‘PROFITS DEPEND ON WAGES’: RICARDO'S PRINCIPLE AND ITS EARLY DEMISE

‘PROFITS DEPEND ON WAGES’: RICARDO'S PRINCIPLE AND ITS EARLY DEMISE Abstract The present paper deals with one of the most important principles of Ricardo's theory: namely, the idea that profits ‘depend on wages’ and only on wages, varying inversely with them. After an examination of the actual contents of this principle in Ricardo, and its relationship with his theory of value, we discuss first the dispute about the principle between Ricardo and Malthus, then its progressive abandonment by Ricardo's self-appointed ‘genuine disciples’, J.R. McCulloch and James Mill, under the influence of Torrens and of Bailey. We argue that de Quincey is the only Ricardian to steadfastly keep to Ricardo's principle. There can be little doubt that Ricardo regarded the inverse relationship between wages and profits as one of the most important—if not the most important—of the propositions established in his work. Thus, he wrote for instance in the Principles: It has been my endeavour to shew throughout this work, that the rate of profits can never be increased but by a fall in wages (Works, I, 132).1 A similar statement occurs in the last chapter of the book (p. 411), as if to summarise the aim of the whole work.2 It is also clear that both contemporary and later commentators—no matter what interpretation they gave of Ricardo's theory, or what attitude they had towards it—have been aware of the prominence of this point in Ricardo's system. Take, for instance, the very influential review of Principles published by McCulloch in the Edinburgh Review.3 He writes that a consequence of the principle that commodities exchange according to labour embodied is that a rise in wages does not raise prices, but lowers profits. This consequence, McCulloch adds, is even more important than the principle itself (McCulloch, 1818, p. 68).4 As for modern commentators, one may recall Samuel Hollander's rather baroque labelling of the inverse wage–profit relationship as the ‘Fundamental Ricardian Theorem on Distribution’. I. RICARDO'S PRINCIPLE If there is wide accord on the importance of this doctrine in Ricardo, the same cannot be said of the interpretation of its contents, or of its acceptance. It will therefore be of some interest to start with briefly reviewing Ricardo's own treatment of this issue. A preliminary in the analysis of the wage–profit relationship is for Ricardo ‘getting rid of rent’, a device by means of which ‘the distribution between capitalist and labourer becomes a much more simple consideration’ (Works, VIII, 194). In fact, focussing on the worst land taken into cultivation, which according to Ricardo pays no rent, commodity prices would be reduced to wages and profits only5; and, to the extent that prices could be assumed to be constant with a changing distribution, it followed immediately that a rise in the value of wages—in whatever unit reckoned—would entail a fall in the value of profits—as measured in the same standard. This would also imply a fall in the ratio of these (diminished) profits to the value of the capital employed (which would be increased, due to the increase in the value of that part of capital consisting of wages). Ricardo's main argument, in the chapter ‘On Profits’, to which he often refers the reader for a proof that ‘when wages rise, it is always at the expense of profits’ (Works, I, 404; see also 411), assumes the invariance of prices with respect to distribution, by means of the assumption that commodities exchange according to labour embodied. His argument can be summarised as follows. He first assumes that ‘on the land paying no rent’, 10 labourers produce 180 quarters of corn, and that the price of corn is £4 per quarter. It is then supposed that, after a worsening in the conditions of production of corn, 10 labourers, on the land paying no rent, produce only 170 quarters. Corn would therefore rise from £4 to £4. 4 s. 8d., i.e. in proportion to the rise in the labour embodied in it (10/180: 10/170 = £4/£4. 4 s. 8d.)6 (Works, I, 113). And so on for every worsening in the conditions of production of corn. Thus, the value of the corn produced by 10 workers will always be the same, equal to £720 (170 × £4. 4 s. 8d. = 180 × £4 = £720). If money wages rise so as to keep the commodity wage constant while the price of corn rises, more of these £720 will go to wages, and less would be left for profits. The calculation could be made in terms of labour, instead of pounds, and the result would of course be the same. The labour value of the corn produced by 10 workers is equal to 10. The labour value of their wage bill is increasing, if it remains the same in commodity terms, because corn is a wage good, and the labour necessary to produce one unit of corn is increasing. Profits would correspondingly diminish. These results can be summarised by saying that a greater proportion of the value is paid out in wages, therefore the rate of profits is diminished. Because of the assumption that commodities exchange according to labour embodied, a greater proportion of the value of the product paid out in wages also means that a greater proportion in the labour of the 10 workers is necessary to reproduce their wages (these proportions would in fact be the same). It is important to recall here that ‘in his observations on profit and wages, Ricardo … treats the matter as though the entire capital were laid out directly in wages’ (Marx, 1862–63, II, 373).7 This is clearly the case also in the above example.8 It provides the key for many riddles in Ricardo's positions on the subject. Taking this into account, in fact, we can see that in Ricardo the labour embodied in the wage rate (the amount of commodities each labourer receives as his wage) is identical with the two proportions above mentioned—viz., the proportion of the (total) labour necessary to reproduce the (total) wage bill, and the proportion of the value of wages in the value of the product. In fact, if w is the labour embodied in the wage rate, and L the number of labourers employed in producing a certain amount of product, the proportion of the latter labour used to reproduce the wage bill is wL/L. On the other hand, wL/L is also the proportion of the value of the product (as measured in any standard) devoted to pay wages (as measured in the same standard). Thus, w is at the same time the wage rate,9 the proportion of labour necessary to reproduce wages, and the proportion of (the value of) the product paid out as wages. This explains why Ricardo speaks interchangeably of a greater proportion and a greater value (e.g. Works, II, 253),10 and also why he sometimes writes that the rate of profits depends upon the proportion of wages in the product, sometimes that it depends upon the quantity of labour embodied in the wage rate (e.g. Works, VIII, 130). These statements are in fact equivalent. Another point which has to be taken into account in order to explain what could at first sight appear as inconsistencies of Ricardo, is that under the assumption that only wage capital is employed in production, the rate of profits is equal to the reciprocal of the ratio of wages to profits—in fact, it is obvious that in this case profits/wages is the rate of profits.11 This, combined with the assumption that commodity values do not change when distribution changes, implies that as the amount of wages12 in the price13 of a commodity rises, the rate of profits must fall. There is another point, which is useful for an evaluation of the problem whether Ricardo's proposition of the inverse wage–profit relation was a ‘truism’—as has been asserted by a range of writers, from Malthus (e.g. 1820, p. 310) to Schumpeter (1954, p. 592).14 It is obviously a truism that, if something has to be divided in two shares, as one of them increases, the other must decrease, and vice versa. Thus, it is obvious that if the share of wages rises, the share of profits falls, given that they make up the whole of the price, having ‘got rid’ of rent. Now, the ratio of the share of profits to the share of wages, if we disregard non-wage capital, is equal to the rate of profits. That is:   Profits/Product:Wages/Product=Profits/Wages Therefore, under these assumptions, the inverse relationship between the rate of profits and the rate of wages can be proved passing through the truism on the shares. But in itself, it is not a truism at all.15 The foregoing remarks can explain the logic underlying Ricardo's statements on the question of the wage/profit relationship. These remarks can therefore help us in clarifying the issues involved in the debate on the wage/profit question, which was foremost in the discussion first between Malthus and Ricardo, and subsequently in the controversies between the Ricardians and their detractors. II. MALTHUS VS. RICARDO The first point we shall discuss is the controversy on the question of measuring wages by ‘proportions’—which, as has already been noticed, is the same thing as measuring them by the amount of labour embodied in the wage rate. Ricardo always claimed that this was how real wages had to be measured, while Malthus kept to the view of ‘consider[ing] the necessaries of life as the real wages of labour’ (Works, VII, 214). As Ricardo wrote, ‘Malthus thinks it monstruous that I should say labour had fallen in value, when perhaps the quantity of necessaries allotted to the labourer may be really increased’ (Works, VII, 378). Ricardo of course agreed that higher commodity wages could be accompanied by constant or even increased profits, if there was an improvement in the conditions of production of the wage goods. This he himself had argued in the first chapter of Principles, where he had shown, in a numerical example, that if the product obtained with a given amount of labour be doubled, and the amount of it paid as wages to the workers be augmented, but less than doubled, profits would rise. But in this case, Ricardo had argued, ‘I should say, that wages … had fallen … Wages are to be estimated by their real value, viz. by the quantity of labour and capital16 employed in producing them, and not by their nominal value either in hats, money, or corn’ (Works, I, 50). To a certain extent this dispute could be seen as a dispute about names, as Ricardo himself argued, regarding Malthus's as an ‘objection … to the language’ (Works, II, 266; see also 259 and 264). What was relevant, according to Ricardo, was the agreement (or disagreement) on the substance, viz. on the principle (as formulated by Malthus) that profits depend upon two causes: (i) the difficulty or facility of production on the land,17 and (ii) the amount of necessaries given to each labourer (Works, II, 251–2). ‘These two causes—Ricardo noticed—could be classed under the name of high or low wages’—i.e. high or low ‘proportion of the value of the produce necessary to support the labourer’ (ibid.). The real point in dispute between them was that Malthus appeared sometimes to be ‘at variance with the principle’ he himself had formulated (Works, II, 266), to which Ricardo consistently kept. The dispute about names, however, was not altogether irrelevant, for at least two reasons. First, Ricardo's definition of wages as a proportion was useless in a discussion which appears to have been gaining momentum in the 1820s: that over the condition of the labourer, and its relation with profits. What was relevant for this discussion was whether commodity wages were high or low, and whether commodity wages could only rise at the expense of profits. Thus, Malthus writes: what I have called the real and nominal wages of labour include every thing which relates to the condition of the labourer, the encouragement of population, and the value of money, the three great points which chiefly demand our attention. According to Mr. Ricardo's view of the subject, nothing can be inferred on these points either from high or from low wages (Malthus, 1820, p. 291–2). And we find McCulloch writing in 1828, about Ricardo's ‘doctrine with respect to profits’ (viz. the inverse wage–profit relation) that it, though ‘in a theoretical point of view is quite unexceptionable18 … practically … is of less importance’, and, unless Ricardo's peculiar use of terms be ‘kept in view’, it ‘may lead … to the most erroneous conclusions. It is by the quantities of produce falling to the share of the capitalists and labourers … that their condition is always determined’. And improvements in the techniques of production make it possible that ‘both profits and wages may rise at the same moment’ (McCulloch, 1828, p. 192–3). Secondly, behind the dispute on what was to be termed ‘real wages’ there lurked a more thorny one; namely, that over the theory of value and over the ‘absolute’ or ‘invariable’ measure. The point that Ricardo had made in the above example of rising commodity wages, to argue that wages had really fallen, was that ‘in terms of a medium, which had not varied in value, the wages of the labourer should be found to have fallen’, because they would be a less than double amount of the product, the unit value of which would be halved in terms of such an unvarying medium (Works, I, 50). Ricardo's reasoning therefore relied on his idea of an invariable standard of value (a standard which would not vary in value when wages and profits vary), and on the parallel one, that labour is the ‘cause’ of value (which are the basis for his assertion that the value of the product would be halved). Thus, Malthus's ‘objection’ was not only, and not so much, to Ricardo's ‘language’, but to his theory.19 Of this Malthus and Ricardo were aware: Ricardo wrote that the differences between himself and Malthus on the subject of profits derived from differences ‘in our ideas of what constitutes a real measure of value’ (Works, II, 258); and Malthus explicitly regarded Ricardo's language as a consequence of his choice for the invariable standard, and used it as an argument against that choice (‘I should observe, that if the application of Mr Ricardo’s invariable standard of value naturally leads to the use of such language, the sooner the standard is got rid of, the better’: Malthus, 1820, p. 213). III. McCULLOCH VS. RICARDO It is well known that both James Mill and McCulloch disagreed with Ricardo on the question of the invariable standard of value. Mill, for instance, in his (anonymous) review of Bailey's Critical dissertation agreed with Bailey that ‘the word ‘value’ ought to be used in the sense of exchangeable value only’—though adding that this was ‘a question of verbal convenience only’ (Mill, 1826A, p. 159). McCulloch went much further and declared himself to be of the opinion that ‘there neither is nor can be any real and invariable standard of value’ (Works, IX, 344), but, with characteristic inconsistency, he used the term ‘real value’ to denote the labour embodied in commodities. McCulloch agreed with Bailey's Dissertation on the invariable standard of value (McCulloch, 1825, p. 214n.).20 Thus, both Ricardo's self-appointed ‘genuine disciples’ lacked an important basis on which Ricardo could justify his ‘language’. Correspondingly, we find that even when they agreed with Ricardo’s definition of ‘real wages’ as proportionate wages, they failed to give any reasons as to why that use of terms was correct. Also, it is remarkable that they in general did not link it with the labour theory of value. In view of this, it is hardly surprising that they should have rather early abandoned Ricardo’s positions on the inverse wage–profit relationship. In what follows, we will show how successive changes in Mill's and McCulloch's works, apparently made in order to meet criticisms on terminology, were in fact the vehicle through which that abandonment was brought about. In his 1818 review of Ricardo' Principles in the Edinburgh, McCulloch followed Ricardo very closely, and maintained that ‘a rise of wages is only another name for a fall of profit, and vice versa’ (McCulloch, 1818, p. 72). He agreed that a less share for the capitalist would be ‘the same thing’ as a diminution of profits (p. 68), and emphasised that ‘the real wages of the labourer’ were ‘his share of the produce of his labour’ (p. 70). No mention was made of the contrast between commodity wages and wages as measured in labour embodied, or of the distinction between the share and the rate of profits. In the Encyclopaedia Britannica article on ‘Political Economy’ distribution was said to be ‘an investigation of the laws regulating the proportions in which the various products … are distributed among the various classes of the people’ (McCulloch, 1823, p. 105, italics added), and real wages were said to ‘depend upon the proportion of the produce of the industry which belongs to the labourer. They are high when this proportion is large, and they are low when it is small.21 It is to real wages that we always refer’ (p. 140–1). Again, he remarked that, given that the price ‘is exclusively divided between the capitalist and the labourer … it follows necessarily that profits must vary inversely as wages’ (p. 144). The point is also made that ‘although profits depend on wages, they do not depend on wages estimated in money, in corn, or any other commodity, but on PROPORTIONAL wages’, and that ‘proportional wages may be increased, at the same time that wages, if estimated in corn, or any other necessary, would be found to be diminished’ (p. 149). But McCulloch insists that ‘it is by proportional quantities, and not by absolute quantities, that we are to estimate the effect of wages on profits’ (p. 150). However, he gives no reason for this. Up to this point, the dispute could still be seen as one on names: on whether to call proportional wages, or commodity wages, real wages. In any case, no doubts are raised about Ricardo’s principles or his terminology. McCulloch does not make it clear whether by ‘profits’ he understands a share or a rate, but in his almost contemporary article on the accumulation of capital in the Edinburgh Review it is clear that the inverse wage–profit relationship is between proportional wages and the rate of profits (McCulloch, 1824B, p. 10).22 Substantial changes in McCulloch’s position are exhibited in the first edition of his Principles. Here, he starts with the ‘obvious’ point that the shares of profits and wages must vary inversely. He then introduces one of his characteristic and confusing changes in terminology: ‘real wages’ are now defined as ‘wages estimated in money [sic] or in quantity of produce’ (McCulloch, 1825A, p. 365), and they are contrasted with ‘proportional wages’ (which he had previously regarded as ‘real wages’).23 He then argues that if it is true that The proportion of … produce falling to either party, varies inversely to the proportion falling to the other … the profit accruing to the capitalists is different … from the proportion of the produce of industry falling to their share. Profits consist of the excess of commodities produced by the expenditure of a given quantity of capital; and are always measured in aliquot parts of the capital employed in production (McCulloch, 1825A, pp. 365–6). Therefore, Ricardo's theory that profits entirely depend upon proportional wages is universally true, only in the event of one attaching a different sense to the term profits, from which is usually attached to it; and supposing it to mean the real value of the entire portion of industry, falling … to the share of the capitalists, without reference to the proportion which the magnitude of this produce bears to the magnitude of the capital employed in its production. Thus understood, Mr Ricardo's theory holds universally … But, if we consider profits, in the light in which they are invariably seen in the real business of life … it will immediately be seen, that there are very many exceptions to Mr Ricardo’s theory (p. 368). This amounted to a virtual abandonment of Ricardo's doctrine, denying in fact any relevance to it (even though admitting that, according to Ricardo's (unwarranted) use of words, it was formally correct). But McCulloch goes further, and shows by an example that ‘the rate of profits might really remain the same, though the proportion of the produce of industry falling to the share of the labourer were actually increased’ (p. 371). His example is the following.24 It is assumed that the conditions of production of corn change from 500 units of corn as wages + 500 as seed etc. → 1100 units of corn to: 600 units of corn as wages + 400 as seed etc. → 1100 units of corn McCulloch then notices that in the latter case: The profits of the landlord [sic] will be exactly the same as in the former case, though proportional wages have risen (pp. 371–2). The result is obviously correct: it depends upon the reduction in the organic composition of capital between the two cases. This had been overlooked by Ricardo, due to his neglect of non-wage capital.25 It is of some interest to notice that McCulloch's change of position from the Encyclopaedia article to the Principles (which is otherwise almost a reprint of the article) appears to have been influenced, if not determined, by Bailey's Dissertation26, which had been published in the interval of time between the publication of the two works of McCulloch's. Bailey had argued that ‘labour … is high in value when it commands a large, and low when it commands a small quantity of commodities’, and that this was the only definition of high and low wages which could be given ‘consistently with the definition of value’ (Bailey, 1825, p. 46–7). Further, he had noticed that Ricardo's idea, that ‘wages are to be estimated … by the quantity of labour and capital employed in producing them … supposes the possibility of an invariable standard of value … a supposition which has been shown to involve contradictory conditions’ (Bailey, 1825, p. 54–5)—and McCulloch, in his Principles, goes out of his way to praise the Critical dissertation as the first work to put forward the correct principles, on the invariable standard of value (McCulloch, 1825A, p. 214n). There are also other significant similarities between the Dissertation and McCulloch's new positions. For instance, Bailey had maintained that higher profits could not be regarded as synonymous with lower wages (as McCulloch himself had sometimes argued); that higher profits mean that ‘the gain of the capitalist bears a higher ratio to the capital employed’, and not a higher share of the product (Bailey, 1825, p. 63); and that ‘wages… and profits may both rise together’ (ibid.), because ‘the proposition, that when labour rises profits must fall, is true only when its rise is not owing to an increase in its productive powers’ (p. 64). These are all positions which McCulloch endorses in his Principles with almost the same words as Bailey's. And the example to show that, if productivity rises, there is no inverse wage–profits relationship even when considering proportional wages, can easily be seen as a development from Bailey's positions, combined with Torrens's. That McCulloch in his Principles had ‘with laudable candour, corrected in an essential degree, his former opinions on the subject of profit’, and that he had ‘admitted, that Mr Ricardo’s principles are tenable, only when we pervert from their established acceptation the terms in which these principles are expressed … [and] that the Ricardo doctrine of profit is erroneous’, was in fact remarked, with apparent satisfaction, by Torrens, in the preface to the 1826 edition of his External corn trade (1826, p. xiii). Torrens had by then become a critic of Ricardo on both value and distribution.27 He also wrote that ‘Mr. Mill appears more reluctant than Mr M'Culloch to modify and correct the pure Ricardo doctrines’ (1826, p. xiv), remarking however that Mill himself ‘in the last edition28 of his Elements’ ‘gives up’ the inverse wage–profit relationship ‘in all cases, except in those in which the terms are used, not according to their accustomed acceptation, but with reference to proportion’ (p. xv). Torrens, after showing with an example virtually identical to that of McCulloch's Principles, that ‘even when we adopt Mr. Mill's language of shares and proportions, profits do not depend upon wages’, urges Mill to abandon also ‘the position to which he has retired’ (p. xviii). As a matter of fact, the three successive editions of Mill's Elements (published in 1821, in 1824 and in 1826)29 show a pattern of change very similar to the one just seen in McCulloch's works. IV. MILL VS. RICARDO In the first edition of Elements, Mill had started with the point that the shares of wages and profits make up the whole which is to be divided between workers and capitalists, therefore that which regulates the share of one regulates also, it is very evident, the share of the other … We might, therefore, … affirm that wages determine profits, or that profits determine wages (Mill, 1821, p. 56). Given however that wages are the independent variable, he reaches the conclusion that profits of stock depend upon wages—rise as wages fall, and fall as wages rise (p. 57). Mill then goes on to remove any ambiguity which adheres to the word profits. Profits may mean the quantity of commodities … which the capitalist receives … or the term profits may, as it most commonly does, refer not to the commodities themselves, but their relative values. In this latter sense, it is that we use the term when we speak of the rate of profits … When we say … that profits are 10%, we say that the share of the produce which comes to the capitalist would exchange for one-tenth of all the commodities employed, as capital, in the production of it (p. 57–8). Mill’s position is that, if one uses the terms in the first sense (quantity of commodities), profits do depend upon two things: upon the quantity of return, as well as the state of wages. If, however, we use the terms in the usual sense—to denote the ratio of values, it may be shown that profits, in that sense, depend wholly upon wages (p. 58–9). These statements, which were basically the same as Ricardo's, were not modified in the second edition, where Mill however made two additions which prompted Torrens’s remark on Mill having abandoned ‘the pure Ricardo doctrines’. In particular, the summary added at the end of the chapter30 does not mention the inverse relation between wages and the rate of profits, or what is the ‘usual’ sense of the terms according to Mill. Only the two propositions on wages and profits as quantities or proportions are mentioned, and they are put, as it were, on the same footing, as two different propositions, equally valid and relevant. The third edition of Mill’s Elements must have pleased Torrens, because in it Mill ‘retired’ even further.31 He still started with the same characteristic bold statement he had made in the first two editions: ‘profits of stock depend upon wages; rise as wages fall, and fall as wages rise’ (Mill, 1826B, p. 71). But then goes on to explain that this proposition is only valid when referring to proportions, or also to value ‘in the sense which Mr. Ricardo annexed to the word’ (i.e. labour embodied); it is instead not valid, if one refers to quantities or to ‘value in exchange’ (p. 72–3). This already amounted to little less that a whole rejection of Ricardo’s doctrines—the more so, given that, as noticed above, Mill in his review of Bailey’s Dissertation had previously agreed that the only acceptable concept of value was exchangeable value. Even more strikingly, Mill now argues that, as the rate of profits ‘is generally spoken in the sense of exchangeable value’ also for it the proposition is not valid, and if there is an increase in ‘the productive powers of labour and capital’ a rise in the share of wages might leave the rate of profits unchanged (p. 77). This is a rejection of Mill’s own previous position, and with it Mill comes to embrace the position at which McCulloch had arrived the previous year in his Principles. V. CONCLUSIONS The first conclusion which may be drawn from the foregoing discussion, is that Ricardo’s doctrine that ‘profits depend on wages’ was left standing only in the ‘obvious’ sense, that the proportion of the product (net of rent) going to profits is determined by the proportion going to wages, and in the equally obvious sense that these two proportions vary in opposite directions. Mill and McCulloch had after all endorsed the position that Ricardo’s inverse wage–profit relationship (even when conceiving wages as proportional wages) was only valid assuming given technical conditions of production—a rise in productivity could make higher wages compatible with undiminished profits. Therefore, profits do not ‘depend wholly on wages’, but also on ‘productiveness of industry’—as they put it. The change could be viewed as simply an improvement upon Ricardo, deriving from the fact that the Ricardians did not overlook what Ricardo had overlooked (non-wage capital), and it might be thought that it did not imply any substantial abandonment of Ricardo’s positions. But it seems that this is not entirely the case. In the first place, as pointed out at the beginning, the link between Ricardo’s theory of profits and his theory of value was so strict that to surrender Ricardo’s position on profits implied a surrender—or at least a significant weakening—also of the theory of value. As a matter of fact, Mill’s conclusion, in the first edition, that ‘The rate of profits … depends wholly on wages’ (1821, p. 60) was explicitly based on the labour theory of value and its corollary, that ‘the value of that which is divided as wages of labour and profits of stock remains the same’ when wages change (ibid.). In the third edition, labour embodied (‘the sense which Mr. Ricardo annexed to the word value’: Mill, 1826B, p. 74) is contrasted with ‘exchangeable value’, which Mill had previously made clear was the only sense in which the term value ought to be used. Parallel to this, the proposition, that ‘profits depend literally and strictly upon wages’ is said to be true only when using Ricardo’s ‘language’, and not ‘In the common mode of expressing profits’ (1826B, p. 74–5). In the second place, it seems that the abandonment of Ricardo’s positions on the wage–profit relationship was paralleled by a move away from Ricardo’s conceptions on the origin of profits. If it is true that, as Marx put it, Ricardo ‘leaves the origin of surplus-value obscure’ (Marx, 1862–63, III, p. 14), it is also true that, as Marx himself after all agrees,32 a conception of the origin of profits was so rooted in Ricardo’s theory, that even a ‘comparative layman’ like Ricardo's friend Trower33 could spell it in very clear terms, as in the following passage from his last letter to Ricardo (of 3 September 1823): profit … is the residue, the surplus after all expences are paid … I have often thought, that a useful view of the subject might be taken by excluding profit from the costs of production, and by exhibiting it in its true light, as the surplus produce— In point of fact, it may be truly said, that the payment of profit is not a necessary condition of production … There may be no surplus produce; there may be just sufficient to support the labour during the process of production, and no more (Works, IX, 384). Of this conception of profits, a necessary ingredient was the inverse wage–profit relation, which was in turn based upon taking the amount of produce as given, in physical or (labour) value terms. Although fragments of this vision could also be found in Mill and McCulloch, their conception of profits as ‘wages of accumulated labour’, and as a ‘positive additional value resulting from the employment of capital’34 is in fact its opposite, coming very near to what Marx dubbed the ‘vulgar’ conception of interest-bearing capital ‘as an element which in itself creates value,35 i.e. is a source of value’, and of profits as something which capital itself ‘has created … ex proprio sinu, out of itself’ (Marx, 1862–63, III, p. 502). It seems to me that the view formulated by Mill and McCulloch, that profits depend on wages and upon ‘productiveness of industry’, tended to change the problem of distribution among wages and profits of a given product into that of a study of the relationship between wages, profits, and (through ‘productiveness of industry’) the amount produced—which implied a partial loss of the structure of Ricardo's theory,36 and a move towards something more similar to the later supply and demand theory, where distribution and the level of production are jointly determined (a sign of the loss of the structure of Ricardo's theory can be seen in Mill and McCulloch referring generally to ‘productiveness of industry’ as influencing the rate of profits, whereas Ricardo had always maintained that only the conditions of production of wage goods were relevant; with this, an important theoretical point was missed by them). We may also add that it is not without significance that de Quincey, who (despite some superficial flirtations with a subjective approach) was the only Ricardian who also in his later writings ‘continu[ed] to hold’ the labour theory of value (‘this embarassing doctrine’: de Quincey, 1844, p. 119),37 at the same time kept to the principle that ‘profits are the leaving of wages’ (p. 257), and that ‘wages and profits vary inversely: whatever the one loses the other gains (p. 258). Indeed, as de Quincey wrote, ‘The ground of the value of all things lies in the quantity … of labour 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’ (de Quincey, 1824, p. 55).38 In Mill's and McCulloch’s construction that corner-stone was loose. Footnotes 1 In the present paper, Sraffa (1951–73) will be quoted as Works, followed by the volume and the page number. 2 The passage quoted in the text is also quoted by Malthus in his Definitions, as a summary of Ricardo’s ‘whole theory of profits, which has been considered as the crowning achievement in the science’ (Malthus, 1827, p. 27). 3 As is well known, in the first half of the XIX Century the Edinburgh Review was the most important and best selling of the great reviews (the Edinburgh, the Quarterly, the Westminster, and Blackwood’s Edinburgh Magazine). As F.W. Fetter puts it, ‘It is doubtful whether any books by economists had as many readers in the first half of the century as did these reviews. The Edinburgh reached a circulation of 15.000 copies’ (Fetter, 1965, p. 425). As a matter of fact, Ricardo himself thought that McCulloch’s review had done much to accelerate the sale of the book (Works, VII, 337). And so did Malthus (‘the review cannot fail of greatly contributing to the publicity and general circulation of your book, and the extension of your fame’: Works, VII, 278). 4 See also for instance McCulloch (1825 B, p.18–19), where the inverse wage–profit relationship is said to be one of the three results into which Ricardo’s contribution could be summed up (the other two being that ‘rent is altogether extrinsic to the cost of production’, and that value is determined by labour embodied). The same points are also made in McCulloch’s Discourse on Political Economy (1825 C, p. 72). 5 This is of course the origin of what Marshall called ‘the celebrated doctrine that Rent does not enter into the cost of production’ (1891, p. 457). Marshall wrote that Ricardo had been the ‘original user of this phrase’ (p. 458n), but Ricardo in the Principles apparently only uses a slightly different (perhaps slightly less misleading) sentence: rent is not ‘a component part of price’ (e.g. p. 77). It is rather J.S. Mill in his own Principles who writes of rent not entering into cost of production (J.S. Mill, 1848, p. x; p. 428; p. 487). The sentence used by Marshall and his wife in Economics of Industry (‘Rent does not enter into Expenses of production’: Marshall and Marshall, 1884, p. 89) also appears to have been borrowed from Mill’s Principles, rather than from Ricardo’s. 6 £4 4 s. 8d. is equivalent to approximately £4.23 in the current metric system. 7 Cannan instead maintains that ‘Ricardo, and probably every one else in his time, when they talked of the ‘produce’ of a farm being divided in a particular way between rent, wages, and profits, meant the net produce which remains after providing for ‘seed and other outgoings’’ (1917, p. 293, italics added). But the point is that only neglecting non-wage capital could Ricardo have maintained that profits depend upon proportional wages and upon these alone (for a discussion of Marx’s point, see Steedman, 1982, p. 131 ff, and de Vivo, 1982, pp. 91–2). 8 In that example, corn was clearly supposed to be produced by means of direct labour only. 9 Measured in labour embodied, or in any commodity, provided we choose as the unit amount of every commodity the amount of it which embodies one unit of labour. In this case, prices as measured in any commodity will be equal, not only proportional, to embodied labour, if the labour theory of value holds. 10 ‘I contend that a greater proportion and greater value mean the same thing’. 11 One of the few authors who discuss the point in any detail, G.L.S. Tucker, is led by his neglect of the fact that Ricardo overlooked non-wage capital, to conclude that Ricardo’s doctrine that proportional wages and the rate of profits vary inversely must have been based on the assumption of a given productivity. He himself, however, has to admit that it is difficult to find where in the Principles this assumption is made (Tucker, 1960, p. 97 and n). The assumption is instead clearly made by Ricardo in the Essay on Profits (Works, IV, 12), as Tucker rightly notices, but this of course derives from the fact that in the Essay Ricardo refers to commodity (i.e. corn) wages, not to wages measured in labour embodied. 12 Measured in labour embodied, or in any commodity. 13 Measured in the same unit as the wages. 14 See also Edelberg (1933, p. 58 and n; pp. 71–2). 15 S. Hollander, who wanted to deny the validity of Schumpeter’s assertion, has on the other hand written that ‘Ricardo took for granted that a change in the wage rate implies an inverse change in the profit rate’ (1979, p. 214, italics added). This is curious, for someone who emphatically defines this relationship as ‘The Fundamental Ricardian Theorem on Distribution’. Hollander’s difficulties derive from his failure to make clear the connection of the relationship between the shares and that between the rates, which in turn appears to derive from his attempt to deny the existence (or at any rate the significance) of the labour theory of value in Ricardo. 16 ‘Mr. Ricardo often uses the terms quantity of labour, and quantity of labour and capital, to express the same thing’ (Malthus, 1836, p. 295n). 17 i.e. the conditions of production of wage goods, which include agricultural product, and are therefore subject to diminishing returns. 18 It will be shown below that McCulloch, in the 1825 edition of his Principles, had already denied the existence of an inverse relationship between proportional wages and the rate of profits. 19 It ought to be recalled that Marx sided with Ricardo, on the question of the measurement of wages: ‘The value of wages has to be reckoned not according to the quantity of the means of subsistence received by the worker, but according to the quantity of labour which these means of subsistence cost (in fact the proportion of the working-day which he appropriates for himself), that is according to the relative share of the total product, or rather the total value of this product, which the worker receives. It is possible that, reckoned in terms of use-values (quantity of commodities or money), his wages rise as productivity increases and yet the value of wages may fall and vice versa. It is one of Ricardo’s great merits that he examined relative or proportionate wages, and established them as a definite category’ (Marx, 1862–3, II, p. 49). Marx even argued that ‘The position of the classes to one another depends more on relative wages than on the absolute amount of wages’ (ibid.). 20 McCulloch is certainly to be placed in the numerous group of economists who regarded the search for an invariable measure of value as similar to that for the ‘philosopher’s stone’—as Lauderdale (1804, p. 23) had written. (McCulloch himself used this expression: 1824A). The epithet ‘chimera’, referred to the invariable standard, was made famous by Cannan (1929, p. 174); it had been used by Say, de Quincey, and, as shown in Gordon (1969), by others. 21 McVickar, in his notes to the reprint he edited of McCulloch’s article, comments on this passage: ‘it is the proportion his wage bears to the means of his support’ that ‘should alone bear the name of ‘real wages’, since they determine the comfort and prosperity of the labourer himself’ (McVickar, 1825, p. 140n). 22 The Edinburgh article is similar in several points to the Encyclopaedia article. 23 Another source of confusion was the fact that McCulloch did not strictly adhere to his new definitions. On page 294 of Principles, for instance, he still defined a real variation in wages as a variation in the proportion of the produce received by the labourer. This was noticed by Malthus, as an example of McCulloch’s ‘want of attention, on a point so important in all philosophical discussions, as appropriate and consistent definitions’ (Malthus, 1827, p. 112–3). 24 This example, slightly modified, is to be found in all subsequent editions of the Principles. Its structure is clearly derived from Torrens. 25 McCulloch’s example might have been the source of J.S. Mill’s virtually identical example in the essay ‘On profits, and interest’, in his Unsettled Questions (1844, p. 99–101). Mill himself, in his autobiography, writes however that ‘the modified form of Ricardo’s theory of Profits, laid down in my Essay on Profits and Interest’ emanated from the discussions among that dozen of young men who used to assemble twice a week at George Grote’s house in Threadneedle Street, for ‘a joint study of several of the branches of science which we wished to be masters of ’ (J.S. Mill, 1873, p. 101–3). (He also writes that the modifications to his father’s Elements on that topic ‘were founded on criticisms elicited by these conversations’). Also, in his Principles J.S. Mill kept to the ‘modified form’ of Ricardo’s theory which he had espoused in that essay (J.S. Mill, 1848, p. 413–4). The essay was written shortly after McCulloch’s book was published. 26 Some of the following points on the influence of Bailey on McCulloch had been partly noticed by Rauner (1961, p. 102 ff). Bailey had been very kind to McCulloch, qualifying him as ‘one of our most distinguished living economists’ (1825, p. xiii), adding that his ‘views as to the nature of value appear to be sounder than those of any other writer’ (p. 32). 27 We may here notice that in Colonization of South AustraliaTorrens (1835) wrote that Ricardo ‘investigated the laws which determine the proportions according to which the produce of industry is divided’ (p. 24), and that ‘Under the circumstances assumed, his conclusions are quite correct’ (p. 29), but that ‘the doctrine of Mr Ricardo is not true, under the actual circumstances of the world’ (p. 31). His position could therefore hardly be described as ‘a substantial change of view’ and ‘a shift towards acceptance of the Ricardian position’ with respect to his position in the 1826 External Corn Trade, as Robbins maintains (1958, p. 53–4). 28 The 1826 edition of Torrens’s External Corn Trade was published in February (see Monthly Literary Advertiser, March 1826, p. 20), when the third edition of Mill’s Elements had not yet appeared. 29 The third edition of Mill’s Elements (1826) was reissued in 1844 (when its author had been dead for some years). It was made of the remaindered sheets of the 1826 edition, with a cancel title page. The fact that this title page bears the inscription ‘3rd edition, revised and corrected’ (as was the case for the original third edition), and that it has been used for the Kelley reprint, has often created a confusion in modern authors as to the dates of the different editions of the book. 30 This is the chapter on ‘Distribution’. 31 It seems, however, that Torrens did not notice these changes in his later works. 32 This is after all the general surmise of the chapter on ‘Revenue and its sources’ at the end of Marx’s Theories of Surplus Value, where Ricardo’s (and, more generally, the Classical) theory is contrasted with ‘vulgar political economy’. It should be remembered that Marx also wrote: ‘Ricardo exposes and describes the economic contradiction between the classes—as shown by the intrinsic relations—and … consequently political economy perceives, discovers the root of the historical struggle and development’ (Marx, 1862–63, II, p. 166); he went even so far as writing: ‘the antithesis to political economy—namely socialism and communism—finds its theoretical presupposition in the works of classical political economy itself, especially in Ricardo’ (Marx, 1857–58, p. 884). 33 For a short notice of Trower, see Works, VI, xxiii–xxv. As Sraffa remarks, Ricardo’s ‘correspondence with Trower has a peculiar interest as exhibiting an attempt to explain to a comparative layman the economic discussions in which Ricardo was engaged’ (Works, VI, xiv). It should however be remembered that Trower, though not a professional economist (and in a sense Ricardo himself was not), was for instance the ‘Friend to Bank Notes’ who took part in the Bullion Controversy (for details, see Works, III, 3 and fff). 34 This is what McCulloch writes in his letter of 24 August 1823 to Ricardo (Works, IX, 366). It should also be mentioned that McCulloch endorsed Lauderdale’s ideas, on the origin of profits, writing that ‘capital ‘contributes to … produce wealth’ by enabling labourers to execute works, or produce commodities, which could not have been executed or produced without it, and by saving labour (McCulloch, 1823, p. 79; see Lauderdale, 1804, p. 161). It is strange therefore that Böhm-Bawerk, who classes Lauderdale’s among the ‘indirect productivity theories’ of profit, should have instead put McCulloch’s together with Ricardo’s, among the ‘colourless theories’ (von Böhm-Bawerk, 1884, Bk. I, ch. V). 35 It should also be remembered that, given the confusion often made by McCulloch, between value and wealth (e.g. 1823, p. 52; this of course is a most un-Ricardian confusion), McCulloch’s statement, to the effect that capital produces wealth (see preceding footnote) might be read as saying that it produces value. 36 On the structure of classical theory, and its separation between determination of distribution and of levels of output, see Garegnani (1984, Section II). 37 These were made famous by J.S. Mill’s ‘generous quotations’ (as Schumpeter put it), but did not touch the substance of his theory, despite his criticism of Ricardo, on both theoretical and political grounds (‘from mere inadvertence, Ricardo is … found in a painful collusion with the most hateful of anarchists’: de Quincey, 1844, p. 252). For these reasons, I cannot agree with the view that de Quincey’s 1844 Logic is close to ‘the Malthus-Lauderdale School’ (Gherity, 1962, p. 271; the author however also writes that de Quincey is close to Ricardo, on what he calls ‘the static theories of value and distribution’: p. 274; see also Groenewegen, 1982). 38 ‘all changes in the quantity of producing labour … settle by corresponding changes upon the price: if the labour required is more, the price of the product is more; if less, less’ (de Quincey, 1844, p. 260). De Quincey also wrote: ‘A crazy maxim has got possession of the whole world; viz. that price is, or can be, determined by the relation between supply and demand’ (1844, p. 206). REFERENCES Bailey, S. ( 1825). A critical dissertation on the nature, measures, and causes of value; chiefly in reference to the writings of Mr. Ricardo and his followers . London: Hunter. Von Böhm-Bawerk, E. ( 1884). Capital and interest. A critical history of economical theory . New York: Kelley. Cannan, E. ( 1917). A history of the theories of production and distribution in English political economy from 1776 to 1848 , 3rd edition. London: King. Cannan, E. ( 1929). A review of economic theory . London: King. De Quincey, T. ( 1824). ‘Dialogues of three templars on political economy: chiefly in relation to the principles of Mr. Ricardo’, in Masson (1890). De Quincey, T. ( 1844). The logic of political economy, in Masson (1890). De Vivo, G. ( 1982). Notes on Marx’s critique of Ricardo. Contrib. Political Econ. , 1, 87– 99. Google Scholar CrossRef Search ADS   De Vivo, G. (ed.) ( 2000). Collected works of Robert Torrens , 8 vols. Bristol & Tokyo: Thoemmes Press & Kyokuto Shoten. Edelberg, V. ( 1933). The Ricardian theory of profits. Economica , 13, 51– 74. Google Scholar CrossRef Search ADS   Fetter, F.W. ( 1965). Economic controversies in the British reviews, 1802–1850. Economica, NS , 32, 424– 437. Google Scholar CrossRef Search ADS   Garegnani, P. ( 1984). Value and distribution in the Classical economists and Marx. Oxford Econ. Papers , 36, 291– 325. Google Scholar CrossRef Search ADS   Gherity, J.A. ( 1962). Thomas de Quincey and Ricardian orthodoxy. Economica, NS , 29, 269– 274. Google Scholar CrossRef Search ADS   Gordon, B. ( 1969). Criticism of Ricardian views on value and distribution in the British periodicals, 1820-1850. Hist. Political Econ. , 1, 370– 387. Google Scholar CrossRef Search ADS   Groenewegen, P. ( 1982). Thomas de Quincey: ‘Faithful disciple of Ricardo’? Contributions to Political Economy , 1. ’, pp. 51– 58. Hollander, S. ( 1979) The economics of David Ricardo . London: Heinemann. Lauderdale, Earl of ( 1804). An inquiry into the nature and origin of public wealth, and into the means and causes of its increase . Edinburgh: Constable. Malthus, T.R. ( 1820). Principles of political economy considered with a view to their practical application . London: Murray. Malthus, T.R. ( 1827). Definitions in political economy, preceded by the rules that ought to guide political economists in the definition and use of their terms; with remarks on the deviation from these rules in their writings . London: Murray. Malthus, T.R. ( 1836). Principles of political economy considered with a view to their practical Application , 2nd edition. London: Pickering. Marshall, A. ( 1891). Principles of economics , 2nd edition. London: Macmillan. Marshall, A. & Marshall, M.P. ( 1884) Economics of industry , 2nd edition. London: Macmillan. Marx, K. ( 1857-58). Grundrisse. Foundations of the critique of political economy (rough draft) . Harmondsworth: Penguin. 1993. Marx, K. ( 1862-63). Theories of surplus value, 3 vol. London: Lawrence & Wishart 1969-72. Masson, D. (ed.) ( 1890). The collected writings of Thomas de Quincey, vol. IX, Political economy and politics . Edinburgh: Black. McCulloch, J.R. ( 1818). Ricardo’s Political Economy. Edin. Rev. , 30, 59– 87. McCulloch, J.R. ( 1823). Political economy. Supplement to the fourth, fifth, and sixth editions of Encyclopaedia Britannica. With preliminary dissertations on the history of the sciences , vol. VI. Edinburgh: Archibald & Constable, p. 1824. McCulloch, J.R. ( 1824A). ‘Principles which determine the exchangeable value of commodities and the rate of profit’, The Scotsman, 21 February. McCulloch, J.R. ( 1824B). Standard of national prosperity. Rise and fall of wages. Edin. Rev. , 40, 1– 31. McCulloch, J.R. ( 1825A). The principles of political economy: with a sketch of the rise and progress of the science . Edinburgh: Tait. McCulloch, J.R. ( 1825B). Memoir of the life and writings of David Ricardo, Esq., M.P . London: Taylor. McCulloch, J.R. ( 1825C). A discourse on the rise, progress, and importance, of political economy: containing an outline of a course of lectures on the principles and doctrines of that science , 2nd edition. Edinburgh: Constable. McCulloch, J.R. (ed). ( 1828). An inquiry into the nature and causes of the wealth of nations, by Adam Smith, LL.D., with a life of the Author, and introductory discourse, notes, and supplemental dissertations, vol. 4, Edinburgh: Black and Tait. McVickar, J. ( 1825). Outlines of political economy: being a republication of the article on that subject contained in the Edinburgh Supplement to the Encyclopaedia Britannica. Together with notes explanatory and critical, and a summary of the science . New York: Wilder & Campbell. Mill, J. ( 1821). Elements of political economy . London: Baldwin, Cradock, and Joy. Mill, J. ( 1826A). On the nature, measures and causes of value. Westminster Rev. , 5, 157– 172. Mill, J. ( 1826B). Elements of political economy , 3rd edition. London: Baldwin, Cradock and Joy. Mill, J.S. ( 1844). Essays on some unsettled questions of political economy . London: Parker. Mill, J.S. ( 1848). Principles of political economy with some of their applications to social philosophy . Toronto: University Press, p. 1965. Mill, J.S. ( 1873). Autobiography . Humphrey Milford: OUP. Rauner, R.M. ( 1961). Samuel Bailey and the Classical theory of value . London: Bell. Robbins, L. ( 1958). Robert Torrens and the evolution of Classical economics . London: Macmillan. Schumpeter, J.A. ( 1954). History of economic analysis . London: Allen & Unwin. Sraffa, P. ed. ( 1951-73). The works and correspondence of David Ricardo , 11 vols. Cambridge: University Press. Steedman, I. ( 1982). Marx on Ricardo. Classical and Marxian political economy: Essays in honour of Ronald L. Meek  ( Bradley I. & Howard M. eds) London: Macmillan. Torrens, R. ( 1826). An essay on the external corn trade , 3rd edition. London: Longman, Rees, Orme, Brown, and Green. Torrens, R. ( 1835). Colonization of South Australia, in de Vivo (2000), vol. 4. Tucker, G.S.L. ( 1960) Progress and profit in British economic thought . Cambridge: University Press, pp. 1650– 1850. © The Author(s) 2018. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Contributions to Political Economy Oxford University Press

‘PROFITS DEPEND ON WAGES’: RICARDO'S PRINCIPLE AND ITS EARLY DEMISE

Loading next page...
 
/lp/ou_press/profits-depend-on-wages-ricardo-s-principle-and-its-early-demise-bCtFHcdp01
Publisher
Oxford University Press
Copyright
© The Author(s) 2018. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved
ISSN
0277-5921
eISSN
1464-3588
D.O.I.
10.1093/cpe/bzy005
Publisher site
See Article on Publisher Site

Abstract

Abstract The present paper deals with one of the most important principles of Ricardo's theory: namely, the idea that profits ‘depend on wages’ and only on wages, varying inversely with them. After an examination of the actual contents of this principle in Ricardo, and its relationship with his theory of value, we discuss first the dispute about the principle between Ricardo and Malthus, then its progressive abandonment by Ricardo's self-appointed ‘genuine disciples’, J.R. McCulloch and James Mill, under the influence of Torrens and of Bailey. We argue that de Quincey is the only Ricardian to steadfastly keep to Ricardo's principle. There can be little doubt that Ricardo regarded the inverse relationship between wages and profits as one of the most important—if not the most important—of the propositions established in his work. Thus, he wrote for instance in the Principles: It has been my endeavour to shew throughout this work, that the rate of profits can never be increased but by a fall in wages (Works, I, 132).1 A similar statement occurs in the last chapter of the book (p. 411), as if to summarise the aim of the whole work.2 It is also clear that both contemporary and later commentators—no matter what interpretation they gave of Ricardo's theory, or what attitude they had towards it—have been aware of the prominence of this point in Ricardo's system. Take, for instance, the very influential review of Principles published by McCulloch in the Edinburgh Review.3 He writes that a consequence of the principle that commodities exchange according to labour embodied is that a rise in wages does not raise prices, but lowers profits. This consequence, McCulloch adds, is even more important than the principle itself (McCulloch, 1818, p. 68).4 As for modern commentators, one may recall Samuel Hollander's rather baroque labelling of the inverse wage–profit relationship as the ‘Fundamental Ricardian Theorem on Distribution’. I. RICARDO'S PRINCIPLE If there is wide accord on the importance of this doctrine in Ricardo, the same cannot be said of the interpretation of its contents, or of its acceptance. It will therefore be of some interest to start with briefly reviewing Ricardo's own treatment of this issue. A preliminary in the analysis of the wage–profit relationship is for Ricardo ‘getting rid of rent’, a device by means of which ‘the distribution between capitalist and labourer becomes a much more simple consideration’ (Works, VIII, 194). In fact, focussing on the worst land taken into cultivation, which according to Ricardo pays no rent, commodity prices would be reduced to wages and profits only5; and, to the extent that prices could be assumed to be constant with a changing distribution, it followed immediately that a rise in the value of wages—in whatever unit reckoned—would entail a fall in the value of profits—as measured in the same standard. This would also imply a fall in the ratio of these (diminished) profits to the value of the capital employed (which would be increased, due to the increase in the value of that part of capital consisting of wages). Ricardo's main argument, in the chapter ‘On Profits’, to which he often refers the reader for a proof that ‘when wages rise, it is always at the expense of profits’ (Works, I, 404; see also 411), assumes the invariance of prices with respect to distribution, by means of the assumption that commodities exchange according to labour embodied. His argument can be summarised as follows. He first assumes that ‘on the land paying no rent’, 10 labourers produce 180 quarters of corn, and that the price of corn is £4 per quarter. It is then supposed that, after a worsening in the conditions of production of corn, 10 labourers, on the land paying no rent, produce only 170 quarters. Corn would therefore rise from £4 to £4. 4 s. 8d., i.e. in proportion to the rise in the labour embodied in it (10/180: 10/170 = £4/£4. 4 s. 8d.)6 (Works, I, 113). And so on for every worsening in the conditions of production of corn. Thus, the value of the corn produced by 10 workers will always be the same, equal to £720 (170 × £4. 4 s. 8d. = 180 × £4 = £720). If money wages rise so as to keep the commodity wage constant while the price of corn rises, more of these £720 will go to wages, and less would be left for profits. The calculation could be made in terms of labour, instead of pounds, and the result would of course be the same. The labour value of the corn produced by 10 workers is equal to 10. The labour value of their wage bill is increasing, if it remains the same in commodity terms, because corn is a wage good, and the labour necessary to produce one unit of corn is increasing. Profits would correspondingly diminish. These results can be summarised by saying that a greater proportion of the value is paid out in wages, therefore the rate of profits is diminished. Because of the assumption that commodities exchange according to labour embodied, a greater proportion of the value of the product paid out in wages also means that a greater proportion in the labour of the 10 workers is necessary to reproduce their wages (these proportions would in fact be the same). It is important to recall here that ‘in his observations on profit and wages, Ricardo … treats the matter as though the entire capital were laid out directly in wages’ (Marx, 1862–63, II, 373).7 This is clearly the case also in the above example.8 It provides the key for many riddles in Ricardo's positions on the subject. Taking this into account, in fact, we can see that in Ricardo the labour embodied in the wage rate (the amount of commodities each labourer receives as his wage) is identical with the two proportions above mentioned—viz., the proportion of the (total) labour necessary to reproduce the (total) wage bill, and the proportion of the value of wages in the value of the product. In fact, if w is the labour embodied in the wage rate, and L the number of labourers employed in producing a certain amount of product, the proportion of the latter labour used to reproduce the wage bill is wL/L. On the other hand, wL/L is also the proportion of the value of the product (as measured in any standard) devoted to pay wages (as measured in the same standard). Thus, w is at the same time the wage rate,9 the proportion of labour necessary to reproduce wages, and the proportion of (the value of) the product paid out as wages. This explains why Ricardo speaks interchangeably of a greater proportion and a greater value (e.g. Works, II, 253),10 and also why he sometimes writes that the rate of profits depends upon the proportion of wages in the product, sometimes that it depends upon the quantity of labour embodied in the wage rate (e.g. Works, VIII, 130). These statements are in fact equivalent. Another point which has to be taken into account in order to explain what could at first sight appear as inconsistencies of Ricardo, is that under the assumption that only wage capital is employed in production, the rate of profits is equal to the reciprocal of the ratio of wages to profits—in fact, it is obvious that in this case profits/wages is the rate of profits.11 This, combined with the assumption that commodity values do not change when distribution changes, implies that as the amount of wages12 in the price13 of a commodity rises, the rate of profits must fall. There is another point, which is useful for an evaluation of the problem whether Ricardo's proposition of the inverse wage–profit relation was a ‘truism’—as has been asserted by a range of writers, from Malthus (e.g. 1820, p. 310) to Schumpeter (1954, p. 592).14 It is obviously a truism that, if something has to be divided in two shares, as one of them increases, the other must decrease, and vice versa. Thus, it is obvious that if the share of wages rises, the share of profits falls, given that they make up the whole of the price, having ‘got rid’ of rent. Now, the ratio of the share of profits to the share of wages, if we disregard non-wage capital, is equal to the rate of profits. That is:   Profits/Product:Wages/Product=Profits/Wages Therefore, under these assumptions, the inverse relationship between the rate of profits and the rate of wages can be proved passing through the truism on the shares. But in itself, it is not a truism at all.15 The foregoing remarks can explain the logic underlying Ricardo's statements on the question of the wage/profit relationship. These remarks can therefore help us in clarifying the issues involved in the debate on the wage/profit question, which was foremost in the discussion first between Malthus and Ricardo, and subsequently in the controversies between the Ricardians and their detractors. II. MALTHUS VS. RICARDO The first point we shall discuss is the controversy on the question of measuring wages by ‘proportions’—which, as has already been noticed, is the same thing as measuring them by the amount of labour embodied in the wage rate. Ricardo always claimed that this was how real wages had to be measured, while Malthus kept to the view of ‘consider[ing] the necessaries of life as the real wages of labour’ (Works, VII, 214). As Ricardo wrote, ‘Malthus thinks it monstruous that I should say labour had fallen in value, when perhaps the quantity of necessaries allotted to the labourer may be really increased’ (Works, VII, 378). Ricardo of course agreed that higher commodity wages could be accompanied by constant or even increased profits, if there was an improvement in the conditions of production of the wage goods. This he himself had argued in the first chapter of Principles, where he had shown, in a numerical example, that if the product obtained with a given amount of labour be doubled, and the amount of it paid as wages to the workers be augmented, but less than doubled, profits would rise. But in this case, Ricardo had argued, ‘I should say, that wages … had fallen … Wages are to be estimated by their real value, viz. by the quantity of labour and capital16 employed in producing them, and not by their nominal value either in hats, money, or corn’ (Works, I, 50). To a certain extent this dispute could be seen as a dispute about names, as Ricardo himself argued, regarding Malthus's as an ‘objection … to the language’ (Works, II, 266; see also 259 and 264). What was relevant, according to Ricardo, was the agreement (or disagreement) on the substance, viz. on the principle (as formulated by Malthus) that profits depend upon two causes: (i) the difficulty or facility of production on the land,17 and (ii) the amount of necessaries given to each labourer (Works, II, 251–2). ‘These two causes—Ricardo noticed—could be classed under the name of high or low wages’—i.e. high or low ‘proportion of the value of the produce necessary to support the labourer’ (ibid.). The real point in dispute between them was that Malthus appeared sometimes to be ‘at variance with the principle’ he himself had formulated (Works, II, 266), to which Ricardo consistently kept. The dispute about names, however, was not altogether irrelevant, for at least two reasons. First, Ricardo's definition of wages as a proportion was useless in a discussion which appears to have been gaining momentum in the 1820s: that over the condition of the labourer, and its relation with profits. What was relevant for this discussion was whether commodity wages were high or low, and whether commodity wages could only rise at the expense of profits. Thus, Malthus writes: what I have called the real and nominal wages of labour include every thing which relates to the condition of the labourer, the encouragement of population, and the value of money, the three great points which chiefly demand our attention. According to Mr. Ricardo's view of the subject, nothing can be inferred on these points either from high or from low wages (Malthus, 1820, p. 291–2). And we find McCulloch writing in 1828, about Ricardo's ‘doctrine with respect to profits’ (viz. the inverse wage–profit relation) that it, though ‘in a theoretical point of view is quite unexceptionable18 … practically … is of less importance’, and, unless Ricardo's peculiar use of terms be ‘kept in view’, it ‘may lead … to the most erroneous conclusions. It is by the quantities of produce falling to the share of the capitalists and labourers … that their condition is always determined’. And improvements in the techniques of production make it possible that ‘both profits and wages may rise at the same moment’ (McCulloch, 1828, p. 192–3). Secondly, behind the dispute on what was to be termed ‘real wages’ there lurked a more thorny one; namely, that over the theory of value and over the ‘absolute’ or ‘invariable’ measure. The point that Ricardo had made in the above example of rising commodity wages, to argue that wages had really fallen, was that ‘in terms of a medium, which had not varied in value, the wages of the labourer should be found to have fallen’, because they would be a less than double amount of the product, the unit value of which would be halved in terms of such an unvarying medium (Works, I, 50). Ricardo's reasoning therefore relied on his idea of an invariable standard of value (a standard which would not vary in value when wages and profits vary), and on the parallel one, that labour is the ‘cause’ of value (which are the basis for his assertion that the value of the product would be halved). Thus, Malthus's ‘objection’ was not only, and not so much, to Ricardo's ‘language’, but to his theory.19 Of this Malthus and Ricardo were aware: Ricardo wrote that the differences between himself and Malthus on the subject of profits derived from differences ‘in our ideas of what constitutes a real measure of value’ (Works, II, 258); and Malthus explicitly regarded Ricardo's language as a consequence of his choice for the invariable standard, and used it as an argument against that choice (‘I should observe, that if the application of Mr Ricardo’s invariable standard of value naturally leads to the use of such language, the sooner the standard is got rid of, the better’: Malthus, 1820, p. 213). III. McCULLOCH VS. RICARDO It is well known that both James Mill and McCulloch disagreed with Ricardo on the question of the invariable standard of value. Mill, for instance, in his (anonymous) review of Bailey's Critical dissertation agreed with Bailey that ‘the word ‘value’ ought to be used in the sense of exchangeable value only’—though adding that this was ‘a question of verbal convenience only’ (Mill, 1826A, p. 159). McCulloch went much further and declared himself to be of the opinion that ‘there neither is nor can be any real and invariable standard of value’ (Works, IX, 344), but, with characteristic inconsistency, he used the term ‘real value’ to denote the labour embodied in commodities. McCulloch agreed with Bailey's Dissertation on the invariable standard of value (McCulloch, 1825, p. 214n.).20 Thus, both Ricardo's self-appointed ‘genuine disciples’ lacked an important basis on which Ricardo could justify his ‘language’. Correspondingly, we find that even when they agreed with Ricardo’s definition of ‘real wages’ as proportionate wages, they failed to give any reasons as to why that use of terms was correct. Also, it is remarkable that they in general did not link it with the labour theory of value. In view of this, it is hardly surprising that they should have rather early abandoned Ricardo’s positions on the inverse wage–profit relationship. In what follows, we will show how successive changes in Mill's and McCulloch's works, apparently made in order to meet criticisms on terminology, were in fact the vehicle through which that abandonment was brought about. In his 1818 review of Ricardo' Principles in the Edinburgh, McCulloch followed Ricardo very closely, and maintained that ‘a rise of wages is only another name for a fall of profit, and vice versa’ (McCulloch, 1818, p. 72). He agreed that a less share for the capitalist would be ‘the same thing’ as a diminution of profits (p. 68), and emphasised that ‘the real wages of the labourer’ were ‘his share of the produce of his labour’ (p. 70). No mention was made of the contrast between commodity wages and wages as measured in labour embodied, or of the distinction between the share and the rate of profits. In the Encyclopaedia Britannica article on ‘Political Economy’ distribution was said to be ‘an investigation of the laws regulating the proportions in which the various products … are distributed among the various classes of the people’ (McCulloch, 1823, p. 105, italics added), and real wages were said to ‘depend upon the proportion of the produce of the industry which belongs to the labourer. They are high when this proportion is large, and they are low when it is small.21 It is to real wages that we always refer’ (p. 140–1). Again, he remarked that, given that the price ‘is exclusively divided between the capitalist and the labourer … it follows necessarily that profits must vary inversely as wages’ (p. 144). The point is also made that ‘although profits depend on wages, they do not depend on wages estimated in money, in corn, or any other commodity, but on PROPORTIONAL wages’, and that ‘proportional wages may be increased, at the same time that wages, if estimated in corn, or any other necessary, would be found to be diminished’ (p. 149). But McCulloch insists that ‘it is by proportional quantities, and not by absolute quantities, that we are to estimate the effect of wages on profits’ (p. 150). However, he gives no reason for this. Up to this point, the dispute could still be seen as one on names: on whether to call proportional wages, or commodity wages, real wages. In any case, no doubts are raised about Ricardo’s principles or his terminology. McCulloch does not make it clear whether by ‘profits’ he understands a share or a rate, but in his almost contemporary article on the accumulation of capital in the Edinburgh Review it is clear that the inverse wage–profit relationship is between proportional wages and the rate of profits (McCulloch, 1824B, p. 10).22 Substantial changes in McCulloch’s position are exhibited in the first edition of his Principles. Here, he starts with the ‘obvious’ point that the shares of profits and wages must vary inversely. He then introduces one of his characteristic and confusing changes in terminology: ‘real wages’ are now defined as ‘wages estimated in money [sic] or in quantity of produce’ (McCulloch, 1825A, p. 365), and they are contrasted with ‘proportional wages’ (which he had previously regarded as ‘real wages’).23 He then argues that if it is true that The proportion of … produce falling to either party, varies inversely to the proportion falling to the other … the profit accruing to the capitalists is different … from the proportion of the produce of industry falling to their share. Profits consist of the excess of commodities produced by the expenditure of a given quantity of capital; and are always measured in aliquot parts of the capital employed in production (McCulloch, 1825A, pp. 365–6). Therefore, Ricardo's theory that profits entirely depend upon proportional wages is universally true, only in the event of one attaching a different sense to the term profits, from which is usually attached to it; and supposing it to mean the real value of the entire portion of industry, falling … to the share of the capitalists, without reference to the proportion which the magnitude of this produce bears to the magnitude of the capital employed in its production. Thus understood, Mr Ricardo's theory holds universally … But, if we consider profits, in the light in which they are invariably seen in the real business of life … it will immediately be seen, that there are very many exceptions to Mr Ricardo’s theory (p. 368). This amounted to a virtual abandonment of Ricardo's doctrine, denying in fact any relevance to it (even though admitting that, according to Ricardo's (unwarranted) use of words, it was formally correct). But McCulloch goes further, and shows by an example that ‘the rate of profits might really remain the same, though the proportion of the produce of industry falling to the share of the labourer were actually increased’ (p. 371). His example is the following.24 It is assumed that the conditions of production of corn change from 500 units of corn as wages + 500 as seed etc. → 1100 units of corn to: 600 units of corn as wages + 400 as seed etc. → 1100 units of corn McCulloch then notices that in the latter case: The profits of the landlord [sic] will be exactly the same as in the former case, though proportional wages have risen (pp. 371–2). The result is obviously correct: it depends upon the reduction in the organic composition of capital between the two cases. This had been overlooked by Ricardo, due to his neglect of non-wage capital.25 It is of some interest to notice that McCulloch's change of position from the Encyclopaedia article to the Principles (which is otherwise almost a reprint of the article) appears to have been influenced, if not determined, by Bailey's Dissertation26, which had been published in the interval of time between the publication of the two works of McCulloch's. Bailey had argued that ‘labour … is high in value when it commands a large, and low when it commands a small quantity of commodities’, and that this was the only definition of high and low wages which could be given ‘consistently with the definition of value’ (Bailey, 1825, p. 46–7). Further, he had noticed that Ricardo's idea, that ‘wages are to be estimated … by the quantity of labour and capital employed in producing them … supposes the possibility of an invariable standard of value … a supposition which has been shown to involve contradictory conditions’ (Bailey, 1825, p. 54–5)—and McCulloch, in his Principles, goes out of his way to praise the Critical dissertation as the first work to put forward the correct principles, on the invariable standard of value (McCulloch, 1825A, p. 214n). There are also other significant similarities between the Dissertation and McCulloch's new positions. For instance, Bailey had maintained that higher profits could not be regarded as synonymous with lower wages (as McCulloch himself had sometimes argued); that higher profits mean that ‘the gain of the capitalist bears a higher ratio to the capital employed’, and not a higher share of the product (Bailey, 1825, p. 63); and that ‘wages… and profits may both rise together’ (ibid.), because ‘the proposition, that when labour rises profits must fall, is true only when its rise is not owing to an increase in its productive powers’ (p. 64). These are all positions which McCulloch endorses in his Principles with almost the same words as Bailey's. And the example to show that, if productivity rises, there is no inverse wage–profits relationship even when considering proportional wages, can easily be seen as a development from Bailey's positions, combined with Torrens's. That McCulloch in his Principles had ‘with laudable candour, corrected in an essential degree, his former opinions on the subject of profit’, and that he had ‘admitted, that Mr Ricardo’s principles are tenable, only when we pervert from their established acceptation the terms in which these principles are expressed … [and] that the Ricardo doctrine of profit is erroneous’, was in fact remarked, with apparent satisfaction, by Torrens, in the preface to the 1826 edition of his External corn trade (1826, p. xiii). Torrens had by then become a critic of Ricardo on both value and distribution.27 He also wrote that ‘Mr. Mill appears more reluctant than Mr M'Culloch to modify and correct the pure Ricardo doctrines’ (1826, p. xiv), remarking however that Mill himself ‘in the last edition28 of his Elements’ ‘gives up’ the inverse wage–profit relationship ‘in all cases, except in those in which the terms are used, not according to their accustomed acceptation, but with reference to proportion’ (p. xv). Torrens, after showing with an example virtually identical to that of McCulloch's Principles, that ‘even when we adopt Mr. Mill's language of shares and proportions, profits do not depend upon wages’, urges Mill to abandon also ‘the position to which he has retired’ (p. xviii). As a matter of fact, the three successive editions of Mill's Elements (published in 1821, in 1824 and in 1826)29 show a pattern of change very similar to the one just seen in McCulloch's works. IV. MILL VS. RICARDO In the first edition of Elements, Mill had started with the point that the shares of wages and profits make up the whole which is to be divided between workers and capitalists, therefore that which regulates the share of one regulates also, it is very evident, the share of the other … We might, therefore, … affirm that wages determine profits, or that profits determine wages (Mill, 1821, p. 56). Given however that wages are the independent variable, he reaches the conclusion that profits of stock depend upon wages—rise as wages fall, and fall as wages rise (p. 57). Mill then goes on to remove any ambiguity which adheres to the word profits. Profits may mean the quantity of commodities … which the capitalist receives … or the term profits may, as it most commonly does, refer not to the commodities themselves, but their relative values. In this latter sense, it is that we use the term when we speak of the rate of profits … When we say … that profits are 10%, we say that the share of the produce which comes to the capitalist would exchange for one-tenth of all the commodities employed, as capital, in the production of it (p. 57–8). Mill’s position is that, if one uses the terms in the first sense (quantity of commodities), profits do depend upon two things: upon the quantity of return, as well as the state of wages. If, however, we use the terms in the usual sense—to denote the ratio of values, it may be shown that profits, in that sense, depend wholly upon wages (p. 58–9). These statements, which were basically the same as Ricardo's, were not modified in the second edition, where Mill however made two additions which prompted Torrens’s remark on Mill having abandoned ‘the pure Ricardo doctrines’. In particular, the summary added at the end of the chapter30 does not mention the inverse relation between wages and the rate of profits, or what is the ‘usual’ sense of the terms according to Mill. Only the two propositions on wages and profits as quantities or proportions are mentioned, and they are put, as it were, on the same footing, as two different propositions, equally valid and relevant. The third edition of Mill’s Elements must have pleased Torrens, because in it Mill ‘retired’ even further.31 He still started with the same characteristic bold statement he had made in the first two editions: ‘profits of stock depend upon wages; rise as wages fall, and fall as wages rise’ (Mill, 1826B, p. 71). But then goes on to explain that this proposition is only valid when referring to proportions, or also to value ‘in the sense which Mr. Ricardo annexed to the word’ (i.e. labour embodied); it is instead not valid, if one refers to quantities or to ‘value in exchange’ (p. 72–3). This already amounted to little less that a whole rejection of Ricardo’s doctrines—the more so, given that, as noticed above, Mill in his review of Bailey’s Dissertation had previously agreed that the only acceptable concept of value was exchangeable value. Even more strikingly, Mill now argues that, as the rate of profits ‘is generally spoken in the sense of exchangeable value’ also for it the proposition is not valid, and if there is an increase in ‘the productive powers of labour and capital’ a rise in the share of wages might leave the rate of profits unchanged (p. 77). This is a rejection of Mill’s own previous position, and with it Mill comes to embrace the position at which McCulloch had arrived the previous year in his Principles. V. CONCLUSIONS The first conclusion which may be drawn from the foregoing discussion, is that Ricardo’s doctrine that ‘profits depend on wages’ was left standing only in the ‘obvious’ sense, that the proportion of the product (net of rent) going to profits is determined by the proportion going to wages, and in the equally obvious sense that these two proportions vary in opposite directions. Mill and McCulloch had after all endorsed the position that Ricardo’s inverse wage–profit relationship (even when conceiving wages as proportional wages) was only valid assuming given technical conditions of production—a rise in productivity could make higher wages compatible with undiminished profits. Therefore, profits do not ‘depend wholly on wages’, but also on ‘productiveness of industry’—as they put it. The change could be viewed as simply an improvement upon Ricardo, deriving from the fact that the Ricardians did not overlook what Ricardo had overlooked (non-wage capital), and it might be thought that it did not imply any substantial abandonment of Ricardo’s positions. But it seems that this is not entirely the case. In the first place, as pointed out at the beginning, the link between Ricardo’s theory of profits and his theory of value was so strict that to surrender Ricardo’s position on profits implied a surrender—or at least a significant weakening—also of the theory of value. As a matter of fact, Mill’s conclusion, in the first edition, that ‘The rate of profits … depends wholly on wages’ (1821, p. 60) was explicitly based on the labour theory of value and its corollary, that ‘the value of that which is divided as wages of labour and profits of stock remains the same’ when wages change (ibid.). In the third edition, labour embodied (‘the sense which Mr. Ricardo annexed to the word value’: Mill, 1826B, p. 74) is contrasted with ‘exchangeable value’, which Mill had previously made clear was the only sense in which the term value ought to be used. Parallel to this, the proposition, that ‘profits depend literally and strictly upon wages’ is said to be true only when using Ricardo’s ‘language’, and not ‘In the common mode of expressing profits’ (1826B, p. 74–5). In the second place, it seems that the abandonment of Ricardo’s positions on the wage–profit relationship was paralleled by a move away from Ricardo’s conceptions on the origin of profits. If it is true that, as Marx put it, Ricardo ‘leaves the origin of surplus-value obscure’ (Marx, 1862–63, III, p. 14), it is also true that, as Marx himself after all agrees,32 a conception of the origin of profits was so rooted in Ricardo’s theory, that even a ‘comparative layman’ like Ricardo's friend Trower33 could spell it in very clear terms, as in the following passage from his last letter to Ricardo (of 3 September 1823): profit … is the residue, the surplus after all expences are paid … I have often thought, that a useful view of the subject might be taken by excluding profit from the costs of production, and by exhibiting it in its true light, as the surplus produce— In point of fact, it may be truly said, that the payment of profit is not a necessary condition of production … There may be no surplus produce; there may be just sufficient to support the labour during the process of production, and no more (Works, IX, 384). Of this conception of profits, a necessary ingredient was the inverse wage–profit relation, which was in turn based upon taking the amount of produce as given, in physical or (labour) value terms. Although fragments of this vision could also be found in Mill and McCulloch, their conception of profits as ‘wages of accumulated labour’, and as a ‘positive additional value resulting from the employment of capital’34 is in fact its opposite, coming very near to what Marx dubbed the ‘vulgar’ conception of interest-bearing capital ‘as an element which in itself creates value,35 i.e. is a source of value’, and of profits as something which capital itself ‘has created … ex proprio sinu, out of itself’ (Marx, 1862–63, III, p. 502). It seems to me that the view formulated by Mill and McCulloch, that profits depend on wages and upon ‘productiveness of industry’, tended to change the problem of distribution among wages and profits of a given product into that of a study of the relationship between wages, profits, and (through ‘productiveness of industry’) the amount produced—which implied a partial loss of the structure of Ricardo's theory,36 and a move towards something more similar to the later supply and demand theory, where distribution and the level of production are jointly determined (a sign of the loss of the structure of Ricardo's theory can be seen in Mill and McCulloch referring generally to ‘productiveness of industry’ as influencing the rate of profits, whereas Ricardo had always maintained that only the conditions of production of wage goods were relevant; with this, an important theoretical point was missed by them). We may also add that it is not without significance that de Quincey, who (despite some superficial flirtations with a subjective approach) was the only Ricardian who also in his later writings ‘continu[ed] to hold’ the labour theory of value (‘this embarassing doctrine’: de Quincey, 1844, p. 119),37 at the same time kept to the principle that ‘profits are the leaving of wages’ (p. 257), and that ‘wages and profits vary inversely: whatever the one loses the other gains (p. 258). Indeed, as de Quincey wrote, ‘The ground of the value of all things lies in the quantity … of labour 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’ (de Quincey, 1824, p. 55).38 In Mill's and McCulloch’s construction that corner-stone was loose. Footnotes 1 In the present paper, Sraffa (1951–73) will be quoted as Works, followed by the volume and the page number. 2 The passage quoted in the text is also quoted by Malthus in his Definitions, as a summary of Ricardo’s ‘whole theory of profits, which has been considered as the crowning achievement in the science’ (Malthus, 1827, p. 27). 3 As is well known, in the first half of the XIX Century the Edinburgh Review was the most important and best selling of the great reviews (the Edinburgh, the Quarterly, the Westminster, and Blackwood’s Edinburgh Magazine). As F.W. Fetter puts it, ‘It is doubtful whether any books by economists had as many readers in the first half of the century as did these reviews. The Edinburgh reached a circulation of 15.000 copies’ (Fetter, 1965, p. 425). As a matter of fact, Ricardo himself thought that McCulloch’s review had done much to accelerate the sale of the book (Works, VII, 337). And so did Malthus (‘the review cannot fail of greatly contributing to the publicity and general circulation of your book, and the extension of your fame’: Works, VII, 278). 4 See also for instance McCulloch (1825 B, p.18–19), where the inverse wage–profit relationship is said to be one of the three results into which Ricardo’s contribution could be summed up (the other two being that ‘rent is altogether extrinsic to the cost of production’, and that value is determined by labour embodied). The same points are also made in McCulloch’s Discourse on Political Economy (1825 C, p. 72). 5 This is of course the origin of what Marshall called ‘the celebrated doctrine that Rent does not enter into the cost of production’ (1891, p. 457). Marshall wrote that Ricardo had been the ‘original user of this phrase’ (p. 458n), but Ricardo in the Principles apparently only uses a slightly different (perhaps slightly less misleading) sentence: rent is not ‘a component part of price’ (e.g. p. 77). It is rather J.S. Mill in his own Principles who writes of rent not entering into cost of production (J.S. Mill, 1848, p. x; p. 428; p. 487). The sentence used by Marshall and his wife in Economics of Industry (‘Rent does not enter into Expenses of production’: Marshall and Marshall, 1884, p. 89) also appears to have been borrowed from Mill’s Principles, rather than from Ricardo’s. 6 £4 4 s. 8d. is equivalent to approximately £4.23 in the current metric system. 7 Cannan instead maintains that ‘Ricardo, and probably every one else in his time, when they talked of the ‘produce’ of a farm being divided in a particular way between rent, wages, and profits, meant the net produce which remains after providing for ‘seed and other outgoings’’ (1917, p. 293, italics added). But the point is that only neglecting non-wage capital could Ricardo have maintained that profits depend upon proportional wages and upon these alone (for a discussion of Marx’s point, see Steedman, 1982, p. 131 ff, and de Vivo, 1982, pp. 91–2). 8 In that example, corn was clearly supposed to be produced by means of direct labour only. 9 Measured in labour embodied, or in any commodity, provided we choose as the unit amount of every commodity the amount of it which embodies one unit of labour. In this case, prices as measured in any commodity will be equal, not only proportional, to embodied labour, if the labour theory of value holds. 10 ‘I contend that a greater proportion and greater value mean the same thing’. 11 One of the few authors who discuss the point in any detail, G.L.S. Tucker, is led by his neglect of the fact that Ricardo overlooked non-wage capital, to conclude that Ricardo’s doctrine that proportional wages and the rate of profits vary inversely must have been based on the assumption of a given productivity. He himself, however, has to admit that it is difficult to find where in the Principles this assumption is made (Tucker, 1960, p. 97 and n). The assumption is instead clearly made by Ricardo in the Essay on Profits (Works, IV, 12), as Tucker rightly notices, but this of course derives from the fact that in the Essay Ricardo refers to commodity (i.e. corn) wages, not to wages measured in labour embodied. 12 Measured in labour embodied, or in any commodity. 13 Measured in the same unit as the wages. 14 See also Edelberg (1933, p. 58 and n; pp. 71–2). 15 S. Hollander, who wanted to deny the validity of Schumpeter’s assertion, has on the other hand written that ‘Ricardo took for granted that a change in the wage rate implies an inverse change in the profit rate’ (1979, p. 214, italics added). This is curious, for someone who emphatically defines this relationship as ‘The Fundamental Ricardian Theorem on Distribution’. Hollander’s difficulties derive from his failure to make clear the connection of the relationship between the shares and that between the rates, which in turn appears to derive from his attempt to deny the existence (or at any rate the significance) of the labour theory of value in Ricardo. 16 ‘Mr. Ricardo often uses the terms quantity of labour, and quantity of labour and capital, to express the same thing’ (Malthus, 1836, p. 295n). 17 i.e. the conditions of production of wage goods, which include agricultural product, and are therefore subject to diminishing returns. 18 It will be shown below that McCulloch, in the 1825 edition of his Principles, had already denied the existence of an inverse relationship between proportional wages and the rate of profits. 19 It ought to be recalled that Marx sided with Ricardo, on the question of the measurement of wages: ‘The value of wages has to be reckoned not according to the quantity of the means of subsistence received by the worker, but according to the quantity of labour which these means of subsistence cost (in fact the proportion of the working-day which he appropriates for himself), that is according to the relative share of the total product, or rather the total value of this product, which the worker receives. It is possible that, reckoned in terms of use-values (quantity of commodities or money), his wages rise as productivity increases and yet the value of wages may fall and vice versa. It is one of Ricardo’s great merits that he examined relative or proportionate wages, and established them as a definite category’ (Marx, 1862–3, II, p. 49). Marx even argued that ‘The position of the classes to one another depends more on relative wages than on the absolute amount of wages’ (ibid.). 20 McCulloch is certainly to be placed in the numerous group of economists who regarded the search for an invariable measure of value as similar to that for the ‘philosopher’s stone’—as Lauderdale (1804, p. 23) had written. (McCulloch himself used this expression: 1824A). The epithet ‘chimera’, referred to the invariable standard, was made famous by Cannan (1929, p. 174); it had been used by Say, de Quincey, and, as shown in Gordon (1969), by others. 21 McVickar, in his notes to the reprint he edited of McCulloch’s article, comments on this passage: ‘it is the proportion his wage bears to the means of his support’ that ‘should alone bear the name of ‘real wages’, since they determine the comfort and prosperity of the labourer himself’ (McVickar, 1825, p. 140n). 22 The Edinburgh article is similar in several points to the Encyclopaedia article. 23 Another source of confusion was the fact that McCulloch did not strictly adhere to his new definitions. On page 294 of Principles, for instance, he still defined a real variation in wages as a variation in the proportion of the produce received by the labourer. This was noticed by Malthus, as an example of McCulloch’s ‘want of attention, on a point so important in all philosophical discussions, as appropriate and consistent definitions’ (Malthus, 1827, p. 112–3). 24 This example, slightly modified, is to be found in all subsequent editions of the Principles. Its structure is clearly derived from Torrens. 25 McCulloch’s example might have been the source of J.S. Mill’s virtually identical example in the essay ‘On profits, and interest’, in his Unsettled Questions (1844, p. 99–101). Mill himself, in his autobiography, writes however that ‘the modified form of Ricardo’s theory of Profits, laid down in my Essay on Profits and Interest’ emanated from the discussions among that dozen of young men who used to assemble twice a week at George Grote’s house in Threadneedle Street, for ‘a joint study of several of the branches of science which we wished to be masters of ’ (J.S. Mill, 1873, p. 101–3). (He also writes that the modifications to his father’s Elements on that topic ‘were founded on criticisms elicited by these conversations’). Also, in his Principles J.S. Mill kept to the ‘modified form’ of Ricardo’s theory which he had espoused in that essay (J.S. Mill, 1848, p. 413–4). The essay was written shortly after McCulloch’s book was published. 26 Some of the following points on the influence of Bailey on McCulloch had been partly noticed by Rauner (1961, p. 102 ff). Bailey had been very kind to McCulloch, qualifying him as ‘one of our most distinguished living economists’ (1825, p. xiii), adding that his ‘views as to the nature of value appear to be sounder than those of any other writer’ (p. 32). 27 We may here notice that in Colonization of South AustraliaTorrens (1835) wrote that Ricardo ‘investigated the laws which determine the proportions according to which the produce of industry is divided’ (p. 24), and that ‘Under the circumstances assumed, his conclusions are quite correct’ (p. 29), but that ‘the doctrine of Mr Ricardo is not true, under the actual circumstances of the world’ (p. 31). His position could therefore hardly be described as ‘a substantial change of view’ and ‘a shift towards acceptance of the Ricardian position’ with respect to his position in the 1826 External Corn Trade, as Robbins maintains (1958, p. 53–4). 28 The 1826 edition of Torrens’s External Corn Trade was published in February (see Monthly Literary Advertiser, March 1826, p. 20), when the third edition of Mill’s Elements had not yet appeared. 29 The third edition of Mill’s Elements (1826) was reissued in 1844 (when its author had been dead for some years). It was made of the remaindered sheets of the 1826 edition, with a cancel title page. The fact that this title page bears the inscription ‘3rd edition, revised and corrected’ (as was the case for the original third edition), and that it has been used for the Kelley reprint, has often created a confusion in modern authors as to the dates of the different editions of the book. 30 This is the chapter on ‘Distribution’. 31 It seems, however, that Torrens did not notice these changes in his later works. 32 This is after all the general surmise of the chapter on ‘Revenue and its sources’ at the end of Marx’s Theories of Surplus Value, where Ricardo’s (and, more generally, the Classical) theory is contrasted with ‘vulgar political economy’. It should be remembered that Marx also wrote: ‘Ricardo exposes and describes the economic contradiction between the classes—as shown by the intrinsic relations—and … consequently political economy perceives, discovers the root of the historical struggle and development’ (Marx, 1862–63, II, p. 166); he went even so far as writing: ‘the antithesis to political economy—namely socialism and communism—finds its theoretical presupposition in the works of classical political economy itself, especially in Ricardo’ (Marx, 1857–58, p. 884). 33 For a short notice of Trower, see Works, VI, xxiii–xxv. As Sraffa remarks, Ricardo’s ‘correspondence with Trower has a peculiar interest as exhibiting an attempt to explain to a comparative layman the economic discussions in which Ricardo was engaged’ (Works, VI, xiv). It should however be remembered that Trower, though not a professional economist (and in a sense Ricardo himself was not), was for instance the ‘Friend to Bank Notes’ who took part in the Bullion Controversy (for details, see Works, III, 3 and fff). 34 This is what McCulloch writes in his letter of 24 August 1823 to Ricardo (Works, IX, 366). It should also be mentioned that McCulloch endorsed Lauderdale’s ideas, on the origin of profits, writing that ‘capital ‘contributes to … produce wealth’ by enabling labourers to execute works, or produce commodities, which could not have been executed or produced without it, and by saving labour (McCulloch, 1823, p. 79; see Lauderdale, 1804, p. 161). It is strange therefore that Böhm-Bawerk, who classes Lauderdale’s among the ‘indirect productivity theories’ of profit, should have instead put McCulloch’s together with Ricardo’s, among the ‘colourless theories’ (von Böhm-Bawerk, 1884, Bk. I, ch. V). 35 It should also be remembered that, given the confusion often made by McCulloch, between value and wealth (e.g. 1823, p. 52; this of course is a most un-Ricardian confusion), McCulloch’s statement, to the effect that capital produces wealth (see preceding footnote) might be read as saying that it produces value. 36 On the structure of classical theory, and its separation between determination of distribution and of levels of output, see Garegnani (1984, Section II). 37 These were made famous by J.S. Mill’s ‘generous quotations’ (as Schumpeter put it), but did not touch the substance of his theory, despite his criticism of Ricardo, on both theoretical and political grounds (‘from mere inadvertence, Ricardo is … found in a painful collusion with the most hateful of anarchists’: de Quincey, 1844, p. 252). For these reasons, I cannot agree with the view that de Quincey’s 1844 Logic is close to ‘the Malthus-Lauderdale School’ (Gherity, 1962, p. 271; the author however also writes that de Quincey is close to Ricardo, on what he calls ‘the static theories of value and distribution’: p. 274; see also Groenewegen, 1982). 38 ‘all changes in the quantity of producing labour … settle by corresponding changes upon the price: if the labour required is more, the price of the product is more; if less, less’ (de Quincey, 1844, p. 260). De Quincey also wrote: ‘A crazy maxim has got possession of the whole world; viz. that price is, or can be, determined by the relation between supply and demand’ (1844, p. 206). REFERENCES Bailey, S. ( 1825). A critical dissertation on the nature, measures, and causes of value; chiefly in reference to the writings of Mr. Ricardo and his followers . London: Hunter. Von Böhm-Bawerk, E. ( 1884). Capital and interest. A critical history of economical theory . New York: Kelley. Cannan, E. ( 1917). A history of the theories of production and distribution in English political economy from 1776 to 1848 , 3rd edition. London: King. Cannan, E. ( 1929). A review of economic theory . London: King. De Quincey, T. ( 1824). ‘Dialogues of three templars on political economy: chiefly in relation to the principles of Mr. Ricardo’, in Masson (1890). De Quincey, T. ( 1844). The logic of political economy, in Masson (1890). De Vivo, G. ( 1982). Notes on Marx’s critique of Ricardo. Contrib. Political Econ. , 1, 87– 99. Google Scholar CrossRef Search ADS   De Vivo, G. (ed.) ( 2000). Collected works of Robert Torrens , 8 vols. Bristol & Tokyo: Thoemmes Press & Kyokuto Shoten. Edelberg, V. ( 1933). The Ricardian theory of profits. Economica , 13, 51– 74. Google Scholar CrossRef Search ADS   Fetter, F.W. ( 1965). Economic controversies in the British reviews, 1802–1850. Economica, NS , 32, 424– 437. Google Scholar CrossRef Search ADS   Garegnani, P. ( 1984). Value and distribution in the Classical economists and Marx. Oxford Econ. Papers , 36, 291– 325. Google Scholar CrossRef Search ADS   Gherity, J.A. ( 1962). Thomas de Quincey and Ricardian orthodoxy. Economica, NS , 29, 269– 274. Google Scholar CrossRef Search ADS   Gordon, B. ( 1969). Criticism of Ricardian views on value and distribution in the British periodicals, 1820-1850. Hist. Political Econ. , 1, 370– 387. Google Scholar CrossRef Search ADS   Groenewegen, P. ( 1982). Thomas de Quincey: ‘Faithful disciple of Ricardo’? Contributions to Political Economy , 1. ’, pp. 51– 58. Hollander, S. ( 1979) The economics of David Ricardo . London: Heinemann. Lauderdale, Earl of ( 1804). An inquiry into the nature and origin of public wealth, and into the means and causes of its increase . Edinburgh: Constable. Malthus, T.R. ( 1820). Principles of political economy considered with a view to their practical application . London: Murray. Malthus, T.R. ( 1827). Definitions in political economy, preceded by the rules that ought to guide political economists in the definition and use of their terms; with remarks on the deviation from these rules in their writings . London: Murray. Malthus, T.R. ( 1836). Principles of political economy considered with a view to their practical Application , 2nd edition. London: Pickering. Marshall, A. ( 1891). Principles of economics , 2nd edition. London: Macmillan. Marshall, A. & Marshall, M.P. ( 1884) Economics of industry , 2nd edition. London: Macmillan. Marx, K. ( 1857-58). Grundrisse. Foundations of the critique of political economy (rough draft) . Harmondsworth: Penguin. 1993. Marx, K. ( 1862-63). Theories of surplus value, 3 vol. London: Lawrence & Wishart 1969-72. Masson, D. (ed.) ( 1890). The collected writings of Thomas de Quincey, vol. IX, Political economy and politics . Edinburgh: Black. McCulloch, J.R. ( 1818). Ricardo’s Political Economy. Edin. Rev. , 30, 59– 87. McCulloch, J.R. ( 1823). Political economy. Supplement to the fourth, fifth, and sixth editions of Encyclopaedia Britannica. With preliminary dissertations on the history of the sciences , vol. VI. Edinburgh: Archibald & Constable, p. 1824. McCulloch, J.R. ( 1824A). ‘Principles which determine the exchangeable value of commodities and the rate of profit’, The Scotsman, 21 February. McCulloch, J.R. ( 1824B). Standard of national prosperity. Rise and fall of wages. Edin. Rev. , 40, 1– 31. McCulloch, J.R. ( 1825A). The principles of political economy: with a sketch of the rise and progress of the science . Edinburgh: Tait. McCulloch, J.R. ( 1825B). Memoir of the life and writings of David Ricardo, Esq., M.P . London: Taylor. McCulloch, J.R. ( 1825C). A discourse on the rise, progress, and importance, of political economy: containing an outline of a course of lectures on the principles and doctrines of that science , 2nd edition. Edinburgh: Constable. McCulloch, J.R. (ed). ( 1828). An inquiry into the nature and causes of the wealth of nations, by Adam Smith, LL.D., with a life of the Author, and introductory discourse, notes, and supplemental dissertations, vol. 4, Edinburgh: Black and Tait. McVickar, J. ( 1825). Outlines of political economy: being a republication of the article on that subject contained in the Edinburgh Supplement to the Encyclopaedia Britannica. Together with notes explanatory and critical, and a summary of the science . New York: Wilder & Campbell. Mill, J. ( 1821). Elements of political economy . London: Baldwin, Cradock, and Joy. Mill, J. ( 1826A). On the nature, measures and causes of value. Westminster Rev. , 5, 157– 172. Mill, J. ( 1826B). Elements of political economy , 3rd edition. London: Baldwin, Cradock and Joy. Mill, J.S. ( 1844). Essays on some unsettled questions of political economy . London: Parker. Mill, J.S. ( 1848). Principles of political economy with some of their applications to social philosophy . Toronto: University Press, p. 1965. Mill, J.S. ( 1873). Autobiography . Humphrey Milford: OUP. Rauner, R.M. ( 1961). Samuel Bailey and the Classical theory of value . London: Bell. Robbins, L. ( 1958). Robert Torrens and the evolution of Classical economics . London: Macmillan. Schumpeter, J.A. ( 1954). History of economic analysis . London: Allen & Unwin. Sraffa, P. ed. ( 1951-73). The works and correspondence of David Ricardo , 11 vols. Cambridge: University Press. Steedman, I. ( 1982). Marx on Ricardo. Classical and Marxian political economy: Essays in honour of Ronald L. Meek  ( Bradley I. & Howard M. eds) London: Macmillan. Torrens, R. ( 1826). An essay on the external corn trade , 3rd edition. London: Longman, Rees, Orme, Brown, and Green. Torrens, R. ( 1835). Colonization of South Australia, in de Vivo (2000), vol. 4. Tucker, G.S.L. ( 1960) Progress and profit in British economic thought . Cambridge: University Press, pp. 1650– 1850. © The Author(s) 2018. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices)

Journal

Contributions to Political EconomyOxford University Press

Published: May 14, 2018

There are no references for this article.

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create lists to
organize your research

Export lists, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off