Title: Principles of Political Economy, Vol. 2
Author: Wilhelm Roscher
Translator: John J. Lalor
Release date: January 23, 2012 [eBook #38655]
Most recently updated: January 8, 2021
Language: English
Credits: Produced by Frank van Drogen, Carol Brown, Gwen Adams,
Elizabeth Oscanyan, and the Online Distributed Proofreading
Team at https://www.pgdp.net.
(From the French)
Entered according to Act of Congress, in the year
eighteen hundred and seventy-eight,
By CALLAGHAN & CO.,
In the office of the Librarian of Congress, at Washington, D. C.
DAVID ATWOOD, STEREOTYPER AND PRINTER, MADISON, WIS.
RECEIPTS.—INCOME.—PRODUCE.
The idea covered by the word receipts (Einnahme) embraces all the new additions successively made to one's resources within a given period of time.[144-1] Income, on the other hand, embraces only such receipts as are the results of economic activity. (See §§ 2, 11.) Produce (Ertrag, produit) is income, but not from the point of view of the person or subject engaged in a business of any kind, but from that of the business itself, or of the object with which the business is concerned, and on which it, so to speak, acts.
Income is made up of products, the results of labor and of the employment and use of resources. These products, the producer may either consume himself or exchange against other products, to satisfy a more urgent want.[144-2] Hence, spite of the frequency with which we hear such expressions as these: "the laborer eats the bread of his employer;" "the capitalist lives by the sweat of the brow of labor;" or, again, a manufacturer or business man "lives from the income of his customers,"[144-3] they are entirely unwarranted. No man who manages his own affairs well, or those of a household, lives on the capital or income of another man; but every one lives on his own income, by the things he has himself produced; although with every further development of the division of labor, it becomes rarer that any one puts the finishing stroke to his own products, and can satisfy himself by their immediate consumption alone. Hence we should call nothing diverted or derived income except that which has been gratuitously obtained from another.[144-4]
[144-1] Including of course, gifts, inheritances, lottery prizes, etc.
[144-2] Thus the original income of the peasant consists in his corn, of the miller in his flour, of the baker in his bread, of the shoemaker in his shoes. The money which circulates among all these and the purchaser, is only the means of exchanging that part of their products which they cannot themselves use, for other goods. Money, on the other hand, was the original income of the producers of the gold or silver it contains. Compare Mirabeau, Philosophie rurale, 1763, ch. 3. Adam Smith, II, ch. 2. But especially, see J. B. Say, Traité II, ch. 1, 5; and Sismondi, N. P., I, 90, 376, in which it is correctly said, that the quality which constitutes anything capital or income does not inhere in the thing itself, but depends on the person. Compare, however, I, 148; Hermann, Staatsw. Untersuch. 297 ff., 33 seq.
[144-3] A fundamental thought in St. Chamans, Du Système d'Impôt, 1820. Nouvel Essai sur la Richesse des Nations, 1824.
[144-4] Thus, for instance, the support given by the head of a family to the members thereof; also gifts, alms, thefts. Even A. L. Schlözer, St. A., II, 487, will allow that no one "eats the bread of another," but the person who has received it from the latter by way of favor and for nothing. In the case of a rented house, there is only an exchange of objects of income. The person to whom it is rented gives up a portion of his, and the renting party the use of his house. Similarly, in the case of personal services. Writers who maintain that only certain kinds of useful labor are productive, must of course extend the limits of diverted income much farther. See Lotz, Handbuch, III, § 133; Rau, Lehrbuch, I, §§ 248, 251. Cantillon thinks that if no landowner spent more than his income, it would be scarcely possible for any one else to grow rich. (Nature du Commerce, 75.) According to Stein, Lehrbuch, 347, every one gets his income from the income of other people!
INCOME.—GROSS, FREE AND NET.
In all income, we may distinguish a gross amount, a net amount and a free amount.[145-1] The gross income of a year, for instance, consists of all the goods which have been newly produced within that time. The net[145-2] income is that portion of the former which remains after deducting the cost of production (§ 106), and which may therefore be consumed without diminishing the original resources. Only the new values incorporated in the new commodities make up the net income. Evidently, a great portion of what is considered in one business the cost of production is net income in a great many others; as for instance, what the person engaged in one enterprise in production has paid out in wages and interest on capital. By means of this outlay, a portion of his circulating capital is drawn by others as income, and, on the other hand, a portion of their original income is turned into a portion of his circulating capital.[145-3] Free income, I call that portion of net income which remains available to the producer after his indispensable wants have been satisfied.
An accurate kind of book-keeping which keeps these three elements of income separate is more generally practicable[TN 1] as civilization advances. We might call it the economic balance. Where commerce is very thriving it is even customary to provide by law that those classes who need it especially should have this species of book-keeping. People in a lower stage of cultivation, with their poetical nature, are unfriendly to such calculations.[145-4] [145-5] And where natural-economy (Naturalwirtschaft) or barter prevails, a book-keeping of this kind of any accuracy is scarcely practicable. The ratio which net income bears to gross income is a very important element to enable us to judge of the advantageousness of any method of production. If every producer should succeed in consequence of keeping his books in this manner, in determining exactly the cost to him of each of his products, this would be an economic progress similar to that of general spread of good chemical knowledge in the arts. On the amount of free income, on the other hand, depends all the higher enjoyment of life, all rational beneficence, and the progressive enrichment of mankind.[145-6]
[145-1] Similarly in Sismondi, N. P., II, 330, and Rau, Lehrbuch, I, § 71, a.
[145-2] Called by Hermann, loc. cit., simply income.
[145-3] This truth J. B. Say has exaggerated to the extent of claiming that gross and net income are one and the same so far as entire nations are concerned. (Traité, II, ch. 5; Cours pratique, III, 14; IV, 74.) But the gross profit of the entire production of any one year is much greater than the simultaneous net income of all the individuals engaged in it. This is accounted for by the fact that in such production an amount of circulating capital is invested which was saved from the net profit of previous economic times. Compare Storch, Nationaleinkommen, 90 ff. Kermann, loc. cit., 323 ff.
[145-4] In the East, a valuation by one's self of his property is considered a guilty kind of pride, usually punished by the loss of one's possessions. (Burckhardt, Travels in Arabia, I, 72 ff.) See Samuel, 24, on the census made by David. The Egyptians, however, as may be inferred from their monuments, must have very early and very extensively felt the want of some kind of book-keeping such as we have mentioned. A very accurate sort of book-keeping among the more highly[TN 2] cultured Romans, with a daily memorandum and a monthly book with entries from the former (adversaria-tabula expensi et accepti). Compare Cicero, pro Roscio, com. 2, 3; pro Cluent, 30; Verr., II, 1, 23, 36. The Latin putare, from putus, pure, means: to make an account clear, and therefore corresponds to the American provincialism, "I reckon," i. e., I believe; and is a remarkable proof of a rigid method of keeping accounts. The Italian, or so-called double-entry method of book-keeping, which gives the most accurate information on the profit from every separate branch of business, became usual among the nations of modern Europe whose civilization was the first to ripen, about the end of the fifteenth century. Its invention is ascribed to the monk Luca Paciolo di Borgo S. Sepolcro.
In England, this kind of book-keeping is very gradually coming into use even among farmers, while Simond, Voyage en Angleterre, 2 ed., II, 64, Dunoyer, Liberté du Travail, VIII, 5, say, "it would in France be considered as ridiculous as the book-keeping of an apple vendor." In Germany, there have been for some time past, manufactories of commercial books. Besides, the remarkable difference brought out by the income tax in England between the exact statements made by large manufacturers, etc., and by those engaged in industry on a medium or small scale, bears evidence of the better way in which the former keep their accounts, the cause and effect of their better business in general. Compare Knies, in the Tübing. Zeitschr., 1854, 513. On the best mode of determining income, see Cazaux, Eléments d'Économie publique et privée, Livre, II. It is especially necessary to keep an account of the increase or diminution, even when accidental, of the value of the fixed capital employed.
[145-5] The Code de Commerce, I, art. 8, requires that every merchant should keep a journal, paged and approved by the authorities, showing the receipts and disbursements of each day, on whatever account, and also the monthly expenditures of his family. Besides, he is required to make a yearly inventory of his debits and credits, subscribe to it and preserve it. That such books were excellent judicial evidence may be shown by Italian statutes of the fourteenth century. (Martens, Ursprung des Wechschrechts, 23.) Those of Germany even in 1449. (Hirsch, Danziger Handelsgeschichte, 232.)
[145-6] Importance of the so-called "transferring to credit," where a business man considers his business as an independent entity and as distinct from himself.
NATIONAL INCOME.—ITS STATISTICAL IMPORTANCE.
Among the most important[146-1] but also the most difficult objects of statistics, that book-keeping of nations, is national income. In estimating it, we may take our starting point from the goods which are elements of income, or from the persons who receive them as income.[146-2]
In the former case the gross national income consists:
A. Of the raw material newly obtained in the country.
B. Of imports from foreign countries, including that which is secured by piracy, as war-booty, contributions, etc.
C. The increase of values which industry[146-3] and commerce add to the first two classes up to the time of their final consumption.
D. Services in the narrower sense and the produce (Nutzungen) of capital in use.
All these several elements, estimated at their average price in money, which supposes that all purchases, especially those under the head D, are made voluntarily[146-4] and at their natural price.
To find the national net income, we must deduct the following items:
A. All the material employed in production which yields no immediate satisfaction to any personal want.[146-5]
B. The exports which pay for the imports.
C. The wear and tear of productive capital and capital in use.
In the second case the net national income is to be calculated from the following items:
A. From the net income of all independent private businesses etc.[146-6]
B. From the net income of the state, of municipalities, corporations and institutions, derived from their own resources.
C. Under the former heads must be taken into the account such parts of property as have been immediately consumed and enjoyed.[146-7]
D. Interest on debt must be added only on the side of the creditor, and deducted from the income of the debtor; otherwise, error dupli. This does not apply to taxes or church dues because the subjects of a good state and members of a good church purchase thereby things which are really new and of at least equal value to the outlay. Besides, in both instances, it is necessary to calculate the number of men who live from the national income, the average amount of their indispensable wants, and the average price in money of the same, in order to determine the free national income by deducting the sum total of these average wants, estimated at this average price.[146-8] [146-9]
[146-1] Not only to compare the happiness and power of different nations with one another, but also for purposes of taxation, the profitableness and innocuousness[TN 3] of which suppose the most perfect adaptation to the income of the whole people.
[146-2] The former, in Rau, Lehrbuch, I, § 247; the latter in Hermann, 308 ff. The former mode of calculation gives us a means of judging of the comfort of the people, their control of natural forces, etc.; the second, of the relation of classes among the people. (v. Mangoldt, Grundriss, 99. V. W. L., 316 ff.) Each member of the nation produces his income only in the whole of the nation's economy. Hence Held, Die Einkommensteuer, 1872, 70, 77, would, but indeed only under very abstract fictions, construct private income from the national, and not vice versa.
[146-3] On the average degree of this increase of values in different industries, see Chaptal, De l'Industrie française, II, passim. Bolz, Gewerbekalender für, 1833, 111. No such scale can be lastingly valid, because, for instance, almost all technic progress decreases the appreciation of values through industry, and every advance made by luxury raises the claims to refined quality etc. See Hildebrand, Jahrbücher für Nat-Oek., 1863, 248 ff.
[146-4] Many items in Class D evade all calculation. Thus, for instance, the numberless cases of personal services which are enjoyed only by the doer himself; also the greater number of products (Nutzungen=usufruct) of capital in use for the consumption of the owner himself. (Latent income.) Only, it may be, in the case of dwelling houses, equipages, etc., that the consumption by use can be estimated in accordance with the analogy of similarly rented goods.
[146-5] The principal materials consumed in manufactures are of course not to be deducted here, because the increase in their value was taken into account above.
[146-6] When an artist who earns $10,000 per annum appears in a country, the gross national income increases in a way similar to that in which it increases when a new commodity is found which would have a yearly increase of value equal to $10,000 over and above that of the raw material. Cost of production in the case of such a virtuoso is scarcely to be alluded to. Nearly his entire income, with the exception of his traveling expenses, etc., is net, and the greater portion of it free. An income tax would affect his hearers after as it did before, and in his income, find a completely new object. Per contra, see Saggi economici, I, 176 f.
[146-7] For purposes of taxation, where a relative valuation is more the question than an absolute one, it would be sufficient to assume that every household consumed clothing, utensils, etc., in proportion to the rest of their income. Hence, these items might, unhesitatingly, be omitted altogether.
[146-8] Mathematically demonstrated by Fuoco, Saggi economici, II, 102 ff.
[146-9] The gross income of British Europe is estimated by Pebrer, Histoire financière et statistique générale de l'Empire Br., 1834, II, 90, at £514,823,059, viz.: agriculture, £246,600,000; mining, 21,400,000; manufactures, after deduction made of the raw material, £148,050,000; internal and coast trade, £51,975,060; foreign commerce and navigation, £34,398,059; banking, £4,500,000; interest from foreign countries, £4,500,000. By Moreau de Jonnés, Statist de la Gr. Br., 1837, I, 312, it is estimated at 18,000,000,000 francs, from which, however, the raw material used in industry is not deducted. The net income of Great Britain was estimated by Pitt, in 1799, at £135,000,000, of which £25,000,000 were received by landowners for rent, £25,000,000 by farmers, £5,000,000 were tithes, £3,000,000 from forests, canals, and mines, £6,000,000 from houses, £15,000,000 from state funds, £12,000,000 from foreign commerce, £28,000,000 from inland commerce and manufactures, £3,000,000 from fine arts, £80,000,000 from Scotland, £5,000,000 from foreign countries. (Gentz, Histor. Journ., 1799, I, 183 ff.) Lowe, England in its present Situation, 1822, p. 246, speaks of 255,000,000. About 1860, the incomes subject to taxation alone, that is, all above £100, amounted to 335,000,000. The remainder was certainly worth one-half of this. (Statist. Journ., 1864, 121.) Baxter, in 1867, assumed it to be £825,000,000. Compare L. Levi, on Taxation, 6.
In France, about forty years ago, according to Chaptal, Doudeauville, Balbi and others, about 6,500,000,000 francs gross national income could be counted on. Schnitzler speaks of 7,000,000,000 francs (Creation de la Richesse en France, 1842, I, 392), after deduction made of the raw material of manufacture. According to Wolowski, Statistique de la Fr., 1847, it was more than 12,000,000,000 francs. M. Chevalier, Revue des deux Mondes, March 15, 1848, has it 10,000,000,000 at most. In these four estimates, only material products are taken into account. Ch. Dupin thinks the income per capita was, in 1730, = 108 francs; in 1780, = 169; in 1830, = 269. Cazeaux, Eléments, 163, estimated the net national income, in 1825, at 5,000,000,000 francs; Cochut, in 1861, at 16,000,000,000. (Revue des deux Mondes, XXXVII, 703.)
In Spain, Borrego, Nationalreichthum, etc. Spaniens, 1834, 33, estimated the income from agriculture at 2,284,000,000 francs; from industry, etc., 361,000,000; commerce, 124,000,000; from houses, 186,000,000; canals, streets etc., 8,500,000; personal services, 75,000,000; money in circulation (probably loaned capital), 85,000,000.
In the United States, in 1840, the national income was estimated at over $1,063,000,000; from agriculture, over $654,000,000; from manufactures, nearly $240,000,000; commerce, almost $80,000,000; mining, over $42,000,000; from lumber (Wäldern), almost $17,000,000; and from the fisheries, almost $12,000,000. The per capita amount of income was $62. It was largest in Rhode Island—$110; in Massachusetts it was $103; in Louisiana, $99; and in Iowa, smallest, $27; in Michigan, it was $33. Compare Tucker, Progress of the United States, 195 ff. The census of 1860 assumes the national wealth, slaves not included, at $14,183,000,000, that is $451 per capita, with a per capita annual income of $112. According to Czörnig, the gross income of Austria, from agriculture, the chase and fisheries, in 1861, was 2,119,000,000 florins; from mining, 41,000,000; from the industries, 1,200,000,000. In Prussia, the net national income, not including the revenue from state property, nor the income of the royal household, seems, from the returns of the income and class tax, to have been about 2,458,000,000 thalers, in 1874. Engel, Preuss. Statist. Ztschr., 1875, 133. The majority of the above estimates are obviously unreliable.
NATIONAL INCOME.—ITS STATISTICAL
IMPORTANCE.
(CONTINUED.)
The question frequently discussed, whether it is more advantageous to increase the gross income or the net income[147-1] of a people, may be readily answered with the assistance of our tripartite division. Since economic production has no other object than the satisfaction of human wants, the mere increase of the gross income of a people is a matter of indifference. An increase of the net income puts a people in a condition to increase either their numbers or their enjoyments. (See §§ 163 and 239.) The most desirable condition is where both these results are produced. It is fortunate for a people when the free income of the nation increases by reason of the absolute or relative decrease of the cost of production, which adds nothing to enjoyment. But it is politically and morally to be lamented when it increases at the expense of the satisfaction of man's necessary wants, especially if the majority of the people deny themselves in this respect to produce that end. Sir Thomas More called the sheep of his time, to make place for which so many farm houses were razed to the ground, ravenous beasts, which devoured men and laid waste city and country.[147-2]
[147-1] The greater number of writers, at bottom, understand by this question only whether greater efforts should be made to increase the wages of the lower classes or the rent and rate of interest on capital paid to the higher. (Schmoller, in the Tüb. Zeitschrift, 1863, 22.)
[147-2] The difference between gross and net income was introduced into the science principally by the Physiocrates. Vauban (1707) had no conception of it, and thirty years later a French minister, in his instructions concerning the levy of the vingtièmes, dimly seeing that the aggregate amount of the harvest was not clear gain, ordered, to obtain the latter, that the cost of reaping and threshing should be deducted. (Dupont, Correspondence of J. B. Say, 404, éd. Daire.) By produit net, Quesnay means the excess of original production over its cost, considered from the personal point of view of the individual landowner. This excess, it is claimed, can alone increase the national wealth and alone support the "steril" class.
The political and military bearing of this very clearly recognized. (102 ff., éd Daire.) Hence Quesnay, favors it in every way; by large farming instead of small, by stock raising on a large scale, supplanting home labor by cheaper foreign labor, by machinery and the employment of manual labor, etc.; 91 ff., 200 ff., 274 ff. The elder Mirabeau teaches even that the goodness of a government or of a constitution, and even national morality may be inferred from the amount of the produit net. (Ph. rurale, ch. 5.) Stewart, Principles, I, ch. 20. Adam Smith gives greater prominence to the gross income, and grades the principal branches of national labor according as they increase the gross product of the nation's economy. (II, chs. 1, 5.) Similarly, J. B. Say, Traité, ch. 8, § 3; Lauderdale, Inquiry, 142.
Ricardo thoroughly reacts against this view, and considers it a matter of indifference whether a net product (interest on capital and rent) of a given amount be obtained by the labor of five or seven million other men, so long as only five million can live on it. (Principles, ch. 26.) Similarly Ganilh, Systèmes, I, 218 ff.; Théorie, II, 96. Controverted by Malthus, Principles, II, § 6. Buquoy, Theorie der Nat. Wirthsch., 1815, 310 ff. Sismondi has ridiculed this predilection for the net product which in Ricardo corresponds with what the Germans call free product (freien Ertrage), and which, contrary to Ricardo's own opinion, he calls Ricardo's ideal, saying that according to him, nothing more was to be desired but that "the king should remain alone on the island and, by turning a crank forever, do all the work of England through the instrumentality of automata." (N. P., II, 330 ff.) An entire people should value only gross product. (I, 183.) In his Etudes, Essai, II: Du Revenu Social, Sismondi distinguishes as elements of the gross national income: a, pure capital, the return of outlay; b, that which is at once both capital and income, and serves as family support (capital as a necessarily remaining supply, income as the product of the preceding year); c, net income, the excess of production over consumption.
The Socialists of our day would prefer to see the whole net income of a people employed in the satisfaction of the necessary wants of an ever increasing population. By this procedure, as a natural consequence, we should witness first the curtailing of the taxing power, of the funds for the satisfaction of the more refined wants and of the saving of capital, nor would it be long before even the existing generation would experience the bitterness of this "living from hand to mouth." After a time, even the possibility of progress and even of mere increase of population would cease.
Hermann, Staatsw. Untersuch., 297 ff., has better than almost any one else developed the theory of income, and he lays most stress on the satisfaction of wants as the chief aim of public economy. Kröncke, Das Steuerwesen, 1804, 381 ff.; Grundsätze einer gerechten Besteuerung, 1819, 93 f., may be considered the predecessor who prepared the way for him. Compare the profound work of Bernhardi, Versuch einer Kritik der Gründe die für grosses und kleines Grundeigenthum angeführt werden, St. Petersburg, 1848. Many controversies on this subject may be closed by a more accurate understanding as to terms. Thus, for instance, when Rau, Handbuch, embraces in the cost of production the necessary maintenance of material-workmen, and of those engaged in the labor of commerce; or when Jacob, Staatswissenschaft, § 496, and Storch, Einkommen, 116 ff., even the necessary support of every class useful to society, their valuation of the gross national income is in only apparent conflict with our doctrine on the subject.
THE TWO PHASES OF INCOME.
In every income which has anything to do with other incomes, it is necessary to distinguish its immediately productive side, and its profit or acquisition side. It is necessary, in the first place, that all the products made by private parties should, so to speak, be put into the common treasury of the national economy, and that each should thence draw his own private revenue. Justice requires that there should be a perfect correlation between the two; that each should enjoy precisely the quota of the national income to the production of which his person or his property contributed. A just appreciation of the relative productive power of the divers branches of labor constitutes one of the chief bulwarks against the inroads of destructive socialistic theories. The person who calls a good doctor or a good judge unproductive should, to be consistent, call those who by their greater intelligence are fitted to superintend agricultural and industrial enterprises unproductive, also, as is done by the coarser socialists with their apotheosis of mere manual labor. Unfortunately, such a settlement as is above contemplated among the different factors of production, whose owners are desirous to divide the common product among them, is possible only where the factors of production are either of the same kind, or can be reduced to a common denominator.[148-1] But if justice pure and simple were meted out, no man could subsist. Love or charity must supplement justice in order to assist those (and especially such as without any fault of theirs) who are not able to produce anything, or enough to supply those wants, for instance, children and the poor.
As the net national income, following the three great factors of all economic production, is divided into three great branches, rent, wages and interest on capital, the net income from any private business may be reduced to one or more of these branches.[148-2] The three great branches of income may be considered with advantage from a great many different points of view. We may inquire in the case of each of them: concerning its absolute magnitude, its relation to the aggregate national income, to the magnitude of the factor of production, of which it constitutes the remuneration; by what number of men it is shared, and what number of wants it satisfies.[148-3] Lastly, the difference between the amount stipulated for, and the original amount of both rent and wages, as well as the interest of capital, is of special importance. The former consists in the price paid by the borrower for the use of the factor of production to the owner; the latter in the immediate products which the employment of the same productive power brings on one's own account. Evidently, the original amount is, in the long run, the chief element in the determination of the stipulated amount. While the former depends more on the deeper and more durably effective elements of price, especially the cost of production, the value in use and the paying capacity of purchasers; the latter is conditioned more by the superficial variations of supply and demand, and even by custom. For our purposes, the former is by far the more important, but, at the same time, by far the more difficult to perceive.
[148-1] This is possible between labor and capital, at least in so far as a comparison can be instituted between the sacrifice of human rest there is in labor and the sacrifice of enjoyment in the building up of capital. But the person who introduces an entirely unimproved piece of land into the service of production, stands to the laborer as well as to the capitalist in a relation which is entirely incomparable with any other. (See § 156.) The doctrine of former agriculturists, that one-half of the harvest was to be ascribed to the soil and the other to the manure, would not suffice here, even if it were correct. Compare Fraas, Gesch. der Landbau- und Forstwissenschaft, 257. But in the production of a calf, the coöperation of a bull and cow are necessary. Yet no one is in condition to determine what portion of the calf is to be accounted as belonging to either. If the bull and cow belong to different owners, the relation of supply and demand, and the deeper causes that determine them, decide in what proportion the value of the calf is to be divided among them.
[148-2] Among the greatest services rendered by Adam Smith is, his complete demonstration, that any income may be resolved into one or more of the three great branches of the national income. (I, ch. 6.)
[148-3] Ricardo has not unfrequently bewildered uncritical readers, by his habit—in which he is by no means always consistent—of using the expressions higher and lower wages, higher and lower profit of capital, to designate not the absolute greatness of these branches of income, either in money or in the wants of life, nor their greatness from a personal point of view, but only their relative greatness as compared with the aggregate income, the measure of the quota of the aggregate product which is divided among workmen, capitalists, etc. And yet, in the case of most economic questions, this is without doubt the less interesting side. Compare the polemic of R. Jones, On the Distribution of Wealth, 1831, I, 288 ff.; Senior, Outlines, 142 seq.; Carey, On the Rate of Wages, 1834, 24. Thus, according to Ricardo, the increase of one branch is possible only at the expense of another, while in the case of flourishing nations, the three branches increase absolutely and together. Ricardo, himself, was by no means unacquainted with this, as may be seen from Baumstark's German translation of his work, pp. 37, 108 ff.
THEORY OF RENT.
Rent is that portion of the regular net product of a piece of land which remains after deducting the wages of labor and the interest on the capital usual in the country, incorporated into it.[149-1] Hence it is the price paid for the using of the land itself, or for what Ricardo calls the original inexhaustible forces of the soil which are capable of being appropriated.[149-2] This price also depends, of course, on the relation between demand and supply; the demand in turn, on the wants and means of payment of buyers, but the supply by no means on cost of production, which, from the definitions above given, is here unthinkable. However, land has this in common with other means of production, that its price is mainly determined by that of its products.
[149-1] According to von Thünen, Der isolirte Staat. in Beziehung auf Landwirthschaft und Nat. Oek, 1850, I, 14: "what remains of the revenue of an estate after deducting the interest on all the objects of value which may be separated from the soil." According to Whately, it is surplus profit. The expression "regular product" supposes, among other things, an average skillfulness of the economic individual. Thus, for instance, the farm-rent of a piece of land generally includes besides the real rent of the land, interest on much capital which is more or less firmly fixed in the soil. The importance of the latter may be approximately determined from the fact that in the electorate of Hesse, for instance, the value of all meadow lands, woods, and agricultural lands is estimated at from 205 to 206 millions of thalers, and the value of all the houses at 100 millions. (Hildebrand, Statist. Mittheil. über die volkswirthschaftlichen Zustände Kurhessens, 1852, 37.) In the English income tax of 1843, the annual value of all lands in Great Britain was estimated at over 45 millions sterling, that of all houses at over 38 millions. However the farm-rent of a piece of land does not by any means always embrace the entire rent. A part of the rent is paid to the state in the form of taxes, and another portion to the payment of tithes. Short leasehold terms, frequent land sales, the comparatively great difficulty of disengaging capital invested in the cultivation of land, the union of landed proprietor, capitalist and laborer in one person easily obscure the law of rent.
[149-2] The stores of immediate plant food in a piece of land, of minerals in a mine, of salt in a salt mine, etc., are subject to the law of rent only in so far as they may be considered inexhaustible; that is, they are not, strictly speaking, subject to it. Our definition applies all the more to the capacity for cultivation, and of support or bearing capacity mentioned in § 35; and hence it is easier to follow the law of rent in the case of land used for building purposes than for agriculture. When v. Mangoldt claims that the exhaustibility or inexhaustibility of the soil has nothing to do with rent so long as it flows evenly (so lange sie eben fliesst) he is in harmony with his own general conception of rarity-premiums (Seltenheitsprämien).
THEORY OF RENT.
(CONTINUED.)
Agricultural products of equal quantity and quality are produced on pieces of land of unequal fertility, even when the same amount of skill is displayed by the husbandman, with very different outlays of capital and labor.[150-1] And yet the price of these products in the same market is uniformly the same. This price must, on the supposition of free and intelligent competition, be, in the long run, at least high enough to cover the cost of production on even the worst soil (the margin of cultivation according to Fawcett), which must be brought under cultivation in order to satisfy the aggregate want. (See § 110.) This worst land need yield no rent.[150-2] The better land which, with an equal outlay of labor and capital, produces a greater yield, furnishes an excess over the cost of production.[150-3] This excess is rent, which, as a rule, is obviously higher in proportion as the difference in fertility between the worst and the better land is greater. The person who cultivates the land of a stranger may unhesitatingly turn this rent over to the owner; since, notwithstanding his so doing, all that he has himself contributed to production in labor and capital of his own, returns to him entire in the product.[150-4]
According to § 34, a continual increase in the amount of labor and capital lavished on the fertilization of land, agricultural science remaining the same, leads, sooner or later to this, that every new addition of capital or labor becomes relatively less remunerative than the preceding.[150-5] The worse the land is, the sooner is this point reached. Hence, it necessarily happens that, with an increase in the aggregate want of agricultural products, greater and greater amounts of labor and capital are employed in the further fertilization of land, and that there comes to be a greater difference between the fertility of the worst and better lands, in consequence of which the rent of the latter rises.[150-6]
[150-1] Flotow, Anleitung zur Abschätzung der Grundstücke nach Klassen, 1820, 50 ff., estimates the cost of production of a scheffel of rye on land of the first class, at scarcely 1½ thalers; on land of the tenth class, at 3 thalers. In Hanover, it is estimated that about 60 per cent. of the land devoted to gardening and agricultural products produces only from 2 to 4 times the quantity of seed sown; over 35 per cent. from 5 to 8 times, and 4.5 per cent. from 9 to 12 times. (Marcard, Zur Beurtheilung des Nat. Wohlstandes im Königreich Hanover, Tab. 3.) In Prussia, the rates of net produce adopted by the central commission in 1862 vary from 3 to 420 silver groschens per morgen, in the case of agricultural land; from 6 to 420 in the case of meadow land; in the case of pasturage, from 1 to 360. (v. Viebahn, Statist. des Zollvereins, II, 966.) In England, parliamentary investigations (1821) have shown that the best land produces from 32 to 40, and the worst from 8 to 12 bushels per acre of wheat. (Edinburgh Review, XL, 21.) As to the influence of the elevation of land, the royal Saxon commission for the assessment of the value of land, estimated that the net product of an acre of land at a height above the level of the sea,