to obtain than the better coals do. But will they sell for an equal price? Common sense and experience show that they will not, but that the better qualities of coal will sell for a higher price than the inferior qualities; no matter what the quantity of producing labour is.

This single example is enough to dispel this transparent fallacy; and every reader can suggest to himself multitudes of analogous cases.

It is alleged that Lord Macaulay received £20,000 for the copyright of his History of England-of course we have no knowledge whatever on the subject, but such was the popular rumour,-now, 200 very fine oak trees would sell for £20,000 on the ground; also 1,000 cattle would sell for £20,000; and 10,000 sheep would sell for the same sum: therefore, according to this doctrine, the "quantity of labour" in Lord Macaulay writing his history, was equal to the "quantity of labour" in the 200 oak trees growing; was also equal to the "quantity of labour” in 1,000 cattle growing; and also equal to the "quantity of labour" in 10,000 sheep growing!

Surely we have had enough of this Bedlamite rubbish; and it may be asked why do we load our pages with it? simply for this reason, that this idiotic stuff is the official Political Economy in England at the present day! This is what the candidates for the Civil Service of India are told to believe in, as the perfection of human wisdom, and which is still taught and recommended in our Universities!! Proh pudor!

On Value as dependent on COST of PRODUCTION.

4. Ricardo, who adopted and developed Smith's idea that value depends upon "quantity of labour," uses another expression which he evidently considers as identical with it; namely, "cost of production," and he maintains that "cost of production" is the regulator of value. The two expressions are widely different, though Ricardo evidently thought them, and used them as, equivalent. We need only observe that wages constantly rise and fall for exactly the same quantity of labour" therefore "cost of production" constantly varies, while "quantity of labour" remains the same.

:

It is far more plausible to say that Value is regulated by

"Cost of production" than by "quantity of labour," as we shall
shew. We apprehend that no sane man in the present genera-
tion will maintain that the growth of a tree, or an animal, is
labour. The idea that the value of an ox is regulated by the
"quantity of labour " in it would be universally scouted now-a-
days. But to say that the value of an ox depends upon
"cost
of production" is much more plausible, because oxen are only
fed and reared at a very considerable expense: the fields they
graze in might yield corn and consequently the price of oxen
must repay their cost with a profit, or else oxen cannot be
reared.

So also no sane man now-a-days would adopt McCulloch's
idea that the fermentation of beer or wine, and the improvement
of wine in a cellar, is labour; but as the growth of the wine is
attended with great expense, and it must be kept several years
before it is fit to drink, the interest on the Capital laid out on it
will accumulate at compound interest, and consequently it may
fairly be called the "cost of production" of the wine. And
unless the price of the wine repays all that, the wine could not
be produced.

Hence whilst we hope that the expression "quantity of labour" is exterminated for ever from the Science, "cost of production" remains as a perfectly intelligible expression. And the real question which has to be examined is this,-Does "Cost of production" regulate price? That is, does a change in the "cost of production" necessarily produce a change in price.

What is Cost of PRODUCTION?

5. But here we are met at the very outset by a very serious difficulty-What is "Cost of production? We find that writers differ most widely as to what is included in the term. Smith says that Rent, Wages, and Profits are the CAUSE of all Value: these are what he calls Natural Price. But afterwards he contradicts himself and says that "high or low wages or profits are the causes of high or low prices: high or low rent is the effect of it." As we have shewn in the next chapter, these contradictory assertions gave rise to an investigation of the Theory of Rent, and it is now clearly demonstrated that Rent is an effect of Price, and not a cause; and that no reduction would

Erfifung des Object-Preiss kann Urfa jr & weft als fołys von Exfolung des Lopes, des Gend der Pente sein. Es fragt sich nur ob zuerst Nachfrage zumint jucent over Angebot nachlößt.

take place in the price of corn, although landlords should forego the whole of their rents: the rents would simply go into the pockets of the farmers, and the price of corn would remain. exactly the same.

There remain, therefore, Wages and Profits. Now Wages Kelahir für die

are manifestly part of the "cost of production." But it has been keenly debated among Economists whether Profits should be held to be a part of "cost of production." Smith says that Profits are part of natural price, because unless there is a certain amount of Profit, the article will not continue to be produced; and Ricardo also includes Profits under "cost of production.".

Mr. Mill seems not to include Profits in "cost of production." He says, "Unless that value is sufficient to repay the cost of production and to afford besides, the ordinary expectation of profits, the commodity will not continue to be produced. And-" The cost of production, together with the ordinary profit may, therefore, be called the necessary price or value of all things."

2

In the next section he says-"Profits, therefore, as well as wages enter into cost of production, which determines the value of the produce." But by profits in this sentence he means a different thing from profits in the preceding sentence. When Smith and Ricardo say that profits are part of "natural price," or of "cost of production," they mean the profits of the producer of the article. But in the last sentence quoted, Mr. Mill means the profits of persons who have contributed to preceding stages of the article. After saying that besides wages, capital is necessary for production, he says "This being the result of abstinence, the produce or its value, must be sufficient to remunerate, not only all the labour required, but the abstinence of all the persons by whom the remuneration of the different classes! of labourers was advanced. The return for abstinence is Profit, and profit, we have also seen, is not exclusively the surplus remaining to the capitalist after he has been compensated for his outlay, but forms in most cases, no unimportant part of the outlay itself. The flax spinner, part of whose expenses consists of the purchase of flax and of machinery, has had to pay in their price, not only the wages of the labour by which the flax was grown, and the machinery made, but the profits of the Bk. iii., ch. iii, § 1. 2 Bk. iii., ch. iv., § 4.

grower, the flax dresser, the miner, the iron founder, and the machine maker. All these profits, together with those of the spinner himself, were again advanced by the weaver, in the price of his material, linen yarn: and along with them the profits of a fresh set of machine makers, and of the miners and ironworkers who supplied them with their metallic material. All these advances form part of the cost of production of linen. Profits, therefore, as well as wages, enter into the cost of production which determines the value of the produce."

While, therefore, Mr. Mill rightly includes the profits of the preceding producers who have contributed to the production of the linen yarn, under the term "cost of production" of the linen, he does not include the profits of the producer of the linen itself under its cost of production. And in this we agree with him. Smith himself clearly allows that profits are no part of prime cost. Production is the placing any quantity in a required place, and, no doubt, unless there were profits anticipated, production would cease. But the cost of production means the cost of actually placing the article in the required place, and profits are no doubt the inducement to produce, but not part of the cost of producing. It seems better to restrict the expression "cost of production" to what mercantile men call_prime cost. Profits are the difference between prime cost and market price.

On COST of PRODUCTION as affecting VALUE.

6. Ricardo says "It is the cost of production which must ultimately regulate the price of commodities, and not as has often been said the proportion between the supply and the demand; the proportion between supply and demand may, indeed for a time affect the market value of a commodity, until it is supplied in greater or less abundance, according as the demand may be increased or diminished, but this effect will only be of temporary duration.

"The opinion that the price of commodities depends solely on the proportion of supply to demand, or demand to supply, has become almost an axiom in Political Economy, and has been the source of much error in that science."

1 Principles, ch. 30.

He then quotes the doctrine of Say that supply and demand regulate prices at all times, but that cost of production is a limit below which they cannot remain any length of time, because production would then be either entirely stopped or diminished, and Lord Lauderdale's doctrine (given above), and he says"This is true of monopolized commodities, and, indeed, of the market price of all other commodities for a limited period. If the demand for hats should be doubled, the price would immediately rise, but the rise would only be temporary; unless the cost of production of hats, or their natural price, were raised. If the natural price of bread should fall 50 per cent. from some great discovery in the science of agriculture, the demand would not greatly increase, for no man would desire more than would satisfy his wants, and as the demand would not increase, neither would the supply; for a commodity is not supplied merely because it can be produced, but because there is a demand for it. Here, then, we have a case where the supply and demand have scarcely varied, or if they have increased, they have increased in the same proportion; and yet the price of bread will have fallen 50 per cent., at a time, too, when the value of money had continued invariable.

"Commodities which are monopolized, either by an individual, or by a company, vary according to the law which Lord Lauderdale has laid down; they fall in proportion as sellers augment their quantity, and rise in proportion to the eagerness of the buyers to purchase them, their price has no necessary connection with their natural value; but the prices of commodities which are subject to competition, and whose quantity may be increased in any moderate degree, will ultimately depend, not on the state of demand and supply, but on the increased or diminished cost of their production.'

Mr. J. S. Mill agrees in this doctrine. We have shewn above that he says that there is a law different from supply and demand, which regulates the permanent or average values of the class of commodities we are considering. And in agreement with Ricardo he says, "It is, therefore, strictly correct to say, that the value of things which can be increased in quantity at pleasure, does not depend (except accidentally, and during the time necessary for production to adjust itself) upon demand and supply; on the contrary, demand and supply depend upon