[330] We must note the fact that the law of diminishing returns was already implied in the second of the famous progressions given by Malthus, for an arithmetical progression that shows an increase of one every twenty-five years implies an addition slower than the growth of the series itself, i.e. slower than the movement of time. Let us take land that yields one; in twenty-five years it will yield two, an increase of 100 per cent. But this is only the first step. At the end of another twenty-five years it will yield three, the increase being always one. But the increase from two to three means an increase of only 50 per cent., from three to four of only 33 per cent., and so on to 25 per cent. and 20 per cent. When the hundredth place has been reached, the increase will only be 1 per cent., and it will continue to fall farther, only more slowly.
[331] Ricardo gives a slightly different explanation. “If with a capital of £1000 a tenant obtains 100 quarters of wheat from his land, and by the employment of a second capital of £1000 he obtains a further return of eighty-five, his landlord would have the power at the expiration of his lease of obliging him to pay fifteen quarters, or an equivalent value for additional rent, for there cannot be two rates of profit.” (Principles, ed. Gonner, p. 48.) He means to say that if profits fall because new capital is less productive than old, rent must necessarily appear, because by definition rent is what remains of the produce after deducting profits and wages. This explanation closely resembles that one given by West in his Application of Capital to Land, published in 1815, and Ricardo was not above acknowledging his indebtedness to West.
[332] Shortly afterwards a German landowner published a book dealing with just that side of the problem of rent which had been neglected by Ricardo, namely, the influence of distance from a market upon cultivation and the price of products. We are referring to Thünen, who in his book Der Isolerte Staat (vol. i, 1826) draws a picture of a town surrounded by a belt of land, and shows how cultivation will be distributed in concentric zones around that centre, and how the kind of cultivation adopted will be a function of the distance.
[333] But the honour of discovering this law, which is so important for an understanding of exchange value, does not belong entirely to Ricardo. Forty years before a humble Scotch farmer named Anderson had observed the phenomenon and given a very satisfactory analysis of it in his book Observations on the Means of Exciting a Spirit of National Industry (1777). “Now as the expense of cultivating the least fertile soil is as great or greater than that of the most fertile field, it necessarily follows that if an equal quantity of corn, the produce of each field, can be sold at the same price, the profit on cultivating the most fertile soil must be much greater than that of cultivating the other, and as this continues to decrease as the sterility increases, it must at length happen that the expense of cultivating some of the inferior soils will equal the values of the whole produce.” (Quoted by Jevons, Theory of Political Economy, p. 229.) Anderson’s name was forgotten until quite recently, when it attracted a certain amount of attention among the pioneers of Ricardo. Ricardo himself does not seem to be aware of his existence; at least he never quotes him. The only two writers mentioned by Ricardo are Malthus and West.
[334] “In speaking, however, of labour as being the foundation of all value, and the relative quantity of labour as almost exclusively determining the relative value of commodities, I must not be supposed to be inattentive to the different qualities of labour.” (Principles, ed. Gonner, p. 15.)
[335] Hume had already pointed out the objection to this view. Cf. p. 64, footnote.
[336] “If fixed capital be not of a durable nature it will require a great quantity of labour annually to keep it in its original state of efficiency, but the labour so bestowed may be considered as really expended on the commodity manufactured, which must bear a value in proportion to such labour.” (Principles, ed. Gonner, p. 32.)
[337] In a note on Section VI, chap. 1, he adds: “Malthus appears to think that it is a part of my doctrine that the cost and value of a thing should be the same—it is, if he means by cost, cost of production including profits.” (Ibid., p. 39.)
[338] Still we must note that Ricardo and Karl Marx, like everyone who has tried to base a theory of value upon labour, tacitly assume the operation of the law of demand and supply in order that their theories may fit in with the facts.
[339] But how was it that he never realised that land at least in any given country, and indeed for that matter over the whole world, is simply a kind of wealth “of which no labour could increase the quantity”?
[340] “The dealings between the landlord and the public are not like dealings in trade, whereby both the seller and the buyer may equally be said to gain, but the loss is wholly on one side and the gain wholly on the other.” (Principles, ed. Gonner, p. 322.) And so when a proprietor sells corn to a consumer it is not of the nature of an ordinary bargain where both parties gain something. The consumer gets nothing in return for what he gives, i.e. for what he gives over and above what it has cost to produce the corn. To get nothing in return for something given is the kind of transaction that generally goes by the name of theft.
Ricardo soon finds a reply to the comfortable doctrine of Smith, that the interests of the landlords are nowhere opposed to those of the rest of the community. “The interest of the landlord is always opposed to that of the consumer and manufacturer. Corn can be permanently at an advanced price only because additional labour is necessary to produce it, because its cost of production is increased. It is therefore for the interest of the landlord that the cost attending the production of corn should be increased. This, however, is not the interest of the consumer.… Neither is it the interest of the manufacturer that corn should be at a high price, for the high price of corn will occasion high wages, but will not raise the price of his commodity.” (Ibid., p. 322.)
[341] “Wealth increases most rapidly in those countries where the disposable land is most fertile, where importation is least restricted, and where, through agricultural improvements, productions can be multiplied without any increase in the proportional quantity of labour, and where consequently the progress of rent is slow.” (Principles, ed. Gonner, p. 54.) The contrast between fertile lands, free exchange, and the development of agricultural science on the one hand, and the growth of rent on the other, is very strikingly brought out in this paragraph.
[342] “Rent does not and cannot enter in the least degree as a component part of its price.” (Ibid., p. 55.) And he adds: “The clearly understanding of this principle is, I am persuaded, of the utmost importance to the science of political economy.” It is true that Smith, writing long before this time, had declared that the “high rate of rent is the effect of price,” but he does not seem to have attached any great importance to the remark.
[343] Ricardo wisely admits the possibility of confiscating this rent by means of taxation, the reason for this being that “a tax on rent would affect rent only, it would fall wholly on landlords and could not be shifted to any class of consumers.” (Principles, ed. Gonner, p. 154.) And the argument which he advances in proof of this, namely, that the tax could not be shifted, seems to indicate that this particular kind of revenue is not quite as intangible as that of some other classes in society. But his advocacy is somewhat restrained, for, as he points out, it would be unjust to put all the burden of taxation upon the shoulders of one class of the community. Rent is often the property of people who, after years of toil, have invested their earnings in land. The original injustice, if any, would thus be got rid of in the process of selling the land. This might be a sufficient reason for indemnifying the expropriated, but it is not enough to condemn expropriation altogether.
[344] “Malthus and Ricardo have both proved false prophets and mistaken apostles. The much-vaunted Ricardian law is a pure myth.” (Article by M. de Foville on Les Variations de la Valeur du Sol en Angleterre au XIXe Siècle, in L’Économiste français, March 21, 1908.)
[345] Mr. Robert Thompson, in a paper read before the Royal Statistical Society on December 17, 1907, has shown how the average rent per acre, valued at 11s. 2d. in 1801-5, reached the figure of 20s. in 1841-45, and despite the abolition of protection continued to rise up to 1872-77, when it reached a maximum of 29s. 4d. It then continued to fall until it reached the present amount of 20s. The present figure is double what it was in Ricardo’s time, but considerable deductions are necessary in view of the improvements made in the character of the soil. Thompson, after making these deductions, puts the amount at 15s. 5d., leaving just 4s. 7d. for rent pure and simple. The 11s. for rent at the beginning of the century covered something besides economic rent. Considerable deductions are again necessary, but the amount of capital employed in agriculture was much less then.
One seems justified in saying that in England and even in France and other Protective countries the land has lost both in revenue and value during the last quarter of the nineteenth century almost all that it had gained from the time of Ricardo up till then. But is the recoil sufficient to justify Foville’s description of Ricardo’s vaunted law as a pure myth? We think not. It has the experience of seventy-five years behind it and of twenty-five years against it, that is all. Anyone who would predict a further fall in rent would certainly be running the risk of becoming a false prophet.
[346] “The condition of the labourer will generally decline, and that of the landlord will always be improved.” (Principles, ed. Gonner, p. 79.)
[347] “It generally happens, indeed, that when a stimulus has been given to population an effect is produced beyond what the case requires.… The increased wages are not always immediately expended on food, but are first made to contribute to the other enjoyments of the labourer. His improved condition, however, induces and enables him to marry.” (Principles, ed. Gonner, p. 95.)
[348] “Every suggestion which does not tend to the reduction in number of the working people is useless, to say the least of it. All legislative interference must be pernicious.” (Quoted by Graham Wallas, Life of Francis Place. Place was the author of a book on population which appeared in 1822.)
[349] This is a fundamental distinction upon which Ricardo is always insisting. The greater or smaller quantity of labour employed in the production of corn bears no necessary relation to the worker’s wages. The one is merely a question of production, the other of distribution. The one is the task, the other the reward. But some might ask if the Ricardian theory of value does not state that the value of the product is determined by the quantity of labour necessary for its production, that this value will be subsequently divided between capitalist and worker, and that the greater this quantity the greater will be the share of each. Labour’s share may increase, but not the labourer’s, for we must not forget that when the price of corn goes up from 10s. to 20s. it is because the cultivation of poorer lands requires twice the number of labourers demanded by the better kind of land. Besides, it would be a strange thing to pay a man more as the work becomes less remunerative. All that one could hope for would be that the workers under the new conditions might be able to retain their old standard of life—that is, might be able to purchase the same quantity of bread despite the rise in price.
[350] “Thus, then, I have endeavoured to show that a rise of wages would invariably lower profits.”
“Thus in every case … profits are lowered … by a rise of wages.”
On the inexactness of the term “high rate of profits” as a synonym for a proportionally larger share of the produce see note, p. 162.
[351] Ricardo does not deny this. Indeed, he lays stress upon the fact that he is arguing on the assumption that the value produced remains the same. “I have therefore made no allowance for the increasing price of the other necessaries, besides food of the labourer; an increase which would be the consequence of the increased value of the raw materials from which they are made, and which would of course further increase wages and lower profits.”
[352] But this only means a rise in the nominal or money wage. It does not mean that the worker gets more corn; he only gets the same amount as before, because the price of corn has gone up and it makes no difference whether the man is paid in money or in kind.
[353] “For as soon as wages should be equal to the whole receipts of the farmer, there must be an end of accumulation: for no capital can then yield any profit whatever, and no additional labour can be demanded, and consequently population will have reached its highest point.” (Principles, ed. Gonner, p. 67.)
[354] When speaking of a reduction of capital’s share Ricardo frequently employs the phrase “a lowering of the rate of profits,” or “a fall in the rate of profits.” A fall in the rate is not necessarily synonymous with a reduction of capital’s share, however. The rate of profit simply implies a certain proportion between revenue and capital—5 per cent., for example; there is no suggestion of comparison between the quantities drawn by capitalist and workers respectively. Doubtless we must admit that when the rate of profit is diminished, ceteris paribus, the part drawn by capital relatively to labour’s share also diminishes, but it is clear that if the quantity of capital employed in any industry were to be doubled, or the product halved, capital, even at the rate of 3 instead of 5 per cent., would be drawing a more considerable share and leaving labour with less. Bastiat, as we shall have to note, made the same mistake.
[355] In a letter to Malthus, December 18, 1814, he admits with a sigh of regret that even if a belt of fertile land were added to this island of ours profits would still keep up. Free Trade has added the illimitable zone of fertile land which Ricardo dreamed of, with the result that both profits and rents have fallen.
In his essay On Protection to Agriculture (1822) he shows how Protection, by forcing the cultivation of less fertile lands at home, raises the price of corn and increases rents; and his demand was not for free importation, but for a reduction of the duty to 10s. a quarter.
[356] See An Inquiry into the Nature and Progress of Rent.
[357] Cf. this unexpected remark to which H. Denis has recently drawn attention: “It is evidently impossible for any Government to let things just take their natural course.” (Malthus, introduction to the Principles.)
[358] “Gold and silver having been chosen for the general medium of circulation, they are by the competition of commerce distributed in such proportions among the different countries of the world as to accommodate themselves to the natural traffic which would take place if no such metals existed and the trade between countries were purely a trade of barter.”
[359] Ricardo also points out that “if, which is a much stronger case, we agreed to pay a subsidy to a foreign Power, money would not be exported whilst there were any goods which could more cheaply discharge the payment.” (McCulloch’s edition, p. 269.) As a matter of fact, the European Powers who were leagued against Napoleon were subsidised in this fashion, the exports exceeding the imports by many millions. The indemnity of 5 milliards of francs paid by France to Germany affords another illustration of the same truth.
[360] Ricardo’s works, McCulloch’s edition, p. 287.
[361] Ricardo’s works, McCulloch’s edition, p. 404.
[362] Ibid., p. 349.
[363] S. and B. Webb, History of Trade Unionism, p. 54.
[364] In 1835 Andrew Ure (Philosophy of Manufactures, p. 481) reckoned that in the manufacture of cotton, wool, linen, and silk in England there were employed 4800 boys and 5308 girls below 11 years of age, 67,000 boys and 89,000 girls between 11 and 18 years of age, and 88,000 men and 102,000 women above 18 years; a total of 159,000 boys and men against 196,000 girls and women.
[365] J. B. Say, De l’Angleterre et des Anglais, in Œuvres, vol. iv, p. 213.
[366] Villermé’s report in Mémoires de l’Académie des Sciences morales, vol. ii, p. 414, note. Villermé’s observations were made in 1835 and 1836, although his celebrated work, Tableau de l’État physique et moral des Ouvriers, was not published till 1840. This book is a reproduction of his report to the Academy.
[367] Enquête sur l’Industrie du Coton, 1829, p. 87. Evidence of Messrs. Witz and Son, manufacturers.
[368] Vide Bulletin de la Société, etc., 1828, p. 326-329.
[369] Cf. Rist, Durée du Travail dans l’Industrie française de 1820 à 1870, in the Revue d’Économie politique, 1897, pp. 371 et seq.
[370] Sismondi was a native of Geneva. His family was originally Italian, but took refuge in France in the sixteenth century, and migrated to Geneva after the Revocation of the Edict of Nantes. Here Sismondi was born in 1773. He is even better known for his two great works L’Histoire des Républiques italiennes and L’Histoire des Français than for his economic studies. He was a frequent guest of Mme. de Staël at the Château Coppet, and among the other visitors whom he met there was Robert Owen. He died in 1842.
[371] Nouveaux Principes, vol. ii, p. xxii. Our quotations are taken from the second edition, published in 1827.
[372] Ibid., p. iv.
[373] Two volumes, Paris, 1837 and 1838.
[374] Nouveaux Principes, vol. ii, pp. 50-51. “Adam Smith’s doctrine is also ours, but the practical conclusion which we draw from the doctrine borrowed from him frequently appears to us to be diametrically opposed to his.”
[375] Ibid., p. 56. “Adam Smith recognised the fact that the science of government was largely experimental, that its real foundation lay in the history of various peoples, and that it is only by a judicious observation of facts that we can deduce the general principles. His immortal work is, indeed, the outcome of a philosophic study of the history of mankind.” Cf. also vol. i, pp. 47, 389.
[376] Nouveaux Principes, vol. ii, p. 268. Cf. also pp. 388, 389.
[377] Ibid., p. 56. In several other passages he takes Ricardo to task (vol. i, pp. 257, 300, 336, 366, 423; vol. ii, pp. 184, 190, 218, 329).
[378] Ibid., p. 86.
[379] Études sur Économie politique, preface, p. v. Already in his first work, La Richesse commerciale, he had declared: “Political economy is based upon the study of man or of men. We must know human nature, the character and destiny of nations in different places and at different times. We must consult historians, question travellers, etc.… The philosophy of history … the study of travels, etc., are parallel studies.”
[380] Nouveaux Principes, vol. i, p. 257.
[381] Sismondi’s awkwardness in the manipulation of abstract reasoning is clearly visible in a host of other passages, especially in the vagueness of his definitions. Labour in one place is defined as the source of all revenues (ibid., vol. i, p. 85); elsewhere, as the workers’ revenue as contrasted with interest and rent (vol. i, pp. 96, 101, 110, 113, 114; vol. ii, p. 257, etc.). He never distinguishes between national and private capital, and wages are sometimes treated as capital, sometimes as revenue (p. 379). He constantly uses such vague terms as “rich” and “poor” to designate capitalist and worker (vol. ii, chap. 5). In his explanation of how the rate of interest is fixed he says that the strength of the lenders of capital just balances the strength of the borrowers, and, as in all other markets, they hit upon a proportional mean (vol. ii, p. 36). In a similar fashion he is constantly confusing revenue in kind with money revenue.
[382] “Last year’s revenue pays for the production of this.” (Ibid., vol. i, p. 120.) Farther on he adds: “After all, what we do is to exchange the total product of this year against the total product of the preceding one” (p. 121). Sismondi attached great importance to the distinction between the national revenue and the annual product. “The confusion of the annual revenue with the annual product casts a thick veil over the whole science. On the other hand, all becomes clear and facts fall in with the theory as soon as one is separated from the other.” (Ibid., pp. 366-367.) It is he himself, on the contrary, who creates the confusion.
[383] McCulloch criticised Sismondi in an article in the Edinburgh Review of October 1819. For J. B. Say see pp. 115-117.
With regard to Ricardo, Sismondi relates that in the very year of his death he had two or three conversations with him on this subject at Geneva. In the end he seems to have accepted Ricardo’s point of view, but not without several reservations. “We arrive then at Ricardo’s conclusion and find that when circulation is complete (and having nowhere been arrested) production does give rise to consumption”; but he adds: “This involves making an abstraction of time and place, and of all those obstacles which might arrest this circulation.”
Sismondi defended his point of view against his three critics in two articles reprinted at the end of the second edition of the Nouveaux Principes.
[384] “The accumulation of wealth in abstracto is not the aim of government, but the participation by all its citizens in the pleasures of life which the wealth represents. Wealth and population in the abstract are no indication of a country’s prosperity: they must in some way be related to one another before being employed as the basis of comparison.” (Nouveaux Principes, vol i, p. 9.)
[385] Nouveaux Principes, vol. ii, p. 250. Elsewhere he adds: “Should the Government ever propose to further the interests of one class at the expense of another that class should certainly be the workers.” (Ibid., vol. i, p. 372.)
[386] Cours complet, vol. ii, p. 551.
[387] Nouveaux Principes, vol. i, p. 333.
[388] Ibid., p. 336.
[389] Nouveaux Principes, vol. i, pp. 220-221.
[390] The unanimity is not quite absolute, however. Ricardo in the third edition of his Principles added a chapter on machinery in which he admitted that he was mistaken in the belief that machines after a short period always proved favourable to the interests of the workers. He recognised that the worker might suffer, for though the machine increases the net product of industry it frequently diminishes the total product. He seemed to think that this might happen frequently, but in reality it is quite exceptional.
[391] We may here recall the celebrated winch argument. Suppose, says Sismondi, that England succeeded in tilling her fields and doing all the work of her towns by means of steam power, so that her total products and revenue remain the same as they are to-day, though her population is only equal to that of the republic of Geneva. Is she to be regarded as being richer and more prosperous? Ricardo would reply in the affirmative. Wealth is everything, men nothing. Really, then, a single king, dwelling alone on the island, by merely turning a winch might conceivably automatically perform all the work done in England to-day. One can only reply to this argument by saying that long before arriving at this state the community itself would have devised some machinery for distributing the product between all its members. To suppose that a portion of the population dies of hunger through want of employment while the other part continues to manufacture the same quantity of goods as before is sufficiently contradictory. But at bottom, disregarding the paradoxical form given it by Sismondi, the question set by him is insoluble. What is the best equilibrium between production and population? Are we to prefer a population rapidly increasing in numbers, but making no advance in wealth, to a population which is stationary or even decreasing, but rapidly advancing in wealth? Everyone is free to choose for himself. Science gives us no criterion.
[392] “We have said elsewhere, but think it essential to repeat it, that it is not the perfection of machinery that is the real calamity, but the unjust distribution of the goods produced. The more we are able to increase the quantity of goods produced with a given quantity of labour, the more ought we to increase our comforts or our leisure. Were the worker his own master, after accomplishing in two hours with a machine a task which formerly took him twelve he would then desist from toil, unless he had some new need or were able to make use of a larger amount of products. It is our present organisation and the workman’s servitude that has forced him to work not less but more hours, at the same wage, and this despite the fact that machinery has increased his productive powers.” (Nouveaux Principes, vol. ii, p. 318.) In this passage we have Sismondi’s real opinion on the subject of machinery most clearly expressed.
[393] Wealth of Nations, Book II, chap. 2, in fine.
[394] Nouveaux Principes, vol. i, p. 92.
[395] Études sur l’Économie politique, vol. i, p. 35.
[396] Ibid., pp. 274-275.
[397] Nouveaux Principes, vol. i, p. 103.
[398] On this point we must dissociate ourselves from the interpretation placed upon the passage by M. Aftalion in his otherwise excellent monograph, L’Œuvre économique de Simonde de Sismondi (Paris, 1899), as well as from the view expressed by M. Denis (Histoire des Systèmes économiques, vol. ii, p. 306). But Sismondi’s text appears to us to leave no room for doubt. “As against land we might combine the other two sources of wealth, life which enables a man to work and capital which employs him. These two powers when united possess an expansive characteristic, so that the labour which a worker puts in his work one year will be greater than that put in the preceding year—upon the product of which the worker will have supported himself. It is because of this surplus value [mieux value], which increases as the arts and sciences are progressively applied to industry, that society obtains a constant increment of wealth.” (Nouveaux Principes, vol. i, p. 103.)
[399] Nouveaux Principes, vol. i, pp. 111-112. Cf. also p. 87: “Wealth, however, co-operates with labour. And its possessor withholds from the worker the part which the worker has produced beyond his cost of maintenance—as compensation for the help which he has given him.” It is true that this proportion is a considerable one. “The entrepreneur is bound to leave to the worker just enough to keep him alive, reserving for himself all that the worker has produced over and above this.” (P. 103.) But this is not a matter of necessity—a deduction from the laws of value, as it is with Marx.
[400] “The poor man, by his labour and his respect for the property of others, acquires a right to his home, to warm, proper clothing, to ample nourishment sufficiently varied to maintain health and strength.… Only when all these things have been secured to the poor as the fruit of their labour does the claim of the rich come in. What is superfluous, after supplying the needs of everyone, that should constitute the revenue of opulence.” (Études sur l’Économie politique, vol. i, p. 273.) Here we see quite clearly the sense in which Sismondi uses the term “spoliation.”
[401] Nouveaux Principes, vol. i, p. 407. Cf. also pp. 200, 201.
[402] “Everyone’s interest if checked by everybody else’s would in reality represent the common interest. But when everyone is seeking his own interest at the expense of others as well as developing his own means, it does not always happen that he is opposed by equally powerful forces. The strong thus find it their interest to seize and the weak to acquiesce, for the least evil as well as the greatest good is a part of the aim of human policy.” (Ibid., p. 407.) Cf. also infra, p. 188, note 1.
[403] “There is one fundamental change which is still possible in society, amid this universal struggle created by competition, and that is the introduction of the proletariat into the ranks of human beings—the proletariat, whose name, borrowed from the Romans, is so old, but who is himself so new.” (Études sur l’Économie politique, vol. i, p. 34.)
[404] Revue mensuelle d’Économie politique, 1834, vol. ii, p. 124.
[405] Nouveaux Principes, vol. ii, p. 434.
[406] Études sur l’Économic politique, introd., pp. 39 et seq.
[407] “That everyone understands his own interest better than any Government ever can is a maxim that has been considerably emphasised by economists. But they have too lightly affirmed that the interest of each to avoid the greatest evil coincides with the general interest. It is to the interest of the man who wishes to impoverish his neighbour to rob him, and it may be the latter’s interest to let him do it provided he can escape with his life.
“But it is not in the interest of society that the one should exercise the force and that the other should yield. The interest of the day labourer undoubtedly is that the wages for a day of ten hours should be sufficient for his upkeep and the upbringing of his children. It is also the interest of society. But the interest of the unemployed is to find bread at any price. He will work fourteen hours a day, will send his children to work in a factory at ten years of age, will jeopardise his own health and life and the very existence of his own class in order to escape the pressure of present need.” (Nouveaux Principes, vol. i, pp. 200-201.)
[408] Ibid., p. 201.
[409] “Population will then regulate itself simply in accordance with the revenue. Where it exceeds this proportion it is always just because the fathers are deceived as to what they believe to be their revenue, or rather because they are deceived by society.” (Ibid., p. 254.) “The more the poor is deprived of all right of property the greater is the danger of its mistaking its revenue and contributing to the growth of a population which, because it does not correspond to the demand for labour, will never find sufficient means of subsistence.” (Ibid., p. 264.)
[410] Ibid., p. 286.