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To popular apprehension it seems as if the profits of business depended upon prices. A producer or dealer seems to obtain his profits by selling his commodity for more than it cost him. Profit altogether, people are apt to think, is a consequence of purchase and sale. It is only (they suppose) because there are purchasers for a commodity, that the producer of it is able to make any profit. Demand—customers—a market for the commodity, are the cause of the gains of capitalists. It is by the sale of their goods, that they replace their capital, and add to its amount. This, however, is looking only at the outside surface of the economical machinery of society. In no case, we find, is the mere money which passes from one person to another, the fundamental matter in any economical phenomenon. If we look more narrowly into the operations of the producer, we shall #. that the money he obtains for is commodity is not the cause of his having a profit, but only the mode in which his profit is paid to him. The cause of profit is, that labour produces more than is required for its support. The reason why agricultural capital yields a profit, is because human beings can grow more food, than is necessary to feed them while it is being grown, including the time occupied in constructing the tools, and making all other needful preparations; from which it is a consequence, that if a capitalist undertakes to feed the labourers on condition of receiving the produce, he has some of it remaining for himself after replacing his advances. To vary the form of the theorem: the reason why capital yields a profit, is because food, clothing, materials and tools, last longer than the time which was required to produce them; so that if a capitalist supplies a party of labourers with these things, on con
dition of receiving all they produce, they will, in addition to reproducing their own necessaries and instruments, have a portion of their time remaining, to work for the capitalist. We thus see that profit arises, not from the incident of exchange, but from the productive power of labour; and the general profit of the country is always what the productive power of labour makes it, whether any exchange takes place or not. If there were no division of employments, there would be no buying or selling, but there would still be profit. If the labourers of the country collectively produce twenty per cent more than their wages, profits will be twenty per cent, whatever prices may or may not be. The accidents of price may for a time make one set of producers get more than twenty per cent, and another less, the one commodity being rated above its natural value in relation to other commodities, and the other below, until prices have again adjusted themselves; but there will always be just twenty per cent divided among them all. I proceed, in expansion of the considerations thus briefly indicated, to exhibit more minutely the mode in which the rate of profit is determined.
§ 3. . I assume, , throughout, the state of things, which, where the labourers and capitalists are separate classes, prevails, with few exceptions, ... namely, that the capitalist advances the whole expenses, including the entire remuneration of the labourer. That he should do so, is not a matter of inherent necessity; the labourer might wait until the production is complete, for all that part of his wages which exceeds mere necessaries; and even for the whole, if he has funds in hand, sufficient for his o suport. But in the latter case, the laourer is to that extent really a capitalist, investing capital in the concern, by supplyingaportion of the funds neces sary for carrying, it on ; and even in the former case he may be looked upon in the same light, since, contributing his labour at less than the market price, he may be regarded as lending the difference to his employer, and receiving it back with interest (on whatever principle computed) from the proceeds of the enterprise. The capitalist, then, may be assumed to make all the advances, and receive all the produce. His profit consists of the excess of the produce above the advances; his rate of profit is the ratio which that excess bears to the amount advanced. But what do the advances consist of? It is, for the present, necessary to guppose, that the capitalist does not pay any rent; has not to purchase the use of any appropriated natural agent. This indeed is scarcely ever the exact truth. The agricultural capitalist, except when he is the owner of the soil he cultivates, always, or almost always, pays rent: and even in manufactures, (not to mention ground-rent,) the materials of the manufacture have generallyJ. rent, in some stage of their production. The nature of rent however, we have not yet taken into consideration; and it will hereafter appear, that no practical error, on the question we are now examining, is produced by disregarding it. If then, leaving rent out of the uestion, we inquire in what it is that the advances of the capitalists, for puroses of production, consists, we shall #. that they consist of wages of labour. A large portion of the expenditure of every capitalist consists in the direct payment of wages. What does not consist of this, is composed of materials and implements, , including buildings. But materials and implements are produced by labour; and as our supposed capitalist is not meant to represent a single employment, but to be a type of the productive industry of the whole country, we may suppose that he makes his own tools, and raises his own materials. He does this by means of previous advances, which, again, consist wholly of wages. If we suppose him to buy the materials and tools instead of producing them, the case is not it of : he then repays to a previous producer the wages which that previous producer has paid. It is
true, he repays it to him with a profit; and if he had produced the things himself, he himself must have had that profit, on this part of his outlay, as well as on every other part. The fact, however, remains, that in the whole process of production, beginning with the materials and tools, and ending with the finished product, all the advances have consisted of nothing but wages; except that certain of the capitalists concerned have, for the sake of general convenience, had their share of profit paid to them before the operation was completed. Whatever, of the ultimate product, is not profit, is repayment of wages.
§ 7. It thus appears that the two elements on which, and which alone, the gains of the capitalists depend, are, first, the magnitude of the produce, in other words, the productive power of labour; and secondly, the proportion of that produce obtained by the labourers themselves; the ratio, which the remuneration of the labourers bears to the amount they produce. These two things form the data for determining the gross amount divided as profit among all the capitalists of the country; but the rate of profit, the percentage on the capital, depends only on the second of the two jo. the labourer's proportional share, and not on the amount to be shared. If the produce of labour were doubled, and the labourers obtained the same proportional share as before, that is, if their remuneration was also doubled, the capitalists, it is true, would gain twice as much; but as they would also have had to advance twice as much, the rate of their profit would be only the same as before.
We thus arrive at the conclusion of Ricardo and others, that the rate of profits depends on wages; rising, as wages fall, and falling as wages rise. In adopting, however, this doctrine, I must insist upon making a most necessary alteration in its wording. Instead of saying that profits depend on wages, let us say (what Ricardo really meant) that they depend on the cost of labour.
Wages, and the cost of labour; what labour brings in to the labourer, and what it costs to the capitalist; are ideas quite distinct, and which it is of the utmost importance to keep so. For this purpose it is essential not to designate them, as is almost always done, by \he same name. Wages, in public discussions, both oral and printed, being looked upon from the point of view of the payers, much oftener than from that of the receivers, nothing is more common than to say that wages are high or low, meaning only that the cost of labour is high or low. The reverse of this would be oftener the truth: the cost of labouris frequently at its highest where wages are lowest, This may arise from two causes. In the first place, the labour, though cheap, may be inefficient. In no European country are wages so low as they are (or at least were) in Ireland; the remuneration of an agricultural labourer in the west of Ireland not being more than half the wages of even the lowest-paid Englishman, the Dorsetshire labourer. But if, from inferior skill and industry, two days' labour of an Irishman accomlished no more work than an English i. rformed in one, the Irishman's labour cost as much as the Englishman's, though it brought in so much less to himself. The capitalist's profit is determined by the former of these two things, not by the latter. That a difference to this extent really existed in the efficiency of the labour, is proved not only by abundant testimony, but by the fact, that notwithstanding the lowness of wages, profits of capital are not understood to have }. higher in Ireland than in Engall Cl.
land; in which, food being dear, the o: of the labourer's real reward oes not prevent labour from costing much to the purchaser, and low wages and low profits co-exist. The opposite case is exemplified in the United States of America. The labourer there enjoys a greater abundance of comforts than in any other country of the world, except some of the newest colonies; but, owing to the cheap price at which these comforts can be obtained (combined with the great efficiency of the labour,) the cost of labour is at least not higher, nor the rate of profit lower, than in Europe.
The cost of labour, then, is, in the language of mathematics, a function of three variables: the efficiency of labour; the wages of labour (meaning thereby the real reward of the labourer); and the greater or less cost at which the articles composing that real reward can be produced or procured. It is plain that the cost of labour to the capitalist must be influenced by each of these three circumstances, and by no others. These, therefore, are also the circumstances which determine the rate of profit; and it cannot be in any way affected except through one or other of them. If labour generally became more efficient, without being more highly rewarded; if, without its becoming less efficient, its remuneration fell, no increase taking place in the cost of the articles composing that remuneration; or if those articles became less costly. without the labourer's obtaining more of them; in any one of these three cases, profits would rise. If, on the contrary, labour became less efficient (as it might do from diminished bodily vigour in the people, destruction offixed capital, or deteriorated education); or if the labourer obtained a higher remuneration, without any increased cheap. ness in the things composing it; or if, without his obtaining more, that which he did obtain became more costly; profits, in all these cases, would suffer a diminution. And there is no other combination of circumstances, in which the general rate of profit of a country, in all employments indifferently, can either fall or rise.
The evidence of these propositions can only be stated generally, though, it is hoped, conclusively, in this stage of our subject. It will come out, in greater fulness and force when, having taken into consideration the theory of Value and Price, we shall be enabled to exhibit the law of profits in the concrete—in the complex entanglement
of circumstances in which it actually works. This can only be done in the o; Book. One topic still remains to be discussed in the present one, so far as it admits of being treated indé. pendently of considerations of Value; the * of Rent; to which we now proceed.
$1. THE requisites of production being labour, capital, and natural agents; the only person, besides the i. and the capitalist, whose consent is necessary to production, and who can claim a share of the produce as the rice of that consent, is the person who, y the arrangements of society, possesses exclusive power over some natural agent. The land is the principal of the natural agents which are capable of being appropriated, and the consideration i. for its use is called rent. Landed proprietors are the only class, of any numbers orimportance, who have a claim to a share in the distribution of the produce, through their ownership of something which neither they nôr any one else have produced. If there be any other cases of a similar nature, they will be easily understood, when the nature and laws of rent are somprehended. - It is at once evident, that rent is the effect of a monopoly; though the monopoly is a natural one, w regulated, which may even be held as
a trust for the community generally, ,
but which cannot be prevented from existing. The reason why landowners are able to require rent for their land, is that it is a commodity which many want, and which no one can obtain but from them. If all the land of the
ich may be
he might make what conditions he chose. This is the actual state of things in those Oriental kingdoms in which the land is considered the property of the state. Rent is then . with taxation, and the despot may exact the utmost which the unfortunate cultivators have to give. Indeed, the exclusive possessor of the land of a country could not well be other than despot of it. The effect would be much the same if the land belonged to so few people that they could, and did, act together as one man, and fix the rent by agree. ment among themselves. This case, however, is nowhere known to exist: and the only remaining supposition is that of free competition; the landowners being supposed to be, as in fact they are, too numerous to combine.
§ 2. A thing which is limited in quantity, even though its possessors do not act in concert, is still a monopolized article. But even when monopolized, a thing which is the gift of nature, and requires no labour or outay as the condition of its existence, will, if there be competition among the holders of it, command a price, only if it exists in less quantity than the demand. If the whole land of a country were required for cultivation, all of it might yield a rent. But in no country of any extent do the wants of the population require that all the land, which is capable of cultivation, should be cultivated. The food and othet agricultural produce which the people need, and which they are willing, and able to pay for at a price which remunerates the grower, may always be obtained without cultivating all the land; sometimes without cultivating more than a small part of it; the lands most easily cultivated being preferred in a very early stage of society, the more fertile, or those in the more convenient situations, in a more advanced state. There is always, therefore, some land which cannot, in existing circumstances, pay .. rent; and no land ever pays rent, unless, in point of fertility or situation, it belongs to those superior kinds which exist in less quantity than the demand—which cannot be made to yield all the proluce required for the community, uness on terms still less advantageous han the resort to less favoured soils. There is land, such as the deserts of Arabia, which will yield nothing to an amount of labour; and there is land, like some of our hard sandy heaths, which would produce something, but, in the present state of the soil, not enough to do, the expenses of production. Such lands, unless by some application of chemistry to agriculture still remaining to be invented, cannot be cultivated for profit, unless some one actually creates a soil, by spreading new ingredients over the surface, or mixing them with the existing materials. If ingredients fitted for this purpose exist in the subsoil, or close at hand, the improvement even of the most unpromising spots may answer as a speculation: but if those ingredients are costly, and must be brought from a distance, it will seldom answer to do this for the sake of profit, though the “magic of roperty” will sometimes effect it. and which cannot possibly yield a profit, is sometimes cultivated at a loss, the cultivators having their wants partially supplied from other sources; as in the case of paupers, and some monasteries or charitable institutions, among which may be reckoned the Poor Colonies of Belgium. The worst land which can be cultivated as a means of subsistence, is that which will just replace the seed, and the food
of the labourers employed on it together with what Dr. Chalmere calls their secondaries; that is, the labourers required for supplying them with tools, and with the remaining necessaries of life. Whether any given land is capable of doing more than this, is not a question of political economy, but of physical fact. The supposition leaves nothing for profits, nor anything for the labourers except necessaries: the land, therefore, can only be cultivated by the labourers themselves, or else at a pecuniary loss; and a fortiori, cannot in any contingency afford a rent. The worst land which can be cultivated as an investment for capital, is that which, after replacing the seed, not only feeds the agricultural labourers and their secondaries, but affords them the current rate of wages, which may extend to much more than mere necessaries; and leaves for those who have advanced the wages of these two classes of labourers, a surplus equal to the profit they could have expected from o, other employment of their capital. Whether any given land can do more than this, is not merely a physical question, but depends partly on the market value of ... produce. What the land can do for the labourers and for the capitalist, beyond feeding all whom it directly or indirectly employs, of course depends upon what the remainder of the produce can be sold for. The higher the market value of produce, the lower are the soils to which cultivation can descend, consistently with affording to the capital *. the ordinary rate of profit. s, however, differences of fertility slide into one another by insensible gradations; and differences of accessibility, that is, of distance from markets, do # same ; and since there is land so barren that it could not pay for its cultivation at any price; it is evident that, whatever the price may be, there must in any extensive region be some land which at that price will just pay the wages of the o and yield to the capital employed the ordinary profit, and no more. Until, therefore, the price rises higher, or until some improvement raises that particular