Secondly, No writer that I have met with, anterior to Mr. Ricardo, ever used the term wages, or real wages, as implying proportions. Profits, indeed, imply proportions; and the rate of profits had always justly been estimated by a per centage upon the value of the advances. But wages had uniformly been considered as rising or falling, not according to any proportion which they might bear to the whole produce obtained by a certain quantity of labour, but by the greater or smaller quantity of any particular produce received by the labourer, or by the greater or smaller power which such produce would convey, of commanding the necessaries and conveniencies of life. Adam Smith in particular had often used the term real wages, and always in the most natural sense possible, as implying the necessaries and conveniencies of life, which, according to the common language and feelings of men, might justly be considered as more real than money, or any other particular article in which the labourer might be paid. And the use of the term, in this sense, by Adam Smith, and most other political economists, necessarily made the new interpretation given to it more strange, and more unwarranted.
Thirdly, There were no objections to the sense in which the term was before applied. It was both natural and useful. Nor was a new interpretation of it wanted for the purpose of explanation. All the effects of the wages of labour upon profits might have been clearly described, by stating, that profits are determined by the proportion of the whole produce which goes to pay the wages of labour, without calling this proportion, whether small or great in quantity, the real wages of labour, and without asserting that, as the value of wages rises, profits must proportionably fall. That profits are determined by the proportion of the whole produce which goes to pay the wages of labour, is a proposition, which, when correctly explained, will be found to be true, and to be confirmed by universal experience; while the proposition, that as the value of wages rises profits proportionably fall, cannot be true, except on the assumption that commodities, which have the same quantity of labour worked up in them, are always of the same value, an assumption which probably will not be found to be true in one case out of five hundred; and this, not from accidental or temporary causes, but from that natural and necessary state of things, which, in the progress of civilisation and improvement, tends continually to increase the quantity of fixed capital employed, and to render more various and unequal the times of the returns of the circulating capital. The introduction, therefore, of a new meaning of the term real wages, has not certainly the recommendation of being more useful.
Fourthly, the new sense in which the term real wages is used, is not maintained with consistency, or applied to old facts and opinions, with a proper allowance for the change that has been made. This is almost unavoidable, when old terms, which are quite familiar in one sense, are applied in another and different sense. It is particularly remarkable in Mr. Ricardo’s use of his artificial money, which is meant to be the measure of real wages. Thus, he says, “It may be proper to observe, that Adam Smith, and all the writers who have followed him, have, without one exception that I know of, maintained, that a rise in the price of labour would be uniformly followed by a rise in the price of all commodities. I hope I have succeeded in showing that there are no grounds for such an opinion, and that only those commodities would rise which had less fixed capital employed upon them than the medium in which price was estimated, and that all those which had more would positively fall in price when wages rose. On the contrary, if wages fell, those commodities only would fall which had a less proportion of fixed capital employed upon them than the medium in which price was estimated; all those which had more would positively rise in price.”[[11]]
Now all these effects of a rise or fall in the wages of labour, depend entirely upon wages being estimated in Mr. Ricardo’s imaginary money. Estimated in this way, and in this way alone, Mr. Ricardo’s statement would be correct. But neither Adam Smith, nor any of his followers, down to the time of Mr. Ricardo, ever thought of estimating the price of wages in this way. And estimating them in the way to which they were always accustomed, that is in money, as they found it, they are quite justified in what they have said. According to Adam Smith, at least, who estimates the value of commodities by the quantity of labour which they will command, if the money wages of labour universally rise, the value of money proportionably falls; and when the value of money falls, Mr. Ricardo himself says, that the prices of goods always rise.
The difference, therefore, between Mr. Ricardo and Adam Smith in this case, arises from Mr. Ricardo’s forgetting that he was using the term price of labour in a different sense from that in which it was used in the proposition objected to.
In the same manner, Mr. Ricardo’s very startling proposition respecting the effects of foreign trade, namely, that “no extension of foreign trade will immediately increase the amount of value in a country,” arises entirely from his using the term value in a different sense from that in which it had been used by his predecessors.
If the value of foreign commodities imported is to be estimated by the quantity of labour worked up in the commodities sent out to purchase them, then it is quite true that, whatever may be the returns, their value is unsusceptible of increase. But if the value of foreign commodities imported be estimated in the way in which they had ever been estimated before, that is, either in the money, in the labour, or in the mass of commodities which they would command when brought home, then there cannot be the least doubt that the immediate effect of a prosperous venture which gives great profits to the merchants concerned would be to increase the amount of value in the country. The value of the returns compared with the value of the outgoings would, in this particular trade, be greater than usual; and it is quite certain, that this increase of value in one quarter would not necessarily be counterbalanced by a decrease of value in any other. Practically, indeed, nothing is more usual than a simultaneous rise in the value of the great mass of commodities from a prosperous trade, whether this value be estimated in money or in labour.
It must be allowed, then, that Mr. Ricardo has been very far from cautious in the definition and application of his terms, in treating of some of the most fundamental principles of political economy; and I have very little doubt, as I have stated elsewhere, that this is one of the reasons why many of the readers of his work have found great difficulty in understanding it. When old and very familiar terms are used in a new sense, it is scarcely possible for the writer to be always consistent in their application, and extremely difficult to the reader always to be aware of the sense meant to be affixed to them.
Chapter VI.
ON THE DEFINITION AND APPLICATION OF TERMS BY MR. MILL, IN HIS “ELEMENTS OF POLITICAL ECONOMY.”
Mr. Mill, in his Elements of Political Economy, professedly lays no claim to discovery. His main object seems to have been to give the substance of Mr. Ricardo’s work in a more concentrated form, and with a better arrangement; and this object he has accomplished. In the definition and application of his terms he nearly follows Mr. Ricardo; but it may be useful to notice a few cases, where he has either made the errors of Mr. Ricardo’s definitions more prominent, or has altered without improving them.