Tuesday, August 28, 2012

On the Profits of Industry, Capital, and Land; That Is, Income

Jean-Baptiste Say

What is the source of the profits of industry, capital, and land?
It is in the price of the products created by their cooperation. The consumer in buying a product, pays all the charges of its production, that is, the services of the producers (the industrious, the capitalists, and the landholders), who have contributed to its production.
How can these profits, paid by a single consumer, be distributed among the different producers?
By the advances which the producers make of them to one another.
Explain that by an example.
Let us examine how the value of a cloth coat is distributed among the producers of the stuff of which it is made. We see that a farmer who has reared a sheep, has paid a rent to the landholder who let to him the land on which the sheep was fed. That is a profit received for the productive service of the land. If the farmer has borrowed the capital necessary for the cultivation of his farm, the interest which he pays for it is another profit, received by a capitalist, for the productive service of his capital. When the farmer has sold his wool, the price which he receives for it reimburses to him the rent and interest he has paid, and also the profits of his industry. The clothier, in his turn, by means of his capital, advances this value which is already distributed: if his capital is a borrowed one, and he pays interest for it, he pays also in advance the profits of the capitalist who lent it to him; and he is reimbursed the whole, together with his profits, by the woolen draper, who is at last reimbursed for his advances and his profits by the sale which he makes to the consumer. Thus at the time the sale of the cloth was accomplished, the value had already been distributed among its different producers.
In thus tracing the progress of any product whatever, we shall find that its value is scattered among a crowd of producers, many of whom perhaps are ignorant of the existence of the product: so that a man that wears the coat is perhaps, without suspecting it, one of the capitalists, and consequently one of the producers, who have contributed to its formation.
Is not society then divided into producers and consumers?
Everybody consumes, and almost everybody produces. For, not to be a producer, it is necessary neither to exercise any industry, nor any talent, nor to possess either the smallest portion of land or of productive capital.
What do the profits, distributed among society, become?
They compose the income of each individual; and the incomes of all the individuals which form a nation, compose the total income of that nation.
What is called annual income?
It is the sum of all the portions of income received in the course of a year. The annual income of a whole nation, is the sum of all the portions of income received, in the course of a year, by all the individuals of which that nation is composed.
Are incomes paid at fixed periods?
Some of them are so; some not. A landholder who lets his land, a capitalist who lends his capital, and who thus gives up to another the profits which may result from these agents of production, generally stipulate the condition of receiving the rent or interest, which forms their income, at fixed periods. The workman who lets out his industrious talent receives the wages which form his income by portions, every week or every fortnight. But the grocer, who sells sugar and coffee, receives on each ounce that he sells, a small portion of his profit, and all these united profits form his income.
Are incomes, or portions of income, always paid in money?
The manner in which they are paid has nothing to do with the subject. The corn, vegetables, milk, and butter, which a farmer consumes in his own family, form part of his income. If he pays part of his rent in provisions, these provisions form part of the income of the landlord. The essential thing is the value paid, whether this value is paid in provisions, or whether he that owes it, exchanges these provisions for money, in order to pay the value in money, is of no importance. It is the value acquired, under whatever form, for a productive service, that constitutes income.
As the incomes of individuals are so much the more considerable as their profits are greater, and as their profits are greater when their productive services are better paid, it appears to me that the dearer these productive services are, the greater the total income of that nation must be.
Yes: but when the productive services are dearer so are the products; and when the price of the products augments in the same proportion as the incomes, the augmentation of the income is only nominal. When the charges of production have doubled, with an income nominally double, we can only purchase the same quantity of products. That alone really increases the ease of individuals and of nations which lowers the value of products without decreasing incomes.
In what circumstances is this advantage experienced?
It is when, by a better employment of the means of production, the products are multiplied without increasing the charges of production. Then the products fall and incomes remain the same. This is what takes place when a new and ingenious machine has been brought into use, such as the stocking frame and the cotton spinning machines: when a new canal has been cut, which, without increasing the charge, permits the transport of a hundred times more merchandise, etc.

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