The Principles of Political Economy and Taxation (Barnes & Noble Library of Essential Reading)

By David Ricardo and Robert E. Wright

Many of the problems of globalization confronting us today---including finding the right balance between economic growth, technological advance, and international trade, and human welfare---also troubled earlier generations. David Ricardos Principles of Political Economy and Taxation represents an important early attempt to illuminate the problem and to offer viable policy solutions.

The book, like modern "principles of economics" textbooks, exposes readers to rigorous economic thinking and deductive reasoning, but does not contain advanced mathematics. Principles heavily influenced socialist thinkers such as Karl Marx as well as classical economists like John Stuart Mill and John R. McCulloch. In the economics of international trade, the book continues to be a major influence.

• Language: English
• Publisher: Barnes & Noble
• Release date: Sep 1, 2009
• ISBN: 9781411431362

Book preview

INTRODUCTION

GLOBALIZATION has accelerated in recent years but it is not a new process. Many of the problems confronting us today—including finding the right balance between economic growth, technological advance, and international trade, on the one hand; and human welfare, particularly the living standards of the poor, on the other —also troubled earlier generations. David Ricardo’s Principles of Political Economy and Taxation represents an important early attempt to illuminate the problem and to offer viable policy solutions. Although it contains no advanced mathematics, the book, like modern principles of economics textbooks, exposes readers to rigorous economic thinking and deductive reasoning. Principles heavily influenced socialist thinkers such as Karl Marx as well as classical economists like James Mill, John Stuart Mill, and John R. McCulloch. Although superseded in most of its details, much of the text is still considered a correct first approximation by many economists. Especially in the economics of international trade, the book continues to be a major influence. For those reasons, many economists consider Principles the first modern economics text.

The author of this work, David Ricardo, is perhaps best described as Adam Smith with attitude. Born in 1772 to an orthodox Jewish stockbroker who had recently moved to London, Ricardo studied at the Talmud Torah attached to the Portuguese Synagogue in Amsterdam for two years. At age fourteen, he returned to London and joined his father’s counting house as an apprentice. Just four years later he horrified his parents by announcing his intentions to become a Unitarian and to marry a Quaker. Expelled from his parents’ house and discharged from his apprenticeship, Ricardo competed in business against his father. A member of the London Stock Exchange from 1793 to 1816, Ricardo made a living, and a very good one at that, buying and selling public securities. Thanks to the quickness of his mind and the coolness of his judgment, he soon left all his contemporaries at the Stock Exchange far behind. By the time he was twenty-six years old he was independently wealthy. After making a tidy sum by correctly deducing the outcome of the battle of Waterloo, he largely retired from active business worth between £500,000 and £1.6 million, a princely sum that he invested in both financial assets and real estate. Earnestly interested in weighty questions of public policy, Ricardo spent his remaining years expounding upon the economic lessons that he had learned in the City of London’s hyper-competitive securities markets.

Ricardo displayed some literary flair when composing polemical pamphlets and short op-ed pieces for newspapers. But when writing longer works for a sophisticated audience, like Principles, his exposition grew plodding yet terse, no doubt because he yearned for a degree of clarity and precision not easily attained with the English language. Indeed, historians of economic thought still ponder the intended meaning of some of his more opaque passages and Ricardo himself admitted that he was but a poor master of language. Yet for most people, Principles is more readily comprehended than the mathematical formulas that have supplanted words in most recent economic texts. And most contemporaries preferred reading even the most demanding passages of Ricardo’s prose over listening to his harsh, high-pitched speaking voice.

Utilitarian philosopher James Mill encouraged Ricardo to write Principles because he valued what critics of modern economic methodology would later dub Ricardian Vice, Ricardo’s deductive model-building. Moreover, Mill and others saw that the leading economic text of the day, Adam Smith’s seminal Wealth of Nations (1776), no longer adequately addressed the biggest problems facing the British economy—industrialization, urbanization, and the relative decline of the agricultural sector. Another great British scholar, Thomas Malthus, also befriended Ricardo. Although of diametrically different backgrounds and views, Malthus and Ricardo challenged each other to sharpen their respective interpretations by constructively criticizing each other’s ideas at every turn. They hunted together, contemporary Maria Edgeworth claimed, in search of the Truth. Malthus later admitted that, aside from members of his own family, he never loved anybody as much as he loved Ricardo though in the end they could do no more than agree to disagree.

In Principles, Ricardo exposed Adam Smith’s views as not so much wrong as woefully incomplete in certain particulars. Many of Ricardo’s difficulties with Smith’s views stemmed more from uncharitable readings of Wealth of Nations than from substantive differences. For instance, Ricardo incorrectly assumed that Smith also believed in the central importance of the law of diminishing returns, the view that output per worker will eventually decrease as more laborers are added to a production process. Similarly, Ricardo, who usually concerned himself with analyses of the long run, chided Smith for being too concerned with short-run changes. But clearly Ricardo modeled his Principles on Wealth of Nations, which he drew on extensively for ideas and organization as well as the occasional rhetorical foil. In short, Ricardo suckled at the intellectual teat of the father of capitalism.

It is therefore ironic that Ricardo influenced the intellectual father of communism, Karl Marx, who learned of Ricardo’s views directly from Principles and also indirectly through the writings of early British socialists. Socialists were drawn to Ricardo’s labor theory of value because it seemed to justify their notion that workers deserved a larger part of the economic wealth that they created. Unlike most socialist thinkers, however, Ricardo made clear that capital also helped to create wealth and hence should also receive its fair due.

Ricardo’s pessimistic view that population increases would likely erase the positive effects that productivity gains have on real wages was likewise music to Marx’s ears because it seemed to portend the end of capitalism. Again, however, only in a misunderstanding of the Ricardian system could socialists find succor. It was in fact German socialist Ferdinand Lassalle, not Ricardo, who strenuously argued that an iron law pinned real wages close to subsistence levels. Ricardo, by contrast, understood that in an improving society a rising demand for labor could outstrip its supply, leading to an increase in real wages above mere subsistence. Similarly, Ricardo deduced that overproduction, one of the main theoretical underpinnings for Marx’s belief in the inevitability of communism, was impossible.

Although Ricardo flirted briefly with the early Owenist movement, nobody has seriously argued that he was a socialist. Nevertheless, many classical economists never quite forgave him for insinuating the existence of a persistent conflict between labor and capital. For that and other politicized reasons, and the general faddishness of the academy, Ricardo’s reputation has vacillated over the years. Although lauded by most contemporaries, Principles suffered from abuse and disuse in the latter part of the nineteenth century, partly due to the admonition of British economist William Stanley Jevons, who proclaimed Ricardo an able but wrongheaded man who shunted the car of economic science to a wrong line. About the same time, with a vituperation rarely seen in the academic press, German economist Adolf Held accused Ricardo of defending the material interests of financiers!

Obviously, Ricardo could not have been both a socialist and a capitalist apologist. He was, in fact, a capitalist, but not an apologetic one. According to several of his contemporaries, Ricardo exhibited keen interest in the plights of the working poor and of pensioners of modest means. A bullionist, i.e., a critic of the Bank of England’s suspension of specie convertibility during the Napoleonic Wars, Ricardo helped to develop a plan that eased Britain back onto the gold standard, and price stability, by 1821. Like any good bond trader, Ricardo dreaded inflation because of its adverse effect on bond prices. But he also realized that inflation caused the purchasing power of annuities to decrease, much to the injury of widows, orphans, and others who lived on fixed incomes. So by backing a return to gold, Ricardo aided both rich and poor alike.

In addition to preventing pernicious increases in the price level, the gold standard aided international trade by decreasing transaction costs and foreign exchange rate uncertainty. Ricardo was a strong proponent of trade largely because he believed that it had a salubrious effect on the conditions of the working poor. For centuries, most economists and policymakers believed that wealth came at the expense of someone else. In such a zero sum world, exports were good because they appeared to increase wealth, particularly gold and silver, but imports were bad because they seemed to decrease the nation’s stock of precious metals. Many nations therefore implemented policies designed to decrease imports and increase exports. Great Britain, for example, passed laws, the so-called Corn Laws, that impeded the importation of grains.

Ricardo, like Smith before him, saw through such nonsense. People, he strenuously maintained, can be counted on to pursue their self-interest. They therefore trade only when they expect to get something out of the exchange, when they value the thing received (bought) more than the thing given (sold, or money). Whether examined at the individual or national level, both parties grow wealthier from trade, otherwise they would not bother making exchanges. Policies that limited trade therefore created poverty, not wealth. The Corn Laws were particularly bothersome in Ricardo’s view. To the extent that they dissuaded the importation of grains, the Corn Laws raised the domestic price of wheat, rye, barley, etc. Although high prices were a boon to British landlords, they injured consumers of bread, dairy products, and other goods sensitive to grain prices. The Corn Laws, in other words, came at a cost borne largely by industrialists and their workers. All trade restrictions, Ricardo deduced, helped some domestic interests (producers) while injuring others (consumers). His next insight, that the losses to consumers exceeded the gains to producers, sealed his conviction in favor of free trade and repeal of the Corn Laws.

Though he passed away in 1823, twenty-three years before the nation of his birth abolished the Corn Laws, Ricardo is widely credited with persuading British legislators that free trade would increase economic output. In Principles and in speeches in the Commons, where he served for four years, Ricardo made clear that nations were best served when they made the products that they were relatively good at producing and trading for the rest. That principle, comparative advantage, has been called the only concept in the social sciences that is both true and non-trivial. Its truth has been mathematically and empirically established; the depth of its profundity is demonstrated by the fact that almost no one intuits it and that few understand it at first.

Indeed, even Adam Smith stopped short of explicating the concept in full. All that he could muster was a special case of comparative advantage called absolute advantage. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, Smith correctly argued, better buy it of them with some part of the product of our own industry, employed in a way in which we have some advantage. What Ricardo showed was that a nation was better off trading even when it could not produce anything more efficiently than its trading partner could. It should make and trade away whatever it was comparatively good at producing, even if the other country was absolutely better at making it. If the other country did likewise, total output would be maximized.

Suppose, for example, that workers in Germany can produce 1 yard of cloth with 4 hours of work or 1 bushel of wheat with 2 hours of work, and that workers in Britain can produce 1 yard of cloth with 1 hour of work or 1 bushel of wheat with 1.5 hours of work. In 10 hours, Britain can therefore produce 10 yards of cloth, or 6.7 bushels of wheat, or some combination thereof, at the cost of 2 yards of cloth per 3 bushels of wheat. In 10 hours, Germany can produce 2.5 yards of cloth, or 5 bushels of wheat, or a combination thereof, at the cost of 2 yards of cloth per 1 bushel of wheat. Britain in this example has an absolute advantage over Germany in the production of both cloth (10 > 2.5) and wheat (6.7 > 5). Yet, trade would still profit both parties. If Britain specializes in what it does comparatively better (cheaper) than Germany, producing cloth, and if Germany specializes in what it does comparatively better (cheaper) than Britain, producing wheat, total production (and consumption) of both wheat and cloth will be maximized.

Without trade, the price ratio of cloth to wheat in Britain, as noted above, will be 2 to 3, while in Germany it will be 2 to 1. With trade, merchant-arbitrageurs, people who buy low in one market to sell high in another, will ensure that the price ratio of cloth to wheat in both Britain and Germany will be (roughly) the same. What the new ratio will become depends on a variety of factors but obviously it will fall between the initial price ratios in both countries, i.e., somewhere between 2/3 and 2/1. For convenience sake, suppose the new price ratio ends up at 1/1. In that case, Britain could make 1.5 yards of cloth instead of 1 bushel of wheat, then trade 1 yard of the cloth to Germany for 1 bushel of wheat. Clearly, Britain has gained .5 yards of cloth from the trade. Moreover, Germany can now produce 1 less yard of cloth, turning those resources instead to the production of 2 bushels of wheat. One of those bushels goes to Britain in exchange for the yard of cloth; the other bushel is Germany’s net gain from trade.

Although obviously fictional, and a little complicated, neither this example nor Ricardo’s parallel example of trade between Britain and Portugal is achieved by mathematical trick or rhetorical sleight of hand. Run as many examples as you wish, you will always find that whenever initial price ratios differ, trade produces welfare gains (more stuff) for both parties. Economists today realize that the real world is a little more complex than this, but Ricardo’s basic insight has been shown to hold in case after case, so they almost always argue for freer trade.

Were he alive today, Ricardo would applaud the United States for trading wheat, pharmaceuticals, higher education, motion pictures, and consulting services for televisions, DVD players, steel, and other manufactured goods. By doing what they do comparatively best, allowing others to do likewise, and encouraging unrestricted trade, the United States, Britain, and other stalwarts of the World Trade Organization, Ricardo would argue, are helping to make the world a better place.

Robert E. Wright, Financial and business historian Robert E. Wright is the author, co-author, editor, or co-editor of eight major works: Origins of Commercial Banking in America (2001); Wealth of Nations Rediscovered (2002); Hamilton Unbound (2002); History of Corporate Finance (2003); History of Corporate Governance (2004); Mutually Beneficial (2004); Chestnut Street (2005), and The U.S. National Debt (2005). A native of Western New York, he has taught courses in history, economics, and business at New York University, Temple University, the University of Virginia, and elsewhere.

ORIGINAL PREFACE

THE produce of the earth—all that is derived from its surface by the united application of labor, machinery, and capital, is divided among three classes of the community, namely, the proprietor of the land, the owner of the stock or capital necessary for its cultivation, and the laborers by whose industry it is cultivated.

But in different stages of society, the proportions of the whole produce of the earth which will be allotted to each of these classes, under the names of rent, profit, and wages, will be essentially different; depending mainly on the actual fertility of the soil, on the accumulation of capital and population, and on the skill, ingenuity, and instruments employed in agriculture.

In 1815, Mr. Malthus, in his Inquiry into the Nature and Progress of Rent, and a Fellow of University College, Oxford, in his Essay on the Application of Capital to Land, presented to the world, nearly at the same moment, the true doctrine of rent; without a knowledge of which it is impossible to understand the effect of the progress of wealth on profits and wages, or to trace satisfactorily the influence of taxation on different classes of the community; particularly when the commodities taxed are the productions immediately derived from the surface of the earth. Adam Smith, and other able writers to whom I have alluded, not having viewed correctly the principles of rent, have, it appears to me, overlooked many important truths, which can only be discovered after the subject of rent is thoroughly understood.

To supply this deficiency, abilities are required of a far superior cast to any possessed by the writer of the following pages; yet, after having given to this subject his best consideration—after the aid which he has derived from the works of the above-mentioned eminent writers—and after the valuable experience which a few later years, abounding in facts, have yielded to the present generation—it will not, he trusts, be deemed presumptuous in him to state his opinions on the laws of profits and wages, and on the operation of taxes. If the principles which he deems correct should be found to be so, it will be for others, more able than himself, to trace them to all their important consequences.

The writer, in combating received opinions, has found it necessary to advert more particularly to those passages in the writings of Adam Smith from which he sees reason to differ; but he hopes it will not, on that account, be suspected that he does not, in common with all those who acknowledge the importance of the science of Political Economy, participate in the admiration which the profound work of this celebrated author so justly excites.

The same remark may be applied to the excellent works of M. Say, who not only was the first, or among the first, of continental writers taken together to recommend the principles of that enlightened and beneficial system to the nations of Europe: but who has succeeded in placing the science in a more logical and more instructive order; and has enriched it by several discussions, original, accurate, and profound.¹ The respect, however, which the author entertains for the writings of this gentleman has not prevented him from commenting with that freedom which he thinks the interests of science require, on such passages of the Economie Politique as appeared at variance with his own ideas.

PREFACE TO THE THIRD EDITION

IN this edition I have endeavored to explain more fully than in the last my opinion on the difficult subject of Value, and for that purpose have made a few additions to the first chapter. I have also inserted a new chapter on the subject of Machinery, and on the effects of its improvement on the interests of the different classes of the state. In the chapter on the Distinctive Properties of Value and Riches, I have examined the doctrines of M. Say on that important question, as amended in the fourth and last edition of his work. I have in the last chapter endeavored to place in a stronger point of view than before the doctrine of the ability of a country to pay additional money taxes, although the aggregate money value of the mass of its commodities should fall, in consequence either of the diminished quantity of labor required to produce its corn at home, by improvements in its husbandry, or from its obtaining a part of its corn at a cheaper price from abroad, by means of the exportation of its manufactured commodities. This consideration is of great importance, as it regards the question of the policy of leaving unrestricted the importation of foreign corn, particularly in a country burdened with a heavy fixed money taxation, the consequence of an immense National Debt. I have endeavored to show that the ability to pay taxes depends, not on the gross money value of the mass of commodities, nor on the net money value of the revenues of capitalists and landlords, but on the money value of each man’s revenue compared to the money value of the commodities which he usually consumes.

March 26, 1821.

CHAPTER I

ON VALUE

SECTION I

The value of a commodity, or the quantity of any other commodity

for which it will exchange, depends on the relative quantity of labor

which is necessary for its production, and not on the greater or less

compensation which is paid for that labor.

IT has been observed by Adam Smith that "the word Value has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called value in use ; the other value in exchange. The things, he continues, which have the greatest value in use, have frequently little or no value in exchange; and, on the contrary, those which have greatest value in exchange, have little or no value in use." Water and air are abundantly useful; they are indeed indispensable to existence, yet, under ordinary circumstances, nothing can be obtained in exchange for them. Gold on the contrary, though of little use compared with air or water, will exchange for a great quantity of other goods.

Utility then is not the measure of exchangeable value, although it is absolutely essential to it. If a commodity were in no way useful—in other words, if it could in no way contribute to our gratification— it would be destitute of exchangeable value, however scarce it might be, or whatever quantity of labor might be necessary to procure it.

Possessing utility, commodities derive their exchangeable value from two sources: from their scarcity, and from the quantity of labor required to obtain them.

There are some commodities, the value of which is determined by their scarcity alone. No labor can increase the quantity of such goods, and therefore their value cannot be lowered by an increased supply. Some rare statues and pictures, scarce books and coins, wines of a peculiar quality, which can be made only from grapes grown on a particular soil, of which there is a very limited quantity, are all of this description. Their value is wholly independent of the quantity of labor originally necessary to produce them, and varies with the varying wealth and inclinations of those who are desirous to possess them.

These commodities, however, form a very small part of the mass of commodities daily exchanged in the market. By far the greatest part of those goods which are the objects of desire are procured by labor; and they may be multiplied, not in one country alone, but in many, almost without any assignable limit, if we are disposed to bestow the labor necessary to obtain them.

In speaking, then, of commodities, of their exchangeable value, and of the laws which regulate their relative prices, we mean always such commodities only as can be increased in quantity by the exertion of human industry, and on the production of which competition operates without restraint.

In the early stages of society, the exchangeable value of these commodities, or the rule which determines how much of one shall be given in exchange for another, depends almost exclusively on the comparative quantity of labor expended on each.

The real price of everything, says Adam Smith, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What everything is really worth to the man who has acquired it, and who wants to dispose of it, or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. Labor was the first price—the original purchase-money that was paid for all things. Again, in that early and rude state of society which precedes both the accumulation of stock and the appropriation of land, the proportion between the quantities of labor necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another. If, among a nation of hunters, for example, it usually cost twice the labor to kill a beaver which it does to kill a deer, one beaver should naturally exchange for, or be worth, two deer. It is natural that what is usually the produce of two days’ or two hours’ labor should be double of what is usually the produce of one day’s or one hour’s labor.¹

That this is really the foundation of the exchangeable value of all things, excepting those which cannot be increased by human industry, is a doctrine of the utmost importance in political economy; for from no source do so many errors, and so much difference of opinion in that science proceed, as from the vague ideas which are attached to the word value.

If the quantity of labor realized in commodities regulate their exchangeable value, every increase of the quantity of labor must augment the value of that commodity on which it is exercised, as every diminution must lower it.

Adam Smith, who so accurately defined the original source of exchangeable value, and who was bound in consistency to maintain that all things became more or less valuable in proportion as more or less labor was bestowed on their production, has himself erected another standard measure of value, and speaks of things being more or less valuable in proportion as they will exchange for more or less of this standard measure. Sometimes he speaks of corn, at other times of labor, as a standard measure; not the quantity of labor bestowed on the production of any object, but the quantity which it can command in the market: as if these were two equivalent expressions, and as if, because a man’s labor had become double efficient, and he could therefore produce twice the quantity of a commodity, he would necessarily receive twice the former quantity in exchange for it.

If this indeed were true, if the reward of the laborer were always in proportion to what he produced, the quantity of labor bestowed on a commodity, and quantity of labor which that commodity would purchase, would be equal, and either might accurately measure the variations of other things; but they are not equal; the first is under many circumstances an invariable standard, indicating correctly the variations of other things; the latter is subject to as many fluctuations as the commodities compared with it. Adam Smith, after most ably showing the insufficiency of a variable medium, such as gold and silver, for the purpose of determining the varying value of other things, has himself, by fixing on corn or labor, chosen a medium no less variable.

Gold and silver are no doubt subject to fluctuations from the discovery of new and more abundant mines; but such discoveries are rare, and their effects, though powerful, are limited to periods of comparatively short duration. They are subject also to fluctuation from improvements in the skill and machinery with which the mines may be worked; as in consequence of such improvements a greater quantity may be obtained with the same labor. They are further subject to fluctuation from the decreasing produce of the mines, after they have yielded a supply to the world for a succession of ages. But from which of these sources of fluctuation is corn exempted? Does not that also vary, on one hand, from improvements in agriculture, from improved machinery and implements used in husbandry, as well as from the discovery of new tracts of fertile land, which in other countries may be taken into cultivation, and which will affect the value of corn in every market where importation is free? Is it not on the other hand subject to be enhanced in value from prohibitions of importation, from increasing population and wealth, and the greater difficulty of obtaining the increased supplies, on account of the additional quantity of labor which the cultivation of inferior land requires? Is not the value of labor equally variable; being not only affected, as all other things are, by the proportion between the supply and demand, which uniformly varies with every change in the condition of the community, but also by the varying price of food and other necessaries, on which the wages of labor are expended?

In the same country double the quantity of labor may be required to produce a given quantity of food and necessaries at one time that may be necessary at another and a distant time; yet the laborer’s reward may possibly be very little diminished. If the laborer’s wages at the former period were a certain quantity of food and necessaries, he probably could not have subsisted if that quantity had been reduced. Food and necessaries in this case will have risen 100 percent, if estimated by the quantity of labor necessary to their production, while they will scarcely have increased in value if measured by the quantity of labor for which they will exchange.

The same remark may be made respecting two or more countries. In America and Poland, on the land last taken into cultivation, a year’s labor of any given number of men will produce much more corn than on land similarly circumstanced in England. Now, supposing all other necessaries to be equally cheap in those three countries, would it not be a great mistake to conclude that the quantity of corn awarded to the laborer would in each country be in proportion to the facility of production?

If the shoes and clothing of the laborer could, by improvements in machinery, be produced by one-fourth of the labor now necessary to their production, they would probably fall 75 percent; but so far is it from being true that the laborer would thereby be enabled permanently to consume four coats, or four pair of shoes, instead of one, that it is probable his wages would in no long time be adjusted by the effects of competition, and the stimulus to the population, to the new value of the necessaries on which they were expended. If these improvements extended to all the objects of the laborer’s consumption, we should find him probably, at the end of a very few years, in possession of only a small, if any, addition to his enjoyments, although the exchangeable value of those commodities, compared with any other commodity, in the manufacture of which no such improvement were made, had sustained a very considerable reduction; and though they were the produce of a very considerably diminished quantity of labor.

It cannot then be correct to say with Adam Smith, "that as labor may sometimes purchase a greater and sometimes a smaller quantity of goods, it is their value which varies, not that of the labor which purchases them; and therefore, that labor, alone never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared;—but it is correct to say, as Adam Smith had previously said, that the proportion between the quantities of labor necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another;" or in other words that it is the comparative quantity of commodities which labor will produce that determines their present or past relative value, and not the comparative quantities of commodities which are given to the laborer in exchange for his labor.

Two commodities vary in relative value, and we wish to know in which the variation has really taken place. If we compare the present value of one with shoes, stockings, hats, iron, sugar, and all other commodities, we find that it will exchange for precisely the same quantity of all these things as before. If we compare the other with the same commodities, we find it has varied with respect to them all: we may then with great probability infer that the variation has been in this commodity, and not in the commodities with which we have compared it. If on examining still more particularly into all the circumstances connected with the production of these various commodities, we find that precisely the same quantity of labor and capital are necessary to the production of the shoes, stockings, hats, iron, sugar, etc.; but that the same quantity as before is not necessary to produce the single commodity whose relative value is altered, probability is changed into certainty, and we are sure that the variation is in the single commodity: we then discover also the cause of its variation.

If I found that an ounce of gold would exchange for a less quantity of all the commodities above enumerated and many others; and if, moreover, I found that by the discovery of a new and more fertile mine, or by the employment of machinery to great advantage, a given quantity of gold could be obtained with a less quantity of labor, I should be justified in saying that the cause of the alteration in the value of gold relatively to other commodities was the greater facility of its production, or the smaller quantity of labor necessary to obtain it. In like manner, if labor fell very considerably in value, relatively to all other things, and if I found that its fall was in consequence of an abundant supply, encouraged by the great facility with which corn, and the other necessaries of the laborer, were produced, it would, I apprehend, be correct for me to say that corn and necessaries had fallen in value in consequence of less quantity of labor being necessary to produce them, and that this facility of providing for the support of the laborer had been followed by a fall in the value of labor. No, say Adam Smith and Mr. Malthus, in the case of the gold you were correct in calling its variation a fall of its value, because corn and labor had not then varied; and as gold would command a less quantity of them, as well as of all other things, than before, it was correct to say that all things had remained stationary and that gold only had varied; but when corn and labor fall, things which we have selected to be our standard measure of value, notwithstanding all the variations to which we acknowledge they are subject, it would be highly improper to say so; the correct language will be to say that corn and labor have remained stationary, and all other things have risen in value.

Now it is against this language that I protest. I find that precisely, as in the case of the gold, the cause of the variation between corn and other things is the smaller quantity of labor necessary to produce it, and therefore, by all just reasoning, I am bound to call the variation of corn and labor a fall in their value, and not a rise in the value of things with which they are compared. If I have to hire a laborer for a week, and instead of ten shillings I pay him eight, no variation having taken place in the value of money, the laborer can probably obtain more food and necessaries with his eight shillings than he before obtained for ten: but this is owing, not to a rise in the real value of his wages, as stated by Adam Smith, and more recently by Mr. Malthus, but to a fall in the value of the things on which his wages are expended, things perfectly distinct; and yet for calling this a fall in the real value of wages, I am told that I adopt new and unusual language, not reconcilable with the true principles of the science. To me it appears that the unusual and, indeed, inconsistent language is that used by my opponents.

Suppose a laborer to be paid a bushel of corn for a week’s work when the price of corn is 80s. per quarter, and that he is paid a bushel and a quarter when the price falls to 40s. Suppose, too, that he consumes half a bushel of corn a week in his own family, and exchanges the remainder for other things, such as fuel, soap, candles, tea, sugar, salt, etc. etc.; if the three-fourths of a bushel which will remain to him, in one case, cannot procure him as much of the above commodities as half a bushel did in the other, which it will not, will labor have risen or fallen in value? Risen, Adam Smith must say, because his standard is corn, and the laborer receives more corn for a week’s labor. Fallen, the same Adam Smith must say, because the value of a thing depends on the power of purchasing other goods which the possession of that object conveys, and labor has a less power of purchasing such other goods.

SECTION II

Labor of different qualities differently rewarded. This no cause of

variation in the relative value of commodities.

In speaking, however, of labor, as being the foundation of all value, and the relative quantity of labor as almost exclusively determining the relative value of commodities, I must not be supposed to be inattentive to the different qualities of labor, and the difficulty of comparing an hour’s or a day’s labor in one employment with the same duration of labor in another. The estimation in which different qualities of labor are held comes soon to be adjusted in the market with sufficient precision for all practical purposes, and depends much on the comparative skill of the laborer and intensity of the labor performed. The scale, when once formed, is liable to little variation. If a day’s labor of a working jeweler be more valuable than a day’s labor of a common laborer, it has long ago been adjusted and placed in its proper position in the scale of value.²

In comparing, therefore, the value of the same commodity at different periods of time, the consideration of the comparative skill and intensity of labor required for that particular commodity needs scarcely to be attended to, as it operates equally at both periods. One description of labor at one time is compared with the same description of labor at another; if a tenth, a fifth, or a fourth has been added or taken away, an effect proportioned to the cause will be produced on the relative value of the commodity.

If a piece of cloth be now of the value of two pieces of linen, and if, in ten years hence, the ordinary value of a piece of cloth should be four pieces of linen, we may safely conclude that either more labor is required to make the cloth, or less to make the linen, or that both causes have operated.

As the inquiry to which I wish to draw the reader’s attention relates to the effect of the variations in the relative value of commodities, and not in their absolute value, it will be of little importance to examine into the comparative degree of estimation