Chapter 17 Taxes on Other Commodities than Raw Produce ON the same principle that a tax on corn would raise the price of corn, a tax on any other commodity would raise the price of that commodity. If the commodity did not rise by a sum equal to the tax, it would not give the same profit to the producer which he had before, and he would remove his capital to some other employment. The taxing of all commodities, whether they be necessaries or luxuries, will, while money remains at an unaltered value, raise their prices by a sum at least equal to the tax.(32*) A tax on the manufactured necessaries of the labourer would have the same effect on wages as a tax on corn, which differs from other necessaries only by being the first and most important on the list; and it would produce precisely the same effects on the profits of stock and foreign trade. But a tax on luxuries would have no other effect than to raise their price. It would fall wholly on the consumer, and could neither increase wages nor lower profits. Taxes which are levied on a country for the purpose of supporting war, or for the ordinary expenses of the State, and which are chiefly devoted to the support of unproductive labourers, are taken from the productive industry of the country; and every saving which can be made from such expenses will be generally added to the income, if not to the capital of the contributors. When, for the expenses of a year's war, twenty millions are raised by means of a loan, it is the twenty millions which are withdrawn from the productive capital of the nation. The million per annum which is raised by taxes to pay the interest of this loan, is merely transferred from those who pay it to those who receive it, from the contributor to the tax, to the national creditor. The real expense is the twenty millions, and not the interest which must be paid for it.(33*) Whether the interest be or be not paid, the country will neither be richer nor poorer. Government might at once have required the twenty millions in the shape of taxes; in which case it would not have been necessary to raise annual taxes to the amount of a million. This, however, would not have changed the nature of the transaction. An individual instead of being called upon to pay Ј100 per annum, might have been obliged to pay Ј2,000 once for all. It might also have suited his convenience rather to borrow this Ј2,000, and to pay Ј100 per annum for interest to the lender, than to spare the larger sum from his own funds. In one case it is a private transaction between A and B, in the other Government guarantees to B the payment of interest to be equally paid by A. If the transaction had been of a private nature, no public record would be kept of it, and it would be a matter of comparative indifference to the country whether A faithfully performed his contract to B, or unjustly retained the Ј100 per annum in his own possession. The country would have a general interest in the faithful performance of a contract, but with respect to the national wealth, it would have no other interest than whether A or B would make this Ј100 most productive; but on this question it would neither have the right nor the ability to decide. It might be possible, that if A retained it for his own use, he might squander it unprofitably, and if it were paid to B, he might add it to his capital, and employ it productively. And the converse would also be possible; B might squander it, and A might employ it productively. With a view to wealth only, it might be equally or more desirable that A should or should not pay it; but the claims of justice and good faith, a greater utility, are not to be compelled to yield to those of a less; and accordingly, if the State were called upon to interfere, the courts of justice would oblige A to perform his contract. A debt guaranteed by the nation, differs in no respect from the above transaction. Justice and good faith demand that the interest of the national debt should continue to be paid, and that those who have advanced their capitals for the general benefit, should not be required to forego their equitable claims, on the plea of expediency. But independently of this consideration, it is by no means certain, that political utility would gain any thing by the sacrifice of political integrity; it does by no means follow, that the party exonerated from the payment of the interest of the national debt would employ it more productively than those to whom indisputably it is due. By cancelling the national debt, one man's income might be raised from Ј1,000 to Ј1,500, but another man's would be lowered from Ј1,500 to Ј1,000. These two men's incomes now amount to Ј2,500, they would amount to no more then. If it be the object of Government to raise taxes, there would be precisely the same taxable capital and income in one case, as in the other. It is not, then, by the payment of the interest on the national debt, that a country is distressed, nor is it by the exoneration from payment that it can be relieved. It is only by saving from income, and retrenching in expenditure, that the national capital can be increased; and neither the income would be increased, nor the expenditure diminished by the annihilation of the national debt. It is by the profuse expenditure of Government, and of individuals, and by loans, that the country is impoverished; every measure, therefore, which is calculated to promote public and private economy, will relieve the public distress; but it is error and delusion to suppose, that a real national difficulty can be removed, by shifting it from the shoulders of one class of the community, who justly ought to bear it, to the shoulders of another class, who, upon every principle of equity, ought to bear no more than their share. From what I have said, it must not be inferred that I consider the system of borrowing as the best calculated to defray the extraordinary expenses of the State. It is a system which tends to make us less thrifty - to blind us to our real situation. If the expenses of a war be 40 millions per annum, and the share which a man would have to contribute towards that annual expense were Ј100, he would endeavour, on being at once called upon for his portion, to save speedily the Ј10O from his income. By the system of loans, he is called upon to pay only the interest of this Ј100, or Ј5 per annum, and considers that he does enough by saving this Ј5 from his expenditure, and then deludes himself with the belief, that he is as rich as before. The whole nation, by reasoning and acting in this manner, save only the interest of 40 millions, or two millions; and thus, not only lose all the interest or profit which 40 millions of capital, employed productively, would afford, but also 38 millions, the difference between their savings and expenditure. If, as I before observed, each man had to make his own loan, and contribute his full proportion to the exigencies of the State, as soon as the war ceased, taxation would cease, and we should immediately fall into a natural state of prices. Out of his private funds, A might have to pay to B interest for the money he borrowed of him during the war, to enable him to pay his quota of the expense; but with this the nation would have no concern. A country which has accumulated a large debt, is placed in a most artificial situation; and although the amount of taxes, and the increased price of labour, may not, and I believe does not, place it under any other disadvantage with respect to foreign countries, except the unavoidable one of paying those taxes, yet it becomes the interest of every contributor to withdraw his shoulder from the burthen, and to shift this payment from himself to another; and the temptation to remove himself and his capital to another country, where he will be exempted from such burthens, becomes at last irresistible, and overcomes the natural reluctance which every man feels to quit the place of his birth, and the scene of his early associations. A country which has involved itself in the difficulties attending this artificial system, would act wisely by ransoming itself from them, at the sacrifice of any portion of its property which might be necessary to redeem its debt. That which is wise in an individual, is wise also in a nation. A man who has Ј10,000, paying him an income of Ј500, out of which he has to pay Ј100 per annum towards the interest of the debt, is really worth only Ј8,000, and would be equally rich, whether he continued to pay Ј100 per annum, or at once, and for only once, sacrificed Ј2,000. But where, it is asked, would be the purchaser of the property which he must sell to obtain this Ј2,000? the answer is plain: the national creditor, who is to receive this Ј2,000, will want an investment for his money, and will be disposed either to lend it to the landholder, or manufacturer, or to purchase from them a part of the property of which they have to dispose. To such a payment the stockholders themselves would largely contribute. This scheme has been often recommended, but we have, I fear, neither wisdom enough, nor virtue enough, to adopt it. It must, however, be admitted, that during peace, our unceasing efforts should be directed towards paying off that part of the debt which has been contracted during war; and that no temptation of relief, no desire of escape from present, and I hope temporary distresses, should induce us to relax in our attention to that great object. No sinking fund can be efficient for the purpose of diminishing the debt, if it be not derived from the excess of the public revenue over the public expenditure. It is to be regretted, that the sinking fund in this country is only such in name; for there is no excess of revenue above expenditure. It ought, by economy, to be made what it is professed to be, a really efficient fund for the payment of the debt. If, on the breaking out of any future war, we shall not have very considerably reduced our debt, one of two things must happen, either the whole expenses of that war must be defrayed by taxes raised from year to year, or we must, at the end of that war, if not before, submit to a national bankruptcy; not that we shall be unable to bear any large additions to the debt; it would be difficult to set limits to the powers of a great nation; but assuredly there are limits to the price, which in the form of perpetual taxation, individuals will submit to pay for the privilege merely of living in their native country.(34*) When a commodity is at a monopoly price, it is at the very highest price at which the consumers are willing to purchase it. Commodities are only at a monopoly price, when by no possible device their quantity can be augmented; and when therefore, the competition is wholly on one side - amongst the buyers. The monopoly price of one period may be much lower or higher than the monopoly price of another, because the competition amongst the purchasers must depend on their wealth, and their tastes and caprices. Those peculiar wines, which are produced in very limited quantity, and those works of art, which from their excellence or rarity, have acquired a fanciful value, will be exchanged for a very different quantity of the produce of ordinary labour, according as the society is rich or poor, as it possesses an abundance or scarcity of such produce, or as it may be in a rude or polished state. The exchangeable value therefore of a commodity which is at a monopoly price, is nowhere regulated by the cost of production. Raw produce is not at a monopoly price, because the market price of barley and wheat is as much regulated by their cost of production, as the market price of cloth and linen. The only difference is this, that one portion of the capital employed in agriculture regulates the price of corn, namely, that portion which pays no rent; whereas, in the production of manufactured commodities, every portion of capital is employed with the same results; and as no portion pays rent, every portion is equally a regulator of price.. corn, and other raw produce, can be augmented, too, in quantity, by the employment of more capital on the land, and therefore they are not at a monopoly price. There is competition among the sellers, as well as amongst the buyers. This is not the case in the production of those rare wines, and those valuable specimens of art, of which we have been speaking; their quantity cannot be increased, and their price is limited only by the extent of the power and will of the purchasers. The rent of these vineyards may be raised beyond any moderately assignable limits, because no other land being able to produce such wines, none can be brought into competition with them. The corn and raw produce of a country may, indeed, for a time sell at a monopoly price; but they can do so permanently only when no more capital can be profitably employed on the lands, and when, therefore, their produce cannot be increased. At such time, every portion of land in cultivation, and every portion of capital employed on the land will yield a rent, differing, indeed, in proportion to the difference in the return. At such a time too, any tax which may be imposed on the farmer, will fall on rent, and not on the consumer. He cannot raise the price of his corn, because, by the supposition, it is already at the highest price at which the purchasers will or can buy it. He will not be satisfied with a lower rate of profits, than that obtained by other capitalists, and, therefore, his only alternative will be to obtain a reduction of rent, or to quit his employment. Mr Buchanan considers corn and raw produce as at a monopoly price, because they yield a rent: all commodities which yield a rent, he supposes must be at a monopoly price; and thence he infers, that all taxes on raw produce would fall on the landlord, and not on the consumer. 'The price of corn,' he says, 'which always affords a rent, being in no respect influenced by the expenses of its production, those expenses must be paid out of the rent; and when they rise or fall, therefore, the consequence is not a higher or lower price, but a higher or a lower rent. In this view, all taxes on farm servants, horses, or the implements of agriculture, are in reality land-taxes; the burden falling on the farmer during the currency of his lease, and on the landlord, when the lease comes to be renewed. In like manner all those improved implements of husbandry which save expense to the farmer, such as machines for threshing and reaping, whatever gives him easier access to the market, such as good roads, canals and bridges, though they lessen the original cost of corn, do not lessen its market price. Whatever is saved by those improvements, therefore, belongs to the landlord as part of his rent.' It is evident that if we yield to Mr Buchanan the basis on which his argument is built, namely, that the price of corn always yields a rent, all the consequences which he contends for would follow of course. Taxes on the farmer would then fall not on the consumer but on rent; and all improvements in husbandry would increase rent: but I hope I have made it sufficiently clear, that until a country is cultivated in every part, and up to the highest degree, there is always a portion of capital employed on the land which yields no rent, and that it is this portion of capital, the result of which, as in manufactures, is divided between profits and wages that regulates the price of corn. The price of corn, then, which does not afford a rent, being influenced by the expenses of its production, those expenses cannot be paid out of rent. The consequence therefore of those expenses increasing, is a higher price, and not a lower rent.(35*) It is remarkable that both Adam Smith and Mr Buchanan, who entirely agree that taxes on raw produce, a land-tax, and tithes, all fall on the rent of land, and not on the consumers of raw produce, should nevertheless admit that taxes on malt would fall on the consumer of beer, and not on the rent of the landlord. Adam Smith's argument is so able a statement of the view which I take of the subject of the tax on malt, and every other tax on raw produce, that I cannot refrain from offering it to the attention of the reader. 'The rent and profits of barley land must always be nearly equal to those of other equally fertile, and equally well cultivated land. If they were less, some part of the barley land would soon be turned to some other purpose; and if they were greater, more land would soon be turned to the raising of barley. When the ordinary price of any particular produce of land is at what may be called a monopoly price, a tax upon it necessarily reduces the rent and profit(36*) of the land which grows it. A tax upon the produce of those precious vineyards, of which the wine falls so much short of the effectual demand, that its price is always above the natural proportion to that of other equally fertile, and equally well cultivated land, would necessarily reduce the rent and profit of those vineyards. The price of the wines being already the highest that could be got for the quantity commonly sent to market, it could not be raised higher without diminishing that quantity; and the quantity could not be diminished without still greater loss, because the lands could not be turned to any other equally valuable produce. The whole weight of the tax, therefore, would fall upon the rent and profit; properly upon the rent of the vineyard.' 'But the ordinary price of barley has never been a monopoly price; and the rent and profit of barley land have never been above their natural proportion to those of other equally fertile and equally well cultivated land. The different taxes, which have been imposed upon malt, beer, and ale, have never lowered the price of barley; have never reduced the rent and profit of barley land. The price of malt to the brewer, has constantly risen in proportion to the taxes imposed upon it; and those taxes, together with the different duties upon beer and ale, have constantly either raised the price, or, what comes to the same thing, reduced the quality of those commodities to the consumer. The final payment of those taxes has fallen constantly upon the consumer, and not upon the producer.' On this passage Mr Buchanan remarks, 'A duty on malt never could reduce the price of barley, because, unless as much could be made of barley by malting it as by selling it unmalted, the quantity required would not be brought to market. It is clear, therefore, that the price of malt must rise in proportion to the tax imposed on it, as the demand could not otherwise be supplied. The price of barley, however, is just as much a monopoly price as that of sugar; they both yield a rent, and the market price of both has equally lost all connexion with the original cost.' It appears then to be the opinion of Mr Buchanan, that a tax on malt would raise the price of malt, but that a tax on the barley from which malt is made, would not raise the price of barley; and, therefore, if malt is taxed, the tax will be paid by the consumer; if barley is taxed, it will be paid by the landlord, as he will receive a diminished rent. According to Mr Buchanan then, barley is at a monopoly price, at the highest price which the purchasers are willing to give for it; but malt made of barley is not at a monopoly price, and consequently it can be raised in proportion to the taxes that may be imposed upon it. This opinion of Mr Buchanan of the effects of a tax on malt appears to me to be in direct contradiction to the opinion he has given of a similar tax, a tax on bread. 'A tax on bread will be ultimately paid, not by a rise of price, but by a reduction of rent.'(37*) If a tax on malt would raise the price of beer, a tax on bread must raise the price of bread. The following argument of M. Say is founded on the same views as Mr Buchanan's: 'The quantity of wine or corn which a piece of land will produce, will remain nearly the same, whatever may be the tax with which it is charged. The tax may take away a half, or even three-fourths of its net produce, or of its rent if you please, yet the land would nevertheless be cultivated for the half or the quarter not absorbed by the tax. The rent, that is to say the landlord's share, would merely be somewhat lower. The reason of this will be perceived, if we consider, that in the case supposed, the quantity of produce obtained from the land, and sent to market, will remain nevertheless the same. On the other hand the motives on which the demand for the produce is founded, continue also the same. 'Now, if the quantity of produce supplied, and the quantity demanded, necessarily continue the same, notwithstanding the establishment or the increase of the tax, the price of that produce will not vary; and if the price do not vary, the consumer will not pay the smallest portion of this tax. 'Will it be said that the farmer, he who furnishes labour and capital, will, jointly with the landlord, bear the burden of this tax? certainly not; because the circumstance of the tax has not diminished the number of farms to be let, nor increased the number of farmers. Since in this instance also the supply and demand remain the same, the rent of farms must also remain the same. The example of the manufacturer of salt, who can only make the consumers pay a portion of the tax, and that of the landlord who cannot reimburse himself in the smallest degree, prove the error of those who maintain, in opposition to the economists, that all taxes fall ultimately on the consumer.' - Vol. ii. p. 338. If the tax 'took away half, or even three-fourths of the net produce of the land,' and the price of produce did not rise, how could those farmers obtain the usual profits of stock who paid very moderate rents, having that quality of land which required a much larger proportion of labour to obtain a given result, than land of a more fertile quality? If the whole rent were remitted, they would still obtain lower profits than those in other trades, and would therefore not continue to cultivate their land, unless they could raise the price of its produce. If the tax fell on the farmers, there would be fewer farmers disposed to hire farms; if it fell on the landlord, many farms would not be let at all, for they would afford no rent. But from what fund would those pay the tax who produce corn without paying. any rent? It is quite clear that the tax must fall on the consumer. How would such land, as M. Say describes in the following passage, pay a tax of one-half or three-fourths of its produce? 'We see in Scotland poor lands thus cultivated by the proprietor, and which could be cultivated by no other person. Thus too, we see in the interior provinces of the United States vast and fertile lands, the revenue of which, alone, would not be sufficient for the maintenance of the proprietor. These lands are cultivated nevertheless, but it must be by the proprietor himself, or, in other words, he must add to the rent, which is little or nothing, the profits of his capital and industry, to enable him to live in competence. It is well known that land, though cultivated, yields no revenue to the landlord when no farmer will be willing to pay a rent for it: which is a proof that such land will give only the profits of the capital, and of the industry necessary for its cultivation.' - Say, Vol. ii. p. 127. Chapter 18 Poor Rates WE have seen that taxes on raw produce, and on the profits of the farmer, will fall on the consumer of raw produce; since unless he had the power of remunerating himself by an increase of price, the tax would reduce his profits below the general level of profits, and would urge him to remove his capital to some other trade. We have seen too, that he could not, by deducting it from his rent, transfer the tax to his landlord; because that farmer who paid no rent, would, equally with the cultivator of better land, be subject to the tax, whether it were laid on raw produce, or on the profits of the farmer. I have also attempted to shew, that if a tax were general, and affected equally all profits, whether manufacturing or agricultural, it would not operate either on the price of goods or raw produce, but would be immediately, as well as ultimately, paid by the producers. A tax on rent, it has been observed, would fall on the landlord only, and could not by any means be made to devolve on the tenant. The poor rate is a tax which partakes of the nature of all these taxes, and under different circumstances falls on the consumer of raw produce and goods, on the profits of stock, and on the rent of land. It is a tax which falls with peculiar weight on the profits of the farmer, and therefore may be considered as affecting the price of raw produce. According to the degree in which it bears on manufacturing and agricultural profits equally, it will be a general tax on the profits of stock, and will occasion no alteration in the price of raw produce and manufactures. In proportion to the farmer's inability to remunerate himself, by raising the price of raw produce, for that portion of the tax which peculiarly affects him, it will be a tax on rent, and will be paid by the landlord. To know, then, the operation of the poor rate at any particular time, we must ascertain whether at that time it affects in an equal or unequal degree the profits of the farmer and manufacturer; and also whether the circumstances be such as to afford to the farmer the power of raising the price of raw produce. The poor rates are professed to be levied on the farmer in proportion to his rent; and accordingly, the farmer who paid a very small rent, or no rent at all, should pay little or no tax. If this were true, poor rates, as far as they are paid by the agricultural class, would entirely fall on the landlord, and could not be shifted to the consumer of raw produce. But I believe that it is not true; the poor rate is not levied according to the rent which a farmer actually pays to his landlord; it is proportioned to the annual value of his land, whether that annual value be given to it by the capital of the landlord or of the tenant. If two farmers rented land of two different qualities in the same parish, the one paying a rent of Ј100 per annum for 50 acres of the most fertile land, and the other the same sum of Ј100 for 1,000 acres of the least fertile land, they would pay the same amount of poor rates, if neither of them attempted to improve the land; but if the farmer of the poor land, presuming on a very long lease, should be induced, at a great expense, to improve the productive powers of his land, by manuring, draining, fencing, &c., he would contribute to the poor rates, not in proportion to the actual rent paid to the landlord, but to the actual annual value of the land. The rate might equal or exceed the rent; but whether it did or not, no part of this rate would be paid by the landlord. It would have been previously calculated upon by the tenant; and if the price of produce were not sufficient to compensate him for all his expenses, together with this additional charge for poor rates, his improvements would not have been undertaken. It is evident, then, that the tax in this case is paid by the consumer; for if there had been no rate, the same improvements would have been undertaken, and the usual and general rate of profits would have been obtained on the stock employed, with a lower price of corn. Nor would it make the slightest difference in this question, if the landlord had made these improvements himself, and had in consequence raised his rent from Ј100 to Ј500. the rate would be equally charged to the consumer; for whether the landlord should expend a large sum of money on his land, would depend on the rent, or what is called rent, which he would receive as a remuneration for it; and this again would depend on the price of corn, or other raw produce, being sufficiently high not only to cover this additional rent, but also the rate to which the land would be subject. If at the same time all manufacturing capital contributed to the poor rates, in the same proportion as the capital expended by the farmer or landlord in improving the land, then it would no longer be a partial tax on the profits of the farmer's or landlord's capital, but a tax on the capital of all producers; and, therefore, it could no longer be shifted either on the consumer of raw produce or on the landlord. The farmer's profits would feel the effect of the rate no more than those of the manufacturer; and the former could not, any more than the latter, plead it as a reason for an advance in the price of his commodity. It is not the absolute, but the relative fall of profits, which prevents capital from being employed in any particular trade: it is the difference of profit which sends capital from one employment to another. It must be acknowledged, however, that in the actual state of the poor rates, a much larger amount falls on the farmer than on the manufacturer, in proportion to their respective profits; the farmer being rated according to the actual productions which he obtains, the manufacturer only according to the value of the buildings in which he works, without any regard to the value of the machinery, labour, or stock which he may employ From this circumstance it follows, that the farmer will be enabled to raise the price of his produce by this whole difference. For since the tax falls unequally, and peculiarly on his profits, he would have less motive to devote his capital to the land, than to employ it in some other trade, were not the price of raw produce raised. If, on the contrary, the rate had fallen with greater weight on the manufacturer than on the farmer, he would have been enabled to raise the price of his goods by the amount of the difference, for the same reason that the farmer under similar circumstances could raise the price of raw produce. In a society, therefore, which is extending its agriculture, when poor rates fall with peculiar weight on the land, they will be paid partly by the employers of capital in a diminution of the profits of stock, and partly by the consumer of raw produce in its increased price. In such a state of things, the tax may, under some circumstances, be even advantageous rather than injurious to landlords; for if the tax paid by the cultivator of the worst land, be higher in proportion to the quantity of produce obtained, than that paid by the farmers of the more fertile lands, the rise in the price of corn, which will extend to all corn, will more than compensate the latter for the tax. This advantage will remain with them during the continuance of their leases, but it will afterwards be transferred to their landlords. This, then, would be the effect of poor rates in an advancing society. but in a stationary, or in a retrograde country, so far as capital could not be withdrawn from the land, if a further rate were levied for the support of the poor, that part of it which fell on agriculture would be paid, during the current leases, by the farmers; but, at the expiration of those leases, it would almost wholly fall on the landlords. The farmer, who, during his former lease, had expended his capital in improving his land, if it were still in his own hands would be rated for this new tax according to the new value which the land had acquired by its improvement, and this amount he would be obliged to pay during his lease, although his profits might thereby be reduced below the general rate of profits; for the capital which he has expended may be so incorporated with the land, that it cannot be removed from it. If, indeed, he, or his landlord, (should it have been expended by him) were able to remove this capital, and thereby reduce the annual value of the land, the rate would proportionably fall, and as the produce would at the same time be diminished, its price would rise; he would be compensated for the tax, by charging it to the consumer, and no part would fall on rent; but this is impossible, at least with respect to some proportion of the capital, and consequently in that proportion the tax will be paid by the farmers during their leases, and by landlords at their expiration. This additional tax, if it fell with peculiar severity on manufacturers, which it does not, would, under such circumstances, be added to the price of their goods; for there can be no reason why their profits should be reduced below the general rate of profits, when their capitals might be easily removed to agriculture.(38*) Chapter 19 On Sudden Changes in the Channels of Trade A GREAT manufacturing country is peculiarly exposed to temporary reverses and contingencies, produced by the removal of capital from one employment to another. The demands for the produce of agriculture are uniform, they are not under the influence of fashion, prejudice, or caprice. To sustain life, food is necessary, and the demand for food must continue in all ages, and in all countries. It is different with manufactures; the demand for any particular manufactured commodity, is subject not only to the wants, but to the tastes and caprice of the purchasers. A new tax too may destroy the comparative advantage which a country before possessed in the manufacture of a particular commodity; or the effects of war may so raise the freight and insurance on its conveyance, that it can no longer enter into competition with the home manufacture of the country to which it was before exported. In all such cases, considerable distress, and no doubt some loss, will be experienced by those who are engaged in the manufacture of such commodities; and it will be felt not only at the time of the change, but through the whole interval during which they are removing their capitals, and the labour which they can command, from one employment to another. Nor will distress be experienced in that country alone where such difficulties originate, but in the countries to which its commodities were before exported. No country can long import, unless it also exports, or can long export unless it also imports. If, then, any circumstance should occur, which should permanently prevent a country from importing the usual amount of foreign commodities, it will necessarily diminish the manufacture of some of those commodities which were usually exported; and although the total value of the productions of the country will probably be but little altered, since the same capital will be employed, yet they will not be equally abundant and cheap; and considerable distress will be experienced through the change of employments. If by the employments of Ј10,000 in the manufacture of cotton goods for exportation, we imported annually 3,000 pair of silk stockings of the value of Ј2,000, 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 Ј2,000 provided no part of the capital were destroyed; but instead of having 3,000 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.(39*) 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.(40*) 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 Ј4 per quarter, land of an inferior quality, which may be designated by No. 6, might be cultivated; at Ј3 10s. No. 5; at Ј3 No, 4, and so on. If corn, in consequence of permanent abundance, fell to Ј3 10s., the capital employed on No. 6 would cease to be employed; for it was only when corn was at Ј4 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 not obtain more corn by purchasing it with a commodity which he manufactured, than he got from the land for which he paid no rent, its price could not be under Ј4. 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;(41*) 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 Ј3 10s. 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 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 can 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 be only 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 the value of a part of the existing capital of farmers and manufacturers.(42*) Agriculture, like all other trades, and particularly in a commercial country, is subject to a reaction, 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 19 On Sudden Changes in the Channels of Trade A GREAT manufacturing country is peculiarly exposed to temporary reverses and contingencies, produced by the removal of capital from one employment to another. The demands for the produce of agriculture are uniform, they are not under the influence of fashion, prejudice, or caprice. To sustain life, food is necessary, and the demand for food must continue in all ages, and in all countries. It is different with manufactures; the demand for any particular manufactured commodity, is subject not only to the wants, but to the tastes and caprice of the purchasers. A new tax too may destroy the comparative advantage which a country before possessed in the manufacture of a particular commodity; or the effects of war may so raise the freight and insurance on its conveyance, that it can no longer enter into competition with the home manufacture of the country to which it was before exported. In all such cases, considerable distress, and no doubt some loss, will be experienced by those who are engaged in the manufacture of such commodities; and it will be felt not only at the time of the change, but through the whole interval during which they are removing their capitals, and the labour which they can command, from one employment to another. Nor will distress be experienced in that country alone where such difficulties originate, but in the countries to which its commodities were before exported. No country can long import, unless it also exports, or can long export unless it also imports. If, then, any circumstance should occur, which should permanently prevent a country from importing the usual amount of foreign commodities, it will necessarily diminish the manufacture of some of those commodities which were usually exported; and although the total value of the productions of the country will probably be but little altered, since the same capital will be employed, yet they will not be equally abundant and cheap; and considerable distress will be experienced through the change of employments. If by the employments of Ј10,000 in the manufacture of cotton goods for exportation, we imported annually 3,000 pair of silk stockings of the value of Ј2,000, 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 Ј2,000 provided no part of the capital were destroyed; but instead of having 3,000 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.(39*) 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.(40*) 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 Ј4 per quarter, land of an inferior quality, which may be designated by No. 6, might be cultivated; at Ј3 10s. No. 5; at Ј3 No, 4, and so on. If corn, in consequence of permanent abundance, fell to Ј3 10s., the capital employed on No. 6 would cease to be employed; for it was only when corn was at Ј4 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 not obtain more corn by purchasing it with a commodity which he manufactured, than he got from the land for which he paid no rent, its price could not be under Ј4. 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;(41*) 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 Ј3 10s. 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 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 can 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 be only 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 the value of a part of the existing capital of farmers and manufacturers.(42*) Agriculture, like all other trades, and particularly in a commercial country, is subject to a reaction, 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. 1. In the exchange of two products, we only in fact exchange the productive services which have served to creak them... p. 504. 2. There is no real dearness but that which arises from the cost of production. A thing really dear, is that which cost, much in producing.................. 457. 3. The value of all the productive services that must be consumed to create a product, constitute the cost of production of that product................. 505. 4. It is utility which determines the demand for a commodity, but it is the cost of it production which limit the extent of it demand. When it utility does not elevate its value to the level of the cost of production, the thing is not worth what it cost; it is a proof that the productive services might be employed to create a commodity of a superior value. The possessors of productive funds, that is to say, those who have the disposal of labour, of capital or land, are perpetually occupied in comparing the cost of production with the value of the things produced, or which comes to the same thing, in comparing the value of different commodities with each other; because the cost of production is nothing else but the value of productive services, consumed in forming a production; and the value of a productive service is nothing else than the value of the commodity, which is the result. The value of a commodity, the value of a productive service, the value of the cost of production are all, then, similar values when every thing is left to its natural course. 5. The value of incomes is then increased, if they can procure (it does not signify by what means,) a greater quantity of product. 6. Price is the measure of the value of things, and their value is the measure of their utility. 1 Vol...................p. 4 7. Exchanges made freely, shew at the time, in the place, and in the state of society in which we are, the value which men attach to the things exchanged...... 466. 8. To produce, is to create value, by giving or increasing the utility of a thing, and thereby establishing a demand for it, which is the first cause of it value. Vol. 2............. 487. 9. Utility being created, constitutes a product. The exchangeable value which results, is only the measure of this utility, the measure of the production which has taken place...........490. 10. The utility which people of a particular country find in a product can no otherwise be appreciated than by the price which they give for it..... 502. 11. This price, is the measure of the utility, which it has in the judgment of men; of the satisfaction which they derive from consuming it, because they would not prefer consuming this utility, if for the price which it cost they could acquire a utility which would give them more satisfaction...................506. 12. The quantity of all other commodities which a person can immediately obtain in exchange for the commodity of which he wishes to dispose, is at all times a value not to be disputed. Vol. 2.................... 4 If there is no real dearness but that which arises from cost of production, (see 2.) how can a commodity be said to rise in value, (see 5.) if its cost of production be not increased? and merely because it will exchange for more of a cheap commodity for more of a commodity the cost of production of which has diminished? When I give 2,000 times more cloth for a pound of gold than I give for a pound of iron, does it prove that I attach 2,000 times more utility to gold than I do to iron? certainly not; it proves only as admitted by M. Say, (see 4.) that the cost of production of gold is 2,000 times greater than the cost of production of iron. If the cost of production of the two metals were the same, I should give the same price for them; but if utility were the measure of value, it is probable I should give more for the iron. It is the competition of the producers 'who are perpetually employed in comparing the cost of production with the value of the thing produced,' (see 4.) which regulates the value of different commodities. If, then, I give one shilling for a loaf, and 21 shillings for a guinea, it is no proof that this in my estimation is the comparative measure of their utility. In No. 4, M. Say maintains with scarcely any variation, the doctrine which I hold concerning value. In his productive services, he includes the services rendered by land, capital, and labour; in mine I include only capital and labour, and wholly exclude land. Our difference proceeds from the different view which we take of rent: I always consider it as the result of a partial monopoly, never really regulating price, but rather as the effect of it. If all rent were relinquished by landlords, I am of opinion, that the commodities produced on the land would be no cheaper, because there is always a portion of the same commodities produced on land, for which no rent is or can be paid, as the surplus produce is only sufficient to pay the profits of stock. To conclude, although no one is more disposed than I am to estimate highly the advantage which results to all classes of consumers, from the real abundance and cheapness of commodities, I cannot agree with M. Say, in estimating the value of a commodity, by the abundance of other commodities for which it will exchange; I am of the opinion of a very distinguished writer, M. Destutt de Tracy, who says, that 'To measure any one thing is to compare it with a determinate quantity of that same thing which we take for a standard of comparison, for unity. To measure, then to ascertain a length, a weight, a value, is to find how many times they contain metres, grammes, francs, in a word, unities of the same description.' A franc is not a measure of value for any thing, but for a quantity of the same metal of which francs are made, unless francs, and the thing to be measured, can be referred to some other measure which is common to both. This, I think, they can be, for they are both the result of labour.' and, therefore, labour is a common measure, by which their real as well as their relative value may be estimated. This also, I am happy to say, appears to be M. Destutt de Tracy's opinion.(45*) He says, 'as it is certain that our physical and moral faculties are alone our original riches, the employment of those faculties, labour of some kind, is our only original treasure, and that it is always from this employment, that all those things are created which we call riches, those which are the most necessary, as well as those which are the most purely agreeable. It is certain too, that all those things only represent the labour which has created them, and if they have a value, or even two distinct values, they can only derive them from that of the labour from which they emanate.' 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.(46*) 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 partly 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 constantly overlooks the essential difference that there is between value in use, and value in exchange. 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 nowhere undervalues 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.