Book IV, Chapter IX, 1

ON AGRICULTURAL SYSTEMS, OR SYSTEMS OF POLITICAL ECONOMY THAT PRESENT THE PRODUCE OF LAND AS THE SOLE OR PRINCIPAL SOURCE OF EVERY COUNTRY'S REVENUE AND WEALTH.

The agricultural systems of political economy will not require so lengthy an explanation as I thought it necessary to give the mercantile or commercial system.

The system that presents the produce of land as the sole source of every country's revenue and wealth has, so far as I know, never been adopted by any nation. At present it exists only in the speculations of a few highly learned and ingenious men in France. It would surely not be worth examining at great length the errors of a system that has never done, and probably never will do, harm anywhere in the world. I shall nevertheless try to explain its broad outlines as clearly as I can.

Mr Colbert, the famous minister of Lewis XIV., was a man of integrity, great industry, and command of detail, with extensive experience and a keen eye for examining public accounts; his abilities, in short, suited him in every way to bringing method and good order to the collection and expenditure of public revenue. Unfortunately, this minister embraced all the prejudices of the mercantile system—a system of restraint and regulation in its very nature and essence, and one almost bound to appeal to a diligent, painstaking administrator accustomed to regulating the various departments of public offices and setting up the checks and controls needed to keep each within its proper sphere. He sought to regulate the industry and commerce of a great country on the same model as the departments of a public office. Instead of allowing every person to pursue his own interests in his own way under a generous plan of equality, liberty, and justice, he granted extraordinary privileges to certain branches of industry while imposing equally extraordinary restraints on others. Like other European ministers, he was disposed to encourage urban industry more than rural industry; but to support the towns, he was even willing to depress and hold down the countryside. To make food cheap for the townspeople, and thereby encourage manufactures and foreign commerce, he prohibited the export of grain altogether, thus shutting the country people out of every foreign market for by far the most important product of their labor. This prohibition, combined with restrictions imposed by the old provincial laws of France on moving grain from one province to another, and with the arbitrary and degrading taxes levied on cultivators in almost every province, discouraged agriculture and kept it far below the level it would naturally have attained on such fertile soil in such a favorable climate. This discouragement and depression were felt to varying degrees throughout the country, and many inquiries were begun into their causes. One cause appeared to be the preference Mr Colbert's institutions gave to urban over rural industry.

If a rod is bent too far one way, says the proverb, you must bend it just as far the other way to make it straight. The French philosophers who proposed the system that presents agriculture as the sole source of every country's revenue and wealth seem to have adopted this proverbial maxim. Just as Mr Colbert's plan certainly overvalued urban industry relative to rural industry, their system seems just as certainly to undervalue it.

The different orders of people ever thought to contribute in any way to the annual produce of a country's land and labor are divided by them into three classes. First comes the class of landowners. Second comes the class of cultivators, farmers, and rural laborers, whom they honor with the special name of the productive class. Third comes the class of artisans, manufacturers, and merchants, whom they seek to disparage with the humiliating name of the barren or unproductive class.

Landowners contribute to the annual produce through the money they may occasionally spend on improving the land—on buildings, drains, enclosures, and other improvements that they make or maintain, enabling cultivators to raise more produce with the same capital and therefore pay more rent. This increased rent may be considered the interest or profit due to a landowner on the expenditure or capital he has invested in improving his land. In this system, such expenditures are called ground expenses (depenses foncieres).

Cultivators or farmers contribute to the annual produce through what this system calls the original and annual expenses (depenses primitives, et depenses annuelles) that they incur in cultivating the land. The original expenses consist of farming tools, livestock, seed, and the maintenance of the farmer's family, servants, and animals for at least much of the first year of his tenancy, or until the land begins to yield a return. The annual expenses consist of seed, wear and tear on farming tools, and the yearly maintenance of the farmer's servants and animals, as well as of his family to the extent that its members can be regarded as servants engaged in cultivation. What remains to him of the land's produce after paying rent should be enough, first, to repay all his original expenses within a reasonable period, at least during his tenancy, along with the ordinary profits of stock; and, second, to repay all his annual expenses each year, also with the ordinary profits of stock. These two kinds of expense are two capitals the farmer employs in cultivation. Unless they are regularly returned to him with a reasonable profit, he cannot carry on his business on equal terms with other occupations. For his own sake, he must abandon it as soon as possible and seek another. The part of the land's produce needed to enable the farmer to remain in business should be regarded as a fund sacred to cultivation. If the landlord encroaches upon it, he necessarily reduces the output of his own land and, within a few years, renders the farmer unable to pay not only this exorbitant rent but even the reasonable rent he could otherwise have received. The rent properly due the landlord is no more than the net produce remaining after all the necessary expenses previously incurred in raising the gross or total produce have been fully paid. Because the cultivators' labor yields such a net produce above and beyond the complete repayment of all those necessary expenses, this class of people receives the special honorable name of the productive class in this system. Their original and annual expenses are likewise called productive expenses, because they not only replace their own value but also cause this net produce to be reproduced every year.

The ground expenses, as they are called, or what a landlord spends to improve his land, are also honored in this system with the name of productive expenses. Until the increased rent from his land has completely repaid him all those expenses, together with the ordinary profits of stock, that increased rent should be regarded as sacred and inviolable by church and king alike: it should be subject neither to tithes nor to taxes. Otherwise, in discouraging improvements to the land, the church discourages the future increase of its own tithes, and the king the future increase of his taxes. Thus, since under a properly ordered system these ground expenses eventually yield a net produce in addition to fully reproducing their own value, this system regards them as productive expenses.

The landlord's ground expenses, however, together with the farmer's original and annual expenses, are the only three kinds of expenses that this system considers productive. All other expenses and all other orders of people—even those commonly held to be the most productive—are in this account portrayed as wholly barren and unproductive.

Artisans and manufacturers in particular, whose industry is commonly thought to add so greatly to the value of the raw produce of land, are portrayed by this system as a wholly barren and unproductive class. Their labor, it is said, replaces only the stock that employs them, together with its ordinary profits. That stock consists of the materials, tools, and wages advanced by their employer; it is the fund set aside to employ and maintain them. Its profits are the fund set aside to maintain their employer. Just as he advances the stock of materials, tools, and wages needed to employ them, their employer advances to himself what he needs for his own maintenance, ordinarily proportioning that maintenance to the profit he expects from the price of their work. Unless that price repays him for his own advance of maintenance as well as for the materials, tools, and wages advanced to his workers, it clearly does not repay his entire expenditure. The profits of manufacturing stock, therefore, are not, like rent from land, a net produce remaining after the full repayment of every expense needed to obtain them. The farmer's stock yields him a profit, as the master manufacturer's does, but also yields rent to another person, which the manufacturer's stock does not. The expense of employing and maintaining artisans and manufacturers thus does no more than perpetuate, so to speak, the existence of its own value; it creates no new value. It is therefore wholly barren and unproductive. By contrast, the expense of employing farmers and rural laborers not only perpetuates its own value but creates a new value, the landlord's rent. It is therefore productive.

Mercantile stock is just as barren and unproductive as manufacturing stock. It merely perpetuates its own value without creating any new value. Its profits are only the repayment of the maintenance that its employer advances to himself while he employs it, or until he receives its returns. They merely repay part of the expense necessarily incurred in employing it.

The labor of artisans and manufacturers never adds anything to the value of the entire annual amount of the land's raw produce. It does, indeed, add greatly to the value of particular parts of it. But the value of the other parts consumed in the process is precisely equal to the value it adds to those parts, so that at no moment is the value of the whole amount increased in the slightest. Someone making the lace for a pair of fine ruffles, for example, may raise the value of perhaps a pennyworth of flax to £30 sterling. At first sight he thus seems to multiply the value of one part of the raw produce some seven thousand and two hundred times; in reality, however, he adds nothing to the value of the entire annual amount of raw produce. Making that lace costs him perhaps two years' labor. The £30 he receives when it is finished merely repays the subsistence he has advanced to himself over the two years spent working on it. The value he adds to the flax through a day's, month's, or year's labor does no more than replace the value of what he consumes during that day, month, or year. At no moment, therefore, does he add anything to the value of the entire annual amount of the land's raw produce: the portion of that produce he continually consumes always equals the value he continually produces. The extreme poverty of most people engaged in this expensive yet trifling manufacture may convince us that the price of their work does not ordinarily exceed the value of their subsistence. The work of farmers and rural laborers is different. The landlord's rent is a value that their work ordinarily continues to produce over and above fully replacing all the consumption, all the expenses incurred to employ and maintain both the workers and their employer.

On Agricultural Systems, or Systems of Political Economy That Treat the Produce of Land as Either the Only or the Main Source of Every Country's Revenue and Wealth.

Explaining agricultural systems of political economy will not take as long as the explanation I thought necessary for the mercantile or commercial system.

As far as I know, no nation has ever adopted the system that treats the produce of land as the only source of every country's revenue and wealth. It currently exists only in the theories of a few highly learned and clever men in France. It would hardly be worth examining at length the errors of a system that has never done harm anywhere and probably never will. Still, I will try to explain its main outlines as clearly as I can.

Mr Colbert, the famous minister of Lewis XIV., was honest, hardworking, and knowledgeable about details. He had great experience and skill in examining public accounts. In short, he had every ability needed to bring order to the collection and spending of public revenue. Unfortunately, he accepted all the prejudices of the mercantile system. That system is based on restrictions and regulation, and it would naturally appeal to a diligent, painstaking administrator used to organizing the departments of government offices and putting checks in place to keep each within its proper role. He tried to regulate the work and trade of a great country as if they were departments of a government office. Instead of letting everyone pursue their own interests in their own way under a fair system of equality, liberty, and justice, he gave extraordinary privileges to some industries and imposed equally extraordinary restrictions on others. Like other European ministers, he favored the work of towns over that of the countryside. He even tried to hold back rural work to support work in towns. To keep food cheap for town residents, and so encourage manufacturing and foreign trade, he banned all exports of grain. This shut country people out of every foreign market for by far the most important product of their work. Alongside this ban were old French provincial laws restricting grain shipments between provinces and arbitrary, humiliating taxes on farmers in almost all provinces. Together these policies held French agriculture far below the level it would naturally have reached in such fertile soil and such a favorable climate. Different parts of the country felt this discouragement and decline to different degrees, and many investigations sought its causes. One cause appeared to be Mr Colbert's policies favoring the work of towns over that of the countryside.

As the proverb says, if you bend a rod too far one way, you have to bend it just as far the other way to straighten it. The French philosophers who proposed treating agriculture as the only source of every country's revenue and wealth seem to have followed that saying. Mr Colbert's plan certainly placed too high a value on the work of towns compared with the countryside. Their system seems just as certainly to place too low a value on it.

They divide everyone thought to contribute to the country's annual output from land and labor into three classes. First are landowners. Second are cultivators, including farmers and rural laborers, whom they give the special title "productive class." Third are artisans, manufacturers, and merchants, whom they try to diminish by calling the "barren" or "unproductive class."

Landowners contribute to annual output through what they occasionally spend on improving land: buildings, drains, fences, and other improvements they make or maintain. These allow cultivators to produce more using the same capital, so that they can pay more rent. The higher rent can be seen as interest or profit on the landowner's spending or capital used to improve the land. In this system that spending is called ground expenses (depenses foncieres).

Cultivators or farmers contribute to annual output through what the system calls original and annual expenses (depenses primitives, et depenses annuelles) on cultivating land. Original expenses include farming tools, livestock, seed, and the support of the farmer's family, servants, and animals through at least much of the first year of occupancy, until the land begins to bring a return. Annual expenses include seed, wear on farming tools, and yearly support for the farmer's servants and livestock. They also include support for family members insofar as they work as servants in cultivation. The produce left to the farmer after rent should first repay all his original expenses, along with the usual profit on stock, within a reasonable time and at least during his term of occupancy. Second, each year it should repay all his annual expenses, also with the usual profit on stock. These two types of expenses are two kinds of capital that the farmer uses to cultivate land. Unless both are regularly repaid with a reasonable profit, he cannot compete with other occupations. His own interest will make him leave farming as soon as he can and find another occupation. The produce needed to keep him farming must be treated as a fund reserved for cultivation. If a landlord takes it, he inevitably lowers the output of his own land. In a few years the farmer will be unable to pay not only this excessive rent, but even the reasonable rent that the landlord could otherwise have received. The landlord is properly entitled only to the net produce left after all the necessary expenses of producing the total, or gross, output have been fully paid. Because the cultivators' labor yields this net produce after fully covering those costs, this system gives them the honorable name "productive class." Their original and annual expenses are likewise called productive expenses. Besides replacing their own value, they lead to the yearly production of this net produce.

The system also calls ground expenses—what the landlord spends on improving land—productive expenses. Until the increase in rent has fully repaid all those expenses plus the usual profit on stock, both church and king should treat that additional rent as untouchable. Neither tithes nor taxes should apply to it. Otherwise the church, by discouraging land improvement, discourages growth in its future tithes; the king does the same to future taxes. In a well-ordered system, then, ground expenses eventually not only repay their full value but also lead to a new net produce. That is why this system counts them as productive expenses.

Yet the landlord's ground expenses and the farmer's original and annual expenses are the only three kinds of expenses this system regards as productive. All other expenses, and all other groups of people—even those generally regarded as highly productive—are classified as completely barren and unproductive.

Artisans and manufacturers in particular are generally thought to add greatly to the value of raw produce from the land. But this system treats them as completely barren and unproductive. It claims their work merely replaces the stock that employs them, along with its usual profits. This stock consists of the materials, tools, and wages their employer advances them. It is the fund for employing and supporting them. The profit is the fund for supporting the employer. When the employer advances materials, tools, and wages to the workers, he also advances what he needs for his own support. He generally sets that support in proportion to the profit he expects from the price of their work. If the selling price does not repay the support he has advanced himself, as well as the materials, tools, and wages he has advanced his workers, it plainly does not repay his entire expense. Thus profit on manufacturing stock is not, like land rent, a net produce left over after fully repaying every expense needed to obtain it. The farmer's stock yields him a profit too, just as the master manufacturer's stock does. But the farmer's stock also pays rent to someone else; the manufacturer's does not. So spending on employing and supporting artisans and manufacturers merely keeps its own value in existence, so to speak. It creates no new value and is therefore wholly barren and unproductive. By contrast, spending on employing farmers and rural laborers not only keeps its own value in existence but produces new value: the landlord's rent. It is therefore productive spending.

Stock used in trade is as barren and unproductive as stock used in manufacturing. It merely maintains its own value without creating new value. Its profits simply repay what the employer advances for his own support while he uses the stock, until it brings in a return. They repay only part of the expense of using it.

The labor of artisans and manufacturers, according to this system, never adds anything to the total annual value of the land's raw produce. It does greatly raise the value of particular portions. But meanwhile, it uses up other portions of exactly equal value. At no moment does it increase the value of the whole. Take a person who makes the lace for a pair of fine ruffles. Sometimes that person's work raises perhaps a pennyworth of flax to a value of £30 sterling. At first it looks as though this multiplies the value of that portion of raw produce about seven thousand and two hundred times. In fact it adds nothing to the total annual value of raw produce. Making the lace may cost the worker two years labor. The £30 earned on its completion merely repays what that worker has advanced for food and other necessities during those two years. Each day's, month's, or year's work adds value to the flax only equal to the value of what the worker consumes in that day, month, or year. At no moment, therefore, does the worker add anything to the annual total value of the land's raw produce. The worker constantly consumes an amount of that produce equal to the value being created. The extreme poverty of most workers in this costly but trivial trade may convince us that the price of their work does not ordinarily exceed what they need to live. It is different for farmers and rural laborers. In ordinary cases they continuously produce the landlord's rent as additional value, beyond fully replacing everything consumed and every expense of employing and supporting both the workers and their employer.