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ON THE ELEMENTARY PRINCIPLE OF POLITICAL ECONOMY.
_Phaed_. To cut the matter short, X. Y. Z., and to begin as near as possible to the end--is there any one principle in Political Economy from which all the rest can be deduced? A principle, I mean, which all others presuppose; but which itself presupposes none.
_X_. There is, Phaedrus; such a principle exists in the doctrine of Value--truly explained. The question from which all Political Economy will be found to move--the question to which all its difficulties will be found reducible--is this: _What is the ground of exchangeable value_? My hat, for example, bears the same value as your umbrella; double the value of my shoes; four times the value of my gloves; one twentieth of the value of this watch. Of these several relations of value, what is the sufficient cause? If they were capricious, no such science as that of Political Economy could exist; not being capricious, they must have an assignable cause; this cause--what is it?
_Phaed_. Ay, what is it?
_X_. It is this, Phaedrus; and the entire merit of the discovery belongs to Mr. Ricardo. It is this; and listen with your whole understanding: _the ground of the value of all things lies in the quantity_ (but mark well that word "quantity") _of labor which produces them_. Here is that great principle which is the corner- stone of all tenable Political Economy; which granted or denied, all Political Economy stands or falls. Grant me this one principle, with a few square feet of the sea-shore to draw my diagrams upon, and I will undertake to deduce every other truth in the science.
_Phaed_. Take it and welcome. It would be impossible for most people to raise a cabbage out of the sea-shore, though the sand were manured by principles the noblest. You, therefore, my dear friend, that promise to raise from it, not a cabbage, but a system of Political Economy, are doubly entitled to your _modicum_ of sand, and to your principle beside; which last is, I dare say, a very worthy and respectable principle, and not at all the worse for being as old as my great-grandfather.
_X_. Pardon me, Phaedrus; the principle is no older than the first edition of Mr. Ricardo's book; and when you make me this concession so readily under the notion that you are conceding nothing more than has long been established, I fear that you will seek to retract it, as soon as you are aware of its real import and consequences.
_Phaed_. In most cases, X., I should hesitate to contradict you peremptorily upon a subject which you have studied so much more closely than myself; but here I cannot hesitate; for I happen to remember the very words of Adam Smith, which are--
_X_. Substantially the same, you will say, as those which I have employed in expressing the great principle of Mr. Ricardo: this is your meaning, Phaedrus; and excuse me for interrupting you; I am anxious to lose no time; and therefore let me remind you, as soon as possible, that "the words" of Adam Smith cannot prove any agreement with Mr.
Ricardo, if it appears that those words are used as equivalent and convertible at pleasure with certain other words not only irreconcilable with Mr. Ricardo's principle, but expressing the very doctrine which Mr. Ricardo does, and must in consistency, set himself to oppose. Mr. Ricardo's doctrine is, that A and B are to each other in value as the _quantity_ of labor is which produces A to the quantity which produces B; or, to express it in the very shortest formula by substituting the term _base_, as synonymous with the term _producing labor, All things are to each other in value as their bases are in quantity_. This is the Ricardian law: you allege that it was already the law of Adam Smith; and in some sense you are right; for such a law is certain to be found in the "Wealth of Nations." But, if it is _ex_plicitly affirmed in that work, it is also _im_plicitly denied: formally asserted, it is virtually withdrawn. For Adam Smith everywhere uses, as an equivalent formula, that A and B are to each other in value as the _value_ of the labor which produces A to the _value_ of the labor which produces B.
_Phaed_. And the formula for Mr. Ricardo's law is, if I understand you, that A and B are to each other in value not as the _value_, but as the _quantity_ of the labor which produces A to the _quantity_ which produces B.
_X_. It is.
_Phaed_. And is it possible that any such mighty magic can lurk in the simple substitution of _quantity_ for _value_? Surely, X., you are hair-splitting a little in this instance, and mean to amuse yourself with my simplicity, by playing off some logical legerdemain upon me from the "seraphic" or "angelic" doctors.
_X_. The earnestness and good faith of my whole logic and reasoning will soon become a pledge for me that I am incapable of what you call hair-splitting; and in this particular instance I might appeal to Philebus, who will tell you that Mr. Malthus has grounded his entire opposition to Mr. Ricardo on the very distinction which you are now treating as aerial. But the fact is, you do not yet perceive to what extent this distinction goes; you suppose me to be contending for some minute and subtle shades of difference; so far from _that_, I mean to affirm that the one law is the direct, formal, and diametrical negation of the other: I assert in the most peremptory manner that he who says, "The value of A is to the value of B as the _quantity_ of labor producing A is to the _quantity_ of labor producing B,"
does of necessity deny by implication that the relations of value between A and B are governed by the _value_ of the labor which severally produces them.
_Phil_. X. is perfectly right in his distinction. You know, Phaedrus, or you soon will know, that I differ from X. altogether on the choice between the two laws: he contends that the value of all things is determined by the _quantity_ of the producing labor; I, on the other hand, contend that the value of all things is determined by the _value_ of the producing labor. Thus far you will find us irreconcilable in our difference; but this very difference implies that we are agreed on the distinction which X. is now urging. In fact, so far are the two formulae from presenting merely two different expressions of the same law, that the very best way of expressing negatively Mr. Ricardo's law (namely, A is to B in value as the _quantities_ of the producing labor) would be to say, A is _not_ to B in value as the _values_ of the producing labor.
_Phaed_. Well, gentlemen, I suppose you must be right; I am sure you are by the logic of kings, and "according to the flesh;" for you are two to one. Yet, to my poor glimmering understanding, which is all I have to guide me in such cases, I must acknowledge that the whole question seems to be a mere dispute about words.
_X_. For once, Phaedrus, I am not sorry to hear you using a phrase which in general is hateful to my ears. "A mere dispute about words" is a phrase which we hear daily; and why? Is it a case of such daily occurrence to hear men disputing about mere verbal differences? So far from it, I can truly say that I never happened to witness such a dispute in my whole life, either in books or in conversation; and indeed, considering the small number of absolute synonymes which any language contains, it is scarcely possible that a dispute on words should arise which would not also be a dispute about ideas (that is, about realities). Why, then, is the phrase in every man's mouth, when the actual occurrence must be so very uncommon? The reason is this, Phaedrus: such a plea is a "sophisma pigri intellectus," which seeks to escape from the effort of mind necessary for the comprehending and solving of any difficulty under the colorable pretext that it is a question about shadows, and not about substances, and one therefore which it is creditable to a man's good sense to decline; a pleasant sophism this, which at the same time flatters a man's indolence and his vanity. For once, however, I repeat that I am not sorry to hear such a phrase in your mouth, Phaedrus: I have heard it from you before; and I will frankly tell you that you ought to be ashamed of such a plea, which is becoming to a slothful intellect, but very unbecoming to yours. On this account, it gives me pleasure that you have at length urged it in a case where you will be obliged to abandon it. If that should happen, remember what I have said; and resolve never more to shrink effeminately from the toil of an intellectual discussion under any pretence that it is a verbal dispute. In the present case, I shall drive you out of that conceit in less time than it cost you to bring it forward. For now, Phaedrus, answer me to one or two little questions which I will put. You fancy that between the expressions "_quantity_ of producing labor" and "_value_ of producing labor" there is none but a verbal difference. It follows, therefore, that the same effect ought to take place whether the value of the producing labor be altered or its quantity.
_Phaed_. It does.
_X_. For instance, the production of a hat such as mine has hitherto cost (we will suppose) four days' labor, at three shillings a day: now, without any change whatsoever in the _quantity_ of labor required for its production, let this labor suddenly increase in value by twenty-five per cent. In this case, four days' labor will produce a hat as heretofore; but the value of the producing labor being now raised from three shillings a day to three shillings and nine pence, the value of the total labor necessary for the production of a hat will now be raised from twelve shillings to fifteen shillings. Thus far, you can have nothing to object?
_Phaed_. Nothing at all, X. But what next?
_X_. Next, let us suppose a case in which the labor of producing hats shall increase, not in value (as in the preceding case), but in quantity. Labor is still at its old value of three shillings a day; but, from increased difficulty in any part of the process, five days'
labor are now spent on the production of a hat instead of four. In this second case, Phaedrus, how much will be paid to the laborer?
_Phaed_. Precisely as much as in the first case: that is, fifteen shillings.
_X_. True: the laborer on hats receives fifteen shillings in the second case as well as in the first; but in the first case for four days' labor, in the second for five: consequently, in the second case, wages (or the value of labor) have not risen at all, whereas in the first case wages have risen by twenty-five per cent.
_Phaed_. Doubtless: but what is your inference?
_X_. My inference is as follows: according to yourself and Adam Smith, and all those who overlook the momentous difference between the quantity and the value of labor, fancying that these are mere varieties of expression for the same thing, the price of hats ought, in the two cases stated, to be equally raised, namely, three shillings in each case. If, then, it be utterly untrue that the price of hats would be equally raised in the two cases, it will follow that an alteration in the value of the producing labor, and an alteration in its quantity, must terminate in a very different result; and, consequently, the one alteration cannot be the same as the other, as you insisted.
_X_. Now, then, let me tell you, Phaedrus, that the price of hats would _not_ be equally raised in the two cases: in the second case, the price of a hat will rise by three shillings, in the first case it will not rise at all.
_Phaed_. How so, X.? How so? Your own statement supposes that the laborer receives fifteen shillings for four days, instead of twelve shillings; that is, three shillings more. Now, if the price does not rise to meet this rise of labor, I demand to know whence the laborer is to obtain this additional three shillings. If the buyers of hats do not pay him in the price of hats, I presume that the buyers of shoes will not pay him. The poor devil must be paid by somebody.
_X_. You are facetious, my friend. The man must be paid, as you say; but not by the buyers of hats any more than by the buyers of shoes: for the price of hats cannot possibly rise in such a case, as I have said before. And, that I may demonstrate this, let us assume that when the labor spent on a hat cost twelve shillings, the rate of profits was fifty per cent.; it is of no consequence what rate be fixed on: assuming this rate, therefore, the price of a hat would, at that time, be eighteen shillings. Now, when the _quantity_ of labor rose from four to five days, this fifth day would add three shillings to the amount of wages; and the price of a hat would rise in consequence from eighteen shillings to a guinea. On the other hand, when the _value_ of labor rose from twelve shillings to fifteen shillings, the price of a hat would not rise by one farthing, but would still continue at eighteen shillings.
_Phaed_. Again I ask, then, who is to pay the three shillings?
_X_. The three shillings will be paid out of profits.
_Phaed_. What, without reimbursement?
_X_. Assuredly, without a farthing of reimbursement: it is Mr.
Ricardo's doctrine that no variation in either profits or wages can ever affect the price; if wages rise or fall, the only consequence is, that profits must fall or rise by the same sum; so again, if profits rise or fall, wages must fall or rise accordingly.
_Phaed_. You mean, then, to assert that, when the value of the labor rises (as in the first of your two cases) by three shillings, this rise must be paid out of the six shillings which had previously gone to profits.
_X_. I do; and your reason for questioning this opinion is, I am sure, because you think that no capitalist would consent to have his profits thus diminished, but would liberate himself from this increased expense by charging it upon the price. Now, if I prove that he cannot liberate himself in this way, and that it is a matter of perfect indifference to him whether the price rises or not, because in either case he must lose the three shillings, I suppose that I shall have removed the sole ground you have for opposing me.
_Phaed_. You are right: prove this, X., "et eris mihi magnus Apollo."
_X_. Tell me, then, Phaedrus, when the value of labor rises--in other words, when wages rise--what is it that causes them to rise?
_Phaed_. Ay, what is it that causes them, as you say? I should be glad to hear your opinion on that subject.
_X_. My opinion is, that there are only two [Footnote: There is another case in which wages have a constant tendency to rise--namely, when the population increases more slowly than the demand for labor.
But this case it is not necessary to introduce into the dialogue: first, because it is gradual and insensible in its operation; secondly, because, if it were otherwise, it would not disturb any part of the argument.] great cases in which wages rise, or seem to rise:
1. When money sinks in value; for then, of course, the laborer must have more wages nominally, in order to have the same virtually. But this is obviously nothing more than an apparent rise.
2. When those commodities rise upon which wages are spent. A rise in port wine, in jewels, or in horses, will not affect wages, because these commodities are not consumed by the laborer; but a rise in manufactured goods of certain kinds, upon which perhaps two fifths of his wages are spent, will tend to raise wages: and a rise in certain kinds of food, upon which perhaps the other three fifths are spent, will raise them still more. Now, the first case being only an apparent rise, this is the only case in which wages can be said really to rise.
_Phaed_. You are wrong, X.; I can tell you of a third case which occurs to me whilst you are speaking. Suppose that there were a great deficiency of laborers in any trade,--as in the hatter's trade, for instance,--that would be a reason why wages should rise in the hatter's trade.
_X_. Doubtless, until the deficiency were supplied, which it soon would be by the stimulus of higher wages. But this is a case of market value, when the supply happens to be not on a level with the demand: now, throughout the present conversation I wish studiously to keep clear of any reference to market value, and to consider exclusively that mode of exchangeable value which is usually called natural value-- that is, where value is wholly uninfluenced by any redundancy or deficiency of the quantity. Waiving this third case, therefore, as not belonging to the present discussion, there remains only the second; and I am entitled to say that no cause can really and permanently raise wages but a rise in the price of those articles on which wages are spent. In the instance above stated, where the hatter's wages rose from three shillings to three shillings and nine pence a day, some commodity must previously have risen on which the hatter spent his wages. Let this be corn, and let corn constitute one half of the hatter's expenditure; on which supposition, as his wages rose by twenty-five per cent., it follows that corn must have risen by fifty per cent. Now, tell me, Phaedrus, will this rise in the value of corn affect the hatter's wages only, or will it affect wages in general?
_Phaed_. Wages in general, of course: there can be no reason why hatters should eat more corn than any other men.
_X_. Wages in general, therefore, will rise by twenty-five per cent. Now, when the wages of the hatter rose in that proportion, you contended that this rise must be charged upon the price of hats; and the price of a hat having been previously eighteen shillings, you insisted that it must now be twenty-one shillings; in which case a rise in wages of twenty-five per cent, would have raised the price of hats about sixteen and one half per cent. And, if this were possible, two great doctrines of Mr. Ricardo would have been overthrown at one blow: 1st, that which maintains that no article can increase in price except from a previous increase in the quantity of labor necessary to its production: for here is no increase in the _quantity_ of the labor, but simply in its value; 2d, that no rise in the value of labor can ever settle upon price; but that all increase of wages will be paid out of profits, and all increase of profits out of wages. I shall now, however, extort a sufficient defence of Mr. Ricardo from your own concessions. For you acknowledge that the same cause which raises the wages of the hatter will raise wages universally, and in the same ratio--that is, by twenty-five per cent. And, if such a rise in wages could raise the price of hats by sixteen and one half per cent., it must raise all other commodities whatsoever by sixteen and one half per cent. Now, tell me, Phaedrus, when all commodities without exception are raised by sixteen arid one half per cent., in what proportion will the power of money be diminished under every possible application of it?
_Phaed_. Manifestly by sixteen and one half per cent.
_X_. If so, Phaedrus, you must now acknowledge that it is a matter of perfect indifference to the hatter whether the price of hats rise or not, since he cannot under any circumstances escape the payment of the three shillings. If the price should _not_ rise (as assuredly it will not), he pays the three shillings directly; if the price were to rise by three shillings, this implies of necessity that prices rise universally (for it would answer no purpose of your argument to suppose that hatters escaped an evil which affected all other trades).
Now, if prices rise universally, the hatter undoubtedly escapes the direct payment of the three shillings, but he pays it indirectly; inasmuch as one hundred and sixteen pounds and ten shillings is now become necessary to give him the same command of labor and commodities which was previously given by one hundred pounds. Have you any answer to these deductions?