The reason why, in these different stages of society, exchangeable value should be determined upon different principles is sufficiently obvious. Every person seeks to obtain the objects of his desire at the smallest possible sacrifice. When all labour for themselves, no one will for any length of time give more than the result of a day's labour for that which a day's labour can procure for him; and, in like manner, when the capitalist hires others to work for him, he will not consent to part with more than the product of a given capital (say a hundred days' subsistence) in exchange for that which, by the expenditure of a hundred days' subsistence, he can cause to be prepared for himself.'

In every case, the returns on capital are assumed to be equally quick, and exposed to equal risk; a difference in either of these respects would alter the results. There are likewise other limitations and exceptions, to which the general principle is exposed: for the law of competition is always at work; and the exchangeable value of every commodity will, in any given state of the market, be determined exclusively by the proportion which exists between the supply and the demand for it. This occasions fluctuations, but in the long run, and on the average, the results obtained by the employment of equal capitals will be of equal exchangeable value; a term which has a different signification from price: the former expressing the power of purchasing with reference to commodities in general, and the latter denoting the same power with reference to some particular commodity, the quantity of which is given, such as money, the usual medium of exchange :

Exchangeable value may rise while price falls, or fall while price rises. For example, if cotton were, from any cause, to acquire twice its former power of purchasing with respect to commodities in general, while gold, the particular commodity in which the price of cotton is expressed, rose in a still higher ratio, and acquired four times its former power in the market; - then, though the exchangeable value of cotton would be doubled, its price would fall one-half. Again; if cotton would purchase only half the former quantity of commodities in general, while it purchased twice the quantity of some particular commodity, such as corn, or wine, or labour, or money, then its exchangeable value would have sunk one-half, while its price, as expressed in corn, or wine, or labour, or money, became double. And again; -if cotton, and the particular commodity in which its price is expressed, should rise or fall in the same proportion with each other, then the exchangeable value of cotton, or its general power of purchasing, would fluctuate, while its price remained stationary.'

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Chapter ii. treats of the different instruments of production, and the different kinds of industry. The latter are comprized under four heads: Appropriate Industry, or that which is ap

plied

plied to the mere collecting or appropriation of the things that nature spontaneously supplies; Manufacturing Industry; Agricultural and Commercial; and to the consideration of each a separate chapter is devoted.

Chapters iii. and iv. Almost the whole of the productions of nature are presented to man in a raw state. Although that industry, therefore, which merely appropriates them is the first, in order of time, it is not so in importance; since it is obvious that, but for the application of labor and capital in preparing and adapting these gifts of nature for consumption, the infinitely greater portion of them would absolutely have no utility. Without manufacturing industry, man would be the most defenceless and helpless of all animals; and it is by the application of artificial instruments in making all the elements obey his will, that he has raised himself to be but a "little lower than the angels. The economists of France, however, fancied that they had proved to demonstration that the industry of the manufacturer was barren, and incapable of effecting any addition to wealth, because he was supposed to consume, while at work, a quantity of subsistence equal in value to the value which he added to the raw material: - but, admitting the premises, the conclusion would not follow. Value is not wealth. Suppose, says Colonel Torrens, that the exchangeable value of a plough does not exceed that of the materials and subsistence consumed in its fabrication, yet the industry which gave existence to this powerful instrument of reproduction would be a most important source of wealth.

The chapter on Manufacturing Industry not merely shews how the manufacturer does actually add more to the value of the raw material than the value of the subsistence which he consumes while he is at work, but it explains, by a careful and ingenious deduction from hypothetic assumptions, the manner, and according to the different stages of improvement the degree, in which manufacturing industry adds to the value of the material supplied by the other branches of industry. The products of equal capitals are equivalent: this is the foundation-stone of the theory: in proportion, therefore, as a greater quantity of capital is required to raise the same quantity of agricultural produce, the exchangeable value of this produce will rise; in other words, that of wrought goods as compared with it will fall. If, in the application of improved machinery and the subdivision of employments, one hundred and fifty men can work up three thousand pounds of flax, equal in value to food for three hundred, and which was originally wrought up by the labor of three hundred men; then, though the expence of raising agricultural produce has

not

not increased, yet the exchangeable value of the manufactured article will fall in relation to the material form in which it is prepared. Food for one hundred and fifty men is expended, instead of food for three hundred; and, if we assume the food to have constituted one half of the capital employed, we diminish the whole capital one fourth, and consequently the value of the linen-cloth will fall one fourth with respect to every article of which the cost of production remains unabated. In those branches in which subsistence forms two thirds of the whole capital, wrought goods will fall one third; and where it forms one third they will fall one sixth, and so on.

Chapter v. As in Manufacturing Industry an increase in the quantity of labor and capital leads to the use of improved machinery and the subdivision of employment, and thus enables a given number of workmen to produce a greater proportional quantity of goods, so in Agricultural Industry the reverse of all this takes place for the application of every increased quantity of labor and capital there gives a less and less proportional return. This singular and striking fact is almost self-evident. As we extend cultivation successively over soils of inferior fertility, for any given quantity of labor and capital the return of produce is less and less; and it is plain that those soils, which do not replace the seed, implements, and subsistence of the cultivators, must be abandoned. The high price of produce cannot avail them; because, not having enough for their own consumption, they can have no excess to sell. It is just the same with respect to additional applications of capital and labor to superior soils: the return on these applications is less and less; and there is a point, very soon obtained, beyond which no farther application will add, to the produce before extracted, a sufficient quantity of subsistence for the workmen employed. Here improvement must stop; and high farming, as it is called, becomes a ruinous experiment: it is giving eighteen-pence to get back a shilling. As we resort to soils of inferior fertility, therefore, and as the application of capital and labor is increased on those of superior fertility, the proprietor must receive a constantly diminishing proportion of the whole produce, because the whole produce bears a constantly diminishing proportion to the capital which raised it.

These principles lead to some very important conclusions.

• We have seen how intimately and inseparably one branch of industry is connected with another. In manufactures, each additional portion of labour and capital which is employed produces not merely an equal, but a greater proportional effect than that which was previously applied; and where one hundred workmen can fabricate

fabricate one thousand yards of cloth, there, two hundred workmen, from being able to establish among themselves more perfect subdivisions of employment, will be able to fabricate, not merely two thousand yards, but some greater quantity; say two thousand five hundred yards. But though manufacturing industry has not in itself any natural limits, yet it is affected by those which nature has assigned to agriculture; and its advancement must necessarily be arrested when cultivation can be pushed no farther. Though additional portions of capital might still be capable of producing a higher proportional effect than those previously applied; yet, as the productive powers of agriculture became stationary, it would be impossible that such additional portions should be attained. Manufacturing capital consists of subsistence, materials, and instruments for abridging labour; and as these implements were formed by labour employed upon other materials, and supported by other subsistence, into subsistence and material all manufacturing capital ultimately resolves itself. Now, in a country that has advanced beyond the hunting or savage state, the greater part of material, and almost the whole of subsistence, is extracted from the soil. Hence, when no additional capital can be applied to the soil, no additional capital can be obtained for manufactures; and where the progress of agricultural industry is arrested, there the progress of manufacturing industry must be arrested also."

By any discoveries in the application of labor and capital which increase the surplus, not the gross produce of the soil, —in other words, by all that enables a given quantity of labor to raise a greater quantity of produce, - a real improvement in agricultural science is effected; and, as such improvements throw back the point beyond which cultivation can neither be heightened nor extended, they likewise remove to a greater distance the point beyond which manufacturing capital cannot be accumulated. Another important principle, too, is developed in this chapter; which is that, as improvements in agriculture increase the quantity of capital that can be advantageously employed in manufactures, so do improvements in manufactures remove to a greater distance the ultimate limits of agricultural prosperity, and admit of additional applications of capital to the soil: so effectively do the different kinds of industry augment each other's powers. For the illustration of this principle, we must refer to the work itself, p. 133146.; as also of its consequences, that threshing-machines and all contrivances for abridging agricultural labor increase the demand for workmen rather than diminish it, augment the surplus-produce of the soil, and furnish the means of employing a larger manufacturing population: -consequences flowing directly from the first position, that the results of equal capitals are of equal value.

The

The sixth and last chapter is allotted to Mercantile Industry, and is divided into six sections, treating respectively, 1. On the Origin and Effects of Barter or Trade. 2. On the Home Trade. 3. On the Colonial Trade. 4. On Foreign Trade, or Commerce. 5. On Money and Paper Currency. 6. On the Principles of Demand and Supply.

Colonel Torrens defines mercantile capital to consist of all the things employed to circulate wealth, and of all the wealth which is circulated.' As capital invested in trade and commerce puts a much smaller quantity of labor in motion than that which is employed in manufactures and agriculture, Dr. Smith concludes that mercantile industry does not augment the annual value, or, as he defines the term, riches of a country, in nearly so great a degree as agricultural and manufacturing industry. This conclusion has often been disputed: but the problem, perhaps, has never been so fully and satisfactorily explained as by the present author, viz. In what manner does commercial industry produce wealth? How does the mere exchange and transport of commodities effect this object? If wealth consists of articles of utility on which labor has been bestowed, it is obvious that the industry, which is engaged in transporting such articles from one country in which they are redundant to another in which they are deficient, and in re-transporting equivalent articles of utility, is directly productive of wealth to both those countries. Its indirect efficacy, however, is much greater, in giving rise to the divisions of employment, and in determining the extent to which they can be carried. Were a suspension of all ex--` changes to take place, the division of labor would be immediately stopt. The weaver would fabricate no more cloth than he required for his own consumption; for his attention would be distracted by a multiplicity of employments necessary to supply his wants, and he could become expert at none. The cultivator would grow no surplus corn, and the grazier rear no surplus cattle. The meadow must be ploughed up to yield a scanty crop of corn, and the corn-field made to produce grass, ungenial to its soil. Vineyards must be converted into sheep-walks, and sheep-walks into vineyards. Nature would no longer co-operate with the labor of man, but punish the violence which he commits on her by withholding her supplies. So, if we prohibit trade, the divisions of employment cease; restore it, and they return with all their benefits. When, from the thinness of population or any other cause, few exchanges can be made, the productive powers of industry are low but they rise in proportion as exchanges multiply, and both become at last indefinitely extended. MerREV. OCT. 1822.

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cantile