# The Economic Journal/Volume 1/The Rehabilitation of Ricardo

Printed in The Economic Journal, Volume 1
THE REHABILITATION OF RICARDO
In the development of the mental sciences exegesis has frequently played an important part. A change of doctrine has been justified, or supported, or commended for general acceptance, by a new interpretation of an authoritative text. Sir Henry Maine has explained the nature of this process in the history of Roman Law:—
We are all of us able to supply examples for ourselves of a similar procedure in theology.
There are not wanting indications that something of the same kind is now taking place in English Political Economy with reference to Ricardo. It is a comparatively recent and an almost exclusively English phenomenon. To say nothing of the historical economists, the re-creator of abstract economics in England, Stanley Jevons, did not hesitate twelve years ago to describe Ricardo as an 'able but wrong-headed man,' who had 'shunted the car of economic science on to a wrong line'; while, within the last few months, the spokesman of the new Austrian abstract school has declared, without any words of qualification, that ​Ricardo's fundamental position is, 'as every one to-day knows,' simply 'false.'
But to certain recent English writers such sweeping condemnation as this is distasteful. They think that it is possible to combine a profound reverence for Ricardo with the acceptance of all that is valuable in the work of later teachers. Not that they always take up the same line of defence. Sometimes it is maintained that many of the dogmas of Ricardo and his chief followers 'were originally put forward not at all as independent truths, but as the outcome of particular illustrations of a scientific method of inquiry.' It is conceded that this 'was not quite clear' to Ricardo and his followers themselves, and that 'they did not make their drift obvious;' so that it would seem to be dealing hard measure to those unfortunate persons who 'misapplied' such dogmas to dismiss them as 'sciolists.' But more frequently it is held that these dogmas, or'many' of the more 'characteristic of them,' are truths when properly understood. What they need is merely to be 'supplemented,' and 'stated with proper qualifications and reserves.' 'Ricardo did not, in interpreting his results, take the precautions necessary to provide against misconceptions on the part of many of his readers.' 'He made short cuts'; 'he did not state explicitly what he was doing'; 'his reticence was an error of judgment'; 'if we desire to understand him, we must interpret him generously.' Interpreted generously, qualified and suppleme/ted, his teaching is still of permanent value.
This attitude is a very natural one. English economists can hardly fail to be proud of Ricardo; and whether their pride takes the form of treating him as an Angel of Light or as the Prince of Darkness, they will probably all assign to him much greater influence than foreign economists would allow. Besides, if, as we are told, it is a pleasure to the young and vehement to be heterodox and to scoff at great names, it is a comfort to the staid and academic 'stare super antiquas vias,' to feel that they are building on the foundations that were laid by the fathers of their church.
Yet such a frame of mind is not without its dangers. The 'Responsa Prudentum' doubtless kept up the popular respect for ​the Twelve Tables, while they assisted in the creation of an enlightened jurisprudence; but they must often have unintentionally given a misleading impression of what the Twelve Tables originally meant. And it is because it seems to me that the great treatise of Professor Marshall is not altogether faultless in this respect that I venture to criticise some examples of his exegesis.
Professor Marshall has an excursus of eight pages on 'Ricardo's theory of Cost of Production in relation to Value.' It begins as follows:—
His argument is chiefly directed against the supposition that the Jevonsian or Austrian doctrine of utility is inconsistent with that of cost of production,—as laid down, for instance, by J. S. Mill in one of his two expositions of it, and as stated and criticised by Profeshor Sidgwick. Here Professor Marshall would seem to be in the right, if one who has no gift for the use of the abstract 'organon' can have an opinion. But there is the prior task of showing that what has come to be known as the Ricardian doctrine of cost of production was the doctrine of Ricardo; and here Professor Marshall is scarcely so successful. It is a point that deserves some attention; for Professor Marshall is pained to think that Rodbertus and Karl Marx should 'claim Ricardo's authority for the statement that the natural value of things consists solely of the labour spent on them;' and in a later passage he refers confidently to this note as proving that this 'premiss' of theirs is 'really as opposed to the general tenor of Ricardo's theory of value as it is to common sense.' This is the first proposition I would like to criticise.
Professor Marshall's argument rests on those sections (4, 5) of Ricardo's first chapter where he recognises that his principle that 'the quantity of labour bestowed on the production of ​commodities regulates their relative value' is 'considerably modified by the employment of machinery and other fixed and durable capital;' as well as by its 'unequal durability and by the unequal rapidity with which it is returned to its employer.' It may be observed, indeed, that even in his exegesis of these sections our author seems to go beyond what is written; for he attributes to Ricardo the opinion that his principle would be modified by differences in the amount of capital, whereas all Ricardo considers is the proportion of fixed capital, and the rapidity with which capital returns. The argument from these sections is further supported by a reference to the note in the third edition, where Ricardo expressly declares that in 'cost of production' he includes profit.
It is not necessary for the present purpose to discuss the exact effect of these 'modifications' upon his general doctrine, or what precisely he meant by 'considerably modified.' But it is right to lay stress on the following facts:—
(1) That Ricardo did not think these modifications touched the essence of his doctrine; and that he continued to lay it down in terms indistinguishable from those employed by Rodbertus and Marx;
(2) That he was understood in this sense by all his most influential followers and exponents;
(3) That his doctrine rested, at least in part, upon an identification of capital with labour, and of profits with return for labour, which was afterwards worked out by his followers, and which also entered into the later Socialist theory. Let me illustrate each of these points by a few quotations.
(1) As to Ricardo's own statement of the doctrine:—
If the quantity of labour realised in commodities regulates their exchangeable value, etc. [Is not Marx merely using more forcible language for the same meaning when he speaks of values as 'crystals' or 'congelations' of the common social substance, labour? Cf. Ricardo's use of the phrase in other passages: 'The comparative value of the fish and the game would be entirely regulated by the quantity of labour realised in each.']
Apropos of his argument as to different qualities of labour, he ​quotes from Adam Smith: ' There may be more labour in an hour's hard work than in two hours' easy business; or in an hour's application to a trade, which it costs ten years' labour to learn, than in a month's industry at an ordinary and obvious employment.' [Is not this Marx's' reduction of all kinds of actual labour to their common character '? Cf. Jevons: ' Ricardo by a violent assumption, founded his theory of value on quantities of labour considered as one uniform thing.'
And finally, after all his modifications, he returns to his principle at the beginning of Chapter IV.:—
(2) As to the sense in which Ricardo was understood by his disciples:—
1824. De Quincey: The ground of the value of all things lies in the quantity of labour which produces them.
1824. McCulloch: The fundamental principle maintained by Mr. Ricardo is that the exchangeable value of commodities depends exclusively on the quantities of labour necessarily required to produce them.
(3) But by 'labour' Ricardo did not mean only that labour which has been immediately occupied upon the manufacture of a particular article. The term covers all the labour that has indirectly as well as directly contributed to the product, including all that has been devoted to the creation of the capital with which the process may have been assisted.
Their comparative prices [in the case of the beaver and deer] would be in proportion to the actual labour bestowed, both on the formation of the capital and on the destruction of the animals.
If we suppose the occupations of the society extended... still the same principle would hold true, that the exchangeable value of the commodities produced would be in proportion to the labour bestowed on their production; not on their immediate production only, but on all those implements or machines required to give effect to the ... labour....
The clearest exposition of this view is to be found in James Mill, who sums it up in the two propositions that 'Capital is hoarded labour.,' and that 'Profits are simply remuneration for labour.' His illustration from machinery is especially significant, as showing the way in which the doctrines of the Ricardian school suggested the later Socialist formulation:
A man has a machine, the produce of 100 days' labour. In applying it, the owner undoubtedly applies labour, though in a secondary sense, by applying that which could not have been had but through the medium of labour. This machine, let us suppose, is calculated to last exactly ten years. One-tenth of the fruits of 100 days' labour is thus expended every year; which is the same thing in the view of cost and value, as saying that 10 days' labour have been expended. The owner is to be paid for the 100 days' labour which the machine cost him, at the rate of so much per annum, that is by an annuity for ten years, equivalent to the original value of the machine.
Marx says exactly the same; though his application is different.
However useful a given kind of raw material, or a machine, or other means of production may be, though it may cost £150 or, say, 500 days' labour, yet it cannot under any circumstances add to the value of the product more than £150.
The key, then, to the difficulty as to Ricardo's meaning is apparently this. When he laid down that value depended altogether on the quantity of labour, he included in that quantity all the labour that had gone to the production of all the capital in its various forms with which the manual toil was assisted. He would therefore not have used such a phrase as Professor Marshall's, that values are ' proportionate to the amount of labour required only on condition... that it is assisted by proportionate amounts of capital'; because that treats Capital as a separate element in production alongside of Labour, while he included Capital in Labour as merely another form of the one great force. This might seem at first sight only another phraseology for the same view, a difference between Tweedledum and Tweedledee. But the mischief lay in what seemed to be suggested by Ricardo's formula; namely, that as all the contributions towards production were of the same nature, the shares justly assignable to each out of the resulting value must be determined by the same principle. Hence the contribution towards production of the capitalist-employer must be either his direct labour, which could be remunerated on the same scale as that of any other manager, or the stored-up labour (i.e. capital) which contributed just itself and therefore could claim only to be replaced. True, Ricardo did not draw this conclusion himself. Profits, according to him, are (not, as they should be on his general principle, determined by the same law as wages, but) what remains from value after wages are taken out. Moreover, he regarded the payment of interest, i.e. of something more than the mere replacement of the capital, as a matter of course. In one sense, therefore, it is true that the Socialists cannot justly claim him as their authority; for he assumed as self-evident the continuance of certain parts of the modern distributive process which they reject. But in another and more important sense they can; for they can fairly maintain that in his theory of the production of value he furnishes them with a test wherewith to disprove the justice of the modern system of distribution. This is recognised by a writer so unsympathetic to the Socialists ​as Dr. Böhm-Bawerk. 'It was the development and popularising of the Ricardian theory of value which supplied the scientific soil, out of which the Exploitation theory could naturally spring and grow.'
In order that Ricardo should be altogether freed from the reproach of giving any countenance to Socialist doctrines, it is necessary to go further, and to argue that he did not-teach 'the iron law of wages.' This Professor Marshall does in the following passage:
This very strong assertion is supported in a footnote by the quotation of a certain passage from Ricardo's fifth chapter. Professor Marshall evidently attaches great weight to this particular passage; in a note on the next page he expresses his surprise that it should have escaped the attention of J. S. Mill. But, on examining the passage in question, it will be found that it does not appear in Ricardo's first edition, and that it is by no means certain that it means quite all Professor Marshall gets out ​of it. As the point is of some interest, it may be worth while quoting at length the parallel passages in the earlier and later versions. In all the editions, the paragraph in which the passages occur begins as follows:—
Then comes, in the first edition, the following passage:—
This is replaced, in the third edition, by these sentences:—
And then, in all editions, the argument thus runs on:—
The passage quoted by Professor Marshall is that beginning with 'The friends of humanity,' and ending with 'the evils of famine.' But, on comparing the two texts, though it will be recognised that it is just possible that in the later Ricardo may have intended to soften his teaching, and have thrust in a sentence without any regard to the argument of the page, it would seem much more probable that the later version is only another way of stating the earlier. He had been distinguishing between 'rich' and 'poor' countries: for the latter, but not for the former, the remedy for distress is to induce the people to be more industrious. In the first edition he had cited as examples ​of poor countries Poland and Ireland. In the case of the Irish, he had remarked that, could they but be given a taste for comforts, they would certainly work harder. In the third edition these specific examples are left out; instead, he repeats his distinction between 'rich' and 'poor' countries; and, in spite of the phrase 'all countries,' the context would imply, just as in the first edition, that to stimulate the desire for comforts is the remedy peculiarly suitable to poor lands. If this is his meaning, the phrase 'exertions to procure them' in the later edition is intended to correspond with 'devote a further portion of his time to industry, that he might be enabled to obtain them' in the earlier. The one remedy, in brief, for poor countries, is greater industry. This is probably, on the whole, what Ricardo intended to say. Even if the phrase 'all countries' suggests a wider application, the impression from the whole argument, it may fairly be urged, is very different from that given by Professor Marshall's language about 'not allowing their wages to fall.'
Looking at Ricardo's chapter on wages as a whole, and his subsequent teaching as to the incidence of taxation, it does not seem difficult to get at his meaning. He recognises that there are differences in the 'standard of living' as between different nations and different ages. He thinks it desirable that this standard should be raised; but he believes that in 'rich' and 'long-settled' countries the only way to bring this about is 'a reduction of people.' And, although the standard of comfort in England was comparatively high, as compared, for instance, with that of Ireland, and included 'moderate comforts' and 'conveniences,' yet he constantly implies that these comforts are but little above the physical minimum.
This theory as to the relation of wages to subsistence was fruitful in consequences. It led directly to some of Ricardo's most important doctrines; —that, as the cost of food, and therefore wages, tended to increase, profits tended to diminish; and that ​taxes, either on wages or on raw produce, were taxes on profits. In his formal argument for these conclusions, he does indeed introduce 'qualifications' almost sufficient to satisfy even his recent exponents:
But though he sometimes guards himself in his formal argument, in his subsequent statement he constantly speaks as if the result would certainly follow in the case of the great mass of labourers. Thus:—
Taxes on wages will raise wages.
The champions of Ricardo have, of course, one final refuge in the phrase 'nature and habit.' They may observe that the standard of living might be very high, indeed luxurious; but that it might be so endeared to the labourers by custom, that if any encroachment were made upon it by taxation, their rate of multiplication would slacken to such a degree as to throw the burden on the employers. But it is difficult to believe that Ricardo contemplated such a possibility. What he intended to teach the world, James Mill surely knew if any one did. And here is James Mill's version of it:—
Can we not say that, although Ricardo concedes the bare possibility of a rise in the standard of living, the possibility is, in his mind, not suffiently strong to influence the course of his subsequent argument; and that, although he recognises that the standard may be already higher in one country than another, he implies that in all it is but little above absolute necessaries, and that this little consists of comforts which in no rhetorical sense have become necessaries? This is the impression he gives not only to Socialists, but also to men like J. S. Mill and Cairnes. And if it be objected that Mill and Cairnes were misled by traditional misrepresentations, we can turn as before to Ricardo's immediate disciples, and notice how they understood him. I have already quoted the opinion of James Mill. In Mrs. Marcet's Conversations on Political Economy we have an exposition more detailed than usual of what was understood under 'necessaries' by intelligent popularisers of Ricardo's teaching:—
Caroline. By the necessaries of life, do you mean such things only as are indispensably necessary for its support?
Even with the very lowest standard of living in a country like England something more than food is necessary—shelter and clothing; and an increase in the cost of either shelter or clothing would, therefore, according to Ricardo's theory, send up the rate of wages, just as much as an increase in the cost of food. But ​Ricardo, as we have seen, very naturally regarded food as so much the larger element that the others could be neglected, and accordingly laid down that wages varied with the cost of food. As to this Professor Marshall has a somewhat obscure note on p. 554. He remarks that—
This is, of course, true; and for 'corn' Ricardo sometimes substitutes the general term 'provisions.'
But how does this disprove Professor Brentano's contention? To argue that the rate of wages depended on the price of provisions surely implied that on the whole wages but barely covered the necessary cost of subsistence. At any rate, this is how the argument was understood by Adam Smith. In seeking to demonstrate that in Great Britain 'the wages of labour do not fluctuate with the price of provisions,' Adam Smith certainly thought he was presenting an argument against the Physiocrats; and the Physiocrats, as Professor Marshall points out, held the doctrine of the iron law in a sufficiently rigid form.
There is one more consideration to be noticed, which, although it is not perhaps strictly relevant to Professor Marshall's argument, is essential for a complete view of the case. It is that Lassalle and Karl Marx are themselves careful in their statement of the iron law to explain that wages are not absolutely fixed at the lowest point physically possible. Lassalle assumes, following Ricardo closely in his phraseology, that the standard depends on the habits of the people.
Marx goes further, and anticipates more recent 'historical' conceptions by introducing the idea of historical development:—
Like Ricardo, indeed, Lassalle and Marx frequently speak as if wages were 'fixed to the level of the bare necessaries of life': and, under the excitement of propaganda, their followers have preached the doctrine in its most unqualified form, much in the same way as the middle-class 'hangers-on and parasites' of the Ricardian school enunciated its doctrines 'without the conditions required to make them true.' But if in judging the Ricardian school we must go to its founder and interpret him 'generously,' it is clearly none the less desirable to do the same with scientific Socialism. It is surely possible to do this, and yet, like the present writer, to think no better of Socialism because it can fairly claim Ricardo's authority, and to think no worse of Ricardo because his teaching received so unexpected an application.
​The Principles of Economics is a work worthy of its author's reputation, and of his position as the doyen of English economists. It casts into the background almost all that has been written in England since John Stuart Mill; it sums up the economic movement of the last forty years, and furnishes the point of departure for a new and fruitful development. It is the more welcome because it brings a message of conciliation to divergent schools, and makes it possible for 'deductive' and 'historical,' 'scientific' and 'ethical' economists to work together in harmony. But it has the defects of its qualities; and one of these defects is illustrated by the passages we have been considering. There are two possible ways of judging a great writer of the past, such as Ricardo. If we wish to form a complete picture of his mind and character we must examine every sentence he has written, and put even a 'generous' construction on his lightest phrase. We may thus learn not only what he succeeded in saying, but what he tried to say; we may drag out the doubts that he managed to overcome; and perhaps, in some cases, save his heart at the expense of his head. But in tracing the growth of economic doctrine we must proceed otherwise. We want to know what was his especial message; what did he himself lay emphasis upon; how was he understood by his contemporaries. Our 'generosity' may find in him charming anticipations of our own ideas; and yet, if it fails to lay stress upon what was really learnt from the teacher by those he immediately influenced, we shall give a false impression. The economic historian, we are told, is apt to be confused in theory; I am afraid we must add that the sympathetic theorist runs the risk of being unhistorical.
W. J. ASHLEY
* ↑ Ancient Law, p. 34.
* ↑ Preface to 2nd ed. of his Theory, p. lvii.
* ↑ Dr. Böhm-Bawerk in Annals of the American Academy of Political Science, p. 252. [Oct. 1890.]
* ↑ Marshall, Present Position of Economics, § 7.
* ↑ Sidgwick, Principles, p. 10.
* ↑ Keynes, Scope and Method of Political Economy, p. 5.
* ↑ Marshall, Principles, pp. 530-532.
* ↑ Pp. 529 seq.
* ↑ Bk. iii. ch. iv. § 4.
* ↑ Bk. ii. ch. ii. §§ 2 9.
* ↑ P. 619.
* ↑ Quoted from the headings to the sections in the third and subsequent editions.
* ↑ 'If it was assisted by more capital,' p. 532.
* ↑ P. 10 in the edition ordinarily used, the reprint of the third edition.
* ↑ P. 11.
* ↑ P. 18 (in one of the additions to the 1st edition).
* ↑ P. 15, note.
* ↑ Theory, p. 179.
* ↑ P. 16 in 1st ed.; omitted in 3rd and later editions.
* ↑ In 3rd ed., 1826, p. 97.
* ↑ The Templars' Dialogues, in Works, iv. 190 [ed. 1863].
* ↑ Discourse on the Rise, etc., of Pol. Econ., 1824, p. 66. This sentence, in accordance with McCulloch's amusing habit, is repeated verbatim in his Life of Ricardo prefixed to his Works; and doubtless in many other places in McCulloch's writings.
* ↑ Definitions, pp. 26-27.
* ↑ P. 16.
* ↑ P. 17.
* ↑ Elements, ch. iii. sect. ii.
* ↑ Ibid. p. lO3.
* ↑ Capital, ch. viii. Engl. trans. p. 188; cf. pp. 888-4. Cf. as to 'the English' or 'Ricardian view,' Roscher, Pol. Econ. Engl. trans. i. 167, n. 6; 319, n. 8.
* ↑ P. 532.
* ↑ Capital and Interest, Eng. trans. p. 317. Cf. pp. 316, 829, 366, et passim.
* ↑ P. 553
* ↑ First edition, pp. 99-102; usual edition, pp. 55-54.
* ↑ P. 54.
* ↑ P. 98.
* ↑ P. 68.
* ↑ P. 129.
* ↑ P. 232.
* ↑ Elements (ed. 1826), p. 258.
* ↑ On J. S. Mill see Professor Marshall's note already referred to; on Cairnes, his criticism of Mill in Bain's Life, p. 199.
* ↑ Conversation VIII. (3rd ed. 1819, p. 122). Cf. also De Quincey, ubi supra, p. 198; McCulloch, Discourse, p. 68.
* ↑ Letters, ed. Bonar, p. 34.
* ↑ Bk. i. ch. vii. (ed. Rogers, i. 78).
* ↑ P. 550.
* ↑ Capital et Travail, ou M. Bastiat-Schulze (de Delitzch), pp. 231, 316. I have not access to the German original, and therefore quote from the French translation by B. Malon.
* ↑ Capital, ch. vi. Eng. trans. p. 150.
* ↑ Marshall, Principles, p. 63, note 1.

### Notes

This work is in the public domain in the United States because it was published before January 1, 1929.
The longest-living author of this work died in 1927, so this work is in the public domain in countries and areas where the copyright term is the author's life plus 96 years or less. This work may be in the public domain in countries and areas with longer native copyright terms that apply the rule of the shorter term to foreign works.
Public domainPublic domainfalsefalse