that market fluctuations of value are the cause and not the consequence of market fluctuations of Expenses of production. If Ricardo and Mill had taken more pains to make clear the distinctions between the theory of Normal value and that of Market value, there could not have been as much controversy as there has been on the question whether value is governed by Expenses of production, or Expenses of production by value.]

CHAPTER III.

LOCAL VARIATIONS OF PRICES AND WAGES. INFLUENCE OF CUSTOM.

§ I. WHEN seeking for the Law of Normal value of a commodity, we noticed that the same commodity may have different Normal values in different markets. Its Normal value in any market is equal to its Expenses of production there, and among these is to be reckoned the Expense of carrying it there from the place at which it is made, including of course any customs duties that have to be paid on the way. Thus the Law of Normal value contains in itself the following Laws of Local Variation of Normal prices :

If two markets are supplied with a commodity from the same source, its Normal value is higher in the more distant (or less accessible) market by the difference between the expenses of carrying it from the place where it is made to those markets.

If there are two places in which a commodity is made for sale in the same market, its Normal value is lower in the more distant (or less accessible) of these two places by the difference between the expenses of carrying it to this market from the two places.

These laws take it for granted that if the difference between the prices of a commodity in two markets is greater than the expense of carrying it from one to the other, some one will set to work to bring it from the cheaper to the dearer market. They assume that there are men connected with these markets who have the capital and the business habits required for the work; and that the demand for the commodity is on so great a scale as to make it worth while to organize a traffic in it.

These conditions are fulfilled when the commodity is one in general use, and when the markets are large towns in close commercial intercourse with each other; local variations in the wholesale prices of the staple wares of commerce are, with a few exceptions, to be attributed to differences in the expen

of transport. The most important of these exceptions occur when some producers are very anxious to force their way into a distant market. The competition of others who are more advantageously placed for supplying this market may induce them to sell at a price so low that, after allowing for the expenses of carriage, it does not afford them the ordinary rate of profits; while perhaps they make up this deficiency by combining with one another to sell at a high price in their own markets. Thus for instance English manufacturers sometimes sell goods in America at a price which, after allowing for taxes and expense of transport, is lower than that at which they sell in England; and some American goods, such as sewing machines, are sold in Canada at a lower price, allowance being made for the customs duty, than in the United States. But the tendency of competition is to remove anomalies of this kind by breaking up local combinations, and compelling the producers to sell in the home market at a price equal to the Expenses of production of the commodity there.

Where there is no organized traffic, prices are not determined by free competition: their local variations are not governed simply by the above laws. Some account then must be given of the local variations of the prices of things that cannot easily be sent long distances to market, and of retail prices generally.

§2. First among the things which cannot be sent to market is land. But railways now enable many kinds of agricultural produce to be sent great distances to market; and thus bring them under the Laws of Local Variations of Normal prices. And since the rent of land is the excess of the price which its produce fetches, over the expenses of raising it and sending it to market, it follows that, if land were always let by free competition for agricultural purposes, rent would be brought under the indirect influence of these laws.

And the value of land is in a great measure determined by its rent. For suppose the rate of interest for safe investment were four per cent., so that people could obtain a secure income of £100 a year from the investment of £2500. Then if rent were the only advantage which land gave to its owner, and if rent were not likely to rise, people would be willing to pay just £2500 for land that would yield them a secure rent of £100 a year. But when people buy land they often look forward to a rise in its rent. The opening up new fields for agriculture in America and increased facilities of transport may indeed check the rise in the value of agricultural produce, and so check the rise in the rent of English farms; but the rise in the rent of land near large towns and in manufacturing districts seems likely to continue without much interruption. This rise,

in as far as it is caused by the growth of population and independently of any action on the part of the landlord, has been called an 66 92 unearned increment of the rent of land. When this has been estimated, the amount that is added to the value of the land on account of it, can be found by a simple arithmetical calculation.

But this is an incomplete account of the causes which determine the value of land. For firstly, even where competition is perfectly free, allowance must be made for the other advantages which land affords besides the right to receive its rent. Some people derive a peculiar pleasure from the ownership of land; they love their land as they love their dogs, and they are as willing to pay for the gratification of their affection for the one as for the other. This feeling, and the social position which land gives, raise its value further still. But the amount of this last addition depends on national character and on social arrangements which vary from one country to another and from one time to another; and these variations obey no law.

Secondly, the rent of land is seldom determined by perfectly free competition. The comfort of the landlord, the social position which counts for much in the value of his land, require him to live on cordial terms with his tenants; and he is seldom anxious to drive hard bargains with them. The competition for a farm is often practically limited to a few families in its neighbourhood, or rather, to those who get on well with the landlord in personal and social and political matters; and the landlord would often find it difficult, even if he were inclined to do so, to exact the highest rent which the land could be made to pay.

On the other hand it is true now, as it was in Adam Smith's time, that upon equal or nearly equal profits men will choose to employ their capitals rather in the improvement and cultivation of land than in manufactures or foreign trade." In some parts of the country, in which landlords grant long leases to their tenants, and enable them to invest their capital securely in the land, competition raises rents so high as to make the farmer's rate of profits lower than that in almost any other trade.

§3. The hindrances to the free play of competition in determining the rent of land are relics of the past. In the village communities of our Germanic forefathers, and in the similar communities that still exist in India, we find no such thing as private property in land; the price of land is not ruled by competition, because it has no price. Custom determines the price of everything that is made and sold in the village. It is only in the case of those few things which the villagers buy from outsiders, or which they make to be sold to outsiders, that price

is determined by bargaining and free competition, and is affected at once by economic changes. An influx of precious metals into the country would raise the price of these things at once; but for a long while it would hardly affect the prices of those things that each village made for itself. In the course of time however the villagers would find that they earned much more by making things to be sent away and sold at the new high prices, than by making things to be sold for use at home at the old customary prices. They would slowly seek the more profitable work; the things wanted for home consumption would become scarcer, and in spite of custom their prices would gradually rise. The more secluded a village was, the less trade it had with distant places, the longer would it be before its prices were affected by the influx of the precious metals.

The influence of custom has not yet died out in civilized countries. In agricultural districts there are many villages which, at all events until quite recently, have had scarcely any intercourse with the rest of the country. Before the development of railways, towns drew most of their supplies from the country lying immediately around them, and the remoter districts often did not feel the influence of social and economic changes in the life of the towns until more than a generation after they had occurred.

Habits of enterprise grow slowly. Those parts of the country which till recently had scarcely any communication with other places, still shew little eagerness to avail themselves of the means that are now within their reach of sending their produce to distant markets. But they are being roused from their lethargy by the enterprise of townsfolk who are organizing the supply of dairy produce and other perishable things from remote districts to large towns. The sluggishness of some farmers, their unwillingness to read newspapers connected with their trade, and their habits of suspicious secrecy towards one another, prevent there being a uniform wholesale price for dairy produce; and it often happens that two farmers living side by side sell their milk at unequal prices. But competition is much more effective than it used to be: "beef, mutton, veal, butter, eggs and poultry for example have risen about twenty-five per cent. in the London market, but they have risen a hundred per cent. above their rates a few years ago in the inland parts of Ireland and Scotland on the new lines of railway. The common price of meat in the towns in the interior of Ireland before they were connected with the ports and the English market by railways, was from 3d. to 4d. a pound, and now it is from 7d. to 8d.1"

An interesting example of the more intimate relations in

1 Cliffe Leslie's Essays on Political and Moral Philosophy, p. 277