The World's Greatest Books - Volume 14 Part 33

Several elements enter into the price of commodities. In a nation of hunters, if it costs twice the labour to kill a beaver which it costs to kill a deer, one beaver will be worth two deer. But if the one kind of labour be more severe than the other, some allowance will naturally be made for this superior hardship; and thirdly, if one kind of labour requires an uncommon degree of dexterity and ingenuity, it will command a higher value than that which would be due to the time employed in it.

So far, the whole produce of labour belongs to the labourer.

But as soon as stock has acc.u.mulated in the hands of particular persons, some of them will employ it in setting to work industrious workmen, whom they will supply with materials and subsistence, in order to make a profit by the sale of their work. The profits of stock are not to be regarded as the wages of a particular sort of labour, the labour of inspection and direction; for they are regulated altogether by the value of the stock employed, and are greater or smaller in proportion to the extent of this stock.

There is in every society or neighbourhood an ordinary or average rate both of wages and profit in every different employment of labour and stock; and this rate is regulated partly by the general circ.u.mstances of the society, its richness or poverty, and partly by the peculiar nature of each employment. There is also in every society or neighbourhood an ordinary or average rate of rent, which is regulated too by the general circ.u.mstances of the society or neighbourhood in which the land is situated, and partly by the natural or improved fertility of the land.

What we may call the natural price of any commodity depends upon these natural rates of wages, profit and rent, at the place where it is produced. But its market price may be above, below, or identical with its natural price, and depends upon the proportion between the supply and the demand.

_II.--Nature, Acc.u.mulation, and Employment of Stock_

When the stock which a man possesses is no more than sufficient to maintain him for a few days or weeks, he seldom thinks of deriving any revenue from it; but when he possesses enough to maintain him for months or years, he endeavours to derive a revenue from the greater part of it.

The part of his stock from which he expects to derive revenue is called his capital.

There are two ways in which capital may be employed so as to yield a profit to its employer. First, it may be employed in raising, manufacturing, or purchasing goods, and selling them again with a profit; this is circulating capital. Secondly, it may be employed in the improvement of land, or in the purchase of machines and instruments; and this capital, which yields a profit from objects which do not change masters, is called fixed capital.

The general stock of any country or society is the same as that of all its inhabitants or members, and is therefore divided into the same three portions, each of which has a different function. The first is the portion which is reserved for immediate consumption, and so affords no revenue or profit. The second is the fixed capital, which consists of

(_a_) all useful machines and instruments of trade which facilitate and abridge labour;

(_b_) all profitable buildings, which procure a revenue, not only to their owner, but also to the person who rents them, such as shops, warehouses, farmhouses, factories, &c.;

(_c_) the improvements of land, and all that has been laid out in clearing, draining, enclosing, manuring, and reducing it into the condition most proper for culture; and

(_d_) the acquired and useful abilities of all the inhabitants or members of the society, for the acquisition of such talents, by the maintenance of the learner during his education or apprenticeship, costs a real expense, which is a capital fixed in his person.

The third and last of the three portions into which the general stock of the society naturally divides itself is the circulating capital, which affords a revenue only by changing masters. It includes

(_a_) all the money by means of which all the other three are circulated and distributed to their proper consumers;

(_b_) all the stock of provisions which are in the possession of the butcher, farmer, corn-merchant, &c., and from the sale of which they expect to derive a profit;

(_c_) all the materials, whether altogether rude, or more or less manufactured, for clothes, furniture and building, which are not yet made up into any of these shapes, but remain in the hands of the growers, manufacturers and merchants; and

(_d_) all the work which is made up and completed, but is not yet disposed of to the proper consumers.

The subst.i.tution of paper in the place of gold and silver money replaces a very expensive instrument of commerce by one much less costly, and sometimes equally convenient. Circulation comes to be carried on by a new wheel, which it costs less both to erect and to maintain than the old one. The effect of the issue of large quant.i.ties of bank-notes in any country is to send abroad the gold, which is no longer needed at home, in order that it may seek profitable employment. It is not sent abroad for nothing, but is exchanged for foreign goods of various kinds in such a way as to add to the revenue and profits of the country from which it is sent; unless, indeed, it is spent abroad on such goods as are likely to be consumed by idle people who produce nothing.

_III.--The Progress of Opulence in Different Nations_

The greatest commerce of every civilised society is that carried on between the inhabitants of the town and those of the country. It consists in the exchange of rude for manufactured produce, either immediately, or by the intervention of money, or of some sort of paper which represents money. The country supplies the town with the means of subsistence, and the materials for manufacture. The town repays this supply by sending back a part of the manufactured produce to the inhabitants of the country. The town, in which there neither is nor can be any reproduction of substances, may very properly be said to gain its whole subsistence from the country. And in how great a degree the country is benefited by the commerce of the town may be seen from a comparison of the cultivation of the lands in the neighbourhood of any considerable town with that of those which He at some distance from it.

As subsistence is, in the nature of things, prior to conveniency and luxury, so the rural industries which procure the former must be prior to the urban industries which minister to the latter. The greater part of the capital of every growing society is therefore first directed to agriculture, afterwards to manufactures, and last of all to foreign commerce. But this natural order of things has, in all the modern states of Europe, been in many respects entirely inverted. The foreign commerce of some of their cities has given rise to their finer manufactures, and manufactures and foreign commerce together have given birth to the princ.i.p.al improvements of agriculture. The manners and customs which the nature of their original government introduced, and which remained after that government was greatly altered, necessarily forced them into this unnatural and retrograde order.

In the ancient state of Europe, after the fall of the Roman Empire, agriculture was greatly discouraged by several causes. The rapine and violence which the barbarians exercised against the ancient inhabitants interrupted the commerce between the towns and the country; the towns were deserted and the country was left uncultivated. The western provinces of Europe sank into the lowest state of poverty, and the land, which was mostly uncultivated, was engrossed by a few great proprietors.

These lands might in the natural course of events have been soon divided again, and broken into small parcels by succession or by alienation; but the law of primogeniture hindered their division by succession, and the introduction of entails prevented their being divided by alienation.

These hindrances to the division and consequently to the cultivation of the land were due to the fact that land was considered as the means not of subsistence merely, but of power and protection. In those disorderly times, every great landlord was a sort of petty prince.

Unfortunately these laws of primogeniture and entail have continued long after the circ.u.mstances which gave rise to them have disappeared.

Unfortunately, because it seldom happens that a great landlord is a great improver. To improve land with profit requires an exact attention to small savings and small gains, of which a man born to a great fortune is seldom capable. And if little improvement was to be expected from the great proprietors, still less was to be hoped for from those who occupied the land under them. In the ancient state of Europe, the occupiers of land were all tenants at will, and practically slaves. To these succeeded a kind of farmers known at present in France by the name of "metayers," whose produce was divided equally between the proprietor and the farmer, after setting aside what was judged necessary for keeping up the stock, which still belonged to the landlord. To these, in turn, succeeded, though by very slow degrees, farmers properly so called, who cultivated the land with their own stock, paying a fixed rent to the landlord, and enjoying a certain degree of security of tenure. And every improvement in the position of the actual cultivation of the soil is attended by a corresponding improvement of the land and of its cultivation.

After the fall of the Roman empire the inhabitants of cities and towns were not more favoured than those of the country. The towns were inhabited chiefly by tradesmen and mechanics, who were in those days of servile, or nearly servile condition. Yet the townsmen arrived at liberty and independence much earlier than the country population; their towns became "free burghs," and were erected into commonalities or corporations, with the privilege of having magistrates and a town council of their own, of making by-laws for their own government and of building walls for their own defence. Order and good government, and the liberty and security of individuals, were thus established in cities at a time when the occupiers of land in the country were exposed to every sort of violence.

The increase and riches of commercial and manufacturing towns thenceforward contributed to the improvement and cultivation of the countries to which they belonged, in three different ways. First, by affording a great and ready market for the rude produce of the country.

Secondly, the wealth acquired by the inhabitants of cities was employed in purchasing uncultivated lands and in bringing them under cultivation; for merchants are ambitious of becoming country gentlemen, and when they do so, are generally the best of all improvers. And lastly, commerce and manufactures gradually introduced order and good government, and with them the liberty and security of individuals, among the inhabitants of the country.

_IV.--The Mercantile System_

From the mistaken theory that wealth consists in money, or in gold and silver, there has arisen an erroneous and harmful system of political economy and of legislation in the supposed interests of manufacture, of commerce, and of the wealth of nations. A rich country is supposed to be a country abounding in money; and all the nations of Europe have consequently studied, though to little purpose, every possible means of acc.u.mulating gold and silver in their respective countries. For example, they have at times forbidden, or hindered by heavy duties, the export of these metals. But all these attempts are vain; for on the one hand, when the quant.i.ty of gold and silver imported into any country exceeds the effectual demand, no vigilance can prevent their exportation; and on the other hand, if gold and silver should fall short in a country, there are more expedients for supplying their place than that of any other commodity. The real inconvenience which is commonly called "scarcity of money" is not a shortness in the medium of exchange, but is a weakening and diminution of credit, due to over-trading. Money is part of the national capital, but only a small part and always the most unprofitable part of it.

The principle of the "commercial system" or "mercantile system" is, that wealth consists in money, or in gold and silver. It is an utterly untrue principle. But once it had been established in general belief that wealth consists in gold and silver, and that these metals can be brought into a country which has no mines only by the "balance of trade," that is to say, by exporting to a greater value than it imports, it necessarily became the great object of political economy to diminish as much as possible the importation of foreign goods for home consumption, and to increase as much as possible the exportation of the produce of domestic industry. Its two great engines for enriching the country, therefore, were restraints upon importation and encouragements to exportation.

The restraints upon importation were of two kinds: first, restraints upon the importation of such foreign goods for home consumption as could be produced at home, from whatever country they were imported; and secondly, restraints upon the importation of goods of almost all kinds from those particular countries with which the balance of trade was supposed to be disadvantageous. These different restraints consisted sometimes in high duties, and sometimes in absolute prohibitions.

Exportation was encouraged sometimes by drawbacks, sometimes by bounties, sometimes by advantageous treaties of commerce with sovereign states, and sometimes by the establishment of colonies in distant countries. The above two restraints, and these four encouragements to exportation, const.i.tute the six princ.i.p.al means by which the commercial or mercantile system proposes to increase the quant.i.ty of gold and silver in any country by turning the balance of trade in its favour.

The entire system, in all its developments, is a fallacious and an evil one. It is not difficult to determine who have been the contrivers of this whole mercantile system: not the consumers, whose interest has been entirely neglected; but the producers, and especially the merchants and manufacturers, whose interest has been so carefully attended to. It remains to be said, also, that the "agricultural system," which represents the produce of land as the sole source of the revenue and wealth of every country, and as therefore justifying a special protection of it, is as fallacious and as harmful as the other.

_V.--The Revenue of the Sovereign or Commonwealth_

The first duty of the sovereign, that of protecting the society from the violence and invasion of other independent societies, can be performed only by means of a military force. This may be effected either by obliging all the citizens of the military age, or a certain number of them, to join in some measure the trade of a soldier to whatever other trade or profession they may happen to carry on; or by maintaining a certain number of citizens in the constant practice of military exercises, thus rendering the trade of a soldier a particular trade, separate from all others. In the former case a militia is formed, in the latter a standing army; and of the two, the second is by far the more powerful, as it is also the more expensive.

The second duty of the sovereign, that of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice, requires an increasing expenditure corresponding to the advance and development of the society.

Public works and public inst.i.tutions are a third cause of expenditure on the part of sovereign or commonwealth; and have two princ.i.p.al objects--that of facilitating the commerce of the society and that of promoting the instruction of the people. Roads, bridges, ca.n.a.ls, are examples of the former; schools, universities, established Churches are examples of the latter. And among other expenses of the sovereign or commonwealth we must include the expenses of supporting the dignity of the sovereign.

The funds or sources of revenue which peculiarly belong to the sovereign or commonwealth consist either in stock or in land; but being quite insufficient to meet the public expenditure they are supplemented by taxation. Every tax is finally paid from rent, profit or wages, or from all of them indifferently; and the chief principle to be observed in taxation is, that the subjects of the State ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities--that is, in proportion to the revenue which they respectively enjoy under the protection of the State. The tax which each individual is bound to pay ought to be certain and not arbitrary; every tax ought to be levied at the time or in the manner in which it is most likely to be convenient for the contributor to pay it; and finally, every tax ought to be so contrived as to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the State.