CONTENTS.

PAGEPREFACE vii

CHAPTER I.

Rules for the Definition and Application of Termsin Political Economy..................... 1

CHAPTER II.On the Definition of Wealth by the French Eco-nomists :.... . 8

CHAPTER III.On the Definition and Application of Terms byAdam Smith. .. . . . . . . . . . . .. . . . . . . . . .. . 10

CHAPTER IV.Application of the term Utility by M. Say .... . 19

CHAPTER V.

On the Definition and Application of Terms byMr. Ricardo . . . . . . . . . . . . . . . . . . . . . . . . . . .. 23

CHAPTER VI.On the Definition and Application of Terms byMr. Mill, in his " Elements of Political Eco-nomy." .............................. 37

VI CONTENTS.

CHAPTER VII. PAGE

On the Definition and Application of Terms, byMr. Mncculloch, in his" Principles of PoliticalEconomy ..".. .... .... .... .... .... .... ........ .... ...... .. .... ........ .. 69

CHAPTER VIII.

On the Definition and Use of Terms by the Au-thor of" A Critical Dissertation on the Nature,Measure, and Causes of Value." . . . . . . . . . 125

CHAPTER IX.

Suminary of the Reasons for Adopting the sub-joined Definition of the Measure of Value. . .. 203

CHAPTER X.

Definitions in Political Economy 234

CHAPTER XI.

Remarks on the Definitions. . . . . . . . .. 249

PREFACE.

THE differencesof opinion among politicaleconomists have of late been a frequentsubject of complaint; and it must beallowed, that one of the -principal causesof them may be traced to the differentmeanings in which the same terms havebeen used by different writers.

The object of the present publication is,to draw attention to an obstacle in thestudy of political economy, which has nowincreased to no inconsiderable magnitude.But this could not be done merely bylaying down rules for the definitionand ap-plication of terms, and defining conformably

Vlll PREFACE.

to them. Itwas necessary to show the diffi-culties which had resulted from an inattentionto this subject, in some of the most popularworks on political economy; and this hasnaturally led to the discussion of certain im-portant principles and questions of classifica-tion, which it would be most desirable tosettle previously, as the only foundation fora correct definition and application of terms.These are the reasons for the arrangement

and mode of treating the subject which hasbeen adopted.

,

r

DEFINITIONS

IN

POLITICAL ECONOMY.

CHAPTER I.

RULES FOR THE DEFINITION AND APPLICATION OF

TERMS IN POLITICAL ECONOMY.

IN a mathematical definition, although thewords in which it is expressed may vary, themeaning which it is intended to convey isalways the same. Whether a straight line bedefined to be a line which lies evenly betweenits extreme points, or the shortest line whichcan be drawn between two points, there nevercan be a difference of opinion as to the lineswhich are comprehended, and those which arenot comprehended, in the definition.

The case is not the same with the defi-nitions in the less strict sciences. The classi-fications in natural history, notwithstanding allthe pains which have been taken with them,

2 RULES FOR

are still such, that it is sometimes difficult tosay to which of two adjoining classes the in-dividuals on the confines of each ought tobelong. It is still more difficult, in the sciencesof morals and politics, to use terms which maynot be understood differently by different per-sons, according to their different habits andopinions. The terms virtue, morality, equity,charity, are in every-day use; yet it is by nomeans universally agreed what are the parti-cular acts which ought to be classed underthese different heads.

The .terms liberty, civil liberty, politicalliberty, constitutional government, ~c. ~c., arefrequently understood in a different sense bydifferent persons.It has sometimes been said of political eoo-

nomy, that it approaches to the strict scienceof mathematics. But I fear it must be acknowledged, particularly since the great deviations which have lately taken place from thedefinitions and doctrines of Adam Smith, thatit approaches more nearly to the sciences ofmorals and politics.It does not seem yet to be agreed what

,.-

DEFINITIONS. 3

ought to be considered as the best definitionof wealth, of capital, of productive labour, orof value i-what is meant by real wages.;-what is meant by labour ;-what is meant byprofits ;-in what sense the term ' demand' isto be understood.s ~c. !Ye.As a remedy for such differences, it has

been suggested, that a new and more per~fect nomenclature should be introduced. Butthough the inconveniences of a new nomencla-ture are much more than counterbalanced byits obvious utility in such sciences as chemis-try, botany, and some others, where a greatvariety of objects, not in general use, must bearranged and described so as best to enable usto remember their characteristic distinctions;yet in such sciences as morals, politics, andpolitical economy, where the terms are compa-ratively few, and of constant application in thedaily concerns of life, it is impossible to sup-

* It may seem strange to the reader, but it is never-theless true, that the meanings of all these terms, whichhad been settled long ago, and ill my opinion with agreat approach towards correctness, by Adam Smith,have of late been called in question, and altered.

4 RULES FOR

pose that an entirely new nomenclature wouldbe submitted to; and if it were, it would notrender the same service to these sciences, inpromoting their advancement, as the nomen-clatures of Linneeus, Lavoisier, and Cuvier, tothe sciences to which they were respectivelyapplied.

Under these circumstances, it may be de-sirable to consider what seem to be the mostobvious and natural rules for our guidance indefining and applying the terms used in thescience of political economy. The object tobe kept in view should evidently be sucha definition and application of these terms,as will enable us most clearly and conveni-ently to explain the nature and causes of thewealth of nations; and the rules chiefly to beattended to may, perhaps, be nearly includedin the four following :-

First. When we employ terms which areof daily occurrence in the common conver-sation of educated persons, we should defineand apply them, so as to agree with thesense in which they are understood in thisordinary use of them. This is the best and

DEFINITIONS. 5

more desirable authority for the meaning ofwords.

Secondly. When the sanction of this autho-rity is not attainable, on account of further dis-tinctions being required, the next best autho-rity is that of some of the most celebratedwriters in the science, particularly if anyoneof them has, by common consent, been consi-dered as the principal founder of it. In thiscase, whether the term be a new one, bornwith the science, or an old one used in a newsense, it will not be strange to the generality ofreaders, nor liable to be often misunderstood.

But it may be observed, that we shall notbe able to improve the science if we are thusto be bound down by past authority. Thisis unquestionably true; and I should be byno means inclined to propose to political eco-nomists " jurare in verba magistri," when-ever it can be clearly made out that a changewould be beneficial, and decidedly contributeto the advancement of the science. But itmust be allowed, that in the less strict sciencesthere are few definitions to which some plau-sible, nay, even real, objections are Dot to be

6 RULES FOR

made; and, if we determine to have a newone in every case where the old one is notquite complete, the chances are, that we shallsubject the science to all the very serious dis-advantages of a frequent change of terms,without finally accomplishing our object.It is acknowledged, however, that a change

may sometimes be necessary; and when it is,the natural rules to be attended to seem to be,

Thirdly. That the alteration proposedshould not only remove the immediate objec-tions which may have been made to the termsas before applied, but should be shown to befree from other equal or greater objections,and on the whole be obviously more usefulin facilitating the explanation and improve-ment of the science. A change which isalways itself an evil, can alone be warrantedby superior utility taken in the most enlargedsense.

Fourthly. That any new definitions adoptedshould be consistent with those which arcallowed to remain, and that the same termsshould always be applied in the same sense,except where inveterate custom has establish-

1J3

fj,

DEFINITIONS. 7

ed different meanings of the same word; inwhich case the sense in which the word is used,if not marked by the context, which it gene-rally is, should be particularly specified.

I cannot help thinking that these rules forthe definitions in political economy uiust beallowed to be obviously natural and proper,and that if changes are made without atten-tion to them, we must necessarily run a greatrisk of impeding, instead of promoting, theprogress of the science.

Yet, although these rules- appear to be soobvious and natural" as to make one think italmost impossible that they should escapeattention, it must be acknowledged that theyhave been too often overlooked by politicaleconomists; and it may tend to illustratetheir use and importance, and possibly excitea little more attention to them in future, tonotice some of the most striking deviationsfrom them in the works of writers of thehighest reputation.

BCHAPTER n.ON THE DEFINITION OF WEALTH BY THE l:RENCH

ECONOMISTS.

IT will not he worth while to advert to themisnomers of the mercantile system; but thesystem of the French Economists was a scien-tific one, and aimed at precision. Yet itmust be acknowledged that their definition ofwealth violated the first and most obvious rulewhich ought to guide men of science, as wellas others, in the use of terms. Wealth andriches are words in the commonest use; andthough all persons might not be able at onceto describe with accuracy what they meanwhen they speak of the wealth of a country,yet all, we believe, who intend to use the termin its ordinary sense, would agree in sayingthat they do not confine the term either to thegross raw produce, or the neat raw produceof such country. And it is quite certain thattwo countries, with both the same gross raw

;,

-..::>-

1I

}"RENCH HCOl>\Ol\lISTS. 9

produce. and the same neat raw produce,might differ most essentially from each otherin a great number of the most universally ac-knowledged characteristics of wealth, such 3Sgood houses, good furniture, good clothes,good carriages, which, in the one case, mightbe possessed only by a few great landlords, anda small number of manufacturers and mer-chants; and in the other case, by an equal, orgreater proportion of landlords, and a muchgreater number of manufacturers and mer-chants. This difference might take placewithout any difference in the amount of theraw produce, the neat produce, or the popula-tion, merely by the conversion of idle retainersand menial servants into active artisans andtraders. The result, therefore, of comparingtogether the wealth of different countries, ac-cording to the sense of that term adopted bythe Economists, and according to the sense inwhich it is generally understood in society,would be totally different. And this circum-stance detracts in a very g-reat degree from thepractical utility of the works of the Economists.

10

CHAPTER III.

ON THE DEFINITION AND APPLICATION OF TERMS

BY ADAM SMITH.

IN adverting to the terms and definitionsof Adam Smith, in his "Wealth of Na-tions," I think it will be found that he hasless frequently and less strikingly deviatedfrom the rules above laid down, and thathe has more constantly and uniformly kept inview the paramount object of explaining in themost intelligible manner the causes of thewealth of nations, according to the ordinaryacceptation of the expression, than any ofthe subsequent writers in the science, whohave essentially differed from him. His faultsin this respect are not so much that he hasoften fallen into the common error, of usingterms in a different sense from that in whichthey are ordinarily applied in society, but

DEFINITIONS OF AD.-\M SMITH. 11

that he is sometimes deficient in the preci-sion of his definitions; and does not always,when adopted, adhere to them with sufficientstrictness.

His definition of wealth, for instance, isnot sufficiently accurate; nor does he adhereto it with sufficient uniformity: yet it cannotbe doubted that he means by the termgenerally the material products which arenecessary, useful, and agreeable to man, andare not furnished by nature in unlimitedabundance; and I own I feel'quite convincedthat it is in this sense in which it is mostgenerally understood in-society, and in whichit may be most usefully applied, in explainingthe causes of the wealth of nations.

In adopting the labour which a commoditywill command as the measure of its value, hehas not, as it appears to me, given the mostconclusive reasons for it, nor has he in allcases made it quite clear whether he meansthe labour which a commodity will com-mand, or the labour worked up in it. Hehas more frequently failed in not adhering

12 DEFINITIONS OFpractically to the measure he had proposed,and in substituting as an equivalent thequantity of com a commodity will command,which, as a measure of value, has propertiesessentially distinct from labour. Yet, withall this, it must be acknowledged that hehas generally used the terms labour andvalue in the sense in which they are ordi-narily understood in society, and has, withfew exceptions, applied labour as the measureof value in the way in which it may be mademost extensively useful in the explanation ofthe science.It has been sometimes objected to Adam

Smith, that he has applied the term produc-tive in a new and not very appropriate sense.But if we examine the manner in which thisterm is applied in ordinary conversation andwriting, it must be allowed that, whatevermeaning may be thought to attach to it, fromits derivation, it is practically used as im-plying causation in regard to almost anyeffect whatever. Thus we say that such andsuch things are productive of the best effects,

,

Lv

~-

ADAM SMITH. 13

others of the very worst effects, and othersare unproductive of, or do not produce, anyperceptible effects; meaning by these expres-sions, that some things cause the best effects,others the worst effects, others, again, causeno perceptible effects; and these effects may,of course, apply according to the context,and the subject under discussion, to thehealth of the body, the improvement of themind, the structure of society, or the wealthof a nation.

Now, Adam Smith was' inquiring into thenature and causes of the wealth of nations;and having confined the term wealtlt to ma-terial objects, and described human labour asthe main source of wealth, he clearly saw thenecessity of making some distinction betweenthose different kinds of labour which, withoutreference to their utility, he could not but ob-serve had the most essentially distinct effects,in directly causing that wealth, the nature ofwhich he was investigating. He called one ofthese kinds oflabour productive, or productiveof wealth, and the other unproductive, or notproductive of wealth; and knowing that it

]4 DEFINITIONS OF

would occasion interminable confusion, andbreak down all the barriers between produc-tion and consumption, to attempt to estimatethe circumstances which might indirectly con-tribute to the production of wealth, he de-scribed productive labour in such away, asto leave no doubt that he meant the labourwhich was so directly productive of wealth, asto be estimated in the quantity or value of thematerial object produced.

In his application of the terms productiveand unproductive, therefore, he does notseem to have violated the usage of commonconversation and writing; and it appears tome, that, if we fully and impartially considerthe consequences of making no distinction be-tween different kinds of labour, we must feelthe conviction that the terms which he hasadopted are pre-eminently useful for the pur-pose to which they are applied-that is, toenable him to explain, intelligibly and satisfac-torily, the causes of the wealth of different na-tions, according to the ordinary meaning whichmen attach to the term wealth, whatever maybe their theories on the subject.

ADAM BlUTH. 16Where Adam Smith has most failed in the

use of his terms, is in the application of theword real. The real value of a commodityhe distinctly and repeatedly states to be thequantity of labour which it will command, incontradistinction to its nominal value, that is,its value in money. or any other specific com..modity named. But while he is thus usingthe word real, in this sense, he applies it towages in a totally different sense, and says,that the real wages of labour are the necessa ..ries and conveniencies of life which the moneyreceived by the labourer will enable him tocommand. Now, it must be allowed that boththese modes of applying the word real, cannotbe correct, or consistent with each other. Ifthe value of labour varies continually with thevarying quantity of the necessaries and con-veniencies of life which It will command, it iscompletely inconsistent to bring it forward asa measure of real value. And if it can, withpropriety, be brought forward as a measureof the real value of commodities, it followsnecessarily that the average value of a givenquantity of labour, of a given description, can

16 DEFINITIONS OF

never be considered as in the slightest degreeaffected by the varying quantity of commodi-ties for which it will exchange. Of this AdamSmith seemed to be fully aware in the fifthchapter of his first book, where he says dis-tinctly, that when more or less goods aregiven in exchange for labour, it is the goodsthat vary, not the labour.

It is evident, therefore, that to get right, wemust cease to use the term real, in one orother of the meanings in which it has beenapplied by Adam Smith.

If the term had never been applied in poli-tical economy in a different sense from thatin which it was first used by Adam Smith,there could be no doubt that it might be ad-vantageously continued, and the expressionreal value might answer its purpose verywell, and save any question respecting thesubstitution of some other term, such as in-trinsic, positive, absolute, or natural. Butas the term real has been very generally ap-plied, by most writers, to wages, implyingthe real quantity of the means of subsistenceand comfort which the labourer is enabled to

ADAM SMITH. 17command, in contradistinction to his nominalor money wages, the matter cannot be so easilysettled, and we must come to some determi-nation as to which of the two meanings itwould be most advisable to reject.

Adhering to the rules which have been laiddown, it will probably be acknowledged thatthe term real, when applied to the means ofobtaining something in exchange, seems morenaturally to imply the power of commandingthe necessaries, conveniencies, and luxuries oflife, than the power of commanding labour.A certain quantity of wealth is something morereal, if the word real be used in its mostordinary sense, than a certain quantity of la-bour; and if, on this account, we continue toapply the term real to wages, we must ex-press by positive, absolute, intrinsic, or natu-ral, what Adam Smith has expressed by theword real, as applied to value: or it would bestill better if political economists would agreein assigning a distinct meaning to the term va-lue, as contradistinguished from price, when-ever the value of a commodity is mentionedwithout mentioning any specificarticle in which

18 DEFINITIONS OF ADAM SMITH.

it is proposed to estimate it, in the same man-ner as the price of a commodity is universallyunderstood to mean price in money, wheneverthe term is used without referring specificallyto some other article.If, however, it should be found that the

term real, in the sense in which it is first andmost frequently applied by Adam Smith, hasby usage got such fast hold of this meaning,that it cannot easily be displaced ; and, further,if it be thought that an adjunct of this kind tothe term value will sometimes be wanted inexplanations, and that to express what AdamSmith means, the term real is preferable toeither of the terms intrinsic, positive, abso-lute, or natural, there would be little objec-tion to letting it retain its first meaning, pro-vided we took care not to use it in applicationto the wages of labour, as implying the ne-cessaries, conveniencies, and amusements oflife. Instead of 'realwages, we must then saycorn wages, commodity wages, wages in themeans of subsistence, or something of the kind.But the other change is obviouslymore simple,and therefore in my opinion preferable.

19

CHAPTER IV.

APPLICATION OF THE TERM UTILITY BY M. SAY.

IT would lead me too far and into too manyrepetitions, if I were to go through the prin-cipal definitions of the continental politicaleconomists, and examine the manner in whichthey have used their terms in reference to theobvious rules above laid down : but I cannotresist noticing one very signal deviation fromthem in the justly distinguished work of M.Say. It relates to the term 'Utility.It must be allowed by those who are ac-

quainted with M. Say's work, first, that he hasused the term utility in a sense totally differentfrom that in which it is used in common con-versation, and in the language of those whoare considered as the best authorities in po-litical economy. Proceeding upon the prin-ciple, that nothing can be valuable which isnot useful to some person or other, he hasstrangely identified utility and value, and

20 DEFINITION OF

made the utility of a commodity proportionateto its value, although the custom is universalof distinguishing between that which is usefuland that which is merely high-priced, of thatwhich is calculated to satisfy the acknow-ledged and general wants of mankind, andthat which may be only calculated to satisfythe capricious tastes of a few. He has thusviolated the first and most obvious rule for theuse of terms,

Secondly, he has gone directly against theusage of the best writers in political economy,and particularly against the authority ofAdam Smith, whom he himself considers asthe main founder of the science. Adam Smithhas declared his opinion in the most decidedmanner on this subject, by contrasting valuein use, and value in exchange, and illustratingthe distinction between them by adducing themarked instances of a diamond and water.M. Say, therefore, in the manner in whichhe has applied the term utility, has violatedthe second obvious rule for the use of terms,as well as the first.

Thirdly, the objections to the old terms in

M~sAy. 21

use, wealth and value, if there were any, donot by any means seem to have been such asto warrant the introduction of a new term.The object of M. Say seems to have been toshow, that production does not mean produc-tion of new matter in the universe, but I can-not believe that even the Economists had thisidea; and it is quite certain that Adam Smith'sdefinition of production completely excludes it." There is one sort of labour," he says, " whichadds to the value of the subject on which it isbestowed '*' '*' '*' and as it pro~uces a value maybe called productive. u. There is, certainly, noquestion here about the creation of new mat-ter. And as M. Say observes, that when thingsare in their ordinary and natural state theirvalue is the measure of their utility, while hehad before affirmed that riches were in propor-tion to value, t it is difficult to conceive whatbeneficial purpose he could have in view inintroducing the term utility thus made syno-nymous with value or riches.

* Wealth of Nations, b. ii. c. iii. p. i, vol. ii. 6th ed.t '.rrait!! d' Economie Politi que, liv. i. c. i. pp. 2, 4,

4th ed.

22 DEFINITION OF M. SAY.

Fourthly, as the terms useful and utilityare in such very common use, when appliedin their accustomed sense, and cannot easilybe supplied by others, it is extremely diffi-cult to confine their application to the newsense proposed by M. Say. It is scarcelypossible not to use them sometimes, as M. Sayhimself has done, according to their ordinaryacceptation; but this necessarily introducesuncertainty and obscurity into the languageof political economy.

M. Say had before made little or no dis-tinction between riches and value, two termswhich Mr. Ricardo justly considers as essen-tially different. He then introduces anotherterm, utility, which, as he applies it, can hardlybe distinguished from either of the others.The new term, therefore, could not have beencalled for; and it must be allowed that theuse of it in the sense proposed, violates allthe most obvious rules for the introduction ofa new term into any science.

23

CHAPTER V.

ON TilE DEFINITION AND APPLICATION OF TERMS

BY MR. RICARDO.

ALTHOUGH it must be allowed that the cri-terion of value which Mr. Ricardo has endea-voured to establish is an incomplete one, yetI cannot but think that he has conferred animportant benefit on the science of politicaleconomy, by drawing a marked line of distinc-tion between riches and vilue. A differ-ence had perhaps been felt by most writers,but none before him had so strongly markedit, and attached so much importance to it. Heagrees entirely with Adam Smith in the fol-lowing definition of riches: "Every man isrich or poor according to the degree in whichhe can afford to enjoy the necessaries, conve-niencies, and amusements of human life."1/fAnd adds an observation in which I think heis quite right. " Value, then, essentially dif-fers from riches; for value depends not on

Wealth of Nations, h. I, c. v. p. 43. 6th edit.

24 DEFINITIONS OIl

abundance, but on the difficulty or facility ofproduction."* He subsequently says, "al-though Adam Smith has given the correctdescription of riches which I have more thanonce noticed, he afterwards explains them dif-ferently, and says that a man must be richor poor, according to the quantity of labourwhich he can afford to purchase. Now thisdescription differs essentially from the other,and is certainly incorrect; for suppose themines were to become more productive, sothat gold and silver fell in value, from thegreater facility of production; or that velvetswere to be manufactured by so much less la-bour than before, that they fell to half theirformer value; the riches of all those who pur-chased these commodities would be increased;one man might increase the quantity of hisplate, another might buy double the quantityof velvet; but with the possession of this ad-ditional plate and velvet, they could employno more labour than before, because, as theexchangeable value of velvet and of platewould be lowered, they must part with pro-

Polito Econ. C. xx. p. 320. 3rd Edit.

MR. RICARDO. 25

portionably more of these species of riches topurchase a day's labour. Riches then cannotbe estimated by the quantity of labour whichthey will purohase.v'"

In these remarks I entirely agree withMr. Ricardo. If riches consist of the neces-saries, conveniencies, and luxuries of life, andthe same quantity of labour will at differenttimes, and under different circumstances, pro-duce a very different quantity of the neces-saries, conveniencies, and luxuries of life, thenit is quite clear that the pow_erof commandinglabour, and the power of commanding the ne-cessaries, conveniencies and luxuries of lifeareessentially distinct. One, in fact, is a descrip-tion of value, and the other of wealth.

But though Mr. Ricardo has fully succeededin showing that Adam Smith was incorrect in

* Polito Econ. C. xx. p. 326. 3rd edit.-It may be re-marked, by the way, that Mr. Ricardo here uses labouras a measure of value in the sense in which I think itought always to be used, and not according to his owntheory. He measures the exchangeable value of theplate and velvet, not by the quantity of labour workedup in them, but by the quantity they will command oremploy.

26 DEFINITIONS OF

confounding wealth and value, even accordingto his own descriptions of them; yet he hasnowhere succeeded in making out the pro-priety of that peculiar view of value whichforms the most prominent feature of his work.

He has not confined himself to the assertion,that what he calls the value of a commodityis determined by the quantity oflabour workedup in it; but he states, in substance, the fol-lowing proposition, that commodities exchangewith each other according to the quantity ofmanual labour worked up in them, includingthe labour worked up in the materials andtools consumed in their production, as well asthat which is more immediately employed.s

Now this proposition is contradicted byuniversal experience. The slightest observa-tion will serve to convince us, that aftermaking all the required allowances for tem-porary deviations from the natural and ordi-nary course of things, the class of commoditiessubject to this law of exchange is most ex-tremely confined, while the classes, not subjectto it, embrace the great mass of commodities.* PolitoECOD. c. I, sec. iii. pp. 16, 18, 3rd edit.

MR. RICARDO. 27

Mr. Ricardo, indeed, himself admits of con-siderable exceptions to his rule; but if weexamine the classes which come under hisexceptions, that is, where the quantities offixed capital employed are different and ofdifferent degrees of duration, and where theperiods of the returns of the circulating capitalemployed are not the same, we shall find thatthey are so numerous, that the rule may beconsidered as the exception, and the excep-tions the rule.

Yet, notwithstanding these admissions, heproceeds with his rule as if there had beenfew or no exceptions to it: he especially esti-mates the value of wages by the quantity ofhuman labour worked up in them; and as it isquite true, that if we look only to this elementof value, the value of wages has a tendency torise in the progress of cultivation and improve-ment, he has attributed the fall of profits whichusually takes place in rich countries to merise in the value of wages; and, in fact, hasfounded his whole theory of profits, which hasbeen considered as the crowning achievementin the science, upon the rise and fall in the

28

value of wages. "It has been my endeavour,"he says, " to show throughout this work, thatthe rate of profits can never be increased butby a fall of wages. ":II: Again he observes," Profits-it cannot be too often repeated-depend on wages; not on nominal but realwages; not on the number of pounds whichmay be annually paid to the labourer, but onthe number of days' work necessary to obtainthese pounds. tot

Real wages, then, according to Mr. Ri-cardo's definition, are determined by the quan-tity of labour worked up in the articles, whichthe labourer receives as a remuneration for hislabour, whether food and clothing, or money.

Now the meaning here attached to the termreal wages, on which Mr. Ricardo's theory ofprofits is made to depend, is quite unusual,and decidedly contradicts all the most obviousrules which suggest themselves for the appli-cation of terms in any science.

In the first place, no one we believe everheard, before the time of Mr. Ricardo, this

* Polit, Econ. c. vii. p. 137, 3rd edit.tId. p.152.

MR. RIC.\RDO. 29

term used in conversation in such a man-ner, that an increase of real wages wouldgenerally imply a diminution in the meansof subsistence and comfort among the la-bouring classes and their families. Yet thiswould be the case, according to the sensein which Mr. Ricardo uses the term. Speak-ing of the different situations of the land-lord and the labourer, in the progress ofsociety, after describing the increasing wealthof the landlord, he says, "The fate of thelabourer will be less happy.; he will receivemore money-wages it is true, (and the moneyof Mr. Ricardo is here used as measuringwhat he calls real wages;) but his corn wageswill be reduced; and not only his commandof corn, but his general condition will be de-teriorated. It With a continued increase ofreal wages, "the condition of the labourer willgenerally decline, while the condition of thelandlord will always be improved."*

Secondly, No writer that I have met with,anterior to Mr. Ricardo, ever used the termwages, or real wages, as implying proportions,

* Polit. Econ. c. v. p. 98, 3rd edit.

30 DEFTXITTONS OF

Profits, indeed, imply proportions; and therate of profits had always justly been esti-mated by a per centage upon the value of theadvances. But wages had uniformly beenconsidered as rising or falling, not accordingto any proportion which they might bear tothe whole produce obtained by a certain quan-tity of labour, but by the greater or smallerquantity of any particular produce receivedby the labourer, or by the greater or smallerpower which such produce would convey, ofcommanding the necessaries and convenienciesof life. Adam Smith in particular had oftenused the term real 'Wages, and always in themost natural sense possible, as implying thenecessaries and conveniencies of life, which,according to the common language and feel-ings of men, might justly be considered asmore real than money, or any other particulararticle in which the labourer might be paid.And the use of the term, in this sense, byAdam Smith, and most other political econo-mists, necessarily made the new interpreta-tion given to it more strange, and more un-warranted.

MR. RICARDO. 31

Thirdly, There were no objections to thesense in which the term was before applied.It was both natural and useful. Nor was anew interpretation of it wanted for the pur-pose of explanation. All the effects of thewages of labour upon profits might havebeen clearly described, by stating, that profitsare determined by the proportion of the wholeproduce which goes to pay the wages of la-bour, without calling this proportion, whethersmall or great in quantity, the real wages oflabour, and without asserting that, as the valueof wages rises, profits must proportionablyfall. That profits are determined by the pro-portion of the whole produce which goes topay the wages of labour, is a proposition,which, when correctly explained, will be foundto be true, and to be confirmed by universalexperience; while the proposition, that asthe value of wages rises profits proportionablyfall, cannot be true, except on the assumptionthat commodities, which have the same quan-tity of labour worked up in them, are alwaysof the same value, an assumption which pro-bably will not be found to be true in one case

DF.FI~ITIOSS OF

out of five hundred ; and this, not from acci-dental or temporary causes, but from thatnatural and necessary state of things, which,in the progress of civilisation and improve-ment, tends continually to increase the quan-tity of fixed capital employed, and to rendermore various and unequal the times of thereturns of the circulating capital. The intro-duction, therefore, of a new meaning of theterm real usages, has not certainly the recom-mendation of being more useful.

Fourthly, the new sense in which the termreal wages is used, is not maintained withconsistency, or applied to old facts and opi-nions, with a proper allowance for the changethat has been made. Thisis almost unavoid-able, when old terms, which are quite familiarin one sense, are applied in another and dif-ferent sense. It is particularly remarkable inMr. Ricardo's use of his artificial money, whichis meant to be the measure of real wages.Thus, he says, " It may be proper to observe,that Adam Smith, and all the writers whohave followed him, have, without one excep-tion that I know of, maintained, that a rise in

r1

MR. RICARDO. 33

the price oflabour would be uniformly followedby a rise in the price of all commodities. Ihope I have succeeded in showing that thereare no grounds for such an opinion, and thatonly those commodities would rise which hadless fixed capital employed upon them thanthe medium in which price was estimated, andthat all those which had more would positivelyfall in price when wages rose. On the con-tra~, if wages fell, those commodities onlywould fall which had a less proportion of fixedcapital employed upon them. than the mediumin which price was estimated; all those whichhad more would positively rise in price." *

Now all these effects of a rise or fall in thewages of labour, depend entirely upon wagesbeing estimated in Mr. Ricardo's imaginarymoney. Estimated in this way, and in thisway alone, Mr. Ricardo's statement would becorrect. But neither Adam Smith, nor any ofhis followers, down to the time oflVlr.Ricardo,ever thought of estimating the price of wagesin this way. And estimating them in the wayto which they were always accustomed, that

Polito Econ, C. i, sec. vi p. 45, Brd edit.

34 DEFINITIONS OF

is in money, as they found it, tbey are quitejustified ill what they have said. Accordingto Adam Smith, at least, who estimates thevalue of commodities by the quantity oflabourwhich they will command, if the money wagesof labour universally rise, the value of moneyproportionably falls; and when the value ofmoney falls, Mr. Ricardo himself says, thatthe prices of goods always rise.

The difference, therefore, between Mr. Ri-cardo and Adam Smith in this case, arisesfrom Mr. Ricardo's forgetting that he w~using the term price of labour in a differentsense from that in which it was used in theproposition objected to.

In the same manner, Mr. Ricardo's verystartling proposition respecting the effects offoreign trade, namely, that" no extension offoreign trade will immediately increase theamount of value in a country," arises entirelyfrom his using the term value in a differentsense from that in which it had been used byhis predecessors.

If the value offoreign commodities importedis to be estimated by the quantity of labour

I

ii,;.it

HR. RICARDO. 35

worked up in the commodities sent out to pur ..chase them, then it is quite true that, what-ever may be the returns, their value is unsus-ceptible ofincrease. But if the value of foreigncommodities imported be estimated in theway in which they had ever been estimatedbefore, that is, either in the money, in thelabour, or in the mass of commodities whichthey would command when brought home,then there cannot be the least doubt that theimmediate effect of a prosperous venture whichgives great profits to the merchants concernedwould be to increase the amount of value inthe country. The value of the returns com-pared with the value of the outgoings would,in this particular trade, be greater than usual ;and it is quite certain, that this increase ofvalue in one quarter would not necessarilybe counterbalanced by a decrease of value inany other. Practically, indeed, nothing ismore usual than a simultaneous rise in thevalue of the great mass of commodities froma prosperous trade, whether this value be es..timated in money or in labour.It must be allowed, then, that Mr. Ricardo

36 DEFINITIONS OF MR. RI(!ARDO.

has been very far from cautious in the defini-tion and application of his terms, in treatingof some of the most fundamental principles ofpolitical economy; and I have very littledoubt, as I have stated elsewhere, that this isone of the reasons why many of the readersof his work have found great difficulty in un-derstanding it. When old and very familiarterms are used in a new sense, it is scarcelypossible for the writer to be always consistentin their application, and extremely difficult tothe reader always to be aware of the sensemeant to be affixed to them.

...;

CUAPTER. VI.

ON THE DEFINITION AND APPLICATION 0. TERMS

BY MR. MILL, IN HIS "ELEMENTS OF POLITICAL

}~CONOMY,')-

MR. MILL, in his Elements of Political Eco-nortzy, professedly lays no claim to discovery.His main object seems to have been to givethe substance of Mr. Ricardo's work in a more...concentrated form; and with a better arrange-ment; and this object he has accomplished.In the definition and application of his termshe nearly follows Mr. Ricardo; but it may beuseful to notice a few cases, where he haseither made the errors of Mr. Ricardo's defini-tions more prominent, or has altered withoutimproving them.

On his first approach to the question ofvalue, he describes the causes which deter-mine it much more inaccurately than Mr. Ri-cardo. He says, that" the value of commo-dities is determined by the quantity of capital

38 DEFINITIONS OF

and labour necessary to produce them.v'" Butthis is obviously untrue and quite inconsistentwith what he says afterwards respecting theregulator of value. Itmay be correct, and Ifully believe it is, to estimate the value oflabour by its quantity, but how can we esti-mate the value of different kinds of machinery,or different kinds of raw materials by theirquantity? The quantity of raw material con-tained in a coarse and thick piece of calico, ascompared with a very fine and thin piece ofmuslin, worked up by the same quantity oflabour, may be four or five times greater, whilethe value of it, and the degree in which itaffects the value of the commodity, may beactually less. We cannot, in short, measurethe value of any product. of labour by its bulkor quantity; and it must therefore be essen-tially incorrect to say, that the value of com-modities is determined by the quantity of ca-pital and labour necessary to produce them.

Proceeding afterwards to investigate moreminutely what it is, which in the last resort

1f Erements of Polito ECOll. c. ii. sec. iii. p. 75,2nd edit

-ti~,

s ,~;

MR. MILL. 39determines the proportion in which commodi-ties exchange for one another, he observes,that " as all capital consists in commodities,it follows, of course, that the first capital musthave been the result of pure labour. Thefirst commodities could not be made by anycommodities existing before them. But if thefirst commodities, and of course the first capital,were the result of pure labour, the value ofthis capital, the quantity of other commoditiesfor which it would exchange, must have beenestimated by labour. This- is an immediateconsequence of the proposition which we havejust established, that where labour was thesole instrnment of production, exchangeablevalue was determined by the quantity oflabourwhich the production of the commodity re-quired. If this be established, it is a neces-sary consequence that the exchangeable valueof all commodities is determined by quantityof labour. ,,*'

Now this necessary consequence, which ishere so confidently announced, does not appearto me to follow either from this statement, or

* Elements of Polito Econ. c. iii. sec. ii. P: 92.

40 DEFINITIONS OFfrom any thing which is said subsequently.Allowing that the first commodities, if com-pleted and brought into use immediately, mightbe the result of pure labour, and that theirvalue would therefore be determined by thequantity of that labour; yet it is quite im-possible that such commodities should be em-ployed as capital to assist in the production ofother commodities, without the capitalist beingdeprived of the use ofhis advances for a certainperiod, and requiring a remuneration in theshape of profits.

In the early periods of society, on accountof the comparative scarcity of these advancesof labour, this remuneration would be high,and would affect the value of such -commoditiesto a considerable degree, owing to the highrate of profits. In the more advanced stagesof society, the value of capital and commodi-ties is largely affected by profits, on accountof the greatly increased quantity of fixed capi-tal employed, and the greater length of timefor which much of the circulating capital isadvanced before the capitalist is repaid bythe returns. In both cases, the rate at which !;

fdR.. MILL. 41commodities exchange with each other, isessentially affected by the varying amount ofprofits. It is impossible, therefore, to agreewith Mr. Mill, when he says, " Itappears by theclearest evidence, that quantity of labour in thelast resort determines the proportion in whichcommodities exchange for one another."*

On the same grounds Mr. Mill is quite in-correct, in calling capital hoarded labour. Itmay, perhaps, be called hoarded labour andprofits; but certainly not hoarded labour alone,unless we determine to call profits labour.This Mr. Mill himself could not but see; andconsequently, in his second edition, he hasdeserted Mr. Ricardo, and boldly ventured tosay, that " profits are in reality the measureof quantity oflabour. "t But as this very pecu-liar and most unwarranted abuse of termsbelongs, I believe, originally to Mr. Maculloch,it may be best to defer the more particularexamination of it, till I come to consider thedefinitions and application of terms adoptedby Mr. Maculloch.

* Elements of Polit. Econ. c. iii. sec. ii. p. 94.tId. c. iii. sec. ii. p. !l5.

42 DEFINITIONS OF

In a work like that of Mr. Mill, which hasso much the air oflogical precision, one shouldhave hoped and expected to find superior ac-curacy in the definitions, and great uniformityin the application of his terms, in whateversense he might determine to use them; butin this the reader will be disappointed. It isdifficult, for instance, to infer from the languageof Mr. Mill, whether a commodity is to beconsidered as altering in its value in proporwtion to its costs of production, or in proportionto its power of commanding other commodi-ties, and they are certainly not the same.

At the commmencement of his seventh sec-tion, of chap. iii., entitled, " WItat regulatesthe Value ofMoney,U he says,

" By the value of money is here to be un-derstood the proportion in which it exchangesfor other commodities, or the quantity of it.which-exchanges for a certain quantity of otherthings."

This is, to be sure, a very lax descriptionof the value of money, very inferior in point ofaccuracy, even to what would be understoodhy the general power of purchasing, What

MR. MILL. 43

are the things a certain quantity of which ishere alluded to? and if these things change in. the costs of their production, will money beproportionally affected?

But we have a different and better descrip-tion of value in the next section. It is theresaid, that" gold and silver are, in reality,commodities. They are commodities for theattainment of which labour and capital mustbe employed. It is cost of production whichdetermines the value of these as of other or-dinary productions. ".Now, if cost of production determines the

value ofmoney, it follows that, while the cost ofproducing a given quantity of money remainsthe same, its value remains the same. But it isobvious that the value of money may remainthe same in this sense ofthe term, while, owingto the alterations which may be taking placein the costs of: producing the commodities al-luded to, the quantity of other things for whichit will exchange may be essentially different.Which of the two, then, is the true criterionof the value of money? It is surely most de-

* Sec. viii. p. 138.

44 DEFINITIONS OF

sirable that the student in political economyshould not be left. in the dark on this subject;yet Mr. Mill gives him no assistance; and heis left. to decide ~between two very differentmeanings as well as he can.

But, perhaps, the most culpable confusionof terms which Mr. Mill has fallen into, is inrelation to demand and supply; and as he hasa more original and appropriate claim to thiserror than any other English writer, and itsbelief leads to very important consequences,the notice of it is particularly called for.

In the first place, no person can have turnedhis attention, in t.he slightest degree, to thelanguage of political economy, either in con-versation or books, without being fully awarethat tile term demand is used in two verydistinct senses; one implying the quantity ofthe commodity consumed, and the other theamount of sacrifice which the purchasers are'willing to make in order to obtain a givenportion of it. In the former sense, an increaseof demand is but very uncertainly connectedwith an increase of value, or a further encou-ragement to production, as in general the

MR. MILL. 45

greatest increase of such kind of demand takesplace in consequence of a very abundantsupply and a great fall in value. It is theother. sense alone to which we refer, when wespeak of the demand compared with the supplyas determining the values and prices of com-modities; and in this latter sense of the termdemand, which, perhaps, is in the most fre-quent use, an increase of supply is so far fromincreasing demand that it diminishes it, whilea diminution of demand increases it.

Secondly, it has been generally agreed,that when the quantity of a commodity brought"tomarket is neither more nor less than suffi-cient to supply all those who are able andwilling to give the natural and necessary pricefor it, me demand may then, and then only,be said to be equal to the supply; because,if the quantity wanted by those who are ableand willing to give the natural price exceedthe supply, the demand is said to be greaterthan the supply, and the price rises abovethe ordinary costs of production; and if thequantity wanted by those who are able andwilling to give the natural price fall short of

46 DEFINITroNS OF

the supply, the demand is said to be less thanthe supply, and the price falls below the ordi-nary costs of production. This is the languageof Adam Smith, and of almost all writers onpolitical economy, as well as the language ofcommon conversation when such subjects arediscussed. Indeed it is difficult to conceivein what other sense it could, with any propriety,be said, that the supply was equal to the de-mand, because in any other sense than this,the supply of a commodity might be said tobe equal to the demand, whether it were sell-ing at double or the half of its cost.

Thirdly, it must be allowed, that accordingto the best authorities in books and conversa-tion, what is meant by the glut of a particularcommodity is such an abundant supply of itcompared with the demand as to make itsprice fall below the costs of production; andwhat is meant by a general glut, is such anabundance of a large mass of commodities ofdifferent kinds, as to make them all fall belowthe natural price, or the ordinary costs of pro-duction, without any proportionate rise of priceinany other equally large mass of commodities.

MR. MILL. 4711

I11

I

With these preliminary definitions, we mayproceed to examine some of the argumentsby which Mr. Mill endeavours to show thatdemand and supply are always equal in theaggregate; that an over supply of some com-modities must always be balanced by a pro-portionate under supply of others; and that,therefore, a general glut is impossible.If Mr. Mill had always strictly adhered to

that meaning of the term demand for a com-modit!!which signifies the quantity consumed,he might have maintained The position withwhich he heads the third section of his fourt.hchapter, namely, that consumption is co-exten-sive with production. This, however, is, inreality, no more than saying, that if commo-dities were produced in such abundance as tobe sold at half their cost of production, theywould still be somehow or other consumed-a truism equally obvious and futile. ButMr. Mill has used the term demand in such away, that he cannot shelter himself under thistruism. He observes, "It is evident thatwhatever a man has produced, and does notwish to keep for his own consumption, is a

48 DEFINITIONS OF

stock which he may give in exchange forother commodities. His will, iherefore, topurchase, and his means of purchasing, inother words, his demand, is exactly equal tothe amount of what he has produced, anddoes not mean to consume."*'

Here it is evident that Mr.Mill uses the termdemand in the sense of the amount of sacrificewhich the purchaser is able to make, in orderto obtain the commodity to be sold, or, as Mr.Mill correctly expresses it, his means of pur-chasing. But it is quite obvious that his meansof purchasing other commodities are not pro-portioned to the quantity of his own commoditywhich he has produced, and wishes to partwith; but to its value in exchange; and unlessthe value of a commodity in exchange be pro-

Elements of Polit. Econ. c. iv. s. iii. p. 225. Ifthe demand of every indvidual were equal to his sup-ply, in the correct sense of the expression, it would bea proof that he could always sell his commodity for thecosts of production, including fair profits; and then evena partial glut would be impossible. The argumentproves too much. It is very strange that Mr. Millshould not have seen what appears to be so very ob-vious,-that supply must always be proportioned toquantity, and demand to ",alue.

MR. MILt. 49portioned to its quantity, it cannot be truethat the demand and supply of every indivi-dual are always equal to one another. Ac-cording to the acknowledged laws of demandand supply, an increased quantity will oftenlower the value of the whole, and actuallydiminish the means of purchasing other com-modities.

Mr. Mill asks, "What is it that is neces-sarily meant, when we say that the supply andthe demand are accommodated to one ano-ther 1 It is this (he saystthat goods whichhave been produced by a certain quantity oflabour, exchange for goods which have beenproduced by an equal quantity of labour. Letthis proposition be attended to, and all therest is clear. Thus, if a pair of shoes is pro-duced by an equal quantity of labour as a hat,so long as a hat exchanges for a pair of shoes,so long the supply and demand are accom-modated to one another. If it should so hap-pen that shoes fell in value, as compared withhats, which is the same thing as hats risingin value, as compared with shoes, this wouldimply that more shoes had been brought to

50 DEFINITIONS OF

market, as compared with hats. Shoes wouldthen be in more than due abundance. Why?Because in them the produce of a certainquantity of labour would not exchange for theproduce of an equal quantity. But for thevery same reason, hats would be in less thandue abundance, because the produce of a cer-tain quantity of labour in them would ex..change for the produce of more than an equalquantity in shoes. "*

Now, I have duly attended, according toMr. Mill's instructions, to the propositionwhich is to make all the rest clear; and yetthe conclusions at which he wishes to arrive,appear to me as much enveloped in darknessas ever. This, indeed, was to be expectedfrom the proposition itself, which obviouslyinvolves a most unwarranted definition of whatis meant, when we say that the supply and thedemand are accommodated to one another.It has already been stated that what has hi-therto been meant, both in conversation andin the writings of the highest authority onpolitical economy, by the supply being aecom-

Elem. of Polite Econ, c. iv. S. iii. p, 233.

O!.'-:;;--

MR. MILL .. 51modated to, or equal to the demand, is, thatthe supply is just sufficient to accommodateall those who are able and willing to pay thenatural and necessary price for it, in whichpage, of course, it will always sell at whatAdam Smith calls its natural price.

Now, unless Mr. Mill is ready to maintainthat people would still say that the supply ofa commodity was accommodated to the de..mand for it, whether it were selling at threetimes the cost of its production, or only one..third of that cost, he cannot maintain his de-finition. He cannot, for instance, deny thathats and shoes may be both selling below thecosts of production, although they may ex-change for each other in such proportions, thatthe hats .produced by a certain quantity oflabour may exchange for the shoes producedby the same quantity of labour. But can itbe said on this account, that the supply ofhats is suited to the demand for hats, or thesupply of shoes suited to the demand forshoes, when they are both so abundant thatneither of them will exchange for what willfulfil the conditions of their continued supply 1

52 DEFINITIONS OFAnd supposing that, while both are selling be ..low the costs of production, shoes should fallstill lower than hats, what would be the con-sequence? According to Mr. Mill, "shoeswould then be in more than due abundance.Why? Because in them the produce of acertain quantity of labour would not exchangefor the produce of an equal quantity. But forthe very same reason, hats would be in lessthan due abundance, because the produce ofa certain quantity of labour in them wouldexchange for the produce of more than anequal quantity in shoes.?"It will be most readily allowed that, in the

case supposed, shoes will be in more than dueabundance, though not for the reason givenby Mr. Mill. But how can it be stated, withthe least semblance of truth, that hats wouldbe in less than due abundance, when, by thevery supposition, they are selling at a pricewhich will not re-purchase the quantity of la-bour employed in producing them.

Nothing can show more distinctly than thevery case here produced by Mr. Mill, that his

Elem. of Polit. Econ. c. iv. s, iii. p. 234.

MR. MILL. 53proposition or definition, which is to clear upeverything, is wholly inapplicable to the ques-tion; and that to represent the abundance ordeficiency of the supply of one commodity, asdetermined by the deficiency or abundance ofanother, is to give a view of the subject to-tally different from the realit.y, and calculatedto lead to the most absurd conclusions. Thereis hardly any stage of society subsequent tothe division of labour, where the state of thesupply compared with the demand of shoes isessentially affected by the state of the supplycompared with the demand for hats; and iuthe present state of society ill this country,where the question of a general glut has arisen,it is still more irrelevant to advert to any otherobjects as efficient causes of demand for a par-ticular commodity, except those which relateto the costs of producing it.

The hop-planter who takes a. hundred bagsof hops to Weyhill fair, thinks little moreabout the supply of hats and shoes than hedocs about the spots in the sun. What does hethink about, then 7 and what does he want toexchange his hops for 7 Mr. Mill seems to

LIBERTI FUNDLIBRARY

54 DEFINITIONS OFbe of opinion that it would show great igno-rance of political economy, to say that whathe wants is money; yet, notwithstanding theprobable imputation of this great ignorance,I have no hesitation in distinctly asserting, thatit really is money which he wants, and thatthis money he must obtain, in the present stateof society, in exchange for the great mass ofwhat he has brought to market, or he will beunable to carry on his business as a hop-planter; and for these specific reasons; first,that he must pay the rent of his hop groundsin money; secondly, that he must pay for hispoles, his bags, his implements, &c., &c., inmoney; thirdly, that he must pay the nu-merous labourers which he employs on hisgrounds, during the course of the next year,in money; and fourthly, that it is in money,and in money alone of all the articles broughtto the fair, that he can calculate his profits.It is perfectly true, that both the landlords

and the labourers who are paid in .moneywillfinally exchange it for something else, as noone enjoys money in kind, except the miser;but the landlord who may spend perhaps a

,-

"

r

-;

MR. MILL. 55

good deal in post-horses, dinners at inns, andmenial servants, would be little likely to ac-cept from the hop-planter the articles whichhe could get at the fair in exchange for hishops; and though the expenditure of the la-bourer is much more simple, and may be saidto consist almost entirely in food and clothing,yet it is quite certain that the power of com-manding a given quantity of labour can neverbe represented, with any approach towardscorrectness, by a given quantity of corn andclothing. As a matter of'Tact, the labourerin this country is paid in money; and while itoften happens that for many years togetherthe money-price of labour remains the same,the money-price of corn is continually altering,and the labourer may, perhaps, receive thevalue of twice as much corn in one year ashe does in another.

What an entirely false view, then, does itgive of the real state of things, what a com-plete obscuration instead of illustration of thesubject is it, to represent the demand for shoesas determined by the supply of hats, or the de-mand for hops by the supply of cloth, cheese,

56 DI:I~Il"ITIOSS oror even corn. In fact, the doctrine that onehalf of the commodities of a country necessa-rily constitute an adequate market or effec-tual demand for the other half, is utterly with-out foundation. The great producers who arethe great sellers, before they can venture tothink about the supplies of hats, shoes, andcloth, on which they may perhaps expend atenth part of a tenth part of what they havebrought to market, must first direct theirwhole attention to the replacing of theircapital, and to the question whether, after re-placing it, they will have realized fair profits.Whatever may be the number of intermediateacts of barter which may take place in regardto commodities-whether the producers sendthem to China, "" or sell them in the placewhere they are produced: the question as to

,. Foreign trade is, no doubt, mainly a trade of bar-ter; but the question whether British woollens find anadequate market in the United States, does not dependupon their purchasing the same quantity of tobacco asusual, but upon whether the tobacco, or whatever thereturns may be, wiII purchase the British money or theBritish labour necessary to enable the woollen manu-facturer to carry on his business successfully. If bothwoollen manufactures and tobacco are below the costs

- -- ~

MR. MILL. 57

an adequate market for them, depends exclu-sively upon whether the producers can replacetheir capitals with ordinary profits, so as toenable them successfully to go on with theirbusiness.

But what are their capitals? They are, asAdam Smith states, the tools to work with,the materials to work upon, and the meansof commanding the necessary quantity of la-bour. Colonel Torrens, therefore, is quiteright, when he says, "that an increased pro-duction of those articles which do not formcomponent parts of capital, cannot create anincreased effectual demand, either for sucharticles themselves, or for those other articleswhich do form component parts of capital."*And, perhaps, he may be considered as makingsome approaches towards the truth, when hesays, that "effectual demand consists in the

of production in money or labour, both parties may becarrying on a losing trade, at the time when the rate atwhich the two articles exchange with each other is thesame as usual. This is the answer to the pamphlet,which M. Say addressed to me some years flgo.

On the Production of Wealth, c. vi. s, vi. P: 349.

58 DEPINITIONS OF

power and inclination, on the part of con-sumers, to give for commodities, either by im-mediate or circuitous barter, some greaterproportion of all the ingredients of capital thantheir production costs."* But in this latterposition, he is still very far from represent-ing what actually takes place. When weconsider how much labour is directly employedin the ,production of the great mass of com-modities, and recollect further, that raw mate-rials and machinery, the other two branchesof capital, are mainly produced by labour, itis obvious that the power of replacing capi-tals will mainly depend on the power of com-manding labour: but a given quantity of whatColonel Torrens calls the ingredients of capi-tal, can never represent a given quantity oflabour; and consequently, if a given quantityof labour be necessary in any production, avery different quantity of the ingredients ofcapital would be required at different times, tooccasion the same effectual demand for it. Itis far, therefore, from being true, that if the

,-~--

On the Production of Wealth, c. vi. s. vi. p. 349.

MR. MILL. 59

ingredients of capital, represented by a hun-dred and ten quarters of corn, and a hundredand ten suits of clothing, were increased to"two hundred and twenty quarters of corn,and two hundred and twenty suits of clothing,the effectual demand for the article wouldbe doubled." *It is still further from the truth, "that in-

creased supply is the one and only cause ofincreased effectual demand; "t and most happyis it for mankind that this is not true. If it-were, how difficult would it be for a societyto recover itself, under a temporary diminu-tion of food and clothing! But by a kind pro-vision of nature, this diminution, within cer-tain limits, instead of diminishing, will increaseeffectual demand. The theory of demand andsupply, shows that the food and clothing thusdiminished in quantity, will rise in value; anduniversal experience tells us, that, as a matterof fact, the money-price of the remaining foodand clothing will for a time rise in a greaterdegree than in proportion to the diminution

On the Production of Wealth, c. vi. s. vi. p. 345.tId. p. 348.

60 DEFINITJONS OF

of its quantity, while the money-price of la-bour may remain the same. The necessaryconsequence will be, the power of setting inmotion a greater quantity of productive in-dustry than before.*

There is no assumption so entirely fatal toa just explanation of what is really takingplace in society, as the assumption, that thenatural wages of labour in food and clothingare always nearly the same, and just aboutsufficient to maintain a stationary population.All the most common causes of an accelera-tion or retardation in the movements of thegreat machine of human society, involve va-

.. It is quite astonishing that political economists ofreputation should be inclined to resort to noy kind ofillustration, however clumsy and inapplicable, ratherthan refer to money. I sllppose they are afraid of theimputation of thinking that wealth consists in money.nut though it is certainly true that wealth docs not con-sist in money, it is equally true that mOlJey is a mostpowerful agent in the distribution of wealth; and thosewho, in a country where all exchanges are practicallyeffected by money, continue the attempt to explain theprinciples of demand and supply, and the variationsof wa~es and profits, by referring chiefly to huts, shoes,com, suits of clothing, &c., must of necessity fail.

:-:,

'-.

1I

MR. lULL. Glriations, and often great variations, in the realwages of labour. Commodities in general,and corn most particularly, are continuallyrising or falling in money-price, from the stateof the supply as compared with the demand,while the money-price of labour remains muchmore nearly the same. In the case of a riseof corn and commodities, the real wages ofcommon day-labour are necessarily diminished:the labourer obtains a smaller proportion ofwhat he produces; profits necessarily rise;the capitalists have a greater power of com-manding labour; more persons are called intofull work, and the increased produce whichfullows, is the natural remedy for that state ofthe demand and supply, from whatever causearising, which had occasioned the temporaryrise in the money-price of commodities. Onthe other hand, if corn and other commoditiesfall in money-price, as compared with themoney-price of labour, it is obvious that theday-labourer, who gets employment, will beable to buy more corn with the money whichhe receives; he obtains a larger proportion ofwhat he produces; profits necessarily fall; the

62 DEFINITIONS OF

capitalists have a diminished power of com-manding labour; fewer persons are fully em-ployed, and the diminished production whichfollows, is the natural remedy for that state ofthe demand and supply, from whatever causearising, which occasioned the temporary fallin the money-price of commodities. The ope-ration of these remedial processes to preventthe continuance of excess or defect, is so muchwhat one should naturally expect, and is soobviously confirmed by general experience,that it is inconceivable that a propositionshould have obtained any currency which isfounded on a supposed law of demand andsupply diametrically opposed to these l'eme..dial processes.It will be recollected, that the question of a

glut is ex-elusivelywhether it may be general,as well as particular, and not whether it maybe permanent as well as temporary. Thecauses above mentioned act powerfully to pre-vent the permanence either of glut or scarcity,and to regulate the supply of commodities soas to make them sell at their natural prices.But this tendency, in the natural course of

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1MR. MILL. G3

things, to cure a glut or a scarcity, is no morea proof that such evils have never existed,than the tendency of the healing processes ofnature to cure some disorders without assist-ance from man, is a proof that such disordershave not existed.

But to return more particularly to Mr. Mill.After asserting that the supply is the demand,and the demand is the supply, so frequently,that the unwary reader must feel quite at aloss to know which is which, he comes to adistinct conclusion, which is so directly con-tradicted both by theory and experience, asto shew either that his premises must havebeen false, or that what he calls his indisso-luble train of reasoning consists of mere un-connected links. He says, "It is thereforeuniversally true, that as the aggregate demandand aggregate supply of a nation never canbe unequal to one another, so there never canbe a superabundant supply in particular in-stances, and hence a fall in exchangeablevalue below the cost of production, withouta corresponding deficiency of supply, andhence a rise in exchangeable value beyond

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DEFINITIONS OF

cost of production in other instances. Thedoctrine of the glut, therefore, seems to bedisproved by a chain of reasoning perfectly in-dissoluble. " iffWhile commodities are merely compared

with each other, it is unquestionably true thatthey cannot all fall together, or all rise toge-ther. But when they are compared with thecosts of production, as they are in the abovepassage, it is evident that, consistently withthe justest theory, they may all fall or rise atthe same time. For what are the costs ofproduction? They are either the quantity ofmoney necessary to pay the labour worked upin the commodity, and in the tools and ma-terials consumed in its production, with theordinary profits upon the advances for thetime that they have been advanced; or theyare the quantity of labour in kind required tobe worked up in the commodity, and in thetools and materials consumed in its productionwith such an additional quantity as is equiva-lent to the ordinary profits upon the advancesfor the time that they have been advanced.

Elem. of Po lit. Econ. c. iv. s. iii. p. 234.

MR. MILL. 65

Now it surely cannot be denied theoreti-cally, that all commodities produced in thiscountry may fall in comparison with a com-modity produced in Mexico. As little canit be denied theoretically that all commoditiesproduced by British labour may fall as com-pared with that labour, either from an unusu-ally increased supply of such commodities, or adiminution of demand for them. And when,from these theoretical concessions, required bythe universally acknowledged laws of demandand supply, we turn to theJacts, we see withour own eyes, and learn from authority whichthere is no reason whatever for doubting, thata very large mass of commodities does attimes fall below the costs of production,whether those costs be estimated in money orlabour, without the slightest shadow of pre-tence for saying that any other equally largemass is raised proportionally above the costsof production.

Even within the very last year, it is amatterof the most public notoriety that the cottonmanufactures, the woollen manufactures, thelinen manufactures, the silk manufactures,

66 DEFINITIONS OFhave all fallen below the costs of production,including ordinary profits. To go no further,the amount of these manufactures, takentogether, must, on a rough estimate, exceedseventy millions of pounds sterling. And ifthis mass of commodities, partly from overproduction and over trading, and partly fromtheir necessary consequences, the shock toconfidence and credit and the diminution ofbills of exchange and currency, have fallenbelow the ordinary costs of production, whatman is there credulous enough to believe thatthere must have been, according to the lan-guage of Mr. Mill, "a corresponding defi-ciency of supply, and hence a rise of ex-changeable value beyond cost of productionin other instances" 1 I doubt, indeed, much,whether satisfactory evidence could be broughtto show that a single million's worth of goodshas risen above the cost of production, whileseventy millions' worth have fallen below it.

Consequently, if the definition of a generalglut be a fall in a great mass of commoditiesbelow the costs of production, not counter-balanced by a proportionate rise of some

MR. MILL. 67

other equally large mass of commodities abovethe costs of production, Mr. Mill's conclusionagainst the existence of a general glut,founded on H a chain of reasoning perfectlyindissoluble," seems to be utterly without foun-dation.

If facts so notorious as these to which Ihave adverted are either boldly denied, orconsidered as undeserving attention, in found-ing the theories of political economy, there isan end at once to the utility of the science.

On the subject of the wages of labour,Mr. Mill has added his authority to the pecu-liar views and language of Mr. Ricardo. Hesays, " Whatever the share of the labourer,such is the rate of wages; and, cice versa,whatever the rate of wages, such is the shareof the commodity or commodities' worth whichthe labourer receives.v+ Perhaps the term'late of wages used by Mr. Mill to express theproportion of the produce which falls to theshare of the labourer is in some respects pre-ferable to the term real wages, used by Mr. Ri-cardo for the same purpose; but still it is highly

*' Elements ofPoIit. ECOll. c. ii. sec. ii. p. 41.

68 DEl-"INITIONS OF MR. MILL.

objectionable, because it is an old and familiarterm used in an entirely new sense. Whenthe expressions high or low rates of wageswere used, before the time of Mr. Ricardoand Mr. Mill, no one understood them tomean the proportion of the produce awardedto the labourer. In fact, this meaning hadnot been before conveyed by any appropriateterms in the language of political economy ;yet it is a meaning the expression of which,vas much wanted in explaining the theory ofprofits. To express it, therefore, a new termshould certainly have been chosen, and notan old one, which was familiar in a differentsense. There seems to be no objection tothe term proportionate wages, which has beenused by Mr. Macculloch.

On the whole, it must be allowed, thatMr. Mill in his Elements of Political Economyhas but little attended to the most obviousrules which ought to guide political econo-mists in the definition and application of theirterms. They are often unsanctioned by theproper authorities, and rarely maintained withconsistency.

69

CHAPTER VII.

ON THE DEFINITION AND APPLICATION OF TERMS,

BY MR. MACCULLOCII, IN HIS "PRINCIPLES OF

POLITICAL ECONOl\{Y."

HOWEVER incautious Mr. Ricardo and Mr.Mill may have been in the definition and appli-cation of their terms, I fear it will be foundthat Mr. Macculloch has been still more so;and that, instead of growing~more careful, thelonger he considers the subject, he seems tobe growing more rash and inconsiderate.

The expositors of any science are in ge-neral desirous of calling into their servicedefinite and appropriate terms; and for thispurpose their main object is to look for cha-racteristic differences, not partial resem-blances. Mr. Maeculloch, on the other hand,seems to be only looking out for resem-blances: and proceeding upon this principle,he is led to confound material with immaterialobjects ; productive with unproductive labour;capital with revenue; the food of the labourer

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70 DEFINITIONS OF

with the labourer himself; production withconsumption; and labour with profits.

That this is not an exaggerated view ofwhat has been stated by Mr. Macculloch, inhis Principles of Political Economy, any personwho reads the work with attention may satisfyhimself.

Mr. Macculloch's definition of wealth, whichhe considers as quite unexceptionable, is,u those articles or products which possessexchangeable value, and are either necessary,useful, or agreeable." *It is not, .perhaps, quite unexceptionable to

use the term value in a definition of wealth.It is something like explaining ignotum perignatius. But independently of this objection,the definition is so worded, that it is left indoubt whether immaterial gratifications aremeant to be included in it. They are not ingeneral designated by the terms articles orproducts; and it is only made clear that it isintended to include them by a collateral remarkon my definition of wealth, which I confinespecifically to material objects, and by a sub-* Principles of Political Economy, part i. p. 5.

MR. MACCULLOCR. 7J

sequent definition of productive labour, whichis made to include every gratification derivedfrom human exertion.

Mr. Macculloch, in the article on PoliticalEconomy which he published in the Supple-ment to the Encyclopredia Britannica, hadexcluded these kinds of gratification from hisdefinition ofwealth, and had given such reasonsfor this exclusion, as would fullyhave convincedme ofits propriety, if I had not been convincedbefore. He observes that, " if political econo-mywere to embrace a discussion of'the produc-tion and distribution of all [hat is useful andagreeable, it would include within itself everyother science; and the best Encyclopeediawouldreally be the best treatise on political economy.Good.health is useful and delightful, and there-fore, on this hypothesis, the science of wealthought to comprehend the science of medicine:civil and religious liberty are highly useful,and therefore the science of wealth must com-prehend the science of politics: good actingis agreeable, and therefore, to be complete,the science of wealth must embrace a discus-sion of the principles of the histrionic art, and

72 DEFINJTTOXS OF

so on. Such definitions are obviously worsethan useless. They can have no effect but togenerate confused and perplexed notions re-specting the objects and limits of the science,and to prevent the student ever acquiring aclear and distinct idea of the inquiries in whichhe is engaged."iff

On these grounds he confined wealth tomaterial products; but, in the same treatise,he included) in his definition of productive la-bour, all those sources of gratification whichhe had, with such good reason, excluded fromhis definition of wealth. When he had donethis, however, he could not but be struck with

These remarks were principally directed againstLord Lauclerdale's definition of wealth-all that mandesires as useful and delightful to him ; but they applywith nearly equal force to Mr. Macculloch's present de-finition, which is limited to those objects which possessexchangeable value. According to Mr. Macculloch'sown statement, health is purchased from the physician,and the gratification derived from acting from the actor;and it must be allowed that it is impossible to enjoy thebenefits of civil and religious liberty without payingthose who administer a good government. It has beensaid by Mr. Hallam, with some truth, that the libertiesof England were chiefly obtained by successive purchases from the crown.

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the inconsistency of saying that wealth con-sisted exclusively of material products, andyet that all labour was equally productive ofwealth, whether it produced material productsor not. To get rid of this inconsistency, hehas now altered his definition, by leaving outthe term material products; and it remainsto be seen, whether in so doing he has notessentially deviated from the most obviousrules which should direct us in defining ourterms.

His definition of wealth., as explained bywhat he subsequently says of productive la-bour, now includes all the gratifications derivedfrom menial service and followers, whatevermay be their number.

Now let us suppose two fertile countrieswith the same population and produce, in oneof which it was the pride and pleasure of thelandlords to employ their rents chiefly inmaintaining menial servants and followers,and in the other, chiefly in the purchase ofmanufactures and the products of foreigncommerce. It is evident that the differentresults would be nearly what I described in

74 DEFINmoNS OPspeaking of the consequences of the definitionof the Economists. In the country, where thetastes and habits of the landlords led them toprefer material conveniencies and luxuries,there would, in the first place, be in all pro-bability a much better division of landedproperty; secondly, supposing the same agri-cultural capital, there would be a very muchgreater quantity of manufacturing and mer-cantile capital; and thirdly, the structure ofsociety would be totally different. In the onecountry, there would be a large body ofpersonsliving upon the profits of capital; in the other,comparatively a very small one: in the one,there would be a large middle class of society;in the other, the society would be dividedalmost entirely between a few great land-lords and their menials and dependents: inthe one country, good houses, good furniture,good clothes, and good carriages, would bein comparative abundance; while in the other,these conveniencies would be confined to avery few.Now, I would ask, whether it would not be

the grossest violation of all common language,

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MR. MACCULLOCH. 75

and all commonfeelingsand apprehensions, tosaythat the two countrieswere equallyrich1

Mr. Macculloch, however, has discoveredthat there is a resemblance between the endaccomplished by the menial servant or de..pendent, and by the manufacturer or agri-culturist. He saY3," The end of all humanexertion is the same; that is, to increasethe sum of necessaries, comforts, and enjoy-ments; and it must be left to the judg-ment of every one to determine what propor-tion of these comforts he will have in the

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shape of menial services, and what in theshape of material products.".lt will, indeed, be readily allowed, that

even the third footman who stands behind acoach, and seems only to add to the fatigueof the horses and the wear and tear of thecarriage, is still employed to gratify somewant or wish of man, in the same manner asthe riband maker or the lace maker. Itwillfurther be readily allowed, that it is by nomeans politic to interfere'with individualsinthe modes of spending their incomes. But

* Principles of Polito Econ., part iv. p. 406.

76 DF.Fr~ITIOXS OF

does it at all follow from this, that if thesedifferent kinds of labour have very differenteffects on society in regard to wealth, as theterm is understood by the great mass of man-kind, that they should not be distinguishedby different appellations, in order to facilitatethe explanation of these different effects 1Mr. Macculloch might unquestionably discoversome resemblance between the salt and themeat which it seasons: they both contribute,when used in proper proportions, to composea palatable and nutritive meal, and in generalwe may leave it to the taste and discretionof the individual to determine these propor-tions; but are we on that account to con-found the two substances together, and toaffirm that they are equally nutritive 1 Arewe to define and apply our terms in such away as to make it follow from our statements,that, if the individual were to compound hisrepast of half salt and half meat, it wouldequally conduce to his health and strength 1

But Mr. Macculloch states, that a taste forthe gratifications. derived from the unproduc-tive labourers of Adam Smith " has exactly

1MR. i\lACCULLOClJ. 77

the same effect upon national wealth as ataste for tobacco, champagne, or any otherluxury. ,,* This may be directly denied,unless we define wealth in such a manner aswill entitle us to say that the enjoymentsderived by a few great landlords, from theparade of menial servants and followers, willtell as effectually in an estimate of wealth as alarge mass of manufacturers and foreign com-modities. But when M. Chaptal endeavouredto estimate the wealth.of France, and Mr. Col-quhoun that of England, w~t;do not find thevalue of these enjoyments computed in anyof their tables. And certainly, if wealthmeans what it is understood to mean in com-mon conversation and in the language of thehighest authorities in the science of PoliticalEconomy, no effects on national wealth canor will be more distinct than those whichresult from a taste for material convenienciesand luxuries, and a taste for menial servantsand followers. The exchange of the ordinaryproducts of land for manufactures, tobacco,and champagne necessarily generates capital ;

Principles of Polito Econ., part iv, p. 410.

78 DEFINITIONS OF

and the more such exchanges prevail themore do those advantages prevail whichresult from the growth of capital and a betterstructure of society; while an exchange ofnecessaries for menial services, beyond a cer-tain limited amount, obviously tends to checkthe growth of capital, and, if pushed to a con-siderable extent, to prevent accumulationentirely, and to keep a country permanentlyin a semi-barbarous state.

Mr. Macculloch, when not under the in-fluence of his definition, justly observes, that" the great practical problem, involved inthat part of the science of political economywhich treats of the production of wealth, mustresolve itself into a discussion of the meanswhereby the greatest amount of necessary,useful, and desirable products may be ob-tained with the least possible quantity oflabour."* But among the unproductivelabourers of Adam Smith there is no room forsuch saving of labour. The pre-eminent ad-

Principles of Polito Econ., part ii. p. 71. Thislanguage has absolutely no meaning, if all labour beequally productive in regard to national wealth.

MR. IrUCCULLOCH 79

vantages to be derived from capital, machi-nery, and the division of labour, are herealmost entirely lost; and in most instances thesaving of labour would defeat the very end inview, namely, the parade of attendance, andthe pride of commanding a numerous body offollowers.

Now, if the employment of the labour re-quired to produce material conveniencies andluxuries necessarily occasions the creation anddistribution of capital, and, further, affordsroom for all the advantages resulting from-the saving of labour and the most extendeduse of machinery; while the employment ofthe labour, called by Adam Smith unpro-ductive, is necessarily cut off from all thesebenefits, I would ask whether these two cir-cumstances alone do not form a sufficientlymarked line of distinction amply to justify theclassification of Adam Smith; and the utilityof such a classification, in explaining thecauses of the wealth of nations, is most obvi-ous and striking.

So difficult is it, consistently, to maintaina definition which contradicts the commonusage of language, and the common feelings

80 D~FlNJTIONS OF

of mankind, that I have not the least doubt,if Mr. Macculloch himself were to travelthrough two countries of th