Front Page Titles (by Subject) Chapter V.: ON THE DEFINITION AND APPLICATION OF TERMS BY MR. RICARDO. - Definitions in Political Economy
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Chapter V.: ON THE DEFINITION AND APPLICATION OF TERMS BY MR. RICARDO. - Thomas Robert Malthus, Definitions in Political Economy 
Definitions in Political Economy (London: John Murray, 1827).
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ON THE DEFINITION AND APPLICATION OF TERMS BY MR. RICARDO.
Although it must be allowed that the criterion of value which Mr. Ricardo has endeavoured to establish is an incomplete one, yet I cannot but think that he has conferred an important benefit on the science of political economy, by drawing a marked line of distinction between riches and value. A difference had perhaps been felt by most writers, but none before him had so strongly marked it, and attached so much importance to it. He agrees entirely with Adam Smith in the following definition of riches: “Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniencies, and amusements of human life.”* And adds an observation in which I think he is quite right. “Value, then, essentially differs from riches; for value depends not on abundance, but on the difficulty or facility of production.”* He subsequently says, “although Adam Smith has given the correct description of riches which I have more than once noticed, he afterwards explains them differently, and says that a man must be rich or poor, according to the quantity of labour which he can afford to purchase. Now this description differs essentially from the other, and is certainly incorrect; for suppose the mines were to become more productive, so that gold and silver fell in value, from the greater facility of production; or that velvets were to be manufactured by so much less labour than before, that they fell to half their former value; the riches of all those who purchased these commodities would be increased; one man might increase the quantity of his plate, another might buy double the quantity of velvet; but with the possession of this additional plate and velvet, they could employ no more labour than before, because, as the exchangeable value of velvet and of plate would be lowered, they must part with proportionably more of these species of riches to purchase a day’s labour. Riches then cannot be estimated by the quantity of labour which they will purchase.”*
In these remarks I entirely agree with Mr. Ricardo. If riches consist of the necessaries, conveniencies, and luxuries of life, and the same quantity of labour will at different times, and under different circumstances, produce a very different quantity of the necessaries, conveniencies, and luxuries of life, then it is quite clear that the power of commanding labour, and the power of commanding the necessaries, conveniencies and luxuries of life are essentially distinct. One, in fact, is a description of value, and the other of wealth.
But though Mr. Ricardo has fully succeeded in showing that Adam Smith was incorrect in confounding wealth and value, even according to his own descriptions of them; yet he has nowhere succeeded in making out the propriety of that peculiar view of value which forms the most prominent feature of his work.
He has not confined himself to the assertion, that what he calls the value of a commodity is determined by the quantity of labour worked up in it; but he states, in substance, the following proposition, that commodities exchange with each other according to the quantity of manual labour worked up in them, including the labour worked up in the materials and tools consumed in their production, as well as that which is more immediately employed.*
Now this proposition is contradicted by universal experience. The slightest observation will serve to convince us, that after making all the required allowances for temporary deviations from the natural and ordinary course of things, the class of commodities subject to this law of exchange is most extremely confined, while the classes, not subject to it, embrace the great mass of commodities. Mr. Ricardo, indeed, himself admits of considerable exceptions to his rule; but if we examine the classes which come under his exceptions, that is, where the quantities of fixed capital employed are different and of different degrees of duration, and where the periods of the returns of the circulating capital employed are not the same, we shall find that they are so numerous, that the rule may be considered as the exception, and the exceptions the rule.
Yet, notwithstanding these admissions, he proceeds with his rule as if there had been few or no exceptions to it: he especially estimates the value of wages by the quantity of human labour worked up in them; and as it is quite true, that if we look only to this element of value, the value of wages has a tendency to rise in the progress of cultivation and improvement, he has attributed the fall of profits which usually takes place in rich countries to the rise in the value of wages; and, in fact, has founded his whole theory of profits, which has been considered as the crowning achievement in the science, upon the rise and fall in the value of wages. “It has been my endeavour,” he says, “to show throughout this work, that the rate of profits can never be increased but by a fall of wages.”* Again he observes, “Profits—it cannot be too often repeated—depend on wages; not on nominal but real wages; not on the number of pounds which may be annually paid to the labourer, but on the number of days’ work necessary to obtain these pounds.”†
Real wages, then, according to Mr. Ricardo’s definition, are determined by the quantity of labour worked up in the articles, which the labourer receives as a remuneration for his labour, whether food and clothing, or money.
Now the meaning here attached to the term real wages, on which Mr. Ricardo’s theory of profits is made to depend, is quite unusual, and decidedly contradicts all the most obvious rules which suggest themselves for the application of terms in any science.
In the first place, no one we believe ever heard, before the time of Mr. Ricardo, this term used in conversation in such a manner, that an increase of real wages would generally imply a diminution in the means of subsistence and comfort among the labouring classes and their families. Yet this would be the case, according to the sense in which Mr. Ricardo uses the term. Speaking of the different situations of the landlord and the labourer, in the progress of society, after describing the increasing wealth of the landlord, he says, “The fate of the labourer will be less happy; he will receive more money-wages it is true, (and the money of Mr. Ricardo is here used as measuring what he calls real wages;) but his corn wages will be reduced; and not only his command of corn, but his general condition will be deteriorated.” With a continued increase of real wages, “the condition of the labourer will generally decline, while the condition of the landlord will always be improved.”*
Secondly, No writer that I have met with, anterior to Mr. Ricardo, ever used the term wages, or real wages, as implying proportions. Profits, indeed, imply proportions; and the rate of profits had always justly been estimated by a per centage upon the value of the advances. But wages had uniformly been considered as rising or falling, not according to any proportion which they might bear to the whole produce obtained by a certain quantity of labour, but by the greater or smaller quantity of any particular produce received by the labourer, or by the greater or smaller power which such produce would convey, of commanding the necessaries and conveniencies of life. Adam Smith in particular had often used the term real wages, and always in the most natural sense possible, as implying the necessaries and conveniencies of life, which, according to the common language and feelings of men, might justly be considered as more real than money, or any other particular article in which the labourer might be paid. And the use of the term, in this sense, by Adam Smith, and most other political economists, necessarily made the new interpretation given to it more strange, and more unwarranted.
Thirdly, There were no objections to the sense in which the term was before applied. It was both natural and useful. Nor was a new interpretation of it wanted for the purpose of explanation. All the effects of the wages of labour upon profits might have been clearly described, by stating, that profits are determined by the proportion of the whole produce which goes to pay the wages of labour, without calling this proportion, whether small or great in quantity, the real wages of labour, and without asserting that, as the value of wages rises, profits must proportionably fall. That profits are determined by the proportion of the whole produce which goes to pay the wages of labour, is a proposition, which, when correctly explained, will be found to be true, and to be confirmed by universal experience; while the proposition, that as the value of wages rises profits proportionably fall, cannot be true, except on the assumption that commodities, which have the same quantity of labour worked up in them, are always of the same value, an assumption which probably will not be found to be true in one case out of five hundred; and this, not from accidental or temporary causes, but from that natural and necessary state of things, which, in the progress of civilisation and improvement, tends continually to increase the quantity of fixed capital employed, and to render more various and unequal the times of the returns of the circulating capital. The introduction, therefore, of a new meaning of the term real wages, has not certainly the recommendation of being more useful.
Fourthly, the new sense in which the term real wages is used, is not maintained with consistency, or applied to old facts and opinions, with a proper allowance for the change that has been made. This is almost unavoidable, when old terms, which are quite familiar in one sense, are applied in another and different sense. It is particularly remarkable in Mr. Ricardo’s use of his artificial money, which is meant to be the measure of real wages. Thus, he says, “It may be proper to observe, that Adam Smith, and all the writers who have followed him, have, without one exception that I know of, maintained, that a rise in the price of labour would be uniformly followed by a rise in the price of all commodities. I hope I have succeeded in showing that there are no grounds for such an opinion, and that only those commodities would rise which had less fixed capital employed upon them than the medium in which price was estimated, and that all those which had more would positively fall in price when wages rose. On the contrary, if wages fell, those commodities only would fall which had a less proportion of fixed capital employed upon them than the medium in which price was estimated; all those which had more would positively rise in price.”*
Now all these effects of a rise or fall in the wages of labour, depend entirely upon wages being estimated in Mr. Ricardo’s imaginary money. Estimated in this way, and in this way alone, Mr. Ricardo’s statement would be correct. But neither Adam Smith, nor any of his followers, down to the time of Mr. Ricardo, ever thought of estimating the price of wages in this way. And estimating them in the way to which they were always accustomed, that is in money, as they found it, they are quite justified in what they have said. According to Adam Smith, at least, who estimates the value of commodities by the quantity of labour which they will command, if the money wages of labour universally rise, the value of money proportionably falls; and when the value of money falls, Mr. Ricardo himself says, that the prices of goods always rise.
The difference, therefore, between Mr. Ricardo and Adam Smith in this case, arises from Mr. Ricardo’s forgetting that he was using the term price of labour in a different sense from that in which it was used in the proposition objected to.
In the same manner, Mr. Ricardo’s very startling proposition respecting the effects of foreign trade, namely, that “no extension of foreign trade will immediately increase the amount of value in a country,” arises entirely from his using the term value in a different sense from that in which it had been used by his predecessors.
If the value of foreign commodities imported is to be estimated by the quantity of labour worked up in the commodities sent out to purchase them, then it is quite true that, whatever may be the returns, their value is unsusceptible of increase. But if the value of foreign commodities imported be estimated in the way in which they had ever been estimated before, that is, either in the money, in the labour, or in the mass of commodities which they would command when brought home, then there cannot be the least doubt that the immediate effect of a prosperous venture which gives great profits to the merchants concerned would be to increase the amount of value in the country. The value of the returns compared with the value of the outgoings would, in this particular trade, be greater than usual; and it is quite certain, that this increase of value in one quarter would not necessarily be counterbalanced by a decrease of value in any other. Practically, indeed, nothing is more usual than a simultaneous rise in the value of the great mass of commodities from a prosperous trade, whether this value be estimated in money or in labour.
It must be allowed, then, that Mr. Ricardo has been very far from cautious in the definition and application of his terms, in treating of some of the most fundamental principles of political economy; and I have very little doubt, as I have stated elsewhere, that this is one of the reasons why many of the readers of his work have found great difficulty in understanding it. When old and very familiar terms are used in a new sense, it is scarcely possible for the writer to be always consistent in their application, and extremely difficult to the reader always to be aware of the sense meant to be affixed to them.
[* ] Wealth of Nations, b. i. c. v. p. 43. 6th edit.
[* ] Polit. Econ. c. xx. p. 320. 3rd Edit.
[* ] Polit. Econ. c. xx. p. 326. 3rd edit.—It may be remarked, by the way, that Mr. Ricardo here uses labour as a measure of value in the sense in which I think it ought always to be used, and not according to his own theory. He measures the exchangeable value of the plate and velvet, not by the quantity of labour worked up in them, but by the quantity they will command or employ.
[* ] Polit. Econ. c. i. sec. iii. pp. 16, 18, 3rd edit.
[* ] Polit. Econ. c. vii. p. 137, 3rd edit.
[† ] Id. p. 152.
[* ] Polit. Econ. c. v. p. 98, 3rd edit.
[* ] Polit. Econ. c. i. sec. vi. p. 45, 3rd edit.