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labour, that he benefits the labouring classes, or adds anything to the amount of their employment.
For the better illustration of the principle, let us put the following case. A consumer may expend his income either in buying services or commodities. He may employ part of it in hiring journeymen bricklayers to build a house, or excavators to dig artificial lakes, or labourers to make plantations and lay out pleasure-grounds; or, instead of this, ne may expend the same value in buying velvet and lace. The question is, whether the difference between these two modes of expending his income affects the interest of the labouring classes. It is plain that in the first of the two cases he employs labourers, who will be out of employment, or at least out of that employment, in the opposite case. But those from whom I differ say that this is of no consequence, because in buying velvet and lace he equally employs labourers, namely, those who make the velvet and lace. I contend, however, that in this last case he does not employ labourers; but merely decides in what kind of work some other person shall employ them. The consumer does not with his own funds pay to the weavers and lacemakers their day's wages. He buys the finished commodity, 'which has been produced by labour and capital, the labour not being paid nor the capital furnished by him, but by the manufacturer. Suppose that he had been in the habit of expending this portion of his income in hiring journeymen bricklayers, who laid out the amount of their wages in food and clothing, which were also produced by labour and capital. He, however, determines to prefer velvet, for which he thus creates an extra demand. This demand cannot be satisfied without an extra supply, nor can the supply be produced without an extra capital: where, then, is the capital to come from? There is nothing in tho consumer's change of purpose which makes the capital of the country greater than it otherwise was. It appears, then, that the increased demand for velvet could not for the present be
supplied, were it not that the very circumstance which gave rise to it has set at liberty a capital of the exact amount required. The very sum which the consumer now employs in buying velvet, formerly passed into the hands of journeymen bricklayers, who expended it in food and necessaries, which they now either go without, or squeeze by their competition, from the shares of other labourers. The labour and capital, therefore, which formerly produced necessaries for the use of these bricklayers, are deprived of their market, and must look out for other employment; and they find it in making velvet for the new demand. I do not mean that the very same labour and' capital which produced the necessaries' turn themselves to producing the velvet; but, in some one or other of a hundred modes, they take the place of that which does. There was capital in existence to do one of two things— to make the velvet, or to produce necessaries for the journeymen bricklayers; but not to do both. It was at the option of the consumer which of the two should happen; and if he chooses the velvet, they go without the necessaries.
For further illustration, let us suppose the same case reversed. The consumer has been accustomed to buy velvet, but resolves to discontinue that expense, and to employ the same anuual sum in hiring bricklayers. If the common opinion be correct, this change in the mode of his expenditure gives no additional employment to labour, but only transfers employment from velvet-makers to bricklayers. On closer inspection, however, it will be seen that there is an increase of the total sum applied to the remuneration of labour. The velvet manufacturer, supposing him aware of the diminished demand for his commodity, diminishes the production, and sets at liberty a corresponding portion of the capital employed in the manufacture. This capital, thus withdrawn from the maintenance of velvet-makers, is not the same fund with that which the cuS' tomer employs in maintaining bricklayers ; it is a second fund. There are 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 em
Jiloyment 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, it 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 10002. in buying velvet, I enable the manufacturer to employ 10002. 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 purpose and hiring bricklayers instead, I undoubtedly create no new demand for labour: for while I employ 10002. in hiring labour on the one hand, I annihilate for ever 10002. 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 samo 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 receiving the usual order, he will have produced 10002. less velvet, and an equivalent portion of his capital will have been already set free. If 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 10002. worth of velvet, there is now that same capital employed in making something else, and 10002. distributed among bricklayers besides. There are now two capitals employed in remunerating two sets of labourers; while before, one of those capitals, that of the customer, only served as a wheel in tho 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 parados: that a person does good to labourers, not by what he consumes on himself j but solely by what he does not so consume. If instead of laying out 1O02. 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 1002. 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 1002. 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 bv 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 payment backwards and forwards will enable two persons to eat the same food. If he had not been required to pay the rate, and had consequently laid 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 circumstance*, 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 them 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 regime, 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 differ* ently, 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
be effected—how the farmer, whose capital and labour were already fully employed, would be enabled to supply the new wants of B, without producing less of other things; the only mode which presents itself is, that he should first produce the food, and then, giving that food to the labourers whom A formerly fed, should by means of their labour, produce the luxuries wanted by B. This, accordingly, when the objectors are hard pressed, appears to be really their meaning. But it is an obvious answer, that on this supposition, B must wait for his luxuries till the second year, and they are wanted this year. By the original hypothesis, he consumes his luxurious dinner day by day, pari passu with the rations of bread and potatoes formerly served out by A to his labourers. There is not time to feed the labourers first, and supply B afterwards: he and they cannot both have their wants ministered to: he can only satisfy his own demand for commodities, by leaving as much of theirs, as was formerly supplied from that fund, unsatisfied.
It may, indeed, be rejoined by an objector, that, since on the present showing, time is the only thing wanting to render the expenditure of B consistent with as large an employment to labour as was given by A, why may we not suppose that B postpones his increased consumption of personal luxuries until they can be furnished to him by the labour of the persons whom A employed? In that case, it may be said, he would employ and feed as much labour as his predecessors. Undoubtedly he would; but why? Because his income would be expended in exactly the same manner as his predecessor's; it would be expended in wages. A reserved from his personal consumption a fund which he paid away directly tc labourers; B does the same, only instead of paying it to them himself, he leaves it in the hands of the farmer, who pays it to them for him. On this supposition, B, in the first year, neither expending the amount, as far as he is per
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 height, 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
sonally concerned, in A's manner nor in his own, really saves that portion of his income, and lends it to the farmer. And if, in subsequent years, confining himself within the year's income, he leaves the farmer in arrears to that amount, it becomes an additional capital, with which the farmer may permanently employ and feed A's labourers. Nobody pretends that such a change as this, a change from spending an income in wages of labour, to saving it for investment, deprives any labourers of employment. What is affirmed to have that effect is, the change from hiring labourers to buying commodities for personal use; as represented by our original hypothesis.
In our illustration we have supposed no buying and selling, or use of money. But the case as we have put it, corresponds with actual fact in everything except the details of the mechanism. The whole of any country is virtually a single farm and manufactory, from which every member of the community draws his appointed share of the produce, having a certain number of counters, called pounds sterling, put into his hands, which, at his convenience, he brings back and exchanges for such goods as he prefers, up to the limit of the amount. He does not, as in our imaginary case, give notice beforehand what things he shall require; but the dealers and producers are quite capable of finding it out by observation, and any change in the demand is promptly followed by an adaptation of the supply to it. If a consumer changes from paying away a part of his income in wages, to spending it that same day (not some subsequent and distant day) in things for his own consumption, and perseveres in this altered practice until production has had time to adapt itself to the alteration of demand, there will from that time be less food and other articles for the use of labourers, produced in the country, by exactly the value of the extra luxuries now demanded; and the labourers, as a class, will be worse off by the precise amount.
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 determines 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 foiling, 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 employment in any other quarter. The demand does not, even in this case, operate on labour any otherwise than through the medhim 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 effect
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 distribution 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 shaf 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 person transforms the remuneration of his labour or of his capital into the particular shape in which it is most convenient to him to possess it; but in no wise the source of the remuneration itself.
§ 10. The preceding principles demonstrate the fallacy of many popular arguments and doctrines, which are continually reproducing themselves in new forms. For example, it has been