The proof of this position has been stated in figures, and in a particular case: we shall now state it in general terms, and for all cases.
We have supposed, for simplicity, that wages are paid in the finished commodity. The agricultural labourers, in our example, were paid in corn, and if we had called them weavers, we should have supposed them to be paid in cloth. This supposition is allowable, for it is obviously of no consequence, in a question of value, or cost of production, what precise article we assume as the medium of exchange. The supposition has, besides, the recommendation of being conformable to the most ordinary state of the facts; for it is by the sale of his own finished article that each capitalist obtains the means of hiring labourers to renew the production; which is virtually the same thing as if, instead of selling the article for money and giving the money to his labourers, he gave the article itself to the labourers, and they sold it for their daily bread.
Assuming, therefore, that the labourer is paid in the very article he produces, it is evident that, when any saving of expense takes place in the production of that article, if the labourer still receives the same cost of production as before, he must receive an increased quantity, in the very same ratio in which the productive power of capital has been increased. But, if so, the outlay of the capitalist will bear exactly the same proportion to the return as it did before; and profits will not rise.
The variations, therefore, in the rate of profits, and those in the cost of production of wages, go hand in hand, and are inseparable. Mr. Ricardo's principle, that profits cannot rise unless wages fall, is strictly true, if by low wages be meant not merely wages which are the produce of a smaller quantity of labour, but wages which are produced at less cost, reckoning labour and previous profits together. But the interpretation which some economists have put upon Mr. Ricardo's doctrine, when they explain it to mean that profits depend upon the proportion which the labourers collectively receive of the aggregate produce, will not hold at all; for that, in our first example, remained the same, and yet profits rose.
The only expression of the law of profits, which seems to be correct, is, that they depend upon the cost of production of wages. This must be received as the ultimate principle.
From this may be deduced all the corollaries which Mr. Ricardo and others have drawn from his theory of profits as expounded by himself. The cost of production of the wages of one labourer for a year, is the result of two concurrent elements or factors,—viz., 1st, the quantity of commodities which the state of the labour market affords to him; 2ndly, the cost of production of each of those commodities. It follows, that the rate of profits can never rise but in conjunction with one or other of two changes,—1st, a diminished remuneration of the labourer; or, 2ndly, an improvement in production, or an extension of commerce, by which any of the articles habitually consumed by the labourer may be obtained at smaller cost. (If the improvement be in any article which is not consumed by the labourer, it merely lowers the price of that article, and thereby benefits capitalists and all other people so far as they are consumers of that particular article, and may be said to increase gross profit, but not the rate of profit.)
So, on the other hand, the rate of profit cannot fall, unless concurrently with one of two events: 1st, an improvement in the labourer's condition; or, 2ndly, an increased difficulty of producing or importing some article which the labourer habitually consumes. The progress of population and cultivation has a tendency to lower profits through the latter of these two channels, owing to the well known law of the application of capital to land, that a double capital does not caeteris paribus yield a double produce. There is, therefore, a tendency in the rate of profits to fall with the progress of society. But there is also an antagonist tendency of profits to rise, by the successive introduction of improvements in agriculture, and in the production of those manufactured articles which the labourers consume. Supposing, therefore, that the actual comforts of the labourer remain the same, profits will fall or rise, according as population, or improvements in the production of food and other necessaries, advance fastest.
The rate of profits, therefore, tends to fall from the following causes:—1. An increase of capital beyond population, producing increased competition for labour; 2. An increase of population, occasioning a demand for an increased quantity of food, which must be produced at a greater cost. The rate of profits tends to rise from the following causes:—1. An increase of population beyond capital, producing increased competition for employment; 2. Improvements producing increased cheapness of necessaries, and other articles habitually consumed by the labourer.
The circumstances which regulate the rate of interest have usually been treated, even by professed writers on political economy, in a vague, loose, and unscientific manner. It has, however, been felt that there is some connexion between the rate of interest and the rate of profit; that (to use the words of Adam Smith) much will be given for money, when much can be made of it. It has been felt, also, that the fluctuations in the market-rate of interest from day to day, are determined, like other matters of bargain and sale, by demand and supply. It has, therefore, been considered as an established principle, that the rate of interest varies from day to day according to the quantity of capital offered or called for on loan; but conforms on the average of years to a standard determined by the rate of profits, and bearing some proportion to that rate—but a proportion which few attempts have been made to define.