would continue to belong entirely to him, if only there were a sufficient supply of fertile and well-situated land. Beginning with the case of an individual cultivating the best land at the first settlement of a country, he gives a series of hypothetical figures, in which rents are represented as arising and growing entirely at the expense of profits. From these hypothetical figures he considers himself justified in concluding that

'Rent, then, is in all cases a portion of the profits previously obtained on the land. It is never a new creation of revenue, but always part of a revenue already created. Profits of stock fall only because land equally well adapted to produce food cannot be procured; and the degree of the fall of profits and the rise of rents depends wholly on the increased expense of production. If, therefore, in the progress of countries in wealth and population, new portions of fertile land could be added to such countries, profits would never fall, nor rents rise.' 2

In the chapter on Rent in his Principles, Ricardo repeated the arguments of the Essay on the Influence of a Low Price of Corn :

'It is only then,' he says, 'because land is of different qualities with respect to its productive powers, 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.'3

Malthus was not convinced by Ricardo's Essay, nor by his chapter on Rent, nor even by the last chapter of his Principles, that on 'Mr. Malthus's opinions on rent.' In his Political Economy he reprinted the most of his Inquiry into the Nature and Progress of Rent, and added passages in which the views objected to by Ricardo are emphatically restated:

In whatever way,' he says, 'the produce of a given portion of land may be actually divided, whether the whole is distributed to the labourers and capitalists or a part is awarded to a landlord, the power

1 See below, ch. vii. §§ 3, 4.

2 Works, p. 375.

3 1st ed. p. 54. In the second edition the passage begins, 'It is only, then, because land is not boundless in quantity and uniform in quality, and because in the progress,' etc. (p. 51). The third edition follows the second, substituting 'unlimited' for 'boundless' (in Works, p. 36).

of such land to yield rent is exactly proportioned to its fertility, or to the general surplus which it can be made to produce beyond what is strictly necessary to support the labour and keep up the capital employed upon it. . . . But if no rent can exist without this surplus, and if the power of particular soils to pay rent be proportioned to this surplus, it follows that this surplus from the land, arising from its fertility, must evidently be considered as the foundation or main cause of all rent.'1

He finishes his chapter 'Of the Rent of Land' with the declaration that in every point of view, then, in which the subject can be considered, that quality of land which, by the laws of our being, must terminate in rent, appears to be a boon most important to the happiness of mankind.' 2

The dispute between Malthus and Ricardo on this subject was perhaps one of sentiment rather than substance. Apart from sentiment, it does not really make much difference whether we choose to attribute the existence of rent to the bounty of nature in providing a certain amount of good land or to her niggardliness in not providing more of it. Later writers seem generally to have been too much concerned in investigating the causes which make rents higher at one time than at another to trouble themselves much about the question why there should be any rents at all. J. S. Mill, like Buchanan, ascribes the fact to 'monopoly.'3

1 Political Economy, pp. 140, 141.

2 Ibid.,

p. 239.

3 Principles, Bk. II. ch. xvi. § 1; 1st ed. vol. i. p. 496; People's ed.

p. 255.

CHAPTER VII

PSEUDO-DISTRIBUTION

§ 1. Wages per head, Profits per cent, and Rent per acre.

THE causes which determine the magnitude of the produce of a nation's labour having been discussed under 'Production,' and the nature and origin of the three great divisions into which the produce is 'distributed' having been fully considered, the next step forward would naturally be to endeavour to discover the causes which determine the proportions in which the produce is distributed between the three great divisions. In the equation, produce=wages+profits+rents, produce should now be taken as a given quantity, and the question should be to determine what settles the relative magnitude of the three terms on the other side of the equation.

Now with changes in the relative magnitude of wages, profits, and rents, as the terms must be understood in the equation, increases and decreases or rises and falls of wages, profits, and rent, understood in the ordinary sense, are, of course, by no means identical. In the equation, 'wages' means the total or aggregate of all wages, 'profits' the total or aggregate of all profits, and 'rents' the total or aggregate of all rents paid in a given length of time. If the total or aggregate of annual wages or remuneration of labour paid in the United Kingdom amounts to £1,000,000,000, the total or aggregate of profits to £400,000,000, and the total or aggregate of rent to £100,000,000, then the total ultimate produce or income must be £1,500,000,000, for £1,000,000,000+ £400,000,000+ £100,000,000 £1,500,000,000. But in ordinary language, when we speak of increases and decreases of wages, profits, and rent, we mean by wages the amount paid to a single man, by profits the rate of interest or proportion which interest bears to principal, and by rent the rent of a single

=

acre of land. This sense of the terms is obviously wholly inappropriate to the equation. We cannot tell how great the produce or income is by adding together a per capita wage, a percentage, and a rent per acre. It is not true that £1,500,000,000 £90 a year+3 per cent+£1 an acre. Increases or decreases of wages, profits, or rent in the one sense do not by any means necessarily correspond with increases or decreases of wages, profits, or rent in the other sense. The aggregate of wages depends on the number of workers as well as on the amount paid to each, the aggregate of profits depends on the amount of capital as well as on the rate of interest, and the aggregate of rent depends on the extent of land paying rent as well as on the amount paid per acre. And the relative or proportionate magnitude of aggregate wages, profits, and rent, which is logically the subject of Distribution, is still more remotely connected with wages per capita, profits per cent, and rent per acre than their absolute magnitude. A rise of wages per capita may be coincident with a fall in the proportion of produce devoted to wages if either the number of workers has diminished or the total produce has increased. A rise of the rate of interest may be coincident with a fall in the proportion of produce allotted to profits if either the total capital has diminished or the total produce has increased. A fall of rent per acre may be coincident with an increase in the proportion of produce allotted to rent, if either the number of acres paying rent has increased or the total produce has decreased.

But the latter part of Adam Smith's First Book is, as we have already seen,1 primarily a theory of prices. Its last four chapters treat of wages, profit, and rent, not really because they are divisions of 'produce,' but because they are parts of the prices of commodities. The 'natural price' of a commodity is represented as varying with the natural rate of each of its component parts; and the causes which increase or decrease each of these component parts, wages, profits, and rent, are discussed with a view to their effects, not upon the way in which the produce is distributed, but upon the natural price of the commodity produced. Now the variations of 'wages,' 'profits,' and 'rent' which affect the price of any 1 Above, pp. 185-188.

particular commodity are not variations of aggregate wages, profits, and rent, but variations of the wages of the persons, of the profits of the capital, and of the rent of the land employed in producing it. So long as the land, the capital, and the number of persons employed remain the same, the price of the commodity and the rates of wages per head, profits per cent, and rent per acre must necessarily vary together. Consequently, though Adam Smith had declared that the whole annual produce is distributed into wages, profit, and rent, obviously meaning thereby total wages, profits, and rent, the last four chapters of Book I. of the Wealth of Nations deal with wages per head, profits per cent, and rent per acre.

Subsequent writers, misled partly by some not unnatural confusions and partly by the fact that wages per head, profits per cent, and rent per acre are practically more interesting subjects than the division of produce between wages, profits, and rents, generally followed in Adam Smith's footsteps without troubling themselves to bring the theory of distribution into proper subordination to the theory of production. In giving a history of their doctrine it will be most convenient, in the first place, to follow the same procedure, however illogical it may be, and to postpone to a later chapter the consideration of any theories which were held as to distribution proper.

§ 2. Variations of Wages per Head.

Within the last century and a half three great theories have been held as to the causes which determine the magnitude of per capita wages. They may be called the Subsistence theory, the Supply and Demand theory, and the Produce theory. The basis of the subsistence theory is the fact that in order to live and labour a man must have something to live on, and the assumption that a wage-earner does not 'naturally' get more than enough to live on; the basis of the supply and demand theory is the erroneous idea that labour is a commodity, the demand for which depends on the amount of a fund ready to be laid out upon it; and the basis of the produce theory is the fact that wages or earnings are a part of the produce, and therefore depend on the productiveness