Memorials and Other Papers — Complete

Phćd. Wages in general, of course: there can be no reason why hatters should eat more corn than any other men.

X. Wages in general, therefore, will rise by twenty-five per cent. Now, when the wages of the hatter rose in that proportion, you contended that this rise must be charged upon the price of hats; and the price of a hat having been previously eighteen shillings, you insisted that it must now be twenty-one shillings; in which case a rise in wages of twenty-five per cent, would have raised the price of hats about sixteen and one half per cent. And, if this were possible, two great doctrines of Mr. Ricardo would have been overthrown at one blow: 1st, that which maintains that no article can increase in price except from a previous increase in the quantity of labor necessary to its production: for here is no increase in the quantity of the labor, but simply in its value; 2d, that no rise in the value of labor can ever settle upon price; but that all increase of wages will be paid out of profits, and all increase of profits out of wages. I shall now, however, extort a sufficient defence of Mr. Ricardo from your own concessions. For you acknowledge that the same cause which raises the wages of the hatter will raise wages universally, and in the same ratio—that is, by twenty-five per cent. And, if such a rise in wages could raise the price of hats by sixteen and one half per cent., it must raise all other commodities whatsoever by sixteen and one half per cent. Now, tell me, Phćdrus, when all commodities without exception are raised by sixteen arid one half per cent., in what proportion will the power of money be diminished under every possible application of it?

Phćd. Manifestly by sixteen and one half per cent.

X. If so, Phćdrus, you must now acknowledge that it is a matter of perfect indifference to the hatter whether the price of hats rise or not, since he cannot under any circumstances escape the payment of the three shillings. If the price should not rise (as assuredly it will not), he pays the three shillings directly; if the price were to rise by three shillings, this implies of necessity that prices rise universally (for it would answer no purpose of your argument to suppose that hatters escaped an evil which affected all other trades). Now, if prices rise universally, the hatter undoubtedly escapes the direct payment of the three shillings, but he pays it indirectly; inasmuch as one hundred and sixteen pounds and ten shillings is now become necessary to give him the same command of labor and commodities which was previously given by one hundred pounds. Have you any answer to these deductions?

Phćd. I must confess I have none.

X. If so, and no answer is possible, then I have here given you a demonstration of Mr. Ricardo's great law: That no product of labor whatsoever can be affected in value by any variations in the value of the producing labor. But, if not by variations in its value, then of necessity by variations in its quantity, for no other variations are possible.

Phćd. But at first sight, you know, variations in the value of labor appear to affect the value of its product: yet you have shown that the effect of such variations is defeated, and rendered nugatory in the end. Now, is it not possible that some such mode of argument may be applied to the case of variations in the quantity of labor?

X. By no means: the reason why all variations in the value of labor are incapable of transferring themselves to the value of its product is this: that these variations extend to all kinds of labor, and therefore to all commodities alike. Now, that which raises or depresses all things equally leaves their relations to each other undisturbed. In order to disturb the relations of value between A, B, and C, I must raise one at the same time that I do not raise another; depress one, and not depress another; raise or depress them unequally. This is necessarily done by any variations in the quantity of labor. For example, when more or less labor became requisite for the production of hats, that variation could not fail to affect the value of hats, for the variation was confined exclusively to hats, and arose out of some circumstance peculiar to hats; and no more labor was on that account requisite for the production of gloves, or wine, or carriages. Consequently, these and all other articles remaining unaffected, whilst hats required twenty- five per cent more labor, the previous relation between hats and all other commodities was disturbed; that is, a real effect was produced on the value of hats. Whereas, when hats, without requiring a greater quantity of labor, were simply produced by labor at a higher value, this change could not possibly disturb the relation between hats and any other commodities, because they were all equally affected by it. If, by some application of any mechanic or chemical discovery to the process of making candles, the labor of that process were diminished by one third, the value of candles would fall; for the relation of candles to all other articles, in which no such abridgment of labor had been effected, would be immediately altered: two days' labor would now produce the same quantity of candles as three days' labor before the discovery. But if, on the other hand, the wages of three days had simply fallen in value to the wages of two days,—that is, if the laborer received only six shillings for three days, instead of nine shillings,—this could not affect the value of candles; for the fall of wages, extending to all other things whatsoever, would leave the relations between them all undisturbed; everything else which had required nine shillings' worth of labor would now require six shillings' worth; and a pound of candles would exchange for the same quantity of everything as before. Hence, it appears that no cause can possibly affect the value of anything—that is, its exchangeable relation to other things—but an increase or diminution in the quantity of labor required for its production: and the prices of all things whatsoever represent the quantity of labor by which they are severally produced; and the value of A is to the value of B universally as the quantity of labor which produces A to the quantity of labor which produces B.

* * * * *

Here, then, is the great law of value as first explained by Mr. Ricardo. Adam Smith uniformly takes it for granted that an alteration in the quantity of labor, and an alteration in wages (that is, the value of labor), are the same thing, and will produce the same effects; and, hence, he never distinguishes the two cases, but everywhere uses the two expressions as synonymous. If A, which had hitherto required sixteen shillings' worth of labor for its production, should to-morrow require only twelve shillings' worth, Adam Smith would have treated it as a matter of no importance whether this change had arisen from some discovery in the art of manufacturing A, which reduced the quantity of labor required from four days to three, or simply from some fall in wages which reduced the value of a day's labor from four shillings to three shillings. Yet, in the former case, A would fall considerably in price as soon as the discovery ceased to be monopolized; whereas, in the latter case, we have seen that A could not possibly vary in price by one farthing.

Phćd. In what way do you suppose that Adam Smith came to make so great an oversight, as I now confess it to be?

X. Mr. Malthus represents Adam Smith as not having sufficiently explained himself on the subject. "He does not make it quite clear," says Mr. Malthus, "whether he adopts for his principle of value the quantity of the producing labor or its value." But this is a most erroneous representation. There is not a chapter in the "Wealth of Nations" in which it is not made redundantly clear that Adam Smith adopts both laws as mere varieties of expression for one and the same law. This being so, how could he possibly make an election between two things which he constantly confounded and regarded as identical? The truth is, Adam Smith's attention was never directed to the question: he suspected no distinction; no man of his day, or before his day, had ever suspected it; none of the French or Italian writers on Political Economy had ever suspected it; indeed, none of them have suspected it to this hour. One single writer before Mr. Ricardo has insisted on the quantity of labor as the true ground of value; and, what is very singular, at a period when Political Economy was in the rudest state, namely, in the early part of Charles II's reign. This writer was Sir William Petty, a man who would have greatly advanced the science if he had been properly seconded by his age. In a remarkable passage, too long for quotation, he has expressed the law of value with a Ricardian accuracy: but it is scarcely possible that even he was aware of his own accuracy; for, though he has asserted that the reason why any two articles exchange for each other (as so much corn of Europe, suppose, for so much silver of Peru) is because the same quantity of labor has been employed on their production; and, though he has certainly not vitiated the purity of this principle by the usual heteronomy (if you will allow me a learned word),—that is, by the introduction of the other and opposite law derived from the value of this labor,— yet, it is probable that in thus abstaining he was guided by mere accident, and not by any conscious purpose of contradistinguishing the one law from the other; because, had that been his purpose, he would hardly have contented himself with forbearing to affirm, but would formally have denied the false law. For it can never be sufficiently impressed upon the student's mind, that it brings him not one step nearer to the truth to say that the value of A is determined by the quantity of labor which produces it, unless by that proposition he means that it is not determined by the value of the labor which produces it.

To return to Adam Smith: not only has he "made it quite clear" that he confounded the two laws, and had never been summoned to examine whether they led to different results, but I go further, and will affirm that if he had been summoned to such an examination, he could not have pursued it with any success until the discovery of the true law of Profits. For, in the case of the hats, as before argued, he would have said, "The wages of the hatter, whether they have been augmented by increased quantity of labor, or by increased value of labor, must, in any case, be paid." Now, what is the answer? They must be paid, but from what fund? Adam Smith knew of no fund, nor could know of any, until Mr. Ricardo had ascertained the true law of Profits, except Price: in either case, therefore, as Political Economy then stood, he was compelled to conclude that the fifteen shillings would be paid out of the price,—that is, that the whole difference between the twelve shillings and the fifteen shillings would settle upon the purchaser. But we now know that this will happen only in the case when the difference has arisen from increased labor; and that every farthing of the difference which arises from increased value of labor will be paid out of another fund, namely, Profits. But this conclusion could not be arrived at without the new theory of Profits (as will be seen more fully when we come to that theory); and thus one error was the necessary parent of another.

Here I will pause, and must beg you to pardon my long speeches in consideration of the extreme importance of the subject; for everything in Political Economy depends, as I said before, on the law of value; and I have not happened to meet with one writer who seemed fully to understand Mr. Ricardo's law, and still less who seemed to perceive the immense train of consequences which it involves.

Phćd. I now see enough to believe that Mr. Ricardo is right; and, if so, it is clear that all former writers are wrong. Thus far I am satisfied with your way of conducting the argument, though some little confusion still clouds my view. But, with regard to the consequences you speak of, how do you explain that under so fundamental an error (as you represent it) many writers, but above all Adam Smith, should have been able to deduce so large a body of truth, that we regard him as one of the chief benefactors to the science?

X. The fact is, that his good sense interfered everywhere to temper the extravagant conclusions into which a severe logician could have driven him. [Footnote: The "Wealth of Nations" has never yet been ably reviewed, nor satisfactorily edited. The edition of Mr. Buchanan is unquestionably the best, and displays great knowledge of Political Economy as it stood before the revolution effected by Mr. Ricardo. But having the misfortune to appear immediately before that revolution, it is already to some degree an obsolete book. Even for its own date, however, it was not good as an edition of Adam Smith, its value lying chiefly in the body of original disquisitions which composed the fourth volume; for the notes not only failed to correct the worst errors of Adam Smith (which, indeed, in many cases is saying no more than that Mr. Buchanan did not forestall Mr. Ricardo), but were also deficient in the history of English finance, and generally in the knowledge of facts. How much reason there is to call for a new edition, with a commentary adapted to the existing state of the science, will appear on this consideration: the "Wealth of Nations" is the text-book resorted to by all students of Political Economy. One main problem of this science, if not the main problem (as Mr. Ricardo thinks), is to determine the laws which regulate Rents, Profits, and Wages; but everybody who is acquainted with the present state of the science must acknowledge that precisely on these three points it affords "very little satisfactory information." These last words are the gentle criticism of Mr. Ricardo: but the truth is, that not only does it afford very little information on the great heads of Rent, Profits, and Wages, but (which is much worse) it gives very false and misleading information.

P. S. September 27, 1854.—It is suggested to me by a friend, that in this special notice of Mr. Buchanan's edition, I shall be interpreted as having designed some covert reflection upon the edition of Adam Smith published by Mr. M'Culloch. My summary answer to any such insinuation is, that this whole paper was written in the spring of 1824, that is, thirty and a half years ago: at which time, to the best of my knowledge, Mr. M'Culloch had not so much as meditated any such edition. Let me add, that if I had seen or fancied any reason for a criticism unfriendly to Mr. M'Culloch, or to any writer whatever, I should not have offered it indirectly, but openly, frankly, and in the spirit of liberal candor due to an honorable contemporary.] At this very day, a French and an English economist have reared a Babel of far more elaborate errors on this subject; M. Say, I mean, and Mr. Malthus: both ingenious writers, both eminently illogical,—especially the latter, with whose "confusion worse confounded" on the subject of Value, if reviewed by some unsparing Rhadamanthus of logical justice, I believe that chaos would appear a model of order and light. Yet the very want of logic, which has betrayed these two writers into so many errors, has befriended them in escaping from their consequences; for they leap with the utmost agility over all obstacles to any conclusions which their good sense points out to them as just, however much at war with their own premises. With respect to the confusion which you complain of as still clinging to the subject, this naturally attends the first efforts of the mind to disjoin two ideas which have constantly been regarded as one. But, as we advance in our discussions, illustration and proof will gradually arise from all quarters, to the great principle of Mr. Ricardo which we have just been considering; besides which, this principle is itself so much required for the illustration and proof of other principles, that the mere practice of applying it will soon sharpen your eye to a steady familiarity with all its aspects.

* * * * * DIALOGUE THE SECOND REDUCTIO AD ABSURDUM

Phil. X., I see, is not yet come: I hope he does not mean to break his appointment, for I have a design upon him. I have been considering his argument against the possibility of any change in price arising out of a change in the value of labor, and I have detected a flaw in it which he can never get over. I have him, sir—I have him as fast as ever spider had a fly.

Phćd. Don't think it, my dear friend: you are a dexterous retiarius; but a gladiator who is armed with Ricardian weapons will cut your net to pieces. He is too strong in his cause, as I am well satisfied from what passed yesterday. He'll slaughter you,—to use the racy expression of a friend of mine in describing the redundant power with which one fancy boxer disposed of another,—he'll slaughter you "with ease and affluence." But here he comes.—Well, X., you're just come in time. Philebus says that you are a fly, whilst he is a murderous spider, and that he'll slaughter you with "ease and affluence;" and, all things considered, I am inclined to think he will.

Phil. Phćdrus does not report the matter quite accurately; however, it is true that I believe myself to have detected a fatal error in your argument of yesterday on the case of the hat; and it is this: When the value of labor rose by twenty-five per cent., you contended that this rise would be paid out of profits. Now, up to a certain limit this may be possible; beyond that it is impossible. For the price of the hat was supposed to be eighteen shillings: and the price of the labor being assumed originally at twelve shillings;— leaving six shillings for profits,—it is very possible that a rise in wages of no more than three shillings may be paid out of these profits. But, as this advance in wages increases, it comes nearer and nearer to that point at which it will be impossible for profits to pay it; since, let the advance once reach the whole six shillings, and all motive for producing hats will be extinguished; and let it advance to seven shillings, there will in that case be no fund at all left out of which the seventh shilling can be paid, even if the capitalist were disposed to relinquish all his profits. Now, seriously, you will hardly maintain that the hat could not rise to the price of nineteen shillings—or of any higher sum?

X. Recollect, Philebus, what it is that I maintain; assuredly the hat may rise to the price of nineteen shillings, or of any higher sum, but not as a consequence of the cause you assign. Taking your case, I do maintain that it is impossible the hat should exceed, or even reach, eighteen shillings. When I say eighteen shillings, however, you must recollect that the particular sum of twelve shillings for labor, and six shillings for profits, were taken only for the sake of illustration; translating the sense of the proposition into universal forms, what I assert is, that the rise in the value of the labor can go no further than the amount of profits will allow it: profits swallowed up, there will remain no fund out of which an increase of wages can be paid, and the production of hats will cease.

Phil. This is the sense in which I understood you; and in this sense I wish that you would convince me that the hat could not, under the circumstances supposed, advance to nineteen shillings or twenty shillings.

X. Perhaps, in our conversation on Wages, you will see this more irresistibly; you yourself will then shrink from affirming the possibility of such an advance as from an obvious absurdity; meantime, here is a short demonstration of it, which I am surprised that Mr. Ricardo did not use as the strongest and most compendious mode of establishing his doctrine.

Let it be possible that the hat may advance to nineteen shillings; or, to express this more generally, from x (or eighteen shillings)— which it was worth before the rise in wages—to x + y; that is to say, the hat will now be worth x + y quantity of money—having previously been worth no more than x. That is your meaning?

Phil. It is.

X. And if in money, of necessity in everything else; because otherwise, if the hat were worth more money only, but more of nothing besides, that would simply argue that money had fallen in value; in which case undoubtedly the hat might rise in any proportion that money fell; but, then, without gaining any increased value, which is essential to your argument.

Phil. Certainly; if in money, then in everything else.

X. Therefore, for instance, in gloves; having previously been worth four pair of buckskin gloves, the hat will now be worth four pair + y?

Phil. It will.

X. But, Philebus, either the rise in wages is universal or it is not universal. If not universal, it must be a case of accidental rise from mere scarcity of hands; which is the case of a rise in market value; and that is not the case of Mr. Ricardo, who is laying down the laws of natural value. It is, therefore, universal; but, if universal, the gloves from the same cause will have risen from the value of x to x + y.

Hence, therefore, the price of the hat, estimated in gloves, is = x + y.

And again, the price of the gloves, estimated in hats, is = x + y.

In other words, H - y = x.

H + y = x.

That is to say, H - y = H + y.

Phćd. Which, I suppose, is an absurdity; and, in fact, it turns out, Philebus, that he has slaughtered you with "ease and affluence."

X. And this absurdity must be eluded by him who undertakes to show that a rise in the wages of labor can be transferred to the value of its product.

* * * * * DIALOGUE THE THIRD

[Et ćquiori sane animo feres, cum hic de primis agatur principiis, si superstitiose omnia examinavi,—viamque quasi palpando singulaque curiosius contrectando, lente me promovi et testudineo gradu. Video enim ingenium humanum ita comparatum esse—ut facilius longe quid consequens sit dispiciat, quam quid in naturŕ primo verum; nostramque omnium conditionem non multum ab illŕ Archimedis abludere—Aos će so kai koiso tćn gćn. Ubi primum figamus pedem, inveniro multo magis satagimus, quam (ubi inveninius) ulterius progredi.—Henricus Morus in Epist. ad Cartesium.]

PRINCIPLE OF VALUE CONTINUED

Phćd. In our short conversation of yesterday, X., you parried an objection brought forward by Philebus in a way which I thought satisfactory. You reduced him to an absurdity, or what seemed such. In fact, I did verily believe that you had slaughtered Philebus; and so I told him. But we have since reconsidered the matter, and have settled it between ourselves that your answer will not do; that your "absurdity," in fact, is a very absurd absurdity. Philebus will tell you why. I, for my part, shall have enough to do to take care of a little argument of my own, which is designed to meet something that passed in our first dialogue. Now, my private conviction is, that both I and Philebus shall be cudgelled; I am satisfied that such will be the issue of the business. And my reason for thinking so is this,—that I already see enough to discern a character of boldness and determination in Mr. Ricardo's doctrines which needs no help from sneaking equivocations, and this with me is a high presumption that he is in the right. In whatever rough way his theories are tossed about, they seem always, like a cat, to light upon their legs. But, notwithstanding this, as long as there is a possibility that he may be in the wrong, I shall take it for granted that he is, and do my best to prove him so.