Chapter VII of his _Principles_), the exchange value of an imported

commodity does not depend on its labor cost abroad compared with the home labor cost of the goods against which it exchanges. But the $1,000 spent by one entrepreneur counts just the same as that spent by another in determining the “necessary price” of the respective commodities which they produce. Thus there is here one source of disproportionality between necessary prices and actual labor costs.

5. What is the position of Ricardo with respect to these seven counts? He acknowledged all but the claim that rent causes an aberration of normal value from the position required by labor cost. That is, in the language of the day he denied that “rent enters into price.” He not only acknowledged, but himself stated the other points. How fully he treats the question of the different proportions of “fixed and circulating” capital, we have seen.[122] As for the “acknowledged” effects of taxation, the reference is to Ricardo’s own statements, scattered throughout his various chapters on taxation, that this and that tax will raise prices. Ricardo was perfectly aware of the effects of monopoly, and of the influence of temporary oscillations of supply and demand.[123]

The old question whether “rent enters into price” could very properly be discussed in a history of the labor theory of value. Since, however, the question is large enough to warrant separate discussion, and has in recent times received it in many prominent places, we shall be content merely to point out the conflict between Malthus and Ricardo, and to take the stand that recent discussion has shown that ground rent enters into price in the same sense as wages, or interest on capital other than land. Ricardo said rent does not and cannot enter in the least degree into price. Says Malthus:

“It appears to me essential, both to correctness of language and correctness of meaning to say that the cost of producing any commodity is made up of all the wages, all the profits, and all the rent which ... are necessary to bring that particular commodity to market in the quantity required.”[124]

6. We have here the remarkable instance of two writers nearly agreed on the number of exceptions to a principle, but quite disagreed as to what remains of the principle. The labor cost of a commodity in a modern market can influence its exchange value only by means of influencing its entrepreneur’s cost. Thus any cause which weakens the connection between the value of a commodity and its entrepreneur’s cost of production, thereby also weakens its connection with labor cost. Therefore, the first three points made by Malthus to show that entrepreneur’s costs do not exercise perfect control over actual market-values are relevant to the dispute about the labor-cost regulator. But, as the reader has observed, the three exceptions to the law of money costs are only such as have always been made to any proposition of static theory. A static law of value is supposed only to govern _normal value_ under competitive conditions. It is perfectly legitimate to put emphasis upon the causes of the variation of actual values from static standards, but on the principle, now so well understood, that actual conditions can be fully understood only by the preliminary establishment of static laws, the first three points of criticism made by Malthus, and admitted by Ricardo, must be judged to leave the law of costs a perfectly valid principle.

If the only causes of variation of actual exchange values from the standard of labor costs were those causes which operate to weaken the law of entrepreneur’s costs, the Ricardian labor theory would remain a principle of the utmost importance. The attacks which the labor-cost theory cannot withstand are those directed against its validity _as a static principle_. It is an undisputed static principle that exchange values are in proportion to entrepreneur’s costs. Therefore, every time a cause is shown which throws entrepreneur’s costs out of proportion to labor cost, a heart-thrust is given the theory of the labor-cost regulator. To the list of causes of this kind granted by Ricardo, Malthus added one, an important one; or rather, he persisted in retaining what Adam Smith considered to be such a cause—rent of land. Malthus then discovered no new point; but he marshaled many points in an able manner. Considering only the weighty part of his case, his argument is that entrepreneur’s costs consist of wages, interest, and rent; that wages alone stand for labor cost;[125] that therefore the existence of the other two elements makes the total entrepreneur’s cost decidedly out of proportion to labor cost. This signifies not only that entrepreneur’s costs are composed of outlays in excess of payments for labor, but that when one entrepreneur’s cost is compared with that of another the two will (barring an accidental coincidence) not be to each other as the respective labor costs entering into them (through wages). Two commodities may have equal exchange values and equal entrepreneur’s costs, but one may cost twice as much labor as the other, because the latter may cost more rent or interest than the former. Ricardo denied the influence of rent, and _assumed_ that interest preserves fairly constant proportions with the wage element. In our judgment, Ricardo was much the profounder of these two economists, but Malthus made the fortunate gain of presenting the empirical principles of value at the outset of his work, and in this way was led to adjust the labor theory to them, instead of doing the reverse, as Ricardo did.

_Note on the Question of the Invariable Measure of Value in all Times and Places._

7. Adam Smith made several general assertions concerning the power of a labor standard to measure value _in all times and places_. If mankind should live under conditions free from the rent of land and interest on capital, according to Smith the quantity of labor which commodities cost might properly be regarded as commensurate with the quantity which they command in exchange. Under actual conditions the command standard alone will apply. Ricardo became a steadfast critic of the idea that the labor-command standard could be thus used. He believed it to be impossible to find an invariable measure based on labor cost of production (as distinguished from labor commanded in exchange); but he made statements which implied that if a commodity existed which cost the same quantity of labor throughout time, it would be an invariable measure of “real value.” Then again he faltered in this view because “profits” enter into the cost of production of different articles in different degrees. The writer has found himself unable to reach a complete understanding of Ricardo’s section on this subject, Section vi of Chapter 1. Malthus always defended the labor-command standard of Smith, though in a vacillating way. In the end he adopted it in an unqualified form. (In the 2d and last edition of his _Principles_, the text being written just before his death.) With his last published discussion, appearing in 1836, the question practically disappeared from English political economy. Referring to this question, John Stuart Mill said: “it is necessary to touch upon the subject, if only to show how little there is to be said about it,” and concludes that the measure sought is impossible. J. B. Say wrote that “an invariable measure of value is a pure Chimera.”[126] Torrens expressed his judgment in words quoted from Lord Lauderdale: “Lord Lauderdale has justly observed that the search of economists after a measure of exchangeable value, is just as irrational and as hopeless as was that of the alchemists in quest of the philosopher’s stone.”[127] Well might the discussion be condemned by contemporaries and neglected by subsequent economists, for, especially in the lengthy writings of Malthus, the question was involved in distracting confusion, while the comparatively brief passage Smith devoted to the subject contains fatal contradictions.

It is doubtful if we can escape this question in theory. The required standard may come as a more modest proposal than that of Adam Smith, but some means of comparing value, as significance (as Menger’s “_Bedeutung_”) in different times will always be desirable, to say the least. In the recent controversy over the question whether gold is a good standard of deferred payments, practical men decided for gold on other (and sufficient) grounds than any alleged invariability in value, but it was inevitable that the question should suggest itself: What does constitute the same _value_ in different times (_i. e._ under changed conditions of wealth)? It is the legitimate function of economic theory to wrestle with such questions, whether to conclude that an answer is impossible (for that would be a conclusion, hard to prove and of importance when proved) or that such and such a standard may be established.

The present essay will not attempt the herculean dialectical labor of setting in order and criticising all that Smith, Malthus, and Ricardo wrote on this subject. The labor doctrine as a statical theory is a problem of sufficient proportions in itself to permit specializing upon it. A brief discussion however is added concerning what Malthus wrote upon the subject of the labor-command measure. In the first edition of his _Principles_, Malthus held that there is no question of possessing a perfect measure of value at different times, but there is a question of choice between various imperfect measures. He was apparently much impressed by the charge that the value of labor changes when the quantity of commodity (_i. e._ measured in physical units) which it commands, is altered. Accordingly he proposes to take labor and “corn” together, or a “mean between them” as a standard.[128] He proceeds upon the supposition that “when corn compared with labour is dear, labour compared with corn must necessarily be cheap. At the period when a given quantity of corn will command the greatest quantity of the necessaries, conveniences, and amusements of life, a given quantity of labour will always command the smallest quantity of such objects, (and _vice versâ_); ... If, then, we take a mean between the two, we shall evidently have a measure corrected by the contemporary variations of each in opposite directions.”[129] In this double standard a unit of labor is to be a _day_ of “common” labor. For the use of the standard some unit of corn is necessary. A _peck_ is selected. The reason given for this choice is that this amount may be considered “in respect to quantity as equivalent to a day’s labour.” Accordingly, “any commodity, which at different periods will purchase the same number of days’ labour and of pecks of wheat, or parts of them, each taken in equal proportions, may be considered, upon this principle, as commanding pretty nearly the same quantity of the necessaries, conveniences, and amusements of life; and, consequently, as preserving pretty nearly its real value in exchange at different periods.”[130] In his correspondence with Malthus, Ricardo made the former very uncomfortable in the position taken with respect to the combined labor-corn measure of value. In the second edition of the _Principles_ of Malthus this hybrid standard was abandoned. In principle it was a shallow makeshift. It is needless to say that if the arguments for regarding the amount of commodities purchaseable by a day’s wages, as the unit of wealth, are sufficient, grain should be measured in its “real value” by reference to this standard in the same way as any other important commodity. As was stated in Chapter ii, the corn measure of value was suggested by Smith to serve as a convenient index to the labor measure. Beyond a doubt, Smith spoke of the corn measure in a way to mislead both Ricardo and Malthus; but nothing could be plainer than the words quoted from him to show that corn is used on principle only because it is supposed to remain from age to age in a steady exchange ratio with day labor.[131]

In Malthus’s second edition, the view is taken simply that “standard” labor commanded in exchange is the measure of value in all times and places. There is great difficulty in telling precisely what value, or what kind of value, it is that is measured. It is called “real value in exchange” and “intrinsic value in exchange.” The latter is in one place defined to be “not the general power of purchasing possessed by a particular commodity, but its power of purchasing _arising from intrinsic causes_, which includes all the causes of whatever kind they may be, which have contributed to the limitation of its supply compared with the demand.”[132] The extrinsic causes of a commodity’s exchange value are the causes of the value of the other commodity in whose quantity the exchange value of the first is expressed.[133] In various other places, “intrinsic value in exchange” is defined as indicating (1) the degree of necessity or convenience to life (1st ed.); (2) the difficulty of obtainment (in some sense supposed to be more inclusive than Ricardo’s labor cost); (3) the degree of the limitation of the supply as compared with the demand. Thinking with such terminology would be like painting portraits with a white-wash brush. If a day of labor in America commanded twice the physical quantity of a given complex of commodities that a day of English labor commanded, Malthus was forced to admit that the simple exchange value of the goods commanded by a unit of American labor was twice that commanded by a unit of British labor. But at the same time his doctrine of the labor measure of value required him to affirm that the “real exchange value” of the goods commanded by a day of labor in the two countries was the same. In this way he was led to contend that two complexes of goods having different exchange values, had the same “real exchange values.” In view of the fact that “real exchange value” is defined virtually as “exchange value as arising from its causes,” the contention is mystifying. One is prone to acquiesce in J. S. Mill’s judgment that the argument of Malthus is a “vain subtlety.”