The rent doctrine gives one essential datum. A clear comprehension of rent is, as he was persuaded, 'of the utmost importance to political economy.'[303] The importance is that it enables him to separate one of the primary sources of revenue from the others. It is as though, in the familiar ill.u.s.tration, we were considering the conditions of equilibrium of a fluid; and we now see that one part may be considered as a mere overflow, resulting from (not determining) the other conditions. The primary a.s.sumption in the case of the market is the level of price. When we clearly distinguish rent on one side from profits and wages on the other, we see that we may also a.s.sume a level of profits. There cannot, as Ricardo constantly says, 'be two rates of profit,' that is, at the same time and in the same country. But so long as rent was lumped with other sources of revenue it was impossible to see, what Malthus and West had now made clear, that in agriculture, as in manufactures, the profits of the producer must conform to the principle. Given their theory, it follows that the power of land to yield a great revenue does not imply a varying rate of profit or a special bounty of nature bestowed upon agriculture. It means simply that, since the corn from the good and bad land sells at the same price, there is a surplus on the good. But as that surplus const.i.tutes rent, the farmer's rate of profit will still be uniform.

Thus we have got rid of one complication, and we are left with a comparatively simple issue. We have to consider the problem, What determines the distribution as between the capitalist and the labourer? That is the vital question for Ricardo.

Ricardo's theory, in the first place, is a modification of Adam Smith's. He accepts Smith's statement that wages are determined by the 'supply and demand of labourers,' and by the 'price of commodities on which their wages are expended.'[304] The appeal to 'supply and demand' implies that the rate of wages depends upon unchangeable economic conditions. He endorses[305] Malthus's statement about the absurdity of considering 'wages' as something which may be fixed by his Majesty's 'Justices of the Peace,' and infers with Malthus that wages should be left to find their 'natural level.' But what precisely is this 'natural level?' If the Justice of the Peace cannot fix the rate of wages, what does fix them? Supply and demand? What, then, is precisely meant in this case by the supply and demand? The 'supply' of labour, we may suppose, is fixed by the actual labouring population at a given time. The 'demand,' again, is in some way clearly related to 'capital.' As Smith again had said,[306] the demand for labour increases with the 'increase of revenue and "stock," and cannot possibly increase without it.' Ricardo agrees that 'population regulates itself by the funds which are to employ it, and therefore always increases or diminishes with the increase or diminution of capital.'[307] It was indeed a commonplace that the increase of capital was necessary to an increase of population, as it is obvious enough that population must be limited by the means of subsistence acc.u.mulated. Smith, for example, goes on to insist upon this in one of the pa.s.sages which partly antic.i.p.ates Malthus.[308] But this does not enable us to separate profit from wages, or solve Ricardo's problem.

When we speak of supply and demand as determining the price of a commodity, we generally have in mind two distinct though related processes. One set of people is growing corn, and another working coal mines. Each industry, therefore, has a separate existence, though each may be partly dependent upon the other. But this is not true of labour and capital. They are not products of different countries or processes. They are inseparable const.i.tuents of a single process.

Labour cannot be maintained without capital, nor can capital produce without labour. Capital, according to Ricardo's definition, is the 'part of the wealth of a country which is employed in production, and consists of food, clothing, raw materials, machinery, etc., necessary to give effect to labour.'[309] That part, then, of capital which is applied to the support of the labourer--his food, clothing, and so forth--is identical with wages. To say that, if it increases, his wages increase is to be simply tautologous. If, on the other hand, we include the machinery and raw materials, it becomes difficult to say in what sense 'capital' can be taken as a demand for labour. Ricardo tells Malthus that an acc.u.mulation of profit does not, as Malthus had said, necessarily raise wages[310]; and he ultimately decided, much to the scandal of his disciple, M'Culloch, that an increase of 'fixed capital' or machinery might be actually prejudicial, under certain circ.u.mstances, to the labourer. The belief of the labouring cla.s.s that machinery often injures them is not, he expressly says, 'founded on prejudice and error, but is conformable to the correct principles of political economy.'[311] The word 'capital,' indeed, was used with a vagueness which covered some of the most besetting fallacies of the whole doctrine. Ricardo himself sometimes speaks as though he had in mind merely the supply of labourers' necessaries, though he regularly uses it in a wider sense. The generalities, therefore, about supply and demand, take us little further.

From these difficulties Ricardo escapes by another method. Malthus's theory of population gives him what he requires. The 'natural price of labour' (as distinguished from its 'market price') is, as he a.s.serts, 'that price which is necessary to enable the labourers, one with another, to subsist and perpetuate their race without either increase or diminution.'[312] This is the true 'natural price,' about which the 'market price' oscillates. An increase of capital may raise wages for a time above the natural price, but an increase of population will bring back the previous rate. Ricardo warns us, indeed, that this natural price of labour is not to be regarded as something 'absolutely fixed and constant.'[313] It varies in different times and countries, and even in the same country at different times. An English cottager now possesses what would once have been luxuries. Ricardo admits again[314] that the wages of different cla.s.ses of labourers may be different, although he does not consider that this fact affects his argument. We may allow for it by considering the skilled labourer as 2 or 1-1/2 labourers rolled into one. The a.s.sumption enables him to get out of a vicious circle. He is seeking to discover the proportions in which produce will be divided between the two cla.s.ses, and which co-operate in the production. The 'demand and supply' principle may show that an increase of capital will tend to increase wages, but even that tendency, as he carefully points out, can only be admitted subject to certain important reservations. In any case, if it explains temporary fluctuations, it will not ascertain the point round which the fluctuations take place. But the two variables, wages and profit, are clearly connected, and if we can once a.s.sume that one of these variables is fixed by an independent law, we may explain in what way the other will be fixed. Having got rid of 'rent,' the remaining produce has to be divided between wages and profit. If the produce be fixed, the greater the share of the labourer the less will be the share of the capitalist, and _vice versa_. But the labourer's share again is determined by the consideration that it must be such as to enable him to keep up the population. The capitalist will get the surplus produce after allowing to the labourer the share so determined. Everything turns ultimately upon this 'natural price'--the constant which underlies all the variations.

One other point is implied. The population is limited, as we see, by the necessity of raising supplies of food from inferior soils.

Moreover, this is the sole limit. A different view had been taken which greatly exercised the orthodox economists. It was generally admitted that in the progress of society the rate of profit declined.

Adam Smith explained this by arguing that, as capital increased, the compet.i.tion of capitalists lowered the rate. To this it was replied (as by West) that though compet.i.tion equalised profits, it could not fix the rate of profit. The simple increase of capital does not prove that it will be less profitably employed. The economists had constantly to argue against the terrible possibility of a general 'glut.' The condition of things at the peace had suggested this alarm.

The mischief was ascribed to 'over-production' and not to misdirected production. The best cure for our evils, as some people thought, would be to burn all the goods in stock. On this version of the argument, it would seem that an increase of wealth might be equivalent to an increase of poverty. To confute the doctrine in this form, it was only necessary to have a more intelligent conception of the true nature of exchange. As James Mill had argued in his pamphlet against Spence, every increase of supply is also an increase of demand. The more there is to sell, the more there is to buy. The error involved in the theory of a 'glut' is the confusion between a temporary dislocation of the machinery of exchange, which can and will be remedied by a new direction of industry, and the impossible case of an excess of wealth in general.[315] Malthus never quite cleared his mind of this error, and Ricardo had to argue the point with him. Abundance of capital cannot by itself, he says, 'make capital less in demand.' The 'demand for capital is infinite.'[316] The decline in the rate of profit, therefore, depends upon another cause. 'If, with every acc.u.mulation of profit, we could tack a piece of fresh fertile land to our Island, profits would never fall.'[317] Fertile land, however, is limited. We have to resort to inferior soil, and therefore to employ capital at a less advantage. In the _Principles_ he enforces the same doctrine with the help of Say, who had shown 'most satisfactorily' that any amount of capital might be employed.[318] If, in short, labour and capital were always equally efficient, there would be no limit to the amount producible. If the supply of food and raw materials can be multiplied, wealth can be multiplied to any amount. The admitted tendency of profits to fall must therefore be explained simply and solely by the growing difficulty of producing the food and the raw material.

Ricardo's doctrine, then, is Malthus carried out more logically. Take a nation in a state of industrial equilibrium. The produce of the worst soil just supports the labourer, and leaves a profit to the capitalist. The labourer gets just enough to keep up his numbers to the standard; the capitalist just enough profit to induce him to keep up the capital which supports the labourer. Since there can be only one rate of wages and only one rate of profit, this fixes the shares into which the whole produce of the nation is divided, after leaving to the landlord the surplus produce of the more fertile soils.

Accepting this scheme as a starting-point, we get a method for calculating the results of any changes. We can see how a tax imposed upon rents or profits or wages will affect the cla.s.ses which are thus related; how improvements in cultivation or machinery, or a new demand for our manufactures, will act, a.s.suming the conditions implied in this industrial organisation; how, in short, any disturbance of the balance will work, so as to produce a new equilibrium. Ricardo exerts all his ingenuity in working out the problem which, with the help of a few a.s.sumptions, becomes mathematical. The arithmetical ill.u.s.trations which he employed for the purpose became a nuisance in the hands of his disciples. They are very useful as checks to general statements, but lend themselves so easily to the tacit introduction of erroneous a.s.sumptions as often to give a totally false air of precision to the results. Happily I need not follow him into that region, and may omit any consideration of the logical value of his deductions. I must be content to say that, so far as he is right, his system gives an economic calculus for working out the ultimate result of a.s.signed economic changes. The pivot of the whole construction is the 'margin of cultivation'--the point at which the food for a pressing population is raised at the greatest disadvantages. 'Profits,' as he says,[319]

'depend on high and low wages; wages on the price of necessaries; and the price of necessaries chiefly on the price of food, because all other requisites may be increased almost without limit.'

Ricardo takes the actual const.i.tution of society for granted. The threefold division into landowners, capitalists, and labourers is a.s.sumed as ultimate. For him that is as much a final fact as to a chemist it is a final fact that air and water are composed of certain elements. Each cla.s.s represents certain economic categories. The landlord sits still and absorbs the overflow of wealth created by others. The labourer acts a very important but in one respect a purely pa.s.sive part. His whole means of subsistence are provided by the capitalist, and advanced to him in the shape of wages. His share in the process is confined to multiplying up to a fixed standard. The capitalist is the really active agent. The labourer is simply one of the implements used in production. His wages are part of the capitalist's 'costs of production.' The capitalist virtually raises labourers, one may say, so long as raising them is profitable, just as he raises horses for his farm. Ricardo, in fact, points out that in some cases it may be for the farmer's interest to subst.i.tute horses for men.[320] If it be essential to any product that there should be a certain number of labourers or a certain number of horses, that number will be produced. But when the expense becomes excessive, and in the case of labourers that happens as worse soils have to be broken up for food, the check is provided through its effect upon the acc.u.mulation of capital. That, therefore, becomes the essential point. The whole aim of the legislator should be to give facilities for the acc.u.mulation of capital, and the way to do that is to abstain from all interference with the free play of the industrial forces. The test, for example, of the goodness of a tax--or rather of its comparative freedom from the evils of every tax--is that it should permit of acc.u.mulation by interfering as little as possible with the tendency of the capital to distribute itself in the most efficient way.

III. VALUE AND LABOUR

To solve the distribution problem, then, it is necessary to get behind the mere fluctuations of the market, and to consider what are the ultimate forces by which the market is itself governed. What effect has this upon the theory of the market itself? This leads to a famous doctrine.

According to his disciple, M'Culloch, Ricardo's great merit was that he 'laid down the fundamental theorem of the science of value.' He thus cleared up what had before been an 'impenetrable mystery,' and showed the true relations of profit, wages, and prices.[321] Ricardo's theory of value, again, was a starting-point of the chief modern Socialist theories. It marked, as has been said,[322] the point at which the doctrine of the rights of man changes from a purely political to an economical theory. Ricardo remarks in his first chapter that the vagueness of theories of value has been the most fertile source of economic errors. He admitted to the end of his life that he had not fully cleared up the difficulty. Modern economists have refuted and revised and discussed, and, let us hope, now made everything quite plain. They have certainly shown that some of Ricardo's puzzles implied confusions singular in so keen a thinker.

That may serve as a warning against dogmatism. Boys in the next generation will probably be asked by examiners to expose the palpable fallacies of what to us seem to be demonstrable truths. At any rate, I must try to indicate the critical point as briefly as possible.

The word 'value,' in the first place, has varying meanings, which give an opportunity for writers of text-books to exhibit their powers of lucid exposition. The value of a thing in one sense is what it will fetch; the quant.i.ty of some other thing for which it is actually exchanged in the market. In that sense, as Ricardo incidentally observes,[323] the word becomes meaningless unless you can say what is the other thing. It is self-contradictory to speak as if a thing by itself could have a constant or any value. Value, however, may take a different sense. It is the economic equivalent of the 'utility' of Bentham's 'felicific calculus.' It means the 'lot of pleasure' which causes a thing to be desirable. If we could tell how many units of utility it contained we could infer the rate of exchange for other things. The value of anything 'in use' will correspond to the number of units of utility which it contains; and things which have the same quant.i.ty of 'utilities' will have the same 'exchangeable value.'

Ricardo can thus consider the old problem of finding 'an invariable measure of value.' He points out the difficulty of finding any particular thing which will serve the purpose, inasmuch as the relations of everything to everything else are constantly varying. He therefore proposes to make use of an imaginary measure. If gold were always produced under exactly the same circ.u.mstances, with the same labour and the same capital, it would serve approximately for a standard. Accordingly he gives notice that, for the purposes of his book, he will a.s.sume this to be the case, and money to be 'invariable in value.'[324] We can thus, on the one hand, compare values at different periods. A thing has the same value at all times which at all times requires 'the same sacrifice of toil and labour to produce it.'[325] The 'sacrifice' measures the 'utility,' and we may a.s.sume that the same labour corresponds in all ages to the same psychological unit. But, on the other hand, at any given period things will exchange in proportion to the labour of producing them. This follows at once from Ricardo's postulates. Given the single rate of wages and profits, and a.s.suming the capital employed to be in the same proportion, things must exchange in proportion to the quant.i.ty of labour employed; for if I got the same value by employing one labourer as you get by employing two, my profits would be higher. Ricardo, indeed, has to allow for many complexities arising from the fact that very different quant.i.ties of capital are required in different industries; but the general principle is given by the simplest case. Hence we have a measure of value, applicable at any given time and in comparing different times.

It implies, again, what M'Culloch sums up as the 'fundamental theorem,' that the value of 'freely produced commodities' depends on the quant.i.ty of labour required for their 'production.' What is made by two men is worth twice what is made by one man. That gives what M'Culloch calls the 'clue to the labyrinth.'

The doctrine leads to a puzzle. If I can measure the 'sacrifice,' can I measure the 'utility' which it gains? The 'utility' of an ounce of gold is not something 'objective' like its physical qualities, but varies with the varying wants of the employer. Iron or coal may be used for an infinite variety of purposes and the utility will be different in each. The thing may derive part of its 'utility' from its relation to other things. The utility of my food is not really separate from the utility of my hat; for unless I eat I cannot wear hats. My desire for any object, again, is modified by all my other desires, and even if I could isolate a 'desire' as a psychological unit, it would not give me a fixed measure. Twice the article does not give twice the utility; a double stimulus may only add a small pleasure or convert it into agony. These and other difficulties imply the hopelessness of searching for this chimerical unit of 'utility'

when considered as a separate thing. It shifts and escapes from our hands directly we grasp it. Ricardo discusses some of these points in his interesting chapter on 'Value and Riches.' Gold, he says, may cost two thousand times more than iron, but it is certainly not two thousand times as useful.[326] Suppose, again, that some invention enables you to make more luxuries by the same labour, you increase wealth but not value. There will be, say, twice as many hats, but each hat may have half its former value. There will be more things to enjoy, but they will only exchange for the same quant.i.ty of other things. That is, he says, the amount of 'riches' varies, while the amount of value is fixed. This, according to him, proves that value does not vary with 'utility.' 'Utility,' as he declares in his first chapter, is 'absolutely essential to value,' but it is 'not the measure of exchangeable value.'[327] A solution of these puzzles may be sought in any modern text-book. Ricardo escapes by an apparently paradoxical conclusion. He is undertaking an impossible problem when he starts from the buyers' desire of an 'utility.' Therefore he turns from the buyers to the sellers. The seller has apparently a measurable and definable motive--the desire to make so much per cent. on his capital.[328] Ricardo, unfortunately, speaks as though the two parties to the bargain somehow represented mutually exclusive processes.

'Supply and demand' determine the value of 'monopolised articles,' but the cost of other articles depends _not_ 'on the state of demand and supply,' _but_ 'on the increased or diminished cost of their production.'[329] Why 'not' and 'but'? If supply and demand corresponds to the whole play of motives which determines the bargain, this is like saying, according to the old ill.u.s.tration, that we must attribute the whole effect of a pair of scissors to one blade and not to the other. His view leads to the apparent confusion of taking for the cause of value not our desire for a thing, but the sacrifice we must make to attain it. Bentham[330] said, for example, that Ricardo confused 'cost' with 'value.' The denial that utility must in some sense or other determine value perplexes an intelligible and consistent meaning. It is clearly true, upon his postulates, that the value of goods, other than 'monopolised,' must conform to the cost of production. He speaks as if he confounded a necessary condition with an 'efficient cause,' and as if one of two correlative processes could be explained without the other. But the fact that there is a conformity, however brought about, was enough for his purpose. The demand of buyers, he would say, determines the particular direction of production: it settles whether hats should be made of silk or beaver; whether we should grow corn or spin cotton. But the ultimate force is the capitalist's desire for profit. So long as he can raise labourers'

necessaries by employing part of his capital, he can employ the labour as he chooses. He can always produce wealth; all the wealth produced can be exchanged, and the demand always be equal to the supply, since the demand is merely the other side of the supply. The buyer's tastes decide how the capital shall be applied, but does not settle how much wealth there shall be, only what particular forms it shall take.

Somehow or other it must always adjust itself so that the value of each particular kind shall correspond to the 'cost of production.' The cost of production includes the tools and the raw materials, which are themselves products of previous labour. All capital itself is ultimately the product of labour, and thus, as Ricardo incidentally says, may be regarded as 'acc.u.mulated labour.'[331]

This phrase sums up the doctrine which underlies his theory of value and indicates its connection with the theory of distribution. Ricardo had perceived that the supply and demand formula which would serve sufficiently in problems of exchange, or the fluctuations of market-price, could not be made to solve the more fundamental problem of distribution. We must look beneath the superficial phenomena and ask what is the nature of the structure itself: what is the driving force or the mainspring which works the whole mechanism. We seem, indeed, to be inquiring into the very origin of industrial organisation. The foundation of a sound doctrine comes from Adam Smith. Smith had said that in a primitive society the only rule would be that things should exchange in proportion to the labour of getting them. If it cost twice as much labour to kill a beaver as to kill a deer, one beaver would be worth two deer. In accepting this bit of what Smith's commentator, Dugald Stewart,[332] calls 'theoretical' or 'conjectural' history, Ricardo did not mean to state a historical fact. He was not thinking of actual Choctaws or Cherokees. The beaver was exchanged for the deer about the time when the primitive man signed the 'social contract.' He is a hypothetical person used for purposes of ill.u.s.tration and simplification. Ricardo is not really dealing with the question of origins; but he is not the less implying a theory of structure. It did not matter that the 'social contract'

was historically a figment; it would serve equally well to explain government. It did not matter that actual savages may have exchanged beavers and deer by the help of clubs instead of compet.i.tion in the market. The industrial fabric is what would have been had it been thus built up. It can be constructed from base to summit by the application of his formula. As in the imaginary state of deer and beaver, we have a number of independent persons making their bargains upon this principle of the equivalence of labour; and that principle is supposed to be carried out so that the most remote processes of the industrial machinery can be a.n.a.lysed into results of this principle. This gives a sufficient clue to the whole labyrinth of modern industry, and there is no need of considering the extinct forms of social structure, which we know to have existed, and under which the whole system of distribution took place under entirely different conditions.[333] A great change has taken place since the time of the deer and beaver: the capitalist has been developed, and has become the motive power.

The labourer's part is pa.s.sive; and the 'value' is fixed by the bargaining between the proprietors of 'acc.u.mulated labour,' forced by compet.i.tion to make equal profits, instead of being fixed by the equitable bargain between the two hunters exchanging the products of their individual labour. Essentially, however, the principle is the same. In the last as in the first stage of society, things are exchanged in proportion to the labour necessary to produce them. Now it is plain enough that such a doctrine cannot lead to a complete solution of the problem of distribution. It would be a palpably inadequate account of historical processes which have determined the actual relation of cla.s.ses. The industrial mechanism has been developed as a part of the whole social evolution; and, however important the economic forces, they have been inextricably blended with all the other forces by which a society is built up. For the same reason, Ricardo's theorem would be inadequate 'sociologically,' or as a formula which would enable us to predict the future distribution of wealth. It omits essential factors in the process, and therefore supposes forces to act automatically and invariably which will in fact be profoundly modified in societies differently organised and composed of individuals differing in character. The very fundamental a.s.sumptions as to the elasticity of population, and the acc.u.mulation of capital as wages and profits fluctuate, are clearly not absolute truths. An increase of the capitalist's share, for example, at the expense of wages, may lead to the lowered efficiency of the labourer; and, instead of the compensating process supposed to result from the stimulus to acc.u.mulation, the actual result may be a general degeneration of the industry. Or, again, the capacity of labourers to combine both depends and reacts upon their intelligence and moral character, and will profoundly modify the results of the general compet.i.tion.[334] Such remarks, now familiar enough, are enough to suggest that a full explanation of the economic phenomena would require reference to considerations which lie beyond the proper sphere of the economist. Yet the economist may urge that he is making a fair and perhaps necessary abstraction. He may consider the forces to be constant, although he may be fully aware that the a.s.sumption requires to be corrected when his formulae are applied to facts. He may consider what is the play at any given time of the operations of the market, though the market organisation is itself dependent upon the larger organisation of which it is a product. He does not profess to deal in 'sociology,' but 'pure political economy.' In that more limited sphere he may accept Ricardo's postulates. The rate of wages is fixed at any given moment by the 'labour market.' That is the immediate organ through which the adjustment is effected. Wages rise and fall like the price of commodities, when for any reason the number of hirers or the number of purchasers varies. The 'supply and demand'

formula, however, could not, as Ricardo saw, be summarily identified with labour and capital. We must go behind the immediate phenomena to consider how they are regulated by the ultimate moving power. Then, with the help of the theories of population and rent, we find that the wages are one product of the whole industrial process. We must look beyond the immediate market fluctuation to the effect upon the capitalists who const.i.tute the market. The world is conceived as one great market, in which the motives of the capitalist supply the motive power; and the share which goes to the labourer is an incidental or collateral result of the working of the whole machinery. Now, though the sociologist would say that this is quite inadequate for his purpose, and that we must consider the whole social structure, he may also admit that the scheme has a validity in its own sphere. It describes the actual working of the mechanism at any given time; and it may be that in Ricardo's time it gave an approximate account of the facts. To make it complete, it requires to be set, so to speak, in a more general framework of theory; and we may then see that it cannot give a complete solution. Still, as a consistent scheme which corresponds to the immediate phenomena, it helps us to understand the play of the industrial forces which immediately regulate the market.

Ricardo's position suggested a different line of reply. The doctrines that capital is 'acc.u.mulated labour' and that all value is in proportion to the labour fell in with the Socialist theory. If value is created by labour, ought not 'labour' to possess what it makes? The right to the whole produce of labour seemed to be a natural conclusion. Ricardo might answer that when I buy your labour, it becomes mine. I may consider myself to have acquired the rights of the real creator of the wealth, and to embody all the labourers, whose 'acc.u.mulated labour' is capital. Still, there is a difficulty. The beaver and deer case has an awkward ethical aspect. To say that they are exchanged at such a rate seems to mean that they ought to be exchanged at the rate. This again implies the principle that a man has a right to what he has caught; that is, to the whole fruits of his labour. James Mill, as we have seen, starts his political treatise by a.s.suming this as obvious.[335] He did not consider the possible inferences; for it is certainly a daring a.s.sumption that the principle is carried out by the economic system. According to Ricardo rent is paid to men who don't labour at all. The fundholder was a weight upon all industry, and as dead a weight as the landlord. The capitalist, Ricardo's social mainspring, required at least cross-examination. He represents 'acc.u.mulated labour' in some fashion, but it is not plain that the slice which he takes out of the whole cake is proportioned accurately to his personal labour. The right and the fact which coincided in the deer and beaver period have somehow come to diverge.

Here, then, we are at a point common to the two opposing schools.

Both are absolute 'individualists' in different senses. Society is built up, and all industrial relations determined, by the compet.i.tion of a mult.i.tude of independent atoms, each aiming at self-preservation.

Malthus's principle applies this to the great ma.s.s of mankind.

Systematically worked out, it has led to Ricardo's identification of value with quant.i.ties of labour. Keeping simply to the matter of fact, it shows how a small minority have managed to get advantages in the struggle, and to raise themselves upon the shoulders of the struggling ma.s.s. Malthus shows that the resulting inequality prevents the struggle from lowering every one to starvation point. But the advantage was not obvious to the struggling ma.s.s which exemplified the struggle for existence. If equality meant not the initial facts but the permanent right, society was built upon injustice. Apply the political doctrine of rights of man to the economic right to wealth, and you have the Socialist doctrine of right to the whole produce of labour. It is true that it is exceedingly difficult to say what each man has created when he is really part of a complex machinery; but that is a problem to which Socialists could apply their ingenuity. The real answer of the political economists was that although the existing order implied great inequalities of wealth it was yet essential to industrial progress, and therefore to an improvement in the general standard of comfort. This, however, was the less evident the more they insisted upon the individual interest. The net result seemed to be that by accident or inheritance, possibly by fraud or force, a small number of persons have got a much larger share of wealth than their rivals. Ricardo may expound the science accurately; and, if so, we have to ask, What are the right ethical conclusions?

For the present, the Utilitarians seem to have considered this question as superfluous. They were content to take the existing order for granted; and the question remains how far their conclusions upon that a.s.sumption could be really satisfactory.

IV. THE CLa.s.sICAL POLITICAL ECONOMY.

Ricardo had worked out the main outlines of the 'Cla.s.sical Political Economy': the system which to his disciples appeared to be as clear, consistent, and demonstrable as Euclid; and which was denounced by their opponents as mechanical, materialistic, fatalistic, and degrading. After triumphing for a season, it has been of late years often treated with contempt, and sometimes banished to the limbo of extinct logomachies. It is condemned as 'abstract.' Of all delusions on the subject, replies a very able and severe critic,[336] there is none greater than the belief that it was 'wholly abstract and unpractical.' Its merits lay in its treatment of certain special questions of the day; while in the purely scientific questions it was hopelessly confused and inconsistent. Undoubtedly, as I have tried to point out, Malthus and Ricardo were reasoning upon the contemporary state of things. The doctrine started from observation of facts; it was too 'abstract' so far as it neglected elements in the concrete realities which were really relevant to the conclusions. One cause of confusion was the necessity of starting from the cla.s.sification implied in ordinary phrases. It is exemplified by the vague use of such words as 'capital,' 'value,' 'supply and demand.' Definitions, as is often remarked,[337] come at the end of an investigation, though they are placed at the beginning of an exposition. When the primary conceptions to be used were still so shifting and contradictory as is implied in the controversies of the day, it is no wonder that the formulae should be wanting in scientific precision. Until we have determined what is meant by 'force' we cannot have a complete science of dynamics. The economists imagined that they had reached the goal before they had got rid of ambiguities hidden in the accepted terminology. Meanwhile it will be enough if I try to consider broadly what was the nature of the body of statements which thus claimed to be an elaborated science.

Ricardo's purpose was to frame a calculus, to give a method of reasoning which will enable us to clinch our economic reasoning. We are to be sure that we have followed out the whole cycle of cause and effect. Capitalists, landowners, labourers form parts of a rounded system, implying reciprocal actions and reactions. The imposition of a tax or a tariff implies certain changes in existing relations: that change involves other changes; and to trace out the total effect, we must understand what are the ultimate conditions of equilibrium, or what are the processes by which the system will adjust itself to the new conditions. To describe, again, the play of a number of reciprocal forces, we have to find what mathematicians call an 'independent variable': some one element in the changes on which all other changes will depend. That element, roughly speaking, ultimately comes out to be 'labour.' The simplicity of the system gave an impression both of clearness and certainty, which was transferred from the reasoning to the premises. The facts seemed to be established, because they were necessary to the system. The first step to an estimate of the value of the doctrine would be to draw up a statement of the 'postulates'

implied. Among them, we should have such formulae as the single rate of profits and wages; which imply the 'transferability' of labour and capital, or the flow of either element to the best-paid employment. We should have again the Malthusian doctrine of the multiplication of labour up to a certain standard; and the fact that scarcity means dearness and plenty cheapness. These doctrines at least are taken for granted; and it may perhaps be said that they are approximations which only require qualifications, though sometimes very important qualifications, to hold good of the society actually contemplated.

They were true enough to give the really conclusive answer to many popular fallacies. The type of sophistry which Ricardo specially a.s.sailed was that which results from neglecting the necessary implications of certain changes. The arguments for the old 'mercantile theory'--for 'protection' of industry, for the poor-law, for resisting the introduction of machinery, the fear of 'gluts' and all manner of doctrines about the currency--were really exposed by the economists upon the right grounds. It was absurd to suppose that by simply expanding the currency, or by making industry less efficient, or forcing it to the least profitable employments, you were increasing the national wealth; or to overlook the demoralising effects of a right to support because you resolved only to see the immediate benefits of charity to individuals. It is true, no doubt, that in some cases there might be other arguments, and that the economists were apt to take a narrow view of the facts. Yet they decisively exploded many bad arguments, and by the right method of enforcing the necessity of tracing out the whole series of results. It was partly to their success in confuting absurd doctrines that their confidence was due; though the confidence was excessive when it was transferred to the axioms from which they professed to start. A doctrine may be true enough to expose an error, and yet not capable of yielding definite and precise conclusions. If I know that nothing can come out of nothing, I am on the way to a great scientific principle and able to confute some palpable fallacies; but I am still a very long way from understanding the principle of the 'conservation of energy.' The truth that scarcity meant dearness was apparently well known to Joseph in Egypt, and applied very skilfully for his purpose. Economists have framed a 'theory of value' which explains more precisely the way in which this is brought about. A clear statement may be valuable to psychologists; but for most purposes of political economy Joseph's knowledge is quite sufficient. It is the doctrine which is really used in practice whatever may be its ultimate justification.

The postulates, however, were taken by the economists to represent something more than approximate statements of the fact. They imply certain propositions which might be regarded as axioms. Men desire wealth and prefer their own interests. The whole theory might then be regarded as a direct deduction from the axioms. It thus seemed to have a kind of mathematical certainty. When facts failed to conform to the theory the difficulty could be met by speaking, as Malthus spoke, of 'tendencies,' or by appealing to the a.n.a.logy of 'friction' in mechanics. The excuse might be perfectly valid in some cases, but it often sanctioned a serious error. It was a.s.sumed that the formula was still absolutely true of something, and that the check or friction was a really separable and accidental interference. Thus it became easy to discard, as irrelevant, objections which really applied to the principle itself, and to exaggerate the conformity between fact and theory. The economic categories are supposed to state the essential facts, and the qualifications necessary to make them accurate were apt to slip out of sight. Ricardo,[338] to mention a familiar instance, carefully points out that the 'economic rent,' which clearly represents an important economic category, is not to be confounded, as in 'popular' use, with the payments actually made, which often include much that is really profit. The distinction, however, was constantly forgotten, and the abstract formula summarily applied to the concrete fact.

The economists had constructed a kind of automaton which fairly represented the actual working of the machinery. But then, each element of their construction came to represent a particular formula, and to represent nothing else. The landlord is simply the receiver of surplus value; the capitalist the one man who saves, and who saves in proportion to profit; and the labourer simply the embodiment of Malthus's multiplying tendency. Then the postulates as to the ebb and flow of capital and labour are supposed to work automatically and instantaneously. Ricardo argues that a tax upon wages will fall, not, as Buchanan thought, upon the labourer, nor, as Adam Smith thought, upon rent, but upon profits; and his reason is apparently that if wages were 'lowered the requisite population would not be kept up.'[339] The labourer is able to multiply or diminish so rapidly that he always conforms at once to the required standard. This would seem to neglect the consideration that, after all, some time is required to alter the numbers of a population, and that other changes of a totally different character may be meanwhile set up by rises and falls of wages. Ricardo, as his letters show,[340] was well aware of the necessity of making allowance for such considerations in applying his theorems. He simplified the exposition by laying them down too absolutely; and the doctrine, taken without qualification, gives the 'economic man,' who must be postulated to make the doctrine work smoothly. The labourer is a kind of constant unit--absolutely fixed in his efficiency, his wants, and so forth; and the same at one period as at another, except so far as he may become more prudent, and therefore fix his 'natural price' a little higher. An 'iron law' must follow when you have invented an iron unit. In short, when society is represented by this hypothetical mechanism, where each man is an embodiment of the required formula, the theory becomes imperfect so far as society is made up of living beings, varying, though gradually, in their whole character and attributes, and forming part of an organised society incomparably too complex in its structure to be adequately represented by the three distinct cla.s.ses, each of which is merely a formula embodied in an individual man. The general rules may be very nearly true in a great many cases, especially on the stock-exchange; but before applying them to give either a history or a true account of the actual working of concrete inst.i.tutions, a much closer approximation must be made to the actual data.

I need not enlarge, however, upon a topic which has been so often expounded. I think that at present the tendency is rather to do injustice to the common-sense embodied in this system, to the soundness of its aims, and to its value in many practical and immediate questions, than to overestimate its claim to scientific accuracy. That claim may be said to have become obsolete.

One point, however, remains. The holders of such a doctrine must, it is said, have been without the bowels of compa.s.sion. Ricardo, as critics observe with undeniable truth, was a Jew and a member of the stock-exchange. Now Jews, in spite of Shylock's a.s.sertions, and certainly Jewish stockbrokers, are naturally without human feeling. If you p.r.i.c.k them, they only bleed banknotes. They are fitted to be capitalists, who think of wages as an item in an account, and of the labourer as part of the tools used in business. Ricardo, however, was not a mere money-dealer, nor even a walking treatise. He was a kindly, liberal man, desirous to be, as he no doubt believed himself to be, in sympathy with the leaders of political and scientific thought, and fully sharing their aspirations. No doubt he, like his friends, was more conspicuous for coolness of head than for impulsive philanthropy. Like them, he was on his guard against 'sentimentalism'

and 'vague generalities,' and thought that a hasty benevolence was apt to aggravate the evils which it attacked. The Utilitarians naturally translated all aspirations into logical dogmas; but some people who despised them as hard-hearted really took much less pains to give effect to their own benevolent impulses. Now Ricardo, in this matter, was at one with James Mill and Bentham, and especially Malthus.[341]

The essential doctrine of Malthus was that the poor could be made less poor by an improved standard of prudence. In writing to Malthus, Ricardo incidentally remarks upon the possibility of raising the condition of the poor by 'good education' and the inculcation of foresight in the great matter of marriage.[342] Incidental references in the _Principles_ are in the same strain. He accepts Malthus's view of the poor-laws, and hopes that, by encouraging foresight, we may by degrees approach 'a sounder and more healthful state.'[343] He repudiates emphatically a suggestion of Say that one of his arguments implies 'indifference to the happiness' of the ma.s.ses,[344] and holds that 'the friends of humanity' should encourage the poor to raise their standard of comfort and enjoyment. The labourers, as he elsewhere incidentally observes, are 'by far the most important cla.s.s in society.'[345] How should they not be if the greatest happiness of the greatest number be the legitimate aim of all legislation?

It is true that in his argument Ricardo constantly a.s.sumes that his 'natural price' will also be the real price of labour. The a.s.sumption that the labourers' wages tend to a minimum is a base for his general arguments. The inconsistency, if there be one, is easily intelligible.

Ricardo agreed with Malthus that, though the standard might be raised, and though a rise was the only way to improvement, the chances of such a rise were not encouraging. Improved wages, as he says,[346] might enable the labourer to live more comfortably if only he would not multiply. But 'so great are the delights of domestic society, that in practice it is invariably found that an increase of population follows an amended condition of the labourer,' and thus the advantage is lost as soon as gained.

I have tried to show what was the logical convenience of the a.s.sumption. Ricardo, who has always to state an argument at the cost of an intellectual contortion, is content to lay down a rule without introducing troublesome qualifications and reserves. Yet he probably held that his postulate was a close approximation to the facts.

Looking at the actual state of things at the worst time of the poor-law, and seeing how small were the prospects of stirring the languid mind of the pauper to greater forethought, he thought that he might a.s.sume the constancy of an element which varied so slowly. The indifference of the Ricardo school generally to historical inquiry had led them no doubt to a.s.sume such constancy too easily. Malthus, who had more leaning to history, had himself called attention to many cases in which the 'prudential check' operated more strongly than it did among the English poor. Probably Ricardo was in this, as in other cases, too hasty in a.s.suming facts convenient for his argument. The poor man's character can, it is clear, be only known empirically; and, in fact, Ricardo simply appeals to experience. He thinks that, as a fact, men always do multiply in excess. But he does not deny that better education might change their character in this respect. Indeed, as I have said, an even excessive faith in the possible modification of character by education was one of the Utilitarian tenets. If Ricardo had said broadly that a necessary condition of the improvement of the poor was a change of the average character, I think that he would have been saying what was perfectly true and very much to the purpose both then and now. The objection to his version of a most salutary doctrine is that it is stated in too narrow terms. The ultimate unit, the human being, is indeed supposed to be capable of great modification, but it is solely through increasing his foresight as to the effects of multiplication that the change is supposed to be attainable. The moral thus drawn implied a very limited view of the true nature and influence of great social processes, and in practice came too often to limiting possible improvement to the one condition of letting things alone. Let a man starve if he will not work, and he will work. That, as a sole remedy, may be insufficient; though, even in that shape, it is a doctrine more likely to be overlooked than overvalued. And meanwhile the acquiescence in the painful doctrine that, as a matter of fact, labourers would always multiply to starvation point, was calculated to produce revolt against the whole system. Macaulay's doctrine that the Utilitarians had made political economy unpopular was so far true that the average person resented the unpleasant doctrines thus obtruded upon him in their most unpleasant shape; and, if he was told that they were embodied logic, revolted against logic itself.

V. THE RICARDIANS

It will be quite sufficient to speak briefly of the minor prophets who expounded the cla.s.sical doctrine; sometimes falling into fallacies, against which Ricardo's logical instinct had warned him; and sometimes perhaps unconsciously revealing errors which really lurked in his premises. When Ricardo died, James Mill told M'Culloch that they were 'the two and only genuine disciples' of their common friend.[347] Mill wrote what he intended for a Schoolbook of Political Economy.[348]

Brief, pithy, and vigorous, it purports to give the essential principles in their logical order; but, as his son remarks,[349] had only a pa.s.sing importance. M'Culloch took a more important place by his writings in the _Edinburgh Review_ and elsewhere, and by his lectures at Edinburgh and at London. He was one of the first professors of the new university. His _Principles of Political Economy_[350] became a text-book, to be finally superseded by John Stuart Mill. Other works statistical and bibliographical showed great industry, and have still their value. He was so much the typical economist of the day that he has been identified with Carlyle's _M'Crowdy_, the apostle of the dismal science.[351] He writes, however, with enough vivacity and fervour of belief in his creed to redeem him from the charge of absolute dulness. An abler thinker was Colonel (Robert) Torrens (1780-1864).[352] He had served with distinction in the war; but retired on half-pay, and was drawn by some natural idiosyncrasy into the dry paths of economic discussion. He was already confuting the French economists in 1808; and was writing upon the Bank-charter Act and the Ten Hours' Bill in 1844. Torrens held himself, apparently with justice, to be rather an independent ally than a disciple of Ricardo. His chief works were an essay upon the 'External Corn-trade' (1815)[353] and an 'Essay on the Production of Wealth' (1821). Ricardo p.r.o.nounced his arguments upon the Corn-trade to be 'unanswered and unanswerable,'[354] and he himself claimed to be an independent discoverer of the true theory of rent.[355] He was certainly a man of considerable acuteness and originality. In these writings we find the most sanguine expressions of the belief that political economy was not only a potential, but on the verge of becoming an actual, science. Torrens observes that all sciences have to pa.s.s through a period of controversy; but thinks that economists are emerging from this stage, and rapidly approaching unanimity. In twenty years, says this hopeful prophet, there will scarcely exist a 'doubt of its' (Political Economy's) 'fundamental principles.'[356]

Torrens thinks that Ricardo has generalised too much, and Malthus too little; but proposes, with proper professions of modesty, to take the true _via media_, and weld the sound principles into a harmonious whole by a due combination of observation and theory. The science, he thinks, is 'a.n.a.logous to the mixed mathematics.'[357] As from the laws of motion we can deduce the theory of dynamics, so from certain simple axioms about human nature we can deduce the science of Political Economy. M'Culloch, at starting, insists in edifying terms upon the necessity of a careful and comprehensive induction, and of the study of industrial phenomena in different times and places, and under varying inst.i.tutions.[358] This, however, does not prevent him from adopting the same methods of reasoning. 'Induction' soon does its office, and supplies a few simple principles, from which we may make a leap to our conclusions by a rapid, deductive process.

The problems appear to be too simple to require long preliminary investigations of fact. Torrens speaks of proving by 'strictly demonstrative evidence' or of 'proceeding to demonstrate' by strict a.n.a.lysis.[359] This is generally the preface to one of those characteristic arithmetical ill.u.s.trations to which Ricardo's practice gave a sanction. We are always starting an imaginary capitalist with so many quarters of corn and suits of clothes, which he can trans.m.u.te into any kind of product, and taking for granted that he represents a typical case. This gives a certain mathematical air to the reasoning, and too often hides from the reasoner that he may be begging the question in more ways than one by the arrangement of his imaginary case. One of the offenders in this kind was Na.s.sau Senior (1790-1864), a man of remarkable good sense, and fully aware of the necessity of caution in applying his theories to facts. He was the first professor of Political Economy at Oxford (1825-1830), and his treatise[360] lays down the general a.s.sumption of his orthodox contemporaries clearly and briefly. The science, he tells us, is deducible from four elementary propositions: the first of which a.s.serts that every 'man desires to obtain additional wealth with as little sacrifice as possible'; while the others state the first principles embodied in Malthus's theory of population, and in the laws corresponding to the increasing facility of manufacturing and the decreasing facility of agricultural industry.[361] As these propositions include no reference to the particular inst.i.tutions or historical development of the social structure, they virtually imply that a science might be constructed equally applicable in all times and places; and that, having obtained them, we need not trouble ourselves any further with inductions. Hence it follows that we can at once get from the abstract 'man' to the industrial order. We may, it would seem, abstract from history in general. This corresponds to the postulate explicitly stated by M'Culloch. 'A state,' he tells us, 'is nothing more than an aggregate of individuals': men, that is, who 'inhabit a certain tract of country.'[362] He infers that 'whatever is most advantageous to them'

(the individuals) 'is most advantageous to the state.' Self-interest, therefore, the individual's desire of adding to his 'fortune,' is the mainspring or _causa causans_ of all improvement.[363] This is, of course, part of the familiar system, which applies equally in ethics and politics. M'Culloch is simply generalising Adam Smith's congenial doctrine that statesmen are guilty of absurd presumption when they try to interfere with a man's management of his own property.[364] This theory, again, is expressed by the familiar maxim _pas trop gouverner_, which is common to the whole school, and often accepted explicitly.[365]

It will be quite enough to notice one or two characteristic results.

The most important concern the relation between the labourer and the capitalist. Malthus gives the starting-point. Torrens, for example, says that the 'real wages of labour have a constant tendency to settle down' to the amount rendered necessary by 'custom and climate' in order to keep up his numbers.[366] Mill observes in his terse way that the capitalist in the present state of society 'is as much the owner of the labour' as the manufacturer who operates with slaves. The only 'difference is in the mode of purchasing.'[367] One buys a man's whole labour; the other his labour for a day. The rate of wages can therefore be raised, like the price of slaves, only by limiting the supply. Hence the 'grand practical problem is to find the means of limiting the number of births.'[368] M'Culloch is equally clear, and infers that every scheme 'not bottomed on' the principle of proportioning labour to capital must be 'completely nugatory and ineffectual.'[369]

The doctrine common to the whole school led M'Culloch to conclusions which became afterwards notorious enough to require a word of notice.

Torrens, like Ricardo, speaks of capital as 'acc.u.mulated labour,' but makes a great point of observing that, although this is true, the case is radically changed in a developed state of society. The value of things no longer depends upon the labour, but upon the amount of capital employed in their production.[370] This, indeed, may seem to be the most natural way of stating the accepted principle. M'Culloch replies that the change makes no difference in the principle,[371]

inasmuch as capital being 'acc.u.mulated labour,' value is still proportioned to labour, though in a transubstantiated shape. M'Culloch supposed that by carrying out this principle systematically he was simplifying Ricardo and bringing the whole science into unity. All questions, whether of value in exchange, or of the rate of wages, can then be reduced to comparing the simple unit called labour. Both Mill and M'Culloch regard capital as a kind of labour, so that things may be produced by capital alone, 'without the co-operation of any immediate labour'[372]--a result which can hardly be realised with the discovery of a perpetual motion. So, again, the value of a joint product is the 'sum' of these two values.[373] All value, therefore, can be regarded as proportioned to labour in one of its two states.

M'Culloch advanced to an unfortunate conclusion, which excited some ridicule. Though Ricardo and Torrens[374] rejected it, it was accepted by Mill in his second edition.[375] Wine kept in a cask might increase in value. Could that value be ascribed to 'additional labour actually laid out'? M'Culloch gallantly a.s.serted that it could, though 'labour'

certainly has to be interpreted in a non-natural sense.[376] Not only is capital labour, but fermentation is labour, or how can we say that all value is proportioned to labour? This is only worth notice as a pathetic ill.u.s.tration of the misfortunes of a theorist ridden by a dogma of his own creation. Another conclusion is more important. The 'real value' of anything is measured by the labour required to produce it. Nothing 'again is more obvious' than that equal labour implies the 'same sacrifice' in all states of society.[377] It might seem to follow that the value of anything was measured by the labour which it would command. This doctrine, however, though maintained by Malthus, was, according to M'Culloch, a pestilent heresy, first exploded by Ricardo's sagacity.[378] Things exchange, as he explains, in proportion to the labour which produces them, but the share given to the labourer may vary widely. The labourer, he says, 'gives a constant, but receives a variable quant.i.ty in its stead.' He makes the same sacrifice when he works for a day, but may get for it what he produces in ten hours, or only in one. In every case, however, he gets less than he produces, for the excess 'const.i.tutes profits.'[379] The capitalist must get his interest, that is, the wages of the acc.u.mulated labour. Here we come again to the Socialist position, only that the Socialist infers that the labourer is always cheated by the capitalist, and does not consider that the machine can ask for 'wages'

on the pretext that it is acc.u.mulated labour. What, however, determines the share actually received? After all, as a machine is not actually a labourer, and its work not a separable product, we cannot easily see how much wages it is ent.i.tled to receive. M'Culloch follows the accepted argument. 'No proposition,' he says, 'can be better established than that the market rate of wages ... is exclusively determined by the proportion between capital and population.'[380] We have ultimately here, as elsewhere, 'the grand principle to which we must always come at last,' namely, 'the cost of production.'[381]

Wages must correspond to the cost of raising the labourer. This leads to a formula, which afterwards became famous. In a pamphlet[382]

devoted to the question, he repeats the statement that wages depend upon the proportion between population and capital; and then, as if the phrase were identical, subst.i.tutes that portion of capital which is required for the labourer's consumption. This is generally cited as the first statement of the 'wage-fund' theory, to which I shall have to return.