I have been writing a few pages in favour of my project of a National Bank[274], with a view to prove that the nation would lose nothing in profits by abolishing the Bank of England, and that the sole effect of the change would be to transfer a part of the profits of the bank to the national treasury....
Yours ever,
David Ricardo.
Note.—Arguments very similar to those of this letter have been used against Malthus by Julius Pierstorff, in his book on 'Die Lehre vom Unternehmergewinn' (Berlin, 1875), where the views of Malthus and Ricardo are compared with one another. There is, however, shrewder criticism of Ricardo's whole doctrine in Böhm Bawerk's 'Geschichte und Kritik der Kapital-Zins-Theorien,' Innsbrück, 1884. A neat reductio ad absurdum of the view, held more or less explicitly by MacCulloch and others, that cost is enough to explain value, is given by Böhm Bawerk in his 'Grundzüge der Theorie des wirthschaftlichen Güterwerths' (Jena, 1886, p. 72), in a passage of which this is the conclusion: 'To explain the value of a commodity by its cost is to explain it by the value of the means of its production. But how have the latter their value? Logically we must answer from their cost, in other words from the means of production a degree farther back, and so on backwards. Now, clearly, if we pursue this regress, we either arrive at commodities which are not themselves 'produced,' e.g. land and labour, and our explanation of all value by cost has failed us; or else we explain even these sophistically as being in a sense 'products,' and owing their value to their cost, e.g. the labour as owing its value to the cost of the labourer's subsistence, and in this case we are bound to go farther back and explain the value of the means of subsistence by their cost, i.e. the labour that produced them; and we reason endlessly in a circle.'
LXXXVII[275].
Gatcomb Park, Minchinhampton,
15th Aug., 1823.
My dear Malthus,
It is a prudent step in you to withdraw your concession, for I am sure that your theory could not stand with it. You find fault with my measure of value, you say, because it varies with the varying profits of other commodities. This is, I acknowledge, an imperfection in it when used to measure other commodities in which there enters more or less of profits than enters into my measure; but you do not appear to see that against your measure the same objection holds good, for your measure contains no profits at all, and therefore never can be an accurate measure of value for commodities which do contain profits. If I had no other arguments to offer against your measure, this which I am going to mention when used to you would be fatal to it. You say that my measure cannot measure commodities produced by labour alone. Granted; but, if it be true, how can your measure measure commodities produced with labour and profits united? You might just as well say that three times two are six and that twice three are not six, or that a foot measure was a good measure for a yard but a yard was not a good measure for a foot. If your measure will measure my commodity accurately, mine must do the same by yours. These are identical propositions, and I confess I see no answer that can be made to me. The fact really is that no accurate measure of absolute value can be found. No one doubts the desirableness of having one; but all we can ever hope to get is one tolerably well calculated to measure the greatest number of commodities, and therefore I should have no hesitation in admitting your measure to be the best, under all circumstances, if you could show that the greatest number of commodities were produced by labour alone without the intervention of capital. On the other hand, if a greater number of commodities are produced under the circumstances which I suppose to attend the production of the commodity which I choose for my measure, then mine would be the best measure. You will understand that in either case I suppose a degree of arbitrariness in the selection, and I only contend that it would be best employed in selecting mine.
When you say that my great mistake is in considering commodities made up of labour alone and not of labour and profits, I think the error is yours, not mine, for that is precisely what you do; you measure commodities by labour alone, which have both labour and profits in them. You surely will not say that my money, produced by labour and capital, and by which I propose to measure other things, omits profits. Yours does; what profits are there in shrimps or in gold picked up by daily labour, on account of the labourer, on the sea-shore? How much more justly then might this accusation be brought against you!
You object to me that I am inconsistent in wishing to leave the consideration of the value of money here and in India out of the question, when speaking of the value of labour and of commodities in this country and in India. I, you say, to leave out the consideration of the value of the precious metals, who have proposed a measure formed of them! There is nothing inconsistent in this. In examining your proposition which rejects my measure and adopts another, I must try it by your doctrines and not by mine which you reject. A conclusion founded on my premises might be a just one, but, if you dispute my premises and substitute others, the conclusion may no longer be the same; and in examining your doctrines I must attend only to the conclusions to which your premises would lead me. You ask: 'Would you really say that cloth and muslin were not dear in India where they cost four or five times as much labour as in England?' You know I would not, because I estimate value by the quantity of labour worked up in a commodity; but by the cost in labour of cloth and muslin in India you do not mean the quantity of labour actually employed on their production, but the quantity which the finished commodity can command in exchange. The difference between us is this; you say a commodity is dear because it will command a great quantity of labour, I say it is only dear when a great quantity has been bestowed on its production. In India a commodity may be produced with twenty days' labour, and may command thirty days' labour. In England it may be produced by twenty-five days' labour and command only twenty-nine. According to you this commodity is dearer in India, according to me it is dearer in England.
Now here is my objection against your measure as a general measure of value, that, notwithstanding more labour may be bestowed on a commodity, it may fall in value estimated in your measure; it may exchange for a less quantity of labour. This is impossible when you apply your measure legitimately to those objects only which it is calculated to measure. Would it be possible, for example, to apply more labour to the production of shrimps or to pick up grains of gold on the sea-shore, and yet to sell those commodities for less labour than before? Certainly not; but it would be quite possible to bestow more labour on the making of a piece of cloth, and yet for cloth to exchange for a less quantity of labour than before. This is another argument in my mind conclusive against the expediency of adopting your measure.