Measure of Value, 1823—In what sense Labour a Measure—Difficulties—Arguments of the Tract on Value—Measure in the same Country—Measure in different Countries—Measure at different Periods in the same—Measure as applied to varying Value of Currency—The Royal Literary Society—The Definitions—Wages—The Minimum of Social different from the Minimum of Physical Necessaries—High Wages, how made Permanent—The “Wages Fund,” whose Invention, and how far a Reality—“The New School of Political Economy,” its three Tenets—A General Glut in what Sense possible.
As the Rent and Corn pamphlets deal chiefly with Mother Earth, the tract on the Measure of Value[577] deals chiefly with Father Work. The search for a common measure of value is not, to Malthus, a purely academical problem. He considers such a measure desirable because in any inquiry into the wealth of nations it is important to distinguish between the rise of one commodity and the fall of another. The former is an intrinsic alteration of value which will affect every exchange in which the object is concerned; the latter an extrinsic which affects only the one exchange, of the object in question with the foreign object that has been altered. By value of course is to be understood economic value, or “the power of commanding other objects in exchange,” not value in the (not uncommon) wider sense, of usefulness in supplying wants.[578] The economic value of anything, taken in relation to some object which never changes its value from intrinsic causes, may be called the “natural or absolute value” of that thing, and the object with which it was compared may be called the “measure” of absolute or natural value, in other words, of the value which a thing must fetch if its supply is to be continued. While not only money but any and every object may be such a measure of value for a limited place and time, even money itself is not a good measure for widely different places or for long periods of time; and corn, which is better for long periods, is worse for short.
Labour is better than either, but Labour is ambiguous. We may measure the value of anything either by the labour it has cost us in the making of it, which gives us Ricardo’s sense of natural value, or by the labour it will purchase after it is made. Adam Smith,[579] who preferred labour both to money and corn as the measure of value, wavered between these two meanings of the terms. Malthus declares at once against the first sense. Labour, he says, in the sense of cost does not altogether determine value and therefore cannot measure it, even for similar places and times. In 1820 Malthus had been of opinion that a mean between corn and labour was a better measure of value than labour itself; but since 1823 he recurred to the view of Adam Smith,[580] and held that the amount of the unskilled common day labour of the agricultural labourer, which a thing will purchase or command, is a good measure of the value of it even at widely different places and times. “Agricultural labour is taken for the obvious reasons that it is the commonest species of labour, that it directly produces the food of the labourer, and that it is the most immediately connected with the gradations of soil and the necessary variations of profits. It is also assumed with Adam Smith, Mr. Ricardo, and other political economists, that, on an average, other kinds of labour continue to bear the same proportions to agricultural labour.”[581] The bodily exertion of the labourer does not change; it is the same sweat of the brow, the same sacrifice of physical force. When corn, for example, will command a less amount of labour than it would have done a century before, we may be sure it is because of a change not in the labour but in the corn; and we ought therefore to say not that labour has risen in value, but that corn has fallen. Malthus’ search for a permanent element in the changeable has led him to individual human labour as the economical unit. If the Chinese labourer has lower wages than the English, it is not because his labour is of lower value, but because his necessaries are of higher. Wages are higher in the United States not because labour is of higher value, but because necessaries are of lower.[582] Of course when skill enters into the labour, the unit is not the same; but, when we look only at unskilled, we find confirmation of Malthus’ view in the experience of the elder and the younger Brassey as employers of labour, that quantity for quantity “the cost of the labour [the expense of it to the employer] is the same everywhere” over the world.[583] The measure, however, is by no means out of court as regards skilled labour; the difference in kind may be stated in terms of a difference in degree. If the watchmaker’s labour be paid at the rate of 10s. a day, and the common agricultural labourer’s only at 1s. 8d., the former may be stated as equivalent to six days’ common labour.[584] Malthus has in his mind a scale of compensation such as is drawn out by Adam Smith in the tenth chapter of the first book of the Wealth of Nations.[585] Disagreeableness, difficulty, inconstancy, responsibility, risk of failure, are so many disabilities, for each of which a compensation must be made to the workman in the scale of his wages, as adding in effect so many more hours’ labour; and each higher class of workman must be paid the unit of common labourer’s wages, with the compensations superadded. In practice this means that men will not be found in sufficient numbers to do the higher class work unless the wages are sufficient to make it worth their while to undergo the disabilities. It is assumed that this scale has been adjusted by custom and the “higgling of the market” from generation to generation, till in any given neighbourhood each of the several skilled trades has a definitely recognized place in the series.[586]
This reasoning seems less convincing when we consider that the translation of skill into terms of hours would be different in different localities, and that the common labour, which is the unit, would vary in the same way. The measure of value would hold only for a given place, time, and people. To escape from the difficulty, we must consider the difference between the common labour at one time and place and the common labour at another as itself measurable, and allow for it; or else we must consider it as too small to disturb our conclusions, and so neglect it altogether. To reduce common labour to its theoretically simplest terms is to reduce it to something below our experience; and to reduce it to its actually simplest in the given cases is to reduce it to one thing in England, a second in France, a third in India, a fourth in America. There are differences of quality which cannot be with any certainty resolved into differences of quantity; such are the differences of individuals, the differences of nations, the differences of races. It will be found, also, that the part played by common as opposed to skilled labour, and by agricultural as opposed to manufacturing labour, differs so much between country and country that, in order to use labour as a measure, we should need other measures in addition to it. In short, if we had data enough to apply this measure, we should have data enough to dispense with it.
It was possibly the force of these considerations that led Malthus, as time went on, to approach somewhat nearer to Ricardo, whose measure, so far as he had one, was not the labour purchased but the labour that entered into cost. But he adhered to the substance of his doctrine as expressed in the tract; and his positions, in detail, were as follows:—
The power of one object to command another in exchange is influenced either by a change in the object itself, or by a change in the other. If we found a case where there was never a change in the first object itself, then we should have, in that first, a measure of natural or absolute as opposed to nominal or relative value, i. e. a measure of that value of an article which satisfies the “conditions of the supply” of it, and enables its production to be continued without loss to the producers. By “conditions of supply” is meant Ricardo’s “cost of production” with the addition of ordinary profits. No measure of market or relative values is possible; and to have a measure of natural value itself we must make two postulates,—that natural value depends on “labour and profits” (sic), on rent little if at all, and that the “wages” of labour are also the “value” of labour,—what labour is paid is also what labour will fetch. It is easy to apply the measure where only labour is concerned, for then the labour that the things cost is a sufficient measure; it would be evident, at any change, that the things had become cheaper, not the labour dearer. But in present society value is more complicated; labour is no doubt the chief source of it, but profits are a very considerable one.[587] The natural conditions of supply, however, may be stated in terms of labour, just as if labour had been the sole ingredient. This would give us a measure for the same country at the same place and time. The total quantity of labour that an article cost, with the addition of ordinary profits stated in terms of labour, would be the same as that quantity of labour which an article would purchase in its natural value.
In the case of different countries, at the same time, the difficulties are not quite the same. Exchange is there determined not by labour but by money prices; and money is of very different value in the one country and in the other. But the differences in the value of money in different countries are in proportion to the different prices of agricultural labour—1500 days’ labour at 4d. a day in India, at 2s. in England, meaning £25 and £150 respectively; and, if fixed capital to the value of 300 days’ labour were advanced to each of them, while profits calculated in days’ labour were twenty per cent. in the one case, ten in the other, the result would be an article whose conditions of supply would require in the one case a money price of £31, in the other of £168. The difference is no doubt due to the superior efficiency of English industry and skill which enables England to purchase the precious metals more cheaply,[588] but the cost of getting the money would not tell us the true present value of the money in England or in India. It is not the labour spent on the gold, but the labour purchased by it, that will help us here. In each country within itself we would measure the natural value of money as well as of anything else by what labour it will purchase; know the difference between the value of money in the one and its value in the other by the difference between the amount of labour it will purchase in the one case and the amount it will purchase in the other.[589]
In the case of different periods in the same country, though we have not, as in the case of two different countries, the test of an actual exchange, we can still use labour as the measure. We must allow for the higher profits of the earlier period; and on the (Ricardian) principle that profits and wages vary inversely, though corn wages have risen, profits have in proportion fallen, and the total value of the produce measured by its power of purchasing labour must be the same,[590] the purchased labour then representing the producing labour plus the then rate of profits. From Ricardo’s dogma it seems (to Malthus) to follow directly that the value of labour is constant.[591] Taking the labour they will purchase as the best measure of the value of the precious metals, as of anything else, we have light on one of the pressing questions of the day (in 1823), the causes of the changing value of money. The causes affect not the labour but the money, and they are of two kinds. The first Malthus describes as a primary or necessary cause, namely, the variation in profits depending on the (Ricardian) theory of the interlocking of wages and profits, and the (Malthusian) theory of the relation of profits to rent. Dear corn due to difficult cultivation would lower profits, and would alter the value of money, but only in relation to raw, not in relation to manufactured produce, or at least (from the effects of Ricardo’s principle of the inverse variation of wages and profits) not to the same extent. But the second, which is a “secondary and incidental” class of causes, affects both raw and manufactured goods, and is often enough to completely dwarf the effects of the primary cause;[592]—it is the general commercial situation of a country,—“the fertility and vicinity of the mines, the different efficiency of labour in different countries, the abundance or scarcity of exportable commodities, and the state of the demand and supply of commodities and labour compared with” the precious metals.[593] The efficiency of labour and a prosperous commerce, with a great consequent demand for corn and labour, are often more powerful in making bullion cheap than agricultural productiveness and high profits in making bullion dear and corn cheap. During the war—say from 1790 to 1814—we had an instance of this, and since the war—say from 1814 to 1823—we have had a clear instance, he thinks, of the converse.[594]
Two elaborate papers on the measure of value, written in 1825 and 1827, show that Malthus was becoming inclined to make less of his differences with Ricardo.[595] They were intimate friends; their discussions had no bitterness; and, to use the words of one of them, “both were so anxious for the truth that sooner or later they would have agreed.”[596] These papers are a fulfilment of his duty not (as we might guess) as a fellow of the Royal Society or a member of the Political Economy Club,[597] but as an associate of the Royal Society of Literature.[598] “That branch of literature” [sic] “on which it shall be his duty to communicate with the Society once a year at least” is described as “political economy and statistics.”[599] He does little credit in these papers to his literary faculty. Their composition is laboured and devoid of ornament. The first is On the Measure of the Conditions necessary to the Supply of Commodities; and the thesis is, that “the natural and necessary conditions of the supply of all commodities,” that are not monopolies, are represented and measured by the labour which they will on an average command, and by nothing else. The second is On the Meaning which is most usually and most correctly attached to the term, Value of Commodities; and the thesis is, that, when value is used without a qualifying adjective or reference to any special equivalent in a possible exchange,[600] the term refers to the “conditions of supply.” When we say, for example, anything is sold at a price far above its true value, we mean far above its cost price, including under “cost” the average rate of profits that must go to the maker if he is to live by his trade. The two papers taken together form a sort of indirect proof of the position taken up in the tract on the Measure of Value (1823), and the relevant parts of the second edition of the Political Economy (1836), and may be stated briefly thus:—The labour commanded by an article is generally the measure of that article’s cost;—but that article’s cost is what people generally mean by its value;—therefore the labour commanded by an article is the measure of that article’s value in the ordinary sense of the word.
The second paper was written at the same time as the Definitions in Political Economy, and illustrates the rule laid down there, prescribing adherence, when possible, to the meaning which economical terms bear in the mouths of ordinary folk.[601] The Definitions, for example, repeat from (or with) the second paper, “when no second object is specified, the value of the commodity naturally refers to the causes” which determine “the estimation in which it is held” “and the object which measures it.”[602] “The natural value of a commodity at any place and time” is “the estimation in which it is held when it is in its natural and ordinary state,” as “determined by the elementary costs of its production,” or in other words, by “the conditions of its supply.” And the measure of the natural value of a commodity at any place and time is “the quantity of labour for which it will exchange at that place and time when it is in its natural and ordinary state.”[603]
As a literary production the book written for the public is superior to the papers prepared for the men of letters. Next to the first Essay on Population, the critical parts of the Definitions give the most pleasant examples of the author’s style. The two papers above mentioned are chiefly important as showing the importance which Malthus, unlike Ricardo, attached to the question of a measure of value.[604] A contemporary writer said very happily that the fault of Ricardo was to generalize too much, and of Malthus to generalize too little. Malthus, he added, is a keen observer but poor in analysis; he is “so occupied with particulars that he neglects that inductive process which extends individual experience throughout the infinitude of things,” and converts knowledge into science. “As presented by Mr. Ricardo, political economy possesses a regularity and simplicity beyond what exists in nature; as exhibited by Mr. Malthus, it is a chaos of original but unconnected elements.”[605] On the other hand, the testimony of a recent German writer is very different. Malthus, he tells us, resembles Ricardo in his sombre view of human life and frank statement of unpleasant facts. Their names are often associated, and no doubt both are children of their times. But their leanings were really unlike. Ricardo took up certain ideas of his time in their narrowest, clearest, and harshest form, and applied them wholly in the interest of capital. Malthus is far less narrow. His influence on economics has been much smaller than Ricardo’s; but he will be found “by far the more suggestive and less prejudiced of the two,” and, if he found more opponents, it is because he was less understood and less read.[606] The sprightly Dialogues[607] of De Quincey contribute nothing to the discussion on value; but they show how completely Ricardo had won the ear of the literary world, and how little pains the opponents of Malthus took to do him justice. Malthus reduced the problem to many elements; Ricardo to few; and the latter, as certainly easier to understand, was readily represented as the likelier to be true. Simplicity in such a case is a treacherous virtue; and the apparent chaos may have been much nearer the truth than the apparent cosmos, if there was a hidden flaw in the latter and a latent principle of union in the former. Sound or unsound, such a principle may be traced in the most abstract discussions of Malthus. We shall find this true when we compare his views with Ricardo’s on the nature and causes of value itself, and the movements of prices. We may recognize it even in these discussions on the measure of value. The measurement of all value by individual human labour is of a piece with the author’s final view of population, where all is made to depend on individual responsibility.[608] The main weakness of the position is perhaps that by unskilled labour he means always agricultural, and does not sufficiently recognize how in manufacturing England it has perhaps become easier to measure unskilled by skilled than the latter by the former. The difficulty met Robert Owen, when in his Labour Exchanges[609] he not only tried to reduce all values to a common measure in labour, but to make labour a means of exchange, for which it is certainly worse suited than money.
Labour as something to be rewarded by Wages has a more evident connection with the principles of the Essay on Population than labour as the measure of all values. In this case unskilled agricultural labour is again the unit. The first “condition of the supply” of this labour is the necessaries of life, in such quantities as will enable the labourers to maintain their numbers or to increase them,[610] as the case may be. If the former only, the price of labour is not, as Ricardo says, the “natural,” but really a most unnatural price, for it would mean that the country giving it had arrived at the final limit of its resources.[611] Necessaries, however, are not a simple or even a fixed element. We can of course measure them in corn if we like; but they consist not only of the prime necessary, the staff of life, but of other absolute necessaries, of shelter and clothing, and many “conveniences” which have become necessaries, inasmuch as they are essential to healthy life, such as soap and shoes and candle-light. It has happily become a truism that the necessaries of life are not a fixed but an expanding factor. Even if competition were always to drive wages down to a “minimum of social necessaries,”[612] social are always beyond animal necessaries; our basest beggars are in the poorest thing superfluous; and “the barest social necessaries” seem likely in process of time to mean a high standard of comfort. To raise the minimum of social necessaries is the way to raise wages really, universally, and almost irrevocably.[613] Malthus himself declares that “it is the diffusion of luxury” in this sense of the word, “among the mass of the people, and not an excess of it in a few,” that seems to be advantageous, both for national wealth and national happiness. Paley’s ideal of national prosperity, “a laborious frugal people ministering to the demands of an opulent luxurious nation,” is heartily scouted by him. The luxuries of the few rich, he says, harass the industry of the poor by varying with the fashion; but the luxuries of the poor, when embodied in their general standard of living, are not only the best kind of check to population, but the steadiest encouragement to general trade.[614] He seems to have supposed the elevation in the standard of living to have been effected, like the progress of nations in civilization, by the happy improvement of an accidental advantage, by the retention of high wages, when once secured in a time of brisk trade in the ordinary way of competition; the workmen, in short, succeeded in making permanent and de jure a change once de facto for the time effected.[615] “When our wages of labour in wheat were high in the early part of the last century, it did not appear that they were employed merely in the maintenance of more families, but in improving the condition of the people in their general mode of living.”[616] Malthus, without knowing it, was certainly father of the theory of a Wages Fund. The theory is that the average wages of the labouring classes at any given time are high or low in proportion to the great or small amount of circulating capital devoted to the payment of wages, or, as it is sometimes expressed (more tersely and inexactly), wages depend on “the ratio of population to capital.” This might mean no more than the arithmetical truism that we may always find the average wages by dividing the total sum received by the total number of recipients; and the quotient would be unalterable only in the sense in which all other facts might be said to be so, in retrospect. But it is usually taken to mean that the first total could not at any given time have been greater or less than it actually was, being fixed unalterably by circumstances,[617] and so “devoted” or “determined” to the payment of wages. The simplest test of this theory is the application of it to the case of a single individual capitalist and his payments in wages. Suppose he has a capital of £10,000, £5000 fixed and £5000 circulating; and suppose that the latter means wages only (instead of chiefly), and is paid to one hundred men;—£50 a year will be the average wages of the hundred men; and, by the theory, given the rate of ordinary profits and given the “desire of accumulation” at the time and place, it could not possibly have been either more or less. But, as the profits are not unconditional, neither are the wages; the capitalist might conceivably, to save his business, keep it up in bad times at a loss, and pay wages at the expense of profits and at the expense of his personal pleasures.[618] He has often the choice before him to spend more on fixtures, or more on new hands, or more on further employment of the old hands. In truth, too, though wages, especially in England, are often in the first instance advanced out of capital, they are always meant to be paid out of the gross returns, and in every sound business really are so. The workman and employer make their contract beforehand, and expect each other to abide by it, be the profit much or little; the wages depend, therefore, directly on this contract, and indirectly on that which is the means of fulfilling the contract on the master’s side, the price of the article made. The price of the article is the real wages fund;[619] and therefore the wages fund must be as flexible as market prices, and the actual wages as changeable as are the powers, habits, and desires of the two contracting parties.
The theory of a wages fund was formed from the facts of a perfectly exceptional time, and on the strength of two truths misapplied, the doctrine of Malthus (on Population) in its most unripe form, and of Ricardo (on Value) in its most abstract. J. R. MacCulloch seems to have been the first who put the two together to deduce a rigid law of wages. “The market rate of wages,” he says, “is exclusively dependent on the proportion which the capital of the country, or the means of employing labour, bears to the number of labourers. There is plainly, therefore, only one way of really improving the condition of the great majority of the community or of the labouring class, and that is by increasing the ratio of capital to population,” which the labourers for their part can only do by diminishing the supply of labour.[620]
Even Mrs. Marcet, a docile Ricardian, had put the case more carefully. “Work to be performed is the immediate cause of the demand for labour; but, however great or important is the work which a man may wish to undertake, the execution of it must always be limited by the extent of his capital, i. e. by the funds he possesses for the maintenance or payment of his labourers.”[621] She professes to be expounding the received doctrine of her day. MacCulloch’s exposition is much more rigid. When he speaks of the “funds devoted to the payment of wages,” he means “that portion of the capital or wealth of a country which the employers of labour intend or are willing to lay out in the purchase of labour.” It “may be larger at one time than at another. But, whatever be its magnitude, it obviously forms the only source from which any portion of the wages of labour can be derived. No other fund is in existence from which the labourers as such can draw a single shilling. And hence it follows that the average rate of wages or the share of the national capital appropriated to the employment of labour falling, at an average, to each labourer, must entirely depend on its amount as compared with the number of those amongst whom it has to be divided.”[622] Neither MacCulloch, nor James Mill, nor John Mill in his early writings, nor apparently any of the expounders of the theory, were in the habit of describing the fund as “unconditionally” devoted to the payment of wages, though John Mill, in restating the position after he abandoned it, gives us so to understand.[623] Something like unconditional determination, however, is assumed in all the reasonings of the school. Adam Smith’s frequent use of the words “funds devoted” or “funds determined” to this or that purpose may easily have been misunderstood. Certainly in his pages they mean no inflexible compulsion. He says the demand of those who live by wages can only increase in proportion to the increase of the “funds” which are “destined” for the payment of wages, these funds being (he adds) either the surplus revenue of an idle monied man who will “naturally” use any addition to them in increasing his staff of domestic servants, or the increased capital of the capitalist who will just as “naturally” use them in employing more workmen.[624] The word “destined” is so far, with him, from implying any iron necessity that it means simply “intended”; and the intention is one that can be foiled or altered. He speaks of the “funds destined for the consumption” of the manufacturing class,[625] and of the townsfolk’s “fund of subsistence,”[626] meaning simply their food; he even speaks of the funds destined for the repair of the high roads in France.[627] Even the strong passage in Book I. chap. viii., “the demand for those who live by wages necessarily increases with the increase of the revenue and stock of every country, and cannot possibly increase without it,” stops considerably short of the doctrine of a rigid wages fund. It is never suggested by Adam Smith that the wages fund is inelastic, and that wages could not at any given time have been greater or less than they actually were. The doctrine is seldom traced further back than to Malthus; and Malthus cannot be shown to have held the doctrine. With express reference to the passage last cited from the Wealth of Nations, he says that “it will be found that the funds for the maintenance of labour do not necessarily increase with the increase of wealth, and very rarely increase in proportion to it, and that the condition of the lower classes of society does not depend exclusively upon the increase of the funds for the maintenance of labour or the power of supporting a greater number of labourers” (Essay, 7th ed., III. xiii. 368). The condition of the working classes depended, he thought, partly on the rate at which the “funds for the maintenance of labour,”[628] or, as he expressed it at first, “the resources of the country”[629] and the demand for labour are increasing, and partly on the “habits of the people.” Among their habits we should need to put their education and their power of union among themselves, and consequent strength in a struggle with the masters, to obtain or to raise the market rate of wages. From Ricardo he differed on the subject of wages very much as on the subject of value. Ricardo looked at cost price as the natural value of an article, and mere subsistence as the natural wages of labour. Malthus could do neither.
The issues between the two economists are nowhere so well or so calmly stated as in a paper written by Malthus (a few months after Ricardo’s death) in the Quarterly Review,[630] where he deals with MacCulloch’s treatise on Political Economy.[631] In that article Malthus professes to regard the political economy of Ricardo, James Mill, and most of the economical writers in the Encyclopædia, as a new and wrong departure. It is said to have been regarded by the writer as one of the best economical papers he ever wrote;[632] and, among other virtues, it has the merit of perfect courtesy and respect towards the persons criticized. Their system, he says,[633] is remarkably like that of the French economists. They “were equally men of the most unquestionable genius, of the highest honour and integrity, and of the most simple, modest, and amiable manners. Their systems were equally distinguished for their discordance with common notions, the apparent closeness of their reasonings, and the mathematical precision of their calculations and conclusions founded on their assumed data. These qualities in the systems and their founders, together with the desire so often felt by readers of moderate abilities of being thought to understand what is considered by competent judges as difficult, increased the number of their devoted followers in such a degree, that in France it included almost all the able men who were inclined to attend to such subjects, and in England a very large proportion of them.
“The specific error of the French economists was the having taken so confined a view of wealth and its sources as not to include the results of manufacturing and mercantile industry.
“The specific error of the new school in England is the having taken so confined a view of value as not to include the results of demand and supply, and of the relative abundance and competition of capital.
“Facts and experience have, in the course of some years, gradually converted the economists of France from the erroneous and inapplicable theory of Quesnay to the juster and more practical theory of Adam Smith; and, as we are fully convinced that an error equally fundamental and important is involved in the system of the new school in England as in that of the French economists, we cannot but hope and expect that similar causes will, in time, produce in our own country similar effects in the correction of error and the establishment of truth.”
The new school has, according to Malthus, three main principles. The first is, that what determines value is the quantity of labour that a thing costs to make,—the second, that supply and demand do not as a rule affect values,—and the third, that fertility of soil and not competition regulates the rate of profits. The new school thinks that profits enter so little into the price of an article that they may be neglected altogether in the computation of the causes of value. But (says Malthus) the value of a stone wall would be due, nearly all of it, to labour, and the value of a cask of old wine kept for twenty or thirty years would be largely due to profits. £50 worth of stone wall would have much more labour “worked up in it” than £50 worth of old wine. It is not sufficient to answer that profits are simply accumulated wages. As well say that five is another name for four. Ricardo himself introduced many qualifications into his own statement that value is due to labour. The principle (he confessed) was modified by the use of machinery and by the unequal durability of capital.[634]
Malthus admits the truth of Ricardo’s dogma that profits and wages can only increase at each other’s expense, and he even applies this principle of Ricardo’s in a new way to the facts of the commercial depression that had prevailed since the peace.[635] It was universally allowed there had been a less demand for labour and a great fall in wages, but, it was also allowed, a much greater fall in profits; so that wages while lower in gross amount bore a higher proportion to profits than before. The reason was that, while the competition of labourers was great, the competition of capitalists with capitalists was still greater. The result was a universal fall of prices; the wages, though relatively greater, were absolutely less in amount, and the demand for labour would have been greater if prices had risen and the capitalist had got greater returns to his capital. Malthus would not go farther than this, and the Ricardian doctrine needs to be otherwise applied to yield the doctrine of a wages fund. It was applied in some such way as follows:—Competition drives prices down to the cost of production; this means that at any given time the sum total of profits and wages cannot be more than they actually are, and both are kept down by competition to their minimum; the masters could not give higher wages without cutting down their profits, the men could not get less wages without either starving or being driven to seek other employments. Malthus does not so apply his doctrines. To him, what fixes the sum total of wages and profits is not the cost of production, but the demand for the thing produced; not the labour spent on a thing, but the labour that others are willing to give for it; and the cause of value is not cost, but demand acting with supply. Ricardo, who prefers to confine his theories to natural value, allows that the state of the demand and supply raises market value above or depresses it below cost price; and he does not see how seriously his own qualifications[636] impair the truth of his theory of value even when the value is “natural.”[637] It is true, on the other hand, that the supply at any given time is a supply that will not be kept up unless the cost price be paid back. The cost price would certainly be the minimum below which prices could not permanently pass. But to Ricardo the cost in labour is the formal as well as the material cause of a value; to Malthus it is only the material, and only part of that, a mere sine quâ non, while the efficient is the demand, and the final is the consumption of the article by its last buyer or user.
The third leading tenet of the new school, says Malthus, is that the rate of profits in a country depends on the fertility of the soil there, and not, as Adam Smith thought, on the competition of capital with capital for employment. Against them Malthus maintains that there is no necessary (though there is a frequent) connection between the productiveness of industry and the rate of profits, still less between the latter and the productiveness of any one single industry, such as agriculture. Profits depend on the proportion of the whole produce which “goes to replace the advances of the capitalist”; but this proportion may remain the same when the productiveness of industry is very various. In the previous eight or nine years, say from 1815 to 1824, there had certainly been no costliness in production. Corn had been cheap, and farmers’ losses had led to the discontinuance of high farming, and especially of the forced cultivation of the dear years. The production, therefore, was at the cost of much less labour. But profits, instead of higher, were much lower. Abundance of produce and competition of producers had caused a fall in the value of produce, so that it was possible for the labourer to receive a greater share of what he made, though his labour had not become more productive. Ricardo does not take sufficient account of the influence of prices, both on wages and on profits.
There had in fact been over-production and a general glut. James Mill’s Elements of Political Economy[638] contain a careful demonstration that general gluts are impossible. It was emphatically a controversial passage, and in the pages of John Mill it has the look of an anachronism. All depended on the meaning of “general.” If it meant universal, the case was impossible. It is incredible that all without exception should have something to sell and no wish to buy. To offer anything for sale must of itself imply a desire to buy something else with it, either directly or by means of money. Even a very near approach to universality is not easy to understand; and it would mean simply that a bad organization of the world’s markets had prevented buyers and sellers from reaching each other, and prevented goods from going where they are wanted, at the time when they are wanted; it would mean that not the malady but the scale and degree of it had passed belief.[639]