Book III.—THE LAWS OF DISTRIBUTION.

Auckland Star, Volume XX, Issue 147, 22 June 1889, Page 3 (Supplement)

Book III.—THE LAWS OF DISTRIBUTION.

Chapter I.—The answer to our inquiry cannot be found in bhe laws ot production, and must be sought in the laws of distribution. The factors of production are land, labour and capibal, and tho whole produce is primarily distributed into three corresponding parts. Three terms are therefore needed, each of which shall clearly express one of these parts to the exclusion of the others. Rent expresses the first, which goes bo the owners of land ; Wages the second, which constitutes the return to labour; and Interest the third, which is the return for the use of capital. The income of any individual may be made up from any one, two or all three of theso

sources, bub in seeking the laws of distribution they must be kept separate. Chapter 11. —The term*rent' differs from the-word as ordinarily used. Ib is narrower, because ib does not include payments for the use of buildings, etc., and broader, because it may exist where the same person is both owner and user of land. Ib is also expressed in a selling price, v. hich is rent commuted or capitalised. Rent is the share in products of labour which exclusive right to the use of land gives to the owner. As to the la.w of rent, the accepted dictum of the current political economy has the self - evident character of a geometric axiom. It is : The rent of land is determined by the excess of its produce over thab which the same application can secure from the least productive land in use. Thi3 law applies to land used for other purposes than agriculture and to all natural agencies. It may be better understood in this form : The ownership of a natural agent of production will give the power of appropriating so much of the wealth produced by the exertion of labour and capital upon it as exceeds the return lohich the same application of labour and capital coidd secure in the least pi'oductive occupation in which they freely engaged. This is the same thing, for there is no occupabion in which labour capital can engage which does not require the use of land. The law of rent is the law of competition, and rests upon the fundamental principle thab men seek to gratify their desires with tho least exertion. Its corollaries are the law of wages and interest. No matter what production results from the application of labour and capibal, these two factors will receive only such part as they could have produced on land free to them without the payment of rent; for

As Produce=Rent + Wages + Interest ; therefore,

Produce - Rent=Wages + Interest. Thus wages and interest depend upon whab is left after rent is taken out, and no matter what be the increase in productive power, if the increase in rent keeps pace with it, neither wages nor interest can increase.

Chapter lll.—'lnterest' includes all returns for the use of capital, and not merely those that pas 3 from borrower to lender ; and it excludes compensation for risk, which is only an equalisation of return between different employments of capital. Production falls into three modes, viz. : Adapting, or changing natural products, either in form or place, bo tit them for the satisfaction of human desire ; growing, or utilising the vital forces of nature; exchanging, so as to add to the general sum of wealth the higher powers of those natural forces which vary with locality or those human forces which vary with situation, occupation or character. In bhe first mode capital is not absolutely necessary ; in the others it is.

In adapting, the benefit of capital is in the use; in growing and exchanging, the benefit is in the increase. Primarily benefits which arise from use go to labour, and benefits which arise from increase go to capital; but the division of labour and interchangeability of wealth necessitates an averaging of benefits, whereby capital engaged in growing or exchanging will obtain, not the whole increase, but the increase minus what is sufficient to give to the labour so engaged such reward as it could have secured if exerted in adapting; and labour exerted in adapting will gee, not the whole return, but the return minus such part as is necessary to give to capital the increase it could have secured in growing or exchanging. Interest is not arbitrary, but natural.

Chapter IV. — The belief that interest is the robbery of industry is in larare part due to,.a failure to discriminate hetween what is really capital and what ia not, and between profits which are properly interest aiid profits which arise from other sourcos than the use of capital. Nothing can be capital, let it always bo remembered, that is not wealth—that is to say, nothing can be capital that does not consist of actual, tangible things (not the spontaneous offerings of nature) which have in themselves, and not by proxy, the power of directly or indirectly ministering to human desire.

Chapter V.—Under conditions of freedom .the maximum of interest (which is fixed by the average power of increase belonging to capital generally), will be the increase of the capital; and the minimum, the mere replacement of the capital. If wages fall, interest must fall, else it becomes more profitable to turn labour into capital than to apply it directly ; if interest falls, wages must fall, else the increment of capital is checked. Thus the principle that men seek to gratify their desires with the least exertion operates to establish and maintain an equilibrium between wages and interest.

Under the operation of the same principle, the general rate of interest will be determined by the retui n to capital upon the poorest land to which capital is freely applied—that is to say, upon the best land open to it without the payment of rent. Thus the law of interest, independently sought, meets and harmonises with the law oj rent.

Chapter Vl.—Wages vary with the differing powers ot individuals and as between occupations ; but there is a general relation between all wages, and in their degrees wagee rise and fall in obedience to a common law. The principle that men seek to gratify their desires with the least exertion brings to an equality the reward for equal exertions _ under similar circumstances. In conditions of freedom the terms on which one man can hire others to work lor him will be fixed by what the men could make if labouring for themselves. If wages are temporarily carried either above or below this line a tendency to carry them back at once arises. But wealth is the product of two f___or%land and labour ; and what a given amount of labour will yield will vary with the powers of the land to which it is applied. This being the case, the principle thab. men 'seek to gratify their desires with the least exertion will fix wages at the produce of such labour at the point of highest natural productiveness open to it,°which, under existing conditions, is the lowest point at which production continues. Thus the wages an employer must pay will be measured by the lowest point of natural productiveness to which production extends, and wages, as a proportion of the produce, will rise or fall as this point rises or falls. Hence, the proportion of wealth going to wages depends upon the margin of production or upon the produce which labour can obtain at the highest point of natural productiveness open to it without the payment of rent. Thus the law of wages, independently sought, meets and harmonises loith the law of rent.

Where land is free and labour is unassisted by capital, the whole produce will go to labour as wages. Where land is free and labour is assisted by capital, wages will consist of the whole produce less that part necessary to induce the storing up of labour or capital. "Where land is subject to ownership and renb arises, wages will be fixed by what labour could secure from the highest natural opportunities open to ib without the payment of rent. Where natural opportunities are all monopolised, wages may be forced by competition among labourees to the minimum at which labourers will consent to reproduce.

Chapter VIL—-Thus the laws of distribution are corollaries of each other. The fundamental law that men seek to gratify their desires with the least exertion becomes, when viewed in its relation to laud, the law of rent; in relation to capital, the law of interest; in relation to labour, the law of wages. And the harmony and correlation of these laws are perfect. Rent depend* on IU margin, of production,

rising as it falls and falling as it rises. Wages depend on the margin of production, falling as it falls and rising as it rises. Interest (its ratio with wages being fixed by the neb power'of increase which abbaches bo capital) depends on the margin of production, falling as it falls and rising as it rises. Chapter VIII.— The failure of wages as a proportion of the product of labour, to increase with increasing productive power, is due to the increase of rent. Three things unite to production — land, labour and capital. Three parties divide the produce—the landowner, the labourer and the capitalist. If with the increase of production wages are no more and interest no more, it is a necessary inference that renb swallows bhe whole gain. And the facts agree with this inference.