CHAPTER VIII

SENIOR

1. Senior’s little _Political Economy_[134] earned for him but a secondary rank in the literary history of the science. This is because the work, taken as a whole, is extremely unsystematic. It is also a little erratic. Senior was, however, a man of far greater merit than McCulloch, Torrens, or James Mill, and advanced many significant original doctrines, or rather parts of doctrines. The most noteworthy of these bear closely upon the theory of value; and if we put together what he said, in our own way, we shall obtain an important line of commentary upon the Ricardian labor-cost theory. The results tend more to destroy than to support that theory.[135]

According to Senior, the conditions essential to value, which he defines as exchange value, are (1) utility, (2) limitation in supply, (3) transferableness.[136] We have seen how Malthus laid emphasis on the fact that cost can influence value only through affecting supply, and here we see the same thought put even more emphatically. It is _limitation of supply_ alone that in the first instance gives value to things of a useful nature. The following words, carrying out the lines of thought suggested by J. B. Say and Malthus, are remarkable:

“It is true that wherever there is utility, the addition of labor as necessary to production constitutes value, because, the supply of labor being limited, it follows that the object to the supply of which it is necessary, is by that very necessity limited in supply. But any other cause limiting supply is just as efficient a cause of value in an article as the necessity of labor to its production. And in fact, if all the commodities used by man were supplied by nature without any intervention whatever of human labor, but were supplied in precisely the same quantities as they now are, there is no reason to suppose either that they would cease to be valuable, or would exchange in any other than their present proportions.”[137]

Senior adopts this last heroic hypothesis only in passing, by way of exhibiting, in a striking way, what he considers to be the true relation of labor cost to value. In criticism of Ricardo, he says:

“As limitation of supply is essential to the value of labor itself, to assume labor and exclude limitation of supply, as the condition on which value depends is not only to substitute a partial for a general cause, but pointedly to exclude the very cause which gives force to the cause assigned.”

2. Although Senior is careful to give limitation of supply as the factor which, combined with usefulness, occasions value, he still holds that cost of production may govern value under certain ideal conditions. These conditions are described as those of “perfect competition,” but he means a great deal more by this than these words signify to-day. Senior’s conception of cost, however, is different from Ricardo’s. “By _cost of production_ we mean the sum of labour and abstinence necessary to production.”[138] Labor is defined, with especial reference to cutting off the extension of the term attempted by McCulloch,[139] to be “voluntary exertion of bodily or mental faculties for the purposes of production” (p. 57). The new word _abstinence_ is defined as follows:

“A term by which we express the conduct of a person who either abstains from the unproductive use of what he can command, or designedly prefers the production of remote to that of immediate results.”[140]

For the variety of conceptions of cost, expressed and implied in the writings of his predecessors, Senior substitutes a consistent definition of cost in terms of subjective sacrifice. With this improved concept as an aid, he is enabled to resolve many of the difficulties which had beset earlier debates upon the meaning of cost. The objection of Mr. Torrens to the inclusion by Mr. Malthus of “profits” in cost is good, says Senior, as against Mr. Malthus’s word _profits_.

“Want of the term abstinence, or of some equivalent expression has led Mr. Malthus into inaccuracy of language.... When he termed profit a part of the cost of production, he appears to us to have meant not profit, but that conduct which is repaid by profit: an inaccuracy precisely similar to that committed by those who term wages a part of the cost of production; meaning not wages, which are the result, but the labour for which wages are the remuneration.”[141]

The clearness of thought here is gratifying in comparison with earlier discussions, but, as we have had occasion to urge before, the idea that it is erroneous to consider wages and profits as cost, confines the term to the meaning of subjective cost whereas there can well be other forms of cost. It may cost coal and machinery to produce an article, just as it may cost labor and abstinence.

3. The true cost of production of commodities, affirms Senior, would regulate their values if the only obstacles to their supply were the labor and abstinence required for their production. There are two different arguments given to substantiate this proposition. The first partially corresponds to the “philosophical” account of value, being stated in highly generalized terms without regard to the division of society into classes of capitalists and laborers.

“Where the only natural agents employed are those which are universally accessible, and therefore are practically unlimited in supply, the utility of the produce, or in other words, its power of producing gratification, or preventing pain, must be in proportion to the sacrifices made to produce it, unless the producer has misapplied his exertions: _Since_ no man would willingly employ a given amount of labor or abstinence in producing one commodity, if he could obtain more gratification by devoting them to the production of another.”[142]

This passage, whether consciously or unconsciously, is a proposition about a primitive or a Robinson Crusoe economy. It affirms that the utility of products will be _in proportion to_ their total disutility costs of production, but it does not affirm that production will be carried on until the utility per unit of the increasing number of products will be reduced until it is _equal to_ the disutility cost of a unit. Except for the failure to make this latter observation, Senior’s formula looks like an anticipation of later theories of value. This appearance is carried out by the use of the word “utility” for value. The word as here used was probably taken directly from Say; it cannot be Adam Smith’s “_value in use_.” For if Crusoe produced at equal cost, measured in disutility, a small article of luxury and a great quantity of necessaries, and estimated the two at the same value—and this would be normal—the Smithian values in use distinctly would not be in proportion to sacrifice costs. The great quantity of necessaries would have a great “_value in use_,” as contrasted with the small article of luxury, for which Crusoe nevertheless was willing to expend quite as much labor. “Marginal” or “final” utility would fit the requirements of this formula, but there is nowhere in the book the slightest evidence that Senior utilizes the marginal method. In fact, on the same page with this proposition is a paragraph which shows that he considers the value of things not capable of increase in supply—the “rare productions of nature and art”—to be subject to no general rule, because dependent merely on the wealth and taste of the community.[143] That is to say, unless there is some ascertainable rule governing the conditions of the supply of goods, there is no rule of their value. But the utility theory is a whole explanation of value lying precisely in this region of no rules.[144]

4. We come shortly to the explanation that nearly corresponds with Adam Smith’s “empirical account.” Here the scene is the social economy. Cost of production—always the sum of labor and abstinence—must be divided into (a) cost on the part of the producer or seller and (b) on the part of the consumer or purchaser. The latter is the amount of labor and abstinence which would have to be undergone by the consumers if they themselves, or some of them in behalf of themselves and the others, were to resort to producing the good in question instead of buying it. The former cost sets the minimum limit to price, or exchange value. The latter sets the maximum. Under circumstances of free competition, when no producer possesses any advantage over another, these two limits coincide, and the price of commodities therefore represents the aggregate amount of labor and abstinence necessary to continue their production.[145] This division of cost into two parts, each forming a limit, is Senior’s peculiar and inferior way of describing the action of competition among producers. He concludes nearly in the ordinary way:

“If the price should rise beyond the cost of their [the commodities’] production, the producers must receive more than an average remuneration for their sacrifices. As soon as this has been discovered capital and industry flow towards the employment which, by this supposition, offers extraordinary advantages. Those who formerly were purchasers, or persons on their behalf, turn producers themselves, until the increased supply has equalized the price with the cost of production.”[146]

The reverse movement, of course, prevents an abnormal fall of prices. This process of bringing exchange values into proportion to subjective costs of production, reduces itself simply to the adjustment of values to such a level that the wages and profits into which they are divided in each industry furnish the regular or average (as we should say, “static”) remuneration to the labor and abstinence required for production.

5. We see, then, that where labor and abstinence are the only “obstacles” to supply, or where profits and wages are the only shares which “enter into” price, values will be in proportion to cost of production, which is not labor, but a “sum of labor and abstinence.” The next question is, in what light does Senior regard _rent_. Rent, in his view, overturns the whole correlation of value with subjective cost of production. And here we are introduced to Senior’s remarkable extension of the concepts of _rent_ and of _natural agents_. In the first place, rent is defined to be the return to natural agents which are not universally accessible (p. 90). But in the second place, rent is defined to be the surplus of value produced above the amount required to remunerate the sacrifices of production.

“If the established division is adhered to, and all that is produced is to be divided into rent, profit, and wages,—and certainly that appears to be the most convenient classification,—and if wages and profit are to be considered as the rewards of peculiar sacrifices, ... it is clear that under the term ‘rent’ must be included all that is obtained without any sacrifice; or, which is the same thing, beyond the remuneration for that sacrifice; all that nature or fortune bestows either without any exertion on the part of the recipient, or in addition to the average remuneration for the exercise of industry or the employment of capital.”[147]

Accordingly, rent includes not only the return to land, in the widest economic sense of this term, but also the return to secret processes of production, and to talents or extraordinary personal abilities.[148] This necessitates the very curious use of the words “natural agents” to include exclusive knowledge of, or right to, an advanced process, and talents or unusual faculties:

“The mere knowledge of the operations of nature, as long as the use of that knowledge can be confined either by secrecy or law, creates a revenue to its possessor analogous to the rent of land ... so precisely resembling the rent of land, that it often receives the same name,” (and it must be called rent).

The salary, wages, or remuneration of the laborer may really be composed of wages, rent, and profits:

“Is then the extraordinary remuneration of the labourers, which is assisted by extraordinary talents, to be termed Rent or Wages? It originates in the bounty of nature; so far it seems to be rent. It is to be obtained only on the condition of undergoing labour; so far it seems to be wages. It might be termed ... rent which can be received only by a labourer, or wages which can be received only by the proprietor of a natural agent. But as it is clearly a surplus, the labour having been previously paid for by average wages, and that surplus the spontaneous gift of nature, we have thought it most convenient to term it rent.”[149]

6. Does this rent, the surplus of value above reward for true cost of production, “enter into price?” Senior does not use these words or discuss this question directly, but, although he follows Ricardo precisely in explaining rent as a differential return and defends the doctrine vigorously against Say’s attacks, he assumes nevertheless, contrary to Ricardo, that rent does “enter into price” in the sense of constituting a source of permanent disproportionality of value to subjective cost of production. As was intimated some pages back, the state of free competition, as understood by Senior, is highly ideal, postulating not only the ordinary condition of ideal mobility of capital and labor, but also the use of none but free natural agents:

“When we speak, therefore, of a class of commodities as produced under circumstances of equal competition, or as the result of labour and abstinence unassisted by any other appropriated agent, ... we do not mean to state that any such commodities exist, but that, if they did exist, such would be the laws by which their prices would be regulated.”[150]

He takes up the example of the watch, a commodity adduced by McCulloch and others as having a value derived from labor cost alone, and shows that at every turn _rent_, of the diverse kinds he has defined, is paid out of its price.[151]

7. What is the net result of Senior’s argument for the labor-cost theory of value? In the first place, Senior had little to say about the difficulty of “fixed and circulating capital” which took so much of Ricardo’s time. The reason is simple. Of course the values of products are out of proportion to their labor costs, because of the different lengths of time required to produce them. Two goods may cost the same labor, but differ in value.

“The principle is that, though in both cases the labour employed is the same, more abstinence is necessary in the one case than in the other.”[152]

The great effort of Ricardo to force the facts into some conformity with the only philosophy of value he possessed, by asking us to consider “profits” an element about in proportion to wages cost, though they are not, becomes unnecessary from Senior’s view-point. The motive to undertake this forcing of facts is undermined. For “profits” stand on the subjective basis of “abstinence,” just as wages stand on the base of labor.

Furthermore, according to Senior, land rent “enters into” price. So far, both “profits” of stock and rent of land exist to destroy the proportionality of values to labor cost. This is the result to which Malthus’s criticisms of Ricardo had led. But Senior’s criticism goes beyond Malthus’s. Wages, as an element in entrepreneur’s cost, are not even in proportion to the labor remunerated. That is to say, this is what Senior says if we keep his thought while reforming his language. He states that the actual income, which we always call _wages_, is really composed in many cases of wages, profits, and rent. He says this because he wishes to define wages as that remuneration which is in proportion to sacrifice. In this departure in terminology we cannot follow him. It is the whole wage of a laborer which is truly analogous to the rent of a physical unit of land. Different laborers, of different earning capacities, could be conceived of as ranged in a scale, so as to give a differential aspect to their incomes. Senior’s _rent to skill_ is really _an excess of wages_ over the amount required to be in proportion to disutility. As he himself wrote in one place:

“There are few employments in which extraordinary powers of body and mind do not receive an extraordinary remuneration. It is the privilege of talent to work not only better but _more easily_. It will generally be found, therefore, that the commodity or service produced by a first-rate workman, while it sells for more than an average price, has _cost less than an average amount of labor_, [_i. e._, disutility.]”[153]

Said Ricardo: The principle of value is that labor cost regulates it; but this principle is considerably modified by the fact that the values of different commodities have to include different proportions of “profit.” Piecing together for ourselves what Senior says, it is his position that the value of commodities must include (if the commodities are to be produced) rent, profits, and wages; rent and profits, being different percentages in the whole entrepreneur’s cost of different goods, make values out of proportion to labor cost; there is no necessity of considering profits as an element in entrepreneur’s costs approximately in proportion to wages; and lastly, wages are not in proportion to labor, which is disutility.[154]