Ricardian economics : a historical study

"Grew out of a doctoral dissertation [The evolution of Ricardian economics in England] submitted to Columbia Univer

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Ricardian economics : a historical study

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:'~ption nf Ricardu's sys· tern owes so much to the many illumio;~.ting discussions I had with him th:at I h:ardly know whl'll' my ideas leave off and his lx-gin. My thanl;s are due to Mn. Anne CrangM", the most patient of t)-p· bts, and to the hdpful attendants of the Goldsmith Library of the Unh·M"sitv of London and that ha\"en for schol.us, the Britidl ~luSl'mn Rear!:&U,.,, and harsh, l'found pollUcal economist. "I wUb.~ oud hr, --,.,]y lu gi~e ~"" •n ~ualnt• aJICtnbuU.on: /ovrnol ol l'o/Uicol Et""""'V· June 19.52., pp. 19-S-ZOO•

importation of pain cauu- tin• price of wheaten bread to ri~r and that tht' pri«' of thi~ fnotl article regnlato>S the mom·v wa)::es of labor and the g1'1wral riltf' of profit. '\'hatfln1> !\'n ~- 1!111 ), 1'1'· 111- fl. lnr ~ h•l nf '""''""' 32. Amuntz numn lhl-d•·)



Due to the ii1Cfease in wages the level of prices has risen from 44 to 46.2, or 5 pt•r cent. Since the value of money is to remain constant, money prices must be deflated acwrdingly. 11 In consequence, the price of the commodity produced with a labor-intensive tcc-lmique (A) rises, the price of the l'mnmodity produced wilh a capital-intensive technique {C) falb, while the rate of profit is reduced from 10 per cent to 4.76

per cent~ FiJ:cd Capital

Circulating Capital


33 22 11






Profit 21

!~ !hat "all - n ate ~ual" is lrJ:IIirn.ol~ ~nouJ:h If It-, quc~ion of r~laU•-.. and the ey: "A nk.- b b,tn~: >ha...d b,l:wn'n two J"'f"'h>. If ,_ J:t'f• mo~ tlun hi• du.- •han. 1.5 not is is full of contradictions. The price of C(lm and money wa~~;.-s. he cmpha~i:zrd, varv lnRl'lhM' in thf' samE' direction hut not proportionalon R\·okl,.d.,.. of Malthui If tb.- l~ho,..r h 1"'~1 In mn•hnl IITK"mnU of «>m ~·.-ry IIKTT'3W In rnm p.V.... r.-I•Uwtontlw-r ... ~ttut ......av~•tt.. ....,• ..,hp·ided by 0:\ and th•• ralt' of profit by PW dividl."d by ."-W (the amount of ·C;Jpitllr inv~ted). Since Rtcardo n~ually r~ards the supply of capital simply as a function of the power to in\-est, this situation leads to further investment which tmds to raise "markl't w;lgt'S· up to AP. In tum, population in~asl"S to ,\h whereupon wages fall back to the subsistence lew! (.\,W,). Investment is 5timllla!Nl once again and the same process shifts the wage bill to A:W~ :mtrte< in till' t·h•pt~r un rna.-hin~l)' (ntl, F.llfo H.Jhy't tn'almntt of Rkardiao p>'alml"" 111 c._..rn,. of a •"~""'lnc•l "PP'"inun In Rk-..rdo IM prinrlpl~l of ~·

M. l'.. !:hn. jj,jJ. June 1!:146.

1~. J b s.• ~. r .. ·,t~> he had few supporters and throughout the pt"riod he attracted only one or two genuine disciples.:: When oonfrontetl with Malthus' double here5y on free trude and on gluts all the lendin)!: writ· en dosed ranks and pti'SCnll'CI 11 united front. Say lrd the field with Lettcn to /l.ltJllhw ( 1820). Torrens eJpou!Kli.'C.l the Lnw of \tarl:ets in the Et.wy on lhc Production of Wealth and dismissrd ~faltlms' objections ll!l ·vague, fallacious, and inconsistent.'' : 3 McCulloch classed Malthus with Sismondi :md attacl:ed both in a major article on -Effects of Machinery and Accumulation," w!Jich he lah'T incorporated in his Prlncipk$. 21 Jaml'$ ~fill devoted a long chap!"' in his Ell'mcnls to a tmadous defense of the principle that consumption is necessarily coextmsive with production. In the second edition of the houl:, wllich appeared In 1824, he added a new section which dt>alt specifically with Malthus' gMlt'ral :ngumMll. IJcspite continued dissension on the question o£ ,·alue, Malthus srems lo have realized that Ricardo had won the day: in 1824 the Quarterly Review published an aCTid attacl: on the "new school of political economy~ which betrnyalthe hand of Malthw by its assertion that general overproduction ill possible."" The crosscurrents of disCU5sion were still further complicated hy the growing popularity of free trade doctrine under the impetus of practical, rath"' than theoretical, considerations. Tilt' presentation to the ZO. Cnt~ al\adu the 1a1- thoory of value, tho, W&J:~»JI"''IIIatkm m«·hantly. and thor lnnnc ... latiun of waJ: ..-.changeable value of commodities.~" McCulloch took it upon himself to reply that capital was -aecumulatt-d labour· and that Torrens' measure of the value of commodities was only ·an e•tremely cumbrous, roundabout and incorrect way of telling tiS, that their \•alue depends on the total quantity of labour required to bring them to mar· ket.- 02 This answer satis6rd neithn Ricardo nor James MiU (4, 305-18), although they failt'd to clarify tl1e nature of the disagreement. Torrens' theory is true by definition but c•plairu; nothing. McCulloch, however, failed to point out that value is ne\'l~r strictly equal to the •total quan· tlty of labour required· when the rate of profit on capital is e>~CJ)"Wherc thr .same but capital-labor ratios diHer from industry to industry. Two commodities produe«l v.ith equal amounts of capital (having equal rates of tumoVl'r) will sl'll at the .same supply price. With the same rate of profit on capital, their cost price must also be equal. Sup· pose one commodity i5 tnoduttd with more capital per worker. If the man-hoW'S required to process the product and to replace machint'S worn out and raw materials un-d up accounted for the whole of the cost pril't', the labor theory of value would be correct. Tin~ ratios of hing to stored-up labor would diller hut their sum would be Cf)Ual. :m. Th~ plua,.. h Mn Grole'• (....., Ri~ardo. 9, 301).


40. Mallin" ;>tnnl 11,.. ""''""~1"\~ wiLb a work nn T/w of \'a/~e (London, lSZI ~. John Stu an ~lill ( btins:; 10 )'mtnrury rommf&onomicSioull~•. l7,6rsr,..,~o.:-e"C:~me of the low elastkity uf ~uhditutinn bctw('('n i.lbor of difft•n"nt ~kilk Even ];,hor ns a wiK>lt• enu'S undt•r this heading l>evause the supply is not imnll'di;ltely re~pm1si1'e· prudu('('{lat rising costs, such as t'n to und,n..Ju~ tJ.., futur~ I [I· 2:18). Thl• nuorh the 6nt ..... noon of Bohnt-B:a~~·. Agio ur t),., Utcratw~ of tbc pmod.

to crediting sources. Mallhus replied at once to Bailey's animad,·cr· sions brc;msc of "the impr...,.~inn which it is understood to have made among some cansidcrahlc political economists," •• at tl1c same time condl'mning the V while de QuinCC)", many years later, paid tnbutc to D.l.iley's an.alysis but ncvcrthdek f I'IUical·F:conom~ (Edinburgh, IM-i), puLhohc.-d In

coH..rtcd Wrillneo, 9, 119.

The domimr.nt note in many n·f('renres to the Crillml Diuertatikills is analogous to the investment of capital.'" One Jll'cs e!I '"'


Ull~r~''"~ '"'"'"'






in Fr.mcc. This i~ f;,l,c \>t-'(.'au~e Ricardo's thl..:lrem does not holJ bctwt't'll count rio'S." Having implied a comparati\·c di~advanta~e for Britain in the production of mad1inery. he ~hnuM han• concludt'(l that ib l'xpurtation might be unprofit;lhll'. But no. ~lcCullnch tledar('(l that it would be impolitic to restrict the •·~portation of machint'l)'· ~w,l\ ~·ou e~plaio to the Committee why you arc of the opinion that tht• Fn•1tch manufacturer wuuld not undenell the English, seeing that his pn>fits are larger than the English manufacturer?-Bl-cause if he wne to oiler to undenell the English, he c;&n only do it by c:tmscnting to atX-cpt 11 IMis rate of profit on his capital than the other French capitalists ;ue making on thcin, and I cannot suppose a man of ('(l!Umon sense would act upon such principle.~ •• In his Princi1J/n ~ISs of industl)' remains constant." a Since the latter interpretation rob$ IHcardo's lormula of all its significant implications, McCulloch pi'QC('(.-.1.~ :~!most imnK.-..liat..Jy to retract tl>c IJUalification. Profits tend to dt•clinc lx·call\c diminishing rl'tUrru lc~M'tl wthc ljllillltity of produce to be dividt-d J>t.•·


;~. TIM' q•u••l~•n of i1>1t•m•lonn~l ,j,.._.,..,p.mt'l price of labour and cost of production mav be diminishe-d. 8\' Mr. Ricardo, how('Vcr, all tlwse distinctions ha~e ~n confoundt-d:w .. \Vt"St's argumrnt was promptly adopted by Nassau St•ninr, first incumbent of the newly CTeated Drummond Chair of Pnli!ical Emnomy at Od'ord."" When prices, technique, and tbc productivity of labor are gi~·en, the profits of an indi\'idual enh:rprise de-pend upon wage costs per unit of output.11 Who muld object to that? The extent of the rt'action to Rkardo mu~t not he .-ugg•·ra.INl. hnwl'\-'CT. Ricardo's tllomlc T/u,ry on T~chnologi£1 C""ng.. anti E.mploy- (J.I~ graph. Work. l'ru/1>1"~"-•1 \ 1nrn>p1owmo·nt." ''""'tloarl f.omoon11o lininnfS..).'>L.nl':" If only tho!y bad boom known. It 1> reaDy qu~•lln.tt.hle wMth~r or,.. may fnaitfuUy rlioUngulf.h be-lw""" an "ind...-...1" inVffillon In • !:"'fl'o/ltlf:.U Econom~ . .,.!, \\'. J. A•hk-y

(London, 1909),

pp \16-9: doo pp. ~1-t-l.'i. 27. frifld/•1~•. r- ~. al"' pp. ~1-30. S.' war tt·rmin:ott-s, :md the annu:ol mipl")itnUIbciU~ !So-w Ymlr.. I954Jl.J>p- 1!!2...5 :H. S... S. and 8. Wdoh, f:n~/,.h 1.. ~ .., c;.,.·nnmo·rol F.ng/,.k p,~,, ,...,.._. llulr>nJ ( l.c>nt~>n. 10'!9), 1,. II. ~. \IJ-10. ,.,,..,... tl,. nmnht·r "' n"ll~r Eht.abt1h, "'"'~' f:n~l~nd h.ul oot h.ilf Illllrt'1" tl,..n h.o• !M' Md/lh..., (Lontltm, 111:!1, tu I f.ron.>m"' Slo.Jk'•, 111. lhhd ...nt-o, No. 41

3-."i). 42. Ou tOO ruk of mo,..y In claurcaltheory \'l.s-~-•i• Say"• t....:.w, >


it contradicted the COn wnply Imp!•~• tlut capital i> ""''" clf.....,..tly -pluyed in mannfactnrin~ (l,JSO) . .5~- ftin.i1>lro ( IH~Ol, P· 2.2-l n



53. frinc1p/n (IISJ6), p. 213.


political economists, and even practical slaiMmt'n, shoultl appt"ar frequently to forget that the reward of manufacturing and commcrc·ial industry mu~t depend upon the produce raised by th~ cultivation of the soil.... To the followl'rs of Ricardo tlwre Sfl'mcd little difference bctwct'n such pi!Jl'iocratic ideas and Malthus' argument that produ{1ion might outstrip corummption unless the troditional weight of a~riculture in the economy were artificially pn"!il'rved. TI~e writings of !o.laltlms' most famous disciple only conlinn•·d that impression. In 183.2 Thom01s Chalmt'n (1780-1847), a ka.ding Scottish di\·inl', published a work On Politia!l Economy, in Corlllcxion u·it/1 the Moral Progrc$1 of Socll'ly, which expounded the possibility of g••m•ral onorproduction aloo~ the linM laid down br !o.lalthus. Earlio>r Chalmers had joined William Spence in deprecating commerce; now he attempted to dispel tl~ illwion that •trade or manufacturing . . . bore any crd in the pamphlet litt'Talure. 02 But the cyclical charactrr of commercial dl•prcssions was still not clearly distinguished from Say's Law as a propositiun aOOut the adequacy of purchasing power in the long run. Some writf'rs attributed the recurrence of crUes to commercial restrictions, going so far as to suggest that free trade

would render the I"C''nomy crisis-proof.u Others really did iruisl on the fact of chronic overinVMtment of c-.apital which, they argued, aggravated the cyclical swings of the economy. In a powerful work on England and America (1834), Edward Gibbon Wakefield (179518&2) dt>picted the contemporary English scene as a contrast between •gorgeous palaces and \\Tetched hovels.· ·11 doe:s oot follow: he declared, •that, be-cause labour is employed by capital, capital always finds 11 Geld in wMch to t>mploy labour. This is tht' non-sequitur always talcen for granted by Bentham, Ricardo, Mill, McCulloch and nth en.~ M The glut is gt'neral, he contended. because no alteration in the dilitribuUon of capital betv.·cm trade5 could by itself repair the situation. Hence colonization of Australia and No:-w Zealand was recommended as an outk>t for exCMs capital and SlllJllus population. Almost immediately, the colonization movement made one importalll oom·ert among economists. In his provocative publication, The Budge!, Robert Toneru made a case for public support of emigratioo schemes and repudiated his previous stand UQ the Law of Marlccts: There is a school of political economists, who 1155umc, that capital possesses some oa:ult quality, or in.Buence, by which it creates for itself the field in which it is employed, and renden demand ro, J. Wibun, Fluttuotl.....,. of Cu'""""Y· Conunn.-e, ""'' .\lonulactu•.:t• (London, 18-121, p. 00; lbo • Pac! by W. R. Cr~J:, /l.'l>f ProJuctW~, &..1 D~ c ....,..,.ptlmo, TIWJ S.....u af Our Su8ning (London,



&1. QUO!O'd hy T. W. Hutchison, A lln>lnt- o/ !:e"""mlc DottriM.r. /fr.{).../929 (Odord, lll53). p. 3.52 n. s..., II. 0. P~ppe. ""Wo.l.elield and Man,~ Ecolldmk Hld"J 11b the mpply of bhouf f:nmurnlt· llid""J, ~d. E. M. C•n~>·Wihon (l.nndon, 1954). Fur rn.-nl wnlril>utrom lo ""' •l..\.,1~. "~ II. J. llal>al:l.:u •. ~En~IW. l'opulal\on 111 tbQ El~l,t. ... nth C"ntmy.~ f:,·unumlc 1/Uto'!l l!t-.:..-w, fi, :-;.,, 2 ( ID."•l), T. Md;:rown antnrns is held to he t'\'t'l' pr~nt ant! "IWTj• to~ken tn mhlm,;.,n th•:"'.'" of ~~~Mil•tu•n In ltk•,r.,·, Prlnnpl•·• ( 1, 011-91 n•~•n '"' n1rl>l~'" .,f 11.- •~''"' 7. For st.>l~nornl1 in•·•~•inl: tk L,,.. nf dimininh l:h""lh>t n"nhb•l•·r3mltlrol>nlo"o""'''""n-tulue to the rising Lvst of gruwing fOpul,rin.p.


18. Pmalo·l•. J!..,,rlt~m o1od O...m load .J...aoly drt-larrd thnnorl•~• In f•"I'Dr of h1rthrontroi.Snduring rube of shlliJie -and OVI"r the circumstances by which it was brought into actual contact with a part of the population, we must here draw a veil ... their industrious dissemination by ready agents. worthy of the task. has begun the vile work of eBecting sell-degradation, and Cltinguishing all sentiment of moral dignity or worth, among a part of the luwL•r orders.""

In view of !iuch attacks the ·ready agents~ of the ·miserable phi· losophy· ne1.·er committed themselves explicitly. A special style of cirt"llmlocution, marked by laronic references, was invariably adopted tu pruflllgate hirth control. n\c standard approuch is nicely illustrated hy Juhll WatiL.'s Hlstonj of tlw .\lilld/c and Working Cltu.se.r ( 1835). "The first rondition of any pr"\'l'Oii\'e,- \Vade rL'fl\arks, •;s, that it should he practicable ... For instance, to recommend lnfaDticlde, abortion, or any artifice to frustrate ronception. might be positively mist·hie\·ous, since, by the disgust it would excite, like pn indea'llt att.1ek un the cstablishcd religiun, it would pre..-cnl the temperate in\T~ti!;o~t or r.ott,.., d;,.,.,,...~d th~ duMJ~ on f~ El:fffflr r•lrn>lon of ~ulti!, "'f>:hl to be roo •li.:ht to aiFrd an illunn~ eta.,-~ ~1 Srrlrty. p. n th.- Clouk.o to f,pu/olillfl (0-.fou.l, 111.'1-1), p. ~- LJo:.·ol w~< lannll~r wlllo ""''·M~hhndine with the inntase in per capita wcallh. HU ar~um!'nt illustr.ah"S tht prt>\·ailing departure from classic ~lalthusian doctrine. In ctmntril-s wh!'rl' an abundancro of fl'rtile soil J{'ffiaim to be cultivato:-d, ht· tt"a.•nnt'tl, a largl' family is an t'C'Onomic :assl'l; but In d .. n~.-lr populatemy (L.nndon. H>Hl. pp. $)....";;'. 60. Thrtr ll a hml of It In lh~ ~-ullo.-r ..-Miun< of lh~ l•••k who·"• ~!ill rrrn..rk• J:~>m>\y; ""II h hut r~rrlv 11 ...1 hnpr.,•·rnornh in thr mno.lot!on• of 11.., 1nbrnn1nJ: d&S..-. do anylhin~ ""'"' llu.n fl:i\"0 a lnni""U)" margin. P- 270, :185 67. /liiJ.,pp 121,311711.





lion when he rl'jected Malthm' law of population. But with the classica],~IJomists, as Thornton's mM" lx>ars out. thl' rt'Cflgnition of chronic umh,rt'mplo~mt'nl only slren~thcned a belief in the ~lalthusian Joetrine. Within tlw framework of the prcv:dling indo•nti6cation of ·population~ with •J .. IMtr for~~ it was impossible to po~tulate a horizontal long-run supply curvr of labor witl10ut n"«tursc. implkitly or explicitly. to ~lallhus' principle of population In rct.oining ~lalthus' tl•eory, it was not OI"Ct'SSal')' In follow JamM

Mill in the extremc view that ·wages are


at the Jowt-sl point,

to which they can be reduced·; all that was required w.u the nolion that th(' propensity of men to multiply had 11 constant tendency to maintain the stamlord of lh·ing at the c·uslomary level. Thus, in analyzing the srt"'Liar tmdcnci(":§ of the distrilluth·e shar("S, one could treat wagt--s as ,~~:iven by what laboreo; "ha•·r In h.:an•,~ while admitting that the actual ir•·el of wagi'S 111 any momcnt in lime is almost always aho•·e the biol~kal ami ~-en the cultural minimum. This had beo:n Ricardo's method and we lind it again in John Stuart ~fill's Principle!.•• The nppouents of ~lalthus' theory, howevl'r, wt•rr 1•ithcr lt•ft with no wage theory at all or l'be WM"e forcetl to rl.'introduce the wagl.ospopulation mechanism in the course of their analysis. S..nior, for instance, nt"\'('r related his discussion of population to the question of waKo:-s.• Sam1Lel Rratl, anothl'r aclvrnary of ~bltlLus, d~·oted a chapter of his tn•alise to •the cnuR'5 which n·gulate the natural rate of wages. • only In oondmlt• that the naturo~.l rat" is govrrrl :!\~-~~ 71. Hk.u·do olrl oh•!Luo1iuro ~ ..... ......, fi,..,] aiKI urnol.olin~ capital in ''""" ol kCL'(>I f ~u,·ui~ILu~ ,·,opl!.ll I• ul~nht·al Ln M~n· '~"•hi~ '""]111.11, ""'"''!In~ ul "~~,.... uul~. S,..,.llu.or rate- 66S


predispositions of a writer than on any systematic analytical implications. Mod nf the time it was never dear whether ·c•pital· was iupposcd to include revenue tii]X'nded on unproductive labor, or whcther un im.Tell5e in ·wealth• always involved a larger wages fund. \Vas the whnle of the fund nt.'CCSsurily eJhausted in any penod? Was the hmd as inelastic for the individual employer as for the cronomy all a whole? The writings of the period do not yield an unt'quimcal Wlliwer to these questions.'" For example, the wages fund doctrine is often supposed to hu.ve been designed to sust:~.in an attack on unionism. Yet McCulloch, one of its leading eJpoiK'nts, was instrumental in seroJ. M.t)" Jfi."U. 2~

1'1'· .11"

0. 11/uol"'""n' "//',/0/oca/ fr"'''""'l (i..lor ddl!n,.J tlut ""It "~' "'""~ ltJnmy

Ct .. b.


amoro,:; .tutkroh of Adam SntUh" ( lbl'l..



standard works on the subject of what I then took to be a scimce.· 1 Then would follow a skeleton plan of the course and a reading of that particular suhjt"ct in each of the books available, while •restraining myseU fmm glanc:in,e: C\'m in thought toward the scene and nature of my story till it should be suggested by my collective didactic materials.· •11 wu iobout a morning's work to gather hints by this reading.· A summary of the principles illustrated was then drawn up to be placed at the end of each numlK-r. • An hour or two sufficed for the outline of my story.· Occasionally she would send to the library for tra~·el books to supply local color; •the collecting, and noting down hints from these linisllt--d the st-~"Oml day's work.· On the third day the materia] was reduct'd to chapters anlla table of t"Ontcnts Wa5 coru;tructed, noting the action of the characters, the fe.:aturn of the scene, and the l"':onomic principll'S to be cxcmplifil-d. "This was not always completed at one sitting, and it m;•de me soml'limcs sick with (;atigu., 1w~1>1y ~·.,.n.~ W '""'uk..J. ~, h:o>r r.t to loolr. at l >ln~le numb.-r--ron>;nc..d th.ot I .houtol be .!r•gu•1..d by h"'ll~•l>" and mwer of inct••a..,ing ftw~tl as folSt as our numbt"rs may increaw; l~tll we han• tht· power of limiting our numben to ngn..., with tbt· ~upply of food. This is the J1:Cntlc d1ct·k whkh is put into our hanili; and if we wtll nnl usc it. Wl' must not n•pine if harsher checks follow. If the passionalt· man will not rt"Strain his anger, h(' must e~pecl pnni~hmt'lll 111 tht• hanili of him whom he has injur~'tl; and if lu· impnult-ntly indulges his lm·e. he must nut complain when po\"erly, disease, and death lay waste his family. 12 11.11/...,,.,rllt•." t... th ud)· attnbut...d tu l...ord lboul(h.om. llut Clu.l•·• );ought dalmnl aulhor>hip 1n !}.., prd....-.- to a rrpnut of tho· two h•~•k1 otud.,. th~ lillc of C:t~pii.U ond L,..l,.,ur (i...umlon, 1!1.-1~). J"lo.- Hl~:lol• o/ It·h declan'd, no doubt applies only to ~one-hundredth part of the rnhi\·ot~-d surfac..• of the habitable globe." Uut Jont-s is tilting at windmills: ~For the demolition of the theory of rent espoused by Mr. Rico.~rdo, tw~ thirds of Mr. Jnm-s' lucul•rations are entirely irTelevant.~ ~lcCulloch went on to scofF at Jones' objections to the law of diminishing rdums

l6. Quo>lfn~ llnWw, Novt:m~r 1831, p. 81. ~ ba...d • ~hapt~r of ki< Pri..nplo·•"" Jon.,.· ln>lltutionLI sttn'f')' of rental pa~m.,..to 111 dlfl.,rml puts ol the world. 37. W \\1,....,U, ~Mathnnatlnior not only agrUs manner uf pn~t·nting his ideas. After an introductory k-cture on tllC nt'CCS.Sity of studying political l"'Onomy, UmgGcld proceeds to expound the theory of value. He admits that lo~bor is an adequate a.ad, in fact, the best intratemporal measure of value (he foUowcd Bailey in rejecting the et>net1ll of index C Pulili£"11/ Econom!l," Eco""m~. Auguh and British economist>. Lon¢j~ld. for irutMnptions,

nn pcnnanent

dtan~;e c~n talu~

pl.tl-o:' in th .. rt'!.Lti\'e values of any two commodities without its IH•in~ t>l.'(.'.t~innt'll by !inmt• ;llkr.Jiitm in the qu.mtit~·. ur natnrr, nr \'alou• of the l.tiMJur f('(jllirt· uu.Jur. dtd not dcvrlop the principk uf domtuishin~ nough..J utility. S.. C. J. SUI(In, 'TI•~ ll"'·dopmcnl of Utility 'Theory," J"".....l of rolilinJ




M. Ledtua, pp. 116-57. OO.li>IJ.,p.l96.




rail' and, hcnre, rt"Su1t in lowering thr ratr of profit. Thl' ral!• of prnfit is, in short. dt1rmLinrd hy •that purtion of capit.•l whit"h i~ L'm· plo~·t~l with the lt•a51 dllcient·~·. which I shall call thL" lad pnrlinn of c.Lpit:ol hrnnJ::ht into "!X'r.Jiinn.· ;\sa prindp:ol fl';L~nn fur tht• diminishing incnomt•ntal product. l.nngfldd cill's till' d.-tl'rior,tliotl in tlw qual· ity of thL" lahor using the additinual inslnLmL·nts which, thnu~h a suRicif'nl, is not a necl'!'sa~· c.au~e nf tlw dimini~hing marginalj1loducti\·ity of capital. Tium, o:unlu5io~ phpical prnduclivit~· with ,·alul' productivity, he noted that the rail' of profit must fnll hecaLLSL' th•· ;u!.lilional quantity pruduc('() must IH' soltl at luwcr prict"S, whilo• thc ncll' machim•ry emplnyo-.1 m•tst rist> in prict" ·;n lISt•rvcc.l the right of ta:o:ing the spontarwous incrl'ilsc of n·nt, ll> t.IJC highest an1ount re.:tuirt.-d by 6nancia1 e'igencies /p. !U!IJ. Ever sioce the btc I !!30's Mill had l>N-n an ardt·nt support('r of pt'asant proprit•tonl1ip as tht• solutit1n to lrelaml"s l"cunomic ills.•• The validity of the sdwme Jepomded on the allrg•·d elficien~· of small-scale P""asant farming. lienee Mill w;ls an~ious to tl!•fend the Ricardian proposition th.&t 'tl1e inter('!;! of the lo~ndlurd is dt-cit.lt'tllr hustih.• to the sudden and gt'neral introcluctiun of senting a really tliminished Cost of Labour, are equivalmt to a rise of profits. But the opp.nition of ~uniary inh·n-sts thus indicated ... is to a great extent only appan·nt. Ileal wagl-s are a very dilh•rent thing from the Cost of Labour, and are generally highest at the times and places where, from the easy tenns on which th·sis is th.Oieriah, nntl tool:s, J....t kml(cr th.on th., lim" which wu rtotuir...J to pmduce tlo~rn: oo th•t if a .-•J•!t~h-.1 "'l'Pik"• ' puty of l.obourn-o With the.., lhln!J. oa


C't- (l'rlndp/r~. PP· 418-17; a!... pp. IOJ...-.t). 3.1. lbiJ., p. 720. AD~

The leitmotif of the 6nt section of ~I ill's l'riru:iplcr, dealing wilh the laws of production. is the distinctiun ht•h•·et"n "prnductin• lahour" paid out of busint'SS capital nnd. Ricardo was perfectly awarl' of this. or hut \I ill seems hardly to have realized its importance: If suml' labor is unt'ID· ployed. he should have s;aid, ~demand for commly a substituted den~and." n 5. SECVLAII CHANCE' IN WAGES, PROFITS, AND RENTS

The law o( diminishing returns, regarded as a law o( dynamic-s uniquely operative in agriculture, was in Mill's opinion ~the TTI0$1 im· portant proposition in political economy. Were the law dillerent, nearly all the phenomen01 o( the production 01nd distribution o( wealth would be other than they are.~'"' Taking a leaf hom Senior"s treatise Mill de· fined it as a self-evident axiom ·in any given statc of agricultur;~.l skill and knowledge; then qu;~.li6t-o.l it by listing a numll(·r nf ~:hccks nr counteracting factors. Uke I'!Vt:f)' other e-conomist of his day, Mill time ant! again contrasted the tendl.'ncy of agricultural prk'los to rise in thc long run with •the natural e8ect uf impru\"lments tu tliminish gr;ulually thc real 48. S.....!he ro>rnn\l"fllaf)" uf F. A. ll~ytli:. Tlw-1'"'~ Tlorory of Cttptrul (Ciu~•g. 1941), App. Ill. 40. S...abovr,Ch . .f • ....,. 2 48. P..!Uic4J Ecolll>n>!f, p. 171 . .f9. lbkl.• p. 173. ~- l'Mdpk,, p. t71.



prices of almost all manufactures.~ On the fonnallevcl, !his amounts to what has been called -a bad mixture of a dubious 'law' of economic history on the one hand, and a buncated part of the static principle of combining proportion5 on the other: 01 More loOSt'ly inh·rprrtNI, however, this was simply a way of pointing In the fad that th~· ~t'cular prorpects of the economy dcpcndnl upon the conftict between h.'l;.'h· nologicaJ progress in indwtry and the diminishing productive powns of agriculture. Ricardo hesitated to ascribe a signiScant inftu1-nct! to cost-reducing innovations in manufacturing ( sometimt•s he dt"nied that lt had any inftuence what~·er) and IIL'\W t(';~lly made up his mind whether changi'S in the composition of wage F:oods might miti)':;t!(' tlw ellcct of diminishing returns in agriculture. But Mill tonk a l l>l•••n nper.1ti'"c in agriculture since 1625 or thcrcaLouts: 51. II. S. Elli• ~nJ W. FrUn~r. "'Eotrmal f:CDOmin an~l Do•..:unornt..s,"'

11-'1"1:' lnPrla Thased, partly by the e•tcnsioo o( cultivation; but far murc by its impro\·emcnts..-\ much grealt'l quantity of produC't' is nuw obtained from the same brcr~Jtl1 oflancl than in 1812." •• Now Porter had bcn, Oclolocr 1~9, pp. 291~

M. A Stdlirllctrl Ac«>~l ,·aluu "hach ~hau~t~rU..d th~ ~ !800--20 ""a< nut ou,ul,....J IJl thr }..._., th~t fo\k>wnl; riod Rici.lrtlo offt•rcd no guitlallely against the Sinking Fund (finally eliminatOO in 183\l ), 8. s._..., \'m..r. Sl.,./in on I~ TIIWf"!l nf /rolnolldlm..,/ Tratl,, pp. 1";".&.-8: F. W. BulliOln R"'"'ot fi.,..Eumin...d: and R. S. SA)"""· ••Ricardo"• \'on.·o l>h>nt1~ry QuMIOOI,.,M both in Pal'~" In Eng/Uh Mmot·tary 1/Ulory . ...d. T. S

f,,.,..,, .,., on

A.luonand R. S.Sa)·~ro(Od"ortl. 195-3) 9. Sa)""'"· "I'· elf., pp. 92-3 10. S...- \"lnt'f. 011. ril .. rh . .5

II. Speal of the combination laws because •Jike all other contracts. wagt"s should be left to the fair and free competition of the markrt, and should never be controlled by the intnference of the legislature,~ 11 hut othtrwise he did not think twice about trade unions or the activities of workingmen to secure higher wages. When Peel's Cotton Factories Regulation Act was pass.-.d in 1819 Ricardo was 11lready a mcmhn of Parliament. Th(' act did not attract much altt"ntion outside the House ol Lords, still it is surprising that Ricardo nevl!'r mentioned it either in his published "Tilings or in COCTeSpoodence with friends. Multhus, (or one, came out in favor of legislation to restrict child labor in the 61th edition (Hili) of his Euay an l'opufutian (p. 282). In the 1830's, wh ..n the factory acts became a topic of hl'atcd debate, economi§ls gt•nerally took a positioD which had no particular rdaliomhip to their ~·irws on economic theory." A few writers had resort to the ar~ument that shorter hours would reduce output and depress wages but, in tht' main, the issue wa.s posed in terms of the competence of fal1ory opt•raliws to re'l:ognizc their 014'JI Interests. Insofar as child labor was COIICl'TnCrl v11 the Paor l.mn· ( 1817). which did much to puldidlt' tl..- t.•vils nf tlu- pn"-·ailing method of gi\"ing n·lit·f. camt• In tl,c umdu.~ion tl1JI ~the general s~·stf111 of Poor l...;~,ws iut,•rwo\"t.'\1 with the ho~bits of the people, oup;ht in any measure for their impro\"cment, }l(' csscnliall~· mainto~im'll."" 11 The Pderloo ~lassacre in 1819, the C.1to Cumpirat:y in lli:ZI, the n-eurrcnce of machine WTt.~king :md rit:k lmnliug in tht.• twt·nti1...-i/>l•·•, 1'1'·30.1--4 ..116-2·1.

200 McCulloch had never adopted the Malthusilln altitude to public relief. As early as Hl20 he denied the rontcntirm that the poor laws were instrumental in promoting the rapid growth of popul:1tion.=> In 1821 McCulloch indicated his pmition in a letter to Napit·r: Ml am by no means clear that in a highly manubcturing counlr)' like England, wht'rc periods of privation must ncee:o.sarily lw of frequl'nl rerurrencc, and where they must ncei"Ssarily affect a large proportion of the population, a provision calculated to ml.'ct thrse rontin~t'ndl'$ . . may not balanCE" tlte evils which every such pro\'ision brings ;•hmg with it.-" In 1828 ~lcCulloch dcvott"d on entire essay in tht' EdiniJurgh ReviciV to the subject of public relid. in which he argued that the p=:>nr law had in fact checked the growlh of population prior to the adoption of the Speenhaml;md sptrm; all that wilS needed, therefore, was to return to the ori~inal provisions of the Elizabethan statnte.n In 1&30. testifying before a parliamentary eommittre, he warned against an~· clmn~e from the method of parish control of relil·f. Abolition of the poor laws was out of the qui'Stion, he o..o;serted, ht-cau.se common law ~an• thr poor, whether a.t•le-bodied or infirm, a right to emplo~·nlt'nt and suh.1istence. The chairman of the rommitto.-e rrminded him that in Ricanlo's opinion ·no scheme for the nmrndment of the poor lnws merits the lt•.tst attention, which has not their nbolition for its ultimate obje-ct.• McCulloch was not in the least put out: ·1 belirve, howe1·er. that had \lr. nicardo lx-en as well acquainted with tlu- history of thr English Poor Laws as he wonJ.I have be-en had he heen alive at tlw prcst>nl, llf' woultl ha\'e chan~ed it. Mr. Ricanlo wns a penon of utmost candour, ;m1l ne\'M attempted to support an opinion m••rely be-cause he had ont'l' ;nh·.mcl'd it.- ••

In the Sl-rond edition of hi~ Principll'J ( 1'1.10) \lcCullol'h C";lmr out strongly in support of thl')' nl th1• poor J.~.ws, h.ul k-d me lo douht the corret.1m"'s of this opinion; and I ~- Tdlnl.ourc_h n .... ko., JanuJ.~· 1820. pp \59, \tro. ~lc· anywhere exist in their tn•atmcnt; and it must stoop to intl'rf~mmb:

..-.e, lot e:o;ampk, Edhtbl"l:h It~,

41. On J>rolcnJ:< f


9, IZ.S n.

But Tonens dt:!iwr•·d a frontal attack on till' \'iew[M>int of the Mant·hi"Ster school. Cohden had has ..d his position on the om\'klion that free tn.de would break down the baniers of nationalism ami inaugurate an era of univenal fril'ndliness among the nations of tlo..worlJ: ~I b!olit.'Ve that if you abolish the Com-Law honestly. and adopt the Frl'eTrudc in its simplic-ity, thl're y,iiJ not be a tariff in Europe that will not be changed in lt'SS tJ,an Sve y Plilk~l f:r,.wnr~ il.onp ptt('C""O. '"""'R S. Sar.-n. ''"J"he QuH~Inn of the Standard In thr IIJ.5.0'•.~ ~-~'"""'"'' W•t0


pp. lH--1. Ec-unonun iu



cardo's system on the speciGc ('('Onnmic problems of the day?~ After all. Senior did subscribe In thr basic Ricardian link hetwt'E"n the produc· livity of agricultun• and thc rate of capital aC'Cllmulatinn. and he roneluded frum this. again on Ricardian lint's, that fr('(' tratll' would constitute a bulwark against the stationary statr. Torwns rt·fl•-ct~l the prcniling atlitude when he dmiffi that t"itbcr :\lalthus, Jom-s, or Senior had succcetled in establishing ·a srparatt• systt-m or sehoul of his own.· •lloctrint'S put fom·anl in refutation of the principles of Ricardo.· Torrens concluded, ·arc not Infrequently mere extensions of tht'$t' principles.• The Ricardian emphasis on cronomic J;TOWIIl and the chang("> in the dbtrihutivc shares so pennrotffi l'CI.JOomit· thinking in ltll' po:riod th•ll t'Ycn those who re\·oltN ag:ainsl Ricartln"s authority in fact acchh· ,..,.11 handl..d by thr ~>tlm.&h•l ano.l lh~ t,.,;"'"""'~"· F01 "'· tiM-,· "·oohl .ay. tho•1nal prmpn-iiY. th~ (flmth auol .!etwl-en l::abor values Jnd ac!ual sup-


9. )>bn"• t,-~n,fnml£tllln ~ctual.ly ll>um .... wh..t II i• droi~l toP""'"· As Mn. Roblu""" puh tl. MM-."> ..,Jutim• lo Mpnr.,Jy fnnn.oll•Ur and ronshts !n Ju~Z~~IIng to and '"' ""llh "''""'~!:loptd ~precisely In orOO to erpbin the manifest eristene ol surpiUI value In the ~lll world.~ 11 Smith and Ric-ardo are simply mudtll~-d fOtftunn'"n ol Man;. Man himself s.-t the fashion for this style of criticism. In his Th.,orieJ n/ SurplUI Volue, intended as a final volume of Copffllf, wc arc prt"Se"ntcd with a •cntlclll hbtory ol the mDin point of political economy, the theory of sur· plus value.· A third of the bnolt Is gin•n ovcr to a critirism of Ricardo: Rieatdo obould have ~alized that the fact of a unifonn rate of profit ron. badicts the det=nlna.tioa of valuc by labor time; Ricardo mt'noly identdir1 value with prire anlltherefore profit with !Airplus value; Ric-ardo ignoTl~ thr natu~ of labor as ~the substanc.- of value· and drab only with "tJ,., ma_.,i. tud.- ol value~; and. most muhing of all. Ricardo bilcd to investi~ate ·rh~ origin of ~~rp\us value .• 13 But Rieardo's discussion of t1rc invariabl•· mrasur~ of value bring• out quite ckarly that pricn \1-iU di•·rrgl' from vah1M owin~ 12. Bon•I~NIflt~-hi• nam• fw tlwo output. hnlh r•J>rr>-.1 In man.hou,.. t.. not a thtmy ol thc orijlin of profit. ,_ does It lmpl)· th..ot ..,...., of l.aboi• product 1.! wllhhrld.. 13. Man tri.d to refute thi• doctrine, hi• r..fut.>tio!n p............!• t"lltlrrlo· b~· ,..• y of a ~t..d u.....tk>n th>t ~thr fund out of whi,·h thr capit.oll•t pan th,• ""~~· . ......, t. nothl11~ but th .. laun"o own pmdlld of unemployment•; as evide11ce he supplir$ 1 statement by ~lalthus which h.u no refere11ce to unemployment but mn· ditinn of the r..boutl~~g Cfo.r..-_. of Society. London, 11317. Re-printed: Ed. J. II. Hollander. Baltimore. Johns Hopkin• Press, 1934. - - . An lnyrtlry Into th8 Cau.1 of the Pro~reutVfl Dtpt'ecfmian of Agricultural L.Waur In Modern Timn London, 11320. - - . A Statement of the Con.Jflluencer Likely lo En-rot frmn our Crnu•lng Uceu of Populmlon, if nol Rcrrwdied f>y Colonl:.stion. Londnn, 18.10 Bentham, Jt'l't'm\', f:conomlc Writing~. td. W. Sb.rk. 3 \'ob. London. All.-n 6 un...;n, 1952.

Bbl.-. \\'illiam, ObKn.VJiion. on tht! Ef!ech Produ~:rd /JI} tht' Elprndilure nf Cowmrnent during the Re.rtrktion of Cftru e>/ 011r Sutferin~. London. 184:2. "Obscr.·atlOI\S on Mr. McCullorh"s Dodrine• Re•l'f't'tin!l th,. rA,m Li"s otiMI the Rate of \\'yge•; The Parnphll'ten, 27 (1826),

Jh~~:in.•. Gt'Orge.

240-.'lfl. Thomas], Labour Dcfcrukd 1\,!:airlsl the Claim• of Capital, m the Vnprodurlillf'IU"U nf Capital ProL..-d u~lh llrftTence to thl' PreJl'nt C!>mf~nallon.r f Mr. \VI/mat llorlon'• 11/U, In a Utter and QucrieJ Add"J.St"d lo N. W. Senior E~q uilh hi• Aruwer. London. 1830. TM Inlqrt/1':1 oftlw Landholdl'rt . . . In lll'gord Ia the Com l.au:!l. London,


Jemml'tt. Hmry. ·ob'!O'"rvalions on ~k Ricardo's Prindple1 of Polrtical Econ· omy and Ta.ution,• The Pam#tl'f!f", Z7 (182.6), 14:2-51. Jones, Rrered llrfore the U11io>cr.rlty of Orford, In MkharlmtJ.I Tenn, 18.14. Londrd in Michaelma.t Tenn, 1816.

London, 1837. Longfield, Mountiforl, Lecture• on Politkal f:ennorniJ, Ddio,ered Ill Trinity ond Mici~GrlmG., Tnmr,/833. Dublin, )8:).,1_ London School ol Economics R~prinlr,

No. 8, 1931.

- - . Four l£rl11U'J on Poor l.au.•r, Ddio:ned In Trlllily Tenn. J!nl Dubhn, IS.'l-4. Low ... J,_.ph. The p,,..,.nl Stale of Enl':lond in llrgard 111 ."id., Janota~· 1820. PI'· 15.">-87. 1 - - ] . "The Opinions of M~us. Say, Sim.nncli, ond ~~~hhn•. on Effed.s nf ~b.,hinl'~" and AN.'Umul~tion," lind., March lfl21, pp. 102-23. 1--]. MOo C.ombinalion Laws, R"slrainb on Emi,..tion, 61~ ..- ih.d., January 11>24. pp. 315-15. 1 - - J . ·Frrndo Law of Sucn-ssion: il>id, July 1824, PI'· 3:,0...75 1 - - J , ·rolitical Eamomy: Supplemnot to the fourth. fifth, and til:th ...!•lions of th._.. Enrf1Ciopocdla Brltarmira (1824), 6, pt. I, 216-78. Ed. \O.~Ih Sole• J. ~f. \'icl..u. N..w York, 182S. - - , The Prlnciplcr of Po/ilirnl Erone>my: u·ilh a Slt'lch nl tlu' RUe and frpgreu of the Sdl!llce. Edinburgh and London, 1.1125. 2d t'ou& ln.otitutioru. 2 vols. London, 18.'17. 2d cd. IS'l9. 3d .,J HH7. 4th N. 1854. --,The LUCf"flture of Politka/-E.rorwmy. London, 184.5. London School of Economics Rt'prin!S, No.5. 1938.

--,The Worh of David Rlt:ardo, Elq .. M.P .. With a Notice of the l-'fe and \l'riHngsof the Author. Londoo, 1846. 2d cd. 1!15-'l. - - , Statements lUustratiL't of the PoliCIJ ond Prn/>Qt./1' ConM'qUNIU! of t~ Propcucd Rqtrol of the En#ing Com L.aw. Edinburgh and London, 1&41. 2d-16th eels. 1841.

- - , A TrMi# onths


to Praperly Vnondc IIWory. November 1942. - - . •utter to Ricardo; ed. P. Sralfa, Economic /C>Umal. Sqltember 1955. Marcel, Jane. Conllm'•lion.. on Polflical-En>nomy; In tL·hkh I~ Elements of that Scicnu ore f'ami/iar/!1 1-:rplofrw.d. London, 1816. 2d ...!.. 1817. 3d ed. 1819. 4th ed. 1821. Sth o:cl. 1824. 6th rd. 1827. 7th ed. 18.'39. Marlinro1.1, Harriet, 11/u.slrrJI/oru of Politiclll E:ronomy. 9 vols. London, IS'lZ34. - - , Poor l...6u;! tJnd P11upnt IUwlratl'd. 4 vols. London. 1533--34. --,TN! Tendency of Strike! ond Sticks to Produr::fl Low Wa~:e.r ond of

Unforu bdu:un Ma.stlYS orwl Men to Ensure Good Wo~get. Durham, 1834. - - , Auloblography, rd. M. W. Chapman. 2 vo\.s. Bcmon, 1877. (Merivale, Hermlln], •Senior on Political Ecooomy: £djnburgh Ret>II!W, October 1837. pp. 37-102. Mill. James. Cmnmn-u Dn. 1910. - - , At~lcblography. New Yod, Columbia University P1ess, 1924.

... --,"Unpublished J..o,tters to Custa~ d'Eichtal,~ Co.nnopo/U, May 1897. - - , lwo Speeche, on Education," ed. H. J. Laski, Joorrwd of Ad"lt Edua~tJon, October 192\1. --,Spirit of tlw Ace, ed. F. A. Hayek. Chicago, Univt:politic.!.,~Full Employment nnd Conln,R:ir.tJ/ Ch4n,R:e Gnd Empl(t'jmrnl. Philadelphia, Works Projt'cts Administration, 1940 Cordon, 5., llw London £conPmirl and thl' High Tidl' of L:aiJ."~n·F~re.~ /oomal of Polrlirol Economy, OM-eml>t-r 1955. Gottlieb, Manurl, 11le Theory of Optimum Pnpulalion FO!' p Cloted Eronomv," JoorMl of Politit'.tJl Economy, ~hn 19-15. Crampp. \\'. D., RMalthus on Monty Wages 11nd Wrlfarl',~ AmNimn £co· nnmk lln-ll'W, JJ.ocTmbrr 1956. Griffith. C. T., Population Problmu "'' the Clu~doo Press, 1953.

Schumpetl'l', J~ph A., llisfory of Eronomk AriGI!Iri.r. New York, OdOftl. University Pren, 1954. Schillze. G. H., DW Lehre oon der Vertellung In der Volkwlrf~ehaft bel Thorrwu 1/odgrkin. Lc:ipzig. Ernst'sche Vertlh., 1930. So:ohgmlln, E. R. A., l::uuy' In £rooomicl. New York, MaMDiiLan, 1925. Sidlf"·ick, Henry. The Prinriple:r o/ PolitiNI £ct~norny. London, Macmillan. 1001.

Simons, R. 8., lhomu Robnt MalthWI on British Society,M Journlh, The Malthusian Conti"'W'''oy. Londun, Routi...Jge & Kegan r~ul. 1951. Smith, v ....a C., The &tionDk of CenlNJI Bonking. London, P. S. King Ill Sun, 1936. Smilh, V. E., "The Classicists' Use of Dctnand,R /oum4/ of P