Phæd. The matter is clear beyond what I require; yet, X., for the satisfaction of my "game" friend Philebus, give us a proof or two ex abundanti by applying what you have said to cases in Adam Smith or others.
X. In general it is clear that, if the value of A increases in a duplicate ratio, yet if the value of B increases in a triplicate ratio, so far from commanding a greater quantity of B, A shall command a smaller quantity; and if A continually goes on squaring its former value, yet if B continually goes on cubing its former value, then, though A will continually augment in value, yet the quantity which it will command of B shall be continually less, until at length it shall become practically equal to nothing. [Footnote: The reader may imagine that there is one exception to this case: namely, if the values of A and B were assumed at starting to be = 1; because, in that case, the squares, cubes, and all other powers alike, would be = I; and thus, under any apparent alteration, the real relations of A and B would always remain the same. But this is an impossible and unmeaning case in Political Economy, as might easily be shown.] Hence, therefore, I deduce,
1. That when I am told by Adam Smith that the money which I can obtain for my hat expresses only its nominal value, but that the labor which I can obtain for it expresses its real value—I reply, that the quantity of labor is no more any expression of the real value than the quantity of money; both are equally fallacious expressions, because equally equivocal. My hat, it is true, now buys me x quantity of labor, and some years ago it bought x/2 quantity of labor. But this no more proves that my hat has advanced in real value according to that proportion, than a double money price will prove it. For how will Adam Smith reply to him who urges the double money value as an argument of a double real value? He will say—No; non valet consequentia. Your proof is equivocal; for a double quantity of money will as inevitably arise from the sinking of money as from the rising of hats. And supposing money to have sunk to one fourth of its former value, in that case a double money value—so far from proving hats to have risen in real value—will prove that hats have absolutely fallen in real value by one half; and they will be seen to have done so by comparison with all things which have remained stationary; otherwise they would obtain not double merely, but four times the quantity of money price. This is what Adam Smith will reply in effect. Now, the very same objection I make to labor as any test of real value. My hat now obtains x labor; formerly it obtained only one half of x. Be it so; but the whole real change may be in the labor; labor may now be at one half its former value; in which case my hat obtains the same real price; double the quantity of labor being now required to express the same value. Nay, if labor has fallen to one tenth of its former value, so far from being proved to have risen one hundred per cent. in real value by now purchasing a double quantity of labor, my hat is proved to have fallen to one fifth of its former value; else, instead of buying me only x labor, which is but the double of its former value (x/2), it would buy me 5 x, or ten times its former value.
Phil. Your objection, then, to the labor price, as any better expression of the real value than the money price, would be that it is an equivocal expression, leaving it doubtful on which side of the equation the disturbance had taken place, or whether on both sides. In which objection, as against others, you may be right; but you must not urge this against Adam Smith; because, on his theory, the expression is not equivocal; the disturbance can be only on one side of the equation, namely, in your hat. For as to the other side (the labor), that is secured from all disturbance by his doctrine that labor is always of the same value. When, therefore, your hat will purchase x quantity of labor instead of half x, the inference is irresistible that your hat has doubled its value. There lies no appeal from this; it cannot be evaded by alleging that the labor may have fallen, for the labor cannot fall.
X. On the Smithian theory it cannot; and therefore it is that I make a great distinction between the error of Adam Smith and of other later writers. He, though wrong, was consistent. That the value of labor is invariable, is a principle so utterly untenable, that many times Adam Smith abandoned it himself implicitly, though not explicitly. The demonstration of its variable value indeed follows naturally from the laws which govern wages; and, therefore, I will not here anticipate it. Meantime, having once adopted that theory of the unalterable value of labor, Adam Smith was in the right to make it the expression of real value. But this is not done with the same consistency by Mr. Malthus at the very time when he denies the possibility of any invariable value.
Phil. How so? Mr. Malthus asserts that there is one article of invariable value; what is more, this article is labor,—the very same as that formerly alleged for such by Adam Smith; and he has written a book to prove it.
X. True, Philebus, he has done so; and he now holds that labor is invariable, supposing that his opinions have not altered within the last twelve months. But he was so far from holding this in 1820 (at which time it was that he chiefly insisted on the distinction between nominal and real value), that he was not content with the true arguments against the possibility of an invariable value, but made use of one, as I shall soon show you, which involves what the metaphysicians call a non-ens—or an idea which includes contradictory and self-destroying conditions. Omitting, however, the inconsistency in the idea of real value as conceived by Mr. Malthus, there is this additional error engrafted upon the Smithian definition, that it is extended to "the necessaries and conveniences of life" in general, and no longer confined exclusively to labor. I shall, therefore, as another case for illustrating and applying the result of our dispute,
2. Cite a passage from Mr. Malthus' "Political Economy" (p. 59): "If we are told that the wages of day-labor in a particular country are, at the present time, fourpence a day, or that the revenue of a particular sovereign, seven or eight hundred years ago, was four hundred thousand pounds a year, these statements of nominal value convey no sort of information respecting the condition of the lower class of people in the one case, or the resources of the sovereign in the other. Without further knowledge on the subject, we should be quite at a loss to say whether the laborers in the country mentioned were starving or living in great plenty; whether the king in question might be considered as having a very inadequate revenue, or whether the sum mentioned was so great as to be incredible. [Footnote: Hume very reasonably doubts the possibility of William the Conqueror's revenue being four hundred thousand pounds a year, as represented by an ancient historian, and adopted by subsequent writers.—Note of Mr. Malthus.] It is quite obvious that in cases of this kind,—and they are of constant recurrence,—the value of wages, incomes, or commodities, estimated in the precious metals, will be of little use to us alone. What we want further is some estimate of a kind which may be denominated real value in exchange, implying the quantity of the necessaries and conveniences of life which those wages, incomes, or commodities, will enable the possessor of them to command."
In this passage, over and above the radical error about real value, there is also apparent that confusion, which has misled so many writers, between value and wealth; a confusion which Mr. Ricardo first detected and cleared up. That we shall not be able to determine, from the mere money wages, whether the laborers were "starving or living in great plenty," is certain; and that we shall be able to determine this as soon as we know the quantity of necessaries, etc., which those wages commanded, is equally certain; for, in fact, the one knowledge is identical with the other, and but another way of expressing it; we must, of course, learn that the laborer lived in plenty, if we should learn that his wages gave him a great deal of bread, milk, venison, salt, honey, etc. And as there could never have been any doubt whether we should learn this from what Mr. Malthus terms the real value, and that we should not learn it from what he terms the money value, Mr. Malthus may be assured that there never can have been any dispute raised on that point. The true dispute is, whether, after having learned that the laborer lived in American plenty, we shall have at all approximated to the appreciation of his wages as to real value: this is the question; and it is plain that we shall not. What matters it that his wages gave him a great deal of corn, until we know whether corn bore a high or a low value? A great deal of corn at a high value implies wages of a high value; but a great deal of corn at a low value is very consistent with wages at a low value. Money wages, it is said, leave us quite in the dark as to real value. Doubtless; nor are we at all the less in the dark for knowing the corn wages, the milk wages, the grouse wages, etc. Given the value of corn, given the value of milk, given the value of grouse, we shall know whether a great quantity of those articles implies a high value, or is compatible with a low value, in the wages which commanded them; but, until that is given, it has been already shown that the quantity alone is an equivocal test, being equally capable of coexisting with high wages or low wages.
Phil. Why, then, it passes my comprehension to understand what test remains of real value, if neither money price nor commodity price expresses it. When are wages, for example, at a high real value?