthus, I fully agree; and, there-fore, I must dissent from Mr. Malthus’s comment on them.

“In this view it (rent) can form no general addition to thestock of the community, as the neat surplus in question is no-

Mr. Malthus’s Opinions on Rentch. xxxii 399

1 Buchanan’s ed. of the Wealth ofNations, vol. iii, p. 272, note;quoted by Malthus in An Inquiryinto...Rent, 1815, p. 7.

2 De la Richesse commerciale, 1803,vol. i, p. 49; cp. above, p. 380, n.3 Above, pp. 75–7.

thing more than a revenue transferred from one class to another;and from the mere circumstance of its thus changing hands, it isclear that no fund can arise, out of which to pay taxes. Therevenue which pays for the produce of the land, exists alreadyin the hands of those who purchase that produce; and, if theprice of subsistence were lower, it would still remain in theirhands, where it would be just as available for taxation as when,by a higher price, it is transferred to the landed proprietor.”1

After various observations on the difference between rawproduce and manufactured commodities, Mr. Malthus asks, “Isit possible then, with M. de Sismondi,2 to regard rent as the soleproduce of labour, which has a value purely nominal, and themere result of that augmentation of price which a seller obtainsin consequence of a peculiar privilege; or, with Mr. Buchanan,to consider it as no addition to the national wealth, but merelya transfer of value, advantageous only to the landlords, and pro-portionably injurious to the consumers?”*

I have already expressed my opinion on this subject in treat-ing of rent,3 and have now only further to add, that rent is acreation of value, as I understand that word, but not a creationof wealth. If the price of corn, from the difficulty of producingany portion of it, should rise from 4l. to 5l. per quarter, amillion of quarters will be of the value of 5,000,000l. instead of4,000,000l., and as this corn will exchange not only for moremoney, but for more of every other commodity, the possessorswill have a greater amount of value; and as no one else will, inconsequence, have a less, the society altogether will be possessedof greater value, and in that sense rent is a creation of value.But this value is so far nominal, that it adds nothing to the

* An Inquiry into the Nature and Progress of Rent, p. 15.

400 Principles ch. xxxii

1 Eds. 1–2 repeat here ‘to’.2 Ed. 1 does not contain this para-graph. Cp. below, II, 116, whereRicardo defends this statement

against Malthus’s criticism.3 Inquiry into...Rent, p. 2.4 ib. p. 8.

wealth, that is to say,1 the necessaries, conveniences, and en-joyments of the society. We should have precisely the samequantity, and no more of commodities, and the same millionquarters of corn as before; but the effect of its being rated at 5l.per quarter, instead of 4l., would be to transfer a portion of thevalue of the corn and commodities from their former possessorsto the landlords. Rent then is a creation of value, but not acreation of wealth; it adds nothing to the resources of a country,it does not enable it to maintain fleets and armies; for thecountry would have a greater disposable fund if its land were ofa better quality, and it could employ the same capital withoutgenerating a rent.

It must then be admitted that Mr. Sismondi and Mr. Buchanan,for both their opinions are substantially the same, were correct,when they considered rent as a value purely nominal, and asforming no addition to the national wealth, but merely as atransfer of value, advantageous only to the landlords, and pro-portionably injurious to the consumer.2

In another part of Mr. Malthus’s “Inquiry” he observes,3

“that the immediate cause of rent is obviously the excess ofprice above the cost of production at which raw produce sellsin the market;” and in another place he says,4 “that the causesof the high price of raw produce may be stated to be three:—

“First, and mainly, that quality of the earth, by which it canbe made to yield a greater portion of the necessaries of life thanis required for the maintenance of the persons employed on theland.

“2dly. That quality peculiar to the necessaries of life, of beingable to create their own demand, or to raise up a number of de-manders in proportion to the quantity of necessaries produced.

Mr. Malthus’s Opinions on Rentch. xxxii 401

1 Eds. 1–2 do not contain ‘its’.2 Inquiry into...Rent, pp. 1–2.3 Ed. 1 reads ‘In reference to the

first cause of the rise of rent,Mr. Malthus has the following ob-servations’.

“And 3dly. The comparative scarcity of the most fertileland.” In speaking of the high price of corn, Mr. Malthus evi-dently does not mean the price per quarter or per bushel, butrather the excess of price for which the whole produce will sell,above the cost of its production, including always in the term“cost of its1 production,” profits as well as wages. One hundredand fifty quarters of corn at 3l. 10s. per quarter, would yield alarger rent to the landlord than 100 quarters at 4l., provided thecost of production were in both cases the same.

High price, if the expression be used in this sense, cannot thenbe called a cause of rent; it cannot be said “that the immediatecause of rent is obviously the excess of price above the cost ofproduction, at which raw produce sells in the market,” for thatexcess is itself rent. Rent, Mr. Malthus has defined to be “thatportion of the value of the whole produce which remains to theowner of the land, after all the outgoings belonging to its culti-vation, of whatever kind, have been paid, including the profitsof the capital employed, estimated according to the usual andordinary rate of the profits of agricultural stock at the timebeing.”2 Now whatever sum this excess may sell for, is moneyrent; it is what Mr. Malthus means by “the excess of price abovethe cost of production at which raw produce sells in the market;”and, therefore, in an inquiry into the causes which may elevatethe price of raw produce, compared with the cost of production,we are inquiring into the causes which may elevate rent.

In reference to the first cause which Mr. Malthus has assignedfor the rise of rent, namely, “that quality of the earth by whichit can be made to yield a greater portion of the necessaries of lifethan is required for the maintenance of the persons employedon the land,” he makes the following observations3: “We still

402 Principles ch. xxxii

1 Inquiry into...Rent, p. 13.2 Ed. 1 ‘rent money’, corrected inErrata.

3 ib. p. 13. Ricardo’s italics.4 Eds. 1–2 do not contain ‘of anygiven farm,’. Cp. above, p. 83, n.

want to know why the consumption and supply are such as tomake the price so greatly exceed the cost of production, and themain cause is evidently the fertility of the earth in producingthe necessaries of life. Diminish this plenty, diminish the fer-tility of the soil, and the excess will diminish; diminish it stillfurther, and it will disappear.”1 True, the excess of necessarieswill diminish and disappear, but that is not the question. Thequestion is, whether the excess of their price above the cost oftheir production will diminish and disappear, for it is on thisthat money rent2 depends. Is Mr. Malthus warranted in his in-ference, that because the excess of quantity will diminish anddisappear, therefore “the cause of the high price of the neces-saries of life above the cost of production is to be found in theirabundance, rather than in their scarcity; and is not only essenti-ally different from the high price occasioned by artificial mono-polies, but from the high price of those peculiar products of theearth, not connected with food, which may be called naturaland necessary monopolies?”3

Are there no circumstances under which the fertility of theland, and the plenty of its produce may be diminished, withoutoccasioning a diminished excess of its price above the cost ofproduction, that is to say, a diminished rent? If there are, Mr.Malthus’s proposition is much too universal; for he appears tome to state it as a general principle, true under all circumstances,that rent will rise with the increased fertility of the land, andwill fall with its diminished fertility.

Mr. Malthus would undoubtedly be right, if, of any givenfarm,4 in proportion as the land yielded abundantly, a greatershare of the whole produce were paid to the landlord; but thecontrary is the fact: when no other but the most fertile land is in

Mr. Malthus’s Opinions on Rentch. xxxii 403

1 Eds. 1–2 ‘share’ in place of‘proportion’.2 Eds. 1–2 do not contain the re-mainder of this sentence, to ‘inquantity.’3 Eds. 1–2 do not contain ‘on thesuperior land’.

4 Eds. 1–2 do not contain the lasttwo lines beginning ‘and the valueof the whole quantity’.5 Eds. 1–2 do not contain ‘on themore fertile land’.

cultivation, the landlord has the smallest proportion1 of thewhole produce, as well as the smallest value, and it is only wheninferior lands are required to feed an augmenting population,that both the landlord’s share of the whole produce, and thevalue he receives, progressively increase.

Suppose that the demand is for a million of quarters of corn,and that they are the produce of the land actually in cultivation.Now, suppose the fertility of all the land to be so diminished,that the very same lands will yield only 900,000 quarters. Thedemand being for a million of quarters, the price of corn wouldrise, and recourse must necessarily be had to land of an inferiorquality sooner than if the superior land had continued to pro-duce a million of quarters. But it is this necessity of taking in-ferior land into cultivation which is the cause of the rise of rent,2

and will elevate it, although the quantity of corn received by thelandlord, be reduced in quantity. Rent, it must be remembered,is not in proportion to the absolute fertility of the land in culti-vation, but in proportion to its relative fertility. Whatever causemay drive capital to inferior land, must elevate rent on thesuperior land3; the cause of rent being, as stated by Mr. Malthusin his third proposition, “the comparative scarcity of the mostfertile land.” The price of corn will naturally rise with the dif-ficulty of producing the last portions of it, and the value of thewhole quantity produced on a particular farm will be increased,although its quantity be diminished4; but as the cost of pro-duction will not increase on the more fertile land5, as wagesand profits taken together will continue always of the same

404 Principles ch. xxxii

1 Ed. 1 ‘page 124’ (i.e. p. 115, above)ed. 2 ‘page 124’ (i.e. p. 120, above),ed. 3 ‘page 120’ (i.e. p. 120, above);the trouble was due to failure toadjust the reference to the pagina-tion of ed. 2.

2 Principles of Political Economy,below, II, 121, n. and cp. Ricardo’sNote 59.3 Quoted above, p. 402.4 Eds. 1–2 do not contain this foot-note.

value*, it is evident that the excess of price above the cost of pro-duction, or, in other words, rent must rise with the diminishedfertility of the land, unless it is counteracted by a great reductionof capital, population, and demand. It does not appear then,that Mr. Malthus’s proposition is correct: rent does not im-mediately and necessarily rise or fall with the increased ordiminished fertility of the land; but its increased fertility rendersit capable of paying at some future time an augmented rent.Land possessed of very little fertility can never bear any rent;land of moderate fertility may be made, as population increases,to bear a moderate rent; and land of great fertility a high rent;but it is one thing to be able to bear a high rent, and anotherthing actually to pay it. Rent may be lower in a country wherelands are exceedingly fertile than in a country where they yielda moderate return, it being in proportion rather to relative thanabsolute fertility—to the value of the produce, and not to itsabundance.†

Mr. Malthus supposes that the rent on land yielding thosepeculiar products of the earth which may be called natural and

* See page 115,1 where I have endeavoured to shew, that whateverfacility or difficulty there may be in the production of corn; wages andprofits together will be of the same value. When wages rise, it is always atthe expense of profits, and when they fall, profits always rise.

† Mr. Malthus has observed in a late publication,2 that I have misunder-stood him in this passage, as he did not mean to say, that rent immediatelyand necessarily rises and falls with the increased or diminished fertility ofthe land. If so, I certainly did misunderstand him. Mr. Malthus’s wordsare, “Diminish this plenty, diminish the fertility of the soil, and the excess(rent) will diminish; diminish it still further, and it will disappear.”3

Mr. Malthus does not state his proposition conditionally, but absolutely.I contended against what I understood him to maintain, that a diminutionof the fertility of the soil was incompatible with an increase of rent.4

Mr. Malthus’s Opinions on Rentch. xxxii 405

1 Ed. 2 ‘raising’.2 Ed. 1, in place of the last twoparagraphs, reads: ‘Mr. Malthussays, that the “cause of the excessof price of the necessaries of lifeabove the cost of production, is tobe found in their abundance ratherthan their scarcity, and is essentiallydifferent from the high price ofthose peculiar products of the earth,not connected with food, whichmay be called natural and necessarymonopolies.”

‘In what are they essentially dif-ferent? Would not the abundanceof those peculiar products of theearth cause a rise of rent, if the de-mand for them at the same time in-creased? and can rent ever rise,

whatever the commodity producedmay be, from abundance merely,and without an increase of demand?

‘The second cause of rent men-tioned by Mr. Malthus, namely,“that quality peculiar to the neces-saries of life, of being able to createtheir own demand, or to raise up anumber of demanders in proportionto the quantity of necessaries pro-duced,” does not appear to me tobe any way essential to it. It is notthe abundance of necessaries whichraises up demanders, but theabundance of demanders whichraises up necessaries.’ The passagesfrom Malthus are also quotedabove, p. 402 and p. 400.

necessary monopolies, is regulated by a principle essentiallydifferent from that which regulates the rent of land that yieldsthe necessaries of life. He thinks that it is the scarcity of theproducts of the first which is the cause of a high rent, but thatit is the abundance of the latter, which produces the same effect.

This distinction does not appear to me to be well founded;for you would as surely raise the rent of land yielding scarcewines, as the rent of corn land, by increasing the abundance ofits produce, if, at the same time, the demand for this peculiarcommodity increased; and without a similar increase of demand,an abundant supply of corn would lower instead of raise1 therent of corn land. Whatever the nature of the land may be, highrent must depend on the high price of the produce; but, giventhe high price, rent must be high in proportion to abundanceand not to scarcity.2

We are under no necessity of producing permanently anygreater quantity of a commodity than that which is demanded.If by accident any greater quantity were produced, it would fallbelow its natural price, and therefore would not pay the cost of

406 Principles ch. xxxii

1 Eds. 1–2 ‘together with’ in placeof ‘including in that cost’.2 Misprinted ‘workmen’ in ed. 3.3 Ed. 2 does not contain ‘, in allprobability,’.4 In place of the last four lines, be-ginning ‘he will, in all probability’,

ed. 1 reads ‘he may, if it please him,exchange his increased wages forany commodities that may con-tribute to his enjoyments—forchairs,’ etc.5 Ed. 1 has in addition ‘for’.

production, including in that cost1 the usual and ordinaryprofitsof stock: thus the supply would be checked till it conformed tothe demand, and the market price rose to the natural price.

Mr. Malthus appears to me to be too much inclined to thinkthat population is only increased by the previous provision offood,—“that it is food that creates its own demand,”—that itis by first providing food, that encouragement is given to mar-riage, instead of considering that the general progress of popu-lation is affected by the increase of capital, the consequentdemand for labour, and the rise of wages; and that the produc-tion of food is but the effect of that demand.

It is by giving the workman2 more money, or any othercommodity in which wages are paid, and which has not fallenin value, that his situation is improved. The increase of popula-tion, and the increase of food will generally be the effect, butnot the necessary effect of high wages. The amended conditionof the labourer, in consequence of the increased value which ispaid him, does not necessarily oblige him to marry and takeupon himself the charge of a family—he will, in all probability,3

employ a portion of his increased wages in furnishing himselfabundantly with food and necessaries,—but with the remainderhe may, if it please him, purchase any commodities that maycontribute to his enjoyments—chairs,4 tables, and hardware;or5 better clothes, sugar, and tobacco. His increased wages thenwill be attended with no other effect than an increased demandfor some of those commodities; and as the race of labourers willnot be materially increased, his wages will continue permanently

Mr. Malthus’s Opinions on Rentch. xxxii 407

1 Ed. 1 does not contain ‘, with thetrifling exception already men-tioned,’.

2 Eds. 1–2 do not contain ‘capitaland’.3 Eds. 1–2 ‘a country’.4 Inquiry into...Rent, pp. 9–10.

high. But although this might be the consequence of highwages, yet so great are the delights of domestic society, that inpractice it is invariably found that an increase of populationfollows the amended condition of the labourer; and it is onlybecause it does so, that, with the trifling exception already men-tioned,1 a new and increased demand arises for food. This de-mand then is the effect of an increase of capital and2 population,but not the cause—it is only because the expenditure of thepeople takes this direction, that the market price of necessariesexceeds the natural price, and that the quantity of food requiredis produced; and it is because the number of people is increased,that wages again fall.

What motive can a farmer have to produce more corn thanis actually demanded, when the consequence would be a de-pression of its market price below its natural price, and conse-quently a privation to him of a portion of his profits, by reducingthem below the general rate? “If,” says Mr. Malthus, “thenecessaries of life, the most important products of land, had notthe property of creating an increase of demand proportioned totheir increased quantity, such increased quantity would occasiona fall in their exchangeable value.* However abundant mightbe the produce of the country3, its population might remainstationary; and this abundance without a proportionate demand,and with a very high corn price of labour, which would naturallytake place under these circumstances, might reduce the price ofraw produce, like the price of manufactures, to the cost ofproduction.”4

* Of what increased quantity does Mr. Malthus speak? Who is to pro-duce it? Who can have any motive to produce it, before any demandexists for an additional quantity?

408 Principles ch. xxxii

1 In eds. 1–2 this sentence is in in-verted commas and is followed bya question mark.2 Malthus italicizes also ‘quantity’.

3 Inquiry into...Rent, p. 39.4 pp. 38–9. Ricardo’s italics.5 Malthus’s Observations on theEffects of the Corn Laws, ed. 3, 1815.

Might reduce the price of raw produce to the cost of pro-duction.1 Is it ever for any length of time either above or belowthis price? Does not Mr. Malthus himself, state it never to beso? “I hope,” he says, “to be excused for dwelling a little, andpresenting to the reader, in various forms, the doctrine, thatcorn, in reference to the quantity2 actually produced, is sold at itsnecessary price, like manufactures, because I consider it as atruth of the highest importance, which has been overlooked bythe economists, by Adam Smith, and all those writers, who haverepresented raw produce as selling always at a monopolyprice.”3

“Every extensive country may thus be considered as pos-sessing a gradation of machines for the production of corn andraw materials, including in this gradation not only all the variousqualities of poor land, of which every territory has generally anabundance, but the inferior machinery which may be said to beemployed when good land is further and further forced for ad-ditional produce. As the price of raw produce continues to rise,these inferior machines are successively called into action; andas the price of raw produce continues to fall, they are suc-cessively thrown out of action. The illustration here used,serves to shew, at once, the necessity of the actual price of cornto the actual produce, and the different effect which would attenda great reduction in the price of any particular manufacture, anda great reduction in the price of raw produce.”*

* Inquiry, &c.4 “In all progressive countries, the average price of cornis never higher than what is necessary to continue the average increase ofproduce.” Observations, p. 21.5

“In the employment of fresh capital upon the land, to provide for thewants of an increasing population, whether this fresh capital is employedin bringing more land under the plough, or improving land already in

Mr. Malthus’s Opinions on Rentch. xxxii 409

How are these passages to be reconciled to that which affirms,that if the necessaries of life had not the property of creating anincrease of demand proportioned to their increased quantity,the abundant quantity produced would then, and then only,reduce the price of raw produce to the cost of production? Ifcorn is never under its natural price, it is never more abundantthan the actual population require it to be for their own con-sumption; no store can be laid up for the consumption of others;it can never then by its cheapness and abundance be a stimulusto population. In proportion as corn can be produced cheaply,the increased wages of the labourers will have more power tomaintain families. In America, population increases rapidly,because food can be produced at a cheap price, and not becausean abundant supply has been previously provided. In Europepopulation increases comparatively slowly, because food cannotbe produced at a cheap value. In the usual and ordinary courseof things, the demand for all commodities precedes their sup-ply. By saying, that corn would, like manufactures, sink to itsprice of production, if it could not raise up demanders, Mr.Malthus cannot mean that all rent would be absorbed; for he hashimself justly remarked, that if all rent were given up by thelandlords, corn would not fall in price; rent being the effect,and not the cause of high price, and there being always onequality of land in cultivation which pays no rent whatever, thecorn from which replaces by its price, only wages and profits.

cultivation, the main question always depends upon the expected returns ofthis capital; and no part of the gross profits can be diminished, withoutdiminishing the motive to this mode of employing it. Every diminutionof price, not fully and immediately balanced by a proportionate fall in allthe necessary expenses of a farm, every tax on the land, every tax on farm-ing stock, every tax on the necessaries of farmers, will tell in the computa-tion; and if, after all these outgoings are allowed for, the price of the pro-duce will not leave a fair remuneration for the capital employed, accordingto the general rate of profits, and a rent at least equal to the rent of the landin its former state, no sufficient motive can exist to undertake the projectedimprovement.” Observations, p. 22.

410 Principles ch. xxxii

1 Ed. 1 ‘in some parts of ’.2 Ricardo’s italics.

3 Inquiry into...Rent, pp. 40–1.4 Misprinted ‘has’ in ed. 3.

In the following passage, Mr. Malthus has given an able ex-position of the causes of the rise in the price of raw produce inrich and progressive countries, in every word of which I con-cur; but it appears to me to be at variance with some of thepropositions maintained by him in1 his Essay on Rent. “I haveno hesitation in stating, that, independently of the irregularitiesin the currency of a country, and other temporary and acci-dental circumstances, the cause of the high comparative moneyprice of corn is its high comparative real price,2 or the greaterquantity of capital and labour which must be employed to pro-duce it; and that the reasons why the real price of corn is higher,and continually rising in countries which are already rich, andstill advancing in prosperity and population, is to be found inthe necessity of resorting constantly to poorer land, to machineswhich require a greater expenditure to work them, and whichconsequently occasion each fresh addition to the raw produceof the country to be purchased at a greater cost; in short, it is tobe found in the important truth, that corn in a progressivecountry, is sold at a price necessary to yield the actual supply;and that, as this supply becomes more and more difficult, theprice rises in proportion.”3

The real price of a commodity is here properly stated to de-pend on the greater or less quantity of labour and capital (thatis, accumulated labour) which must be employed to produce it.Real price does not, as4 some have contended, depend on moneyvalue; nor, as others have said, on value relatively to corn,labour, or any other commodity taken singly, or to all com-modities collectively; but, as Mr. Malthus justly says, “on thegreater (or less) quantity of capital and labour which must beemployed to produce it.”

Among the causes of the rise of rent, Mr. Malthus mentions,“such an increase of population as will lower the wages of

Mr. Malthus’s Opinions on Rentch. xxxii 411

1 Inquiry into...Rent, p. 22.2 Eds. 1–2 ‘fall’.3 Eds. 1–2 ‘If the labourers were’.4 Eds. 1–2 ‘relinquished’.5 Eds. 1–2 do not contain this sen-tence, beginning ‘Every rise’.

6 Ed. 1 ‘p. 124’ (i.e. p. 115, above),ed. 2 ‘p. 124’ (i.e. p. 120, above),ed. 3 ‘p. 121’ (i.e. p. 120, above).Cp. above, p. 404, n. 1.

labour.”1 But if, as the wages of labour fall, the profits of stockrise, and they be together always of the same value,* no fall ofwages can raise rent, for it will neither diminish the portion,nor the value of the portion of the produce which will beallotted to the farmer and labourer together; and, therefore, willnot leave a larger portion, nor a larger value for the landlord.In proportion as less is appropriated for wages, more will beappropriated for profits, and vice versa. This division will besettled by the farmer and his labourers, without any interferenceof the landlord; and, indeed, it is a matter in which he can haveno interest, otherwise than as one division may be morefavourable than another, to new accumulations, and to a furtherdemand for land. If wages fell,2 profits, and not rent, would rise.If wages rose, profits, and not rent, would fall. The rise of rentand wages, and the fall of profits, are generally the inevitableeffects of the same cause—the increasing demand for food, theincreased quantity of labour required to produce it, and its con-sequently high price. If the landlord were to forego his wholerent, the labourers would not be in the least benefited. If it werepossible for the labourers3 to give up their whole wages, thelandlords would derive no advantage from such a circumstance;but in both cases the farmer would receive and retain all whichthey relinquish4. It has been my endeavour to shew in thiswork, that a fall of wages would have no other effect than toraise profits. Every rise of profits is favourable to the accumula-tion of capital, and to the further increase of population, andtherefore would, in all probability, ultimately lead to an increaseof rent.5

* See p. 1156.

412 Principles ch. xxxii

1 Inquiry into...Rent, p. 22.2 Ed. 2 does not contain ‘in-creased’.3 See above, p. 400.4 Ed. 2 does not contain ‘be’.5 In place of the sentences (begin-ning ‘To this passage’) whichfollow the quotation from Malthus,ed. 1 reads: ‘This would not raisethe value of the whole produce, and

would therefore not increase rent.It would rather have a contrarytendency, it would lower rent; forif in consequence of these improve-ments, the actual quantity of foodrequired could be furnished’ etc.6 Ed. 1 ‘p. 70’ (i.e. p. 79, above),ed. 2 ‘p. 70’ (i.e. p. 82, above),ed. 3 ‘p. 73’ (i.e. p. 82, above).Cp. above, p. 404, n. 1.

Another cause of the rise of rent, according to Mr. Malthus,is “such agricultural improvements, or such increase of exer-tions, as will diminish the number of labourers necessary toproduce a given effect.”1 To this passage I have the same ob-jection that I had against that which speaks of the increased2

fertility of land being the cause of an immediate rise of rent.3

Both the improvement in agriculture, and the superior fertilitywill give to the land a capability of bearing at some futureperiod a higher rent, because with the same price of food therewill be a great additional quantity; but till the increase of popu-lation be4 in the same proportion, the additional quantity offood would not be required, and, therefore, rents would belowered and not raised. The quantity that could under the thenexisting circumstances be consumed, could be furnished5 eitherwith fewer hands, or with a less quantity of land, the price ofraw produce would fall, and capital would be withdrawn fromthe land.* Nothing can raise rent, but a demand for new landof an inferior quality, or some cause which shall occasion analteration in the relative fertility of the land already undercultivation.† Improvements in agriculture, and in the divisionof labour, are common to all land; they increase the absolutequantity of raw produce obtained from each, but probably do

* See p. 796, &c.† It is not necessary to state, on every occasion, but it must be always

understood, that the same results will follow, as far as regards the price ofraw produce and the rise of rents, whether an additional capital of a givenamount, be employed on new land, for which no rent is paid, or on land

Mr. Malthus’s Opinions on Rentch. xxxii 413

1 In place of the beginning of thisparagraph ed. 1 reads: ‘Mr. Malthushas justly commented on an errorof Adam Smith, and says, “thesubstance of his (Dr. Smith’s) argu-ment is, that corn is of so peculiara nature, that its real price cannot beraised by an increase of its moneyprice; and that, as it is clearly an in-crease of real price alone, which canencourage its production, the riseof money price, occasioned by abounty, can have no such effect.”

‘He continues:’.2 In Ed. 1 this paragraph reads:‘It is not necessary to state on everyoccasion, but it must be alwaysunderstood, that the same effectwill be produced by employing dif-ferent, but equal portions of capitalon the land already in cultivation,with different results. Rent is the

difference of produce obtained withequal capitals, and with equal labouron the same, or on different quali-ties of land.’3 Ed. 2 has here in addition ‘whichI have only seen since this editionwas in the press,’.4 In ed. 2 the last two sentencesread ‘He infers, for example, thatI am not correct in saying that taxeson raw produce do not fall on rent,but by elevating the price of rawproduce they fall on the consumer.He contends that they do fall onrent.’5 Ed. 2 does not contain ‘the cor-rectness of ’.6 Ed. 2 ‘no’ in place of ‘not any’.7 Ed. 2 does not contain ‘even’.8 Ed. 1 does not contain this para-graph.

not much disturb the relative proportions which before existedbetween them.

Mr. Malthus has justly commented on the error of Dr.Smith’s argument, that corn is of so peculiar a nature, that itsproduction cannot be encouraged by the same means that theproduction of all other commodities is encouraged. He ob-serves,1 “It is by no means intended to deny the powerful

already in cultivation, if the produce obtained from both be precisely thesame in quantity. See p. 72.2

M. Say, in his notes to the French translation of this work,3 has en-deavoured to shew that there is not at any time land in cultivation whichdoes not pay a rent, and having satisfied himself on this point, he concludesthat he has overturned all the conclusions which result from that doctrine.He infers, for example, that I am not correct in saying that taxes on corn,and other raw produce, by elevating their price, fall on the consumer, anddo not fall on rent. He contends that such taxes must fall on rent.4 Butbefore M. Say can establish the correctness of 5 this inference, he must alsoshew that there is not any 6 capital employed on the land for which no rentis paid (see the beginning of this note, and pages 67 and 74 of the presentwork); now this he has not attempted to do. In no part of his notes has herefuted, or even noticed that important doctrine. By his note to page 182of the second volume of the French edition, he does not appear to be awarethat it has even7 been advanced.8

414 Principles ch. xxxii

1 Above, p. 304 ff.2 This sentence should have beenrevised in eds. 2–3, which omit therelevant part of the quotation givenin ed. 1; see above, p. 413, n. 1.3 The Grounds of an Opinion onthe Policy of Restricting the Im-portation of Foreign Corn, 1815.

4 Observations, 3rd ed. p. 4.5 Ed. 1 does not contain ‘althoughI do not admit the propriety of thusnaming it,’.6 Should be ‘p. 5’ in eds. 2–3,which omit the quotation from p. 4given above, p. 413, n. 1.

influence of the price of corn upon the price of labour, on anaverage of a considerable number of years; but that this in-fluence is not such as to prevent the movement of capital to, orfrom the land, which is the precise point in question, will bemade sufficiently evident, by a short inquiry into the mannerin which labour is paid, and brought into the market, and by aconsideration of the consequences to which the assumption ofAdam Smith’s proposition would inevitably lead.”*

Mr. Malthus then proceeds to shew, that demand and highprice will as effectually encourage the production of raw pro-duce, as the demand and high price of any other commoditywill encourage its production. In this view it will be seen, fromwhat I have said of the effects of bounties,1 that I entirely con-cur. I have noticed the passage from Mr. Malthus’s “Observa-tions on the Corn Laws,” for the purpose of shewing in what adifferent sense the term real price is used here,2 and in his otherpamphlet, entitled “Grounds of an Opinion”, &c.3 In this pas-sage Mr. Malthus tells us, that “it is clearly an increase of realprice alone which can encourage the production of corn,”4 and,by real price, he evidently means the increase in its value re-latively to all other things; or, in other words, the rise in itsmarket above its natural price, or the cost of its production. Ifby real price this is what is meant, although I do not admit thepropriety of thus naming it,5 Mr. Malthus’s opinion is un-doubtedly correct; it is the rise in the market price of cornwhich alone encourages its production; for it may be laid down

* Observations on the Corn Laws, p. 4.6

Mr. Malthus’s Opinions on Rentch. xxxii 415

1 Eds. 1–2 do not contain ‘great’.2 Not in the ‘Essay on Rent’, but(as Ricardo had said in the preced-ing paragraph) in Grounds of anOpinion, p. 21, n. Ricardo’s italics.3 Inquiry into...Rent, p. 41. Malthusactually says ‘the cause of the highcomparative money price of corn isits high comparative real price, or

the greater quantity of capital andlabour which must be employed toproduce it’. Ricardo quotes thepassage more accurately above,p. 410 and below, p. 417.4 Eds. 1–2 ‘the degree of the excessof its price above’.5 Cp. letter to Malthus of 26 March1817, below, VII, 145.

as a principle uniformly true, that the only great1 encourage-ment to the increased production of a commodity, is its marketvalue exceeding its natural or necessary value.

But this is not the meaning which Mr. Malthus, on otheroccasions, attaches to the term, real price. In the Essay on Rent,2

Mr. Malthus says, by “the real growing price of corn, I meanthe real quantity of labour and capital, which has been employedto produce the last additions which have been made to thenational produce.” In another part he states3 “the cause of thehigh comparative real price of corn to be the greater quantity ofcapital and labour, which must be employed to produce it.”*Suppose that in the foregoing passage we were to substitute thisdefinition of real price, would it not then run thus?—“It isclearly the increase in the quantity of labour and capital whichmust be employed to produce corn, which alone can encourageits production.” This would be to say, that it is clearly the risein the natural or necessary price of corn, which encourages itsproduction—a proposition which could not be maintained. Itis not the price at which corn can be produced, that has any in-fluence on the quantity produced, but the price at which it canbe sold. It is in proportion to the degree of the difference of itsprice above or below 4 the cost of production, that capital is

* Upon shewing this passage to Mr. Malthus, at the time when thesepapers were going to the press, he observed, “that in these two instanceshe had inadvertently used the term real price, instead of cost of production.[”]It will be seen, from what I have already said, that to me it appears, that inthese two instances he has used the term real price in its true and just ac-ceptation, and that in the former case only it is incorrectly applied.5

416 Principles ch. xxxii

1 In ed. 3 by a misprint the invertedcommas are closed at the end of theparagraph, instead of here.

2 Eds. 1–2 do not enclose thisphrase in brackets.3 Observations, 3rd ed., p. 12.Ricardo’s italics here and below.

attracted to, or repelled from the land. If that excess be such asto give to capital so employed, a greater than the general profitof stock, capital will go to the land; if less, it will be withdrawnfrom it.

It is not, then, by an alteration in the real price of corn thatits production is encouraged, but by an alteration in its marketprice. It is not “because a greater quantity of capital and labourmust be employed to produce it,”1 (Mr. Malthus’s just definitionof real price,)2 that more capital and labour are attracted to theland, but because the market price rises above this its real price,and, notwithstanding the increased charge, makes the cultiva-tion of land the more profitable employment of capital.

Nothing can be more just than the following observations ofMr. Malthus, on Adam Smith’s standard of value. “AdamSmith was evidently led into this train of argument, from hishabit of considering labour as the standard measure of value, andcorn as the measure of labour. But that corn is a very inaccuratemeasure of labour, the history of our own country will amplydemonstrate; where labour, compared with corn, will be foundto have experienced very great and striking variations, not onlyfrom year to year, but from century to century; and for ten,twenty, and thirty years together. And that neither labour norany other commodity can be an accurate measure of real value inexchange, is now considered as one of the most incontrovertibledoctrines of political economy; and, indeed, follows from thevery definition of value in exchange.”3

If neither corn nor labour are accurate measures of real valuein exchange, which they clearly are not, what other commodityis?—certainly none. If, then, the expression, real price of com-modities, have any meaning, it must be that which Mr. Malthus

Mr. Malthus’s Opinions on Rentch. xxxii 417

1 Eds. 1–2 ‘the latter of either of these’.

has stated in the Essay on Rent—it must be measured by theproportionate quantity of capital and labour necessary to pro-duce them.

In Mr. Malthus’s “Inquiry into the Nature of Rent,” he says,“that, independently of irregularities in the currency of acountry, and other temporary and accidental circumstances, thecause of the high comparative money price of corn, is its highcomparative real price, or the greater quantity of capital andlabour which must be employed to produce it.”*

This, I apprehend, is the correct account of all permanentvariations in price, whether of corn or of any other commodity.A commodity can only permanently rise in price, either becausea greater quantity of capital and labour must be employed toproduce it, or because money has fallen in value; and, on thecontrary, it can only fall in price, either because a less quantityof capital and labour may be employed to produce it, or becausemoney has risen in value.

A variation arising from the latter of these1 alternatives, analtered value of money, is common at once to all commodities;but a variation arising from the former cause, is confined to theparticular commodity requiring more or less labour in its pro-duction. By allowing the free importation of corn, or by im-provements in agriculture, raw produce would fall; but theprice of no other commodity would be affected, except in pro-portion to the fall in the real value, or cost of production, of theraw produce, which entered into its composition.

Mr. Malthus, having acknowledged this principle, cannot,I think, consistently maintain that the whole money value of allthe commodities in the country must sink exactly in proportionto the fall in the price of corn. If the corn consumed in the

* Page 40.

418 Principles ch. xxxii

1 Misprinted ‘25’ in ed. 1.

country were of the value of ten millions per annum, and themanufactured and foreign commodities consumed were of thevalue of twenty millions, making altogether thirty millions, itwould not be admissible to infer that the annual expenditurewas reduced to 15 millions, because corn had fallen 50 per cent.,or from 10 to 5 millions.

The value of the raw produce which entered into the com-position of these manufactures might not, for example, exceed20 per cent. of their whole value, and, therefore, the fall in thevalue of manufactured commodities, instead of being from 20to 10 millions, would be only from 20 to 18 millions; and afterthe fall in the price of corn of 50 per cent., the whole amount ofthe annual expenditure, instead of falling from 30 to 151 millions,would fall from 30 to 23 millions.*

This, I say, would be their value, if you supposed it possible,that with such a cheap price of corn, no more corn and com-modities would be consumed; but as all those who had em-ployed capital in the production of corn on those lands whichwould no longer be cultivated, could employ it in the produc-tion of manufactured goods; and only a part of those manu-factured goods would be given in exchange for foreign corn, ason any other supposition no advantage would be gained by im-portation, and low prices; we should have the additional valueof all that quantity of manufactured goods which were so pro-duced, and not exported to add to the above value, so that thereal diminution, even in money value, of all the commodities inthe country, corn included, would be equal only to the loss of

* Manufactures, indeed, could not fall in any such proportion, because,under the circumstances supposed, there would be a new distribution of theprecious metals among the different countries. Our cheap commoditieswould be exported in exchange for corn and gold, till the accumulation ofgold should lower its value, and raise the money price of commodities.

Mr. Malthus’s Opinions on Rentch. xxxii 419

1 Eds. 1–2 do not contain thisparagraph.

2 Eds. 1–2 ‘with’ in place of ‘as’.3 Should be 39.

the landlords, by the reduction of their rents, while the quan-tity of objects of enjoyment would be greatly increased.1

Instead of thus considering the effect of a fall in the value ofraw produce; as Mr. Malthus was bound to do by his previousadmission; he considers it as precisely the same thing as 2 a riseof 100 per cent. in the value of money, and, therefore, argues asif all commodities would sink to half their former price.

“During the twenty years beginning with 1794,” he says,“and ending with 1813, the average price of British corn perquarter was about eighty-three shillings; during the ten yearsending with 1813, ninety-two shillings; and during the last fiveyears of the twenty, one hundred and eight shillings. In thecourse of these twenty years, the Government borrowed nearfive hundred millions of real capital; for which, on a roughaverage, exclusive of the sinking fund, it engaged to pay aboutfive per cent. But if corn should fall to fifty shillings a quarter,and other commodities in proportion, instead of an interest ofabout five per cent., the Government would really pay aninterest of seven, eight, nine, and for the last two hundredmillions, ten per cent.

“To this extraordinary generosity towards the stockholders,I should be disposed to make no kind of objection, if it were notnecessary to consider by whom it is to be paid; and a moment’sreflection will shew us, that it can only be paid by the industriousclasses of society, and the landlords; that is, by all those whosenominal income will vary with the variations in the measure ofvalue. The nominal revenues of this part of the society, com-pared with the average of the last five years, will be diminishedone half, and out of this nominally reduced income, they willhave to pay the same nominal amount of taxes.”*

* The Grounds of an Opinion, &c. page 36.3

420 Principles ch. xxxii

1 Eds. 1–2 ‘the nominal income’ inplace of ‘even the value of the grossincome’.2 Eds. 1–2 do not contain ‘gross’.

3 Eds. 1–2 do not contain ‘; his netincome might be actually increasedin value’.4 Grounds of an Opinion, p. 41.

In the first place, I think, I have already shewn, that even thevalue of the gross income1 of the whole country will not bediminished in the proportion for which Mr. Malthus here con-tends; it would not follow, that because corn fell fifty per cent.,each man’s gross2 income would be reduced fifty per cent. invalue*; his net income might be actually increased in value3.

In the second place, I think the reader will agree with me,that the increased charge, if admitted, would not fall exclusively“on the landlords and the industrious classes of society:” thestockholder, by his expenditure, contributes his share to thesupport of the public burdens in the same way as the otherclasses of society. If, then, money became really more valuable,although he would receive a greater value, he would also pay agreater value in taxes, and, therefore, it cannot be true that thewhole addition to the real value of the interest would be paidby “the landlords and the industrious classes.”

The whole argument, however, of Mr. Malthus, is built onan infirm basis: it supposes, because the gross income of thecountry is diminished, that, therefore, the net income must alsobe diminished, in the same proportion. It has been one of theobjects of this work to shew, that with every fall in the real valueof necessaries, the wages of labour would fall, and that theprofits of stock would rise—in other words, that of any givenannual value a less portion would be paid to the labouring class,and a larger portion to those whose funds employed this class.Suppose the value of the commodities produced in a particular

* Mr. Malthus, in another part of the same work,4 supposes com-modities to vary 25 or 20 per cent. when corn varies 33 .1�

3

Mr. Malthus’s Opinions on Rentch. xxxii 421

manufacture to be 1000l., and to be divided between the masterand his labourers, in the proportion of 800l. to labourers, and200l. to the master; if the value of these commodities should fallto 900l., and 100l. be saved from the wages of labour, in conse-quence of the fall of necessaries, the net income of the masterswould be in no degree impaired, and, therefore, he could withjust as much facility pay the same amount of taxes, after, as be-fore the reduction of price.*2

It is of importance to distinguish clearly between grossrevenue and net revenue, for it is from the net revenue of asociety that all taxes must be paid. Suppose that all the com-modities in the country, all the corn, raw produce, manufac-tured goods, &c. which could be brought to market in the

* Of net produce and gross produce, M. Say speaks as follows: “Thewhole value produced is the gross produce; this value, after deductingfrom it the cost of production, is the net produce.” Vol. II. p. 491. Therecan then be no net produce, because the cost of production, according toM. Say, consists of rent, wages, and profits. In page 508, he says, “Thevalue of a product, the value of a productive service, the value of the costof production, are all then similar values, whenever things are left to theirnatural course.” Take a whole from a whole, and nothing remains.1

1 The references are to Say’s 4thed., 1819. Eds. 1–2 in place of thisnote have the following one: ‘InChap. XXVI. I have observed, thatthe real resources of a country, andits ability to pay taxes, depend on itsnet, and not on its gross income.’Ed. 1 reads ‘Chap. 24.’ in place of‘Chap. XXVI.’, but in either casethe reference is to the chapter ‘OnGross and Net Revenue’.2 In place of the five paragraphsthat follow in the text, ending onp. 425, ed. 1 and (unless otherwisestated) ed. 2 read: ‘And that wageswould fall as much as the mass ofcommodities, or rather that the net

income remaining to landlords,farmers, manufacturers, traders, andstockholders, the only real payersof taxes, would be as great as be-fore, is very highly probable; fornothing would be even nominallylost to the society by the freest im-portation of corn, but that portionof rent of which the landlordswould be deprived in consequenceof the fall of raw produce.

‘The difference between the valueof corn and all other commoditiessold in the country, before and afterthe importation of cheap corn,would be only equal to the fall ofrent; because, independently of rent,

422 Principles ch. xxxii

course of the year, were of the value of 20 millions, and that inorder to obtain this value, the labour of a certain number of menwas necessary, and that the absolute necessaries of these labourersrequired an expenditure of 10 millions. I should say that thegross revenue of such society was 20 millions, and its netrevenue 10 millions. It does not follow from this supposition,that the labourers should receive only 10 millions for theirlabour; they might receive 12, 14, or 15 millions, and in thatcase they would have 2, 4, or 5 millions of the net income. Therest would be divided between landlords and capitalists; but thewhole net income would not exceed 10 millions. Suppose sucha society paid 2 millions in taxes, its net income would be re-duced to 8 millions.

Suppose now money to become more valuable by one-tenth,all commodities would fall, and the price of labour would fall,because the absolute necessaries of the labourer formed a partof those commodities, consequently the gross income would bereduced to 18 millions, and the net income to 9 millions. If the

the same quantity of labour wouldalways produce the same value.

‘The whole reduction which ismade in wages, is a value actuallyadded to the value of the net incomebefore possessed by the society;whilst the only value which is takenfrom that net income is the value ofthat part of their rent of which thelandlords will be deprived by a fallof raw produce. When we considerthat the fall of produce acts upon alimited number of landlords [Ed. 2‘upon landlords only’], while it re-duces the wages not only of thosewho are employed in agriculture,but of all those who are occupied inmanufactures and commerce, it maywell be doubted, whether the net

revenue of the society would sufferany abatement whatever. [Footnote:‘This is on the supposition thatmoney continued at the same value.In the last note, I have endeavouredto shew that money would not con-tinue of the same value,—that itwould fall, from increased importa-tion; a fact which is much morefavourable to my argument.’]

‘But, if it did, it must not be sup-posed that the ability to pay taxeswill diminish in the same degree, asthe money value, even of the netrevenue. Suppose that my netrevenue were diminished from1000l. to 900l.; but that my taxescontinued to be the same, to be100l.: is it not probable that my

Mr. Malthus’s Opinions on Rentch. xxxii 423

taxes fell in the same proportion, and, instead of 2 millions,1,800,000l. only were raised, the net income would be furtherreduced to 7,200,000l., precisely of the same value as the8 millions were before, and therefore the society would neitherbe losers nor gainers by such an event. But suppose that afterthe rise of money, 2 millions were raised for taxes as before, thesociety would be poorer by 200,000l. per annum, their taxeswould be really raised one-ninth. To alter the money value ofcommodities, by altering the value of money, and yet to raisethe same money amount by taxes, is then undoubtedly to in-crease the burthens of society.

But suppose of the 10 millions net revenue, the landlords re-ceived five millions as rent, and that by facility of production,or by the importation of corn, the necessary cost of that articlein labour was reduced 1 million, rent would fall 1 million, andthe prices of the mass of commodities would also fall to thesame amount, but the net revenue would be just as great as be-fore; the gross income would, it is true, be only 19 millions,

ability to pay this 100l. may begreater with the smaller than withthe larger revenue? Commoditiescannot fall so universally as Mr.Malthus supposes, without greatlybenefiting the consumers, withoutenabling them with a much smallermoney revenue to command moreof the conveniences, necessaries,and luxuries of human life; and thequestion resolves itself into this—whether those who are in possessionof the net revenue of the countrywill be benefited as much by thediminished price of commodities,as they will suffer by the greaterreal taxation. On which side thebalance may preponderate, will de-pend on the proportion which taxes

bear to the annual revenue; if it beenormously large, it may undoubt-edly more than counterbalance theadvantages from cheap necessaries;but I trust enough has been said, toshew, that Mr. Malthus has verygreatly over-rated the loss to thetax-payers, from a fall in one of themost important necessaries of life;and that if they were not entirelyremunerated for the real increase oftaxes, by the fall of wages and in-crease of profits, they would bemore than compensated, by thecheaper price of all objects onwhich their incomes were ex-pended.’

424 Principles ch. xxxii

and the necessary expenditure to obtain it 9 millions, but thenet income would be 10 millions. Now suppose 2 millionsraised in taxes on this diminished gross income, would thesociety altogether be richer or poorer? Richer, certainly; forafter the payment of their taxes, they would have, as before, aclear income of 8 millions to bestow on the purchase of com-modities, which had increased in quantity, and fallen in price,in the proportion of 20 to 19; not only then could the sametaxation be endured, but greater, and yet the mass of the peoplebe better provided with conveniences and necessaries.

If the net income of the society, after paying the same moneytaxation, be as great as before, and the class of landholders lose1 million from a fall of rent, the other productive classes musthave increased money incomes, notwithstanding the fall ofprices. The capitalist will then be doubly benefited; the cornand butcher’s meat consumed by himself and his family will bereduced in price; and the wages of his menial servants, of hisgardeners, and labourers of all descriptions, will be also lowered.His horses and cattle will cost less, and be supported at a lessexpense. All the commodities in which raw produce enters as aprincipal part of their value, will fall. This aggregate amount ofsavings, made on the expenditure of income, at the same timethat his money income is increased, will then be doubly bene-ficial to him, and will enable him not only to add to his enjoy-ments, but to bear additional taxes, if they should be required:his additional consumption of taxed commodities will muchmore than make up for the diminished demand of landlords,consequent on the reduction of their rents. The same observa-tions apply to farmers and traders of every description.

But it may be said, that the capitalist’s income will not be in-creased; that the million deducted from the landlord’s rent, willbe paid in additional wages to labourers! Be it so; this will make

Mr. Malthus’s Opinions on Rentch. xxxii 425

1 Here end the five paragraphs not contained in eds. 1–2; see above,p. 421, n. 2.

no difference in the argument: the situation of the society willbe improved, and they will be able to bear the same moneyburthens with greater facility than before; it will only provewhat is still more desirable, that the situation of another class,and by far the most important class in society, is the one whichis chiefly benefited by the new distribution. All that they receivemore than 9 millions, forms part of the net income of thecountry, and it cannot be expended without adding to itsrevenue, its happiness, or its power. Distribute then the net in-come as you please. Give a little more to one class, and a littleless to another, yet you do not thereby diminish it; a greateramount of commodities will be still produced with the samelabour, although the amount of the gross money value of suchcommodities will be diminished; but the net money income ofthe country, that fund from which taxes are paid and enjoy-ments procured, would be much more adequate, than before,to maintain the actual population, to afford it enjoyments andluxuries, and to support any given amount of taxation.1

That the stockholder is benefited by a great fall in the valueof corn, cannot be doubted; but if no one else be injured, thatis no reason why corn should be made dear: for the gains of thestockholder are national gains, and increase, as all other gainsdo, the real wealth and power of the country. If they are un-justly benefited, let the degree in which they are so, be accuratelyascertained, and then it is for the legislature to devise a remedy;but no policy can be more unwise than to shut ourselves outfrom the great advantages arising from cheap corn, and abun-dant productions, merely because the stockholder would havean undue proportion of the increase.

To regulate the dividends on stock by the money value of

426 Principles ch. xxxii

1 J. R. McCulloch, An Essay on theQuestion of Reducing the Interest onthe National Debt; in which theJustice and Expediency of that Mea-sure are fully established, Edinburgh,Brown and Black, 1816. Subse-

quently McCulloch repudiated andsuppressed this publication; and inreprinting the Principles in hisedition of Ricardo’s Works, 1846,omitted this revealing footnote.See below, VII, 93, n. 2.

corn, has never yet been attempted. If justice and good faithrequired such a regulation, a great debt is due to the old stock-holders; for they have been receiving the same money dividendsfor more than a century, although corn has, perhaps, beendoubled or trebled in price.*

But it is a great mistake to suppose, that the situation of thestockholder will be more improved than that of the farmer, themanufacturer, and the other capitalists of the country; it will,in fact, be less improved.

The stockholder will undoubtedly receive the same moneydividend, while not only the price of raw produce, and labourfell, but the prices of many other things into which raw produceentered as a component part. This, however, is an advantage,as I have just stated, which he would enjoy in common with allother persons who had the same money incomes to expend:—his money income would not be increased; that of the farmer,manufacturer and other employers of labour would, and conse-quently they would be doubly benefited.

It may be said, that although it may be true that capitalistswould be benefited by a rise of profits, in consequence of a fallof wages, yet that their incomes would be diminished by the fallin the money value of their commodities. What is to lowerthem? Not any alteration in the value of money, for nothinghas been supposed to occur to alter the value of money. Not

* Mr. McCulloch, in an able publication, has very strongly contendedfor the justice of making the dividends on the national debt conform to thereduced value of corn. He is in favour of a free trade in corn, but he thinksit should be accompanied by a reduction of interest to the national creditor.1

Mr. Malthus’s Opinions on Rentch. xxxii 427

1 Eds. 1–2 do not contain the lastthree paragraphs beginning ‘Butit is’.

2 Eds. 1–2 do not contain thisparagraph; but for ed. 2 cp. be-low, p. 429, n. 1.

any diminution in the quantity of labour necessary to producetheir commodities, for no such cause has operated, and if it didoperate, would not lower money profits, though it might lowermoney prices. But the raw produce of which commodities aremade, is supposed to have fallen in price, and, therefore, com-modities will fall on that account. True, they will fall, but theirfall will not be attended with any diminution in the money in-come of the producer. If he sell his commodity for less money,it is only because one of the materials from which it is made hasfallen in value. If the clothier sell his cloth for 900l. instead of1000l., his income will not be less, if the wool from which it ismade, has declined 100l. in value.1

Mr. Malthus says, “It is true, that the last additions to theagricultural produce of an improving country, are not attendedwith a large proportion of rent; and it is precisely this circum-stance that may make it answer to a rich country to import someof its corn, if it can be secure of obtaining an equable supply.But in all cases the importation of foreign corn must fail toanswer nationally, if it is not so much cheaper than the corn thatcan be grown at home, as to equal both the profits and the rentof the grain which it displaces.” Grounds, &c. p. 36.

In this observation Mr. Malthus is quite correct; but im-ported corn must be always so much cheaper than the corn thatcan be grown at home, “as to equal both the profits and the rentof the grain which it displaces.” If it were not, no advantage toany one could be obtained by importing it.2

As rent is the effect of the high price of corn, the loss of rentis the effect of a low price. Foreign corn never enters into com-petition with such home corn as affords a rent; the fall of price

428 Principles ch. xxxii

1 Ed. 1 does not contain ‘whichcost 1200l.’

2 Ed. 2 does not contain ‘exceeds’.

invariably affects the landlord till the whole of his rent is ab-sorbed;—if it fall still more, the price will not afford even thecommon profits of stock; capital will then quit the land forsome other employment, and the corn, which was before grownupon it, will then, and not till then, be imported. From the lossof rent, there will be a loss of value, of estimated money value,but, there will be a gain of wealth. The amount of the raw pro-duce and other productions together will be increased; from thegreater facility with which they are produced, they will, thoughaugmented in quantity, be diminished in value.

Two men employ equal capitals—one in agriculture, theother in manufactures. That in agriculture produces a netannual value of 1200l. of which 1000l. is retained for profit, and200l. is paid for rent; the other in manufactures produces onlyan annual value of 1000l. Suppose that by importation, the samequantity of corn which cost 1200l.1 can be obtained for com-modities which cost 950l., and that, in consequence, the capitalemployed in agriculture is diverted to manufactures, where itcan produce a value of 1000l., the net revenue of the countrywill be of less value, it will be reduced from 2200l. to 2000l.;but there will not only be the same quantity of commodities andcorn for its own consumption, but also as much addition to thatquantity as 50l. would purchase, the difference between thevalue at which its manufactures were sold to the foreign country,and the value of the corn which was purchased from it.

Now this is precisely the question respecting the advantageof importing, or growing corn; it never can be imported till thequantity obtained from abroad by the employment of a givencapital exceeds the quantity which the same capital will enableus to grow at home,—exceeds 2 not only that quantity which

Mr. Malthus’s Opinions on Rentch. xxxii 429

1 Ed. 1 does not contain this para-graph. In ed. 2 it has an additionalsentence at the end: ‘Mr. Malthusmay be quite sure therefore that noimportation of foreign corn willever take place “if it is not so muchcheaper than the corn that can begrown at home, as to equal boththe profits and the rent of the grainwhich it displaces.”’ The quotationis from Grounds of an Opinion,pp. 35–6.

2 Grounds of an Opinion, p. 35.For the reference to Adam Smith,see above, p. 76.3 Since the present edition firstappeared Mr Oswald St. Clair haspointed out that some copies ofed. 3 contain the alternative reading,‘variously’. This is clearly a cor-rection intended to avoid the verbalrepetition, and must have been madeby Ricardo while the printing of thelast sheet was in progress.

falls to the share of the farmer, but also that which is paid asrent to the landlord.1

Mr. Malthus says, “It has been justly observed by AdamSmith, that no equal quantity of productive labour employedin manufactures can ever occasion so great a reproduction as inagriculture.”2 If Adam Smith speaks of value, he is correct; butif he speaks of riches, which is the important point, he is mis-taken; for he has himself defined riches to consist of the neces-saries, conveniences, and enjoyments of human life. One set ofnecessaries and conveniences admits of no comparison withanother set; value in use cannot be measured by any knownstandard; it is differently3 estimated by different persons.

[NOTE TO THE INDEX

This is Ricardo’s original index.Entries and page references which occur in the index of only one,

or two, of the three original editions, are enclosed in square brackets;and the editions in which they occur are indicated by the superiorfigures1, 2, 3.

Undoubted errors in the page references have been corrected.Differences between the indexes of the various editions do not

necessarily imply that there are corresponding differences betweenthe texts.]

INDEX

AACCUMULATION of capital, effects of, [on the relative value of

commodities, 22–25, 52–63. And]1,2 on profits and interest, 289–300.Agriculture, effects of improvements in, on rents, 73–83. [Importance of

them, 81, note.]3 Is affected by the distress proceeding from suddenrevulsions of trade, 266–272. Agricultural improvements, no cause ofthe increase of rent, 412, 413.

BBanks, establishment of, affects the sole power of the state in coining

money, 354. Consequence of the Bank of England issuing too great aquantity of paper, 354–356. [That corporation can only be preventedfrom abusing its power of issuing paper money, by compelling it topay its notes either in gold coin or bullion, 356–361.]2,3 The assistancegiven by the Bank of England to commerce, accounted for, 364, 365.See Paper Currency.

Bounties, on the exportation of corn, lower its price to the foreign con-sumer, 301–306. Effects of a bounty in raising the price of corn,illustrated, 307. Though such bounty may cause a partial degradationin the value of money, yet such degradation cannot be permanent,310–311. Bounties on the exportation of manufactures raise theirmarket but not their natural price, 312–314. The sole effect of bountyis to divert a portion of capital to an employment which it would notnaturally seek, 314. Evils of such a system, 314–318. A bounty onthe production of corn, will produce no real effect on the annual pro-duce of the land and labour of the country, though it would makecorn relatively cheap, and manufactures relatively dear, 321–325. Butthe effect of a tax on corn, in order to afford a fund for a bounty onthe production of commodities, would be to enhance the price of corn,and render commodities cheap, 325, 326.

Buchanan (Mr.), observations of, on Adam Smith’s doctrine of productiveand unproductive labour, 76–77, note. [His examination of Smith’sopinion concerning taxes upon the wages of labour, 216, 217. Remarksthereon, 217–235.]3 Remarks on his opinions respecting bounties onexportation, 315, 316.

CCapital, [nature of, effects of the accumulation of, on the relative value of

commodities investigated, 23.]1,2 Effects of, in a savage or infant state

432 Principles

of society, 22–24 [26–28]3 [53]1,2. And in a more advanced state ofsociety, 24, 25. The relative values of circulating and fixed capitals con-sidered, [31–33]3 [52, 53]1,2. [Effects of employing machinery and otherdurable and fixed capital, 33–39. The unequal durability of capital, andthe unequal rapidity with which it is returned to its employer, modifiesthe principle, that value does not vary with the rise or fall of wages,39–43. In what cases capital creates rent, 71–72.]3 The distinction be-tween circulating and fixed capitals difficult to be strictly defined, 150.[Impolicy of taxes on capital, 150–152. Governments ought to en-courage their people in a disposition to increase their capitals, 153.]3

Considerations on the different modes of employing it, 88–91. Theincrease of capital in quantity and value, productive of a rise in thenatural price of wages, 95, 96. Increase of capital in quantity only,productive of a rise in the market price of wages, ibid. [Impolicy oftaxes on the transfer of capital, 154, 155. Effects of a tax on the profitsof capital, 212, 213.]3 Effects of the accumulation of capital on profitsand interest, 289–300. The sole effect of bounties on exportation, uponcapital, is to divert a portion of it to an employment which it would notnaturally seek, 314. Remarks on such effect, 315–317. [The increaseof circulating not of fixed capital, regulates the demand for labour, 395,396.]3 The profits made by the employment of capital, regulate the rateof interest for money, 363, 364.

Carrying trade, observations on, 294, 295.[Changes, sudden, in the channels of trade, considered, 263–272.]3

Circulation of money can never overflow, and why, 352, 353. Circulationof paper, see Paper Currency.

Colonial Trade, observations on, 338. Proofs, that trade with a colony maybe so regulated as to be less beneficial to the colony, and more beneficialto the mother country, than a perfectly free trade, 339–343. Benefits ofa colonial trade, 343–346.

Commodities, gold and silver an insufficient medium for determining thevarying value of, 14, 15. Corn, an inadequate standard of the value of,[16, 17]1,2 [19, 20]3. [The effects of an accumulation of capital on therelative value of commodities, considered, 22–25, 52–63.]1,2 [Thedifferent rewards of labour of different qualities, no cause of variation inthe relative value of commodities, 20–22. The value of commodities isaffected not only by the labour applied immediately to them, but alsoby the labour bestowed upon the implements, &c. with which suchlabour is assisted, 22–30.]3 Effects of a rise in wages on their value,[48, 49]3 [64]1,2, and of the payment of rent, [49, 50]3 [64, 65]1,2. Theirexchangeable value regulated by the greater quantity of labour be-stowed on their production by those who labour under the mostunfavourable circumstances, 73. The prices of commodities not neces-sarily increased by a rise in the price of labour, 104, 105. The cost of

Index 433

production regulates the price of commodities, [382,]1,2 [397,]3 410,414, 415. [Monopolized commodities vary in value, and why, 385.]3

[Consumers pay the tax on raw produce, not the grower, 157, 158.]3

Corn, a variable standard for determining the varying value of things,14–17. Effects of the price of, on rent, 77–79. Corn-rents materiallyaffected by tithes, 177. [And also by taxes on raw produce, 157, 158.Effect of an increasing demand of corn, on its price, 162–164.]3

Advantage resulting from the relative low price of corn, 270. Bountieson the exportation of it, lower its price to the foreign consumer, 301–307. Effects of a bounty in raising the price of corn, 307. [Effectsof a prohibition of the importation of corn considered, 312–314.]2,3 Abounty on the production of, productive of no real effect on theannual produce of the land and labour of the country, 321–325. Theprice of corn enhanced by a tax on it, in order to afford a fund for abounty on the production of commodities, 325–326. Benefit of a highprice of corn to landlords, 337. Investigation of the comparative valueof corn, gold, and labour in rich and in poor countries, 373–378. Theproduction of corn encouraged by alteration in its market price, 415,416. A fall in the value of corn beneficial to the stock-holder, 425, 426.[Statement of the question relative to the importing or exporting ofcorn, 428.]3

Cultivation, not discouraged by a tax on land and its produce, 184, 185.Currency. See Gold and Silver, Paper Currency.

DDemand and supply, influence of, on prices, considered, 382. Opinion

of M. Say on this subject, 383. And of the Earl of Lauderdale, 384.Observations thereon, 385. [The demand for labour regulated by theincrease of circulating, not of fixed capital, 395, note.]3

EEconomy in labour, reduces the relative value of commodities, 25, 26.

Illustration of this principle, [26–29]3 [52–63]1,2.[Edinburgh Reviewers’ mistake, on the influence of the price of labour on

manufactured commodities, considered, 302–304.]3

Exchange, no criterion of the increased value of money, 146. [Utilityessential to exchangeable value, 11.]3 To be ascertained by estimatingthe value of the currency in the currency of another country, 147, andalso by comparing it with some standard common to both countries,147–149. Effects of paper currency on exchange, 230–232.

Exportation of corn, bounties on, lower its price to the foreign consumer,301–307. Effects of, in raising the price of corn, illustrated, 307.Bounties on the exportation of manufactures raise the market, but notthe natural, price of these, 312–314.

434 Principles

FFarmers pay more poor-rate than the manufacturers, 260–261. [Benefit of

taxing only their profits, 212, 213.]3

Foreign Trade, effects of an extension of, 128. Proofs that the profits ofthe favoured trade will speedily subside to the general level, 129–133.

[Freedom of Trade, importance of, to Great Britain, 317, 318, and note,319.]3

Funded Property, the price of, no steady criterion by which to judge of therate of interest, 298, 299. [The holder of, how far benefited by a greatfall in the price of corn, 425–427.]3

GGold, and silver, an insufficient medium for determining the variable value

of commodities, 14, 15. But, upon the whole, the least inconvenientstandard for money, 86, 87. On whom a tax upon gold would ultimatelyfall, 192, 193. The value of gold ultimately regulated by the comparativefacility or difficulty of producing it, 193. Effects of a tax upon gold,194–200. [Evils of prohibiting a free trade in the precious metals, whenthe prices of commodities are raised, 229, 230.]1,2 The value of goldand silver proportioned to the quantity of labour necessary to producethem and bring them to market, 352. Remarks on the employment ofthese metals in currency, 366. Their relative values at different periods,accounted for, 368–372. Investigation of the comparative value of gold,corn, and labour, in rich and in poor countries, 373–378.

Gross Revenue, advantages of, over-rated by Adam Smith, 347. And byM. Say, ibid. note. Examination of this doctrine, 347–351. A diminutionof gross income, no diminution of net income, 419–421.

HHolland, low rate of interest in, accounted for, 290, note.Houses, rents of, distinguished into two parts, 201, 202. Difference be-

tween rent of houses and that of land, 202. Taxes on houses by whomultimately borne, 203.

IImportation of corn, effects of a prohibition of, considered, 313.[Improvements in agriculture, effects of, on rents, 79–82. Their importance,

81, note. Effect of improvements in manufactures, in the distributionof the precious metals, 137–141.]3

Interest, low rate of, in Holland, accounted for, 290, note. Effects ofaccumulation on profits and interest, 289–296. Observations on therates of interest, 297–300. The interest for money is regulated by therate of profits which can be made by the employment of capital, 363–364.

Index 435

LLabour, [the demand for, depends on the increase of circulating not of

fixed capital, 395, note.]3 The quantity of, requisite to obtain com-modities, the principal source of their exchangeable value, 12, 13.Effects of machinery on, considered, 16, 17. [Labour of differentqualities, differently rewarded, 20. This no cause of variation in therelative value of commodities, 21, 22.]3 Economy in labour reducesthe relative value of a commodity, 25, 26. Illustrations of this principle,[26–29]3 [52–63]1,2. [The principle, that the quantity of labour be-stowed on the production of commodities, regulates their relative value,is considerably modified by the employment of machinery, and otherfixed and durable capital, 30–39.]3 Adam Smith’s theory of productiveand unproductive labour, considered, 76–77, notes. Natural price of,explained, 93. Market price of, what, 94. Its influence on the happinessof the labourer, 94. [Influence of the supply and demand of labour onwages, 97–101. Taxation of wages and of labour considered, 215–242.]3

Investigation of the comparative value of labour, gold, and corn, in richand in poor countries, 373–378. [Machinery in what cases injurious tothe labourer, 388–392. Interest of the labouring classes, in the mannerin which the net income of the country is expended, 392–394.]3

Land, the division of the whole produce of, between landlords, capitalists,and labourers, is the criterion of rent, profits, and wages, 49–51. Itsdifferent productive qualities, a cause of rent, 69–71. Effects of in-creasing its productive powers by agricultural improvements, 79–82.[Adam Smith’s doctrine concerning the rent of land considered, 327–337.]3

Landlords, tithes injurious to, 179. Benefit of a high price of corn to them,337.

Land-tax, virtually a tax on rent, 181. Effects of an equal land-tax, im-posed indiscriminately on all land cultivated, 182, 183. Error of Dr.Adam Smith, on the inequality of land and all other taxes, accountedfor, 183, 184. Tax on land and its produce, no bar to cultivation, 184,185. Operation of the land-tax of Great Britain considered, 185.Mistake of M. Say corrected, 186–190.

Lauderdale (Earl of ), opinion of, on the influence of demand and supplyon prices, 384. Remarks thereon, 385. [Correction of his opinion onthe inability of the Bank to pay its notes in specie under the existingmint regulation, 371, note.]2,3

[Loans to the State, observations on, 244–248, 299, note.]3

Luxuries. [taxes on, fall only on those who make use of them, 205.]3

Observations on the taxing of, 233. Advantages and disadvantages oftaxing them, considered, 241, 242.

436 Principles

MMachinery, effects of, [in fixing the relative values of commodities,

58–63]1,2 [on labour, 16, 17. The author’s former mistaken views of,386–388. His present views substantiated by facts, that machineryis often injurious to the interests of labourers, 388–392. A qualifieduse of machinery vindicated, 395–397]3.

[Malt, observations on the tax upon, 252–254.]3

Malthus (Mr.), examination of the opinions of, on rent, 398–409. The realcost of production regulates the price of commodities, 410, 414, 415.Increase of population no cause of the rise of rent, 410, 411, nor agri-cultural improvements, 412. His supposition, that net income isdiminished, in proportion to a diminution of gross income, disproved,419–422. Loss of rent, the effect of a low price of corn, 427.

Manufactures, improvement of, in any country, tends to alter the distribu-tion of the precious metals among the nations of the world, 137–141.Manufacturers pay less poor-rate than farmers, 260, 261. The marketprice of manufactures, but not their natural price, raised by bounties ontheir exportation, 312, 313.

Mines, distinguished by their fertility or barrenness, 85, 86. Effect of dis-covering the rich mines of America on the price of the precious metals,86. [Effect of improvements in the working of them on the value ofmoney, 146.]3 Observations on the rent of mines, [85–87]3 [329–332].1,2

Money, effects of the rise of the value of, on the price of commodities,47–49. The rate of profit not affected by variations in the value of money,50, 51. Different value of money in different countries accounted for,141–143. The value of money, generally, diminished by improvementsin the facility of working the mines of the precious metals, 146. [A fallin the value of money, raises the price of provisions, 164–168.]3 Thedemand for, regulated by its value, and its value by its quantity, 193.Low value of, in Spain, prejudicial to the commerce and manufacturesof that country, 228. Observations on the rates of interest for money,297, 298 [, 363, 364]1,2. The value of, though partially degraded by abounty on corn, yet not permanently degraded, 310, 311. The quantityof, employed in a country, dependant upon its value, 352. Effects of thestate charging a seignorage on coining money, 353, 371, 372.

Monopoly price, observations on, 249–252. [Variation in value of mono-polized commodities accounted for, 385.]3

NNational Debt, observations on, 247–249.[Necessaries, tax on, a cause of the high price of provisions, 168–172.]3

Net Revenue, advantages of, unduly estimated by Adam Smith, 347, andby M. Say, ibid. note. Examination of their doctrines, 347–351. [The

Index 437

labouring classes have an interest in the manner in which the net incomeof the country is expended, 392–394.]3 Is not diminished by a pro-portionate diminution of gross revenue, 419–421.

PPaper Currency, circulation of, explained, 353. Paper-money not neces-

sarily payable in specie, to secure its value, 354. But the quantity issuedmust be regulated according to the value of the standard metal, 354.The Bank of England, why liable to be drained of specie for its papercurrency, 355, 356. Compelling the issuers of paper-money to pay theirnotes either in gold coin or bullion, is the only controul upon theirabusing their power of issuing such money, 356–359. Provided therewere perfect security against such abuse, it is immaterial [, in a nationalpoint of view,]3 by whom paper-money is issued, [361]2,3 [362]1.Illustration of this point, 362–366.

[Pitt (Mr.), observation of, on the poor laws, 107, note.]2,3.Poor-laws, pernicious tendency of, as they now exist, 106, 107, 109.

Remedies for, 107, 108.Poor Rates, nature of, 257. How levied, 258, 259. More falls on the farmer

than on the manufacturer, in proportion to their respective profits,259–261.

Population, increase of, no cause of the rise of rent, 410, 411.Price (real) of things, distinguished, 12, 13. Natural and market prices

distinguished, and how governed, 88–92. [Particularly of labour, 93,94–96.]3 The prices of commodities not necessarily raised by a risein the price of labour, 104, 105. Rise of price of raw produce, the onlymeans by which the cultivator can pay the tax imposed thereon, 156.The market, but not the natural price of manufactures, raised bybounties on their exportation, 312–314. The influence of demand andsupply on prices, considered, 382–385. Alteration in the market priceof corn, encourages its production, 414–416.

Produce of land, and labour of the country, must be divided betweencapitalists, landlords, and labourers, to afford a criterion of rent, profits,and wages, 49–51. [The rise of raw produce in comparative value,accounted for, 74. Rise in the price of raw produce, lowers profits, ifaccompanied by a rise in wages, 115.]3 Effect of taxes on raw produce,156. Tax on raw produce raises the price of wages, 159. Objectionsagainst taxing the produce of land, considered, [160–172]3 [160–175]1,2.Remarks on the inconveniences supposed to result from the pay-ment of taxes by the producer, 379–381.

Production, difficulty of, benefits the landlord, 83. The cost of production,the regulator of the price of commodities, 384, [397,]3 410, 415.

Profits of stock difficult to ascertain, 296. The quantity of labour necessaryto obtain the produce of land, is the criterion by which to estimate the

438 Principles

rate of profit, wages, and rent, 49–51. [Affected by the rise and fall ofprice, 88.]3 A rise in the price of corn, productive of a diminution inthe money value of the farmer’s profits, 111–114. A rise in the price ofraw produce, if accompanied by a rise of wages, lowers the agriculturaland manufacturing profits, 115–118. Proofs, that profits depend on thequantity of labour requisite to provide necessaries for labourers, on thatland, or with that capital which yields no rent, 119–127. Effects of anextension of foreign trade on profits, 128. Proofs, that the profits of thefavoured trade will speedily subside to the general level, 129–132. Andso with respect to home trade, 133, 134. Further proofs that profits de-pend on real wages, 143, 144. Tax on necessaries virtually a tax onprofits, 205. Effects of a taxation of profits, considered, 205–214. Theprofits of stock diminished by a tax on wages, 215. Effects of accumula-tion on profits and interest, 289–300.

Prohibition of importation of corn, effects of, considered, 313, 314.[Property, transfers of, impeded by the existing stamp duties, 153–155.]3

Provisions, causes of the high prices of, 161. First, a deficient supply, 162.Secondly, a gradually increasing demand, ultimately attended with anincreased cost of production, 162–164. Thirdly, a fall in the value ofmoney, 164, 165. Fourthly, a tax on necessaries, 166.

RRent, nature of, 67–69, [261, note]1,2. Adam Smith’s doctrine of rents

considered, 67, 68. The different productive qualities of land and in-crease of population, the cause of rents, 69–72. Rise of, the effect of theincreasing wealth of a country, 77. Influence of the prices of corn onrent, 77, 78. Effects of agricultural improvements on rent, 79–83.Observations on the rent of mines, 85–87. [Falls on the consumer, butnever on the farmer, 114.]3 Tax on rent falls wholly on the landlords,[172–175]1 [173–175]2 [173]3. [And discourages cultivation, 173–175.]3 Corn-rents materially affected by tithes, 177. Examination ofDr. Adam Smith’s doctrine concerning the rent of land, 327–337. Andof Mr. Malthus’s opinions on rent, 398–409. Increase of population isno cause of the rise of rent, 410, 411. Neither are agricultural improve-ments, 412, 413. Loss of rent, the effect of a low price of corn, 427.

[Revenue, gross and net, nature of, 347–351.]2,3

Riches defined, 273. Difference between value and riches, 273–278. Meansof increasing the riches of a country, 278–279. Erroneous views ofM. Say on this subject considered, 279–288.

SSay (M.), [contradictory opinions of, on the regulation of price, by the

cost of production, 73, 74, note. His just remarks on the impolicy of

Index 439

taxes, on the transfer of property, 155. Correction of his opinion oncredit, 249, note.]3 Erroneous views of, concerning the principles of theland-tax in Great Britain, corrected, 186–188. Examination of some ofhis principles of taxation, 236–242 [, 243, note]1,2. Remarks on his mis-taken view of [the high duty on cotton, 238, note. Of]3 value and riches,280–288. [Remark of, on loans, 299, 300, note.]3 Examination of hisdoctrine concerning bounties on exportation, 318–320. [And gross andnet revenue, 347–351.]1,3 [Danger resulting from his recommendationrespecting the charging of seignorage for coining money, 372, note.]1

Observations on his statement of the inconveniences resulting frompayment of taxes by the producer, 379–380. His opinion on the influenceof demand and supply of prices, considered, 383. [Is mistaken in hisview of the author’s doctrine of rent, 413, note.]2 [Is mistaken in hisview of the subject of gross and net produce, 421, note.]3

Scarcity, a source of exchangeable value, 12.Seignorage, effects of, on the value of money, 353, 371, 372.Simonde (M.), remarks on the opinion of, concerning the inconveniences

resulting from the payment of taxes by the producer, 380, 381.Silver. See Gold and Silver.Sinking fund, in England, merely nominal, 248, 249. How conducted,

362, 363.Smith (Dr. Adam), on the meaning of the term value, 11. [M. Say’s ob-

servations on it considered, 285–287.]3 His doctrine that corn is aproper medium for fixing the varying value of other things, examined,14, 15. Strictures on his doctrine relative to labour being the soleultimate standard of the exchangeable value of commodities, 16, 17,[20, 21, note],3 [416]1,2. And on his definition of rent, 67, 68. Histheory of productive and unproductive labour considered, 76, 77, note.[His objections to taxes on the transfer of property, 153, 154.]3 Correc-tion of his erroneous view of the inequality of taxes on land, and allother taxes, 183, 184. His opinion on the taxes upon the wages oflabour, 215. Examination thereof by Mr. Buchanan, 216–219. Observa-tions thereon by the author of this work, 219–228. Correction of hismistaken view of taxes upon luxuries, 233–235. [His description ofriches, 273. Remarks thereon, 277–279. And on his opinion, that thefall of profits is produced by accumulation of capital and by the comp-etition resulting from it, 289–296.]3 Remarks on his doctrine con-cerning bounties on exportation, 304–314. Examination of his doctrineconcerning the rent of land, 327–337. [And of colonial trade, 338–346.]3

And on gross and net revenue, 347–351. Strictures on his principles ofpaper currency, 354–356. His statement respecting the advantages ofthe Scottish mode of affording accommodation to trade, disproved,365, 366. Remarks on his doctrine relative to the comparative value ofgold, corn, and labour, in rich and in poor countries, 373–378.

440 Principles

Spain, commerce and manufactures of, injured by the low value ofmoney there, 228.

Stamp-duty, weight of, a bar to the transfer of property, [153, 154]3

[204].1,2

[Standard, invariable, of value, 43–47.]3

[Stock-holders, how affected by a great fall in the price of corn, 425, 426.]3

[Supply and demand, influence of, on prices, 382. Opinions on this sub-ject of M. Say, 383. And of the Earl of Lauderdale, 384. Stricturesthereon, 385.]3

TTaxes, nature of, explained, 150. Impolicy of taxes on capital, [151, 152]3

[153]1,2. Taxes upon the transfer of property, 153, 154. On whom theseveral kinds of taxes principally fall, 154. [Objections to taxes on thetransference of property, 154, 155.]1,2 Effect of taxes on raw produce,156. A rise of price in raw produce the only means by which thecultivator can pay the tax, 156. Such tax in fact paid by the consumer,157–159. Tax on raw produce and on the necessaries of the labourer,raises the price of wages, 159. Objections against the taxation of theproduce of land considered and refuted, [160–172]3 [160–175]1,2. [Taxon rent falls entirely on the landlords, 173. And discourages culti-vation, 173–175.]3 Tithes, an equal tax, 176. Difference between themand a tax on raw produce, 176, 177. Objections to them, 177–180. Taxon land, virtually a tax on rent, 181. They ought to be clear and certain,182. [Errors of Adam Smith, on this subject, corrected, 183, 184. Andalso of M. Say, 186–190.]3 Effects of taxes on gold considered, 191–200.Ground rents, not a fair subject of taxation, 203, 204. Taxes on houses,by whom ultimately borne, 203. Taxes on necessaries, virtually a tax onprofits, 205. Effects of taxation of profits considered, 205–214. [Effectsof taxes upon wages, 215–242.]3 Taxes upon luxuries, [205]3 [233]1,2.Advantages and disadvantages of, 241, 242. [Supposed absurdities intaxation explained and obviated, 233, 234.]1,2 Proper objects of taxa-tion, 240. Observations on the taxation of other commodities than rawproduce, 243. Effect of taxes to defray the interest of loans, 244–246.Remarks on the tax upon malt, and every other tax on raw produce, 252–256. Nature and operation of the poor-rate, 257–261. Examination ofthe inconveniences supposed to be sustained by the payment of taxesby the producer, 379–381.

Tithes, nature of, 176. Are an equal tax, ibid. Difference between tithesand a tax on raw produce, 176, 177. Tithes materially affect corn rents,177. They act as a bounty on importation, and therefore are injuriousto landlords, 179. Do not discourage cultivation, 184.

Trade, general causes of sudden changes in the channels of, 263, 264.More particularly the commencement of war after a long peace, or vice

Index 441

versa, 265. The effects of such revulsions on agriculture, considered,266–272. Observations on the carrying trade, 294. [Importance of afree trade, 318. Observations on colonial trade, 338–346.]3 SeeForeign Trade.

UUtility, essential to exchangeable value, 11.

VValue, definition of, 11. The distinctive properties of value and riches con-

sidered, 273–288. See Labour. Utility essential to exchangeable value,11. Scarcity, one source of such value, 12. The quantity of labour re-quired to obtain commodities, the principal source of their exchange-able value, 12–22. The effects of accumulation of capital on relativevalue, [22–30]3 [22–25, 52–63]1,2. [The principle, that the quantity oflabour bestowed upon the production of commodities regulates theirrelative value, considerably modified by the employment of machineryand other fixed and durable capital, 30–39. The principle, that valuedoes not vary with the rise or fall of wages, is also modified by theunequal durability of capital, and by the unequal rapidity with which itis returned to its employer, 39–43. An invariable measure of valueconsidered, 43–47.]3 Effects of a rise in wages on relative value, [39–40]3

[64]1,2. Effects of payment of rent on value, [64, 65]1,2 [67]3.Variations in the value of money make no difference in the rate of pro-fits, [50, 51]3 [65]1,2. [The value of money how affected by the im-provements in the working of mines, 146, 147.]3 The value of gold andsilver is in proportion to the labour necessary to produce and bring themto market, 352. Investigation of the comparative value of gold, corn,and labour, in rich and in poor countries, 373–378.

WWages, effects of a rise in, on relative value, [29–39, 43–48]3 [54–58,

64]1,2 [66]1. Natural and market prices of labour, 93–95. Increase ofcapital in quantity and value, increases the natural price of wages, 95.Increase of capital, but not in the value, augments the market price ofwages, 96. [Influence of the supply and demand of labourers on wages,97–100.]3 Proofs that the increasing difficulty of providing an addi-tional quantity of food with the same proportional quantity of labour,will raise wages, 97–102. A rise in wages not necessarily productive ofcomfort to the labourer, 102–104. [Wages ought* to be controlled bythe legislature, 105.]3 A rise of wages not necessarily productive of a

* [‘never’ is omitted here, by a mistake, as is shown by the text,p. 105, line 4 from bottom.]

442 Principles

rise in the prices of commodities, 105 [, 214–217]1,2. Wages will beraised by a tax on necessaries, [159]3 [205]1,2. And by a tax on wages,215. [Impolicy of regulating money wages by the price of food, 162.]3

Effects of a tax upon wages, considered, [222–228]1,2 [215–242]3.Wealth, causes of the increase of, 77.

TABLE OF CORRESPONDING PAGESfor Ricardo’s Principles in Editions 1 (1817) & 3 (1821),

McCulloch’s edition (in Works, 1846 etc.),Gonner’s edition (1891 etc.),

and the present edition.

iii–iv v–vi 5 1–2 5 — 38–40 26–7 34–5 41iv–vi vi–viii 5–6 2 6 — 40–1 27 35 42vi viii 6 2–3 7 — 41–2 27–8 35–6 43

— ix–x 3 3–4 8 — 42–3 28–9 36–7 44vii–viii xi–xii vii–ix v–xiv 9 — 43–4 29 37–8 45

viii xii ix–x xiv–xvii 10 — 44–6 29–30 38–9 461–2 1–2 9 5–6 11 — 46–7 30 39–40 472–4 2–3 9–10 6–7 12 — 47–8 30–1 40–1 484–6 3–5 10–11 7–8 13 — 48–50 31–2 41–2 496–7 5–6 11 8–9 14 — 50–1 32 42–3 507–9 6–7 11–12 9–10 15 — 51–2 32–3 43 519–11 7–9 12 10–11 16 21–2 — — — 52

11–12 9 12–13 11–12 17 22–4 — — — 53— 9–11 13 12–13 18 24–7 — — — 54— 11–12 13–14 13–14 19 27–9 — — — 55

12 12–13 14–15 14–15 20 29–31 — — — 5613–14 13–15 15 15–16 21 31–3 — — — 5714–16 15–16 15–16 16–17 22 33–4 — — — 5816–17 16–17 16 17–18 23 34–6 — — — 5917–19 17–18 16–17 18–19 24 36–8 — — — 6019–21 18–19 17–18 19–20 25 38–9 — — — 61

— 19–21 18 20 26 39–41 — — — 62— 21–2 18–19 20–1 27 41–3 — — — 63— 22–3 19 21–2 28 43–5 — — — 64— 23–5 19–20 22–3 29 45–7 — — — 65— 25–6 20 23–4 30 47–8 — — — 66— 26–7 20–1 24–5 31 49–50 53–4 34 44–5 67— 27–8 21–2 25–6 32 50–2 54–5 34–5 45–6 68— 28–30 22 26–7 33 52–3 55–6 35 46–7 69— 30–1 22–3 27–8 34 54–5 56–8 35–6 46–7 70— 31–2 23 28–9 35 55–7 58–9 36–7 47–8 71— 32–4 23–4 29–30 36 57–9 59–60 37 48–9 72— 34–5 24–5 30–1 37 59–60 60–2 37–8 50–1 73— 35–6 25 31–2 38 61–2 62–3 38–9 51–2 74— 36–8 25–6 32–3 39 62–4 63–4 39 52–3 75— 38 26 33–4 40 64–5 64–6 39–40 53–4 76

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65–7 65–7 40 54–5 77 141–2 126–8 69–70 103–4 12567–8 67–8 40–1 55–6 78 142–4 128–9 70 104–6 12668–70 68–70 41–2 56–7 79 144–5 129–30 70–1 106–7 12770–2 70–1 42 57–8 80 146–7 131–2 72 108–9 12872–3 71–2 42–3 58–9 81 147–9 132–3 72–3 109–10 12973–5 72–3 43 59–60 82 149–51 133–5 73–4 110–11 13075–6 73–5 43–4 60–1 83 151–3 135–6 74 111–12 13176 75 44 61 84 153–4 136–7 74–5 112–13 13277–8 76–7 45 62–3 85 154–6 137–9 75 113–14 13379–80 77–8 45–6 63–4 86 156–8 139–40 75–6 114–15 13480–1 78–9 46 64 87 158–60 140–2 76–7 115–16 13582–3 80–1 47 65–6 88 160–2 142–3 77 116–17 13683–5 81–2 47–8 66–7 89 162–3 143–4 77–8 117–18 13785–7 82–4 48–9 67–8 90 163–5 144–6 78–9 118–19 13887–8 84–5 49 68–9 91 165–7 146–7 79 119–20 13988–9 85 49 69 92 167–9 147–9 79–80 120–1 14090–1 86–7 50 70–1 93 169–70 149–50 80–1 121–2 14191–3 87–8 50–1 71–2 94 170–2 150–1 81 122–3 14293–5 88–90 51 72–3 95 172–4 151–3 81–2 123–4 14395–6 90–1 52 73–4 96 174–6 153–4 82 124–5 14496–7 91–2 52–3 74–5 97 176–7 154–5 82–3 125–7 14598–9 92–3 53 75–6 98 178–9 155–7 83–4 127–8 14699–100 93–5 53–4 76–7 99 179–81 157–8 84 128–9 147

100–2 95 54 77 100 181–3 158–60 84–5 129 148102–3 95–6 54–5 77–8 101 183–5 160–1 85–6 130 149103–5 96–8 55 78–9 102 186–7 162–3 87 131–2 150105–7 98–9 55–6 79–80 103 187–8 163–4 87–8 132 151107–9 99–100 56–7 80–1 104 188–9 164–5 88 132–3 152109–11 100–2 57 81–3 105 189–91 165–7 88–9 133–4 153111–12 102–3 57–8 83–4 106 191–3 167–8 89 134–5 154112–13 103–4 58–9 84–5 107 193 168 89–90 135–6 155113–15 104–5 59 85–6 108 194–5 169–70 91 137–8 156115 105–6 59 86 109 195–7 170–1 91–2 138–9 157116–17 107–8 60 87–8 110 197–8 171–2 92–3 139 158117–19 108–9 60–1 88 111 198–200 173–4 93 140–1 159119–20 109–10 61 88–9 112 200–2 174–5 93–4 141–2 160120–2 110–11 61–2 89–90 113 202–3 175–7 94 142–3 161122–4 111–13 62–3 90–1 114 203–5 177–8 94–5 143–4 162124–6 113–14 63 91–2 115 205–6 178–9 95–6 144–5 163126–7 114–15 63–4 92–3 116 207–8 179–81 96 145–6 164127–9 116–17 64–5 94–6 117 208–10 181–2 96–7 146–7 165129–31 117–18 65 96 118 210–12 182–3 97–8 147–8 166131–2 118–20 65–6 97–8 119 212–13 183–5 98 148–9 167132–4 120–1 66–7 98–9 120 213–15 185–6 98–9 149–50 168134–6 121–2 67 99–100 121 215–16 186–7 99 150–1 169136–7 122–4 67–8 100–1 122 216–18 187–8 99–100 151–2 170137–9 124–5 68–9 102 123 218–20 188–90 100–1 152–3 171139–41 125–6 69 102–3 124 220 190 101 153 172

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221–2 191–2 102 154–5 173 294–6 252–4 132–3 203–4 221222–4 192–3 102–3 155 174 296–8 254–5 133 204–5 222224 193–4 103 156 175 298–9 255–6 133–4 205–6 223225–6 195–6 104 157–8 176 299–301 256–7 134–5 206–7 224226–8 196–7 104–5 158 177 301–2 257–9 135 207–8 225228–9 197–8 105 158–9 178 302–4 259–60 135–6 208–9 226229–31 198–200 105–6 159–60 179 304–6 260–1 136–7 209–10 227231 200 106 160 180 306–7 261–3 137 210–13 228232–3 201–2 107 161–2 181 307–9 263–4 137–8 213 229233–5 202–3 107–8 162–3 182 309–11 264–5 138 213–14 230235–7 203–5 108–9 163–4 183 311–12 265–6 138–9 214–15 231237–8 205–6 109 164–5 184 312–14 266–8 139–40 215–16 232238–40 206–7 109–10 165–6 185 314–15 268–9 140 216–17 233240–2 207–9 110 166–7 186 315–17 269–70 140–1 217–18 234242 209–10 110–11 167–8 187 317–18 270–2 141 218–19 235243–4 210–11 111–12 168–9 188 318–20 272–3 141–2 219–20 236244–6 211–12 112 169–70 189 320–2 273–4 142–3 220–1 237246 212–13 112 170 190 322–3 274–6 143 221–2 238247–8 214–15 113 171 191 323–5 276–7 143–4 222–3 239248–50 215–16 113–14 171–2 192 325–7 277–8 144 223–4 240250–1 216–17 114 172–4 193 327–9 278–80 144–5 224–6 241251–3 217–19 114–15 174–5 194 329 280 145 226 242253–5 219–20 115–16 175–6 195 330–1 281–2 146 227–8 243255–6 220–1 116 176–7 196 331–3 282–3 146–7 228–9 244256–8 221–2 116–17 177–8 197 333–5 283–5 147–8 229–30 245258–9 222–4 117 178–9 198 335–6 285–6 148 230–1 246259–61 224–5 117–18 179 199 336–8 286–7 148–9 231–2 247261 225 118 179–80 200 338–40 287–8 149 232–3 248262–3 226–7 119 181–2 201 340–1 289–90 149–50 233–4 249263–5 227–8 119–20 182–3 202 341–3 290–1 150–1 234–5 250265–7 228–9 120 183 203 343–4 291–3 151 235–6 251267–8 229–30 120–1 183–5 204 344–6 293–4 151–2 236–7 252269–70 231–2 122 186–7 205 346–8 294–5 152 237–8 253270–2 232–3 122–3 187–8 206 348–50 295–7 152–3 238–9 254272–3 233–5 123–4 188–9 207 350–1 297–8 153–4 239–40 255273–5 235–6 124 189–90 208 351–3 298–9 154 240–1 256275–7 236–7 124–5 190–2 209 354–5 300–1 155 242–3 257277–9 237–9 125 192–3 210 355–7 301–2 155–6 243–4 258279–80 239–40 125–6 193–4 211 357–9 302–3 156–7 244–5 259280–2 240–1 126–7 194–5 212 359–60 303–5 157 245–6 260282–3 241–2 127 195–6 213 360–2 305–6 157–8 246–7 261283–4 242–4 127–8 196–7 214 362 306 158 247 262285–6 245–6 129 198–9 215 363–4 307–8 159 248–9 263286–8 246–7 129–30 199–200 216 364–5 308–9 159–60 249–50 264288–90 247–8 130 200–1 217 365–7 309–11 160 250–1 265290–1 249–50 130–1 201–2 218 367–9 311–12 161 251–2 266291–3 250–1 131–2 202–3 219 369–70 312–13 161–2 252–3 267293–4 251–2 132 203 220 370–1 313–14 162 253–4 268

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371–2 314–16 162–3 254–5 269 444–5 375–6 191 302–3 317372–4 316–17 163–4 255–6 270 445–7 376–7 191–2 303–4 318374–6 317–18 164 256–7 271 447–8 377–8 192 304–5 319376 318–19 164 257 272 448 378–9 192 305 320377–8 320–1 165 258–9 273 449–50 380–1 193 306–7 321378–80 321–2 165–6 259–60 274 450–2 381–2 193–4 307–8 322380–1 322–3 166 260–1 275 452–3 382–3 194 308–9 323381–3 323–5 166–7 261–2 276 453–5 383–5 194–5 309 324383–5 325–6 167–8 262–3 277 455–7 385–6 195–6 309–10 325385–7 326–7 168 263–4 278 457 386–7 196 310–11 326387–8 327–8 168–9 264 279 458–9 388–9 197 312–13 327388–90 328–9 169 264–5 280 459–61 389–90 197–8 313–14 328

— 329–30 169–70 265–6 281 461–3 390–2 198–9 314–15 329— 330–1 170 266–7 282 463–4 392–3 199 315–16 330— 331–3 170–1 267–8 283 464–6 393–4 199–200 317 331— 333–4 171 268–9 284 466–8 394–5 200 317–19 332

390–2 334–6 171–2 269–70 285 468–9 396–7 200–1 319–20 333392–3 336 172 270–1 286 469–71 397–8 201–2 320–1 334393–5 336–7 172–3 271 287 471 398–9 202 321–2 335395–7 — — — 288 471–3 399–401 202–3 322–3 336398–9 338–9 174 272–3 289 473–5 401–2 203 323–4 337399–401 339–40 174–5 273–4 290 476–7 403–4 204 325–6 338401–3 340–1 175–6 274–5 291 477–9 404–5 204–5 326 339403–4 341–3 176 275–6 292 479–81 405–6 205 326–7 340404–6 343–4 176–7 276–8 293 481–3 406–8 205–6 328–9 341406–8 344–6 177 278–9 294 483–4 408–9 206–7 329–30 342408–9 346–7 177–8 279–80 295 484–6 409–11 207 330 343409–11 347–8 178–9 280–1 296 486–8 411–12 207–8 331 344411–12 348–50 179 281–2 297 488–9 412–13 208–9 331–3 345412–14 350–1 179–80 282–3 298 489–90 413–14 209 333 346414–16 351–2 180 283–4 299 491–2 415–16 210 334–6 347416 353 180 284 300 492–4 416–17 210–11 336–7 348417–18 354–5 181 285–6 301 494–5 417–18 211 337–8 349419–20 355–6 181–2 286–7 302 495–7 419–20 211–12 338–9 350420–2 356–8 182–3 287–8 303 497–8 420 212 339 351422–3 358–9 183 288–9 304 499–500 421–2 213 340–1 352424–5 359–60 183–4 290–1 305 500–2 422–3 213–14 341–2 353425–7 360–1 184 291–2 306 502–3 423–4 214 342 354427–9 362–3 184–5 292–3 307 503–5 424–5 214–15 343 355429–30 363–4 185–6 293–4 308 505–7 425–7 215 343–4 356430–2 364–5 186 294 309 — 427–8 215–16 344–5 357432–3 365–7 186–7 294–5 310 — 428–30 216–17 345–6 358433–5 367–8 187 295–6 311 — 430–1 217 346–7 359435–7 368–9 187–8 297 312 — 431–2 217–18 347–8 360437–8 369–70 188–9 297–8 313 507–8 432–4 218–19 348–9 361438–40 370–2 189 298–9 314 508–10 434–5 219 349–50 362440–2 372–3 189–90 299–300 315 510–12 435–6 219–20 351 363442–3 373–4 190 300–1 316 512–14 436–8 220–1 351–2 364

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514–15 438–9 221 352–3 365 549–50 483–4 243 392–3 398515–17 439–40 221–2 353–5 366 550–2 484–5 243–4 393–4 399517–19 440–2 222 355–6 367 552–3 485–7 244–5 394–5 400519–21 442–3 222–3 356–7 368 554–5 487–8 245 395–6 401521–2 443–4 223–4 357–8 369 555–7 488–9 245–6 396–7 402522–4 444–5 224 358–9 370 557–8 489–90 246 397–8 403524 445–7 224–5 359–60 371 558–9 491–2 246–7 398–9 404524–6 447 225 360 372 559–60 492–3 247 399 405527–8 448–9 226 361–2 373 560–1 493–4 247–8 399–400 406528–30 449–50 226–7 362–4 374 562–3 494–5 248 400–1 407530–2 450–2 227–8 364–5 375 563–4 495–6 248–9 401–2 408532–4 452–3 228 365–7 376 565–6 497–8 249–50 402–3 409534–5 453–4 228–9 367–8 377 566–8 498–9 250 403–4 410535–7 454–6 229 368–9 378 568–70 499–500 250–1 404–5 411538–9 457–8 230 370–1 379 570–1 501–2 251–2 405–6 412539–41 458–9 230–1 371–2 380 571 502–3 252 406 413541 459 231 372 381 571–3 503–4 252 406–8 414542–3 460–1 232 373–4 382 573–4 504–5 252–3 408 415543–5 461–2 232–3 374–5 383 574–6 505–6 253 408–9 416545–7 462–4 233–4 375–6 384 576–8 506–8 253–4 409–10 417547–8 464–5 234 376 385 578 508–9 254–5 410–11 418

— 466–7 235 377–8 386 579–80 509–10 255 411–12 419— 467–8 235–6 378–9 387 580–2 510–12 255–6 412–13 420— 468–70 236–7 379–80 388 582–3 512 256 413–14 421— 470–1 237 380–1 389 583–4 512–13 256–7 414–15 422— 471–2 237–8 381–2 390 584–5 513–14 257 415 423— 472–4 238 382–3 391 — 514–15 257–8 415–16 424— 474–5 238–9 383–4 392 585–6 515–17 258 416–17 425— 475–7 239–40 384–5 393 586 517–18 258–9 417–18 426— 477–8 240 385–6 394 587 518–19 259 418–19 427— 478–9 240–1 386–7 395 587–8 519–20 259–60 419–20 428— 480–1 241–2 387–8 396 589 520–1 260 420 429— 481–2 242 388–9 397

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