Front Page Titles (by Subject) Chapter III.: ON THE DEFINITION AND APPLICATION OF TERMS BY ADAM SMITH. - Definitions in Political Economy
The Online Library of Liberty
A project of Liberty Fund, Inc.
Chapter III.: ON THE DEFINITION AND APPLICATION OF TERMS BY ADAM SMITH. - Thomas Robert Malthus, Definitions in Political Economy 
Definitions in Political Economy (London: John Murray, 1827).
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.
The text is in the public domain.
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.
ON THE DEFINITION AND APPLICATION OF TERMS BY ADAM SMITH.
In adverting to the terms and definitions of Adam Smith, in his “Wealth of Nations,” I think it will be found that he has less frequently and less strikingly deviated from the rules above laid down, and that he has more constantly and uniformly kept in view the paramount object of explaining in the most intelligible manner the causes of the wealth of nations, according to the ordinary acceptation of the expression, than any of the subsequent writers in the science, who have essentially differed from him. His faults in this respect are not so much that he has often fallen into the common error, of using terms in a different sense from that in which they are ordinarily applied in society, but that he is sometimes deficient in the precision of his definitions; and does not always, when adopted, adhere to them with sufficient strictness.
His definition of wealth, for instance, is not sufficiently accurate; nor does he adhere to it with sufficient uniformity: yet it cannot be doubted that he means by the term generally the material products which are necessary, useful, and agreeable to man, and are not furnished by nature in unlimited abundance; and I own I feel quite convinced that it is in this sense in which it is most generally understood in society, and in which it may be most usefully applied, in explaining the causes of the wealth of nations.
In adopting the labour which a commodity will command as the measure of its value, he has not, as it appears to me, given the most conclusive reasons for it, nor has he in all cases made it quite clear whether he means the labour which a commodity will command, or the labour worked up in it. He has more frequently failed in not adhering practically to the measure he had proposed, and in substituting as an equivalent the quantity of corn a commodity will command, which, as a measure of value, has properties essentially distinct from labour. Yet, with all this, it must be acknowledged that he has generally used the terms labour and value in the sense in which they are ordinarily understood in society, and has, with few exceptions, applied labour as the measure of value in the way in which it may be made most extensively useful in the explanation of the science.
It has been sometimes objected to Adam Smith, that he has applied the term productive in a new and not very appropriate sense. But if we examine the manner in which this term is applied in ordinary conversation and writing, it must be allowed that, whatever meaning may be thought to attach to it, from its derivation, it is practically used as implying causation in regard to almost any effect whatever. Thus we say that such and such things are productive of the best effects, others of the very worst effects, and others are unproductive of, or do not produce, any perceptible effects; meaning by these expressions, that some things cause the best effects, others the worst effects, others, again, cause no perceptible effects; and these effects may, of course, apply according to the context, and the subject under discussion, to the health of the body, the improvement of the mind, the structure of society, or the wealth of a nation.
Now, Adam Smith was inquiring into the nature and causes of the wealth of nations; and having confined the term wealth to material objects, and described human labour as the main source of wealth, he clearly saw the necessity of making some distinction between those different kinds of labour which, without reference to their utility, he could not but observe had the most essentially distinct effects, in directly causing that wealth, the nature of which he was investigating. He called one of these kinds of labour productive, or productive of wealth, and the other unproductive, or not productive of wealth; and knowing that it would occasion interminable confusion, and break down all the barriers between production and consumption, to attempt to estimate the circumstances which might indirectly contribute to the production of wealth, he described productive labour in such a way, as to leave no doubt that he meant the labour which was so directly productive of wealth, as to be estimated in the quantity or value of the material object produced.
In his application of the terms productive and unproductive, therefore, he does not seem to have violated the usage of common conversation and writing; and it appears to me, that, if we fully and impartially consider the consequences of making no distinction between different kinds of labour, we must feel the conviction that the terms which he has adopted are pre-eminently useful for the purpose to which they are applied—that is, to enable him to explain, intelligibly and satisfactorily, the causes of the wealth of different nations, according to the ordinary meaning which men attach to the term wealth, whatever may be their theories on the subject.
Where Adam Smith has most failed in the use of his terms, is in the application of the word real. The real value of a commodity he distinctly and repeatedly states to be the quantity of labour which it will command, in contradistinction to its nominal value, that is, its value in money, or any other specific commodity named. But while he is thus using the word real, in this sense, he applies it to wages in a totally different sense, and says, that the real wages of labour are the necessaries and conveniencies of life which the money received by the labourer will enable him to command. Now, it must be allowed that both these modes of applying the word real, cannot be correct, or consistent with each other. If the value of labour varies continually with the varying quantity of the necessaries and conveniencies of life which it will command, it is completely inconsistent to bring it forward as a measure of real value. And if it can, with propriety, be brought forward as a measure of the real value of commodities, it follows necessarily that the average value of a given quantity of labour, of a given description, can never be considered as in the slightest degree affected by the varying quantity of commodities for which it will exchange. Of this Adam Smith seemed to be fully aware in the fifth chapter of his first book, where he says distinctly, that when more or less goods are given in exchange for labour, it is the goods that vary, not the labour.
It is evident, therefore, that to get right, we must cease to use the term real, in one or other of the meanings in which it has been applied by Adam Smith.
If the term had never been applied in political economy in a different sense from that in which it was first used by Adam Smith, there could be no doubt that it might be advantageously continued, and the expression real value might answer its purpose very well, and save any question respecting the substitution of some other term, such as intrinsic, positive, absolute, or natural. But as the term real has been very generally applied, by most writers, to wages, implying the real quantity of the means of subsistence and comfort which the labourer is enabled to command, in contradistinction to his nominal or money wages, the matter cannot be so easily settled, and we must come to some determination as to which of the two meanings it would be most advisable to reject.
Adhering to the rules which have been laid down, it will probably be acknowledged that the term real, when applied to the means of obtaining something in exchange, seems more naturally to imply the power of commanding the necessaries, conveniencies, and luxuries of life, than the power of commanding labour. A certain quantity of wealth is something more real, if the word real be used in its most ordinary sense, than a certain quantity of labour; and if, on this account, we continue to apply the term real to wages, we must express by positive, absolute, intrinsic, or natural, what Adam Smith has expressed by the word real, as applied to value: or it would be still better if political economists would agree in assigning a distinct meaning to the term value, as contradistinguished from price, whenever the value of a commodity is mentioned without mentioning any specific article in which it is proposed to estimate it, in the same manner as the price of a commodity is universally understood to mean price in money, whenever the term is used without referring specifically to some other article.
If, however, it should be found that the term real, in the sense in which it is first and most frequently applied by Adam Smith, has by usage got such fast hold of this meaning, that it cannot easily be displaced; and, further, if it be thought that an adjunct of this kind to the term value will sometimes be wanted in explanations, and that to express what Adam Smith means, the term real is preferable to either of the terms intrinsic, positive, absolute, or natural, there would be little objection to letting it retain its first meaning, provided we took care not to use it in application to the wages of labour, as implying the necessaries, conveniencies, and amusements of life. Instead of real wages, we must then say corn wages, commodity wages, wages in the means of subsistence, or something of the kind. But the other change is obviously more simple, and therefore in my opinion preferable.