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the demand already existing. It determines that a part of the labour and capital of the community shall be employed in producing certain things instead of other things. The demand for labour is constituted solely by the funds directly set apart for the use of labourers.
For the better illustration of our principle, let us put the following case. A consumer may expend his income either in buying services or commodities; he may employ part of it in hiring journeymen bricklayers to build a house, or excavators to dig artificial lakes, or labourers to make plantations and lay out pleasure grounds; or, instead of this, he may expend the same value in buying velvet and lace. The question is, whether the difference between these two modes of expending his income affects the interest of the labouring classes. It is plain that in the first of the two cases he employs labourers, who will be out of employment, or at least out of that employment, in the opposite case. But those from whom I differ say that this is of no consequence, because in buying velvet and lace he equally employs labourers, namely, those who make the velvet and lace. This, according to the principle we laid down, is an error, and I proceed to shew still more clearly that it is so. The consumer does not with his own funds pay to the weavers and lacemakers their day's wages. He buys the finished commodity, which has been produced by labour and capital, the labour not being paid nor the capital furnished by him, but pre-existing. Suppose that he had been in the habit of expending this portion of his income in hiring journeymen bricklayers, who laid out the amount of their wages in food and clothing, which were also produced by labour and capital. He, however, determines to prefer velvet, for which he thus creates an extra demand. This demand cannot be satisfied without an extra supply, nor can the supply be produced without an extra capital : where, then, is the capital to come from? There is nothing in the consumer's change of purpose which makes the capital of the country greater than it otherwise was. It appears,
then, that the increased demand for velvet could not for the present be supplied, were it not that the very circumstance which gave rise to it has set at liberty a capital of the exact amount required. The very sum which the consumer now employs in buying velvet formerly passed into the hands of journeymen bricklayers, who expended it in food and necessaries, which they now either go without, or squeeze, by their competition, from the shares of other labourers. The labour and capital, therefore, which formerly produced necessaries for the use of these bricklayers, are deprived of their market, and must look out for other employment; and they find it in making velvet for the new demand. I do not mean that the very same labour and capital which produced the necessaries turn themselves to producing the velvet; but, in some one or other of a hundred modes, they take the place of that which does. There was capital in existence to do one of two things-to make the velvet, or to produce necessaries for the journeymen bricklayers; but not to do both. It was at the option of the consumer which of the two should happen; and if he chooses the velvet, they go without the necessaries.
It must not be inferred from this, that it is, or that I am bound to think it, advantageous to the labouring class, that consumers should expend their income in services, rather than in commodities. The difference does not lie there, but in their employing it or not in the direct payment or maintenance of labour, without the intervention of another capital. The detriment to the labourers would have been the same, if the consumer had persisted in building a house, but instead of engaging labourers himself and paying them, had given an order to a builder, and settled the account after the work was finished. For in this manner of proceeding, the consumer no longer himself maintains the labour, but attracts the capital of another person from some other place or occupation to do it, and therefore does not open a new employment for labour, but merely changes the course of
an existing employment. Thus, in whatever manner the question is stated, we are brought back to the conclusion, that a demand delayed until the work is completed, and furnishing no advances but only reimbursing advances made by others, contributes nothing to the demand for labour; and that what is so expended, is, in all its effects, so far as regards the employment of the labouring class, a mere nullity: it does not and cannot create any employment except at the expense of other employment which existed before*.
The error, nevertheless, is a most natural one, and has first appearances strongly on its side. Although a demand for velvet does nothing more in regard to the employment for labour and capital, than to determine so much of the employment that already existed, into that particular channel instead of any other; still, to the producers already engaged in the velvet manufacture, and not intending to quit it, this is of the utmost importance. To them a falling off in the demand is a real loss, and one which, even if none of their goods finally perish unsold, may mount to any height, up to that which would make them choose as the smaller evil, to retire from the business. On the contrary, an increased demand enables them to extend their transactions-to make a profit upon a larger capital, if they have it, or can borrow
*The grounds of a proposition, when well understood, usually give a tolerable indication of the limitations of it. There is a case in which a demand for commodities may create employment for labour, namely, when the labourer is already fed, without being fully employed. Work which can be done in the spare hours of persons subsisted from some other source, can (as we before remarked) be undertaken without withdrawing capital from other occupations, beyond the amount (often very small) required to repay the expense of tools and materials. The reason of our principle thus failing, the principle itself fails, and employment of this kind may, by the springing up of a demand for the commodity, be called into existence without depriving labour of an equivalent amount of employment in another quarter. The demand does not even in this case operate on labour any otherwise than through the medium of an existing capital, but it affords an inducement which causes that capital to set in motion a greater amount of labour than it did before.
it; and, turning over their capital more rapidly, they will employ their labourers more constantly, or employ a greater number than before. So that an increased demand for a commodity does really, in the particular department, often cause a greater employment to be given to labour by the same capital. The mistake lies in not perceiving that in the cases supposed, this advantage is given to labour and capital in one department, only by being withdrawn from another; and that when the change has produced its natural effect of attracting into the employment additional capital proportional to the increased demand, the advantage itself ceases.
The demand for commodities is a consideration of importance rather in the theory of exchange, than in that of production. Looking at things in the aggregate, and permanently, the remuneration of the producer is derived from the productive power of his own capital. The sale of the produce for money, and the subsequent expenditure of the money in buying other commodities, are a mere exchange of equivalent values, for mutual accommodation. It is true that, the division of employments being one of the principal means of increasing the productive power of labour, the power of exchanging gives rise to a great increase of the produce; but even then it is production, not exchange, which remunerates labour and capital. We cannot too strictly represent to ourselves the operation of exchange, whether conducted by barter or through the medium of money, as the mere mechanism by which each person transforms the remuneration of his labour or of his capital into the particular shape in which it is most convenient to him to possess it; but in no wise the source of the remuneration itself.
§ 10. The preceding principles demonstrate the fallacy of many popular arguments and doctrines which are continually reproducing themselves in new forms. For example, it has been contended, and by some from whom better things might have been expected, that the argument for the income
tax, grounded on its falling on the higher and middle classes only, and sparing the poor, is an error; some have gone so far as to say, an imposture; because in taking from the rich what they would have expended among the poor, the tax injures the poor as much as if it had been directly levied from them. Of this doctrine we now know what to think. So far, indeed, as what is taken from the rich in taxes, would, if not so taken, have been saved, and converted into capital, or even expended in the maintenance and wages of servants or of any class of unproductive labourers, to that extent the demand for labour is no doubt diminished, and the poor injuriously affected, by any tax on the rich; and as these effects are almost always produced in a greater or less degree, it is impossible so to tax the rich as that no portion whatever of the tax can fall on the poor. But even here the question arises, whether the government, after receiving the amount, will not lay out as great a portion of it in the direct purchase of labour, as the tax-payers would have done. In regard to all that portion of the tax, which, if not paid to the government, would have been consumed in the form of commodities (or even expended in services if the payment has been advanced by a capitalist), this, according to the principles we have investigated, falls definitively on the rich, and not at all on the poor. There is exactly the same demand for labour, so far as this portion is concerned, after the tax, as before it. The capital which hitherto employed the labourers of the country, remains, and is still capable of employing the same number. There is the same amount of produce paid in wages, or allotted to defray the feeding and clothing of labourers.
If those against whom I am now contending were in the right, it would be impossible to tax anybody except the poor. If it is taxing the labourers, to tax what is laid out in the produce of labour, the labouring classes pay all the taxes. The same argument, however, equally proves, that it is impossible to tax the labourers at all; since the tax, being laid