covers the Expenses of production, without any separate allowance being made for the insurance against the risk of a fall in price.

§ 9. It is important to remember that there is no necessary connection between the selling price of any individual thing and its Expenses of production; the connection is between the Expenses of carrying on a certain process of production and the total sum that is received by selling the products. There is no connection between the Expenses of a fishing boat on any excursion and the price which is got for its haul. The haul may be bad, and the price got for it much below its Expenses of production, or the haul may be good and the price much above these Expenses. What the Law of Normal Value states is that the total price got for the fish must in the long run, taking good and bad hauls together, cover the Expenses of the boat.

The price of every individual thing is, as we saw in the last chapter, limited by its value in use to the purchaser. If a boat brings back only a few fish, only a small price can be got for the catch. So again, the value in use of a bell with a flaw in it is very little; it can be used only as old metal and therefore its price is only that of the old metal in it. When it was being cast the same trouble and expense were incurred for it as for other bells which turned out sound. Its Expenses of production were the same as those of sound bells: but they have great value in use and are therefore sold at a high price. The price of each particular bell is limited by its value in use: what the Law of Normal Value states is that the price of cracked bells and sound bells together must in the long run cover the expenses of making bells.

§ 10. [The main outline of the Law of Normal Value was worked out by Adam Smith and Ricardo. They were careful to guard against implying that the price of each individual thing is equal to its Expenses of production; but still this mistake has been made. This mistake has indeed led some people to approve a proposal made by Mr Carey, to say that the Value of a thing is equal to its Expenses (or, as he says, Cost) of reproduction.

It is quite true, as Mr Carey says, that when a new invention has very much diminished the difficulty of making, say, a steel rail, no one will pay for an old steel rail a price equal to the expenses which were incurred in making it by the old method. He seems to think that they will always pay for it a price equal to the Expenses of its reproduction, that is of producing a similar rail by the new method. But this is not the case. If trade has become suddenly bad, and iron-masters have many steel rails on hand, no one will pay for a steel rail a price equal to its Expenses of reproduction; because rails are being sold for less.

If the phrase "Expenses of reproduction" were for the phrase "Expenses of production" in our Law Value, the meaning of the Law would not be alt change. For the Expenses of reproduction of a t the long run the same as its Expenses of produ statements that value must be equal to Expenses of and that it must be equal to Expenses of reproduction false when they refer to the market value of any thing, and equally true when they refer to the No about which the market value oscillates. The ad the two phrases are so far about equally balance phrase Expenses of production has this very great over its rival, that it calls attention to the way in difficulty of producing a thing determines supply instance, and value in the second. Producers debati to increase their supply of a commodity do not inqui the price they get for it will cover its Expenses of re but whether the price will cover its Expenses of prod

CHAPTER III.

RENT.

§ 1. IT remains to inquire how the Expenses of production of a commodity may be affected by the payment of rent for the land on which it is produced; but before doing this it will be well to take up our account of the rent of land where we left it at the end of the first book. Rent was then defined as that payment for the use of land which the owner can obtain by free competition for lending out the use of it to others. We have now to inquire how the amount of this rent is determined in any particular case.

Suppose a farmer to have £500 which he is thinking of applying in extra cultivation of his farm; and to have calculated that it will only just answer his purpose to do so. He has calculated, that is, that if he applies this extra £500 he will, after paying for labour, seed, taxes, &c., get an extra net produce of the value of about say £40; i.e. at the rate of 8 per cent. on the extra outlay. This is, we suppose, just sufficient to remunerate him so that if he expected to get less, the chance of the improvement turning out unsuccessful and the prospect of additional trouble in working it, would induce him to invest the money in railway stocks or some other securities.

He hears at this time that a small adjacent farm of 50 acres is to be let, and he is asked what rent he would be willing to pay for it. His £500 would just be enough for working this farm, and he could work it with the same trouble that it would give him to apply the extra £500 to the farm he already has. He calculates that taking one year with another he may expect to get from it 100 worth of net produce after paying for labour, seed, taxes, &c.

So he will pay just £60 rent for the use of this land. If he can get the land for this he will take it: but he will not give any more for it; and it will not be likely to be worth any one else's while to offer more. So the landlord cannot get more than this for it. If he puts up the farm to competition and plays off

£60 is the rent that will be obtained, if there is a p market for the hire of land: that is, if on the one ha lord exerts himself to get the best rent he can for t on the other hand there are competent men in the hood who are ready to rent farms.

§ 2. This illustration shews us that

(i) The Economic rent of a piece of land subtracting from the value of its annual amount sufficient to return the farmer's profits.

Of course allowance must be made for the risk vests: this is done by assuming that the harvest is one. It must also be supposed that the farmer has nor less skill and enterprise than most others in hi hood, or as we may say, that he is an average fa rent then is the surplus return which the land gives harvest, after repaying the average farmer's outlay provided he has applied so much capital to it as surplus return as large as he can. If he has appl this amount of capital some one else who intends to than he has done, and thus obtain a larger surplus offer to pay a higher rent.

Further the above illustration shews that :

(ii) The amount of produce which a farmer in order to be remunerated for his outlay covered by observing what amount of addi is just sufficient to induce him, or another same neighbourhood, to apply extra capital

1 A farmer of more than ordinary ability ought in justi himself that portion of the net produce of the land whic exceptional qualities. Such a farmer is almost certain t land, and invest capital in it in various ways. His lar power of raising his rent above that which the land could it had remained in the hands of an ordinary farmer, by ejecting him without compensation for his improvement very seldom done in England.

2 The first part of the theory was known to Economist Smith's time. It is commonly, though perhaps erroneously he had no knowledge of this second part. Ricardo did working out the second part than any one else: but he di and the form in which he stated it is open to some excepti

That is, it can be discovered by observing the Return to his last Dose of capital. The return to this dose remunerates him, but only just remunerates him; therefore if he retains for himself as many times this return as he applied doses, he will just be remunerated for applying them. Therefore to find his rent, this return must be multiplied by the number of doses he applies, and then subtracted from his total produce. The Law of Rent then is :

If a farmer applies as much capital to his land as he profitably can, his rent is what remains after deducting from his total produce the return to his last dose multiplied by the number of doses he applies1.

1 In Book I. Chap. iv. § 3 it was shewn that if the doses of capital which a farmer applies to a given piece of land are measured along the line Ox, the returns due to the several doses can be represented by the figure OPQM. It was also shewn that, on account of the Law of Diminishing Return, when a certain number of doses have been applied to the land, the returns to these doses must diminish; that is the line PQ must gradually approach Ox.

This diagram may be used to represent the theory of rent. After the farmer has applied a considerable number of doses to the land, the

returns will begin to diminish. A point will be reached at which the return due to the last dose only just repays the farmer for applying it. At this point he will stop. Let each dose be £10, and let the last dose which it is worth his while to apply, be the fortieth. Suppose that this fortieth dose is represented on the figure by the point M; so that MQ, the return due to it, is just sufficient to repay the farmer for applying a dose of £10.

Since the return to this dose just remunerates the farmer, the returns to the other doses must more than remunerate him. For instance, SN being the return to the dose at N, draw QTR parallel to Ox cutting SN in T and OP in R, then NT is equal to QM, and therefore NT is that portion of the return due to the Nth dose which is required to remunerate the farmer for applying that dose; TS is surplus produce which the landlord can claim as rent. So if we draw vertical lines from other points in Ox, the portions of them that lie between Ox and RQ will be those