aass_h£Bi^ 
 
 Book '^2> 
 
 ^^ief ^'^ Z 
 
NOTES 
 
 ON 
 
 POLITICAL ECOJVOMY. 
 
 BY jf N. CARDOZO. 
 
 CHARLESTON: 
 
 PRINTED BY A. E. MILLER, 
 
 4, Broad-Street. 
 
 1^26. 
 
H 
 
 
 District of South-Cai-olina, 
 
 ■fOOOO* BE IT REMEMBERED, That on tbe tvventy-nintli day of 
 March, Anno Domini, one thousand eig'ht hundred and twen- 
 
 SEAL. ty-six, and in the fiftieth year of the Independence of the 
 United States of America, J. N. Cardozp, deposited in this 
 
 #C)OC>0'# office the title of a booli, the rie^ht whereof he claims as Pro- 
 prietor and Author, in the words following, to wit : 
 
 " Notes on Political Economy. By J. N. Cardozo." 
 
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 the times therein mentioned," and also an act entitled "An act supple- 
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 by securing the copies of maps, charts, and books, to the authors and pro- 
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 cal and other prints." 
 
 JAMES JERVEY, 
 Clerk of the District of South-Carolina- 
 
VAS£E OF COlXTBmTS. 
 
 PREFACE, -...-.,. 1 
 
 INTRODUCTION, 5 
 
 CHAPTER I.— Rent, ----... 19 
 
 II. — Wages and Profits, - 1 - - 39 
 
 III. — Machinery, - . _ . _ gg 
 
 IV. — Value and Price, - - - _ -63 
 
 V. — Money, ----__ 7-5 
 
 VI — Exchange, - - . . , - 96 
 
 VII. — Commerce, - - - . - 103 
 
 VIII. — Taxation, - - - . _ 1^5 
 
Digitized by the Internet Archive 
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 The Library of Congress 
 
 http://www.archive.org/details/notesonpolitical01card 
 
PREFACE. 
 
 THE great abilities which have been brought to the 
 investigation of the laws relating to the production, distri- 
 bution and consumpiion of wealth, would seem to render 
 any thing further on the subject unnecessary. But we 
 have seen system succeed to system both in the practice 
 of statesmen and in the works of the most profound 
 and inventive minds, and the theorists are not more 
 reconciled among themselves as to the true principles of 
 public wealth, than are those who direct the destinies 
 of states. This fact proves that truth makes its way 
 much more slowly in those sciences that depend for their 
 improvement on the true import and proper application 
 of ivords than in those wherein precision of language 
 can be more completely attained. The moral stand in 
 contrast to the mathematical and physical sciences m 
 this respect. Political Econo7ny, of all subjects of ana- 
 lysis, seems peculiarly open to this disadvantage. 
 
 The spirit of system, it must be confessed, has also 
 
 been among the most powerful of those circumstances 
 
 which have caused endless disputes betiveen those in 
 
 whom the love of paradox and disputation has super- 
 1 
 
ii PREFACE. 
 
 seded a regard for truth and affection for mankind. Tlie 
 influence of paradox on the strongest minds is, indeed^ 
 every way remarkable. We know that the sect of the 
 Economists exerted no small power over the opinions of 
 many of their most enlightened contemporaries. Their 
 minds were captivated hy the novelty of an ingenious 
 hypothesis — it has been long supplanted by others not 
 less ingenious. In our day the love of novelty and re- 
 finement has given birth to one that is equally specious 
 and captivating from the apparent simplicity of its re- 
 sults, or from the genendization it seems to offer of the 
 complicated phenomena it professes to explain. It is 
 however destined to perish in its turn. We allude to 
 the theory of Mr. Ricardo as developed in his work ' On 
 the Principles of Political Economy and Taxation.'^'' 
 It is remarkable, in this instance also, that some of the 
 most powerful ifitellects that were ever devoted to the in- 
 vestigation of such subjects have been seduced into ad- 
 miration of this system, which exhibits in its developement 
 specimens of rare analytical talents not only in the 
 author, but his two principal supporters. It is only ne- 
 cessary to name the names of Mill and M'Culloch in 
 England, to be convinced of this fact. They are des- 
 tined to exterid the reputation of this theory by the clear- 
 ness of their style, and their admirable powers of illus- 
 tration, 
 
 A condensed view of this theory* has been lately pre- 
 sented to the American public by one of our public 
 
 * Originalli/ published as an article in the Edinburgh Supplement to the Encydo- 
 pedia Britannica. Mr. M'Culloch, who has enriched this ivoric with 7nany valua- 
 hie dissertatio7is on the science of FoHtieal Economy ■, is ike author of this article. 
 
PREFACE. iii 
 
 Professors. Mr. M'Vickar, of Columbia College, New- 
 York, has edited this abridgment, and added to the text 
 some valuable notes. Now it is the apprehension of the 
 effect of that work (ivhich is as far as it goes well cal- 
 culated for a popular manual) that has induced the 
 author of the following sheets to publish the results of 
 some investigations on the subject which were originally 
 intended for his private use. They are given to the 
 Press with every respect for the talents of Mr. Ricardo 
 and those of his distinguished supporters. We are in 
 fact well convinced that if the principles of this theory 
 (ivhich are founded on circumstances completely con- 
 trasted to those that are peculiar to our own country) 
 should be adopted as texts for lectures in our Colleges 
 and Universities, it will greatly retard the progress of 
 this important science among us. 
 
 In this country ive feel assured that the laws which 
 regulate Profits, Wages and Rent can be more successfully 
 investigated than in the old world. The mind is natu- 
 rally prone to argue from the fact to the right,* and this 
 tendency has shown itself in a remarkable manner, in 
 all the systems framed by European Economists. True 
 theory in investigations of this nature is founded on a 
 comprehensive examination of phenomena as they are 
 presented in a natural state of the social system. It is 
 reasonable to suppose, therefore, that a country whose 
 institutions and laws have done less to derange the natu- 
 ral order of things than where a vicious social organiza- 
 tion has resulted either from military violence or a selfish 
 
 * This remark is made by Mr. Sat in the Introduction to his Treatise on Poli- 
 tical Economy. 
 
iv PREFACE. 
 
 policy i will present the fairest field for analysis and 
 speculation into the causes of wealth. The results of 
 such analysis should constitute the principles for the 
 guidance of the statesmen of the new world. Systems 
 framed by philosophers who have no influence in public 
 affairs, generally perish with their authors ; those de- 
 vised by what are called practical statesmen survive in 
 the policy of countries long after the names of their 
 framers have been forgotten or have been consigned to 
 oblivion. The Economical theory led to some important 
 changes of public policy to the benefit of the agriculture 
 and internal trade of France ; but the theory being only 
 partially true, soon perished. The Mercantile system, 
 as it has been called, originating in the interested views 
 of merchants and manufacturers, is likely long to influ- 
 ence the counsels of statesmen to the injury of the in- 
 terests of mankind. Founded on the selfish and con- 
 tracted principle, that the gain of one country in trade is 
 the loss of some other, it is not only less just in its origin, 
 but far less beneficent in its practical results than would 
 have followed from the adoption of that of the Econo- 
 mists. It follows that we ought not to be implicitly guid- 
 ed by the results of investigations pursued by European 
 writers into the sources of wealth without an examina- 
 tion of the circumstances on which their systems have 
 been framed. 
 
INTRODUCTION. 
 
 ALL theories of Political Economy that do not 
 admit the agency of Nature concurrently with the 
 labour and ingenuity of Man in the creation of value 
 must necessarily lead to erroneous conclusions. When 
 we speak of the agency of Nature in production, we 
 mean to use the expression in its most comprehensive 
 signification. The processes of fermentation and de- 
 composition carried on beneath the surface of the 
 earth, aid the labours of the husbandman as eflfectu- 
 ally as the wind, the water and the elasticity of steam 
 do those of the mariner, or as fire and the various 
 properties of the atmosphere do those of the manu- 
 facturer. The resources of chemistry and mechani- 
 cal philosophy enable man hourly to multiply his 
 enjoyments by enlarging his dominion over nature. 
 Every new modification of matter that fits or prepares 
 it for consumption, is a fresh instance of the improve- 
 ment of either skill or science in their connexion with 
 
6 INTRODUCTION. 
 
 the arts that minister to our wants or our enjoyments. 
 In this respect there is no difference between Agricul- 
 ture, Commerce and Manufactures. A new manure 
 that increases the productive powers of the soil con- 
 sists merely in a better combination of the properties 
 or elementary parts of matter, according to an im- 
 proved understanding of the laws of nature or her 
 agency in production. In this view the earth itself, 
 independently of the manure employed upon it, is a 
 powerful natural agent, which assists the labours of 
 the cultivator equally with the air, the rain and the 
 sun. The balance of profit or advantage between 
 different employments depends on the admission of 
 the principle that Nature concurs with Man in each of 
 the arts of life, either conferring or giving additional 
 value to objects of use and exchange. The Econo- 
 mists inferred that as Landlords throughout Europe 
 derived a large share of the produce of the soil, in 
 the form of rent, that rent constituted a net surplus, 
 after the costs of cultivation were defrayed, peculiar 
 to Agriculture. The conclusion was natural and easy 
 from these premises, that this employment was more 
 productive and profitable than either Commerce or 
 Manufactures. The Economists went, however, fur- 
 ther. Tliey insisted that Agriculture was the only 
 profitable employment, thus allowing an influence to 
 the productive powers of Nature in giving value to the 
 produce of the land which is denied to her agency in 
 the fashioning of that produce for the uses of society, 
 
INTRODUCTION. 7 
 
 and transporting it from where it is wanted less to 
 where it is wanted more. 
 
 It is remarkable that Dr. Smith, after employing a 
 large portion of his valuable work in refuting the 
 theory of the Economists, should have arrived at near- 
 ly the same conclusion. He never could have given 
 the preference to the cultivation of the land as the 
 source of higher relative profit unless the agency of 
 Nature in Commerce and Manufactures had been 
 overlooked by him. The ingenious founder of the 
 ne school has adopted an error the reverse of Dr. 
 Smith's. Whilst the latter attributed nothing to the 
 agency of Nature in Manufactures and Commerce, 
 Mr. RiCARDO leads the mind, by his reasoning, to the 
 irresistable inference that she does nothing for man, 
 aided by his science and skill, in Agriculture. I'he 
 system of the latter conducts us finally, therefore, to 
 the conclusion that Commerce and Manufactures are 
 more beneficial employments than the cultivanon of 
 the land. It was natural in this system that labour 
 should have had a disproportionate influence attributed 
 to it in the formation of value. It is not quite so 
 evident, however, why it should have been made 
 the ow/?/ element, and, as a consequence, the regulator 
 of value. There is no period of society in which 
 capital does not constitute one of its ingredients. The 
 materials of the weapons of the savage possess value 
 in their rude state-, however small, and which do not 
 cease to be a component part of the value which the 
 
8 INTRODUCTION. 
 
 weapon acquires after being fashioned for the pur- 
 poses intended. Nor is it different after capital has 
 been accumulated in every variety of form for the 
 uses of civilized society. It is under all shapes, mere- 
 ly another name for those natural substances, which as 
 soon as they are appropriated, and there is a demand 
 for them, become of value, and receive an increase of 
 value with every new modification they undergo from 
 the combined action of labour and natural agents on 
 them. The notion, therefore, that capital is nothing 
 but accumulated labour, is as erroneous as the idea 
 that labour is the sole element and only regulator of 
 value ; or, that the agency of Nature does not add to 
 value in exchange, which, in fact, is what Mr. Ricardo 
 has positively asserted.* Natural agents in themselves 
 possess only value in use ; they cannot be appropriated, 
 but possession alone cannot confer exchangeable value 
 on any object whatever. Natural agents possess the 
 power of adding to value, and no more can be said 
 of either labour or capital until there is a demand for 
 them. Of what value would be the industry of man 
 if the substances it is instrumental in modifying, with 
 the assistance of Nature, for the purposes of society, 
 could not be exchanged for other objects which have 
 undergone a similar modification ? Of what value 
 would land as well as labour be, if there was no mar- 
 ket for the produce they created ? Natural agents, 
 
 " Priiielplos of Political Economy and Taxation, first American Edition, 
 .•hap. ]P. p. 293. 
 
INTRODUCTION. 9 
 
 and natural substances, which take the name of capi- 
 tal, are, therefore, as much as labour among the elements 
 of value, and every system of Political Economy that 
 omits either of these constituents must be imperfect. 
 Mr. RicARDO, thus setting out from the principle, that 
 labour is the sole element and regulator of value, and 
 taking for granted that the level of profit between 
 Agriculture and other employments is still maintained, 
 notwithstanding the increase of expense in raising raw 
 produce, was bound to conclude, assuming population 
 at the same time to augment, that there was a propor- 
 tional advance in the price of the products of the 
 land, which made an addition to Rent, Such a sys- 
 tem leads to theoretical results, precisely similar to 
 what occurs in fact, from laws which confer advan- 
 tages on some classes of society to the injury of other 
 classes. Thus, when labour is made the sole consti- 
 tuent and regulator of value, it is impossible to avoid 
 the conclusion that, as a greater quantity of it, or 
 which is the same thing, an increased sum in wages, 
 is made necessary to an augmentation of raw produce, 
 which leads, finally, to an advance of rent, the balance 
 of advantage must be on the side of Agriculture com- 
 pared with other employments. Rent will, on such 
 a system, be higher than it ought naturally to be, and 
 every addition made to it, must be at the expense of 
 the other classes of society. Now, exactly the same 
 result is produced when some advantage is given by 
 law^ to one portion of the community at the expense 
 
 tf) 
 
10 INTRODUCTION. 
 
 of some other portion, which must destroy the equality 
 of benefit between different employments. 
 
 On this theory it is then assumed, that profits will 
 continue on a level, on the supposition that a given 
 quantity of capital employed in Agriculture necessarily 
 yields a smellier return of produce, or its value, than 
 the same quanthy if employed in either Commerce or 
 Manufactures, or, what is equivalent to this assertion, 
 that, from a Law of Nature^ raw products are raised 
 at a greater comparative expense than is necessary to 
 fabricate manufactured produce. The rate of Agri- 
 cultural profit must, then, on this system, regulate the 
 , rate of profit in both Commerce and Manufactures. 
 But it is impossible, if this doctrine be admitted with 
 all its consequences, to avoid the following results : — 
 
 First, That Agriculture, including the amount which 
 the Landlord is supposed on this system to receive, is 
 the most beneficial of all employments. 
 
 Secondly, That Rent must absorb the gains of the 
 Capitalist, beyond a certain amount, as fast as they are 
 made ; and thus limit the increase of both wages and 
 profits; and 
 
 Thirdly, That population must come to a stop, and 
 capital cease to accumulate at no very distant period. 
 
 It is impossible, however, to admit that profits will 
 continue on a level, on the supposition that raw pro- 
 duce is, from the nature of things, raised at a com- 
 paratively greater expense than that which is manu- 
 factured, ivhilst the population at the same time increases. 
 
INTRODUCTION. 11 
 
 If we suppose population to come to a stop, profits 
 will fall to a level ; but if the condition of an increase 
 of population be an additional expense in raising food 
 to support it, without a proportionate return in its 
 quantity, the level of profit between different employ- 
 ments is necessarily destroyed. There will, on such 
 a supposition, be a lower rate of profit in Agriculture 
 than in Commerce and Manufactures. This is how- 
 ever precisely the same result as that to which the 
 mercantile system in fact led. It encouraged by law, 
 Manufactures and Commerce to the injury of Agricul- 
 ture, and by the inequality of profit between the two 
 former employments and the latter, prevented the 
 formation of capital on the land. The new theory 
 would seem therefore to be the revival in part of thai 
 system in another form. 
 
 Mr. RicARDO, pursuing this new theory to one of its 
 more immediate results, has been induced to say, that 
 as raw produce is raised with increased difficulty, and 
 the food of the labourer rises, more must be expended 
 on wages, and that this increase of wages is a deduction 
 from profit.* The same principle has compelled him 
 to assert, also, that there is no advantage to a state 
 from a large population,! for if wages encroach on 
 profits as the necessity increases of cultivating inferior 
 soils, or, if what is gained by the labourer is lost to 
 the capitalist, and vice versa, the labouring classes can 
 
 * Principles of Political Economy and Taxation, chap. 5, p. 86 
 t Idem, chap. 24, pp. 374, 375. 
 
12 INTRODUCTION. 
 
 contribute nothing to the real wealth of society — they 
 merely replace the necessary expenses of their main- 
 tenance. On such a supposition, the support of a 
 large population, if a smaller will produce as great a 
 value in amount, must be at the expense of the net 
 revenue of all other classes except labourers, and the 
 aggregate riches of society will remain without either 
 increase or diminution. But in thus assuming that 
 the labouring classes do not reproduce a greater value 
 than they consume, the radical error of the Econo- 
 mists, which vitiated their whole system, is revived.* 
 Or taking for granted that there is the same amount 
 of productive power with a smaller as with a larger 
 number of producers, it f(jllows that production is not 
 co-extensive with consumption, and the natural balance 
 between them is thence destroyed. 
 
 It is from the same principle that saving in expen- 
 diture is made identical in its effects with an increase 
 of productive power on the riches of society,! thus 
 confounding the increase of individual with that of 
 general wealth. 
 
 It flows from the same principle that capital is said 
 by Mr. Ricardo to augment as well from increased re- 
 venue as diminished expenditure, J meaning by increas- 
 ed revenue, not that addition to profit derived from en- 
 larged powers of production, but that which is gained 
 from the rise in the price of one or more commodities, 
 
 • The Economists made an exception, however, with regard to Agricultural 
 labours. 
 
 t Principles of Political Economy and Taxation, chap. 6, p. 111. 
 t Idem. chap. 6; pp. 110. 111. 
 
INTRODUCTION. 13 
 
 which must be attended by a proportionate fall in 
 others, thus again neglecting to distinguish a partial 
 from a general increase of wealth, or making the 
 benefit of one class of society to the correspondent 
 injury of some other, the criterion of a general aug- 
 mentation of rirhes. What is this but alleging that 
 that which is true under some circumstances only, is 
 true under all, making price and value in exchange 
 identical at all times, when, in fact, they are so only 
 when some derangement has occurred in the due 
 proportion between demand and supply. Thus if 
 they are examined, in almost every one of the series of 
 deductions drawn by Mr. Kicardo, will be seen the 
 influence of the principle that labour is the sole con- 
 stituent and regulator of value. 
 
 Mr. Malthus, in his last work entitled " Principles 
 of Political Economy," sets out from the identical 
 principle of Rent from which Mr. Ricardo has dedu- 
 ced this series of results, and arrives nearly at the same 
 ultimate conclusion, but by a different process. He 
 also omits all consideration of the influence of skill 
 and science in turning the powers of Nature to a more 
 productive account in Agriculture, or, in other words, 
 in augmenting the quantity of raw produce with a 
 proportionally smaller expense ; and he infers a fall 
 of profit also, but from a totally different cause to that 
 assigned by Mr. Ricardo for this effect. It is the in- 
 crease of capital and not difficulty of production to 
 which Mr. Malthus attributes the fall of profit. It 
 
14 INTRODUCTION. 
 
 was natural, on the supposition that the competition 
 of capitalists reduces the rate of profit, that Mr. Mal- 
 THUS should dread the too rapid accumulation of 
 capital, more especially from the effects he had wit- 
 nessed for the last forty years in Great Britain of an 
 increase in the powers of production apparently too 
 great for consumption. Dr. Smith, the author of this 
 principle, that competition influences the rate of profit, 
 did not draw any such inference from it ; for the in- 
 crease in his day of productive power was much more 
 gradual ; whilst Mr. Ricardo, by allowing more than 
 full effect to the opposite principle, seems to have 
 had an apprehension that finally it would become too 
 strong for the principle of im|)rovement. Thus it has 
 happened that economy in expenditure, or rather the 
 privation of enjoyment, is made necessary to the ac- 
 cumulation of wealth in the system of Mr. Ricardo, 
 whilst Mr. Malthus is the advocate of expenditure, 
 and seems afraid that production will so far outrun 
 consumption that the world will have more wealth 
 that it can well employ. It is for this reason that a 
 body of unproductive consumers is said by him to be 
 necessary to a state.* 
 
 ^ How could Mr, Malthus contend, as he has done, in his last work, for the 
 necessity of unproductive consumers to maintain the balance between produce 
 and consumption, when the eflect of every increase of unproductive consump- 
 tion is to destroy such balance How could he say that the augmentation of 
 wealth rests upon the proper distribution of produce, and at the same time 
 contend that such augmentation also depends on maintaining a body of unpro- 
 ductive consumers ? effects absolutely incompatible. The discussions whicli 
 
INTRODUCTION. ' 15 
 
 Thus, however widely they may diverge in their 
 conclusions, are the two leading Economists of the 
 age agreed in the primary principle of the new theory 
 of Rent, to wit, that the necessity of resorting to infe- 
 rior soils to raise the additional food to support an 
 increasing population, is attended with an augmenta- 
 tion of expense without a proportionate return in the 
 quantity of agricultural produce. We have endea- 
 voured to show that this principle is deduced from 
 overlooking the effect of science and skill in procuring 
 the more effectual co-operation of Nature in Agricul- 
 ture as in Commerce and Manufactures. 
 
 It is true that the cultivation of soils naturally very 
 inferior may be forced, and the additional produce 
 raised at such an increased expense as by augmenting 
 its price must elevate Rent ; but this is not necessarily 
 followed by a less return compared with the expendi- 
 
 have, in fact, taken place as to the proper limit to individual expenditure and 
 accumulation, can never lead to any practical result, if they have not been 
 Idle. The self interest of individuals fixes the limit here as in every other 
 case where the arrangements of society do not interfere to disturb the regular 
 action of this principle and weaken its natural influence. These arrangements 
 give sometimes too great a stimulus to the wish or propensity to spend in indi- 
 viduals, and by generating habits of extravagance, which sometimes endure 
 for a considerable period, destroy the natural balance between production in 
 the gross and expenditure. If Economists would confine themselves to an 
 inquiry into the causes which produce this disturbance, they would confer a 
 greater value on their labours in this branch of the science, than by discussing- 
 the question in the abstract, whether accumulation or expenditure contributes 
 most to the increase of the wealth of society. Among those circumstances 
 which give too great a stimulus to individual consumption, it will be found} 
 perhaps, that the paper system has been the most efficient and nnivoTsal 
 
16 INTRODUCTION. 
 
 ture. An unusual stimulus applied to the land, com- 
 bined with restrictions on the foreign trade in corn, 
 may produce effects very similar on Rent to what 
 follows in a more natural and wholesome state of things. 
 It therefore does not result that in any instance of a 
 resort to naturally inferior soils, to support an addi- 
 tional population, the increased lood can be obtained 
 in no other way than by an increased expenditure 
 without a proportionate return. But in the regular 
 progress of wealth and population there is always 
 room for the employment of fresh capital on the land 
 with increasing profit, because with every addition to 
 the quantity and consequent fall of the price of pro- 
 duce, whether rude or manufactured, the demand for 
 it is extended. The increased return is the fund which 
 pays not only increased profit, but increased w ages. 
 
 Is it not evident, unless this view be admitted, that 
 a near limit, as we have before remarked, must be 
 placed to the increase of both capital and population ? 
 for if land of a still decreasing fertility, which lessens 
 the proportional quantity of food produced, is suc- 
 cessively taken into cultivation, as profits will be 
 reduced with every step in this progress, the funds for 
 the maintenance of labour must be diminished in pro- 
 portion. The increase of population and consequent 
 augmented demand for food are, therefore, evidently 
 assumed in this theory. Its authors were compelled 
 to raise up the additional population to give the in- 
 
INTRODITCTION. 17 
 
 creased price of raw produce, as a motive to extend 
 cultivation to inferior soils. 
 
 Thus we cannot but perceive that on every addi- 
 tional outlay the returns of capital laid out on the land 
 must be augmented, if the skill and ingenuity of cul- 
 tivators with the resources of science are sufficient to 
 overcome the failing powers of the soil.* The proof 
 that they are so is to be found in the augmentation of 
 population whilst fresh capital is continually applied 
 to the land. During the continuance of the last gene- 
 ral war in Europe, the quantity of inferior land taken 
 into cultivation in Great Britain was very great, and 
 the effect on profits must have been disastrous, accord- 
 ing to the new theory, unless it had been counteracted 
 
 * It is the constant end of improvements in the science and art of Agricul- 
 ture to equalize the relative disadvantages of different soils and situations. 
 The resources of Agricultural Chemistry have not yet afforded the principles 
 by which this can be completely effected ; but who is able to say that a more 
 perfect analysis may not instruct us in the mode by which the processes of 
 Nature may be more completely imitated ? Who can place the limit to discovery 
 and skill in this branch of Art any more than to improvements in Mechan- 
 ical Philosophy and the application of its inventions, in other departments o 
 industry, to the multiplication of the conveniences and enjoyments of life ? Can 
 any one pronounce that fallows may not be superseded by, a more economical 
 and less tedious method ? or that a more complete itnowledge of the Laws of 
 Chemistry in their operation on soils, may not enable us so to combine the 
 properties of matter, in the preparation of manures, as to save the necessity 
 of alternate crops ? If this should be finally established, what a splendid tri- 
 umph would be afforded to the science of Agriculture? In the application of 
 the proper methods of irrigation and draining, according to the diversity of 
 soils and situations, what a vast field is yet open to improvement ! Not to 
 speak of the Machinery used on the land, that may enable the Agriculturist to 
 increase the quantity of his produce at a much smaller comparative expense- 
 
 .3 
 
18 INTRODUCTION. 
 
 by an opposite principle of superior efficacy. This 
 principle was, of course, as we have already remarked, 
 the improvements in Agriculture, which prevented the 
 fall of profits. The population went on increasing, 
 and was supported by a constantly increasing fund, 
 to wit, constantly increasing revenue. But it is ne-- 
 cessary to subject this new theory of Rent to a more 
 detailed examination. 
 
If OTES 
 
 ON 
 
 POLITICAL ECONOMY. 
 
 CHAPTER I. 
 
 RENT. 
 
 THE rent of land has been variously defined by 
 Mr. RicARDO in different parts of his work on the 
 Principles of Political Economy and Taxation. It is 
 defined, first, to be " that portion of the produce of 
 the earth, which is paid to the Landlord for the use of 
 the original and indestructible powers of the soil."* 
 Rent, according to this definition, is made to depend 
 on natural fertility. But the definition given of Rent 
 by Mr. Malthus, to wit, that " excess of price above 
 the costs of production at which raw produce sells in 
 the market," is sanctioned by Mr. RicARDO.f This 
 definition is, however, essentially different from the 
 other, and confounds that Rent " which is paid for 
 the use of the original and indestructible powers of 
 
 * Principles of Political Economy and Taxation, chap. 2, p. 35. 
 t Idem, chap. 29, p. 423. 
 
20 notl:s on 
 
 the soil," with that paid in consequence of the ad- 
 A'ance in (he price of raw |)rodiice from restrictions on 
 the trade in corn, and the monopoly which in some 
 conntries is connected with the possession of land. 
 
 The origin of rent is described in the following-'inan- 
 ner by Mr. Ricardo. " It is then only becanse land 
 is of dilfereiit qualities with respect to its productive 
 powers, and because in the progress of population, 
 land, of an inferior quality, or less advantageously 
 situated, is called into cultivation, that Rent is ever 
 paid for the use of it.-'* Kent is accounted for in 
 this description from relative fertility. But relative 
 fertility, in this theory, not only accounts for rent, or 
 is meant to be descriptive of its origin.f but 'n$ j)ro~ 
 grcs!^ and amount arc made to depend on the same 
 
 * Principles of Political Economy and Tarnation, chap 2, p, 38. 
 
 t Mr. M.\i.THUs deliues vent ns we have .stated above (vido Principles of Po- 
 litical Economy, considered with a % iow to tlioir practical application, chaji 3, 
 p- 10i>) to be ■■•" the excess of price above the costs at which law produce sells 
 in the market ;'' Init his reasoning^' on this subject mainly refer to the other de- 
 finition "iven by Mr. Kjc.akoo, although not Jbrmally stated, to wit, the absoluU 
 fertility of laud. Mi'. M.\i.Tnrs" staieineiit of the origin of rent is, however, 
 less consistent than that given by JNlr. Hicariio. ns he accounts for it from both 
 absolute and illative fertility. " The causes t,he observes, chap. 3. p. ilO^ of 
 the excess of price of raw produce above the costs of production, may be stated 
 to the three — 
 
 " First, and mainly, that quality of the earth, by which it can be made to 
 yield a greater portion of the necessaries of life than is required for the main- 
 teuaxice of the persons employed on the land. 
 
 •• Secondly, tliat quality peciUiar to the necessaries of lite of l>eing able, 
 when properly distributed, to create their own dejnuud, or to raise up « num- 
 ber of demauders in proportion to the quantity of necessaries produced. 
 
 •• And, thirdly, the co;npanx!itr scnrcirr of feriile land, either natural or arti- 
 ticial." 
 
 iSow", ii is obvious, on the least aiteiiiion to this statement, that the lirsJ cause 
 accounts for rent fi-om absolute fertilit}-, and the third cause from «/a/«t'e terfili- 
 ty — in other wortis, rent is made to depend upon both difficul!!; and facilitt/ of pro- 
 duction — on both abimdanrt and scarcUt/ Air. AliLTHrs" reasonings however 
 are, as we have betbre rem;a'ked, fomuleil principaUt; on the absolute or posi- 
 tive fertility of land, but iu part also, on its relative fertiliri', whilst Mr. Ric.^k- 
 po's are erelusicdv ba-sed on the latter. 
 
POLITICAL ECONOMY. 21 
 
 drcumstance. Rent, according to Mr. Ricardo, never 
 begins on the first quality of land until the second 
 quality is taken into cultivation, and rent never rises 
 until the third quality is cultivated ; it then com- 
 mences on the second and rises on the first quality. 
 Now relative fertility can only account for the inequality 
 of rent, it can neither explain its origin nor its increase. 
 If rent be " that portion of the produce which is paid 
 fi)r the use of the original and indestructible powers 
 of the soil," its amount must be in proportion to those 
 powers, and can be increased only as they increase, 
 or diminished as they diminish. But when inferior 
 land is taken into cultivation, those powers are not 
 altered — they remain as to absolute fertility as they 
 originally were. If the productive powers of the 
 land arc increased, this is owing to acquired fertility — 
 to the additional productiveness of the soil from the 
 skill, capital and ingenuity of the cultivators. The 
 "original and indestructible powers of the soil," as 
 they do not admit of diminution, cannot admit of 
 increase. Land of different degrees of fertility will 
 yield different rents. Relative fertility will therefore 
 account for relative rent, and nothing more. 
 
 It is the opinion of Mr. Ricardo that " it is when in- 
 ferior lands are required to feed an augmenting popula- 
 tion, that both the landlord's share of the whole produce, 
 andthe2;«/wehe receives progressively increase."* Now 
 we would ask what is to entitle the landlord to an in- 
 creased share of the whole produce, if an increase of the 
 whole has been effected by the skill and capital of the 
 cultivators? If the landlord has furnished any of the 
 capital by which this increase has been obtained, his 
 share will be in proportion to his investment — if he 
 
 * Prinrjples of Political Economy and Taxation, chap. 29, p, 424, 
 
22 iNOTES ON 
 
 gets a greater share, it will be a transfer of a portion 
 of that to which the farmers are entitled from their 
 capital and skill. As extended cultivation, there- 
 fore, if it has been etTected by cultivators without any 
 aid from landlords, is the result of their own improve- 
 ments, the whole of the increased produce arising 
 from this extension of cultivation, is their exclusive 
 property. There can, therefore, of righ-t, be no in- 
 crease of rent from the increased quantity of produce. 
 If the soil has been exhausted by the farmer, he must 
 place it in the situation, as to productive power, in 
 which he found it, or allow the landlord such a sum 
 as will compensate him for the degree of exhaustion 
 which it has undergone. This, therefore, can make no 
 difl'erence in the amount of rent derived from land in 
 proportion to its natural fertility. 
 
 Nor can the landlord in fact obtain an increase of 
 rent from an increased quantity of raw produce, under 
 any circumstances whatever, in 'iddition to its increased 
 ralue or price. The landlord obtains in all cases a 
 rent in proportion to the price at which raw produce 
 sells in the market* — that price depends again on the 
 proportion between the demand and the supply of 
 such produce ; but to say that the price or value of 
 any commodity has increased, is precisely equivalent 
 io one or the other of the following assertions : First, 
 that the quantity which the consumer is able to com- 
 mand of such commodity, for the same money amount, 
 is diminished ; or, secondly, that the quantity which 
 he is able to command, for a larger amount of money, 
 
 ' AVheu it is said that reut depends upon the price at which raw produce 
 iells, it is not meant to refer to very short periods, but to that state of the 
 vlemanu aud supply which affects the price of landed products during: the cnr- 
 xeucy of a lease — one or two bad haivcsts, or a temporary increase of the 
 t^emand. can hare no effect on rent. 
 
POLITICAL ECONOMY. 23 
 
 is the same. In the first case there is a diminution 
 of supply — in the second case an increase of demand. 
 If the demand for raw produce has augmented, with- 
 out an increase of the supply in an equal degree, the 
 landlord will receive a larger proportional money 
 amount than before, or, in other words, the consumer 
 will receive the same quantity of raw produce for a 
 greater amount of money ; or, if the supply of such 
 produce has diminished, without a correspondent in- 
 crease of the demand, the landlord will also, in this 
 case, receive a larger proportional amount of money 
 than before, or, which is the same thing, the consumer 
 will receive a smaller quantity of such produce for the 
 same amount of money. When Mr. Ricardo, there- 
 fore, speaks of an increased quantity of raw produce 
 falling to the share of the landlord, in addition to its 
 increased price or value, and of the landlord being in 
 consequence doubly benefited by difficuhy of produc- 
 tion, the idea is inconceivable. The money rent of the 
 landlord is of course plainly distinguishable from his 
 corn rent — but they must, under all circumstances, rise 
 and fall in an inverse ratio. His money rent is gov- 
 erned by the proportion which the demand bears to the 
 supply of raw produce — so also is his corn rent. A part 
 of what he gains in the one way he loses in the other. 
 Rent is therefore never in proportion to the greater or 
 less difficulty of production — that is, it does not in- 
 crease from a Law of Nature as the quantity of food 
 diminishes, and diminish as the quantity of food in- 
 creases : but is governed in its amount by those cir- 
 cumstances that keep the market, for any length of 
 time, understocked with the produce of the land. 
 There can then.be no increase of rent from an in- 
 freased quantity of raw produce in addition to it& 
 
24 NOTES ON 
 
 increaspd price, in any state of things : nor can the 
 hindlord acquire any such increase of rent from an 
 additional price o( raw produce, connected with the 
 *' original and indestructible powers of the soil/' for, 
 asunder all circumstances, these powers remain the 
 same, the landlord can never derive any addition to 
 Iiis rent tor the use of these powers. 
 
 We are now led to consider in ivhaf manner the 
 increased value of produce leads, in the new system, 
 to an increase of rent. Mr. Kicardo has this passage. 
 "In speaking of the rent of the landlord, we have 
 rather considered it as the proportion of the uhole 
 produce, without any reference to its e.vehangtahle 
 value: but since the same cause, the dithculty of pro- 
 duction, raises the earhangeable value of raw produce, 
 and raises also the pvporiion of raw produce paid to 
 the h^ndlord tor rent, it is obvious that the landlord is 
 donbli/ btnejiaed by diiliculty of production. First, 
 he obtains a greater share, and, secondly, the commo- 
 dity in which he is paid is of greater value,"'* The 
 new theory teaches besides, that the whole of the in- 
 creased price of raw produce raised on the worst land 
 goes to the cidtivator to defray the additional expenses 
 of cultivation, and the whole of the increased price of 
 that raised on the best land, to the landlord in the 
 form of additional rent. 1 he increased price, how- 
 ever, cannot take place under the circumstances sup- 
 posed. It is founded on an assumption, as we have 
 already remarked, ot' an increased demand and an 
 increased population — it is taken for granted that po- 
 pulation is augmenting whilst capital is diminishing. 
 The additional price cannot ihereibre be given. The 
 authors of the new theory of rent have in fact involv- 
 ed themselves in inconsistency. They make the rise 
 
 * Priucipies of Poliucal Ecououiy and Taiutioa. chap. 2. p. i>L 
 
POLITrCAL ECONOMY. 25 
 
 of raw produce to follow from difficulty of production, 
 and yet tliey state tlmt tlie demand for additional pro- 
 duce precedes^ as it must, the cultivation of inferior 
 land, which is, in fact, sayinc; that the increase of price 
 is both cause and effect. The price of raw produce 
 rises, say they, because the cost of obtaining an addi- 
 tiond quantity is increased, and yet this additional 
 quaniity is produced in consequence of the demand 
 auirnxMitin^ and the price rising. This is making the 
 in'.n'asc of the price t!ie ciTcct of additional demand, 
 and, also, the effect of additional exj)endiiure. 
 
 How then, it may be asked, can th;>t increase in the 
 price of raw produce which obviously goes to augment 
 rent be accounted for.? The excess of the price of 
 the products of the land caused by monopoly, above 
 that price for which they might be obtained if the mo- 
 nopoly did not exist, is the source of increase of rent. 
 The augmentation of rent arises, under all circum- 
 stances, from whatever cause prevents the supply of 
 food from being pro[)orti()ned to the demand. Defi- 
 cient harvests, as they are accidental in their occur- 
 rence, and their effects well known, need not be taken 
 into view. Every other limitation of the supply of 
 raw produce is either immediately or remotely con- 
 nected with monopoly. Perhaps the term monopoly 
 is not strictly accurate in the sense we employ it,* but, 
 
 * There arc various senses in which this term is employed. It is most fre- 
 quently used with the meaning 1 have just attributed to it, l)ut surely it does 
 not convey the same idea, in this sense, as when it is meant to be descriptive of 
 what is called natural monopoly, or that scarcity arising from a limited quan- 
 tity of peculiar products in the market, as in the case of certain wines, the 
 produce only of particular soils. This species of monopoly does result from a 
 law of nature: but the monopoly connected with rent arises out of certain 
 social arraw^tmcnts. In this case what is gained by one class of the commu- 
 nity, which these arrangements favour, is lost to another class — in the instance 
 of rent, what is gained by landlords is lost to the rest of the society. 
 
26 NOTES ON 
 
 as it has always been used lo c\f)iess that state of 
 things by which room is not pcnnittetl for the full 
 inlUienee and eilect of eonipetition, we have adopted 
 it as the most convenient for our purpose. It is agree- 
 able to every principle of supply and demand to con- 
 clude that as land is lorkcd up in the hands of large 
 proprietors, rents and raw produce should proportion- 
 ally advance. 
 
 The original division of land, and the state of law 
 consequent on that division, have a most important 
 intluence on rents, profits and wages. \i' the sove- 
 reign (as is the case in some of the Eastern JMonar- 
 chies) should be the sole proprietor of the soil, and 
 exact an undue portion of its produce as rent, it is in 
 principle the same as the aj>propriation of land in large 
 portions by an aristocracy who have fenced tlieir pos- 
 sessions and prevented their free alienation by the 
 barriers of law. If land cannot be brought freely 
 into market tor sale or mortgage, it will not be pre- 
 te^idcd that it w ill sell or rent at a competition price, 
 or thai price w hich is in proportion to its natural fer- 
 tility. This is the true criterion of the real value of 
 rent. All that is obtained as rent, (in the absence of 
 commercial restrictions,) above the power of land in 
 a natural state, to yield the necessaries of life, is attri- 
 butable to the peculiarity of its division, and to the 
 laws by \\ hich its alienation by devise or its transfer 
 bv purchase is clogged. 
 
 If we suppose on the settlement of a new country 
 that land is of easy acqui>ition, and that division pre- 
 vails which is most conducive to the increase of capital 
 and jiopubtion, in such a case land being obtainable 
 at the priieof freecompetiiion.its rent can never exceed 
 its productive powers derived Irom nature. This is 
 
POLITICAL ECONOMY. 27 
 
 on the supposition that capital and population are in 
 due proportion, and that no obstacles exist to a free 
 commercial intercourse with other countries. If land, 
 under these circumstances, is purchased to hire, its 
 rent must continue invariable in amount, and must 
 be governed by the same law which regulates the in- 
 terest on a loan of capital to be employed productive- 
 ly by the borrower. The amount of rent can never 
 vary— ran never increase nor diminish, because the 
 natural fertility of the land — its " original and indes- 
 tructible powers," are always supposed to be the same. 
 It is the use of these powers for which rent is paid, 
 and whatever value the proprietor sets on them, or 
 what they have cost him, must determine, on the prin- 
 ciple of an ordinary loan, the amount of value annu- 
 ally paid for their use — in other words, the amount of 
 rent. The price of food raised on such land, the 
 price of the land itself, and its rent, will all be at fair 
 competition rates — which we may call the natural 
 price and rent of land. 
 
 Let us now suppose the settlement of a country 
 where the land is appropriated by persons who become 
 the proprietors of large tracts. Let us further sup- 
 pose that its alienation is prevented, on the demise of 
 the owners, by the law of descent — that its transfer 
 by mortgage and sale is trammelled from the difficulty 
 of ascertaining title, and by the complexity of the 
 forms by which its transmission is regulated. The 
 value of land, in such a state of things, must be higher 
 than where, as in the other case, it can be brought 
 into market without restrictions on its transfer or 
 alienation. A relatively higher price of land, a rela- 
 tively higher rent, and relatively higher price of raw 
 produce, must be the consequences. All that portion 
 
28 NOTES ON 
 
 of* price and rent obtained above what would have 
 been obtained if land had been subject in its rent and 
 price to the principle of uin-estrained competition, may 
 be denominated monopoly rent and monopoly price, 
 in contradistinciion to natural price and natural rent. 
 The price and rent of land, in such circumstances, 
 are prevented from falling as low as they w ould tall 
 if the competition of proprietors to sell or landlords to 
 hire was as great as the competition of capitalists to 
 purchase and of farmers to lease. If we pursue this 
 parallel, and suppose these countries to have equal 
 taxation, equal natural fertility (>f soil, and equal im- 
 provements in agriculture, the excess of the price of 
 raw produce, in the country subject to the disadvan- 
 tages mentioned, above the price at which it could be 
 imported would exactly measure the extent of the 
 monopoly, and it would be undersold in its own mar- 
 kets by the country more favourably circumstanced. 
 In such a case, unless a duty were laid on the imported 
 corn in proportion to the difierence of the price, the 
 whole supply must come from abroad, and no land 
 could be cultivated in the country suffering under this 
 species of monopoly, however fertile and convenient 
 to market. This case is put on the supposition that 
 there are no duties, or equal ones, laid on the raw 
 produce of ehher country by the other. It follows 
 that the consumers of corn in the country whose land 
 is tied up by the law of descent, and its transfer 
 clogged by legal forms, must pay a higher price for 
 food than the consumers of corn in the country which 
 permits land to come freely into market for sale or 
 rent. The saving which the labourer would have 
 made in that part of his waives applied to the purchase 
 of food, and tliose articles of his coiisumjaion of 
 
POLITrCAL ECONOMY. 29 
 
 which raw produce forms a part, is prevented ; the 
 addition which the capitahst would have made to his 
 revenue by a similar saving, is also prevented. In 
 this view it is that an increase of rent, arising froai a 
 higher price of food than would have existed under a 
 different state of things, is a transfer from profits and 
 wages to rent. If those to whom the profits and 
 wages rightfully belong, were permitted to derive the 
 whole benefit of their skill and exertions, it would 
 form a stimulus to the further increase of capital and 
 population, or it would enable the existing population 
 to subsist in greater comfort. Being spent as revenue 
 and unproductively, it prevents as rapid an increase 
 in national wealth as prevails in countries where the 
 whole of the difference between the costs of cultiva- 
 tion and the price at which raw produce sells, is divi- 
 ded between the labourer and capitalist, allowing the 
 rent of land, in its natural state, as among these costs. 
 If, in addition to this cause of the higher price of food, 
 is added restrictions on ihe trade in corn, the effect is 
 the same in kiiid, and only different in degree. It is 
 an aggravation of the evil from an extension of the 
 monopoly. These restrictions may be temporary, 
 but the faulty or unequal division of land, and the 
 institutions to which it gives rise, to preserve the influ- 
 ence of a landed aristocracy, may endur*^ for centuries. 
 As long as such a state of things exists, the price of 
 landed products is prevented from falling to that level 
 which unlimited competition would effect. The in- 
 ferences from this review are these — 
 
 First, that the rent of land has its origiji in natural 
 fertility, or those " original and indestructible powers 
 of the soil" by. which it is made to yield a surplus 
 
30 NOTES ON 
 
 above the profits of the capital and the wages of the 
 labour etriployed in its cultivation : 
 
 Secondly, that the mcrea.e of rent is owing to those 
 circumstances which limit the supply of raw produce, 
 either 'from restrictions on commercial intercourse, or 
 from a faulty division of the land and the laws by 
 which its free transfer and alienation are prevented, 
 or from both circumstances united ; 
 
 Thirdly, that no increase in the quantity of raw 
 products can augment rent, and that no increase in 
 the price of those products, which in fact goes to aug- 
 ment rent, can take place unless the supply is pre- 
 vented from being proportioned to the demand. 
 
 The commencement of rent, according to the new 
 doctrine, is delayed until land of a decreasing fertility 
 is taken into cultivation. The best land and the worst 
 are put on the same level in this respect, until a cer- 
 tain period of time has elapsed. But rent, pursuant 
 to one of Mr. Ricardo's definitions, (being " for the 
 use of the original and indestructible powers of the 
 soil,") should commence as soon as those powers are 
 made available for the purposes of cultivation. It 
 should, consistently with this definition, have its begin- 
 ning from the moment those powers are brought into 
 profitable use. Suppose land on the first settlement 
 of a country purchased as an investment, the proprie- 
 tor preferring hiring to cultivating it, will not rent be 
 derived from the instant it can be made to yield a 
 sufficient quantity of produce to pay rent in addition 
 to wages and profits ? The authors of the new theory 
 would not contend that the cultivation by the propri- 
 etor himself would make any difference in this respect. 
 If he prefers to cultivate rather than to hire, he must 
 receive an interest on his capital, which is only an- 
 
POLITICAL ECONOMY. 31 
 
 Other name for rent. He must obtain such a quantity 
 of produce, or its value, as will pay him an anima' 
 sum in the ratio of his investment, in addition to what 
 he derives, as cultivator, for profit. 
 
 Mr. RiCARDO lays much stress on the circumstance 
 that, in new countries, land is abundant and cheap, 
 but it does not follow that because land is abundant 
 that it can be obtained for nothing. No one, says 
 he, " would pay for the use of land when there was 
 an abundant quantity not yet appropriated, and there- 
 fore at the disposal of whosoever might choose to 
 cultivate it."* This is, however, assuming what does 
 not exist ; it is taking for granted that land is not 
 generally appropriated where it is most fertile and 
 abundant, and that any cultivator who chooses may 
 convert it to his benefit without paying any thing for 
 its use. " On the common principles of supply and 
 demand," says he again, " no rent could be paid for 
 such land, (he is speaking of the fertile land of a new 
 country,) for the reason stated why nothing is given lor 
 the use of air and water, or for any other of the gifts of 
 Nature, which exist in boundless quantity."! Now it 
 is not true that land exists an)' where in such bound- 
 less quantity as to be without price or value when 
 available for profit to a cultivator ; nor is it correct to 
 compare land to air and water, which, in themselves, 
 have a value in use, but no value in exchange. Land 
 is capable of appropriation — air and water are not. 
 Land, from its abundance, may be oi little value, and 
 some land, on account of its distance from markets, 
 may lie waste from the want of purchasers or lessees, 
 but the real question is this : when land can be made 
 
 * Principles of Political Economy and Taxation, chap. 2, p. 37. 
 I Idem. chap. 2, p. 37. 
 
32 NOTES ON 
 
 to yield more than the ordinary profits of stock and 
 wages of labour, will any one be suffered to appro- 
 priate or occupy it without price or rent ? 
 
 It is not presenting the question in its true aspect, 
 therefore, to consider land without reference to de- 
 mand. Mere quantity without de i.and, can determine 
 nothing in relation to exchangeable value. The worst 
 lands of an old country, or the best lands of a new 
 one, may remain on the same footing as to value. The 
 great distance of the most fertile tracts from markets, 
 may produce the absorption of the whole price of 
 their products in the costs of transportation, as the 
 sterility of a portion of the territory of an old coun- 
 try may prevent such returns as will pay the costs of 
 cultivation. The demand and the price may, how- 
 ever, increase so as to permit the cultivation, with both 
 profit to the cuhivator and rent to the landlord, of 
 land too far distant from markets or too sterile to be 
 cultivated under ordinary circumstances. If the de- 
 mand for and the price of raw produce should aug- 
 ment to this extent, land which before could command 
 neither purchaser nor lessee, will yield some rent to 
 the landlord, otherwise, if cultivated the addition to 
 the price will go into the pockets of the cultivators and 
 disturb the level of profit between agriculture and 
 other employments. If the price of necessaries is 
 forced up by a high stimulus to population, and diffi- 
 culties are thrown in the way of importation, land, 
 which in ordinary circumstances- might lie waste, 
 would pay nothing, after cultivation, for original or 
 natural fertility. Its power of paying rent has its 
 origin in a forced state of things. It is the effect of 
 the api ilcation of excessive stimuli, which, when with- 
 drawn, will throw the land which has felt its influ- 
 
POLITICAL ECONOMY. 33 
 
 ence again out of cultivation. It would appear, there- 
 fore, that, under all circumstances imaginable, when- 
 ever or wherever land is cultivated, whether it be more 
 or h^ss fertile, near or distant to markets, it pays rent, 
 and it seems neither agreeable to fact nor just theory, 
 to say that rent does not commence before the natural 
 power of the soil to produce food begins to diminish. 
 It is not a little singular that the discrepancy be- 
 tween this opinion and the definition given of rent by 
 Mr. RicARDO did not occur to him. He considers the 
 fertility of the laud the foundation of rent, for it is 
 " that portion of the produce of the earth which is 
 paid to the landlord for the use of the original and 
 indestructible powers of the soil." Yet the new theory 
 teaches that when the productiveness of these powers 
 begins to lessen, that rent commences and increases 
 with every step in the descending scale of fertility. 
 Mr. Malthus has strongly insisted on the advantages 
 of absolute or natural fertility. He considers it as a 
 gift of Heaven to man of the highest value : he views 
 it as the source of the greatest social improvements : 
 he explains it to be the origin, by the relief from labour 
 it affords, of arts, sciences, &c.* yet this great gift is 
 never rendered available until the lapse of a certain 
 period of time ; these inestim able powers of the soil 
 are never made to yield that surplus, in the form of 
 rent, which is described as the peculiar attribute of 
 the land above every other natural agent, until they 
 begin to diminish in productive energy — until natural 
 fertility lessens. From the view of the subject we 
 have taken, we consider rent, therefore, to commence 
 from the moment land is taken into cultivation, and 
 that its amount will be regulated by the surplus which 
 
 * Principles of Political Economy, chap. 2, sec. 10, p. 179- 
 
 5 
 
34 NOTES ON 
 
 it will yield after the replacement of the capital of the 
 cultivator with the average rate of prolits and wages. 
 In a state of society in which neither taxation, 
 conunercial restrictions, nor a vicious division of the 
 land, prevents the labourer and capitalist from receiv- 
 ing as large a share of its produce as they are entitled 
 to from their skill and exertions, rent will never ex- 
 ceed, as J have endeavoured to show, the originally 
 productive powers of the soil. It follows that as po-^ 
 pulation increases and fresh land must be cultivated to 
 raise the additional food required, the rent paid for 
 the use of land of decreasing fertility will be rela- 
 tively less than that already in cultivation by the dif- 
 ference in its naturally productive power. The rent 
 received for land of this comparative inferiority wdll 
 then be in proportion to the surplus it can be made to 
 yield, after the deduction of all the expenses of culti- 
 vation, including, of course, average profits and wages, 
 as in the instance of the land first cultivated. On every 
 descent made in the scale of fertility, the same prin- 
 ciple will apply. Let us adopt the illustration of Mr. 
 RiCARDO, although for a different purpose.* Thus, 
 suppose land No. 1, 2 and 3 to yield, with the employ- 
 ment of an equal quantity of capital and labour, 100 
 90 and 80 quarters of corn respectively, and suppose 
 60 quarters to be the net return on each quality. The 
 surplus on No. 1, which would constitute rent, would 
 be 40 quarters, on No. 2, 30 quarters, and on No. 3, 
 20 quarters. These portions would exactly measure 
 the originally productive power of these different 
 qualities of land. Now, as the population increased, 
 so as to make a resort to No. 2 necessary, the increase 
 of skill and science in Agriculture that had taken 
 
 • Principles of Political Economy and Taxation, chap 2, p.S9. 
 
POLITICAL ECONOMY. 35 
 
 place, would permit capital to be employed on No. 2, 
 witii increased returns. Whether it were employed 
 on No. 2 or No. I , would make no difference as to 
 profit—the capital applied to No. 2 would be equally 
 productive with that applied to No. I, with propor- 
 tionally less rent. No. 2 is resorted to, however, be- 
 cause land is of limited extent, and constant additions 
 to the quantity of raw produce cannot be made on 
 the same surface. No. 2 would not then be cultivated 
 unless it could be made as productive and profitable 
 with the same outlay as No. 1, and unless the landlord 
 consented to receive a relatively less rent than the 
 owner of No. I, in the ratio of the difference in their 
 productive powers. If improvements in agriculture 
 had not taken place so as to yield as large returns, 
 with an equal amount of capital, on No. 2 as on No. 
 1, no additional quantity of food could be provided, 
 and population would come to a stop. It is only ne- 
 cessary to extend the same principle to No. 3, and so 
 on. The increase of population, therefore, depends 
 on the extent of the improvements in agriculture, and 
 inferior land is laid down in tillage exactly in propor- 
 tion as these improvements extend. This is the reverse 
 of the new theory which connects the augmentation 
 of population and produce with the increased difficulty 
 instead of the increased facility of production. This 
 is only an extension, however, of the principle with 
 whose wonderful results in Manufactures we are fa- 
 miliar. 
 
 Why should a different law prevail in one of the 
 great departments of production to that which gov- 
 erns in the others ? Is it not consonant to the general 
 analogy of Nature to conclude that a provision is 
 made in the skill and inventive powers of man for the 
 
36 NOTES ON 
 
 decay, or rather the inequality, of those natural re- 
 sources which minister to his necessary waiits ? Vvhat 
 evidence is there, that skill, science and ingenuity are 
 not, in all stages in the progress of society, able to 
 overcome that natural inferiority of soil which refuses 
 to yield, without the co-operation ol' these powerful 
 human aids, an increase of the means of subsistence? 
 The results of skill and science in Manufactures are 
 visible to all — they are embodied in machinery. But 
 in 4griculture they become a part of the soil, or are 
 blended with it and cannot be distinguished from it. 
 We are therefore urging no novel principle in insisting 
 that in Agriculture the inventive powers of producers 
 will be as efficacious from the same causes as in Manu- 
 factures. That they will be equally efficacious is 
 necessary to the level of profit or to an equality of 
 benefit between Agriculture and other employments. 
 From the view, then, which I have taken of the 
 subject of rent, it may be supposed that I do not acqui- 
 esce in the conclusions drawn by those writers who 
 consider rent, under all circumstances, in the nature of 
 a monopoly. The price paid for the hire of land, 
 supposing it cultivated exclusively by the capital of 
 the farmer, or, in other words, the sum given annually 
 for the use of its " original and indestructible powers," 
 cannot be considered as connected with monopoly of 
 any kind. This is, as I have already remarked, the 
 natural rent of land, whether it is cultivated by the 
 proprietor or any other person as lessee. It is almost 
 unnecessary to add that the higher rent, under any 
 circumstances, paid to the landlord, is connected, as we 
 have endeavoured to show, with monopoly, either ari- 
 sing out of the possession of land in the manner alrea- 
 tlv descrihefl, or with restrictions on the trade in com. 
 
POLITICAL ECONOMY. 37 
 
 Mr. Malthus insists that rent is not governed by 
 the laws of monopoly under any circumstances what- 
 ever. Mr. SiSMONDi, in his work de la Richesse 
 CommerciaJe,* views rent under all circumstances as 
 of the character of an ordinary monopoly. Mr. 
 Buchanan, in his edition of the Wealth of Nations,! 
 entertains the same idea. But this is confounding the 
 rent paid for the " original and indestructible powers 
 of the soil" with that arising from the price at which 
 raw produce sells above what it would bring, if re- 
 straints on importation and the monopoly connected 
 with the possession of land in many countries, of 
 which I have already spoken, did not exist. As the 
 former is natural rent, it is governed by the laws 
 which regulate a loan of capital, and not by those 
 which monopolized commodities obey. It does ap- 
 pear singular, as asserted by Mr. Malthus, that Mr. 
 RiCARDo should, holding the opinions he has expressed, 
 coincide with Mr. Sismondi and Mr. Buchanan in 
 these views on the subject of rent. Surely, if rent, 
 according to Mr. Ricardo, arises out of the necessity 
 of resorting to inferior soils, it is the deduction of a 
 fact from a Law of Nature. There is, therefore, an 
 evident inconsistency between this idea and the notion 
 of an ordinary monopoly — that which is deduced from 
 a Law of Nature cannot possibly partake of the char- 
 acter of monopoly in the sense of this term when Mr, 
 Ricardo considers it as leading to a transfer from 
 profits and wages to rent. 
 
 From these principles it appears necessarily to fol- 
 low that rent must be a component part of price. 
 
 * Vol. 1, p 49. 
 
 t Vol. 4, p. 134 These references to the opinions of Mr. Sismondi and Mr^ 
 Buchanan are taken from Mr. Malthus' work already quoted. 
 
38 NOTES ON 
 
 No land, as I have endeavoured to show, that will 
 yield a quantity of produce above the expenses of 
 cultivation, will be suffered to be cultivated by any 
 one but the proprietor, unless something is paid for its 
 use. The surplus is his property, and no one will be 
 allowed either to appropriate or use it whhout an 
 equivalent. The payment of this surplus, or of a 
 value equal to it, must be as much one of the condi- 
 tions of the supply of raw produce as the other ex- 
 penses of cultivation. 
 
 It would then appear from this view, that the argu- 
 ment of those who consider Agriculture the most 
 productive employment, is founded on the misconcep- 
 tion that, because land can be made to yield, in certain 
 parts of the world, a high rent, this is additional value 
 or a net surplus peculiar to land. 
 
 The large portion of the produce of the soil trans- 
 ferred, in the form of rent, in consequence of the 
 social arrangements that have taken effect throughout 
 Europe, has given rise to the idea of a net surplus 
 peculiar to Agriculture. But we perceive that where 
 more natural arrangements prevail, there is no sur- 
 plus for rent, in the sense of this term as it is generally 
 understood. The proprietor of land in a new and 
 fertile country, as in the United States for example, if 
 he is the cultivator himself, derives, as we have shown, 
 an amount, in addition to the profit on the capital 
 employed in cultivation, in proportion to his invest- 
 ment in the purchase of the land itself, and we may 
 call this rent or not as we please ; yet we would find, 
 if we could make the comparison, that this amount 
 is much less than that received as rent on the same 
 quality of land, all other circumstances being equal, 
 in any part of Europe. 
 
POLITICAL ECONOMY. S9 
 
 CHAPTER II. 
 
 PROFITS AND WAGES. 
 
 IT is scarcely possible, nor is it necessary, to sepa- 
 rate Profits from Wages in investigating the principles 
 by which their increase and decline are regulated. 
 The laws which they obey are strikingly similar, and 
 they lead to results in the progress of national im- 
 provement, nearly identical. In our reasonings con- 
 cerning wages and profits we must distinguish between 
 what is received in money amount from what the amount 
 derived will command either of labour or commodi-^ 
 ties. Money profit is the quantity of money re^ 
 ceived by the capitaHst as the return from his invest- 
 ment — real profit is the quantity of produce, whether 
 destined for unproductive or productive consump- 
 tion, for which this money will exchange. 
 
 Money wages are the quantity of money received 
 by the labourer for his labour — real wages the quan- 
 tity of the conveniences and necessaries of life his 
 money wages will command. The rate of profit must 
 therefore be in proportion to the difference between 
 the outlay and the returns, not in money, but in what 
 that money will purchase. The rate of wages is in 
 
40 NOTES ON 
 
 proportion to the difference between the money re- 
 ceived bv the labourer and what that money wilJ 
 command of the commodities necessary to his sub- 
 sistence. 
 
 In the progress of society money wages fall, in a 
 natural state of things, and real wages rise. Real 
 wages rise, because the price of necessaries falls, and 
 the labourer's command of them is increased. Money 
 wages fall, because the labourer, from the rise of his 
 real wages, is induced to marry and multiply, by 
 which the number of labourers is increased in the 
 market. But real wages will rise in a higher propor- 
 tion than money wages fall, or the condition of the 
 labourer would not be improved, and he would not 
 be induced to marry and increase. 
 
 Money profits do not fall in the progress of society, 
 for although the prices of all commodities decline, 
 their quantity increases in an equal proportion, and 
 the capitalist receives as large a money amount as 
 before the decline. Real profits rise, for they depend 
 on the amount of the returns in produce compared with 
 the amount of the expenditure, and as the quantity of 
 productions in the progress of society is multiplied, the 
 real gains of the capitalist must increase. 
 
 We thus see how well these principles harmonize 
 with those laid down on the subject of rent and the 
 increase of the produce of the land. There can be no 
 addition, in the first instance, to raw products unless 
 the productive powers of the soil are increased. The 
 additional produce is brought within the reach of a 
 greater number of consumers from the fall of its price. 
 The number of consumers is increased in proportion 
 to the addition made to the means of subsistence, on 
 the principle that as quantity augments, price is re- 
 
POLITICAL ECONOMY. 41 
 
 duced and consumption enlarged. The labourers, in 
 the ratio of their increase, are compelled to receive 
 less wages, which enables the capitalist, with the same 
 money amount, to employ an additional number of 
 labourers, or an additional quantity of labour, which 
 is the same thing, and which, as we see, has been al- 
 ready provided. Thus is capital made not more in- 
 strumental to the increase of population than popula- 
 tion to the increase of capital — thus is the ratio of their 
 increase precisely equal. Wages do not encroach on 
 profits nor profits on wages. All that is necessary to 
 the final results is, that science and skill should be able 
 to overcome the difficulty of production on land of a 
 decreasing fertility. 
 
 The effect of an augmentation of the quantity of 
 raw produce, from the diminished difficulty of produc- 
 tion, must give such a stimulus to population as will 
 reduce money wages. There is the cost of producing 
 labourers as well as the cost of producing the labourer's 
 subsistence. The cost of production with regard to 
 the labourer, is the price of that food and those neces- 
 saries which are essential to the continuance of the 
 race of labourers, and ensure a sufficient supply of 
 them. And as the consequence of an addition to 
 supply, is a decline in price, money wages must inevi- 
 tably fall, on the same principle that raw or manufac- 
 tured products are reduced in price from increased fa- 
 cility of production. But if the cultivator will be 
 able to command an increased quantity of labour, in 
 consequence of a fall in money wages, (labour being 
 the most costly of the instruments of production,) it 
 will further stimulate production on the land, pro- 
 moted, as it must be, by additional skill and science. 
 Raw produce must again augment in quantity, its 
 6 
 
42 NOTES ON 
 
 price must again fall, and by enabling the labourers to 
 command more food and necessaries, induce them 
 further to increase, which will again add to the supply 
 of labour in the market- Thus the same series of 
 effects is always recurring and never interrupted but 
 by the folly or selfishness of those who are entrusted 
 with power. 
 
 The reader will not tail to see the importance of the 
 principle, that the reduction of money wages enables 
 the capitalist to command an increased quantity of 
 labour for the same money amount, or the same quan- 
 tity for a smaller money amount. His interest will 
 prompt him to increase the number of his labourers, 
 for e\ ery additional fall in the price of his commodity, 
 as it is increased in quantity, extends the demand for 
 it. This principle, so important and necessary to ex- 
 plain the phenomena of production, seems to have 
 been entirely overlooked by the school of Mr. Ricar- 
 Do, who never view the increased quantity of labour 
 necessary to an augmentation of produce in connexion 
 w^ith a fail in its price, or conceive the possibility of 
 such a reduction of money wages as will enable the 
 capitalist to employ an additional number of labour- 
 ers or greater quantity of labour, to obtain an aug- 
 mentation of produce, without a proportional increase 
 of expenditure. 
 
 How much more consonant with what we may 
 suppose the arrangements of Nature thus to infer that 
 population and capital are permitted to increase to- 
 gether. According to the new theory they are alter- 
 nately checked in their increase, each by the other, 
 at repeated intervals. Profits caimot fall below a 
 certain limit, for the capitalist can have no motive to 
 accumulate, if the accumulation is to be absorbed by 
 wages as soon as made. But the fall of wages has its 
 
POLITICAL ECONOMY. 43 
 
 limit also. Tiie population must decline if the la- 
 bourer's wages are so reduced as greatly to lessen his 
 command of the means of subsistence. 
 
 The authors of the new theory, perceiving to what 
 results it led, were compelled to place the limit to a 
 fall of profits and wages when the capitalist would 
 have no further motive to accumulate, and the labourer 
 no additional inducement to marry and increase, for, 
 unless this had been conceded, the landlord must have 
 absorbed, in constantly increasing rent, all the profits 
 and ail the wages — (i reduclio id absurdum. What 
 then jjiust be supposed to take place on the new sys- 
 tem ? Wages rise until they can rise no higher, from 
 the inability of the capitalist to pay any more for 
 labour. They then must begin a retrograde course — 
 thev begin to fall, to allow the capitalist the power to 
 increase his capital by an increase of profit, for, on 
 this system, it is as wages fall that profits rise ; but as 
 soon as the capitalist's profits are augmented to a cer- 
 tain point, wages will again rise and soon overtake 
 the increase ol capital. During the period between 
 the fall and the rise of wages, the condition of the 
 labourer must be miserable, for not only is he made 
 to receive a smaller money amount for his labour, but 
 this isum commands, from the rise of raw produce, 
 fewer of the necessaries and conveniencies of life. 
 To such inconsistent results does the new theory lead. 
 This course is retarded but for very short periods by 
 improvements in Agriculture, pursuant to this theory, 
 for it teaches that, by a Law of Nature, raw produce 
 is raised with increased difficidty, or that the costs of 
 cultivation are augmented in the progress of wealth 
 and population without a proportional increase of 
 produce. 
 
44 NOTES ON 
 
 " With the progress of society (says Mr. Ricardo) 
 the natural price of labour has always a tendency to 
 rise, because one of the principal com modifies by 
 which its price is regulated, has a tendency to become 
 dearer, from the greater dithculty of producing it. As, 
 however, the improvements in Agriculture, the disco- 
 very of new markets, whence provisions may be im- 
 ported, may, for a time, counteract the tendency to a 
 rise in the price of necessaries, and may even occa- 
 sion their natural price to fall, so, also, the same causes 
 produce the correspondent effects on the natural price 
 of labour."* Again : " The natural price of all com- 
 modities, excepting raw produce and labour, has a ten- 
 dency to fall in the progress of wealth and popula- 
 tion "f 
 
 Mr. Malthus also admits the effect of improvements 
 in Agriculture in lowering the price of raw products, 
 but he Slates the ditlQculty of production, as the most 
 efficient cause, and capable in the end of overpower- 
 ing the principle of improvement. J 
 
 But it may be said that the doctrine we have been 
 conteuding for is contradicted bv the state of things, 
 that took place in Great Britain during the last general 
 war, when the price of raw produce rose at the same 
 time that both money wages and profits increased. 
 According to the principles we have laid down, the 
 prices of labour and raw produce ought to have fallen 
 if profits advanced. Instead then of there being a 
 reduction of money and a rise of real wages, these 
 fell, or, which is the same thing, the price of raw pro- 
 duce rose, and money wages increased. But in this 
 
 * Principles of Political Economy and Taxation, chap. 5, p. 67. 
 f Idem, chap. 5, p. 68. 
 
 * Principles of Political Economy, &:c. chap. 5.. pp. 233. 234. 
 
POLITICAL ECONOMY. 45 
 
 case, although the effects were reversed, the principle 
 for which we contend is sustained. 
 
 It will be recollt^cted that it is the difference between 
 real wages and money wages that forms the true re- 
 ward of labour. This difference may be caused as 
 well by a rise of money u aoes as by a rise oi' real 
 wages. If, whilst real wages fall, money wages rise in 
 a higher proportion, a difference is created as vvell 
 as v.'hen these effects are reversed. The causes that 
 produced the advance in the price of labour, in the 
 period and country above referred to, are very obvious. 
 The demand for labour rose faster than the supply 
 could be furnished. The population increased very 
 rapidly, but the demand, for the whole period in ques- 
 tion, was in advance of the increase. The war em- 
 ployed unusual numbers of the people, and the effect, 
 in consequence of this circumstance, was that the 
 market, for the entire period of the war, was under- 
 stocked with labour, which advanced money wages 
 in a higher proportion than it depressed real wages. 
 
 But the great reward, or high wages of labour, as 
 well as the high profits of capital, kept up also the 
 price of raw produce, for the labourer and capitalist 
 had an increasing money amount to devote to the pur- 
 chase of the necessaries of life. The supply of raw 
 products was augmented, but it was not increased in 
 proportion to the additional wants or additional de- 
 mand of the increasing population. The demand was 
 always therefore in advance of the supply of neces- 
 saries, which augmented their price. We see, then, 
 that the price of labour rose instead of falling, and, 
 by increasing the costs of production, must have, ap- 
 parently, on the principles we have been explaining, 
 proportionally reduced profits. But although that 
 
46 NOTES ON 
 
 portion of the cultivator's expense, consisting of wages, 
 increased with the other parts of his outlay, still the 
 quantity of produce obtained far exceeded this increase 
 of expenditure. 
 
 It will be recollected that the stimulus to the inven- 
 tive powers of producers was of an uncommon kind, 
 and that the inducements to improve machinery em- 
 ployed on the land, to save in animal power generally, 
 as well as to increase the productive powers of the 
 soil, from the more skilful use of manures, cannot be 
 judged of from what takes place in ordinary circum- 
 stances. The wages of labour, it should also be borne 
 in mind, were preyented from rising to the height they 
 would have reached from the eifect of the legal as- 
 sessment for the relief of the poor. The labourers, 
 from an unnatural competition among themselves, were 
 thence precluded from receiving as large a recompense 
 as they were entitled to, from the increased demand 
 among employers. Wages, therefore, did not rise in 
 an equal ratio to the increase of capital and of work 
 to be done, although the condition of the working 
 classes was universally much improved. 
 
 If these opinions be correct, the doctrine of a ge- 
 neral glut, (if by this is meant a glut in a particular 
 country,) which has excited so much controversy, must 
 be sustained. A glut of certain commodities is the 
 consequence of production exceeding demand in cer- 
 tain quarters, or of a faulty distribution of capital, 
 and the principle admits of an extension to the whole 
 of the commodities produced by a country, if the 
 productive powers of such country had been previous- 
 ly stimulated in an uncommon degree by an unusual 
 foreigfi demand. In the instance we have been con- 
 sidering, what occurred ? In Great Britain profits fell, 
 
POLITICAL ECONOMY. 47 
 
 after the cessation of the foreign demand, not in one or 
 a few employments, but in all. Wages fell too univer- 
 sally. Rents fell also, and the whole in the order they 
 had risen — Hianufacturing and commercial profits and 
 wages first, and agricultural profits and wages last. 
 In the United States, the same eftects were also expe- 
 rienced in all employments as the foreign demand 
 ceased. In both countries commodities were produced 
 in excess compared to the demand, and their prices 
 fell because the former demanders supplied again their 
 own wants; they became, when their habits of indus- 
 try had been resumed, producers as well as consumers. 
 
 It is an admitted doctrine, that if there is excess of 
 commodities and capital in one or more employments, 
 there must be a relative deficiency in others ; but, al- 
 lowing the accuracy of this principle, it is inapplicable 
 to the cases in view. There was no evidence of the 
 deiective or unequal distribution of capital in either 
 country ; and the best proof that a general glut exist- 
 ed in both, was to be found in the fall universally in 
 both, not only of profits but wages. 
 
 But if by the expression general glut is meant a 
 glut in all countries, such a consequence is inconceiv- 
 able. The different states of the great commercial 
 commonwealth are in this view like the different dis- 
 tricts of the same country, or like the various employ- 
 ments carried on within it. If from any cause capi- 
 tal or population should be in relative excess in a par- 
 ticular district, it must flow to that or those districts 
 in which there is a relative deficiency, until the equi- 
 librium is restored. If higher relative profits or wages 
 are derived by those who follow certain employments, 
 they will attract capital or labour, in the same man- 
 ner, until the level is brought about. We have only 
 
48 NOTES ON 
 
 to apply the same principle to rhe dififerent states com- 
 posing the great commercial republic, and if any cir- 
 cumstance has happened to produce a different distri- 
 bution of capital between them to what ordinarily 
 prevails, the same effects, on a more extended scale, 
 will follow. 
 
 It is true, as Mr. Say has asserted, that productions 
 are bought finally with productions* — in other words, 
 when no unusual circumstances cause a derangement 
 in the ordinary relations of commerce between coun- 
 tries, there is as nmch produced on one side as on the 
 other ; or in a trade of barter, equal value is given for 
 eaual value received. These are the natural arrange- 
 ments established through the self interest of indivi- 
 duals. But wars, especially if they are general and 
 long protracted, disturb these natural arrangements, 
 and by stimulating excessively on one side, whilst they 
 stop the powers of production on some other, disturb 
 in a more than ordinary degree the natural state of 
 prices between countries. 
 
 But the effects will be felt long after the causes of the 
 disturbance have ceased to act. The equilibrium of 
 prices between countries, like that between different 
 districts of the same country, or between different em- 
 ployments carried on within it, must be finally restored, 
 and those countries which have had their powers of 
 production excited in the greatest degree, will have to 
 endure, when the re-action occurs, the longest period 
 of suffering. t In the unnatural state of things which 
 leads to these results, those countries whose powers of 
 production have been suspended, will have no increase 
 
 * Treatise on Political Economy, chap. 15, p. 87. 
 
 t Mr. Malthus makes a similar remark. See his Principles of Political 
 Economy, p, 387. 
 
POLITICAL ECONOMY. 49 
 
 of produce to exchange with states, for the time, more 
 favoural)ly circumstanced. As their revenue lioes not 
 augment, a pHtri of their capital must be encroachs-d 
 upon to supply their necessary wants. The conclu- 
 sion from this view is, therefore, that the rise in the 
 general rate of profits and wages, in the United States 
 and Great Britain, during the hostilities in Europe, 
 and their subsequent fall, were the effects of an unna- 
 tural state of things. The general change on the 
 continent of Europe from the arts of peace to the 
 pursuits of war, and then back again to the occupa- 
 tions of peace, caused so great a derangement in the 
 ordinary relations between prices and demand, that 
 the phenomena were as unlooked for as they were 
 difficult of explanation. 
 
 It is necessary then to distinguish between a general 
 rise of profits and wages in a particular country, produ- 
 ced by an excessive stimulus, and that general rise which 
 is the effect of its regular progress in wealth and popu- 
 lation, anfi to distinguish between a fall of the Siune 
 nature, when the stimulus is withdrawn, from that fall 
 which occurs from circumstances, such as heavy taxes, 
 war expenditure, &c, thai impede the acquisition of 
 riches and the aiignientalion of population. 
 
 When the advance or decline of profits and wages 
 is grueral, all capitalists or labourers gain or lose in an 
 equal proportion. But when the advance or decline 
 takes place in particular employtnents, it is to the b-^ne- 
 fit or disadvantage of those who pursue those employ- 
 ments to the loss or gain of others in the society. 
 The equilibrium between these employments and the 
 oth; i < will be finally a ijusted by the operation ol the 
 principle of compedtion. 
 7 
 
5e NOTES ON 
 
 The limit to a fall of profits from heavy taxation is 
 nor very remote. The rise of profits from increased 
 faeility of production is without limit. We have ex- 
 plained the circumstances that deteruiine the natural 
 increase in the rate of profit. We have also endea- 
 voured to show that when it increases in a higher 
 ratio, it is the effect of unusual excitement, which must, 
 sooner or later, be succeeded by a re-actiun and stag- 
 nation, which proportionally reduce it. To the point 
 then, of natural increase in their rate, profits always 
 converge, however they may occasionally rise above 
 or fiill below it. The principle of competition can 
 have no influence on the progress of either profits or 
 wages, in a natural state of things. Profits and wages 
 advance inevitably in the regular progress of society, 
 as has been shown. 
 
 It is not a little singular that Mr. Malthus should 
 so much underrate the importance of the principle, 
 that an increase of capital is necessary to provide both 
 employment and maintenance for additional popula- 
 tion. If the capitalist regularly augments the difter- 
 ence between his outlay and his returns, he propor- 
 tionally enlarges the sphere for the employment of the 
 \\ hole of wliat he saves from his necessary expendi- 
 ture, not only with undiminished but constantly incraes- 
 ing revenue. The uninterrupted progress of the cotton 
 manufacture of Great Britain durin2; the last forty vears, 
 notwithstanding th(^ fall in the price of the goods, affords 
 a striking illustration of this general Ikct. The accu- 
 mulation of capital, therefore, which Mr. Malthus con- 
 stantly supposes will be followed by declining profits, 
 may go on to an indefinite extent without any such 
 decline, if room can be found for the employment of 
 the successive additions made to it. That such room 
 
POLITICAL ECONOMY- 51 
 
 will be foniiH if trade is left unobstructed by restric- 
 tions and by wars, I have no doubt. The old channels 
 of commerce are constantly enlarged and others cre- 
 ated with every increase of capital, if the inventive 
 powers of producers and the various resources of 
 states are properly developed. The diversify of soil, 
 situation, products and wants, of)ens sources of nmtual 
 and increasing*; gains to countries whose governments 
 are wise enough to profit by this diversity. There cm 
 then be no assignable limit to the employment of ad- 
 ditional capital, for the experiment of a general and 
 free coimnercial intercourse between countries has 
 never been fully tried. Where, in lact, can we place 
 the limit to human ingenuity in inventions to increase 
 the powers of production ? At what point can we 
 say Nature nuist fail to supj)ly the variety of objects 
 that enlarges the commercial intercourse between 
 states, and by affording the means of additional gra- 
 tification, stinmlate prc»ducers to new exertions ? Mr. 
 Malthus' theory of profits, therefore, (which is in 
 substance Dr. Smith's,) would appear to be no better 
 founded in fact than that of Mr. Ricardo — the former 
 placing the limits to an increase of profit in the redun- 
 dancy of capital, and the latter in the necessity of 
 resorting to inferior soils to obtain additional produce. 
 In the view presented in the foregoing pages, of 
 the natural progress of wealth and population, it may 
 be objected that it places no limit to the fall in the prices 
 of labour and produce. It is no doubt true that the 
 point of their ultimate declension will be when the 
 earth can be made, with the utmost improvements in 
 science and by the increase of skill, to yield no more 
 produce. Whenever the entire globe is cultivated to 
 the utmost exteilt of its capacity to produce, and the 
 
52 NOTES ON 
 
 population which it is capable of maintaining on its 
 surface is iVilly up to the measure of that capacity, both 
 population and produce must come to a stop. Both 
 will then remain stationary. But this does not invali- 
 date the principle that they are capable of an increase 
 up to this point. The period is very remote indeed 
 at which they will have reached it, if rulers are 
 wise enough to profit by the various resources which 
 Nature places at their command for the benefit of 
 those they govern. So distant indeed that we may 
 not trouble ourselves about the consequences when 
 that desirable consuuunaiion shall have been attained. 
 The rate of increase, we must recollect, is slow, when 
 things are left to take their natural course. We must 
 not be deceived by the rapidity ol the rate at which 
 some countries occasionally augment in capital and 
 population — in such cases it is a partial and not a gene- 
 ral advance — an advance of one or more countries at 
 the expense of others — an advantage that is temporary 
 and is sure to be finally followed, u hen the re-acfion 
 oecurs, by a measure of suffering fully equal to the 
 former impulse ot prosperity received. 
 
POLITICAL ECONOMY. 53 
 
 CHAPTER III. 
 
 MACHINERY. 
 
 IF the opinions expressed in the preceding chapters 
 be correct, Vir. Ricardo's cont'lusion " that in pro- 
 portion to the quantity and the durability of the fixed 
 capital employed in any kind of production, the rela- 
 tive prices of those commodities on which such capital 
 is employed will vary inversely as wages;"* cannot 
 be sustained. That doctrine is the inevitable inference 
 from the writer's premises, in order to maintain the 
 level of profit. We have endeavoured to show that 
 in (he natural progjress of wealth and population^ 
 money wages fall as profits advance, and, if this be 
 the correct view, Mr. Ricardo's inference that the 
 fall in the price of goods produced by machinery or 
 fixed capital, takes place in consequence of a rise in 
 money wages or an advance in the price of labour, 
 must be erroneous. If profits always fell as the price 
 of labour rose, Mr. Ricardo's doctrine would seem 
 to be necessary, as we have said, to the equilibrium of 
 profit ; but during a state of things the most favoura- 
 ble to his hypothesis, during the last general war in 
 
 * Principles of Political Economy and Taxation, chap. 1, p. 29. 
 
54 NOTES ON 
 
 Europe, money wages anH profils advanced together 
 in England, and the fall of goods arose, as it does in 
 every such case, from additions made to fixed capital, 
 or improvements in machinery. But on other consi- 
 derations the doctrhie is untenable. If the prices of 
 manufactured commodities fall as the price of labour 
 rises, then the prices of such commodities must rise as 
 labour falls in price. Thus we have goods to advance 
 in price while machinery is improving. 
 
 The only way to avoid this dilemma is to insist that 
 in a natural state of things, the price of labour rises 
 and never fails. L-et us admit this, and see how the 
 principle will work on this supposition. It is in pro- 
 portion as fixed capital or machinery increases that the 
 prices of goods manufactured by its agency are reduc- 
 ed ; but v\ ages, in the new theory, encroach on profits 
 as lapidly as they are increased, and any permanent 
 addition to capital from revenue is in C(msequence pre- 
 vented. How then is machinery to be increased, and 
 how are the prices of goods to fall ? It cannot be 
 meant that the addhion to fixed capital is made from 
 circulating capital, because, on such a supposition, the 
 means of employing labour are diminishing, whilst 
 wages are at the same time made to advance. In tact, 
 it is precisely, in the natural progress of wealth, as 
 wages fall and machinery is improved, that circulating 
 capital increases, and in the same proportion with 
 fixed capital. The proportions never vary, in a 
 wholesome state of things, in any employment. 
 
 It is not to save labour, if quantity be meant, that 
 machinery is improved — it is to save in the price or 
 wages of labour that the machine is made. The effect 
 of machinery, were it to displace labour, or make a 
 less quantity necessary to production, would be an evi 
 
POLITICAL ECONOMY. 55 
 
 instead of a benefit. It would check the increase of 
 pof3ulation, for population augments in proportion as 
 the prices of manufactured as well as agricuhural 
 products decline, and it is as money wages are reduced, 
 and the revenue devoted to the payment of labour in- 
 creases, that the prices of all commodities, in a natural 
 state of things, fall. Circulating capital is not, there- 
 fore, more nor less necessary to fixed than fixed is to 
 circulating capital. With every augmentation of the 
 one description there is a proportional increase of the 
 other in all employments. If we could suppose that^ 
 they increased irregularly, or in varying proportions, 
 whether machinery improved as labour was displaced, 
 or labour was more fully employed as machinery was 
 thrown out of use— on either supposition the progress 
 of a country in wealth and population would be re- 
 tarded. 
 
 The popular prejudice against machinery has in a 
 great measure given way, because it is plainly seen 
 that, with every increase of its powers, more labour is 
 employed — with every additional reduction of wages 
 is there a demand for an additional quantity of labour, 
 or an additional number of labourers. It would ap- 
 pear, then, that fixed and circulating capital never 
 vary in their proportions to each other. It is not meant 
 by this that these two kinds of capital are always equal 
 in quantity in the same employment. Some employ- 
 ments require a larger and others a less portion of 
 the one or of the other. 
 
 It requires no reasoning to prove that the capital 
 which is consumed and reproduced at short periods, 
 and that which is replaced at long periods, is em- 
 ployed in the manufacture of products that must sell 
 at such relative prices as will preserve the level of 
 
1^ NOTKS ON 
 
 profit ; for if i^oods manuiactured exclusively bv la- 
 bour, or partly by labour and partiv by iimciniit ry, 
 sold at sufli rates as w ould not put the tiiaiuit'aciurer 
 of them on tlie same footing as to protit with the 
 capitalist who used tixed capital solely, or in a differ- 
 ent proportion, no conunodities conld b« manufactured 
 at all bv labour. The proposition is so obvious that 
 it requires no reasoning to prove it. 
 
 If the view taken above of the effect of machinery 
 be correct, the whole of the labour disposable in con- 
 sequence of the improvement in its powers, will be 
 required to obtain an increase of produce. But with- 
 out an additional quantity ot labour, in a still higher 
 proportion than this, the angjnentatiou of produce will 
 not be as great as the wants of society will require. 
 If there was not such additional quantity emplo\ed, 
 it would be giving as great a rate of increase to ma- 
 chinery as to population, which is impossible. The 
 extension of markets, both foreign and domestic, de- 
 mands more j>rodnce than can be supplied uidess all 
 the labour which it is possible to obtain is employed. 
 Thus, if we suppose a manulacturer of cloth to increase 
 the powers of his machinery, in any given time, tenfper 
 cent, and consequently able to entploy. from the tall 
 in its price, the wh(^le quantity of" labour rendered 
 disposable to the extent of this increase, he uill not 
 be able to meet the wants of consnmei'S should the 
 demand for cloth have ausmented in a hisher ratio. 
 It must, however, augment in a higher nmo, for the 
 increase in the poirer- of machiuenj is iimihd by ilie 
 faculties of the ni'ind, and the demand tor addivomnl 
 produce is determined by the procreative principle, or 
 /amity, which is far more active. 
 
POLITICAL ECONOMY. 57 
 
 It is impossible to assign the relative rate of in- 
 crease in the case of machinery and population. But 
 if we suppose the increase of the former to be, in a 
 given period, ten and the latter twenty per cent, if the 
 manufacturer of cloth formerly employed 100 men 
 and his improvements in machinery enabled him to 
 manufacture an additional quantity of this commodity 
 with the same number of labourers, he would be 
 compelled to employ NO men to produce as much 
 cloth as the demand will take off; but he will obtain 
 these 110 men at reduced wages, not merely in the 
 proportion of the increase in the powers of his ma- 
 chinery, but in the higher proportion of the increase 
 of population, otherwise he would make no addition 
 to his profits by employing ten additional men. The 
 rate of wages follows the rate of increase of labour- 
 ers — as their number is augmented the price of their 
 services must fall. And as we have seen that labour 
 increases with every decline in the prices of raw and 
 manufactured products, the labourers themselves are 
 fully as much interested in improvements in machinery 
 as the master producers. They obtain an increased 
 quantity of the necessaries and conveniences of life 
 from the fall in their price, and as the market for these 
 products is extended, proportionally, so also is the 
 market for labour. Thus is the actual population not 
 more necessary to the actual produce than the latter 
 to the former — without the actual numbers, the same 
 quantity could neither be produced nor consumed. 
 This appears to be the only rational explanation of 
 the fact, that every invention that reduces the price of 
 labour, has the effect of giving employment to an ad- 
 di-^ional qua itity — not only is there none displaced 
 but more is demanded. 
 8 
 
58 NOTES ON 
 
 Mr. RicARDO attributes too much power to machin- 
 ery. " If (says he) five millions of men could pro- 
 duce as much food and clothing as was necessary for 
 ten millions, food and clothing for five millions would 
 be the net revenue."* it is true that if five millions 
 of men could produce as much food and clothing as 
 was necessary for ten millions, this additional popula- 
 tion would be at the expense of the net revenue. But 
 if, when the population is five millions, fifty per cent, 
 measures, in any given period, the rate of increase in 
 the powers of machinery, or should it have improved 
 so as to provide food and clothing for seven and a half 
 millions, and the population has augmented, during 
 such period, to ten millions, five millions with this ad- 
 ditional pou er of production acquired by machinery, 
 would be inadequate to that increase of produce re- 
 quired for the consumption of ten millions. To sup- 
 pose any thing else is to give as great a rate of increase 
 to machinery as to population. 
 
 The explanations that have been given by different 
 writers of the efifects of machinery on the labouring 
 classes, appear to me to have been eminently un- 
 satisfactory. Thus Mr. Say says " whenever a new 
 machine or a new and more expeditious process is 
 substituted in the place of human labour previously 
 in activity, part of the industrious human agents, 
 whose services are thus ingeniously dispensed ivith, 
 must needs be throivn out of employ.'^'' " In as much 
 (he continues) as machinery produces that evil, it is 
 clearly objectionable." Again — " New machines are 
 slowly constructed, and still more slowly brought into 
 use ; so as to give time for those who are interested to 
 
 * Principles of Political Economy and Taxation, chap. Gross and Net 
 Revenue, p. 374 
 
POLITICAL ECONOMY. 69 
 
 take their measures, and for the public administration 
 to jirovide a remedy."* And, in a note, Mr. Say has 
 the following remarks. " Without having recourse 
 to local or temporary restrictions on the use of new 
 methods or machinery, which are invasions of the 
 property of the inventors or fabricators, a benevolent 
 administration can make provision for the employment 
 of auppltmted or in idive labour in the construction of 
 works of public uiility at the public expense; as of 
 canals, roads, churches, or the like ; iii extended colo- 
 nization ; in the transfer of population from one spot 
 to another. Employment is the more readily lound 
 for the hands thrown out of work by machinery, be- 
 cause they are commonly already inured lo labour." 
 Now this explanation leaves the mind at a loss to con- 
 ceive how the population accommodates itself to those 
 changes which are natural to an improved state of 
 society, in consequence not only of mechanical inven- 
 tions that augment the quantity of manufactured pro- 
 ducts but of those discoveries in natural science which 
 increase the produce of the land. It is obvious that 
 room must be found in the same occupation for all the 
 labour formerly employed in it, without occasion- 
 ing even temporary distress, or the public admistration 
 being under the necessity of employing labour in the 
 construction of works of public utility. 
 
 If there was not some principle, by which every 
 change of this kind finds those who are to benefit by 
 it, prepared to receive its full effect or influence, no- 
 thing but derangement between different employments 
 would be the consequence. Every such change is 
 slow and gradual, and time is allowed for its accom- 
 modation lo existing circumstances or to the interests 
 
 * Treatise on Political Economy, pp. 30, 31, 
 
60 NOTES ON 
 
 of all classes. Whenever any portion of the labour 
 of society is employed in public works, it can oniv vie 
 done by its abstraction from private employments, and 
 whenever it is so employed without any such abstrac- 
 tion, some derangement must previously have occur- 
 red by which the market was overstocked with labour. 
 Even in the instance of a change of fashion, by the 
 caprices of which it sometimes happens that distress is 
 produced among a smal part of iin- operatives, it hap- 
 pens that they find in the variety of employments of 
 a wealthy society, a resource against want. In the 
 case, however, of an improvement in machinery, there 
 is no necessity for such a resource, or of a change 
 from one employment to another similar to it, for this 
 would be attended with some loss or inconvenience to 
 the labourer. All such transitions, therefore, are so 
 gradual that a provision is made in those arrange- 
 ments which take place, tndeperidently of all human 
 interference, in the natural progress of things, and no 
 evil is ever experienced from the utmost extent to 
 which such improvements can be carried, unless by 
 the intermeddling of those who pretend to regulate 
 the order of society. It would be an impeachment 
 of the wisdom of Providence to suppose that the 
 powers of human invention (in whatever mode these 
 powers are displayed) are conferred that they may^ 
 not be improved for the benefit of the human race 
 to the fullest extent of their possible improvement, 
 without occasioning any such derangement as must 
 follow the displacement of a part of the labouring 
 population from its regular and accustomed employ- 
 ments. Even in the invention of the art of printing, 
 the most striking instance of a total change in the 
 nature of the employment, who can pronounce that 
 
POLITICAL ECONOMY. 61 
 
 the copyists were not prepared for the change, and 
 did not find the transition easy and natural, and not 
 sudden and abrupt ? 
 
 We quote the following passage from Mr. Say as 
 an instance of very unphilosophical explanation on 
 this subject and in obvious contradiction to all sound 
 principles. '" It may be allowable to add that view- 
 ing human labour and machinery in the aggregate, in 
 the supposition of the extreme case, viz. that machin- 
 ery should be brought to supersede human labour alto- 
 gether, yet the number's of mankind ivould not be 
 thinned, Jor the sum total of products would be the 
 same, and there would probably be less suffering to 
 the poor and labouring classes to be apprehended ; for 
 in that case the momentary fluctuations that distress 
 the different branches of industry would principally 
 affect machinery, which, and not human labour, would 
 be paralyzed ; and machinery cannot die of hunger : 
 it can only cease to yield profit to its employers, who 
 are generally farther removed from want than mere 
 labourers."* 
 
 The supposition made by Mr. Say, in the above 
 passage, is so extravagant that if it were possible to 
 see it realized, the greatest disorder in the natural 
 proportions between fixed and circulating capital, and 
 even between capital in the aggregate and population 
 would be the consequence. How could Mr. Say con- 
 ceive that " the numbers of mankind would not be 
 thinned and the sum total of products would be the 
 same" if " machinery should be brought to supersede 
 human labour altogether ?" is not this at once des- 
 troying the ordinary proportions between fixed and 
 circulating capital, or giving a rate of increase to the 
 
 * Treatise on Political Economy, p. 32. 
 
621 NOTES ON 
 
 former far more rapid than to the latter, or, which is 
 still nearer the truth, allowing the one description of 
 capital to augment to the entire destruction of the 
 other ? To contend that the amount of produce would 
 be as great without as with labour, is giving an effect 
 to machinery which it never can have — it is making 
 population less necessary to production than to con- 
 sumption and thence destroying the balance between 
 them. Every increase of produce, unless the popula- 
 tion has concurred in this increase with machinery, 
 must subtract from profits, and in this proportion put 
 a stop to any further improvement in machinery. 
 Can Mr. Say imagine a case in which there would be 
 " less suffering to the poor and labouring classes" on 
 " machinery being brought to supersede human labour 
 altogether," than when both are used in their due pro- 
 portions ; and how can he suppose " the momentary 
 fluctuations that distress the different branches of in- 
 dustry would principally affect machinery and not 
 human labour?^'' The error of Mr. Say is substan- 
 tially the same as that which affects the labouring class 
 itself, who invariably attribute a disproportionate in 
 Huence to machinery. 
 
POLITICAL ECONOMY. 63 
 
 CHAPTER IV. 
 
 VJLUE AND PRICE. 
 
 IT were to be wished that writers on Political Eco- 
 nomy had kept invariably in view the meaning they 
 attach to the word value. If this had been done many 
 of the points which have been made debateable in 
 this science would have been determined with little or 
 no difficulty. By almost all writers it has been con^ 
 sidered as identical, under all circumstances, with 
 price — whilst with very iew has it been viewed as 
 equivalent in meaning to wealth or quantity. Mr. Ri- 
 CARDO regards value as essentially different from riches, 
 " for," says he, " value depends not on abundance, 
 but on the difficvlty or facility of production."* Ac- 
 cording to this definition, considered literally, value 
 depends both on abundance and scarcity, for commo- 
 dities are abundant as they are produced with facility, 
 and scarce when produced with difficulty. If value 
 depends on facility of production, then there is no 
 difference between it and riches, for nations are rich 
 in proportion as they produce with facility. If value 
 depends on difficulty of production, then there is an 
 obvious distinction between it and riches, for countries 
 
 * Principles of Political Economy and Taxation, chap 18, p. 283. 
 
04 NOTES ON 
 
 are poor which have to purohasp their enjoyments by a 
 great saiTilice of toil or exertion. Accordiuij, to one 
 view ot" vahie, in the above detinition, productions 
 become vahiable as thev become scarce — accordma: 
 to the other view they become valuable as they beci»uie 
 abundant. 
 
 Bui 1 suppose that the meaning of Mr. Ricardo is 
 that value depends on the greater or less difficulty or 
 facility o{ production. Value, then, pursuant to this 
 opinion, must diminish as the quantity of productions 
 increases, or as they are produced with facility, and 
 value must increase with the scarcity of productions, 
 or as they are produced with ditlficulty — in other 
 words, value is made, under all circumstances, equi- 
 valent in meaning to price, and Mr. Ricardo conse- 
 quently employs relative and exchangeable value, as if 
 they were always convertible terms. Value and price 
 differ, however, when demand is properly propor- 
 tioned to supply, or when produce is distributed ex- 
 actly according to the wants of consumers, or, which 
 is the same thing, price is, under such circumstances, 
 in an inverse proportion to quanrit\. 
 
 In the regular and natural progress of wealth, there 
 is nn increase in the quantity of all commodities, in- 
 cluiling labour ; the whole augments in an equal ratio, 
 and the exchangeable value of every part increases. 
 The quantity of produce or of labour u hich each 
 producer is able to command, is equal to the quantity 
 parted with by every other producer. It is increased 
 quantity exchanged against increased quantity ; but 
 it is precisely because quantity is increased universally, 
 that prices fall universally, and in every quarter. But 
 in such case, whilst exchauijeable value has risen, re- 
 lative value remains the same. Suppose that a ma- 
 
POLITICAL ECONOMY. 65 
 
 manufacturer of hats exchanges this year 1000 hats for 
 1000 pair of shoes, but by an increase of skill he is 
 able to make the following year 1200 hats, and the 
 manufacturer of shoes increases his commodity in the 
 same proportion, the value of hats, according to Mr. 
 RiCARDO, will have fallen, as well as the value of shoes ; 
 but it is their price only which will have been reduced. 
 The exchangeable value of both shoes and hats will 
 have increased, for each commodity exchanges for a 
 greater quantity of the other. Here, then, the rela- 
 tion of these commodities to each other, as to their 
 prices, is unaltered, or their relative value continues 
 as before, but their value when exchanged for each 
 other has varied — it has increased. 
 
 This is no longer the case, however, when demand 
 is not properly proportioned to supply, or when pro- 
 duce is not distributed according to the wants of those 
 who are to consume it. In this state of things price 
 and exchangeable value are identical, but the relation 
 to each other, as to prices, of the commodities affected 
 by the change, is altered. The prices of some rise, 
 under these circumstances, and their exchangeable 
 value is augmented, but the prices of others for which 
 they are exchanged, must proportionally fall — in other 
 words their value in exchange lessens. Suppose, to 
 continue the illustration just employed, the shoes 
 should not have increased in proportion to the hats ; in 
 this case the exchangeable value of the hats and their 
 price will have fallen, if the demand continues as before 
 for both commodities, for in exchanging hats for shoes 
 a greater quantity of the former must be parted with 
 to obtain the same quantity as before of the latter. 
 Thus suppose the difference in the increase to be twenty 
 per cent. — in these circumstances 1200 hats must be 
 .9 
 
66 NOTES ON 
 
 exchanged for 1000 pair of shoes instead of 1200 pair 
 as before. The price and exchangeable value of shoes 
 will have risen, and the exchangeable value and price 
 of hats will have proportionally fallen. 
 
 If we now take the opposite jjupposition, and ima- 
 gine that the quantity of hats has lessened whilst the 
 quantity of shoes and the demand for both commodi- 
 ties continue as before — in this case the effects will 
 be reversed, the exchangeable value and price of hats 
 will have advanced whilst the price and exchangeable 
 value of shoes will have been lowered, for instead of 
 1000 pair of shoes exchanging, as in the former in- 
 stance, for 1200 hats, 1200 pair of the former must be 
 parted with to obtain 1000 of the latter. In these cases 
 it is supposed that the demand for each commodity is 
 neither lessened nor increased, but this is not neces- 
 sary to prove that price and exchangeable value are 
 identical when demand and supply are not in exact 
 or natural proportion to each other. The manufac- 
 turer of shoes (of which the quantity we have sup- 
 posed not to have either increased or diminished) may 
 augment his consumption of hats in proportion to their 
 increased quantity. In this case the demand for hats 
 will have risen, and their price and exchangeable value 
 would be unaltered. If the manufacturer of shoes 
 lessens his consumption of. hats in the ratio of their 
 increased quantity, the price as well as exchangeable 
 value of hats must fall both from additional supply 
 and diminished demand, and they will fall in a 
 higher proportion, of course, than if the supply had 
 merely increased. In this case 1400 hats must be ex- 
 changed for 1000 pair of shoes. These distinctions 
 are not vain and unnecessary — they are essential to a 
 clear understanding of the principles of the science. 
 
POLITICAL ECONOMY. 67 
 
 The identification of price and 'calue in exchange^ un- 
 der ALL CIRCUMSTANCES, is, I aoi convinced, at the 
 foundation of some of the peculiar views entertained 
 by the school of Mr. Ricardo. The following para- 
 graph will show how entirely this writer has con- 
 founded pricp with value in exchange. 
 
 " For if an improved piece of machinery should 
 enable us to make two pair of stockings instead of one, 
 V)ilhnut additional labour^ double the quantity would 
 be given in exchange for a yard of cloth. If a simi- 
 lar improvement be made in the manufacture of cloth, 
 stockings and cloth will be exchanged in the same 
 proportions as before, but they both would have fallen 
 in value, for in exchanging them for hats, for gold, or 
 for other commodities in general, twice the quantity 
 must be given. Extend the improvement to the pro- 
 duction of gold and every other commodity, and they 
 will all regain their former proportions. There will 
 be double the quantity of commodities annually pro- 
 duced in the country, and therefore the wealth of the 
 country will be doubled, but this wealth will not have 
 increased in value."* The wealth will not have in- 
 creased in value^ if by value price be meant. The 
 productions of which this wealth consisted will have 
 fallen in price, and if this is meant by the expression 
 " the wealth will not have increased in value," the 
 remark is correct — it will have fallen in value. But 
 Mr. Ricardo has said that "if a similar improvement 
 be made in the manufacture of cloth to what is made 
 in the manufacture of stockings, they will have fallen 
 in value ; for in exchanging them for hats, for gold, 
 or other commodities in general, twice the former 
 quantity must be given." Now it is precisely because 
 
 * Principles of Political Economy and Taxation, chap. 18, p. 288. 
 
68 NOTES ON 
 
 double the quantity of cloth and stockings is given for 
 double the quantity of hats and gold and other ( om- 
 modities to which the improvement has extended, 
 that the cloth and stockings have increased m ex- 
 changeable value equally with the hats and g<»ld. 
 They will, therefore, if value in exchange be meant, 
 have augmented in value, in consequenc*^ of an addi- 
 tional quantity of the two former conmiodities being 
 given for an additional quantity of the two latter. 
 Not only will the wealth of the country be doubled, 
 but that wealth will have derived twice its former 
 value in exchange. Again : 
 
 " Although," says Mr. Ricardo, " Adam Smith 
 has given the correct description of riches, which I 
 have more than once noticed, he afterwards explains 
 them differently, and says ' that a man must be rich 
 or poor according to the quantity of labour which he 
 can afford to purchase.' Now," continues Mr. Ri- 
 cardo, " this description differs essentially from the 
 other, and is certainly incorrect ; for suppose the 
 mines were to become more productive, so that gold 
 and silver fell in value [price] from the greater facility 
 of their production ; or that velvets were to be manu- 
 factured with so nmch less labour than before, that 
 they fell to half their former value, [price,] the riches 
 of all those who purchased those commodites would 
 be increased ; one man might increase the quantity 
 of his plate, another might buy double the quantity of 
 velvet ; but with the possession of this additional plate 
 and velvet they could employ no more additional la- 
 bour than before ; because as the exchangeable value 
 of velvet and plate would be lowered, they must part 
 with proportionally more of these species of riches to 
 purchase a day's labour. Riches then cannot be esti- 
 
POLITICAL ECONOMY. 69 
 
 mated by the quantity of labour which they can pur- 
 chase."* 
 
 Now if it were true that the quantity of labour is 
 not increased proportionally with the quantity of com- 
 modities, and its price did not fall also in proportion 
 to the fall in these, Mr. Ricardo's conclusions would 
 be inevitable. But the supposition of a rise in the 
 price of labour with the increase of its supply, which 
 he takes for granted in all his reasonings, cannot, as 
 we have endeavoured to show, be adn»itted. Mr. 
 RiCARDO, therefore, evidently views labour erroneous- 
 ly when he considers it as not subject to the same laws 
 that regulate the increase and the prices of commodi- 
 ties in general. It is obvious that without this condi- 
 tion of a constant and equal augmeptation in the 
 supply of labour with capital, and a proportionate fall 
 of its price with the price of productions generally, 
 that both the power and the will to accumulate would 
 cease on the part of producers. The power to accu- 
 mulate is founded on the reduced wages of labour ; 
 for it is by savings in these that capital is made avail- 
 able for an increase of population, and it is by the 
 consequent addition to the number of working pro- 
 ducers that productions are multiplied and profits still 
 further augmented. 
 
 To suppose the quantity of labour not to increase 
 equally with the quantity of commodities, is to give 
 greater efficiency to fixed than to circulating capital. 
 But we know that more labour, in every period of 
 society from the most rude to the most refined, is ren- 
 dered as necessary to the increase of produce, equal 
 to the wants of the population, as this increase is to 
 provide for its maintenance and employment. What 
 
 'Principles of Political Economy and Taxation, chap. 18, p. 289. 
 
J^ NOTES ON 
 
 possible inducement could the capitalist have to save 
 in the expenses of production if he could nor com- 
 mand more labour at a reduced price, or for the same 
 amount in money. 
 
 How could the fact be reconciled of the extended 
 market for labour, unless on the supposition that 
 the quantity of commodities is by this means mul- 
 tiplied, and the market for them extended also. Mr. 
 RicARDO has then laboured under a palpable er- 
 ror in saying that " A certain quantity of clothes 
 and provisions will maintain and employ the same 
 number of men, and will therefore procure the same 
 quantity of work to be done, whether they be produced 
 by the labour of 100 or 200 men ;"* for it is obvious 
 that without the 200 men the same quantity of work 
 will not be done, or such a quantity of clothes and 
 provisions provided as will maintain and employ the 
 200. Neither the power nor the inducement to pro- 
 vide clothes and provisions for 200 men could possibly, 
 under such circumstances, exist. Dr. Smith is then 
 correct in saying " that a man must be rich or poor 
 according to the quantity of labour which he can 
 afford to purchase." It is only another form of ex- 
 pression, in describing an equivalent effect, to assert 
 that a man must be rich or poor according to the 
 quantity of labour instead of the quantity of commo- 
 dities which he can afford to purchase, for these quan- 
 tities are equal when demand is exactly equal to supply, 
 as regards both labour and commodities. 
 
 It follows, from this view of the subject, that if, ac- 
 cording to Mr. RicARDO, the quantity of labour ex- 
 pended on commodities governs their price, when 
 market and natural prices correspond, it can have no 
 
 • Prhiciples of Political Ecoftoniy and Taxation, cbap. 18, p. 290. 
 
POLITICAL ECONOMY. 71 
 
 influence on their exchangeable value ; for then value 
 in exchange and prices rise and fall in an inverse ratio. 
 But neither can the quantity of labour govern the 
 prices of commodities, in such a state of things, for 
 we have shown that prices decrease as the quantity of 
 labour increases, or they advance and lessen also in an 
 inverse ratio. But it is the price of labour that governs 
 the prices of commodities, for they rise and fall to- 
 gether. The price of labour does not, however, regu- 
 late the prices of commodities more than the prices 
 of these do the price of labour. They have a mutual 
 influence and fall in regular and equal proportion. 
 
 It cannot be pretended that the quantity of labour 
 bestowed on productions has any influence on their 
 prices, as these prices vary from natural prices, for as 
 in such case commodities are not increased but their 
 distribution only altered, there can be no increased 
 quantity of labour employed. There is an increase 
 of produce in some quarters, but attended, of course, 
 by a proportional diminution in others. 
 
 The following passage aflbrds a further proof that 
 Mr. RicARDo has attached to exchangeable value a 
 meaning that belongs only to price in the circumstances 
 supposed. " In contradiction to the opinion of Adam 
 Smith, Mr. Say, in the 4th chapter of his work, speaks 
 of the value which is given to commodities by natural 
 agents, such as the sun, the air, the pressure of the 
 atmosphere, &c. which are sometimes substituted for 
 the labour of man, and sometimes concur with him 
 in producing. But these natural agents, though they 
 add greatly to value in use, never add exchangeable 
 value, of which Mr. Say is speaking, to any commo- 
 dity : as soon as by the aid of machinery, or by the 
 knowledge of natural philosophy, you oblige natural 
 
12 NOTES ON 
 
 agents to do the work which was before done by man, 
 the exchangeable value of such work falls accord- 
 ingly."* 
 
 Mr. Say is no doubt correct when he states, that 
 natural agents and machinery add to the exchangeable 
 value of the productions which by their aid have been 
 increased in quantity, and in the ratio of this increase 
 have fallen in price, provided that they are not pro- 
 duced in excess. If the demand will not takeoff the 
 whole quantity supplied, we have shown that the fall 
 in price and exchangeable value are coincident. If 
 the distinction between the cases is not observed, the 
 partial increase of wealth — or its increase in some 
 quarters, (attended by its diminution in others,) will 
 be mistaken for that general increase in which all 
 producers participate, when prices vary inversely to 
 value in exchange. It will be found, in a wholesome 
 state of things, that the augmentation of the quantity 
 of a commodity is always accompanied by the aug- 
 mentation of others for which it is exchanged, or that 
 the motive or the will to add to the powers of pro- 
 duction, operates equally on all producers, so as to 
 cause an increase in the quantity ol all the objects of 
 consumption, as well as of the labour by which they 
 are to be obtained. 
 
 Nor is the principle that determines the exchangea- 
 ble value of commodities different in a rude from an 
 improved state of society. Dr. Smith, has said, " that 
 in that early and rude state of society that precedes 
 the accumulation of capital and the appropriation of 
 land, the proportion between the quantities of labour 
 necessary for acquiring different objects seems to be 
 the only circumstance which can afford any rule for 
 
 * Principles of Political Economy and Taxation, chap 18, p. 293. 
 
POLITICAL ECONOMY. 73 
 
 exchanging them for one another.."* Now if this 
 principle be true, in its application to one period of 
 society, it must be true in its application to all. We 
 have shown that the exchangeable value of commo- 
 dities in an improved period, is determined by the 
 degree of skill and science to which society has attain- 
 ed — it is the same thing, when by the address and 
 sagacity of the savage, he can either with the aid of 
 natural agents, or by the improvement of his rude 
 weapons or implements, acquire in less time a greater 
 quantity of those objects which he usually exchanges 
 for others. A fisherman to take twenty salmon em- 
 ploys a day's labour, but, by his ingenuity, discovers 
 means of taking, within the same time, forty salmon. 
 Now will it be contended that this additional quantity 
 of salmon will exchange for an additional quantity of 
 game, unless the same improvement has been extended 
 to this commodity also ? If the hunter has been able 
 to effect the same increase by equal address and skill, 
 both parties to the exchange will gain in an equal 
 proportion. Whether the fisherman will continue to 
 catch twenty salmon or forty, will depend of course 
 upon the demand of the hunter for salmon or the 
 supply of his commodity. If the consumption of the 
 fish has increased, as it will most probably be, the 
 hunter will have been able to increase his commodity 
 to render the exchange advantageous to both parties. 
 But this is precisely the principle that regulates the 
 exchange of commodities in an improved period of 
 society. If we suppose the existence of a market for 
 labour in the ruder period, it would be found that it 
 had fallen in price as well as game and salmon. These 
 
 * Wealth of Nations, book 1, chap. 5. 
 
 10 
 
74 NOTES ON^ 
 
 productions would more nearly measure the value of 
 each other and of labour in the rude than in the im- 
 proved period, for then there are fewer causes in ac- 
 tion to disturb the natural proportion between demand 
 and supply. 
 
POLITICAL ECONOMY. 75 
 
 CHAPTER V. 
 
 MONEY. 
 
 WE have endeavoured to show that in the natural 
 progress of society all commodities as well as labour 
 Ikit in price. But money, or the material of money,' 
 is a commodity subject to the same laws and therefore 
 to the same changes in exchangeable value as other 
 commodities. It has its natural as well as its market 
 price. In the regular progress of wealth and popula- 
 tion, it must rise in exchangeable value,* or exchange 
 for a greater quantity of produce, as hs quantity in- 
 creases, or as improvements are made in the machin- 
 ery by which it is produced. An increased quantity 
 of commodities requires an increased quantity of 
 moriey to circulate them, for the number of exchanges 
 is proportionally augmented, and it is precisely equi- 
 valent to say that labour with agricultural and manu- 
 factured products increase in quantity or rise in ex- 
 changeable value, as to assert that money or its ma- 
 terial increases in quantity or rises in exchangeable 
 value. Each commodity would be a measure of value 
 
 * I allude of course to the whole mass, and not to any particular portioo of 
 money. 
 
76 NOTES ON 
 
 of eveiy other, if market prices ahvavs corresponded 
 with natural prices. Equal quantities of labour in 
 one employment, would exchange for equal quantities 
 in every other employment, allowing for their com- 
 parative disadvantages. 
 
 But although this supposition of a perfect correspon- 
 dence between natural and market prices is necessary 
 to a settlement of first principles, the disturbing influ- 
 ence of taxation, restrictions on trade, &c. which 
 perpetually change the natural proportions between de- 
 mand and supply, have a correspondent influence on 
 prices — either elevating market prices above or redu- 
 cing them below natural prices. Whenever market 
 prices rise above or tall below natural prices, it always 
 ternunates in a proportional decrease or increase of 
 the relative value of money. Whilst, therefore, we 
 are investigating the eflects of taxation, restrictions on 
 commerce, &.c. on the relative value of money, we are 
 at the same time investigating the eflects of these cir- 
 cumstances on the value of those commodities for 
 which it is exchanged. 
 
 We have seen that an increase in the quantity, whe- 
 ther of labour or commodities, reduces their price — 
 a diminished quantity must therefore elevate their 
 price. Taxation diminishes the quantity of a country's 
 productions, in proportion to the amount of the taxes 
 imposed; they must then proportionally diminish the 
 quantity of money in that country, for the quantity of 
 money must bear a relative proportion to the quantity 
 of commodities and labour it has to cinuhue, or to 
 the number of exchanges it has to effect, as its value 
 must bear the same proportion to the demand for it 
 as a medium of circulation. Taxation is, however, 
 4!onstantly and happily coimteracted in its eflects by 
 
POLITICAL ECONOMY. 77 
 
 an increase of productive power. Were this not the 
 case, population and capital would decline to that 
 point at which the amount of taxation would permit 
 them to remain. They are opposite forces, if we can 
 so express it, in the economical world, and as the one 
 or the other prevails is a country in the enjoyment of 
 wealth or suffering from poverty. It is necessary, 
 however, for the proper elucidation of the subject, 
 that we should first consider the results of taxation 
 separately from the consequences of an increase of 
 productive power, and afterwards in their combina- 
 tion. 
 
 Let us then commence with the effects of taxation 
 on the value of money. Let us suppose a tax im- 
 posed on income and the government to export the 
 money in payment of a subsidy. The first effect of 
 such a tax would be to diminish demand for labour 
 and produce. The persons who contribute to the 
 payment of the tax will have a smaller money amount 
 to devote to the purchase of commodities than betbre 
 the imposition of the tax. Commodities could not 
 possibly bear the same proportion as before to the 
 medium of circulation. The excess would be exported 
 in exchange for money which had risen in relative 
 value. The effect would be the restoration of the 
 former proportions between money and commodities 
 and the value of both would come to a level. The 
 quantity which each consumer could command of both 
 would be lessened. As the prices of commodities had 
 fallen, in the first instance, from diminished demand, 
 so they ultimately rise from diminished supply, and 
 as the value of money had risen in consequence of its 
 exportation, its return in exchange for the excess of 
 the commodities exported, will be in proportion only 
 
78 NOTES ON 
 
 to this excess. It will have fallen ultimately in ex- 
 changeable value exactly in the ratio that commodities 
 will have fallen, because its quantity has been reduced 
 in the same ratio. 
 
 If we suppose the tax to have been collected in 
 kind — in corn, for instance, the final effects would be 
 precisely the same. In such case, if the government 
 export the corn to feed its troops abroad, or for any 
 other purpose, money would be in excess compared 
 with commodities, and instead of its being the jird it 
 would be the last exported. It would be profitable to 
 send it abroad in exchange for commodities which had 
 risen at home, as in the other case it was profitable to 
 send commodities abroad in exchange for money 
 which had risen at home. In both cases the quantity 
 of both will have been equally diminished and the 
 exchangeable value of both ultimately and equally 
 reduced. 
 
 This deduction of effects is founded, however, on 
 the idea that the tax reduces consumption equally and 
 at the same time of commodities of every kind ; but 
 this supposition, although it has been adopted to sim- 
 plify the explanation, and is theoretically true, never 
 occurs in fact. The imposition of a tax is attended, 
 in the great majority of cases, by a reduction of ex- 
 penditure on certain objects with the same expenditure 
 on others — with a diminished consumption of luxuries 
 that the wants of consumers may be satisfied for arti- 
 cles of more necessary consumption. In such case 
 the price of necessaries will not at first fall, for the 
 demand continues as before, but the price of luxuries 
 will be reduced as the consumption of them has been 
 diminished. But the producers of luxuries are also 
 fho consumers of necessaries— the decline in the de- 
 
POLITICAL ECONOMY. 79 
 
 maud for the commodities they produce, will compel 
 them to lessen their consumption of other productions. 
 The producers of necessaries will obtain for a short 
 period higher relative prices and profits than the pro- 
 ducers of luxuries, but the level of prices, and of 
 course of profits, will soon be adjusted, and all com- 
 modities, whether luxuries or necessaries, will settle 
 at a higher price than before. The whole quantity of 
 commodities, money included, will be reduced in pro- 
 portion to the tax, and every man's portion, or power 
 to command the former portion, is finally diminished. 
 If money was not altered in value — if as large a 
 quantity could be obtained in exchange for the same 
 quantity of commodities as before, these results would 
 not take place. But as the principle cannot admit of 
 dispute, that money lessens as the quantity of produc- 
 tions it has to circulate diminishes, or, which is the 
 same thing, that it is subtracted from the circulation 
 as the number of exchanges it has to perform is re- 
 duced — it follows necessarily that the command of 
 money, whether by rich or poor consumers, is abridged 
 with the progress of taxation ; they must make a 
 greater sacrifice, if they wish to obtain the same 
 amount of the conveniences or luxuries of life as 
 before the tax was imposed. It will be recollected 
 that we are considering the consequences of taxation 
 on the value of money and produce generally, with- 
 out any countervailing effect from an increase of pro- 
 ductive power. Restrictions on trade produce pre- 
 cisely the same effects on the value of money as 
 taxation. They prevent the market from being as 
 fully supplied as it would be with commodities if the 
 restrictions did not exist. They, therefore, compel 
 the exportation of the money of the conntry, in which 
 
80 NOTES ON • 
 
 they are adopted, exactly to the extent of the relative 
 excess of the whole quantity of the currency to the 
 whole quantity of productions it has to circulate. 
 Restrictions, however, and the same may be said of 
 bounties, whether on production or exportation, are 
 only of temporary advantage to those whose interests 
 they appear to favour. It is merely whilst capital and 
 labour are shifting from the employments which do 
 not to those which do benefit by those restrictions that 
 higher profits are derived by the capitalists who are 
 thus favoured. Profits soon come to a level, for com- 
 pefition must adjust them to the general rat*;. The 
 prices of all commodities are prevented from falling 
 as low as they would have been reduced to, if the 
 restrictions had not existed. They therefore eventu- 
 ally re-act on those in whose favour they are passed, 
 unless the duty or bounty is increased as soon as the 
 equilibrium of profit is restored. 
 
 Another cause that affects the value of money is the 
 issue of paper, as a medium of circulation, by the 
 state, or when such issue takes the form of a loan 
 from banking institutions to the government, which is 
 in effect the same thing. Such loan or issue is only 
 another name for a tax or taxes — it is taxation in 
 disguise and like the foreign duties, blend the tax 
 with the prices of commodities. The same results 
 follow precisely as when taxes are directly imposed. 
 The metallic money, which is the standard, is export- 
 ed, in proportion as the whole quantity of currency 
 exceeds the whole quantity of productions to be cir- 
 culated, or number of exchanges to be performed, 
 and the value in exchange of the whole produce with 
 that of money, finally settles at a lower point than 
 previous to the loan or emission, or, which is the sam.e 
 
POLITICAL ECONOMY. 81 
 
 thing, prices are prevented falling to their just and 
 natural level. The issues of banks to individuals also 
 cause the exportation of a part of the gold or silver 
 employed in the circulation, precisely in the ratio also 
 of the excess, and the same results are produced. 
 
 W> have thus seen the effects on the value of money 
 from those circumstances which disturb the natural 
 pro-^ress of wealth and population, or which produce 
 a variation between natural and market prices. In 
 all these cases we have been supposing taxation, res- 
 trictions, bounties, &c. to operate without check or 
 restraint. 
 
 An increase in the powers of production may, how- 
 ever, as 1 before remarked, counteract the consequen- 
 ces of an increase of taxation, although considerable ; 
 the quantity of commodities thrown into the market 
 by producers may exceed the quantity taken out by 
 government, and the tendency to a decline in national 
 wealth from taxes, restrictions, &c. may be counteract- 
 ed by an opposite tendency still stronger. If the 
 effects from these opposing causes balance each other, 
 countries subject to their influence would of course be 
 stationary in wealth and population. If no disturbing 
 influence were to take place in the due equilibrium 
 between money and the commodities it has to circulate, 
 the level of prices would be unaltered, and money or 
 the material of money would be imported during the 
 progress of improvement, for an additional quantity 
 would be wanted for the increasing business of society. 
 If countries continued in a stationary condition, money 
 would be neither imported nor exported. But, accord- 
 ing to the principles we have been explaining, any 
 degree of taxation whatever must produce a corres- 
 pondent effect on the level between money and the 
 11 
 
3^2 NOTES ON 
 
 pixnlaco it is employed to circulate. The same raw 
 be said ot lx>muics, restnccions, &c. 
 
 Ir n.av bt^ siippostni, however, that an extraorilinary 
 stiiiuilus being given to the industry and etnnmerceof 
 a particular country, the demand for additioua] cur- 
 ren^'y may increase more rapidly than the supply of 
 the precious metals could be auguented tivm abroad, 
 and that in such case an is^ue ot" paper. sup[X>sing trie 
 currency to consist entirely of one or the other of the 
 precious metals, might take place w ithout produ *ing 
 disrarbance, providcil that the issue uas no greater 
 than in proportion to the increase of prvuluce. But 
 these are erivneous conclusions : For 
 
 First, The increased powers of prwluctton of one 
 or more countries, in surh case, is no more than equal 
 to the diminution of the prvxiuctive powers of other 
 nations of the commercial world. If the ciMiutry 
 receiving an uunsual stinuilus requires au additional 
 quantity of money in a shortei* period than bullion 
 can be prvxluced at the mines, those countiies whose 
 prvii::iTss in impi\>vcnient must have been nece>>;arily 
 retarded, will have a redundancy of the pnvions me- 
 tals which they wotild be ready and willing to exchange 
 for the commodities: which their wants or habits made 
 utYcssarv to them. Thus the nations of the continent 
 of Kurope, during the long contest into which Buona- 
 parte's domination drove them, must have susjiended 
 in great part their powers of production and en- 
 onxiched on their capitals. They had therefore a 
 surplus of the precious metals which would have been 
 imfK>rtcd into Givat Britain and the Tnited Seates in 
 payment for the manufaeturt^s and colonial produce of 
 the toniur and iho raw prvxluee of the latter, if the 
 circulation of both countries l»d not been for a srreat 
 
POLITICAL ECONOMY. 83 
 
 part of the time surcharged uiih paper. Instead of 
 specie finding its way into the Uniteti States and (.«reat 
 Britain, therefore, in proportion to their increased want 
 of munr\, it was excluded by their paper issues, and 
 was even driven abroad to countries where it wen* to 
 increase the prices of those foreign commodities wliich 
 were necessary to their consumption. But 
 
 Secondly, Neither is it possible to introduce even 
 the smallest amount of paper into the circulation with- 
 out producing disturbance of prices, although it should 
 not exceed the quantity of gold or silver that would 
 have circulated in place of it. if it were possible to 
 add paper to the circulating medium in the same man- 
 ner that the precious metals are added to it, in the 
 regular progress of improvement, no derangement 
 could occur. If this be true, paper money cannot be 
 productive of national advantage, as by leading to a 
 disturbance of prices it must alter the level of profits 
 between different employments, and terminate in 
 much individual loss and distress. The currency 
 which a contrary opinion has so long obtained, is 
 truly surprising. Dr. Smith's views on the subject of 
 money in general, and paper money in particular, 
 have assisted in giving an extensive and lasting influ- 
 ence to error in this branch of Political Economy. 
 
 His misconception in this matter consisted in view- 
 ing the expense of procuring and supporting the pre- 
 cious metals for the purposes of money as a deduction 
 from the net rt> venue of society. But if it can be 
 made to appear that the amount of population and 
 produce would have been greater, in any given period, 
 with than without the use of the precious metals as 
 money. Dr. Smith must be condemned on his own 
 principles. He. has very properly considered the 
 
84 NOTES ON 
 
 maintenance of the actual population as no deduction 
 from the net revenue of society, because the produc- 
 tive classes reproduce a greater value than they cftYi' 
 sume during their maintenance. It was on this prin- 
 ciple that he successfully overthrew the theory of tlje 
 Economists. But if this be correct, and it can be shown 
 that the produce and population of a country would 
 be less in any given period with than without the use 
 of paper as the instrument of circulation, the contra- 
 diction between Dr. Smith's opinions in regard to 
 money generally, and those he has expressed in rela- 
 tion to the Economical theory, wil^ be made out. 
 This it will be our purpose now to show. 
 
 If it were correct, that on the substitution of paper 
 for the precious metals as money, cm equal rise in the 
 prices of all commodities took place, the consequences 
 which have been deduced from this principle could 
 not fail to occur. But I am satisfied that its too ready- 
 admission has been the origin of the various disputes 
 that have occurred in regard to money and exchange. 
 
 It must always be borne in mind, that there can be 
 no varia:tion in prices unless the due proportion has 
 been altered between demand and supply, and whether 
 the alteration has its origin in the quantity of circula- 
 ting medium exchanged for the commodities which 
 have varied m price or in the quantity of commodities 
 themselves, the effects on price are identical. Setting 
 out from this principle, it can be made to appjear that 
 whenever a rise of prices takes place on an issue of 
 paper, it is partial and not general^ and that the rise is 
 only in certain articles for which the demand will have 
 increased, accompanied by an equivalent fall in the 
 prices of other articles which will have experienced, 
 in the same degree, diminished demand. Let us trace 
 
POLITICAL ECONOMY. g5 
 
 the consequences of an emission of paper which dis- 
 places an equal amount of one or the other of the 
 precious metals from the circulation. The demand 
 for those particular commodities of which additional 
 competition will have augmented the price, in conse- 
 quence of the issue, will be, of course, in proportion to 
 the increased quantity of circulating medium for which 
 they are exchanged. 
 
 We have said that this will be accompanied by an 
 equivalent fall in the prices of other commodities for 
 which the demand will in an equal degree have di- 
 minished, or, which is the same thing, which will have 
 been exchanged for a smaller quantity of circulating 
 medium. The point of inquiry then is, what por- 
 tion of the national produce is it for which the demand 
 will in this manner have lessened and the price been 
 reduced ? The answer is obvious — that portion which 
 it was usual to send abroad in exchange for bullion. 
 Thus, suppose, to confine ourselves to a single com- 
 modity, that we may simplify the explanation, that it 
 had been usual to export cloth to purchase bulHon in 
 some country possessed of mines of the precious me- 
 tals. If the amount of paper issued in one year be 
 one million of dollars, and the value of clothj which 
 would, in the same year, have been exported to be 
 exchanged for bullion abroad, have been five millions, 
 the price of cloth will fall in the foreign market to 
 which it had been customary to send it, one fifth. 
 
 It will be obvious, on the smallest reflection, that 
 the diminution in the demand for bullion, to be con- 
 verted into money, in the country employing paper, 
 will compel the producers abroad of bullion to lessen 
 their demand jn an equal dpa:rpe for cloth, and that 
 the value of the exports of the country which em- 
 
36 NOTES ON 
 
 plovs paper will tall precisely in proportion to this 
 reduced deni.uui. The value of the cloth exported 
 wiU be therefore /<^«i- millions instead o{ jive. This 
 v-'ill turn the balance of payments against the country 
 sufterins: nnder this disadvautage. and compel ii to 
 expori some other commodity. o{ the value of one 
 milii^n, to restore the balance or to bring the exchange 
 to par should it have bv-eu previously at par. I his 
 ccai iiodity will be money, tor money when in that 
 stat^^ that renders it tii for exportation, is to be viewed 
 as subject to the same law s as commodities in geueial. 
 It is precisely that portion and no other of the metallic 
 Dioney, to the amount ol" one million. o{ the country 
 the value of whose e^pons has thus lessened, that had 
 beer previously applied to the purchase and transmis- 
 sion of cloth to be exchanged abroad tov bullion, and 
 which, being no longer applicable to this purpose, is 
 exported to pay a balance of debt created by an emis- 
 sion of paper to the same amount, in tlie manner above 
 described. 
 
 The producers of cloth will necessarily experience 
 a fall of profit in proportion to the diminished demand 
 for that commodity, and will have to remove a por- 
 tion ot" their capital to some other employment. A 
 part of their gains will be transferred to ihe producers 
 of the commodity or coLumodities of which the issue 
 of paper had in the first instance raised the price. 
 This class of capitalists will have a larger money 
 amount to devote to the purchase ot anicles either of 
 necessitv or enjoyment than those whose productions 
 have fallen in price. The wages of the labourers 
 in the f^mployments thus favoured, must increase to 
 the correspondent diminution o he wages of ihose 
 who were engaged lu me preparation for the foreign 
 
POLITICAL ECONOMY. 87 
 
 mtvrket of that portion of produce for which the de- 
 mand has lessened. 
 
 Thus, we have seen, that if one million of dollars 
 in specie be exported from the introduction of paper 
 to the same amount, and this sum bear the pro- 
 portion in value of one fifth to that of the produce it 
 circulated, this portion of produce will unavoidably 
 fall in value from fine to Jour millions in consequence 
 of diminished demand. There being no market abroad 
 for one fifth part of it, except at a reduced price, its 
 production will be discontinued in this proportion. 
 Now, if we suppose that fifty millions of dollars con- 
 stitute the amount of the precious metais that would 
 have circulated in a particular country, in any given 
 period, if paper had not been introduced into its cir- 
 culation, it is obvious that such country, if it adopts 
 paper to an equal amount as a medium of exchange, 
 will, at the end of such period, have a less value in 
 produce by fifty millions of dollars than if it had em- 
 ployed one or the other of the precious metals for 
 money. The amount of its population would, at the 
 end of the same period, be also less in the ratio of the 
 numbers vvhich would have been required to raise or 
 manufacture the value of these fifty millions. It is in 
 this manner we conceive that every issue of paper 
 will discourage production and population to the ex- 
 tent of such issue. But if the power of a country is 
 to be estimated by the amoimt of its wealth and po- 
 pulation together, the conclusion that it will not be as 
 powerful with the use of paper as with the use of 
 either of the precious metals, as the instrutnent of 
 circulation, seems inevitable. 
 
 It is evident also that the effect on the value of the 
 exports which have been deduced from an issue of 
 
88 NOTES ON 
 
 paper, must follow from whatever circumstance de- 
 ranges prices, whether it be an alteration of the stan- 
 dard, a deterioration of the coin in any mode or de- 
 gree, an increase of the taxes, or restrictions on com- 
 mercial intercourse. Each of these causes leads to 
 the exportation of a less value than would have gone 
 abroad if it had not exerted a disturbing influence on 
 prices — or, in other words, the balance of payments 
 is turned against the country subject to either of these 
 disadvantages. In every case, therefore, of an undue 
 increase of the circulating medium, when it is said that 
 a commodity is in consequence raised in price, it is 
 merely a different form of expression, but the same in 
 substance, as if it were asserted that it exchanges for 
 a greater quantity of money. In the same manner, 
 when it is said that a commodity has fallen in price, 
 unless it is from excess in the supply, it is identical 
 with the assertion that it exchanges for a smaller 
 quantity of money, and the rise in the one case and 
 the fall in the other, are both consequences of the 
 same cause of disturbance. The idea, then, of a gene- 
 ral fall in the value of money, as regards a particular 
 country, or, which is the same thing, a general rise in 
 the prices of its commodities, under the circumstances 
 supposed, cannot be correct. 
 
 The question as to the origin of high or low prices 
 resolves itself, therefore, in every instance, into a single 
 point, whether the alteration is in the demand or sup- 
 ply of the article or articles for which tnoney is ex- 
 changed. If the terms depreciation or fall in value, 
 as regards money, are meant to convey the meaning 
 that the quantity of currency given in exchange for 
 articles which are high in price is greater than when 
 their price is less, the proposition cannot admit of 
 
POLITICAL ECONOMY. 89 
 
 dispute. In this sense the idea of a fall in value or 
 depreciation of money, if confined to that portion 
 oniv which is exchanged for such articles, is sufficiently 
 intelligible. But the fall in the value of money in 
 such case, is the same thing as the rise in value of the 
 articles for which it is excnanged. In this sense, also, 
 the quantity of money which is given in exchange for 
 articles which have fallen in price, may be said to be 
 less than when their price is higher, or, in other words, 
 that portion of the currency exchanged for articles 
 w^hich have been reduced in value, must have risen 
 in value relatively to those articles. 
 
 If we are correct in these views, the opinion of 
 modern Economists, that by the use of paper money 
 the quantity of the precious metals displaced is a 
 clear addition to national wealth, by the value of the 
 returns received for it abroad, must be erroneous. 
 We have, we think, shown that the specie exported in 
 such case is not replaced by an equivalent value im- 
 ported, but on the contrary by a less value.* We 
 thus see that the dispute whether the exportation of 
 the precious metals has its origin in a balance of debt, 
 or what is sometimes called a balance of trade, or in 
 an alteration of the value of the circulating medium, 
 has been vain and illusory. 
 
 It also results from these views, that as the balance 
 between produce and consumption is always disturbed 
 from whatever cause alters that natural distribution of 
 
 * Dr, Smith, although correct in saying that by the substitution of paper 
 there was an equal amount of the metallic money exported, did not perceive 
 that this was to pay a balance of debt, or to make up for the deficiency in the 
 value of the exports caused by this substitution of paper, and that the fall in 
 the price of certain portions of the produce in an equal degree that the price 
 of other portions had risen, is the only mode of relieving the circwlation »( the 
 .superfluous quantity of circulating medium. 
 
90 NOTES ON 
 
 capital which takes place when prices are not deranged, 
 the use of paper money has the same effect on the 
 progress of wealth as taxation and restrictions on 
 commercial intercourse. And we find, accordingly, 
 that nations become more thriftless in proportion as 
 they depart from the use of a medium of circulation 
 possessed of intrinsic value. It would seem essential 
 to maintain the level between production and expen- 
 diture (should taxation even not exist) that the instru- 
 ment of exchange should not be too cheaply acquired 
 either by governments or individuals. 
 
 I am satisfied that if the resources of Political Eco- 
 nomy were such as to allow us to ascertain the truth 
 of the position that paper has been instead of a cheap 
 a very costly instrument of circulation. If it has 
 given an extraordinary stimulus to the productive 
 powers of nations which have adopted it, in certain 
 employments, it has been followed, if not accompanied, 
 by a proportional relaxation in others ; by a more than 
 corresponding expenditure on the part of that class of 
 producers who have derived great relative gains, and 
 by all who have obtained so cheap an instrument 
 without any present sacrifice or exertion. 
 
 We do not by anjr means admit then the position, 
 that if nations could substitute paper for the whole or 
 any part of the precious metals as money, without 
 causing, at frequent periods, a derangement of prices, 
 such a result would be desirable, as it must render, as 
 we have shown, the amount of population and pro- 
 duce less with than without its employment. But 
 when we look at the impossibility of devising a check 
 that will operate with uniform effect on the issuers — 
 when we witness the tremendous abuses of this power 
 which have distinguished our day — at the revolutions 
 
POLITICAL ECONOMY. 91 
 
 of property, the violations of private and public faith, 
 the relaxation of morals generally which it has occa- 
 sioned, we do not believe that the world has ever been 
 afllicted with a moral evil, under the disguise of a 
 public benefit, more pestilent and dreadful. Whatever 
 discovery of a cheaper medium of commerce than 
 gold or silver may hereafter be made, I conceive that, 
 in addition to its other qualhies, to fit it for this pur- 
 pose, it must possess intrinsic value. It must be ob- 
 tained by a certain quantity of labour or personal 
 exerti(»n equal in value to that parted with. To dis- 
 cover such an instrument would produce the same 
 effect on rhe progress of wealth as an increase in the 
 powers of production, it would reduce prices gene- 
 rally. But the real cheapness of such an instrument 
 will be found, we apprehend, not in substituting that 
 which possesses no value intrinsically — which costs 
 no expense of labour or capital, except what employs 
 the makers and signers of notes, but in procuring the 
 additional quantity of the precious metals required for 
 the increasing wants of commerce and industry at a 
 relatively less expenditure — by improving the processes 
 of extracting and refining the ores now in use. 
 
 The causes enumerated in the course of this chapt<^r 
 are the only ones, we believe, that disturb prices and 
 thence alter the equilibrium of the money of countries. 
 This, however, does not appear to be Mr. Ricardo's 
 opinion. He has stated "' that the improvement of a 
 manufacture tends to alter the distribution of the pre- 
 cious metals amongst the nations of the world."* And, 
 in the next page, the following remark occurs. " In 
 the former part of this work we have assumed, for the 
 purpose of argument, that money always continued 
 
 • Principles of PoliticarEconomy and Taxation, chap 6, p. 122. 
 
92 NOTES ON 
 
 of the same value ; we are now endeavouring to show 
 that besides the ordinary variations in the value of 
 money, and those which are common to the whole 
 commercial world, there are also partial variations to 
 which money is subject in particular countries ; and, 
 in fact, that the value of money is never the same in 
 any two countries, depending as it does on relative 
 taxation on manufacturmg skilly on the advantages of 
 climate, natural productions, and many other causes." 
 
 How could Mr. Ricardo conceive that any " ad- 
 vantage of climate" or of " manufacturing skill" 
 could occasion an alteration of the distribution of the 
 precious metals ? Do nations possessing either a na- 
 tural or artificial advantage improve it so as to adapt 
 the products they raise or manufacture for foreign 
 markets, unless they can obtain by a trade of barter 
 an equivalent quantity of foreign commodities better 
 suited to their necessities or enjoyments ? Or will any 
 country improve its manufacturing skill or its natural 
 advantages, unless such improvement is met by a cor- 
 respondent improvement of another kind, in some 
 other quarter of the world with which it has commer- 
 cial intercourse ? The motive to make every such 
 improvement is reciprocal, and the advantages receiv- 
 ed must be also reciprocal, or it never would be made. 
 But in such a state of things, although money or the 
 material of money may be imported, it can never be 
 exported — we mean that the level is never altered 
 when no disturbing influence exists which compels 
 nations to receive or part with a greater quantity of 
 money than is required for their natural or regular 
 wants. 
 
 Each country of the commercial world imports an 
 increased quantity of bullion, or money, in conse- 
 
POLITICAL ECONOMY. 93 
 
 quence of its improvements in agriculture and manu- 
 factures. The case put by Mr. Ricardo cannot be 
 supposed to exist. Admit its existence and countries 
 wctuld cease to trade on equal terms. Grant that mo- 
 ney ebbs and flows as one country is favoured by na- 
 ture more than another for raising a certain species of 
 produce, or as one nation manufactures certain goods 
 with greater comparative skill than another, and we 
 at once confound the distinction between that increase 
 of wealth in which all countries permanently partici- 
 pate, from the improvement of their peculiar advantages 
 either from nature or art, with that partial and tem- 
 porary augmentation of riches, which is, for the time it 
 lasts, altogether on one side — in which what is gained 
 by one of the parties to the intercourse is lost by the 
 other. It is in fact carrying us back to the leading 
 principle of the Mercantile system. 
 
 Instead, then, of viewing that variation in the equi- 
 librium of money between countries which leads to its 
 exportation and importation as the effect of derange- 
 ment, it is attributed by Mr. Ricardo to causes that 
 tend to prevent or counteract such derangement, and 
 keep the money of countries at rest, instead of that 
 state of movement which alters their proper distribu- 
 tion among the nations of the commercial world. The 
 comparative value of the precious metals between 
 countries is not to be determined by the comparative 
 quantity in each, but by the proportion which the 
 amount in each bears to its wants both for the pur- 
 poses of money and ordinary manufacture. Rich 
 nations have an abundance of these metals because 
 they require an abundance both for circulation and 
 other uses. Their large powers of production demand 
 a greater quantity . than countries whose productive 
 
94 NOTES ON 
 
 powers are more limited. The value of money in 
 different countries may therefore be very unequal — it 
 may exchange in one nation for a smaller and in an- 
 other for a greater quantity of commodities, and this 
 inequality of value may continue or may increase 
 without causing disturbance in the equilibrium of the 
 precious metals, and altering their distribution among 
 nations. 
 
 It will be recollected that the distribution of these 
 metals is not varied, although one nation should export 
 coined metal and another receive it in exchange for 
 its productions, provided that the country exporting 
 the coined metal employs its capital in coining money 
 for the supply of other countries, for this is in fact a 
 species of manufacture, the raw material of which 
 may have been purchased from countries possessed of 
 the mines. It is still a trade of barter, for the nation 
 importing the coined money pays the price of the raw 
 material as well as the workmanship added to it by 
 the coinage, by the export of a portion of its produce. 
 When England exchanges her manufactures for the 
 gold bullion or dollars of Mexico, it occasions no more 
 disturbance in the due proportion between her cur- 
 rency and the business it has to perform, than if she 
 had given her goods in exchange for the corn of Po- 
 land. It appears to us, then, that Mr. Ricardo has 
 confounded two circumstances which are entirely 
 distinct, namely, the import of money, or its material, 
 from countries which produce the precious metals, or 
 manufacture them into coin, with their importation 
 from Countries which neither produce nor manufacture 
 them, but are sometimes under the necessity of send- 
 ing them abroad to discharge a balance of debt or to 
 restore the proportion which has been lost between 
 
POLITICAL ECONOMY. 95 
 
 their currency and the number of exchanges it has to 
 effect. 
 
 Nor is the relative value of money and its equili- 
 brium altered from the greater or less distance from 
 the mines of countries trading together. This is a 
 circumstance which gives a higher exchangeable value 
 to the precious metals in some countries than in others. 
 Nations at a great distance from the mines have to 
 part with a greater quantity of the produce of their 
 industry in exchange for gold and silver than countries 
 more near, but as this does not alter the proportion 
 between their money and the quantity of produce it 
 has to circulate, no derangement of prices can take 
 place, and no variation consequently in comparative 
 value with the money of countries more fortunately 
 situated. Under every aspect, therefore, that we can 
 view the subject, it is impossible to conceive the ex- 
 istence of any other causes that will disturb prices and 
 the equilibrium of the precious metals between coun- 
 tries, than those we have enumerated. 
 
96 NOTES ON 
 
 CHAPTER VL 
 
 EXCHANGE. 
 
 If the reasoning be accurate in the preceding chap- 
 ter, the distinction between the real and the nominal 
 exchange falls at once to the ground. The numerous 
 and prolonged controversies to which this subject has 
 given rise in England, consequent on the restriction of 
 cash payments there, turn out then to have been merely 
 verbal. Every variation in the exchange is reducible to 
 a single principle, to wit, an alteration in the due pro- 
 portion between the demand and the supply of bills, 
 or, which is the same thing, to an increase or diminu- 
 tion in the value of the exports. The various causes 
 which produce an alteration in the value ol the ex- 
 ports may exert a combined influence, and to assign 
 to each its share in producing the whole effect, is 
 plainly impossible. An increase of the taxes may be 
 made at the very moment of a large issue of paper, 
 and these causes may be united with restrictions on 
 commercial intercourse that did not exist before. If 
 at such period an unfavourable harvest should occur, 
 the value of the exports relatively to the imports would 
 be still further lessened, and the fall in the exchange 
 proportionally increased. 
 
POLITICAL ECONOMY. 97 
 
 In the case of a failure of the harvest or of a war 
 expenditure abroad which compels the export of bul- 
 lion, there will be an increased quantity of the circu- 
 lating medium applied to the purchase of this article 
 for exportation, which will be equivalent to the dimin- 
 ished quantity applied to the purchase of other articles, 
 which from their consequent fall of price will be ex- 
 ported to pay a balance. But whether the exportation 
 of the precious metals be a cause or a consequence of 
 an unfavourable balance, it can make no difference in 
 the value of the exports and in the state of the ex- 
 change. If the disturbing cause is of equal influence, 
 the encouragement to export will be also equal, and 
 the balance will be restored in an equal period of 
 time. If money or bullion is exported, in the first 
 instance, commodities will be subsequently sent abroad 
 to discharge an unfavourable balance. When it is 
 said, therefore, that an unfavourable exchange in- 
 creases the exports, the expression is not less applica- 
 ble to the export of money when the balance is to be 
 discharged by sending it abroad, as by sending com- 
 modities abroad when there arises a necessity of first 
 exporting money. 
 
 If the usual level of prices between countries is not 
 disturbed by war, a highly unfavourable exchange will 
 soon be rectified, but if a particular country is in the 
 the receipt of great profits from war demand abroad, 
 or from the suspension of the powers of production 
 of those countries which consume unproductively, it 
 is impossible to prescribe the limit either to the degree 
 or the duration of an unfavourable exchange, as long 
 at least as the profits of such country are proportion- 
 ally high. It must always be recollected that the real 
 limit to an unfavo.urable exchange consists in the ina- 
 13 
 
98 NOTES ON 
 
 bility of the country subject to this disadvantage te 
 consume any longer at high prices. Every increase 
 in the premium of exchange is an additional tax on 
 consumption. Unless, therefore, the country subject 
 to a high tax in this shape is more than usually stimu- 
 lated in its povi^ers of production — unless it is in the 
 enjoyment of monopoly profits, the limit to an un^ 
 favourable exchange will very soon be reached. The 
 principles or tests, therefore, that apply on ordinary 
 occasions in regard to this subject, are inapplicable in 
 other periods when wars unexampled in extent and 
 duration occur, which derange all the ordinary rela- 
 tions of commerce. It was this circumstance that 
 produced so anomalous a state of the exchange in 
 England during the latter period of the war in which 
 she was engaged, and rendered the phenomena so in- 
 explicable on the ordinary principles. The limit to an 
 unfavourable exchange in the ordinary state of things, 
 is unquestionably the expense of transmitting money 
 from the debtor to the creditor country in payment of 
 a balance. It would consequently be impossible, when 
 the usual level of prices between countries is not for a 
 considerable period disturbed, for banking establish- 
 ments to suspend payments in specie and continue the 
 suspension, unless the country in which they were 
 situated was deriving very high profits from its foreign 
 commerce. The natural limitation of mercantile profit, 
 and of the disposition to borrow with a view to such 
 profit, is the check given to consumption by an unfa- 
 vourable exchange of too long continuance. Every 
 inequality of this nature is speedily corrected, if the high 
 prices of the imports are not counterbalanced by the 
 proportionally high prices abroad of the exports. 
 
POLITICAL ECONOMY. 99 
 
 In determining the qtre^ttow, whether the unfavour- 
 able exchange in England arose from an increase of 
 the government expenditure or the undue issues of the 
 Bank of England, it is indifferent to the point at issue, if 
 this expenditure were defrayed by loans, in what mode 
 these loans were effected. The two circumstances of 
 an increased public expenditure and enlarged issues, 
 were in necessary connexion. If the government by 
 means of its loans diminished the amount of capital 
 which would have been otherwise employed in com- 
 merce, the Bank by replacing the capital which was 
 withdrawn for public expenditure, did not issue more 
 paper perhaps than was necessary for the due wants of 
 trade, but its issues did add to the whole quantity of 
 cir<i.ilating medium above what was required for the 
 wants of the country at large, in proportion to the 
 amount of capital borrowed by government. The 
 heavy public expenditure, therefore, was the origin of 
 an issue of paper by the Bank of England, not pro- 
 bably beyond the fair demands of commerce, but cer- 
 tainly beyond what could be added to the circulation 
 without producing considerable disturbance of prices, 
 and leading to an exportation of specie equal to the 
 excess of the whole quantity of currency compared 
 with the number of exchanges to be effected. In one 
 sense, then, the circulating medium may be said to 
 have been redundant, whilst in another sense, it may 
 be asserted to have been in its due quantity, or in fair 
 proportion to the business it had to perform. If this 
 view of the subject be correct, the difference of opin- 
 ion as to the origin of the unfavourable exchange in 
 England, in the period already referred to, is recon- 
 cileable. 
 
100 NOTES ON 
 
 We find that the facts correspond with this expla- 
 nation. The exchange was at par in England i)\mi 
 the period of the Bank restriction until the very htuvy 
 expenditure required to maintain the British armies ill 
 the Peninsula arose in 1808. As this expense in- 
 creased, the exchange became proportionally unfa- 
 vourable. The great exportation of coin and bullion 
 that almost immediately took place, in consequence, 
 was partly, perhaps, the cause, first, and then the 
 effect of the unfavourable exchange. They were ex- 
 ported, in the early period of this expense, on public 
 account, in addition to the sums required for the pay 
 of the forces, on the same principle that their export 
 takes place on the necessity of an immediate import 
 of corn from a failure of the harvest. The subsistence 
 as well as pay of the troops in the Peninsula required 
 an immediate and a direct remittance in specie, to 
 purchase a portion of the bread stuffs with which they 
 were at that time supplied by neutral nations. A cir- 
 cuitous remittance by Inlls is too slow an operation in 
 such pressing circumstances, as is the export of goods 
 in payment for such necessary supplies. The greater 
 the quantity of gold exported, however, on public ac- 
 count, necessarily lessened the quantity sent abroad 
 on private account. But if individuals sold to the 
 government, it must have been at a price which was 
 equivalent to the profit they would have derived if 
 they had disposed of their bullion in any other mode. 
 The premium on exchange would of course measure 
 this profit, for by exporting bullion and drawing a bill 
 against it, the possessor of this article would gain a 
 sum, deducting the expense of transportation, equal 
 to what he would have derived by selling his bullion 
 to government, or to the profit: he would have made 
 
POLITICAL ECONOMY. 101 
 
 in the home market on the commodities he would 
 have obtained in exchange for it in foreign markets. 
 
 But although the advance in the price of bullion in 
 the first yea*" of the great public expendhure in the 
 Peninsula, may be thus entirely accounted for, from 
 the govern uent demand, this cannot explain its con- 
 tinued high price, until the end of the war. After 
 time had been allowed to provide, in other modes, fof 
 this expense, a very small part of it would be defrayed 
 by the exportation of coin or bullion. The only sa- 
 tisfactory explanation of the continuance of the high 
 prif^e of the precious metals until the close of the war^ 
 is to be found, therefore, in the increased individual 
 demand that took place, for the purposes both of 
 hoarding and of profit to be ma<1e by exportation, in 
 addition to the more limited demand, at the same pe- 
 riod, by the governuient itself. 
 
 I have before observed that the causes which affect 
 the price of bills are various. It is therefore obvious 
 that these causes may act all in the same direction or 
 in opposite directions — or, in other words, the ex- 
 change will become proportionally unfavourable to a 
 particular country if all those circumstances by which 
 it may be affected co-operate. The computed exchange 
 will then express the sum of their united influence ; 
 whilst if the various causes by which it may be af- 
 fected are of equal influence in different countries tra- 
 ding together, the value of their exports will be equally 
 diminished, and the exchange between them will not 
 vary. Thus, if the exchange between two countries 
 having commercial intercourse together, is at par, and 
 a deficient harvest should occur in one of them, the 
 value of its exports wili lessen proportionally, but if 
 the country from* which the supply of corn is pur- 
 
NOTES ON 
 
 chased shall have issued a quantity of paper, by 
 whiih it lessened the value ol* its exports in an equal 
 degree, the exchange between them would coniinue 
 at par ; or if one country increases its taxes to che 
 same extent that another enlarges its paper issues or 
 alters its standard, the value of their exports would, 
 in the same manner, be reciprocally and equally re- 
 duc«d, and the exchange between them would not 
 vary. But if whilst a particular country is compelled 
 to import a portion of its corn, it, at the same time, 
 increases its taxes and enlarges its issues of paper, or 
 alters its standard, its exchange with another, the value 
 of whose exports is not affected by either of these 
 circumstances, will become unfavourable to the degree 
 of the combined influence of all these causes. 
 
POLITICAL ECONOMY. 103 
 
 CHAPTER VII. 
 
 COMMERCE. 
 
 THE intercourse between countries is more or less 
 a trade of barter as the market prices of the commo- 
 dities they respectively export and import agree with 
 or differ from their natural prices. All other circum- 
 stances being equal, both parties gain in proportion to 
 their skill, capital and natural resources. But this is no 
 longer true when taxes, restriction no the free circula- 
 tion of capital, &c. in a particular country, so diminish 
 the relative value of its productions as to compel it 
 to exchange the same quantity of them for a less quan- 
 tity of those commodities it is in the habit of importing. 
 This is attended by animmediate loss to one of the par- 
 ties and an eventual loss to the other, for the nation 
 which obtains a higher price for its products than usual, 
 by such an unequal interchange, proportionally restricts 
 their market and consumption. The intercourse be- 
 tween the countries so circumstanced ceases, at such 
 time, to be purely a trade of barter. The level between 
 the quantity of money and the quantity of commodities 
 it has to circulate of the country whose trade is subject- 
 ed to this disturbing influence, is necessarily altered, and 
 
104 NOTES ON 
 
 the profiis of its merchants are partly derived from the 
 exportation of its circulating mediuiii. The commerce 
 between different countries is in its nature and linal 
 resuhs Hke that between the different districts of the 
 same country. The diminution of profit in one quar- 
 ter must be accompanied or followed by diminished 
 demand and reduced profit in some other, and althotigh 
 the reaction is not so quickly communicated from 
 country to country as from one district or employ- 
 ment to another in the same country, still it much 
 sooner takes place, I believe, than is commonly ima- 
 gined. 
 
 There would appear to be no difficulty in deter- 
 mining in what manner mercantile profit is derived, 
 and to point out the sources of that mutual gain which 
 states enjoy in exchanging what they want less for 
 what they want more. It is a familiar principle, that 
 every reduction in the prices of commodities, when 
 demand is properly proportioned to supply, gives ex- 
 tension to the foreign as well as domestic market, and 
 that states are reciprocally beneficed by this reduction 
 of prices when general, or, which is the same thing, 
 by an equal augmentation on both sides of the quan- 
 tity of consumable products. But although it has 
 been admitted that an increase iii the quantity of com- 
 modities is the consequence of an extension of foreign 
 trade, it has been denied that an increased value in 
 amount is derived from such extension. Mr. Ricardo 
 is the author of this new theory of commerce.* It 
 seems a necessary consequence of his peculiar view 
 of value in other parts of his work, as distinguisha- 
 ble, under all circumstances, from wealth. 
 
 ^ Principles of Political Economy and Taxation, chap. 6, p. 107. 
 
POLITICAL ECONOMY. 105 
 
 Mr. RicARDO invariably assumes that what is gained 
 in value by one class of the community is lost to some 
 other. This doctrine is an unavoidable inference 
 again from the principle, that the value of commodi- 
 ties is determined, from first to last, by the quantity 
 of labour which they have cost, and thai as more or 
 less is paid for wages and rent, more or less remains 
 for profit, and vice versa. As Mr. Ricardo had thus 
 determined that profits could not increase unless wages 
 and rent diminished, or profits diminish unless wages 
 and rent increased, he was bound to follow out this 
 principle to its consequences, and to insist, that, as 
 profits, wages and rent together always continued of 
 the same value, however they may be divided, no 
 greater value in amount could be derived from the 
 importation of a larger than a smaller quantity of 
 commodities. On the same principle, as nothing can 
 increase profit but a diminution of wages, he was 
 bound to conclude that as wages are not lowered, un- 
 less the commodity imported constitute the subsist- 
 ence of the labourer, the gains of the merchant are 
 not increased, any more than those of the producer, 
 by any extension, however great, of the foreign mar- 
 ket ; but, according to this principle, the profit of the 
 merchant must be always of the same money value, 
 which leads inevitably to the conclusion that Mercan- 
 tile profit is stationary, whilst the profit of the other 
 prtfductive classes is increasing. 
 
 Now, although, as commodities increase in quantity, 
 or, which is the same thing, fall in price, the profits 
 of their producers continue always of the same money 
 value, this is not true of the profits of the merchant. 
 It will be recollected that the merchant's gains are 
 always received as well as estimated in money, and. 
 U 
 
106 NOTES ON 
 
 although his real profit is in proportion, as in every 
 other case, to what money will purchase, the q iantity 
 of both money and real profit is always equal in nis 
 case, unless some disturbassce of prices has occurred. 
 But in the case of the producer his money and his real 
 profit are always unequal, if no such disturbance of 
 prices has taken place. We have endeavoured to 
 show that there is the same money profit, or value in 
 money amount, received by him when hiscommo«5ity 
 In at a less as when it is nt a greater price, if its quan- 
 tity has at the same time proportionally increased. 
 But no increase of mercantile profit can take place 
 (if relative prices are not altered by some disturb! >:g 
 influence) without an augmentation in the quantiiy of 
 money obtained in exchange for an increase of com- 
 modities. 
 
 Suppose a manufacturer of cloth was to produce 
 this year 1000 yards and to obtain one dollar per yard 
 for it, should he the next year augment the quantity 
 25 per cent, he must submit to a reduction of price in 
 this proportion — he must accept of 80 cents per yard 
 when its quantity is increased in the above ratio ; for 
 1250 yards at 80 cents per yard will bring the same 
 amount of money as 1000 yards at one dollar per 
 yard. This is the situation of the producer; but tiie 
 case is different with regard to the merchant whose 
 business it is to export cloth in exchange for some other 
 commodity. He must receive a larger money amount 
 for a greater than a smaller quantity of commodities, 
 or his profits will be below the general level. Thus, 
 if we suppose him to export 1000 yards of cloth when 
 its price is one dollar per yard, and to derive 25 per 
 cent profit, he must sell the commodity he imports for 
 ;^1250; but when he invests this amount in the pur- 
 
POLITICAL ECONOxMY. 107 
 
 chase of cloth, the quantity havhig proportionally in- 
 creased, he must obtain ^\b&Z 60, lor the goods he 
 imports in return ; for as the gain of the manufacturer 
 of cloth is 25 per cent, when hs quantity, or, which 
 is the same thing, the quantity of other goods he ob- 
 tains lor it has increased in this ratio, the possession 
 of the above sum is ne«'essary by the trader in this 
 article to put him on the same footing in regard to pro- 
 fir. Unless it be admitted that the merchant receives 
 a larger money amount for a greater than a smaller 
 quantity of i!npt)rted commodities, his profit will con- 
 titme stationary whilst that of the manufacturer or 
 producer will inaeuse. Accordingly, we find that 
 this i^ ihe precise conclusion to which Mr. Ricardo's 
 reasoning leads. - 
 
 " If," savs he, " by the purchase of English goods 
 to the aiDount of £1000 a merchant can obtain a 
 q i:^!itifv of foreign goods, which he can sell in the 
 Etiglish narket f)r £i 200, he will obtain 20 per cent, 
 profit by such an e aployment of his capital ; but 
 neither his s; lin'i nor the vfUue of the commodities im- 
 poit<"i vvil! b^ increased or dimiaished by the greater 
 or smaller quantity of tbreign goo Is obtiined. Whe- 
 ther, for example, he imports lb or 50 pipes of wine, 
 his interest can be no way affected, if at one time the 
 25 pipes and at another the 50 pipes equally sell for 
 £I20U. In either case his profit will be limited to 
 £200, or 20 per cent, on his capital, and, in either case, 
 the same value will be imported into England."* 
 
 But if the manufacturer or producer of goods parted 
 with in exchange for wine obtains 50 pipes or the value 
 of 50 pipes at one time and 25 pipes or their value at 
 
 " PrJnciplejB ©f Political Economy and Taxation, chap. 6, pp. 107, 108. 
 
108 NOTES ON 
 
 ano her, how can the conclusion be resisted that his 
 profit is 80 per cent, above that of the importer of wine, 
 for theaiisolute increase of the manufacturer's or pro- 
 ducer's profit in this case is lOO per cent, as the quantity 
 of wine he has obtained in exchange for his e^oods 
 has doubled; but if the importer of this article gets 
 no more than £1200 when 50 pipes as wnen 25 pipes 
 are imported, he obtain^ no part of tliis increase — in 
 other words, his profit remains stationary, whilst that 
 of the producer or manufacturer has doubled. 
 
 Taking Mr. Ricardo's own criterion of value, or re- 
 gulator of price, to wit, the quantity of labour which 
 a commodity from first to last has cost, surely an in- 
 creased quantity of such commodity cannot be transr- 
 ported from the place of production to that of con- 
 sumption, without an additional quantity of labour to 
 what has been employed in the transportation of a 
 smaller quantity of such commodity. The value 
 must in such case proportionally augment. But not 
 only must the sum expended for the labour em- 
 ployed both in the production and transportation of 
 an increased quantity of commodities, be replaced 
 by the additional value for which they Sv"ll abroad, the 
 capital, with tlie usual profit, employed, must be, from 
 first to last, also replaced, or the requisite quantity of 
 produce could not couip to market. How under these 
 circumstances can it be said " no extension of the 
 foreign market will either increase the gains of the im- 
 porter or the value in amount of the goods imported f " 
 
 But it is not mercantile profit merely that is kept 
 stationary, according to this theory, whilst markets 
 are on every side extending and products increasing — 
 profits generally are made subject to trje same law, 
 namely, that the quantity of labour which commodities 
 
POLITICAL ECONOMY. 109 
 
 have cost regulates their value. It is not in conse- 
 quence," says Mr. Ricardo, " of the extension ot the 
 market that the rate of profit is raised, although such 
 exHiision may be equally efficacious in increasing the 
 mass of commodities, and may thereby enable us to 
 autrment the funds destined for the maintenance of 
 labour and the materials on which labour is employ- 
 ed."* 
 
 But it is by increasing the mass of commodities that 
 the general rate of profit is augmented, and from no 
 other cause- To increase the mass of commodities — 
 to augment the powers of production — to lower the 
 prices of products generally, are all terms expressive 
 of equivalent effects. What do we intend to assert 
 when we say that capital is augmented, by an increase 
 in the rate of profit, if it is not meant that the mass 
 of commodities is increased? 
 
 But Mr. Ricardo makes an exception to this prin- 
 ciple, as the following passage will show. " It has 
 been my endeavour to show throughout this work, 
 that the rate of profits can never be increased but by 
 a iaii in wages, and that there can be no permanent 
 fall of wages but in consequence of a fall of the ne- 
 cessaries on which wages are expended. If, therefore, 
 by the extension of foreign trade, or by improvements 
 in machinery, the food and necessaries of the labourer 
 can be brought to market at a reduced price, profits 
 'will rise, if, instead of growing our own corn, or 
 manufacturing the clothing and other necessaries of 
 the labourer, we discover a new market from which 
 we can supply ourselves with these commodities at a 
 cheaper price, wages u ill fall and profits rise ; but if 
 
 " Principles of Political Economy and Taxation, chap. 6, p. 112 
 
1[10 NOTES ON 
 
 the commodities obtained at a cheaper rate, by the 
 extension of foreign commerce, or by the improve- 
 mt nj of machinery, be exclusively the commodities 
 consumed by the rich, no aheration will take place in 
 the rate of profit. The rate of wages would not be 
 affected, although wine, velvet, silks, and other expen- 
 sive commodities, should fall 60 per cent, and conse- 
 quently profits would continue unaltered."* 
 
 This limitation of the principle, that no extension 
 of foreign trade can increase the rate of profit, was 
 necessary from Mr. Ricardo's peculiar view of labour 
 as the regulator of the price of raw products, and 
 through them of the rate of wages and profits. But 
 it requires the concession that the manufacturers of ai*- 
 ticles of necessity, or those consumed by the poor, are 
 in the enjoyment of higher profits than the manufac- 
 turers of articles of mere luxury, or those consumed 
 exclusively by the rich. It requires the further con- 
 cession that the importers of necessaries are also de- 
 riving higher profits than the importers of luxuries. 
 How would luxuries be either produced or imported 
 on such a supposition, or how is the level of profit to 
 be maintained under such circumstances ? What mo- 
 tive could the manufacturer of articles of luxury have 
 in increasing the quantity of his goods by machinery, 
 if he is tasking his ingenuity constantly for the advan- 
 tage of others in lowering the prices of his products ? 
 or what inducement could exist for the importer of 
 such articles, in enlarging the bounds of his enterprize, 
 to discover new markets whence they may be bought 
 at cheaper rates, if this is to redound to the exclusive 
 benefit of their consumers ? 
 
 * PrJuciples of Political Economy and Taxation, chap. 6, pp. 113, 113. 
 
POLITICAL ECONOMY. lU 
 
 Let us, however, for a moment, admit the principle 
 that the quantity of labour employed in raising raw 
 products is the sole regulator of their price, and 
 through them of the rate of wages and profits,: and 
 behold the consequence that follows. The consumers 
 of cheap commodhies, whether manufactured at home 
 or procured from abroad, will be soon in the condition 
 of persons who have accumulated from savings until 
 their accumulations have ceased to be of any value. 
 What is h that gives value to capital ? Is it not that 
 it may be employed by its owners or borrowers in 
 increasing the enjoyments of a different portion of 
 society to themselves, who are at the same time adding 
 to the enjoyments of some other portion ? Demand 
 insures demand, and unless it is co-extensive with 
 supply, of what use is the greatest sum of the neces- 
 saries and conveniencies of life? Of what value is 
 the greatest multiplication of commodities and the re- 
 duction in their prices, if what is in consequence saved 
 and added to capital cannot be made available, under 
 all circumstances, to an increase of profit ? 
 
 Mr. RiCARDO always speaks of reduced expenditure 
 or the diminished consumption of necessaries and con- 
 veniencies as an equivalent effect with the increase of 
 revenue, or as equally contributing with such increase 
 to an augmentation of capital. " There are two 
 ways," says he, " in which capital may be accumu- 
 lated ; it may be saved either in consequence of in- 
 creased n venue or of diminished consumption. If my 
 profits are raised from £1000 to £12U0 while my ex- 
 penditure continues the same, I accumulate annually 
 £200 more than I did before. If I save £200 out of 
 my expenditure wuiie ray profits continue the same. 
 
J 12 NOTES ON 
 
 the same effect will be produced ; £200 per annrnn 
 will be added to tuy capital."* 
 
 But profits cannot continue the same in one quarter 
 while expenditure is reduced in another, or increased 
 in one quarter while expenditure continues the sairie 
 in another, for expenditure must keep an equal pro- 
 gress with profit, if all classes of producers are to 
 beiK'fit by an interchange of their respective produc- 
 tions. It is not individual profit but profit generafiy — 
 not temporary but permanent effects, to which Mr. 
 RicAKDO alludes, we presum»% in the above passage. 
 Profit may be temporarily raised in one employment 
 compared with another, from causes which disturb 
 the proper distribution of capital and in consequence 
 alter relative prices; but no general or permanent 
 increase ol profit can take place unless consumption 
 in one quarter keeps an equal progress with produc- 
 tion in some other — unless, in short, demand, whether 
 for the necessaries and conveniencies of life, or for ar- 
 ticles of productive investment, is equal to the supply 
 of the whole mass of commodities of every kind. It 
 follows that profits cannot continue the same if expen- 
 diture be reduced, or raised if expenditure continue 
 the same, without destroying the balance between 
 produce and consumption. Commodities would cease 
 to be produced if they were not consumed. 
 
 " The tnerchant," says Mr. Hicardo, " who im- 
 ported wine after profits had been raised from 20 per 
 cent, to 40 per cent, instead of purchasing his English 
 goods for £i000, must purchase them for £857, 2s. 
 lOd. still selling the wine he imports in return for these 
 goods for £1200; or if he continued to purchase his 
 
 ^ Principles of Political Economy and Taxation, chap. 6, p. 110, 111. 
 
POLITICAL ECONOMY. 113 
 
 English goods for £1000, must raise the price of his 
 wineto£l400: he would thus obtain 40 instead of 
 20 per cent, profit on his capital, but if in consequence 
 of the cheapness of all commodities on which his re- 
 venue was expended, he and other consumers could 
 save the value of £200 out of every £1000 they be- 
 fore expended, they would more effectually add to the 
 real wealth of the country ; in one case the savings 
 would be made in consequence of an increase of re- 
 venue, in the other in consequence of diminished ex- 
 penditure."* 
 
 If Mr. RicARDo distinguishes between individual 
 and general gain, there is a more effectual addition to 
 the real wealth of a country from the cheapness of all 
 commodities than from the increase of revenue of one 
 or a few of its inhabitants ; but if he does not intend 
 a distinction of this kind, there is a less effectual addi- 
 tion to the real wealth of a country from the increase 
 of profit of one or a few of its inhabitants, than from 
 the cheapness of all commodities. The rise in the 
 price of wine cannot at all add to the real wealth of 
 the society, for it must be followed by an abstraction 
 of demand in some other quarter — it is simply a tem- 
 porary advantage obtained by one class or portion of 
 the community at the expense of some other class or 
 portion. " If,' says he again, " by the introduction 
 of machinery the generality of the commodities on 
 which revenue was expended fell 20 per cent, in value, 
 I should be enabled to save as effectually as if my re- 
 venue had been raised 20 per cent. ; but in the one 
 case the rate of profit is stationary, in the other it is 
 raised 20 per cent. If by the introduction of cheap 
 
 ^ Prinriplcs of Political Economy and Taxation, chap. 6, p. Ill 
 
 15 
 
114 NOTES ON POLITICAL ECONOMY. 
 
 foreig;!! goods, I can save 20 per cent from my ex- 
 penditure, the effect will be precisely the same as if by 
 machinery I had lowered the expense of their pro- 
 duction, but profits would not be raised."* 
 
 Mr. RiCARDO is perfectly correct if he refers to in- 
 dividual profit when he says, that savings are made 
 with as much effect by the cheapness of commodities 
 as by the rise of revenue, making the rise of revenue 
 in such case to proceed from the advance in price of 
 one or more commodities ; but if he refers to pernm- 
 nent and general effects, it is impossible to conceive a 
 difference between a rise of revenue and the general 
 cheapness of commodities in their effects on the wealth 
 of society. 
 
 But Mr. RicARDO makes the rate of profit station- 
 ary in the one case and raises it in the other. It is 
 stationary when the quantity of commodities is in- 
 creased — when the greatest stimulus is in action to 
 add to the quantity — when their prices have fallen 
 and consumers are able to purchase a larger quantity 
 than before for the same money amount, and it is per- 
 manently raised when the rise has occurred from acci- 
 dental causes — froui a disturbing influence which must 
 soon cease to act. 
 
 * Principles of Political Economy and Taxation, cha^j". 6, pp. Ill, 112. 
 
116 NOTES ON 
 
 CHAPTER VIII. 
 
 TAXATION. 
 
 IF the principles laid down in the preceding chap- 
 ters bt 'orrect, the final equalization of taxes results 
 unavoidably from those principles. Whether they are 
 laid on wages or profits, on necessaries or luxuries, on 
 income or capital, the burthen must fall eventually on 
 all classes of producers. It must always be borne in 
 mind that every alteratit)n of prices from taxation 
 must be either accompanied or followed by a change 
 in the due proportion between demand and supply. 
 On this principle there can be no doubt that all classes 
 of producers are finally affected, in an equal degree, 
 by every variation in the state of the demand and 
 supply caused by taxation. The time that it takes to 
 shift capital from those employments that yield rela- 
 tively lower to those that yield relatively higher profits, 
 will determine how much longer a period one class of 
 producers will have to sustain the burthen than an- 
 other. If there are no restrictions on internal inter- 
 course — if capital and lal)our can freely circulate be- 
 tween different employments, the period that the tax 
 
POLITICAL ECONOMY. 117 
 
 will be unequally borne will be very short. The ten- 
 deiicy to an equilibrium of burthens as well as bene- 
 fits in society is too strong to be resisted by any but 
 the most powerful circumstances. I will then first 
 trace the consequences of a tax on loages. 
 
 A tax on wages will lessen the labourer's command 
 of the necessaries of life, for he will have a smaller 
 money amount than before to devote to the purchase 
 of necessaries, unless he should increase the quantity 
 of his personal exertion in proportion to the amount 
 of the tax. Such a tax will not raise the price of la- 
 bour, for that depends on the proportion between the 
 demand and the supply of labour, which is not affect- 
 ed by the tax. The quantity of labour in the market 
 is not reduced, nor is the ability of the capitalists in- 
 creased to employ a greater quantity than before. It 
 will be recollected that we are speaking of the imme- 
 diate effects of such a tax. But such a tax, if it lessen 
 the quantity of money which the labourer can com- 
 mand, will operate on profits. It will immediately 
 diminish the demand for necessaries, in proportion as 
 it takes from the labourer the power of purchasing 
 them, unless, as before remarked, he increase propor- 
 tionally his personal exertion, or, which is the same 
 thing, he is both able and willing to consumf a greater 
 quantity of food. If he is unvv iliing or unable to do 
 this, the cultivator's profits must be reduced. This 
 effect on the piofit of the cultivator must be to dimin- 
 ish his demand for other commodities. The profits 
 of all producers must come to a level, and the prices 
 of all commodities, after the equilibrium is restored, 
 will be prevented, by the tax, fron Jailing to that 
 point to which they would have been reduced if the 
 tax had not been imposed. 
 
118 NOTES ON 
 
 The consequences, however, will not stop here on 
 the above supposition. The fall of piofii will lessen 
 ihe demand tor labour, and the labourer will be affect- 
 ed, by the operation of the tax, in lowering his money 
 wages below that point to which they ought naturally 
 to fall. As he will be unable to shift the tax from 
 hiiiiself to others, it will proportionally diminish his 
 comforts. If the tax augments so much as to operate 
 as a restraint on the increase of the lower orders, it 
 will operate in an equal degree to prevent the increase 
 of capital. Population and the means of employing 
 and supporting it, must, in a natural state of things, 
 come to a level, quantity for quantity. 
 
 The effect of a tax on profits would not be different. 
 It would finally reach the labourer by lessening the 
 desnand for labour, and thence reducing his money 
 wages below their natural limit. The price of neces- 
 saries, as in the case of a tax on wages, will fall from 
 the inability of the labourer to purchase as large a 
 quantity as when his wages were higher, unless, as in 
 that case, he increase his personal exertion in propor- 
 tion to the tax. The cultivator's profit must of course 
 be still further lessened, in the ratio of the reduced 
 power of the labourer to purchase food, on the sup- 
 position, as before stated, that he is neither able nor 
 willing to make any further sacrifice to obtain it. But 
 this reduced consumption of necessaries will operate 
 to lessen the demand for the objects of consumption 
 of the cuhivator also, until by the cessation of de- 
 mand proportionally in every quarter, the tax will be 
 finally equalized in its effects. 
 
 A tax on necessaries would be followed by the same 
 ultimate consequences. It would occasion a fall in 
 the profits of their producers, should the demand have 
 
POLITICAL ECONOMY. 119 
 
 been proportionally diminished, and it must be dimin- 
 ished, unless the ronsumers increase in the same pro- 
 portion, their personal exertion, if labourers, and lessen 
 their consumption of other things, if capitalists. But 
 this fall of the profits of the producers of necessaries 
 will, by lessening their demand for other commodities, 
 reduce the profits of their producers also, in connex- 
 ion with the wages of labour. The prices of the 
 whole mass of commodities will finally settle at a 
 higher than their natural level. 
 
 A tax on luxuries would not be different in its final 
 effects. It v\ould, by reducing the demand for them, 
 affect their producers, and as the producers of luxuries 
 are the consumers of necessaries, it would eventually 
 act on iliese also. According, then, to this explana- 
 tion, whatever commodity is selected to be taxed, the 
 effect will be finally felt on the producers of all other 
 productions, and it will be delayed in proportion to 
 the greater or less facility of removing capital from 
 the least to the most beneficial employment. A tax, 
 whether laid on revenue or capital, if this view be 
 correct, would be attended by similar results. If 
 the tax is imposed on revenue, and the capitalist saves 
 fi'om his expenditure, in proportion to the tax, in order 
 that he should not diminish his capital, he will neces- 
 sarily lessen demand for the commodities of some other 
 producer, and this will finally react on himself. The 
 same consequence precisely would follow if he had 
 deducted the amount of his tax from his capital. 
 
 It is the increase of productive power that adds to 
 capital and not savings from ordinary expenditure — 
 not reducing consumption, for it is constantly increased 
 cousumption that gives the most effective stimulus to 
 the inventive powers and industrious efforts of prodti- 
 
120 NOTES ON 
 
 cers. The actual consumption is necessary to the 
 actual production. It is not more injurious, there- 
 fore, to impose a tax on capital than on revenue. This 
 is contrary to Mr. Ricardo's opinion, who thinks the 
 effect will be the same if the capitalist pays the tax 
 either by reducing his expenditure or by an increase 
 of his productive powers; but the diminution of con- 
 sumption and the general multiplication of products 
 at tiie same time, are incompatible effects. The ad- 
 ditions that are made to capital from revenue result 
 from enlarging the market, both domestic and for- 
 eign — from inducing an increase of consumption ge- 
 nerally, by an augmentation of the quantity of com- 
 modities and a proportionate reduction of their prices. 
 It is, therefore, not the same thing should additional 
 taxes be met by a diminished consumption as by an 
 increased production, as stated by Mr. Ricardo. 
 What is saved from revenue, in consequence of taxa- 
 tion, is attended by diminished demand exactly in the 
 same degree as if it had been deducted from capital. 
 The general inference from the above view is, that 
 the price of a taxed commodity will not necessarily 
 rise.* It the consumption diminishes of this particular 
 commodity, in proportion to the amount of the tax, 
 the producer will be unable to reimburse himself, in 
 
 " When the demand for any commodity is increased, the supply remaining 
 the same, there is an increased quantity of money given in exchange for the 
 same quantity of such commodity ; but when the supply of any commodity is 
 diminished, the demand remaining the same, there is the same quantity of 
 money given in exchange for a less quantity of sucli commodity — in both cases 
 the price rises. In taxation, however, here may be a rise of price without any 
 increase of demand or dimiuution of supply — all that is necessary to produce 
 such a rise is, that the demand for the taxed commodity should not diminish, 
 but the demand for some other commodity must fall, in proportion as the quan- 
 tity of money given in exchange for it is less than the quantity given in ex- 
 rhange for the taxed commodity is greater than before. 
 
POLITICAL ECONOMY. 121 
 
 tbp increased price of his commodity, and to throw 
 any ''hare of the burthen of the tax on the consumer. 
 Bui whether the price of a taxed commodity rise or 
 not, relative prices will be altered. If the consumer 
 should not lessen his demand for this commodity, he 
 must for some other, which, by reducing its price, in 
 proportion as the taxed commodity has risen, will ne- 
 cessarily alter their former relation to each other as to 
 prices and demand, and by causing the flow of capiuil 
 from the production of that which has fallen to that 
 which has risen, restore the equilibrium of price s and 
 profits between the disturbed emj)loyments. ll the price 
 of the taxed commodity should not rise, from diminished 
 demand, the power of purchasing other commodities 
 by the producers of the taxed commodity, will be re- 
 duced in proportion to the tax. The prices of those 
 other commodities will fall, therefore, and relative 
 prices will alter. The level will be restored by the 
 abstraction of capital from those employments which 
 derive relatively lower and its removal to those which 
 enjoy relatively higher profits. 
 
 We are aware that some of the above conclusions 
 miUtate against the received doctrines of taxation. The 
 opinion that the labourer pays no portion of that con- 
 tribution, in the form of taxes, which society exacts 
 from the rest of its productive classes^ has received an 
 almost universal assent; but it is clear to my mind 
 that the labourer pays his fair proportion* of the taxes, 
 
 * I am doubtful whether the labouring classes do not pay more than their fair 
 proportion of the taxes, for they cannot reduce their numbers as the taxes 
 increase with the same facility that supply is proportioned to demand in other 
 eases. The effect is that the competition for employment always tends to keep 
 their money wages below their natural limit, whilst the proportionate demand 
 for food also tends to keep their real wages below that point to which they 
 aught properly to fall. 
 
 16 
 
122 NOTES ON 
 
 either in an increase of personal exertion or in a dimi- 
 nution of his eoniforts and enjoyments. It is true 
 thai there is a point below which the labourer cannot 
 suffer from additional taxation, for the increase of po- 
 pulation will be arrested il a certain limit be passed. 
 But where shall we place that limit ? We see in the 
 case of Ireland that its population is excessive, whilst 
 its standard of enjoyments has fallen far below that 
 of any civilized people with which history has made 
 us acquainted, with the same advantages from situa- 
 tion for commerce, fertility of soil, &c. 
 
 We cannot fail to see also, that the heavy taxation, 
 in evei y variety of mode, to which the English people 
 are compelled to submit, although it has not propor- 
 tionally reduced tlieii^ coinforts, still those comforts are 
 purchased by a corresp(»ndent increase of personal 
 exertion — by tasking the powers of the body in a 
 higher degree than is exhibited in the case of any 
 people, ancient or modern, with the same measure of 
 freedom an(i the same extent of general wealth. The 
 pri'.iciple, then, that wages rise whenever a tax is im- 
 posed on them, or on the labourer's subsistence, must 
 be received vvith the limitations I have given to it. 
 
 It must also he recollected, that, with the present ar- 
 rangements of society in almost every part of the world, 
 although an increased command of comforts will be 
 invariably followed by an augmentation of popula- 
 tion, it does not result that the proper check operates 
 with the same efficacy and uniformity against as the 
 stimulus TO an increase of numbers. Mr. Malthus 
 has admirably explained and illustrated, from the past 
 and present condition of mankind, the teuclency of 
 population to multiply faster than food can be provi- 
 ded for it. All the institutions of society give the 
 
POLITICAL ECONOMY. 123 
 
 fullest play to the principle of increase, whilst there is 
 scarcely any room allowed for the influence of that 
 check which Mr. Malthus has well denominated mo- 
 ral restraint. It results, however, from this view, that 
 the price of labour is n4 a correct barometer of the 
 wants of society with regard to population, as asserted 
 by this writer,* for the same numbers may subsist on 
 a much smaller quantity of food at one period than 
 at another, or the same quantity may be purchased by 
 a greater sacrifice of toil, I'here is, therefore, no cer- 
 tain or invariable standard of enjoyments for the la- 
 bouring class. The amount of their comforts is not 
 only very different in different countries, but very dif- 
 ferent in different periods in the same country. 
 
 If Mr. Malthus had stated the principle of popu- 
 tion with the qualification, that the price of labour is 
 a correct criterion of the wants of society with regard 
 to it, or as expressing the relation between the supply 
 of provisions and the demand for them, where the pro- 
 per preventive check operates with the same efficacy and 
 uniformity against as the stimulants to an increase 
 of numbers, there are none who could dispute the pro- 
 position. He has, to be sure, spoken of the price of 
 labour, as expressing the wants of society respecting 
 it, when that price is left to find its natural level, but 
 this expression is obviously used in reference to those 
 particular institutions which disturb the proper propor- 
 tion between the demand and the supply of labour, such, 
 for instance, as assessments for the relief of the poor, 
 and not to the entire structure of the social system, in 
 connexion with the whole body of laws and the habits 
 
 * See his able work on Population, first American Edition, vol. 2. pp. 164; 
 165. 
 
124 NOTES ON 
 
 superinduced on them. The error of Mr. Malthus 
 consists, then, I think, in stating that positively as a 
 Law of Nature, which, for what we know to the con- 
 trary, may be the result of an imperfect social organi- 
 zation. 
 
 It is certainly possible to imagine the existence of a,, 
 state of society in which the proper preventive check in 
 regard to population may be in full activity, whilst every 
 possible developement being given lo the capacities of 
 the earth for the productipn of subsistence, the stimu- 
 lus TO should not be more active than this c^ecA; against 
 an increase of numbers. The respective ratios of the 
 augmentation of food and population might, in such 
 a state of society, vary materially from those exhibited; 
 in any period past or present. The rate of produc- 
 tion vvouldjon this supposition,probably increase,whijst 
 the rate of population would probably diminish, and 
 the relative rate of increase might by equal, or, w hich 
 is the same thing, the absolute rate of either might 
 never exceed that of the other. 
 
 Without indulging, therefore, in dreams of perfecti- 
 bility, it is not venturing on visionary speculations of 
 unattainable or impossible improvement to infer, that 
 if the institution of primogeniture were abolished 
 vv;herever it prevails, with every species of monopoly, 
 supposing the security of person and property com- 
 plete, and the public burthens moderate, the rate of 
 increase in the production of food might greatly aug- 
 ment; whilst the more ample leisure for instruction 
 permitted to the labouring classes — by allowing them 
 to receive sound and salutary lessons on the sub- 
 ject of population, or those maxims of |jrudenrp and 
 foresight necessary to their comfort and respectability — 
 
POLITICAL ECONOMY. 125 
 
 might ^ive much greater room than at present for the 
 action of the check entitled by Mr. Malthus, moral 
 restraint. It is impossible (o foretell the precise effects 
 of such an arrangement of the social elements, or to 
 say what would be the relative ratio in the increase 
 of food and population, on such a supposition ; but 
 that it would be very different from that which is gene- 
 rally exhibited in the present or any past condition of 
 the species, 1 am satisfied. 
 
 THE END. 
 
LeJe32 
 
ifv 
 
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