ON THE DEFINITION AND APPLICATION OF TERMS BY MR. MILL, IN HIS “ELEMENTS
OF POLITICAL ECONOMY.”
Mr. Mill, in his _Elements of Political Economy_, professedly lays no
claim to discovery. His main object seems to have been to give the
substance of Mr. Ricardo’s work in a more concentrated form, and with a
better arrangement; and this object he has accomplished. In the
definition and application of his terms he nearly follows Mr. Ricardo;
but it may be useful to notice a few cases, where he has either made the
errors of Mr. Ricardo’s definitions more prominent, or has altered
without improving them.
On his first approach to the question of value, he describes the causes
which determine it much more inaccurately than Mr. Ricardo. He says,
that “the value of commodities is determined by the _quantity_ of
capital and labour necessary to produce them.”[12] But this is obviously
untrue and quite inconsistent with what he says afterwards respecting
the regulator of value. It may be correct, and I fully believe it is, to
estimate the value of labour by its _quantity_; but how can we estimate
the value of different kinds of machinery, or different kinds of raw
materials by their _quantity_? The _quantity_ of raw material contained
in a coarse and thick piece of calico, as compared with a very fine and
thin piece of muslin, worked up by the same quantity of labour, may be
four or five times greater, while the value of it, and the degree in
which it affects the value of the commodity, may be actually less. We
cannot, in short, measure the value of any product of labour by its bulk
or quantity; and it must therefore be essentially incorrect to say, that
the value of commodities is determined by the quantity of capital and
labour necessary to produce them.
Proceeding afterwards to investigate more minutely what it is, which in
the last resort determines the proportion in which commodities exchange
for one another, he observes, that “as all capital consists in
commodities, it follows, of course, that the first capital must have
been the result of pure labour. The first commodities could not be made
by any commodities existing before them. But if the first commodities,
and of course the first capital, were the result of pure labour, the
value of this capital, the quantity of other commodities for which it
would exchange, must have been estimated by labour. This is an immediate
consequence of the proposition which we have just established, that
where labour was the sole instrument of production, exchangeable value
was determined by the quantity of labour which the production of the
commodity required. If this be established, it is a necessary
consequence that the exchangeable value of all commodities is determined
by quantity of labour.”[13]
Now this necessary consequence, which is here so confidently announced,
does not appear to me to follow either from this statement, or from any
thing which is said subsequently. Allowing that the first commodities,
if completed and brought into use immediately, might be the result of
pure labour, and that their value would therefore be determined by the
quantity of that labour; yet it is quite impossible that such
commodities should be employed as capital to assist in the production of
other commodities, without the capitalist being deprived of the use of
his advances for a certain period, and requiring a remuneration in the
shape of profits.
In the early periods of society, on account of the comparative scarcity
of these advances of labour, this remuneration would be high, and would
affect the value of such commodities to a considerable degree, owing to
the high rate of profits. In the more advanced stages of society, the
value of capital and commodities is largely affected by profits, on
account of the greatly increased quantity of fixed capital employed, and
the greater length of time for which much of the circulating capital is
advanced before the capitalist is repaid by the returns. In both cases,
the rate at which commodities exchange with each other, is essentially
affected by the varying amount of profits. It is impossible, therefore,
to agree with Mr. Mill, when he says, “It appears by the clearest
evidence, that quantity of labour in the last resort determines the
proportion in which commodities exchange for one another.”[14]
On the same grounds Mr. Mill is quite incorrect, in calling capital
hoarded labour. It may, perhaps, be called hoarded labour and profits;
but certainly not hoarded labour alone, unless we determine to call
profits labour. This Mr. Mill himself could not but see; and
consequently, in his second edition, he has deserted Mr. Ricardo, and
boldly ventured to say, that “profits are in reality the measure of
quantity of labour.”[15] But as this very peculiar and most unwarranted
abuse of terms belongs, I believe, originally to Mr. Macculloch, it may
be best to defer the more particular examination of it, till I come to
consider the definitions and application of terms adopted by Mr.
Macculloch.
In a work like that of Mr. Mill, which has so much the air of logical
precision, one should have hoped and expected to find superior accuracy
in the definitions, and great uniformity in the application of his
terms, in whatever sense he might determine to use them; but in this the
reader will be disappointed. It is difficult, for instance, to infer
from the language of Mr. Mill, whether a commodity is to be considered
as altering in its value in proportion to its costs of production, or in
proportion to its power of commanding other commodities, and they are
certainly not the same.
At the commencement of his seventh section, of chap. iii., entitled,
“_What regulates the Value of Money_,” he says,
“By the value of money is here to be understood the proportion in which
it exchanges for other commodities, or the quantity of it which
exchanges for a certain quantity of other things.”
This is, to be sure, a very lax description of the value of money, very
inferior in point of accuracy, even to what would be understood by _the
general power of purchasing_. What are the things a certain quantity of
which is here alluded to? and if these things change in the costs of
their production, will money be proportionally affected?
But we have a different and better description of value in the next
section. It is there said, that “gold and silver are, in reality,
commodities. They are commodities for the attainment of which labour and
capital must be employed. It is cost of production which determines the
value of these as of other ordinary productions.”[16]
Now, if cost of production determines the value of money, it follows
that, while the cost of producing a given quantity of money remains the
same, its value remains the same. But it is obvious that the value of
money may remain the same in this sense of the term, while, owing to the
alterations which may be taking place in the costs of producing the
commodities alluded to, the quantity of other things for which it will
exchange may be essentially different. Which of the two, then, is the
true criterion of the value of money? It is surely most desirable that
the student in political economy should not be left in the dark on this
subject; yet Mr. Mill gives him no assistance; and he is left to decide
between two very different meanings as well as he can.
But, perhaps, the most culpable confusion of terms which Mr. Mill has
fallen into, is in relation to demand and supply; and as he has a more
original and appropriate claim to this error than any other English
writer, and its belief leads to very important consequences, the notice
of it is particularly called for.
In the first place, no person can have turned his attention, in the
slightest degree, to the language of political economy, either in
conversation or books, without being fully aware that the term demand is
used in two very distinct senses; one implying the quantity of the
commodity consumed, and the other the amount of sacrifice which the
purchasers are willing to make in order to obtain a given portion of it.
In the former sense, an increase of demand is but very uncertainly
connected with an increase of value, or a further encouragement to
production, as in general the greatest increase of such kind of demand
takes place in consequence of a very abundant supply and a great fall in
value. It is the other sense alone to which we refer, when we speak of
the demand compared with the supply as determining the values and prices
of commodities; and in this latter sense of the term demand, which,
perhaps, is in the most frequent use, an increase of supply is so far
from increasing demand that it diminishes it, while a diminution of
demand increases it.
Secondly, it has been generally agreed, that when the quantity of a
commodity brought to market is neither more nor less than sufficient to
supply all those who are able and willing to give the natural and
necessary price for it, the demand may then, and then only, be said to
be equal to the supply; because, if the quantity wanted by those who are
able and willing to give the natural price exceed the supply, the demand
is said to be greater than the supply, and the price rises above the
ordinary costs of production; and if the quantity wanted by those who
are able and willing to give the natural price fall short of the supply,
the demand is said to be less than the supply, and the price falls below
the ordinary costs of production. This is the language of Adam Smith,
and of almost all writers on political economy, as well as the language
of common conversation when such subjects are discussed. Indeed it is
difficult to conceive in what other sense it could, with any propriety,
be said, that the supply was equal to the demand, because in any other
sense than this, the supply of a commodity might be said to be equal to
the demand, whether it were selling at double or the half of its cost.
Thirdly, it must be allowed, that according to the best authorities in
books and conversation, what is meant by the glut of a particular
commodity is such an abundant supply of it compared with the demand as
to make its price fall below the costs of production; and what is meant
by a _general_ glut, is such an abundance of a large mass of commodities
of different kinds, as to make them all fall below the natural price, or
the ordinary costs of production, without any proportionate rise of
price in any other equally large mass of commodities.
With these preliminary definitions, we may proceed to examine some of
the arguments by which Mr. Mill endeavours to show that demand and
supply are always equal in the aggregate; that an over supply of some
commodities must always be balanced by a proportionate under supply of
others; and that, therefore, a general glut is impossible.
If Mr. Mill had always strictly adhered to that meaning of the term
_demand for a commodity_ which signifies the quantity consumed, he might
have maintained the position with which he heads the third section of
his fourth chapter, namely, _that consumption is co-extensive with
production_. This, however, is, in reality, no more than saying, that if
commodities were produced in such abundance as to be sold at half their
cost of production, they would still be somehow or other consumed—a
truism equally obvious and futile. But Mr. Mill has used the term demand
in such a way, that he cannot shelter himself under this truism. He
observes, “It is evident that whatever a man has produced, and does not
wish to keep for his own consumption, is a stock which he may give in
exchange for other commodities. His will, therefore, to purchase, and
his means of purchasing, in other words, his demand, is exactly equal to
the amount of what he has produced, and does not mean to consume.”[17]
Here it is evident that Mr. Mill uses the term demand in the sense of
the amount of sacrifice which the purchaser is able to make, in order to
obtain the commodity to be sold, or, as Mr. Mill correctly expresses it,
his means of purchasing. But it is quite obvious that his means of
purchasing other commodities are not proportioned to the _quantity_ of
his own commodity which he has produced, and wishes to part with; but to
its _value in exchange_; and unless the value of a commodity in exchange
be proportioned to its quantity, it cannot be true that the demand and
supply of every individual are always equal to one another. According to
the acknowledged laws of demand and supply, an increased quantity will
often lower the value of the whole, and actually diminish the means of
purchasing other commodities.
Mr. Mill asks, “What is it that is necessarily meant, when we say that
the supply and the demand are accommodated to one another? It is this
(he says) that goods which have been produced by a certain quantity of
labour, exchange for goods which have been produced by an equal quantity
of labour. Let this proposition be attended to, and all the rest is
clear. Thus, if a pair of shoes is produced by an equal quantity of
labour as a hat, so long as a hat exchanges for a pair of shoes, so long
the supply and demand are accommodated to one another. If it should so
happen that shoes fell in value, as compared with hats, which is the
same thing as hats rising in value, as compared with shoes, this would
imply that more shoes had been brought to market, as compared with hats.
Shoes would then be in more than due abundance. Why? Because in them the
produce of a certain quantity of labour would not exchange for the
produce of an equal quantity. But for the very same reason, hats would
be in less than due abundance, because the produce of a certain quantity
of labour in them would exchange for the produce of more than an equal
quantity in shoes.”[18]
Now, I have duly attended, according to Mr. Mill’s instructions, to the
proposition which is to make all the rest clear; and yet the conclusions
at which he wishes to arrive, appear to me as much enveloped in darkness
as ever. This, indeed, was to be expected from the proposition itself,
which obviously involves a most unwarranted definition of what is meant,
when we say that the supply and the demand are accommodated to one
another. It has already been stated that what has hitherto been meant,
both in conversation and in the writings of the highest authority on
political economy, by the supply being accommodated to, or equal to the
demand, is, that the supply is just sufficient to accommodate all those
who are able and willing to pay the natural and necessary price for it,
in which case, of course, it will always sell at what Adam Smith calls
its natural price.
Now, unless Mr. Mill is ready to maintain that people would still say
that the supply of a commodity was accommodated to the demand for it,
whether it were selling at three times the cost of its production, or
only one-third of that cost, he cannot maintain his definition. He
cannot, for instance, deny that hats and shoes may be both selling below
the costs of production, although they may exchange for each other in
such proportions, that the hats produced by a certain quantity of labour
may exchange for the shoes produced by the same quantity of labour. But
can it be said on this account, that the supply of hats is suited to the
demand for hats, or the supply of shoes suited to the demand for shoes,
when they are both so abundant that neither of them will exchange for
what will fulfil the conditions of their continued supply? And supposing
that, while both are selling below the costs of production, shoes should
fall still lower than hats, what would be the consequence? According to
Mr. Mill, “shoes would then be in more than due abundance. Why? Because
in them the produce of a certain quantity of labour would not exchange
for the produce of an equal quantity. But for the very same reason, hats
would be in less than due abundance, because the produce of a certain
quantity of labour in them would exchange for the produce of more than
an equal quantity in shoes.”[19]
It will be most readily allowed that, in the case supposed, shoes will
be in more than due abundance, though not for the reason given by Mr.
Mill. But how can it be stated, with the least semblance of truth, that
hats would be in less than due abundance, when, by the very supposition,
they are selling at a price which will not re-purchase the quantity of
labour employed in producing them.
Nothing can show more distinctly than the very case here produced by Mr.
Mill, that his proposition or definition, which is to clear up
everything, is wholly inapplicable to the question; and that to
represent the abundance or deficiency of the supply of one commodity, as
determined by the deficiency or abundance of another, is to give a view
of the subject totally different from the reality, and calculated to
lead to the most absurd conclusions. There is hardly any stage of
society subsequent to the division of labour, where the state of the
supply compared with the demand of shoes is essentially affected by the
state of the supply compared with the demand for hats; and in the
present state of society in this country, where the question of a
general glut has arisen, it is still more irrelevant to advert to any
other objects as efficient causes of demand for a particular commodity,
except those which relate to the costs of producing it.
The hop-planter who takes a hundred bags of hops to Weyhill fair, thinks
little more about the supply of hats and shoes than he does about the
spots in the sun. What does he think about, then? and what does he want
to exchange his hops for? Mr. Mill seems to be of opinion that it would
show great ignorance of political economy, to say that what he wants is
money; yet, notwithstanding the probable imputation of this great
ignorance, I have no hesitation in distinctly asserting, that it really
is money which he wants, and that this money he must obtain, in the
present state of society, in exchange for the great mass of what he has
brought to market, or he will be unable to carry on his business as a
hop-planter; and for these specific reasons; first, that he must pay the
rent of his hop grounds in money; secondly, that he must pay for his
poles, his bags, his implements, &c., &c., in money; thirdly, that he
must pay the numerous labourers which he employs on his grounds, during
the course of the next year, in money; and fourthly, that it is in
money, and in money alone of all the articles brought to the fair, that
he can calculate his profits.
It is perfectly true, that both the landlords and the labourers who are
paid in money will finally exchange it for something else, as no one
enjoys money _in kind_, except the miser; but the landlord who may spend
perhaps a good deal in post-horses, dinners at inns, and menial
servants, would be little likely to accept from the hop-planter the
articles which he could get at the fair in exchange for his hops; and
though the expenditure of the labourer is much more simple, and may be
said to consist almost entirely in food and clothing, yet it is quite
certain that the power of commanding a given quantity of labour can
never be represented, with any approach towards correctness, by a given
quantity of corn and clothing. As a matter of fact, the labourer in this
country is paid in money; and while it often happens that for many years
together the money-price of labour remains the same, the money-price of
corn is continually altering, and the labourer may, perhaps, receive the
value of twice as much corn in one year as he does in another.
What an entirely false view, then, does it give of the real state of
things, what a complete obscuration instead of illustration of the
subject is it, to represent the demand for shoes as determined by the
supply of hats, or the demand for hops by the supply of cloth, cheese,
or even corn. In fact, the doctrine that one half of the commodities of
a country necessarily constitute an adequate market or effectual demand
for the other half, is utterly without foundation. The great producers
who are the great sellers, before they can venture to think about the
supplies of hats, shoes, and cloth, on which they may perhaps expend a
tenth part of a tenth part of what they have brought to market, must
first direct their whole attention to the replacing of their capital,
and to the question whether, after replacing it, they will have realized
fair profits. Whatever may be the number of intermediate acts of barter
which may take place in regard to commodities—whether the producers send
them to China,[20] or sell them in the place where they are produced:
the question as to an adequate market for them, depends exclusively upon
whether the producers can replace their capitals with ordinary profits,
so as to enable them successfully to go on with their business.
But what are their capitals? They are, as Adam Smith states, the tools
to work with, the materials to work upon, and the means of commanding
the necessary quantity of labour. Colonel Torrens, therefore, is quite
right, when he says, “that an increased production of those articles
which do not form component parts of capital, cannot create an increased
effectual demand, either for such articles themselves, or for those
other articles which do form component parts of capital.”[21] And,
perhaps, he may be considered as making some approaches towards the
truth, when he says, that “effectual demand consists in the power and
inclination, on the part of consumers, to give for commodities, either
by immediate or circuitous barter, some greater proportion of all the
ingredients of capital than their production costs.”[22] But in this
latter position, he is still very far from representing what actually
takes place. When we consider how much labour is directly employed in
the production of the great mass of commodities, and recollect further,
that raw materials and machinery, the other two branches of capital, are
mainly produced by labour, it is obvious that the power of replacing
capitals will mainly depend on the power of commanding labour: but a
given quantity of what Colonel Torrens calls the ingredients of capital,
can never represent a given quantity of labour; and consequently, if a
given quantity of labour be necessary in any production, a very
different quantity of the ingredients of capital would be required at
different times, to occasion the same effectual demand for it. It is
far, therefore, from being true, that if the ingredients of capital,
represented by a hundred and ten quarters of corn, and a hundred and ten
suits of clothing, were increased to “two hundred and twenty quarters of
corn, and two hundred and twenty suits of clothing, the effectual demand
for the article would be doubled.”[23]
It is still further from the truth, “that increased supply is the one
and only cause of increased effectual demand;”[24] and most happy is it
for mankind that this is not true. If it were, how difficult would it be
for a society to recover itself, under a temporary diminution of food
and clothing! But by a kind provision of nature, this diminution, within
certain limits, instead of diminishing, will increase effectual demand.
The theory of demand and supply, shows that the food and clothing thus
diminished in quantity, will rise in value; and universal experience
tells us, that, as a matter of fact, the money-price of the remaining
food and clothing will for a time rise in a greater degree than in
proportion to the diminution of its quantity, while the money-price of
labour may remain the same. The necessary consequence will be, the power
of setting in motion a greater quantity of productive industry than
before.[25]
There is no assumption so entirely fatal to a just explanation of what
is really taking place in society, as the assumption, that the natural
wages of labour in food and clothing are always nearly the same, and
just about sufficient to maintain a stationary population. All the most
common causes of an acceleration or retardation in the movements of the
great machine of human society, involve variations, and often great
variations, in the real wages of labour. Commodities in general, and
corn most particularly, are continually rising or falling in
money-price, from the state of the supply as compared with the demand,
while the money-price of labour remains much more nearly the same. In
the case of a rise of corn and commodities, the real wages of common
day-labour are necessarily diminished: the labourer obtains a smaller
proportion of what he produces; profits necessarily rise; the
capitalists have a greater power of commanding labour; more persons are
called into full work, and the increased produce which follows, is the
natural remedy for that state of the demand and supply, from whatever
cause arising, which had occasioned the temporary rise in the
money-price of commodities. On the other hand, if corn and other
commodities fall in money-price, as compared with the money-price of
labour, it is obvious that the day-labourer, who gets employment, will
be able to buy more corn with the money which he receives; he obtains a
larger proportion of what he produces; profits necessarily fall; the
capitalists have a diminished power of commanding labour; fewer persons
are fully employed, and the diminished production which follows, is the
natural remedy for that state of the demand and supply, from whatever
cause arising, which occasioned the temporary fall in the money-price of
commodities. The operation of these remedial processes to prevent the
continuance of excess or defect, is so much what one should naturally
expect, and is so obviously confirmed by general experience, that it is
inconceivable that a proposition should have obtained any currency which
is founded on a supposed law of demand and supply diametrically opposed
to these remedial processes.
It will be recollected, that the question of a glut is exclusively
whether it may be general, as well as particular, and not whether it may
be permanent as well as temporary. The causes above mentioned act
powerfully to prevent the permanence either of glut or scarcity, and to
regulate the supply of commodities so as to make them sell at their
natural prices. But this tendency, in the natural course of things, to
cure a glut or a scarcity, is no more a proof that such evils have never
existed, than the tendency of the healing processes of nature to cure
some disorders without assistance from man, is a proof that such
disorders have not existed.
But to return more particularly to Mr. Mill. After asserting that the
supply is the demand, and the demand is the supply, so frequently, that
the unwary reader must feel quite at a loss to know which is which, he
comes to a distinct conclusion, which is so directly contradicted both
by theory and experience, as to show either that his premises must have
been false, or that what he calls his indissoluble train of reasoning
consists of mere unconnected links. He says, “It is therefore
universally true, that as the aggregate demand and aggregate supply of a
nation never can be unequal to one another, so there never can be a
superabundant supply in particular instances, and hence a fall in
exchangeable value below the cost of production, without a corresponding
deficiency of supply, and hence a rise in exchangeable value beyond cost
of production in other instances. The doctrine of the glut, therefore,
seems to be disproved by a chain of reasoning perfectly
indissoluble.”[26]
While commodities are merely compared with each other, it is
unquestionably true that they cannot all fall together, or all rise
together. But when they are compared with the costs of production, as
they are in the above passage, it is evident that, consistently with the
justest theory, they may all fall or rise at the same time. For what are
the costs of production? They are either the quantity of _money_
necessary to pay the labour worked up in the commodity, and in the tools
and materials consumed in its production, with the ordinary profits upon
the advances for the time that they have been advanced; or they are the
quantity of labour in kind required to be worked up in the commodity,
and in the tools and materials consumed in its production with such an
additional quantity as is equivalent to the ordinary profits upon the
advances for the time that they have been advanced.
Now it surely cannot be denied theoretically, that all commodities
produced in this country may fall in comparison with a commodity
produced in Mexico. As little can it be denied theoretically that all
commodities produced by British labour may fall as compared with that
labour, either from an unusually increased supply of such commodities,
or a diminution of demand for them. And when, from these theoretical
concessions, required by the universally acknowledged laws of demand and
supply, we turn to the facts, we see with our own eyes, and learn from
authority which there is no reason whatever for doubting, that a very
large mass of commodities does at times fall below the costs of
production, whether those costs be estimated in money or labour, without
the slightest shadow of pretence for saying that any other equally large
mass is raised proportionally above the costs of production.
Even within the very last year, it is a matter of the most public
notoriety that the cotton manufactures, the woollen manufactures, the
linen manufactures, the silk manufactures, have all fallen below the
costs of production, including ordinary profits. To go no further, the
amount of these manufactures, taken together, must, on a rough estimate,
exceed seventy millions of pounds sterling. And if this mass of
commodities, partly from over production and over trading, and partly
from their necessary consequences, the shock to confidence and credit
and the diminution of bills of exchange and currency, have fallen below
the ordinary costs of production, what man is there credulous enough to
believe that there must have been, according to the language of Mr.
Mill, “a corresponding deficiency of supply, and hence a rise of
exchangeable value beyond cost of production in other instances”? I
doubt, indeed, much, whether satisfactory evidence could be brought to
show that a single million’s worth of goods has risen above the cost of
production, while seventy millions’ worth have fallen below it.
Consequently, if the definition of a general glut be a fall in a great
mass of commodities below the costs of production, not counterbalanced
by a proportionate rise of some other equally large mass of commodities
above the costs of production, Mr. Mill’s conclusion against the
existence of a general glut, founded on “a chain of reasoning perfectly
indissoluble,” seems to be utterly without foundation.
If facts so notorious as these to which I have adverted are either
boldly denied, or considered as undeserving attention, in founding the
theories of political economy, there is an end at once to the utility of
the science.
On the subject of the wages of labour, Mr. Mill has added his authority
to the peculiar views and language of Mr. Ricardo. He says, “Whatever
the share of the labourer, such is the rate of wages; and, _vice versâ_,
whatever the rate of wages, such is the share of the commodity or
commodities’ worth which the labourer receives.”[27] Perhaps the term
_rate of wages_ used by Mr. Mill to express the proportion of the
produce which falls to the share of the labourer is in some respects
preferable to the term _real wages_, used by Mr. Ricardo for the same
purpose; but still it is highly objectionable, because it is an old and
familiar term used in an entirely new sense. When the expressions high
or low rates of wages were used, before the time of Mr. Ricardo and Mr.
Mill, no one understood them to mean the proportion of the produce
awarded to the labourer. In fact, this meaning had not been before
conveyed by any appropriate terms in the language of political economy;
yet it is a meaning the expression of which was much wanted in
explaining the theory of profits. To express it, therefore, a new term
should certainly have been chosen, and not an old one, which was
familiar in a different sense. There seems to be no objection to the
term _proportionate wages_, which has been used by Mr. Macculloch.
On the whole, it must be allowed, that Mr. Mill in his _Elements of
Political Economy_ has but little attended to the most obvious rules
which ought to guide political economists in the definition and
application of their terms. They are often unsanctioned by the proper
authorities, and rarely maintained with consistency.