Essays on some unsettled Questions of Political Economy

by John Stuart Mill

If tools, buildings, and materials were the spontaneous gifts of nature, requiring no labour either in order to produce or to appropriate them; and if they were thus bestowed upon mankind in indefinite quantity, and without the possibility of being monopolized; they would still be as useful, as indispensable as they now are; but since they could, like air and the light of the sun, be obtained without cost or sacrifice, they would form no part of the expenses of production, and no portion of the produce would be required to be set aside in order to replace the outlay made for these purposes. The whole produce, therefore, after replacing the wages of labour, would be clear profit to the capitalist.

Labour alone is the primary means of production; "the original purchase-money which has been paid for everything." Tools and materials, like other things, have originally cost nothing but labour; and have a value in the market only because wages have been paid for them. The labour employed in making the tools and materials being added to the labour afterwards employed in working up the materials by aid of the tools, the sum total gives the whole of the labour employed in the production of the completed commodity. In the ultimate analysis, therefore, labour appears to be the only essential of production. To replace capital, is to replace nothing but the wages of the labour employed. Consequently, the whole of the surplus, after replacing wages, is profits. From this it seems to follow, that the ratio between the wages of labour and the produce of that labour gives the rate of profit. And thus we arrive at Mr. Ricardo's principle, that profits depend upon wages; rising as wages fall, and falling as wages rise.

To protect this proposition (the most perfect form in which the law of profits seems to have been yet exhibited) against misapprehension, one or two explanatory remarks are required.

If by wages, be meant what constitutes the real affluence of the labourer, the quantity of produce which he receives in exchange for his labour; the proposition that profits vary inversely as wages, will be obviously false. The rate of profit (as has been already observed and exemplified) does not depend upon the price of labour, but upon the proportion between the price of labour and the produce of it. If the produce of labour is large, the price of labour may also be large without any diminution of the rate of profit: and, in fact, the rate of profit is highest in those countries (as, for instance, North America) where the labourer is most largely remunerated. For the wages of labour, though so large, bear a less proportion to the abundant produce of labour, there than elsewhere.

But this does not affect the truth of Mr. Ricardo's principle as he himself understood it; because an increase of the labourer's real comforts was not considered by him as a rise of wages. In his language wages were only said to rise, when they rose not in mere quantity but in value. To the labourer himself (he would have said) the quantity of his remuneration is the important circumstance: but its value is the only thing of importance to the person who purchases his labour.

The rate of profits depends not upon absolute or real wages, but upon the value of wages.

If, however, by value, Mr. Ricardo had meant exchangeable value, his proposition would still have been remote from the truth. Profits depend no more upon the exchangeable value of the labourer's remuneration, than upon its quantity. The truth is, that by the exchangeable value is meant the quantity of commodities which the labourer can purchase with his wages; so that when we say the exchangeable value of wages, we say their quantity, under another name.

Mr. Ricardo, however, did not use the word value in the sense of exchangeable value.

Occasionally, in his writings, he could not avoid using the word as other people use it, to denote value in exchange. But he more frequently employed it in a sense peculiar to himself, to denote cost of production; in other words, the quantity of labour required to produce the article; that being his criterion of cost of production. Thus, if a hat could be made with ten days' labour in France and with five days' labour in England, he said that the value of a hat was double in France of what it was in England. If a quarter of corn could be produced a century ago with half as much labour as is necessary at present, Mr. Ricardo said that the value of a quarter of corn had doubled.

Mr. Ricardo, therefore, would not have said that wages had risen, because a labourer could obtain two pecks of flour instead of one, for a day's labour; but if last year he received, for a day's labour, something which required eight hours' labour to produce it, and this year something which requires nine hours, then Mr. Ricardo would say that wages had risen. A rise of wages, with Mr. Ricardo, meant an increase in the cost of production of wages; an increase in the number of hours' labour which go to produce the wages of a day's labour; an increase in the proportion of the fruits of labour which the labourer receives for his own share; an increase in the ratio between the wages of his labour and the produce of it. This is the theory: the reasoning, of which it is the result, has been given in the preceding paragraphs.