The Natural Economic Order/Part I/Chapter 9

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Technical improvements increase the product of labour, and if they increase it equally in intensive and in extensive cultivation, wages and rent will also increase equally. The ratio of distribution then remains unchanged, the landlord deriving the same advantage as the workers from improvement of the means of production.

Technical improvements are rarely, however, of equal benefit to the two modes of cultivation, extensive and intensive. What, for instance, can the intensive farmer do with a ten-share motor plough, or with a seed distributor? Such machines can be used only for large areas; for intensive cultivation they are useless, just as lions are useless for catching mice.

For freeland of the third class the motor plough is quite useless, its realm being freeland of the first or second class, the vast plains of America, where a single motor plough[1] will plough the fields of 50 or more farmers, and plough them well and cheaply. The product of labour of these freeland-settlers is of course thereby increased enormously. But on the product of labour depend the proceeds of labour, and the proceeds of labour of the freeland-settler determine the wages of labour on rented land everywhere.

Now if all the circumstances connected with conversion of the product of labour into the proceeds of labour remained unchanged, wages in general would necessarily rise in the same proportion as the increase in the products of labour due to the motor plough. These circumstances do not, however, remain unchanged, and here again we see how necessary it was to distinguish from the outset, between the product of labour and the proceeds of labour. For it is the proceeds, and not the product of labour, that determine wages in general.

If the proceeds of labour of the freeland-settler increase, the immediate consequence is an increase of the proceeds of labour of industrial workers. If that were not so, industrial workers would return to agricultural labour on freeland of the first, second or third class. This rise of wages in industry is brought about by a modification of the exchange ratio between the products of the freeland-settler and of industry. Instead of 10 sacks of wheat the settler has to give 12 for a gramophone, a rifle, a medicine-chest. In this way the settler, when transforming the product of his labour into the proceeds of labour, has to surrender part of his surplus product to the industrial worker. Thus the motor plough forces up wages all round.

What the wage-earners gain by the motor plough is, however, more than the surplus of products created by the plough. The motor plough may produce a surplus of 100 million tons, but this, if distributed among all the workers, would be a trifling sum, out of proportion to the increase of the labour-proceeds of the freeland-settler. The reason why the wage-earners gain more is as follows:

If there is a rise in the labour-proceeds of the freeland-settler of the first or second class, the wages of the workers on rented land in Europe rise likewise, even although there is no increase in the product of their labour. (The motor-plough not being employed, or being employed only to a limited extent.) The increase of wages here takes place at the expense of rent on land; the means for the rise of wages are derived only in a small part from the surplus produce of the freeland-settler.

We continue our examination of this situation, in which technical improvements benefit freeland farmers of the first and second classes, without benefiting intensive cultivation. We have seen that:

The product of labour of the freeland farmer of the first and second class increases by, say, 20% through introduction of more efficient agricultural machinery - after allowance for interest and for upkeep of the machines.

The proceeds of labour of the freeland farmer increase by only 10% since, as we have already shown, the industrial worker demands and obtains more for the product of his labour.

The exchange relation between industrial and agricultural products shifts 10% in favour of industry. Thus of the 20% increase of the product, only half, or 10%, is transferred to the general rate of wages.

German landowners must draw on their rents to meet the increased demands of their labourers, since the product of German land has not increased.

But the landowner's loss is not confined to the decrease of his rent expressed in tons of agricultural produce - which are of as little use to him as are tons of agricultural produce to the freeland settler. For with the exchange of his tons of rent-products for industrial products he again loses, because of the shift in the ratio of exchange - his total loss being considerably more than 10%.

The smaller the rent in proportion to labour costs, the harder the landowner is hit by the rise of wages. But since landowners cannot, obviously, engage labourers at a loss, and since landowners practising extensive cultivation cannot have a greater profit than their colleagues practising intensive cultivation, there is a recession from intensive to extensive cultivation. Less labour is required, labourers are thrown out of employment, and these unemployed labourers depress wages below their true level, namely the labour-proceeds of freeland-farmers of the first and second classes (which have risen 10%). Emigration then increases until equilibrium between wages at home and the proceeds of labour overseas is re-established.

When technical progress benefits extensive cultivation in the home country, without benefiting intensive cultivation, the larger share of the increased product falls to rent. In spite of the increased product, wages may then even fall below their former level.

Thus technical improvements affect very unequally the distribution of the products of the soil, much depending upon where the benefit falls, whether on freeland of the first and second classes, or on freeland of the third class, or on extensive cultivation.

The workers, in former times, were not always wrong when, to safeguard their interests, they clamoured for the destruction of machinery. It may happen that rent not only absorbs the whole of the surplus production from technical improvements, but also takes away part of the former wages.


  1. The motor plough is sometimes the property of the agricultural co-operative society, but as a general rule it belongs to a contractor, the local blacksmith, who also keeps it in repair.