Principles of Political Economy Part 18

SECTION CXCVIII.

REMEDY IN CASE ONE FACTOR OF PRODUCTION HAS BECOME DEARER.

When one of the three branches of income has grown as compared with the others; in other words, when the factor of production which it represents has become relatively dearer, it is to the interest of the undertaker and of the public, that it should be replaced where possible by another and cheaper productive force. (-- 47.) On this depends the advantageousness of _intensive_ agriculture (high farming) in every higher stage of civilization. There land is dear and labor cheap. Hence, efforts are made to get along with the least amount of land-surface, and this minimum of land is made more productive by a number of expedients in cultivation, by manuring it, by seed-corn, etc., of course also by the employment of journeymen laborers, oxen, etc. And since the price of land is intimately connected with the price of most raw material, remains are here saved as much as possible, often with a great deal of trouble.[198-1] In a lower stage of civilization, such savings would be considered extravagance. As land is here cheap, and capital dear, it is necessary to carry on the cultivation of land _extensively_; that is, save in capital and labor, and allow the factor nature to perform the most possible. The clearing up of untilled land, or the draining of swampy land etc., would be frequently injurious here; for it would require the use of a very large amount of capital to obtain land of comparatively little value.

In large cities, it is customary to build houses high in proportion to the dearness of the land.[198-2] Thus, in England, where the rate of interest is low and wages high, labor is readily supplanted by capital.

In countries like the East Indies or China, the reverse is the case. I need only call attention to the palanquins used in Asia instead of carriages; to the men who in South America carried ore down eighteen hundred steps to the smelting furnaces,[198-3] and, on the other hand, to the "elevators," so much in favor in England, which are used in factories to carry people from one story to another inside to save them the trouble of going up stairs.[198-4]

[Footnote 198-1: The sickle instead of the scythe; careful threshing by hand, and, where the rate of interest is low, threshing by machinery instead of the treading out of the sheaf by oxen. Thus in Paris the sc.r.a.ps from restaurants and soap factories are made into stearin; and the remnants in shawl factories in Vienna are sent to Belgium to be used by cloth manufacturers.]

[Footnote 198-2: Remarked in ancient times of Tyre, which was situated on a small island, and, therefore, without the possibility of horizontal extension. (_Strabo_, XVI, 757.)]

[Footnote 198-3: _Humboldt_, N. Espagne II, ch. 5, II, ch.

11.]

[Footnote 198-4: Thus, in England, the safety of railroad trains is not secured as in Germany by a mult.i.tude of watchmen, etc.; but by solid barriers, by bridges at every crossing, in other words, by capital.]

SECTION CXCIX.

INFLUENCE OF FOREIGN TRADE.

Foreign trade, that great means of cooperation of labor among different nations, affords such a remedy in a very special manner. It very frequently happens that the undertakers of one country, when a certain factor of production seems too dear at home, borrow it elsewhere. Thus, for instance, a country with a high rate of wages draws on another for labor, and one with a high rate of interest on another for capital.[199-1] We elsewhere consider such a course of things from the standpoint of the supplying country, which in this way is healed of a heavy plethora of some single factor of production which disturbs the harmony of the whole. (---- 187, 259, ff.). But, at the same time, the supplied country, considered from a purely economic point of view, reaps decided advantages therefrom. If, for instance, a Swiss confectioner returns from Saint Petersburgh to his home, after having made a fortune in an honest way, no one can say that Russia has grown poorer by the amount of that fortune. This man made his own capital; if he were to remain in Russia, its national economy would be richer than before his immigration thither. Now, it is, at least, no poorer, and has in the meantime had the advantage of the more skilled labor of the foreigner.[199-2] And, so, when a capitalist living in Germany purchases Hungarian land, the national income of Hungary is diminished by the amount of the annual rent which now goes to Germany; but it receives an equal amount in the interest on capital, provided the purchase was an honorable one and the capital given in exchange for the land honestly invested.[199-3] If Hungary, in general, had a superabundance of land but a lack of capital, the economic advantage is undoubted.[199-4]

These economic rules, indeed, are applicable only to the extent that higher and national considerations do not in the interest of all, create exceptions to them. "Is not the life more than meat, and the body than raiment?" No rational people will allow certain services to be performed for them preponderantly by foreigners, even when they can be performed cheaper by the latter--the services of religion, of the army, of the state, etc. The same is true of landownership; and all the truer in proportion as political and legal rights of presentation and other forms of patronage are attached to it. Lastly, hypothecation-debts which go beyond certain limits, may entail the same consequences as the complete alienation of the land;[199-5] and Raynal may have been, under certain circ.u.mstances, right when he said, that to admit foreigners to subscribe to the national debt was equivalent to ceding a province to them.[199-6]

It is obvious that a great power may do much in this relation that would be a risk to a small state.[199-7] [199-8]

[Footnote 199-1: "The transportation of productive capital and industrial forces from one point where their services are worse paid for, to another where they find a rich reward, will not be apt to be made so long as the equilibrium may be obtained [most frequently much more easily] by the interchange of the products." (_Nebenius_, ff. Credit, I, 48.) The repeal of the corn laws in England certainly diminished the emigration of English capital.]

[Footnote 199-2: For an official declaration of the Brazilian state in this direction, see Novara Reise.]

[Footnote 199-3: Basing himself hereon, _Petty_, Political Anatomy of Ireland, 82 ff., questions the usual opinion, that Ireland suffered so much from absenteeism. He says that a prohibition of absenteeism carried out to its logical conclusion would require every man to sit on the sod he had tilled himself. _Carey_, On the Rate of Wages, 1835, 477, calls English capitalists who draw interest from America, absentees.]

[Footnote 199-4: The older political economists have, as a rule, ignored this law, and were wont to consider every payment of money to a foreign country as injurious. Thus, for instance, _Culpeper_, Tract against the high Rate of Usury, 1623, 1640, disapproves all loans made from foreign countries, because they draw more money in interest, and in repayment of the princ.i.p.al out of the nation, than they brought into it at first; and all the more, as the loan is generally procured, not in the precious metals, but in foreign goods, of which there is a superabundance in the home country. Similarly _Child_, Discourse of Trade, 1690, 79, who claims that the creditor was always fattened at the expense of the debtor. Hence _v. Schroder_, Furst, Schatz- und Rentkammar, 141, advises that the capital borrowed in foreign countries should be confiscated. Compare, also, _v.

Justi_, Staatswirthschaft, II, 461. And yet the very simplest calculation shows, that if a man borrows $1,000 at 5 per cent. and makes 10, he is doing a good business with the borrowed capital. This _Locke_, Considerations, 9, recognizes very clearly. Compare, also, _J. B. Say_, Traite, II, ch. 10, and _Hermann_, Staatsw. Unters., 365 seq.]

[Footnote 199-5: Think of the English creditors in Portugal and the Genoese in Corsica (_Steuart_, Principles, II, ch.

29.) Considered simply from an economic standpoint, the Edinburg Review, XX, 358, very clearly demonstrates that England should recruit her army from Ireland, where wages are so much lower than in Great Britain. But how dangerous in a political sense! In 1832, one-fourth of the stock of the United States Bank was in the hands of foreigners, and hence its opponents nick-named it the "British Bank." By the rules of the princ.i.p.al bank in Philadelphia, in 1836, only American citizens were allowed a vote in its proceedings.

Similarly in the case of the Bank of France. (_M.

Chevalier_, Lettres sur l'Amerique du N. I, 364.) It may be remarked in general, that the older political economists have based correct political views on false economic principles, while the more modern ignore them entirely.]

[Footnote 199-6: Compare _Montesquieu_, E. des Lois L, XXII, 17; _Blackstone_, Commentaries, I, 320.]

[Footnote 199-7: Thus Austria conceded, in 1854-55, a number of railways to French capitalists, and always favored the purchase of landed estates by small foreign princes. In the latter case, Austrian influence abroad was much more promoted by the measure than was foreign influence in Austria.]

[Footnote 199-8: Every nationality is not worth the sacrificing of the highest economic advantage or profit to it. Or, would it be preferable to leave the Hottentots and Caffirs, poor, barbarous and heathenish?]

SECTION CC.

INFLUENCE OF THE BRANCHES OF INCOME ON THE PRICE OF COMMODITIES.

In relation to foreign trade, in the narrowest sense of the term, fears were formerly very frequently expressed and are sometimes even now, which in the last a.n.a.lysis are based on the a.s.sumption that one country might be underbid by another in all branches of commodities.[200-1] This is evidently absurd. Whoever wants to pay for foreign commodities can do it only in goods of his own. When he pays for them with money, the money is either the immediate product of his own husbandry (mining countries!), or the mediate product obtained by the previous surrender of products of his own. To receive from foreign countries all the objects which one has need of, would be to receive them as a gift.

It is just as absurd to fear that the three branches of income in the same country's economy should be all relatively high at the same time, and compet.i.tion with foreign countries be thus made more difficult. Rent and interest especially in this respect have to demean themselves in ways diametrically opposed to each other.[200-2] When trade is entirely free, every nation will engage at last in those branches of production which require chiefly the productive forces which are cheapest in that country; that is which the relatively low level of the corresponding branch of income recommends to individual economy and enterprise. The merely absolute and personal height of the three branches of income has, as we have said, no direct influence on the price of commodities. In this respect, all these may be higher in one country than in another.

Thus, for instance, English landowners, capitalists and workmen may be all at the same time in a better economic condition respectively than Polish landowners, capitalists and workmen, when the national income of England stands to its area and population in general, in a much more favorable ratio than the Polish.[200-3]

[Footnote 200-1: Thus, _Forbonnais_, Elements du Commerce I, 73. _J. Moser_, Patr. Ph., I, No. 2.]

[Footnote 200-2: For a thorough refutation of the error that everything is dearer in England than in France, see Journ.

des Econ., Mai, 1854, 295 seq. A distinguished architect a.s.sured me in 1858, that a person in London could build about as much for 1 as for from 6 to 7 thalers in Berlin; only the aggregate expense in both countries is made up of elements very different in their relative proportions.]

[Footnote 200-3: We very frequently hear that countries with high wages must be outflanked in a neutral market by countries with a low rate of wages. _Ricardo's_ disciples reject this, because a decrease in the profit would put the undertaker in a condition to bear the loss caused by the high wages paid. See Report of the Select Committee on Artisans and Machinery. _Senior_ ridicules such reasoning very appropriately by inquiring: "Might not the loss enable him to bear the loss?" Outlines, 146. And so _J. B. Say_ thinks that wages are always lowest when undertakers are earning nothing. The truth is rather this: a country with a relatively high rate of wages cannot, in a neutral market, offer those commodities the chief factors required for the production of which is labor; but the comparatively low rate of interest or low rents, or the lowness of both found in connection therewith, must fit it to produce other commodities very advantageously. If, therefore, the rate of wages rises, the result will be to divert production and exports into other channels than those in which they have hitherto flowed. The old complaint of Saxon agriculturists, that there is a lack of labor in the country, is certainly very surprising in a nation as thickly populated as Saxony.

But the remedy proposed by the most experienced pract.i.tioners consists chiefly in a higher rate of wages to enable workmen to care for themselves in old age, the introduction of the piece-work system and an increase of agricultural machines. But it seems to me, that the whole situation there points to the advantage of in part limiting the large farming hitherto practiced to live-stock raising and other branches in which labor may be spared, and in part of replacing it, by small farming of plants which are objects of trade.

Many points belonging to this subject have been very well discussed by _J. Tucker_, in his refutation of _Hume's_ theory on the final and inevitable superiority of poor countries over rich ones in industrial matters. (Four Tracts on political and commercial Subjects, 1774, No. 1; _L.

Lauderdale_, Inquiry, 206.)]

SECTION CCI.

HARMONY OF THE THREE BRANCHES OF INCOME.--INDIVIDUAL DIFFERENCE IN THEM.

As national-economical civilization advances, the personal difference of the three branches of income is wont to become more and more sharply defined.[201-1] The struggle between landowners, farmers and workmen, which Ricardo necessarily a.s.sumed, did not exist at all in the middle ages; since landowners and farmers were then usually one and the same person, and since workmen, either as slaves or peasants, were protected against compet.i.tion properly so called. And so in the industry of that time, based on the trades or on domestic industry.[201-2] [201-3]

When, later, the division of labor increases, all the differences of men's apt.i.tudes are turned to more advantage, and are more fully developed. In the same proportion that a working cla.s.s is developed, the members of which are nothing but workmen, and can scarcely hope to possess capital or land,[201-4] there grows up, side by side with it, a cla.s.s of mere capitalists, who come to obtain an ever-increasing importance.

Considered from a purely economic point of view, this transition has its great advantages. How much must the existence of a special cla.s.s of capitalists facilitate the concentration of capital and the consequent promotion of production, as well as its (capital's) price-leveling influx and outflow! Even "idle" capitalists have this of good, that, without them, no competent man, dest.i.tute of means could engage in any independent enterprise. When, indeed, the gulf between these two cla.s.ses pa.s.ses certain bounds, it may, politically and socially, become a great evil. (-- 63.)[201-5]

[Footnote 201-1: Among nations in their decline, rent and interest fall into one possession again, because capitalists here are wont to buy the land. (_Roscher_, Nationalokonomik des Ackerbaues, -- 140 ff.)]

[Footnote 201-2: Related to this peculiarity of the middle ages is the fact that the canon law looked with disfavor on the personal separation of the three factors of production.

So also in the prohibition of the _Weddeschat_ referred to -- 161, instead of rent-purchase (_Rentekauf_), also by extending the idea of partnership to a number of transactions which are only forms of loan. (_Endemann_ in _Hildebrand's_ Jahrb., 1863, 176 ff.) Antiquity also, with the independence of its ?????, with its slavery, etc., had not developed the difference between the three branches of industry to any extent. _Rodbertus_, in _Hildebrand's_ Jahrbb., 1865, I, 343.]

[Footnote 201-3: If older writers, like _Steuart_, etc., speak so little of capital, labor and rent, and so much of city and country, it is not on account of ignorance simply.

The contrast between the latter was then much more important than to-day, and that between the former much less developed. When, indeed, _Colton_, Public Economy of the United States, 1848, 155 ff., claims that because in America the three branches of income do not exist in so separated a condition as in Europe, therefore European Political Economy and its theories are not applicable to America, he forgets that science should not be simply a description or impression made of the reality, but an a.n.a.lysis of it.]

[Footnote 201-4: It is a very characteristic fact that, in our days, when workmen are spoken of, it is generally day laborers and tradesmen that are understood. In Prussia, in 1804, 17.8 per cent. of the population earned their living by letting out their labor; in 1846, 22.8 per cent. as day-laborers, servants, journeymen, tradesmen and factory hands. (_Dieterici._)]

[Footnote 201-5: _Ricardo_, Principles, ch. 4, recognizes the bright side as well as _Sismondi_, N. P., I, 268, or _Buret_, De la Misere des Cla.s.ses laborieuses en Angleterre et en France, 1841, its dark side. _Sismondi_ thinks that land and the capital employed in its cultivation are found to the greatest disadvantage in the hands of the same person. The existence of a thrifty peasant cla.s.s (also of a cla.s.s of tradesmen) is one of the best means to prevent the too wide separation of the three branches of income.]

SECTION CCII.

HARMONY OF THE THREE BRANCHES OF INCOME.--NECESSITY OF THE FEELING OF A COMMON INTEREST.

Every cla.s.s corresponding to a branch of the national income must live with the consciousness that its interests coincide with the economic interests of the whole nation. Whenever the entire national income increases, each branch of it may increase without any injury to the others, and, as a rule, does really increase.[202-1] But it is possible that the land owning cla.s.s may be specially dependent on the prosperity of the whole people. How easy it is for workmen to emigrate; and how much easier yet for capital! England, to-day, can scarcely carry on a great war, in which it would not, at least at the beginning, have to fight English capital.[202-2] Where the treasure is, the heart is also!