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Of the various Factors in Production, and how to distinguish the Amount produced by each.

The inquiry on which we are entering really comprises two. I will explain how.

Although, as we have seen, of the yearly income of the nation a part only consists of material things, yet the remainder depends upon these, and its amount is necessarily in proportion to them. Accordingly, when we are dealing with the question of how the income is produced, we may represent the whole of it as a great heap of commodities, which every year disappears, and is every year replaced by a new one. Here then we have a heap of commodities on one side, and on the other the subjects of our inquiry—namely, the conditions and forces which produce that heap.

◆1 Land, Capital, and Human Exertion are the three factors in production; but at present we may omit Capital.

Now, as to what these conditions and forces are, there is a familiar answer ready for us—◆¹ Land, Labour, and Capital; and, with a certain reservation, we may take this to be true. But as Capital is itself the result of Land and Labour, we need not, for the moment, treat Capital separately; but we may say that the heap is produced by Land and Labour simply. I use this formula, however, only for the purpose of amending it. It will be better, for reasons with which I shall deal presently, instead of the term Labour to use the term Human Exertion. And further, we must remember this—the heap of commodities we have in view is no mere abstraction, but represents the income of this country at some definite date; so that when we are talking of the forces and conditions that have produced it, we mean not only Human Exertion and Land, but Human Exertion of a certain definite amount applied to Land of a definite extent and quality.

◆1 The first point we notice is that the exertion of the same number of men applied to the same land does not always produce the same amount of wealth.

◆2 This must be due to some varying element in the Human Exertion in question.

◆3 Let us compare production in this country 100 years ago with production now.

◆¹ Now, as I pointed out in the last Book, one of the most remarkable things about our national production of commodities, is that the yearly exertion of the same number of men, applied to land of the same extent and quality, has been far from producing always a heap of the same size. On the contrary, the heap which it produces to-day is twice as large as that which it produced in the days of our fathers; and nearly three times as large as that which it produced in the days of our grandfathers. Here then is the reason why the inquiry that is before us is twofold. For we have at first to take some one of such heaps singly—on several accounts it will be convenient to take the smallest, namely that produced about a hundred years ago—and to analyse the parts which Land and Human Exertion played respectively in the production of it. Then, having seen how Land and Human Exertion produced in the days of our grandfathers a heap of this special size, we must proceed to inquire why three generations later the same land and the exertions of a similar number of men produce a heap which is nearly three times as large. For the difference of result cannot be due to nothing. ◆² It must be due to some difference in one of the two causes—to the presence in this cause of some varying element: and it is precisely here—here in this varying element—that the main interest of our inquiry centres. For if it is owing to a variation in this element that our productive powers have nearly trebled themselves in the course of three generations, nearly two-thirds of the income which the nation enjoys at present depends on the present condition of this element being maintained, and not being suffered—as it very easily might be—to again become what it was three generations back. ◆³ Let us begin then with taking the amount of commodities produced in this country at the end of the last century, which is at once the most convenient and the most natural period to select; for production was then entering on its present stage of development, and its course from then till now is more or less familiar to us all.

We will start therefore with the fact that, about a hundred years ago, our national income, if divided equally amongst the inhabitants of the kingdom, would have yielded to each inhabitant a share of about fourteen pounds; so that if we confine ourselves to Great Britain, the population of which was then about ten millions, we have a national income of a hundred and forty million pounds, or a heap of commodities produced every year to an amount that is indicated by that money value. Let us take then any one of the closing years of the last century, and consider for a moment the causes at work in this island to which the production of such a heap of commodities was due.

In general language, these causes have been described already as Human Exertion of a certain definite amount applied to Land of a certain definite extent and quality; but it will now be well to restore to its traditional place the accumulated result of past exertion—namely Capital, and to think of it as a separate cause, according to the usual practice. For everybody knows that at the close of the last century, many sorts of machinery, and stores of all sorts of necessaries, were made and accumulated to assist and maintain Labour; and it is of such things that Capital principally consists. The Capital of Great Britain was at that time about sixteen hundred million pounds.[25] We will accordingly say that about a hundred years ago, the Land of this island, the Capital of this island, and the Exertions of a population of ten million people produced together, every twelve months, a heap of commodities worth a hundred and forty million pounds. We need not, however, dwell, till later, on these details. For the present our national production at this particular period may be taken to represent the production of wealth generally.

◆1 How much in each case did Land, Capital, and Human Exertion produce respectively?

◆¹ Now the question, let it be remembered, with which we are concerned ultimately, is how wealth, as produced in the modern world, may be distributed. Accordingly, since the distribution of it presupposes its production, and since we are agreed generally as to what the causes of its production are,—namely, Land, Capital, and Human Exertion,—our next great step is to inquire what proportion of the product is to be set down as due to each of these causes separately; for it is by this means only that we can see how and to what extent our social arrangements may be changed, without our production being diminished. And I cannot introduce the subject in a better way than by quoting the following passage from John Stuart Mill, in which he declares such an inquiry to be both meaningless and impossible to answer; for that it can be answered, and that it is full of meaning, and that to ask and answer it is a practical and fundamental necessity, will be made all the plainer by the absurdity of Mill’s denial.

◆1 Mill declares this question to be meaningless;

◆2 But his argument is answered, and is refuted both by practical life and by his own writings.

◆¹ “Some writers,” he says, “have raised the question whether Nature (or, in the language of economics, Land) gives more assistance to Labour in one kind of industry or another, and have said that in some occupations Labour does most; in others, Nature most. In this, however, there seems much confusion of ideas. The part which Nature has in any work of man is indefinite and immeasurable. It is impossible to decide that in any one thing Nature does more than in any other. One cannot even say that Labour does less. Less Labour may be required; but if that which is required is absolutely indispensable, the result is just as much the product of Labour as of Nature. When two conditions are equally necessary for producing the effect at all, it is unmeaning to say that so much of it is produced by one and so much by the other. It is like attempting to decide which half of a pair of scissors has most to do with the act of cutting; or, which of the factors—five or six—has most to do with the production of thirty.” So writes Mill in the first chapter of his Principles of Political Economy; and if what he says is true with regard to Land and Labour (or, as we are calling it, Human Exertion), it is equally true with regard to Human Exertion and Capital; for without Human Exertion, Capital could produce nothing, and without Capital modern industry would be impossible: and thus, according to Mill’s argument, we cannot assign to either of them a specific portion of the product. ◆² But Mill’s argument is altogether unsound; and the actual facts of life, and a large part of Mill’s own book, little as he perceived that it was so, are virtually a complete refutation of it.

To understand this, the reader need only reflect on those three principal and familiar parts into which the annual income of every civilised nation is divided, not only in actual practice, but theoretically by Mill himself—namely Rent, Interest, and Wages.[26] For these—what are they? The answer is very simple. They are portions of the income which correspond, at all events in theory, to the amounts produced respectively by Land, Capital, and Human Exertion; and which are on that account distributed amongst three sets of men—those who own the Land, those who own the Capital, and those who have contributed the Exertion. There are many causes which in practice may prevent the correspondence being complete; but that the general way in which the income is actually distributed is based on the amount produced by these three things respectively,—Land, Capital, and Human Exertion,—is a fact which no one can doubt who has once taken the trouble to consider it. It is thus perfectly clear that, contrary to what Mill says, though two or more agencies may be equally indispensable to the production of any wealth at all, it is not only not “unmeaning to say that so much is produced by one and so much by the other,” but it is possible to make the calculation with practical certainty and precision; and I will now proceed to explain the principles on which it is made.