ricardo to mcculloch
[Reply to 366.—Answered by 372]
London 13 June 1820
My dear Sir
A number of engagements, to which I have been obliged to give my time and attention, has prevented me from answering your letter before. I fear I shall have some difficulty in explaining myself on the effects which the relative times before commodities can be brought to market, have on their prices, or rather on their relative value. All commodities which have value are produced by labour. The labour employed in making a steam engine, may be the same in quantity, and exerted for the same length of time, as the labour employed in making a valuable piece of furniture, consequently the steam engine and the furniture, would be of the same value. The upholsterer sells his furniture at the end of a year for a thousand pounds—the steam engine is also worth a thousand pounds, but it is not sold, it is to be employed the following year as capital. If profits be 10 pct., independently of the quantity of labour and circulating capital which the owner of the steam engine must employ, and in which he is on a par with the upholsterer, he must have his steam engine replaced in its original state of efficiency at the end of the year, and must charge upon his goods £100—for the profit of the £1000 capital employed as fixed capital. If it be two years before he can receive the return from the work done by the steam engine, he must have £100 for the first years profit, and £110 for the second, and this is totally independent of the quantity of labour actually accumulated in the commodity brought to market. Now if I employ valuable machinery from which I have no return for two years, at the end of the two years, my machinery and my goods together, must be of the value of all the labour employed in producing them, besides the accumulated profit on the capital which yielded me no return for that time. But the same result would take place if I employed circulating capital only and could not bring my commodity to market for two years —at the end of the two years, the commodity will not be worth only all the labour bestowed on it, but also all the accumulated profits for the time that my capital was so employed. Strictly speaking then the relative quantities of labour bestowed on commodities regulates their relative value, when nothing but labour is bestowed upon them, and that for equal times. When the times are unequal, the relative quantity of labour bestowed on them is still the main ingredient which regulates their relative value, but it is not the only ingredient, for besides compensating for the labour, the price of the commodity, must also compensate for the length of time that must elapse before it can be brought to market. All the exceptions to the general rule come under this one of time, and as there are such a variety of cases in which the time of completing a commodity may differ, it is difficult to fix on any one commodity which may properly be chosen as a general measure of value, even if we could get over the difficulty of not having one which always requires the same quantity of labour to produce it. The two extremes appear to be these: one, where the commodity is produced without delay, and by labour only, without the intervention of capital; the other where it is result of a great quantity of fixed capital, contains very little labour, and is not produced without considerable delay. The medium between these two is perhaps the best adapted to the general mass of commodities; those commodities on one side of this medium, would rise in comparative value with it, with a rise in the price of labour, and a fall in the rate of profits; and those on the other side might fall from the same cause. Mr. Malthus has taken advantage of this defect in my measure of value, from which his own is not free, and has not failed, as he justly might do, to make the most of it. Mr. Malthus in fact keeps to no one measure of value—sometimes he speaks of a rise or fall of goods, and means a fall or rise in their money price—sometimes he estimates their fall and rise by their power of commanding labour, and sometimes by their exchangeable value in corn. His real measure of value is itself variable, and in a degree not inferior to the variableness of most other things, and he speaks of this variableness without appearing to be aware that he thereby shews how unfit his measure of value is for any useful purpose.
It must be confessed that this subject of value is encompassed with difficulties—I shall be very glad if you succeed in unravelling them, and establish for us a measure of value which shall not be liable to the objections which have been brought against all those hitherto proposed. I sometimes think that if I were to write the chapter on value again which is in my book, I should acknowledge that the relative value of commodities was regulated by two causes instead of by one, namely, by the relative quantity of labour necessary to produce the commodities in question, and by the rate of profit for the time that the capital remained dormant, and until the commodities were brought to market. Perhaps I should find the difficulties nearly as great in this view of the subject as in that which I have adopted. After all[,] the great questions of Rent, Wages, and Profits must be explained by the proportions in which the whole produce is divided between landlords, capitalists, and labourers, and which are not essentially connected with the doctrine of value. By getting rid of rent, which we may do on the corn produced with the capital last employed, and on all commodities produced by labour in manufactures, the distribution between capitalist and labourer becomes a much more simple consideration. The greater the portion of the result of labour that is given to the labourer, the smaller must be the rate of profits, and vice versa. Now this portion must essentially depend on the facility of producing the necessaries of the labourer—if the facility be great, a small proportion of any commodity, the result of capital and labour, will be sufficient to furnish the labourer with necessaries, and consequently profits will be high. The truth of this doctrine I deem to be absolutely demonstrable, yet I think that Mr. Malthus does not fully admit it.—
The case you put to support your opinion that it is of great importance to the labourers whether taxes be imposed on the luxuries of the rich or on their own necessaries, is well chosen. You suppose a subsidy to be (annually, I believe) remitted from Ireland to Russia, and you ask whether it will be of no consequence whether the taxes to raise that subsidy be imposed on potatoes, or on claret and coaches? As no more labourers will be employed by Government, and consequently there can be no increased competition for them, you conclude that notwithstanding the taxes on the necessaries of the poor, their wages will not be raised till after they are reduced to the extreme of misery, and famine, or the slackened operation of the principle of population have equalized the supply to the demand. According to your own view of the case, when the demand has to operate on the diminished supply, wages will rise very high, not only so high as to compensate the labourer for the tax imposed on him, but much higher, for on no other conditions can he replace the void which misery had made in the number of labourers. Before the tax, his wages were only sufficient to keep up the supply equal to the demand. If you add the tax to his wages, he can do no more; and therefore if famine and misery have occasioned depopulation, there must be an extraordinary stimulus to place things on their former footing. I should say then that according to your admission the labourer would on an average have his wages increased equal to the amount of the tax, but he would first suffer from their being extraordinarily low, and then benefit from their rising extraordinarily high. In truth, however, I think that they will neither be very low nor very high, but that they will undergo such a moderate increase as will compensate the labourer for the tax laid on his necessaries. It is the interest of all parties that they should so rise. I consider that the quantity of necessaries which the wages of a labourer will enable him to purchase, is really the efficient regulator of the population. The circumstances of the country require that the population should continue to increase at the same rate after the subsidy is granted to Russia as before, for there is no diminished demand for labour, and the question between us comes to this. Will the population be in the first instance very much depressed, and then afterwards violently stimulated, or will it continue in that course which the circumstances of the capital and the demand for labour originally required it to be? The value of things I believe to be influenced, not by immediate supply and demand only, but also by contingent supply and demand. You must not suppose that I am arguing in favor of taxes on necessaries, in preference to taxes on luxuries, for that is not the question—but I am endeavoring to ascertain in what these taxes really differ. I quite agree with you, and for the reasons you give, that an income tax is by no means a desirable tax, situated as we are, instead of the taxes now levied.—
What I said on the Agricultural question in the House of Commons has been in many respects imperfectly reported. I assure you that I maintained stoutly those principles which you know I think the correct ones. Mr. Brougham very much misrepresented what I said and he himself advanced principles which were wholly untenable, but the House was much too partial to one view of the subject, to allow me to enter into a refutation of them. I shall probably have some other opportunity of doing so.
Your article in the Edin. Review is exceedingly good, and I am sure will be of great use in forwarding the good cause. Your article on Corn in this days Scotsman is also calculated to convince the honest sceptics.
You are mistaken in thinking that I could be of use in Parliament by bringing forward the question of free trade with France. In the first place I have not talents for such an undertaking, and in the second I am treated as an ultra reformer and a visionary on commercial subjects by both Agriculturists and Manufacturers. Do you not observe that even Mr. Baring, the professed but I think lukewarm friend of free trade, did not nominate me on his committee.