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will extend depends upon the price of the produce, and in the normal case the price must, be equal to the expenses of production of that part which is produced under the most unfavourable circumstances. This then is the third law of value, from which the economic theory of rent is an immediate deduction. For, if the last dose obtains just a sufficient return, the former doses must yield more, and the sum of these extra profits is rent. It thus appears, also, that rent depends upon essence of the theory is that the return to each dose of price and not price upon rent.

The pure theory of rent is arrived at by making certain hypotheses and abstractions, and accordingly it must not be applied to particular practical cases without further lm-. ..

gains consideration. The theory certainly indicates the ufpure effect of very important causes, but requires in gig practice a certain amount of qualification. (1) The 0 ¢

capital applied can be separated, and that the application of capital will cease when the last dose yields only ordinary profits; and no doubt it is roughly true to say that a farmer will discover on trial at what point he should cease applying capital, and that this will depend upon the price of the produce. At the same time, however, it is quite possible that a farmer who owns the land which he tills may find it advantageous to carry cultivation to a further pitch than if he only rented his land. For he will apply his own labour and capital at a less return on his own land. There can be little doubt that very many important improvements made by landowners have yielded less than the ordinary rate of profit, just as peasant proprietors obtain a poor return by way of wages for their own labour. A landowner cultivating his own land has the whole margin of economic rent to fall back upon, but a farmer has to pay his rent as a first charge. Thus it is possible, provided always that the land is cultivated in both cases with the same skill, that food would be cheaper if all the land were cultivated by the owner and not by tenants farming for a profit, and thus the fact that many American farmers pay no rent may account partially for the lower prices at which they sell their corn. (2) Again, the pure theory takes no account of the size of the portions into which the land is divided, nor of the kinds of crops which are grown. But, when most of the land of a country is rented, both of these factors have to be considered, and it may be more convenient to the landowner to let the land with certain restrictions, which again indirectly operate on the price. (3) It has been well observed by Passyl that the principal effect of various land laws is to increase or diminish the amount of the gross produce, which in Ricardian phraseology 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. Atthe same time, however, with the necessary qualifications, there is no doubt that price determines rents, and not rent price, especially when prices are affected by foreign competition. 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 agrip, -og, -¢,, cultural produce also requires some criticism, such as and 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 cultivation 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 population. It is worth noticing that in our own times an increasing 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 1 Systémes de culture en France.

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 increment 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 v, ;,, e of extensively and intensively the produce of mines is UIFHFHA subject to the law of diminishing return, that the "'°d"”° 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. The principal point to observe is that mines are gradually quite exhausted. 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 conditions 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 coinage free) the value of standard coins will be equal me, ., s 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 production 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 Precious

amount to 2% of the quantity in the hands of man, of production can only operate through actual or supply, and that in the case of money the increase real to affect prices, it will be readily seen that the bullion is determined by the general level of prices (or of money), and not that the value of money' depends that cost

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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 which requires some notice. Some articles can only be produced in conjunction with others (ag. hides and beef, wool and L

mutton), and some modification of the theory IS g, ?x, ,, ,,, g needed to suit this case. The law deduced is that- value of T he sum of the values must be equal to the joint ex- gfgéuas penses of production, and the relative values inter se are determined 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 wool. 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 hastaken place recently on the question whether a distinct theory of international values is required. In the limits assigned to this article it is only possible Theo” to indicate the principal points in dispute. The oflnter“ orthodox ” theory, as held by Ricardo, Mill and x;:;';4 Cairnes, has been attacked by Cournot, Sidgwick and others, and has been re-stated with admirable clearness and much original power by C. F. Bastable? The best .way to answer the question seems to be to make clear the assumptions 2 Theory of International Trade.