ON THE DEFINITION AND APPLICATION OF TERMS BY MR. RICARDO.
Although it must be allowed that the criterion of value which Mr.
Ricardo has endeavoured to establish is an incomplete one, yet I cannot
but think that he has conferred an important benefit on the science of
political economy, by drawing a marked line of distinction between
riches and value. A difference had perhaps been felt by most writers,
but none before him had so strongly marked it, and attached so much
importance to it. He agrees entirely with Adam Smith in the following
definition of riches: “Every man is rich or poor according to the degree
in which he can afford to enjoy the necessaries, conveniencies, and
amusements of human life.”[4] And adds an observation in which I think
he is quite right. “Value, then, essentially differs from riches; for
value depends not on abundance, but on the difficulty or facility of
production.”[5] He subsequently says, “although Adam Smith has given the
correct description of riches which I have more than once noticed, he
afterwards explains them differently, and says that a man must be rich
or poor, according to the quantity of labour which he can afford to
purchase. Now this description differs essentially from the other, and
is certainly incorrect; for suppose the mines were to become more
productive, so that gold and silver fell in value, from the greater
facility of production; or that velvets were to be manufactured by so
much less labour than before, that they fell to half their former value;
the riches of all those who purchased these commodities would be
increased; one man might increase the quantity of his plate, another
might buy double the quantity of velvet; but with the possession of this
additional plate and velvet, they could employ no more labour than
before, because, as the exchangeable value of velvet and of plate would
be lowered, they must part with proportionably more of these species of
riches to purchase a day’s labour. Riches then cannot be estimated by
the quantity of labour which they will purchase.”[6]
In these remarks I entirely agree with Mr. Ricardo. If riches consist of
the necessaries, conveniencies, and luxuries of life, and the same
quantity of labour will at different times, and under different
circumstances, produce a very different quantity of the necessaries,
conveniencies, and luxuries of life, then it is quite clear that the
power of commanding labour, and the power of commanding the necessaries,
conveniencies and luxuries of life are essentially distinct. One, in
fact, is a description of value, and the other of wealth.
But though Mr. Ricardo has fully succeeded in showing that Adam Smith
was incorrect in confounding wealth and value, even according to his own
descriptions of them; yet he has nowhere succeeded in making out the
propriety of that peculiar view of value which forms the most prominent
feature of his work.
He has not confined himself to the assertion, that what he calls the
value of a commodity is determined by the quantity of labour worked up
in it; but he states, in substance, the following proposition, that
commodities exchange with each other according to the quantity of manual
labour worked up in them, including the labour worked up in the
materials and tools consumed in their production, as well as that which
is more immediately employed.[7]
Now this proposition is contradicted by universal experience. The
slightest observation will serve to convince us, that after making all
the required allowances for temporary deviations from the natural and
ordinary course of things, the class of commodities subject to this law
of exchange is most extremely confined, while the classes, not subject
to it, embrace the great mass of commodities. Mr. Ricardo, indeed,
himself admits of considerable exceptions to his rule; but if we examine
the classes which come under his exceptions, that is, where the
quantities of fixed capital employed are different and of different
degrees of duration, and where the periods of the returns of the
circulating capital employed are not the same, we shall find that they
are so numerous, that the rule may be considered as the exception, and
the exceptions the rule.
Yet, notwithstanding these admissions, he proceeds with his rule as if
there had been few or no exceptions to it: he especially estimates the
value of wages by the quantity of human labour worked up in them; and as
it is quite true, that if we look only to this element of value, the
value of wages has a tendency to rise in the progress of cultivation and
improvement, he has attributed the fall of profits which usually takes
place in rich countries to the rise in the value of wages; and, in fact,
has founded his whole theory of profits, which has been considered as
the crowning achievement in the science, upon the rise and fall in the
value of wages. “It has been my endeavour,” he says, “to show throughout
this work, that the rate of profits can never be increased but by a fall
of wages.”[8] Again he observes, “Profits—it cannot be too often
repeated—depend on wages; not on nominal but real wages; not on the
number of pounds which may be annually paid to the labourer, but on the
number of days’ work necessary to obtain these pounds.”[9]
Real wages, then, according to Mr. Ricardo’s definition, are determined
by the quantity of labour worked up in the articles, which the labourer
receives as a remuneration for his labour, whether food and clothing, or
money.
Now the meaning here attached to the term real wages, on which Mr.
Ricardo’s theory of profits is made to depend, is quite unusual, and
decidedly contradicts all the most obvious rules which suggest
themselves for the application of terms in any science.
In the first place, no one we believe ever heard, before the time of Mr.
Ricardo, this term used in conversation in such a manner, that an
increase of real wages would generally imply a diminution in the means
of subsistence and comfort among the labouring classes and their
families. Yet this would be the case, according to the sense in which
Mr. Ricardo uses the term. Speaking of the different situations of the
landlord and the labourer, in the progress of society, after describing
the increasing wealth of the landlord, he says, “The fate of the
labourer will be less happy; he will receive more money-wages it is
true, (and the money of Mr. Ricardo is here used as measuring what he
calls real wages;) but his corn wages will be reduced; and not only his
command of corn, but his general condition will be deteriorated.” With a
continued increase of real wages, “the condition of the labourer will
generally decline, while the condition of the landlord will always be
improved.”[10]
Secondly, No writer that I have met with, anterior to Mr. Ricardo, ever
used the term wages, or real wages, as implying proportions. Profits,
indeed, imply proportions; and the rate of profits had always justly
been estimated by a per centage upon the value of the advances. But
wages had uniformly been considered as rising or falling, not according
to any _proportion_ which they might bear to the whole produce obtained
by a certain quantity of labour, but by the greater or smaller quantity
of any particular produce received by the labourer, or by the greater or
smaller power which such produce would convey, of commanding the
necessaries and conveniencies of life. Adam Smith in particular had
often used the term _real wages_, and always in the most natural sense
possible, as implying the necessaries and conveniencies of life, which,
according to the common language and feelings of men, might justly be
considered as more _real_ than money, or any other particular article in
which the labourer might be paid. And the use of the term, in this
sense, by Adam Smith, and most other political economists, necessarily
made the new interpretation given to it more strange, and more
unwarranted.
Thirdly, There were no objections to the sense in which the term was
before applied. It was both natural and useful. Nor was a new
interpretation of it wanted for the purpose of explanation. All the
effects of the wages of labour upon profits might have been clearly
described, by stating, that profits are determined by the proportion of
the whole produce which goes to pay the wages of labour, without calling
this proportion, whether small or great in quantity, _the real wages of
labour_, and without asserting that, as the value of wages rises,
profits must proportionably fall. That profits are determined by the
proportion of the whole produce which goes to pay the wages of labour,
is a proposition, which, when correctly explained, will be found to be
true, and to be confirmed by universal experience; while the
proposition, that as the value of wages rises profits proportionably
fall, cannot be true, except on the assumption that commodities, which
have the same quantity of labour worked up in them, are always of the
same value, an assumption which probably will not be found to be true in
one case out of five hundred; and this, not from accidental or temporary
causes, but from that natural and necessary state of things, which, in
the progress of civilisation and improvement, tends continually to
increase the quantity of fixed capital employed, and to render more
various and unequal the times of the returns of the circulating capital.
The introduction, therefore, of a new meaning of the term _real wages_,
has not certainly the recommendation of being more useful.
Fourthly, the new sense in which the term real wages is used, is not
maintained with consistency, or applied to old facts and opinions, with
a proper allowance for the change that has been made. This is almost
unavoidable, when old terms, which are quite familiar in one sense, are
applied in another and different sense. It is particularly remarkable in
Mr. Ricardo’s use of his artificial money, which is meant to be the
measure of real wages. Thus, he says, “It may be proper to observe, that
Adam Smith, and all the writers who have followed him, have, without one
exception that I know of, maintained, that a rise in the price of labour
would be uniformly followed by a rise in the price of all commodities. I
hope I have succeeded in showing that there are no grounds for such an
opinion, and that only those commodities would rise which had less fixed
capital employed upon them than the medium in which price was estimated,
and that all those which had more would positively fall in price when
wages rose. On the contrary, if wages fell, those commodities only would
fall which had a less proportion of fixed capital employed upon them
than the medium in which price was estimated; all those which had more
would positively rise in price.”[11]
Now all these effects of a rise or fall in the wages of labour, depend
entirely upon wages being estimated in Mr. Ricardo’s imaginary money.
Estimated in this way, and in this way alone, Mr. Ricardo’s statement
would be correct. But neither Adam Smith, nor any of his followers, down
to the time of Mr. Ricardo, ever thought of estimating the price of
wages in this way. And estimating them in the way to which they were
always accustomed, that is in money, as they found it, they are quite
justified in what they have said. According to Adam Smith, at least, who
estimates the value of commodities by the quantity of labour which they
will command, if the money wages of labour universally rise, the value
of money proportionably falls; and when the value of money falls, Mr.
Ricardo himself says, that the prices of goods always rise.
The difference, therefore, between Mr. Ricardo and Adam Smith in this
case, arises from Mr. Ricardo’s forgetting that he was using the term
price of labour in a different sense from that in which it was used in
the proposition objected to.
In the same manner, Mr. Ricardo’s very startling proposition respecting
the effects of foreign trade, namely, that “no extension of foreign
trade will immediately increase the amount of _value_ in a country,”
arises entirely from his using the term value in a different sense from
that in which it had been used by his predecessors.
If the value of foreign commodities imported is to be estimated by the
quantity of labour worked up in the commodities sent out to purchase
them, then it is quite true that, whatever may be the returns, their
value is unsusceptible of increase. But if the value of foreign
commodities imported be estimated in the way in which they had ever been
estimated before, that is, either in the money, in the labour, or in the
mass of commodities which they would command when brought home, then
there cannot be the least doubt that the _immediate_ effect of a
prosperous venture which gives great profits to the merchants concerned
would be to increase the amount of value in the country. The value of
the returns compared with the value of the outgoings would, in this
particular trade, be greater than usual; and it is quite certain, that
this increase of value in one quarter would not necessarily be
counterbalanced by a decrease of value in any other. Practically,
indeed, nothing is more usual than a simultaneous rise in the value of
the great mass of commodities from a prosperous trade, whether this
value be estimated in money or in labour.
It must be allowed, then, that Mr. Ricardo has been very far from
cautious in the definition and application of his terms, in treating of
some of the most fundamental principles of political economy; and I have
very little doubt, as I have stated elsewhere, that this is one of the
reasons why many of the readers of his work have found great difficulty
in understanding it. When old and very familiar terms are used in a new
sense, it is scarcely possible for the writer to be always consistent in
their application, and extremely difficult to the reader always to be
aware of the sense meant to be affixed to them.