further supply of its products would be sold on such terms as to pay their expenses of production; and meanwhile the employment of each several agent in each branch of production would have been extended until full advantage had been taken of its special fitness for the work; its use would cease only when there remained nothing that could be done by it better, or more cheaply, than by other means.

the several

§ 4. Our results become more intricate in form, but are similar in substance, if we take account of the fact that the supply price is not rigidly fixed, but depends on the amount demanded. It remains true that the production of every commodity is carried forward up to that The amounts limit or margin at which there is equilibrium and prices of between the forces of demand and supply; that agents of prois, the limit at which any further production duction mutually dewould bring in less than a remunerative price. termine one The amount of the commodity and its price, the another. amounts of the several factors or agents of production used in making it, and their prices-all these elements mutually determine one another, and if an external cause should alter any one of them the effect of the disturbance extends to all the others.

Just in the same way, when several balls are lying in a bowl, they mutually determine one another's Parallel inpositions. And again when a heavy weight is stances from suspended by several elastic strings of different physics. strengths and lengths attached to different points in the ceiling, the equilibrium positions of all the strings and of the weight mutually determine one another: if any one of the strings that is already stretched is shortened, everything else will change its position, and the length and the tension of every other string will be altered also'.

1 It will be recollected (see Book v. Ch. III. § 2) that there is a fundamental difference between earnings and interest on the one hand, and rent on the other. For rent is not one of these mutually determining elements, but

is determined by them: the rent or Producer's Surplus of a differential advantage, not made by man, is the excess value of the return which can be got by its aid where labour and capital are applied with normal ability up to the margin of profitableness over that which the same labour, capital and ability would get if working without the aid of any such advantage. But we shall have to return to this point.

Principles, VI. 1. enters rather more fully than the present chapter into the subjects of § 4, and into the history of the theory of wages.

CHAPTER II.

PRELIMINARY SURVEY OF DISTRIBUTION AND EXCHANGE,

CONTINUED.

§ 1. IN the account given in the last Chapter of the demand for the several Agents of production, it was indicated that the ultimate demand for each depended on the co-operation of the others in raising their joint product; or, to state the case even more broadly, that the demand for each is in a great measure governed by the supply of the others. The present Chapter will be devoted to examining this mutual dependence more closely.

The aggregate Net product of the agents of production is the National Dividend,

The labour and capital of the country, acting on its natural resources, raise annually a joint product consisting of a certain Net aggregate of commodities, material and immaterial, including services of all kinds'. This is the true net annual income, or revenue, of the country; or, as we may say, the NATIONAL DIVIDEND. It is of course unimportant whether we estimate it for a year or for any other period; the important point is that it is a continuous stream always flowing, and not a reservoir or store, or in the narrower sense of the word a "Fund" of capital.

The terms National Income and National Dividend are convertible; only the latter is the more convenient when we are looking at the National Income in the character of the sum of the new sources of enjoyments that are available for Distribution2.

1 See Book II. Ch. II. and v.

2 The word Net has of course no fixed meaning: it merely indicates that certain deductions, specified in the context, have to be made. In this particular case it indicates that the aggregate of commodities produced during

It is to be understood that the share of the National Dividend, which any particular industrial class receives during the year, consists either of things that were made during the year, or of the equivalents of those things. For many of the things made, or partly made, during the year are likely to remain in the possession of capitalists and undertakers of industry and to be added to the stock of capital; while in return they, directly or indirectly, hand over to the working classes some things that had been made in previous years'.

which is also

of demand for

of production.

The Net aggregate of all the commodities produced is itself the true source from which flow the demand the sole source prices for all these commodities, and therefore for all the agents the agents of production used in making them. Or, to put the same thing in another way, this National Dividend is at once the aggregate Net product of, and the sole source of payment for, all the agents of production within the country: it is divided up into Earnings of labour, Interest of capital, and lastly the Producer's Surplus, or Rent, of land and of other differential advantages for production. It constitutes the whole of them and the whole of it is distributed among them; and the larger it is, the larger, other things being equal, will be the share of each agent of production.

Other things being equal, the larger the supply of any An increase in agent of production, the further will it have to the supply of push its way into uses for which it is not specially nerally lowers fitted, and the lower will be the demand price with which it will have to be contented in those uses in which its employment is on the verge or margin of not

any agent ge

its price;

the year is estimated so as to allow for the replacement of raw material consumed during the year and for the wear and tear of machinery. But no corresponding reduction is made for the wear and tear of human agents of production; because the earnings of labour are commonly estimated gross, that is, without any allowance for the ageing and exhaustion of the worker. 1 This subject is further pursued in the Note at the end of this Chapter.

being found profitable; and, in so far as competition equalizes the price which it gets in all uses, this price will be its price for all uses. The extra production resulting from the increase in that agent of production will go to swell the National Dividend and other agents of production will benefit thereby : but that agent itself will have to submit to a lower rate of pay.

all, other

For instance, if without any other change capital increases fast, the rate of interest must fall; if without any other change the number of those ready to do any particular kind of labour increases their wages must fall. In either case to the benefit of there will result an increased production, and an most, but not increased National Dividend: in either case the agents. loss of one agent of production must result in a gain to others; but not necessarily to all others. Thus the opening up of rich quarries of slate or the increase in numbers or efficiency of quarrymen, or any other cause that lowered the supply-prices for slates, would tend to improve the houses of all classes; and it would tend to increase the demand, and raise the demand-price for bricklayers' and carpenters' labour; but it would be likely to injure the makers of roofing tiles as producers of building materials, more than it benefited them as consumers. The increase in the supply of this one agent increases the demand for many others by a little, and for some others by much; but for some it lessens the demand.

§ 2. An important part of this general doctrine may be expressed by the convenient, if rather inexact, saying that free competition tends in the direction of making each man's wages equal to the Net product of his own labour; by which is meant the value of the produce which he takes part in producing after deducting all the other expenses of producing it. Among these expenses is of course to be included the (Gross) Earnings of Management1.

The phrase Discounted value of his labour is sometimes used instead of "Net product;" but it is perhaps rather misleading. See Principles, VI. 11. 3.