FOOTNOTES
[1] Chap. xiv of book v, 4th ed., 1898, pp. 554-570.
[2] Value was in this connection used in another sense than pure exchange value, but the difference of significance was never satisfactorily explained.
[3] Natural Value, edited by Wm. Smart (London, 1893), pp. xxvii-xxix. Von Wieser gives but three pages of the preface of Natural Value to the writings of Adam Smith and Ricardo on value. But in this brief though profound passage, he has not only suggested what I believe to be the true interpretation of the theories of Smith and Ricardo, but he has also made the greatest single contribution to our understanding of the subsequent course of English thought on the subject.
[4] Rent of land was excluded by Ricardo, but included by Smith and Malthus, and also by J. B. Say.
[5] The Austrian writers are accustomed to call this the “empirical law of costs.”
[6] The detailed history given in the following chapters will, it is believed, substantiate this view. The development of the law of entrepreneur’s costs will be traced only so far as is necessary in order to understand the history of the labor theory, but it is indispensable to follow the general lines of its progress if we are to perceive the “setting” of the labor theory.
[7] Mill granted certain exceptions to the proposition that rent cannot “enter into price,” but placed no emphasis upon them.
[8] Wealth of Nations, 2d Thorold Rogers ed., 1880, pp. 31-2. All subsequent page references are to this edition, volume 1.
[9] P. 34.
[10] Referring to the words just quoted, Mr. Ingram says: “This sentence, which on close examination will be found to have no definite intelligible sense, affords a good example of the way in which metaphysical modes of thought obscure economic ideas.” History of Political Economy, p. 94, note.
[11] Chap. v. “Of the Real and Nominal Price of Commodities, or of their Price in Labour and their Price in Money.” Chap. vi. “Of the Component Parts of the Price of Commodities.” Chap. vii. “Of the Natural and Market Price of Commodities.”
[12] P. 49. At the same time many important assertions in the “philosophical account” are not restricted to primitive conditions.
[13] It is true that an article’s cost in labor may instead mean its cost in productive power. The cost in this case is at bottom the utility of some other article which might have been created by this productive power had it not been employed in making the first article. In the same sense we speak of a thing as costing money.
[14] P. 29, in chap. iv.
[15] It has been suggested by many writers that the germ of practically every theory of value is found in the Wealth of Nations. That is probably true, if we except the utility theory, which associates quantity of value with quantity of utility, a conception absolutely foreign to Adam Smith’s thought.
[16] P. 31.
[17] P. 49.
[18] P. 34.
[19] P. 30.
[20] In this instance the word “standard” is used in a sense sufficiently general to include a regulator (i. e., a measuring cause) and a mere measure. A standard is “1. Any measure of extent, quantity, quality or value.” ... “2. Any fact, thing or circumstance forming a basis for adjustment and regulation.” Standard Dictionary.
[21] What Adam Smith has to say of the relation of these standards, one to the other, comes in connection with the account for advanced society, where he discards the labor-cost standard but retains the labor-command measure.
[22] P. 32.
[23] Ibid.
[24] Chap. x, of book i.
[25] P. 106.
[26] In one place Smith puts forward a naive and uncritical explanation of the reward to skill, comparable to his explanation of the division of labor as due to a propensity of men to truck and barter. “If ... one species of labour requires an uncommon degree of dexterity and ingenuity, the esteem which men have for such talents will naturally give a value to their produce superior to what would be due to the time employed about it.” P. 49.
[27] P. 34.
[28] Ibid.
[29] P. 35.
[30] In criticising the labor-command standard of Smith, Ricardo has made virtually the same point as the above (pp. 8-14, Gonner ed. Ricardo’s Principles). By riches Smith cannot mean what Ricardo means by this term in his famous chapter on the antinomy of value. (Chap. xx, “Value and Riches, their Distinctive Properties.”) If by reason of scarcity, wine should come to command in exchange more labor than formerly, Smith would have to say that a given quantity of wine becomes more riches. This Ricardo would not say.
[31] Principles, p. 8.
[32] P. 36. The following passage (p. 38) exhibits perfectly Smith’s general theory of the relation of labor, the precious metals, and grain to value as a dynamic problem. “Labour, therefore, it appears evidently, is the only universal as well as the only accurate measure of value, or the only standard by which we can compare the values of different commodities at all times and at all places. We cannot estimate, it is allowed, the real value of different commodities from century to century by the quantities of silver which were given for them. We cannot estimate it from year to year by the quantities of corn. By the quantities of labour we can, with the greatest accuracy, estimate it both from century to century and from year to year. From century to century corn is a better measure than silver, because from century to century equal quantities of corn will command the same quantity of labour more nearly than equal quantities of silver. From year to year, on the contrary, silver is a better measure than corn, because equal quantities of it will more nearly command the same quantity of labour.”
[33] P. 52.
[34] P. 52.
[35] McCulloch and James Mill were but satellites of Ricardo.
[36] P. 49. Torrens, in his Essay on the Production of Wealth, has worked out with great pains a form of proof of this proposition. It is exhibited in a series of dialogues between primitive producers to show that an exchange of goods at a ratio out of proportion to labor-costs is incompatible with recognized motives of trade. His proof is good enough under the tacit assumptions which he makes, including all the conditions of the perfect type of fictitious primitive society used by classical writers.
[37] P. 30.
[38] P. 32.
[39] When Smith speaks of “exchangeable value” as being measured by power to command labor, he is using the only term he has to stand for any or every concept of value distinct from the “value in use” or general utility of free goods.
[40] Its relation to pure objective exchange-value is another question. In Chapter xi of this essay will be found a summary discussion of the relation of disutility cost to value.
[41] The thought in the “final disutility” theories of Gossen, Jevons and Clark, independently worked out by these writers.
[42] These very words were later used by Malthus in his defense of the labor-command standard.
[43] In this sentence we do not assume the commensurability of disutilities incurred by different persons, but the commensurability of the disutilities incident to different occupations. Thus we should all be willing to say that the steamship stoker’s position means harder labor than that of the chief steward of the dining room, but we may be supposed to judge this by comparing our own (imagined) labor as a stoker with our own labor as steward.
[44] Political Economy, p. 115.
[45] Letters of Ricardo to McCulloch, p. 153.
[46] Ibid., p. 132.
[47] Letters to McCulloch, p. 153. This shows that Ricardo was not satisfied in principle with his treatment of the value of scarcity goods.
[48] Natural Value, Author’s Preface, p. xxviii.
[49] Principles, Gonner ed., p. 6.
[50] J. B. Say, Mélanges et Correspondance d’Économie Politique, Paris, 1833, pp. 93-4.
[51] Principles, p. 6.
[52] Dietzel, Theoretische Socialökonomik, Leipzig, 1895, pp. 228-30.
[53] Quoted in Letters of Ricardo to Malthus, p. 165, n.
[54] For this he is accused of reasoning in a circle. As far as any defense by Marx himself is concerned the charge goes home. Assuming the productivity theory of wages (which is entirely inconsistent with Marx’s theory of wages) it is quite permissible to say that labor which has a higher wage (or value) contains more units of productive power, more efficiency units, than that receiving a lower wage.
[55] P. 13.
[56] P. 14.
[57] P. 16.
[58] This explanation of the workings of competition is beautifully written both by Smith and Ricardo—is classic in fact.
[59] P. 65. The italics are the present writer’s.
[60] “It is necessary for me to remark that I have not said because one commodity has so much labour bestowed upon it as will cost £1,000 and another so much as will cost £2,000 that therefore one would be of the value of £1,000 and the other of the value of £2,000, but I have said that their value will be to each other as two to one, and that in those proportions they will be exchanged. It is of no importance to the truth of this doctrine whether one of these commodities sells for £1,100 and the other for £2,200, or one for £1,500 and the other for £3,000,” etc. Gonner ed., p. 39.
[61] Principles, p. 39, n. The same statement is made in Letters to Trower, p. 153.
[62] The difficulty of rent is escaped through the Ricardian theory of rent. The present writer is persuaded that the classical theory of rent is unsound in this respect.
[63] Pp. 24-6.
[64] The distinction between the two kinds of capital was stated to be a question of degree in the first section on this subject.
[65] P. 24.
[66] P. 35.
[67] Ricardo’s theory that a rise of interest must accompany a fall of wages and vice versâ is not an essential part of the present problem. Interest acts as a cause of deviation of exchange value from proportionality to wages cost, whether this particular theory of wages and interest be adopted or not.
[68] Compare the same unconscious shifting of ground in the discussion of skilled labor.
[69] P. 5. Principles.
[70] See also Ricardo, himself: “The value of almost all commodities is made up of labor and profits.” Letters to Malthus, p. 225.
[71] i. e., wages.
[72] P. 34.
[73] Letters to McCulloch, p. 71.
[74] Das Kapital, 1st ed., pp. 285, 286, 508, n. See Böhm-Bawerk, Karl Marx and the Close of his System, p. 24.
[75] Böhm-Bawerk, op. cit., p. 26.
[76] The writings herein referred to are his Principles of Political Economy, 4th ed., Edinb., 1849, and his extensive notes on Adam Smith’s text in the McCulloch edition of the Wealth of Nations, 4 vols., Edinb., 1828.
[77] In his Capital and Interest, pp. 97-102, Böhm-Bawerk devotes a few pages to McCulloch’s theory of interest, which is interwoven with his theory of value. Böhm-Bawerk concludes: “McCulloch’s utterances on the subject are one great collection of incompleteness, irrationality and inconsistency.” The examples of McCulloch’s reasonings cited by Böhm-Bawerk show the above judgment to be scrupulously just.
[78] Letters of Ricardo to McCulloch (Pub. Am. Econ. Assn., Vol. 10), pp. 131-2.
[80] McCulloch’s edition of the Wealth of Nations, vol. iv, note 1, p. 75.
[81] Ibid., p. 77.
[82] Malthus, Definitions, pp. 100-101.
[83] McCulloch ed. Wealth of Nations, vol. iv, pp. 77-78.
[84] Principles, 4th ed., pp. 371-3.
[85] We omit the qualification regarding “socially necessary” labor, and the theory of skilled labor as “condensed labor,” as not required for our present point.
[86] If one granted, for the sake of argument, both the labor-cost law of value and the iron law of wages, we should still lack the slightest justification for deriving the latter as a corollary from the former. The only theoretical basis of the iron law of wages is a rigid Malthusian law of population, or labor supply, the alleged law so greatly abhorred by Marx and all socialists.
[87] The elaborate special terminology developed by Marx for the problem (not followed here) will be found explained in full in Böhm-Bawerk’s excellent essay previously cited. This little book presents Marx’s theory of value, the “contradiction” and the outcome, in the clearest possible form. It would be useless to infringe on the territory covered by this work, but Dr. v. Böhm-Bawerk did not mention the existence of the same “contradiction” in classical English theory.
[88] Das Kapital, v. iii, p. 131; quoted by Böhm-Bawerk, op. cit., p. 49.
[89] “Die organische Zusammensetzung des Kapitals,” Das Kapital, vol. iii, p. 124.
[90] Vol. iii, p. 138. See Böhm-Bawerk, op. cit., p. 67 et seq. There are other arguments advanced by Marx for the redemption of his theory, considered in order by Böhm-Bawerk, but that given is the first and principal one. The second is that the law of value governs the movement of prices. This is analogous to, if not identical with, Ricardo’s claim, that changes in labor-cost are the causes of changes of values. See ante, pp. 54-5.
[91] Pp. 55 et seq.
[92] Principles, 4th ed., p. 371 (1849). The italics are mine.
[93] McCulloch edition of the Wealth of Nations, vol. iv, note viii, p. 200.
[94] “Dass die Abweichungen vom Werth ... sich gegeneinander aufheben.” Das Kapital, vol. iii, p. 140. James Mill, in Elements of Political Economy, pp. 112-113 (1826), said the same thing. When the general rate of wages varies, for “the aggregate of commodities, taken all together, there is neither fall nor rise.”
[95] Elements of Political Economy, London, 1826. This statement probably came from Malthus, who laid down the general lines of the theory of value in this same way in 1820.
[96] P. 96.
[97] Pp. 96-7.
[98] Pp. 99-100. The italics are mine.
[99] Pp. 102-3.
[100] P. 104.
[101] Essay on the Production of Wealth, London, 1821, p. 51. Torrens considered his theory of “exchangeable value” quite original, (Preface, p. 7.)
[102] P. 51.
[103] P. 53.
[104] P. 50.
[105] “Empirical,” in the particular sense of this term, adopted in the opening chapter of this essay.
[106] Pp. 39-40. See also Preface, p. 7. This theory does not occupy a prominent place in his book. The sum of accumulated and immediate labor is what Ricardo considers to be the total labor cost of a good—under the name of labor indirectly and directly applied.
[107] Presumably, in its turn, “accumulated.”
[108] Explanation of this follows shortly.
[109] In his Principles, 1st ed., 1820, and 2d ed., 1836, which was considerably altered from the first. The Measure of Value Stated and Illustrated, a pamphlet of 1823, and the Definitions in Political Economy may be mentioned, but the text of the two editions of the Principles suffices for any except the most minute investigation of his views.
[110] Ricardo’s part is contained in his published letters to Malthus, as well as those to McCulloch and Trower, but the letters of Malthus to Ricardo have not, to my knowledge, been found for publication, except one given in Letters of Ricardo to McCulloch, (Pub. Am. Ec. Assn., 10, Nos. 5-6) p. 161.
[111] The law of supply and demand is not so simple as to preclude a variety of ways of stating it, and the meaning of such conceptions as intensity of demand, equilibrium or balance of supply and demand, etc., requires careful reasoning to define. The history of the law in English political economy would be concerned mainly with Malthus, J. S. Mill, Cairnes and Marshall.
[112] Principles, 1st ed., pp. 73-4.
[113] Ibid., 74-5.
[114] Ibid., 76.
[115] Ibid., p. 83.
[116] The claim regarding the subordination of the law of costs is set forth emphatically as follows: “If it appears generally that the cost of production only determines the prices of commodities, as the payment of it is the necessary condition of their supply, and that the component parts of this cost are themselves determined [i. e., as values] by the same causes which determine the whole, it is obvious that we cannot get rid of the principle of demand and supply by referring to the cost of production. Natural and necessary prices appear to be regulated by this principle, as well as market prices, and the only difference is that the former are regulated by the ordinary and average relation of the demand to the supply, and the latter when they differ from the former depend upon the extraordinary and accidental relations of the demand to the supply.” Principles, 1st ed., pp. 84-85.
[117] Gonner ed., p. 376.
[118] Letters to Malthus, p. 176. Malthus’s contrary opinion is defended at length by him in Sec. 11 of Chap. xi, on value, in the Principles, 1st ed.
[119] Gonner ed., p. 6. The same thought is expressed in the first paragraph of Chapter xiii, p. 171.
[120] The case is not presented by Malthus as one of two main arguments with seven counts in total, but all except this division and the numbering are his.
[121] 1st ed., pp. 104-5. This passage happens not to reappear in the 2d ed., but all the points in it are still maintained there.
[122] As Malthus said in another place, “The effects of slow or quick returns, and of the different proportions of fixed and circulating capitals, are distinctly allowed by Mr. Ricardo, but in his last edition he has much underrated their amount. They are both theoretically and practically so considerable as entirely to destroy the position that commodities exchange with each other according to the quantity of labour which has been employed upon them, but no one that I am aware of has ever stated that the different quantity of labour employed on commodities is not a much more powerful source of difference of value.” Measure of Value Stated and Illustrated, pp. 12-13.
[123] We have not happened upon a passage by Ricardo referring to the third count, respecting good and bad crops, but Ricardo would undoubtedly have considered that it did not invalidate his position. If agricultural capital and labor remain the same in quantity while good and bad crops alternate, the cost of production per unit of crop varies as well as the price. When the wheat crop is good the cost per bushel is low. The price per bushel would also be low. If good crops mean low cost and low value at the same time, they probably do not mean sinking of value and cost in the same degree. The consequent deviation of value from cost is probably what Malthus had in mind.
[124] 1st ed., pp. 102-3.
[125] The strange attempt of James Mill to show that the interest element stands for labor also, mistook, as we showed in Chapter vi, the replacement fund of an entrepreneur for his interest fund.
[126] In his notes in a French edition of Ricardo’s Principles, “Des Principes de l’Economie Politique et de l’Impôt,” 2d ed. Paris (1835), note, p. 12.
[127] Essay on the Production of Wealth, p. 65.
[128] The principle of this choice had very little in common with the principle of the various “multiple standards of value” since proposed.
[129] 1st ed., pp. 128-9.
[130] 1st ed., p. 129.
[132] 2d ed., p. 96.
[133] 2d ed., p. 57.
[134] Prepared as the article on “Political Economy” in the Encyclopædia Metropolitana, 1836, but appearing as a separate work in numerous reprints from this. Page references are good for any edition. The table of contents looks systematic at first blush, but study of the text, especially the part on the theory of distribution, soon dispels any illusions concerning this point.
[135] Senior was, in my judgment, indebted fully as much to Malthus and Say as to Ricardo. To all appearances much of interest in the writings of Cairnes must have been suggested by the work of Senior.
[136] Political Economy, p. 6. These are the three constituents of wealth, but things composing wealth are defined to be the same as things of value. Curiously the qualification of transferableness is held not to exclude personal talents from the category of wealth, for these are considered to be things “imperfectly transferable.” A lawyer transfers his talents to me when I hire him to plead my case. See pp. 9-10.
[137] P. 24. A similar passage, not so well expressed, is found in Malthus, Principles, 1st ed., p. 74.
[138] P. 101.