VALUE 51 Progress an4 rent. Value of mining produce. Precious metals. effect of various land laws is to increase or diminish the amount of the gross produce, which in Eicardian phrase ology would mean to extend or contract the margin of cultivation. It thus appears that it is not always true to say that the payment of rent makes no real difference to the general public, and that it is simply a necessary method of equalizing farmers profits. At the same time, however, with the necessary qualifications, there is no doubt that price determines rent and not rent price, especially when prices are affected by foreign competition. Recently in Great Britain a striking example has been afforded both of the abandonment of inferior lands (the contraction of the margin) and of a heavy fall in rent under the influence of falling prices. The hypothetical history implied in Ricardo s theory as to the effects of the progress of society upon the value of agricultural produce also requires some criticism, such as that given by the historian of agriculture and prices, Thorold Rogers. The theory assumes that in the first place population increases, and thus there is a greater demand for food, and that therefore the margin of culti vation extends and the price rises, and rent rises also. But, as Rogers observes, history shows that agricultural improvements of all kinds have first of all increased the amount of food, and thus allowed of an increase in popula tion. It is worth noticing that in our own times an in creasing population in rural districts (e.g., the Highlands of Scotland and the west of Ireland) may indirectly tend to lower or destroy rents through minute subdivision. Ricardo s theory, however, accounts very well for the rise in the ground-rents of towns and cities, and it is there far more than in the rural districts that the unearned incre ment is to be found. The value of mining produce is determined generally in the same way as that of agricultural produce ; but similar qualifications must be introduced. The theory is that both extensively and intensively the produce of mines is subject to the law of diminishing return, that the margin recedes as the price falls and extends as it rises, and that thus the price is determined by the most costly portion which it just pays to bring to market. And no doubt the main facts of the theory are correct ; and recently the mines of Great Britain no less than its lands have illustrated the retrogression of the margin and the fall in rents. The principal point to observe is that mines are gradually quite exhausted. 1 In general the produce of mines is, like that of land, consumed in a comparatively short time, and thus the value is subject to fluctuations according to the con ditions of the annual demand and supply. The peculiar durability of the precious metals, however, makes them in this respect differ widely from most mining produce. It is of course undeniable that (supposing coin age free) the value of standard coins will be equal to the value of the same amount of bullion, and, conversely, that the bullion will be equal in value to the same amount of coins. The older economists argued that the precious metals had their value determined by their cost of pro duction under the most unfavourable circumstances, and then argued that in consequence the value of money (or coins) tended to be governed by the cost of production of bullion. If, however, it is remembered that the annual production does not probably amount to two per cent, of the quantity in the hands of man, that cost of production can only operate through actual or potential supply, and that in the case of money the increase must be real to affect prices, it will be readily seen that the value of bullion is determined by the general level of prices (or the value of money), and not that the value of money 1 Cp. Marshall s Economics of Industry, London, 1879, bk. ii. chap. depends upon the value of the bullion. At the same time, however, it is true that, if prices become very high, in other words, if the value of money, and thus of bullion, becomes very low, then a check is placed upon production from the mines, and, conversely, with falling prices or a rise in the value of the precious metals mining for them is extended and encouraged. But the difference in the annual supply due to this influence will be small under present or similar conditions. On the whole, this case of the precious metals furnishes perhaps the best example of the way in which the cost of production can only act through the law of supply and demand. There is one other part of the general theory of value Law which requires some notice. Some articles can only beg vern - produced in conjunction with others (e.g., hides and beef, "IF. ue wool and mutton), and some modification of the theory is products. needed to suit this case. The law deduced is that The sum of the values must be equal to the joint expenses of production, and the relative values inter se are deter mined by demand and supply. Thus the Australian sheep-farmers will extend their sheep-farms so long as for wool and mutton together they obtain a fair profit, but the amount contributed by each portion will be determined by the relative demand. It is interesting to observe that in the progress of society the value of the meat has risen as compared with that of the hides and the w r ool. The same principle determines the kind of produce which will be raised from land, though the application is rather more difficult owing to rotation of crops, &c. Much discussion has taken place recently on the question Theory whether a distinct theory of international values is required. of inter- In the limits assigned to this article it is only possible to na indicate the principal points in dispute. The " orthodox " theory, as held by Ricardo, Mill, and Cairnes, has been attacked by Cournot, Prof. Sidgwick, and others, and has been re-stated with admirable clearness and much original power by Prof. Bastable. 2 The best way to answer the question seems to be to make clear the assumptions on which the values of commodities produced within any "nation" are determined, and then to consider whether any change must be made when we bring in other nations. We are at once met with the difficulty, What is a " nation"? The orthodox answer appears to be that within any nation (for which the term " economic area " might per haps be advantageously substituted) there is effective industrial and commercial competition. This appears to imply no more than is contained in the principle noticed above, that relative values tend to be equal to the normal expenses of production (commercial competition), and that the expenses tend to be proportioned to the real cost (industrial competition). The question then arises, Do these conditions not exist in international trade ? The Com- answer appears to be, first, that commercial competition parative certainly holds good ; for as soon as a trade is estab- cost- lished the commodities will sell at the same prices in both countries (allowance being made for cost of carriage). It would plainly be absurd to say that the value of Man chester goods is determined by their expenses of produc tion if they are consumed in England, but by something else if they are sent to India. If then there is any differ ence between domestic and international values, it must arise owing to the absence of effective industrial competi tion ; that is to say, in the same country (or economic area) the real cost determines the expenses of production on account of the supposed perfect mobility of labour and capital, but between different economic areas these agents of production do not pass with sufficient readiness to secure a similar correspondence. It thus follows that a country may import articles which it could produce at less real
2 Theory of International Trade.