CHAPTER V

RICARDO

I. RICARDO'S STARTING-POINT

David Ricardo,[294] born 19th April 1772, was the son of a Dutch Jew

who had settled in England, and made money upon the Stock Exchange.

Ricardo had a desultory education, and was employed in business from

his boyhood. He abandoned his father's creed, and married an

Englishwoman soon after reaching his majority. He set up for himself

in business, and, at a time when financial transactions upon an

unprecedented scale were giving great opportunities for speculators,

he made a large fortune, and about 1814 bought an estate at Gatcombe

Park, Gloucestershire. He withdrew soon afterwards from business, and

in 1819 became member of parliament. His death on 11th September 1823

cut short a political career from which his perhaps too sanguine

friends anticipated great results. His influence in his own department

of inquiry had been, meanwhile, of the greatest importance. He had

shown in his youth some inclination for scientific pursuits; he

established a laboratory, and became a member of scientific societies.

The perusal of Adam Smith's _Wealth of Nations_ in 1799 gave him an

interest in the application of scientific methods to the questions

with which he was most conversant. Accepting Adam Smith as the leading

authority, he proceeded to think out for himself certain doctrines,

which appeared to him to have been insufficiently recognised by his

teacher. The first result of his speculations was a pamphlet published

in 1809 upon the depreciation of the currency. Upon that topic he

spoke as an expert, and his main doctrines were accepted by the famous

Bullion Committee. Ricardo thus became a recognised authority on one

great set of problems of the highest immediate interest. Malthus's

_Inquiry into Rent_ suggested another pamphlet; and in 1817,

encouraged by the warm pressure of his friend, James Mill, he

published his chief book, the _Principles of Political Economy and

Taxation_. This became the economic Bible of the Utilitarians. The

task of a commentator or interpreter is, for various reasons, a

difficult one.

There is a certain analogy between Ricardo and a very different

writer, Bishop Butler. Each of them produced a great effect by a short

treatise, and in each case the book owed very little to the ordinary

literary graces. Ricardo's want of literary training, or his natural

difficulty of utterance, made his style still worse than Butler's;

but, like Butler, he commands our respect by his obvious sincerity and

earnestness. He is content when he has so expressed his argument that

it can be seized by an attentive reader. He is incapable of, or

indifferent to, clear and orderly exposition of principles. The logic

is there, if you will take the trouble to look for it. Perhaps we

ought to be flattered by this tacit reliance upon our patience. 'You,'

Ricardo, like Butler, seems to say to us, 'are anxious for truth: you

do not care for ornament, and may be trusted to work out the full

application of my principles.' In another respect the two are alike.

Butler's argument has impressed many readers as a demolition of his

own case. It provokes revolt instead of adhesion. Ricardo, an orthodox

economist, laid down principles which were adopted by Socialists to

upset his own assumptions. Such a God as you worship, said Butler's

opponents, is an unjust being, and therefore worse than no God. Such a

system as you describe, said Ricardo's opponents, is an embodiment of

injustice, and therefore to be radically destroyed. Admitting the

logic, the argument may be read as a _reductio ad absurdum_ in both

cases.

Ricardo has involved himself in certain special difficulties. In the

first place, he presupposes familiarity with Adam Smith. The

_Principles_ is a running comment upon some of Smith's theories, and

no attempt is made to reduce them to systematic order. He starts by

laying down propositions, the proof of which comes afterwards, and is

then rather intimated than expressly given. He adopts the terminology

which Smith had accepted from popular use,[295] and often applies it

in a special significance, which is at least liable to be

misunderstood by his readers, or forgotten by himself. It is

difficult, again, to feel sure whether some of his statements are to

be taken as positive assertions of fact, or merely as convenient

assumptions for the purposes of his argument. Ricardo himself, as

appears in his letters, was painfully aware of his own awkwardness of

expression, and upon that point alone all his critics seem to be in

tolerable agreement. Happily, it will be enough for my purpose if I

can lay down his essential premises without following him to the

remoter deductions.

Ricardo's pamphlet upon Malthus (1815) gives a starting-point. Ricardo

cordially adopts Malthus's theory of rent, but declares that it is

fatal to some of Malthus's conclusions. Malthus, we have seen, wished

to regard rent as in some sense a gift of Providence--a positive

blessing due to the fertility of the soil. Ricardo maintains, on the

contrary, that 'the interest of the landlord is necessarily opposed to

the interest of every other class in the community.'[296] The landlord

is prosperous when corn is scarce and dear; all other persons when it

is plentiful and cheap. This follows upon Malthus's own showing. As

men are forced to have recourse to inferior soils, the landlord

obtains a larger share of the whole produce; and, moreover, since corn

also becomes more valuable, will have a larger share of a more

valuable product. The question apparently in dispute--whether we

should be glad that some land is better than the worst, or sorry

because all is not equal to the best--seems rather idle. The real

question, however, is whether rent, being a blessing, should be kept

up by protection,[297] or, being a curse, should be brought down by

competition? What is the real working of the system? Set the trade

free, says Ricardo, and the capital will be withdrawn from the poor

land and employed upon manufactures, to be exchanged for the corn of

other countries.[298] The change must correspond to a more

advantageous distribution of capital, or it would not be adopted. The

principle involved in this last proposition is, he adds, one of the

'best established in the science of political economy, and by no one

is more readily admitted than by Mr. Malthus.' To enforce protection

would be, on Malthus's illustration, to compel us to use the 'worst

machines, when, at a less expense, we could hire the very best from

our neighbours.'[299] Briefly, then, the landlord's interest is

opposed to the national interest, because it enforces a worse

distribution of capital. He compels us to get corn from his worst

land, instead of getting it indirectly, but in greater quantity, from

our spinning-jennies.

For Ricardo, as for Malthus, the ultimate driving force is the

pressure of population. The mass of mankind is always struggling to

obtain food, and is able to multiply so rapidly as to exhaust any

conceivable increase of supplies. The landlord class alone profits.

The greater the struggle for supply the greater will be the share of

the whole produce which must be surrendered to it. Beyond this,

however, lies the further problem which specially occupied Ricardo.

How will the resulting strain affect the relations of the two

remaining classes, the labourers and the capitalists? The ultimate

evil of protection is the bad distribution of capital. But capital

always acts by employing labour. The farmer's capital does not act by

itself, but by enabling his men to work. Hence, to understand the

working of the industrial machinery, we have to settle the relation of

wages and profits. Ricardo states this emphatically in his preface.

Rent, profit, and wages, he says, represent the three parts into which

the whole produce of the earth is divided. 'To determine the laws

which regulate this distribution is the principal problem in political

economy'; and one, he adds, which has been left in obscurity by

previous writers.[300] His investigations are especially directed by

the purpose thus defined. He was the first writer who fairly brought

under distinct consideration what he held, with reason, to be the most

important branch of economical inquiry.

There was clearly a gap in the economic doctrine represented by the

_Wealth of Nations_. Adam Smith was primarily concerned with the

theory of the 'market.' He assumes the existence of the social

arrangement which is indicated by that phrase. The market implies a

constitution of industrial agencies such that, within it, only one

price is possible for a given commodity, or, rather, such that a

difference of price cannot be permanent. According to the accepted

illustration, the sea is not absolutely level, but it is always

tending to a level.[301] A permanent elevation at one point is

impossible. The agency by which this levelling or equilibrating

process is carried out is competition, involving what Smith called the

'higgling of the market.' The momentary fluctuation, again, supposes

the action of 'supply and demand,' which, as they vary, raise and

depress prices. To illustrate the working of this machinery, to show

how previous writers had been content to notice a particular change

without following out the collateral results, and had thus been led

into fallacies such as that of the 'mercantile system,' was Smith's

primary task.

Beyond or beneath these questions lie difficulties, which Smith,

though not blind to their existence, treated in a vacillating and

inconsistent fashion. Variations of supply and demand cause

fluctuations in the price; but what finally determines the point to

which the fluctuating prices must gravitate? We follow the process by

which one wave propagates another; but there is still the question,

What ultimately fixes the normal level? Upon this point Ricardo could

find no definite statement in his teacher. 'Supply and demand' was a

sacred phrase which would always give a verbal answer, or indicate the

immediate cause of variations on the surface. Beneath the surface

there must be certain forces at work which settle why a quarter of

corn 'gravitates' to a certain price; why the landlord can get just so

many quarters of corn for the use of his fields; and why the produce,

which is due jointly to the labourer and the farmer, is divided in a

certain fixed proportion. To settle such points it is necessary to

answer the problem of distribution, for the play of the industrial

forces is directed by the constitution of the classes which co-operate

in the result. Ricardo saw in Malthus's doctrines of rent and of

population a new mode of approaching the problem. What was wanted, in

the first place, was to systematise the logic adopted by his

predecessors. Rent, it was clear, could not be both a cause and an

effect of price, though at different points of his treatise Smith had

apparently accepted each view of the relation. We must first settle

which is cause and which effect; and then bring our whole system into

the corresponding order. For the facts, Ricardo is content to trust

mainly to others. The true title of his work should be that which his

commentator, De Quincey, afterwards adopted, the _Logic of Political

Economy_. This aim gives a partial explanation of the characteristic

for which Ricardo is most generally criticised. He is accused of being

abstract in the sense of neglecting facts. He does not deny the

charge. 'If I am too theoretical (which I really believe to be the

case) you,' he says to Malthus, 'I think, are too practical.'[302] If

Malthus is more guided than Ricardo by a reference to facts, he has of

course an advantage. But so far as Malthus or Adam Smith

theorised--and, of course, their statement of facts involved a

theory--they were at least bound to be consistent. It is one thing to

recognise the existence of facts which your theory will not explain,

and to admit that it therefore requires modification. It is quite

another thing to explain each set of facts in turn by theories which

contradict each other. That is not to be historical but to be

muddleheaded. Malthus and Smith, as it seemed to Ricardo, had

occasionally given explanations which, when set side by side,

destroyed each other. He was therefore clearly justified in the

attempt to exhibit these logical inconsistencies and to supply a

theory which should be in harmony with itself. He was so far neither

more nor less 'theoretical' than his predecessors, but simply more

impressed by the necessity of having at least a consistent theory.

There was never a time at which logic in such matters was more wanted,

or its importance more completely disregarded. Rash and ignorant

theorists were plunging into intricate problems and propounding

abstract solutions. The enormous taxation made necessary by the war

suggested at every point questions as to the true incidence of the

taxes. Who really gained or suffered by the protection of corn? Were

the landlords, the farmers, or the labourers directly interested?

Could they shift the burthen upon other shoulders or not? What, again,

it was of the highest importance to know, was the true 'incidence' of

tithes, of a land-tax, of the poor-laws, of an income-tax, and of all

the multitudinous indirect taxes from which the national income was

derived? The most varying views were held and eagerly defended. Who

really paid? That question interested everybody, and occupies a large

part of Ricardo's book. The popular answers involved innumerable

inconsistencies, and were supported by arguments which only required

to be confronted in order to be confuted. Ricardo's aim was to

substitute a clear and consistent theory for this tangle of perplexed

sophistry. In that sense his aim was in the highest degree

'practical,' although he left to others the detailed application of

his doctrines to the actual facts of the day.

II. THE DISTRIBUTION PROBLEM

The rent doctrine gives one essential datum. A clear comprehension of

rent is, as he was persuaded, 'of the utmost importance to political

economy.'[303] The importance is that it enables him to separate one

of the primary sources of revenue from the others. It is as though, in

the familiar illustration, we were considering the conditions of

equilibrium of a fluid; and we now see that one part may be considered

as a mere overflow, resulting from (not determining) the other

conditions. The primary assumption in the case of the market is the

level of price. When we clearly distinguish rent on one side from

profits and wages on the other, we see that we may also assume a level

of profits. There cannot, as Ricardo constantly says, 'be two rates of

profit,' that is, at the same time and in the same country. But so

long as rent was lumped with other sources of revenue it was

impossible to see, what Malthus and West had now made clear, that in

agriculture, as in manufactures, the profits of the producer must

conform to the principle. Given their theory, it follows that the

power of land to yield a great revenue does not imply a varying rate

of profit or a special bounty of nature bestowed upon agriculture. It

means simply that, since the corn from the good and bad land sells at

the same price, there is a surplus on the good. But as that surplus

constitutes rent, the farmer's rate of profit will still be uniform.

Thus we have got rid of one complication, and we are left with a

comparatively simple issue. We have to consider the problem, What

determines the distribution as between the capitalist and the

labourer? That is the vital question for Ricardo.

Ricardo's theory, in the first place, is a modification of Adam

Smith's. He accepts Smith's statement that wages are determined by the

'supply and demand of labourers,' and by the 'price of commodities on

which their wages are expended.'[304] The appeal to 'supply and

demand' implies that the rate of wages depends upon unchangeable

economic conditions. He endorses[305] Malthus's statement about the

absurdity of considering 'wages' as something which may be fixed by

his Majesty's 'Justices of the Peace,' and infers with Malthus that

wages should be left to find their 'natural level.' But what precisely

is this 'natural level?' If the Justice of the Peace cannot fix the

rate of wages, what does fix them? Supply and demand? What, then, is

precisely meant in this case by the supply and demand? The 'supply' of

labour, we may suppose, is fixed by the actual labouring population at

a given time. The 'demand,' again, is in some way clearly related to

'capital.' As Smith again had said,[306] the demand for labour

increases with the 'increase of revenue and "stock," and cannot

possibly increase without it.' Ricardo agrees that 'population

regulates itself by the funds which are to employ it, and therefore

always increases or diminishes with the increase or diminution of

capital.'[307] It was indeed a commonplace that the increase of

capital was necessary to an increase of population, as it is obvious

enough that population must be limited by the means of subsistence

accumulated. Smith, for example, goes on to insist upon this in one of

the passages which partly anticipates Malthus.[308] But this does not

enable us to separate profit from wages, or solve Ricardo's problem.

When we speak of supply and demand as determining the price of a

commodity, we generally have in mind two distinct though related

processes. One set of people is growing corn, and another working coal

mines. Each industry, therefore, has a separate existence, though each

may be partly dependent upon the other. But this is not true of labour

and capital. They are not products of different countries or

processes. They are inseparable constituents of a single process.

Labour cannot be maintained without capital, nor can capital produce

without labour. Capital, according to Ricardo's definition, is the

'part of the wealth of a country which is employed in production, and

consists of food, clothing, raw materials, machinery, etc., necessary

to give effect to labour.'[309] That part, then, of capital which is

applied to the support of the labourer--his food, clothing, and so

forth--is identical with wages. To say that, if it increases, his

wages increase is to be simply tautologous. If, on the other hand, we

include the machinery and raw materials, it becomes difficult to say

in what sense 'capital' can be taken as a demand for labour. Ricardo

tells Malthus that an accumulation of profit does not, as Malthus had

said, necessarily raise wages[310]; and he ultimately decided, much

to the scandal of his disciple, M'Culloch, that an increase of 'fixed

capital' or machinery might be actually prejudicial, under certain

circumstances, to the labourer. The belief of the labouring class that

machinery often injures them is not, he expressly says, 'founded on

prejudice and error, but is conformable to the correct principles of

political economy.'[311] The word 'capital,' indeed, was used with a

vagueness which covered some of the most besetting fallacies of the

whole doctrine. Ricardo himself sometimes speaks as though he had in

mind merely the supply of labourers' necessaries, though he regularly

uses it in a wider sense. The generalities, therefore, about supply

and demand, take us little further.

From these difficulties Ricardo escapes by another method. Malthus's

theory of population gives him what he requires. The 'natural price of

labour' (as distinguished from its 'market price') is, as he asserts,

'that price which is necessary to enable the labourers, one with

another, to subsist and perpetuate their race without either increase

or diminution.'[312] This is the true 'natural price,' about which the

'market price' oscillates. An increase of capital may raise wages for

a time above the natural price, but an increase of population will

bring back the previous rate. Ricardo warns us, indeed, that this

natural price of labour is not to be regarded as something 'absolutely

fixed and constant.'[313] It varies in different times and countries,

and even in the same country at different times. An English cottager

now possesses what would once have been luxuries. Ricardo admits

again[314] that the wages of different classes of labourers may be

different, although he does not consider that this fact affects his

argument. We may allow for it by considering the skilled labourer as 2

or 1-1/2 labourers rolled into one. The assumption enables him to get

out of a vicious circle. He is seeking to discover the proportions in

which produce will be divided between the two classes, and which

co-operate in the production. The 'demand and supply' principle may

show that an increase of capital will tend to increase wages, but even

that tendency, as he carefully points out, can only be admitted

subject to certain important reservations. In any case, if it explains

temporary fluctuations, it will not ascertain the point round which

the fluctuations take place. But the two variables, wages and profit,

are clearly connected, and if we can once assume that one of these

variables is fixed by an independent law, we may explain in what way

the other will be fixed. Having got rid of 'rent,' the remaining

produce has to be divided between wages and profit. If the produce be

fixed, the greater the share of the labourer the less will be the

share of the capitalist, and _vice versa_. But the labourer's share

again is determined by the consideration that it must be such as to

enable him to keep up the population. The capitalist will get the

surplus produce after allowing to the labourer the share so

determined. Everything turns ultimately upon this 'natural price'--the

constant which underlies all the variations.

One other point is implied. The population is limited, as we see, by

the necessity of raising supplies of food from inferior soils.

Moreover, this is the sole limit. A different view had been taken

which greatly exercised the orthodox economists. It was generally

admitted that in the progress of society the rate of profit declined.

Adam Smith explained this by arguing that, as capital increased, the

competition of capitalists lowered the rate. To this it was replied

(as by West) that though competition equalised profits, it could not

fix the rate of profit. The simple increase of capital does not prove

that it will be less profitably employed. The economists had

constantly to argue against the terrible possibility of a general

'glut.' The condition of things at the peace had suggested this alarm.

The mischief was ascribed to 'over-production' and not to misdirected

production. The best cure for our evils, as some people thought, would

be to burn all the goods in stock. On this version of the argument, it

would seem that an increase of wealth might be equivalent to an

increase of poverty. To confute the doctrine in this form, it was only

necessary to have a more intelligent conception of the true nature of

exchange. As James Mill had argued in his pamphlet against Spence,

every increase of supply is also an increase of demand. The more there

is to sell, the more there is to buy. The error involved in the theory

of a 'glut' is the confusion between a temporary dislocation of the

machinery of exchange, which can and will be remedied by a new

direction of industry, and the impossible case of an excess of wealth

in general.[315] Malthus never quite cleared his mind of this error,

and Ricardo had to argue the point with him. Abundance of capital

cannot by itself, he says, 'make capital less in demand.' The 'demand

for capital is infinite.'[316] The decline in the rate of profit,

therefore, depends upon another cause. 'If, with every accumulation of

profit, we could tack a piece of fresh fertile land to our Island,

profits would never fall.'[317] Fertile land, however, is limited. We

have to resort to inferior soil, and therefore to employ capital at a

less advantage. In the _Principles_ he enforces the same doctrine with

the help of Say, who had shown 'most satisfactorily' that any amount

of capital might be employed.[318] If, in short, labour and capital

were always equally efficient, there would be no limit to the amount

producible. If the supply of food and raw materials can be multiplied,

wealth can be multiplied to any amount. The admitted tendency of

profits to fall must therefore be explained simply and solely by the

growing difficulty of producing the food and the raw material.

Ricardo's doctrine, then, is Malthus carried out more logically. Take

a nation in a state of industrial equilibrium. The produce of the

worst soil just supports the labourer, and leaves a profit to the

capitalist. The labourer gets just enough to keep up his numbers to

the standard; the capitalist just enough profit to induce him to keep

up the capital which supports the labourer. Since there can be only

one rate of wages and only one rate of profit, this fixes the shares

into which the whole produce of the nation is divided, after leaving

to the landlord the surplus produce of the more fertile soils.

Accepting this scheme as a starting-point, we get a method for

calculating the results of any changes. We can see how a tax imposed

upon rents or profits or wages will affect the classes which are thus

related; how improvements in cultivation or machinery, or a new demand

for our manufactures, will act, assuming the conditions implied in

this industrial organisation; how, in short, any disturbance of the

balance will work, so as to produce a new equilibrium. Ricardo exerts

all his ingenuity in working out the problem which, with the help of a

few assumptions, becomes mathematical. The arithmetical illustrations

which he employed for the purpose became a nuisance in the hands of

his disciples. They are very useful as checks to general statements,

but lend themselves so easily to the tacit introduction of erroneous

assumptions as often to give a totally false air of precision to the

results. Happily I need not follow him into that region, and may omit

any consideration of the logical value of his deductions. I must be

content to say that, so far as he is right, his system gives an

economic calculus for working out the ultimate result of assigned

economic changes. The pivot of the whole construction is the 'margin

of cultivation'--the point at which the food for a pressing population

is raised at the greatest disadvantages. 'Profits,' as he says,[319]

'depend on high and low wages; wages on the price of necessaries; and

the price of necessaries chiefly on the price of food, because all

other requisites may be increased almost without limit.'

Ricardo takes the actual constitution of society for granted. The

threefold division into landowners, capitalists, and labourers is

assumed as ultimate. For him that is as much a final fact as to a

chemist it is a final fact that air and water are composed of certain

elements. Each class represents certain economic categories. The

landlord sits still and absorbs the overflow of wealth created by

others. The labourer acts a very important but in one respect a purely

passive part. His whole means of subsistence are provided by the

capitalist, and advanced to him in the shape of wages. His share in

the process is confined to multiplying up to a fixed standard. The

capitalist is the really active agent. The labourer is simply one of

the implements used in production. His wages are part of the

capitalist's 'costs of production.' The capitalist virtually raises

labourers, one may say, so long as raising them is profitable, just as

he raises horses for his farm. Ricardo, in fact, points out that in

some cases it may be for the farmer's interest to substitute horses

for men.[320] If it be essential to any product that there should be a

certain number of labourers or a certain number of horses, that number

will be produced. But when the expense becomes excessive, and in the

case of labourers that happens as worse soils have to be broken up for

food, the check is provided through its effect upon the accumulation

of capital. That, therefore, becomes the essential point. The whole

aim of the legislator should be to give facilities for the

accumulation of capital, and the way to do that is to abstain from all

interference with the free play of the industrial forces. The test,

for example, of the goodness of a tax--or rather of its comparative

freedom from the evils of every tax--is that it should permit of

accumulation by interfering as little as possible with the tendency

of the capital to distribute itself in the most efficient way.

III. VALUE AND LABOUR

To solve the distribution problem, then, it is necessary to get behind

the mere fluctuations of the market, and to consider what are the

ultimate forces by which the market is itself governed. What effect

has this upon the theory of the market itself? This leads to a famous

doctrine.

According to his disciple, M'Culloch, Ricardo's great merit was that

he 'laid down the fundamental theorem of the science of value.' He

thus cleared up what had before been an 'impenetrable mystery,' and

showed the true relations of profit, wages, and prices.[321] Ricardo's

theory of value, again, was a starting-point of the chief modern

Socialist theories. It marked, as has been said,[322] the point at

which the doctrine of the rights of man changes from a purely

political to an economical theory. Ricardo remarks in his first

chapter that the vagueness of theories of value has been the most

fertile source of economic errors. He admitted to the end of his life

that he had not fully cleared up the difficulty. Modern economists

have refuted and revised and discussed, and, let us hope, now made

everything quite plain. They have certainly shown that some of

Ricardo's puzzles implied confusions singular in so keen a thinker.

That may serve as a warning against dogmatism. Boys in the next

generation will probably be asked by examiners to expose the palpable

fallacies of what to us seem to be demonstrable truths. At any rate,

I must try to indicate the critical point as briefly as possible.

The word 'value,' in the first place, has varying meanings, which give

an opportunity for writers of text-books to exhibit their powers of

lucid exposition. The value of a thing in one sense is what it will

fetch; the quantity of some other thing for which it is actually

exchanged in the market. In that sense, as Ricardo incidentally

observes,[323] the word becomes meaningless unless you can say what is

the other thing. It is self-contradictory to speak as if a thing by

itself could have a constant or any value. Value, however, may take a

different sense. It is the economic equivalent of the 'utility' of

Bentham's 'felicific calculus.' It means the 'lot of pleasure' which

causes a thing to be desirable. If we could tell how many units of

utility it contained we could infer the rate of exchange for other

things. The value of anything 'in use' will correspond to the number

of units of utility which it contains; and things which have the same

quantity of 'utilities' will have the same 'exchangeable value.'

Ricardo can thus consider the old problem of finding 'an invariable

measure of value.' He points out the difficulty of finding any

particular thing which will serve the purpose, inasmuch as the

relations of everything to everything else are constantly varying. He

therefore proposes to make use of an imaginary measure. If gold were

always produced under exactly the same circumstances, with the same

labour and the same capital, it would serve approximately for a

standard. Accordingly he gives notice that, for the purposes of his

book, he will assume this to be the case, and money to be 'invariable

in value.'[324] We can thus, on the one hand, compare values at

different periods. A thing has the same value at all times which at

all times requires 'the same sacrifice of toil and labour to produce

it.'[325] The 'sacrifice' measures the 'utility,' and we may assume

that the same labour corresponds in all ages to the same psychological

unit. But, on the other hand, at any given period things will exchange

in proportion to the labour of producing them. This follows at once

from Ricardo's postulates. Given the single rate of wages and profits,

and assuming the capital employed to be in the same proportion, things

must exchange in proportion to the quantity of labour employed; for if

I got the same value by employing one labourer as you get by employing

two, my profits would be higher. Ricardo, indeed, has to allow for

many complexities arising from the fact that very different quantities

of capital are required in different industries; but the general

principle is given by the simplest case. Hence we have a measure of

value, applicable at any given time and in comparing different times.

It implies, again, what M'Culloch sums up as the 'fundamental

theorem,' that the value of 'freely produced commodities' depends on

the quantity of labour required for their 'production.' What is made

by two men is worth twice what is made by one man. That gives what

M'Culloch calls the 'clue to the labyrinth.'

The doctrine leads to a puzzle. If I can measure the 'sacrifice,' can

I measure the 'utility' which it gains? The 'utility' of an ounce of

gold is not something 'objective' like its physical qualities, but

varies with the varying wants of the employer. Iron or coal may be

used for an infinite variety of purposes and the utility will be

different in each. The thing may derive part of its 'utility' from its

relation to other things. The utility of my food is not really

separate from the utility of my hat; for unless I eat I cannot wear

hats. My desire for any object, again, is modified by all my other

desires, and even if I could isolate a 'desire' as a psychological

unit, it would not give me a fixed measure. Twice the article does not

give twice the utility; a double stimulus may only add a small

pleasure or convert it into agony. These and other difficulties imply

the hopelessness of searching for this chimerical unit of 'utility'

when considered as a separate thing. It shifts and escapes from our

hands directly we grasp it. Ricardo discusses some of these points in

his interesting chapter on 'Value and Riches.' Gold, he says, may cost

two thousand times more than iron, but it is certainly not two

thousand times as useful.[326] Suppose, again, that some invention

enables you to make more luxuries by the same labour, you increase

wealth but not value. There will be, say, twice as many hats, but each

hat may have half its former value. There will be more things to

enjoy, but they will only exchange for the same quantity of other

things. That is, he says, the amount of 'riches' varies, while the

amount of value is fixed. This, according to him, proves that value

does not vary with 'utility.' 'Utility,' as he declares in his first

chapter, is 'absolutely essential to value,' but it is 'not the

measure of exchangeable value.'[327] A solution of these puzzles may

be sought in any modern text-book. Ricardo escapes by an apparently

paradoxical conclusion. He is undertaking an impossible problem when

he starts from the buyers' desire of an 'utility.' Therefore he turns

from the buyers to the sellers. The seller has apparently a measurable

and definable motive--the desire to make so much per cent. on his

capital.[328] Ricardo, unfortunately, speaks as though the two parties

to the bargain somehow represented mutually exclusive processes.

'Supply and demand' determine the value of 'monopolised articles,' but

the cost of other articles depends _not_ 'on the state of demand and

supply,' _but_ 'on the increased or diminished cost of their

production.'[329] Why 'not' and 'but'? If supply and demand

corresponds to the whole play of motives which determines the bargain,

this is like saying, according to the old illustration, that we must

attribute the whole effect of a pair of scissors to one blade and not

to the other. His view leads to the apparent confusion of taking for

the cause of value not our desire for a thing, but the sacrifice we

must make to attain it. Bentham[330] said, for example, that Ricardo

confused 'cost' with 'value.' The denial that utility must in some

sense or other determine value perplexes an intelligible and

consistent meaning. It is clearly true, upon his postulates, that the

value of goods, other than 'monopolised,' must conform to the cost of

production. He speaks as if he confounded a necessary condition with

an 'efficient cause,' and as if one of two correlative processes could

be explained without the other. But the fact that there is a

conformity, however brought about, was enough for his purpose. The

demand of buyers, he would say, determines the particular direction of

production: it settles whether hats should be made of silk or beaver;

whether we should grow corn or spin cotton. But the ultimate force is

the capitalist's desire for profit. So long as he can raise labourers'

necessaries by employing part of his capital, he can employ the labour

as he chooses. He can always produce wealth; all the wealth produced

can be exchanged, and the demand always be equal to the supply, since

the demand is merely the other side of the supply. The buyer's tastes

decide how the capital shall be applied, but does not settle how much

wealth there shall be, only what particular forms it shall take.

Somehow or other it must always adjust itself so that the value of

each particular kind shall correspond to the 'cost of production.' The

cost of production includes the tools and the raw materials, which are

themselves products of previous labour. All capital itself is

ultimately the product of labour, and thus, as Ricardo incidentally

says, may be regarded as 'accumulated labour.'[331]

This phrase sums up the doctrine which underlies his theory of value

and indicates its connection with the theory of distribution. Ricardo

had perceived that the supply and demand formula which would serve

sufficiently in problems of exchange, or the fluctuations of

market-price, could not be made to solve the more fundamental problem

of distribution. We must look beneath the superficial phenomena and

ask what is the nature of the structure itself: what is the driving

force or the mainspring which works the whole mechanism. We seem,

indeed, to be inquiring into the very origin of industrial

organisation. The foundation of a sound doctrine comes from Adam

Smith. Smith had said that in a primitive society the only rule would

be that things should exchange in proportion to the labour of getting

them. If it cost twice as much labour to kill a beaver as to kill a

deer, one beaver would be worth two deer. In accepting this bit of

what Smith's commentator, Dugald Stewart,[332] calls 'theoretical' or

'conjectural' history, Ricardo did not mean to state a historical

fact. He was not thinking of actual Choctaws or Cherokees. The beaver

was exchanged for the deer about the time when the primitive man

signed the 'social contract.' He is a hypothetical person used for

purposes of illustration and simplification. Ricardo is not really

dealing with the question of origins; but he is not the less implying

a theory of structure. It did not matter that the 'social contract'

was historically a figment; it would serve equally well to explain

government. It did not matter that actual savages may have exchanged

beavers and deer by the help of clubs instead of competition in the

market. The industrial fabric is what would have been had it been thus

built up. It can be constructed from base to summit by the application

of his formula. As in the imaginary state of deer and beaver, we have

a number of independent persons making their bargains upon this

principle of the equivalence of labour; and that principle is supposed

to be carried out so that the most remote processes of the industrial

machinery can be analysed into results of this principle. This gives a

sufficient clue to the whole labyrinth of modern industry, and there

is no need of considering the extinct forms of social structure, which

we know to have existed, and under which the whole system of

distribution took place under entirely different conditions.[333] A

great change has taken place since the time of the deer and beaver:

the capitalist has been developed, and has become the motive power.

The labourer's part is passive; and the 'value' is fixed by the

bargaining between the proprietors of 'accumulated labour,' forced by

competition to make equal profits, instead of being fixed by the

equitable bargain between the two hunters exchanging the products of

their individual labour. Essentially, however, the principle is the

same. In the last as in the first stage of society, things are

exchanged in proportion to the labour necessary to produce them. Now

it is plain enough that such a doctrine cannot lead to a complete

solution of the problem of distribution. It would be a palpably

inadequate account of historical processes which have determined the

actual relation of classes. The industrial mechanism has been

developed as a part of the whole social evolution; and, however

important the economic forces, they have been inextricably blended

with all the other forces by which a society is built up. For the same

reason, Ricardo's theorem would be inadequate 'sociologically,' or as

a formula which would enable us to predict the future distribution of

wealth. It omits essential factors in the process, and therefore

supposes forces to act automatically and invariably which will in fact

be profoundly modified in societies differently organised and

composed of individuals differing in character. The very fundamental

assumptions as to the elasticity of population, and the accumulation

of capital as wages and profits fluctuate, are clearly not absolute

truths. An increase of the capitalist's share, for example, at the

expense of wages, may lead to the lowered efficiency of the labourer;

and, instead of the compensating process supposed to result from the

stimulus to accumulation, the actual result may be a general

degeneration of the industry. Or, again, the capacity of labourers to

combine both depends and reacts upon their intelligence and moral

character, and will profoundly modify the results of the general

competition.[334] Such remarks, now familiar enough, are enough to

suggest that a full explanation of the economic phenomena would

require reference to considerations which lie beyond the proper sphere

of the economist. Yet the economist may urge that he is making a fair

and perhaps necessary abstraction. He may consider the forces to be

constant, although he may be fully aware that the assumption requires

to be corrected when his formulae are applied to facts. He may consider

what is the play at any given time of the operations of the market,

though the market organisation is itself dependent upon the larger

organisation of which it is a product. He does not profess to deal in

'sociology,' but 'pure political economy.' In that more limited

sphere he may accept Ricardo's postulates. The rate of wages is fixed

at any given moment by the 'labour market.' That is the immediate

organ through which the adjustment is effected. Wages rise and fall

like the price of commodities, when for any reason the number of

hirers or the number of purchasers varies. The 'supply and demand'

formula, however, could not, as Ricardo saw, be summarily identified

with labour and capital. We must go behind the immediate phenomena to

consider how they are regulated by the ultimate moving power. Then,

with the help of the theories of population and rent, we find that the

wages are one product of the whole industrial process. We must look

beyond the immediate market fluctuation to the effect upon the

capitalists who constitute the market. The world is conceived as one

great market, in which the motives of the capitalist supply the motive

power; and the share which goes to the labourer is an incidental or

collateral result of the working of the whole machinery. Now, though

the sociologist would say that this is quite inadequate for his

purpose, and that we must consider the whole social structure, he may

also admit that the scheme has a validity in its own sphere. It

describes the actual working of the mechanism at any given time; and

it may be that in Ricardo's time it gave an approximate account of the

facts. To make it complete, it requires to be set, so to speak, in a

more general framework of theory; and we may then see that it cannot

give a complete solution. Still, as a consistent scheme which

corresponds to the immediate phenomena, it helps us to understand the

play of the industrial forces which immediately regulate the market.

Ricardo's position suggested a different line of reply. The doctrines

that capital is 'accumulated labour' and that all value is in

proportion to the labour fell in with the Socialist theory. If value

is created by labour, ought not 'labour' to possess what it makes? The

right to the whole produce of labour seemed to be a natural

conclusion. Ricardo might answer that when I buy your labour, it

becomes mine. I may consider myself to have acquired the rights of the

real creator of the wealth, and to embody all the labourers, whose

'accumulated labour' is capital. Still, there is a difficulty. The

beaver and deer case has an awkward ethical aspect. To say that they

are exchanged at such a rate seems to mean that they ought to be

exchanged at the rate. This again implies the principle that a man has

a right to what he has caught; that is, to the whole fruits of his

labour. James Mill, as we have seen, starts his political treatise by

assuming this as obvious.[335] He did not consider the possible

inferences; for it is certainly a daring assumption that the principle

is carried out by the economic system. According to Ricardo rent is

paid to men who don't labour at all. The fundholder was a weight upon

all industry, and as dead a weight as the landlord. The capitalist,

Ricardo's social mainspring, required at least cross-examination. He

represents 'accumulated labour' in some fashion, but it is not plain

that the slice which he takes out of the whole cake is proportioned

accurately to his personal labour. The right and the fact which

coincided in the deer and beaver period have somehow come to diverge.

Here, then, we are at a point common to the two opposing schools.

Both are absolute 'individualists' in different senses. Society is

built up, and all industrial relations determined, by the competition

of a multitude of independent atoms, each aiming at self-preservation.

Malthus's principle applies this to the great mass of mankind.

Systematically worked out, it has led to Ricardo's identification of

value with quantities of labour. Keeping simply to the matter of fact,

it shows how a small minority have managed to get advantages in the

struggle, and to raise themselves upon the shoulders of the struggling

mass. Malthus shows that the resulting inequality prevents the

struggle from lowering every one to starvation point. But the

advantage was not obvious to the struggling mass which exemplified the

struggle for existence. If equality meant not the initial facts but

the permanent right, society was built upon injustice. Apply the

political doctrine of rights of man to the economic right to wealth,

and you have the Socialist doctrine of right to the whole produce of

labour. It is true that it is exceedingly difficult to say what each

man has created when he is really part of a complex machinery; but

that is a problem to which Socialists could apply their ingenuity. The

real answer of the political economists was that although the existing

order implied great inequalities of wealth it was yet essential to

industrial progress, and therefore to an improvement in the general

standard of comfort. This, however, was the less evident the more they

insisted upon the individual interest. The net result seemed to be

that by accident or inheritance, possibly by fraud or force, a small

number of persons have got a much larger share of wealth than their

rivals. Ricardo may expound the science accurately; and, if so, we

have to ask, What are the right ethical conclusions?

For the present, the Utilitarians seem to have considered this

question as superfluous. They were content to take the existing order

for granted; and the question remains how far their conclusions upon

that assumption could be really satisfactory.

IV. THE CLASSICAL POLITICAL ECONOMY.

Ricardo had worked out the main outlines of the 'Classical Political

Economy': the system which to his disciples appeared to be as clear,

consistent, and demonstrable as Euclid; and which was denounced by

their opponents as mechanical, materialistic, fatalistic, and

degrading. After triumphing for a season, it has been of late years

often treated with contempt, and sometimes banished to the limbo of

extinct logomachies. It is condemned as 'abstract.' Of all delusions

on the subject, replies a very able and severe critic,[336] there is

none greater than the belief that it was 'wholly abstract and

unpractical.' Its merits lay in its treatment of certain special

questions of the day; while in the purely scientific questions it was

hopelessly confused and inconsistent. Undoubtedly, as I have tried to

point out, Malthus and Ricardo were reasoning upon the contemporary

state of things. The doctrine started from observation of facts; it

was too 'abstract' so far as it neglected elements in the concrete

realities which were really relevant to the conclusions. One cause of

confusion was the necessity of starting from the classification

implied in ordinary phrases. It is exemplified by the vague use of

such words as 'capital,' 'value,' 'supply and demand.' Definitions, as

is often remarked,[337] come at the end of an investigation, though

they are placed at the beginning of an exposition. When the primary

conceptions to be used were still so shifting and contradictory as is

implied in the controversies of the day, it is no wonder that the

formulae should be wanting in scientific precision. Until we have

determined what is meant by 'force' we cannot have a complete science

of dynamics. The economists imagined that they had reached the goal

before they had got rid of ambiguities hidden in the accepted

terminology. Meanwhile it will be enough if I try to consider broadly

what was the nature of the body of statements which thus claimed to be

an elaborated science.

Ricardo's purpose was to frame a calculus, to give a method of

reasoning which will enable us to clinch our economic reasoning. We

are to be sure that we have followed out the whole cycle of cause and

effect. Capitalists, landowners, labourers form parts of a rounded

system, implying reciprocal actions and reactions. The imposition of a

tax or a tariff implies certain changes in existing relations: that

change involves other changes; and to trace out the total effect, we

must understand what are the ultimate conditions of equilibrium, or

what are the processes by which the system will adjust itself to the

new conditions. To describe, again, the play of a number of reciprocal

forces, we have to find what mathematicians call an 'independent

variable': some one element in the changes on which all other changes

will depend. That element, roughly speaking, ultimately comes out to

be 'labour.' The simplicity of the system gave an impression both of

clearness and certainty, which was transferred from the reasoning to

the premises. The facts seemed to be established, because they were

necessary to the system. The first step to an estimate of the value of

the doctrine would be to draw up a statement of the 'postulates'

implied. Among them, we should have such formulae as the single rate of

profits and wages; which imply the 'transferability' of labour and

capital, or the flow of either element to the best-paid employment. We

should have again the Malthusian doctrine of the multiplication of

labour up to a certain standard; and the fact that scarcity means

dearness and plenty cheapness. These doctrines at least are taken for

granted; and it may perhaps be said that they are approximations which

only require qualifications, though sometimes very important

qualifications, to hold good of the society actually contemplated.

They were true enough to give the really conclusive answer to many

popular fallacies. The type of sophistry which Ricardo specially

assailed was that which results from neglecting the necessary

implications of certain changes. The arguments for the old 'mercantile

theory'--for 'protection' of industry, for the poor-law, for resisting

the introduction of machinery, the fear of 'gluts' and all manner of

doctrines about the currency--were really exposed by the economists

upon the right grounds. It was absurd to suppose that by simply

expanding the currency, or by making industry less efficient, or

forcing it to the least profitable employments, you were increasing

the national wealth; or to overlook the demoralising effects of a

right to support because you resolved only to see the immediate

benefits of charity to individuals. It is true, no doubt, that in some

cases there might be other arguments, and that the economists were apt

to take a narrow view of the facts. Yet they decisively exploded many

bad arguments, and by the right method of enforcing the necessity of

tracing out the whole series of results. It was partly to their

success in confuting absurd doctrines that their confidence was due;

though the confidence was excessive when it was transferred to the

axioms from which they professed to start. A doctrine may be true

enough to expose an error, and yet not capable of yielding definite

and precise conclusions. If I know that nothing can come out of

nothing, I am on the way to a great scientific principle and able to

confute some palpable fallacies; but I am still a very long way from

understanding the principle of the 'conservation of energy.' The truth

that scarcity meant dearness was apparently well known to Joseph in

Egypt, and applied very skilfully for his purpose. Economists have

framed a 'theory of value' which explains more precisely the way in

which this is brought about. A clear statement may be valuable to

psychologists; but for most purposes of political economy Joseph's

knowledge is quite sufficient. It is the doctrine which is really used

in practice whatever may be its ultimate justification.

The postulates, however, were taken by the economists to represent

something more than approximate statements of the fact. They imply

certain propositions which might be regarded as axioms. Men desire

wealth and prefer their own interests. The whole theory might then be

regarded as a direct deduction from the axioms. It thus seemed to

have a kind of mathematical certainty. When facts failed to conform to

the theory the difficulty could be met by speaking, as Malthus spoke,

of 'tendencies,' or by appealing to the analogy of 'friction' in

mechanics. The excuse might be perfectly valid in some cases, but it

often sanctioned a serious error. It was assumed that the formula was

still absolutely true of something, and that the check or friction was

a really separable and accidental interference. Thus it became easy to

discard, as irrelevant, objections which really applied to the

principle itself, and to exaggerate the conformity between fact and

theory. The economic categories are supposed to state the essential

facts, and the qualifications necessary to make them accurate were apt

to slip out of sight. Ricardo,[338] to mention a familiar instance,

carefully points out that the 'economic rent,' which clearly

represents an important economic category, is not to be confounded, as

in 'popular' use, with the payments actually made, which often include

much that is really profit. The distinction, however, was constantly

forgotten, and the abstract formula summarily applied to the concrete

fact.

The economists had constructed a kind of automaton which fairly

represented the actual working of the machinery. But then, each

element of their construction came to represent a particular formula,

and to represent nothing else. The landlord is simply the receiver of

surplus value; the capitalist the one man who saves, and who saves in

proportion to profit; and the labourer simply the embodiment of

Malthus's multiplying tendency. Then the postulates as to the ebb and

flow of capital and labour are supposed to work automatically and

instantaneously. Ricardo argues that a tax upon wages will fall, not,

as Buchanan thought, upon the labourer, nor, as Adam Smith thought,

upon rent, but upon profits; and his reason is apparently that if

wages were 'lowered the requisite population would not be kept

up.'[339] The labourer is able to multiply or diminish so rapidly that

he always conforms at once to the required standard. This would seem

to neglect the consideration that, after all, some time is required to

alter the numbers of a population, and that other changes of a totally

different character may be meanwhile set up by rises and falls of

wages. Ricardo, as his letters show,[340] was well aware of the

necessity of making allowance for such considerations in applying his

theorems. He simplified the exposition by laying them down too

absolutely; and the doctrine, taken without qualification, gives the

'economic man,' who must be postulated to make the doctrine work

smoothly. The labourer is a kind of constant unit--absolutely fixed in

his efficiency, his wants, and so forth; and the same at one period as

at another, except so far as he may become more prudent, and therefore

fix his 'natural price' a little higher. An 'iron law' must follow

when you have invented an iron unit. In short, when society is

represented by this hypothetical mechanism, where each man is an

embodiment of the required formula, the theory becomes imperfect so

far as society is made up of living beings, varying, though

gradually, in their whole character and attributes, and forming part

of an organised society incomparably too complex in its structure to

be adequately represented by the three distinct classes, each of which

is merely a formula embodied in an individual man. The general rules

may be very nearly true in a great many cases, especially on the

stock-exchange; but before applying them to give either a history or a

true account of the actual working of concrete institutions, a much

closer approximation must be made to the actual data.

I need not enlarge, however, upon a topic which has been so often

expounded. I think that at present the tendency is rather to do

injustice to the common-sense embodied in this system, to the

soundness of its aims, and to its value in many practical and

immediate questions, than to overestimate its claim to scientific

accuracy. That claim may be said to have become obsolete.

One point, however, remains. The holders of such a doctrine must, it

is said, have been without the bowels of compassion. Ricardo, as

critics observe with undeniable truth, was a Jew and a member of the

stock-exchange. Now Jews, in spite of Shylock's assertions, and

certainly Jewish stockbrokers, are naturally without human feeling. If

you prick them, they only bleed banknotes. They are fitted to be

capitalists, who think of wages as an item in an account, and of the

labourer as part of the tools used in business. Ricardo, however, was

not a mere money-dealer, nor even a walking treatise. He was a kindly,

liberal man, desirous to be, as he no doubt believed himself to be, in

sympathy with the leaders of political and scientific thought, and

fully sharing their aspirations. No doubt he, like his friends, was

more conspicuous for coolness of head than for impulsive

philanthropy. Like them, he was on his guard against 'sentimentalism'

and 'vague generalities,' and thought that a hasty benevolence was apt

to aggravate the evils which it attacked. The Utilitarians naturally

translated all aspirations into logical dogmas; but some people who

despised them as hard-hearted really took much less pains to give

effect to their own benevolent impulses. Now Ricardo, in this matter,

was at one with James Mill and Bentham, and especially Malthus.[341]

The essential doctrine of Malthus was that the poor could be made less

poor by an improved standard of prudence. In writing to Malthus,

Ricardo incidentally remarks upon the possibility of raising the

condition of the poor by 'good education' and the inculcation of

foresight in the great matter of marriage.[342] Incidental references

in the _Principles_ are in the same strain. He accepts Malthus's view

of the poor-laws, and hopes that, by encouraging foresight, we may by

degrees approach 'a sounder and more healthful state.'[343] He

repudiates emphatically a suggestion of Say that one of his arguments

implies 'indifference to the happiness' of the masses,[344] and holds

that 'the friends of humanity' should encourage the poor to raise

their standard of comfort and enjoyment. The labourers, as he

elsewhere incidentally observes, are 'by far the most important class

in society.'[345] How should they not be if the greatest happiness of

the greatest number be the legitimate aim of all legislation?

It is true that in his argument Ricardo constantly assumes that his

'natural price' will also be the real price of labour. The assumption

that the labourers' wages tend to a minimum is a base for his general

arguments. The inconsistency, if there be one, is easily intelligible.

Ricardo agreed with Malthus that, though the standard might be raised,

and though a rise was the only way to improvement, the chances of such

a rise were not encouraging. Improved wages, as he says,[346] might

enable the labourer to live more comfortably if only he would not

multiply. But 'so great are the delights of domestic society, that in

practice it is invariably found that an increase of population follows

an amended condition of the labourer,' and thus the advantage is lost

as soon as gained.

I have tried to show what was the logical convenience of the

assumption. Ricardo, who has always to state an argument at the cost

of an intellectual contortion, is content to lay down a rule without

introducing troublesome qualifications and reserves. Yet he probably

held that his postulate was a close approximation to the facts.

Looking at the actual state of things at the worst time of the

poor-law, and seeing how small were the prospects of stirring the

languid mind of the pauper to greater forethought, he thought that he

might assume the constancy of an element which varied so slowly. The

indifference of the Ricardo school generally to historical inquiry had

led them no doubt to assume such constancy too easily. Malthus, who

had more leaning to history, had himself called attention to many

cases in which the 'prudential check' operated more strongly than it

did among the English poor. Probably Ricardo was in this, as in other

cases, too hasty in assuming facts convenient for his argument. The

poor man's character can, it is clear, be only known empirically; and,

in fact, Ricardo simply appeals to experience. He thinks that, as a

fact, men always do multiply in excess. But he does not deny that

better education might change their character in this respect. Indeed,

as I have said, an even excessive faith in the possible modification

of character by education was one of the Utilitarian tenets. If

Ricardo had said broadly that a necessary condition of the improvement

of the poor was a change of the average character, I think that he

would have been saying what was perfectly true and very much to the

purpose both then and now. The objection to his version of a most

salutary doctrine is that it is stated in too narrow terms. The

ultimate unit, the human being, is indeed supposed to be capable of

great modification, but it is solely through increasing his foresight

as to the effects of multiplication that the change is supposed to be

attainable. The moral thus drawn implied a very limited view of the

true nature and influence of great social processes, and in practice

came too often to limiting possible improvement to the one condition

of letting things alone. Let a man starve if he will not work, and he

will work. That, as a sole remedy, may be insufficient; though, even

in that shape, it is a doctrine more likely to be overlooked than

overvalued. And meanwhile the acquiescence in the painful doctrine

that, as a matter of fact, labourers would always multiply to

starvation point, was calculated to produce revolt against the whole

system. Macaulay's doctrine that the Utilitarians had made political

economy unpopular was so far true that the average person resented the

unpleasant doctrines thus obtruded upon him in their most unpleasant

shape; and, if he was told that they were embodied logic, revolted

against logic itself.

V. THE RICARDIANS

It will be quite sufficient to speak briefly of the minor prophets who

expounded the classical doctrine; sometimes falling into fallacies,

against which Ricardo's logical instinct had warned him; and sometimes

perhaps unconsciously revealing errors which really lurked in his

premises. When Ricardo died, James Mill told M'Culloch that they were

'the two and only genuine disciples' of their common friend.[347] Mill

wrote what he intended for a Schoolbook of Political Economy.[348]

Brief, pithy, and vigorous, it purports to give the essential

principles in their logical order; but, as his son remarks,[349] had

only a passing importance. M'Culloch took a more important place by

his writings in the _Edinburgh Review_ and elsewhere, and by his

lectures at Edinburgh and at London. He was one of the first

professors of the new university. His _Principles of Political

Economy_[350] became a text-book, to be finally superseded by John

Stuart Mill. Other works statistical and bibliographical showed great

industry, and have still their value. He was so much the typical

economist of the day that he has been identified with Carlyle's

_M'Crowdy_, the apostle of the dismal science.[351] He writes,

however, with enough vivacity and fervour of belief in his creed to

redeem him from the charge of absolute dulness. An abler thinker was

Colonel (Robert) Torrens (1780-1864).[352] He had served with

distinction in the war; but retired on half-pay, and was drawn by some

natural idiosyncrasy into the dry paths of economic discussion. He was

already confuting the French economists in 1808; and was writing upon

the Bank-charter Act and the Ten Hours' Bill in 1844. Torrens held

himself, apparently with justice, to be rather an independent ally

than a disciple of Ricardo. His chief works were an essay upon the

'External Corn-trade' (1815)[353] and an 'Essay on the Production of

Wealth' (1821). Ricardo pronounced his arguments upon the Corn-trade

to be 'unanswered and unanswerable,'[354] and he himself claimed to be

an independent discoverer of the true theory of rent.[355] He was

certainly a man of considerable acuteness and originality. In these

writings we find the most sanguine expressions of the belief that

political economy was not only a potential, but on the verge of

becoming an actual, science. Torrens observes that all sciences have

to pass through a period of controversy; but thinks that economists

are emerging from this stage, and rapidly approaching unanimity. In

twenty years, says this hopeful prophet, there will scarcely exist a

'doubt of its' (Political Economy's) 'fundamental principles.'[356]

Torrens thinks that Ricardo has generalised too much, and Malthus too

little; but proposes, with proper professions of modesty, to take the

true _via media_, and weld the sound principles into a harmonious

whole by a due combination of observation and theory. The science, he

thinks, is 'analogous to the mixed mathematics.'[357] As from the laws

of motion we can deduce the theory of dynamics, so from certain simple

axioms about human nature we can deduce the science of Political

Economy. M'Culloch, at starting, insists in edifying terms upon the

necessity of a careful and comprehensive induction, and of the study

of industrial phenomena in different times and places, and under

varying institutions.[358] This, however, does not prevent him from

adopting the same methods of reasoning. 'Induction' soon does its

office, and supplies a few simple principles, from which we may make a

leap to our conclusions by a rapid, deductive process.

The problems appear to be too simple to require long preliminary

investigations of fact. Torrens speaks of proving by 'strictly

demonstrative evidence' or of 'proceeding to demonstrate' by strict

analysis.[359] This is generally the preface to one of those

characteristic arithmetical illustrations to which Ricardo's practice

gave a sanction. We are always starting an imaginary capitalist with

so many quarters of corn and suits of clothes, which he can transmute

into any kind of product, and taking for granted that he represents a

typical case. This gives a certain mathematical air to the reasoning,

and too often hides from the reasoner that he may be begging the

question in more ways than one by the arrangement of his imaginary

case. One of the offenders in this kind was Nassau Senior (1790-1864),

a man of remarkable good sense, and fully aware of the necessity of

caution in applying his theories to facts. He was the first professor

of Political Economy at Oxford (1825-1830), and his treatise[360] lays

down the general assumption of his orthodox contemporaries clearly and

briefly. The science, he tells us, is deducible from four elementary

propositions: the first of which asserts that every 'man desires to

obtain additional wealth with as little sacrifice as possible'; while

the others state the first principles embodied in Malthus's theory of

population, and in the laws corresponding to the increasing facility

of manufacturing and the decreasing facility of agricultural

industry.[361] As these propositions include no reference to the

particular institutions or historical development of the social

structure, they virtually imply that a science might be constructed

equally applicable in all times and places; and that, having obtained

them, we need not trouble ourselves any further with inductions. Hence

it follows that we can at once get from the abstract 'man' to the

industrial order. We may, it would seem, abstract from history in

general. This corresponds to the postulate explicitly stated by

M'Culloch. 'A state,' he tells us, 'is nothing more than an aggregate

of individuals': men, that is, who 'inhabit a certain tract of

country.'[362] He infers that 'whatever is most advantageous to them'

(the individuals) 'is most advantageous to the state.' Self-interest,

therefore, the individual's desire of adding to his 'fortune,' is the

mainspring or _causa causans_ of all improvement.[363] This is, of

course, part of the familiar system, which applies equally in ethics

and politics. M'Culloch is simply generalising Adam Smith's congenial

doctrine that statesmen are guilty of absurd presumption when they try

to interfere with a man's management of his own property.[364] This

theory, again, is expressed by the familiar maxim _pas trop

gouverner_, which is common to the whole school, and often accepted

explicitly.[365]

It will be quite enough to notice one or two characteristic results.

The most important concern the relation between the labourer and the

capitalist. Malthus gives the starting-point. Torrens, for example,

says that the 'real wages of labour have a constant tendency to settle

down' to the amount rendered necessary by 'custom and climate' in

order to keep up his numbers.[366] Mill observes in his terse way that

the capitalist in the present state of society 'is as much the owner

of the labour' as the manufacturer who operates with slaves. The only

'difference is in the mode of purchasing.'[367] One buys a man's whole

labour; the other his labour for a day. The rate of wages can

therefore be raised, like the price of slaves, only by limiting the

supply. Hence the 'grand practical problem is to find the means of

limiting the number of births.'[368] M'Culloch is equally clear, and

infers that every scheme 'not bottomed on' the principle of

proportioning labour to capital must be 'completely nugatory and

ineffectual.'[369]

The doctrine common to the whole school led M'Culloch to conclusions

which became afterwards notorious enough to require a word of notice.

Torrens, like Ricardo, speaks of capital as 'accumulated labour,' but

makes a great point of observing that, although this is true, the case

is radically changed in a developed state of society. The value of

things no longer depends upon the labour, but upon the amount of

capital employed in their production.[370] This, indeed, may seem to

be the most natural way of stating the accepted principle. M'Culloch

replies that the change makes no difference in the principle,[371]

inasmuch as capital being 'accumulated labour,' value is still

proportioned to labour, though in a transubstantiated shape. M'Culloch

supposed that by carrying out this principle systematically he was

simplifying Ricardo and bringing the whole science into unity. All

questions, whether of value in exchange, or of the rate of wages, can

then be reduced to comparing the simple unit called labour. Both Mill

and M'Culloch regard capital as a kind of labour, so that things may

be produced by capital alone, 'without the co-operation of any

immediate labour'[372]--a result which can hardly be realised with the

discovery of a perpetual motion. So, again, the value of a joint

product is the 'sum' of these two values.[373] All value, therefore,

can be regarded as proportioned to labour in one of its two states.

M'Culloch advanced to an unfortunate conclusion, which excited some

ridicule. Though Ricardo and Torrens[374] rejected it, it was accepted

by Mill in his second edition.[375] Wine kept in a cask might increase

in value. Could that value be ascribed to 'additional labour actually

laid out'? M'Culloch gallantly asserted that it could, though 'labour'

certainly has to be interpreted in a non-natural sense.[376] Not only

is capital labour, but fermentation is labour, or how can we say that

all value is proportioned to labour? This is only worth notice as a

pathetic illustration of the misfortunes of a theorist ridden by a

dogma of his own creation. Another conclusion is more important. The

'real value' of anything is measured by the labour required to produce

it. Nothing 'again is more obvious' than that equal labour implies the

'same sacrifice' in all states of society.[377] It might seem to

follow that the value of anything was measured by the labour which it

would command. This doctrine, however, though maintained by Malthus,

was, according to M'Culloch, a pestilent heresy, first exploded by

Ricardo's sagacity.[378] Things exchange, as he explains, in

proportion to the labour which produces them, but the share given to

the labourer may vary widely. The labourer, he says, 'gives a

constant, but receives a variable quantity in its stead.' He makes the

same sacrifice when he works for a day, but may get for it what he

produces in ten hours, or only in one. In every case, however, he gets

less than he produces, for the excess 'constitutes profits.'[379] The

capitalist must get his interest, that is, the wages of the

accumulated labour. Here we come again to the Socialist position, only

that the Socialist infers that the labourer is always cheated by the

capitalist, and does not consider that the machine can ask for 'wages'

on the pretext that it is accumulated labour. What, however,

determines the share actually received? After all, as a machine is not

actually a labourer, and its work not a separable product, we cannot

easily see how much wages it is entitled to receive. M'Culloch follows

the accepted argument. 'No proposition,' he says, 'can be better

established than that the market rate of wages ... is exclusively

determined by the proportion between capital and population.'[380] We

have ultimately here, as elsewhere, 'the grand principle to which we

must always come at last,' namely, 'the cost of production.'[381]

Wages must correspond to the cost of raising the labourer. This leads

to a formula, which afterwards became famous. In a pamphlet[382]

devoted to the question, he repeats the statement that wages depend

upon the proportion between population and capital; and then, as if

the phrase were identical, substitutes that portion of capital which

is required for the labourer's consumption. This is generally cited as

the first statement of the 'wage-fund' theory, to which I shall have

to return.

I need not pursue these illustrations of the awkward results of

excessive zeal in a disciple. It is worth noticing, however, that

M'Culloch's practical conclusions are not so rigid as might be

inferred. His abstract doctrines do not give his true theory, so much

as what he erroneously took to be his theory. The rules with which he

works are approximately true under certain conditions, and he

unconsciously assumes the conditions to be negligible, and the rules

therefore absolute. It must be added that he does not apply his

conclusions so rigidly as might be expected. By the help of

'friction,' or the admission that the ride is only true in nineteen

cases out of twenty, he can make allowance for many deviations from

rigid orthodoxy. He holds, for example, that government interference

is often necessary. He wishes in particular for the establishment of a

'good system of public education.'[383] He seems to have become more

sentimental in later years. In the edition of 1843 he approves the

Factory Acts, remarking that the last then passed 'may not, in some

respects, have gone far enough.'[384] He approves a provision for the

'impotent poor,' on the principle of the Elizabethan act, though he

disapproves the centralising tendency of the new poor-law. Though he

is a good Malthusian,[385] and holds the instinct of population to be

a 'constant quantity,'[386] he does not believe in the impossibility

of improvement. The 'necessary' rate of wages fixes only a minimum:

an increase of population has been accompanied by an increase of

comfort.[387] Wages rise if the standard of life be raised, and a rise

of wages tends to raise the standard. He cordially denounces the

benevolent persons who held that better wages only meant more

dissipation. Better wages are really the great spur to industry and

improvement.[388] Extreme poverty causes apathy; and the worst of

evils is the sluggishness which induces men to submit to reductions of

wages. A sense of comfort will raise foresight; and the _vis

medicatrix_ should be allowed to act upon every rank of society. He is

no doubt an individualist, as looking to the removal of restrictions,

such as the Conspiracy Laws,[389] rather than to a positive action of

the government; but it is worth notice that this typical economist is

far from accepting some of the doctrines attributed to the school in

general.

The classical school blundered when it supposed that the rules which

it formulated could be made absolute. To give them that character, it

was necessary to make false assumptions as to the ultimate

constitution of society; and the fallacy became clear when the formulae

were supposed to give a real history or to give first principles, from

which all industrial relations could be deduced. Meanwhile, the

formulae, as they really expressed conditional truths, might be very

useful so long as, in point of fact, the conditions existed, and were

very effective in disposing of many fallacies. The best illustration

would probably be given by the writings of Thomas Tooke

(1774-1858),[390] one of the founders of the Political Economy Club.

The _History of Prices_ is an admirable explanation of phenomena which

had given rise to the wildest theories. The many oscillations of trade

and finance during the great struggle, the distress which had followed

the peace, had bewildered hasty reasoners. Some people, of course,

found consolation in attributing everything to the mysterious action

of the currency; others declared that the war-expenditure had supplied

manufacturers and agriculturists with a demand for their wares,

apparently not the less advantageous because the payment came out of

their own pockets.[391] Tooke very patiently and thoroughly explodes

these explanations, and traces the fluctuations of price to such

causes as the effect of the seasons and the varying events of the war

which opened or closed the channels of commerce. The explanation in

general seems to be thoroughly sound and conclusive, and falls in, as

far as it goes, with the principles of his allies. He shows, for

example, very clearly what were the conditions under which the

orthodox theory of rent was really applicable; how bad seasons brought

gain instead of loss to the 'agricultural interest,' that is, as Tooke

explains, to the landlord and farmer; how by a rise of price out of

proportion to the diminution of supply, the farmer made large profits;

how rents rose, enclosure bills increased, and inferior land was

brought under the plough. The landlord's interest was for the time

clearly opposed to that of all other classes, however inadequate the

doctrine might become when made absolute by a hasty generalisation. I

need not dwell upon the free-trade argument which made the popular

reputation of the economists. It is enough to note briefly that the

error as to the sphere of applicability of the doctrine did not

prevent many of the practical conclusions from being of the highest

value.

FOOTNOTES:

[294] A life of Ricardo by M'Culloch is prefixed to his _Works_. I

cite the edition of 1880. Ricardo's letters to Malthus were published

by Mr. Bonar in 1887; his letters to M'Culloch, edited by Mr.

Hollander for the American Economic Association, in 1895; and his

letters to H. Trower, edited by Mr. Bonar and Mr. Hollander, have just

appeared (1900).

[295] He remarks upon this difficulty in the case of Smith's

treatment of rent, and gives a definition to which he scarcely

adheres.--_Works_, p. 34 ('Principles,' ch. ii., 1888).

[296] _Works_, p. 378. Ricardo, it should be said, complained when

Malthus interpreted him to mean that this opposition of interests was

permanent and absolute.

[297] Malthus admits the general principle of free trade, but supports

some degree of protection to corn, mainly upon political grounds. He

holds, however, with Adam Smith, that 'no equal quantity of productive

labour employed in manufactures could ever occasion so great a

reproduction as in agriculture' (_Grounds of an Opinion, etc._, p.

35)--a relic of the 'physiocrat' doctrine.

[298] _Works_, p. 385.

[299] _Ibid._ p. 386.

[300] See also _Letters to Malthus_, p. 175.

[301] 'Your modern political economists say that it is a principle in

their science that all things find their level; which I deny, and say,

on the contrary, that it is the true principle that all things are

finding their level, like water in a storm.'--Coleridge's

_Table-Talk_, 17th May 1833.

[302] _Letters to Malthus_, p. 96; and see the frequently quoted

passage where he complains that Malthus has taken his book as more

'practical' than he had intended it to be, and speaks of his method of

imagining 'strong cases.'--_Ibid._ p. 167.

[303] _Works_, p. 40 _n._ (ch. ii.).

[304] _Works_, p. 53 (ch. v.), and p. 124 (ch. xvi.), where he quotes

from the _Wealth of Nations_ (M'Culloch), p. 390 (bk. v. ch. ii. art.

3).

[305] _Works_, p. 131.

[306] _Wealth of Nations_ (M'Culloch), p. 31 (bk. i. ch. viii.).

[307] _Works_, p. 41 (ch. ii.).

[308] _Wealth of Nations_ (M'Culloch), p. 36.

[309] _Works_, p. 51 (ch. v.).

[310] _Letters to Malthus_, p. 98.

[311] _Works_, p. 239 (ch. xxxi., added in third edition, 1821).

[312] _Ibid._ p. 50 (ch. v.).

[313] _Ibid._ p. 52.

[314] _Ibid._ p. 15 (ch. i. sec. ii.).

[315] There is, indeed, a difficulty which I happily need not discuss.

Undoubtedly the doctrine of gluts was absurd. There is, of course, no

limit to the amount of wealth which can be used or exchanged. But

there certainly seems to be a great difficulty in effecting such a

readjustment of the industrial system as is implied in increased

production of wealth; and the disposition to save may at a given time

be greater than the power of finding profitable channels for employing

wealth. This involves economical questions beyond my ability to

answer, and happily not here relevant.

[316] _Letters to Malthus_, p. 101.

[317] _Ibid._ p. 52.

[318] _Works_, p. 174 (ch. xxi.).

[319] _Works_, p. 66 (ch. vi.).

[320] _Works_, p. 240 (ch. xxxi.).

[321] Ricardo, _Works_, p. xxiv.

[322] Menger's _Das Recht auf den vollen Arbeitsertrag_ (1891), p. 38.

[323] _Works_, p. 228 (ch. xxviii.).

[324] _Works_, pp. 29, 60.

[325] _Ibid._ p. 166.

[326] _Works_, p. 170 (ch. xx.).

[327] _Ibid._ p. 7.

[328] So he tells Malthus (_Letters_, pp. 173, 174) that the buyer has

'the least to do in the world' with the regulation of prices. It is

all the competition of the sellers. 'Demand' influences price for the

moment, but 'supply follows close upon its heels, and takes up the

regulation of price.'

[329] _Works_, p. 234.

[330] Bentham's _Works_, x. 498.

[331] _Works_, p. 250 (ch. xxxii.).

[332] Stewart's _Works_, x. 34.

[333] See Bagehot's remarks upon J. S. Mill's version of this doctrine

in _Economic Studies_: chapter on 'Cost of Production.'

[334] Another illustration of the need of such considerations is

given, as has been pointed out, in Adam Smith's famous chapter upon

the variation in the rate of wages. He assumes that the highest wages

will be paid for the least agreeable employments, whereas, in fact,

the least agreeable are generally the worst paid. His doctrine, that

is, is only true upon a tacit assumption as to the character and

position of the labourer, which must be revised before the rule can be

applied.

[335] J. S. Mill, too, in his _Political Economy_ makes the foundation

of private property 'the right of producers to what they themselves

have produced.' (Bk. ii. ch. ii. Sec. 1.)

[336] Mr. Edwin Cannan, in _Production and Distribution_ (1894), p.

383.

[337] A definition, says Burke in his essay on the 'Sublime and

Beautiful' (introduction) 'seems rather to follow than to precede our

inquiry, of which it ought to be considered as the result.'

[338] _Works_, p. 34 (chap. ii.). Rent is there defined as the sum

paid for the original and indestructible powers of the soil.

[339] _Works_, p. 132 (chap. xvii.). He admits (_Ibid._ p. 210 _n._)

that the labourer may have a little more than what is absolutely

necessary, and that his inference is therefore 'expressed too

strongly.'

[340] See _Letters to M'Culloch_, p. xxi.

[341] 'The assaults upon Malthus's "great work,"' he says (_Works_, p.

243, ch. xxxii.), 'have only served to prove its strength.'

[342] _Letters to Malthus_, p. 226.

[343] _Works_, p. 58 (ch. v.).

[344] _Ibid._ p. 211 _n._ (ch. xxvi.).

[345] _Ibid._ p. 258 (ch. xxxii.).

[346] _Works_, p. 248 (ch. xxii.).

[347] Bain's _James Mill_, p. 211.

[348] Editions in 1821, 1824, and 1826.

[349] _Autobiography_, p. 204.

[350] The first edition, an expanded version of an article in the

_Encyclopaedia Britannica_, appeared in 1825.

[351] _Latter-day Pamphlets_ (New Downing Street). M'Crowdy is

obviously a type, not an individual.

[352] See Mr. Hewin's life of him in _Dictionary of National

Biography_.

[353] Fourth edition in 1827.

[354] Ricardo's _Works_, p. 164 _n._

[355] _External Corn-trade_, preface to fourth edition. J. S. Mill

observes in his chapter upon 'International Trade' that Torrens was

the earliest expounder of the doctrine afterwards worked out by

Ricardo and Mill himself. For Ricardo's opinion of Torrens, see

_Letters to Trower_, p. 39.

[356] _Production of Wealth_ (Preface).

[357] _Production of Wealth_ (Preface).

[358] _Political Economy_ (1825), p. 21.

[359] _External Corn-trade_, pp. xviii, 109, 139; _Production of

Wealth_, p. 375.

[360] Originally in the _Encyclopaedia Metropolitana_, 1836.

[361] Senior's _Political Economy_ (1850), p. 26.

[362] _Ibid._ (1825), pp. 55, 129-131.

[363] Senior's _Political Economy_ (150), p. 125.

[364] _Ibid._ p. 135. M'Culloch admits the possibility that a man may

judge his own interests wrongly, but thinks that this will not happen

in one case out of twenty (_Ibid._ p. 15).

[365] See Torrens's _Production of Wealth_, p. 208; and M'Culloch's

_Political Economy_ (1843), p. 294, where he admits some exceptions.

[366] _External Corn-trade_, p. 87, etc.

[367] _Political Economy_ (second edition), pp. 21, 22.

[368] _Ibid._ p. 67.

[369] _Political Economy_ (1825), p. 329.

[370] _Production of Wealth_, p. 34, etc.

[371] _Political Economy_ (1825), p. 318.

[372] Mill's _Political Economy_ (second edition), p. 102; M'Culloch's

_Political Economy_ (1825), pp. 289-291.

[373] M'Culloch's _Political Economy_, p. 290.

[374] Preface to _External Corn-trade_.

[375] _Ibid._ p. 95.

[376] _Political Economy_ (1825), pp. 313-18. This argument disappears

in later editions.

[377] _Ibid._ p. 217.

[378] _Political Economy_, p. 221. De Quincey makes a great point of

this doctrine, of which it is not worth while to examine the meaning.

[379] _Political Economy_, p. 221 _n._

[380] _Ibid._ p. 336.

[381] _Ibid._ p. 337.

[382] 'Essay upon the Circumstances which determine the Rate of Wages'

(1826), p. 113. This was written for Constable's _Miscellany_, and is

mainly repetition from the _Political Economy_. It was republished,

with alterations, in 1851.

[383] _Political Economy_, pp. 359-61.

[384] _Ibid._ (1843), p. 178. And see his remarks on the unfavourable

side of the Factory System, p. 186 _seq._

[385] 'Wherever two persons have the means of subsisting,' as he

quaintly observes, 'a marriage invariably takes place' (_Political

Economy_, p. 154).

[386] _Political Economy_, p. 206.

[387] _Political Economy_, p. 344.

[388] _Ibid._ pp. 349-52.

[389] See pamphlet on the rate of wages, pp. 178-204.

[390] Tooke's _Thoughts and Details on the High and Low Prices of the

last Thirty Years_ appeared in 1823 (second edition 1824). This was

rewritten and embodied in the _History of Prices_, the first two

volumes of which appeared in 1838. Four later volumes appeared in

1839, 1848, and 1857.

[391] The popular view is given by Southey. The Radicals, he says in

1823, desire war because they expect it to lead to revolution. 'In

this they are greatly deceived, for it would restore agricultural

prosperity, and give a new spur to our manufactures' (_Selections from

Southey's Letters_, iii. 382. See also _Life and Correspondence_, iv.

228, 386).