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Modern History Sourcebook:
David Ricardo:
The Principles of Political Economy, 1817

An Epitome

 On Value: It is according to the division of the whole produce of the land of any particular farm, between the three classes of landlord, capitalist, and laborer, that we are to judge of the rise or fall of rent, profit, and wages, and not according to the value at which that produce may be estimated in a medium which is confessedly variable. It is not by the absolute quantity of produce obtained by either class that we can correctly judge of the rate of profit, rent, and wages, but by the quantity of labor required to obtain that produce. By improvements in machinery and agriculture, the whole produce may be doubled; but if wages, rent, and profit be also doubled, these three will bear the same proportions to one another as before, and neither could be said to have relatively varied. But if wages partook not of the whole of this increase; if instead of being doubled, were only increased one-half; if rent instead of being doubled, were only increased three-fourths, and the remaining increase went to profit, it would, I apprehend be correct for me to say, that rent and wages had risen....

On Rent: Rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil. If, of two adjoining farms of the same extent, and of the same natural fertility, one had all the conveniences of farming buildings, and, besides, were properly drained and manured, and advantageously divided by hedges, fences and walls, while the other had none of these advantages, more remuneration would naturally be paid for the use of one, than for the use of the other; yet in both cases this remuneration would be called rent. But it is evident, that a portion only of the money annually to be paid for the improved farm, would be given for the original and indestructible powers of the soil; the other portion would be paid for the use of the capital which had been employed in ameliorating the quality of the land, and in erecting such buildings as were necessary to secure and preserve the produce.....

If all land had the same properties, if it were unlimited in quantity, and uniform in quality, no charge could be made for its use, unless where it possessed peculiar advantages of situation. It is only, then, because land is not unlimited in quantity and uniform in quality, and because in the progress of population, land of an inferior quality, or less advantageously situated, is called into cultivation, that rent is ever paid for the use of it. When in the progress of society, land of the second degree of fertility is taken into cultivation, rent immediately commences on that of the first quality, and the amount of that rent will depend on the difference in the quality of these two portions of land....

The most fertile, and most favorably situated, land will be first cultivated, and the exchangeable value of its produce will be adjusted in the same manner as the exchangeable value of all other commodities, by the total quantity of labor necessary in various forms, from first to last, to produce it, and bring it to market. When land of an inferior quality is taken into cultivation, the exchangeable value of raw produce will rise, because more labor is required to produce it. The exchangeable value of all commodities, whether they be manufactured, or the produce of the mines, or the produce of land, is always regulated, not by the less quantity of labor that will suffice for their production under circumstances highly favorable, and exclusively enjoyed by those who have peculiar facilities of production, but by the greater quantity of labor necessarily bestowed on their production by those

who have no such facilities, and by those who continue to produce them under the most unfavorable circumstances.

Thus, in a charitable institution, where the poor are set to work with the funds of benefactors, the general prices of the commodities, which are the produce of such work, will not be governed by the peculiar facilities afforded to these workmen, but by the common, usual, and natural difficulties, which every other manufacturer will have to encounter. The manufacturer enjoying none of these facilities might indeed be driven altogether from the market, if the supply afforded by these favored workmen were equal to all the wants of the community; but if he continued the trade, it would be only on condition that he should derive from it the usual and general rate of profits on stock; and that could only happen when his commodity sold for a price proportioned to the quantity of labor bestowed on its production....

It is true, that on the best land, the same produce would still be obtained with the same labor as before, but its value would be enhanced in consequence of the diminished returns obtained by those who employed fresh labor and stock on the less fertile land. Notwithstanding, then, that the advantages of fertile over inferior lands are in no case lost, but only transferred from the cultivator, or consumer, to the landlord, yet, since more labor is required on the inferior lands, and since it is from such land only that we are enabled to furnish ourselves with the additional supply of raw produce, the comparative value of that produce will continue permanently above its former level, and make it exchange for more hats, cloth, shoes, etc. in the production of which no such additional quantity of labor is required....

We have been hitherto considering the effects of the natural progress of wealth and population on rent, in a country in which the land is of variously productive powers; and we have seen, that with every portion of additional capital which it becomes necessary to employ on the land with a less productive return, rent would rise. It follows from the same principles, that any circumstances in the society which should make it unnecessary to employ the same amount of capital on the land, and which should therefore make the portion last employed more productive, would lower rent. Any great reduction in the capital of a country, which should materially diminish the funds destined for the maintenance of labor, would naturally have this effect. Population regulates itself by the funds which are to employ it, and therefore always increases or diminishes with the increase or diminution of capital. Every reduction of capital is therefore necessarily followed by a less effective demand for wheat, by a fall of price, and by diminished cultivation. In the reverse order to that in which the accumulation of capital raises rent, will the diminution of it lower rent. Land of a less unproductive quality will be in succession relinquished, the exchangeable value of produce will fall, and land of a superior quality will be the land last cultivated, and that which will then pay no rent. The same effects may however be produced, when the wealth and population of a country are increased, if that increase is accompanied by such marked improvements in agriculture, as shall have the same effect of diminishing the necessity of cultivating the poorer lands, or of expending the same amount of capital on the cultivation of the more fertile portions....

Of Wages: Labor, like all other things which are purchased and sold, and which may be increased or diminished in quantity, has its natural and its market price. The natural price of labor is that price which is necessary to enable the laborers, one with another, to subsist and to perpetuate their race, without either increase or diminution. The power of the laborer to support himself, and the family which may be necessary to keep up the number of laborers, does not depend on the quantity of money which he may receive for wages, but on the quantity of food, necessaries, and conveniences become essential to him from habit, which that money will purchase. The natural price of labor, therefore, depends on the price of the food, necessaries, and conveniences required for the support of the laborer and his family. With a rise in the price of food and necessaries, the natural price of labor will rise; with the fall in their price, the natural price of labor will fall.

With the progress of society the natural price of labor has always a tendency to rise, because one of the principal commodities [food] by which its natural price is regulated, has a tendency to become dearer, from the greater difficulty of producing it. As, however, the improvements in agriculture, the discovery of new markets, whence provisions may be imported, may for a time counteract the tendency to a rise in the price of necessaries, and may even occasion their natural price to fall, so will the same causes produce the correspondent effects on the natural price of labor....

It is when the market price of labor exceeds its natural price, that the condition of the laborer is flourishing and happy, that he has it in his power to command a greater proportion of the necessaries and enjoyments of life, and therefore to rear a healthy and numerous family. When, however, by the encouragement which high wages give to the increase of population, the number of laborers is increased, wages again fall to their natural price, and indeed from a reaction sometimes fall below it. When the market price of labor is below its natural price, the condition of the laborers is most wretched: then poverty deprives them of those comforts which custom renders absolute necessaries. It is only after their privations have reduced their number, or the demand for labor has increased, that the market price of labor will rise to its natural price, and that the laborer will have the moderate comforts which the natural rate of wages will afford. Thus, then, with every improvement of society, with every increase in its capital, the market wages of labor will rise; but the permanence of their rise will depend on the question, whether the natural price of labor has also risen; and this again will depend on the rise in the natural price of those necessaries on which the wages of labor are expended.

Therefore, in the natural advance of society, the wages of labor will have a tendency to fall, as far as they are regulated by supply and demand; for the supply of laborers will continue to increase at the same rate, whilst the demand for them will increase at a slower rate.... As population increases, these necessaries will be constantly rising in price, because more labor will be necessary to produce them as less fertile land is brought under cultivation. If, then, the money wages of labor should fall, whilst every commodity on which the wages of labor were expended rose, the laborer would be doubly affected, and would be soon totally deprived of subsistence. Instead, therefore, of the money wages of labor falling, they would rise; but they would not rise sufficiently to enable the laborer to purchase as many comforts and necessaries as he did before the rise in the price of those commodities.... Notwithstanding, then, that the laborer would be really worse paid, yet this increase in his wages would necessarily diminish the profits of the manufacturer; for his goods would sell at no higher price, and yet the expense of producing them would be increased.

On Profits: Supposing grain and manufactured goods always to sell at the same price, profits would be high or low in proportion as wages were low or high. But suppose grain to rise in price because more labor is necessary to produce it; that cause will not raise the price of manufactured goods in the production of which no additional quantity of labor is required. If, then, wages continued the same, the profits of manufacturers would remain the same; but if, as is absolutely certain, wages should rise with the rise of grain, then their profits would necessarily fall.

Thus in every case, agricultural, as well as manufacturing profits, are lowered by a rise in the price of raw produce, if it be accompanied by a rise of wages. If the farmer gets no additional value for the grain which remains to him after paying rent, if the manufacturer gets no additional value for the goods which he manufactures, and if both are obliged to pay a greater value in wages, can any point be more clearly established than that profits must fall, with a rise of wages? The farmer then, although he pays no part of his landlord's rent, that being always regulated by the price of produce, and invariably falling on the consumers, has however a very decided interest in keeping rent low, or rather in keeping the natural price of produce low....

The natural tendency of profits then is to fall; for in the progress of society and wealth, the additional quantity of food required is obtained by the sacrifice of more and more labor. This tendency, this gravitation as it were of profits, 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 labor before required, and therefore to lower the price of the prime necessary of the laborer. The rise in the price of necessaries and in the wages of labor is however limited; for as soon as wages should be equal to the whole receipts of the farmer, there must be an end of accumulation; for no capital can then yield any profit whatever, and no additional labor can be demanded, and consequently population will have reached its highest point. Long indeed before this period, the very low rate of profits will have arrested all accumulation, and almost the whole produce of the country, after paying the laborers, will be the property of the owners of land and the receivers of tithes and taxes....There would be no motive for accumulation; for no one accumulates but with a view to make his accumulation productive, and it is only when so employed that it operates on profits. The farmer and manufacturer can no more live without profit, than the laborer without wages. Their motive for accumulation will diminish with every diminution of profit, and will cease altogether when their profits are so low as not to afford them an adequate compensation for their trouble, and the risk which they must necessarily encounter in employing their capital productively....In this case a reaction will take place, wages will be below their natural level, and will continue so, till the usual proportion between the supply and demand has been restored. Thus, only the landlord stands to gain. The laborer is forever condemned to the margin, for with every rise in wages he has more and more children, and thus competes his wages down to bare subsistence. The capitalist, who works and saves and invests, and drives forward the economic engine of society, finds that all his trouble is for naught, as his wage costs are higher and higher, his profits smaller and smaller, and his rent higher and higher. Thus the landlords alone, who do naught but collect rent, who contribute nothing to the progress of society, get wealthier and wealthier, while the rest of society---both capitalists and laborers---get poorer and poorer.


From: David Ricardo, The Principles of Political Economy, Edward C. K. Gonner, ed., Bohn's Economic Library (London: G. Bell & Sons, 1891), passim.

Scanned and organized by Jerome S. Arkenberg, Cal. State Fullerton. The text has been modernized by Prof. Arkenberg.

This text is part of the Internet Modern History Sourcebook. The Sourcebook is a collection of public domain and copy-permitted texts for introductory level classes in modern European and World history.

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