As Smith again had said,13the 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.'14It 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 accumulated.Smith,for example,goes on to insist upon this in one of the passages which partly anticipates Malthus.15But 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 constituents 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.'16That 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 accumulation of profit does not,as Malthus had said,necessarily raise wages;17and 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 circumstances,to the labourer.
The belief of the labouring class 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.'18The 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 asserts,'that price which is necessary to enable the labourers,one with another,to subsist and perpetuate their race without either increase or diminution.'19This 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.'20It 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 21that the wages of different classes 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 2or 1?labourers rolled into one.The assumption 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 classes,and which cooperate 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 assume 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.