LIBRARY 
 
 OF THE 
 
 UNIVERSITY OF CALIFORNIA. 
 
 Cltus 
 
 
 
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DECEMBER, 1821. 
 
 VALUABLE 
 
 STANDARD WORKS, 
 
 PRINTED FOR 
 
 T.ONGMAN, HURST, REES, ORME, AND BROWN, LONDON. 
 
 VOYAGES AND TRAVELS. 
 
 TRAVELS 
 
 IN THE 
 
 INTERIOR OF SOUTHERN AFRICA. 
 
 By WILLIAM J. BURCHELL, Esq. 
 With an entirely new Map, and numerous other En- 
 gravings from the Author's own Drawings. In 4to. 
 
 Nearli/ ready. 
 Mr. Burchell's Researches in the Interior of Africa, 
 during five years, over 4,500 miles of ground, besides 
 numberless lateral excursions, have produced a mul- 
 titude of discoveries and observations which have 
 never yet been laid before the public. 
 
 AN ACCOUNT OF CEYLON, 
 
 WITH TRAVELS IN THE INTERIOR OF THE ISLAND. 
 By JOHN DAVY, M.D. F.R.S. 
 
 In 4to. with a new Map and other Engravings, 
 S^. 13*. 6rf. Bds. 
 
 VIEWS OF AMERICA, 
 
 In a Series of Letters from that Country to a Friend in 
 
 England, during 181S-19-20. 
 
 BY AN ENGLISHWOMAN. 
 
 InlVol.Svo. 13*. 
 
 TRAVELS IN PALESTINE, 
 
 Through the Countries of Bashan and Gilead, East of 
 the River Jordan: including a Visit to the Cities of 
 Geraza and Gamala, in the Decapolis. 
 
 By J. S. BUCKINGHAM, Esq. 
 Member of the Asiatic Society, Calnitta; and of tlie Literary Socie- 
 ties of Madras and Bombay. 
 1 VoLito. with Maps, Plates, & Vignettes. 3Z.13*.Grf. Bds. 
 
 A VOYAGE TO AFRICA, 
 
 INCLUDING 
 A i'AnXICULAR NARRATIVE OF AN EMBASSY TO ONE OF 
 THE INTERIOR KINGDOMS, IN THE YEAR 1820. 
 By WILLIAM HUTTON, 
 Late Acting Consul for Ashantee, and an Officer in the African Com- 
 pany's Service. 
 In 1 Vol. Svo. with Maps and Plates. 
 
 A VOYAGE OF DISCOVERY 
 
 INTO THE 
 
 SOUTH SEA AND BEERING'S STRAITS, 
 
 For the Purpose of finding out a North-East Passa-^e, 
 undertaken in the Years 1S1&, 16, 17, and 18, at the Ex- 
 peiice of his Highness the Chancellor of the Empire, 
 Count Romanzofk, in the Ship Ruric, under the Com- 
 mand of the Lieutenant in the Russian Imperial Navy, 
 OTTO VON KOTZEBUE. 
 In 3 Vols. Svo. with Plates and Maps. 21. 5*. 
 
 TRAVELS 
 
 IN 
 
 GEORGIA, PERSIA, ARMENIA, ANCIENT 
 BABYLONIA, &c. &c. 
 
 During the Years 1S17, 1818, lfil9, 1820. 
 By SIR ROBERT KER PORTER. &c. &c 
 Vol. II. which completes the Work, in 4to. with nu- 
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 r nc. &c. I^^urly ready. 
 
 Alio, may he had. Vol, L Price 4i. 14*. 6d. Bds. 
 
 SKETCHES 
 
 OF 
 
 MANNERS, SCENERY, &c. 
 
 IN THE FIIEXCH PROVINCES; 
 
 WITH AN ESSAY ON FRENCH LITERATURE. 
 
 By the late JOHN SCOTT, Esq. 
 
 Author of the « Visit to Paris," &c. 
 
 Second Edit. In Svo. lis. 
 
 By the same Author, 
 
 A VISIT to PARIS in 1814, 4th Edit Svo. 12*. Bds. 
 
 PARIS REVISITED in 181&, 3d Edit. Svo. 12*. Bds. 
 
 TRAVELS 
 
 IN 
 
 THE INTERIOR OF BRAZIL; 
 
 With Notices on its Climate, Natural Productions, Agri- 
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 toms: and a particular Account of the Gold and Dia- 
 mond Districts. Including a Voyage to the Rio de la 
 Plate. 
 
 By JOHN MAWE, Mineralogist. 
 
 Second Edition, illustrated with coloured Plates, and 
 
 a Map, Svo. Price 18s. Bds. 
 
 SKETCHES OF INDIA. 
 
 By A TRAVELLER. 
 
 FOR FIRE-SIDE TRAVELLERS AT HOME. 
 
 In Svo. Price 10s. Gd. Bds. 
 
 THE THREE VOYAGES 
 
 Off 
 
 CAPTAIN JAMES COOK, 
 
 Printed Verbatim from the Original Editions, 
 
 A New Edition. 
 
 with Engravinr 
 
 In Seven Volumes, Svo. 31. 13*. Gd. 
 
 LETTERS 
 
 Written during a TOUR through NORMANDY, BRIT- 
 TANY, and other Parts of FRANCE, in 1818; including 
 Local and Historical Descri])tions, with Remarks on the 
 Manners and Character of the People. 
 
 By Mrs. CHARLES STOTHARD. 
 
 With numerous Engravings, after Drawings by Charles 
 
 Stothard, F.S.A. 
 
 lA 4to. Price ^21. 12*. 6d. Eds. 
 
 A SECOND JOURNEY 
 
 \ PERSIA TO CONSTANTINOPLE, 
 
 i Between the Years ISIO and 1816. With an Account 
 
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 \ By JAMES MORIER, Esq. 
 
 i In Royal 4to. with Maps and coloured Plates, 
 
 ; 3L 13*. 6rf. Bds. 
 
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 I IN THE IONIAN ISLES, 
 
 I IN ALBANIA, THESSALY, AND GREECE, 
 
 I InlS13andlS13. 
 
 ^ By HENRY HOLLAND, M.D. F.R.S. &c. &c. 
 
 5 In 2 vols. Svo. illustrated bv a Map and Twelve Bn- 
 
 ^ gravinga, Pi-ice il. 16*. Bds. The 2d Edition. 
 
 5 A few Copieg may be had in Uo, Price Sl.Ss. Boardn. 
 
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 TRAVELS IN 
 VARIOUS COUNTRIES OF THE EAST; 
 
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 Edited by ROBERT WALPOLE, M.A. 
 
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 MEMOIRS ON 
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 OF 
 M. DE HUMBOLDT'S TRAVELS TO THE EQUINOC- 
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 During the Years 1799—1804. 
 
 TaANstATKD nv HELEN MARIA WILLIAMS, 
 
 Under the immediate Inspection of the Author. 
 
 VoL 5, in 2 Parts, 8vo. Price II. is. Bds. Also Vols. 1 to *, 
 
 Svo. Price 21. 17*. Bds. 
 
 By the same Author, 
 RESEARCHES on the INSTITUTIONS and MONU- 
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 COURT OF KING JAMES THE FIRST. 
 
 By LUCY AIKIN. 
 
 In 2 Vols. Svo. Nearly ready. 
 
 MALAY ANNALS: 
 
 Translated from the Malay Language. 
 
 By the late Dr. JOHN LEYDEN. 
 
 With an Introduction. 
 
 By SIR THOMAS STAMFORD RAFFLES, F.R.S.&C.&C. 
 
 In Svo. Price 10s. 6d. Boards. 
 
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 By JOHN WATKINS, LL.D. 
 
 A New Edition, revised throughout, and brought down 
 
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 In 1 Vol. Svo. Price \l. bs. Bds. 
 
 AN ACCOUNT OF 
 TIMBUCTOO AND HOUSA, 
 
 Territories in the Interior of Africa. 
 By EL HAGE ABD SALUM SHABEENIE, 
 To which are added, LETTERS descriptive of vari- 
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 THE HISTORY OF THE REBELLION 
 
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 TRAVELS 
 
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 DISCOVER THE SOURCE OF THE NILE, 
 
 In the Years 1768, 1769, 1770, 1771, 1772, and 177S. 
 By JAMES BRUCE, of KINNAIRD, Esq. F.R.S. 
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 HISTORY AND BIOGRAPHY. 
 
 THE PRIVATE AND CONFIDENTIAL 
 CORRESPONDENCE 
 
 CHARLES TALBOT, 
 
 Dt^k€ of Shrewsbury, 
 
 Principal Minister of King William, for a considerable 
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 By the Rev. ARCHDEACON COXE. 
 In 1 VoL 4to. Nearly ready. 
 
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 REIGN OF GEORGE THE THIRD. 
 
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 A VIEW OF THE PROGRESSIVE IMPROVEMENT OP 
 
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 IN PROSPERITY AND STRENGTH, 
 
 TO THE ACCESSION OF HIS MAJESTY. 
 
 By ROBERT BISSET, LL.D. Author of the " Life of 
 
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 Completed to the Death of the King. 
 
 I» 6 Vols. Octavo. A New Edition. Price 31. 3s. Boards. 
 
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 or THE 
 
 LIFE OF BRYAN WALTON, D.D. 
 
 Bishop of Chester, and Editor of the London Biblia 
 
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 THE LIFE OF WESLEY, 
 
 AND THE 
 
 RISE AND PROGRESS OF METHODISM. 
 
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 MEMOIRS OF 
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 Queen of Henry VIII. 
 
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 MEMOIRS of the late Mrs. ELIZABETH HAMILTON. 
 
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 THE LIFE OF JAMES THE SECOND, 
 
 Eiitff of CngtanlJ, etc* 
 
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 Archdeacon of Wilts. 
 
 The Second Edition. In 6 Vols. 8vo. with an Atlas 
 
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 HISTORY of the HOUSE of AUSTRIA from the Foun- 
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 LIFE of HORATIO LORD WALPOLE, selected from 
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 LIFE OF WILLIAM, LORD RUSSELL, 
 
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 LADY RUSSELL, 
 
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 \ SPANISH AMERICA ; 
 
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 THREE MONTHS 
 
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 THE MOUNTAINS EAST OF ROME 
 
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 HISTORICAL ACCOUNT < 
 
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 CHRONOLOGICAL AND HISTORICAL X 
 
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 EXCURSIONS THROUGH IRELAND; 
 
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 in the first place, to present a systematic and compre- 
 hensive treatise upon that division of Political Economy 
 which relates to the production of wealth; and he has 
 attempted, in the second place, to apply the general 
 principles of the science to the actual circumstances of 
 this country. The importance of these subjects it is 
 unnecessary to enforce. The Author has only to appre- 
 hend, that he has ventured upon a task, to the execution 
 of which he is unequal. 
 
 Many persons will probably imagine, that after the 1 
 elaborate treatises with which Mr. Ricardo and Mr. 
 Malthus have recently enriched the science of Political 
 Economy, the work now offered to the public must be 
 superfluous. The Author is of a different opinion. 
 He conceives, that the writings of these celebrated 
 economists, instead of rendering the present attempt 
 unnecessary, have created a demand for a systematic 
 treatise on the general principles of Pohtical Economy. 
 Neither Mr. Ricardo nor Mr. Malthus has aimed at 
 presenting the science as a consentaneous whole; while 
 
IT 
 
 both have fallen into a faulty mode of investigation, 
 which occasionally leads them into error, and at all 
 times retards the reception of the very original and 
 valuable lights which they have thrown upon this 
 department of knowledge, 
 
 Though Mr, Ricardo has done more for the science 
 pf Political Economy than any other writer, with the 
 gingle exception perhaps of Dr. Adam Smith, yet he 
 sometimes falls into a species of error to which men 
 of great original genius seem pecuHarly exposed, and, 
 in the ardour of discovery, generalises too hastily, and 
 fails to establish his principles on a sufficiently exten- 
 sive induction. In the inventive faculty, and in the 
 power of pure and continuous ratiocination, he has 
 seldom been surpassed; but in the capacity for accurate 
 observation, his pre-eminence is less apparent, 
 
 Mr. Malthus, whose Essays on Population, and 
 ' on the origin and nature of Rent, have contributed so 
 much to the progress of economical science, exhibits 
 throughout his writings, an intellectual character, alto- 
 gether opposite to that which has been here described. 
 He possesses in a very eminent degree the faculty 
 of observing particular phenomena, but is somewhat 
 deficient in that power of analysis which distinguishes 
 between coincidence and necessary connexion, and 
 enables us to trace the sequence of causes and effects. 
 If Mr. Ricardo generalises too much, Mr. Malthus 
 generalises too little, If the former occasionally erects 
 his principles without waiting to base them upon 
 a sufficiently extensive induction from particulai's, the 
 latter is so (Kcupied with particulars, that he neglects 
 
tkiftt inductive process which extends individual expe^ 
 rience throughout the infinitude of things, and imparts 
 to human knowledge the character of science. AS 
 presented by Mr. Ricardo, PoHtical Economy possess 
 a regularit}^ and simplicity beyond what exists in 
 nature; as exhibited by Mr. Mai thus, it is a chaos of 
 original but vtnconnected elementsi __^ 
 
 Should the criticisms now hazarded be correct, it 
 \vill follow, that a general treatise upon Political 
 Economy, combining with the principles of Adam 
 Smith, so much of the more recent doctrmes as may be 
 conformable to truth j and embodying the whole into 
 one consentaneous system, remains to the present day a 
 desideratum in our literature. This desideratum, as 
 far as relates to the Production of Wealth, the Author 
 has attempted to supply in the present volume ; and on 
 some future occasion, perhaps he may venture to com- 
 plete the task by remodelling and extending the disqui- 
 sitions respectirg the distribution of wealth, which he 
 has alteady lad before the public*; Yet, while his 
 ambition is awakened by his conviction, that however 
 abundantly the great mart of literature is supplied, 
 there still remains an opening for a systematic and 
 comprehensive treatise on economical science, his hopes 
 are destroyed by a perception of the qualifications 
 requisite to the performance of the task. In order to 
 produce a complete and accurate system of Political 
 Econony, and to establish its principles by a process of 
 induction sufficiently extensive to set controversy at rest} 
 
 * Essay on the Corn Trade, Second Edition, Part iv* 
 
yi 
 
 I it is necessary that Mr. Ricardo's habits of generaliza- 
 tion should be combined with that faculty for observing 
 particular phenomena which characterises Mr. Malthus. 
 The Author of the present Essay ventures to submit 
 his work to the public, because in an undertaking, the 
 successful execution of which requires such a rare 
 combination of opposite powers, failure cannot be dis- 
 
 I creditable. 
 
 In the following work, the Author has not confined 
 his attempt to presenting, under the form of a consen- 
 taneous system, the principles respecting the production 
 of wealth established by preceding writers. Many of 
 the disquisitions are, he conceives, original. On the 
 theory of exchangeable value, — on the manner in which 
 trade and commerce contribute to the increase of 
 wealth, — and on the principles of demand and supply,-— 
 it is imagined that the doctrines unfolded in the present 
 volume, are now submitted to the public for the first 
 •time* 
 
 r 
 
 With respect to the theory of value, Adam Smith 
 has observed, that in that early period of society which 
 precedes the accumulation of stock, and the appropria- 
 tion of land, the labour expended on production is the 
 only circumstance which causes a given quantity of one 
 commodity to be exchanged for a given quantity of 
 another; and Mr. Ricardo has pushed this principle 
 still further, and contended, that in all periods of 
 society, whether before or after the accumulation of 
 capital and appropriation of land, the labour expended 
 upon production is the sole regulator of value. Neither 
 of these celebrated economists, liowever, has ^nven a 
 
▼11 
 
 sufficiently accurate explanation of What is meant by 
 " the labour expended on production." In the Hidest 
 as well as in the most advanced periods of society^ two 
 different kinds of labour are required in bringing com- 
 modities to market; namely, the immediate labour of the 
 persons employed, and the previous labour accumu- 
 lated on the several Articles with which and upon which 
 they work. Are we then to understand by the exj)res- 
 sion, " the labour expended on production,"" immediate 
 labour, or accumulated labour, or both ? and in which 
 of these senses is it true, that the labour expended 
 on production determines e^cchangeable Value .^ The 
 Author conceives, that in his chapter upon Value, he has 
 given, for the first time, the correct solution of these 
 fundamental questions, and has shewn, that it is neither 
 the immediate labour, nor the sum of the immediate and 
 accumulated labour, but solely the accumulated labour \ \ 
 expended on production, which determines the quantity 
 of one article which shall be exchanged against a given 
 quantity of another. It" 
 
 The principle that the accumulated labour, or, in 
 other words, the capital expended on production, deter-« 
 mines the exchangeable value of commodities, while it 
 is derived from an extensive induction from particular 
 cases, affords a satisfactory solution of some of the most 
 important phenomena connected with the distribution 
 of wealth. Without this correction or limitation of 
 Mr. Ricardo's theory of value, it is impossible to give a 
 clear and unexceptionable demonstration of that gentle- 
 man''s very original and valuable doctrine respecting 
 the profits of stock. 
 
Many disquisitions contained in the chapter on Mer- 
 cantile Industry, were published by the Author several 
 years ago, in a little treatise entitled, " The Economists 
 *' Refuted/' The manner in which trade and commerce 
 aid the production of wealth, the Author does not 
 remember to have seen adequately explained by any 
 preceding writer. When Adam Smith says, that the 
 capital of the merchant replaces the capitals of the 
 farmer and the manufacturer, he seems to be unac- 
 quainted with the fact, that trade and commerce^ 
 except when they transport articles from places where 
 they have no utility, to places where they have, are 
 not directly productive of wealth, and can contribute 
 to the replacement of capital, only by aiding, through 
 the medium of the divisons of employment, the effec- 
 tive powers of those directly productive branches of 
 industry, which raise or fabricate the articles of which 
 capital is composed. And when M. Say tells us that 
 mercantile industry promotes the wealth of a country 
 by increasing the value of the commodities which it 
 transports and vends, he falls into errors still more 
 serious, evincing not only that he has failed to distin- 
 guish between the direct and indirect sources of wealth, 
 but that he has formed no adequate conception of that 
 in which wealth consists. The defects of these cele- 
 brated economists, the Author hopes he may have in 
 some measure supplied in his chapter upon Mercantile 
 Industry* He believes also, that some of the other 
 doctrines in this chapter will be found to be original; 
 and particularly that respecting the injury which, in 
 certain extraordinary cases, may be sustained in conse- 
 quence of exporting the necessaries of life in exchange 
 for superfluities. 
 
Were it permitted to the Author to express an opinion ' 
 on the subject, he would say, that the most original 
 and, in the present stage of economical science, the 
 most important division of this work, is that in which he 
 discusses the principles of demand and supply. To 
 M. Say and Mr. Mill belong the merit of having been 
 the first to bring forward the very important doctrine, 
 that as commodities are purchased with commodities, 
 one half will furnish a market for the other half, and 
 increased production will be the occasion of increased 
 demand, But this doctrine, though it embraces the 
 Very key-stone of economical science, is not correct in 
 the general and unqualified sense in which these distin- 
 guished writers have stated it. Though one half of our 
 commodities should be of the same value as the other 
 half, and though the two halves should freely exchange 
 against each other, it is yet possible that there may be 
 an effectual demand for neither. It is quite obvious 
 that there can exist no reciprocal effectual demand, 
 unless the interchange of two different sets of commodi- 
 ties replaces, with a surplus^ the expenditure incurred 
 in the production of both. Now, what is that spe- 
 cific relation or proportion between commodities, which 
 occasions the exchange of one half of them against the 
 other half, to replace, with a surplus, the cost of pro- 
 ducing both ? The Author has not been able to dis-^ 
 cover the solution of this fundamental question in the 
 writings either of M. Say or of Mr. MilL He has 
 therefore attempted to supply the deficiency, and thus 
 to rectify and extend the new principles of demand 
 and supply which originated with these able eco- i 
 nomists. 
 
Having given this account of the nature of the doc- 
 trines contained in the present volume, it may be proper 
 to say a few words respecting the manner in which 
 they are discussed. It has been suggested to the 
 Author by a friend, for whose authority on such matters 
 he entertains the highest possible respect, that the illus- 
 trative cases and analytical processes to which he resorts 
 for the purpose of explaining and demonstrating his 
 propositions^ may fatigue the attention of the reader, 
 and render the work tedious and unattractive. He 
 conceives that the following considerations are sufficient 
 to obviate this objection. 
 
 The science of Political Economy is analogous to 
 the mixed mathematics. The data upon which it pro- 
 ceeds are furnished by observation and experience; 
 while the conclusions to which it leads, are attained by 
 a process of ratiocination self-evident in all its steps. 
 To give this science, therefore, the exactness and cer^ 
 tainty of which it is susceptible, it must be presented 
 under the analytical and demonstrative form. Now^ it 
 is to be remembered, that though analytical and demon- 
 strative processes may be fatiguing and unattractive, 
 yet in mastering a single volume in which these pro- 
 cesses are successfully carried on, we make ourselves 
 masters of the science; while we may wade through a 
 thousand volumes of general terms and abstract reason- 
 ings, without acquiring a precise idea or arriving at a 
 satisfactory conclusion on one abstruse or controverted 
 question. 
 
 Had the analytical method of induction from parti- 
 cular cases been more frequently resorted to by Mr* 
 
Xi 
 
 Ricardo, that most original and profound economist 
 "would not by his recent deviations* from his original 
 
 * In tlie third edition of his woik upon Political Economy and [ 
 Taxation, Mr. Ricardo has given an additional chapter upon the 1 
 effects of machinery, in which he has fallen into some fundamental 
 and dangerous errors. He contends, that the introduction of ma- 
 chinery occasions a permanent diminution in the demand for labour. [ 
 This doctrine is altogether incorrect. Let us supposCj that a capi- ' 
 talist, carrying on the double business of a farmer and manufacturer of 
 necessaries, advances two hundred quarters of corn and two himdred 
 suits of clothing to two hundred laboui ers,who reproduce two hundred 
 and twenty quarters and two hundred and twenty suits, and then the 
 rate of protit will be ten per cent, and the surplus of twenty quar- 
 ters of corn and twenty suits of clothing which remains over and above 
 the replacement of the capitalist's advances, may be exchanged for 
 superfluiteis, or may be employed in putting twenty additioiial 
 labourers in motion. Now, let us suppose, that instead of exchanging 
 his surplus of twenty quarters of corn and twenty suits of clothing 
 for luxuries, our capitalist exchanges them for implements and ma- 
 chines, which enable his two hundred labourers to raise and fabricate 
 two hundred and tifty-three quarters and two hundred and fifty- 
 three suits; and then the surplus will be fifteen percent., the gross 
 revenue will be increased as well as the net revenue, and the imple- 
 ments and machines, instead of diminishing the demand for labour, 
 will enable the capitalist to employ fifty-three additional labourers 
 instead of twenty. 
 
 But Mr Ricardo supposes, that the capitalist, instead of purchasing 
 machinery out of his surplus or profit, employs a part of the labourers 
 who formerly produced corn and clothing, in making it ; and that as 
 less corn and clothing nnist in this case be raised and fabricated, he 
 will have a smaller quantity of subsistence in the ensuing year to ad- 
 vance to his labourers. The case supposed never yet occurred. The 
 production of corn and of clothing is not diminished in order to con- 
 struct machinery. But even if the fact were so, it could not subserve 
 the argument. Supposing that our capitalist, instead of advancing 
 two hundred quarters of corn and two hundred suits of clothing to two 
 hundred labourers who raise and fabricate two hundred and twenty 
 
doctrines, have retarded the pi*ogi'ess of the science foi" 
 which he has achieved so much ; and had this method 
 been adopted by Mr. Malthus, he would not have 
 appeared as the ingenious opponent of the new theory 
 of profit, which may be traced by a process of rea- 
 soning, self-evident in all its steps, from those dis- 
 
 quarters and two Immlred and twenty suits, advances one hundred 
 quarters and one hundred suits to one hundred labourers j who raise 
 and fabricate one hundred and ten quarters and one hundred and 
 ten suits, and that he advances one hundred quarters and one hun- 
 dred suits to another one hundred labourers who construct machinery, 
 which being equal in productive cost, is also equal in exchangeable 
 value to one hundred and ten quarters of corn and one hundred and 
 ten suits of clothing, and then in the ensuing season he will be able 
 to advance only subsistence for one hundred and ten labourers 
 instead of for two hundred and twenty. In this case the demand 
 for labour will be reduced one half. But in the nature of things 
 this calamitous effect can only be temporary. The capitalist could 
 have had no motive for constructing his machine unless it enabled 
 him to realise a higher rate of profit than before. But as profits rose 
 capital would accumulate more rapidly, and this more rapid accu- 
 mulation of capital would speedily restore the original demand for 
 labour. Nay, as every machine which facilitates the production of 
 the necessaries of life must (wages not rising) increase the rate of 
 profit, and thus throw to a greater distance the limits beyond which 
 cultivation can neither be heightened nor extended, improved machi- 
 nery enables us to extract from the soil a greater quantity of raw 
 produce^ and furnishes the means of supporting a more numerous 
 hianufactimng population. Even when we concede to Mr. Ricardo 
 that which never yet occuired in practice, namely, that the construc- 
 tion of machinery suspends the production of necessaries, still it 
 remains strictly demonstrable, that the introduction of machineiyj 
 after occasioning a temporary diminution, leads to a permanent 
 increase in the demand for labour. The reader will see this subject 
 further unfolded in an admiiable article on the Effects of Machinery 
 and Acrnmulationj in No. lxix* of the Edinburgh Review. 
 
 [Z 
 
xm 
 
 coveries respecting the nature and origin of rent which 
 he himself has made. 
 
 The controversies which at present exist amongst the 
 most celebrated masters of Political Economy have been 
 brought forward by a lively and ingenious author as an 
 objection against the study of the science. A similar 
 objection might have been urged, in a certain stage of 
 its progress, against every branch of human knowledge. 
 A few years ago, when the brilliant discoveries in chy- 
 mistry began to supersede the ancient doctrine of phlo- 
 giston, controversies, analogous to those which now 
 exist amongst Political Economists, divided the pro- 
 fessors of natural knowledge ; and Dr. Priestley, like 
 Mr. Malthus, appeared as the pertinacious champion of 
 the theories which the facts established by himself had 
 so largely contributed to overthrow. In the progress 
 of the human mind a period of controversy amongst 
 the cultivators of any branch of science must necessarily 
 precede the period of their unanimity. But this, instead 
 of furnishing a reason for abandoning the pursuits of 
 science while its first principles remain in uncertainty, 
 should stimulate us to prosecute our studies with more 
 ardour and perseverance, until upon every question 
 Avithin the compass of the human faculties, doubt is 
 removed and certainty attained. With respect to Poli^ 
 tical Economy the period of controversy is passing 
 away, and that of unanimity rapidly approaching. 
 Twenty years hence there will scarcely exist a doubt 
 respecting any of its fundamental principles. j 
 
 LoNUOPi, tJunc 30, 1821. 
 
CONTENTS. 
 
 CHAP. I. 
 
 WEALTH — VALUE — PRICE page 1 
 
 CHAP. li. 
 
 ON THE INSTRUMENTS OF PRODUCTION, AND 
 THE DIFFERENT KINDS OF INDUSTRY. 66 
 
 ^^■^^^^■^^ 
 
 CHAP. III. 
 
 APPROPRIATIVE INDUSTRY 75 
 
 CHAP. IV. 
 
 MANUFACTURING INDUSTRY 83 
 
 *^0»<v»^s» 
 
 CHAP. V. 
 
 AGRICULTURAL INDUSTRY , . 103 
 
XVI CONTENTS, 
 
 CH^P. VI, 
 
 MERCANTILK INDUSTRY. 
 
 Section. I. Origin arid Effects qf^ Barter or 
 Trade page 147 
 
 II. On the Home Trade 195 
 
 III. On the Colonial Trade 228 
 
 .....'.c.'J'lV. On Foreign Trade, or Commerce.... 248 
 
 V. On Money and Paper Currency 290 
 
 VI. On the Principles of Dema?id and Supply 
 
 339 
 
 ()() 
 
 'C'M 'L'slTd 
 
ADVERTISEMENT. 
 
 The Appendix, containing the applicatiwi of the Prin^ 
 ciples of Political Ecoiwmy to tJie actual circumstances of 
 this country, will be printed in a separate volume, and 
 puhlislied in the beginning of the ensuing season. 
 

 •n:^m.:i:y.^ 
 
ON 
 
 THE SOURCES OF WEALTH, 
 
 CHAP. I. 
 
 WEALTH — VALUE — PRICE. 
 
 W^EALTH, considered as the object of econo- 
 mical science, consists of those material articles 
 which are useful or desirable to man, and which 
 it requires some portion of voluntary exertion 
 to procure or to preserve* Thus, two things are 
 essential to wealth : — the possession of utility, — 
 and the requiring of some portion of voluntary 
 exertion or labour. That which has no utility, 
 which serves neither to supply our wants, nor 
 to gratify our desires, is as the dust beneath our 
 feet, or as the sand upon the shore, and obviously 
 forms no portion of our wealth : while, on the 
 
 B 
 
2 
 
 other hand, things which possess the highest 
 utility, and which are even necessary to our 
 existence, come not under the denomination of 
 wealth, unless, to the possession of utility be 
 superadded the circumstance of having been 
 procured by some voluntary exertion. Though 
 the air which we breathe, and the sun-beams by 
 which we are warmed, are in the highest degree 
 useful and necessary, it would be a departure 
 from the precision of language, to denominate 
 them articles of wealth. But the bread which 
 appeases the cravings of hunger, and the cloth- 
 ing which protects us from the rigour of the 
 season, though not more indispensably requisite 
 than the former, are with propriety classed under 
 the term, wealth ; because, to the possession of 
 utility, they add the circumstance of having been 
 procured by labour. 
 
 In order to give a clear and precise idea of 
 wealth, it may be expedient to shew, not only 
 what it is, but what it is not. A term of exten- 
 sive signification, and comprising under one 
 general denomination a number of particulars, 
 is peculiarly liable to ambiguity ; and in popular 
 
3 
 
 discourse is almost always employed in a setisd 
 Vague and indeterminate. By a common figure 
 of speech, we ptit a part for the whole ; we sub- 
 stitute the species for the genus ; a quality foi* 
 its subject ; and limit the meaning of our gene^ 
 ral term to some leading particular which it 
 comprises. On the ordinary topics of discourse, 
 where no great precision is required, this loose 
 and figurative language may not be productive of 
 much inconvenience : but, in economical science, 
 it has frequently led the inquirer into irrecon- 
 cileable inconsistencies, and inveterate error; and, 
 if we would arrive at clear conceptions, or just 
 conclusions, must be scrupulously avoided. 
 
 In common discourse the term, wealth, has 
 two different significations* When we say, a 
 man of wealth, the term implies quantity, and 
 signifies an abundance of the comforts and 
 luxuries of life. But when we say, agriculture 
 is a source of wealth, the accessory idea of quan- 
 tity is not implied, and the term comprises the 
 products of agriculture, whether they be raised 
 from one acre, or from a million ; whether they 
 are capable of subsisting an individual, or a 
 
4 
 
 nation. It is obvious that the latter is the cor- 
 rect and philosophic import of the term. The 
 chemist would become the object of ridicule, 
 who should define water to consist in an abund- 
 ance of the fluid formed by the union of oxygen 
 and hydrogen. The political economist, who 
 defines wealth to consist in an abundance of 
 commodities, is in no way entitled to more 
 courteous treatment. 
 
 Wealth has sometimes been confounded with 
 capital ; but there is a distinction between them 
 which it is important to keep in view. Capital 
 consists in those things on which some portion 
 of labour is bestowed, and which are destined, 
 not for the immediate supply of our wants, but 
 for the purpose of aiding us in obtaining other 
 articles of utihty. It would be extending the 
 signification of the term beyond the scope of 
 political economy, were we to give the denomi- 
 nation of capital to those natural agents over 
 which human industry exerts no control. The 
 rain and the sunshine which mature our harvests, 
 though they are powerful and indispensable in- 
 struments of production, yet constitute no por- 
 
tion of our capital ; while reservoirs for irrigating 
 our fields, and stoves for forcing the fruits of 
 the earth, very frequently do. It would be 
 rather a vague and indefinite use of the language 
 of economical science, to call unreclaimed and 
 unappropriated land, however great its natural 
 fertility, by the name of capital ; though a most 
 important portion of capital will consist in the 
 enclosures, drains, and improvements, by which 
 the productive powers of land are increased. 
 
 Now, as capital consists in articles which 
 are useful to man, and on which some portion 
 of his labour has been expended, it is evident 
 that it comes under the denomination of wealth, 
 as that term has been here defined. Capital, 
 indeed, is but a particular species of wealth ; 
 and the only peculiar and distinguishing circun^- 
 stance belonging to it is that of being destined, 
 not to the immediate supplying of our wants, 
 but to the obtaining of other articles of utility. 
 Whenever an article of wealth is used to aid the 
 human arm in executing the work of produc- 
 tion, then the article so employed becomes a 
 portion of capital. But though capital must 
 
6 
 
 always be wealth, yet wealth may not always 
 be capital. Wealth is the generic, capital the 
 specific term ; and it would be inaccurate to use 
 the one as the synonyme of the other. 
 
 The term, money, has been frequently em- 
 ployed, both in discourse and writing, as syno- 
 nimous with that of wealth. Money, indeed, 
 possessing utility, and receiving its form from 
 labour, is unquestionably an article of wealth, 
 But then, food and clothing also possess utility, 
 ^nd are acquired by voluntary exertion, and 
 therefore participate in an equal degree with 
 mon^ in all that is essential to wealth. The 
 error of confounding the signification of the 
 terms, wealth, and money, is even more consi- 
 derable than that of confounding the meaning 
 of the terms, wealth, and capital; for, as we 
 shall g^e hereafter, money is only a part, and 
 comparatively an inconsiderable part, of capital. 
 But capital is itself only a species of wealth; 
 and therefore, money, instead of constituting 
 wealth, is no more than a variety of a species, of 
 which wealth is the genus. The substituting of 
 money for wealth, si3enis to have led to the 
 
principal misconceptions and false conclusions 
 of the mercantile system. This source of error, 
 however, is now sufficiently detected and ex- 
 ploded: and it is pretty generally acknowledged 
 by those who have given any attention to the 
 principles of economical science, that wealth 
 does not consist in the precious metals. 
 
 Even in the present day, however, political 
 philosophers fall into the error of confounding 
 wealth with value. Our great economist, Adam 
 Smith, is chargeable with this misconception 
 and confusion. M. Say, also, in his justly cele- 
 brated Treatise on Political Economy, tells us, 
 that wealth consists in value, and that the quan-. 
 tity of wealth is determined by the sum of values 
 of which it is composed. This is a fundamental 
 error, which leads its author to false conclusions, 
 and involves him in direct contradictions. It 
 becomes necessary, therefore, that we should 
 demonstrate, that wealth does not consist In 
 value ; and that we should point out the distinc- 
 tion between them, and the relation which each 
 bears to the other. 
 
 There are two kinds of value: — value in 
 
8 
 
 use, — and value in exchange. Now, value in 
 use is the same thing as utility ; and we have 
 already shewn that utility does not of itself con- 
 stitute wealth. Political economy is a branch 
 of the great science of human nature : its inves- 
 tigations and its reasonings are confined to that 
 class of phenomena which human industry pre- 
 sents ; and therefore, in the language which it 
 employs, the signification of the term, wealth, is 
 restricted to those useful things on which some 
 portion of voluntary human effort has been 
 bestowed. The utility existing in those things of 
 which nature furnishes an unlimited and sponta- 
 neous supply, and which are neither appropriated, 
 nor produced, nor distributed, nor in any visible 
 degree consumed by human agency, though it 
 may be regarded as natural opulence, yet comes 
 not within the scope and compass of economical 
 science ; and consequently wealth, regarded as 
 the object of that science, cannot consist of 
 value in use. 
 
 A little consideration will also satisfy us, that 
 wealth cannot consist of value in exchange. If 
 two independent savages were to return from 
 
9 
 
 the chase, each bringing with him as many dead 
 animals as he could consume while they conti- 
 nued fit for food, and as many branches and 
 boughs as were sufficient to replace the bows 
 and arrows he had expended, they could have 
 no wish to barter with each other; and the 
 useful articles which they had toiled to acquire, 
 would possess no value in exchange. But let 
 one of these savages bring home more game 
 than he could consume before it became unfit 
 for food, without having found any branches 
 adapted to replace the bows and arrows ex- 
 pended in the chase ; while the other returned 
 with his hunger unappeased, but with the mate- 
 rials for more bows and arrows than he could 
 use; and their respective wants would imme- 
 diately inspire them with a desire of trafficking 
 with each other, and would consequently bestow 
 on their commodities the property of exchange- 
 able value. The superfluous food of the one 
 would be given for the superfluous implements 
 of the other ; and, in this manner, the irregu- 
 larity in the distribution of their possessions 
 would be corrected, and each would be supplied 
 
10 
 
 with that which he required. Now, if exchange* 
 able value constituted wealth, then, when each 
 of these savages had been so fortunate as to 
 supply himself abundantly with all the articles 
 he required, there would be no wealth ; while, 
 if each had been in his own person partially 
 unsuccessful, and could obtain the articles neces- 
 sary to his present and future support, only by 
 the circuitous mode of barter and e:5ichange, 
 then wealth would appear. This is evidently 
 absurd. If food, and implements for procuring 
 food, have not the character of wealth while 
 distribu-ted in such regular proportions that each 
 individual has the quantity which he wants, it 
 is impossible that they should acquire this cha- 
 racter from the circumstance of their being so 
 irregularly distributed, that each person, having 
 too much of one article, and too little of another, 
 wishes to exchange his superfluity with that of 
 his neighbour. Nothing but a vague and inac- 
 curate use of language could have led to the 
 notion, that exchangeable value constitutes 
 wealth. When we say that any article of utility 
 possesses exchangeable value, the expression is 
 
11 
 
 figurative, and, in its precise and real import, 
 does not predicate any quaHty, or attribute, as 
 inhering in this article ; but merely implies, that 
 there are persons able and willing to give other 
 articles of utility instead of it. The phrase, 
 exchangeable value, has a reference to the power 
 and the inclinations of those persons who pos- 
 sess articles of utility, and not to any thing 
 actually belonging and essential to these articles 
 themselves. Exchangeable value, therefore, de- 
 pend^'ng on the will and the ability to give one 
 thing for another, is an accident, a casual cir- 
 cumstance, which sometimes is, and sometimes 
 is not, found to eziisi in connexion with thosei 
 articles which supply our wants, and gratify our 
 desires. Defining wealth to consist in exchange- 
 able value, is the same thing as defining it to 
 consist, not in any qualities or forms belonging 
 to material subjects, but in the motives and 
 volitions of moral agents. When we define it 
 to consist in articles possessing exchangeable 
 value, or, to speak more correctly, in those arti- 
 cles which men are able and willing to exchange, 
 we avoid this absurdity: but then we involve 
 
12 
 
 ourselves in the inconsistency of representing 
 the same things, while possessing the same pro- 
 perties, and applied to the same use, as some- 
 times constituting, and sometimes not constitut- 
 ing, wealth. If wealth consist in articles which 
 possess exchangeable value, then (to refer to our 
 former illustration) the food and implements 
 which are articles of wealth to day, if either of 
 our huntsmen should lose the inclination or 
 power to barter with the other, may not be 
 articles of wealth to-morrow. 
 
 As the misconception which confounds wealth 
 with value, has greatly retardedi the progress of 
 economical science; and hitherto it has been 
 very general ; I trust I may not appear unne- 
 cessarily minute or tedious, if I produce a few 
 farther illustrations for the purpose of correct- 
 ing it. 
 
 Let us suppose that a single family, shut 
 out from all intercourse with the rest of man- 
 kind, cultivates the ground, and prepares its 
 produce for use. Now, it is evident, that if this 
 family lived upon a fertile soil, and directed 
 its labour with any moderate degree of skill 
 
13 
 
 and perseverance, it might supply itself with 
 all the necessaries, and with many of the com- 
 forts of life; but it is equally evident, that 
 these products of its industry, however useful 
 in quality, and abundant in quantity, would be 
 destitute of value in exchange, and could pur- 
 chase nothing. If, therefore, wealth consist in 
 exchangeable value, this family, though the 
 fruits of its labour were sufficient to enable 
 it to live in plenty, and even in luxury, would 
 not be in possession of a single article of 
 wealth. 
 
 Again ; in a country, however extensive, and 
 however populous it might be, in which the divi- 
 sions of labour were unestablished, and in which 
 each man combined in his own person a variety 
 of employments, and procured and prepared for 
 his family whatever articles they consumed, it is 
 plain that, as in the former case, barter and sale, 
 and consequently value in exchange, would be 
 unknown. Each individual might exert a con- 
 siderable portion of industry, and be supplied 
 not only with the natural opulence bestowed 
 gratuitously upon man, but also with those use- 
 
14 
 
 ful articles which are obtained by voluntary 
 exertion ; but nothing would be brought to mar- 
 ket, — there would be neither buyers nor sellers^ 
 neither exchanges nor value in exchange. If, 
 therefore, wealth consists in exchangeable value, 
 this nation, like the isolated family of the former 
 illustration, would not, with whatever success it 
 might apply its industry, and however abun- 
 dantly it might supply itself with useful com- 
 modities, be in possession of a single article of 
 wealth. 
 
 Once more. A society having an internal 
 community of goods, and no external trade, 
 might avail itself of all the advantages of the 
 home divisions of labour, and sU})ply itself ill 
 great abundance with the necessaries, comforts, 
 and luxuries of life ; though it is plain, that the 
 useful commodities which it procured and accu- 
 mulated could possess no value in exchange. 
 Under the supposition, no exchanges would be 
 made, and no equivalents required. Each indi- 
 vidual would exert that portion of industry 
 which the regulations of the society prescribed, 
 and would receive from the common stock 
 
15 
 
 whatever he consumed. Industry might be 
 applied with great perseverance and success; 
 the society (as is said to be the case in a small 
 community which has been established in the 
 territory of Pennsylvania, under the name of 
 Harmony,) might procure by their labour a more 
 abundant supply of the necessaries of Ji^e, than any 
 equal number of individuals in the most wealthy 
 European country ; and yet, if wealth consists 
 in exchangeable value, not one article of wealth 
 would exist in the society* 
 
 These illustrations have, I trust, been sufficient 
 to shew the distinction, as well as the relation, 
 between wealth and value. Wealth consists of 
 articles which possess utility, and which are pro- 
 cured by some portion of voluntary effort. When 
 the divisions of labour, and private property, are 
 established, then each individual lives by giving 
 the surplus produce of his own, for the surplus 
 produce of his neighbour's industry, and the 
 articles of wealth are exchanged one against 
 another ; or, to employ the usual mode of ex- 
 pression, acquire the property of exchangeable 
 value. But exchangeable value, even taken in 
 
16 
 
 the common acceptation of the term, is not ail 
 essential quality of wealth; but an accident, 
 belonging to it only Under those particular cir- 
 cumstances in which the divisions of labour and 
 private property exist. Abolish the divisions of 
 labour, or establish a community of goods, and 
 in either case exchangeable value will be lost. 
 It is to be remembered, moreover, that the term, 
 exchangeable value, does not, even under the 
 particular circumstances in which one commo- 
 dity is given for another, stand for any property 
 or quality actually inhering in, or belonging to 
 the articles of wealth. The expression merely 
 implies, that there exists a desire and the power 
 of giving one article of wealth for another : and 
 perhaps, if it were not too great a departure 
 from established usage, it might not be improper 
 to dismiss it from the nomenclature of economi- 
 cal science, and to substitute in its stead a phra- 
 seology less liable to ambiguity. 
 
 But although, in those early periods of society 
 when each person prepares for himself whatever 
 he consumes, and in those small associations 
 where all things are in common, exchanges and 
 
17 
 
 equivalents will be unknown ; yet, as improve- 
 ment advances, and population increases, the 
 division of labour, and the acquisition of private 
 property, will inevitably take place : and conse- 
 quently almost every article of utility on which 
 any portion of labour has been employed, will 
 find a purchaser in the market ; and (to employ 
 the current phraseology) wealth, in addition to 
 its other properties, will possess that of value in 
 exchange. Hence, value in exchange, though ! 
 not absolutely an essential attribute of wealth, 
 is an accident which very generally pertains to 
 it, and which exerts an important influence both 
 over its formation and its distribution. To give 
 an exact analysis of the nature of value, or, in 
 other words, to trace out the circumstances 
 which cause any given quantity of one article to 
 be offered for any given quantity of another, 
 becomes the indispensable business of the poli-i 
 tical economist. 
 
 In that early period of society which precedes 
 
 any permanent establishment of the divisions of 
 
 employment, if two savage hunters were to 
 
 return from the chase, the one with more game 
 
 c 
 
18 
 
 than he could consume, but with all his bows 
 and arrows expended ; the other with his hun- 
 ger unappeased, but with his supply of arrows 
 still entire, they wDuld be mutually seized with 
 the desire of bartering their respective superflui- 
 ties : but there could exist no principle to deter- 
 mine the terms of the exchange, except what 
 might arise out of the degree of inclination 
 which each might feel to possess the commodity 
 of the other. The desire of the unsuccessful 
 hunter to obtain food, would be immediate and 
 urgent ; that of his neighbour to obtain imple- 
 ments for future excursions, would be more 
 remote and less strongly felt ; and, therefore, in 
 adjusting the terms of the exchange, ,the more 
 fortunate adventurer might obtain from the 
 necessities of the other a large supply of arrows 
 for a small supply of game. If two or three 
 unsuccessful hunters sought to obtain the wild 
 animals of the more fortunate adventurer, the 
 terms of the exchange would be rendered still 
 more unequal; and implements, which it had 
 cost several days' labour to prepare, might be 
 offered for a supply of subsistence which half a 
 
19 
 
 day's ordinary exertion would procure. In this 
 rude and early state, therefore, there would be 
 no fixed criterion to regulate or determine ex- 
 changeable value ; and the terms of the barter 
 which occasionally took place, would, in each suc- 
 cessive instance, be regulated by the immediate 
 wants and desires of the contracting parties. 
 
 The case would be different as soon as the 
 frequency of exchanges began to lead to perma- 
 nent divisions of employment. In this state of 
 society, the individual who devotes himself to a 
 particular occupation, must be able to obtain, in 
 exchange for the surplus produce of his labour, 
 such a portion of the things produced by the 
 Jiabour of others, as will place him in a situation 
 at least as good as that in which he found him- 
 self when he combined in his own person a 
 variety of employments. If two savage hunters, 
 without any division of employment, could each 
 supply himself with implements, and kill a deer 
 a day ; and if, when one prepared implements, 
 and the other went to the chase, they could kill 
 three deer a day ; then it is evident that the 
 person who prepares the bows and arrows, can- 
 
20 
 
 not be prevailed upon to accept in exchange for 
 a day's work, less than a whole deer : because, 
 if his comrade attempted to drive a hard and 
 unequal bargain, it would be his interest to dis- 
 continue the division of employment, and to 
 hunt down wild animals for himself. Nay, under 
 the case supposed, the preparer of bows and 
 arrows would get in exchange for a day's labour, 
 not only a whole deer, but a deer and a half; 
 because, if the hunter should at any time obtain 
 a more than equal share of the advantages arising 
 from the division of employment, his anxiety to 
 continue it would be stronger than that of the 
 manufacturer of implements, and consequently, 
 when any discission arose respecting the terms 
 of the exchange, his motive to make concessions 
 would be stronger also, and he would necessarily 
 yield to the demands of the manufacturer, until 
 the division of employment conferred upon each 
 an equal benefit. 
 
 Thus we see, that as soon as men begin to 
 devote themselves to particular employments, 
 the competition to pailicipate in the advantages 
 resulting from the division of employment, de- 
 
21 
 
 termines the exchangeable value of their respec- 
 tive commodities. Before the community divides 
 itself into a class of capitalists and a class of 
 labourers, this competition turns entirely on the 
 total quantity of labour employed ; and the pro- 
 duce of a day's work in one occupation will be 
 exchanged for the produce of a day's exertion 
 in another. If, in a tribe which lived by appro- 
 priating the spontaneous gifts of nature, it 
 usually required twice as much labour to procure 
 animal, as it required to procure vegetable food ; 
 then a day's subsistence consisting of the former, 
 would naturally exchange for, or be worth, two 
 days' subsistence consisting of the latter. Nor, 
 while the same individual continues to be both 
 labourer and capitalist, can we conceive any 
 principle capable of permanently altering this 
 rate of equivalency. If, while the same quan- 
 tity of labour which procured one day's supply 
 of animal, was sufficient to procure two days* 
 supply of vegetable food, the class of hunters 
 combined to obtain three days' supply of the 
 latter, for one of the former ; then it is evident 
 that the class which collected fruits, in consent- 
 
22 
 
 ing to such terms, would obtain a less quantity 
 of animal food than if they engaged personally 
 in the chase. It would, therefore, become the 
 interest of the collectors of vegetable food to 
 discontinue the divisions of employment : but as 
 the class of hunters would have a strong inte- 
 rest in continuing them, the moment the former 
 evinced an intention of abandoning their pecu- 
 liar occupation, the latter would relax from 
 their unreasonable demands, until the divisions 
 of employment again became mutually and 
 equally beneficial. 
 
 Before the labourer and capitalist become 
 distinct persons, the produce of a day's labour in 
 one occupation will, cceteris paribus, be always 
 equivalent to the produce of a day's labour in 
 another occupation, whether the whole labour 
 is employed immediately and directly in obtain- 
 ing articles for consumption, or whether a por- 
 tion of it is previously employed in acquiring 
 the capital necessary to the production of such 
 articles. If, previous to the separation of society 
 into labourers and capitalists, vegetable produc- 
 tions were gathered without the aid of capital ; 
 
23 
 
 while, in appropriating animal productions, it 
 required that for every day's labour employed 
 in the field, another day's labour should be em- 
 ployed in preparing implements for the chase ; 
 or, in other words, the hunter's capital ; then it 
 is evident that the produce of one day's direct 
 labour in the chase, would be equivalent to the 
 produce of two days' labour employed in gather- 
 ing fruits. In adjusting the terms of the ex- 
 change, the labour which prepared the capital 
 would be taken into account, no less than the 
 labour which actually applied it. If, on their 
 returning in the evening from their respective 
 occupations, the collector of vegetable produc- 
 tions should offer the fruits which he had 
 gathered in the course of the day, in exchange 
 for the animals which the hunter had killed 
 during the same period, the latter would natu- 
 rally reply, — " The arrows expended during the 
 " chase cost me a day's labour; the animals 
 " which I have killed are in reality the produce 
 ** of two days' labour ; and therefore, you must 
 ** give me the quantity of fruits collected by two 
 *' days' labour in exchange for them." To this 
 
24 
 
 demand the collector of fruits would be under 
 the necessity of acceding, in order to prevent 
 the hunter from abandoning the divisions of 
 employment, and collecting vegetable produc- 
 tions for himself. It would be impossible to 
 induce the hunter to give, for any length of 
 time, more than the produce of a day's labour 
 for a quantity of fruit which a day's labour 
 might at any time procure for him. If, under 
 any particular circumstances, the produce of a 
 day's labour employed in gathering fruits should 
 exchange for more than the produce of a day's 
 labour employed in the chase, then the occupa- 
 tion of gathering fruits would be more boneficial 
 than that of hunting ; and individuals desirous 
 of obtaining a supply of animal food, would 
 renounce the latter, and betake themselves to 
 the former, until the level were restored, and 
 the produce of a day's labour in the one, ex- 
 changed for the produce of a day's labour in the 
 other. 
 
 Thus then it clearly appears, that before the 
 class of labourers becomes distinct from that of 
 capitalists, and while the labourer prepares for 
 
25 
 
 himself whatever capital he employs, the whole 
 quantity of labour, including that accumulated 
 in capital, as well as that directly applied, which 
 is expended in production, determines the quan- 
 tity of one article which shall be offered in 
 exchange for a given quantity of another. In 
 this early stage of society, things upon which 
 equal portions of labour have been bestowed will 
 be equivalent to each other. 
 
 We must now proceed to more advanced and 
 complicated stages of society, and inquire what 
 it is which determines the quantity of one com- 
 modity that shall be given in exchange for ano- 
 ther, when capitalists and labourers have been 
 separated into distinct classes. 
 
 Let there be two identical capitals, each con- 
 sisting of a hundred quarters of corn, and a thou- 
 sand pounds of wool ; and let the proprietor of 
 one of these capitals employ it in manufacturing 
 broad cloth, while the proprietor of the other 
 capital employs it in preparing carpeting. Now, 
 it must be evident, that the cloth and carpeting 
 on which equal capitals were expended, would 
 be of equal value. If either of these manufac- 
 
26 
 
 turers oflfered a part of his productions in ex- 
 ichange for the whole of the productions of the 
 otter, the other would immediately reply, — 
 ** For the articles which I have had fabricated 
 ** from a hundred quarters of com, and a thou- 
 ** sand pounds of wool, you must give me the 
 ** whole of the articles which you have had pre- 
 *^ pared from a like capital. My capital is of 
 " equal power with yours ; and if you will not 
 " barter upon equal terms, I can at any time 
 " employ as many labourers as will produce to 
 " me that which you refuse." To this no rea» 
 sonable objection could be urged. Hence we 
 see, that when the capitalists become a class 
 distinct from the labourers^ the results obtained 
 hy the employment of identical capitals, or 
 identical quantities of accumulated labour, will 
 he equal in exchangeable value. 
 
 Again : let there be two equivalent capitals, 
 the one consisting of subsistence for one hun- 
 dred labourers, with a thousand pounds of 
 wool, equal in value to this subsistence; and 
 the other of subsistence for one hundred, with a 
 thousand pounds of cotton, also equal in value 
 
to this subsistence ; and let the proprietor of the 
 former employ one hundred labourers in making 
 woollens, and the proprietor of the latter one 
 hundred in making cottons. Now, it is evident, 
 that the woollen and cotton goods thus produced, 
 would be of equal exchangeable value. For, if the 
 quantity of woollens, on the production of which 
 subsistence for one hundred, with material equal 
 to it in value, had been expended, exchanged 
 at any time for a quantity of cotton goods 
 greater than that on which subsistence for one 
 hundred, with material equal to it in value, had 
 been expended, then the manufacturing of wool 
 would become more beneficiail than the manufac- 
 turing of cotton. But capital ever seeks its 
 most beneficial employment; and in this case 
 it would be withdrawn from the cotton to the 
 woollen manufacture, until the equilibrium were 
 restored. Thus, from the perpetually operating 
 law of competition, from self-interest ever seek- 
 ing to throw capital into the most beneficial 
 channel, it inevitably follows, that after the 
 community divides itself into a class of capi- 
 talists and a class of labourers, the results 
 
7-? 
 
 28 
 
 obtained hy the employment of equivalent 
 capitals or equal quantities of accumulated 
 labour, will he equal in exchangeable value, 
 , I Equivalent capitals may possess very different 
 degrees of durability ; but this circumstance, 
 when it occurs, does not form any exception to 
 our general principle, that the results obtained 
 by the employment of equal capitals will be of 
 /H. i equal exchangeable value. If a woollen and a 
 
 silk manufacturer were each to employ a capital 
 of 2000/. ; and if the former were to employ 
 1500/. in durable machines, and 500/. in wages 
 and materials ; while the latter employed only 
 500/. in durable machines, and 1500/. in wages 
 and materials ; then the results of these equal 
 capitals would, from the law of competition, be 
 of equal exchangeable value ; that is, the wool- 
 lens, with the residue of the fixed capitals em- 
 ployed in preparing them, would be worth the 
 same sum as the silks, with the residue of the 
 fixed capital employed in their manufacture. 
 Supposing that a tenth of these fixed capitals 
 is annually consumed, and that the rate of profit 
 is ten per cent., then, as the results of the wool- 
 
29 
 
 len manufacturer's capital of 2000/., must, to 
 give him this profit, be 2200/., and as the value 
 of his fixed capital has been reduced by the pro- 
 cess of production from 1500/. to 1350/., the 
 goods produced must sell for 850/. And, in like 
 manner, as the fixed capital of the silk manu- 
 facturer is by the process of production reduced 
 one-tenth, or from 500/. to 450/., the silks pro- 
 duced must, in order to yield him the customary 
 rate of profit upon his m hole capital of 2000/., 
 sell for 1750/. When the capitals employed 
 are of equal value, and of equal degrees of 
 durability, the goods produced by them will 
 bear equal prices in the market. But when 
 capitals equal in amount, but of different degrees 
 of durability, are employed, the articles produced, 
 together with the residue of capital, in one occu- 
 pation, will be equal in exchangeable value to 
 the things produced, and the residue of capital, 
 in another occupation.! 
 
 Equal capitals, or, in other words, equal quan- 
 tities of accumulated labour, will often put in 
 motion different quantities of immediate labour; 
 but neither does this furnish any exception to 
 
so 
 
 our general principle, that, after the society has 
 been divided into a class of labourers and a class 
 of capitalists, the results obtained by the em- 
 ployment of equal capitals will be of equal value 
 in exchange. Let there be two capitals, each 
 containing fifty days' accumulated labour, and 
 consisting of wages for ninety common labourers, 
 with a piece of metal equivalent to wages for 
 ten ; and let the proprietor of the one capital 
 employ it in setting nailors at work, while the 
 proprietor of the other employs it in setting 
 engravers at work. Now, in this case, the nails 
 and the engraved plates, being the results, not 
 only of equivalent, but of identical capitals, must 
 be of equal exchangeable value. But though, 
 from the law of competition, their values must 
 be equal, it by no means follows, that the entke 
 quantities of labour bestowed upon their produc- 
 tion, must have been equal also. The engravers, 
 in consequence of the taste and genius which are 
 required in their elegant art, and which are 
 scarcely ever proportional to the previous labour 
 devoted to their acquisition, might be able to 
 demand quadruple wages, while the nailors ob- 
 
tained but a bare subsistence. The portion of 
 capital, therefore, consisting of wages, would em- 
 ploy ninety nailors, while it employed only twen- 
 ty-two engravers. As each of these equivalent 
 and identical capitals had been produced by fifty 
 days' labour, then the whole labour, accumulated 
 and immediate, expended in obtaining the nails 
 will be one hundred and forty days, while the 
 whole labour, accumulated and immediate, ex- 
 pended upon the engraved plates, will be only 
 seventy-two. Yet the plates must be of equal 
 value with the nails, otherwise an equal capital 
 would not be laid out in procuring them. 
 
 Again : even though there should be no dif- 
 ference in the rate of wages, yet (Capitals con- 
 taining equal quantities of accumulated labour, 
 and equal both in amount and in durability, -^ 
 
 will put in motion unequal quantities of imme- ^j O 
 diate labour. If a wooUen manufacturer, with 
 a capital of 2000/,, or two thousand days' accu- 
 mulated labour, invested 500/. in machinery, 
 500/. in materials, and paid 1000/. in wages, 
 he would employ just twice as many labourers 
 as a silk manufacturer, who, with a capital of 
 
32 
 
 2000/., invested 500/. in machinery, 1000/. in 
 materials, and paid 500/. in wages. But though 
 these two capitals put in motion such different 
 quantities of immediate labour, ; the products 
 would be equivalent; and the woollens obtained 
 by the employment of a capital of two thousand 
 days' accumulated labour, would exchange for 
 neither more nor less than the silks obtained by 
 the employment of a. capital of like amount. 
 For, if at any time the woollen manufacturer 
 should obtain in exchange for the products of 
 his capital either more or less than the products 
 of capitals equal in amount, his business would 
 be more or less profitable than others, until, otlier 
 capitalists entering into it in the former case, 
 and deserting it in the latter, the level would be 
 restored, and the products of equivalent capitals 
 rendered of equal exchangeable value. 
 
 Once more. Capitals containing equal quanti- 
 ties of accumulated labour, and equal in amount 
 and in durability, may put unequal quantities 
 of immediate labour in motion, even though the 
 proportion of raw materials should be the same 
 in each. The woollen manufacturer, with his 
 
 3 
 
33 
 
 tapital of 2000/», might invest 500/. in madhi- 
 nery, 500/. In material, and pay lOOO/* in 
 wages to the labourers by whom his machinet^y 
 was wrought ; while the silk manufacturer also 
 investing 500/. in machinery, and 500/. in tAW 
 material, might partly work his machinery by 
 the force of steam, and lay out 500/. in fuel, and 
 only 500/. in wages* Here again (wages being 
 Supposed the same in both occupations) the first 
 capital puts in motion twice as much immediate 
 labour as the second ; and yet the law of dom- 
 petition equahzing the rate of profit, would ne- 
 cessarily render the woollens and wrought silks, 
 Upoli which equal sums had been expended^ of 
 equal exchangeable value. 
 
 It is hoped that these illustrations have beert 
 sufficient td establish the following principles :^— 
 
 I* In that early period of society which pre- 
 4cedes the separation of the community into a 
 class of capitalists and a class of labourerSj and 
 in which the individual who undertakes any 
 branch of industryj performs his own work, the 
 total quantity of labour, accumulated and im* 
 mediate, expended on production, is that on 
 
 D 
 
 (A 
 
34 
 
 which comparison and competition turn, and 
 which, in the transactions of barter or sale, 
 ultimately determines the quantity of one com- 
 modity which shall be received for a given quan- 
 tity of another. 
 
 II. When stock has accumulated, when capi- 
 talists become a class distinct from labourers, 
 and when the person who undertakes any 
 branch of industry, does not perform his own 
 work, but advances subsistence and materials 
 to others, then it is the amount of capital, or the 
 quantity of accumulated labour expended in 
 production, on which comparison and competi- 
 tion turn, and which determines the exchange- 
 able power of commodities. 
 
 The reason why, in these different stages of 
 society, exchangeable value should be deter- 
 mined upon different principles, is sufficiently 
 obvious. Every person seeks to obtain the 
 objects of his desire at the smallest possible 
 sacrifice. When all labour for themselves, no 
 one will for any length of time give more than 
 the result of a day's labour for that which a 
 day's labour can procure for him ; and, in like 
 
35 
 
 manner, when the capitttlist hires others to work 
 for him, he will not consent to part with more 
 than the product of a given capital (say a hundred 
 days' subsistence) in exchange for that which, 
 by the expenditure of a hundred days' subsist- 
 ence, he can cause to be prepared for himself. 
 For example; while each individual laboured 
 for himself, if a woollen manufacturer were to 
 employ ten days' labour in procuring raw ma- 
 terial and ninety days in working it up ; and a 
 silk manufacturer employed forty-five days in 
 obtaining raw material, and five days in fabri- 
 cating it ; the woollen cloths would be of twice 
 the value of the wrought silks ; and if the silk 
 manufacturer objected to barter upon these 
 terms, the other would naturally reply, — " The 
 " labour which it has cost me to produce half 
 " my goods, would have procured for me a 
 "quantity of silks equal to that which I demand; 
 " and if you refuse to give this quantity for 
 " half my w^oollens, it will be my interest to 
 " change the direction of my labour, and to 
 iffi manufacture silks for myself." To this no 
 reasonable objection could be urged; and the 
 
36 
 
 silk manufacturer would find himself compelled 
 to barter the article on which he had employed 
 iifty days of accumulated and immediate labour, 
 for half that on which his neighbour had em- 
 ployed a hundred days of accumulated and 
 immediate labour. On the contrary, when there 
 is a class of capitalists and a class of labourers, 
 if a woollen manufacturer were to advance 
 wages to ninety labourers, with material equi- 
 valent to wages for ten ; and if a silk mantifac- 
 turer were to advance wages to twenty, with 
 material equivalent to wages fol* eighty ; the 
 woollens and the wrought silk, notwithstanding 
 that such unequal portions of labour had been 
 employed in their fabrication, would be of equal 
 exchangeable value. It Would be in vain for 
 the woollen manufacturer to urge, that in work- 
 ing up his commodity, he had given employ- 
 ment to ninety, while the other had given em- 
 ployment to no more than twenty, labourers. 
 Nay, it would be even useless for him to go a 
 step farther back, and to say,-^" My capital, 
 " consisting of wages for ninety, with material 
 "^ equivalent to wages for ten, cost me fifty 
 
37 
 
 " days* labour : your capital, consisting of wages 
 " for twenty, with material equivalent to wages 
 ^ for eighty, was also produced by fifty days' 
 ^^ labour ; and therefore, it is equitable, that my 
 ^ article, obtained by ninety days' labour, with a 
 ^ capital which cost fifty days' labour, should be 
 ** twice as valuable as your's, which was obtained 
 " by twenty days, with a capital which also cost 
 " fifty. The whole quantity of labour required 
 ^* to procure mine is double the whole quantity 
 " required to procure yours, and should natu- 
 " rally bestow on it a double power in ex- 
 " change." To this the silk manufacturer 
 would reply,—" The question does not turn 
 " upon the quantities of labour required to pro- 
 ^* cure our respective articles. Our capitals are 
 " each worth a hundred days' wages : they are 
 " equivalent and convertible ; and, if you refuse 
 ♦* to exchange their respective products upon 
 ^* equal terms, I can, g-t the same cost which 
 " fabricates my silk, obtain wages for ninety, 
 *♦ with wool equivalent to wages foif ten, and 
 *~ thus have wij-ought up for me the same qug-n-. 
 ** tity of woollens which I require of you^ You 
 
38 
 
 " cannot expect that I should accept in exchange 
 " for the product of my capital, a less quantity 
 " of any article, than that capital might at any 
 " time procure for me, if I chose to manufacture 
 " it for myself" To this no farther objection 
 could reasonably be urged. After capitalists 
 become a class distinct from labourers, competi- 
 tion turns, not upon the quantity of labour, but 
 upon the amount of capital expended in produc- 
 tion ; and the results obtained after the employ- 
 ment of equal capitals, will always tend to an 
 equality of value in the market. 
 
 After the division of the industrious members 
 of a community into a class of capitalists and a 
 class of labourers, there is only one case, and 
 that of extremely rare occurrence, in which the 
 exchangeable value of commodities will be in 
 proportion to the total quantity of labour, both 
 accumulated and immediate, employed in their 
 production. This case is, when equal capitals 
 or quantities of accumulated labour, happen to 
 give employment to equal quantities of imme- 
 diate labour. If the capitals of a silk and of a 
 woollen manufacturer were each worth 1000/. 
 
and put each a hundred labourers in motion, 
 then the wrought silk and the woollen cloths 
 fabricated by these capitals would, at one and the 
 same time, be the products of equal quantities 
 of labour, and possess equal exchangeable value. 
 But it must be evident on the slightest examina- 
 tion, that this is no more than a merely acciden- 
 tal coincidence, j As long as these two capitals 
 continue equal, the law of competition, always 
 tending to equalize the profits of stock, will 
 keep their products of equal exchangeable value, 
 however we may vary the quantity of immediate 
 labour which they put in motion, or which their / / 
 products may require. While, on the contrary, 
 if we render these capitals unequal in amount, 
 the same law must render their products of un- 
 equal value, though the total quantity of labour 
 expended upon each, should be precisely equal. 
 This is a clear and complete demonstration that, 
 after the separation of capitalists and labourers, 
 it is always the amount of capital, or quantity 
 of accumulated labour, and not as before this se- 
 paration, the sum of accumulated and immediate 
 labour, expended on production, which determines 
 
40 
 
 the exchangeable value of commodities. When 
 capitals equal in ^niount happen to put equal 
 quantities of immediate labour in motion, then the 
 value of things will be in proportion to the total 
 quantity of labour bestowed upon them ; but to 
 conclude from this, that it is the total quantity 
 of labour, and not the accumulated labour or 
 capital, which determines the degree of ex« 
 changeable value, is to mistake ^n accidental 
 coincidence for a necessary connexion. 
 
 It may be necessary to remark thatj in all th^ 
 foregoing illustrations, we have t^ken it fop 
 granted, that the return upon capital is equally 
 quick. If two equal capitals ^re employed, the 
 one in fabricating silks, and the other in paanu-= 
 facturing woollens ; and if the former could not 
 be brought to market under six months, while 
 the latter could be brought there in three, theu, 
 froru the principle of competition, the silks pro-, 
 duced would be niore valuable than the woollens. 
 The same result would t^ke place if manufac^ 
 turing the one was attended with more risk or 
 niore discredit than fabricating the other, 
 
 The principle, that the exchangeable value pf 
 
41 
 
 commodities is determined by the amount of 
 capital expended in their production, is Kable to 
 some other exceptions and Kmitations which it 
 is necessary to notice. It is the law of competi- 
 tion which determines universally the quantity 
 of any one article that shall be offered and ac- 
 cepted for a given quantity of another; but 
 under different circumstances this law will ope- 
 rate in a different manner, and give different 
 results. In any given state of the market, it 
 turns upon demand and supply; and conse- 
 quently the exchangeable value of every com- 
 modity will, in any given state of the market, 
 be determined exclusively by the proportion 
 which exists between the supply of it and 
 the demand for it. Hence, in the debate 
 between buyers and sellers, it will frequently 
 occur, that the product of a given capital will 
 exchange for much more or much less than the 
 product of another and equal capital. But it is 
 to be considered, that that state of the market 
 upon which competition turns to-:day, a previous 
 competition must have produced, and a future 
 competition will either continue or destroy. WheR 
 
42 
 
 the product of a given capital sells for more or 
 less than the products of other and equal capi- 
 tals, it will be the interest of individuals to 
 betake themselves to the more, or to desert the 
 less, advantageous occupation ; and consequently, 
 wherever competition is allowed to operate, it 
 will so regulate the state of the market, or, in 
 other words, so determine the proportions in 
 which commodities shall be produced, and offered 
 in exchange for each other, that, notwithstand- 
 ing occasional fluctuations, the results obtained 
 by the employment of equal capitals will on the 
 average and in the long run be of equal ex- 
 changeable value. 
 
 The principle, that the results obtained from 
 the employment of equal capitals will be of equal 
 exchangeable value, is liable to exception in all 
 cases of monopoly, whether natural or artificial. 
 A monopoly may be defined to be, a suspension 
 of the law of competition, with respect to the 
 production of commodities, and the equalization 
 of profits. Wherever this suspension takes place, 
 the advantages obtained from the employment 
 of capital in one occupation, may greatly ex- 
 
43 
 
 ceed those which can be gained by employing 
 it in others; and the exchangeable value of com- 
 modities will be determined, not by the amount 
 of capital expended on their production, but by 
 the number and the wealth of those who may 
 be desirous of obtaining them. In such cases, 
 the products of equal capitals may, for any 
 length of time, be of unequal exchangeable value 
 in the market. When, for example, nature has 
 limited the quantity of soil necessary to the 
 production of a peculiar sort of wine, the value 
 of this wine will not be determined by the quan- 
 tity either of labour or of capital which may be 
 employed in preparing it, but solely by the 
 quantity of the other products of industry which 
 may be offered in exchange for it. If the per- 
 sons desirous of consuming wine, possess few 
 of the products of industry beyond what is 
 necessary for their subsistence, the exchangeable 
 value of this luxury will be low. While, on 
 the contrary, if those desirous of procuring it 
 are numerous, and possessed of incomes much 
 beyond what their necessities require, the ex- 
 changeable value of the peculiar sort of wine 
 
44 
 
 may, for any length of time, exceed, in almost 
 any degree, that of other articles on which equal 
 portions of labour or of capital are bestowed. 
 Supposing that while it required a hundred days' 
 labour, or a capital of a hundred days' subsist- 
 ence, to raise the peculiar sort of wine, those 
 desirous of consuming it possessed the products 
 of a thousand days' labour, or of a capital consist-* 
 ing of a thousand days' subsistence, beyond what 
 was requisite to supply them with necessaries ; 
 then this peculiar wine, the product of a hun- 
 dred days' labour, or of a hundred days' subsist- 
 ence, might exchange against, or, in other words, 
 be of equal value with, the products of a thousand 
 days' labour, or of a capital of a thousand days' 
 subsistence. This would, no doubt, render those 
 who had the disposal of labour or of capital, 
 eager to produce the wine ; but by the suppo- 
 sition, the soil necessary to its production is of 
 limited extent ; the operation of the law of com« 
 petition is suspended ; and, therefore, it is pos- 
 sible that our peculiar sort of wine may continue 
 of ten times more value, than the other things 
 pn which equal portions of labour or of capital 
 are bestowed. 
 
45 
 
 When a monopoly) whether natural Oi* artifi- 
 tial, affects articles of luxury, there is no litnit 
 to their possible rise in exchangeable value, 
 except that which may be set by the amount of 
 the wealth, and the degree of the desire, pos- 
 sessed by their consumers. Gems, statues, and 
 pictures^ when, from the barrenness of mines, or 
 the dearth of genius, they exist in scarcity, may 
 possess an exchangeable value greater by a 
 thousand, or a hundred thousand fold^ than the 
 cost of their production. The case is different 
 with respect to the necessaries of life. A Mo- 
 nopoly affecting these, can never, for any perma- 
 nency, raise their value so high, that the product 
 of a day's labour^ or of a capital sufficient to put a 
 day's labour in motion^ shall not be exchangeable 
 for a day's subsistence. The reason is obvious* If 
 the produce of a day's labour were exchangeable 
 for less than a day's subsistence, the labourer 
 would starve ; and if the product of a capital 
 sufficient to put a day's labour in motion should 
 become of less value than a day's subsistence ; 
 then, as subsistence must always be a part of the 
 things advanced by the capitalist, his capital 
 
46 
 
 would not be returned to him. In every case 
 of a monopoly, whether artificial or natural, 
 population must be cut off, and production sus- 
 pended, before the necessaries of life can be so 
 raised in value, that the product of a day's 
 labour, or of a capital sufficient to put a day's 
 labour in motion, will exchange for less than a 
 day's subsistence. 
 
 It is true, indeed, that a monopoly, or any 
 other cause which diminishes the usual supply 
 of any particular class of commodities, has a 
 much greater effect for a short period in en- 
 hancing the value of necessaries, than it could 
 have in enhancing that of superfluities. If an 
 unfavourable vintage were to raise the price of 
 wine, the public having an option to diminish 
 their consumption in some article or other, many 
 would diminish it in wine ; and thus the reduc- 
 tion in the supply would be accompanied by 
 some reduction in the demand. But, if a bad 
 harvest raised the price of corn, the people would 
 be eager to part with superfluities and comforts 
 rather than give up their usual quantity of this 
 great necessary of life: the reduction in the 
 
47 
 
 supply would not be accompanied by any dimi- 
 nution in the competition, or demand ; and con- 
 sequently, the rise in the exchangeable value of 
 com would be much greater than that which a 
 proportional falling off in the supply, could effect 
 in that of wine. It is, however, abundantly 
 evident, that no deficiency in the harvest could, 
 for any length of time, so raise the price of corn, 
 as to render a day's subsistence more valuable 
 than the produce of a day's labour, or of a capi- 
 tal sufficient to put a day's labour in motion ; 
 because, as soon as this took place, the labourers, 
 after parting with the superfluities they might 
 have accumulated, must perish of want, and by 
 consequence the demand for corn be diminished, 
 until the value of a day's subsistence sunk below 
 the value of a day's labour. Though, during a 
 short period, monopolies may raise the value of 
 necessaries more than they raise the value of 
 superfluities, yet for a permanency it will be 
 found that they can sustain the price of super- 
 fluities at an elevation far beyond that to which 
 they can keep up the price of necessaries. 
 Having thus traced the principles which in 
 
M 
 
 different circumstancjes determine exchangeable 
 ValuCj and noticed the chief exceptions to which 
 these principles are liable, it will now be neces- 
 sary to point out the distinction, as well as the 
 relation, between exchangeable value and price. 
 The term, exchangeable value, expresses the 
 power of purchasing with respect to commodi- 
 ties in general: — the term, price, denotes the 
 same power with respect to some particular 
 commodity, the quantity of which is given. 
 Thus, when I speak of the exchangeable value 
 of cotton as rising or falling, I imply, that it will 
 purchase a greater or a less quantity of com, 
 and wine, and labour, and other marketable 
 Commodities: but when I talk of the price of 
 cotton as rising or falling, I mean, that it will 
 purchase a greater or less quantity of sofiie one 
 particular commodity, such as corn, or wine, or 
 labour, or money, which is either expressed or 
 understood. Exchangeable value may rise while 
 price falls, or fall while price rises* For example, 
 if cotton were, from any cause, to acquire twice 
 its former power of purchasing with respect to 
 commodities in general, while gold, the parti- 
 
49 
 
 cular commodity in which the price of cotton is 
 expressed, rose in a still higher ratio, and ac- 
 quired four times its former power in the market; 
 ■ — then, though the exchangeable value of cotton 
 would be doubled, its price would fall one half. 
 Again ; if cotton would purchase only half the 
 former quantity of commodities in general, 
 while it purchased twice the quantity of some 
 particular commodity, such as corn, or wine, or 
 labour, or money, — then its exchangeable value 
 would have sunk one half, while its price, as 
 expressed in com, or wine, or labour, or money, 
 became double. And again ; — if cotton, and 
 the particular commodity in which its price is 
 expressed, should rise or fall in the same pro- 
 portion with each other, then the exchangeable 
 value of cotton, or its general power of purchas- 
 ing, would fluctuate, while its price remained 
 stationary. 
 
 Price, then, is the quantity of that particular 
 thing or commodity which is given in order to 
 procure another commodity. As the precious 
 metals are the things which general consent has 
 rendered the immediate instruments of effecting 
 
 E 
 
so 
 
 exchanges, the term, price, when eirtployed 
 singly and without qualification, is understood 
 to imply the sum in the metals, or in the repre- 
 sentatives of the metals, which must be given 
 for the article we require. The qualified terms, 
 corn price, labour price, dec. signify, of course, 
 the quantity of corn or of labour which must 
 be parted with, in order to obtain any given 
 quantity of the commodity we want. 
 
 The price of things being that which is given 
 in order to procure them, it follows, that there 
 must be two kinds of price; namely, market 
 price, and natural price. Market price, as the 
 term sufficiently denotes, is that which we give 
 in order to obtain any commodity by way of 
 exchange in the market : — natural price, on the 
 contrary, is that which we must give in order to 
 obtain the article we want from the great ware- 
 house of nature, and is the same thing as the 
 cost of production. 
 
 Economists have contended, that natural and 
 market price, notwithstanding occasional and 
 temporary fluctuations, always tend to a com- 
 mon level, and are upon the average equivalent 
 
n^ 
 
 51 
 
 and equal. This is an error. Market price 
 must always include the customary rate of profit 
 for the time being, otherwise industry would be ^ 2 
 
 suspended ; but natural price, consisting of the 
 cost of production, or, in other words, of the 
 capital expended in raising or fabricating com- 
 modities, cannot include the rate of profit.' 
 Hence, market, instead of equalizing itself with 
 natural price, will exceed it by the customary 
 rate of profit. 
 
 Those writers, indeed, who contend for the 
 general equality of market and natural price, 
 include the customary rate of profit under the 
 term, natural price, or cost of production. But 
 this classification is highly unphilosophical and 
 incorrect, ^he profits of stock never make any 
 part of the expense of production ; they are, on 
 the contrary, a new creation, brought into ex- 
 istence in consequence of this expense. The 
 farmer, we wiU suppose, expends one hundred 
 quarters of corn in cultivating his fields, and 
 obtains in return one hundred and twenty quar- 
 ters. In this case, twenty quarters, being the 
 excess of produce above expenditure, constitute 
 
 
52 
 
 the farmer's profit ; but it would be absurd to call 
 this excess, or profit, a part of the expenditure. / 
 The expenditure, or cost of production, was one 
 hundred quarters. It has been now repaid, with 
 a surplus of twenty quarters; and unless the 
 surplus which remains after expenditure is re- 
 placed, be a part of the expenditure ; unless, in 
 fact, one hundred and twenty quarters be equal 
 to one hundred, it is impossible that market 
 price should be equivalent to natural. Supposing 
 that com is SL per quarter, then, in the case we 
 have stated, the natural price of the farmer's 
 produce, or the hundred quarters expended upon 
 production^ will be equivalent to 300/., while the 
 produce of one hundred and twenty quarters 
 obtained in return, will be equivalent to S60L 
 Thus, estimated in money, the natural price of 
 the farmer's produce is equal to 300/., while its 
 market price is 360/. The excess of market 
 above natural price, or cost of production, is 
 profit ; and to contend that this profit is included 
 in the cost of production, is the same thing as 
 contending that the hundred quarters, or 300/. 
 laid out in cultivation, are equal to the one hun- 
 
53 
 
 dred and twenty quarters, or 360/. thereby 
 obtained. 
 
 I In manufacturing, as well as in agricultural 
 industry, the profit of stock is distinct from the 
 cost of production. The master manufacturer 
 expends a certain quantity of raw material, of 
 tools and implements of trade, and of subsistence 
 for labour, and obtains in return a quantity of 
 finished work. This finished work must possess 
 9. higher exchangeable value than the materials, 
 tools, and subsistence, by the advance of which 
 it was obtained ; ! otherwise the master could 
 have no inducement to continue his business. 
 Manufacturing industry would cease, if the 
 value produced did not exceed the value ex- 
 pended. But it is the excess of value which the 
 finished work possesses above the value of the 
 material, implements, and subsistence expended, 
 that constitutes the master's profit'; and there- 
 fore, we cannot assert that the profit of his stock 
 is included in the cost of production, without 
 affirming the gross absurdity, that the excess of 
 value above the expenditure, constitutes a part 
 of expenditure. Supposing that the materials. 
 
54 
 
 tools, and subsistence, cost 300/. and that the 
 finished work is worth 360/., then the difference 
 will be the master's profit ; and we cannot main- 
 tain that the amount of profit is included in the 
 amount of expenditure, or cost of production, 
 without urging the contradiction, that 300/. are 
 equal to 360/. 
 
 The profit of stock, so far from forming any 
 part of the cost of production, is a surplus 
 remaining after this cost has been completely 
 replaced. In carrying on their business, the 
 farmer and manufacturer do not expend their 
 profit ;— -they create it. It forms no part of their 
 first advances ; on the contrary, it constitutes a 
 portion of their subsequent returns. It could 
 not have been employed in carrying on the work 
 of production, because, until this work was 
 completed, it had no existence. It is essentially 
 a surplus — a new creation — over and above all 
 that is necessary to replace the cost of produc- 
 tion, or, in other words, the capital advanced. 
 It is hoped that enough has been said, to con- 
 vince the reader of the nature of the error into 
 which those economists fall, who maintain that 
 
55 
 
 the profit of stock is included in the expense of 
 production, and that natural and market price 
 tend to an equality. Market price is that whicl^ 
 we give in order to obtain a commodity by ex- 
 change in the market ; natural price is that 
 which we give to effect a purchase at the great 
 warehouse of nature : it consists of the several 
 articles of capital employed in production, and 
 cannot by possibility include the surplus or 
 profit created during the process of production. 
 
 Things equal in natural price will also, upon 
 the average, be equal in market price. After 
 capitalists and labourers become distinct classes, 
 the natural price of things, or the cost of produc- 
 tion, consists of the capital employed in raising 
 or fabricating them ; and we have already seen 
 that articles on which equal capitals have been 
 expended, are of equal exchangeable value. But 
 when articles are of equal exchangeable value, 
 or have the same power of purchasing with 
 respect to commodities in general, they will have 
 the same power of purchasing with respect to 
 any particular commodity ; or will be of equal 
 market price. 
 
56 
 
 From what has been said respecting the na- 
 ture and foundation of exchangeable value, and 
 price, it follows, that they cannot admit of any 
 accurate standard. A standard, by a reference 
 to which we may ascertain the fluctuations in 
 the exchangeable power of other things, must 
 itself possess an exchangeable value fixed and 
 unalterable. But there is nothing in existence 
 which possesses such a quality. In the first 
 place, exchangeable value is determined by the 
 cost of production ; and there is no commodity 
 the cost of producing which is not liable to per- 
 petual fluctuation. In the second place, even if 
 a commodity could be found which always re- 
 quired the same expenditure for its production, 
 it would not therefore be of invariable exchange- 
 able value, so as to serve as a standard for mea- 
 suring the value of other things. Exchangeable 
 value is determined, not by the absolute, but by 
 the relative cost of production. If the (jost of 
 producing gold remained the same, while the 
 cost of producing all other things should be 
 doubled, then would gold have a less power of 
 jmrchasing all other tilings than before ; or, in 
 
57 
 
 other words, its exchangeable value would fall one 
 half; and this diminution in its exchangeable 
 value would be precisely the same in effect, as if 
 the cost of producing all other things remained 
 unaltered, while that of producing gold had been 
 reduced one half. In the very term, exchange- 
 able value, a relative, and not an absolute quan- 
 tity is implied. If gold should have a greater or 
 a less power of purchasing all other things, then 
 all other things would have a greater or a less 
 power of purchasing gold. It is impossible to 
 increase the exchangeable value of one set of com- 
 modities, without at the same time diminishing 
 the exchangeable power of the other set of com- 
 modities with which the first is compared. If one 
 half of the commodities of a country consisted 
 of raw produce, and the other half of wrought 
 goods; and if the one was equal in value to, 
 and annually exchanged against the other ; then, 
 if we were to double the exchangeable value of 
 the raw produce, one half of it would acquire 
 the power of purchasing the whole of the wrought 
 goods : but this rise in the exchangeable value 
 of the former would necessarily be accompanied 
 
58 
 
 by a corresponding fall in the exchangeable 
 value of the latter ; and it would require the 
 whole of the wrought goods to purchase the 
 half of the raw produce. To bestow upon any 
 article an invariable exchangeable value, and 
 thus qualify it to be a standard for measuring 
 the exchangeable value of other things, it would 
 be necessary that the cost of its production should 
 not only remain the same, but that it should at 
 all times bear the same proportion to the cost of 
 producing commodities in general. 
 
 Finding that no one of the products of labour 
 possessed an invariable exchangeable value, eco- 
 nomists have imagined that in labour itself they 
 have discovered the standard which they sought. 
 They have not, indeed, been very accurate in 
 explaining whether their standard consists in the 
 quantity of labour employed in producing com- 
 modities, or in the quantity of it which commo- 
 dities will purchase in the market ; but the am- 
 biguity of their language is of little importance, 
 since neither the one nor the other possesses the 
 qualities of a criterion of value. We have 
 already seen that the total quantity of labour 
 
59 
 
 expended on production is not the foundation of 
 value in exchange; and that commodities ob- 
 tained by equal quantities of labour, will seldom 
 or ever be equivalent in the market. But even 
 if the labour expended on production were the 
 foundation of exchangeable value, it by no means 
 follows, that it could be a standard for measur- 
 ing exchangeable value. Nothing can be an ac- 
 curate measure of value, except that which itself 
 possesses an invariable value. But the exchange- 
 able value of the labour expended on produc- 
 tion is so far from being invariable, that it 
 fluctuates with every change of time and place ; 
 and is liable to inequalities even at the same 
 time and place. This also holds good with 
 respect to the quantity of labour which commo- 
 dities will purchase in the market; and it is 
 quite in vain to urge, as Adam Smith has done, 
 that when a given quantity of labour will pur- 
 chase a greater or a less quantity of commodities 
 than usual, it is the commodities, and not the 
 labour, in which the variation in exchangeable 
 value takes place. By Smith's own shewing,; 
 exchangeable value is nothing more than the| 
 
60 
 
 I power of purchasing; and therefore, as labour 
 purchases a greater or less quantity of commodi- 
 \ ties in general, its exchangeable value is increased 
 I or diminished, and it becomes incapable of serv- 
 j ing as a standard for measuring the value of 
 I other things, 
 
 •Convinced that nothing actually in existence 
 can serve as a standard of exchangeable value, 
 economists have sometimes endeavoured to sub-^ 
 stitute an abstract or ideal one. In any given 
 state of the market, the several commodities 
 exposed for sale will bear a definite relation to 
 each other in exchangeable value ; as, for ex^ 
 ample, an ox may be worth four sheep, a sheep 
 two lambs, and a lamb worth two fowls. Unit, 
 therefore, may be taken as representing indifr 
 ferently the whole value of a fowl, half the value 
 of a lamb, a sixth of the value of a sheep, or the 
 twenty-fourth of the value of an ox ; and thus, 
 not standing for the value contained in any 
 particular article, but expressing the relation 
 between the values of things in general, may 
 serve as a standard for determining the varia- 
 tions in the worth of all. For example ; if an 
 
61 
 
 bit were brought to market, of such superiot 
 size and fatness, that it exchanged for eight 
 sheep, twenty-four lambs, and forty-eight fowls, 
 then its value would be expressed by forty-eight 
 units, instead of twenty-four. And if a supply 
 of fowls were to be brought in, so inferior, that 
 it required four to purchase a lamb, twelve to 
 purchase a sheep, and forty-eight to purchase 
 an ox ; then the value of each fowl would be 
 expressed by one half of the standard unit. 
 Thus the variations in the value of the parti^ 
 cular commodity from which the denomination 
 might have been originally derived, would not 
 be communicated to it ; but, on the contrary, 
 the denomination standing for determinate por- 
 tions of the value of all the commodities usually 
 brought to market, would continue to be the 
 general representative of these, and therefore 
 serve to mark the fluctuations even in that par- 
 ticular article from which it might have been 
 originally borrowed. This very subtle and inge- 
 nious theory I may perhaps consider more fully 
 on some future occasion. It is stated in this 
 place, for the purpose of shewing that no abstract 
 
62 
 
 denominatioiij or standard unit, as it is called, can 
 possibly serve as an invariable measure for ascer- 
 taining the fluctuations in exchangeable value. 
 An abstract denomination, or ideal unit, can- 
 not by possibility possess in itself any power of 
 purchasing) or value in exchange ; and therefore, 
 when it is employed to measure value, it must 
 be taken either as a particular sign representing 
 the value contained in some one commodity, as 
 in a given weight of silver; or, as a general 
 sign representing indifferently portions of value, 
 existing in the mass of commodities, as half the 
 value of a lamb, or a sixth of the value of a 
 sheep, or a twenty-fourth of the value of an ox. 
 But if the denomination, or unit, represent the 
 value of any individual commodity, its value will 
 necessarily fluctuate with that of the individual 
 commodity, and it will be unfit for a standard ; 
 and therefore the only question to be considered 
 is, whether it can acquire the character of an 
 invariable standard by representing some com- 
 ponent part of the values contained in commo- 
 dities in general. 
 
 Supposing, as before, that an ox is usually 
 
63 
 
 worth four sheep, or twelve lambs, or twenty- 
 four fowls; and that one unit represents the 
 value of a fowl, two that of a lamb, six that of a 
 sheep, and twenty-four that of an ox ; and then, 
 if the usual value of an ox were to be reduced 
 one half, the unit, retaining its former relation to 
 commodities in general, that is, continuing to 
 represent the value of one fowl, or half that of a 
 lamb, or a sixth of that of a sheep, would now 
 represent a twelfth instead of a twenty-fourth 
 of the value of an ox ; and would thus shew 
 correctly the degree in which the ox's exchange- 
 able value, or power of purchasing commodities 
 in general, had been diminished. But supposing 
 that both oxen and sheep lost half their usual 
 power of purchasing, as compared with lambs 
 and fowls ; and then the result would be mate- 
 rially different. For if the unit or denomina- 
 tion continued to represent the value of one 
 fowl, or of half a lamb, it would acquire twice 
 its former power of purchasing with respect to 
 sheep and oxen ; and if it continued to repre- 
 sent one-sixth of the value of a sheep, or one 
 twenty-fourth of that of an ox, it would lose 
 
64 
 
 half its former power of purchasing with respect 
 to fowls and lambs. The exchangeable value 
 of commodities is in a perpetual state of fluc- 
 tuation ; and when one portion of the com- 
 modities in any market rises or falls with respect 
 to the other, then the unit, or denomination, 
 which represented, not the value of any one 
 thing in particular, but certain portions of the 
 values of things in general, must retain its for- 
 mer relation either to the class of commodities 
 which has risen, or to the class which has fallen 
 in value. But if it retains its former relation to 
 the commodities which have a greater powef of 
 purchasing than before, its value rises ; and if it 
 retains this relation to the commodities which 
 have lost a portion of their power in exchange, 
 its value falls ; and in either case it is deprived 
 of the character of an uniform measure or 
 standard. 
 
 Thus we findi not only that there is no actual 
 and real standard, but that exchangeable value 
 being always relative, and an increase or dimi- 
 nution in the power of purchasing possessed by 
 one set of commodities, necessarily implying a 
 
 1 
 

 65 
 
 corresponding diminution of the same power in \ 
 some other quarter, we cannot^ without involving 
 ourselves in contradiction and absurdity, con 
 ceive the possibility of an abstract or ideal stand- I 
 ard. As every marketable commodity which f 
 exists, or which can be supposed to exist, is 
 perpetually varying in its power of effecting 
 purchases, it is as impossible to discover a mea- 
 sure or standard of exchangeable value, as it 
 would be to obtain a measure of length, or of 
 weight, if every thing in nature were undergoing 
 incessant changes in its dimensions and specific 
 gravity. Lord Lauderdale has justly observed, 
 in his work on Public Wealth, that the search 
 of economists after a measure of exchangeable 
 value, is joist as irrational and as hopeless as was 
 that of the alchemists in quest of the philoso- 
 pher's stone. All we can do is to ascertain the 
 circumstances which cause a given quantity of 
 one thing to be offered and received for a given 
 quantity of another^ 
 
66 
 
 CHAP. 11. 
 
 ON THE INSTRUMENTS OF PRODUCTION, AND 
 THE DIFFERENT KINDS OF INDUSTRY. 
 
 In the language of political economy, the ori- 
 ginal acquisition of wealth is called production ; 
 and those things by means of which this acquisi- 
 tion is made, are termed instruments of produc- 
 tion. Thus the land which supplies the primary 
 materials of wealth, the labour by which these 
 materials are appropriated, prepared, augmented, 
 or transferred, and the capital that aids these 
 several operations, are all instruments of pro* 
 duction. I shall briefly explain the peculiar 
 manner in which each contributes to the for- 
 mation of wealth. 
 
 When we contemplate the world which we 
 inhabit, we not only observe order and regu- 
 larity in the succession of events, but discover a 
 
67 
 
 system of adaptation and harmony, and see one 
 part of nature corresponding with, and answer- 
 ing to, another. The earth supplies, sponta- 
 neously, productions calculated to supply the 
 wants and gratify the desires of the sensitive 
 beings which dwell upon her surface. The sur- 
 rounding atmosphere, the depths of the waters, 
 the bowels of the earth, and, above all, the 
 exterior soil, abound with materials adapted to 
 our use. Hence, the air, the waters, and the 
 earth, and even the physical laws which deter- 
 mine their combinations^ may be considered as 
 the primary instruments in the formation of 
 wealth. To avoid unnecessary circumlocution, 
 however, the natural agents which constitute the 
 primary instruments of production are usually 
 included under the term, land ; because land is 
 the most important of the class, and because the 
 possession of it generally gives the command of 
 all the others*. Throughout the subsequent dis- 
 
 * The proprietors of the soil are also the proprietors of 
 the mines beneath its surface, and the right of fishing, even 
 upon banks situated in the open seas, is generally admitted 
 to belong to the possessors of the adjacent shores. 
 
68 
 
 quisitions, therefore, the term, land, will be 
 used in this extensive sense, as denoting all 
 the natural sources from which the materials 
 of wealth are originally derived ; and when the 
 territorial surface is alluded to as an instrument 
 of production, and is to be distinguished from 
 mines and fisheries, the term, soil, will be em- 
 ployed. 
 
 That land must always be a main instrument 
 in the formation of wealth, will appear abund- 
 antly evident from the consideration that man, 
 incapable of creating any thing, can do no mote 
 than appropriate, or in some Way modify, the 
 materials which nature has presented to his hand. 
 Wealth is matter, under a particular form. The 
 form we may give, but the creation of the mat- 
 ter is not only beyond our power, but above 
 our comprehension; and without the natural 
 agents, without land, or the things supplied by 
 land, it would be impossible to advance a single 
 step towards the acquisition of wealth. Land, 
 therefore, including under the term, mines and 
 fisheries, must always be regarded as the pri-. 
 mary instrument of production. 
 
69 
 
 The next great instrument of production is 
 labour. We have akeady shewn that wealth 
 consists in those useful things which it requires 
 some portion of voluntary exertion to obtain; 
 and that such productions of nature as air, heat, 
 and light, even though we should regard them 
 as constituting natural opulence, yet, as they 
 come not within the scope of that science which 
 has for its objects the laws and principles accord* 
 ing to which men acquire and distribute the 
 things which supply their wants and gratify 
 their desires, cannot be denominated wealth in 
 the sense in which that term is employed by the 
 political economist. With the economist, riches 
 are always more or less an artificial acquisition, 
 requiring for their formation that some portion 
 of human exertion should second the agency of 
 nature. From the essential character of wealth, 
 therefore, as defined in the preceding chapter, it 
 necessarily follows, that labour must always be 
 one of the instruments by which it is produced. 
 
 Capital, which has been already shewn to con^ 
 sist of those parts of wealth which are destined 
 not for the immediate supplying of our wants. 
 
ro 
 
 but for aiding in the acquisition of other articles 
 of utility, is always a powerful, and in most 
 cases an indispensable instrument of production. 
 The employing of capital seems peculiar to the 
 human species. Nature has furnished the seve- 
 ral tribes of inferior animals with instruments 
 by means of which they procure food, and per- 
 form whatever labour may be necessary to their 
 well-being : man she sends into the world naked 
 and unarmed ; but has compensated those defi- 
 ciencies by the gift of that reason, or that instinct, 
 which, even in his rudest state, suggests the use 
 of implements of toil, and weapons of offence. 
 It is a mistake to suppose that the employment 
 of capital is confined to advanced and cultivated 
 periods of society. The most uninstructed 
 savage avails himself of some rude instrument 
 to abridge his labour, or to perform that which 
 the unaided human arm would be incapable of 
 performing. In the first stone which he flings at 
 the wild animal he pursues, in the first stick that 
 he seizes to strike down the fruit which hangs 
 ^bove his reach, we see the appropriation of one 
 article for the purpose of aiding in the acquisi- 
 
71 
 
 tion of another, and thus discover the origin of 
 capital. As society advances, the employment 
 of this instrument of production, the origin of 
 which may be traced to the earliest and rudest 
 periods, is pushed to an astonishing extent, and 
 improvements are perpetually taking place in 
 all kinds of implements and machinery, until, in 
 the application of wind, water, and steam, in our 
 mechanical operations, we press the powers of 
 nature into our service, and, in the literal sense 
 of the terms, " arm us with the force of all the 
 " elements." 
 
 The employment of the several instruments 
 of production, or of land, labour, and capital, for 
 the procuring of wealth, is denominated indus- 
 try. In the strictness of economical language, 
 therefore, there is a distinction between the im- 
 port of the terms, production, and industry : the 
 former signifying the formation of wealth ; and 
 the latter the means employed in order to effect 
 such formation. It would be contradictory jind 
 absurd to say, unproductive production ; but no 
 impropriety is involved in the expression unpro- 
 
72 
 
 ductive industry. When a farmer does not 
 obtain from his fields so great a quantity of pro^ 
 duce as he expended on their cultivation ; his 
 industry is obviously unproductive ; that is, the 
 means he employed to effect the formation of 
 wealth or production have faded, and the pro^ 
 jected increase in the quantity of useful articles 
 has not taken place. 
 
 As land, labour, and capital, may be employed 
 in a great variety of ways, industry, or the 
 application of these instruments of production to 
 the formation of wealth, must be of many diffe- 
 rent kinds. All the different kinds of industry 
 may, however, be classed under four general 
 heads; namely, appropriative industry, or that 
 which is applied to the mere collecting or appror 
 priation of the things which nature spontaneously 
 supplies ; manufacturing industry, or that which 
 is exerted for the purpose of adapting the pro- 
 ductions of nature to our use; agricultural 
 industry, or that which is directed to second the 
 operations of nature, so as to increase the quan- 
 iity of her useful productions ; and commercial 
 
73 
 
 industry, or that which is employed to transport 
 and to exchange the articles of wealth acquired 
 by the three former means. 
 
 Some political economists class all the diffe- 
 rent kinds of industry under three general heads 
 only; comprising under the term, agriculture, 
 every application of the instruments of produc-^ 
 tion which has for its object the attaining of 
 raw material, whether it be the spontaneous 
 gift of nature, or the result of cultivation. This 
 classification seems evidently erroneous. In the 
 first place, it appears to be a very violent, as 
 well as a very unnecessary departure from esta^ 
 blished usage, to give the name of agriculture 
 to the occupations carried on by the huntsman 
 in the North American forests, and by the 
 fisherman upon the banks of Newfoundland. 
 In the next place, appropriating the productions 
 of the earth is the first, and augmenting their 
 quantity the last, attainment of human industry ; 
 and, it is evident that the order of nature, when 
 there is no good reason for departing from it, 
 should be conformed to in our aiTangements, 
 
u 
 
 But, in the present case, no good reason can be 
 assigned. Applying the instruments of pro- 
 duction to appropriate the spontaneous gifts of 
 nature, is a species of industry generically diffe- 
 rent from that which augments their quantity 
 by cultivating the soil; and, as will subsequently 
 appear, there are several facts of the highest 
 importance in economical science which may be 
 predicated of the former, but which cannot be 
 predicated of the latter. 
 
 From these considerations I have been induced 
 to arrange the several kinds of industry under 
 four general heads, which I shall now proceed 
 to consider in the order in which they have been 
 ^numerated. 
 
rs 
 
 CHAP. III. 
 
 APPROPRIATIVE INDUSTRY. 
 
 The spontaneous productions of nature distri- 
 bute themselves into two great classes — the 
 one consisting of things, such as air and day- 
 light, which it requires no voluntary effort to 
 obtain; the other comprising articles, such as 
 the flesh of wild animals, which cannot be pro- 
 cured without some portion of exertion. Now, 
 from the simple classification of these different 
 kinds of natural productions, it is self-evident, 
 that the latter are the only objects to the appro- 
 priation of which the instruments of production 
 can be applied. If a man were thrown naked 
 and destitute upon an uninhabited shore, as his 
 eye opened, the light would enter ; as his chest 
 expanded, the air would rush in : but these invo- 
 luntary movements could not be considered as 
 
re 
 
 exertions of industry. When, however, he ap- 
 proached a tree and gathered its fruits, or 
 removed the earth in quest of nutricious roots, 
 the application of his labour to appropriate these 
 things would be an act of industry; and the 
 things themselves would be the products of 
 industry, and would consequently acquire the 
 character of wealth. 
 
 The appropriation of spontaneous productions 
 must obviously have been the first species of 
 industry exercised by man. It is the origin and 
 foundation of all the others. Nothing can be 
 prepared for consumption, or applied in any way 
 to minister to our wants, until it has been pre^ 
 viously drawn from the original warehouse of 
 nature. Manufactures, agriculture, and com- 
 merce, never could have existed, if we had not 
 previously appropriated the materials and im^ 
 plements by which they are respectively car^ 
 ried on. 
 
 In appropriating the spontaneous productions 
 of nature, the labour of man could not, for some 
 little time at least, have received any aid from 
 the employment of capital. To refer to our 
 
n 
 
 former illustration, a person cast naked upon an 
 uninhabited coast, must appropriate the articles 
 which may serve as capital before he can use 
 them. Whatever his previously acquired skill 
 in the application of capital might be, his first 
 efforts, upon being thrown into this new situa- 
 tion, must necessarily be performed by the labour 
 of his unaided arm. Now, if this must be the 
 case even with a person previously acquainted 
 with the use of capital, it must be still more 
 emphaticall^f so with respect to uninstructed 
 savages at the origin of society. Appetite and 
 instinct would in the first instance prompt them 
 to employ the immediate and most direct means 
 of supplying their wants ; and they would seiz:e 
 the fruit within their reach, and spring upon 
 inferior prey, before they provided implements 
 with which to draw down the loftier branches, 
 or overcome the larger animals. 
 
 But though the labour of the naked hand 
 must necessarily have preceded the employment 
 of capital, yet the latter could not fail to have 
 been very early suggested. Even in the most 
 savage countries, man has never yet been found 
 
78 
 
 in a state of such perfect ignorance as to he 
 unacquainted with the use of capital. The 
 wretched native of New Holland has his spear^ 
 his fish-gig, and his canoe, for the purpose of 
 abridging his labour, — of performing operations 
 of which he would be otherwise incapable, and 
 appropriating productions of nature, which, but 
 for the aid of those rude implements, would for 
 ever have remained beyond his reach. 
 
 The application of the instruments of produc- 
 tion for the purpose of appropriating the spon- 
 taneous gifts of nature, constitutes the principal^ 
 and, with a few exceptions to be hereafter men- 
 tioned, the only species of industry exercised in 
 the rude and early period of society which 
 is denominated the hunting or savage state. 
 This species of industry, however, continues to 
 be carried on throughout all the subsequent 
 stages of improvement and civilization, though 
 in advanced periods it furnishes a comparatively 
 trifling proportion of our wealth. The chase^ 
 instead of being, as in the savage state, a prin- 
 cipal source of subsistence, is almost exclusively 
 resorted to as a means of amusement and recrea- 
 
79 
 
 tion ; and the application of labour and capital 
 to the appropriation of nature's spontaneous 
 gifts (the branch of industry by which man was 
 originally supplied with the whole of his posses- 
 sions) is principally directed to the occupations 
 of fishing and of mining. These are, no doubt, 
 of considerable importance. The former enlarges 
 the means of subsistence; and the latter, in sup- 
 plying us with the metals, and particularly with 
 iron, furnishes the most powerful instruments 
 for future production. 
 
 The productiveness of appropriative industry, 
 or, in other words, the quantity of the sponta- 
 neous gifts of nature which in any community 
 can be rendered serviceable to man, will be deter- 
 mined by three several circumstances ; namely, 
 the fertility of the land (including under the 
 term mines and fisheries), the quantity of labour 
 employed, and the degree in which this labour 
 is aided by capital* Of these three circum- 
 stances, the fertility of the land, or abundance 
 of spontaneous gifts, may frequently be found 
 the least important. The productions of nature 
 possess no utility for man until he has rendered 
 
80 
 
 them his own. The iingathered fruits of the 
 earth, and the beasts of the chase roaming at 
 large in the forest, constitute no portion of 
 wealth. The circumstance of nature's having 
 abundantly bestowed the materials for supplying 
 our wants would have been of no consequence 
 whatever, unless we had possessed the skill to 
 apply our labour to the appropriation of her 
 gifts. Nor, in appropriating spontaneous pro- 
 ductions, is the quantity of labour so important, 
 as the degree in which it is aided by capital. 
 Without this instrument of production our sup- 
 ply of spontaneous produce would be miserably 
 deficient; and however lavishly nature might 
 spread abroad her gifts, and with whatever 
 energy and perseverance we might labour to 
 appropriate them, the fruits of the forest, with a 
 few of the more helpless animals which inhabit 
 it, would constitute our only wealth. It is by 
 the employment of capital alone that man is 
 enabled to subdue the earth. Ten men, abund^ 
 antly supplied with capital, and skilful in the 
 use of it, would be able to appropriate a greater 
 quantity of fish, and of useful mineral produc- 
 
81 
 
 tions, than could be appropriated by ten thou- 
 sand whose only instrument of production was 
 the labour of their hands. Indeed, without the 
 aid of capital, the tenants of the deep, and the 
 treasures of the mine, would remain for ever 
 inaccessible to man. But, on the contrary, when 
 capital accumulates, and improvements are ef- 
 fected in the various implements and machines 
 in which it mainly consists, the effective powers 
 of appropriative industry may go on perpetually 
 increasing until the bounty of nature fails, and 
 forests, fisheries, and mines, begin to be ex- 
 hausted. 
 
 In. stating the effect which improvements in 
 implements and machines have in heightening 
 the powers of appropriative industry, we neces- 
 sarily imply that the instruments of production 
 have been previously directed, not only to appro- 
 priate the materials of which such machines and 
 implements are composed, but also to form and 
 construct them. This naturally conducts us to the 
 consideration of manufacturing industry, while 
 it shews us how invariably one branch of indus- 
 try is connected with, and runs into another. It 
 
 G 
 
82 
 
 seems strange that a fact so obvious and so 
 important should not have been more attended 
 to by the economists, and have guarded them 
 against the vain and subtle paradoxes by which 
 they attempted to shew, that one application of 
 labour and capital is productive, while other 
 applications of them are unproductive of wealth. 
 In the great work of production, the exertion of 
 each branch of industry heightens the powers of 
 all. This important principle will be developed 
 more at large hereafter. At present we must 
 proceed to that application of the instruments of 
 production which prepares raw material for 
 our use. 
 
83 
 
 CHAP. IV. 
 
 MANUFACTURING INDUSTRY. 
 
 Some of the spontaneous productions of nature, 
 such as fruits and the flesh of certain animals, 
 may be used the instant they are appropriated ; 
 while others, such as flax and iron, require con- 
 siderable preparation before they can supply our 
 wants or gratify our desires. Now, the industry 
 which fits this latter class of productions for 
 consumption, is evidently a source of wealth. 
 Out of materials which would otherwise possess 
 no utility, it forms articles useful and desirable 
 to man; and the definition of wealth is, that it 
 consists of such articles so obtained. 
 
 The industry which prepares, is necessarily ill' 
 the order of time secondary to that which appro- 
 priates the gifts of nature. But though man must 
 originally have lived by merely availing himsetf 
 
84 
 
 of nature's spontaneous gifts ; yet the very first, 
 or at most, the very second step towards know- 
 ledge and improvement must have led him to 
 the attempt of superadding to these gifts some 
 rude species of preparation. As no society of 
 men has ever been discovered in so low a state 
 of barbarism as to be unable in some degree to 
 aid their labour by the employment of capital, 
 so none has ever been found in which the spon- 
 taneous gifts of nature did not receive some 
 species of preparation. After the savage had 
 become accustomed to seize sticks and stones to 
 aid him in the chase, it could not fail to suggest 
 itself to him, that the sharp edge of his stone 
 might serve to remove the skin from his prey, 
 or to point the stick with which he armed him- 
 self. Thus capital would be employed not only 
 to appropriate, but also to prepare the produc- 
 tions of nature ; and thus we see that the origin 
 of manufacturing industry, though not exactly 
 contemporary with, must yet have been imme- 
 diately subsequent to, appropriative industry. 
 
 Though manufacturing industry is secondary 
 to appropriative, with respect to the order of 
 
85 
 
 time, yet it is by no means so with respect to 
 its importance as a source of wealth. Almost 
 the whole of the productions of nature are pre- 
 sented to us in a raw or rude state ; and if it 
 were not for the application of labour and capi- 
 tal to the preparing and forming of them, would 
 be absolutely without utility. Without manu- 
 facturing or adaptive industry, therefore, our 
 wealth would be necessarily limited to that 
 scanty supply of necessaries which nature pre- 
 sents in a state fit for immediate consumption. 
 Man would be reduced to a more destitute and 
 helpless state than that in which he has ever 
 yet been found, even in the most barbarous and 
 savage countries. He would possess no species 
 of clothing whatever ; his only shelter from the 
 rigours of the climate would be the hollows of 
 trees, and the caverns of the earth ; and his only 
 food would be fruits, roots, and the flesh of such 
 of the smaller animals as he might, in his naked 
 and helpless state, be able to outrun and over- 
 come. Indeed, with respect to the supply of 
 his wants, he would be placed far below the 
 condition of the inferior animals ; for these are 
 
86 
 
 clothed by the hand of nature, and are fur- 
 ?iished with implements of admirable construc- 
 tion for the performance of every function 
 necessary for their well being. 
 
 Another consideration calculated to impress 
 lus with the great importance of manufacturing 
 industry is, that without its co-operation, no 
 other branch of industry can be effectually car- 
 ried on. To fell the forest, to pierce the mine, 
 and to traverse the waters, we must have the 
 aid of appropriate implements and machines; 
 and these can be supplied only by manufactur- 
 ing industry. This application of the instru- 
 ments of production not only gives utility to 
 articles which could not otherwise possess it, but 
 also furnishes us with the power of appropriat- 
 ing useful materials which, without its co-opera- 
 tion, would be for ever inaccessible. If we would 
 form a just estimate of the importance of manu- 
 facturing industry, we must not confine our 
 view to its direct and simple operation of pre- 
 paring rude produce for immediate consumption, 
 but must also take into consideration its com- 
 plex and secondary operation in supplying the 
 
87 I 
 
 implements of trade to all the other l^ranches of 
 industry. We have already seen that the ma- 
 nufacturer not only prepares, but also co-operates 
 in appropriating, the spontaneous productions of 
 nature ; and in the two subsequent chapters we 
 shall perceive in what manner he assists in cul- 
 tivating the earth, and navigating the waters. 
 
 In the preceding chapter, we saw that the 
 operation of appropriating spontaneous produc- 
 tions might, in some imperfect manner, and to 
 a very limited extent, be carried on without the 
 aid of capital. This could not be the case with 
 respect to manufactures. The idea of manufac- 
 turing industry implies that there is material to 
 be wrought upon. Now, this material, without 
 which it is impossible that manufacturing indus- 
 try can operate, is capital, or wealth destined, 
 not for the immediate supply of our wants, but 
 for the reproduction of wealth under another 
 form. 
 
 Thus the very subject on which manufactur- 
 ing industry operates, is one of the component 
 parts of manufacturing capital. Farther, as it 
 is necessary that a man should have food to 
 
I 88 
 
 support him while at work, the subsistence which 
 enables the manufacturer to prepare the raw 
 material may be considered as destined for the 
 reproduction of other wealth, and therefore, as 
 constituting another portion of manufacturing 
 capital. Nor can this be deemed in any way a 
 fgrced and unwarrantable extension of the mean- 
 ing of the term, capital, w hen we consider that 
 in the great majority of cases the capitalist is a 
 distinct person from the labourer, and advances 
 him his subsistence, no less than the raw mate- 
 rial, for the express purpose of obtaining a repro- 
 ductive return ; or, in other words, of having it 
 reproduced to him under another form. All the 
 tools and machinery which the workman em- 
 ploys in preparing rude produce, are obviously 
 portions of capital, whether advanced by the 
 capitalist or not. Indeed, the workman, if these 
 things are his own property, is, in strictness of 
 language, to that extent a capitalist. Manufac- 
 turing capital, therefore, consists of three distinct 
 portions ; material, subsistence, and implements ; 
 including under the term all kinds of tools and 
 machinery employed in working up materials. 
 
89 
 
 The effective powers of manufacturing indus- 
 try depend much more upon the skilful use of 
 capital, than on the quantity of direct labour 
 which may be employed. The hand of man is not 
 armed with any efficient natural instrument, such 
 as the beak of the bird, or the claw of the quad- 
 ruped, for operating directly upon the materials 
 presented to him ; but it is admirably adapted 
 for seizing and applying artificial implements, 
 and for employing the powers of one substance 
 to produce the desired changes in another. 
 Hence almost all the grand results of manufac- 
 turing industry are brought about by means of 
 capital. Throughout the world there are no 
 very striking inequalities in the muscular force 
 by which direct labour is performed ; and it is 
 mainly owing to the differences in the quan- 
 tity of capital, and in the skill with which it is 
 applied, that in one country man is found naked 
 and destitute, and that in another all the rude 
 productions of the earth, and all the forces of 
 nature, are made to contribute to his comfort, 
 and to augment his power. 
 
 During the pw)gress of improvement, and 
 
90 
 
 while capital continues to accumulate, and the 
 number of labourers to increase, no limits can be 
 assigned to the powers of manufacturing industry. 
 The quantity of wrought goods which it required 
 a hundred men to prepare in a rude, may be 
 wrought by ten men in an advanced period of 
 society. This arises from a two-fold cause. In 
 the first place, as men acquire experience and 
 knowledge they are perpetually inventing im- 
 proved machinery for the abridgment of labour; 
 and, in the second place, as capital accumulates, 
 the work to be done is divided and subdivided, 
 until each individual acquires in his peculiar 
 branch of the business a dexterity and skill unat- 
 tainable in those small establishments where 
 several operations must be performed by the 
 same hand. The first cause which we have 
 assigned for the progressive increase in the 
 powers of manufacturing industry is sufficiently 
 obvious, and requires no farther illustration :— 
 the latter will come again under discussion when 
 we treat of mercantile industry, and of the divi- 
 sions of employment to which it gives occasion. 
 After the view of the subject which has been 
 
91 
 
 here presented, it must excite considerable sur- 
 prise that manufacturing industry should ever 
 have been represented as barren and unproduc- 
 tive, and incapable of effecting any addition to 
 wealth. Yet this was one of the leading doc- 
 trines of the sect of philosophers in France, 
 commonly knbwn by the name of " the Econo- 
 " mists." Their pretended demonstrations were 
 founded on the supposition that manufacturers 
 consume while at work a quantity of subsistence 
 equal in value to the value which they add to 
 the raw material. But this supposition, even if 
 it had been conformable to fact, could not have 
 estabhshed the doctrines of the Economists. 
 Value is not wealth. Though it should be 
 granted that the manufacturer consumed while 
 at work, a value equal to that which he added 
 to his material, yet it would by no means follow, 
 that he made no addition to the mass of useful 
 commodities. Though the exchangeable value 
 of a plough should not exceed that of the mate- 
 rials and subsistence consumed in its fabrication, 
 yet the industry which gave existence to this 
 powerful instrument of reproduction would be a 
 
92 
 
 most important source of wealth. But the effect 
 of manufactures in heightening the powers of 
 agricultural industry falls more naturally within 
 the scope of the succeeding chapter. At present 
 we shall confine ourselves to the examination of 
 the hypothesis, that the manufacturer does no 
 more than add to the raw material the value of 
 the subsistence which he consumes while at 
 work. 
 
 The manner, and according to the different 
 stages of improvement, the degree, in which 
 manufacturing industry adds to the value of 
 the material supplied by the other branches of 
 industry, have not, as far as I recollect, been 
 attended to by any preceding writer. This 
 deficiency we shall now endeavour to supply; 
 and the topics to be discussed will be found both 
 novel and important. A right understanding 
 of the principle which determines the difference 
 between the value of produce when in a raw, 
 and when in a manufactured state, is useful not 
 only as a means of overthrowing the pretended 
 demonstrations of the French Economists, but as 
 furnishing the only satisfactory solution to some 
 
93 
 
 very nice and momentous questions with respect 
 both to the production and the distribution of 
 wealth. 
 
 From the perpetually operating law of com- 
 petition, the results obtained by the employment 
 of equal capitals will be of equal exchangeable 
 value. Let us suppose, for the sake of illustra- 
 tion, that no rent being as yet paid for the use 
 of land, a farmer's capital consists of food for 
 three hundred labourers, together with seed and 
 other things necessary to cultivation, equal in 
 value to food for three hundred more ; and that 
 his produce is food for six hundred, with six 
 thousand pounds of flax, which, being raised at 
 the same expense, is equal in value to subsist- 
 ence for six hundred ; and let us suppose farther, 
 that a manufacturer's capital consists of food for 
 three hundred, with three thousand pounds of 
 flax, equal in value to food for three hundred 
 more, and that his product is this quantity of 
 flax converted into linen cloth. In this case, 
 the farmer and manufacturer will have expended 
 equal capitals, and therefore their respective 
 products will be of equal exchangeable value; 
 
94 
 
 that is, three thousand pounds of manufactured 
 flax, the product of the manufacturer's capital, 
 will be equivalent to food for six hundred, with 
 six thousand pounds of raw flax, the product of 
 the farmer's equal capital. But the linen cloth 
 which is thus of equal value with a quantity of 
 agricultural produce, consisting of six thousand 
 pounds of unwrought flax, with food for six 
 hundred labourers, was produced from three 
 thousand pounds of flax, with food for three 
 hundred ; and consequently, while the power of 
 production continues at this high rate, manufac- 
 turing industry will double the value of raw 
 produce, including food, and the material uport 
 which it is employed. ' 
 
 Let us now vary our supposition. — Let us 
 assume that the productive powers of agriculture 
 are so far reduced, that the farmer's capital, con- 
 sisting, as before, of food for three hundred 
 labourers, with other things necessary to culti- 
 vation, equal in value to food for three hundred, 
 is capable of raising no more than food for four 
 hundred and fifty, with four thousand five hun- 
 dred pounds of flax, equal in value to food for 
 
95 
 
 four hundred and fifty ; while, in consequence 
 of the powers of manufacturing industry remain- 
 ing unaltered, food for three hundred labourers 
 continues to be sufficient for the working up of 
 three thousand pounds of flax. In this case, the 
 wrought goods, as compared with agricultural 
 produce, would fall in exchangeable power, and 
 manufacturing industry, instead of doubling, 
 would add only one half, or fifty per cent, to the 
 value of the food and the material on which it 
 was employed. The linen cloth produced by a 
 capital consisting of food for three hundred, with 
 three thousand pounds of flax, would be equiva- 
 lent to the agricultural produce raised by a 
 similar capital. But a similar capital employed 
 in agriculture raises, by our supposition, food for 
 four hundred and fifty, with four thousand five 
 hundred pounds of raw flax ; and consequently 
 the linen cloth manufactured from three thousand 
 pounds of flax, with food for three hundred, 
 would be equivalent to four thousand five hun- 
 dred pounds of flax, together with food for 
 four hundred and fifty. 
 
 In proportion as it requires a greater quantity 
 
96 
 
 of capital to raise the same quantity of agricul- 
 tural produce, the exchangeable value of this 
 produce will rise; or, in other words, the ex- 
 changeable value of wrought goods, as compared 
 with produce, will fall. And even if the effec- 
 tive powers of appropriative and agricultural 
 industry were to sustain no diminution, still, in 
 the progress of wealth and population, the 
 exchangeable value of wrought goods, as com- 
 pared with raw produce, would gradually fall. 
 As capital accumulates, and as labourers multi- 
 ply, improvements take place in the application 
 of machinery, and in the divisions of employ- 
 ment, and enable a smaller number of hands to 
 work up the same quantity of material. Sup- 
 posing that in the progress of wealth one hundred 
 and fifty labourers can work up the three thou- 
 sand pounds of flax, originally wrought up by 
 three hundred; then, though the expense of 
 raising agricultural produce had in no way 
 increased, the exchangeable value of the manu- 
 factured article would fall in relation to the 
 material form in which it was prepared. We 
 have just seen, that when an expenditure of 
 
97 
 
 food for three hundred, with other things equi- 
 valent thereto, raised food for six hundred, with 
 six thousand pounds of flax, equal in value to 
 food for six hundred ; then the expending in 
 manufacturing industry three thousand pounds 
 of flax (equivalent, by the supposition, to food 
 for three hundred), with food for three hundred 
 persons, employed in working up this material, 
 would give a quantity of linen equivalent to six 
 thousand pounds of flax, with food for six 
 hundred. But as food for six hundred is, by 
 the supposition, worth six thousand pounds of 
 raw flax, the wrought article, which is worth 
 food for six hundred, with six thousand pounds 
 of raw flax, will be equivalent to twelve thou- 
 sand pounds of raw flax. When, however, this 
 three thousand pounds of flax can be wrought 
 up by one hundred and fifty, the linen obtained 
 from it can be no longer worth so great a quan- 
 tity of material. In working up the three 
 thousand pounds of flax, food for one hundred 
 and fifty, instead of for three hundred, is ex- 
 pended ; and as food constituted a moiety of 
 the capital employed, diminishing it one half, 
 
 H 
 
98 
 
 reduces the whole capital one fourth; and conse- 
 quently the value of the linen cloth will fall one 
 fourth, with respect to every article of which 
 the cost of production remains unabated. But, 
 by the supposition, the cost of obtaining fttw 
 material remains as before, and therefore three 
 thousand pounds of flax, in a manufactured 
 state, which formerly was worth twelve thousand 
 pounds of raw flax, will now be worth no more 
 than nine hundred pounds. 
 
 Though every improvement in manufacturing 
 industry, which enables material to be wrought 
 up with the expenditure of a less quantity of 
 subsistence, must, in this manner, reduce the 
 exchangeable value of manufactured goods, as 
 compared with the fruits of the soil ; yet we 
 must not conclude that the additional exchange- 
 able value which material acquires in the hands 
 of the manufacturer, arises solely from the 
 amount of subsistence which he consumes while 
 at work. Supposing that machinery could be 
 obtained for nothing, and were of such extreme 
 excellence, that without labour, or expenditure 
 for the maintenance of labour, it wrought up 
 
99 
 
 raw material in a period just ^qual to that irl 
 Which such material could be gfowii ; yet stilly 
 even in this last conceivable degree of manufactur- 
 ing improvement^ the manufactured article would 
 acquire a higher eixchangeable value than that 
 possessed by the material from which it had 
 been prepared. The results of equal capitals 
 are equivalent. If an agricultural capital worth 
 three hundred pounds of flax, could^ in any given 
 time, raise six huiidred poiindsj theii three hun- 
 dred pounds of flax, wrought tip in the same 
 space of time, by a machine which required no 
 labour, and which cost nothing, would be tvorth 
 six hundred pounds of raw flax. But if no such 
 machine could be obtained, and if the material 
 t<]fuld not be prepared without the expenditure 
 of a quantity of subsistence equivalent to itself^ 
 theii the three hundred pounds of flax, iii a 
 wrought state, being the product of a double 
 manufacturing capital, would be equal in value 
 to the product of a double agricultural capital; 
 tfcat is, supposing ^he poWers of agricultural 
 industry to remain as before, would be worth 
 
 cM/i 
 
100 
 
 one thousand two hundred pounds, instead of 
 six hundred pounds of flax in a raw state. 
 
 These illustrations, it is hoped, are sufficient to 
 shew in what manner, and, under different cir- 
 cumstances, in what degree, wrought goods 
 acquire a higher value than the material from 
 which they were obtained. The exchangeable 
 value of commodities is in proportion to the 
 quantity of capital requisite to bring them to 
 market. Manufacturing capital consists in mate- 
 rial, machinery, and subsistence; and any im- 
 provement in manufacturing skill which reduces 
 the cost of machinery, or diminishes the num- 
 ber of workmen to whom subsistence must be 
 advanced, lowers the difference between the 
 amount of the capitals which raise, and which 
 fabricate materials ; and consequently brings 
 the exchangeable value of wrought goods nearer 
 to that of the materials from which they were 
 made. But material must always enter into 
 manufacturing capital, and must likewise always 
 exceed in exchangeable value the agricultural 
 capital which raised it; otherwise cultivation 
 
101 
 
 would cease. If, however, material always 
 exceed in exchangeable value, the agricultural 
 capital which produced it, the manufacturing 
 capital into which the material enters must also 
 exceed this agricultural capital in exchangeable 
 value ; and thus the wrought article, being the 
 product of the larger capital, must, even could 
 the expense of workmen be reduced to nothing, 
 possess a larger exchangeable value than that 
 which it possessed under the form of raw material. 
 The improvements in manufacturing industry 
 which, by enabling a smaller number of hands 
 to perform the same quantity of work, cause a 
 less expenditure of subsistence, in fabricating 
 the raw material, will lower the exchangeable 
 value of the several kinds of wrought goods in 
 very different proportions. Supposing that im- 
 provements in manufacturing skill enable fifty 
 hands to do the work formerly effected by one 
 hundred ; then, in those branches of business in 
 which the subsistence paid to labourers Jiad con- 
 stituted half the capital employed, wrought goods 
 would fall one fourth; — in those branches in 
 which subsistence may form two thirds of the 
 
102 
 
 whole capital, they wpuld fall one third ; — and 
 in those in which it formed one third, they 
 would fall one sixth, as compared with r^w 
 produce. These proportions would, indeed, be 
 liable to somp mpdific^tions, if, while the im^ 
 provements took place in manufactures, any 
 alteration took place in the amount of capital 
 lijeqessary to bring raw produce to market ; and, 
 in ikct, it is always found, that increasing 
 wealth and population, while they diminish the 
 expense of working up material, have a ten^ 
 dency to augment the cost of raising it ; so that 
 in the progress of society, the value of wrought 
 goods, as coynpai^ed with agricultural produce, is 
 diminished by a two-fold cause. But to explain 
 the effect which increasing wealth and popula- 
 tions have on the cost pf raising agricultural 
 produce, belongs \o the succeeding chapter, 
 
103 
 
 CHAP. V. 
 
 AGRICULTURAL INDUSTRY, 
 
 ▼Ve give the term, agriculture, br agricultural 
 industry, to those applications of the instruments 
 of production, the object of which is to augment 
 or to improve the useful products of the soil.. 
 The denomination includes pasturage, as well as 
 tillage ; — embraces the operations which mul- 
 tiply the articles of utility derived from the 
 animal, no less than those which multiply the 
 articles of utility derived from the vegetable 
 kingdom. 
 
 One of the earliest observations which could 
 have forced itself upon the mind of the unin- 
 structed savage, must have been, that the flesh 
 of the animals he hunted down became in a 
 little time unfit for use. The knowledge of this 
 fact, when he chanced to overtake a young or 
 
104 
 
 wounded animal, which was not required for his 
 immediate sustenance, would naturally suggest 
 the expediency of preserving it alive, in order to 
 render it subservient to the supplying of his 
 future wants. The animals thus preserved, par- 
 ticularly if they were of the less ferocious tribes, 
 would gradually become reconciled to the hand 
 which fed them, and be domesticated with man ; 
 while, protected from beasts of prey, and, as their 
 food began to fail in one part of the forest, con- 
 ducted to regions which afforded a fresh supply, 
 their numbers would increase more rapidly than 
 if they had continued wild and unsubjugated. 
 Thus, in consequence of the transition from the 
 occupations of the hunter to those of the shep- 
 herd, and of raising domestic animals instead of 
 pursuing wild ones, the supply of subsistence 
 would be rendered more abundant, and less 
 precarious, and an important accession of wealth 
 would be obtained. 
 
 Again ; — man could not have looked with any 
 considerable degree of attention upon the events 
 which were taking place around him, without 
 observing, that when shed upon the soil, the 
 
105 
 
 seeds of the vegetable tribes do not perish 
 there, but spring up in their season, and yield a 
 perennial supply of food, either for himself or 
 for some of the inferior animals. Now, when 
 this observation had become familiar, and when 
 the peculiar situations in which the most useful 
 plants were seen to flourish, had been distin- 
 guished, some savage, more intelligent than the 
 rest of his tribe, would be led by a short and 
 obvious train of thought, to imitate the process 
 which he saw nature perpetually performing, 
 and to deposit her seeds in the earth, for the 
 purpose of obtaining a future increase. Here, 
 then, we discover the origin of tillage. Man, in 
 the course of that progressive improvement, the 
 capacity for which seems to form the most 
 remarkable feature of his character, first begins 
 to domesticate and breed up the inferior ani- 
 mals for his use ; and then to multiply those 
 vegetable productions which are in any way 
 calculated to supply his wants or gratify his 
 desires. 
 
 Upon the vast importance of agriculture as a 
 source of wealth, it is unnecessary to enlarge. 
 
106 
 
 Indeed, when we compjire the quantity of food 
 and of useful materials which is obtained from a 
 given surface in Engl9,nd or in France, with 
 that which is procured from the same extent of 
 surface in those naturally fertile districts of 
 An^erica which continue to be inhabited by 
 nations of hunters, the effective powers of agri- 
 cultural industry appear almost miraculous ; and 
 our surprise will somewhat abate that, in the 
 infancy of economical science, philosophers should 
 have been arrested in their inquiries by the 
 striking phenomena which it exhibits, and should 
 have concluded that the only productive labour 
 is that which is employed upon the soil. 
 
 Though it is hoped that, in the preceding 
 chapter, where we treated of appropriative and 
 manufacturing industry, sufficient may have been 
 said to overthrow the agricultural theory of the 
 French Economists, and to shew that their 
 principal conclusion rests on a narrow and par-r 
 tial induction from the phenomena attending 
 the formation of wealth ; yet, as their opinions 
 still find occasional supporters, and have been 
 asserted by the French translator of the Wealth 
 
107 
 
 of Nations, to be demonstratively true, it may be 
 proper to trace the precise limits of agricultural 
 industry, and to shew in what circumstances 
 wealth may be created without its aid. 
 
 It is obvious that long before we learn the art 
 of applying our labour so as to augment the pro- 
 ductions of nature, \}ie industry which appro- 
 priates and prepares her spontaneous gifts may 
 furnish us with articles adapted to supply our 
 wants. Let us suppose the existence of a coun- 
 try circumstanced in some respects like the 
 islands in the Pacific Ocean, and in which the 
 forests should consist of the bread fruit, the 
 waters should abound with fish, and the flax 
 plant grow wild as in New Zealand. Now, is 
 it not evident that in this country the industry 
 employed to appropriate and prepare the mate- 
 rials presented by nature, might supply all our 
 wp,nts, and gratify many of our desires ? Food, 
 clothing, habitation, furniture, nay, many of the 
 embellishments and luxuries of life, might exist 
 in very considerable abundance, though both 
 pasturage and tillage were wholly unknown. 
 
 Nor would the doctrine of the French Econo- 
 
108 
 
 mists be tenable, though the term, agriculture, 
 should, after the example of M. Say and others, 
 be made to denote not only pasturage and til- 
 lage, but every application of labour by Avhich 
 food and material can be obtained. Even when 
 we employ the term in this extended, and, as I 
 conceive, erroneous sense, it is not true that agri- 
 culture is the only source of wealth. For, in 
 the first place, were it not for manufacturing 
 industry, almost the whole of the raw material 
 which the other applications of labour procure, 
 would be without utility, and consequently could 
 not constitute any portion of our wealth. The 
 greater part of the productions of nature, whe- 
 ther spontaneous or otherwise, are, in the first 
 instance, presented in a state unfit for consump- 
 tion. It is not agricultural industry, even in 
 the most extended application of that term, 
 which bestows the form and character of wealth 
 on such things as timber, flax, and the several 
 metallic ores. Without the industry which fits 
 these articles for use, the industry which origi- 
 nally draws them from the great warehouse of 
 nature would be totally barren and unproductive. 
 
109 
 
 It is true, that there can be no wealth without 
 the industry which appropriates food and mate- 
 rials; but it is also true, that without the 
 industry which adapts materials to our use, 
 there can be no wealth beyond that scanty sup- 
 ply of fruits, herbs, and animals, which nature 
 presents in a state fit for immediate consump- 
 tion. 
 
 In the second place, even though we should 
 admit that raw produce exclusively constitutes 
 wealth, yet it would by no means follow that 
 agricultural industry should be exclusively pro- 
 ductive of it; and for the plain and obvious 
 reason, that agricultural industry, even in the 
 most extended sense in which that term has 
 ever been used, is not the exclusive means by 
 which such produce is procured. The labour of 
 the manufacturer who fabricates the plough, is 
 as efficacious in producing corn, as the labour of 
 the husbandman by whom the plough is guided. 
 There is scarcely a single article of wealth, in the 
 production of which several different branches 
 of industry have not concurred. We saw,in 
 the last chapter, that without the aid of the 
 
110 
 
 manufacturer who prepares implements and ma- 
 chinery^ all the spontaneous productions of 
 naturcj except fruits^ roots, and a few of the 
 more helpless animals, would have remained for' 
 ever beyond our reach ; and it is equally evident, 
 that without the aid of the instruments of pro- 
 duction furnished by manufacturing industry, no 
 progress could ever have been made in clearing 
 and cultivating the soil, and thereby multiply- 
 ing its useful productions. Much of the error 
 involved in the agricultural theory of the French 
 Economists had its origin in their indulging in 
 arbitrary abstractions, and in their failing to 
 remember, that though the several kinds of 
 industry may be separated in our classifications 
 and reasonings, they must be united in the busi- 
 ness of production. Even upon the principles 
 of the Economists themselves, improvements Irt 
 manufactures augment the wealth of a nation ; 
 because, as we shall see in the subsequent para- 
 graphs, they enable a given quantity of labour 
 to extract a greater quantity of produce from 
 the soil. 
 
 In the last chapter we perceived, that there 
 
Hi 
 
 are no natural limits set to the effective powers 
 of manufacturing industry ; but that, on the con- 
 trary, an increase in the quantity of labour and 
 capital applied, leads to the use of improved 
 machinery, and to a more perfect subdivision of 
 employment, and thus enables a given number 
 of workmen to produce a greater quantity of 
 goods. Now it is important to remark, that th^ 
 reverse of this takes place with respect to agri- 
 cultural industry ; and that upon every increased 
 quantity of labour and capital applied to the 
 soil, we obtain a less proportional return. This 
 singular and important fact it will be necessary 
 to illustrate. 
 
 It is self-evident that^ as we extend cultiva- 
 tion over inferior soils, the application of any 
 given quantity of labour and capital will yield a 
 less and less quantity of produce. If a hundred 
 workmen, with a proportional supply of seed 
 and of instruments of husbandry, can raise four 
 hundred quarters of wheat from a given quan- 
 tity of land of the first quality, it is obvious that 
 the same quantity of labour and capital applied 
 to equal portions of land of second, third, and 
 
112 
 
 fourth rate quality, could not raise four hundred 
 quarters of this grain, but would produce some 
 smaller and successively diminishing quantity 
 of it; say three hundred and fifty, three hun- 
 dred, and two hundred and fifty quarters. It is 
 also evident, that as successive applications of 
 given portions of labour and capital to inferior 
 soils yield a successively decreasing produce, the 
 ultimate limits of cultivation must be at length 
 attained. Supposing that our hundred labourers 
 consumed one hundred quarters of wheat while 
 working upon the soil, and that it required one 
 hundred quarters more to supply them with 
 seed, and to subsist them while they prepared 
 their clothes and agricultural implements ; then, 
 on the cultivation of a piece of ground sufficient 
 to occupy one hundred labourers, a capital con- 
 sisting of two hundred quarters of corn must be 
 expended; and if the soil is of so inferior a 
 quality as to be incapable of yielding two hun- 
 dred quarters, it is impossible that this ground 
 should continue to be tilled. The cultivators, 
 not having their seed and subsistence replaced 
 
 to them, must remove to a more fertile district, 
 
 1 
 
113 
 
 or perish of want. Nor could any possible rise 
 in the price of agricultural produce prevent this 
 result, and keep under tillage districts incapable 
 of replacing the seed and subsistence expended. 
 For it is only that portion of the agricultural 
 produce which exceeds the seed and subsistence 
 required in cultivation, that cati be brought to 
 market; and when there is no excess of this 
 nature, then the farmer can derive no advantage 
 from elevated prices. 
 
 That which takes place with respect to the 
 successive cultivation of inferior soils, will be 
 found to take place also with respect to the suc- 
 cessive applications of additional labour and 
 capital to superior soils. If one hundred labourers, 
 with a proportional capital, consisting of seed, 
 subsistence, and implements, can raise from a 
 given extent of ground of first-rate quality a 
 supply of subsistence and materials for four 
 hundred persons ; then, doubling the labour and 
 capital employed upon this piece of ground would 
 not lead to a doubling of the produce ; and two 
 hundred workmen with the proportional supply 
 of subsistence, seed and implements, could not 
 
 1 
 
lit 
 
 raise from it subsistence for eight hundred. On 
 the contrary, instead of the quantity of produce 
 being increased in the same ratio with the labour 
 and capital, and of two hundred workmen being 
 able to raise subsistence for eight hundred, three 
 hundred for one thousand two hundred, and four 
 hundred for one thousand six hundred; the 
 ratio in which the produce of this given extent 
 of soil could be increased, would diminish inversely 
 with each additional quantity of labour and capi- 
 tal employed : and while one hundred labourers 
 raised subsistence for four hundred, two hun- 
 dred might be able to raise subsistence for no 
 more than seven hundred ; three hundred only 
 for nine hundred; and four hundred only for 
 one thousand. While in this manner each suc- 
 cessive addition to the labour employed, effected, 
 a less proportional addition to the produce 
 raised, we should speedily arrive at the point 
 beyond which any farther application of labour 
 could not add to the produce already extracted 
 a sufficient quantity of subsistence for the work- 
 men by whom it should be performed. Here 
 it is evident that improvement must be arrested. 
 
115 
 
 If I expend five hundred quarters of wheat in 
 cultivating a farm of any given extent, and if I 
 obtain a produce of six hundred quarters of 
 wheat, then my profit will be twenty per cent. ; 
 but if I employ six hundred quarters instead 
 of five hundred, and in consequence raise 
 six hundred and ninety, where I before raised 
 six hundred, then it is self-evident, that the 
 ninety quarters added to my produce, will be 
 less than the additional capital expended in 
 obtaining them ; and that I must speedily aban- 
 don such forced and ruinous improvements. No 
 possible rise in the price of corn could render 
 them beneficial. For, unless the quantity of 
 subsistence which is raised, exceeds the quantity 
 which is expended in raising it, there is no 
 surplus to bring to market, and no price is 
 available. 
 
 The principle, that each additional application 
 of labour and capital to the improvement of land, 
 effects a diminished proportional increase, is 
 supported by the direct evidence of facts. When 
 small capitals are laid out upon the soil, and cul- 
 tivation is conducted in an unexpensive manner. 
 
116 
 
 the land proprietor, without trenching upon the 
 farmer's reasonable profits, often receives half 
 the produce as his rent : but when large capitals 
 are invested in the soil, and the system of high 
 farming is pursued, the proprietor, in order to 
 leave the cultivator a reasonable return upon the 
 stock which he employs, must be satisfied to 
 receive as his rent, a third, a fourth, or even a 
 fifth part of the produce. This demonstrates 
 that each additional quantity of produce is raised 
 at an increased expense. For, if one hundred 
 labourers raised from a given surface four lum- 
 dred quarters of wheat, and two hundred of 
 these replaced with a reasonable profit the capi- 
 tal which the farmer expended in setting them 
 to work, then the remaining two hundred quar- 
 ters, or half the produce, might go to rent ; and, 
 if two hundred labourers could raise eight hun- 
 dred quarters ; or, in other words, if a double 
 expenditure occasioned a double produce, then, 
 as four hundred quarters would afford the farmer 
 the same return on the capital which employed 
 two hundred labourers, as two hundred quarters 
 had afforded him on the capital which put one 
 
iir 
 
 hundred labourers in motion, the other four 
 hundred quarters would be disposable; or, in 
 other words, one half of the produce of the farm 
 might still be appropriated as rent. It is only 
 because the farmer cannot increase the quantity 
 of produce in the same ratio in which he in- 
 creases the quantity of work done upon the farm, 
 that the proprietor receives a less proportion 
 of produce as his rent. Where one hundred 
 labourers raised four hundred quarters of wheat, 
 there two hundred labourers could not raise 
 eight hundred quarters, but would raise some 
 less quantity, say seven hundred. Now, the half 
 of seven hundred quarters could not be taken 
 as rent, because it requires four hundred to 
 replace with a reasonable return the capital 
 which the farmer expended in putting two hun- 
 dred labourers to work; and, therefore, only 
 three hundred, or less than the half of the pro- 
 duce, remains as the land proprietor's proportion. 
 In the progress of improvement, the proprietor 
 receives a constantly diminishing proportion of 
 the whole produce, because the whole produce 
 
118 
 
 bears a constantly diminishing proportion to the 
 capital which raises it. 
 
 Again ; it is self-evident, that the productive 
 powers of agricultural industry must diminish in 
 proportion as soils of an inferior quality are 
 resorted to. Now, the very fact that in the 
 progress of society, lands are resorted to which 
 yield a diminishing proportional return upon the 
 capital employed on them, is a demonstration 
 that land even of the first quality, also yields a 
 diminishing proportional return upon additional 
 portions of capital employed to heighten its cul- 
 tivation. For, if additional portions of labour 
 and capital could be bestowed on fertile lands 
 with the same advantages which attended the 
 first portions so bestowed, then it is plain that 
 inferior soils never would be taken in. If, on the 
 fertile districts of a country, one hundred la- 
 bourers could raise subsistence for two hundred, 
 two hundred for four hundred, and so on, there 
 never could exist a necessity for resorting to 
 inferior soils, from which the labour of one hun- 
 dred could extract subsistence only for one hun- 
 
119 
 
 dred and fifty. But as we apply additional 
 portions of labour to the fertile districts of a 
 country, its productive powers gradually dimi- 
 nish; and though the first hundred men em- 
 ployed upon a given surface may raise subsistence 
 for two hundred, yet the second hundred em- 
 ployed on it will be able to raise subsistence for 
 some smaller number only; say one hundred 
 and fifty. In this case, the second class of 
 labourers will have a powerful motive to with- 
 draw themselves from bestowing heightened 
 cultivation on the districts of superior quality, 
 and to spread over tracts on which they may be 
 able to raise subsistence for one hundred and 
 seventy, or even for one hundred and sixty. Thus, 
 we see, that when an additional capital laid out 
 on the superior soils, would yield a less return 
 than the same capital laid out upon soil in the 
 next degree inferior, then, and not till then, can 
 there be a motive for taking that next degree of 
 soil into cultivation. Capital ever seeking its 
 most beneficial occupation, and thereby con- 
 stantly tending to a certain level, will so distri- 
 bute itself upon the soil, that the last portion of 
 
120 
 
 it employed upon the best lands, will yield an 
 equal rate of return with the first portions of it 
 employed on the worst lands under tillage, 
 When, in consequence of the next quality of 
 land being too inferior to replace the seed and 
 subsistence which might l)e expended upon it, 
 tillage cannot be extended oyer a wider field; 
 then, additional capitals laid out upon the lands 
 under cultivation will not occasion an additional 
 produce equal to the additional expenditure; 
 and it will be found ruinous to carry what is 
 called high farming any farther. When we can 
 no longer take in our inferior lands, we can no 
 longer improve those of better quality. At the 
 same timejti^at we arrive at the ultimate limits 
 of extended, we also arrive at the ultimate 
 limits of heightened cultivation. 
 
 The principles, that each successive portion 
 of capital which is employed either to bring in 
 inferior soils, or to ameliorate those of a better 
 quality, effects a less proportional addition to 
 the produce than that which was effected by the 
 capital previously applied ; and that, in the pro- 
 gress of improvement we are constantly approach^ 
 
121 
 
 ing the ultimate limits, beyond which cultivation 
 can be neither extended nor heightened, lead to . 
 some of the most important conclusions in the 
 science of political economy. We have already 
 seen how intimately and inseparably one branch 
 of industry is connected with another. In manu- 
 factures, each additional portion of labour and 
 capital which is employed, produces not merely 
 an equal, but a greater proportional effect than 
 that which was previously applied ; and where 
 one hundred workmen can fabricate one thou^ 
 sand yards of cloth, there two hundred workmen, 
 from being able to establish among themselves 
 more perfect subdivisions of employment, will be 
 able to fabricate, not merely two thousand yards, 
 but some greater quantity; say two thousand 
 five hundred yards. But though manufacturing 
 industry has not in itself any natural limits, yet 
 it is affected by those which nature has assigned 
 to agricultui^e ; and its advancement must neces^ 
 sarily be arrested when cultivation can be pushed 
 no farther. Though additional portions of capi- 
 tal might still be capable of producing a higher 
 proportional effect than those previously applied ; 
 
122 
 
 yet, as the productive powers of agriculture 
 . became stationary, it would be impossible that 
 such additional portions should be attained. 
 Manufacturing capital consists of subsistence, 
 materials, and instruments for abridging labour ; 
 and as these implements were formed by labour 
 employed upon other materials, and supported 
 by other subsistence, into subsistence and mate- 
 rial all manufacturing capital ultimately resolves 
 itself. Now, in a country that has advanced be- 
 yond the hunting or savage state, the greater part 
 of material, and almost the whole of subsistence, is 
 extracted from the soil. Hence, when no addi- 
 tional capital can be applied to the soil, no 
 additional capital can be obtained for manufac- 
 tures ; and where the progress of agricultural 
 industry is arrested, there the progress of manu- 
 facturing industry must be arrested also. 
 
 From the principles above stated, respecting 
 the application of capital to land, it necessarily 
 follows, that every improvement in agricultural 
 science removes to a greater distance the point 
 at which the spread of tillage and the ameliora- 
 tion of the soil must cease. Every thing which 
 
123 
 
 can with propriety be termed an improvement 
 in agriculture, enables a given quantity of labour 
 to raise a greater quantity of produce ; or, what 
 comes to the same thing, allows a given quantity 
 of produce to be obtained by a less quantity 
 of labour. Let us, for the sake of illustration, 
 suppose, that upon a given tract of soil, four sets 
 of labourers, consisting of one hundred each, 
 have been successively employed ; and that the 
 first hundred raised subsistence for four hundred, 
 the second for three hundred, the third for two 
 hundred, and the fourth for one hundred. Let 
 us suppose farther, that the cultivator, besides 
 the subsistence advanced to the four hundred 
 labourers, expends in seed and implements sub- 
 sistence for four hundred more ; and then the 
 whole expenditure upon the soil will be sub- 
 sistence for eight hundred, while the produce 
 will be subsistence for one thousand; or, in 
 other words, will replace the capital which 
 raised it, with a profit of twenty-five per cent. 
 Now, in this case, cultivation will have been 
 pushed too far ; and the employment of the last 
 hundred labourers, who merely replace their 
 
124 
 
 subsistence, without doing any thing to return 
 the other portions of capital which contributed 
 to set them at work, occasions a positive and 
 unnecessary loss. If the farmer had not em- 
 ployed them, it is true that his produce would 
 have been only subsistence for nine hundred ; 
 but then he would have saved their subsist- 
 ence, and seed, and wear and tear equal 
 to their subsistence ; so that his expenditure 
 would have been less by subsistence for two 
 hundred. In consequence of employing the 
 last set of labourers, he expends subsistence 
 for eight hundred, and obtains a produce of 
 subsistence for one thousand; while, by dismissing 
 them, he might reduce his expenditure to sub- 
 sistence for six hundred, and obtained a produce 
 consisting of subsistence for nine hundred ; that 
 is, might increase his surplus or profit from sub- 
 sistence for two hundred, to subsistence for three 
 hundred. The last set of labourers, therefore, 
 would inevitably be dismissed. 
 
 Now, let improvements be effected in agricul- 
 ture, — let a better quality of seed and of manure 
 be discovered, — let machinery for enabling the 
 
125 
 
 same number of labourers to execute a greater 
 quantity of work be invented ; and let the 
 result be, that on our given extent of territory, 
 the first hundred labourers will raise subsistence 
 for five hundred, the second for four hundred 
 and fifty, the third for four hundred, and the 
 fourth for three hundred. In this case, then, 
 the fourth and last set of labourers would raise 
 for the farmer a produce consisting of subsistence 
 for three hundred, while the expenditure by 
 which it was obtained would be equal to sub- 
 sistence for only two hundred. The profit, 
 therefore, which the farmer would obtain by 
 employing the last set of labourers would, in 
 consequence of the improvements in agriculture, 
 be fifty per cent. So far from cultivation being 
 pushed beyond its proper limits, additional labour 
 might be beneficially employed upon the soil ; 
 for if a fifth set, consisting of one hundred, could, 
 while they expended their subsistence, and other 
 capital equivalent to their subsistence, increase 
 the produce of our given surface, hy subsistence 
 for two hundred and fifty, the farmer, even on 
 
126 
 
 this last portion of his capital, would obtain a 
 surplus of twenty-five per cent. 
 
 The result will be precisely the same, if we 
 consider the improvements in agriculture, as 
 allowing the same quantity of produce to be 
 raised by a less quantity of labour and capital. 
 If four hundred labourers, with an expenditure 
 of subsistence for eight hundred, can, on our 
 given surface, raise a produce equal to subsist- 
 ence for one thousand; while three hundred, 
 with an expenditure of subsistence for six hun- 
 dred, can raise a produce equal to subsistence 
 for nine hundred ; then it is evident, that by 
 forcing a produce equal to subsistence for one 
 thousand, the farmer diminishes his net surplus 
 one third, and that he will consequently discon- 
 tinue to cultivate so highly. Now, let improve- 
 ments take place in agricultural industry, and, 
 in consequence of these improvements, let three 
 hundred workmen, with an expenditure of sub- 
 sistence for six hundred, be enabled to perform the 
 same quantity of work which four hundred, with 
 an expenditure of subsistence for eight hundred. 
 
127 
 
 were formerly capable of performing : then this 
 same quantity of work may be performed with- 
 out pushing cultivation too far; and subsistence 
 for one thousand may be extracted from our 
 soil, without occasioning any diminution in the 
 farmer's surplus produce. On the contrary, 
 when three hundred labourers, with a propor- 
 tionate capital, raised subsistence for nine hun- 
 dred, the surplus was subsistence for three 
 hundred: but now, when these three hundred 
 labourers can do the work of four hundred, and 
 extract subsistence for one thousand, the same 
 expenditure creates a greater produce, and the 
 Surplus is subsistence for four hundred, instead 
 of for three hundred. 
 
 It is unnecessary to go through the details of 
 illustrative cases, in order to shew that those 
 improvements in the application of agricultural 
 labour, which allow cultivation to be carried to 
 a greater height, also allow it to be extended 
 over a wider surface. If four hundred labourers, 
 with a proportionate capital of subsistence 
 for eight hundred, could, from any given 
 district, raise a produce consisting of sub- 
 
128 
 
 sistence for seven hundred, then it is evident 
 that the expenditure would exceed the return, 
 and that this district could not be profitably 
 cultivated. But if improvements took place in 
 agriculture, enabling three hundred labourers to 
 perform the same quantity of work which the 
 four hundred formerly performed, and to raise 
 from this district a produce consisting of sub- 
 sistence for seven hundred, then it is self-evident, 
 that it might be cultivated with a profit. The 
 expenditure would be subsistence for six hun- 
 dred, and the produce subsistence for seven 
 hundred ; leaving a surplus of subsistence for 
 one hundred, as the farmer's remuneration. 
 
 Improvements in agricultural science^ as 
 throwing to a greater distance the point be- 
 yond which cultivation can be neither height- 
 ened nor extended, necessarily remove to a 
 greater distance the point beyond which manu- 
 facturing capital can be no farther accumulated. 
 Manufacturing capital, as we have already 
 seen, is resolvable into food and material ; and, 
 in advanced stages of society, these, with the 
 exception of fish and minerals, are almost exclu- 
 
129 
 
 sively derived from the soil. Now let us sup- 
 pose, that on a tract of given extent, five distinct 
 sets of labourers are successively employed ; 
 and that besides replacing the food and mate- 
 rial which they consume while at work. 
 
 The first hundred creates a surplus pro- 
 duce of food and material for . . 100 
 
 2nd ditto for 80 
 
 3rd ditto for ....... . 60 
 
 4th ditto for . . 40 
 
 5th ditto for 20 
 
 300 , 
 
 it being farther supposed, that this last surplus 
 upon the employment of one hundred labourers, 
 is the lowest for which the farmer will risk his 
 capital in cultivation. In this case, the sum of 
 the five different surpluses will amount to sub- 
 sistence and material for three hundred labourers ; 
 and, therefore, this given district, besides sub- 
 sisting the five hundred agricultural labourers 
 employed on it, will furnish the means of em- 
 ploying three hundred manufacturers. 
 
 Now, let us suppose that an improvement 
 K 
 
mo 
 
 takes place in agricultural science ; and that in 
 consequence, when five sets of labourers, con- 
 sisting of one hundred each, are successively 
 efiiployed upon our given surface, the surplus 
 created by the 
 
 1st hundred, is food and material for 120 
 
 2nd ditto for 100 
 
 3rd ditto for 80 
 
 4th ditto for 60 
 
 5th ditto for 40 
 
 400 
 
 The sum of these several surpluses being food 
 and material for four hundred, our given surface, 
 besides subsisting the five hundred agricultural 
 labourers employed on it, would furnish the 
 itieans of occupation for four hundred, instead 
 of three hundred manufacturing labourers. But 
 this would not be all. By the supposition, food 
 and material for twenty is a sufficient surplus td 
 induee the farmer to employ one hundred 
 labourers ; and each hundred successively turned 
 upon the soil, creates the same surplus which, 
 bdbrfe the improvement in agriculture, the 
 
131 
 
 immediately preceding hundred was capable 
 of creating. Consequently, a sixth set of 
 labourers, consisting of one hundred, may now 
 be employed upon our given surface ; and these, 
 besides replacing their subsistence, will raise 
 food and material for twenty. In consequence 
 of the improvement in agriculture, six hundred 
 agricultural labourers may be employed, instead 
 of five hundred ; and the six different surpluses, 
 amounting to food and material for four hundred 
 and twenty, will furnish the means of employ- 
 ing four hundred and twenty manufacturing 
 labourers. 
 
 But yet again. The improvement in agri- 
 culture which allows one hundred additional 
 labourers to be employed upon our given surface, 
 will also allow cultivation to be extended over 
 tracts which could not before be profitably tilled. 
 All those pieces of ground which formerly could 
 just replace the subsistence of the first hundred 
 labourers who might have been employed on 
 them, but which were left waste because unable 
 to yield a surplus, we now suppose to be each 
 capable of replacing the subsistence of the first 
 
132 
 
 hundred employed on them, with the adequate 
 surplus of food and material for twenty. These 
 pieces of ground will consequently be sought for 
 the purposes of tillage. Let five of them be 
 situated on the same estate with the given sur- 
 face before under tillage, and they will give em- 
 ployment to five hundred additional agricultural 
 labourers ; and will yield five different surpluses, 
 amounting to food and material for one hundred; 
 and consequently furnishing the means of em- 
 ploying one himdred additional manufacturing 
 labourers. This estate, therefore, consisting of 
 the given surface before under tillage, and of 
 the five pieces of ground before lying waste; and 
 which originally furnished employment only for 
 five hundred agricultural, and three hundred 
 manufacturing labourers; will now, in conse- 
 quence of an improved mode of culture, occa- 
 sioning an increased surplus of twenty per cent, 
 upon all capital vested in the soil, allow of the 
 employment of one thousand one hundred agri- 
 cultural, and five hundred and twenty manufac- 
 turing labourers. This is a most important 
 result. The improvement in agriculture, adding 
 
1.53 
 
 twenty per cent, to the surplus created upon 
 capital invested in the soil, would, in consequence 
 of allowing old land to be more highly culti- 
 vated, and new land to be brought under tillage, 
 admit a doubling of the wealth and population 
 of our district. ' ; *' . 
 
 I have before remai'ked that in the work 
 of production, the different kinds of industry 
 unite, and reciprocally augment each other's 
 effective powers. As improvements in agricul- 
 ture increase the quantity of capital which can 
 be employed in manufactures ; so improvements 
 in manufactures remove to a greater distance 
 the ultimate limits of agricultural prosperity, 
 and admit of additional applications of capital 
 to the soil. This important principle I shall 
 endeavour to place in as clear and convincing a 
 point of view as possible. 
 
 If, with the same set of labourers, a capitalist 
 were at one and the same time to cultivate the 
 soil and to manufacture its produce, the manner 
 in which improvements in manufacturing indus- 
 try contribute to the extension of tillage, would 
 be apparent. For, it is obvious that such im- 
 
134 
 
 provements would have precisely the same effect 
 as the adoption of a superior course of husbandry 
 in enabling the capitalist to obtain a remunerat- 
 ing surplus from soils which, before the improve- 
 ments, could not be profitably tilled. If one 
 hundred labourers were employed upon an 
 estate, and if fifty raised food and material for 
 one hundred and twenty-five, while the remain- 
 ing fifty prepared implements and wrought 
 necessaries for one hundred and twenty-five; 
 then the capitalist, who advanced food and mate- 
 rial, implements and wrought necessaries, for 
 the one hundred, would obtain all these things 
 for one hundred and twenty-five ; that is, would 
 gain twenty-five per cent, which we assume to 
 be the customary rate of profit. Now, let the 
 powers of manufacturing industry be so im- 
 proved, that forty are able to prepare implements 
 and wrought necessaries for one hundred and 
 fifty ; while the effective powers of agricultural 
 industry continuing exactly as before, the re- 
 maining sixty labourers raise food and material 
 for one hundred and fifty : and then the capi- 
 talist who advances food and material, impl^ 
 
135 
 
 ments and wrought necessaries, to the one 
 hundred agricultural and manufacturing la- 
 bourers upon our estate, will, in consequence of 
 the improvement in manufacturing industry, 
 obtain a surplus return of fifty, instead of twenty- 
 five per cent. Now, it is evident that all the 
 inferior tracts belonging to this estate, upon 
 which the labour of fifty was unable to raise 
 fiDod and material for one hundred and twenty- 
 five, could not, before the improvement in manu- 
 factures, be brought under cultivation ; because 
 the customary rate of profit is taken at twenty- 
 five per cent., and this rate cannot be obtained 
 except when, with a capital of wrought neces- 
 saries and implements, food and material for the 
 fifty manufacturing, and fifty agricultural labour- 
 ers, a return of wrought necessaries and imple- 
 ments, food and material for one hundred and 
 twenty-five, shall be produced. But as soon as 
 the improvement in manufactures enables forty 
 to prepare wrought necessaries and implements 
 for one hundred and fifty; or thirty-four to 
 prepare them for one hundred and twenty-five ; 
 then, tracts of land so inferior as to require the 
 
136 
 
 labour of sixty-six, instead of that of fifty, to 
 raise food and material for one hundred and 
 twenty-five, might be brought into cultivation : 
 because the capitalist, who advanced food and 
 material, clothes and implements, for thirty-four 
 manufacturing, and sixty-six agricultural la- 
 bourers, would obtain all these things for one 
 hundred and twenty-five ; that is, would obtain 
 twenty-five per cent, the customary rate of 
 profit. 
 
 When industry is divided into separate and 
 distinct operations, and one capitalist cultivates 
 the soil, while another works up its produce, the 
 effects of improvements in manufactures are 
 precisely analogous to those above detailed. The 
 products of equivalent capitals are of equal value. 
 When the manufacturer, on advancing food and 
 material, clothing and implements for fifty, ob- 
 tains wrought necessaries and implements for 
 one hundred and twenty-five ; then the farmer, 
 who cultivates a soil upon which an advance of 
 food and materials, wrought necessaries and im- 
 plements for fifty, yields a return of food and 
 material for one hundred and twenty-five, will be 
 
137 
 
 able to purchase the wrought necessaries and im- 
 plements for fifty, with food and material for fifty: 
 and hence, as his whole expenditure will be 
 equivalent to no more than food and material 
 for one hundred, while his produce is food and 
 material for one hundred and twenty-five, he 
 gains twenty-five per cent, the customary rate 
 of profit. But when, in consequence of the 
 introduction of machinery, a capital of food and 
 material for thirty-three and one third, will pro- 
 duce a return of wrought necessaries and imple- 
 ments for one hundred and twenty-five ; then the 
 farmer who cultivates an inferior soil, on which it 
 requires a capital, of food and material, clothing 
 and implements for sixty-six and two thirds, to 
 raise food and material for one hundred and 
 twenty-five, will gain the customary profit of 
 twenty five per cent.: because, food, &c. for 
 sixty-six and two thirds, (the capital which 
 raises food and material for one hundred and 
 twenty-five,) being twice the amount of food, &c. 
 for thirty-three and one third, (the capital which 
 prepares clothes and implements,) the farmer will 
 be able to purchase clothes and implements for 
 
138 
 
 his sixty-six and two thirds labourers, with food 
 and material for thirty-three and one third; 
 and thus, his whole expenditure in employing 
 sixty-six and two thirds labourers, being food 
 and material for one hundred, and his produce, 
 food and material for one hundred and twenty-r 
 five, he will obtain the customary rate of return 
 from tracts very far inferior to those which^ 
 before the improvement in manufactures, could 
 be profitably tilled. 
 
 Thus, then, it is demonstrable, that every 
 improvement in manufacturing industry which 
 enables necessaries and implements to be fabric 
 cated with less labour and expense, extends 
 cultivation over inferior tracts, and adds to the 
 quantity of the surplus produce which supports 
 and gives employment to artisans and manu- 
 facturers. 
 
 The highly important consequences which 
 result from improvements in agricultural science 
 will, it is hoped, prove a sufficient apology for 
 carrying the reader through these long illustra- 
 tive details. The principles evolved enable us 
 to trace with accuracy the effects of contrivances 
 
139 
 
 for abridging agricultural labour ; and to give a 
 satisfactory solution to the often agitated ques^ 
 tion, whether large farms are hurtful or benefi- 
 cial ? Contrivances, such as threshing machines, 
 for the abridging of labour, though to a hasty 
 observer they may seem calculated to diminish 
 the demand for workmen, have in reality a 
 directly contrary operation. They allow addi- 
 tional portions of capital to be applied to all old 
 lands ; they drive the plough over new districts 
 which could not otherwise be tilled ; and, while 
 they thus by a double operation enlarge the 
 sphere of agricultural exertion, they increase the 
 surplus produce of the soil, and thus furnish the 
 means of employing an increased manufacturing 
 population. 
 
 With respect to the advantage or disadvantage 
 of large farms, the question is somewhat more 
 complicated, and may require a brief illustration. 
 Let the estate of a nobleman be divided into 
 ten small farms, each cultivated by the labour 
 of the farmer and his family; and let one of 
 these farmers find, that if he were to conduct 
 a lai'ge concern, he could, in consequence of 
 
140 
 
 employing improved machinery, and of otherwise 
 abridging and economising labour, perform the 
 same quantity of work with a less number of hands, 
 and therefore bring a larger proportional surplus 
 produce to market, and afford to pay a higher 
 proportional rent, than while he continued on his 
 small farm. On the expiration of leases, the noble- 
 man, tempted by the offer of a higher rent, lets 
 the whole estate to this single farmer ; and conse- 
 quently the other nine farmers, with their fami- 
 lies, sink to the condition of agricultural labourers 
 upon the estate. So far the effect is injurious. 
 But, on the other hand, the employment of more 
 efficacious machinery, and the more economical 
 application of labour, which are found admissible 
 into large concerns, and which enable the great 
 farmer to tempt the proprietor with the offer of 
 a higher rent, would also enable him, with a 
 given expenditure, to raise a greater produce 
 than before. This, as we have already seen, 
 would allow old fields to receive a higher dress- 
 ing, and new fields, which before lay waste, to 
 be brought into cultivation ; would cause a 
 larger quantity of surplus produce to be brought 
 
141 
 
 to market, and consequently furnish the means 
 of employing a larger number of manufacturing 
 labourers. Let the surplus produce of this estate 
 have been formerly food and material for ten, 
 and let it now be food and material for fifteen, 
 manufacturing families. The case will then 
 stand thus : — the evil of throwing the whole estate 
 into one large farm will consist of the loss of com- 
 fort sustained by the nine families who have 
 sunk from the state of small farmers to that of 
 day labourers ; while the benefits resulting from 
 the change will consist of the additional comfort 
 enjoyed by the family which obtain the large 
 farm, the additional enjoyments of the proprietor 
 who receives a higher rent, and the whole enjoy- 
 ments of the five additional manufacturing fami- 
 lies, to which the increased surplus produce of 
 the estate furnishes the means of existence. It 
 is impossible, therefore, to doubt, that throwing 
 the estate into one large farm produced a great 
 balance of good. Leaving the increased comforts 
 of the proprietor and large farmer quite out of 
 the question, we have fourteen families subsisted 
 instead of nine ; and it may even happen that 
 
142 
 
 these fifteen are more abundantly subsisted than 
 the nine could formerly have been. For, as 
 I have endeavoured fully to explain elsewhere*, 
 profits have, in the progress towards wealth and 
 improvement, a constant tendency td fall in 
 relation to wages; so, that in a high state of 
 civilization, a family living upon daily or weekly 
 wages, may obtain a greater quantity of the 
 comforts of life, than if it laboured independently 
 upon a small farm. 
 
 To guard against the possibility of misconcep- 
 tion, it will not be improper to remark, that by 
 improvements in agricultural science are meant, 
 those discoveries only in the application of labour 
 and capital^ which increase not the gross, but 
 the surplus produce of the soil. If, in adding 
 subsistence for one hundred persons to the gross 
 produce of my estate, I expend subsistence for 
 one hundred and ten, it is obvious that instead 
 of increasing, I diminish the wealth of the coun- 
 try, and the means of employing a manufacturing 
 population. Such a losing system of tillage, 
 
 * Essay on the C^rn Trade, Part iv. chap. m. 
 
143 
 
 indeed, the farmer by profession will never con- 
 sent to pursue ; but as the amateur who culti- 
 vates his own estate, may sometimes be induced 
 to adopt it, under the delusion that he is engag- 
 ing in a work of public utility, it may be expedient 
 to admonish him, that it is only when the expe- 
 rimental farmer discovers the means of raising a 
 given produce at a les^ expense, that he throws 
 the limits of prosperity to a greater distance, 
 and is entitled to be regarded as a public bene^ 
 factor. 
 
 It may also be proper to t^mark, that the 
 principles we have Unfolded respecting the 
 ultimate limits set to cultivation, are applicable 
 to those lands only which are made to produce 
 the materials of subsistence. The materials of 
 subsistence are the things expended in cultiva- 
 tion ; and the corn land which does not return 
 so great a quantity of them as was consumed in 
 tilling it, leaves us nothing to carry to market," 
 and must go back to its natural state. The case 
 is different with a hop-garden, or a vineyard. 
 Here the whole produce may always be brought 
 to market ; and, therefore, it is not the quantity 
 
144 
 
 of produce, but its value, as compared with that 
 of the things expended in production, which, 
 with respect to such lands, must determine the 
 quantity of labour and capital which may be 
 beneficially employed to heighten or extend cul- 
 tivation. 
 
 What has here been said respecting the vary- 
 ing effective power of agricultural industry, 
 serves still farther to illustrate and establish the 
 principles stated in the preceding chapter respect- 
 ing the perpetually decreasing difference between 
 the value of produce in a raw, and in a manufac- 
 tured state. As population increases, and it 
 becomes necessary to take in new soils, or to 
 cultivate the old in a more expensive manner, 
 it constantly requires an augmenting quantity of 
 capital to raise the same quantity of produce ; 
 while, on the contrary, the advance of a country 
 in wealth and population, by giving occasion to 
 improvements in machinery, and to more perfect 
 divisions of employment, enables the same num- 
 ber of hands, and consequently the same expen- 
 diture for food, to work up a greater quantity of 
 material. From the conjoint operation of these 
 
145 
 
 causes, the value of raw produce is, in the pro- 
 gress of society, perpetually increasing with 
 respect to manufactured goods ; or, to express 
 the same thing in a different form, the value of 
 manufactured goods is perpetually diminishing 
 with respect to raw produce. But notwithstand- 
 ing the operation of this two-fold cause, it is 
 impossible that the period should ever arrive, 
 when the manufacturer shall be unable to do 
 more than add to the raw material the value of 
 the subsistence which he consumes while at 
 work. From the law of competition, the products 
 of equal capital will be of equal value. If an 
 agricultural capital equal to food for one hundred 
 can raise a produce equal to food for one hun- 
 dred and one, then a manufacturing capital equal 
 to food for fifty, with material equivalent to 
 food for fifty, will produce wrought goods which 
 will be equal in value to food for one hundred 
 and one ; or, in other words, which will exceed 
 in value the value of the food added to that of 
 the material. While agricultural capital does 
 more than replace itself, manufacturing capital 
 will give products of more value than itself But 
 
 L 
 
146 
 
 it is evident, that cultivation can never be per- 
 manently pushed so far that agricultural capital 
 will be unable to replace itself; and that there- 
 fore the period never can arrive when manufac- 
 turing industry shall not be able to add to the 
 raw material a value greater than that of the 
 subsistence consumed in carrying it on. Thus 
 again we find that the distinguishing tenet of 
 the French Economists, namely, that manufac- 
 turing industry is unproductive of wealth, because 
 the manufacturer does no more than add to the 
 material the value of the subsistence consumed 
 while at work, turns upon a gratuitous assump- 
 tion, which is not only unsupported by evidence, 
 but which never had, and from the nature of 
 things, never can have, any foundation in fact. 
 
U7 
 
 CHAP. VI. 
 
 MERCANTILE INDUSTUY. 
 
 Section I. — Origin and Effects of Barter ' 
 or Trade. 
 
 tV hen we employ labour and capital in trans- 
 porting and exchanging those things which pre- 
 vious applications of labour and capital have 
 acquired, or prepared, we exercise mercantile or 
 commercial industry. The origin of this branch 
 of industry, and the manner and degree in which 
 it aids the formation of wealth, demand a care- 
 ful consideration. 
 
 In the earliest periods of society, a sense of 
 mutual convenience must have induced men to 
 barter or exchange the articles appropriated by 
 their labour. The savage who had chanced to kill 
 a greater number of wild animals than he could 
 consume, but who, in doing so, had expended all 
 
148 
 
 his implements of hunting, would naturally be 
 desirous of giving a part of his superfluous and 
 perishable food for a fresh supply of arrows ; 
 while he who had been unsuccessful in the chase, 
 and who happened to have more arrows than he 
 immediately required to use, would be equally 
 solicitous for the exchange. Thus, in the rudest 
 state in which men have been found to exist, 
 we may trace the origin of a species of industry, 
 which, as society advances, enables the inhabi- 
 tants of the most distant regions to administer 
 to each other's wants, and which exerts such 
 mighty influence on the resources and prosperity 
 of nations. 
 
 When we consider the nature of mercantile 
 industry, and the manner in which it operates, 
 we find, that it employs in proportion to the 
 labour which it puts in motion, a much greater 
 quantity of capital than the others. Mercantile 
 capital consists; in the first place, of all the 
 things employed in the conveyance of goods, and 
 in all the packages, shops, and warehouses, used 
 in preserving them until demanded. But this 
 is the least part of mercantile capital. After 
 
149 
 
 the divisions of employment have been once 
 thoroughly established, it is an exceedingly small 
 portion of the product of his peculiar industr}' 
 which each individual requires for himself; and, 
 therefore, almost the whole of the articles com- 
 posing the revenue of a country are brought to 
 market, and passing through the hands of mer- 
 chants and dealers, become a portion of mercan- 
 tile capital before they reach the consumer. 
 Nay, the food and material which the manufac- 
 turer, the clothing and implements which the 
 cultivator employs, reproductively, were pur- 
 chased in the market, and were portions of 
 mercantile capital before they were portions of 
 manufacturing or of agricultural capital. Mer- 
 cantile capital, therefore, consists not only in the 
 shops and warehouses, the carriages and vessels, 
 by means of which it is carried on, not only of 
 all the articles of revenue which annually pass 
 from the producer to the consumer, but of all the 
 articles necessary to replace the manufacturing, 
 and (with the exception of such things as are at 
 once raised upon and re-invested in the farm) of 
 all those necessary to replace agricultural capital. 
 
150 
 
 It may, in a few words, be defined to consist of 
 all the things employed to circulate wealth, and 
 of all the wealth which is circulated. 
 
 The number of mercantile labourers which 
 this vast capital puts in motion, is comparatively 
 small, and consists of the sailors, waggoners, 
 bargemen, wharfingers, shopmen, with the clerks 
 and assistants employed by merchants, bankers, 
 and dealers. It is evident that a manufacturing 
 capital, consisting of tools, subsistence, and ma- 
 terials for a thousatid men, or an agricultural 
 capital, composed of seed, subsistence, and imple- 
 ments for a thousand, would put a thousand 
 labourers in motion ; while, on the contrary, a 
 mercantile capital made up of articles identical 
 both in kind and in degree with those composing 
 either of the former, might not give employment 
 to more than twenty mercantile labourers. The 
 reason is obvious. As twenty men employed 
 about waggons, barges, and warehouses, may 
 transport and sell tools, subsistence, and mate- 
 rials for a thousand, the same identical capital 
 which might set a thousand men to work in the 
 hands of the manufacturer or fai'mer, may not, 
 
151 
 
 in the hands of the merchant, employ more than 
 twenty. 
 
 Dr. Smith has stated* the fact, that capital 
 invested in trade and commerce, puts a much 
 smaller quantity of labour in motion, than capi- 
 tal employed in manufactures or agriculture; 
 and from this fact he draws the conclusion, that 
 mercantile industry does not augment the value 
 of the annual produce, or, as he defines the 
 term, the riches of a country, in nearly as great 
 a degree as agricultural and manufacturings, 
 industry. That this conclusion is fundamentally 
 erroneous, will, it is hoped, sufficiently appear 
 from the subsequent illustrations respecting the 
 manner in which mercantile industry aids the 
 formation of wealth, and increases the value of 
 the articles upon which it is employed. 
 
 When industry appropriates the plants and 
 animals which nature presents in a form adapted 
 for immediate consumption ; when it bestows 
 utility upon materials which could not otherwise 
 administer to our wants; or, when it ameliorates 
 
 * Wealth of Nations, b. ii. c. 5. 
 
132 
 
 or multiplies the fruits of the soil, its operation 
 in producing wealth is so obvious and direct, 
 that with a very moderate degree of observation 
 and reflection, it may be perceived and under- 
 stood. The case is different when industry 
 merely transports commodities, and exchanges 
 one for another. No preceding writer with 
 whom we are acquainted, has given a com- 
 pletely satisfactory explanation of the manner 
 in which mercantile industry increases wealth. 
 That trade and commerce enrich the country in 
 which they are carried on, is a fact which expe- 
 rience forces on the belief of all ; but how they 
 bring about this desirable result, few appear to 
 have understood. While the supporters of the 
 theory known by the name of the '* Mercantile 
 " System," maintain that mercantile industry 
 enriches a country, by bringing into it a larger 
 supply of the precious metals, the disciples of 
 the French Economists contend, that it can do 
 so only by importing the raw produce of foreign 
 agricultural states. Even recent writers, who 
 have rejected the errors both of the mercantile 
 and of the agricultural system, have not been 
 
155 
 
 eminently successful in solving this intricate 
 problem in economical science, and in laying 
 open the modus operandi by which commercial 
 industry produces wealth. 
 
 We have defined wealth to consist in articles 
 which possess utility, and on which some por- 
 tion of labour has been bestowed. Now, as the 
 possessing of utility, and the requiring some por- 
 tion of labour, constitute the essence of wealth, 
 it necessarily follows, that every operation of 
 industry which is instrumental in bestowing 
 utility must be instrumental in producing wealth. 
 But many articles which possess utility in one 
 place, do not possess it in another place ; and, 
 therefore, the industry which conveys such arti- 
 cles from the latter to the former, is instrumental 
 in conferring utility, and consequently in creating 
 riches. The merchant, for example, who ships 
 timber from North America, where it might 
 otherwise have remained as an incumbrance and 
 nuisance upon the land, and carries it to the 
 West India Islands, where it becomes an article 
 of considerable utility, is evidently a productive 
 labourer. Permitted to remain on the lands of 
 
154 
 
 America, the lumber would not have been 
 wealth ; conveyed to a West India Island, it is 
 wealth. This change has been wrought by 
 commercial industry, and, therefere, commercial 
 industry is productive. 
 
 When mercantile industry bestows utility by 
 conveying articles from one place to another, its 
 operation in producing wealth is direct and 
 obvious. But this branch of industry has also 
 an indirect operation in the formation of riches, 
 which is much more important, and which, as it 
 is somewhat less obvious, will require to be illus- 
 trated at greater length. 
 
 As soon as the exchanging of commodities 
 became familiar to the minds of a people, it 
 must have suggested to them the utility of 
 dividing their labour. The dextrous huntsman 
 would perceive, that by exchanging his super- 
 fluous food for bows and arrows, he might obtain 
 a greater number of these implements than if 
 he fabricated them himself; while he who was 
 slow of foot, but expert at mounting trees, and 
 in giving the proper form to their branches, 
 would discover, that by exchanging lx)ws and 
 
155 
 
 arrows for the wild animals of his fleeter neigh- 
 bour, he could obtain a more abundant supply of 
 them than if he personally engaged in their 
 pursuit. Thus a sense of mutual advantage 
 would establish a division of employment. The 
 athletic and the bold would engage in the occu- 
 pations of the chase, and the timid and infirm 
 devote themselves to some species of domestic 
 and sedentary labour. 
 
 The divisions of employment to which the 
 exchange of commodities gives occasion, aug- 
 ment, to an astonishing degree, the productive 
 powers of human industry. As our wants and 
 desires are very various, the operations of labour 
 by which they are supplied and gratified, must 
 be very various also. If a man were to attempt 
 to fabricate for himself all the articles necessary 
 to comfortable existence, half his time would be 
 expended in shifting his tools and adjusting his 
 materials : distracted with a multiplicity of em- 
 ployments, he could become expert at none. But 
 where a person devotes himself to a single trade, 
 his time is no longer lost in shifting from em- 
 ployment to employment; and use and habit 
 
156 
 
 give him, in the performance of his peculiar ope- 
 rations, a rapidity and skill, which, until the fact 
 is forced upon us hy experience, we can scarely 
 conceive the human hand capable of acquiring. 
 Next to the application of capital, the division 
 of employment furnishes the most effectual 
 means of increasing the productive powers of 
 industry. Adam Smith has stated, that by divid- 
 ing the different operations of the manufacture 
 am.ong them, ten persons may make forty-eight 
 thousand pins in a day; while, if they had 
 wrought separately and independently, they 
 could not have accomplished the two hundred 
 and fortieth part of the work which, by a proper 
 division and combination of their labour, they 
 ai^e now capable of performing. 
 
 But it is not in mechanical operations alone 
 that the division of employment augments the 
 powers of industry. Nature, by giving to dif- 
 ferent districts different soils and climates, has 
 adapted them for different productions. One 
 tract of land is peculiarly fitted for the growth 
 of grass, another seems as exclusively destined 
 for the production of corn. In one country, the 
 
157 
 
 vine grows luxuriantly, while the animals which 
 feed upon its pastures have but a poor and scanty 
 covering; in another country, the grape ripens 
 but imperfectly, while the fleeces of the animals 
 it feeds, furnish the materials of clothing in 
 abundance. Now, it must be obvious to the 
 most inattentive observer, that by establishing a 
 division of employment in these districts, and in 
 these countries, the productions of the earth will 
 be multiplied to an extent which cannot easily 
 be calculated. If we sow corn on our arable 
 land, and feed cattle on our pastures ; if we cul- 
 tivate the grape beneath a congenial sky, and 
 breed sheep where their fleeces will be abundant ; 
 then shall we enjoy more corn and cattle, more 
 wine and clothing, than if we reversed the order 
 of nature, ploughing up our meadow grounds, 
 and leaving our arable lands under grass, con- 
 verting our vineyards into sheep walks, and our 
 sheepwalks into vineyards. 
 
 The view which we have here given of the 
 advantages resulting from the division of em- 
 ployment, will enable us to form a just concep- 
 tion of the nature and extent of the benefits 
 
158 
 
 conferred by mercantile industry. This branch 
 of industry, besides its direct operation in 
 bestowing utiHty upon articles which otherwise 
 could not possess it, allows each individual to con- 
 fine himself to the mechanical operation in which 
 he is most skilful and expert, or to give to his 
 fields that peculiar mode of culture which is 
 suitable to their soil ; and thus, by an indirect 
 operation, powerfully contributes towards the 
 creation of that universal opulence which, as has 
 been justly observed, gives the lowest class of 
 labourers, in a civilized and prosperous country, 
 a greater command over the conveniences of life, 
 than is enjoyed by many an African king. 
 
 But, in order to shew more clearly the man- 
 ner and the degree in which mercantile industry 
 contributes to the production of wealthy let us 
 examine for a moment the effects which would 
 result from a suspension of all exchanges be- 
 tween man and man. It is self-evident that the 
 instant the articles of wealth became untrans- 
 ferable, the divisions of labour, with all their 
 advantages, would be discontinued. The weaver, 
 for example, would no longer fabricate a greater 
 
159 
 
 quantity of doth than he thought necessary for 
 his own consumption ; but would, on the con- 
 trary, be obliged to supply his wants and gratify 
 his desires by' combining in his own person a 
 great variety of occupations. Hence half his 
 time would be lost in shifting his tools, and 
 adjusting his materials ; and his attention being 
 distracted by a multiplicity of employments, he 
 could become expert at none. Again ; the 
 occupier of arable land, being, by the supposi- 
 tion, no longer able to exchange his surplus corn, 
 would cultivate no more of that grain than he 
 thought necessary for his own use. Those fields, 
 the produce of which he formerly disposed of in 
 the market, would now lie waste, or else be 
 made to yield a scanty supply of some article 
 not congenial to their soil. Similar interrup- 
 tions would take place in the occupations of 
 the grazier; we should see cattle feeding in 
 the neglected corn-field, an^ the moist meadow 
 ploughed up in order to produce grain. Man 
 being no longer able to give his labour the direc- 
 tion calculated to co-operate with nature, the 
 productive powers of agricultural industry would 
 
160 
 
 sustain a great diminution, and the earth would 
 yield him but a very inconsiderable portion of 
 the wealth which it is capable of affording. — To 
 recapitulate. — Mercantile industry gives occasion 
 to the divisions of employment ; and these mul- 
 tiply to an immense extent the articles which 
 supply our wants and gratify our desires. Pro- 
 hibit trade, and the divisions of employment 
 cease : restore it, and these divisions, with all 
 their benefits, return. Hence, whatever may be 
 the benefits resulting from the divisions of em- 
 ployment, these benefits are to be referred to 
 trade, or mercantile industry, as their original 
 and proper source. 
 
 Mercantile industry not only gives occasion, 
 in the first instance, to the divisions of employ- 
 ment, but at all times and in every conceivable 
 case, determines the extent to which they can 
 be carried. When men make few exchanges, 
 each must work at many trades. Where the 
 market is very small, no person can have any 
 encouragement to devote himself entirely to one 
 employment, for want of the power to exchange 
 all that surplus part of his own labour which is 
 
161 
 
 over and above his own consumption, for such 
 parts of the produce of other men's labour as he 
 may have occasion for. In thinly-peopled dis- 
 tricts, where families live several miles from 
 each other, a man must learn to perform for 
 himself several little pieces of work, for which, 
 in a more populous neighbourhood, he would 
 call in other workmen. We find that country 
 workmen are almost every where obliged to 
 apply themselves to all the different branches of 
 industry, which have so much affinity as to be 
 employed about the same sort of materials. A 
 country carpenter deals in every sort of work 
 that is made of wood ; a country smith in every 
 sort of work which is made of iron. The former 
 is not only a carpenter, but often a joiner, a 
 cabinet-maker, and even a carver of wood, as 
 well as a wheelwright, a plough wright, a cart 
 and waggon maker. The enlployments of the 
 latter are still more various. In such situations 
 it would be impossible for the common business 
 of a nailor to be earned on as a distinct trade ; 
 for if it were, a single workman would be 
 enabled to make a thousand nails a day, which 
 
 M 
 
162 
 
 would probably be as great a number as the 
 neighbourhood required in a year. 
 
 In those interior and thinly-peopled dis- 
 tricts, where few exchanges can be made, and 
 where, in consequence, each individual is com- 
 pelled to apply himself to several different kinds 
 of work, we find the productive powers of 
 industry at the lowest ebb. In such situations 
 too, as none but the most fertile tracts are re- 
 quired for cultivation, the progress of wealth can 
 he little retarded by that peculiar property of 
 the soil which, when two equal portions of capi- 
 tal are applied, causes it to yield a diminished 
 return upon the last. But the advantage of 
 cultivating none but the best lands, is altogether 
 insufficient to compensate the want of mercantile 
 industry, and of the divisions of employment to 
 which it gives occasion. Little work is dis- 
 patched, and that little in a rude unfinished 
 manner. The produce of the soil bears no 
 proportion to its natural fertility, and the 
 country continues miserably deficient in the 
 comforts and conveniences of life. 
 
 The circumstances of the people are widely 
 
163 
 
 different in populous districts, situated in the 
 neighbourhood of the sea, or of navigable rivers. 
 Here the power of exchanging is unlimited, and 
 each person finds that in return for the sur- 
 plus produce of his own labour, he can obtain 
 such portions of the produce of other men's labour, 
 as he may have occasion for. In consequence 
 of this extension of mercantile industry, divisions 
 and subdivisions of employment are established, 
 and each particular trade is reduced to a few 
 simple operations, in which time is saved, and 
 an almost miraculous rapidity obtained. When 
 the productions peculiar to the soil, and to the 
 acquired talents of the people, exceed what is 
 wanted for home consumption, the surplus is 
 exchanged against the productions peculiar to 
 all the other climates of the world ; and while 
 each field receives that species of cultivation 
 which is best calculated to co-operate with nature, 
 and every hand is directed to the employment 
 to which habit has adapted it ; the necessaries, 
 comforts, and luxuries of life are multiplied to 
 an extent scarcely conceivable to those who have 
 been always confined to situations in which 
 
164 
 
 mercantile industry has little scope, and its 
 consequents, the divisions of employment, are 
 imperfectly established. 
 
 The great importance of mercantile industry 
 renders it expedient that we should descend 
 from this general statement of its results, and 
 trace distinctively its particular operation in 
 heightening the productive powers of the other 
 applications of labour and capital. It has 
 already appeared, that though in our classifica- 
 tions and reasonings the several branches of 
 industry may be considered as distinct and sepa- 
 rate; yet in the actual business of production 
 they are always found in conjunction and co- 
 operation. In order to appropriate the sponta- 
 neous gifts of nature, it is necessary to manufac- 
 ture tools and implements : manufactures could 
 not go on if the other branches of industry were 
 not exerted to supply material and subsistence ; 
 and if appropriative industry did not furnish 
 iron and timber, and manufacturing industry 
 jnepare the spade and the plough, the cultiva- 
 tion of the earth would cease. 
 
 Now trade and commerce are the prime 
 
165 
 
 instruments which bring these different applica- 
 tions of labour and capital mutually to co-operate 
 with, and aid each other. If it were not for 
 mercantile industry, there could be no division 
 of employment ; and he who wished to acquire 
 any article of wealth, would have to perform for 
 himself all the different operations concerned in 
 its production. Let us examine the influence 
 which this would have upon the effective powers 
 of the several branches of industry, beginning 
 with that which appropriates the spontaneous 
 gifts of nature. 
 
 Without mercantile industry, and the division 
 of employment to which it gives occasion, the 
 fisherman,for example, after having supplied him- 
 self with materials, wduld have to build his own 
 vessel, to manufacture his own line and tackling, 
 and by a previous exercise, either of appropriative 
 or agricultural industry, to provide a stock of 
 provisions to subsist upon while at work. Under 
 such circumstances, a canoe, with lines and 
 tackling of the most inferior description, would 
 be the only capital he could acquire ; his exer- 
 tions would necessarily be confined to the vici- 
 
166 
 
 nity of the shore; and if, while so poerly 
 equipped, he chanced to appropriate a greater 
 quantity of fish than his own family could con- 
 sume, the surplus could find no market, and 
 would perish upon his hands. Contrast these 
 feeble and limited productive powers with those 
 which the fisherman acquires when mercantile 
 industry enables him to borrow aid from the 
 miner, the manufacturer, and the farmer. The 
 stout ship now takes place of the skiff or the 
 canoe ; the metallic hook and harpoon supplant 
 the crooked bone or pointed stick; provisions 
 are supplied for the most distant voyages, and 
 the fisherman, after visiting banks situated in 
 the middle of the ocean, and approaching either 
 ])ole, finds in every commercial country of the 
 world, a market for the cured fish, the sperma- 
 ceti, and the oil which he brings back. 
 
 The influence of manufacturing industry in 
 heightening the productive powers of the manu- 
 facturer, is still more conspicuous. It has been 
 already stated, that as capital accumulates, and 
 population multiplies, the same number of hands, 
 in consequence of improved machinery, and more 
 
167 
 
 peifect divisions of employment, become capal}le 
 of working up a greater ^tiantity of material. 
 But were it not for trade and commerce, im- 
 proved machinery and the divisions of employ- 
 ment, which thus increase so prodigiously the 
 effective powers of manufacturing industry, 
 could never have existed. It is self-evident, 
 that if there were no exchanges, there could be 
 no division of employment ; and the slightest 
 consideration must convince us, that without 
 the divisions of employment, the implements for 
 abridging labour would be of the rudest kind, 
 and the effective powers of the manufacturer at 
 the lowest ebb. Supposing that there were 
 neither trade nor commerce, and that in conse- 
 quence each individual performed every kind of 
 work for himself; then, he who wished to fabri- 
 cate a plough, would, in the first place, have to 
 furnish himself with instruments for felling 
 timber, and exploring mines. These once ob- 
 tained, he would be under the necessity of going 
 to the forest to cut down branches for the 
 shaft of his plough, and then of proceeding to 
 some mineral district to dig from the bowels 
 
168 
 
 of the earth the iron for its share. But his 
 labours would not cease here; and, after the 
 necessary materials had been thus obtained, the 
 branches would have to be cut down to the 
 proper shape and dimensions, a furnace must be 
 erected for smelting the ore, and a forge for 
 softening the purified metal, and beating it out 
 into the proper form. But these complicated 
 and difficult operations no single individual, — 
 no single family could perform ; and, therefore, 
 without mercantile industry, and the divisions 
 of employment which it enables us to establish, 
 a plough, in any way resembling that which is 
 at present used, could never have been fabricated. 
 With respect to agricultural industry, the 
 case becomes still stronger. The plough is but 
 one out of many implements necessary for cul- 
 tivating the soil; and if, besides supplying him- 
 self with the whole of these, the farmer with his 
 own hands had to erect his own buildings, to 
 fabricate his own furniture, and to make his 
 own clothes, it is evident that nothing deserving 
 the name of tillage could possibly be effected. 
 Agriculture, which has been ignorantly repre- 
 
169 
 
 rented as the single and only source of wealth, 
 can scarcely have existence until trade and com- 
 merce, by establishing divisions of employment, 
 have enabled all the other branches of industry 
 to unite and co-operate with it in the work of 
 production. 
 
 While mercantile industry multiplies the 
 effective powers of labour, by causing the most 
 dissimilar and distant operations to concur in 
 the business of prqduction, it occasions a highly 
 important saving in capital. If it were not for 
 trade and commerce, and the consequent divi- 
 sions of employment, each person would have 
 to furnish himself with all the different kinds 
 of tools and implements. For example, if there 
 were in any neighbourhood four persons, each 
 of whom cultivated, wove, made shoes, and 
 performed carpenter's work for himself, the 
 fixed capital of each person must consist of four 
 different sets of instruments, to enable him to 
 carry on these four different trades ; and as 
 only one set could be employed by each at one 
 time, three fourths of the fixed capital of this 
 little community would be always in a state of 
 
iro 
 
 unproductive inactivity. But if, in consequence 
 of the establishment of a system of barter 
 amongst these four individuals, each should 
 confine himself to a particular occupation, then 
 one set of tools would be sufficient for each; 
 and, in consequence of the divisions of employ- 
 ment, an incalculably greater quantity of work 
 would be performed, with a fourth part of the 
 fixed capital formerly required. But instead of 
 four, there are four hundred different branches 
 of business, all requiring a different set of tools 
 and implements. The saving in the keeping up of 
 fixed capital, the nature of which we have here 
 endeavoured to illustrate, is of the highest im- 
 portance ; and, in our estimates of the benefit 
 conferred by mercantile industry, should never 
 be overlooked. 
 
 Having thus shewn the manner in which mer- 
 cantile industry aids the production of wealth, 
 it will be expedient to explain the way in which 
 it affects the exchangeable value of the articles 
 it is employed to convey and to transfer. 
 
 As the products of equal capitals are equiva- 
 lent, if a manufacturer and farmer, without the 
 
171 
 
 intervention of a third party, were to barter their 
 respective commodities, dividing equally the cost 
 of carriage ; then one hundred quarters of com 
 raised by the latter, with an expenditure of sub- 
 sistence for fifty labourers, would exchange for 
 one hundred yards of cloth fabricated by the 
 former, with a like expenditure. But if the 
 barter were conducted through the intervention 
 of a dealer or merchant, the case would be other- 
 wise ; and the one hundred quarters of com 
 would no longer exchange for the one hun- 
 dred yards of cloth. The merchant must receive 
 the customary rate of profit upon his capital, 
 which lalways consists, first, of the things neces- 
 sary to transport and preserve the goods in which 
 he deals; and, secondly, in the goods themselves. 
 Supposing that his whole capital is equal to 
 subsistence for one hundred labourers, then the 
 farmer, in exchange for the one hundred quarters 
 of com, which he had raised with a capital of 
 fifty days' subsistence, would receive no more 
 than fifty yards of cloth, or one half of that 
 which the manufacturer had fabricated with a 
 capital of fifty days' subsistence ; while, in like 
 
172 
 
 manner, the manufacturer would receive in ex- 
 change for his one hundred yards of cloth only 
 fifty quarters of corn, or half the produce of the 
 equal capital employed by the farmer. The 
 reason is obvious. Two capitals, each consisting 
 of fifty days' subsistence, are engaged in the 
 direct production of commodities, and one capital 
 equal to the other two, or consisting of one hun- 
 dred days' subsistence, is employed in indii-ect pro- 
 duction, or in aiding, by the establishment of the 
 divisions of labour, the effective powers of agri- 
 culture and manufactures. Now, as the law of 
 competition will necessarily equalise the profits 
 of stock, the goods obtained must go in propor- 
 tional parts to the capitals, which, whether directly 
 or indirectly, contributed to their production ; and, 
 therefore, when the exchanges are perfected, the 
 farmer and the manufacturer, whose joint capitals 
 amounted to subsistence for one hundred, will 
 possess between them fifty quarters of corn, and 
 fifty yards of cloth ; while the dealer whose single 
 capital was one hundred days' subsistence, will 
 have for himself fifty quarters of corn with fifty 
 yards of cloth. But this proportional distribur 
 
1/3 
 
 tioti of products amongst the several capitalists 
 engaged in the work of production, could not 
 take place, unless the dealer obtained from the 
 farmer one hundred quarters of corn for fifty 
 yards of cloth, while from thfe manufacturer 
 he acquired one hundred yards of cloth for fifty 
 quarters of corn. Hence, in the hands of the 
 dealer, commodities acquire an additional ex- 
 changeable value, which is totally distinct from 
 that which is determined by the amount of 
 capital directly employed in their production, 
 and which is regulated by the customary rate of 
 profit on the capital employed combined with 
 the expense of carriage^ 
 
 The principle, that commodities acquire an 
 increased exchangeable power in passing through 
 the hands of the dealer, is not inconsistent with 
 the general fact that the products of equal capi- 
 tals are equivalent, but on the contrary, is its 
 necessary consequence. In the case just stated, 
 indeed, the manufacturer for the product of the 
 capital which he employs in direct production, 
 obtains only half the products of the equal capi- 
 tal which the farmer employs in direct produc- 
 
1T4 
 
 tion ; while, in like manner, the farmer receives 
 in exchange for his products only one half of the 
 articles prepared by the equal capital of the ma- 
 nufacturer. But then, it is to be recollected, 
 that while the capitals of the farmer and manu- 
 facturer are employed directly, the capital of the 
 dealer equal to the sum of the other two, is 
 employed indirectly, and through the divisions 
 of labour in raising the corn and fabricating the 
 cloth. As one half of the dealer's business will 
 consist in exchanging with the manufacturer 
 corn for cloth, in this one half of his capital 
 will be employed. But when one half of the 
 dealer's capital, or fifty days' subsistence, is em- 
 ployed in conveying and offering for exchange a 
 quantity of corn raised by an agricultural capi- 
 tal of fifty days' subsistence, then the corn thus 
 offered is in fact the product of capitals of one 
 hundred days' subsistence, and consequently will 
 be worth double the quantity of cloth fabricated 
 by a capital of fifty days' subsistence. And, in 
 like manner, when this cloth fabricated by sub- 
 sistence for fifty, is conveyed and offered to the 
 farmer by another capital equal to subsistence 
 
175 
 
 for fifty, it is in fact the product of a capital of 
 one hundred days' subsistence, and will become 
 worth twice the quantity of corn raised by the 
 farmer with an expenditure of subsistence for 
 fifty. Commodities, therefore, acquire an addi- 
 tional value in the hands of the dealer, because, 
 in his hands, they become the product of addi- 
 tional capitals. 
 
 That which the dealer gives for his commodi- 
 ties to the direct or immediate producer of them, 
 is called, in the language of commerce, their 
 prime cost, and that for which he again disposes 
 of them is termed their selling price. The dif- 
 ference between the prime cost, and the selling 
 price of commodities is the fund from which the 
 profit of the dealer is derived ; and the several 
 circumstances which determine this difference, 
 are the same as the laws which regulate the rate 
 of profit, and which I have elsewhere endea- 
 voured to explain*. 
 
 The disciples of the French Economists con- 
 ceive, that the difference between the prime cost 
 
 * Essay on the Corn Trade, Part iv. chap. in. 
 
176 
 
 and selling price of commodities, is so much 
 deducted from those by whom they are im- 
 mediately produced ; and that the dealer who 
 exchanges the product of a given agricultural 
 capital for the product of a greater manufactur- 
 ing one, and vice versa, can acquire wealth only 
 at the expense of the farmer and manufacturer. 
 A slight consideration of the subject is sufficient 
 to convince us, that this is a radical error. 
 
 The existence of a distinct mercantile class 
 employing a distinct mercantile capital, arises 
 from, and is a branch of that division of labour 
 which heightens, in so astonishing a degree, the 
 effective powers of human industry. If there 
 Were no capitalists employed in buying up com- 
 modities for the purpose of selling them again in 
 proper proportions to the consumer ; then, when 
 the farmer wanted cloth, he would be compelled 
 to carry his corn to the weaver, and propose an 
 exchange of their respective articles. But if the 
 weaver had already a sufficient supply of corn, 
 and would not part with his cloth, except in 
 exchange for shoes, then, before the farmer could 
 obtain the clothing of which he stood in need,. 
 
 4 
 
177 
 
 he would be obliged to effect a previous bargain 
 with the shoemaker ; and if he also had bread 
 enough, and would give shoes only in exchange 
 for hats, then with the hatter a preliminary 
 barter must be effected. Under such circum- 
 stances, an incalculable portion of time and 
 labour would be lost, and while each sought 
 others with whom to exchange his particular 
 commodity for the various articles he wanted, 
 the business of production would be perpetually 
 suspended. 
 
 Now, all this waste of labour and suspension 
 of production is obviated by the intervention of 
 a distinct mercantile class. Let a corn-store 
 and cloth shop be established in the neighbour- 
 hood, and our farmer, without difficulty or delay, 
 will be able to sell at the former, and to buy at 
 the latter. Similar facilities would be given to 
 the weaver. When a class of dealers set up 
 w^arehouses and shops for the collecting and 
 vending of commodities^ then every direct pro- 
 ducer, freed from the necessity of having recourse 
 to circuitous and uncertain barter, and knowing 
 where he can at all times be supplied with such 
 
 N 
 
178 
 
 products of other men's industry as he may 
 require, is enabled to devote his whole time and 
 labour to his proper calling, and becomes capable 
 of creating a far greater quantity of wealth than 
 he could otherwise produce. 
 
 Thus we see, that the intervention of the 
 dealer occasions an increase of wealth, from 
 which, without any injury to those who carry 
 on other branches of industry, his profits are 
 derived. All those articles constituting the 
 greater portion of his capital which he deposits 
 for sale in shops and warehouses are productively 
 employed. The circumstance of their being so 
 deposited, give a more continuous and uninter- 
 rupted motion to the plough, and to the loom, 
 and multiplies the effective powers of the culti- 
 vator and manufacturer. It is true, that this 
 operation of mercantile capital is indirect, but 
 it is not, therefore, the less efficient. All mer- 
 cantile industry, whether it be carried on in the 
 way of immediate barter betAveen the several 
 cultivators and manufacturers, or through a dis- 
 tinct and intermediate class of dealers, augments 
 production indirectly. As was before observed, 
 
179 
 
 the existence of a class of dealers is a branch of 
 that division of employment which multiplies 
 the effective powers of industry ; and their 
 several capitals, which, to the superficial and 
 inattentive observer, may appear to lie inert and 
 inoperative in their shops and warehouses, and 
 to put no labour in motion, except that employed 
 in carriage, impart an increased activity to every 
 other application of capital, disengage and turn 
 to direct production considerable portions of 
 labour which would otherwise be lost, and thus 
 create a fund which not only pays the customary 
 profit to their proprietors, but leaves with the 
 cultivator and manufacturer a greater quantity 
 of products than they could otherwise possess. 
 
 Supposing, that while direct producers ex- 
 change their respective articles by the circuitous 
 and uncertain mode of immediate barter with 
 each other, the farmer and cultivator expending 
 each subsistence for fifty, can raise thirty quar- 
 ters of corn, and fabricate thirty yards of cloth ; 
 and that when exchanges are conducted by the 
 intervention of dealers, they can with the same 
 expenditure raise one hundred quarters, and 
 
180 
 
 fabricate a hundred yards; then, though the 
 capital which the dealers employed in exchang- 
 ing the corn and cloth equalled the sum of the 
 capitals by which those things were directly 
 produced, and consequently absorbed one half as 
 their profit, still the farmer and manufacturer 
 would be gainers. For, notwithstanding that the 
 dealers, in conducting the necessary exchanges, 
 have absorbed one half of their products, they 
 have still fifty quarters of corn and fifty yards 
 of cloth remaining ; while, had they conducted 
 their own exchanges without the intervention 
 of the dealer, they could have by the supposition 
 only thirty quarters and thirty yards. Nor is 
 the principle of this supposition merely arbitrary. 
 The intervention of the dealer must always occa- 
 sion an increased production of wealth, greater 
 than that which is necessary to pay the cus- 
 tomary rate of profit on the capital he employs ; 
 for, if this were not the case, his intervention 
 would be injurious to those who carry on other 
 branches of industry, and they would imme- 
 diately find an interest in effecting their ex- 
 changes, not through him, but by immediate 
 
181 
 
 barter with each other. Supposing that while 
 such immediate barter was carried on, the farmer 
 and manufacturer, by expending each a capital 
 of subsistence for fifty, could raise thirty quarters 
 of corn, and fabricate thirty yards of cloth; 
 and that when their products were exchanged 
 through a dealer employing a capital of subsist- 
 ence for one hundred, they could with the same 
 expenditure as before, raise fifty quarters, and 
 fabricate fifty yards ; then, by continuing to con- 
 duct their business through the dealer, they 
 would sustain considerable loss. For, as the 
 dealer's capital is equal to the suni of the capitals 
 employed in direct production, one half of the 
 goods, as has just been demonstrated, will be 
 the proportion due to him, and the farmer and 
 manufacturer who had obtained thirty quarters 
 of corn and thirty yards of cloth when they bar- 
 tered directly with each other, will have only 
 twenty-five quarters and twenty-five yar^s, in 
 consequence of the dealei^'s intervention It is 
 quite evident that, under such circumstances, 
 they would cease to conduct their business 
 through him. 
 
182 
 
 But, further, if the intervention of the dealer 
 did not occasion an increase of wealth more than 
 sufficient to indemnify the direct producers for 
 that which he subtracts from them, he would 
 liimself have an obvious interest in withdrawing 
 his capital from the business of effecting ex- 
 changes. If, when exchanges are effected by im- 
 mediate barter amongst the direct producers, capi- 
 tals amounting to one hundred days' subsistence, 
 can raise thirty quarters of corn, and fabricate 
 thirty yards of cloth ; and if, when aided by the 
 dealer's capital amounting to one hundred days' 
 subsistence, these capitals belonging to the far- 
 mer and manufacturer can raise fifty quarters, 
 and fabricate fifty yards; then the dealer, by 
 continuing to exchange commodities, obtains five 
 quarters and five yards less than if he engaged 
 in the business of direct production. For, his 
 capital of one hundred days' subsistence being 
 half of the whole capital employed in direct and 
 indirect production, would be entitled to one half 
 of the products obtained, or to twenty-five quar- 
 ters of corn, and twenty-five yards of cloth ; while, 
 if his capital of one hundred days' subsistence 
 
18:3 
 
 were withdrawn from the business of exchang- 
 ing, and invested in agriculture and manufactures, 
 its return would be, by the supposition, thirty 
 quarters and thirty yards. The effect would be 
 similar in every conceivable case in which the 
 intervention of the dealer did not occasion an 
 increase of wealth sufficient to indemnify the 
 direct producers for that which he subtracted 
 as the profits of his capital. If any two sets of 
 capitals, when one is employed in direct produc- 
 tion, and the other in effecting exchanges, do 
 not create a greater quantity of wealth than 
 could be created were the whole invested in 
 agriculture and manufactures, then it would not 
 be the interest of the proprietors of any of these 
 capitals to employ them in mercantile industry. 
 The fact that capital is employed in the distinci; 
 and separate business of effecting exchanges, is 
 in itself a sufficient demonstration that the 
 intervention of the dealer renders the whole 
 capital of the country more productive, than it 
 otherwise could be, and causes an increase of 
 wealth more than sufficient to indemnify the 
 cultivator and manufacturer for the portion of 
 
184 
 
 their products which the dealer subtracts as the 
 profits of his trade. 
 
 But though the intervention of the merchant 
 and dealer will always bestow upon the industry 
 of the manufacturer and farmer an increased 
 effective power, sufficient and more than sufficient 
 to indemnify them for the articles he subtracts 
 as his profit; yet it is obviously their interest, as 
 well as that of the community at large, that 
 exchanges should be conducted with the smallest 
 possible expense which is compatible with the 
 perfect establishment of the divisions of employ- 
 ment. The investing of distinct and separate 
 capitals in mercantile industry is beneficial, only 
 because it allows exchanges to be effected at a 
 less expense of time, labour, and capital, than if 
 they were carried by means of immediate barter 
 amongst cultivators and manufacturers, and thus 
 permits more time, labour, and capital, to be 
 devoted to the direct production of commodities. 
 On the very same principle, every diminution in 
 the amount of mercantile capital, which can 
 be effected without retarding exchanges, and 
 checking the division of employment, tends to 
 
185 
 
 increase the wealth of the community. In the 
 cases just stated, if the dealer employing a capi- 
 tal of fifty instead of one of hundred days' subsist- 
 ence, could exchange the one hundred quarters 
 of corn, and the one hundred yards of cloth, 
 which the farmer and manufacturer had raised 
 and fabricated with two capitals of fifty days' 
 subsistence each, then the difference between 
 the prime cost and the selling price of these 
 commodities would be reduced from a hundred 
 to fifty per cent. ; for the capital of the dealer 
 being now only one third instead of one half of 
 the whole capital employed in production, his 
 proportion of the articles obtained would also be 
 reduced from one half to one third. One half 
 of his business being with the farmer, he would 
 employ one half of his capital,' or twenty-five 
 days' subsistence in offering to him the one hun- 
 dred yards of cloth which the manufacturer had 
 fabricated with fifty days' subsistence : this cloth 
 when so offered being, in fact, the product of a 
 capital of seventy-five days' subsistence, two 
 thirds of it would be given to the farmer for the 
 corn he raised with a capital of fifty days' sub- 
 
186 
 
 sistence ; and thus, in consequence of the dealer 
 being able to effect exchanges Avith a less ex- 
 pense than before, the farmer would receive 
 sixty-six, instead of fifty yards of cloth, for his 
 one hundred quarters of corn. On the same 
 principle, the manufacturer would obtain sixty- 
 six, instead of fifty quarters of corn, for his one 
 hundred yards of cloth. But this would not be 
 the only benefit arising from the reduction in 
 the expense of carrying on mercantile industry. 
 The saving effected in the business of indirect 
 production would increase the quantity of capital 
 available for direct production. The improvement 
 in mercantile industry, which enabled the dealer 
 to exchange the fruits of the soil for the fabrics 
 of the loom, with a capital of fifty instead of one 
 of a hundred days' subsistence, would disengage 
 a capital of fifty days' subsistence for cultivating 
 the earth and working up its produce. Thus, one 
 third would be added to the capital employed in 
 direct production, and the useful commodities 
 raised or fabricated would be increased by fifty 
 per cent. 
 
 In the two chapters immediately preceding, 
 
187^ 
 
 we saw, that improvements in manufacturing 
 and agricultural industry, throw to a greater 
 distance those limits beyond which cultivation 
 can be neither heightened nor extended; and 
 by consequence, the means of supporting an 
 increased manufacturing population no longer 
 obtained. Effects precisely similar are produced 
 by improvements in mercantile industry. Every 
 such improvement must enable the dealer to 
 transport and exchange his goods with a less 
 expenditure of capital; or, if he employs the 
 same amount of capital, in a shorter periJid of 
 time ; and in either case will allow cultivation to 
 be both heightened and extended, and the mate- 
 rials for employing manufacturing industry to 
 be increased. 
 
 It is evident, that the further progress of 
 industry must cease, when additional capital 
 applied to the soil can no longer replace itself 
 with a surplus sufficient to induce the capitalist 
 to undertake the business of cultivation. Let 
 us suppose, that this necessary surplus is ten per 
 cent, that it requires a mercantile capital equi- 
 valent to food and wrought necessaries for one 
 
188 
 
 hundred to exchange the goods produced by a 
 manufacturing and an agricultural capital, each 
 equivalent to food and wrought necessaries for 
 fifty, and that a manufacturing capital equivalent 
 to food and wrought necessaries for fifty, pre- 
 pares wrought necessaries for two hundred and 
 twenty. In this case, no agricultural capital 
 can be applied to the soil, except where the 
 expenditure of food and wrought necessaries 
 for fifty will produce food for two hundred 
 and twenty ; because, no inferior rate of return 
 upon agricultural capital would afford the neces- 
 sary rate of profit. When aided by the expen- 
 diture* of a mercantile capital equivalent to 
 
 ♦ In fact, that portion of the mercantile capital which 
 consists in the subsistence of the labourers it employs, the 
 gradual decay of buildings, carriages, and vessels, with the 
 loss and damage of goods, is all that is expended. In the 
 cases assumed in the text, we have supposed, that the whole 
 of the mercantile capital is consumed in order to avoid 
 more complex details, and to simplify our illustration of 
 the manner in which improvements in mercantile industry 
 allow of agricultural improvements, which could not other- 
 wise be effected. The supposition can in no way invali- 
 date our conclusions, as it is obvious, that in whatever degree 
 the dealer's capital is expended, the class of direct pro- 
 ducers must replace it with the necessary profit. 
 
189 
 
 food and wrought necessaries for one hundred, 
 a manufacturing and an agricultural capital, 
 each equal to food and wrought necessaries for 
 fifty, can produce food and wrought necessaries 
 for two hundred and twenty, the necessary 
 profit of ten per cent, is obtained upon all the 
 capitals employed ; the whole expenditure being 
 food and wrought necessaries for two hundred, 
 and the return for these things two hundred 
 and twenty. But it is evident, that if an agri- 
 cultural capital of food and wrought necessaries 
 for fifty, could not raise food for two hundred 
 and twenty, the necessary profit could not be 
 obtained, and that tracts of soil from which the 
 expenditure of such a capital might extract food 
 for two hundred, or even for two hundred and 
 ten, must remain untilled. 
 
 But while the effective powers of manufactur- 
 ing industry remain as before, let the employment 
 and expenditure of a mercantile capital, equiva- 
 lent to food and wrought necessaries for fifty, 
 be sufficient to conduct exchanges and establish 
 the divisions of employment between the farmer 
 and manufacturer, and then tracts may be culti- 
 
 J 
 
190 
 
 vated from which the expenditure of food and 
 wrought necessaries for fifty can extract no 
 more than food for one hundred and thirty. For 
 the sum of the capitals now expended is equiva- 
 lent to no more than food and wrought necessaries 
 for one hundred and fifty, and to replace this with 
 the necessary profit of ten per cent, requires a 
 reproduction only of food or wrought necessaries 
 for one hundred and sixty-five. But as a manu- 
 facturing capital of fifty can fabricate wrought 
 necessaries for two hundred and twenty, one of 
 thirty-seven can fabricate them for one hundred 
 and sixty-five ; or, in other words, replace, with 
 the necessary profit, that portion of the whole 
 capital which consisted in wrought necessaries ; 
 and if the wrought necessaries can thus be re- 
 placed by a capital of thirty-seven, instead of by 
 one of fifty, then a capital of thirteen will be 
 disengaged from manufactures and added to the 
 agricultural one of fifty, destined to reproduce 
 that part of the original expenditure which con- 
 sisted of food. Consequently there will be an 
 agricultural capital of food and wrought neces- 
 saries for sixty-three, to raise food for one hun- 
 
191 
 
 dred and sixty-five; and all lands from which 
 an expenditure of food and wrought necessaries 
 for sixty-three, can raise food for one hundred 
 and sixty-five, may be brought under tillage. 
 But if sixty-three raises food for one hundred and 
 sixty-five, fifty will raise it for one hundred and 
 thirty ; and, therefore, lands from which a capital 
 of food and wrought necessaries for fifty can 
 raise these things for one hundred and thirty, 
 may be profitably cultivated; though previous 
 to the improvement in mercantile industry, none 
 could have remained under tillage, except those 
 from Avhich this expenditure could extract food 
 for two hundred and twenty. 
 , In a similar manner we might demonstrate, 
 that those improvements in mercantile industry 
 which have the effect, not of reducing the expense 
 of transporting and exchanging commodities, 
 but of shortening the period in which their 
 transport and exchange may be accomplished, 
 have a reaction upon other applications of labour 
 and capital, and throw to a greater distance the 
 limits beyond which cultivation can be neither 
 heightened nor extended. The illustrative de 
 
192 
 
 tails, however, would be somewhat imore com- 
 plicated and involved, and as the question relates 
 to the theory of profit rather than to that of 
 production, it is not necessary to enter upon an 
 exact analysis of it in the present chapter. 
 
 From what has been said above, the reader 
 will at once perceive the nature of the benefits 
 which a country derives from all those improve- 
 ments in roads, in navigation, or in the modes of 
 conducting business, the effect of which is, to 
 allow commodities to be transported at a less 
 expense, or in a shorter period. Such improve- 
 ments lower the price of goods to the consumer, 
 increase the return upon the capitals employed 
 in direct production, allow of heightened and ex- 
 tended tillage, and, by consequence, of increased 
 resources for the maintenance of a manufacturing 
 population. 
 
 It may also be proper to remark, that the 
 principles which we have here endeavoured to 
 unfold, are calculated to set at rest some con- 
 troverted questions of considerable importance. 
 The prejudice against large farms, which was 
 noticed in the preceding chapter, has been 
 
193 
 
 frequently extended to the employment of large 
 capitals in trade, which is represented as being 
 at one and the same time ruinous to the small 
 dealer and injurious to the consumer. This 
 involves a contradiction* The great, or, as he 
 is sometimes unfairly termed, the overgrown 
 capitalist, can supplant the small dealer only by 
 underselling him, and in whatever degree he can 
 do this, he must in the same degree benefit the 
 public at large. The fact is, business can be 
 conducted in a large way at a cheaper rate 
 than it can be conducted in a small way. A 
 single capital of 50,000/. will transport and 
 exchange a greater quantity of goods than 
 ten separate capitals of 5,000/. But every 
 saving which takes place in the capital neces- 
 sary to effect exchanges and establish the divi- 
 sions of employment, increases the quantity of 
 capital available for direct production, lowers the 
 difference between the prime cost and selling price 
 of commodities, or, in other words, causes the 
 several classes of cultivators and manufacturers to 
 obtain, with the same quantity of their peculiar 
 productions, a greater quantity of the other 
 
 o 
 
194 
 
 products which they require. By these opera- 
 tions too, the smaller capitalist will be benefited, 
 not injured. Even if he had previously engaged 
 in mercantile industry, and in the first instance 
 found himself under the necessity of incurring 
 the loss which is generally the consequence of 
 transferring stock from one occupation to ano- 
 ther, yet in a short time he would receive an 
 ample recompence in the reduced price of all the 
 articles of consumption, and in the increased 
 return obtained upon capital in all the branches 
 of direct production. The great capitalist can- 
 not supplant the small dealer, except by under- 
 selling him ; and he cannot undersell him, and 
 at the same time obtain the customary rate of 
 profit, unless conducting business upon an exten- 
 sive scale reduces the expense of transporting 
 and exchanging goods. But if goods are ex- 
 changed at a cheaper rate, capital is disengaged 
 from indirect, and rendered available for direct 
 production, — the mass of commodities is in- 
 creased, — the farmer and manufacturer can 
 purchase what they want with a smaller sacrifice 
 of the articles which they raise and fabricate, — 
 
195 
 
 the progress^ of wealth is accelerated, and the 
 ultimate limits of production removed to a 
 greater distance. 
 
 Section II. — On the Home Trade. 
 
 Mercantile industry has generally been 
 divided into three distinct branches, namely, the 
 home trade, the colonial trade, and the foreign 
 trade; which last has been again divided into 
 the foreign trade of consumption, and the foreign 
 carrying trade. In this and the following sec- 
 tions I intend to consider these several branches 
 of mercantile industry in the order in which 
 they have been enumerated. 
 
 The exchange of commodities between the 
 individuals of the same community, constitutes 
 what is called the home trade. In considering 
 this branch of mercantile industry, the first 
 things which strike us are its superior magnitude 
 and importance. Of the commodities consumed 
 in any country, the greater part is always pro- 
 duced at home. In England, for example, almost 
 
196 
 
 the whole of the wealth which supplies the great 
 mass of* our population with food, clothing, and 
 furniture, is the produce of our own land, raised 
 and prepared by our own labour. Notwith- 
 standing our widely-extended commerce, the 
 foreign articles which we import, bear a very 
 small proportion to the articles procured directly 
 and without the intervention of foreign barter, 
 by the exercise of domestic industry. Now, it 
 is the home trade which, by establishing the 
 home divisions of employment, causes all the 
 other branches of domestic industry to concur 
 and unite in the business of production; and 
 thus multiplies the powers of the labour and 
 capital from which the revenue of the great 
 majority of the nation is mainly derived. Abolish 
 the home trade, and the home divisions of em- 
 ployment will cease; and the efforts of man, 
 uncombined and unconcurring, will no longer 
 be able to subdue the, earth. Appropriative, 
 manufacturing, and agricultural industry, being 
 all carried on by the same unconnected indivi- 
 dual, or, at most, by the same unconnected 
 family, would languish in a nearly unproductive 
 
197 
 
 state. Our mines could not be explored, nor 
 our distant fisheries continued : each individual 
 being obliged to appropriate or raise his own 
 subsistence and materials, our manufacturing 
 towns would be left without an inhabitant ; and 
 while the person who tilled the soil Avas com- 
 pelled not only to work up his own produce, 
 but to fabricate all his own implements of 
 husbandry, our agriculture would be almost 
 totally suspended. Thus the destruction of the 
 home trade would in a manner annihilate all 
 the other branches of industry, and reduce the 
 country to a state much more destitute and 
 barbarous than that in which it was found at the 
 invasion of Julius Csesar. 
 
 Now, as the greatest portion of the wealth 
 annually consumed in the country is the direct 
 produce of domestic industry, it necessarily 
 follows, that the difference between the state 
 just described, and that in which we are actually 
 placed, is mainly occasioned by the extent and 
 activity of our home trade, and the consequent 
 variety and accuracy of the home divisions of 
 employment. To. the facilities of domestic 
 
198 
 
 intercourse, to the ease, rapidity, and security, 
 with which the peculiar products of one part of 
 the country can be exchanged for those of ano- 
 ther, the superior powers of our industry are in 
 a great measure to be attributed. This is the 
 principal cause which allows our farmers to cul- 
 tivate in such a manner, that their efforts shall 
 co-operate with nature ; and which, by enabling 
 each town to supply all parts of the kingdom 
 with its pecuhar fabric, congregates our manu- 
 facturing population into considerable masses, 
 and thereby perfects the division and subdivision 
 of mechanical labour, and effects a most import- 
 ant saving in the application of capital. 
 
 In estimating the peculiar advantages of the 
 home trade, we should always remember that 
 by each operation it confers a two -fold benefit. 
 When one person gives his exclusive attention 
 to the cultivation of the soil, while his neighbour 
 and countryman confines his attention to work- 
 ing up its produce, then the mercantile industry 
 by means of which this division of employment 
 can alone be established, at one and the same 
 time augments the productive powers, both of 
 
199 
 
 domestic agriculture and of domestic manufac- 
 tures. But when any individual cultivates the 
 soil, and exchanges its produce for wrouglit 
 goods imported from abroad, then the mercantile 
 industry by which the international divisions of 
 employment are established, at one and the 
 same time augments the productive powers of 
 domestic agriculture, and of foreign manufacture. 
 Thus then it is demonstrable, that in every 
 transaction of the home trade, the whole of the 
 benefit resulting from the consequent division of 
 employment remains in the country; while in 
 each transaction of the foreign trade, a part of 
 this benefit will belong to foreign countries. If, 
 under a system of unfettered intercourse, Eng- 
 land were to send a thousand pounds worth of 
 woollen cloth to Ireland, and to receive in return 
 a thousand pounds worth of linen; then the 
 United Kingdom would obtain a much greater 
 increase to its productive powers, than if Eng- 
 land exported to France a like value in cloth, 
 and brought back an equivalent in lace. In the 
 first case, the whole of the benefit derived from 
 the exchange, and the consequent division of 
 
200 
 
 employment, would remain in the United King- 
 dom ; but, in the second case, a part of this 
 benefit would belong to France. Hence it 
 follows, that the amount of exports and imports 
 must always be a most imperfect and inadequate 
 criterion of the extent of the benefit conferred 
 by mercantile industry. When one parish ex- 
 changes a thousand pounds worth of its produc- 
 tions with another, the consequent increase in 
 the productive powers of the labour and capital 
 of the country may be twice as great as that 
 which would result from exchanging produc- 
 tions to a similar amount with a foreign nation. 
 Natural or acquired faculties for conducting 
 internal intercourse, give a country advantages 
 with respect to the production of wealth, similar 
 to those which would be conferred by an in- 
 creased fertility of soil, or an increased degree of 
 skill in the application of manufacturing labour. 
 Diminishing the expense of carriage has the 
 same effect as diminishing the expense of direct 
 production. Supposing that in one district the 
 expenditure of a hundred days' subsistence, will 
 raise one hundred quarters of barley; that in 
 
201 
 
 another a similar advance of capital will obtain 
 a return of one hundred bags of hops ; while to 
 convey these commodities to market, requires 
 an expenditure of fifty days' subsistence, and 
 then the whole cost of production upon the 
 hundred quarters of barley and hundred bags of 
 hops will be subsistence for two hundred and 
 fifty. But if a canal were opened, which reduced 
 the expense of bringing the barley and hops 
 to market from fifty to ten days' subsistence, 
 then the whole cost of their production would 
 fall from two hundred and fifty to two hundred 
 and ten days' subsistence, and a capital of forty 
 days' subsistence would be disengaged, and would 
 become applicable to some other branch of in- 
 dustry. Now, these effects are precisely similar 
 to those which would result from increasing the 
 fertility of the soil. Let the expense of carriage 
 not be diminished, but let the soil of the dis- 
 tricts which produce the barley and hops be so 
 improved that an expenditure of eighty days' 
 .subsistence will raise one hundred quarters of 
 the former commodity, and an advance of eighty 
 days' subsistence obtain a return of one hundred 
 
202 
 
 bags of the latter; and then, as in the former 
 case, the whole cost of production upon these 
 quantities of barley and of hops will be reduced 
 from two hundred and fifty to two hundred and 
 ten days' subsistence. What was before saved 
 in the expense of carriage, will now be saved in 
 the expense of tillage ; one hundred and sixty 
 days' subsistence will be employed in growing 
 the barley and hops, fifty days' subsistence wiU 
 be devoted to transporting and exchanging them, 
 and forty days' subsistence will be disengaged 
 and become applicable to the growing and trans- 
 porting of other articles. A saving in the expense 
 of direct production, arising from greater fertility 
 of soil, has in no way a more beneficial effect 
 upon the wealth and prosperity of a country, than 
 a saving to a similar extent in the expense of 
 indirect production, occasioned by greater faci- 
 lities in the transport and interchange of com- 
 modities. 
 
 This principle may be still more clearly illus- 
 trated. When industry no longer replaces with 
 an adequate profit, the whole of the capital 
 employed, the work of production cannot pro- 
 
203 
 
 ceed. If there were a tract of land of such a 
 degree of fertility, as to enable a thousand 
 labourers employed in agriculture and manufac- 
 tures to raise and prepare the necessaries of life 
 for one thousand two hundred, while the state 
 of communication was such as to require two 
 hundred and fifty labourers to transport and 
 exchange these necessaries, then it is quite 
 clear that this land could not be cultivated, 
 because one thousand two hundred and fifty 
 labourers employed upon it in agriculture, manu- 
 factures, and trade, could procure the necessaries 
 of life for no more than one thousand two 
 hundred. But if the means of communication 
 between one part of the district and another 
 were so improved, that the different articles of 
 food, clothing, &;c. could be transported and ex- 
 changed by one hundred men, then the territory 
 may be profitably cultivated. For, in this case, 
 one thousand one hundred men employed in 
 agriculture, manufactures, and trade, will pro- 
 duce the necessaries of life for one thousand 
 two hundred, that is, will replace their subsist- 
 ence, with a profit of nearly ten per cent. The 
 
204 
 
 diminution in the expense of production occa- 
 sioned by improvements in the means of com- 
 munication which disengage one hundred and 
 fifty men from the necessary business of trans- 
 porting and exchanging commodities, has pre- 
 cisely the same effect in rendering this district 
 capable of tillage, as if its natural fertility had 
 been so increased, that it would yield to the 
 labour of three hundred and fifty, the same pro- 
 duce which it could formerly have yielded to 
 that of five hundred. But every diminution in 
 the expense of production, which enables us to 
 bring in tracts which could not otherwise repay 
 the cost of reclaiming them, allows additional 
 portions of capital to be applied to the more 
 fertile soils already under tillage. Improvements 
 in the means of internal communication give 
 occasion not only to extended, but to height- 
 ened cultivation, and, with respect to the faci- 
 lities for obtaining agricultural produce, have 
 precisely the same effect as a general increase in 
 the natural fertility of the soil. As far as wealth 
 and prosperity are concerned, it is exactly the 
 same thing, whether we cultivate a country 
 
205 
 
 where it requires one hundred and thirty meii to 
 raise subsistence for two hundred, and only 
 twenty to transport and exchange it, or whether 
 we cultivate one in which subsistence for two 
 hundred, may be raised by the labour of one 
 hundred, but cannot be transported and ex- 
 changed without the labour of fifty^ 
 
 With respect to manufactures, improvements 
 in the means of carrying on internal intercourse 
 have a still more beneficial influence. In these 
 branches of industry a cheaper mode of commu- 
 nication diminishes the cost of production by a 
 two -fold operation ; and while they lower the 
 price of food and material, enable the same 
 quantity of work to be performed by a smaller 
 number of hands. Where the means of internal 
 intercourse are defective, the people must reside 
 in the immediate neighbourhood of the district 
 which furnishes them with subsistence, and will 
 consequently be very much scattered over the 
 surface of the soil ; while, if the country were 
 well intersected with roads, canals, and navigable 
 rivers, food might be obtained from the most 
 distant quarters, and all that part of the popula- 
 
206 
 
 tion which is not required in agriculture, might 
 congregate itself into great towns. But we 
 have seen, that in proportion as the population 
 of a country is so congregated, the divisions of 
 employment become more accurate, machinery 
 of greater power is introduced, and the produc- 
 tive powers of manufacturing industry increased. 
 In a great town like Manchester or Birmingham, 
 the same number of hands will perform a much 
 greater quantity of work than in a small village, 
 where each individual would have to perform 
 several operations, and where the business would 
 not be sufficiently large to admit of extensive 
 and complicated machinery for the abridgment 
 of labour. Hence, improvements in the means of 
 internal communication, cheapen wrought goods 
 not merely by effecting a saving in the expense 
 of transporting and exchanging them, but also 
 by allowing that congregating of the population 
 in the districts favourable to manufacture, which 
 enables the same number of hands to finish up a 
 greater quantity of materials. 
 
 It appeared, in a former chapter, that every 
 improvement in manufacturing industry which 
 
207 
 
 has the effect of reducing the cost of production 
 upon that class of wrought goods which enters 
 into the subsistence of the labourer, operates as 
 an indirect improvement in agriculture, and 
 admits of land of an inferior quality being taken 
 in, and of additional portions of capital being 
 applied to the more fertile soils already under 
 tillage. Hence, improvements in roads, rail- 
 ways, canals, and all the means of internal com- 
 munication, have a direct as well as an indirect 
 effect in reducing the expense of obtaining raw 
 produce, and in admitting an extended and 
 heightened cultivation. While they diminish the 
 cost of transporting raw produce, they cheapen 
 the manufactured articles, such as clothing, fur- 
 niture, and implements, which must be expended 
 on its production. 
 
 Such being the nature and magnitude of the 
 benefits conferred by the home trade, it becomes 
 the business of the statesman to inquire into the 
 most efficacious means of encouraging and ex- 
 tending it. And here it is to be remarked, that 
 the power of legislative enactments, in promot- 
 ing the interchange of commodities and the 
 
20S 
 
 divisiojis of employment between different parts 
 of the same country, is negative rather than 
 positive. Regulation can effect little good, but 
 may produce much mischief; and, therefore, the 
 first and most important lesson which rulers 
 have to learn, is, to refrain from governing too 
 much. When those who are entrusted with 
 the administration of public affairs, have em- 
 ployed the powers of the state to secure to the 
 individual a perfect empire over his property, 
 and an unimpeded right to pursue whatever 
 branch of honest industry he may prefer, they 
 have fulfilled their legitimate functions, as far 
 as relates to the encouragement of trade; and 
 beyond this they cannot advance a single step 
 without counteracting their own designs, and 
 trenching upon that liberty which is as essential 
 to the progress of wealth, as it is to the perfec- 
 tion of the human character. Every legislative 
 restriction, which in any way interrupts the free 
 interchange of commodities between one part of 
 the country and another, necessarily checks the 
 division of employment, and lowers the produc- 
 tive powers of labour and capital. The effect 
 
209 
 
 produced by laws of this nature, is precisely 
 analogous to that which would result from inter- 
 secting a country with inaccessible mountains 
 and impassable swamps. On the self-same prin- 
 ciple that we should open roads, and construct 
 bridges, and canals, we should blot from the 
 statute book every enactment which prevents 
 or retards the operations of internal trade. 
 Whether the obstruction to the free circulation 
 of commodities, and consequently to the division 
 of employment, be natural or artificial,^whether 
 it arise from rocks and mountains, or from mis- 
 taken laws, the effect upon wealth and prosperity 
 is the same* 
 
 Bounties upon particular products or manu- 
 factures, have frequently been resorted to as the 
 means of encouraging industry and increasing 
 wealth. A little reflection, however, will be 
 sufficient to convince us that it is not in the 
 nature of things thslt bounties should produce 
 these desirable effects. If a bounty were granted 
 upon the manufacturing of any article, suppose 
 silk, the avidity to participate in the benefit of 
 such bounty, would draw competitors into the 
 p 
 
210 
 
 silk trade, and so increase the supply and reduce 
 the value of the commodity, that its price, even 
 when aided by the bounty, would do no more 
 than return to the manufacturer the customary 
 rate of profit upon his capital. Now, the increase 
 in the quantity, and the reduction in the price of 
 silks, would unquestionably be a benefit to the 
 consumers of this elegant article, and if the 
 effects of the bounty terminated here, no reason- 
 able objection to it could be urged. But this 
 could not be the case. The amount of the 
 bounty granted to the silk manufacturers must 
 be derived from taxes, laid either on other com- 
 modities, or on incomes. If the taxes be laid 
 upon other commodities, then the price of these 
 must be increased, and their consumption dimi- 
 nished, exactly in the same proportion that silks 
 experience a reduced price and an increased 
 consumption; and thus the encouragement ex- 
 tended to one branch of industry will be counter- 
 balanced by the depression inflicted upon others. 
 In like manner, if the tax were laid on income, 
 those who paid it would have a less sum to 
 bring to market than before ; and in whatever 
 
211 
 
 degree the consumption of silks might he in- 
 creased, in that degree would the consumption of 
 other things be diminished. Supposing that the 
 bounty upon silks amounted to 100,000/. annu- 
 ally, then the quantity of silks brought to market 
 would experience a fall in price to this amount, 
 and the consumers of the article would thereby 
 save 100,000/. for the purchase of an additional 
 quantity either of silks or of other commodities. 
 But those who paid the tax would have their 
 incomes reduced, and their annual purchases in 
 the market diminished by the amount of the 
 100,000/. which they contributed; and thus again 
 the encouragement which the bounty afforded 
 to industry upon the one hand, would be balanced 
 by the depression which it inflicted on the other. 
 Nay, the depression would be even greater than 
 the encouragement. The whole of the sums 
 raised could not be available for the bounty, a part 
 of them must necessarily be appropriated to pay 
 the salaries of those by whom the tax was col- 
 lected, and the bounty distributed. Here then 
 portions of the revenue and labour of the country 
 are thrown into a channel perfectly barren and 
 
212 
 
 unproductive. Had the sum expended upon 
 management, been left in the hands of the con- 
 tributors, it would have been accumulated as 
 capital, or laid out as revenue, and in either case 
 would have created a demand for productive 
 labour ; whereas it is now bestowed upon persons 
 whose occupation is altogether useless, and can- 
 not in the slightest degree increase the wealth of 
 the Community* 
 
 Monopolies have been frequently resorted to, 
 sometimes with the view of increasing the public 
 revenue, and at other times with the intention 
 of affording protection and encouragement to 
 trade. The expediency of employing them as a 
 means of raising the money necessary to defray 
 the expenses of government, does not come 
 precisely within the scope of this chapter ; their 
 effect upon industry, and the manner in which 
 they aid or obstruct production, we will now 
 consider. 
 
 A monopoly is a suspension of that law of 
 competition, the tendency of which is to bring 
 down the prices of all commodities to such a 
 level that the rate of profit in the several 
 
213 
 
 branches of industry shall be nearly equal. The 
 first effect, therefore, of all such exclusive privi- 
 leges, is to enable those in whose favour they 
 ^are granted, to raise the price of their goods, 
 and thus to obtain a higher profit on their trade. 
 If monopolies did not do this, they would be 
 perfect nullities. If they left prices and profits 
 at their natural level, and did not enable the 
 individuals, in whose favour they are granted, 
 to get a higher return upon their capital than 
 that which might be obtained in any ordinary 
 occupation, they could have no influence what- 
 ever upon industry, and would be objects of 
 perfect indifference both to the consumer and 
 producer. But experience proves that they are 
 by no means objects of indifference ; and the 
 eagerness with which those who engage in the 
 work of production, seek to protect themselves 
 from the effects of competition, demonstrates 
 that monopolies and exclusive privileges must 
 have the effect of advancing" prices and raising 
 profits in those branches of industry to which 
 they are extended. The question therefore to 
 be determined, is, whether the increased rate of 
 
214 
 
 profit obtained by the monopolists, effects an 
 increase in the wealth of the community of 
 which they compose a part ? 
 
 When the individuals engaged in any trade 
 obtain a higher rate of profit, not by advancing 
 their prices, but by effecting a reduction in the 
 cost of production, then the increased return 
 upon their capital is not acquired at the expense 
 of the consumer, and is a clear addition made to 
 the wealth of the community. But a very dif- 
 ferent result takes place when a higher profit is 
 obtained, not by reducing the cost of production, 
 but by advancing prices. In this case, the con- 
 sumer loses all the additional wealth which the 
 producer gains, and the quantity of useful com- 
 modities, instead of being augmented, is merely 
 distributed in proportions different from those 
 which prevailed before. If a silk manufacturer 
 discover a process by which he can work up, 
 with a capital of 90,000/., the same quantity of 
 goods on which he was formerly obliged to 
 expend 100,000/., then, by keeping his own 
 secret, and not increasing the supply of silks, he 
 may sell at the same price as before, and with- 
 
215 
 
 out in any way trenching on the resources of the 
 consumer, may gain upon 90,000/. the same sum 
 he had acquired upon 100,000/., and thus obtain 
 a disposable capital of 1 0,000/. to be invested in 
 some other occupation ; and to create, at one 
 and the same time, an addition to his own and 
 to the country's wealth. But if a silk manufac- 
 turer, by means of some exclusive privilege, 
 were enabled to raise his prices until he obtained, 
 upon a capital of 90,000/., the same sum formerly 
 obtained upon one of 100,000/., the same quan- 
 tity of silks could not be brought to market at a 
 less expense, there would be no capital dis- 
 engaged to be invested in other branches of 
 industry ; his increased income would be a trans- 
 fer from the revenue of those who paid the higher 
 price for their goods, and would be no addition 
 whatever to the wealth of the community. 
 
 When monopolies affect articles of convenience 
 and luxury, their operation is to alter the dis- 
 tribution of the national wealth, by transferring 
 into the pockets of the producers of such articles 
 the additional price paid for them by their con- 
 sumers. The consequences of all exclusive 
 
216 
 
 privileges, when they touch the necessaries of 
 
 life, are infinitely more injurious. The progress 
 
 of industry must always be arrested at that point 
 
 where the expenses of production can no longer 
 
 be replaced with a reasonable profit. But the 
 
 necessaries of life being essential to the support 
 
 of labour, always form a main ingredient in the 
 
 expenses of production ; and consequently all 
 
 monopolies, privileges, and restraints which tend 
 
 to enhance their price, render it more difficult to 
 
 replace this expense, check the extension and 
 
 improvement of tillage, and bring a country 
 
 nearer to the ultimate limits of her resources. 
 
 If we take three per cent, upon capital as the 
 
 lowest rate of return, for the sake of which the 
 
 capitalist will risk his property in production, 
 
 then all lands may be occupied, provided they 
 
 are of such a degree of fertility that when one 
 
 hundred days' subsistence are expended on the 
 
 soil, one hundred in manufactures, and one 
 
 hundred more in exchanging the raw produce 
 
 against the wrought goods, they will occasion a 
 
 reproduction of subsistence for three hundred 
 
 HUd uine. But if, in consequence of a monopoly ,( 
 
217 
 
 the persons who expended one hundred days' 
 subsistence in exchanging the necessaries of life, 
 were enabled to obtain a return of one hundred 
 and eight, instead of one hundred and three, 
 then the whole reproduction being only three 
 hundred and nine, those who expended one 
 hundred days' subsistence each in agriculture 
 and manufactures, would obtain a return of no 
 niore than one hundred a half each. By the sup- 
 position, however, a profit of three per cent, is 
 necessary to induce them to carry on their busi- 
 ness ; and, therefore, all such districts as possess 
 only the degree of fertility above described, will 
 be abandoned ; and none will be retained in 
 cultivation except those, the soil of which is of 
 such a quality, that when one hundred days' 
 subsistence are expended in agriculture, one 
 hundred in manufactures, and one hundred in 
 trade, the reproduction will amount to subsist- 
 ence for three hundred and fourteen ; that is, 
 will afford three per cent,, the customary rate of 
 profit on the agricultural and manufacturing 
 capitals, and eight per cent, the monopoly rate^ 
 upon the capital embarked in trade. 
 
218 
 
 The reader will readily perceive, that in what- 
 ever degree a monopoly affecting the necessaries 
 of life may check the cultivation of inferior 
 lands, it must, in the same degree, prevent the 
 application of additional portions of capital to 
 the superior soils already under tillage. In ob- 
 taining the necessaries of life, three distinct 
 kinds of industry are employed ; the agricultural, 
 to procure food and material ; the manufacturing, 
 to prepare clothing and furniture ; and the mer- 
 cantile, to aid the powers of the former two by 
 establishing the divisions of labour. Now, the 
 joint products of these several branches of indus- 
 try must always be sufficient to replace, with an 
 adequate profit, the capitals expended in carry- 
 ing them on. If we take three per cent, as the 
 lowest rate of profit which will induce men to 
 embark in business, then additional portions of 
 capital may be applied to the soil as long as 
 three hundred days' subsistence expended on the 
 three branches of industry — agriculture, manu- 
 facture, and trade — will obtain a reproduction of 
 three hundred and nine days' subsistence. But 
 if, while three per cent, continues to be the 
 
219 
 
 minimum rate of profit, a monopoly or exclusive 
 privilege enables the master in any one branch 
 of industry to obtain a higher rate of return 
 upon his stock, then the application of addi- 
 tional portions of capital to the soil must cease 
 before the expenditure of subsistence for three 
 hundred days occasions so small a reproduction 
 as subsistence for three hundred and nine days; 
 otherwise, the master tradesman, who derived 
 no benefit from the monopoly, would receive a 
 lower rate of profit than that which is necessary 
 to- induce him to continue his business. Sup- 
 posing that the capital embarked in the favoured 
 branch of industry, constitutes one third of 
 the w^hole capital employed in bringing the 
 necessaries of life to market, and that in conse- 
 quence of the monopoly, the third part obtains 
 a profit of eight per cent, and then the progress 
 of heightened cultivation must be arrested when 
 the expenditure of three hundred days' subsist- 
 ence in the several occupations of agriculture, 
 manufacture, and trade, ceases to occasion a 
 reproduction of three hundred and fourteen days' 
 subsistence. For, if the one hundred days' sub- 
 
220 
 
 sistence expended in any one branch of industry, 
 whether it be that which raises food and mate- 
 rial, or that which prepares clothing and furni- 
 ture, or that which aids the effective powers of 
 the former two, obtain a return of subsistence 
 for one hundred and eight days, or eight per 
 cent, it will require an additional reproduction 
 of two hundred and six days' subsistence to give 
 the remunerating profit of three per cent, upon 
 the expenditure of the other two capitals con- 
 sisting of one hundred days' subsistence each. 
 
 Monopolies may be granted in favour, either 
 of particular individuals, or of particular dis- 
 tricts. Their operation is as injurious in the 
 latter case as in the former. When the supply- 
 ing of any article of convenience or luxury is 
 confined by law to a particular district, the 
 price of such article rises above the level to which 
 competition would have brought it, and to the 
 district so favoured an undue proportion of the 
 wealth of the country is thereby transferred; 
 and when one part of the country obtains an 
 exclusive privilege for supplying articles which 
 enter into the subsistence of labour, then the 
 
221 
 
 other parts of the country not only have an 
 undue proportion of their wealth transferred, 
 but have the expenses of production increased 
 on them, and the effective powers of their in* 
 dustry reduced. Thus, then, if monopolies are 
 confined to superfluities, the distribution of 
 wealth is the only thing affected, and the 
 favoured district gains that which the others 
 lose ; but, when monopolies extend to necessaries, 
 the production of wealth is checked, and the 
 favoured district cannot acquire that of which 
 the others are deprived. On the contrary, the 
 favoured districts will generally participate in 
 the injury inflicted on the country at large, and 
 will be rendered less opulent than if the trade 
 in subsistence had been left open to competition. 
 At the time that turnpike roads began to be 
 introduced into England, we are told, that the 
 land proprietors in the neighbourhood of the 
 metropolis petitioned that they might not be 
 extended to the distant counties, lest the im- 
 proved means of communication might increase 
 competition, and reduce the price of agricultural 
 produce. Had the principle of this petition been 
 
222 
 
 acted ui)on, and the supplying of the produce 
 of the soil been restricted to the immediately 
 adjacent counties, it is self-evident, that London 
 never could have become what she at present is ; 
 while it is clearly demonstrable, that any given 
 portion of capital employed in the cultivation of 
 these favoured counties, would not have yielded 
 so large a return as it now affords. A great 
 manufacturing and commercial city confers upon 
 the neighbouring territory three distinct advan- 
 tages. As it becomes necessary to resort to 
 more remote districts for the supply of sub- 
 sistence, the produce of the adjacent lands 
 acquires to the amount of the increased expense 
 of carriage upon the food and material brought 
 from the greatest distance, a higher value in 
 the market than that which it before possessed ; 
 in proportion as the accumulation of the popula- 
 tion into large towns, facilitating the mechanical 
 divisions of employment, increases the effective 
 powers of manufacturing industry, and lowers 
 the price of clothing, furniture, and implements, 
 it reduces the cost of production in agricultural 
 industry, and thereby admits of additional por- 
 
223 
 
 tions of capital being profitably applied to the 
 soil ; and in whatever degree the number of 
 wealthy consumers augments, an increased de- 
 mand will arise for milk, fresh butter, vegetables, 
 fruits, and all those products of the soil which 
 cannot be brought from any considerable dis- 
 tance, and which, as they are not strictly neces- 
 saries, can have no limits to the increase of their 
 value, except that which the number and wealth 
 of the consumers may determine. If the petition 
 of the land proprietors in the neighbourhood of 
 London had been complied with, they would 
 have been cut off from all these sources of aug- 
 mented wealth; and in whatever degree the 
 exclusive privilege for the supplying of agricul- 
 tural produce might have checked the growing 
 population and prosperity of the metropolis, in 
 that degree it would have retarded the cultiva- 
 tion and improvement of those very districts in 
 favour of which it was proposed. Instead of a 
 transfer, there would have been a diminished 
 production of wealth. 
 
 Having thus shewn, that in every conceivable 
 instance, bounties and monopolies, for the en- 
 
224 
 
 couragement of the home trade, counteract the 
 end they are intended to promote, and have a 
 constant tendency liot to advance, but to retard 
 the prosperity of a country, I shall conclude this 
 section with a few observations calculated to 
 shew, in a yet stronger light, that, with respect 
 to the application of capital and the direction of 
 industry, the first duty of government is not to 
 interfere* From the nature and extent of the 
 benefits which a country derives from the facility 
 of internal intercourse, it might seem, at first 
 sight, not unreasonable to conclude, that the 
 legislature has the power of rendering labour 
 and capital more productive, by causing improve- 
 ments in inland navigation to be undertaken at 
 the public expense* The following considera- 
 tions will prove that in all ordinary cases this 
 conclusion would be erroneous* 
 
 For the sake of illustration, we will suppose, 
 that the customary rate of profit is twenty 
 per cent* ; and that the annual expenditure of 
 three thousand days' subsistence, one thousand of 
 which is employed iii a manufacturing town, pre- 
 paring clothing and furniture, one thousand in an 
 
225 
 
 agricultural district, raising food and material, 
 and one thousand in transporting and exchang- 
 ing, occasions a reproduction of subsistence for 
 three thousand six hundred days. Under those 
 circumstances, let it be projected to construct a 
 canal between the town and the agricultural 
 district ; let this canal cost two thousand days' 
 subsistence, and on its completion let the annual 
 expenditure for carriage between the town and 
 district be reduced to five hundred days' sub- 
 sistence. 
 
 Now, in such a case, it is quite plain that it 
 would be unnecessary for government to under- 
 take to open the canal. By the previous supposi- 
 tion, on© thousand days' subsistence were annually 
 expended on carriage ; and, to replace this with 
 a profit of twenty per cent, required a return of 
 subsistence for one thousand two hundred days. 
 Without, therefore, trenching in any Way upon 
 the customary rate of profit in agriculture and 
 manufactures, one thousand two- hundred days' 
 subsistence are now available for paying the 
 reduced expenses upon carriage, and the interest 
 of the capital sunk in the canal. But the 
 
226 
 
 expense of carriage, as now reduced, amounts 
 to no more than five hundred days' subsistence, 
 and to replace this, with a profit of twenty per 
 cent, requires only subsistence for six hundred ; 
 consequently there remains six hundred days' 
 subsistence to pay the interest of the two thou- 
 sand invested in the canal. This gives a re* 
 turn of thirty per cent. It would, therefore, 
 be superfluous and absurd in the government 
 to lay contributions on the public, for the con- 
 struction of a work which would yield ten per 
 cent, more than the common rate of profit, and 
 wliich would consequently excite amongst indi- 
 viduals the most ardent competition to invest 
 their capital in so beneficial a concern. Nay, it 
 would not only b^ superfluous and absurd, it 
 would be positively pernicious in the government 
 to undertake the opening of the canal ; because, 
 when works are carried on at the public expense, 
 they are never performed so economically and 
 well, as when carried on at the risk of private 
 individuals, watching over the expenditure of 
 their individual fortunes. 
 
 But supposing that our canal were to cost 
 
227 
 
 eight thousand days' subsistence, instead of 
 two thousand, and that as the return on the 
 concern would be thereby reduced from thirty 
 to seven and a half per cent., individuals 
 could not be found to engage in it. Would 
 it not then be expedient for government to 
 undertake the work at the public expense? 
 ' Certainly not. By the supposition, the custom- 
 ary rate of profit is twenty per cent, and, there- 
 fore, it would be highly prejudicial to force 
 capital into a channel in which the return 
 could be only seven and a half per cent. When 
 a new mode of communication will afford an 
 adequate return on the capital which must be 
 expended on it, individuals will undertake to 
 open it ; and when it will not afford the cus- 
 tomary rate of return, it should not be opened 
 at all. In either case, nothing but mischief can 
 result from the interference of government. 
 With respect to the internal trade of a country, 
 the whole art of governing is comprised in giving 
 security to property, and in opening an uninter- 
 rupted field to individual exertion. 
 
228 
 
 Section III. — On the Colonial Trade. 
 
 Having considered what seems important 
 and peculiar in the home trade, I will proceed 
 to examine the colonial trade. This, like every 
 other branch of mercantile industry, gives oc- 
 casion to divisions of employment, and thus 
 heightens the productive powers of labour and 
 capital. England, for example, abounds with 
 land peculiarly adapted to the feeding of sheep ; 
 but as a part of such land is sufficient to supply 
 us with all the mutton and wool we require, the 
 remaining part of it must be employed in produc- 
 ing something else for which we have a demand. 
 Let us suppose that our demand is for sugar; 
 and then the remaining part of the land peculiarly 
 adapted to the feeding of sheep, will be employed 
 in the cultivation of saccharine plants. Neither 
 the soil nor the climate of England, however, is 
 congenial to plants abounding with saccharine 
 matter ; and were we to lay out our grounds in 
 plantations of the beet or of the parsnip, we 
 
229 
 
 should obtain only a small supply of sugar at a 
 great expense. But let a tropical island, in 
 which the sugar-cane grows luxuriantly, be 
 discovered and taken possession of, and the 
 proprietor of the English beet plantations will 
 immediately perceive, that by feeding sheep 
 upon the grounds which nature adapted to 
 pasture, and exchanging his wool for the sugar 
 of the colonist, lie can obtain a much more 
 abundant supply of this article than by raising 
 it at home. The colonist too, in whose warmer 
 climate nature has given the sheep a thin and 
 scanty covering, will find it his interest to raise 
 more sugar than he requires for his own con- 
 sumption, and to send the surplus to England 
 in exchange for clothing. Hence, between the 
 mother country and the colony a mutually bene- 
 ficial territorial division of employment will be 
 established ; and the home and the colonial pro- 
 prietor, in consequence of their co-operating with 
 nature, will augment, in a very high degree, the 
 productive powers of their respective industry. 
 Here, perhaps, it may be asked, — If it is by 
 
230 
 
 establishing divisions of employment that the 
 colonial trade promotes the formation of wealth, 
 what can be the utility of incurring the expense 
 of maintaining colonial establishments ? Might 
 not the trade which is carried on between a 
 mother country and her colonies, be equally 
 extensive and beneficial, though the connexion 
 between them were dissolved, and the colonies 
 acknowledged as independent states ? 
 
 One answer to these questions is, that the 
 territories in which colonies are generally esta- 
 blished are inhabited by tribes of savages, pos- 
 sessing neither the inclination nor the skill to 
 render their soil productive; and that before 
 any beneficial divisions of employment can be 
 established with such territories, they must be 
 taken possession of by a civilized people. 
 
 This answer, however, applies only to the 
 policy of sending out colonists in the first in- 
 stance to cultivate tracts inhabited by savage 
 tribes, and does not go to shew that any increase 
 of national wealth is derived from retaining 
 sovereignty over colonies which have been once 
 
231 
 
 thoroughly established, or over nations already 
 sufficiently industrious. The proper answers to 
 these questions are the following : — 
 
 In the first place, the colonial resembles the 
 home trade, in the two-fold benefit which it 
 confers, and in the security and permanence 
 which it possesses. When England trades with 
 an independent island, a part of the wealth 
 created by the consequent division pf employ- 
 ment goes to enrich foreigners. But when 
 England carries on traffic with Jamaica, the 
 whole of the increased wealth, brought into 
 existence by the divisions of employment hereby 
 established, is the property of British subjects, 
 and adds to the strength and resources of the 
 British empire. Besides, when we exchange 
 our commodities with an independent state, the 
 beneficial divisions of employment to which this 
 traffic gives occasion, are liable to be suspended 
 by a declaration of hostilities, or by the enacting 
 of those restrictions and prohibitions which com- 
 mercial rivalry is perpetually suggesting. But 
 when a mother country and her colonies, parti- 
 cularly if they possess a commanding marine, 
 
232 
 
 interchange their surplus products, nothing short 
 of a dismemberment of the empire can suspend 
 their intercourse, or interrupt those divisions of 
 employment by which they are enabled to make 
 the most of the natural peculiarities of their soil, 
 and of their acquired advantages in the appli- 
 cation of labour. 
 
 In the second place, from the relative propor- 
 tions, according to which population and capital 
 have, in all old countries, been hitherto found to 
 increase, the supply of labour has such a ten- 
 dency to exceed the demand for it, that the 
 labouring classes, even when there is no extraor- 
 dinary stagnation or revulsion in the channels of 
 industry, are commonly reduced to a degree of 
 distress and temptation, for which, in the actual 
 state of knowledge and of morals, there is no 
 conceivable remedy except in a system of colo- 
 nization, sufficiently extensive to relieve the 
 mother country from superfluous numbers. The 
 question of colonization, however, with respect 
 to its influence in mitigating the evils of exces-. 
 sive population, will fall more properly under 
 pur consideration when we come to examine the 
 
233 
 
 several circumstances which regulate wages, and 
 affect the interests of the labouring classes. It 
 is alluded to in this place merely for the purpose 
 of exhibiting, in a stronger light, the futility of 
 the objections which have sometimes been urged 
 against the extension of the colonial system. 
 
 It is extremely improbable that the objections 
 against colonial establishments, even were they 
 as valid as in reality they are futile, should ever 
 have the effect of inducing princes and sovereign 
 states voluntarily to resign such dependencies. 
 A question of much greater practical importance 
 presents itself for our consideration ; — -namely, 
 can any accession of wealth be derived from 
 those restrictions which, in modern times, parent 
 states have almost uniformly imposed upon the 
 commerce of their colonies? Such restrictions 
 have generally had for their object, either to 
 grant to particular companies, and particular 
 ports, an exclusive privilege to trade with the 
 colonies ; or, to compel the colonies to make the 
 mother country the mart, or entrepot, for effect- 
 ing all their transactions with foreign countries; 
 or, to secure to the domestic producer the mono- 
 
234 
 
 poly of the colonial market. I shall examine 
 the effects of these restrictions in the order in 
 which I have enumerated them. 
 
 When a particular company, or a particular 
 town, obtains the exclusive privilege of trading 
 with the colonies, home-made goods become 
 dearer in the colonial market, and colonial goods 
 dearer in the home market than they would be 
 if the law of competition were allowed to operate 
 unchecked. It is only by being enabled to dis- 
 pose of their commodities at prices above the 
 level which would be determined by free compe- 
 tition, that the merchants of a particular com- 
 pany or town can receive any benefit from the 
 exclusive privil^e of trading with the colonies. 
 
 But raising the price of home-made goods in 
 the colonial market, and of colonial goods in the 
 home market, above the level of free competi- 
 tion, brings no additional wealth into existence, 
 but merely enhances the profits of the merchant 
 at the expense of the consumer. Nay, this 
 mode of raising prices, and of enhancing the 
 profits of the privileged merchant, instead of 
 increasing the general mass of wealth, will tend 
 
235 
 
 to diminish it. Enjoying considerable profits by 
 the aid of their exclusive privilege, the merchants 
 trading between the mother country and the 
 colonies will not be compelled to shut out com- 
 petitors by taxing their ingenuity to the utmost 
 in order to discover the cheapest and most expe^ 
 ditious modes of conducting their business. A 
 greater quantity than would otherwise be neces-^ 
 sary, of the labour and capital of the country, 
 will therefore be employed in exchanging com- 
 modities, a d consequently a less quantity will 
 remain to be employed in directly producing 
 them. But this is not all. Many of those arti- 
 cles which the mother country sends to the 
 colonies, and which the colonies send to the 
 mother country, will consist of the necessaries of 
 life, or of the articles expended in raising and 
 fabricating the necessaries of hfe. But we have 
 seen, that whatever increases the expense of 
 bringing such articles to market, lowers the 
 return upon capital throughout all the departr 
 mcnts of industry, sets narrower limits to the 
 extension and improvement of tillage, and dimi- 
 nishes the quantity of food and of raw material 
 
256 
 
 which can be obtained for manufactures. Grant- 
 ing, therefore, to particular companies, or even 
 to particular towns, the exclusive privilege of 
 trading with the colonies, not only enriches the 
 favoured individuals at the expense of the home 
 and colonial consumers, but at one and the same 
 time checks the prosperity, both of the colonies 
 and of the mother country. 
 
 The effect is different with respect to those 
 restrictions on the colonial trade which have for 
 their object to render the mother country the 
 mart, or entrepot^ for conducting the commer- 
 cial intercourse between the colonies and foreign 
 countries. These increase the wealth of the 
 mother country by diminishing that of the colo- 
 nies. If we suppose that the British colonies 
 consume a quantity of Russian linens, while 
 Russia, in return, takes a quantity of their 
 sugars ; then it will be the clear and obvious 
 interest, both of the colonies and of Russia, that 
 their respective commodities should be carried 
 •and exchanged with the smallest possible ex- 
 j)ense. But if England restricts her colonies 
 from holding a direct commerce with foreign 
 
237 
 
 countries ; and if, in consequence, the sugars and 
 the linens must be first consigned to the port of 
 London, and thence reshipped for their final des- 
 tination, then the London merchants to whom 
 the consignments are made, and by whom the 
 reshipments are effected, will charge their com- 
 mission upon these transactions ; and this com- 
 mission, paid by the Russian and colonial 
 consumers in the increased price of their goods, 
 will be a clear addition to the wealth of England, 
 obtained by the restrictive system imposed upon 
 the colonies. 
 
 It may perhaps be objected, that if the Britisli 
 colonies were permitted to hold a direct trafhc 
 with Russia, the London merchants to whom 
 the consignments were made, and by whom the 
 reshipments were effected, would employ their 
 capitals in some other direction, and, by making 
 the customary rate of profit, would effect the 
 same addition to the national wealth as before. 
 We answer, that mercantile capital consists, 
 first and mainly, of the commodities which are 
 circulated ; and, secondly, of the vessels, docks, 
 wharfs, and wareliouses, by means of which 
 
238 
 
 their circulation is effected. If the restrictive 
 systetti were abolished, and a direct trade per- 
 mitted between our colonies and Russia, all that 
 portion of mercantile capital consisting of the 
 sugar to be consumed in Russia, and the linen 
 to be used in the colonies, which was consigned 
 to the London merchant, and upon which he 
 obtiained a commission, would disappear alto- 
 gether from the port of London, and no longer 
 pay England a per centage. Besides, that por- 
 tion of mercantile capital which consisted of 
 docks, wharfs, and warehouses, though it re- 
 mained in the country, yet could not be trans- 
 ferred to agriculture or manufactures, and when 
 London ceased to be the entrepot between the 
 colonies and Russia, the dues, profits, and rents 
 paid for the use of these things by the colonial 
 and Russian consumers, would be so much net 
 revenue which England would lose by the aboli- 
 tion of the restrictive system. 
 
 The principles here stated, enable us to trace 
 one of the sources of the great prosperity of 
 England during the late war. Her conquests, her 
 navalsuperiority, and her restrictive system, aided 
 
239 
 
 as it was, by the anti-commercial decrees of the 
 French Government, rendered the United King- 
 dom the entrepdt for the colonial trade of 
 Europe. The consignments from all the colo- 
 nies of produce for the purchase of foreign goods, 
 and from aU the countries of Europe of foreign 
 goods for the purchase of colonial produce, con- 
 stituted an immense mercantile capital, circulat- 
 ing throughout the ports of the United Kingdom, 
 paying a regular commission to the British 
 merchant, with dues, profits, and rents, for the 
 use of docks, wharfs, and warehouses. When 
 peace returned, and England resigned her colo- 
 nial conquests, this immense floating capital was 
 no longer attracted to her ports. The British 
 merchant ceased to receive his accustomed com- 
 mission, and the proprietor of docks and ware- 
 houses, the dues and rents paid by the colonial 
 and continental consumer ; and the cessation of 
 hostilities, instead of giving, as some persons 
 seemed to expect, a new impulse to commercial 
 prosperity, was followed by a diminution of 
 trade, and a loss of wealth. 
 
 Those restrictions which have for their object 
 
240 
 
 to secure to the productions of the mother coun- 
 try a monopoly in the colonial market, may also 
 have the effect of enriching the mother country 
 at the expense of the colonies. Supposing that 
 Scotch and Irish linens cannot be sold with an 
 adequate profit at so low a price as those of 
 Germany; and that England, by protecting 
 duties and prohibitions, compels her West India 
 Islands to purchase the more costly articles ; — it 
 will be evident, that the wealth of these colonies 
 must be diminished l^y the amount of the dif- 
 ference between the price which they pay for 
 British, and that, at which, under a free trade, 
 they miglit obtain German linens. A little 
 consideration will also render it evident, that 
 this loss sustained by the colonies, will be a 
 source of gain to the mother country. Under 
 the circumstances supposed, if it were not for 
 the artificial protection afforded to them, Scotch 
 and Irish linens could not be manufactured for 
 the colonial market ; and the manufacturers 
 would be compelled to transfer their capital to 
 the production of other articles with which to 
 purchase the colonial produce required for the 
 
241 
 
 home market. But why, in tlie first instance, 
 was colonial produce purchased with linens, 
 instead of with the other articles now fabricated 
 for that purpose ? For no other reason, assuredly, 
 but because the merchant found that linens, 
 when sold in the colonies at the prices secured 
 by the restrictive system, enabled him to bring 
 back a more valuable return in colonial goods 
 than he could have purchased with any other 
 article produced at home, by an equal expen- 
 diture of labour and capital. Had there been 
 any article, obtained at home at the same ex- 
 pense, which could have purchased in the colo- 
 nies a greater, or even an equal quantity of their 
 produce, this article it would have been the inte- 
 rest of the merchant to have exported. The 
 fact of his having preferred the exportation of 
 linen proves, that this article, when protected 
 against foreign competition, will purchase in the 
 colonies a greater quantity of their produce than 
 any other obtained at an equal expense. The 
 restrictive system, therefore, which prevents 
 foreign from beating home-made linens, out 
 of the colonial market, enables the mother 
 
 11 
 
242 
 
 country to purchase her colonial produce with a 
 less sacrifice of labour and capital than she other- 
 wise could do. While the colonies would be 
 impoverished by giving a greater quantity of the 
 produce of their labour and capital for the linens 
 they required, the mother country would be 
 enriched by giving a less quantity of her pro- 
 ducts for the sugar and rum which she con- 
 sumed. 
 
 The principle, that restrictions compelling the 
 colonies to receive those commodities which other 
 countries could furnish to them cheaper, increases 
 the wealth of the mother country by diminishing 
 that of the colonies, is so important, and at the 
 same time so inadequately understood, that it 
 may be expedient to illustrate it by an analytical 
 detail. 
 
 It is quite evident, that no legislative restric- 
 tions would be required for forcing the consump- 
 tion of British linens in our West India Islands, 
 unless other countries could furnish them cheaper; 
 and that even after the imposition of the re- 
 strictions, the British merchant would not export 
 linens to these Islands, unless the state of the 
 
243 
 
 market were Such, that he obtained a better 
 return, either in money or in colonial produce, 
 than he could obtain by exporting additional 
 supplies of other things. We will, therefore, 
 assume, as the basis of our illustration, 1^^, that 
 Jamaica pays the United Kingdom one hundred 
 and ten stone of sugar for that quantity of linen 
 which, if trade were free, she could obtain from 
 Germany for one hundred stone. 2f/, that the 
 markets of Jamaica being already supplied with 
 all British goods except linen, the additional 
 exportation to that Island of a quantity of wool- 
 lens or of hardware, &c. &c. which had been 
 produced by a capital of one hundred days' sub- 
 sistence, would cause a glut of these things, and 
 so lower their exchangeable value, that the ven- 
 ture brought back a return of only one hundred 
 stone of sugar; while a venture consisting of 
 a quantity of linen produced by a capital of one 
 hundred days' subsistence, obtained a return of 
 one hundred and ten stone. 
 
 In this case it is evident, that the commercial 
 restrictions forcing the colonies to take British 
 instead of German linens, diminish the wealth 
 
244 
 
 of Jamaica to the extent of ten stone of sugar 
 on every one hundred yards of linen she con- 
 sumes ; while they increase the wealth of the 
 United Kingdom to the extent of ten stone of 
 sugar upon every portion of capital equal to one 
 hundred days' subsistence employed in supplying 
 the colonial consumer with the linen for which he 
 has a demand. Thus we see exactly the modus 
 operandi by which the monopoly of the colonial 
 market gives to the mother country the products 
 of a greater quantity of colonial industry in 
 exchange for the products of a given quantity 
 of domestic industry. 
 
 While the restrictions on the colonial trade 
 which give the products of domestic industry a 
 monopoly in the colonial market, increase the 
 wealth of tlie mother country at the expense of 
 the colonies, those restrictions which secure to 
 colonial productions an exclusive privilege in 
 the home market, enrich the colonies at the 
 expense of the mother country. When England 
 imposes an unequal duty upon the sugars of the 
 East Indies, in order to encourage the trade 
 with the West India Islands, she renders herself 
 
245 
 
 tributary to her own colonies, and makes a 
 voluntary sacrifice of wealth to the amount of 
 the difference between the quantity of her pro- 
 ducts wh'ch she gives for her supply of West 
 India sugars, and the quantity for which she 
 might obtain an equal supply of sugars from the 
 East. Again ; when the legislature recently 
 laid heavy duties on the importation of Nor- 
 wegian timber, in order to force the people of 
 England to purchase the dear and inferior tim- 
 ber of Canada, the interests of England were 
 blindly sacrificed to those of Canada, and the 
 wealth of the country diminished by the differ- 
 ence between the price we are forced to pay for 
 American timber, and the price for which we 
 might obtain the article from the North of 
 Europe. But this is not the worst ; with the 
 single exception perhaps of iron, timber is the 
 most serviceable article in aiding human labour. 
 It enters, more or less, into every portion of 
 capital employed in production. Now, increas- 
 ing the difficulty of obtaining the ingredients of 
 capital, and thereby raising their exchangeable 
 value with respect to other things, necessarily 
 
246 
 
 reduces the rate of profit. Hence, the monopoly 
 which England has granted to Canada in the 
 timber trade, not only compels her to sacrifice a 
 greater portion of her wealth in exchange for 
 the timber she requires, but tends to lower the 
 return upon capital throughout all the depart- 
 ments of her industry. By the duties on 
 Norwegian timber, the mother country loses 
 incalculably more than the colonies can gain. 
 
 In concluding this section on the colonial 
 trade, it may be expedient to shew, that the 
 principle, that restrictions may benefit the mo- 
 ther country by injuring the colonies, or enrich 
 the colonies by impoverishing the mother coun- 
 try, is in no way inconsistent with the doctrine 
 established in the preceding section, that the 
 utmost freedom of internal intercourse promotes 
 the wealth of a country. When a mother coun- 
 try and her colonies are regarded as one empire, 
 there can be no doubt that the aggregate wealth 
 of this empire will be increased by establishing 
 an entire freedom of trade between all the coun- 
 tries composing it; in the same way as the 
 aggregate wealth of a country is increased by 
 
247 
 
 permitting unrestricted intercourse between its 
 several provinces. But, as in any country a 
 monopoly, or exclusive privilege, in favour of a 
 particular set of persons, or of a particular town, 
 might enrich those persons, or that town, at the 
 expense of the community ; so, in an extensive 
 empire, commercial regulations may be devised 
 which will have the effect of rendering one 
 country tributary to another. In revising our 
 colonial system, if the object of the legislature 
 should be to increase the wealth of the British 
 dominions, the utmost freedom should be ex- 
 tended to the trade between the several countries 
 of which these dominions are composed. But, 
 should the object be to cause the greatest pos- 
 sible portion of the general wealth to centre in 
 the United Kingdom, as a compensation for the 
 expense of protection ; then restrictions should 
 be imposed, rendering the mother country the 
 entrepot for the foreign transactions of the colo- 
 nies, and securing to her productions a monopoly 
 in their markets. We cannot conceive, that it 
 is ever the real object of legislators to enrich 
 a colony by impoverishing the parent state ; 
 
248 
 
 because this would be to counteract the only end 
 for which colonial possessions are maintained; 
 and therefore regulations, similar in principle 
 to those under which England imports her 
 timber from Canada, must have their origin 
 either in ignorance, or in a corrupt compliance, 
 in return for parliamentary support, with the 
 wishes of some powerful junta of ship-owners 
 and merchants, whose private interest is opposed 
 to that of the public. 
 
 Section IV. — On Foreign Trade, or 
 Commerce, 
 
 We have now to examine the peculiar and 
 distinguishing effects of foreign trade, or com- 
 merce. The manner in which this branch of 
 mercantile industry augments the wealth of a 
 country, is precisely analogous to that in which 
 the home and the colonial trades occasion a 
 similar effect. The divisions of employment 
 augment in a wonderful degree the productive 
 powers of land, labour, and capital. By the 
 
249 
 
 mechoTiical division, each person acquires, in his 
 peculiar calling, an expertness and skill which 
 would otherwise be unattainable; by the temto- 
 rial division, cultivation is made to co-operate 
 with nature ; and by both, capital is economised, 
 and all its products are multiplied. Now, these 
 beneficial divisions of employment may be esta- 
 blished between individuals residing in different 
 nations, as well as between individuals residing 
 in the same nation. If the people of England 
 have acquired greater skill than their neighbours 
 in working up cotton, while those of France 
 excel in manufacturing silk, then, between the 
 two countries a mechanical division of employ- 
 ment, mutually beneficial, may be established. 
 By England's confining herself to the fabricat- 
 ing of cottons, and France to the fabricating of 
 silks, these articles of clothing may be produced 
 in greater abundance than if each country 
 directed its labour and capital to the occupation 
 more peculiar to the other. Again ; while the 
 mines and coal pits of England give her peculiar 
 facilities in procuring and working up tin and 
 iron, and while the soil and climate of France 
 
250 
 
 give her peculiar advantages in producing wine 
 and fruit, a territorial division of employment, 
 mutually beneficial, may be established between 
 the two countries: England, by working her 
 mines, and exchanging her metals for the pro- 
 duce of the French vine-yards, will obtain a 
 much greater quantity of wine, than if she 
 attempted to cultivate the grape at home, 
 beneath an uncongenial sky; and France, by 
 exchanging her wine for the hard-ware of Eng- 
 land, will obtain a much more abundant supply 
 of these articles, than if she attempted to work 
 the metals for herself. Now, as it is the home 
 trade which gives occasion to the home divisions 
 of employment, so it is foreign trade, or com- 
 merce, which gives occasion to the foreign divi- 
 sions of employment. All the increase of wealth, 
 therefore, which nations derive from the foreign 
 divisions of employment, are to be referred to 
 commerce as their original and proper source. 
 Having thus shewn the manner in which foreign 
 trade heightens the power of production, and 
 increases wealth, we proceed to point out what 
 is peculiar to this branch of mercantile industry. 
 
251 
 
 As in the operations of the home and colonial 
 trades, the benefit is always two-fold ; so, in the 
 operations of foreign trade, the benefit is always 
 reciprocal. The opinion so frequently urged by 
 economists, and acted upon by statesmen, that 
 what one nation gains by commerce, some other 
 nation must lose, is totally destitute of proof, 
 and directly contrary to fact. When England, 
 availing herself of her natural advantages, pre- 
 pares more tin and iron than is necessary for her 
 own consumption, and exchanges the surplus for 
 the wines and fruits of France, she obtains a 
 much greater quantity of these articles than the 
 labour and capital expended upon the equivalents 
 with which they are purchased, could have 
 raised at home. But, in this case, the gain of 
 England is not the loss of France. On the 
 contrary, the latter country, by availing herself 
 of the natural peculiarities of her soil and climate, 
 and exchanging her surplus wine and fruit for 
 the tin and iron work of England, obtains a 
 much larger and better supply of these useful 
 commodities, than the labour and capital ex- 
 pended upon the fruit and wine by which they 
 
252 
 
 were purchased, could otherwise have procured 
 for her. Again ; while, in consequence of more 
 accurate divisions of mechanical employment, 
 and of the application of better machinery, Eng- 
 land can manufacture cloth cheaper than Poland; 
 and while Poland, in consequence of having 
 none but her first-rate soils under cultivation, 
 can raise corn cheaper than England; then, 
 England, by exchanging cloth for corn, will 
 obtain a much greater quantity of corn than 
 the labour and capital expended on the cloth 
 could have extracted from her own soil. But 
 this gain of England is not acquired at the 
 cost of Poland. On the contrary, Poland obtains 
 in exchange for her corn, a much larger and 
 better supply of cloth than the labour and capi- 
 tal expended on the corn could have manufac- 
 tured for her at home. The advantages are 
 mutual and reciprocal. In both countries the 
 productive powers of industry are multiplied. 
 England has more food, and Poland has more 
 cloth, than if a fettered commerce destroyed the 
 international divisions of employment. 
 
 Another most important consequence of 
 
253 
 
 foreign trade is, that it accelerates prosperity in 
 new countries, while in old countries it removes 
 the natural check to prosperity, and throws the 
 stationary state to a greater distance. In new 
 countries, where it is not necessary to cultivate 
 inferior lands, or to cultivate the better soils in 
 an expensive manner, the productive powers of 
 agricultural industry are extraordinarily high; 
 while, from the population being thin and scat- 
 tered, and from capitals being little accumulated, 
 the application of machinery, and the division 
 of mechanical employment are imperfect; and 
 consequently, the productive powers of manufac- 
 turing industry are extraordinarily low. The case 
 is reversed in old countries. In these, the neces- 
 sity of resorting to inferior soils, and of applying 
 additional portions of capital to the best, renders 
 it daily more difficult to raise an increased supply 
 of agricultural produce ; while, in consequence 
 of denser population, and larger accumulations 
 of capital, employment is more subdivided, and 
 machinery better applied ; so that the productive 
 powers of manufacturing industry increase, rather 
 than diminish. Hence, we perceive, that in new 
 
254 
 
 countries, prosperity is retarded by the difficulty 
 of converting raw produce into wrought goods ; 
 while, in old and populous countries, prosperity 
 is checked, and ultimately the stationary state 
 brought on, by the difficulty, not of working up, 
 but of procuring agricultural produce. Now, the 
 difficulty of working up raw produce in the one 
 case, and of obtaining it in the other, may be 
 completely obviated by those international divi- 
 sions of employment which foreign trade esta- 
 blishes. This important principle we will proceed 
 to demonstrate by one or two illustrative cases. 
 Let us suppose, that in America, the labour 
 of one family is, in consequence of none but the 
 best lands being under cultivation, sufficient to 
 raise the raw produce necessary for the consump- 
 tion of six families ; and that, owing to the thin- 
 ness of the population, and to the consequent 
 imperfection in manufacturing industry, it re- 
 quires the labour of three families to prepare the 
 wrought goods necessary for the consumption of 
 six. In this case, a surplus, or net revenue, 
 amounting to fifty per cent, upon capital, would 
 be annually created; the expenditure of raw 
 
255 
 
 material and wrought goods for four families, 
 reproducing material and wrought goods for six. 
 Now, if we suppose that four fifths of this net 
 revenue, or forty per cent, upon the capital 
 employed, is expended unproductively, and that 
 one fifth, or ten per cent, upon the capital em- 
 ployed, is reserved for accumulation and repro- 
 duction ; then, without calculating the compound 
 ratio of increase, the capital of America will be 
 doubled every ten years. 
 
 We must now make a further supposition, in 
 order to shew in what manner foreign trade 
 might increase the net revenue, and shorten the 
 period in which the accumulation of one fifth of 
 such revenue would double capital. While the 
 productive powers of agriculture remain as be- 
 fore, let the labour of two families, employed 
 upon the new lands of America, raise a quantity 
 of agricultural produce sufiicient to purchase of 
 the cheaper manufactures imported from Eng- 
 land, the wrought goods necessary for the con- 
 sumption of six famiHes ; and then, as soon as 
 this international division of employment is esta- 
 blished, the surplus, or net revenue annually 
 
256 
 
 created in America, will amount to a hundred 
 per cent, on the capital she employs. For by 
 the supposition, the labour of three produces 
 that which is equivalent to the raw material and 
 wTOught goods consumed by six. Now, if, as 
 before, four fifths of this net revenue (being now 
 eighty per cent, on the capital employed) are 
 expended unproductively upon superfluities ; and 
 if the remaining fifth, now twenty per cent, upon 
 capital, be reserved for accumulation and repro- 
 duction, then the capital of the country, without 
 calculating the compound rate of increase, will 
 be doubled in five years, instead of in ten. Nor 
 will this accelerated march of prosperity be 
 obtained by frugality and self-denial. On the 
 contrary, while capital is made to double in five, 
 instead of in ten years, the expenditure and 
 enjoyments of those who live upon net revenue 
 are, by the supposition, twice as great as before. 
 Having thus illustrated the manner in which 
 the prosperity of a new country, where agricul- 
 tural products are raised at little expense, is 
 accelerated by a commerce with an old country, 
 where wrought goods are prepared with little 
 
257 
 
 e:^pense, we have liow to shew, how the ulti- 
 mate limits to the progress of an old country ate 
 thrown to an indefinite distance, by trading 
 with a new country. 
 
 We will suppose, that cultivation has beeti 
 jDushed so far in England, that, upon the next 
 quality of land which remains to be taketi in, it 
 would require the labour of five families to raise 
 the raw produce necessary for the consumptioti 
 of six ; while, in consequence of the accumula- 
 tion of capital, and the subdivision of employ- 
 mentj the labour of one family will pre})are the 
 wrought goods necessary for the consumption of 
 six. Now, it is plain, that if in this case Eng- 
 land cannot import raw produce, she will have 
 Arrived at the stationary state. If she attempted 
 to raise an additional quantity of food and mate- 
 rial from her own soil, the labour of six families, 
 five being employed in cultivating, and one in 
 manufacturing, would just produce the quantity 
 of food, material, and wrought goods necessary to 
 the consumption of six families ; and no surplus 
 would be created to remunerate the capitaHst 
 for the employment of his stock. But it i& 
 
 s 
 
258 
 
 evident, that before capital ceases to replace 
 itself with a surplus or profit, production must be 
 arrested. While it required the labour of one 
 family to supply the wrought necessaries con- 
 sumed by six, land requiring the labour of five, 
 to raise the raw produce required by six, could 
 iiot be taken into cultivation ; and England 
 would find it impossible to extract an increased 
 quantity of food and material with which to 
 subsist and employ an additional population. 
 The ultimate limit of her prosperity would be 
 attained. 
 
 Now, let the commerce of America be opened 
 to England, and let the manufactured goods 
 prepared by the labour of three families bring 
 from that country a return, consisting of agricul- 
 tural produce for six families ; and immediately 
 the limits to the wealth and population of Eng- 
 land will be removed to a greater distance. For 
 the labour of one prepares the wrought goods, 
 and by means of this exchange, the labour of 
 three procures the raw produce necessary to 
 the consumption of six. But when four produce 
 what is expended by six, the surplus or profit is 
 
259 
 
 fifty per cent. The most rapid accumulations 
 of capital might be made, and the manufactur- 
 ing population of England might continue to 
 multiply while there remained in America a 
 fertile and Well situated district to be reclaimed. 
 Thus commerce, and the consequent division of 
 employment, between the old and the new 
 country, while they rolled with redoubled velocity 
 the tide of civilized population from the Atlantic 
 to the Pacific Ocean, would give the wealth and 
 resources of England the capability of an almost 
 infinite increase. 
 
 Such being the advantages which foreign 
 trade is calculated to bestow, as well oti new 
 countries, in which the progressive state is 
 retarded by the high value of wrought goods in 
 relation to raw produce, as in old countries in 
 which the stationary state is approached in con^ 
 sequence of the high value of raw produce as 
 compared with wrought goods ; it must fill us 
 with astonishment to see the governments of 
 England and America rivalling each other in 
 their efforts to contract within the smallest 
 compass, that species of intercourse between the 
 
260 
 
 two countries, which, were it freed from restraint,- 
 would enable them to confer reciprocal and 
 almost infinite benefits upon each other. This 
 furnishes a melancholy proof of the small por- 
 tion of wisdom with which the affairs of nations 
 are administered. The circumstance that the 
 advantages of foreign trade are reciprocal, and 
 equally divided between the nations carrying it 
 on, instead of inducing ministers and legislators 
 to allow it a free and unimpeded course, fur- 
 nishes them with an argument (if such it may 
 be called) for restricting the importation of all 
 those articles which it may be possible to pro- 
 duce at home. The home trade, it is affirmed, 
 confers a two-fold benefit ; and any given capital 
 employed in conducting it, increases the effective 
 powers of two other capitals invested at home in 
 direct production, and thus secures to the country 
 the whole of the benefit resulting from the divi- 
 sion of labour; while foreign trade confers only 
 a single benefit, any given portion of capital em- 
 ployed in conducting it, increasing the effective 
 powers of but one other capital invested at home 
 in direct production, and JDestowing upon the 
 
261 
 
 foreign producer one half of the additional wealth 
 which the division of labour creates. Hence, it 
 is contended, that the foreign trade, which con- 
 fers the lesser benefit, should not be permitted 
 to interfere with the home trade, which confers 
 the greater benefit; and that England should 
 exchange her manufactured goods, not against 
 American, but against British produce ; and that 
 America, instead of bartering her raw produce 
 for the wrought goods of England, should give 
 it to support manufactures to be established 
 within her own territory, 
 
 This argument, for discouraging the foreign 
 in favour of the home trade, turns upon an 
 entire misconception of the nature and effects of 
 niercantile industry. It is no doubt true, that a 
 mercantile capital, employed in the home trade, 
 and giving occasion to the home divisions of 
 labour, would increase the effective powers of 
 two other British capitals invested in direct pro-, 
 duction ; while a mercantile capital, employed in 
 the foreign trade, and giving occasion to inter- 
 national divisions of labour, could increase the 
 effective powers of only one other British capital. 
 
262 
 
 But to conclude from this, that the foreign must 
 be less beneficial than the home divisions of 
 labour, is to mistake words for things, and to 
 suffer our understandings to be swayed by the 
 expressions two-fold and reciprocal, instead of 
 by the actual quantity of wealth which the dif- 
 ferent kinds of mercantile industry are instru- 
 mental in creating. The surest way of obviating 
 this source of ambiguity and error, is to descend 
 from general terms, and to argue analytically 
 from particular cases. 
 
 If England were to expend a manufacturing 
 capital of food and wrought necessaries for one 
 hundred, in fabricating wrought necessaries for 
 five hundred ; an agricultural capital of food and 
 wrought necessaries for two hundred, in raising 
 food for five hundred ; and a mercantile capital 
 of food and wrought necessaries for one hundred, 
 in exchanging the wrought necessaries of her 
 artisans, against the food of her cultivators ; then 
 the mercantile capital engaged in conducting 
 this home trade^ would increase the effective 
 powers of two other British capitals invested in 
 direct production, and the whole expenditure of 
 
263 
 
 food and wrought necessaries for four hundred, 
 would be replaced by food and wrought necessa- 
 ries for five hundred, or with a profit of twenty- 
 five per cent. 
 
 Now, while England employs the same quantity 
 of industry as before, let its direction be changed; 
 let a capital of food and wrought necessaries for 
 two hundred be expended in fabricating wrought 
 necessaries for one thousand, and another capital 
 of food and wrought necessaries for two hundred 
 in exchanging wrought necessaries for four hun- 
 dred, with the American farmer for food for six 
 hundred, and then the additional capital of food 
 and wrought necessaries for one hundred, re^ 
 quired in conducting the foreign and more dis- 
 tant exchanges will be withdrawn from direct 
 production, and this double mercantile capital, 
 instead of conferring, as when employed in the 
 home trade, the two-fold benefit of increasing 
 the effective powers of the British manufacturer 
 and British farmer, would bestow the reciprocal 
 benefit of heightening the effective powers of the 
 British manufacturer and the American farmer. 
 But it is plain, that notwithstanding this nomi- 
 
264 
 
 Tial loss, England would gain a real advantage 
 by this change in the direction of her industry. 
 The whole capital of food and wrought neces- 
 saries for four hundred, expended in direct and 
 indirect production, instead of obtaining a return 
 of food and wrought necessaries for five hundred, 
 or an increase of twenty-five per cent, will now 
 acquire a reproduction of food and wrought 
 necessaries for six hundred, or an increase or 
 profit of thirty-three per cent. 
 
 It may be objected, perhaps, that these cases 
 are not fairly stated, and that when the agricul- 
 tural capital of food and wrought necessaries for 
 two hundred, is transferred from the soil to be 
 partly employed in manufacturing for the Ame- 
 rican market, and partly in conducting foreign 
 and more distant exchanges, it may obtain, in- 
 stead of a greater, such a less quantity of food, 
 as will render the aggregate profit upon the 
 whole capital employed lower than before. I 
 answer, that this is impossible ; because, if the 
 transference of capital from agriculture to manu- 
 factures and commerce, brought a less instead 
 of a greater return of food, such transference 
 
265 
 
 never could have taken place. By the supposi- 
 tion, when all the capitals amounting to food 
 and wrought necessaries for four hundred, are 
 expended within the country either in direct 
 production, or in the home trade, the rate of 
 increase upon them is twenty-five per cent. 
 When, therefore, the merchant engages in foreign 
 trade, and expends food and wrought necessaries 
 for two hundred, in exchanging wrought neces- 
 saries for four hundred against American corn, 
 he must retain in hi^ own hands, in order to 
 replace his capital with the same rate of return 
 which he obtained while engaged in the home 
 trade, food and wrought necessaries for two 
 hundred and fifty, But if the merchant who 
 exports wrought necessaries for four hundred, 
 brings back less than food for five hundred, say 
 only food for four hundred and fifty, and retains 
 in his own hands food for two hundred and fifty, 
 in order to replace his capital ; then the food for 
 two hundred which remains, and which is to be 
 paid for wrought necessaries, will not be suffi- 
 cient to replace with a prpfit the capital ex- 
 pended by the manufacturer. For, by the 
 
266 
 
 supposition, the manufacturer expended food and 
 wrought necessaries for two hundred in fabricat- 
 ing wrought necessaries for one thousand, and in 
 order to replace his expenditure with a profit of 
 twenty-five per cent, he must be enabled to retain 
 wrought necessaries for two hundred and fifty 
 in his own hand, and to exchange the remainder, 
 or wrought necessaries for seven hundred and 
 fifty, for food for two hundred and fifty. But 
 there is disposable in the hands of the merchant, 
 only food for two hundred. Hence, while that 
 part of the manufacturer's capital, consisting of 
 wrought necessaries for two hundred, is replaced 
 with a profit of twenty-five per cent., the other 
 portion of it is replaced without any increase 
 whatever, and thus the rate of return upon his 
 aggregate expenditure will be less than when 
 the supply of food was grown at home*. But if 
 
 * Our merchant who employed food and wrought neces- 
 saries for two hundred in exporting wrought necessaries 
 for four hundred, and bringing back food for four hundred 
 and fifty, and who, after retaining in his own hands food 
 for two hundred and fifty, gave the remaining food for 
 two hundred for the manufacturer's wrought necessaries 
 
267 
 
 the capital which had been transferred from the 
 soil to manufactures, brings a less return in its 
 new than in its old occupation, it will inevitably 
 flow back to domestic agriculture. When the 
 product of any given capital invested in manufac- 
 tures will purchase only a less quantity of food 
 from the foreign farmer than the same capital 
 could raise at home, it is impossible that food 
 should continue to be imported. In like manner, 
 when a country is so circumstanced, that the 
 product of a given capital invested in agriculture 
 will purchase from abroad a less quantity of 
 manufactured goods than the same capital could 
 fabricate at home, it will be impossible to con- 
 tinue to import such goods. The fact that Eng- 
 
 for. seven hundred and fifty, would gain serenty-five per 
 cent, upon that portion of his capital which consisted of 
 wrought necessaries for two hundred, as four hundred 
 would be exported, and seven hundred and fifty remain in 
 his hands. But the greater surplus obtained upon that 
 portion of the merchant's capital which consisted of wrought 
 necessaries, would not balance the loss of all surplus upon 
 that portion of the manufacturer's capital which consisted 
 of food ; because, the exchangeable value of food for two 
 hundred, so greatly exceeds that of wrought necessaries for 
 two hundred. 
 
268 
 
 land and America barter wrought goods and raw 
 produce, is in itself a sufficient demonstration 
 that the international division of employment 
 confers upon the two countries the reciprocal 
 benefits which I have attempted to describe. 
 
 It is frequently contended, that however bene- 
 ficial a free trade might be, if all countries 
 could be prevailed upon to admit and act upon 
 the principle, it would be highly inexpedient in 
 any one country to abandon the restrictive sys- 
 tem while her neighbours continued to enforce 
 it. According to this doctrine, it would be in- 
 jurious to England to admit the free importation 
 of American produce, unless America were to 
 consent to a free importation of British goods in 
 return; because, were America to refuse this, 
 the labour and capital thrown out of employ- 
 ment by our receiving from abroad that quantity 
 of produce which was before raised at home, 
 could not be reinvested in the production of an 
 increased quantity of goods for exportation, 
 
 This objection against the free admission of 
 those things which can be brought cheaper 
 from abroad, turns upon the supposition that 
 
269 • 
 
 foreign countries will give their productions^ not 
 for an equivalent, but as a gratuity or tribute; 
 Nothing can be more erroneous or absurd. Com- 
 merce is an exchange of equivalents, a bartering 
 between nations of one commodity for another. 
 As no people will consent to give away the fruits 
 of their industry as a voluntary tribute to theii" 
 neighbours; the country which permits her com- 
 modities to be exported to another country^ 
 imposes on herself the necessity of allowing that 
 other country to export to her their price, or 
 equivalent, in other articles. When America 
 sends the produce of her soil to England, and 
 refuses to receive British goods in return, she 
 does not obviate this necessity, she only obliges 
 England to export her commodities to some 
 other country, in order to purchase the article 
 which America may consent to receive. The 
 process is more circuitous, but the result is pre- 
 cisely the same. 
 
 To recur to our former case; if, on the estat- 
 blishment of a free trade between England and. 
 America, England instead of continuing to em- 
 ploy her capital of subsistence for two hundred 
 
270 
 
 upon an inferior soil, which yields in return only 
 food for five hundred, were to employ it in 
 manufacturing cloth, and exchanging her fabric 
 with the American cultivator for food for six 
 hundred, it is self-evident that the portion of 
 her labour and capital disengaged from the soil 
 by the importation of American produce so far 
 from being thrown into a state of inactivity 
 would find a more beneficial occupation than 
 before. But if upon the establishment of a free 
 trade upon the part of England, America refused 
 to receive British goods> while England with- 
 drew from the soil a capital which raised food 
 for five hundred, and employed it in manufac-^ 
 turing cloth, exchanging this cloth for the gold 
 of Portugal, and purchasing with the gold so 
 obtained food for six hundred from the Ameri- 
 can farmer ; then it is equally self-evident, that 
 the capital disengaged from British agriculture 
 by the importation of American produce, so far 
 from being thrown into a state of inactivity, 
 would be reinvested in a more profitable occu-^ 
 pation. 
 
 The advocates for protecting domestic indus- 
 
271 
 
 try by restrictions on the importation of foreign 
 articles, urge, as a further objection, that the 
 foreign market may be glutted with our fabrics, 
 and that, if we allow the importation of foreign 
 produce, it may be found impossible to increase 
 our exports so as to afford, in the extension of 
 manufactures and commerce, a beneficial invest- 
 ment for the capital displaced from the soil. 
 
 I answer, — that under this supposition, the 
 whole controversy is set at rest* If America 
 will not receive our goods, and if we cannot 
 increase our exports to other foreign countries 
 so as to obtain a quantity of foreign commodities 
 or of gold, with which to pay for American pro- 
 duce ; then, as America will not give it to us for 
 nothing, not one quarter of her produce can be 
 imported into England, and the home grower 
 will be as effectually protected against foreign 
 competition, as if the British Islands were en- 
 compassed with Bishop Berkeley's wall of brass. 
 The objection is destroyed by the very supposi- 
 tion upon which it is founded. In the case of 
 England adopting a free trade with respect to 
 America, while America adheres to a restrictive 
 
272 
 
 system with respect to England, if England can- 
 not invest a greater quantity of capital in manu- 
 factures and commerce so as to purchase in 
 other foreign markets the equivalent which 
 America may consent to receive in exchange for 
 her produce^ then no American produce can be 
 imported into England, and no capital turned 
 from domestic agriculture to seek reinvestment 
 in the extension of trade and commerce^ All 
 things Would remain precisely in the same posi- 
 tion as before ; the self-same cause which rendered 
 it impossible to reinvest in manufactures and 
 commerce the capital which might be disengaged 
 from the soil by the importation of foreign pro- 
 duce, depriving us of the means of purchasing 
 that produce, and preventing the occurrence of 
 the circumstance which might dislodge capital 
 from domestic agriculture. 
 
 I have dwelt upon the iiiterchange betweefl 
 old and new countries of wrought necessaries 
 against raw produce, because it is the species of 
 commerce which has the greatest influence upon 
 national prosperity, and that concerning which 
 the most inveterate prejudices prevail. It is by 
 
273 
 
 no means my intention, however, to undervalue 
 the importance of foreign trade in superfluities 
 and luxuries, or to extenuate the absurdity of 
 those who imagine they can give encouragement 
 to domestic industry by encumbering this branch 
 of traffic with restrictions. The more perfectly 
 the international divisions of employment are 
 established, the more entirely each country can 
 confine itself to those occupations in which it 
 possesses natural or acquired advantages, the 
 more abundant the supply of commodities will 
 become. If England, with two capitals, each 
 consisting of subsistence for one hundred, fabri- 
 cates one hundred and fifty bales of cotton, and 
 one hundred bales of silk, while France, with 
 two similar capitals, manufactures one hundred 
 and fifty bales of silk, and one hundred bales of 
 cotton ; then between both countries, two hun- 
 dred and fifty bales of cotton, and two hundred 
 and fifty bales of silk will be produced. But if 
 England withdraws one of her capitals from the 
 fabrication of silk to that of cotton, she will pro- 
 duce three hundred bales of that article, and if 
 France withdraws one of her capitals from the 
 
 T 
 
274 
 
 manufacture of cotton to that of silk, three hun- 
 dred bales of silk will be produced ; and when, 
 according to the law of competition, the half of 
 the one product is exchanged against the half 
 of the other, England will obtain an increase of 
 wealth to the extent of fifty bales of silk, and 
 France an increase to the extent of fifty bales 
 of cotton. An unrestricted commerce in these 
 articles would be reciprocally and equally bene- 
 ficial. 
 
 Now, supposing that France should become 
 so blind to her own interest as to employ one of 
 her capitals of subsistence for one hundred in 
 manufacturing one hundred bales of cotton in- 
 stead of devoting it to fabricating the silks with 
 which she could purchase oiie hundred and fifty 
 bales of cotton from England, this mistaken 
 policy on the part of France could furnish no 
 conceivable reason why England should imitate 
 the absurd example. The refusal of France to 
 take our cheaper cottons, would not render it 
 less our interest to receive her cheaper silks. If 
 one hundred and fifty bales of French silks 
 continue to be imported, something must be 
 
275 
 
 exported to pay for them, and in preparing this 
 something, the capital disengaged from the ma- 
 nufacturing of silk at home, will find a more 
 beneficial occupation than before. Should France 
 refuse to receive every species of British fabric, 
 then the capital displaced from the silk manu- 
 facture by the introduction of her cheaper article, 
 would be employed in preparing a greater quan- 
 tity of goods to be sent to other foreign markets 
 in order to bring back a return in money with 
 which to liquidate our debt to France; and 
 should the state of all other foreign markets be 
 such, that we could not export to them a greater 
 quantity of goods, and thus obtain an equivalent 
 with which to purchase French silks, then as 
 France would not give her fabrics for nothing, 
 no French silks could be imported into Englandj 
 aiid no domestic industry displaced. It never 
 could become necessary for the protection of 
 domestic industry, that We should retaliate upon 
 any foreign country the restrictive system which 
 it may ignorantly enforce against us. For as no 
 Country can export, unless she consents to im- 
 port the equivalents which other countries may 
 
276 
 
 be able to return, the only injury the enforce- 
 ment of the restrictive system against our com- 
 merce can inflict, is to prevent the introduction 
 of those articles which the foreigner can furnish 
 cheaper than ourselves, and thus to leave the 
 domestic producer as completely in possession of 
 the home market, as if the most rigorous mea- 
 sures of retaliation were resorted to for his 
 protection. 
 
 There is one case in which a free foreign trade 
 might impoverish and depopulate a country. 
 When countries have arrived at that ultimate 
 point, beyond which no additional capital can be 
 employed with a profit in raising food and the 
 materials of wrought necessaries, then, if one 
 country were to acquire superior facilities in the 
 production of superfluities and luxuries, the free 
 importation of such articles into the other coun- 
 tries would dislodge a great portion of their capital 
 without presenting any possible opening for 
 reinvestment, and would cause their manufac- 
 turing population to emigrate or perish. As I 
 do not remember that any preceding writer has 
 attended to the peculiar effects which, under 
 
277 
 
 these circumstances, a free foreign trade would 
 produce, I shall endeavour to present a clear and 
 precise analysis of the manner in which they 
 would be brought about. 
 
 Let us suppose, that England and France have 
 each arrived at that point of improvement at 
 which the expenditure of a capital of food and 
 wrought necessaries for one hundred, will raise 
 food for one hundred and fifty-three; and a 
 capital of food and wrought necessaries for fifty 
 prepare wrought necessaries for one hundred 
 and fifty-three, and then the rate of increase or 
 profit will be just two per cent. Let this two 
 per cent, be the lowest rate of profit for the sake 
 of which the capitalist will engage in produc- 
 tion, and let it be impossible to increase the 
 quantity of food, because the next land to be 
 taken in cannot yield the necessary increase of 
 two per cent, upon the capital expended on it. 
 Now, while such continues to be the situation of 
 the two countries with respect to necessaries, 
 let France acquire the power of manufacturing 
 all articles of superfluity and luxury for half the 
 cost at which they can be prepared in England. 
 
278 
 
 Under such circumstances, the French manu- 
 facturer might sell his superfluities, and obtain 
 a handsome profit at a price which would be 
 altogether inadequate to replace the capital of 
 English manufacture. For, the French manu- 
 facturer who expended food and wrought neces- 
 saries for one hundred, in working up fifty bales 
 of silk, would gain twenty per cent, if he sold 
 his commodity in the English market for food 
 and clothing for one hundred and twenty, while 
 the British manufacturer who expended food 
 and wrought necessaries for two hundred in 
 preparing a similar article, and afterwards sold 
 it for the same price of food and wrought neces- 
 saries for one hundred and twenty, would lose 
 nearly fifty per cent, by the transaction. If a 
 free trade, therefore, were permitted with France, 
 it would be impossible for the English producer 
 to sell his fabrics at so low a price as the French, 
 and consequently all the food and wrought 
 necessaries which had formerly purchased super- 
 fluities fabricated at home, would now be ex- 
 ported to pay for the cheaper fabrics of France. 
 Nor could the labour and capital dislodged by 
 
279 
 
 the introduction of the foreign goods, formerly 
 made at home, find any other profitable occupa-r 
 tion. By the supposition, no additional supply 
 of food and material can be extracted from the 
 soil to replace that exported in exchange for the 
 increased quantity of foreign articles imported, 
 and to afford support to the manufacturing 
 population thereby thrown out of work. The 
 distress would be great and extensive. For, 
 when cultivation had thus attained its ultimate 
 limits, the rent on all the good and middling 
 lands would be extremely high, and proprietors 
 would have a large demand for the fabrics which 
 administer to convenience and luxury, and con- 
 sequently, the number of persons thrown out of 
 work by the supply of these things being received 
 from abroad, would bear a very considerable 
 proportion to that of the whole population. A 
 free foreign trade would be the greatest cala- 
 mity which could befal the country. 
 
 Other and analogous cases might be stated, 
 in which the unrestricted admission of foreign 
 manufactured articles would be the antecedent 
 of similar distress. In all such cases, the condi- 
 
280 
 
 tion essential to the production of the effect I 
 have described, is, that the country importing 
 foreign fabrics, shall have so nearly attained the 
 limits of her agricultural resources, that the 
 labour and capital dislodged from domestic ma- 
 nufactures shall be unable to extract from the 
 soil an additional supply of food and material 
 equal to that which is sent out in exchange for 
 the foreign fabric. We are never to forget, 
 however, that in a country which has advanced 
 so far in wealth and population as to have ap- 
 proached the limits of her agricultural resources, 
 the exchangeable value of raw produce will be 
 very high as compared with wrought goods, and 
 that such a country cannot export the former in 
 exchange for the latter, until all the other 
 countries with which she has dealings, have so 
 pushed their agriculture, and so improved their 
 manufactures, that the difference between the 
 exchangeable value of raw produce and wrought 
 goods shall be greater in the foreign than in the 
 home market. But when will this state of 
 things arrive upon the shores of the Baltic, and of 
 the Euxine, and in the almost boundless tracts of 
 
281 
 
 fertile land yet unappropriated throughout the 
 vast continents of North and South America ? 
 The case supposed of a country approaching the 
 ultimate limits of her agricultural resources, and 
 at the same time exporting raw produce in ex- 
 change for wrought goods, so as to deprive her- 
 self of the means of employing her manufacturing 
 population, cannot occur in practice for centuries 
 to come. 
 
 While there are hypothetical cases in which 
 an unrestricted importation of foreign articles 
 would lead to a diminution of wealth, there are 
 actual cases in which restrictions on the expor- 
 tation of domestic articles would lead to an 
 increasing wealth. The foreign consumers who 
 take our commodities must return to our export- 
 ing merchant such a quantity of other things as 
 will replace, with some increase or profit, all the 
 expenses he incurs in sending these commodities 
 out. If government increase the merchant's 
 expense by imposing a tax on the commodity he 
 exports, then the foreign consumer must either 
 pay our merchant an additional price equal to 
 the tax, or go elsewhere for his article. But if 
 
282 
 
 the commodity taxed were peculiar to our own 
 country, and could not be obtained elsewhere, 
 then the foreign consumer would have no alter- 
 native but to receive it, and would be compelled 
 to pay our merchant the increased price neces- 
 sary to cover the tax. Thus a country which 
 possesses commodities peculiar to herself, and 
 generally desired, may render other countries 
 tributory to her by imposing duties on the expor- 
 tation of those things in the production of which 
 she has a natural monopoly, either partial or 
 complete. If, however, the monopoly should be 
 only partial, then the tax imposed on exportation 
 should be less than the difference between the 
 expense of producing the article at home, and the 
 expense of producing it in less favoured countries, 
 so as still to leave our merchants in a situation 
 to undersell competitors in the foreign market. 
 
 In the preceding section, when considering 
 the effect of restrictions on the colonial trade, I 
 endeavoured to shew, that by one set of regula- 
 tions a mother country might enrich herself at 
 the expense of the colonies, and by another set 
 of regulations increase the wealth of the colonies 
 
283 
 
 by diminishing her own. The principles there 
 unfolded apply equally to the foreign trade. If 
 England, by power or by persuasion, can render 
 herself the mart and entrepot for conducting the 
 external trade of another country, she will gain 
 by the rent paid for her docks and warehouses, 
 and by the commission due upon consignments, 
 whether that other country be Jamaica a colony, 
 or the Brazils an independent state. And 
 again ; should England, by a treaty of alliance 
 and commerce, bind the South Americans to 
 receive from the United Kingdom, or oblige 
 herself to receive from South America, goods 
 which other countries could supply at a cheaper 
 rate ; then her gain in the former case, and her 
 loss in the latter, would be precisely analogous 
 to the gain which she acquires and the loss 
 which she suffers when an Act of Parliament 
 imposes similar regulations upon the intercourse 
 between the United Kingdom and the West 
 India Islands. 
 
 No additional argument can be requisite to 
 prove, that when government, by the imposition 
 of unequal duties, compels the consumer to 
 
 4 
 
284 
 
 receive the inferior and dearer wines of Portugal, 
 instead of the superior and cheaper wines of 
 France, England suffers a loss of wealth equal 
 to the difference between the price which she 
 now pays for Portugal wine, and the price 
 which, under a system of equal ad valorem 
 duties, she would pay for French wines. It is 
 true, indeed, that when Portugal consents to 
 receive from England fabrics which other coun- 
 tries could supply cheaper, she not only suffers a 
 diminution of wealth in her turn ; but, upon the 
 principle stated in the preceding section, enables 
 England to obtain the wines of Portugal in ex- 
 change Tor a smaller portion of the products of 
 her industry, than she would otherwise be com- 
 pelled to give for them. But the benefits thus 
 reciprocally conferred, do not altogether balance 
 the evils reciprocally inflicted. When two coun- 
 tries, for the mutual encouragement of their 
 industry, agree to receive from each other articles 
 which might be obtained cheaper elsewhere, they 
 place themselves to a certain extent in an 
 artificial and precarious state; and on the 
 interruption of their commercial treaty, either 
 
28.5 
 
 from a misunderstanding between themselves^ 
 or through the preponderating influence of some 
 powerful neighbour, the revulsion and derange- 
 ment which succeed are more considerable than 
 they would have been, had industry been left to 
 flow in the more natural, and therefore more per- 
 manent channels, which it would have worked 
 out for itself. 
 
 But, though the policy of purely commercial 
 treaties, binding the contracting parties to re- 
 ceive from each other articles which can be 
 procured cheaper elsewhere, is always more than 
 doubtful ; the same objections do not apply to 
 those partly commercial and partly political 
 arrangements, by which a great naval power 
 may obtain exclusive privileges in the markets 
 of a minor state, in return for protecting her 
 trade, or sustaining her independence. During 
 the period of the formidable family compact 
 between the different branches of the house of 
 Bourbon, Portugal, in giving peculiar encourage- 
 ment to the trade and navigation of England, 
 recruited the force which preserved her from 
 becoming a dependency of Spain ; and the 
 
286 
 
 increase of wealth which England obtained by 
 being enabled to purchase a larger portion of the 
 productions of Portugal with a smaller portion 
 of her own, was but a fair and moderate equi- 
 valent for the additional expenses she incurred, 
 and ought not to have been attended with the 
 drawback arising from her being obliged to give 
 for the inferior wines of her ally a greater quan- 
 tity of her commodities than that for which she 
 might havd obtained the superior wines of 
 France. A country may grant exclusive privi- 
 leges to the trade and marine of a natural ally^ 
 just on the sariie principle on which she may 
 grant tliem to her own. In either case, it may 
 be sound policy to sacrifice some portion of 
 wealth in order to increase security. 
 
 A remarkable instance of the ptbpriety of 
 occasionally departing from economical princi- 
 ples, in order to provide for national security 
 and power, is exhibited in the Navigation Act of 
 England. When this famous Act tvas passed, 
 enormous taxes upon the necessaries of life had 
 reduced the rate of profit in the i-epublic of 
 Holland very much belbtv the level of the rest 
 
287 
 
 of Europe; and consequently her ship-owners 
 were content with receiving lower freights than 
 those of other countries, and were engrossing 
 the carrying trade of the world. As far as 
 mere wealth is concerned, there can exist nd 
 doubt that England, under such circumstances^ 
 would have been a gainer by paying the low 
 freight of the Dutch, and turning her oWh capi- 
 tals from the carriage of goods to those branches 
 of direct production in which she could realise a 
 higher profit. Assuming, for illustratioti, that 
 the rate of profit was fifteen per cent; in England^ 
 and only ten per cent, in Holland, then what- 
 ever amount of capital England might disengage 
 from her carrying trade and invest in agriculture 
 or manufactures, would reproduce itself, not only 
 with the ten per cent, profit, to be paid upon the 
 same amount of Dutch capital which supplied 
 the place of British capital in the carrying trade, 
 but also with an additional surplus of five per 
 cent. But if HoUand had been suffered to 
 engross our carrying trade, her mercantile marine 
 would have covered, and her military marine 
 commanded the seas ; and England, for the sake 
 
288 
 
 of a comparatively trifling accession of wealth, 
 would have lost her place in Europe. 
 
 As the several nations of the world advance 
 in wealth and population, the commercial inter- 
 course between them must gradually become less 
 important and beneficial. I have already shewn 
 that the species of foreign trade which has the 
 most powerful influence in raising profits and 
 increasing wealth, is that which is carried on 
 between an old country in which raw produce 
 bears a high value in relation to wrought goods, 
 and a new country where wrought goods possess 
 a high exchangeable power with respect to raw 
 produce. Now, as new countries advance in 
 population, the cultivation of inferior soils must 
 increase the cost of raising raw produce, and the 
 division of labour reduce the expense of working 
 it up. Hence, in all new settlements, the increas- 
 ing value of raw produce must gradually check 
 its exportation, and the falling value of wrought 
 goods progressively prevent their importation ; 
 until at length the commercial intercourse be- 
 tween nations shall be confined to those peculiar 
 articles, in the production of which the immut- 
 
able circumstances of soil and climate give one 
 country a permanent advantage over another. 
 
 On this ultimate and necessary limitation of 
 foreign trade Mr. Malthus has founded an argu- 
 ment against the extension of the most beneficial 
 of all branches of commerce, namely, that which 
 is carried on between old and new countries. 
 But surely there is no sound wisdom in refusing 
 to enjoy a decided advantage at the present 
 time, because in the lapse of ages we must lose 
 it- On the same principle we ought not to live 
 because hereafter we must die. When we con- 
 sider the situation of the countries bordering on 
 the Baltic and the Euxine, — when we look to 
 Southern Africa and to the vast continents of 
 North and South America, we shall be convinced 
 that centuries must roll away before the full 
 peopling of the world interposes difficulties in the 
 way of England's exchanging her cheap manu- 
 factured goods for the cheap agricultural produce 
 of less advanced countries. 
 
 V 
 
290 
 
 Section Y.-^On Money, and Paper 
 Currency, 
 
 Throughout the illustrations and reason- 
 ings contained in the preceding chapters, I have 
 in general excluded money from consideration, 
 and taken the interchange of commodities as 
 a system of direct barter. This was necessary, 
 in order to simplify complicated questions, and 
 to enable us to arrive at our conclusions by the 
 shortest and most obvious process. When the 
 hypothesis which we employ for the purpose of 
 tracing out and elucidating the principles of 
 economical science, has a reference to money, 
 we are apt to be involved in confusion and error, 
 in consequence of our attention being directed, 
 not to what is essential and inherent in the case 
 before us, but to some circumstance or accident 
 connected with the commodity which happens 
 to be employed as the medium of exchange, and 
 practical measure of value. Having, therefore, 
 in the former divisions of this work, alluded as 
 
291 
 
 little as possible to the operation of a circulating 
 medium, it becomes necessary that I should, in 
 the present section, give some account of the 
 origin and nature of money, and of the manner in 
 which it aids production. 
 
 As soon as the divisions of employment be- 
 came tolerablv well established, arid individuals 
 began to supply their wants and gratify their 
 desires by transferring the surplus products of 
 each other's industry, the necessity of having 
 some medium of exchange must immediately 
 have been felt. If the transfer of commodities 
 were performed by means of barter, the business 
 of life would be subject to the most inconvenient 
 interruptions and delays. A farmer, for example, 
 who had in his barn a larger quantity of wheat 
 than he required for the consumption of his 
 family, and who destined the overplus to pur- 
 chase for them a supply of shoes, would be 
 obliged to proceed with a quantity of his wheat 
 to the shoe-maker, and to endeavour to negociate 
 an exchange. Now, it might probably happen 
 that the first shoe-maker whom he accosted, had 
 already obtained all the wheat he meant to con- 
 
292 
 
 sume ; and, therefore, the farmer would be under 
 the necessity of remaining without shoes, until 
 he could find a shoe-maker who wanted wheat- 
 
 If unfortunately the whole trade were already 
 supplied with wheat, the farmer would be under 
 the necessity of endeavouring to ascertain what 
 was the article the shoe-maker wished to pro** 
 cure; and if this article was beer, then, as a 
 preliminary to his future negociation with the 
 shoe-maker, he would be compelled to apply to 
 the brewer to exchange a portion of beer for 
 wheat. But the brewer might also be supplied 
 with wheat ; and, therefore, the farmer would 
 be obliged, in the first instance, to endeavour to 
 exchange his wheat for some commodity desired 
 by the brewer, in order that with it he might 
 purchase the beer with which he afterwards 
 meant to procure shoes* 
 
 Tedious as this process may appearj it is one 
 of the simplest cases which could be stated for 
 the purpose of pointing out and explaining the 
 laborious path which, if the circulating medium 
 were withdrawn, and all transactions performed 
 by barter, every man would be compelled to 
 
293 
 
 tread, in endeavouring to supply his wants by- 
 parting with the surplus products of his industry. 
 It must be obvious to any one who will take 
 time to examine the question, that the course 
 would often be far more tedious and intricate, 
 before the repeated interchange at length pro^ 
 cured for the individual the particular commo*. 
 dity which he wanted. 
 
 Neither is this the sole source of the labour 
 which would be imposed upon man, if transac- 
 tions were conducted in the way of barter. As 
 in this case there would exist no acknowledged 
 practical standard, by which the value of com- 
 modities could be measured; in adjusting the 
 terms of exchanging them, an inquiry would 
 have to be undertaken for the purpose of deter- 
 mining their relative worth. If the brewer, to 
 whom the farmer applied, wished to have some 
 wheat, and it so happened, that neither the 
 farmer had antecedently exchanged wheat for 
 beer, nor the brewer beer for wheat, they would 
 be at a loss to fix the quantity of wheat that 
 should be given for a gallon of beer. If, indeed, 
 each had luckily already procured a leg of the 
 
294 
 
 same sheep, in exchange for the commodity he 
 possessed, they might then discover the relative 
 value of the wheat and the beer ; because, two 
 things equal to one and the same thing, are 
 equal to one another : but as it would probably 
 happen that the farmer and brewer had not 
 exchanged wheat and beer for the same com- 
 modity, they could not have recourse to this 
 easy mode of deciding the portion of wheat 
 which ought to be parted with, for the acquisi- 
 tion of a given quantity of beer. The course, 
 therefore, which the farmer would have to pursue, 
 even after he had undergone the labour necessary 
 to discover a brewer who wanted wheat, might 
 be exceedingly laborious, before he could trace 
 out, by the examination of various exchanges, 
 some one interchange which afforded a com- 
 parison between the value of the wheat and of 
 the beer. 
 
 If this, however, could not be discovered, the 
 farmer would be obhged, as the only means of 
 determining the terms of the exchange, to insti- 
 tute an inquiry into the quantities of labour or 
 of capital which wheat and beer respectively 
 
295 
 
 required for their production. Now, this being 
 done, and the beer obtained, it is plain that the 
 farmer might be under the necessity of repeating 
 the same operation in negociating the exchange 
 for the shoes. The exertion and expense attend- 
 ing the interchange of commodities might equal, 
 and, perhaps, on some occasions exceed, the exer* 
 tion and expense required for their production. 
 
 To avoid these circuitous operations, and to 
 save the time and labour required when the 
 transactions of mercantile industry are carried 
 on by way of barter, each individual, as soon as 
 the divisions of employment were tolerably well 
 established, must have found an interest in 
 keeping constantly by him some commodity, 
 which being of known value and of universal 
 consumption, would be readily received by his 
 neighbours in exchange for such portions of their 
 surplus productions as he might occasionally re- 
 quire. Now, when men had seen this commodity 
 frequently employed as the means of exchanging 
 Other commodities, they would become wilHng 
 to receive a greater quantity of it than might 
 fee necessary for their own consumption, under 
 
296 
 
 the confidence, that whatever articles they 
 wanted, might at any time be procured for it. 
 Passing freely from hand to hand, its value 
 would be universally known ; it would be em- 
 ployed to compute or measure the value of aU 
 Other things ; and in this manner a medium of 
 exchange, a rude species of money, would be 
 established. 
 
 Various commodities have, at different times, 
 and in different countries, been employed for 
 the purpose of measuring the value of other 
 articles, and exchanging them against each 
 other. In the rude ages, cattle are said to 
 have been the common medium ; and accords 
 ingly we find, that in old times, things were 
 frequently valued according to the number of 
 cattle which had been given for them. But 
 cattle must have been a most inconvenient in^ 
 strument of exchange. The person who wished 
 to purchase a supply of cloth, and who had 
 nothing to give in exchange for it but a sheep 
 or an ox, would be obliged to buy cloth to the 
 value of a whole sheep, or a whole ox, at a time, 
 He covjld not buy less, because his medium of 
 
297 
 
 exchange, his money, could not be divided with- 
 out loss ; and if he wished to purchase more, he 
 would for the same reason be obliged to take 
 double or treble the quantity, — the value of 
 two or three sheep, or two or three oxen. Now,, 
 it is evident, that a medium so bulky, so un port- 
 able, and indivisible as cattle, would frequently 
 obstruct the interchange of commodities. Find' 
 ing it often difficult, and sometimes impossible, 
 to exchange by means of cattle, the surplus pro-, 
 ducts of their respective industry, for the precise 
 quantity of other articles which they might 
 require, the inhabitants of the country in which 
 cattle formed the only acknowledged measure of 
 value, would on many occasions be compelled to 
 supply their various wants by combining in their 
 own persons, a variety of occupations. The divi-r 
 sions of employment would therefore be very im^ 
 perfectly established ; the productive powers of 
 industry would be checked; and the country 
 withheld from the acquisition of that general 
 opulence which, if it possessed a more perfect 
 instrument of mercantile industry, it would be 
 capable of acquiring. 
 
298 
 
 A knowledge of these inconveniencies seems 
 at length to have led all nations to employ the 
 precious metals as the measure of value and 
 tnedium of exchange. For these functions they 
 ^re admirably calculated. They can not only 
 be kept without waste, and without expense, for 
 any length of time which may be necessary, but 
 they can be divided into any number of parts, 
 ^nd reunited without loss. Hence, the person 
 who possesses gold and silver can, when general 
 consent has rendered them the instrument of 
 exchange, at all times proportion their quantity 
 to the precise quantity of the commodity which 
 he wants; and thus make what purchases he 
 pleases. 
 
 But though the metals are thus admirably 
 adapted for facilitating the transactions of mer- 
 ijantile industry, their utility as a medium of 
 exchange was, in the early periods of society, 
 limited by two very considerable inconveniencies, 
 • —-the trouble of weighing, and of assaying them. 
 As a small difference in the quantity of a piece 
 :of gold or silver makes a great difference in its 
 value, weighing the metals with proper exact- 
 
299 
 
 ness becomes an operation of much nicety ; and 
 if performed previously to every purchase, would 
 very much obstruct the exchange of commodi- 
 ties, and thus prevent the divisions of employ- 
 ment from being thoroughly established. Ascer- 
 taiiiing the fineness of the precious metals is an 
 operation still more difficult and tedious, and 
 cannot be performed without exposing them to 
 the action of proper solvents. To do this pre- 
 vious to every purchase would be impossible. 
 The trader, therefore, while bullion continued 
 to be the sole instrument of exchange, must 
 have been compelled to guess from external 
 appearance the fineness of the metals which he 
 received for his goods. This would expose him 
 to the grossest impositions, and often oblige him 
 to receive, instead of a pound of pure silver or 
 gold, an adulterated composition of the cheapest 
 materials, which had, however, in outward ap- 
 pearance been made to resemble one or other of 
 those metals. Now, while the profits of the 
 merchant continued in this manner at the mercy 
 of every knave in the community, it must have 
 be^ difljicult for him to have carried on any 
 
300 
 
 very active or extensive operations. The inter- 
 change of commodities must have been ob- 
 structed ; and, therefore, the productive powers 
 of industry reduced to that languid state which 
 is ever the consequence of individuals combining 
 in their own persons a variety of occupations. 
 
 The inconveniencies which were felt while 
 bullion continued to be the sole medium of ex. 
 change, gave occasion to the establishment of 
 coined money. In all countries which have made 
 any advance towards improvement, it has been 
 found necessary to ascertain by a public stamp, 
 the weight and the fineness of those pieces of 
 the precious metals which are commonly em- 
 ployed in the market to purchase goods. The 
 first public stamps which were impressed on the 
 current metals, seem to have been intended to 
 ascertain their fineness or purity, and to have 
 resembled the sterling mark which is at present 
 affixed to plate, and bars of silver ; or the Spanish 
 mark sometimes affixed to ingots of gold. By 
 this mark, base adulterated metals were excluded 
 from the market; and hence, while the merchant, 
 no longer exposed to the risk of receiving, 
 
301 
 
 instead of gold and silver, compositions of cheaper 
 materials resembling these materials, acquired 
 confidence and ability to extend his speculations^ 
 the exchange of commodities became more fre- 
 quent, and the divisions of employment were 
 more accurately established* 
 
 But the difficulty and inconvenience of weigh- 
 ing the metals with sufficient exactness still con- 
 tinued, until a public stamp was devised* which 
 covering both sides of the piece* and sometimes 
 it edges also^ ascertained not only its fineness* 
 but the quantity of metal it contained. In this 
 was effected the last improvement of which 
 metallic money seems susceptible; and coin* 
 from its superior utility and convenience, became* 
 with respect to the internal transactions of every 
 country in which it was established* the univer- 
 sal measure of value, and medium of exchange. 
 At first, the name or denomination of the coin 
 expressed the quantity of metal which it con- 
 tained. In England* for example, the pound 
 sterling contained originally a real pound weight 
 of silver* of known fineness ; and a penny, a real 
 penny weight, the twentieth part of an ounce. 
 
302 
 
 and the two hundred and fortieth part of a pound. 
 This relative value between the different deno- 
 minations of our coined money still continues ; 
 but, in consequence of repeated deterioration, the 
 denomination has long since ceased to express the 
 quantity of metal which our coins contain. This 
 is of no very material importance at present ; 
 though the debasing of the coin at the periods 
 when it took place, must have effected an unjust 
 and ruinous violation of the spirit of all existing 
 contracts. If the stamps affixed by the autho- 
 rity of the state to the gold and silver pieces 
 which are circulated through the country, cer- 
 tify faithfully, that those pieces are of a given 
 weight and fineness, it seems immaterial whether 
 the weight of each piece be implied in the name. 
 All that the public good requires is, that in the 
 daily and hourly operations of trade, the time 
 and expense of vv eighing and assaying the metals 
 shall be saved. When public stamps assure us 
 that the pieces circulating in the market, no 
 matter by what name they may be called, con- 
 tain a certain quantity of gold or silver, this is 
 effectually done ; and this being done, mercan- 
 
303 
 
 tile industry receives all the facilities which th^ 
 establishment of coined money seems capable of 
 affording it. 
 
 From what has been said in the preceding 
 paragraphs, respecting its origin and nature, 
 money may be defined to be, a commodity pos^ 
 sessing intrinsic value, and rendered, by general 
 consent, the medium of exchange, and the prac- 
 tical measure for computing the relative ex- 
 changeable value of other things. 
 
 These circumstances, the possession of unde- 
 rived exchangeable value, and the being ren- 
 dered by general consent the medium of exchange, 
 and the practical measure for computing the 
 relative value of other things, are essential to 
 money; and in these every article which has 
 been employed as money, from the most barbae 
 rous to the most polished times, have equally 
 partaken. According, indeed, to the degree of 
 improvement, and to the extent to which the 
 division of employment has been carried, the 
 articles constituting this instrument of mercan- 
 tile industry, will be found more or less convex 
 nient ; but in the essential properties which we 
 
504 
 
 have tnentioned, they all must have agreed. 
 Cattle, the money of ancient times, possessed a 
 high exchangeable value ; by cattle^ purchases 
 were made; and tve read, that in cattle the 
 relative exchangeable value of the armour of 
 the ancient heroes was computed. Every other 
 article which, in the daAVn of civilization, may at 
 any time have been employed as money, must 
 have performed similar functions ; and functions 
 precisely similar are, though with incalculably 
 more facility and convenience, performed by the 
 coined money of European States. 
 
 In the business of life, the term money is sel- 
 dom Used in its most extended setise. When a 
 merchant tells his foreign correspondent that he 
 will pay him in money, the expression has a 
 reference to bullion, the commodity which gene- 
 ral consent has rendered the criterion of value, 
 and the medium of exchange, in the great com- 
 mercial republic ; and when he engages to dis- 
 charge a domestic debt in money, the signification 
 of the term is still farther limited, and implies 
 the coined metal only which general consent 
 and the law of the land may, in his particular 
 
305 
 
 country, have made the instrument of exchange, 
 and the practical measure of exchangeable 
 value. Thus the term, money, with respect to 
 the civilized commercial world, means gold and 
 silver ; with respect to any particular nation, it 
 means that nation's current coin. 
 
 In tracing the origin of money, and stating 
 the functions it performs, we were necessarily 
 led to notice the manner in which it aids the 
 production of wealth. Without some article of 
 known exchangeable value, readily received as 
 an equivalent for other things, and serving as a 
 practical measure of their relative worth, the 
 interchange of commodities must have been very 
 limited, and consequently the divisions of em- 
 ployment very imperfectly established. Now, 
 money obviates these evils, and by a two-fold 
 operation augments production. In the first 
 place, it saves all that time and labour whicli, 
 while the intercourse between man and man is 
 carried on by barter, must frequently intervene 
 before a person can be supplied with the quantity 
 of the commodity which he wants. In the second 
 place, and in consequence of its saving the time 
 
 X 
 
306 
 
 and labour which must otherwise be spent in 
 effecting exchanges, it multiplies the transactions 
 of mercantile industry, and thus allows the divi- 
 sions of employment to be more thoroughly esta- 
 blished. By the first operation, it disengages a 
 very considerable portion of labour from an un- 
 productive occupation, and enables it to receive 
 a more useful direction. By the second operji" 
 tion, it increases in a very high degree the pro- 
 ductive powers of the labour already usefully 
 employed; it assists every man in avaihng 
 himself of the dexterity and skill which he may 
 have acquired in any particular calling, and 
 promotes cultivation in a manner suitable to the 
 climate and soil of different districts and of dif- 
 ferent countries. And by both these operations, 
 money increases, to an extent not easy to be 
 calculated, the wealth of the communities in 
 which it is established. 
 
 But, though money performs these important 
 functions, the employment of it is attended with 
 certain inconveniencies which considerably limit 
 its utility as an instrument of mercantile in- 
 dustry. In the first place, however portable the 
 
307 
 
 materials of which it is composed may be, in 
 comparison with other articles, it cannot be 
 conveyed to distant places without considerable 
 labour and expense. In the next place, the 
 country which employs metallic money, must be 
 at considerable expense in acquiring and sup- 
 porting it ; must devote an important portion of 
 her productive industry either to the working of 
 mines, or to the fabricating of articles with 
 which to purchase the metals from other coun- 
 tries in which they are worked* And, in th^ 
 third place, when money constitutes the only 
 medium of exchange, the most opulent merchant 
 may frequently find it impossible to turn hi3 
 stock into cash, with sufficient promptitude to 
 enable him to seize the opportunities of the 
 market. 
 
 The inconveniencies and delays to which 
 mercantile industry was exposed^ while metal- 
 lic money continued to be the only medium of 
 exchange, would naturally suggest the expedi^ 
 ency of employing some substitute fol* gold and 
 silver. The substitute which most readily pre- 
 sented itself was paper credit. Traders desirous 
 
308 
 
 of purchasing goods, and possessing the neces- 
 sary capital for doing so, finding it impossible 
 to call in their debts, or to turn their stock 
 into money with sufficient celerity to carry their 
 speculations into effect, would endeavour to make 
 the purchases they desired, by giving a note or 
 bond payable on some future day. Now, if the 
 people in the neighbourhood had such confi- 
 dence in the wealth and probity of the issuer of 
 such note or bond, as to believe he would be 
 able to discharge it as soon as it became due, the 
 person who might receive it, would find no 
 difficulty in paying it away, either in the dis- 
 charge of a debt, or in the purchase of other 
 goods. Thus this paper security might circulate 
 from hand to hand, supplying the place of a 
 more expensive instrument of exchange, and of 
 one too, which could not be transported without 
 labour, nor procured with sufficient promptitude 
 to meet the unforeseen opportunities of the 
 market. 
 
 As confidence and credit were established, 
 bills of exchange became the principal medium 
 by which the more distant operations of mer- 
 
309 
 
 cantile industry were carried on. These bills 
 were found so beneficial, not only in supplying, 
 by a most convenient substitute, the sudden 
 demands for money, but also in obviating the 
 labour, risk, and delay, incident upon the trans- 
 mission of the precious metals ; that first the 
 usage of merchants, and afterwards the laws of 
 commercial states, encouraged their circulation 
 by peculiar privileges. 
 
 The circulation of bills of exchange was 
 greatly extended, and their utility, as an instru- 
 ment of trade and commerce, very much in- 
 creased, by their being made payable some time 
 after date. A, might wish to purchase a quan- 
 tity of goods which B. was desirous of selling ; 
 but if B. had occasion for ready money, and if 
 A. though a thriving and opulent trader, could 
 not call in his debts, or dispose of his stock, so 
 as to procure an immediate supply of cash, 
 this transaction, though mutually beneficial and 
 mutually desired, might never take place. But 
 if A. gave a bill payable at three months upon a 
 substantial merchant who happened to owe him 
 the money, and B. from the confidence reposed 
 
310 
 
 in the drawer and acceptor of the bill, could 
 readily dispose of it in the market, then the 
 obstacle to their dealing would be at once 
 removed. For this bill being easily turned 
 into cash, would to B, answer all the purposes 
 of ready money ; while the circumstance of its 
 not being payable until after the expiration of 
 ninety days, would enable A. to avail himself 
 instantaneously of the sum then falling due to 
 him, and to prosecute what he conceived to be 
 a profitable speculation. Thus, in a country 
 where credit is understood and established, every 
 debt which one solvent trader owes to another 
 may, by making bills of exchange payable some 
 time after date, be transferred from hand to 
 hand ; and, as a substitute for money, supply 
 any sudden demand which happens to arise for 
 a medium of exchange. 
 
 But the circumstance which gave bills of 
 exchange the utmost degree of circulation and 
 utility which they seem capable of attaining, 
 was the establishment of banks. The operations 
 of banking, as connected with bills of exchange, 
 are of a two-fold nature. In the first place. 
 
311 
 
 every respectable banker keeps cash accounts 
 with the banking-houses of the principal trading 
 towns with which the merchants in his neigh- 
 bourhood have intercourse — gives bills of ex- 
 change drawn upon these houses, and accepts 
 the bills which they in return draw upon him. 
 By this operation of banking, the debts and 
 credits of different countries, and of different 
 districts of the same country, are balanced with-* 
 out the intervention of the precious metals ; — 
 facility is imparted to aU the transactions of 
 trade; and the risk and expense of transmitting 
 the precious metals are avoided. 
 
 In the second place, banks freely discount good 
 bills of exchange, and by this means greatly extend 
 their circulation, and increase their utiUty. For 
 though a good bill of exchange will readily pas^ 
 in payment from one merchant to another, — yet 
 in the general market they cannot enter freely 
 into circulation, nor serve for the small and 
 retail purchases of daily expenditure. The 
 holder of many such bills, if he were unable to 
 discount them, might be put to serious incon- 
 venience. But by the operations of banking this 
 
312 
 
 inconvenience incident upon the holding of bills 
 is completely obviated; and the possessor of 
 them, confident that they may enable him to 
 answer aU calls for small sums, and to make 
 what retail purchases he pleases, feels as much 
 security as if he had money to a similar amount 
 actually in his coffers. 
 
 Bankers at first discounted bills in the cur- 
 rent coin of their respective countries ; and 
 afterwards, as confidence increased, they adopted 
 the practice of discounting in their own promis- 
 sory notes. This effected the last improvement 
 of which paper currency seems susceptible. When 
 the inhabitants of any particular neighbourhood 
 have such confidence in the honour and wealth 
 of any set of bank proprietors, as to believe that 
 they are ready at all times to pay upon demand, 
 such of their promissory notes as are likely to 
 be presented to them, these notes come to have 
 the same currency as money, from the confidence 
 that the value which they represent may always 
 be procured for them. Now, though some of 
 these notes are daily returned to the bank for 
 payment, yet a considerable part of them may 
 
313 
 
 continue in circulation for months and years 
 together. Ten thousand pounds in money may 
 be sufficient to answer the casual demands occa- 
 sioned by the issue of a hundred thousand pounds 
 in promissory notes. In this case, therefore, ten 
 thousand pounds in the precious metals, may 
 perform all the functions which a hundred thou- 
 sand pounds could otherwise have performed; 
 and bills of exchange may be discounted to 
 almost any extent which the transactions of 
 trade may require. 
 
 But paper currency is not confined to bills of 
 exchange, and the promissory notes of bankers. 
 This instrument of trade may be defined, after 
 the Abbe Morellet, to consist of every acknow* 
 ledgment of debt or obligation ; every stipula- 
 tion by writing between a debtor and creditor, 
 which obliges the former to pay, and authorises 
 the latter to exact, a value ; and which, being 
 capable of conveyance, becomes the means of 
 transferring the property of these values from 
 one to another, without transporting the things 
 valuable in substance. More simply, as money 
 is that which possesses an independent exchange- 
 
314 
 
 able value, and which is rendered, by general 
 consent, the medium of transferring, and the 
 practical measure for valuing other things; so 
 paper currency is that which represents ex- 
 changeable value, and which is admitted by 
 general consent and confidence, as an instru- 
 ment for exchanging, and as a measure for 
 computing the value of other things. 
 
 In explaining the principle which occasioned 
 the establishment of paper currency, and in 
 tracing the steps by which it has been improved 
 and perfected, it was impossible not to make 
 some allusion to the nature and extent of the 
 benefits which it confers. These benefits, how- 
 ever, demand a more specific examination. 
 
 As the inconveniencies attending the employ- 
 ment of metallic money have been seen to be 
 three^fold, the advantage resulting from the use 
 of this substitute for money, is three-fold also. 
 In the first place, a paper currency saves all the 
 labour and capital which would otherwise be 
 expended in transporting the metallic medium^ 
 and enables them to be employed in direct pro- 
 duction. In the second place, it saves and turns 
 
315 
 
 to the business of direct production, all the labour 
 and capital which would otherwise be absorbed 
 in procuring and maintaining a metallic currency. 
 And, in the thit*d place, it bestows upon the 
 circulating medium an elastic principle which 
 multiplies the transactions of mercantile industry, 
 and improves the productive powers of all the 
 labour and capital employed throughout the 
 country. 
 
 Though gold and silver contain great value in 
 small bulk, yet transporting them backward and 
 forward for the purpose of effecting each parti^ 
 cular transaction of trade, would be attended 
 with a very considerable expense of labour and 
 capital. In an industrious and opulent nation, 
 each town and each district is perpetually selling 
 to, and buying from, every other town and district; 
 and if purchases could not be made without the 
 immediate agency of money, the nietals would 
 be in a perpetual state of flux and reflux through 
 the country. While the shopkeeper of London 
 was sending guineas to purchase fabrics from the 
 manufacturer of Manchester, the shopkeeper of 
 Manchester would be transmitting them to pay 
 
,316 
 
 for goods obtained from the manufacturer in 
 London. And while one merchant in Liverpool 
 was conveying gold to Birmingham, in order to 
 purchase iron work for exportation, the retail 
 dealer in Birmingham might be transmitting 
 that metal to another merchant in Liverpool, to 
 purchase the foreign or colonial goods he had 
 imported. Now, by means of bills of exchange, 
 and the operations of banking, the risk and 
 expense of transporting the metals is almost 
 altogether saved. Debts and credits are balanced 
 without the immediate instrumentality of money, 
 and a considerable portion of labour and capital 
 is disengaged from conducting circulation, and 
 turned to the work of direct production. 
 
 In the second place, bills of exchange, the 
 promissory notes of bankers, and the other writ- 
 ten engagements of which paper currency is 
 composed, have scarcely any intrinsic value, and 
 may be fabricated at little or no expense ; while 
 coined money, on the contrary, consists of very 
 costly materials, and very curious workmanship. 
 When, therefore, a paper, is substituted for a 
 metallic cuiTency, a very considerable saving is 
 
317 
 
 produced. Now, it is evident, that every saving 
 which can be effected in the capital employed in 
 conducting the circulation of commodities, will 
 allow of an increase in the capital employed in 
 producing them. As the undertaker of a great 
 manufactory, who employs a thousand a year in 
 the maintenance of his machinery, will, if he can 
 reduce this expense to five hundred, employ 
 the other five hundred in purchasing an additi- 
 onal quantity of materials, to be wrought up by 
 an additional number of workmen : so a great 
 country, which expends annually a million 
 sterling, in maintaining the circulating medium, 
 if that expense can, without impeding the trans- 
 actions of trade, be reduced to a hundred thou- 
 sand pounds, will apply the remaining nine 
 hundred in direct production ; — will procure 
 and work up a greater quantity of raw produce ; 
 —will extend her agriculture, — increase her 
 manufactures, and thus augment the mass of 
 commodities. 
 
 As it is impossible to ascertain, with any pre- 
 cision, the amount of the circulating medium, 
 which a country at any time employs, we can 
 
318 
 
 form no colTect estimate of the extent of the 
 saving effected by substituting paper currency 
 for coin. Even if we knew the amount of all 
 the promissory notes uttered by the several 
 banking companies, we should not thence be able 
 to ascertain the quantity of the precious metals 
 supplanted by paper currency. Of that paper 
 currency the notes of bankers form a small part. 
 In an opulent country, where credit is esta- 
 blished, all mercantile transactions of any consi- 
 derable magnitude are conducted by bills of 
 exchange ; and every good bill which is received 
 in payment for goods — every security which 
 passes in the market, — supplies the place of 
 money, and enables lis to appropriate to direct 
 production, capital which would otherwise be 
 required to support the circulating medium^ 
 Now, when we reflect for a moment on the 
 enormous amount of the bills of exchange, and 
 other paper securities which enter annually into 
 the circulation of a great commercial country ; 
 when we consider that every debt which one 
 solvent trader owes to another, may be drawn foi' 
 by a bill payable at some future day, and thus 
 
319 
 
 converted into a species of paper currency, ready 
 to supply any sudden demand which may arise 
 for cash, we must be struck and astonished at 
 the almost incalculable amount of capital which 
 is saved and turned to direct production, by thus 
 supplanting the metallic medium. If a country 
 were to withdraw from the business of direct 
 production, — from agriculture and manufactures, 
 a quantity of capital sufficient to purchase and 
 keep up the metallic medium, which the diffe- 
 rent kinds of paper securities now so conve- 
 niently supplant, industry would receive an 
 alarming check, and the mass of commodities 
 sustain a fatal diminution. 
 
 But, in the third place, if we were even to 
 withdraw from direct production, — ^from agricul- 
 ture and manufactures, a portion of capital 
 sufficient to purchase and to coin the quantity 
 of metal which credit now supplants, we could 
 not bestow upon the circulating medium the 
 convenience and utility which it derives from 
 being in a great measure composed of paper 
 currency. For, to omit the repetition of what 
 we have already said respecting the risk and 
 
320 
 
 expense of making large and distant payments 
 in the metals, a well-regulated paper currency 
 bestows upon the circulating medium an elastic 
 principle, which supplies instantaneously each 
 sudden and unexpected demand for cash* This 
 part of the benefit obtained by substituting 
 a paper for a metallic currency, is precisely 
 analogous to that which is derived from substi- 
 tuting money transactions for those of barter. 
 When money transactions are substituted for 
 those of barter, the exchange of commodities is 
 facilitated, the divisions of employment are more 
 thoroughly established, and the productive powers 
 of industry are heightened in a degree not easy 
 to be calculated. When a paper, is substituted 
 for a metallic currency, similar effects are pro- 
 duced. All the merchants and dealers through- 
 out the country are, by means of bills of exchange 
 and the operations of banking, enabled to convert 
 the sums falling due to them into a convenient 
 representative of money, and to effect purchases 
 and interchanges of commodities, which could 
 not otherwise take place* The facilities thus 
 afforded to the operations of mercantile industry, 
 
321 
 
 enable eacli individual to devote himself move 
 exclusively to his particular calling, to husband 
 his time, and acquire increasing dexterity and 
 skill, or to bestow upon his field a cultivation 
 better calculated to co-operate with nature ; while 
 these more accurate divisions of mechanical and 
 territorial employment give, in every occupation, 
 increasing energy to the productive powers of 
 labour and capital, and swell from a thousand 
 springs the stream of human happiness. 
 
 The nature of the several benefits conferred 
 upon a country by the establishment of a well 
 regulated paper currency, is sufficiently obvious 
 and easy of comprehension ; but the precise 
 extent of these benefits it would be difficult, 
 nay, impossible, to ascertain. To calculate the 
 amount of the different paper securities, whether 
 public or private, which in a great commercial 
 country serve as instruments of exchange, and 
 disengage, for direct production, the capital 
 which would otherwise be expended in transmitr- 
 ting money, and hi procuring and supporting a 
 metallic medium; to examine witli accuracy, how 
 far: these paper securities are calculated to meet 
 
 Y 
 
522 
 
 those sudden and temporary demands for cash, 
 which a less elastic medium could not supply; and 
 to trace out the additional exchange of commodi- 
 ties, the improved divisions of employment, and 
 the heightened powers of production incident 
 thereon, are all necessary preliminaries which 
 must be disposed of before we can form a correct 
 conception of the extent of the benefit which 
 a country may derive from a paper currency. 
 But though the precise amount of the benefit 
 cannot be ascertained, its magnitude is sufficient 
 to fill the imagination, and to excite the surprise 
 of all who turn their attention to this important 
 branch of economical science. Though we can- 
 not estimate the amount of the paper securities 
 which at any given period enter into circulation, 
 nor calculate precisely the saving of capital,— 
 the additional exchanges, — the new divisions of 
 employment, — and the consequent increased 
 production to which they give occasion; yet, 
 on the most superficial view of the subject, we 
 must be struck with the advantages arising 
 from all the sums which in a great commercial 
 country, one solvent trader owes to another, 
 
323 
 
 liecaming, in ecmsequence of bills of exchange, 
 and the notes of bankers, capable of being thrown 
 into the channels of circulation, and of instan- 
 taneously supplying, as a substitute for money, 
 every sudden increase in the demand for an 
 instrument of exchange. Mercantile industry is 
 facilitated in a thousand ways. The great wheel 
 of circulation, revolving unimpeded, with a rapid 
 motion distributes to the several members of the 
 community the surplus products of each other's 
 industry. No man is compelled to waste his 
 time, and throw away his acquired skill, by com- 
 bining in his own person, a variety of callings ; 
 or to cultivate an ear of corn, or a blade of grass, 
 upon an uncongenial soil. Labour is subdivided 
 and abridged in a thousand ways ; and by con- 
 sequence, the productive powers of industry, 
 and the quantity of all useful commodities, are 
 increased. 
 
 Having thus shewn the manner in which 
 money and paper currency aid the acquisition of 
 wealth, I shall now endeavour to trace the effects 
 which a diminution and increase in the value of 
 
324 
 
 the circulating medium are respectively calcu- 
 lated to produce. 
 
 The first, and certainly the most injurious 
 consequence of a fall in the value of the circulat- 
 ing medium, is the reduction which it effects in 
 the real wages of labour. A fall in the value of 
 money is the same thing as a rise in the price 
 of all the necessaries of life; and experience 
 proves to us, that the rate of wages is somewhat 
 tardy in proportioning itself to the price of neces- 
 saries. In almost all trades the sum which is 
 paid for labour is regulated by a contract, tacit 
 or implied, between the masters and the work- 
 men ; and, notwithstanding the fluctuations in 
 the value of money, and in the price of necessa- 
 ries, it varies but little for considerable periods. 
 The tardiness with which money wages adjust 
 themselves to the price of subsistence, is, in 
 England, increased by the operation of the Poor 
 Laws. The reward of labour has a constant 
 tendency to settle down to that quantity of 
 subsistence which, from climate and custom, is 
 necessary, to enable the labourer to bring up 
 
325 
 
 such a family as will keep the supply of labour 
 even with the demand : for, if he receives more 
 than this, the quantity of labour will increascj 
 and its value fall ; and if he receive less, its 
 quantity will diminish, and its value rise. But 
 if the parish undertake to support the labourer's 
 family, either wholly or in part, the masters will 
 no longer be compelled, by the law of supply 
 and demand, to give their workmen a sum suf- 
 ficient to purchase this quantity of subsistence ; 
 and a fall in the value of money, or a rise in 
 the price of provisions, will be followed, not by 
 an advance in money wages, but by an increase 
 in the poor rates. # 
 
 These evils, however, could only be of short 
 duration, and would be counteracted by the 
 other effects of an increased circulation. When 
 the value of money falls, there is nothing to 
 prevent the price of labour from rising in the 
 same proportion w ith that of other things, except 
 the compact, expressed or implied, which regu- 
 lates the rate of wages in the several trades. \ 
 The laws against combination have probably 
 the effect of rendering this compact less flexible 
 
326 
 
 than it otherwise would be, and of preventing 
 the money rate of wages from conforming to 
 the price of subsistence, so as to keep their real 
 rate at tJ^e level marked by the proportion 
 between the supply of labour and the demand 
 for it. However, notwithstanding these laws, 
 a fall in the value of money would gradually 
 force upon masters a proportional rise in the 
 wages of their workmen — unless, indeed, a dimi- 
 nution in the demand for labour were to take 
 place. But a fall in the value of money, instead 
 of diminishing, would, for some time, increase 
 the demand for labour. As long as this fall 
 i:aised the price of goods, without effecting an 
 equivalent rise in the rate of money wages, the 
 profits of stock would be increased; and thus the 
 master's capital would accumulate more rapidly, 
 while he would have a stronger motive to 
 employ upon productive labour all the stock 
 which his wealth or credit enabled him to com- 
 mand. 
 
 The alterations, too, which a fall in the value 
 of the currency would effect in the distribution 
 of wealth, would all be in favour of the produc- 
 
327 
 
 tive classes, and tend to encourage industry, 
 and to increase the demand for labour. During 
 the currency of his lease, the farmer receives an 
 important benefit; the amount of his rent re* 
 maining stationary, while the price of his pro-* 
 duce rises. So far, indeed, as the landlord is 
 concerned, it is unjust and injurious that the rent 
 should be paid in a currency of diminished value. 
 What, the farmer gained, he would lose. But 
 wealth, in the hands of the farmer, is more bene- 
 ficial to the country than wealth in the hands of 
 the landlord. By the one, it is expended pro- 
 ductively — as capital; by the other, unproduc- 
 tively — as reveime. While, therefore, we cannot 
 defend the injustice of violating the spirit of the 
 contract between landlord and tenant, by caus- 
 ing the stipulated rent to be paid in a depre- 
 ciated currency, we must admit, that increasing 
 the farmer's profits, though it be at the landlord's 
 expense, gives him at once the power and the 
 inducement to cultivate with more spirit, and 
 to afford employment to a greater number of 
 hands. 
 
 In the other branches of industry, a diminu- 
 
■ 328 
 
 tion in the value of the currency would also be, 
 in some respects, favourable. Until wages rose 
 in proportion to the necessaries of life, all would 
 obtain a rate of profit, somewhat higher than 
 before. Besides, a rising scale of prices has a 
 kind of magical effect upon trade, and inspires 
 that confidence and credit, which give an height- 
 ened power to all the springs of production. 
 Confidence, like those prophecies which occasion 
 their own fulfilment, creates that increased 
 demand which it anticipates. The masters in 
 . every trade fabricate that quantity of their 
 respective commodities, for which they expect a 
 profitable sale. Increase this expectation, in^ 
 spire them with more confidence in obtaining a 
 favourable market, and the supply of all sorts of 
 goods will be immediately augmented. Now, 
 if a single individual were to be seized with an 
 unusual confidence, and, under its influence, 
 were to fabricate a more than customary quan- 
 tity of his peculiar article, then the other indi- 
 viduals of the community not having an enlarged 
 power of purchasing, the supply of this article 
 would be increased beyond the demand, and its 
 
329 
 
 producer s expectations of advantage would be 
 disappointed. Very different is the result when 
 the increase of confidence becomes general. In this 
 case there is a greater quantity of commodities 
 produced in all the branches of industry, and each 
 class, having more goods to dispose of, will enlarge 
 the market for the others. For example ; if, in 
 consequence of a growing and universal confi- 
 dence, commodities in general were increased 
 by a fourth, then the shoe-maker would have 
 more shoes to dispose of; but as the consumer 
 would have a greater quantity of the ingredients 
 of capital to exchange against them, the demand 
 for shoes would increase, in an equal proportion 
 with the supply. The other industrious classes 
 liaving a greater quantity of their respective 
 commodities to exchange, these would also meet 
 an enlarged demand, proportioned to their aug- 
 mented supply, and would consequently retain 
 the same value as before. It is easy to see, that 
 if the general confidence had occasioned an im- 
 provement in the quality, instead of an increase 
 in the quantity of commodities, the effect would 
 be the same. In this manner, confidence, wlien 
 
330 
 
 general, always creates that enlargement o£ the 
 market which it anticipates ; and hence a rising 
 scale of prices imparts a brisker flow to industry, 
 through all its varied channels. 
 
 With respect to those engaged in commerce, 
 a depreciation in the currency is beneficial to 
 the debtor, and injurious to the creditor. But 
 as every considerable trader must have bills to 
 pay, as well as to receive, and is, at one and the 
 same time, both a debtor and a creditor, the 
 injury and the benefit will in some degree 
 balance each other. Even he who is exclusively 
 a creditor will receive some compensation for 
 his loss. The brisker flow of trade will render 
 the backward more prompt in their payments, 
 and enable some to make good their engage- 
 ments, who could not otherwise have paid at all; 
 and will thus ensure him a quicker return, and 
 diminish the number of his bad debts. The 
 greater facility in obtaining discounts, which an 
 increased issue of currency bestows, is also to be 
 taken into the account. To the rash and gam- 
 bling trader this may be an injury; encouraging 
 him to engage in S|3eculations ultimately ruinous 
 
331 
 
 to himself, and prejudicial to the country. But 
 this objection proves too much. It might be 
 urged with equal force against every species of 
 commercial credit. An advantage is not to be 
 disregarded, because imprudent people may use 
 it to their own destruction. A few may make 
 over-sanguine calculations, and undertake losing 
 speculations, but the great majority of those 
 who engage in mercantile pursuits will profit by 
 every facility of discount and increase of credit 
 which enables them to extend their transac- 
 tions. 
 
 A diminution in the value of the currency 
 would have the effect of lowering the salaries of 
 all the servants of the state, whether civil or 
 military. Now the labour of these persons, 
 however useful and important, effects no direct 
 addition to the wealth of the community. The 
 salaries advanced to them are not expended 
 productively, as capital; and if their services 
 are as efficiently performed, when they are paid 
 in a depreciated currency, as when paid in 
 one of undiminished value, the difference is a 
 clear gain to the public. With respect to all 
 
!:^: 
 
 332 
 
 other annuitaDts, to the mortgagee, and to the 
 fund-holder, their case would be nearly the 
 same as that of the land-owner. The diminu- 
 tion effected in their real income would be mani- 
 festly unjust, but it would in no way obstruct 
 production, or retard the prosperity of the coun- 
 try. It would have rather a contrary effect. 
 What was taken from the annuitant would be 
 turned into the channels of profit and wages, and 
 jvould thus give a new stimulus to industry, and 
 ameliorate the condition of the great mass of 
 the population. 
 
 But in a country oppressed with debt and taxes, 
 the most beneficial effects resulting from a 
 lowering of the value of the circulating medium, 
 would be the diminution of the public burdens. 
 If, in the science of political economy, there is 
 any one proposition more capable of demonstra- 
 tion than another, it is, that excessive taxation 
 dries up the spring of production. When taxes 
 raise the necessaries of life, and cause the la- 
 bourer to pay a higher price for his subsistence 
 than before, then, if his wages do not rise, they 
 will be insufficient fur his support ; and his 
 
333 
 
 family must go upon the j)ans}i, or starve. But 
 if, in order to place the labourer in the same 
 independent circumstances as before, wages are 
 raised in an equal ratio to the increased price of 
 necessaries, then the capitalist must either raise 
 the price of his goods in proportion to the higher 
 wages which he pays, or receive a lower rate of 
 profit upon his trade. Suppose that he raises 
 the prices of his goods, and then he will be 
 undersold in the foreign market ; the commerce 
 of the country will be destroyed ; and all those 
 to whom it afforded employment, will be thrown 
 out of work. On the other hand, supposing, 
 what is more probable, that the capitalist cannot 
 increase the price of his goods in proportion to 
 the higher wages which he pays, and then the 
 diminished profits of his trade will tempt him to 
 transfer his capital to countries where it will 
 fetch a higher return, the funds for the mainte- 
 nance of industry will be diminished, and our 
 people deprived of the means of earning an inde- 
 pendent livelihood. Thus we see, that heavy 
 taxation, by rendering wages inadequate, by 
 raising the prices of goods ia the foreign market 
 
.^31 
 
 or by driving capital abroad, is the great parent 
 of pauperism. 
 
 Having thus traced the effects of a diminu- 
 tion, I will now endeavour to point out the con- 
 sequences of an increase in the value of the 
 circulating medium. 
 
 As a depreciation of the currency would, iit 
 the first instance, occasion a fall in the real 
 wages of labour ; so a rise in the value of the 
 medium in which he is paid, would give the 
 labourer a greater command over the neces- 
 saries of life than before, and thus reduce the 
 number of paupers, and lower the amount of the 
 poor rates. Unfortunately these beneficial effects 
 could not be permanent. Masters can lower 
 wages much more rapidly than workmen can 
 raise them. In proportion as their numbers are 
 smaller, a combination among them becomes 
 more easy ; while, as they can always subsist 
 for a considerable time upon their capital, their 
 competition to obtain workmen can never be so 
 active and urgent as that of the workmen, whose 
 labour is their daily bread, to obtain employ- 
 ment. Besides, a rise in wages always diminishes. 
 
335 
 
 by a two-fold operation, tlie demand for labour. 
 It lowers the profits of stock, and thereby checks 
 the accumulation of capital, and takes from the 
 inducement to engage in productive industry ; 
 while, at the same time, its prevents any given 
 quantity or amount of capital, from putting so 
 great a number of hands in motion as before. If 
 the labourer receives two shillings a-day as 
 wages, and if he daily works up material to the 
 amount of two shillings more, then a capital of 
 two thousand shillings will put in motion five 
 hundred days' labour ; but if wages rise to three 
 shillings a-day, then a capital amounting to two 
 thousand shillings would not give employment 
 to more than four hundred days' labour, five 
 shillings instead of four being required to fur- 
 nish the labourer with wages and material for 
 each day. Thus the combination of masters, the 
 competition of workmen, the less rapid accumu- 
 lation of capital, and its diminished power of 
 putting industry in motion, would irresistibly 
 tend, not only to bring the real wages of labour 
 down to their former level, but to depress them 
 
S36 
 
 soiiievvliat lower than they would have been, had 
 the rise in the currency never taken place. 
 
 We have seen that a fall in the value of the 
 circulating medium alters the distribution of 
 wealth in favour of the productive classes. A 
 rise in its value has a contrary effect, enriching 
 the class whose revenues are expended unpro- 
 ductively, at the loss of those by the agency of 
 whose labour and capital the wealth of the com- 
 munity is created. A greater portion of the 
 farmer's produce woidd be required to pay his 
 rent, and a less portion would remain to be 
 re-invested in cultivation and improvement. 
 The salaries of public functionaries, the wages 
 of all the civil and military servants of the state, 
 though nominally the same, would in reality be 
 increased. The mortgagee, the annuitant, and 
 the fund-holder, all those, who, without actively 
 engaging in the work of production, live upon 
 the interest of money, would have their revenues 
 increased at the expense of those funds which pay 
 the profits of stock, and the wages of labour. 
 
 In all the transactions of trade, the creditor 
 
337 
 
 would be benefited at the cost of the debtor. 
 The diminution in the amount of the circulating 
 medium, would compel the monied capitalist, 
 and banker, to restrict their discounts, and thus 
 deprive the merchant of the accustomed accom- 
 modation on which he calculated. Credit would 
 encounter a shock, and as an increase of confi- 
 dence creates the extension of demand, which it 
 anticipates; so a diminution of confidence occa- 
 sions that narrowing of the market which it 
 fears. One individual under the apprehension 
 that he will be able to sell less, employs fewer 
 workmen in preparing goods, than before ; but 
 the diminished quantity of his goods will not 
 enhance their price, because, as a similar im- 
 pression caused less business to be done in other 
 trades, there will be fewer articles to offer in 
 exchange for them, and the demand will be con- 
 tracted in the same proportion as the supply. The 
 shock which injures credit, suspends production. 
 But to a country circumstanced like England, 
 the most injurious effect of a rise in the value 
 of money, undoubtedly is the addition which it 
 occasions in the real amount of our debt and 
 
 z 
 
33S 
 
 taxation. Excessive taxation banished manu- 
 factures and commerce from the republic of 
 Holland, and we are not to expect that in our 
 own country a similar cause will be followed by 
 a dissimilar effect. In the deficiency of employ- 
 ment, in the amount of the poor rates, and in 
 the millions of capital sent out of the country as 
 foreign loans, England may discover the awful 
 truth, that exorbitant taxation is bringing her 
 to the limits of her resources, and to the verge 
 of decline. 
 
 From the brief sketch which has here been 
 given of the effect, which a fall and a rise in the 
 value of currency are respectively calculated to 
 produce, it must be sufficiently apparent, that 
 the consequences of the latter would be beyond 
 all comparison more injurious th^n those of the 
 former. With respect indeed to an unjust alter- 
 ation, in the distribution of property, both would 
 be upon a par. The proprietor who had granted 
 leases, the creditor who had made advances 
 either to the public, or to individuals, with all 
 those whose income was estimated, or whose 
 capital was invested in money, would suffer by 
 
339 
 
 the one; while the tenant, the debtor, and the 
 payer of taxes, would be surcharged by the other. 
 But though a fall and a rise in the value of 
 currency, might inflict equal injustice upon indi- 
 viduals, they would produce very different effects 
 upon the general wealth and prosperity. The 
 violations of private property in the former case, 
 would be accompanied by an increase of con- 
 fidence, of production, and of trade ; in the 
 latter, would be aggravated by a universal stag- 
 nation, and revulsion, and, perhaps, in an over^ 
 taxed country, by a national bankruptcy. 
 
 Section VI. — On the Principles of Demand 
 and Supply. 
 
 Before the divisions of employment are esta- 
 blished, and while each individual raises and 
 prepares for himself all the several articles he 
 consumes, the society will possess an advantage 
 which will compensate, in some shght degree at 
 least, for the low effective powers of industry. 
 In this rude and early state there can be no 
 
.340 
 
 anxiety with regard to finding a vend or market 
 for the goods which may be produced. Every 
 increased exertion of labour will have a direct 
 and immediate effect in improving the condition 
 of the labourer, and tlie amount of every man's 
 wealth will be in exact proportion to the quan- 
 tity of industry he employs, and the skill with 
 which he directs it. 
 
 On the other hand, those divisions of employ- 
 ment which almost miraculously increase the 
 effective powers of human labour, are accom- 
 panied by a counterbalancing disadvantage. 
 : When they are once thoroughly established, the 
 machine of society becomes infinitely artificial and 
 complex, and a derangement in any of its nicer 
 parts, not unfrequently impedes the working of 
 the whole. Increased exertions on the part of the 
 labourer, instead of increasing may now diminish 
 his command over the necessaries of life; and the 
 amount of wealth acquired by each individual 
 will depend, not so much upon the energy and 
 skill with which he applies his industry, as upon 
 the numbers and the means of those who may 
 be desirous of purchasing the peculiar commodity 
 
341 
 
 which he furnishes. Manufacturers may starve, 
 not in consequence of idleness, but of doing too 
 much work; and agriculture become a losing 
 occupation, not from the deficiency, but from the 
 abundance of its products. While in the rude 
 and simple stage of society, the only object was 
 to produce ; in the improved and complex state, 
 the object is not merely to produce, but to pro- 
 duce in such proportions that the peculiar articles 
 furnished by each class may be readily and pro- 
 fitably exchanged for the peculiar articles pre- 
 pared by the others. 
 
 In the language of political economy, the pro- 
 duction of commodities in such proportions that 
 each may be readily and profitably exchanged 
 for others, is called limiting the supply to the 
 effectual demand. The preservation of these pro- 
 portions is of the utmost importance, not merely 
 to the individual who furnishes particular arti- 
 cles, but to the general industry and wealth of 
 the community. Indeed, there are scarcely any 
 principles in economical science which come so 
 frequently into practical operation, and which at 
 the same time are so imperfectly understood, as 
 
342 
 
 those which are termed the laws of supply and 
 demand. I shall, therefore, in concluding this 
 long chapter upon mercantile industry, endeavour 
 to furnish that which I conceive has hitherto 
 remained a desideratum in political economy ; 
 namely, an accurate and complete analysis of 
 the important principles of supply and demand. 
 In the production of every commodity certain 
 portions of some other commodities are con- 
 sumed. Effectual demand must therefore con^ 
 sist in the power and the inclination to give for 
 a commodity, either by direct or circuitous 
 exchange, a quantity of the other commodities 
 required in their production, somewhat greater 
 than their production actually costs. If the quan- 
 tity of commodities offered in exchange for a 
 given quantity of another commodity, does not 
 equal the quantity expended on its production, it 
 will be physically impossible that its production 
 should be continued ; and if the quantity offered 
 does not somewhat exceed the quantity expended, 
 it will be morally impossible to continue produc- 
 tion, because the producer can have no motive 
 to advance his capital; or, in other words, to 
 
343 
 
 expend one set of commodities in raising or 
 fabricating others. 
 
 It is no solid objection to this account of 
 effectual demand, to say, that in the profitable 
 transactions which are daily and hourly effected 
 in the market, an instance is scarcely ever found 
 to occur, in which the price of an article sold 
 consists in a quantity of all the other articles 
 required in its production, somewhat greater 
 than its production actually cost. If this some- 
 what greater quantity of these articles is never 
 given directly and immediately, it is always 
 given indirectly and mediately. Wherever a 
 sale takes place, which realises a profit to the 
 producer, and enables and induces him to con- 
 tinue his business, the price of the article sold 
 must necessarily be sufficient to purchase some 
 greater quantity of the other articles expended 
 upon its production, than its production actually 
 cost. No price, however high, as expressed in 
 money or in other things, can be a remunerating 
 price, or constitute that effectual demand which 
 enables and encourages the producer to continue 
 bis occupation, unless it will suffice to purchase 
 
314 
 
 for him some greater quantity of the ingredients 
 of capital than that which he expended in pro- 
 duction. On the other hand, no price, however 
 low, as estimated in money or other things, can 
 cease to be a remunerating price, and to con- 
 stitute the expression of effectual demand, unless 
 the quantity of money or of other things in 
 which it consists, be inadequate to repurchase 
 some greater quantity of the ingredients of 
 capital than that expended in the production of 
 the commodity sold. , The effectual demand for 
 any commodity is always dietermined, and under 
 any given rate of profit, is constantly commensu- 
 rate with the quantity of the ingredients of capital, 
 or of the things required in its production, which 
 consumers may be able and willing to offer in 
 exchange for it. 
 
 An effectual demand for an increased quan- 
 tity of any commodity may be created by two 
 several circumstances, namely, by an increase in 
 the quantity of the ingredients of capital offered 
 in exchange for it, or by a diminution in the 
 (juantity of these ingredients required for its 
 production. Thus, assuming that the rate of 
 
315 
 
 profit is ten per cent, and that the ingredients of 
 capital consumed in preparing a bale of muslin 
 are one quarter of corn, and one suit of clothing; 
 then, if the persons desirous of consuming muslin, 
 offer one hundred and ten quarters of corn, and 
 one hundred and ten suits of clothing in ex- 
 change for it, there will be an effectual demand 
 or profitable vend for one hundred bales of muslin. 
 But if, while the quantity of things required to 
 be expended in producing muslin remains the 
 «ame, the quantity of these things offered in 
 exchange for it should be increased to two 
 hundred and twenty quarters of corn, and two 
 hundred and twenty suits of clothing ; the effec- 
 tual demand for the article would be doubled, 
 and there would be a profitable vend for two 
 hundred bales of muslin, instead of one hundred. 
 A precisely similar effect would be produced if, 
 while the consumers continued to offer no more 
 than one hundred and ten quarters of corn, and 
 one hundred and ten suits of clothing, for their 
 supply of muslin, the quantity of the ingredients 
 of capital necessary to the fabrication of one 
 hundred bales, should be reduced from one 
 
346 
 
 hundred quarter of corn, and one hundred suits 
 of clothing, to fifty quarters, and fifty suits. In 
 either case, there would be an effectual demand 
 for two hundred bales of muslin, instead of for 
 one hundred. 
 
 In like manner, an effectual demand for a 
 diminished quantity of commodities will be oc- 
 casioned by two several circumstances ; first, by 
 a diminution in the quantity of the ingredients 
 of capital offered in exchange for them ; secondly, 
 by an increased quantity of these ingredients 
 becoming necessary to their production. If the 
 rate of profit be ten per cent, and if it requires 
 a capital of one quarter of corn, and one suit of 
 clothing, to fabricate a bale of muslin ; and if 
 the ingredients of capital offered in exchange for 
 muslin be diminished to fifty-five quarters of corn, 
 and fifty-five suits of clothing, it is evident that 
 no more than fifty bales of muslin can obtain a 
 profitable vend. The same result will follow if, 
 while one hundred and ten quarters of corn, and 
 one hundred and ten suits of clothing are offered 
 for the supply of muslin, the cost of producing 
 a bale of this article should be increased to two 
 
347 
 
 quarters of corn, and two suits of clothing. The 
 quantity of any commodity for which a profitable 
 sale can be oljtained, must necessarily be dimi- 
 nished, either by an increase in the quantity of the 
 ingredients ,of capital required in its production, 
 or by a diminution in the quantity of these 
 ingredients brought to market to be exchanged 
 for it. 
 
 These illustrations will be found sufficient, I 
 trust, to establish the important principles that 
 that which increases the effectual demand for 
 commodities, is increased production ; and that 
 that which diminishes effectual demand, is dimi- 
 nished production. Wherever there is a profitable 
 sale for an increased quantity of commodities, one 
 of two things must necessarily have occurred; — 
 either the consumers must have acquired a greater 
 quantity of the ingredients of capital to replace 
 the greater quantity of these ingredients expended 
 in increasing the supply of other commodities ; or 
 else improvements must have been effected in 
 industry, admitting of increased production with- 
 out an increase of cost. In the former case, a 
 greater quantity of the ingredients of capital is 
 
Ah 
 
 348 
 
 produced ; in the latter, a greater quantity of the 
 things, in the acquisition of which capital is 
 expended; and in both, increased supply is the 
 one and only cause of increased effectual demand. 
 It may be proper to remark, that there are 
 cases in which an increased production of the 
 ingredients of capital will not occasion an in- 
 creased effectual demand for the articles upon 
 which capital is expended; and conversely, in 
 which a diminished production of the ingredients 
 of capital will not lead to a diminution in the 
 quantity of other things for which there is a 
 profitable vend. In all such cases, however, the 
 increase or diminution of production, on the one 
 hand, is counterbalanced by a diminished or 
 increased production on the other. Thus, to 
 recur to our former illustration, were the quantity 
 of the ingredients of capital offered in exchange 
 for muslin increased from one hundred and ten 
 quarters of corn, and one hundred and^ten suits 
 of clothing, to two hundred and twenty quarters, 
 and two hundred and twenty suits ; while the 
 cost of producing one hundred bales of mushn 
 rose from one hundred quarters, and one hundred 
 
319 
 
 suits, to two hundred quarters, and two hundred 
 suits, then the double quantity of the ingredients 
 of capital would not furnish an effectual demand 
 for any increased quantity of muslin. And 
 again ; should the quantity of the ingredients of 
 capital produced and brought to market be 
 diminished one half, while the expense of pro- 
 ducing muslin were diminished one half also, 
 then fifty-five quarters of corn, and fifty-five suits 
 of clothing would afford the same profitable vend 
 or effectual demand for one hundred bales of 
 muslin, as was formerly afforded by an equivalent 
 consisting of one hundred and ten quarters, and 
 one hundred and ten suits. 
 
 /Effectual demand consists in the power and /A 3 
 
 inclination, on the part of consumers, to give for '^ *' 
 
 commodities, either by immediate or circuitous 
 barter, some greater portion of all the ingredients 
 of capital than their production costs.i If this 
 be a correct account of the matter, it follows 
 that there is a very important limitation to the 
 principle, that increased supply is the occasion 
 of increased demand ; and it will appear, that 
 an increased production of those articles which 
 
350 
 
 do not form component parts of capital, can- 
 not create an increased effective demand, either 
 for such articles themselves, or for those other 
 articles which do form component parts of 
 capital. No increased production of silks, for 
 example, can give rise to an increased effectual 
 demand either for muslins or for corn. The reason 
 is obvious. In fabricating muslin or in raising 
 corn, a great variety of articles of capital, such 
 as food and clothing, material and implements, 
 must be expended, and these ingredients of capi- 
 tal no supply of silks or of other superfluities 
 can replace. Whatever may be the quantities 
 of the ingredients of capital expended in produc- 
 tion, they can be replaced only by the same 
 quantities of themselves. When we expend any 
 additional quantity of capital in producing muslin, 
 such additional expenditure connot be replaced 
 by an equivalent expenditure directed to the 
 production of silks ; but, on the contrary, must 
 be replaced by an additional production of those 
 identical articles of which capital is composed. 
 If, without diminishing the quantity of capital 
 employed in the other branches of industrv, we 
 
351 
 
 employ in the manufacturing of muslin an addi- 
 tional capital consisting of food and material, 
 clothing and implements, for a thousand work- 
 men ; then, for the increased supply of muslin 
 thus obtained, no effectual demand, no profitable 
 vend, or replacement, with an adequate surplus, 
 of the articles expended, can by possibility be 
 found *, unless the production of the ingredients 
 of capital be contemporaneously increased to the 
 extent of food and material, clothing and imple- 
 ments, for a thousand. 
 
 It may be objected, perhaps, that if articles 
 which do not form any component part of 
 directly productive capital, cannot create an 
 effectual demand for those other articles which 
 did form component parts of capital, then the 
 capital destined to be employed in direct produc- 
 tion, must constitute the effectual demand for 
 itself. But as effectual demand consists in giving 
 
 * In treating of the causes of increased effectual de- 
 inand> I purposely exclude from consideration the increased 
 effective demand for one article, which may arise in con- 
 sequence of a diminution in the demand for another. This 
 is a transference, and not an increase of effecti^il demand. 
 
352 
 
 in exchange for a commodity some greater quan- 
 tity of the things expended in its production, 
 than that production actually cost, saying, that 
 capital contributes the effectual demand for 
 itself, involves the absurdity that a thing may 
 be given in exchange for itself. 
 
 The absurdity here contemplated is not real, 
 but nominal, and can present itself only ia con- 
 sequence of our failing to consider that the 
 term, capital, is a general term, comprising a 
 great variety of heterogeneous products, v^hich 
 are classed under one and the same denomina- 
 tion, on account of the accidental circumstance 
 of their being destined to aid in the business of 
 production. The capital destined to be em- 
 ployed in direct production must consist of raw 
 produce, such as food and material; and of 
 wrought goods, such as clothing and implements. 
 These several things are produced by different 
 individuals, and exchanged against each other, 
 and when produced and exchanged in the proper 
 proportion, each contributes to create the effec- 
 tual demand for all. Thus, when the farmer 
 expends food and clothing for one hundred in 
 
353 
 
 raising food for two hundred and fifty, and the 
 manufactuper lays out food and clothing for one 
 hundred in preparing clothing for two hundred 
 and fifty, then by the exchange of half the corn 
 for half the cloth, the farmer will have a greater 
 quantity of the ingredients of capital than that 
 which produced the corn, and the manufacturer 
 a greater quantity than that which fabricated the 
 cloth ; that is, the several ingredients of capital 
 will occasion an effectual demand for each other. 
 Were one and the same individual to produce 
 all the several articles composing directly pro- 
 ductive capital, then, indeed, there could be no 
 effectual demand or profitable vend for such 
 articles, and for the plain reason, that when the 
 divisions of employment are thus suspended, the 
 replacement of capital with a surplus is effected, 
 not by exchanging the particular article pro- 
 duced against the several articles expended in 
 its production, but by each individual raising and 
 fabricating for himself greater quantities of all 
 things than the quantities he consumes in carry- 
 ing on the different branches of industry in 
 which he engages. Where there is no division 
 ^^- A A 
 
354 
 
 of employment, there will be no market, no 
 profitable vend, no effectual demand. 
 
 As a considerable portion of the commodities 
 which are brought to market are exchanged, 
 not for other commodities, but for labour, it is 
 necessary that we should ascertain, 1*/, in what 
 way the supply of commodities may affect the 
 demand for labour ; and, ^dly, in what way the 
 supply of labour may affect the demand for 
 commodities. 
 
 Labour, like commodities, requires the expen- 
 diture of several articles to produce it and bring 
 it to market. When the quantity of other 
 things required to maintain a given quantity of 
 labour is offered in exchange for it, then this 
 quantity of labour is effectually demanded ; and 
 it is self-evident, that there cannot be an effec- 
 tual demand for an increased quantity of labour, 
 unless there is an increased production of the 
 several articles by which labour is maintained. 
 
 An effectual demand for labour differs, in 
 some respects, from an effectual demand for 
 commodities. As . in the production of every 
 commodity which is brought to market, some 
 
portion of labour must be employed, those ingre- 
 dients of capital, the offer of which constitutes 
 the effectual demand for commodities, must 
 comprise the subsistence of the labourers em- 
 ployed, as well as the material upon which they 
 operated, and the wear and tear of the tools 
 with which they wrought. The effectual de- 
 mand for labour, on the contrary, consists merely 
 in the offer of an adequate quantity of subsist- 
 ence. Productive labour, indeed, cannot be put 
 into operation unless the labourers, in addition 
 to their subsistence, are furnished with tools and 
 material. But an increased supply of the neces- 
 saries of life is of itself sufficient to enable us to 
 engage an increased number of menial servants 
 and unproductive retainers. 
 
 A distinction of more importance is, that the 
 effectual demand for labour may consist in the 
 offer of the exact quantity of things consumed 
 in bringing it to market; while the effectual 
 demand for commodities includes the offer, not 
 merely of the quantity of other things expended 
 on production, but also of some additional quan- 
 tity, enabling the capitalist, after the complete 
 
356 
 
 replacement of all his original advances, either 
 to employ an additional number of workmen, or 
 else to indulge in unproductive expenditure. 
 
 Those commodities which are brought to mar- 
 ket by independent labourers, with little or no 
 capital beyond their daily subsistence, will, like 
 labour, be effectually demanded when the quan- 
 tity of other things offered in exchange for them 
 just replaces without any surplus the quantity 
 expended in their production. The exchange- 
 able value of such commodities cannot perma- 
 nently exceed that of the subsistence of the 
 labour which procures them. Were an article 
 acquired with little or no capital by a day*s com- 
 mon labour to exchange for less than a day's 
 ordinary wages, the labourer would not continue 
 to bring it to market ; and were it to exchange 
 for more than a day's ordinary wages, then those 
 who lived by wages would have an interest in 
 becoming independent workmen, and in bringing 
 this commodity to market, until the increasing 
 supply reduced its exchangeable value, and ren- 
 dered the quantity procured by a day's labour 
 equivalent to ^ day's subsistence. 
 
357 
 
 The reason why those commodities which are 
 brought to market by independent labourers, 
 with little or no capital beyond their daily sub- 
 sistence, find an effectual demand in the offer of 
 a less quantity of other things than that which 
 affords an effectual demand for commodities sup- 
 plied with an equally moderate cost by labourers 
 who have their subsistence advanced to them 
 by a capitalist, is sufficiently apparent. When 
 an independent labourer advances a day's sub- 
 sistence to hiniself, and goes out to gather wild 
 fruits, or to catch shell-fish, he cannot charge 
 profit upon the article he brings home, because 
 if he did, he would be better off than those who 
 work for a master, and would immediately ex- 
 cite their competition ; but when it is necessary 
 that a capitalist should advance subsistence, the 
 customary rate of profit upon such advance must 
 be charged upon the commodity produced, other- 
 wise the ca[)italist would withdraw to some 
 other occupation in which the usual profit might 
 be obtained. 
 
 Having shewn in what manner, and under 
 what limitations, commodities afford an effectual 
 
358 
 
 demand for labour, I shall proceed to examine 
 the question, whether labour can furnish an 
 effectual demand for commodities, premising 
 that I exclude from my consideration that small 
 and unimportant class of commodities which 
 may be brought to market by independent work- 
 men without the aid of capital. 
 
 The ingredients of capital, or the things ex- 
 pended in production, consist of raw produce, as 
 food and material ; and of wrought articles, as 
 clothing and implements ; and cannot, it is self- 
 evident, be replaced, except by articles identical 
 to them in kind and quantity. But labour is 
 not identical with any one of the things expended 
 in giving it employment. Offering it in exchange 
 for commodities cannot by possibility replace 
 the ingredients of capital with which the com- 
 modities were produced. The supply of labour 
 therefore, however abundant, cannot, in the first 
 instance, constitute effectual demand, which is 
 essentially the replacement by way of exchange, 
 and with some surplus, of the things advanced 
 by the capitalist in order to bring other things to 
 market. 
 
359 
 
 If labour does not constitute an effectual 
 demand for commodities, it may be asked, what 
 advantage the capitalist can derive from the 
 advances he makes in exchange for laboiu-? I 
 answer, that the advantage of the capitalist i? 
 derived, not from the immediate exchange of 
 capital against labour, but from the subsequent 
 reproduction which labour and capital occasion. 
 When I exchange for one hundred and ten days' 
 subsistence a quantity of silks, for the produc- 
 tion of which I had advanced one hundred days' 
 subsistence, my capital is immediately replaced 
 to me with a surplus of ten per cent. ; but when 
 I exchange one hundred days' subsistence for 
 labour, my capital is in no way replaced ; nay, 
 even when the labour has produced me the 
 same quantity of silk as before, no expenditure 
 is returned, no surplus realised, and it is not until 
 I have exchanged my silks for a greater quantity 
 of subsistence than their production cost, that 
 I find a profitable vend, and am ftirnished with 
 the means, and presented with the motive to 
 renew my operations. Now, what is it which 
 in this case constitutes the effectual demand? 
 
36Gf 
 
 Not, assuredly, the labour for which I advance 
 my subsistence, nor the article which that labour 
 prepares, but the production in some other 
 quarter of a greater quantity of subsistence than 
 that which I advanced, combined with the will 
 of its possessor, to exchange it for my silks. 
 
 I shall now endeavour to give some account 
 of the relation which exists between effectual 
 demand and supply. The supply of a commo- 
 dity consists of the quantity of it which is brought 
 to market in order to be sold. We frequently 
 meet, both in discourse and in writing, with such 
 expressions as the following, — the supply exceeds 
 the demand, — the supply falls short of the de- 
 mand, — and — the supply is equal to the demand. 
 Economical writers, however, have been neither 
 very careful nor very successful in explaining 
 the precise nature of those relations between 
 demand and supply, to which they apply these 
 terms. 
 
 Effectual demand and supply are in the rela- 
 tion of equality when the ingredients of capital 
 offered in exchange for commodities exceed, by 
 the customary rate of profit, the ingredients of 
 
361 
 
 capital expended in producing them. It follows 
 that supply is deficient in relation to effectual 
 demand, when the ingredients of capital offered 
 in exchange for commodities exceed the cost 
 of producing them by more than the customary 
 profit; and that supply will be in excess as relates 
 to effectual demand, when the ingredients of 
 capital offered in exchange for the commodities 
 brought to market, do not exceed by the usual 
 profit the ingredients of capital expended in 
 bringing them there. Thus, assuming the rate 
 of profit to be ten per cent, the supply of 
 silks will equal the effectual demand, when, for 
 every portion of this article brought to market 
 with the expenditure of one hundred days' sub- 
 sistence, one hundred and ten days' subsist- 
 ence, or one hundred days' subsistence with other 
 things equivalent to ten days' subsistence, is 
 produced in some other quarter, and brought to 
 market to be exchanged, directly or circuitously, 
 for silk. In like manner, the supply of silk w ill 
 be deficient in relation to the effectual demand, 
 when, for every one hundred and ten days' sub- 
 sistence, or for every one hundred days' sub- 
 
362 
 
 sistence with other things equivalent to ten 
 days' subsistence which are produced and offered 
 in exchange for silk, a quantity of silk requiring 
 for its production one hundred days' subsistence, 
 has not been brought to market : and, upon the 
 same principle, the supply of silk will be redun- 
 dant, as compared with the effectual demand, 
 when, for every one hundred day s' subsistence ex- 
 pended in producing it, one hundred and ten days' 
 subsistence, or one hundred days' subsistence, 
 with something equal in value to ten days' sub- 
 sistence, is not produced elsewhere, and offered 
 as its equivalent. 
 
 From what has been said, it will be apparent 
 that the relations between effectual demand and 
 supply, depend upon the comparative cost of 
 production, and not upon the quantity of other 
 commodities brought to market to be exchanged 
 against the ingredients of capital. If, the rate 
 of profit being ten per cent, the ingredients of 
 capital to the extent of one hundred and ten 
 quarters of corn, and one hundred and ten suits 
 of clothing, are offered in exchange for silk, then 
 the quantity of silk which can be brought to 
 
363 
 
 market with an expenditure of one hundred 
 quarters of corn, and one hundred suits of cloth- 
 ing, will equalize the supply to the effectual 
 demand, whether that quantity be great or 
 small. Should the expenditure of one hundred 
 quarters of corn, and one hundred suits of cloth- 
 ing, fabricate one thousand yards of silk, then 
 one thousand yards would be required to propor- 
 tion the supply of the article to the effectual 
 demand ; but should this expenditure fabricate 
 only one hundred yards, then would one hun- 
 dred yards be sufficient to keep the supply even 
 with the demand; and should the advance of 
 one hundred quarters of corn, and one hun- 
 dred suits of clothing, bring only one yard of 
 silk to market, still between the supply of silk 
 and the effectual demand for it, the relation of 
 equality would be preserved. No alteration in 
 the quantities of those commodities which are 
 offered in exchange for the ingredients of capi- 
 tal, can effect an alteration in the relations 
 between supply and effectual demand ; because 
 effectual demand consists essentially in the 
 power and the will to give in exchange for com- 
 
364 
 
 modities, whatever the quantity of them may 
 be, that portion of the ingredients of capital 
 which their production cost, together with such 
 surplus, whether in the form of capital or of 
 other things, as may yield the capitalist the 
 customary rate of profit. 
 
 The foregoing remarks must have rendered it 
 apparent, that no absolute increase of demand 
 can alter the relation of supply to demand, pro- 
 vided such increase of demand be accompanied 
 with a similar increase of supply. As I have 
 already shewn, an absolute increase in the effec- 
 tual demand for a commodity may arise from 
 two distinct causes, — an increase in the quantity 
 of the ingredients of capital offered in exchange 
 for it, or a diminution in the quantity of those 
 ingredients required in its production. Now, 
 supposipg that demand and supply are in the 
 relation of equality, that is, that the quantity of 
 the ingredients of capital which may be obtained 
 for a commodity by direct or circuitous exchange, 
 is just sufficient to replace, with the customary 
 rate of profit, the quantity of these ingredients ex- 
 pended in its production ; and supposing further. 
 
335 
 
 that a double quantity of the ingredients of capital 
 come to be offered for this commodity, while, at 
 the same time, a double quantity is expended in 
 bringing an increased supply of tlie commodity 
 to market ; then it is evident that the relation of 
 equality between the demand and supply can be in 
 no way disturbed. Were the same quantity of 
 the ingredients of capital to become sufficient to 
 produce a double quantity of the commodity, 
 while the consumers continued willing and able 
 to offer the same quantity of these ingredients 
 in exchange for it, still the relation of equality 
 between the demand and the supply would con- 
 tinue to be preserved. The actual relation 
 which at any time exists between supply and 
 demand, can be altered only when the quantity 
 of the ingredients of capital offered in exchange 
 for other commodities, is increased or diminished 
 without a corresponding increase or diminution 
 taking place in the ingredients of capital em- 
 ployed in bringing the other commodities to 
 market; or when the quantity of these ingredients 
 employed in bringing the other commodities to 
 market, is increased or diminished without a 
 
366 
 
 corresponding increase or diminution in the 
 quantity of the other commodities offered in 
 exchange. 
 
 A relative increase or diminution of effectual 
 demand, occasions, as the terms denote, an 
 alteration in the previously existing relation 
 between effectual demand and supply. When 
 both the quantity of a commodity and the quan- 
 tity of the ingredients of capital expended in 
 bringing it to market remain the same, while 
 the quantity of the ingredients of capital offered 
 in exchange for it is increased; then, though 
 there would be no absolute increase of effectual 
 demand, as regards the quantity of the com- 
 modity actually purchased and consumed, yet 
 there would be a relative increase of effectual 
 demand, as regards the expense of furnishing it 
 to the consumer. And if the quantity of a 
 commodity brought to market, and the expense 
 of bringing it there, were to remain the sanie, 
 while the quantity of the ingredients of ca])ital 
 offered in exchange for it should be diminished, 
 then, though there would be no absolute diminu- 
 tion of effectual demand, as reajards the quantity 
 
367 
 
 of the commodity purchased and consumed, there 
 would be a relative diminution of effectual de- 
 mand, as regards the expenses of production and 
 the profits of those who bring the commodity to 
 market*. 
 
 * When there is an absolute increase of effectual demand, 
 a greater quantity of commodities may be sold with the 
 same rate of profit ; and when there is a relative increase, 
 the same quantity will he sold at a higher rate of profit. 
 In his work upon the Principles of Political Economy, 
 however, Mr. Malthus lays great stress upon a species of 
 effectual demand, which is neither absolute nor relative ; 
 and which neither admits of increased sales with the same 
 profits, nor of the same sales with higher profits. This he 
 denominates an increased intensity of demand. When the 
 expense of producing a commodity is permanently in- 
 creased, and when, in consequence, the consumer takes 
 the same quantity of the commodity at a higher price, 
 Mr. Malthns tells us, that the expression of a greater 
 intensity of demand is called forth, and that a most import- 
 ant change is effected in the relation between the supply 
 and the demand of such commodity. According to the 
 definition of effectual demand which I have given in the 
 text, it is impossible that giving an increased price for a 
 commodity, proportional to the increased cost of its produc- 
 tion, should be the expression of an increased intensity of 
 demand, or should make any change in the relation 
 between effectual demand and supply. Effectual demand 
 is the power and the will to give for a commodity some 
 greater quantity of the ingredients of capital than its pro- 
 
368 
 
 There may also be an absolute and relatis e 
 increase in the supply of a commodity. If both 
 
 duction cost ; and, therefore, when an increased price is 
 given for a commodity, there can be no increased inten- 
 sity of demand for the commodity, or, to substitute the 
 definition for the term defined, there can be no greater 
 intensity in the power and the will to give for the com- 
 modity some larger portion of the ingredients of capital 
 than its production cost, unless this cost of production 
 should not have increased in an equal proportion with the 
 increase of price. When, in preparing a yard of muslin, 
 two days* subsistence are expended instead of one, and 
 when, in consequence, I give in exchange for this article 
 twice the former quantity of the ingredients of capital, the 
 intensity of effectual demand, or of the power to give for a 
 yard of muslin something more than its production cost, 
 is in no degree increased. But what must strike the 
 reader as much more extraordinary is, that Mr. Malthus' 
 doctrine of intensity of demand is inconsistent with the defi- 
 nition of demand which he himself has given. He defines 
 demand to be the will combined with the power to pur- 
 chase. Now, when the cost of producing a yard of muslin 
 is doubled, and when, in consequence, the price given for 
 it is doubled also, this increased price is not the expression 
 of a more intense power to purchase a yard of mushn. Mr. 
 Malthus says, ** If a given number of commodities attain- 
 ** able by labour alone, were to become more difficult of 
 " acquisition, as they would evidently not be obtained 
 ** unless by means of increased exertion, we might surely 
 ** consider such increased exertion, if applied, as an evi- 
 " dence of a greater intensity of demand, or of a power 
 
 S 
 
369 
 
 tlie quantity of a commodity brought to market, 
 and the quantity of the ingredients of capital 
 offered in exchange for it remain the same, 
 while the quantity of these ingredients expended 
 in producing it is diminished; then, though 
 there will be , no absolute diminution in the 
 supply of the commodity, as regards the actual 
 quantity brought to market, there will be a 
 relative diminution of supply with respect to the 
 quantity which the consumer is able and willing 
 to purchase at a price returning average profits. 
 And if both the quantity of a commodity brought 
 to market and the expense of bringing it there. 
 
 " and will to make a greater sacrifice in order to obtain 
 " thewi/' Here Mr. Malthus uses the term, demand, in a 
 sense altogether ditTerent from that expressed in his own 
 definition. A greater intensity of power to purchase 
 commodities, is essentially different fi-om a power to make 
 a greater sacrifice in order to obtain them. When the cost 
 of producing commodities increases, we lose the power of 
 purchasing them, unless we possess the power of making a 
 greater sacrifice in order to obtain them. Therefore, to 
 call that power to make a greater sacrifice which is neces- 
 sary to the retaining of the same power to purchase, " a 
 " greater intensity of power to purchase," is manifestly 
 inconsistent and absurd. 
 
 BB 
 
370 
 
 were to continue the same, while the quantity of 
 the ingredients of capital offered in exchange for 
 it diminished, then, though there would be no 
 absolute increase in the supply of the commodity, 
 with respect to the quantity of it produced and 
 sold, there would be a relative increase of supply, 
 with regard to the power of purchasing and the 
 price at which the commodity could be sold. 
 
 The great practical problem in economical 
 science is, so to proportion production that supply 
 and demand shall be in the relation of equality ; 
 or, to express the same thing in particular rather 
 than in general terms, that the quantity of the 
 ingredients of capital brought to market to 
 exchange against other commodities, shall be 
 equal at the least to the quantity of these ingre- 
 dients expended on the other commodities. So 
 long as this proportion is preserved, every article 
 which the industrious classes have the will and^ 
 power to produce, will find a ready and a profit- 
 able vend. No conceivable increase of produc- 
 tion can lead to an overstocking of the market ; 
 but> on the contrary, every addition which can 
 be made to the supply of commodities, will 
 
371 
 
 immediately and necessarily occasion an increase 
 in the effectual demand for them. Whatever 
 may have been the previous state of the market 
 in regard to abundant supply,' increased pro- 
 duction will create a proportionally increased 
 demand. The only limits to the increase of 
 effectual demand will be the limits which are set 
 to increased production, by the scarcity of fertile 
 land, or by a rate of wages so high as to deprive 
 the capitalist of that minimum rate of profit 
 which is necessary to induce him to continue his 
 advances. 
 
 This happy and prosperous state of things is 
 immediately interrupted when the proportions 
 in which commodities are produced are such as 
 to disturb the equality between effectual demand 
 and supply. When the supply is deficient in 
 relation to the effectual demand, the consumer 
 is less abundantly supplied with the conveniences 
 of life than he otherwise might be ; and when, 
 the ingredients of capital expended in the pro- 
 duction of commodities are in excess with respect 
 to the ingredients of capital brought to market 
 
372 
 
 to exchange against other commodities, then 
 gluts and regorgements are experienced. 
 
 The great importance of these principles, both 
 theoretically and practically, renders it expedient 
 that they should be more fully explained and 
 demonstrated. I shall therefore endeavour to 
 shew, through some illustrative cases, the parti- 
 cular mode in which they operate ; premising 
 that when speaking of the ingredients of capital, 
 I shall employ the terms, corn, and clothing, in 
 a general sense, the one as standing for all the 
 several kinds of raw produce, and the other as 
 denoting the various wrought articles of which 
 directly productive capital may be composed. 
 This will conduce to brevity and clearness, 
 while it can in no way affect the accuracy of 
 our conclusions. 
 
 Let us suppose that there exists a society 
 consisting of one hundred cultivators, and one 
 hundred manufacturers, and that the one hun- 
 dred cultivators expend one hundred quarters of 
 corn and one hundred suits of clothing, in raising 
 two hundred and twenty quarters of corn, while 
 
373 
 
 the one hundred manufacturers expend one hun- 
 dred quarters of corn and one hundred suits of 
 clothing, in preparing two hundred and twenty 
 suits. In this case, the offer of half the corn 
 of the cultivator would constitute an effectual 
 demand for half the clothing of the manufacturer ; 
 or, reciprocally, the offer of half the clothing of 
 the latter, an effectual demand for half the corn 
 of the former; because, when the two classes 
 exchanged half their respective products, the 
 things expended in production would be more 
 than replaced. The class of cultivators, and the 
 class of manufacturers, instead of one hundred 
 suits of clothing, and one hundred quarters of 
 corn, would each possess one hundred and ten 
 quarters, and one hundred and ten suits ; and this 
 surplus, or profit often per cent, they might employ 
 either in setting additional labourers to work, or 
 in purchasing luxuries for immediate enjoyment. 
 It will be immediately perceived, too, that the 
 effectual demand which allows the clothing to 
 be disposed of with a profit, is created by the 
 production of the corn ; and that the effectual 
 
374 
 
 demand for the corn, is created by the production 
 of the clothing. 
 
 Now, while the productive powers of industry 
 remain as before, let us suppose that our society 
 has doubled its numbers, and that two hundred 
 cultivators, expending two hundred quarters of 
 corn, and two hundred suits of clothing, produce 
 four hundred and forty quarters; while two 
 hundred manufacturers, by expending two hun- 
 dred quarters, and two hundred suits, produce 
 four hundred and forty suits. In this case, when 
 one half of the corn of the farmers is brought to 
 market and exchanged against one half of the 
 clothing of the manufacturers, each class will, as 
 before, have the things expended in production 
 replaced with a profit of ten per cent. ; and the 
 only difference will be, that there will now be 
 an effectual demand for double the former quan- 
 tity both of corn and of clothing. But it wiU 
 be quite obvious, that the double demand for 
 corn will be created by the double production of 
 clothing, and that the double demand for clothing 
 will be created by the double production of corn. 
 
37.5 
 
 Now, let us suppose, that while the society 
 doubles its numbers, the productive powers of 
 industry are doubled also, and that two hun- 
 dred cultivators, expending two hundred quarters 
 of com and two hundred suits of clothing, can 
 raise eight hundred quarters of corn ; and two 
 hundred manufacturers, expending two hundred 
 quarters and two hundred suits, can prepare 
 eight hundred suits. In this case, if the love of 
 ease prevails over the desire of luxurious enjoy- 
 ment, and no additional quantity of commodities 
 is obtained, then, as there is no increase of pro- 
 duction, there can be no increase of demand ; 
 and tlie only effect resulting from the improved 
 powers of industry will be, that the society 
 will work a shorter space of time than before. 
 But should our little society acquire a taste for 
 luxuries, and be willing to work the same num^ 
 ber of hours as before, in order to obtain sugar 
 and tobacco, ribbons and lace, then an increased 
 production would take place, and consequently 
 a proportionally increased demand. Of our two 
 hundred cultivators, one hundred, expending one 
 hundred quarters of corn and one hundred suits 
 
of clothing, would raise four hundred quarters 
 of corn ; and the other one hundred, with a 
 like expenditure, raise a quantity of sugar and 
 tobacco ; and of our two hundred manufacturers, 
 one hundred, expending one hundred quarters 
 of corn and one hundred suits of clothing, will 
 fabricate four hundred suits ; and the other one 
 hundred, with a like expenditure, work up a 
 quantity of ribbons and lace. Now, let us 
 mark the way in which this increased production 
 creates a proportionally increased demand. When 
 the several commodities are brought to market 
 to be exchanged against each other, according 
 to the expenses of their production, the one 
 hundred farmers, after giving one hundred 
 quarters of corn to one class of manufacturers 
 for one hundred suits of clothing, one hundred 
 quarters to the other for a fourth of their ribbons 
 and lace, and one hundred quarters to the 
 growers of sugar and tobacco, for a fourth of 
 these products, would retain one hundred quar- 
 ters in their own hands, and thus have their 
 expenditure of one hundred quarters of corn 
 and one hundred sviits of clothing, replaced to 
 
377 
 
 them, together with a quantity of sugar, tobacco, 
 ribbons, and lace, equal in productive cost, and 
 therefore in exchangeable value to the capital 
 they expended. In like manner, the one hundred 
 fabricators of clothing, after giving one hundred 
 suits for one hundred quarters of corn, one hun- 
 dred for a quarter of the ribbons and lace pro- 
 duced, and one hundred for a quarter of the 
 tobacco and sugar, would have one hundred 
 suits remaining ; and consequently would have 
 their expenditure of one hundred quarters of 
 corn, and one hundred suits of clothing, replaced 
 with a quantity of luxuries equivalent thereto. 
 By these exchanges too, the one hundred culti- 
 vators who expended one hundred quarters of 
 corn and one hundred suits of clothing, in 
 raising sugar and tobacco, as well as the one 
 hundred manufacturers who, with a like expen- 
 diture, prepared ribbons and laces, would have 
 their capitals replaced to them by the sacrifice 
 of half their products, and would have the other 
 half as a surplus for their own expenditure. For 
 every article brought to market there would be 
 a profitable vend. Each class would find that a 
 
378 
 
 part of the things it produced would replace the 
 whole of the things it expended in production. 
 But this is exactly what is meant by effectual 
 demand ; and the more accurately we analyse the 
 operations of industry and the transactions of the 
 market, the more clearly we shall perceive, that 
 while the due proportions are preserved between 
 the quantity of the ingredients of capital and of 
 other things, increased production is the one 
 and only cause of extended demand. 
 
 It is no solid objection to the theory of effec- 
 tual demand here unfolded, that I have not 
 taken into consideration the influence of so 
 general and important a principle in human 
 nature as indolence or the love of ease. This 
 principle has no connexion whatever with the 
 doctrine I have endeavoured to establish. That 
 doctrine is, that while the quantity of the ingre- 
 dients of capital brought to market, is equal, 
 at the least, to the quantity of these ingredients 
 expended in bringing other commodities there, 
 then, increased production will be the cause of 
 increased effectual demand. If the love of ease 
 prevents an increase of production, an increase 
 
379 
 
 of effectual demand cannot follow. But surely 
 it is most absurd to contend, that an assigned 
 cause is inadequate to the effect, because the 
 effect disappears when a circumstance occurs to 
 suspend the operation of the cause. 
 
 When our two hundred cultivators and two 
 hundred manufacturers acquire double produc- 
 tive powers, and are enabled with an expendi- 
 ture of four hundred quarters of corn and four 
 hundred suits of clothing, to bring to market 
 eight hundred quarters and eight hundred suits, 
 then one of three things must take place. The 
 whole of the society will employ the same quan- 
 tity of industry as before, in order to procure 
 luxuries ; or, the whole will prefer ease to the 
 enjoyment of luxuries ; or, one part will employ 
 the same quantity of exertion as before, while 
 the other part will indulge the love of ease. 
 Now, if the whole make the same exertions as 
 before, then the increased production, provided 
 it be proportioned in the manner above described, 
 must create increased effectual demand ; and if 
 the whole community prefer doing half their 
 former quantity of work to the enjoyment of 
 
380 
 
 luxuries, then production will remain as before, 
 and consequently effectual demand will remain 
 as before. But were one part of the community 
 to prefer ease to luxuries, and the other part 
 luxuries to ease, the result would be somewhat 
 different. Let us therefore inquire, whether 
 this partial indulgence in the love of ease affords 
 any ground of objection against the principle, 
 that proportionally increased production occa- 
 sions increased effectual demand. 
 
 Supposing that our cultivators are the class 
 preferring ease to luxury, and that instead of one 
 hundred raising four hundred quarters of corn, 
 and the other one hundred a quantity of sugar 
 and tobacco, the whole two hundred work half 
 their time and raise only four hundred quarters 
 of corn. In this case, they would have two hun- 
 dred quarters of corn to exchange against two 
 hundred suits of clothing, but no sugar and 
 tobacco to exchange against ribbons and lace. 
 What would be the result of this state of things 
 with respect to the class of manufacturers, which 
 by the supposition performs the same quantity 
 of work as before, in order to enjoy luxuries ? Of 
 1 
 
381 
 
 this class, one hundred expending one hundred 
 quarters of com and one hundred suits of cloth* 
 ing, can fabricate four hundred suits of clothing, 
 and as two hundred of these suits are exchanged 
 with the cultivators for two hundred quarters of 
 corn, they will have, after replacing their own 
 advances, one hundred quarters and one hun- 
 dred suits, to give in exchange for luxuries. 
 The other one hundred manufacturers, however, 
 will not now be able to expend one hundred 
 quarters of corn and one hundred suits of clothing 
 in preparing ribbons and lace, because, by the 
 supposition, the first two hundred manufacturers 
 who have obtained the disposal of the ingredients 
 of capital, offer fifty quarters and fifty suits for 
 ribbons and lace, and fifty quarters and fifty 
 suits for sugar and tobacco. The consequence 
 will be, that fifty out of the second one hundred 
 manufacturers must change their occupation, 
 and, instead of preparing ribbons and lace, 
 must raise sugar and tobacco. When this has 
 been done, then production will be duly propor- 
 tioned ; the supply of all commodities will be in 
 the relation of equality with respect to the effec- 
 
382 
 
 tual demand for them, aind every article brought 
 to market would find a ready and profitable 
 sale. The distribution of the wealth produced 
 would be as follows : — 
 
 Our two hundred indolent cultivators who 
 expended two hundred quarters of corn and 
 two hundred suits of clothing, in raising four 
 hundred quarters, would have their whole ex- 
 penditure replaced to them by exchanging two 
 hundred quarters for two hundred suits, and 
 instead of luxuries in the form of sugar and 
 tobacco, ribbons and lace, would enjoy the 
 absence of labour during half their time. The 
 hundred manufacturers of necessaries, who ex* 
 pended one hundred quarters and one hundred 
 suits in fabricating four hundred suits, and 
 exchanging two hundred suits for two hundred 
 quarters, would have, after the replacement of 
 their advances, fifty quarters and fifty suits, to 
 offer for sugar and tobacco, and fifty quarters 
 and fifty suits to ofier in exchange for ribbons 
 and lace. The cultivators, therefore, who ex-^ 
 pended fifty yards and fifty suits in raising 
 sugar and tobacco, and the manufacturers who, 
 
383 
 
 with a similar advance, furnished ribbons and 
 lace, would replace their capitals, even if they 
 gave the whole of their products for the corn and 
 clothing offered. But by the law of competition 
 they would obtain the whole of the fifty yards 
 and fifty suits thus offered for half their pro- 
 ducts. For while the cultivator of corn can 
 replace his expenditure, and work only half his 
 time, and the manufacturer of clothing, by work- 
 ing all his timCj can replace his expenditure 
 with a surplus of one hundred per cent, the 
 cultivator and the manufacturer of luxuries will 
 betake themselves to the more beneficial branches 
 of industry, if they cannot obtain the replace- 
 ment of their expenses in exchange for half their 
 products. 
 
 Thus we see, that in no conceivable instance, 
 can the love of ease so operate as to prevent 
 effectual demand from being commensurate with 
 that duly proportioned production which renders 
 the quantity of the ingredients of capital offered in 
 exchange for commodities equal, at the least, to 
 the quantity expended in bringing them to mar- 
 ket. The love of ease may prevent the powers 
 
384 
 
 of production from being brought into full opera- 
 tion. But when production takes place, the 
 love of ease is overcome, and it can therefore 
 no longer narrow effectual demand. 
 
 To the theory of effectual demand which I 
 have attempted to establish, an objection more 
 plausible but not more solid may be urged. It 
 is contended* that " though no permanent and 
 ** continued increase of wealth can take place, 
 ** without a continued increase of capital ; yet, 
 " under a rapid accumulation of capital or con- 
 " version of unproductive into productive labour, 
 " the demand, compared with the supply of 
 " materials and products, would fall. In the case 
 " before alluded to, while the farmers are disposed 
 " to consume the luxuries produced by the ma- 
 " nufacturers, and the manufacturers those pro- 
 " duced by the farmers, aU will go on smoothly ; 
 " but if either one, or both of the parties, should 
 " become disposed to save, with a view of bet- 
 " tering their condition, and providing for their 
 
 * Principles of Political Economy^ by Mr. Malthas, 
 chap. vii. sect. m. 
 
385 
 
 " families in future, the state of things will be 
 
 " very different. The farmer, instead of indulg- 
 
 " ing himself in ribbons and lace, will be disposed 
 
 " to be satisfied with more simple clothing ; but 
 
 " by this economy he will disable the manufac- 
 
 " turer from purchasing the same amount of his 
 
 " produce, and for the returns of so much labour 
 
 " employed upon the land, there will evidently 
 
 " be no market. The manufacturer, in like 
 
 " manner, instead of indulging himself in sugar 
 
 " and tobacco, may be disposed to save with a 
 
 " view to the future, but will be totally unable 
 
 "to do so, owing to the parsimony of the 
 
 " farmers, and the want of demand for manu- 
 
 " factures." 
 
 When we examine with any degree of accu- 
 racy into that which takes place when savings 
 are made from revenue in order to be added to 
 capital, we shall find this objection vague, falla- 
 cious, and inconsistent throughout. The pre- 
 vious supposition is, that of two hundred culti- 
 vators expending two hundred quarters of corn 
 and two hundred suits of clothing, one hundred 
 raises four hundred quarters of corn, and one 
 c c 
 
386 
 
 hundred a quantity of sugar and tobacco ; that 
 of two hundred manufacturers expending capital 
 to the same extent, one hundred fabricate four 
 hundred suits of clothing, and one hundred rib- 
 bons and lace ; and that the two classes exchange 
 their respective products according to the cost 
 of production, and after replacing all the ingre- 
 dients of capital expended, consume an equal 
 portion of the surplus which appears in the form 
 of luxuries. The subsequent supposition is, that 
 while the powers of production remain as before, 
 the consumption of luxuries is altogether aban- 
 doned for the purpose of adding to the existing 
 capital the whole of the surplus it annually 
 creates. The question is, what, under such cir- 
 cumstances, would be the effect of this passion 
 for accumulating capital upon effectual demand? 
 The object of the whole class of capitaUsts is 
 to increase capital. The cultivators of corn, 
 and the fabricators of clothing, therefore, will 
 no longer give any part of their productions 
 for sugar and tobacco, ribbons and lace ; but by 
 exchanging two hundred quarters of com against 
 two hundred suits of clothing, will increase the 
 
387 
 
 ingredients of capital with a surplus of cent, per 
 cent. And the cultivators of sugar and tobacco, 
 and the manufacturers of ribbons and lace, having 
 no longer any desire for these luxuries, and 
 finding that they cannot replace their expenditure 
 by exchanging them with the other two classes 
 for corn and clothing, will change the direction 
 of their industry, and with their expenditure 
 of one hundred quarters and one hundred suits, 
 will raise and fabricate four hundred quarters and 
 four hundred suits, and by exchanging one half 
 of one product against one half of the other, will 
 also replace these capitals with a surplus of one 
 hundred per cent. So far then there is no inter- 
 ruption of effectual demand. By the supposition, 
 the passion is for accumulating capital. When 
 the two hundred cultivators, who with an expen- 
 diture of two hundred quarters of corn and two 
 hundred suits of clothing raise eight hundred 
 quarters, and exchange four hundred quarters for 
 four hundred suits, their capital is doubled ; and 
 when the two hundred manufacturers, who, with 
 a like expenditure fabricate eight hundred suits 
 of clothing, exchange four hundred suits against 
 four hundred quarters of corn, they also find an 
 
388 
 
 Advantageous market, or profitable vend, which 
 places a double portion of the ingredients of 
 capital in their hands. 
 
 If we suppose, that while the passion for accu- 
 mulating capital thus increases the funds for 
 maintaining productive labour, the supply of 
 labour increases at an, equal rate, and prevents 
 any rise in wages from taking place, then twice 
 the former quantity of labour might be em- 
 ployed ; the expenditure of four hundred quar- 
 ters of corn and four hundred suits of clothing in 
 agriculture, and of four hundred quarters and 
 four hundred suits in manufactures, would occa- 
 sion the reproduction of one thousand six hun- 
 •dred quarters, and one thousand six hundred 
 •suits ; and exchanging one half of one sort of 
 articles for one half of the other sort, would open 
 m profitable vend, an eflfectual demand for both, 
 which would again place in the hands of each 
 producer a double quantity of all the ingredients 
 of capital expended. This process might be 
 again repeated, and on the supposition that 
 wages did not rise, and that abundance of fertile 
 land could be obtained, might be carried on ad 
 dnfinitum without the passion for accumulation 
 
389 
 
 ever once interfering with effectual demand. It 
 is quite certain, however, that with such a pas- 
 sion for accumulation, the supply of labour could 
 not increase so rapidly as the funds for main- 
 taining it ; and that wages would therefore rise. 
 Let us then inquire, what effect this necessary 
 rise on wages would have upon effectual de- 
 mand? 
 
 After the first doubling of capital, and when 
 the farmer and manufacturer are each enabled 
 to expend in production four hundred quarters 
 of corn and four hundred suits of clothing, 
 instead of two hundred quarters and two hun- 
 dred suits, we will suppose, that in consequence 
 of population not increasing In the same ratio 
 with capital, the competition of the capitalists 
 to procure workmen so raises wages, that an 
 advance of four hundred quarters of corn and 
 four hundred suits of clothing, instead of em- 
 ploying four hundred labourers, gives employ- 
 ment to no more than three hundred. Now, 
 as two hundred agricultural labourers had raised 
 eight hundred quarters of corn, and two hundred 
 manufacturing labourers prepared eight hundred 
 
390 
 
 iiiits of clothing, three hundred agricultural and 
 three hundred manufacturing labourers will raise 
 and fabricate one thousand two hundred quar- 
 ters and one thousand two hundred suits ; and 
 when six hundred quarters and six hundred suits 
 are interchanged, the class of agricultural, and 
 the class of manufacturing capitalists which had 
 each advanced four hundred quarters and four 
 hundred suits, will have all the ingredients of 
 capital replaced with a surplus of fifty per cent. 
 But the rapid accumulation of capital which in 
 this manner reduced the rate of profit from one 
 hundred, to fifty per cent, could have no influence 
 whatever in narrowing the effectual demand for 
 the commodities produced. Lowering profit 
 is essentially different from narrowing effectual 
 demand. Any rate of profit, however low, which 
 is sufficient to stimulate the capitalist to produce, 
 is also sufficient to constitute an element of 
 effectual demand. 
 
 Should the increase of capital beyond the 
 proportional increase of population so elevate 
 wages, that pro-fit altogether disappeared, then, 
 indeed, there would be no effectual demand for 
 
391 
 
 commodities ; because, in effectual demand some 
 species of profit is always an essential element. 
 If our three hundred agricultural and three 
 hundred manufacturing labourers, while raising 
 and fabricating one thousand two hundred 
 quarters of corn and one thousand two hundred 
 suits of clothing, were to receive these quantities 
 of corn and clothing as their wages, then the 
 interchange of six hundred quarters and six 
 hundred suits between the farmers and master 
 manufacturers, would just replace to them the 
 precise quantity of the ingredients of capital 
 which they had advanced, without any surplus 
 furnishing them with a motive to renew their 
 operations. But it is self-evident that this want 
 of effectual demand, or profitable vend, would be 
 occasioned, not by an excess, but by the defi- 
 ciency of products. Increase the effective powers 
 of industry — enable the six hundred labourers, 
 while receiving one thousand two hundred quar- 
 ters of corn and one thousand two hundred suits 
 of clothing as their wages, to raise and fabricate 
 one thousand three hundred quarters and one 
 thousand three hundred suits, and then the 
 
392 
 
 interchange of one half of each against one half 
 of the other, will repkce, with a surplus, all the^ 
 ingredients of capital advanced. In every con- 
 ceivable case, it is the deficiency, not the excess 
 of products which prevents our finding a profit- 
 able vend. A rapid accumulation of capital 
 interrupts effectual demand, only when, under a 
 very high rate of wages, the quantity of the 
 ingredients of capital produced and brought to 
 market is deficient in relation to the quantity of 
 those ingredients advanced in production. 
 
 When wages have so risen that the labourer 
 reproduces the advances which are made to him, 
 with that lowest rate of profit, for the sake of 
 which the capitalist will continue his business, 
 then there can no longer exist a motive to 
 increase capital more rapidly than population ; 
 and supposing, that notwithstanding the high 
 rate of wages, — the prevalence of moral restraint, 
 or of prudential contrivances, should keep popu- 
 lation and the supply of labour stationary, then 
 the passion for accumulation must be extin- 
 guished in its own excess. By the supposition, 
 however, some small surplus still appears in the 
 
393 
 
 form of profit, and were there, as probably there 
 would be, any scarcity of land, a more consider- 
 able surplus would appear in the form of rent. 
 In what manner could these surpluses be disposed 
 of, and where would be the eifectual demand for 
 the articles composing them? The answers to 
 these questions are obvious. 
 
 If, on the extinction of the passion for accu- 
 mulation, a taste for luxuries were revived, then 
 in the form of luxuries all surplus would appear, 
 — the effectual demand for them would be 
 created as before explained; and should the 
 commodities brought to market be in the due 
 proportions, the extent of the demand would 
 be precisely commensurate with the extent of 
 production. But should the love of ease prevail 
 over the desire of luxurious enjoyment, nothing 
 beyond the necessaries of life would be produced ; 
 and in this case what would become of our 
 profits and rents? and where would be the 
 effectual demand for the articles composing 
 them ? The reply is still obvious. 
 
 On the assumption that no individual in the 
 community will produce and consume any thing 
 
394 
 
 beyond the necessaries of life, the capitalist will 
 advance to his labourers just that quantity of 
 capital which, at the existing rate of profit, will 
 yield the necessaries of life for his family. Thus, 
 taking the rate of profit to be one per cent, the 
 farmer or manufacturer who advances subsistence 
 for one hundred families, would obtain in return 
 subsistence for his own family ; and no indivi- 
 dual would employ a larger capital than one 
 hundred days* subsistence. 
 
 Respecting rent, as our supposition in strict- 
 ness excludes that species of luxury which 
 consists in a retinue of menial servants and 
 retainers, the proprietor, however extensive and 
 fertile his territory might be, could have no 
 wish to require for the use of his land a greater 
 portion of the produce than that which sufficed 
 to furnish his own family with the necessaries of 
 life. Every portion of his estate over and above 
 that, the rent of which was sufficient to affi^rd 
 the necessaries of life to his family, would be of 
 no utility or value to him whatever. Thus the 
 prevailing love of ease, which prevented the 
 proprietor of capital from conducting a larger 
 
395 
 
 concern than that which was sufficient to yield 
 necessaries, would prevent the proprietor of land 
 from using any exertions to defend and retain 
 these valueless possessions. All the portions of 
 his estate, over and above that, the rent of which 
 Kiight be sufficient to give his family the neces- 
 saries of life, he would allow his children, his 
 friends, and his neighbours to occupy ; a con- 
 tinued occupancy would establish a title to these 
 portions of land, which the original proprietor 
 could have no motive to litigate, or even to ques- 
 tion. Hence, landed property would become 
 as much subdivided as capital. As no capital 
 would exceed what, under the existing rate of 
 profit, was necessary to yield the necessaries of 
 life to the capitalist, so no estate would exceed 
 that portion of territory which, in the actual 
 degree of competition for land, yielded a rent 
 sufficient to supply the necessaries of life to 
 the family of the proprietor who let it out to 
 farm. 
 
 In the state just described, there would cer- 
 tainly be no effectual demand for any articles 
 beyond the bare necessaries of life for a stati- 
 
396 
 
 onary* population. By the supposition, the 
 quantity of the ingredients of capital produced 
 is exactly equal to the quantity of these ingre- 
 dients expended in reproducing the necessaries 
 of life ; and therefore there are no ingredients of 
 capital in existence to replace, by way of ex^ 
 change, the quantity of such ingredients which 
 might be expended in the production of luxuries. 
 But it is self-evident that the want of effectual 
 demand ; or, in other words, the want of the 
 power to give in exchange for luxuries some 
 greater quantity of the ingredients of capital 
 than that which might be expended in bringing 
 them to market, would be occasioned, not by the 
 excess, but by the deficiency of production. 
 Production would not be checked by the want 
 of effectual demand, but effectual demand would 
 
 * The population would be stationary, because, under 
 the existing rate of wages, the labouring class is supposed 
 to be too prudent to increase their numbers, and because 
 no advance of wages inducing them to enlarge their 
 families, can take place, without reducing profits below 
 that minimum rate, for the sake of which the capitalist will 
 make advances. 
 
397 
 
 be narrowed in consequence of the want of pro- 
 duction. 
 
 Thus, in every conceivable case, effectual 
 demand is created by and is commensurate with 
 production, rightly proportioned. A universal 
 passion for accumulating capital converts, during 
 its continuance, the effectual demand for luxuries 
 into an effectual demand for the necessaries of 
 life ; and when this passion is extinguished in 
 its own excess, if it is replaced by a desire for 
 luxurious enjoyment, then effectual demand will 
 arise for every article which the country may 
 have power to produce ; and if this passion be 
 succeeded by the prevalence of the love of ease, 
 then an effectual demand will exist for every 
 article which the community may have the 
 inclination to produce. Vary our suppositions 
 as we will, increased production, provided it 
 be duly proportioned, is the one and only 
 cause of extended demand, and diminished pro- 
 duction the one and only cause of contracted 
 demand. 
 
 One other objection to the theory of effectual 
 . demand, unfolded in the present section, remains 
 
398 
 
 to be examined. It may be urged, " It is the 
 " business of all legitimate philosophy to account 
 " for facts ; and general reasonings, though ap- 
 ** parently demonstrative in every step, must 
 " necessarily involve a fallacy when their con- 
 ** elusions do not square and tally with experi- 
 " ence. The daily and hourly experience of 
 " the market brings it home to our senses, that 
 " for a considerable portion of the commodities 
 " produced, no effectual demand exists — no pro- 
 " fitable vend can be found. It is, therefore, 
 " plainly impossible that demand should be 
 *' created by production, or profitable vend be 
 " commensurate with supply." 
 
 I answer ; that I acknowledge, in the fullest 
 extent, that it is the business of philosophy to 
 account for facts, and that no theory, however 
 plausible, nay, however demonstrative it may 
 appear, is entitled to attention, unless its conclu- 
 sions coincide with general experience. The 
 definition of legitimate theory is, that it is de- 
 duced, by an analytical process, from particular 
 facts ; and that it accounts, by a synthetical pro- 
 cess, for the phenomena to which it is applied. 
 
399 
 
 If the theory of eifectual demand, which I 
 have ventured to unfold, does not explain in a 
 satisfactory manner that overstocking of the 
 market, and want of profitable vend for com- 
 modities, the existence of which is matter of 
 general experience, I am ready to admit that 
 such theory must be essentially defective and 
 incorrect. 
 
 But the theory of effectual demand which I 
 have endeavoured to establish, accounts in the 
 most satisfactory manner for every case of glut 
 or regorgement which is actually experienced, or 
 which can be supposed to exist. My definition 
 of effectual demand is, that it consists in the 
 power and the will to offer for commodities 
 some greater quantity of the ingredients of capi- 
 tal than their production cost; and from this 
 definition it is a necessary inference, that where- 
 ever the quantity of the ingredients of capital 
 expended in bringing any commodity to market 
 exceeds the quantity of these ingredients, which 
 the consumers are willing and able to offer in 
 exchange for it, there the supply will be exces- 
 sive in relation to the demand, and a glut or 
 
400 
 
 regorgement, a want of profitable vend, will be 
 experienced. 
 
 A glut may be occasioned by two different 
 causes ; 1*/, by the erroneous calculations of 
 producers leading them to expend, in bringing 
 some particular commodities to market, a greater 
 quantity of the ingredients of capital than that 
 which the consumers are able and willing to 
 offer in exchange for them : and, ^dly^ by the 
 irregularity of the seasons, throwing upon the 
 market, without any increased expenditure of 
 the ingredients of capital, a greater quantity of 
 a commodity than those who have the ordinary 
 quantity of these ingredients to offer in exchange, 
 are desirous of consuming. But though gluts 
 may proceed from different causes, yet their 
 effects in suspending production, and inflict- 
 ing distress upon the industrious classes, whe- 
 ther capitalists or labourers, will remain the 
 same. The precise manner in which these 
 effects are brought about, I shall endeavour to 
 illustrate. 
 
 Let us recur to our former case, and assume 
 the existence of a community consisting of four 
 
401 
 
 hundred families, the first hundred of which, 
 with an expenditure of one hundred quarters of 
 corn and one hundred suits of clothing, pro- 
 duces four hundred quarters of corn ; the second 
 hundred, with a like expenditure, prepares four 
 hundred suits of clothing; the third hundred, 
 with a like expenditure, raises a quantity of 
 sugar and tobacco; and the fourth hundred, 
 with a like expenditure, fabricates a supply of 
 ribbons and lace. In this case, each class, from 
 the imperative calls of nature, must be desirous 
 of replacing the corn and clothing consumed 
 while at work ; and as superfluities would not 
 be produced unless there was a desire to enjoy 
 something beyond the bare necessaries of life, 
 the supposition that superfluities are produced, 
 necessarily implies that there exists either a 
 passion for accumulating capital, or a taste for 
 articles of luxury. But if the passion for accu- 
 mulating capital had existed, all surplus produc- 
 tion would have appeared under the form of the 
 ingredients of capital ; and therefore it is a taste 
 for articles of luxury, which articles I represent 
 under the terms, sugar and tobacco, ribbons and 
 D D 
 
402 
 
 lace, which is implied in the supposition that 
 our community does more work than is neces- 
 sary to reproduce the necessaries it consumes. 
 The distribution of the things produced will 
 therefore be as follows : — Each class will retain 
 one fourth of its products for its own consump- 
 tion, and will exchange one fourth with each of 
 the other three classes for a fourth of its peculiar 
 article ; and when these exchanges are completed, 
 each class will have the ingredients of capital 
 replaced with a surplus in the form of luxuries, 
 equal in productive cost, and therefore in ex- 
 changeable value to these ingredients. For all 
 the articles brought to market a profitable vend 
 and effectual demand will be found. 
 
 Such being the previous state of things, let us 
 now assume, that an unusually abundant harvest 
 occurs, which yields to the growers of corn five 
 hundred instead of four hundred quarters. Now, 
 what influence would this excess have upon the 
 effectual demand, or profitable vend, first for the 
 ^corn, and then for the other articles produced ? 
 The inquiry is most important. In conducting 
 it I shall consider money as the medium by which 
 
403 
 
 commodities are exchanged, as well for the sake 
 of varying our illustrations, as for the purpose 
 of shewing the sources of those fluctuations of 
 price, and of those occasional redundancies in 
 the circulating medium which so frequently occur 
 in practice, without any increase in the amount 
 of currency, or diminution in the quantity of 
 commodities ; and the theory of which I do not 
 remember to have seen satisfactorily explained. 
 
 I assume, that while our society raises and 
 prepares four hundred quarters and four hundred 
 suits, with a quantity of sugar and tobacco, and 
 of ribbons and lace, each class in addition to the 
 capital of one hundred quarters of corn and one 
 hundred suits of clothing which it expends in 
 direct production, has 100/. in money, which it 
 employs in effecting exchanges. In this case, the 
 growers of com, in dealing with the clothiers, 
 would pay 100/. for one hundred suits, and re- 
 ceive 100/. for one hundred quarters ; in dealing 
 with the growers of sugar, would pay 100/. 
 for this article, and receive 100/. for one 
 hundred quarters of corn ; and in dealing with 
 the manufacturers of ribbons and lace, would 
 
404 
 
 pay and receive similar sums ; while the class 
 of clothiers, of growers of sugar, and of manu-^ 
 facturers of ribbons and lace, would each perform 
 this double money operation in dealing with the 
 farmers and with each other. Thus, when the 
 requisite exchanges were completed, each class 
 would have paid and received 100/. three several 
 times, and would possess, as at the commence- 
 ment, the original sum of 100/. for future opera- 
 tions. 
 
 The supposition is, that while things have 
 been proceeding in this way, an unusually abund- 
 ant harvest yields the growers of corn five 
 hundred quarters instead of four hundred. Now, 
 with respect to articles of which a given popu- 
 lation can consume only a given quantity, a 
 moderate increase in the supply occasions a con- 
 siderable decrease in the price. We will assume, 
 therefore, that the abundant harvest which aug- 
 ments the supply of corn one fourth, reduces the 
 price of corn one half. This being the case, the 
 farmer, in order to replace his capital, would 
 still have to give 100/. for one hundred suits of 
 clothing, but would receive from the clothier only 
 
405 
 
 50/. for the one hundred quarters of corn, neces- 
 sary to replace the capital of the latter ; so that 
 in the transaction necessary to the replacement 
 of his directly productive capital, the farmer's 
 supply of cash will be reduced from 100/. to 50/. 
 Formerly our farmers consumed 100/. worth of 
 sugar and tobacco, and 100/. worth of ribbons 
 and lace. But the price of these articles is not 
 as yet supposed to have fallen, and therefore as 
 their transactions with the clothiers have re- 
 duced their cash from 100/. to 50/. and as they 
 receive only 100/. for the two hundred quarters 
 of com they dispose of to the growers of sugar 
 and manufacturers of lace, the farmers will not 
 have the means of purchasing the same quantity 
 of these luxuries as before. Let the farmers 
 consume only half their former quantity of sugar 
 and tobacco, ribbons and lace, paying for them . 
 the 100/. received from the growers of the one, 
 and the manufacturers of the others, in return for 
 two hundred quarters of corn, and then the 
 abundant harvest will have deprived the farmers, 
 of half their cash, and of half their accustomed 
 supply of luxuries, and will have left upon their 
 
406 
 
 hands one hundred quarters of corn, for which 
 no profitable vend can be obtained. 
 
 In this stage of the process the class of 
 clothiers would receive a benefit, as, giving only 
 50/. for the com, and 200/. for their sugar and 
 tobacco, ribbons and lace, and receiving 300/. for - 
 the three hundred suits of clothing disposed of, 
 they would replace their capital, enjoy an undi- 
 minished quantity of luxuries, and at the same 
 time increase their supply of cash from 100/. 
 to 150/. 
 
 The growers of corn and sugar, however, and 
 the manufacturers of ribbons and lace, would be 
 in a less flourishing condition. Though each of 
 these classes giving and receiving 100/. in ex- 
 changing one fourth of their respective products 
 for one hundred suits of clothing, and 50/. in 
 exchanging another fourth of their products for 
 one hundred quarters of corn, would have their 
 directly productive capital replaced ; yet, instead 
 of each obtaining an increase of cash to the 
 amount of 50/. they would each have one fourth 
 of their products, or one sixth of the articles 
 they forn^erly sold, left unvendible upon their 
 
407 
 
 hands. As, however, the consumption of such 
 articles is not limited as in the case of corn, by 
 the capacity of the human stomach, we will 
 assume, that a superfluous supply of sugar and 
 tobacco, ribbons and lace, to the amount of one 
 sixth, reduces the price only by a sixth. The 
 account of each class will be as follows : — 
 
 Growers of Corn. 
 
 Original capital, £. s. d. 
 
 100 quarters of corn . 100 
 
 100 suits of clothing . 100 
 
 Cash 100 
 
 £.mO 
 
 Return, 
 
 500 quarters of com <^.250 0, 
 100 suits of clothing 
 
 purchased with cash 100 
 
 £M0 
 Deduct for 100 quarters 
 
 of com, unsaleable . 50 
 
 — — £mo 
 
 Profit, estimated in money* nil. 
 
 * The farmer, hawever, would have a real profit of 50/. 
 upon 250/.; because, whep estimated in their reduced 
 money prices, the ingredient of his capital will amount to 
 ^0/. not to 300/. . 
 
408 
 
 Account of the class of Clothiers. 
 
 Original capital, £. ,. d. 
 
 100 quarters of corn . 100 
 
 100 suits of clothing . 100 
 
 Cash 100 
 
 —^.300 
 
 Return, 
 
 400 suits of clothing ^.400 
 
 100 quarters of com 
 
 piu-chased with cash 50 
 
 Cash remaining after 
 
 purchase of corn . . 50 
 
 .^.500 
 
 Profit estimated in money ..,.£. 200 
 
 Account of the groivers of Sugar and Tobacco. 
 
 Ori^nal capital, £. $. d. 
 
 100 quarters of com . 100 
 
 100 suits of clothing . 100 
 
 Cash 100 
 
 .^'.SOO 
 
 Return, 
 
 Sugar and tobacco de- 
 preciated one sixth £.SS4i 
 100 suits of clothing 
 
 purchased .... 100 
 
 . ^.434 
 
 Deduct for one eighth 
 of sugar and tobacco, 
 unsaleable .... 41 
 
 £. 393 
 
 Profits estimated in money ..... .^. 93 
 
409 
 
 As the account of the class preparing ribbons 
 and lace, would be precisely similar to the last, 
 it would be superfluous to detail it. I will there- 
 fore proceed to suppose, that a second abundant 
 harvest occurs, throwing, including the stock 
 already in hand, six hundred quarters of corn 
 on the market, instead of four hundred. The 
 supply would now exceed the consumption by a 
 half, and that would reduce the price of corn at 
 least three fourths*, and cause one hundred 
 quarters of corn to fall from 100/. to 25/. Let 
 us see the statement of the farmer's account upon 
 this reduced scale of prices. 
 
 It could not have been rationally supposed, 
 that the class of farmers in the first year of glut 
 should have reduced the expenditure of their 
 families to bare necessaries, and we therefore 
 assumed, that of their return of 300/. they de- 
 voted 100/. to the purchase of half their former 
 
 * If the harvests of 1821 and 1822 should both be 
 abundant, the price of wheat in England will not exceed 
 25*. the quarter, that is, three quarters or seventy-five per 
 cent, below the importation price fixed by the Corn Law of 
 1815. 
 
410 
 
 supply of superfluities. The account of the class 
 of corn growers will consequently stand thus :-— 
 
 Capital estimated in money prices at the commence- 
 ment of the season, £ s d 
 100 quarters of corn . . 50 
 100 suits of clothing . 100 
 
 Cash ...... 50 
 
 £.W0 
 
 Return, 
 
 500 quarters of corn . £.1^5 
 
 50 suits of clothing, pur- 
 chased with the cash 
 in hand .... 50 
 
 <£'.175 
 Deduct for 100 quarters 
 
 of corn, unsaleable . 25 
 
 ^.150 
 
 Deficiency required to replace the other 
 
 50 suits of clothing expended . . . £.50 
 
 Let us now see in what manner the fall in 
 the price of corn may be expected to act upon 
 the other classes. The growers of corn, so far 
 from being in a condition to purchase super- 
 fluities, are unable to replace their capital, and 
 therefore the growers of sugar and tobacco, and 
 
411 
 
 the manufacturers of ribbons, will have one third 
 of the articles for which there was originally a 
 demand, left upon their hands. This dead stock 
 accumulated upon that of the former year will 
 again considerably reduce the price of those 
 commodities, say, by one half, or from 334/. to 
 167/. The account of each of these two classes 
 will therefore be as follows : — 
 
 Capital estimated in the prices at the beginning of the 
 season, £ s d 
 
 100 suits of clothing . 100 
 
 100 quarters of corn . 50 
 
 <^.150 
 
 Return, 
 
 Sugar and tobacco . £.16*7 
 Deduct one fourth for- 
 merly sold to farmers, 
 
 now unsaleable . . 41 
 
 £.1^6 
 
 Loss sustained by growing sugar and 
 
 tobacco £.M 
 
 The situation of the manufacturers of ribbons 
 and lace would be precisely similar to that of 
 the growers of sugar and tobacco, and therefore 
 need not be detailed. 
 
412 
 
 Up to this period, the situation of the class of 
 clothiers would have been prosperous ; for, while 
 the producers of corn and of the several articles 
 of superfluity, continued to employ the same 
 capitals as before, the same quantity of clothing, 
 one of the main ingredients of capital, would be 
 consumed ; and no increase being supposed in its 
 supply, the price of clothing would remain sta- 
 tionary, though the fall in the price of corn, the 
 other main ingredient of capital, diminished the 
 comparative cost of its production. But as soon 
 as the farmers, with the growers of sugar and 
 the manufacturers of lace, ceased to be able to 
 sell their commodities at prices which would re- 
 purchase the ingredients of capital expended in 
 their production, they would from interest no 
 less than necessity, employ less capital than 
 before, and consequently a less quantity of 
 clothing, the second great ingredient of capital, 
 would be demanded and consumed. The class 
 of clothiers, after a temporary prosperity, would 
 now participate in the general stagnation. For 
 a considerable part of their products no profit- 
 able or desirable sale could be effected. The 
 
413 
 
 farmers would be anxious to offer them more 
 corn, but of this they would be already possessed 
 of as much as they had power to consume ; the 
 other classes would be desirous of offering them 
 more sugar and tobacco, ribbons and lace, but of 
 these they already possessed as much as they had 
 an inclination to consume. Hence, the class of 
 clothiers would no longer have a motive to per- 
 form the same quantity of work as before, and 
 the production of their peculiar commodities 
 would be diminished. 
 
 In the foregoing illustrations, the fall in the 
 price of corn and of luxuries is taken arbitrarily, 
 s and without any attempt at the attainment of 
 perfect accuracy. Two overflowing harvests 
 increasing the supply of com one half, might not 
 reduce the price of four hundred quarters from 
 400/. to 100/. nor the consequent diminished 
 consumption of luxuries by the growers of corn, 
 lower the price of the supply of sugar and 
 tobacco from 400/. to 167/. But to some extent 
 or other these causes would necessarily depress 
 the price, first of corn, and then of superfluities, 
 and produce effects similar in kind, though dif- 
 
414 
 
 fereiit in degree, from those I have described. 
 In the above cases, the assumed fall in prices 
 trenches upon capital, and suspends production, 
 though the original rate of profit is taken at cent, 
 per cent. Had the rate of profit, previous to 
 the glut of corn, been taken at fifteen or twenty 
 per cent, a fall in prices, far less considerable, 
 would have been followed by the same calamitous 
 results. 
 
 From the foregoing illustrations it will be 
 apparent, that a glut of a particular commodity 
 may occasion a general stagnation, and lead to 
 a suspension of production, not merely of the 
 commodity which first exists in excess, but of all 
 the other commodities brought to market. The 
 fall in the exchangeable value of the redundant 
 commodity, deprives its producers of the power 
 of replacing the ingredients of capital, without 
 which they cannot continue their business, and 
 renders them incapable of purchasing and con- 
 suming the same quantity of other commodities 
 as before. The supply of these other commo- 
 dities, therefore, though not absolutely increased, 
 becomes relatively redundant, as compared with 
 
413 
 
 the effectual demand ; they also fall in exchange- 
 able value, and the producers of them are in 
 their turn deprived of the power of replacing 
 the ingredients of capital, and of purchasing for 
 immediate consumption their former quantity of 
 superfluities. If the glut commenced with a 
 redundant supply of some main ingredient of 
 capital, the producers of the other ingredients of 
 capital, being able to replace the depreciated 
 ingredient with a smaller quantity of their respec- 
 tive articles, would make extraordinary profits, 
 so long as the several producers of the depre- 
 ciated ingredients and of superfluities continued 
 to employ the same quantity of capital as before. 
 But when, in consequence of the diminished 
 consumption of the producers of the redundant 
 ingredient of capital, superfluities became also 
 redundant, and so lost their exchangeable value, 
 that the quantity of them which the producers of 
 the undepreciated ingredients of capital might be 
 disposed to receive, became inadequate to pur- 
 chase the quantity of the ingredients of capital 
 expended in bringing them to market; then 
 the undepreciated ingredients of capital would 
 
416 
 
 become redundant in consequence of the want of 
 equivalents suited to the tastes of their producers. 
 The motive for their continued production would 
 therefore cease, and through all the channels of 
 industry a general stagnation would prevail. 
 
 Were the improvement in the seasons con- 
 tinuous, and a greater quantity of corn were 
 constantly and regularly raised with the same 
 expenditure of capital, then the distribution of 
 industry, as has been already shewn, would be 
 altered so as to conform to the new proportions 
 of its productive powers. Should the desire for 
 luxurious enjoyment increase with the means of 
 indulging it, a portion of the labour and capital 
 formerly directed to the growing of corn would 
 be transferred to the production of some greater 
 quantity or new species of superfluities ; if a 
 passion for accumulation should be created, such 
 a portion of labour and capital would be trans- 
 ferred from the growing of corn, as might be 
 necessary to restore the equilibrium between 
 that ingredient of capital and the others ; and 
 should the prevalence of the love of ease induce 
 the society to be satisfied with the same quantity 
 
417 
 
 of enjoy men t« as before, then the improved 
 powers of industry would be followed by the 
 performance of less work, and would cause that 
 portion of the growers of corn which exceeded 
 the number required to raise the same quantity 
 of grain as before, to divide themselves equally 
 amongst all the four classes of our community, so 
 as to leave the same degree of leisure to each. 
 Thus, in every conceivable case, a redundant 
 supply of a commodity^ occasioned by an im- 
 provement in the productive powers of industry, 
 after occasioning temporary embarrassment and 
 distress, would be succeeded by a rectifying pro- 
 cess, and would terminate in conferring solid 
 advantages upon the society at large. But a 
 redundant supply of corn, occasioned by a suc- 
 cession of more than average crops, would be 
 followed by no compensating advantage; and 
 any attempt to remedy the evil by altering the 
 previous distribution of industry, would only 
 serve to protract and aggravate it. In this case, 
 after a portion of the growers of corn had 
 abandoned tillage and engaged in the production 
 of clothing and of luxuries, a succession of defi- 
 E E 
 
418 
 
 cient harvests might occur, and render the supply 
 of grain as defective as it had been before re- 
 dundant. But a deficient supply of so important 
 an ingredient of capital as corn, is in effect the 
 same thing as a redundant supply of all other 
 articles. Perhaps there is no single cause which 
 operates so injuriously on the prosperity of a 
 country as a fluctuating supply of corn. Unless 
 the quantity of this important ingredient of 
 capital be in some degree steady and uniform, it 
 is impossible to preserve that justly proportioned 
 production which secures for every commodity 
 brought to market a certain and profitable vend. 
 That want of due proportion in the quantities 
 of the several commodities brought to market, 
 which operates thus injuriously upon capita- 
 lists, inflicts equal injury upon the other classes 
 of the community. When the different articles 
 of wealth cannot be interchanged so as to replace 
 with a surplus the things expended in their pro- 
 duction, then rents cannot be paid, and wages 
 will fall short. The ruin of the cultivator 
 involves that of the proprietor of land; and 
 when the motive and the power to employ pro- 
 
419 
 
 ductive capital are destroyed, the productive 
 labourer is cut off by famine. 
 
 During a glut or regorgement, however, there 
 is one class which continues to flourish amidst 
 the general distress. This class consists of those 
 whose property is realised in money. That 
 universal fall in money prices which I have 
 shewn to be incident upon an undue proportion 
 in the quantities of the several commodities 
 brought to market, is the same thing as a rise 
 in the value of money, and necessarily gives to 
 the monied capitalist a greater command over 
 the necessaries and conveniences of life. But 
 this is not all. On every occasion of glut or 
 stagnation, the monied capitalist will not only 
 get a greater quantity of commodities for the 
 same given sum in cash, but will obtain a higher 
 rate of interest on the money he advances in the 
 way of loan, or invests in the purchase of real 
 property. The cause of these effects I will 
 endeavour to explain. 
 
 In all ordinary states of the market, prices will 
 be determined by the proportion which exists 
 between the quantity of commodities to be cir- 
 
420 
 
 culated, and the amount of the currency with 
 which their circulation is effected ; and to occa- 
 sion a general fall or rise of prices, the quantity 
 of commodities must increase or diminish, while 
 the amount of currency remains the same, or the 
 amount of currency must increase or diminish*, 
 whilje the quantity of commodities remains the 
 same. In periods of glut and general stag- 
 nation, however, prices are determined by other 
 circumstances, and the exchangeable power of 
 money will increase in a much higher ratio than 
 the quantity of commodities. The reason is 
 obvious. Money being the universal equivalent 
 and medium of exchange, whoever can com- 
 mand a sufficient quantity of it, can immediately 
 procure all the other articles he may desire to 
 possess. Hence, that want of due proportion 
 between the quantities of the several things pro- 
 duced and brought to market, which renders it 
 difficult to exchange commodities against com- 
 
 * A greater or less degree of economy in the use of 
 currency, may have the same effect on prices as an increase 
 or diminution in its amount. 
 
421 
 
 modities, never can render it difficult to exchange 
 money against commodities. A redundant har- 
 vest, which rendered it difficult for the farmer 
 to exchange his corn for clothing, would inter- 
 pose no difficulty in the way of exchanging his 
 money for clothing. The farmer, therefore, who 
 wished to replace that portion of his capital 
 which consisted in clothing, would seek^ in the 
 first instance, to convert his corn into money; 
 while the manufacturer of clothing, though he 
 might have obtained as much corn as he was 
 able to consume, and as much sugar and tobacco, 
 ribbons and lace, as he wished to consume, 
 would nevertheless be desirous of turning his 
 stock into money ; because money being the 
 universal equivalent, and imperishable in its 
 nature, would be more useful to him than 
 clothing in effecting future purchases when he 
 required a fresh supply of corn, or of luxuries. 
 Hence, on every occasion of glut or general stag- 
 nation, the desire of turning goods into money 
 is rendered more intense than the desire of 
 turning money into goods, and the proportion 
 in which prices will fall, will be much greater 
 
422 
 
 than that in which the relation between the 
 quantity of commodities and the amount of cur- 
 rency will be altered. 
 
 Again; in all ordinary states of the market, the 
 rate of interest rises or falls wkh the rise or fall in 
 the rate of profit. In times of glut and stagnation, 
 however, this general principle is liable to excep- 
 tions, and the interest of money may rise while 
 the profits of stock fall to nothing. Money being 
 the universal equivalent and medium of ex- 
 change, he who commands a money capital, can 
 at any time replace the several ingredients of 
 directly productive capital expended in bringing 
 commodities to market ; and hence the indivi- 
 duals whose industry experiences such a tem- 
 porary depression, as prevents their peculiar 
 commodity, not only from selling at a profit, 
 but from exchanging even for the same quan- 
 tity of the ingredients of capital which its pro- 
 duction cost, may frequently find it to be their 
 interest to make extraordinary sacrifices in order 
 to procure money with which to replace the 
 articles necessary to the carrying on of their 
 business. I will explain this by an example. 
 
If the rate of interest be five per cent., and 
 the rate of agricultural profit when corn is 
 selling at the prices of average years fifteen per 
 cent., then it will be the obvious interest of the 
 farmer who may not have capital of his own» 
 to borrow, at five per cent, the sum, say 1000/. 
 necessary to the cultivation of his fields. NoWy 
 let us suppose that two unusually abundant years 
 occur in succession, and throw upon the market 
 such a glut of com> that the farmer's produce, 
 instead of selling at a profit, does not bring him 
 by 100/. the sum adequate to replace his ad- 
 vances, and to enable him to renew his opera- 
 tions. In this case, though the farmer was 
 making no profit, it might be his interest to give 
 fifty per cent, for the loan of 100/. because this 
 sacrifice would save him from bankruptcy, and 
 would enable him to carry on his business, and 
 on the return of average seasons and prices, to 
 make fifteen per cent, on a capital of 1000/. 
 
 As soon as the glut of agricultural produce, 
 which thus rendered it the interest of the 
 farmer to borrow additional sums at a high 
 interest, had narrowed in the manner formerly 
 
424 
 
 described, the effectual demand for manufac- 
 tures, it would also become the interest of the 
 manufacturers, notwithstanding the fall, or even 
 the disappearance of profit, to provide against 
 the temporary pressure by borrowing additional 
 capital at high interest. Amidst the general 
 distress, the land proprietors, whose rents had 
 fallen or disappeared in consequence of the 
 losses of the farmer, would now be reduced 
 to the necessity of borrowing. This distress 
 which increased the inclination to borrow, would 
 diminish the inclination to lend. The multiplied 
 failures in agriculture, manufactures, and trade, 
 would strike a panic into the holders of floating 
 capital, and they would refuse to grant accom- 
 modation upon securities, which in more pros- 
 perous times they would be disposed to consider 
 unobjectionable. Thus, from a double cause, 
 the rate of interest would be out of all propor- 
 tion high, as compared with the rate of profit. 
 As interest rose, lands, annuities, and public 
 funds, would all sell for a smaller number of 
 years purchase than before, and amidst this 
 universal depreciation an extraordinary pro- 
 
425 
 
 portion of the property of the country would 
 pass into the hands of the tnonied capitalist. 
 
 It is obvious that the state of things here 
 described, could not be permanent. Should a 
 glut terminate in a continued depression; of 
 industry and fall of profits, it is impossible that 
 the interest of money should remain high, be- 
 cause, in this case, it would be impossible for 
 the borrower to pay an extravagant premium for 
 the use of that which brought him inconsiderable 
 returns. When prosperity receives any sudden 
 check, the desire to borrow and the fear to lend 
 cause interest to rise, while profits fall or disap- 
 pear; but when the pressure upon industry is 
 continuous, the impossibility of paying large 
 premiums out of small returns restores the pro- 
 portion between interest and profit, and renders 
 each a tolerably accurate index of the other. In 
 the latter of these cases, as profit and interest 
 fall, land, annuities, and public funds, all fetch a 
 greater number of years purchase than before, 
 and this rise in the value of property which is 
 an unequivocal symptom of an approach to the 
 declining, or at least to the stationary state, is 
 
426 
 
 mistaken by the uninstructed observed for the 
 indication of prosperity. 
 
 Having now explained the general principles 
 of demand and supply, and shewn that they 
 afford a satisfactory solution of all the important 
 phenomena experienced in the market, I shall 
 conclude with suggesting a few practical rule.^ 
 for averting those stagnations in trade, and that 
 want of profitable vend for the commodities pro- 
 duced, which so frequently suspend prosperity 
 before a country has approached the limits of 
 her resources. 
 
 In order to secure a certain and profitable 
 vend for the commodities produced, and to avert 
 the recurrence of gluts or regorgements, the first 
 thing the practical statesman should aim at, is 
 to keep the supply and the price of corn uniform 
 and steady. When corn forms the basis of the 
 labourer's food, it becomes the most important 
 and universal of all the ingredients of capital ; 
 and, as has been already demonstrated, any 
 redundancy or deficiency in its supply destroys 
 that proportion between the ingredients of 
 capital, and other articles offered in exchange 
 
 3 
 
427 
 
 for them, which is the occasion of effectual 
 demand. It is impossible that a country should 
 enjoy any tolerable or continuous prosperity, if 
 the price of the main article of the labourer's 
 food be subject to sudden and considerable 
 fluctuations. The means by which corn may 
 be preserved at a nearly uniform price, I have 
 shewn at length in another place*, and need not 
 here repeat. 
 
 After preserving com at a uniform price, the 
 next great object of the practical economist 
 should be, to preserve the currency at a uniform 
 value. Lowering the value of the currency, as 
 I endeavoured to shew in the preceding section, 
 has a favourable influence upon effectual demand. 
 But currency cannot always go on sinking in 
 value, otherwise its power as a medium of ex- 
 change would altogether cease ; and its recoil is 
 attended with calamities which far more than 
 counterbalance the advantages which accompa- 
 nied its descent. This recoil is precisely that 
 which the practical statesman should endeavour 
 to prevent. After the currency of a country 
 
 * E)^say on the External Corn Trade. 
 
428 
 
 has been depreciated for a certain time, and 
 rents, wages, and prices, have been adjusted to 
 the new measure of value, a restoration of the 
 former standard violates the spirit of all existing 
 contracts, and occasions an entire derangement 
 of the market. In all such cases, policy and 
 justice alike require, not that the currency should 
 be raised to the level of the ancient standard, 
 but that the standard should be lowered to the 
 actual level of the currency. 
 
 A third rule for preventing gluts, or mitigat- 
 ing their effects when they occur, is to leave the 
 interest of money to find that natural level which 
 is determined by the competition between bor- 
 rowers and lenders. Usury laws, though intended 
 to protect the borrower, inflict upon him the 
 most serious inconvenience. In periods of glut 
 their operation is peculiarly injurious. As the 
 want of a profitable vend is occasioned by ill- 
 proportioned production, whatsoever obstructs 
 the transference of capital retards the required 
 correction in the distribution of industry, and 
 renders the evil more permanent than it other- 
 wise would be. This objection against legisla- 
 tive interference with the interest of money. 
 
420 
 
 applies with equal force to all taxes imposed 
 upon the conveyance of property. The less the 
 transference of property is obstructed, the more 
 rapidly will capital flow from the channels in 
 which it is in excess, to those in which it is 
 deficient, and the shorter will be the period 
 during which commodities will be brpught to 
 market in undue proportions. 
 
 Another rule of great practical importance is, 
 to avoid all sudden transitions. This, indeed, is 
 a universal principle, and into it the three pre- 
 ceding rules may be resolved. With respect to 
 the encouragement of industry and the progress 
 of wealth, steady and consistent legislation, even 
 though it should proceed upon erroneous prin- 
 ciples, is preferable to a timid and irregular 
 application of the soundest theories. Pertinacity 
 in error is less inj urious than the facility which 
 vacillates between right and wrong. When 
 government pursues a steady and uniform 
 course, industry conforms and adapts itself to 
 the existing system ; and though the quantity 
 of wealth produced is less than it would be 
 under a more enlightened policy, yet the supply 
 of commodities is so proportioned as to ensure a 
 
430 
 
 ready and profitable vend for whatever may be 
 brought to market. But when governments 
 resort to temporary expedients — when they 
 attempt to legislate for each particular occur- 
 rence, and interfere with the existing system 
 before they have a sufficient acquaintance with 
 general principles to erect a better in its stead, 
 then the calculations of the producer are con- 
 founded, and commodities can no longer be 
 brought to market in that just proportion which 
 €nsures effectual demand. In economics as in 
 medicine, the regular practitioner, when he does 
 not clearly see his way, will be disposed to leave 
 nature to herself; while the empyric resorts on 
 ^very occasion to active and pernicious nostrums, 
 and thus aggravates the disorder he ignorantly 
 attempts to cure. 
 
 FINIS. 
 
 Printed by J. DretUtt, 
 Rupert Street, Hayinarket, London. 
 
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