An Inquiry into the Nature and Progress of Rent, and the Principles by Which It is Regulated

If a great and continued demand should arise among surrounding nations for the raw produce of a particular country, the price of this produce would of course rise considerably; and the expenses of cultivation, rising only slowly and gradually to the same proportion, the price of produce might for a long time keep so much ahead, as to give a prodigious stimulus to improvement, and encourage the employment of much capital in bringing fresh land under cultivation, and rendering the old much more productive.

Nor would the effect be essentially different in a country which continued to feed its own people, if instead of a demand for its raw produce, there was the same increasing demand for its manufactures. These manufactures, if from such a demand the value of their amount in foreign countries was greatly to increase, would bring back a great increase of value in return, which increase of value could not fail to increase the value of the raw produce. The demand for agricultural as well as manufactured produce would be augmented; and a considerable stimulus, though not perhaps to the same extent as in the last case, would be given to every kind of improvement on the land.

A similar effect would be produced by the introduction of new machinery, and a more judicious division of labour in manufactures. It almost always happens in this case, not only that the quantity of manufactures is very greatly increased, but that the value of the whole mass is augmented, from the great extension of the demand for them, occasioned by their cheapness. We see, in consequence, that in all rich manufacturing and commercial countries, the value of manufactured and commercial products bears a very high proportion to the raw products;[10 - According to the calculations of Mr Colquhoun, the value of our trade, foreign and domestic, and of our manufactures, exclusive of raw materials, is nearly equal to the gross value derived from the land. In no other large country probably is this the case. P. Colquhoun, Treatise on the wealth, power, and resources of the British Empire, 2nd ed. 1815, p. 96. The whole annual produce is estimated at about 430 millions, and the products of agriculture at about 216 millions.] whereas, in comparatively poor countries, without much internal trade and foreign commerce, the value of their raw produce constitutes almost the whole of their wealth. If we suppose the wages of labour so to rise with the rise of produce, as to give the labourer the same command of the means of subsistence as before, yet if he is able to purchase a greater quantity of other necessaries and conveniencies, both foreign and domestic, with the price of a given quantity of corn, he may be equally well fed, clothed, and lodged, and population may be equally encouraged, although the wages of labour may not rise so high in proportion as the price of produce.

And even when the price of labour does really rise in proportion to the price of produce, which is a very rare case, and can only happen when the demand for labour precedes, or is at least quite contemporary with the demand for produce; it is so impossible that all the other outgoings in which capital is expended, should rise precisely in the same proportion, and at the same time, such as compositions for tithes, parish rates, taxes, manure, and the fixed capital accumulated under the former low prices, that a period of some continuance can scarcely fail to occur, when the difference between the price of produce and the cost of production is increased.

In some of these cases, the increase in the price of agricultural produce, compared with the cost of the instruments of production, appears from what has been said to be only temporary; and in these instances it will often give a considerable stimulus to cultivation, by an increase of agricultural profits, without showing itself much in the shape of rent. It hardly ever fails, however, to increase rent ultimately. The increased capital, which is employed in consequence of the opportunity of making great temporary profits, can seldom if ever be entirely removed from the land, at the expiration of the current leases; and, on the renewal of these leases, the landlord feels the benefit of it in the increase of his rents.

Whenever then, by the operation of the four causes above mentioned, the difference between the price of produce and the cost of the instruments of production increases, the rents of land will rise.

It is, however, not necessary that all these four causes should operate at the same time; it is only necessary that the difference here mentioned should increase. If, for instance, the price of produce were to rise, while the wages of labour, and the price of the other branches of capital did not rise in proportion, and at the same time improved modes of agriculture were coming into general use, it is evident that this difference might be increased, although the profits of agricultural stock were not only undiminished, but were to rise decidedly higher.

Of the great additional quantity of capital employed upon the land in this country, during the last twenty years, by far the greater part is supposed to have been generated on the soil, and not to have been brought from commerce or manufactures. And it was unquestionably the high profits of agricultural stock, occasioned by improvements in the modes of agriculture, and by the constant rise of prices, followed only slowly by a proportionate rise in the different branches of capital, that afforded the means of so rapid and so advantageous an accumulation.

In this case cultivation has been extended, and rents have risen, although one of the instruments of production, capital, has been dearer.

In the same manner a fall of profits and improvements in agriculture, or even one of them separately, might raise rents, notwithstanding a rise of wages.

It may be laid down then as a general truth, that rents naturally rise as the difference between the price of produce and the cost of the instruments of production increases.

It is further evident, that no fresh land can be taken into cultivation till rents have risen, or would allow of a rise upon what is already cultivated.

Land of an inferior quality requires a great quantity of capital to make it yield a given produce; and, if the actual price of this produce be not such as fully to compensate the cost of production, including the existing rate of profits, the land must remain uncultivated. It matters not whether this compensation is effected by an increase in the money price of raw produce, without a proportionate increase in the money price of the instruments of production, or by a decrease in the price of the instruments of production, without a proportionate decrease in the price of produce. What is absolutely necessary, is a greater relative cheapness of the instruments of production, to make up for the quantity of them required to obtain a given produce from poor land.

But whenever, by the operation of one or more of the causes before mentioned, the instruments of production become cheaper, and the difference between the price of produce and the expenses of cultivation increases, rents naturally rise. It follows therefore as a direct and necessary consequence, that it can never answer to take fresh land of a poorer quality into cultivation, till rents have risen or would allow of a rise, on what is already cultivated.

It is equally true, that without the same tendency to a rise of rents, occasioned by the operation of the same causes, it cannot answer to lay out fresh capital in the improvement of old land—at least upon the supposition, that each farm is already furnished with as much capital as can be laid out to advantage, according to the actual rate of profits.

It is only necessary to state this proposition to make its truth appear. It certainly may happen, and I fear it happens frequently, that farmers are not provided with all the capital which could be employed upon their farms, at the actual rate of agricultural profits. But supposing they are so provided, it implies distinctly, that more could not be applied without loss, till, by the operation of one or more of the causes above enumerated, rents had tended to rise.

It appears then, that the power of extending cultivation and increasing produce, both by the cultivation of fresh land and the improvement of the old, depends entirely upon the existence of such prices, compared with the expense of production, as would raise rents in the actual state of cultivation.

But though cultivation cannot be extended, and the produce of the country increased, but in such a state of things as would allow of a rise of rents, yet it is of importance to remark, that this rise of rents will be by no means in proportion to the extension of cultivation, or the increase of produce. Every relative fall in the price of the instruments of production, may allow of the employment of a considerable quantity of additional capital; and when either new land is taken into cultivation, or the old improved, the increase of produce may be considerable, though the increase of rents be trifling. We see, in consequence, that in the progress of a country towards a high state of cultivation, the quantity of capital employed upon the land, and the quantity of produce yielded by it, bears a constantly increasing proportion to the amount of rents, unless counterbalanced by extraordinary improvements in the modes of cultivation.[11 - To the honour of Scotch cultivators, it should be observed, that they have applied their capitals so very skilfully and economically, that at the same time that they have prodigiously increased the produce, they have increase the landlord's proportion ot it. The difference between the landlord's share of the produce in Scotland and in England is quite extraordinary—much greater than can be accounted for, either by the natural soil or the absence of tithes and poor's rates. See Sir John Sinclair's valuable An account of husbandry in Scotland, (Edinburgh) not long since published—works replete with the most useful and interesting information on agricultural subjects.]

According to the returns lately made to the Board of Agriculture, the average proportion which rent bears to the value of the whole produce, seems not to exceed one fifth;[12 - See Evidence before the House of Lords, given in by Arthur Young. p. 66.] whereas formerly, when there was less capital employed, and less value produced, the proportion amounted to one fourth, one third, or even two fifths. Still, however, the numerical difference between the price of produce and the expenses of cultivation, increases with the progress of improvement; and though the landlord has a less share of the whole produce, yet this less share, from the very great increase of the produce, yields a larger quantity, and gives him a greater command of corn and labour. If the produce of land be represented by the number six, and the landlord has one fourth of it, his share will be represented by one and a half. If the produce of land be as ten, and the landlord has one fifth of it, his share will be represented by two. In the latter case, therefore, though the proportion of the landlord's share to the whole produce is greatly diminished, his real rent, independently of nominal price, will be increased in the proportion of from three to four. And in general, in all cases of increasing produce, if the landlord's share of this produce do not diminish in the same proportion, which though it often happens during the currency of leases, rarely or never happens on the renewal of them, the real rents of land must rise.

We see then, that a progressive rise of rents seems to be necessarily connected with the progressive cultivation of new land, and the progressive improvement of the old: and that this rise is the natural and necessary consequence of the operation of four causes, which are the most certain indications of increasing prosperity and wealth—namely, the accumulation of capital, the increase of population, improvements in agriculture, and the high price of raw produce, occasioned by the extension of our manufactures and commerce.

On the other hand, it will appear, that a fall of rents is as necessarily connected with the throwing of inferior land out of cultivation, and the continued deterioration of the land of a superior quality; and that it is the natural and necessary consequence of causes, which are the certain indications of poverty and decline, namely, diminished capital, diminished population, a bad system of cultivation, and the low price of raw produce.

If it be true, that cultivation cannot be extended but under such a state of prices, compared with the expenses of production, as will allow of an increase of rents, it follows naturally that under such a state of relative prices as will occasion a fall of rents, cultivation must decline. If the instruments of production become dearer, compared with the price of produce, it is a certain sign that they are relatively scarce; and in all those cases where a large quantity of them is required, as in the cultivation of poor land, the means of procuring them will be deficient, and the land will be thrown out of employment.

It appeared, that in the progress of cultivation and of increasing rents, it was not necessary that all the instruments of production should fall in price at the same time; and that the difference between the price of produce and the expense of cultivation might increase, although either the profits of stock or the wages of labour might be higher, instead of lower.

In the same manner, when the produce of a country is declining, and rents are falling, it is not necessary that all the instruments of production should be dearer. In a declining or stationary country, one most important instrument of production is always cheap, namely, labour; but this cheapness of labour does not counterbalance the disadvantages arising from the dearness of capital; a bad system of culture; and, above all, a fall in the price of raw produce, greater than in the price of the other branches of expenditure, which, in addition to labour, are necessary to cultivation.

It has appeared also, that in the progress of cultivation and of increasing rents, rent, though greater in positive amount, bears a less, and lesser proportion to the quantity of capital employed upon the land, and the quantity of produce derived from it. According to the same principle, when produce diminishes and rents fall, though the amount of rent will always be less, the proportion which it bears to capital and produce will always be greater. And, as in the former case, the diminished proportion of rent was owing to the necessity of yearly taking fresh land of an inferior quality into cultivation, and proceeding in the improvement of old land, when it would return only the common profits of stock, with little or no rent; so, in the latter case, the high proportion of rent is owing to the impossibility of obtaining produce, whenever a great expenditure is required, and the necessity of employing the reduced capital of the country, in the exclusive cultivation of its richest lands.

In proportion, therefore, as the relative state of prices is such as to occasion a progressive fall of rents, more and more lands will be gradually thrown out of cultivation, the remainder will be worse cultivated, and the diminution of produce will proceed still faster than the diminution of rents.

If the doctrine here laid down, respecting the laws which govern the rise and fall of rents, be near the truth, the doctrine which maintains that, if the produce of agriculture were sold at such a price as to yield less net surplus, agriculture would be equally productive to the general stock, must be very far from the truth.

With regard to my own conviction, indeed, I feel no sort of doubt that if, under the impression that the high price of raw produce, which occasions rent, is as injurious to the consumer as it is advantageous to the landlord, a rich and improved nation were determined by law, to lower the price of produce, till no surplus in the shape of rent anywhere remained; it would inevitably throw not only all the poor land, but all, except the very best land, out of cultivation, and probably reduce its produce and population to less than one tenth of their former amount.

From the preceding account of the progress of rent, it follows, that the actual state of the natural rent of land is necessary to the actual produce; and that the price of produce, in every progressive country, must be just about equal to the cost of production on land of the poorest quality actually in use; or to the cost of raising additional produce on old land, which yields only the usual returns of agricultural stock with little or no rent.

It is quite obvious that the price cannot be less; or such land would not be cultivated, nor such capital employed. Nor can it ever much exceed this price, because the poor land progressively taken into cultivation, yields at first little or no rent; and because it will always answer to any farmer who can command capital, to lay it out on his land, if the additional produce resulting from it will fully repay the profits of his stock, although it yields nothing to his landlord.

It follows then, that the price of raw produce, in reference to the whole quantity raised, is sold at the natural or necessary price, that is, at the price necessary to obtain the actual amount of produce, although by far the largest part is sold at a price very much above that which is necessary to its production, owing to this part being produced at less expense, while its exchangeable value remains undiminished.

The difference between the price of corn and the price of manufactures, with regard to natural or necessary price, is this; that if the price of any manufacture were essentially depressed, the whole manufacture would be entirely destroyed; whereas, if the price of corn were essentially depressed, the quantity of it only would be diminished. There would be some machinery in the country still capable of sending the commodity to market at the reduced price.

The earth has been sometimes compared to a vast machine, presented by nature to man for the production of food and raw materials; but, to make the resemblance more just, as far as they admit of comparison, we should consider the soil as a present to man of a great number of machines, all susceptible of continued improvement by the application of capital to them, but yet of very different original qualities and powers.

This great inequality in the powers of the machinery employed in procuring raw produce, forms one of the most remarkable features which distinguishes the machinery of the land from the machinery employed in manufactures.

When a machine in manufactures is invented, which will produce more finished work with less labour and capital than before, if there be no patent, or as soon as the patent is over, a sufficient number of such machines may be made to supply the whole demand, and to supersede entirely the use of all the old machinery. The natural consequence is, that the price is reduced to the price of production from the best machinery, and if the price were to be depressed lower, the whole of the commodity would be withdrawn from the market.

The machines which produce corn and raw materials on the contrary, are the gifts of nature, not the works of man; and we find, by experience, that these gifts have very different qualities and powers. The most fertile lands of a country, those which, like the best machinery in manufactures, yield the greatest products with the least labour and capital, are never found sufficient to supply the effective demand of an increasing population. The price of raw produce, therefore, naturally rises till it becomes sufficiently high to pay the cost of raising it with inferior machines, and by a more expensive process; and, as there cannot be two prices for corn of the same quality, all the other machines, the working of which requires less capital compared with the produce, must yield rents in proportion to their goodness.

Every extensive country may thus be considered as possessing a gradation of machines for the production of corn and raw materials, including in this gradation not only all the various qualities of poor land, of which every large territory has generally an abundance, but the inferior machinery which may be said to be employed when good land is further and further forced for additional produce. As the price of raw produce continues to rise, these inferior machines are successively called into action; and, as the price of raw produce continues to fall, they are successively thrown out of action. The illustration here used serves to show at once the necessity of the actual price of corn to the actual produce, and the different effect which would attend a great reduction in the price of any particular manufacture, and a great reduction in the price of raw produce.

I hope to be excused for dwelling a little, and presenting to the reader in various forms the doctrine, that corn in reference to the quantity actually produced is sold at its necessary price like manufactures, because I consider it as a truth of the highest importance, which has been entirely overlooked by the Economists, by Adam Smith, and all those writers who have represented raw produce as selling always at a monopoly price.

Adam Smith has very clearly explained in what manner the progress of wealth and improvement tends to raise the price of cattle, poultry, the materials of clothing and lodging, the most useful minerals, etc., etc. compared with corn; but he has not entered into the explanation of the natural causes which tend to determine the price of corn. He has left the reader, indeed, to conclude, that he considers the price of corn as determined only by the state of the mines which at the time supply the circulating medium of the commercial world. But this is a cause obviously inadequate to account for the actual differences in the price of grain, observable in countries at no great distance from each other, and at nearly the same distance from the mines.

I entirely agree with him, that it is of great use to inquire into the causes of high price; as, from the result of such inquiry, it may turn out, that the very circumstance of which we complain, may be the necessary consequence and the most certain sign of increasing wealth and prosperity. But, of all inquiries of this kind, none surely can be so important, or so generally interesting, as an inquiry into the causes which affect the price of corn, and which occasion the differences in this price, so observable in different countries.

I have no hesitation in stating that, independently of irregularities in the currency of a country,[13 - In all our discussions we should endeavour, as well as we can, to separate that part of high price, which arises from excess of currency, from that part, which is natural, and arises from permanent causes. In the whole course of this argument, it is particularly necessary to do this.] and other temporary and accidental circumstances, the cause of the high comparative money price of corn is its high comparative real price, or the greater quantity of capital and labour which must be employed to produce it: and that the reason why the real price of corn is higher and continually rising in countries which are already rich, and still advancing in prosperity and population, is to be found in the necessity of resorting constantly to poorer land—to machines which require a greater expenditure to work them—and which consequently occasion each fresh addition to the raw produce of the country to be purchased at a greater cost—in short, it is to be found in the important truth that corn, in a progressive country, is sold at the price necessary to yield the actual supply; and that, as this supply becomes more and more difficult, the price rises in proportion.[14 - It will be observed, that I have said in a progressive country; that is, in a country which requires yearly the employment of a greater capital on the land, to support an increasing population. If there were no question about fresh capital, or an increase of people, and all the land were good, it would not then be true that corn must be sold at its necessary price. The actual price might be diminished; and if the rents of land were diminished in proportion, the cultivation might go on as before, and the same quantity be produced. It very rarely happens, however, that all the lands of a country actually occupied are good, and yield a good net rent. And in all cases, a fall of prices must destroy agricultural capital during the currency of leases; and on their renewal there would not be the same power of production.]

The price of corn, as determined by these causes, will of course be greatly modified by other circumstances; by direct and indirect taxation; by improvements in the modes of cultivation; by the saving of labour on the land; and particularly by the importations of foreign corn. The latter cause, indeed, may do away, in a considerable degree, the usual effects of great wealth on the price of corn; and this wealth will then show itself in a different form.

Let us suppose seven or eight large countries not very distant from each other, and not very differently situated with regard to the mines. Let us suppose further, that neither their soils nor their skill in agriculture are essentially unlike; that their currencies are in a natural state; their taxes nothing; and that every trade is free, except the trade in corn. Let us now suppose one of them very greatly to increase in capital and manufacturing skill above the rest, and to become in consequence much more rich and populous. I should say, that this great comparative increase of riches could not possibly take place, without a great comparative advance in the price of raw produce; and that such advance of price would, under the circumstances supposed, be the natural sign and absolutely necessary consequence, of the increased wealth and population of the country in question.

Let us now suppose the same countries to have the most perfect freedom of intercourse in corn, and the expenses of freight, etc. to be quite inconsiderable. And let us still suppose one of them to increase very greatly above the rest, in manufacturing capital and skill, in wealth and population. I should then say, that as the importation of corn would prevent any great difference in the price of raw produce, it would prevent any great difference in the quantity of capital laid out upon the land, and the quantity of corn obtained from it; that, consequently, the great increase of wealth could not take place without a great dependence on the other nations for corn; and that this dependence, under the circumstances supposed, would be the natural sign, and absolutely necessary consequence of the increased wealth and population of the country in question.

These I consider as the two alternatives necessarily belonging to a great comparative increase of wealth; and the supposition here made will, with proper restrictions, apply to the state of Europe.

In Europe, the expenses attending the carriage of corn are often considerable. They form a natural barrier to importation; and even the country which habitually depends upon foreign corn, must have the price of its raw produce considerably higher than the general level. Practically, also, the prices of raw produce, in the different countries of Europe, will be variously modified by very different soils, very different degrees of taxation, and very different degrees of improvement in the science of agriculture. Heavy taxation, and a poor soil, may occasion a high comparative price of raw produce, or a considerable dependence on other countries, without great wealth and population; while great improvements in agriculture and a good soil may keep the price of produce low, and the country independent of foreign corn, in spite of considerable wealth. But the principles laid down are the general principles on the subject; and in applying them to any particular case, the particular circumstances of such case must always be taken into consideration.

With regard to improvements in agriculture, which in similar soils is the great cause which retards the advance of price compared with the advance of produce; although they are sometimes very powerful, they are rarely found sufficient to balance the necessity of applying to poorer land, or inferior machines. In this respect, raw produce is essentially different from manufactures.

The real price of manufactures, the quantity of labour and capital necessary to produce a given quantity of them, is almost constantly diminishing; while the quantity of labour and capital, necessary to procure the last addition that has been made to the raw produce of a rich and advancing country, is almost constantly increasing. We see in consequence, that in spite of continued improvements in agriculture, the money price of corn is ceteris paribus the highest in the richest countries, while in spite of this high price of corn, and consequent high price of labour, the money price of manufactures still continues lower than in poorer countries.

I cannot then agree with Adam Smith, in thinking that the low value of gold and silver is no proof of the wealth and flourishing state of the country, where it takes place. Nothing of course can be inferred from it, taken absolutely, except the abundance of the mines; but taken relatively, or in comparison with the state of other countries, much may be inferred from it. If we are to measure the value of the precious metals in different countries, and at different periods in the same country, by the price of corn and labour, which appears to me to be the nearest practical approximation that can be adopted [and in fact corn is the measure used by Adam Smith himself], it appears to me to follow, that in countries which have a frequent commercial intercourse with each other, which are nearly at the same distance from the mines, and are not essentially different in soil; there is no more certain sign, or more necessary consequence of superiority of wealth, than the low value of the precious metals, or the high price of raw produce.[15 - This conclusion may appear to contradict the doctrine of the level of the precious metals. And so it does, if by level be meant level of value estimated in the usual way. I consider the doctrine, indeed, as quite unsupported by facts, and the comparison of the precious metals to water perfectly inaccurate. The precious metals are always tending to a state of rest, or such a state of things as to make their movement unnecessary. But when this state of rest has been nearly attained, and the exchanges of all countries are nearly at par, the value of the precious metals in different countries, estimated in corn and labour, or the mass of commodities, is very far indeed from being the same. To be convinced of this, it is only necessary to look at England, France, Poland, Russia, and India, when the exchanges are at par. That Adam Smith, who proposes labour as the true measure of value at all times and in all places, could look around him, and yet say that the precious metals were always the highest in value in the richest countries, has always appeared to me most unlike his usual attention to found his theories on facts.]

It is of importance to ascertain this point; that we may not complain of one of the most certain proofs of the prosperous condition of a country.