The Online Library of Liberty

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• Advertisement to the Second Edition.
• Memoir of Robert Malthus.
• Principles of Political Economy.
• Introduction.
• Book I
• Chapter I.: Of the Definitions of Wealth and of Productive Labour.
• Section I.—: On the Definitions of Wealth.
• Section II.—: On Productive Labour.
• Chapter II.: On the Nature, Causes, and Measures of Value.
• Section I.—: On the Different Sorts of Value.
• Section II.—: Of Demand and Supply As They Affect Exchangeable Value.
• Section III.—: Of the Cost of Production As Affected By the Demand and Supply, and On the Mode of Representing Demand.
• Section IV.—: Of the Labour Which Has Been Employed On a Commodity Considered As a Measure of Its Exchangeable Value.
• Section V.—: Of the Labour Which a Commodity Will Command, Considered As a Measure of Value In Exchange.
• Section VI.—: On the Practical Application of the Measure of Value, and Its General Use and Advantages.
• Section VII.—: On the Variations In the Value of Money In the Same, and Different Countries.
• Chapter III.: Of the Rent of Land.
• Section I.—: Of the Nature and Causes of Rent.
• Section II.—: On the Necessary Separation of the Rent of Land From the Profits of the Cultivator and the Wages of the Labourer.
• Section III.—: Of the Causes Which Tend to Raise Rents In the Ordinary Progress of Civilized and Improved Societies.
• Section IV.—: Of the Causes Which Tend to Lower Rents.
• Section V.—: On the Dependance of the Actual Quantity of Produce Obtained From the Land, Upon the Existing Prices of Produce, and Existing Rents, Under the Same Agricultural Skill and the Same Value of Money.
• Section VI.—: Of the Connexion Between Great Comparative Wealth, and a High Comparative Price of Raw Produce.
• Section VII.—: On the Causes Which May Mislead the Landlord In Letting His Lands, to the Injury Both of Himself and the Country.
• Section VIII.—: On the Strict and Necessary Connection of the Interests of the Landlord and of the State.
• Section IX.—: General Remarks On the Surplus Produce of the Land.
• Chapter IV.: Of the Wages of Labour.
• Section I.—: On the Definition of the Wages of Labour, and Their Dependance Upon Supply and Demand.
• Section II.—: Of the Causes Which Principally Affect the Habits of the Labouring Classes.
• Section III.—: Of the Causes Which Principally Influence the Demand For Labour, and the Increase of the Population.
• Section IV.—: A Review of the Corn Wages of Labour From the Reign of Edward III.
• Section V.—: On the Conclusions to Be Drawn From the Preceding Review of the Prices of Corn and Labour During the Five Last Centuries.
• Chapter V.: Of the Profits of Capital.
• Section I.—: Of the Nature of Profits, and the Mode In Which They Are Estimated.
• Section II.—: Of the Limiting Principle of Profits.
• Section III.—: Of the Regulating Principle of Profits.
• Section IV.—: Of Profits As Affected By the Causes Practically In Operation.
• Section V. —: Remarks On Mr. Ricardo’s Theory of Profits.
• Chapter VI.: Of the Distinction Between Wealth and Value.
• Book II.
• Chapter I.: On the Progress of Wealth.
• Section I.—: Statement of the Particular Object of Inquiry.
• Section II.—: Of the Increase of Population Considered As a Stimulus to the Continued Increase of Wealth.
• Section III.—: Of Accumulation, Or the Saving From Revenue to Add to Capital, Considered As a Stimulus to the Increase of Wealth.
• Section IV.—: Of the Fertility of the Soil, Considered As a Stimulus to the Continued Increase of Wealth.
• Section V.—: Of Inventions to Save Labour, Considered As a Stimulus to the Continued Increase of Wealth.
• Section VI.—: Of the Necessity of a Union of the Powers of Production With the Means of Distribution, In Order to Ensure a Continued Increase of Wealth.
• Section VII.—: Of the Distribution Occasioned By the Division of Landed Property Considered As the Means of Increasing the Exchangeable Value of the Whole Produce.
• Section VIII.—: Of the Distribution Occasioned By Commerce, Internal and External, Considered As the Means of Increasing the Exchangeable Value of Produce.
• Section IX.—: Of the Distribution Occasioned By Personal Services and Unproductive Consumers, Considered As the Means of Increasing the Exchangeable Value of the Whole Produce.
• Section X.—: Application of Some of the Preceding Principles to the Distresses of the Labouring Classes Since 1815, With General Observations.

Section IV.—

Of the Labour which has been employed on a Commodity considered as a Measure of its Exchangeable Value.

In the two last sections, the causes which affect and determine the exchangeable values of commodities have been investigated; and these appear to consist of every circumstance which contributes in any degree to enhance the difficulty of obtaining them: such as, the necessity of paying the wages of a certain quantity of labour, without which the commodity cannot be produced, the necessity of certain advances of other capital, which no one will continue to make without the ordinary remuneration in the shape of profits, and the frequent necessity of further payments owing to rents, tithes, taxes, natural and artificial monopolies, and temporary deficiencies of supply, arising from accident, or the state of the seasons. These are all sources of difficulty, which, in proportion to the degree in which they prevail, must raise the exchangeable value of commodities arising from intrinsic causes; and it has further appeared, that the result of all these causes of value is expressed in the state of the supply compared with the intensity of the demand.

We come now to inquire more particularly into the measures of value—an inquiry obviously not identical with an inquiry into the causes of value, as it is only in a very few cases that they can properly be represented by the same object.*

A measure of value is wanted for two most important purposes.

First, to measure easily and conveniently the relative values of all commodities, compared one with another, and to enable all dealers to estimate the profits which they make upon their sales. This purpose is completely answered by money.

Secondly, to measure the difficulty with which a commodity is obtained, including all the conditions of its supply; and when two or more commodities have in the course of time altered in their exchangeable relations to each other, to enable us to ascertain in which, and to what extent in each, the change has taken place.* This is most important information, particularly in reference to commodities of the same country, at different times; but it is evident, that as money, in periods of some length, is liable to alter greatly in its exchangeable value, arising from intrinsic causes, it is impossible that, applied as a measure, it can give the information required.

It remains, therefore, to be considered whether any other object can perform the functions of a general measure of value, and answer the purposes above described.

Adam Smith, in his chapter† on the real and nominal price of commodities, in which he considers labour as a universal and accurate measure of value, has introduced some confusion into his inquiry, by not adhering strictly to the same mode of applying the labour which he proposes for a measure.

Sometimes he speaks of the value of a commodity as being measured by the quantity of labour which its production has cost, and sometimes by the quantity of labour which it will command in exchange.

It is in the latter sense, however, in which he applies it much the most frequently, and on which he evidently lays the chief stress. “The value of any commodity,” he says, “to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.”* Other expressions in the same chapter apply labour as a measure of value in the same way;† and on another occasion, in his digression on the value of silver during the four last centuries, he takes an opportunity to say, “Labour, be it remembered, and not any commodity, or mass of commodities, is the sole measure of the value of silver, and of all other commodities.”‡

These passages may be said to determine the prevailing sense in which he considers labour as a general measure of exchangeable value. It would not then be worth while to inquire how far labour may be considered as a measure of value, when applied in the way which Adam Smith has practically rejected in reference to the more advanced stages of society, if this mode of applying it had not been adopted by some distinguished modern writers as the foundation of a new theory of value. But as this is the case, the inquiry seems to be called for; and it should be particularly noticed, that the question embraces not merely the propriety of a definition, but the truth of a proposition. It is not merely what should be the definition and the measure of value in exchange, but a question of fact, whether the labour worked up in commodities either determines or measures the rate at which they exchange with each other; and in no stage of society with which we are acquainted does it do this. At a very early period profits will be found to enter largely into the question of exchangeable value as a necessary condition of the supply. To make even a bow and arrow, it is obviously necessary that the wood and reed should be properly dried and seasoned, and the time which these materials require to be kept by the workman before his work is completed, introduces at once a new element into the computation of value. The varying quickness of the returns is likewise an entirely new element, which has nothing to do with the quantity of labour employed upon the capital; and yet in every period of society, the earliest as well as the latest, it is of the utmost importance in the determination of exchangeable value.

The fixed capital necessary to hollow out a canoe may consist of little more than a few stone hatchets and shell chisels, and the labour necessary to make them might not add much to the labour subsequently employed in the work to which they were applied; but it is likewise necessary that the workman should previously cut down the timber, and employ a great quantity of labour in various parts of the process long before there is a possibility of receiving the returns for his exertions, either in the use of the canoe, or in the commodities which he might obtain in exchange for it; and during this time, he must of course advance to himself the whole of his subsistence. But the providence, foresight, and postponement of present gratification for the sake of future benefit and profit, which are necessary for this purpose, have always been considered as rare qualities in the savage; and it can scarcely admit of a doubt that the articles which were of a nature to require this long preparation would be comparatively very scarce, and would have a great exchangeable value in proportion to the quantity of labour which had been actually employed upon them, and on the capital necessary to their production. On this account it is not improbable that a canoe might in such a state of society possess double the exchangeable value of a number of deer, to produce which successively in the market might have cost precisely the same number of days’ labour, including the necessary fixed capital, consisting of the bows and arrows, &c. used for killing them; and the great difference of value in this case would arise from the circumstance, that the returns for the labour of killing each successive deer always came in within a few days after it had been advanced, while the returns for the labour expended upon the canoe were delayed probably beyond the year. Whatever might be the rate of profits, the comparative slowness of these returns must tell proportionally on the price of the article; and, as there is reason to think that among savages, the advances necessary for a work of slow returns would be comparatively seldom made, the profits of capital would be extremely high, and the difference of exchangeable value in different commodities, which had cost in their production and in the production of the necessary capital the same quantity of labour, would be very great.

Mr. Ricardo, speaking of the different implements which might be necessary, in an early stage of society, to kill the beaver and the deer, says,* that those who furnished these capitals might, under different circumstances, “have a half, a fourth, or an eighth of the produce obtained, the remainder being paid as wages to those who furnished the labour; yet this division could not affect the relative value of these commodities, since, whether the profits of capital were greater or less, whether they were 50, 20, or 10 per cent. or whether the wages of labour were high or low, they would operate equally on both employments.” But it is quite obvious from what has been said, that if for the employment of killing a deer, we substitute the employment of making a canoe, which would not be completed in less than a year, or perhaps two, and suppose what is here supposed with great probability, that profits might be 50 per cent., the difference between the value of such a product, and the value of a deer, which, on account of its being sold almost the next day, could hardly be affected by profits, would, in reference to the same quantity of labour employed upon each, be as much as 50 per cent. Consequently, in the early stages of society, the relative values of commodities is not determined or measured by the relative quantities of labour employed upon them.

In countries advanced in civilization, it is obvious that the same cause of variation in the exchangeable value of commodities, independent of the labour which has been employed upon them, must prevail as in the early periods of society; and, as might be expected, some others. The profits of capital, indeed, are not so high, and consequently the slowness or quickness of the returns will not, as far as the rate of profits is concerned, produce the same proportionate difference of prices; but to make up for this, the difference in the quantity of fixed capital employed is prodigious, and scarcely the same in any two commodities, and the difference in the returns of capital varies from two or three days, to two or three years, and in some cases many more.

The proposition of Mr. Ricardo, which states that a rise in the price of labour lowers the price of a large class of commodities, has undoubtedly a very paradoxical air; but it is, nevertheless, true, and the appearance of paradox would vanish, if it were stated more naturally and correctly.

Mr. Ricardo has allowed, that the effect he contemplated and attributed to a rise in the wages of labour is produced by a fall of profits, which he considers as the same thing;* and undoubtedly no one could have thought the proposition paradoxical, or even in the slightest degree improbable, if he had stated that a fall of profits would occasion a fall of price in those commodities, where, from the quantity of fixed capital employed, the profits of that capital had before formed the principal ingredient in the cost of production. But this is what he has in substance said. In a particular case which he has taken to illustrate his proposition, he supposes the application of a very durable machine worth £20,000, which requires very little labour either to work it, or keep it in constant repair; and, consequently, the price of the yearly produce of this machine would be composed almost entirely of the ordinary profits of the £20,000 which it had cost.* Now it is quite certain, that if, from any cause whatever, the ordinary profits of stock should fall, the price of the commodity so produced would fall nearly in proportion. A fall of profits from 20 to 10 per cent. would reduce its price nearly one half.† This is sufficiently obvious. But the effects arising from an opposite supposition were not at first considered, and the general result was overlooked.

The state of the case, in a general view of it, seems to be this. There is a very large class of commodities, in the production of which a great quantity of fixed capital is used, and a long time elapses before the returns of the capital, whether fixed or circulating, come in. In such commodities, the proportion which the capital bears to the quantity of labour which it yearly employs, is in various degrees very considerable: and, in all these cases, it is natural to suppose that the fall of price, arising from the fall of profits, should in various degrees more than counterbalance the rise of price, which would naturally be occasioned by a rise in the price of labour. Consequently, on the supposition of a rise in the price of labour, and a fall in the rate of profits, all these commodities will, in various degrees, naturally fall in price.

On the other hand, there is a large class of commodities, where, from the absence of fixed capital, and the rapidity of the returns of the circulating capital, the proportion which the capital bears to the quantity of labour it employs is very small. A capital of a hundred pounds, which was returned every week, could employ as much labour annually as £2,600, the returns of which came in only at the end of the year; and if the capital were returned nearly every day, as it is practically in some few cases, the advance of little more than the wages of a man for a single day might pay above three hundred days’ labour in the course of a year. Now it is quite evident, that out of the profits of these trifling capitals, it would not only be absolutely impossible to take a rise in the price of labour of 7 per cent., but it would be impossible to take a rise of ½ per cent. On the first supposition, a rise of only ½ per cent. would, if the price of the produce continued the same, absorb more than all the profits of the £100; and, in the other case, much more than all the capital advanced. If, therefore, the prices of commodities, where the proportion of labour is very great compared with the capital which employs it, do not rise upon an advance in the price of labour, the production of such commodities must at once be given up. But they certainly would not be given up. Consequently, upon a rise in the money price of labour and fall of profits, there will be a large class of commodities which will rise in price.

There will undoubtedly, however, be a class of commodities which, from the effects of these two opposite causes, will remain stationary in price; but, from the very nature of the case, this class must theoretically form little more than a line. Wherever this line may be placed, it can embrace but a small class of objects; and upon a rise in the price of labour and fall of profits, all the rest will either fall or rise in price, although exactly the same quantity of labour continues to be employed upon them.*

What then becomes of the doctrine that the exchangeable value of commodities is proportioned to the labour which has been employed upon them? Instead of their remaining of the same value while the same quantity of labour is employed upon them, it appears that from well-known causes of constant and universal operation, the prices of all commodities, with very few exceptions, vary with the variations in the rate and quantity of profits.

There are other causes practically in operation which prevent the exchangeable value of commodities from being proportioned to the quantity of labour which has been employed upon them. But as those which have been already more particularly adverted to, are so very powerful, and so completely decisive of the question, it is not necessary to refer specifically to others. It is scarcely possible, indeed, to take up two commodities of different kinds, which will be found to exchange with each other in proportion to the quantity of labour worked up in each. Nothing, indeed, could make such a rate of exchange, in reference to commodities generally, approach towards the truth, but the assumption that profits are the wages of accumulated labour, and that, therefore, profits may be called labour. But profits are altogether different from wages, and are regulated by quite different principles, as most justly stated by Adam Smith.* Such an assumption is so completely unphilosophical, so calculated to defeat all the useful purposes of a just nomenclature, and to create confusion in the ordinary language of political economy, that it cannot for a moment be admitted.† We might just as correctly call rent labour.

It may be safely affirmed, then, that however curious and desirable it may be to know the exact quantity of labour, accumulated and immediate, which has been employed in the production of commodities, it is certainly not this labour alone which either determines or measures their relative values in exchange at the same place, and at the same time.

But if, at the same place and at the same time, the relative values of commodities are not measured by the labour which they have cost in production, including the labour employed on the capitals concerned, it is quite clear that such labour cannot measure their relative values at different places and at different times.

In regard to intrinsic value in exchange, it is still more clear that the value of the labour actually employed in the production of a commodity, never represents or is proportioned to the value of the completed commodity, except in the rare case when labour alone is employed, and the produce is brought to market immediately. In the vast majority of cases, there are other intrinsic causes of value, acting sometimes with great power, which increase the difficulty of obtaining the object desired, in addition to the labour actually employed. The slightest attention to what is passing around us, at any one period, and in any one place, must convince us of this truth; and, at different periods, and in different places, the labour actually employed upon a commodity, considered as a measure of its value, must partake of all the inaccuracies which necessarily belong to it at the same time and place.

It appears, then, that the quantity of labour actually employed in the production of commodities, answers neither of the two great objects of a measure of value. It neither measures the rate at which commodities exchange with each other at the same place and time, like money, nor does it measure the whole of the difficulty to be overcome, or the sacrifice to be made, in obtaining commodities at the same or different times, and in different countries, and enable us to say when two or more commodities have varied in relation to each other, in which, and to what extent in each, the variations have taken place.*

[* ] The labour worked up in a commodity is the principal cause of its value, but it will appear in this chapter that it is not a measure of it. The labour which a commodity will command is not the cause of its value, but it will appear in the next chapter to be the measure of it.

[* ] Nothing appears to me more essential, in an “Inquiry into the nature and causes of the Wealth of Nations,” than to have the means of distinguishing between the rise of one commodity and the fall of another.

[† ] Book I. ch. v.

[* ] Book I. ch. v. p. 44, 6th edit.

[† ] P. 54.

[‡ ] Book I. ch. xi. p. 303.

[* ] P. 17, 3rd edit.

[* ] “Every rise of wages, therefore, or, which is the same thing, every fall of profits, would lower the relative value of those commodities which were produced with a capital of a durable nature.” P. 37, 3rd edit.

[* ] P. 37, 3rd edit.

[† ] In a case of this kind brought forward in the first edition, Mr. Ricardo distinctly allows that a change in the relative values of two commodities might take place to the extent of 68 per cent. from the fall of profits, without any change having taken place in the relative quantities of labour employed on each.

[* ] In this discussion, I have assumed money to be obtained in the way suggested by Mr. Ricardo; in which case the results will be as I have described, and as he has allowed in his third edition (p. 45); but his money, as we shall see, is not so constituted as to be a proper measure of value. In reality, all commodities obtained by the same quantity of labour fall with a fall of profits.

[* ] Book I. ch. 6.

[† ] We may measure the value which the element of profits gives to a commodity by labour, as I have said in another place; but how we can say that more labour has been employed upon a commodity, merely because it must be kept longer before it is brought to market, is what I cannot understand.

[* ] Mr. Ricardo, at the conclusion of the sixth section of his first chapter, has the following passage: “It is necessary for me to remark that I have not said, because one commodity has so much labour employed upon it as will cost £1000, and another so much as will cost £2000, that therefore one would be of the value of £1000, and the other of £2000; but I have said that their value will be to each other as 2 to 1, and that in these proportions they will be exchanged. It is of no importance to the truth of this doctrine, whether one of these commodities sells for £1100, and the other for £2200, or one for £1500, and the other for £3000; into that question I do not at present inquire: I affirm only that their relative values will be governed by the relative quantities of labour bestowed on their production.” It is on this view of relative value, that all Mr. Ricardo’s calculations in the rest of his book depend, without any modifications, although in two previous sections he had acknowledged that considerable modifications were necessary. My object in the present section has been to show that the relative values of commodities are not only not governed, but are very far from being governed, by the relative quantities of labour bestowed on their production, as stated in the passage quoted: and, in the passage itself, it is positively denied, that because a commodity has so much labour bestowed upon it as will cost £1000, that therefore it is of the value of £1000. Mr. Ricardo did not fall into the unaccountable error of calling labour profits, and of confounding the accumulated labour actually worked up in fixed capitals and materials with the profits upon such capitals and materials, things totally distinct.