The question must still be, whether the surplus, after defraying expences, of a given capital, employed in the purchase and improvement of a piece of land, is greater or less, than that of a like capital employed in the prosecution of a manufactory: or whether the whole value produced from a given capital and a given quantity of labour, employed in one way, be greater or less, than the whole value produced from an equal capital and an equal quantity of labour employed in the other way: or rather, perhaps whether the business of Agriculture or that of Manufactures will yield the greatest product, according to a compound ratio of the quantity of the Capital and the quantity of labour, which are employed in the one or in the other.
DBx: This quotation is drawn from that part of Hamilton’s Report on Manufacturers in which he debunks – brilliantly – physiocracy, which is a theory that all economic value ultimately is created by agriculture and not by manufacturing (or by any other economic pursuit). (Hamilton undoubtedly was taking aim at Thomas Jefferson’s romantic embrace of the agricultural economy.)
A greater deployment of resources to agriculture draws resources away from manufacturing – thus requiring, if we’re concerned about the economic consequences, a comparison of the value of the additional agricultural output to the value of the foregone manufacturing output. If the latter is greater than the former, the perceived positive value of the additional agricultural output does not economically justify the production of that output, for its production brings about the loss of greater economic value that could have been produced by more manufacturing activity.
Exactly so. But Hamilton’s point is more general. It applies to the increased outputs of any goods or services, regardless of how these outputs are classified (for example “manufacturing” or “services,” or “semiconductors” or “machine tools” or “children’s dolls”).
Industrial-policyists, although frequently citing Hamilton in support of their schemes, stubbornly ignore this important point: No domestic industry or firm can be expanded without causing some other domestic industry or industries, or firm or firms, to be smaller than they would otherwise be.
