impossible to draw any general conclusions as to the effects likely to be produced on the absolute or relative shares of the various factors of production.

Changes of the second sort may be distinguished according as they involve a transfer of purchasing power from richer to poorer, or from poorer to richer, that is to say according as they diminish or increase the inequality of incomes. In the former case they will involve, broadly speaking, a substitution of necessaries for luxuries, in the latter of luxuries for necessaries. The effects of such a substitution upon the demand for the various factors of production in any modern community is complicated by the fact that both necessaries and luxuries are to a great extent obtained by means of foreign trade.1 There is, however, some ground for believing that, as a general rule, the larger a man's income, the smaller the proportion of it, which he spends on material commodities, and the larger the proportion which he spends upon direct personal services. In so far as this is so, it follows that a transfer from richer to poorer will tend to increase the demand for material commodities relatively to the demand for personal services, and hence probably to increase the relative share of capital relatively to that of work; and vice versa. But in neither case is this tendency likely to be very important.

It is likely, however, to be rather more important in the case of changes of the third sort. For where production per head is increasing, the demand for personal

1 This consideration throws doubt upon the argument of various writers that a reduction in the inequality of incomes would cause a reduction in the violence of trade fluctuations in this country. For a large part of our food and of the raw materials used in the manufacture of necessaries is imported, and is liable to great fluctuations of supply owing to variable harvests. On the other hand, the employment of the retainers of the rich-footmen, gamekeepers, etc., is hardly liable to fluctuation at all.

services is likely to grow relatively to the demand for material commodities, and hence there will be a tendency for the relative share of work to increase and of capital to diminish. But, on the whole, the effects of changes in the character of consumers' demand are likely to be small compared to the effects of inventions and of changes in the conditions of supply of the various factors of production.

CHAPTER IX

THE SHARE OF THE LANDOWNER.

§1. Land, considered as a separate factor of production, is commonly said to have two peculiarities. It is fixed in position and limited in quantity. For certain purposes, as has been pointed out above, income from land is best considered as merely part of the larger category of incomes from property, but the two peculiarities just noticed make it possible and sometimes useful to consider land separately. There is often, of course, great practical difficulty in distinguishing income derived from land from income derived from capital sunk in the land, but this difficulty will not be pursued here.

The proposition that the amount of land surface available for economic purposes is a fixed quantity, incapable either of increase or diminution, is not strictly true. The forces of nature, if left to themselves, may slowly increase it, as in South Russia, where the rivers year by year carry down to the sea great quantities of earth, which are gradually filling up the Sea of Azov, or they may slowly diminish it, as in the case of the coast erosion, which is slowly taking place in England and elsewhere. But these changes are too slow to be of any great economic significance.

More important in this connection, than the uncontrolled action of nature, is the deliberate action of man. For it is often possible, if the expense be thought worth while, to "reclaim" submerged land from the sea and, to a more limited extent, from marshes, lakes, and rivers. The Dutch, by means of reclamation works, have increased

the area of Holland by ten per cent and hope to increase it still further. But Holland is a small and thicklypopulated country, and is in this matter only a striking exception to a very general rule.

It is a more important point that in new countries, such as Canada, the supply of land available for economic purposes is not fixed, but is gradually increasing owing to railway and other developments. The physical boundaries of Canada stretch, indeed, to the North Pole, but only a small portion of the area within them can be said, at present, to constitute an economically effective supply of land. In the cases both of Holland and of Canada we may, therefore, speak of the cost of production of new land and, say, following the general theory of value, that the value of land now in use cannot long exceed the cost of production of new land of equal accessibility or fertility.

But in the old and settled countries, to which the argument of this book chiefly applies, the assumption that the amount of land surface available for economic purposes is a fixed quantity may legitimately be made. This is the same thing as saying that the elasticity of supply of land is equal to zero, and it follows that changes in the absolute share of the total income of the community, which accrues to landowners as such, can only be altered by changes in the conditions of demand for land. The value of land is derived, less from the bounty of nature, as is sometimes rather sanctimoniously said, than from the niggardliness of nature in not providing more of it. The bounty of nature is more plausibly illustrated by the habits of those too prolific peoples, who overcrowd their narrow habitations.

1 This, again, is equivalent to saying that the supply curve of land is an immovable straight line parallel to the axis of price.

2 Taxation, of course, might reduce their incomes, but then the taxing authority would, in effect, be receiving part of the landowners' incomes, and passing it on to others.

§2. We may now consider the causes of changes in the absolute and relative share of landowners in an old and settled country. Apart from the effects of inventions and of changes in the character of consumers' demand, it seems clear that land is complementary both to work and capital, in the sense that an increase in the supply of either work or capital will cause an increase in the demand for land. Such an increase in demand will obviously increase the landowners' absolute share, but unless this increase in demand is proportionately greater than the increase of production, of which it will generally be an effect, the landowners' relative share will diminish.1 This normal tendency might, however, be modified by various circumstances.

§3. A labour-saving or capital-saving invention, by reducing the relative share of labour or capital, might increase the relative share of land. But it seems unlikely that this often happens. More important is the possibility of land-saving inventions, as the result of which not only the relative, but also the absolute, share of land might be reduced. The possibility of agricultural improvements, which might reduce aggregate agricultural rent, was discussed by Ricardo.2 His discussion was based on several assumptions that are now unreal, notably the impossibility of importing agricultural produce from abroad. Granted this possibility, even though it be hindered by protective tariffs, it is obvious that improvements in transport and the development of new sources of supply of agricultural produce may reduce aggregate agricultural rent in an old country.

Apart from importation, scientific discoveries may in the future produce far more sensational results than any dreamed of by Ricardo. Organic chemistry has already

1 Compare Cannan, Theories of Production and Distribution, p. 354. 1 Works, pp. 41-4. Compare the comments of Cannan, op. cit., PP. 321-331, and Marshall, Principles, pp. 834-837.