No More Learning

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.


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.