In [the United States,] England, and Holland, then, for a long time past, and now in most other countries in Europe, the second requisite of increased production, increase of capital, shows no tendency to become deficient. So far as that element is concerned, production is susceptible of an increase without any assignable bounds. The limitation to production, not consisting in any necessary limit to the increase of the other two elements, labor and capital, must turn upon the properties of the only element which is inherently, and in itself, limited in quantity. It must depend on the properties of land.
Chapter IX. Of The Law Of The Increase Of Production From Land.
§ 1. The Law of Production from the Soil, a Law of Diminishing Return in Proportion to the Increased Application of Labor and Capital.
Land differs from the other elements of production, labor, and capital, in not being susceptible of indefinite increase. Its extent is limited, and the extent of the more productive kinds of it more limited still. It is also evident that the quantity of produce capable of being raised on any given piece of land is not indefinite. This limited quantity of land and limited productiveness of it are the real limits to the increase of production.
The limitation to production from the properties of the soil is not like the obstacle opposed by a wall, which stands immovable in one particular spot, and offers no hindrance to motion short of stopping it entirely. We may rather compare it to a highly elastic and extensible band, which is hardly ever so violently stretched that it could not possibly be stretched any more, yet the pressure of which is felt long before the final limit is reached, and felt more severely the nearer that limit is approached.
After a certain, and not very advanced, stage in the progress of agriculture—as soon, in fact, as mankind have applied themselves to cultivation with any energy, and have brought to it any tolerable tools—from that time it is the law of production from the land, that in any given state of agricultural skill and knowledge, by increasing the labor, the produce is not increased in an equal degree; doubling the labor does not double the produce; or, to express the same thing in other words, every increase of produce is obtained [pg 131] by a more than proportional increase in the application of labor to the land. This general law of agricultural industry is the most important proposition in political economy. Were the law different, nearly all the phenomena of the production and distribution of wealth would be other than they are.
It is not generally considered that in the United States, where in many sparsely settled parts of the country new land is constantly being brought into cultivation, an additional population under existing conditions of agricultural skill can be maintained with constantly increasing returns up to a certain point before the law of diminishing returns begins to operate. Where more laborers are necessary, and more capital wanted, to co-operate in a new country before all the land can give its maximum product, in such a stage of cultivation it can not be said that the law of diminishing returns has yet practically set in.