The Principles of Political Economy and Taxation

By David Ricardo | Go to book overview

CHAPTER XXVI

ON GROSS AND NET REVENUE

ADAM SMITH constantly magnifies the advantageswhich a country derives from a large gross, rather than a large net income. " In proportion as a greater share of the capital of a country is employed in agriculture," he says, " the greater will be the quantity of productive labour which it puts into motion within the country; as will likewise be the value which its employment adds to the annual produce of the land and labour of the society. After agriculture, the capital employed in manufactures puts into motion the greatest quantity of productive labour, and adds the greatest value to the annual produce. That which is employed in the trade of exportation has the least effect of any of the three." 1

Granting, for a moment, that this were true, what would be the advantage resulting to a country from the employment of a great quantity of productive labour, if, whether it employed that quantity or a smaller, its net rent and profits together would be the same. The whole produce of the land and labour of every country is divided into three portions: of these, one portion is devoted to wages, another to profits, and the other to rent. It is from the two last portions only that any deductions can be made for taxes or for savings; the former, if moderate, constituting always the necessary expenses of production. 2 To an individual with a capital of £20,000, whose profits were £2000 per annum, it would be a matter quite indifferent whether

____________________
1
M. Say is of the same opinion with Adam Smith: "The most productive employment of capital, for the country in general, after that on the land, is that of manufactures and of home trade; because it puts in activity an industry of which the profits are gained in the country, while those capitals which are employed in foreign commerce make the industry and lands of all countries to be productive, without distinction.

" The employment of capital the least favourable to a nation is that of carrying the produce of one foreign country to another."—Say, vol. ii. p. 120.

2
Perhaps this is expressed too strongly, as more is generally allotted to the labourer under the name of wages than the absolutely necessary expenses of production. In that case a part of the net produce of the country is received by the labourer, and may be saved or expended by him; or it may enable him to contribute to the defence of the country.

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