No More Learning

" "But the
ordinary price of barley has never been a monopoly price; and the rent
and profit of barley land have never been above their natural proportion
to those of other equally fertile and equally well cultivated land. The
different taxes which have been imposed upon malt, beer, and ale, _have
never lowered the price of barley_; have never reduced the rent and
profit[24] of barley land. The price of malt to the brewer has
constantly risen in proportion to the taxes imposed upon it; and those
taxes, together with the different duties upon beer and ale, have
constantly either raised the price, or, what comes to the same thing,
reduced the quality of those commodities to the consumer. The final
payment of those taxes has fallen constantly upon the consumer, and not
upon the producer. " On this passage Mr. Buchanan remarks, "A duty on
malt never could reduce the price of barley, because, unless as much
could be made of barley by malting it as by selling it unmalted, the
quantity required would not be brought to market. It is clear,
therefore, that the price of malt must rise in proportion to the tax
imposed on it, as the demand could not otherwise be supplied. The price
of barley, however, is just as much a monopoly price as that of sugar;
they both yield a rent, and the market price of both has equally lost
all connexion with the original cost. "

It appears then to be the opinion of Mr. Buchanan, that a tax on malt
would raise the price of malt, but that a tax on the barley from which
malt is made, would not raise the price of barley; and therefore, if
malt is taxed, the tax will be paid by the consumer; if barley is taxed,
it will be paid by the landlord, as he will receive a diminished rent.
According to Mr. Buchanan then, barley is at a monopoly price, at the
highest price which the purchasers are willing to give for it; but malt
made of barley is not at a monopoly price, and consequently it can be
raised in proportion to the taxes that may be imposed upon it. This
opinion of Mr. Buchanan of the effects of a tax on malt appears to me to
be in direct contradiction to the opinion he has given of a similar tax,
a tax on bread. "A tax on bread will be ultimately paid, not by a rise
of price, but by a reduction of rent. "[25] If a tax on malt would raise
the price of beer, a tax on bread must raise the price of bread.

The following argument of M. Say is founded on the same views as Mr.
Buchanan's: "The quantity of wine or corn which a piece of land will
produce, will remain nearly the same, whatever may be the tax with which
it is charged. The tax may take away a half, or even three-fourths of
its net produce, or of its rent if you please, yet the land would
nevertheless be cultivated for the half or the quarter not absorbed by
the tax. The rent, that is to say the landlord's share, would merely be
somewhat lower. The reason of this will be perceived, if we consider,
that in the case supposed, the quantity of produce obtained from the
land, and sent to market, will remain nevertheless the same. On the
other hand the motives on which the demand for the produce is founded
continue also the same.

"Now, if the quantity of produce supplied, and the quantity demanded,
necessarily continue the same, notwithstanding the establishment or the
increase of the tax, the price of that produce will not vary; and if the
price do not vary, the consumer will not pay the smallest portion of
this tax.

"Will it be said that the farmer, he who furnishes labour and capital,
will, jointly with the landlord, bear the burden of this tax? certainly
not; because the circumstance or the tax has not diminished the number
of farms to be let, nor increased the number of farmers. Since in this
instance also the supply and demand remain the same, the rent of farms
must also remain the same. The example of the manufacturer of salt, who
can only make the consumers pay a portion of the tax, and that of the
landlord who cannot reimburse himself in the smallest degree, prove the
error of those who maintain, in opposition to the economists, that all
taxes fall ultimately on the consumer. "--Vol. ii. p. 338.

If the tax "took away half, or even three-fourths of the net produce of
the land," and the price of produce did not rise, how could those
farmers obtain the usual profits of stock who paid very moderate rents,
having that quality of land which required a much larger proportion of
labour to obtain a given result, than land of a more fertile quality? If
the whole rent were remitted, they would still obtain lower profits
than those in other trades, and would therefore not continue to
cultivate their land, unless they could raise the price of its produce.
If the tax fell on the farmers, there would be fewer farmers disposed to
hire farms; if it fell on the landlord, many farms would not be let at
all, for they would afford no rent. But from what fund would those pay
the tax who produce corn without paying any rent? It is quite clear that
the tax must fall on the consumer. How would such land, as M. Say
describes in the following passage, pay a tax of one-half or
three-fourths of its produce?

"We see in Scotland poor lands thus cultivated by the proprietor, and
which could be cultivated by no other person. Thus too we see in the
interior provinces of the United States vast and fertile lands, the
revenue of which alone would not be sufficient for the maintenance of
the proprietor. These lands are cultivated nevertheless, but it must be
by the proprietor himself, or, in other words, he must add to the rent,
which is little or nothing, the profits of his capital and industry, to
enable him to live in competence. It is well known that land, though
cultivated, yields no revenue to the landlord when no farmer will be
willing to pay a rent for it: which is a proof that such land will give
only the profits of the capital and of the industry necessary for its
cultivation. "--_Say_, Vol. ii. p. 127.




CHAPTER XVI.

POOR RATES.


We have seen that taxes on raw produce, and on the profits of the
farmer, will fall on the consumer of raw produce; since unless he had
the power of remunerating himself by an increase of price, the tax would
reduce his profits below the general level of profits, and would urge
him to remove his capital to some other trade. We have seen too that he
could not, by deducting it from his rent, transfer the tax to his
landlord; because that farmer who paid no rent, would, equally with the
cultivator of better land, be subject to the tax, whether it were laid
on raw produce, or on the profits of the farmer. I have also attempted
to shew, that if a tax were general, and affected equally all profits,
whether manufacturing or agricultural, it would not operate either on
the price of goods or raw produce, but would be immediately, as well as
ultimately, paid by the producers. A tax on rent, it has been observed,
would fall on the landlord only, and could not by any means be made to
devolve on the tenant.

The poor rate is a tax which partakes of the nature of all these taxes,
and under different circumstances falls on the consumer of raw produce
and goods, on the profits of stock, and on the rent of land. It is a tax
which falls with peculiar weight on the profits of the farmer, and
therefore may be considered as affecting the price of raw produce.
According to the degree in which it bears on manufacturing and
agricultural profits equally, it will be a general tax on the profits of
stock, and will occasion no alteration in the price of raw produce and
manufactures. In proportion to the farmer's inability to remunerate
himself, by raising the price of raw produce, for that portion of the
tax which peculiarly affects him, it will be a tax on rent, and will be
paid by the landlord. To know then the operation of the poor rate at any
particular time, we must ascertain whether at that time it affects in
an equal or unequal degree the profits of the farmer and manufacturer;
and also whether the circumstances be such as to afford to the farmer
the power of raising the price of raw produce.

The poor rates are professed to be levied on the farmer in proportion to
his rent; and accordingly, the farmer who paid a very small rent, or no
rent at all, should pay little or no tax. If this were true, poor rates,
as far as they are paid by the agricultural class, would entirely fall
on the landlord, and could not be shifted to the consumer of raw
produce. But I believe that is not true; the poor rate is not levied
according to the rent which a farmer actually pays to his landlord; it
is proportioned to the annual value of his land, whether that annual
value be given to it by the capital of the landlord or of the tenant.

If two farmers rented land of two different qualities in the same
parish, the one paying a rent of 100_l. _ per annum for 50 acres of the
most fertile land, and the other the same sum of 100_l. _ for 1000 acres
of the least fertile land, they would pay the same amount of poor
rates, if neither of them attempted to improve the land; but if the
farmer of the poor land, presuming on a very long lease, should be
induced at a great expense to improve the productive powers of his land,
by manuring, draining, fencing, &c. , he would contribute to the poor
rates, not in proportion to the actual rent paid to the landlord, but to
the actual annual value of the land. The rate might equal or exceed the
rent; but whether it did or not, no part of this rate would be paid by
the landlord. It would have been previously calculated upon by the
tenant; and if the price of produce were not sufficient to compensate
him for all his expenses, together with this additional charge for poor
rates, his improvements would not have been undertaken. It is evident
then that the tax in this case is paid by the consumer; for if there had
been no rate, the same improvements would have been undertaken, and the
usual and general rate of profits would have been obtained on the stock
employed, with a lower price of corn.

Nor would it make the slightest difference in this question, if the
landlord had made these improvements himself, and had in consequence
raised his rent from 100_l. _ to 500_l. _; the rate would be equally
charged to the consumer; for whether he should expend a large sum of
money on his land, would depend on the rent, or what is called rent,
which he would receive as a remuneration for it; and this again would
depend on the price of corn, or other raw produce, being sufficiently
high not only to cover this additional rent, but also the rate to which
the land would be subject. But if at the same time all manufacturing
capital contributed to the poor rates, in the same proportion as the
capital expended by the farmer or landlord in improving the land, then
it would no longer be a partial tax on the profits of the farmer's or
landlord's capital, but a tax on the capital of all producers; and
therefore it could no longer be shifted either on the consumer of raw
produce or on the landlord. The farmer's profits would feel the effect
of the rate no more than those of the manufacturer; and the former could
not, any more than the latter, plead it as a reason for an advance in
the price of his commodity. It is not the absolute, but the relative
fall of profits, which prevents capital from being employed in any
particular trade: it is the difference of profit which sends capital
from one employment to another.

It must be acknowledged however, that in the actual state of the poor
rates, a much larger amount falls on the farmer than on the
manufacturer, in proportion to their respective profits; the farmer
being rated according to the actual productions which he obtains, the
manufacturer only according to the value of the buildings in which he
works, without any regard to the value of the machinery, labour, or
stock, which he may employ. From this circumstance it follows, that the
farmer will be enabled to raise the price of his produce by this whole
difference. For since the tax falls unequally, and peculiarly on his
profits, he would have less motive to devote his capital to the land,
than to employ it in some other trade, unless the price of raw produce
were raised. If on the contrary, the rate had fallen with greater weight
on the manufacturer than on the farmer, he would have been enabled to
raise the price of his goods by the amount of the difference, for the
same reason that the farmer, under similar circumstances, could raise
the price of raw produce. In a society therefore, which is extending its
agriculture, when poor rates fall with peculiar weight on the land, they
will be paid partly by the employers of capital in a diminution of the
profits of stock, and partly by the consumer of raw produce in its
increased price. In such a state of things, the tax may, under some
circumstances, be even advantageous rather than injurious to landlords;
for if the tax paid by the cultivator of the worst land, be higher in
proportion to the quantity of produce obtained, than that paid by the
farmers of the more fertile lands, the rise in the price of corn, which
will extend to all corn, will more than compensate the latter for the
tax. This advantage will remain with them during the continuance of
their leases, but it will afterwards be transferred to their landlords.
This then would be the effect of poor rates in an advancing society; but
in a stationary, or in a retrograde country, so far as capital could not
be withdrawn from the land, if a further rate were levied for the
support of the poor, that part of it which fell on agriculture would be
paid, during the current leases, by the farmers, but at the expiration
of those leases it would almost wholly fall on the landlords. The
farmer, who during his former lease, had expended his capital in
improving his land, if it were still in his own hands, would be rated
for this new tax according to the new value which the land had acquired
by its improvement, and this amount he would be obliged to pay during
his lease, although his profits might thereby be reduced below the
general rate of profits; for the capital which he has expended may be so
incorporated with the land, that it cannot be removed from it. If indeed
he, or his landlord, (should it have been expended by him) were able to
remove this capital, and thereby reduce the annual value of the land,
the rate would proportionably fall, and as the produce would at the same
time be diminished, its price would rise; he would be compensated for
the tax, by charging it to the consumer, and no part would fall on rent;
but this is impossible, at least with respect to some proportion of the
capital, and consequently in that proportion the tax will be paid by the
farmers during their leases, and by landlords at their expiration. This
additional tax, as far as it fell unequally on manufacturers, would
under such circumstances be added to the price of their goods; for there
can be no reason why their profits should be reduced below the general
rate of profits, when their capitals might be easily removed to
agriculture. [26]




CHAPTER XVII.

ON SUDDEN CHANGES IN THE CHANNELS OF TRADE.


A great manufacturing country is peculiarly exposed to temporary
reverses and contingencies, produced by the removal of capital from one
employment to another. The demands for the produce of agriculture are
uniform, they are not under the influence of fashion, prejudice, or
caprice. To sustain life, food is necessary, and the demand for food
must continue in all ages, and in all countries. It is different with
manufactures; the demand for any particular manufactured commodity, is
subject not only to the wants, but to the tastes and caprice of the
purchasers. A new tax too may destroy the comparative advantage which a
country before possessed in the manufacture of a particular commodity;
or the effects of war may so raise the freight and insurance on its
conveyance, that it can no longer enter into competition with the home
manufacture of the country to which it was before exported. In all such
cases, considerable distress, and no doubt some loss, will be
experienced by those who are engaged in the manufacture of such
commodities; and it will be felt not only at the time of the change, but
through the whole interval during which they are removing their
capitals, and the labour which they can command, from one employment to
another.

Nor will distress be experienced in that country alone where such
difficulties originate, but in the countries to which its commodities
were before exported. No country can long import unless it also exports,
or can long export unless it also imports. If then any circumstance
should occur, which should permanently prevent a country from importing
the usual amount of foreign commodities, it will necessarily diminish
the manufacture of some of those commodities which were usually
exported; and although the total value of the productions of the country
will probably be but little altered, since the same capital will be
employed, yet they will not be equally abundant and cheap; and
considerable distress will be experienced through the change of
employments. If by the employment of 10,000_l. _ in the manufacture of
cotton goods for exportation, we imported annually 3000 pair of silk
stockings of the value of 2000_l. _, and by the interruption of foreign
trade we should be obliged to withdraw this capital from the manufacture
of cotton, and employ it ourselves in the manufacture of stockings, we
should still obtain stockings of the value of 2000_l. _ provided no part
of the capital were destroyed; but instead of having 3000 pair, we might
only have 2,500. In the removal of the capital from the cotton to the
stocking trade, much distress might be experienced, but it would not
considerably impair the value of the national property, although it
might lessen the quantity of our annual productions.

The commencement of war after a long peace, or of peace after a long
war, generally produces considerable distress in trade. It changes in a
great degree the nature of the employments to which the respective
capitals of countries were before devoted; and during the interval while
they are settling in the situations which new circumstances have made
the most beneficial, much fixed capital is unemployed, perhaps wholly
lost, and labourers are without full employment. The duration of this
distress will be longer or shorter according to the strength of that
disinclination, which most men feel to abandon that employment of their
capital to which they have long been accustomed. It is often protracted
too by the restrictions and prohibitions, to which the absurd jealousies
which prevail between the different states of the commercial
commonwealth give rise.

The distress which proceeds from a revulsion of trade, is often mistaken
for that which accompanies a diminution of the national capital, and a
retrograde state of society; and it would perhaps be difficult to point
out any marks by which they may be accurately distinguished.

When, however, such distress immediately accompanies a change from war
to peace, our knowledge of the existence of such a cause will make it
reasonable to believe, that the funds for the maintenance of labour have
rather been diverted from their usual channel than materially impaired,
and that after temporary suffering, the nation will again advance in
prosperity. It must be remembered too that the retrograde condition is
always an unnatural state of society. Man from youth grows to manhood,
then decays, and dies; but this is not the progress of nations. When
arrived to a state of the greatest vigour, their further advance may
indeed be arrested, but their natural tendency is to continue for ages,
to sustain undiminished their wealth, and their population.

In rich and powerful countries where large capitals are invested in
machinery, more distress will be experienced from a revulsion in trade,
than in poorer countries where there is proportionally a much smaller
amount of fixed, and a much larger amount of circulating capital, and
where consequently more work is done by the labour of men. It is not so
difficult to withdraw a circulating as a fixed capital, from any
employment in which it may be engaged. It is often impossible to divert
the machinery which may have been erected for one manufacture, to the
purposes of another; but the clothing, the food, and the lodging of the
labourer in one employment may be devoted to the support of the labourer
in another, or the same labourer may receive the same food, clothing,
and lodging, whilst his employment is changed. This, however, is an evil
to which a rich nation must submit; and it would not be more reasonable
to complain of it, than it would be in a rich merchant to lament that
his ship was exposed to the dangers of the sea, whilst his poor
neighbour's cottage was safe from all such hazard.

From contingencies of this kind, though in an inferior degree, even
agriculture is not exempted. War, which in a commercial country,
interrupts the commerce of states, frequently prevents the exportation
of corn from countries where it can be produced with little cost, to
others not so favourably situated. Under such circumstances an unusual
quantity of capital is drawn to agriculture, and the country which
before imported becomes independent of foreign aid. At the termination
of the war, the obstacles to importation are removed, and a competition
destructive to the home-grower commences, from which he is unable to
withdraw, without the sacrifice of a great part of his capital. The best
policy of the state would be, to lay a tax, decreasing in amount from
time to time, on the importation of foreign corn, for a limited number
of years, in order to afford to the home-grower an opportunity to
withdraw his capital gradually from the land. In so doing the country
might not be making the most advantageous distribution of its capital,
but the temporary tax to which it was subjected, would be for the
advantage of a particular class, the distribution of whose capital was
highly useful in procuring a supply of food when importation was
stopped. If such exertions in a period of emergency were followed by
risk of ruin on the termination of the difficulty, capital would shun
such an employment. Besides the usual profits of stock, farmers would
expect to be compensated for the risk which they incurred of a sudden
influx of corn, and therefore the price to the consumer, at the seasons
when he most required a supply, would be enhanced, not only by the
superior cost of growing corn at home, but also by the insurance which
he would have to pay, in the price, for the peculiar risk to which
this employment of capital was exposed. Notwithstanding then, that it
would be more productive of wealth to the country, at whatever sacrifice
of capital it might be done, to allow the importation of cheap corn, it
would perhaps be advisable to charge it with a duty for a few years.

In examining the question of rent, we found, that with every increase in
the supply of corn, and with the consequent fall of its price, capital
would be withdrawn from the poorer land; and land of a better
description, which would then pay no rent, would become the standard by
which the natural price of corn would be regulated. At 4_l. _ per
quarter, land of an inferior quality, which may be designated by No. 6,
might be cultivated; at 3_l. _ 10_s. _ No. 5; at 3_l. _ No. 4, and so on.
If corn, in consequence of permanent abundance, fell to 3_l. _ 10_s. _ the
capital employed on No. 6 would cease to be employed; for it was only
when corn was at 4_l. _ that it could obtain the general profits, even
without paying rent: it would therefore be withdrawn to manufacture
those commodities with which all the corn grown on No. 6 would be
purchased and imported. In this employment it would necessarily be more
productive to its owner, or it would not be withdrawn from the other;
for if he could obtain more corn by growing it on land for which he paid
no rent, than by manufacturing a commodity with which he purchased it,
its price could not be under 4_l. _

It has, however, been said that capital cannot be withdrawn from the
land; that it takes the form of expenses, which cannot be recovered,
such as manuring, fencing, draining, &c. , which are necessarily
inseparable from the land. This is in some degree true; but that capital
which consists of cattle, sheep, hay and corn ricks, carts, &c. may be
withdrawn; and it always becomes a matter of calculation whether these
shall continue to be employed on the land, notwithstanding the low price
of corn, or whether they shall be sold, and their value transferred to
another employment.

Suppose, however, the fact to be as stated, and that no part of the
capital could be withdrawn; the farmer would continue to raise corn, and
precisely the same quantity too, at whatever price it might sell; for it
could not be his interest to produce less, and if he did not so employ
his capital, he would obtain from it no return whatever. Corn could not
be imported, because he would sell it lower than 3_l. _ 10_s. _ rather
than not sell it at all, and by the supposition the importer could not
sell it under that price. Although then the farmers, who cultivated land
of this quality, would undoubtedly be injured by the fall in the
exchangeable value of the commodity which they produced,--how would the
country be affected? We should have precisely the same quantity of every
commodity produced, but raw produce and corn would sell at a much
cheaper price. The capital of a country consists of its commodities, and
as these would be the same as before, reproduction would go on at the
same rate. This low price of corn would however only afford the usual
profits of stock to the land, No. 5, which would then pay no rent, and
the rent of all better land would fall: wages would also fall, and
profits would rise.

However low the price of corn might fall; if capital could not be
removed from the land, and the demand did not increase, no importation
would take place; for the same quantity as before would be produced at
home. Although there would be a different division of the produce, and
some classes would be benefited, and others injured, the aggregate of
production would be precisely the same, and the nation collectively
would neither be richer nor poorer.

But there is this advantage always resulting from a relatively low price
of corn,--that the division of the actual production is more likely to
increase the fund for the maintenance of labour, inasmuch as more will
be allotted, under the name of profit, to the productive class, a less,
under the name of rent, to the unproductive class.

This is true, even if the capital cannot be withdrawn from the land,
and must be employed there, or not be employed at all: but if great part
of the capital could be withdrawn, as it evidently could, it will be
only withdrawn, when it will yield more to the owner by being withdrawn
than by being suffered to remain where it was; it will only be withdrawn
then, when it can elsewhere be employed more productively both for the
owner and the public. He consents to sink that part of his capital which
cannot be separated from the land, because with that part which he can
take away, he can obtain a greater value, and a greater quantity of raw
produce, than by not sinking this part of the capital. His case is
precisely similar to that of a man who has erected machinery in his
manufactory at a great expense, machinery which is afterwards so much
improved upon by more modern inventions, that the commodities
manufactured by him very much sink in value. It would be entirely a
matter of calculation with him whether he should abandon the old
machinery, and erect the more perfect, _losing all the value of the
old_, or continue to avail himself of its comparatively feeble powers.
Who, under such circumstances, would exhort him to forego the use of
the better machinery, because it would deteriorate or annihilate the
value of the old? Yet this is the argument of those who would wish us to
prohibit the importation of corn, because it will deteriorate or
annihilate that part of the capital of the farmer which is for ever sunk
in land. They do not see that the end of all commerce is to increase
production, and that by increasing production, though you may occasion
partial loss, you increase the general happiness. To be consistent, they
should endeavour to arrest all improvements in agriculture and
manufactures, and all inventions of machinery; for though these
contribute to general abundance, and therefore to the general happiness,
they never fail, at the moment of their introduction, to deteriorate or
annihilate a part of the existing capital of farmers and manufacturers.

Agriculture like all other trades, and particularly in a commercial
country, is subject to a re-action, which, in an opposite direction,
succeeds the action of a strong stimulus. Thus, when war interrupts the
importation of corn, its consequent high price attracts capital to the
land, from the large profits which such an employment of it affords;
this will probably cause more capital to be employed, and more raw
produce to be brought to market than the demands of the country require.
In such case, the price of corn will fall from the effects of a glut,
and much agricultural distress will be produced, till the average supply
is brought to a level with the average demand.




CHAPTER XVIII.

VALUE AND RICHES, THEIR DISTINCTIVE PROPERTIES.


"A man is rich or poor," says Adam Smith, "according to the degree in
which he can afford to enjoy the necessaries, conveniences, and
amusements of human life. "

Value then essentially differs from riches, for value depends not on
abundance, but on the difficulty or facility of production. The labour
of a million of men in manufactures, will always produce the same value,
but will not always produce the same riches. By the invention of
machinery, by improvements in skill, by a better division of labour, or
by the discovery of new markets, where more advantageous exchanges may
be made, a million of men may produce double, or treble the amount of
riches, of "necessaries, conveniences, and amusements," in one state of
society, that they could produce in another, but they will not on that
account add any thing to value; for every thing rises or falls in value,
in proportion to the facility or difficulty of producing it, or in other
words, in proportion to the quantity of labour employed on its
production. Suppose with a given capital, the labour of a certain number
of men produced 1000 pair of stockings, and that by inventions in
machinery, the same number of men can produce 2000 pair, or that they
can continue to produce 1000 pair, and can produce besides 500 hats;
then the value of the 2000 pair of stockings; or of the 1000 pair of
stockings, and 500 hats, will be neither more nor less than that of the
1000 pair of stockings before the introduction of machinery; for they
will be the produce of the same quantity of labour. But the value of the
general mass of commodities will nevertheless be diminished; for
although the value of the increased quantity produced in consequence of
the improvement will be the same exactly as the value would have been of
the less quantity that would have been produced, had no improvement
taken place, an effect is also produced on the portion of goods still
unconsumed, which were manufactured previously to the improvement; the
value of those goods will be reduced, inasmuch as they must fall to the
level, quantity for quantity, of the goods produced under all the
advantages of the improvement: and the society will, notwithstanding the
increased quantity of its commodities, notwithstanding its augmented
riches, and its augmented means of enjoyment, have a less amount of
value. By constantly increasing the facility of production, we
constantly diminish the value of some of the commodities before
produced, though by the same means we not only add to the national
riches, but also to the power of future production. Many of the errors
in political economy have arisen from errors on this subject, from
considering an increase of riches, and an increase of value, as meaning
the same thing, and from unfounded notions as to what constituted a
standard measure of value. One man considers money as a standard of
value, and a nation grows richer or poorer, according to him, in
proportion as its commodities of all kinds can exchange for more or
less money. Others represent money as a very convenient medium for the
purpose of barter, but not as a proper measure by which to estimate the
value of other things: the real measure of value according to them is
corn,[27] and a country is rich or poor, according as its commodities
will exchange for more or less corn. There are others again, who
consider a country rich or poor, according to the quantity of labour
that it can purchase. [28] But why should gold, or corn, or labour, be
the standard measure of value, more than coals or iron? --more than
cloth, soap, candles, and the other necessaries of the labourer? --why,
in short, should any commodity, or all commodities together, be the
standard, when such a standard is itself subject to fluctuations in
value? Corn, as well as gold, may from difficulty or facility of
production, vary 10, 20, or 30 per cent. , relatively to other things;
why should we always say, that it is those other things which have
varied, and not the corn? That commodity is alone invariable, which at
all times requires the same sacrifice of toil and labour to produce it.
Of such a commodity we have no knowledge, but we may hypothetically
argue and speak about it, as if we had; and may improve our knowledge of
the science, by shewing distinctly the absolute inapplicability of all
the standards which have been hitherto adopted. But supposing either of
these to be a correct standard of value, still it would not be a
standard of riches, for riches do not depend on value. A man is rich or
poor, according to the abundance of necessaries and luxuries, which he
can command; and whether the exchangeable value of these for money, for
corn, or for labour, be high or low, they will equally contribute to the
enjoyment of their possessor. It is through confounding the ideas of
value and wealth, or riches, that it has been asserted, that by
diminishing the quantity of commodities, that is to say, of the
necessaries, conveniences, and enjoyments of human life, riches may be
increased. If value were the measure of riches this could not be denied,
because by scarcity the value of commodities is raised; but if Adam
Smith be correct, if riches consist in necessaries and enjoyments, then
they cannot be increased by a diminution of quantity.

It is true, that the man in possession of a scarce commodity is richer,
if by means of it he can command more of the necessaries and enjoyments
of human life; but as the general stock out of which each man's riches
are drawn, is diminished in quantity, by all that any individual takes
from it, other men's shares must necessarily be reduced in proportion as
this favoured individual is able to appropriate a greater quantity to
himself.

Let water become scarce, says Lord Lauderdale, and be exclusively
possessed by an individual, and you will increase his riches, because
water will then have value; and if wealth be the aggregate of individual
riches, you will by the same means also increase wealth. You
undoubtedly will increase the riches of this individual, but inasmuch as
the farmer must sell a part of his corn, the shoemaker a part of his
shoes, and all men give up a portion of their possessions for the sole
purpose of supplying themselves with water, which they before had for
nothing, they are poorer by the whole quantity of commodities which they
are obliged to devote to this purpose, and the proprietor of water is
benefited precisely by the amount of their loss. The same quantity of
water, and the same quantity of commodities, are enjoyed by the whole
society, but they are differently distributed. This is however supposing
rather a monopoly of water than a scarcity of it. If it should be
scarce, then the riches of the country and of individuals would be
actually diminished, inasmuch as it would be deprived of a portion of
one of its enjoyments. The farmer would not only have less corn to
exchange for the other commodities which might be necessary or desirable
to him, but he and every other individual would be abridged in the
enjoyment of one of the most essential of their comforts. Not only
would there be a different distribution of riches, but an actual loss of
wealth.

It may be said then of two countries possessing precisely the same
quantity of all the necessaries and comforts of life, that they are
equally rich, but the value of their respective riches would depend on
the comparative facility or difficulty with which they were produced.
For if an improved piece of machinery should enable us to make two pair
of stockings, instead of one, without additional labour, double the
quantity would be given in exchange for a yard of cloth.
If a similar
improvement be made in the manufacture of cloth, stockings and cloth
will exchange in the same proportions as before, but they will both have
fallen in value; for in exchanging them for hats, for gold, or other
commodities in general, twice the former quantity must be given. Extend
the improvement to the production of gold, and every other commodity;
and they will all regain their former proportions. There will be double
the quantity of commodities annually produced in the country, and
therefore the wealth of the country will be doubled, but this wealth
will not have increased in value.

Although Adam Smith has given the correct description of riches, which I
have more than once noticed, he afterwards explains them differently,
and says, "that a man must be rich or poor according to the quantity of
labour which he can afford to purchase. " Now this description differs
essentially from the other, and is certainly incorrect; for suppose the
mines were to become more productive, so that gold and silver fell in
value, from the greater facility of their production; or that velvets
were to be manufactured with so much less labour than before, that they
fell to half their former value; the riches of all those who purchased
those commodities would be increased: one man might increase the
quantity of his plate, another might buy double the quantity of velvet;
but with the possession of this additional plate, and velvet, they could
employ no more labour than before; because as the exchangeable value of
velvet and of plate would be lowered, they must part with
proportionally more of these species of riches to purchase a day's
labour. Riches then cannot be estimated by the quantity of labour which
they can purchase.

From what has been said, it will be seen that the wealth of a country
may be increased in two ways: it may be increased by employing a greater
portion of revenue in the maintenance of productive labour,--which will
not only add to the quantity, but to the value of the mass of
commodities; or it may be increased, without employing any additional
quantity of labour, by making the same quantity more productive,--which
will add to the abundance, but not to the value of commodities.

In the first case, a country would not only become rich, but the value
of its riches would increase. It would become rich by parsimony; by
diminishing its expenditure on objects of luxury and enjoyment; and
employing those savings in reproduction.

In the second case, there will not necessarily be either any diminished
expenditure on luxuries and enjoyments, or any increased quantity of
productive labour employed, but with the same labour more would be
produced; wealth would increase, but not value. Of these two modes of
increasing wealth, the last must be preferred, since it produces the
same effect without the privation and diminution of enjoyments, which
can never fail to accompany the first mode. Capital is that part of the
wealth of a country which is employed with a view to future production,
and may be increased in the same manner as wealth. An additional capital
will be equally efficacious in the production of future wealth, whether
it be obtained from improvements in skill and machinery, or from using
more revenue reproductively; for wealth always depends on the quantity
of commodities produced, without any regard to the facility with which
the instruments employed in production may have been procured. A certain
quantity of clothes and provisions will maintain and employ the same
number of men, and will therefore procure the same quantity of work to
be done, whether they be produced by the labour of 100 or of 200 men;
but they will be of twice the value if 200 have been employed on their
production.

M. Say appears to me to have been singularly unfortunate in his
definition of riches and value in the first chapter of his excellent
work: the following is the substance of his reasoning: riches, he
observes, consist only of things which have a value in themselves:
riches are great, when the sum of the values of which they are composed
is great. They are small when the sum of their values is small. Two
things having an equal value, are riches of equal amount. They are of
equal value, when by general consent they are freely exchanged for each
other. Now, if mankind attach value to a thing, it is on account of the
_uses_ to which it is applicable. This faculty, which certain things
have, of satisfying the various wants of mankind, I call utility. To
create objects that have a value of any kind is to create riches, since
the utility of things is the first foundation of their value, and it is
the value of things which constitutes riches. But we do not create
objects: all we can do is to reproduce matter under another form--we can
give it utility. Production then is a creation, not of matter but of
utility, and it is measured by the value arising from the utility of the
object produced. The utility of any object, according to general
estimation, is pointed out by the quantity of other commodities for
which it will exchange. This valuation, arising from the general
estimate formed by society, constitutes what Adam Smith calls value in
exchange; what Turgot calls appreciable value; and what we may more
briefly designate by the term _value_.

Thus far M. Say, but in his account of value and riches he has
confounded two things which ought always to be kept separate, and which
are called by Adam Smith, value in use and value in exchange. If by an
improved machine I can, with the same quantity of labour, make two pair
of stockings instead of one, I in no way impair the _utility_ of one
pair of stockings, though I diminish their value. If then I had
precisely the same quantity of coats, shoes, stockings, and all other
things, as before, I should have precisely the same quantity of useful
objects, and should therefore be equally rich, if utility were the
measure of riches; but I should have a less amount of value, for my
stockings would be of only half their former value. Utility then is not
the measure of exchangeable value.

If we ask M. Say in what riches consist, he tells us in the possession
of objects having value. If we then ask him what he means by value, he
tells us that things are valuable in proportion as they possess utility.
If again we ask him to explain to us by what means we are to judge of
the utility of objects, he answers, by their value. Thus then the
measure of value is utility, and the measure of utility is value.

M. Say, in speaking of the excellences and imperfections of the great
work of Adam Smith, imputes to him, as an error, that "he attributes to
the labour of man alone the power of producing value. A more correct
analysis shews us that value is owing to the action of labour, or rather
the industry of man, combined with the action of those agents which
nature supplies, and with that of capital. His ignorance of this
principle prevented him from establishing the true theory of the
influence of machinery in the production of riches. "

In contradiction to the opinion of Adam Smith, M. Say, in the fourth
chapter, speaks of the value which is given to commodities by natural
agents, such as the sun, the air, the pressure of the atmosphere &c. ,
which are sometimes substituted for the labour of man, and sometimes
concur with him in producing. [29]

But these natural agents, though they add greatly to _value in use_,
never add exchangeable value, of which M. Say is speaking, to a
commodity: as soon as by the aid of machinery, or by the knowledge of
natural philosophy, you oblige natural agents to do the work which was
before done by man, the exchangeable value of such work falls
accordingly. If ten men turned a corn mill, and it be discovered that by
the assistance of wind, or of water, the labour of these ten men may be
spared, the flour, which is the produce of the work performed by the
mill, would immediately fall in value, in proportion to the quantity of
labour saved; and the society would be richer by the commodities which
the labour of the ten men could produce, the funds destined for their
maintenance being in no degree impaired.

M. Say accuses Dr. Smith of having overlooked the value which is given
to commodities by natural agents, and by machinery, because he
considered that the value of all things was derived from the labour of
man; but it does not appear to me, that this charge is made out; for
Adam Smith no where under-values the services which these natural
agents and machinery perform for us, but he very justly distinguishes
the nature of the value which they add to commodities--they are
serviceable to us, by increasing the abundance of productions, by making
men richer, by adding to value in use; but as they perform their work
gratuitously, as nothing is paid for the use of air, of heat, and of
water, the assistance which they afford us, adds nothing to value in
exchange. In the first chapter of the second book, M. Say himself gives
a similar statement of value, for he says that "utility is the
foundation of value, that commodities are only desirable, because they
are in some way useful, but that their value depends not on their
utility, not on the degree in which they are desired, but on the
quantity of labour necessary to procure them. " "The utility of a
commodity thus understood, makes it an object of man's desire, makes him
wish for it, and establishes a demand for it. When to obtain a thing, it
is sufficient to desire it, it may be considered as an article of
natural wealth, given to man in an unlimited quantity, and which he
enjoys, without purchasing it by any sacrifice; such are the air, water,
the light of the sun. If he obtained in this manner all the objects of
his wants and desires, he would be infinitely rich: he would be in want
of nothing. But unfortunately this is not the case; the greater part of
the things which are convenient and agreeable to him, as well as those
which are indispensably necessary in the social state, for which man
seems to be specifically formed, are not given to him gratuitously; they
could only exist by the exertion of certain labour, the employment of a
certain capital, and, in many cases, by the use of land. These are
obstacles in the way of gratuitous enjoyment; obstacles from which
result a real expense of production; because we are obliged to pay for
the assistance of these agents of production. " "It is only when this
utility has thus been communicated to a thing (viz. by industry,
capital, and land,) that it is a production, _and that it has a value_.
It is its utility which is the foundation of the demand for it, _but the
sacrifices, and the charges necessary to obtain it, or in other
words, its price_, limits the extent of this demand. "

The confusion which arises from confounding the terms "value" and
"riches" will best be seen in the following passages. [31] His pupil
observes: "You have said, besides, that the riches of a society were
composed of the sum total of the values which it possessed; it appears
to me to follow, that the fall of one production, of stockings for
example, by diminishing the sum total of the value belonging to the
society, diminishes the mass of its riches;" to which the following
answer is given: "the _sum_ of the society's riches will not fall on
that account. Two pair of stockings are produced instead of one; and two
pair at three francs, are equally valuable with one pair at six francs.
The income of the society remains the same, because the manufacturer has
gained as much on two pair at three francs, as he gained on one pair at
six francs. " Thus far M. Say, though incorrect, is at least consistent.
If value be the measure of riches, the society is equally rich, because
the value of all its commodities is the same as before. But now for his
inference. "But when the income remains the same, and productions fall
in price, the society is really enriched. If the same fall took place in
all commodities at the same time, which is not absolutely impossible,
the society by procuring at half their former price, all the objects of
its consumption, without having lost any portion of its income, would
really be twice as rich as before, and could purchase twice the quantity
of goods. "

In the first passage we are told, that if every thing fell to half its
value, from abundance, the society would be equally rich, because there
would be double the quantity of commodities at half their former value,
or in other words, there would be the same value. But in the last
passage we are informed, that by doubling the quantity of commodities,
although the value of each commodity should be diminished one half, and
therefore the value of all the commodities together be precisely the
same as before, yet the society would be twice as rich as before. In the
first case riches are estimated by the amount of value: in the second,
they are estimated by the abundance of commodities contributing to human
enjoyments. M. Say further says, "that a man is infinitely rich without
valuables, if he can for nothing obtain all the objects he desires;" yet
in another place we are told, "that riches consist, not in the product
itself, for it is not riches if it have not value, but in its value. "
Vol. ii. p. 2.




CHAPTER XIX.

EFFECTS OF ACCUMULATION ON PROFITS AND INTEREST.


From the account which has been given of the profits of stock, it will
appear, that no accumulation of capital will permanently lower profits,
unless there be some permanent cause for the rise of wages. If the funds
for the maintenance of labour were doubled, trebled, or quadrupled,
there would not long be any difficulty in procuring the requisite number
of hands, to be employed by those funds; but owing to the increasing
difficulty of making constant additions to the food of the country,
funds of the same value would probably not maintain the same quantity of
labour. If the necessaries of the workman could be constantly increased
with the same facility, there could be no permanent alteration in the
rate of profits or wages, to whatever amount capital might be
accumulated. Adam Smith, however, uniformly ascribes the fall of profits
to accumulation of capital, and to the competition which will result
from it, without ever adverting to the increasing difficulty of
providing food for the additional number of labourers which the
additional capital will employ. "The increase of stock he says, which
raises wages, tends to lower profit. When the stocks of many rich
merchants are turned into the same trade, their mutual competition
naturally tends to lower its profit; and when there is a like increase
of stock in all the different trades carried on in the same society, the
same competition must produce the same effect in all. " Adam Smith speaks
here of a rise of wages, but it is of a temporary rise, proceeding from
increased funds before the population is increased; and he does not
appear to see, that at the same time that capital is increased, the work
to be effected by capital, is increased in the same proportion. M. Say
has however most satisfactorily shewn, that there is no amount of
capital which may not be employed in a country, because demand is only
limited by production. No man produces, but with a view to consume or
sell, and he never sells, but with an intention to purchase some other
commodity, which may be immediately useful to him, or which may
contribute to future production. By producing, then, he necessarily
becomes either the consumer of his own goods, or the purchaser and
consumer of the goods of some other person. It is not to be supposed
that he should, for any length of time, be ill-informed of the
commodities which he can most advantageously produce, to attain the
object which he has in view, namely, the possession of other goods; and
therefore it is not probable that he will continually produce a
commodity for which there is no demand. [32]

There cannot then be accumulated in a country any amount of capital
which cannot be employed productively, until wages rise so high in
consequence of the rise of necessaries, and so little consequently
remains for the profits of stock, that the motive for accumulation
ceases. [33] While the profits of stock are high, men will have a motive
to accumulate. Whilst a man has any wished-for gratification unsupplied
he will have a demand for more commodities; and it will be an effectual
demand while he has any new value to offer in exchange for them. If ten
thousand pounds were given to a man having 100,000_l. _ per annum, he
would not lock it up in a chest, but would either increase his expenses
by 10,000_l. _; employ it himself productively, or lend it to some other
person for that purpose; in either case, demand would be increased,
although it would be for different objects. If he increased his
expenses, his effectual demand might probably be for buildings,
furniture, or some such enjoyment. If he employed his 10,000_l. _
productively, his effectual demand would be for food, clothing, and raw
material, which might set new labourers to work; but still it would be
demand. [34]

Productions are always bought by productions, money is only the medium
by which the exchange is effected. Too much of a particular commodity
may be produced, of which there may be such a glut in the market, as not
to repay the capital expended on it; but this cannot be the case with
respect to all commodities; the demand for corn is limited by the mouths
which are to eat it, for shoes and coats by the persons who are to wear
them; but though a community, or a part of a community, may have as much
corn, and as many hats and shoes, as it is able or may wish to consume,
the same cannot be said of every commodity produced by nature or by art.
Some would consume more wine, if they had the ability to procure it.
Others having enough of wine, would wish to increase the quantity or
improve the quality of their furniture. Others might wish to ornament
their grounds, or to enlarge their houses. The wish to do all or some of
these is implanted in every man's breast; nothing is required but the
means, and nothing can afford the means, but an increase of production.
If I had food and necessaries at my disposal, I should not be long in
want of workmen who would put me in possession of some of the objects
most useful or most desirable to me.

Whether these increased productions, and the consequent demand which
they occasion, shall or shall not lower profits, depends solely on the
rise of wages; and the rise of wages, excepting for a limited period, on
the facility of producing the food and necessaries of the labourer. I
say excepting for a limited period, because no point is better
established, than that the supply of labourers will always ultimately be
in proportion to the means of supporting them.

There is only one case, and that will be temporary, in which the
accumulation of capital with a low price of food may be attended with a
fall of profits; and that is, when the funds for the maintenance of
labour increase much more rapidly than population;--wages will then be
high, and profits low. If every man were to forego the use of luxuries,
and be intent only on accumulation, a quantity of necessaries might be
produced, for which there could not be any immediate consumption. Of
commodities so limited in number, there might undoubtedly be an
universal glut, and consequently there might neither be demand for an
additional quantity of such commodities, nor profits on the employment
of more capital. If men ceased to consume, they would cease to produce.
This admission, does not impugn the general principle. In such a country
as England, for example, it is difficult to suppose that there can be
any disposition to devote the whole capital and labour of the country to
the production of necessaries only.

When merchants engage their capitals in foreign trade, or in the
carrying trade, it is always from choice, and never from necessity: it
is because in that trade their profits will be somewhat greater than in
the home trade.

Adam Smith has justly observed "that the desire of food is limited in
every man by the narrow capacity of the human stomach, but the desire of
the conveniences and ornaments of building, dress, equipage, and
household furniture, seems to have no limit or certain boundary. " Nature
then has necessarily limited the amount of capital which can at any one
time be profitably engaged in agriculture, but she has placed no limits
to the amount of capital that may be employed in procuring "the
conveniences and ornaments" of life. To procure these gratifications in
the greatest abundance is the object in view, and it is only because
foreign trade, or the carrying trade, will accomplish it better, that
men engage in them, in preference to manufacturing the commodities
required, or a substitute for them, at home. If, however, from peculiar
circumstances, we were precluded from engaging capital in foreign trade,
or in the carrying trade, we should, though with less advantage, employ
it at home; and while there is no limit to the desire of "conveniences,
ornaments of building, dress, equipage, and household furniture," there
can be no limit to the capital that may be employed in procuring them,
except that which bounds our power to maintain the workmen who are to
produce them.

Adam Smith however, speaks of the carrying trade as one not of choice,
but of necessity; as if the capital engaged in it would be inert if not
so employed, as if the capital in the home trade could overflow, if not
confined to a limited amount. He says, "when the capital stock of any
country is increased to such a degree, _that it cannot be all employed
in supplying the consumption, and supporting the productive labour of
that particular country_, the surplus part of it naturally disgorges
itself into the carrying trade, and is employed in performing the same
offices to other countries. "

"About ninety-six thousand hogsheads of tobacco are annually purchased
with a part of the surplus produce of British industry. But the demand
of Great Britain does not require, perhaps, more than fourteen thousand.
If the remaining eighty-two thousand, therefore, could not be sent
abroad _and exchanged for something more in demand at home_, the
importation of them would cease immediately, _and with it the productive
labour of all the inhabitants of Great Britain, who are at present
employed in preparing the goods with which these eighty-two thousand
hogsheads are annually purchased_. " But could not this portion of the
productive labour of Great Britain be employed in preparing some other
sort of goods, with which something more in demand at home might be
purchased? And if it could not, might we not employ this productive
labour, though with less advantage, in making those goods in demand at
home, or at least some substitute for them? If we wanted velvets, might
we not attempt to make velvets; and if we could not succeed, might we
not make more cloth, or some other object desirable to us?

We manufacture commodities, and with them buy goods abroad, because we
can obtain a greater quantity than we could make at home. Deprive us of
this trade, and we immediately manufacture again for ourselves. But this
opinion of Adam Smith is at variance with all his general doctrines on
this subject. "If a foreign country can supply us with a commodity
cheaper than we ourselves can make it, better buy it of them with some
part of the produce of our own industry, employed in a way in which we
have some advantage. _The general industry of the country being always
in proportion to the capital which employs it_, will not thereby be
diminished, but only left to find out the way in which it can be
employed with the greatest advantage. "

Again. "Those, therefore, who have the command of more food than they
themselves can consume, are always willing to exchange the surplus, or,
what is the same thing, the price of it, for gratifications of another
kind. What is over and above satisfying the limited desire, is given for
the amusement of those desires which cannot be satisfied, but seem to be
altogether endless. The poor, in order to obtain food, exert themselves
to gratify those fancies of the rich; and to obtain it more certainly,
they vie with one another in the cheapness and perfection of their work.
The number of workmen increases with the increasing quantity of food, or
with the growing improvement and cultivation of the lands; and as the
nature of their business admits of the utmost subdivisions of labours,
the quantity of materials which they can work up increases in a much
greater proportion than their numbers. Hence arises a demand for every
sort of material which human invention can employ, either usefully or
ornamentally, in building, dress, equipage, or household furniture; for
the fossils and minerals contained in the bowels of the earth, the
precious metals, and the precious stones. "

Adam Smith has justly observed, that it is extremely difficult to
determine the rate of the profits of stock. "Profit is so fluctuating,
that even in a particular trade, and much more in trades in general, it
would be difficult to state the average rate of it. To judge of what it
may have been formerly, or in remote periods of time, with any degree of
precision, must be altogether impossible. " Yet since it is evident that
much will be given for the use of money, when much can be made by it, he
suggests, that "the market rate of interest will lead us to form some
notion of the rate of profits, and the history of the progress of
interest afford us that of the progress of profits. " Undoubtedly if the
market rate of interest could be accurately known for any considerable
period, we should have a tolerably correct criterion, by which to
estimate the progress of profits.

But in all countries, from mistaken notions of policy, the state has
interfered to prevent a fair and free market rate of interest, by
imposing heavy and ruinous penalties on all those who shall take more
than the rate fixed by law. In all countries probably these laws are
evaded, but records give us little information on this head, and point
out rather the legal and fixed rate, than the market rate of interest.
During the present war, exchequer and navy bills have frequently been at
so high a discount, as to afford the purchasers of them 7, 8 per cent. ,
or a greater rate of interest for their money. Loans have been raised by
Government at an interest exceeding 6 per cent. , and individuals have
been frequently obliged, by indirect means, to pay more than 10 per
cent. , for the interest of money; yet during this same period the legal
rate of interest has been uniformly at 5 per cent. Little dependance for
information then can be placed on that which is the fixed and legal rate
of interest, when we find it may differ so considerably from the market
rate. Adam Smith informs us, that from the 37th of Henry VIII. , to 21st
of James I. , 10 per cent. continued to be the legal rate of interest.
Soon after the restoration, it was reduced to 6 per cent. , and by the
12th of Anne, to 5 per cent. He thinks the legal rate followed, and did
not precede the market rate of interest. Before the American War,
Government borrowed at 3 per cent. , and the people of credit in the
capital, and in many other parts of the kingdom at 3-1/2, 4, and 4-1/2
per cent.

The rate of interest, though ultimately and permanently governed by the
rate of profit, is however subject to temporary variations from other
causes. With every fluctuation in the quantity and value of money, the
prices of commodities naturally vary. They vary also, as we have already
shewn, from the alteration in the proportion of supply to demand,
although there should not be either greater facility or difficulty of
production. When the market prices of goods fall from an abundant
supply, from a diminished demand, or from a rise in the value of money,
a manufacturer naturally accumulates an unusual quantity of finished
goods, being unwilling to sell them at very depressed prices. To meet
his ordinary payments, for which he used to depend on the sale of his
goods, he now endeavours to borrow on credit, and is often obliged to
give an increased rate of interest. This however is but of temporary
duration; for either the manufacturer's expectations were well grounded,
and the market price of his commodities rises, or he discovers that
there is a permanently diminished demand, and he no longer resists the
course of affairs: prices fall, and money and interest regain their real
value. If by the discovery of a new mine, by the abuses of banking, or
by any other cause, the quantity of money be greatly increased, its
ultimate effect is to raise the prices of commodities in proportion to
the increased quantity of money; but there is probably always an
interval, during which some effect is produced on the rate of interest.

The price of funded property is not a steady criterion by which to judge
of the rate of interest. In time of war, the stock market is so loaded
by the continual loans of Government, that the price of stock has not
time to settle at its fair level before a new operation of funding takes
place, or it is affected by anticipation of political events. In time of
peace, on the contrary, the operations of the sinking fund, the
unwillingness, which a particular class of persons feel to divert their
funds to any other employment than that to which they have been
accustomed, which they think secure, and in which their dividends are
paid with the utmost regularity, elevates the price of stock, and
consequently depresses the rate of interest on these securities below
the general market rate. It is observable too, that for different
securities, Government pays very different rates of interest. Whilst
100_l. _ capital in 5 per cent. stock is selling for 95_l. _, an exchequer
bill of 100_l. _, will be sometimes selling for 100_l. _ 5_s. _, for which
exchequer bill, no more interest will be annually paid than 4_l. _ 11_s. _
3_d. _: one of these securities pays to a purchaser at the above prices,
an interest of more than 5-1/4 per cent. , the other but little more than
4-1/4; a certain quantity of these exchequer bills is required as a safe
and marketable investment for bankers; if they were increased much
beyond this demand, they would probably be as much depreciated as the 5
per cent. stock. A stock paying 3 per cent. per annum will always sell
at a proportionally greater price than stock paying 5 per cent. , for
the capital debt of neither can be discharged but at par, or 100_l. _
money for 100_l. _ stock. The market rate of interest may fall to 4 per
cent. , and Government would then pay the holder of 5 per cent. stock at
par, unless he consented to take 4 per cent. , or some diminished rate of
interest under 5 per cent. : they would have no advantage from so paying
the holder of 3 per cent. stock, till the market rate of interest had
fallen below 3 per cent. per annum. To pay the interest on the national
debt, large sums of money are withdrawn from circulation four times in
the year for a few days. These demands for money being only temporary,
seldom affect prices; they are generally surmounted by the payment of a
large rate of interest. [36]




CHAPTER XX.

BOUNTIES ON EXPORTATION, AND PROHIBITIONS OF IMPORTATION.