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Translated from Urdu “ILM-UL-IQTISAD”

By: Abbas Ali

When we say that man produces wealth, we do not mean to say that man is the creator of something or creates it out of non-existence. Producing wealth implies creating a particular value in things with the help of labor and capital. Based on its essence, it has been divided into the following types:

  1. Value specific to place: that value which a thing acquires on account of being transported from its place of origin to the place where it is needed. For example, there is no value to snow in Kashmir; if it is transported to the Punjab, it will acquire value.
  2. Value specific to time: that value which is created in a thing on account of keeping the thing for a particular period. For example, during winters a piece of snow does not have any value. However, if it is preserved until the coming of summer, it is possible that a particular value is created in it.
  3. Value specific to shape: that value which is created in a thing by creating a particular shape in it. For example, a sword made of iron with the help of a machine.

After this brief introduction, let us come to the actual purpose. There are three large resources to produce wealth: land, labor, and capital. But there are some opinions that the management of labor is also helpful in the production of wealth. Therefore, some researchers have also counted it as a resource to produce wealth. In this chapter, we intend to write only about the land.

Land is a natural gift for the man, on the utilization of which depends not only the present life and comforts of the man but also the maximum limit of the extent of humans and its period of sustenance. Because different types of land have different productivity, at different places the compensation for human labor is different.

However, there is not an iota of doubt that all human needs are fulfilled with the judicious utilization of this natural gift, either directly or indirectly. This is the reason that man discovers new resources to make this vast source of wealth either more fertile or to change its capabilities according to his needs. Production is dependent upon the volume of land, its fertility, and other local characteristics such as the climate and the availability of irrigation, etc. But we should remember that it is related to a very important law, which is very important for a student to keep in mind.

In the terminology of economics, this law is known as the law of diminishing returns. The law states that every piece of land has a limited productivity; in other words, the maximum production that can be produced from a particular piece of land with the application of capital and labor has a particular fixed approximation. When a piece of land produces maximum production against the application of capital and labor, we say that its production has reached the point of inflection. In other words, after attaining this particular amount and doubling the capital and the labor, it is not necessary that the production of the said piece of land would also double.

Instead, to double the production, we need to increase the capital and the labor by more than double. If the units of labor are increased, the marginal product of every unit of labor will diminish, and workers will have to be content with lesser wages. Likewise, if the capital is increased, the increase in production will be less than that which had occurred before the point of inflection in the production. For example, supposing that on a piece of land measuring 100 acres with an annual crop of 2000 mounds, 10 laborers are working collectively. In this case, production will be 20 mounds per acre and 200 mounds per worker.

If two additional laborers are added and with new agricultural technology the fertility of the land is increased, with the above-mentioned calculation, will the production increase to 2400 mounds or less than that? To answer this question, we need to first observe the fact that, with the application of the ten laborers and the capital, the production of the said piece of land had reached the point of inflection. If the production had not reached that point, then the production of the next year might be more than 2400 mounds. Due to the division of labor, the benefits of which will be discussed in Chapter 4, as compared to 10 laborers, 12 laborers can produce more foodgrains. However, if the production has reached the point of inflection, with the addition of two laborers, the production will be less than 2400. The result of which will be that, out of 12 laborers, every laborer will have to contend with less than 200 mounds. In this way, by increasing the capital and the labor, the production will increase annually, and the marginal product will continue to diminish.

The process will go on till the production from the land reaches the point of inflection, at which point the total product will start diminishing and the marginal product will diminish more than earlier. Initially, the decrease will be gradual, but afterwards, its speed will increase so much that the said piece of land will be insufficient for the existing laborers. Probably, the operation of this law made the Hindu Arians leave the plains of central Asia and separated Prophet Lot (A.S.) from Prophet Abrahim (A.S.), as mentioned in the Torah. If, in the cultivation of land, increases in the capital and the labor would not finally exhibit the propensity to reach the point of diminishing, every farmer would have been content with the cultivation of a small piece of land and, using his capital and labor, would produce a lot of output, saving himself from paying a huge tax, which he must pay for the cultivation of vast pieces of land.

For further explanation of this law, a researcher compares the increase in capital and labor with the dosage of medicine and assumes land to be a patient. If, on a piece of land, we use some capital and labor and its production is just equal to the cost of production, in the words of this researcher, the farming on this piece of land will be known as marginal farming. Slowly and slowly, with the application of capital and labor, the production will increase so that it will reach the point of inflection, and with further increases in capital and labor, there will not be any proportionate increase in the output.

It also needs to be remembered that the output of the capital and the labor, which depends on the above-mentioned law, is fixed by the amount of production that gets available against the use of the capital and the labor. The increase and decrease in the price of production have no role in the determination of this output. Off course, when we derive results from this law and discuss particularly the impact of an increase in population on the resources of life, at that point in time it will be necessary to discuss the fluctuations in price. These fluctuations have nothing to do with the essence of the law. Because it has no relation with the value of the production but does have a relation with the amount of production.

The operation of this law is common, and it is true for the circumstances of every country. The effect of this law is not limited to cultivated land; pastures, forests, but the production from oceans also come under the operation of this law. Although, in certain circumstances, due to technological inventions, their effect is not evident. Even artificial commodities are not free from its influence, because the raw materials with which they are made come either from land or the sea. However, the different types of commodities are affected by it because of the amount of labor used for their manufacturing.

Take the example of scissors: the cost of extraction of iron is much lower than the cost of making it. This is the reason that if the prices of iron are doubled on account of the increased hardships during the mining process, it will not affect the price of the scissors too much. Because its price is determined by the labor involved in its manufacturing. Therefore, we come to understand that the nations engaged in this type of handicraft, which adds value to the raw material, have no apprehension of being affected by this law. Because the price of their commodities will be determined by the labor involved in manufacturing, there is little involvement of the cost of extracting the raw material.

However, the nations that are engaged in the production of raw materials but do not manufacture goods need to ponder over the results of this law, particularly the people of India. Therefore, this country cannot be called an industrial country yet. If the people of this country concentrate on manufacturing, their financial condition will improve day by day, and they will get rid of the torments and misfortunes of poverty. Because, like other countries, she does not need to import raw materials.

As we have stated in the foregoing discussion, when the cultivation of land reaches its point of inflection, its productivity starts diminishing. It is not that only routine cultivation weakens the innate capabilities of land; certain natural causes also take place that damage its fertility badly. If a person says that according to the results of physics, no commodity can be an absolute non-existence, only its shape changes. Its answer is that, although absolute non-existence is impossible, a useful commodity can still change into a shape that is in no way useful for humankind. For example, when a house burns and changes into ashes, it does not vanish entirely, but it changes from a useful shape into a useless one. Similarly, the innate capabilities of land are not destroyed permanently due to routine cultivation or other natural injurious reasons but are transformed into a shape that is useless as per our needs.

Due to this peculiarity of land, people say, because Hindustan is not an industrial country, she has become a treasure for other countries, from which they obtain raw material for their manufacturing factories and then convert that raw material into new commodities and supply them to other countries and Hindustan to earn huge benefits. In our country, we have very few resources to control the law of diminishing returns. Therefore, the goods imported to Hindustan from other countries should be taxed heavily. The benefit of this is that businesspeople from other countries will not be able to sell their goods in this country. If they do so, they will not expect much profit because, due to heavy taxation, the price of their goods will be too high and people will hesitate to buy them. In this way, we will be compelled to produce for our necessities, and our industry will develop.

This process is known as “trade protection” or “import substitution.” The purpose of it is that countries will not indulge in conflicts but will produce their goods out of necessity with the raw materials produced in their own countries. From this argument, we should not understand that the purpose of the above-mentioned process is to snap the international relationship. This is not the correct conclusion. Because the aim of the advocates of “import substitution” or “trade protection” was to motivate the people of all countries towards industrialization, not that they aimed to destroy their inter-relationships.

A thing not produced in a country can, in a situation of compulsion, be imported from other countries. And in this way, the trade relations will remain intact. Some scholars argue that the producers of raw materials have complete freedom in mutual buying and selling. Therefore, imposing a tax of any kind would amount to an attack on human freedom. But they do not know that sometimes the benefit of a particular person is diminished by the benefit of the common people of a nation. However, two facts have been ignored in the above-mentioned argument, making it imperative to ponder over them.

  1. Firstly, the system of nature compensates automatically for the scarcity that is created by the gradual degradation of land productivity. For example, the decomposition of big rocks into the form of vast pieces of land.
  2. Secondly, due to human utilization of land, some of it must get wasted. Even the construction of large trade towns cannot stop it. If nothing else, in such towns, some land must be utilized in the construction of drains through which garbage is thrown into the sea.

In short, it is a very interesting discussion, and its conclusions are dependent upon the circumstances of different countries. We do not want to write more about it but instead leave its decision up to the opinion of the readers.

Ilm-ul-Iqtisad, Hisa Doyem “Paidaish-e-Dowlat” Baab “Zameen”

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