In the United States, early in the century, a retaliatory policy
against England gave us a body of navigation laws copied after the
mediæval statutes of England and the Continent, which still remain
on the statute-book. They do not permit an American to buy a
vessel abroad and sail it under our flag without paying enormous
duties; a provision which is intended to foster ship-building in
the United States. Even with this legislation, ships, as a fact,
are not built here for the foreign trade; and our ship-builders
practically supply the coasting-trade only (which is not open to
foreigners). The ability to buy ships anywhere, and enter them to
registry under our flag free of duty, is what is meant by the
demand for “free ships.” This, however, has to do with
ship-building. But ship-owning or ship-sailing, is quite distinct
from it. The ability to get as great a return from capital and
labor invested in a ship as from other occupations open to
Americans is another thing. Even if we had “free ships,” the
higher returns in other industries in our country, particularly as
regards profits, might cause capitalists naturally to neglect a
less for a more productive business. In 1884 Congress has very
properly taken away many vexatious restrictions upon ships, which
diminished the returns from ship-sailing, and it remains to be
seen whether we can thereby regain any of our foreign
carrying-trade. At present we have a very small tonnage even in
that part of the shipping engaged in carrying our own goods.
Chapter XXI. Of Distribution, As Affected By Exchange.
§ 1. Exchange and money make no Difference in the law of Wages.
The division of the produce among the three classes, laborers,
capitalists, and landlords, when considered without any reference to
exchange, appeared to depend on certain general laws. It is fit that we
should now consider whether these same laws still operate, when the
distribution takes place through the complex mechanism of exchange and
money; or whether the properties of the mechanism interfere with and
modify the presiding principles.
The primary division of the produce of human exertion and frugality is, as
we have seen, into three shares—wages, profits, and rents; and these
shares are portioned out, to the persons entitled to them, in the form of
money and by a process of exchange; or, rather, the capitalist, with whom
in the usual arrangements of society the produce remains, pays in money,
to the other two sharers, the market value of their labor and land. If we
examine on what the pecuniary value of labor and the pecuniary value of
the use of land depend, we shall find that it is on the very same causes
by which we found that wages and rent would be regulated if there were no
money and no exchange of commodities.
It is evident, in the first place, that the law of wages is not affected
by the existence or non-existence of exchange or money. Wages depend on
the ratio between population and capital [taking into account the nature
of a country’s industries]; and would do so if all the capital in the
world were the property of one association, or if the capitalists among
whom it is shared maintained each an establishment for the production of
every article consumed in the community, exchange of commodities having no
existence. As the ratio between capital and population, everywhere but in
new colonies, depends on the strength of the checks by which the too rapid
increase of population is restrained, it may be said, popularly speaking,
that wages depend on the checks to population; that, when the check is not
death by starvation or disease, wages depend on the prudence of the
laboring people; and that wages in any country are habitually at the
lowest rate to which in that country the laborer will suffer them to be
depressed rather than put a restraint upon multiplication.
What is here meant, however, by wages, is the laborer’s real scale of
comfort; the quantity he obtains of the things which nature or habit has
made necessary or agreeable to him: wages in the sense in which they are
of importance to the receiver. In the sense in which they are of
importance to the payer, they do not depend exclusively on such simple
principles. Wages in the first sense, the wages on which the laborer’s
comfort depends, we will call real wages, or wages in kind. Wages in the
second sense we may be permitted to call, for the present, money wages;
assuming, as it is allowable to do, that money remains for the time an
invariable standard, no alteration taking place in the conditions under
which the circulating medium itself is produced or obtained. If money
itself undergoes no variation in cost, the money price of labor is an
exact measure of the cost of labor, and may be made use of as a convenient
symbol to express it [if the efficiency of labor also be supposed to
remain the same].
The money wages of labor are a compound result of two elements: first,
real wages, or wages in kind, or, in other words, the quantity which the
laborer obtains of the ordinary articles of consumption; and, secondly,
the money prices of those articles. In all old countries—all countries in
which the increase of population is in any degree checked by the
difficulty of obtaining subsistence—the habitual money price of labor is
that which will just enable the laborers, one with another, to purchase
the commodities without which they either can not or will not keep up the
population at its customary rate of increase. Their standard of comfort
being given (and by the standard of comfort in a laboring class is meant
that rather than forego which they will abstain from multiplication),
money wages depend on the money price, and therefore on the cost of
production, of the various articles which the laborers habitually consume:
because, if their wages can not procure them a given quantity of these,
their increase will slacken and their wages rise. Of these articles, food
and other agricultural produce are so much the principal as to leave
little influence to anything else.
It is at this point that we are enabled to invoke the aid of the
principles which have been laid down in this Third Part. The cost of
production of food and agricultural produce has been analyzed in a
preceding chapter. It depends on the productiveness of the least fertile
land, or of the least productively employed portion of capital, which the
necessities of society have as yet put in requisition for agricultural
purposes. The cost of production of the food grown in these least
advantageous circumstances determines, as we have seen, the exchange value
and money price of the whole. In any given state, therefore, of the
laborers’ habits, their money wages depend on the productiveness of the
least fertile land, or least productive agricultural capital: on the point
which cultivation has reached in its downward progress—in its
encroachments on the barren lands, and its gradually increased strain upon
the powers of the more fertile. Now, the force which urges cultivation in
this downward course is the increase of people; while the counter-force,
which checks the descent, is the improvement of agricultural science and
practice, enabling the same soil to yield to the same labor more ample
returns. The costliness of the most costly part of the produce of
cultivation is an exact expression of the state, at any given moment, of
the race which population and agricultural skill are always running
against each other.
It will be noted, in this exposition, that Mr. Mill has in view an
old country, with a population so dense that numbers are always
pressing close upon subsistence; that their wages are so low as to
give the laborers little more than the necessary wants of life.
That these are not the economic conditions in the United States
goes without saying. First of all, the margin of cultivation is
high: only soils of high productiveness are in cultivation, and
the returns to labor and capital are, consequently, very large.
High wages are found together with low prices of food. The
existing population is not so numerous as to require for the
cultivation of food any but lands of a very high grade of
fertility. The ability to command a high reward for labor (as
compared with European industries), owing to the general
prevalence of high returns in the United States, has resulted in
the establishment of a higher standard for our laborers. The
standard being relatively so high, there is no intimate connection
between the increase of population here and the price of food;
for, as a rule, wages are not so low that any change in the cost
of producing food would require checks upon population. There is a
considerable margin above necessaries, in the laborer’s real wages
in the United States, which may go for comforts, decencies, and
amusements.
§ 2. In the law of Rent.
The degree of productiveness of this extreme margin is an index to the
existing state of the distribution of the produce among the three classes,
of laborers, capitalists, and landlords. When the demand of an increasing
population for more food can not be satisfied without extending
cultivation to less fertile land, or incurring additional outlay, with a
less proportional return, on land already in cultivation, it is a
necessary condition of this increase of agricultural produce that the
value and price of that produce must first rise. The price of food will
always on the average be such that the worst land, and the least
productive installment of the capital employed on the better lands, shall
just replace the expenses with the ordinary profit. If the least favored
land and capital just do thus much, all other land and capital will yield
an extra profit, equal to the proceeds of the extra produce due to their
superior productiveness; and this extra profit becomes, by competition,
the prize of the landlords. Exchange and money, therefore, make no
difference in the law of rent: it is the same as we originally(293) found
it. Rent is the extra return made to agricultural capital when employed
with peculiar advantages; the exact equivalent of what those advantages
enable the producers to economize in the cost of production: the value and
price of the produce being regulated by the cost of production to those
producers who have no advantages; by the return to that portion of
agricultural capital the circumstances of which are the least favorable.
§ 3. —Nor in the law of Profits.
Wages and rent being thus regulated by the same principles when paid in
money, as they would be if apportioned in kind, it follows that Profits
are so likewise. For the surplus, after replacing wages and paying rent,
constitutes Profits.
We found, in the last chapter of the Second Book, that the advances of the
capitalist, when analyzed to their ultimate elements, consist either in
the purchase or maintenance of labor, or in the profits of former
capitalists; and that, therefore, profits in the last resort depend upon
the Cost of Labor, falling as that rises, and rising as it falls. Let us
endeavor to trace more minutely the operation of this law.
There are two modes in which the Cost of Labor, which is correctly
represented (money being supposed invariable as well as efficiency) by the
money wages of the laborer, may be increased. The laborer may obtain
greater comforts; wages in kind—real wages—may rise. Or the progress of
population may force down cultivation to inferior soils and more costly
processes; thus raising the cost of production, the value, and the price,
of the chief articles of the laborer’s consumption. On either of these
suppositions the rate of profit will fall.
If the laborer obtains more abundant commodities only by reason of their
greater cheapness, if he obtains a greater quantity, but not on the whole
a greater cost, real wages will be increased, but not money wages, and
there will be nothing to affect the rate of profit. But, if he obtains a
greater quantity of commodities of which the cost of production is not
lowered, he obtains a greater cost; his money wages are higher. The
expense of these increased money wages falls wholly on the capitalist.
There are no conceivable means by which he can shake it off. It may be
said—it used formerly to be said—that he will get rid of it by raising his
price. But this opinion we have already, and more than once, fully
refuted.(294)
The doctrine, indeed, that a rise of wages causes an equivalent rise of
prices, is, as we formerly observed, self-contradictory: for, if it did
so, it would not be a rise of wages; the laborer would get no more of any
commodity than he had before, let his money wages rise ever so much; a
rise of real wages would be an impossibility. This being equally contrary
to reason and to fact, it is evident that a rise of money wages does not
raise prices; that high wages are not a cause of high prices. A rise of
general wages falls on profits. There is no possible alternative.
Having disposed of the case in which the increase of money wages, and of
the Cost of Labor, arises from the laborer’s obtaining more ample wages in
kind, let us now suppose it to arise from the increased cost of production
of the things which he consumes, owing to an increase of population
unaccompanied by an equivalent increase of agricultural skill. The
augmented supply required by the population would not be obtained, unless
the price of food rose sufficiently to remunerate the farmer for the
increased cost of production. The farmer, however, in this case sustains a
twofold disadvantage. He has to carry on his cultivation under less
favorable conditions of productiveness than before. For this, as it is a
disadvantage belonging to him only as a farmer, and not shared by other
employers, he will, on the general principles of value, be compensated by
a rise of the price of his commodity; indeed, until this rise has taken
place, he will not bring to market the required increase of produce. But
this very rise of price involves him in another necessity, for which he is
not compensated. He must pay higher money wages to his laborers [if they
retain the same quantity of real wages]. This necessity, being common to
him with all other capitalists, forms no ground for a rise of price. The
price will rise, until it has placed him in as good a situation, in
respect of profits, as other employers of labor; it will rise so as to
indemnify him for the increased labor which he must now employ in order to
produce a given quantity of food; but the increased wages of that labor
are a burden common to all, and for which no one can be indemnified. It
will be paid wholly from profits.
Thus we see that increased wages, when common to all descriptions of
productive laborers, and when really representing a greater Cost of Labor,
are always and necessarily at the expense of profits. And by reversing the
cases, we should find in like manner that diminished wages, when
representing a really diminished Cost of Labor, are equivalent to a rise
of profits. But the opposition of pecuniary interest thus indicated
between the class of capitalists and that of laborers is to a great extent
only apparent. Real wages are a very different thing from the Cost of
Labor, and are generally highest at the times and places where, from the
easy terms on which the land yields all the produce as yet required from
it, the value and price of food being low, the cost of labor to the
employer, notwithstanding its ample remuneration, is comparatively cheap,
and the rate of profit consequently high, as at present in the United
States. We thus obtain a full confirmation of our original theorem that
Profits depend on the Cost of Labor: or, to express the meaning with still
greater accuracy, the rate of profit and the cost of labor vary inversely
as one another, and are joint effects of the same agencies or causes.
BOOK IV. INFLUENCE OF THE PROGRESS OF SOCIETY ON PRODUCTION AND
DISTRIBUTION.
Chapter I. Influence Of The Progress Of Industry And Population On Values
And Prices.
§ 1. Tendency of the progress of society toward increased Command over the
powers of Nature; increased Security, and increased Capacity of
Co-Operation.
In the leading countries of the world, and in all others as they come
within the influence of those leading countries, there is at least one
progressive movement which continues with little interruption from year to
year and from generation to generation—a progress in wealth; an
advancement in what is called material prosperity. All the nations which
we are accustomed to call civilized increase gradually in production and
in population: and there is no reason to doubt that not only these nations
will for some time continue so to increase, but that most of the other
nations of the world, including some not yet founded, will successively
enter upon the same career. It will, therefore, be our first object to
examine the nature and consequences of this progressive change, the
elements which constitute it, and the effects it produces on the various
economical facts of which we have been tracing the laws, and especially on
wages, profits, rents, values, and prices.
Of the features which characterize this progressive economical movement of
civilized nations, that which first excites attention, through its
intimate connection with the phenomena of Production, is the perpetual,
and, so far as human foresight can extend (1), the unlimited, growth of
man’s power over nature. Our knowledge of the properties and laws of
physical objects shows no sign of approaching its ultimate boundaries: it
is advancing more rapidly, and in a greater number of directions at once,
than in any previous age or generation, and affording such frequent
glimpses of unexplored fields beyond as to justify the belief that our
acquaintance with nature is still almost in its infancy.
Another change, which has always hitherto characterized, and will
assuredly continue to characterize, the progress of civilized society, is
(2) a continual increase of the security of person and property. Of this
increased security, one of the most unfailing effects is a great increase
both of production and of accumulation. Industry and frugality can not
exist where there is not a preponderant probability that those who labor
and spare will be permitted to enjoy.
One of the changes which most infallibly attend the progress of modern
society is, (3) an improvement in the business capacities of the general
mass of mankind. I do not mean that the practical sagacity of an
individual human being is greater than formerly. What is lost in the
separate efficiency of each is far more than made up by the greater
capacity of united action. Works of all sorts, impracticable to the savage
or the half-civilized, are daily accomplished by civilized nations, not by
any greatness of faculties in the actual agents, but through the fact that
each is able to rely with certainty on the others for the portion of the
work which they respectively undertake. The peculiar characteristic, in
short, of civilized beings, is the capacity of co-operation; and this,
like other faculties, tends to improve by practice, and becomes capable of
assuming a constantly wider sphere of action.
[This progress affords] space and scope for an indefinite increase of
capital and production, and for the increase of population which is its
ordinary accompaniment. That the growth of population will overpass the
increase of production, there is not much reason to apprehend. It is,
however, quite possible that there might be a great progress in industrial
improvement, and in the signs of what is commonly called national
prosperity; a great increase of aggregate wealth, and even, in some
respects, a better distribution of it; that not only the rich might grow
richer, but many of the poor might grow rich, that the intermediate
classes might become more numerous and powerful, and the means of
enjoyable existence be more and more largely diffused, while yet the great
class at the base of the whole might increase in numbers only, and not in
comfort nor in cultivation. We must, therefore, in considering the effects
of the progress of industry, admit as a supposition, however greatly we
deprecate as a fact, an increase of population as long-continued, as
indefinite, and possibly even as rapid, as the increase of production and
accumulation.
§ 2. Tendency to a Decline of the Value and Cost of Production of all
Commodities.
The changes which the progress of industry causes or presupposes in the
circumstances of production are necessarily attended with changes in the
values of commodities.
The permanent values of all things which are neither under a natural nor
under an artificial monopoly depend, as we have seen, on their cost of
production. (1.) But the increasing power which mankind are constantly
acquiring over nature increases more and more the efficiency of human
exertion, or, in other words, diminishes cost of production. All
inventions by which a greater quantity of any commodity can be produced
with the same labor, or the same quantity with less labor, or which
abridge the process, so that the capital employed needs not be advanced
for so long a time, lessen the cost of production of the commodity. As,
however, value is relative, if inventions and improvements in production
were made in all commodities, and all in the same degree, there would be
no alteration in values.
As for prices, in these circumstances they would be affected or not,
according as the improvements in production did or did not extend to the
precious metals. If the materials of money were an exception to the
general diminution of cost of production, the values of all other things
would fall in relation to money—that is, there would be a fall of general
prices throughout the world. But if money, like other things, and in the
same degree as other things, were obtained in greater abundance and
cheapness, prices would be no more affected than values would.
As regards the precious metals, it is to be said that since 1850
there has been a vast increase in their amount, and probably in
greater proportion than the need arising from increased
transactions. This is certainly true of silver; and it is admitted
to be true of gold as late as about 1865. It has been asserted by
Mr. Goschen that since then, especially since 1873, gold has not
existed in a quantity that would permit it to keep its former
proportions to commodities, and that it had appreciated. An
appreciation, of course, would show itself in lower gold prices.
On the other hand, gold has, as I think, not appreciated. Prices,
even in the collapse of credit after the panic of 1873 down to
1879, were not quite so low as in 1845-1850, as is seen by the
following table taken from the London “Economist”—2,200 indicating
the price of a given number of articles in 1845-1850, as the basis
of the table with which the prices of other years are compared:
Year. Index numbers.
1845-1850 2,200
1857, July 1 2,996
1858, January 1 2,612
1865 3,575
1866 3,564
1867 3,024
1868 2,682
1869 2,666
1870 2,689
1871 2,590
1872 2,835
1873 2,947
1874 (Depression) 2,891
1875 (Depression) 2,778
1876 (Depression) 2,711
1877 (Depression) 2,723
1878 (Depression) 2,529
1879 (Depression) 2,202
1880 2,538
1881 2,376
1882 2,435
1883 2,343
But the progress of society, particularly in the direction of
improved and cheapened processes of manufacturing, has vastly
lowered the cost of a great number of articles of common
consumption. The process has been already seen in the diminished
charge for railway transportation (see Chart No. V). Moreover, the
years of a depression are exactly those in which there is always a
forced economy, and generally form a period in which cheapening
goes on at its best. Hence, if prices have had a tendency to fall,
owing to the lowered cost of production consequent on
improvements—and if they are not, as a rule, lower than in 1850—it
shows that they are still supported by the high tide of the great
gold production of this century. And even the access to more
fertile land in the world has acted to prevent an increase in the
prices of agricultural products such as would offset the fall of
manufactured goods. That is, the fact that prices have not fallen
as much as might be expected, indicates that the gold has
prevented the lower costs due to the progress of industry from
being fully seen.
Improvements in production are not the only circumstance accompanying the
progress of industry, which tends to diminish the cost of producing, or at
least of obtaining, commodities. (2.) Another circumstance is the increase
of intercourse between different parts of the world. As commerce extends,
and the ignorant attempts to restrain it by tariffs become obsolete,
commodities tend more and more to be produced in the places in which their
production can be carried on at the least expense of labor and capital to
mankind. (3.) Much will also depend on the increasing migration of labor
and capital to unoccupied parts of the earth, of which the soil, climate,
and situation are found, by the ample means of exploration now possessed,
to promise not only a large return to industry, but great facilities of
producing commodities suited to the markets of old countries. Much as the
collective industry of the earth is likely to be increased in efficiency
by the extension of science and of the industrial arts, a still more
active source of increased cheapness of production will be found,
probably, for some time to come, in the gradually unfolding consequences
of Free Trade, and in the increasing scale on which Emigration and
Colonization will be carried on.
From the causes now enumerated, unless counteracted by others, the
progress of things enables a country to obtain, at less and less of real
cost, not only its own productions but those of foreign countries. Indeed,
whatever diminishes the cost of its own productions, when of an exportable
character, enables it, as we have already seen, to obtain its imports at
less real cost.
§ 3. —except the products of Agriculture and Mining, which have a tendency
to Rise.
Are no causes of an opposite character, brought into operation by the same
progress, sufficient in some cases not only to neutralize but to overcome
the former, and convert the descending movement of cost of production into
an ascending movement? We are already aware that there are such causes,
and that, in the case of the most important classes of commodities, food,
and materials, there is a tendency diametrically opposite to that of which
we have been speaking. The cost of production of these commodities tends
to increase.
This is not a property inherent in the commodities themselves. If
population were stationary, and the produce of the earth never needed to
be augmented in quantity, there would be no cause for greater cost of
production.(295) The only products of industry which, if population did
not increase, would be liable to a real increase of cost of production,
are those which, depending on a material which is not renewed, are either
wholly or partially exhaustible, such as coal, and most if not all metals;
for even iron, the most abundant as well as most useful of metallic
products, which forms an ingredient of most minerals and of almost all
rocks, is susceptible of exhaustion so far as regards its richest and most
tractable ores.
When, however, population increases, as it has never yet failed to do,
then comes into effect that fundamental law of production from the soil on
which we have so frequently had occasion to expatiate, the law that
increased labor, in any given state of agricultural skill, is attended
with a less than proportional increase of produce. The cost of production
of the fruits of the earth increases, _cæteris paribus_, with every
increase of the demand.
Mr. Cairnes has made some essential contributions to the
discussion of changes of value arising from the progress of
society:(296) “When a colony establishes itself in a new country,
the course of its industrial development naturally follows the
character of the opportunities offered to industrial enterprise by
the environment. These will, of course, vary a good deal,
according to the part of the world in which the new society
happens to be placed; but, speaking broadly, they will be such as
to draw the bulk of the industrial activity of the new people into
some one or more of those branches of industry which have been
conveniently designated ‘extractive.’ Agriculture, pastoral and
mining pursuits, and the cutting of lumber, are among the
principal of such industries.” To these pursuits apply “that law
of Political Economy, or, more properly, of physical nature, which
Mr. Mill has rightly characterized as the most important
proposition in economic science—the law, as he phrased it, of
‘diminishing productiveness.’ It may be thus briefly stated: In
any given state of the arts of production, the returns to human
industry employed upon natural agents will, up to a certain point,
be the maximum which those natural agents, cultivated with the
degree of skill brought to bear upon them, are capable of
yielding; but, after this point has been passed, though an
increased application of labor and capital will obtain an
increased return, it will not obtain a proportionally increased
return; on the contrary, every further increase of outlay—always
assuming that the skill employed in applying it continues the same
as before—will be attended with a return constantly
diminishing.... What I am now concerned to show is the manner in
which, with the progress of society, the law in question affects
the course of normal(297) values in all commodities coming under
its influence.
“The class of commodities in the production of which the
facilities possessed by new communities, as compared with old,
attain their greatest height, are those of which timber and meat
may be taken as the type, and comprises such articles as wool,
game, furs, hides, horns, pitch, resin, etc. The circumstance
which most powerfully affects the course of values in the products
of extractive industry, and in the commodities just referred to
among the rest, is the degree in which they admit of being
transported from place to place—that is to say, their
_portableness_—depending, as it does, partly on their durability
and partly on their bulk.” It is found that, taking timber and
meat as a type—one possessing portableness in a vastly greater
degree than the other—in the early settlement of a new country,
the portable article, like timber, at once rises in price “to a
level lower than that prevailing in old countries only by the cost
of transport”; on the other hand, perishable articles like meat
are “confined for a market, if not to the immediate locality where
it is produced, at least to the bordering countries; and, being
raised in new countries at very low cost, their value during the
early stages of their growth is necessarily low. But, as
population advances, and agriculture encroaches on the natural
pasture-lands originally available for the rearing of cattle,
still more as it becomes necessary to cultivate land for the
purpose of pasture, the cost of meat constantly rises.” As
population increases there will be an increased demand for
dairy-products, eggs, small fruits, fresh vegetables, milk, etc.,
and thereby it becomes more profitable to employ land near
populous centers for such perishable products than for the
products of large farming. Almost every one, who knows the high
prices of butter, eggs, and vegetables in large cities as compared
with their prices in country districts, is familiar with the
phenomena which illustrate this principle. Moreover, as a denser
population settles on our Western prairies, now given over to
ranches and vast pasturing-grounds for cattle—since cattle in
general require a large extent of land—the cost of meat will rise.
The prices of perishable articles, therefore, will rise without
any limit except that set by increasing numbers, and can not be
kept down by the force of competition from other distant places,
as is the case with such easily transportable things as timber and
wool. What has been said of the transportableness of meat,
however, is to be modified somewhat by the introduction of
improved processes of transporting meat in refrigerator-cars; but
there still exist commodities of which meat was only taken as a
type.
No tendency of a like kind exists with respect to manufactured articles.
The tendency is in the contrary direction. The larger the scale on which
manufacturing operations are carried on, the more cheaply they can in
general be performed. As manufactures, however, depend for their materials
either upon agriculture, or mining, or the spontaneous produce of the
earth, manufacturing industry is subject, in respect of one of its
essentials, to the same law as agriculture. But the crude material
generally forms so small a portion of the total cost that any tendency
which may exist to a progressive increase in that single item is much
overbalanced by the diminution continually taking place in all the other
elements; to which diminution it is impossible at present to assign any
limit.
It follows that the exchange values of manufactured articles, compared
with the products of agriculture and of mines, have, as population and
industry advance, a certain and decided tendency to fall. Money being a
product of mines, it may also be laid down as a rule that manufactured
articles tend, as society advances, to fall in money price. The industrial
history of modern nations, especially during the last hundred years, fully
bears out this assertion.
In regard to manufactures, as opposed to raw products, it is to be
remarked “that, as the course of price in the field of raw
products is, on the whole, upward, so in that of manufactured
goods the course is, not less strikingly, in the opposite
direction. The reasons of this are exceedingly plain. In the first
place, _division of labor_—the first and most powerful of all
cheapeners of production, but for which there is in extractive
industry but very limited scope—finds in manufacturing industry an
almost unbounded range for its application; and, secondly, it is
in manufacturing industry also that _machinery_, the other great
cheapener of production, admits of being employed on the largest
scale, and has, in fact, been employed with the most signal
success. It follows at once from these facts, taken in connection
with the further fact that industrial invention does not take
place _per saltum_, but gradually—one invention ever treading on
the heels of another—and that its advance seems to be subject to
no limitation; it follows, I say, from these considerations, that
that portion of the cost of manufactured goods which properly
belongs to the manufacturing process must, with the progress of
society, undergo constant diminution.... In all the great branches
of manufacturing industry the portion of the cost incurred in the
manufacturing process bears in general a large proportion to that
represented by the raw material, while the influence of industrial
invention, in reducing this portion of the cost, is, as every one
knows, great and unremitting in its action.”
As has been said, “the two great cheapeners of production are
division of labor and machinery, and the degree in which these
admit of being applied to manufacture is mainly dependent upon the
scale on which the manufacturing process is carried on. Those
manufactures, therefore, that are produced upon a large scale are
the sort of manufactures in which we may expect the greatest
reduction in cost; in which, therefore, the fall in price, with
the progress of society, will be most marked. But the manufactures
which are produced upon the largest scale are those for which
there exists the largest demand—that is to say, are those which
enter most extensively into the consumption of the great mass of
people. They are also, I may add, those in which a fall in price
is apt to stimulate a great increase of demand. All the common
kinds of clothing, furniture, and utensils fall within the scope
of this remark; and it is in these, rather than in the commodities
consumed exclusively or mainly by the richer classes, that we
should, accordingly, expect to find the greatest marvels of
cheapening.” But the articles of common consumption are those in
which “the amount of manufacture bestowed upon them bears a
smaller proportion to the raw material than is the case with the
more elaborate manufactures. Such coarser manufactures, therefore,
would feel the effects of the advancing cost of the raw material
more sensibly than the refined sorts. Nevertheless, it can not be
supposed to compensate the advantages due to the causes I have
pointed out which fall to the share of the commoner sorts. It is
in this class of goods that the most remarkable reductions in
price have been accomplished in the past, and it is in them,
probably, that we shall witness in the future the greatest results
of the same kind.”
§ 4. —that tendency from time to time Counteracted by Improvements in
Production.
Whether agricultural produce increases in absolute as well as comparative
cost of production depends on the conflict of the two antagonist
agencies—increase of population and improvement in agricultural skill. In
some, perhaps in most, states of society (looking at the whole surface of
the earth), both agricultural skill and population are either stationary,
or increase very slowly, and the cost of production of food, therefore, is
nearly stationary. In a society which is advancing in wealth, population
generally increases faster than agricultural skill, and food consequently
tends to become more costly; but there are times when a strong impulse
sets in toward agricultural improvement. Such an impulse has shown itself
in Great Britain during the last fifteen or twenty years [before 1847]. In
England and Scotland agricultural skill has of late increased considerably
faster than population, insomuch that food and other agricultural produce,
notwithstanding the increase of people, can be grown at less cost than
they were thirty years ago; and the abolition of the Corn Laws has given
an additional stimulus to the spirit of improvement. In some other
countries, and particularly in France, the improvement of agriculture
gains ground still more decidedly upon population, because though
agriculture, except in a few provinces, advances slowly, population
advances still more slowly, and even with increasing slowness, its growth
being kept down, not by poverty, which is diminishing, but by prudence.
Moreover, the cheapened cost of transportation has admitted to
England and the Continent the wheat supplies of our Western States
at a low price even after having been carried to transatlantic
markets. New methods of getting food-supplies from foreign
countries act equally with improvements at home.
§ 5. Effect of the Progress of Society in moderating fluctuations of
Value.
Thus far, of the effect of the progress of society on the permanent or
average values and prices of commodities. It remains to be considered in
what manner the same progress affects their fluctuations. Concerning the
answer to this question there can be no doubt. It tends in a very high
degree to diminish them.
In poor and backward societies, as in the East, and in Europe during the
middle ages, extraordinary differences in the price of the same commodity
might exist in places not very distant from each other, because the want
of roads and canals, the imperfection of marine navigation, and the
insecurity of communications generally, prevented things from being
transported from the places where they were cheap to those where they were
dear. The things most liable to fluctuations in value, those directly
influenced by the seasons, and especially food, were seldom carried to any
great distances. In most years, accordingly, there was, in some part or
other of any large country, a real dearth; while a deficiency at all
considerable, extending to the whole world, is [now] a thing almost
unknown. In modern times, therefore, there is only dearth, where there
formerly would have been famine, and sufficiency everywhere when anciently
there would have been scarcity in some places and superfluity in others.
The same change has taken place with respect to all other articles of
commerce. The safety and cheapness of communications, which enable a
deficiency in one place to be supplied from the surplus of another, at a
moderate or even a small advance on the ordinary price, render the
fluctuations of prices much less extreme than formerly. This effect is
much promoted by the existence of large capitals, belonging to what are
called speculative merchants, whose business it is to buy goods in order
to resell them at a profit. These dealers naturally buying things when
they are cheapest, and storing them up to be brought again into the market
when the price has become unusually high, the tendency of their operations
is to equalize price, or at least to moderate its inequalities. The prices
of things are neither so much depressed at one time, nor so much raised at
another, as they would be if speculative dealers did not exist.
Mr. Mill uses the term “speculative” in a different sense from
that which is customary in this country. Merchants who buy
outright and store up grain are not speculators in the sense in
which the word is used with us; but those gamblers who purchase,
“for future delivery,” grain which they never see, and which they
sell in the same way, are here known as speculators.
It appears, then, that the fluctuations of values and prices arising from
variations of supply, or from alterations in real (as distinguished from
speculative) demand, may be expected to become more moderate as society
advances. With regard to those which arise from miscalculation, and
especially from the alternations of undue expansion and excessive
contraction of credit, which occupy so conspicuous a place among
commercial phenomena, the same thing can not be affirmed with equal
confidence. Such vicissitudes, beginning with irrational speculation and
ending with a commercial crisis, have not hitherto become either less
frequent or less violent with the growth of capital and extension of
industry. Rather they may be said to have become more so, in consequence,
as is often said, of increased competition, but, as I prefer to say, of a
lower rate of profits and interest, which makes capitalists dissatisfied
with the ordinary course of safe mercantile gains. The connection of this
low rate of profit with the advance of population and accumulation is one
of the points to be illustrated in the ensuing chapters.
Mr. Cairnes also adds some investigations as to the fluctuations
of value: “Hitherto I have examined the derivative laws of value
in so far only as they are exemplified in the movements of
_normal_ prices. It will be interesting now to consider whether it
is possible to discover in the movements of _market_ prices any
corresponding phenomena.
“Taking manufactures first, it is evident at once that, as regards
conditions of protection, the circumstances of the case are such
as to secure, in general, (1.) great rapidity and great certainty
in bringing commodities to market. A deal table may be made in a
few hours, a piece of cloth in a few weeks, and a moderate-sized
house in a month or little more. Tables, cloth, and houses may be
produced with certainty in any quantity required. It results from
this that it is scarcely possible that, under ordinary
circumstances, the selling price of a product of manufacture
should for any long time much exceed its normal price. (2.) The
nature of manufactures is, in general, such as to fit them
admirably for distant transport. Any considerable elevation of
price, therefore, is pretty certain to attract supplies from
remote sources. (3.) Further, considered in their relation to
human needs, I think it may be said of manufactured goods, that
either the need for them is not very urgent, or, where it happens
to be so, substitutes ... may easily be found. From all these
circumstances it results that an advance in the price ... either
attracts supplies, or deters purchasers, ... preventing any great
departure from the usual terms of the market.
“Turning now to the products of agricultural, pastoral, or, more
generally, ‘extractive’ industry, we find the circumstances under
which this class of goods is brought to market in all respects
extremely different from those which we have just examined, and
such as to permit a much wider margin of deviation for the market
from the normal price. Here the period of production is longer,
the result of the process much more uncertain, the commodity at
once more perishable and less portable, and human requirements in
relation to it are mostly of a more urgent kind: (1.) The shortest
period within which additions can be made to the supply of food
and raw material of the vegetable kind is in general a year, and,
if the commodity be of animal origin, the minimum is considerably
larger. (2.) Again, the farmer may decide upon the breadth of
ground to be devoted to a particular crop, or upon the number of
cattle he will maintain; but the actual returns will vary
according to the season, and may prove far in excess or far in
defect of his calculations. These circumstances all present
obstacles to the adjustment of supply and demand, and consequently
tend to produce frequent and extensive deviations of the market
from the normal price. Nor are the other conditions of the case
such as to neutralize the influence of such disturbing agencies.
(3.) The nature, indeed, of some of the principal agricultural
products fits them sufficiently well for distant transport, and so
far tends to correct fluctuations of price. But, on the other
hand, (4.) the relation of these products to human wants is such
as greatly to enhance that tendency to violent fluctuation
incident to the conditions of their production. More especially is
this the case with the commodity, whatever it may be, which forms
the staple food of a people. For observe the peculiar nature of
human requirements with reference to such a commodity. They are of
this kind, that, given the number of a population, the quantity of
the staple food required is nearly a fixed quantity, and this
almost irrespective of price. Except among the poorest, increased
cheapness will not stimulate a larger consumption; while, on the
other hand, all, at any cost within the range of their means, will
obtain their usual supply. The consequence is that, when even a
moderate deficiency or excess occurs in the supply of the staple
food of a people, in the one case (_a_), the competition of
consumers for their usual quantum of food rapidly forces up the
price far out of proportion to the diminution in the supply; in
the other (_b_), no one being inclined to increase his usual
consumption, the competition of sellers, in their eagerness to
find a market for the superfluous portion of the supply, is equally powerful to depress it.” |
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