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Political Economy; Senior, Nassau W.
17 paragraphs found.
Chapter 2, Nature of Wealth

The things of which the utility is imperfectly transferable may be divided into two great classes. The first comprises all those material objects which are affected by the peculiar mental associations, or adapted to the peculiar wants, of individuals. A mansion may flatter the pride of its owner as having been the residence of his ancestors, or be endeared to him as the scene of his childhood; or he may have built it in a form which pleases no eye, or laid it out in apartments that suit no habits but his own. Still his substantial powers of affording warmth and shelter will obtain him purchasers or tenants, though they may demand a reduction from the price in consequence of those very qualities which, with him, formed its principal merits. The palace of St. James's is full of comfort and convenience, and would supply a man of large fortune with an excellent residence; but the long suite of apartments within apartments, which is admirably adapted to holding a Court, would be a mere incumbrance to any but a royal personage. Any individual might hire Alnwick or Blenheim, and enjoy their mere beauty and magnificence, perhaps, more than their owners who have been long familiarized to them; but he could never feel the peculiar pleasure which they seem fitted to give to a Percy and a Churchill. There are many things, such as clothes and furniture, which sink in utility in the estimation of every one but their purchaser, from the mere fact of having changed hands. A hat or a table which has been just sent home does not appear to the purchaser less useful than when he saw it in the shop; but if he attempt to resell either, he will find that with the rest of the world it has sunk into the degraded rank of second-hand.


Health, strength, and knowledge, and the other natural and acquired powers of body and mind, appear to us to be articles of wealth, precisely analogous to a residence having some qualities that are universally useful, and others peculiarly adapted to the tastes of its owner. They are limited in supply, and are causes of pleasure and preventives of pain far more effectual than the possession of Alnwick or of Blenheim. A portion of the advantages which arise from them are inseparably annexed to their possessor, like the associations of an hereditary property: another portion, and often a very large one, is as transferable as the palpable convenience of the mansion, or beauty of the gardens. What cannot be transferred are the temporary pleasure which generally accompanies the exercise of any accomplishment, and the habitual satisfaction arising from the consciousness of possessing it. What can be transferred are the beneficial results which follow from its having been employed during the period for which its services have been hired. If an Erskine or a Sugden undertakes my cause, he transfers to me, for that occasion, the use of all his natural and acquired ability. My defence is as well conducted as if I had myself the knowledge and the eloquence of an accomplished advocate. What he cannot transfer is the pleasure which he feels in the exercise of his dexterity; but how small is his pleasure compared to mine, if he succeeds for me! A passenger may envy the activity and intrepidity of the crew; they cannot actually implant in him their strength, or their insensibility to danger; but so far as these qualities are means towards an end, so far as they enable him to perform his voyage with quickness and safety, he enjoys the use of them as fully as if they belonged to himself. A hunter probably feels somewhat the same sort of pleasure in the chase which Erskine felt in court; and this pleasure cannot be transferred any more than his muscles or his lungs; but, so far as his strength, speed, and bottom are means towards the end of enabling his rider to keep up with the hounds, they can be purchased or hired as effectually as his bridle or saddle. In the greater part of the world a man is as purchasable as a horse. In such Countries the only difference in value between a slave and a brute consists in the degree in which they respectively possess the saleable qualities that we have been considering. If the question whether personal qualities are articles of wealth had been proposed in classical times, it would have appeared too clear for discussion. In Athens, every one would have replied that they, in fact, constituted the whole value of an Greek empsiuchon organon. The only differences in this respect between a freeman and a slave are, first, that the freeman sells himself, and only for a period, and to a certain extent: the slave may be sold by others, and absolutely; and, secondly, that the personal qualities of the slave are a portion of the wealth of his master; those of the freeman, so far as they can be made the subject of exchange, are a part of his own wealth. They perish indeed by his death, and may be impaired or destroyed by disease, or rendered valueless by any changes in the customs of the Country which shall destroy the demand for his services; but, subject to these contingencies, they are wealth, and wealth of the most valuable kind. The amount of revenue derived from their exercise in England far exceeds the rental of all the lands in Great Britain.


Demand and Supply.—The causes which determine the reciprocal values of commodities, or, in other words, which determine that a given quantity of one shall exchange for a given quantity of another, must be divided into two sets; those which occasion the one to be limited in supply and useful, (using that word to express the power of occasioning pleasure and preventing pain,) and those which occasion those attributes to belong to the other. In ordinary language, the force of the causes which give utility to a commodity is generally indicated by the word Demand; and the weakness of the obstacles which limit the quantity of a commodity by the word Supply.


Thus the common statement that commodities exchange in proportion to the Demand and Supply of each, means that they exchange in proportion to the force or weakness of the causes which give utility to them respectively, and to the weakness or force of the obstacles by which they are respectively limited in supply.


Unfortunately, however, the words Demand and Supply have not been always so used. Demand is sometimes used as synonymous with consumption, as when an increased production is said to generate an increased demand; sometimes it is used to express not only the desire to obtain a commodity, but the power to give the holder of it something which will induce him to part with it. "A Demand," says Mr. Mill, Political Economy, p. 23, 3d edition, "means the will to purchase and the power of purchasing." Mr. Malthus, Definitions in Political Economy, p. 244, states that "Demand for commodities has two distinct meanings: one in general to its extent, or the quantity of commodities purchased; the other in regard to its intensity, or the sacrifice which the demanders are able and willing to make in order to satisfy their wants."


Demand.—Neither of these expressions appears to be consistent with common usage. It must be admitted that the word Demand is used in its ordinary sense when we say that a deficient wheat harvest increases the Demand for oats and barley. But this proposition is not true if we use the word Demand in any other sense than as expressing the increased utility of oats and barley; or, in other words, the increased desire of the community to obtain them. The deficiency of wheat would not give to the consumers of oats and barley any increased power of purchasing them, nor would the quantity purchased or consumed be increased. The mode of consumption would be altered; instead of being applied to the feeding of horses, or to the supply of stimulant liquids, a certain portion of them would be used as human food. And, as the desire to eat is more urgent than the desire to feed horses, or drink beer or spirits, the desire to obtain oats and barley, or, in other words, the pleasure given, or the pain averted, by the possession of a given quantity of them, or, in other words, the utility of a given quantity of them, would increase. A fact which, in ordinary language, would be expressed by saying, that the demand for them was increased.


Intrinsic and Extrinsic Causes of the Value of a Commodity.—To revert to our original proposition, the reciprocal Values of any two commodities must be determined by two sets of causes; those which determine the Demand and Supply of the one, and those which determine the Demand and Supply of the other. The causes which give utility to a commodity and limit it in supply may be called the intrinsic causes of its value; those which limit the supply and occasion the utility of the commodities for which it is to be exchanged, may be called the extrinsic causes of its value. Gold and silver are now exchanged for one another in Europe in the proportion of one ounce of gold for about sixteen ounces of silver. This proportion must arise partly from the causes which give utility to gold and limit its supply, and partly from those which create the utility and limit the supply of silver. When talking of the value of gold we may consider the first set of causes as influencing its general value, since they affect its powers of commanding every commodity in exchange. The second set of causes affect gold only so far as it is to be exchanged for silver, which may be called one of its specific values; the aggregate of its specific values forming its general value. If, while the causes which give utility to silver and limit it in supply were unaltered, those which affect gold should vary; if, for instance, fashion should require every well-dressed man to have all his buttons of pure gold, or the disturbances in South America should permanently stop all the gold works of Brazil and Colombia, and thus (as would be the case) intercept five-sixths of our supplies of gold, the reciprocal values of gold and silver would in time be materially varied. Though silver would be unaltered both as to its utility and as to its limitation in supply, a given quantity of it would exchange for a less quantity of gold in the proportion perhaps of twenty to one, instead of sixteen to one. As between one another the rise and fall of gold and silver would precisely correspond, silver would fall and gold would rise one-fourth. But the fall of silver would not be general but specific; though fallen as estimated in gold, it would command precisely the same quantities as before of all other commodities. The rise of gold would be general; a given quantity of it would command one-fourth more not only of silver, but of all other commodities. The holder of a given quantity of silver would be just as rich as before for all purposes except the purchase of gold; the holder of a given quantity of gold would be richer than before for all purposes.


The effects of an increased Demand concurrent with increased obstacles to Supply, and of diminished Demand concurrent with increased facility of Supply, are well exemplified by hemp. Its average price before the revolutionary war, exclusive of duty, did not exceed £30 per ton. The increased Demand, occasioned by a maritime war, and the natural obstacles to a proportionate increase of Supply, raised it, in the year 1796, to above £50 a ton; at about which price it continued during the next twelve years. But in 1808, the rupture between England and the Baltic powers, the principal source of our supplies, suddenly raised it to £118 a ton, being nearly four times the average price in peace. At the close of the war, both the extraordinary demand and the extraordinary obstacles to the supply ceased together, and the price fell to about its former average.


We have already stated that the utility of a commodity, in our extended sense of the term utility, or, in other words, the demand for it as an object of purchase or hire, is principally dependent on the obstacles which limit its supply. But there are many cases in which, while the existing obstacles remain unaltered, the demand is affected by the slightest suspicion that their force may at a future period be increased or diminished. This occurs with respect to those commodities of which the supply is not susceptible of accurate regulation, but is afforded either in uncertain quantities and at stated periods, between which it cannot be increased or diminished,—in the case for instance of the annual products of the earth,—or is dependent on our relations with foreign Countries. If a harvest deficient by one-third should occur, that deficiency must last for a whole year, or be supplied from abroad at an extravagant cost. If we should go to war with Russia, the obstacles to the supply of hemp would be increased while the war lasted. In either case the holders of corn or hemp would obtain great profits. In all rich Countries, and particularly in our own, there is a great number of persons who have large masses of wealth capable of being suddenly applied to the purchase of any given objects. The instant such persons suspect that the obstacles to the supply of any article are likely to be increased, they are anxious to become holders of it. They enter the market as new demanders; the price rises, and the mere fact that it has risen is a cause of its rising further. The details of commerce are so numerous, the difficulty of obtaining early and accurate information is so great, and the facts themselves are so constantly changing, that the most cautious merchants are often forced to act upon very doubtful premises; and the imprudent, dazzled by the chance of an enormous gain, which will be their own, and little restrained by the fear of a loss which may principally fall upon their creditors, are often ready to act upon scarcely any premises at all. They see that the price of some article has risen, and they suppose that there must be some good cause for it. They see that if they had purchased a month ago, they would have been gainers now, and conclude that if they purchase now they will be gainers a month hence. So far is this reasoning, if it can be called reasoning, carried, that a rise in the price of any one important commodity is generally found to occasion a rise in the price of many others. "A" (thinks a speculator) "bought hemp before the price had risen, and has resold it at a profit. Cotton has not yet risen, nor do I see clearly why it should rise, any more than I see why hemp should have risen, but it probably will rise like hemp, therefore I will purchase."


"Cotton exhibited the most extraordinary instance of speculation carried beyond all reasonable bounds. Silk, wool, and some other articles, in which some advance was justified by the relative state of the supply and demand, became the subjects of a speculative anticipation, and advanced much beyond the occasion, as the event proved, though not in so great a degree as cotton.


When we consider that the supply of large classes of commodities is dependent on our amicable or hostile relations with foreign States, and on the commercial and financial legislation both of those States and of our own Country, and that the supply of still larger classes is dependent not only on those contingencies, but on the accidents of the seasons,—and when we consider how the demand is affected not merely by the existing, or the anticipated obstacles to the supply, but often by a spirit of speculation as blind as that of a gambler ignorant of the odds and even of the principles of his game,—it is obvious that the general value of all commodities, the quantity of each which will exchange for a given quantity of every other, can never remain the same for a single day. Every day there will be a variation in the demand or the supply of one or more of the innumerable classes of commodities which are the objects of exchange in a commercial Country. A given quantity of the commodity which has varied will consequently exchange for a greater or a less quantity of all other commodities. All other commodities, therefore, will have varied in value as estimated in the first-mentioned commodity. It is as impossible for one commodity to remain perfectly unaltered in value while any other is altered, as it would be for a lighthouse to keep at the same distance from all the ships in a harbour while any one of them should approach it or recede.


The fluctuations in value to which a commodity is subject by alterations, in what we have called the extrinsic causes of its value, or, in other words, by alterations in the demand or supply of other commodities, have a tendency, like all other extensive combinations of chances, to neutralize one another. While it retains the same utility, and is limited in supply by the same causes, a given quantity of it, though it may exchange for a greater or a less quantity of different specific commodities, will in general command the same average quantity as before of the general mass of commodities; what it gains or loses in one direction being made up in another. It may be said without impropriety, therefore, to remain steady in value. But the rise or fall in value which a commodity experiences in consequence of an alteration in its utility, or in the obstacles to its supply, is, in fact, entirely uncompensated. It is compensated only with regard to those commodities of which the utility or the supply has also varied at the same time and in the same direction. And as quite as many are likely to experience a similar variation, but in an opposite direction, there is really no compensation. A commodity, therefore, which is strikingly subject to such variations, is properly said to be unsteady in value.

Chapter 4, Distribution of Wealth

First, that all those things, and those things only, are susceptible of exchange, which, being transferable, are limited in supply, and are capable, directly or indirectly, of affording pleasure or preventing pain; a capacity to which we have affixed the name of utility. Secondly, that the reciprocal values of any two things, or, in other words, the quantity of the one which will exchange for a given quantity of the other, depend on two sets of causes; those which occasion the utility and limit the supply of the one, and those which limit the supply and occasion the utility of the other. The causes which occasion the utility and limit the supply of any given commodity or service, we denominated the intrinsic causes of its value. Those which limit the supply and occasion the utility of the commodities or services for which it is capable of being exchanged, we denominated the extrinsic causes of its value. And, thirdly, that comparative limitation of supply, or, to speak more familiarly, though less philosophically, comparative scarcity, though not sufficient to constitute value, is by far its most important element; utility, or, in other words, demand, being mainly dependent on it. We had not then shown the means by which supply is effected. Having done this, having shown that human Labour and Abstinence, and the spontaneous agency of Nature, are the three instruments of production, we are at liberty to explain what are the obstacles which limit the supply of all that is produced, and the mode in which those obstacles affect the reciprocal values of the different subjects of exchange.


And it is equally clear that no rent can be paid by the farmer for the privilege of producing the last thirty-three one-third quarters, as the whole £100 for which it sells is absorbed by the cost of production. The last thirty-three one-third quarters will continue to be produced as long as the wants and the wealth of the purchasers render them willing and able to purchase a quantity of corn, the whole of which cannot be supplied unless this last and most expensive portion is produced. If those wants and wealth should increase, it might become necessary to raise an additional supply at a still further additional expense, at the cost, we will say, of £100 for only twenty quarters. But it is clear that this could not be done unless the price should be £5 a quarter, since that is the lowest price at which the cost of producing the last supply would be repaid. The price, indeed, would probably have previously risen to above £5 a quarter, since an interval must have elapsed between the increased demand occasioned by the increased wants and wealth of the purchasers and the increase of the supply. During that interval the price must have risen somewhat above the price at which it would settle when the additional supply had been obtained. The appearance of that additional supply would sink it to £5 a quarter, the cost at which that supply is produced, but it could not permanently fall below that price unless a diminution should take place either in the wants or wealth of the purchasers, or in the expenses of cultivation or conveyance.


We will suppose a tax on watches of twenty-five per cent. on their value to have existed from the commencement of that trade. As there is no reason to suppose that the profits or the wages of master watchmakers or their workmen are, under present circumstances, above the average wages and profits of persons similarly employed, it is clear that, if such a tax had always existed, the price for the time being of watches must always have been one-fourth higher than it has been, or the trade of watchmaking would have been followed neither by labourers nor capitalists. It is clear also that such an increase of price must always have diminished or retarded in its increase the sale, and, consequently, the production of watches. But if fewer watches had been made, the smaller number would have been made at a greater proportionate expense. And the price of watches must have been higher than it actually has been, first by the amount of the tax, and, secondly, by the greater expensiveness of the more limited manufacture. It is equally clear that, after the removal of such a tax, the price of watches would sink, first by the amount of the tax removed, and, secondly, by the improvement in the manufacture consequent on an increased production. It is equally clear that, if such a tax were now for the first time to be imposed, the price of watches must rise, first by the amount of the tax, and, secondly, by the amount of the increased proportionate expense of making and selling the diminished quantity sold, or watchmaking would cease to be as profitable as the average of trades. It is clear, too, that the more the use of watches diminished, the higher the price must eventually rise. If only ten new watches were made every year, they would probably cost £500 a-piece. If only one were made, it would probably cost little less than the whole price of the ten. It is true that these effects would not immediately follow either the imposition or the removal of the tax; an interval must in either case elapse, during which, the existing capital in the watchmaking trade continuing the same, the supply of watches would be neither increased nor diminished, and, consequently, the price but little affected. During this interval, both the wages and the profits of those engaged in that business would be unnaturally high, or unnaturally low, and they would not acquire their natural level until, in the case of the removal of the tax, a sufficient number of persons were educated to the business, or, in the case of the imposition of the tax, the number of persons educated to the business had been sufficiently diminished, to enable the supply of watches to be proportioned to the demand, at a price giving average profits and wages to the capitalists and labourers employed in their manufacture and sale.


If we suppose a Country to be divided into ten districts designated by the numbers from 1 to 10, each of equal extent, but each of a different degree of fertility, No. 1 producing, at a given expense, two hundred quarters of corn, and the amount of the produce, at the same expense, of each quality of land, diminishing by ten quarters, until we come to No. 10, which produces only one hundred quarters, we shall find that when No. 1 only will pay for cultivation, it affords twenty quarters for tithes, and no rent. When the price of corn has risen sufficiently to enable No. 2 to be cultivated, there will be on Nos. 1 and 2 thirty-nine quarters for tithes, and on No. 1 ten for rent. When No. 3 has become worth cultivation, there will be on Nos. 1, 2, and 3, fifty-seven for tithes, and on Nos. 1 and 2 thirty for rent. When No. 4 has become worth cultivating, there will be on Nos. 1, 2, 3, and 4, seventy-four for tithes, and on Nos. 1, 2, and 3, sixty for rent. When No. 5 has become worth cultivating, there will be on Nos. 1, 2, 3, 4, and 5, ninety for tithes, and on Nos. 1, 2, 3, and 4, one hundred for rent. Rent has now passed tithes, and its subsequent superiority is very striking. When No. 6 has become worth cultivating, there will be one hundred and five for tithes, and one hundred and fifty for rent. When No. 7 has become worth cultivating, there will be one hundred and nineteen for tithes, and two hundred and ten for rent. When No. 8 has become worth cultivating, tithes will be one hundred and thirty-two, and rent two hundred and eighty. When No. 9 has become worth cultivating, tithes will be one hundred and forty-four, and rent three hundred and sixty. And when No. 10 has become worth cultivating, tithes will be one hundred and fifty-five, and rent four hundred and fifty. And the same results will follow if, instead of supposing fresh land of a regularly decreasing fertility to be taken into cultivation, we suppose further capital to be applied to the same land, with a regularly decreasing proportionate return. Of course we do not mean that either of these suppositions represents what actually takes place, but they each represent the course of events to which there is a natural tendency. They represent the relative ratio at which rent and tithes would increase in the absence of disturbing causes. It must be recollected, however, that these events would not take place in the regular order in which we have placed them, except on the supposition of each different district which we have supposed to be successively cultivated being of the same extent, and of each successive application of capital being of the same value. If, for instance, No. 10 were ten times as large as any one of the other districts, and received ten times as much capital, it would increase the whole amount of titheable produce by one thousand quarters instead of by one hundred quarters, and tithes would be raised from one hundred and forty-four quarters to two hundred and forty-four quarters, while rent would have risen only from three hundred and sixty quarters to four hundred and fifty. In such an event, therefore, tithes would rise more than rent. And it must also be recollected that tithes and rent do not rise at precisely the same period. The highest amount of rent must be just before the land producing the additional supply has been cultivated. The increased demand is then in full operation, and has not been counteracted by the increased supply. But the amount of tithes is not increased until after the additional supply has been produced. Their increase, therefore, is generally contemporaneous with a temporary fall of rent: which is probably one of the causes of the popular opinion that their general tendency to increase is greater than that of rent. Another source of that opinion is, that in England the land has been for centuries subject to a constant process of subdivision, while tithes, except the comparatively small part which belongs to laymen, have not. The incumbent of a given benefice receives the tithes of the same quantity of land which was tithed by his predecessor three hundred years ago. But that land three hundred years ago may have belonged to one or two persons, and may now be divided between ten or twenty. The present incumbent's income may bear a higher proportion than his predecessors did to the average income of a single landlord, though it bears a lower proportion to the aggregate income of all the landlords of the parish. And as a general proposition, we have no doubt that, in a progressive Country, the value of tithes will seldom increase in proportion to the increasing value of the land out of which they issue.

Chapter 4, Distribution of Wealth, continued

Secondly. It is inconsistent with the doctrine, that Wages depend on the proportion borne by the number of Labourers to the whole revenue of the society of which they are members. In the example last suggested, of the introduction of a new supply of lace or diamonds, the revenues of those who use lace or diamonds would be increased; but as wages are not spent on those articles, they would remain unaltered. It is possible, indeed, to state cases in which the revenue of a large portion of a community might be increased, and yet the wages of the labourers might fall without an increase of their numbers. We will suppose the principal trade of Ireland to be the raising of produce for the English market; and that for every two hundred acres ten families were employed in raising, on half the land, their own subsistence, and on the remainder corn and other exportable crops requiring equal labour. Under such circumstances, if a demand should arise in the English market for cattle, butchers'-meat, and wool, instead of corn, it would be the interest of the Irish landlords and farmers to convert their estates from arable into pasture. Instead of ten families for every two hundred acres, two might be sufficient: one to raise the subsistence of the two, and the other to tend the cattle and sheep. The revenue of the landlords and the farmers would be increased: and, if they employed the whole of that increase in the purchase of Irish labour, all parties would be benefited. But if they devoted the greater part of it to the purchase of English manufactures, the services of a large portion of the Irish labourers would cease to be required; a large portion of the land formerly employed in producing commodities for their use would be devoted to the production of commodities for the use of England; and the fund for the maintenance of Irish labour would fall, notwithstanding the increase of the revenue of the landlords and farmers.