The premises of political economy; being a re-examination of certain fundamental principles of economic science

Front matter

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UNITED STATES OF AMERICAi .

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Chapter I. Bent

The theory of rent as commonly taught makes differences of soil the cause of rent. As some soils are more fertile than others, the produce is raised at different costs of production, so that if the price of the produce is high enough to give the usual profit on that portion of the whole crop which is raised at greatest expense, it will give more than the ordinary profit to those portions raised at less expense. There will therefore be a surplus value in the proceeds from some lands beyond what will cover the expenses and profits of the crops, and the amount of this surplus is said by Eicardo to be the amount of the rent.

There can be no doubt that soils of different degrees of fertility are in cultivation, but whether this fact is the sole, or even a necessary, condition of rent may well be questioned.

That the poorest land in cultivation should pay no rent requires that there should be no other purpose than cultivation to which the land can be put. This is rarely or never true, as man does not subsist alone on cultivated plants, such as wheat, oats, and corn, but also on plants that require no cultivation, and on animals that can live on uncultivated land ; he also has use for lumber and fuel, and the trees from which they are obtained grow on untilled land. When land is needed for cultivation it cannot be had for nothing, since it is valuable to its owners for other purposes. Upon uncultivated land, for instance, cattle and sheep can be kept. Persons who wish to cultivate land must compete with those who wish the land for grazing purposes, and as all lands that can be cultivated can be used for pasture, and will yield the usual profit and leave something for rent, those who wish to till the land must be able to bid over the herders in their offers of rent. The same is true in regard to timber land. Trees will grow in sufficient quantities on all land which can be cultivated more than to repay for the labor and capital needed to prepare them for market, and all tillable timber lands will yield a rent to their owners. Hence persons who desire to obtain this land

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for tilling must pay more rent than the owners can obtain from those who cut wood.

The rent of uncultivated land does not, as does that of cultivated land, depend upon the differences of fertility. Cultivated land, whether good or poor, must be ploughed and worked just the same, the poor, if there is a difference, needing more labor than the good. Hence the cost of cultivation is by the acre, while the profit is according to fertility. If two persons raise equal amounts of produce, one from one hundred acres, the other from two hundred acres of laud, he who works the two hundred acres should pay a much lower rent than the other, since he must retain a double amount to repay him for his extra cost of cultivation. But in grazing the case is different. If two hundred acres of a certain land will keep as many sheep or cattle as one hundred acres of better land, the two hundred acres of poor land will rent for as much as the one hundred acres of good land. The renter of the two hundred acres, having no additional expenses, is at no disadvantage in competing with the renter of the one hundred acres, and must pay as much rent. The same is true of timber land. It costs no more to cut a quantity of wood from poor than from good land. The rent of timber lands will therefore be proportional to the timber on the lands, and rent can be paid for the poor as well as for the good.

There are still other purposes for which land can be used profitably. On very sterile lauds, for instance, wild game will thrive, which will more than repay the cost of killing and bringing to market ; and as such game is often killed merely for sport, poor lands are in some countries, especially in England, set apart solely for hunting preserves. The rich men who own these preserves may pay more for sport than their game would fetch in market, but that such lands would yield a rent if the owners wish it is shown by the fact that men violate law and kill game in these preserves, even at great risk. There would certainly be no poachers if the value of the game did not exceed the cost of killing it.

It is often asserted that there is land so distant from market that it can yield no rent. In new countries this may sometimes be the case, but distance from market will not of itself remain a permanent reason why any land cannot pay rent. A land-owner has a choice of local and distant markets, and no produce will be sent to a distant market unless the price there is enough higher than the price at home to pay cost of transportation. This additional price can usually be paid, since production on a large scale at distant places is much more productive than local industries on a small scale. Producers on a small scale can, however, offer a price for food high enough to yield the landlord a considerable rent, and more than this rent must be

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offered by distant producers before they can displace local industries.

In view of these facts, it is clear that all cultivated lands, except in very new countries, must pay rent. Even the poorest land cultivated must pay rent, for those wishing it must compete with those who want it for purposes not requiring cultivation.

The Ricardiau theory of rent supposes that the greatest return is to be obtained when all the land of a country is cultivated. This, however, is not true, since from all the land of a country less produce will be obtained than if only a part is cultivated. To have a proper rainfall, it is necessary that a large part of the land of a country should be covered with trees, and if these are cut away to bring all the land into cultivation, while the owners of the forest lands may profit by it, the owners of the other lands will lose more than the first gain, and on the whole the country will lose, since, the gross production being diminished, a less population than before can be supported. When the greater part of a country is cultivated, the way to support a larger population is not through increasing the area under cultivation, for this will lessen the gross return, but through improving that already under cultivation.

The effect on the gross return of the country of tilling poor lands instead of using them for forestry, is clearly shown by the floods on the Ohio and Mississippi Rivers. At the sources of these rivers the forests are being cleared away so that the ground may be cultivated. The waters of these rivers are precipitated so rapidly into the valleys below that they are overflowed, and much of the best land in the country rendered useless for cultivation. If the poorer lands on the mountain-sides are cleared and cultivated the valley lands cannot be, since they will be subject to overflow. As a result there will be a movement of population from the fertile valleys to the sterile hill and mountain-sides, and a reduction of the gross production of the country. A country can till either the fertile valleys or the sterile mountain-sides, but not both.

Clearly, then, the fact that there are untilled lands in a country does not prove that there are lands in cultivation which yield no rent, for the produce of a country will be greater when certain lands are not cultivated but are covered with forests. It is said that one- fourth of the land of a country should be in forests. Although this proportion may be too large, yet the question of importance is not what is the relative fertility of the worst and best lands in a country, but what is the fertility of the better lands that remain after a proper portion is reserved for forests, since the poorest lands can be used for producing trees, and the best reserved for cultivation.

The most important objection to the Ricardian theory

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of rent is that lands do not remain in the same ratio of fertility as that in which they are regarded when they are first brought into cultivation. Ricardo talks of the inexhaustible qualities of the soil, and later writers, though qualifying his statements somewhat, still hold them in the main. All soils vary with time in their fertility ; bad lauds become good by proper treatment, and poor usage ruins the best of lands. Hence lands tend strongly to an equality when once brought into cultivation ; the rich lands lose most in fertility under improper tillage, while the poor lands gain most under proper tillage. When lands are badly cultivated, much more strength is taken from the good lands than from the poor, and they will therefore lose their fertility more rapidly. If wheat is raised on three grades of land yielding respectively ten, twenty, and thirty bushels per acre, and if nothing is done to replace the lost qualities, the best lands will decrease in fertility more rapidly than the others, since more is taken from the soil. By the time the capacity of the poorest land is reduced to nine bushels per acre, that of the better lands will be reduced to something like eighteen and twenty-seven bushels, and under continuous cultivation without manures the productivity of the lands would finally be on a par with that of the poor ; all lands thus handled would become equally poor, and rent from differences of soil would cease.

On the other hand, if lands are properly cultivated, the poor lands will increase in fertility more rapidly than the rich. I have shown that if nothing is returned to the land it will soon become worthless through exhaustion. When lands are properly cultivated a return is made, but this return is made to the land from which it was taken. If one field yields twenty bushels an acre and another thirty bushels, a farmer will not put three loads of manure on the good field to two on the poor field, but will place most of the manure, if not all, for a time at least, on the poor field, which will gradually yield more proportionally, and the difference in rent between the two fields will gradually lessen, and probably at length entirely cease.

Variations in the rate of interest or wages change the value of lands. We call at present land in Kansas poor in comparison with land in New York, but this is not because the same labor will not produce as much in Kansas as in New York, but because interest and wages are higher in Kansas, so that land of equal fertility in the two States will not yield the same rent. But when interest and wages in Kansas fall to their level in New York, the land of both States will be classed as good, and the differences of rent will cease or at least decrease.

The distribution of population also affects our estimation of the value of land. When a country is new, sparsely settled, and distant from a market, lands of

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great fertility will be classed as poor which a few generations later, when the population has much increased, will be regarded as very good, and yield a large rent.

In like manner a reduced cost of transportation alters our estimation of the value of land, causing us now to regard lands as good which a few years ago were classed as non-rent-producing. For these and similar reasons the proportion of the land on the earth regarded as poor is constantly decreasing.

Ricardo and his school always speak of wheat lands, barley lands, pasture lands, etc., as if each field was good for one crop alone, and would be most profitable to its owner only when used in the cultivation of this particular crop. Nothing can be more false than this view of the case. If any field is used to grow one crop only, it will decrease in fertility and soon yield little or no rent. Nothing in agriculture is better established than the necessity of a rotation of crops to prevent a loss of fertility. For this reason the value of land cannot be estimated by what it will produce of any one crop. An average must be struck from all the crops which must be raised to obtain the proper rotation. The fact that of a particular crop a piece of land will yield no more than enough to pay the cost of cultivation does not show that no rent can be paid for such land. Let us suppose that for a certain field, wheat, corn,

grass, and pasture would give a proper rotation of

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30 THE PREMISES OF POLITICAL ECONOMF.

crops. If a follower of Ricardo should pass by the field when sown to wheat, he would see some poor spots, and say that there is land which yields no rent. The next year he would see poor spots likewise in the corn crop, and on the following years in the land when used for a meadow and pasture, and from this would assert that although the farmer paid rent for all the land the rent of some of it was only nominal, and that here accordingly was a margin of cultivation which yielded no rent. A careful examination would reveal that the poor spots in the wheat were not those in the meadow ; that where no corn grew there was splendid pasture ; that in dry years the poor spots are here, in wet years there ; in short, that in a series of years every part may be in turn regarded as good and bad, and that the farmer can afford to pay rent for all, since some time during the series of years each part will make more than a return for labor and capital expended upon it.

The plausibility of the Ricardian theory arises from the temporary circumstances attending the extension of cultivation. In this country, first it was New York that was on the margin of cultivation, then it was Ohio, then Illinois, and now it is Kansas and Nebraska ; soon it will be Montana and other far-off territories. But none of these places stay at the margin of cultivation, and soon rent makes its appearance, and will in time become as high as in the oldest States.

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None of the differences which tend to augment rent are of a permanent character ; they are, on the contrary, of a very changeable nature. The order in which the lands were brouglit into cultivation affords no clue as to our present estimation of them. It may be granted that when we are obliged to extend the area of cultivation we always take what we regard the best of the uncultivated lands; but when these lands are once cultivated for a series of years we cannot say they yield no rent because they were last brought into cultivation. Our estimation of their value has most probably changed in the mean time. If a country is in a progressive state, all these differences of fertility will diminish, and probably in time cease; all land increasing in fertility under better conditions, the poorer ones, however, more rapidly, being most susceptible of improvement.

As I have stated before, I do not deny all the assumptions of the current theory of rent. I dispute only the one which claims that the price of the whole crop is determined by the cost of producing that portion raised at the greatest expense. The proof of this proposition is often presented in the following manner : If the price of produce was not sufficient to covei- this cost with ordinary profit there would be no inducement for farmers to continue the production of this the most costly portion of the crop, and a

32 TEE PREMISES OF POLITICAL ECONOMY.

farmer will not continue to produce at a loss ; on the other hand, if the price was more than sufficient to give the ordinary rate of profit new lands would be brought into cultivation, until the price of produce would be reduced to the cost of producing the most costly part. In this argument there is a fact of great importance overlooked which, when rightly considered, will change the whole view of the case. There is much labor to be performed before land can be cultivated. The land must be cleared of timber, it must be drained, stones and other obstructions must be removed, and, lastly, the land must be ploughed and the ground prepared before a crop can be raised. If these facts were not true, if the new land could be cultivated with no more trouble than the old lands can be changed from one crop to another, then we might be able to predict that the poorest land would go out of cultivation when the price of produce fell, and that more would be cultivated when the price rose. But nothing of the sort can be predicted. When new land is brought into cultivation the price must be high enough to remunerate satisfactorily those preparing the land for tillage, besides paying the cost of cultivating the crop ; but the land being once tillable, it will not cease to be used so long as the price of produce will repay the cost of cultivation alone. What has been expended in bringing the land into cultivation cannot be with-

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drawn, nor will, the land be withdrawn from cultivation because no return is obtained for this expenditure. Let us consider carefully the difference between these two elements, the one necessary to bring land into cultivation, the other to keep it there. If three thousand dollars must be expended to prepare a given farm for cultivation, and two thousand dollars and the labor of two men are required to cultivate it, then the farm will not be brought into cultivation until the price of produce will be sufficient to pay the wages of two men and the interest on five thousand dollars ; but when the land is once cultivated, it will not be withdrawn so long as the price of produce is sufficient to pay the wages of the two laborers and the interest on two thousand dollars. In other words, there might be a fall in price of produce equal to the interest on three thousand dollars without a reduction in the quantity of food produced. When lands have been once cleared of timber and brought into a proper state for cultivation that work is done once for all, and the capital and labor so expended become intermingled with the natural qualities of the soil. The revenue which the owner receives for such expenditure is properly to be regarded as rent, for it is governed by the laws of rent. Whether or no, return can be obtained for capital thus expended must depend on the causes which determine rent, and not on those which determine interest; and the fact that no return is obtained for money once expended has no tendency to reduce the amount of production. But with the circulating capital used on the farm the case is different : if no return is obtained it will be withdrawn and cultivation cease. Buildings, fences, etc., when once made, do not last forever, but must constantly be renewed, and if the price of produce falls so that the ordinary profit is not obtained on this capital, it will gradually be withdrawn and production will be in this way checked or reduced.

It is clear, therefore, that the laws which regulate the bringing of new lands into cultivation, and those according to which land will be withdrawn from cultivation, are very different, and that there is a large margin within which the price of produce may vary without a change in the quantity produced. Economists usually confuse two very different things in their arguments on this point. When they say that a capitalist will not bring new lands into cultivation unless the price of produce is sufficient to pay the cost of production, under this cost is included not only the cost of the labor necessary to cultivate the land, but also enough more to repay him for the cost of preparing the land. When, however, they say, if the price of produce is not sufficient to repay the cost of production land will be withdrawn from cultivation, the term cost of production must be understood to exclude

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the cost of bringing the land into cultivation, and to include only a remuneration for the labor expended and interest for the circulating capital. Let us suppose that sixty cents a bushel as the price of wheat suffices to repay the cost of production, — in other words, that such a price will properly remunerate labor and provide the interest on the circulating capital, — and that twenty cents on each bushel is needed to pay the interest on the capital expended in bringing the land into cultivation. Then the price of wheat must rise to eighty cents before new land will be brought into cultivation, but must fall below sixty cents before any land will be withdrawn. No changes in price between these figures, sixty and eighty cents, will affect the quantity of wheat produced.

If we keep these facts in mind we will see how faulty are the arguments supporting the doctrine that the price of the whole crop is determined by the cost of producing that portion which is produced at the greatest expense. There is always a large margin between the price which will remunerate those who bring new land into cultivation and that which will cause land to be withdrawn from cultivation. This margin is larger in old countries than in new ones, as those lands to the cultivation of which the obstructions are the least, which require the least clearing, draining, etc., will be the first cultivated, the subsequent additions being necessarily made from lands more difficult of preparation. Prairie land will be cultivated before wooded lands, high and dry lands before low and wet, lands naturally rich before those which require manures to render them tillable. As the demand for food increases the price of produce necessary to cause new lands to be cultivated increases, but the price which must be paid to prevent land from being thrown out of cultivation tends to become lower than before, since every improvement lessens the cost of production on all the cultivated land. Thus if in a new country sixty cents for wheat be the lowest limit of possible fluctuation at that time and eighty cents the upper limit, as the country grows older and the demand for food increases the upper limit will rapidly rise to one dollar, one dollar and twenty cents, one dollar and forty cents, and so on, while the lower limit will probably, through improved cultivation, slowly decline to fifty-nine cents, fifty-eight cents, and still lower figures. For this reason, as the demand for food increases the farther will its price be from the cost of cultivating the poorest land that has been prepared for tillage, and a knowledge of this cost will not enable us to determine what is the rent of the better grades of land.

The increase of the margin of fluctuation of values as the land of a country is gradually brought into use, causes the price of food to change more rapidly and

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to a greater amount than where only the easily cultivated land is in use. If the supply of food exceeds the demand, the price falls below the lower limit before the supply will be reduced. On the other hand, a slight deficiency of the supply will force the price above the upper limit, since there will be no increase in the amount of land cultivated until this limit is reached. Mineral products, following the same law that agricultural produce does, show much more clearly the effect of the increase of the margin of fluctuation. The mines which are easily opened and prepared for use are first worked, and those having greater obstructions are resorted to when more mineral products are desired. An increased demand for mineral products causes so high a price that new mines with great obstacles to their use must be opened, but once in use these mines can be worked at so low a cost that the supply of mineral products will be reduced only after a great fall in their price.

Gold and silver, being minerals, must also in time lose that firmness of value which has thus far made them so valuable as money. The supply from sources having but few obstructions either is, or soon will be, exhausted, and resort must be had to mines requiring much labor to open them up. The effect on the value of silver of the opening up of costly mines has been very marked during the last few years. From the present low price of silver, however, we cannot justly infer that the permanent cost of production has been reduced. The supply of silver has exceeded the demand, and as there are no mines in use which have a high cost of production, a great decline of price was a necessary consequence. When the mines now in use are exhausted the price will probably rise above its former price, with a liability of another great fall in value when new mines are brought into use.

During modern times the rapid increase in the demand for food has kept its price steadily at the upper limit. There are, however, at the present time many indications that this will not be true in the future. We are probably nearing a period when the changes in the value of food will be as rapid, and to as great an amount, as is now the case with mineral products. A slight change in the relation of the supply to the demand will occasion a great change in the value of food wherever there is but little or no land at the margin of cultivation, which will be withdrawn from use when the price begins to fall.

In opposition to the theory of Ricardo I offer the following, which will, I think, be found more in harmony with all the facts. Lands vary chiefly in two ways, in fertility and in the amount of obstructions necessary to be removed in order that they may be cultivated. Under obstructions are classed all hiuderances which,

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when once removed, do not require a continual outlay of capital and labor to keep the laud fit for cultivation. All land must be drained, and most of it must be cleared of timber and stones, and other like expenses must be incurred. When, however, this is once done, no outlay of capital and labor is needful beyond the regular expense of cultivation. When a country is first settled the lands least obstructed are first cultivated, as the population increases, and new lauds with greater obstructions to cultivation must be tilled, the price of produce must rise, since no one will bring any land into cultivation unless the price of produce is sufficient not only to repay the annual cost of cultivation, but also to give him the interest on the money laid out in subduing the land. Every increase in the demand for food requires the cultivation of more land, and this cannot be done until the price rises enough to repay the cost of bringing in new lauds. This cost is constantly increasing, the least obstructed lands naturally being brought first into cultivation.

Besides the obstructions to the cultivation of laud there are differences of fertility, but these are very limited in their nature and would not alone ever cause a very large rise in the price of produce. Fields sloping to the north are not so fertile as those sloping to the south, upland is not so fertile as valleys, in some places clay land may not be as good as sandy land, and

40 THE PREMISES OF POLITICAL ECONOMF.

in other places sandy land is inferior to clay, and so through all the categories of difference. In a very early stage of the growth of a country all these kinds of land were cultivated, and when afterwards new land is brought into cultivation, the obstructions having been removed, it falls into a class of lands already cultivated, and has no greater annual cost of cultivation than other lands of the same class previously tilled.

As is well known, Mr. Carey contends that the course of cultivation is always from the thin high lands to the rich bottom-lands, which cannot be at first cultivated by reason of their unhealthfulness and of the great and prolonged labor necessary for clearing and draining them. Whether this is always true, or true often enough to be regarded the general rule, is a matter of no moment to my position. What I contend is that at a time when the price of food was low our ancestors did cultivate as poor lands as any that are now left uncultivated, and that therefore, if the price should again fall to what it then was, poor lands would not go out of cultivation. That our ancestors cultivated high and thin land on the hills John Stuart Mill does not attempt to deny, but he asserts that at the present time in all old countries, as England and France, all, or nearly all, the fertile lands are cultivated, and that the extension of cultivation is from