Chapter V.
ON THE DEFINITION AND APPLICATION OF TERMS BY MR. RICARDO.
Although it must be allowed that the criterion of value which Mr. Ricardo has endeavoured to establish is an incomplete one, yet I cannot but think that he has conferred an important benefit on the science of political economy, by drawing a marked line of distinction between riches and value. A difference had perhaps been felt by most writers, but none before him had so strongly marked it, and attached so much importance to it. He agrees entirely with Adam Smith in the following definition of riches: “Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniencies, and amusements of human life.”[[4]] And adds an observation in which I think he is quite right. “Value, then, essentially differs from riches; for value depends not on abundance, but on the difficulty or facility of production.”[[5]] He subsequently says, “although Adam Smith has given the correct description of riches which I have more than once noticed, he afterwards explains them differently, and says that a man must be rich or poor, according to the quantity of labour which he can afford to purchase. Now this description differs essentially from the other, and is certainly incorrect; for suppose the mines were to become more productive, so that gold and silver fell in value, from the greater facility of production; or that velvets were to be manufactured by so much less labour than before, that they fell to half their former value; the riches of all those who purchased these commodities would be increased; one man might increase the quantity of his plate, another might buy double the quantity of velvet; but with the possession of this additional plate and velvet, they could employ no more labour than before, because, as the exchangeable value of velvet and of plate would be lowered, they must part with proportionably more of these species of riches to purchase a day’s labour. Riches then cannot be estimated by the quantity of labour which they will purchase.”[[6]]
In these remarks I entirely agree with Mr. Ricardo. If riches consist of the necessaries, conveniencies, and luxuries of life, and the same quantity of labour will at different times, and under different circumstances, produce a very different quantity of the necessaries, conveniencies, and luxuries of life, then it is quite clear that the power of commanding labour, and the power of commanding the necessaries, conveniencies and luxuries of life are essentially distinct. One, in fact, is a description of value, and the other of wealth.
But though Mr. Ricardo has fully succeeded in showing that Adam Smith was incorrect in confounding wealth and value, even according to his own descriptions of them; yet he has nowhere succeeded in making out the propriety of that peculiar view of value which forms the most prominent feature of his work.
He has not confined himself to the assertion, that what he calls the value of a commodity is determined by the quantity of labour worked up in it; but he states, in substance, the following proposition, that commodities exchange with each other according to the quantity of manual labour worked up in them, including the labour worked up in the materials and tools consumed in their production, as well as that which is more immediately employed.[[7]]
Now this proposition is contradicted by universal experience. The slightest observation will serve to convince us, that after making all the required allowances for temporary deviations from the natural and ordinary course of things, the class of commodities subject to this law of exchange is most extremely confined, while the classes, not subject to it, embrace the great mass of commodities. Mr. Ricardo, indeed, himself admits of considerable exceptions to his rule; but if we examine the classes which come under his exceptions, that is, where the quantities of fixed capital employed are different and of different degrees of duration, and where the periods of the returns of the circulating capital employed are not the same, we shall find that they are so numerous, that the rule may be considered as the exception, and the exceptions the rule.
Yet, notwithstanding these admissions, he proceeds with his rule as if there had been few or no exceptions to it: he especially estimates the value of wages by the quantity of human labour worked up in them; and as it is quite true, that if we look only to this element of value, the value of wages has a tendency to rise in the progress of cultivation and improvement, he has attributed the fall of profits which usually takes place in rich countries to the rise in the value of wages; and, in fact, has founded his whole theory of profits, which has been considered as the crowning achievement in the science, upon the rise and fall in the value of wages. “It has been my endeavour,” he says, “to show throughout this work, that the rate of profits can never be increased but by a fall of wages.”[[8]] Again he observes, “Profits—it cannot be too often repeated—depend on wages; not on nominal but real wages; not on the number of pounds which may be annually paid to the labourer, but on the number of days’ work necessary to obtain these pounds.”[[9]]
Real wages, then, according to Mr. Ricardo’s definition, are determined by the quantity of labour worked up in the articles, which the labourer receives as a remuneration for his labour, whether food and clothing, or money.
Now the meaning here attached to the term real wages, on which Mr. Ricardo’s theory of profits is made to depend, is quite unusual, and decidedly contradicts all the most obvious rules which suggest themselves for the application of terms in any science.
In the first place, no one we believe ever heard, before the time of Mr. Ricardo, this term used in conversation in such a manner, that an increase of real wages would generally imply a diminution in the means of subsistence and comfort among the labouring classes and their families. Yet this would be the case, according to the sense in which Mr. Ricardo uses the term. Speaking of the different situations of the landlord and the labourer, in the progress of society, after describing the increasing wealth of the landlord, he says, “The fate of the labourer will be less happy; he will receive more money-wages it is true, (and the money of Mr. Ricardo is here used as measuring what he calls real wages;) but his corn wages will be reduced; and not only his command of corn, but his general condition will be deteriorated.” With a continued increase of real wages, “the condition of the labourer will generally decline, while the condition of the landlord will always be improved.”[[10]]