On his first approach to the question of value, he describes the causes which determine it much more inaccurately than Mr. Ricardo. He says, that “the value of commodities is determined by the quantity of capital and labour necessary to produce them.”[[12]] But this is obviously untrue and quite inconsistent with what he says afterwards respecting the regulator of value. It may be correct, and I fully believe it is, to estimate the value of labour by its quantity; but how can we estimate the value of different kinds of machinery, or different kinds of raw materials by their quantity? The quantity of raw material contained in a coarse and thick piece of calico, as compared with a very fine and thin piece of muslin, worked up by the same quantity of labour, may be four or five times greater, while the value of it, and the degree in which it affects the value of the commodity, may be actually less. We cannot, in short, measure the value of any product of labour by its bulk or quantity; and it must therefore be essentially incorrect to say, that the value of commodities is determined by the quantity of capital and labour necessary to produce them.
Proceeding afterwards to investigate more minutely what it is, which in the last resort determines the proportion in which commodities exchange for one another, he observes, that “as all capital consists in commodities, it follows, of course, that the first capital must have been the result of pure labour. The first commodities could not be made by any commodities existing before them. But if the first commodities, and of course the first capital, were the result of pure labour, the value of this capital, the quantity of other commodities for which it would exchange, must have been estimated by labour. This is an immediate consequence of the proposition which we have just established, that where labour was the sole instrument of production, exchangeable value was determined by the quantity of labour which the production of the commodity required. If this be established, it is a necessary consequence that the exchangeable value of all commodities is determined by quantity of labour.”[[13]]
Now this necessary consequence, which is here so confidently announced, does not appear to me to follow either from this statement, or from any thing which is said subsequently. Allowing that the first commodities, if completed and brought into use immediately, might be the result of pure labour, and that their value would therefore be determined by the quantity of that labour; yet it is quite impossible that such commodities should be employed as capital to assist in the production of other commodities, without the capitalist being deprived of the use of his advances for a certain period, and requiring a remuneration in the shape of profits.
In the early periods of society, on account of the comparative scarcity of these advances of labour, this remuneration would be high, and would affect the value of such commodities to a considerable degree, owing to the high rate of profits. In the more advanced stages of society, the value of capital and commodities is largely affected by profits, on account of the greatly increased quantity of fixed capital employed, and the greater length of time for which much of the circulating capital is advanced before the capitalist is repaid by the returns. In both cases, the rate at which commodities exchange with each other, is essentially affected by the varying amount of profits. It is impossible, therefore, to agree with Mr. Mill, when he says, “It appears by the clearest evidence, that quantity of labour in the last resort determines the proportion in which commodities exchange for one another.”[[14]]
On the same grounds Mr. Mill is quite incorrect, in calling capital hoarded labour. It may, perhaps, be called hoarded labour and profits; but certainly not hoarded labour alone, unless we determine to call profits labour. This Mr. Mill himself could not but see; and consequently, in his second edition, he has deserted Mr. Ricardo, and boldly ventured to say, that “profits are in reality the measure of quantity of labour.”[[15]] But as this very peculiar and most unwarranted abuse of terms belongs, I believe, originally to Mr. Macculloch, it may be best to defer the more particular examination of it, till I come to consider the definitions and application of terms adopted by Mr. Macculloch.
In a work like that of Mr. Mill, which has so much the air of logical precision, one should have hoped and expected to find superior accuracy in the definitions, and great uniformity in the application of his terms, in whatever sense he might determine to use them; but in this the reader will be disappointed. It is difficult, for instance, to infer from the language of Mr. Mill, whether a commodity is to be considered as altering in its value in proportion to its costs of production, or in proportion to its power of commanding other commodities, and they are certainly not the same.
At the commencement of his seventh section, of chap. iii., entitled, “What regulates the Value of Money,” he says,
“By the value of money is here to be understood the proportion in which it exchanges for other commodities, or the quantity of it which exchanges for a certain quantity of other things.”
This is, to be sure, a very lax description of the value of money, very inferior in point of accuracy, even to what would be understood by the general power of purchasing. What are the things a certain quantity of which is here alluded to? and if these things change in the costs of their production, will money be proportionally affected?
But we have a different and better description of value in the next section. It is there said, that “gold and silver are, in reality, commodities. They are commodities for the attainment of which labour and capital must be employed. It is cost of production which determines the value of these as of other ordinary productions.”[[16]]