On The Principles of Political Economy, and Taxation

by David Ricardo

In the first case, a country would not only become rich, but the value of its riches would increase. It would become rich by parsimony; by diminishing its expenditure on objects of luxury and enjoyment; and employing those savings in reproduction.

In the second case, there will not necessarily be either any diminished expenditure on luxuries and enjoyments, or any increased quantity of productive labour employed, but with the same labour more would be produced; wealth would increase, but not value. Of these two modes of increasing wealth, the last must be preferred, since it produces the same effect without the privation and diminution of enjoyments, which can never fail to accompany the first mode. Capital is that part of the wealth of a country which is employed with a view to future production, and may be increased in the same manner as wealth. An additional capital will be equally efficacious in the production of future wealth, whether it be obtained from improvements in skill and machinery, or from using more revenue reproductively; for wealth always depends on the quantity of commodities produced, without any regard to the facility with which the instruments employed in production may have been procured. A certain quantity of clothes and provisions will maintain and employ the same number of men, and will therefore procure the same quantity of work to be done, whether they be produced by the labour of 100 or of 200 men; but they will be of twice the value if 200 have been employed on their production.

M. Say appears to me to have been singularly unfortunate in his definition of riches and value in the first chapter of his excellent work: the following is the substance of his reasoning: riches, he observes, consist only of things which have a value in themselves: riches are great, when the sum of the values of which they are composed is great. They are small when the sum of their values is small. Two things having an equal value, are riches of equal amount. They are of equal value, when by general consent they are freely exchanged for each other. Now, if mankind attach value to a thing, it is on account of the uses to which it is applicable. This faculty, which certain things have, of satisfying the various wants of mankind, I call utility. To create objects that have a value of any kind is to create riches, since the utility of things is the first foundation of their value, and it is the value of things which constitutes riches. But we do not create objects: all we can do is to reproduce matter under another form—we can give it utility. Production then is a creation, not of matter but of utility, and it is measured by the value arising from the utility of the object produced. The utility of any object, according to general estimation, is pointed out by the quantity of other commodities for which it will exchange. This valuation, arising from the general estimate formed by society, constitutes what Adam Smith calls value in exchange; what Turgot calls appreciable value; and what we may more briefly designate by the term value.

Thus far M. Say, but in his account of value and riches he has confounded two things which ought always to be kept separate, and which are called by Adam Smith, value in use and value in exchange. If by an improved machine I can, with the same quantity of labour, make two pair of stockings instead of one, I in no way impair the utility of one pair of stockings, though I diminish their value. If then I had precisely the same quantity of coats, shoes, stockings, and all other things, as before, I should have precisely the same quantity of useful objects, and should therefore be equally rich, if utility were the measure of riches; but I should have a less amount of value, for my stockings would be of only half their former value. Utility then is not the measure of exchangeable value.

If we ask M. Say in what riches consist, he tells us in the possession of objects having value. If we then ask him what he means by value, he tells us that things are valuable in proportion as they possess utility. If again we ask him to explain to us by what means we are to judge of the utility of objects, he answers, by their value. Thus then the measure of value is utility, and the measure of utility is value.

M. Say, in speaking of the excellences and imperfections of the great work of Adam Smith, imputes to him, as an error, that "he attributes to the labour of man alone the power of producing value. A more correct analysis shews us that value is owing to the action of labour, or rather the industry of man, combined with the action of those agents which nature supplies, and with that of capital. His ignorance of this principle prevented him from establishing the true theory of the influence of machinery in the production of riches."

In contradiction to the opinion of Adam Smith, M. Say, in the fourth chapter, speaks of the value which is given to commodities by natural agents, such as the sun, the air, the pressure of the atmosphere &c., which are sometimes substituted for the labour of man, and sometimes concur with him in producing.[28]

But these natural agents, though they add greatly to value in use, never add exchangeable value, of which M. Say is speaking, to a commodity: as soon as by the aid of machinery, or by the knowledge of natural philosophy, you oblige natural agents to do the work which was before done by man, the exchangeable value of such work falls accordingly. If ten men turned a corn mill, and it be discovered that by the assistance of wind, or of water, the labour of these ten men may be spared, the flour, which is the produce of the work performed by the mill, would immediately fall in value, in proportion to the quantity of labour saved; and the society would be richer by the commodities which the labour of the ten men could produce, the funds destined for their maintenance being in no degree impaired.

M. Say accuses Dr. Smith of having overlooked the value which is given to commodities by natural agents, and by machinery, because he considered that the value of all things was derived from the labour of man; but it does not appear to me, that this charge is made out; for Adam Smith no where undervalues the services which these natural agents and machinery perform for us, but he very justly distinguishes the nature of the value which they add to commodities—they are serviceable to us, by increasing the abundance of productions, by making men richer, by adding to value in use; but as they perform their work gratuitously, as nothing is paid for the use of air, of heat, and of water, the assistance which they afford us, adds nothing to value in exchange. In the first chapter of the second book, M. Say himself gives a similar statement of value, for he says that "utility is the foundation of value, that commodities are only desirable, because they are in some way useful, but that their value depends not on their utility, not on the degree in which they are desired, but on the quantity of labour necessary to procure them." "The utility of a commodity thus understood, makes it an object of man's desire, makes him wish for it, and establishes a demand for it. When to obtain a thing, it is sufficient to desire it, it may be considered as an article of natural wealth, given to man in an unlimited quantity, and which he enjoys, without purchasing it by any sacrifice; such are the air, water, the light of the sun. If he obtained in this manner all the objects of his wants and desires, he would be infinitely rich: he would be in want of nothing. But unfortunately this is not the case; the greater part of the things which are convenient and agreeable to him, as well as those which are indispensably necessary in the social state, for which man seems to be specifically formed, are not given to him gratuitously; they could only exist by the exertion of certain labour, the employment of a certain capital, and, in many cases, by the use of land. These are obstacles in the way of gratuitous enjoyment; obstacles from which result a real expense of production; because we are obliged to pay for the assistance of these agents of production." "It is only when this utility has thus been communicated to a thing (viz. by industry, capital, and land,) that it is a production, and that it has a value. It is its utility which is the foundation of the demand for it, but the sacrifices, and the charges necessary to obtain it, or in other words, its price, limits the extent of this demand."