On The Principles of Political Economy, and Taxation Part 19

Nothing can be more just than the following observations of Mr. Malthus, on Adam Smith's standard of value. "Adam Smith was evidently led into this train of argument, from his habit of considering _labour as the standard measure of value_, and corn as the measure of labour. But that corn is a very inaccurate measure of labour, the history of our own country will amply demonstrate; where labour, compared with corn, will be found to have experienced very great and striking variations, not only from year to year, but from century to century; and for ten, twenty, and thirty years together. _And that neither labour nor any other commodity can be an accurate measure of real value in exchange_, is now considered as one of the most incontrovertible doctrines of political economy; and, indeed, follows from the very definition of value in exchange."

If neither corn nor labour are accurate measures of real value in exchange, which they clearly are not, what other commodity is?--certainly none. If then the expression real price of commodities, have any meaning, it must be that which Mr. Malthus has stated, in the Essay on Rent--it must be measured by the proportionate quant.i.ty of capital and labour necessary to produce them.

In Mr. Malthus's "Inquiry into the Nature of Rent," he says, "that, independently of irregularities in the currency of a country, and other temporary and accidental circ.u.mstances, the cause of the high comparative money price of corn, is its high comparative real price, _or the greater quant.i.ty of capital and labour which must be employed to produce it_."[60]

This, I apprehend, is the correct account of all permanent variations in price, whether of corn or of any other commodity. A commodity can only permanently rise in price, either because a greater quant.i.ty of capital and labour must be employed to produce it, or because money has fallen in value; and on the contrary, it can only fall in price, either because a less quant.i.ty of capital and labour may be employed to produce it, or because money has risen in value.

A variation arising from the latter of either of these alternatives, an altered value of money, is common at once to all commodities; but a variation arising from the former cause, is confined to the particular commodity requiring more or less labour in its production. By allowing the free importation of corn, or by improvements in agriculture, raw produce would fall; but the price of no other commodity would be affected, except in proportion to the fall in the real value, or cost of production, of the raw produce which entered into its composition.

Mr. Malthus, having acknowledged this principle, cannot, I think, consistently maintain that the whole money value of all the commodities in the country must sink exactly in proportion to the fall in the price of corn. If the corn consumed in the country were of the value of ten millions per annum, and the manufactured and foreign commodities consumed were of the value of twenty millions, making altogether thirty millions, it would not be admissible to infer that the annual expenditure was reduced to 15 millions, because corn had fallen 50 per cent., or from 10 to 5 millions.

The value of the raw produce which entered into the composition of these manufactures might not, for example, exceed 20 per cent. of their whole value, and, therefore, the fall in the value of manufactured commodities, instead of being from 20 to 10 millions, would be only from 20 to 18 millions; and after the fall in the price of corn of 50 per cent., the whole amount of the annual expenditure, instead of falling from 30 to 25 millions, would fall from 30 to 23 millions.[61]

Instead of thus considering the effect of a fall in the value of raw produce; as Mr. Malthus was bound to do by his previous admission; he considers it as precisely the same thing with a rise of 100 per cent. in the value of money, and, therefore, argues as if all commodities would sink to half their former price.

"During the twenty years, beginning with 1794," he says, "and ending with 1813, the average price of British corn per quarter was about eighty-three shillings; during the ten years ending with 1813, ninety-two shillings; and during the last five years of the twenty, one hundred and eight shillings. In the course of these twenty years, the Government borrowed near five hundred millions of real capital; for which, on a rough average, exclusive of the sinking fund, it engaged to pay about five per cent. But if corn should fall to fifty shillings a quarter, and other commodities in proportion, instead of an interest of about five per cent., the Government would really pay an interest of seven, eight, nine, and, for the last two hundred millions, ten per cent.

"To this extraordinary generosity towards the stockholders, I should be disposed to make no kind of objection, if it were not necessary to consider by whom it is to be paid; and a moment's reflection will shew us, that it can only be paid by the industrious cla.s.ses of society, and the landlords, that is, by all those whose nominal income will vary with the variations in the measure of value. The nominal revenues of this part of the society, compared with the average of the last five years, will be diminished one half, and out of this nominally reduced income, they will have to pay the same nominal amount of taxes."[62]

In the first place, I think, I have already shewn, that the nominal income of the whole country will not be diminished in the proportion for which Mr. Malthus here contends; it would not follow, that because corn fell fifty per cent., each man's income would be reduced fifty per cent. in value.[63]

In the second place, I think the reader will agree with me, that the increased charge, if admitted, would not fall exclusively "on the landlords and the industrious cla.s.ses of society:" the stockholder, by his expenditure, contributes his share to the support of the public burdens in the same way as the other cla.s.ses of society. If then money became really more valuable, although he would receive a greater value, he would also pay a greater value in taxes, and, therefore, it cannot be true that the whole addition to the real value of the interest would be paid by "the landlords and the industrious cla.s.ses."

The whole argument, however, of Mr. Malthus, is built on an infirm basis: it supposes, because the gross income of the country is diminished, that, therefore, the net income must also be diminished, in the same proportion. It has been one of the objects of this work to shew, that with every fall in the real value of necessaries, the wages of labour would fall, and that the profits of stock would rise--in other words, that of any given annual value a less portion would be paid to the labouring cla.s.s, and a larger portion to those whose funds employed this cla.s.s. Suppose the value of the commodities produced in a particular manufacture to be 1000_l._, and to be divided between the master and his labourers, in the proportion of 800_l._ to labourers, and 200_l._ to the master; if the value of these commodities should fall to 900_l._, and 100_l._ be saved from the wages of labour, in consequence of the fall of necessaries, the net income of the masters would be in no degree impaired, and, therefore, he could with just as much facility pay the same amount of taxes, after, as before the reduction of price.[64]

And that wages would fall as much as the ma.s.s of commodities, or rather that the net income remaining to landlords, farmers, manufacturers, traders, and stockholders, the only real payers of taxes, would be as great as before, is very highly probable; for nothing would be even nominally lost to the society by the freest importation of corn, but that portion of rent of which the landlords would be deprived in consequence of the fall of raw produce.

The difference between the value of corn and all other commodities sold in the country, before and after the importation of cheap corn, would be only equal to the fall of rent; because, independently of rent, the same quant.i.ty of labour would always produce the same value.

The whole reduction which is made in wages, is a value actually added to the value of the net income before possessed by the society; whilst the only value which is taken from that net income is the value of that part of their rent of which the landlords will be deprived by a fall of raw produce. When we consider that the fall of produce acts upon a limited number of landlords, while it reduces the wages not only of those who are employed in agriculture, but of all those who are occupied in manufactures and commerce, it may well be doubted, whether the net revenue of the society would suffer any abatement whatever.[65]

But, if it did, it must not be supposed that the ability to pay taxes will diminish in the same degree, as the money value, even of the net revenue. Suppose that my net revenue were diminished from 1000_l._ to 900_l._; but that my taxes continued to be the same, to be 100_l._: is it not probable that my ability to pay this 100_l._ may be greater with the smaller than with the larger revenue? Commodities cannot fall so universally as Mr. Malthus supposes, without greatly benefiting the consumers, without enabling them with a much smaller money revenue to command more of the conveniences, necessaries, and luxuries of human life; and the question resolves itself into this--whether those who are in possession of the net revenue of the country will be benefited as much by the diminished price of commodities, as they will suffer by the greater real taxation. On which side the balance may preponderate, will depend on the proportion which taxes bear to the annual revenue; if it be enormously large, it may undoubtedly more than counterbalance the advantages from cheap necessaries; but I trust enough has been said, to shew, that Mr. Malthus has very greatly over-rated the loss to the tax-payers, from a fall in one of the most important necessaries of life; and that if they were not entirely remunerated for the real increase of taxes, by the fall of wages and increase of profits, they would be more than compensated, by the cheaper price of all objects on which their incomes were expended.

That the stockholder is benefited by a great fall in the value of corn, cannot be doubted; but if no one else be injured, that is no reason why corn should be made dear: for the gains of the stockholder are national gains, and increase, as all other gains do, the real wealth and power of the country. If they are unjustly benefited, let the degree in which they are so, be accurately ascertained, and then it is for the legislature to devise a remedy; but no policy can be more unwise than to shut ourselves out from the great advantages arising from cheap corn, and abundant productions, merely because the stockholder would have an undue proportion of the increase.

To regulate the dividends on stock by the money value of corn, has never yet been attempted. If justice and good faith required such a regulation, a great debt is due to the old stockholders; for they have been receiving the same money dividends for more than a century, although corn has, perhaps, been doubled or trebled in price.[66]

Mr. Malthus says, "It is true, that the last additions to the agricultural produce of an improving country are not attended with a large proportion of rent; and it is precisely this circ.u.mstance that may make it answer to a rich country to import some of its corn, if it can be secure of obtaining an equable supply. But in all cases the importation of foreign corn must fail to answer nationally, if it is not so much cheaper than the corn that can be grown at home, as to equal both the profits and the rent of the grain which it displaces."

_Grounds_, &c. p. 36.

As rent is the effect of the high price of corn, the loss of rent is the effect of a low price. Foreign corn never enters into compet.i.tion with such home corn as affords a rent; the fall of price invariably affects the landlord till the whole of his rent is absorbed;--if it fall still more, the price will not afford even the common profits of stock; capital will then quit the land for some other employment, and the corn, which was before grown upon it, will then, and not till then, be imported. From the loss of rent, there will be a loss of value, of estimated money value, but there will be a gain of wealth. The amount of the raw produce and other productions together will be increased, from the greater facility with which they are produced; they will, though augmented in quant.i.ty, be diminished in value.

Two men employ equal capitals--one in agriculture, the other in manufactures. That in agriculture produces a net annual value of 1200_l._ of which 1000_l._ is retained for profit, and 200_l._ is paid for rent; the other in manufactures produces only an annual value of 1000_l._ Suppose that by importation, the same quant.i.ty of corn can be obtained for commodities which cost 950_l._, and that, in consequence, the capital employed in agriculture is diverted to manufactures, where it can produce a value of 1000_l._ the net revenue of the country will be of less value, it will be reduced from 2200_l._ to 2000_l._, but there will not only be the same quant.i.ty of commodities and corn for its own consumption, but also as much addition to that quant.i.ty as 50_l._ would purchase, the difference between the value at which its manufactures were sold to the foreign country, and the value of the corn which was purchased from it.

Mr. Malthus says, "It has been justly observed by Adam Smith, that no equal quant.i.ty of productive labour employed in manufactures can ever occasion so great a reproduction as in agriculture." If Adam Smith speaks of value, he is correct, but if he speaks of riches, which is the important point, he is mistaken, for he has himself defined riches to consist of the necessaries, conveniences, and enjoyments of human life.

One set of necessaries and conveniences admits of no comparison with another set; value in use cannot be measured by any known standard, it is differently estimated by different persons.

FOOTNOTES:

[1] Chap. xv. part i. "Des Debouches," contains in particular some very important principles, which I believe were first explained by this distinguished writer.

[2] Book i. chap. 5.

[3] "But though labour be the real measure of the exchangeable value of all commodities, it is not that by which their value is commonly estimated. It is often difficult to ascertain the proportion between two different quant.i.ties of labour. The time spent in two different sorts of work will not always alone determine this proportion. The different degrees of hardship endured, and of ingenuity exercised, must likewise be taken into account. There may be more labour in an hour's hard work, than in two hours' easy business; or, in an hour's application to a trade, which it costs ten years'

labour to learn, than in a month's industry at an ordinary and obvious employment. But it is not easy to find any accurate measure, either of hardship or ingenuity. In exchanging, indeed, the different productions of different sorts of labour for one another, some allowance is commonly made for both. It is adjusted, however, not by any accurate measure, but by the higgling and bargaining of the market, according to that sort of rough equality, which, though not exact, is sufficient for carrying on the business of common life."--_Wealth of Nations._ Book i.

chap. 10.

[4] Wealth of Nations, book i. chap. 10.

[5] "The earth, as we have already seen, is not the only agent of nature which has a productive power; but it is the only one, or nearly so, that one set of men take to themselves, to the exclusion of others; and of which consequently they can appropriate the benefits. The waters of rivers, and of the sea, by the power which they have of giving movement to our machines, carrying our boats, nourishing our fish, have also a productive power; the wind which turns our mills, and even the heat of the sun, work for us; but happily no one has yet been able to say: the 'wind and the sun are mine, and the service which they render must be paid for.'"--_Economie Politique, par J. B.

Say_, vol. ii. p. 124.

[6] Has not M. Say forgotten, in the following pa.s.sage, that it is the cost of production which ultimately regulates price? "The produce of labour employed on the land has this peculiar property, that it does not become more dear by becoming more scarce, because population always diminishes at the same time that food diminishes, and consequently the quant.i.ty of these products _demanded_, diminishes at the same time as the quant.i.ty supplied. Besides it is not observed that corn is more dear in those places where there is plenty of uncultivated land, than in completely cultivated countries. England and France were much more imperfectly cultivated in the middle ages than they are now; they produced much less raw produce: nevertheless from all that we can judge by a comparison with the value of other things, corn was not sold at a dearer price. If the produce was less, so was the population; the weakness of the demand compensated the feebleness of the supply." vol. ii. 338. M. Say being impressed with the opinion that the price of commodities is regulated by the price of labour, and justly supposing that charitable inst.i.tutions of all sorts tend to increase the population beyond what it otherwise would be, and therefore to lower wages, says, "I suspect that the cheapness of the goods, which come from England is partly caused by the numerous charitable inst.i.tutions which exist in that country." vol. ii. 277. This is a consistent opinion in one who maintains that wages regulate price.

[7] "In agriculture too," says Adam Smith, "nature labours along with man; and though her labour costs no expense, its produce has its value, as well as that of the most expensive workman." The labour of nature is paid, not because she does much, but because she does little. In proportion as she becomes n.i.g.g.ardly in her gifts, she exacts a greater price for her work. Where she is munificently beneficent, she always works gratis. "The labouring cattle employed in agriculture, not only occasion, like the workmen in manufactures, the reproduction of a value equal to their own consumption, or to the capital which employs them, together with its owner's profits, but of a much greater value. Over and above the capital of the farmer and all its profits, they regularly occasion the reproduction of the rent of the landlord. This rent may be considered as the produce of those powers of nature, the use of which the landlord lends to the farmer. It is greater or smaller according to the supposed extent of those powers, or in other words, according to the supposed natural or improved fertility of the land. It is the work of nature which remains, after deducting or compensating every thing which can be regarded as the work of man. It is seldom less than a fourth, and frequently more than a third of the whole produce. No equal quant.i.ty of productive labour employed in manufactures, can ever occasion so great a reproduction. _In them nature does nothing, man does all_; and the reproduction must always be in proportion to the strength of the agents that occasion it. The capital employed in agriculture, therefore, not only puts into motion a greater quant.i.ty of productive labour than any equal capital employed in manufactures, but in proportion too to the quant.i.ty of the productive labour which it employs, it adds a much greater value to the annual produce of the land and labour of the country, to the _real_ wealth and revenue of its inhabitants. Of all the ways in which a capital can be employed, it is by far the most advantageous to the society."--Book II. chap. v. p.

15.

Does nature nothing for man in manufactures? Are the powers of wind and water, which move our machinery, and a.s.sist navigation, nothing? The pressure of the atmosphere and the elasticity of steam, which enable us to work the most stupendous engines--are they not the gifts of nature?

to say nothing of the effects of the matter of heat in softening and melting metals, of the decomposition of the atmosphere in the process of dyeing and fermentation.

There is not a manufacture which can be mentioned, in which nature does not give her a.s.sistance to man, and give it too, generously and gratuitously.

In remarking on the pa.s.sage which I have copied from Adam Smith, Mr. Buchanan observes, "I have endeavoured to shew, in the observations on productive and unproductive Footnote: labour, contained in the fourth volume, that agriculture adds no more to the national stock than any other sort of industry. In dwelling on the reproduction of rent as so great an advantage to society, Dr. Smith does not reflect that rent is the effect of high price, and that what the landlord gains in this way, he gains at the expense of the community at large. There is no absolute gain to the society by the reproduction of rent; it is only one cla.s.s profiting at the expense of another cla.s.s.

The notion of agriculture yielding a produce, and a rent in consequence, because nature concurs with human industry in the process of cultivation, is a mere fancy. It is not from the produce, but from the price at which the produce is sold, that the rent is derived; and this price is got, not because nature a.s.sists in the production, but because it is the price which suits the consumption to the supply."

[8] To make this obvious, and to shew the degrees in which corn and money rent will vary, let us suppose that the labour of ten men will, on land of a certain quality, obtain 180 quarters of wheat, and its value to be 4_l._ per quarter, or 720_l._; and that the labour of ten additional men will, on the same or any other land, produce only 170 quarters in addition; wheat would rise from 4_l._ to 4_l._ 4_s._. 8_d._ for 170: 180:: 4_l._: 4_l._ 4_s._ 8_d._; or, as in the production of 170 quarters, the labour of 10 men is necessary in one case, and only of 9.44 in the other, the rise would be as 9.44 to 10, or as 4_l._ to 4_l._ 4_s._ 8_d._ If 10 men be further employed, and the return be

160, the price will rise to 4 10 0 150, " " " " " 4 16 0 140, " " " " " 5 2 10

Now if no rent was paid for the land which yielded 180 quarters when corn was at 4_l._ per quarter, the value of 10 quarters would be paid as rent when only 170 could be procured, which, at 4_l._ 4_s._ 8_d._ would be 42_l._ 7_s._ 6_d._

20 qrs. when 160 were produced, which at 4 10 0 would be 90 0 0 30 qrs. " 150 " " " " 4 16 0 " " 144 0 0 40 qrs. " 140 " " " " 5 2 10 " " 205 13 4

{100} { 100 Corn rent then would increase {200} and money rent in the { 212 in the proportion of {300} proportion of { 340 {400} { 485

[9] With Mr. Buchanan in the following pa.s.sage, if it refers to temporary states of misery, I so far agree, that "the great evil of the labourer's condition, is poverty, arising either from a scarcity of food or of work; and in all countries, laws without number have been enacted for his relief. But there are miseries in the social state which legislation cannot relieve; and it is useful therefore to know its limits, that we may not, by aiming at what is impracticable, miss the good which is really in our power."--_Buchanan_, page 61.

[10] The reader is desired to bear in mind, that for the purpose of making the subject more clear, I consider money to be invariable in value, and therefore every variation of price to be referable to an alteration in the value of the commodity.

[11] The reader is aware, that we are leaving out of our consideration the accidental variations arising from bad and good seasons, or from the demand increasing or diminishing by any sudden effect on the state of population. We are speaking of the natural and constant, not of the accidental and fluctuating price of corn.

[12] The 180 quarters of corn would be divided in the following proportions between landlords, farmers, and labourers, with the above-named variations in the value of corn.

Price per qr. Rent. Profit. Wages. Total.

_. s. d._ In Wheat. In Wheat. In Wheat.

4 0 0 None. 120 qrs. 60 qrs.} 4 4 8 10 qrs. 111.7 58.3 } 4 10 0 20 103.4 56.6 } 180 4 16 0 30 95 55 } 5 2 10 40 86.7 53.5 }

and, under the same circ.u.mstances, money rent, wages, and profit, would be as follows: