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 substitute horses for men.27If 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 accumulation of capital.
That,therefore,becomes the essential point.The whole aim of the legislator should be to give facilities for the accumulation 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 ******* from the evils of every tax --is that it should permit of accumulation 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 any impenetrable mystery,'and showed the true relations of profit,wages,and prices,28Ricardo's theory of value,again,was a starting-point of the chief modern Socialist theories.It marked,as has been said,29the 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 quantity of some other thing for which it is actually exchanged in the market.In that sense,as Ricardo incidentally observes,30the 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 quantity 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 circumstances,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 assume this to be the case,and money to be 'invariable in value.'31We 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,'32The 'sacrifice'measures the 'utility,'and we may assume 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 assuming the capital employed to be in the same proportion,things must exchange in proportion to the quantity 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 quantities of capital are required in different industries;but the general principle is given by the ******st 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 quantity 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.