On The Principles of Political Economy, and Taxation Part 20

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

_. s. d._ _. s. d._ _. s. d._ _. s. d._ _. s. d._ 4 0 0 None. 480 0 0 240 0 0 720 0 0 4 4 8 42 7 6 473 0 0 247 0 0 762 7 6 4 10 0 90 0 0 465 0 0 255 0 0 810 0 0 4 16 0 144 0 0 456 0 0 264 0 0 864 0 0 5 2 10 205 13 4 445 15 0 274 5 0 925 13 4

[13] See Adam Smith, book i. chap. 9.

[14] It will appear then, that a country possessing very considerable advantages in machinery and skill, and which may therefore be enabled to manufacture commodities with much less labour than her neighbours, may in return for such commodities, import a portion of the corn required for its consumption, even if its land were more fertile, and corn could be grown with less labour than in the country from which it was imported. Two men can both make shoes and hats, and one is superior to the other in both employments; but in making hats, he can only exceed his compet.i.tor by one-fifth or 20 per cent., and in making shoes he can excel him by one-third or 33 per cent.;--will it not be for the interest of both, that the superior man should employ himself exclusively in making shoes, and the inferior man in making hats?

[15] Book V. ch. ii.

[16] M. Say appears to have imbibed the general opinion on this subject. Speaking of corn, he says, "thence it results, that its price influences the price of _all_ other commodities. A farmer, a manufacturer, or a merchant, employs a certain number of workmen, who all have occasion to consume a certain quant.i.ty of corn. If the price of corn rises, he is obliged to raise, in an equal proportion, the price of his productions." Vol. i.

p. 255.

[17] M. Say says, that "the tax, added to the price of a commodity, raises its price. Every increase in the price of a commodity, necessarily reduces the number of those who are able to purchase it, or at least the quant.i.ty they will consume of it." This is by no means a necessary consequence. I do not believe, that if bread were taxed, the consumption of bread would be diminished, more than if cloth, wine, or soap, were taxed.

[18] The following remark of the same author appears to me equally erroneous: "When a high duty is laid on cotton, the production of all those goods, of which cotton is the basis, is diminished. If the total value added to cotton in its various manufactures, in a particular country, amounted to 100 millions of francs per annum, and the effect of the tax was, to diminish the consumption one half, then the tax would deprive that country every year of 50 millions of francs, in addition to the sum received by government." Vol. ii. p. 314.

[19] It is observed by M. Say, "that a manufacturer is not enabled to make the consumer pay the whole tax levied on his commodity, because its increased price will diminish its consumption." Should this be the case, should the consumption be diminished, will not the supply also speedily be diminished? Why should the manufacturer continue in the trade if his profits are below the general level? M. Say appears here also to have forgotten the doctrine which he elsewhere supports, "that the cost of production determines the price, below which commodities cannot fall for any length of time, because production would then be either suspended or diminished."--Vol. ii.

p. 26.

"The tax in this case falls then partly on the consumer who is obliged to give more for the commodity taxed, and partly on the producer, who, after deducting the tax, will receive less. The public treasury will be benefited by what the purchaser pays in addition, and also by the sacrifice which the producer is obliged to make of a part of his profits. It is the effort of gunpowder, which acts at the same time on the bullet which it projects, and on the gun which it causes to recoil." Vol. ii. p. 333.

[20] "Melon says, that the debts of a nation are debts due from the right hand to the left, by which the body is not weakened. It is true that the general wealth is not diminished by the payment of the interest on arrears of the debt: The dividends are a value which pa.s.ses from the hand of the contributor to the national creditor: Whether it be the national creditor or the contributor who acc.u.mulates or consumes it, is I agree of little importance to the society; but the princ.i.p.al of the debt--what has become of that? It exists no more. The consumption which has followed the loan has annihilated a capital which will never yield any further revenue. The society is deprived not of the amount of interest, since that pa.s.ses from one hand to the other, but of the revenue from a destroyed capital. This capital, if it had been employed productively by him who lent it to the state, would equally have yielded him an income, but that income would have been derived from a real production, and would not have been furnished from the pocket of a fellow citizen."--_Say_, vol. ii. p. 357. This is both conceived and expressed in the true spirit of the science.

[21] "Manufacturing industry increases its produce in proportion to the demand, and the price falls; _but the produce of land cannot be so increased_; and a high price is still necessary to prevent the consumption from exceeding the supply." _Buchanan_, vol. iv. p. 40. Is it possible that Mr. Buchanan can seriously a.s.sert, that the produce of the land cannot be increased, if the demand increases?

[22] I wish the word "Profit" had been omitted. Dr. Smith must suppose the profits of the tenants of these precious vineyards to be above the general rate of profits. If they were not, they would not pay the tax, unless they could shift it either to the landlord or consumer.

[23] See note, p. 346.

[24] See note, p. 346.

[25] Vol. iii. p. 355.

[26] In a former part of this work, I have noticed the difference between rent, properly so called, and the remuneration paid to the landlord under that name, for the advantages which the expenditure of his capital has procured to his tenant; but I did not perhaps sufficiently distinguish the difference which would arise from the different modes in which this capital might be applied. As a part of this capital, when once expended in the improvement of a farm, is inseparably amalgamated with the land, and tends to increase its productive powers, the remuneration paid to the landlord for its use is strictly of the nature of rent, and is subject to all the laws of rent. Whether the improvement be made at the expense of the landlord or the tenant, it will not be undertaken in the first instance, unless there is a strong probability that the return will at least be equal to the profit that can be made by the disposition of any other equal capital; but when once made, the return obtained will ever after be wholly of the nature of rent, and will be subject to all the variations of rent. Some of these expenses however, only give advantages to the land for a limited period, and do not add permanently to its productive powers: being bestowed on buildings, and other perishable improvements, they require to be constantly renewed, and therefore do not obtain for the landlord any permanent addition to his real rent.

[27] Adam Smith says, "that the difference between the real and the nominal price of commodities and labour, is not a matter of mere speculation, but may sometimes be of considerable use in practice." I agree with him; but the real price of labour and commodities, is no more to be ascertained by their price in goods, Adam Smith's real measure, than by their price in gold and silver, his nominal measure. The labourer is only paid a really high price for his labour, when his wages will purchase the produce of a great deal of labour.

[28] In vol. i. p. 108, M. Say infers, that silver is now of the same value, as in the reign of Louis XIV. "because the same quant.i.ty of silver will buy the same quant.i.ty of corn."

[29] "The first man who knew how to soften metals by fire, is not the creator of the value which that process adds to the melted metal. That value is the result of the physical action of fire added to the industry and capital of those who availed themselves of this knowledge."

"From this error Smith has drawn this false result, that the value of all productions represents the recent or former labour of man, _or in other words, that riches are nothing else but acc.u.mulated labour; from which, by a second consequence, equally false, labour is the sole measure of riches, or of the value of productions_."[30]

The inferences with which M. Say concludes are his own, and not Dr. Smith's; they are correct if no distinction be made between value and riches: but though Adam Smith, who defined riches to consist in the abundance of necessaries, conveniences, and enjoyments of human life, would have allowed that machines and natural agents might very greatly add to the riches of a country, he would not have allowed that they add any thing to value in exchange.

[30] Chap. iv. p. 31.

[31] M. Say, _Catechisme d'Economie Politique_, p. 99.

[32] Adam Smith speaks of Holland, as affording an instance of the fall of profits from the acc.u.mulation of capital, and from every employment being consequently overcharged. "The Government there borrow at 2 per cent., and private people of good credit, at 3 per cent." But it should be remembered, that Holland was obliged to import almost all the corn which she consumed, and by imposing heavy taxes on the necessaries of the labourer, she further raised the wages of labour. These facts will sufficiently account for the low rate of profits and interest in Holland.

[33] Is the following quite consistent with M. Say's principle? "The more disposable capitals are abundant in proportion to the extent of employment for them, the more will the rate of interest on loans of capital fall."--Vol.

ii. p. 108. If capital to any extent can be employed by a country, how can it be said to be abundant compared with the extent of employment for it?

[34] Adam Smith says, that "When the produce of any particular branch of industry exceeds what the demand of the country requires, the surplus must be sent abroad, and exchanged for something for which there is a demand at home. _Without such exportation a part of the productive labour of the country must cease, and the value of its annual produce diminish._ The land and labour of great Britain produce generally more corn, woollens, and hardware, than the demand of the home market requires. The surplus part of them, therefore, must be sent abroad, and exchanged for something for which there is a demand at home. It is only by means of such exportation, that this surplus can acquire a value sufficient to compensate the labour and expense of producing it." One would be led to think by the above pa.s.sage, that Adam Smith concluded we were under some necessity of producing a surplus of corn, woollen goods, and hardware, and that the capital which produced them could not be otherwise employed. It is, however, always a matter of choice in what way a capital shall be employed, and therefore there can never, for any length of time, be a surplus of any commodity; for if there were, it would fall below its natural price, and capital would be removed to some more profitable employment. No writer has more satisfactorily and ably shewn than Dr. Smith, the tendency of capital to move from employments in which the goods produced do not repay by their price the whole expenses, including the ordinary profits, of producing and bringing them to market.[35]

[35] See Chap. 10. Book I.

[36] "All kinds of public loans," observes M. Say, "are attended with the inconvenience of withdrawing capital, or portions of capital, from productive employments, to devote them to consumption; and when they take place in a country, _the Government of which does not inspire much confidence_, they have the further inconvenience of raising the interest of capital. Who would lend at 5 per cent. per annum to agriculture, to manufacturers, and to commerce, when a borrower may be found ready to pay an interest of 7 or 8 per cent.? That sort of income, which is called profit of stock, would rise then at the expense of the consumer. Consumption would be reduced by the rise in the price of produce; and the other productive services would be less in demand, less well paid. The whole nation, capitalists excepted, would be the sufferers from such a state of things." To the question: "who would lend money to farmers, manufacturers, and merchants, at 5 per cent.

per annum, when another borrower having little credit, would give 7 or 8?" I reply, that every prudent and reasonable man would. Because the rate of interest is 7 or 8 per cent. there where the lender runs extraordinary risk, is this any reason that it should be equally high in those places where they are secured from such risks? M.

Say allows, that the rate of interest depends on the rate of profits; but it does not therefore follow, that the rate of profits depends on the rate of interest. One is the cause, the other the effect, and it is impossible for any circ.u.mstances to make them change places.

[37] In another place he says, that "whatever extension of the foreign market can be occasioned by the bounty, must, in every particular year, be altogether at the expense of the home market; as every bushel of corn which is exported by means of the bounty, and which would not have been exported without the bounty, would have remained in the home market to increase the consumption, and to lower the price of that commodity. The corn bounty, it is to be observed, as well as every other bounty upon exportation, imposes two different taxes upon the people; first, the tax which they are obliged to contribute, in order to pay the bounty; and, secondly, the tax which arises from the advanced price of the commodity in the home market, and which, as the whole body of the people are purchasers of corn, must in this particular commodity be paid by the whole body of the people. In this particular commodity, therefore, this second tax is by much the heaviest of the two." "For every five shillings, therefore, which they contribute to the payment of the first tax, they must contribute six pounds four shillings to the payment of the second." "The extraordinary exportation of corn, therefore, occasioned by the bounty, not only in every particular year diminishes the home, just as much as it extends the foreign market and consumption, but, by restraining the population and industry of the country, its final tendency is to stunt and restrain the gradual extension of the home market, and thereby, in the long run, rather to diminish than to augment the whole market and consumption of corn."

[38] The same opinion is held by M. Say. Vol. ii. p. 335.

[39] See Chap. on Rent.

[40] M. Say supposes the advantage of the manufacturers at home to be more than temporary. "A Government which absolutely prohibits the importation of certain foreign goods, establishes a monopoly _in favour of those_ who produce such commodities at home, _against those_ who consume them; in other words, those at home who produce them having the exclusive privilege of selling them, may elevate their price above the natural price; and the consumers at home, not being able to obtain them elsewhere, are obliged to purchase them at a higher price." Vol. i. p. 201.

But how can they permanently support the market price of their goods above the natural price, when every one of their fellow citizens is free to enter into the trade?

they are guaranteed against foreign, but not against home compet.i.tion. The real evil arising to the country from such monopolies, if they can be called by that name, lies, not in raising the market price of such goods, but in raising their real and natural price. By increasing the cost of production, a portion of the labour of the country is less productively employed.

[41] Are not the following pa.s.sages contradictory to the one above quoted? "Besides, that home trade, though less noticed, (because it is in a variety of hands) is the most considerable, it is also the most profitable. The commodities exchanged in that trade are necessarily the productions of the same country." Vol. i. p. 84.

"The English Government has not observed, that the most profitable sales are those which a country makes to itself, because they cannot take place, without two values being produced by the nation; the value which is sold, and the value with which the purchase is made." Vol. i. p.

221.

I shall, in the 24th chapter, examine the soundness of this opinion.

[42] See page 198.

[43] M. Say is of the same opinion with Adam Smith: "The most productive employment of capital, for the country in general, after that on the land, is that of manufactures and of home trade; because it puts in activity an industry of which the profits are gained in the country, while those capitals which are employed in foreign commerce, make the industry and lands of all countries to be productive, without distinction.

"The employment of capital, the least favourable to a nation, is that of carrying the produce of one foreign country to another." _Say_, vol. ii. p. 120.

[44] "It is fortunate that the natural course of things draws capital, not to those employments where the greatest profits are made, but to those where their operation is most profitable to the community."--Vol. ii. p. 122. M.

Say has not told us what those employments are, which, while they are the most profitable to the individual, are not the most profitable to the state. If countries with limited capitals, but with abundance of fertile land, do not early engage in foreign trade, the reason is, because it is less profitable to individuals, and therefore also less profitable to the state.

[45] "The use of gold and silver then establishes in every place a certain necessity for these commodities; and when the country possesses the quant.i.ty necessary to satisfy this want, all that is further imported, not being in demand, is unfruitful in value, and of no use to its owners."--_Say_, vol. i. p. 187.

In page 196, M. Say says, that supposing a country to require 1000 carriages, and to be possessed of 1500--all above 1000 would be useless; and thence he infers, that if it possesses more money than is _necessary_, the overplus will not be employed.

[46] Whatever I say of gold coin, is equally applicable to silver coin; but it is not necessary to mention both on every occasion.

[47] "In the transactions of Government with individuals, and in those of individuals between themselves, a piece of money is never received, whatever denomination may be given to it, but at its intrinsic value, increased by the value of the utility which the impression it bears has added to it."--_Say_, vol. i. p. 327.

"Money is so little a mark of value, that if the pieces of money lose a part of their value by friction, from use, or by the knavery of the clippers of money, all goods rise in price in proportion to the alteration which they have experienced; and if Government orders a recoinage, and restores each piece to its legal weight and fineness, goods will fall to their former price; if they have not been exposed to variations from other causes."--_Say_, vol. i. p. 346.

[48] M. Say recommends that the seignorage should vary according to the quant.i.ty of business that the mint might be called upon to perform.