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therefore two funds to be employed in the maintenance and remuneration of labour, where before there was only one. There is not a transfer of emloyment from velvet-makers to brickayers; there is a new employment created for bricklayers, and a transfer of employment from velvet-makers to some other labourers, most probably those who produce the food and other things which the bricklayers consume. In answer to this it is said, that though money laid out in buying velvet is not capital, it replaces a capital; that though it does not create a new demand for labour, it is the necessary means of enabling the existing demand to be kept up. The funds (it may be said) of the manufacturer, while locked up in velvet, cannot be directly applied to the maintenance of labour; they do not begin to constitute a demand for labour until the velvet is sold, and the capital, which made it replaced from the outlay of the purchaser; and thus, st may be said, the velvet-maker, and the velvet-buyer have not two capitals, but only one capital between them, which by the act of purchase the buyer transfers to the manufacturer: and if instead of buying velvet he buys labour, he simply transfers this capital elsewhere, extinguishing as much demand for labour in one quarter as he creates in another. The premises of this argument are not denied. To set free a capital which would otherwise be locked up in a form useless for the support of labour, is, no doubt, the same thing to the interests of labourers as the creation of a new capital. It is perfectly true that if I expend 1000l. in buying velvet, I enable the manufacturer to employ 1000l. in the maintenance of labour, which could not have been so employed while the velvet remained unsold : and if it would have remained unsold for ever unless I bought it, then by changing my o: and hiring bricklayers . undoubtedly create no new demand for labour: for while I emplo 1000l. in hiring labour on the one hand, I annihilate for ever 1000l. of the velvet-maker's capital on the other. But this is confounding the effects
arising from the mere suddenness of a change with the effects of the change itself. If when the buyer ceased to purchase, the capital employed in making velvet for his use necessarily perished, then his expending the same amount in hiring bricklayers would be no creation, but merely a transfer, of employment. The increased employment which I contend is given to labour, would not be given unless the capital of the velvet-maker could be liberated, and would not be given until it was liberated. But every one knows that the capital invested in an employment can be withdrawn from it, if sufficient time be allowed. If the velvet-maker had previous notice, by not receivin the usual order, he will have ...i 1000l. less velvet, and an equivalent portion of his capital will have been already set free. }. he had no previous notice, and the article consequently remains on his hands, the increase of his stock will induce him next year to suspend or diminish his production until the surplus is carried off. When this process is complete, the manufacturer will find himself as rich as before, with undiminished power of employing labour in general, though a portion of his capital will now be employed in maintaining some other kind of it. Until this adjustment has taken place, the demand for labour will be merely changed, not increased; but as soon as it has taken place, the demand for labour is increased. Where there was formerly only one capital employed in maintaining weavers to make 1000l. worth of velvet, there is now that same capital employed in making something else, and 1000l. distributed annong bricklayers besides. There are now two capitals employed in remunerating two sets of labourers; while before, one of those capitals, that of the cus. tomer, only served as a wheel in the machinery by which the other capital, that of the manufacturer, carried on its employment of labour from year to year. The proposition for which I am contending is in reality equivalent to the following, which to some minds will appear a truism, though to others it is a paradox: that a person does good to labourers, not by what he consumes on himself, but solely by what he does not so consume. If instead of laying out 100l. in wine or silk, I expend it in wages, the demand for commodities is precisely equal in both cases: in the one, it is a demand for 100l. worth of wine or silk, in the other, for the same value of bread, beer, labourers' clothing, fuel, and indulgences; but the labourers of the community have in the latter case the value of 100l. more of the produce of the community distributed among them. I have consumed that much less, and made over my consuming power to them. If it were not so, my having consumed less would not leave more to be consumed by others; which is a manifest contradiction. When less is not produced, what one person forbears to consume is necessarily added to the share of those to whom he transfers his power of purchase. In the case supposed I do not necessarily consume less ultimately, since the labourers whom I pay may build a house for me, or make something else for my future consumption. But I have at all events postponed my consumption, and have turned over part of my share of the present produce of the community to the labourers. If after an interval I am indemnified, it is not from the existing produce, but from a subsequent addition made to it. I have therefore left more of the existing produce to be consumed by others; and have put into the possession of labourers the power to consume it. There cannot be a better reductio ad absurdum of the opposite doctrine than that afforded by the Poor Law. If it be equally for the benefit of the labouring classes whether I consume my means in the form of things purchased for my own use, or set aside a portion in the shape of wages or alms for their direct consumption, on what ground can the policy be justified of taking my money from me to support paupers? since my unproductive expenditure would have equally benefited them, while I should have enjoyed it too. If society can both eat its cake and have it, why should it not be allowed the double indulgence? But common sense
tells every one in his own case (though he does not see it on the larger scale) that the poor-rate which he pays is really subtracted from his own consumption; and that no shifting of pay: ment backwards and forwards will enable two persons to eat the same food. If he i. not been required to É the rate, and had consequently aid out the amount on himself, the poor would have had as much less for their share of the total produce of the country, as he himself would have consumed more.*
* The following case, which presents the argument in a somewhat different shape, may serve for still further illustration.
Suppose that a rich individual, A, expends a certain amount daily in wages or alms, which, as soon as received, is expended and consumed, in the form of coarse food, by the receivers. A dies, leaving his property to B, who discontinues this item of expenditure, and expends in lieu of it the same sum each day in delicacies for his own table. I have chosen this supposition, in order that the two cases may be similar in all their circumstances, except that which is the subject of comparison. In order not to obscure the essential facts of the case by exhibiting them through the hazy medium of a money transaction, let us further suppose that A, and B after him, are landlords of the estate on which both the food consumed by the recipients of A's disbursements, and the articles of luxury supplied for B's table, are produced; and that their rent is paid to thom in kind, they giving previous notice what description of produce they shall require. The question is, whether B's expenditure gives as much employment or as much food to his poorer neighbours as A's gave.
From the case as stated, it seems to follow that while A lived, that portion of his income which he expended in wages or alms, would be drawn by him from the farm in the shape of food for labourers, and would be used as such ; while B, who came after him, would require, instead of this, an equivalent value in expensive articles of food, to be consumed in his own household: that the farmer, therefore, would, under B's régime, produce that much less of ordinary food, and more of expensive delicacies, for each day of the year, than was produced in A's time, and that there would be that amount less of food shared, throughout the year, among the labouring and poorer classes. This is what would be conformable to the principles laid down in the text. Those who think differently, must, on the other hand, suppose that the luxuries required by B would be produced, not instead of, but in addition to, the food previously supplied to A's labourers, and that the aggregate produce of the country would be increased in amount. But when it is asked, how this double production would
It appears, then, 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.
But though a demand for velvet does nothing more in regard to the employment for labour and capital, than to determine so much of the employment which 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 id: 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 on a larger capital, if they have it, or can borrow 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 grounds of a proposition, when well understood, usually give a tolerable indication of the limitations of it. The general principle, now stated, is, that demand for commodities deter. mines merely the direction of labour, and the kind of wealth produced, but not the quantity or efficiency of the labour, or the aggregate of wealth. But to this there are two exceptions. First; when labour is supported, but not fully occupied, a new demand for something which it can produce, may stimulate the labour thus supported to increased exertions, of which the result may be an increase of wealth, to the advantage of the labourers themSelves and of others. Work which can be done in the spare hours of persons subsisted from some other source, can (as before remarked) be undertaken without withdrawing capital from other occupations, beyond the amount (often very small) required to cover the expense of tools and materials; and even this will often be provided by savings made expressly for the purpose. The reason of our theorem thus failing, the theorem 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 em. ployment in any other 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. The second exception, of which I shall speak at length in a subsequent chapter, consists in the known cs!ect
be effected—how the farmer, whose capital
sonally concerned, in A's manner nor in his
of an extension of the market for a commodity, in rendering possible an increased development of the division of labour, and hence a more effective dis. tribution of the productive forces of society. This, like the former, is more an exception in appearance, than it is in reality. It is not the money paid by the purchaser which remunerates the labour; it is the capital of the producer: the demand only determines in what manner that capital shall be employed, and what kind of labour it shal' remunerate; but if it determines that the commodity shall be produced on a large scale, it enables the same capital to produce more of the commodity, and may, by an indirect effect in causing an increase of capital, produce an eventual increase of the remuneration of the labourer. 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 erson transforms the remuneration of is labour or of his capital into the particular shape in which it is most convenient to him to possessit; but in no wise the source of the remuneration itself.
§ 10. The preceding principles demonstrate the fallacy .# many popular arguments and doctrines, which are continually reproducing themselves in new forus. 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 oor as much as if it had been directly evied 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 the 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 taxpayers 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 employ. ing 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 out either in labour or in commodities, comes all back to them ; so that taxation has the singular property of falling on nobody. On the same showing, it would do the labourers no harm to take from them all they have, and distribute it among the other members of the community. It would all be “spent among them,” which on this theory comes to the same thing. The error is produced by not looking directly at the realities of the phenomena, but attending only to the outward mechanism of paying and spending. If we look at the effects produced not on the money, which merely changes hands, but on the commodities which are used and consumed, we see that, in consequence of the income-tax, the classes who pay it do really diminish their consumption. Exactly so far as they do this, they are the persons on whom the tax falls. It is defrayed out of what they would otherwise have used and enjoyed. So far, on the other hand, as the burthen falls, not on what they would have consumed, but on what they would have saved to maintain production, or spent in maintaining or paying unproductive labourers, to that extent the tax forms a deduction from what would have been used and enjoyed by the labouring classes. But if the government, as is probably the fact, expends fully as much of the amount as the tax-payers would have done in the direct employment of labour, as in hiring sailors, soldiers, and policemen, or in paying off debt, by which last operation it even increases capital; the labouring classes not only do not lose any employment by the tax, but may possibly gain some, and the whole of the tax falls exclusively where it was intended. All that portion of the produce of the country which any one, not a labourer, actually and literally consumes for his own use, does not contribute in the smallest degree to the maintenance of labour. No one is benefited by mere consumption, except