value, till at last the value of each will diminish so much that it will scarcely exceed the cost of production, and then they will cease to be built. If the demand varies as well as the supply, it is quite easy to discover what its effects must be according as its rate of increase is greater, equal to, or less than the supply.

47. The fundamental fallacy of the doctrine, that the cost of production regulates value, is that it wholly omits to take into consideration the effect that an excess of quantity has in depressing the market. If producers of articles had always a full knowledge of the supply that would be required, and refrained from throwing more on the market than could be taken off at a remunerative price, that doctrine might appear more specious. But all commerce is full of overtrading, and if commodities are thrown upon the market, there is no limit to the depression of price they may undergo, whatever may be their cost of production. When this is the case, the article ceases to be produced until the excessive supply is worked off, and the price has risen on account of the increased proportion of demand over supply. As soon as the enhanced price caused by the limitation of the supply, and by that only, makes it profitable to produce, production will be resumed. If the price continues to rise, production will be still further stimulated, and capital will be attracted into that branch of business, until the increased proportion of supply compared to the demand again causes the price to fall. But in all these cases it is the rise or fall in the price that attracts or repels capital, and not the employment of capital that regulates the price. The idea that cost of production regulates value proceeds upon the supposition that the individual can control the market, whereas in all ordinary cases it is the market that controls the individual. In those exceptional cases where a single individual has such power over the production of any article as to be able sensibly to influence the market, he can of course raise the profits of that article far above the usual commercial profits, simply from his power of keeping competitors out of his line of business.

48. These considerations are sufficient to shew the fallacy of the doctrine, that it is the cost of production which regulates price or value. On the contrary, it is generally the value an article is expected to have, when produced, that causes it to be produced.

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The difference between the cost of its production and its value is called the profit, and the course of a prudent man would be, first to calculate the cost of production of the article, then to consider what would be its probable value when produced, and if the difference between the two, or the profit, is sufficient to make it worth his while to produce it, he will do so, if not, he should try to discover some more profitable operation. If the value of the article when produced is only equal to, or less than, the cost of production, he must sell at a loss, and repeated operations of this nature will end by ruining him. The history of all commerce is but too full of examples of the value of articles falling below their cost of production, and of mercantile enterprises which never pay their expenses. There is but one way in which a producer can govern price by the cost of production, and that is when he can obtain a command over the supply, and limit it artificially, and not produce more than the public can be made to buy at a particular price. The Dutch acted upon this principle when they conquered the Spice Islands in the Eastern Archipelago. With contemptible selfishness, they cut down three-fourths of the spice-bearing trees, and so artificially enhanced the value of the remainder. It is also said that there is but one mine in England which produces plumbago, or black lead for pencils, and this being in the hands of one proprietor, he carefully limits its annual produce to force up its price in the market.

49. Nothing can be more incorrect in a scientific point of view than the Ricardian doctrine that the price of food regulates the Wages of Labour, and that Cost of Production, which mainly consists of Wages of Labour according to him, regulates value. This is manifestly reasoning in a vicious circle: because what regulates the price of food according to Ricardo? Quantity of Labour. Hence Ricardo says that the Quantity of Labour regulates the price of food, and then that the price of food regulates the price of Labour. Can there be a more striking instance of reasoning in a vicious circle? So far is it from being true that a rise in the price of food causes a rise in the rate of wages, that the effect is generally the reverse, and a rise in the price of food depresses wages. When the community at large has to pay an enhanced price for their food, which is an article of prime necessity, they have less to spare for clothing and other

goods. These being less sought after will diminish in value, consequently as the manufacturer cannot get so much for his goods, he must either diminish the cost of their production, or cease to produce. He must either force down wages, or shut up his mills. So that the necessary result of a considerable rise in the price of food is a fall in wages. That this is the case in manufacturing districts is too notorious to be disputed. Now, the wages of labour in this case depend entirely upon the relative necessities of the workmen and the employers, and their relative power over each other. The workmen will of course resist a fall in wages as long as they can, but if the master cannot reduce them to a certain rate, he cannot repay himself for his outlay, so that if the workmen refuse to work for those wages he must shut up his mill; but if the workmen cannot find employment, they must starve, so they must at last consent to the master's terms. On the other hand, when there is a good sale for the master's products, he is anxious to supply this demand and realize profits, and the workmen soon find this out and refuse to work unless for higher wages; but in this case there is also a limit which the master cannot go beyond, and there he takes his stand as before, and the workmen must yield. It sometimes happens that the workmen are so misguided as to think that by increasing the price of their labour they can force up the market value of the article, which erroneous idea has given rise to a great number of unhappy proceedings, so well known as "strikes," in the manufacturing districts. These strikes have repeatedly happened, both when trades have been in a state of great depression, as well as when they were prosperous; in the former case, when the masters found it necessary to reduce wages, the men combined to resist the reduction; in the latter case, when the men combined to raise their wages, and the masters resisted them, so that the men struck to compel the masters to yield. From these examples, as well as others which will be adduced, it will be seen that, instead of the cost of production regulating the value of an article, it is frequently its value which determines the cost of production.

50. Hence, we see that wages, or the price of labour, are determined by the value of the service at the time it is rendered. If there is a great demand for goods, there is a great demand for men to make them, and every master who has orders to execute is

anxious to engage men to enable him to do so, and the inevitable consequence of this is to give the men a greater power over their employers, and enable them to raise their demands, and the masters can well afford to do so, because though by the rise of wages their profits upon each individual transaction may be diminished, yet, from the greater number of operations, their profits are increased upon the whole. On the contrary, when the demand for goods falls off, and the quantity of work to be done is diminished, there are so many workmen to do it, that each is anxious to secure a share of it for himself, and then the power of the masters increases over the men, and they are enabled to reduce wages, nay, they must do so in self-preservation, because the number of their operations being reduced, the profit on each must be increased, to enable them to live. Now, when is it that the demand for goods increases? Common sense and universal experience reply, when the price of food is low, for then the people are able to indulge in other luxuries, and give a spur to labour. On the contrary, when food is high they have less to spare from food, which is an absolute necessity to them, and they must curtail their expenditure on other articles, so that there is less demand for labour, and, in the natural order of things, the price of it falls because the power of the labourers is diminished. The history of prices in this country will be found to confirm the truth of these observations; never was the price of labour so high as when food was cheap; on the contrary, as food rose the price of labour fell. These fluctuations in wages, produced by causes which were ill understood, alarmed and irritated the workmen, and opened an unfortunate field for a number of designing knaves to prey upon their ignorance and misery.

51. It is not surprising that ignorant and uninstructed workmen should fall into this mistake, when we see persons of much better education commit precisely the same error. The fundamental error which brought about so many of these unhappy strikes was, what has been said by persons of repute, that the cost of production of an article regulates its price. Many of these strikes were nothing more than the attempt to carry out to their practical and logical conclusions the doctrines which eminent political economists had enunciated with applause. The workmen thought that by combining to raise the price of their labour they

could force up the price of the article. But these proceedings have usually ended in failure and disaster to their authors, for they neglected to take into their calculation the necessity the public had for the article, and their means of supplying themselves with it elsewhere, which are essential elements in determining the price.

52. Innumerable instances of the truth of these doctrines will present themselves to every one practically acquainted with commerce. A striking one is given by an American writer" The cost of transport has fixed year after year the limit of agriculture. Translated into miles of railroad, it has been the radius that has described the charmed circle within which grain growing would pay; for the price of grain at Liverpool fixes its price at any point in this country. The farmer sells his wheat for the Liverpool price, less the cost of transport to Liverpool. As that cost increases, his profit decreases. When it reaches a certain point his profit is nil, and he must stop producing."

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So an able writer in a daily paper, speaking of strikes, says?— "Where is the remedy? Mainly in the increase of knowledge. Only the other day the landed gentry of England were relying on Protection; it is not so very surprising, therefore, if working men should still hope for prosperity through laws which really impede their own education and cramp the progress of their crafts. But we believe that the lessons taught by unsuccessful strikes are at length sinking deep into the minds of the operatives. The failure of the great Preston strike of 1854 was an experience for the men of Lancashire which they never forgot. As one of their leaders said six years afterwards: We now observe the current prices of the trade; when they increase, we demand a rise of wages; and our masters, recognising the reason of the thing, at once give us the advance.' This very principle was a short time since admirably carried into practice in Staffordshire. The ironmasters announced a reduction of wages, and the millmen and furnacemen of West Bromwich assembled together, talked over the situation, and a full discussion ended in passing the following resolution:"That this meeting, after due deliberation, and taking into consideration the state of the trade and the price of iron, cannot in 1 A. B. Mason. Fortnightly Review, Sept., 1874.

2 Daily Telegraph, Jan. 23, 1865.