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at first sight, that greater durability in the portion of capital which consists of machinery or buildings, has precisely the same effect as a greater amount of it. As we just supposed one extreme case, of a machine entirely worn out by a year's use, let us now suppose the opposite and still more extreme case, of a machine which lasts for ever, and requires no repairs. In this case, which is as well suited for the purpose of illustration as if it were a possible one, it will be unnecessary that the manufacturer should ever be repaid the 500l. which he gave for the machine, since he has always the machine itself, worth 500l.; but he must be paid, as before, a profit on it. The commodity B, therefore, which in the case previously supposed was sold for 1200l., of which sum 1000l. were to replace the capital and 200l. were profit, can now be sold for 700l., being 500l. to replace wages, and 200l. profit on the entire capital. Profit, therefore, enters into the value of B in the ratio of 200l. out of 700l., being twosevenths of the whole, or 28} per cent, while in the case of A, as before, it enters only in the ratio of one-sixth, or 163 per cent. The case is of course purely ideal, since no machinery or other fixed capital lasts for ever; but the more durable it is, the nearer it approaches to this ideal case, and the more largely does profit enter into the return. If, for instance, a machine worth 500l. loses one fifth of its value by each year's use, 100l. must be added to the return to make up this loss, and the price of the commodity will be 800l. Profit therefore will enter into it in the ratio of 200l. to 800l., or onefourth, which is still a much higher proportion than one-sixth, or 200l. in 1200l., as in case A. From the unequal proportion in which, in different employments, profits enter into the advances of the capitalist, and therefore into the returns required by him, two consequences follow in regard to value. One is, that commodities do not exchange in the ratio simply of the quantities of labour required to produce them; not even if we allow for the unequal rates at which

different kinds of labour are permanently remunerated. We have already illustrated this by the example of wine: we shall now further exemplify it by the case of commodities made by machinery. Suppose, as before, an article A, made by a thousand pounds' worth of immediate labour. But instead of B, made by 500l. worth of immediate labour and a machine worth 500l., let us suppose C, made by 500l. worth of immediate labour with the aid of a machine which has been produced by another 500l. worth of immediate labour: the machine requiring a year for making, and worn out by a year's use; profits being as before 20 per cent. A and C are made by equal quantities of labour, paid at the same rate: A costs 1000l. worth of direct labour; C, only 500l. worth, which however is made up to 1000l. by the labour expended in the construction of the machine. If labour, or its remuneration, were the sole ingredient of cost of production, these two things would exchange for one another. But will they do so? Certainly not. The machine having been made in a year by an outlay of 500l., and profits being 20 per cent, the natural price of the machine is 600l.; making an additional 100l. which must be advanced, over and above his other expenses, by the manufacturer of C, and repaid to him with a profit of 20 per cent. While, therefore, the commodity A is sold for 1200l., C cannot be permanently sold for less than 1320l. A second consequence is, that every

rise or fall of general profits will have .

raising or lowering them generally, (which, as we have so often said, is a contradiction and an impossibility): | but by altering the proportion in which the values of things are affected b the unequal lengths of time for whic profit is due. When two things, though made by equal labour, are of unequal value because the one is called upon to yield profit for a greater number of years or months than the other; this difference of value will be greater when profits are greater, and less when they are less. The wine which has to

an effect on values. Not indeed o

yield five years profit more than the cloth, will surpass it in value much more if profits are 40 per cent, than if they are only 20. The commodities A and C, which, though made by equal quantities of labour, were sold for 1200l. and 1320l., a difference of 10 per cent, would, if profits had been only half as much, have been sold for 1100l. and 1155l., a difference of only 5 per cent. It follows from this, that even a general rise of wages, when it involves a real increase in the cost of labour, does in some degree influence values. It does not affect them in the manner yogaily supposed, by raising them universally. But an increase in the cost of labour, lowers profits; and therefore lowers in natural value the things into which profits enter in a greater proportion than the average, and raises those into which they enter in a less proportion than the average. All commodities in the production of which machinery bears a large part, especially if the machinery is very durable, are lowered in their relative value when profits fall; or, what is equivalent, other things are raised in value relatively to them. This truth is sometimes expressed in a phraseology more plausible than sound, by saying that a rise of wages raises the value of things made by labour, in comparison with those made by machinery. But things made by machinery, just as much as any other things, are made by labour, namely the labour which made the machinery itself: the only difference being that rofits enter somewhat more largel into the production of things for whic machinery is used, though the principal item of the outlay is still labour. It is better, therefore, to associate the effect with fall of profits than with rise of wages; especially as this last expression is extremely ambiguous, sugj the idea of an increase of the | labourer's real remuneration, rather than of what is alone to the purpose here, namely, the cost of labour to its em)loyer.

§ 6. Besides the natural and necessary elements in cost of production

—labour and profits—there are others which are artificial and casual, as for instance a tax. The tax on malt is as much a part of the cost of production of that article, as the wages of the labourers. The expenses which the law imposes, as well as those which the nature of things imposes, must be reimbursed with the ordinary profit from the value of the produce, or the things will not continue to be produced. But the influence of taxation on value is subject to the same conditions as the influence of wages and of profits. It is not general taxation, but differential taxation, that produces the effect. If all productions were taxed so as to take an equal percentage from all profits, relative values would be in no way disturbed. If only a few commodities were taxed, their value would rise: and if only a few were left untaxed, their value would fall. If half were taxed and the remainder untaxed, the first half would rise and the last would fall relatively to each other. This would be necessary in order to ol. the expectation of profit in all employments, without which the taxed employments would ultimately, if not immediately, be abandoned. But general taxation, when equally imposed, and not disturbing the relations of different productions to one another, cannot produce any effect on values.

We have thus far supposed that all the means and appliances which enter P production of com.

into the cost o modities, are things whose own value depends on their cost of production. Some of them, however, may belong to the class of things which cannot be increased ad libitum in quantity, and which therefore, if the i. goes beyond a certain amount, command a scarcity value. The materials of many of the ornamental articles manufactured in Italy are the substances called rosso, giallo, and verde antico, which, whether truly or falsely I know not, are asserted to be solely derived from the destruction of ancient columns and other ornamental structures: the quarries from which the stone was originally sut being exhausted, or their

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locality forgotten.” A material of such a nature, if in much demand, must be at a scarcity value; and this value enters into the cost of production, and, consequently, into the value, of the finished article. The time seems to be approaching when the more valuable furs will come under the influence of a scarcity value of the material. Hitherto the diminishing number of the animals which produce them, in the wildernesses of Siberia and on the coasts of the Esquimaux Sea, has operated on the value only through the greater labour which has become necessary for securing any given quantity of the article; since, without doubt, by employing labour enough, it might still be obtained in much greater abundance for some time longer. But the case in which scarcity value chiefly operates in adding to cost of production, is the case of natural agents. These, when unappropriated, and to be had for the taking, do not enter into cost of production, save to the extent of the il. which may be necessary to fit them for use. Even when appropriated, they do not (as we have already seen) bear a value from the mere fact of the appropriation, but only from scarcity, that is, from limitation of supply. But it is equally certain that they often do bear a scarcity value. Suppose a fall of water, in a place where there are more mills wanted than there is water-power to supply them; the use of the fall of water will have a scarcity value, sufficient either to bring the demand down to the supply, or to pay for the creation of an artificial power, by steam or otherwise, equal in efficiency to the water-power. * Some of these quarries, I believe, have been rediscovered, and are again worked.

A natural agent being a possession in perpetuity, and being *... serviceable by the products resulting from its continued employment, the ordinary mode of deriving benefit from its ownership is by an annual equivalent, paid by the person who uses it, from the proceeds of its use. This equivalent always might be, and generally is, termed rent. The question therefore, respecting the influence which the appropriation of natural agents produces on values, is often stated in this form: Does Rent enter into Cost of Production ? and the answer of the best political economists is in the negative. The temptation is strong to the adoption of these sweeping expressions, even by those who are aware of the restrictions with which they must be taken; for there is no denying that they stamp a general principle more firmly on the mind, than if it were hedged round in theory with all its practical limitations. o they also puzzle and mislead, and create an impression unfavourable to political economy, as if it disregarded the evidence of facts. No one can deny that rent sometimes enters into cest of produc- | tion. If I buy or rent a piece of ground, and build a cloth manufactory on it, the ground-rent forms legitimately a part of my expenses of production, which must be repaid by th. product. And since all factories are built on ground, and most of them in places where ground is peculiarly valuable, the rent paid for it must, on the average, be compensated in the values of all things made in factories. In what sense it is true that rent does not enter into the cost of production or affect the value of agricultural produce, will be shown in the succeeding chapter.



§ 1. WE have investigated the laws which determine the value of two classes of commodities: the small class which, o limited to a definite quantity, have their value entirely determined by demand and supply, save that their cost of production (if they have any) constitutes a minimum below which they cannot permanently fall; and the large class, which can be multiplied ad libitum by labour and capital, and of which the cost of production fixes the maximum as well as the minimum at which they can permanently exchange. But there is still a third kind of commodities to be considered: those which have, not one, but several costs of production; which can always be increased in quantity by labour and capital, but not by the same amount of labour and capital; of which so much may be produced at a given cost, but a further quantity not without a greater cost. These commodities form an intermediate class, partaking of the character of both the others. The principal of them is agricultural produce. We have already made abundant reference to the fundamental truth, that in agriculture, the state of the art being given, doubling the labour does not double the produce; that if an increased quantity .Pproduce is required, the additional supply is obtained at a greater cost than the first. Where a hundred quarters of corn are all that is at present required from the lands of a given village, if the growth of population made it necessary to raise a hundred more, either by breaking up worse land now uncultivated, or by a more elaborate cultivation of the land already under the plough, the additional hundred, or some part of them at least, might cost double or treble as much per quarter as the former supply.

If the first hundred quarters were all raised at the same expense (only

the best land being cultivated): and if that expense would be remunerated with the ordinary profit by a price of 20s. the quarter; the natural price of wheat, so long as no more than that quantity was required, would be 20s.; and it could only rise above, or fall below that price, from vicissitudes of seasons, or other casual variations in supply. But if the population of the district advanced, a time would arrive when more than a hundred quarters would be necessary to feed it. We must suppose that there is no access to any foreign supply. By the hypothesis, no more than a hundred quarters can be produced in the district, unless by either bringing worse land into cultivation, or altering the system of culture to a more expensive one. Neither of these things will be done without a rise in price. This rise of Fo will gradually be brought about y the increasing demand. So long as the price has risen, but not risen enough, to repay with the ordinary profit the cost of producing an additional quantity, the increased value of the limited supply partakes of the nature of a scarcity value. Suppose that it will not answer to cultivate the second best land, or land of the second degree of remoteness, for a less return than 25s. the quarter; and that this price is also necessary to remunerate the expensive operations by which an increased produce might be raised from land of the first quality. If so, the price will rise, through the increased demand, until it reaches 258. That will now be the natural price; being the price without which the quantity, for which society has a demand at that price, will not be produced. At that price, however, society can go on for some time longer; could go on erhaps for ever, if population did not increase. The price, having attained that point will not again permanently recede (though it may fall temporarily from accidental abundance); nor will it advance further, so long as society can obtain the supply it requires without a second increase of the cost of production. I have made use of Price in this reasoning, as a convenient symbol of Walue, from the greater familiarity of the idea; and I shall continue to do so as far as may appear to be necessary. In the case supposed, different portions of the supply of corn have different costs of production. Though the 20, or 50, or 150 quarters additional have been produced at a cost roportional to 25s, the original hun§ quarters per annum are still produced at a cost only proportional to 20s. This is self-evident, if the original and the additional supply are produced on different qualities of land. It is equally true if they are produced on the same land. Suppose that land of the best quality, which produced 100 quarters at 20s, has been made to produce 150 by an expensive process, which it would not answer to undertake without a price of 25s. The cost which requires 258. is incurred for the sake of 50 quarters alone : the first hundred might have continued for ever to be produced at the original cost, and with the benefit, on that quantity, of the whole rise of price caused by the increased demand: no one, therefore, will incur the additional expense for the sake of the additional fifty, unless they alone will pay for the whole of it. The fifty, do, will be produced at their natural price, o to the cost of their prouction: while the other hundred will now bring in 58. a quarter more than their natural price—than the price corresponding to, and sufficing to remunerate, their lower cost of production. If the production of any, even the smallest, portion of the supply, requires as a necessary condition a certain price, that price will be obtained for all the rest. We are not able to buy one loaf cheaper than another because the corn from which it was made, being grown on a richer

soil, has cost less to the grower. The value, therefore, of an article (meaning its natural, which is the same with its average value) is determined by the cost of that portion of the supply which is produced and brought to market at the greatest expense. This is the Law of Value of the third of the three classes into which all com. modities are divided.

§ 2. If the

obtains a value proportioned to its cost of production; all the portions raised in more favourable circumstances, selling as they must do at the same value, obtain a value more than proportioned to their cost of production. Their value is not, correctly, speaking, a scarcity value, for it is determined by the circumstances of the production of the commodity, and not by the degree of dearness necessary for keeping down the demand to the level of a limited supply. The owners, however, of those portions of the produce enjoy a privilege; they obtain a value which yields them more than the ordinary profit. If this advantage depends upon any special exemption, such as being free from a tax, or upon any personal advantages, physical or mental, or any peculiar process only known to themselves, or upon the possession of a greater capital than other people, or upon various other things which might be enumerated, they retain it to themselves as an extra gain, over and above the general profits of capital, of the nature, in some sort, of a monopoly profit. But when, as in the case which we are more particularly considering, the advantage depends on the possession of a natural agent of peculiar quality, as, for instance, of more fertile land than that which determines the general value of the commodity; and when this natural agent is not owned by themselves; the person who does own it, is able to exact from them, in the form of rent, the whole extra gain derived from its use. We are thus brought by another road to the Law of Rent, investigated in the concluding chapter of the Second

rtion of produce raised , in the most unfavourable circumstances,

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