Political economy Part 5

64. We have sufficiently considered the difficulties which exist regarding #Labour# and #Capital#, two of the requisites of production, and we will now turn to another part of political economy, and inquire into the way in which #Land#, the third requisite, is supplied.

In different countries land is held in very different ways. It is a matter of custom, and in the course of time customs slowly change. The way in which farms are owned and managed in England at the present time is no indication of the way land is held in France, or Norway, or Russia, or even the United States; nor is it the same as the way in which farms were owned in England some centuries ago. What is fitting to one place and state of society will not necessarily be fitting in other circ.u.mstances. We have to consider the various ways in which the requisites of production, land, labour, and capital, are brought together; sometimes they are all furnished by the same person; sometimes by separate persons.

In the condition of #slavery#, for instance, as it existed in the Southern States of North America, the owner of an estate owned the land, labour, and capital, all at once. Strictly speaking a slave is not a labourer, because he cannot sell his labour at his own price, and work or not as he likes. He is more in the position of the horse which drags the plough, a mere beast of burden. Just as a farmer owns his horses, and cows, and pigs, as part of his capital, so a slave-owner treats his slaves as part of his capital. Slave-labour being given unwillingly, and without hope of reward, is usually badly given, and is wasteful; but there is hardly any need to consider whether slavery is good or bad in an economical point of view, because it is altogether condemned from a moral point of view. We may show the way the requisites of production are furnished in slavery by the following diagram--

#Slave-Owner.# /--------------------------------------------- #Land.# #Labour.# #Capital.#

In a very large part of the world, again, the government takes the place of land-owners, and collects the rent by means of tax-gatherers. The farming is done by poor peasants, who find the capital, so far as there is any, and also do the work. Thus, we have the arrangement--

#Government.# #Peasant.# /------ /--------------------------- #Land.# #Capital.# #Labour.#

This system is called #Ryot Tenure#, and it exists at the present day in Turkey, Egypt, Persia, and many eastern countries; also in a somewhat altered form in British India. After slavery, it is the worst of all systems, because the Government can fix the rent at what it likes, and it is difficult to distinguish between rent and taxes. When their crops fail the ryot peasants are unable to pay the tax-gatherers, and they get into debt and become quite helpless.

65. #Peasant Proprietorship.# One of the best modes of holding land, when it can exist, is that known as peasant proprietorship, because the owner of the land is the peasant himself, who labours with his own arms, and finds the capital also. In this system, as in slavery, all the requisites of production are in the same hands; thus--

#Peasant.# /------------------------------------------------ #Land.# #Labour.# #Capital.#

But in every other respect this system is the opposite of slavery. Its advantages are evident; the labourer being the owner of the farm and of all upon it, is an independent man, who has every inducement to work hard, and to increase his savings. Every little improvement which he can make in his farm is so much added to his wealth, and that of his family after him. There is what is called the #magic of property#. The feeling that he is working entirely for his own and his family's benefit #almost magically increases his inclination to work#. In newly-settled countries, such as the Western Territories of the United States, and Canada, or the colonies of Australia, and the Cape, this mode of holding land seems to be suitable, because the land is there very cheap, and crops can be raised with little capital. In such countries there is no need of expensive manures, elaborate machinery, and the cost of draining and improving land.

The objection to peasant proprietorship is, that he who does the labour of a farm with his own hands, must usually be a poor and unskilful person. If he were rich he would probably prefer to buy up the labour of other men, and become a capitalist farmer; if he were a really skilful farmer, it would be a pity to waste his skill upon a small farm, when, with more division of labour, he might profitably direct and manage a large one. Being poor, his capital will be mostly absorbed in building his cottage and barns, and in paying the small price of his land; he will have little left to make improvements, or to buy good labour-saving implements, and good stock, such as well-bred horses, cows, and pigs.

Thus, unless his land be new and very fertile, he will not get a large return for his labour. Owing to the magic of property, he may work very hard, and during long hours, but he will not work in an economical way, and therefore will remain poor in spite of his severe exertions. The peasant proprietors who still exist in Switzerland, Belgium, Norway, Sweden, and some other parts of Europe, work almost day and night during the summer, and they are very careful and saving; yet they seldom grow rich, or get more than a bare living out of the soil.

Too frequently the peasant proprietor, if he is not very provident, runs short of money after one or two bad seasons. He will then be tempted to borrow money, to sell his timber, and other produce before it is ready for the market, and thus run in debt. When his farm has increased in value and would bring some rent, he will very likely mortgage it, that is, give it by a legal deed as security for his debts. The mortgagee or lender of the money then becomes part-owner of the land and capital, so that the arrangement tends to take this form--

#Money-Lender.# #Peasant.# /---------------- /----------------- #Land.# #Capital.# #Capital.# #Labour.#

66. #Tenure of Land in England.#. As agriculture becomes more a science, farming will require greater skill, and larger capital, and the English mode of land tenure will probably spread. In this system there is the greatest division of labour, and different ranks of people have shares in the business, somewhat as follows:--

#Proprietor.# #Farmer.# #Labourer.# /----------- /------------- /---- #Land. Capital.# #Capital. Labour.# #Labour.#

The land is usually owned by some rich man, who likes to have large estates, but does not wish to have the trouble of farming. In respect of the land only he is a #proprietor of a natural agent#, and the rent he receives is true rent; but there will usually be buildings, roads, fences, drains, and other improvements, of which he is also owner; in respect of these he is a capitalist, and the return he receives is interest. The farmer is a man of knowledge and skill, with considerable capital; he hires the land and its improvements from the proprietor, and stocks it with cattle, carts, improved implements of all kinds, and then employs day-labourers to do the manual work, labouring himself in superintendence, in keeping accounts, buying and selling, &c. The labourer, generally speaking, is nothing but a labourer; he lives in a cottage hired probably from the farmer or proprietor, and he has little motive for working harder than he is made to do, because the advantage goes to his employer.

In this arrangement there are great advantages, and also great disadvantages. The farmer, being an intelligent man, acquainted with agricultural science, and furnished with plenty of capital, can adopt all the latest inventions, and raise the largest possible produce from the land and labour. It is also advantageous that the farmer does not own the land and fixed capital, because this leaves all his own capital free to provide more expensive implements and manures, and finer kinds of cattle. It is also a good thing that farms will, on this system, be large, so that there will be considerable division of labour, almost as in a factory; thus there will arise some of the advantages which were described as belonging to the Division of Labour (Sections 25-29).

The disadvantages of the English mode of farming are also great, especially as regards the labourers, the most numerous cla.s.s. They have none of the independence of peasant proprietors, and, when dismissed, or too old to work, have probably to go to the workhouse. Their wages have hitherto been very low, and saving was not possible. But this state of things is partly due to the bad Poor Laws which used to exist in England, and to the excessive numbers of poor, ignorant labourers. After a time, when the poor laws are improved, when labourers become more educated, and are employed, like factory hands, to work machines, there is no reason why they should not get good wages, and become independent, like artisans.

In the English system, a great deal depends upon the nature of the agreement between the land-owner and the capitalist farmer. Many large land-owners in England refuse to let their land for long periods They like to have farmers who are #tenants at will#, and can be turned off their farms at a year's notice, and deprived of the value of all the improvements they have made, if they offend the great land-owner. It is easy to understand this; the land-owners wish to be lords, and to rule affairs in their own neighbourhood, as if they were little kings. This sort of thing is called #territorial influence#, and men who have become rich by making iron or cotton goods, often buy estates at a high price, in order to enjoy the pleasure of feeling like lords. The rural parts of England, Scotland, and Ireland are still, in fact, under #the feudal system#.

In a Primer like this we have to look at the matter as regards political economy only, and in this respect the arrangement described is bad.

Tenants at will have no inducement to improve their farms, because this would tempt the land-owner to turn them out, or to raise the rent. It is generally understood, indeed, that a land-owner will not use his power, so that many farmers act as if they were sure of holding their farms; if turned out after all, they are practically robbed of their capital; and, in any case, they cannot possibly feel the independence which every man ought to enjoy. We must always remember that the laws should be made not for the benefit of any one cla.s.s, but for the benefit of the whole country. The laws concerning landlord and tenant have, however, been made by landlords, and are more fitted to promote their enjoyment than to improve agriculture.

There are two modes of remedying the unfortunate state of land tenure in this country, namely:--

(1) By a system of long leases.

(2) By tenant right.

#67. Leasehold Tenure.# A lease is a formal agreement to let land or houses to a tenant for a certain number of years at a fixed rent, and with various conditions, which are carefully stated, to prevent misunderstanding. When land is taken by a farmer under a lease for thirty years or more, it becomes almost like his own property, because, in the earlier part of his term, he can make great improvements with the aid of his capital, and yet be sure of getting the value back before the lease comes to an end. In the eastern parts of England and Scotland, where the farms are largest and best managed, these long leases are the usual mode of letting land. It is certainly one of the best arrangements for promoting good farming, and it has few disadvantages, except that the farmer will not make improvements towards the end of his lease.

#68. Tenant Right.# Another good arrangement is tenant right, which consists in #giving the tenant a right to claim the value of any unexhausted improvements#, which he may have made in his farm, if he be turned out of it. A farmer can prove without difficulty how much he has spent in building barns, stables, piggeries, &c., in draining the lands, making roads and fences, or in putting lime and costly manures into the soil. Those who are experienced in farming can form a good judgment how long each improvement will continue profitable, so as to calculate how much the tenant loses if he be turned away. Thus a good estimate may be formed as to the sum which the tenant should receive as compensation, and the landlord, if he chooses to dismiss the tenant, should be obliged to pay this compensation. He will get it back by charging a higher rent to the next tenant.

Tenant right, though unknown in most parts of England, is not at all a new system; it has existed for a long time in the north of Ireland, where it is called the #Ulster tenant right#. A new tenant there pays the old tenant a considerable sum of money for the privilege of getting a good farm with various improvements, and the land-owner is practically prevented from turning out a good tenant at his mere will. In Yorkshire also it has been the custom to compensate an outgoing tenant, and there is no good reason why the custom should not be made into a legal right, and extended over the whole country. Mr. Gladstone's Irish Land Act has already established a somewhat similar system throughout Ireland. If the land is to be used for its proper purposes, and not merely for the amus.e.m.e.nt and pride of a few landlords, #every owner of land who lets it should be obliged either to give a long lease, say of thirty or fifty years, or else to pay the compensation fixed by a jury# after taking evidence from those skilled in valuing farms. It should be made illegal to let land on any other terms.

#69. The Cause of Rent.# It is very important to understand exactly how rent arises, for without knowing this it is impossible to see why a landlord should be allowed to come and take away a considerable part of what is produced, without taking any other trouble in the matter. But the fact is that we cannot do away with rents: they must go to some one or other, and the only real question which can arise is whether there shall be many landlords receiving small rents or few landlords with great rent-rolls.

Rent arises from the fact that different pieces of land are not equally fertile, that is, they do not yield the same quant.i.ties of produce for the same quant.i.ties of labour. This may arise from the soil being different, or from one piece of land getting more sun and moisture than another. If the earth had a perfectly smooth surface the same everywhere, and if it were all tilled and cultivated in exactly the same way, there would be no such thing as rent. But the earth's surface, as we know, has hills and valleys: there are flats of rich soil in one place, and wastes of dry sand and stones in other places. Now, where the soil is good and favourably situated for growing corn, or other produce, the owner of such land must get more, in return for his labour, than if he possessed a bad piece of land. Even then, if everybody owned the farm which he cultivates, those who owned the better pieces would get rent, because they would get more produce. Thus, after allowing the same wages to all, there would remain something in addition to the lucky owners of the better land. If, instead of working on this good land themselves, they let it to other workmen, they will be able to get a rent depending on the richness and the other advantages of the land.

Now there can be little difficulty in seeing how the amount of rent of land is governed. That land will pay no rent at all which only gives produce enough to pay the wages of the labourers who work upon it, together with the interest of any capital which they require. The rent of better land will then consist of the surplus of its produce over that of the poorest cultivated land, after allowance has been made for the greater or less amount of labour and capital expended on it. Or we may look at the matter in this way: The price of corn is decided by the cost of producing it on land which just pays the expenses of cultivation, because when more corn is needed, it is from such land we must procure it, the better land having been long since occupied. But corn of the same quality sells at the same price whatever be its cost of production; hence the rent of more fertile land will be the excess of the price of its produce over that of land which only just pays the cultivator and leaves no rent.

CHAPTER XI.

EXCHANGE.

#70. How Exchange Arises#. One of the most important ways in which we can increase wealth consists in exchange--#in giving what we do not want in return for what we do want#. Wealth, as we have seen, is anything which is actually useful to us, because we have not enough already, and which can be transferred to another person. But when our want of any kind of commodity is satisfied, we want no more of that, but we do want other kinds of commodity. The result is that exchange constantly produces a #gain of utility#. Some people have objected that there can be no good in exchange, because that which is given equals in value that which is received. Others have said that, if one party gains, it must evidently be by robbing the other party. According to this view, trade would consist in trying to beggar your neighbour. That which is given does really equal in value that which is received, but it does not equal it in utility, and to increase utility is the purpose of all production and all commerce. We do not pay for things in proportion to their usefulness, or else air and water would be the most costly of all things. A good-sized loaf may be bought for fourpence or sixpence, although bread is the staff of life. Before attempting to understand this apparent paradox, we must settle exactly what we mean by value.

#71. What is Value?# In exchanging some goods for other goods, there arises the question, How much of one kind shall be given for so much of the other? Some things are said to be #valuable#, as in the case of a gold watch or a diamond ring, because in exchange for them we can get a great quant.i.ty of other articles. Ashes are of little or no value, because we cannot get anything in exchange for them. Now this word #value# is a very difficult one, and is employed to mean different things. We may say that quinine is valuable for curing fevers, that iron is valuable for improving the blood, or that water is valuable for putting out fires. Here we do not mean valuable in exchange, for quinine would cure fevers just as well if it cost a penny an ounce instead of some ten shillings. Water, if we can get it at the right time, puts out a fire whether it costs much or little or nothing. It is clear, then, that by valuable we often mean #valuable in use#. The words value and valuable are in fact #ambiguous#. (See Logic Primer, pp. 22-26, on The Correct Use of Words.) #There is value in use and value in exchange, and many things which would be commonly said to have little value in exchange have much value in use.# But of these meanings, "value in use"

is nothing but the #utility# of a thing to us, that is, the utility of all such portions of it as we can actually employ. Thus, the value in use of water means the utility of the water that we drink, or wash in, or cook with, or water the roads with, and this utility is very great.

But of course it cannot mean the utility of water which is not useful to us, but on the contrary hurtful, as in the case of floods, damp houses, wet mines, and so forth.

We may now see how true was the remark of Genovesi, the Italian economist, that "#Exchange consists in giving the superfluous for the necessary#," or, as I should prefer to say, #the comparatively superfluous for the comparatively necessary#. He who has more than enough of one article has already enjoyed all the good which that article can do to him, but he probably needs supplies of other articles.

The exchange, like an act of mercy, blesses both him who gives and him who receives, because what each receives in exchange is much wanted and has high utility. In England, for instance, we possess a great deal of coal, and France produces plenty of good wine. We could have little or no wine in England unless we got it from France or some foreign country, and France also is much in want of coal. It is obvious that there is a great gain of utility if we give some of our comparatively superfluous coal in exchange for some of the abundant wine of France.

It has been objected to commerce that it is #sterile# and produces no new goods. There exist neither more nor less coal and wine after they are exchanged than before. But in political economy we treat of utility and wealth; the question is whether things are usefully consumed or not.

Now that which is not wealth if it were consumed by one person, becomes wealth when handed over to another person for consumption. #Though exchange cannot create the material of wealth, it creates wealth because it gives utility to the material.#

#72. Value means Proportion in Exchange.# When we speak of the value of a thing in exchange, we mean how much of some other thing we can get for it. This of course will depend upon the nature of that other thing.

Obviously, I can get for a shilling much more potatoes than bread, and bread than beef, and beef than essence of beef. Therefore, when we speak of the value of a thing, we ought always to say what it is to be valued by. #The word value only means that so much of one thing is given for so much of the other#, and it is the #proportion# of these quant.i.ties (Latin _proportio_ from _pro_, in comparison with, and _portio_, share), which measures the values of the thing. A ton of pig-iron can usually be got for a quarter of corn; here the proportion is one to one. To get a ton of copper, we should probably have to give thirty quarters of corn; here the proportion is that of one to thirty. There cannot be such a thing as value in exchange, unless there be proportion--so much of one commodity for so much of another.

Usually, indeed, we measure the values of things by their #prices#. The #price is the quant.i.ty of money which we give for a thing#; in this case the proportion is between the quant.i.ty of money and the quant.i.ty of goods we get for it, as when we give sixty shillings for ten yards of carpet. We shall learn later on that money is a kind of commodity, which has utility and value like other commodities. But there is great convenience in always thinking and speaking of values in money, because we can then readily compare the value of one thing with that of any other. If a pound of potatoes costs one penny, a pound of bread threepence, and a pound of beef ninepence, we can see at once that a pound of beef is of the same value as three pounds of bread and nine pounds of potatoes, and we can judge how much of each to use.

73. #Laws of Supply and Demand.# In the next place, we must try to understand how the values of things are governed, and made to change from time to time. The princ.i.p.al laws which govern values are called #the laws of supply and demand#, and they are very important indeed.

#Supply# means the quant.i.ty of any goods which people are willing to give in exchange at a certain value, and #demand# means similarly the quant.i.ty of goods which people are willing to take in exchange; but, before a person can judge how much he wishes to buy of a particular kind of goods, he must know its price, that is, its proportion in exchange for money. If bread, instead of being threepence per pound, becomes fourpence, a poor person would perhaps decide to take less bread, and to buy more potatoes. If beef, instead of being ninepence, should rise to a shilling, or fourteenpence a pound, some people would refuse to buy it altogether, and others would buy less than before. The supply of things varies similarly; if the price of meat rises high, farmers who own cattle bring them to market, in order to get a good profit by selling them; if the price falls low, they keep their cattle to sell at another time.

#The Laws of Supply and Demand# may be thus stated: a rise of price tends to produce a greater supply and a less demand; a fall of price tends to produce a less supply and a greater demand. Conversely, an increase of supply or a decrease of demand tends to lower price, and a decrease of supply or an increase of demand to raise price.

These laws are so important that I will state them over again, in the form of a table:--

----------- ------------ ------------- #Price.# #Supply.# #Demand.# ----------- ------------ ------------- Higher. Greater. Less. ----------- ------------ ------------- Lower. Less. Greater. ----------- ------------ -------------

We can now understand how the price of any kind of goods is decided. The price must be such that the quant.i.ty demanded at any time is equal to the quant.i.ty supplied. If those who want goods at a certain price, cannot get them, they will have to offer a higher price, so that they may induce other people to sell. The higher the price the greater the supply, as we have seen; moreover, if some people in a market are offering a higher price, it soon becomes known to other dealers. When a farmer's wife carries a basket of b.u.t.ter to sell at the b.u.t.ter Cross in the neighbouring market town, she soon learns whether the supply is greater or less than usual. If the purchasers are few and slow in buying, she begins to fear that she may have to carry her b.u.t.ter back unsold, and go without the crockery and calico and other things which she intended to buy with the money. Then she begins to ask a penny or twopence a pound less, and the other sellers of b.u.t.ter are obliged to lower their prices also, since no one would buy b.u.t.ter from one woman at 1s. 6d., if he could get it as good from the next person at 1s. 4d. But, if few people bring b.u.t.ter to market, or if there are many purchasers with money in their pockets, the scene is quite changed. Those who have brought b.u.t.ter, find that they will have no difficulty in selling all they have; it is the purchasers who now become anxious to buy before all is gone, and their eagerness soon shows the sellers that they may ask higher prices. It is by this #higgling of the market#, by sellers asking the highest price they think they can get, and buyers trying to buy at the lowest price which they think will be taken--that the market price of any commodity is settled.

#The market price will be such that the demand at that price will equal the supply at that price.# The quant.i.ty of b.u.t.ter or any other commodity that is sold must equal what is bought, because it is not sold until it is bought; but the price will settle itself accordingly.

#74. How Value depends upon Labour.# We now come to the great question whether value is produced by labour, or how it is connected with labour.

Some economists, observing that, when a thing like gold is very valuable, men spend a great deal of labour in getting it, have said that #the labour spent upon it is the cause of the high value#. #This is quite wrong#; for if it were true, anything, upon which great labour has been spent, ought to be very valuable; everybody knows that such is not the case. Great labour may be expended in writing, printing, and binding a book; but, if n.o.body wants the book, it is valueless, except as waste paper. A vast amount of labour was spent on building the Thames Tunnel, but, as few people wished to go through it, the tunnel was of small value, until it was required for a railway. Thus it is quite certain that we cannot make a thing valuable by simply labouring at it; we must labour in such a way as to make the thing useful.