CHAPTER VIII.

Division of the Produce of Industry, under Deduction of Rent, between Capitalists and Labourers—Definition of Profits—Mr. Ricardo’s Theory of Profits; Sense in which it is true—Causes which occasion a Rise or Fall of Profits—Accumulation not the cause of a Fall of Profits—Influence of the decreasing Fertility of the Soil, and of Taxation on Profits—Influence of Loans to Government, and of Changes in the Value of Money on Profits.

Before attempting to investigate the circumstances which determine the rate of profit, it is necessary to be aware of those which determine the proportions in which the whole produce of industry, under deduction of rent, is divided between labourers and capitalists.

This preliminary inquiry may be disposed of in a few words. We have seen that the whole produce of the land and labour of every civilised society is always divided, in the first instance, into three, and not more than three, portions; the first of which goes to the labourers, the second to the capitalists or proprietors of stock, and the third to the landlords, and we have also seen, that the portion of the produce of industry received by the landlords, as proprietors of the soil, or as rent properly so called, is altogether extrinsic to the cost of production; and that their giving it up would not occasion any change in the productiveness of industry, or any reduction in the price of produce. Supposing, then, that rent is deducted or set aside, it is obvious that all the remaining produce of the land and labour of every country must be primarily divided between the two great classes of labourers and capitalists. And it is further obvious that were there no taxes in a country, or were the rate of taxation stationary, the proportion of the whole produce of industry, under deduction of rent, falling to the Edition: current; Page: [453] share of the labourers could not be increased except by an equivalent reduction in the proportion falling to the share of the capitalists, and vice versâ. Suppose, still better to illustrate this proposition, that the whole produce of industry in Great Britain is represented by the number 1,000: suppose, farther, that the landlords get 200 of this produce as rent, or as the amount paid them for the use of the natural and inherent powers of the soil, and that the remaining 800 is divided, in equal portions, between labourers and capitalists. Under these circumstances, it is obvious that nothing could be added to the share of the produce, or to the 400 falling to the labourers, except at the expense of the capitalists; nor to the share, or 400 falling to the latter, except at the expense of the former.

Whether the 800 were increased to 1,600 or reduced to 400, so long as those between whom it must be divided receive each a half, their relative condition must continue the same. And hence the distinction between proportional and real wages, or between wages estimated in parts of the produce raised by the labourer, and in definite quantities of money or produce. If the productiveness of industry diminish, proportional wages may rise, notwithstanding that real wages, or the quantity of produce received by the labourer, be diminished; and if, on the other hand, the productiveness of industry increase, proportional wages may be diminished, while real wages may, at the same time, be increased.

It is plain, therefore, that were taxation unknown or stationary, the whole produce of industry, under deduction of rent, would be divided between capitalists and labourers; and that the portion falling to either party would vary inversely as the portion falling to the other—that is, the portion falling to the capitalists would be increased when that falling to the labourers was diminished, and diminished when it was increased.

Profits must not, however, be confounded with the produce of industry primarily received by the capitalists. They Edition: current; Page: [454] really consist of the produce, or its value, remaining to those who employ capital in industrial undertakings, after all their necessary payments to others have been deducted, and after the capital wasted or used in the undertakings has been replaced. If the produce derived from an undertaking, after defraying the necessary outlay, be insufficient to replace the capital expended, a loss will have been incurred: if the capital be merely replaced, and there is no surplus, there will neither be loss nor profit; and the greater the surplus, the greater, of course, will be the profit. Profits are not measured by the proportion which they bear to the rate of wages, but by the proportion which they bear to the capital by the agency of which they have been produced. Suppose an individual employs a capital of 1,000 quarters of corn in the cultivation of a farm, that he expends 700 quarters in the payment of wages, and 300 in seed and other outgoings, and that the return to this capital is 1,200 quarters: Under these circumstances, the proportion of the produce which goes to the labourers as wages will be to that which goes to the capitalist as 7 to 2; for, of the 1,200 quarters that go, in the first instance, to the capitalist, 200 only are profits, 1,000 being required to replace the capital he has expended. In this case, therefore, the rate of profit would be said to be 20 per cent.; meaning, that the excess of produce belonging to the cultivator, after the capital employed in its production is fully replaced, amounts to 20 per cent. upon that capital.

We have been thus particular with respect to the definition of profits, because, from not keeping it sufficiently in view, Ricardo has been led to contend, that the rate of profit depends on the proportion in which the produce of industry, under deduction of rent, is divided between capitalists and labourers; that a rise of profits cannot be brought about except by a fall of wages, nor a fall of profits except by a corresponding rise of wages. It is evident, however, that this theory is true only in the event of our attaching a radically Edition: current; Page: [455] different sense to the term profit from what is usually attached to it, and supposing it to mean the cost or real value of the whole produce which goes, in the first instance, to the capitalist, without reference to the proportion which it bears to the capital employed in its production. If we understand the terms in this sense, Ricardo’s theory will hold universally; and it may be affirmed, that so long as the proportion in which the produce of industry, under deduction of rent, is divided between capitalists and labourers continues the same, no increase or diminution of the powers of production will occasion any variation in the rate of profit. But if we consider profits in the light in which they are invariably considered in the real business of life,—as the produce accruing to capitalists after the capital expended by them in payments and outgoings of all sorts is fully replaced,—it will immediately be seen that there are innumerable exceptions to Ricardo’s theory.

It will facilitate the acquisition of precise ideas respecting the circumstances which determine the average rate of profit in different employments, as that term is commonly understood, if we confine our attention, in the first place, to those which determine profits in agriculture, both because the latter admit of being accurately measured, and because they may be taken as representing profits in other businesses. Agriculture is a branch of industry that must be carried on at all times, and under all circumstances; but it would not be carried on, did it not, at an average, yield as great a return to the capital vested in it as other businesses; nor would these others be carried on, if they yielded a less return than is derived from agriculture. It necessarily follows, therefore, that the returns obtained from agricultural industry, or agricultural profits, may, in ordinary cases, be considered as identical with the returns or profits obtained from other businesses. Whenever, for example, the average return to an outlay of capital or labour worth £100, employed in the cultivation of the soil, amounts to £110, we may safely infer, that £100 employed in manufactures is also yielding £110: for, a regard to their Edition: current; Page: [456] own interest will not permit those engaged in such departments, to prosecute them for less profit than is obtained in agriculture; and the competition of the agriculturists will not permit them to obtain more.

Taking, then, as we are entitled to do, agricultural profits as a standard of other profits, let us suppose that a landlord employs a capital equivalent to 10,000 quarters, or £10,000, in the cultivation of an estate; that he expends 5,000 quarters, or £5,000 of this capital in seed, in the keeping of horses, and in defraying the wear and tear of implements and machines; and 5,000 quarters, or £5,000, in paying the wages of labourers. Suppose, now, that the return obtained by this landlord is 12,000 quarters, or £12,000; of which 10,000 quarters, or £10,000, go to replace his capital, and 1,000 quarters, or £1,000, to pay his taxes, leaving 1,000 quarters, or £1,000 as profits, being 10 per cent. on the capital employed. It is plain from this case, (which is, mutatis mutandis, the actual case of all cultivators,) that the rate of profit may be increased in three—and only in one or other of three—ways, viz., (1) by a fall of wages, (2) a fall of taxes, or (3) an increased productiveness of industry.

Thus, it is obvious, (1) that if wages were reduced from 5,000 to 4,000 quarters, profits, supposing other things to be stationary, would be increased from 1,000 to 2,000 quarters, or from 10 to 20 per cent.: if (2) the burden of taxation were reduced from 1,000 to 500 quarters, profits would be increased from 1,000 to 1,500 quarters, or from 10 to 15 per cent.: and if (3), owing to the introduction of an improved system of agriculture, the return to a capital of 10,000 quarters were increased from 12,000 to 13,000 quarters, profits, supposing wages still to amount to 5,000 and taxes to 1,000 quarters, would be increased to 2,000 quarters, or to 20 per cent.; and though, in this last case, after the productiveness of industry had been increased, wages would form a less proportion of the whole produce of industry than they did previously, it is to be observed, that this diminished Edition: current; Page: [457] proportion is the consequence, and not the cause of profits having risen; and, therefore, in such cases as this, and they are of very frequent occurrence, it is true to say, that proportional wages fall because profits rise, but the converse of the proposition is not true; for the rise of profits was occasioned by causes that had nothing whatever to do with wages, and which were, in fact, totally independent on them.

It is, indeed, true, inasmuch as the rise of profits is the result of an increased productiveness of industry, that the cost or real value of the 13,000 quarters will not exceed the cost or real value of the 12,000 previously obtained by the same quantity of labour; but profits, in the sense in which they are practically understood, and as we understand them, do not depend on cost, but on the excess of the commodities produced above the commodities or capital expended in their production; and whenever this excess is augmented without any previous depression in the rate of wages, the rate of profit must evidently be increased by the operation of causes extrinsic to variations in that rate.

Nor is this all. The rate of profit may remain stationary, or rise, though the proportion of the produce of industry falling to the share of the labourer be actually increased. Suppose, to exemplify this, that a landlord employs 1,000 quarters of wheat as a capital, 500 of which are expended on seed, keep of horses, &c., and 500 on wages; if the produce be 1,200 quarters, and the taxes to which he is subjected 100, his profits will amount to 100 quarters, or 10 per cent.: suppose now that, owing to the introduction of improved machinery, or improved methods of culture, he only requires to expend 400 quarters on seed, keep of horses, &c., but that wages rise from 500 to 550 quarters, and that the same return is obtained—in this case, supposing taxation to be stationary, the profits of the landlord will be increased from 10 to 15¾ per cent., though proportional wages have risen from 5-12ths to 51/2-12ths of the whole produce.

Edition: current; Page: [458]

It may perhaps be said, that if this increased productiveness were confined to agriculture, and did not extend to most other important businesses, the price of agricultural produce would fall, while that of other produce would remain stationary; and that, in such case, the profits of agricultural industry, if estimated in money, or in any commodity other than corn, would be diminished in consequence of the rise of wages. This is true; but Ricardo made no exception, in laying down his theory, in favour of those possible, and indeed frequently occurring cases, when, from any single circumstance, or combination of circumstances, industry becomes generally more productive, and when, consequently, profits, estimated in money, corn, cloth, or any commodity in extensive demand, would have risen, without their rise having been occasioned by a fall of wages. And it is also true, that an increased productiveness of agricultual industry, whether it has been caused by the introduction of an improved system of agriculture, or by the repeal of restrictions on the importation of corn, most commonly extends itself to other businesses, and brings about, in the end, a universal rise of profits: for, as raw produce forms the principal part of the labourer’s subsistence, and as he obtains a larger quantity in exchange for the same amount of money, after it has fallen in price, his condition is in so far improved; and a stimulus being, in this way, given to population, and the supply of labour increased, wages are reduced, and the rate of profit proportionally raised.

When industry, instead of becoming more, becomes less productive, the opposite effects follow. Profits then fall, without any fall having previously taken place in the rate of wages.

It is evident, therefore, that the proposition that a rise of profits cannot be brought about otherwise than by a fall of wages, or a fall of profits otherwise than by a rise of wages, is true only in those cases in which the productiveness of industry and the burden of taxation remain stationary Edition: current; Page: [459] So long as this is the case, or, which is the same thing, so long as the same capital is employed, and the same quantity of produce has to be divided between capitalists and labourers, the share of the one cannot be increased without the share of the other being equally diminished: and it is also true, that if profits depended on the proportion in which the produce of industry is divided between capitalists and labourers, they could not be affected by variations in its productiveness, but would be determined wholly by the state of proportional wages. But profits depend, as already seen, on the proportion which they bear to the capital by which they are produced, and not on the proportion which they bear to wages. Suppose an individual employs a capital of 1,000 quarters, or £1,000 in cultivation, that he lays out half its amount in the payment of wages, and obtains a return of 1,200 quarters, or £1,200; in this case, assuming he is not affected by taxation, his profits will amount to 200 quarters, or £200, being at the rate of 20 per cent., and will be to wages in the proportion of 2 to 5. Suppose, now, that the productiveness of industry is universally doubled, and let it be farther supposed that the additional 1,200 quarters, or £1,200, is divided between the capitalist and his labourers in the former proportion of 2 to 5, or that the capitalist gets 343 quarters, or £343 of additional profits, and the labourers 857 quarters, or £857, of additional wages: in this case, both parties will still obtain the same proportions of the produce as before; and if we look only to them, we must say that neither profits nor wages have risen. But when we compare, as is invariably done in estimating profits, the return obtained by the capitalist with the capital he employs, it will be found, notwithstanding the constancy of proportional wages, that the rate of profit has increased from 20 to 54 per cent.

Thus, then, it appears, as was previously stated, that profits rise in one or other of the three following ways, viz., (1) from a fall of wages, or (2) from a fall of taxes directly or indirectly affecting capitalists, or (3) from an increased productiveness Edition: current; Page: [460] of industry; and they fall, (1) from a rise of wages, or (2) from an increase of taxes, or (3) from a diminished productiveness of industry. But they can neither rise nor fall, except from the operation of one or more of the causes now stated.

In the previous observations we have, to simplify the subject, considered profits as arising from the employment of capital by persons of ordinary skill and intelligence in the usual pursuits of industry. But, in addition to these, very considerable amounts of capital are employed by parties who possess superior knowledge and ability in the callings in which they engage, and who, in consequence, obtain proportionally large returns. It has been disputed whether these extraordinary returns should be considered as profits or wages. And we are disposed to think that, in as far as they result from the better training and instruction of those who superintend the employment of the capital, they should be considered as the profit upon, or return to, the extra outlay on their education. But in cases where the parties possess, as they sometimes do, any peculiar talent or genius, by which they are enabled to strike out new and better methods of production, the results must be considered as the fruit of natural gifts, of which they are the exclusive possessors. The profits realized by such parties are not subject to any ordinary rule or law. Everything depends on the peculiar genius and intelligence with which they are endowed. If it be far above the common level, and applicable to the production of articles or services for which there is a great demand, their gains will be proportionally great, and may far exceed, even when the things they supply have little intrinsic worth, those realized by ordinary people.

But though these extra profits are always being made, and amount in the aggregate to a very great sum, yet there are no good grounds for thinking that they bear any very large proportion to the vast amount of profits produced in businesses and professions conducted in the ordinary way, and with Edition: current; Page: [461] ordinary talent and attention. And it is also to be borne in mind that if there be, on the one hand, individuals who, by dint of superior skill and ability, make large profits and accumulate fortunes, there are, on the other hand, a great number of individuals who, from want of the requisite capacity or care, make little or no profit, and not unfrequently sink into the abyss of bankruptcy. The losses incurred by the latter class go far to balance, if they do not exceed, the extraordinary gains of the other. And though fortunes made, like those of Arkwright and Watt, by the exertion of genius and invention, attract and fix the public attention, yet there can be no manner of doubt that the great bulk of the public wealth is the result of ordinary skill and industry, backed up and assisted by the general disposition to save and amass. For one fortune that owes its existence to superior talent, ten owe theirs to a long-continued course of economy. But having already seen that parsimony is the main source of national riches, it is needless to enlarge further on this topic.

It is consistent with universal experience, that profits are invariably higher in colonies and thinly-peopled countries, than in those that have been long settled, or where the population is comparatively dense; and that (referring to periods of average duration) their tendency is to fall in the progress of society. This sinking of profits in rich and populous countries has been ascribed by Smith to the competition of capitalists. He supposes that, when capital is augmented, its owners endeavour to encroach on each other’s employments; and that, in furtherance of their object, they offer their goods at a lower price, and give higher wages to their workmen; which has a twofold effect in reducing profits. This theory was long universally assented to. It has been espoused by Say, Sismondi, and Storch, by the Marquis Garnier, and, with some trifling modifications, by Malthus. But, notwithstanding the deference due to these authorities, it is easy to see that competition can never bring about a general fall of profits. Edition: current; Page: [462] It prevents any individual, or set of individuals, from monopolizing a particular branch of industry; and reduces the rate of profit in different businesses nearly to the same level; but this is its whole effect. It has no tendency to lessen the productiveness of industry, or to raise wages or the burden of taxation; and if it do none of these things, it cannot lower profits. So long as an individual employing a capital of 1,000 quarters, or £1,000, obtains from it a return of 1,200 quarters, or £1,200, of which he has to pay 100 quarters, or £100, as taxes, so long will his profits continue at 10 per cent., whether he has the market to himself, or has 50,000 competitors. It is not competition, but the increase of taxation, and the necessity under which a growing society is placed of resorting to soils of less fertility to obtain supplies of food, that are the principal causes of that reduction in the rate of profit which usually takes place in advanced periods. When the lands last taken into cultivation are fertile, there is a comparatively large amount of produce to be divided between capitalists and labourers; and both profits and real wages may, consequently, be high. But with every successive diminution in the fertility of the soils to which recourse is had, the quantities of produce obtained by the same outlays of capital and labour necessarily diminish.1 And this diminution obviously operates to reduce the rate of profit—(1) by lessening the quantity of produce divisible between capitalists and labourers, and (2) by increasing the proportion falling to the share of the latter.

The effect of the decreasing productiveness of the soil, as well on the condition of society, as on the rate of profit, is so very powerful, that we shall endeavour to trace and exhibit its operation a little more fully. It has already been seen, in treating of population, that the principle of increase in the Edition: current; Page: [463] human race is so very strong, as not only to keep population steadily up to the means of subsistence, but to give it a tendency to exceed them. It is true that a peculiar combination of favourable circumstances occasionally causes capital to increase faster than population, and wages are in consequence augmented. But such augmentation is rarely permanent, at least to the whole extent; for the additional stimulus it is almost sure of giving to population, seldom fails, by proportioning the supply of labour to the increased demand, to reduce wages to their old level, or to one not much above it. If, therefore, it were possible always to employ additional capital in raising raw produce, in manufacturing that raw produce when raised, and in conveying the raw and manufactured products from place to place, with an equal return, it is evident, supposing taxation to be stationary, that, speaking generally, the greatest increase of capital would not occasion any considerable fall in the rate of profit. So long as labour may be obtained at the same rate, and as its productive power is not diminished, so long will the profits of stock continue unaffected. It is evident, then, that the mere increase of capital has, by itself, no lasting influence over wages; and it is obviously immaterial, in so far as the rate of profit is concerned, whether ten or a thousand millions be employed in the cultivation of the soil, and in the manufactures and commerce of this or any other kingdom, provided the last million so employed be as productive, or yield as large a return as the first. Now this is invariably the case with the capital vested in manufactures and commerce. The greatest amount of capital and labour may be employed in fashioning raw produce and adapting it to our use, and in transporting it from where it is produced to where it is to be consumed, without a diminished return. Whatever labour may now be required to build a ship, or to construct a machine, it is abundantly certain that an equal quantity will, at any future period, suffice to build a similar ship or to construct a similar machine; and, although these ships and machines were indefinitely Edition: current; Page: [464] multiplied, the last would be as well adapted to every useful purpose, and as serviceable as the first. The probability, indeed, or rather the certainty, is, that the last would be more serviceable than the first. It is not possible to assign limits to the powers and resources of genius, nor consequently to the improvement of machinery, and of the skill and industry of the labourer. The stupendous discoveries of the last and present age will doubtless be equalled, and most probably surpassed, in the ages that are to come. It is, indeed, sufficiently clear, if equal outlays of capital and labour always raised the same quantities of raw produce, that their increase, however great, could not lessen the capacity of employing them with advantage, or sink the rate of profit. But here, and here only, the bounty of nature is limited, and she deals out her gifts with a frugal and parsimonious hand.

• —————“Pater ipse colendi
• Haud facilem esse viam voluit.”

Equal outlays of capital and labour do not always yield equal quantities of raw produce. The soil is of limited extent and limited fertility; and this limited fertility proves the real check—the insuperable obstacle—which prevents the means of subsistence, and consequently the inhabitants, of every country, from increasing in a geometrical proportion, until the space required for carrying on the operations of industry should become deficient.

But it is plain, that the decreasing productiveness of the soils to which every improving society is obliged to resort, will not, as was previously observed, merely lessen the quantity of produce to be divided between profits and wages, but will also increase the proportion of that produce forming the share of the labourer. It is quite impossible to go on increasing the cost of raw produce, the principal part of the subsistence of the poor, by forcing good, or taking inferior lands into cultivation, without increasing wages. A rise of wages is seldom, indeed, exactly coincident with a rise in the price of necessaries, Edition: current; Page: [465] but they can never be very far separated. The price of necessaries is in fact the cost of producing labour. The labourer cannot work if he be not supplied with the means of subsistence; and though a certain period of varying extent, according to the situation of the country at the time, must generally elapse, when necessaries are rising in price, before wages are proportionally augmented, such augmentation will, in most cases, be brought about in the end.

It is plain, therefore, inasmuch as there is never any falling off, but a constant increase, in the productiveness of manufacturing and commercial industry, that the subsistence of the labourer could not be increased in price, and consequently that it would not be necessary to make any additions to his necessary wages, or those required to enable him to subsist and continue his race, but for the diminished power of agricultural labour, originating in the inevitable necessity of resorting to inferior soils to obtain larger supplies of raw produce. The decreasing fertility of the soil is at bottom, the only necessary cause of a fall of profits. The quantity of produce forming the return to capital and labour would never diminish but for the diminution that uniformly takes place in the end, in the productiveness of the soil; nor is there any other physical cause why the proportion of wages to profits should be increased, and the rate of profit diminished, as it usually is, in the progress of society.

We have thus endeavoured to exhibit the ultimate influence of the necessity of resorting to poorer lands for supplies of food on profits and wages. But though this cause of the reduction of profits be “of such magnitude and power as finally to overwhelm every other,”1 its operation may be, and indeed always is, counteracted or facilitated by extrinsic causes. It is obvious, for example, that every discovery or improvement Edition: current; Page: [466] in agriculture, which enables a greater quantity of produce to be obtained for the same expense, has the same influence over profits as if the breadth of superior soils were increased, and may, for a lengthened period, increase the rate of profit.

Had the inventive genius of man been limited in its powers, and the various machines and implements used in agriculture, and the skill of the husbandman, speedily attained to their utmost perfection, the rise in the price of raw produce, and the fall of profits consequent to the increase of population, would have been so apparent as to force themselves on the attention of every one. When, in such a state of things, it became necessary to resort to poorer soils to raise additional quantities of food, a corresponding increase of labour would have been required; for, supposing the perfection of art to be attained, nothing except greater exertion can overcome fresh obstacles. Not only, therefore, would more labour have been necessary to the production of more food, but it would have been necessary precisely according to the increased difficulty of its production. So that, had the arts continued stationary, the price of raw produce would have varied with every variation in the qualities of the soils brought under tillage.

But the circumstances which really regulate the value of raw produce are extremely different. It is true, indeed, that even in those societies that are most rapidly improving, it has, as was previously shown, a constant tendency to rise; for, the rise of profits consequent to every invention, by occasioning a greater demand for labour, gives a fresh stimulus to population; and thus, by increasing the demand for food, again forces the cultivation of poorer soils, and raises prices. But it is evident that improvements render the effects of this great law of nature, from whose all-pervading influence the utmost efforts of human ingenuity cannot enable man to escape, far less palpable and obvious than they would otherwise be. After inferior soils are cultivated, more labourers Edition: current; Page: [467] are, in most cases, required to raise the same quantities of food; but as the efficiency of the labourers is gradually improved, a smaller number is required, in proportion to the work that is performed, than if no such improvement had taken place. The tendency to an increase in the price of raw produce is in this way countervailed. The productive energies of the earth gradually diminish, and we are compelled to resort to less fruitful soils; but the productive energies of the labour employed in their tillage are as constantly augmented by the discoveries and inventions that are always being made. Two directly opposite and continually acting principles are thus set in motion. From the operation of fixed and permanent causes, the increasing sterility of the soil is sure, in the long run, to overmatch the improvements made in machinery and agriculture, prices experiencing a corresponding rise, and profits a corresponding fall. Frequently, however, these improvements more than compensate, during lengthened periods, for the deterioration in the quality of the soils successively cultivated, and occasion a fall of prices and rise of profits; and when the increase of population has again forced the cultivation of still poorer lands, new improvements may again restore prices to their old level, or sink them to a lower.

In so far as the general principle is concerned, the previous reasoning is applicable alike to the commercial world, or to a single nation. It is plain, however, that the fall in the rate of profit, and the consequent check to the progress of society, originating in the necessity of resorting to poorer soils, will most likely be sooner felt in an improving country, which excludes foreign corn from her markets, than in one which maintains a free intercourse with her neighbours. When a manufacturing and commercial country, like England, deals with all the world on fair and liberal principles, she avails herself of the various capacities of production which Providence has given to different countries; and, besides obtaining Edition: current; Page: [468] supplies of food at the cheapest rate at which they can be raised, the numberless markets to which she can resort prevents her from feeling any very injurious consequences from the occasional failure of her own harvests, or from deficiencies in one or a few of the sources whence she draws her foreign supplies; so that she thus goes far to secure for herself constant plenty, and, what is of hardly less importance, the greatest attainable steadiness of price.

During the discussions in regard to the corn laws, it was contended that agriculture was more heavily taxed than either manufacturing or commercial employments, and that in the event of the ports being opened to foreign corn, such a duty should be laid on it as might suffice to countervail the excess of taxation falling on the land. There cannot, we apprehend, be any doubt that the fact and the inference drawn from it were as stated. But both the one and the other were stoutly denied. And supposing that it had been generally admitted that the land was burdened by an extra amount of taxation, it was difficult to specify that amount or the magnitude of the duty that would have been required to neutralize its effect. It is indeed abundantly certain that at whatever sum the latter might have been fixed, it would have furnished an inexhaustible topic for misrepresentation and abuse. No doubt, therefore, Sir Robert Peel judged wisely in making an end of the matter, by opening the ports to importation at all times under a merely nominal duty of one shilling a quarter.

This measure has been in all respects successful. It can no longer be said that the price of food is enhanced by our legislation, and the interests of all classes of producers are now admitted, on all hands, to be, as they always have been, identical. While great fluctuations of price have become comparatively unknown, agriculture has rapidly advanced. Except on the heaviest clay lands, which are ill-suited for the turnip husbandry, rents have been everywhere considerably increased. Agriculture has, in truth, made a greater progress Edition: current; Page: [469] since the abolition of the corn laws than it ever made in any previous period of equal duration.

It is not, however, enough, as many would seem to suppose, to secure abundance of food for a great manufacturing and commercial country like England, that draws a large proportion of her supplies from abroad, that her ports should be open to free importation. It is farther necessary that she should preserve her superiority in manufactures, that is, that she should be able to furnish those that send her corn with equivalents for it on more advantageous terms than they can procure them from others. But as no country in the world possesses so many and such great facilities for the successful prosecution of manufacturing industry as Great Britain, the fair presumption seems to be that we shall continue to preserve our ascendancy in this great department so long as we succeed in preserving internal tranquillity. This, however, is an indispensable condition, and there can be no doubt that the extension of manufactures and trade by increasing the population dependent on them, a population which is always exposed to sudden vicissitudes, may make the continued maintenance of tranquillity a work of difficulty. But it is so obviously necessary to the well-being of all classes, and to the power and influence of the country in the scale of nations, that all that is possible should be done to maintain it entire; and that nothing should ever be done to promote secondary objects, or to stave off temporary difficulties that may either affect the stability of our institutions, or lessen the ability of the government to suppress disturbances.

An unsually low rate of profit not only lessens the power of the country in which it obtains, to accumulate additional capital, but it also creates a strong temptation to transmit portions of its extant capital to other countries. The same principle that would prevent the employment of capital in Yorkshire, if the return to it were less than in Kent or Edition: current; Page: [470] Surrey, regulates its distribution among the different nations of the world. It is true that the love of country, the thousand ties of society and friendship, the ignorance of foreign languages, and the desire to have our stock employed under our own inspection, render a greater difference in the rate of profit necessary to occasion the transfer of capital from one country to another, than from one province of the same country to another. But this love of country has its limits. The love of gain is a no less powerful principle; and whenever capitalists feel assured that their stock may be laid out with tolerable security, and considerably greater advantage in foreign states, its efflux, to a greater or less extent, invariably takes place.

When the taxes which affect the industrial classes are increased, it would seem as if that increase must either immediately fall wholly on profits or wages, or partly on the one and partly on the other. But it generally or rather uniformly gives at the same time such a stimulus to industry and economy as seldom fails to countervail at least in part its depressing influence. And when it is not wholly countervailed in the way now stated, the pressure of the additional taxes by affecting the condition of the labourers and adding new strength to the principle of moral restraint, assists in replacing them on their old footing.

But whenever taxes become so very heavy that their influence cannot be defeated by increased economy and industry, it becomes most injurious. The oppressiveness of taxation was in truth the principal cause of the lowness of profits in the United Provinces during the last two centuries, and of the decline of their manufacturing and commercial prosperity. Nothwithstanding the severe and laudable economy of her rulers, the vast expense incurred by the republic in her revolutionary struggle with Spain, and in her subsequent contests with France and England, led to the contraction of an immense public debt, the interest and other necessary charges on which obliged her to lay heavy taxes on the most indispensable Edition: current; Page: [471] necessaries.1 Among others, high duties were laid on foreign corn when imported, on flour and meal when ground at the mill, and on bread, when it came from the oven. Taxation affected all the sources of national wealth; and so oppressive did it ultimately become, that it was a common saying at Amsterdam, that every dish of fish brought to table was paid once to the fisherman and six times to the state! Wages being necessarily raised so as to enable the labourers to subsist, the weight of these enormous taxes fell principally on the capitalists: and profits being, in consequence, reduced below their level in other countries, the prosperity of Holland gradually declined, her capitalists choosing rather to transfer their stocks to the foreigner than to employ them at home. “L’augmentation successive des impôts, que les paymens des intérêts et les remboursmens ont rendu indispensable, a détruit une grande partie de l’industrie, a diminué le commerce, a diminué ou fort altére l’état florissant où étoit autrefois la population, en resserrant chez le peuple les moyens de subsistance.”2

These statements serve to indicate how variations in the rate of taxation, affecting those engaged in production, affect the rate of profit; but they give no information in regard Edition: current; Page: [472] to the influence which loans to government exercise over that rate. Indeed, as these seldem occur except during war, and are, consequently, of an incidental character, they cannot properly be classed among the circumstances that permanently influence profits, however deserving of separate notice.

If the loans made to government be of trifling amount compared with the disposable capital of the country, they will either exercise no influence, or next to none, over the rate of profit; but if they be large, and particularly if they be negotiated during two or three successive years, their influence can hardly fail of being very sensibly felt. When government comes into the market for money, it necessarily offers such a rate of interest as is sufficient, all things considered, to procure the sum which it wants. Now it is plain, that if the rate offered by government be greater than the rate at which money was previously obtainable on good security, and if it continue for two or three years to negotiate fresh loans on the same or higher terms, the rate of interest will be universally raised; for individuals would be unable to obtain loans, except on the same terms as government.

This, however, is not the only effect of loans to government. Had the latter abstained from borrowing, the stockholders would either have employed the capital which they have lent to government in industrial undertakings, or they would have lent it to others who would have so employed it; and hence the negotiation of a loan, by causing the immediate consumption of a quantity of capital that would otherwise have been reserved as a fund to employ labourers in all time to come, will have an injurious effect upon wages. Capital and population always bear a certain relation to each other; the latter being, in the majority of instances, stationary when the former is stationary, or varying at about the same rate and in the same way that it varies. It is, therefore, clear, that the negotiation of a loan, or the diversion of a portion of stock that has, or would, partly at least, have been employed in industrial undertakings, to military purposes, must unavoidably Edition: current; Page: [473] change the existing relation of stock and labour. Capital is, on the one hand, either actually diminished, or the rapidity of its increase checked, while, on the other, the population is not diminished, nor the rate of its increase retarded; for it has been already seen, that neither the number nor the habits of the people can be sensibly affected, except by slow degrees. The immediate effect of loans is, therefore, to render population redundant as compared with capital; and by depressing wages, to raise, for a while at least, the rate of profit.

Such a rise cannot, however, be permanent. The distressed condition of the labourers naturally adds new strength to the principle of moral restraint, and by retarding the progress of population, gradually raises wages to their old level, or to one not much inferior. It is, however, easy to discover that there are other circumstances that conspire to bring about this result, and which are powerful enough not only to reduce profits to their old level, but to one still lower. It is difficult to imagine that it would be practicable, were the attempt made, so to impose the taxes required to defray the interest of loans, that a considerable portion of them should not fall either directly or indirectly on profits. But, however imposed, the pressure of these new taxes would naturally tend, as was formerly explained, to infuse a greater spirit of industry and economy into those on whom they fell, and would, consequently, occasion a more rapid accumulation of capital when government ceased to borrow. The growing demand for labour, resulting from the operation of this principle, combined with the more powerful influence of moral restraint, over the supply of labour, could not fail of ultimately raising wages to about their old level; and when this is done, profits (supposing, of course, the productiveness of industry not to have varied) will be depressed, because of the increased weight of taxation, to a lower level than they stood at previously to the negotiation of the loans.

These conclusions seem to be verified by what has taken place in this country. According to the researches of Arthur Edition: current; Page: [474] Young, to whom we are indebted for much valuable information respecting the rate of wages at different periods, the medium price of agricultural labour in England in 1767, 1768, and 1770, was very nearly 1s. 3d. a-day; and he further states, that its medium price in 1810 and 1811, when money wages were at the highest elevation to which they attained during the war, amounted to about 2s. 5d., being a rise of nearly, though not quite, 100 per cent. But the price of wheat, according to the account kept at Eton College, during the first-mentioned years, was 51s. a quarter; and during 1810 and 1811 its price was 110s., being a rise of 115 per cent.; and Mr. Young estimates that butcher’s meat had, during the same period, risen 146, butter 140, and cheese 153 per cent.; being, at an average, a rise of 1381/2 per cent., showing that wages, as compared with these articles, had declined in the interval 381/2 per cent., or considerably more than a third; and if the increased cost of beer, leather, and some other necessary articles had been taken into account, the fall in the rate of real wages would have appeared still more striking. No doubt, it is true, that most articles of clothing, particularly cottons, to which Mr. Young has not alluded, fell very greatly in price during the period in question. These, however, do not form such prominent articles as provisions in the consumption of the working classes; so that, notwithstanding what they gained by their fall, it is abundantly certain that real wages sunk considerably during the latter years of the war; and this fall satisfactorily accounts for a part, at least, of the rise that then took place in the rate of profit.

The circumstances that occurred after the termination of the Revolutionary war, and the return to specie payments, in 1819, appear equally consistent with what has previously been advanced. Wages not having fallen in the same proportion as the prices of corn and most articles of subsistence, profits were for a while depressed. They, however, as well as wages, have been increased by the repeal or reduction of many of Edition: current; Page: [475] those taxes that were most oppressive, that has taken place of late years, or since 1840.

It has sometimes been stated, that a loan occasions, during the time it is being spent by government, a greater demand for labour than it would have afforded had it continued in the possession of individuals. We confess, however, that we have not been able to discover any good grounds for this opinion. If government expend the loan in the purchase of military stores, they will not thereby give any greater stimulus to labour than the capitalists who have made the loan would have given had they employed it to purchase ordinary goods, and if government employ it in hiring soldiers and sailors, that will not occasion a greater demand for labour than if it had been employed to hire common labourers. That there is frequently a very brisk demand for labour during periods of war, is no doubt true; but the cause will be found in something else than the mere substitution of government employment for that of individuals.

It has been previously seen (ante, p. 358,) that the rate of wages may be increased, for a while at least, or during war, by the imposition of taxes falling principally on fine houses, furniture, horses, and other articles of luxurious accommodation. The produce of such taxes being, for the most part, expended upon soldiers and sailors, it may be fairly concluded that they tend to increase the demand for labour, and, consequently, also the rate of wages. Practically, however, it is very doubtful whether the taxes imposed in this country have ever had any material, or, indeed, sensible operation in the way now pointed out; and it would seem that the principal cause why the heavy taxation to which we were subjected during the war, and the loans then contracted, did not more seriously injure the labourer, is to be found in their influence in stimulating industry and economy.

Besides being affected by variations in the burden of taxation, and by the negotiation of loans on account of Edition: current; Page: [476] government, the rate of profit is affected by changes in the value of money—increasing when it falls, and diminishing when it rises.

Hume has observed, in his “Essay on Money,” that “in every kingdom into which money begins to flow in greater abundance than formerly, every thing takes a new face; labour and industry gain life, the merchant becomes more enterprising, the manufacturer more diligent and skilful, and even the farmer follows his plough with greater alacrity and attention. But when gold and silver are diminishing, the workman has not the same employment from the manufacturer and merchant, though he pays the same price for every thing in the market. The farmer cannot dispose of his corn and cattle, though he must pay the same rent to the landlord. The poverty, beggary, and sloth that must ensue, are easily foreseen.”

Hume supposed that the stimulus he has so well described, given by an influx of money to industry, originates in the circumstance of the additional money coming first into the hands of capitalists, and enabling them to employ more workmen, and to increase their demand for valuable products. It has, however, been shown that an influx of money could not operate in the way now alluded to, so as to have any very material influence over industry. But although the philosophical historian seems to have mistaken, or rather overlooked, the mode in which an increase of money principally contributes to excite industry and enterprise, there is not, we apprehend, any ground for doubting that such is its effect. Periods when the supply of money and the prices of commodities are increasing, are invariably distinguished by a comparatively brisk demand for labour, and an unusual degree of activity and invention among the industrial classes; and it is not difficult to discover why such is the case. Variations in the value of money obviously influence the pressure of taxation, rents, annuities, and other fixed money payments. When its value declines, all the ascertained Edition: current; Page: [477] burdens affecting the productive classes decline in the same proportion. Fundholders, all sorts of annuitants, landlords, during the currency of their leases, persons employed in public offices, the holders of mortgages,—suffer universally in proportion to the fall in the value of money; their money incomes remaining the same, while the price of all articles is raised: but farmers, while they pay the same rent to their landlords, the same taxes to government, and perhaps the same composition for tithes, sell their produce for a price increased proportionally to the reduced value of money. In like manner, merchants, manufacturers, and tradesmen, pay the same duties on their goods, the same port dues, the same tolls, the same rent for shops and warehouses, the same rate of interest for capital borrowed, at the same time that they obtain increased prices for whatever they have to sell. The profits of such persons are consequently raised by the whole amount of the sums deducted from the fixed charges to which they are subject through the fall in the value of the money in which they are rated and paid. In other words, the condition of husbandmen, manufacturers, tradesmen, and labourers of all descriptions, is improved at the expense of the landed gentry, of their creditors and those of the state, professional parties, &c., whose incomes are immediately, and in some instances permanently reduced,1 by the reduction in the value of the currency.

Now, when we consider the immense number of individuals in Great Britain, such as landlords, fundholders, annuitants, persons living on the interest of money, persons who, having retired from business, receive a fixed salary from their successors, clergymen, lawyers, physicians, &c., it is evident that the total aggregate loss such persons would sustain by any considerable fall in the value of money would be exceedingly great. But it is also evident, that what is thus lost by them is gained by others,—by those who are actively employed Edition: current; Page: [478] in industrial undertakings, and whose prosperity is always supposed to be identical with that of the public.

A depreciation of the currency must, therefore, by lightening the pressure of taxation, and of all fixed charges affecting individuals engaged in agriculture, manufactures, and commerce, proportionally increase their profits; and it is hardly necessary to add, that this increased profit will operate as a spur to production, quicken all the operations of trade, and occasion an increased demand for labour.

The opposite effects will of course follow, when, instead of falling, the currency becomes more valuable; taxes and fixed charges being then augmented in an equal degree, the profits of those by whom those taxes and other fixed charges are borne, are necessarily reduced in the same proportion. Here, then, is a key by which we may readily explain many apparent anomalies. The prosperity of the country during the latter years of the war, in 1824 and 1825, and in 1835 and 1836, was undoubtedly owing, in a very considerable degree, to the fall in the value of money, originating in the great additions that were then made to the paper currency; while the peculiarly severe distresses to which the industrial classes were exposed in 1815 and 1816, 1819, 1826, and 1838, are chiefly ascribable to the reductions that were then made in the quantity of money, and the consequent increase of its value. There can be no doubt, indeed, that a rapid reduction of the quantity, or a rapid increase of the value of money, by giving a sudden shock to industry, and vitiating the basis on which innumerable contracts have been framed to the prejudice of the industrial classes, has, in the first instance, a far more pernicious influence than can be fairly ascribed to the mere increase of their burdens. Still, however, the effects of an increase of this sort are always obvious, and are disastrous according to the degree in which the value of the currency may be raised.

We should be sorry were it imagined, from any thing now stated, that we are disposed to approve, in any degree, of the Edition: current; Page: [479] policy of those who have recommended that, to lighten the pressure of taxation and the burdens falling on the industrial classes, the value of money should be reduced by a legislative enactment. Our object has merely been to explain the influence of changes, which, originating in variations in the cost of the precious metals, or in political or financial measures, or the abuse of banking, affect, without its being intended, the value of money. An intentional reduction of the standard would have the effects already mentioned; but it would also have others, which must not be lost sight of in estimating its probable influence. Besides diminishing the weight of taxation and of the other burdens laid upon the industrial classes, it would partially subvert the right of property, and go far to annihilate all confidence in the legislature. Whatever, therefore, might be gained on the one hand by such a measure, would, there is every reason to think, be more than lost on the other. Public and private credit would, for a while, be destroyed; and a large amount of capital would be transferred to foreign countries, as to places of security. In this respect a degradation of the standard would be worse than an avowed public bankruptcy to the same,1 or even to a greater extent; for the latter would affect the creditors of the state only, whereas the former would, besides them, affect the creditors of all private individuals, and would, in fact, defraud every one who had lent money or capital, or sold goods on credit, of a portion of his just claims! Perhaps, as Hume conjectures, credit might, at no distant period, grow up again, even after so flagrant a breach of faith; but such a result could hardly be expected, unless the country were to continue at peace, and to become decidedly more prosperous. Should we be involved in war, or should the measure not Edition: current; Page: [480] be followed by the anticipated effect in relieving the national distresses, it is very unlikely that credit should revive; for, in the former case, few would be willing, unless tempted by the offer of a large bonus, to lend to a government which had so strikingly evinced its contempt for the most sacred engagements; and in the latter, the continuance of the distress would naturally excite a fear lest it should lead to a repetition of the same violence for which it had already been made the pretext. Nothing, in fact, can ever justify a government in resorting to such a dishonest, pettifogging trick as a reduction of the value of money. If the public affairs should ever be so desperate as to require that some extraordinary effort should be made to lighten the pressure on the national resources, the exigency should be met by a contribution on capital, or, if that should be impracticable, by compounding with the national creditors. The honour and well-being of a nation will always be best consulted by looking its difficulties fairly in the face; and will, on the contrary, be most deeply compromised by attempting to evade them by a miserable fraud. The advantages that a change in the value of money has occasionally conferred on the industrial classes, are the result of natural or fortuitous causes. They cannot be secured by voluntarily enfeebling the standard; for this, being a scheme to benefit one part of society by defrauding another part, is sure to bring along with it evils that will not merely neutralise, but very greatly overbalance its advantages. At bottom there is no real distinction between what is just and what is useful. The accidental conflagration of the fleets of their rivals would no doubt have increased the power of the Athenians; but had they adopted the advice ascribed to Themistocles, and attempted to secure their ascendancy by the basest treachery, they would certainly have missed their end, and have become objects of universal hostility as well as of contempt. “Nihil est quod adhuc de republicâ putem dictum, et quo possim longiùs progredi, nisi sit confirmatum, non modò falsum esse illud, sine injuriâEdition: current; Page: [481]non posse, sed hoc verissimum, sine summâ justitiâ rem publicam regi non posse.”1

The statements now made sufficiently show, that loans to government, and changes in the value of money, affect profits only by affecting wages, or the taxes, or other fixed charges which enter into the cost of production; so that whether government be borrowing or paying off debts, and whether the value of money be rising, falling, or stationary, it is still true that profits do not rise except when industry becomes more productive, or when wages or taxes are reduced; and that they do not fall except when industry becomes less productive, or wages or taxes are augmented.

We have seen in a previous chapter, that a low rate of profit, by lessening the means of accumulating capital, and stimulating its transfer to countries where profits are higher, can hardly fail to be, in the end, most injurious. The investigations in which we have now been engaged, show that this calamity can be averted, or, if it have occurred, can be got rid of, only by increasing the productiveness of industry, or diminishing the burdens that fall on the labouring classes. Hence the vast importance of economy in the national expenditure, and hence also a principal advantage of improvements in the arts, and of the opening of new facilities for commercial intercourse. Whatever tends to make industry more productive, and to diminish the burdens of the industrial classes, must in so far increase the rate of profit; and this is never increased without a corresponding increase of capital, or of the means of making new improvements and of employing more workpeople.

Edition: current; Page: [482]