AN INTRODUCTION TO ECONOMICS by Maurice Dobb 1932
THE PHYSIOCRATIC analysis clearly turned on the distinction between surplus and cost and on the notion of equivalence. In Quesnay’s circulation process the actual equivalence established on the market in the ‘exchange of one commodity against another was taken for granted. But such a market equivalence was not a stable thing: cloth did not retain an invariable value in terms of corn, but changed from year to year, even possibly from week to week. What was the secret of such changes? Was there some fundamental, some “natural” basis of equivalence which market value might not always adequately express? Was there a sense in which corn might sell above its value and cloth below it? If so, might not a concealed surplus lie behind the act of exchange?
Such considerations led directly to the search for a theory of value, which became the primary concern and the essential framework of classical Political Economy. Preoccupied with ideas of “natural law,” the political economists came to conceive of a “natural value,” or principle of economic equivalence, which was not necessarily synonymous with actual realised “market values” and would only be completely realised on the market in a “natural order” – the ideal laissez-faire individualist system. And since such a value was a principle of “natural law,” it necessarily had something essentially proper, just and harmonious about it. Just as natural science dealt with such properties as “length” and “weight,” it seemed that economic science ought to be able to base itself on the basic fact of “value.” “Intrinsic value” was commonly distinguished from “extrinsic value” (or actual exchange-value). Petty (1623-1687) used the interesting distinction between “Natural Cheapness (which depends upon the few or more hands requisite to produce the necessities of nature, as corn is cheaper where a man produces corn for 10 than where he can do the like but for 6)” and “Political Cheapness (which depends upon the paucity of the Supernumerary Interlopers into any trade over and above all that are necessary).” Much effort has subsequently been expended in demonstrating that the classical economists were confused when they spoke of a “measure of value” by which they sometimes meant the “cause of value” and at other times the measuring rod (be it corn or labour or gold) in which value was expressed. Probably they did not analyse their concept very deeply: it is easy in language, and consequently in thought, to confuse, say, length, or spatial extension, with the conventional foot, yard, and furlong measures. This confusion, however, was not very serious to their reasoning; and the criticism neglects what was the essence of their point of view. The thing, the quantity, which constituted the “intrinsic value,” in so far as it could be separately abstracted, ipso-facto constituted an invariable measure of “value” too; just as a pound weight constitutes weight and measures it at the same time. But the confusion of which the earlier economists definitely were guilty was between cost and value. It was distinctly tempting to identify the two: the distinction between gross produce and net produce turned on the concept of a cost which consisted in what was “necessary” to keep the productive system working-the essential fodder to the economic machine. In each cycle of production a certain amount is put into the economic system-seed-corn, subsistence for the workers, etc. In the course of the productive cycle enough is yielded to replace this original cost or outlay, plus something in addition-the produit net. So long as this process is conceived in terms of a single composite commodity, com, as it was with Sir William Petty and to some extent with the Physiocrats, the concept was an easy one. The real cost of a thing consisted in the outlay of com necessary to finance its production, and it was a reasonable step to as5ume that this constituted the “natural value” of a commodity.[1] But as soon as one included other commodities than com in “necessary” subsistence, the simplicity of the explanation broke down: one was involved in the circular problem of first establishing the equivalence of the various commodities (say corn, meat and cloth) which constituted cost. To resolve this difficulty, a transition was accordingly made from the com necessary to feed labourers to the actual labour as constituting the fundamental “cost” and the basis of “natural value.” Labour was essentially the creative agency in aµ production, the sine qua non of converting what nature offered into the actual requirements of man. The “real cost” to mankind of winning a livelihood consisted in the amount of labour it was necessary to expend; and it seemed “natural” that different commodities should be estimated or valued in proportion to the labour their creation required.
But the earlier idea of cost as “subsistence” still remained to sow confusion. From the standpoint of an employer and the employing ·class as a whole, “cost” in the last analysis consisted in the outlay of subsistence for workers – the necessary condition of production. What the workers returned to him by their efforts over and above this constituted for the employing class the net produce of the system-the source of profit on capital. Marx was the first to point out this confusion when he charged Ricardo with confusing labour as the basis of value (the actual quantitative expenditure of effort) with the wages paid to labourers (the value of their labour-power).[2]
When Ricardo sought to show that in a “natural order” commodities tended to exchange at their labour equivalents, he did so on the assumption that competition would tend to establish a single level of wages (for labour of the same quality) and a single level of profits throughout different lines of production. Since the relative amount of wages expended, say, to produce a yard of cloth and a bushel of corn would be proportional to the labour employed, and since the profit, being the same rate on capital outlay in the two cases, would be proportional to the outlay in wages, it followed that the relative values (wages plus profit) of com and cloth would be proportional to the labour involved in their production. Summarily, his argument amounted to an identification of money cost and real cost: market prices would be proportional to money costs (wages), and money costs proportional to labour expended.
This coincidence of normal market value with labour value applied so long as fixed capital, embodied in machinery and buildings, bore the same ratio to capital laid out as wages in all industries. But this is clearly not so: in agriculture or watchmaking the ratio of labour to machinery will be relatively high; in iron or cotton production the ratio will be relatively low. Ricardo mentioned this as an “exception” – in his first edition as an exception of minor importance, insufficient to invalidate his general principle, in his third edition admitting it as a more serious modification of his theory. And a serious modification it certainly was. For, to the extent that the ratio between machinery and labour varies, commodities will actually exchange on the market, not in proportion to the labour expended to pro· duce them (including the stored-up labour embodied in the machinery), but some at a higher value and some at a lower. Where a relatively large amount of capital is locked up in buildings and plant, the need for this capital to earn a normal rate of profit (otherwise it will eventually migrate elsewhere) will require these commodities to exchange at a higher value against commodities produced with less machinery. The coincidence between labour values and market values breaks down: if labour constitutes the fundamental “real cost,'’ then the equivalence which the market expresses is not this more fundamental equivalence. Instead, market values = wages plus normal rate of profit on the capital employed.
1.For this interpretation of classical doctrine and for several other ideas which follow I am indebted to Mr. P. Sraffa, of King’s College, Cambridge.
2. The assertion frequently made that Marx was a man of hasty reading and understanding, who based his theories on one or two imperfectly understood ideal of Ricardo, is quite contrary to the fact. One need only read the very detailed and acute analysis of the Physiocrats, Smith, Ricardo and several less-known economists in Marx’s Theorien über den Mehrwert (almost unknown in this country), to realise the absurdity of the assertion.