Popular Political Economy: Four Lectures Delivered at the London Mechanics' Institution
By Thomas Hodgskin
THIS book not being exactly a transcript of the Lectures delivered by the author at the London Mechanics Institution in 1826, he thinks it is right to point out in what respects it resembles or differs from them. The first lecture, on THE INFLUENCE OF KNOWLEDGE, consisted of the second, and part of the third chapters of the present work, with one or two passages of the Introduction. The second lecture, on DIVISION OF LABOUR, is here transformed into the fourth, fifth, and sixth chapters. The seventh chapter, on TRADE, formed the third lecture; and the chapters on MONEY and PRICES contain the substance of the fourth lecture. The greater part of the Introduction, and of the third chapter, with the first and tenth chapters, formed no part of the Lectures. Some few passages, alluding to events connected with the Institution, have been suppressed, though with some pain to the author, because they were appropriate only when mentioned in the presence of those who could judge of their correctness. Many passages also have been added, even in those chapters which are most literally a transcript of the Lectures. To those who did not hear them, the view here taken of PRODUCTION will probably appear to have some little novelty in it; and those who did, should they look into the book from the expectation of finding something to read more than they heard, will not be disappointed…[From the Preface]
First Pub. Date
1827
Publisher
London: Charles Tait
Pub. Date
1827
Copyright
The text of this edition is in the public domain.
Distinction between money price and natural price, and between natural and social price.—Opinion that natural price rises in the progress of society, stated and examined.—It was not Dr. Smith’s opinion.—Corn is a manufactured article.—The labour necessary to procure it, does not increase in the progress of society.—Price of wheat has not increased as our population has multiplied. Is less in well peopled than other countries. Effects of demand and supply on natural and on money prices. Money price regulates consumption, and indicates the most profitable production.
Chapter IX
PRICES.
FROM what has been said on money, the reader will see that the term “money price,” as applied to any commodities, only signifies the natural relation which exists at any given moment between them and a specific quantity of bullion in coin,—the use of bank notes, as long as they are payable on demand in the precious metals, not altering this relation: NATURAL or necessary price means, on the contrary, the whole quantity of labour nature requires from man, that he may produce any commodity,—the natural and necessary price of money being determined, like that of all other commodities, by the quantity of labour required to produce it. Nature exacted nothing but labour in time past, she demands only labour at present, and she will require merely labour in all future time. Labour was
the original, is now and ever will be the only purchase money in dealing with Nature. There is another description of price, to which I shall give the name of
social, it is natural price enhanced by social regulations. Whatever quantity of labour may be requisite to produce any commodity, the labourer must always, in the present state of society, give a great deal more labour to acquire and possess it than is requisite to buy it from nature. Natural price thus increased to the labourer, is SOCIAL PRICE. To understand the natural laws which regulate the progress of nations in wealth, and rightly to estimate the causes which retard it, we must always attend to the difference between natural and social price.
*73 Leaving,
however, a social price entirely out of view, I shall confine my present remarks to natural price; and I should not have noticed it, were there not a theory now prevalent, which assumes as its basis that natural price necessarily rises in the progress of society.
“In the progress of society,” says Mr. Ricardo, the great supporter of this doctrine, “the
additional quantity of food required is obtained by the sacrifice of more and more labour.” “It is the
natural effect of improvement.” says Dr. Smith, “to diminish gradually the real (natural) price of almost all manufactures.” I have endeavoured to show, that extended division of labour and increased knowledge are necessary consequences of the progress of society. Mr. Ricardo himself states, that this “sacrifice of more and more labour is happily checked at repeated intervals, by the improvements
in machinery connected with the production of necessaries, as well as by discoveries in the science of agriculture, which enable us to relinquish a portion of the labour before required.” Supposing that there does actually arise, in the progress of society, a necessity for us to have continually recourse to soils of less and less fertility, though we are completely ignorant of what constitutes a fertile soil, and that which is fertile when we know how to employ its powers, is barren when we are ignorant of the laws which regulate vegetation; yet it is plain, and it is admitted, that there are numberless circumstances which compensate for decreasing fertility. It is therefore equally plain, that to ascertain whether these opposing circumstances exactly neutralize each other in the progress of society, or whether the necessary supplies of food be obtained by a less or a greater quantity of labour, as men multiply, demands a wide inquiry; and I must confess I am astonished at the hasty and dogmatical manner in which Mr. Malthus, Mr. Ricardo, and their disciples, have decided, on the single principle of decreasing fertility, this most important, extensive, and complicated question. I do not suppose that I shall induce the reader to come to a directly opposite conclusion, neither do I mean to enter fully into the question; but I regard the inquiry as of so much importance, that I cannot avoid stating some of those circumstances, which should make us at least hesitate in adopting a conclusion, which seems at variance with the general system of the universe. If nature do not demand more labour for food as society advances, then may we suppose that the difficulty which the labourer unquestionably
experiences in obtaining food, is the result not of natural, but of social circumstances.
The natural difficulty of procuring food, or natural price, depends so almost exclusively on increase of knowledge and division of labour, and consequently on an increase of people, that it seems to have a continual tendency to diminish. In fact, it is admitted that, except as to the production of food, natural and necessary price does fall in the progress of society. “In all cases,” says Dr. Smith, “in which the real price of the rude materials either does not rise at all, or does not rise very much, that of the manufactured commodity
sinks very considerably. This diminution of price has, in the course of the present century, been most remarkable in those manufactures of which the materials are the coarser metals. A better movement of a watch than about the middle of the last century could have been bought for twenty pounds, may now, perhaps, be had for twenty shillings. In the work of cutlers and locksmiths, in all the toys which are made of the coarser metals, and in all those goods which are commonly known by the name of Birmingham and Sheffield ware, there has been, during the same period, a very great reduction of price, though not altogether so great as in watch-work. It has, however, been sufficient to astonish the workmen of every other part of Europe, who in many cases acknowledge that they can produce no work of equal goodness for double or even triple the price.
*74 Since the Wealth of Nations was published, numerous improvements have been made in the very arts to which Dr. Smith refers, and could his
piercing mind now contemplate the skill of our contrivances, and the cheapness of our commodities, his conviction that natural price diminishes in the progress of society would acquire tenfold force. The reader cannot fail to remark, that the improvements mentioned by Dr. Smith, and those subsequently made in the same arts, arose in one of the most crowded communities of Europe, and have been extended as the people increased in number.
Dr. Smith extends this general principle to woollens, to corn, and to all commodities which are the produce of labour; but he excepts game, cattle, poultry, &c. &c. which find food for themselves, and are originally in such plenty, that man obtains them by the labour of killing them. In the progress of society, as it becomes necessary to domesticate, rear, and nourish them by labour, their price rises, but the price of all other commodities decreases. I have already mentioned, page 66, the fall in the price of tea: in the ”
Wealth of Nations,” book i. chapter XI, the reader will find many examples of a similar fall in prices, which, though very instructive, I do not think it necessary to quote, as the book is easily accessible, and in all manufactured cottons, the fall of natural price has been still more remarkable, confirming to demonstration, the general principle of natural price necessarily falling in the progress of society.
Corn of every kind may be considered as a manufactured commodity, matured certainly by the aid of natural agents,—as what can we mature without them?—but matured by means of a great deal of labour. Is there any peculiarity possessed by manufactured corn which makes it, like game, or wild animals, or the
spontaneous productions of the earth, an exception to the general law? If we do not exclusively fix our attention on the single circumstance of men first occupying, as it is supposed they do in all cases, the most fertile lands, we must, I think, answer no. To prepare the soil for the cultivation of grain, requires, in all cases, a series of operations, which need not afterwards be annually repeated, though the harvest is gathered every year. In America, for example, the ground must now be cleared of forest trees, and when this labour has been executed, the soil yields a crop annually, in return for the mere labour of sowing and reaping it. A field under-drained, to carry off superfluous moisture, or intersected by numberless canals, that it may be artificially watered, yields its rich returns every subsequent year, though it is not necessary to repeat these labours. When houses and barns are built, when roads and bridges are once made, they only require some trifling annual repairs, and they facilitate the labour of all succeeding generations, giving them, in fact, an equal crop, for a continually diminishing quantity of labour. Nor must we forget that
our grain is the produce of art and industry; and when once matured or obtained, is a means of lessening the labour of all those who provide the society with food. The same remark holds good of cattle, which when once tamed and domesticated, only require that man should provide them with subsistence. Moreover, the mere sowing the seed, and reaping the harvest, are only parts of the complicated process of providing food. The ground must be cleared and tilled, and the grain must be ground and prepared; and to perform these operations, as well as the operations of sowing, and reaping, and carrying home, and housing
the grain, numberless instruments and machines are requisite, all of which have been invented and improved, as society has advanced,—diminishing to an almost inconceivable degree, the labour necessary to procure meat or make bread.
It must also be remembered, that those who are engaged in agriculture must have clothing, and many other things, as well as food and instruments. If the instruments they use are made by less labour, it is plain that the
whole quantity of labour required to produce corn is diminished. It is not, however, so plain, though it is equally true, that if the cost of other necessaries required by the agriculturists is diminished, that also will lessen to him the cost of producing corn. He must have clothing, and if he can obtain it by sacrificing a tenth, instead of a sixth part of his crops, more remains for his own use, and the labour necessary to procure his subsistence is diminished. If other people did not make the clothing, he must make it himself, and all the facilities he could invent for manufacturing clothing, would enable him to devote more time to manufacturing wheat. It makes no difference, in a general point of view, that clothing is made by another set of labourers; all their improvements, supplying the manufacturers of corn with clothing at a less cost, leave the latter more corn in return for their labour; or diminish to them, and to society at large, the natural price of that quantity of food required for subsistence.
The opinion that the natural price of food lessens rather than increases in the progress of society, seems borne out by facts. If we take the two extremes of savage and civilized society, the natives of New Holland and the people of England for example, if we
observe how the proportion of persons who raise no raw produce,—including not only those who do not labour at all, but also those who are engaged in the various departments of manufactures and trade, as well as all the officers, dependents, and servants of government,—continually increases, forming, as I have already mentioned, five-sixths of this community,—we must be convinced, that in the progress of society food is obtained by less and less labour. When we look also at the various improvements continually made in the arts, most of which tend, in some way or other, to diminish the labour necessary to prepare bread and procure meat, we must come, I think, to the same conclusion. Those who have embraced the opposite opinion, have been led into a mistake by confining their observations to a short and single period; and, perhaps, by looking too exclusively at the immediate cause of extended cultivation, which is in all cases increased demand, and temporary higher prices. Their opinion has grown up within the last thirty years, and within that period there was a considerable rise in the price of corn, which, in this country, thrown back as it was by the conduct of its rulers on its own resources, might be distinctly traced to the increased difficulty then experienced in obtaining the necessary supplies of food. But if we extend our observations over a longer period, we shall find no proof of a gradual and general rise in the price of corn as population increases.
In Dr. Smith’s valuable work, there is a table containing the average price of wheat, calculated in our present money, in the Windsor market for several centuries. The invention of paper money, it will be remembered, has contributed to render metallic coin less
necessary than formerly. Various improvements also in navigation, in the art of mining, and of extracting metals from the ore, have diminished the labour necessary to obtain gold and silver in Europe. From these causes combined, it is probable that the precious metals have fallen considerably in value. For the alterations which have been made in the nominal value of our coin, Dr. Smith has allowed; but for the quantity of labour now required less than formerly to obtain and coin the precious metals, no man can make an accurate allowance. If the quantity of labour necessary to obtain money have been lessened, any given quantity of it will now measure a less quantity of labour than formerly, and of other things. If, for example, it required, four centuries ago, three weeks labour to obtain a pound of silver, which then exchanged, on an average, for a quarter of wheat; and if a pound of silver be now obtained by fourteen days labour, and it still exchange, on an average, for a quarter of wheat, the latter must, like the former, be now obtained by one third less labour. I am fully aware that we have no accurate standard for former and present values, and that tables of prices, extending over long periods, are not much to be relied on; but when they confirm a theory, which seems on other grounds to be sanctioned by experience, we are entitled to place some confidence in them.
On Dr. Smith’s showing, it appears that the average price of wheat in the Windsor market was per quarter.
| Years. | £. | s. | d. |
|---|---|---|---|
| From 1202 to 1286 | 2 | 19 | 1 |
| 1287-1338 | 1 | 18 | 8 |
| 1339-1416 | 1 | 5 | 9 |
| 1423-1451 | 1 | 1 | 3 |
| 1453-1497 | 0 | 14 | 1 |
| 1499-1560 | 0 | 10 | 0 |
After this period, the effects of the discovery of America, and consequent cheapness of the precious metals, was felt on money prices; their value being every where much lowered, and money prices much raised. Prior to the discovery of America, the value of silver, it is supposed, was gradually rising, owing to the increasing difficulty felt throughout Europe of obtaining the necessary supply. The average money price of the quarter of wheat became subsequently much higher, and was as follows:—
| £. | s. | d. | |
|---|---|---|---|
| From 1561 to 1601 | 2 | 7 | 5 |
| 1602-1620 | 2 | 0 | 7 |
| 1621-1636 | 1 | 19 | 6 |
| 1637-1700 | 2 | 5 | 4 |
| 1701-1764 | 1 | 15 | 1 |
| *751766-1770 | 2 | 7 | 8 |
| *761792-1796 | 2 | 19 | 6 |
| 1796-1801 | 4 | 10 | 10 |
| 1801-1804 | 3 | 5 | 6 |
Since the last mentioned period, the price has varied considerably. The average of five years, ending with 1811, was 96
s. the quarter, while the average of ten years, ending with 1823, during which time we have had the corn laws in full operation, was 68
s. Now, if
these laws were repealed, and the trade in corn were quite free, there can be no doubt that the quarter of wheat would be sold in our markets for a sum considerably less than 68
s. Some authors say it would fall to 30
s. the quarter, but none fix it higher than 54
s. There is no reason, therefore, to infer from the price at which corn is now sold in this country, or at which we might obtain it, as compared with former prices, that corn has gradually, naturally, and necessarily risen in price. The average price of wheat in the thirteenth century, was higher than the average price at any subsequent period, except the period between 1792 and the present time; and for the extraordinary rise of price during this latter period, from which alone Mr. Ricardo and his disciples appear to have formed their opinion, it is easy to account without having recourse to the supposition that the difficulty of obtaining food naturally and necessarily increases in the progress of society. The principal causes why the price of grain rose subsequently to 1792, were, first, a succession of bad seasons; second, the political state of all Europe; and third, the vast increase which then took place, owing to the invention of the steam-engine and other useful machines, in the produce of manufacturing and commercial industry. It is incompatible with my present object to explain these causes in detail. Fortunately also it cannot be requisite. It is plain from the table, and from the price at which, but for social regulations, wheat would now be sold in our markets, and taking into consideration the circumstance of money being gradually procured by less and less labour,—that the price of wheat has a natural tendency to fall, rather than to rise in the progress of society.
This view is confirmed also, I think, by what we know of other countries. In the returns, for example, recently made by his Majesty’s consuls abroad, which have been printed by the order of the House of Commons, it is stated that the price of grain was higher in 1825, and generally is higher in Spain and Portugal, than in France, in England, and in Holland, and higher in France than in Holland. In Spain the number of inhabitants to each square mile is 55, in Portugal 90, while in France the number is 143, and in Holland 212. Spain and Portugal, therefore, are less densely peopled than France, and France is not so crowded as Holland. As it is well known that these returns coincide with the general state of the market in these countries, we have in them a corroborative proof, that the price of grain does not naturally and necessarily rise as people are multiplied.
On this all important question, the political condition of the agriculturist, and the manner in which land is appropriated, have no inconsiderable influence: in consequence of the latter, corn has ever been at a monopoly money-price; in consequence of the former, improvement has been comparatively slow in agriculture. The price of its produce has not, therefore, fallen in the same degree as the price of manufactures, with which alone it could be and has been compared. The price of most other manufactured commodities, on the contrary, has not been a monopoly price; and generally speaking, the manufacturers have been in a better political condition than the agriculturists. They have been collected in towns, have been able to protect their rights, and have been superior to the peasantry in all the circumstances which increase knowledge and promote
division of labour. Knowledge and division of labour have both increased amongst the agriculturists, but not in the same degree as among manufacturers. It is only, however, by comparing the price of agricultural produce, with the more diminished price of manufactures, that any plausibility has been given to the statement of a natural and a necessary increase in the difficulties of procuring subsistence.
The natural price of food to a manufacturer and to a manufacturing nation, is measured by the quantity of labour, and nothing else, necessary to produce the commodities with which they buy food. The natural price of food, for example, to the inhabitants of Manchester, is the quantity of labour necessary to make the cottons, with which they can or might purchase at their own doors, the wheat of Ireland or Poland, the flour of the United States, the maize of Mexico, or the raw produce of any other part of the world. But the quantity of labour necessary to manufacture cottons at Manchester, and to grow wheat in America, and bring it to Europe, has decreased wonderfully since America was first discovered; whence it is plain, that the inhabitants of Manchester, numerous as they now are, might, were it not for certain social regulations, obtain food at a less natural price than one, two, or three centuries ago. Unfortunately, all commerce is so much regulated by legislation, that all money price at present represents social price; and still more unfortunately, industry and trade have been so impeded by social regulations, that it is not possible for us to form any idea of the extent to which the natural price of all things would necessarily fall. Restrictions and exactions have been multiplied as the benevolent laws of nature became manifest, and more and more has been continually
taken from the labourer, as it was discovered that his powers of production increased, and that more might be taken without putting him out of existence. By his labour, and by nothing else, is natural price measured, but he never obtains commodities for the labour of producing them. At present, therefore, all money price is not natural but social price.
The natural or necessary price of commodities is only influenced by all those circumstances which make labour more or less productive. It is the prime but not sole regulator of exchangeable value, of money and of social price. No commodity can in the long run be exchanged for less, though it may for more, labour than it cost. Natural price is therefore always the limit in one direction, but in only one, to the money price of all commodities. They cannot be sold for less labour than they cost, but they may be sold for more.
Over natural price, the relation of the demand to the supply, which is frequently said to regulate price, seems in the long run to have a tendency to lower it. The ingenuity of man being necessarily first and chiefly directed towards supplying his more urgent wants, the labour employed in supplying necessaries will be most improved. Clothing, for example, is in this country one of the necessaries of life. Owing to a variety of circumstances, the manufacture of cotton is perhaps less shackled by social regulations than any other, and the reduction of the price of cotton within fifty years has been most extraordinary; substantiating by fact the assertion, that demand, when man is free to labour, has a tendency to diminish the natural cost of the necessaries of life.
*77
Over money or nominal price, the relation of the demand to the supply has a very powerful but varying influence, comprising all the difference between the price of food in a besieged city, and its price when the supply is greater than is required. Money, as well as all the commodities of which it measures the value, are subject to variations in their natural price; and most commodities, including money, are unequally affected by social regulations. The money price of all commodities is consequently influenced by numerous
circumstances; and it is by no means an easy task, as many persons suppose, to detect the real cause of those variations in price which are of daily occurrence. In no case, however, is a fall of price beneficial, unless it be caused by a diminution of the labour necessary to bring commodities to market. In all other cases the fall can be only temporary, and it takes place at the expense of the producers.
Variations in price have very important results. By bringing commodities within, or carrying them out of the reach of a certain number of persons, they regulate consumption. If the price of bread were not to rise the instant it is ascertained, or even rendered probable, that the crop of wheat will be short, no persons would be admonished in time to lessen their consumption, or seek for other food than wheaten bread; and before the next harvest famine might ensue. On the other hand, were prices not to fall when the crop is abundant, there would be no stimulus to increased consumption, and the bounties of nature, instead of causing joy and gladness, would turn to mouldiness and corruption. Money price, as determined by the relation of the demand to the supply, “is the nicely poised balance,” says Mr. Buchanan, “with which Nature weighs and distributes to her children their respective shares of her gifts, to prevent waste, and to make them last till reproduced.” It is also the index to the wants of society; or it is the finger of Heaven, indicating to all men how they may employ their time and talents most profitably for themselves, and most beneficially for the whole society.
l. per bale of 240 lb. net weight, exclusive of freight and insurance from Havre hither. The whole expense of freight and insurance from Italy, does not at present amount to more than 6
l. per bale.” “The charges of freight and French licence on a vessel of little more than 100 tons burthen, have been known to amount to 50,000
l. for the voyage merely from Calais to London and back: this made the proportion of freight on indigo, amount to 4
s. 6
d. per pound; the freight at present is about 1d. per pound.”—”A ship, of which the whole cost and outfit did not amount to 4000
l. earned a gross freight of 80,000
l, on a voyage from Bordeaux to London and back.”
“Among the means devised by the ingenuity and enterprise of adventurers, to elude or overcome the obstacles presented by the decrees of the enemy, one in particular, which was resorted to on an extensive scale, deserves to be mentioned, as illustrating in a striking manner the degree in which those obstacles were calculated to increase the cost to the consumer. Several vessels laden with sugar, coffee, tobacco, cotton-twist, and other valuable commodities, were despatched from hence, at very high rates of freight and insurance, to Salonica, where the goods were landed, thence conveyed on horses and mules through Servia and Hungary, to Vienna, for the purpose of being distributed over Germany, and possibly into France. Thus it might happen, that the inhabitants of that part of the continent of Europe most contiguous to this country, could not receive their supplies from hence, without an expense of conveyance equivalent to what it would be if they were removed to a distance of a
sea voyage twice round the globe, but not subject to fiscal and political obstructions.“
necessity, or the increased demand arising from an increase of people, in promoting the improvement of cultivation, and lowering the price of corn. As soon as division of labour is introduced into society, or as soon as the principal part of the agriculturist’s produce is intended not for his own consumption, but to be sold, this increased demand can only be known to him by an increase in the price of corn. Such an increase is the immediate stimulus to his exertions, and the cause of an increase in his ingenuity; which, in the long run, tends invariably to supply us with agricultural produce by less labour, and thus to lower price. If this be a correct explanation of what actually and naturally occurs, it shows us how short-sighted was that selfishness in the non-agricultural classes, which induced them, in times past, continually to appeal to governments to keep the price of corn from rising by artificial regulations; and it shows how perversely ignorant were those governments which, in consequence of such appeals, actually fixed a maximum for the price of corn and bread. The effect of such appeals, and of such regulations, must have been the very opposite from what the parties wished and intended. They must have diminished the stimulus to agricultural improvements, have lessened the supply, and have prevented that fall of price which I contend would naturally and necessarily have taken place. This observation is of some practical importance, because there is yet a disposition to call out for regulations to keep down prices; and yet, not a few parts of the world, where the governments endeavour to accomplish this by regulations.
Part II, Chapter X