Two elaborate papers on the measure of value, written in 1825 and 1827, show that Malthus was becoming inclined to make less of his differences with Ricardo.[[595]] They were intimate friends; their discussions had no bitterness; and, to use the words of one of them, “both were so anxious for the truth that sooner or later they would have agreed.”[[596]] These papers are a fulfilment of his duty not (as we might guess) as a fellow of the Royal Society or a member of the Political Economy Club,[[597]] but as an associate of the Royal Society of Literature.[[598]] “That branch of literature” [sic] “on which it shall be his duty to communicate with the Society once a year at least” is described as “political economy and statistics.”[[599]] He does little credit in these papers to his literary faculty. Their composition is laboured and devoid of ornament. The first is On the Measure of the Conditions necessary to the Supply of Commodities; and the thesis is, that “the natural and necessary conditions of the supply of all commodities,” that are not monopolies, are represented and measured by the labour which they will on an average command, and by nothing else. The second is On the Meaning which is most usually and most correctly attached to the term, Value of Commodities; and the thesis is, that, when value is used without a qualifying adjective or reference to any special equivalent in a possible exchange,[[600]] the term refers to the “conditions of supply.” When we say, for example, anything is sold at a price far above its true value, we mean far above its cost price, including under “cost” the average rate of profits that must go to the maker if he is to live by his trade. The two papers taken together form a sort of indirect proof of the position taken up in the tract on the Measure of Value (1823), and the relevant parts of the second edition of the Political Economy (1836), and may be stated briefly thus:—The labour commanded by an article is generally the measure of that article’s cost;—but that article’s cost is what people generally mean by its value;—therefore the labour commanded by an article is the measure of that article’s value in the ordinary sense of the word.
The second paper was written at the same time as the Definitions in Political Economy, and illustrates the rule laid down there, prescribing adherence, when possible, to the meaning which economical terms bear in the mouths of ordinary folk.[[601]] The Definitions, for example, repeat from (or with) the second paper, “when no second object is specified, the value of the commodity naturally refers to the causes” which determine “the estimation in which it is held” “and the object which measures it.”[[602]] “The natural value of a commodity at any place and time” is “the estimation in which it is held when it is in its natural and ordinary state,” as “determined by the elementary costs of its production,” or in other words, by “the conditions of its supply.” And the measure of the natural value of a commodity at any place and time is “the quantity of labour for which it will exchange at that place and time when it is in its natural and ordinary state.”[[603]]
As a literary production the book written for the public is superior to the papers prepared for the men of letters. Next to the first Essay on Population, the critical parts of the Definitions give the most pleasant examples of the author’s style. The two papers above mentioned are chiefly important as showing the importance which Malthus, unlike Ricardo, attached to the question of a measure of value.[[604]] A contemporary writer said very happily that the fault of Ricardo was to generalize too much, and of Malthus to generalize too little. Malthus, he added, is a keen observer but poor in analysis; he is “so occupied with particulars that he neglects that inductive process which extends individual experience throughout the infinitude of things,” and converts knowledge into science. “As presented by Mr. Ricardo, political economy possesses a regularity and simplicity beyond what exists in nature; as exhibited by Mr. Malthus, it is a chaos of original but unconnected elements.”[[605]] On the other hand, the testimony of a recent German writer is very different. Malthus, he tells us, resembles Ricardo in his sombre view of human life and frank statement of unpleasant facts. Their names are often associated, and no doubt both are children of their times. But their leanings were really unlike. Ricardo took up certain ideas of his time in their narrowest, clearest, and harshest form, and applied them wholly in the interest of capital. Malthus is far less narrow. His influence on economics has been much smaller than Ricardo’s; but he will be found “by far the more suggestive and less prejudiced of the two,” and, if he found more opponents, it is because he was less understood and less read.[[606]] The sprightly Dialogues[[607]] of De Quincey contribute nothing to the discussion on value; but they show how completely Ricardo had won the ear of the literary world, and how little pains the opponents of Malthus took to do him justice. Malthus reduced the problem to many elements; Ricardo to few; and the latter, as certainly easier to understand, was readily represented as the likelier to be true. Simplicity in such a case is a treacherous virtue; and the apparent chaos may have been much nearer the truth than the apparent cosmos, if there was a hidden flaw in the latter and a latent principle of union in the former. Sound or unsound, such a principle may be traced in the most abstract discussions of Malthus. We shall find this true when we compare his views with Ricardo’s on the nature and causes of value itself, and the movements of prices. We may recognize it even in these discussions on the measure of value. The measurement of all value by individual human labour is of a piece with the author’s final view of population, where all is made to depend on individual responsibility.[[608]] The main weakness of the position is perhaps that by unskilled labour he means always agricultural, and does not sufficiently recognize how in manufacturing England it has perhaps become easier to measure unskilled by skilled than the latter by the former. The difficulty met Robert Owen, when in his Labour Exchanges[[609]] he not only tried to reduce all values to a common measure in labour, but to make labour a means of exchange, for which it is certainly worse suited than money.
Labour as something to be rewarded by Wages has a more evident connection with the principles of the Essay on Population than labour as the measure of all values. In this case unskilled agricultural labour is again the unit. The first “condition of the supply” of this labour is the necessaries of life, in such quantities as will enable the labourers to maintain their numbers or to increase them,[[610]] as the case may be. If the former only, the price of labour is not, as Ricardo says, the “natural,” but really a most unnatural price, for it would mean that the country giving it had arrived at the final limit of its resources.[[611]] Necessaries, however, are not a simple or even a fixed element. We can of course measure them in corn if we like; but they consist not only of the prime necessary, the staff of life, but of other absolute necessaries, of shelter and clothing, and many “conveniences” which have become necessaries, inasmuch as they are essential to healthy life, such as soap and shoes and candle-light. It has happily become a truism that the necessaries of life are not a fixed but an expanding factor. Even if competition were always to drive wages down to a “minimum of social necessaries,”[[612]] social are always beyond animal necessaries; our basest beggars are in the poorest thing superfluous; and “the barest social necessaries” seem likely in process of time to mean a high standard of comfort. To raise the minimum of social necessaries is the way to raise wages really, universally, and almost irrevocably.[[613]] Malthus himself declares that “it is the diffusion of luxury” in this sense of the word, “among the mass of the people, and not an excess of it in a few,” that seems to be advantageous, both for national wealth and national happiness. Paley’s ideal of national prosperity, “a laborious frugal people ministering to the demands of an opulent luxurious nation,” is heartily scouted by him. The luxuries of the few rich, he says, harass the industry of the poor by varying with the fashion; but the luxuries of the poor, when embodied in their general standard of living, are not only the best kind of check to population, but the steadiest encouragement to general trade.[[614]] He seems to have supposed the elevation in the standard of living to have been effected, like the progress of nations in civilization, by the happy improvement of an accidental advantage, by the retention of high wages, when once secured in a time of brisk trade in the ordinary way of competition; the workmen, in short, succeeded in making permanent and de jure a change once de facto for the time effected.[[615]] “When our wages of labour in wheat were high in the early part of the last century, it did not appear that they were employed merely in the maintenance of more families, but in improving the condition of the people in their general mode of living.”[[616]] Malthus, without knowing it, was certainly father of the theory of a Wages Fund. The theory is that the average wages of the labouring classes at any given time are high or low in proportion to the great or small amount of circulating capital devoted to the payment of wages, or, as it is sometimes expressed (more tersely and inexactly), wages depend on “the ratio of population to capital.” This might mean no more than the arithmetical truism that we may always find the average wages by dividing the total sum received by the total number of recipients; and the quotient would be unalterable only in the sense in which all other facts might be said to be so, in retrospect. But it is usually taken to mean that the first total could not at any given time have been greater or less than it actually was, being fixed unalterably by circumstances,[[617]] and so “devoted” or “determined” to the payment of wages. The simplest test of this theory is the application of it to the case of a single individual capitalist and his payments in wages. Suppose he has a capital of £10,000, £5000 fixed and £5000 circulating; and suppose that the latter means wages only (instead of chiefly), and is paid to one hundred men;—£50 a year will be the average wages of the hundred men; and, by the theory, given the rate of ordinary profits and given the “desire of accumulation” at the time and place, it could not possibly have been either more or less. But, as the profits are not unconditional, neither are the wages; the capitalist might conceivably, to save his business, keep it up in bad times at a loss, and pay wages at the expense of profits and at the expense of his personal pleasures.[[618]] He has often the choice before him to spend more on fixtures, or more on new hands, or more on further employment of the old hands. In truth, too, though wages, especially in England, are often in the first instance advanced out of capital, they are always meant to be paid out of the gross returns, and in every sound business really are so. The workman and employer make their contract beforehand, and expect each other to abide by it, be the profit much or little; the wages depend, therefore, directly on this contract, and indirectly on that which is the means of fulfilling the contract on the master’s side, the price of the article made. The price of the article is the real wages fund;[[619]] and therefore the wages fund must be as flexible as market prices, and the actual wages as changeable as are the powers, habits, and desires of the two contracting parties.
The theory of a wages fund was formed from the facts of a perfectly exceptional time, and on the strength of two truths misapplied, the doctrine of Malthus (on Population) in its most unripe form, and of Ricardo (on Value) in its most abstract. J. R. MacCulloch seems to have been the first who put the two together to deduce a rigid law of wages. “The market rate of wages,” he says, “is exclusively dependent on the proportion which the capital of the country, or the means of employing labour, bears to the number of labourers. There is plainly, therefore, only one way of really improving the condition of the great majority of the community or of the labouring class, and that is by increasing the ratio of capital to population,” which the labourers for their part can only do by diminishing the supply of labour.[[620]]
Even Mrs. Marcet, a docile Ricardian, had put the case more carefully. “Work to be performed is the immediate cause of the demand for labour; but, however great or important is the work which a man may wish to undertake, the execution of it must always be limited by the extent of his capital, i. e. by the funds he possesses for the maintenance or payment of his labourers.”[[621]] She professes to be expounding the received doctrine of her day. MacCulloch’s exposition is much more rigid. When he speaks of the “funds devoted to the payment of wages,” he means “that portion of the capital or wealth of a country which the employers of labour intend or are willing to lay out in the purchase of labour.” It “may be larger at one time than at another. But, whatever be its magnitude, it obviously forms the only source from which any portion of the wages of labour can be derived. No other fund is in existence from which the labourers as such can draw a single shilling. And hence it follows that the average rate of wages or the share of the national capital appropriated to the employment of labour falling, at an average, to each labourer, must entirely depend on its amount as compared with the number of those amongst whom it has to be divided.”[[622]] Neither MacCulloch, nor James Mill, nor John Mill in his early writings, nor apparently any of the expounders of the theory, were in the habit of describing the fund as “unconditionally” devoted to the payment of wages, though John Mill, in restating the position after he abandoned it, gives us so to understand.[[623]] Something like unconditional determination, however, is assumed in all the reasonings of the school. Adam Smith’s frequent use of the words “funds devoted” or “funds determined” to this or that purpose may easily have been misunderstood. Certainly in his pages they mean no inflexible compulsion. He says the demand of those who live by wages can only increase in proportion to the increase of the “funds” which are “destined” for the payment of wages, these funds being (he adds) either the surplus revenue of an idle monied man who will “naturally” use any addition to them in increasing his staff of domestic servants, or the increased capital of the capitalist who will just as “naturally” use them in employing more workmen.[[624]] The word “destined” is so far, with him, from implying any iron necessity that it means simply “intended”; and the intention is one that can be foiled or altered. He speaks of the “funds destined for the consumption” of the manufacturing class,[[625]] and of the townsfolk’s “fund of subsistence,”[[626]] meaning simply their food; he even speaks of the funds destined for the repair of the high roads in France.[[627]] Even the strong passage in Book I. chap. viii., “the demand for those who live by wages necessarily increases with the increase of the revenue and stock of every country, and cannot possibly increase without it,” stops considerably short of the doctrine of a rigid wages fund. It is never suggested by Adam Smith that the wages fund is inelastic, and that wages could not at any given time have been greater or less than they actually were. The doctrine is seldom traced further back than to Malthus; and Malthus cannot be shown to have held the doctrine. With express reference to the passage last cited from the Wealth of Nations, he says that “it will be found that the funds for the maintenance of labour do not necessarily increase with the increase of wealth, and very rarely increase in proportion to it, and that the condition of the lower classes of society does not depend exclusively upon the increase of the funds for the maintenance of labour or the power of supporting a greater number of labourers” (Essay, 7th ed., III. xiii. 368). The condition of the working classes depended, he thought, partly on the rate at which the “funds for the maintenance of labour,”[[628]] or, as he expressed it at first, “the resources of the country”[[629]] and the demand for labour are increasing, and partly on the “habits of the people.” Among their habits we should need to put their education and their power of union among themselves, and consequent strength in a struggle with the masters, to obtain or to raise the market rate of wages. From Ricardo he differed on the subject of wages very much as on the subject of value. Ricardo looked at cost price as the natural value of an article, and mere subsistence as the natural wages of labour. Malthus could do neither.
The issues between the two economists are nowhere so well or so calmly stated as in a paper written by Malthus (a few months after Ricardo’s death) in the Quarterly Review,[[630]] where he deals with MacCulloch’s treatise on Political Economy.[[631]] In that article Malthus professes to regard the political economy of Ricardo, James Mill, and most of the economical writers in the Encyclopædia, as a new and wrong departure. It is said to have been regarded by the writer as one of the best economical papers he ever wrote;[[632]] and, among other virtues, it has the merit of perfect courtesy and respect towards the persons criticized. Their system, he says,[[633]] is remarkably like that of the French economists. They “were equally men of the most unquestionable genius, of the highest honour and integrity, and of the most simple, modest, and amiable manners. Their systems were equally distinguished for their discordance with common notions, the apparent closeness of their reasonings, and the mathematical precision of their calculations and conclusions founded on their assumed data. These qualities in the systems and their founders, together with the desire so often felt by readers of moderate abilities of being thought to understand what is considered by competent judges as difficult, increased the number of their devoted followers in such a degree, that in France it included almost all the able men who were inclined to attend to such subjects, and in England a very large proportion of them.
“The specific error of the French economists was the having taken so confined a view of wealth and its sources as not to include the results of manufacturing and mercantile industry.
“The specific error of the new school in England is the having taken so confined a view of value as not to include the results of demand and supply, and of the relative abundance and competition of capital.
“Facts and experience have, in the course of some years, gradually converted the economists of France from the erroneous and inapplicable theory of Quesnay to the juster and more practical theory of Adam Smith; and, as we are fully convinced that an error equally fundamental and important is involved in the system of the new school in England as in that of the French economists, we cannot but hope and expect that similar causes will, in time, produce in our own country similar effects in the correction of error and the establishment of truth.”