The Online Library of Liberty

A project of Liberty Fund, Inc.

• 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.

CHAPTER VI.

OF THE DISTINCTION BETWEEN WEALTH AND VALUE.

It has been justly stated by Adam Smith that a man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and luxuries of human life. And it follows from this definition that, if the bounty of nature furnished all the necessaries, conveniences and luxuries of life to every inhabitant of a country in the fullest measure of proportion to his wishes, such a country would be in the highest degree wealthy, without possessing any thing which would have exchangeable value, or could command a single hour’s labour.

In this state of things, undoubtedly, wealth has nothing to do with exchangeable value. But as this is not the actual state of things, nor likely to be so at any future time; as the bounty of nature furnishes but few of the necessaries, conveniences and luxuries of life to man without the aid of his own exertions; and as the great practical stimulus to exertion is the desire to possess what can only be possessed by means of some labour or sacrifice, it will be found that, in the real state in which man is placed on earth, wealth and exchangeable value, though still by no means the same, are in many points nearly connected.

In considering the different quantities of the same commodity which, under different circumstances, have the same exchangeable value, the distinction is indeed perfectly obvious. Stockings do not lose half their power of contributing to the comfort and convenience of the wearer, because by improved machinery they can be made at half the price, or their exchangeable value be reduced one half. It will be readily allowed that the man who has two pairs of stockings of the same quality instead of one pair, possesses, as far as stockings are concerned, a double portion of the conveniences of life.

Yet even in this case he is not in all respects doubly rich. If, indeed, he means to use them himself, he may have twice as much wealth, though this has been denied by some writers, but if he means to exchange them for other commodities, he certainly has not; as one pair of stockings, under certain circumstances, may command more labour and other commodities than two or even three pairs after very great improvements have been made in the machinery used in producing them. In all cases however of this description, the nature of the difference between wealth and value is sufficiently marked.

But when we come to compare objects of different kinds, there is no other way of estimating the degree of wealth which the possession and enjoyment of them confer on the owner, than by the estimation in which they are respectively held, evinced by their respective exchangeable values. If one man has a certain quantity of tobacco, and another a certain quantity of muslin, we can only determine which of the two is the richer by ascertaining their respective command of labour, money, or some other third commodity in the market. And even if one country exports corn, and imports lace and cambrics, notwithstanding that corn has a more marked and definite value in use than any other commodity, the estimate must be formed exactly in the same way. Luxuries are a part of wealth as well as necessaries. The country would not have received lace and cambrics in exchange for its corn unless its wealth, or its necessaries, conveniences and luxuries taken together, had been increased by such exchange; and this increase of wealth cannot possibly be measured in any other way than by the increase of value so occasioned, founded upon the circumstance that the commodities received are more wanted and held in higher estimation than those which were sent away.

The wealth of a country, however, it will be allowed, does not always increase in proportion to the increase of value; because an increase of value may sometimes take place under an actual diminution of commodities; but neither does it increase in proportion to the mere quantity of what comes under the denomination of wealth, because the various articles of which this quantity is composed may not be so proportioned to the wants and powers of the society as to give them their proper value. The most useful commodity, in respect of its qualities, if it be absolutely in excess, not only loses its exchangeable value, but its power of supplying the wants of the society to the extent of its quantity, and part of it therefore loses its quality of wealth. If the roads and canals of England were suddenly broken up and destroyed, so as to prevent all passage and interchange of goods, there would at first be no diminution of commodities, but there would be immediately a most alarming diminution both of value and wealth. A great quantity of goods would at once lose their value by becoming utterly useless; and though others would rise in particular places, yet from the want of power to purchase in those districts, the rise would by no means compensate for the fall. The whole exchangeable value of the produce estimated in labour, or money, would be greatly diminished; and it is quite obvious that the wealth of the society would be most essentially impaired; that is, its wants would not be in any degree so well supplied as before.

It appears then that the wealth of a country depends partly upon the quantity of produce obtained by its labour, and partly upon such an adaptation of this quantity to the wants and powers of the existing population as is calculated to give it value. Nothing can be more certain than that it is not determined by either of them alone.

But where wealth and value are perhaps the most nearly connected, is in the necessity of the latter to the production of the former. In the actual state of things, no considerable quantity of wealth can be obtained except by considerable exertions; and unless the value which an individual or the society places on the object, when obtained, fully compensates the sacrifice which has been made to obtain it, such wealth will not be produced in future. If labour alone be concerned in its production, as in shrimping, in the collection of hurts and wild strawberries, and some other exertions of mere manual labour, it is obvious that this wealth will not be collected, nor will be used to supply any of the wants of the society, unless its value when collected will, at the least, command as much labour as the collection of it has cost.

If the nature of the object to be obtained requires advances in the shape of capital, as in the vast majority of instances, then by whomsoever this capital is furnished, whether by the labourers themselves or by others, the commodity will not be produced, unless the estimation in which it is held by the society or its intrinsic value in exchange be such, as not only to replace all the advances of labour and other articles which have been made for its attainment, but likewise to pay the usual profits upon those advances; or, in other words, to command an additional quantity of labour, equal to those profits.

It is obviously therefore the value set upon commodities,—it is the sacrifice of labour or of labours worth which people are willing to make in order to obtain them, that in the actual state of things may be said to be almost the sole cause of the existence of wealth; and this value is founded on the wants of mankind, and the adaptation of particular commodities to supply these wants, independently of the actual quantity of labour which these commodities may have cost in their collection or production. It is this value which is not only the great stimulus to the production of all kinds of wealth, but the great regulator of the forms and relative quantities in which it shall exist. No species of wealth can be brought to market for a continuance, unless some part of the society sets a value upon it equal to its natural or necessary price, and is both able and willing to make a sacrifice to this extent in order to obtain it. A tax will entirely put an end to the production of a commodity, if no one of the society is disposed to value it at a price equal to the new conditions of its supply. And on the other hand, commodities will be continually increased in quantity so long as the demands of those, who are able and willing to give a value for them equal to this price, continue to increase.

In short, the market prices of commodities are the immediate causes of all the great movements of society in the production of wealth, and these market prices (when the relation of money to labour is known,) always express clearly and unequivocally the exchangeable values of commodities arising from intrinsic causes at the time and place in which they are exchanged, and differ only from the natural and necessary prices, as the actual state of the demand and supply, with regard to any particular article, may differ from its ordinary and average state.

Mr. Ricardo was, I believe, the first writer of note, who took pains to make a marked distinction between wealth and value; and in this, he appears to me to have rendered an unquestionable service to the science of political economy: but owing to the peculiar view which he took of exchangeable value as depending exclusively upon the quantity of labour actually employed in production, he has made the distinction much broader than it really is.

If the great measure of the exchangeable value of a commodity were what he has represented it to be, value would depend exclusively upon difficulty of production, and its power of measuring wealth would be extremely imperfect: while, if the great measure of the value of a commodity is, as I have endeavoured to shew, the quantity of labour which it will command, such a measure will be found to be very much more comprehensive, and to make much nearer approaches to a measure of wealth. It may indeed safely be said that though wealth and value rarely go on together at an even pace; yet that when a just view is taken of the mass of value in any country, all the general causes of a permanent nature which are most effective in the production of wealth will be found also the most effective in the production of value; and in reference to the whole produce of a country, quantity seldom fails to increase value, except in those temporary cases of a general glut, in which it must be allowed that even the wealth of a country is far from being proportioned to the increased quantity of the commodities it has produced.

It would certainly be desirable to be able to form some estimate of the wealth of different nations with a view to the comparison of them with each other. An attempt to do this by estimating the quantity of their respective produce without reference to its value would be perfectly futile, as it is obvious, that nothing could be inferred by comparing the quantity of wine in France with the quantity of tallow in Russia, or the quantity of tin in England with the quantity of raw cotton in the United States.

On the other hand, if we were to take as our measure of wealth, that measure of value which is determined by the quantity of immediate and accumulated labour, actually worked up in commodities, we should be but little better off, as all the wealth derived from superior fertility of soil, peculiar products, and the great mass of profits arising from fixed and circulating capitals would at once be left out in the computation.

But the case would be very different, if we were to take as a rough measure of the wealth of a country the quantity of the standard labour of that country which its whole produce would command, or exchange for. This measure would embrace all the advantages derived by different countries from their peculiar products, the superior fertility of their soil either natural or acquired, and the mass of their profits occasioned either by the general rate of profits, or by the amount of their fixed and circulating capitals, &c. The quantity of standard labour which the whole yearly produce would exchange for, according to the actual money prices of labour and commodities at the time might be considered as an approximating estimate of the gross annual revenue of the country, while the excess of this value above the immediate and accumulated labour advanced in producing it, would be an approximating estimate of what has sometimes been called its neat revenue, or the mass of rents, profits and taxes derived from these advances.

Different countries tried in this way by the value of their produce, would in general answer very nearly to the estimates which would be formed of their relative wealth, by the most careful and intelligent practical observations.

An agricultural country, with a bad soil and the great mass of the population employed on the land would be universally considered as poor; and tried by the test proposed the value of its produce would in the first place appear to be small compared with its extent of territory; and secondly, the quantity of standard labour which it would command would not much exceed the quantity of labour employed in production.

A country almost entirely agricultural, yet possessing a rich soil would appear to have a greater gross revenue, and a greater population on the same extent of territory than the country before described; and further, it would be observed to possess a great body of wealthy landed proprietors maintaining numerous menial servants, and retainers; while the sovereign would probably be rich and powerful, as the state would certainly have the means of keeping up a large military force in proportion to its size. It would be distinguished by the comparative large amount of its neat produce, and the great excess of the quantity of standard labour, which its produce would command, compared with the quantity which had been actually employed in obtaining that produce.

Countries almost exclusively manufacturing and commercial, are generally small in extent, and would generally be observed to possess a large amount of produce and population in a comparatively small compass; but that appearance of wealth and neat produce which shews itself in leisure, would be but little seen; and the test proposed would exactly show this result. By this test the wealth of the country would appear to be very great compared with its extent of territory: but it would appear at the same time that the quantity of standard labour which the value of the produce would command, would not so much exceed the quantity of labour which it had actually employed, as in the second case considered.

If, as a fourth case, we suppose a large country with a very rich soil well cultivated, and at the same time highly commercial and manufacturing, such a country would to the eye of every observer exhibit all the conceivable appearances of wealth, large landed fortunes, large mercantile and manufacturing fortunes, considerable leisure, great public establishments, a great public revenue, &c. &c.; and tried by the test proposed, it would undoubtedly measure very rich. On account of the small size of those states which depend almost entirely on commerce and manufactures, and consist chiefly of towns, it is probable that it would not contain so great a produce and population in so small a compass as states similar to those of Holland, Hamburgh and Venice, but it would be richer compared with the population. If, owing to the fertility of its soil and the skill with which it was worked, a small proportion of the people were employed upon it, and the tastes of the society were such as to encourage material conveniences and luxuries rather than menial service, the great mass of these objects combined with the raw produce, particularly under the employment of much fixed capital and improved machinery, might be of unusually high value compared with the population. It is indeed conceivable that under such circumstances the value of the whole produce might be such as to command the labour of 3 or 4 times the number of families in the country actually engaged in productive labour, estimated according to the usual earnings of agricultural families at the time.*

It will be readily understood that the labour which commodities will command or purchase, is used entirely as a measure, and has little more relation to the actual quantity of labour employed in the country, than a thousand feet in length has to the number of foot rules existing in the town where the length may be measured.

Neither is it intended to be stated that a measure of value can measure satisfactorily all the variations in wealth. There are some points where it must be allowed to fail. In the first place it does not express correctly the wealth of the labouring classes of society, which is a very important deficiency. Secondly, as it does not notice the relative value of the precious metals, it does not express the superior power which the labour of one country may possess in commanding the labour and wealth of another. Thirdly, it does not sufficiently mark the degree of wealth in luxuries and conveniences derived from skill and machinery. Whether with a view to the first of these circumstances, it might be useful in an estimate of wealth, to take a mean between corn and labour, instead of the measure of value-labour; and with a view to the second and in some degree to the third, to refer in part to foreign labour instead of domestic labour exclusively, may be fairly a subject of consideration.† Perhaps by so doing, facility and simplicity might be lost, without gaining a sufficient advantage in point of accuracy. But whether a measure of value can be made a measure of wealth or not, it must be allowed that no approximation towards a measure of wealth can be formed without a reference to value, and that when a just view of value is taken, it is found to have so intimate a connection with wealth, in many points, that the measure of it, without further modification, may be practically of use, in enabling us to form a judgment of the wealth of different nations which we may wish to compare with each other; and we shall be little liable to be led into any essential error by the use of this measure, as we know beforehand the points in which its accuracy is the most likely to fail, and are consequently enabled to make proper allowances.*

BOOK II.

[* ] The estimate here made must of course be quite conjectural; but if the soil were very fertile, and a large part of the value of the mercantile and manufacturing products of the profits of fixed capital, the conjecture is probably not beyond the truth. In England at present the value of the annual produce would purchase the labour of double the number of families actually existing in the country, if paid at the price of common agricultural labour.

[† ] This is what I did in my former edition of this work.

[* ] In comparing the wealth of the United States of America with almost any other country, we should underrate her wealth, unless we made an allowance both for the large quantity of corn awarded to the labourer and the high money price of labour, or low value of money, which enables the American labourer to command so much foreign produce.

In comparing England with the countries on the continent an allowance for the lower value of money would be sufficient.