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for the creation of an artificial power, by steam or otherwise, equal in efficiency to the water-power.

A natural agent being a possession in perpetuity, and being only 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 a 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 in the mind, than if it were hedged round in theory with all its practical limitations. But they also puzzle and mislead, and create an impression unfavorable to political economy, as if it disregarded the evidence of facts. Who can deny that rent sometimes enters into cost of production ? If I buy or rent a piece of ground, and build a cloth manufactory on it, does not the ground-rent form legitimately a part of my expenses of production, which must be repaid by the 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, being 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 mini

mum below which they cannot permanently fall; and the 1 large class which can be multiplied ad libitum by labor and

capital, and of which the cost of production fixes the maxi

mum as well as the minimum at which they can perma1 nently exchange. But there is still a third kind of com

modities to be considered; those which have, not one, but several costs of production ; which can always be increased in quantity by labor and capital, but not by the same amount of labor 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 labor does not double the produce ; that if an increased quantity of produce 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 raised all 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 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 of price. This rise of price will gradually be brought about by 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 25s. 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 perhaps forever, 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 Value, 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 proportional to 25s., the original hundred 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 25s. is incurred for the sake of 50 quarters alone; the first hundred might have continued forever to be produced at the original cost, and with the benefit, on that quantity, of the whole rise of price caused by the increase of 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, therefore, will be produced at their natural price, proportioned to the cost of their production; while the other hundred will now bring in 5s, 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 thel greatest expense. This is the Law of Value of the third of the three classes into which all commodities are divided.

2. If the portion of produce raised in the most unfavorable circumstances, obtains a value proportioned to its cost of production; all the portions raised in more favorable 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



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