374 POLITICAL ECONOMY proof, and in the portable and pregnant formulae which were so convenient in argument, and gave a prompt, if often a more apparent than real, solution of difficult problems. Whatever there was of false or narrow in the fundamental positions of Smith had been in a great degree corrected by his practical sense and strong instinct for reality, but was brought out in its full dimensions and even exaggerated in the abstract theorems of Ricardo and his followers. The dangers inherent in his method were aggravated by the extreme looseness of his phraseology. Senior pro nounces him " the most incorrect writer who ever attained philosophical eminence." His most ardent admirers find him fluctuating and uncertain in the use of words, and generally trace his errors to a confusion between the ordinary employment of a term and some special applica tion of it which he has himself devised. The most complete exposition of his system is to be found in his Principles of Political Economy and Taxation (1817). This work is not a complete treatise on the science, but a rather loosely connected series of disquisi tions on value and price, rent, wages and profits, taxes, trade, money and banking. Yet, though the connexion of the parts is loose, the same fundamental ideas recur con tinually, and determine the character of the entire scheme. The principal problem to which he addresses himself in this work is that of distribution, that is to say, the pro portions of the whole produce of the country which will be allotted to the proprietor of land, to the capitalist, and to the labourer. And it is important to observe that it is especially the variations in their respective portions which take place in the progress of society that he professes to study, one of the most unhistorical of writers thus in dicating a sense of the necessity of a doctrine of economic dynamics a doctrine which, from his point of view, it was impossible to supply. The principle which he puts first in order, and which is indeed the key to the whole, is this that the exchange value of any commodity the supply of which can be increased at will is regulated, under a regime of free competition, by the labour necessaryfor its production. Similar propositions are to be found in the Wealth of Nations, not to speak of earlier English writings. Smith had said that, " in the early and rude state of society which precedes both the accumula tion of stock and the appropriation of land, the proportion between the quantities of labour necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them with one another." But he wavers in his con ception, and presents as the measure of value sometimes the quantity of labour necessary for the production of the object, some times the quantity of labour which the object would command in the market, which are identical only for a given time and place. The theorem requires correction for a developed social system by the introduction of the consideration of capital, and takes the form in which it is elsewhere quoted from Mai thus by Ricardo, that the real price of a commodity "depends on the greater or less quantity of capital and labour which must be employed to produce it." (The expression "quantity of capital" is lax, the element of time being omitted, but the meaning is obvious). Ricardo, however, constantly takes no notice of capital, mentioning labour alone in his statement of this principle, and seeks to justify his practice by treating capital as "accumulated labour "; but this artificial way of viewing the facts obscures the nature of the co-operation of capital in produc tion, and by keeping the necessity of this co-operation out of sight has encouraged some socialistic errors. Ricardo does not sufficiently distinguish between the cause or determinant and the measure of value ; nor does he carry back the principle of cost of production as regulator of value to its foundation in the effect of that cost on the limitation of supply. It is the " natural price " of a commodity that is fixed by the theorem we have stated ; the market price will be subject to accidental and temporary variations from this standard, depending on changes in demand and supply; but the price will, permanently and in the long run, depend on cost of production de fined as above. On this basis Ricardo goes on to explain the laws according to which the produce of the land and the labour of the country is distributed amongst the several classes which take part in production. The theory of rent, with which be begins, though commonly associated with his name, and though it certainly forms the most vital part of his general economic scheme, was not really his, nor did he lay claim to it. He distinctly states in the preface to the Principles, that "in 1815 Mr Malthus, in his Inquiry into the Nature and Progress of Rent, and a fellow of University College, Oxford, in his Essay on the Application of Capital to Land, presented to the world, nearly at the same moment, the true doctrine of rent." The second writer here referred to was Sir Edward West, afterwards a judge of the supreme court of Bombay. Still earlier than the time of Malthus and West, as M C ulloch has pointed out, this doctrine had been clearly conceived and fully stated by Dr James Anderson in his Enquiry into the Nature of Corn-Laws, published at Edinburgh in 1777. That this tract was unknown to Malthus and West we have every reason to believe ; but the theory is certainly as distinctly enunciated and as satisfactorily supported in it as in their treatises ; and the whole way in which it is put forward by Anderson strikingly resembles the form in which it is presented by Ricardo. The essence of the theory is that rent, being the price paid by the cultivator to the owner of land for the use of its productive powers, is equal to the excess of the price of the produce of the land over the cost of production on that land. With the increase of popula tion, and therefore of demand for food, inferior soils will be taken into cultivation ; and the price of the entire supply necessary for the community will be regulated by the cost of production of that portion of the supply which is produced at the greatest expense. But for the land which will barely repay the cost of cultivation no rent will be paid. Hence the rent of any quality of land will be equal to the difference between the cost of production on that land and the cost of production of that produce which is raised at the greatest expense. The doctrine is perhaps most easily apprehended by means of the supposition here made of the coexistence in a country of a series of soils of different degrees of fertility which are successively taken into cultivation as population increases. But it would be an error to believe, though Ricardo sometimes seems to imply it, that such difference is a necessary condition of the existence of rent. If all the laud of a country were of equal fertility, still if it were appro priated, and if the price of the produce were more than an equiva lent for the labour and capital applied to its production, rent would be paid. This imaginary case, however, after using it to clear our conceptions, we may for the future leave out of account. The price of produce being, as we have said, regulated by the cost of production of that which pays no rent, it is evident that "corn is not high because a rent is paid, but a rent is paid because corn is high," and that " no reduction would take place in the price of corn although landlords should forego the whole of their rent. " Rent is, in fact, no determining element of price ; it is paid, indeed, out of the price, but the price would be the same if no rent were paid, and the whole price were retained by the cultivator. It has often been doubted whether or not Adam Smith held this theory of rent. Sometimes he uses language which seems to imply it, and states propositions which, if developed, would infallibly lead to it. Thus he says, in a passage already quoted, " such parts only of the produce of land can commonly be brought to market of which the ordinary price is sufficient to replace the stock which must be employed in bringing them thither, together with its ordinary profits. If the ordinary price is more than this, the surplus part of it will naturally go to the rent of land. If it is not more, though the commodity can be brought to market, it can afford no rent to the landlord. Whether the price is or is not more depends on the demand." Again, in Smith s application of these considerations to mines, " the whole principle of rent," Ricardo tells us, "is admirably and perspicuously explained." But he had formed the opinion that there is in fact no land which does not afford a rent to the landlord ; and, strangely, he seems not to hare seen that this appearance might arise from the aggregation into an economic whole of parcels of land which can and others which cannot pay rent. The truth, indeed, is that the fact, if it were a fact, that all the land in a country pays rent would be irrelevant as an argument against the Andersonian theory, for it is the same thing in substance if there be any capital employed on land already cultivated which yields a return no more than equal to ordinary profits. Such last-employed capital cannot afford rent at the exist ing rate of profit, unless the price of produce should rise. The belief which some have entertained that Smith, notwith standing some vague or inaccurate expressions, really held the Andersonian doctrine, can scarcely be maintained when we remember that Hume, writing to him after having read for the first time the Wealth of Nations, whilst expressing general agreement with his opinions, said (apparently with reference to bk. I. chap. vii. ), " I cannot think that the rent of farms makes any part of the price of the produce, but that the price is determined altogether by the quantity and the demand." It is further noteworthy that a state ment of the theory of rent is given in the same volume, published in 1777, which contains Anderson s polemic against Smith s objec tions to a bounty on the exportation of corn ; this volume can
hardly have escaped Smith s notice, yet neither by its contents nor