546.: mcculloch to ricardo1[Reply to 544] - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 9 Letters 1821-1823 
The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 9 Letters 1821-1823.
About Liberty Fund:
Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.
First published by Cambridge University Press in 1951. Copyright 1951, 1952, 1955, 1973 by the Royal Economic Society. This edition of The Works and Correspondence of David Ricardo is published by Liberty Fund, Inc., under license from the Royal Economic Society.
Fair use statement:
This material is put online to further the educational goals of Liberty Fund, Inc. Unless otherwise stated in the Copyright Information section above, this material may be used freely for educational and academic purposes. It may not be used in any way for profit.
mcculloch to ricardo
[Reply to 544]
Edinburgh 24 Augt 1823
My Dear Sir
In so far as you differ in opinion with me on the vexata questio of value, I think the difference principally hinges on the interpretation we are to give to the word profit—Whether is the additional value we get back in exchange for a capital we have employed in production a compensation for time, or for our forbearance in not having consumed the capital immediately, or is it a positive additional value resulting from the employment of the capital and not dependent on time? If we agree in our answers to this question I think we shall agree in our opinions on value—Now, I think that profit is not a compensation for time, but a positive additional value; and I think so for the reason that if I keep a cask of wine a twelvemonth in which an effect is to be produced I shall get a profit; whereas were I to keep a cask which had already arrived at maturity and in which no effect was to be produced for a hundred years I should get no profit whatever—Suppose I have two capitals one a thousand pounds worth of wine, and the other nine hundred pounds worth of leather and £100 of money; if I throw the one into a cellar and give the other to a shoemaker at the end of a year I should have an equivalent value perhaps £1100 worth of wine and £1100 worth of shoes—Now, if the increased value of my capitals be the effect of the change that has been operating on them, and that it is so is certain from the fact that if I had either got back the leather and money or the wine in the state they were at the commencement of the year they would not have been worth one farthing more, am I not entitled to say that this increased value has been given to them by the operation of agents which it cost equal capitals to set in motion and furnish with materials whereon to exert themselves, and that consequently both shoes and wine are the result of equal quantities of labour? I admit that I should be wholly unable to measure the increased value given to the leather or the wine by a consideration of the effect produced; but the essential point is to know that this increased value is not a compensation for time but the result of a change operated by agents which it has cost equal quantities of labour or capital to set in motion—If I am right in this position I think I shall have made a pretty decisive step towards the establishment of the principle for which I am contending: and to shew that I am not right, you must shew that profits are a compensation for time, and not the value of the work performed by an agent set in motion by capital or labour—
Now with respect to the measure of profits—If I employ capitals in the building of houses, in the manufacture of cloth, or in commerce, I should be equally at a loss how to estimate the increased value or profit I am to get from them as if I had employed them in the production of wine—All that I should know was that the increased value, whatever it might be, was the result of labour: but to get a measure of that increased value I should be obliged to refer to agriculture—This is a branch of industry which must be carried on; and if the value of the various outgoings of the farmer be, as they always may be, reduced into corn, he is able by comparing these with his harvest to learn the precise additional value or profit that he obtains—It is by this profit that the profit of every other business will be regulated; and when 100 quarters employed on the worst land yields 110 quarters I shall know that £100 employed for an equal period in the production of wine will yield £110—My theory, therefore, is shortly this:—Profits are not a compensation for time but the value of an effect or operation; to produce this effect you must employ capital or labour, the effect being necessarily always equal when equally powerful agents, that is, equal capitals, are employed: and to measure the value of this effect or operation we are to refer for a standard to that branch of industry which must always be carried on, and whose profits can be determined by actual measurement—
You will observe how well this theory harmonises with your theory of profits; and this agreement is no slight presumption in its favour—
What you say about a piece of cloth and a pipe of wine seems to me to involve a fallacy—The piece of cloth is made, but the wine is not made—If the wine were made no effect would be produced by keeping it, and it would just as much as the cloth preserve the same value whatever might be the fluctuation of profits—
Neither does your objections, originating in the fluctuations to which capitals are liable, apply to my theory—If I were seeking a standard to measure values at distant periods they would apply and would be decisive; but this is no part of my object—I am only endeavouring to ascertain the circumstances which determine the comparative values of the commodities in the same market—The question agitated between you and Malthus is totally different—it is, what are the circumstances necessary to give invariability of value to any commodity?—This is a question which I believe is quite insoluble, but at any rate it does not come within the scope of my inquiries—I leave it to be settled by my masters—Before entering on this transcendental part of Pol Economy I must be more sure than I am at present of the elements; and before I attempt to get a measure of the value of cloth and wine in the reign of Augustus and George IV, I must obtain a measure of their value in the same market—
My opinions and those of Torrens differ materially—Torrens does not consider the labour of a man and the labour of a machine, or of the coals that are put on a fire in the same point of view: Now, whether right or wrong I consider them as exactly the same; and it is because I so consider them that I reckon it improper to make the distinction that he has done between immediate labour and the labour of capital—
I shall write you shortly on some points connected with Taxation, but I am sure you will be well pleased that I now close this long letter—I am with the greatest respect and esteem
Yours ever sincerely
J. R. McCulloch