duction the

Price.

expense of its production. This is in every civilized society Cost of Prothe pivot on which exchangeable value always turns. A civili- regulating zed man might be able to obtain commodities from a savage, in principle of exchange for toys or trinkets, which it cost infinitely less to produce; but if he tries to obtain the same advantage over his own countrymen, a very short experience will be enough to satisfy him that they are quite as clear-sighted and attentive to their own interests as he is.

Monopolies.

Thus, then, it appears, that no variation of demand, if it be unaccompanied by a variation in the cost of production, can have any lasting influence on price.* If the cost of production be diminished, price will be equally diminished, though the demand should be increased to any conceivable extent. If the cost of production be increased, price will be equally increased, though the demand should sink to the lowest possible limit. It must always be remembered, that this reasoning only ap- Influence of plies to the case of those commodities on which competition is allowed to operate without restraint, and whose quantity can be indefinitely increased by the application of fresh capital and industry to their production. When a particular individual, or class of individuals, obtain the exclusive privilege of manufacturing certain species of goods, the operation of the principle of competition is suspended with respect to them, and their price must, therefore, entirely depend on the proportion in which they are brought to market compared with the demand. If mono-. polists supplied the market liberally, or kept it always as fully stocked with commodities as it would have been had there been. no monopoly, the commodities produced by them would sell at their natural price, and the monopoly would have no further disadvantage than the exclusion of the public from an employ ment which every one ought to have the right of carrying on. In point of fact, however, the market is never fully supplied with commodities produced under a monopoly. Every class of producers naturally endeavour to obtain the highest possible price for their commodities; and if they are protected by means of a monopoly, against the risk of being undersold by others, they will either keep the market understocked, or supply it

* The truth of this assertion depends on the extent given to the term lasting, and at any rate must, as we have seen, be limited by many considerations. It is altogether inapplicable in all cases of monopoly, or in those more numerous ones which approach to it, even in a state of freedom, such as peculiar talent or skill, which constitute as it were, a personal monopoly of the products which result from them, or of those numberless natural monopolies in which the bounty of nature is limited and cannot by the art of man be increased. The rule of our author is strikingly inaccurate in its application to the price of all raw produce, in which the market price seems to lose all reference to costs of production, and to be governed simply by the comparative demand and supply. Those who reject the costs of production as the regulating principle of exchangeable value, argue that they operate only in subordination to the dominant principle of demand and supply; they are the necessary condition of the article or commodity being brought into market, but when once there, it is effective demand as compared with supply which determines its price. For these views, see Malthus, ch, 2, sect. 3. Where such men, however, as Ricardo and Mal,. thus differ, truth will generally be found in a middle opinion, and the dispute to be less about the nature of things than the meaning of words, or the light in which things are to be regarded. See Ricardo, ch. 1, and 30. Say, Book II. ch. 1, and 4.-E.

Cost of Pro- with inferior articles, or both. In such circumstances, the price duction the of the commodity, if it cannot be easily smuggled from abroad, regulating principle of or clandestinely produced at home, will be elevated to the

Price.

Average

Price always

coincident

with Cost of

Production.

highest point to which the competition of the buyers can raise it, and may, in consequence, be sold for five, ten, or twenty times the sum for which it would be offered were competition permitted to operate in its production. The will and power of the purchasers to offer a high price forms the only limit to the rapacity of monopolists.

Besides the commodities produced under an artificial monopoly, there is another class whose quantity cannot be increased by the operation of human industry, and whose price is not, therefore, dependant on the cost of their production. Ancient statues, vases, and gems, the pictures of the great masters, some species of wines which can be produced in limited quantities only from soils of a particular quality and exposure, and a few other commodities, come under this description. As their supply cannot be increased, their price must vary inversely as the demand, and is totally unaffected by any other circumstance.

But with these exceptions, which, when compared to the great mass of commodities, are extremely few and unimportant, wherever industry is unrestricted and competition allowed to operate, the average price of the various products of art and industry, always coincides with the cost of their production. When a fall takes place in the market price of any commodity, we cannot say whether that fall is really advantageous, or whether a part of the wealth of the producers be not gratuitously transferred to the consumers, until we learn whether the cost of production has been equally diminished. If this is the case, the fall of price will not have been disadvantageous to the producers, and will be permanent; but if this has not been the case -if the cost of production continues the same, the fall must have been injurious to the producers, and prices will, in consequence, speedily attain their former level. It is the same with a rise of prices. No rise can be permanent except where the cost of production has been proportionably increased. If that cost has remained stationary, or has not increased in a corresponding ratio, prices will decline as soon as the ephemeral causes of enhancement haye disappeared.

人

The extreme importance of having correct opinions respecting the regulating principle of price, and the discordant and erroneous opinions that are still so exceedingly prevalent with regard to it, will, we hope, be deemed a sufficient apology for the length of the previous remarks, and for the insertion of the following paragraph from the Histoire de la. Monnaie of the Marquis the Marquis Garnier, in which the doctrine we have been endeavouring to establish is enforced with equal ability and eloquence:

Opinion of

Garnier.

"Mais les producteurs tendent continullement à régler la quantité des productions sur la somme des demandes ; ils ne resteront pas au-dessous de ce point, sans être tentés, d'accroître la masse de leurs produits; et ils ne peuvent le dépasser sans s'exposer à perdre. Ces deux quantités, celle des produits et celle des demandes, s'efforcent donc à se mettre en équilibre l'une avec l'autre. Il existe donc un point de repos vers lequel elles

duction the

Price.

gravitent chacune de son côte; un point qui est leur niveau, Cost of Proet c'est ce point qui constitue le prix naturel de la chose ve- regulating nale. Quelle est la limite au-delà de laquelle le producteur principle of ne peut porter la quantité de ses produits? C'est le prix naturel; car, s'il ne peut obtenir ce prix pour tout son produit, il sera en perte. Quelle est la borne des demandes du consommateur? C'est le prix naturel; car il ne veut pas donner plus que l'équivalent de ce qu'il reçoit. Si, par une découverte, ou par un perfectionnement de l'industrie, le producteur est mis à même d'établir l'article sur lequel il s'exerce à moins de temps et de dépense, alors le prix naturel baissera, mais aussi la somme des demandes accroîtra dans une proportion pareille, parce que plus de consommateurs seront en état de payer ce prix naturel, moins élevé que l'ancien. Le prix naturel sera toujours, pour chaque chose vénale, la limite commune au-delà de laquelle la somme des demandes de cette chose et la quantité de sa production ne devront plus faire de progrès. Quand le prix courant est le prix naturel, le producteur et le consommateur se donnent réciproquement l'équivalent de ce qu'ils reçoivent. Quand le prix courant s'écarte du prix naturel, ou c'est la consommation qui souffre au profit de la production, ou c'est la production qui souffre au profit de la consommation. Cet état de souffrance ne peut durer, et de là procèdent les variations du prix courant. Ces variations, que Smith a expliquées et analysées avec une si parfaite lucidité, ne sont autre chose que les efforts pour revenir au prix naturel. Tenter d'expliquer ces variations, sans reconnaître l'existence d'un prix naturel, ce serait vouloir expliquer les oscillations du pendule sans convenir de så tendance vers un centre de gravitation; ce serait supposer un effort sans but et sans mobile; ce serait admettre le mouvement et nier le repos; enfin, en voyant les phénomènes du cours des fluides et de l'équilibre des solides, ce serait contester les lois du niveau et de la pesanteur. Si les choses vénales n'ont point de prix naturel, alors les mouvemens de la circulation seront diriges par une force aveugle et inconnue ; les prix moyens ne seront plus que le résultat de chances purement fortuites; il n'y aura plus d'équivalent réel; les valeurs n'auront plus de mesure naturelle; l'économie politique ne pourra plus aspirer à être au rang des sciences, puisqu'elle manquera du caractère essentiel qui les constitue telles, et que les faits dont elle traite ne seront plus fondés sur les lois immuables de la nature."*(Tome I. Introduction, p. 62.)

"Producers constantly seek to regulate the quantity of their products by the extent of the demand. They cannot remain below this point without being tempted to increase the amount of their products, nor can they pass it without being exposed to loss. These two quantities, therefore, of demand and supply are necessarily always tending to an equilibrium. There is a certain period of rest towards which each on its own side gravitates a point which brings them to a level, and which constitutes the natural price of the thing sold. For what is the limit beyond which the producer cannot pass in the quantity of his products? It is their natural price for he is a loser if he cannot obtain this price for all. What too is the limit of the demand of the consumer? It is the natural price, for he will not give more than an equivalent for that which he receives. If by a new discovery or improvement, the producer is enabled to furnish the article on which he labours in less time and at less expense, the natural price will then sink, but at the same time the demand will increase in a

Nature and

Causes of
Rent.

Having thus shown that it is the cost of production which is the sole regulating principle of price, we shall now proceed to investigate the elements which enter into and constitute the cost of producing commodities in an advanced state of society, when a rent is paid for land, and circulating and fixed capital employed to facilitate the labour of the workman. This is, of all others, the most important, as it is the most radical inquiry in the science of the distribution of wealth; and it is indeed impossible, without possessing accurate notions on this subject, to advance a single step without falling into errors. We shall begin by endeavouring to ascertain whether rent enters into the cost of production, or not.

SECT. III.-Nature, Origin, and Progress of Rent-Not a Cause but a Consequence of the High Value of Raw Produce--Does not enter into Price-Distinction between Agriculture and Manufactures.

Dr. Smith was of opinion, that, after land had become property, and rent began to be paid, such rent made an equivalent addition to the exchangeable value of the produce of the soil. (Wealth of Nations, I. p. 75.) This opinion was first called in question in two pamphlets of extraordinary merit, published nearly at the same time, by Mr. Malthus,* and a Fellow of University College, Oxford. These writers endeavoured to show that rent was not, as had been generally supposed, a consequence of land being appropriated and of limited extent, but of the superior productiveness of one species of land over another; like proportion, because more consumers will be able to purchase at this reduced cost. Natural price, therefore, in every case, constitutes the limit beyond which, in all vendible commodities, demand and supply cannot advance. When the market price concurs with the natural, the producer and consumer give in turn an equivalent for that which they receive. Whenever the market price deviates from the natural, either the consumer suffers for the profit of the producer, or the producer suffers for that of the consumer. This state of loss cannot be permanent; and hence proceed the variations of market price. These variations which Smith has explained and analyzed with such perfect clearness, are nothing else than efforts to return to the natural price. To attempt the explanation of these variations without referring to a natural price, would be to explain the oscillations of a pendulum without acknowledging its tendency to the centre of gravity; it would be to suppose an effort without aim, to admit motion and deny rest; it would be equivalent in fine, after witnessing the phenomena of the course of fluids and the weight of solids, to a denial of the laws which bring the one to a level and the other to an equilibrium. If vendible commodities have no natural price, then the movements of its circulation will be directed by a blind and unknown force, and average prices will be the result of causes altogether fortuitous; there will be no such thing as a real equivalent; value will have no natural measure; Political Economy can no longer aspire to the rank of science, since it will want that which constitutes it such, viz.-that the facts of which it treats are founded upon the immutable laws of nature."-E.

* An Inquiry into the Nature and Progress of Rent, by the Rev. T. R. Malthus, 1815.

+ An Essay on the Application of Capital to Land, by a Fellow of University College, Oxford, 1815.

See note p. 43, where mention is made of this essay; though its priority to the Inquiry of Malthus is incorrectly stated. Malthus' Inquiry into the nature of Rent having been published in 1815, his Principles of Political Economy not until 1819.-E.

Causes of

Rent.

and that the annihilation of rents would not, provided the same Nature and extent of land was cultivated, enable its produce to be sold at a lower price. Mr. Ricardo has illustrated and enforced this doctrine with his usual ability-has stripped it of the errors by which it had been encumbered, and has shown its vast importance to a right understanding of the laws which regulate the rise and fall of profits. But the subject is still far from being exhausted; and we hope to be able to treat it in a somewhat different manner from what it has been treated by either of these gentlemen, and to obviate some rather specious objections which have not come under their notice.*

of Rent.

Rent is properly "that portion of the produce of the earth Definition which is paid by the farmer to the landlord for the use of the natural and inherent powers of the soil." If buildings have been erected on a farm, or if it has been inclosed, drained, or in any way improved, by an expenditure of capital and labour, the sum which a farmer will pay to the landlord for its use will be composed, not only of what is properly rent, but also of a remuneration for the use of the capital which has been laid out in its improvement. In common language, these two sums are always confounded together, under the name of rent; but in an inquiry of this nature, it is necessary to consider them as perfectly distinct. The laws by which rent and profits are regulated being totally different, those which govern the one cannot be ascertained if it be not considered separately from the other.

on the first

On the first settling of any country abounding in large tracts No Rent paid of unappropriated land, no rent is ever paid; and for this plain settling of and obvious reason, that no person will pay a rent for what may any Country. be procured in unlimited quantities for nothing. Thus in New Holland, where there is an ample supply of fertile and unappropriated land, it is certain that until the best lands are all cultivated no such thing as rent will ever be heard of. Suppose,

*Regarding as the Editor does this new analysis of Rent as one of the peculiar merits of the modern school, and the present as one of the ablest exhibitions of it, he is not inclined to trouble the reader with the arguments of its opponents; they may be found in their original form in the Wealth of Nations, Book I. ch. 11. Part 1, 2, and 3. In Say, Book II. ch. 9; and in a note of the translation of Say, Vol. II. p. 118, Boston, 1821; and in the Quarterly Review, No. 60. The arguments of its maintainers may be seen in the essays above referred to, in Malthus' Political Economy, ch. 3, and Ricardo, ch. 2, or Mills' Elements, ch. 2, sect. 1; Edinburgh Review of Ricardo.-E.

+ of the truth of this position the interior of our country affords abundant illustration. Distance from a market, and the previous labour of clearing render a land-owner poor in the midst of the materials of wealth, and cause the full returns of land to be no more than a fair equivalent for the labour necessary to its cultivation. It is indeed true that the appreciation of the land arising from this labour is to the owner an equivalent for rent, but it is equally true that this being an incidental result and not paid for by the tenant, does not enter into the price of the grain so raised, since it will continue to be raised at a price which repays simply the labour employed in its production. Hence in our country the anomalous class of indigent rich men-capitalists who with funds locked up in land, which the needs of society have not yet brought into cultivation, starve in the midst of the bounties of nature. By such at least the discriminating judgment of Madam de Sevigné will not be questioned when she writes from the country-"I wish my son could come here and convince himself of the fallacy of fancying ourselves possessed of wealth when one is only possessed of lands." De Sevigné, let. 224. Say, Book I. ch. 9.