CHAPTER X.

FLUCTUATIONS OF PRICE.

Ir the views we have thus submitted be correct, we may now have some guide in estimating the probable permanence of the changes that take place in the price of landed property, which frequently rises far above, and then falls below its real value.

We have seen that the man who has obtained a plough, or a wagon, at the expense of great labour, finds its exchangeable value reduced, when, by improvements in machinery, new ploughs, or wagons, can be obtained at diminished cost. He has accumulated a capital to which he attached a certain value, but it is now worth no more than the price of the labour necessary for its reproduction. He purchases new ploughs, which, in consequence of their improved construction, enable him to perform a larger amount of work, and the old ones are, by degrees, thrown out of use. He has thus added to his capital by the labour of the present year, but that addition is accompanied by a great fall in the value of that which he previously possessed.

Another man owns a cotton mill that had been erected at great cost. If he wish now to build a new one, he can have it done much more cheaply, in consequence of the increased capital by which labour is aided. The first, even if equally good, would now exchange for much less labour than had been required to produce it. It is not, however, equally good, for the improved machinery of the day renders it almost valueless, and in the course of a short time it will be abandoned.

Another man has a farm which has cost him great labour to improve. Improvements in the means of transportation enable other lands to be brought into a condition to yield the same return to labour, and the value of his farm cannot exceed the cost of obtaining one equally good elsewhere. If the same

amount of labour on newer lands will yield him much larger returns, he may abandon his farm and its improvements, and transfer himself to another quarter, as has been done repeatedly in some of the Southern states. Even when he is not induced to do this, he may sell his property at a reduced price. We thus see that the creation of new capital is accompanied by a constant reduction of the value of that previously existing, which is the cause that the actual value of the whole quantity is by no means equal to the cost of production.

Such having been the case in time past, it follows that, as nature works always in the same direction, such must be the case at the present time, and that the actual increase in the value of landed property must be less than the amount of labour expended in its improvement. If the whole annual product of the United States be 1,500 millions of dollars, it may, we think, be assumed that not more than one tenth of that amount can be applied to the building of houses; to the construction of canals, rail roads, and turnpikes; to the clearing of farms, their enclosure, and the various other improvements necessary to give value to land; and that the actual annual increase of value must fall short of that sum.

Expenditure for purposes of this description can come only out of that portion of wages and profits not needed for the purchase of commodities for actual consumption, as will be evident on an examination of the operations of an individual. If a man be engaged in a business that fully occupies his present capital, but is yielding him enough to pay his expenses and leave a surplus of $5,000 per annum, and he commence the building of a house that requires $10,000 per annum, he will soon find himself compelled to limit his business, or to borrow capital from his neighbours. If, however, he find that those neighbours have all been engaged in the same way, and that all have been constructing rail roads, or canals, or building houses, and that they not only have occasion for all their own means, but that they want more, the necessary consequence is that he must stop his house, or diminish his business-or become bankrupt. The stoppage of his building is the least disadvantageous, and accordingly he allows it to remain unfinished, and his neighbours do the same with theirs; and after a time

a further accumulation of capital enables them gradually to resume their labours and to complete their works.

Here we have the history of much of the operations of Great Britain and the United States. In both there is an occasional mania for speculation in property. Lands and lots rise-houses are built-rail roads and canals are projected and partially executed-until at length each man finds that he has undertaken what he cannot carry through, without aid, and that those around him are in the same situation.* His house is arrested in its progress, as are the rail roads and canals of his neighbours-the price of lots and houses falls-new houses are no longer built-rail roads and canals cease to be projected, and gradually a healthful state of things arises. Those who have had the power to retain their property have lost the interest upon their investments, as well as the profit that might have been made by the use of their capital in business, but those whose means have not enabled them to wait, have been compelled to sell their houses and their stocks at heavy loss, and are ruined. Such has been the history of all great speculations in real estate and improvements in aid thereof, and such must it continue to be, where the rise in the value of property is general and great.

Local increase may take place to a considerable extent, and be permanent, but, if sudden, it must always be attended with a diminution in the rate of increase, or in the actual value, elsewhere. The construction of rail roads and canals to a great city, increases rapidly the value of property therein by transferring to it the trade heretofore done in the small towns, whose progress is thereby arrested. Lands in Illinois may rise rapidly in value, but they rise in the ratio of capital invested for their improvement. If rail roads and canals be made for their use, so that they offer such inducements to emigration as to cause the farmers of New England, New York, and Penn

This is equally true in regard to the creation of banks. If all the world undertake to lend money, i. e. to put capital into bank stock for the purposes of discount, it will soon be found that the holders thereof cannot pay the instalments as they are called in. They then desire to sell the half-paid-up stock, as the other desires to sell his building, but there are no purchasers when every man is called upon for his share. Bank stock falls; to rise again when the increased trade of the country finds employment for the capital so invested.

sylvania, to abandon or to sell their farms, the rise there is accompanied by a fall elsewhere, owing to the withdrawal of the capital to Illinois. The increased value of lands in Alabama,

This effect must be produced when improvements are pushed to an unreasonable extent. When roads and canals are made gradually, and in accordance with the growth of capital and of population, each step is productive of advantage and prepares for another and greater one; but when they are pushed forward too rapidly, they tend to bring into market a larger quantity of land tham is requisite, the consequence of which must be a fall in the value of all. When an owner of property near a city expends his means in making streets and building houses in advance of population, the value produced is far short of the cost, because they will not yield interest upon the investment. By offering them at low rents, he induces persons to occupy them who would otherwise have paid rent to the owners of those previously built. Houses become superabundant, and rents fall. He thus injures both himself and his neighbours by the waste of his own capital, whereas, he might have applied it in such manner as would have benefited the whole community. So long, however, as improvements by roads and canals are left to individual enterprise, no possible disadvantage can arise from permitting the owners of capital to judge for themselves the benefit likely to result from any investment, and there is no more propriety in the government undertaking to judge for them, than there would be if they proposed to invest the same quantity in making hats, or shoes. It is only when governments undertake to make such improvements that any material waste of capital, or disadvantage of any kind, is to be apprehended. They adopt the idea that it is not necessary that investments should pay interest, the consequence of which is, that vast sums are expended which yield no result whatever. Had the canal and rail road improvements made by the State of Pennsylvania bcen intrusted to individuals, all that is really valuable of them would have been made with less than one half of the expenditure-all would have yielded profitand, ultimately, a more extensive and more beneficial system might have been completed with twelve millions of dollars, than that which now exists, obtained at the cost of twenty-three millions. If the city of London, or that of Philadelphia, were to undertake to extend all the pavements several miles beyond their present limits, the owners of property might, with great justice, complain that they were taxed for undertakings that not only would not benefit, but that would greatly injure, them, by giving, at their expense, advantages to distant land, and promoting the dispersion of the inhabitants. Precisely such is the operation of many of the rail roads and canals that have been made in the United States. They promote the dispersion of the people in the same manner as the colonization scheme of Great Britain. The injury is comparatively small, because the rapid growth of population specdily fills up the vacancy that is created, but the growth of both population and capital would be more rapid under a different system. Colonization, as carried on in the United States, is generally a healthful operation, but every attempt to force it is certain to be productive of injury. Whenever the persons using roads, or canals, or houses, are willing to pay interest upon their cost, it may be presumed that the benefit derived therefrom is equal thereto, but when they are not willing to do so, part, at least, of the capital is wasted.

and Mississippi, has been great, but it has been accompanied by a corresponding decrease in those of South Carolina, North Carolina, and Virginia, the proprietors of which have sold their plantations at reduced prices, and in many cases have abandoned them. Such would be the case in many parts of New England, but that the investment of capital in manufactures gives to the land the advantage of a market at home, more advantageous than that which the lands of superior fertility in the West derive from their rail roads, and thus makes amends for deficiency of quality.

The assessed value of the real estate in the United States in 1799, was 613 millions of dollars. In 1814-15, it rose to 1,631 millions. After that time it fell considerably, and in 1818 it would not probably have been more than 1,300 millions. In 1834, the States of New York and Ohio were assessed at 461 millions. Those states embrace one fifth of the whole population, and probably more than one fifth of the value of property. Assuming, however, that it is one fifth, we obtain, as the assessed value of the lands and houses in the United States, 2,300 millions, being 1,000 millions more than in 1818. If we add to this 1,000 millions, two thirds, to obtain the real value, we shall have 1,667 millions, being an average increase of real value, of about 100 millions per annum. If such was the growth of 16 years of prosperity, how is it possible that a single year should produce so great an increase, and that property in New York, the real value of which did not exceed 600 millions in 1834, should rise in 1835 to 700, and in 1836 to 900 millions ? Or, how is it possible that property in the United States, which in two centuries had risen only to 4,000 millions of real value, should rise in one or two years to 5,000, or probably 6,000 millions? It is not possible that such a rise should take place and be permanent, and we must therefore look for a fall. How far it will go, it is not possible now to say, but a fall must take place.

* Pitkin's Statistics, p. 313.

We have now before us a statement, drawn up by a gentleman possessing ample means of information, from which it would appear, that the nominal value of the real estate of New York, in 1836, could not have been less than 1200 millions.

t At the time of writing this chapter, property was still rising. The fall has commenced, and it must continue.