v^ *r::nL'* c^ <^^ •■ « , . o V V' s''-', G> < » • * • 0_ '«>,(■''' V^ .^l^rL* <^ ^•^ ^^. \ "^../ »v^^^-. \.a' ^^m^i^, ^^^^ iM THE RICARDIAN RENT THEORY IN EARLY AMERICAN ECONOMICS BY THE SAME AUTHOR INTRODUCTION TO ECONOMICS, 191 9 THE RICARDIAN RENT THEORY IN EARLY AMERICAN ECONOMICS By JOHN ROSCOE TURNER, PH.D. Professor of Economics in New York University * With an Introduction by FRANK ALBERT FETTER,^ Ph.D., LL.D. Professor of Economics in Princeton Uni-versity THE NEW YORK UNIVERSITY PRESS JZ WAVERLY PLACE, NEW YORK CITY I92I Ur^ Copyright 1921, by The New Yoek Univbesitt Peess NH L 4-0 8 c^ THE NEW YORK UNIVERSITY PRESS COMMITTEE OF PtTBIilCATION Abthue Httntington Nason, Ph.D., Chairman Director of the Press Eaele Beownbll Babcock, Ph.D. _ Haeold Dicein-son Senior, M.D., Sc.D., P.K.C.S. KENNEBEC JOUENAL PEB6S, AUGUSTA, MAINE SFP17?3/ A INTRODUCTION BY FRANK ALBERT FETTER OF PRINCETON UNIVERSITY INTRODUCTION THE writings of the early American economists which are surveyed in this study have been strangely neglected by the later generations of American students. The article by Professor C. F. Dunbar, published in The North American Review in 1876, is the only previous American essay purporting to treat the subject. But Dunbar's article consisted almost entirely of a description of American conditions as explaining what he declared to be the utter "sterility" of American economic literature. The brief portion in which he spoke of writers is hardly more than a cata- logue of names and titles compiled from previous re- views. Certainly in some cases, as Doctor Turner shows, and possibly in most, Dunbar was unacquainted with the originals. Even if he had read the books, he, as a representative of the classical school ^ (which he be- lieved had arrived at ultimate truths within the limits of its hypotheses), was not qualified to render a just estimate of the theories in question, however competent he was in the field of money and banking. Forty years have passed, and is it not indeed remark- able that our generation of economic students, so thor- oughly grounded otherwise in the world's literature of economics, should know little or nothing of these, our own, writers, and most of that little through Dunbar's superficial and condemnatory article or through chance and usually disparaging references in the writings of English economists? That the American economists of ^ See his article in The Quarterly Journal of Economics, I, 1, 1886. viii THE RICARDIAN RENT THEORY the period preceding 1880 have been almost ignored in Europe is not remarkable, but that they should have been so forgotten and neglected by their own country- men since economic studies have been so zealously fos- tered in America, is indeed surprising. If we speculate upon an explanation of this neglect, two reasons suggest themselves. The first is the poor estimate of the learning and equipment of the early American economists in comparison with their English contemporaries; the second is the dominance of the Ricardian economics in America, especially after J. S. Mill's work gave it a new appeal and a new vogue among American readers. Perhaps these are but two aspects of the same reason. Doubtless the prevailing opinion is that, in the period from 1815 to 1870 (let us say), the development of eco- nomics in England was in the hands of men of good general and special education — trained economists, to use the modern term — whereas, it is thought, American writers of tliat time were ill-trained amateurs, publicists, and pamphleteers. We forget that there were in Eng- land at that time no "trained economists" whatever, such as we now understand by that term applied to men who prepare by long studies under competent teachers for an academic life-career. British economists were self- educated, having had the practical training, and retaining many of the pecuniary interests as well as prejudices of business men, as did Ricardo, Cobden, and Bright; or, having followed the life of a soldier, as Col. Torrens, or of a lawyer and politician, as Lord Lauderdale; or being occupied as government clerks as were James Mill (a licensed preacher) and J. S. Mill (most peculiarly trained by his father) ; and even when, by accident rather than by design, one of them came to be a "pro- INTRODUCTION ix fessor," he had been educated as Malthus, Jones, and Whately were, for the church, or as Nassau Senior, Longfield, McCulloch, and Cairnes, for the practice of the law. It must shake the preconceptions of many readers to compare with these typical examples of the English economists of that time, the American economists whose education and experience are carefully described in the following pages. These include graduates of nearly all the leading universities or colleges of that time in Eng- land and America — lawyers, business men, mathema- ticians, natural scientists, philosophers, men of wide travel and of varied experience in public and private affairs, a large proportion of them being college teachers. They would seem to have been quite as well — and as ill — fitted as were their English contemporaries, either to give a sound economic interpretation of their environ- ment or to deal with abstract principles. But after J. S. Mill had won for Ricardian economics its predominating place in American thought, that system, with all its unrecognized limitations of time, place, and logic, became the standard of economic science with which any inde- pendent thought upon our peculiar problems was meas- ured and found wanting. The time was not ripe for a re-examination of these opinions until the new era of criticism dating from the Seventies had slowly yielded some fruits in England and America. Partly this criticism was of a historical nature and tended to show the fallible, temporary, and local character of the Ricardian economics. That too, was seen to be of mortal nature like American economic opinion, and not an eternal verity. An article in The Fortnightly Review, October, 1880, by Cliffe Leslie, who recognized something of "perspicuity," novelty, and dis- X THE RICARDIAN RENT THEORY tinctiveness, and some small measure of relative worth in the American writings, was long the only result of this impulse so far as it concerns the present subject. The first American students who returned from Ger- many imbued with historical teachings, made slight beginnings at a re-examination of older doctrines; but, in most cases, their historical training was hardly more than a veneer over the groundwork of their Ricardian opinions earlier acquired at home. With all of its cul- tivation of the historical sense and of the ideas of his- torical relativity and continuity of doctrine, the first generation of mature economists thus trained has mostly been content to see these principles applied in explana- tion of the origin of the rent doctrine in England, with- out apparently permitting its faith in the logical com- pleteness of that doctrine to suffer the least shock. Mean- time, the earlier American material has lain almost un- touched and unworked. It was with this need and oppor- tunity in mind that, several years ago, I suggested the subject of this study to the author. Partly the newer criticism has been of an analytical and logical character, applying new and more rigid tests to old doctrines. It began with Jevons, Menger, and Clark (in The Philosophy of Wealth, 1884), and has been continued by many men in many lands. Probably nowhere in the world has it had so wide and deep an influence as here in America. In all the flowering of opinions and publications in the field of theory, there has been, to be sure, a tremendous waste of blossom; but the best fruitage is a small group of younger econo- mists with better critical methods of study, with clearer economic concepts as instruments of thought, with a more consistent scheme of terminology, and with a spirit of scholarship that is broader, less sectarian, and more INTRODUCTION xi detached from temporary interests when dealing with fundamental principles. "The present study is an outcome of this newer criti- cism as applied to the earlier economic writings. It is far from a full and perfect fruition, as the author recog- nizes, but it contains promise of larger returns in the future. The task undertaken was limited to one theme, the rent doctrine and its necessary implications in the theory of population and in the law of diminishing re- turns. The author has pursued his task with diligence and with affectionate interest through many libraries, until he has made it peculiarly his own. Most of the writers that he has studied had pronounced opinions on the political issues of their day; but the reader will seek in vain for any trace of partisanship in the following pages. The study seems to have been made with an eye single to the interpretation of the abstracter economic doctrines of that period, and the author knows neither Greek nor Trojan as respects the practical interests and influences that helped to shape these economic doctrines. The author employs, however, as instruments of analy- sis, certain concepts and terms found in the recent psy- chological economics ; for, without a new point of view and a new mode of attack, it would have been vain to take up the study of these discarded materials. One must have some thread in hand or be lost in the maze of confused opinions. The usual effect of the industrial environment upon the economic theory of that period in America, appears with striking clearness; even the exceptions, as pre- sented by Doctor Turner, are instructive. Few of the men whose opinions are reviewed had the slightest per- sonal connection with one another; and in few cases were they even acquainted with one another's writings. xii THE RICARDIAN RENT THEORY Yet, with an approach to unanimity, they came to the same conclusion on the population question, often, it is true, by reasoning that is palpably erroneous. They denied, with almost as close approach to unanimity, the "orthodox" contrast between land and capital in the sense of artificial agents (and again the exceptions are suggestive). They conceived of capital in terms of value in relation to investment, and of land as one of the kinds of material agents in which capital was in- vested. One after another, independently, various writ- ers came to this view, usually supposed to have been original with Carey and to have been confined to his school. Many of them held to this idea persistently, despite the influences of the English economic writings which were almost their sole literary guidance. These facts throw light, not less upon the relativity of the English than of the American economic theory of that era. At the period at which this study stops, the English classical system was reasserting its influence in America, and, in the alluring form which J. S. Mill gave it, was taking its dominating place in American collegiate in- struction. There it continued for half a century — and still in some measure continues — to exert its benumbing effects upon American economic thought. Vigorous new life-currents, however, began to stir with Francis A. Walker's dissent from the wage fund, and with his stimulating, though inconclusive, theory of profits. Then in turn came vital impulses of one kind or another from more recent authorities. A recent European critic, in a review of this active intellectual movement — a review most remarkable in its range and grasp of and insight into the literature — plainly told his European readers that America had become the new center of economic theory. ^ INTRODUCTION xiii Now the most notable impression left by Doctor Turner's study, perhaps, is that of a certain likeness between such of those earlier American opinions as were not mere echoes of Ricardianism, and the more recent American concepts and theories. True, it will not do to press the comparison in all directions and without limits (especially since, with changed conditions, the population doctrine has taken on a new form differ- ing from either of the older forms). But the likeness appears clear in the recognition of the conflict between individual and social interests (denial of the economic harmonies), in the attitude toward the theory of value, in the treatment of capital as an investment concept, and in the rejection of the twofold classification of mate- rial factors as land and artificial agents. Perhaps when some Americans recently have fondly supposed that they were discovering novel and original conceptions, they were but beginning to regain a little of that independ- ence of mind which once enabled the American econo- mists in their theorizing to look past conventional ideas and to catch, now and then, glimpses of the world of reality about them. It would, however, be a reproach to this generation if, with a superior equipment, it did not attain to some- thing more nearly ultimate in principles than did our more or less empirical forebears. Progress is not to be made by ignoring former opinions whether English or American, but by more thoroughly appreciating the truth and error in them when studying them with a new critical spirit, by the aid of recent biology and psychol- ogy, and in the light of the rich economic experience of the hundred years between 1815 and 1915. Doctor Turner's study fittingly appears after a century of the ^ J. Schumpeter, in Jahrhuch fur Oesetzgebung, etc., 1910, 913. xiv THE RICARDIAN RENT THEORY Ricardian rent doctrine. As pioneer work in a part of an almost untouched field, it will be helpful to every economic student seriously striving to know "the God of things as they are." F. A. F. Princeton University. AUTHOR'S PREFACE STUDENTS of the history of economic thought have inexcusably neglected the early American economists. This neglect was a subject of fre- quent comment in the seminar of the professor under whom I majored, Dr. Frank A. Fetter. He encouraged me to make a study of their works, calling particular attention to their attitude toward Ricardian rent. Fol- lowing this suggestion, I read the life and works of these economists. I found them worthy, but without fame. I believed then, and now know, that no sys- tematic study has been made of their contributions. It is hoped that this essay, at least in part, may serve to reveal their merit to public attention. Although I was inadequately prepared for the task, this study was begun and completed while I was a graduate student. It is offered for publication precisely as when completed, now eight years ago, with the exception that a tedious sixty- page critique of Ricardo's rent doctrine for the most part is omitted. When the study was begun, I was fresh from a perusal of the writings of the late General Francis A. Walker, in which the reader was taught to believe that he who differs from Ricardo's rent "simply does not know what he is mouthing about." This faith was upset, however, while reading the works of that keen witted philosopher, economist, and statesman, George Tucker of Virginia. The new faith received from Tucker caused me to do battle against Ricardo, but my present judgment causes me to eliminate the greater part of this critique; for, while interesting to the author, it would prove tiresome for the reader. xvi THE RICARDIAN RENT THEORY The purpose of presenting Ricardo's views in the" beginning of the study is that they form a basis for the controversial arguments presented by the economists we shall study. To this end, a critical estimate of the essen- tial features of the theory will reveal its elements of strength and weakness, and will prepare the reader for a more analytical study of its content. The logician would doubtless know the theory first and hear the criti- cism last : the pedagogue would find it both helpful and interesting not to defer the criticism in order to open up the question by setting forth the essential issues involved. J. R. T. New York University, May, 1921. CONTENTS Introduction by Frank Ai^bert Fetter vii-xiv Author's Preface xv-xvi CHAPTER I INTRODUCTION: CRITIQUE OF THE RICARDIAN RENT English economics deduced from experience during war- American economics different from English — Mal-adjustment of productive factors — Ricardo's theory of value — Capital — Capital used in tv^^o senses — Rent not a cost — Proportionality — Capital- ization — The differential concept — Ricardo's statement of the law of diminishing returns — Extension of the law of diminish- ing returns — Ricardo's confused definition of rent — Rent a trans- fer of value — Rent a monopoly return — Rent an addition to national wealth — Relation of rent and tariff 3 CHAPTER II THE EARLY NATIONAL ECONOMISTS: RAYMOND, EVERETT, AND PHILLIPS Raymond — Life — A national economist — Fundamental econom- ic concepts — Theory of population and criticism of Malthus — Rent obeys the law of supply and demand — Land is capital — Teaches historical increasing returns. Everett — Life — A national economist — Opponent of Malthus — The "new idea" — Teaches historical increasing returns. Phillips — Life — A national economist — Fundamental economic concepts — Upholds Gray's theory of population — Criticism of Ricardo's rent — Ricardo's one-cause method and Phillip's prac- tical method contrasted — Rent — Teaches historical increasing returns — Indebted to Dr. Franklin. Other early national economists : Due, Vail, Potter, Opdyke, Mathew Carey, Ware, Rae, and Colton 22 CHAPTER III CLASSICAL ECONOMISTS: McVICKAR, COOPER, NEWMAN, WAYLAND, AND VETHAKE These writers were professors — Environment. McVickar — Life and writing — Upheld McCuIloch. xviii THE RICARDIAN RENT THEORY Cooper — Life and writings — Influence in the South — Answers Everett and defends Malthus — Rent a restatement of Ricardo. Newman — Life and writings — Follows in the lead of Adam Smith. Wayland — Life and writings — Fundamental economic con- cepts — The theory of population — Wage-fund doctrine — Upholds Ricardian rent. Vethake — Life and writings — Wages — "Tendency" and theory of population — Rent and the theory of diminishing returns. Marcius Wilson 50 CHAPTER IV JACOB NEWTON CARDOZO Conflicting biographical references — An editor — Theory of population — Criticism of Ricardian rent — Rent and historical in- creasing returns 75 ' CHAPTER V GEORGE TUCKER Life and writings — An estimate of Ricardo — Fundamental eco- nomic concepts — A statistical study of population — Density of population and the rate of increase vary inversely — Ricardo's theory of wages criticized — Slavery cannot exist in an advanced stage of society — Land is capital — Profits — Tucker and Malthus had similar ideas on rent — Summary of chief arguments — Criti- cism of Ricardian rent — Rent and the theory of limited re- turns 83 CHAPTER VI HENRY CHARLES CAREY Environment, career, and personal characteristics — Arguments against Malthusianism — Relationship of wealth, utility, capital, value, and cost of reproduction — -Two arguments on rent: (a) Land is capital; reijts grow propornonately less ; (b) The natural order of cultivation — Three possible interpretations of Carey on returns — An argument by the writer on interrelationships in the problem of proportionality — Carey and Ricardo on returns — Conclusion no .'IqpA^ER VII FRANCIS BO WEN Life and writings — A national economist — Assumptions — haissez faire — Fundamental economic concepts — Theory of pop- ^ CONTENTS xix ulation and criticism of Malthus — Criticism of the Ricardian theory of rent — Rent and historical increasing returns 143 CHAPTER VIII JOHN BASCOM AND AMASA WALKER Bascom — Life and writings — Theory of population — Rent — The law of diminishing returns in agriculture and increasing returns in manufactures. Wialker — Life — Political career — mercantile career — Objects to Malthusianism — Land is capital — Four elements of rent: (a) Location, (b) Difference in fertility, (c) Importations, (d) Permanent improvements — Differences between Walker and Ricardo on rent 159 CHAPTER IX ARTHUR L. PERRY Life and writings — An estimate of Perry — Fundamental eco- nomic concepts — The theory of population — Land is capital — Rent and the law of historical diminishing returns 179 CHAPTER X R&SUMB Wealth — Value — Capital — Population — Rent — Proportionality 191 BIBLIOGRAPHY 203 THE RICARDIAN RENT THEORY IN EARLY AMERICAN ECONOMICS CHAPTER I INTRODUCTION: CRITIQUE OF RICARDIAN RENT A WELL-ROUNDED study of the attitude of American economists toward the Ricardian the- ory of rent would call for more than a review of the expressions made by these economists; it would call for a consideration of the environment which was powerful in shaping their thought as well as for a deep appreciation of the major problems confronting them. Furthermore, the reader would profit little by studying a criticism of Ricardo's teachings unless he knew what it was that Ricardo taught. And he could not compre- hend Ricardo's thought unless he knew the industrial conditions in England during the first part of the nine- teenth century, for indeed it was from these conditions that his thought grew. Fortunately, however, Edwin Cannan and others have made familiar the circumstances which gave rise to the Ricardian teachings on over-popidation, diminishing re- turnSj and differential land-rent. Then too, the differen- tial theory of rent and the conclusions deduced there- from have been repeated to the point of tiresomeness. The language in which this theory was originally couched is familiar to every economist ; but it is only the language that is familiar, for there has never been agreement upon I the theory itself. "The early nineteenth-century English economists de- duced their doctrines, not from study of the works of 4 THE RICARDIAN RENT THEORY their predecessors, but from the actual experience of England during the war." ^ The history of this experi- ence, as above indicated, has been told so frequently by others that I shall not repeat it here. It was the nature of this experience that gave the temper and tone to the writings of the British economists. But, on this side of the water, it was an entirely different type of experi- ence that gave rise to an entirely different type of eco- nomic thought. American writers regarded the Maltho- -Ricardian theory as an enemy of progress, and held it in contempt as a doctrine that would hail a famine as a deliverer and celebrate a pestilence as an occasion for a thanksgiving. The outlook of American economists was aggressive, versatile, and optimistic. No class was over-rich, nor was any class miserably poor. Novel conditions, both political and physical, were ours. Charged with the mission of subduing a new world, separated from the troubles of the old world by two oceans, and possessed of a new form of government, we had unique problems to face. If our development of economic thought was less rapid than that of the English, there is Httle wonder; for why should Ameri- 5 cans strive to develop a science for the correction of ills that hardly existed ? Industrial ills furnished the motive for economic development in England: the insatiable desire for the increased production of wealth furnished the motive for economic development in the United States. Following these motives, it was but natural that reckonings on distribution should occupy a paramount place in the writings of the English. Likewise we should expect an economy of prosperity to be uppermost in American thought. 1 Cannan, Theories of Production and Distribution, 148. CRITIQUE OF RICARDIAN RENT 5 Furthermore, our institutions of learning neglected the development of this science. In our seminaries and colleges, excessive importance was given to the classics while little or no attention was given to the subject of political economy. The study of constitutional law and the interpretation of written instruments engaged the attention of public men. In the early part of the period we are to review, the currency and the tariff, and in the latter part, the anti-slavery agitation, absorbed pub- lic interest. The currency and the tariff became party issues, and were argued thru upon a political rather than upon an economic basis. The anti-slavery agitation produced its group of moralists, but none of these dis- putes developed economists. The English people were forced to conserve their natural resources. But it was literally true that, for Americans, to be saving of land and resources would be wasteful. We had an unbounded potential productivity in uncultivated lands, an untold supply of minerals and ores, millions of horse power in the form of unharnessed waterfalls, timber so plenteous that our people regarded trees as weeds, and innumerable other resources so abundant as to be termed free goods. At the same time, labor was so scarce and valuable that it could be eco- nomically employed only in those places where the re- turns would be largest. Not the conservation of natural resources, but the most effective utilization of labor, was the dictate of wisdom in this country. There was a mal-adjustment in the productive capac- ity of England in which natural resources was the short factor, whereas over-population made labor the long factor. This naturally led to low wages and high land- rents. In America, there was a mal-adjustment of productive capacity quite different from that found in 6 THE RICARDIAN RENT THEORY England. Here labor was the short, and natural re- sources were the long factor. Naturally enough, land- rents were of little consequence, whereas wages were high and the labor problem was one of major importance. These differences in environment will in part explain the reasons for the different theories of rent held in the two countries. But, in further explanation of the variety of opinions contrary to Ricardo, we must look into his own theory of rent. I shall present this theory in critical form in order that the reader may have the essential points of controversy in mind. To comprehend the reasons for disagreement with Ricardian rent will best prepare the way for a study of the early American economists, for chief among their tasks was to defame the doctrine which made Ricardo famous. Ricardo approached the rent problem through a study of value. His view of the subject is familiarly expressed as "the labor-cost-of-production theory of value." He taught that the value of a good is proportional to the amount of labor employed in its production or to the wages paid for that labor. H your knife costs two days^ labor whereas my pen costs only one, it should follow that your knife would exchange for two such pens as mine. Value : value :: labor cost : labor cost. If the relative values of articles are proportional to labor-costs or wage-outlays, it is a mere truism that no other costs,, as rents or hires, can enter into value. If one accounts for the price of wheat by the labor-cost of producing it, one is forced to prove that other outlays as rents are,, in reality, not costs at all. So much for the theory which teaches that value is proportional to labor-cost or to the wages paid for that labor. - 2 Ricardo's critics have put certain embarrassing questions: (1) 0n& finds a precious stone wortli |500. Is its value determined by its labor- CRITIQUE OF RICARDIAN RENT 7 True or false, this theory of value enabled its author so to classify productive agents as to make rent a sur- plus return above labor-cost. The entrepreneur is hard to convince that wages form his only cost of doing business. He must pay for materials and pay numerous hires, rents, and fees. He asks, If cost determines price, why include only wage-costs and omit others of equal importance ? Questions of this nature were troublesome, and forced Ricardo to make the following classification of productive agents : (a) Land — so defined as to include all natural agents. (b) Capital — so defined as to include all artificial agents produced by labor. (c) Labor — human effort, be it mental or physical. According to the foregoing classification, capital con- sists of productive goods made by human labor. In other words, "capital is canned labor" — past labor having taken the form of present goods. Then, interest or the pay- ment for capital is a remuneration for past labor. Both wages and interest are thus outlays for labor. To this point, capital has been made to consist of productive goods — of tools, instruments, and machines created by labor and used to produce more wealth. Here again the Ricardian is in difficulty. The rent paid to the landlord is called a surplus gained without labor; yet, when he reinvests it in the form of capital, he is forced to define it as the product of labor. cost? No, for it has no such cost. (2) A monopoly artificially raises the price of a good. How is labor-cost responsible for the rise ? The answer is, in no sense. (3) Does the value of money depend upon its labor-cost? Ricardo himself answered in the negative. (4) Wine becomes better and sells for a higher price when allowed to age for a number of years. A sprout worth fifty cents grows through time into a tree worth a hundred dollars. What has labor-cost to do with the increase of prices caused by growth or improvement through time ? Labor-cost advocates regard these as mere exceptions to the "true theory." (5) How account for the value of labor itself? Another exception. (6) And does labor-cost determine the value of land, minerals, and other natural products? Again, no. 8 THE RICARDIAN RENT THEORY Ricardo employed two meanings of capital : capital as tools, and capital as value. It is necessary to his argu- ment to prove that the returns on capital are uniform, in order that no surplus may arise from it. To prove that the per cent of return is uniform for all capital, he is forced to abandon the idea of capital as tools and shift to the idea of capital as value. If capital is conceived as value, competition will operate to maintain uniformity of returns. It is well known, for example, that if ten per cent is returned in the shoe business and only five per cent in the hat business, capital will shift from the less to the more remunerative employment. Because capital tends toward a uniform competitive return, it earns no surplus. No surplus going to capital (canned labor), Ricardo tells us that all the interest on capital is a true labor-cost. The foregoing classification enabled him to treat rent as a surplus that forms no part of the cost of produc- tion. The entrepreneur spends money for labor, for agents created by labor, and for natural agents. But Ricardo tells us that cost determines value, and that the only cost is labor ; therefore, the money paid for the use of natural agents must be eliminated from cost. Call interest the wages of past labor, and wages the payment for present labor ; but the payment for the use of natural agents can not be termed wages since labor did not create such agents. He defined rent as the payment for the use of land (natural agents). He believed rent to be no part of cost; thought that it was a surplus over and above cost. If it is not an element of cost, it can have no bearing on price. How did he proceed to dem- onstrate the proposition that rent is not a cost ? If the different bushels of a supply of wheat are of uniform grade, they will sell for a uniform price in the CRITIQUE OF RICARDIAN RENT 9 market. Like bushels of wheat in a market at a given time will sell at the same price. But the cost of pro- ducing the different bushels is not the same. Some may be produced on superior soil and near the market ; some may be grown on inferior soil and distant from the market; some are secured from the superior uses of land and others at or near the intensive margin. Costs vary, but the price is uniform. Which cost is it that determines the price? The greatest cost — that portion of the supply which is produced at the greatest cost — determines the price of every portion of the supply. But the greatest cost is at the intensive margin or upon the marginal land — the land barely worth cultivating. Such land, or land uses, is so inferior that no rent is paid for the use of it. Then if production at the greatest cost determines prices, and if this greatest cost takes place where no rent is paid, it must follow that rent does not enter into the cost that determines price. This thought was cogently expressed by Ricardo, "Corn is not high because a rent is paid, but a rent is paid because corn is high." Ricardo's theory of value, which required capital to be defined as "stored up labor," has been on the defensive from the moment it was first penned. His theory of rent, his distinction between land and capital, and his theory of distribution based upon this artificial distinc- tion, are the defense works of his labor-cost theory of value. As above indicated, Ricardo reached the conclusion that "rent does not enter into price." This conclusion together with his concept of uniform profits (wages for past labor) made it possible for him to deduce the proposition that the only true cost and determinant of values is that of labor employed at the margin of culti- vation where no rent is paid. 10 THE RICARDIAN RENT THEORY Should it be demonstrated that rent does enter into cost, Ricardo's theory of distribution must fall. This demonstration is made if it can be shown that only- valuable land (or land uses) is cultivated; for valuable land always commands a rent and, therefore, rent would enter into cost. Cultivation extends to, but not beyond the "no-rent margin." Let us examine this statement; for, if it is true, it follows that only valuable land is cultivated. What is this margin? It is, in pure theory, a boundary line separating the land fit (valuable) for cultivation from the unfit (valueless). It is comparable to the line separating time into past and future. Beyond this land-margin, cultivation would occasion greater costs than income. Were the product of uses beyond the margin greater than the cost of harnessing them, they would, in consequence, yield a net return. They would be valuable, and, for this reason, command a rent. But this is contrary to the marginal concept. This thought is substantiated by two laws : proportional- ity and capitalization. The concept of proportionality has been the subject- matter of numerous contributions during the last thirty years; it has now passed out of the theoretical stage, and has become an established economic law. Its fa- miliarity to economists spreads the need of repeating it in full. A single agent is non-productive, and is valueless unless there are other factors to combine with it. An axe cannot cut wood, neither can a man — it takes the two combined, for the mutual interaction of agents lib- erates each the productive power in the other. Arid land produces nothing, and is valueless unless water is in prospect. Turn a river into the barren area, and CRITIQUE OF RICARDIAN RENT n the combination, land and water, becomes productive and valuable. Since neither factor alone could produce and because it requires mutual contact for each factor to liberate the productive capacity in the other, it fol- lows that the productive agent is a composite in nature and valued as a single unit. Does land make the water valuable? or does water make the land valuable? Each liberates the productive capacity in the other, and the two in one are valued. Consider a rich agricultural state like Minnesota with its many lakes and rivers. Is not water there, although utilized in production, a free good ? I answer that water in the lakes or rivers is free because it exists in such abundance as to render the short factor, land, incapable of liberating its productive capacity. Suppose now it were possible for the owner of a bonanza farm separ- ately to sell and remove the moisture from his farm. The water would not be free, but it would require the total value of the farm to buy it. If one thinks of the air as a separate thing, it is free ; but, were it integrated with the chemical qualities of the soil, the farmer would not have it permanently removed for a price less than the value of the farm. To harness a free agent and make it an integrated part of a composite productive agent is to make it valuable. A farm is more than land ; it is the combined productive qualities that grow a crop. Thus we see that proportionality is a physical law having to do with so adjusting things that they, in obedi- ence to natural laws, will give off the means of gratify- ing desires. Man makes the adjustments, however; and the motive by which he is directed is that of securing a valuable return. No effort is wasted by man to harness an agent that is without promise of a valuable return. The conclusion follows that, except for miscalculation 12 THE RICARDIAN RENT THEORY and poor judgment, all cultivated land yields a net re- turn, is valuable, and, therefore, commands a rent. The writer has in mind an investment of $ioo,ooa made in the fruitless attempt to convert a seemingly- bottomless svi^amp into productive soil. The venture failed and the money w^as lost because there was no productivity in the situation to exploit. A composite agent is valueless w^hen one of the essential factors is unproductive. Suppose that this swamp had responded to good treatment, that the composite agent (the land, the capital expended and embodied in its improvement, together with the other essential factors) had produced an annual net yield of $10,000. This capitalized at five per cent would give a capital value of $200,000. This yield could not be subdivided and the different portions of it attributed to the different factors in the composite agent. Specific productivity is not a generally accepted theory. One can no more attribute the value of the product to one factor in the composite agent than he could attribute music to the piano exclusive of the pian- ist, or sound to the clapper exclusive of the bell, or walking to the right foot exclusive of the left. But why will a man farm except for a yield? And if yield there be, its value is reflected, without exclusion, to the factors which compose the farm, the integrated agent of production. The process of capitalization is such as to make all land under cultivation valuable, and, therefore, rent-bearing. But if only rent-bearing land is cultivated, rent must enter into cost, Avith the conse- quence that the labor-cost theory of value falls. We shall see, later on, that almost all of the Ameri- can economists had the view that rent enters into cost. With this thought in mind, naturally enough they could not see why a tax on rent could not be shifted. To CRITIQUE OF RICARDIAN RENT 13 recognize rent as an element in the cost of production is to take the premise from under Ricardo's deduction of a non-shifting land-tax. Throughout the following pages, we shall find other difficulties which our writers encountered in their criti- cism of Ricardo. Among these, it should be kept in mind that Ricardo's theory of rent was static, whereas American economists took a dynamic point of view. What is more, Ricardo approached the determination of price from the margin, whereas almost all American economists thought that the no-rent margin was deter- mined by the price of the product. They reasoned that the margin is price-determined rather than price-deter- mining. Again Ricardo's well known formula makes differ- ences in land a cause of rent ; but the principle of cap- italization enables us to argue that difference in fertil- ity is not a cause, but only a measure of rent. Rent in the competitive market, as above shown, is paid for all land under cultivation. Moreover, rents come to equality in the sense of equal price for equal service. Paying rent is but buying the productive services of agents. A rent of $100 for the superior acre which yields 100 units of service, is equal per unit of service to the rent of $5 paid for the inferior acre which yields only 5 units of service. These rents are equal in the same sense that the price of 5c for one loaf is not higher than the price of $1 for twenty loaves. Competition renders equal land-uses equal in price. And the price paid for the uses of land is as much a cost to the entre- preneur as is the price paid for the services of labor. From the best to the poorest land, rent enters uniformly into cost. Regarding capital as uniform, Ricardo limited the dif- 14 THE RICARDIAN RENT THEORY ferential concept to land. We shall find that not a few of the writers we shall study made a severe attack against him at this point. At a latQj: date than we shall review, Francis A. Walker, though a defender of Ricar- dian rent, recognized differences among men, and made these the basis for his theory of differential profits. Recent authors — notably Hobson, Clark, Cannan, Fetter, and Davenport — see that the differential idea applies with equal force to the artificial agencies of production as it does to labor and land. ^ Akin to his differential was Ricardo's treatment of the law of diminishing returns, which, despite its im- perfections, was a real contribution. Turgot had nar- rowly conceived this law. * Cannan believes that Malthus did not make use of this law in the first and second editions of his essay on population. But, I ask, is not the very essence of the orthodox concept of diminish- ing returns contained in Malthus' arithmetical and geo- metrical ratios? The doctrine of the pressure of popu- lation on the means of subsistence, has no basis if it is not the disadvantage which attends the attempt to extort a greater and still greater crop from the soil. Ricardo himself does not give the law a better statement than is found in Sir Edward West's Essay on the Application of Capital to Land (1815).^ But to connect this law with the problems of rent, profits, and wages, and to weave it into a general system of distribution was left for Ricardo. The recent extension of this law to other * Walker, Political Econ., Part IV, chap. IV. Also Hobson, The Law of the Three Bents, Quar. Joum. Econ., V, 263-288, Apr., 1891; Clark, Distribution as Determined by a Law of Rent, Quar. Jovt/m. Econ., V, 289-318, Apr., 1891; Cannan, The Origin of the Law of Diminishing Returns, Econ. Jour., 11, 53-69, 1892; Fetter, The Passing of the Old Rent Concept, Quar. Joum-. Econ., XV, 416-455, May, 1901 ; and Fetter, The Relation Between Rent and Interest, Amer. Econ. Ass'n., 1904, third series. 176-198. * Cannan, Theory of Production and Dtifrihution, 147-148. ^West, Essay on the Application of Capital to Land, 9-27. CRITIQUE OF RICARDIAN RENT 15 productive factors, though the method of reasoning and the definition of the law be modified, has furthered the work which Ricardo began. This law, to Ricardo, was a principle of resistance ; and, to him, cost was the over- coming of resistance. This principle is related to value since, because of resistance, supply is limited. Ricardo's thought was that land obeys the law of diminishing returns whereas other agents do not. This statement, it should be said, has been denied for the most part by later economists. Almost all economists now observe that, should any productive agent cease to obey the law of diminishing returns, it would lose the element of scarcity and become a free good. It is true that, in the beginning of his work, Ricardo doubly emphasized the point that the law of diminish- ing returns is associated only with the original and inde- structible qualities of the soil. ^ He reckoned as capital all the investments on the land such as hedges, fences, manure, and other improvements. But Ricardo himself was led to give up a classification so artificial as this. He abandoned the classification in these words : "As a part of this capital, when once expended in the improve- ment of a farm, is inseparably amalgamated with the land, and tends to increase its productive powers, the remuneration paid to the landlord for its use is strictly of the nature of rent, and is subject to all the laws of rent." ^ Thus we see that Ricardo himself came to give a more extensive application to the law of rent than later writers have given him credit for. The different points of view found throughout Ri- cardo's treatment have made his followers uncertain as ' Ricardo, Principles, 46. ' See foot-note, Principles, pages 246-247. l6 THE RICARDIAN RENT THEORY to vv^hat Ricardo meant by rent, and these critics have been at still greater variance relative to the conclusions deduced from his definition. ® His formal definition reads : "Rent is that portion of the produce of the earth, which is paid to the land- lord for the use of the original and indestructible powers of the soil." ^ This definition is based upon the idea that rent is a contractual payment made by one person to another for the use of the land as such. Again he says, "For rent is always the difference between the produce obtained by the employment of two equal quan- tities of capital and labor." ^<> In this definition, it is not certain whether rent is a contractual payment or whether it might not be the produce obtained in case the landlord tilled his own soil. Nor are we sure but that rent might be a remuneration for the use of capital and of labor. The author employs many expressions which would lead us to believe that a rent is paid for capital; the following is illustrative : "The capital last employed pays no rent." ^^ Chapter II of his Principles is devoted to rent; and the reader cannot be mistaken in the fact that, through- out that chapter, Ricardo had commodity-rent rather than money-rent in mind. It is probable that the im- poverished state of the people in England at the time 8 Professor Sidgwick says, "The Ricardian theory of rent combines, in a somewhat confusing way, at least three distinct theories, resting on different kinds of evidence, and relating to different and not necessar- ily connected inquiries: we may distinguish them as (1) a historical theory as to the origin of rent, (2) a statistical theory of the economic forces tending to determine rent at the present time, and (3) a dynamical theory of the causes continually tending to increase rent, as wealth and population increase." Principles of Political Economy, 286. Here Pro- fessor Sidgwick seems to have mistaken Ricardo's description of rent for his theory of rent. Views like Professor Sidgwick' s are continually appearing m the economic writings we are to review. 9 Ricardo, Principles, 44. He should have said "uses above the mar- gin. The powers of the soil are not indestructible. ^°Ih., 48. "/&., 49. CRITIQUE OF RICARDIAN RENT 17 when Ricardo prepared this chapter is responsible for the emphasis which he placed upon commodity-returns and corn-rent. Later on, however, when he was prepar- ing his Chapter XXIV {The Doctrine of Adam Smith Concerning the Rent of Land), a different emphasis was given to the subject. He was there concerned largely with the distribution of wealth. Desiring to prove that the interest of the landlord is opposite to the interest of the rest of the community, he had to keep uppermost in thought the idea of contract rent payable in terms of money. A careful reading of this chapter, however, shows much of shifting back and forth between the ideas of money-rent and corn-rent. When he reaches Chapter XXXII (Mr. Malthiis' Opinions on Rent), we find Ricardo championing the cause of the people against the forceful arguments of Malthus, the chief defender of the landlord class. This chapter contains a reply to Malthus' pamphlet of 1815 on The Nature and Progress of Rent. Malthus looked upon rent as an addition to national wealth. Ricardo could overcome this point of view only by treating rent as a transfer of value from one person to another. And so he here shapes his definition to fit the point he would make. ^- Chapter II of his Political Economy contains his analy- sis of rent ; Chapter XXIV on Adam Smith, is an indict- ment of the landlord class showing their interests to be opposed to those of the rest of the community; and the chapter on Malthus, Chapter XXXII, is an argu- ment to overcome the champion of the landlord class. In the chapter on Rent, we find Ricardo the scientist; in the chapter on Malthus, we find Ricardo the debater. 12 Ricardo, Principles, 393. See Letters of D. Ricardo to R. Tower. 113-114. l8 THE RICARDIAN RENT THEORY It was necessary for him to shift from commodity- returns to money-rent in order to make his case against the landlord class. The students of Ricardo furthermore have had diffi- culty in determining whether rent is to be regarded as a monopoly-return or a competitive return. In the sec- ond chapter of his work, it is clear that rent is an out- growth of competitive conditions. But, throughout the latter part of his study, he states specifically more than once that rent is to be regarded as a monopoly-return. ^^ Ricardo's definition is at one time to be interpreted from the individual's point of view, at another time from the national point of view; at one time it refers to corn-rent, and another time to money-rent; at one time it means pure land-rent, at another time mixed cap- ital and land-rent ; at one time it signifies monopoly- returns, and at another time competitive returns. It supplies a basis for such a variety of arguments and conflicting conclusions that we cannot wonder why hard- ly any two writers, whether they be disciples or oppo- nents, can agree on the Ricardian theory of rent. One disciple of Ricardo claims, in harmony with some of Ricardo's teachings on rent, that the progress of one class means the poverty of another;^* a critic, ^^ who even styles himself the "Ricardian of the Ricardians," with equal fidelity to Ricardo denies this doctrine while basing his arguments also upon the Ricardian theory of rent. The truth is that Ricardo had no clear conception of rent, and that he shifted from one concept to another as it became convenient in the different parts of his study. Does rent add to the wealth of a nation? Certainly 18 Ricardo, Principles, 234, 235, 268. ^* George, Progress and Poverty. 1^ Walker, Land and its Rent. CRITIQUE OF RICARDIAN RENT 19 from the above variations in view-point, the author gives us ground for drawing a choice of conclusions. Note particularly the following remarks : "Rent then is a creation of value, but not a creation of wealth; it adds nothing to the resources of a country, it does not enable it to maintain fleets and armies ; for the country would have a greater disposable fund if its land were of a bet- ter quality, and it could employ the same capital without generating a rent." ^^ Certainly the conclusion from this would be that rent is a mere transfer of value which adds nothing to national wealth. If we turn from his attack upon the landlords to his comment upon the niggardliness of nature, his thought is upon the social distress and upon returns of product rather than of value. Here he remarks, "Whether the proprietor of the land, or any other person, cultivate No. I, these ten quarters would equally constitute rent."^^ Since rent is composed of products, and pro- ducts are wealth, it follows that rent adds to national wealth. This distinction is very important in that the question of tariff in both England and America was largely influenced by it. The different opinions held by Ricardo and Malthus as to whether or not rent adds to the national wealth made Malthus a protectionist and Ricardo an advocate of the freedom of international trade. American economists have placed much emphasis upon the relationship between rent and the tariff; indeed, prior to 1880, American economics was little more than a by-product of considerations on the tariff. On the whole, protectionists have contested the Ricardian rent- doctrine, while free traders have accepted it. Profits was Ricardo's starting point in his argument against 10 Ricardo, Principles, 394. "7b., 48. 20 THE RICARDIAN RENT THEORY tarifif, and his one rate of profits was determined princi- pally by agricultural capital which usually found the most unproductive investment. Restrict foreign corn, and the growth of population will force the cultivation of land at lower margins. The consequent high prices, he thinks, enable the landlord class to reap the benefits of high rents at the expense of wages and profits. It has been said that, "The Ricardian theory of rent was admirably suited and was meant for the practical pur- pose of attacking the Corn Laws and abolishing the protective duty on the importation of corn." ^^ Professor Cannan, among others, is inclined to this view. According to Ricardo's static economics, rent is large- ly a monopoly-return. His variety of definitions of rent may be classified as surplus value, surplus produce, and contract-rent. Ricardo was primarily interested in profits ; according to him, rent and profits move in oppo- site directions. Profits and the land-margin decline to- gether ; rents and prices mount higher because of declin- ing profits and land-margins. The importation of corn would maintain higher land-margins and higher profits, but lower prices and lower rents. This theory seemed to prove that the interests of capitalists, manufacturers, and city dwellers were contrary to the interests of the landlords. Non-agricultural classes would profit by a removal of the tariff; landlords would suffer by a re- moval of the tariff. Here Ricardo seems to be in a dilemma; restrictions on corn will be removed or they will not be removed ; if they are removed the landlord class will suffer, if they are not removed other classes will suffer. In any case, a large portion of the popula- tion must lose. It took two shifts in thought for Ricardo to get out ^^ Devas, Political Economy, 286. CRITIQUE OF RICARDIAN RENT 21 of this perplexity. First, he shifted from the welfare of a class to the welfare of the nation. Second, he shifted his definition from commodity-rent to money- rent. By reason of this shift, he could make his case against the landlord class and substantiate his argument for a removal of the tariff. Of the items — money-in- come to the landlord, money-outgo of the farmer, and produce from the land — the first two mutually cancel, and leave the third, produce, as the real contribution to the sum total of income. CHAPTER II THE EARLY NATIONAL ECONOMISTS- RAYMOND, EVERETT, AND PHILLIPS THE purpose of the preceding chapter was to prepare the way for a study of the early American economists. This chapter will be- gin with a study of Daniel Raymond (1786-1849) be- cause he was the first American to write a book on political economy. ^ He was born and educated in Con- necticut. After being graduated from the Tapping Reeve School of Law at Litchfield, Connecticut, he moved to the city of Baltimore where he began the practice of the law in the year 1814. Throughout his career, Raymond was a strong opponent of slavery, an able nationalist, a scientific protectionist, and, contrary to the then prevailing American ideas, he opposed "lais- sez faire" in the broad sense of that term. H. J. Furber says that Raymond had the dislike for England which was so common in this country at that time. ^ Cossa goes so far as to claim that Raymond's works were partly inspired by his animosity against England. But this is a mere statement devoid of proof ; for, indeed, there is nothing in Raymond's writings to warrant it. 1 ThougMs on Political Economy. In two parts. Baltimore, 1820. The second edition was titled The Elements of Political Economy. In two parts. Baltimore, 1823. He put forth a third edition in 1836, and a fourth edition in 1840. The work received much unfavorable criticism; cf. Dr. C. F. Gray, North American Review, April 1821: The Richviond Inquirer, Richmond, Va., in the following issues of 1825, July 1, August 26. 30, September 6, 9, October 13, and December 6. In these articles, W. G. Giles is most unfair, inaccurate in quotation, and abiisive. He tries to make Raymond out a fanatic. He would convey the impression that the book is partisan. Expressions like "Messrs. Daniel Raymond, John Quincy Adajns, and Henry Clay as an Affiliated Triumvirate in the elements of Political Economy," are characteristic. DANIEL RAYMOND 23 At the time Raymond wrote his book (1820), several European texts were in use on this side of the Atlantic. No particular interest was taken in the fundamental laws of political economy; yet these works were exten- sively read for their bearing on the paramount political issue of the time — the tariff problem. Both political and industrial conditions forced this problem to the fore. Raymond's interest in the tariff determined the nature of his book, which was a thoughtful presentation of the subtler principles of protective duties in opposition to the economic theories developed in England. He taught that national productive capacity results from the harmonious development of agriculture and manu- facture. This proposition and its development was Ray- mond's contribution. His concept of "capacity," to- gether with his definition and development of the idea, differed materially from that of James Steuart and of Lord Laviderdale. We are spared the need of contro- verting M. E. Hirst's claim to the contrary. ^ He gave I cannot agree with the opinion of A. L. Perry that Raymond is a follower of Adam Smith (Political Economy, 81). C. P. Neill's "Daniel Raymond" is the only reliable work on Raymond. Mr. Neill's study is confined largely to Raymond's main thesis. He gives no discussion on rent, which was only incidentally considered by Raymond. See Neill's Chap. II. "Daniel Raymond and His Work." In Chapter IV, Mr. Neill quotes in parallel columns from Raymond's book and from F. List's works which appeared several years later. It seems quite evident that List was indebted to Raymond. This throws some light on the erroneous contention that H. C. Carey was indebted to List on the question of protection. Both Carey and List were indebted to the same American sources on this question. Raymond's work had a few enthusiastic friends; NUes' Register, December 16, 1820; Blackwood's Magazine, XVII, 200. John Adams and Mathew Carey waxed enthusiastic over the work (Neill's chapter II). General characteristics of Raymond's work were: as a national economy, political and economic entities were considered co- extensive; individualistic philosophy was opposed; legal and moral con- siderations overshadowed economic principes. His was a political econ- omy. His main thesis was national wealth as capacity for production in opposition to individual wealth as the possession of commodities. The purpose of his work was "to break loose from the fetters of foreign authority; from foreign theories and systems of political economy, which from the dissimilarity in the nature of the governments, renders them altogether unsuited to our country." {Political Economy, first ed., pref., v-vi.) " Furber, Oeschichte der Oekonomiachen Theorien in Amerika, 58. 3 Hirst, The Life of Friedrich List, 112. 24 THE RICARDIAN RENT THEORY little attention to a theory of distribution, for his primary- interest was in the development of an economics of pros- perity which looked toward the development of our national productive capacity. Unbounded resources were ours, and he viewed protection as the agency for the development of manufactures. Our people had too recently won their independence from the exploitation of the English government for an idea of strong centralization and governmental inter- ference, such as he advocated, to meet with general ap- proval. His condemnation of slavery was not short of insulting to a large section of the country. His work had few friends and a small sale. Raymond, as above indicated, recognized the nation as an organic unit. He objected to Adam Smith's indi- vidualistic economy, and insisted that the interests of individuals or classes were often opposed to the national interest. In his thought, it is capacity for acquiring the necessities and conveniences of life, and not existing commodities, which constitute the real wealth of a nation. * The province of political economy is not, he thinks, to study how individual classes may secure or augment wealth and value. ^ The field of political econ- omy is, according to him, confined to a study of how the greatest productivity of a nation may be secured through legislation. ® Naturally, then, this writer gave * Raymond, Political Economy, 4th ed., 81. Raymond's ideas of na- tional restriction struck a sympathetic chord in Mathew Carey, which is evidenced by the fact that he wanted to endow a chair of political economy in the University of Maryland on condition that Raymond be allowed to fill it: "Philadelphia, Jan. 12, 1822. Know all men by these presents, that I do hereby bind myself to pay the University of Maryland, the sum of 500 dollars, as one year's sa'arj^ for a Professor of Political Economy, and also to continue the subscription, unless I shall give six months' previous notice of my determination to discontinue the same. (signed) Mathew Carey." Biographical Sketches, 93-94. The very interesting correspondence between Raymond and Carey regarding the professorship in question will be found in the Biographical Sketches, 94-96. S/&.J 84. «/?>., 116. DANIEL RAYMOND 2$ little attention to the laws which govern the distribution of income. There were four editions of his work; the first and fourth editions gave no discussion of rent, wages, profits, and interest. Despite this he made a bold stand against the Maltho-Ricardian doctrine. Raymond's positive views were briefly expressed on the population-rent problem. He said, "Malthus' theory of population is certainly ingenious and plausible, al- though it is calculated to leave very erroneous impres- sions on the mind of the reader, in consequence of his not having treated the subject in conjunction with others, with which it is necessarily connected." ^ Raymond thought that pride and the innate feeling of independence make untrue Malthus' claim that almshouses and public aid will cause an increase of population. * He claimed that not over-population but a faulty distribution was the cause of poverty in England : When the tendency of a system of laws is to throw all the property into the hands of a few, the inevitable consequence, in a state of refinement in arts and civilization, will be to reduce the remaining portion of the nation to such a state of poverty and dependence as will subject them to all the horrors of famine, upon every fluctuation in the demand for their labor, however abundant the necessaries of life may be in the country, and unless there are countervailing laws, which shall compel such a distribution of food as will prevent starvation. It mat- ters not how abundant food may be, if it all belongs to a small portion of the nation, and the rest of the nation has nothing to buy it with ; a large portion will be left to starve, unless some provision is made by law for the distribution of it among the poor. Private charity is not adequate to prevent such a catastrophe. ^ This artificial or legal expression is characteristic of Raymond. It should be remembered that he was not a professional economist but a professional lawyer. Ar- guments legal and theological in nature so pervaded his '!&., 2nd ed., II, 67. ^ lb., 80. " Raymond, Political Economy, 2nd ed., II, 74-75. 26 THE RICARDIAN RENT THEORY reasoning that economic laws were often disregarded even in questions which were primarily of an economic nature. This observation holds particularly in his treat- ment of population. He teaches that God would not establish laws that would lead an increasing population to starvation. He thought that Malthusianism owed its great popu- larity to the rich. "It is," said he, "very convenient and very palatable for those who have all the property, to preach up the inutility of making provision for those who have none; and, with them, a theory of population, or a system of Political Economy, which establishes such a doctrine, would be likely to be very popular." ^^ Jar- rold had previously given a similar discussion on this point. ^^ Our author's radical suggestion for the elim- ination of poverty was to have all the property in the Kingdom, at least once in every generation, divided pro- portionately among the people. ^- The threefold division of productive factors into land, labor, and capital, Raymond disregarded. "That por- tion," he said, "which Adam Smith and Malthus call profits, is made up in part of rent, and in part of wages. What they call the profits of capital, is either rent or interest, and to avoid a multiplicity of distinctions, it had better be called rent than interest, if it be necessary to distinguish it from wages. But as such minute dis- tinctions are wholly unnecessary and useless, the better way is to divide the product of the land and labor, be- tween the owner of the land and the cultivator, and call one part rent, and the other wages." ^^ He treats the earth as the "source of all wealth," and ^°Ib., 72. ^^ Jarrold, Dissertation on Man, 314-362. ^ Raymond, Political Economy, 2nd ed., II, 82. !*/&., I. 202-203. DANIEL RAYMOND 27 labor as the "cause of all wealth." ^* He amalgamates machinery with the productive factor, man. ^^ These are basic principles with him, and make possible the divi- sion of all incomes into wages and rent. A theory of prosperity, as was Raymond's, is neces- sarily dynamic rather than static. Were desires reck- oned as static, it would follow that the development of machinery would greatly diminish the necessity for human exertion. But, said Raymond, "The wants of man are indefinite and unlimited, and as fast as he con- trives to supply one want with a less quantity of labor, another equally pressing want springs up to supply its place, and impose new necessity for labor." ^® The growth of desires for a greater variety and a superior quality of goods stimulates the development of productive capacity to supply these desires. Larger productive capacity enhances the demand for and the earnings of labor, thereby making necessary a larger population from which the supply of labor may be in- creased. He taught that w^ages were governed by the law of supply and demand, but that, in a developing society, the demand for labor exceeds the supply, so that wages gradually increase. Treating labor as the cause of all wealth, and minimizing the principle of diminishing returns, he conceived a dynamical increase in the pro- ductive power of labor due to the multiplication of numbers. Large numbers supply all the advantages of nearby markets and a more perfect division of labor. While productive capacity is being augmented through an increase of numbers, the demand for commodities is growing for a greater variety and a superior quality "/6., 91, 92. ^^Ib., 98. '" /&., 11, 109. 28 THE RICARDIAN RENT THEORY of goods. His concept of the dynamical increase of de- mands is such as to keep demand ever in advance of the supply. The conclusion following this argument is, that visages are augmented because of an increase in pop- ulation. We shall now see that the difference between Raymond and Ricardo on rent is not less striking than were their unlike views on wages. A national economist would hardly be expected to accept the Ricardian theory of rent, which serves an individualistic economics so well, and which formed the basis for the then prevailing arguments for the free- dom of trade. Raymond defined rent as "that portion of the product of labor or an equivalent, which the pro- prietor of the land is entitled to, for the use of his land." ^^ He makes rent a contract payment for the use of land. Elsewhere he strictly assimilates rent to prices in general. "Some writers," said he, "and espe- cially Mr. Malthus, have taken great pains to establish a distinction in principle, between rent paid for the use of land, and the price paid for the use of commodities or personal property, and the attempt to establish such a distinction, where in fact no such distinction exists, except in name, has led them into some very singular errors." ^^ Since the distinction between the price paid for usance in general and rent is only nominal, there can be no particular law of rent other than that which regulates the prices of goods. Now that a theory of rent is a theory of price, the real inquiry becomes a question of price determination. Very unlike a marginal cost theory was Raymond's view : "Both the rent and price of land are regulated and governed by the same laws which regulate and gov- "/&., I, 192, M/&., I, 184. DANIEL RAYMOND 29 ern the price of corn and everything else. The price of everything depends upon the proportion which exists between the supply and the demand." ^^ Similarly, he regards the distinctions between rent and interest as only nominal. "The consideration," he said, "paid for the use of land is called rent ; that paid for the use of money is called interest." '" He speaks of land as capital, and identifies land and capital as com- posing a common capital fund. Both are spoken of in the same sense as instruments in man's hands for pro- ductive purposes. -^ He speaks of both rent and interest as a per cent. ^^ Both are governed by the same law — that of supply and demand. ^^ In a rude government, he says, some risk enters into the loaning of capital other than land, ** but "independent of the risk of losing the principal, the interest of money ought to be at precisely the same rate as the rent of land." '^ Now that land is capital, and that the same laws must regulate returns to all capital, consistency will not per- mit a law of diminishing returns to apply to land while a law of increasing returns is applicable to manufactures. For a serious consideration of diminishing returns, how- ever, Raymond was on the wrong side of the Atlantic. Why would a lawyer be concerned over diminishing returns when no more than a gap had been made in the waiting forests of a new world? Not to overcome the niggardliness of nature but to augment the population was his problem. "To what extent," said he, "the fruits of the earth may be augmented, no human intelligence can tell. For aught that we can perceive, the earth is «7b., 183. =«/&., 254. ^ lb., 104-105. 2=/b., 2.59. '^Ih., Chap. XII. 2< lb., I, 255. 30 THE RICARDIAN RENT THEORY capable of being made to yield an indefinite and almost unlimited quantity of food. We can no more fix limits to the powers of the earth to produce the necessaries of life than we can fix limits to the powers of life itself, or to the artificial wants of men. . , . The fruits of the earth are multiplied almost in proportion to the labor bestowed upon it." ^® But this extravagant optimism is modified, "I am far from supposing," said he, "that the earth is capable of being made to increase its fruits with the same rapidity, that the unrestrained powers of procreation are capable of multiplying the human species." -'' These powers, unrestrained, would so increase the population that "uni- versal starvation would sweep them off." -* But he thinks that the laws of nature will so regulate population that man need not interpose his agency. -^ Just what these laws are or how they work, he fails to inform us, yet he admonishes us to obey them. The effect of machinery is to increase corn-rent, but not money-rent. Agricultural improvements may throw some labor out of employment, but this labor would find employment in the extension of manufactures. ^° Raymond's want of method, his ungrammatical and illogical statements, together with occasional contradic- tions, leave no definite conclusion to be drawn. Though he assimilates land and capital, the trend of his dis- cussion seems to recognize dynamical diminishing re- turns in agriculture, which, however, are more than counterbalanced by increasing returns to machinery. This, together with the idea that growing prosperity accompanies the increase of population, and that divine 2»/6., II, 111. ^ n., 112. ^Ih., II, 113. »/6. 80/6., Chap. VIII, ALEXANDER H. EVERETT 31 laws will most wisely regulate numbers, certainly leads to most optimistic predictions regarding the future well- being of man. On the whole, we find that Raymond was diametrically opposed to the gloomy Maltho-Ricar- dian theory. Quite in harmony with this attitude were the ideas of Everett. Like Raymond, Alexander H. Everett (1790-1847) was a lawyer. His book New Ideas on Population appeared on the same date as Raymond's second edition. Both he and Raymond were national economists of the same political faith. Their scientific writings, it is feared, may have been colored by the ardent zeal they held in common for the doctrines of John Quincy Adams. Not less pronounced than their deference to Adams was their common dislike for the pessimistic theories of the Maltho-Ricardian school. This writer was a brother of Edward Everett; he studied law in the office of John Quincy Adams and served on many important commissions. As he was an orator and statesman of ability, as well as a member of his state senate and a minister plenipotentiary at the court of Spain, his works were influential and found wide circulation. Everett did more on the population aspect of the problem than did any other of the early American writ- ers. In addition to the work just mentioned, he carried on a correspondence with George Tucker respecting the population problem, and made many speeches on the subject. He conferred personally with Malthus on this // question. ^^ *i Everett, Nev) Ideas on Population, 1st ed., pref. Everett was grad- uated with highest honors at Harvard in 1806; he was appointed United States charge d'affaires at the Hague in 1818. Aft^r serving as Minister to Madrid, he returned in 1825 to America and became editor and pro- 32 THE RICARDIAN RENT THEORY His work on population begins with objections to the ideas, (i) that poHtical institutions are the source of all evil, and (2) that they have no tendency to improve the condition of mankind, and are entirely indifferent. He said, "The former proposition is directly maintained by Godwin, and the latter is implied in the theory of Malthus." 32 Like Raymond, he thinks that Malthus assumes too much from the single example of the rapid increase of population in America. "To assume the highest known rate of increase ... as the standard of the ordi- nary progress of population, would be like assuming the strength and intelligence of the most powerful and wisest man ... as the standard of the ordinary physical and intellectual endowments of the race. It would be unsafe to draw a general conclusion from a single instance ; and that the single instance least suitable for this purpose would be precisely those of the highest and of the lowest known rates of increase; the former of which has been selected by Mr. Mal- thus." 33 He says we must know the power of popula- tion to increase, the checks and the rates of increase under these checks, as well as the rate at which food can prietor of The North American Review. He was a member of the Massa- chusetts legislature, a confidential agent of the government to Cuha, 1840. He was appointed to a diplomatic post at Peking, 1845. He was a frequent contributor to The Monthly Anthology, 1803-1811. His first important book was Europe, Powers, with Conjectures on the Future Prospect, 1822. This was translated into German, French, and Spanish. Other books were: Neiv Ideas on Population 1823; Critical and Miscellane- ous Essays 1845-1847; Life of Joseph Warren and Life of Patrick Henry in Sparks' American Biographies. He was a frequent contributor to The North Ainerican Review ; he also contributed economic essays to The Boston Quarterly. (Nat. Encyc. of Amer. Biog., IX, 256. See also Neiv Inter. Encyc, VII, 312.) The North American Review was warm in its praise of the New Ideas (North Amer. Rev., Oct., 1823; Jan., 1827). After most elaborately- praising the New Ideas, a reviewer in The North American Review said, "Mr. Everett's arguments are triumphant, and amount to a complete demonstration." (XXIV, 219). 32 Everett, New Ideas on Population, 2nd ed., 120. S3 16., 53-54. ALEXANDER H. EVERETT 33 be obtained, before we can compare the rates of increase between population and food. '* Everett urges another criticism against Malthus. "He views," said Everett, "every individual added to society as an additional consumer, without appearing to reflect, that he is also at the same time an additional laborer." ^^ This seems hardly just to Malthus, for he knew as well as did Everett that more individuals means more labor- ers. This criticism implies a misunderstanding on the part of Everett as to the real problem confronting Mal- thus, namely, that of historical diminishing returns. Be this as it may, it was in criticism of this view that Ever- ett advanced the "new idea" which furnished the main thesis and the title of his book. Briefly, the "new idea" teaches that the increase of population is the cause of abundance and not of scarcity. ^"^ Natural advantages and skill determine the productive- ness of labor. ^^ He assumed natural advantages to be invariable in order that he might determine what eflFect an increase of population would have upon skill. He fails to consider diminishing returns, and argues to the effect that the greater the density the more perfect be- comes the division of labor. Like Adam Smith and Raymond, he thinks that the division of labor stimu- lates the invention of new machinery, ^® and develops all the parts of industry. The progressive rate of pro- duction is considerably more rapid than that of the increase of population. During the seventeenth century, the population of Great Britain doubled, claimed Everett, while its productive power multiplied a thousand times. Malthus' ratios run, for food, i, 2, 3, 4, 5, 6, etc., and »«/&., 54. S5/6., 21. *»/&., Chap. II. '"lb., 24. »/b., 27. Adam Smith, Wealth of Nations, I, 11. 34 THE RICARDIAN RENT THEORY for population, 2, 4, 8, 16, 32, 64, etc. ; while Everett's ratios run, for food, i, 10, 100, 1000, 10,000, 100,000, etc., and for population, 2, 4, 8, 16, 32, 64, etc. He called this estimate moderate, and adds that it "is still much higher than it need be" in order to refute the system of Malthus. ^® Despite these statements, so absurdly large, he else- where admits a principle of resistance but regards it of no importance and as belonging to an abstract theory of perfectibility. *° He makes much of the point that pop- ulation is not supported on the same soil that it occupies, and that Malthus does imply such an assumption. He considers the time far distant, if indeed it shall ever come, when population will press upon the means of subsistence, whereas Malthus considered that such pres- sure had long existed. ^^ What he terms the "new idea" was, in reality, the "old idea," *^ and it was the only idea in the book worthy of consideration. None of his economic writings can claim more scientific merit than the book just reviewed. Further space will not be given them. Although not illuminating in one sense, there is a sense in which the works just reviewed are most in- structive. They express the American idea of that time. They exemplify a felt disproportionality, a pressing need for a larger population. No one expects to find in the America of 1823 a favorable reception of Ricardian rent, embodying, as it does, the Malthusian theory of popula- tion. Popular writers like Raymond and Everett, who were not economists primarily, are not supposed to ac- cept so pessimistic a doctrine. Their profession steeped ® Everett, New Ideas on Population, 2nd ed., 26, 27. ^Ib., 44. "Malthus, Essay on Population, 2nd ed., 353, 354. *2 Cannan, Theories of Production and Distribution, 124-130; Gide and Rist, Histoire des Doctrines Economiques, 140. WILLARD PHILLIPS 35 them in the "American idea," and their national environ- ment was boundless opportunity. They could not enter- tain an opinion based upon the niggardliness of nature. The third of the early national economists in point of time, and the ablest of the three, was Willard Phillips (1784-1873). This author held views so similar to those of Raymond and Everett that they should be con- sidered in the same chapter. The three were reared and educated contemporaneously in New England. Around them, a new and really national life was being developed; American isolation and the struggle for in- dustrial independence were forces which caused a pro- nounced movement for protection; and a comprehensive policy was being formulated for the development of the resources of this country. Particularly true were these conditions in the twenties, when appeared the works of the economists under review. Phillips, like Raymond and Everett, was a lawyer by profession, a national economist, and an opponent of Malthusianism. He was a business man who for thirty years was president of a life insurance company; a law- yer who acted in the capacity of judge for eight years; an editor who was connected with four of the leading journals of the time, and also with Pickering's Reports; and an author who wrote on questions of law and politi- cal economy. *^ ^ The Twentieth Century Biographical Dictionary of Noted Americans, VIII, (no paging). Willard Phillips, editor and author, born Bridge- water, Mass., Dec. 19, 1784, died Cambridge, Mass., Sept. 9. 1873. Harvard A.B., 1810: A.M., 1813: tutor there 1811-181.';. Practised law in Boston 1818-184.5. Representative in the General Court, 1825- 1826; judge of probate of Suffolk County, 1839-1847. President of New England Mutual Life Insurance Company, 1843 to his death in 1873. LL.D. Harvard, 18.53. Fellow in the American Academy of Arts and Sciences. Connected editorially with the General Repository and Review; North American Review; American Jurist; first and second American editions of Collyer's Law Partnership (1834-1839) and the first eight volumes of Pickering's Reports. He was author of Treatise on the La/w of Insurance (1823); Manual of Political Economy (1828); The Law 36 THE RICARDIAN RENT THEORY Phillips' Manual of Political Economy is, in keeping with its author, a practical rather than a theoretical work. His reasoning is accompanied throughout with copious historical illustrations and statistical data, evincing a fund of information regarding our resources. "The lit- erary execution of the work is highly creditable to the author. The style is correct, perspicuous, and, as far as the nature of the subject admits, elegant." ** "The object of this treatise," said Phillips, "is to present ... a concise, practical view of the most important principles of this science, with an adaptation, more particularly, to the circumstances and conditions of the United States." *^ He admits that the economic principles of one nation may not be wholly different from those of another, but they may "have a practical application in some places and be totally inapplicable elsewhere." *® In harmony with Lord Lauderdale and Daniel Ray- mond, he takes the national view, ^'^ and regards wealth as capacity for production. He does not limit himself to things which are bought, sold, and exchanged, and are subject to property. National productive capacity, of Patents for Inventions, including the Remedies and Legal Proceedings in Relation to Patent Rights (1837) ; The Inventor's Guide (1837) ; Protection and Free Trade (1850). Through correspondence I am informed that, "Mr. Phillips had a strong sympathy for the common man. He was always willing and anxious to help the needy. He was very practical and sympathetic in his writings, in his daily life, and in the great business of life insur- ance to which he gave so large a share of his time and study." See also Appleton's Encyclopedia of American Biography, IV, 763. He was editor with Jared Sparks (1817-1818) and frequent contributor to The North American Review. ^ North American Review, XXXII, 216. * Phillips, Manual of Political Economy, Pref., v. «/b., vi. *' Professor D. R. Dewey says, "The Manual is an exposition of Eng- lish and academic theory then current. Further experience, however, changed the author's convictions and the later work, a systematic de- fense of protection in the form of seventy propositions, is of value as illustrating the intellectual exposition of protectionism at this time in the United States." Palgrave, Diet, of Pol. Econ., Ill, 103. Thia statement is in error. WILLARD PHILLIPS 37 he thinks, must consider the free as well as the slave, a salubrious atmosphere, and a navigable river without tolls as well as a canal with tolls. He agrees with Lord Lauderdale that a great scarcity of water, which occa- sions that necessity to become private property and sub- ject to purchase and sale, makes some individuals richer, and the community poorer. Phillips would have argued that, had Prcrvidence constructed a broad flowing and navigable river from Colon to Panama, it would have been an object of wealth as truly as is a man-made canal costing three hundred and fifty millions. "We per- ceive," said he, "from these instances, that the capacity and facilities for production are not tested and meas- ured by the mere subject of property or of things bought and sold in a community. It would be unnecessary to notice this distinction, had not the industrial means and faculties of a nation been denominated national wealth, and we must therefore guard ourselves against accept- ing the word wealth in its ordinary meaning when it is so applied." *^ His third chapter contains a forceful argument against the labor-cost-of-production theory of value. He limits value to things, material or immaterial, which are sub- ject to purchase and sale. His clear arguments and numerous illustrations are all to the effect that value is subjective and individualistic, and may or may not correspond with cost. The following words are in har- mony with the whole of his discussion of value : "Some instruments are merely useful, as the implements of husbandry and the tools of mechanical trades; others again are in some hands the implements of industry, in others, those of amusement. The amateur uses his violin for recreation, the professor for a livelihood. The ** Phillips, Manual of Political Economy, 1214. Quotation, 13-14. 38 THE RICARDIAN RENT THEORY hunter labors, but the sportsman amuses himself in the chase. The desire to obtain any particular thing gives it its value, and the motives of such desire are as vari- ous and numerous as the appetities, tastes, passions, wants, and caprices of mankind. As value is created by this desire, so it is limited by its strength and in- tensity." *^ His is rather an instrumental concept of capital, al- though he speaks of land as capital, ^° and at times of rent as a per cent of the value of property. ^^ But he shifts from the technological to the value concept of cap- ital and reasons correctly thus : "The value of all capital is estimated by the income derived from it." ®- Turning now to the tariff, we are met with a politico- economic question, which, from the birth of economics, has been impregnated with prejudice. The scientist and the man are inseparable always, but on this question human frailty predominates, and the will, rather than the reason, rules. But much to the credit of our author, his long, interesting, and bountifully illustrated chapter (VIII) on commerce is a defense for the tariff evincing much talent and little bias. The North American Review said, "His argument on the subject is powerful, lucid, and as we think, conclusive." ^^ Enough has been said to show that the economics of Phillips was upon a different basis from that of the Maltho-Ricardian school. He considered Malthus' work on population to be of little importance. He spoke of it as "the now hackne)^ed doctrine," °* and said that, "the whole argument has been confuted in a less known work by Mr. S. Gray." ^^ ^Ih., 33. ™/{,.^ 97. »/&., 98. ^^n., 97. S3 North Amarican Review, XXXII, 229. ^ Phillips, Manual of Political Economy, 75. ^Ib., 139. WILLARD PHILLIPS 39 The ideas of Mr. Gray to which PhilHps pins his faith are: (a) The means of subsistence increase faster than does population, as evinced by the facts of uncul- tivated or ill-cultivated lands, and the emigration from the country to the city because of a want of employ- ment in the production of more food. He argued also that prices had been reasonable, (b) Then, in harmony with Everett's New Ideas, Gray argued that "the in- crease of population instead of having a tendency to diminish employment and produce poverty, is the grand source of all permanent increase in employment and wealth." ^® Phillips accepted this argument and said, "not only an intelligent and industrious, but also a dense population is necessary to bring out all the natural ad- vantages for production." " He would not "hail famine as a deliverer, and celebrate a pestilence as a subject of thanksgiving." ^* Very unlike the English doctrines of that time were the arguments of Phillips. Very little reason is there for Professor Dunbar's implication that Phillips was a disciple of Adam Smith, and for his borrowed state- ment that "he [Phillips] sought to take up the subject where Adam Smith had left it." -'^ ^Pamphleteer, XVIT. 415. In his Happiness of the State, Mr. Gray- writes a chapter (Bk. VI, Chap. 3) to demonstrate that population regu- lates STibsistenoe rather than the reverse. He claimed that America's great production was dne to a rapidly increasing population. 439. He said, "Prom this analysis of circiimstances, the fact in nature is clearly estab- lished, that population regulates subsistence, not subsistence population ; that the progress of subsistence, with the exception of occasional irregu- larities, is caused by the progress of population and by the skill and indus- try of that population : In other words that it is the ratio of the increase of jiopulation, rapid or slow, which regulates the ratio of the increase of subsistence. . . Population will force subsistence on at a rate, at least equal, but generally higher than its own." 445-446. ^ Phillips, Manual of Political Economy, 106. «7b., 140. * Dunbar, Essays, II. I see no evidence that Professor Dunbar had read the work he criticised. He said: "Willard Phillips produced a treatise (1828) in which, treating the whole structure of Malthus and Ricardo as unsound, he sought to take up the subject where Adam Smith had left it. He treated it with an abundant knowledge of industrial and commercial facts, and with a mind well trained for speculative 40 THE RICARDIAN RENT THEORY Phillips defined rent to be "the net proceeds of the an- nual products over and above the expenses of produc- tion." ®° He regards rent in the sense of surplus produce rather than as a contract payment by the farmer to the landlord. ^^ After a deriding criticism of Ricardo's rent, he said, of the no-rent concept, "It might be readily tested, and confuted too, by merely going into the country and learning that the land last enclosed for wheat yielded rent. It proves that, after rents have once accrued in a community, every extension of wheat cultivation is detrimental to the national prosperity. It proves also that if all the lands are of equal fertility, rents will never accrue." ^- Here, of course, Ricardo's intensive no-rent concept is overlooked. Ricardo, however, had laid his argu- ment open to this criticism when he said, "If all land had the same properties, if it were unlimited in quantity, and uniform in quality, no charge could be made for its use, unless where it possessed peculiar advantages of situation. It is only, then, because land is not unlimited in quantity and uniform in quality, and because in the progress of population, land of an inferior quality, or inquiry, but it was complained, even by a friendly contemporary critic, that he reared nothing in the place of that which he sought to remove." H-12. One has to read only a small portion of the first six pages of the nineteen page review, evidently referred to by Professor Dunbar, to find almost every word of his criticism. His last statement seems to refer to the whole work, whereas the critic from whom it is quoted wrote only in relation to Phillips' treatment of Malthusianism. "But," said Professor Dunbar, "it was complained, even by a friendly critic, etc." Here is what the critic had to say: "By rejecting the theory of Malthus with its consequences, and taking up the science where it was left by Adam Smith, Mr. Phillips has at once cleared his subject of a cloud of popular errors, and given a value to his work, which does not belong to any of the recent English productions." (No. Amer. Rev., XXXII, 220). Would not the word "praise" rather than "blame" seem more appropriate? The critic erred in saying that Phillips took up the subject where it was left by Adam Smith. Professor Dunbar doubly erred in copying an error with which erroneously to classify Phillips with Adam Smith. <" Phillir>= Mn^v-l of PnliHnal Economy, 107. »/&., 108. «/;&., 108-109. WILLARD PHILLIPS 41 less advantageously situated, is called into cultivation, that rent is ever paid for the use of it." ^^ Phillips declared that the doctrine was inapplicable in the United States, and that more wheat could be pro- duced here without additional expense per bushel. ®* The contrast between Ricardo's "one-cause method" and Phillips' practical method is illustrated in their dif- ferent ways of accounting for rent. Some, not all, of Phillips' causes for rent are: (a) Regarding the soil, he would consider its location in relation to climatic conditions and to the market, its productive capacity for different crops, since marginal land for one crop might not be marginal for another, also the variety, quantity, and quality of products that may be secured from under as well as upon the soil. Further he would allow for numerous advantages in a territory which is so fertile as to admit of condensing a numerous population upon a small territory, (b) Regarding the population, he would consider race characteristics, the degree of ad- vancement, and density as well as the nature of desires and the extent of purchasing power. The ability of a farmer to select proper implements, to understand the rotation of crops, to judge of the best size of farms, his ability to procure suitable seeds, good breeds of animals, and to know how and when to market his products, are of important bearing on the cause of rent, (c) Under the heading of security, he mentions national and individual protection, and the enforcement of con- tracts. Under this heading may be grouped also free- dom from insects, convulsions of nature, plagues, and calamities. Their absence add to the propitiousness of production, (d) Under the heading of costs to produce ^ Ricardo, Principles, 46-47. ** Phillips, Manual of Political Economy, 109. 42 THE RICARDIAN RENT THEORY and get commodities to the market, he would include such public expenditures as those for dykes, levees, rail- roads, canals, and roads, and such private expenditures as those for building materials and fuel to provide the farmer with a home, together with the annual outlays such as for wages, interest, and hires. To determine rent, regard must be had for these forces and for the market value of the product. ^^ Ricardo's abstract world was simple: Phillips' practical world was complex. It would be difficult to find a better discussion than Phillips gives of the manner in which agricultural pro- duction accommodates itself to the distance from the market. The difficulty of transporting commodities causes lands distant from the market to be turned to the production of such products as are highly durable and that have much value with but little weight and bulk. "In the United States," said he, "innumerable cattle, horses, sheep, and swine are driven to the princi- pal markets on the Atlantic coast from the interior dis- tricts, not because these districts are not well adapted to the cultivation of fruits, esculant vegetables, wheat, rye, beans, peas or onions, but because these animals can be sent to a distant market at comparatively small ex- pense." ®^ These forces and transportation facilities like the Erie Canal tend toward the equalization of rents and land values. ^'^ Unlike Ricardo, he argued that fertility and improve- ments in agriculture cause rents to rise. *'^ His thought was that increasing desires would keep in the lead of augmenting wealth. But he did say that to the extent that prices fall, as a result of the increased supply, money rents would fail to rise. ^^ «=/&., Chap. V, and 109, 110. 6«/&., 110-119. Quotation, 111. <"Ib., 114. 68 7&. <»76., 115. WILLARD PHILLIPS 43 He considered that an increase in money rents was not of itself a blessing to the country any further than it can make a foreign country pay them. "A rise of rents is, however, one indication of national growth and prosperity." '° Rising rents on commodities that are not necessities, as Burgundy or Madeira wine, the price of which is enhanced by the growing demand when only a limited amount of soil is capable of their production, are no burden when consumed in the country where pro- duced. If such commodities are consumed abroad, the nation producing them is blessed to the extent that their price exceeds their cost. Conversely, the country import- ing them is injured, "for by importing them," he said, "it exchanges two, five, or ten days' labor of its own citizens, for one of a foreign laborer." ^^ Here Phillips considers the nation as a whole, and overlooks the ill effects that monopoly rents have on distribution. But the nation, like the individual, which can export goods at high prices, which cost little, and at monopoly prices, is certainly benefitted by doing so. Unlike Ricardo, he thought that England's Corn Laws were wise. He claimed that protective laws make a country's agriculture more dependable in time of war. Again he argued that, were there no duty on agricultural products, there would be great fluctuations in prices, which would be bad for internal economy. He advo- cates the peculiar, though defensible, proposition that the higher the general level of prices in a country, the greater is the amount of money taxes the citizens can pay. '^ In further dissent from Ricardo, but in harmony with Malthus, he insists that the interests of the land- TO/ft., 120. ■^Ib., 116. ■^2/6., 123. 44 THE RICARDIAN RENT THEORY lords are in harmony with the interests of the whole people. "It is too well understood, to be made a ques- tion, that the permanent interests of agriculture, manu- factures, and commerce, are intimately blended and mutually dependent, and each equally connected with the permanent welfare of the community." ^^ Phillips treated the concept of diminishing returns as a matter of little or no consequence. Though he con- ceived this law in the dynamical sense, yet he believed that its consequences would be defeated by inventions, scientific methods, and skill. If this work be judged as a whole, he seems to have been influenced by Benjamin Franklin more than by any other American writer. Evidently he was a great admirer of Franklin, whose economic writings he edited for Jared Sparks' collection of Franklin's works. Even to-day Phillips' book is well worth reading. It ably expressed the economic and industrial conditions of this country. It is the work of a well-trained mind, which possessed thorough literary culture. His formid- able array of facts compelled respectful hearing by the critics of his time. Brief attention will be given to certain economists who only incidentally considered rent. It is not within our province to review Due, Vail, Potter, Opdyke, ''* ''^Ib., 125-126. '* In his treatise on Political Economy, he argues to justify private property in land (Pt. II, Chaps. 2, 3). His economy is an art rather than a science. He objects to the economy of J. S. Mill because his work is a product "of one who has been reared and educated under political institiitions different from ours, . . . What we republicans need, is a system of political economy in perfect harmony with the other por- tions of our political edifice." (Pref., v.) He does not give a treatise on rent. The purpose and content of his book are expressed in his own words as follows : "The present brief treatise originated in an effort to ascertain the true commercial policy of our country. That effort was commenced some years ago, and was first directed to an examination of the arguments presented in favor of the protective system and the revenue system." (Pref., iii.) OTHER NATIONAL ECONOMISTS 45 and Mathew Carey, who, although they were prominent economic writers, left no theories of rent. Nathaniel A. Ware (born in South Carolina, 1780, died in Texas, 1854) was a lawyer, and for a time secretary of the territorial government at Natchez, Mississippi. He travelled extensively, making a study of botany, geog- raphy, and the natural sciences. He wrote on the Fed- eral Constitution and on political economy. '^^ Ware, like the authors above reviewed, was a national econo- mist. His book was a defense of protection. Radical statements, peculiar ideas, and rash criticisms are char- acteristic of his writings. He conceived political econ- omy as an art rather than as a science. "Government by circumstances is the golden rule in political economy. I would lay down this rule or maxim as the only one in this science." ^® On population. Ware's ideas are an admixture. "It is important to have a full and efficient population in all countries, for the defense, wealth, and refinement that ought to accompany every government or associa- tion of the human family." " "New countries," said he, "with an abundance of land, and not a surplus of labor, ought to encourage the increase of population in every way v/ithin their reach, both by a native growth and an immigration." '^ He further said, "The natural check and limitation to an increase of population is the capac- ity of the earth to support and feed it. To this point it tends, and nothing in the end can prevent its reaching this maximum." "® Like Raymond, he considers pride a check to over- population. Where pride is wanting, he would with- ■^ Harper's Encyc. TJ. S. Hist., X (no paging). 78 Ware, Notes, 3. •" Ware, Notes, 246. '»Ib., 247. «/6. 46 THE RICARDIAN RENT THEORY hold licenses from marriage, and declare "illegal all marriages without them and deny to the parents the right of citizen, and to the offspring the rights of legiti- macy." ^^ Humanity aside, he would have society to "kill off" those who are reduced to beggary. "The moment an individual is base and mean enough to beg, or avail himself of public charity, unless in the shape of a hospital, he is totally worthless and sunk beyond all remedy. There is no foundation in his case left upon which to build him up, no pride, no self-esteem, no ambi- tion — in short, the person is not a man but sunk to the level of the brute ; not a biting or a venomous brute, but a mere eating brute. Humanity aside, it would be to the interest of society to kill off all such drones, get rid of such excrescences, and cast off such burdens." *^ He cannot be said to offer a theory of rent ; but, upon the problem of returns from land, he shows a most unbridled optimism. "The capacity of the earth," said he, "to sustain population scarcely knows any limit, If the sort of improvement be made that will control moisture, make at will manure, or apply chemi- cal stimulus to plants, and give to them certainty, every rood will not only sustain its man but its ten men. Ex- periments show the practicability of fifteen hundred bushels of Irish potatoes to the acre ; and, with certainty, that is the food of forty-five persons for a year, in the last resort. And at that rate the world is not yet the ten-thousandth part up to its capacity to sustain life." ^^ Evidently Ware was not in harmony with the Maltho- Ricardian theory. John Rae, though one of the ablest economists of his time, wrote nothing on the population-rent problem. 80 26., 248. «ii6., 195. ^Ub., 249. OTHER NATIONAL ECONOMISTS 47 The following brief note gives his attitude toward Mal- thusianism : "The laws of true inductive science are of universal application and admit of no exceptions. If even a single manifest exception occurs, it ought to invalidate the law. . . . Considered in this way, the laws of population as expounded by Malthus will be found to fail." ^^ Rae's basis of thought is, it seems, that man is an animal and more. As animal he must more than repro- duce himself, else accidents would destroy the race. Like lower animals, he is led by instinct to propagation. He is more than animal in that he knows the result of his act, and that his dread of results causes him to refrain or to negative them. "For," he says, "the reason that man is more than animal, therefore, to increase, or to merely preserve, the numbers of any society, it is neces- sary that there exist an effective desire of offspring." ^* Calvin Colton (1789-1857) is to be classified with the national economists. He was a scholarly man and a voluminous writer on protection. He was graduated at Yale in 1812 and at Andover Theological Seminary in 1815, at which date he entered the ministry. After eleven years, he gave up preaching because of voice- failure. He went to England as a correspondent for The New York Observer ; and, after his return to this country, he distinguished himself as a writer of political tracts which advocated the principles of the Whig party. He edited The True Whig for two years after 1842; and in 1848, he published his large treatise, Public Econ- omy for the United States. At the age of sixty-three, he became professor of political economy at Trinity College at Hartford, Connecticut. ®^ *3Rae, The Sociological Theory of Capital, 354. ^* lb., 356. 85 Appleton's Encyc. of Anier. Biog., I, 695. 48 THE RICARDIAN RENT THEORY His book may be described as an elaborate defense of the protective tariff. He uses the same argument as did Professor Bowen at a later date, to justify the con- tention that political economy is not a science, but an art, and that different states of society require different economic policies. ^® He dismisses the rent problem with the statement that America has no landlord class, and that, as a conse- quence, a consideration of rent would be irrelevant to an American political economy. ^^ He seems not to have understood Malthus' theory of population; and, taking the theological point of view, he speaks of it as a "libel on Providence — a very grave and impious one." Being shocked at the impudence of the Free Trade School, who "in the face of man and heaven" declare this doctrine of "iron despotism," he lays on humanity any fault there may be respecting over- population, and assumes that the goodness of Providence will protect us. ^* The writers mentioned in the latter part of this chap- ter might well have been eliminated from our study on the ground that they wrote little on the subject, that they made no contribution to the solution of the rent problem, and that they were unappreciative of the prin- ciples they were condemning. As writers on economic questions, however, they were influential in shaping pub- lic opinion, and, in turn, they reflected contemporary opinion. Had they been academic men, it is likely that their thought would have been gleaned from the leading English texts. But they were of the people, and no impress of the prevailing Maltho-Ricardian thought pre- vented their expressing, more or less inadequately, American public opinion on the population-rent problem. 8'Colton, Public Economy, 27. ^ lb., Chap. X. ss /j,.^ 159. OTHER NATIONAL ECONOMISTS 49 The early national economists just reviewed should be judged in the light of the conditions surrounding them. Their desire for a rapid increase in the popula- tion was wholly defensible. The best thought of our day cannot agree with their reasoning on the subject, nor can it agree with the English theory which they opposed. The tendency of numbers to multiply and the checks operating against that tendency are working toward a proportion and balance where the numbers of people will be economically adjusted to the resources upon which they must depend. The little attention they gave to land rent was but incidental to their larger thought — that of the development of the national pro- ductive capacity. Their definition of wealth as pro- ductive capacity is unsuited to a distributive economy such as is engaging the attention of scholars today. Neither is our definition of wealth as scarce goods suit- able for reasoning as to the future strength and power of a state. It is interesting furthermore to note that these professional and educated men, writing with the background of practical experience rather than of Euro- pean custom, regarded land as capital, and rent as fixed by the same laws that govern wages. The grotip of writers we shall reviev/ in the following chapter adhered to a point of view closely akin to that of the classical writers in England. CHAPTER III CIvASSICAI, ECONOMISTS — McVICKAR, COOPER, NEWMAN, WAYEAND, AND VETHAKE THIS chapter will be devoted to those early American economists, who, on the whole, fol- lowed in the lead of the British economists. All of them were college professors, highly educated, and of solid merit. Were ability of authors rather than differences in subject-matter primary in our classifica- tion, at least three chapters should be devoted to these economists. But so similar were their writings, and so alike were they to the prevailing viewpoint, method, and content of the Ricardian school, that to present them in different chapters would involve a repetition of ideas. Circumstances of profession, rearing, and education united to divorce them from the vital issues, needs, and public opinion of America. Not the factory and the farm, but the classroom and the library were their environment. On economics, little had been done in this country. What had been done could have little influence on these professors because our writers were on the wrong side of the Atlantic to command the atten- tion of scholars. As in matters of fashion and style, so in questions of productive scholarship, until recently, Americans have patterned after England and Europe. Heavy teaching schedules, interests primarily in fields other than economics, wide separation from one another, and poor transportation facilities denied to these authors the mutual benefits of association. JOHN McVICKAR 5 1 They wrote text books; as professors, they reahzed the need of concise, well written texts on the elements of poHtical economy. And the purpose of their efforts was to meet this need. It is natural that professors of mathematics or moral philosophy or chemistry or litera- ' p ture, as we shall see they were, should turn to Adam Smith, Say, Ricardo, Malthus, or McCulloch, and eclec- tically formulate the principles of the standard works into suitable texts. Leisure from a variety of duties and specialized labor are necessary to make contribu- tions to science. Able as they were, original contribu- tions to political economy could not be expected from them. Their purpose was formulation, not origination. Rev. John McVickar ^ was the first of these econo- mists. The son of a well-to-do merchant, he was born in New York city in 1787. When a mere boy of seven- teen years, he was graduated from Columbia College, now Columbia University. From the date of his gradua- tion until 181 1, he was in England with his father. Thus the formative period of his life was spent in England when economic questions were in the vital air of public thought. At that time. Parliament and public opinion were agitated over England's industrial condition. Dis- cussions and conditions that were shaping the thought of Malthus, Ricardo, James Mill, and McCulloch, were of the environment in which young McVickar's forma- tive period was spent. Upon his return to this country, he married into a wealthy family, became a preacher, and devoted his energies to the teaching of literature, moral philosophy, and economics in Columbia. This stay in England, when we consider the economic conditions which then existed ^Nat. Encycl. Amer. Biog., VI, 347. 52 THE RICARDIAN RENT THEORY in that country and the period of McVickar's life when there, must have largely directed the formation of his ideas on economics. Freed from the necessity of hav- ing to acquire a livelihood, and devoted to a profession v^hich removed him from personal touch with the eco- nomic conditions of this country, he spent the com- paratively little time that he gave to this subject in teach- ing the so-called Classical economics. He wrote a primer or text for common schools which did not take up the rent problem. His chief service was the editing of McCulloch's encyclopedic article on PoHtical Economy.^ In this edition, McVickar makes a note to the effect that the cultivation of inferior soils is not the cause of higher prices, but rather that high prices cause the cul- tivation of inferior soils. ^ He did not develop the point, and evidently did not recognize that in this statement is a truth so significant as to demand a re-examination of the whole labor-cost theory of value. He considered satisfactory and conclusive McCulloch's repetition of Ricardo's dictum that "corn is not high because a rent is paid, but a rent is paid because corn is high." * Evidently Professor McVickar used this work as a text ; ^ and, in the introduction of his lectures, Pro- fessor Cooper said he used it as a text in South Carolina College. Cooper said of the work, "Mr. McCulloch's Outlines of Political Economy, first published in the sup- plement to the Edinburgh Encyclopedia, has lately been published at New York, at the expense of James Wads- worth, Esq., of the Genesee County, with some very useful notes by the Rev. Mr. McVickar, and which I think the best text book that at present I can recom- ^ McVickar's notes appended to this article show him strictly in har- mony with the ideas of McCulIoch. * McVickar, edition of McCulloch, 125. ^Ib., 121, 122, and note. ^ North Amer. Rev., XXV, 113. THOMAS COOPER 53 mend. The treatise on political economy, second edition, by James Mill, Esq. (a masterpiece of close and logical reasoning) has not yet been republished among us." ® This strong recommendation of McCulloch and praise for James Mill inform us at once that Professor Cooper shared with Professor McVickar a high regard for the Classical Economists. Cooper was a man of influence and power, who, in many respects, was the most note- worthy character we have to review. Always he had the courage of his convictions, and he was a fighter who never feared trouble. As defender of Malthus on pop- ulation and of Ricardo on rent, he met with both extrav- agant praise and violent criticism. In his defense of the freedom of trade, he was fearless, outspoken, dog- matic, hypercritical, and radical in the extreme. The stand he took on political questions in England caused Edmund Burke to single him out for a special attack in Parliament. He replied with the vigor of a Spartan ; soon, however, he was driven from the country. In the memorable days of John C. Calhoun, intense excitement was produced by the rare powers and great learning of Cooper in favor of nullification. Indeed, he was the radical of the radicals in the state of South Carolina. In this connection, Professor J. W. Burgess has char- acterized him as the notorious, if not famous, British president of South Carolina College ; and as a keen and vigorous thinker. Because of his bold stand on economic questions, he was made by Friedrich List the subject of numerous attacks and harsh criticisms. ^ On the con- trary, and naturally too, McCulloch praised his book as the best in America. I may be pardoned for giving •Cooper, Lectures, ed. of 1826, 13-14. 'Hirst, Life of Friedrich List, 42, 111, 117, 150, 160, 161, 172, 215, 235, 263, 283. 54 THE RICARDIAN RENT THEORY some extra space to the presentation of his environment, education, and career, because the principles of his eco- nomics are so in harmony with the circumstances of his life. Dr. Thomas Cooper (1759-1840) was born in Lon- don, and died in Columbia, South Carolina. He was educated at Oxford, where he became proficient in chem- istry, and acquired a knowledge of medicine, law, and political economy. He and James Watt were friends and active members in the Democratic Club of Man- chester. A threat of prosecution was brought against him for the publication of a pamphlet in reply to Burke's Re- flexions on the Revolution in France. With Watt, he went to Paris, became intimate with the leaders of the Revolution, and offered himself as a candidate for a seat in the Convention, opposing the Duke of Orleans. Coming to the United States at the age of thirty-six, he settled in Northumberland, Pennsylvania, where his father-in-law, Joseph Priestly, was residing. Only four years elapsed before his presence was made known in this country through his espousal of Jeffersonian democ- racy and his bitter attack on the administration of John Adams, for which, one year later, he was fined $400 and sent to prison under the Alien and Sedition Acts. He later declared the acts unconstitutional, won his point, and secured a return of his money with interest. Upon his release from prison, he became land commis- sioner, and a judge of the common pleas. Not lo-ng afterward, however, the Senate impeached him for over- bearing conduct, and Governor Snyder removed him from office. ^ s After Cooper's death in 1839, his entire collection of letters and personal papers passed to Dr. John Manners, who prepared a two or three volume work in commemoration of Cooper, but he could find no THOMAS COOPER 55 He then turned to college work. He became professor of chemistry in Dickinson College; later he accepted the chair of chemistry and mineralogy in the University of Pennsylvania. In 1817, he became professor of chem- istry and law in the University of Virginia; two years later, the subjects of mineralogy and natural philosophy were added to his labors. Three years after he entered this university, agitation arose on account of his hetero- doxy, which caused him to resign. In 1820, he moved to South Carolina, was elected professor of chemistry, and, one year later, the presi- dent of South Carolina College. While there, he taught literature and lectured on political economy in addition to his other labors. But he was not free from trouble. Because of his radical religious teachings, he was tried in 1832 before the Board of Trustees, but was acquitted. Pressure upon him was such, however, that he resigned from the college in 1833 and devoted the rest of his life to the editing and publishing of the statutes of the state. » The bitter opposition and intense excitement in South publisher for it. This material passed to Mistress Ellen Cooper Hanna, then to Mistress Fanny Cooper Lesesne, the last living at Battles Wharf, Baldwin County, Alabama. During the war, the material was destroyed {Southern Historical Association, II, 339). A small collection of material on Dr. Cooper's life was donated to South Carolina University in 1907 (76. 342). See letters of Dr. Thomas Cooper, 1825-1832, American His- torical Review, VI, 725-736. ^ Nat. Ency. Am. Biog., XI, 31. Numerous encyclopedia articles and works of reference give his career. The reference just cited gives a short, but excellent account of him. Palgrave's Dictionary, I, 408, de- scribes his life. But the best account I have found of his career appears in the History of South Carolina College, Chap. VIII. President J. W. Rivers, speaking before the National Educational Association at Balti- more, in presenting the history of South Carolina College, said, "Under the second president. Dr. Thomas Cooper, special attention was directed to physical science. Educated at Oxford, England, and having been an associate of Priestly and a professor of chemistry and mineralogy at the University of Pennsylvania, Dr. Cooper brought with him an enthusi- astic devotion to this department, and gave it prominence not only in the college but in the state. Unfortunately, after being many years president, he busied himself with infidel speculation, and on this account, notwithstanding his great learning and ability, brought the college to the brink of ruin" {The News and Courier, Charleston, S. C, Tues., July 25, 1876). V 56 THE RICARDIAN RENT THEORY Carolina against the tariff of 1827 is well known. The history of nullification in that state begins with that opposition. The great power of Thomas Cooper was exemplified in that opposition. To quote Professor J. W. Burgess, "The chief personages of the Commonwealth assembled at Columbia [in the summer after the Con- gressional session of 1826-1827]. " The principal orator of the occasion was the president of the college of the Commonwealth, Dr. Cooper, a man of rare powers and great learning, an Englishman by birth and education, a free trader in his political economy, and a 'States' rights' man in his political science. In his speech he suggested disunion as preferable to submission to the tariff legislation of Congress." ^^ As a result, they adopted a resolution that was inflammatory, though not so much so as was the professor's speech. Indirectly, Cooper's influence seems to have been felt in the national Congress. It was claimed that the tariff belonged to the domain of the Ways and Means Com- mittee of which George McDuffe of South Carolina was Chairman. McDuffe was a leader of men. Keen intelligence, strong courage, and great prestige were his. As is well known by those who have read his speeches, he based his arguments for the freedom of trade upon the Ricardian theory of rent. Professor Burgess is au- thority for the opinion that McDuffe learned much of his political economy from Professor Cooper, who "set the direction of thought upon such subjects in South Carolina and throughout a large portion of the South during that period." ^^ Speaking further of Cooper's prestige, Professor Burgess said, "A true estimate of responsibilities for the events of 1832 in South Carolina ^o Parenthesis mine. Ji Burgess, The- Middle Period, 159. '^^ Ib.j 172-173. Quotation, 173. THOMAS COOPER 57 would probably hold him more culpable than Calhoun himself." '' Professor Cooper wrote his Lectures on (the Elements of) Political Economy when he was sixty-seven years of age. Considering the circumstances of his education and his maturity when he came to this country, together with the fact that his teaching was largely confined to the subjects of natural science, there is little wonder that his lectures can claim the merit of but little orig- inality. The author says, "that he writes not for the adept. It was his business to introduce the pupils under his care to a full knowledge of the science in all its departments ; and he hesitated not to gather his materials from every quarter, where they most advantageously presented themselves to his view, without always trying to throw over them an air of novelty, and sometimes without even changing the language of the author to whom he stood indebted, when it appeared to him to express the reasoning and the principles clearly and forcibly." ^* In the first year of his lectures, he used Mistress Marcet's Conversations, and McVickar's republication of McCulloch. He advised those who wished to pursue the subject farther to read Adam Smith, Say, Mai thus, Ricardo, McCulloch, James Mill, and Cardozo. He indi- cates that these were the sources from which his lectures were prepared. ^' Professor Cooper was an indefatigable worker whether on chemistry, medicine, law, agriculture, re- ligion, or political economy. His writings refer to numer- ous sources. For instance, on population, which we will now consider, he referred to, and evidently had 137&., 173. ^'' North Amer. Rev., XXV, 409, and Cooper, Lectures, Pref. v-vi. ^s Cooper, Lectures, 3d ed., Pref., v-vi. 58 THE RICARDIAN RENT THEORY read, Malthus, Godwin, Wayland, Jarrold, Graham, Ensor, Grey, Everett, Herbert, ^^ Wallace, Darwin, and Townsend. ^^ His attitude toward Malthusianism is easy to ascertain. He gives a concise statement of the doctrine, and con- cludes with these words : "Dr. Malthus has incurred much obloquy for these harsh doctrines ; but their man- ifest truth and great importance have at length pro- duced conviction in the minds of the greater number of those who have turned their attention to political economy ; and they may now be considered as settled." ^* Referring to the claim of Malthus that population increases in a geometrical ratio while food increases only in an arithmetical ratio, he said, "this being an undeniable matter of fact, may be assumed as such to form the basis of any reasoning." ^^ Contrary to Raymond, Everett, and Cardozo, he taught that to the returns of machinery "there must be a term where it ends — a maximum." ^° As above noted, Everett makes much of the point that population is not supported from the same soil that it occupies. In reply to this Cooper said, "What may be affirmed of any given quantity of land in this respect [referring to the law of diminishing returns] ^^ may be affirmed of any other, and therefore of all: therefore, the proposition is general, that population tends to accumulate much faster than the means of sub- sistence, upon a limited territory." -^ Cooper adhered to the wage-fund doctrine in its true "76., 1st ed., 232. "lb., 11. «/6., 11, 12. Quotation 12. w/b., 232. 20/&., 233. ^ Parenthesis mine. *^ Cooper, Lectures, 1st ed., 233. SAMUEL PHILLIPS NEWMAN 59 sense,^^ and not as it is doctored up and explained away by certain later writers. With this deficient weapon, he made an attack upon Everett's New Ideas, which claimed that an increase of population is a cause of abundance. -* His theory of rent is but a restatement of Ricardo's theory, so it would be but a repetition to give it here. ^^ Like McVickar and Cooper, our next author, Samuel Phillips Newman (1797-1842), was a professor whose interests were mainly in subjects other than political economy. He was the son of a minister, a graduate at Harvard (1816) and at Andover Theological Seminary. He was himself, like McVickar, a minister. After teach- ing at Bowdoin for fourteen years, he became principal of the State Normal School, Barre, Massachusetts, where he remained from 1839 to his death. -^ His special interest was in English, which he taught and upon which he wrote several works. While at Bow- doin (1835), however, he gave lectures and wrote a text on the elements of political economy. The Wealth of Nations seems to have been almost his only source,. and where he departs from it, confusion and contradic- tion render the following out of his reasoning a hope- less task. He superficially disposes of the population problem as follows : "The period when the surface of the earth shall be so covered with inhabitants that population shall equal the means of subsistence, is so distant, and all calculations and reasonings relating to this state of things so indefinite and shadowy, that the whole sub- ject is one of no practical importance." -'' ^Ib., 239. «/b., 236-237. "^ lb., 13, 32-33, 84-87, 221. ^^ Appleton's Encyc. Am. Biog., IV, 505. " Newman, Elements, 2.o4. 6o THE RICARDIAN RENT THEORY He speaks of rent only in connection with land. His theory is simple : products minus costs equal rents. ^* lyike Adam Smith, he thinks that rent enters into price. Wages, payments for capital, and rents, he makes the cost items entering into the price of agricultural com- modities. -^ A professor of English in a country where there ex- isted no rent problem, at least in its political aspects, is, of course, not supposed to give the rent problem serious consideration. He was yet in his thirties when he wrote ; and want of time, his environment, and professional du- ties permitted him no more than a passing consideration of economic questions. His book is little more than a ) .. compendium of ideas, somewhat ill-digested, gained from a reading of The Wealth of Nations. Next in order of consideration is Francis Wayland (1796-1865). His parents were natives of England, who came to the United States in 1792, four years before Francis was born. The father, a Baptist min- ister, was away from home much of the time. The son received his early training from his mother, "a woman of superior mind and discriminating judg- ment." ^° He was graduated at Union College at the age of seventeen, studied medicine for three years, and entered Andover Theological Seminary in 1816. He left the seminary to become a tutor in Union College. After four years of service, he accepted the pulpit of the First Baptist Church in Boston. In 1823, he became famous as a preacher. He accepted a professorship at Union (1826- 1827), but resigned before the end of the year 28/&., 275. 29 /ft., 127. ^Good brief references on Wayland's life are: Apploton's Encyc. Amer Biog., VI, 397-398; Ne%u Inter. Encyc, XX, 377-378; Palgrave's Diet., Ill, 660; Memoir of the Life and Labors of Francis Wayland by his sons. The last named is particularly valuable. FRANCIS WAYLAND 6l to become the fourth president of Brown University, where he served for twenty-eight years. His adminis- tration has been called the Golden Age of the University. At the age of fifty-nine, he resigned to become the pastor of the First Baptist Church, Providence, Rhode Island, and to devote himself to prison reform and other social work. Like the other professors under review, he was not primarily an economist. He wrote nineteen books on as many subjects, besides numerous pamphlets and news- paper articles. His Elements of Political Economy (1837) was, as a text, the best work previous to the Civil War, and probably as popular as any American text on this subject. It survives, and is used as a text in some places to this day. Before 1867, as many as 50,000 copies of his larger treatise and 12,000 of his smaller had been sold. ^^ Professor Dunbar said, "President Wayland's book (1837) is the only general treatise of the period which can fairly be said to have survived to our day; and this, it must be admitted, owes whatever value it has to its manner of presenting for easy comprehension some of the leading English doctrines, of which, how- ever, it may be doubted if the author ever fully recog- nized the bearing." ^^ The author's own statement that when his "attention was first directed to the science of political economy, he was struck with the simplicity of its principles," ^^ bears evidence for Professor Dunbar's statement. Ricardo had a different experience. It was after Ricardo had produced his great work that he con- fessed his inability to find his way through the "laby- rinth" of the value problem. Our author said, "Cost, 3^ Wayland and Wayland, Memoir, I, 389. 32 Dunbar, Essays, 12. 33 Wayland, Elements, Pref., iii. 62 THE RICARDIAN RENT THEORY that is, labor bestowed, is the foundation of exchangeable value." ^* But he makes the one most important, and all pervading principle of his work the law of supply and demand. He classifies land as capital, "^ speaks of rent as interest,^^ makes the lower margin to depend on price rather than the reverse, ^^ and teaches that rent enters into price. ^^ How can one maintain these principles and still hold to the Ricardian theory of rent? If one turns, however, to his chapter on rent, it is at once apparent that, so far as the description of the doctrine goes, he out-Ricardos Ricardo himself. His treatment of the principle of population may be expressed thus: "Population," he says, "always follows capital. It increases as capital increases; is stationary when capital is stationary; and decreases when capital decreases. And hence, there seems no need of any other means to prevent the too rapid increase of popu- lation, than to secure a correspondent increase of cap- ital, by which that population may be supported." ^^ On the whole, however, his teaching supports the theory that an increase of capital forms a check to population in the form of a higher standard of living. Wayland was influenced, evidently, by the Malthusian concept of the minimum of subsistence as the regulator of population, and by the American idea of a growing population causing an increase of subsistence at a faster rate than the increase of population. Unlike and con- flicting ideas were thus at the basis of his reasoning. s*76., 24. 35/6., 31. s«i&., 341. ^Ib., 355. 89 7&., 305. FRANCIS WAYLAND 63 Impliedly, his capital fund is reduced to a mere wage- fund, with the result that population follows wages. ■*" He does not mean the rate of wages, for, ruling out com- binations either among capitalists or laborers as ex- pensive and unjust, he finds that competition brings wages to their proper level. *^ The context makes "prop- er level" synonomous with Ricardo's standard wage. It follows that the increase of population, together with the force of competition would tend to keep wages about the same through time. The size of the fund, then, rather than the rate of individual wages, would be the regulator of population. With Malthus, he teaches that, in the United States, population doubles once in twenty- five years. And, in the same paragraph, he, in harmony with the "Early National Economists" we have reviewed, tells us that the earth can produce more than its inhab- itants consume. *^ I have said that his opinion wavered between the English and the American ideas respecting the wage- fund. In brief, what were these ideas ? The wage- fund idea which enjoyed great vogue in English economic literature was only an assumption. A certain fund of capital, it was assumed, in the hands of employers, was set aside for the express purpose of paying wages. Sup- pose in a given time the fund to be 1,000 and the num- ber of laborers 100, then 1,000 -^- 100 = 10, or the aver- age wage. The point of emphasis was not productivity, or the result of the application of labor, but rather that the fund set aside was necessarily meted out to laborers by the principle of a simple division. The content of this fund was capital only. Resting upon as superficial a basis and reflecting a *"/b., 308. *^Ib., 303-304. *^Ib., 302. 64 THE RICARDIAN RENT THEORY similar mode of thought, was the subsistence theory, which looked not to capital but to land alone as the determinant of wages. *'^ This doctrine of a predetermined fund for wages grew out of the industrial situation in England. Closed in by tariff walls, the country was dependent on the annual crop for the subsistence of the coming year. Close the eyes to consumers other than laborers, forget that wages consist of more than food, and the idea of a predetermined wage-fund will result. American economists, on the contrary, recognized a large surplus upon which they could draw at will. So far as they reasoned upon a wage- fund basis, they had in mind a concept so elastic as to lose the nature of a fund. Necessities, in their thought, were not produced for but hy population. "Population as a cause of abund- ance" pervaded their thought. Wayland could not reason clearly upon the problem of population because he did not see a difference be- tween these points of view. The distinction between static conditions and dynamic conditions, he did not ^ We must allow that wages are paid out of capital, but for this rea- son we must not jump to the rigidity of a wage-fund theory. Or let us grant the wage-fund ; where does it lead us ? Or how does it aid us in our reasoning ? Precisely the same reasoning holds for the exist- ence of an interest-fund, or of a rent-fund, or of any other fund, for that matter. But, it may be asked, why object to this theory, if it is of no signifi- cance in itself ? It is not always the importance of a theory in itself that demands attention ; its effect upon furthering or retarding other ideas is the point in question regarding the wage-fund. Its effects in the main, were two. With a superficial analysis that took the appear- ance of a truism, it glossed over and hid from view the real problem of wages, and thus tended to remove it (the real problem) from discus- sion, with the consequence of retarding the development of thought. Of a different nature was its other effect: unbending rigidity of the fund gave an air of justice to most unjust conclusions. To strikes or efforts on the part of particular groiips of laborers to raise their wages, the capitalist, with the address of a moralist and with the sanction of science, could object on the ground that to the extent some are aided others must suffer. On the same ground, workmen were made dependent on capitalists, who were regarded by the wage-fund theorists, as the great benefactors of the race. Upon the sacrifices of laborers and the self restraint of these beneficient capitalists depended the size of the all im- portant wage-fund. FRANCIS WAYLAND 65 recognize. Wayland's economics was eclectic. Odd moments taken from the numerous cares of busy men permit little more than a putting together eclectically of ideas from others. Wavering between American and English ideas on population, his lines of thought tended in opposite directions. On the rent problem, Ricardo's emphasis was upon fertility, while Thiinen placed particular emphasis upon location. ** Wa)dand correctly emphasized equally both points of view. He said, "Fertility being the same, pro- ductiveness will be as situation; and, situation being the same, productiveness will be as fertility." *^ His account of the origin, progress, and measurement of rent is but a repetition of Ricardo's description of rent. *^ Our author gives a splendid and practical dis- cussion as to the effects of transportation, markets, and climate on land rents. *^ He shows how products reflect a price back upon land, but he goes further to show that the price of land is materially affected by its beauty of situation as well as by the intellectual and moral char- acter of the neighborhood. *^ He rightly emphasizes sit- uation in city rents; as sites for dwellings, warehouses, factories, manufactures in proximity to water falls and the like. *^ The rent of mines, he would also have de- pend on location as well as on the quality and workable- ness of the mine. ^"^ Although, in respect to agricultural lands, he holds with Ricardo to the differential rent theory, he still maintains that rent enters into price. "The price," he ^Thunen, Der isolirte Stoat, 1st ed., 182. (Der isolirte Stoat in Beziehung auf Landwirtkschaft und Nationalokonomie) . *^ Wayland, Elements, 340. *«Ib., 340-344. ^ lb., 344-348. ^ lb., 348-349. -^ lb., 350-352. K>7&., 352-353. 66 THE RICARDIAN RENT THEORY said, "of a bale of cotton is made up of the rent of the land on which it grew, the wages and expense of the laborers who were employed in its cultivation, the labor and skill of the agriculturalist who superintends the labor, the cost of seed, manure, utensils, etc." ^^ This statement, however, does not convict him of contradic- tion, because his emphasis is on the demand side, and it is consequently price that determines the lower margin rather than the reverse. Marginal cost, as Ricardo con- ceived it, coincides with price ; but Wayland's conception is that this margin is the effect of price rather than the cause of price. The influence of two unlike economics over his mind makes him hard to interpret. In seeming contradiction to what has been said, he bases the origin and progress of rent on the, fact of poorer soils coming under cultiva- tion ; ^- again, his assumption is that the productivity of land is a fixed number of bushels. ^^ These assump- tions, however, are used in rather graphic illustrations and are out of harmony with the main tenets of his argument. Now, if he did hold to the "limited returns" concept, as his illustrations seem to indicate, he could not teach the tendency of population to double "once in twenty- five years" and that "the earth, every year, if it be prop- erly tilled, and if capital be properly employed, pro- duces more than its inhabitants consume." ^* He did not appreciate the law of diminishing returns; and, on the whole', he favored a rather rapid multiplication of population. Following Wayland's first edition of the Elements, 81J&., 355. 52/6., 341. ^Ih., 88-89. ^Ib., 302. HENRY VETHAKE ^y appeared Vethake's well written Principles of Political Economy (1835). We have seen that McVickar's edi- tion of McCuUoch was used by its editor in his class- room. Both Cooper's and Wayland's books were com- posed of lectures previously delivered by them to their classes. And Vethake inscribes his book, "To the numer- ous young men who, at different periods during the last sixteen years, have attended his lectures on political economy." ^^ Like Wayland, Vethake was a professor who was not in close touch with the industrial realities of his country. He was not even an economist primarily, as will be seen through a brief review of his career. Henry Vethake (1792-1866) was born in Essequibo (now Demerara), British Guiana, and he died in Phila- delphia. When he was four years of age, his parents moved to the United States. At Columbia he took the degrees A.B. (1808) and A.M. (1811). Subsequently he studied law. He was an instructor in mathematics and geography in Columbia College in 1813 ; and, from 1813 to 1821, he taught mathematics, natural philosophy, chemistry, and mechanical philosophy at the College of New Jersey (now Princeton University). He left that post to become professor of natural philosophy in Dick- inson College, a position which he held from 1821 to 1829. He was professor in the University of the City of New York (now New York University) in the years 1832 and 1833, during which time he taught mathe- matics and astronomy. From 1834 to 1836, he was Rector of the board of trustees and President of Wash- ington College (now Washington and Lee University), where he taught moral philosophy and mathematics. From there, he went to the University of Pennsylvania as the professor of moral philosophy and intellectual ^ Vethake, Principles, iii. 68 THE RICARDIAN RENT THEORY philosophy (1836-1855). He was Vice Provost from 1846 to 1854, and Provost from 1854 to 1859. He became professor of higher mathematics at the Phila- delphia Polytechnical College in 1859, where he served until his death. He received the honorary degrees of A.M. from the College of New Jersey (1816), the same from Dickinson (1827), and LL.D. from Columbia (1836). ^« The first part of his preface states his intention to avoid reference to other writers. The assistance of ref- erences, however, is not needed to show us that in all but a few instances his thought is the same as that held by McCulloch. The one author to whom he makes an important reference, and that is an extended one, is McCulloch. " The fact that he edited McCulloch's Dic- tionary of Commerce evidences further appreciation on his part, of the writings of that author. He was a free trader, ^^ and his views on international commerce are little more than a re-wording of Ricardo's teachings. He thinks of the total income as being divided into the three shares of rent, profits, and wages. By far the larger portion of the people must, he teaches, depend on wages for support; therefore the great regulator of population is wages. ^^ He said that wages were regulated by the law of sup- ply and demand, but it was physical supply and physical demand that he had in mind. By the supply of labor he meant the number of laborers, and the number of laborers was in proportion to the whole population. The demand for labor "is measured by that portion of the capital of a country which consists of wages, and which,. ^ Palgrave's Dictionary, III, 617-618. ^ Vethake, Principles, 409-410. w/b., Chaps. II-XIV. * Vethake, Principles, 99. HENRY VETHAKE 69 again, is proportional to the whole amount of that cap- ital; it will follow that the rate of wages is dependent on the relation which the capital of a country bears to the numbers of the people." ^*^ Vethake's mathematical training well suited him to an arithmetical wage- fund theory, which he persistently maintains throughout his discussion of population. Assuming this as a truth be- yond debate, he turns his attention to forces regulating the size of the dividend and of the divisor. Turning now to forces which keep population in abey- ance to the fund prepared for it, he presents with clear- ness and force, but adds nothing new to, the theory of the positive and preventive checks. ^'^ He places depend- ence chiefly upon the elevating of man's desires and standards of living. To this end, he advocates the ele- vation of morals, the increase of foresight through edu- cational processes, progress in arts, and governmental interference regarding the well being and marriage of the poor, ignorant, and unfit.^" His discussion on population centers about the word "tendency." He uses the term, he says, in analogy to the use made of it in mechanical philosophy from which it is borrowed. He said, "A body, placed in one of the scales of a balance, is very properly said to tend towards the earth." ®^ He further said, "In morals also, we con- tinually compare the influence of motives on the mind with the action of mechanical causes on matter." ^* His reasoning brings him to the result, "that this tendency is always in exact proportion to the force of the check which is presented by the difficulty of procuring the means of support; and consequently, that it is greatest, «0 7&., 100. 61/6., 101. «=/6., 110-115, Chap. VII. «3 7b., 108. «/6. 70 THE RICARDIAN RENT THEORY not when population increases most rapidly, but, on the contrary, when this increase is the slowest." ®^ It is difficult to determine just what Malthus had in mind when he used the term "the principle of popula- tion." Vethake makes his use clear, if it can be said that his definition of "tendency" is clear. "This tend- ency," said he, "I shall hereafter designate as the princi- ple of population." ®^ According to his use, the word "tendency" indicates nothing as to actual movement. If this tendency, as he claims, is in exact proportion to opposing force, and greatest when the increase of numbers is slowest, it follows that, if counteracting forces were nil, tendency, which is in exact proportion, would also be nil. Sec- ondly, if tendency is greatest when increase is slowest, it would be less when increase is more rapid and nil when increase in numbers is most rapid. Our author, to use his own words, wished tendency to be "employed in perfect analogy to the use made of the term tendency in mechanical philosophy." ®'' Then, a train running at the fastest possible speed would have no tendency to do so, while one standing would have the greatest tendency to move, or this same reasoning will apply to his example of the weight on one of the scales of a balance. Without further comment on the ambiguity of the word "tendency," without considering the inappropriate- ness of the analogies between the moral laws regulating population and the physical laws operative in mechanical philosophy, and without showing that analogies from biological science might be more appropriate, let us turn to his views on rent. «5 lb., 109. '"lb., 108. HENRY VETHAKE 71 Respecting the agents which produce rent. Professor Vethake seems not to be limited by the orthodox teach- ings. In fact, he saw glimpses of, and at times gave expression to, the rent problem in its broader aspects. But, after stumbling into the right, he unfortunately turned to the wrong. He mentions agents producing rent to be : land, mines, fisheries, manufactures, stands for business, ^^ and monopolies. ®® His discussion of capital, ^'^ as well as his definition and treatment of rent, in reality classifies land as capital. He does not formally define rent, but the following quotation is in strict keeping with his discussion of the subject : "Political Economists have found it expe- dient to separate from the profits received in any employ- ment that portion by which they may exceed in amount those yielded to the capital invested most disadvan- tageously in the same employment, and have designated such excess* by the name of rent. All land, consequently, yields rent, excepting the land just taken into cultivation ; and so too does every portion of capital which is applied to the land before cultivated, with the exception only of what is the last applied." '^ This makes rent a por- tion of profits. It is the excess over costs. This is further illustrated when he says that, if $500 be paid for the use of a farm, it is an error to denominate the whole payment as rent, since a portion is payment for the capital in the land. ^- He speaks of a lease being composed of usual profits and of extra profits or rent. Vethake insists, elsewhere, that rent is a product of labor.^^ ^Ib., 68. «» li., 70. ™/fe., Book I, Chaps. IV, V. •^Ib., 70. "76., 71-72. »3/b., 74. ^2 THE RICARDIAN RENT THEORY So far, he has made rent a payment by one person to another, as Ricardo did when he was contending that rent does not add to the weaUh of a nation. Also he accompanies Ricardo in making two uses of the term rent when he claims that, if the farmer till his own soil, the excess is rent. "* This confusion of the strictly economic concept of yield with the contractual or legal concept of rent, pervades economic literature and de- feats clear reasoning on that most fundamental problem, proportionality. L,ike Ricardo, he finds that cost of production under the most unfavorable circumstances determines price. '^^ This enables him to agree with Ricardo that rent does not enter into price. '^® On diminishing returns, he takes, as does Ricardo, a static view regarding the instrumentalities of production and a dynamic view of the growth of population. Both apply the law intensively as well as extensively. '''' Vethake would make the law applicable to all rent-bear- ing agents ; "'^ but, in conflict with some of his state- ments, he expresses belief in constant returns to manu- factures. A treatise on this group of economists would be incom- plete without mention of the work of Marcius Wilson. This author wrote a volume on Civil Polity and Political Economy (1838), in which he followed very closely the work of President Wayland. His was a brief high school text, in which he attempted two fields of such propor- tions as to make impossible the development of a theory of rent. He teaches that land is capital. He classifies tilled '^ Cf . Ricardo, Principles, 48; Vethake, Principles, 71. '^Vethalce, Principles, 69-70. ™/&., 70. ''■'lb., 69. ''^Ib., 68-69. HENRY VETHAKE 73 land as productive capital and as fixed capital. '^^ "Rent, or the price paid for tlie use of land, is regulated by the same principles that regulate the interest upon other kinds of capital." *° The principle regulating interest is, he teaches, the law of supply and demand. He would make due allowance for risk. *^ On the whole, his ideas were in harmony with those of the more optimistic American economists respecting the population problem. The economists reviewed in this chapter were some- what confused in their reasoning upon the rent problem. Their writings followed closely the form of expression used by Ricardo, and they copied his differential method of explaining land rent. But the comparison between their thought and that of Ricardo ends with the outward form of presentation. They mistook the form of his writing for its content, and gave little more than a veneer of the Ricardian theory of rent. They took the law of supply and demand, not without many exceptions, as the regulator of value ; and consistently with this posi- tion, they reasoned that labor cost could affect value only by affecting supply. They defined Malthusianism and gave it favorable comment ; but, in the course of their reasoning, they turned deliberately from that doc- trine, and favored a larger population to supply the industrial need of America; they not infrequently re- garded land as capital, and spoke of rent as synonymous with interest; they regarded the margin as price-deter- mined rather than price-determining, and, in conse- quence, they regarded rent as a part of the cost of pro- ducing goods. "* Wilson, Civil Polity and Political Economy, 130, 131. 8»/&., 181. «i/&., 177-186. 74 THE RICARDIAN RENT THEORY The confusion in thought of the writers who have been reviewed, bears evidence of two unhke influences — the knowledge that they acquired from books was gleaned from the English texts, whereas the practical problems that they faced in the new world were such that the English writings provided no solution. The following chapter will be devoted to the writings of J. N. Cardozo, a capable opponent of Ricardo, whose ideas were of such merit as to make his treatment worthy of a separate chapter. CHAPTER V GEORGE TUCKER GEORGE TUCKER (1775-1861) of Virginia should be ranked among the strongest Ameri- can economists prior to the Civil War, Econ- omists have not forgotten him ; they never knew him, A few specialists in statistics remember his work in that field, but the students of economic thought make no mention of his theoretical writings. He was too far in advance of contemporary thought to be appreciated; and his works were out of print long before they could have been justly appraised, I shall present the chief facts on his life and writings, study some of his funda- mental principles, and present in detail his reasoning on the problem which interested him most — the rent problem. He was born in Bermuda and died in Virginia, He was inspired by his uncle. Judge St. George Tucker, to attend William and Mary College, where he was grad- uated at the age of twenty-two. Tucker was admitted to the bar, and practiced at Lynchburg until he entered Congress in 1819, where he served for six years. He then accepted a professorship of moral philosophy and political economy in the University of Virginia where he remained from 1825 to 1845. ^ ^^'s early writings cover a v/ide range of subjects, ^ iPalgrave, Diet, III, 568; Nat. Encyc. of Amer. Biog., VII, 521. * He wrote on slavery, on subjects of taste, and a novel on the Val- ley of Shenandoah, The Life of Thomas Jefferson, a four volume history of the United States, Essays Moral and Philosophical. His principal works on economics are : Law of Wages, Profits and Rent Investigated, (Phila., 1837) ; Theory of Money and Banks Investigated, (Boston, 84 THE RICARDIAN RENT THEORY Tucker was a scholarly man who labored for the cause of science and a statesman whose power as a debater in Congress was widely recognized. His search- ing work on statistics and his American History of four volumes demonstrate strong ability in analysis and method. His pleasing style was supported by a careful organization of facts. The motive of his activity was that public opinion might give to right thinking the form of law. While in Congress, Tucker was In harmony with Pres- ident Madison's wish for centralization in Congressional legislation. He was an influential member of the com- mittee to consider and to favor that cardinal act of the administration, the United States Bank Act of 1816. The purpose of his chief theoretical work, Wages, Profits, and Rent (1837) was to show the general inap- plicability of Ricardian economics and to treat construc- tively the problems of wages, profits, and rent. What was his estimate of Ricardo? Almost a century ago, his estimate of David Ricardo was the same as that held by many leading thinkers of to-day. "He [Tucker speaking of himself] has long been of opinion that Mr. Ricardo, though possessing merit of a very high order as a writer on poHtical economy, and entitled to all his reputation for a thorough knowledge of the subjects of money and finance, is mistaken in his elementary prin- ciples of the science ; that the origin and progress of rents admits of a more simple and natural explanation than he has given; that his theory of wages is incon- sistent with itself, and that of profits contradicted by the whole history of capital in the civilized world." ^ 1839) ; Progress of the United States in Population and Wealth in Fifty Years, (N. Y., 1843) ; Correspondence with Alexander S. Everett on Political Economy, (1845) ; Banks or no Banks, (N. Y., 1857) ; Political Economy for the People, (Phila., 1859). 'Tucker, Wages, Profits, and Rent, Pref., iv. GEORGE TUCKER 85 The theory of value was his starting point in his at- tack upon Ricardo. Some portions of his writings on this subject read Hke pages from the recent psychologi- cal economists. "Value," he said, "in its largest sense, means the feeling with which we regard whatever can render us benefit or afford us gratification. In this sense, it is an emotion of our minds comprehending all that can impart pleasure to our senses, our tastes, or desires; as health, talents, friendship, reputation, land, money, and goods. It varies according to the endless diversities of objects, and of human tastes or opinions, and it is susceptible to all degrees of intensity, from a simple wish to the most passionate desire." * Epitomizing his introductory chapter, we find that self-love seeking gratification is the motive for ex- changes. ^ Differences in individual estimates cause us to give objects for those whose "real or imaginary prop- erties" are preferable. The fact of exchange does not indicate the value that either party sets on either com- modity, "since each might have been willing to give more for that he received, or take less for that he trans- ferred." The case is different in market price, where the mutual efforts of competitors settle down on uniform terms. His thought is that individuals, in buying and selling, through bargaining come to readjust their val- uations until their estimates are made to conform to a common standard, the market price. Then, in a market, each commodity is evaluated in terms of some other, "that is to say, neither commodity can be estimated without estimating both." He says in substance that the products of human labor, accord- ing to the principle of self-interest, frequently will ex- change in proportion to the amount of labor expended *Ib., 1-2. 6 gee pages 1-13. 86 THE RICARDIAN RENT THEORY on their production. "This has been called the natural price of this class of commodities." But the market price varies from the natural price according to the law of supply and demand. At this point, his ideas of the variation of the subjective forces on the demand side are indeed modern, and are indicative of his philosophi- cal training. As for that class of commodities produced wholly or partly by nature, he finds their value to be determined "by the pleasure they confer" and the "insufficiency of their supply." "Of the same character are the finer products of art, as the pictures and statues of celebrated masters, secrets in manufactures, and patented inven- tions." These are sometimes called monopoly values. Value furthermore varies with distance from the mar- ket. The cost of transportation must be deducted from market prices. This explains why gold and silver, so well suited for transportation, are more uniform in value throughout the world than are more bulky or per- ishable goods. Different place-values "give rise to an active internal commerce." Good roads and canals that lessen expenses of transportation conduce to a greater uniformity of place-values as well as to public pros- perity and happiness. As measures of value, he treats of the variability of labor, corn, and the precious metals. He adds signifi- cantly, "Value being an emotion of the mind, and not always exhibiting the same outward signs, in proportion to its strength, is incapable of exact measurement." Approximations are necessary, and, with proper caution and diligence, are attainable. He thus adhered to the individualistic or subjective concept of value. Consistent with the concept of sub- jective value, he thought that it is not necessary for a GEORGE TUCKER 87 commodity to have real utility in order that we attach value to it; it suffices if it has imaginary properties capa- ble of rendering gratification. The value we attach to a commodity depends upon its utility (real or imaginary) and upon the strength of our desires for the anticipated gratification. His value-concept may be summarized to read : value is subjective, being the importance which the mind at- tributes to an objective good or service. It varies with the intensity of desire. Goods need not necessarily have utility to be valued; it is enough if we think they have utility. People think more or less alike; therefore, they tend to adjust their valuations to common standards. Exchanges on the market are due to differences in indi- vidual valuations. Although he denies the cost of pro- duction as a cause of value, yet he would say that com- petition so works as to cause reproducible commodities to exchange in proportion to their cost. Consistent with his subjective theory of value, Tucker reasons that the primary force in regulating population is volitional control. He undertakes to demonstrate the effects of volitional control by statistics. In treating the principle of population. Tucker will be found more conservative than his contemporary countrymen, whose dream of a vast population and of an intensified division of labor over a diversified field of industry would cause a vast augmentation of wealth. This view caused, on the part of many Americans, the most extreme dissent from Malthusianism and a very exaggerated desire for a rapid growth of population. H. C. Carey follows in the lead of Herbert Spencer in maintaining that the forces destructive of population and preservative of it are such as to bring about and to maintain an equilibrium between the numbers of peo- 88 THE RICARDIAN RENT THEORY pie and the means of their support. This was a biologi- cal theory. Tucker's statistical study of population led him to a similar conclusion. "We see by the preceding tables that the natural increase of the population is in- versely as its density." ^ Taking the examples of Massa- chusetts, New York, Virginia, Tennessee, and Ohio, he endeavored to demonstrate in each case that the rule of natural increase acts uniformly, that is, we perceive the falling off in the rate, not only in forty years, but in ten year periods. "What is true of these states, will be found true in the others ; and there are not more than two or three cases, out of nearly a hundred, in which the comparison can be made, that the proportion of children, and consequently the rate of increase, is not less at each census than at the census preceding. '' From these figures he predicted that the population of continental United States would be 80,000,000 ^ in 1900, whereas it was 74,000,000. This theory was not first announced by Tucker. The English author, M. T. Salder, had conceived the idea, and had published two large volumes in its support seven years prior to Tucker's publication. Salder attempted to prove by statistics that population increases inversely as its density. His work was deficient and did not survive. Tucker thought that Malthus had over-rated the pro- pensity of man to increase, and that he had under- rated the checks to population. In his opinion, popular education, good government, and laws which cherish individual self-respect, are the best means of lessening the number of the poor. ® He turns from the teachings of Malthus on popu- ' Tucker, Progress of the 77. S. in Population, 105. "^ lb., 105-106. 8 26., 106. 8 Tucker, Political Economy, 222. GEORGE TUCKER 89 lation to Ricardo's theory of wages. As a basis for his discussion, I will briefly review Ricardo's theory of distribution. Income is divided into three shares : rent, profits, and wages. The surplus or rent goes to the landlord and the residue is divided between labor and capital. Population tends to out-strip the means of sub- sistence; therefore — because of an increasing surplus or rent — a share diminishing in proportion to the increase of population and capital is left for division into wages and profits. Wages will not be diminished; therefore, profits must be lowered. Tucker begins the discussion of wages with the asser- tion that labor is not a cause of value but a measure of it. Like Ricardo, Tucker overlooked the element of time which vitiates the labor theory either as a cause or as a measure of value. This is the more remarkable in Tucker's case because even Ricardo had made numerous exceptions to his labor-value concept, including a recog- nition of the time element. Moreover, Malthus had given a valuable criticism on this point; and, only three years prior to Tucker's publication of 1837, John Rae, with a master's hand, had set forth the principle of time-value. Tucker argues that value depends on scarcity and utility; therefore, labor-cost or any other influence can affect value only by affecting supply. He emphasizes the importance of the law of diminishing returns on the limitation of supply. The modes of industry and the nature of consumption remaining the same, real wages must decline with an increase of population beyond the point of the best adjustment of the factors of production. Because of differences in the appor- tionment of productive factors "a laborer in the United States can earn a bushel of grain in a day, in England 90 THE RICARDIAN RENT THEORY or France scarcely a peck, and in India, often a quart of rice." ^" In this connection, he gives a most illuminating dis- cussion on the relation between real wages and the nature of consumption. "Subsistence, it must be recol- lected, is not a constant quantity, as many who have reasoned on this subject seem to consider it, but is capable of great variation, whereby the same soil is capable of supporting widely different numbers." ^^ A given soil of one square mile that would support 80 persons who consume animal food abundantly, will sup- port 120 persons who consume animal food more spar- ingly, 160 persons who subsist chiefly on grain, and 480 persons who subsist on potatoes. In the first case, one person consumes the product of 8 acres ; in the second, 51-3 acres; in the third, 4 acres; in the fourth, i 1-3 acres. ^- The pressure of increasing numbers on the means of subsistence causes the different classes to adjust their consumption; and population will be increased or checked as determined by this adjustment. ^^ Consump- tion remaining the same, numbers will increase at a rate not greater than the improvements in husbandry. A change to a lower grade of consumption means a diminu- tion in real wages. This tends to take place with an increase of numbers beyond the point of diminishing returns. This tendency may be checked or counter- balanced by improvements in husbandry, or by the intro- duction of the turnip, drill husbandry, or the potato. ^* Tucker attacks Ricardo's proposition that wages rise as labor and capital are employed on more inferior soil, M Tucker, Wages, Profits, and Bent. 16-21. Quotation, 21. 11/6., 21. ^Ib., 22-23. ^Ib., 23. "76., 24. GEORGE TUCKER 91 or that the natural price of labor has a tendency to rise because of a rise in the price of corn. Ricardo states that wages must rise in order to support the same num- bers in the same degree of comfort. ^^ In justice to Ricardo, it should be noted that he meant money-wages rather than real wages. Tucker, however, assumes Ricardo's statement to refer to real wages ; and, upon this assumption, he makes the following statement : "It will not be difficult to show that this theory is at once contradicted by the facts and inconsistent with itself." ^® Tucker teaches that a rise of raw produce means a fall in natural wages^ because the only intelligible idea of a rise in exchange value is that the same commodity will purchase more labor. He holds to the quantity- theory of money, and claims that more money, or better substitutes for it, relative to the need for money, will cause a rise in prices and money-wages, although their relative purchasing power would be unaffected. "The very process which Mr. Ricardo assumes to take place to raise the price of raw produce supposes a fall in the price ^" of labor." ^® Ricardo assumes that the surplus goes as rent ; that there is a common rate for both wages and profits which is determined on the most unfavorable soil; and that it is the product brought forth under these most unfavorable conditions that fixes the price of raw produce. This means that, as popula- tion grows, rents will increase while natural wages must fall. Tucker says that the very fact of this lower soil coming into cultivation must mean a previous fall in the price of labor or capital, or both. "Raw produce does not rise because inferior soils are cultivated, but 1S7&., 32-34. 19/&., 34. !''■ Hp dops not adhere in this statement to the money-definition of price. M Tucker, Wages, Profits, and Rent, 35. 92 THE RICARDIAN RENT THEORY they are cultivated because raw produce has risen; and the effect of their cultivation is to lessen or to arrest the rise rather than to prod^ice it." ^^ After illustrating- the point, he said that Ricardo's theory is "the same thing as saying that the fall of labor causes the rise of labor." 2« Tucker says, "Mr. Ricardo has perhaps been betrayed into a theory so inconsistent and unintelligible by assum- ing the wages of the laborer to be a constant quantity, or rather the amount of raw produce necessary for the maintenance of himself and family." -^ But, continues Tucker, an increase of population will result in a cheaper subsistence whereby the same soil will feed more people. "The human stomach must be filled; but it makes a great difference whether it be filled with beef, or bread, or potatoes." ^- Despite the accuracy of Tucker's observation, his reply is incomplete in that he overlooks Ricardo's point that the price of labor must be high enough to enable the laborers, one with another, to subsist and perpetuate their race, without either increase or diminution, from which it follows that an increase of rent tends to dimin- ish profits rather than wages. -^ An additional criticism was therefore needed by Tucker to make his case; namely, that profits would tend to disappear and the consequent discouragement of capital would take the very foundation from under both wages and rent. This would occur should a standard of living be maintained, as Ricardo claims, and should population continue to increase. Diminishing profits are truly disheartening; but the resulting no-profit stage, to which Ricardo's 19J&., 35-36. ^Ib., 37. »/&., 37. 22/6., 38. ^* Ricardo, Political Economy, Ch. V. GEORGE TUCKER 93 premises and reasoning naturally lead, would arrest the resort to inferior soils. Too low a rate of profit encour- ages the final consumption of capital. On the question of slave labor, much to the credit of a Virginian of his day or much to the credit of an Amer- ican, North or South, he, without prejudice, weighs the arguments on both sides and comes to the conclusion that the system of slavery "cannot exist in the most advanced stages of society." Speaking of the South, he said, "As soon as those states aire supplied with as many as can work their lands to advantage, the emancipation of slaves, occasioning but a small loss to any, and prov- ing a positive gain to some, it will be impossible to pre- vent it." ^* On the concept of capital and of profits resulting therefrom. Tucker presents a suggestive though con- fused discussion. He taught that capital results from saving. He conceived capital as a productive agent such as land and tools, but he shifted to the idea of capital as value in the discussion of profits as a rate per cent. His definition reads, "Capital is that portion of use- ful products which has been saved out of the former profits of labor or land." This implies an advance over the Classical teaching that capital is a result of labor, in that it allows for land rents to be converted into cap- ital. He continues, "It thus arises from the excess of production beyond consumption, and consists of ma- chines, tools, provisions, manufactures of all kinds, and money — of every material product, in short, that has exchangeable value." -^ He goes on to say that, "Land itself must be regarded only as a species of capital and the profit it yields in the form of rent, will have a proportionate effect on the price, so that 2* Tucker, Wages, Profits, and Rent, 49, and his Political Economy, 89. ^Tucker, Wages, Profits, and Rent, 51. 94 THE RICARDIAN RENT THEORY as the ordinary profits of capital fall, the price of land will rise. ... If the profits of capital are five per cent, land will sell for twenty years' purchase, . etc." 26 At times, he speaks of land and capital as different; yet he finds that all of these agents obey the law of diminishing returns, and that they are governed by the same economic principles. He teaches that land rent and profits obey the same laws. In a static view, there is a monopolistic ^^ limi- tation to the scarce uses of capital at a given time pre- cisely as in the case of land. At this point, his reasoning clearly foreshadows the recent concept of quasi-rents. The demand for capital arises out of the cost and the length of time required to produce it as compared with the temporary needs for it. Demand is made for capital because of the numerous uses for it, because of its productive power, and because of its limited supply due to its being created only by encountering the natural desires of men for present enjoyment. ^^ New develop- ments, such as the building of a railroad "^ or the employ- ment of new lands, make demands for capital. The supply of capital, he says, is limited by the scarcity of peculiar skill, or where the method of fabri- cation is a secret, or where the law precludes competi- tion, as in the case of exclusive rights secured by inven- tions. The natural desire for present consumption, and the fact that only a few can meet the large costs re- quired to produce some forms of capital, are likewise conditions that limit the supply of capital. Because the demand for capital is quick whereas the production ^Ib., 71. ^ "Monopoly" is here used in the sense of scarcity. ^ Tucker, Wage's, Profits, and Bent, 51. ^Ib., 61-63. GEORGE TUCKER 95 of it is slow, it generates a surplus value precisely as does land or any limited agent. ^° Rent and profits are the temporary and scarce uses of land and capital that command a price in the mar- ket. ^^ He maintains that rent is a monopoly price for the scarce uses of land; and, because of these forces which limit the supply of capital, he likewise finds that profits are due to monopoly. The differential theory, in his judgment, applies uni- formly to profits and land-rents. His reasoning is, that capital will first be employed in the most productive uses and that additional capital will find less remunera- tive employment. '^ This is, of course, a technological concept of capital, for the value-concept forbids such different rates of return to capital. At this point, the author's treatment of profits be- comes confused and inconsistent. He says that capital can always be invested in land, but that such an invest- ment is only a transfer and not a creation of capital ; therefore land is a kind of balance wheel to steady the rate of profits. ^^ But he says that a resort to inferior soil tends to raise profits because a new and greater demand is made for capital. ^* Turning now to his criticism of Ricardo on profits, we find the conclusion that, after a certain point is reached in the apportionment of population to natural 30/6., 54. SI 7b., 57. ^Ib., 59-61. 33/?,,_ 7i_ 3*/&., 72. We may criticise Tucker at this point; for, if land under cultivation be the regulator ior the level of profits, it must be marginal land, because all the surplus is taken away in the form of rent. Then, if marginal land regulates the level of profits, how can this level go up when the margin goes do^vn by reason of resort to inferior soil? This reasoning makes the supply of capital on lower margins have the unlike effects of both lowering and raising profits. This contradiction, however, is not quite so glaring when we consider that the resort to inferior soils is a dynamic concept, and that the differential concept is static, referring to lands or different land-qualities under cultivation at the same time. 96 THE RICARDIAN RENT THEORY resources, a diminishing portion of raw produce will go to labor. He advances the view that capital has the advantage of labor, that wages will be lowered relative to profits because the laborer must live and will abate in his wages rather than go without food. Ricardo, on the contrary, had argued that wages will rise with an increase of the price of corn whereas profits will de- crease. Tucker says that the competing uses for capital will tend to keep profits from diminishing. Referring to Ricardo's theory, he says, "Corn can only be said to rise when it will exchange for more labour. In the same degree that corn rises is labour depreciated. If the same quantity of corn could purchase no more labour than before, in what sense could it be said to rise ? Corn must be compared with something else, when we speak of its change of value, and it is only with labour . . . that it can be compared." ^^ One finds at least three unlike ideas in Tucker's treat- ment of profits : the differential idea, the temporary monopoly idea, and the cost-of-production idea. In keeping with the literature of his time, the word "profits" expressed no definite concept to Tucker. Profits was a blanket term covering that portion of income not in- cluded under wages or land-rent. Following his dis- cussion of profits, he turns to the problem of land-rent. Land-rent to him was a contractual payment made by one person to another for the use of land. It pre- supposes private property in land ; therefore rent could not exist in the early stages of society. Rent depends on fertility and on economic location. The value of the products of land must exceed their cost of produc- tion in order that land may yield a rent. "Fertility is then an essential prerequisite, and different qualities of sE Tucker, Wages, Profits, and Rent, 68-69. GEORGE TUCKER 97 soil, under similar circumstances of situation, will yield rent in proportion to their respective degrees of produc- tiveness." ^^ After thus, like Malthus, emphasizing fertility rather than the niggardliness of nature as the cause of rent, he proceeds to remark, as does Malthus, on "the rela- tive scarcity of fertile soil as necessary to the existence of rent." If land were as abundant as air or light, it would be a free good. But land will have a value in a new country before it begins to yield rent, because provident individuals anticipate a future earning capac- ity due to the natural increase of mankind, for the same reason that value is attached to young animals or to a share in a promising enterprise which is a present charge. "' The number of years' rent to determine the price of land is ascertained by the rate of profits. ^^ There is an elastic limit to the supply of land; con- sequently, after the land is occupied, an increase of numbers will cause either a diminution in consumption or an increase of production through intensive cultiva- tion. Improvements in husbandry that enable a given expenditure of labor to produce more, will tend to main- tain a high exchange value of labor in terms of raw produce. "But though wages will not fall, rents will rise, inasmuch as the same soil is made to yield a greater return." "^ Tucker here refers to commodity-rent and commodity-wages, and argues that rents rise faster than wages. He thinks, however, that in only a few rare cases do improvements keep pace with the progress of popula- tion, and that in general the increase of population com- s^ Tucker, Wages, Profits, and Rent, 94. 38/6., 94-95. »/b., 95. «>Jl>., 98. 98 THE RICARDIAN RENT THEORY pels diminished consumption, and the substitution of coarser for dearer commodities. *^ The value of wages falls, usually, in comparison with the value of raw produce, "in consequence of the increased competition of the labourers; and, as the same amount of raw produce will progressively command more and more labour in the market, rents will rise in proportion.''*^ It is clear that, to Tucker, a rise in rent means a rise in proportion to labor. Reasoning evidently on the entrepreneur cost basis, *^ he said : By reason o£ the fall in the price of labour, soils of inferior fertility may then repay the cost of cultivation, which they would not have done at the previous rate of wages. The addi- tion to the amount of raw produce thus made, retards the further decrease of wages. . . . But if the soil was_ of uniform fertility, then, when it was all taken into cultivation, the means of subsistence for further accession of numbers could be furnished only by one of the two first mentioned modes, that is, either by a more productive husbandry, or by cheaper modes of subsistence. The first of these expedients tends to keep down the price of raw produce compared with labour; the last to raise it; but both of them contribute to increased rents, because both enable the landlord to command more labour from the produce of the same land. ** He concludes that differences in qualities of soils have no agency in producing rent, that rent arises "from the greater amount of labour which the products of the same portion of soil can command, in consequence of ^Ib., 98-99. ^ It would indeed be difficult to determine whether Tucker's work should be classed as a theory of prosperity or as a theory of distribu- tion. There is a constant shift back and forth between money and com- modity-rent and money and commodity-wages. He reasons with these unlike terms in the same sentence oftentimes as if they were one. His book begins with a brilliant exposition of subjective value ; but often he shifts value on to a labor-cost basis, then from a labor-cost theory of value on to a subsistence basis. He varies back and forth from labor as a cause to labor as a measure of value. Again he enters into the realm of entrepreneur of money-outlay costs without detecting the change. Yet to Tucker a cost is a cost, and a like conclusion must follow. ^ Tucker, Wages, Profits, and Rent, 99. GEORGE TUCKER 99 the increase of population," that the greater the supply of fertile soil the greater is the amount of rent. *^ This reasoning is clearly in accord with the thesis of Malthus' Essay, which is that abundance and the growth of population relative to that abundance is the explanation of the progress of rent. *® Indeed a com- parison of the views of Malthus on rent with those of Tucker, makes it clear that Tucker was profoundly in- fluenced by the writings of Malthus. Malthus lays down three causes of rent, *^ and emphasizes the first two quite to the exclusion of the third. It is significant that Ricardo bases his rent doctrine on the third cause given by Malthus and practically excludes the first two, while Tucker bases his doctrine on the first two and usually excludes the third. "It thus appears," said Tucker, "that cultivated land yields a rent from two causes, and only two : first, from the capacity of the earth to return a greater amount of raw produce than is expended in its cultivation; and secondly, from the increasing demand for this excess by the increase of population, so that more labour will be given in exchange for raw produce than it has cost to produce it." *® While Malthus regards differences in fertility of land as significant, Tucker, more logically, regards variations in the soil as of no theoretical Importance. But Malthus'' main thesis is Tucker's main thesis : the capacity of the earth to produce a surplus though at a diminishing «/&., 100-101. ** Malthus' Nature and Progress of Rent, 19, 23. ■" "First, and mainly, that quality of the earth, by which it can be- made to yield a greater portion of the necessaries of life than is re- quired for the maintenance of the persons employed on the land. Secondly, that quality peculiar to the necessaries of life of being able to create- their own demand, or to raise up a number of demanders in proportion- to the quantity of necessaries produced. And thirdly, the comparative scarcity of the most fertile land. lb., 15. * Tucker, Wages, Profits, and Bent. ^ lOO THE RICARDIAN RENT THEORY rate and the growth of population relative to this surplus, produce the twofold effect of lowering wages and of forcing up the value of this surplus. Both center atten- tion upon the relationship between the value of labor and the value of raw produce. Tucker's law of substi- tution that enables the land to feed more people is a variation of Malthus' bounty-of -nature argument. Ex- ceptions in both writers are numerous ; but, despite these, both saw the value of raw produce to be regulated by the law of supply and demand rather than by cost. Both emphasized labor as a measure rather than as a cause of value. In contradiction to Ricardo's teaching, Tucker was of the opinion that whatever increases the quantity of raw produce lowers the price of it and raises rent. Whether it be fertility, favorable seasons, improved modes of husbandry, manures, or more skillful modes of cultivation, the effect must be a tendency to lower the price of raw produce. But it would not follow from this that rents must decline. Lowering of price does not diminish rent, because the elasticity of con- sumption, even with the same population, will not allow prices to fall to the extent that raw produce would rise in amount. The supply of precious metals was, he states, increased ten-fold after the discovery of America, but the value of a given unit of the precious metals was lowered not over one-third. *® Tucker's idea of the elasticity of consumption has quite superseded Ricardo's dictum that man's desires are limited by the narrow capacity of the human stomach. To summarize here some of the chief arguments so far reviewed may prove helpful. He has taught that value is subjective or individualistic. Though it cannot «/b., 102-103. GEORGE TUCKER lOi be measured or expressed by objective goods, yet it can be approximately expressed in relation to goods in the open market where, through mutual competition, the estimates of individuals tend to conform to common standards. The fundamental law determining value is that of supply and demand. But commodities, other than those produced by nature, find their supply-limita- tion determined by their labor-cost ; therefore value tends to conform to, but is not the result of, labor-cost. Self-love, seeking gratification, leads to demand and supply through which price is fixed. Applying this reasoning to the population-rent prob- lem, he finds that on the demand side are to be con- sidered: (a) the law of population, (b) the elasticity of demands, and (c) the forces of distribution. These considerations are disposed of as follows : the rate of the increase of population varies inversely as its density ; demands accommodate themselves to the supply, increas- ing with the augmentation of wealth and diminishing with the diminution of wealth; the forces of distribu- tion operate to the advantage of the landlord who en- joys a monopoly return, and give advantage to the cap- italist over the laborer who in case of pressure must abate in wages or starve. On the supply side are to be considered: (a) forces limiting the supply of products, and (b) the kind of product. Forces limiting product are : climate, fertility, kind of seed, skill, method, improvements, secret meth- ods, desire for present over future consumption which limits the supply of present capital, and the law of dimin- ishing returns. The kind of product involves such con- siderations as whether beef or potatoes are to be pro- duced. Rent is considered in two ways : as a payment by 102 THE RICARDIAN RENT THEORY one person to another, and as a commodity return. It arises out of the bounti fulness of nature, together with an augmenting population. Increased production tends to lower the price of raw produce, but, because of the elasticity of demands, prices do not fall to the extent that production is augmented; therefore an increase of commodity-rents means an increase of total value-rents. Exchange- value is measured by labor-cost; therefore a rise in value-rents is equivalent to a fall in real wages. We will now turn to Tucker's criticism of Ricardo's theory of rent. After stating Ricardo's theory, he of- fered three objections to it : first, the diversity of soil has no agency in creating rent; second, the rise of raw produce is the cause rather than the consequence of the resort to inferior soils ; third, a rise in raw produce means a fall in real wages. ^° The third objection has already been discussed. On the first, he reasons that the result of an increase of raw produce is a multiplication of laborers, and grow- ing numbers produce competition that lowers wages rela- tive to raw produce. It follows that, through time, raw produce comes to have greater purchasing power in gen- eral. Natural forces tend to augment the landlord's purchasing pov/er irrespective of a difference in soil. In his second objection to Ricardo (the rise of raw ^ lb., 108. Not only does Tucker's argument overlook the growing demand of labor in this course of development, but also he makes raw produce both the supply and the demand. That is to say, while raw produce is itself the supply, it is also that which determines the number of people who are to demand it. Man's free agency is subordinated to natural forces. But, says he, supply and demand produce value, and value in turn causes more production. This makes causes beget causes, and converts man into a kind of irrational being whose course is deter- mined by the fertility of the soil as truly as is the course of a leaf deter- mined by the direction of the stream upon which the forces of nature have caused it to fall. This same conclusion must follow the reasoning of Malthus, and in a slightly different waj% the powers of nature are steering Ricardo's helpless economic man to the minimum-of-subsistence margin. The laws of natural science and the doctrine of the Physiocrats had a hold too firm upon the scientific mind of that time to permit the laws of moral pliilosophy to hold their true place in the development of science. GEORGE TUCKER 103 produce is the cause rather than the consequence of the resort to inferior soils), Tucker said, "It is justly re- marked by Ricardo that 'corn is not high because a rent is paid, but a rent is paid because corn is high' ; but it is equally true that corn is high, not as he sup- poses, because 'more labour is employed in the produc- tion of the last portion obtained,' but more labour is thus employed because corn is high." °^ His reasons for the rise of raw produce are two : the increased demand, and the greater amount of labor for which produce will exchange. But the second rea- son is precisely what Tucker elsewhere calls the high price itself. "Without doubt," said Tucker, "... successive resorts to inferior soils, or outlays of fresh capital on old lands keep pace with the rise of raw produce; they ordinarily afford a measure of the progress of rent, but they are no more the cause of its rise, than the weights on one scale cause the gravity of the body in the opposite scale, though they may correctly inform us of its amount." ^' In this regard, his thought so strictly conforms to Senior's encyclopedic article, to which Tucker makes reference, ^^ that there is reason to suspect an influence by Senior over him. Senior wrote, "And yet it is clear that if we suppose the existence of a populous and opulent district of great but uniform fertility, giving a large return to a given expenditure of capital, but incap- able of giving any return whatever on a less expenditure, or any greater return on a larger expenditure, such a district would afford a high rent though every rood of »/b., 111-112. 62 Tucker, lb., 133. »76., 122. 104 THE RICARDIAN RENT THEORY land and every portion of the capital applied to it would be equally productive." ^'* As for diminishing returns, we have seen that Ricardo's concept could serve only for static condi- tions. Malthus had the concept of historical diminish- ing returns, or of a process of transition from one static state of returns to society as a whole to another such static state. But to him the dynamics of different factors were unequal, and the consequent disproportion- ality meant a minimum of subsistence. Tucker's con- cept is Malthus' concept improved. Tucker makes far more allowance for improvements in husbandry, and emphasized over and over the idea of consumption being modified or changed to meet the new circumstances. Credit is due Tucker for being the first, apparently, to make use of the law of limited returns. ^^ It is diffi- cult to pick out a single quotation from Tucker either to prove that he adequately presented this law, or to give a clear idea of his conception. The idea runs throughout the work and at no place finds precise state- ment or definition. Tucker often assumes fundamental principles as commonplace, and fails to give them formal expression. At one place, he said : There are millions of acres, on our large rivers, and in the western country, which at a small additional expense, would produce their maximum, or so near it that no further outlay of capital could increase their product ten per cent. But what- ever might be the effect of these expedients, it is clear that they have their limits, and that, if the population went on increasing, the time must come when there could be no further conversion of other lands into arable, and when the arts of husbandry would admit of no material improvement. In that ^Ib., 122. ^ Professor Patten overlooks Tucker when he considers that his (Pat- ten's) Premises of Political Economy (1885) contained the first presenta- tion of this law. GEORGE TUCKER 105 case, the further demand of increasing numbers could be met only by an alteration either in the quantity or quality of an individual's subsistence. ^® ... It may be remarked, by the way, that the political economists of the Ricardo school seem to assume that upon all lands successive portions of capital can be expended so as, in a diminishing ratio, to increase the amount of its produce. But this is true onlj^ with the inferior soils, and not even with them to the extent supposed. ^'^ The reason he makes a partial exception for inferior soils is that such soils, as other parts of the book indi- cate, give a larger proportional return to manure and other soil-improvements, and that the duration of the period until it reaches the point of maximum returns is longer. Professor Patten gives a clear expression of the idea : All writers, in discussing the law of diminishing productive- ness of the soil, have accepted, without dispute, the assumption that the return for labor from a given tract of land could be continually increased by the use of more labor, the point con- troverted having been whether or not the additional labor con- tained a greater or less proportional return than the previous labor. Both parties seem to have overlooked the third alterna- tive, that the proportional return might increase up to a point beyond which no additional return could be obtained by any amount of labor. If this were true, we would have a law of limited returns as contrasted with a law of diminishing re- turns. ^^ This means that, beyond a certain point, additional numbers cannot be provided for at all.. Both the culti- vation of poorer soils and the higher prices of food are accounted for by the law of limited as well as by that of diminishing returns. That superior lands cannot sup- ply the market has been thought to demonstrate the fact of a limit to the productive power of land. ^® Tucker and later writers in discussing this concept, ^Tucker, Wages, Profits, and Rent, 116-117. ^ lb., 117, note. •* Patten, Premises of Political Economy, 152. ^ /&., 152-153. lo6 THE RICARDIAN RENT THEORY have in mind commodity-returns only. This fact, in my judgment, renders the concept one impossible of any practical application, because production would cease when cost came to equal value-returns. This point, as both reason and experience show, must be reached long before an actual physical limit to returns is attained. Cultivation would be arrested even when population be- comes most dense, because of the principle of propor- tionality. Cultivation will cease at the point where cost equals value-return and not at the point of maximum physical return. This concept is necessarily static. It could be true only under given conditions. Under a condition, for instance, where horses are used for plowing, one team of horses can get the maximum return from a given plow within a given time; under another condition, where steam is used, one engine could get a larger max- imum return from this plow. At each time, the maxi- mum return is produced; but the returns are different at the two times to the extent that the engine is swifter than the team. The productive capacity or supply of any factor is always limited by the conditions and com- bination of forces of which it is a part. The same reasoning applies to different stages of agriculture, and to different stages of progress. This concept must also be considered in relation to the prevailing habits of consumption, since consumption determines the nature of demands, and demands, in turn, determine what commodities must be produced. The cost outlay required to reach limited returns would vary with the classes of commodities that are to be produced. Land cultivated to a point of limited returns for superior food (e.g., beef) would support few as compared with the same tract used for less costly food (e.g., potatoes). GEORGE TUCKER 107 A dynamic theory of consumption teaches that, as popu- lation advances, consumption requires a greater variety and a superior quahty of goods. Now, in a more ad- vanced state of civilization, the earth could support more people to the extent that consumption is varied, since a greater variety of margins with limited returns could be attained. But, to the extent that superior quality is demanded, the earth could support fewer people be- cause no limited-returns margin could yield as much food of a superior as of an inferior quality. Turning now to Tucker's concept of consumption, which, as popula- tion grows more dense, tends toward a less variety and a cheaper, coarser quality of food, we find that opposite reasoning would apply. It is debatable under which of these forms of con- sumption the earth could support the greater number of people. But certainly the greatest number could be supported under a form of consumption which combines the qualities of greatest variety, thus making available various grades of land, and the cheapest quality which would enable each variety of land to yield the maximum nutriment. The application of this principle to all classes of pro- ductive agents can be easily made, but is beyond our present task. The nature of consumption, which in- cludes the standard of tastes must reckon with the kind as well as the variety of consumable goods ; then the nature of consumption is but one end of the stick of which the coordination of productive factors to supply that consumption is the other. Though recent writers have made much of this law of limited returns, is there anything in it except a modi- fied statement of diminishing returns? It simply places a limit at which, if ever reached, diminishing returns io8 THE RICARDIAN RENT THEORY would become stationary returns. Everything the con- cept could embrace is embodied in the law of propor- tionality, and the ultimate limit of returns is, as I have indicated, at the point of maximum value-returns and not at the point of maximum physical returns. To ad- here to the idea of physically limited returns is to shift from an economic to a physical basis of reasoning. In this chapter, we have found that George Tucker was a scholar and statesman whose thought upon eco- nomic questions was in many respects far in advance of his time. His subjective theory of value is essentially the same as that held by leading thinkers of the modern psychological school. Regarding value as an individual estimate, he reasoned that the market price of a good need not necessarily correspond with the value which either purchaser or seller attaches to it. But he rea- soned that, in the process of purchases and sales, the traders come to think in common terms and to adjust their thought more or less to a common basis. In keep- ing with the subjective theory of value, he finds that population is regulated by volitional control, and that volitional control so works that numbers increase in- versely as the density of population. He classifies land as capital at times, and teaches that land-rent and profits obey the same laws. He regards rent as a surplus, and brings out the concept of quasi-rents. In every case, he regards rent as well as profits a deduction from the law of diminishing returns; he looks upon variations in the soil as of no theoretical importance. Malthus and Tucker used the same bases in their rent problem. But in fair- ness to Tucker it may be said that he advanced the problem much farther than where Malthus had left it. I should classify Tucker as one of the ablest American GEORGE TUCKER 109 economists under review if not one o£ the ablest thinkers on the subject that this country has ever produced. The next chapter, devoted to Henry C. Carey, will point out specifically and in detail the differences in the prevailing points of view in the United States and in England. CHAPTER VI HENRY CHARLES CAREY THE environment, early career, and personal characteristics of Carey (1793-1879) decided- ly influenced his thought. It is necessary, therefore, briefly to review these influences. Carey's voluminous writings began in 1835, and continued to appear throughout a period of unprecedented industrial development. The population increased 32.7 per cent from 1830 to 1840, and 35.9 per cent during the next decade. The wealth per capita in i860 was more than double that of 1840. The growth of factories and indus- tries, of inventions and skill, compose an amazing chap- ter in material civilization. During the two decades after 1830, the railroad mileage grew from 29 to 9,021 miles. Philadelphia, the home of Carey and most of his followers, was the railroad center. Though spread over a vast area, the population of the country main- tained political continuity while it was incorporating vast bodies of immigrants. Under a new and liberal form of government, a growth of national feeling was mani- fest. The extension of transportation facilities was uniting diverse interests into common interests, was bringing the farm into touch with the manufacturing cities, and was emphasizing that unity of national inter- ests which formed so clear a basis for the "principle of association," which was the fundamental tenet of the Carey School. Good prices and home markets gave encouragement to agriculture, while the growth of skill, capital, and superior equipment made possible the utilization of the HENRY CHARLES CAREY m more fertile lowlands where resistance to cultivation was greatest. Observation of these facts led Carey to deny the Ricardian order of cultivation. The land was owned for the most part by the great middle class in the form of average-sized farms. In America, the title landlord was no mark of distinction. There was no distinct city class as opposed to an agricultural class. Americans had inherited no association of ideas from the Middle Ages which would lead to an artificial differentiation between natural agents and other forms of wealth; and no inherited fixity of relation existed between the land- lord and the serf. Land, like other forms of capital, was subject to frequent purchase and sale. Frontier lands were almost free; consequently the value of a cultivated farm was hardly more than the cost of its improvement. These facts caused Carey to believe that the value of land was determined by its cost of repro- duction. The law of diminishing returns in agriculture, though never denied, had found no serious consideration at the hands of any American economist previous to Carey. Very naturally, the majority of American econ- omists spoke of land as capital, and the Carey School wrote much in defense of this idea. In the midst of dynamic progression, the population was versatile and optimistic. N. W. Senior said of this country: "They have afforded a field in which the powers of population have been allowed to exhaust their energy; but though exerted to their utmost they have not equalled the progress of subsistence. Whole col- onies of the first settlers perished from absolute want; their successors struggled long against hardship and pri- vation ; but every increase of their numbers seems to have been accompanied or preceded by increased means of support." ^ Alfred Marshall says : * Senior, N. W., Two Lectures on Population, 49. 112 THE RICARDIAN RENT THEORY "The Englishman Mill bursts into unwonted enthusi- asm when speaking of the pleasure of wandering alone in beautiful scenery; and many American writers give fervid descriptions of the growing richness of human life as the backwoodsman finds neighbours settling around him, as the backwoods settlement develops into a village, the village into a town, and the town into a vast city." - There was not a time between 1830 and i860 when an increase of population would not have been desirable. We are not surprised to learn that Malthusianism was unpopular, and that a growth of numbers was regarded as an indication of prosperity. With such conditions, it was natural that progress should be considered the normal law of economic life; and that a dynamic law of increasing returns should be developed by our econ- omists rather than a law of diminishing returns. Na- tional growth together with a vigorous optimism tended to reverse the tenets of the Maltho-Ricardian School. Carey's optimistic philosophy was born under favorable auspices. This was a period of partial reaction in Eng- land; a juncture when the deductions from a few as- sumed premises seemed hardly adjustable to the condi- tions of actual life. From his ninth year, Carey was associated with his father in the business of publishing and selling books. The firm "Carey and Lea," of which H. C. Carey became a partner in 1814, was the leading publishing house in America. He read most of the works sent in for pub- lication and republication. In this way, he secured his education. His assiduous labors and good memory soon made him the best equipped economist in the United States. ^ *= Marshall, A., Principles, 321 n. 3 Elder, Wm., Memoir of H. O. Carey, 32. Livermore, C. H., Polit. Sci. HENRY CHARLES CAREY 113 "Thirteen octavo volumes and three thousand pages of pamphlets remain as the fruit of his activity, besides an amount of matter, supposed to be twice as great, con- tributed by him to the newspaper press. Of his more important works, there are translations in French, Ital- ian, Portuguese, German, Swedish, Russian, Magyar, and Japanese." * Practically the whole of his philosophy, however, may be found in his Principles of Social Science. At the age of forty-two, there occurred two important events in his history: (i) he retired from business with a considerable fortune, and (2) he published his famous Essay on the Rate of Wages. ^ The immediate cause of this essay was his reading the lectures by Senior on The Cost of Obtaining Money and The Rate of Wages. With Senior, he held to the wage-fund doctrine ; but, contrary to Senior, he emphasized "real wages" rather than "money-wages." It is interesting to note that, in his first essay, he advo- cated many of the classical theories. He held to the wage-fund doctrine, and advocated free trade; yet there are embodied in this essay many of the teachings which compose his later system of thought. Carey was unsympathetic with an opponent. His iterations were vigorous. In Elder's Memoir we find statements indicating that his economy took something of the tone and temper of national prejudice. "His father, Mathew Carey, was an Irish patriot, a political exile from the land of his birth. Something hereditary may be detected running, with much of the pristine force of blood, through the life and character of the Qr., V, 553. Thompson, R. E., Article "Carey" in Stoddard's Amer. sup. to Ency. Brit. * Dunbar, C. F., article "Carey" in Palgrave's Dictionary. " Elder, Wm., Memoir, 37. Livermore, C. H., op. cit., 554. 114 THE RICARDIAN RENT THEORY son." ® "He sometimes clinched his dehverances with expletives and epithets something out of fashion in society." ^ An English traveler speaking of Mr. Carey to T. E. Leslie said, "He is a man of plain speech, and swears like a bargeman whenever Mill's name is men- tioned." ^ Professor A. L. Perry states that "he [Carey] hated England with all the fervor of a Celt" and further that "a temperament and a prejudice like this is hardly favorable to processes of logical reasoning." ^ Leslie shares this opinion in some degree. ^° But these comments should not be taken too seriously. It is difficult to believe that a man with Carey's superior intellect should personally hate all Englishmen. He was much indebted to English thinkers, among others Spen- cer and Senior; and his mention of some Englishmen is most complimentary. Desire to find the truth seems to be his one motive. Let an unfavorable doctrine come in his way, however, and he remonstrated with a Spar- tan-like vigor. That he was positive in his convictions, dogmatic, wanting in judicial temperament, over-confi- dent, and too much one-sided on many questions, cannot be denied. He was ultra optimistic ; and, to all the griefs and trials of man, he was blinded by his beautiful prin- ciple of association. He was honest, profoundly in earnest, and labored with zeal for the betterment of man. Men of this type compel reactions. They are admired or disliked, as the case may be, always in the superlative. R. E. Thompson thought that the philosophy presented by Carey "vindicates the ways of God to man," ^^ and *" Elder, Wm., Memoir, 31. ''lb., 34. * Leslie, T. E., Political Economy in the United States, Fortnightly Review, 1880, XXXIV, 502, n. 2. ^ Perry, A. L., Political Economy, 82, 83. 10 Leslie, T. E., op. cit., 501. ^ Social Science and National Economy, 30. HENRY CHARLES CAREY 115 Dr. Elder thought that Carey's Past, Present, and Fu- ture marked "an era in the history of poHtical economy, from which it may count its A. U. C, its Hegira, or its Declaration of Independence." ^- "On the other hand," says Livermore, "the college professors arose from the perusal of Wayland's Political Economy and jeered at the unbeliever. Were Ricardo, Malthus, Mc- Culloch, and Mill blind leaders of the blind? If they were, was it out of New Jersey that a prophet should arise with the sovereign balsam of feeble eyesight? [Carey then lived in New Jersey.] And with one accord, they all cried the louder: 'Great is laissez faire of the Ricardians.' " Mr. Livermore's statement is very apt, for Carey has had a small following among college professors. But in newspapers, politics, and campaign literature, possibly few men for fully a half century were quoted more on the tariff. His following among publicists has been large. He was an adviser to President Lincoln and to Secretary Chase. ^^ Carey's extremely optimistic temperament was one reason for his opposition to Malthus and Ricardo. Dif- ferences of opinion often find their origin in differences of temperament. The scientist, as such, reaches conclu- sions only through impersonal reasoning. Man, as such, too often has his conclusions biased by his own tempera- ment. The difficulty is that the scientist and the man are inseparable. There being two sides to most ques- tions, there is opportunity for the human element to load the evidence in favor of this contention or that. Ricardo was pessimistic ; Carey was optimistic. Ricardo loaded the evidence from the English conditions of 1815 ; '^Memoir, 26. 1* Livermore, op. cit., 571. Ii6 THE RICARDIAN RENT THEORY Carey loaded the evidence from the American conditions of 1848. ^^ The purpose of this chapter is to present briefly Carey's theory of rent and to contrast his views with those of Ricardo especially as to the law of diminish- ing returns. We shall find that, contrary to the general opinion, Carey never denied the theory of diminishing returns in the sense that Ricardo taught it. In order to follow Carey's criticism of Ricardian rent, I shall briefly review Carey's arguments on population. Carey overlooked the social phenomena that followed the Second Hundred Years' War between England and France. He maintained that the origin of the theory of population that Ricardo had in mind, Malthusianism, was to be found in the commercial policy of England. ^^ Following in the lead of the American economists, ^* Rae, " Wayland, ^^ Vethake,^^ Cardozo, -° and Phillips,^! and of Senior ^^ in England, Mr. Carey argues at length to prove that Malthus' geometrical and arithmetrical ratios are impossible. -^ God in his all-goodness, reasons Carey, provides for man. He admits that men perish. This, however, is not due to the niggardliness of nature, but to the insufficiency of men. ^* Chemistry teaches, he argues, that a dense population 1* Franklin, A Select Collection of Scarce and Valuable Economical Tracts, 215. Smith, Adam, Wealth of Nations, I, 72. Everett, A. H., New Idea^ on Population, Chaps. 2-3. Senior, N. W., Two Lectures on Population, 49. Marshall, A., Principles, 321-322, note. ^5 Carey, Principles of Social Science, I, 464. ^8 It would be better to say, in keeping with American thought. I'^Rae, John, The Sociological Theory of Capital (N. T., 1905), 392. 1* Wayland, F., Elements of Political Economy (Boston, 1859), 302. i*Vethake, Henry, The Principles of Political Economy (Philadelphia, 1838), 116. "0 Cardozo, J. N., Notes on Political Economy (Charleston, S. C, 1826), 35-36. 21 Phillips, Willard, A Manual of Political Economy (Boston, 1828), ''^ Senior, N. W., Two Lectures on Population (London, 1831), Lee. II, 46-52. ^Social Science, III, 267, and 349-350. 2*/&., 350. HENRY CHARLES CAREY 117 is necessary for the well-being of man. ^^ Space will not permit a full presentation of his arguments under this head of his discussion. Because of the increase in pop- ulation, the growth of association, capital, and skill, which result, will cause the land to yield more food; and by reason of a law of substitution which accom- panies the advancement of civilization, man comes to have less need for the products of the land. Man be- comes more and more dependent on plant life. Plants, on their side, must have carbonic acid gas, which is furnished them by the breath of animals. A dense pop- ulation will supply the needed animal breath, and ani- mals, a discordant element in his principle of associa- tion, will gradually disappear. Thus, man producing the carbonic acid gas and plants the oxygen, give us an example of that "perfect" economic harmony which runs through his writings. Carey's last and most important argument is that man's cerebral and reproductive functions become antag- onistic through development. Population is self-regula- tive. The power to maintain individual life and the power to propagate the species must vary inversely if over-population be avoided. If a race continues to exist, the forces destructive of it and the forces preservative of it must tend toward equilibrium. -^ In this argument, we find Carey's ultimate check to over-population. To read only his first three argu- ments, one concludes that Carey had in mind no con- ceivable limit to the propagation of man. Economic historians have, for the most part, overlooked his claim that population is self-regulative. Professor Roscher, for example, maintained that Carey had in mind no 25 ib., 319-320. Of. ib., II, 269; III, 315, 318, 325, 327. *8 0p. cit.. Ill, 46. Il8 THE RICARDIAN RENT THEORY check to over-population and cited Carey's Past, Present, and Future and Principles of Social Science to substan- tiate his contention. -^ It is true that when, in 1848, he wrote his Past, Present, and Future, he had not devel- oped the argument, and frankly stated that "the time may arrive when the world will be so fully occupied that there will not be even standing room." ^® But be- tween 1848 and 1858-59, the date when he brought out his Principles of Social Science, appeared Herbert Spen- cer's famous article on populations^ (1852), which sup- plied Mr. Carey with an ultimate check to over-popula- tion, thus rounding out his theory. ^° Carey's argument is that there is no minimum-of -subsistence margin, nor any over-population problem. ^^ Having mentioned his arguments on population, as well as the industrial and personal conditions that in- fluenced them, I shall follow his approach to the rent problem a little farther by briefly presenting certain con- cepts that are of the substance of the problem itself. Carey, as we shall see, regards land as a form of capital, and makes rent virtually synonymous with in- terest. Rent and interest find their origin in the con- flict, so to say, between the power of nature's control over man and the power of man's control over nature. In proportion to other shares of the distribuendum, rent and interest are high when nature's control is stronger, and low when man's control is stronger. Concepts having to do with man's control over nature ^ Roscter, Principles of Political Economy (Chicago, 1882), sec. cclxii, note 1. ^Past, Present, and Future (Philadelphia, 1848), 77. ^ A Theory of Population, deduced from the General Law of Animal Fertility, in Westminster Review, April, 1852. 30 Prin^ciples of Social Science, chap. 46. *i Professor Haney says that Carey preceded Spencer in this theory: History of Economic Thoii,ght (N. T., 1911), 247. Professor R. E. Thompson also makes this mistake: Stoddard's Encycl., Amer. supple- ment to Encycl. Brit., I, 722. HENRY CHARLES CAREY 119 are wealth, utility, and capital. "Wealth consists in the power to command the always gratuitous services of nature." ^- "Wealth grows with the growth of man's power over nature. The more that growth, the more feeble becomes nature's resistance, and the greater is the tendency toward acceleration of progress in the fur- ther growth of wealth." ^^ "The utility of things is the measure of man's power over nature." ^* "Capital is the instrument by means of which that mastery is ^ac- quired." ^^ In what does capital consist ? Carey says, "At one moment in the form of food ; at another, in that of physical and mental force ; and, at a third, in that of bows, arrows, canoes, ships, lands, houses, fur- naces, and mills." ^^ He speaks of "further accumula- tion of capital in the form of that higher intelligence." ^'' Capital, then, is both objective and subjective. Carey is obscure on tfiTs point. He considers interest a payment for the use of capital. Land is capital, so it would seem that a payment for the use of land would be inter- est. Rent, however, is spoken of as a payment for the use of land; so rent and interest would be the same — interest on land would be rent. Man also is capital. ^Principles of Social Science, 186. In his Miscellaneous Works, the article "Wealth: Of What Does It Consist?" he defines the term thus: "Wealth consists of the power to command the services of the always gratuitous forces of nature" (5-6). Further, "Of all tests of the growth of wealth the most certain is that which is found in the comparative power of a people for the production and consumption of iron" (lb., 10-11). His environment in Philadelpia possibly had something to do with his exalt«d opinion of the iron industry and his advocacy of pro- tection. The poet Bryant (for more than half a century editor of the New York Evening Post) thought Carey's opposition to orthodox economy was due to mercenary motives (Carey's Miscellaneous Works; article, "Financial Crises: Their Causes and Effects"; Brj'ant quoted 15-16). T. E. Leslie thought Carey's economy as much a product of Pennsyl- vania as was its iron and coal (Fortnightly Review, 1880, XXXIV, 503). Professor Perry was of the same opinion as Leslie (Political Economy, 18th ed., 83). '^^ Miscellaneous Works. Article, "Wealth: Of What Does It Consist?" 11. ^* Principles of Social Science, I, 179. ^Jb., Ill, 50. 38/6. »^ lb. 120 THE RICARDIAN RENT THEORY Why, then, would not wages be interest? Wages and interest, however, are regulated by different laws. They move up or down in opposite directions. These remarks are justified by statements throughout his works and by criticisms of him on his confusion of terminology. Concepts having to do with nature's control over man are value and cost of reproduction. "Value is the measure of the resistance to be overcome in obtaining those commodities or things required for our purposes — of the power of nature over man." ^^ In the same chapter, we are told that the idea of value "is simply our estimate of the resistance to be overcome, before we can enter upon the possession of the thing desired." ^^ This chapter contains expressions of which the follow- ing are characteristic: "What are the things to which he attaches the idea of value?" "He attaches no value to the light." "How much is the value he attaches to the chair upon which he sits?" etc., etc. One of the definitions quoted above is subjective and the other objective. The relative values of commodities are determined by their labor-cost of reproduction. "In exchanging, the most obvious mode is to give labor for labor." *° For short, value : value : : labor-cost of repro- duction : labor-cost of reproduction. *^ His greatest confusion comes from attributing value to man. Of the utility of man he says, "The greater that utility, the higher is his own value, and the less that of the things he needs. The cost of reproduction steadily declining, he himself as steadily rises, every ^Principles of Social Science, 1, 158. 39 /b., 148. ^Ib., 151. ^"^ Marshall makes Carey's value a money-cost-of -reproduction concept. Carey himself, on the value of a good, spoke of the human effort re- quired for its reproduction (Cf. Marshall, op. cit., 401, Carey, Principles of Social Science, I, 151). Marshall says normal cost of reproduction and normal cost of production are convertible terms {lb., 401). HENRY CHARLES CAREY I2i reduction in the value of existing capital being so much added to the value of the man." *- "The value of man, like that of all other commodities and things, is meas- ured by the cost of reproduction, and not by that of production." *^ These statements are not in harmony with value as nature's control over man. They indicate that value is man's power over nature. How does this differ from wealth, man's power over nature? How does the idea that "a greater utility in man means a higher value in man" harmonize with "the two [value and utility] ** thus move in opposite directions, and are always found existing in the inverse ratio of each other" ? *^ Incon- sistencies such as these confuse the argument. Yet the general relationship seems to be that value is nature's power over man and that it is limited by cost of repro- duction. Wealth is man's power over nature, utility is the measure of this power, and capital consists in the means or instruments which give this power. *^ Since rent is a payment for the use of land, it is pro- portionately high or low as the value of the land is high or low. This leads us to the rent problem. On rent, *^ he presents two arguments: (a) Land is capital; rents grow proportionately less; (b) The natural order of cultivation is from poor land to rich. First. Land is capital. The clay through which the farmer guides his plow is subject to exactly the same law as when it has passed through the potter's hands ^Principles of Social Science, III, 111. «/6., 130. " Parenthesis mine. 4^ Principles of Social Science, I, 179. ••* Roscher, Principles of Political Economy, I, sec. 5, note 4. '"Principles of Social Science, I, v. Speaking of his work of 1837, Carey said of himself, "He had already satisfied himself, that the theory presented for consideration by Mr. Ricardo, not being universally true, had no claim to be so considered ; but it was not until ten years later that he was led to remark the fact that it was universally false." 122 THE RICARDIAN RENT THEORY and has been converted into china and earthenware. It is a universal law that governs matter. *^ "If we can show that the land heretofore appropriated is not only not worth as much labor as it has cost to produce it in its present condition, but that it could not be reproduced by the labor that its present value would purchase, it would be obvious to the reader that its whole value is due to that which has been applied to its improvement."*^ Again, "There is not, throughout the United States, a county, township, town, or city, that would sell for cost; or one whose rents are equal to the interest upon the labor and capital expended." ^^ Quotations and arguments from his works might extend over pages, all to the effect that capital in land differs in no respect from that invested in machines. In fact. President Walker remarks that, "The trouble with Mr. Carey's argument is its super-abundance of proof." " In other words, before appropriation, land is a free good, like air and water. Its value is due to the labor employed in its appropriation and improvement. ^^ "Im- provements" is broad enough to include roads, canals, churches, and the like. ^^ Land being capital, rent is only a form of interest. As progress, invention, and skill advance, the cost of reproduction declines. There- fore rents proportionately decline; proportionately, of course, to the products of the land. ^* ^Principles of Social Science, I, 164. ^ Principles of Political Economy, I, 102. ^ Past, Present, and Future, 60 ; almost the same wording in Principles of Social Science, I, 168. !si Walker, F. A., La7id and its Rent, 77. ^2 Principles of Political Economy, I, 129, 130. ^Principles of Social Science, I, 168. ^ Doubtless J. S. Mill and F. A. Walker are the strongest, at least among the strongest, critics of Carey's cost-of-reproduction concept. Mill omits cost of reproduction in his criticism of the point. Take this from his argument, and Carey himself would not recognize it. J. S. Mill, Principles of Political Ecori'Omy (Ashley ed., London and New York, 1909), 430-432. See MacLeod, The History of Economics, London (1896), 590-592, on self-contradiction of Mill on rent. Walker makes the stronger criticism (Land and Its Rent, 75-88). In a later work HENRY CHARLES CAREY .123 Second. The natural order of cultivation is from poor to rich soils, from the dry, sandy soil of the hillside to the rich lands of the valley. Since this argument is aimed at Ricardo, we will give it as follows : ( i ) Incon- sistencies of Ricardo. (2) Why Ricardian rent is gen- erally accepted. (3) It depends on a single supposition. (4) Statement of Carey's argument. (5) Deduction: rent proportionately declines. After an introduction replete with irony as to Ricar- do's "great discovery," he turns to the college professors and compares them to the followers of Mohamet in regard to the Koran. Their insolvable task is to deter- mine what it is they are required to believe. Those who follow Ricardo are economists par excellence : anything short of absolute faith in him is heresy, worthy of ex- communication, contemptible. The professor "having studied carefully the works of the most eminent of the recent writers on the subject, and having found no two of them to agree, he turns, in despair, to Ricardo him- self, and there he finds, in the celebrated chapter on rent, contradictions that cannot be reconciled, and a series of complications such as never before, as we believe, was found in the same number of lines. The more he studies, the more he is puzzled, and the less difficulty does he find in accounting for the variety of doctrines taught by men who profess to belong to the same school, and who all agree, if in little else, in regard- ing the new theory of rent as the great discovery of the age." ^° this author advocates cost of reproduction. He speaks of it as "beyond the reach of discussion," {International Bimetallism, 25-29). Professor J. W. Jenks expressed the opinion that Carey's theory of a constant decline in value, including agricultural products, is that he had in his mind's eye the United States where, as a result of free and abundant fertile lands, agricultural produce had still a low cost of production (Jenks, Henry O. Carey as Nationalokonom, 30, 31). ^ Past, Present, and Future, 17-18 (quotation from p. 18). 124 ^^^ RICARDIAN RENT THEORY Why, then, is Ricardo's theory generally accepted? At first sight, it looks, however, to be exceedingly simple. Rent is said to be paid for land of the first quality, yielding one hundred quarters in return to a given quantity of labor, when it becomes necessary, with the increase of population, to cultivate land of the second quality, capable of yielding but ninety quarters in return to the same quantity of labor; and the amount of rent then paid for No. i is equal to the differ- ence between their respective products. No proposition could be calculated to command more universal assent. Every man who hears it sees around him land that pays rent. He sees that that which yields forty bushels to the acre pays more rent than that which yields but thirty, and that the difference is nearly equal to the difference of product. He becomes at once a disciple of Mr. Ricardo, admitting that the reason prices are paid for the use of land is that soils are different in their qualities, when he would, at the same moment, regard it as in the highest degree absurd if any one were to undertake to prove that prices are paid for oxen because one ox is heavier than another ; that rents are paid for houses because some will accommodate twenty persons and others only ten; or that all ships command freights because some ships differ from others in their capacity. ^^ Ricardo's whole theory is based upon a single sup- position. After reducing the theory to six brief state- ments, he (Carey) says, "It will be perceived that the whole system is based upon the assertion of the exist- ence of a single fact, viz., that in the commencement of cultivation, when population is small, and land conse- quently abundant, the soils capable of yielding the largest return to any given quantity of labor alone are culti- vated. That fact exists or it does not. If it has no existence, the system falls to the ground. That it does not exist ; that it never has existed in any country what- soever; and that it is contrary to the nature of things that it should have existed, or can exist, we propose now to show." ^'^ ^Ih., 18, 19. ^ lb., 23. HENRY CHARLES CAREY 125 So much for Ricardo's single supposition and what Carey proposes to show. What is Carey's argument on the point? He reverses the Ricardian order of cul- tivation. In the first settlement of a new country, Ricardo thinks that No. i, the 40-bushels-to-the-acre tract, would be first occupied. When population multi- plies to the extent that it is necessary to cultivate No. 2, then rent begins on No. i — the rent being the difference between the two, or 10; and so on. In the first settlement of a new country, Carey thinks that the poorest tract, say No. 5, will first be occupied; and, with the growth of population and wealth, 4, 3, 2, and I will successively come into cultivation. Carey'? reasons are that the richer lands offer greater resist- ance than half -civilized men, or needy colonists, or the few new settlers in a virgin land with small capital and no organization, can overcome. The most fertile lands are covered with dense forests; among the most general difficulties are swamps or marshes, bogs, and malaria. Through the growth of population, capital, and associa- tion, such power over nature is acquired as will make possible the utilization of the most fertile soils. ^^ From this, it follows that constantly increasing re- turns result, and "there is a steady diminution in the proportion of the population required for producing the means of subsistence, and as steadily an increase in the proportion that may apply themselves to producing the other comforts, conveniences, and luxuries of life." ^® Continuing, we find that, "Rent is paid for the im- provements which labor has accomplished for, or on, land, and which constitute items of wealth. Wealth tends to augment with population, and the power of ^ lb., cliap. I; also Principles of Social Science, I, chaps. 4, 5. ^ Past, Present, and Future, 25. 126 THE RICARDIAN RENT THEORY accumulating further wealth increases with constantly accelerating pace as new soils are brought into cultiva- tion, each yielding in succession a larger return to labor. Rent tends, therefore, to increase in amount with the growth of wealth and population," ®° etc. But, while there is an increase in the amount of rent, it must be remembered that rent or the price charged for the use of land, like prices of all commodities and things, is but compensation for the results of past labor. As cost of production becomes less, prices are lowered. Therefore, though total rents increase, rent as a share of the pro- duce of land decreases proportionately. ®^ So much for Carey's arguments on rent and the rela- tion of rent to kindred problems. I shall conclude with a comparison of these writers, hoping thereby that Carey's attitude toward Ricardo may be better under- stood. Ricardo lived in pessimistic England at the close of the Second Hundred Years' War with France; Carey lived in optimistic America during her golden age of prosperity after 1837. The first wrote in the England of 1817; the second wrote in the America of 1848. Ricardo was pessimistic — things would have been bet- ter if they had not been so bad; Carey was optimistic — things will be better because nature is so good. . The first accounted for misery through the niggardliness of nature; the second accounted for misery through the fault of man. Ricardo was a free-trader; Carey was a protectionist. The Malthusian law of population and the Ricardian theory of rent rest on one and the same hypothesis : the limited supply and diminishing product- iveness of land in its relation to human fecundity v/ith «0 76., 62. 0^ Principles of Social Science, I, 164. HENRY CHARLES CAREY 127 undiminishing power. Carey's doctrine of population and theory of rent are based on the principle of an increasing supply of land in its relation to human fecund- ity — that fecundity diminishing with the development of man. With Ricardo, labor accounts for the value of most man-made goods ; with Carey, labor accounts for the value of land and other goods. Ricardo's order of cultivation was from rich land to poor ; Carey's order of cultivation was from poor land to rich; Ricardo's rent concept is static : though he taught historical dimin- ishing returns, his formula can serve only for measur- ing static or unalterable conditions. Carey's rent con- cept is dynamic : he looks upon society as progressive, multiplying in inventions and skill and increasing its returns as it grows. Ricardo regarded land as a dis- tinct factor of production; Carey regarded land as cap- ital. With Ricardo, rent is a diflferential surplus above a no-rent margin ; with Carey, rent is interest on capital in the form of land. The first thought that improve- ments caused a decrease in total rent ; the second thought that improvements caused an increase in total rent. Ricardo taught that rent increased while labor received less and less on a declining margin ; Carey taught that rent proportionately declined while labor received pro- portionately more and more on a rising margin. To one, increased numbers meant diminishing returns and ris- ing rents at the expense of profits and wages ; to the other, increased numbers meant increasing returns and rising wages at the expense of rents and profits. Both were successful business men. Neither was a college man. Either ranked as the strongest contemporary econ- omist of his nation. After all, the fundamental, the one point between Carey and Ricardo, in this connection, is diminishing returns. It is true that Carey said "no" 128 THE RICARDIAN RENT THEORY when Ricardo said "y^s"; Carey considered his doctrine the direct opposite of that taught by Ricardo. Differ- ences in the order of cultivation present no fundamental distinction in this question. The philosophy of Ricardian rent refers to lands under cultivation at the same time. Recent studies justify Carey's contention in many in- stances as to the historic order of cultivation. Grant the point, yet Ricardo's law of rent is untouched. Not historic orders, but lands under cultivation at the same time, present the basis for a differential rent-doctrine. That Carey said "no" when Ricardo said "yes," is taken by critics to be the backward and forward looking faces of the same proposition. This, however, is but another instance of the common fallacy of mistaking different things for the same thing. This I will show through a consideration of the essence of the whole controversy — diminishing returns. Since Carey was not specific on the point, he leaves us to interpret his fundamental, possibly his subconscious philosophy of this question. In my judgment, there are three, and only three, possible interpretations : 1. There is a declining demand for commodities as society approaches a more perfect association, and mean- while there are increasing returns from land. In other words, while the supply of commodities is constantly increasing, our needs are constantly decreasing. 2. Another interpretation — and that the general one — is that Carey denied outright the law of diminishing returns as Ricardo used it. 3. Carey passed by diminishing returns in agricul- ture, and reasoned with a land-supply concept in mind. Regarding the first of these, Carey, after arguing for a tendency to substitute vegetable for animal foods, and for increasing powers of augmenting supplies of neces- HENRY CHARLES CAREY 129 sities as man approaches a more perfect state of associa- tion, said, "The better his clothing, the less is the waste of his body, and the less his need for food." ®- Further, *^ "Look, therefore, where we may, we find, throughout nature, a constant tendency towards the perfect adapta- tion of the earth to the wants of a growing population — each and every increase in the power of association and combination being accompanied by diminution in the quantity of raw material required for the mainte- nance of human life, and increase in that which may be obtained in return to any given amount of labor." ®* Few men have been criticized more severely than Carey, yet no one has been so cruel as to accuse him of being serious on this point. This does not enter in as a part of the body and substance of his philosophy. It must be considered alone — isolated from the body it is presumed to serve; it is a kind of philosophical comet blazing up for the moment, contrary alike to law, order, and common sense. Why did Carey compel the farmers to move to more fertile soil, if the soil they were on was constantly increasing its returns and the needs were constantly diminishing? The fact is that Carey, at this point of the discussion, has in mind a primitive econ- omy. ®' This is no ultimate doctrine. That animals, well housed and protected from freezing weather, rains, and snow, require a less amount of food to preserve them in the same state of health and vigor, is beyond discussion. That warm clothing, sanitation, and com- fortable housing for people mean a less waste of body, and a somewhat less absolute need for food, is a mat- ^" Principles of Social Science, III, 318. '^ lb., Ill, 319. Also ib., chaps. 46, 47, bear on the point. *>* Mr. Carey should have remembered that clothing and general com- forts make a demand on the land as much as food does. ** I take it that needs vary in relation to the standard of living: in a primitive economy needs are absolute essentials ; in an advanced econ- omy they correspond to the character of desires. I30 THE RICARDIAN RENT THEORY ter of common knowledge. But at this point the analogy between men and beasts breaks. What the desires of horses and cattle were a thousand years ago, they are to-day. Man's desires, however, are progressive; they mount with every additional opportunity for gratifica- tion. Desires are the motive force of economic activity, and it follows that dynamic progression — the centre of Carey's philosophy — is based upon desires for more and better goods. To accuse him, then, of advocating the point beyond a primitive economy, or at least beyond the point where man has secured conveniences to con- serve his animal heat, is to accuse him of contradic- tion so serious as to wreck his whole philosophy. Upon the second possible interpretation, much less is to be said. Ricardo limited land, labor, and capital to definite units, and gave them a mathematical expres- sion. Not to limit the land factor is, I submit, to dodge or pass over the diminishing-returns issue in the Ricar- dian sense. This Carey did. There is not a sentence in his hundreds of pages on rent and population which claims that constant expenditures on a limited specific area bring an ever increasing return. His was a differ- ent theme — from poor land to fertile, which I shall term a land-supply concept. His reasoning was upon an en- tirely different basis. He did not preach increasing returns on a limited area of land. '^^ If a farm on the hill-side showed constantly increasing returns, it would soon be more productive than the low lands. If the farmer's first expenditure, or first dose, on the limited area, yields lo, his second 12, his third 15, on up to 100 8^ Sherwood, S., Tendencies in American Ecowomie Thought. Professor Sherwood argues to the effect that Carey did deny Ricardian diminish- ing returns, and, so far as I know, gives the hest availahle argument for that contention. Professor Sherwood, however, makes no distinction between diminishing returns on a limited area under static conditions and diminishing returns relative to the whole industry over a long period of time (20-23). My contention is that the two are essentially different. HENRY CHARLES CAREY 131 and beyond, what possible excuse could he have for moving to the low lands? There is no evidence that Carey regarded the process of moving as a particular source of large fortunes. While Ricardo based diminishing returns upon his- toric conditions, his formula or his mathematical ex- pression of it was static, and could serve only as a meas- ure of static conditions. He assumed conditions in a given state of advancement. At the same time, he recog- nized the Malthusian tendency of population to out- strip the means of subsistence. Thus he yoked a static with a dynamic concept. Consequently, he over-empha- sized the principle of resistance in agricultural industry, to the neglect of inventions in the industry as a whole. His prophecies as to resulting conditions were, conse- quently, extremely pessimistic. They have been falsified both in England and America. It was this that raised the ire of optimistic Carey. The conclusion is that the first two of these possible interpretations were not entertained by Carey. He never thought that, as civil- ization took a higher form and became more complex, our needs and demand for goods would diminish. Neither did he believe that the application of more and more units of labor and capital on a limited area would show constantly increasing returns. Yet he preached increasing returns. This brings us to the third, and to what I believe to be the correct, interpretation of his idea of returns from land. It must not be forgotten that his thought was dynamic, that his environment was one of growth and change, and that, in conformity, his economy was dynamic. To him, land was not a fixed factor in production as it was with Ricardo. The limited-area concept was absent from his reasoning. Diminishing returns to him were quite dif- 132 THE RICARDIAN RENT THEORY ferent from a mere denial of diminishing returns in the static sense in which Ricardo conceived them. The problem to him was a dynamic one, over a long period of time. He conceived returns in the light of growing skill, and of industrial and technical developments, that multiply with the growth of capital and population. In- creasing power results in the better utilization of land, in the harnessing of new lands, in the substitution of richer, better lands for old lands. Growing power to increase the land-supply or real productive power of the earth was, I submit, the central idea in Carey's reasoning on returns. This was no denial of Ricardian diminishing returns. Their problems were entirely different — static and dynamic returns are dif- ferent species. Carey's writings are on the border line, if indeed they do not suggest what I believe to be a truer statement of proportionality than has been given. Recent thought, however, seems to owe more to Hobson, ^'^ Clark, ^^ and Cannan, ^^ because of their extension of the application of the rent-doctrine, than to older writings on the sub- ject. To avoid reading trains of thought into Carey which belong more to recent writers, I shall assume full responsibility for the following remarks, which, it is hoped, will present a truer statement of the differ- ence between Ricardo and Carey. Land, like labor, money, or tools, is a productive factor. The supply of productive factors is measured by their yield and not by their bulk. The number of laborers does not tell us the supply or productive power ^ Hobson, J. A., The Law of the Three Rents, in Quar. Jr. of Eco- nomics, 1891, V, 263-288. "^ Clark, J. B., Distribution as Determined by a Law of Rent, in Quar. Jr. of Eco., 1891, V, 289-318; A Universal Law of Economic Variation, in Quar. Jr. of Eco., 1894, VIII, 261, ff. ^ Cannan, E., Origin of the Law of Diminishing Returns, 1813-15, in Economic Journal, 1892, II, 53-69. HENRY CHARLES CAREY 133 of labor. We must know of their skill, strength, and organization. The number of dollars does not tell us the supply of money; the value and rate of turnover of these dollars must be known. With the land-supply, the case is not different. The land-supply is the avail- able force or power to do the land-work. The land- supply consists of available or effective utilities and not of potential utilities which may be harnessed in the future, or when new conditions arise. Location, fertil- ity, and intensity of cultivation must be considered, as well as area, when reasoning on the land-supply. Any productive agent is economically non-existent until its potential utilities become effective utilities. ^° Gold at the bottom of the sea is economically non-exist- ent because it has only potential utility. Gold in a na- tional bank is economically existent; it has effective utility. The effective utiHty of land is the supply of land; the swamp lands, in the Carey use — all lands, under given industrial conditions, which are beyond man's control, which in no way contribute or can be made to contribute to his needs — are economically non- existent. They are no part of the economic supply of land. No one claims that fur-bearing animals in the wilds of Siberia, beyond the reach of man, compose a part of the supply of furs. Yet their name is legion who affirm that the supply of land is fixed, thus includ- ing lands impossible of utilization under existing circum- stances. The greatest enemy of some of their ideas is other of their ideas. Canals, like the Panama, that will make possible the drainage and cultivation of lands TOVeblen, T., On the Nature of Capital, in Quar. Jr. of Eco., August, 1908, 523. Commons, J. R., says, "The gifts of nature become capital as soon as they are utilized by man. Before they are utilized, they have no economic significance and are, therefore, neither capital nor land, in the economic use of those terms." The Distribution of Wealth, 137-138. 134 THE RICARDIAN RENT THEORY whose utility previously had not been dreamed of; rail- roads extending quick, cheap transportation into the interior, thus converting waste lands into corn and wheat fields; extensive systems, of irrigation that banish na- ture's lottery of seasons and rains — these are increasing the effective utilities, the land-supply, extensively. Sub- soil plowing — working down into the earth, building upon the soil, any means of more intensive cultivation — ^any means of compelling a limited area to contribute more to the needs of man than before, is to convert potential into effective utilities — to increase the economic land-supply. This does not mean that potential utilities are without influence on supply: let the demand become stronger, and force is applied to the harnessing of poten- tial utilities. It does mean that potential utilities are not a part of the supply. Not to distinguish between "amount of land" and land-supply is a source of confu- sion. '^^ More intensive and more extensive utilization result in precisely the same thing — more effective util- ities, a greater land-supply. For the economist to reason on the acre-basis rather than on an effective-utility-basis, is to shift from an economic to a physical point of view. An acre of land is an acre of land, be it on the top of Mt. McKinley or on Wall Street. What of their productiv- ity, their value, their capitalization ? These are economic questions. The acre is a mere measure, an area-test, of a physical entity — that is all. In old or new lands, potential utilities resist being harnessed; some such utilities are further than others below the margin of utilization. This is a matter of degree, not of kind. Whether extensive or intensive, such utilities resist being harnessed. This may be ■"Fetter, F. A., The Principles of Economics (2d ed.), N. T., 1910, 155-158. HENRY CHARLES CAREY 135 termed "the principle of resistance." This brings us to a further conclusion of great significance, heretofore unnoticed, namely, that it is impossible to tie down any one agent in our reasoning on proportionality, and to treat it as a limited, or definitely fixed, factor. These truths, differentiation between effective and potential utilities in determining supply and the principle of re- sistance, are applicable to all productive agents. They are illustrated by the discussions on the quantity theory of money. Their essence is embodied in such expres- sions as "The nimble sixpence does the work of the slow shilling." ^- "The money force, or supply of money, is composed of two factors — the amount of money and the rapidity of circulation." '^^ Resistance is here implied, of course ; else one coin would be a national supply. The reasoning applies to horse, laborer, machine, and all productive agents, in the same way and for the same reasons that it applies to land and money. If it be realized that a product is, under complex industry, a resultant of numerous indirect agents, ^* and that all indirect agents are alike subject to the "principle of resistance," it follows that "diminishing returns" is simply a law of proportionality, with no fixed factors ; ^nd that all factors are adjusted, or the attempt is to adjust them, so that the maximum efificiency of produc- tion will result. Such adjustment, equilibrium, or pro- portionality is an industrial ideal, and all efforts to attain it are, and must be, based upon the general prin- ciple of resistance. In America, where land was so rich and abundant, ■'^ Walker, F. A., Political Economy (Adv. Course, 3d ed.), N. T.> 1888, 131. ''■'^Ib., 131. '* See example of the day laborer's coat. Adam Smith, op. cit., I, 13. 136 THE RICARDIAN RENT THEORY economic advancement was striving toward that eco- nomic goal — a proportionality of factors. In a new country, every step approaching that proportionality is attended with larger returns than the preceding step. Such environment produces subtle and inexplicable forces that bend action, and force thought into new channels. "American economists from the time of Carey have naturally thought of change and progress as normal, and have protested against the assumption of fixity of customs, in social institutions, in the land- supply, in the labor-force, and in the industrial pro- cesses." ^^ Now that the supply of productive agents is elastic, and that resistance must be overcome in secur- ing more effective utilities from these agents, and that a product is the resultant of numerous indirect agents, it follows that the proper proportioning of these agents must be based on the principle of resistance or diminish- ing returns. The entrepreneur's problem is largely one of propor- tionality. He must so apportion productive factors as to secure the best adjustment of means and ends. He must meet the demands of the market. This is a prob- lem of change and progress, of living force and move- ment; therefore the dynamical problem of substitution is ever confronting him. There is the double problem in proportionality of apportioning the productive factors and of apportioning the whole establishment to the extent of the market. This, should we take the space to argue it, would lead to the conclusion that, when the point of greatest net return is reached, more money would not be invested in the plant. The securing and main- taining proportionality is inseparably connected with the principle of substitution. In fact, substitution is the ''^ Fetter, F. A., Publications of the American Economic Association, 3d series, XI, No. 1, 135. HENRY CHARLES CAREY 137 means to that end. Now that diminishing returns is common to all productive agents, the proper apportion- ing of these factors in productive enterprise must be based on this general principle of resistance; therefore the principle of substitution must vi^ork in conformity with diminishing returns. '® In the cooperation of productive factors, the ideal is to secure such an adjustment as will yield the great- est net return. More of a single factor than the ideal proportion demands, is unnecessary cost. Less of a single factor than a proper apportionment demands, indi- cates unnecessary cost on the part of the other factors in the cooperation. Disproportionality means diminish- ing returns; substitutions or readjustments that bring about or approach true proportionality, will augment returns. Whether long factors will be substituted for short, or the reverse, is a question partly of anticipated value-return and partly of the comparative productive monopoly held by particular factors. For these reasons, long factors will not be increased. This would disobey the law of demand which tends to equalize marginal utilities, and would be unwise investment. In a pro- ductive establishment, land, labor, and capital are coor- dinated; and each employs the others, so to say. More- over, various competing uses are demanding each of these factors. A short factor cannot bid strongly enough to cause an increase of factors which are already too strong in the same establishment. If it could, it must be stronger than any competing use, but this would in- volve the absurdity that all competing uses are subject to still greater diminishing returns than itself. In a purely agricultural society where land, labor, and capital ■^fl See Marshall on the relationship of the principle of substitution to diminishing returns, Principles, 355-356, 435. 138 THE RICARDIAN RENT THEORY are devoted almost exclusively to agriculture, the range of substitution is comparatively limited. Alternate de- mands are few. L,and in a particular location gradually becomes the short factor as labor and capital are in- creased. The demand for adjustment increases with the growth of disproportionality. Substitution must be made; but, in the very nature of the case, the long factors — labor and capital — cannot be adjusted to the short factor, land. Land must be adjusted to the other two. It is very evident that substitution is made because of diminishing returns on a limited area. Should we assume long factors to be adjusted to a short factor, it is still true that the purpose and act of substitution is based on diminishing returns. Movement from poor land to rich is substitution based on the land-supply con- cept. Such substitution confirms diminishing returns on a limited area. '^^ We conclude that the supply of the productive powers of factors or their effective utilities is elastic, that resist- ance must be overcome in the conversion of potential into effective utilities, and that the problem of dispro- portionality arises out of differences in the degree of resistance to be overcome in apportioning factors, or in increasing the supply of short factors. Substitution by avoiding greatest resistance seeks the easiest means of increasing supply. To advocate the law of substitu- tion in production, except in cases of indifference, is logically to affirm diminishing returns. The substitution of new lands for old, or the use of new lands rather ■"" In fact, this law of substitution simple pervades Carey's whole economy. Power over nature grows with the substitution of improved instrumentalities ; from the use of the pack-saddle to the railroad car ; from the canoe to the steamer ; from the poorer to the richer soils ; from animal to vegetable products ; from the vegetable to the mineral kingdom — at every stage substituting the cheap and abundant for the costly and scarce— thus progress is exhibited in the steady advancement from savagism up to the highest attained civilization. (See Dr. William Elder, Memoir, 9.) These are of his most common expressions. HENRY CHARLES CAREY 139 than a more intensive utilization of old lands, as popu- lation and capital grow, is based on the law of diminish- ing returns. To attain superior adjustment of means and ends is, consciously or subconsciously, the ambition of all busi- ness concerns. It is the aim of all economies. This being true, the very fact that land was the short factor in the England of 1817 and the long factor in the Amer- ica of 1848, helps us to account for these different economies. With the law of substitution in mind, of which Carey made so much, I hope we are ready to state the differ- ence between Ricardo and Carey on returns. In con- formity with English conditions and with the thought of Malthus and especially Sir Edward West, we find that Ricardo's concept of diminishing returns, his statement of it, and his mathematical expression of it, were static, and were confined to a limited area. In conformity with rapidly changing conditions in the United States, and with his own way of thinking, Carey's concept of returns was dynamic. He thought of returns over a long period of time and without limit as to area. Taking this view of the question, only false reasoning could lead him to any other conclusion than that returns from land would increase with the growth of skill and science, of population and wealth. Static diminishing returns and dynamic increasing re- turns have little or nothing in common. They are dif- ferent species. To affirm the one is in no sense to deny the other. ''^ We are brought to the interesting question, Did Carey deny Ricardo's concept? We might answer that he had nothing to say on a static concept of returns rela- ■ra Marshall, op. cit, 165. 140 THE RICARDIAN RENT THEORY tive to a limited area. Seemingly he misunderstood what it was that Ricardo taught. In the absence of a specific statement, however, his teaching, as we believe, would rather confirm than deny the Ricardian concept. If not, why did he think that population would become too dense? This was his opinion in 1848 before he had found a check to over-population. Why did he look for the relief of over-population in the harnessing of new lands? Above all, the law of substitution was a salient feature of his economy. This law was so prominent that Dr. Elder spoke of it as a leading feature of Carey's writings. In Ricardian usage, land, labor, and capital were the productive factors. The essence of the problem con- fronting Ricardo was the disproportionality of these factors. Land ("being fixed") grew proportionately shorter with the increase of labor and capital. This is to say, it showed diminishing returns. Of course, re- turns are reckoned relative to the whole investment, though, in Ricardo's mind, land was the particular source of increasing costs. Moreover, the problem confronting Carey was one of disproportionality. Briefly, what were his views? Population first settles on the poor land. Capital and labor increase until land becomes the short factor. Meanwhile, increased strength enables them to appropri- ate a more fertile tract. After a time, this becomes the short factor, and so on until the most fertile tract is reached. Every movement is based on the principle of diminishing returns. We conclude that the views of these two famous econ- omists were not opposite views of the same thing. Their economics were upon different bases; two different eco- nomics from two different premises of fact and view- HENRY CHARLES CAREY 141 point ; the one was an outgrowth of industrial and social conditions in the England of 1817; the other was an outgrowth of industrial and social conditions in the America of 1848. ^^ Ricardo's diminishing returns and Carey's land-supply concept are both essential to a true law of diminishing returns. The reason for the common opinion that Carey denied diminishing returns in the Ricardian sense is, I believe, that critics have made the common shift from static conditions on a limited, specific area to dynamic condi- tions covering the whole industry over a long period of time. Taking the latter, which is an entirely different problem, Carey was right. Looking either backward or forward, to the past or to the future, the whole industry, in the historical sense, shows increasing returns. Other reasons are that only effective utilities compose the land- supply or the supply of any factor. These compose the force, the available power to perform the functions of productive factors. Proportionality is worked out upon this principle, but in all adjustments tending toward pro- portionality, the law of substitution is assumed; it is the means to that end. This law, in turn, is generally based on diminishing returns. Therefore, having shown at length, that Carey's contention was for substitution for the short factor, land, we have shown that, in reality, he confirms diminishing returns, though he nowhere specifi- cally mentions that law in the sense that Ricardo used it. It would be merely repetition to present the argu- ment of those who frankly acknowledge Carey as their master and whose writings are no more than expositions of Carey's system in the form of text-books. E. Peshine Smith was a devoted disciple whose Man- ual of Political Economy (Philadelphia, 1853) is only^ " Gide and Rist, Histoire des Doctrines Economigues, 388-389. 142 THE RICARDIAN RENT THEORY an exposition of Carey's thought in small compass. Other followers of Carey, although they do not fall within the compass of this study in that they did not write on rent, are Charles Nordhoff, Horace Greeley, Ralph Waldo Emerson, Stephen Colwell, and William Elder. Robert Ellis Thompson's Social Science and National Economy (Philadelphia, 1875) is worthy of special men- tion, not because he added anything to Carey's thought, but because of the wealth of historical evidence which he marshalled in support of Carey's views. Professor W. D. Wilson, a follower of Carey, teaches that cultivation begins "on the hillsides, or hill tops, where the woods are easily cleared, and where they are free from the dampness and malaria of the lower but more productive soils." ^° He teaches that the value of land is equal to the cost of its reproduction. ^^ He classifies land as capital. ^- Likewise on capital, wealth, and the law of diminishing returns, he is in essential agreement with Carey, although he was less optimistic. ^^ The next chapter will be devoted to Francis Bowen, who like Carey was a national economist and gifted writer. 80 Wilson, W. D., Political Economy, 92. «i/&., 92. 93. 82/&., 110. ^Ib., 308-321. CHAPTER VII FRANCIS EOWEN FRANCIS BOWEN^ (1811-1890) was born at Charlestown and died at Cambridge, Massachu- setts. He was a pupil in the common schools of Boston, attended Phillips Exeter Academy, and was graduated, the first scholar in his class, at Harvard in 1833. Immediately after his graduation, he became a tutor in Greek, and, soon afterwards, wrote the lives of some prominent statesmen for Spark's Library of American Biography. Resigning at Harvard in 1839, he spent two years in travel and study in Europe. While abroad, he met Sismondi and other notable scholars. He returned to Cambridge in 1840, and spent the following twelve years in literary pursuits. He was editor and proprietor of The North American Review for eleven years (1843-1854) ; and, in addition, he edited The Amer- ican Alm^anac and Repository of Useful Knowledge. 1 References: (1) National Encyc. Amer. Bing., XI, 452. (2) Encyc. Britannica, 11th ed., IV, 342. (3) Encyc. Americana, III. (4) Pal- grave, Uict. Pol. Econ. (by F. W. Taussig), I, 175. Professor Bowen was the author of a large number of books on a variety of sub.iects. He wrote on history, politics, education, political polity, philosophy, metaphysics, literature, and religion. Luigi Cos.sa (An Introdvction to the Study of Pol. Econ., London, 1893) said: "In more recent years the late Professor Bowen of Harvard College proved himself the ablest member of this school [The National and Cosmopolitan School], and wrote a treatise which defended the 'banking principe' and rejected the wage-fund as well as the theory of rent. He further denied the practical value of Malthus' views for America, where the farmer owned his own land and every workman was a capitalist." Professor Taussig said: "His economic ■WTitings in the main are in the nature of text-books, stating and illustrating the doc- trines of the classical economists. But on the subject of international trade he diverged, and reasoned in favor of the doctrine of protection. He laid stress on the need of national independence, and of aiding young industries; and he made application also of Mill's reasoning as to the possible effects of duties on the play of international demSnd (Palgrave's Dictionary, 1894 ed., 175). 144 '^^^ RICARDIAN RENT THEORY He delivered two courses of lectures on metaphysical and ethical sciences during the years 1848-9 at Lowell Institute. In 1850, he was elected professor of history at Harvard. But he had taken the unpopular side on the Hungarian question in his articles contributed to The North American Review; and as, for this reason, the Board of Overseers failed to concur with the cor- poration, he retained his position only six months. Three years later, however, he was elected Alford Professor of Natural Religion, Moral Philosophy, and Civil Polity, a position which he retained to within a few months of his death. He was profoundly rehgious, a staunch defender of the Bible, and an opponent of Darwinism. His religious convictions so pervaded his thought that a strong theo- logical element is made the basis of his system of eco- nomic science. A deep devotion to religion colored his every principle and thought. The decade previous to the Civil War was not pro- lific of works on economics. The stimulus afforded to our economists by English publicists ceased to be active after Mill's publication in 1848. A furious tariff strug- gle at an earlier date was the direct cause of numerous works on political economy, but this issue had been set- tled for two decades. Currency and banking had ceased to be paramount issues. The great sectional question so engaged the attention of the public that considerations primarily economic were reduced to a subordinate rank. It was in this period (1856) that Bowen's book ap- peared. Professor Dunbar tells us, however, that the book was compiled by the author's throwing "into con- nected form a long series of articles and lectures pro- duced by him in the preceding ten years." ^ Recasting 2 Dunbar, Essays, 12. FRANCIS BOWEN 145 familiar materials, the author succeeded in adding a freshness to the old topics by a discussion often vigor- ous and full of emotion. Bowen had unbounded faith in his country ; his book produces on the mind an impres- sion like that which the young America it describes makes upon the imagination. It overflows with hope- ful energy, like that which brings encouragement to the unsuccessful worker in the crowded places of the Old World, when he thinks of a new country to which he may carry his willing hands and his ambitious hopes. Our author was a national economist ; he entitled his work American Political Economy. His method of rea- soning and the character of his economic studies made descriptive writers like Samuel Laing particularly inter- esting to him. His own work so abounds in the descrip- tion of conditions that he loses sight of fundamentals. He fails to see the woods because of the trees. It can- not be said that in his whole discussion on rent, he either tells what the rent-thing is or gives any positive theory to account for its origin, its increase, or its dim- inution. Though defining political economy as a science, he proceeds to treat it as an art. His splendid com- mand of English together with his habit of introducing profound questions tends to make his work charlatanic, wheedling, sentimental, and, at times, deceptive through a skillful use of fair words. The title, American Political Economy, ^ deserves comment. In the preface to this work, he says, "The title under which the book now appears may seem to require defense or explanation. I hold, with Mr. Samuel Laing, that 'every country has a Political Economy of * The title of his edition of 1856 was, The Principles of Political Econ- omy applied to the condition, the resources, and the institutions of the American People, the edition of 1870 was titled, American Political Econ- omy, etc. 146 THE RICARDIAN RENT THEORY its own, suitable to its own physical circumstances of position on the globe/ and to the character, habits, and institutions of its people." * He admits that certain economic principles are gen- eral, and applicable to "all nations under the sun." "But," says he, "it must be admitted, I think, that these universal principles are comparatively few and unim- portant, and if the science were limited to them, it would be of narrow compass and limited utility." ^ Professor Bowen believes that the science must be treated inductively, and that, although Ricardo, J. S. Mill, and their followers professed to treat the subject deductively and in the abstract, so that their conclu- sions could be universally applicable, yet "The system which they expounded is really the Political Economy of England alone, and is even more characteristic and peculiar than her social organization and civil polity." ^ He claimed with truth that English circumstances and problems received undue attention , as compared with other problems of equal importance in a well rounded system of distribution. Bowen's starting point, or first assumption, is that a certain thing is desirable, that this is a good or that is an evil. His problem was to acquire the good and to avoid the evil. He would use economics as a portion of that art of statesmanship. Bowen insists upon the utility of laissez faire and of the natural order, yet he makes a plea for governmental restraint both internal and external. He is anxious to preserve "the benevolent purpose of the Designer" which turns the course of the self-chosen effort of individuals toward the common defense and the general prosperity of all. He tells us ^ Bowen, American Political Economy (2d ed.), iii. ^ lb., iv. ' n., V. FRANCIS BOWEN I47 that the attempts of legislators to turn the industry of society in one direction or another, out of its natural and self-chosen channels are almost invariably product- ive of harm. Yet the leading characteristic of his entire work is an elaborate defense of protection. Under his treatment, laissez faire acquires a somewhat ludicrous sense. The laisses faire that Bowen conceived would not ask the government to keep its hands off of industries ; rather it would preserve precious liberty to the individual by tying the hands and feet of everybody else, lest he should be interfered with. ' Bowen thinks the benevolent purpose of the Designer is to cause the acts of those who are thinking only of their own credit and advantage to benefit others. ^ "We are all servants of one another without wishmg it, and even without knowing it ; we are all cooperating with each other as busily and effectively as the bees in a hive, and most of us with as little perception as the bees have, that each individual effort is essential to the common defense and general prosperity. ^ Bowen advocated limitations of the laissez faire doc- trine. Legislative prohibition of vice and crime only remove stumbling blocks that obstruct the working of the natural laws. "To remove such stumbling blocks, then, is not to create, but to prevent, interference with the natural order of things. Legislation directed to this end is only a legitimate carrying out of the laissez faire principle." " He extends this principle until it encom- passes the prevention of external dangers and hind- •r North American Reviev>, (July, 1870) HI. .246 Bowen PoWi^ai Economy, ed. 1856, 20, 23, 27. Bowen, Amerccan Pohhcal Economy, 18-22. "Bowen, Political Economy (1856), 20. «7b., 27. !»/&., 23-24. 148 THE RICARDIAN RENT THEORY ranees, and allows for retaliatory legislation as between nations. ^^ In his estimation, differences in the economy of na- tions make necessary certain restrictive legislation in order that the people of a nation may thus procure larger liberty than they would otherwise enjoy. Our author's conception of the principle of laissez faire makes this doctrine a basis, or rather a demand, for a protective tariff. Bowen's opinions on value and wealth are very unlike those of the English economists. Because these opinions are preparatory to the rent problem, I shall now review them. His reasoning on value is strictly limited to the concept of exchangeable value. ^" Exchangeability de- pends on the utility of a commodity together with its difficulty of attainment. ^^ Then, too, he says, the value of a machine may be either the labor which it saves, or the labor which it costs. Thus, in his discussion of value, at least three unlike concepts appear. His definition of wealth is broad enough to include those agencies, material or immaterial, which render gratification to our desires. He says : Many Political Economists exclude immaterial products from their definition of wealth because the labor which is devoted to such products ends in immediate enjoyment, without any increase of the accumulated stock of permanent means of en- joyment. "When a tailor makes a coat and sells it," argues J. S. Mill, "there is a transfer of the price from the customer to the tailor, and a coat besides, which did not previously exist; but what is gained by an actor is a mere transfer from the spectator's funds to his, leaving no article of wealth for the spectator's indemnification." We reply, that the purchaser obtains only a gratification of desire in either case. From the coat, he has moderate enjoyment prolonged for some months; but he might do without it, and work in his shirt-sleeves. From ^Ib., 25. ^ Bowen, American Political Economy, 33. '^ Bowen, Political Economy, 32. FRANCIS BOWEN 149 the theatre he has keen enjoyment that lasts only a few hours; and he may prefer such pleasure to the luxury of additional clothing. It is inconsistent to give the name of wealth to what pleases our palates for a moment, and deny it to what gives keener pleasure to our ears. The characteristic of all wealth is, directly or indirectly, to satisfy some want, or gratify some desire. Food which is ready to be eaten is wealth, just as much as the knives and forks with which we eat it; though the former is devoured at once, and there is an end of it, while the latter may remain in daily use for years. ^* This reasoning attaches the concept of weaUh to usance rather than to productive agents themselves. In fact, his whole thought seems to center on returns rather than upon the nature of the agency giving origin to returns. Consequently personal services, the produce of capital agencies, and the produce of the land would be treated by the same law. Then, as we shall see, he finds profits and rent to be one and the same thing. His distinction between them is only in name. "Malthus on population and Ricardo on rent are the great dragons against which he feels bound to do vigor- ous battle." ^^ True to his environment he claims that "down to the present day, the only evil which has been felt has been, not an excess, but a deficiency, of popula- tion." ^® He dwells upon the ambiguity of the word "tendency" in the discussion of Malthus, and paints a most horrible picture of the consequences of that author's reasoning. ^^ After stating the Malthusian doctrine and pointing out its consequences, he, taking the theological point of view, says : "I hope to prove satisfactorily, that the doctrine itself is a mere hypothetical speculation, hav- ing no relation to the times in which we live, or to any ^* Bowen, American Political Econo')ny, 1-2, note. '^^ North American Review, July, 1870, III, 246. " Bowen, Political Economy, 137. "/&., 139-140. I50 THE RICARDIAN RENT THEORY which are near at hand. In those facts which appear so alarming to the Malthusians, I see only indications of a beneficent arrangement of Providence, by which it is ordained that the barbarous races which now tenant the earth should waste away and finally disappear, while civilized men are not only to multiply, but to spread, till the farthest corners of the earth shall be given to them for a habitation." ^® Taking the dynamical concept of returns, he claims that if population increases even in a geometrical ratio no scarcity would be produced for centuries. "The great and palpable error of the Malthusians consists," he de- clares, "in assuming, without a particle of evidence, nay, when all the evidence tends to the contrary, that the time has already come, that population has reached its limits, that there is even now a deficiency of food so that the only present mode of increasing the happiness of the lower classes is to lessen their numbers." He claims that Malthusianism is, in its simplest form, only an expression of a law that belongs both to the vegetable and animal kingdoms. He admits the truth of its tendency, yet claims that it has no applicability to the present state of affairs. He thinks that the appli- cation of this doctrine to the affairs of man is as remote as the loss by the sun of its heat. But if a person begin to economize oil, candles, and fuel, for that remote day, "his friends would reasonably be alarmed for his sanity, and would urge him to retire for a while to a mad- house." ^^ He shows that the population of Belgium (1846) was 344 persons to the square mile. They lived in comfort. From this example, he conclndes that the time is beyond 18/&., 141. !»/&., 141-2. FRANCIS BOWEN 151 our imagination when the entire earth will be as densely populated as that country. ^° He uses the argument so frequently advanced by his American predecessors, that, while there will be more work to do with the increase of numbers, yet there will be more hands to do it. At this point, he admits diminishing returns in the historical sense, but considers the principle of no particular sig- nificance. '^ He thinks that it is a faulty distribution rather than the niggardliness of nature which causes poverty. -- On this point, his views are precisely the same as those of Daniel Raymond. Erroneously, I think, he claims that a disproof of Malthusianism is found in the fact that nations, espe- cially barbarous and half -civilized nations, have, in his- tory, diminished in numbers as a result of war, famine, disease, vice, and ignorance, but that their diminution has not been occasioned by the niggardliness of nature. He says, "The wasting away of such tribes may be, in some cases, the consequence of a deficiency of food ; but it is certainly not the result of over-population ; for the civilized men who come to occupy their places, obtain from the same soil abundance of food for a population larger than theirs by twenty or a hundred fold." ~^ He cites the case of the North American Indians as an illustration. Malthus certainly would have agreed with this statement, for in his contention that population does press and has actually pressed upon the means of sub- sistence, his view was static rather than dynamic. He considered conditions at the time being. What are the facts under the existing circumstances, not what would they be under more advanced and different circum- stances, was the problem in the Essay of Malthus. 20 /b., 142-44. 21 /&., 144-45. '^ lb., 145. '^Ib.j 145-6; quotation from 146. 152 THE RICARDIAN RENT THEORY Bowen then advances the argument previously urged by A. H. Everett, namely, that with money I "can pur- chase food of my neighbor, that I can even lay the fer- tility of both Indies and of the farthest corners of the earth under contribution to supply my personal wants. Communities and nations act, in this respect, just like individuals." In other words, his thought is that a nation is not fed necessarily by the products of its own soil, but that, through exchange, any people may com- mand the products of any part of the world. There- fore, if diminishing returns in agriculture so act in a particular section of the world as to limit the necessities in that locality, the people there will turn to other indus- tries and will depend on other sections of the world for their necessities. He, like Everett, thought such an argu- ment would defeat the evil consequences of diminishing returns. ^* Such an argument, it should be noted, does not over- come the consequences of diminishing returns, but merely shows how its immediate effects may be averted. As we have seen. Cooper's reply to Everett's statement on this point seemed conclusive. This fact of the people's drawing their support from all parts of the earth is cited by Bowen as one of "the two great facts which afford a complete refutation of Malthusianism." ^^ The second "great fact" which, he claims, affords "complete refutation to Malthus," is "that the practical or actual limit to the growth of population in every case is the limit to the increase and distribu- tion, not of food, but of wealth." -® This is to say that there is, and will be, a bountiful sufficiency of necessi- ties for an augmenting population, and that the real ^Ib., 146-7; quotation from 146. 2S/&., 148. 2»/6., 148. FRANCIS BOWEN 153 problem lies in the securing of such a distribution of purchasing power as will enable the supply of necessities to be adequately utilized by all men. These two arguments are corollaries in that the one must accompany the other, in order to refute the sup- posed dictum of Malthus that population is limited by the productivity of the soil it occupies. Through a faulty distribution, he accounts for the famine of 1847 in the British Isles. At any one time, there is no gen- eral famine the world over; want in one section of the world may be supplied by other sections ; therefore, if the distribution of wealth, or purchasing power, be adequate, famine would be an impossibility. "In 1847, the bounty of Providence to the British Isles did not fail ; shiploads of corn were turned away from their shores for want of a market. The granaries of two Islands were filled to overflowing, not indeed from the products of their own harvests, but from the immense supplies poured into them by our ever-teeming land. The fate of the Irish and Scotch appeared the more terrible, because they starved in the midst of plenty." " Professor Bowen accuses Malthus of a fallacy of inversion. In reply to the contention of Malthus that population grows in response to an increase of sub- sistence, our author says : "More grain is raised because there are more men who need it, and not more men are raised because there is more grain to feed them with. Procreation is not stopped because there is no more grain, since misery and peril of starvation only make men reckless, and cause them to multiply faster. But agriculture is stopped when there are no more mouths calling for food ; a cessation of demand causes ^''ib., 149-150, quotation from 150. 154 THE RICARDIAN RENT THEORY a cessation of supply here, because the husbandman is looking only for pecuniary gain." -^ "It is not the excess of population which causes the misery, but the misery which causes the excess of population." -® Whatever aflfects most strongly the inclination to labor and to save, and thus furnishes the stimulus for the accumulation of capital, also regulates in a great degree the increase of population. Awakened ambition for the attainment of riches or for the advancement in society cause prudence in one's expenditures, and check one's contracting any relations that may become a burden to his advancement. In a normal state, the inclination of the people to marriage is governed by their opinion of the effect which marriage will have upon their position in life. ^° "In a newly settled region, children are a help to the parents' advancement, because labor is so valuable; hence the rapid advance of population in the frontier states of our own Union." ^^ He argues that children are not as advantageous to parents in case of a dense population. In this, he is in harmony with the thesis of George Tucker, namely, that the birth rate diminishes as the density of population increases. ^- His views may be summarized as follows : (a) An increased population is desirable in order better to utilize the world's natural resources. (b) By a beneficent arrangement of Providence, the barbarians shall waste away, and civilized peoples shall occupy the farthest corners of the earth. (c) Necessities will increase faster than a civilized population. (d) There are historical diminishing returns, but their ^Ih., 150-1. »/&., 152. ^ lb:, 155-6. 31/&., 157. S2/&., 160. FRANCIS BOWEN 155 evil consequences are so remote as to make them un- worthy of consideration. (e) Poverty is due, not to the niggardliness of na- ture, but to a faulty distribution. (f) Population does not depend on the land which it occupies for subsistence, but draws from every corner of the earth. (g) Population is the cause of abundance rather than of scarcity. (h) The growth of population will be limited more and more by the negative check as civilization advances. (i) In sparsely settled regions, children are an aid to their parents; but, with the increase of numbers, the birth rate will decline. Bowen regards the Malthusian theory and the Ricar- dian theory as phases of the same problem. Therefore much that has been said on the population-problem ap- plies with equal force to the rent-problem. To the pop- ulation-problem, rent is a supplement which "comes in to fill up the deficiency in our heritage of woe." He saw clearly that the rent and population theories grew out of the peculiar social conditions of England, where a small class owns the land. Feudal relations have dis- appeared there, but the magnitude of feudal estates is not diminished. English noblemen have turned their vast estates into deer-parks and the rural tenantry has been driven into the manufacturing districts. Land-monopoly, high rents, and burdensome taxes are characteristic of the conditions in England. Bowen claims that Ricardo's theory contains few gen- eral truths, and is inapplicable in other countries. Eng- land alone has a laboring class entirely dependent on wages. Ricardo's theory was invented to suit these con- ditions. American conditions are the reverse of those 156 THE RICARDIAN RENT THEORY in England. An increase of population in this country means increasing rather than diminishing returns, and a lower rather than a higher price for food and neces- sities. Bowen claims that Ricardo's main basis of rent, "the original and inherent powers of the soil," is no basis for a theory of rent; that these powers may readily be produced by labor, and will be if the location justi- fies the expenditure for such creation. He also mini- mizes Ricardo's other basis of rent, that of location. Bowen seems to think that location also is artificial. Loca- tion is nearness to population and is created or destroyed with the movement of population from place to place. From this reasoning, he reaches the conclusion that, "Rent depends, not on the increase, but on the distribu- tion, of the population. It arises from the excess of the local demand over the local supply." Rent is deter- mined either by the expense of bringing the food from a distance to the population or by the expense and incon- venience of the population going to the food. Although this reasoning accounts for both the quali- ties of land and the location of land as matters of human production, yet it implies an admission of the law of diminishing returns and proportionality. The need of transportation or of the distribution of population over the earth is occasioned only by the fact that there exists an elastic limit to the productive powers of land in any one place. ^^ Bowen contends that, with a distribution of popula- ®* This reasoning further suggests the narrow limitations which Ri- cardo's thought placed upon certain of his so-called general suppositions. For instance, Ricardo would have the movement of labor from profession to profession or from place to place to equalize wages ; now why, by a like movement of population, would he not have rents equalized ? His assumptions respecting the movement of population in the equalization of wages were general; his assumptions respecting the employment of labor on different grades of land were local in their application. FRANCIS BOWEN 157 tion over the entire land, rent would not exist, for there would be no scarcity of land relative to the demand for its products. But, he says, the development of manu- factures requires a concentration of industries, so that a division of labor can be worked out effectively. Civil- ization depends upon a development of all productive forces; therefore, such a distribution of population as would do away with rent cannot exist. Rent, then, de- pends upon the centralization of productive forces and the collection (not the increase) of population into towns and cities. Local rents depend upon local markets. From this argument, he concludes that rents are based entirely on the territorial distribution of population. Ricardo teaches, at times, that the interests of the landlord class are opposed to the interests of the rest of the community. Bowen thinks that a rise in rents works to the benefit of all classes. Farmers who pay the rent are compensated by higher prices for their pro- ducts; it is the higher prices which cause rent. More- over, they are compensated by the many advantages of being in the vicinity of a market. Manufacturers pay more for their corn where rents are high ; but, because of the same conditions which produce rents, they find a readier sale and a higher price for their products. Like Carey, Bowen claims that, where the manufactur- ing town and the farm are brought together, a positive gain results to the whole community because of the many advantages of concentrated industries. Concen- trated industries make a ready market for all products, and permit the best utilization of all productive energy. Another "positive gain to the community consists in the saving of transportation both ways." Moreover, like Carey, Bowen uses this reasoning in support of pro- tection. 158 THE RICARDIAN RENT THEORY There is but slight excuse for the error of those who claim that Professor Bowen denied the law of diminish- ing returns. His whole argument is founded upon the principle of this law as applied to a limited area. His problem is how to avert its evil consequences by a better distribution of population. The next chapter will be devoted to John Bascom and Amasa Walker: we shall find that, although these authors did not follow closely in the lead of Bowen, they were profoundly influenced by his writings. CHAPTER VIII JOHN BASCOM AND AMASA WALKER WHEN Bascom and Amasa Walker wrote/ the old problems which had inspired earlier economic writings in America had largely disappeared. A liberal reform of the tariff had long since been accomplished; the establishment of the sub- treasury was a thing of the past; and the publication of J. S. Mill's Political Economy had seemingly set at rest all economic differences by monopolizing the choicest thought, style, and method of the science. Slavery and great sectional issues had become paramount questions. This was a period of transition in which the classical school acquired greater prestige. John Bascom (1827-1911) was born at Geneva, New York. He was the son and grandson of clergymen, and a descendant on both sides of old New England families among whom were many men of influence and distinction. x'Vt the age of twenty-two, he was gradu- ated at Williams College. Then he studied law for a year, attended Auburn Theological Seminary, tutored for a time at Williams, and was graduated at Andover Theological Seminary in 1855. During the next nine- teen years, he taught English at Williams College. From 1874 to 1887, he was President of the University of Wisconsin. After leaving Wisconsin, he lectured on sociology for a period of four years at Williams. On the retirement of his life-long friend, Professor A. L. ^ Bascom's economics appeared in 1859 and Walker's in 1366. l6o THE RICARDIAN RENT THEORY Perry, in 1891, he became Professor of Political Econ- omy at Williams and held the place for ten years. In 1903, after forty-eight years of service as college teacher and executive, he resigned. The remainder of his life was given to writing and to public service. Between 1859 and 1901, he was the author of twenty-two books.^ We have seen that the training, experience, and in- terests of Bascom were in fields other than economics. In fact, among our earlier professors who taught eco- nomics, it was not considered necessary to acquire sys- temic knowledge in this subject. ^ His life was devoted largely to theology and philosophy, and his environment was the classroom and the library rather than the indus- trial world. He defines economics as the science which treats of values. * By "value," he means purchasing power ; con- sequently economics is the science which treats of pur- chasing power. ^ From this definition, logic would com- pel him to emphasize the problem of distribution, where- as, in reality, his book contains a theory of prosperity rather than a theory of distribution. With some modifications, Bascom would accept the theory of Malthus on population. He said, "Malthus made an important contribution to the science, b)?' a more enlarged discussion of population and its relation ^ His books include: (a) Political Economy (1859); (b) Aesthetics (1862) ; (c) Philosophy of Rhetoric (1865) ; (d) Principles of Psj/chology (1869); (e) Science, Philosophy, and Religion (1871); (f) Philosophy and English Literature (1874); (g) A Philosophy of Religion (1876); (h) Comparative Psychology (1878); (i) Ethics (1879); (j) Natural Theology (1880); (k) Science of Mind (1881); (1) The Words of Christ (1884); (m) Problems in Philosophy (1885); (n) Sociology (1887); (o) The New Theology (1891); (p) Historical Interpretation of Philosophy (1893); (q) Social Theory (1895). See: A Memorial serv- ice in honor of John Bascom. at the University of Wisconsin, Madison, 1911; Lamb's Biographical Dictionary, 1, 217, Boston, 1900. *Haney, History of Economic Thought^ 515. See also A. Walker, The Science of Wealth, 2d ed., VII. * Bascom, Social Theory, 119. 6/6. JOHN BASCOM i6i to food; though his statements, as is natural with one bringing forward a new principle, were one-sided and extreme, demanding the correction of later authors." ^ His reasoning on population may be briefly presented as follows : (a) The human species is capable of indefinite mul- tiplication. Labor has no limits within itself. Popula- tion tends to double itself in twenty-five years, as a result of the intrinsic productive power of man. " (b) Land is limited in amount; from it comes food; therefore, the population is restricted by the limitation of the earth's productive capacity. Population is an unlimited and immeasurable force dealing with limited and measurable quantities. "Let the boundary be placed where it may, and such a force will find it. The capacity of the globe is this boundary." ^ (c) The limits of population are always determined by the status quo of the people, by their location, knowl- edge, and habits. It matters not that the earth could produce more. Pressure is present when the limit of the food supply under existing conditions is reached. (d) This state of pressure is reached soonest where civilization is at the lowest ebb. (e) This state may be, and has again and again been reached when the population was sparse. (f) The universal tendency is for population to out- strip the means of subsistence. ® Bascom recognizes the limiting forces of both the pos- itive and negative checks to population. ^^ He bases the whole problem upon the limitations to agriculture. Brief- ly, his reasoning is that population is Hmited by capital; * Bascom, Political Economy, 17. 7/6., 118. 8/6., 119. »/b., 121-122. 10/6., 125, 126. 1 62 THE RICARDIAN RENT THEORY but capital is limited by agriculture; therefore popula- tion is limited by agriculture. " Regarding rent Bascom tells us that, "It is the de- ductive force of the law, not its historic force, that im- presses the mind." ^^ "It has been the rare exception, taking human history collectively, that the law of Ricardo has been found governing the values of land." ^^ This law has been a most complex social problem, "not because of any complexity in the law, but because of its ineffectiveness." ^* He teaches that rent is the product of natural agents, which are of two classes : those productive of material, and those productive of power. Land is the chief agent of the first class. He says that the value of land as a productive power depends on two things : its fertility and its location. The latter is more important in deter- mining the value of land. Distance and difficulty of approach may overcome the advantage of greatest fer- tility. Land serves two purposes : positions for buildings and arable surfaces. The former use gives value to only a small portion of the earth, while the latter use gives value to a large portion of the earth's surface. In this latter use, however, both location and fertility are com- bined. ^^ Our author approaches the problem of rent from the side of price rather than of the marginal land under cultivation. He 5ays, "Rent and the cultivation of the poorest grade of soil are both effects of the same cause, the rise of value in produce." ^^ Taking the postulate that there is but one price for produce in the same mar- "/6., 127. '^" Bascom, Social Theory, 123. ^3 lb. ^^Jh., 1. 1^ Bascom, Political Economy, 35-36. ^^ Bascom, Social Theory, 121. JOHN BASCOM 163 ket, he says that the differential advantage accruing to the landlord who holds superior grades of land (superior in both location and fertility) is known as rent. He says, "Difference of opportunity is the sole basis of rent; he who is in possession of the higher opportunity demands for it a recompense. This difference arises both from the limited amount of original gifts and from the variety in their intrinsic worth, in their fertility and position. This elasticity of tillage, by which it gives way, but with increasing difficulty, before advancing population, is the brake by which the motion of the train is regulated, is the rubber bed by which its movement is made pleasant and safe." ^^ Bascom holds, as did Ricardo, that rent arises from two causes : the limited supply of natural agents ^® and the difference in productive power which exists between them. ^^ He concludes, however, that differences in soil are only a measure of rent rather than a cause of rent. If the problem of rent be approached either from the cost of production under the most unfavorable cir- cumstances or from the price of produce on the market, differences in soil appear only as a measure, and not as a cause of rent. But if differences in soil are only a measure and not a cause of rent, it follows, contrary to Ricardo's thought, that rent would exist were all soils of the same quality. Rent, then, would find its sole origin in the limited capacity of the earth to pro- duce commodities. This thought, logically speaking, makes the law of supply and demand the cause of rent. That the law of supply and demand is the cause of rent, in Bascom's reasoning, is put beyond debate when he denies Ricardo's fallacy of inversion and teaches that " BascoTTi. Political Economy, 154-155. Quotation from 155. «/&., 153. ^Ih., 156. l64 THE RICARDIAN RENT THEORY the price determines the lowest margin of cultivation rather than that the lowest margin of cultivation deter- mines the price. Bascom finds a limit to the supply of produce in the law of diminishing returns (proportionality). Conse- quently, it is because of this law that rent exists. He says, "On the supposition of equal advantages in the various soils, it is the decreasing returns, which, land being all occupied, shortly begin to be made to all addi- tions of effort, that occasion rent." Double or quadruple the labor, and crops will not proportionately increase. "" Returns refer to produce rather than to value. Under static conditions, returns, after a certain point, diminish per unit of expenditure upon a given area. Though the limit to returns is never reached, yet the increasing resistance encountered in intensive cultivation leads to the occupation of new soils. Extensive cultivation is opposed by such causes as inferior soils, greater distance from markets, transfer of tools, and the like. So, while the resistance in intensive cultivation leads to extensive cultivation, the difficulties of extension lead back to intensive cultivation. The result is, that the margins of extensive and intensive cultivation tend to produce equal profits to capital. -^ Bascom had not conceived the distinction between static and historical diminishing returns. In keeping with the Ricardian school, he holds to a static condition in agriculture and to a dynamic condition in the case of manufactures. Adhering to an instrumental concept of capital, he says, "The returns of labor employed in any manufacture tend to increase by an increment greater than that due to the increment of labor. This proposi- ™ Bascom, Political Economy, 153. ^Ib., 27-29. AMASA WALKER 165 tion we state in connection with capital, as capital is the soil of this kind of labor. The increase in the returns of mechanical, as opposed to agricultural labor, is chiefly- due to two things : the ever enlarging career of inven- tion and the accumulative power of capital. In the processes of the arts, no state is ultimate, but the same powers which secured the present give promise of something beyond it." -- When Bascom wrote, there was need for a larger population relative to our natural resources. An in- crease of numbers meant an increase of national pros- perity. The harnessing of new lands, the better utiliza- tion of old lands, improvements in scientific methods, in seeds, fertilization, transportation facilities, and the division of labor, together with superior marketing facil- ities, were dynamic forces in agriculture. So powerful were these forces in agriculture at that time that it is strange that an American economist should think of diminishing returns for agriculture and of increasing returns for manufactures. The reason is, in the writer's judgment, that Professor Bascom was influenced more by the prevailing, the English, economics than by the industrial conditions of his country. Turning from Bascom, the professor, to his friend Amasa Walker, the statesman and business man, we find an economics more in harmony with industrial demands. Bascom's subtle work follows the classical economists and reflects the academic environment. Walker's book is little more than a comprehensive treatise of money and finance; it considers political economy as "emphati- cally a business science." ^^ ^2 Bascom, Political Economy, 11. ^ Walker, A., Science of Wealth, Pref., vi. l66 THE RICARDIAN RENT THEORY A brief presentation of Walker's career will account^ at least in part, for the nature of his work. Amasa Walker^* (1799- 1875) was born at Woodstock, Con- necticut. He was always feeble and delicate, but a want of physical stamina had its recompense in the impulse given him to study and reflection, and, perhaps, in a higher capacity for intellectual enjoyment. He took the utmost advantage of the limited opportunities offered by the village schools, though feeble health deprived him of the benefits of a college education. "In the intervals between the public schools, the boy used to recite to the Rev. Dr. Snell, having among his fellow pupils William Cullen Bryant and Elijah Meade." ^^ Amasa Walker had some experience in teaching; he was a business man who achieved distinct success; in politics, he was a public spirited leader. His political career began in 1829 when he entered actively into the movement against Masonry, which culminated in the nomination of William Wirt for the presidency, in 1832. He was a strong anti-slavery advocate. He took an exceedingly active part in the Harrison campaign, "stren- uously advocating the establishment of the Sub-Treasury system, as it at present exists. For this he was sub- jected to a degree of obloquy which it would be diffi- cult to conceive." ^® As a result of his long-cherished anti-slavery convictions, he took an active part in the formation of the Free Soil Party in 1848. He was a member of the national convention which nominated Van Buren for the presidency. In the fall of that year, he was elected to the legislature in Massachusetts and "^Palgrave, 1899, III, 648-649. Int. Encyc. Amer. Biography, XI, 438. Memoir of Hon. Amasa Walker, by F. A. Walker, Boston, 1888. Reprinted from New England nistorical and Genenlogical Register, Apr., 1888. 2" Walker, F. A., Memoir of A. Walker, 4. =«/&., 8. AMASA WALKER 167 was a candidate for speaker of the House, represent- ing the Free Soil and Democratic factions. In 1849, he attended the International Peace Congress at Paris, and became one of its vice-presidents. In the fall of that year, he was elected to the Senate of his state. Two years later he was elected Secretary of State for Massa- chusetts, by the united Free Soil and Democratic vote. In 1853, he was a member of the convention for the revi- sion of the Constitution of his state. Finally his political career culminated in his election to Congress (1862), where his chief interest was devoted to questions of finance. Francis A. Walker said of his father, "In politics, Mr. Walker's history was as follows : he was brought up among Federalists; became a Jackson Democrat, on the issues of paper money, banking, and the sub-treasury; joined the Liberty party in 1844; helped to found the Free Soil party in 1848, and the Republican party in 1856." "-' At the age of fifteen, he went into the mercantile busi- ness, first as an employee. "Probably no clerk was ever more diligent and faithful or had a higher sense of the importance of his work." -® Later he went into business for himself, and extended his business to large proportions. His great success and intelligent interest in the mercantile business determined largely the char- acter of his economic thought. His interest in economics centered on the medium of exchange. Like Ricardo, he was attracted to general economics through a study of finance. In 1854, he was influential in the founding of the North Brookfield Savings Bank, of which he was the '"lb., 14. 28/6., 4. l68 THE RICARDIAN RENT THEORY first president. The following quotation from F. A. Walker regarding his father is significant : The year 1857 was one of great import to the life of Mr. Walker. Early in that year he began the publication, in Hunt's Merchants' Magazine, of a series of articles on political econ- omy. The series had already progressed so far as to give Mr. Walker's views on money, when the financial panic of 1857 commenced. Almost by chance, Mr. Walker attended, early in October, a large meeting of the merchants of Boston, in- tended to fortify the banks of that city in their determination to maintain specie payments. At this meeting, Mr. Walker took the ground strongly that the banks could not possibly maintain specie payments for more than two weeks, and that it was desirable they should at once suspend, instead of caus- ing the failure of the best merchants of the city, as they must inevitably do, by refusing discounts in a vain attempt to save their own so-called honor. This speech created a great sensa- tion at the time, and gave rise to a heated discussion in the public press ; but the suspension, within twelve days, of every bank in Boston, after causing the failure of great numbers of the best mercantile houses, some of them worth millions of dollars, gave so striking a confirmation to Mr. Walker's views as to bring him into prominence as an authority on finance, and to cause him to be invited to write and lecture far beyond the limits of his time and strength. This episode may properly be considered the turning point in Mr. Walker's intellectual career. From this time till the day of his death, the subject of the currency remained the most absorbing of all which had previously engrossed his mind, and his interest increased with the passage of years. Late in 1857, Mr. Walker published a pamphlet on the Nature and Uses of Money, to which he added a History of the Wicka- boag Bank, a work which had a large circulation. Mr. Walker's views on money, as presented in this pamphlet, were essentially those of the so-called 'Currency School' of which Lord Over- stone, Col. Torrens, and Mr. George Warde Norman were the leaders in England; and of which Mr. Walker, Mr. William M. Gouge, and Mr. Condy Raguet became the best known writ- ers in the United States. ^9 Mr. Walker's enthusiastic interest in railroad con- struction in 183s entitles him to be classed as a pioneer in the history of American railroads. He wrote and made speeches in behalf of extending railroads to the ^ lb., 10-11. AMASA WALKER 169 west. His writings gave rise to a public meeting in Boston which resulted in securing the stock of the West- ern Railroad. He became a director of this road in 1837. Two years later, he visited St. Louis, and, in a convincing address, urged the citizens to take action for securing a railway connection with the East. So strongly did he have the mercantile viewpoint that he, in reality, made the railroad question a merchant's problem. The thesis of his western speech was that because of the difficulties of water transportation, "The merchant can- not depend on getting his goods promptly. This is a great evil — all are injured, many ruined by it. Goods purchased for the Fall sales do not get to the place of their destination until Spring. This occa- sions great loss and embarrassment to the trader, much disappointment and inconvenience to his customer." ^° How railroads would develop western lands, influence values and rents, distribute the population, cause the erection of cities, towns, and industries, Avere not em- phasized. F. A. Walker says, "At that time, Mr. Walker's suggestion that a man might yet go from Boston to St. Louis in five days, or less, and eat and sleep on the cars, created no little amusement." ^^ Mr. Walker's mercantile interests, his studies in ex- change and currency, his political affiliations and his opinion that, "economically, it Vv^ill ever remain true, that the government is best which governs least," ^^ these naturally led him to accept the principle of the freedom of trade. When Walker wrote his text, slavery was, and had been, the question of absorbing interest. With the earlier questions of the tariff, the sub-treasury, and others set- ^ lb., 6-7, gives his reported remarts. 31 /b., 8. 32 Walker, A., The Science of Wealth, 92. 170 THE RICARDIAN RENT THEORY tied for the time being, and after the publication of Mill's work, the classical school came more into prom- inence. Another, and doubtless the strongest, influence that caused Walker to ally himself with the classical school was his study of Adam Smith and Ricardo. In 1840-41, he went to Florida for his health, carrying with him the works of Adam Smith and Ricardo. This stay in Florida gave him opportunity for much reflection. In his work on general economics, his references are almost entirely to the classical economists. On questions other than finance, he refers only to George Opdyke of all the earlier American economists. But of the Eng- lish economists to whom he refers and with whom he evidences an acquaintanceship are Cairnes, Malthus, Ricardo, McCulloch, Fawcett, J. S. Mill, and Adam Smith. He also refers to Bastiat and Levi. He refers to Adam Smith far more than to other economists. He calls J. S. Mill the ablest of living writers, ^^ and com- pliments Bastiat quite as unreservedly. ^* Regarding population. Walker says that the glut, fam- ine, and death theories of Malthus have exhausted the direct horrors of the subject. He teaches that all "Brit- ish philosophy of population is perverted and diseased from its root." This philosophy comes out of social wrongs and false political institutions. It strives to apply, as a universal condition of human being, the miserable results of local misrule. ^^ He says, "The two postulates of Malthus are: (i) that subsistence is stationary or retrogressive; (2) that propagation is a constantly operating force, enlarging population in some assignable ratio. . . . — There are here three fallacies : ( i ) that subsistence is not pro- ^Ih., pref., viii. 3* 7b. ^Ih., 452. AMASA WALKER 171 gressive, (2) that population necessarily increases, (3) that, even if these were granted, there would exist be- tween them any such melancholy relation as is as- sumed." ^^ He maintains that, under wise and intelligent culture, the soil will grow more fertile, that mechanical advance- ment will free more labor from the industrial arts to go into agriculture, and that the possibilities of chemical discoveries and other aids to agriculture justify almost any degree of expectation for future increase. ^^ He claims that the forces opposing the growth of numbers are quite as strong as those encouraging such growth, that the same God is author of both positive and nega- tive forces, and that, consequently, they must be given equal weight in all calculations of human propagation.^^ Resorting to the usual American argument, he main- tains that rent is due not to the niggardliness of nature but to a faulty distribution : It is of no consequence whether Manchester or Birmingham can raise their own breadstufFs within their corporate limits, if they can create values which will lay all the markets of the world under contribution. ^^ . . . In England, bad laws, passed by class legislation ; oppressive institutions, the relics of feudalism ; onerous taxation, incurred by the senseless war system; and unjust monopolies, created for selfish purposes — have combined to cause the ignorance, poverty, and degradation of the people, and to make the benefi- cent agencies of reproduction a partial curse. The laborers of England suffer for the commonest necessaries of life, while England is the richest nation on the face of the globe. Unques- tionably, the value of the total production of English industry amounts to five times the value of the simple necessaries of life for her whole population. Now, if labor starves, is it the fault of nature? The density of population has nothing to do with it. It is because the common people have so little influence on the government ; because the land is held for the pleasures and dignity of the lordly few; and because the na- tional majority is borne down by a powerful, selfish, and grasp- 3«/&., 452-453. ^'' lb., 453. 38/&., 453-456. S9/&., 456. 172 THE RICARDIAN RENT THEORY ing aristocracy. Though the people suffer, it is because of nothing in the extent or fertility of their soil. But for a com- plicated, legalized system of robbery and wrong, every man, woman, and child in the United Kingdom might be as well fed, clothed, and educated as are the inhabitants of the United States, and as much more so as England is today richer. Any man and any people that can create value can command sub- sistence in God's way. *° On the whole, Walker opposes Malthus at every point ; he accuses Malthus of shaping his theory to the local situation in England. Walker's theory is an American theory, in harmony with the public opinion of this coun- try previous to the Civil War. His point of view is that of the practical business man. When he wrote, our frontier still held out its promising opportunities. Pop- ulation was still the short factor in our industries, and capital was demanding a larger supply of labor. The theory that "a. larger population means abundance rather than scarcity" was true when Walker wrote. In my judgment, Walker criticised a book which he had never read when he opposed Malthus. He gives no citations to indicate that he had read Malthus' essay; he attempts a statement of Malthus' thesis in two postulates, and both of them are wrong; and he thinks he has answered Malthus whereas in reality he has only stated another point of view. In his discussion of population, I find little with which Malthus would not have readily agreed. He differs from Malthus, not in content, but in point of emphasis and viewpoint. Walker, like the national economists we have reviewed, was arguing a different question when he opposed Malthus. Malthus was arguing upon the basis of what is under the existing circumstances of a given time, or a given stage of human progress. Walker ^ lb., 457. AMASA WALKER 173 took the idealistic point of view, and attempted to paint what would be under future, more advanced, and supe- rior conditions. Two men, one with the static and the other with the dynamic point of view, may argue the same question of the pressure of population upon sub- sistence, and use precisely the same terms, and with pure reason and sound logic come to conclusions wholly dissimilar. It was not because our early economists were illogical that they failed to make a case against Malthus ; it was because their viewpoint was wholly dif- ferent that they failed to attack that which Malthus really taught. It is the accepted opinion that, although Amasa Walker denies Malthusianism, he accepts unreservedly the Ricardian theory of rent. We have just seen that his difference from Malthus was only a matter of empha- sizing particular phases of thought which would appeal to an American business man of his time, and that he said nothing derogatory to the real teachings of Malthus. Contrary to the accepted opinion, I find that he teaches a theory of rent widely different from that held by Ricardo. Walker defines rent as follows : "Rent is paid for the use of land and its appendages, which together are called real estate." *^ He is always careful to speak of rent as a payment by one person to another, whereas Ricardo often speaks of rent as the surplus accruing to the proprietor who tills his own soil. Walker says that natural powers confer no value. *^ "We have said that nature adds value to nothing. Though unceasingly at work for man, she receives no compensation. She creates utilities beyond computation, but does all gra- «/6., 294. *^Ih., 10, 12, 16. 174 THE RICARDIAN RENT THEORY tuitously. Wind, water, and steam are most efficiently engaged in producing commodities necessary to the wel- fare of mankind; and the earth is unceasingly active to bring forth man's food in its many forms. Yet all is done without adding to the wealth of the world. The forces 'work for nothing,' and hence confer no value. . If we look to the fertility of the land, by far the greatest of all the natural forces engaged in pro- duction, we shall find that it confers no value." *^ But production consists in the creation of values ; ** there- fore, since land is non-productive, it follows that labor and capital produce all. *^ We are led to ask. What of the three productive agencies: land, labor, and capital? "Wealth includes all objects of value"; ^® land is an object of value; there- fore land is wealth. "All capital is wealth, but all wealth is not capital. . . . Wealth is as it is had; capital, as it is used." " But land is used wealth ; therefore, land is capital. Very unlike Ricardo, then, he classifies land as capital, *^ and speaks of fixed capital as yielding a rent. *^ Consequently, in his classification of pro- ductive agencies, there appear only two classes : capital and labor. ^° If land be capital, why not denominate that which is paid for the use of land interest rather than rent? He says, "Capital is loaned in two general forms: ist, when invested with a permanent character and having a fixed place, as houses, fields, etc., its compensation is called rent." ^^ When he speaks of "the man who owns «7b., 16-17. **7b., Bk. II, Chap. I. ^Ib., 60. «/6., 7. *'Ib., 55. «/6., 57, 253. ^Ib., 253-280. K>7&., 60. «/&., 253. AM AS A WALKER 175 capital and receives his compensation for its use in the shape of rent,"^- our author has in mind fixed capital. He says, "Improvements, more or less permanent, are investments of capital in real estate, changing the in- come from the form of interest to that of rent." ^^ His thought may be briefly summarized as follows : productive agents consist of labor and capital; there are two classes of capital — circulating and fixed. The for- mer bears interest; the remuneration for the latter is denominated rent. Capital, however, is past labor hav- ing taken form ; ^* then, like Carey, he must argue that rent is paid for improvements on the land. ^^ So, unre- servedly to style Walker a disciple of Ricardo is at once fallacious. Ricardo, emphasizing the original and inde- structible qualities of the soil, teaches a pure land-rent concept; Walker, speaking of land as a free gift of nature from which "value is not derived," ^* emphasizes the capital-concept and teaches that rent is but a remun- eration for the use of fixed capital. Walker brings forward four elements of rent: loca- tion, difference of fertility, importations, and improve- ments more or less permanent. Location "grows out of the social conditions of man." ^'^ Assume that men live as isolated beings, and that there exists enough land for all, and that each part is equally productive, then rent could not exist. ®^ Once men are gathered into vil- lages and communities, however, rent quickly makes its appearance. ^® Natural differences aside, men prefer 82/&., 280. 53/6., 299. "/b., 19. ^Ih., 294. '«/&., 295. ^ lb., 296. 58/6., 296-297. ^ lb., 296. 176 THE RICARDIAN RENT THEORY locations that are central respecting public buildings for the accommodation of all (schoolhouse, church, etc.). Points at which the population can most readily assemble, and which form the natural center of business or land- ing-places, or where warehouses are put up for the com- merce of the settlement, are factors that cause location to create a rental independent of all other considera- tions. ^° On the difference of fertility. Walker says, "Mr. Ricardo, we believe, first brought out this principle clear- ly in his Political Economy, London, 1819." ®^ He as- sumes four grades of land capable of producing forty, thirty, twenty, and ten bushels respectively, with the same labor. At first. No. i produces all the corn neces- sary and no rent accrues; when population so increases as to bring No. 2 under cultivation, then No, i will bear a rent of 10. Finally, when No. 4 comes under culti- vation, No. I bears 30, No. 2 bears 20, No. 3 bears 10, and No. 4 bears no rent. ^^ Walker fails to take cog- nizance of the fact that intensive cultivation must keep pace with extensive cultivation in order that equal profits may accrue to capital on extensive and intensive margins. Walker's third element of rent, importations, is but an application of the extensive cultivation argument. In the above example. No. 4 produced no rent; but if all the land in a country were occupied and freights had to be paid to import corn, then No. 4 would bear a rent equal to its differential advantage. ®^ His fourth element of rent, improvements, consists of durable investments in real estate. Fertilizing, drainage, deep ploughing, and the like are included. "For every ^ lb., 296-297. See also Merchants' Magazine (1860), xlii, 306. <^Ib., 298 n. «2 76., 297-298. 63i&.j 298. AM AS A WALKER 177 such appliance, wisely made, a rent is received, supposed to be equivalent to the expenditure incurred." ®* Note the difference here between Walker and Ricardo. Ri- cardo insists that what Walker here denominates rent is not rent, but profits on capital. Walker, however, centers his whole discussion of rent upon this point. ®^ It is strange that Walker should be called a disciple of Ricardo on the rent problem. Walker's definition makes rent a payment for fixed capital and never a pay- ment for the use of land as such; Ricardo's definition was the exact opposite. Walker always makes rent a payment by one person to another, Ricardo speaks of rent as a usance at times, and as a price at times. Walker thinks the rent-problem is of little importance. The exact opposite is Ricardo's view. Walker's emphasis is upon city rents, while Ricardo reasons almost wholly on farmers' rents. Walker thinks that land yields rent because of the expenditure upon its improvement. Ricardo considers land ready for the plough. Walker attempted a denial of Malthusianism ; this theory was an essential element in Ricardo's rent doctrine. Walker treated diminishing returns not at all, nor did he even hint at intensive cultivation. Ricardo's theory of rent was a deduction from the law of diminishing returns, and his emphasis was equally strong on extensive and intensive cultivation. The one classifies land as capital; the other condemns strongly such a classification. Their views, therefore, are more antithetical than identical. In this chapter, we have found that John Bascom, the college professor who was devoted to theology and philosophy, acquired his knowledge and bent in eco- nomics from the classical texts rather than from a touch 85 /b., Bk. IV, Chap. VII. 178 THE RICARDIAN RENT THEORY with practical affairs. His thought was in accord with the Malthusian theory of population. He looked upon the law of diminishing returns as applicable only to agri- culture, whereas a law of increasing returns ruled in the field of manufacture. To this as well as to the form of expression, the English economists would not object. But he departed from Ricardo when he taught that the price of the product determines the margin, thus making differences in soil no more than a measure of rent. He concluded, logically, that, if all soil were of equal quality, rent would exist. Unlike Bascom, we have found that Amasa Walker was a practical business man who was denied a college education because of poor health. He objected to Mal- thusianism, regarded land as capital, and at times spoke of fixed capital as earning rent. Some economists have classified Walker as a disciple of Ricardo; but this was an error from the fact that the form of his expres- sion was mistaken for the substance of his teaching. The next chapter will review the writings of A. L,. Perry who undertook a somewhat wider departure from the English economists than did either of the authors re- viewed in this chapter. CHAPTER IX ARTHUR L. PERRY PROFESSOR A. L. PERRY^ (1830-1905) was educated at Williams College and taught Politi- cal Economy at the same institution. He was a frequent contributor to The Springfield Republican and to The New York Evening Post. ' His important economic writings consist of two texts : Political Econ- omy (New York, 1865) and The Introduction to Politi- cal Economy (1877). He delivered numerous lectures in defense of the freedom of trade, ^ and carried on a series of debates with Horace Greeley in opposition to protection. The works of Perry, like those of Bascom, Bowen, and Amasa Walker, appeared at a period when this science was at a low ebb. His work was written for the classroom. No great national problem called it into existence; rather his book was the product of a closet philosopher, and such products are as likely to appear out of season as in. Perry was an open-minded man, who, without prejudice and with a thirst for knowledge, read broadly. He acted upon the principle that the teacher must ever be a learner, simple and humble and sincere. His was one of the most popular texts that has appeared on this side of the Atlantic and the secret of its success was its simplicity. He was one of the best equipped economists that America produced previous to 1885. His training in ^ Appleton's Encyc. Amer. Biog., IV, 734. '^Outloolc, July 22, 1905, LXXX, 703-704. « Ida M. Tarbell in American Magazine, LXIII, 476, LXIV, 175. l8o THE RICARDIAN RENT THEORY economics was far superior to that of Bowen or Bascom. But whereas Bowen often lost sight of fundamentals in his labyrinth of details, Perry leaned strongly in the op- posite direction. He frequently failed to harmonize his general thought with the industrial facts of life, and often classified together things somewhat unlike in na- ture. This is the chief criticism to be made of Perry. The year 1863 was a turning point in Perry's eco- nomic thought. Previous to that date "for ten or twelve years he had been retailing the usual doctrines of Smith, Ricardo, Senior, and Mill." * Perry says : Almost from the outset of my studies, however, and increas- ingly as the years went by, I kept asking myself, "What is Political Economy about?" "Within what precise field do its inquiries lie?" "Is it possible clearly and simply to circumscribe that field?" I could see no solid reason why economical dis- cussions should be confined to tangible commodities, and not include as well personal services rendered for pay, and also credits of all kinds. I could not gain from the general terms used by the writers a firm conception of the science as includ- ing these three classes of things. The word "Wealth," which figured so largely in all the books, gave no satisfaction in this regard, for this best of reasons, that I never could gain with all my strivings a clear and generalized conception of just what that word covered. I found besides that no two of the writers had the same notion of the meaning of that word, and that no one of them all had given an adequate and self-con- sistent definition of it. I talked this matter over repeatedly with Professor Bascom, at that time my colleague and always my friend, and suggested to him a way of egress from the diffi^ culty; and my mind had almost reached the conclusion in which it has now rested for many years with perfect composure, when my late friend, Amasa Walker, who was even then a political economist of reputation, though he had not yet published his Science of Wealth, recommended to me Bastiat's Harmonies of Political Economy. I had scarcely read a dozen pages in that remarkable book, when the field of the science, in all its outlines and landmarks, lay before my mind just as it does to-day. I do not know how much I brought to that result, and how much towards It was derived from Bastlat. I only know that, from that time. Political Economy has been to me ^MacLeod, The History of Economics, 154. ARTHUR L. PERRY i8i a new science; and that I experienced then and thereafter a sense of having found something, and the cognate sense of having something of my own to say. ^ Our author acknowledges his indebtedness to Bastiat. On land rent, his discussion shows close similarity to that of Bastiat. But he goes farther than Bastiat and entirely abandons the use of the word wealth as a scien- tific term. "The most," he says, "of what is original in my book is an immediate or else an indirect result of absolutely dropping from the start the use of the word 'wealth' as a technical term. So far as I know, I was the very first economist to do this." ^ He defines a science as a "body of exact definitions and sound principles educed from and applied to a single class of facts or phenomena." ^ Political economy, in his thinking, is the science which addresses itself to that circumscribed class of facts or phenomena of which value is the characteristic. ' We place the field of the science just where Whately places it, — "Catallactics, or the science of exchanges" ; just where the continental Kiehl puts it, — "Die Lehre von den Werthen," The doctrine of values; and just where MacLeod locates it, though we do not like the term "quantities" in this connection, — "The Science which treats of the laws which govern the relations of exchangeable quantities." Any one of the three following defi- nitions, which are the precise equivalents of each other, namely, the science of Sales, the science of Exchanges, the science of Value, gives a perfectly definite field to Political Economy. We shall use the three interchangeably, though for the present emphasizing the last. ^ By value. Perry means "the relation of mutual pur- chase established between two services." ^^ He says, "Two persons, two things, two desires, two efforts, two ^ Perry, Political Economy, viii-ix, introduction oib.,x. ■^ lb., 89. ^ lb., 112-115. »Ib., 112-113. lo/ib., 131. l82 THE RICARDIAN RENT THEORY estimates, and two satisfactions, form the circle of value." ^^ "Value," he says, "is the sole subject of our science. . . . While value always takes its rise in the desires of men, it is never realized except through the efforts of men, and through these efforts as mutually exchanged." ^- Having considered his training, his dissent from cer- tain classical views, his idea of the scope and definition of the science, we are prepared to follow his peculiar teaching on the population-rent problem. The population problem receives little attention at the hands of Perry. He says, "Malthusianism, as it has been called, is really a topic of Physiology and not of Political Economy at all. Political Economy presup- poses the existence of persons able and willing to make exchanges, before it begins its inquiries and generaliza- tions. How they came into existence, the rate of their natural increase, and the ratio of this increase to the increase of food, however interesting as physiological questions, have clearly nothing to do with our science." ^^ He satisfies himself with a very brief and inadequate statement of the Malthusian doctrine, ^* and then gives briefly his reasons for dissent. Time and again, in our review of the earlier American economists, we have met the arguments he uses to refute this doctrine. (a) Population draws not only upon the soil it occu- pies, but upon the world at large for its support. ^^ (b) Moral and religious training brings men under the influence of reason and affection, and under this influence preventive checks silently and effectually be- come operative. ^® "7&., 164. ^Ib., 165. ^ n., 238. "7b., 238-239. ^5/b., 239. "7&. ARTHUR L. PERRY 183 (c) The history of the world shows that food and comforts have more than kept pace with the growth of population. ^^ (d) "He who is the author of the laws is author also of natural counter-workings of them, so that a particular tendency towards their coming into conflict is confidently denied." ^^ (e) Each consumer is also a producer. " (f) "The famines of the world have been caused more by the indolence and want of foresight of indi- viduals, and by the maladministrations of governments, than by the law of population." ^° Perry, at the outset of his discussion on land, points out the vast difference between land as a physical thing and land as a valuable thing. '^ The former is God's free bounty; the latter is produced through human ef- forts. The "original utility" — the utility of the land as God gave it to us — always remains a free good. No bounty of God is intercepted, through exclusive appro- priations by man, in its descent to mankind as a whole. ^^ What men receive gratuitously, they must gratuitously transmit. This principle still holds true after all the land has been taken up. ^^ "Human motives are such, and everything is so providentially arranged, that men cannot, as a rule, sell God's gifts ; it would be derogatory to the Giver, if they could." -* He further says, "As a matter of fact and experience, lands are absolutely value- less until some portion of human effort has been ex- pended on them, or in reference to them." ^^ He argues ^Ih., 239. M/&., 239-240. 2»7b., 240. »/6., 276. 227b., 276-8. 2»/b., 278. 2*/b., 279. »/6., 279. l84 THE RICARDIAN RENT THEORY that the value of our government lands is due to human effort, due to the facts that they have been surveyed, that local governments have been provided for settlers, and that mail facilities and other privileges have been guaranteed to them. ^^ It is not, then, the ''original utility" for which we pay ; rather it is the "new utility," or the utility added to the land by means of human effort, that commands a price. 2^ Now, if the value of land be due to labor, would it not follow that the value of lands would be in proportion to labor? No; Perry, like Carey, would reply that it is not the original cost of production but rather the cost of reproduction that determines value. He says : The progress of capital and Inventions enables similar work to be done now at greater advantage, and consequently the results of former work have fallen in value. While, therefore, value in land arises solely in connection with human efforts of some sort standing in some relation to that land, it is im- portant to observe that the value is not always proportioned to those efforts. The efforts may have been misdirected; the desires calculated upon may have taken another turn; the util- ity sought to be conferred may not find the requisite natural util- ity underneath; and so, there is a greater diversity in the value of lands than in the amount of efforts expended upon them. 28 Like Carey, he makes saleable land a commodity for the same reason that a machine is a commodity: in the one case, the free bounty of nature, iron, is transformed by human effort into a machine; in the other case, the free bounty of nature, land, is transformed by human effort into valuable land. He makes some exceptions, which he terms unim- portant, to his theory of land-values. Unusual fertility, ^ lb., 277. 28 7&., 280. ARTHUR L. PERRY 185 excellent locations, lands containing rich mines or water power, are the exceptions cited. Why cite these as ex- ceptions to his theory? Perry's is an exchange economy according to his own definition; service for service is the central concept in his system. His service-for-service doctrine, as he uses it, is but a crude application of the law of supply and demand. Perry did not thoroughly conceive the cost-of- reproduction doctrine which he borrowed from Carey, because Carey, who originated the cost-of -reproduction as a distinct theory of value, did not have in mind, when he used this idea, the amount of labor it would take to reproduce a waterfall, but rather the amount of value expressed in labor for which this waterfall would ex- change. In Carey's thought, the law was general. In Perry's thought, evidently it could refer only to freely reproducable goods. At any rate, if Perry regards these instances as exceptions to his law, it follows that he has no law; for differences in land respecting fertility and situation are characteristic of all lands. Differences in fertility or situation of saleable land is a matter of degree, not of kind. There exists no distinct line of demarcation separating lands in respect to their fertility or situation and placing them in different value-cate- gories. Perry, like Carey, classes land as capital. He says, "The largest part of all saleable land is nothing more or less than capital Capital is some product reserved as a means to further production ; and valuable land is always a product of labor and previous capital, and is generally reserved for use in future production, and so is capital under the definition." -^ He does not hold that all valuable land is capital, "but only that large »7b., 283. l86 THE RICARDIAN RENT THEORY portion of it that is worked or leased or held with a view to an ultimate profit." ^'^ He offers the following exam- ples of capital : factories and business premises, lands and buildings that are rented out, and farms cultivated by their owners or leased to tenants. He tells us that the following are not examples of capital : private houses occupied by their owners and lands kept for mere beauty or convenience. ^^ Thus he declares that a farm is capital whether used by its owner or let to a tenant, but a house used by its owner is not capital, whereas it is capital when leased to a tenant. Also lands held for convenience are not capital. Then it would seem that indirect agents are capital only when held for a commodity return. But this gets him into the further difficulty of harmonizing this into his exchange economy. He says that land leased to another is capital ; here money-rent is involved. This involves the erroneous admixture of a usance with the payment for that usance. Further, it will be remembered that Perry casts the word "wealth" out of his treatise. Now, if land held for convenience is not capital, what is it? He says land held for ultimate profit is capital while that held for convenience is not capital. Evidently land held for convenience may earn a profit in the form of unearned increment. At one time, Perry classifies an indirect agent as capital because of the motive in the mind of its owner; again he makes his classification on the basis of a profit-yield. Since Perry classified land as capital, he would, unlike Ricardo, find no dis- tinction between rent and interest; land rents and inter- est on a money loan would be governed by the same principles. Perry's words are : 31/6., 284. ARTHUR L. PERRif 187 The rent of leased lands is the measure of the service which the owner of the land thereby renders to the actual cultivator of it. . . . As land is capital, and as every form of capital may be loaned or rented, and thus become fruitful in the hands of another, . . . the rent of land does not differ essen- tially in its nature from the rent of buildings in cities, or from the interest of money. "- He emphatically denies Ricardo's claim that rent is a differential surplus, that cost under the most unfavor- able conditions determines rent, and that rent is a pay- ment for the use of the "original and indestructible pow- ers of the soil," for, says Perry, such powers do not exist. ^^ According to his view : The rent of lands is a simple recompense for the use of a productive instrument, made such by human efforts. . Because the owner practices abstinence in the lessee's behalf, rent is substantially the same as profits. . . . Whether till- able lands pay any rent at all, and the amoimt of rent that they pay, always depends, so far forth as commercial considerations control, on the general or average expected price, that is to say, value, of produce. It is not diversity of soils, nor the law of diminishing return, that causes rent, since these continue as before when rent ceases to be paid ; but it is the price of produce under demand and supply, that causes rent. 3* Perry is correct in the assertion that the law of dimin- ishing returns (proportionality) is still operative when particular lands cease to pay rent; but this is far from saying that diminishing returns do not cause rent. It would be a feeble analysis that would stop with the assertion that the price of produce causes rent. It sim- ply puts the true answer a step farther off. Produce would have no price except for its economic scarcity, that is, supply in relation to demand. The cause of eco- nomic scarcity is that of the resistance to be encountered S2/6., 288. 9S/6., 291-2. "/&., 292. 1 88 THE RICARDIAN RENT THEORY in production, or the law of proportionality. Were re- sistance absent, what of the price problem? If the "law of diminishing returns" is not a cause of rent, what would be its significance in Perry's analysis? He says, that the portion of the land that is capital must possess all the characteristics of capital, "among these, is the ability to wear out." ^^ His is strictly an instru- mental concept of capital; and he discusses at some length how "value disappears, and capital wears out." ^* He goes on to say : I£ the bulk of land be capital, as it is, then we might expect beforehand to find a law of diminishing return from land, agri- cultural labor and skill remaining the same ; because all capital is tools, and tools are always wearing out. Increase of labor in connection with any form of capital unimproved by new inventions and uninvigorated by fresh skill, though it may indeed increase the aggregate return, cannot, for the reason just given, secure an increase proportioned to the increase of the labor" 37 The first sentence just quoted tells us that diminishing returns are due to the fact that capital wears out. In the history of economic thought, various concepts are de- nominated the law of diminishing returns, but none are wider from the mark than Perry's. Perry differs from Ricardo in that his concept is historical rather than static; he differs from Malthus regarding the manner in which historical diminishing returns are operative. The fact that tools wear out, is Perry's central thought ; the central thought in the argument of Malthus was, that, though the land improves, yet a more rapid increase in population would cause a diminution per capita. This statement also affirms that land is subject to diminish- ^ Il>., 284. This is the first appearance of this crude concept in tMs study. S8/6., 284-5. ST 76., 285. ARTHUR L. PERRY 189 ing returns because land is capital; thus Perry differs, it seems, from the classical writers who denied the appli- cation of this law to capital goods. The second sentence just quoted, though in opposition to the one immediately- preceding it, is a recognition of the universality of this law. It implies a static concept. The quotations pre- sent Perry's teaching on this point. From what has been said, it is clear that it is impossible to state pre- cisely what he means by the expression "the law of diminishing returns." We find, in his thought, the con- cepts of both static and dynamic diminishing returns. The return, in his thought, is at one time a value-return, and at another time he speaks of a commodity or weight- and-tale return. It seems clear that the subtler meaning of this law was absent from Perry's thought. In his famous speech, "The Foes of the Farmers," to the farmers of Nebraska, Perry said : The products of the farm are constantly becoming more valu- able relatively to the products of the factory. There are three reasons for this : first, machinery can be applied more com- pletely in manufactures than in agriculture; second, division of labor can be carried further in manufactures than in agri- culture ; and, third, nothing can hasten the time during which the fruits of the earth mature, while the processes of manufac- ture can all be hu/ried up. The result Is the price of raw material tends to approach the price of finished products. This one law of Political Economy is the physical law of Progress for the masses. ^® The thesis of this address was that the results of the law of diminishing returns are more readily realized in agriculture than in other pursuits, and that agricultural conditions are, for the three reasons given, comparatively more static. In this speech, no denial is made of the general application of this law, but rather it is shown ^ Perry, The Foes of the Farmers, 6. 190 THE RICARDIAN RENT THEORY how, through dynamic changes, new conditions arise more readily in manufactures than in agricukure. Thus, while the general application of proportionality is recog- nized, our author does not fail to observe that the ulti- mate cause of scarcity-values is the comparative resist- ance experienced in securing returns from different factors. This chapter illustrates the danger of departing from the well trodden paths in the field of economics unless one is possessed of rare ability and a comprehensive grasp of the subject. Perry eliminated the word "wealth" and offered nothing in its place. He defined economics in terms of his fundamental concept — a mutual exchange of service for service. What of the exchange of goods whose fabrication is a secret? or whose amount is lim- ited by nature? or which, without labor, have grown through time to great value? or which are controlled by a monopoly? Furthermore, dwellings, parks, or roads which are not held for exchange or for a contractual return, do not come under his definition of value. They are ruled out of his economics. His treatment of land as capital was in keeping with the larger number of the economists under review. Although mistaken as to the meaning of the law of diminishing returns, he was cor- rect in maintaining that this law is applicable to all forms of productive agents. He made little use of this law for the reason that he did not comprehend its relation- ship to rent. The next chapter will end the study with a resume of the writings we have thus far reviewed. CHAPTER X RfiSUMfi WITH two exceptions, the early American economists who advocated the freedom of trade adhered, broadly speaking, to the Ri- cardian theory of rent. Protective tariff advocates, on the contrary, contested that theory. This is not strange. The tariff was a question of absorbing interest in this country; and the primary purpose of studying economics was to obtain a deeper insight into the tariff. The free- dom of trade was considered a logical deduction from Ricardo's theory of rent; and leading statesmen, as well as the economists, based the argument for the freedom of trade upon the Ricardian theory of rent. WEALTH We have found that these authors held different and conflicting definitions of wealth. Cardozo and the early nationalists would not limit wealth to things bought and sold. By "wealth," they meant the productive "capacity" of a nation. The American economists of the Classical School, would, on the whole, limit wealth to privately owned commodities. Wealth, according to the Carey School, is the power to control the always gratuitous services of nature — the control of man over nature. Bowen and Tucker would include in their definitions, immaterial as well as material products. Perry claimed it a contribution on his part to omit the word "wealth" from his economics. 192 THE RICARDIAN RENT THEORY VAIvUE The economists Wayland, Vethake, Cooper, and the others following in the lead of Ricardo, accounted for value in terms of cost. But, with hardly an exception, they, in the body of their writings, made the law of sup- ply and demand (with emphasis on demand) the regu- lator of value. Vethake, Newman, Bascom, and even Bowen made the value of a good, in harmony with Adam Smith, depend upon either the amount of labor for which it could be exchanged or that went to pro- duce it. The Carey School held a cost-of-reproduction theory of value. George Tucker and Willard Phillips were surely the ablest exponents of the opinions held by the majority of the early American economists. They argued against the labor-cost theory of value, and lim- ited value to things, material or immaterial, subject to purchase and sale. They held persistently to the view that value is subjective and individualistic. This view was carried to its logical conclusion in maintaining that a commodity need not necessarily have utility in order that we attach value to it. Whether utilities be real or imaginary, it is enough that we think commodities have utilities for us to attach value to them. Phillips thinks that the desire to obtain any particular thing gives it its value, and the motives of such desires are as various and numerous as the appetites, tastes, pas- sions, wants, and caprices of mankind. As value is cre- ated by this desire, so it is limited by its strength and intensity. Tucker argues that value, in its largest sense, means the feeling with which we regard whatever can render us benefit, or afford us gratification. In this sense, it is an emotion of our minds comprehending all that can impart pleasure to our senses, our tastes, our RfiSUMfi 193 desires : as health, talents, friendships, reputation, land, money, and goods. It varies according to the endless diversities of objects, and of human tastes or opinions, and it is susceptible of all degrees of intensity, from a simple wish to the most passionate desire. CAPITAL With few exceptions, we have found capital defined as privately owned means of production. The value rather than the technological concept has been emphasized. The value-aspect of capital has been accounted for in two ways : the scarcity of capital goods, and the earning power of such goods. The scarcity of capital has been accounted for by: scarcity of peculiar skill, secret pro- cesses, legal rights, the natural desire for present con- sumption, and the large cost required to produce some kinds of capital goods. These limiting agencies, it will be seen, form the basis for the quasi-rent doctrine which of late has come to the fore. In a number of instances, notably in Tucker's writings, the quasi-rent idea, though discussed under the terminology of profits, finds clear treatment. The writers, on the whole, think of the value of capital in terms of earning power. And, limit- ing the supply of land to improved land, it is notable that from Raymond to Perry inclusive, land has been regarded as one of the forms of capital. The reason for this view is to be found in the environment of the writers. In America were lacking the customs and ideas as to the capitalist and the landholding classes, originat- ing in the contrast between town life and country life in the Middle Ages. Here the lands were subject to frequent purchase and sale, farms were hewn out of the forest, free lands were converted into valuable pos- 194 THE RICARDIAN RENT THEORY sessions through internal improvements and the arts of husbandry, and changes relative to the market and varia- tions in yield were due to human agency. POPULATION At the very outset, the student of early American eco- nomics must appreciate the mal-adjustment of means to ends which then existed in this country for the pro- duction of wealth. To utilize the abundance of natural resources, labor and capital were in great demand. There were economic reasons for the wanton earth-butchery which characterized this period. A limitless breadth of arable land and a meager supply of labor and accumu- lated capital, were conditions that made land almost a free good and gave to labor a disproportionate value. Not the preservation of natural resources, but the best utilization of labor and capital, is the dictate of wisdom under such circumstances. The theories of population held by our economists were also in keeping with their environment. These theories may be grouped under the following titles : (i) The theory that faulty distribution is the origin of poverty. (2) The theological theory. (3) The theory of the adjustment of productive factors. The prevailing opinion was that poverty is due not to the niggardliness of nature but to faulty distribution. In 1847, the "fate of the Irish and Scotch appeared the more terrible because they starved in the midst of plenty." Raymond summarizes the prevailing opinion in these words : "It matters not how abundant food may be; if it all belongs to a small portion of the nation. RfiSUMfi 195 and the rest of the nation has nothing to buy it with, a larger portion will be left to starve, unless some pro- vision is made by law for the distribution of it among the poor." It was by this defect and not by the niggard- liness of nature that these economists accounted for the poverty of England. They insisted that population is not supported on the soil it occupies. A civilized society is so constructed that this could not be. This principle was used to support the argument for a territorial divi- sion of labor, to deny the idea of the niggardliness of nature, and to support the advocacy of a large popula- tion to subdue the land and utilize its resources. The theological theory is a conspicuous element of American economic thovight. Contrary to Malthus, those holding this theory repeat the command to replenish the earth. Divine relationships, exemplified in physical and social laws, necessitate the division of labor and ex- changes. Perry, Cardozo, Bowen, and others seem to work out their theories of value on the proposition that "God is a giver and not a seller," and that, therefore, value originates not in what God has done but in what man has done. Procreation is governed by divine laws. The Author of the positive forces is also the Author of the negative forces; therefore numbers will be har- moniously adjusted to the resources of the earth, and man need not interpose his agency. God in his all- goodness will provide for the race, and will originate no laws forcing us to starve, as Malthus claims. If barbarian tribes waste away for want of food, this is but a beneficent arrangement of Providence whereby civilized peoples shall occupy the farthest corners of the earth. The ideal of a proper adjustment of productive factors became an argument for a larger population in America. 196 THE RICARDIAN RENT THEORY Preaching the doctrine of historical increasing returns rather than historical diminishing returns, American economists felt the necessity for a large population in order to utilize the world's natural resources. Popula- tion is a cause of abundance rather than of scarcity. The division of labor with the consequent influences of invention and skill result from a large population and increase with the growth of numbers. Following in the lead of this dynamic progression, it is found that man's desires mount with every additional opportunity for gratification. The growth of desires in the direction of great variety and superior quality of products neces- sarily brings into utilization still further productive energy. But what is the limit of this dynamic progres- sion? It will cease when the population factor of pro- duction becomes proportionately as great as are the other factors of production. Bowen taught that, in sparsely settled regions, children are a blessing to parents and not a burden, but that, with the increase of numbers, the birth rate will decline. Tucker proved by the statis- tical method that the density and the rate of increase of population vary in inverse ratios. When the earth is duly populated, numbers will remain stationary. Car- dozo, Wayland, Phillips, and Walker believed that pop- ulation always adjusts itself to the existing state of industrial development. The Carey School, following in the lead of Herbert Spencer, maintained that man's cerebral and reproductive functions became antagonistic through development. Over-population will be avoided because the power to maintain life varies inversely with the power to propagate the species. The conclusion of these teachings is, that the forces destructive of popula- tion and the forces preservative of it tend toward equili- RfiSUMfi 197 brium. The ultimate check of population is a harmoni- ous adjustment of all the factors of production. The phrase "population problem" has been employed in a number of different senses. It has been used to signify the relationship between the birth rate and the death rate, increasing density, poverty, the mal-distribu- tion of numbers over the earth or in the different fields of employment, a faulty distribution of wealth, and problems caused from immigration. From different defi- nitions, unlike conclusions may be logically advanced. To advance one line of argument is not always to deny the correctness of another line of reasoning. The essen- tial thought of Malthusianism was not necessarily denied by our economists who preached that increasing numbers meant increasing prosperity under the then existing con- ditions in America. Because land was the short factor in England and population the short factor in America, it might well follow that what would be a truth in Eng- land would be an untruth in America. In both countries, however, the problem was one of adjusting the popula- tion to economic environment. RENT Ricardo's doctrine of rent was thought by American writers to be inapplicable to this country. They claimed that this theory was invented to suit the conditions of England. It could not hold in the United States because we had no distinct class supported by wages, and be- cause a growth of population here caused increasing returns and lower prices. It is worth while to review a few of the criticisms made by American writers upon Ricardo's rent-doctrine. The origin of rent is not found in the different qualities 198 THE RICARDIAN RENT THEORY of soil but in the scarcity of soil suited to different kinds of crops. All lands under cultivation pay a rent because they are valuable. There are no original and indestructi- ble qualities of the soil. Like machinery, agricultural lands are products of labor. Society is so organized that one industry aids other industries; therefore the interests of classes are not antagonistic in nature. Ricardo's theory is a fallacy of inversion : the poorest land brought under cultivation does not determine price, but price determines the poorest land that will be brought under cultivation. The order of cultivation is from poor land to rich and not from rich to poor as Ricardo teaches. Demands for produce increase more rapidly than do improvements in husbandry; therefore improve- ments augment, rather than lower rent. American econ- omists for the most part abandoned the threefold classi- fication of productive factors. Land was considered a form of capital. They had varying definitions of capital, yet the value of land and its uses were treated by the same principles that regulate the value of artificial agents and their uses. The prevailing view of American economists was that rent is governed by the law of supply and demand. The price paid for the services of land is determined by the same principles that fix the market prices of goods. There was a great difference between Ricardo and his American critics in their analyses of rent-determining forces. Ricardo reasoned as if men were equal and as if they were creatures of circumstances. Our economists recognized variations in the efficiency of competitors, and reasoned that environment is largely a human crea- tion. Ricardo's formula was based on the idea that rent is determined and measured by natural laws. Em- phasizing the human agency, some American writers RfiSUMfi 199 spoke of agricultural returns as products of labor, and argued that contract rent results, as other market prices, from competition among men of unequal strength. A number of these writers. Cooper in particular, so empha- sized differences in men as clearly to suggest Walker's differential theory of profits. Accurate terminology and clear thinking made it a matter of significance whether rent is defined as a net return or defined as a price paid for the use of indirect agents. These concepts obey different principles. Net returns to the farmer who tills his own soil is usance and not rent. The price paid for the use of land is rent. The one is legal or contractual in nature and does not vary during the contract period; the other is a problem in production involving the risks of seasons, pests, labor conditions, distributive costs, and market prices. Ameri- can economists overlooked this distinction although the weight of their emphasis was on the idea that rent is a contract payment. Their distinction between rent and interest was only in name. Prices paid for the use of land and prices paid for the use of capital are fixed by the same laws. Many of these authors spoke of rent as a per cent, and reasoned that the value of land is determined through the price of its yield. Adhering to the principle of com- petition, they argued that the price of land as determined by the value of its rental could be measured by the cost of reproduction. The Carey School makes the cost of reproduction a measure and not a cause of value. On the whole, the early American economists pre- sented the problem of returns from the dynamic point of view. They did not reason with respect to the returns of a limited area at a given stage of industrial develop- ment. They surveyed the whole industry over a long 200 THE RICARDIAN RENT THEORY period of time. Changes through time such as develop- ments in the arts and in science, substitutions, superior organizations, and the hke, form a basis of reasoning entirely different from the static situation usually as- sumed by Ricardo. History substantiates the truth of their contention that the principle of historical increas- ing returns is applicable both to agriculture and to manu- facturing. To affirm dynamic increasing returns is in no sense to deny static diminishing returns (proportion- ality). We have seen that the method of reasoning used by our economists took for granted and affirmed the static law in the sense in which Ricardo mainly used it. To avoid reading new trains of thought into these writings, I shall assume responsibility for the following remarks although their substance is deduced from the preceding pages. Many of these writings contain by implication the principle that the supply of land is meas- ured in yield rather than in area. An acre yielding loo is as great a part of the land-supply as are ten acres whose total yield is lOO. The land-power to do the land- work is the supply of land just as the money-power to do the money-work is the supply of money. The land-supply is increased by new discovery of land, by the better utilization of land, by the increase of trans- portation facilities that make new lands available, by scientific methods, or the substitution of rich for poor lands, by intensive or extensive utilization, or by any means which convert potential into effective uses. Clear thinking demands that we distinguish between "the amount of land" and the "supply of land." Whether on old or on new lands, additional uses resist being harnessed. Resistance must be overcome in the obtaining of additional uses from any productive agent. RfiSUMfi 20I The principle of resistance is universal in the field of production. Numerous indirect agents must work to- gether to produce wealth. Now that all agents are sub- ject to resistance, it follows that there are no definitely fixed and limited factors of production. In other words, the productivity of any factor varies as the other coop- erating factors with it are varied. The adjustment of various factors to each other in a productive enterprise must be worked out upon the general principle of resist- ance. The dynamic problem which these economists con- ceived was one of progress, one in which the law of substitution was ever present. Properly to adjust factors to one another and to adjust the whole establishment to the extent of the market are problems inseparable from the principle of substitution. The cause of sub- stitution is the elastic limit of the productivity of an agent, the increasing resistance encountered in augment- ing the returns from a factor. The basis of the idea of substitution which pervades the writings of the Amer- ican economists under review, is the principle of pro- portionality. No economist reviewed has denied "the law of diminishing returns" in the sense in which Ricardo conceived this law. 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