No More Learning

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.


A bounty on the exportation of corn tends to lower its price to the
foreign consumer, but it has no permanent effect on its price in the
home market.

Suppose that to afford the usual and general profits of stock, the price
of corn should in England be 4_l. _ per quarter; it could not then be
exported to foreign countries where it sold for 3_l. _ 15_s. _ per
quarter. But if a bounty of 10_s. _ per quarter were given on
exportation, it could be sold in the foreign market at 3_l. _ 10_s. _, and
consequently the same profit would be afforded to the corn grower,
whether he sold it at 3_l. _ 10_s. _ in the foreign, or at 4_l. _ in the
home market.

A bounty then, which should lower the price of British corn in the
foreign country, below the cost of producing corn in that country, would
naturally extend the demand for British, and diminish the demand for
their own corn. This extension of demand for British corn could not fail
to raise its price for a time in the home market, and during that time
to prevent also its falling so low in the foreign market as the bounty
has a tendency to effect. But the causes which would thus operate on the
market price of corn in England would produce no effect whatever on its
natural price, on its real cost of production. To grow corn would
neither require more labour nor more capital, and, consequently, if the
profits of the farmer's stock were before only equal to the profits of
the stock of other traders, they will, after the rise of price, be
considerably above them. By raising the profits of the farmer's stock,
the bounty will operate as an encouragement to agriculture, and capital
will be withdrawn from manufactures to be employed on the land, till the
enlarged demand for the foreign market has been supplied, when the price
of corn will again fall in the home market to its natural and necessary
price, and profits will be again at their ordinary and accustomed level.
The increased supply of grain operating on the foreign market, will also
lower its price in the country to which it is exported, and will thereby
restrict the profits of the exporter to the lowest rate at which he can
afford to trade.

The ultimate effect then of a bounty on the exportation of corn, is not
to raise or to lower the price in the home market, but to lower the
price of corn to the foreign consumer--to the whole extent of the
bounty, if the price of corn had not before been lower in the foreign,
than in the home market--and in a less degree, if the price in the home
had been above the price in the foreign market.

A writer in the fifth vol. of the Edinburgh Review on the subject of a
bounty on the exportation of corn, has very clearly pointed out its
effects on the foreign and home demand. He has also justly remarked,
that it would not fail to give encouragement to agriculture in the
exporting country; but he appears to have imbibed the common error which
has misled Dr. Smith, and I believe most other writers on this subject.
He supposes, because the price of corn ultimately regulates wages, that
therefore it will regulate the price of all other commodities. He says
that the bounty, "by raising the profits of farming, will operate as an
encouragement to husbandry; by raising the price of corn to the
consumers at home, it will diminish for the time their power of
purchasing this necessary of life, and thus abridge their real wealth.
It is evident, however, that this last effect must be temporary: the
wages of the labouring consumers had been adjusted before by
competition, and the same principle will adjust them again to the same
rate, by raising the money price of labour, _and, through that, of other
commodities, to the money price of corn_. The bounty upon exportation,
therefore, will ultimately raise the money price of corn in the home
market; not directly, however, but through the medium of an extended
demand in the foreign market, and a consequent enhancement of the real
price at home: _and this rise of the money price, when it has once been
communicated to other commodities, will of course become fixed_. "

If, however, I have succeeded in shewing that it is not the rise in the
money wages of labour which raises the price of commodities, but that
such rise always affects profits, it will follow that the prices of
commodities would not rise in consequence of a bounty.

But a temporary rise in the price of corn, produced by an increased
demand from abroad, would have no effect on the money price of wages.
The rise of corn is occasioned by a competition for that supply which
was before exclusively appropriated to the home market. By raising
profits, additional capital is employed in agriculture, and the
increased supply is obtained; but till it be obtained, the high price is
absolutely necessary to proportion the consumption to the supply, which
would be counteracted by a rise of wages. The rise of corn is the
consequence of its scarcity, and is the means by which the demand of the
home purchasers is diminished. If wages were increased, the competition
would increase, and a further rise of the price of corn would become
necessary. In this account of the effects of a bounty, nothing has been
supposed to occur to raise the natural price of corn, by which its
market price is ultimately governed; for it has not been supposed that
any additional labour would be required on the land to insure a given
production, and this alone can raise natural price. If the natural price
of cloth were 20_s. _ per yard, a great increase in the foreign demand
might raise the price to 25_s. _, or more, but the profits which would
then be made by the clothier would not fail to attract capital in that
direction, and although the demand should be doubled, trebled, or
quadrupled, the supply would ultimately be obtained, and cloth would
fall to its natural price of 20_s. _ So in the supply of corn, although
we should export 2, 3, or 800,000 quarters, annually, it would
ultimately be produced at its natural price, which never varies unless a
different quantity of labour becomes necessary to production.

Perhaps in no part of Adam Smith's justly celebrated work are his
conclusions more liable to objection, than in the chapter on bounties.
In the first place, he speaks of corn as of a commodity of which the
production cannot be increased in consequence of a bounty on
exportation; he supposes invariably that it acts only on the quantity
actually produced, and is no stimulus to further production. "In years
of plenty," he says, "by occasioning an extraordinary exportation, it
necessarily keeps up the price of corn in the home market above what it
would naturally fall to. In years of scarcity, though the bounty is
frequently suspended, yet the great exportation which it occasions in
years of plenty, must frequently hinder, more or less, the plenty of one
year from relieving the scarcity of another. Both in the years of plenty
and in years of scarcity, therefore, the bounty necessarily tends to
raise the money price of corn somewhat higher than it otherwise would be
in the home market. "[37]

Adam Smith appears to have been fully aware, that the correctness of
his argument entirely depended on the fact, whether the increase "of the
money price of corn, by rendering that commodity more profitable to the
farmer, would not necessarily encourage its production. "

"I answer," he says, "that this might be the case, if the effect of the
bounty was to raise the real price of corn, or to enable the farmer,
with an equal quantity of it, to maintain a greater number of labourers
in the same manner, whether liberal, moderate, or scanty, as other
labourers are commonly maintained in his neighbourhood. "

If nothing were consumed by the labourer but corn, and if the portion
which he received, was the very lowest which his sustenance required,
there might be some ground for supposing that the quantity paid to the
labourer could, under no circumstances, be reduced,--but the money wages
of labour sometimes do not rise at all, and never rise in proportion to
the rise in the money price of corn, because corn, though an important
part, is only a part of the consumption of the labourer. If half his
wages were expended on corn, and the other half on soap, candles, fuel,
tea, sugar, clothing, &c. , commodities on which no rise is supposed to
take place, it is evident that he would be quite as well paid with a
bushel and a half of wheat, when it was 16_s. _ a bushel, as he was with
two bushels, when the price was 8_s. _ per bushel; or with 24_s. _ in
money, as he was before with 16_s. _ His wages would rise only 50 per
cent. though corn rose 100 per cent. , and, consequently, there would be
sufficient motive to divert more capital to the land, if profits on
other trades continued the same as before. But such a rise of wages
would also induce manufacturers to withdraw their capitals from
manufactures, to employ them on the land; for whilst the farmer
increased the price of his commodity 100 per cent. , and his wages only
50 per cent. , the manufacturer would be obliged also to raise wages 50
per cent. , whilst he had no compensation whatever, in the rise of his
manufactured commodity, for this increased charge of production; capital
would consequently flow from manufactures to agriculture, till the
supply would again lower the price of corn to 8_s. _ per bushel, and
wages to 16_s. _ per week; when the manufacturer would obtain the same
profits as the farmer, and the tide of capital would cease to set in
either direction. This is in fact the mode in which the cultivation of
corn is always extended, and the increased wants of the market supplied.
The funds for the maintenance of labour increase, and wages are raised.
The comfortable situation of the labourer induces him to
marry--population increases, and the demand for corn raises its price
relatively to other things,--more capital is profitably employed on
agriculture, and continues to flow towards it, till the supply is equal
to the demand, when the price again falls, and agricultural and
manufacturing profits are again brought to a level.

But whether wages were stationary after the rise in the price of corn,
or advanced moderately, or enormously, is of no importance to this
question, for wages are paid by the manufacturer as well as by the
farmer, and, therefore, in this respect they must be equally affected by
a rise in the price of corn. But they are unequally affected in their
profits, inasmuch as the farmer sells his commodity at an advanced
price, while the manufacturer sells his for the same price as before. It
is however the inequality of profit, which is always the inducement to
remove capital from one employment to another, and therefore more corn
would be produced, and fewer commodities manufactured. Manufactures
would not rise, because fewer were manufactured, for a supply of them
would be obtained in exchange for the exported corn.

A bounty, if it raises the price of corn, either raises it in comparison
with the price of other commodities, or it does not. If the affirmative
be true, it is impossible to deny the greater profits of the farmer, and
the temptation to the removal of capital, till its price is again
lowered by an abundant supply. If it does not raise it in comparison
with other commodities, where is the injury to the home consumer, beyond
the inconvenience of paying the tax? If the manufacturer pays a greater
price for his corn, he is compensated by the greater price at which he
sells his commodity, with which his corn is ultimately purchased.

The error of Adam Smith proceeds precisely from the same source as that
of the writer in the Edinburgh Review; for they both think "that the
money price of corn regulates that of all other home-made
commodities. "[38] "It regulates," says Adam Smith, "the money price of
labour, which must always be such as to enable the labourer to purchase
a quantity of corn sufficient to maintain him and his family, either in
the liberal, moderate, or scanty manner, in which the advancing,
stationary, or declining circumstances of the society oblige his
employers to maintain him. By regulating the money price of all the
other parts of the rude produce of land, it regulates that of the
materials of almost all manufactures. By regulating the money price of
labour, it regulates that of manufacturing art, and industry; and by
regulating both, it regulates that of the complete manufacture. _The
money price of labour, and of every thing that is the produce either of
land and labour, must necessarily rise or fall in proportion to the
money price of corn. _"

This opinion of Adam Smith, I have before attempted to refute. In
considering a rise in the price of commodities as a necessary
consequence of a rise in the price of corn, he reasons as though there
were no other fund from which the increased charge could be paid. He has
wholly neglected the consideration of profits, the diminution of which
forms that fund, without raising the price of commodities. If this
opinion of Dr. Smith were well founded, profits could never really fall,
whatever accumulation of capital there might be. If when wages rose, the
farmer could raise the price of his corn, and the clothier, the hatter,
the shoemaker, and every other manufacturer, could also raise the price
of their goods in proportion to the advance, although estimated in
money, they might be all raised, they would continue to bear the same
value relatively to each other. Each of these trades could command the
same quantity as before of the goods of the others, which, since it is
goods, and not money, which constitute wealth, is the only circumstance
that could be of importance to them; and the whole rise in the price of
raw produce and of goods, would be injurious to no other persons but to
those whose property consisted of gold and silver, or whose annual
income was paid in a contributed quantity of those metals, whether in
the form of bullion or of money. Suppose the use of money to be wholly
laid aside, and all trade to be carried on by barter. Under such
circumstances, could corn rise in exchangeable value with other things?
If it could, then it is not true that the value of corn regulates the
value of all other commodities; for to do that, it should not vary in
relative value to them. If it could not, then it must be maintained,
that whether corn be obtained on rich, or on poor land, with much
labour, or with little, with the aid of machinery, or without, it would
always exchange for an equal quantity of all other commodities.

I cannot, however, but remark that, though Adam Smith's general
doctrines correspond with this which I have just quoted, yet in one part
of his work he appears to have given a correct account of the nature of
value.
"The proportion between the value of gold and silver, and that of
goods of any other kind, _depends in all cases_," he says, "_upon the
proportion between the quantity of labour which is necessary in order to
bring a certain quantity of gold and silver to market, and that which is
necessary to bring thither a certain quantity of any other sort of
goods_. " Does he not here fully acknowledge that if any increase takes
place in the quantity of labour, required to bring one sort of goods to
market, whilst no such increase takes place in bringing another sort
thither, those goods will rise in relative value. If no more labour be
required to bring cloth and gold to market, they will not vary in
relative value, but if more labour be required to bring corn and shoes
to market, will not corn and shoes rise in value relatively to cloth,
and money made of gold?

Adam Smith again considers that the effect of the bounty is to cause a
partial degradation in the value of money. "That degradation," says he
"in the value of silver, which is the effect of the fertility of the
mines, and which operates equally, or very nearly equally, through the
greater part of the commercial world, is a matter of very little
consequence to any particular country. The consequent rise of all money
prices, though it does not make those who receive them really richer,
does not make them really poorer. A service of plate becomes really
cheaper, and every thing else remains precisely of the same real value
as before. " This observation is most correct.

"But that degradation in the value of silver, which being the effect
either of the peculiar situation, or of the political institutions of a
particular country, takes place only in that country, is a matter of
very great consequence, which, far from tending to make any body really
richer, tends to make every body really poorer. The rise in the money
price of all commodities, which is in this case peculiar to that
country, tends to discourage more or less every sort of industry which
is carried on within it, and to enable foreign nations, by furnishing
almost all sorts of goods for a smaller quantity of silver than its own
workmen can afford to do, to undersell them, not only in the foreign,
but even in the home market. "

I have elsewhere attempted to shew that a partial degradation in the
value of money, which shall affect both agricultural produce, and
manufactured commodities, cannot possibly be permanent. To say that
money is partially degraded, in this sense, is to say that all
commodities are at a high price; but while gold and silver are at
liberty to make purchases in the cheapest market, they will be exported
for the cheaper goods of other countries, and the reduction of their
quantity will increase their value at home; commodities will regain
their usual level, and those fitted for foreign markets will be
exported, as before.

A bounty therefore cannot, I think, be objected to on this ground.

If then, a bounty raises the price of corn in comparison with all other
things, the farmer will be benefited, and more land will be cultivated;
but if the bounty do not raise the value of corn relatively to other
things, then no other inconvenience will attend it, than that of paying
the bounty; one which I neither wish to conceal nor underrate.

Dr. Smith states, that "by establishing high duties on the importation,
and bounties on the exportation of corn, the country gentlemen seemed to
have imitated the conduct of the manufacturers. " By the same means both
had endeavoured to raise the value of their commodities. "They did not
perhaps attend to the great and essential difference which nature has
established between corn, and almost every other sort of goods. When by
either of the above means, you enable our manufacturers to sell their
goods for somewhat a better price than they otherwise could get for
them, you raise not only the nominal, but the real price of those goods.
You increase not only the nominal, but the real profit, the real wealth
and revenue of those manufacturers--you really encourage those
manufactures. But when, by the like institutions, you raise the nominal
or money price of corn, you do not raise its real value, you do not
increase the real wealth of our farmers or country gentlemen, you do not
encourage the growth of corn. The nature of things has stamped upon corn
a real value, which cannot be altered by merely altering its money
price. Through the world in general, that value is equal to the quantity
of labour which it can maintain. "

I have already attempted to shew, that the market price of corn, would,
under an increased demand from the effects of a bounty, exceed its
natural price, till the requisite additional supply was obtained, and
that then it would again fall to its natural price. But the natural
price of corn is not so fixed as the natural price of commodities;
because, with any great additional demand for corn, land of a worse
quality must be taken into cultivation, on which more labour will be
required to produce a given quantity, and the natural price of corn
would be raised. By a continued bounty, therefore, on the exportation of
corn, there would be created a tendency to a permanent rise in the price
of corn, and this, as I have shewn elsewhere,[39] never fails to raise
rent. Country gentlemen then have not only a temporary but a permanent
interest in prohibitions of the importation of corn, and in bounties on
its exportation; but manufacturers have no permanent interest in a
bounty on the exportation of commodities, their interest is wholly
temporary.

A bounty on the exportation of manufactures will undoubtedly, as Dr.
Smith contends, raise the market price of manufactures, but it will not
raise their natural price. The labour of 200 men will produce double the
quantity of these goods that 100 could produce before; and
consequently, when the requisite quantity of capital was employed in
supplying the requisite quantity of manufactures, they would again fall
to their natural price. It is then only during the interval after the
rise in the market price of commodities, and before the additional
supply is obtained, that the manufacturers will enjoy high profits; for
as soon as prices had subsided, their profits would sink to the general
level.

Instead of agreeing, therefore, with Adam Smith, that the country
gentlemen had not so great an interest in prohibiting the importation of
corn, as the manufacturer had in prohibiting the importation of
manufactured goods, I contend that they have a much superior interest;
for their advantage is permanent, while that of the manufacturer is only
temporary. Dr. Smith observes, that nature has established a great and
essential difference between corn and other goods, but the proper
inference from that circumstance is directly the reverse of that which
he draws from it; for it is on account of this difference that rent is
created, and that country gentlemen have an interest in the rise of the
natural price of corn. Instead of comparing the interest of the
manufacturer with the interest of the country gentleman, Dr. Smith
should have compared it with the interest of the farmer, which is very
distinct from that of his landlord. Manufacturers have no interest in
the rise of the natural price of their commodities, nor have farmers any
interest in the rise of the natural price of corn, or other raw produce,
though both these classes are benefited while the market price of their
productions exceeds their natural price. On the contrary, landlords have
a most decided interest in the rise of the natural price of corn; for
the rise of rent is the inevitable consequence of the difficulty of
producing raw produce, without which its natural price could not rise.
Now as bounties on exportation and prohibitions of the importation of
corn increase the demand, and drive us to the cultivation of poorer
lands, they necessarily occasion an increased difficulty of production.

The sole effect of the bounty either on the exportation of manufactures,
or of corn, is to divert a portion of capital to an employment, which it
would not naturally seek. It causes a pernicious distribution of the
general funds of the society--it bribes a manufacturer to commence or
continue in a comparatively less profitable employment. It is the worst
species of taxation, for it does not give to the foreign country all
that it takes away from the home country, the balance of loss being made
up by the less advantageous distribution of the general capital. Thus,
if the price of corn is in England 4_l. _, and in France 3_l. _ 15_s. _ a
bounty of 10_s. _ will ultimately reduce it to 3_l. _ 10_s. _ in France,
and maintain it at the same price of 4_l. _ in England. For every quarter
exported, England pays a tax of 10_s. _ For every quarter imported into
France, France gains only 5_s. _, so that the value of 5_s. _ per quarter
is absolutely lost to the world, by such a distribution of its funds as
to cause diminished production, probably not of corn, but of some other
object of necessity or enjoyment.

Mr. Buchanan appears to have seen the fallacy of Dr. Smith's arguments
respecting bounties, and on the last passage which I have quoted, very
judiciously remarks: "In asserting that nature has stamped a real value
on corn, which cannot be altered by merely altering its money price, Dr.
Smith confounds its value in use, with its value in exchange. A bushel
of wheat will not feed more people during scarcity than during plenty;
but a bushel of wheat will exchange for a greater quantity of luxuries
and conveniences when it is scarce, than when it is abundant; and the
landed proprietors, who have a surplus of food to dispose of, will
therefore, in times of scarcity, be richer men; they will exchange their
surplus for a greater value of other enjoyments, than when corn is in
greater plenty. It is vain to argue, therefore, that if the bounty
occasions a forced exportation of corn, it will not also occasion a real
rise of price. " The whole of Mr. Buchanan's arguments on this part of
the subject of bounties, appear to me to be perfectly clear and
satisfactory.

Mr. Buchanan however has not, I think, any more than Dr. Smith, or the
writer in the Edinburgh Review, correct opinions as to the influence of
a rise in the price of labour on manufactured commodities. From his
peculiar views, which I have elsewhere noticed, he thinks that the
price of labour has no connexion with the price of corn, and therefore
that the real value of corn might and would rise without affecting the
price of labour; but if labour were affected, he would maintain with
Adam Smith and the writer in the Edinburgh Review, that the price of
manufactured commodities would also rise; and then I do not see how he
would distinguish such a rise of corn, from a fall in the value of
money, or how he could come to any other conclusion than that of Dr.
Smith. In a note to page 276, vol. i. of the Wealth of Nations, Mr.
Buchanan observes, "but the price of corn does not regulate the money
price of all the other parts of the rude produce of land. It regulates
the price neither of metals, nor of various other useful substances,
such as coals, wood, stones, &c. ; _and as it does not regulate the price
of labour, it does not regulate the price of manufactures_; so that the
bounty, in so far as it raises the price of corn, is undoubtedly a real
benefit to the farmer. It is not on this ground, therefore, that its
policy must be argued. Its encouragement to agriculture, by raising the
price of corn, must be admitted; and the question then comes to be,
whether agriculture ought to be thus encouraged? "--It is then,
according to Mr. Buchanan, a real benefit to the farmer, because it does
not raise the price of labour; but if it did, it would raise the price
of all things in proportion, and then it would afford no particular
encouragement to agriculture.

It must, however, be conceded, that the tendency of a bounty on the
exportation of any commodity is to lower in a small degree the value of
money. Whatever facilitates exportation, tends to accumulate money in a
country; and on the contrary, whatever impedes exportation, tends to
diminish it. The general effect of taxation, by raising the prices of
the commodities taxed, tends to diminish exportation, and therefore to
check the influx of money; and on the same principle, a bounty
encourages the influx of money. This is more fully explained in the
general observations on taxation.

The injurious effects of the mercantile system have been fully exposed
by Dr. Smith; the whole aim of that system was to raise the price of
commodities, in the home market, by prohibiting foreign competition;
but this system was no more injurious to the agricultural classes than
to any other part of the community. By forcing capital into channels
where it would not otherwise flow, it diminished the whole amount of
commodities produced. The price, though permanently higher, was not
sustained by scarcity, but by difficulty of production; and therefore,
though the sellers of such commodities sold them for a higher price,
they did not sell them, after the requisite quantity of capital was
employed in producing them, at higher profits. [40]

The manufacturers themselves, as consumers, had to pay an additional
price for such commodities, and therefore it cannot be correctly said,
that "the enhancement of price occasioned by both, (corporation laws and
high duties on the importation of foreign commodities,) is every where
finally paid by the landlords, farmers, and labourers of the country. "

It is the more necessary, to make this remark, as in the present day the
authority of Adam Smith is quoted by country gentlemen for imposing
similar high duties on the importation of foreign corn. Because the cost
of production, and therefore the prices of various manufactured
commodities, are raised to the consumer by one error in legislation, the
country has been called upon, on the plea of justice, quietly to submit
to fresh exactions. Because we all pay an additional price for our
linen, muslin, and cottons, it is thought just that we should pay also
an additional price for our corn. Because, in the general distribution
of the labour of the world, we have prevented the greatest amount of
productions from being obtained by that labour in manufactured
commodities; we should further punish ourselves by diminishing the
productive powers of the general labour in the supply of raw produce. It
would be much wiser to acknowledge the errors which a mistaken policy
has induced us to adopt, and immediately to commence a gradual
recurrence to the sound principles of an universally free trade.

"I have already had occasion to remark," observes M. Say, "in speaking
of what is improperly called the balance of trade, that if it suits a
merchant better to export the precious metals to a foreign country than
any other goods, it is also the interest of the state that he should
export them, because the state only gains or loses through the channel
of its citizens; and in what concerns foreign trade, that which best
suits the individual, best suits also the state; therefore, by opposing
obstacles to the exportation which individuals would be inclined to
make of the precious metals, nothing more is done, than to force them to
substitute some other commodity less profitable to themselves, and to
the state. It must however be remarked, that I say only _in what
concerns foreign trade_; because the profits which merchants make by
their dealings with their countrymen, as well as those which are made in
the exclusive commerce with colonies, are not entirely gains for the
state. In the trade between individuals of the same country, there is no
other gain but the value of an utility produced; _Que la valeur d'une
utilité produite_. "[41] Vol. i. p. 401. I cannot see the distinction
here made between the profits of the home and foreign trade. The object
of all trade is to increase productions. If for the purchase of a pipe
of wine, I had it in my power to export bullion, which was bought with
the value of the produce of 100 days' labour, but Government, by
prohibiting the exportation of bullion, should oblige me to purchase my
wine with a commodity bought with the value of the produce of one
hundred and five days' labour, the produce of five days' labour is lost
to me, and, through me, to the state. But if these transactions took
place between individuals, in different provinces of the same country,
the same advantage would accrue both to the individual, and, through
him, to the country, if he were unfettered in his choice of the
commodities, with which he made his purchases; and the same
disadvantage, if he were obliged by Government to purchase with the
least beneficial commodity. If a manufacturer could work up with the
same capital, more iron where coals are plentiful, than he could where
coals are scarce, the country would be benefited by the difference. But
if coals were no where plentiful, and he imported iron, and could get
this additional quantity, by the manufacture of a commodity, with the
same capital and labour, he would in like manner benefit his country by
the additional quantity of iron. In the 6th Chap. of this work, I have
endeavoured to shew that all trade, whether foreign or domestic, is
beneficial, by increasing the quantity, and not by increasing the value
of productions. We shall have no greater value, whether we carry on the
most beneficial home and foreign trade, or in consequence of being
fettered by prohibitory laws, we are obliged to content ourselves with
the least advantageous. The rate of profits, and the value produced,
will be the same. The advantage always resolves itself into that which
M. Say appears to confine to the home trade; in both cases there is no
other gain but that of the value of an _utilité produite_.




CHAPTER XXI.

ON BOUNTIES ON PRODUCTION.


It may not be uninstructive to consider the effects of a bounty on the
_production_ of raw produce and other commodities, with a view to
observe the application of the principles which I have been endeavouring
to establish, with regard to the profits of stock, the annual produce of
the land and labour, and the relative prices of manufactures and raw
produce. In the first place, let us suppose that a tax was imposed on
all commodities, for the purpose of raising a fund to be employed by
Government, in giving a bounty on the _production_ of corn. As no part
of such a tax would be expended by Government, and as all that was
received from one class of the people, would be returned to another, the
nation collectively would neither be richer nor poorer, from such a tax
and bounty. It would be readily allowed, that the tax on commodities by
which the fund was created, would raise the price of the commodities
taxed; all the consumers of those commodities therefore would contribute
towards that fund; in other words, their natural or necessary price
being raised, so would too their market price. But for the same reason
that the natural price of those commodities would be raised, the natural
price of corn would be lowered; before the bounty was paid on
production, the farmers obtained as great a price for their corn as was
necessary to repay them their rent and their expenses, and afford them
the general rate of profits; after the bounty, they would receive more
than that rate, unless the price of corn fell by a sum at least equal to
the bounty. The effect then of the tax and bounty, would be to raise the
price of commodities in a degree equal to the tax levied on them, and to
lower the price of corn by a sum equal to the bounty paid. It will be
observed too, that no permanent alteration could be made in the
distribution of capital between agriculture and manufactures, because as
there would be no alteration, either in the amount of capital or
population, there would be precisely the same demand for bread and
manufactures. The profits of the farmer would be no higher than the
general level, after the fall in the price of corn; nor would the
profits of the manufacturer be lower after the rise of manufactured
goods; the bounty then would not occasion any more capital to be
employed on the land in the production of corn, nor any less in the
manufacture of goods. But how would the interest of the landlord be
affected? On the same principles that a tax on raw produce would lower
the corn rent of land, leaving the money rent unaltered, a bounty on
production, which is directly the contrary of a tax, would raise corn
rent, leaving the money rent unaltered. [42] With the same money rent the
landlord would have a greater price to pay for his manufactured goods,
and a less price for his corn; he would probably therefore be neither
richer nor poorer.

Now whether such a measure would have any operation on the wages of
labour, would depend on the question, whether the labourer, in
purchasing commodities, would pay as much towards the tax, as he would
receive from the bounty, in the low price of his food. If these two
quantities were equal, wages would continue unaltered; but if the
commodities taxed were not those consumed by the labourer, his wages
would fall, and his employer would be benefited by the difference. But
this is no real advantage to his employer; it would indeed operate to
increase the rate of his profits, as every fall of wages must do; but in
proportion as the labourer contributed less to the fund from which the
bounty was paid, and which, let it be remembered, must be raised, his
employer must contribute more; in other words, he would contribute as
much to the tax by his expenditure, as he would receive in the effects
of the bounty and the higher rate of profits together. He obtains a
higher rate of profits to requite him for his payment, not only of his
own quota of the tax, but of his labourer's also; the remuneration which
he receives for his labourer's quota appears in diminished wages, or,
which is the same thing, in increased profits; the remuneration for his
own appears in the diminution in the price of the corn which he
consumes, arising from the bounty.

Here it will be proper to remark the different effects produced on
profits from an alteration in the real labour value of corn, and an
alteration in the relative value of corn, from taxation and from
bounties. If corn is lowered in price by an alteration in its labour
price, not only will the rate of the profits of stock be altered, but
the absolute profits also; which does not happen, as we have just seen,
when the fall is occasioned artificially by a bounty. In the real fall
in the value of corn, arising from less labour being required to produce
one of the most important objects of man's consumption, labour is
rendered more productive. With the same capital the same labour is
employed, and an increase of productions is the result; not only then
will the rate of profits, but the absolute profits of stock be
increased; not only will each capitalist have a greater money revenue,
if he employs the same money capital, but also when that money is
expended, it will procure him a greater sum of commodities; his
enjoyments will be augmented. In the case of the bounty, to balance the
advantage which he derives from the fall of one commodity, he has the
disadvantage of paying a price more than proportionally high for
another; he receives an increased rate of profits in order to enable him
to pay this higher price; so that his real situation is in no way
improved: though he gets a higher rate of profits, he has no greater
command of the produce of the land and labour of the country. When the
fall in the value of corn is brought about by natural causes, it is not
counteracted by the rise of other commodities; on the contrary, they
fall from the raw material falling from which they are made: but when
the fall in corn is occasioned by artificial means, it is always
counteracted by a real rise in the value of some other commodity, so
that if corn be bought cheaper, other commodities are bought dearer.

This then is a further proof, that no particular disadvantage arises
from taxes on necessaries, on account of their raising wages and
lowering the rate of profits. Profits are indeed lowered, but only to
the amount of the labourer's portion of the tax, which must at all
events, be paid either by his employer, or by the consumer of the
produce of the labourer's work. Whether you deduct 50_l. _ per annum from
the employer's revenue, or add 50_l. _ to the prices of the commodities
which he consumes, can be of no other consequence to him or to the
community, than as it may equally affect all other classes. If it be
added to the prices of the commodity, a miser may avoid the tax by not
consuming; if it be indirectly deducted from every man's revenue, he
cannot avoid paying his fair proportion of the public burthens.

A bounty on the production of corn then, would produce no real effect on
the annual produce of the land and labour of the country, although it
would make corn relatively cheap, and manufactures relatively dear. But
suppose now that a contrary measure should be adopted, that a tax should
be raised on corn for the purpose of affording a fund for a bounty on
the production of commodities.

In such case, it is evident that corn would be dear, and commodities
cheap; labour would continue at the same price, if the labourer were as
much benefited by the cheapness of commodities as he was injured by the
dearness of corn; but if he were not, wages would rise, and profits
would fall, while money rent would continue the same as before; profits
would fall, because, as we have just explained, that would be the mode
in which the labourer's share of the tax would be paid by the employers
of labour. By the increase of wages the labourer would be compensated
for the tax which he would pay in the increased price of corn; by not
expending any part of his wages on the manufactured commodities, he
would receive no part of the bounty; the bounty would be all received by
the employers, and the tax would be partly paid by the employed; a
remuneration would be made to the labourers, in the shape of wages, for
this increased burden laid upon them, and thus the rate of profits would
be reduced. In this case too there would be a complicated measure
producing no national result whatever.

In considering this question, we have purposely left out of our
consideration the effect of such a measure on foreign trade; we have
rather been supposing the case of an insulated country, having no
commercial connexion with other countries. We have seen that as the
demand of the country for corn and commodities would be the same,
whatever direction the bounty might take, there would be no temptation
to remove capital from one employment to another: but this would no
longer be the case if there were foreign commerce, and that commerce
were free. By altering the relative value of commodities and corn, by
producing so powerful an effect on their natural prices, we should be
applying a strong stimulus to the exportation of those commodities whose
natural prices were lowered, and an equal stimulus to the importation of
those commodities whose natural prices were raised, and thus such a
financial measure might entirely alter the natural distribution of
employments; to the advantage indeed of the foreign countries, but
ruinously to that in which so absurd a policy was adopted.




CHAPTER XXII.

DOCTRINE OF ADAM SMITH CONCERNING THE RENT OF LAND.


"Such parts only of the produce of land," says Adam Smith, "can commonly
be brought to market, of which the ordinary price is sufficient to
replace the stock which must be employed in bringing them thither,
together with its ordinary profits. If the ordinary price is more than
this, the surplus part of it will naturally go to the rent of land. _If
it is not more, though the commodity can be brought to market, it can
afford no rent to the landlord. _ Whether the price is, or is not more,
depends upon the demand. "

This passage would naturally lead the reader to conclude that its author
could not have mistaken the nature of rent, and that he must have seen
that the quality of land which the exigencies of society might require
to be taken into cultivation would depend on "_the ordinary price of its
produce," whether it were "sufficient to replace the stock, which must
be employed in cultivating it, together with its ordinary profits_. "

But he had adopted the notion that "there were some parts of the produce
of land for which the demand must always be such as to afford a greater
price than what is sufficient to bring them to market;" and he
considered food as one of those parts.

He says, that "land, in almost any situation, produces a greater
quantity of food than what is sufficient to maintain all the labour
necessary for bringing it to market, in the most liberal way in which
that labour is ever maintained. The surplus too is always more than
sufficient to replace the stock which employed that labour, together
with its profits. Something, therefore, always remains for a rent to the
landlord. "

But what proof does he give of this? --no other than the assertion that
"the most desert moors in Norway and Scotland produce some sort of
pasture for cattle, of which the milk and the increase are always more
than sufficient, not only to maintain all the labour necessary for
tending them, and to pay the ordinary profit to the farmer, or owner of
the herd or flock, but to afford some small rent to the landlord. " Now
of this I may be permitted to entertain a doubt. I believe that as yet
in every country, from the rudest to the most refined, there is land of
such a quality that it cannot yield a produce more than sufficiently
valuable to replace the stock employed upon it, together with the
profits ordinary and usual in that country. In America we all know that
this is the case, and yet no one maintains that the principles which
regulate rent are different in that country and in Europe. But if it
were true that England had so far advanced in cultivation, that at this
time there were no lands remaining which did not afford a rent, it would
be equally true that there formerly must have been such lands; and that
whether there be or not is of no importance to this question, for it is
the same thing if there be any capital employed in Great Britain on
land which yields only the return of stock with its ordinary profits,
whether it be employed on old or on new land. If a farmer agrees for
land on a lease of seven or fourteen years, he may propose to employ on
it a capital of 10,000_l. _, knowing that at the existing price of grain
and raw produce, he can replace that part of his stock which he is
obliged to expend, pay his rent, and obtain the general rate of profit.
He will not employ 11,000_l. _, unless the last 1,000_l. _ can be employed
so productively as to afford him the usual profits of stock. In his
calculation, whether he shall employ it or not, he considers only
whether the price of raw produce is sufficient to replace his expenses
and profits, for he knows that he shall have no additional rent to pay.
Even at the expiration of his lease his rent will not be raised; for if
his landlord should require rent, because this additional 1000_l. _ was
employed, he would withdraw it; since by employing it he gets, by the
supposition, only the ordinary and usual profits which he may obtain by
any other employment of stock; and therefore he cannot afford to pay
rent for it, unless the price of raw produce should further rise, or,
which is the same thing, unless the usual and general rate of profits
should fall.

If the comprehensive mind of Adam Smith had been directed to this fact,
he would not have maintained that rent forms one of the component parts
of the price of raw produce; for price is everywhere regulated by the
return obtained by this last portion of capital, for which no rent
whatever is paid. If he had adverted to this principle, he would have
made no distinction between the law which regulates the rent of mines
and the rent of land.

"Whether a coal mine, for example," he says, "can afford any rent,
depends partly upon its fertility, and partly upon its situation. A mine
of any kind may be said to be either fertile or barren, according as the
quantity of mineral which can brought from it by a certain quantity of
labour, is greater or less than what can be brought by an equal quantity
from the greater part of other mines of the same kind. Some coal mines,
advantageously situated, cannot be wrought on account of their
barrenness. The produce does not pay the expense. They can afford
neither profit nor rent. There are some, of which the produce is barely
sufficient to pay the labour, and replace, together with its ordinary
profits, the stock employed in working them. They afford some profit to
the undertaker of the work, but no rent to the landlord. They can be
wrought advantageously by nobody but the landlord, who being himself the
undertaker of the work, gets the ordinary profit of the capital which he
employs in it. Many coal mines in Scotland are wrought in this manner,
and can be wrought in no other. The landlord will allow nobody else to
work them without paying some rent, and nobody can afford to pay any.

"Other coal mines in the same country, sufficiently fertile, cannot be
wrought on account of their situation. A quantity of mineral sufficient
to defray the expense of working, could be brought from the mine by the
ordinary, or even less than the ordinary quantity of labour; but in an
inland country, thinly inhabited, and without either good roads or
water-carriage, this quantity could not be sold. " The whole principle of
rent is here admirably and perspicuously explained, but every word is
as applicable to land as it is to mines; yet he affirms that "it is
otherwise in estates above ground. The proportion, both of their produce
and of their rent, is in proportion to their absolute, and not to their
relative fertility. " But suppose that there were no land which did not
afford a rent; then, the amount of rent on the worst land would be in
proportion to the excess of the value of the produce above the
expenditure of capital and the ordinary profits of stock: the same
principle would govern the rent of land of a somewhat better quality, or
more favourably situated, and therefore the rent of this land would
exceed the rent of that inferior to it, by the superior advantages which
it possessed; the same might be said of that of the third quality, and
so on to the very best. Is it not then as certain that it is the
relative fertility of the land which determines the portion of the
produce which shall be paid for the rent of land, as it is that the
relative fertility of mines determines the portion of their produce,
which shall be paid for the rent of mines?

After Adam Smith has declared that there are some mines which can only
be worked by the owners, as they will afford only sufficient to defray
the expense of working, together with the ordinary profits of the
capital employed, we should expect that he would admit that it was these
particular mines which regulated the price of the produce. If the old
mines are insufficient to supply the quantity of coal required, the
price of coal will rise, and will continue rising till the owner of a
new and inferior mine finds that he can obtain the usual profits of
stock by working his mine. If his mine be tolerably fertile, the rise
will not be great before it becomes his interest so to employ his
capital; but if it be less productive, it is evident that the price must
continue to rise till it will afford him the means of paying his
expenses, and obtaining the ordinary profits of stock. It appears, then,
that it is always the least fertile mine which regulates the price of
coal. Adam Smith, however, is of a different opinion: he observes, that
"the most fertile coal mine too regulates the price of coals at all the
other mines in its neighbourhood. Both the proprietor and the undertaker
of the work find, the one that he can get a greater rent, the other,
that he can get a greater profit, by somewhat underselling all their
neighbours. Their neighbours are soon obliged to sell at the same price,
though they cannot so well afford it, and though it always diminishes,
and sometimes takes away altogether, both their rent and their profit.
Some works are abandoned altogether; others can afford no rent, and can
be wrought only by the proprietor. " If the demand for coal should be
diminished, or if by new processes the quantity should be increased, the
price would fall, and some mines would be abandoned; but in every case,
the price must be sufficient to pay the expenses and profit of that mine
which is worked without being charged with rent. It is therefore the
least fertile mine which regulates price.