low as can well be done.—The lottery of the law, therefore, is very far from being a perfectly fair lottery; and that, as well as many other liberal and honourable professions, is, in point of pecuniary gains, evidently under-recompensed.'

But the love of that wealth, power, and consideration, that most commonly attend superior excellence in any of the liberal professions, and the overweening confidence placed by each individual in his own good fortune, are sufficient to overbalance all the disadvantages and drawbacks that attend them; and never fail to crowd their ranks with all the most generous and liberal spirits.

It is unnecessary to enter upon any farther details with respect to this part of our subject. It has been sufficiently proved, that the permanent differences that actually obtain in the rate of wages paid to those who are engaged in different employments in countries where industry is free and unfettered, are never more than sufficient to balance the favourable or unfavourable circumstances attending them. Those who receive the highest wages, are not, when the cost of their education, the chances of their success, and the various disadvantages incident to their professions, are taken into account, really better paid than those who receive the lowest. The wages earned by the different classes of workmen are equal, not when each individual earns the same number of shillings, or of pence, in a given space of time, but when each is paid in proportion to the severity of the labour he has to perform, to the degree of previous education and skill that it requires, and to the other causes of variation already specified. So long, indeed, as the principle of competition is allowed to operate without restraint, or so long as each individual is allowed to employ himself as he pleases, we may be assured, that the higgling of the market will always adjust the rate of wages in different employments on the principle now stated, and that they will be, all things considered, very nearly equal. If you depress the rate of wages in one employment below the common level, labourers will leave it to go to others; and if you raise it above the same common level, labourers will be attracted to it from those departments where wages are lower, until their increased competition has sunk them to their average standard. A period of greater or less duration, according to the peculiar circumstances affecting each particular employment, is always required to bring about this equalization. But all inquiries, that have the establishment of general principles for their object, either are, or ought to be, founded on periods of average duration and whenever such is the case, we may always, without occasioning the slightest error, assume that the wages earned in different employments are, all things taken into account, precisely equal.

For similar reasons to those which have now been stated, it is easy to see that the profits accruing to the capitalists engaged in different businesses, though varying proportionally to the greater or less risk,

132 THE DIFFERENCE BETWEEN GRÖSS AND NET PROFITS. and other circumstances affecting the capitals they employ, must really, when all things are taken into account, be about the same in them all. It is obvious, indeed, that profits have not attained their level until they have been adjusted so as to balance these different advantages and disadvantages. None would engage in unusually hazardous undertakings, if the capital employed in them was only to yield the same profit that may be obtained by employing it in more secure businesses. Wherever there is extraordinary risk, that risk must be compensated. And hence, the well known distinction between gross and net profit. Gross profit always varies according to the risk, the respectability, and the agreeableness of different employments, while net profit is the same, or very nearly the same, at any particular period, in them all.. A gunpowder manufacturer, for example, must obtain as much profit, over and above the profit obtained from the capital engaged in the securest businesses, as will suffice to guarantee or insure his capital, from the extraordinary risk to which it is exposed, in a business of such extreme hazard. If the gunpowder manufacturer were to obtain more than this rate, additional capital would be attracted to his business, and if he were to obtain less, he would withdraw capital from it. The constantly acting principle of competition, or, which is just the same thing, the self-interest of every individual, will never permit the wages or the profits obtained by any particular set of workmen or capitalists, taking all things into account, to continue either long below or long above the common and average rate of wages and profits obtained by those who are employed, or who have capital invested in other businesses. It is by this common standard that the wages and profits of particular businesses are always regulated; they can never diverge considerably from it; they have a constant tendency to equalization; and may, in all theoretical inquiries be supposed, without occasioning any error of consequence, exactly to coincide.

The principle of the equality, or rather of the constant tendency to equality, of the wages earned by the labourers, and of the profits derived from the capitals, employed, at the same time, in all the various branches of industry, was pointed out by Mr. Harris, (Essay on Money and Coins, p. 13), and also by Mr. Cantillon, (Analysis of Trade, &c. p. 15); but it was first fully demonstrated in the eighth, ninth, and tenth chapters of the first book of the Wealth of Nations. The establishment of this principle was one of the greatest services rendered by Adam Smith to the science of Political Economy. Nothing can be clearer, more convincing and satisfactory, than his reasoning on this subject. The equality of wages and of profits has, ever since the publication of his work, been assumed as admitted and incontestible.

It ought also to be kept in view, throughout all the investigations of this science, that the capitals employed in the production of commodities may be of almost every conceivable degree of durability, or, in

other words, that periods of almost every conceivable degree of duration may be required for their consumption. The bread, beer, and other articles provided for the subsistence of the labourer, form a part, and an important one too, of the capital of the country; but how limited is the durability of such articles, compared with the durability of a bridge, or a granite dock! The former may be consumed in the space of an hour, while the latter will probably last for five hundred or a thousand years. These two species of capital may be taken as representing the extremes of duration, and the space between them may be supposed to be filled up, and I believe is really so, by capitals of every intermediate degree of durability. One machine may be capable of lasting fifty years, another forty, a third ten, and so on. Nor in all the long interval between the duration of the least and that of the most rapidly perishable capital, is it possible to fix on any term which does not, or may not, represent the durability of a capital.

SECTION III.-Cost of Production the regulating principle of Price— Influence of Variations in the Demand for and Supply of Commodities on their Price-Influence of Monopolies―Average Price always coincident with Cost of Production.

HAVING thus seen that the wages earned by the labourers engaged in different employments, are, all things considered, precisely equal; and that the same principle holds with respect to the profit derived from the capitals invested in the different departments of industry, we might proceed to inquire into the effects supposed to be exercised by variations in the rate of wages, and in the rate of profits on the value of commodities. But, before entering on this inquiry, it will be expedient to investigate the influence which the relation between the supply of commodities and the demand for them has in determining their exchangeable value, as compared with each other, and their price or value as compared with money. It was long the universal opinion, and it is still the opinion of the great majority of practical men, and even of some Political Economists of considerable eminence, that the exchangeable value of commodities depends exclusively on their relative abundance or scarcity in the market compared with the demand. There can be no doubt, however, that this opinion is essentially erroneous; and I shall now very briefly recapitulate some of the statements by which its fallacy has been demonstrated.

It has been already seen, that the capitals invested in different businesses yield, at any given period, the same common and average rate of net profit. But it is quite obvious, that if any commodity were brought to market and exchanged for a greater amount either of other commodities, or of money, than was required to defray the cost of its production, including, in that cost, the common and average rate of net profit at the time, its producers would be placed in a relatively

advantageous situation compared with others; and there would, in consequence, be an influx of capital into that particular department, until competition had sunk the value, or price of the article, to the level that would just yield the customary rate of profit on the capital employed in its production. And, on the other hand, if a commodity were brought to market which did not exchange for so great an amount of other commodities, or of money, as was required to cover the cost of its production, its producers would be placed in a relatively disadvantageous situation; and would, in consequence, withdraw their capital from the production of the commodity, until its value or price had risen to such a level as was sufficient to place them in the same situation as their neighbours, or to yield the same rate of profit.

The cost of producing commodities,-denominated by Adam Smith and M. Garnier natural or necessary price,—is, as will be afterwards shown, identical with the quantity of labour required to produce them and bring them to market. But, without inquiring at present into the elements which form the cost of production, it is quite obvious that it is the permanent and ultimate regulator of the exchangeable value or price of every commodity that is not subjected to a monopoly, and that may be indefinitely increased in quantity by the application of fresh capital and labour to its production. That the market price of such commodities and their cost of production do not always coincide is certain; but they cannot, for any considerable period, be far separated, and have a constant tendency to equality. It is plain, that no man will continue to produce commodities if they sell for less than the cost of their production—that is, for less than will indemnify him for his expences, and yield him the common and average rate of profit on his capital. This is a limit below which it is obviously impossible prices can be permanently reduced; and it is equally obvious, that if they were, for any considerable period, to rise above it, additional capital would be attracted to the advantageous business; and the competition of the producers would lower prices.

A demand, to be effectual, must be such as will cover the expence of production. If it is not sufficient to do this, it can never be a means of causing commodities to be produced and brought to market. The demand of those who have both the power and the will to purchase, for any particular commodity may become ten or ten thousand times more extensive, or it may decline in the same proportion, but, if the cost of its production continues the same, no permanent variation will be occasioned in its price. Suppose, for example, that the effectual demand for hats is suddenly doubled; that circumstance would undoubtedly occasion a rise of price, and the hatters would, in consequence, make large profits; but this rise could only be of a very limited duration; for these large profits would immediately attract additional capital to the hat manfacture; an increased supply of hats

would be brought to market, and if no variation took place in the cost of their production, their price would infallibly sink to its former level. Suppose, on the other hand, that the demand for hats is increased tenfold, and the cost of their production diminished in the same proportion, we should, notwithstanding the increased demand, be able in a very short time, to buy a hat for the tenth part of what it now costs. Again, suppose the demand for hats to decline, and the cost of producing them to increase; the price would, notwithstanding the diminished demand, gradually rise, till it had reached the point at which it would yield the hatters the common and average rate of profit on the capital employed in their business. It is admitted that variations in the demand and supply occasion temporary variations of price. But it is essential to remark, that these variations are only temporary. The cost of production is the grand regulator of price-the centre of all those transitory and evanescent oscillations on the one side and the other; wherever industry is free, the competition of the producers will always elevate or sink prices to its level.

In certain branches of industry, such, for example as agriculture, which are liable to be seriously affected by variations in the seasons, and from which capital cannot be easily withdrawn, there is a somewhat longer interval than in others, before the market price of produce and the cost of producing it can be equalized. But that such an equalization must take place in the end is absolutely certain. Neither farmers, nor any other class of producers, will continue to bring products to market, unless they sell for such a price as is sufficient to pay the expense of their production, including the common and average rate of profit on the capital employed by them.* When an excess of supply depresses the price of corn below this level, the occupiers of poor land are involved in the greatest difficulties: a number of them are in consequence driven from their employments; and a smaller supply of corn being brought to market, prices are elevated so as to yield the customary rate of profit, and no more, to the cultivators of the poorest soils that are still continued under tillage.-The self-interest of the cultivators will not permit prices to be permanently depressed below this level; and the self-interest of the public will not permit them to be permanently raised above it; for, if they were raised above it, then the cultivators would gain more than the common and average rate of profit, and capital would, of course, be immediately attracted to agricùlture, and would continue flowing in that direction, until the natural and indestructible equilibrium of profit had been restored— that is, until the price of agricultural produce had fallen to such a sum as would just yield the average rate of profit to the cultivators of the worst soils, or to the improvers of the best. This is the point at which

*Nemo enim sanus debet velle impensam ac sumptum facere in culturam, si videt non posse refici. Varro, De Re Rustica, Lib. i. § 2.