Value

To convince ourselves that this is the real foundation of exchangeable value,

Let us asssume 2 things:

1. Cotton production is mechanized.
2. Transportation of cotton is made cheaper

• fewer sailors were employed in navigating
• fewer shipwrights were employed in constructing the ship

The stockings would inevitably fall in value, and consequently command less of other things.

Economy in the use of labour always reduces the relative value of a commodity.

In the mechanization of cotton production, the whole saving of labour would fall on the stockings because that portion of labour was wholly confined to the stockings.

In the other, only a portion would fall on the stockings.

• The remainder would be applied to all those other commodities, to the production of which the buildings, machinery, and carriage, were subservient.

According as capital is rapidly perishable, and requires to be frequently reproduced, or is of slow consumption, it is classed under the heads of circulating, or of fixed capital.

A brewer’s buildings and machinery are durable. He employs a large portion of fixed capital.

On the contrary, a shoemaker’s capital is chiefly employed in the payment of wages, which are expended on food and clothing instead of buildings and machinery.

He employs a large proportion of his capital as circulating capital.

Two trades then may employ the same amount of capital.

But it may be very differently divided with respect to the portion which is fixed, and that which is circulating.

Two manufacturers may employ the same amount of fixed, and the same amount of circulating capital.

But the durability of their fixed capitals may be very unequal.

One may have steam engines of the value of 10,000l. the other, ships of the same value.

Besides the alteration in the relative value of commodities, occasioned by more or less labour being required to produce them, they are also subject to fluctuations from a rise of wages, and consequent fall of profits, if the fixed capitals employed be either of unequal value, or of unequal duration.

Suppose that in the early stages of society, the hunter’s bows and arrows were of equal value, and of equal durability, with the canoe and implements of the fisherman.

Both would be the produce of the same quantity of labour.

Under such circumstances, the value of the deer, the produce of the hunter’s day’s labour, would be exactly equal to the value of the fish, the produce of the fisherman’s day’s labour.

The comparative value of the fish and the game, would be entirely regulated by the quantity of labour realised in each.

Whatever might be the quantity of production, or however high or low general wages or profits might be.

If for example the canoes and implements of the fisherman were of the value of 100l and were calculated to last for 10 years, and he employed ten men, whose annual labour cost 100l and who in one day obtained by their labour 20 salmon.

If the weapons employed by the hunter were also of 100l value and calculated to last ten years, and if he also employed ten men, whose annual labour cost 100l and who in one day procured him ten deer; then the natural price of a deer would be two salmon, whether the proportion of the whole produce bestowed on the men who obtained it, were large or small.

The proportion which might be paid for wages, is of the utmost importance in the question of profits; for it must at once be seen, that profits would be high or low, exactly in proportion as wages were low or high; but it could not in the least affect the relative value of fish and25 game, as wages would be high or low at the same time in both occupations. If the hunter urged the plea of his paying a large proportion, or the value of a large proportion of his game for wages, as an inducement to the fisherman to give him more fish in exchange for his game, the latter would state that he was equally affected by the same cause; and therefore under all variations of wages and profits, under all the effects of accumulation of capital, as long as they continued by a day’s labour to obtain respectively the same quantity of fish, and the same quantity of game, the natural rate of exchange would be, one deer for two salmon.

If with the same quantity of labour a less quantity of fish, or a greater quantity of game were obtained, the value of fish would rise in comparison with that of game. If, on the contrary, with the same quantity of labour a less quantity of game, or a greater quantity of fish was obtained, game would rise in comparison with fish.

If there were any other commodity which was invariable in its value, requiring at all26 times, and under all circumstances, precisely the same quantity of labour to obtain it, we should be able to ascertain, by comparing the value of fish and game with this commodity, how much of the variation was to be attributed to a cause which affected the value of fish, and how much to a cause which affected the value of game.

Suppose money to be that commodity. If a salmon were worth 1l. and a deer 2l. one deer would be worth two salmon. But a deer might become of the value of three salmon, for more labour might be required to obtain the deer, or less to get the salmon, or both these causes might operate at the same time. If we had this invariable standard, we might easily ascertain in what degree either of these causes operated. If salmon continued to sell for 1l. whilst deer rose to 3l. we might conclude that more labour was required to obtain the deer. If deer continued at the same price of 2l. and salmon sold for 13s. 4d. we might then be sure that less labour was required to obtain the salmon; and if deer rose to 2l. 10s. and salmon fell to 16s. 8d. we should be convinced that both27 causes had operated in producing the alteration of the relative value of these commodities.

No alteration in the wages of labour could produce any alteration in the relative value of these commodities;

For if profits were 10%, then to replace the 100l circulating capital with 10% profit, there must be a return of 110l. to replace the equal portion of fixed capital, when profits are at the rate of 10% there should be annually received 16.27l.; for, the present value of an annuity of 16.27l. for ten years, when money is at 10%, is 100l.; consequently all the game of the hunter should annually sell for 126.27l.

But the capital of the fisherman being the same in quantity, and divided in the same proportion into fixed and circulating capital, and being also of the same durability, he, to obtain the same profits, must sell his goods for the same value. If wages rose 10% and consequently 10% more circulating capital were required in each trade, it would equally affect both employments. In both, 210l. instead of 200l. would be required in order to produce the28 former quantity of commodities; and these would sell precisely for the same money, namely 126.27l.: they would therefore be at the same relative value, and profits would be equally reduced in both trades.

The prices of the commodities would not rise, because the money in which they are valued is by the supposition of an invariable value, always requiring the same quantity of labour to produce it.

If the gold mine from which money was obtained were in the same country, in that case, after the rise of wages, 210l might be necessary to be employed, as capital, to obtain the same quantity of metal that 200l obtained before: for the same reason that the hunter and fisherman required 10l. in addition to their capitals, the miner would require an equal addition to his.

No greater quantity of labour would be required in any of these occupations, but it would be paid for at a higher price, and the same reasons which should make the hunter and fisherman endeavour to raise the value of their game and fish, would cause the owner of the mine to29 raise the value of his gold.

This inducement acting with the same force on all these three occupations, and the relative situation of those engaged in them being the same before and after the rise of wages, the relative value of game, fish, and gold, would continue unaltered. Wages might rise twenty%, and profits consequently fall in a greater or less proportion, without occasioning the least alteration in the relative value of these commodities.

Now suppose, that with the same labour and fixed capital, more fish could be produced, but no more gold or game.

The relative value of fish would fall compared with gold or game.

If, instead of 20 salmon, 25 were the produce of one day’s labour.

The price of a salmon would be 16 shillings instead of a pound, and 2.5 salmon instead of 2 salmon, would be given in exchange for 1 deer, but the price of deer would continue at 2l. as before.

In the same manner, if fewer fish could be obtained with the same capital and labour, fish would rise in comparative value.

Fish then would rise or fall in exchangeable value,30 only because more or less labour was required to obtain a given quantity; and it never could rise or fall beyond the proportion of the increased or diminished quantity of labour required.

If we had then an invariable standard, by which we could measure the variation in other commodities, we should find that the utmost limit to which they could permanently rise, was proportioned to the additional quantity of labour required for their production; and that unless more labour were required for their production, they could not rise in any degree whatever.

A rise of wages would not raise them in money value, nor relatively to any other commodities, the production of which required no additional quantity of labour, which employed the same proportion of fixed and circulating capital, and fixed capital of the same durability.

If more or less labour were required in the production of the other commodity, we have already stated that this will immediately occasion an alteration in its relative value, but such alteration is owing to the altered quantity of requisite labour, and not to the rise of wages.

31 If the fixed and circulating capitals were in different proportions, or if the fixed capital were of different durability, then the relative value of the commodities produced, would be altered in consequence of a rise of wages.

First, when the fixed and circulating capitals were in different proportions, suppose that instead of 100l. fixed capital and 100l. circulating capital, the hunter should employ 150l. fixed capital and 50l. circulating capital, and that the fisherman should on the contrary employ only 50l. fixed capital and 150l. circulating capital.

If profits be 10%, the hunter must sell his goods for 79l. 8s. For, to replace his circulating capital of 50l. with a profit of 10% would require a value of 55l.

To replace his fixed capital with 10% profit, the present value of an annuity for ten years of 24.4l. at 10% being 150l.

24.4l. —— 79.4l. 32

If profits be 10%, the fisherman must sell his goods for 173l. 2s. 7d. To replace his circulating capital of 150l. with a profit of 10% would require a value of

165l.
To replace his fixed capital with 10% profit, one-third of the hunter'

8.13  
———
173.13l.

Now if wages rise, although neither of these commodities should require more labour for their production, yet their relative value will be altered. Suppose wages to rise 6%, the hunter would not require more than an increase of 3l. to his capital, to employ the same number of men, and obtain the same quantity of game; the fisherman would require three times that sum, or 9l. The profits of stock would fall to 4%, the hunter would be obliged to sell his game for 73l. 12s. 2d.

To replace his circulating capital of 53l. with a profit of 4%

55.12l. To replace fixed capital, annually wasted, the present value of an33 annuity of 18.49l. for ten years, being 150l. 18.49
——
£73.61
——
The fisherman would sell his fish for 171l. 11s. 5d. viz. To replace his circulating capital of 159l. with a profit of 4% £165.360
To replace fixed capital annually wasted, the present value of an annuity of 6.163l., for ten years at 4%, being 50l. 6.163
———— £171.523

Game was to fish before as 100 to 218. It would now be as 100 to 233.

Thus, with every rise of wages, in proportion as the capital employed in any occupation consists of circulating capital, its produce will be of greater relative value than the goods produced in another occupation, where a less proportion of circulating, and a greater proportion of fixed capital are employed.

34 Secondly, suppose the proportions of fixed capital to be the same; but of different degrees of durability. In proportion as fixed capital is less durable, it approaches to the nature of circulating capital. It will be consumed in a shorter time, and its value reproduced in order to preserve the capital of the manufacturer. We have just seen, that in proportion as circulating capital preponderates in a manufacture, when wages rise, the value of commodities produced in that manufacture, is relatively higher than that of commodities produced in manufactures where fixed capital preponderates. In proportion to the less durability of fixed capital, and its approach to the nature of circulating capital, the same effect will be produced by the same cause.

Suppose that an engine is made, which will last for a hundred years, and that its value is 20,000l.. Suppose too, that this machine, without any labour whatever, could produce a certain quantity of commodities annually, and that profits were 10%: the whole value of the goods produced would be annually 2,000l. 2s. 11d.; for the profit of 20,000l.

35at 10% per annum, isat 10% per annum, is £2,000
And an annuity of 2s. 11d. will, at the end of that period, replace a capital of 20,000l. 2 11 ——— Consequently the goods must sell for £2000 2 11 If the same amount of capital, viz. 20,000l., be employed in supporting productive labour, and be annually consumed and reproduced, as it is when employed in paying wages, then to give an equal profit of 10% on 20,000l. the commodities produced must sell for 22,000l. Now suppose labour so to rise, that instead of 20,000l. being sufficient to pay the wages of those employed in producing the latter commodities, 20,952l. is required; then profits will fall to 5%: for as these commodities would sell for no more than before,

viz. £22,000 and to produce them £20,952 would be requisite, ——— there would remain no more than £1,048 on a capital of 20,952l. If labour so rose, that 21,153l. were required, profits would fall to 4%36 and if it rose, so that 21,359l. was employed, profits would fall to 3%

But, as no wages would be paid by the owner of the machine, which would last 100 years, when profits fell to 5% the price of his goods must fall to 1007l. 13s. 8d. viz. 1000l. to pay his profits, and 7l. 13s. 8d. to accumulate for 100 years at 5% to replace his capital of 20,000l. When profits fell to 4% his goods must sell for 816l. 3s. 2d., and when at 3% for 632l. 16s. 7d. By a rise in the price of labour then, under 7%, which has no effect on the prices of commodities wholly produced by labour, a fall of no less than 68% is effected on those commodities wholly produced by machinery. If the proprietor of the machine sold his goods for more than 632l. 16s. 7d., he would get more than 3%, the general profit of stock; and as others could furnish themselves with machines at the same price of 20,000l. they would be so multiplied, that he would be inevitably obliged to sink the price of his goods, till they afforded only the usual and general profits of stock.

37 In proportion as this machine were less durable, prices would be less affected by the fall of profit, and the rise of wages. If, for example, the machine would last only ten years, when profits were at 10%

the goods should sell for £3254 when at 5% 2590 4% 2465 3% 2344 for such are the sums requisite to place his profits on a par with others, and to replace his capital at the end of ten years; or, which is the same thing, such are the annuities which 20,000l. would purchase for ten years at those rates. If the machine would last only three years, when profits were 10%

the price of the goods would be £8042 at 5% 7344 4% 7206 3% 7070 If it would last only one year, when profits were 10%

the goods would sell for £22,000 at 5% 21,000 4% 20,800 3% 20,600 therefore when profits fell from 10 to 3% the38 goods, which were produced with equal capitals, would fall

68% if the machine would last

100 years. 28% if the machine would last

10 years. 13% if the machine would last

3 years. And little more than 6% if it would last only

1 year. These results are of such importance to the science of political economy, yet accord so little with some of its received doctrines, which maintain that every rise in wages is necessarily transferred to the price of commodities, that it may not be superfluous to elucidate the subject still further.

A manufacturer of hats employs a hundred men at an annual expense of 50l. each, who produce him commodities of the value of 8000l. A machine calculated to last precisely a year, and to do equally well the same work as the 100 men, is offered to him for 5000l., the sum, exactly, that he is expending on wages. It will be a matter of indifference to the manufacturer, whether he purchase the machine, or continue to employ the men. Now if the wages of labour rise 10% and an additional capital of 500l. be consequently39 required to enable him to employ the same labour, whilst his commodities continue to sell for 8000l., he will no longer hesitate, but will at once purchase the machine, and will do the same annually, while wages continue above the original 5000l. But will he be able now to purchase the machine at the former price? will not its value be increased, in consequence of the rise of labour? It would be increased, if there were no stock employed in its construction, and no profits to be paid to the maker of it. If, for example, the machine were produced by 100 men working one year upon it with wages of 50l. each, and its price were 5000l., should those wages rise to 55l. its price would be 5500l.: but this cannot be the case; less than 100 men are employed, or it could not be sold for 5000l.; for out of the 5000l. must be paid the profits of the stock which employed the men. Suppose then that only eighty-five men were employed at an expense of 4250l. per annum, and that the 750l., which the sale of the machine would produce over and above the wages advanced to the men, constituted the profits of the en40gineer’s stock. When wages rose 10%, he would be obliged to employ an additional capital of 425l., and would therefore employ 4675l., instead of 4250l., on which capital he would only get a profit of 325l. if he continued to sell his machine for 5000l.; but this is precisely the case of all manufacturers and capitalists; the rise of wages affects them all. If therefore the maker of the machine should raise the price of his machine in consequence of a rise of wages, an unusual quantity of capital would be employed in the construction of such machines, till their price afforded only the usual profits. The manufacturer of hats, by the employment of the machine, if he sells his hats for 8000l., is precisely in the same situation as before; he employs no more capital, and obtains the same profits. The competition of trade would not long allow this; for as capital would flow to the most profitable employment, he would be obliged to lower the price of hats, till his profits had sunk to the general level. Thus then is the public benefited by machinery: these mute agents are always the produce of much less labour than that which they dis41place, even when they are of the same money value. Through their influence, an increase in the price of provisions which raises wages, will affect fewer persons: it will reach, as in the above instance, eighty-five men instead of a hundred; and the saving which is the consequence, shews itself in the reduced price of the commodity manufactured. Neither machines nor any other commodities are raised in price, but all commodities which are made by machines fall, and fall in proportion to their durability.

It appears, then, that in proportion to the quantity and the durability of the fixed capital employed in any kind of production, the relative prices of those commodities on which such capital is employed, will vary inversely as wages; they will fall as wages rise. It appears too that no commodities whatever are raised in absolute price, merely because wages rise; that they never rise unless additional labour be bestowed on them; but that all commodities in the production of which fixed capital enters, not only do not rise with a rise of wages, but42 absolutely fall; fall too as much as 68%, with a rise of seven% in wages, if fixed capital be exclusively employed, and be of the duration of 100 years.

The above statement, which asserts the compatibility of a rise of wages, with a fall of prices, has, I know, the disadvantage of novelty, and must trust to its own merits for advocates; whilst it has for its opponents, writers of distinguished and deserved reputation. It should however be carefully remembered, that in this whole argument I am supposing money to be of an invariable value; in other words, to be always the produce of the same quantity of unassisted labour. Money, however, is a variable commodity; and the rise of wages as well as of commodities, is frequently occasioned by a fall in the value of money. A rise of wages from this cause will indeed be invariably accompanied by a rise in the price of commodities: but in such cases, it will be found that labour and all commodities have not varied in regard to each other, and that the variation has been confined to money.

43 Money, from its being a commodity obtained from a foreign country, from its being the general medium of exchange between all civilized countries, and from its being also distributed among those countries in proportions which are ever changing with every improvement in commerce and machinery, and with every increasing difficulty of obtaining food and necessaries for an increasing population, is subject to incessant variations. In stating the principles which regulate exchangeable value and price, we should carefully distinguish between those variations which belong to the commodity itself, and those which are occasioned by a variation in the medium in which value is estimated, or price expressed.

A rise in wages, from an alteration in the value of money, produces a general effect on price, and for that reason it produces no real effect whatever on profits. On the contrary, a rise of wages, from the circumstance of the labourer being more liberally rewarded, or from a difficulty of procuring the necessaries on which wages are expended, does not produce the effect of raising price, but has a great effect in lowering profits. In the one case,44 no greater proportion of the annual labour of the country is devoted to the support of the labourers, in the other case, a larger portion is so devoted.

It is according to the division of the whole produce of the land and labour of the country, between the three classes of landlords, capitalists, and labourers, that we are to judge of rent, profit, and wages, and not according to the value at which that produce may be estimated in a medium which is confessedly variable.

It is not by the absolute quantity of produce obtained by either class, that we can correctly judge of the rate of profit, rent, and wages, but by the quantity of labour required to obtain that produce. By improvements in machinery and agriculture, the whole produce may be doubled; but if wages, rent, and profit, be also doubled, these three will bear the same proportions to one another, and neither could be said to have relatively varied. But if wages partook not of the whole of this increase; if they, instead of being doubled, were only increased one half, if rent, instead of being doubled, were only increased45 three-fourths, and the remaining increase went to profit, it would, I apprehend, be correct for me to say, that rent and wages had fallen, while profits had risen; for if we had an invariable standard, by which to measure the value of this produce, we should find that a less value had fallen to the class of labourers and landlords, and a greater to the class of capitalists, than had been given before. We might find for example, that though the absolute quantity of commodities had been doubled, they were the produce of precisely the former quantity of labour. Of every hundred hats, coats, and quarters of corn produced,

if the labourers had

25 The landlords

25 And the capitalists

25 —— 100 And if, after these commodities were doubled in quantity, of every 100

The labourers had only

22 The landlords

22 And the capitalists

22 —— 100

In that case:

• wages and rent had fallen
• profits had risen

Though in consequence of the abundance of commodities, the quantity paid to the labourer and landlord would have increased in the proportion of 25 to 44.

Wages are to be estimated by their real value, viz. by the quantity of labour and capital employed in producing them, and not by their nominal value either in coats, hats, money, or corn.

Under the circumstances I have just supposed, commodities would have fallen to half their former value; and, if money had not varied, to half their former price also.

If then in this medium, which had not varied in value, the wages of the labourer should be found to have fallen, it will not the less be a real fall, because they might furnish him with a greater quantity of cheap commodities, than his former wages.

The variation in the value of money, however great, makes no difference in the rate of profits; for suppose the goods of the manufacturer to rise from 1000l. to 2000l., or 100%, if his capital, on which the variations of money have as much effect as on the value of produce, if his machinery, buildings, and stock in trade rise more than 100%, his rate of profits has fallen, and he has a proportionably less quantity of the produce of the labour of the country at his command.

If, with capital of a given value, he double the quantity of produce, its value falls one half, and then it will bear the same proportion to the capital which produced it, as it did before.

If at the same time that he doubles the quantity of produce by the employment of the same capital, the value of money is by any accident lowered one half, the produce will sell for twice the money value that it did before; but the capital employed to produce it, will also be of twice its former money value; and therefore in this case too, the value of the produce will bear the same proportion to the value of the capital as it did before; and although the produce be doubled, rent, wages, and profits will only vary as the proportions vary, in which this double produce may be divided among the three classes that share it.

It appears then that the accumulation of capital, by occasioning different proportions48 of fixed and circulating capital to be employed in different trades, and by giving different degrees of durability to such fixed capital, introduces a considerable modification to the rule, which is of universal application in the early states of society.

Commodities rise and fall as labour is necessary to their production.

They are also affected in their relative value by a rise or fall of profits, since equal profits may be derived from goods which sell for 2,000l. and from those which sell for 10,000l.; and consequently the variations of those profits, independently of any increased or diminished quantity of labour required for the goods in question, must affect their prices in different proportions.

Commodities may be lowered in value in consequence of a real rise of wages, but they never can be raised from that cause.

On the other hand, they may rise from a fall of wages, as they then lose the peculiar advantages of production, which high wages afforded them.