ricardo to say
[Reply to 446.—Answered by 496]
London 5 March 1822
I have received the letter which you kindly sent to me in answer to mine of May last. I am much indebted to you for the trouble you have taken in explaining your view of the subject of value, and I am happy to observe that the difference between us is much less than I had hitherto considered it. You speak of two different utilities which commodities possess, one, which they derive from nature, without any of the labour of man, the other, which they derive exclusively from his labour. You say that for the first of these, which you call natural utility, nothing valuable can be obtained in exchange, and it is only for that portion of utility which is given to a commodity by labour or industry, for which any thing valuable can be obtained. You add “mais en Economie Politique nous ne pouvons nous occuper que de la portion d’utilité qui a eté donné avec des frais.[”] You explain on these principles the case I had put to you of a pound of iron and a pound of gold, which I had supposed had exactly the same utility, though the gold was 2000 times more valuable. If we give 2000 times more for the gold than the iron, you say, it is because that particular utility of which only Political Economy treats, namely that given by labour, is 2000 times greater than that given to iron, and you add that the iron has 1999 portions of natural utility for which nothing is given; of which the gold has none.
Although I cannot quite approve of the terms used to explain this truth, yet I do now, and always have substantially agreed in the reasoning which proves it, for I have always contended that commodities are valuable in proportion to the quantity of labour bestowed upon them, and when you say that they are valuable in proportion as they are useful, and they are useful in proportion to the quantity of labour or industry bestowed upon them, you are in fact expressing the same opinion in other words.
It follows from your doctrine that if by any process, of the 2000 portions of the utility given to gold by labour, 1000 portions were given to it by nature, and the other 1000 portions by labour, gold would fall to one half of its former exchangeable value. But would a pound of gold form the same portion of riches as before? you would be bound to say it would not, because you say riches do not depend on quantity but on value. I, on the contrary, who do not estimate riches by value, but by the whole quantity of utility which the commodities which constitute riches possess, from whatever source derived, whether from nature or from industry, should say that I was equally rich in the possession of a pound of gold after the discovery of the economical process, although my riches would be of only half their former value. In saying so I should be justified by various passages in your different works. In your last edition of The “Catechisme” you say Page 2 that the riches of a person are in proportion to the value of the commodities which he possesses, and not in proportion to their quantity: so far you repeat the same opinion, but when your pupil calls upon you to explain what is the measure of the value of things, your answer that it is the quantity of all other things that the proprietor is enabled to command by their means, if he consents to exchange them. Now in this I think there is a contradiction, for we are told that riches are in proportion to value, and value in proportion to the quantity of things, therefore riches are in proportion to the quantity of things; and yet you say that riches are in proportion to value, and not in proportion to the quantity of things.
Let us suppose that the same cause, namely, an economical process, which lowers the value of gold one half, lowers at the same time, in the same degree, and by the same means, hats, shoes, cloth, and linen. In this state of things a pound of gold will command just as many hats, shoes, cloth, and linen as before any of the economical processes were discovered. I ask is the man equally rich as before who has a pound of gold? you first answer no, because he has not a commodity of equal value, and you secondly answer yes, because he can command an equal quantity of various other commodities.
In your letter to Mr. Malthus you say, very justly, that if corn and woollen goods be produced with so much facility, that with their former cost in productive services, double the quantity be produced, they will fall one half in value. You consider value as the measure of riches, and yet you say that a person getting in exchange a double quantity of these woollen goods and corn gets a larger portion of riches. [“] Les produits , dans un tel echange, sont mis en opposition de valeur avec les services productifs; or, comme en tout echange, l’un des deux termes vaut d’autant plus qu’il obtient une plus grande quantité de l’autre, il resulte que les services productifs valent d’autant plus que les produits sont plus multipliés, et a plus bas prix. Voila pourquoi la baisse des produits, en augmentant la valeur des fonds productifs d’une nation et des revenus qui en émanent, augmente les richesses nationales. Cette demonstration qui se trouve en detail au chap 3 du liv. 2 de mon Traité d’economie politique (4e edition [)] a rendu ce me semble, quelque service a la science, en expliquant ce que jusque-la avait eté senti sans etre expliqué, c’est que bien que la richesse soit une valeur exchangeable, la richesse generale est accrue par le bas prix des marchandises et de toute espece de produits.[”] Double the production of A, B, C and D by economical processes and you do not augment the riches of either, but collectively they are nevertheless doubly as rich as before. Surely in this explanation the words riches and value are not always used in the same sense. According to my view they would be singly and collectively doubly rich, but their riches would not have increased in value: they would not increase in value, because they would have no more of that utility, given exclusively by labour.
On the other point respecting the circumstances which make two loaves raised on land of unequal fertility of equal value, although the rent derived from them will be different, we in many respects agree. Rent is the effect of the monopoly of land of a certain fertility, and must rise with the value of the loaf, and with the difficulty of producing additional loaves. But the last loaf produced pays little or no rent, and its value, as well as the value of all other loaves, rises, because a greater quantity of its utility is derived from labour and industry, and a smaller quantity from natural means. You say demand and supply regulates the price of bread; that is true, but what regulates supply? the cost of production,—the quantity of utility imparted to bread by industry. Rent is the effect of high price, not the cause. In some loaves there must necessarily be little rent, I should say no rent at all. You say bread is regulated in value by productive services, true but in some bread of five shillings value the productive services may be divided thus Rent 2/- Profit 1/- and labour 2/- and in another equal quantity of bread of the same value they may be divided as follows Rent nothing, Profit 1/- and labour 4/-. I object to the lumping the productive services altogether, I want to know the part which each performs in giving value to bread.
At the last meeting of our Political Economy Club, I read your letter, for which I was desired to return you the thanks of the meeting. —Our society is a very unpretending one, and had made no provision for the admission of Honorary members—they have now however passed a law to admit foreigners only in that character, and I am happy to inform you that we have elected you unanimously. We hope in good time to elevate ourselves from a “Club” to a more dignified title, and to become a numerous as well as a scientific body.—
I have received from Mr. Place the 2d. Edition of your Catechisme D’Economie Politique for which I am very much obliged to you.—I have not yet had time to look at more than the 2 first chapters,—I promise myself pleasure and instruction from the perusal of the remainder.—
I remain Dear Sir with the greatest esteem Your faithful servant