The real price of a commodity is here properly stated to depend on the greater or less quantity of labour and capital (that is, accumulated labour) which must be employed to produce it. Real price does not, as some have contended, depend on money value; nor, as others have said, on value relatively to corn, labour, or any other commodity taken singly, or to all commodities collectively; but, as Mr. Malthus justly says, "on the greater (or less) quantity of capital and labour which must be employed to produce it."
Among the causes of the rise of rent, Mr. Malthus mentions, "such an increase of population as will lower the wages of labour." But if, as the wages of labour fall, the profits of stock rise, and they be together always of the same value,[54] no fall of wages can raise rent, for it will neither diminish the portion, nor the value of the portion of the produce which will be allotted to the farmer and labourer together, and therefore will not leave a larger portion, nor a larger value for the landlord. In proportion as less is appropriated for wages, more will be appropriated for profits, and vice versa. This division will be settled by the farmer and his labourers, without any interference of the landlord; and indeed it is a matter in which he can have no interest, otherwise than as one division may be more favourable than another, to new accumulations, and to a further demand for land. If wages fall, profits, and not rent, would rise. If wages rose, profits, and not rent, would fall. The rise of rent and wages, and the fall of profits, are generally the inevitable effects of the same cause—the increasing demand for food, the increased quantity of labour required to produce it, and its consequently high price. If the landlord were to forego his whole rent, the labourers would not be in the least benefited. If the labourers were to give up their whole wages, the landlords would derive no advantage from such a circumstance; but in both cases the farmer would receive and retain all which they relinquished. It has been my endeavour to shew in this work, that a fall of wages would have no other effect than to raise profits.
Another cause of the rise of rent, according to Mr. Malthus, is "such agricultural improvements, or such increase of exertions, as will diminish the number of labourers necessary to produce a given effect." This would not raise the value of the whole produce, and would therefore not increase rent. It would rather have a contrary tendency, it would lower rent; for if in consequence of these improvements, the actual quantity of food required could be furnished either with fewer hands, or with a less quantity of land, the price of raw produce would fall, and capital would be withdrawn from the land.[55] Nothing can raise rent, but a demand for new land of an inferior quality, or some cause which shall occasion an alteration in the relative fertility of the land already under cultivation.[567] Improvements in agriculture, and in the division of labour, are common to all land; they increase the absolute quantity of raw produce obtained from each, but probably do not much disturb the relative proportions which before existed between them.
Mr. Malthus has justly commented on an error of Adam Smith, and says, "the substance of his (Dr. Smith's) argument is, that corn is of so peculiar a nature, that its real price cannot be raised by an increase of its money price; and that, as it is clearly an increase of real price alone, which can encourage its production, the rise of money price, occasioned by a bounty, can have no such effect."
He continues: "It is by no means intended to deny the powerful influence of the price of corn upon the price of labour, on an average of a considerable number of years; but that this influence is not such as to prevent the movement of capital to, or from the land, which is the precise point in question, will be made sufficiently evident by a short inquiry into the manner in which labour is paid, and brought into the market, and by a consideration of the consequences to which the assumption of Adam Smith's proposition would inevitably lead."[57]
Mr. Malthus then proceeds to shew, that demand and high price will as effectually encourage the production of raw produce, as the demand and high price of any other commodity will encourage its production. In this view it will be seen, from what I have said of the effects of bounties, that I entirely concur. I have noticed the passage Mr. Malthus's "Observations on the Corn Laws," for the purpose of shewing in what a different sense the term real price is used here, and in his other pamphlet, entitled "Grounds of an Opinion, &c." In this passage Mr. Malthus tells us, that "it is clearly an increase of real price alone which can encourage the production of corn," and by real price he evidently means the increase in its value relatively to all other things, or in other words, the rise in its market above its natural price, or the cost of its production. If by real price this is what is meant, Mr. Malthus's opinion is undoubtedly correct; it is the rise in the market price of corn which alone encourages its production, for it may be laid down as a principle uniformly true, that the only encouragement to the increased production of a commodity, is its market value exceeding its natural or necessary value.
But this is not the meaning which Mr. Malthus, on other occasions, attaches to the term, real price. In the Essay on Rent, Mr. Malthus says, by "the real growing price of corn, I mean the real quantity of labour and capital, which has been employed to produce the last additions which have been made to the national produce." In another part he states "the cause of the high comparative real price of corn to be the greater quantity of capital and labour, which must be employed to produce it."[58] Suppose that in the foregoing passage we were to substitute this definition of real price, would it not then run thus?—"It is clearly the increase in the quantity of labour and capital which must be employed to produce corn, which alone can encourage its production." This would be to say, that it is clearly the rise in the natural or necessary price of corn, which encourages its production—a proposition which could not be maintained. It is not the price at which corn can be produced, that has any influence on the quantity produced, but the price at which it can be sold. It is in proportion to the degree of the excess of its price above the cost of production, that capital is attracted to or repelled from the land. If that excess be such as to give to capital so employed, a greater than the general profit of stock, capital will go to the land; if less, it will be withdrawn from it.
It is not then by an alteration in the real price of corn that its production is encouraged, but by an alteration in its market price. It is not "because a greater quantity of capital and labour must be employed to produce it," Mr. Malthus's just definition of real price, that more capital and labour are attracted to the land, but because the market price rises above this its real price, and, notwithstanding the increased charge, makes the cultivation of land the more profitable employment of capital.
Nothing can be more just than the following observations of Mr. Malthus, on Adam Smith's standard of value. "Adam Smith was evidently led into this train of argument, from his habit of considering labour as the standard measure of value, and corn as the measure of labour. But that corn is a very inaccurate measure of labour, the history of our own country will amply demonstrate; where labour, compared with corn, will be found to have experienced very great and striking variations, not only from year to year, but from century to century; and for ten, twenty, and thirty years together. And that neither labour nor any other commodity can be an accurate measure of real value in exchange, is now considered as one of the most incontrovertible doctrines of political economy; and, indeed, follows from the very definition of value in exchange."