On the Principles of Political Economy and Taxation, by David Ricardo 3rd edition, 1821 Preface The produce of the earth, all that is derived from its surface by the united application of labour, machinery and capital, is divided among three classes of the community, namely the proprietor of the land, the owner of the stock or capital necessary for its cultivation, and the labourers by whose industry it is cultivated. But in different stages of society, the proportions of the whole produce of the earth, which will be allotted to each of these classes, under the names of rent, profit and wages, will be essentially different, depending mainly on the actual fertility of the soil, on the accumulation of capital and population, and on the skill, ingenuity and instruments employed in agriculture. To determine the laws which regulate this distribution is the principal problem in political economy, much as the science has been improved by the writings of Turgut, Stuart Smith, Sey, Susmondi and others, they afford very little satisfactory information respecting the natural course of rent, profit and wages. In 1815, Mr. Malthus, in his Inquiry into the Nature and Progress of Rent, and a fellow of University College Oxford, in his Essay on the Application of Capital to Land, presented to the world, nearly at the same moment, the true doctrine of rent, without a knowledge of which it is impossible to understand the effect of the progress of wealth on profits and wages, or to trace satisfactorily the influence of taxation on different classes of the community, particularly when the commodities taxed are the productions immediately derived from the surface of the earth. Adam Smith and the other able writers to whom I have alluded not having viewed correctly the principles of rent have, it appears to me, overlooked many important truths, which can only be discovered after the subject of rent is thoroughly understood. To supply this deficiency, abilities are required of a far superior cast to any possessed by the writer of the following pages, yet after having given to this subject his best consideration, after the aid which he has derived from the work of the above mentioned eminent writers, and after the valuable experience which a few late years, abounding in facts, have yielded to the present generation, it will not he trusts be deemed presumptuous in him to state his opinions on the laws of profits and wages and on the operation of taxes. If the principles which he deems correct should be found to be so, it will be for others more able than himself to trace them to all their important consequences. The writer in combating received opinions has found it necessary to advert more particularly to those passages in the writings of Adam Smith, from which he sees reason to differ. He hopes it will not on that account be suspected that he does not, in common with all those who acknowledge the importance of the science of political economy, participate in the admiration which the profound work of this celebrated author so justly excites. The same remark may be applied to the excellent works of Monsieur Sey, who not only was the first or among the first of continental writers who justly appreciated and applied the principles of Smith, and who has done more than all other continental writers taken together to recommend the principles of that enlightened and beneficial system to the nations of Europe, but who has succeeded in placing the science in a more logical and more instructive order, and has enriched it by several discussions, original, accurate and profound. The respect however which the author entertains for the writings of this gentleman has not prevented him from commenting with that freedom which he thinks the interests of science require on such passages of the economy politic, has appeared at variance with his own ideas, advertisement to the third edition. In this edition I have endeavored to explain more fully than in the last my opinion on the difficult subject of value, and for that purpose have made a few additions to the first chapter. I have also inserted a new chapter on the subject of machinery and on the effects of its improvement on the interests of the different classes of the state. In the chapter on the distinctive properties of value and riches, I have examined the doctrines of Musia say on that important question, as amended in the fourth and last edition of his work. I have in the last chapter endeavored to place in a stronger point of view than before the doctrine of the ability of a country to pay additional money taxes, although the aggregate money value of the mass of its commodities should fall. In consequence either of the diminished quantity of labor required to produce its corn at home by improvements in its husbandry, or from its obtaining a part of its corn at a cheaper price from abroad by means of the exportation of its manufactured commodities. This consideration is of great importance as it regards the question of the policy of leaving unrestricted the importation of foreign corn, particularly in a country burdened with a heavy fixed money taxation, the consequence of an immense national debt. I have endeavored to show that the ability to pay taxes depends not on the gross money value of the mass of commodities, nor on the net money value of the revenues of capitalists and landlords, but on the money value of each man's revenue compared to the money value of the commodities which he usually consumes. March 26, 1821, Chapter 1, On Value. The value of a commodity or the quantity of any other commodity for which it will exchange depends on the relative quantity of labor which is necessary for its production, and not on the greater or less compensation which is paid for that labor. It has been observed by Adam Smith that the word value has two different meanings and sometimes expresses the utility of some particular object and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called value in use, the other value in exchange. The things he continues which have the greatest value in use have frequently little or no value in exchange, and on the contrary those which have the greatest value in exchange have little or no value in use. Water and air are abundantly useful, they are indeed indispensable to existence, yet under ordinary circumstances nothing can be obtained in exchange for them. Gold on the contrary though of little use compared with air or water will exchange for a great quantity of other goods. Utility then is not the measure of exchangeable value although it is absolutely essential to it. If a commodity were in no way useful, in other words if it could in no way contribute to our gratification it would be destitute of exchangeable value, however scarce it might be or whatever quantity of labor might be necessary to procure it. Possessing utility, commodities derive their exchangeable value from two sources, from their scarcity and from the quantity of labor required to obtain them. There are some commodities the value of which is determined by their scarcity alone. No labor can increase the quantity of such goods and therefore their value cannot be lowered by an increased supply. Some rare statues and pictures, scarce books and coins, wines of a peculiar quality which can be made only from greats grown on a particular soil of which there is a very limited quantity, are all of this description. Their value is wholly independent of the quantity of labor originally necessary to produce them and varies with the varying wealth and inclinations of those who are desirous to possess them. These commodities however form a very small part of the mass of commodities daily exchanged in the market. By far the greatest part of those goods which are the objects of desire are procured by labor and they may be multiplied, not in one country alone but in many, almost without any assignable limit if we are disposed to bestow the labor necessary to obtain them. In speaking then of commodities of their exchangeable value and of the laws which regulate their relative prices, we mean always such commodities only as can be increased in quantity by the exertion of human industry and on the production of which competition operates without restraint. In the early stages of society the exchangeable value of these commodities or the rule which determines how much of one shall be given in exchange for another depends almost exclusively on the comparative quantity of labor expended on each. The real price of everything says Adam Smith, what everything really costs to the man who wants to acquire it is the toil and trouble of acquiring it. What everything is really worth to it or the man who has acquired it and who wants to dispose of it or exchange it for something else is the toil and trouble which it can save to himself and which it can impose upon other people. Labor was the first price, the original purchase money that was paid for all things. Again in that early and rude state of society which precedes both the accumulation of stock and the appropriation of land, the proportion between the quantities of labor necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another. If among a nation of hunters for example it usually costs twice the labor to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer. It is natural that what is usually the produce of two days or two hours labor should be worth double of what is usually the produce of one days or one hours labor. That this is really the foundation of the exchangeable value of all things excepting those which cannot be increased by human industry is a doctrine of the utmost importance in political economy. For from no source to so many errors and so much difference of opinion in that science precede as from the vague ideas which are attached to the word value. If the quantity of labor realized in commodities regulate their exchangeable value every increase of the quantity of labor must augment the value of that commodity on which it is exercised as every diminution must lower it. Adam Smith who so accurately defined the original source of exchangeable value and who was bound in consistency to maintain that all things became more or less valuable in proportion as more or less labor was bestowed on their production has himself erected another standard measure of value and speaks of things being more or less valuable in proportion as they will exchange for more or less of this standard measure. Sometimes he speaks of corn at other times of labor as a standard measure not the quantity of labor bestowed on the production of any object but the quantity which it can command in the market as if these were two equivalent expressions and as if because a man's labor had become doubly efficient and he could therefore produce twice the quantity of a commodity it would necessarily receive twice the former quantity in exchange for it. If this indeed were true if the reward of the laborer were always in proportion to what he produced the quantity of labor bestowed on a commodity and the quantity of labor which that commodity would purchase would be equal and either might accurately measure the variations of other things but they are not equal. The first is under many circumstances an invariable standard indicating correctly the variations of other things the latter is subject to as many fluctuations as the commodities compared with it. Adam Smith after most ably showing the insufficiency of a variable medium such as gold and silver for the purpose of determining the varying value of other things has himself by fixing on corn or labor chosen a medium no less variable. Gold and silver are no doubt subject to fluctuations from the discovery of new and more abundant mines but such discoveries are rare and their effects though powerful are limited to periods of comparatively short duration. They are subject also to fluctuation from improvements in the skill and machinery with which the mines may be worked as in consequence of such improvements the greater quantity may be obtained with the same labor. They are further subject to fluctuation from the decreasing produce of the mines after they have yielded a supply to the world for a succession of ages. But from which of these sources of fluctuation is corn exempted? Does not that also vary on one hand from improvements in agriculture from improved machinery and implements used in husbandry as well as from the discovery of new tracts of fertile land which in other countries may be taken into cultivation and which will affect the value of corn in every market where importation is free. Is it not on the other hand subject to be enhanced in value from prohibitions of importation from increasing population and wealth and the greater difficulty of obtaining the increased supplies on account of the additional quantity of labor which the cultivation of inferior lands requires? Is not the value of labor equally variable being not only affected as all other things are by the proportion between the supply and demand which uniformly varies with every change in the condition of the community but also by the varying price of food and other necessaries on which the wages of labor are expended? In the same country double the quantity of labor may be required to produce a given quantity of food and necessaries at one time that may be necessary at another and at a distant time. Yet the laborer's reward may possibly be very little diminished. If the laborer's wages at the former period were a certain quantity of food and necessaries he probably could not have subsisted if that quantity had been reduced. Food and necessaries in this case will have risen 100% if estimated by the quantity of labor necessary to their production while they will scarcely have increased in value if measured by the quantity of labor for which they will exchange. The same remark may be made respecting two or more countries. In America and Poland on the last land taken into cultivation a year's labor of any given number of men will produce much more corn than on lands similarly circumstances in England. Now supposing all other necessaries to be equally cheap in those three countries would it not be a great mistake to conclude that the quantity of corn awarded to the laborer would in each country be in proportion to the facility of production? If the shoes and clothing of the laborer could by improvements in machinery be produced by one fourth of the labor now necessary to their production they would probably fall 75% but so far as it from being true that the laborer would thereby be enabled permanently to consume four coats or four pairs of shoes instead of one that it is probable his wages would in no long time be adjusted by the effects of competition and the stimulus to population to the new value of the necessaries on which they were expended. If these improvements extended to all the objects of the laborer's consumption we should find him probably at the end of a very few years in possession of only a small if any addition to his enjoyments although the exchangeable value of those commodities compared with any other commodity in the manufacture of which no such improvement were made had sustained a very considerable reduction and though they were the produce of a very considerably diminished quantity of labor it cannot then be correct to say with Adam Smith that as labor may sometimes purchase a greater and sometimes a smaller quantity of goods it is their value which varies not that of the labor which purchases them and therefore that labor alone never varying in its own value is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared but it is correct to say as Adam Smith had previously said that the proportion between the quantities of labor necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another or in other words that it is the comparative quantity of commodities which labor will produce that determines their present or past relative value and not the comparative quantities of commodities which are given to the laborer in exchange for his labor two commodities vary in relative value and we wish to know in which the variation has really taken place if we compare the present value of one with shoes stockings hats iron sugar and all other commodities we find that it will exchange for precisely the same quantity of all these things as before if we compare the other with the same commodities we find it has varied with respect to them all we may then with great probability infer that the variation has been in this commodity and not in the commodities with which we have compared it if one examining still more particularly into all the circumstances connected with the production of these various commodities we find that precisely the same quantity of labor and capital are necessary to the production of the shoes stockings hats iron sugar et cetera but that the same quantity as before is not necessary to produce the single commodity whose relative value is altered probability has changed into certainty and we are sure that the variation is in the single commodity we then discover also the cause of its variation if I found that an ounce of gold would exchange for a less quantity of all the commodities above enumerated and many others and if more over I found that by the discovery of a new and more fertile mine or by the employment of machinery to great advantage a given quantity of gold could be obtained with a less quantity of labor I should be justified in saying that the cause of the alteration in the value of gold relatively to other commodities was the greater facility of its production or the smaller quantity of labor necessary to obtain it in like manner if labor fell very considerably in value relatively to all other things and if I found that its fall was in consequence of an abundant supply encouraged by the great facility with which corn and the other necessaries of the laborer were produced it would I apprehend be correct for me to say that corn and necessaries had fallen in value in consequence of less quantity of labor being necessary to produce them and that this facility of providing for the support of the laborer had been followed by a fall in the value of labor no say Adam Smith and Mr. Malthus in the case of the gold you were correct in calling its variation a fall of its value because corn and labor had not then varied and as gold would command a less quantity of them as well as of all other things than before it was correct to say that all things had remained stationary and that gold only had varied but when corn and labor fall things which we have selected to be our standard measure of value not withstanding all the variations to which we acknowledge they are subject it would be highly improper to say so the correct language will be to say that corn and labor have remained stationary and all other things have risen in value now it is against this language that I protest I find that precisely as in the case of the gold the cause of the variation between corn and other things is the smaller quantity of labor necessary to produce it and therefore by all just reasoning I am bound to call the variation of corn and labor a fall in their value and not a rise in the value of the things with which they are compared if I have to hire a laborer for a week and instead of 10 shillings I pay him eight no variation having taken place in the value of money the laborer can probably obtain more food and necessaries with his eight shillings than he before obtained for 10 but this is owing not to a rise in the real value of his wages as stated by Adam Smith and more recently by Mr. Malthus but to a fall in the value of the things on which his wages are expended things perfectly distinct and yet for calling this a fall in the real value of wages I am told that I adopt new and unusual language not reconcilable with the true principles of the science to me it appears that the unusual and indeed inconsistent language is that used by my opponents suppose a laborer could be paid a bushel of corn for a week's work when the price of corn is 80 shillings per quarter and that he is paid a bushel and a quarter when the price falls to 40 shillings suppose too that he consumes half a bushel of corn a week in his own family and exchanges the remainder for other things such as fuel soap candles tea sugar salt et cetera et cetera if the three fourths of a bushel which will remain to him in one case cannot procure him as much of the above commodities as a half a bushel did in the other which it will not will labor have risen or fallen in value risen Adam Smith must say because his standard is corn and the laborer receives more corn for a week's labor fallen must the same Adam Smith say because the value of a thing depends on the power of purchasing other goods which the possession of that object conveys and labor has a less power of purchasing such other goods section two labor of different qualities differently rewarded this is no cause of variation in the relative value of commodities in speaking however of labor as being the foundation of all value and the relative quantity of labor is almost exclusively determining the relative value of commodities I must not be supposed to be inattentive to the different qualities of labor and the difficulty of comparing an hours or a day's labor in one employment with the same duration of labor in another the estimation in which different qualities of labor are held come soon to be adjusted in the market with sufficient precision for all practical purposes and depends much on the comparative skill of the laborer and intensity of the labor performed the scale when once formed is liable to little variation if a day's laborer of a working jeweler be more valuable than a day's laborer of a common laborer it has long ago been adjusted and placed in its proper position in the scale of value footnote from wealth of nations book one quote but though labor be the real measure of the exchangeable value of all commodities it is not that by which their value is commonly estimated it is often difficult to ascertain the proportion between two different quantities of labor the time spent in two different sorts of work will not always alone determine this proportion the different degrees of hardship endured and of ingenuity exercised must likewise be taken into account there may be more labor in an hour's hard work than in two hours easy business or in an hour's application to a trade which it costs 10 years labor to learn than in a month's industry at an ordinary and obvious employment but it is not easy to find any accurate measure either of hardship or ingenuity in exchanging indeed the different productions of different sorts of labor for one another some allowance is commonly made for both it is adjusted however not by any accurate measure but by the higgling and bargaining of the market according to that sort of rough equality which though not exact is sufficient for carrying on the business of common life wealth of nations book one unquote end of footnote in comparing therefore the value of the same commodity at different periods of time the consideration of the comparative skill and intensity of labor required for that particular commodity needs scarcely to be attended to as it operates equally at both periods one description of labor at one time is compared with the same description of labor at another if a tenth, a fifth, or a fourth has been added or taken away an effect proportioned to the cause will be produced on the relative value of the commodity if a piece of cloth be now of the value of two pieces of linen and if in 10 years hence the ordinary value of a piece of cloth should be four pieces of linen we may safely conclude that either more labor is required to make the cloth or less to make the linen or that both causes have operated as the inquiry to which I wish to draw the listener's attention relates to the effect of the variations in the relative value of commodities and not in their absolute value it will be of little importance to examine into the comparative degree of estimation in which the different kinds of human labor are held we may fairly conclude that whatever inequality there might originally have been in them whatever the ingenuity skill or time necessary for the requirement of one species of manual dexterity more than another it continues nearly the same from one generation to another or at least that the variation is very inconsiderable from year to year and therefore can have little effect for short periods on the relative value of commodities the proportion between the different rates both of wages and profit in the different employments of labor and stock seems not to be much affected as has already been observed by the riches or poverty the advancing, stationary or declining state of the society such revolutions in the public welfare though they affect the general rates both of wages and profit must in the end affect them equally in all different employments the proportion between them therefore must remain the same and cannot well be altered at least for any considerable time by any such revolutions section three not only the labor applied immediately to commodities affect their value but the labor also which is bestowed on the compliments tools and buildings with which much labor is assisted even in that early state to which Adam Smith refers some capital though possibly made and accumulated by the hunter himself would be necessary to enable him to kill his game without some weapon neither the beaver nor the deer could be destroyed and therefore the value of these animals would be regulated not solely by the time and labor necessary to their destruction but also by the time and labor necessary for providing the hunter's capital the weapon by the aid of which their destruction was affected suppose the weapon necessary to kill the beaver was constructed with much more labor than that necessary to kill the deer on account of the greater difficulty of approaching near to the former animal and the consequent necessity of its being more true to its mark one beaver would naturally be of more value than two deer and precisely for this reason that more labor would on the whole be necessary to its destruction or suppose that the same quantity of labor was necessary to make both weapons but that they were a very unequal durability of the durable implement only a small portion of its value would be transferred to the commodity a much greater portion of the value of the less durable implement would be realized in the commodity which it contributed to produce all the implements necessary to kill the beaver and deer might belong to one class of men and the labor employed in their destruction might be furnished by another class still their comparative prices would be in proportion to the actual labor bestowed both on the formation of the capital and on the destruction of the animals under different circumstances of plenty or scarcity of capital as compared with labor under different circumstances of plenty or scarcity of the food and necessary is essential to the support of men those who furnished an equal value of capital for either one employment or for the other might have a half a fourth or an eighth of the produce obtained the remainder being paid as wages to those who furnished the labor if this division could not affect the relative value of these commodities since whether the profits of capital were greater or less whether they were 50 20 or 10 percent or whether the wages of labor were high or low they would operate equally on both employments if we suppose the occupations of the society extended that some provide canoes and tackle necessary for fishing others the seed and root machinery first used in agriculture still the same principle would hold true that the exchangeable value of the commodities produced would be in proportion to the labor bestowed on their production not on their immediate production only but on all those implements or machines required to give effect to the particular labor to which they were applied if we look to a state of society in which greater improvements have been made and in which arts and commerce flourish we shall still find that commodities vary in value conformably with this principle in estimating the exchangeable value of stockings for example we shall find that their value comparatively with other things depends on the total quantity of labor necessary to manufacture them and bring them to market first there is the labor necessary to cultivate the land on which the raw cotton is grown secondly the labor of conveying the cotton to the country where the stockings are to be manufactured which includes a portion of the labor bestowed in building the ship in which it is conveyed and which is charged in the freight of the goods thirdly the labor of the spinner and weaver fourthly a portion of the labor of the engineer smith and carpenter who erected the buildings and machinery by the help of which they are made fifthly the labor of the retail dealer and of many others whom it is unnecessary for that particular eyes the aggregate sum of these various kinds of labor determines the quantity of other things for which these stockings will exchange while the same consideration of the various constants of labor which have been bestowed on those other things will equally govern the portion of them which will be given for the stockings to convince ourselves that this is the real foundation of exchangeable value let us suppose any improvement to be made in the means of abridging labor in any one of the various processes through which the raw cotton must pass before the manufactured stockings come to the market to be exchanged for other things and observe the effects which will follow if fewer men were required to cultivate the raw cotton or if fewer sailors were employed in navigating or shipwrights in constructing the ship in which it was conveyed to us if fewer hands were employed in raising the buildings and machinery or if these when raised were rendered more efficient the stockings would inevitably fall in value and consequently command less of other things they would fall because a less quantity of labor was necessary to their production and would therefore exchange for a smaller quantity of those things in which no such abridgment of labor had been made economy in the use of labor never fails to reduce the relative value of a commodity whether the saving be in the labor necessary to the manufacture of the commodity itself or in that necessary to the formation of the capital by the aid of which it is produced in either case the price of stockings would fall whether there were fewer men employed as bleachers spinners and weavers persons immediately necessary to their manufacture or as sailors carriers engineers and smiths persons more indirectly concerned in the one case the whole saving of labor would fall on the stockings because that portion of labor was wholly confined to the stockings in the other a portion only would fall on the stockings the remainder being applied to all those other commodities to the production of which the building's machinery and carriage were subservient suppose that in the early stages of society the bows and arrows of the hunter were of equal value and of equal durability with the canoe and implements of the fisherman both being the produce of the same quantity of labor under such circumstances the value of the deer the produce of the hunter's day's labor would be exactly equal to the value of the fish the produce of the fisherman's day's labor the comparative value of the fish and the game would be entirely regulated by the quantity of labor realized in each whatever might be the quantity of production or however high or low general wages or profits might be if for example the canoes and implements of the fisherman were of the value of 100 pounds and were calculated to last for 10 years and he employed 10 men whose annual labor cost 100 pounds and who in one day obtained by their labor 20 salmon if the weapons employed by the hunter were also of 100 pounds value and calculated to last 10 years and if he also employed 10 men whose annual labor cost 100 pounds and who in one day procured him 10 deer then the natural price of a deer would be 2 salmon whether the proportion of the whole produced bestowed on the men who obtained it were large or small the proportion which might be paid for wages is of the utmost importance in the question of profits for it must at once be seen that profits would be high or low exactly in proportion as wages were low or high but it could not in the least affect the relative value of fish and game as wages would be high or low at the same time in both occupations if the hunter urged the plea of his paying a large proportion or the value of a large proportion of his game for wages as an inducement to the fisherman to give him more fish in exchange for his game the latter would state that he was equally affected by the same cause and therefore under all variations of wages and profits under all the effects of accumulation of capital as long as they continued by a day's labor to obtain respectively the same quantity of fish and the same quantity of game the natural rate of exchange would be 1 deer for 2 salmon if with the same quantity of labor a less quantity of fish or a greater quantity of game were obtained the value of fish would rise in comparison with that of game if on the contrary with the same quantity of labor a less quantity of game or a greater quantity of fish was obtained game would rise in comparison with fish if there were any other commodity which was invariable in its value we should be able to ascertain by comparing the value of fish and game with this commodity how much of the variation was to be attributed to a cause which affected the value of fish and how much to a cause which affected the value of game suppose money to be that commodity if a salmon were worth one pound and a deer two pounds one deer would be worth two salmon but a deer might become of the value of three salmon for more labor might be required to obtain the deer or less to get the salmon or both these causes might operate at the same time if we had this invariable standard we might easily ascertain in what degree either of these causes operated if salmon continued to sell for one pound whilst deer rose to three pounds we might conclude that more labor was required to obtain the deer if deer continued at the same price of two pounds and salmon sold for 13 shillings four pence we might then be sure that less labor was required to obtain the salmon and if deer rose to two pounds 10 shillings and salmon fell to 16 shillings eight pence we should be convinced that both causes had operated in producing the alteration of the relative value of these commodities no alteration in the wages of labor could produce any alteration in the relative value of these commodities for suppose them to rise no greater quantity of labor would be required in any of these occupations but it would be paid for at a higher price and the same reasons which should make the hunter and fisherman endeavour to raise the value of their game and fish would cause the owner of the mine to raise the value of his gold this inducement acting with the same force on all these three occupations and the relative situation of those engaged in them being the same before and after the rise of wages the relative value of game fish and gold would continue unaltered wages might rise 20 percent and profits consequently fall in a greater or less proportion without occasioning the least alteration in the relative value of these commodities now suppose that with the same labor and fixed capital more fish could be produced but no more gold or game the relative value of fish would fall in comparison with gold or game if instead of 20 salmon 25 were the produce of one day's labor the price of a salmon would be 16 shillings instead of a pound and two salmon at a half instead of two salmon would be given in exchange for one deer but the price of deer would continue at two pounds as before in the same manner if fewer fish could be obtained with the same capital and labor fish would rise in comparative value fish then would rise or fall in exchangeable value only because more or less labor was required to obtain a given quantity and it never could rise or fall beyond the proportion of the increased or diminished quantity of labor required if we had then an invariable standard by which measure the variation in other commodities we should the utmost limit to which they could permanently rise if produced under the circumstances supposed was proportioned the additional quantity of labor required for their production and that unless more labor were required for their production they could not rise in any degree whatever a rise of wages would not raise them in money value nor relatively to any other commodities the production of which required no additional quantity of labor which employed the same proportion of fixed and circulating capital and fixed capital of the same durability if more or less labor were required in the production of the other commodity we have already stated that this will immediately occasion an alteration in its relative value but such alteration is owing to the altered quantity of requisite labor and not to the rise of wages section four the principle that the quantity of labor bestowed on the production of commodities regulates their relative value considerably modified by the employment of machinery and other fixed and durable capital in the former section we have supposed the implements and weapons necessary to kill the deer and salmon to be equally durable and to be the result of the same quantity of labor and we have seen that the variations in the relative value of deer and salmon depended solely on the varying quantities of labor necessary to obtain them but in every state of society the tools, implements, buildings and machinery employed in different trades may be of various degrees of durability and may require different portions of labor to produce them the proportions too in which the capital that is to support labor and the capital that is invested in tools, machinery and buildings may be variously combined this difference in the degree of durability of fixed capital and this variety in the proportions in which the two sorts of capital may be combined introduce another cause besides the greater or less quantity of labor necessary to produce commodities for the variations in their relative value this cause is the rise or fall in the value of labor the food and clothing consumed by the laborer the buildings in which he works the implements with which his labor is assisted are all of a perishable nature there is however a vast difference in the time for which these different capitals will endure a steam engine will last longer than a ship than the clothing of the laborer and the clothing of the laborer longer than the food which he consumes according as capital is rapidly perishable and requires to be frequently reproduced or is of slow consumption it is classed under the heads of circulating or a fixed capital footnote a division not essential and in which the line of demarcation cannot be accurately drawn end of footnote a brewer whose buildings and machinery are valuable and durable is said to employ a large portion of fixed capital on the contrary a shoemaker whose capital is chiefly employed in the payment of wages which are expended on food and clothing commodities more perishable than buildings and machinery is said to employ a large proportion of his capital as circulating capital it is also to be observed that the circulating capital may circulate or be returned to its employer in very unequal times the wheat bought by a farmer to sow is comparatively a fixed capital to the wheat purchased by a baker to make into loaves one leaves it in the ground and can obtain no return for a year the other can get it ground into flour sell it as bread to his customers and have his capital free to renew the same or commence any other employment in a week two trades then may employ the same amount of capital but it may be very differently divided with respect to the portion which is fixed and that which is circulating in one trade very little capital may be employed as circulating capital that is to say in the support of labor it may be principally invested in machinery implements buildings etc capital of a comparatively fixed and durable character in another trade the same amount of capital may be used but it may be chiefly employed in the support of labor and very little may be invested in implements machines and buildings a rise in the wages of labor cannot fail to affect unequally commodities produced under such different circumstances again two manufacturers may employ the same amount of fixed and the same amount of circulating capital but the durability of their fixed capitals may be very unequal one may have steam engines of the value of 10 000 pounds the other ships of the same value if men employed no machinery in production but labor only and were all the same length of time before they brought their commodities to market the exchangeable value of their goods would be precisely in proportion to the quantity of labor employed if they employed fixed capital of the same value and of the same durability then too the value of the commodities produced would be the same and they would vary with the greater or less quantity of labor employed on their production but although commodities produced under similar circumstances would not vary with respect to each other from any cause but an additional diminution of the quantity of labor necessary to produce one or other of them yet compared with others not produced with the same proportionate quantity of fixed capital they would vary from the other cause also which i have before mentioned namely a rise in the value of labor although neither more nor less labor were employed in the production of either of them barley and oats would continue to bear the same relation to each other under any variation of wages cotton goods and cloth would do the same if they also were produced under circumstances precisely similar to each other but yet with a rise or fall of wages barley might be more or less valuable compared with cotton goods and oats compared with cloth suppose two men employ 100 men each for a year in the construction of two machines and another man employs the same number of men in cultivating corn each of the machines at the end of the year will be of the same value as the corn but they will each be produced by the same quantity of labor suppose one of the owners of one of the machines to employ it with the assistance of 100 men the following year in making cloth and the owner of the other machine to employ his also with the assistance likewise of 100 men in making cotton goods while the farmer continues to employ 100 men as before in the cultivation of corn during the second year they will all have employed the same quantity of labor but the goods and machine together of the clothier and also of the cotton manufacturer will be the result of the labor of 200 men employed for a year or rather of the labor of 100 men for two years whereas the corn will be produced by the labor of 100 men for one year consequently if the corn be of the value of 500 pounds the machine and cloth of the clothier together ought to be of the value of 1,000 pounds and the machine and cotton goods of the cotton manufacturer ought to be also of twice the value of corn but they will be of more than twice the value of the corn for the profit on the clothiers and cotton manufacturer's capital for the first year has been added to their capitals while that of the farmer has been expended and enjoyed on account then of the different degrees of durability of their capitals or which is the same thing on account of the time which must elapse before one set of commodities can be brought to market they will be valuable not exactly in proportion to the quantity of labor bestowed on them they will not be as two to one but something more to compensate for the greater length of time which must elapse before the most valuable can be brought to market suppose that for the labor of each workman 50 pounds per animal paid or that 5,000 pounds capital were employed and profits were 10 percent the value of each of the machines as well as of the corn at the end of the first year would be 5,500 pounds the second year the manufacturers and farmer will again employ 5,000 pounds each in support of labor and will therefore again sell their goods for 5,500 pounds that the men using the machines to be on a par with the farmer must not only obtain 5,500 pounds for the equal capitals of 5,000 pounds employed on labor but they must obtain a further sum of 550 pounds for the profit on 5,500 pounds which they have invested in machinery and consequently their goods must sell for 6,050 pounds here then are capitalists employing precisely the same quantity of labor annually on the production of their commodities and yet the goods they produce differ in value on account of the different quantities of fixed capital or accumulated labor employed by each respectively the cloth and cotton goods are of the same value because they are the produce of equal quantities of labor and equal quantities of fixed capital but corn is not of the same value as these commodities because it is produced as far as regards fixed capital under different circumstances but how will their relative value be affected by a rise in the value of labor it is evident that the relative values of cloth and cotton goods will undergo no change for what affects one must equally affect the other under the circumstances supposed neither will the relative values of wheat and barley undergo any change for they are produced under the same circumstances as far as fixed and circulating capital are concerned but the relative value of corn to cloth or to cotton goods must be ordered by a rise of labor there can be no rise in the value of labor without a fall of profits if the corn is to be divided between the farmer and the laborer the larger the proportion that is given to the latter the less will remain for the former so if cloth or cotton goods be divided between the workman and his employer the larger the proportion given to the former the less remains for the latter suppose then that owing to a rise of wages profits fall from 10 to 9 percent instead of adding 550 pounds to the common price of their goods to 5500 pounds for the profits on their fixed capital the manufacturers would add only 9 percent on that sum or 495 pounds consequently the price would be 5995 pounds instead of 6050 pounds as the corn would continue to sell for 5500 pounds the manufactured goods in which more fixed capital was employed would fall relatively to the corn or to any other goods in which a less portion of fixed capital entered the degree of alteration in the relative value of goods or account of a rise or fall of labor would depend on the proportion which the fixed capital bore to the whole capital employed all commodities which are produced by very valuable machinery or in very valuable buildings all which require a great length of time before they can be brought to market would fall in relative value while all those which were chiefly produced by labor or which would be speedily brought to market would rise in relative value the listener however should remark that this cause of the variation of commodities is comparatively slight in its effects with such a rise of wages as should occasion a fall of 1 percent in profits goods produced under the circumstances I have supposed vary in relative value only 1 percent they fall with so great a fall of profits from 6,050 pounds to 5,995 pounds the greatest effects which could be produced on the relative prices of these goods from a rise of wages could not exceed six or seven percent but profits could not probably under any circumstances admit of a greater general and permanent depression than to that amount not so with the other great cause of the variation in the value of commodities namely the increase or diminution in the quantity of labor necessary to produce them if to produce the corn 80 instead of 100 men should be required the value of the corn would fall 20 percent or from 5,500 pounds to 4,400 pounds if to produce the cloth the labor of 80 instead of 100 men would suffice cloth would fall from 6,050 pounds to 4,950 pounds an alteration in the permanent rate of profits to any great amount is the effect of causes which do not operate but in the course of years whereas alterations in the quantity of labor necessary to produce commodities are of daily occurrence every improvement in machinery in tools in buildings in raising the raw material saves labor and enables us to produce the commodity to which the improvement is applied with more facility and consequently it's value alters in estimating then the causes of the variations in the value of commodities although it would be wrong wholly to omit the consideration of the effect produced by a rise or fall of labor it would be equally incorrect to attach much importance to it and consequently in the subsequent part of this work though I shall occasionally refer to this course of variation I shall consider all the great variations which take place in the relative value of commodities to be produced by the greater or less quantity of labor which may be required from time to time to produce them it is hardly necessary to say that commodities which have the same quantity of labor bestowed on their production will differ in exchangeable value if they cannot be brought to market in the same time suppose I employ 20 men at an expense of 1,000 pounds for a year in the production of a commodity and at the end of the year I employed 20 men again for another year at a further expense of 1,000 pounds in finishing or perfecting the same commodity and that I bring it to market at the end of two years if profits be 10% my commodity must sell for 2,310 pounds for I have employed 1,000 capital for one year and 2,100 pounds capital for one year more another man employs precisely the same quantity of labor but he employs it all in the first year he employs 40 men at an expense of 2,000 pounds and at the end of the first year he sells it with 10% profit or for 2,200 pounds here then are two commodities having precisely the same quantity of labor bestowed on them one of which sells for 2,310 pounds the other for 2,200 pounds this case appears to differ from the last but is in fact the same in both cases the superior price of one commodity is owing to the greater length of time which must elapse before it can be brought to market in the former case the machinery and cloth were more than double the value of the corn although only double the quantity of labor was bestowed on them in the second case one commodity is more valuable than the other although no more labor was employed on its production the difference in value arises in both cases from the profits being accumulated as capital and is only a just compensation for the time that the profits were withheld it appears then that the division of capital into different proportions of fixed and circulating capital employed in different trades introduces a considerable modification to the rule which is of universal application when labor is almost exclusively employed in production namely that commodities never vary in value unless a greater or less quantity of labor be bestowed on their production it being shown in this section that without any variation in the quantity of labor the rise of its value merely will occasion a fall in the exchangeable value of those goods in the production of which fixed capital is employed the larger the amount of fixed capital the greater will be the fall section five the principle that value does not vary with the rise of all of wages modified also by the unequal durability of capital and by the unequal rapidity with which it is returned to its employer in the last section we have supposed that of two equal capitals in two different occupations the proportions of fixed and circulating capitals were unequal now let us suppose them to be in the same proportion but of unequal durability in proportion as fixed capital is less durable it approaches to the nature of circulating capital it will be consumed and its value reproduced in a shorter time in order to preserve the capital of the manufacturer we have just seen that in proportion as fixed capital preponderates in a manufacturer when wages rise the value of commodities produced in that manufacturer is relatively lower than that of commodities produced in manufacturers where circulating capital preponderates in proportion to the less durability of fixed capital and its approach to the nature of circulating capital the same effect will be produced by the same cause if fixed capital be not of a durable nature it will require a great quantity of labor annually to keep it in its original state of efficiency but the labor so bestowed may be considered as really expended on the commodity manufactured which must bear a value in proportion to such labor if i had a machine worth 20 000 pounds which with very little labor was efficient to the production of commodities and if the wear and tear of such machine were of trifling amount and the general rate of profit 10 percent i should not require much more than 2000 pounds to be added to the price of the goods on account of the employment of my machine but if the wear and tear of the machine were great if the quantity of labor requisite to keep it in an efficient state would that of 50 men annually i should require an additional price for my goods equal to that which would be obtained by any other manufacturer who employed 50 men in the production of other goods and who used no machinery at all but a rise in the wages of labor would not equally affect commodities produced with machinery quickly consumed and commodities produced with machinery slowly consumed in the production of the one a great deal of labor would be continually transferred to the commodity produced in the other very little would be so transferred every rise of wages therefore or which is the same thing every fall of profits would lower the relative value of those commodities which were produced with a capital of a durable nature and would proportionally elevate those which were produced with capital more perishable a fall of wages would have precisely the contrary effect i have already said that fixed capital is of various degrees of durability suppose now a machine which could in any particular trade be employed to do the work of 100 men for a year and that it would last only for one year supposed to the machine to cost 5000 pounds and the wages annually paid to 100 men to be 5000 pounds it is evident that it would be a matter of indifference to the manufacturer whether he bought the machine or employed the men but suppose labor to rise and consequently the wages of 100 men for a year to amount to 5000 500 pounds it is obvious that the manufacturer would now no longer hesitate it would be for his interest to buy the machine and get his work done for 5000 pounds but will not the machine rise in price will not that also be worth 5000 500 pounds in consequence of the rise of labor it would rise in price if there were no stock employed on its construction and no profits to be paid to the maker of it if for example the machine were the produce of the labor of 100 men working one year upon it with wages of 50 pounds each and its price were consequently 5000 pounds should those wages rise to 55 pounds its price would be 5000 500 pounds but this cannot be the case less than 100 men are employed or it could not be sold for 5000 pounds for out of the 5000 pounds must be paid the profits of the stock which employed the men suppose then that only 85 men were employed at an expense of 50 pounds each or 4250 pounds per annum and that the 750 pounds which the sole of the machine would produce over and above the wages advanced to the men constituted the profits of the engineer's stock when wages rose 10% he would be obliged to employ an additional capital of 425 pounds and would therefore employ 4675 pounds instead of 4250 on which capital he would only get a profit of 325 pounds if we continued to sell his machine for 5000 pounds but this is precisely the case of all manufacturers and capitalists the rise of wages affects them all if therefore the maker of the machine should raise the price of it in consequence of a rise of wages an unusual quantity of capital would be employed in the construction of such machines till their price afforded only the common rate of profits footnote we here see why it is that old countries are constantly impelled to employ machinery and new countries to employ labor with every difficulty of providing for the maintenance of men labor necessarily rises and with every rise in the price of labor new temptations are offered to the use of machinery this difficulty of providing for the maintenance of men is in constant operation in old countries in new ones a very great increase in the population may take place without the least rise in the wages of labor it may be as easy to provide for the seventh eight and ninth million of men as for the second third and fourth end of footnote we see then that machines would not rise in price in consequence of a rise of wages the manufacturer however who in a general rise of wages can have recourse to a machine which shall not increase the charge of production on his commodity would enjoy peculiar advantages if he could continue to charge the same price for his goods but he as we have already seen would be obliged to lower the price of his commodities or capital would flow to his trade till his profits had sunk to the general level thus then is the public benefited by machinery these mute agents are always the produce of much less labor than that which they displace even when they are of the same money value through their influence an increase in the price of provisions which raises wages will affect fewer persons it will reach as in the above instance 85 men instead of 100 and the saving which is the consequence shows itself in the reduced price of the commodity manufactured neither machines nor the commodities made by them rise in real value but all commodities made by machines fall and fall in proportion to their durability it will be seen then that in the early stages of society before much machinery or durable capital is used the commodities produced by equal capitals will be nearly of equal value and will rise or fall only relatively to each other on account of more or less labor being required for their production but after the introduction of these expensive and durable instruments the commodities produced by the employment of equal capitals will be a very unequal value and although they will still be liable to rise or fall relatively to each other as more or less labor becomes necessary to their production they will be subject to another though a minor variation also from the rise or fall of wages and profits since goods which sell for 5 000 pounds may be the produce of a capital equal in amount to that from which are produced other goods which sell for 10 000 pounds the profits on their manufacture will be the same but those profits would be unequal if the prices of the goods did not vary with a rise or fall in the rate of profits it appears to that in proportion to the durability of capital employed in any kind of production the relative prices of those commodities on which such durable capital is employed will vary inversely as wages they will fall as wages rise and rise as wages fall and on the contrary those which are produced chiefly by labor with less fixed capital or with fixed capital over less durable character than the medium in which price is estimated will rise as wages rise and fall as wages fall section six on an invariable measure of value when commodities varied in relative value it would be desirable to have the means of ascertaining which of them fell and which rose in real value and this could be affected only by comparing them one after another with some invariable standard measure of value which should itself be subject to none of the fluctuations to which other commodities are exposed of such a measure it is impossible to be possessed because there is no commodity which is not itself exposed to the same variations as the things the value of which is to be ascertained that is there is none which is not subject to require more or less labor for its production but if this cause of variation in the value of a medium could be removed if it were possible that in the production of our money for instance the same quantity of labor should at all times be required still it would not be a perfect standard or invariable measure of value because as I have already endeavored to explain it would be subject to relative variations from a rise or fall of wages on account of the different proportions of fixed capital which might be necessary to produce it and to produce those other commodities whose alteration of value we wish to ascertain it might be subject to variations too from the same cause on account of the different degrees of durability of the fixed capital employed on it and the commodities to be compared with it all the time necessary to bring the one to market might be longer or shorter than the time necessary to bring the other commodities to market the variations of which were to be determined all which circumstances disqualify any commodity that can be thought of from being a perfectly accurate measure of value if for example we were to fix on gold as a standard it is evident that it is but a commodity obtained under the same contingencies as every other commodity and requiring labor and fixed capital to produce it like every other commodity improvements in the saving of labor might be applied to its production and consequently it might fall in relative value to other things merely on account of the greater facility of producing it if we suppose this cause of variation to be removed and the same quantity of labor to be always required to obtain the same quantity of gold still gold would not be a perfect measure of value by which we could accurately ascertain the variations in all other things because it would not be produced with precisely the same combinations of fixed and circulating capital as all other things nor with fixed capital of the same durability nor would it require precisely the same length of time before it could be brought to market it would be a perfect measure of value for all things produced under the same circumstances precisely as itself but for no others if for example it were produced under the same circumstances as we have supposed necessary to produce cloth and cotton goods it would be a perfect measure of value for those things but not so for corn for coals and other commodities produced with either a less or a greater proportion of fixed capital because as we have shown every alteration in the permanent rate of profits would have some effect on the relative value of all these goods independently of any alteration in the quantity of labor employed on their production if gold were produced under the same circumstances as corn even if they never changed it would not for the same reasons be at all times a perfect measure of the value of cloth and cotton goods neither gold then not any other commodity can ever be a perfect measure of value for all things but i have already remarked that the effect on the relative prices of things from a variation in profits is comparatively slight that by far the most important effects are produced by the varying quantities of labor required for production and therefore if we suppose this important cause of variation removed from the production of gold we shall probably possess as near an approximation to a standard measure of value as can be theoretically conceived may not gold be considered as a commodity produced with such proportions of the two kinds of capital as approach nearest to the average quantity employed in the production of most commodities may not these proportions be so nearly equally distance from the two extremes the one where little fixed capital is used the other where little labor is employed as to form a just mean between them if then i may suppose myself to be possessed of a standard so nearly approaching to an invariable one the advantage is that i shall be enabled to speak of the variations of other things without embarrassing myself on every occasion with the consideration of the possible alteration in the value of the medium in which price and value are estimated to facilitate then the object of this inquiry although i fully allow that money made of gold is subject to most of the variations of other things i shall suppose it to be invariable and therefore all alterations in price to be occasioned by some alteration in the value of the commodity of which i may be speaking before i quit this subject it may be proper to observe that adam smith and all the writers who have followed him have without one exception that i know of maintained that a rise in the price of labor would be uniformly followed by a rise in the price of all commodities i hope i have succeeded in showing that there are no grounds for such an opinion and that only those commodities would rise which had less fixed capital employed upon them than the medium in which price was estimated and that all those which had more would positively fall in price when wages rose on the contrary if wages fell those commodities only would fall which had a less proportion of fixed capital employed on them than the medium in which price was estimated all those which had more would positively rise in price it is necessary for me also to remark that i have not said because one commodity has so much labor bestowed upon it as will cost one thousand pounds and another so much as will cost two thousand pounds that therefore one would be of the value of one thousand pounds and the other of the value of two thousand pounds but i have said that their value will be to each other as two to one and that in those proportions they will be exchanged it is of no importance to the truth of this doctrine whether one of these commodities sells for one thousand one hundred pounds and the other for two thousand two hundred pounds or one for one thousand five hundred pounds and the other for three thousand pounds into that question i do not at present inquire i affirm only that their relative values will be governed by the relative quantities of labor bestowed on their production section seven different effects from the alteration in the value of money the medium in which price is always expressed or from the alteration in the value of the commodities which money purchases although i shall as i have already explained have occasion to consider money as invariable in value for the purpose of more distinctly pointing out the causes of relative variations in the value of other things it may be useful to notice the different effects which will follow from the prices of goods being altered by the causes to which i have already averted namely the different quantities of labor required to produce them and they're being altered by a variation in the value of money itself money being a variable commodity the rise of money wages will be frequently occasioned by a fall in the value of money a rise of wages from this cause will indeed be invariably accompanied by a rise in the price of commodities but in such cases it will be found that labor and all commodities have not varied in regard to each other and that the variation has been confined to money money from its being a commodity obtained from a foreign country from its being the general medium of exchange between all civilized countries and from its being also distributed among those countries in proportions which are ever changing with every improvement in commerce and machinery and with every increasing difficulty of obtaining food and necessaries for an increasing population is subject to incessant variations in stating the principles which regulate exchangeable value and price we should carefully distinguish between those variations which belong to the commodity itself and those which are occasioned by a variation in the medium in which value is estimated or price expressed a rise in wages from an alteration in the value of money produces a general effect on price and for that reason it produces no real effect whatever on profits on the contrary a rise of wages from the circumstance of the labor being more liberally rewarded or from a difficulty of procuring the necessaries on which wages are expended does not except in some instances produce the effect of raising price but has a great effect in lowering profits in the one case no greater proportion of the annual labor of the country is devoted to the support of the laborers in the other case a larger portion is so devoted it is according to the division of the whole produce of the land of any particular farm between the three classes of landlord capitalist and laborer that we are to judge of the rise or fall of rent profit and wages and not according to the value at which that produce may be estimated in a medium which is confessedly variable it is not by the absolute quantity of produce obtained by either class that we can correctly judge of the rate of profit rent and wages but by the quantity of labor required to obtain that produce by improvements in machinery and agriculture the whole produce may be doubled but if wages rent and profit be also doubled these three will bear the same proportions to one another as before and neither could be said to have relatively varied but if wages part took not of the whole of this increase if instead of being doubled were only increased one half if rent instead of being doubled were only increased three fourths and the remaining increase went to profit it would I apprehend be correct for me to say that rent and wages had fallen while profits had risen for if we had an invariable standard by which to measure the value of this produce we should find that a less value had fallen to the class of laborers and landlords and a greater to the class of capitalists than had given before we might find for example that though the absolute quantity of commodities had been doubled they were the produce of precisely the former quantity of labor of every hundred hats coats and quarters of corn produced if the laborers had before 25 the landlords had 25 and the capitalists had 50 making a total of 100 and if after these commodities were double the quantity of every 100 the laborers had only 22 the landlords had 22 and the capitalists had 56 of the 100 in that case I should say that wages and rent had fallen and profits risen though in consequence of the abundance of commodities the quantity paid to the laborer and landlord would have increased in the proportion of 25 to 44 wages are to be estimated by their real value vis by the quantity of labor and capital employed in producing them and not by their nominal value either in coats hats money or corn under the circumstances I have just supposed commodities would have fallen to half their former value and if money had not varied to half their former price also if then in this medium which had not varied in value the wages of the laborer should be found to have fallen it will not the less be a real fall because they might furnish him with a greater quantity of cheap commodities than his former wages the variation in the value of money however great makes no difference in the rate of profits for suppose the goods of the manufacturer to rise from 1000 pounds to 2000 pounds or 100 percent if his capital on which the variations of money have as much effect as on the value of produce if his machinery buildings and stock in trade rise also 100 percent his rate of profits will be the same and he will have the same quantity and no more of the produce of the labor of the country at his command if with a capital of a given value he can buy economy and labor double the quantity of produce and it fall to half its former price it will bear the same proportion to the capital that produced it which it did before and consequently profits will still be at the same rate if at the same time that he doubles the quantity of produce by the employment of the same capital the value of money is by any accident lowered one half the produce will sell for twice the money value that it did before but the capital employed to produce it will also be of twice its former money value and therefore in this case too the value of the produce will bear the same proportion to the value of the capital as it did before and although the produce be doubled rent wages and profits will only vary as the proportions vary in which this double produce may be divided among the three classes that share it chapter two on rent it remains however to be considered whether the appropriation of land and the consequent creation of rent will occasion any variation in the relative value of commodities independently of the quantity of labor necessary to production in order to understand this part of the subject we must inquire into the nature of rent and the laws by which its rise or fall is regulated rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil it is often however confounded with the interest and profit of capital and in popular language the term is applied to whatever is annually paid by a farmer to his landlord if off to adjoining farms of the same extent and of the same natural fertility one had all the conveniences of farming buildings and besides were properly drained and minured and adventagiously divided by hedges fences and walls while the other had none of these advantages more remuneration would naturally be paid for the use of one than for the use of the other it in both cases this remuneration would be called rent but it is evident that a portion only of the money annually to be paid for the improved farm would be given for the original and indestructible powers of the soil the other portion would be paid for the use of the capital which had been employed in ameliorating the quality of the land and in erecting such buildings as were necessary to secure and preserve the produce adam smith sometimes speaks of rent in the strict sense to which i am desirous of confining it but more often in the popular sense in which the term is usually employed he tells us that the demand for timber and its consequent high price in the more southern countries of europe caused a rent to be paid for forests in norway which could before afford no rent is it not however evident that the person who paid what he thus calls rent hated in consideration of the valuable commodity which was then standing on the land and that he actually repaid himself with a profit by the sale of the timber if indeed after the timber was removed any compensation were paid to the landlord for the use of the land for the purpose of growing timber or any other produce with a view to future demand such compensation might justly be called rent because it would be paid for the productive powers of the land but in the case stated by adam smith the compensation was paid for the liberty of removing and selling the timber and not for the liberty of growing it he speaks also of the rent of coal mines and of stone quarries to which the same observation applies that the compensation given for the mine or quarry is paid for the value of the coal or stone which can be removed from them and has no connection with the original and indestructible powers of the land this is a distinction of great importance in an inquiry concerning rent and profits for it is found that the laws which regulate the progress of rent are widely different from those which regulate the progress of profits and seldom operate in the same direction in all improved countries that which is annually paid to the landlord partaking of both characters rent and profit is sometimes kept stationary by the effects of opposing causes at other times advances or receipts as one or the other of these causes preponderates in the future pages of this work then whenever i speak of the rent of land i wish to be understood as speaking of that compensation which is paid to the owner of land for the use of its original and indestructible powers on the first settling of a country in which there is an abundance of rich and fertile land a very small proportion of which is required to be cultivated for the support of the actual population or indeed can be cultivated with the capital which the population can command there will be no rent when no one would pay for the use of land when there was an abundant quantity not yet appropriated and therefore at the disposal of whosoever might choose to cultivate it on the common principles of supply and demand no rent could be paid for such land for the reasons stated why nothing is given for the use of air and water or for any other of the gifts of nature which exist in boundless quantity with a given quantity of materials and with the assistance of the pressure of the atmosphere and the elasticity of steam engines may perform work and abridge human labor to a very great extent but no charge is made for the use of these natural aids because they are inexhaustible and at every man's disposal in the same manner the brewer the distiller the dire make incessant use of the air and water for the production of their commodities but as the supplies boundless they bear no price footnote from economy politic by jbc volume two quote the earth as we have already seen is not the only agent of nature which has a productive power but it is the only one or nearly so that one set of men take to themselves to the exclusion of others and of which consequently they can appropriate the benefits the waters of rivers and of the sea by the power which they have of giving movement to our machines carrying our boats nourishing our fish have also a productive power the wind which turns our mills and even the heat of the sun work for us but happily no one has yet been able to say the wind and the sun are mine and the service which they render must be paid for unquote end of footnote if all land had the same properties if it were unlimited in quantity and uniform in quality no charge could be made for its use unless where it possessed peculiar advantages of situation it is only then because land is not unlimited in quantity and uniform in quality and because in the progress of population land of an inferior quality or less advantageously situated is called into cultivation that rent is ever paid for the use of it when in the progress of society land of the second degree of fertility is taken into cultivation rent immediately commences on that of the first quality and the amount of that rent will depend on the difference in the quality of these two portions of land when land of the third quality is taken into cultivation rent immediately commences on the second and it is regulated as before by the difference in their productive powers at the same time the rent of the first quality will rise but that must always be above the rent of the second by the difference between the produce which they yield with a given quantity of capital and labor with every step in the progress of population which shall oblige a country to have recourse to land of a worse quality to enable it to raise its supply of food rent on all the more fertile land will rise thus suppose land number one two three to yield with an equal employment of capital and labor a net produce of 100 90 and 80 quarters of corn in a new country where there is an abundance of fertile land compared with the population and where therefore it is only necessary to cultivate number one the whole net produce will belong to the cultivator and will be the profits of the stock which he advances as soon as population had so far increased as to make it necessary to cultivate number two from which 90 quarters only can be obtained after supporting the laborers rent would commence on number one for either there must be two rates of profit on agricultural capital or 10 quarters or the value of 10 quarters must be withdrawn from the produce of number one for some other purpose whether the proprietor of the land or any other person cultivated number one these 10 quarters would equally constitute rent for the cultivator of number two would get the same result with his capital whether he cultivated number one paying 10 quarters for rent or continued to cultivate number two paying no rent in the same manner it might be shown that when number three is brought into cultivation the rent of number two must be 10 quarters or the value of 10 quarters whilst the rent of number one would rise to 20 quarters for the cultivator of number three would have the same profits whether he paid 20 quarters for the rent of number one 10 quarters for the rent of number 2, or cultivated number 3, free of all rent. It often and indeed commonly happens that before number 2, 3, 4, or 5, or the inferior lands are cultivated, capital can be employed more productively on those lands which are already in cultivation. It may perhaps be found that by doubling the original capital employed on number 1, though the produce will not be doubled, will not be increased by 100 quarters, it may be increased by 85 quarters and that this quantity exceeds what could be obtained by employing the same capital on land number 3. In such case, capital will be preferably employed on the old land and will equally create a rent, for rent is always the difference between the produce obtained by the employment of two equal quantities of capital and labor. If, with a capital of 1,000 pounds, the tenant obtain 100 quarters of wheat from his land, and by the employment of a second capital of 1,000 pounds, he obtain a further return of 85, his landlord would have the power at the expiration of his lease of obliging him to pay 15 quarters, or an equivalent value, for additional rent. But there cannot be two rates of profit. If he is satisfied with a diminution of 15 quarters in the return for his second 1,000 pounds, it is because no employment more profitable can be found for it. The common rate of profit would be in that proportion, and if the original tenant refused, some other person would be found willing to give all which exceeded that rate of profit to the owner of the land from which he derived it. In this case, as well as in the other, the capital last employed pays no rent. For the greater productive powers of the first 1,000 pounds, 15 quarters is paid for rent. For the employment of the second 1,000 pounds, no rent whatever is paid. If the third 1,000 pounds be employed on the same land, with a return of 75 quarters, rent will then be paid for the second 1,000 pounds, and will be equal to the difference between the produce of these two, or 10 quarters. And at the same time, the rent of the first 1,000 pounds will rise from 15 to 25 quarters, while the last 1,000 pounds will pay no rent whatever. If then, good land existed in a quantity much more abundant than the production of food for an increasing population required, or if capital could be indefinitely employed without a diminished return on the old land, there could be no rise of rent. But rent invariably proceeds from the employment of an additional quantity of labor with a proportionally less return. The most fertile and most favorably situated land will be first cultivated, and the exchangeable value of its produce will be adjusted in the same manner as the exchangeable value of all other commodities, by the total quantity of labor necessary in various forms, from first to last, to produce it, and bring it to market. When land of an inferior quality is taken into cultivation, the exchangeable value of raw produce will rise, because more labor is required to produce it. The exchangeable value of all commodities, whether they be manufactured, or the produce of the mines, or the produce of land, is always regulated, not by the less quantity of labor that will suffice for their production under circumstances highly favorable, and exclusively enjoyed by those who have peculiar facilities of production, but by the greater quantity of labor necessarily bestowed on their production by those who have no such facilities, by those who continue to produce them under the most unfavorable circumstances, meaning, by the most unfavorable circumstances, the most unfavorable under which the quantity of produce required renders it necessary to carry on the production. Thus, in a charitable institution, whether poor are set to work with the funds of benefactors, the general prices of the commodities which are the produce of such work will not be governed by the peculiar facilities afforded to these workmen, but by the common, usual, and natural difficulties which every other manufacturer will have to encounter. The manufacturer enjoying none of these facilities might indeed be driven altogether from the market, if the supply afforded by these favored workmen were equal to all the wants of the community. But if he continued the trade, it would be only on condition that he should derive from it the usual and general rate of profits on stock. And that could only happen when his commodity sold for a price proportion to the quantity of labor bestowed on its production. Footnote, as not must you say forgotten in the following passage that it is the cost of production which ultimately regulates price. Quote, the produce of labor employed on the land has this peculiar property, that it does not become more dear by becoming more scarce, because population always diminishes at the same time that food diminishes. And consequently, the quantity of these products demanded diminishes at the same time as the quantity supplied. Besides, it is not observed that corn is more dear in those places where there is plenty of uncultivated land than in completely cultivated countries. England and France were much more imperfectly cultivated in the Middle Ages than they are now. They produced much less raw produce. Nevertheless, from all we can judge by a comparison with the value of other things, corn was not sold at a dearer price. If the produce was less, so was the population. The weakness of the demand compensated the feebleness of the supply. Unquote, must you say being impressed with the opinion that the price of commodities is regulated by the price of labor and justly supposing that charitable institutions of all sorts tend to increase the population beyond what it otherwise would be. And therefore to lower wages says, quote, I suspect that the cheapness of the goods which come from England is partly caused by the numerous charitable institutions which exist in that country. Unquote, this is a consistent opinion in one who maintains that wages regulate price. End of footnote. It is true that on the best land the same produce would still be obtained with the same labor as before. But its value would be enhanced in consequence of the diminished returns obtained by those who employed fresh labor and stock on the less fertile land. Notwithstanding then that the advantages of fertile over inferior lands are in no case lost, but only transferred from the cultivator and consumer to the landlord. Yet since more labor is required on the inferior lands, and since it is from such land only that we are enabled to furnish ourselves with the additional supply of raw produce, the comparative value of that produce will continue permanently above its former level and make an exchange for more hats, cloth shoes, etc., etc., in the production of which no such additional quantity of labor is required. The reason then why raw produce rises in comparative value is because more labor is employed in the production of the last portion obtained, and not because a rent is paid to the landlord. The value of corn is regulated by the quantity of labor bestowed on its production on that quality of land or with that portion of capital which pays no rent. Corn is not high because a rent is paid, but a rent is paid because corn is high, and it has been justly observed that no reduction would take place in the price of corn, although landlords should forego the hold of their rent. Such a measure would only enable some farmers to live like gentlemen, but would not diminish the quantity of labor necessary to raise raw produce on the least productive land in cultivation. Nothing is more common than to hear of the advantages which the land possesses over every other source of useful produce on account of the surplus which it yields in the form of rent. Yet when land is most abundant, when most productive, and most fertile, it yields no rent, and it is only when its powers of decay and less is yielded in return for labor that a share of the original produce of the more fertile portions is set apart for rent. It is singular that this quality in the land which should have been noticed as an imperfection, compared with the natural agents by which manufacturers are assisted, should have been pointed out as constituting its peculiar preeminence. If air, water, the elasticity of steam, and the pressure of the atmosphere were of various qualities, if they could be appropriated, and each quality existed only in moderate abundance, they, as well as the land, would afford a rent, as the successive qualities were brought into use. With every worse quality employed, the value of the commodities in the manufacture of which they were used would rise, because equal quantities of labor would be less productive. Man would do more by the sweat of his brow, and nature perform less, and the land would be no longer preeminent for its limited powers. If the surplus produce which land affords in the form of rent be an advantage, it is desirable that every year, the machinery newly constructed should be less efficient than the old, as that would undoubtedly give a greater exchangeable value to the goods manufactured, not only by that machinery, but by all the other machinery in the kingdom, and a rent would be paid to all those who possessed the most productive machinery. Extended footnote. In agriculture too, says Adam Smith, nature labors along with man, and though her labor costs no expense, its produce has its value, as well as that of the most expensive workmen. The labor of nature is paid, not because she does much, but because she does little. In proportion as she becomes niggably in her gifts, she exacts a greater price for her work, where she is magnificently beneficent, she always works gratis. Further quote from Adam Smith, the wealth of nations book two. The labour and cattle employed in agriculture, not only occasion, like the workmen in manufacturers, the reproduction of a value equal to their own consumption, or to the capital which employs them, together with its own profits, but of a much greater value over and above the capital of the farmer and all its profits. They regularly occasion the reproduction of the rent of the landlord. This rent may be considered as the produce of those powers of nature, the use of which the landlord lends to the farmer. It is greater or smaller according to the supposed extent of those powers, or in other words according to the supposed natural or improved fertility of the land. It is the work of nature which remains after deducting or compensating everything which can be regarded as the work of man. It is seldom less than a fourth and frequently more than a third of the whole produce. No equal quantity of productive labour employed in manufacturers can ever occasion so great a reproduction. In them nature does nothing, man does all, and the reproduction must always be in proportion to the strength of the agents that occasion it. The capital employed in agriculture therefore not only puts into motion a greater quantity of productive labour than any equal capital employed in manufacturers, but in proportion too to the quantity of the productive labour which it employs. It adds a much greater value to the annual produce of the land and labour of the country, to the real wealth and revenue of its inhabitants. Of all the ways in which a capital can be employed, it is by far the most advantageous to the society. Adam Smith, unquote, does nature nothing for man in manufacturers? Are the powers of wind and water which move our machinery and assist navigation nothing? The pressure of the atmosphere and the elasticity of steam which enable us to work the most stupendous engines, are they not the gifts of nature? They say nothing of the effects of the matter of heat and softening and melting metals, of the decomposition of the atmosphere in the process of dying and fermentation. There is not a manufacturer which can be mentioned in which nature does not give her assistance to man and give it to generously and gratuitously. In remarking on the passage which I have copied from Adam Smith, Mr Buchanan observes, quote, I have endeavored to show in the observations on productive and unproductive labour contained in the fourth volume that agriculture adds no more to the national stock than any other sort of industry. In dwelling on the reproduction of rent is so great an advantage to society, Dr Smith does not reflect that rent is the effect of high price and that what the landlord gains in this way he gains at the expense of the community at large. There is no absolute gain to the society by the reproduction of rent. It is only one class profiting at the expense of another class. The notion of agriculture yielding a produce and a rent in consequence because nature concurs with human industry in the process of cultivation is a mere fancy. It is not from the produce but from the price at which the produce is sold that the rent is derived and this price is got not because nature assists in the production but because it is the price which suits the consumption for the supply, unquote, end of footnote. The rise of rent is always the effect of the increasing wealth of the country and of the difficulty of providing food for its augmented population. It is a symptom but it is never a cause of wealth. For wealth often increases most rapidly while rent is either stationary or even falling. Rent increases most rapidly as the disposable land decreases in its productive powers. Wealth increases most rapidly in those countries where the disposable land is most fertile, where importation is least restricted and where through agricultural improvements, productions can be multiplied without any increase in the proportional quantity of labor and where consequently the progress of rent is slow. If the high price of corn were the effect and not the cause of rent, price would be proportionately influenced as rents were high or low and rent would be a component part of price. But that corn which is produced by the greatest quantity of labor is the regulator of the price of corn and rent does not and cannot enter in the least degree as a component part of its price. Footnote. The clearly understanding this principle is I am persuaded of the utmost importance to the science of political economy. End of footnote. Adam Smith therefore cannot be correct in supposing that the original rule which regulated the exchangeable value of commodities namely the comparative quantity of labor by which they were produced can be at all altered by the appropriation of land and the payment of rent. Raw material enters into the composition of most commodities but the value of that raw material as well as corn is regulated by the productiveness of the portion of capital last employed on the land and paying no rent. And therefore rent is not a component part of the price of commodities. We have been hitherto considering the effects of the natural progress of wealth and population on rent in a country in which the land is of variously productive powers and we have seen that with every portion of additional capital which it becomes necessary to employ on the land with a less productive return rent would rise. It follows from the same principles that any circumstances in the society which should make it unnecessary to employ the same amount of capital on the land and which should therefore make the portion last employed more productive would lower rent. Any great reduction in the capital of a country which should materially diminish the funds destined for the maintenance of labor would naturally have this effect. Population regulates itself by the funds which are to employ it and therefore always increases or diminishes with the increase or diminution of capital. Every reduction of capital is therefore necessarily followed by a less effective demand for corn by a fall of price and by diminished cultivation. In the reverse order to that in which the accumulation of capital raises rent will the diminution of it to lower rent. Land of a less unproductive quality will be in succession relinquished the exchangeable value of produce will fall and land of a superior quality will be the land last cultivated and that which will then pay no rent. The same effects may however be produced when the wealth and population of a country are increased if that increases accompanied by such marked improvements in agriculture as shall have the same effect of diminishing the necessity of cultivating the poorer lands or of expending the same amount of capital on the cultivation of the more fertile portions. If a million of quarters of corn be necessary for the support of a given population and it be raised on land of the qualities of number one two three and if an improvement be afterwards discovered by which it can be raised on number one and two without employing number three it is evident that the immediate effect must be a fall of rent for number two instead of number three will then be cultivated without paying any rent and the rent of number one instead of being the difference between the produce of number three and number one will be the difference only between number two and one with the same population and no more there can be no demand for any additional quantity of corn the capital and labor employed on number three will be devoted to the production of other commodities desirable to the community and can have no effect in raising rent unless the raw material from which they are made cannot be obtained without employing capital less advantageously on the land in which case number three must again be cultivated it is undoubtedly true that the fall in the relative price of raw produce in consequence of the improvement in agriculture or rather in consequence of less labor being bestowed on its production would naturally lead to increased accumulation for the profits of stock would be greatly augmented this accumulation would lead to an increased demand for labor to higher wages to an increased population to a further demand for raw produce and to an increased cultivation it is only however after the increase in the population that rent would be as high as before that is to say after number three was taken into cultivation a considerable period would have elapsed attended with a positive diminution of rent but improvements in agriculture are of two kinds those which increase the productive powers of the land and those which enable us by improving our machinery to obtain its produce with less labor they both lead to a fall in the price of raw produce they both affect rent but they do not affect it equally if they did not occasion a fall in the price of raw produce they would not be improvements for it is the essential quality of an improvement to diminish the quantity of labor before required to produce a commodity and this diminution cannot take place without a fall of its price or relative value the improvements which increase the productive powers of the land are such as the more skillful rotation of crops or the better choice of manure these improvements absolutely enable us to obtain the same produce from a smaller quantity of land if by the introduction of a course of turnips I can feed my sheep besides raising my corn the land on which the sheep were before fed becomes unnecessary and the same quantity of raw produce is raised by the employment of a less quantity of land if I discover a manure which will enable me to make a piece of land produce 20 percent more corn I may withdraw at least a portion of my capital from the most unproductive part of my farm but as I before observed it is not necessary that land should be thrown out of cultivation in order to reduce rent to produce this effect it is sufficient that successive portions of capital are employed on the same land with different results and that the portion which gives the least result should be withdrawn if by the introduction of the turnip husbandry or by the use of a more invigorating manure I can obtain the same produce with less capital and without disturbing the difference between the productive powers of the successive portions of capital I shall lower rent for a different and more productive portion will be that which will form the standard from which every other will be reckoned if for example the successive portions of capital yielded 100, 90, 80, 70 whilst I employed these four portions my rent would be 60 whilst the produce would be 340 and while I employed these portions the rent would remain the same although the produce of each should have an equal augmentation if instead of 100, 90, 80, 70 the produce should be increased to 125, 115, 105 and 95 the rent would still be 60 while the produce would be increased to 440 but with such an increase of produce without an increase of demand there could be no motive for employing so much capital on the land footnote I hope I am not understood as undervaluing the importance of all sorts of improvements in agriculture to landlords their immediate effect is to lower rent but as they give a great stimulus to population and at the same time enable us to cultivate poorer lands with less labor they are ultimately of immense advantage to landlords a period however must elapsed during which they are positively injurious to him end of footnote one portion would be withdrawn and consequently the last portion of capital would yield 105 instead of 95 and rent would fall to 30 whilst the produce would still be adequate to the wants of the population for it would be 345 quarters the demand being only for 340 quarters but there are improvements which may lower the relative value of produce without lowering the corn rent though they will lower the money rent of land such improvements do not increase the productive powers of the land but they enable us to obtain its produce with less labor they are rather directed to the formation of the capital applied to the land than to the cultivation of the land itself improvements in agricultural implements such as the plow and the thrashing machine economy and the use of horses employed in husbandry and a better knowledge of the veterinary art are of this nature less capital which is the same thing as less labor will be employed on the land but to obtain the same produce less land cannot be cultivated whether improvements of this kind however affect corn rent must depend on the question whether the difference between the produce obtained by the employment of different portions of capital be increased stationary or diminished if four portions of capital 50 60 70 and 80 be employed on the land giving each the same results and any improvement in the formation of such capital should enable me to withdraw five from each so that they should be 45 55 65 and 75 no alteration would take place in the corn rent but if the improvements were such as to enable me to make the whole saving on that portion of capital which is least productively employed corn rent would immediately fall because the difference between the capital most productive and the capital least productive would be diminished and it is this difference which constitutes rent without multiplying instances I hope enough has been said to show that whatever diminishes the inequality in the produce obtained from successive portions of capital employed on the same or on new land tends to lower rent and that whatever increases that inequality necessarily produces an opposite effect and tends to raise it in speaking of the rent of the landlord we have rather considered it as the proportion of the produce obtained with a given capital on any given farm without any reference to its exchangeable value but since the same cause the difficulty of production raises the exchangeable value of raw produce and raises also the proportion of raw produce paid to the landlord for rent it is obvious that the landlord is doubly benefited by difficulty of production first he obtains a greater share and secondly the commodity in which he is paid is of greater value chapter three on the rent of mines the metals like other things are obtained by labor nature indeed produces them but it is the labor of man which extracts them from the bowels of the earth and prepares them for our service mines as well as land generally pay a rent to their owner and this rent as well as the rent of land is the effect and never the cause of the high value of their produce if there were abundance of equally fertile mines which anyone might appropriate they could yield no rent the value of their produce would depend on the quantity of labor necessary to extract the metal from the mine and bring it to market but there are mines of various quantities affording very different results with equal quantities of labor the metal produced from the poorest mine that is worked must at least have an exchangeable value not only sufficient to procure all the clothes food and other necessaries consumed by those employed in working it and bringing the produce to market but also to afford the common and ordinary profits to him who advances the stock necessary to carry on the undertaking the return for capital from the poorest mine paying no rent would regulate the rent of all the other more productive mines this mine is supposed to yield the usual profits of stock or that the other mines produce more than this will necessarily be paid to the owners for rent since this principle is precisely the same as that which we have already laid down respecting land it will not be necessary further to enlarge on it it will be sufficient to remark that the same general rule which regulates the value of raw produce and manufactured commodities is applicable also to the metals their value depending not on the rate of profits nor on the rate of wages nor on the rent paid for mines but on the total quantity of labor necessary to obtain the metal and to bring it to market like every other commodity the value of the metals is subject to variation improvements may be made in the implements and machinery used in mining which may considerably abridge labor new and more productive mines may be discovered in which with the same labor more metal may be obtained or the facilities of bringing it to market may be increased in either of these cases the metals would fall in value and would therefore exchange for a less quantity of other things on the other hand from the increasing difficulty of obtaining the metal occasioned by the greater depth at which the mine must be worked and the accumulation of water or any other contingency its value compared with that of other things might be considerably increased it has therefore been justly observed that however honestly the coin of a country may conform to its standard money made of gold and silver is still liable to fluctuations in value not only to accidental and temporary but the permanent and natural variations in the same manner as other commodities by the discovery of America and the rich mines in which it abounds a very great effect was produced on the natural price of the precious metals this effect is by many supposed not yet to have terminated it is probable however that all the effects on the value of the metals resulting from the discovery of America have long ceased and if any fall has of late years taken place in their value it is to be attributed to improvements in the mode of working the mines from whatever cause it may have proceeded the effect has been so slow and gradual that little practical inconvenience has been felt from gold and silver being the general medium in which the value of all other things is estimated though undoubtedly a variable measure of value there is probably no commodity subject to fewer variations this and the other advantages which these metals possess such as their hardness their malleability their divisibility and many more have justly secured the preference everywhere given to them as a standard for the money of civilized countries if equal quantities of labor with equal quantities of fixed capital could at all times obtain from that mine which paid no rent equal quantities of gold gold would be as nearly an invariable measure of value as we could in the nature of things possess the quantity indeed would enlarge with the demand but its value would be invariable and it would be eminently well calculated to measure the varying value of all other things I have already in a former part of this work considered gold as endowed with this uniformity and in the following chapter I shall continue the supposition in speaking therefore of varying price the variation will be always considered as being in the commodity and never in the medium in which it is estimated chapter 4 on natural and market price in making labor the foundation of the value of commodities and the comparative quantity of labor which is necessary to their production the rule which determines the respective quantities of goods which shall be given in exchange for each other we must not be supposed to deny the accidental and temporary deviations of the actual or market price of commodities from this their primary and natural price in the ordinary course of events there is no commodity which continues for any length of time to be supplied precisely in that degree of abundance which the wants and wishes of mankind require and therefore there is none which is not subject to accidental and temporary variations of price it is only in consequence of such variations that capital is apportioned precisely and the requisite abundance and no more to the production of the different commodities which happen to be in demand with the rise or fall of price profits are elevated above or depressed below their general level and capital is either encouraged to enter into or is wanted apart from the particular employment in which the variation has taken place whilst every man is free to employ his capital where he pleases he will naturally seek for it that employment which is most advantageous he will naturally be dissatisfied with a profit of 10% if by removing his capital he can obtain a profit of 15% this restless desire on the part of all the employers of stock to quit a less profitable for a more advantageous business has a strong tendency to equalize the rate of profits of all or to fix them in such proportions as may in the estimation of the parties compensate for any advantage which one may have or may appear to have over the other it is perhaps very difficult to trace the steps by which this change is affected it is probably affected by a manufacturer not absolutely changing his employment but only lessening the quantity of capital he has in that employment in all rich countries there is a number of men forming what is called the moneyed class these men are engaged in no trade but live on the interest of their money which is employed in discounting bills or in loans to the more industrious part of the community the bankers too employ a large capital on the same objects the capital so employed forms a circulating capital of a large amount and is employed in larger or smaller proportions by all the different trades of a country there is perhaps no manufacturer however rich who limits his business to the extent that his own funds alone will allow he always has some portion of this floating capital increasing or diminishing according to the activity of the demand for his commodities when the demand for silks increases and that for cloth diminishes the clothier does not remove with his capital to the silk trade but he dismisses some of his workmen he discontinues his demand for the loan from bankers and moneyed men while the case of the silk manufacturer is the reverse he wishes to employ more workmen and thus his motive for borrowing is increased he borrows more and thus capital is transferred from one employment to another without the necessity of a manufacturer discontinuing his usual occupation when we look to the markets of a large town and observe how regularly they are supplied both with home and foreign commodities in the quantity in which they are required under all the circumstances of varying demand arising from the caprice of taste or a change in the amount of population without often producing either the effects of a glut from a too abundant supply or an enormously high price from the supply being unequal to the demand we must confess that the principle which apportions capital to each trade in the precise amount that it is required is more active than is generally supposed a capitalist in seeking profitable employment for his funds will naturally take into consideration all the advantages which one occupation possesses over another he may therefore be willing to forego a part of his money profit in consideration of the security, cleanliness, ease or any other real or fancied advantage which one employment may possess over another if from a consideration of these circumstances the profits of stock should be so adjusted that in one trade there were 20 in another 25 and in another 30 percent they would probably continue permanently with that relative difference and with that difference only for if any calls should elevate the profits of one of these trades 10 percent either these profits would be temporary and would soon again fall back to their usual station or the profits of the others would be elevated in the same proportion the present time appears to be one of the exceptions to the justness of this remark the termination of the war has so deranged the division which before existed of employments in Europe that every capitalist has not yet found his place in the new division which has now become necessary let us suppose that all commodities are at their natural price and consequently that the profits of capital in all employments are exactly at the same rate or differ only so much as in the estimation of the parties is equivalent to any real or fancied advantage which they possess or forego suppose now that a change of fashion should increase the demand for silks and lessen that for woolens their natural price the quantity of labor necessary to their production would continue unaltered but the market price of silks would rise and that of woolens would fall and consequently the profits of the silk manufacturer would be above whilst those of the woolen manufacturer would be below the general and adjusted rate of profits not only the profits but the wages of the workmen would be affected in these employments this increased demand for silks would however soon be supplied by the transference of capital and labor from the woolen to the silk manufacturer when the market prices of silks and woolens would again approach their natural prices and then the usual profits would be obtained by the respective manufacturers of those commodities it is then the desire which every capitalist has of diverting his funds from a less to a more profitable employment that prevents the market price of commodities from continuing for any length of time either much above or much below their natural price it is this competition which so adjusts the exchangeable value of commodities that after paying the wages for the labor necessary to their production and all other expenses required to put the capital employed in its original state of efficiency the remaining value or over plus will in each trade be in proportion to the value of the capital employed in the seventh chapter of the wealth of nations all that concerns this question is most ably treated having fully acknowledged the temporary effects which in particular employments of capital may be produced on the prices of commodities as well as on the wages of labor and the profits of stock by accidental causes without influencing the general price of commodities wages or profits since these effects are equally operative in all stages of society we will leave them entirely out of our consideration whilst we are treating of the laws which regulate natural prices natural wages and natural profits effects totally independent of these accidental courses in speaking then of the exchangeable value of commodities or the power of purchasing possessed by any one commodity I mean always that power which it would possess if not disturbed by any temporary or accidental cause and which is its natural price chapter five of wages labor like all other things which are purchased and sold and which may be increased or diminished in quantity has its natural and its market price the natural price of labor is that price which is necessary to enable the laborers one with another to subsist and to perpetuate their race without either increase or diminution the power of the laborer to support himself and the family which may be necessary to keep up the number of laborers does not depend on the quantity of money which he may receive for wages but on the quantity of food necessaries and conveniences become essential to him from habit which that money will purchase the natural price of labor therefore depends on the price of the food necessaries and conveniences required for the support of the laborer and his family with the rise of the price of food and necessaries the natural price of labor will rise with the fall in their price the natural price of labor will fall with the progress of society the natural price of labor has always a tendency to rise because one of the principal commodities by which its natural price is regulated has a tendency to become dearer from the greater difficulty of producing it as however the improvements in agriculture the discovery of new markets once provisions may be imported may for a time counteract the tendency to arise in the price of necessaries and may even occasion their natural price to fall so will the same causes produce the correspondent effects on the natural price of labor the natural price of all commodities accepting raw produce and labor has a tendency to fall in the progress of wealth and population but though on one hand they are enhanced in real value from the rise and the natural price of the raw material of which they are made this is more than counterbalanced by the improvements in machinery by the better division and distribution of labor and by the increasing skill both in science and art of the producers the market price of labor is the price which is really paid for it from the natural operation of the proportion of the supply to the demand labor is dear when it is scarce and cheap when it is plentiful however much the market price of labor may deviate from its natural price it has like commodities a tendency to conform to it it is when the market price of labor exceeds its natural price that the condition of the laborer is flourishing and happy that he has it in his power to command a greater proportion of the necessaries and enjoyments of life and therefore to rear a healthy and numerous family when however by the encouragement which high wages give to the increase of population the number of laborers is increased wages again fall to their natural price and indeed from a reaction sometimes fall below it when the market price of labor is below its natural price the condition of the laborers is most wretched then poverty deprives them of those comforts which custom renders absolute necessaries it is only after their privations have reduced their number or the demand for labor has increased that the market price of labor will rise to its natural price and that the laborer will have the moderate comforts which the natural rate of wages will afford notwithstanding the tendency of wages to conform to their natural rate their market rate may in an improving society for an indefinite period be constantly above it for no sooner may the impulse which an increased capital gives to a new demand for labor be obeyed than another increase of capital may produce the same effect and thus if the increase of capital be gradual and constant the demand for labor may give a continued stimulus to an increase of people capital is that part of the wealth of a country which is employed in production and consists of food clothing tools raw materials machinery etc necessary to give effect to labor capital may increase in quantity at the same time that its value rises an addition may be made to the food and clothing of a country at the same time that more labor may be required to produce the additional quantity than before in that case not only the quantity but the value of capital will rise or capital may increase without its value increasing and even when its value is actually diminishing not only may an addition be made to the food and clothing of a country but the addition may be made by the aid of machinery without any increase and even with an absolute diminution in the proportional quantity of labor required to produce them the quantity of capital may increase while neither the whole together nor any part of it singly will have a greater value than before it may actually have a less in the first case the natural price of labor which always depends on the price of food clothing and other necessaries will rise in the second it will remain stationary or fall but in both cases the market rate of wages will rise for in proportion to the increase of capital will be the increase in the demand for labor in proportion to the work to be done will be the demand for those who are to do it in both cases to the market price of labor will rise above its natural price and in both cases it will have a tendency to conform to its natural price but in the first case this agreement will be most speedily affected the situation of the laborer will be improved but not much improved for the increased price of food and necessaries would absorb a large portion of his increased wages consequently a small supply of labor or a trifling increase in the population will soon reduce the market price to the then increased natural price of labor in the second case the condition of the laborer will be very greatly improved he will receive increased money wages without having to pay any increased price and perhaps even a diminished price for the commodities which he and his family consume and it will not be till after a great addition has been made to the population that the market price of labor will again sink to its then low and reduced natural price thus then with every improvement of society with every increase in its capital the market wages of labor will rise but the permanence of their rise will depend on the question whether the natural price of labor has also risen and this again will depend on the rise in the natural price of those necessaries on which the wages of labor are expended it is not to be understood that the natural price of labor estimated even in food and necessaries is absolutely fixed and constant it varies at different times in the same country and very materially differs in different countries footnote from an essay on the external comp trade by Robert Torrens Esquire quote the shelter and the clothing which are indispensable in one country may be no way necessary in another and a laborer in Hindustan may continue to work with perfect vigor no receiving as his natural wages only such a supply of coverings would be insufficient to preserve a laborer in Russia from perishing even in countries situated in the same climate different habits of living will often occasion variations in the natural price of labor as considerable as those which are produced by natural causes unquote the whole of this subject is most ably illustrated by colonel torrens end of footnote it essentially depends on the habits and customs of the people an English laborer would consider his wages under their natural rate and too scanty to support a family if they enabled him to purchase no other food than potatoes and to live in no better habitation than a mud cabin if these moderate demands of nature are often deemed sufficient in countries where man's life is cheap and his wants easily satisfied many of the conveniences now enjoyed in an English cottage would have been thought luxurious at an earlier period of our history from manufactured commodities always falling and raw produce always rising with the progress of society such a disproportion in their relative value is at length created that in rich countries a laborer by the sacrifice of a very small quantity only of his food is able to provide liberally for all his other wants independently of the variations in the value of money which necessarily affect money wages with which we have here supposed to have no operation as we have considered money to be uniformly of the same value it appears then that wages are subject to a rise or fall from two courses first the supply and demand of laborers secondly the price of the commodities on which the wages of labor are expended in different stages of society the accumulation of capital or of the means of employing labor is more or less rapid and must in all cases depend on the productive powers of labor the productive powers of labor are generally greatest when there is an abundance of fertile land at such periods accumulation is often so rapid that laborers cannot be supplied with the same rapidity as capital it has been calculated that under favorable circumstances population may be doubled in 25 y