The doctrine common to the whole school led M'Culloch to conclusions which became afterwards notorious enough to require a word of notice. Torrens, like Ricardo, speaks of capital as 'accumulated labour,' but makes a great point of observing that, although this is true, the case is radically changed in a developed state of society. The value of things no longer depends upon the labour, but upon the amount of capital employed in their production.[370] This, indeed, may seem to be the most natural way of stating the accepted principle. M'Culloch replies that the change makes no difference in the principle,[371] inasmuch as capital being 'accumulated labour,' value is still proportioned to labour, though in a transubstantiated shape. M'Culloch supposed that by carrying out this principle systematically he was simplifying Ricardo and bringing the whole science into unity. All questions, whether of value in exchange, or of the rate of wages, can then be reduced to comparing the simple unit called labour. Both Mill and M'Culloch regard capital as a kind of labour, so that things may be produced by capital alone, 'without the co-operation of any immediate labour'[372]—a result which can hardly be realised with the discovery of a perpetual motion. So, again, the value of a joint product is the 'sum' of these two values.[373] All value, therefore, can be regarded as proportioned to labour in one of its two states. M'Culloch advanced to an unfortunate conclusion, which excited some ridicule. Though Ricardo and Torrens[374] rejected it, it was accepted by Mill in his second edition.[375] Wine kept in a cask might increase in value. Could that value be ascribed to 'additional labour actually laid out'? M'Culloch gallantly asserted that it could, though 'labour' certainly has to be interpreted in a non-natural sense.[376] Not only is capital labour, but fermentation is labour, or how can we say that all value is proportioned to labour? This is only worth notice as a pathetic illustration of the misfortunes of a theorist ridden by a dogma of his own creation. Another conclusion is more important. The 'real value' of anything is measured by the labour required to produce it. Nothing 'again is more obvious' than that equal labour implies the 'same sacrifice' in all states of society.[377] It might seem to follow that the value of anything was measured by the labour which it would command. This doctrine, however, though maintained by Malthus, was, according to M'Culloch, a pestilent heresy, first exploded by Ricardo's sagacity.[378] Things exchange, as he explains, in proportion to the labour which produces them, but the share given to the labourer may vary widely. The labourer, he says, 'gives a constant, but receives a variable quantity in its stead.' He makes the same sacrifice when he works for a day, but may get for it what he produces in ten hours, or only in one. In every case, however, he gets less than he produces, for the excess 'constitutes profits.'[379] The capitalist must get his interest, that is, the wages of the accumulated labour. Here we come again to the Socialist position, only that the Socialist infers that the labourer is always cheated by the capitalist, and does not consider that the machine can ask for 'wages' on the pretext that it is accumulated labour. What, however, determines the share actually received? After all, as a machine is not actually a labourer, and its work not a separable product, we cannot easily see how much wages it is entitled to receive. M'Culloch follows the accepted argument. 'No proposition,' he says, 'can be better established than that the market rate of wages ... is exclusively determined by the proportion between capital and population.'[380] We have ultimately here, as elsewhere, 'the grand principle to which we must always come at last,' namely, 'the cost of production.'[381] Wages must correspond to the cost of raising the labourer. This leads to a formula, which afterwards became famous. In a pamphlet[382] devoted to the question, he repeats the statement that wages depend upon the proportion between population and capital; and then, as if the phrase were identical, substitutes that portion of capital which is required for the labourer's consumption. This is generally cited as the first statement of the 'wage-fund' theory, to which I shall have to return.
I need not pursue these illustrations of the awkward results of excessive zeal in a disciple. It is worth noticing, however, that M'Culloch's practical conclusions are not so rigid as might be inferred. His abstract doctrines do not give his true theory, so much as what he erroneously took to be his theory. The rules with which he works are approximately true under certain conditions, and he unconsciously assumes the conditions to be negligible, and the rules therefore absolute. It must be added that he does not apply his conclusions so rigidly as might be expected. By the help of 'friction,' or the admission that the ride is only true in nineteen cases out of twenty, he can make allowance for many deviations from rigid orthodoxy. He holds, for example, that government interference is often necessary. He wishes in particular for the establishment of a 'good system of public education.'[383] He seems to have become more sentimental in later years. In the edition of 1843 he approves the Factory Acts, remarking that the last then passed 'may not, in some respects, have gone far enough.'[384] He approves a provision for the 'impotent poor,' on the principle of the Elizabethan act, though he disapproves the centralising tendency of the new poor-law. Though he is a good Malthusian,[385] and holds the instinct of population to be a 'constant quantity,'[386] he does not believe in the impossibility of improvement. The 'necessary' rate of wages fixes only a minimum: an increase of population has been accompanied by an increase of comfort.[387] Wages rise if the standard of life be raised, and a rise of wages tends to raise the standard. He cordially denounces the benevolent persons who held that better wages only meant more dissipation. Better wages are really the great spur to industry and improvement.[388] Extreme poverty causes apathy; and the worst of evils is the sluggishness which induces men to submit to reductions of wages. A sense of comfort will raise foresight; and the vis medicatrix should be allowed to act upon every rank of society. He is no doubt an individualist, as looking to the removal of restrictions, such as the Conspiracy Laws,[389] rather than to a positive action of the government; but it is worth notice that this typical economist is far from accepting some of the doctrines attributed to the school in general.
The classical school blundered when it supposed that the rules which it formulated could be made absolute. To give them that character, it was necessary to make false assumptions as to the ultimate constitution of society; and the fallacy became clear when the formulæ were supposed to give a real history or to give first principles, from which all industrial relations could be deduced. Meanwhile, the formulæ, as they really expressed conditional truths, might be very useful so long as, in point of fact, the conditions existed, and were very effective in disposing of many fallacies. The best illustration would probably be given by the writings of Thomas Tooke (1774-1858),[390] one of the founders of the Political Economy Club. The History of Prices is an admirable explanation of phenomena which had given rise to the wildest theories. The many oscillations of trade and finance during the great struggle, the distress which had followed the peace, had bewildered hasty reasoners. Some people, of course, found consolation in attributing everything to the mysterious action of the currency; others declared that the war-expenditure had supplied manufacturers and agriculturists with a demand for their wares, apparently not the less advantageous because the payment came out of their own pockets.[391] Tooke very patiently and thoroughly explodes these explanations, and traces the fluctuations of price to such causes as the effect of the seasons and the varying events of the war which opened or closed the channels of commerce. The explanation in general seems to be thoroughly sound and conclusive, and falls in, as far as it goes, with the principles of his allies. He shows, for example, very clearly what were the conditions under which the orthodox theory of rent was really applicable; how bad seasons brought gain instead of loss to the 'agricultural interest,' that is, as Tooke explains, to the landlord and farmer; how by a rise of price out of proportion to the diminution of supply, the farmer made large profits; how rents rose, enclosure bills increased, and inferior land was brought under the plough. The landlord's interest was for the time clearly opposed to that of all other classes, however inadequate the doctrine might become when made absolute by a hasty generalisation. I need not dwell upon the free-trade argument which made the popular reputation of the economists. It is enough to note briefly that the error as to the sphere of applicability of the doctrine did not prevent many of the practical conclusions from being of the highest value.
FOOTNOTES:
[294] A life of Ricardo by M'Culloch is prefixed to his Works. I cite the edition of 1880. Ricardo's letters to Malthus were published by Mr. Bonar in 1887; his letters to M'Culloch, edited by Mr. Hollander for the American Economic Association, in 1895; and his letters to H. Trower, edited by Mr. Bonar and Mr. Hollander, have just appeared (1900).
[295] He remarks upon this difficulty in the case of Smith's treatment of rent, and gives a definition to which he scarcely adheres.—Works, p. 34 ('Principles,' ch. ii., 1888).
[296] Works, p. 378. Ricardo, it should be said, complained when Malthus interpreted him to mean that this opposition of interests was permanent and absolute.
[297] Malthus admits the general principle of free trade, but supports some degree of protection to corn, mainly upon political grounds. He holds, however, with Adam Smith, that 'no equal quantity of productive labour employed in manufactures could ever occasion so great a reproduction as in agriculture' (Grounds of an Opinion, etc., p. 35)—a relic of the 'physiocrat' doctrine.
[298] Works, p. 385.