Manual of Political Economy/Book 1/Chapter 7

by Henry Fawcett

CHAPTER VII.

ON THE LAWS WHICH DETERMINE THE INCREASE OF PRODUCTION.

Conditions of an increased production of wealth.WE have in the two previous chapters discussed some of the causes which determine the productiveness of land, labour, and capital; we have shown, for instance, how the productiveness of land may be increased by good systems of farming, and how the efficiency of labour and capital may be promoted by machinery and by a proper combination of labour. But if the land, labour, and capital of a country are in the most efficient state of productiveness, the production of wealth can only be increased by increasing either the land, labour, or capital; for if, when the land in cultivation is in the highest state of tillage, more produce from the land is required, it must be obtained by bringing a greater area of land under cultivation. Again, if all the labour which is employed is in the highest state of efficiency, a greater quantity of wealth cannot be produced unless the labour of the country is in some way increased; similarly, if the capital existing in a country is applied to the greatest advantage, and if it supports the greatest number of labourers it is capable of doing, more labour cannot be employed, and as a consequence more wealth cannot be produced, unless the capital of the country is in some way increased. Hence the laws which separately regulate the increase of land, labour, and capital, are the laws which combine to determine the increased production of wealth. We therefore intend in this chapter to discuss the laws on which depend the increase of land and labour; the next chapter will be devoted to a consideration of the laws which determine the increase of capital; and therefore the two chapters will complete our investigations concerning the laws which combine to regulate the increased production of wealth.

Fresh land may be cultivated,The area of each country is limited, but, nevertheless, each country possesses much land which is not cultivated. It would, therefore, seem that, as far as the production of wealth is concerned, each country has the power of increasing the area of its cultivated land. But land sometimes remains uncultivated because it will not pay the expense of cultivation; if this is so, it would appear that the area of cultivation cannot be extended, because no individual would be willing to cultivate land at a loss. In explaining what will take place under such circumstances, we shall introduce to our readers some of the considerations upon which depends the theory of rent, a theory perhaps the most important in the whole range of economic science.

As a general rule, that land which is uncultivated remains in this condition because it will not pay to be cultivated. Whenever, therefore, fresh land is brought into cultivation we must suppose that something has occurred which will cause the land to pay for cultivation better than it did before. owing to agricultural improvements,Agricultural improvements have frequently enabled land which was before unproductive to pay a considerable rent. Thus, the present fertility of Norfolk is in a great measure due to the introduction of the turnip; this root enabled large flocks of sheep to be kept, which have fertilised what was before a poor soil. Much of the rich fen land of the Isle of Ely, which now yields a high rent, was a hundred years since a worthless marsh. In these cases the productiveness of the land has been increased by special improvements. Cases, however, have frequently occurred, where more land is brought under cultivation, not in consequence of agricultural improvements, but because there is a greater demand for the produce which is raised from the land. or increased demand for food and increased value of produce.If the population of a country increases, its people will require a greater quantity of food; and this food must, in the absence of foreign importation, be obtained either by making the land which is already in cultivation more productive, or by extending the area of cultivation. If at the time this increased demand for food arises there are no particular agricultural improvements to be suggested, the enlarged demand must be supplied by cultivating more land; but as this land did not previously pay for cultivation, and as it would not now be cultivated if it did not pay for cultivation, it follows that the value of agricultural produce must rise in order that the farmer may realise an adequate amount of profit. Since land previously untilled is now supposed to be cultivated, the production of wealth, as we have before remarked, is increased in consequence of the greater demand which has taken place for food It is not alone the land thus brought into cultivation which is made more productive, but all the land of the country becomes more productive of wealth; for although there is not a greater quantity of produce raised from it, yet the value of the produce is enhanced by the increased demand for food. All the effects here attributed to an increase of population are strikingly exemplified in the progress of a prosperous colony. No one can doubt that many of the great natural pastures of Australia, which now pay scarcely any rent, will in the course of time be cultivated and rented as valuable agricultural land. Within the last few years the area of cultivation in Australia has rapidly extended. From 1851 to 1861 the population of Victoria increased from 80,000 to 500,000; in 1886 it was more than 1,000,000.^[1] The increased quantity of food consumed in Victoria caused more land to be brought into cultivation; the value of agricultural produce must consequently have risen, because land which is in cultivation now would not have repaid its cultivators when the population of Victoria was so very much smaller.

As the value of produce rises, less productive soils are cultivated.Although it has thus been shown that the value of agricultural produce must rise when the demand of a larger population causes more land to be brought under cultivation, yet it will assist the reader, if the primary causes are explained upon which this rise in value depends. Every country possesses land which varies greatly in productiveness. In estimating the productiveness of any particular land it is necessary not only to consider the fertility of its soil but also its accessibility, or, in other words, its convenience of situation. Some of the most fertile land in the world is so remote from any population which requires its produce, that its cultivation would prove unremunerative, and therefore it may be regarded as unproductive of wealth. The meaning of the word 'productive' as applied to land.Confusion frequently arises because a productive soil and a fertile soil are regarded as synonymous expressions. In an economic treatise, however, it must be always carefully remembered that not only fertility but also convenience of situation are included when the term 'productive' is applied to land.

Bearing these remarks in mind, it is evident that the productiveness of land varies inversely with the quantity of labour and capital required not only to raise a certain amount of produce, but also to bring the produce to the situation where it is required. The most fertile land, if extremely remote from the population which is willing to purchase its produce, is frequently unproductive, because of the great expense which cost of carriage would involve. As population increases, unless the additional food required can be obtained either by foreign importation or by improved agriculture, the area of cultivation is extended, and less productive soils must be resorted to; or, in other words, land is gradually brought into cultivation which does not return so much for the labour and capital expended upon it, as land which was previously cultivated. Hence the production of wealth cannot be indefinitely increased, because the returns to labour and capital diminish, as it becomes necessary to resort to less productive land. This principle forms the basis of Ricardo's theory of Rent, or as it is sometimes called, the theory of diminishing productiveness.

An increased demand for food tends to increase the value of agricultural produce.The proposition just enunciated suggests an obstacle which more or less impedes the continual increase in the production of wealth. The reader, for several reasons, finds it difficult adequately to appreciate the magnitude of the impediment which in many countries is thus placed upon the production of wealth. It will be necessary frequently to recur to this subject; a few more remarks may, however, be here made upon it with advantage. It may be thought that although less productive land requires more labour and capital, yet the general value of agricultural produce will be but slightly affected. For it may be urged that the productiveness of the land which was previously cultivated will not in any way be diminished, on account of the more expensive culture required by the less productive land, which is now resorted to. A portion only of the produce which is raised from the land will require a greater outlay of labour and capital, the productiveness of all the remaining land will be unchanged, and hence it may be argued that no serious impediment can be caused to the production of wealth. We must repeat, that when an increased demand for food brings less productive land into cultivation, this food is obtained at a greater cost of labour and capital, and therefore food becomes more expensive. But the value of wheat of the same quality does not vary, when brought to market, because one sack of wheat has been produced at a greater cost than another; of course this is a matter of no consideration to the purchaser, but simply to the growers of wheat. If, therefore, it is necessary that the price of wheat should rise, in order to make the cultivation of inferior land remunerative, the price of all the wheat grown must rise in a similar manner, and food consequently becomes more expensive. If by these causes the price of wheat is raised, it is manifest that the farmers who cultivate the more productive land must derive a great advantage, because the produce which they obtain does not require more labour and capital, and yet its price is materially increased. The farmers, however, cannot in the long run appropriate this advantage to themselves, as the landlords secure it in the form of increased rent. A further discussion on this branch of the subject would involve an explanation of the theory of rent; and this theory does not properly belong to the production, but to the distribution of wealth.

The important proposition we wish to establish concerning the production of wealth is that an increased demand for food has a tendency to make food more expensive, and as such an increased demand is almost always caused by an increased population, we may enunciate the principle thus: that as population advances, food has a tendency to become more expensive. Political economy explains the tendency of certain events rather than their actual immediate results.In the enunciation of this principle, we have employed the word tendency. We believe that an example may be thus afforded, which will illustrate the great importance of enunciating almost all the principles of political economy, as exerting tendencies, rather than as producing immediate results. This has not been sufficiently recognised, and consequently the progress of political economy has been greatly retarded, and much prejudice and incredulity have been raised in the minds of practical men towards the conclusions of this science. In mathematics a force is measured by the effects which it has a tendency to produce, i.e. which it would produce if not counteracted by other forces. The force of gravity is estimated by the space through which the body would fall in a second of time, if it was acted upon by no other force; this space is sixteen feet; all bodies, however, do not so move, although every particle of matter is acted on by the same force of gravity. A feather floating in the air is attracted by the force of gravity, and yet it does not fall through sixteen feet in a second of time; the feather does not fall through this space, because its downward motion is retarded by the resistance of the air. Although the force of gravity is thus partly counteracted, it is not either destroyed or rendered nugatory; its effects may appear to be different, but the force of gravity always exerts a tendency, whether the tendency be counteracted or not, to make a body move through sixteen feet in a second of time. It would be very unreasonable to assert that the theory of mechanics was erroneous, because other forces intervene and modify the effects attributed to the action of a certain force. The distrust which is sometimes shown towards the principled of political economy is equally unreasonable; these principles attribute certain effects to certain causes, but the effects will be altered, if the causes are modified; these causes, like the forces in mechanics, are often affected in their operation by many disturbing agencies. For instance, the principle has been enunciated that the tendency of the increased demand of an advancing population is to make food more expensive. Political economy however is not in error, because circumstances may occur which will counteract this tendency; we are all aware that this tendency towards higher prices has been and may be again counteracted; that agricultural improvements, for instance, have often been introduced, which have enabled the increased wants of a larger population to be supplied without any rise in the price of food. Why the price of wheat has not risen in England.The population of the United Kingdom increased 8,000,000 between 1841 and 1881, and yet the price of wheat was lower in 1881 than in 1841; but this fact does not falsify the principle above enunciated. The circumstances which have prevented a rise in the price of wheat are patent to all. Before 1848, we were in a great degree restricted to our own soil for our supplies of corn. Now we are freely permitted to purchase wheat from any country which offers it for sale. As many as fifteen million^[2] quarters of wheat are often imported in one year; and as the means of communication improve, the area from which we draw our supplies is constantly extended; thus wheat is now sent in considerable quantities to England from California and Australia, and even such a remote region as the Punjab exports wheat to us. The influence therefore of free trade and improved means of transit has been analogous to that which would have been exerted if a tract of fertile land had been added to the cultivable area of this island. Suppose that, in consequence of the great abundance of fertile land in the valley of the Mississippi, wheat grown there could be sold in our markets at a less price than would adequately remunerate the English agriculturist if he grew wheat on many of the less productive soils in England. Under these circumstances the valley of the Mississippi would, as far as the supply of wheat is concerned, serve England the same purpose as if a tract of fertile land could be added to her shores. We are quite ready to admit, that the effects attributed by political economy to one particular cause, seldom occur with strict exactness; such perfect conformity could not take place unless the cause acted alone, and this is very rarely the case; the practical utility of political economy however is not for this reason lessened, for the science demonstrates that certain results must ensue, if a counteracting influence does not come into action. We will illustrate our meaning by referring to an argument, which we believe is unanswerable when urged in support of free trade. The population of England is advancing; if we are restricted to our own soil for supplies, then food will be obtained at a greater cost of labour and capital, and food must ultimately become much dearer. It therefore becomes most important that the fertile soil of the whole world should, as far as possible, be made available to supply us with the produce we may require.

Increase in the labouring population.We must next consider how the production of wealth is affected by an increase in the amount of labour, or, in other words, by an increase in the number of the labouring population. Labour is increased when it is made more efficient. If a machine is introduced which enables one labourer to do the work of six, of course the amount of labour in the country is augmented, but this increase is due to improvement in the efficiency of labour, a subject which was considered in the last chapter. We must here, therefore, restrict ourselves to a discussion of the consequences which result, when an increase in the number of the labouring population causes more wealth to be produced If a greater quantity of any commodity is required, a greater number of labourers must be employed, unless some industrial improvements are introduced. Suppose, for instance, there suddenly arose a very active demand for English cottons in China; a much greater number of labourers would soon be engaged in cotton manufactories. It may be asked, How is the increased number of labourers to be obtained? Surplus hands will be drawn from other employments, and emigration will be checked, if there is a great demand for labour. If the demand for additional labour continues, an increase of population will be powerfully stimulated, and the labour required will ultimately be supplied principally from this source. It is important to point out in what manner an increase of population is promoted by an active demand for labour.

Influence of a demand for labourLabour is in demand when trade is good; then wages are high, and the labourers are prosperous. It is found that the number of marriages amongst the poorer classes is greater when the labourers are prosperous. There is no surer test of the prosperity of the labouring class than the low price of bread, and there are few statistical facts better substantiated than that the marriages amongst the labouring class increase with the fall in the price of bread. upon the amount of population.It may be reasonably assumed that wages are high when trade is good. But from what source are these higher wages supplied? It must be from the capital of the country, because this is the fund from which the labourers' wages are provided; the circulating capital employed in any trade or manufacture must be increased if the labourers engaged in it receive higher wages. It may be here remarked, that when a trade is active, the profits are high, and thus a great inducement is offered to those engaged as employers in the trade, not only to save more, but to apply a greater amount of capital to their business; this additional capital is either borrowed or is withdrawn from other investments. But now, having pointed out some of the sources from which an increased number of labourers will be obtained, we have next to consider how this increased population will be fed. Reference has just been made to some of the sources from which the additional wages paid to the labourers will be supplied when an active trade causes a greater demand for labour. Let us suppose, therefore, that when the labouring population has increased, the circulating capital of the country has been proportionally augmented; but if there is a larger population, more food will be required, and the important question arises: Under what conditions is this food to be obtained? In answering this question we avail ourselves of that principle which has been stated in the first part of this chapter, namely, Relation between increase of population and increased production from land.that there is a tendency for food to become more expensive as the demand for it increases, because less productive land may have to be resorted to, the returns from which are not so large in proportion to the labour and capital expended upon it.

The production of an increased quantity of wealth requires a greater number of labourers, and when the labouring population is thus augmented, food will become more expensive, unless the additional food required can be obtained either by agricultural improvements, or can be imported at a comparatively cheap rate from other countries. All that we have here stated is strikingly exemplified by the events which have occurred within the last few years. Exemplification of these principles in late years.The trade of the country, although it has been sometimes checked by periods of depression, has advanced with striking rapidity, and the number of labourers now engaged in the manufacturing industry of this country greatly exceeds the number employed twenty years since. The capital invested in our manufactures has even advanced more rapidly than the increase of population. Not only are there more labourers, but the wages of these labourers have risen very decidedly within the last few years. Two causes, therefore, have combined to increase the demand for food, namely, a larger population and a better paid labouring class. But it may be said, political economy would predict that, in consequence of such a demand, all food will become more expensive; and yet bread is cheaper. But as previously remarked, we have now the whole world from which to obtain our supplies of wheat, and the cost of carrying wheat from one country to another is comparatively small. There has, however, been a most decided rise in the value of those articles of food which we cannot with such facility obtain from other countries. For instance, it is so much more difficult and expensive to import meat than corn that, although wheat is at the present time cheap and meat dear, more than one half of the wheat we consume is imported, whereas only about 20 per cent, of the fresh meat we consume is imported.^[3] The rise in the price of meat which has taken place during the last few years must continue with the increase of population, unless by the conversion of corn land into pasture more meat is produced in England, or unless some means are discovered of improving the present methods of importing fresh meat.^[4] Since, therefore, we are to a much greater extent restricted to our own soil for meat and dairy produce, importation has not been able to counteract that rise in the price of these articles, which according to political economy must accompany the increased consumption of a more numerous and better paid labouring class; the result has been that meat and dairy produce have become fifty or sixty per cent, more expensive within the last thirty or forty years. In all probability the labouring population will for many years continue to increase; The cost at which an increased supply of food can be obtained will mainly determine the condition of our labouring population.every year therefore a greater quantity of food will be consumed in this country; the mode in which this increased supply of food will be obtained must mainly determine what will be the future condition of our labouring population. If the opening of new sources of foreign supply and the introduction of agricultural improvements should enable an increased quantity of food to be procured without any advance in its value, then a larger population may be maintained in an improved material condition. If on the other hand foreign importations and agricultural improvements should not exert a sufficiently powerful influence to check a rise in the value of food, as the demand for it increases, (or, in other words, if resort must be had to less productive soils in order to supply the wants of an increasing population), then the condition of the labouring population will gradually but steadily deteriorate.

1. [Since 1886 the population of Victoria has been practically stationary; on March 31, 1901, it was 1,201,341.]
2. [In 1905 22,809,054 quarters of wheat were imported into the United Kingdom.]
3. In 1876, the late Mr. James Howard, M.P., in a paper read at the Farmers' Club, estimated our aggregate meat supply from abroad at 17 per cent.; [he estimated it (March, 1888) at 23 per cent., or 26 lbs. per head each year for the whole population].
4. [The importation of fresh meat from abroad is a branch of trade that is rapidly increasing. The importation of the tinned preserved meats is falling off, but the importation of fresh beef, mutton, pork and other meats, exclusive of bacon and ham, increased from 1,184,289 cwts. in 1882 to 2,064,261 cwts. in 1886, and 8,699,140 cwts. in 1904. Good fresh Australian mutton can be bought in most large towns at prices varying, according to the joint selected, from 5d. to 7¹⁄₂d. a lb.; American beef ranges from 5d. to 9¹⁄₂d a lb. Although home grown fresh meat still maintains a higher price, yet there is no doubt that the importation just referred to has prevented the price of home grown meat advancing as rapidly as it otherwise would have done.]