I published the first part of the diary on Tuesday as I was unable to put it up last Thursday. For those who missed my late(st) diary, here is the link and it has an overall discussion of the role of ideology or political apologetics in the movement away from classical economic theory as espoused by Smith and Ricardo:
One quick question before we begin which I hope that people can address in the comments, are you interested in alternative discussions of the determination of exchange value, specifically, I will do only the serious alternatives, Torrens’s capital theory of value and Samuel Bailey’s discussion of the different determinations of value for different commodities.
The Anti-Ricardians: Samuel Read
Our examination of the work of Read will merely look at his argument linking the source of value to property rights, his justification of profits, and his linkage of the Ricardian socialists with the work of Ricardo.
The Labour Sources as a Threat to Capitalist Property Relations:
Read perceived that the doctrines of Hodgskin, and by extension Ricardo's theory, constituted a threat to the very existence of capitalist property relations. To undermine the doctrine of the right of the workers to the whole of the product, Read criticised Hodgskin's analysis of capital and his writings on exchange value. Read actually stated in his "Introduction" that he intended to controvert the arguments of Hodgskin (Read, 1829, p. xxx, n). However, he made it perfectly clear that his criticisms applied equally to Ricardo (1829, p. xxix, n). It is worth noting that his criticisms of Hodgskin and Ricardo were not independent as claimed, for example, by Hollander (1980, p. 389).
Following a quotation from Hodgskin's Labour Defended Against the Claims of Capital, Read attempted to show the contributions of capital to the development of society and concluded:
[...] to admit these obvious truths is wholly to give up the portentous doctrine that the labourers alone feed, clothe, and lodge the whole body of the people, and at once destroy the inference which must otherwise have been founded upon it to the prejudice of the capitalists. To talk of equity as demanding that the labourers should receive a "share of the produce of their own labour" will never be satisfactory; why should they not receive the whole of their produce? The error lies in supposing that labour produces all, - that the whole of the produce of labour and capital arises from the exertions of the labourers, independently of the capital with which they work, and are assisted (Read, 1829, p. xxxiii, emphasis added).
Read concluded the above footnote by declaring that part of his criticism of the Ricardian theory could be found in Chapter IX section 3. It is this section where his attack on Godwin and Hodgskin's theory of capital is found (Read, 1829, p. xxix).
The Attack on Hodgskin’s Treatment of Capital:
A) Just as a reminder, here is Hodgskin’s discussion of capital from an earlier diary (http://www.dailykos.com/...)
Hodgskin argued that circulating capital was actually the result of what he termed co-existing labour. It was the knowledge that there was an ongoing production of necessities which permitted the division of labour and production to continue (Hodgskin, 1825, p. 38). Co-existing labour was ultimately the creator, as well as the result, of the division of labour.
Hodgskin held that fixed capital increased the productivity and efficiency of the workers. This enabled them to decrease the amount of labour time required to produce commodities. However, the existence of fixed capital did not derive from the capitalist saving, or storing up, previous labour. According to Hodgskin, it existed because the workers took the time to develop the knowledge and skill requisite to produce means of production.
The productivity of fixed capital derived neither from the fact that it was labour accumulated by the capitalist, nor from its possession by the capitalist. On the contrary, its productivity derived from, and was continually augmented by, the labourers who produced these means of production through the further development of their knowledge and skill. He argued that inventions and alterations in technology were actually invented on the shop floor by workers deriving from their accumulation of skill and knowledge.
B. When one turns to Read's attack on Hodgskin's theory of capital, one finds him explicitly attempting to undermine the argument that labour is the source of exchange value. He began his attack on Hodgskin and Godwin by supporting the right of capital accumulation and justified the right of the capitalists to obtain profits.
The fallacy of the [Hodgskin's] argument lies in this, that it represents the right of the capitalist to share along with the labourer in the joint produce of labour and capital as depending on the "degree" in which the "machinery," "buildings," and "tools and instruments" he possesses, and supplies the labourer with, can "aid production independent of the labourer!" - a representation which would exclude him from any share whatever, however much that produce might have been promoted by the contribution of capital. The argument, therefore, most clearly proves too much. The claim and the right of the capitalist to share in the produce to which his capital contributes rests partly upon compact and agreement with the labourer, to whom he pays wages in virtue of that agreement, and depends not upon the "degree" in which capital can "aid production independent of the labourer," but partly upon the comparative degree in which labour can produce with and without capital, and partly upon the cost and difficulty or privation which the particular contribution of capital requires (Read, 1829, p. 128).
Read realised that Hodgskin's argument concerning the unproductiveness of capital derived from Ricardo (who did not believe that capital is capable of creating the value of the surplus product). It is important to note that productive in the context of classical economic theory refers to the creation of the surplus product; the labour source of value means that it is the deliberate application of human labour that is responsible solely for the creation of the surplus product; if something is unproductive it doesn’t mean that it is not necessary or important, it means that it doesn’t produce or create the surplus product or in Marx that it does not create the value of output over and above the payments to labour and the replacement of capital used up in production and depreciation of fixed capital.
As a result, Read extended his criticism of Hodgskin to Ricardo's theory. Read argued that it is obvious that in the capitalist stage of society, capital contributes as much as labour to the production of wealth, "yet the labourers have been flattered and persuaded that they produce all" (Read, 1829, p. xxix). In the footnote accompanying this passage, he explicitly linked this argument to the Ricardian theory of value.
The Ricardian economists maintain that "labour is the only source of wealth!" -(See Macculloch's Principles of Political Economy.) "The labour of the country," says Mr Ricardo himself, his pamphlet on Protection to Agriculture, "constitutes its only real source of wealth;" - and the whole of the first chapter of his Principles of Political Economy consists of an elaborate, though indirect attempt to prove that labour produces all, as if capital produced nothing, and was not a "real" source of wealth also! It is truly astonishing that this doctrine should have been maintained till this time of day in a country where the effects of capital are so remarkably conspicuous. This mischievous and fundamental error will, it is hoped, be fully refuted in the following work (Read, 1829, p. xxix).
It is rather surprising that Read, who devoted so much energy in his book to define wealth and property, conflated Ricardo's theory of value with an explanation of wealth. According to Ricardo, wealth refers to the actual use values or quantity of commodities. Exchange value relates to relative prices of commodities and depends on the difficulty of production (Ricardo, 1821, Chapter XX). However, even with this misinterpretation of Ricardo, Read did recognize the implication of Ricardo's theory that capital does not contribute to the production of value or the creation of a surplus product. Moreover, Read spent a large part of his book considering the question of exchange value. He definitely was unaware that Ricardo did not argue that labour is the sole source of wealth, and for that matter, neither did Hodgskin (although this can be attributed to Thompson).
The Redefinition of Wealth and the Justification for Profits:
Read's reasoning for the justification of profits began with a redefinition of wealth. Read opened his treatise, by stating his definition of wealth. Read's object in his treatise becomes evident from his definition of wealth as the definition of wealth contained the notions of alienability and appropriation of the objects constituting wealth. Thus, within this definition, there already was a notion of private property. This definition also contained the idea, common to classical political economy, of regarding wealth as something requiring human industry in its creation. However, it should be noted that Read added the point of "original" creation by human labour.
Read then argued that all wealth is produced by human labour and capital. This is nothing new, to produce wealth (or commodities and capital) requires the use of land, labour and capital. This is not a point of disagreement although he seems to think it is, the production of use values in a capitalist system requires the utilisation of all three "agents" of production. Read stated that capital, or "accumulated wealth," is the product of previous labour and capital, which have been materialised in vendible objects and he rejected the Ricardian notion of capital as accumulated labour.
Read next initiated a discussion of the "original" sources of wealth -- these being land, labour and capital -- and stated that only labour and land are truly original, while capital is merely a product of these two sources. Again, nothing new. However, he viewed capital as self-expanding, and argued that once it has been created, it then causes its own increase. Read maintained that without the existence of capital, there would be no surplus product; thereby attributing to capital the role of the creation of the surplus. Indeed, he argued that labour only could produce its own subsistence and that capital must be used in production if the surplus product is to exist:
Without land and man himself there could be no production at all, or even the existence of wealth; and without capital there could not be any considerable or abundant production. Without capital, in short, no man could procure or enjoy more than the bare necessities of life, and even these of the worst quality, and painfully acquired by his constant daily toil; so that, without this instrument, all men would be wholly occupied in procuring a bare and uncomfortable subsistence (Read, 1829, p. 64).
Having established the necessity of capital in the production of the surplus product, Read set about attempting to prove that capital contributes to the production of value, once this point is established he can use it to justify the right of profits. Read's dilemma arose because he essentially concurred with Locke's doctrine of the natural right of property. As such, by right, the producers who have contributed their labour to the creation of the product are guaranteed the fruits of their labour as their property. He must demonstrate conclusively capital's contribution to the creation of value, and that is why he argued that the accumulated capital ultimately derives from previous labour of the capitalist.
How absurd then it must appear to contend that labour produces all and is the only source of wealth, as if capital produced nothing, and was not a real and distinct source of wealth also! But those who maintain this most extraordinary doctrine could only do so from mistaking the most important objects of the science which they cultivate, and from overlooking the proper end which is meant to be served by distinctly ascertaining and discriminating the original sources of wealth; which end is, that we may establish thereupon the distinct original grounds of right to property; for if capital did nothing, and labour everything, what right could the capitalist show to any part of the produce (Read, 1829, p. 84)?
As to exactly what it was that capital 'did' to establish these rights, Read directs us to an historical account of its original accumulation. This he attributed to the capitalists' saving a portion of their product, and thus abstaining from immediate consumption. The idea that capital derives from the past self-deprivation of the capitalists allows him to argue that capital is a legitimate form of wealth or property, since its accumulation came about in a voluntary manner involving neither force nor fraud. Given the historic accumulation of capital and land in Britain (and elsewhere) to argue that it is voluntary and did not involve force or fraud, required by Locke's theory, is clearly a stretch. Moreover, this argument should be seen as a precursor to the abstinence theory of profits advanced by Scrope and Senior and which forms the basis of later Austrian neoclassical discussions of capital.
The sacrifices that the capitalists have made, and continue to make by withdrawing from the pleasure of immediate consumption, have ensured the continual expansion of the wealth of the whole society. Read argued that "such public benefactors" justly deserve a recompense for their sacrifice, otherwise known as profit (Read, 1829, p. 87).
Justification of profits and capitalist property rights:
Having established the justness of the capitalists obtaining profit, Read proceeds to link this idea to a notion of property rights. He began by expounding Locke's notion of the natural right of property in which the original basis for the creation of wealth is that human labour is applied to its production.
Read asserted that prior to the appropriation of land and the accumulation of capital, labour was the only source of wealth. Read's argument bears a rather striking resemblance to Smith's argument concerning the exchange value of commodities. The close linkage in his argument between the creation of wealth and that which creates value in classical economics lends credence to the above argument concerning Read's confusion between wealth and exchange value. This close linkage, however, creates problems for Read as he was constantly shifting between the notions of wealth and value.
Read attempted to prove that the ownership of capital confers property rights upon the capitalists. He argued that historically the accumulation of capital in the hands of a few persons arises from those people saving some of what they have produced, rather than consuming it.
The justification for profits deriving from saving and frugality has conferred property rights derived from Locke's notion of the natural right of property. It linked the right of receiving a part of the social product with contributions to production. These contributions derive from labour originally applied to the development of land and production of a commodity, which has subsequently been saved. Read argued that over some historical time period the owners of land and capital once applied their labour to the creation of these articles of wealth. This has conferred property rights and the right to a part of the social product for all time; this is an argument supporting property rights in perpetuity for original savings.
Again, Read returns to Hodgskin and attempts to demonstrate that Hodgskin's understanding of capital as co-existing and skilled labour is incorrect. Hodgskin's argument is an obvious target as it attempts to prove that the characteristics of capital attributed to it by political economists are fallacious. Thus, Hodgskin argued that as capital is nothing but either co-existing or skilled labour, then the claims of capital to a share of the social product are unjustified (Hodgskin, 1825, pp. 38-71). Read responded by arguing that although labour can produce wealth without capital, while the reverse is not true, the use of capital in production is what enables the production of a large part of the social product, as it increases the productivity of labour tremendously (Read, 1829, pp. 129-132).
Exchange Value and Property Rights?
It is important to note that for Read the concept of exchange value is inextricably linked to the question of distribution and property rights. He incorrectly perceived a danger inherent in the linkage between the labour theory of value and the right of the worker to the whole produce. It is incorrect as the labour source is independent of the labour theory of value; the labour of value in and of itself in the classical economists does not grant property rights. It is only with Marx that this becomes the case as he quantified the labour source as the basis for his labour theory of value in Capital, Volume I.
The implication of property rights, that Read believed are conferred by the labour theory of value, eliminates the legitimation of the right of the capitalists and the landed aristocracy to receive profits and rents. However, it is his lack of distinction between wealth and value, his notion of property rights, and his discomfort with the conclusions of the Ricardian socialists that lies behind his acceptance of Torrens's argument that the prices of commodities are determined by the quantity of capital required for their production, and the rejection of the labour theory of value.
Different to the writings of Torrens (1818, 1821), it is not the problems inherent to the labour determinant that led Read to argue in favour of a capital theory of value. However, his choice of the determinant of value is inconsistent with his need to maintain some linkage to the natural right of property, thereby requiring labour to serve some role in order to justify property rights.
In his determination of the exchange values of the capital advanced, the commodities comprising wages, profits, and rent are measured using a labour commanded standard of value. This choice is not inherently inconsistent. However, like Smith, his measure of value is justified by use of a labour source of value. Labour is the "real price" of commodities in Smith, this is not overturned by the adding-up theory of price. This is not the case in Read's analysis. This is where the contradiction lies, Read has just shown that capital is the source of the surplus product, not labour.
Read then proceeded to repudiate Ricardo's criticism of Smith's labour commanded measure of value, and criticised Ricardo's usage of the quantity of labour as the determinant of value. To do this he attempted to demonstrate that the wages received by labour are exactly equivalent to the quantity of labour that is embodied in production, with the rest of the exchange value deriving from land and capital. Read has now abandoned Smith, who maintained that labour was the source of the value of the surplus product. An incredibly confused and confusing Read now instead argues that land and capital are creative of the value of the surplus product.
Marx, in his discussion of vulgar political economy, said the following, and it is an appropriate comment on the work of Read and it is an appropriate warning to readers of economics in general.
This, moreover, renders a substantial service to apologetics. For [in the formula:] land-rent, capital-interest, labour-wages, for example, the different forms of surplus-value and configurations of capitalist production do not confront one another as alienated forms, but as heterogeneous and independent forms, merely different from one another but not antagonistic. The different revenues are derived from quite different sources, one from land, the second from capital and third from labour. Thus they do not stand in any hostile connection whatsoever. If they nevertheless work together in production, then it is a harmonious action, an expression of harmony (Marx, 1971, p. 503).
Exploitation?! There is no exploitation, everyone gets their share:
It is in this context that Read finally united his understanding of the labour theory of value and his discussion of wealth to the question of the exploitation of the workers. He realised that if labour is exploited it would imply a major contradiction in the analysis of the capitalist system.
The ploughman, and other common labourers, earn their daily, weekly, or yearly wages, at all times, by as nearly as can be supposed or calculated an equal sacrifice of toil and labour; they work, [...], an equal number of hours in the day, [...], at all time (and it must be allowed they work about equally hard upon an average,) and the commodity or commodities they earn as wages, whatever it or they may be, exactly measure and represent their share in the work of production, - all that is over and above wages being produced by capital or land (Read, 1829, p. 210).
Read clearly stated the reason for this argument that land and capital are creative of the value of the surplus, and for his earlier discussion on the right of property and wealth. Read articulated the contradiction in Smith and Ricardo, appropriated by the Ricardian socialists and developed into a theory of exploitation. Given that Smith and Ricardo contended that labour is the source of the value of the surplus product, then the labourers do not receive their full contribution to production in received wages, i.e., the value of the surplus consists of unpaid labour.
But is it not plain, that the quantity of necessaries give upon an average for labour is exactly what it produces? Labour produces wages, and all wealth or necessaries which exist above what are received in exchange for labour, are produced, as I said before, by land or capital, else. as I said before, the labourer is eternally cheated. The error lies in supposing that all wealth is produced by labour, - nothing by land and nothing by capital (Read, 1829, p. 212).
What is Read's response to this problem? He argued that the remuneration of every agent of production is its full contribution to production. That is, he linked the remuneration of the agents of production to productivity, and argued that land, labour and capital are creative of value.
This is an incredibly important transformation in doctrine as it is this idea which is further developed in marginal productivity theory and forms the basis of the discussion of the marginal products of land, labour and capital.
Hodgskin, T (1825) Labour Defended Against the Claims of Capital, AM Kelley Publishers, 1969.
Samuel Hollander (1980) "The Post-Ricardian Dissension: A Case-Study in Economics and Ideology," Oxford Economic Papers, 1980, vol. 32, issue 3, pages 370-410.
Marx, K (1867) Capital, Volume I, Penguin Books, 1976.
Marx, K Theories of Surplus Value, Volumes I-III, International Publishers, 1971.
McCulloch, J. R. (1825) Principles of Political Economy, Ward, Lock and Co.
McCulloch, J.R. (1854) A Treatise on the Circumstances which Determine The Rate of Wages and the Conditions of the Labouring Classes, AM Kelley, 1967.
Mill, James, (1821) Elements of Political Economy, Elibron, 2003.
Mill, James (1824) Elements of Political Economy, Baldwin, Craddock and Joy.
Mill, James (1826) Elements of Political Economy, George Olms, Verlag, 1971.
Pashkoff, S (1993) "Two Contributions to the Decline of Ricardian Economics Samuel Read and George Poulett Scrope," Contributions to Political Economy, Vol. 12, pp. 47-69.
Prothero, I (1979) Artisans and Politics in Early Nineteenth Century London: John Gast and his Times, Dawson.
Read, Samuel (1829) An Inquiry into the Natural Grounds of Right to Vendible Property or Wealth, AM Kelley, 1976.
Scrope, G.P (1833) Principles of Political Economy deduced from the Natural Laws of Social Welfare and Applied to the Present State of Britain, AM Kelley, 1969.
Senior, N. (1831) Three Lectures on the Rate of Wages, AM Kelley, 1966.
Senior, N. (1836) An Outline of the Science of Political Economy, AM Kelley, 1965.
Stirati, A. (1994) The Theory of Wages in Classical Economics, Edward Elgar.
Torrens, R. (1818) The Economists Refuted, AM Kelley, 1884.
Torrens, R. (1821) An Essay on the Production of Wealth.
Earlier diaries which will clarify this discussion are the following. The most relevant discussions for today’s diary are the Ricardian socialists:
Wages: http://www.dailykos.com/..., http://www.dailykos.com/..., http://www.dailykos.com/..., http://www.dailykos.com/..., http://www.dailykos.com/....
Value and Profits:
http://www.dailykos.com/..., http://www.dailykos.com/..., http://www.dailykos.com/...,
http://www.dailykos.com/..., http://www.dailykos.com/..., http://www.dailykos.com/..., http://www.dailykos.com/....
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