Chapter 65 Appendix IX Ricardo's Theory of Value

Section 1 Ricardo's theory of value, though ambiguous, is more predictable than Jevons and some other critics for modern theories about the relationship between cost, utility and value. When Ricardo addressed a general audience, he drew heavily from his rich and detailed material on the facts of life to "illustrate and prove his thesis or the propositions of his thesis."But in his book "Principles of Political Economy", he "discusses the same problem without referring to the real world around him". In May 1820 (the same year Malthus published his "Principles of Political Economy"), he wrote to Malthus: "I think that our differences may in some respects arise from the fact that you think my book is better than my book. The more practical ones are intended. My purpose is to illustrate the principles, and in order to do this I conceive powerful examples by which I may show the application of those principles." His book does not pretend to be systematic. of.It took a lot of effort to persuade him to publish the book; if he wrote it with an audience in mind, it was mainly the politicians and businessmen with whom he associated.He therefore deliberately omits many things which are necessary for the complete logic of his arguments, so far as he considers them self-evident to them.Moreover, as he told Malthus the following October, he was "just a man who is not good at words".The chaos of his narrative is matched by the profundity of his thought; he uses words far-fetched without explaining them, and does not cling to their fictional meanings;

Therefore, if we are to understand him rightly, we must interpret him more magnanimously, perhaps more magnanimously than he himself interprets Adam Smith.When his diction is ambiguous, we must interpret it in the sense indicated by other passages in his work.His doctrine, though far from perfect, may be freed from many of the errors which are commonly ascribed to it, if we act with certainty of his intention. For example (Principia, chap. 1, stanza 1), he holds that utility, though not a measure of (normal) value, is "absolutely necessary" to it; according to the wealth and aspirations of those who would possess them."Elsewhere (chapter 4 of the same book) he insists that changes in market prices are determined on the one hand by the quantity of goods available for sale and on the other by "human desires and aspirations."

Moreover, in a profound and far from complete discussion of the distinction in Value and Wealth, he seems to be exploring the difference between marginal and aggregate utility.Since he understood wealth as total utility, he always seems to have stated the increase in wealth which would have been produced by that portion of the commodity whose value was just worth the purchaser's; In the long-term decline, the marginal increase in wealth measured in value increases, while at the same time the total amount of wealth, that is, the total utility generated by the commodity, decreases.Throughout his analysis he tried to say that marginal utility increased and total utility decreased upon any restraint of supply, although (being unaware of the concise terms of differential calculus) he could not find exact terms to express it.

Before the second quarter. But while he does not think he has much to say on the question of utility, he believes that the relation of production costs to value is imperfectly understood; It is very easy to mislead the state in financial problems; therefore, he is especially engaged in the study of this problem.But here, too, he took shortcuts. For although he knew that commodities were divided into three classes according to the law of diminishing, constant, or increasing returns, he thought it best to ignore this distinction in a theory of value applicable to all commodities.Taking any commodity, it may obey the law of diminishing returns in the two laws, and it may also obey the law of increasing returns; therefore, he thinks he is justified in temporarily assuming that all commodities obey the law of constant returns.He may be right in this, but it is a mistake for him not to express his intention clearly.

In the first section of the first chapter of "Principles", he holds that "in the early days of society, when hardly any capital was used, and the labor of any one was almost equal to that of any other, generally speaking, Indeed, "The value of a commodity, or the quantity of it for which it will be exchanged, depends on the relative quantities of labor necessary to produce it." That is, if two things are produced by the labor of twelve and four men in a year, and all are of the same class, the normal value of the former is equal to three times the normal value of the latter. For if a 10 per cent profit is added to the capital invested in one case, the capital invested in the other A 10% profit must also be added (if w represents the annual wages of each such worker, then production costs = 4W110/100 and 12w110/100. The ratio of the two is 4:12 or 1:3).

He goes on, however, to point out that in later stages of civilization, when such assumptions are inappropriate, the relationship between value and cost of production is more complex than with which he began; Add the consideration that "work of different nature requires different remuneration".If the wages of a jeweler are double that of a common labourer, one hour's labor of the former must be counted as two hours of labor of the latter.If their relative wages change, there is of course a corresponding change in the relative value of what they produce.But instead of analyzing, as do contemporary economists, those causes which cause the wages of, say, a jeweler to vary from generation to generation, as compared with that of a common labourer, he is content to show that the difference cannot be very great.

Secondly, in the third section, he believes that when calculating the production cost of commodities, it is necessary not only to calculate the labor directly producing commodities, but also to calculate the labor used in the equipment, tools and buildings for auxiliary labor; here, it must be included The time factor, which he was trying to avoid at first. In Section IV, therefore, he discusses more fully the differences that arise in the value of "a set of commodities" (a simple method he sometimes uses to avoid the difficulty of distinguishing direct from total costs). In particular, he takes into account the different results of the employment of once-consumed circulating and fixed capital, and takes into account the labor time employed in the manufacture of the machinery for producing commodities.If the time is long, the commodity will cost more to produce, and "have a greater value, in order to compensate for the longer period of time which must elapse before it can be brought to market."

Finally, in Section V, he summarizes the effect of unequal timing of investments (whether direct or indirect) on relative values; The relative value of will have no permanent effect.But, he thought, if the rate of profit fell, it would lower the relative value of those commodities whose production required a long investment of capital before they could be brought to market.For if in one case the average investment is one year and a profit of 10% is required to be added to the gross wages, and in another case the average investment is two years and a profit of 20% is required; then the profit falls by one-fifth , the additional profit would be reduced from twenty to sixteen in the latter case, and from ten to eight in the former (if their direct labor costs were equal, the ratio of their value before the change in profit would be 120/110 or 1. 09; after the profit change, it is 116/108 or 1.074; a drop of about 2%).His argument is obviously only provisional; in later chapters he considers other causes of unequal profits in the different branches of industry, besides the period of investment.But it is hard to imagine any greater emphasis on the fact that labor and time or waiting are elements of the cost of production than he did in Chapter 1.It is a pity that he favors short sentences, and he thinks that the reader will always add to himself the interpretations he has hinted at.

Indeed, in an endnote to his Chapter I, Section VI, he says, "Mr. Malthus seems to think that in my theory the cost and value of a thing are the same; ’, then his view is correct. But in the previous verse he did not mean that, and therefore he obviously does not understand my doctrine". But both Rodbertus and Marx agree that Ricardo maintained that the natural value of things consists only of the labor expended on them ; even those German economists who strongly opposed the conclusions of these two scholars often believed that they had made a correct interpretation of Ricardo, and their conclusions were the logical results of Ricardo's conclusions.

This and other similar facts show that Ricardo's silence was misunderstood. If he reiterates that the values ​​of the two commodities can be regarded in the long run as being proportional to the amount of labor required to produce them, but only other things being equal.That is to say, the labor employed in both cases is of the same degree of proficiency, and is therefore equally highly remunerated; the labor is accompanied by a corresponding quantity of capital according to the period of investment; the rate of profit is equal, and misunderstandings are perhaps less some. He does not clearly show, and on some occasions he may not fully understand, how the various factors in the problem of normal value condition each other, rather than sequentially in a causal relationship.And one of the greatest sins he committed was the vice of trying to express profound economic doctrines in short sentences.

The third section continues. Among modern writers, there are very few men who have an originality approaching Ricardo's genius like Jevons.But he seems to have judged Ricardo and Mill too harshly, and made their theories appear to be narrower and less scientific than they originally claimed.His desire to emphasize an aspect of value that they had not adequately discussed may be explained in part by his words: "Repeated reflection and research have led me to the relatively recent insight that value depends entirely on utility" (" Theory", p. 1).This statement is less one-sided and more erroneous than Ricardo's inadvertent omission of words, which often said that value depends on the cost of production, because Ricardo only regarded it as a part of the whole doctrine, the rest he tried to explain. Explanation. Jevons goes on: "We need only carefully to find out the natural laws of increasing or decreasing utility according to the quantity of commodities we hold in order to arrive at a satisfactory theory of exchange, and the ordinary laws of supply and demand are only A corollary of this theory . . . it is tended to be that labor determines value, but labor determines value only indirectly, by changing the magnitude of the utility of commodities through increases or decreases in supply.” As we shall see below, Of the two formulations, Ricardo and Mill had previously made the latter in almost the same crude and imprecise form, but they never accepted the former.Because they regard the natural law of increasing and decreasing utility as self-evident and need not be explained in detail.They hold that if the cost of production has no effect on the quantity which the producer sells, it will have no effect on the exchange value; and their doctrine implies that what applies to supply, mutatis mutandis, applies also to demand. , if the utility of the commodity has no effect on the quantity the buyer takes from the market, it will have no effect on the exchange value of the commodity either.Let us, then, examine the causality of the basic thesis formulated by Jevons in his Theory of Political Economy, Second Edition, and then compare it with those held by Ricardo and Mill.He says (p. 179): "Production cost determines supply, supply determines bounded utility, bounded utility determines value." If such a sequence of causality really existed, it would do no great harm to cut out the intermediary and simply say that cost determines value.For if A is the cause of B, and B the cause of C, and C the cause of D, then A must be the cause of D.But in reality such a sequence does not exist. A first charge against his theory is the ambiguity in the meanings of "cost of production" and "supply," which Jevonsley avoids by using the analytical tools of semi-mathematical terms which he has but Ricardo does not have.The next more serious charge is directed at his third proposition.Because the price that different buyers in a market are willing to pay for a thing depends not only on its limiting utility to them, but on the limiting utility together with the amount of purchasing power they each have.The exchange-value of a thing is everywhere the same in the market; but the limiting utility corresponding to it is not equal in any two parts.Jevons in explaining the reasons for determining the value of exchange.When replacing the phrase "the price consumers are just willing to pay" with "limited utility" (in this book, the phrase is simplified to "marginal demand price"), he thinks he has touched the bottom line of exchange value.For example, when describing (Second Edition, p. 105) a transaction between a commercial group that only had wheat and another that had only beef, he used a graph to represent the "utility" (measured along a line) obtained by "one person" , and the lost "utility" (measured along the other line).But this does not correspond to reality; a business association is not a single person, and what it cedes represents equal purchasing power to all its members, but different utilities.Indeed, Jevons himself was aware of this.Only a series of explanations can make his explanation consistent with real life. This explanation is to replace "utility" and "disutility" with "demand price" and "supply price".However, after such a revision, his theory has mostly lost its critical force against the old theory. If both are interpreted strictly in the literal sense, the old statement, though not entirely accurate, seems to be more accurate than Jevons and his followers. The theory it seeks to replace is more correct. But the greatest objection to the formal propositions of his fundamental theory is that it does not represent supply price, demand price, and output as mutually constrained (subject to certain other conditions), but as determined one by the other in sequence.Just like there are three balls in the same bowl, A, B, and C depend on each other, not to mention that these three balls restrict each other under the action of gravity, but he said that A determines B, and B determines C. But another person might just as well say that C determines B, and B determines A. We may answer Jevons by reversing his order and proposing a causal sequence that is as true as his: "Utility determines the quantity that must be supplied, the quantity that must be supplied determines the cost of production, and the cost of production determines value. Because it determines the supply price required to keep producers producing as usual. " Let us turn around and examine Ricardo's theory. Although this theory is not systematic and has many points of discussion, it seems to be a little bit smarter in principle and closer to real life.In the letter to Malthus quoted above, he says, "Mr. Say does not have a correct idea of ​​the concept of value when he thinks that the value of a commodity is proportional to its utility. If only the buyer regulates the value of the commodity , he is right; then we shall expect that all men would be willing to fix the prices of commodities in proportion to their valuations; the least; prices are regulated by competition among sellers; and though buyers may genuinely be willing to pay a higher price for iron than for gold, they cannot because supply is regulated by production costs... ...you say that demand and supply regulate value (sic); I think this is tantamount to saying nothing. The reason is as I stated at the beginning of this letter: it is supply that regulates value, and supply itself is governed by comparative production Cost constraints. The cost of production in monetary terms is the value of labor and profit" (see Correspondence, edited by Dr. Bowner, pp. 173-176).In a second letter he said, "I do not dispute the influence of demand on the price of corn, nor on the price of everything else, but supply follows demand and quickly It has the right to adjust prices, and when adjusting prices, supply is determined by production costs." When Jevons wrote the letters, these letters had not yet been published, but similar insights are found in Ricardo's Principia.Mill, in his discussion of the value of money (Part III, Chapter IX, Section III), also mentions that the law of supply and demand, accepted to apply to all commodities, is the same in the case of money as in the case of most other things. Governed by the law of the cost of production, and not set aside, for if the cost of production has no effect on supply, it has no effect on value either.In summing up his theory of value (Part III, Chapter XVI, Section I), he added: "It appears, then, that supply and demand govern the changes in prices in every case and the permanent price of all commodities. value, the supply of which cannot be determined by any medium other than free competition. Under a system of free competition, however, commodities are exchanged and sold for each other at roughly values ​​and prices that provide equal benefits to the various classes of producers ; and this is possible only when commodities are exchanged for each other at their respective costs".On the second page, when referring to goods with associated production costs, he said, "Because we have no production costs here, we must appeal to the law of value that existed before the production cost, more essentially the law of supply and demand. " Jevons (p. 215), referring to the previous paragraph, speaks of "a mistake in Mill's thought that he returns to a prior law of value, the law of supply and demand, and the fact is that he is citing He has never departed from the law of supply and demand when he studied the principle of production cost. Production cost is only a condition governing supply, and thus affects value only indirectly." While the wording of the last part of this critique is questionable, it seems to contain an important truth.If this criticism had been published during Mill's life, he might have accepted it; perhaps he would have dropped the word "pre-existing" because it did not convey his original meaning. The "principle of production cost" and the "principle of final utility" are undoubtedly part of that governing law of supply and demand; each may be likened to a blade of a pair of scissors.When one leaf does not move and the clipping is effected by the movement of the other, we may roughly say that it was the second leaf that clipped; If Jevons had not acquired a habit of speaking of those relations which actually exist only between demand-price and value, as Ricardo and Mill believed between utility and value, if he, like Cournot, emphasized (The use of mathematical forms may lead him to do so) The basic symmetry of the general relations maintained by supply and demand with value, which coexists with marked differences in the details of those relations, he may be less offensive to them. .We should never forget that at the time of his writing, the need for a theory of value was largely neglected, and that he did a great service by calling attention to it and developing it.Few thinkers deserve as much gratitude as we owe Jevons.But this gratitude should by no means lead us to accept his criticisms of the great economists before him hastily. It seemed right to choose Jevons' attack for the answer.Because, especially in the UK, this attack gets more attention than any other.Many other scholars have made similar attacks on Ricardo's theory of value.Special mention must be made of Mr. McLeo, who, in his writings before 1870, criticized the classical theory of the relation of value and cost in form and content before other modern critics, who Some are at the same time as Jevons, such as Wallas and Professor Menger, and some are after Jevons, such as Böhm-Bawerk and Professor Wieser. Ricardo's neglect of the time factor, which his critics have emulated, has thus been the source of a double misunderstanding.For they attempt to deny the doctrine of the cause of the final tendency or cause of the relation between production costs and value by means of arguments based on the cause of temporary changes or short-term fluctuations of value.Doubtless, when expressing their own views, almost everything they say, interpreted in the sense in which they mean it, is true.Some of them are new, while many have been improved in form.However, they seem to have made little progress in establishing a brand-new value theory that is completely different from the old theories or different from the development and extension of the old theories. Here, only Ricardo's first chapter on the reasons governing the relative exchange values ​​of the various commodities is discussed, since its main influence on later thought was in this respect.But it was originally connected with the debate about the extent to which the price of labor is appropriate as a measure of the general purchasing power of money.In this respect, its interests are primarily historical.But see Professor Hollander's famous paper in the Quarterly Journal of Economics in 1904.